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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
/XX/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Fiscal Year Ended DECEMBER 31, 1998 [Fee Required]
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES ACT OF 1934 [No Fee Required]
For the transition period to .
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Commission File No. 1-11976
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UNAPIX ENTERTAINMENT, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 95-4404537
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
200 Madison Avenue, New York, NY 10016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 252-7600
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class On Which Registered
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Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (i) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (ii) has been subject to such filing requirements for the past 90
days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant'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 ( ).
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Issuer's revenues for its most recent fiscal year were $36,481,000.
The aggregate market value of the common stock held by non-affiliates of the
registrant is approximately $11,859,000 (based upon the closing sales price of
these shares on the American Stock Exchange on March 16, 1999).
On March 30, 1999, there was a total of 7,600,982 shares of the registrant's
common stock outstanding.
Documents Incorporated by Reference:
1. Proxy statement for 1999 Annual Meeting incorporated in Part III.
2. Certain exhibits to Registration Statement, as amended, File No.
33-61798.
3. Certain exhibits to Quarterly Report on Form 10-QSB for the quarterly
period ended June 30, 1993.
4. Certain exhibits to Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 1993.
5. Certain exhibits to Quarterly Report on Form 10-QSB for the quarterly
period ended June 30, 1996.
6. Certain exhibits to Quarterly Report on Form 10-QSB for the quarterly
period ended March 31, 1997.
7. Certain exhibits to Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 1997.
8. Certain exhibits to Annual Report on Form 10-KSB for the year ended
December 31, 1993.
9. Certain exhibits to Annual Report on Form 10-KSB for the year ended
December 31, 1994.
10. Certain exhibits to Annual Report on Form 10-KSB for the year ended
December 31, 1995.
11. Certain exhibits to Annual report on Form 10-KSB for the year ended
December 31, 1996.
12. Certain exhibits to Annual Report on Form 10-KSB for the year ended
December 31, 1997.
13. Certain exhibits to Current Report on Form 8-K for Event of June 21,
1995.
14. Certain exhibits to Current Report on Form 8-K for Event of July 16,
1998
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PART I
ITEM 1. BUSINESS
Unapix Entertainment, Inc. (the "Company") is primarily a world-wide
distributor, licensor and producer of feature films and programming; it exploits
multiple distribution channels, including all forms of television (including
free and pay television, syndication, broadcast, cable and satellite), the home
video market, including videocassette, laser discs and digital video disks
("DVD"), and the consumer market, including direct response and electronic
commerce ("E-Commerce"). The Company's current "library" of films and programs
includes feature films, non-fiction series, children's programming, educational
and special interest programming, musical concerts, comedy shows, adventure
series and classic films and serials (together with music videos and audio
recordings, "Properties").
Since 1993 the Company has sought to exploit the increasing worldwide
demand for television programming and feature films resulting from the
fractionalization of the television viewing audience. A shift has occurred from
mass audiences dominated by a few, free broadcast networks to niche audiences
served by diverse cable, satellite and free television services, home
videocassette and other products. This fragmentation has been augmented by
technological developments including, most recently, the growth of the internet.
The Company primarily focuses on the licensing and distribution of Properties
that are designed to appeal to a specific segmented audience. However, during
1998 the Company expanded its development, production and distribution of
Properties that it believes have broader appeal, such as reality-based
television programming and fictional feature films designed for a relatively
wide audience, such as family films. In addition, during 1998 the Company
continued its exploitation of new technologies by marketing most of its
Properties over its own E-Commerce web sites as well as approximately 30
E-Commerce web sites operated by others.
The Company's operations currently consist principally of the
following: the distribution of feature films via videocassettes to domestic home
video rental stores; the distribution of Properties from the Company's library
to foreign broadcasters and home video publishers; the licensing of Properties
to the North American television market; and the marketing of products that are
intended to be purchased by consumers, including via sales to mass merchants and
through catalogues and the internet.
The Company was incorporated in Delaware on January 7, 1993 and is the
successor to Majestic Entertainment, Inc., which was incorporated in California
on January 6, 1986 and which was merged into the Company on March 23, 1993.
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ACQUISITION OF FEATURE FILMS AND TELEVISION PROGRAMMING
The Company continuously monitors the industry for available films and
television programming and attempts to acquire rights to such Properties which
it believes are saleable to various markets. Before acquiring the rights to a
specific film or program, the Company analyzes its viability for licensing or
distribution in light of its projected costs and revenues and attempts to target
the Property's audience appeal. The Company includes in its calculation the
degree to which it will be able to exploit the Property through its various
distribution channels. In determining the desirability of acquiring rights to
films or television programs, the Company examines their content, genre,
quality, theme, participating talent (e.g., actors and directors), plot, format
and other criteria to determine the Properties' suitability for the commercial
broadcast, cable, satellite, pay television and home video markets. In acquiring
finished films or programming, management typically views a program or film in
its entirety to evaluate its commercial viability.
In order to obtain licensing or distribution rights with respect to
films or television programs, the Company generally enters into a licensing or
distribution arrangement with the copyright holder or an assignee of rights from
the copyright holder. The Company's rights generally cover all media, but in
certain instances may be limited to specific media (e.g., broadcast television,
cable or home video). The rights also may be limited to particular geographic
areas. Most of the Company's domestic distribution rights to feature films that
it has acquired during the last year, have terms ranging from 15 years to
perpetuity. The Company's distribution rights with respect to television
programming are often of shorter duration. In acquiring rights, the Company
usually pays a non-refundable advance and/or commits to expend a certain amount
of funds on marketing. In some cases, the producer or distributor licensing the
Property to the Company is entitled to receive the revenues from the Company's
distribution activities, after the Company has been paid a specified
distribution fee (which is a percentage of revenues) as well as recouped its
advance and specific recoupable marketing and other distribution expenses. In
other cases, the Company will agree to pay the licensor a royalty equal to a
specific percentage of revenues; after the Company has recouped its advance, it
will then pay the licensor its royalty and the Company will be entitled to
retain all remaining revenues. The Company usually charges interest on its
advances, which, similar to the principal of the advances, is payable only out
of royalties or participations otherwise payable to the licensor.
While the majority of the films and television programs that the
Company acquired for distribution during 1998 were produced by others and had
been completed at the time the Company acquired rights therein, the Company has
increasingly been acquiring distribution rights in films and television programs
by funding a portion of their production, or in certain instances, by funding
all of their production. In exchange for such funding, the Company
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may acquire, in addition to its distribution rights, an ownership interest in
the Property entitling it to a percentage of profits from any distribution
thereof (whether or not effectuated by the Company). Funding productions often
enables the Company to acquire distribution rights of longer duration than it
might otherwise have been able to obtain. In consideration for its involvement
in a production, the Company may also receive an Executive Producer's fee.
Because production arrangements necessarily entail unfinished programs, the
Company is not able to view the program prior to acquiring its rights, and
therefore, there is the risk that the finished product may be different from
that which was initially envisioned. The Company assigns executives to monitor
the production, in an effort to reduce such risk.
Production costs include the costs of acquiring or developing a
screenplay, film studio rental, cinematography, post-production and the
compensation of creative and other production personnel. Major studios (such as
Universal Pictures, Warner Brothers, Twentieth Century Fox, Sony Pictures
Entertainment, Paramount Pictures, and The Walt Disney Company) generally fund
production costs from cash flow from their motion picture and related activities
or, in some cases, from unrelated businesses. Independent production companies
generally avoid incurring substantial overhead costs by hiring creative and
other production personnel and retaining the other elements required for
pre-production, principal photography and post-production activities on a
project-by-project basis. Independent production companies often arrange for
financing on a project by project basis.
After acquiring rights in a feature film or television program prior to
production, the Company typically, at a minimum, has approval rights over key
product elements and maintains a production supervisory staff to carefully
monitor production and maintain quality control. In connection with acquiring
rights in television programming prior to production, the Company has often
acted as an independent production company, retaining the personnel and other
elements required for production, and frequently developing concepts for
programs as well.
Since 1996 the Company has developed and produced documentary and
educational non-fiction programming. A recent program developed by the Company,
which is being co-produced by the Company together with Story Street Productions
and Films 2 People, is a two part, two-hour documentary, "Nelson Mandela", that
is scheduled to be broadcast on the Public Broadcasting System's "Frontline"
series in May 1999.
During the second quarter of 1998, the Company expanded its television
programming production operation to include the development (for domestic and
international markets) of reality based and creative television programming that
is principally designed to have a mass audience appeal. During February 1999 the
first such production by the Company, "Shocking Behavior: Caught on Tape," was
broadcast domestically on the Fox network. The program was the second most
watched television show in its time slot,
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earning a 10 rating and a 15 share of television viewers nationwide.
To date, the Company has sought to limit its risk with respect to the
production of both television series and film. In connection with the production
of television series or programs, the Company generally limits its initial
funding to the creation of print materials or the production of a short demo
film. Additional financing of production by the Company is then conditioned upon
attaining a significant level of pre-sales of the series or program based upon
the demo film or print materials. Pre-sales consist of license fees paid or
committed to be paid to the producer by third parties in return for the right to
exhibit the program or to distribute it in home video, television or ancillary
markets in certain negotiated territories. While pre-selling a series reduces
the Company's risk, it does not entirely eliminate the risks to the Company,
which include the following: failure to complete the production and deliver the
programs in which case the Company will either not be entitled to be paid by the
licensee to whom it pre-sold the programs or may have to reimburse amounts
already paid; a delay in completing production as to some or all of the episodes
comprising a series, which would result in the Company's not being paid
according to schedule by the licensee to whom it pre-sold the series and could
result in cancellation of the sale; and actual production costs significantly
exceeding the original production budget, thereby materially increasing the
Company's cash flow requirements and decreasing the ultimate profitability of
the series. When a television program has a well-defined television or home
video audience and entails relatively limited production costs, the Company has
funded its entire production without pre-selling the series. During 1998 the
Company completed production of approximately 50 hours of television
programming.
In connection with the financing of the production of a feature film,
the Company generally commits to provide an amount of funding that, when added
to other financial commitments the producer already has received, equals the
production budget. In most cases, the Company makes only limited commitments to
advance funds prior to completion of principal photography, when the bulk of
production costs has already been incurred. In addition, in most instances when
the Company provides production financing of a feature film the producer obtains
a completion bond that guarantees delivery of a finished film. In the future,
the Company anticipates that it will, in some instances, act as the lead
producer on feature films by developing projects and hiring creative and other
production personnel. One such project that the Company is developing with a
planed release for the year 2000 is "The Texas Chainsaw Massacre - 25th
Anniversary." In such cases, the Company anticipates that it will not proceed to
principal photography unless it has obtained a significant level of pre-sales.
In 1998 the Company co-financed the production of 10 films, and it plans to
co-finance the production of 12 films during 1999.
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There is no assurance that in the future the Company will not change
its conditions for providing production financing for feature films or
television programs.
The Company believes that through production financing it can acquire
distribution rights to higher quality films and programs with better production
values and more recognizable stars, as well as on more favorable terms, than can
be obtained after a Property is completed.
To enhance the Company's position in a dynamic marketplace, given the
financial terms and available rights, the Company seeks to acquire distribution
rights in as many media and territories with respect to films and television
programs as is practicable. This permits a single Property to be marketed by
more than one of the Company's divisions and subsidiaries and has permitted the
Company to exploit new technological developments such as DVD.
VIDEOCASSETTE DISTRIBUTION OF FEATURE FILMS TO HOME VIDEO RENTAL
STORES IN THE UNITED STATES
The Company, through A-Pix Entertainment("A-Pix"), is engaged in the
promotion and distribution of feature films for the home video rental market in
the United States, primarily consisting of video rental chains, individual video
rental stores, and supermarkets.
The Company commenced distributing videocassettes to the home video
rental market in 1994, releasing a total of 22 films during that year. During
1995, 1996 and 1997 the Company released a total of 23, 24 and 25 films,
respectively. The Company released 27 films in 1998 and expects to release 29
films in 1999. Most of the films distributed by the Company in this market to
date have been films that were released directly to the video rental market
without any prior exhibition in theaters or without a premiere on cable or
broadcast television.
The market for home videos has become increasingly competitive and
video rental outlets are becoming more selective in their choice of product. In
addition, overall growth in the domestic home video market has slowed as growth
in the number of new outlets and new VCR homes has moderated. The growth in
outlets designed to serve the rental market has remained essentially flat or has
actually declined for the past several years. Furthermore technological
developments could make competing delivery systems economically viable and could
affect the home video marketplace. This has resulted in a significant decrease
in the number of A-Pix's competitors.
The Company has been reacting to this evolving market by seeking to
acquire (i) increasingly higher quality films with more recognizable stars and
better production values and (ii) all domestic distribution rights, which
enables the Company's other divisions to exploit new evolving technologies as
well as presently
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existing distribution channels such as the following: pay-per-view, which
allows cable television and satellite service subscribers to purchase individual
programs; pay television, which allows cable television subscribers to view
premium channels such as HBO/Cinemax and Showtime/The Movie Channel; and
broadcast and basic cable television delivery systems, which allow viewers to
receive, without charge, programming broadcast over the air by affiliates of the
major networks (ABC, CBS, NBC and Fox), newly formed networks (UPN and WB
Network), independent television stations and cable and satellite networks and
stations.
Approximately 50% of the Company's films distributed to the domestic
home video rental market during 1998 were also licensed by the Company for
exhibition on pay-per-view and pay and basic cable television. In most
instances, such licenses were for exhibition after the release of the film to
the home video rental market. However, during 1998 two of the Company's films
that were released to the rental market also premiered on pay television. The
Films "Devil in the Flesh" (starring Rose McGowan) and "Bram Stoker's The Mummy"
(starring Louis Gossett, Jr.), both of which were co- produced by the Company,
premiered on HBO. During 1998 the Company also released one film to the
theatrical market; the film was promoted and exhibited in a select group of
cities. As the Company acquires or produces higher quality films, it anticipates
that the proportion of the films that it releases to the home video rental
market which have previously been released to the theatrical market or premiered
on cable or broadcast television will increase; albeit, there can be no
assurance that this will, in fact, be the case.
Almost all feature films released by A-Pix are subsequently distributed
by the Company to the consumer market. Certain films that were previously
released by A-Pix have been, and all of its current films are, reformatted on
DVD for distribution for purchase by consumers.
Notable films that have recently been released by A-Pix or are
scheduled to be released by it within the next 12 months include the following:
The family films: "Invisible Dad"; and "Boys will be Boys"
(starring Randy Travis, Julie Hagerty and Jon Voight);
The horror films: "Uncle Sam" (starring Robert Forster and
Isaac Hayes); "Bleeders" (starring Rutger Hauer); and "Jack Frost";
"Jane Doe" (starring Calista Flockhart), which won grand prize for best
feature film at the New York Independent Film and Video Festival in February
1999. This film is slated for release in 1999.
"A Merry War" (starring Helena Bonham Carter and Richard E.
Grant); and
"Lies and Whispers" (starring Gina Gershon).
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INTERNATIONAL OPERATIONS
The Company, through its division Unapix International, exploits
rights to Properties in the international marketplace; marketing Properties to
broadcasters and others in more than 100 countries.
The Company's international library contains documentaries and
television series. Its library also contains films in the drama, adventure,
comedy, horror, musical, war and western genres as well as music videos from
Miramar. Many of the Company's acquisitions for international distribution have
been exhibited domestically on PBS, the Disney, Discovery and A&E Channels as
well as on The Learning Channel.
During 1994, the Company formed a unit to concentrate on international
television distribution of educational programming. Currently, the unit has over
350 hours of telecourse programming in diverse areas, such as science,
humanities, business, sociology, child development and art.
Notable Properties that the Company distributes in the international
marketplace include the following: "Nova's Century of Discovery" (a series
consisting of five two-hour programs that explores 100 years of monumental
achievements in a variety of scientific fields); "Banana Zoo" (a series
consisting of 26 half- hour programs that is designed to foster a child's love
for nature and animals); "Medical Detectives" (a series consisting of 52 half-
hour programs which is a non-fiction crime solving series that airs domestically
on The Learning Channel); "Too Extreme" (a series consisting of four one-hour
programs featuring human behavior taken to the limit); and "Out of Control" (a
series consisting of three one-hour programs focusing on people, vehicles and
mother nature running amok).
NORTH AMERICAN TELEVISION LICENSING
The Company licenses the Company's feature films and television
programs to domestic and Canadian television networks, independent television
stations, satellite networks and cable system operators. The Company also acts
as a sales agent for other distributors or producers with respect to the
licensing of their programs in these markets, for which the Company receives a
sales commission. The Company's licensing activities to the domestic television
market are conducted by the Company's division, Unapix Program Enterprises
("UPE"), and its majority-owned subsidiary Unapix Syndication, Inc. ("Unapix
Syndication").
UPE licenses Properties primarily for exhibition on pay-per view, pay
television and basic cable channels. Customers have included the following: HBO;
Showtime; The Sundance Channel; Encore; Disney Channel; Lifetime; USA Network;
TNT; Comedy Central; The Discovery Channel; The History Channel; American Movie
Classics; F/X; The Family Channel; The Learning Channel ("TLC"); Animal Planet;
and CNBC. In addition to the feature films
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distributed to the domestic home video rental market, notable Properties that
UPE has licensed in the North American television market include the following:
"Ushuaia: Adventures of Nicolas Hulot" (a series consisting of 26 one-hour
episodes of a television series that had been broadcast in France for many
years. The series began broadcast on CNBC in January 1998); and
"Superstructures" (a series consisting of ten one-hour programs featuring
episodes on such subjects as the following: Nuclear Submarines, Tunnels,
Skyscrapers, the Panama Canal and an oil rig off the coast of Nova Scotia. The
series has been broadcast on TLC).
The Company commenced its syndication operations in the fourth quarter
of 1998 in order to distribute, to individual domestic television broadcasters,
the Company's Properties as well as first-run series and specials produced
directly for syndication and off-network syndication strips (in which shows
originally produced for weekly broadcast on a network are aired five days a
week). Unapix Syndication licenses Properties for domestic national or regional
broadcast on a television station by station basis (including television station
groups).
In addition to the operations of UPE and Unapix Syndication, in the
second quarter of 1998, the Company began to focus on developing and producing
specials for broadcast on domestic television networks. The Company develops the
ideas for the specials then attempts to obtain production financing from the
networks. During February 1999 the Company's first such production, "Shocking
Behavior: Caught on Tape," a one-hour special, was broadcast domestically on the
Fox network.
CONSUMER PRODUCTS
The Company, through its wholly-owned subsidiaries, Miramar Images,
Inc. ("Miramar"), currently doing business under the name Unapix Home
Entertainment, and Unapix Direct Media, Inc. ("Unapix Direct Media"), conducts
"sell-through" operations, marketing products that are intended to be purchased
by consumers. Products marketed by the Company for consumer purchase primarily
consist of feature films, television series and special interest programs on
videocassettes and DVDs. Typical suggested retail prices for videocassettes to
be marketed as sell-through range from $9.95 to $19.95 per program; suggested
retail prices on DVDs range from $14.98 to $29.98 per program. At such prices it
is believed that the product becomes attractive for consumer purchase.
A portion of the Company's sell-through operations is conducted under
the name "Inner Dimension." Inner Dimension currently distributes home videos
and audio books, which explore the dynamics of the human mind or body or
metaphysics, to retailers, mail-order companies, mass merchants and
distributors. Many of the products marketed under the Inner-Dimension label are
sold at General Nutrition Centers and other health stores. Programs distributed
by Inner Dimension include PBS specials such as the following: Andrew Weil's
"Eight Weeks to Optimum Health" and "Spontaneous Healing;" Caroline Myss' "Three
Levels of Power and
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How to Use them" and "Why People Don't Heal and How They Can;" Deepak Chopra's
"The Seven Spiritual Laws of Success" and "The Way of the Wizard;" and Joseph
Campbell's "Mythos," hosted by Susan Sarandon, which explores the world's most
enduring archetypes.
In addition to the Inner Dimension operations, the Company also
distributes for consumer purchase films and programs licensed and distributed by
the Company in other markets as well as Properties acquired by the Company
solely for sell-through distribution. An example of a Property acquired solely
for the sell-through market is Lifetime's "Intimate Portrait" series (each
episode of which presents biographies of women from the diverse worlds of art,
entertainment, politics, business and sports) which the Company began
distributing in 1998. The Company currently markets to consumers approximately
two titles per month that were previously released to the home video rental
market by A-Pix; marketing for sell-through typically commences approximately
nine months after the initial rental market release. The Company currently
operates three direct mail catalogues, consisting of:
"Inner Dimension," which offers programs distributed by the Company as
well as programs and products purchased wholesale from other vendors,
all of which are focused on healthy living;
"The Jazz Store," which features collections of jazz recordings,
videos, T-Shirts, books and collectibles and which is operated through
the Company's 90% owned subsidiary The Jazz Store, Inc. ("The Jazz
Store"). Most of the products distributed through The Jazz Store
catalogue are acquired whole-sale from third party vendors, but certain
of the products are The Jazz Store's own proprietary items; and
"The Entertainer," which offers video cassettes and DVD's, of the
Company's Properties and programs and products purchased wholesale from
third party vendors.
During 1998 the Company launched a number of E-Commerce web- sites.
These sites are in addition to The Jazz Store web-site
(WWW.THEJAZZSTORE.COM),(which offers substantially the same merchandise as the
Jazz Store catalogue), that has been operated by The Jazz Store since 1995. The
new E-Commerce sites consist of the following:
The Horror Shop (WWW.THEHORRORSHOP.COM), which offers genre videos and
related merchandise to horror fans;
Direct Response Television (WWW.REPLYTV.COM), which allows television
viewers to quickly and easily purchase Company programs;
Inner Dimension (WWW.INNERDIMENSIONS.COM), which features the
same products as the catalogue by the same name; and
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The Digital Entertainment Catalog (WWW.DVDENT.COM), which offers
Company titles on DVD.
The Company operates a number of other web-sites that serve, via links
on such sites, as conduits for its E-Commerce web-sites. An example of such a
web-site is Horrormovies.com, which the Company acquired in 1998; this web-site
has chat rooms and articles related to the horror genre and serves as an
important link to the Company's E-Commerce site the horror shop.com. In
addition, the Company markets its products through approximately 30 E-Commerce
sites operated by others, such as Amazon.com.
MARKETING OF FEATURE FILMS AND TELEVISION PROGRAMS
In acquiring the rights to various film and television Properties, the
Company analyzes the viability of the Properties for distribution to the various
marketplaces in an effort to target the Properties' audience appeal. After such
analysis, the Company markets the Properties to the various media in a selective
manner. The Company and its key personnel have established contact with many
broadcasters, cable system operators and home video companies worldwide. The
Company also presents certain of its films and television programs to foreign
and domestic broadcasters, cable system operators and home video companies who
are in attendance at the various international and domestic television
programming conventions such as NATPE, MIP, MIP Asia, MIPCOM, DISCOP East
Europe, the London Screenings, and the Los Angeles Screenings. In addition, with
respect to certain of its non-fiction programming, i.e. to date its "Great
Minds" series, the Company has entered into arrangements with print publishers
to both promote the series and give the series greater prominence, such as
Forbes for "Great Minds of Business," and American Heritage magazine for "Great
Minds of American History."
In connection with its distribution of films and television programming
to the international marketplace and its licensing of such Properties to the
North American television market, the Company licenses Properties for exhibition
primarily via pay, basic cable, pay-per-view and broadcast television, and, in
the case of international distribution, also via home video publishers. The
Company enters into license agreements with ultimate exhibitors, i.e.,
television networks, television stations and cable and satellite systems
operators, as well as sub-distributors. The Company does not, with some minor
exceptions, directly distribute videocassettes internationally, rather, its
licenses videocassette distribution rights to sub-distributors. The Company also
licenses feature films and television programs or series for distribution on
DVD.
The Company's license agreement with a customer typically grants the
customer an exclusive license to either exhibit or distribute a specific film or
television program for a specified term, territory and medium, and in the case
of a license to a pay television channel or a broadcast or cable television
operator, the right to exhibit the Property for a specified number of times.
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Upon the execution of the license agreement, the Company typically delivers a
copy of the master of the film or television program in a format appropriate to
the customer's needs. In consideration for the granting of the license to a
specific film or television program, the Company receives a licensing fee,
which, in the case of a license granted to a distributor or a pay-per-view
television exhibitor, is a percentage of revenues from the licensee's
distribution or exhibition of the Property and may include an advance of the fee
which is then recoupable from what otherwise would have been payable to the
Company. In the case of a license granted directly by the Company to a broadcast
network or station or pay or basic cable television operator, the Company
usually receives a set license fee that is not dependent upon the amount of
revenue achieved by the channel, network or operator from the exhibition of the
licensed Property. In certain cases Unapix Syndication will enter into barter
arrangements where the license fee it receives from a television station
consists of advertising time; the Company then sells that time to advertisers.
The Company distributes videocassettes of feature films to the domestic
home video rental market primarily by selling them to nine wholesale
distributors, who then sell the videocassettes to rental outlets, such as video
rental chains, individual video rental stores, and supermarkets. The Company
also sells videocassettes directly to Blockbuster Entertainment and Hollywood
Entertainment. During 1998, an aggregate of approximately 27% of the Company's
total revenues on a consolidated basis arose from sales to Discovery Channel
Inc. and its affiliates, Blockbuster Entertainment and Ingram Entertainment. The
Company currently sub- licenses laser disc and DVD rights to other domestic and
Canadian distributors, who directly or indirectly, sell the laser discs and DVDs
to retail outlets.
The Company selects an average of approximately two feature films for
release each month to the United States home video rental market. Approximately
sixteen weeks prior to a video's retail release, the Company embarks on a
marketing campaign that includes advertising in distributor mailers and trade
publications and direct mailing of marketing literature and screening copies of
the video. The Company sells videocassettes to the United States home video
rental market primarily on a "pre-order" basis. Distributors who meet certain
sales and performance objectives may earn rebates, return credits and
cooperative advertising allowances.
The Company believes that the packaging and art work for the video
boxes, posters, advertisements and other selling materials relating to the films
it distributes to the United States home video rental market are key factors in
determining the amount of sales. The Company believes that it was one of the
first distributors to utilize several new techniques of video box designs
including the use of 3-D graphics and "moving" images, along with multiple box
designs for the same films. The Company designs the promotional campaign for
each such Property it releases. While some of the art works for packaging,
advertisements, trade show displays and posters are created entirely in-house,
the Company
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usually commissions outside parties to assist in the art work for these
materials. The Company then arranges for the printing, production and
distribution of all promotional materials.
Most of the feature films the Company distributes to the domestic home
video rental marketplace are released directly to that market. From 1995 to
1998, the Company had not engaged in theatrical distribution, albeit, during
such period, it had distributed films that were released by others theatrically.
As the Company has been acquiring rights in feature films earlier in their
production stages, the Company has been seeking to acquire all rights in the
United States, including theatrical distribution rights. Because the production
quality of these films as well as the caliber of their stars has been improving,
the Company intends to increasingly exploit the theatrical rights it acquires by
either sub-licensing such rights to domestic theatrical distributors or engaging
in theatrical distribution itself. Theatrical distribution of a film involves
the manufacture of release prints, the promotion of the picture through
advertising and publicity campaigns and the licensing of the motion picture to
theatrical exhibitors. The size of the promotional advertising campaign can
materially affect the revenues realized from the theatrical release of a motion
picture. During 1998 the Company theatrically released one film on a platform
basis. In a platform release, a film is exhibited in theatres in one or two
cities where the film is promoted; if the release is successful in those cities,
then it is released in other cities.
Films that are first released theatrically are generally released to
the home video rental market four to six months after the theatrical release.
Films that are first exhibited on cable television are generally released to the
home video rental market two to three months after the television premiere.
It is expected that in the future a greater percentage of the films the
Company releases for the home video rental market will first be released
theatrically or premiere on cable television. During 1998 two of the films that
A-Pix released to the home video rental market first premiered on pay
television. The Company believes that a theatrical release or pay cable premiere
of a film should complement its home video release by generating greater
interest and awareness of the film before it is marketed for home videos.
The Company markets films and television programs that are intended to
be purchased by consumers by the following means: (i) selling to distributors
and "rack-jobbers" who then sell the products to large retail outlets (such as
"Best Buy," "Music Land" and "Tower Records"), convenience stores (such as
"Seven Eleven") or mass merchants (such as "Sam's Club"), or otherwise market
the products via shelf space they occupy at these locations, for resale to the
ultimate consumer, (ii) direct response advertisements appearing on the
Company's videocassettes and at the end of
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broadcasts of some of the Company's programs, and (iii) sales to specialty
retail outlets (such as governmental agencies, gift stores, libraries, museums,
Radio Shack, The Nature Company, The Sharper Image and General Nutrition
Centers). In addition, the Company markets Properties directly to consumers
through their inclusion in catalogues operated by the Company and others, and
through web-sites operated by the Company and others. All of the Company's
E-Commerce web-sites are cross-promoted via direct advertising, web addresses on
telecasts of Company programs, in Company mail-order catalogues, customer
response cards included with Company product, the use of trailers on the
Company's videos and via links to other Web sites operated by the Company. The
Company's E-Commerce sites themselves cross-promote the Company's other
products; as an example, thehorrorshop.com may contain promotion for an upcoming
horror video release by A-Pix.
MUSIC VIDEOS AND AUDIO TAPES AND COMPACT DISCS - MIRAMAR IMAGES,
INC.
The Company, through Miramar Images, Inc. ("Miramar"), which was
acquired by the Company in 1997, produces and distributes music videos and audio
recordings primarily for the New Adult Contemporary market, i.e., products that
are designed to appeal to individuals over the age of 25. Miramar's videos are
primarily long form music videos that match visual images with music rather than
attempting to tell a story. Miramar commenced operations in 1985 and was known
primarily as a "New Age" label. Early Miramar productions included "Natural
States," "Desert Vision," and "Canyon Dreams." During the 1990's Miramar
progressed from merely being a "New Age" label and began producing videos that
utilize a computer animated medium rather than traditional cinematography, such
as "The Mind's Eye," "Beyond the Mind's Eye" and "The Gate to the Mind's Eye."
In 1999, Miramar's music video "Televoid" was nominated for a Grammy Award for
Best Long Form Video. Miramar markets the soundtracks to a number of its videos
separately as audio products. In addition, Miramar's record division produces
and markets audio albums independent of videos. Artists who have recorded on the
Miramar label include the following: Tangerine Dream; Pete Bardens; Jan Hammer;
Thomas Dolby; Abraxas Pool; and Roger Smith. Audio only albums that have been
released by Miramar include: "Drive;" "220 Volt Live;" "Both Sides;" and
"Tyranny of Beauty." While most of Miramar's products are marketed to adults,
Miramar has a children's line of videos, examples of which are "Gift of the
Whales," "Imaginaria," and "Elroy's Toy."
Recordings are primarily obtained from artists and their agents who
approach Miramar seeking a distribution label. In almost all cases, the music
has been recorded on a relatively high quality master when it is presented to
Miramar. Miramar may re-sequence and remix the master, however, rarely will it
arrange for a record to be produced by an artist in a recording studio.
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<PAGE>
Most recordings are acquired by Miramar's purchasing the master. Such
master purchase arrangements usually enable Miramar to have distribution rights
in all media and territories in perpetuity to the recordings thereon. The artist
is usually prohibited from rerecording the music on the master for a period of
three to seven years. To a lesser extent, Miramar may acquire recordings by
obtaining the exclusive right to distribute the recordings on audio tapes and
compact discs, and where applicable, use the recordings in conjunction with
videos. The license will usually be limited to a certain time period and
territory. In acquiring distribution rights to recordings under either master
purchase arrangements or license agreements, Miramar usually pays a small
royalty advance as well as royalties based upon net sales. In some instances
Miramar may sign an exclusive recording agreement with a particular musician or
musical group, whereby Miramar agrees to acquire the recording that has already
been presented to Miramar by the musician or musical group and has the option to
acquire the next subsequent recordings at an agreed upon fee structure.
Miramar distributes its products to both the "traditional retail
marketplace," such as retail record and video stores and chain bookstores, as
well as specialty retail outlets (alternative markets), such as governmental
agencies, gift stores, libraries, museums, Radio Shack and The Sharper Image. In
January, 1998 Miramar entered into a distribution agreement with Distribution
North America ("DNA"), a division of Valley Media, Inc., for distributing its
music videocassettes and audio compact discs and tapes in the "traditional
retail marketplace" in United States, which is the principal territory in which
Miramar's products are sold. The distribution agreement with DNA expires in
January 2001. Miramar maintains an in-house sales department that promotes and
markets its products particularly targeting the alternative market; it also
utilizes radio air play, television exposure, retail promotion, and publicity
and advertising to create demand within both the traditional and alternative
markets. Miramar from time to time has licensed its videos for exhibition on PBS
and the Disney Channel. It also markets its products through direct response
television advertisements and direct mail, including through catalogues operated
by the Company and others, and the Company's Web sites.
FOREIGN SALES
Revenues derived by the Company from foreign markets were $6,313,000
and $6,358,000, in the years ended December 31, 1998 and 1997, respectively. The
Company is subject to various risks inherent in foreign trade which could have a
significant impact on the Company's ability to market its Properties
competitively. These risks include economic or political instability and
artificial ceilings placed on the demand for the Company's Properties in foreign
markets by foreign government's implementation of local content and quota
requirements prohibiting or limiting the quantity of foreign-made feature films
and
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television programs which may be exhibited or broadcast in one or
more foreign countries.
GOVERNMENT AND OTHER REGULATION
United States television stations and networks as well as foreign
governments impose restrictions on the content of motion pictures which may
restrict in whole or in part exhibition on television or in a particular
territory. There can be no assurance, therefore, that current or future
restrictions on the content of the Company's films, may not limit or affect the
Company's ability to exhibit certain of such motion pictures in such media or
markets.
EMPLOYEES
Currently the Company and its subsidiaries, have 91 employees, three of
which are part-time.
COMPETITION
Success in the distribution of films, television programming and audio
compact discs and tapes is largely dependent upon a company's ability to acquire
distribution rights to products at attractive prices and upon the subsequent
performance of these products in the marketplace. The Company faces significant
competition both in obtaining distribution rights and in selling products.
Competition for distribution rights to films, television programs and
recordings is based primarily on the amount of royalty advances that companies
are willing to offer to producers and recording artists and the producers' and
artists' perception of the Company's marketing capabilities and its commitment
to marketing the property. The Company's principal competitors for acquisitions
of films and television programs are companies such as New Line Cinema, Artisan
Home Entertainment, Trimark Entertainment, Columbia Tristar Home Video, BMG
Entertainment, Pearson Television, Winstar Home Entertainment and Tapestry
International. The Company's principal competitors for recordings are Windham
Hill, Private Music, and Narada Media; however, to the Company's knowledge,
Private Music and Narada Media do not produce or distribute long form music
videos to any significant extent. Many of the Company's competitors have
significantly greater financial resources and longer operating histories than
the Company. In general, the Company acquires films, television programming,
videos and recordings that are designed to appeal to a specific niche
audience, and which can be promoted with a limited advertising budget. Many
of the films and television programs the Company acquires may appeal to such
a targeted audience that competitors who are financially stronger than the
Company may not actively pursue them, and the competitors that do seek to
acquire distribution rights in them may be financially
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<PAGE>
weaker than the Company, do not have as good a marketing reputation, or are
unable to exploit the films or programs in as many markets as the Company (i.e.
domestic television, domestic home video rental, consumer or international
markets). The Company also believes that it is able to compete against larger
companies because it can react to trends in the entertainment industry and
public tastes more quickly than such competitors since it lacks the more
elaborate bureaucracies that often characterize larger organizations. Most of
the recordings that Miramar seeks to acquire are not pursued by major record
labels because of their limited appeal. The Company believes that Miramar can
compete against other smaller record labels for acquisitions of recordings
because of Miramar's reputation in the industry.
In marketing films, television programs, recordings and music videos,
the Company competes against the same competitors with whom it competes for the
acquisition of such products, as well as major studios and record companies,
such as Time/Warner, The Walt Disney Company, MCA, Paramount, Fox,
Sony/Columbia, and Geffen Records. Since the Company expends significantly less
on product acquisitions than many of these competitors it believes it can
produce profits from even modest sales volume.
SERVICEMARKS AND TRADEMARKS
The Company has registered the following trademarks or service marks
with the United States Patent and Trademark Office: "UNAPIX;" "MIRAMAR
PRODUCTIONS;" A-PIX;" "INNER DIMENSION;" "UNAPIX FILMS;" and "The HORROR SHOP."
The Company has applied for federal registration of the following trademarks or
service marks: "UNAPIX CONSUMER PRODUCTS;" "THE JAZZ STORE;" "GREAT MINDS OF ,;"
"DOCERE;" and related logo treatments and designs.
FACTORS WHICH MAY AFFECT RESULTS
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
STATEMENTS MAY CONSIST OF ANY STATEMENT OTHER THAN A RECITATION OF HISTORICAL
FACT AND CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS
"EXPECT," "ESTIMATE," "ANTICIPATE," "MAY," "BELIEVE," OR "CONTINUE" OR THE
NEGATIVE THEREOF AND SIMILAR EXPRESSIONS AND VARIATIONS THEREOF. THE READER IS
CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS ARE NECESSARILY SPECULATIVE AND
THAT THERE ARE CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS OR
RESULTS TO DIFFER MATERIALLY FROM THOSE REFERRED TO IN SUCH FORWARD-LOOKING
STATEMENTS. CERTAIN OF THOSE RISKS AND UNCERTAINTIES ARE SET FORTH BELOW.
HOWEVER, THE RISKS HIGHLIGHTED BELOW AND ELSEWHERE IN THIS ANNUAL REPORT SHOULD
NOT BE ASSUMED TO BE THE ONLY THINGS THAT COULD AFFECT THE COMPANY'S FUTURE
PERFORMANCE. THE COMPANY DOES NOT HAVE A POLICY OF UPDATING OR REVISING
FORWARD-LOOKING STATEMENTS AND THUS IT SHOULD NOT BE ASSUMED THAT SILENCE BY THE
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COMPANY'S MANAGEMENT OVER TIME MEANS THAT ACTUAL EVENTS ARE BEARING OUT AS
ESTIMATED IN SUCH FORWARD-LOOKING STATEMENTS.
NATURE OF THE ENTERTAINMENT INDUSTRY - The film, television programming and
audio compact disc and tape distribution business involves a substantial degree
of risk. The success of a product depends upon unpredictable and changing
factors such as competition and audience acceptance, which may bear little or no
correlation to the Company's production and other costs. Audience acceptance of
the Company's products represents a response not only to the artistic components
of the products, but also to the level of advertising and promotion by the
distributor and availability of alternative forms of entertainment and leisure
time activities, general economic conditions and public taste, and other
intangible factors, all of which change rapidly and cannot be predicted with
certainty. In addition, as a result of the Company increasing its resources to
film and television product earlier in its production and acquisition stages,
the possibility always exists that the finished product may be different from
that which was initially envisioned. Therefore, there is a substantial risk that
some or all of the Company's products may not be commercially successful,
resulting in costs not being recouped or anticipated profits not being realized.
CAPITAL INTENSIVE INDUSTRY; ADDITIONAL FINANCING REQUIREMENTS - The film,
television programming and audio compact disc and tape distribution and
licensing industry is capital intensive and requires significant expenditures of
funds to establish a library of Properties from which revenues may be generated.
The Company could be dependent upon future financing in order to compete more
effectively in the marketplace. The Company's cash requirements have been and
will continue to be significant. If additional funding is unavailable to the
Company when needed, the Company could be required to curtail significantly one
or more aspects of its operations and the Company's business and financial
condition could be materially adversely affected.
DEPENDENCE UPON KEY PERSONNEL - The Company is highly dependent on the services
of Herbert M. Pearlman, its Chairman of the Board and Chief Executive Officer,
Scott Hanock, Co-President of the Company and Managing Director of International
Sales and Marketing, and Robert Baruc, Co-President of the Company and President
of A-Pix. The loss of the services of one or more of Messrs. Pearlman, Hanock or
Baruc could have a material adverse effect upon the Company's business.
Presently, the Company has key man life insurance on the life of Mr. Baruc in
the amount of $750,000.
INCOME FORECAST; BASIS OF PRINCIPAL ASSETS; POSSIBLE FLUCTUATION IN OPERATING
RESULTS - Included in the Company's assets at December 31, 1999 are unamortized
film costs of $36,525,000 which include costs incurred for the production,
acquisition and distribution of its Properties and other rights acquired from
third parties. Amortization of these costs is based on the "individual film
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<PAGE>
forecast method" of accounting. This method, which is prescribed by generally
accepted accounting principles and is standard practice in the entertainment
industry, requires management to project future revenues to be generated by the
Company's Properties and to amortize the costs of the Properties based on the
percentage that revenue recognized bears to total projected revenues. There can
be no assurance that management's projection of future revenues will be
realized. Moreover, if the Company subsequently determines that future revenues
will be less than originally projected, an adjustment would have to be made in
the carrying value of deferred costs which could materially affect operating
results reported in the period such adjustment is made. Accordingly, there may
be significant fluctuation in quarterly financial results reported by the
Company as a result of such adjustments.
COMPETITION - The Company currently competes with other distribution companies
including many of which have longer-standing relationships in the industry,
significantly greater financial resources and more extensive libraries than the
Company. There can be no assurance that the Company will be able to compete
successfully against these other companies.
SHIFT IN STRATEGY - Although members of management of the Company have prior
experience in film and television program productions, the Company itself has a
limited track record in such activities. The Company's shift in strategy toward
an increased emphasis on motion picture production may increase the rewards
available to the Company, but may increase the risks as well.
ITEM 2. PROPERTIES
The Company's principal executive offices, consisting of approximately
11,254 square feet, are located at 200 Madison Avenue, 24th Floor, New York, New
York 10016. The Company occupies these offices pursuant to an eleven-year lease
that commenced in May 1996 and provides for annual rent of $281,350 during the
first three years, annual rent of $298,231 during the next three and one-half
years, and annual rent of $320,739 during the remainder of the lease term.
The Company also leases approximately 3,400 square feet of office space
located at 4515 Van Nuys Boulevard, Sherman Oaks, California 91403. The current
lease is for a term of three years, commencing April 1996, at a base annual rent
of $44,400 for the first year, $45,600 for the second year and $46,200 for the
third year. This space is used for the offices of Unapix International. Pursuant
to a sublease with a term commencing on April 1, 1999 and expiring on December
31, 2003, Unapix International and certain administrative personnel of the
Company will lease approximately 14,000 square feet of space located at 15910
Ventura Boulevard, Encino, California. The lease provides for a base annual rent
of
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$250,000. The Company plans to sub-let a portion of these premises
to other parties.
The Company also shares occupancy, with three other affiliated
corporations, of 4,500 square feet of office space located at 537 Steamboat
Road, Greenwich, CT. All four corporations are tenants under a lease which is
for a term of four years commencing June 1998 with an annual base rent of
$112,500 for the first year, $117,000 for the second year, $121,500 for the
third year and $126,000 for the fourth year. The Company currently pays
approximately 25% of the rent.
Miramar's offices, consisting of approximately 7,000 square feet of
office space, are located at 200 Second Avenue West, Seattle, Washington 98119.
Miramar occupies these offices pursuant to a lease expiring in January 1999,
which provides for a current base annual rent of $99,000. The Company is
currently negotiating an extension of this lease.
Unapix Productions West's offices occupy 2,000 square feet of space at
10950 West Washington Boulevard, Culver City, California 90232. The offices are
occupied pursuant to a five year lease that commenced in June 1998. The lease
provides for a base annual rent of approximately $50,000 per year.
Unapix Direct Media's and The Jazz Store's offices, consisting of a
total of 3,163 square feet of space, are located at 427 Bloomfield Avenue,
Montclair, New Jersey, 07042. Unapix Direct Media's offices are occupied
pursuant to a five year lease, that commenced in October 1998. The Jazz Store's
offices are occupied pursuant to a three year lease that commenced in June 1998.
The leases provide for base annual rent aggregating approximately $77,000 per
year.
The Company believes that its office space is adequate for its current
needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings which it considers to be
routine and incidental to its business. The Company believes that any liability
which may arise as a result of any such proceeding will not have a material
adverse effect on its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 19, 1998, the Company held its 1998 Annual Meeting of
Stockholders at which stockholders elected David M. Fox, Robert Baruc and Scott
Hanock as directors of the Company to serve until the Company's Annual Meeting
of Stockholders in the year 2001, or until their successors are duly elected.
5,636,625 shares were voted in favor of the election of such individuals and
votes were
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withheld with respect to 63,280 shares. In addition to the individuals
elected as directors at the 1998 Annual Meeting, Messrs. Herbert M. Pearlman,
David S. Lawi, Lawrence Bishop and Walter M. Craig, Jr., who were directors
of the Company at the time of the 1998 Annual Meeting of Stockholders,
continue to serve as directors of the Company. Stuart J. Beck became a
director of the Company in October 1998 subsequent to the Annual Meeting and
resigned as a director in March 1999. David M. Fox resigned as a director
effective as of January 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION
The Company's Common Stock is primarily traded on the American Stock
Exchange (the "AMEX") under the symbol UPX. Until June 22, 1998, the Company's
Class B Warrants also traded on the AMEX under the symbol UPX.W.S.B. Trading of
the Class B Warrants was discontinued as a result of the expiration of such
warrants in accordance with their terms.
The following table sets forth the range of high and low sales prices
of the Company's securities as reported by the AMEX.
<TABLE>
<CAPTION>
American
Stock Exchange
--------------
Low High
----- -----
<S> <C> <C> <C>
1997
- ----
First Quarter Common Stock 3 13/16 4 3/4
Class B Warrants 9/16 7/8
Second Quarter Common Stock 3 9/16 4 11/16
Class B Warrants 9/16 1
Third Quarter Common Stock 4 1/8 4 15/16
Class B Warrants 5/8 1
Fourth Quarter Common Stock 3 13/16 5 3/8
Class B Warrants 9/16 1 5/16
1998
- ----
First Quarter Common Stock 4 1/8 5 1/16
Class B Warrants 7/16 15/16
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Second Quarter Common Stock 4 1/16 6 1/16
Class B Warrants* 3/8 7/8
Third Quarter Common Stock 2 5 1/4
Fourth Quarter Common Stock 1 3/4 2 3/4
</TABLE>
- ----------
* Trading of the Class B Warrants was discontinued by the AMEX as of the
close of business on June 22, 1998.
(b) HOLDERS
As of March 8, 1999, there were, to the best of the Company's
knowledge, approximately 205 holders of record (not beneficial holders) of the
Company's Common Stock.
(c) DIVIDENDS
The Company has not paid any cash dividends on its common stock. The
Company does not anticipate paying any cash dividends in the foreseeable future,
and is prohibited from paying any cash dividends on its common stock under its
working capital credit facility.
(d) RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is a description of all sales of unregistered
securities during the fourth quarter of 1998 (sales of unregistered securities
during the first three quarters of 1998 were previously reported on the
Company's Quarterly Reports on Form 10-QSB).
In October 1998 the Company granted a total of 245,000 common stock
purchase options to employees, of which: 220,000 have an exercise price of
$2.375 per share; and 25,000 have an exercise price of $2.50 per share. All such
options expire in October 2008. 50,000 of such options are immediately
exercisable. 150,000 of the options will not become exercisable for
approximately 9.5 years, subject to earlier exercisability, if certain earnings
goals are achieved. The remaining options become exercisable based solely upon
the grantee's continuing to provide services to the Company. The options were
issued pursuant to the exemption contained in Section 4(2) of the Securities Act
of 1933, as amended (the "Act").
In December 1998 the Company sold a total of 500 shares of its Series C
8% Cumulative Convertible Preferred Stock, $.01 par value per share ("Preferred
Stock C"). Each share of Preferred Stock C has a stated value of $1,000 and is
convertible into shares of Common Stock at a conversion price of $2.50 per share
(i.e. each share of Preferred Stock C is convertible into 400 shares of the
Company's Common Stock). The sale was made pursuant to the exemption contained
in Section 4(2) of the Act. All of the
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investors were "accredited" (as such term is defined in Rule 501 of Regulation D
promulgated under the Act).
Also, in December 1998 the Company granted an aggregate of 95,000
common stock purchase options to one officer and three of its directors (who are
not also employees). All such options have an exercise price of $2.86 per share
and expire in June 2008. 12,917 of such options are immediately exercisable. The
remaining options become exercisable based solely upon the grantee's continuing
to provide services to the Company. The options were issued pursuant to the
exemption contained in Section 4(2) of the Act.
In January 1999 the Company issued 52,942 shares of its Common Stock to
Steve and Marcia Brecker, who are officers, directors and shareholders of the
Company's subsidiary, The Jazz Store, Inc. (the "Jazz Store"). Such shares were
a portion of an aggregate of 75,000 shares of Common Stock that the Company is
obligated to issue to Steve and Marcia Brecker in exchange for a total of 598
shares of the Jazz Store, constituting 28.2% of the Jazz Store's outstanding
shares, that they sold to the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31,
1997
Revenues increased to $36,481,000 in 1998, an increase of $4,329,000
(14%), compared to $32,152,100 in 1997. The increase is primarily the result of
the increase in home video revenues of $5,321,000 (27%) to $24,802,000 in 1998
compared to $19,481,000 in 1997. The Company expects to recognize continued
growth in the home video market into 1999. This growth should be generated by
continued phasing into aggressive market penetration, as well as the Company's
emphasis on distributing higher quality films to the rental marketplace and
non-fiction titles to the sell-through marketplace.
Licensing and distribution costs decreased by $1,404,000 (16%) to
$7,543,000 in 1998 from $8,947,000 in 1997. The decrease was due to lower sales
in 1998 and a major sale in 1997 to which a higher than normal amortization rate
applied. Home video costs increased $1,825,000 (15%) to $14,396,000 in 1998
compared with $12,571,000 in 1997 which reflects increased royalty, amortization
and other film expenses associated with higher level of revenues.
General and administrative expenses were $12,685,000 in 1998 compared
to $7,364,000 in 1997, an increase of $5,321,000 (72%). The increase is
primarily attributable to costs related to the infrastructure required to
support the Company's expansion and diversification. These costs consisted
mainly of increased staffing and office costs to support increased marketing
activity and
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<PAGE>
establishment of new business units. Other non-recurring costs of $333,000 in
1998 represent costs incurred primarily for termination and relocation expenses.
Income from operations was $1,524,000 in 1998 and $3,270,000 in 1997.
The decrease reflects higher general and administrative expenses referred to
above.
Interest and debt expense, net increased to $1,248,000 in 1998 from
$977,000 in 1997. The increase reflects interest on the 10% convertible notes
issued in the second half of 1997 and in 1998, as well as increased bank
borrowings.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1998, operating activities provided
cash of $11,178,000. The Company used $24,772,000 in investing activities which
consisted primarily of $24,344,000 incurred in acquiring, producing and
promoting new properties for the home video rental and the licensing and
distribution markets. The additional cash requirements were primarily met by
proceeds of $14,876,000 from financing activities which included private
offerings of 10% convertible subordinated notes, preferred stock and proceeds
from the exercise of warrants and options. The net result was an increase in
cash and cash equivalents of $1,282,000.
In the normal course of business the Company makes certain guarantees
to producers and other third parties as to the minimum amount such parties will
receive from the Company's distribution of their products. The Company has
committed to pay film acquisition advances and guarantees of approximately
$7,000,000 as of December 31, 1998, which amounts are payable upon delivery of
the films. The Company also expects to incur significant additional cash flow
needs relating to its continued expansion. In order to meet its future funding
needs the Company will utilize cash on-hand, operating cash flows, its line of
credit and other potential financing.
The Company has a $10,000,000 revolving credit facility with Imperial
Bank dated April 17, 1997. The parties expect to amend the agreement to provide
for total borrowings of up to $20,000,000 which includes a revolving credit of
up to $15,000,000 based on the Company's qualifying accounts receivable and
other contractual rights to payment and up to $5,000,000 for qualifying film
productions. The amendment will extend the facility to March 2001 and is
contingent upon the bank obtaining a participant for the credit facility, which
management expects to occur in the very near future. Pending obtaining a
participant, the present facility was amended April 12, 1999 to provide for
borrowings of up to $13,000,000 based on qualifying accounts receivable and
other
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contractual rights to payment and the agreement was extended to March 2, 2000.
Beginning May 3, 1999 and each month thereafter, the maximum amount available
decreases by $500,000 but not below $10,000,000. Outstanding amounts under the
facility are collateralized by a security interest in substantially all of the
Company's assets. (See note 4 to the consolidated financial statements).
In February 1998, the Company issued, in a private placement,
$5,250,000 principal amount of 10% convertible subordinated notes due June 30,
2003 convertible initially into common stock at $4.75 per share. The conversion
price is subject to adjustment in certain circumstances, including resets at
September 1, 1998 and March 1, 1999. The conversion price was reset on September
1, 1998 to $4.00 per share and on March 1, 1999 to $3.50 per share. Notes in the
principal amount of $900,000 were issued to certain investors in a film
acquisition fund in exchange for their interests therein. Upon completion of the
offering, proceeds of $250,000 were used to repay the loans from the Chairman
and the Secretary, and proceeds of $650,000 were used to repay Mezzanine
Financial Corp. The remaining $100,000 of the Mezzanine loan was exchanged for
an equivalent amount of 10% convertible notes (See note 4 to the consolidated
financial statements).
In July 1998 the Company consummated a private placement of 300 shares
of its non-voting Series B preferred stock and a three year warrant to purchase
200,000 shares of common stock at $5.16 per share for a gross purchase price of
$3,000,000. Each share of Series B preferred stock has a stated value of $10,000
and provides for dividends cumulatively at 6% per annum payable quarterly in
cash, or, at the Company's option, under certain circumstances, in common stock.
The series B preferred stock is convertible into common stock. (See note 5 to
the consolidated financial statements).
In December 1998 the Company initiated a private placement to
accredited investors of up to 2,500 shares of Series C 8% cumulative convertible
preferred stock each of which has a stated value of $1,000 per share and is
convertible into common stock at a conversion price of $2.50 per share. The
offering price is $1,000 per share. The Series C preferred stock provides for
cumulative cash dividends at an annual rate of 8% of the stated value per share.
At the Company's option, dividends that accrue through December 31, 2000 may be
paid in common stock. The Company may redeem the Series C preferred stock
beginning in 2002 at a premium of $60 per share which declines to zero in 2008
and thereafter. So long as shares of Series B preferred stock are outstanding,
the Company cannot redeem Series C preferred stock without the prior
26
<PAGE>
written consent of the holder of Series B. Proceeds of $500,000 were received
through December 31, 1998 of which $300,000 was received from two officers and
directors of the Company.
The feature film and television licensing and distribution industries
require significant expenditures of funds to establish and expand a library of
films and programs from which revenues may be generated. The Company could be
dependent upon future financings to continue its long term plans of expansion
and growth. The Company anticipates that as its asset base grows it will secure
an increased working capital line of credit as well as explore other film
acquisition financing arrangements. The Company may also have additional debt or
equity financings.
Year 2000
The Company has undertaken a study of its technological systems to
determine their year 2000 compliance and to the extent of noncompliance, the
required remediation. The Company has generally completed this process of
review. All software in use is vendor supplied and will be upgraded to a current
version and is expected to be fully certified as year 2000 compliant prior to
the end of the third quarter of 1999. The Company believes it has identified all
non-compliant hardware and has scheduled replacements also by the end of the
third quarter of 1999. The Company does not believe that the cost to complete
such remediation will be material.
An assessment of the readiness of year 2000 compliance of third party
entities such as suppliers, banking institutions, customers and others is
ongoing. As with other companies in its industry, the Company is dependent on a
number of third parties for the supply of products and services that are
themselves dependent on computers. The Company's initial assessment of
compliance by third party entities is not yet completed, and therefore, the
Company has not yet developed any related contingency plans. Currently, the
Company is unable to predict the cause of the worst case year 2000 scenario nor
the likelihood of any third party not being year 2000 compliant or the direct or
indirect costs to the Company of non-compliance by third parties.
Except for the historical information contained herein, the matters
discussed are forward-looking statements which are necessarily speculative and
are subject to risks and uncertainties which could cause actual events or
results to differ materially from those referred to in such forward-looking
statements. Certain of such risks include the following: (i) The film,
television programming and audio compact disc and tape distribution business
27
<PAGE>
involves a substantial degree of risk. The success of a product depends upon
unpredictable and changing factors such as competition and audience acceptance,
which may bear little or no correlation to the Company's production and other
costs. Audience acceptance of the Company's products represents a response not
only to the artistic components of the products, but also to the level of
advertising and promotion by the distributor and availability of alternative
forms of entertainment and leisure time activities, general economic conditions
and public taste, and other intangible factors, all of which change rapidly and
cannot be predicted with certainty. In addition, as a result of the Company
increasing its resources to film and television product earlier in its
production and acquisition stages, the possibility always exists that the
finished product may be different from that which was initially envisioned.
Therefore, there is a substantial risk that some or all of the Company's
products may not be commercially successful, resulting in costs not being
recouped or anticipated profits not being realized; and (ii) The film,
television programming and audio compact disc and tape distribution and
licensing industry is capital intensive and requires significant expenditures of
funds to establish a library of entertainment properties from which revenues may
be generated. The Company could be dependent upon future financing in order to
compete more effectively in the marketplace. The Company's cash requirements
have been and will continue to be significant. If additional funding is
unavailable to the Company when needed, the Company could be required to curtail
significantly one or more aspects of its operations and the Company's business
and financial condition could be materially adversely affected. Additional
factors that could affect results are described in "FACTORS WHICH MAY AFFECT
RESULTS". The highlighted risks should not be assumed to be the only things that
could affect the Company's future performance. The Company does not have a
policy of updating or revising forward-looking statements and thus it should not
be assumed that silence by the Company's management over time means that actual
events are bearing out as estimated in such forward-looking statements.
ITEM 7. FINANCIAL STATEMENTS.
See financial statements set forth in Item 13 of this annual report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by Item 9 is incorporated herein by reference
to the information set forth under the sections entitled "ELECTION OF DIRECTORS
and "EXECUTIVE OFFICERS" in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders for 1999 to be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1998 (the "Proxy
Statement").
ITEM 10. EXECUTIVE COMPENSATION.
The information required by Item 10 is incorporated herein by reference
to the material under this heading in the Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by Item 11 is incorporated herein by reference
to the information under this heading in the Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 12 is incorporated herein by reference
to the information under this heading in the Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report............... F-1
Consolidated Balance Sheet as of
December 31, 1998....................... F-2
Consolidated Statements of Operations
for the years ended December 31, 1998
and 1997................................ F-3
Consolidated Statements of Changes in
Stockholders' Equity for the years
ended December 31, 1998 and 1997........ F-4
Consolidated Statements of Cash Flows
for the years ended December 31, 1998
and 1997................................ F-5
Notes to Consolidated Financial Statements. F-7
</TABLE>
29
<PAGE>
(b) Reports on Form 8-K
The Company did not file any current Reports on Form 8-K during the
fourth quarter of 1998.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------
<S> <C>
3.1 Company's Certificate of Incorporation, dated January 7,
1993 [incorporated herein by reference to Exhibit 3.1 to
the Company's Form SB-2 Registration Statement, File No.
33-61798 (the "Registration Statement")]
3.1.1 Amendment No. 1 to Company's Certificate of
Incorporation, dated March 15, 1993 [incorporated herein]
by reference to Exhibit 3.1.1 to the Registration
Statement]
3.1.2 Certificate of Ownership and Merger, dated March 23, 1993
[incorporated herein by reference to Exhibit 3.1.2 to the
Registration Statement]
3.1.3 Amendment No. 2 to Company's Certificate of
Incorporation, dated April 21, 1993 [incorporated herein
by reference to Exhibit 3.1.3 to the Registration
Statement]
3.1.4 Amendment No. 3 to Company's Certificate of
Incorporation, dated June 10, 1993 [incorporated herein
by reference to Exhibit 3.1.4 to the Registration
Statement]
3.1.5 Certificate of Designations, Preferences and Rights of Series
A 8% Cumulative Convertible Preferred Stock [incorporated
herein by reference to Exhibit 3.1.5 to the Company's Annual
Report on Form 10-KSB for 1993 (the "1993 Form 10-KSB")]
3.1.6 Certificate of Increase to the Certificate of
Designations, Preferences and Rights of Series A 8%
Cumulative Convertible Preferred Stock [incorporated
herein by reference to Exhibit 3.1.6 to the Company's
Annual Report on Form 10-KSB for 1994 (the "1994 Form 10-
KSB")]
3.1.7 Certificate of Ownership and Merger, dated August 8, 1996,
merging A-Pix Entertainment, Inc. into the Company
[incorporated herein by reference to Exhibit 3.1.7 to the
Company's Annual Report on Form 10-KSB for 1996 (the "1996
Form 10-KSB")]
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------
<S> <C>
3.1.8 Certificate of Amendment of the Company's Certificate of
Incorporation, dated October 7, 1997, increasing the number of
authorized shares of common stock [incorporated herein by
reference to Exhibit 3 to the Company's Quarterly Report on
Form 10-QSB for the Quarterly Period ended September 30, 1997]
3.1.9 Certificate of Designation, Powers, Preferences and Rights of
the 6% Series B Convertible Preferred Stock [incorporated
herein by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K for Event of July 16, 1998 (the "July 1998
Form 8-K")]
3.1.10 Certificate of Designations, Preferences and Rights of
Series C 8% Cumulative Convertible Preferred Stock (1)
3.2 By-Laws of the Company (1)
4.1 Form of Common Stock Certificate [incorporated herein by
reference to Exhibit 4.1 to the Registration Statement]
4.2 Form of Variable Rate Senior Subordinated Note due
December 31, 2001 [incorporated herein by reference to
Exhibit 4.8 of the 1994 Form 10-KSB]
4.3 Form of Common Stock Purchase Warrant Certificate for
Warrants issued together with Variable Rate Senior
Subordinated Notes due December 31, 2001 [incorporated
herein by reference to Exhibit 4.9 of the 1994 Form 10-
KSB]
4.4 Common Stock Purchase Warrant Certificate issued to
Atlantic Bank of New York entitling it to purchase 20,000
shares of Common Stock [incorporated herein by reference
to Exhibit 10.3 of the Company's Current Report on Form
8-K for event of June 21, 1995]
4.5 Common Stock Purchase Warrant Certificate entitling the
holder to purchase 15,000 shares of common stock at an
exercise price of $4.25 per share and expiring on June
30, 2000 [incorporated herein by reference to Exhibit
4.11 of the Company's Annual Report on Form 10-KSB for
1995 (the "1995 Form 10-KSB")]
4.6 Common Stock Purchase Warrant Certificate entitling the
holder to purchase 10,000 shares of common stock at an
exercise price of $4.50 per share and expiring on
December 31, 2000 [incorporated herein by reference to
Exhibit 4.12 of the 1995 Form 10-KSB]
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------
<S> <C>
4.7 Form of 10% Convertible Subordinated Note due June 30,
2003 having an original conversion price of $4.50 per
share [incorporated herein by reference to Exhibit 4.1 to
the Company's Quarterly Report on Form 10-QSB for the
Quarterly Period ended June 30, 1996 (the "June 1996 Form
10-QSB")]
4.8 Form of Common Stock Purchase Warrant Certificate, entitling the
holder to purchase shares of Common Stock at an original exercise
price of $6.00 per share and expiring on June 30, 2003
[incorporated herein by reference to Exhibit 4.2 to the June 1996
Form 10-QSB]
4.9 Form of Common Stock Purchase Warrant Certificate, entitling the
holder to purchase shares of Common Stock at $4.50 per share and
expiring on December 31, 2001 [incorporated herein by reference to
Exhibit 4.15 of the 1996 Form 10-KSB]
4.10 Form of 10% Convertible Subordinated Note due June 30, 2003 having
an original conversion price of $4.75 per share [incorporated
herein by reference to Exhibit 4.13 of the Company's Annual Report
on Form 10-KSB for 1997 (the "1997 Form 10-KSB")]
4.11 Form of 10% Convertible Subordinated Note due June 30, 2004 having
an original conversion price of $5.00 per share [incorporated
herein by reference to Exhibit 4.14 to the 1997 Form 10-KSB]
4.12 Form of Common Stock Purchase Warrant Certificate, entitling the
holder to purchase shares of Common Stock at an original exercise
price of $6.00 per share and expiring on June 30, 2004
[incorporated herein by reference to Exhibit 4.15 to the 1997 Form
10-KSB]
4.13 Form of Common Stock Purchase Warrant Certificate, entitling the
holder to purchase shares of Common Stock at $5.00 per share and
expiring December 31, 2002 [incorporated herein by reference to
Exhibit 4.16 to the 1997 Form 10-KSB]
4.14 Form of Common Stock Purchase Warrant dated July 16, 1998 in favor
of KA Investments with respect to 200,000 shares of underlying
common stock [incorporated herein by reference to Exhibit 10.3 to
the July 1998 Form 8-K]
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------
<S> <C>
*10.1 Employment Agreement between the Company and David Fox
[incorporated herein by reference to Exhibit 10.1 to the
Registration Statement]
*10.1.1 Form of Amendment No. 1 to Employment Agreement between the
Company and David Fox [incorporated herein by reference to Exhibit
10.1.1 to the Registration Statement]
*10.2 Employment Agreement between the Company and Scott Hanock
[incorporated herein by reference to Exhibit 10.2 to the
Registration Statement]
*10.2.1 Form of Amendment No. 1 to Employment Agreement between the
Company and Scott Hanock [incorporated herein by reference to
Exhibit 10.2.1 to the Registration Statement]
*10.2.2 Form of Amendment No. 2 to Employment Agreement between the
Company and Scott Hanock [incorporated herein by reference to
Exhibit 10.2.2 to the Registration Statement]
*10.3 Form of Employment Agreement between the Company and Herbert M.
Pearlman [incorporated herein by reference to Exhibit 10.4 to the
Registration Statement]
*10.4 Form of Employment Agreement between the Company and David S. Lawi
[incorporated herein by reference to Exhibit 10.5 to the
Registration Statement]
*10.5 1993 Stock Option Plan, as amended (1)
10.6 Form of Lease Agreement for 537 Steamboat Road, Greenwich,
Connecticut offices [incorporated herein by reference to Exhibit
10.9 to the 1994 Form 10-KSB]
10.7 Lease Agreement for 200 Madison Avenue Location [incorporated
herein by reference to Exhibit 10.9 to the 1995 Form 10-KSB]
*10.8 Stock Option Agreement between the Company and David Fox (embodied
in Exhibit 10.1) [incorporated herein by reference to Exhibit 10.1
to the Registration Statement]
*10.9 Form of Earnings Performance Stock Option Agreement between the
Company and Herbert M. Pearlman, dated April 23, 1993
[incorporated herein by reference to Exhibit 10.18 to the
Registration Statement]
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------
<S> <C>
10.10 Schedule of omitted documents in the form of Exhibit 10.9,
including material detail in which such documents differ from
Exhibit 10.9 [incorporated herein by reference to Exhibit 10.18.1
to the Registration Statement]
*10.11 Employment Agreement between the Company and Robert Baruc
[incorporated herein by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-QSB for the Quarterly Period ended
June 30, 1993]
*10.12 Amendment No. 1 to Employment Agreement of Robert Baruc
[incorporated herein by reference to Exhibit 10.16 to the
Company's 1996 Form 10-KSB]
*10.13 Employment Agreement between the Company and Robert Miller
[incorporated herein by reference to Exhibit 10.17 to the
Company's 1996 Form 10-KSB]
*10.14 Employment Agreement between the Company and Timothy Smith
[incorporated herein by reference to Exhibit 10.18 to the
Company's 1996 Form 10-KSB]
10.15 Lease Agreement, as amended to date, for Miramar's offices at 200
Second Avenue West, Seattle, Washington [incorporated herein by
reference to Exhibit 10.29 to the 1996 Form 10-KSB]
10.16 Revolving Credit Loan and Security Agreement, dated April 16,
1997, among Imperial Bank, Unapix Entertainment, Inc., A-Pix
Entertainment, Inc. and Miramar Images, Inc. [incorporated herein
by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-QSB for the Quarterly Period ended March 31, 1997]
10.17 Amendment No.1 to Revolving Credit Loan and Security Agreement
entered into March 25, 1998, by and between (i) Unapix
Entertainment, Inc. and Miramar Images, Inc. and (ii) Imperial
Bank [incorporated herein by reference to Exhibit 10.25 to the
1997 Form 10-KSB]
10.18 Amendment No. 2 to Revolving Credit Loan and Security Agreement
entered into March 19, 1999, by and between (i) Unapix
Entertainment, Inc. and Miramar Images, Inc. and (ii) Imperial
Bank(1)
10.19 Convertible Preferred Stock Purchase Agreement, dated as of July
15, 1998, between KA Investments LDC and the Company [incorporated
herein by reference to Exhibit 10.1 to the July 1997 Form 8-K]
10.20 Registration Rights Agreement, dated as of July 15, 1998,
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------
<S> <C>
between KA Investments LDC and the Company [incorporated
herein by reference to Exhibit 10.2 to the July 1998 Form 8-K]
10.21 Lease Agreement for Unapix Production West's office space located
at 10950 West Washington Boulevard, Culver City, California 90232
(1)
10.22 Lease Agreements for Unapix Direct Media's and The Jazz Store's
offices located at 427 Bloomfield Avenue, Montclair, New Jersey
07042 (1)
10.23 Sublease Agreement for Unapix International's Office space located
at 15910 Ventura Boulevard, Encino, California (1)
10.24 Amendment No. 3 to Revolving Credit Loan and Security Agreement,
entered into April 14, 1999, by and between (i) Unapix
Entertainment, Inc. and Miramar Images, Inc. and (ii) Imperial
Bank (1)
21.1 Subsidiaries (1)
23.1 Consent of Richard A. Eisner & Company, LLP. (1)
27.1 Financial Data Schedules (1)
</TABLE>
- ----------
(1) Filed herewith.
* Management contract or compensatory plan or arrangement.
35
<PAGE>
SIGNATURES
In accordance with 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 on the 14th day of April, 1999.
UNAPIX ENTERTAINMENT, INC.
By: /s/Herbert M. Pearlman
------------------------------
Herbert M. Pearlman
Chief Executive Officer
(principal executive officer)
By: /s/Cheryl Freeman
------------------------------
Cheryl Freeman
Chief Financial Officer
(principal financial and
accounting officer)
36
<PAGE>
In accordance with 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.
/s/Herbert M. Pearlman Chairman of the
- ----------------------- Board of Directors April 14, 1999
Herbert M. Pearlman and Chief Executive
Officer
/s/David S. Lawi Chairman of the Executive
- ----------------------- Committee and Director April 14,1999
David S. Lawi
/s/Robert Baruc Office of the President
- ----------------------- and Director April 14, 1999
Robert Baruc
/s/Scott Hanock Office of the President
- ----------------------- and Director April 14, 1999
Scott Hanock
/s/Walter M. Craig, Jr. Director April 14, 1999
- -----------------------
Walter M. Craig, Jr.
/s/Lawrence Bishop Director April 14, 1999
- -----------------------
Lawrence Bishop
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Unapix Entertainment, Inc.
We have audited the accompanying consolidated balance sheet of Unapix
Entertainment, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the two-year period then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Unapix Entertainment,
Inc. and subsidiaries as of December 31, 1998, and the consolidated results of
their operations and their consolidated cash flows for each of the years in the
two-year period then ended in conformity with generally accepted accounting
principles.
/s/ Richard A. Eisner & Company, LLP
New York, New York
April 1, 1999, except for Note 4 as
to which the date is April 12, 1999
F-1
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
1998
--------
<S> <C>
ASSETS
Cash and cash equivalents $ 1,707
Accounts receivable, net of allowances of $1,909 18,968
Film costs, net 36,525
Product inventory 2,978
Property and equipment, net 1,037
Other assets 1,389
Excess of cost over fair value of net assets acquired, net 3,279
--------
Total Assets $65,883
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities :
Accounts payable and accrued expenses $ 8,845
Deferred income taxes 1,104
Royalty payable 5,234
Bank line of credit 9,978
Variable rate senior subordinated notes 2,608
10% convertible subordinated notes 13,343
--------
Total Liabilities $41,112
--------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock; $.01 par value; 3,000,000 authorized
Cumulative convertible Series A 8% preferred stock;
501,000 issued and outstanding (aggregate liquidation
preference of $1,503) 5
Non-voting convertible Series B 6% preferred stock;
300 shares issued and outstanding, (aggregate liquidation
preference of $3,000) --
Cumulative Convertible Series C 8% preferred stock;
675 shares issued and outstanding (aggregate liquidation
preference of $675) --
Common stock $.01 par value per share; 40,000,000 authorized; --
7,515,000 shares issued and outstanding 76
Additional paid-in capital 26,695
Notes receivable from equity sales (2,715)
Retained Earnings 710
--------
Total Stockholders' Equity $24,771
--------
Total Liabilities and Stockholders' Equity $65,883
--------
--------
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997
---- ----
<S> <C> <C>
Revenues:
Licensing and distribution $ 11,679 $ 12,671
Home video 24,802 19,481
-------- --------
36,481 32,152
-------- --------
Operating costs:
Licensing and distribution 7,543 8,947
Home video 14,396 12,571
General and administrative expenses 12,685 7,364
Other - non recurring 333 --
-------- --------
34,957 28,882
-------- --------
Income from operations 1,524 3,270
Interest and other debt expense, net (1,248) (977)
-------- --------
Income before provision for income taxes 276 2,293
Provision for income taxes 166 946
-------- --------
Net income $ 110 $ 1,347
Loss preferred stock dividends 203 121
-------- --------
Net income (loss) available to common shareholders $ (93) $ 1,226
-------- --------
-------- --------
Net income (loss) per common share
Basic $ (.01) $ .21
-------- --------
-------- --------
Diluted $ (.01) $ .19
-------- --------
-------- --------
Weighted average number of common shares outstanding
Basic 6,783 5,796
-------- --------
-------- --------
Diluted 6,783 6,465
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Convertible Convertible Convertible
Preferred Preferred Preferred
Common Stock Stock Series A Stock Series B Stock Series C
-------------- -------------- -------------- --------------- Notes Retained
Par Par Par Par Additional Receivable Earnings
Value Value Value Value Paid-in on Stock (Accumulated)
Shares ($.01) Shares ($.01) Shares ($.01) Shares ($.01) Capital Sales (Deficit) Total
------ ------ ------ ------ ------ ------ ------ ------ ------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 5,325 $53 534 $5 $15,273 $(2,033) $ (484) $12,814
Notes receivable on
common stock sales
and exercise of
warrants 16 16
Acquisition of
subsidiary 314 3 1,397 1,400
Exercise of options
and warrants 109 2 271 273
Warrant, option and
private placement
expenditures (14) (14)
Issuance of common
stock 202 2 7 9
Preferred stock
dividends (61) (60) (121)
Common stock issued
in lieu of cash
dividend 19 82 82
Issuance of warrants 224 224
Preferred stock
conversion 33 (33)
Net income for 1997 1,347 1,347
------ ------ ------ ------ ------ ------ ------ ------ -------- ------- ------ -------
Balance at
December 31, 1997 6,002 $60 501 $5 $17,179 $(2,017) $ 803 $16,030
</TABLE>
F-4
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Convertible Convertible Convertible
----------- ----------- -----------
Preferred Preferred Preferred
--------- --------- ---------
Common Stock Stock Series A Stock Series B Stock Series C
-------------- -------------- -------------- --------------- Notes Retained
Par Par Par Par Additional Receivable Earnings
Value Value Value Value Paid-in on Stock (Accumulated)
Shares ($.01) Shares ($.01) Shares ($.01) Shares ($.01) Capital Sales (Deficit) Total
------ ------ ------ ------ ------ ------ ------ ------ ------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1998 6,002 $60 501 $5 $17,179 $(2,017) $803 $16,030
Repayment on Notes 80 80
Acquisition of
subsidiary 75 1 169 170
Exercise of
warrants,
net of expenses
$313,000 1,399 14 5,620 (778) 4,856
Sale of preferred
stock, net 300 500 3,315 3,315
Preferred Stock
issued in payment
of principal
variable rate note 175 175 175
Preferred stock
dividends (203) (203)
Common stock issued
in lieu of cash
dividend 39 1 118 119
Issuance of warrants 119 119
Net income for 1998 110 110
------ ------ ------ ------ ------ ------ ------ ------ -------- ------- ------ -------
Balance at
December 31, 1998 7,515 $76 501 $5 300 -- 675 -- $26,695 $(2,715) $710 $24,771
</TABLE>
F-5
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 110 $ 1,347
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization and depreciation 13,113 15,200
Deferred income taxes 107 867
Accretion of notes discount 114 90
Film rights received -- (900)
Increase in accounts receivable, net (4,613) (3,802)
Increase in product inventory (1,325) (605)
(Increase) decrease in other assets 927 (800)
Increase (decrease) in accounts payable and
accrued expenses 1,256 (1,582)
Increase in royalties payable 1,489 976
-------- --------
Total cash flows provided by operating activities 11,178 10,791
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES -
Film cost expenditures (24,344) (19,600)
Acquisition of subsidiary -- (736)
Purchase of property and equipment (428) (234)
-------- --------
Total cash flows used by investing activities (24,772) (20,570)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 10% convertible
notes private placement 4,052 2,511
Proceeds from preferred stock offerings, net 3,315 --
Repayments on variable rate notes (128) --
Net borrowings under bank line of credit 3,185 6,484
Proceeds from employee notes receivable 80 55
Proceeds from warrant and option exercises 4,856 234
Advances from affiliates 700 300
Repayments of advances and other
obligations to affiliates (1,100) --
Preferred stock dividends (84) (39)
-------- --------
Total cash flows from financing activities $ 14,876 $ 9,545
-------- --------
</TABLE>
F-6
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997
------ ------
<S> <C> <C>
NET INCREASE(DECREASE)IN CASH AND
CASH EQUIVALENTS $ 1,282 $ (234)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 425 659
------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1,707 $ 425
------- -------
------- -------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Film cost additions 999 1,812
Equipment acquired under capital lease 217 109
Acquisition of subsidiary 170 2,365
Warrants issued 119 224
Conversion of accrued liability
to acquisition fund payable -- 71
Preferred stock dividends paid in common stock 119 82
Notes received for employee common stock purchase -- 39
Notes received for exercise of warrants 778 --
Exchange of debt payable to affiliates
for 10% convertible subordinated notes 1,000 --
Series C preferred stock issued for principal
payment on variable rate senior subordinated note 175 --
------- -------
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 2,533 $ 1,390
------- -------
------- -------
Cash paid for taxes $ 133 $ 65
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS:
Unapix Entertainment, Inc. and its subsidiaries (the "Company"), is a world-wide
licensor, distributor and producer of programming and feature films for the
television market (including free and pay television, cable and satellite), the
home video market (including video cassette, laser disc and digital video disks)
and the consumer market (including direct response and electronic commerce). Due
to the similarity in products, management considers such operations to be one
reportable segment.
SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies consistently
followed by the Company in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that effect the amounts
reported in the financial statements and related notes. Actual amounts could
differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Unapix
Entertainment, Inc., its wholly-owned subsidiaries and an immaterial majority
owned subsidiary. All significant intercompany balances and transactions have
been eliminated.
REVENUE AND COST RECOGNITION:
Revenues earned under non-cancelable film and television programming licenses
are recognized when the films or programming are made available to the licensee
and all other conditions of the sale are met. Home video and direct marketing
revenues are recorded upon shipment. The Company provides for estimated future
returns and allowances at the time the units are sold. Revenues relative to
other services are recognized when such services are performed.
Film costs include the direct costs of acquiring and producing films and
television programming, as well as exploitation costs which benefit future
periods. The Company amortizes film costs using the
individual-film-forecast-computation method. This method amortizes costs in the
same ratio that current gross revenues bear to anticipated total gross revenues
for each particular film. The anticipated total gross revenues are reviewed
quarterly by management, which may result in revised amortization rates and,
when applicable, write downs to net realizable value. Direct costs, such as
duplication and shipping, are expensed as the related product is shipped.
Film costs are stated at the lower of unamortized historical cost or estimated
net realizable value. Participation, royalty, and commission expense, to the
extent that such amounts can be reasonably estimated, are accrued when revenue
is recognized on the related license agreement.
F-8
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT:
Property and equipment, which are stated at cost, are depreciated using the
straight-line method over estimated useful lives of 3 to 10 years.
PRODUCT INVENTORY
Product inventory consisting principally of video cassettes are stated at the
lower of cost on a first-in-first-out basis or market.
EARNINGS (LOSS) PER COMMON SHARE
The net income (loss) per basic common share is computed by dividing the net
income (loss) available to common shareholders by the weighted average number of
common shares outstanding.
Net income per diluted share is computed by dividing the net income available to
common shareholders, adjusted on an as if converted basis, by the weighted
average number of common shares outstanding plus potential dilutive securities.
<TABLE>
<CAPTION>
Shares (In Thousands)
---------------------
1998 1997
---- ----
<S> <C> <C>
Weighted average basic shares outstanding 6,783 5,796
Effect of dilutive securities:
Options -- 550
Warrants -- 119
----- -----
Weighted average dilutive shares outstanding 6,783 6,465
----- -----
----- -----
</TABLE>
<TABLE>
<CAPTION>
Dollars (In Thousands)
----------------------
1998 1997
---- ----
<S> <C> <C>
Net income $ 110 $1,347
Less preferred stock dividends 203 121
------ ------
Net income (loss) available to common shareholders
per basic and dilutive share $ (93) $1,226
------ ------
------ ------
</TABLE>
F-9
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS (LOSS) PER COMMON SHARE (CONTINUED)
Securities not included in the calculation of diluted earnings per share for the
years ended December 31, because of their anti-dilutive effects are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Options 3,079 340
Warrants 2,953 2,047
Shares issuable on conversion of preferred stock 1,671 505
Shares issuable on conversion of convertible notes 3,177 1,860
------ -----
10,880 4,752
------ -----
------ -----
</TABLE>
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
STOCK OPTIONS AND WARRANTS:
The Company accounts for stock options and warrants issued to employees in
accordance with Accounting Principles Board Opinion 25 "Accounting for Stock
Issued to Employees." For financial statement disclosure purposes and issuance
of options and warrants to non-employees for services rendered, the Company
follows SFAS 123, "Accounting for Stock-Based Compensation."
EXCESS OF COST OVER FAIR VALUES OF NET ASSETS ACQUIRED
Excess of cost over the fair value of net assets acquired is being amortized on
a straight line basis over 20 years and is evaluated periodically, and adjusted
if necessary, if events and circumstances indicate that the carrying amount is
impaired. As of December 31, 1998 accumulated amortization amounted to $288,000.
2. FILM COSTS
The Company's film costs include (in thousands):
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Films released $ 78,418
Accumulated amortization (54,260)
------------
24,158
Films in process 12,367
------------
$ 36,525
------------
------------
</TABLE>
The Company expects that it will amortize approximately 80% of its remaining
film costs during the three-year period ending December 31, 2001.
F-10
<PAGE>
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Furniture and equipment $1,666
Leasehold improvements 242
------------
1,908
Less accumulated depreciation 871
------------
$1,037
------------
------------
</TABLE>
Equipment acquired under capital leases and related depreciation amount to
$326,000 and 65,000, respectively.
4. FINANCING
BANK LINE OF CREDIT:
The Company has a $10,000,000 revolving credit facility (increased from
$7,000,000 on March 25, 1998) with Imperial Bank dated April 17, 1997. The
parties expect to amend the agreement to provide for total borrowings of up to
$20,000,000 which includes a revolving credit of up to $15,000,000 based on the
Company's qualifying accounts receivable and other contractual rights to payment
and up to $5,000,000 for qualifying film productions. The amendment will extend
the facility to March 2001 and is contingent upon the bank obtaining a
participant for the credit facility, which management expects to occur in the
very near future. Pending obtaining a participant, the present facility was
amended April 12, 1999 to provide for borrowings of up to $13,000,000 based on
qualifying accounts receivable and other contractual rights to payment and the
agreement was extended to March 2, 2000. Beginning May 3, 1999 and each month
thereafter, the maximum amount available decreases by $500,000 but not below
$10,000,000. Interest on the outstanding loan balance accrues at a rate of 1.25%
per annum in excess of the Bank's publicly announced benchmark rate (7.75% at
December 31, 1998). The Company is also required to pay an unused credit line
fee at a rate equal to .5% per annum of the amount by which the collateral base
exceeds the average daily loan balance during any calendar quarter. Outstanding
amounts under the facility are collateralized by a security interest in
substantially all of the Company's assets.
The facility contains restrictive covenants that require minimum tangible net
worth. The covenants also, among other things, prohibit the payment of cash
dividends on the Company's common stock, require minimum amounts of tangible net
worth and limit (a) the Company's ratio of debt to net worth on a consolidated
basis, (b) the amount of cost that the Company can incur in producing, financing
or acquiring entertainment properties, (c) the amount of cost and expenses that
the Company may incur with respect to theatrical releases of films, and (d)
limits the Company to incurring losses for two consecutive quarters.
VARIABLE RATE SENIOR SUBORDINATED NOTES:
The variable rate senior subordinated notes ("variable rate notes") of
$2,608,000, net of unamortized discount of $114,000 at December 31, 1998, were
F-11
<PAGE>
4. FINANCING (CONTINUED)
issued with common stock purchase warrants in a private placement. The units
were sold only to accredited investors by officers of the Company (without
remuneration). Certain customers of an investment advisory firm, of which a
director of the Company is an Executive Vice President, acquired the units in
the placement. The variable rate notes bear interest at a rate of 10% per annum
through 1998 and at 3% over the prime rate thereafter, provided however, that
the rate does not fall below 8% or exceed 12% per annum. Mandatory repayment of
10% of the original principal amount commenced in 1998, to be followed by 15% of
the original principal amount in 1999 and 2000 with the balance due in 2001. The
1998 principal payment of $303,000 was paid in cash for $128,000 and through the
issuance of 175 shares of Series C Preferred Stock valued at $175,000.
The variable rate notes are subordinated to indebtedness of the Company to a
bank or other financial institution. The Company may redeem all or a portion of
the notes at any time after December 31, 1998 at a premium over the principal
amount of the notes of 4%, which declines annually at the rate of 2% until
January 1, 2001, after which the redemption price will be the principal amount
of the notes. A total of 425,804 warrants were issued in this offering, each
such warrant entitles the holder to purchase common stock at an exercise price
of $3.70 per share and expires on December 31, 2001. The holders of the warrants
are entitled to certain registration rights with respect to the shares issuable
upon exercise thereof.
10% CONVERTIBLE NOTES:
In 1996 and through the first half of 1997, the Company completed a
$7,222,500 principal amount private offering of units (proceeds of $5,947,500
in 1996 and $1,275,000 in 1997), each consisting of a 10% $250,000 principal
amount of convertible subordinated note due June 30, 2003 convertible into
common stock at $4.44 per share and warrants to purchase common stock, at an
exercise price of $5.62 per share expiring June 30, 2003. Such warrants
(771,085), were valued at $471,000 (unamortized balance of $366,000 at
December 31, 1998) and recorded as debt discount. The warrants and notes are
redeemable by the Company under certain circumstances. The Company incurred
placement and finders' fees of $394,000 and granted warrants to purchase
295,000 shares of common stock at $4.50 expiring in five years. Such warrants
were valued at $167,000 and recorded as deferred financing costs which are
being amortized over the term of the notes.
In the fourth quarter of 1997, the Company sold in a private placement
$1,300,000 principal amount of 10% convertible notes due June 30, 2004. The
notes are convertible into common stock at $4.87 per share. For every $1,000
principal amount of notes purchased, the holders also received warrants to
purchase common stock at $5.64 per share expiring June 30, 2004. Such warrants
(138,298) were valued at $86,000 (unamortized balance of 64,000 at December 31,
1998) and recorded as debt discount. The notes are redeemable by the Company
beginning July 1, 1999 at a premium. The warrants are redeemable on or after
July 1, 2000. The Company also issued warrants expiring December 31, 2002 to
purchase 26,000 shares of common stock at $5.00 per share as a placement fee.
Such warrants were valued at $21,000 and recorded as deferred finance costs,
which are being amortized over the term of the notes.
F-12
<PAGE>
4. FINANCING (CONTINUED)
In February 1998, the Company issued, in a private placement, $5,250,000
principal amount of 10% convertible subordinated notes due June 30, 2003
("Notes") convertible initially into common stock at $4.75 per share. The
conversion price on $4,250,000 principal amount of notes is subject to
adjustment in certain circumstances, including resets at September 1, 1998 and
March 1, 1999 to 110% of the then current market price of the common stock but
not less than $4.00 and $3.50 respectively. The conversion price was reset to
$4.00 at September 1, 1998 and to $3.50 at March 1, 1999.
On conversion, the holders of $4,250,000 principal amount will receive warrants
to purchase common stock (an aggregate of 538,249) at $5.92 per share expiring
June 30, 2003. If a holder converts the Note prior to September 1, 1999, the
holder will receive an amount equal to 75% of the interest which would have
accrued from the date of conversion through September 1, 1999. The holders of
$1,000,000 principal amount will receive on conversion, warrants to purchase
145,068 shares of common stock at $5.17 per share expiring June 30, 2003. The
Company also issued warrants expiring June 30, 2003 to purchase 43,074 shares of
common stock at $5.92 per share as a placement fee which were valued at $63,000
and recorded as deferred financing costs. Notes in the principal amount of
$900,000 were issued to certain investors in a film acquisition fund in exchange
for their interests therein as described below.
ACQUISITION FUND:
In December 1993, an acquisition fund was created for the purpose of funding the
acquisition of the distribution rights to independently produced films. The
initial investors in the fund were the Chairman, Secretary and an investor who
is a customer of an investment advisory firm, of which a director of the Company
is an Executive Vice President, and a partnership of which the same Director is
a general partner. As of December 31, 1997, the Company owed the acquisition
fund $1,035,000, representing advances and related film profits earned. In
February 1998, the fund was terminated and the Company issued $900,000 principal
amount of 10% convertible subordinated notes due June 30, 2003 and a $200,000
promissory demand note with interest at 10% (which was subsequently repaid) in
exchange for the obligations to the acquisition fund.
OTHER:
Short term loans of $1,000,000 were obtained, of which $300,000 was received in
December 1997 and $700,000 in January 1998. Loans were extended by Mezzanine
Financial Corp. ($750,000), the Chairman ($150,000) and the Secretary ($100,000)
in order to enable the Company to fund program acquisitions in accordance with
its expansion plans pending the completion of the private offering of 10%
convertible notes. The Chairman and Secretary are also officers and directors of
Mezzanine Financial Corp. Upon completion of the offering of Notes, proceeds of
$250,000 were used to repay the loans from the Chairman and the Secretary, and
proceeds of $650,000 were used to repay Mezzanine Financial Corp. The remaining
$100,000 of the Mezzanine loan was exchanged for an equivalent amount of Notes.
F-13
<PAGE>
4. FINANCING (CONTINUED)
Maturities of debt subsequent to December 31, 1998, in thousands, are as
follows:
<TABLE>
<CAPTION>
Bank Line Variable Convertible
Total of Credit Rate Notes Notes
-------- --------- ---------- -----------
<S> <C> <C> <C> <C>
1999 $ 454 $ $ 454
2000 10,432 9,978 454
2001 1,814 1,814
2002 -
2003 12,473 12,473
2004 1,300 1,300
------ ------- ------- -------
26,473 9,978 2,722 $13,773
Less debt discount (544) -- (114) (430)
------ ------- ------- -------
$25,929 $9,978 $2,608 $13,343
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
5. STOCKHOLDERS' EQUITY
NOTES RECEIVABLE FROM EQUITY SALES:
In September 1995, the Company completed the placements of 420,000 shares of
common stock under a stock purchase plan ("the Plan") which permitted certain of
the Company's employees, directors and consultants to purchase units ("Units"),
each of which consists of one share of common stock, one common stock purchase
warrant with an exercise price of $19.05 per share and one common stock purchase
warrant with an exercise price $28.57 per share. The warrants expire on December
31, 2000. They are redeemable by the Company (at a price of $0.025 per warrant)
at any time after the closing sales price of the common stock has been at least
125% of the then effective exercise price of the warrants for a period of 20
consecutive business days after the underlying shares of common stock have been
registered under the Securities Act of 1933. The purchase price of each unit was
$4 (which was the closing market price of the common stock on effective date of
the Plan). The Company ascribed a diminimus value to the common stock purchase
warrants.
The Plan permitted participants to acquire Units by paying 5% of the total price
upon purchase and delivering a promissory note for the remaining 95% of the
price. Each note provides for the annual payment of 5% of the original principal
amount thereof, commencing in 1996, with a balloon payment of the remaining
unpaid principal amount of the note payable on a specified date in 2005 (the
"Maturity Date"). Interest accrues on each Note at a rate of 6% per annum,
payable on the last day of each year throughout the term of the Note, with all
remaining accrued and unpaid interest due on the Maturity Date.
Each participant pledged 95% of the Units that they acquired under the plan to
the Company as security for such participant's Note. Such Units may be released
to the participant as the Note is paid under certain circumstances. Participants
are permitted to make payments under their Notes by delivering shares of common
stock that they own, including pledged shares, which are credited against
amounts owed under their Notes at fair market value thereof. Purchasers of Units
are entitled to certain registration rights with respect to the securities
comprising the Units.
F-14
<PAGE>
5. STOCKHOLDERS' EQUITY (CONTINUED)
CUMULATIVE CONVERTIBLE SERIES A PREFERRED STOCK:
As of December 31, 1998 there are 501,114 shares of Cumulative Convertible
Series A 8% Preferred Stock outstanding. Each share has a liquidation preference
of $3.00 plus accumulated and unpaid dividends; is convertible into 1.05 shares
of common stock at any time prior to redemption; and is entitled to one vote.
Semi-annual dividends of $0.12 per share are payable on June 30 and December 31.
The Company may redeem the shares if the market price of the common stock has
exceeded twice the then applicable conversion price at a time when the
underlying shares of common stock are registered under the Securities Act of
1933. The Company may redeem the shares at a premium of 3% declining annually at
the rate of 1% until January 1, 2002, after which the redemption price will be
$3.00. The Company accepted 9% promissory notes aggregating $95,000, of which
$20,000 was paid at December 31, 1998, from three officers in connection with
their participation in the preferred stock offering. The corresponding shares
are held by the Company as collateral for the notes. The Company declared
dividends of $121,000 for each of the years ended December 31, 1998 and 1997.
Shareholders were given the option of receiving shares of common stock (at a
price equal to 90% of the average closing sales price of the common stock over
the last 10 trading days preceding the dividend payment date) in lieu of the
cash dividend declared, which resulted in $73,000 and $82,000 of the dividends
being paid in shares of common stock for the years ended December 31, 1998 and
1997, respectively, and the remainder in cash.
NON-VOTING CONVERTIBLE SERIES B PREFERRED STOCK:
On July 15, 1998, the Company completed a private placement of 300 shares of its
non-voting Series B preferred stock and a three-year warrant to purchase 200,000
shares of common stock at $5.16 per share for a gross purchase price of
$3,000,000. Each share of Series B preferred stock has a stated value of $10,000
and provides for dividends cumulatively at 6% per annum payable quarterly in
cash, or, at the Company's option, under certain circumstances, in common
stock. For 1998 the Company declared dividends of $82,000 of which $36,000 was
paid in cash and $46,000 was paid in common stock. The Series B preferred is
convertible, on or after January 16, 1999 into common stock at the lesser of
$5.16 or the average closing sales price for any two trading days during the ten
trading day period prior to conversion but not less than 80% of the average
closing sales price over the five trading days preceding July 16, 1998 subject
to antidilution adjustments. Prior to January 16,1999, conversions are only
permitted at a conversion price greater than 101% of the average closing price.
Any remaining Series B preferred stock is automatically converted into common
stock on June 15, 2000. The investor has, except for certain defined
circumstances, the right of first refusal for any private placement of the
Company's common stock or any of its derivative securities prior to July 15,
1999.
The holders have registration rights and are entitled to certain specified
remedies and, under certain circumstances controllable solely by the Company,
are entitled to require the Company to redeem their shares of Series B preferred
stock at a premium, if the Company does not timely comply with its obligations
with respect to the preferred stock. The Company incurred as a placement fee,
$150,000 in cash and a three-year common stock purchase warrant to purchase
50,000 shares of common stock at an exercise price of $5.16 per share.
F-15
<PAGE>
5. STOCKHOLDERS' EQUITY (CONTINUED)
CUMULATIVE CONVERTIBLE SERIES C PREFERRED STOCK:
In December 1998 the Company initiated a private placement of up to 2,500 shares
of Series C 8% cumulative convertible preferred stock each of which has a stated
value of $1,000 per share and is convertible into common stock at a conversion
price of $2.50 per share. The offering price is $1,000 per share. The Series C
preferred stock provides for cumulative cash dividends at an annual rate of 8%
of the stated value per share. At the Company's option, dividends that accrue
through December 31, 2000 may be paid in common stock. The Company may redeem
the Series C preferred stock beginning in 2002 at a premium of $60 per share
which declines to zero in 2008 and thereafter. Holders of Series C are entitled
to the number of votes that equals the number of common shares issuable on
conversion. So long as shares of Series B preferred stock are outstanding, the
Company cannot redeem Series C preferred stock without the prior written consent
of the holders of Series B. Proceeds of $500,000 were received through December
31, 1998 of which $300,000 was received from two officers and directors of the
Company.
WARRANTS:
A summary of the status of the Company's warrants as of December 31, 1998 and
1997, and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
Weighted Weighted
Shares Average Shares Average
(000) Exercise Price (000) Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 3,947 $ 8.76 3,593 $9.07
Granted 380 $ 5.20 354 $5.61
Exercised (1,399) ($ 4.26) -- $ --
Forfeited (658) ($22.69) -- $ --
Outstanding at end of year
------ -----
2,270 $ 6.92 3,947 $8.76
------ ------- ----- -----
------ ------- ----- -----
Warrants exercisable at year-end 2,270 $ 6.92 3,947 $8.76
------ ------- ----- -----
------ ------- ----- -----
Weighted-average fair value
of warrants granted during
the year
$ 1.83 $ .65
------- -----
------- -----
</TABLE>
F-16
<PAGE>
5. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information relating to warrants outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
--------------------------------------------- --------------------------
Number Weighted-average Weighted- Number Weighted-
Range Outstanding Remaining Average Exercisable Average
Exercise Prices At 12/31/98 Contractual Life Exercise Price At 12/31/98 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.14 - $ 4.50 762 1 $ 4.04 762 $ 4.04
$ 4.91 - $ 6.00 1,277 4 $ 5.58 1,277 $ 5.58
$19.05 - $28.57 231 2 $23.81 231 $23.81
------ -----
$ 3.14 - $28.57 2,270 3 $ 6.92 2,270 $ 6.92
------ -----
------ -----
</TABLE>
In 1998 class B warrants were exercised for the purchase of 1,359,000 shares of
common stock. The Company received net cash proceeds of $4,725,000 and
promissory notes of $778,000 (including $632,000 of notes from directors and
other related parties. Principal payments of 10% are due each year for four
years with the balance due at the end of the fifth year with interest at 5.8%
per annum).
EMPLOYEE STOCK OPTION PLAN:
The 1993 Option Plan, as amended, (the "Plan") authorizes the grant of options
to purchase up to an aggregate of 1,225,000 shares. Both non-qualified options
and options intended to qualify as "Incentive" stock options under Section 422
of the Internal Revenue Code of 1986, as amended, may be granted under the Plan.
A Stock Option Committee of the Board of Directors administers the Plan. The
exercise price of any option granted under the Plan shall not be less than the
fair market value of the common stock on the date of the grant.
A summary of the status of the Company's employee stock options as of December
31, 1998 and 1997, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997
----------------------- --------------------
Weighted Weighted
Shares Average Shares Average
(000) Exercise Price (000) Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 398 $ 3.77 419 $ 3.52
Granted 584 $ 2.69 71 $ 4.59
Exercised -- -- (68) ($2.86)
Forfeited (55) ($2.86) (24) ($4.40)
---- ---
Outstanding at end of year 927 $ 2.75 398 $ 3.77
---- ------ ---- ------
---- ------ ---- ------
Options exercisable at year-end 472 $ 2.84 381 $ 3.76
Weighted-average fair value
of options granted during the year $ 1.41 $ 1.91
----- ------
----- ------
</TABLE>
On December 9, 1998, the exercise price for 559,750 employee stock options
held by non-director employees was restated to $2.86. The original exercise
prices for these options, a substantial portion of which was granted in
1998, range from $3.93 to $6.38.
F-17
<PAGE>
5. STOCKHOLDERS' EQUITY (CONTINUED)
Other Options:
In April 1993, the Company granted options to purchase an aggregate of 945,000
shares of Common Stock at an exercise price of $2.86 per share to employees and
other persons considered to be instrumental to the progress of the Company. The
options are exercisable at various times through June 2003.
A summary of the status of the Company's other stock options as of December 31,
1998 and 1997, and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
Weighted Weighted
Shares Average Shares Average
(000) Exercise Price (000) Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,987 $ 3.37 1,536 $ 2.98
Granted 320 $ 2.80 491 4.45
Exercised (40) (1.79)
-- --
Forfeited (155) ($2.86) -- --
----- -----
Outstanding at end of year 2,152 $2.99 1,987 3.37
----- -------- ------ -------
----- -------- ------ -------
Options exercisable at year-end 1,228 $ 3.03 1,224 3.34
----- -------- ------ -------
----- -------- ------ -------
Weighted-average fair value
of options granted during the year $ 1.37 $ 1.85
------ ------
------ ------
</TABLE>
On December 9, 1998, the exercise price for 560,200 other stock options held by
non-director employees was restated to $2.86. The original exercise prices for
these options range from $4.00 to $4.81.
The following table summarizes information related to options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Range Number Weighted- Weighted- Number Average
Exercise Outstanding Average Average Exercisable Exercise
Prices At 12/31/98 Remaining Exercise At 12/31/98 Price
Contractual Price
Life
<S> <C> <C> <C> <C> <C>
$1.10 -
$2.86 2,979 6 $2.80 1,675 $2.76
$4.50 -
$4.57 100 8 $4.52 25 $4.50
----- -----
$1.10 -
$4.57 3,079 6 $2.85 1,700 $2.78
----- -----
----- -----
</TABLE>
F-18
<PAGE>
5. STOCKHOLDERS' EQUITY (CONTINUED)
The fair value of each warrant and option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1998 and 1997: expected
volatility of thirty-seven (37%) percent to forty seven (47%) percent, risk-free
interest rates ranging from 4.21% to 6.49%, and expected life ranging from 3 to
10 years.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its options. Accordingly, no compensation cost has been recognized for its stock
option grants. The effect of applying SFAS No. 123 on 1998 and 1997 pro forma
net income is not necessarily representative of the effects on reported net
income for future years due to, among other things, (1) the vesting period of
stock options and (2) the fair value of additional stock options in future
years. Had compensation costs for the Company's stock option grants been
determined based on the fair value at the grant dates for awards consistent with
the method of FASB Statement 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below (in
thousands except per share data.)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C> <C>
Net income As reported $ 110 $1,347
Pro forma ($ 156) $ 718
Net income (loss) per basic
common share As reported $(0.01) $ .21
Pro forma $(0.05) $ .10
Net income (loss) per diluted
common share As reported $(0.01) $ .19
Pro forma $(0.05) $ .10
</TABLE>
Capital shares reserved for future issuance include the following (in
thousands):
<TABLE>
<S> <C>
Exercise of options granted 3,079
Exercise of warrants issued 2,270
Options available for grant under the Plan 298
Issuable upon conversion of convertible notes 3,177
Warrants issuable upon conversion of certain
10% convertible notes 683
Issuable upon conversion of Preferred Stock 1,671
-------
11,178
-------
-------
</TABLE>
F-19
<PAGE>
6. FINANCIAL INSTRUMENTS
Other than cash and cash equivalents the Company's financial instruments consist
of the bank line of credit, 10% convertible subordinated notes and variable rate
notes described in Note 4 and notes receivable from common stock and convertible
preferred stock sales described in Note 5. Management believes that based on the
current interest rate, and provision for future adjustment of such rate, the
fair value of the variable rate notes and 10% convertible subordinated notes
approximates their face value. The fair value of the notes receivable from
common stock and convertible preferred stock sales is not readily determinable.
7. INCOME TAXES
The provision for income taxes for 1998 consists of current Federal and State
income taxes of $-0- and $59,000, respectively, and deferred taxes of $107,000.
The provision for income taxes for 1997 consists of current federal and state
taxes of $22,000 and $57,000, respectively and deferred taxes of $867,000.
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities for financial reporting purposes and the tax
law treatments of such amounts. The principal items comprising deferred taxes
are differences in accounts receivable valuation reserves, film inventory
amortization and the net operating loss carryover.
The deferred tax assets (liabilities) as of December 31, 1998, in thousands, are
as follows:
<TABLE>
<S> <C>
Accounts receivable and general reserves 248
Film inventory amortization (2,702)
Net operating loss carryforwards 1,053
Other items 297
-------
Net $(1,104)
-------
</TABLE>
A reconciliation between the actual income tax expense and income taxes computed
by applying the Federal income tax rate to income before taxes, in thousands, is
as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Computed at federal
statutory rate of 34% $ 94 $780
Permanent differences 61 65
State taxes, net of
federal benefit 7 94
Other 4 7
---- ----
$166 $946
---- ----
</TABLE>
At December 31, 1998, net operating loss carryforwards available to reduce
future federal taxable income amounted to approximately $2,633,000, expiring at
various dates through 2018.
F-20
<PAGE>
8. OPERATING LEASES
The Company leases office facilities and certain equipment under non-cancelable
operating lease agreements expiring through January 2007. Total lease expense
for the years ended December 31, 1998 and 1997 were $571,000 and $506,000,
respectively. The Company also has various equipment under capital leases.
Minimum future payments, in thousands, as of December 31, 1998 are:
<TABLE>
<CAPTION>
Operating Capital
--------- -------
<S> <C> <C>
1999................................. 671 98
2000................................. 800 98
2001................................. 762 92
2002................................. 726 16
2003................................. 677
2004 and later....................... 994
------- ----
Total lease payments................. $4,630 304
------
------
Amount representing interest......... (43)
-----
$261
-----
-----
</TABLE>
Included in the above minimum future payments, is the cost of certain executive
offices, occupied pursuant to an office sharing arrangement with an affiliate at
the monthly base rate of $2,700. The capital lease obligation of $261,000 is
included in accrued expenses.
9. COMMITMENTS AND OTHER MATTERS
Credit risk exists with respect to accounts receivable which are primarily due
from video distributors, television stations and pay cable channels. One
customer in 1998 accounted for 10% of revenues and one customer in 1997
accounted for 12%.
As of December 31, 1998, commitments for advances and guaranteed royalties
amounted to $7,000,000.
The Company is involved in legal proceedings which it considers to be incidental
to its business. The Company believes that any liability which may arise as a
result of any such proceedings will not have a material adverse effect on its
financial condition.
The Company has a 401(K) defined contribution plan which covers substantially
all employees. Participants may contribute up to 15% of compensation, as
defined, subject to limitations. Company matching contributions are
discretionary. The Company's contributions amounted to $15,000 in 1997.
10. RELATED PARTY TRANSACTIONS
General and administrative costs include $133,000 and $132,000 for services
rendered by an affiliate for the years ended December 31, 1998 and December 31,
1997, respectively.
F-21
<PAGE>
11. ACQUISITIONS
In March 1997 the Company acquired all of the capital stock of Miramar Images,
Inc. ("Miramar"), a producer and distributor of music videos and audio
recordings primarily for the New Adult Contemporary market, for 313,500 shares
of the Company's common stock valued at $1,400,000 and by assuming certain
obligations of $964,000 and $736,000 of other costs. The acquisition of Miramar
was accounted for as a purchase and the Company recorded $3,100,000 of excess
cost over fair value of net assets in connection with the acquisition which
is being amortized over 20 years. The operating results of Miramar have been
included in the consolidated statement of operations from the date of
acquisition.
In connection with the acquisition, the Company entered into a four-year
employment agreement with the then president of Miramar providing for, among
other things, an annual salary of $125,000 per year, a performance bonus equal
to 5% of Miramar's pre-tax profit (as defined), and one-half of one percent of
the increase of the gross revenues of Miramar over its revenues for the
immediately preceding year. In addition, for each fiscal year commencing on or
after January 1, 1998, if such increase in revenues is equal to or greater than
20% of such preceding year's gross revenues, then the president also will
receive one-half of one-percent of the excess of such previous year's gross
revenues over the gross revenues realized by Miramar during the second
immediately preceding fiscal year. The Company also issued an aggregate of
210,000 stock options to Miramar employees and consultants (including the
current president). Each option entitles the holder to purchase one share of the
Company's common stock at an original purchase price of $4.375 (i.e. $.125
above the market price of the Company's common stock on the closing date of
the acquisition), subject to the holder's continuing to be employed by the
Company. 170,000 options were subsequently restated to $2.86. The options have
a term of ten years, but subject to certain exceptions, will not be
exercisable for a period of 9.5 years unless Miramar's operations attain
certain earnings thresholds.
Assuming the acquisition of Miramar had taken place on January 1, 1997, the
proforma revenue and net income for the Company for 1997 would have been as
follows (in thousands, except per share amounts):
<TABLE>
<S> <C>
Revenues $32,561
-------
-------
Net income $ 1,159
-------
-------
Net income (loss) per common share:
Basic $ .18
-------
Diluted $ .16
-------
</TABLE>
During 1998 the Company increased its ownership in The Jazz Store, Inc. to 90%
through the conversion of $300,000 in outstanding convertible notes and the
issuance of 75,000 shares of common stock valued at $176,000. The acquisition
was accounted for as a purchase and accordingly the results of operations of the
acquired entity were included in the consolidated statements of operations from
F-22
<PAGE>
11. ACQUISITIONS (CONTINUED)
the date of acquisition. The pro forma results of operations for 1998 and 1997
assuming the acquisition had been made at the beginning of 1997 would not be
materially different from reported results.
12. EXPORT SALES
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Europe $2,833 $3,260
Asia 1,377 1,070
Latin America 979 968
Africa 167 356
Middle East 403 329
Other $ 554 $ 375
------ ------
$ 6,313 $ 6,358
------ ------
------ ------
</TABLE>
Export sale contracts are generally denominated in US dollars. For the years
ended December 31, 1998 and 1997, there were no significant foreign exchange
gains or losses.
13. OTHER EXPENSES
Non recurring costs of $333,000 in 1998 represent costs incurred primarily for
termination and relocation expenses.
F-23
<PAGE>
EXHIBIT
3.1.10
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND
RIGHTS OF SERIES C 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
UNAPIX ENTERTAINMENT, INC.
-------------------------------------------------------------
UNDER SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
-------------------------------------------------------------
UNAPIX ENTERTAINMENT, INC., a Delaware corporation, (the
"Corporation"), hereby certifies that, pursuant to the authority vested in
the Board of Directors of the Corporation under ARTICLE FOURTH of the
Corporation's Certificate of Incorporation, and in accordance with Section
151 of the Delaware General Corporation Law, the Board of Directors has
adopted the following resolution creating the Corporation's Series C 8%
Cumulative Convertible Preferred Stock, par value $.01 per share:
RESOLVED, that a series of the class of Preferred Stock, $.01 par
value, of the Corporation be, and hereby is, created and that the designation
and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such
series, and the qualifications, limitations and restrictions thereof are as
follows:
(1) DESIGNATION. A Series of Preferred Stock shall be designated and
known as the Series C 8% Cumulative Convertible Preferred Stock (hereinafter
called "Preferred Stock C"). Each share of Preferred Stock C shall be identical
in all respects with the other shares of Preferred Stock C except as to the
dates from and after which dividends shall be cumulative therefrom.
(2) NUMBER OF SHARES. The number of shares of Preferred Stock A shall
initially be 2,500 shares, which number from time to time may be increased or
decreased (but
<PAGE>
not decreased below the number of shares of the series then outstanding by the
Board of Directors. Shares of Preferred Stock C redeemed or purchased by the
Corporation shall be canceled and shall revert to authorized but unissued shares
of Preferred Stock undesignated as to series.
(3) DIVIDENDS.
(a) Cumulative dividends shall be payable on the Preferred Stock C
at an annual rate of $80 per share, payable out of funds legally available for
the declaration of dividends, but only when declared by the Board of Directors.
Dividends on shares of Preferred Stock C are payable semi-annually in arrears in
the amount of $40 per share on each of June 30 and December 31, commencing on
the first such date to occur after the date of issuance of such share; provided,
however, that the amount payable for any dividend period less than six months
will be computed on the basis of a 360 day year of twelve 30 day months. At the
Corporation's option, dividends that accrue through December 31, 2000 may be
paid in shares of Common Stock; each such share of Common Stock being valued at
90% of its current "Fair Market Value" (as defined in Section 5(g)) for the ten
(10) trading day period preceding the applicable "Dividend Payment Date" (as
defined in Section 3(b)).
(b) Dividends not paid will accumulate without interest or
additional dividends until declared and paid, which declaration and payment may
be for all or part of the then accumulated dividend. Dividends which are so
declared by the Board of Directors to be paid on a particular date (a "Dividend
Payment Date") shall only be payable to the record holders of the Preferred
Stock C on the applicable record date for such Dividend Payment Date. Any such
record date shall be a day determined by the Board of Directors, but shall not
be more
2
<PAGE>
than 15 days prior to the applicable Dividend Payment Date. The holders of
Preferred Stock C, in preference to the holders of any junior stock, shall be
entitled to receive, as and when declared by the Board of Directors, out of any
funds legally available therefor, dividends at the rate fixed in subdivision
3(a) hereof. In no event, so long as any shares of Preferred Stock C shall be
outstanding, shall any dividend, whether in cash or property, be paid or
declared, or shall any distribution be made, on any junior stock, unless all
dividends on the Preferred Stock C for all past dividend periods and for the
then current period shall have been paid or declared and a sum sufficient for
the payment thereof set apart. The provisions of this paragraph shall not,
however, apply to a dividend payable in any junior stock.
(c) Subject to the foregoing and to any further limitations
prescribed in accordance with the provisions of the Certificate of Incorporation
of the Corporation, the Board of Directors may declare, out of any funds legally
available therefor, dividends upon the then outstanding shares of any junior
stock, and/or any parity stock (other than Preferred Stock C), and no holders of
shares of Preferred stock C shall be entitled to share therein.
(d) Notwithstanding anything to the contrary contained herein, the
Corporation shall not pay any dividends in cash or property, unless it has paid,
or is simultaneously paying, all accumulated and unpaid dividends (through the
applicable Dividend Payment Date) on its "Senior Stock" (as defined in Section
(h)(10).
(4) LIQUIDATION PREFERENCE. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, then, before any distribution or payment shall be made to the
holders of any junior stock, the holders of Preferred Stock C shall be entitled
to be paid the amount of $1,000 per share, together with all accrued and
3
<PAGE>
unpaid dividends to such distribution or payment date. If such payment shall
have been made in full to the holders of Preferred Stock C, then the remaining
assets and funds of the Corporation shall be distributed among the holders of
the junior stock of the Corporation, according to their respective rights and
preferences and in each case according to their respective shares. If, upon any
liquidation, dissolution or winding up of the affairs of the Corporation, the
amounts so payable are not paid in full to the holders of all outstanding shares
of Preferred Stock C, then the holders of Preferred Stock C and the holders of
all other parity stock shall share ratably in any distribution of assets in
proportion to the full amounts to which they would otherwise be respectively
entitled according to their respective rights and preferences. The merger or
consolidation of the Corporation with or into one or more other entities or the
sale, lease or conveyance of all or a part of its assets shall not be deemed to
be a liquidation, dissolution or winding up of the affairs of the Corporation
within the meaning of the foregoing provisions of this subdivision (4).
Notwithstanding anything to the contrary contained herein, no amount shall be
distributed or paid to holders of Preferred Stock C upon the voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation unless all amounts payable to holders of Senior Stock with respect
to the voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation have been paid to them.
(5) REDEMPTION.
(a) Preferred Stock C may be redeemed, in whole or in part, at the
option of the Corporation (by resolution of its Board of Directors) at the
redemption price of $1,000 per share, in cash, together with payment of accrued
and unpaid dividends to the redemption date on the shares being redeemed, if the
average "Fair Market Value" (as defined in
4
<PAGE>
Section 5(g) below) of the Corporation's Common Stock has been at least 160%
of the then applicable conversion price of the Preferred Stock C (the "Target
Price") over a period of any twenty (20) trading days during any thirty (30)
consecutive trading day period when the "Converted Securities" (as defined in
Section 6(a) below) are registered under the Securities Act of 1933. Once the
Target Price has been reached, shares of Preferred Stock C may thereafter be
redeemed even if the Fair Market Value of the Common Stock falls below Target
Price before the date fixed for redemption.
(b) At any time and from time to time, on or after January 1, 2002
at the option of the Corporation, by resolution, of its Board of Directors, the
Corporation may redeem the Preferred Stock C, in whole or in part, at the
following prices per share (together with all dividends accrued and unpaid on
the shares being redeemed up to the date fixed for redemption) for the periods
(beginning on January 1) indicated below:
<TABLE>
<CAPTION>
YEAR PRICE
---- -----
<S> <C>
2002 $1,060
2003 1,050
2004 1,040
2005 1,030
2006 1,020
2007 1,010
2008, , and thereafter 1,000
</TABLE>
(c) If less than all the outstanding shares of Preferred Stock C
are to be redeemed pursuant to this Section (5), the shares to be redeemed shall
be determined by lot or in such other manner as the Board of Directors of the
Corporation may prescribe and which it deems fair and appropriate.
(d) Notice of every redemption of shares of Preferred Stock C
shall be
5
<PAGE>
mailed by first class mail, postage prepaid, addressed to the holders of
record of the shares to be redeemed at their respective last addresses as
they shall appear on the stock books of the Corporation. Such mailing shall
be made at least 30 days and not more than 60 days prior to the date fixed
for redemption. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
shareholder receives such notice, and failure duly to give such notice by
mail, or any defect in such notice, to any holder of shares of Preferred
Stock C designated for redemption shall not affect the validity of the
proceedings for the redemption of any other shares of Preferred Stock C.
(e) If notice of redemption shall have been duly mailed and a sum
sufficient for the payment thereof set apart or paid to the holders of the
shares so called for redemption, then, from and after the date of redemption so
designated, notwithstanding that any certificate for shares of Preferred Stock C
so called for redemption shall not have been surrendered for cancellation, the
shares represented thereby shall no longer be deemed outstanding, the dividends
thereon shall cease to accumulate and all rights with respect to the shares of
Preferred Stock C so called for redemption shall forthwith on the redemption
date cease and terminate, except only the right of the holders thereof to
receive the redemption price and all accrued and unpaid dividends to the
redemption date, but without interest.
(f) The Corporation shall not establish, and the holders of
Preferred Stock C shall not be entitled to the benefits of, any sinking or
retirement fund with respect to the Shares of Preferred Stock C.
(g) As used herein the term "Fair Market Value" shall mean:
A. if the principal market for the Common Stock is a national
securities exchange or
6
<PAGE>
the National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the closing sales price of the Common Stock on such day as reported
by such exchange or system, or on a consolidated tape reflecting transactions on
such exchange or system; or
B. if the principal market for the Common Stock is not a national
securities exchange or NASDAQ, the last reported bid price for the Common Stock
on such day as reported by the National Quotation Bureau, Inc.
(h) Notwithstanding anything to the contrary contained herein, so
long as any shares of the Corporation's Preferred Stock B ("Preferred Stock B")
are outstanding, the Corporation shall not redeem any shares of Preferred Stock
C ([without the prior consent of the holders of Preferred Stock B]).
(6) CONVERSION
(a) Any holder of a share of Preferred Stock C may convert each
such share, at any time and from time to time, into shares of Common Stock,
except that shares of Preferred Stock A called for redemption may not be
converted after the date which is ten days prior to the redemption date, unless
the Corporation defaults in the payment of the redemption price. The number of
shares of Common Stock into which each share of Preferred Stock C may be
converted shall be obtained by dividing $1,000 by the conversion price of the
Preferred Stock C, which initially shall be $2.50, and which shall be subject to
adjustment from time to time as hereinafter provided in Section (6)(c) or (d)
below and subject to the provisions regarding no issuance of fractional shares
set forth in Section (6)(i) below. Shares of Preferred Stock C surrendered for
conversion on any date other than a Dividend Payment Date will not be entitled
to a dividend on such shares, except that a holder of shares of Preferred Stock
C on a record date
7
<PAGE>
for a dividend who converts such shares before the corresponding Dividend
Payment Date will be entitled to receive the dividend payable by the Corporation
on such date. The shares of Common Stock into which the Preferred Stock C is
convertible shall be referred to as the "Converted Securities."
(b) In order to convert shares of Preferred Stock C into Converted
Securities, the holder thereof shall surrender the certificate or certificates
for Preferred Stock C, duly endorsed or in blank, to the corporation at its
principal office (or such other place as may be reasonably designated by the
Corporation), shall give written notice to the Corporation at said office that
he elects to convert the same and shall state in writing therein the name or
names in which he wishes the certificate for Converted Securities to be issued
and shall make payment to the Corporation of any applicable transfer or other
taxes. The Corporation will, as soon as practicable thereafter, deliver at said
office to such holder of shares of the Preferred Stock C or to his nominee or
nominees, certificates for the number of full Converted Securities to which he
shall be entitled as aforesaid and, if applicable, a check in lieu of any
tractional share of Common Stock as provided in subdivision (6)(i). Shares of
the Preferred Stock C shall be deemed to have been converted as of the date of
the surrender of such certificate or certificates for conversion as provided
above, and the person or persons entitled to receive the converted Securities
issuable upon such conversion shall be treated for all purposes, including, but
not limited to, the right to vote the Common Stock included as part of the
Converted Securities, as the record holder or holders of such common Stock on
such date.
(c) The conversion price of the Preferred Stock C and,
accordingly, the number of shares of Common Stock into which the shares of
Preferred Stock C may be
8
<PAGE>
converted, shall be subject to adjustment from time to time as follows:
A. In case the Corporation shall (i)subdivide or split its
outstanding shares of Common Stock into a larger number of shares by
recapitalization, reclassification or split-up thereof, or by issuance of shares
of Common Stock as a dividend or distribution on the Common Stock, or (ii)
combine its outstanding shares of Common Stock into a smaller number of shares
by recapitalization, reclassification or combination thereof, the conversion
price in effect immediately prior thereto shall be adjusted so that the holder
of any shares of Preferred Stock C thereafter shall be entitled to receive upon
such conversion, the same number of shares of Common Stock as such holder would
have received had such shares of Preferred Stock C been converted immediately
prior to the happening of such event.
B. In case the Corporation after the date hereof shall
distribute to all of the holders of outstanding shares of Common Stock any
securities or other assets (other than a cash distribution made as a dividend
payable out of earnings or out of any earned surplus legally available for
dividends under the laws of the State of Delaware), the Board of Directors shall
be required to make such equitable adjustment in the number of shares of Common
Stock into which each share of Preferred Stock C is convertible pursuant to
subdivision (6)(a) hereof, as in effect immediately prior to the record date for
such distribution, as may be necessary to preserve for the holder rights
substantially proportionate to those enjoyed hereunder by the holder immediately
prior to the happening of such distribution.
An adjustment made pursuant to this subdivision (6)(c) shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision or combination. Such
9
<PAGE>
adjustments shall be made successively whenever any event described above shall
occur.
(d) In the case of any reclassification of the outstanding Common
Stock (other than a change which solely affects the par value of such shares of
Common Stock or a change covered by subdivision (6)(c) hereof), or if the
Corporation or any successor company shall consolidate or merge with, or convey
all or substantially all its property and assets to, any other company, then, as
a condition precedent to such reclassification, consolidation, merger or
conveyance (other than a consolidation or merger in which the Corporation is the
continuing corporation and which does not result in any reclassification or
reorganization of the outstanding shares of Common Stock), adequate provision
shall be made whereby the holders of shares of Preferred Stock C at the time
outstanding shall thereafter be entitled to convert their shares of Preferred
Stock C (or any other securities other than Common stock, that may be issued on
such reclassification, consolidation, merger or conveyance with respect to or in
exchange for the Preferred Stock C) into such shares of stock, securities or
assets as may be issuable or payable with respect to, or in exchange for, the
number of shares of Common Stock or the other shares of stock, securities or
assets, as the case may be, into which their shares of the Preferred Stock C
would be convertible immediately prior to such reclassification, consolidation,
merger or conveyance; and the right which the holders of the Preferred Stock C
have to receive additional shares of Common Stock on conversion of their shares
of Preferred Stock C on account of any adjustment made pursuant to subdivision
(6)(c), shall continue and be preserved in respect of any stock or other
securities of the successor company into which shares of the Preferred Stock C
shall thereafter become exchangeable.
(e) In the case the Corporation shall, at any time prior to the
10
<PAGE>
conversion of all of the Preferred Stock C, offer to the holders of its Common
Stock any rights to subscribe for additional shares of Common Stock or shares of
any other class of the Corporation, then the Corporation shall give written
notice thereof to the registered holders of the Preferred Stock C not less than
twenty (20) days prior to the date on which the books of the Corporation are
closed or a record date is fixed for the determination of the stockholders
entitled to such subscription rights. Such notice shall specify the date as to
which the books shall be closed or record date fixed with respect to such offer
of subscription and the right of the holder of Preferred Stock C to participate
in such offer of subscription shall terminate if the Preferred Stock C shall not
be converted on or before the date of such closing of the books or such record
date.
(f) Whenever the number of shares of Common Stock deliverable upon
the conversion of each share of Preferred Stock C shall be adjusted pursuant to
the provisions of subdivision (6)(c) or (d) the Corporation shall promptly (A)
file with the transfer agent, if any, for the shares of Preferred Stock C, a
certificate, signed by the Chairman of the Board, the Chief Executive Officer or
the President or a Vice President of the Corporation, and (B) mail, or cause the
transfer agent to mail, to all holders of shares of Preferred Stock C, at their
last address as they shall appear upon the stock records of the Corporation, a
notice setting forth in each case, the increased or decreased number of shares
of Common Stock thereafter deliverable upon the exchange of each share of
Preferred Stock C. The certificate filed with the transfer agent shall show, in
addition, in reasonable detail the method of calculation and the facts requiring
such adjustment and upon which such calculation is based.
(g) The term "Common Stock" shall mean (A) the class of stock
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designated as the "Common Stock" of the Corporation at the date of initial
issuance of shares of the Preferred Stock C or (B) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value or
from no par value to par value, or (C) any capital stock of the Corporation
hereafter authorized which shall not be limited to a fixed sum or percentage of
par or preference value in respect of the rights of holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation. In the
event that, at any time, as a result of an adjustment made pursuant to
subdivision (6)(c) or (d) above, the holder of any share of the Preferred Stock
C thereafter surrendered for conversion shall become entitled to receive any
shares of the Corporation other than shares of the Corporation's Common Stock as
in effect on the date hereof, then the shares so receivable upon conversion of
any share of the Preferred Stock C shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions contained in subdivision (6)(c) or (d).
(h) At all times, a sufficient number of the authorized but
unissued shares and/or treasury shares of Common Stock shall be reserved by the
Corporation for the purpose of conversion of all shares of the Preferred Stock C
at the time outstanding.
(i) In lieu of fractions of shares of Common Stock issuable upon
conversion of the Preferred Stock C, the Corporation shall pay to the holder in
cash the Fair Market Value of any such fraction of a share of Common Stock on
the date of conversion.
(7) VOTING RIGHTS. Except as otherwise required by law, the holders of
Preferred Stock C shall be entitled to notice of any stockholders' meeting and
to vote together
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with the outstanding shares of Common Stock as a single class of capital
stock upon any matter submitted to the Company's stockholders for a vote.
Each holder of Preferred Stock C shall be entitled to such number of votes as
equal to number of shares of Common Stock that are issuable upon conversion
of the shares of Preferred Stock C held. The shares of Preferred Stock C
shall not have any relative, participating, optional or any other special
rights or powers other than as set forth herein.
(8) PREEMPTIVE RIGHTS. The holders of shares of Preferred
Stock C shall, as such, have no preemptive right to purchase or otherwise
acquire shares of any class of stock or other securities of the Corporation now
or hereafter authorized.
(9) JUNIOR AND PARITY STOCK. As used herein with respect to
Preferred Stock C the following terms shall have the following meanings:
(a) The term "parity stock" shall mean all series of Preferred
Stock (including, but not limited to, the Preferred Stock C) and any other class
of stock of the Corporation hereafter authorized ranking on a parity with the
Preferred Stock C in the payment of dividends or in the distribution of assets
on any liquidation, dissolution or winding up of the Corporation.
(b) The term "junior stock" shall mean the Corporation's Common
Stock, par value $.0l per share, and any other class of stock of the Corporation
hereafter authorized over which Preferred Stock C, has preference or priority in
the payment of dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation.
(10) SENIOR STOCK. The Corporation's Series A 8% Cumulative Convertible
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Preferred Stock and 6% Series B Preferred Stock shall be deemed senior stock for
all purposes contained herein, and Preferred Stock C shall be deemed "junior
stock" for all purposes of the respective Certificates of Designation of the
Preferred Stock A and Preferred Stock B. The corporation may, without the
consent of the holders of the Preferred Stock C, create a new class or series of
preferred stock with rights senior to the Preferred Stock C.
IN WITNESS WHEREOF, UNAPIX ENTERTAINMENT, INC. has caused this Certificate of
Designation to be duly executed by its Chief Executive Officer and attested to
by its Secretary, who affirm that the information Contained in the foregoing
Certificate of Designation is true under the penalties of perjury this day of
January 1999.
UNAPIX ENTERTAINMENT, INC.
By:
-------------------------------------
David M. Fox, Chief Executive Officer
Attested to by:
------------------------------
Michael R. Epps, Secretary
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CERTIFICATE OF DESIGNATION, POWERS, PREFERENCES AND RIGHTS OF
THE SERIES C 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK OF
UNAPIX ENTERTAINMENT, INC.
--------------------------
Unapix Entertainment Inc., a Delaware Corporation (the
"Corporation"), pursuant to Section 151 of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Corporation, the Board of
Directors of the Corporation has duly adopted the resolutions attached as
Exhibit 1 creating a series of 2,500 shares of Preferred Stock with a par value
of $0.01 each and a stated value of $1,000 each to be designated "Series C 8%
Cumulative Convertible Preferred Stock."
IN WITNESS WHEREOF, Unapix Entertainment, Inc. has created this
certificate to be signed by its duly authorized officer this day of
January, 1999.
UNAPIX ENTERTAINMENT, INC.
By:
-----------------------------------
Herbert M. Pearlman,
Chairman of the Board
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EXHIBIT
3.2
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BY-LAWS
OF
UNAPIX ENTERTAINMENT, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of Dover, County of Kent, State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days
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before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by
the Certificate of incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either (i) the Chairman, if there be one,
or (ii) the President, (iii) any Vice President, if there be one, (iv) the
Secretary, or (v) any Assistant Secretary, if there be one, and shall be called
by any such officer at the request in writing of a majority of the Board of
Directors or at the request in writing of stockholders owning a majority of the
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Written notice of a Special Meeting stating the place, date and hour of the
meeting and the purpose or purposes of the proposed meeting. Written notice of a
Special Meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned
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meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the Certificate of
incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of shareholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. 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 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of
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each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germaine to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held, The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of not less than one nor more than fifteen members, the exact
number of which shall initially be fixed by the Incorporator and thereafter from
time to time by the Board of Directors. Except as provided in Section 2 of this
Article, directors shall be elected by a plurality of the votes cast at Annual
Meetings of Stockholders, and each director so elected shall hold office until
the next Annual Meeting and until his successor is duly elected and qualified,
or until his earlier resignation or removal. Any director may resign at any time
upon notice to the Corporation. Directors need not be stockholders.
SECTION 2. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall
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hold office until the next annual election and until their successors are duly
elected and qualified, or until their earlier resignation or removal.
SECTION 3. DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President, or any one (1) director. Notice
thereof stating the place, date and hour of the meetings shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
SECTION 5. QUORUM. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these By-Laws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
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SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise
provided by the Certificate of Incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Direc tors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and partici pation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the entire Board of Di rectors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
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SECTION 9. COMPENSATION. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement of expenses
for attending committee meetings.
SECTION 10. INTERESTED DIRECTORS. 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 of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or their committee, and the Board of
Directors or committee in good faith authorizes affirmative votes of majority of
the disinterested directors, even thought the disinterested directors be less
than a quorum; or (ii) the material facts as to his or their relationship or
interest and as to the contract or transaction are is specifically approved in
good faith by vote of the shareholders; or (iii) 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 shareholders.
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 authorizes
the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
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chosen by the Board of Directors and shall be a Secretary, a Treasurer and a
President (or in the alternative, an Office of the President which may be
held by any number of individuals chosen by the Board of Directors and each
of whom shall be deemed the President of the Corporation for purposes of
these By-laws). The Board of Directors, in its discretion, may also choose a
Chairman of the Board of Directors(who must be a director), a Vice Chairman
of the Board of Directors (who also must be a director), a Chief Executive
Officer and one or more Vice-Presidents, Assistant Secretaries, Assistant
Treasurers and other officers. Any number of offices may be held by the same
person, unless otherwise prohibited by law, the Certificate of Incorporation
or these By-Laws. The officers of the Corporation need not be stockholders of
the Corporation nor, except in the case of the Chairman of the Board of
Directors and Vice Chairman of the Board of Directors, need such officers be
directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting held
after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of
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security holders of any corporation in which the Corporation my own securities
and at any such meeting shall possess and my exercise any and all rights and
power incident and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time-confer like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS, VICE CHAIRMAN OF THE BOARD OF
DIRECTORS AND CHIEF EXECUTIVE OFFICER. The Chairman of the Board of Directors,
if there be one, shall preside at all meetings of the stockholders and of the
Board of Directors. Except where by law the signature of the President or Chief
Executive Officer is required, the Chairman of the Board of Directors shall
possess the same power as the President and the Chief Executive Officer to sign
all contracts, certificates and other instruments of the Corporation which may
be authorized by the Board of Directors. During the absence or disability of the
Chief Executive Officer, the Chairman of the Board of Directors shall exercise
all the powers and discharge all the duties of said officer. The Chairman of the
Board of Directors shall also perform such other duties and may exercise such
other powers as from time to time may be assigned to him by these ByLaws or by
the Board of Directors.
In the absence or disability of the Chairman of the Board of Directors, or if
there be none, the Vice Chairman of the Board of Directors shall preside at all
meetings of the stockholders and of the Board of Directors. Except where by law
the signature of the President or Chief Executive Officer is required, the Vice
Chairman of the Board of Directors shall possess the same power as the President
and the Chief Executive Officer to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the Chief Executive Officer and
the Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors shall exercise all the powers and discharge all the duties of the
Chief Executive Officer. The Vice Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-laws or by the Board of Directors.
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Unless the context indicates otherwise, the term "Chairman of the Board of
Directors" used in these By-laws shall also refer to the "Vice Chairman of the
Board of Directors."
The Chief Executive Officer shall, subject to the control of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute all bonds, mortgages, contracts and other instruments
of the Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by the By-Laws, the Board of Directors or the Chief Executive
Officer. In the absence or disability of the Chairman of the Board of Directors
and the Vice Chairman of the Board of Directors, or if there be none, the Chief
Executive Officer shall preside at all meetings of the stockholders and the
Board of Directors. He shall have all of the power and rights delegated to the
President pursuant to these By-laws. The Chief Executive Officer shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-laws or by the Board of Directors.
SECTION 5. PRESIDENT AND OFFICE OF THE PRESIDENT. The President and each
individual serving as a member of the Office of the President shall, subject to
the control of the Board of Directors and if there be one, the Chief Executive
Officer, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. In the absence or disability of the Chairman of the Board of Directors,
Vice Chairman of the Board of Directors, and Chief Executive Officer, or if
there be none, the President (or members of the Office of the President) shall
preside at all meetings of the stockholders and the Board of Directors. If there
be no Chief Executive Officer, the President (and each member of the Office of
the President) shall be the principal executive and shall have all of the powers
of the Chief Executive Officer. The President (and each member of the Office of
the President) shall also perform such other duties and may exercise such
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other powers as from time to time may be assigned to him by these By-Laws or by
the Board of Directors.
SECTION 6. VICE-PRESIDENTS. At the President or in his absence or
refusal to request of the in the event of his inability or act (and if there be
no Chairman of the Board of Directors), the Vice-President or the
Vice-Presidents if there is more than one (in the order designated by the Board
of Directors) shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all restrictions upon the
President. Each Vice-President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe, if there
be no Chairman of the Board of Directors and no Vice-President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant
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Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or filed
are properly kept or filed, as the case may be.
SECTION 8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise provided
in these By-Laws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice-President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
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SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if there be
any, shall perform such duties and have -such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice-President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such um and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
SECTION 11. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice-President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number
of shares owned by him in the Corporation.
SECTION 2. SIGNATURES. Where a certificate is coun tersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
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certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in
these By-Laws. Transfers of stock shall be made on the books of the Corporation
only by the person named in the certificate or by his attorney lawfully
constituted in writing and upon the surrender of the certificate therefor, which
shall be canceled before a new certificate shall be issued.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment
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<PAGE>
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares of the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law, the
Certificate of incorporation or these By-Laws, to be given to stockholder, such
notice may be given by such a director, member of a committee or stockholder,
such notice may be given by mail, addressed to such director, member of a
committee or stockholder, at his address as it appears on a committee or the
records of postage thereon prepaid, and such notice given at the time when the
same shall be any director, member of a committee or mail, addressed to
stockholder, at his the Corporation, with shall be deemed to be deposited in the
United States mail. Written notice may also be given personally or by telegram,
telex or cable.
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<PAGE>
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law,
the Certificate of Incorporation or these ByLaws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of
the Company shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Borporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
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ARTICLE VIII
INDEMNIFICATION AND DIRECTORS' LIABILITY
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation
shall be required, to the fullest extent authorized by Section 145 of the
General Corporation Law of the State of Delaware (the "GCL"), as the same may be
amended and supplemented, to indemnify any and all directors and officers of the
Corporation.
SECTION 2. LIMITATION ON LIABILITY OF DIRECTORS. The personal liability
of each of the directors of the Corporation shall be limited to the fullest
extent permitted by paragraph 7 of subsection (b) of Section 102 of the GCL, as
the same may be amended and supplemented.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or repealed, in whole
or in part, or new By-Laws may be adopted by the stockholders or by the Board of
Directors, provided, however, that notice of such alteration, amendment, repeal
or adoption of new By-Laws be contained in the notice of such meeting of
stockholders or Board of Directors, as the case may be. All such amendments must
be approved by either the holders of a majority of the entire Board of Directors
then in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX and in
these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
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EXHIBIT
10.5
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UNAPIX ENTERTAINMENT, INC.
1993 Stock Option Plan
Section 1. Purpose; Definitions.
1.1 PURPOSE. The purpose of the Unapix Entertainment, Inc. (the
"Company") 1993 Stock Option Plan (the "Plan") is to enable the Company to offer
its key employees, officers, directors and consultants whose past, present
and/or potential contributions to the Company have been, are or will be
important to the success of the Company, an opportunity to acquire a proprietary
interest in the Company.
1.2 DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "Agreement" means the agreement between the Company and the
Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto and the regulations promulgated
thereunder.
(d) "Committee" means the Stock Option Committee of the Board or
any other committee of the Board which the Board may designate to administer the
Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company, par
value $.01 per share.
(f) "Company" means Unapix Entertainment, Inc. , a corporation
organized under the laws of the State of Delaware.
(g) "Disability means disability as determined under procedures
established by the Committee for purposes of the Plan
(h) "Effective Date" means the date set forth in Section 7.
(i) "Fair Market Value", unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, means, as
of any given date: (i) if the
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Common Stock is listed on a national securities exchange, quoted on the NASDAQ
National Market System or quoted on the NASDAQ Small Cap Market, the last sale
price of the Common Stock on the last preceding day on which the Common Stock
was traded, as reported by the exchange or NASDAQ, as the case may be; (ii) if
the Common Stock is not listed an a national securities exchange or quoted on
the NASDAQ National Market System or NASDAQ Small Cap Market, but is traded in
the over-the-counter market, the average of the high bid and low asked prices
for the Common Stock on the last preceding day for which such quotations are
reported by a service providing such quotations (e.g. , National Quotation
Bureau, Inc. ) ; and (iii) if the fair market value of the Common Stock cannot
be determined ,pursuant to clause (i) or (ii) above, such price as the Committee
shall determine, in good faith.
(j) "Family Group Member" shall mean the spouse, sibling or lineal
descendant of the Holder or a trust established for any such person.
(k) "Holder" means a person who has received an award under the
Plan.
(l) "Incentive Stock Option" means any Stock Option intended to be
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.
(m) "Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option.
(n) "Normal Retirement" means retirement from active employment
with the Company or any Subsidiary on or after age 65.
(o) "Parent" means any present or future parent corporation of the
Company, as such term is defined in Section 424(e) of the Code.
(p) "Plan" means the Unapix Entertainment, Inc. 1993 Stock Option
Plan, as hereinafter amended from time to time.
(q) "Stock,' means the Common Stock of the Company, par value $.01
per share.
(r) "Stock Option" of "Option" means any option to purchase shares
of Stock which is granted pursuant to the Plan.
(s) "Subsidiary" means any present or future subsidiary
corporation of the Company, as such term is defined in Section 424(f) of the
Code.
SECTION 2. ADMINISTRATION.
2.1 COMMITTEE MEMBERSHIP. The Plan shall be administered by the Board
or
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a Committee. Committee members shall serve for such term as the Board may in
each case determine, and shall be subject to removal at any time by the Board.
It is the intent of the Board that the Plan qualify under Rule 16b-3 promulgated
under the Securities Exchange Act of 1934. To that end, unless otherwise
determined by the Board, each committee member shall be a disinterested person
(i.e., a director who is not, during the one year prior to service as an
administrator of the plan, or during such service, granted or awarded equity
securities of the Company pursuant to the Plan or any other plan of the Company
or its affiliates as provided by Rule 16b-3) .
2.2 POWERS OF COMMITTEE. The Committee shall have full authority,
subject to Section 4.1 hereof, to grant Stock Options pursuant to the terms of
the Plan. For purposes of illustration and not of limitation, the Committee
shall have the authority (subject to the express provisions of this Plan).
(a) to select the officers, key employees, directors and
consultants of the Company or any Subsidiary to whom Stock Options may from time
to time be granted hereunder;
(b) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Stock Option granted hereunder (including, but not
limited to, number of shares, share price, any restrictions or limitations, and
any vesting, exchange, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to permit a Holder to elect to defer a payment under the Plan
under such rules and procedures as the Committee may establish, including the
crediting of interest on deferred amounts denominated in cash and of dividend
equivalents on deferred amounts denominated in Stock;
(e) to determine the extent and circumstances under which Stock
and other amounts payable with respect to an award hereunder shall be deferred
which may be either automatic or at the election of the Holder; and
(f) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms.
2.3 INTERPRETATION OF PLAN.
(a) COMMITTEE AUTHORITY. Subject to Section 6 hereof, the
Committee
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shall have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall, from time to time, deem
advisable, to interpret the terms and provisions of the Plan and any award
issued under the Plan (and to determine the form and substance of all Agreements
relating thereto), and to otherwise supervise the administration of the Plan.
Subject to Section 10 hereof, all decisions made by the Committee pursuant to
the provisions of the Plan shall be made in the Committee's sole discretion and
shall be final and binding upon all persons, including the Company, its
Subsidiaries and Holders.
(b) INCENTIVE STOCK OPTIONS. Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive Stock
Options or any Agreement providing for Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of the Holder(s) affected, to disqualify
any Incentive Stock Option under such Section 422.
SECTION 3. STOCK SUBJECT TO PLAN.
3.1 NUMBER OF SHARES. The total number of shares of Common Stock
reserved and available for distribution under the Plan shall be 1,225,000
shares. Shares of Stock under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares. If any shares of Stock that
have been optioned cease to be subject to a Stock Option granted hereunder are
forfeited or any such award otherwise terminates without a payment being made to
the Holder in the form of Stock, such shares shall again be available for
distribution in connection with future grants and awards under the Plan. Only
net shares issued upon a stock- for-stock exercise (including stock used for
withholding taxes) shall be counted against the number of shares available under
the Plan.
3.2 ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event of any
merger, reorganization, consolidation, recapitalization, dividend (other than a
cash dividend), stock split, reverse stock split, or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan and in the
number and exercise price of shares subject to outstanding Options granted under
the Plan as may be determined to be appropriate by the Committee in order to
prevent dilution or enlargement of rights, provided that the number of shares
subject to any award shall always be a whole number.
SECTION 4. ELIGIBILITY.
4.1 GENERAL. Awards may be made or granted to key employees, officers,
directors and consultants who are deemed to have rendered or to be able to
render significant services to the Company or its Subsidiaries and who are
deemed to have contributed or to have the potential to contribute to the success
of the Company. No Incentive Stock Option shall be
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granted to any person who is not an employee of the Company or a Subsidiary at
the time of grant.
4.2 GRANT OF OPTIONS TO OFFICERS AND DIRECTORS. The granting of options
to officers and directors of the Company shall be determined by a committee of
two or more directors, of which all members shall be disinterested persons, as
described in Section 2.1 hereof.
SECTION 5. STOCK OPTIONS.
5.1. GRANT AND EXERCISE. Stock Options granted under the Plan may be of
two types: (i ) Incentive Stock Options and (ii) Non-Qualified Stock Options.
Any Stock Option granted under the Plan shall contain such terms, not
inconsistent with this Plan, or with respect to Incentive Stock Options, the
Code, as the Committee may from time to time approve. The Committee shall have
the authority to grant Incentive Stock Options, Non-Qualified Stock Options, or
both types of Stock Options and may be granted alone or in addition to other
awards granted under the Plan. To the extent that any Stock Option intended to
qualify as an Incentive Stock Option does not so qualify, it shall constitute a
separate Non-Qualified Stock option. An Incentive Stock Option may only be
granted within the ten year period commencing From the Effective Date and may
only be exercised within ten years of the date of grant (or five years in the
case of an Incentive Stock Option granted to an optionee ("10% Stockholder")
who, at the time of grant, owns Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or a Parent or
Subsidiary.
5.2. TERMS AND CONDITIONS. Stock Options granted under the Plan shall
be subject to the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant and may be less than 100% of the Fair Market Value of the Stock at
the time of grant; provided, however, that the exercise price of an Incentive
Stock Option shall not be less than 100% of the Fair Market Value of the Stock
at the time of grant (110%, in the case of 10% Holder) .
(b) OPTION TERM. Subject to the limitations contained in Section
5.1, the term of each Stock option shall be fixed by the Committee.
(c) EXERCISABILITY. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee. If the Committee provides, in its discretion, that any Stock
Option is exercisable only in installments, i.e., that it vests over time, the
Committee may waive such installment exercise provisions at any time at or after
the time of grant in whole or in part, based upon such factors as the Committee
shall determine.
(d) METHOD OF EXERCISE. Subject to whatever installment, exercise
and
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<PAGE>
waiting period provisions are applicable in a particular case, Stock Options may
be exercised in whole or in part at any time during the term of the Option, by
giving written notice of exercise to the Company specifying the number of shares
of Stock to be purchased. Such notice shall be accompanied by payment in full of
the purchase price, which shall be in cash or, unless otherwise provided in the
Agreement, in shares of Stock or, partly in cash and partly in such Stock, or
such other means which the Committee determines are consistent with the Plan's
purpose and applicable law. Cash payments shall be made by wire transfer,
certified or bank check or personal check, in each case payable to the order of
the Company; provided, however, that the Company shall not be required to
deliver certificates for shares of Stock with respect to which an Option is
exercised until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof. Payments in the form of Stock
shall be valued at the Fair Market Value of a share of Stock on the date prior
to the date of exercise. Such payments shall be made by delivery of stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances. A Holder shall
have none of the rights of a stockholder with respect to the shares subject to
the Option until such shares shall be transferred to the Holder upon the
exercise of the Option.
(e) TRANSFERABILITY. No Stock Option shall be transferable by the
Holder, otherwise than by will or by the laws of descent and distribution, and
all Stock Options shall be exercisable, during the Holder's lifetime, only by
the Holder; provided however that, notwithstanding anything to the contrary
contained herein, the Committee may in its sole discretion allow a Non-Incentive
Stock Option to be transferred to a Family Group Member.
(f) TERMINATION BY REASON OF DEATH. If a Holder's employment by
the Company or a Subsidiary terminates by reason of death, any Stock Option held
by such Holder, unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, shall be fully vested and may thereafter
be exercised by the legal representative of the estate or by the legatee of the
Holder under the will of the Holder, for a period of one year (or such other
greater or lesser period as the Committee may specify at grant) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(g) TERMINATION BY REASON OF DISABILITY. If a Holder's employment
by the Company or any Subsidiary terminates by reason of Disability, any Stock
Option held by such Holder, unless otherwise determined by the Committee at the
time of grant and set forth in the Agreement, shall be fully vested and may
thereafter be exercised by the Holder for a period of one year (or such other
lesser period as the Committee may specify at the time of grant) from the date
of such termination of employment or until the expiration of the stated term of
such Stock Option, whichever period is the shorter.
(h) OTHER TERMINATION. Subject to the provisions of Section 8
below and unless otherwise determined by the Committee at the time of grant and
set forth in the Agreement, if a Holder is an employee of the Company or a
Subsidiary at the time of grant and if such are Holder's employment by the
Company or any Subsidiary terminates for any reason
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<PAGE>
other than death or Disability, the Stock Option shall thereupon automatically
terminate, except that if the Holder's employment is terminated by the Company
or a Subsidiary without cause or due to Normal Retirement, then the portion of
such Stock Option which has vested on the date of the termination of employment
may be exercised for the lesser of three months after termination of employment
or the balance of such Stock Option's term.
(i) ADDITIONAL INCENTIVE STOCK OPTION LIMITATION. In the case of
an Incentive Stock Option, the amount of aggregate Fair Market Value of Stock
(determined at the time of grant of the Option) with respect to which Incentive
Stock Options are exercisable for the first time by a Holder during any calendar
year (under all such plans of the Company and its Parent and Subsidiary) shall
not exceed $100,000.
(j) BUYOUT AND SETTLEMENT PROVISIONS. The Committee may at any
time offer to buy out a Stock Option previously granted, based upon such terms
and conditions as the Committee shall establish and communicate to the Holder at
the time that such offer is made.
(k) STOCK OPTION AGREEMENT. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of, the Agreement executed by
the Company and the Holder.
(l) HOLDING PERIOD. All shares of Stock received by a Holder upon
exercise of an Option granted hereunder shall be non-transferable by the Holder
until at least six months has elapsed from the date of the granting of such
Option.
SECTION 6. AMENDMENTS AND TERMINATION.
The Board (but not the Committee) may at any time amend, alter, suspend
or discontinue the Plan, but no amendment, alteration, suspension or
discontinuance shall be made which would impair the rights of a Holder under any
Agreement theretofore entered into hereunder, without his consent.
SECTION 7. TERM OF PLAN.
7.1 EFFECTIVE DATE. The Plan shall be effective as of April 23, 1993
("Effective Date"), subject to the approval of the Plan by the stockholders of
the Company within one year after the Effective Date. Any awards granted under
the Plan prior to such approval shall be effective when made (unless otherwise
specified by the Committee at the time of grant), but shall be conditioned
upon, and subject to, such approval of the Plan by the Company's stockholders.
If the Plan shall not be so approved, all awards granted thereunder shall be of
no effect and any Stock received by a Holder upon the exercise of an award shall
be deemed forfeited and the Holder shall return the Stock to the Company.
7.2 TERMINATION DATE. Unless terminated by the Board, this Plan shall
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<PAGE>
continue to remain effective until such time no further awards may be granted
and all awards granted under the Plan are no longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options may only be made during the ten
year, period following the Effective Date.
SECTION 8. GENERAL PROVISIONS.
8.1 WRITTEN AGREEMENTS. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder. The committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within 60 days after the Agreement has been delivered to the Holder for
his or her execution.
8.2 UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
(give any such Holder any rights that are greater than those of a general
creditor of the Company.
8.3 EMPLOYEES.
(a) ENGAGING IN COMPETITION WITH THE COMPANY. In the event an
employee Holder terminates his employment with the company or a Subsidiary for
any reason whatsoever, and within eighteen (18) months after the date thereof
accepts employment with any competitor of, or otherwise engages in competition
with, the Company, the Committee, in its sole discretion, may require such
Holder to return to the Company the economic value of any award which was
realized or obtained (measured at the date of exercise) by such Holder at any
time during the period beginning on that date which is six months prior to the
date of such Holder's termination of employment with the Company.
(b) TERMINATION FOR CAUSE. The Committee may, in the event an
employee is terminated for cause, annul any award granted under this Plan to
such employee and in such event the Committee, in its sole discretion, may
require such Holder to return to the Company the economic value of any award
which was realized or obtained (measured at the date of exercise) by such Holder
at any time during the period beginning on that date which is six months prior
to the date of such Holder's termination of employment with the Company.
(c) NO RIGHT OF EMPLOYMENT. Nothing contained in the Plan or in
any award hereunder shall be deemed to confer upon any employee of the Company
or any Subsidiary any right to continued employment with the Company or any
Subsidiary, nor shall it interfere in any way with the right of the Company or
any Subsidiary to terminate the employment of any of its employees at any time.
8.4 INVESTMENT REPRESENTATIONS. The Committee may require each person
acquiring shares of Stock pursuant to a Stock Option or other award under the
Plan to represent
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to and agree with the Company in writing that the Holder is acquiring the shares
for investment without a view to distribution thereof.
8.5 ADDITIONAL INCENTIVE ARRANGEMENTS. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of stock options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
8.6 WITHHOLDING TAXES. Not later than the date as of which an amount
first becomes includible in the gross income of the Holder for Federal income
tax purposes with respect to any option or other award under the Plan, the
Holder shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state and local taxes of any
kind required by law to be withheld or paid with respect to such amount. If
Permitted by the Committee, tax withholding or payment obligations may be
settled with Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan shall be conditional upon such payment or arrangements and the Company
or the Holder's employer (if not the Company) shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Holder from the Company or any Subsidiary.
8.7 GOVERNING LAW. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Delaware (without regard to choice of law provisions)
8.8 OTHER BENEFIT PLANS. Any award granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary and shall not affect any benefits under any
other benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under this Plan).
8.9 NON-TRANSFERABILITY. Except as otherwise expressly provided in the
Plan, no right or benefit under the Plan may be alienated, sold, assigned,
hypothecated, pledged, exchanged, transferred, encumbranced or charged, and any
attempt to alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge the same shall be void.
8.10 APPLICABLE LAWS. The obligations of the Company with respect to
all Stock Options and awards under the Plan shall be subject to (i) all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the effectiveness of
a registration statement under the Securities Act of 1933, as amended, and (ii)
the rules and regulations of any securities exchange an which the Stock may be
listed.
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8. 11 CONFLICTS. If any of the terms or provisions of the Plan conflict
with the requirements of with respect to Incentive Stock Options, Section 422A
of the Code, then such terms or provisions shall be deemed inoperative to the
extent they so conflict with the requirements of said Section 422A of the Code.
Additionally, if this Plan does not contain any provision required to be
included herein under Section 422A of the Code, such provision shall be deemed
to be incorporated herein with the same force and effect as if such provision
had been set out at length herein.
8.12 NON-REGISTERED STOCK. The shares of Stock being distributed under
this Plan have not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), or any applicable state or foreign securities laws and the
Company has no obligation to any Holder to register the Stock or to assist the
Holder in obtaining an exemption from the various registration requirements, or
to list the Stock on a national securities exchange.
11
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EXHIBIT
10.18
1
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AMENDMENT NO. 2 TO REVOLVING
CREDIT LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 2 TO REVOLVING CREDIT LOAN AND SECURITY AGREEMENT
(this "Amendment") is entered into as of March 16, 1999, by and between (i)
UNAPIX ENTERTAINMENT, INC. ("Unapix"), and MIRAMAR IMAGES, INC. ("Miramar"; and
together with Unapix, collectively the "Borrowers"), and (ii) IMPERIAL BANK (the
"Bank"), with respect to the following facts:
A. The Bank and the Borrowers entered into a Revolving Credit Loan and
Security Agreement dated as of April 16, 1997 (as modified, amended, and
supplemented to the date hereof, the "Loan Agreement"). Capitalized terms not
expressly defined herein shall have the respective meanings ascribed thereto in
the Loan Agreement.
B. The Borrowers have requested the Bank to extend the Final Repayment
Date and increase the amount of the Commitment.
C. The Bank is willing to agree to the foregoing subject to the terms
and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto hereby agree as follows:
1. AMENDMENTS
1.1 AMENDMENT OF "FINAL REPAYMENT DATE." The definition of "Final
Repayment Date," contained in Section 1 of the Loan Agreement, is hereby amended
and restated to read in its entirety as follows:
"'FINAL REPAYMENT DATE' shall mean May 2, 1999."
1.2 AMENDMENT OF SECTION 2.1.1. Section 2.1.1 of the Loan
Agreement is hereby amended and restated to read in its entirety as follows:
"2.1.1 COMMITMENT. To the Borrower, in the form of Advances
and Letters of Credit by way of a revolving credit facility (the
'Facility') in the aggregate sum owing hereunder of up to
Thirteen Million Dollars ($13,000,000) (the 'Commitment') from
time to time during the period (the 'Availability Period')
commencing on the execution date hereof and expiring on May 2,
1999; PROVIDED, HOWEVER, that subject to Section 2.1.2 hereof, at
no time shall the sum of all Advances and all undrawn amounts
under all Letters of Credit at any time outstanding under the
Facility exceed the lesser of (i) the Commitment, or (ii) the
then current amount of the Borrowing Base; PROVIDED, FURTHER,
HOWEVER, that
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the aggregate sum of all undrawn amounts under Standby Letters of
Credit shall not at any time exceed the Standby Letters of Credit
Sublimit. Subject to the terms and conditions of this Agreement,
the Borrowers may borrow, repay and reborrow amounts constituting
the Commitment. Notwithstanding anything herein to the contrary,
no Letter of Credit shall remain outstanding after the Final
Repayment Date."
1.3 AMENDMENT OF SECTION 2.6. The first sentence of Section 2.6
of the Loan Agreement is hereby amended and restated to read in its entirety as
follows:
"The Principal (and Interest thereon) owing to the Bank under
the Facility shall be evidenced by a Second Amended and
Restated Promissory Note (hereinafter the 'Note') executed by
the Borrowers and payable to the Bank in the face amount of
the Commitment."
1.4 RETURN OF NOTE. As soon as practicable following the
Borrowers' compliance with each of the conditions precedent set forth in Section
3 hereof, the Bank shall return to the Borrowers the existing $10,000,000
Amended and Restated Promissory Note dated March 25, 1998, previously executed
by the Borrowers in favor of the Bank.
2. REPRESENTATIONS AND WARRANTIES.
2.1 REPRESENTATIONS AND WARRANTIES. The Borrowers hereby jointly
and severally represent and warrant to the Bank that as of the date hereof
(except to the extent that any such representation or warranty expressly relates
to an earlier date):
2.1.1 Each of the representations and warranties of the
Borrowers contained in the Loan Agreement and in any and all other Loan
Documents is or was (as the case may be) true and correct;
2.1.2 No Event of Default or Potential Event of Default has
occurred and is continuing;
2.1.3 Each of the Borrowers is duly authorized to enter into
this Amendment, the Note (i.e. the Amended and Restated Promissory Note to be
executed by the Borrowers pursuant to Section 3.1.1 hereof) and consummate the
transactions herein contemplated and has the requisite power, authority and
legal right to execute, deliver and perform this Amendment, such Note and the
other documents and transactions contemplated herein, and has taken all
necessary action to authorize it's execution, delivery and performance of this
Amendment, such Note and such other documents and transactions as contemplated
herein; and
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2.1.4 The consummation of the transactions herein
contemplated and the fulfillment of the terms hereof and the compliance by the
Borrowers with all of the terms and conditions of this Amendment and the other
documents herein provided will not result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, or violate, any
indenture, bank loan, credit agreement or other agreement or instrument, or
existing law or judgment, to which either or both of the Borrowers is a party or
by which they or any of their assets is bound, nor will it result it in the
creation of any Encumbrance upon any of their properties or assets pursuant to
the provisions of any such indenture, bank loan, credit agreement or other
agreement or instrument, nor are any of the Borrowers prohibited by their
articles of incorporation, by-laws or any indenture or other agreement, nor does
it require any approval or consent of any Person that has not otherwise been
obtained as of the date hereof; and that this Amendment, the Note and each
additional instrument and document required hereunder when executed and
delivered by the Borrowers will constitute the legal, valid and binding
obligation of the Borrowers enforceable against them in accordance with its
terms.
2.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All warranties
and representations herein shall survive the execution of this Amendment and the
consummation of the transactions contemplated herein.
3. CONDITIONS PRECEDENT.
3.1 The provisions of Section 1 hereof shall not become
effective until the Borrowers comply with each of the following conditions
precedent to the satisfaction of the Bank in its sole and absolute discretion:
3.1.1 Delivery to the Bank of the Note duly executed by each
Borrower in the form of Exhibit 1 attached hereto;
3.1.2 Delivery to the Bank of a certificate of a senior
executive officer of each Borrower acceptable to the Bank in substance and form
satisfactory to the Bank (including, without limitation, certification by such
officer of each Borrower that attached thereto is a true and correct complete
copy of resolutions of the Board of Directors or the Executive Committee thereof
(and if applicable, the shareholders) of such Borrower approving and authorizing
the execution, delivery and performance of this Amendment and the other
documents and transactions contemplated herein, including, but not limited to,
the Second Amended and Restated Note);
3.1.3 The Borrowers shall have complied and then be in
compliance with all terms, covenants and conditions of the Loan Agreement.
4. MISCELLANEOUS.
4.1 All references in the Loan Agreement and in any other Loan
Document to the "Loan Agreement," "this Agreement," the "Note" and/or "Loan
Documents" (or words of similar import) shall be deemed a reference to the Loan
Agreement as amended by this
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Amendment and/or shall include the Note to be executed by the Borrowers pursuant
to Section 3.1.1 hereof, as the case may be.
4.2 Except as expressly modified, amended or restated by this
Amendment and the Amended and Restated Note, all of the terms and conditions of
the Loan Agreement, as so modified or amended and the additional Loan Documents
shall remain in full force and effect.
4.3 This Amendment may be executed in one or more counterparts,
each of which shall constitute an original Amendment, but all of which together
shall constitute one and the same instrument.
4.4 This Amendment and the other documents referred to herein are
intended by the Borrowers and the Bank to be the final, complete and exclusive
expression of the agreement between them. This Amendment supersedes any and all
prior oral or written agreements relating to the subject matter hereof.
4.5 Whether or not the transactions contemplated herein shall be
consummated, the Borrowers jointly and severally agree to pay all costs incurred
by or on behalf of the Bank in connection with the transactions hereby
contemplated (including, without limitation, the performance of any due
diligence by the Bank) and the preparation, negotiation, execution, delivery,
waiver, Modification and/or administration of this Amendment, the Note and any
other documentation contemplated hereby or thereby, the making of additional
Advances and/or the enforcement or protection of the rights of the Bank in
connection therewith, including, without limitation, any internally allocated
audit costs and the fees and disbursements of Mitchell, Silberberg & Knupp LLP,
counsel to the Bank.
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IN WITNESS WHEREOF the parties hereto have executed this
Amendment as of the date first above written.
IMPERIAL BANK,
a California banking corporation
By:
-----------------------------------------
Its:
----------------------------------------
UNAPIX ENTERTAINMENT, INC.,
a Delaware corporation
By:
-----------------------------------------
Its:
----------------------------------------
MIRAMAR IMAGES, INC.,
a Washington corporation
By:
-----------------------------------------
Its:
----------------------------------------
<PAGE>
EXHIBIT 1
[FORM OF SECOND AMENDED AND RESTATED NOTE]
<PAGE>
EXHIBIT
10.21
<PAGE>
OFFICE LEASE
This Office Lease, which includes the preceding Summary of Basic Lease
Information (the "Summary") attached hereto and incorporated herein by this
reference (the Office Lease and Summary to be known sometimes collectively
hereafter as the "Lease"), dated as of the date set forth in SECTION 1 of the
Summary, is made by and between TEN 9 FIFTY, L.L.C., a Delaware limited
liability company ("Landlord") and UNAPIX ENTERTAINMENT, INC., a Delaware
corporation ("Tenant").
ARTICLE 1
PROJECT, BUILDING AND PREMISES
1.1 PREMISES, BUILDING, PROJECT AND COMMON AREAS.
1.1.1 THE PREMISES. Upon and subject to the terms, covenants
and conditions hereinafter set forth in this Lease, Landlord hereby leases to
Tenant and Tenant hereby leases from Landlord the premises set forth in SECTION
6.2 of the Summary (the "Premises"), which Premises are located in the building
whose address is set forth in SECTION 6.1 of the Summary (the "Building"),
reserving, however to Landlord: (i) all of the Building, except for the space
within the inside surfaces bounding the Premises, and except as provided below
in this ARTICLE 1, and (ii) the rights, interests and estates reserved to
Landlord by provisions of this Lease or operation of law. The outline of the
Premises is set forth in EXHIBIT A attached hereto.
1.1.2 THE BUILDING AND THE PROJECT. The Building is part of an
office park known as "Ten 9 Fifty" which contains additional buildings,
including a studio/creative offices building and parking structure
(individually, an "Adjacent Building" or collectively, the "Adjacent
Buildings"). The term "Project," as used in this Lease, shall mean (i) the
Building, the Adjacent Buildings and the "Common Areas," as that term is defined
in SECTION 1.1.3 below, (ii) the land (which is improved with landscaping,
surface parking areas and other improvements) upon which the Building, the
Adjacent Buildings and the Common Areas are located and (iii) at Landlord's
discretion, any additional real property, areas, buildings or other improvements
added thereto. Tenant acknowledges that Landlord has made no representation or
warranty regarding the condition of the Project except as specifically set forth
in the Lease.
1.1.3 COMMON AREAS. Tenant shall have the non-exclusive right
to use in common with other tenants in the Project, and subject to the rules,
regulations and restrictions attached hereto as EXHIBIT B (the "Rules and
Regulations"), those portions of the Project which are provided, from time to
time, for use in common by Landlord, Tenant and any other tenants of the Project
(such areas designated by Landlord, in its discretion, are collectively referred
to herein as the "Common Areas"). The Common Areas shall consist of the "Project
Common Areas" and the "Building Common Areas." The term "Project Common Areas,"
as used in this Lease, shall mean the portion of the Project designated as such
by Landlord, and may include, without limitation, any parking facilities,
fixtures, systems, signs, facilities, gardens, parks or other landscaping used
in connection with the Project, and may include any city sidewalks adjacent to
the Project, pedestrian walkway system, whether above or below grade, park or
other facilities open to the general public and roadways, sidewalks, walkways,
parkways, driveways and landscape areas appurtenant to the Project. The term
"Building Common Areas," as used in this Lease, shall mean the portions of the
Common Areas located within the Building and may include, without limitation,
the common entrances, lobbies, restrooms, elevators (if any), stairways and
accessways, loading docks, ramps, drives, platforms, passageways, serviceways,
common pipes, conduits, wires, equipment, loading and unloading areas, and trash
areas servicing the Building. The manner in which the Common Areas are
maintained and operated shall be consistent with comparable creative
office/studio buildings in the vicinity of the Building. Landlord reserves the
right without notice to Tenant to make alterations or additions to or to change
the location of elements of the Project and the Common Areas, provided that the
making of such additions and alterations will not unreasonably interfere with
Tenant's use of and access to the Premises.
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1.2 USABLE AND RENTABLE SQUARE FEET. The rentable square feet of the
Building is stipulated to be as set forth in SECTION 6 of the Summary, and is
not subject to adjustment or modification by Tenant. The usable and rentable
square feet of the Premises shall be calculated by Landlord pursuant to the
Standard Method for Measuring Floor Area in Office Buildings, ANSI Z65.1-1996
("BOMA"). The usable and rentable square feet of the Premises shall be initially
verified by Landlord's planner/designer after construction of the Tenant
Improvements, and is subject to subsequent verification from time to time by
Landlord's planner/designer. Such verification shall be made in accordance with
the provisions of this Section 1.2. Tenant's architect may consult with
Landlord's planner/designer regarding such verification; provided, however, the
determination of Landlord's planner/designer shall be conclusive and binding
upon the parties. In the event that Landlord's planner/designer determines that
the usable and rentable square footage shall be different from those set forth
in this Lease, all amounts, percentages and figures appearing or referred to in
this Lease based upon such incorrect usable and rentable square feet (including,
without limitation, the amount of the Base Rent, Tenant's Share and the Tenant
Improvement Allowance) shall be modified in accordance with such determination.
If such determination is made, it will be confirmed in writing by Landlord to
Tenant.
ARTICLE 2
LEASE TERM
The terms and provisions of this Lease shall be effective as of the
date of this Lease. The term of this Lease (the "Lease Term") shall be as set
forth in SECTION 7.1 of the Summary and shall commence on the date (the "Lease
Commencement Date") set forth in SECTION 7.2 of the Summary, and shall terminate
on the date (the "Lease Expiration Date") set forth in SECTION 7.3 of the
Summary, unless this Lease is sooner terminated as hereinafter provided. For
purposes of this Lease, the term "Lease Year" shall mean each consecutive twelve
(12)-month period during the Lease Term. At any time during the Lease Term,
Landlord may deliver to Tenant a notice in the form as set forth in EXHIBIT C,
attached hereto, which Tenant shall execute and return to Landlord within five
(5) days of receipt thereof.
ARTICLE 3
BASE RENT
Tenant shall pay, without notice or demand, to Landlord at the
management office of the Project, or at such other place as Landlord may from
time to time designate in writing, in the form of a check (which is drawn upon a
bank which is located in the State of California) or currency which, at the time
of payment, is legal tender for private or public debts in the United States of
America, base rent ( "Base Rent") as set forth in SECTION 8 of the Summary,
payable in equal monthly installments as set forth in SECTION 8 of the Summary
in advance on or before the first day of each and every calendar month during
the Lease Term, without any setoff or deduction whatsoever, except as otherwise
provided in this Lease. The Base Rent for the first full calendar month of the
Lease Term shall be paid at the time of Tenant's execution of this Lease. If any
"Rent," as that term is defined in SECTION 4.1, below, payment date (including
the Lease Commencement Date) falls on a day of a calendar month other than the
first day of such calendar month or if any Rent payment is for a period which is
shorter than one calendar month, the Rent for any fractional calendar month
shall accrue on a daily basis for the period from the date such payment is due
to the end of such calendar month or to the end of the Lease Term at a rate per
day which is equal to 1/365 of the Rent. All other payments or adjustments
required to be made under the terms of this Lease that require proration on a
time basis shall be prorated on the same basis.
ARTICLE 4
ADDITIONAL RENT
4.1 ADDITIONAL RENT. In addition to paying the Base Rent specified in
ARTICLE 3 of this Lease, Tenant shall pay as additional rent (i) "Tenant's
Share" of the annual "Operating Expenses," as those terms are defined in
SECTIONS 4.2.5 AND 4.2.3 of this Lease, respectively, allocated to the tenants
of the Building pursuant to the terms of the SECTION 4.3 below, to the
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extent such Operating Expenses allocated to the tenants of the Building are in
excess of Tenant's Share of Operating Expenses applicable to the "Base Year," as
that term is defined in SECTION 4.2.1 of this Lease, and (ii) Tenant's Share of
the annual "Tax Expenses," as that term is defined in SECTION 4.2.4 of this
Lease, allocated to the tenants of the Building pursuant to the terms of SECTION
4.3 below, to the extent such Tax Expenses allocated to the tenants of the
Building are in excess of Tenant's Share of Tax Expenses applicable to the Base
Year. Such additional rent, together with any and all other amounts payable by
Tenant to Landlord, as additional rent or otherwise, pursuant to the terms of
this Lease, shall be hereinafter collectively referred to as the "Additional
Rent." The Base Rent and Additional Rent are herein collectively referred to as
the "Rent." All amounts due under this ARTICLE 4 as Additional Rent shall be
payable for the same periods and in the same manner, time and place as the Base
Rent. Without limitation on other obligations of Tenant which shall survive the
expiration of the Lease Term, the obligations of Tenant to pay the Additional
Rent provided for in this ARTICLE 4 shall survive the expiration of the Lease
Term.
4.2 DEFINITIONS. As used in this Article 4, the following terms
shall have the meanings hereinafter set forth:
4.2.1 "Base Year" shall mean the period set forth in SECTION
9.1 of the Summary.
4.2.2 "Expense Year" shall mean each calendar year in which
any portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.
4.2.3 "Operating Expenses" shall mean all expenses, costs and
amounts of every kind and nature which Landlord shall pay or incur during any
Expense Year because of or in connection with the ownership, management,
maintenance, repair, replacement, restoration or operation of the Project, or
any portion thereof, including, without limitation, any amounts paid or incurred
for (i) the cost of supplying all utilities (excluding the cost of electricity
consumed in the Premises and other tenants' premises as set forth in SECTION
4.2.3 (J) below and the cost of heating and air conditioning for the Premises
and other tenants' premises as set forth in Section 4.2.3(K) below), the cost of
operating, maintaining, repairing, replacing, renovating and managing the
utility systems, mechanical systems, sanitary and storm drainage systems, and
escalator and elevator systems, and the cost of supplies, tools, and equipment
and maintenance and service contracts in connection therewith; (ii) the cost of
licenses, certificates, permits and inspections and the cost of contesting the
validity or applicability of any governmental enactments which may affect
Operating Expenses, and the costs incurred in connection with the implementation
and operation of a governmentally mandated transportation system management
program or similar program; (iii) the cost of insurance carried by Landlord in
connection with the Project, in such amounts as Landlord may reasonably
determine; (iv) the cost of landscaping, relamping, and all supplies, tools,
equipment and materials used in the operation, repair and maintenance of the
Project; (v) the cost of parking area repair, restoration, and maintenance,
including, but not limited to, resurfacing, repainting, restriping, and
cleaning; (vi) fees, charges and other costs, including management fees (or
amounts in lieu thereof), consulting fees, legal fees and accounting fees, of
all persons engaged by Landlord or otherwise reasonably incurred by Landlord in
connection with the management, operation, maintenance and repair of the
Project; (vii) any equipment rental agreements or management agreements
(including the cost of any management fee and the fair rental value of any
office space provided thereunder); (viii) wages, salaries and other compensation
and benefits of all persons engaged in the operation, maintenance or security of
the Project, and employer's Social Security taxes, unemployment taxes or
insurance, and any other taxes which may be levied on such wages, salaries,
compensation and benefits; provided, that if any employees of Landlord provide
services for more than one project of Landlord, then a prorated portion of such
employees' wages, benefits and taxes shall be included in Operating Expenses
based on the portion of their working time devoted to the Project; (ix) payments
under any easement, license, operating agreement, declaration, restrictive
covenant, or instrument pertaining to the sharing of costs by the Project; (x)
amortization (including interest on the unamortized cost at a rate equal to the
floating commercial loan rate announced from time to time by Bank of America
N.T.&S.A., as its prime rate, plus 2% per annum [the "Interest Rate"]) of the
cost of acquiring or the rental expense of personal property used in the
maintenance, operation and repair of the Project; and (xi) the cost
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of capital improvements or other costs incurred in connection with the Project
(A) which are intended as a labor-saving device or to effect other economies in
the operation or maintenance of the Project, or any portion thereof, but only to
the extent of the reasonably anticipated savings, or (B) that are required under
any governmental law or regulation enacted after the Lease Commencement Date;
provided, however, that each such permitted capital expenditure set forth in
items (A) and (B) above shall be amortized (including interest on the
unamortized cost) over its useful life as Landlord shall reasonably determine.
If the Project is less than ninety-five percent (95%) occupied during all or a
portion of any Expense Year (including the Base Year), Landlord shall make an
appropriate adjustment to the variable components of Operating Expenses for such
Expense Year as reasonably determined by Landlord employing sound real estate
management principles, to determine the amount of Operating Expenses that would
have been paid had the Project been ninety-five percent (95%) occupied, and the
amount so determined shall be deemed to have been the amount of Operating
Expenses for such Expense Year. Notwithstanding the foregoing, for purposes of
this Lease, Operating Expenses shall not, however, include (A) bad debt expenses
and interest, principal payments, attorneys' fees, points and fees on debts,
including lender costs and closing costs (except in connection with the
financing of items which may be included in Operating Expenses) or amortization
on any ground lease, mortgage or mortgages or any other debt instrument
encumbering the Building or Project; (B) legal fees incurred in negotiating and
enforcing tenant leases; (C) marketing costs, including leasing commissions,
incurred in connection with lease, sublease and/or assignment transactions with
present or prospective tenants or other occupants of the Project ; (D) costs,
including permit, license and inspection costs, incurred with respect to the
installation of other tenants' or occupants' improvements made for tenants or
other occupants in the Project or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant space for tenants or other occupants
in the Project;; (E) the cost of providing any service directly to and paid
directly by any tenant; (F) any costs expressly excluded from Operating Expenses
elsewhere in this Lease; (G) costs of any items to the extent Landlord receives
reimbursement from insurance proceeds (such proceeds to be excluded from
Operating Expenses in the year in which received, except that any deductible
amount under any insurance policy shall not be included within Operating
Expenses) or from a third party; (H) costs of capital additions, capital
alterations, or capital improvements, (including replacements in excess of a
total $15,000.00 per Expense Year), except those set forth in SECTIONS 4.2(X)
AND 4.2(XI) ABOVE; (I) Tax Expenses; (J) the cost of electricity consumed in the
Premises and the premises of other tenants since Tenant is directly paying for
the cost of electricity consumed in the Premises pursuant to SECTION 6.1.2
below; (K) the cost of heating and air conditioning supplied to the Premises and
the premises of other tenants since Tenant is directly paying for its share of
the cost of such heating and air conditioning pursuant to Section 6.1.1. below;
(L) costs incurred to comply with laws relating to the removal of any Hazardous
Materials (as such term is defined in SECTION 5.2.3 below) which were in
existence in the Building or Project prior to the date of execution of this
Lease, and were of such a nature that a federal, state or municipal governmental
authority, if it had then had knowledge of the presence of such Hazardous
Materials, in the state, and under the conditions that they existed in the
Building or Project as of such date, would have then required the removal of
such Hazardous Materials or other remedial or containment action with respect
thereto; (M) costs incurred to remove, remedy, contain, or treat Hazardous
Materials, which are brought into the Building or Project after the date hereof
by Landlord Landlord's employees, agents or contractors and which are of such a
nature, at the time of such introduction, that a federal, state or municipal
governmental authority, if it had then had knowledge of such Hazardous Materials
would have then required the removal of such Hazardous Materials or other
remedial or containment action with respect thereto; (N) depreciation,
amortization and interest payments, except as specifically included in Operating
Expenses pursuant to the terms of this Lease and except on materials, tools,
supplies and vendor-type equipment purchased by Landlord to enable Landlord to
supply services Landlord might otherwise contract for with a third party, where
such depreciation, amortization and interest payments would otherwise have been
included in the charge for such third party's services, all as determined in
accordance with standard accounting practices and when depreciation or
amortization is permitted or required, the item shall be amortized over its
reasonably anticipated useful life; (O) costs incurred by Landlord due to the
violation by Landlord or any tenant of the terms and conditions of any lease of
space in the Project; (P) costs and the overhead and profit increment paid to
Landlord or to subsidiaries or affiliates of Landlord for goods and/or services
in the Project to the extent the same exceeds the costs of such by unaffiliated
third parties on a competitive basis; (Q) advertising and
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promotional expenditures, and costs of signs in or on the Project identifying
the owner of the Project or other tenants' signs; (R) tax penalties incurred as
a result of Landlord's negligence, inability or unwillingness to make payments
or file returns when due; (S) costs arising from Landlord's charitable or
political contributions; (T) costs for the acquisition of sculpture, paintings
or other objects of art which are not, as of the date of execution of this
Lease, located in the Project (the costs of maintenance and repair of such items
may be included in Operating Expenses); (U) costs, including, but not limited
to, attorneys' fees associated with the operation of the business of the
partnership or entity which constitutes Landlord as the same are distinguished
from the costs of the maintenance, repair and operation of the Project,
including partnership accounting and legal matters, costs of defending any
lawsuits with any mortgagee, and costs of any disputes between Landlord and its
employees, disputes of Landlord with Project management or personnel; and (V)
the cost of correcting any latent defects in the initial design or construction
of the Building or the Project improvements.
4.2.4 "Tax Expenses" shall mean all federal, state, county, or
local governmental or municipal taxes, fees, charges or other impositions of
every kind and nature, whether general, special, ordinary or extraordinary
(including, without limitation, real estate taxes, general and special
assessments, transit taxes, leasehold taxes or taxes based upon the receipt of
rent, including gross receipts or sales taxes applicable to the receipt of rent,
unless required to be paid by Tenant, personal property taxes imposed upon the
fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances,
furniture and other personal property used in connection with the Project),
which Landlord shall pay or incur during any Expense Year (without regard to any
different fiscal year used by such governmental or municipal authority) because
of or in connection with the ownership, leasing and operation of the Project.
For purposes of this Lease, Tax Expenses shall be calculated during each Expense
Year (including the Base Year) as if the tenant improvements in the Project were
fully constructed and the Project, and all tenant improvements in the Project
were fully assessed (at building standard buildout) for real estate tax
purposes.
4.2.4.1 Tax Expenses shall include, without limitation:
(i) Any assessment, tax, fee, levy or charge in
addition to, or in substitution, partially or totally, of any assessment, tax,
fee, levy or charge previously included within the definition of real property
tax, it being acknowledged by Tenant and Landlord that Proposition 13 was
adopted by the voters of the State of California in the June 1978 election
("Proposition 13") and that assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, conservation, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies, and charges and all similar
assessments, taxes, fees, levies and charges be included within the definition
of Tax Expenses for purposes of this Lease;
(ii) Any assessment, tax, fee, levy, or charge
allocable to or measured by the area of the Premises or the Rent payable
hereunder, including, without limitation, any gross income tax with respect to
the receipt of such Rent, or upon or with respect to the possession, leasing,
operating, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof;
(iii) Any assessment, tax, fee, levy or charge, upon
this transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises; and
(iv) Any possessory taxes charged or levied in lieu
of real estate taxes.
4.2.4.2 Any reasonable expenses incurred by Landlord in
attempting to protest, reduce or minimize Tax Expenses shall be included in Tax
Expenses in the Expense Year such expenses are paid.
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4.2.4.3 Notwithstanding anything to the contrary set forth in
this SECTION 4.2.4, in no event shall the Tax Expenses for any Expense Year
following the Base Year be less than the component of Tax Expenses for the Base
Year.
4.2.4.4 Notwithstanding anything to the contrary contained in
this SECTION 4.2.4 (except as set forth in SECTION 4.2.4.1 or levied in whole or
part in lieu of Tax Expenses), there shall be excluded from Tax Expenses (i) all
excess profits taxes, franchise taxes, gift taxes, capital stock taxes,
inheritance and succession taxes, estate taxes, federal and state income taxes,
and other taxes to the extent applicable to Landlord's general or net income (as
opposed to rents, receipts or income attributable to operations at the Project)
and (ii) any items included as Operating Expenses.
4.2.5 "Tenant's Share" shall mean the percentage set forth in
SECTION 9.2 of the Summary, which has been calculated by dividing the number of
rentable square feet of the Premises (as set forth in SECTION 6.2 of the
Summary) by the total rentable square feet of the Building (as set forth in
SECTION 6.3 of the Summary).
4.3 ALLOCATION OF OPERATING EXPENSES AND TAX EXPENSES TO TENANTS OF THE
BUILDING. Operating Expenses and Tax Expenses are determined annually for the
Project. Since the Building is only one of the buildings which constitute the
Project, Operating Expenses and Tax Expenses shall be allocated by Landlord, in
its reasonable discretion, to both the tenants of the Building and the tenants
of the other buildings in the Project. The portion of Operating Expenses and Tax
Expenses allocated to the tenants of the Building shall consist of (i) all
Operating Expenses and Tax Expenses attributable solely to the Building and (ii)
an equitable portion of Operating Expenses and Tax Expenses attributable to the
Project as a whole and not attributable solely to the Building or to any
Adjacent Building in the Project. Additionally, in allocating Operating Expenses
and Tax Expenses to the tenants of the Building, Landlord shall have the right,
from time to time, to equitably allocate some or all of the Operating Expenses
and Tax Expenses allocable to tenants of the Project among different tenants of
the Project (the "Cost Pools"). Such Cost Pools may include, but shall not be
limited to, the office space tenants of the Project, the retail space tenants of
the Project and/or the stage tenants of the Project.
4.4 CALCULATION AND PAYMENT OF ADDITIONAL RENT.
4.4.1 CALCULATION OF EXCESS. If for any Expense Year ending or
commencing within the Lease Term, (i) Tenant's Share of Operating Expenses for
such Expense Year allocated to the Building exceeds Tenant's Share of the amount
of Operating Expenses applicable to the Base Year allocated to the Building,
and/or (ii) Tenant's Share of Tax Expenses for such Expense Year allocated to
the Building exceeds Tenant's Share of the amount of Tax Expenses applicable to
the Base Year allocated to the Building, then Tenant shall pay to Landlord, in
the manner set forth in SECTION 4.4.2, below, and as Additional Rent, an amount
equal to such excess of the Operating Expenses and/or the Tax Expenses, as
applicable (the "Excess").
4.4.2 STATEMENT OF ACTUAL OPERATING EXPENSES AND TAX EXPENSES
AND PAYMENT BY TENANT. Landlord shall endeavor to give to Tenant, on or before
the first day of April following the end of each Expense Year, a statement (the
"Statement") which shall separately state the Operating Expenses and Tax
Expenses incurred or accrued for such preceding Expense Year and the amount
thereof allocated to the Building, and which shall indicate the amount, if any,
of any Excess. Upon receipt of the Statement for each Expense Year ending during
the Lease Term, if an Excess is present, Tenant shall pay, with its next
installment of Base Rent due, the full amount of the Excess for such Expense
Year, less the amounts, if any, paid during such Expense Year as "Estimated
Excess," as that term is defined in SECTION 4.4.3 below. If the amount of the
Excess for such Expense Year is less than the amount paid by Tenant as Estimated
Excess for such Expense Year, Landlord shall credit the difference against the
Additional Rent next due under this Lease. The failure of Landlord to timely
furnish the Statement for any Expense Year shall not prejudice Landlord from
enforcing its rights under this ARTICLE 4. Even though the Lease Term has
expired and Tenant has vacated the Premises, when the final determination is
made of Tenant's Share of the Operating Expenses and Tax Expenses allocated to
the tenants of the Building for the Expense Year in which this Lease terminates,
if an Excess is present, Tenant shall immediately pay to Landlord an amount as
calculated pursuant to the provisions of SECTION 4.4.1 of this Lease and
Landlord shall return to Tenant any amount by
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which the Estimated Statement exceeds the Statement. The provisions of this
SECTION 4.4.2 shall survive the expiration or earlier termination of the Lease
Term.
4.4.3 STATEMENT OF ESTIMATED OPERATING EXPENSES AND TAX
EXPENSES. In addition, Landlord shall give Tenant a yearly expense estimate
statement (the "Estimate Statement") which shall set forth Landlord's reasonable
estimate (the "Estimate") of what the total amount of Operating Expenses and Tax
Expenses for the then-current Expense Year shall be and the estimated Excess
(the "Estimated Excess") which shall be (i) the positive amount, if any, by
which Tenant's Share of Operating Expenses allocated to the tenants of the
Building, which shall be based upon the Estimate, exceeds Tenant's Share of
Operating Expenses applicable to the Base Year, plus (ii) the positive amount,
if any, by which Tenant's Share of Tax Expenses allocated to the tenants of the
Building, which shall be based upon the Estimate, exceeds Tenant's Share of Tax
Expenses applicable to the Base Year. The Estimate Statement for any Expense
Year may be revised and reissued by Landlord from time to time. The failure of
Landlord to timely furnish the Estimate Statement for any Expense Year shall not
preclude Landlord from enforcing its rights to collect any Estimated Excess
under this ARTICLE 4. If pursuant to the Estimate Statement (or a revision
thereof) an Estimated Excess is calculated for the then-current Expense Year,
Tenant shall pay to Landlord, with its next installment of Base Rent due, a
fraction of the Estimated Excess (or the increase in the Estimated Excess if
pursuant to a revised Estimated Statement) for the then-current Expense Year
(reduced by any amounts paid pursuant to the last sentence of this SECTION
4.4.3). Such fraction shall have as its numerator the number of months which
have elapsed in such current Expense Year to the month of such payment, both
months inclusive, and shall have twelve (12) as its denominator. Until a new
Estimate Statement is furnished, Tenant shall pay monthly, with the monthly Base
Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated
Excess set forth in the previous Estimate Statement delivered by Landlord to
Tenant.
4.5 ALLOCATION OF OPERATING EXPENSES AND TAX EXPENSES. Notwithstanding
anything to the contrary set forth in this ARTICLE 4, when calculating the
amount of Operating Expenses and Tax Expenses for the Base Year, such Operating
Expenses and Tax Expenses shall not include (i) any increase in Tax Expenses
attributable to special assessments, charges, costs, or fees, or due to
modifications or changes in governmental laws or regulations, including but not
limited to the institution of a split tax roll, (ii) market-wide labor-rate
increases due to extraordinary circumstances, including, but not limited to,
boycotts and strikes, (iii) utility rate increases due to extraordinary
circumstances including, but not limited to, conservation surcharges, boycotts,
embargoes or other shortages, and (iv) amortized costs relating to capital
improvements or expenditures.
4.6 TAXES AND OTHER CHARGES FOR WHICH TENANT IS DIRECTLY RESPONSIBLE.
Tenant shall reimburse Landlord, as Additional Rent, upon demand for any and all
taxes required to be paid by Landlord (except to the extent included in Tax
Expenses by Landlord), excluding state, local and federal personal or corporate
income taxes measured by the net income of Landlord from all sources and estate
and inheritance taxes, whether or not now customary or within the contemplation
of the parties hereto, when:
4.6.1 Said taxes are measured by or reasonably attributable to
the cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the cost
or value of such leasehold improvements exceeds the cost or value of a building
standard build-out as determined by Landlord regardless of whether title to such
improvements shall be vested in Tenant or Landlord; or
4.6.2 Said taxes are assessed upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises, any portion of the Project or the
parking facilities used by Tenant in connection with this Lease.
4.7 LANDLORD'S BOOKS AND RECORDS. In the event Tenant disputes the
amount of the Operating Expenses and Taxes set forth in the Statement delivered
by Landlord to Tenant pursuant to SECTION 4.4.2 above, Tenant shall have the
right, at Tenant's cost, after reasonable notice to Landlord, to inspect, at
Landlord's office during normal business hours, Landlord's
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books and records concerning the Operating Expenses and Taxes set forth in such
Statement; provided, however, Tenant shall have no right to conduct such
inspection, have an audit performed by the Accountant as described below, or
object to or otherwise dispute the amount of the Operating Expenses and Taxes
set forth in any Statement, unless Tenant does so within one (1) year
immediately following Landlord's delivery of the particular Statement in
question (the "Review Period"); provided, further, that notwithstanding any such
timely objection, dispute, inspection and/or audit, and as a condition precedent
to Tenant's exercise of its right of objection, dispute, inspection and/or audit
as set forth in this Section 4.7, Tenant shall not be permitted to withhold
payment of, and Tenant shall timely pay to Landlord, the full amounts as
required by the provisions of this Article 4 in accordance with such Statement.
However, such payment may be made under protest pending the outcome of any audit
which may be performed by the Accountant as described below. If after such
inspection, Tenant still disputes the amount of the Operating Expenses and Taxes
set forth in the Statement, Tenant shall have the right, within the Review
Period, to cause an independent certified public accountant which shall be one
of the "Big 6" national accounting firms, as selected by Tenant and reasonably
approved by Landlord (the "Accountant"), to commence and complete an audit of
Landlord's books and records to determine the proper amount of the Operating
Expenses and Taxes incurred and amounts payable by Tenant for the Expense Year
which is the subject of such Statement, which audit shall be final and binding
upon Landlord and Tenant. If such audit reveals that Landlord has over-charged
Tenant, then within thirty (30) days after the results of such audit are made
available to Landlord, Landlord shall reimburse to Tenant the amount of such
over-charge. If the audit reveals that the Tenant was under-charged, then within
thirty (30) days after the results of such audit are made available to Tenant,
Tenant shall reimburse to Landlord the amount of such under-charge. Tenant
agrees to pay the cost of such audit unless it is subsequently determined that
Landlord's original Statement which was the subject of such audit was in error
to Tenant's disadvantage by more than five percent (5%) of the Operating
Expenses and Taxes. The payment by Tenant of any amounts pursuant to this
ARTICLE 4 shall not preclude Tenant from questioning the correctness of any
Statement provided by Landlord at any time during the Review Period, but the
failure of Tenant to object thereto, conduct and complete its inspection and
request that Landlord have the Accountant conduct the audit as described above
prior to the expiration of the Review Period shall be conclusively deemed
Tenant's approval of the Statement in question and the amount of Operating
Expenses and Taxes shown thereon.
ARTICLE 5
USE OF PREMISES
5.1 GENERAL PROVISIONS. Tenant shall use the Premises solely for
general office purposes, and Tenant shall not use or permit the Premises to be
used for any other purpose or purposes whatsoever, and shall not allow occupancy
density of use of the Premises which is greater than the average density of the
other tenants of the Building. Tenant further covenants and agrees that it shall
not use, or suffer or permit any person or persons to use, the Premises or any
part thereof for any use or purpose contrary to the Rules and Regulations, or in
violation of the laws of the United States of America, the State of California,
or the ordinances, regulations or requirements of the local municipal or county
governing body or other lawful authorities having jurisdiction over the Project.
Tenant shall faithfully observe and comply with the Rules and Regulations.
Landlord shall not be responsible to Tenant for the nonperformance of any of
such Rules and Regulations by or otherwise with respect to the acts or omissions
of any other tenants or occupants of the Project. Tenant shall comply with all
recorded covenants, conditions, and restrictions ("CC&R's") now or hereafter
affecting the Project, so long as such CC&R's do not (i) unreasonably interfere
with Tenant's access to the Premises and the permitted use provided above in
this SECTION 5.1, or (ii) materially and adversely increase Tenant's obligations
under this Lease.
5.2 OTHER TERMS.
5.2.1 PROHIBITION. Tenant shall not cause or permit any
"Hazardous Material" as that term is defined below, to be generated, produced,
brought upon, used, stored, treated, discharged, released, spilled or disposed
of on, in, under or about the Project by Tenant, its affiliates, agents,
employees, contractors, sublessees, assignees or invitees; provided, however,
Tenant may use ordinary office supplies in the Premises in ordinary amounts so
long as the same
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are used, stored and disposed of in compliance with all Hazardous Materials
laws. Tenant shall indemnify, defend, protect, and hold Landlord harmless from
and against any and all actions (including, without limitation, remedial or
enforcement actions of any kind, administrative or judicial proceedings, and
orders or judgments arising out of or resulting therefrom), costs, claims,
damages (including, without limitation, punitive damages), expenses (including,
without limitation, attorneys', consultants' and experts' fees, court costs and
amounts paid in settlement of any claims or actions), fines, forfeitures or
other civil, administrative or criminal penalties, injunctive or other relief
(whether or not based upon personal injury, property damage, or contamination
of, or adverse effects upon, the environment, water tables or natural
resources), liabilities or losses arising from a breach of the foregoing
prohibition by Tenant, its affiliates, agents, employees, contractors,
sublessees, assignees or invitees. In the event that Hazardous Materials are
discovered upon, in, or under the Project, and any governmental agency or entity
having jurisdiction over the Project requires the removal of such Hazardous
Material, Tenant shall be responsible for removing those Hazardous Materials
arising out of or related to the use or occupancy of the Project by Tenant or
its affiliates, agents, employees, contractors, sublessees assignees or
invitees.
5.2.2 NOTICE REQUIREMENTS. Notwithstanding the foregoing,
Tenant shall not take any remedial action in or about the Premises, the Building
or the Project without first notifying Landlord of Tenant's intention to do so
and affording Landlord the opportunity to protect Landlord's interest with
respect thereto. Tenant immediately shall notify Landlord in writing of: (i) any
spill, release, discharge or disposal of any Hazardous Material in, on or under
the Premises, the Building, the Project or any portion thereof, (ii) any
enforcement, cleanup, removal or other governmental or regulatory action
instituted, contemplated, or threatened (if Tenant has notice thereof) pursuant
to any Hazardous Materials laws; (iii) any claim made or threatened by any
person against Tenant, the Premises, the Building or the Project relating to
damage, contribution, cost recovery, compensation, loss or injury resulting from
or claimed to result from any Hazardous Materials; and (iv) any reports made to
any governmental agency or entity arising out of or in connection with any
Hazardous Materials in, or, under or about or removed from the Premises, the
Building or the Project, including any complaints, notices, warnings, reports or
asserted violations in connection therewith. Tenant also shall supply to
Landlord as promptly as possible, and in any event within five (5) business days
after Tenant first receives or sends the same, copies of all claims, reports,
complaints, notices, warnings or asserted violations relating in any way to
Hazardous Materials. The respective rights and obligations of Tenant and
Landlord under this ARTICLE 5 shall survive the expiration or earlier
termination of this Lease.
5.2.3 DEFINITIONS. As used in this Lease, the term "Hazardous
Material" means any flammable items, explosives, radioactive materials,
hazardous or toxic substances, material or waste or related materials, including
any substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "infectious wastes," "hazardous materials" or
"toxic substances" now or subsequently regulated under any federal, state or
local laws, regulations or ordinances and including any different products and
materials which are subsequently found to have adverse effects on the
environment or the health and safety of persons.
ARTICLE 6
SERVICES AND UTILITIES
6.1 STANDARD TENANT SERVICES. Landlord shall provide the following
services on all days during the Lease Term, unless otherwise stated below.
6.1.1 Subject to all governmental rules, regulations and
guidelines applicable thereto, Landlord shall provide heating and air
conditioning when necessary for normal comfort for normal office use in the
Premises, from Monday through Friday, during the period from 8:00 a.m. to 6:00
p.m., and Saturday during the period from 8:00 a.m. to 1:00 p.m.; except for the
date of observation of New Year's Day, Independence Day, Labor Day, Memorial
Day, Thanksgiving Day, Christmas Day and other nationally or locally recognized
holidays (collectively, the "Holidays" ). Tenant shall pay Tenant's portion of
the cost of providing heating and air conditioning to the Building during the
hours stated above, which portion shall be calculated by
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dividing the number of rentable square feet of the Premises by the total
rentable square feet of premises (including the Premises) in the Building which
are occupied. Said amount shall be billed to and paid by Tenant as part of
Tenant's payment of electricity costs pursuant to Section 6.1.2 below.
6.1.2 Landlord shall provide adequate electrical wiring and
facilities and power for normal general office use as reasonably determined by
Landlord. Tenant shall pay directly to Landlord, within ten (10) days after
demand and as additional rent under this Lease (and not as part of the Operating
Expenses), the cost of all electricity provided to and/or consumed in the
Premises (including normal and excess consumption and electricity for heating
and air conditioning provided to the Premises pursuant to Section 6.1.1 above)),
which electricity shall be separately metered, at Tenant's cost. In addition,
Tenant shall bear the cost of replacement of non-standard lamps, starters and
ballasts for lighting fixtures within the Premises.
6.1.3 Landlord shall provide city water from the regular
Building outlets for drinking, lavatory and toilet purposes.
6.1.4 Landlord shall provide customary janitorial services
five (5) days per week, except the date of observation of the Holidays, in and
about the Premises.
6.1.5 Landlord shall provide Tenant with access to the
Premises twenty four (24) hours a day and seven (7) days a week.
6.1.6 Landlord shall, throughout the Lease Term, retain a
reputable and licensed security services firm for the provision of Building
security pursuant to such security procedures, hours, rules and scheduling as
Landlord shall determine; provided, however, that neither Landlord nor any of
the "Landlord Parties" (as defined in SECTION 10 below) shall be liable for, and
Landlord and the Landlord Parties are hereby released from any responsibility
for, any damage either to person or property or any losses, costs, expenses or
claims incurred in connection with or arising from any acts or omissions of
Landlord's security personnel. Tenant may, at its own expense, install its own
security system ("Tenant's Security System") in the Premises; provided, however,
that Tenant shall obtain Landlord's prior consent with respect to the plans and
specifications for Tenant's Security System (which consent shall not be
unreasonably withheld, conditioned or delayed), and shall coordinate the
installation and operation of Tenant's Security System with Landlord to assure
that Tenant's Security System is reasonably compatible with Landlord's security
system and the Building systems. To the extent that Tenant's Security System is
not reasonably compatible with Landlord's security system and/or the Building
systems, Tenant shall not be entitled to install or operate it. Tenant shall be
solely responsible, at Tenant's sole cost and expense, for the monitoring,
operation and removal of Tenant's Security System.
6.2 OVERSTANDARD TENANT USE. Tenant shall not, without Landlord's prior
written consent, use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
building standard lights in the Premises, which may affect the temperature
otherwise maintained by the air conditioning system or increase the water
normally furnished for the Premises by Landlord pursuant to the terms of SECTION
6.1 of this Lease. If such consent is given, Landlord shall have the right to
install supplementary air conditioning units or other facilities in the
Premises, including supplementary or additional metering devices, and the cost
thereof, including the cost of installation, operation and maintenance,
increased wear and tear on existing equipment and other similar charges, shall
be paid by Tenant to Landlord upon billing by Landlord. If Tenant uses water,
heat or air conditioning in excess of that supplied by Landlord pursuant to
SECTION 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the cost
of such excess consumption, the cost of the installation, operation, and
maintenance of equipment which is installed in order to supply such excess
consumption, and the cost of the increased wear and tear on existing equipment
caused by such excess consumption; and Landlord may install devices to
separately meter any increased use and in such event Tenant shall pay the
increased cost directly to Landlord, on demand, including the cost of such
additional metering devices. If Tenant desires to use heat, ventilation or air
conditioning during hours other than those for which Landlord is obligated to
supply such utilities pursuant to the terms of SECTION 6.1 of this Lease, Tenant
shall give Landlord such prior notice, as Landlord shall from time to time
establish as appropriate, of Tenant's desired use and
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Landlord shall supply such utilities to Tenant at such hourly cost to Tenant as
Landlord shall from time to time reasonably establish for the Building. Amounts
payable by Tenant to Landlord for such use of additional utilities shall be
deemed Additional Rent hereunder and shall be billed on a monthly basis.
6.3 INTERRUPTION OF USE. Tenant agrees that Landlord shall not be
liable for damages, by abatement of Rent, except as provided in Section 6.4, or
otherwise, for failure to furnish or delay in furnishing any service (including
telephone and telecommunication services), or for any diminution in the quality
or quantity thereof, when such failure or delay or diminution is occasioned, in
whole or in part, by repairs, replacements, or improvements, by any strike,
lockout or other labor trouble, by inability to secure electricity, gas, water,
or other fuel at the Building or Project after reasonable effort to do so, by
any accident or casualty whatsoever, by act or default of Tenant or other
parties, or by any other cause beyond Landlord's reasonable control; and such
failures or delays or diminution shall never be deemed to constitute an eviction
or disturbance of Tenant's use and possession of the Premises or relieve Tenant
from paying Rent (except for special abatement provided in Section 6.4 below) or
performing any of its obligations under this Lease (except as provided in
Section 6.4 below). Furthermore, Landlord shall not be liable under any
circumstances for a loss of, or injury to, property or for injury to, or
interference with, Tenant's business, including, without limitation, loss of
profits, however occurring, through or in connection with or incidental to a
failure to furnish any of the services or utilities as set forth in this ARTICLE
6.
6.4 SPECIAL ABATEMENT OF RENT. Notwithstanding the provisions of
SECTION 6.3 above to the contrary, in the event that during the Lease Term
Tenant is prevented from using, and does not use, the Premises or any portion
thereof as a result of (i) any failure by Landlord to provide any of the
essential utilities and services to the Premises required to be provided by
Landlord under SECTION 6.1 of this Lease, (ii) any failure by Landlord to
provide access to the Premises (including, without limitation, as a result of
any Renovations undertaken by Landlord pursuant to SECTION 29.24 of this Lease),
or (iii) any failure by Landlord to perform Landlord's repair obligations
pursuant to SECTION 7.1 below, and such failure is not the result of the
negligence or willful misconduct of Tenant or any of Tenant's employees, agents,
contractors, licensees or invitees (such event shall be known as a "Abatement
Event"), then Tenant shall give Landlord notice of such Abatement Event. If such
Abatement Event continues for five (5) consecutive business days after
Landlord's receipt of any such notice from Tenant or ten (10) business days
after Landlord's receipt of any such notice in any twelve (12) consecutive month
period ("Eligibility Period"), then the Base Rent and Tenant's Share of
Operating Expenses and Taxes shall be abated or reduced, as the case may be,
during such time after the Eligibility Period that Tenant continues to be so
prevented from using, and does not use, the Premises or a portion thereof, in
the proportion that the usable area of the portion of the Premises that Tenant
is prevented from using, and does not use, bears to the total usable area of the
Premises; provided, however, in the event that Tenant is prevented from using,
and does not use, a portion of the Premises for a period of time in excess of
the Eligibility Period, and the remaining portion of the Premises is not
sufficient to allow Tenant to effectively conduct its business therein, and if
Tenant does not conduct its business from such remaining portion, then for such
time after expiration of the Eligibility Period during which Tenant is so
prevented from effectively conducting its business therein, the Base Rent and
Tenant's Share of Operating Expenses and Taxes shall be abated for such time as
Tenant continues to be so prevented from using, and does not use, the Premises.
If, however, Tenant re-occupies any portion of the Premises during such period,
the rent allocable to such re-occupied portion, based on the proportion that the
usable area of such re-occupied portion of the Premises bears to the total
usable area of the Premises, shall be payable by Tenant from the date Tenant
re-occupies such portion of the Premises. Except as expressly provided in this
SECTION 6.4, nothing contained herein shall be interpreted to mean that Tenant
is excused from paying Rent due hereunder. Notwithstanding the foregoing
provisions of this SECTION 6.4 to the contrary which limits Tenant's right to
abatement for only those time periods which follow the Eligibility Period, (A)
to the extent Tenant is specifically entitled to abatement without regard to the
Eligibility Period because of an eminent domain taking and/or because of a
casualty damage or destruction pursuant to the provisions of Articles 11 or 13
below, then the Eligibility Period shall not be applicable, and (B) the
Eligibility Period shall also not be applicable following the occurrence of any
other Abatement Event described above which is not an eminent domain taking or a
casualty damage or destruction, to the extent and for the
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number of days that Landlord is reimbursed from the proceeds of rental
interruption insurance purchased by Landlord as part of Operating Expenses.
ARTICLE 7
REPAIRS
7.1 LANDLORD'S OBLIGATIONS. Landlord shall maintain and repair, in good
order and condition, the structural components of the Building, the Common Areas
and the Building's basic systems and equipment (including the Building's HVAC
system serving the Premises, but not Tenant's supplemental HVAC equipment, if
any).
7.2 TENANT'S OBLIGATIONS. Tenant shall, at Tenant's own expense,
pursuant to the terms of this Lease, including without limitation ARTICLE 8
hereof, keep non-structural portions of the Premises, including all
improvements, fixtures and furnishings therein, in good order, repair and
condition at all times during the Lease Term. In addition, Tenant shall, at
Tenant's own expense but under the supervision and subject to the prior approval
of Landlord, and within any reasonable period of time specified by Landlord,
pursuant to the terms of this Lease, including without limitation ARTICLE 8
hereof, promptly and adequately repair all damage to the Premises and replace or
repair all damaged or broken fixtures and appurtenances; provided however, that,
if Tenant fails to make such repairs, Landlord may, but need not, make such
repairs and replacements, and Tenant shall pay Landlord the cost thereof,
including a percentage of the cost thereof (to be uniformly established for the
Building and/or the Project) sufficient to reimburse Landlord for all overhead,
general conditions, fees and other costs or expenses arising from Landlord's
involvement with such repairs and replacements forthwith upon being billed for
same. Landlord may, but shall not be required to, enter the Premises at all
reasonable times to make such repairs, alterations, improvements and additions
to the Premises or to the Project or to any equipment located in the Project as
Landlord shall desire or deem necessary or as Landlord may be required to do by
governmental or quasi-governmental authority or court order or decree; provided,
however, that any such entry shall be accomplished as expeditiously as possible
and in such a manner as not to unreasonably interfere with Tenant's use of the
Premises. Tenant hereby waives and releases its right to make repairs at
Landlord's expense under SECTIONS 1941 AND 1942 of the California Civil Code or
under any similar law, statute, or ordinance now or hereafter in effect.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 LANDLORD'S CONSENT TO ALTERATIONS. Tenant may not make any
improvements, alterations, additions or changes to the Premises (collectively,
the "Alterations") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
thirty (30) days prior to the commencement thereof, and which consent shall not
be unreasonably withheld by Landlord; provided that Landlord shall not be
required to consent to any Alterations which cause Hazardous Material to be
incorporated into or brought into the Project or Premises. The construction of
the initial improvements to the Premises shall be governed by the terms of the
Tenant Work Letter, attached hereto as EXHIBIT D, and not the terms of this
ARTICLE 8. Notwithstanding the foregoing to the contrary, Tenant may make purely
cosmetic changes to the Premises (i.e., changes to the carpet, wallcovering and
paint) and non-structural changes to the Premises (such cosmetic and
non-structural changes to be referred to hereafter collectively as the
"Acceptable Changes") without Landlord's prior consent provided (i) Tenant
delivers to Landlord written notice of such Acceptable Changes at least fifteen
(15) days prior to the commencement thereof, (ii) such Acceptable Changes do not
cost in excess of Five Thousand Dollars ($5,000.00) for any one (1) job, (iii)
such Acceptable Changes do not cause Hazardous Material to be introduced into
the Project or Premises; (iv) such Acceptable Changes do not affect the exterior
appearance of the Building or Common Areas, or the structural aspects of the
Building, or the systems and equipment of the Premises or Building; and (v) such
Acceptable Changes do not require a building permit.
8.2 MANNER OF CONSTRUCTION. Landlord may impose, as a condition of its
consent to all Alterations or repairs of the Premises or about the Premises,
such requirements as Landlord in
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its reasonable discretion may deem desirable, including, but not limited to, the
requirement that upon Landlord's request, Tenant shall, at Tenant's expense,
remove such Alterations upon the expiration or any early termination of the
Lease Term, and/or the requirement that Tenant utilize for such purposes only
contractors, materials, mechanics and materialmen approved by Landlord. Tenant
shall construct such Alterations and perform such repairs in conformance with
any and all applicable rules and regulations of any federal, state, county or
municipal code or ordinance and pursuant to a valid building permit, issued by
Culver City, in conformance with Landlord's construction rules and regulations.
All work with respect to any Alterations must be done in a good and workmanlike
manner and diligently prosecuted to completion to the end that the Premises
shall at all times be a complete unit except during the period of work. In
performing the work of any such Alterations, Tenant shall have the work
performed in such manner as not to obstruct access to the Project, Building or
Common Areas or any portion thereof, by any other tenant of the Project, and as
not to obstruct the business of Landlord or other tenants in the Project, or
interfere with the labor force working in the Project. Upon completion of any
Alterations, Tenant agrees to cause a timely Notice of Completion to be recorded
in the office of the Recorder of the County of Los Angeles in accordance with
the terms of SECTION 3093 of the Civil Code of the State of California or any
successor statute, and Tenant shall deliver to the Project management office a
reproducible copy of the "as built" drawings of the Alterations.
8.3 PAYMENT FOR IMPROVEMENTS. The cost of all Alterations shall be paid
by Tenant. Upon completion of such work, Tenant shall deliver to Landlord
evidence of payment, contractors' affidavits and full and final waivers of all
liens for labor, services or materials. Tenant shall pay to Landlord an
administrative fee of ten percent (10%) of the cost of the Alterations
(excepting the Acceptable Changes described in 8.1) to compensate Landlord for
the cost of Landlord's review of plans and other review of and involvement with
such work.
8.4 CONSTRUCTION INSURANCE. In the event that Tenant makes any
Alterations, Tenant agrees to carry "Builder's All Risk" insurance in an amount
approved by Landlord covering the construction of such Alterations, and such
other insurance as Landlord may require, it being understood and agreed that all
of such Alterations shall be insured by Tenant pursuant to ARTICLE 10 of this
Lease immediately upon completion thereof. In addition, Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a
co-obligee.
8.5 LANDLORD'S PROPERTY. All Alterations, improvements, fixtures and/or
equipment which may be installed or placed in or about the Premises, and all
signs installed in, on or about the Premises, from time to time, shall be at the
sole cost of Tenant and shall be and become the property of Landlord, except
that Tenant may remove any Alterations, improvements, fixtures and/or equipment
which Tenant can substantiate to Landlord have not been paid for with any tenant
improvement or refurbishment allowance funds provided to Tenant by Landlord,
provided Tenant repairs any damage to the Premises and Building caused by such
removal. Furthermore, if Landlord, as a condition to Landlord's consent to any
Alteration, requires that Tenant remove any Alteration upon the expiration or
early termination of the Lease Term, Landlord may, by written notice to Tenant
prior to the end of the Lease Term, or given upon any earlier termination of
this Lease, require Tenant at Tenant's expense to remove such Alterations and to
repair any damage to the Premises and Building caused by such removal. If Tenant
fails to complete such removal and/or to repair any damage caused by the removal
of any Alterations, Landlord may do so and may charge the cost thereof to
Tenant.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant has no authority or power to cause or permit any lien or
encumbrance of any kind whatsoever, whether created by act of Tenant, operation
of law or otherwise, to attach to or be placed upon the Project, Building or
Premises, and any and all liens and encumbrances created by Tenant shall attach
to Tenant's interest only. Landlord shall have the right at all times to post
and keep posted on the Premises any notice which it deems necessary for
protection from such liens. Tenant covenants and agrees not to suffer or permit
any lien of mechanics or materialmen
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or others to be placed against the Project, the Building or the Premises with
respect to work or services claimed to have been performed for or materials
claimed to have been furnished to Tenant or the Premises, and, in case of any
such lien attaching or notice of any lien, Tenant covenants and agrees to cause
it to be immediately released and removed of record. Notwithstanding anything to
the contrary set forth in this Lease, in the event that such lien is not
released and removed on or before the date occurring ten (10) business days
after notice of such lien is delivered by Landlord to Tenant, Landlord, at its
sole option, may immediately take all action necessary to release and remove
such lien, without any duty to investigate the validity thereof, and all sums,
costs and expenses, including reasonable attorneys' fees and costs, incurred by
Landlord in connection with such lien shall be deemed Additional Rent under this
Lease and shall immediately be due and payable by Tenant.
ARTICLE 10
INSURANCE
10.1 INDEMNIFICATION AND WAIVER. To the extent not prohibited by law,
Landlord, its partners, trustees, ancillary trustees and their respective
officers, directors, shareholders, beneficiaries, agents, servants, employees,
and independent contractors (collectively, the "Landlord Parties") shall not be
liable for any damage either to person or property or resulting from the loss of
use thereof, which damage is sustained by Tenant or by other persons claiming
through Tenant, except for gross negligence or willful misconduct of the
Landlord Parties. Tenant shall indemnify, defend, protect, and hold harmless
Landlord Parties from any and all loss, cost, damage, expense and liability
(including without limitation court costs and reasonable attorneys' fees)
incurred in connection with or arising from any cause in, on or about the
Premises, either prior to, during, or after the expiration of the Lease Term,
provided that the terms of the foregoing indemnity shall not apply to the gross
negligence or willful misconduct of Landlord.
10.2 LANDLORD'S CASUALTY INSURANCE; TENANT'S COMPLIANCE WITH LANDLORD'S
CASUALTY INSURANCE. Landlord shall insure the Building during the Lease Term
against loss or damage due to fire and other casualties covered within the
classification of fire and extended coverage, vandalism coverage and malicious
mischief. Such coverage shall be for full replacement cost or value (as
determined by Landlord) and with such deductibles, from such companies and on
such terms and conditions, as Landlord may from time to time determine;
provided, however, Landlord shall not be required to insure the Tenant
Improvements, Alterations and/or any other items Tenant is required to insure
pursuant to SECTION 10.3 below. Additionally, at the option of Landlord, such
insurance coverage may include the risks of earthquakes and/or flood damage and
additional hazards, a rental loss endorsement and one or more loss payee
endorsements in favor of the holders of any mortgages or deeds of trust
encumbering the interest of Landlord in the Building or Project or the ground or
underlying lessors of the Building or Project, or any portion thereof. Upon
inquiry by Tenant, from time to time, Landlord shall inform Tenant of such
coverage carried by Landlord. Tenant shall neither use the Premises nor permit
the Premises to be used or acts to be done therein which will (i) increase the
premium of any insurance described in this Section 10.2; (ii) cause a
cancellation of or be in conflict with any such insurance policies; or (iii)
result in a refusal by insurance companies of good standing to insure the
Building or Project in amounts reasonably satisfactory to Landlord; or (iv)
subject Landlord to any liability or responsibility for injury to any person or
property by reason of any operation being conducted in the Premises. Tenant
shall, at Tenant's expense, comply with all insurance company requirements
pertaining to the use of the Premises. If Tenant's conduct or use of the
Premises causes any increase in the premium for any insurance policies carried
by Landlord, then Tenant shall reimburse Landlord for any such increase. Tenant,
at Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and with any similar body.
10.3 TENANT'S INSURANCE. Tenant shall maintain the following coverages
in the following amounts.
10.3.1 Commercial General Liability Insurance covering the
insured against claims of bodily injury, personal injury and property damage
arising out of Tenant's operations,
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assumed liabilities or use of the Premises, including a Commercial General
Liability endorsement covering the insuring provisions of this Lease and the
performance by Tenant of the indemnity agreements set forth in SECTION 10.1 of
this Lease, for limits of liability not less than: (i) Bodily Injury and
Property Damage Liability - $2,000,000 each occurrence and $2,000,000 annual
aggregate, and (ii) Personal Injury Liability - $2,000,000 each occurrence and
$2,000,000 annual aggregate.
10.3.2 Physical Damage Insurance covering (i) all office
furniture, trade fixtures, office equipment, merchandise and all other items of
Tenant's property on the Premises installed by, for, or at the expense of
Tenant, (ii) the "Tenant Improvements," as that term is defined in the Tenant
Work Letter, and (iii) all other improvements, alterations and additions to the
Premises. Such insurance shall be written on an "all risks" of physical loss or
damage basis, for the full replacement cost value new without deduction for
depreciation of the covered items and in amounts that meet any co-insurance
clauses of the policies of insurance and shall include a vandalism and malicious
mischief endorsement, sprinkler leakage coverage and earthquake sprinkler
leakage coverage.
10.3.3 Loss-of-income and extra-expense insurance in such
amounts as will reimburse Tenant for direct or indirect loss of earnings
attributable to all perils commonly insured against by prudent tenants or
attributable to prevention of access to the Premises, to the Building or to the
Project as a result of such perils; provided, however, Tenant may elect to
self-insure for the insurance described by this SECTION 10.3.3 in which event,
Tenant hereby waives any right it may have against Landlord with respect to any
damage or loss which would otherwise have been covered by the insurance coverage
described in this SECTION 10.3.3.
10.3.4 FORM OF POLICIES. The minimum limits of policies of
insurance required of Tenant under this Lease shall in no event limit the
liability of Tenant under this Lease. Such insurance shall (i) name Landlord,
and any other party it so specifies, as an additional insured; (ii) specifically
cover the liability assumed by Tenant under this Lease, including, but not
limited to, Tenant's obligations under SECTION 10.1 of this Lease; (iii) be
issued by an insurance company having a rating of not less than A-X in Best's
Insurance Guide or which is otherwise acceptable to Landlord and licensed to do
business in the State of California; (iv) be primary insurance as to all claims
thereunder and provide that any insurance carried by Landlord is excess and is
non-contributing with any insurance requirement of Tenant; (v) provide that said
insurance shall not be canceled or coverage changed unless thirty (30) days'
prior written notice shall have been given to Landlord and any mortgagee of
Landlord; and (vi) contain a cross-liability endorsement or severability of
interest clause acceptable to Landlord. Tenant shall deliver said policy or
policies or certificates thereof to Landlord on or before the Lease Commencement
Date and at least thirty (30) days before the expiration dates thereof. If
Tenant fails to carry the amounts and types of insurance required to be carried
by it pursuant to this ARTICLE 10, in addition to any remedies Landlord may have
under this Lease, such failure shall be deemed to be a covenant and agreement by
Tenant to self-insure with respect to the type and amount of insurance which
Tenant so failed to carry, with full waiver of subrogation with respect thereto.
10.4 SUBROGATION. Landlord and Tenant agree to have their respective
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. As long as such waivers of subrogation are contained
in their respective insurance policies, Landlord and Tenant hereby waive any
right that either may have against the other on account of any loss or damage to
their respective property to the extent such loss or damage is insurable under
policies of insurance for fire and all risk coverage, theft, or other similar
insurance.
10.5 ADDITIONAL INSURANCE OBLIGATIONS. Tenant shall carry and maintain
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to this
ARTICLE 10, and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein, as may
be reasonably requested by Landlord but only to the extent such increased
amounts and other types of insurance are customarily required by landlords of
comparable office and creative studio projects of similar size and quality as
the Project.
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Notwithstanding anything to the contrary contained in this Lease, in the event
of any termination of this Lease pursuant to ARTICLE 11 or ARTICLE 13 below,
Tenant shall assign and deliver to Landlord (or to any party designated by
Landlord) all insurance proceeds payable to Tenant under Tenant's insurance
required under SECTION 10.3.2(ii) and 10.3.2(iii) of this Lease.
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 REPAIR OF DAMAGE TO PREMISES BY LANDLORD. Tenant shall promptly
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any Common Areas serving or providing access to the
Premises shall be damaged by fire or other casualty, Landlord shall promptly and
diligently, subject to reasonable delays for insurance adjustment or other
matters beyond Landlord's reasonable control, and subject to all other terms of
this ARTICLE 11, restore the base, shell, and core of the Premises and such
Common Areas. Such restoration shall be to substantially the same condition of
the base, shell, and core of the Premises and Common Areas prior to the
casualty, except for modifications required by zoning and building codes and
other laws or by the holder of a mortgage on the Building or any other
modifications to the Common Areas deemed desirable by Landlord, provided access
to the Premises and any common restrooms serving the Premises shall not be
materially impaired. Notwithstanding any other provision of this Lease, upon the
occurrence of any damage to the Premises, Tenant shall assign to Landlord (or to
any party designated by Landlord) all insurance proceeds payable to Tenant under
Tenant's insurance required under SECTION 10.3.2(ii) and 10.3.2(iii) of this
Lease, and Landlord shall repair any injury or damage to the Tenant Improvements
installed in the Premises and shall return such Tenant Improvements to their
original condition; provided that if the cost of such repair by Landlord exceeds
the amount of insurance proceeds received by Landlord from Tenant's insurance
carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant
to Landlord prior to Landlord's repair of the damage. In connection with such
repairs and replacements, Tenant shall, prior to the commencement of
construction, submit to Landlord, for Landlord's review and approval, all plans,
specifications and working drawings relating thereto, and Landlord shall select
the contractors to perform such improvement work. Such submittal of plans and
construction of improvements shall be performed in substantial compliance with
the terms of the Tenant Work Letter as though such construction of improvements
were the initial construction of the Tenant Improvements. Landlord shall not be
liable for any inconvenience or annoyance to Tenant or its visitors, or injury
to Tenant's business resulting in any way from such damage or the repair
thereof; provided however, that if such fire or other casualty shall have
damaged the Premises or Common Areas necessary to Tenant's occupancy, and if
such damage is not the result of the negligence or willful misconduct of Tenant
or Tenant's employees, contractors, licensees, or invitees, Landlord shall allow
Tenant a proportionate abatement of Rent during the time and to the extent the
Premises are unfit for occupancy for the purposes permitted under this Lease,
and not occupied by Tenant as a result thereof.
11.2 LANDLORD'S OPTION TO REPAIR. Notwithstanding the terms of SECTION
11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises, Building and/or Project and instead terminate this Lease by notifying
Tenant in writing of such termination within forty-five (45) days after Landlord
becomes aware of such damage ("Landlord's Damage Notice"), such notice to
include a termination date giving Tenant ninety (90) days to vacate the
Premises, but Landlord may so elect only if the Building or Project shall be
damaged by fire or other casualty or cause, whether or not the Premises are
affected, and one or more of the following conditions is present: (i) repairs
cannot reasonably be completed within one hundred eighty (180) days of the date
of damage (when such repairs are made without the payment of overtime or other
premiums); (ii) the holder of any mortgage on the Building or Project or ground
lessor with respect to the Building or Project shall require that the insurance
proceeds or any portion thereof be used to retire the mortgage debt, or shall
terminate the ground lease, as the case may be; or (iii) the damage is not fully
covered, except for deductible amounts, by Landlord's insurance policies (but
Landlord may terminate this Lease pursuant to this clause (iii) only if Landlord
also terminates leases of other tenants in the Building containing similar
termination rights in connection with similar uninsured damage to the Premises
leased by such other tenants); provided, however, that (A) if Landlord does not
elect to terminate this Lease pursuant to
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Landlord's termination right as provided above, (B) the damage constitutes a
"Tenant Damage Event" (as defined below), and (C) the repair of such damage
cannot, in the reasonable opinion of Landlord as set forth in Landlord's Damage
Notice, be completed within one hundred eighty (180) days after the date of the
damage, then Tenant may elect, no earlier than sixty (60) days after the date of
the damage and not later than ninety (90) days after the date of such damage, to
terminate this Lease by written notice to Landlord effective as of the date set
forth in Tenant's notice (not to be sooner than the date of such termination
notice or later than ninety (90) days thereafter). Furthermore, if neither
Landlord nor Tenant have terminated this Lease as provided above in this SECTION
11.2, and the repair of such damage is not actually completed by the date (the
"Outside Repair Date") which is thirty (30) days after the later of (1) one
hundred eighty (180) days after the date of such damage, or (2) the date
estimated by Landlord for the completion of such repairs in Landlord's damage
notice, as such Outside Repair Date shall be extended as a result of any delays
in completion of such repairs due to acts or omissions of Tenant or any of
Tenant's agents, contractors, employees, or delays due to Force Majeure set
forth in Section 29.13 of this Lease, then Tenant shall have the right to
terminate this Lease by written notice delivered to Landlord within ten (10)
business days after the end of the Outside Repair Date. If Tenant so terminates
this Lease as provided in the immediately preceding sentence, such termination
shall be effective as of the date set forth in Tenant's termination notice,
which date shall be no sooner than the date of such notice and no later than
ninety (90) days thereafter. As used herein, a "Tenant Damage Event" shall mean
damage to all or any part of the Premises or any Common Areas providing access
to the Premises by fire or other casualty, which damage is not the result of the
negligence or willful misconduct of Tenant or any of Tenant's employees, agents,
contractors, licensees or invitees, and which damage substantially interferes
with Tenant's use of or access to the Premises and would entitle Tenant to an
abatement of Rent pursuant to Section 11.1 above..
11.3 WAIVER OF STATUTORY PROVISIONS. The provisions of this Lease,
including this ARTICLE 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or any other portion of the Project, and any
statute or regulation of the State of California, including, without limitation,
Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any
rights or obligations concerning damage or destruction in the absence of an
express agreement between the parties, and any other statute or regulation, now
or hereafter in effect, shall have no application to this Lease or any damage or
destruction to all or any part of the Premises, the Building or any other
portion of the Project.
11.4 DAMAGE NEAR END OF TERM. In the event that the Premises, the
Building or the Project is destroyed or damaged to any substantial extent during
the last twelve (12) months of the Lease Term, then notwithstanding anything
contained in this ARTICLE 11, Landlord shall have the option to terminate this
Lease and to the extent such destruction or damage constitutes a Tenant Damage
Event (as defined in Section 11.2 above) and the repair of same is reasonably
expected to Landlord to require more than thirty (30) days to complete, Tenant
shall have the option to terminate this Lease, by giving written notice to the
other party of the exercise of such option within thirty (30) days after such
party becomes aware of such damage or destruction. If either Landlord or Tenant
exercises such option to terminate this Lease as provided in this SECTION 11.4,
(i) this Lease shall cease and terminate as of the date of such notice, (ii)
Tenant shall pay the Base Rent and Additional Rent, properly apportioned up to
such date of termination, and (iii) both parties hereto shall thereafter be
freed and discharged of all further obligations hereunder, except as provided
for in provisions of this Lease which by their terms survive the expiration or
earlier termination of the Lease Term.
ARTICLE 12
NONWAIVER
No waiver of any provision of this Lease shall be implied by any
failure of Landlord or Tenant to enforce any remedy on account of the violation
of such provision, even if such violation shall continue or be repeated
subsequently, any waiver by Landlord or Tenant of any provision of this Lease
may only be in writing, and no express waiver shall affect any provision other
than the one specified in such waiver and that one only for the time and in the
manner
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specifically stated. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Lease Term or
of Tenant's right of possession hereunder or after the giving of any notice
shall reinstate, continue or extend the Lease Term or affect any notice given
Tenant prior to the receipt of such monies, it being agreed that after the
service of notice or the commencement of a suit or after final judgment for
possession of the Premises, Landlord may receive and collect any Rent due, and
the payment of said Rent shall not waive or affect said notice, suit or
judgment. No payment by Tenant or receipt or acceptance by Landlord of a lesser
amount than the correct Rent due shall be deemed to be other than a payment on
account, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance, treat such partial payment as a default or pursue any
other remedy provided in this Lease or at law.
ARTICLE 13
CONDEMNATION
If ten percent (10%) or more of the Premises, the Building or the
Project shall be taken by power of eminent domain or condemned by any competent
authority for any public or quasi-public use or purpose, or if Landlord shall
grant a deed or other instrument in lieu of such taking by eminent domain or
condemnation, Landlord shall have the option to terminate this Lease upon ninety
(90) days' notice, provided such notice is given no later than one hundred
eighty (180) days after the date of such taking, condemnation, reconfiguration,
vacation, deed or other instrument. If more than ten percent (10%) of the
rentable square feet of the Premises is taken, or if access to or parking for
the Premises is substantially impaired as a result of such taking, Tenant shall
have the option to terminate this Lease upon ninety (90) days' notice, provided
such notice is given no later than one hundred eighty (180) days after the date
of such taking. Landlord shall be entitled to receive the entire award or
payment in connection therewith, except that Tenant shall have the right to file
any separate claim available to Tenant for any taking of Tenant's personal
property and fixtures belonging to Tenant and removable by Tenant upon
expiration of the Lease Term pursuant to the terms of this Lease, and for moving
expenses, so long as such claim does not diminish the award available to
Landlord, its ground lessor with respect to the Building or the Project or its
mortgagee, and such claim is payable separately to Tenant. All Rent shall be
apportioned as of the date of such termination, or the date of such taking,
whichever shall first occur. If any part of the Premises shall be taken, and
this Lease shall not be so terminated, the Rent shall be proportionately abated.
Tenant hereby waives any and all rights it might otherwise have pursuant to
Section 1265.130 of the California Code of Civil Procedure.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 TRANSFERS. Tenant shall not, without the prior written consent of
Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to
attach to, or otherwise transfer, this Lease or any interest hereunder, permit
any assignment or other such foregoing transfer of this Lease or any interest
hereunder by operation of law, sublet the Premises or any part thereof, or
permit the use of the Premises by any persons other than Tenant, its employees
and independent contractors reasonably necessary for the conducting of Tenant's
business (all of the foregoing are hereinafter sometimes referred to
collectively as "Transfers" and any person to whom any Transfer is made or
sought to be made is hereinafter sometimes referred to as a "Transferee"). If
Tenant shall desire Landlord's consent to any Transfer, Tenant shall notify
Landlord in writing, which notice (the "Transfer Notice") shall include (i) the
proposed effective date of the Transfer, which shall not be less than thirty
(30) days nor more than one hundred eighty (180) days after the date of delivery
of the Transfer Notice, (ii) a description of the portion of the Premises to be
transferred (the "Subject Space"), (iii) all of the terms of the proposed
Transfer and the consideration therefor, including a calculation of the
"Transfer Premium," as that term is defined in SECTION 14.3, below, in
connection with such Transfer, the name and address of the proposed Transferee,
and a copy of all existing and/or proposed documentation pertaining to the
proposed Transfer, including all existing operative documents to be executed to
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evidence such Transfer or the agreements incidental or related to such Transfer,
(iv) current financial statements of the proposed Transferee certified by an
officer, partner or owner thereof, and any other information reasonably required
by Landlord, which will enable Landlord to determine the financial
responsibility, character, and reputation of the proposed Transferee, nature of
such Transferee's business and proposed use of the Subject Space, (v) an
executed estoppel certificate from Tenant in the form attached hereto as EXHIBIT
E, and (vi) such other information as Landlord may reasonably require. Any
Transfer made without Landlord's prior written consent shall, at Landlord's
option, be null, void and of no effect, and shall, at Landlord's option,
constitute a default by Tenant under SECTION 19.1.7 of this Lease. Whether or
not Landlord shall grant consent, Tenant shall pay Landlord's review and
processing fees (not to exceed two thousand dollars ($2,000.00), as well as any
reasonable legal fees incurred by Landlord, within thirty (30) days after
written request by Landlord.
14.2 LANDLORD'S CONSENT. Landlord shall not unreasonably withhold its
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice. The parties hereby agree that it shall
be deemed to be reasonable under this Lease and under any applicable law for
Landlord to withhold consent to any proposed Transfer where one or more of the
following apply, without limitation as to other reasonable grounds for
withholding consent:
14.2.1 The Transferee is of a character or reputation or
engaged in a business which is not consistent with the quality of the Building
or the Project;
14.2.2 The Transferee is either a governmental agency or
instrumentality thereof;
14.2.3 The Transferee's intended use of the Premises is
inconsistent with the permitted use specified in ARTICLE 5 above;
14.2.4 The Transferee is not a party of reasonable financial
worth and/or financial stability in light of the responsibilities involved under
the Lease on the date consent is requested;
14.2.5 The proposed Transfer would cause Landlord to be in
violation of another lease or agreement to which Landlord is a party, or would
give an occupant of the Project a right to cancel its lease; or
14.2.6 Either the proposed Transferee, or any person or entity
which directly or indirectly, controls, is controlled by, or is under common
control with, the proposed Transferee, (i) occupies space in the Project at the
time of the request for consent, (ii) is negotiating with Landlord to lease
space in the Project at such time, or (iii) has negotiated with Landlord during
the three (3)-month period immediately preceding the Transfer Notice.
In the event Landlord withholds or conditions its consent and
Tenant believes that Landlord did so contrary to the terms of this Lease, Tenant
may prosecute an action for declaratory relief to determine if Landlord properly
withheld or conditioned its consent. If Landlord consents to any Transfer
pursuant to the terms of this SECTION 14.2 (and does not exercise any recapture
rights Landlord may have under SECTION 14.4 of this Lease), Tenant may within
six (6) months after Landlord's consent, but not later than the expiration of
said six-month period, enter into such Transfer of the Premises or portion
thereof, upon substantially the same terms and conditions as are set forth in
the Transfer Notice furnished by Tenant to Landlord pursuant to SECTION 14.1 of
this Lease, provided that if there are any changes in the terms and conditions
from those specified in the Transfer Notice (i) such that Landlord would
initially have been entitled to refuse its consent to such Transfer under this
SECTION 14.2, or (ii) which would cause the proposed Transfer to be more
favorable to the Transferee than the terms set forth in Tenant's original
Transfer Notice, Tenant shall again submit the Transfer to Landlord for its
approval and other action under this ARTICLE 14 (including Landlord's right of
recapture, if any, under SECTION 14.4 of this Lease).
14.3 TRANSFER PREMIUM. If Landlord consents to a Transfer, as a
condition thereto which the parties hereby agree is reasonable, Tenant shall pay
to Landlord fifty percent (50%) of any "Transfer Premium," as that term is
defined in this SECTION 14.3, received by Tenant from such Transferee. "Transfer
Premium" shall mean all rent, additional rent or other consideration
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payable by such Transferee (the "Transferee's Rent") in excess of the Rent and
Additional Rent payable by Tenant under this Lease, on a per rentable square
foot basis if less than all of the Premises is transferred, after deducting the
reasonable expenses incurred by Tenant for any changes, alterations and
improvements to the Premises in connection with the Transfer or contributions to
the cost thereof, or any reasonable moving costs, brokerage commissions, or
lease takeover payments (all of which must be to unaffiliated parties or
entities of Tenant and Tenant employee's) in connection with the Transfer.
"Transfer Premium" shall also include, but not be limited to, key money and
bonus money paid by Transferee to Tenant in connection with such Transfer, and
any payment in excess of fair market value for services rendered by Tenant to
Transferee or for assets, fixtures, inventory, equipment, or furniture
transferred by Tenant to Transferee in connection with such Transfer.
14.4 LANDLORD'S OPTION AS TO SUBJECT SPACE. Notwithstanding anything to
the contrary contained in this ARTICLE 14, in the event that Tenant contemplates
a Transfer which pertains to space which, when aggregated with prior Transfers,
pertains to more than forty percent (40%) of the rentable square feet of the
Premises, then Tenant shall give Landlord a notice (the "Intention to Transfer
Notice") of such contemplated Transfer (whether or not the contemplated
Transferee or the terms of such contemplated Transfer have been determined).
Such Intention to Transfer Notice may, at Tenant's option, also constitute the
Transfer Notice described in SECTION 14.1 above, if the contemplated Transferee
and terms of the Transfer have been determined by Tenant and such notice
otherwise complies with the provisions of SECTION 14.1 above (in which event
Tenant will not be required to deliver two (2) separate notices requesting
Landlord's consent to the proposed Transfer). The Intention to Transfer Notice
shall specify the portion of and amount of rentable square feet of the Premises
which Tenant intends to Transfer (the "Contemplated Transfer Space"), the
contemplated date of commencement of the contemplated Transfer (the
"Contemplated Effective Date"), and the contemplated length of the term of such
contemplated Transfer, and shall specify that such Intention to Transfer Notice
is delivered to Landlord pursuant to the terms of this SECTION 14.4 in order to
allow Landlord to elect to recapture the Contemplated Transfer Space for the
term set forth in the Intention to Transfer Notice. Thereafter, Landlord shall
have the option, in connection with that Transfer and all subsequent Transfers,
by giving written notice to Tenant within ten (10) business days after receipt
of the Intention to Transfer Notice, to recapture the Contemplated Transfer
Space for a period to commence on the Contemplated Effective Date and to
continue until the last day of the term of the contemplated Transfer as set
forth in the Intention to Transfer Notice (the "Recapture Term"), and during
such Recapture Term, the Lease shall terminate with respect to the Contemplated
Transfer Space. If Landlord so elects to recapture the Contemplated Transfer
Space, Tenant shall have the right to prevent such recapture by delivering
written notice to Landlord containing Tenant's withdrawal of Tenant's Intention
to Transfer Notice and agreement not to enter into a Transfer unless and until
Tenant delivers to Landlord a subsequent Intention to Transfer Notice. In the
event of a recapture by Landlord pursuant to this SECTION 14.4, if this Lease
shall be canceled with respect to less than the entire Premises, the Rent
reserved herein shall be prorated on the basis of the number of rentable square
feet retained by Tenant in proportion to the number of rentable square feet
contained in the Premises, and this Lease as so amended shall continue
thereafter in full force and effect, and upon request of either party, the
parties shall execute written confirmation of the same. If Landlord declines, or
fails to elect in a timely manner to recapture the Contemplated Transfer Space
under this SECTION 14.4 within such ten (10) business day period, then, provided
Landlord has consented to the proposed Transfer, Tenant shall be entitled to
proceed to transfer the Contemplated Transfer Space to the proposed Transferee,
subject to provisions of this ARTICLE 14 (including SECTION 14.2 above), and
Landlord shall not have any right to recapture such Contemplated Transfer Space
with respect to any Transfer thereof consummated within a period of six (6)
months (the "Six-Month Period") commencing on the expiration of such ten (10)
business day period; provided, however, that any such Transfer shall be subject
to the remaining terms of this ARTICLE 14. If such a Transfer is not so
consummated within the Six Month Period (or if a Transfer is so consummated,
then upon the expiration of the term of any Transfer of such Contemplated
Transfer Space consummated within such Six Month Period), Tenant shall again be
required to submit a new Intention to Transfer Notice to Landlord with respect
to any contemplated Transfer, as provided above in this SECTION 14.4.
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14.5 EFFECT OF TRANSFER. If Landlord consents to a Transfer, (i) the
terms and conditions of this Lease shall in no way be deemed to have been waived
or modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, (iv) Tenant shall furnish upon Landlord's request a complete
statement, certified by an independent certified public accountant, or Tenant's
chief financial officer, setting forth in detail the computation of any Transfer
Premium Tenant has derived and shall derive from such Transfer, and (v) no
Transfer relating to this Lease or agreement entered into with respect thereto,
whether with or without Landlord's consent, shall relieve Tenant or any
guarantor of the Lease from liability under this Lease. Landlord or its
authorized representatives shall have the right at all reasonable times to audit
the books, records and papers of Tenant relating to any Transfer, and shall have
the right to make copies thereof. If the Transfer Premium respecting any
Transfer shall be found understated, Tenant shall, within thirty (30) days after
demand, pay the deficiency and Landlord's costs of such audit.
14.6 ADDITIONAL TRANSFERS. For purposes of this Lease, except as
expressly provided in SECTION 14.7 below, the term "Transfer" shall also include
(i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary
or by operation of law, of twenty-five percent (25%) or more of the partners, or
transfer of twenty-five percent or more of partnership interests, within a
twelve (12)-month period, or the dissolution of the partnership without
immediate reconstitution thereof, and (ii) if Tenant is a closely held
corporation (i.e., whose stock is not publicly held and not traded through an
exchange or over the counter), (A) the dissolution, merger, consolidation or
other reorganization of Tenant, (B) the sale or other transfer of more than an
aggregate of fifty percent (50%) of the voting shares of Tenant (other than to
immediate family members by reason of gift or death), within a twelve (12)-month
period, or (C) the sale, mortgage, hypothecation or pledge of more than an
aggregate of twenty-five percent (25%) of the value of the unencumbered assets
of Tenant within a twelve (12)-month period.
14.7 NON-TRANSFERS. Notwithstanding anything to the contrary contained
in this Lease, neither (i) an assignment to a transferee of all or substantially
all of the assets of Tenant, (ii) an assignment of the Premises to a transferee
which is the resulting entity of a merger or consolidation of Tenant with
another entity, nor (iii) an assignment or subletting of all or a portion of the
Premises to an affiliate of Tenant (an entity which is controlled by, controls,
or is under common control with, Tenant), shall be deemed a Transfer under
ARTICLE 14 of this Lease, provided that Tenant notifies Landlord of any such
assignment or sublease and promptly supplies Landlord with any documents or
information reasonably requested by Landlord regarding such transfer or
transferee as set forth in items (i) through (iii) above, that such assignment
or sublease is not a subterfuge by Tenant to avoid its obligations under this
Lease, and that such transferee shall have a net worth (not including goodwill
as an asset) computed in accordance with generally accepted accounting
principles (the "Net Worth") sufficient to satisfy the obligations and
responsibilities to be undertaken in connection with such assignment or
sublease. "Control," as used in this SECTION 14.7, shall mean the ownership,
directly or indirectly, of at least fifty-one percent (51%) of the voting
securities of, or possession of the right to vote, in the ordinary direction of
its affairs, of at least fifty-one percent (51%) of the voting interest in, any
person or entity.
ARTICLE 15
SURRENDER OF PREMISES; REMOVAL OF TRADE FIXTURES
15.1 SURRENDER OF PREMISES. No act or thing done by Landlord or any
agent or employee of Landlord during the Lease Term shall be deemed to
constitute an acceptance by Landlord of a surrender of the Premises unless such
intent is specifically acknowledged in a writing signed by Landlord. The
delivery of keys to the Premises to Landlord or any agent or employee of
Landlord shall not constitute a surrender of the Premises or effect a
termination of this Lease, whether or not the keys are thereafter retained by
Landlord, and notwithstanding such delivery Tenant shall be entitled to the
return of such keys at any reasonable time upon request until this Lease shall
have been terminated. The voluntary or other surrender of this Lease by Tenant,
whether accepted by Landlord or not, or a mutual termination hereof, shall not
work a
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merger, and at the option of Landlord shall operate as an assignment to Landlord
of all subleases or subtenancies affecting the Premises.
15.2 REMOVAL OF TENANT PROPERTY BY TENANT. Upon the expiration of the
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this ARTICLE 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear and repairs which are specifically made the responsibility of Landlord
hereunder excepted. Upon such expiration or termination, Tenant shall, without
expense to Landlord, remove or cause to be removed from the Premises all debris
and rubbish, and such items of furniture, equipment, free-standing cabinet work,
and other articles of personal property owned by Tenant or installed or placed
by Tenant at its expense in the Premises, and such similar articles of any other
persons claiming under Tenant, as Landlord may, in its sole discretion, require
to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term hereof,
with or without the express or implied consent of Landlord, such tenancy shall
be from month-to-month only, and shall not constitute a renewal hereof or an
extension for any further term, and in such case Base Rent shall be payable at a
monthly rate equal to one hundred fifty percent (150%) of the Base Rent
applicable during the last rental period of the Lease Term under this Lease.
Such month-to-month tenancy shall be subject to every other term, covenant and
agreement contained herein. Nothing contained in this ARTICLE 16 shall be
construed as consent by Landlord to any holding over by Tenant, and Landlord
expressly reserves the right to require Tenant to surrender possession of the
Premises to Landlord as provided in this Lease upon the expiration or other
termination of this Lease. The provisions of this ARTICLE 16 shall not be deemed
to limit or constitute a waiver of any other rights or remedies of Landlord
provided herein or at law. If Tenant fails to surrender the Premises upon the
termination or expiration of this Lease, in addition to any other liabilities to
Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold
Landlord harmless from all loss, costs (including reasonable attorneys' fees)
and liability resulting from such failure, including, without limiting the
generality of the foregoing, any claims made by any succeeding tenant founded
upon such failure to surrender, and any lost profits to Landlord resulting from
such failure to surrender.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within ten (10) days following a request in writing by Landlord, Tenant
shall execute and deliver to Landlord an estoppel certificate, which, as
submitted by Landlord, shall be substantially in the form of Exhibit E, attached
hereto, (or such other form as may be reasonably required by any prospective
mortgagee or purchaser of the Building or the Project, or any portion thereof),
indicating therein any exceptions thereto that may exist at that time, and shall
also contain any other information reasonably requested by Landlord or
Landlord's mortgagee or prospective mortgagee or purchasers. Tenant shall
execute and deliver whatever other instruments may be reasonably required for
such purposes. In connection therewith, Landlord may require Tenant to provide
Landlord with a current financial statement and financial statements of the two
(2) years prior to the current financial statement year. Such statements shall
be prepared in accordance with generally accepted accounting principles and, if
such is the normal practice of Tenant, shall be audited by an independent
certified public accountant. Failure of Tenant to timely execute and deliver
such estoppel certificate or other instruments shall constitute an acceptance of
the Premises and an acknowledgment by Tenant that statements included in the
estoppel certificate are true and correct, without exception. Landlord hereby
agrees to provide to Tenant an estoppel certificate signed by Landlord,
containing the same types of information, and within the same periods of time,
as set forth above, in connection with any Transfer by Tenant with respect to
this Lease to which Landlord has consented, with such
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changes as are reasonably necessary to reflect that the estoppel certificate is
being granted and signed by Landlord to Tenant and/or such assignee or lender of
Tenant, rather than from Tenant to Landlord or Landlord's lender or purchaser.
ARTICLE 18
SUBORDINATION
This Lease is subject and subordinate to all present and future ground
or underlying leases of the Building or Project and to the lien of any mortgages
or trust deeds, now or hereafter in force against the Building or Project, if
any, and to all renewals, extensions, modifications, consolidations and
replacements thereof, and to all advances made or hereafter to be made upon the
security of such mortgages or trust deeds, unless the holders of such mortgages
or trust deeds, or the lessors under such ground lease or underlying leases,
require in writing that this Lease be superior thereto. Notwithstanding the
foregoing to the contrary, Landlord agrees to provide Tenant with commercially
reasonable non-disturbance agreement(s) in favor of Tenant from any ground
lessors, mortgage holders or deed of trust beneficiaries under any ground lease,
mortgage or deed of trust affecting the Project which comes into existence at
any time after the date of execution of this Lease but prior to the expiration
of the Lease Term ("Future Mortgage") in consideration of, and as a condition
precedent to, Tenant's agreement to be bound by the terms of this ARTICLE 18
with respect to such Future Mortgage. Tenant covenants and agrees in the event
any proceedings are brought for the foreclosure of any such mortgage, to attorn,
without any deductions or setoffs whatsoever, to the purchaser upon any such
foreclosure sale if so requested to do so by such purchaser, and to recognize
such purchaser as the lessor under this Lease. Tenant shall, within twenty (20)
days of request by Landlord, execute such further instruments or assurances as
Landlord may reasonably deem necessary to evidence or confirm the subordination
or superiority of this Lease to any such mortgages, trust deeds, ground leases
or underlying leases. Tenant hereby irrevocably authorizes Landlord to execute
and deliver in the name of Tenant any such instrument or instruments if Tenant
fails to do so, provided that such authorization shall in no way relieve Tenant
from the obligation of executing such instruments of subordination or
superiority. Tenant waives the provisions of any current or future statute, rule
or law which may give or purport to give Tenant any right or election to
terminate or otherwise adversely affect this Lease and the obligations of Tenant
hereunder in the event of any foreclosure proceeding or sale.
ARTICLE 19
DEFAULTS; REMEDIES
19.1 DEFAULTS. The occurrence of any of the following shall constitute
a default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other
charge required to be paid under this Lease, or any part thereof, within three
(3) business days of written notice from Landlord that the same is due; provided
however, that any such notice shall be in lieu of, and not in addition to, any
notice required under California Code of Civil Procedure Section 1161 or any
similar or successor law; or
19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after written notice
thereof from Landlord to Tenant; provided however, that any such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161 or any similar or successor law; and provided
further that if the nature of such default is such that the same cannot
reasonably be cured within such thirty (30) day period, Tenant shall not be
deemed to be in default if it diligently commences such cure within such period
and thereafter diligently proceeds to rectify and cure said default as soon as
possible; or
19.1.3 To the extent permitted by law, a general assignment by
Tenant or any guarantor of the Lease for the benefit of creditors, or the filing
by or against Tenant or any guarantor of any proceeding under an insolvency or
bankruptcy law, unless in the case of a
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proceeding filed against Tenant or any guarantor the same is dismissed within
sixty (60) days, or the appointment of a trustee or receiver to take possession
of all or substantially all of the assets of Tenant or any guarantor, unless
possession is restored to Tenant or such guarantor within thirty (30) days, or
any execution or other judicially authorized seizure of all or substantially all
of Tenant's assets located upon the Premises or of Tenant's interest in this
Lease, unless such seizure is discharged within thirty (30) days.
19.2 REMEDIES UPON DEFAULT. Upon the occurrence of a default by Tenant,
Landlord shall have, in addition to any other remedies available to Landlord at
law or in equity, the option to pursue any one or more of the following
remedies, each and all of which shall be cumulative and nonexclusive, without
any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, without being liable for prosecution or any claim
or damages therefor; and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid rent
which has been earned at the time of such termination; plus
(ii) The worth at the time of 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 award of the amount by
which the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom, specifically including but not limited to,
brokerage commissions and advertising expenses incurred, expenses of remodeling
the Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and
(v) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this SECTION 19.2 shall be deemed to be and
to mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others. As used in Paragraphs
19.2.1(i) and (ii), above, the "worth at the time of award" shall be computed by
allowing interest at the rate set forth in ARTICLE 25 of this Lease, but in no
case greater than the maximum amount of such interest permitted by law. As used
in Paragraph 19.2.1(iii) above, the "worth at the time of award" shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California
Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's
breach and abandonment and recover Rent as it becomes due, if lessee has the
right to sublet or assign, subject only to reasonable limitations). Accordingly,
if Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.3 SUBLEASES OF TENANT. Whether or not Landlord elects to terminate
this Lease on account of any default by Tenant, as set forth in this ARTICLE 19,
Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole
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discretion, succeed to Tenant's interest in such subleases, licenses,
concessions or arrangements. In the event of Landlord's election to succeed to
Tenant's interest in any such subleases, licenses, concessions or arrangements,
Tenant shall, as of the date of notice by Landlord of such election, have no
further right to or interest in the rent or other consideration receivable
thereunder.
19.4 EFFORTS TO RELET. For the purposes of this ARTICLE 19, Tenant's
right to possession shall not be deemed to have been terminated by efforts of
Landlord to relet the Premises, by its acts of maintenance or preservation with
respect to the Premises, or by appointment of a receiver to protect Landlord's
interests hereunder. The foregoing enumeration is not exhaustive, but merely
illustrative of acts which may be performed by Landlord without terminating
Tenant's right to possession.
ARTICLE 20
ATTORNEYS' FEES
If either party commences litigation against the other for the specific
performance of this Lease, for damages for the breach hereof or otherwise for
enforcement of any remedy hereunder, the parties hereto agree to and hereby do
waive any right to a trial by jury and, in the event of any such commencement of
litigation, the prevailing party shall be entitled to recover from the other
party such costs and reasonable attorneys' fees as may have been incurred.
ARTICLE 21
SECURITY DEPOSIT
Concurrently with Tenant's execution of this Lease, Tenant shall
deposit with Landlord a security deposit (the "Security Deposit") in the amount
set forth in SECTION 10 of the Summary. The Security Deposit shall be held by
Landlord as security for the faithful performance by Tenant of all the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the Lease Term. If Tenant defaults with respect to any provisions of this
Lease, including, but not limited to, the provisions relating to the payment of
Rent, Landlord may, but shall not be required to, use, apply or retain all or
any part of the Security Deposit for the payment of any Rent or any other sum in
default, or for the payment of any amount that Landlord may spend or become
obligated to spend by reason of Tenant's default, or to compensate Landlord for
any other loss or damage that Landlord may suffer by reason of Tenant's default.
If any portion of the Security Deposit is so used or applied, Tenant shall,
within five (5) days after written demand therefor, deposit cash with Landlord
in an amount sufficient to restore the Security Deposit to its original amount,
and Tenant's failure to do so shall be a default under this Lease. If Tenant
shall fully and faithfully perform every provision of this Lease to be performed
by it, the Security Deposit, or any balance thereof, shall be returned to
Tenant, or, at Landlord's option, to the last assignee of Tenant's interest
hereunder, within thirty (30) days following the expiration of the Lease Term.
Tenant shall not be entitled to any interest on the Security Deposit. Tenant
hereby waives the provisions of Section 1950.7 of the California Civil Code, and
all other provisions of law, now or hereafter in force, which provide that
Landlord may claim from a security deposit only those sums reasonably necessary
to remedy defaults in the payment of rent, to repair damage caused by Tenant or
to clean the Premises, it being agreed that Landlord may, in addition, claim
those sums reasonably necessary to compensate Landlord for any other loss or
damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or
any officer, employee, agent or invitee of Tenant.
ARTICLE 22
intentionally deleted
ARTICLE 23
SIGNS
23.1 FULL-FLOOR TENANTS. Subject to Landlord's prior written approval,
in its sole discretion, and provided all signs are in keeping with the quality,
design and style of the Building
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and Project, Tenant, if the Premises comprise an entire floor of the Building,
at its sole cost and expense, may install identification signage anywhere in the
Premises including in the elevator lobby of the Premises, provided that such
signs must not be visible from the exterior of the Building.
23.2 MULTI-TENANT FLOOR TENANTS. If other tenants occupy space on the
floor on which the Premises is located, Tenant's identifying signage shall be
provided by Landlord, at Tenant's cost, and such signage shall be comparable to
that used by Landlord for other similar floors in the Building and shall comply
with Landlord's Building standard signage program.
23.3 BUILDING DIRECTORY. Tenant shall be entitled to display Tenant's
name on the directory board of the Building and shall be entitled to designate
up to one (1) name per one thousand rentable square feet of the Premises to be
displayed on the directory board of the Building (the "Directory Allotment").
Tenant shall only be permitted to include upon the Building directory, but
within the Directory Allotment, the suite number of the Premises, Tenant's name
and the names of Tenant's principal employees. Tenant shall pay for the initial
installation of the suite number and names on the directory and for the cost of
any subsequent changes to such names.
23.4 PROHIBITED SIGNAGE AND OTHER ITEMS. Any signs, notices, logos,
pictures, names or advertisements which are installed and that have not been
individually approved by Landlord may be removed without notice by Landlord at
the sole expense of Tenant. Tenant may not install any signs on the exterior or
roof of the Building or Project or the Common Areas. Any signs, window
coverings, or blinds (even if the same are located behind the Landlord approved
window coverings for the Building), or other items visible from the exterior of
the Premises or Building are subject to the prior written approval of Landlord,
in its sole discretion.
ARTICLE 24
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about
the Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall
promptly comply with all such governmental measures, other than the making of
structural changes or changes to the Building's life safety or other systems.
Should any standard or regulation now or hereafter be imposed on Landlord or
Tenant by a state, federal or local governmental body charged with the
establishment, regulation and enforcement of occupational, health or safety
standards for employers, employees, landlords or tenants, then Tenant agrees, at
its sole cost and expense, to comply promptly with such standards or regulations
other than structural changes or changes to Building systems. The judgment of
any court of competent jurisdiction or the admission of Tenant in any judicial
action, regardless of whether Landlord is a party thereto, that Tenant has
violated any of said governmental measures, shall be conclusive of that fact as
between Landlord and Tenant.
ARTICLE 25
LATE CHARGES
If any installment of Rent or any other sum due from Tenant shall not
be received by Landlord or Landlord's designee within five (5) days after said
amount is due, then Tenant shall pay to Landlord a late charge equal to five
percent (5%) of the overdue amount, plus any attorneys' fees reasonably incurred
by Landlord by reason of Tenant's failure to pay Rent and/or other charges when
due hereunder, provided, however that with respect to payments that are not
regularly scheduled under this Lease, the late charge described above will not
begin to accrue until five (5) days following Tenant's receipt of notice of
Tenant's failure to pay any such amount when due. The late charge shall be
deemed Additional Rent and the right to require it shall be in addition to all
of Landlord's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Landlord's remedies in any
manner. In addition to the late charge described above, any Rent or other
amounts owing hereunder which are not paid on or before the date which is five
(5) days after they are due shall thereafter bear
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interest until paid at the lesser of (i) the Interest Rate (as such term is
defined in SECTION 4.2.3), or (ii) the highest rate permitted by applicable law.
ARTICLE 26
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 LANDLORD'S CURE. All covenants and agreements to be kept or
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any reduction of Rent except as otherwise
provided in this Lease. If Tenant shall fail to perform any of its obligations
under this Lease, within a reasonable time after such performance is required by
the terms of this Lease, Landlord may, but shall not be obligated to, after
reasonable prior notice to Tenant, make any such payment or perform any such act
on Tenant's part without waiving its right based upon any default of Tenant and
without releasing Tenant from any obligations hereunder.
26.2 TENANT'S REIMBURSEMENT. Except as may be specifically provided to
the contrary in this Lease, Tenant shall pay to Landlord, within fifteen (15)
days after delivery by Landlord to Tenant of statements therefor: (i) sums equal
to expenditures reasonably made and obligations incurred by Landlord in
connection with the remedying by Landlord of Tenant's defaults pursuant to the
provisions of SECTION 26.1; (ii) sums equal to all losses, costs, liabilities,
damages and expenses referred to in ARTICLE 10 of this Lease; and (iii) sums
equal to all expenditures made and obligations incurred by Landlord in
collecting or attempting to collect the Rent or in enforcing or attempting to
enforce any rights of Landlord under this Lease or pursuant to law, including,
without limitation, all reasonable legal fees and other amounts so expended.
Tenant's obligations under this SECTION 26.2 shall survive the expiration or
sooner termination of the Lease Term.
ARTICLE 27
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable
notice to the Tenant to enter the Premises within the last six (6) months of the
Lease Term to (i) inspect them; (ii) show the Premises to prospective
purchasers, mortgagees or tenants, or to the ground or underlying lessors; or
(iii) post notices of nonresponsibility; or (iv) alter, improve or repair the
Premises or the Building if necessary to comply with current building codes or
other applicable laws, or for structural alterations, repairs or improvements to
the Building. Notwithstanding anything to the contrary contained in this ARTICLE
27, Landlord may enter the Premises at any time to (A) perform services required
of Landlord; and (B) perform any covenants of Tenant which Tenant fails to
perform. Landlord may make any such entries without the abatement of Rent and
may take such steps as required to accomplish the stated purposes; provided,
however, that any such entry shall be accomplished as expeditiously as
reasonably possible and in such a manner as is reasonably possible so as not to
unreasonably interfere with Tenant's access to the Premises or Tenant's normal
business functions during the normal business hours for the Building. Tenant
hereby waives any claims for damages or for any injuries or inconvenience to or
interference with Tenant's business, lost profits, any loss of occupancy or
quiet enjoyment of the Premises, and any other loss occasioned thereby. For each
of the above purposes, Landlord shall at all times have a key with which to
unlock all the doors in the Premises, excluding Tenant's vaults, safes and
special security areas designated in advance by Tenant. In an emergency,
Landlord shall have the right to use any means that Landlord may deem proper to
open the doors in and to the Premises. Any entry into the Premises by Landlord
in the manner hereinbefore described shall not be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or an actual or
constructive eviction of Tenant from any portion of the Premises.
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ARTICLE 28
TENANT PARKING
During the Lease Term, Tenant shall rent and pay for the number of
parking passes set forth in SECTION 11 of the Summary, which parking passes
shall pertain to the Project's existing surface (open air) parking areas and the
(covered) parking structure (or such other parking facility or facilities in the
Project as may be subsequently substituted by Landlord for such surface parking
areas and/or free standing parking structure, or otherwise designated by
Landlord from time to time for parking by Tenant's personnel). Tenant shall pay
to Landlord for said parking passes on a monthly basis the prevailing rate
charged by Landlord (which currently is $45.00 per month for surface passes and
$75.00 per month for covered passes) from time to time for parking passes at the
location of such passes, plus all applicable parking taxes. Tenant's continued
right to use the parking passes is conditioned upon Tenant abiding by all rules
and regulations which are prescribed from time to time for the orderly operation
and use of such parking facilities and upon Tenant's cooperation in seeing that
Tenant's employees and visitors also comply with such rules and regulations.
Landlord specifically reserves the right to change the location, size,
configuration, design, layout and all other aspects of the parking facilities in
question at any time and Tenant acknowledges and agrees that Landlord may,
without incurring any liability to Tenant and without any abatement of Rent
under this Lease, from time to time, close-off or restrict access to the parking
facilities in question for purposes of permitting or facilitating any such
construction, alteration or improvements, as long as Landlord makes available to
Tenant within the Project or a reasonable walking distance therefrom, substitute
parking passes for Tenant's use. Landlord may totally or partially delegate its
responsibilities hereunder to a parking operator in which case such parking
operator shall have all the rights of control delegated by Landlord. The parking
passes provided to Tenant pursuant to this ARTICLE 28 are provided solely for
use by Tenant's own personnel (not including Tenant's invitees and guests) and
such passes may not be transferred, assigned, subleased or otherwise alienated
by Tenant without Landlord's prior approval, except to a permitted Transferee
under ARTICLE 14.
ARTICLE 29
MISCELLANEOUS PROVISIONS
29.1 BINDING EFFECT. Each of the provisions of this Lease shall extend
to and shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of ARTICLE 14 of this Lease.
29.2 NO AIR RIGHTS. No rights to any view or to light or air over any
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease. If at any time any windows of the Premises are temporarily
darkened or the light or view therefrom is obstructed by reason of any repairs,
improvements, maintenance or cleaning in or about the Project, the same shall be
without liability to Landlord and without any reduction or diminution of
Tenant's obligations under this Lease.
29.3 MODIFICATION OF LEASE. Should Landlord or any prospective
mortgagee or ground lessor for the Building or Project require execution of a
short form of Lease for recording, containing, among other customary provisions,
the names of the parties, a description of the Premises and the Lease Term,
Tenant agrees to execute such short form of Lease and to deliver the same to
Landlord within ten (10) days following the request therefor.
29.4 TRANSFER OF LANDLORD'S INTEREST. Tenant acknowledges that Landlord
has the right to transfer all or any portion of its interest in the Project or
Building and in this Lease, and Tenant agrees that in the event of any such
transfer and a transfer of the Security Deposit and upon the transferor's
assumption of the Landlord's obligations under this Lease arising from and after
the date of such transfer, Landlord shall automatically be released from all
liability under this Lease arising from and after the date of the transfer and
Tenant agrees to look solely to such transferee for the performance of
Landlord's obligations hereunder arising after the date of transfer. Tenant
further acknowledges that Landlord may assign its interest in this Lease to a
mortgage lender as additional security and agrees that such an assignment shall
not release
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Landlord from its obligations hereunder and that Tenant shall continue to look
to Landlord for the performance of its obligations hereunder.
29.5 PROHIBITION AGAINST RECORDING. Except as provided in SECTION 29.3
of this Lease, neither this Lease, nor any memorandum, affidavit or other
writing with respect thereto, shall be recorded by Tenant or by anyone acting
through, under or on behalf of Tenant, and the recording thereof in violation of
this provision shall make this Lease null and void at Landlord's election.
29.6 CAPTIONS. The captions of Articles and Sections are for
convenience only and shall not be deemed to limit, construe, affect or alter the
meaning of such Articles and Sections.
29.7 RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
29.8 TIME OF ESSENCE. Time is of the essence of this Lease and each of
its provisions.
29.9 PARTIAL INVALIDITY. If any term, provision or condition contained
in this Lease shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term, provision or condition to
persons or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
29.10 LANDLORD EXCULPATION. It is expressly understood and agreed that
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord Parties hereunder
(including any successor landlord) and any recourse by Tenant against Landlord
shall be limited solely and exclusively to the lesser of (i) the interest of
Landlord in and to the Project, or (ii) the equity interest Landlord would have
in and to the Project if the Project were encumbered by debt in an amount equal
to eighty percent (80%) of the value of the Project. Neither Landlord, nor any
of its constituent partners, shall have any personal liability under this Lease,
and Tenant hereby expressly waives and releases such personal liability on
behalf of itself and all persons claiming by, through or under Tenant.
29.11 ENTIRE AGREEMENT. It is understood and acknowledged that there
are no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease and
any side letter or separate agreement executed by Landlord and Tenant in
connection with this Lease and dated of even date herewith contain all of the
terms, covenants, conditions, warranties and agreements of the parties relating
in any manner to the rental, use and occupancy of the Premises, shall be
considered to be the only agreement between the parties hereto and their
representatives and agents, and none of the terms, covenants, conditions or
provisions of this Lease can be modified, deleted or added to except in writing
signed by the parties hereto.
29.12 RIGHT TO LEASE. Landlord reserves the absolute right to effect
such other tenancies in the Project as Landlord in the exercise of its sole
business judgment shall determine to best promote the interests of the Project.
Tenant does not rely on the fact, nor does Landlord represent, that any specific
tenant or type or number of tenants shall, during the Lease Term, occupy any
space in the Project.
29.13 FORCE MAJEURE. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform (collectively, the "Force Majeure"),
except with respect to the obligations imposed with regard to Rent and other
charges to be paid by Tenant pursuant to this Lease, and except as to Tenant's
obligations under ARTICLE 5 of this
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Lease notwithstanding anything to the contrary contained in this Lease, shall
excuse the performance of such party for a period equal to any such prevention,
delay or stoppage and, therefore, if this Lease specifies a time period for
performance of an obligation of either party, that time period shall be extended
by the period of any delay in such party's performance caused by a Force
Majeure.
29.14 NOTICES. All notices, demands, statements, approvals or
communications (collectively, "Notices") given or required to be given by either
party to the other hereunder shall be in writing, shall be sent by United States
certified or registered mail, postage prepaid, return receipt requested, or
delivered personally (i) to Tenant at the appropriate address set forth in
SECTION 5 of the Summary, or to such other place as Tenant may from time to time
designate in a Notice to Landlord; or (ii) to Landlord at the addresses set
forth in SECTION 3 of the Summary, or to such other firm or to such other place
as Landlord may from time to time designate in a Notice to Tenant. Any Notice
will be deemed given on the date which is three (3) days following the date of
mailing as provided in this SECTION 29.14 or upon the date personal delivery is
made or attempted to be made. If Tenant is notified of the identity and address
of Landlord's mortgagee or ground or underlying lessor, Tenant shall give to
such mortgagee or ground or underlying lessor written notice of any default by
Landlord under the terms of this Lease by registered or certified mail, and such
mortgagee or ground or underlying lessor shall be given a reasonable opportunity
to cure such default prior to Tenant's exercising any remedy available to
Tenant.
29.15 JOINT AND SEVERAL. If there is more than one Tenant, the
obligations imposed upon Tenant under this Lease shall be joint and several.
29.16 AUTHORITY. Each party hereof hereby represents and warrants to
the other party that it is a duly formed and existing entity qualified to do
business in California and that it has full right and authority to execute and
deliver this Lease and that each person signing on behalf of such party is
authorized to do so.
29.17 GOVERNING LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
29.18 SUBMISSION OF LEASE. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or an
option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant.
29.19 BROKERS. Landlord and Tenant hereby warrant to each other that
they have had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, excepting only the real estate brokers or
agents specified in SECTION 12 of the Summary (the "Brokers"), and that they
know of no other real estate broker or agent who is entitled to a commission in
connection with this Lease. Each party agrees to indemnify and defend the other
party against and hold the other party harmless from any and all claims,
demands, losses, liabilities, lawsuits, judgments, and costs and expenses
(including without limitation reasonable attorneys' fees) with respect to any
leasing commission or equivalent compensation alleged to be owing on account of
the indemnifying party's dealings with any real estate broker or agent other
than the Brokers. The terms of this SECTION 29.19 shall survive the expiration
or earlier termination of the Lease Term.
29.20 INDEPENDENT COVENANTS. This Lease shall be construed as though
the covenants herein between Landlord and Tenant are independent and not
dependent and Tenant hereby expressly waives the benefit of any statute to the
contrary and agrees that if Landlord fails to perform its obligations set forth
herein, Tenant shall not be entitled to make any repairs or perform any acts
hereunder at Landlord's expense or to any setoff of the Rent or other amounts
owing hereunder against Landlord, except as expressly provided in this Lease;
provided, however, that the foregoing shall in no way impair the right of Tenant
to commence a separate action against Landlord for any violation by Landlord of
the provisions hereof so long as notice is first given to Landlord and any
holder of a mortgage or deed of trust covering the Building, Project or any
portion thereof, of whose address Tenant has theretofore been notified, and an
opportunity is granted to Landlord and such holder to correct such violations as
provided above.
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29.21 PROJECT OR BUILDING NAME AND SIGNAGE. Landlord shall have the
right at any time to change the name of the Project or Building and to install,
affix and maintain any and all signs on the exterior and on the interior of the
Project or Building as Landlord may, in Landlord's sole discretion, desire.
Tenant shall not use the name of the Project or Building or use pictures or
illustrations of the Project or Building in advertising or other publicity,
without the prior written consent of Landlord.
29.22 TRANSPORTATION MANAGEMENT. Tenant shall fully comply with all
present or future programs mandated by governmental agencies intended to manage
parking, transportation or traffic in and around the Project or Building, and in
connection therewith, Tenant shall take responsible action for the
transportation planning and management of all employees located at the Premises
by working directly with Landlord, any governmental transportation management
organization or any other transportation-related committees or entities. Such
programs may include, without limitation: (i) restrictions on the number of
peak-hour vehicle trips generated by Tenant; (ii) increased vehicle occupancy;
(iii) implementation of an in-house ridesharing program and an employee
transportation coordinator; (iv) working with employees and any Project,
Building or area-wide ridesharing program manager; (v) instituting
employer-sponsored incentives (financial or in-kind) to encourage employees to
rideshare; and (vi) utilizing flexible work shifts for employees; and (vii)
establishing and/or increasing parking fees for single occupancy vehicles.
29.23 SUCCESSORS. Except as otherwise expressly provided herein, the
obligations of this Lease shall bind and benefit the successors and assigns of
the parties hereto; provided, however, that no assignment, sublease or other
transfer in violation of the provisions of ARTICLE 14 shall operate to vest any
rights in any putative assignee, subtenant or transferee of Tenant.
29.24 LANDLORD RENOVATIONS. It is specifically understood and agreed
that Landlord has no obligation and has made no promises to alter, remodel,
improve, renovate, repair or decorate the Premises, Building, Project or any
part thereof and that no representations respecting the condition of the
Premises, the Building or the Project have been made by Landlord to Tenant
except as specifically set forth in this Lease or in the Tenant Work Letter.
However, Tenant acknowledges that Landlord may during the Lease Term renovate,
improve, alter, or modify (collectively, the "Renovations") the Building,
Premises, and/or Project, including without limitation the parking facilities,
Common Areas, systems and equipment, roof, and structural portions of the same.
Tenant hereby agrees that such Renovations and Landlord's actions in connection
with such Renovations shall in no way constitute a constructive eviction of
Tenant nor entitle Tenant to any abatement of Rent. Landlord shall have no
responsibility or for any reason be liable to Tenant for any direct or indirect
injury to or interference with Tenant's business arising from the Renovations,
nor shall Tenant be entitled to any compensation or damages from Landlord for
loss of the use of the whole or any part of the Premises or of Tenant's personal
property or improvements resulting from the Renovations or Landlord's actions in
connection with such Renovations, or for any inconvenience or annoyance
occasioned by such Renovations or Landlord's actions in connection with such
Renovations (except for abatement as specifically provided in SECTION 6.4
above). Notwithstanding the foregoing, Landlord agrees that any such Renovations
shall be accomplished in such a manner as is reasonably possible so as not to
unreasonably interfere with Tenant's access to the Premises or use of the
Premises during Tenant's normal business hours.
29.25 Good Faith. Except for matters for which there is a standard of
consent or discretion specifically set forth in this Lease (other than a
reasonable standard), and except for matters (i) which could affect the Building
Structure, the Building Systems or the Common Areas, (ii) which could affect the
exterior appearance of the Building or Project, or (iii) matters covered by
ARTICLE 19 of this Lease, in which case Landlord shall have the right to act in
its sole and absolute discretion (but at all times in good faith) as to the
matters described in items (i), (ii) and (iii) above (collectively, the
"Excepted Matters"), any time the consent of Landlord or Tenant is required
under this Lease, such consent shall not be unreasonably withheld or delayed,
and, except with regard to the Excepted Matters, whenever this Lease grants
Landlord or Tenant the right to take action, exercise discretion, establish
rules and regulations or make an allocation or other determination, Landlord and
Tenant shall act reasonably and in good faith.
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IN WITNESS WHEREOF, Landlord and Tenant have caused their duly
authorized representatives to execute this Lease as of the day and date first
above written.
"Landlord":
TEN 9 FIFTY, L.L.C., a Delaware limited
liability company
By: AG ASSET MANAGER, INC., a Delaware
corporation, Manager
By:
------------------------------------------
Print Name:
-------------------------------
Its:
--------------------------------------
"Tenant":
UNAPIX ENTERTAINMENT, INC.,
a Delaware corporation
By:
------------------------------------------
Print Name:
--------------------------------
Its:
--------------------------------------
By:
------------------------------------------
Print Name:
-------------------------------
Its:
--------------------------------------
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EXHIBIT A
OUTLINE OF PREMISES
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Project.
1. Tenant shall not alter any lock or install any new or
additional locks or bolts on any doors or windows of the Premises without
obtaining Landlord's prior written consent. Tenant shall bear the cost of any
lock changes or repairs required by Tenant. Two keys will be furnished by
Landlord for the Premises, and any additional keys required by Tenant must be
obtained from Landlord at a reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at
all times except for normal ingress and egress to the Premises.
3. Landlord reserves the right to close and keep locked all
entrance and exit doors of the Building during such hours as are customary for
comparable buildings in the vicinity of the Building. Tenant, its employees and
agents must be sure that the doors to the Building are securely closed and
locked when leaving the Premises if it is after the normal hours of business for
the Building. Any tenant, its employees, agents or any other persons entering or
leaving the Building at any time when it is so locked, or any time when it is
considered to be after normal business hours for the Building, may be required
to sign the Building register. Access to the Building may be refused unless the
person seeking access has proper identification or has a previously arranged
pass for access to the Building. Landlord and its agents shall in no case be
liable for damages for any error with regard to the admission to or exclusion
from the Building of any person. In case of invasion, mob, riot, public
excitement, or other commotion, Landlord reserves the right to prevent access to
the Building or the Project during the continuance thereof by any means it deems
appropriate for the safety and protection of life and property.
4. No furniture, freight or equipment of any kind shall be
brought into the Building without prior notice to Landlord. All moving activity
into or out of the Building shall be scheduled with Landlord and done only at
such time and in such manner as Landlord designates. Landlord shall have the
right to prescribe the weight, size and position of all safes and other heavy
property brought into the Building and also the times and manner of moving the
same in and out of the Building. Safes and other heavy objects shall, if
considered necessary by Landlord, stand on supports of such thickness as is
necessary to properly distribute the weight. Landlord will not be responsible
for loss of or damage to any such safe or property in any case. Any damage to
any part of the Building, its contents, occupants or visitors by moving or
maintaining any such safe or other property shall be the sole responsibility and
expense of Tenant.
5. No furniture, packages, supplies, equipment or merchandise
will be received in the Building or carried up or down in the elevators (if
applicable), except between such hours and in such specific elevator as shall be
designated by Landlord.
6. The requirements of Tenant will be attended to only upon
application at the management office for the Project or at such office location
designated by Landlord. Employees of Landlord shall not perform any work or do
anything outside their regular duties unless under special instructions from
Landlord.
7. Tenant shall not disturb, solicit, or canvass any occupant of
the Project and shall cooperate with Landlord and its agents of Landlord to
prevent the same.
8. The toilet rooms, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed, and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
agents, shall have caused it.
<PAGE>
9. Tenant shall not overload the floor of the Premises, nor mark,
drive nails or screws, or drill into the partitions, woodwork or plaster or in
any way deface the Premises or any part thereof without Landlord's prior written
consent, but Tenant can hang pictures and normal wall hangings.
10. Except for vending machines intended for the sole use of
Tenant's employees and invitees, no vending machine or machines other than
fractional horsepower office machines shall be installed, maintained or operated
upon the Premises without the written consent of Landlord.
11. Tenant shall not use or keep in or on the Premises, the
Building, or the Project, or any portion thereof, any kerosene, gasoline or
other inflammable or combustible fluid or material, except for normal office
supplies in compliance with all laws.
12. Tenant shall not without the prior written consent of Landlord
use any method of heating or air conditioning other than that supplied by
Landlord.
13. Tenant shall not use, keep or permit to be used or kept, any
foul or noxious gas or substance in or on the Premises, or permit or allow the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Project by reason of noise, odors, or
vibrations, or interfere in any way with other tenants or those having business
therein.
14. Tenant shall not bring into or keep within the Project, the
Building or the Premises any animals, birds, bicycles or other vehicles.
15. No cooking shall be done or permitted on the Premises, nor
shall the Premises be used for the storage of merchandise, for lodging or for
any improper, objectionable or immoral purposes. Notwithstanding the foregoing,
Underwriters' laboratory-approved equipment and microwave ovens may be used in
the Premises for heating food and brewing coffee, tea, hot chocolate and similar
beverages for employees and visitors, provided that such use is in accordance
with all applicable federal, state and city laws, codes, ordinances, rules and
regulations.
16. Landlord will approve where and how telephone and telegraph
wires are to be introduced to the Premises. No boring or cutting for wires shall
be allowed without the consent of Landlord. The location of telephone, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
17. Landlord reserves the right to exclude or expel from the
Project any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of these Rules and Regulations.
18. Tenant, its employees and agents shall not loiter in or on the
entrances, corridors, sidewalks, lobbies, halls, stairways, elevators (if
applicable), or any Common Areas for the purpose of smoking tobacco products or
for any other purpose, nor in any way obstruct such areas, and shall use them
only as a means of ingress and egress for the Premises.
19. Tenant shall not waste electricity, water or air conditioning
and agrees to cooperate fully with Landlord to ensure the most effective
operation of the Building's heating and air conditioning system, and shall
refrain from attempting to adjust any controls.
20. Tenant shall store all its trash and garbage within the
interior of the Premises. No material shall be placed in the trash boxes or
receptacles if such material is of such nature that it may not be disposed of in
the ordinary and customary manner of removing and disposing of trash in the
vicinity of the Building without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only through
entry-ways and elevators (if applicable) provided for such purposes at such
times as Landlord shall designate.
21. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations established by Landlord or any
governmental agency.
<PAGE>
22. Tenant shall assume any and all responsibility for protecting
the Premises from theft, robbery and pilferage, which includes keeping doors
locked and other means of entry to the Premises closed.
23. No awnings or other projection shall be attached to the
outside walls of the Building without the prior written consent of Landlord. No
curtains, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the Premises without the prior written
consent of Landlord. All electrical ceiling fixtures hung in offices or spaces
along the perimeter of the Building must be fluorescent and/or of a quality,
type, design and bulb color approved by Landlord. Tenant shall abide by
Landlord's regulations concerning the opening and closing of window coverings
which are attached to the windows in the Premises, if any, which have a view of
any interior portion of the Building or the Building Common Areas.
24. The sashes, sash doors, skylights, windows, and doors that
reflect or admit light and air into the halls, passageways or other public
places in the Building shall not be covered or obstructed by Tenant, nor shall
any bottles, parcels or other articles be placed on the windowsills.
25. Tenant must comply with requests by Landlord concerning the
informing of their employees of items of importance to Landlord.
26. Without the written consent of Landlord, Tenant shall not use
the name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
Landlord reserves the right at any time to change or rescind any one or
more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to time
be necessary for the management, safety, care and cleanliness of the Premises,
Building, Project, and the Common Areas, and for the preservation of good order
therein, as well as for the convenience of other occupants and tenants therein.
Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenants, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
tenant, nor prevent Landlord from thereafter enforcing any such Rules or
Regulations against any or all tenants of the Project. Tenant shall be deemed to
have read these Rules and Regulations and to have agreed to abide by them as a
condition of its occupancy of the Premises. Landlord shall enforce the Rules and
Regulations in a non-discriminatory manner.
<PAGE>
EXHIBIT C
FORM OF NOTICE OF LEASE TERM DATES
To:
-----------------------
-----------------------
-----------------------
-----------------------
Re: Office Lease dated ____________, 199_ between TEN 9 FIFTY,
L.L.C., a Delaware limited liability company ("Landlord"), and
_____________________, a _______________________ ("Tenant")
concerning Suite ______ on floor(s) __________ of the building
located at 10950 Washington Boulevard, Culver City,
California.
Gentlemen:
In accordance with the Office Lease (the "Lease"), we wish to advise
you and/or confirm as follows:
1. Substantial Completion of the Premises has occurred, and the
Lease Term shall commence on or has commenced on _________________ for a term of
______________________ ending on __________________.
__________________2. Rent commenced to accrue on ____________________, in
the amount of ___________________.
3. If the Lease Commencement Date is other than the first day of
the month, the first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the full
amount of the monthly installment as provided for in the Lease.
4. Your rent checks should be made payable to
___________________ _______________________ at
___________________________________.
5. The exact number of rentable square feet within the Premises
is _________ square feet.
6. Tenant's Share as adjusted based upon the exact number of
rentable square feet within the Premises is _________%.
"Landlord":
[INSERT SIGNATURE BLOCK]
By:
------------------------------------------
Its:
------------------------------------
Agreed to and Accepted as of _______________, 19___.
"Tenant":
UNAPIX ENTERTAINMENT, INC.,
a Delaware corporation
By:
--------------------------------
Print Name:
---------------------
Its:
----------------------------
<PAGE>
EXHIBIT D
TENANT WORK LETTER
Tenant acknowledges and agrees that the Premises have previously been
constructed including interior tenant improvements therein, and is satisfactory
and shall be accepted by Tenant in its "AS IS" condition as of the date of
execution of this Lease and on the Lease Commencement Date; provided, however,
that Landlord shall construct certain modifications to the interior of the
Premises pursuant to the Approved Working Drawings in accordance with the
following provisions of this Tenant Work Letter.
SECTION 1
CONSTRUCTION DRAWINGS FOR THE PREMISES
Prior to the execution of this Lease, Landlord and Tenant have approved
a detailed space plan for the construction of certain improvements in the
Premises, which space plan has been prepared by _______________, Dated ______
Job. No. _____ (the "Final Space Plan"). Based upon and in conformity
with the Final Space Plan, Landlord shall cause its architect and
engineers to prepare and deliver to Tenant, for Tenant's approval, detailed
specifications and engineered working drawings for the tenant improvements
shown on the Final Space Plan (the "Working Drawings"). The Working Drawings
shall incorporate modifications to the Final Space Plan as necessary to
comply with the floor load and other structural and system requirements of
the Building. To the extent that the finishes and specifications are not
completely set forth in the Final Space Plan for any portion of the tenant
improvements depicted thereon, the actual specifications and finish work
shall be in accordance with the specifications for the Building's standard
improvement package items, as determined by Landlord. Within five (5)
business days after Tenant's receipt of the Working Drawings, Tenant shall
approve or disapprove the same, which approval shall not be unreasonably
withheld; provided, however, that Tenant may only disapprove the Working
Drawings to the extent such Working Drawings are inconsistent with the Final
Space Plan and only if Tenant delivers to Landlord, within such five (5)
business days period, specific changes proposed by Tenant which are
consistent with the Final Space Plan and do not constitute changes which
would result in any of the circumstances described in items (i) through (iv)
below. If any such revisions are timely and properly proposed by Tenant,
Landlord shall cause its architect and engineers to revise the Working
Drawings to incorporate such revisions and submit the same for Tenant's
approval in accordance with the foregoing provisions, and the parties shall
follow the foregoing procedures for approving the Working Drawings until the
same are finally approved by Landlord and Tenant. Upon Landlord's and
Tenant's approval of the Working Drawings, the same shall be known as the
"Approved Working Drawings". Once the Approved Working Drawings have been
approved by Landlord and Tenant, Tenant shall make no changes, change orders
or modifications thereto without the prior written consent of Landlord, which
consent may be withheld in Landlord's sole discretion if such change or
modification would: (i) be of a quality lower than the quality of the
standard improvement package items for the Building; and/or (ii) require any
changes to the base, shell and core work or structural improvements or
systems of the Building. The Final Space Plan, Working Drawings and Approved
Working Drawings shall be collectively referred to herein as, the
"Construction Drawings". The tenant improvements shown on the Approved
Working Drawings shall be referred to herein as the "Tenant Improvements".
SECTION 2
OVER-ALLOWANCE AMOUNT
Landlord shall cause a contractor designated by Landlord (the
"Contractor") to (i) obtain all applicable building permits for construction of
the Tenant Improvements, and (ii) construct the Tenant Improvements as depicted
on the Approved Working Drawings, in compliance with such building permits and
all applicable laws in effect at the time of construction, and in good
workmanlike manner. Landlord shall pay for the cost of the design and
construction of the Tenant Improvements in an amount up to, but not exceeding,
Forty Thousand Eight Hundred Sixty and no/100 Dollars ($40,860.00) (I.E. $20.00
per rentable square foot) (the "Allowance").
EXHIBIT D-Page 1
<PAGE>
Tenant shall pay for all costs in excess of the Allowance, which payment shall
be made to Landlord in cash within ten (10) days after Tenant's receipt of
invoice therefor from Landlord. Tenant shall not be entitled to receive in cash
or as a credit against any rental or otherwise, any portion of such the
Allowance not used to pay for the cost of the design and construction of the
Tenant Improvements; provided, however, if the total cost of design and
construction of the Tenant Improvements is less than the Allowance provided
above, Tenant shall be permitted to use any such difference towards the purchase
of furniture, fixtures and equipment to be installed in and to the Premises.
Before selecting a Contractor, Landlord shall obtain at least three (3) bids for
the construction of the Tenant Improvements from contractors designated by
Landlord and Tenant shall within five (5) days of the submission of bids from
the last of the three (3) contractors select one (1) of the three (3)
contractors to construct the Tenant Improvements.
SECTION 3
SUBSTANTIAL COMPLETION OF THE TENANT IMPROVEMENTS
3.1 SUBSTANTIAL COMPLETION. For purposes of this Lease,
"Substantial Completion" of the Premises shall occur upon the happening of the
following: (i) the completion of construction of the Tenant Improvements in the
Premises pursuant to the Approved Working Drawings, with the exception of any
punch list items and any tenant fixtures, work-stations, built-in furniture, or
equipment to be installed by Tenant or under the supervision of Contractor; (ii)
the establishment of utilities and services to the Premises; and (iii) the
issuance of a Certificate of Occupancy for the Premises.
3.2 DELAY OF THE SUBSTANTIAL COMPLETION OF THE PREMISES. If there
shall be a delay or there are delays in the Substantial Completion of the
Premises as a direct, indirect, partial, or total result of any of the following
(collectively, "Tenant Delays"):
3.2.1 Tenant's failure to timely approve the Working Drawings
or any other matter requiring Tenant's approval;
3.2.2 A breach by Tenant of the terms of this Tenant Work
Letter or the Lease;
3.2.3 Tenant's request for changes in any of the Construction
Drawings;
3.2.4 Tenant's requirement for materials, components, finishes
or improvements which are not available in a commercially reasonable time given
the estimated date of Substantial Completion of the Premises, as set forth in
the Lease, or which are different from, or not included in, Landlord's standard
improvement package items for the Building;
3.2.5 Changes to the base, shell and core work, structural
components or structural components or systems of the Building required by the
Approved Working Drawings; or
3.2.6 Any other acts or omissions of Tenant, or its agents, or
employees;
then, notwithstanding anything to the contrary set forth in the Lease and
regardless of the actual date of Substantial Completion, the Substantial
Completion Date (as set forth in SECTION 7.2 of the Summary) shall be deemed to
be the date Substantial Completion of the Premises would have occurred if no
Tenant Delay or Delays, as set forth above, had occurred. Notwithstanding the
foregoing, no Tenant Delay pursuant to Sections 3.2.2 or 3.2.6 above shall be
deemed to have occurred unless and until Landlord has provided notice to Tenant
(the "Delay Notice"), specifying the action or inaction pursuant to said
Section(s) by Tenant which Landlord contends constitutes the Tenant Delay. If
such action or inaction is not cured by Tenant within one (1) business day of
receipt of such Delay Notice (the "Grace Period"), then a Tenant Delay, as set
forth in such Delay Notice, shall be deemed to have occurred commencing as of
the expiration of the Grace Period.
SECTION 4
MISCELLANEOUS
EXHIBIT D-Page 2
<PAGE>
Provided that Tenant and its agents do not interfere with Contractor's
work in the Building and the Premises, Contractor shall allow Tenant access to
the Premises prior to the Substantial Completion of the Premises for the purpose
of Tenant installing overstandard equipment or fixtures (including Tenant's data
and telephone equipment) in the Premises. Prior to Tenant's entry into the
Premises as permitted by the terms of this Section 4, Tenant shall submit a
schedule to Landlord and Contractor, for their approval, which schedule shall
detail the timing and purpose of Tenant's entry. Tenant shall hold Landlord
harmless from and indemnify, protect and defend Landlord against any loss or
damage to the Premises or Project and against injury to any persons caused by
Tenant's actions pursuant to this Section 4.
EXHIBIT D-Page 3
<PAGE>
EXHIBIT E
FORM OF TENANT'S ESTOPPEL CERTIFICATE
TO:
------------------------
------------------------
------------------------
------------------------
Attn:
-----------------
__________________________________ ("Tenant") hereby certifies as
follows:
1. The undersigned is the Tenant under that certain Office Lease
dated ______________, 19___ (the "Lease"), executed by ________________________
("Landlord") as Landlord and the undersigned as Tenant, covering a portion of
the property located at __________________________ (the "Property").
2. Pursuant to the Lease, Tenant has leased approximately ______
square feet of space (the "Premises") at the Property and has paid to Landlord a
security deposit of $__________. The term of the Lease commenced on
_____________, 19___ and the expiration date of the Lease is ________________,
19___. Tenant has paid rent through _________________, 19___. The next rental
payment in the amount of $____________ is due on ________________, 19___. Tenant
is required to pay ____ percent (___%) of all annual operating expenses for the
Property in excess of _____________ in accordance with the terms of the Lease.
3. Tenant is entitled to use ___________ parking spaces.
4. The Lease provides for an option to extend the term of the
Lease for ____ years. The rental rate for such extension term is as
follows: __________________________________
________________________________________________________________________
__________________________________________________. Except as expressly provided
in the Lease, and other documents attached hereto, Tenant does not have any
right or option to renew or extend the term of the Lease, to lease other space
at the Property, nor any preferential right to purchase all or any part of the
Premises or the Property.
5. True, correct and complete copies of the Lease and all
amendments, modifications and supplements thereto are attached hereto and the
Lease, as so amended, modified and supplemented, is in full force and effect,
and represents the entire agreement between Tenant and Landlord with respect to
the Premises and the Property. There are no amendments, modifications or
supplements to the Lease, whether oral or written, except as follows (include
the date of such amendment, modification or supplement):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
6. All space and improvements leased by Tenant have been
completed and furnished in accordance with the provisions of the Lease except
____________, and Tenant has accepted and taken possession of the Premises.
7. To Tenant's actual knowledge, Landlord is not in any respect
in default in the performance of the terms and provisions of the Lease. Tenant
is not in any respect in default under the Lease and has not assigned,
transferred or hypothecated the Lease or any interest therein or subleased all
or any portion of the Premises except ______________.
8. There are no offsets or credits against rentals payable
under the Lease and no free periods or rental concessions have been granted to
Tenant, except as follows: ____________
________________________________________________________________________________
________________________________________________________________________________
EXHIBIT E-Page 1
<PAGE>
________________________________________________________________________________
________________________________________________________________________________
9. Tenant has no actual or constructive knowledge of any
processing, use, storage, disposal, release or treatment of any hazardous or
toxic materials or substances on the Premises or the Property except customary
office supplies and except as follows (if none, state "none"):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
This Certificate is given to ___________________________________ with
the understanding that ________ will rely hereon in connection with the
conveyance of the Property of which the Premises constitute a part to _______.
Following any such conveyance, Tenant agrees that the Lease shall remain in full
force and effect and shall bind and inure to the benefit of the _________ and
its successor in interest as if no purchase had occurred.
DATED: __________________, 19__ "TENANT"
----------------------------------
----------------------------------
[ATTACH LEASE AND AMENDMENTS TO THIS CERTIFICATE]
EXHIBIT E-Page 2
<PAGE>
OFFICE LEASE
TEN 9 FIFTY, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
AS LANDLORD,
AND
UNAPIX ENTERTAINMENT, INC.,
A DELAWARE CORPORATION,
AS TENANT
<PAGE>
SUMMARY OF BASIC LEASE INFORMATION
This Summary of Basic Lease Information (the "Summary") is hereby
incorporated into and made a part of the attached Office Lease (this Summary and
the Office Lease to be known collectively as the "Lease") which pertains to the
"Project," as that term is defined in the Office Lease, commonly known as "TEN 9
FIFTY" located in Culver City, California. Each reference in the Office Lease to
any term of this Summary shall have the meaning as set forth in this Summary for
such term. In the event of a conflict between the terms of this Summary and the
Office Lease, the terms of the Office Lease shall prevail. Any initially
capitalized terms used herein and not otherwise defined herein shall have the
meaning as set forth in the Office Lease.
<TABLE>
<CAPTION>
TERMS OF LEASE
(REFERENCES ARE TO THE OFFICE LEASE) DESCRIPTION
- ------------------------------------ -----------
<S> <C>
1. Dated as of: June ___, 1998.
2. Landlord: TEN 9 FIFTY, L.L.C., a Delaware
limited liability company
3. Address of Landlord Ten 9 Fifty, L.L.C.
(SECTION 29.14): c/o Skye Partners 2, Inc.
10950 Washington Boulevard
Culver City, California 90232
Attention: Property Manager
and
Allen, Matkins, Leck, Gamble, &
Mallory LLP
515 S. Figueroa Street, Suite 700
Los Angeles, California 90071
Attention: Neil N. Gluck, Esq.
4. Tenant: Unapix Entertainment, Inc.,
a Delaware corporation
5. Address of Tenant 200 Madison Avenue, 24th Floor
(SECTION 29.14): New York, NY 10016
Attention: Ivan Saperstein, Esq.
(Prior to Lease Commencement Date)
and
10950 Washington Boulevard, Suite 250
Culver City, California 90232
Attention: President, West Coast
Productions
(After Lease Commencement Date)
with a copy to
200 Madison Avenue, 24th Floor
New York, NY 10016
Attention: Ivan Saperstein, Esq.
6. Premises (ARTICLE 1).
6.1 Building: The three-story office building
located at 10950 Washington Boulevard
Culver City, California, 90232.
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
6.2 Premises: Approximately 2,043
rentable square feet of space
located on the second floor of the
Building, as set forth in EXHIBIT A
attached hereto, known as Suite 250.
6.3 Rentable Square 85,968 rentable square feet
Feet of Building:
7. Term (ARTICLE 2).
7.1 Lease Term: Five (5) years months.
7.2 Lease The earlier of (i) the date Tenant
Commencement occupies all or a portion of the
Date: Premises for the purpose of
conducting business, and (ii) the
date of Substantial Completion of the
Premises, as such term is defined in
the Tenant Work Letter attached
hereto as EXHIBIT D (as such date may
be accelerated pursuant to EXHIBIT
D). The Lease Commencement Date is
anticipated to be June 15, 1998.
7.3 Lease Expiration The date immediately preceding the
Date: fifth (5th) anniversary of the Lease
Commencement Date.
8. Base Rent (ARTICLE 3):
8.1 Base Rent
</TABLE>
<TABLE>
<CAPTION>
MONTHLY RENTAL RATE
MONTHLY INSTALLMENT OF PER RENTABLE
LEASE YEAR ANNUAL BASE RENT BASE RENT SQUARE FOOT
---------- ---------------- ---------------------- --------------------
<S> <C> <C> <C>
1 $46,580.40 $3,881.70 $1.90
2 $48,210.70 $4,017.56 $1.966
3 $49,898.07 $4,158.17 $2.035
4 $51,644.50 $4,303.71 $2.106
5 $53,452.06 $4,454.34 $2.180
</TABLE>
<TABLE>
<S> <C>
8.2 Installment Payable on Execution: $3,881.70
</TABLE>
9. Additional Rent
(ARTICLE 4).
<TABLE>
<S> <C>
9.1 Base Year: The calendar year of 1998.
9.2 Tenant's Share: Approximately 2.376%.
10. Security Deposit $13,363.02 payable concurrently with execution of this Lease.
(ARTICLE 21):
11. Number of Parking Passes Three (3) parking passes for every 1,000 rentable square feet of the Premises,
(ARTICLE 28): subject to the terms of ARTICLE 28 of the Office Lease.
12. Brokers (SECTION 29.19): Skye Partners 2, Inc.
Lee & Associates
</TABLE>
(ii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 PROJECT, BUILDING AND PREMISES........................................................................2
ARTICLE 2 LEASE TERM............................................................................................3
ARTICLE 3 BASE RENT.............................................................................................3
ARTICLE 4 ADDITIONAL RENT.......................................................................................3
ARTICLE 5 USE OF PREMISES.......................................................................................9
ARTICLE 6 SERVICES AND UTILITIES...............................................................................10
ARTICLE 7 REPAIRS..............................................................................................13
ARTICLE 8 ADDITIONS AND ALTERATIONS............................................................................13
ARTICLE 9 COVENANT AGAINST LIENS...............................................................................14
ARTICLE 10 INSURANCE...........................................................................................15
ARTICLE 11 DAMAGE AND DESTRUCTION..............................................................................17
ARTICLE 12 NONWAIVER...........................................................................................18
ARTICLE 13 CONDEMNATION........................................................................................19
ARTICLE 14 ASSIGNMENT AND SUBLETTING...........................................................................19
ARTICLE 15 SURRENDER OF PREMISES; REMOVAL OF TRADE FIXTURES......................................................22
ARTICLE 16 HOLDING OVER........................................................................................23
ARTICLE 17 ESTOPPEL CERTIFICATES...............................................................................23
ARTICLE 18 SUBORDINATION.......................................................................................24
ARTICLE 19 DEFAULTS; REMEDIES..................................................................................24
ARTICLE 20 ATTORNEYS' FEES.....................................................................................26
ARTICLE 21 SECURITY DEPOSIT....................................................................................26
ARTICLE 23 SIGNS...............................................................................................26
ARTICLE 24 COMPLIANCE WITH LAW.................................................................................27
ARTICLE 25 LATE CHARGES........................................................................................27
ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT................................................28
ARTICLE 27 ENTRY BY LANDLORD...................................................................................28
ARTICLE 28 TENANT PARKING......................................................................................29
ARTICLE 29 MISCELLANEOUS PROVISIONS............................................................................29
</TABLE>
EXHIBITS
- --------
A OUTLINE OF PREMISES
B RULES AND REGULATIONS
C FORM OF NOTICE OF LEASE TERM DATES
D TENANT WORK LETTER
E FORM OF TENANT'S ESTOPPEL CERTIFICATE
(iii)
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Additional Rent...................................................................................................3
Adjacent Building.................................................................................................1
Adjacent Buildings................................................................................................1
Alterations......................................................................................................12
Base Rent.........................................................................................................2
Base Year.........................................................................................................2
Brokers..........................................................................................................30
Builder's All Risk...............................................................................................13
Building..........................................................................................................1
Building Common Areas.............................................................................................1
Common Areas......................................................................................................1
Contemplated Effective Date......................................................................................20
Contemplated Transfer Space......................................................................................20
Control..........................................................................................................21
Cost Pools........................................................................................................6
Directory Allotment..............................................................................................25
Estimate..........................................................................................................6
Estimate Statement................................................................................................6
Estimated Excess..................................................................................................6
Excess............................................................................................................6
Expense Year......................................................................................................3
Force Majeure....................................................................................................29
Hazardous Material................................................................................................8
Holidays..........................................................................................................9
Intention to Transfer Notice.....................................................................................20
Interest Rate.....................................................................................................3
Landlord..........................................................................................................1
Landlord Parties.................................................................................................14
Lease.............................................................................................................1
Lease Commencement Date...........................................................................................2
Lease Expiration Date.............................................................................................2
Lease Term........................................................................................................2
Lease Year........................................................................................................2
Net Worth........................................................................................................21
Notices..........................................................................................................29
Operating Expenses................................................................................................3
Premises..........................................................................................................1
Project...........................................................................................................1
Project Common Areas..............................................................................................1
Proposition 13....................................................................................................5
Recapture Term...................................................................................................20
Renovations......................................................................................................31
Rent..............................................................................................................2
Rules and Regulations.............................................................................................1
Security Deposit.................................................................................................25
Six-Month Period.................................................................................................20
Statement.........................................................................................................6
Subject Space....................................................................................................18
Summary...........................................................................................................1
Tax Expenses......................................................................................................2
Tenant............................................................................................................1
Tenant Improvements..............................................................................................14
Tenant's Security System.........................................................................................10
Tenant's Share....................................................................................................2
Transfer.........................................................................................................20
Transfer Notice..................................................................................................18
Transfer Premium.................................................................................................18
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
Transferee.......................................................................................................18
Transferee's Rent................................................................................................19
Transfers........................................................................................................18
</TABLE>
(v)
<PAGE>
<PAGE>
EXHIBIT
10.22
-1-
<PAGE>
LEASE
LEASE, made the 25th day of August 1998 between Dubrow Management
Corp., agent for 427 Bloomfield Avenue Assoc., (hereinafter referred to as
"Lessor") whose address is 877 Broad Street, Ste. 201, Newark, New Jersey 07102
and Unapix Entertainment, Inc., (hereinafter referred to as "Lessee") whose
address is 200 Madison Avenue, 24-th floor, N.Y., N.Y. 10016.
W I T N E S S E T H :
For and in consideration of the covenants herein contained, and upon
the terms and conditions herein set forth, Lessor and Lessee agree as follows:
1. DESCRIPTION. Lessor hereby leases to Lessee, and Lessee hereby hires
from Lessor, the following space: approx.1263 gross rentable square feet,
(hereinafter called "Demised Premises" or "Premises"), located on the third
floor, as per Exhibit "A" in the building located at 427 Bloomfield Ave.,
Montclair, NJ, 07042 (hereinafter called "Building").
2. TERM. The premises are leased for a term of five (5) years
commencing on October 1, 1998 and to end at midnight on September 30, 2003.
3. (A) BASIC RENT. The Lessee shall pay to the Lessor during the term
basic rent in the amount of $108,933.75 (herein "Rent or "Basic Rent"). The
Basic Rent shall accrue at the yearly rate of $21,876.75 and the monthly rate of
$1,815.56. The Basic Rent shall be payable in advance on the first day of each
calendar month during the term. Lessee shall pay Basic Rent, and any additional
rent as hereinafter provided, to Lessor's above stated address, or at such other
place as Lessor may designate in writing, without demand and without
counterclaim, deduction or setoff.
(B) ADDITIONAL RENT. It is expressly agreed that the Lessee will pay
in addition to the Basic Rent, provided in paragraph 3 A above, additional rent
each anniversary year, payable monthly. The percentage difference between the
increment in the CPI for the month of August 1998 and the CPI for the month of
May each year for the term of the lease and any renewals and extensions, times
the Yearly Basic Rent. CPI shall be defined as New York Northeast New Jersey
CPI. Notwithstanding the foregoing or anything else to the contrary contained
herein, in no event shall the amount of the increase to exceed 4% per year.
4. USE AND OCCUPANCY. Lessee shall use and occupy the Premises as
general offices only.
5. CARE AND REPAIR OF PREMISES. Lessee shall commit no act of waste and
shall take good care of the Premises and the fixtures and appurtenances therein,
and shall, in the use and occupancy of the Premises, conform to all laws, orders
and regulations of the federal, state and make all necessary repairs to the
Premises; including repairs to electrical
-2-
<PAGE>
fixtures; Lessor shall maintain and make all necessary repairs to the Building,
the HVAC system and the exterior portions or the plumbing and electrical
systems, and the exterior of the Premises, including foundation and structure,
roof, lawns, parking areas, and walk ways, except where the repair has been made
necessary by misuse or neglect by Lessee or Lessee's agents, servants, visitors
or licensees, in which event Lessor shall nevertheless make the repairs but
Lessee shall pay to Lessor, as Additional Rent immediately upon demand, the
reasonable costs thereof. All improvements made by Lessee to the Premises, which
are so attached to the Premises shall become the property of Lessor upon
installation. Not later than the last day of the term, Lessee shall, at Lessee's
expense, remove all Lessee's personal property and those improvements made by
Lessee that have not become the property of the Lessor, repair all injury done
by or in connection with the installation or removal of said property and
improvements; and surrender the Premises in as good condition as they were at
the beginning of the term, reasonable wear and tear excepted. All other property
of Lessee remaining on the premises after the last day of the term of this lease
shall be conclusively deemed abandoned and may be removed by Lessor, and Lessee
shall reimburse Lessor for the cost of such removal. Lessor may have any such
property stored at Lessee's risk and expense.
6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS. Lessee shall not, without
first obtaining the written consent of Lessor, make any alterations, additions
or improvements in, to or about the Premises, including but not limited to
decorations or painting of the exterior walls, doors, windows or roof facades.
Lessors' consent will not be unreasonably withheld.
7. ACTIVITIES INCREASING FIRE INSURANCE RATES. Lessee shall not do
anything on the Premises that will increase the rate of fire insurance on the
Building.
8. ABANDONMENT. Lessee shall not, without first obtaining the written
consent of Lessor, abandon the Premises, or allow the Premises to become vacant
or deserted.
9. ASSIGNMENT AND SUBLEASE. Lessee may assign or sublease the within
Lease to any party subject to the following:
(A) In the event that the Lessee desires to sublease, or assign the
Premises to any other party, the terms and conditions of such sublease or
assignment shall be communicated to the Lessor in writing prior to the effective
date of any such sublease or assignment, and prior to such effective date, the
Lessor shall have the option, exercisable in writing to the Lessee, to recapture
the within Lease so that such prospective sublessee or assignee shall then
become the sole Lessee of Lessor hereunder, or alternately to recapture said
space, and the within Lessee shall be fully released from any and all
obligations hereunder.
(B) In the event that the Lessor elects not recapture the Lease or
space as hereinabove provided, the Lessee may nevertheless assign this Lease or
sublet the whole or any portion of the Premises, subject to the Lessor's prior
written consent, which consent shall not be unreasonably withheld, on the basis
of the following terms and conditions:
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(1) The Lessee shall provide to the Lessor the name and address of
the assignee or sublease.
(2) The assignee or sublessee shall assume, by written instrument,
all of the obligations of this Lease, and a copy of such assumption agreement
shall be furnished to the Lessor within ten (10) days of its execution.
(3) The Lessee and each assignee shall be and remain liable for the
observance of all the covenants and provisions of this Lease, including, but not
limited to, the payment of rent reserved herein, through the entire term of this
lease.
10. COMPLIANCE WITH RULES AND REGULATIONS. Lessee shall observe and
comply with such rules and regulations as Lessor prescribes, as per Exhibit "B,"
on written notice to the Lessee, for the safety, care and cleanliness of the
building and the comfort, quietness and convenience of other occupants of the
building.
11. DAMAGES TO BUILDING/WAIVER OF SUBROGATION. If the Building is
damaged by fire or any other cause to such extent that the cost of restoration,
as reasonable estimated by Lessor, will equal or exceed twenty-five (25%)
percent of the replacement value of the Building (Exclusive of foundations) just
prior to the occurrence of the damage, then Lessor may, no later than the
sixtieth (60th) day following the damage, give Lessee a notice of election to
terminate this Lease, or if the cost of restoration will equal or exceed fifty
(50%) percent of such replacement value and if the Premises shall not be
reasonably usable for the purpose for which they are leased hereunder, then
Lessee may, no later than the sixtieth (60th) day following the damage, give
Lessor a notice of election to terminate this Lease. In either said event of
election, this Lease shall be deemed to terminate on the thirtieth (30th) day
after the giving of such notice, and Lessee shall surrender possession of the
Premises within a reasonable time thereafter, and the Basic Rent, and any
additional Rent, shall be apportioned as of the date Lessee was unable to use
the Premises, and any Basic or Additional Rent paid for any period beyond said
date shall be repaid to Lessee. If the cost of restoration as estimated by
Lessor shall amount to less than twenty-five (25%) percent of said replacement
value of the Building, or if, despite the cost, Lessor does not elect to
terminate this Lease, Lessor shall restore the Building and the Premises with
reasonable promptness, subject to force majeure, and Lessee shall have no right
to terminate this Lease. Lessor need not restore fixtures and improvements owned
by Lessee.
Notwithstanding the provisions of this paragraph 11 of the lease, in
any event of loss or damage to the Building, the Premises and/or contents, the
Lessor and Lessee shall look first to any insurance in its favor before making
any claim against each other and, to the extent possible without additional
cost, each party shall obtain, for each policy of insurance, provisions
permitting waiver of any claim against each other for loss or damage within the
scope of such insurance, and the Lessor and Lessee, to such extent permitted,
for itself and its insured waives all such insured claims against Lessor.
12. EMINENT DOMAIN. If Lessee's use of the Premises is materially
affected due
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to the taking by eminent domain of (a) the Premises or any part thereof; or (b)
any other part of the Building; then in either event, this lease shall terminate
on the date when title vests, pursuant to such taking. The Rent, and any
Additional Rent, shall be apportioned as of said termination date and any Basic
or Additional Rent paid for any period beyond said termination date shall be
repaid to Lessee. Lessee shall not be entitled to any part of the award for such
taking or any payment for the value of this Lease for the remaining part of the
term.
13. LESSOR'S REMEDIES ON DEFAULT. If Lessee defaults in payment of
Basic Rent, or any Additional Rent, or defaults in the performance of any of the
covenants and conditions hereof, Lessor may give Lessee notice of such default,
and if Lessee does not cure any Basic Rent, or Additional Rent default within
ten (10) days or other default within fifteen (15) days, after written notice to
Lessee (or if such other default is of a nature that it cannot be completely
cured within such period, if Lessee does not commence such curing within fifteen
(15) days and thereafter proceed with reasonable diligence and in good faith to
cure such default), then Lessor may terminate this lease on not less then
fifteen (15) days notice to Lessee, and on the date specified in said notice,
Lessee's right to possession of the Demised Premises shall cease, and Lessee
shall quit and surrender the Premises to Lease.
14. (A) SUBORDINATION OF LEASE. This Lease shall, at Lessor's option,
or at the option of the holder of any underlying lease or holder of any first
mortgage or deed of trust, be subject and subordinate to any such underlying
leases and to any such first mortgage and/or trust deed which may now or
hereafter affect the real property of which the Premises form a part, and also
to all renewals, modifications, consolidations and replacements of said
underlying leases and said first mortgage and trust deed. Although no instrument
or act on the part of lessee shall be necessary to effectuate such
subordination, Lessee will, nevertheless, execute and deliver such further
instruments confirming such subordination of this Lease as may be desired by the
holders of said first mortgage and trust deeds or any of the Lessor attorney in
fact, irrevocably, to execute and deliver any instrument for Lessee. If any
underlying lease to which this Lease is subject, terminates, Lessee shall, on
timely request, attorn to the owner of the reversion.
(B) Notwithstanding the foregoing, "The Lessor covenants that as
long as the Lessee pays the rent and any additional rent as herein provided and
performs the covenants hereof, neither the lessor, any mortgagor, lienor and/or
anyone to whom the Lessee subrogates, the Lessee shall not be disturbed from
lawful possession and shall have the right to peaceably and quietly and hold and
enjoy, the premises for the term herein mentioned.
15. RIGHT TO CURE LESSEE'S BREACH. If Lessee breaches any covenant or
condition of this Lease, Lessor may, on reasonable notice to Lessee (except that
no notice need be given in case of emergency), cure such breach at the expense
of Lessee and the reasonable amount of all expenses, including attorney's fees,
incurred by Lessor in so doing (whether paid by Lessor or not) shall be deemed
Additional Rent payable on demand.
16. RIGHT TO INSPECT AND REPAIR. Lessor may enter the Premises but
shall not be obligated to do so (except as required by any specific provision of
this Lease) at any time on reasonable notice to Lessee (except that no notice
need be given in case of emergency) for the purpose of inspections or the making
of such repairs, replacement or additions in, to on and about the Premises or
the Building, as Lessor deems necessary or desirable. Lessee shall have no
claims or cause of action against Lessor for abatement of rent, nor shall Lessee
have any
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claim against Lessor for interruption of Lessee's business by reason thereof. In
no event shall Lessee have any claim against Lessor for interruption of Lessee's
business, however occurring, as related to the inspection and repair of the
Premises.
17. SERVICES TO BE PROVIDED BY LESSOR/LESSOR'S EXCULPATION. While
Lessee is not in default under any provision of this Lease, Lessor agrees to
furnish, except on holidaus as set forth on Exhibit C attached hereto and made a
part hereof::
(A) Heating, ventilating and air conditioning (herein "HVAC"), as
appropriate for the season, together with common facilities lighting and
electricity for the Premises all during "Building Hours", as hereinafter
defined.
(B) Lessor shall not be liable for failure to furnish aforesaid
services when such failure is due to force majeure, as hereinafter defined.
Lessor shall not be liable, under any circumstances, including its negligence,
for loss of or injury to, Lessee or to the property however occurring, through
or in connection with or incidental to the furnishing of, or failure to furnish,
any of the aforesaid services or for any interruption to Lessee's business
however occurring, including, but not limited to, that arising from Lessor's
negligence.
18. INTERRUPTION OF SERVICES OR USE. Interruption or curtailment of any
service maintained in the Building or Premises, shall not entitle Lessee to any
claim against Lessor or to any abatement in Rent, and shall not constitute a
constructive or partial eviction, unless if Lessor is responsible to provide the
service, it fails to take measures as may be reasonable under the circumstances
to restore the service without undue delay. In no event shall Lessee be entitled
to claim a constructive eviction from the Premises unless Lessee shall first
have notified Lessor in writing of the condition or conditions giving rise
thereto, and , if the complaints be justified, unless Lessor shall have failed
within a reasonable time, after receipt of such notice to remedy, or commence
and proceed with due diligence to remedy, such condition or conditions, all
subject to force majeure, as hereinafter defined.
19. LESSEE'S ESTOPPEL. Lessee shall, from time to time, or not less
than ten (10) days prior to written request by Lessor, execute, acknowledge, and
deliver to Lessor a written statement certifying that the Lease is unmodified
and in full force and effect, or that the Lease is in full force and effect as
modified and listing the instruments of modification; the dates to which the
rents and charges have been paid; and, whether or not to the best of Lessee's
knowledge Lessor is in default hereunder, and if so, specifying the nature of
the default. It is intended that any such statement delivered pursuant to this
Paragraph 24 may be relied on by a prospective purchaser of Lessor's interest or
mortgage of Lessor's interest or assignee of any mortgage of Lessor's interest.
20. HOLDOVER TENANCY. Unless otherwise agreed between Lessor and
Lessee, if Lessee holds possession of the Premises after the term of this Lease,
Lessee shall become a tenant from month to month under the provisions herein
provided, except that the Basic Rent shall be double the amount stipulated in
Paragraph three (3) hereof and such tenancy shall continue until terminated by
Lessor, or until Lessee shall have given to Lessor a written notice at least
sixty (60) days prior to the intended date of termination, of intent to
terminate such tenancy.
21. LEASEHOLD IMPROVEMENTS Lessor agrees that prior to the
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commencement of the term of this Lease, the Lessor will do improvements to the
Demised Premises as per Exhibit "A," using building standard materials. David
Dreilinger, of Unapix Entertainment, Inc., shall sign a corporate guarantee in
the amount of $12,630.00 for the cost of improvements.
22. RIGHT TO SHOW PREMISES. Lessor may show the Premises to prospective
purchasers and mortgagees; and, during the nine (9) months prior to termination
of this Lease, to prospective tenants.
23. WAIVER. No failure of the Lessor to enforce any term hereof shall
be deemed to be a waiver.
24. LATE CHARGE. Anything in this Lease to the contrary
notwithstanding, at Lessor's option, Lessee shall pay a "Late Charge" of what
was agreed; eight (8%) percent of any installment of Rent or additional Rent
paid more than seven (7) days after the due date thereof, to cover the extra
expense involved in handling delinquent accounts.
25. NO OTHER REPRESENTATIONS. No representations or promises shall be
binding on the parties hereto except those representations and promises
contained herein or in some future writing signed by the party making such
representation(s) or promise(s).
26. QUIET ENJOYMENT. Lessor covenants that if, and as long as, Lessee
pays the Rent, and any Additional Rent as herein provided, and performs the
covenants hereof, Lessor shall do nothing to affect Lessee's right to peaceably
and quietly have, hold and enjoy the Premises for the term herein mentioned,
subject to the provisions of this Lease. However, no diminution or abatement of
the Rent or Additional Rent or other payment to the Lessor shall be claimed by
or allowed to the Lessee for inconvenience or discomfort arising from the making
of any repairs or improvements to the Premises or Building. Lessor shall tale
any steps reasonably necessary to prevent third parties to interfere with
Lessee's quiet enjoyment.
27. LESSEE'S INSURANCE. Lessee covenants to provide on or before the
Commencement Date a comprehensive policy of general liability insurance naming
427 Bloomfield Avenue Assoc. as an additional named insured, insuring Lessee and
Lessor against any liability commonly insured against and occasioned by accident
resulting from any act or omission on or about the Premises and any
appurtenances thereto. Such policy is to be written by an insurance company
qualified to do business in the State of new Jersey reasonably satisfactory to
Lessor. The policy shall be with limits not less than one million and no/100
($1,000,000.00) dollars in respect of bodily injury and property damage. Said
limits shall be subject to periodic review and Lessor reserves the right to
increase said coverage limits, if in the reasonable opinion of Lessor, said
coverage becomes inadequate and is less than that commonly maintained by tenants
in similar buildings in the area by tenants making similar uses. At least
fifteen (15) days prior to the expiration or termination date of any policy, the
Lessee shall deliver a renewal or replacement policy with proof of the payment
of the premium therefor.
28. HEIRS, ASSIGNS, SUCCESSORS. This Lease is binding upon and inures
to
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the benefit of the heirs, assigns and successors in interest to the parties.
29. BROKER. Lessee hereby represent that it has not created any
liability to any person or entity, who would be entitled to a broker's fee,
provider's fee or any similar type of commission or fee. Lessee hereby
indemnifies the Lessor for any misrepresentation, hereunder including reasonable
attorneys fees.
30. NO OPTION. The submission of this Lease Agreement for examination
does not constitute a reservation of, or option for, the Premises, and this
Lease Agreement becomes effective as a Lease Agreement only upon execution and
delivery thereof by Lessor and Lessee.
31. INDEMNIFICATION OF LESSOR. The Lessor shall not be liable for any
damage or injury to the Lessee, or any other person, or to any property,
occurring on the Demised Premises or any part thereof, and the Lessee agrees to
hold harmless the Lessor from any claims for damages, no matter how caused.
32. DEFINITIONS
(A) COMMON FACILITIES. Common facilities shall mean all general
building facilities that service all Building tenants.
(B) FORCE MAJEURE. Force Majeure shall mean and include those
situations beyond Lessor's control, including by way of example and not by way
of limitations, acts of God; accidents; repairs; strikes; shortages of labor,
supplies or materials; inclement weather; or where applicable, the passage of
time while waiting for an adjustment of insurance proceeds.
(C) BUILDING HOURS. As used in this Lease the "Building Hours" shall be
Monday through Friday, 8:00 a.m. to 7:00 p.m. and Saturday, 8:00 a.m. to 1:00
p.m., excluding those holidays as set forth in Exhibit "C" attached hereto and
made a part thereof, except that common area lighting in the Building and office
building area shall be maintained for such additional hours as, in Lessor's sole
judgement, is necessary or desirable to insure property operation of the
Building and Office Building Area.
33. NOTICES. Any notice by either party to the other shall be in
writing and shall be deemed to have been duly given only if delivered personally
or sent by certified mail R.R.R.
34. SECURITY DEPOSIT. Lessee shall deposit with Lessor simultaneously
herewith $3, 631.12 as security for the performance of Lessee's obligations
under this Lease, including without limitation, the surrender of possession of
the Premises to Lessor as herein provided. If Lessor applies any part of said
deposit to cure any default of Lessee, Lessee shall on demand deposit with
Lessor the amount so applied so that Lessor shall have the full deposit on hand
at all times during the term of this Lease. Lessor, in the event the Demised
Premises are sold, shall transfer and deliver the security, as such, to the
purchase of the Demised Premises and shall notify Lessee thereof, and thereupon
Lessor shall be discharged from any further liability in reference thereto.
Lessor need not pay any interest thereon to the Lessee.
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35. DELAY IN GIVING OF POSSESSION. This paragraph applies if for any
reason whatsoever, the Lessor cannot give possession of the Demised Premises to
the Lessee on the commencement date. The Lessor shall not be held liable for the
delay. If possession is given after commencement date, the Lessee shall accept
possession and pay the Rent from that date. The ending date of the term shall
not change.
IN WITNESS WHEREOF, The parties hereto have hereunto set their hands and seals
the day and year first above written.
LESSOR LESSEE
------------------------ ------------------------
DUBROW MANAGEMENT UNAPIX ENTERTAINMENT, INC.
By David Dubrow By: David A. Dreilinger
Chief Operating Officer
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LEASE
LEASE, made the 9th day of April 1998 between Dubrow Management Corp.,
agent for 427 Bloomfield Avenue Assoc., (hereinafter referred to as "Lessor")
whose address is 877 Broad Street, Ste. 201, Newark, New Jersey 07102 and The
Jazz Store, Inc., (hereinafter referred to as "Lessee") whose address is 91
Edgemont Road, Upper Montclair, NJ, 07043.
W I T N E S S E T H :
For and in consideration of the covenants herein contained, and upon
the terms and conditions herein set forth, Lessor and Lessee agree as follows:
1. DESCRIPTION. Lessor hereby leases to Lessee, and Lessee hereby hires
from Lessor, the following space: approx.1900 gross rentable square feet,
(hereinafter called "Demised Premises" or "Premises") as per Exhibit "A" in the
building located at 427 Bloomfield Ave., Montclair, NJ, 07042., (hereinafter
called "Building").
2. TERM. The premises are leased for a term of three (3) years
commencing on June 1, 1998 and to end at midnight on May 31, 2001 with rent
commencing on July 1, 1998.
3. (A) BASIC RENT. The Lessee shall pay to the Lessor during the term
basic rent in the amount of $55,100.00 (herein "Rent or "Basic Rent"). The Basic
Rent shall accrue at the yearly rate of $19,000.00 and the monthly rate of
$1,583.33.The Basic Rent shall be payable in advance on the first day of each
calendar month during the term. Lessee shall pay Basic Rent, and any additional
rent as hereinafter provided, to Lessor's above stated address, or at such other
place as Lessor may designate in writing, without demand and without
counterclaim, deduction or setoff.
(B) ADDITIONAL RENT. It is expressly agreed that the Lessee will pay
in addition to the Basic Rent, provided in paragraph 3A above, additional rent
each anniversary year, payable monthly. The percentage difference between the
increment in the CPI for the month of January 1998 and the CPI for the month of
January each year for the term of the lease and any renewals and extensions,
times the Yearly Basic Rent. CPI shall be defined as New York Northeast New
Jersey CPI. Notwithstanding the foregoing or anything else to the contrary
contained herein, in no event shall the amount of the increase of the additional
rent for any anniversary 8-year exceed 3% of the Basic Rent.
4. USE AND OCCUPANCY. Lessee shall use and occupy the Premises as
general offices, retail store and mail orders operation.
5. CARE AND REPAIR OF PREMISES. Lessee shall commit no act of waste and
shall take good care of the Premises and the fixtures and appurtenances therein,
and shall, in the use and occupancy of the Premises, conform to all laws, orders
and regulations of the federal, state and municipal governments or any of their
departments; Lessee shall keep the entrances, stairs, sidewalk in the front of
the store clean and free from trash, debris, snow and ice; Lessor shall maintain
and
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make all necessary repairs to the Building, the HVAC system and the exterior
portions or the plumbing and electrical systems, and the exterior of the
Premises, including foundation and structure, roof, lawns, parking areas, and
walk ways, except where the repair has been made necessary by misuse or neglect
by Lessee or Lessee's agents, servants, visitors or licensees, in which event
Lessor shall nevertheless make the repairs but Lessee shall pay to Lessor, as
Additional Rent immediately upon demand, the reasonable costs thereof. All
improvements, except light fixtures, made by Lessee to the Premises, which are
so attached to the Premises shall become the property of Lessor upon
installation. Not later than the last day of the term, Lessee shall, at Lessee's
expense, remove all Lessee's personal property and those improvements made by
Lessee that have not become the property of the Lessor, like; repair all injury
done by or in connection with the installation or removal of said property and
improvements; and surrender the Premises in as good condition as they were at
the beginning of the term, reasonable wear and tear excepted. All other property
of Lessee remaining on the premises after the last day of the term of this lease
shall be conclusively deemed abandoned and may be removed by Lessor, and Lessee
shall reimburse Lessor for the cost of such removal. Lessor may have any such
property stored at Lessee's risk and expense.
6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS. Lessee shall not, without
first obtaining the written consent of Lessor, make any alterations, additions
or improvements in, to or about the Premises, including but not limited to
decorations or painting of the exterior walls, doors, windows or roof facades.
Lessors' consent will not be unreasonably withheld.
7. ACTIVITIES INCREASING FIRE INSURANCE RATES. Lessee shall not do
anything on the Premises that will increase the rate of fire insurance on the
Building.
8. ABANDONMENT. Lessee shall not, without first obtaining the written
consent of Lessor, abandon the Premises, or allow the Premises to become vacant
or deserted.
9. ASSIGNMENT AND SUBLEASE. Lessee may assign or sublease the within
Lease to any party subject to the following:
(A) In the event that the Lessee desires to sublease, or assign the
Premises to any other party, the terms and conditions of such sublease or
assignment shall be communicated to the Lessor in writing prior to the effective
date of any such sublease or assignment, and prior to such effective date, the
Lessor shall have the option, exercisable in writing to the Lessee, to recapture
the within Lease so that such prospective sublessee or assignee shall then
become the sole Lessee of Lessor hereunder, or alternately to recapture said
space, and the within Lessee shall be fully released from any and all
obligations hereunder.
(B) In the event that the Lessor elects not recapture the Lease or
space as hereinabove provided, the Lessee may nevertheless assign this Lease or
sublet the whole or any portion of the Premises, subject to the Lessor's prior
written consent, which consent shall not be unreasonably withheld, on the basis
of the following terms and conditions:
(1) The Lessee shall provide to the Lessor the name and address
of the
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assignee or sublease.
(2) The assignee or sublessee shall assume, by written
instrument, all of the obligations of this Lease, and a copy of such assumption
agreement shall be furnished to the Lessor within ten (10) days of its
execution.
(3) The Lessee and each assignee shall be and remain liable for
the observance of all the covenants and provisions of this Lease, including, but
not limited to, the payment of rent reserved herein, through the entire term of
this lease.
10. INTENTIONALLY OMITTED.
11. DAMAGES TO BUILDING/WAIVER OF SUBROGATION. If the Building is
damaged by fire or any other cause to such extent that the cost of restoration,
as reasonable estimated by Lessor, will equal or exceed twenty-five (25%)
percent of the replacement value of the Building (Exclusive of foundations) just
prior to the occurrence of the damage, then Lessor may, no later than the
sixtieth (60th) day following the damage, give Lessee a notice of election to
terminate this Lease, or if the cost of restoration will equal or exceed fifty
(50%) percent of such replacement value and if the Premises shall not be
reasonably usable for the purpose for which they are leased hereunder, then
Lessee may, no later than the sixtieth (60th) day following the damage, give
Lessor a notice of election to terminate this Lease. In either said event of
election, this Lease shall be deemed to terminate on the thirtieth (30th) day
after the giving of such notice, and Lessee shall surrender possession of the
Premises within a reasonable time thereafter, and the Basic Rent, and any
additional Rent, shall be apportioned as of the date Lessee was unable to use
the Premises, and any Basic or Additional Rent paid for any period beyond said
date shall be repaid to Lessee. If the cost of restoration as estimated by
Lessor shall amount to less than twenty-five (25%) percent of said replacement
value of the Building, or if, despite the cost, Lessor does not elect to
terminate this Lease, Lessor shall restore the Building and the Premises with
reasonable promptness, subject to force majeure, and Lessee shall have no right
to terminate this Lease. Lessor need not restore fixtures and improvements owned
by Lessee. Lessee shall not be responsible for any Rent or Additional Rent
payments until Premises are restored.
Notwithstanding the provisions of this paragraph 11 of the lease, in
any event of loss or damage to the Building, the Premises and/or contents, the
Lessor and Lessee shall look first to any insurance in its favor before making
any claim against each other and, to the extent possible without additional
cost, each party shall obtain, for each policy of insurance, provisions
permitting waiver of any claim against each other for loss or damage within the
scope of such insurance, and the Lessor and Lessee, to such extent permitted,
for itself and its insured waives all such insured claims against each other.
12. EMINENT DOMAIN. If Lessee's use of the Premises is materially
affected due to the taking by eminent domain of (a) the Premises or any part
thereof; or (b) any other part of the Building; then in either event, this lease
shall terminate on the date when title vests, pursuant to such taking. The Rent,
and any Additional Rent, shall be apportioned as of said termination date and
any Basic or Additional Rent paid for any period beyond said termination date
shall be repaid to Lessee. Lessee shall not be entitled to any part of the award
for such taking or any payment for the value
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of this Lease for the remaining part of the term. If Lessor receives notice of
any eminent domain actions, Lessor shall notify Lessee immediately.
13. LESSOR'S REMEDIES ON DEFAULT. If Lessee defaults in payment of
Basic Rent, or any Additional Rent, or defaults in the performance of any of the
covenants and conditions hereof, Lessor may give Lessee notice of such default,
and if Lessee does not cure any Basic Rent, or Additional Rent default within
five (5) days or other default within fifteen (15) days, after written notice to
Lessee (or if such other default is of a nature that it cannot be completely
cured within such period, if Lessee does not commence such curing within fifteen
(15) days and thereafter proceed with reasonable diligence and in good faith to
cure such default), then Lessor may terminate this lease on not less then ten
(10) days notice to Lessee, and on the date specified in said notice, Lessee's
right to possession of the Demised Premises shall cease, and Lessee shall quit
and surrender the Premises to Lease.
14. (A) SUBORDINATION OF LEASE. This Lease shall, at Lessor's option,
or at the option of the holder of any underlying lease or holder of any first
mortgage or deed of trust, be subject and subordinate to any such underlying
leases and to any such first mortgage and/or trust deed which may now or
hereafter affect the real property of which the Premises form a part, and also
to all renewals, modifications, consolidations and replacements of said
underlying leases and said first mortgage and trust deed. Although no instrument
or act on the part of lessee shall be necessary to effectuate such
subordination, Lessee will, nevertheless, execute and deliver such further
instruments confirming such subordination of this Lease as may be desired by the
holders of said first mortgage and trust deeds or any of the Lessor attorney in
fact, irrevocably, to execute and deliver any instrument for Lessee. If any
underlying lease to which this Lease is subject, terminates, Lessee shall, on
timely request, attorn to the owner of the reversion.
(B) Notwithstanding the foregoing, "The Lessor covenants that
as long as the Lessee pays the rent and any additional rent as herein provided
and performs the covenants hereof, neither the lessor, any mortgagor, lienor
and/or anyone to whom the Lessee subrogates, the Lessee shall not be disturbed
from lawful possession and shall have the right to peaceably and quietly and
hold and enjoy, the premises for the term herein mentioned.
15. RIGHT TO CURE LESSEE'S BREACH. If Lessee breaches any covenant or
condition of this Lease, Lessor may, on reasonable notice to Lessee (except that
no notice need be given in case of emergency), cure such breach at the expense
of Lessee and the reasonable amount of all expenses, including attorney's fees,
incurred by Lessor in so doing (whether paid by Lessor or not) shall be deemed
Additional Rent payable on demand.
16. RIGHT TO INSPECT AND REPAIR. Lessor may enter the Premises but
shall not be obligated to do so (except as required by any specific provision of
this Lease) at any time on reasonable notice to Lessee (except that no notice
need be given in case of emergency) for the purpose of inspections or the making
of such repairs, replacement or additions in, to on and about the Premises or
the Building, as Lessor deems necessary or desirable. Lessee shall have no
claims or cause of action against Lessor for abatement of rent, nor shall Lessee
have any claim against Lessor for interruption of Lessee's business by reason
thereof. Lessor agrees to use reasonable
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efforts to perform all work described in this Section 16 in a good and
workmanlike manner, with reasonable diligence, and in a manner so as to minimize
to the extent practicable unreasonable interference with lessee's operations.
17. SERVICES TO BE PROVIDED BY LESSOR/LESSOR'S EXCULPATION. While
Lessee is not in default under any provision of this Lease, Lessor agrees to
furnish:
(A) Heating as appropriate for the season, cold and hot water for
the restroom together with common facilities lighting.
(B) Lessor shall not be liable for failure to furnish aforesaid
services when such failure is due to force majeure, as hereinafter defined.
Lessor shall not be liable, under any circumstances, except its negligence, for
any interruption of Lessee's business however occurring.
18. HEATING. The Lessee agrees to reimburse to the Lessor his
proportionate share, as hereinafter defined, of the cost of heating oil used
during the term of this lease, all renewals and extensions. Heating oil
reimbursement to be considered as additional rent and are due in a five (5) days
after invoice is submitted to the Lessee by Lessor. In no event Lessee shall pay
more than for 1,200.00 gallons of oil per one calendar year.
19. INTERRUPTION OF SERVICES OR USE. Interruption or curtailment of any
service maintained in the Building or Premises, shall not entitle Lessee to any
claim against Lessor or to any abatement in Rent, and shall not constitute a
constructive or partial eviction, unless if Lessor is responsible to provide the
service, it fails to take measures as may be reasonable under the circumstances
to restore the service without undue delay. In no event shall Lessee be entitled
to claim a constructive eviction from the Premises unless Lessee shall first
have notified Lessor in writing of the condition or conditions giving rise
thereto, and , if the complaints be justified, unless Lessor shall have failed
within a reasonable time, after receipt of such notice to remedy, or commence
and proceed with due diligence to remedy, such condition or conditions, all
subject to force majeure, as hereinafter defined.
20. LESSEE'S ESTOPPEL. Lessee shall, from time to time, or not less
than ten (10) days from written request by Lessor, execute, acknowledge, and
deliver to Lessor a written statement certifying that the Lease is unmodified
and in full force and effect, or that the Lease is in full force and effect as
modified and listing the instruments of modification; the dates to which the
rents and charges have been paid; and, whether or not to the best of Lessee's
knowledge Lessor is in default hereunder, and if so, specifying the nature of
the default. It is intended that any such statement delivered pursuant to this
Paragraph 24 may be relied on by a prospective purchaser of Lessor's interest or
mortgage of Lessor's interest or assignee of any mortgage of Lessor's interest.
21. HOLDOVER TENANCY. Unless otherwise agreed between Lessor and
Lessee, if Lessee holds possession of the Premises after the term of this Lease,
Lessee shall become a tenant from month to month under the provisions herein
provided, except that the Basic Rent shall be double the amount stipulated in
Paragraph three (3) hereof and such tenancy shall continue until terminated by
Lessor, or until Lessee shall have given to Lessor a written notice at least
sixty (60)
-14-
<PAGE>
days prior to the intended date of termination, of intent to terminate such
tenancy.
22. LEASEHOLD IMPROVEMENTS Lessor agrees that prior to the commencement
of the term of this Lease, the Lessor will do improvements to the Demised
Premises as per Exhibit "E," using building standard materials and workman like
fashion.
23. RIGHT TO SHOW PREMISES. Lessor may show the Premises to prospective
purchasers and mortgagees; and, during the six (6) months prior to termination
of this Lease, to prospective tenants.
24. WAIVER. No failure of the Lessor to enforce any term hereof shall
be deemed to be a waiver.
25. LATE CHARGE. Anything in this Lease to the contrary
notwithstanding, at Lessor's option, Lessee shall pay a "Late Charge" of what
was agreed; six (6%) percent of any installment of Rent or additional Rent paid
more than seven (7) days after the due date thereof, to cover the extra expense
involved in handling delinquent accounts.
26. NO OTHER REPRESENTATIONS. No representations or promises shall be
binding on the parties hereto except those representations and promises
contained herein or in some future writing signed by the party making such
representation(s) or promise(s).
27. QUIET ENJOYMENT. Lessor covenants that if, and as long as, Lessee
pays the Rent, and any Additional Rent as herein provided, and performs the
covenants hereof, Lessor shall do nothing to affect Lessee's right to peaceably
and quietly have, hold and enjoy the Premises for the term herein mentioned,
subject to the provisions of this Lease.
28. LESSEE'S INSURANCE. Lessee covenants to provide upon possession a
comprehensive policy of general liability insurance naming 427 Bloomfield Avenue
Assoc as an additional named insured, insuring Lessee and Lessor against any
liability commonly insured against and occasioned by accident resulting from any
act or omission on or about the Premises and any appurtenances thereto. Such
policy is to be written by an insurance company qualified to do business in the
State of new Jersey reasonably satisfactory to Lessor. The policy shall be with
limits not less than one million and no/100 ($1,000,000.00) dollars in respect
of bodily injury and property damage. Said limits shall be subject to periodic
review and Lessor reserves the right to increase said coverage limits, if in the
reasonable opinion of Lessor, said coverage becomes inadequate and is less than
that commonly maintained by tenants in similar buildings in the area by tenants
making similar uses. At least fifteen (15) days prior to the expiration or
termination date of any policy, the Lessee shall deliver a renewal or
replacement policy with proof of the payment of the premium therefor.
29. HEIRS, ASSIGNS, SUCCESSORS. This Lease is binding upon and inures
to the benefit of the heirs, assigns and successors in interest to the parties.
30. BROKER. Lessee hereby represent that it has not created any
liability to any
-15-
<PAGE>
person or entity, who would be entitled to a broker's fee, provider's fee or any
similar type of commission or fee. Lessee hereby indemnifies the Lessor for any
misrepresentation, hereunder including reasonable attorneys fees.
31. NO OPTION. The submission of this Lease Agreement for examination
does not constitute a reservation of, or option for, the Premises, and this
Lease Agreement becomes effective as a Lease Agreement only upon execution and
delivery thereof by Lessor and Lessee.
32. INDEMNIFICATION OF LESSOR. The Lessor shall not be liable for any
damage or injury to the Lessee, or any other person, or to any property,
occurring on the Demised Premises or any part thereof, and the Lessee agrees to
hold harmless the Lessor from any claims for damages, no matter how caused
unless such damage or injury is caused by the negligence or intentional
misconduct of Lessor.
33. DEFINITIONS
(A) PROPORTIONATE SHARE. Lessee's proportionate share, wherever
that phrase is used, shall be seven (7) percent to reflect the ratio of the
gross square footage of the Premises to the gross square footage of the
Building. Total of all Lessee's Proportionate Share not top exceed 100%.
(B) FORCE MAJEURE. Force Majeure shall mean and include those
situations beyond Lessor's control, including by way of example and not by way
of limitations, acts of God; accidents; repairs; strikes; shortages of labor,
supplies or materials; inclement weather; or where applicable, the passage of
time while waiting for an adjustment of insurance proceeds.
34. NOTICES. Any notice by either party to the other shall be in
writing and shall be deemed to have been duly given only if delivered personally
or sent by certified mail R.R.R.
35. SECURITY DEPOSIT. Lessee shall deposit with Lessor simultaneously
herewith $3,166, as security for the performance of Lessee's obligations under
this Lease, including without limitation, the surrender of possession of the
Premises to Lessor as herein provided. If Lessor applies any part of said
deposit to cure any default of Lessee, Lessee shall on demand deposit with
Lessor the amount so applied so that Lessor shall have the full deposit on hand
at all times during the term of this Lease. Lessor, in the event the Demised
Premises are sold, shall transfer and deliver the security, as such, to the
purchaser of the Demised Premises and shall notify Lessee thereof, and thereupon
Lessor shall be discharged from any further liability in reference thereto.
Lessor may commingle the Security Deposit with its own funds and need not pay
any interest thereon to the Lessee. Lessor will return unused portion of
security deposit to the Lessee within 30 days after Lease termination.
36. OPTION TO RENEW. Provided that Lessee is not in default under this
Lease, Lessee has right to renew this Lease for a two (2) years period
commencing on June 1, 2001.If Lessee will elect to renew this Lease, he has to
notify Lessor in writing no later than December 30, 2000. If no notice is
received by Lessor by December 30, 2000 this Option to Renew is null and
-16-
<PAGE>
void. Rent during renewal period will be established according to the paragraph
3.B of this Lease.
37. DELAY IN GIVING OF POSSESSION. This paragraph applies if for any
reason whatsoever, the Lessor cannot give possession of the Demised Premises to
the Lessee on the commencement date. The Lessor shall not be held liable for the
delay. The Lessor shall then have thirty (30) days in which to give possession.
If possession is given within that time, the Lessee shall accept possession and
pay the Rent beginning 30 days following that date. The ending date of the term
shall not change. If possession is not given within that time, this Lease may be
canceled by either party on notice to the other.
IN WITNESS WHEREOF, The parties hereto have hereunto set their hands and seals
the day and year first above written.
LESSOR LESSEE
--------------------- -------------------
DUBROW MANAGEMENT THE JAZZ STORE
By David Dubrow By Steven Brecker
-17-
<PAGE>
EXHIBIT
10.23
<PAGE>
SUBLEASE AGREEMENT
This Agreement ("Sublease") is made this 1st day of February 1999 by
and between Pinkerton's Inc., a Delaware Corporation ("Sublessor") and Unapix
Entertainment Inc., a Delaware Corporation ("Sublessee").
RECITALS
WHEREAS, a lease ("Lease") was entered into as of August 20,1993, by
and between Trizec Properties, Inc. as Landlord and Sublessor as Tenant whereby
Sublessor leased the premises known as Suites 600, 700, 900 and 1400 in the
building located at 15910 Ventura Boulevard, Encino, California, comprising
approximately 55,953 rental square feet ("Premises") for a term ending December
3 l, 2003; and
WHEREAS, Sublessor now desires to sublease a portion of the Premises
("Sublease Premises") to Sublessee and Sublessee desires to accept the Sublease
thereof:
AGREEMENT
NOW ,THEREFORE, in consideration of the mutual covenants and
conditions contained herein, Sublessor hereby subleases to Sublessee,
Sublessor's right, title and interest in and to the Subleased Premises, under
and subject to the terms of the Lease, a copy of which is attached hereto as
Exhibit "A", and Sublessee hereby agrees to and does accept the Sublease and in
addition expressly assumes and agrees to keep, perform, and fulfill all the
terms, covenants and obligations required to be kept under the Lease by
Sublessor and the Sublease by Sublessee. Sublessee shall neither do nor permit
anything to be done which would cause the Lease to be terminated or forfeited by
reason of any termination or forfeit reserved or vested in the Landlord under
the Lease.
When in the Lease, any reference is made to Landlord and Tenant, it
shall mean respectively, Sublessor and Sublessee in this Sublease any reference
to "the Lease" or this Lease" or any similar expression in the Lease shall mean
the Sublease herein made; and any reference in the Lease to the "Premises" or
any similar expression shall mean the Subleased Premises demised in this
Sublease. It is the intention of Sublessor and Sublessee that except as
otherwise provided by the specific provisions set forth in this Sublease, the
relation between the Sublessor and Sublessee shall be governed by the Lease
incorporated by referenced as Exhibit "A".
NOTWITHSTANDING THE FOREGOING:
1. TERM: The Term of the Sublease shall begin on February l, 1999 (the
"Commencement Date") and end on December 31, 2003.
2. BASE RENT: The monthly rent payable by Sublessee to Sublessor shall be based
on $1.50 per rentable square foot per month, the ("Base Rent"), payable in
advance on or before the first day of each month of this Sublease without any
set-off or deduction whatsoever. The first month's rent shall be due upon
execution of the Sublease. If this Sublease commences on any day of the month
except for the first day, Sublessee shall pay to Sublessor, base rental as
provided for herein for such commencement month on a prorated basis, such
proration to be based on the actual number of days Sublessee occupies the
Subleased Premises in the commencement month.
3. COMMENCEMENT OF RENT: Notwithstanding anything contained herein, provided
Sublessee is not in default of the terms of the Lease, the Base rent shall be
abated for two (2) months, months 2 & 3, ("Rent Abatement") In addition,
Sublessee shall receive a rent credit of five thousand eight hundred fifty
dollars ($5,850.00) for months 4 through 7, ("Additional Rent Abatement"). Rent
Abatement, and Additional Rent Abatement, is conditioned upon
<PAGE>
Sublessee's performance under the terms set forth in the Sublease and Master
Lease.
4. SUBLEASE PREMISES: The Sublease Premises shall consist of 13,900 rentable
square feet; the entire nineth (9th) floor space.
5. TENANT IMPROVEMENTS: Sublessor shall pay for the cost to paint and recarpet
the useable portion of the Premises, using building standard materials, ("Tenant
Improvement Allowance"). The color to be selected by Sublessee. Sublessee shall
not be entitled to any credit for the unused portion of the Tenant Improvement
Allowance.
6. SQUARE FOOTAGE: As set forth in the Master Lease, the Premises is defined as
13,900 square feet, the entire 14th floor.
7. PARKING: Sublessee shall be granted a pro-rata share of all the parking
rights of Sublessor contained in the Master Lease (i.e. covered, uncovered and
reserved).
8. BUILDING DIRECTORY BOARD: Sublessee, at their sole cost and expense, shall
have the right to place its name and names of Sublessee's subsidiaries on the
building directory subject to the terms of the Master Lease and approval of
Landlord.
9. SECURITY DEPOSIT: The Sublessee, upon execution of the Sublease, shall
deposit with the Sublessor, a sum equal to the final month's rent which sum
shall be retained by the Sublessor as security for the payment by the Sublessee
of the rent and for the faithful performance of the Terms and Conditions of this
Sublease. Sublessor shall return the Security Deposit to the Sublessee within
sixty (60) days after the Sublease ends, subject to deductions for any incurred
Sublessee defaults.
10. ADDITIONAL RENT: In addition to the monthly Base Rent provided for herein,
Sublessee shall pay Additional Rent as that term is defined in Articles 4, 5,
and 6 of the Lease attached as Exhibit "A" hereto and all other additions to
Base Rent as provided for in the Lease. Notwithstanding any provisions in the
Lease, Sublessee shall reimburse Sublessor for Sublessor's proportionate share
(based on the square footage of the Sublease Premises) of Additional Rent or
other additions to Base Rent which Sublessor is billed by the Landlord for any
increase in operating expenses in excess of the first Sublease year amount. The
Base year is defined as Calendar Year 1999.
11. NO SERVICES OF SUBLESSOR: Sublessee recognizes that Sublessor shall have no
obligation whatsoever to provide any services to Sublessee or make any repairs
to the Subleased premises or Building, as that term is defined in the Lease, but
that Sublessee will look solely to the Landlord for such obligations and any
other obligations Landlord is required to perform under the Lease.
12. ACCEPTANCE OF PREMISES AS-IS: Except as stated herein, Sublessee accepts the
Subleased Premises in their "As-Is" condition as of the date of the Sublease.
13. REPAIR OF PREMISES: During the Sublease term, Sublessee shal1 perform all
matters of repair in respect to the Subleased premises that the Sublessor as
tenant is obligated to perform under the terms of the Lease. With regard to
repairs that are required to be performed by the Landlord under the Lease,
Sublessor grants to Sublessee the privilege in the Sublessor's name to enforce
the obligation of the Landlord to do the repair and Sublessee shall not look to
Sublessor for the performance of those repair
<PAGE>
14. PAYMENT OF RENT: All rents due under this Sublease shall be paid on or
before the first day of the month for which they are due, by Sublessee and made
payable to Pinkerton's Inc. and mailed to:
Property Management Department
Pinkerton's, Inc.
4330 Park Terrace Drive
Westlake Village, CA 91361
15. USE: The Subleased premises shall be used as general administrative offices
as provided under the terms of the Master Lease and for no other purpose.
Sublessee shall make no changes or alterations to the Subleased premises without
the prior written approval of Sublessor and Landlord. Sublessee shall be
responsible, at its sole cost and expense, to remove or repair any alterations
or improvement Sublessee makes to the Premises that the landlord will require to
he removed at the end of the sublease term.
16. INSURANCE: All insurance obligations Sublessee has assumed under the lease
shall be performed for the Landlord as well as the Sublessor, including but not
limited to naming Sublessor and Landlord as an additional insured under
Sublessee's insurance, holding harmless indemnifying and waiving subrogation as
against Sublessor and Landlord.
17. INDEMNITY: Sublessee, to the extent permitted by law, waives all claims it
may have against Sublessor and against the Sublessor's agents and employees from
damage to persons or property sustained by Sublessee or by any occupant of the
Subleased Premises, or by any other person, resulting from any part of the
building or land of which the Subleased Premises are a part (the "Building"), or
any equipment or appurtenances becoming out of repair, or resulting from any
accident in or about the Subleased Premises or Building resulting directly or
indirectly from any act of neglect of any Tenant or occupant of any part of the
Building or for any other person, except to the extent such damage is a result
of the gross negligence of Sublessor or Sublessor's agents or employees. All
personal property belonging to the Sublessee or any occupant of the Subleased
Premises that is in or on any part of the Building shall be then at the risk of
the Sublessee or such other person only, and the Sublessor, its agents and
employees shall not be liable for any damage thereto or for the theft or
misappropriation thereof except to the extent such damage, theft or
misappropriation is a result of the gross negligence of Sublessor or Sublessor's
agents or employees. The Sublessee agrees to hold the Sublessor harmless and
indemnify Sublessor against claims and liability for injuries to all persons and
for damages to or loss of property occurring in or about the Subleased premises
or Building, due to any intentional act or negligence by the Sublessee, its
contractors, agents or employees. Sublessee shall also indemnify and hold
Sublessor harmless from and against all claims of any kind whatsoever by reason
of any breach or default of the Lease or this Sublease on the part of Sublessee,
its contractors, agents or employees.
18. SUBLESSEE DEFAULT: Any failure by Sublessee to pay any installment of Rent
or Additional Rent, or to make any other payment required to be made by
Sublessee hereunder when due, or to perform or comply with any other material
provision of this Sublease to be performed or complied with by Sublessee, where
such failure continues for twenty (20) days after delivery of written notice of
such failure by Sublessor to Sublessee shall constitute a default by Sublessee
under this Sublease (a "Sublessee Default") provided, however, that if the
nature of any non monetary failure is such that the same cannot reasonably be
cured within such twenty (20) day period, the same shall not constitute a
Sublessee Default if Sublessee shall, within twenty (20) days of such notice
commence such cure, and thereafter diligently prosecute such cure to completion.
19. BROKER'S FEE: The brokers involved in this transaction are Grubb and Ellis
and Jones Lang Wootton as Sublessor's agent and Stone Company as Sublessee's
agent. Upon execution of this Sublease by both parties, Sublessor shall pay to
said broker a fee as set forth in a separate agreement between Sublessor and
said brokers
<PAGE>
for brokerage services rendered by said broker to Sublessor in this transaction.
Sublessee and Sublessor each represents and warrants to the other that neither
has had any dealings with any person, firm, broker, or finder other than those
names as set forth above in connection with the negotiation of this Sublease
and/or the consummation of the transaction contemplated hereby, and no other
broker or other person, firm or entity is entitled to any commission or finder's
fee in connection with said transaction and Sublessee and Sublessor do each
hereby indemnify and hold the other harmless from and against any costs,
expenses, attorney's fees or liability for compensation or charges which may be
claimed by such an unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying party.
20. HOLDOVER: If Sublessee retains possession of the Subleased premises or any
part thereof after the termination of the Sublease term, the Sublessee shall pay
the Sublessor rent at a monthly rate equal to double the amount of the total
monthly rent (including additional rent as such is defined in Section 6 of this
Sublease) which would have been applicable had the term of the Master Lease
continued through the period of such holding over by tenant. In addition,
Sublessee shall pay the Sublessor for all damages, consequential as well as
direct, sustained by reason of Sublessee's retention of possession. The
provisions of this Article do not exclude Sublessors right of re-entry or any
other right hereunder.
21. NOTICES: All notices or demands given or required to be given hereunder
shall be in writing and shall be sent to the intended recipients address as set
forth below or at such other address as shall be designated in writing by the
party to receive notice.
22. ASSIGNMENT AND SUBLEASE: Sublessee shal1 not assign this Sublease nor
sublease any portion of the Premises without the prior written consent of the
Sublessor and Landlord, pursuant to the terms of the Master Lease, which consent
shall not be unreasonably withheld, conditioned or delayed. For purposes of this
Section, any sale of stock, change in control, reorganization, merger, sale of
assets or similar transaction by Sublessee shall constitute an assignment or a
sublease requiring the consent of Sublessor.
Sublessee may sublease, subject to the terms of the Master Lease up, to 4,000
rentable square feet of the Premises and all profits. In the event more than
4,000 square feet are subleased, then the profits shall be split equally.
23. LIABILITY BEYOND THE TERM OF THE MASTER LEASE: Sublessee and Landlord
represent that Sublessor shall not be liable for any obligation arising under
any sublease extension or any other liability beyond the term of the Master
Lease.
For Sublessee:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
For Sublessor: Pinkerton's, Inc.
Attn: Property Management Department
4330 Park Terrace Drive
Westlake Village, CA 91361
24. STIPULATIONS: The parties stipulate:
(a) No receipt of money by the Sublessor from the Sublessee after the
termination of this Sublease or after the service of any notice or after the
commencement of any suit, or final judgment for possession of the Subleased
Premises shall reinstate or extend the term of this Sublease or affect any such
notice, demand or suit
<PAGE>
or imply consent for any action for which Sublessor's consent is required.
(b) No waiver of any default of the Sublessee hereunder shall be implied any
omission by the Sublessor to take action on account of such default if such
default persists or is repeated, and no express waiver shall affect any default
other than the default specified in the express waiver and then only for the
time and to the extent therein stated.
(c) Neither party has made any representations or promises except as contained
herein, or in some further writing signed by the party making such
representation or promise.
(d) This assignment shall be construed and enforced in accordance with the laws
of the State of California.
25. BREACH, REMEDIES: Upon Sublessee's breach of the Sublease, Sublessor shall
have all the rights against Sublessee as would be available to the Landlord
against Tenant under the Lease as if such a breach were by Tenant thereunder.
26. BINDING ON SUCCESSORS: This Agreement shall be binding on and inure to the
benefit of the parties hereto, their heirs, executors, administrators,
successors in interest and assigns, subject to the Lease clause dealing with
Sublease and Assignment.
Executed the day and year first above written.
Sublessor:
PINKERTON'S, INC.
By:
-------------------------------------------
Sublessee:
This Sublease is not effective until signed be1ow by the Landlord, whose
signature below is its consent to this Sublease. This consent does not waiver
Landlord's right to consent to any further Subleases or Agreements, nor does it
signify anything more than Landlord's consent to the Sublease.
LANDLORD:
By:
-----------------------------------------------
<PAGE>
EXHIBIT
10.24
1
<PAGE>
AMENDMENT NO. 3 TO REVOLVING
CREDIT LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 3 TO REVOLVING CREDIT LOAN AND SECURITY
AGREEMENT (this "Amendment") is entered into as of April 12, 1999, by and
between (i) UNAPIX ENTERTAINMENT, INC. ("Unapix"), and MIRAMAR IMAGES, INC.
("Miramar;" and together with Unapix, collectively the "Borrowers"), and (ii)
IMPERIAL BANK (the "Bank"), with respect to the following facts:
A. The Bank and the Borrowers entered into a Revolving Credit Loan
and Security Agreement dated as of April 16, 1997 (as modified, amended, and
supplemented to the date hereof, the "Loan Agreement"). Capitalized terms not
expressly defined herein shall have the respective meanings ascribed thereto
in the Loan Agreement.
B. The Borrowers have requested that the Bank amend the Loan
Agreement in certain respects.
C. The Bank is willing to amend the Loan Agreement subject to the
terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants
and agreements contained herein, the parties hereto hereby agree as follows:
1. AMENDMENTS
1.1 AMENDMENT OF "FINAL REPAYMENT DATE." The
definition of "Final Repayment Date," contained in Section 1 of the Loan
Agreement, is hereby amended and restated to read in its entirety as follows:
"FINAL REPAYMENT DATE' shall mean March 2, 2000."
1.2 AMENDMENT OF SECTION 2.1.1. Section 2.1.1 of
the Loan Agreement is hereby amended and restated to read in its entirety as
follows:
"2.1.1 COMMITMENT. To the Borrower, in the
form of Advances and Letters of Credit by way of a
revolving credit facility (the `Facility') in the
aggregate sum owing hereunder of up to (the
`Commitment') of (i) Thirteen Million Dollars
($13,000,000) prior to May 3, 1999, (ii) Twelve
Million Five Hundred Thousand Dollars
($12,500,000) on or after May 3, 1999 and prior to
June 3, 1999, (iii) Twelve Million Dollars
($12,000,000) on or after June 3, 1999 and prior
to July 3, 1999, (iv) Eleven Million Five Hundred
Thousand Dollars ($11,500,000) on or after July 3,
1999 and prior to August 3, 1999, (v) Eleven
Million Dollars ($11,000,000) on or after August
3, 1999 and prior
2
<PAGE>
to September 3, 1999, (vi) Ten Million Five
Hundred Thousand Dollars ($10,500,000) on or after
September 3, 1999 and prior to October 3, 1999 and
(vii) Ten Million Dollars ($10,000,000) thereafter
from time to time during the period, commencing on
the execution date hereof and expiring on the
Final Repayment Date. Subject to Section 2.1.2
hereof, at no time shall the sum of all Advances
and all undrawn amounts under all Letters of
Credit at any time outstanding exceed the lesser
of (i) the Commitment, or (ii) the Borrowing Base,
and PROVIDED, FURTHER, that at no time shall the
aggregate sum of all undrawn amounts under Standby
Letters of Credit at any time exceed the Standby
Letters of Credit Sublimit. Subject to the terms
and conditions of this Agreement and the foregoing
limitations, the Borrowers may borrow, repay and
reborrow Advances. Notwithstanding anything herein
to the contrary, no Letter of Credit shall remain
outstanding after the Final Repayment Date."
1.3 AMENDMENT OF SECTION 2.8.2.2. Section 2.8.2.2
of the Loan Agreement is hereby amended by replacing the language "Section
2.1.2" with "Sections 2.1.1 and 2.1.2."
1.4 AMENDMENT OF SECTION 5.1. The last sentence of
Section 5.1 of the Loan Agreement is hereby deleted and the following two
sentences are hereby added to the end of that section: "Subject to the
immediately succeeding sentence, at the end of each Business Day, the Bank
shall transfer an amount equal to the then credit balance in the Master
Collection Account to the Operating Account, provided that on such Business
Day no Event of Default or Potential Event of Default is then occurring. At
the end of each Business Day that the aggregate Obligations exceed the lesser
of the Commitment and the Borrowing Base, the Bank shall apply an amount
equal to the then credit balance in the Master Collection Account to the
repayment of the Obligations, in accordance with the provisions of Section
2.10 hereof, until such excess has been eliminated."
2. REPRESENTATIONS AND WARRANTIES.
2.1 REPRESENTATIONS AND WARRANTIES. The Borrowers
hereby jointly and severally represent and warrant to the Bank that as of the
date hereof (except to the extent that any such representation or warranty
expressly relates to an earlier date):
2.1.1 Each of the representations and
warranties of the Borrowers contained in the Loan Agreement and in any and
all other Loan Documents is or was (as the case may be) true and correct;
2.1.2 No Event of Default or Potential Event
of Default has occurred and is continuing;
3
<PAGE>
2.1.3 Each of the Borrowers is duly
authorized to enter into this Amendment and consummate the transactions
herein contemplated and has the requisite power, authority and legal right to
execute, deliver and perform this Amendment and the other documents and
transactions contemplated herein, and has taken all necessary action to
authorize its execution, delivery and performance of this Amendment and such
other documents and transactions as contemplated herein; and
2.1.4 The consummation of the transactions
herein contemplated and the fulfillment of the terms hereof and the
compliance by the Borrowers with all of the terms and conditions of this
Amendment and the other documents herein provided will not result in any
breach of any of the terms, conditions or provisions of, or constitute a
default under, or violate, any indenture, bank loan, credit agreement or
other agreement or instrument, or existing law or judgment, to which either
or both of the Borrowers is a party or by which they or any of their assets
is bound, nor will it result in the creation of any Encumbrance upon any of
their properties or assets pursuant to the provisions of any such indenture,
bank loan, credit agreement or other agreement or instrument, nor are any of
the Borrowers prohibited by their articles of incorporation, by-laws or any
indenture or other agreement, nor does it require any approval or consent of
any Person that has not otherwise been obtained as of the date hereof; and
that this Amendment and each additional instrument and document required
hereunder when executed and delivered by the Borrowers will constitute the
legal, valid and binding obligation of the Borrowers enforceable against them
in accordance with its terms.
2.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
warranties and representations herein shall survive the execution of this
Amendment and the consummation of the transactions contemplated herein.
3. CONDITIONS PRECEDENT.
3.1 The provisions of Section 1 hereof shall not
become effective until the Borrowers comply with each of the following
conditions precedent to the satisfaction of the Bank in its sole and absolute
discretion:
3.1.1 Delivery to the Bank of a certificate
of a senior executive officer of each Borrower acceptable to the Bank in
substance and form satisfactory to the Bank (including, without limitation,
certification by such officer of each Borrower that attached thereto is a
true and correct complete copy of resolutions of the Board of Directors or
the Executive Committee thereof (and if applicable, the shareholders) of such
Borrower approving and authorizing the execution, delivery and performance of
this Amendment and the other documents and transactions contemplated herein;
3.1.2 Delivery to the Bank of Amendment No.1
to the Second Amended and Restated Promissory Note in the form attached as
Exhibit "A";
4
<PAGE>
3.1.3 The Borrowers shall have complied and
then be in compliance with all terms, covenants and conditions of the Loan
Agreement.
4. LOAN FEE.
The Borrowers will pay a loan fee on May 16, 1999 equal to
$75,000 (the "Additional Loan Fee"); provided, however, in the event that the
Bank sells by May 15, 1999 to another bank or banks participation interests
in an amount and on terms satisfactory to the Bank, the Bank will waive the
Additional Loan Fee. In the event that the Bank, in its sole and absolute
discretion, increases the amount of the Commitment at any time after May 15,
1999, the Additional Loan Fee actually paid by the Borrowers to the Bank will
be credited against any additional fees charged by the Bank in connection
with such increased Commitment.
5. MISCELLANEOUS.
5.1 All references in the Loan Agreement and in
any other Loan Document to the "Loan Agreement," "this Agreement," the "Note"
and/or "Loan Documents" (or words of similar import) shall be deemed a
reference to the Loan Agreement as amended by this Amendment and/or shall
include the Amendment to the Note to be executed by the Borrowers pursuant to
Section 3.1.2 hereof, as the case may be.
5.2 Except as expressly modified, amended or
restated by this Amendment, all of the terms and conditions of the Loan
Agreement, as so modified or amended and the additional Loan Documents shall
remain in full force and effect.
5.3 This Amendment may be executed in one or more
counterparts, each of which shall constitute an original Amendment, but all
of which together shall constitute one and the same instrument.
5.4 This Amendment and the other documents
referred to herein are intended by the Borrowers and the Bank to be the
final, complete and exclusive expression of the agreement between them. This
Amendment supersedes any and all prior oral or written agreements relating to
the subject matter hereof.
5.5 Whether or not the transactions contemplated
herein shall be consummated, the Borrowers jointly and severally agree to pay
all costs incurred by or on behalf of the Bank in connection with the
transactions hereby contemplated (including, without limitation, the
performance of any due diligence by the Bank) and the preparation,
negotiation, execution, delivery, waiver, Modification and/or administration
of this Amendment, the Note and any other documentation contemplated hereby
or thereby, the making of additional Advances and/or the enforcement or
protection of the rights of the Bank in connection therewith, including,
without limitation, any internally allocated audit costs and the fees and
disbursements of Mitchell, Silberberg & Knupp LLP, counsel to the Bank.
5
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this
Amendment as of the date first above written.
IMPERIAL BANK,
a California banking corporation
By: /S/ PATRICK JACK LEE
---------------------------------
Patrick Jack Lee, Vice President
UNAPIX ENTERTAINMENT, INC.,
a Delaware corporation
By: /S/ DANIEL T. MURPHY
---------------------------------
Its: TREASURER
MIRAMAR IMAGES, INC.,
a Washington corporation
By: /S/ DANIEL T. MURPHY
---------------------------------
Its: TREASURER
6
<PAGE>
EXHIBIT
21.1
<PAGE>
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION
------------------ ----------------------
<S> <C>
Green Leaf Advertising Company, Inc. New York
Abacus Films Ltd. New York
Unapix Films, Inc. New York
Unapix Productions West California
Unapix Syndication, Inc. New York
Fresh Development, Inc. Delaware
Unapix Direct Media, Inc. New Jersey
Green Leaf Advertising Company, Inc. New York
Miramar Images, Inc. Washington
(doing business as Unapix Home Entertainment)
</TABLE>
<PAGE>
EXHIBIT
23.1
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in (i) the Post-Effective
Amendment No. 2 on Form S-3 to the Registration Statement on Form SB-2, File No.
33-61798, (ii) the Registration Statement on Form S-3, File No. 33-83186, (iii)
the Registration Statement on Form S-8, File No. 33-86080, (iv) the Registration
Statement on Form S-3, File No. 33-80019, (v) the Registration Statement on Form
S-3, File No. 333-29635, (vi) the Registration Statement on Form S-3, File No.
333-51853; and (vii) the Registration Statement on Form S-3, File No. 333-63235
of our report dated April 1, 1999 except for Note 4, as to which the date is
April 12, 1999, on the consolidated financial statements of Unapix
Entertainment, Inc. and subsidiaries included in its Annual Report on Form
10-KSB for the year ended December 31, 1998.
/s/ Richard A. Eisner & Company, LLP
New York, New York
April 14, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1707
<SECURITIES> 0
<RECEIVABLES> 20877
<ALLOWANCES> 1909
<INVENTORY> 2978
<CURRENT-ASSETS> 0
<PP&E> 1037
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<TOTAL-ASSETS> 65883
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0
5
<COMMON> 76
<OTHER-SE> 24690
<TOTAL-LIABILITY-AND-EQUITY> 65883
<SALES> 0
<TOTAL-REVENUES> 36481
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<OTHER-EXPENSES> 12685
<LOSS-PROVISION> 333
<INTEREST-EXPENSE> 1248
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