<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-----------------
Commission File Number 1-7708
MARLTON TECHNOLOGIES, INC.
--------------------------
(Name of small business issuer as specified in its charter)
New Jersey 22-1825970
- ------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
2828 Charter Road, Suite 101, Philadelphia, Pa 19154
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (215) 676-6900
--------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class: Name of each exchange:
- -------------------- ---------------------
Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Exchange Act: None
----
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
------- -------
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB. X
------
Issuer's revenues for its most recent fiscal year: $38,315,600
The aggregate market value of the voting stock held by non-affiliates of the
Issuer at March 21, 1997 was $15,142,818. As of March 21, 1997, there were
4,748,250 shares of Common Stock, $.10 par value, of the Issuer outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The following materials contained in the
following documents are hereby incorporated by reference into this Form 10-KSB.
(i) Information from the Issuer's definitive proxy statement for the 1997 Annual
Meeting of Shareholders, involving the election of directors, has been
incorporated by reference in Part III - Items 9, 10, 11 and 12.
(ii) Information from the Issuer's Registration Statement on Form S-8, File No.
33-3647, has been incorporated by reference in Part III - Item 13(a)(3)(a)(i).
(iii) Information from the Issuer's Supplement to Proxy Statement dated June 6,
1990 has been incorporated by reference in Part III - Item 13(a)10(a).
Transitional Small Business Disclosure Format Yes No X
------- -------
Exhibit Index Appears on Page 17 Page 1 of 104
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
Marlton Technologies, Inc. (the "Issuer" or "Company") was incorporated as a New
Jersey corporation in 1966. The Issuer's business was related to computerized
electronic telecommunication systems until 1988, when it sold substantially all
of its operating assets.
On August 7, 1990, the Issuer acquired the business of Sparks Exhibits Corp.
("Sparks"). Sparks custom designs and manufactures sophisticated trade show
exhibits, displays, architectural and museum interiors, graphics and signage,
provides trade show services and designs and sells portable exhibits. During the
fourth quarter of 1990, the Issuer acquired the accounts and assets of the trade
exhibit division of a competitor and also established a portable exhibits group.
The Issuer subsequently formed (i) Sparks Exhibits, Inc. ("Exhibits") during
July 1991 in the Atlanta, Georgia area, (ii)Sparks Exhibits, Ltd. ("Limited")
during July 1992 in the San Diego, California area, and (iii) Sparks Exhibits
Incorporated ("Incorporated") during December 1992 in the Orlando, Florida area,
in each case by acquiring the assets of trade show exhibit manufacturing
companies. During August 1993, the rights and related business assets to a
panelized portable trade show exhibit owned by Limited were transferred to a 51%
Issuer -owned subsidiary, Expose Display Systems , Inc. ("EDSI"), with the
manufacturing and distribution facilities moved to Los Angeles, California
during March 1994. During April 1996, the Issuer acquired the stock of Piper
Productions, Inc. ("Piper") in Orlando, Florida. Piper produces business
theater, theme park attractions, themed interiors, theatrical scenery and
special effects. Currently all of the Issuer's operating revenues are derived
from Sparks, Exhibits, Limited , Incorporated (collectively, the "Sparks
Companies"), EDSI and Piper.
Business of Issuer
Products and Services:
The Sparks Companies custom design and manufacture sophisticated trade show
exhibits, displays, architectural and museum interiors, graphics and signage,
provide trade show services, and sell portable exhibits. EDSI produces and
distributes a line of panelized portable exhibits. Piper is a theatrical
construction company that specializes in the manufacture of scenery for live
shows, television, theme park attractions, themed interiors and themed trade
show exhibits. Clients include industry, government, museum, theme park
companies and commercial establishments. Graphics and industrial designers
develop and manage custom design requirements from concept through final
construction, employing sophisticated computer-aided design software and
hardware. Complete graphics facilities provide full in-house dark room
capabilities, silk-screening, and state of the art computerized design/graphics.
Electronics and audiovisual capabilities include on-staff electronic
specialists, consultants, and vendor relationships which provide multi-media
equipment and programs, fiber-optic technology, laser disk video interactive
program production, video and computer games, simulators, and
1
<PAGE>
Business of Issuer - (continued)
customized software and hardware applications. The Sparks Companies are full
service exhibit houses, providing show service coordination, freight
coordination, refurbishing, storage and marketing literature distribution. Many
clients are Fortune 1000 firms, who typically contract for custom trade show
exhibit projects in excess of $100,000. Additionally, a majority of these
clients store their exhibits at a Sparks Company facility, where ongoing
refurbishing and coordination of clients' trade show schedules are provided. The
Sparks Companies also represent domestic clients who desire to exhibit at
international trade shows. The Sparks Companies design such exhibits, and,
through an international network of independent exhibit manufacturers, arrange
for the manufacture and delivery of trade show exhibits to the desired trade
show. The Sparks Companies also design and manufacture trade show exhibits for a
number of United States subsidiaries of foreign corporations, for use in
domestic trade shows. In 1992, Limited began to produce and distribute panelized
portable exhibits known as "Expose", through a network of predominantly U.S.
portable exhibit dealers, including the Sparks Companies and unaffiliated
dealers. Since August 1993, EDSI has assumed responsibility for this portable
exhibit production and distribution.
Marketing and Distribution:
Sales by the Sparks Companies to domestic customers for both domestic and
foreign trade shows and sales by Piper to domestic customers are solicited
primarily through internal marketing groups. Purchase of sophisticated exhibit
products usually involves a substantial dollar commitment by the customer as
significant expertise is required to properly meet the customer's needs. Sales
personnel are required to be knowledgeable with respect to the design and
manufacturing of sophisticated exhibit products as well as complying with
internal profitability requirements. In addition to the sales personnel, senior
officers devote substantial time and effort to sales and marketing activities.
EDSI's panelized portable exhibits are marketed by EDSI's minority shareholder,
Abex Display Systems, Inc. ("ADSI"), to retail portable exhibit dealers by
direct solicitation, media advertising and participation in trade shows for the
portable exhibit industry.
Manufacturing and Raw Materials:
The Sparks Companies design, develop and manufacture custom trade show exhibits
utilizing an in-house staff of designers, carpenters, electricians and
warehousemen. Specialty items such as steel work and studio production are
subcontracted. The Sparks Companies also subcontract the manufacture of exhibits
for foreign trade shows. The Sparks Companies coordinate shipping, exhibit
set-up and removal at the customer's trade show and, in most cases, subsequently
store the exhibit for the customer. Piper Productions' manufacturing comprises
various technical and artistic disciplines. Piper employs scenic carpenters and
metal workers to fabricate scenery which is painted by skilled scenic artists.
Raw materials for custom, scenic and portable exhibits, as well as subcontractor
work, are readily available from various vendors. Patents, trademarks and
licenses are not important to operations. The Philadelphia operations are the
only unionized facility, with a three-year labor contract expiring June 30,
1998. Portable exhibit configurations,
2
<PAGE>
Business of Issuer - (continued)
together with graphics and signage, are typically designed by the Sparks
Companies for a client. Portable exhibits are produced by EDSI, in the case of
Expose, or are purchased from unrelated manufacturers for resale. Graphics and
signage may be produced internally or subcontracted. Geographic distribution
rights are typically granted by portable exhibit manufacturers based on annual
sales volume levels. The Sparks Companies have obtained such distribution rights
from their primary sources of portable exhibits, and other portable exhibit
dealers have been granted such distribution rights with regard to Expose.
Amounts spent by EDSI during each of the last three years on the development of
new products, including the required machinery, equipment and tooling to
manufacture and produce the products approximates $325,000, $144,000 and
$104,000, during 1996, 1995 and 1994 respectively. Other than previously
described, the Company made no material disbursements during each of the last
three fiscal years for research and development activities.
Seasonality of Business:
Trade shows traditionally occur regularly throughout the year with the exception
of the third quarter when business to business trade shows are historically at a
low point. The Sparks Companies' business has also been of a seasonal nature due
to the fact that trade show activities in specific industries, such as health
care and telecommunications, are a function of the seasonal show schedules in
such industries. The Sparks Companies have embarked on a program to seek new
clients and sales people with client bases in different industries to reduce the
effects of the slower sales period. Additionally, the Issuer is now offering
other products and services, such as sales of scenic and themed exhibits,
portable exhibits and permanent exhibits which are less seasonal in nature.
Working Capital:
The Sparks Companies', Piper's and EDSI's working capital requirements are
fulfilled by funds generated through operations, bank term loans and revolving
credit facilities. Working capital requirements are not affected by project size
requirements or accelerated delivery for major customers due to general policies
of progress billing on larger jobs. Additionally, the Sparks Companies, Piper
and EDSI do not require continuous allotments of raw materials from suppliers
and do not generally provide extended payment terms to customers other than
lease and purchase arrangements with credit-worthy customers, not exceeding
terms of three years.
Significant Customers:
During 1996 and 1995, no individual customer accounted for at least 10% of
consolidated net sales.
3
<PAGE>
Business of Issuer - (continued)
Backlog:
The Sparks Companies', Piper's and EDSI's backlog of orders at December 31,
1996, and 1995 was approximately $8,500,000 and $6,200,000, respectively. The
entire current backlog relates to expected 1997 sales. The Sparks Companies,
Piper and EDSI maintain a client base from which new orders are continually
generated, including refurbishing of existing exhibits stored in Sparks
Companies' facilities. There are also a significant amount of Sparks Companies
and Piper proposals outstanding with current and prospective clients. Sales for
the Sparks Companies routinely occur during the period immediately preceding
customer trade shows.
Competition:
The Sparks Companies and Piper compete with other companies offering similar
products and providing similar services on the basis of price, quality,
performance and client-support services. The custom trade show exhibit, scenic
and themed exhibit, and permanent exhibit manufacturing market and portable
exhibits sales market include a large number of national and regional companies,
some of which have substantially greater sales and resources than the Sparks
Companies and Piper. In addition to their Philadelphia, Atlanta, San Diego and
Orlando manufacturing facilities, the Sparks Companies and Piper utilize their
national and international affiliations and relationships to meet customers
needs in other geographic areas. EDSI competes primarily with other
manufacturers of portable exhibits, some of which have substantially greater
operating histories, sales and resources than EDSI. Due to the lack of specific
public information, the Sparks Companies', Piper's and EDSI's competitive
position is difficult to ascertain.
Environmental Protection:
The Sparks Companies', Piper and EDSI's compliance with Federal, state and local
provisions regulating discharge of materials into the environment or otherwise
relating to the protection of the environment has not had and is not expected to
have a material effect upon their capital expenditures, earnings, and
competitive position.
Employees:
The total number of persons employed by the Issuer is approximately 240 of which
235 are full-time employees.
4
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Issuer currently leases five facilities as follows:
<TABLE>
<CAPTION>
Location Square Footage Purpose
-------- -------------- -------
<S> <C> <C>
Philadelphia, PA 235,000 Office, showroom, warehouse & manufacturing
Austell, GA 81,000 Office, showroom, warehouse & manufacturing
El Cajon, CA 80,000 Office, showroom, warehouse & manufacturing
Orlando, Florida 45,000 Office, warehouse & manufacturing
Huntington Beach, CA 500 Custom exhibits sales office
</TABLE>
Additionally, EDSI operates in approximately 60,000 square feet of office,
showroom, warehouse and manufacturing space within the minority shareholder's
North Hollywood, California facility.
The Sparks Companies' and Piper `s office, showroom, warehouse and
manufacturing facilities were all in good condition and adequate for 1996, based
on normal five-day operations, and are adequate for 1997 operations, including
any foreseeable internal growth. The Issuer does not anticipate any difficulty
in acquiring additional space, if necessary.
ITEM 3 LEGAL PROCEEDINGS
The Issuer is not involved in any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1996 to a vote of
security holders.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table shows the high and low sales prices of the Common Stock, par
value $.10 per share, of the Issuer on its principal market, the American Stock
Exchange:
1996 1995
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
1 2-1/2 1-1/4 $1-1/8 $ 7/8
2 3-1/2 1-5/8 2-1/8 1
3 5-1/4 2-5/8 2 1-1/2
4 4-11/16 3-7/16 1-3/4 1-3/16
5
<PAGE>
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS,
continued
No dividends were paid during the past two fiscal years. The Issuer
currently intends to employ all available funds in the business. Future dividend
policy will be determined in accordance with the financial requirements of the
business. The Sparks' Companies bank loan agreements provide that they cannot
distribute to the Issuer funds other than (i) an amount equal to the estimated
tax benefit realized from utilization of the Issuer's net operating losses, and
(ii) a management fee. Unless waived, these restrictions will limit the Issuer's
ability to pay dividends.
As of March 21, 1997, there were 1,116 holders of record of the Issuer's common
stock.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS
General Overview
On August 7, 1990, Marlton Technologies, Inc. (the "Company") acquired the
current business of Sparks Exhibits Corp. ("Sparks"), as described in Note 2 of
the consolidated financial statements. Through this acquisition, the Company's
core business became the custom design, manufacture and sale of sophisticated
trade show exhibits, displays, signage and graphics for clients in industry,
government, consumer electronics, athletic goods, healthcare, telecommunications
and other specialized fields.
During the fourth quarter of 1990, Sparks purchased certain assets, principally
customer lists, from DCA, Inc., a custom trade exhibit business. Additionally,
Sparks formed a portable exhibits group, which distributes affiliated and
non-affiliated manufacturers' portable exhibit products, in an effort to expand
its market to include both high-end (custom exhibits) and lower price point
(portable exhibits) products. During July 1991, a wholly-owned subsidiary of
Sparks, Sparks Exhibits, Inc. ("Exhibits") acquired assets from two unrelated
custom exhibit businesses in suburban Atlanta, Georgia.
During 1992 the Company, through two newly-formed wholly-owned subsidiaries,
Sparks Exhibits, Ltd. ("Limited") and Sparks Exhibits Incorporated
("Incorporated"), acquired assets, respectively, from a custom and portable
exhibit manufacturing business in suburban San Diego, California and a custom
exhibit business in Melbourne, Florida.
During July 1993, the Company and an unrelated portable exhibit manufacturer,
Abex Display Systems, Inc. ("ADSI"), entered into an agreement to organize a new
corporation, Expose Display Systems, Inc. ("EDSI") to manufacture and market the
Company's proprietary panelized portable exhibit - Expose - through ADSI's
worldwide distribution network.
6
<PAGE>
General Overview, continued
During March 1995, the Company and a Japan-based diversified manufacturing and
marketing company, Tsubasa System Company Ltd. ("Tsubasa") entered into an
agreement to organize a new Japanese corporation, Sparks Exhibits Japan ("SEJ"),
and grant exclusive Japan distribution rights to SEJ for the Company's portable
exhibits products and technology and to license the name and logo of "Sparks
Exhibits" in Japan. See Note 3 of the consolidated financial statements.
During April 1996, the Company acquired Piper Productions, Inc. ("Piper") of
Orlando, Florida which produces business theater, theme park attractions, themed
interiors, theatrical scenery and special effects. The acquisition of Piper
enhances the Company's ability to pursue exhibit opportunities within Piper's
areas of expertise. See Note 2 of the consolidated financial statements.
Management's aggressive growth plan, since the August 1990 acquisition of
Sparks, has resulted in the dramatic expansion of the Company's client base, the
development of new business groups for expansion of its products and services,
and the extension into major geographic markets in the United States and
internationally. Management believes the acquisitions and the continuing
development of the new business groups will position the Company to increase its
revenue base through the continued offering of expanded products and services to
a larger customer network.
7
<PAGE>
RESULTS OF OPERATIONS
1996 As Compared with 1995
Sales
Revenues for 1996 of $38.3 million, represents a 38.5% increase over 1995
revenues of $27.7 million. The $10.6 million increase during 1996 over 1995
revenues was attributed to sales increases from all business groups except
Portable sales. Additionally, the April 1996 acquisition of Piper generated
approximately $3.4 million of new sales volume during 1996.
1996 1995
---- ----
Custom exhibits group $19,953,000 $17,063,000
Museum and production group 3,970,000 2,816,000
Piper scenic group 3,407,000 --
International group 3,364,000 2,252,000
Expose, net of intercompany sales 3,095,000 2,129,000
Portable sales 2,866,000 3,179,000
Rental group 1,661,000 233,000
----------- -----------
Total revenues $38,316,000 $27,672,000
=========== ===========
The largest percentage increase in 1996 revenues as compared with 1995 revenues
were experienced by the Rental group (613%) which completed its first full year
of operations during 1996. The International group and the Museum and
productions group experienced 49% and 41% increases, respectively, primarily due
to their start-up growth and the Company's investments and marketing efforts
since 1993. Revenues from the Company's joint venture, Expose', experienced a
45% revenue increase during 1996 over 1995 due to the increased acceptance of
the Expose' product line by ADSI's national distribution network and the 1996
introduction of Expose' LS (laminate system) into the marketplace. The 17%
increase in 1996 revenues as compared with 1995 revenues from the Company's core
business - Custom exhibits group - reflects the Company's continuing client-base
expansion. This increase, however, was experienced only in the Philadelphia and
San Diego facilities, where 1996 revenues exceeded 1995 revenues in those
facilities by 35%. The Atlanta and Florida facilities experienced a 29% decline
in core business revenues during 1996 as compared with 1995, predominantly due
to less work being transferred into those two facilities by the Philadelphia
location during 1996. Accordingly, management consolidated the Melbourne,
Florida facility into the Orlando-based Piper Productions facility during
January 1997. Additionally, management continues to seek experienced custom
exhibit account executives with existing client bases for the Company's Atlanta
facility. If revenues can be increased in the Atlanta facility then its
operating profits should also increase due to higher operating efficiencies and
absorption of fixed overhead costs.
8
<PAGE>
Sales, continued
Portable sales experienced a 10% reduction in 1996 sales as compared with
1995. This reduction is a result of the Company's decision to eliminate the
stand-alone Portable sales offices in Harrisburg, PA and Wayne, NJ during the
fourth quarter of 1996. The $3.4 million of 1996 revenues generated by Piper
accounted for approximately one-third of the company's 1996 increase in sales
volume as compared with 1995.
Operating Profits
The Company recorded an 82% (approximately, $600,000) increase in
operating profits during 1996 as compared with 1995. The 1996 gross profit
percentage decreased marginally from a 1995 gross profit percentage of 28.8% to
28.1% during 1996. This decrease was primarily due to the higher 1996 sales from
the business groups which historically generate lower gross margins (Museum and
Rental groups) in addition to the $3.4 million of sales from Piper, whose gross
margins are similar to the Museum group's historic margin levels. The 1996
selling costs, $1.7 million higher as compared with the same period during 1995,
were attributed primarily to sales commissions on the higher revenues and
increased sales and marketing costs in connection with the development of the
Company's three-year strategic marketing plan, to be implemented during 1997.
However, as a percentage of sales, selling costs were approximately one-half
percent lower during 1996 as compared with 1995. General and administrative
costs, as a percentage of sales, decreased approximately 1.3% during 1996 as
compared with 1995. The higher sales levels and related gross profits more than
offset the increased selling and general and administrative costs, contributing
to the $600,000 increase in 1996 operating profits as compared with 1995
operating profits. Piper sales of $3.4 million contributed gross profit levels
consistent with management's expectations during its initial nine months of
operations. Management's cost reduction policies and procedures positively
impacted Piper's operating profits during 1996.
Operating profits related to the Expose' product during 1996 remained
consistent with 1995 operating profits. While there was a 45% increase in 1996
revenues over 1995 revenues, the operating profit margin decreased during 1996
as compared with 1995, from 6.6% to 4.5%. Pursuant to the July 1993 agreement
with ADSI, the minority partner in EDSI, contractual cost allocations from ADSI
to EDSI increase as sales from the Expose' products become a larger percentage
of ADSI's overall sales to its distribution network. Accordingly, while EDSI
sales increase, so to do the allocated fixed, selling and administrative costs;
which has a direct impact on EDSI's operating results. Additionally, EDSI
incurred higher expenses during 1996 in connection with the introduction of its
newest product line, Expose' LS.
During the fourth quarter of 1996, management closed the two
stand-alone Portable sales offices due to their consistently marginal returns
and the fixed costs associated with maintaining separate showrooms away from the
Company's manufacturing facilities. Operating profits for 1996 for this group
fell $30,000 when compared with 1995 operating profits, after charging-off
certain selling and administrative costs associated with the closing of those
two offices.
9
<PAGE>
Other Income (Expense):
Other income increased by approximately $1,368,000 during 1996 as
compared with 1995. This increase is attributed to the $1,200,000 gain the
Company recorded during 1996 in connection with the contractual amendment more
fully described in Note 3 to the consolidated statements. Net interest income
improved by $124,000 during 1996 as compared with 1995 due to larger cash
reserves available for investment. Other items generated a $46,000 positive
swing during 1996 as compared with 1995 other items.
Income Taxes:
The provision for income taxes, as a percentage of income before taxes,
increased to 13% during 1996. The provision incorporates federal, state and
local income taxes of approximately $350,000 as compared with an income tax
benefit of $538,000 during 1995. This increase is due to higher 1996 taxable
income and a smaller effective tax rate benefit resulting from the release of
valuation allowances.
Net Income:
During 1996, net income increased to $2,340,153 ($.45 per share) as
compared with 1995 net income of $1,252,814 ($.32 per share). The dramatic
increase, however, is partially attributable to the 1996 gain from the
contractual amendment of $1,200,000. Exclusive of the effects of this gain,
earnings per share for 1996 increased 70%, or $.07 per share ($.017 during 1996
as compared with $.010 during 1995) as follows:
1996 1995
---- ----
Pre-tax net income $2,690,153 $ 714,814
Gain from contract amendment (1,200,000) -
----------- ----------
1,490,153 714,814
Adjusted tax rate 41% 43%
Tax provision ( 611,000) ( 307,000)
----------- ----------
Net income, as adjusted $ 879,153 $ 407,814
=========== ==========
Primary shares outstanding 5,233,748 3,935,700
Net income per common share $0.17 $0.10
===== =====
This increase includes the dilutive effect of issuing 500,000 additional shares
of the Company's common stock during the first quarter of 1996 in connection
with the contract amendment.
Backlog:
The Company's backlog of orders at December 31, 1996 was approximately
$8.5 million as compared with approximately $6.2 million as of December 31,
1995. This significant increase is attributable to a backlog of new orders
generated through the Museums and International groups, EDSI and Piper and from
experienced account executives with established client bases in the Company's
core business - Custom exhibits group.
10
<PAGE>
1995 As Compared With 1994
Sales
Revenues for 1995 of $27,672,000 represented a 12.4% increase over 1994 revenues
of $24,613,000. The $3.0 million 1995 increase over 1994 was attributed to sales
increases from all business groups.
1995 1994
----------- ----------
Custom exhibits group $17,063,000 $16,155,000
Portable sales 3,179,000 3,001,000
Museum and productions group 2,816,000 1,936,000
International group 2,252,000 1,857,000
Expose, net of intercompany sales 2,129,000 1,664,000
Rental group 233,000 -
----------- ----------
Total revenues $27,672,000 $24,613,000
=========== ===========
The largest percentage increases in 1995 revenues as compared with 1994 revenues
were experienced by the Museum and production group, the Expose' joint venture
and the International group - 45%, 28% and 21%, respectively. 1995 sales from
the Custom exhibit group and Portable sales increased over 1994 sales by
approximately 7% and 6%, respectively. The dramatic 1995 percentage increases
experienced in the Museum and productions group, the International group and the
Expose' joint venture are results of these business groups start-up growth and
the Company's investments and marketing efforts since 1993. The respective 7%
and 6% increases experienced during 1995 by the Company's core business in
Custom exhibits and Portable sales reflects the impact of lower marketing
budgets of Fortune 1000 customers which were offset by the Company's client-base
expansion during 1995.
Operating Profits
The Company experienced a 40% increase in 1995 operating profits as compared
with 1994 operating profits. The 1995 operating profit increase was attributed
to the following areas.
A significant 1995 increase of $1.3 million revenues from the Museum and
production group and the International group over 1994 revenues assisted in
increasing the operating profits of the facilities in Atlanta, San Diego and
Melbourne, Florida; with San Diego experiencing the largest 1995 sales
percentage increase over 1994 sales, 85%.
Total sales revenues for the three facilities during 1995 approximated $9.5
million as compared with $6.0 million during 1994, a 58% increase. The
Philadelphia location, however, experienced a 1995 revenue shortfall of $1.1
million as compared with 1994 revenues. This decrease is primarily a result of
work transferred from the Philadelphia location to the Atlanta and Florida
facilities during 1995. However, the Philadelphia location's operating profits
increased by
11
<PAGE>
Operating Profits, continued
virtue of fixed cost controls and the higher gross margins achieved on its
overall sales volume. The gross profit percentage increased from 27.9% to 28.8%
during 1995. This increase is attributed to overall operating efficiencies and
absorption of fixed overhead costs realized by all locations from the higher
sales volume as well as a significantly higher contribution from EDSI during
1995. Selling and administrative costs, as a percentage of overall sales,
increased marginally, by 1/2%, during 1995 as compared with 1994. This increase
is primarily due to the Company's continuing marketing investments in the
Expose' business group.
Revenues from the Expose' business group increased approximately $465,000 during
1995 which contributed to a significant increase in operating profits. While
1994 sales levels were sufficient to absorb the fixed overhead, selling and
administrative costs incurred during that year, they were only sufficient to
generate a marginal operating profit during 1994. However, the higher 1995 sales
levels were sufficient to absorb higher 1995 fixed, selling and administrative
costs and to generate significantly higher operating profits during 1995.
Additionally, the reduction of direct costs related to the main component of the
Expose' product positively impacted this group's operating margins during 1995.
Portable sales experienced a modest 6% sales increase during 1995 as compared
with 1994. However, this business group increased its selling and administrative
support costs during 1995 to meet the demand for customized exhibits utilizing
standard portable exhibit components. The effect of the increased overhead
during 1995 within this group reduced 1995 operating profits as compared with
1994.
Other Income (Expense)
Other income decreased by approximately $173,000 during 1995 as compared with
1994. This decrease is predominantly attributed to the $250,000 gain the Company
recorded during the first quarter of 1994 in connection with an insurance
settlement for certain claims. See Note 4 to the consolidated financial
statements.
Interest income during 1994 is net of principal declines for cash and cash
equivalent investments in certain U.S. government and liquid bond funds.
Interest income during 1995 did not include any principal declines. As a result,
interest income during 1995 was approximately $81,000 higher when compared to
1994.
Interest expense decreased marginally during 1995 when compared to 1994. Other
income decreased during 1995 as compared with 1994 primarily due to recording
the minority interest in EDSI's 1995 profit of $42,256 as compared with the 1994
loss of $16,837. Also included in other income is a $33,367 gain recorded during
1995 by the Company on the sale of a stock investment previously written-off.
12
<PAGE>
Income Taxes
The Company recorded an income tax benefit of approximately $538,000 during
1995, net of an income tax provision for current federal, state and local taxes
approximating $66,000. This deferred income tax benefit is due to the release of
valuation allowances based on the Company's current evaluation of the future
utilization of its net operating loss carryforward. During 1994, the effect of
releasing the valuation allowances was to generate a tax provision approximating
28% of income before incomes taxes. See Note 14 to the consolidated financial
statements.
Net Income
Net income for 1995 increased to $1,252,814 ($.32 per share) as compared with
1994 net income of $486,794 ($.14 per share). A substantial portion of 1995 net
income is attributable to the $538,000 ($.14 per share) net income tax benefit
as a result of the releasing of valuation allowances, more fully described
above. Additionally, during 1994, net income of $486,794 included a $250,000
($180,000 net of income taxes; $.05 per share) gain from an insurance
settlement. Net income, during 1994, exclusive of the insurance gain was
$306,794 ($.08 per share) as compared with 1995 net income of $514,667 ($.13 per
share), utilizing a comparative income tax provision rate of 28%, as utilized
during 1994. Comparatively, 1995 net income increased approximately 68% over
1994.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company increased its cash reserves by $2,271,404;
from $1,028,606 to $3,300,010. This significant increase in the Company's cash
reserves is predominantly attributed to the transaction described in Note 3 to
the consolidated financial statements.
As a result of the record sales levels and an increased backlog at
December 31, 1996 the Company experienced an increase in its trade accounts
receivable and work in process approximating $2.9 million. This increase was
offset by a $2.8 million increase in accounts payable and other accrued
expenses, primarily as a result of a $1.0 million increase in trade payables
related to the higher December 31, 1996 inventory level, a $700,000 increase in
accrued compensation and a $713,000 increase in accrued costs associated with
the contract amendment described in Note 3 to the consolidated financial
statements.
During 1996, the Company invested approximately $575,000 in
revenue-producing rental assets to accommodate an increasing market for rental
exhibits. Accordingly, the Rental group increased its 1996 revenues by $1.4
million over 1995 rental revenues. These assets should be used repeatedly to
accommodate future customer rental requirements and generate a return on the
Company's invested capital.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES, continued
The Company expended approximately $900,000 during 1996 for the
following assets; $300,000 for data processing and CAD equipment, $150,000 for
machinery and equipment, and $150,000 for other capital assets. Additionally,
EDSI, the Company's 51% owned portable exhibit company, invested approximately
$300,000 for Expose' LS (a newly-developed and marketed laminated modular
exhibit system) tooling and dies.
During 1996, the Company borrowed and repaid up to $503,000 under
its revolving credit facility to support increased trade receivables and
operating cash flow requirements; as of December 31, 1996, there were no
borrowings under this facility. Additionally, the Company repaid outstanding
term debt of approximately $406,000 during 1996.
The Company's December 31, 1996 current ratio and debt to equity
ratios remained constant, at 1.7 to 1 and .6 to 1, on December 31, 1996 as
compared with December 31, 1995, respectively.
OUTLOOK
The record sales volume of $38.3 million greatly contributed to the higher
operating profits the Company experienced during 1996. The Company expects
continued sales growth in all business groups during 1997 except from Portable
sales which closed two sales offices during the fourth quarter of 1996. This
reduction in Portable exhibit sales, however, should positively impact 1997
operating results due to a reduction in fixed costs associated with that
business group's expected sales volume during 1997. The Company's expected sales
volume and operating profits during 1997 should also be enhanced by the full
year impact of revenues from the April 1996 acquired Piper. The Piper
acquisition, consistent with the Company's strategic plan for growth, expands
the scope of products and services offered by the Company and compliments the
core business by allowing contracts, previously awarded to unaffiliated
suppliers, to remain within the consolidated group. This factor gives the
Company a greater competitive edge in its core business as well as providing new
opportunities within the expanding theme park and themed interiors marketplace.
Significant sales growth from the Museum and productions group, the
International group and the Rentals group should compliment expected sales
growth in the Company's core Custom exhibits group. The Company's historic gross
profit percentages may be difficult to maintain in light of the expected
increase in 1997 sales volume from the Museum and production group, the Rental
group and Piper, whose historic margins fall below traditional custom exhibit
margins. Additionally, the Company's core business client base of Fortune 1000
companies are more tightly managing their marketing budgets which may negatively
impact the Company's historic custom exhibit margins. The expected higher
revenues and gross profits from the Museum, International, Rental and Piper
groups, when coupled with the custom exhibit group's expected sales volume and
gross profit increase, should enhance the Company's 1997 operating profits by
aiding the Philadelphia, Atlanta and San Diego facilities to generate more
consistent operating efficiencies.
14
<PAGE>
OUTLOOK, continued
Sales volume from the Company's majority-owned EDSI should also exceed 1996
revenues as the expanded Expose' product lines become more widely accepted
through the minority partner, Abex Display Systems, Inc.'s, distributor network.
Operating results from this business group should also improve during 1997 if
contractual fixed, selling and administrative cost allocations from the minority
partner do not outpace the gross margins achieved from the expected additional
sales volume.
The Company is continuing its fourth quarter 1996 commenced project of replacing
its existing management information systems hardware and software with
state-of-the-art technology which should position the organization to
effectively meet the changing environment of information processing among its
clients and suppliers. Additionally, the new technology should greatly increase
operating efficiencies between the Company's four regional manufacturing
facilities as information should be processed and managed more seamlessly.
Accordingly, the Company has recently hired a Director of Management Information
Systems to guide the Company in its acquisition and utilization of new hardware
and software, with an overall project budget approximating $400,000. The Company
is hopeful that this necessary investment in technology will assist it in
minimizing the need for additional support personnel as sales growth continues.
Management is encouraged by the Company's overall performance during 1996 and
realizes certain areas will require additional attention and resources during
1997. While the Company's San Diego operation continues to build upon its
progress from 1995 and 1996, the Company will seek additional account executives
for that region to ensure positive trends in sales and operating profits during
1997 and beyond. Conversely, the Atlanta operation continues to perform below
expectations. While management is encouraged by the contributions made by the
Rental group in the Atlanta facility during 1996, the Company's core custom
exhibits group continues to suffer from an insufficient Atlanta client base to
support the fixed costs of that operation, becoming increasingly dependent upon
the transfer of custom exhibit work from the Philadelphia, San Diego and Orlando
facilities. During 1997, the Company will focus on hiring experienced sales
executives with an existing base of custom exhibit clients to contribute the
additional sales volume which will assist in stabilizing the Atlanta operation.
Sparks Japan positively impacted 1996 operating margins through limited
production by EDSI and the Sparks Companies of certain exhibit products for
Sparks Japan clients. However, portable, modular exhibit sales in the Japan
marketplace are relatively new, requiring significant time and effort to
introduce their products to Japanese exhibitors who have traditionally built and
scrapped their exhibits for each trade show. Portable, modular exhibits,
successfully marketed in the United States, can provide the Japanese exhibitor a
large assortment of design capabilities while simultaneously offering
reconfigurability and reusability for their future trade shows. Additionally,
these portable, modular exhibits provide the Japanese exhibitor an alternative
to the environmentally-unfriendly practice of exhibit disposal. Any increase in
Sparks Japan sales volume should likely benefit the sales volume of EDSI since
Sparks Japan features the Expose' product line in most of its sales efforts.
15
<PAGE>
During 1996, Company managers developed a three year strategic marketing plan
to be implemented during 1997. This strategic marketing plan includes growth
opportunities within the Company's industry and marketing goals and operational
support requirements to insure client satisfaction. This plan will be
continually developed and modified to support the Company's mission to become
the global leader in creative solutions for trade shows, permanent exhibitry and
themed and theatrical construction.
The Company's balance sheet which includes strong current and debt to equity
ratios as well as cash flow from operations, is postured to support growth and
investment in opportunities which could be translated into higher shareholder
value. By meeting the challenges outlined above, maintaining the highest
standards for product quality and customer service and aggressively seeking
acquisition possibilities within industries which meet management's financial
and synergy requirements, the Company will be positioned to meet and take
advantage of future opportunities.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. In connection with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 there
are certain important factors that could cause the Company's actual results to
differ materially from those included in such forward-looking statements. Some
of the important factors which could cause actual results to differ materially
from those projected include, but are not limited to: the Company's ability to
continue to identify and complete strategic acquisitions to enter new markets
and expand existing business; continued availability of financing to provide
additional sources of funding for future acquisitions, capital expenditure
requirements and foreign investments; the effects of competition on products and
pricing, growth and acceptance of new product lines through the Company's sales
and marketing programs; changes in material prices from suppliers; uncertainties
regarding accidents or litigation which may arise in the ordinary course of
business; and the effects of, and changes in the economy, monetary and fiscal
policies, laws and regulations, inflation and monetary fluctuations and
fluctuations in interest rates, both on a national and international basis.
16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements, together with the report of the Company's independent
accountants thereon, are presented under Item 13 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
Items 9, 10, 11 and 12 have been omitted from this report, in accordance with
General Instruction E, since the Issuer will file with the Commission a
definitive proxy statement, involving the election of directors, pursuant to
Regulation 14A within 120 days after the close of its 1996 fiscal year.
Accordingly, relevant information contained in such definitive proxy statement
is incorporated herein by reference.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON
FORM 8-K
Exhibit
Page
-------
(a) The following documents are filed as part of this report:
Financial Statements:
Report of Independent Accountants 22
Consolidated Statements of Net Income for the years
ended December 31, 1996, 1995 and 1994 24
Consolidated Balance Sheets, December 31, 1996 and 1995 25
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 26
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 27
Notes to Consolidated Financial Statements 28
17
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON
FORM 8-K (continued)
(3)(i)(a) Restated Certificate of Incorporation of the Issuer.
(Incorporated by reference to Exhibit 4(a) to the Issuer's
Registration Statement on Form S-8, File No. 33-3647,
filed with the Commission.)
(3)(i)(b) Certificate of Amendment to the Restated Certificate of
Incorporation of the Issuer filed on June 2, 1987.
(Incorporated by reference to Exhibit 3(a)(ii) to the
Issuer's Annual Report on Form 10-K for the year ended
December 31, 1987, filed with the Commission.)
(3)(i)(c) Certificate of Amendment to the Restated Certificate of
Incorporation of the Issuer filed on January 14, 1988.
(Incorporated by reference to Exhibit 3(a)(iii) to the
Issuer's Annual Report on Form 10-K for the year ended
December 31, 1988, filed with the Commission.)
(iv) Certificate of Amendment to the Restated Certificate of
Incorporation of the Issuer filed on May 8, 1989.
(Incorporated by reference to Exhibit 3(a)(iv) to the
Issuer"s Annual Report on Form 10-K for the year ended
December 31, 1989, filed with the Commission.)
3(b) Amended and Restated By-laws of the Issuer. (Incorporated
by reference to Exhibit 3(b) to the Issuer's Annual Report
on Form 10-K for the year ended December 31, 1990, filed
with the Commission.)
10(a) Agreement to Amend the International Distribution and
Technology Agreement with Tsubasa System Company, Ltd.
dated January 22, 1996. (Incorporated by reference to
Exhibit 10(a) to the Issuer's Annual Report on Form 10-K
for the year ended December 31, 1995, filed with the
Commission).
10(b) Amended Agreement of Employment, dated December 11, 1992,
between the Issuer and Robert B. Ginsburg. (Incorporated
by reference to Exhibit 10(b) to the Issuer's Annual
Report of Form 10-K for the year ended December 31, 1992
filed with the Commission).
10(c) Amended Agreement of Employment, dated December 11. 1992,
between the Issuer and Alan I. Goldberg. (Incorporated by
reference to Exhibit 10(b) to the Issuer"s Annual Report
of Form 10-K for the year ended December 31, 1992 filed
with the Commission).
18
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON
FORM 8-K (continued)
10(d) Option Agreement dated November 23, 1992 with Robert B.
Ginsburg. (Incorporated by reference to Exhibit 10(d) to
the Issuer's Annual Report of Form 10-K for the year ended
December 31, 1992 filed with the Commission.)
10(e) Option Agreement dated November 23, 1992 with Alan I.
Goldberg. (Incorporated by reference to Exhibit 10(d) to
the Issuer's Annual Report of Form 10-K for the year ended
December 31, 1992 filed with the Commission.)
10(f) Employment and Option Agreements dated as of January 1,
1994 between the Issuer and Edmond D. Costantini, Jr.
(Incorporated by reference to Item 6(a) of the Issuer's
Quarterly Report of Form 10-QSB for the quarter ended
September 30, 1996 filed with the Commission.)
10(g) Lease for Premises located at 2828 Charter Road,
Philadelphia, PA. (Incorporated by reference to Exhibit
10(g) to the Issuer's Annual Report of Form 10-K for the
year ended December 31, 1992 filed with the Commission.)
10(h) Letter Agreement dated August 7, 1995 by and among the
Issuer, Donald Sparks, Stanley Ginsburg and Ira Ingerman.
(Incorporated by reference to Exhibit 6(a)) to the
Issuer's Quarterly Report of Form 10-QSB for the quarter
ended September 30, 1995 filed with the Commission.)
10(i) Lease for Premises located at 8125 Troon Circle, Austell,
GA 30001 (Incorporated by reference to Exhibit 10(i) to
the Issuer's Annual Report on Form 10-K for the year ended
December 31, 1993 filed with the Commission).
10(j) Lease for Premises located at 4560 36th Street, Orlando,
FL 32811
10(k) Leases for Premises 1919 Friendship Drive, El Cajon, CA
92020 and 8787 Olive Lane, Santee, CA
10(l) Letter Amendment dated January 22, 1996 to Amended
Employment Agreement with Robert B. Ginsburg (Incorporated
by reference to Exhibit 10(j) to the Issuer's Annual
Report on Form 10-K for the year ended December 31, 1993
filed with the Commission).
19
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON
FORM 8-K (continued)
10(m) Letter Amendment dated January 22, 1996 to Amended
Employment Agreement with Alan I. Goldberg (Incorporated
by reference to Exhibit 10(k) to the Issuer's Annual
Report on Form 10-K for the year ended December 31, 1993
filed with the Commission).
21 Subsidiaries of the Issuer 103
23 Consent of Coopers & Lybrand 104
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Issuer during the quarter
ended December 31, 1996.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Issuer has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MARLTON TECHNOLOGIES, INC.
By: /s/ Robert B. Ginsburg
-------------------------
President
By: /s/ E. D. Costantini, Jr.
-------------------------
Chief Financial Officer
Dated: March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Issuer and in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Fred Cohen
- ---------------------------- Chairman of the March 21, 1997
(Fred Cohen) Board of Directors
/s/ Seymour Hernes
- ---------------------------- Director March 21, 1997
(Seymour Hernes)
/s/ Robert B. Ginsburg
- ---------------------------- Director March 21, 1997
(Robert B. Ginsburg)
/s/ Alan I.Goldberg
- ---------------------------- Director March 21, 1997
(Alan I. Goldberg)
/s/ William F. Hamilton
- ---------------------------- Director March 21, 1997
(William F. Hamilton)
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
and Shareholders
Marlton Technologies, Inc.:
We have audited the consolidated financial statements of Marlton Technologies,
Inc. and subsidiaries as listed in item 13(a) of this Form 10-KSB. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Marlton
Technologies, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- -------------------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 21, 1997
22
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
23
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME
for the years ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 38,315,600 $ 27,671,763 $ 24,613,216
Cost of sales 27,550,933 19,693,655 17,756,727
------------ ------------ ------------
Gross profit 10,764,667 7,978,108 6,856,489
------------ ------------ ------------
Expenses:
Selling 6,416,695 4,732,884 3,925,188
Administrative and general 3,002,109 2,506,201 2,405,332
------------ ------------ ------------
9,418,804 7,239,085 6,330,520
------------ ------------ ------------
Operating profit 1,345,863 739,023 525,969
------------ ------------ ------------
Other income (expense):
Interest income 209,913 109,446 28,512
Interest expense (Note 5) (120,266) (142,860) (151,168)
Gain from contract amendment (Note 3) 1,200,000 -- --
Gain from insurance settlement (Note 4) -- -- 250,000
Other, net 54,643 9,205 21,481
------------ ------------ ------------
1,344,290 (24,209) 148,825
------------ ------------ ------------
Income before income taxes 2,690,153 714,814 674,794
Provision (benefit) for income taxes (Note 14) 350,000 (538,000) 188,000
------------ ------------ ------------
Net income $ 2,340,153 $ 1,252,814 $ 486,794
============ ============ ============
Net income per common share (Note 1):
Primary $ .45 $ .32 $ .13
============ ============ ============
Fully diluted $ .42 $ .32 $ .13
============ ============ ============
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ------
<S> <C> <C>
Current:
Cash and cash equivalents $ 3,300,010 $ 1,028,606
Accounts receivable, net of allowance
of $180,664 and $132,000, respectively 5,424,080 4,444,597
Inventory (Note 6) 4,344,297 2,422,494
Prepaids and other current assets 452,930 575,719
Deferred income taxes 419,000 357,000
------------ ------------
Total current assets 13,940,317 8,828,416
Property and equipment, net of accumulated
depreciation and amortization (Note 7) 2,062,072 1,786,711
Rental assets, net of accumulated amortization
of $825,134 and $434,230, respectively 1,013,361 625,631
Goodwill, net of accumulated amortization of $734,456
and $595,478, respectively 2,962,638 3,101,616
Deferred income taxes 1,558,870 1,792,000
Other assets, net of accumulated amortization
of $1,019,855 and $644,720, respectively (Note 8) 653,357 473,519
------------ ------------
Total assets $ 22,190,615 $ 16,607,893
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 10) $ 653,918 $ 524,586
Accounts payable 2,586,572 1,542,433
Accrued expenses and other (Note 9) 4,916,511 3,232,494
------------ ------------
Total current liabilities 8,157,001 5,299,513
Long-term debt, net of current portion 457,440 991,894
------------ ------------
Total liabilities 8,614,441 6,291,407
------------ ------------
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, $.10 par - shares authorized
10,000,000; 4,534,592 and 3,937,534 issued, respectively 453,459 393,754
Additional paid-in capital 21,030,881 20,171,051
Accumulated deficit (7,796,489) (10,136,642)
------------ ------------
13,687,851 10,428,163
Less cost of 5,000 treasury shares 111,677 111,677
------------ ------------
Total stockholders' equity 13,576,174 10,316,486
------------ ------------
Total liabilities and stockholders' equity $ 22,190,615 $ 16,607,893
============ ============
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Additional
Shares Issued Treasury Paid-in Accumulated
Issued Amount Amount Capital Deficit
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 3,834,492 $ 383,449 $ (111,677) $ 20,082,763 $(11,876,250)
Additional shares issued 65,733 6,574 -- 54,710 --
Net income -- -- -- -- 486,794
--------- ------------ ------------ ------------ ------------
Balance, December 31, 1994 3,900,225 390,023 (111,677) 20,137,473 (11,389,456)
Additional shares issued 37,309 3,731 -- 33,578 --
Net income -- -- -- -- 1,252,814
--------- ------------ ------------ ------------ ------------
Balance, December 31, 1995 3,937,534 393,754 (111,677) 20,171,051 (10,136,642)
Additional shares issued 597,058 59,705 -- 859,830
Net income -- -- -- -- 2,340,153
--------- ------------ ------------ ------------ ------------
Balance, December 31, 1996 4,534,592 $ 453,459 $ (111,677) $ 21,030,881 $ (7,796,489)
========= ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
26
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Cash flows provided (expended) through operating activities:
Net income $ 2,340,153 $ 1,252,814 $ 486,794
Adjustments to reconcile net income to cash provided
(expended) through operating activities:
Depreciation and amortization 1,637,424 1,110,712 982,173
(Increase) decrease in deferred taxes 171,130 (604,000) 107,000
Other operating items 49,002 44,256 50,063
Change in assets and liabilities, net of effects of acquisitions:
(Increase) in accounts receivable, net (595,200) (258,662) (1,086,240)
(Increase) in inventory (1,296,444) (147,228) (283,056)
(Increase) decrease in prepaids and other assets 160,579 175,408 (288,659)
Increase (decrease) in accounts payable and
accrued expenses and other 1,011,321 (817,924) 2,213,611
----------- ---------- ----------
Net cash provided through operating activities 3,477,965 755,379 2,181,686
----------- ---------- ----------
Cash flows provided (expended) through investing activities:
Cash paid to acquire Piper (50,000) -- --
Investment in Sparks Japan (25,000) -- --
Investment in EDSI, minority partner 115,000 -- --
Capital expenditures (1,557,899) (890,265) (1,050,050)
Disposal of capital assets 76,253 -- --
Acquisition of intangible assets -- (50,095) (38,102)
----------- ---------- ----------
Net cash (expended) through investing activities (1,441,646) (940,360) (1,088,152)
----------- ---------- ----------
Cash flows provided (expended) through financing activities:
Proceeds from issuance of long-term debt 21,367 583,523 500,000
Principal payments on long-term debt (658,482) (510,493) (513,802)
Payments against notes payable, Sellers -- (328,618) --
Net (decrease) in revolving credit line -- -- (495,000)
Proceeds from stock issuance 872,200 -- 61,284
----------- ---------- ----------
Net cash provided (expended) through financing activities 235,085 (255,586) (447,518)
----------- ---------- ----------
Increase (decrease) in cash and cash equivalents 2,271,404 (440,569) 646,016
Cash and cash equivalents - beginning of year 1,028,606 1,469,175 823,159
----------- ---------- ----------
Cash and cash equivalents - end of year $ 3,300,010 $ 1,028,606 $ 1,469,175
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
1. Summary of Accounting Policies:
Basis of Presentation:
The consolidated financial statements include the accounts of
Marlton Technologies, Inc., its wholly-owned subsidiaries and majority owned
subsidiary ("the Company"). All inter-company accounts and transactions have
been eliminated.
Activity included in the consolidated statements of operations
consists primarily of the design, manufacture, sale and servicing of
sophisticated custom and portable trade show exhibits and museum interiors by
Sparks Exhibits Corp.("Sparks") and subsidiaries. Additionally, through other
joint ventures and subsidiaries, the Company engages in the manufacturing of
panelized portable exhibits, themed interiors, theme park attractions, staging
and sets (see Note 2).
Property and Equipment:
Property and equipment are stated at cost. Depreciation is
provided on the straight-line method over the estimated useful lives of the
respective assets ranging primarily from 3 to 10 years. Assets and accumulated
depreciation accounts are reduced for the sale or other disposition of property
and the resulting gain or loss is included in income.
Rental Assets:
Rental Assets, which include manufactured and purchased
exhibit components, are stated at cost. Amortization is recorded as the assets
are rented and is included as a direct job cost.
Inventory:
Inventory is stated at the lower of cost (first-in, first-out)
or market and includes all direct and indirect manufacturing costs associated
with a specific job.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
1. Summary of Accounting Policies, continued
Goodwill and Other Intangible Assets
The excess of cost over the fair value of net assets acquired
(goodwill) is being amortized on a straight-line basis over periods ranging from
5 to 30 years. Customer lists, which are recorded at cost, are being amortized
on a straight-line basis over their estimated useful lives of 5 to 15 years and
are included as components of Other Assets.
The Company's policy is to record an impairment loss against
goodwill and other intangibles in the period when it is determined that the
carrying amount of the net assets may not be recoverable. This determination
includes evaluation of factors such as current market value, future asset
utilization, business climate and future cash flows expected to result from the
use of the net assets.
Revenue Recognition:
Revenues on trade show exhibit sales and themed interiors and
sets are recognized using the completed contract method. Revenues on permanent
exhibit installations which are generally 6 months or longer in duration are
recognized on the percentage of completion method. Progress billings are
generally made throughout the production process. Progress billings which are
unpaid at the balance sheet date are not recognized in the financial statements
as accounts receivable. Progress billings which have been collected on or before
the balance sheet date are classified as customer deposits and are included as
components of Accrued expenses and other.
Estimates and Assumptions:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results may differ from those estimates.
Income Per Common Share:
Income per common share is based on the weighted average
number of common shares outstanding during the period, adjusted for common
equivalent shares when the effect is not anti-dilutive. Income per share of
common stock, assuming full dilution, was the same as primary earnings per share
for 1995 and 1994.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
1. Summary of Accounting Policies, continued:
The weighted average number of common shares outstanding used
in calculating 1996 earnings per share was 5,233,748 for primary and 5,516,428
for fully-diluted. The weighted average number of common shares outstanding used
in calculating both primary and fully-diluted earnings per share was 3,935,700
during 1995 and 3,880,548 during 1994.
Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company
considers all investments with a maturity of three months or less at the time of
their purchase to be cash equivalents. Temporary cash investments comprise
principally short-term government funds.
Concentration of Credit Risk:
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable. The Company places its cash and temporary cash
investments with high credit quality institutions.
The Company's accounts receivable are with customers
throughout the United States. The Company performs ongoing credit evaluations of
its customers' financial condition and generally requires progress payments
which mitigate its loss exposure.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents and
long-term debt. The recorded values of cash and cash equivalents approximate
their fair value due to the short maturity of these instruments. The fair value
of long-term debt is estimated based on current interest rates offered to the
Company for similar remaining maturities. The recorded value of these financial
instruments approximate their fair value at December 31, 1996 and 1995.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
1. Summary of Accounting Policies, continued
Financial Accounting Standards Not Yet Adopted
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share."
This Statement establishes new standards for computing and presenting earnings
per share (EPS) and applies to entities with publicly held common stock or
potential common stock. This Statement is effective for financial statements
issued for periods ending December 15, 1997 (earlier application is not
permitted). This Statement requires restatement of all prior-period EPS data
presented. The Company is currently evaluating the impact SFAS No. 128 will have
on its financial statements, if any.
2. Acquisitions:
Piper Productions, Inc.:
The Company acquired 100% of the stock of Piper Productions,
Inc. ("Piper") of Orlando, Florida, effective April 1, 1996. Piper produces
business theater, theme park attractions, themed interiors, theatrical scenery
and special effects. Piper clients include major restaurant and entertainment
chains, national theme parks and business/ entertainment companies. Total
consideration paid for the stock of Piper, including related expenses,
approximated $200,000. The Company made a cash payment of $50,000 at closing,
$50,000 is included in Accrued expenses and other, and issued a
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
2. Acquisitions, continued:
$100,000 note bearing interest at 6% payable in 5 equal installments
commencing April 1, 1997. An additional $200,000 is payable if Piper achieves
defined sales levels at defined contribution margin percentages and Piper's
previous owner continues to be employed under an employment agreement.
The acquisition was accounted for as a purchase with the operating
results of Piper included in the consolidated statement of income from the
acquisition date. Accordingly, the acquired assets (including approximately
$375,000 of rental assets and other property and equipment) and liabilities have
been recorded at their estimated fair values at the date of acquisition.
Sparks Exhibits Corp.:
On August 7, 1990, the Company acquired (the "Acquisition") all of the
issued and outstanding stock of Arrow Exhibits, Inc. ("Arrow") and transferred
the operations to its newly formed subsidiary, Sparks Exhibits Corp. ("Sparks").
Sparks custom designs and manufactures sophisticated trade show exhibits,
displays, architectural and museum interiors, graphics and signage and sells
portable displays for clients in industry, government, consumer electronics,
athletic goods, healthcare, telecommunications and other specialized fields.
Total consideration, including related expenses was $3,710,419.
The Agreement provided for certain additional consideration to be paid
to the Sellers based on defined operating results of Sparks through December 31,
1994. On August 7, 1995 the Company paid $478,618 for additional consideration
obligations that were previously recognized through December 31, 1994. The final
cumulative contingent earn-out obligation to the Sellers of $333,972 payable on
August 7, 1995 was satisfied by a cash payment of $50,095 and issuance of three
two-year notes totaling $283,877 and bearing interest at 8%, payable quarterly
and convertible to the Company's common stock at $1.375 per share. The Sellers
elected to convert their two-year notes into the Company's common stock at
$1.375 per share during January 1997. All additional consideration paid to the
Sellers is recorded as goodwill.
Sparks Exhibits, Inc./Sparks Exhibits, Ltd./Sparks
Exhibits Incorporated:
During 1991 and 1992, Sparks, through its wholly-owned subsidiaries,
Sparks Exhibits, Inc., Sparks Exhibits, Ltd. and Sparks Exhibits Incorporated,
acquired various assets from custom trade exhibit businesses in Atlanta,
Georgia, San Diego, California and Melbourne, Florida, respectively. Acquired
assets included customer lists, contract rights, machinery and equipment and
other assets. The total purchase price in connection with the three acquisitions
was approximately $1,125,000. As part of the acquisitions, employment agreements
were executed
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
2. Acquisitions, continued:
between respective subsidiaries and certain key employees, including options to
acquire up to 150,000 shares of the Company's common stock at prices ranging
from $2.00 to $2.75 per share and vesting periods which expire through 1998.
Expos Display Systems, Inc.:
During July 1993, the Company and Abex Display Systems, Inc. ("ADSI"),
entered into an agreement to organize a new California corporation, Expose
Display Systems, Inc. ("EDSI"). The Company acquired 51% of EDSI with ADSI
acquiring the balance. EDSI granted to ADSI exclusive worldwide distribution and
marketing rights for "Expos", a portable display product, through December 2005
contingent upon ADSI meeting defined sales levels.
The minority interest in the profits and (losses) of EDSI, included in
Other, net in the consolidated statements of income represent ADSI's 49% share
in the results of operations for 1996, 1995 and 1994. EDSI sales, net of
inter-company revenues, for 1996, 1995 and 1994 approximated $3,096,000,
$2,128,000 and $1,660,000. Netted against deposits and advances at December 31,
1996 and 1995, respectively, are approximately $120,000 of advances made by ADSI
to EDSI and $72,000 of advances made by EDSI to ADSI.
3. Gain on Japan Transaction:
The Company and Tsubasa System Company, Ltd. ("Tsubasa") a diversified
manufacturing and marketing company entered into a distribution and license
agreement during 1995 and jointly formed a Japanese corporation, Sparks Japan,
to market portable exhibits in Japan. Sparks Japan was capitalized with $250,000
and is 90% owned by Tsubasa and 10% owned by the Company. In an amendment to
that agreement during January 1996, the Company agreed to eliminate certain
future payments from Sparks Japan and to issue to Tsubasa 500,000 unregistered
shares of the Company's common stock in exchange for $3,000,000.
Sparks Japan is obligated to purchase certain portable exhibits from
the Company's majority-owned subsidiary, EDSI. Sparks Japan opened its Tokyo
portable exhibit showroom during March 1996 and the Company provides requisite
technical, operational and marketing support to the operation. The agreement
also requires that the funds received by the Company are to be used for its
operating activities and to acquire companies, products and services within the
exhibit industry. The funds may not be used to retire certain debts or pay
bonuses, incentives, commissions, etc. to officers, directors or shareholders of
the Company, without obtaining prior approval from Tsubasa.
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
3. Gain on Japan Transaction, continued:
In the event that Sparks Japan does not achieve certain sales levels by
December 31, 1998 and the Company's common stock is trading at less than $3.00
per share at that time, if requested by Tsubasa, the Company is required to, at
its option, either repurchase the Tsubasa shares at $3.00 per share or make a
cash payment per share to Tsubasa equal to the difference between the December
31, 1998 trading price and $3.00.
A gain of $1,000,000 was recognized during the first quarter of 1996
representing the consideration received less amounts allocated to the 500,000
shares of common stock issued, the estimated fair value of the "put option" and
the incremental direct costs expected to be incurred by the Company through
December 31, 1998 with respect to complying with certain requirements of the
agreement. During the fourth quarter of 1996, management re-evaluated the
estimated fair value of the put option and expected direct costs, resulting in a
$200,000 increase to the recorded gain during 1996.
4. Insurance Settlement:
During November 1993, the Company experienced a fire at its Melbourne,
Florida location which destroyed approximately one-third of the facility
including the administrative and design offices, as well as a portion of the
exhibit storage area. During July 1994, a severe storm damaged the Company's
Philadelphia, Pennsylvania location including portions of the manufacturing and
exhibit storage areas. Both losses were covered by insurance. During 1994, the
Company recognized a gain of $250,000 from settlement of the claims. The gain is
net of write-offs of property and equipment and other costs approximating
$1,150,000.
5. Cash Flows Information:
Cash paid for interest in 1996, 1995 and 1994 amounted to $121,049,
$140,206, and $143,631, respectively.
Cash paid for income taxes in 1996, 1995 and 1994 amounted to $30,398,
$9,509 and $25,000, respectively.
During 1996 the following non-cash investing and financing transactions
took place:
o The Company issued to the Piper seller (see Note 2) a $100,000 note
bearing interest at 6% and payable in five equal, annual installments
commencing April 1, 1997.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
5. Cash Flows Information, continued
o The Company issued 35,958 shares of its common stock to certain directors,
employees and the Company's 401(k) plan for director fees, stock awards and
defined contributions under the Companys employment benefit plan (see Note
13).
During 1995 the following non-cash investing and financing transactions took
place:
o The Company issued to three Sellers, two-year notes amounting to $283,877
and bearing interest at 8% and payable quarterly in lieu of the final
payment for additional consideration in connection with the 1990
acquisition of Sparks Exhibits Corp. The notes are convertible into the
Company's common stock at $1.375 per share, which conversion rights were
exercised by the Sellers during the first quarter of 1997 (see Note 2).
o The Company issued 31,309 shares of its common stock to certain directors
and the Company's 401(k) plan for director fees and defined contributions
under the Company's employment benefit plan (see Note 13).
During 1994 the following non-cash investing and financing transactions took
place:
o Company accrued $150,000 of additional consideration in connection with
the 1990 acquisition of Sparks Exhibits Corp.
6. Inventory:
Inventory at December 31, 1996 and 1995 consists of the following:
1996 1995
------ ------
Raw materials $ 775,805 $ 510,774
Work in process 3,568,492 1,911,720
----------- ------------
$ 4,344,297 $ 2,422,494
=========== ============
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
7. Property and Equipment:
Property and equipment at December 31, 1996 and 1995 consists of the following:
1996 1995
------ -----
Manufacturing equipment and vehicles $1,352,095 $ 867,769
Office equipment and data processing 1,990,537 1,388,650
Leasehold improvements 1,265,030 1,091,399
Showroom exhibits and other 582,764 445,283
---------- ----------
5,190,426 3,793,101
Less accumulated depreciation
and amortization 3,128,354 2,006,390
---------- ----------
$2,062,072 $1,786,711
========== ==========
8. Other Assets:
Other assets include costs incurred for certain intangible assets,
principally customer lists, acquired in connection with the acquisition of
custom trade exhibit businesses from 1990 through 1996. Amounts capitalized
include amounts assigned to such assets by the Company at the date of the
respective acquisitions and required contingent payments set forth in related
purchase agreements. Such costs are amortized over the estimated life of the
assets on a straight-line basis. Amortization expense related to other assets
amounted to $260,135, $181,269 and $184,082 for each of the three years in the
period ended December 31, 1996. Also included in Other assets as of December 31,
1996 are deposits relating to certain facility leases and the long-term portion
of certain prepaid expenses.
9. Accrued Expenses and Other:
Accrued expenses and other at December 31, 1996 and 1995 consist of the
following:
1996 1995
------ ------
Accrued compensation $1,298,682 $ 608,541
Customer deposits 1,176,745 856,735
Accrued payroll, sales and business taxes 433,876 715,302
Accrued insurance costs 302,270 232,472
Accrued contractual costs (Note 3) 713,299 --
Other 991,639 819,444
---------- ----------
$4,916,511 $3,232,494
========== ==========
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
10. Debt Obligations:
Notes Payable:
The Company, through its wholly-owned subsidiary Sparks,
maintains a $1,250,000 revolving credit facility with a bank which expires on
June 30, 1997 unless renewed by the issuing bank. Borrowings under the revolving
credit facility bear interest at the banks prime lending rate (8.25% at
December 31, 1996). No amounts were outstanding under the facility at
December 31, 1996 and 1995.
The revolving credit facility and the Company's primary term loans are
collateralized by substantially all of the assets of Sparks Exhibits Holding
Corporation ("Holding") and its subsidiaries. Both the revolving credit facility
and term loan agreements place certain restrictions as to the use of Sparks
funds for payment of dividends and loans, and the agreements contain certain
compensating balance requirements and financial covenants. The Company is
required to maintain a current ratio, as defined, of not less than 1.2 to 1 and
is restricted in its ability to pay dividends, as defined in the agreement. At
December 31, 1996 the current ratio, as defined, was approximately 1.9 to 1.
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
Long-Term Debt:
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Term loans payable, banks:
Interest at the prime lending rate plus .25% (8.5%
at December 31, 1996), principal payable in equal
monthly amounts of $9,167 through July 2000 $ 394,167 $ 504,167
8.6% interest; principal payable in monthly amounts
of $10,417 through May 1998 187,500 312,500
6.85% interest; principal payable in monthly amounts
of $10,417 through February 1997 with a
final payment in March 1997 41,667 162,666
8.2% interest; principal payable in monthly
amounts of $12,500 through May 1996 with a final
payment of $28,973 in June 1996 -- 91,474
Notes payable, Sellers (subordinated to all bank indebtedness):
Additional consideration, interest payable quarterly at
8% principal due August 7, 1997, and convertible
into the Company's common stock
at $1.375 per share (Note 2) 283,877 283,877
Note payable, Piper seller:
Interest payable annually at 6%, principal payable
in annual payments of $20,000 through
April 1, 2001 100,000 --
Note payable, ICI:
Interest payable annually at 6.85%, principal payable
in remaining annual payments of $28,726
and $34,551 through July 1997 34,551 63,277
Note payable, TSS:
Interest payable quarterly at 7%,
principal payable in annual payments of
$26,560 through January 1997 26,560 53,120
Other 43,036 45,399
---------- ----------
1,111,358 1,516,480
Less current portion 653,918 524,586
---------- ----------
$ 457,440 $ 991,894
========== ==========
</TABLE>
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
10. Debt Obligations, continued
Included in interest expense is $23,243, $27,175 and $40,817 related to
interest on notes payable to the Sellers for the three years in the period ended
December 31, 1996.
Aggregate long-term debt maturities for the next five years are as
follows:
Years ended December 31, Amount
------------------------ ------
1997 $ 653,918
1998 203,109
1999 138,507
2000 93,611
2001 22,213
-----------
$1,111,358
===========
11. Commitments and Contingencies:
The Company operates in leased office and warehouse facilities. Lease
terms range from monthly commitments up to 93 months with options to renew at
varying times. Certain lease agreements require the Company to pay supplemental
costs of utilities, taxes, insurance and maintenance.
As of December 31, 1996, future minimum lease commitments under
non-cancelable operating leases are as follows:
Year ended December 31,
-----------------------
1997 $ 1,379,474
1998 1,194,358
1999 733,929
2000 594,696
2001 598,911
2002 and thereafter 1,698,663
-----------
Total minimum lease commitments $6,200,031
===========
Rental expense, exclusive of supplemental costs, for each of the three
years in the period ended December 31, 1996 was $1,382,460, $1,111,374 and
$956,681.
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
11. Commitments and Contingencies, continued
The Company has employment contracts with certain officers and
employees with remaining terms from approximately one to five years, which
provide for minimum annual remuneration ranging from $17,500 to $145,000, plus
additional compensation based upon operating results of the Company. In
addition, pursuant to their employment contracts, two officers may obtain shares
of common stock at $1.60 per share based on a formula related to certain prior
deferred compensation and accrued bonuses. As of December 31, 1996, there were
360,042 shares reserved at a price of $1.60 per share.
Future minimum payments under employment contracts are as follows:
Year ended December 31,
------------------------
1997 $ 894,500
1999 568,000
1999 558,000
2000 548,000
2001 44,500
-----------
$ 2,613,000
===========
12. Stock Options:
The Company has qualified and nonqualified stock option plans.
In August 1990, the Company adopted the 1990 Incentive Plan which
provides for the granting of Incentive Stock Options ("ISO") and a 1990
Nonstatutory Option Plan ("NSO") (collectively, "the 1990 Plans"). The 1990
Plans (as amended through July 1996) provide for the granting of options to
employees to purchase up to 1,450,000 shares of common stock. Options are
exercisable at a price not less than the market value of the shares at the date
of grant in the case of ISO's, and 85% of the market value of the shares in the
case of NSO's.
In April 1984, the Company adopted the 1984 Incentive Stock Option
Plan. The plan provides for the granting of Incentive Stock Options to key
salaried employees to purchase a maximum of 100,000 common shares at prices not
less than the market value of the shares on the date the options are granted.
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
12. Stock Options, continued
The Company maintains a Nonqualified Stock Option Plan which provides
for the granting of options primarily to employees, directors and others to
purchase, for a period of five years, a maximum of 65,900 common shares at
prices and terms determined by a committee appointed by the Board of Directors.
Options are granted at a price not less than 85% of the market value of the
shares at the date of the grant.
The Director's and Consultants' Stock Option Plan provides for the
granting of options to purchase up to 73,600 common shares to directors and
consultants who are neither principal stockholders, nor receive salary
compensation. Prices are determined as in the Nonqualified Stock Option Plan.
The 1992 Director Stock Plan (as amended through July 1996), with a
total of 200,000 authorized shares, was amended in December 1994 to provide that
in addition to stock awards, stock options may be granted to Directors at a
price not less than market value on the date of the grant.
As an inducement for certain individuals to become employees
of the Company, stock options, as part of an employment agreement, are granted
by the Company. The quantity, price and vesting requirements vary with each
employment agreement; however, the Company has not granted options at a price
less than the market value of the shares at the date of grant.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-based
Compensation." The Company will continue to apply the provisions of Accounting
Principles Board Opinion 25 in accounting for its stock option plans. If the
Company had elected to recognize compensation cost based on the fair value of
the options granted at grant date as prescribed by SFAS No. 123, net income and
earnings per share would have been reduced to the unaudited pro forma amounts
as follows:
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
12. Stock Options, continued
Year ended December 31,
1996 1995
----- ----
Net earnings $2,235,544 $1,224,500
Earnings per common share and
common share equivalent $0.41 $0.31
========== ==========
Changes in shares under option were as follows:
<TABLE>
<CAPTION>
Shares
Available
Shares for
under Option Price Options Unissued
Option per Share Exercisable Options
------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
1990 Plans 962,943 $1.60-$2.00 879,807 440,957
1984 Incentive Stock Option Plan 72,652 $2.00 72,652 0
Nonqualified Stock Option Plan 21,600 $2.00-$3.00 11,810 0
Directors' and Consultants'
Stock Option Plan 19,000 $2.45 19,000 0
1992 Directors' Plan 80,000 $2.00-$2.88 50,000 100,675
Other Options 324,927 $2.00-$3.00 97,027 0
--------- --------- -------
1,481,122 1,130,296 541,632
========= ========= =======
</TABLE>
Changes in options outstanding are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Shares under option at beginning of year 1,205,463 1,173,245
Options granted 339,300 90,000
Options expired (2,541) (57,783)
Options exercised (61,100) 0
--------- ---------
Shares under option at end of year 1,481,122 1,205,462
========= =========
Shares available for unissued options 541,632
=========
</TABLE>
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
12. Stock Options, continued
The weighted average fair value of options granted per share were $1.42
and $0.69 in 1996 and 1995, respectively. The fair value of each option grant is
estimated on the date of the grant using the Black-Scholes option-pricing model.
Assumptions used to calculate the fair value of option grants in 1996 and 1995
include the following:
Assumption 1996 1995
---------- ---- ----
Dividend yield 0.0% 0.0%
Risk-free rate 6.2% 7.2%
Expected life 4-5 yrs. 5 yrs.
Expected volatility 74% 79%
13. Employee Benefit Plans:
The Company maintains a defined contribution savings plan under Section
401(k) of the Internal Revenue Code which provides retirement benefits to
certain employees of the Company and its wholly-owned subsidiaries who meet
certain age and length of service requirements. The Company's contribution to
the Plan is determined by management. Charges to income with respect to this
Plan were approximately $50,000, $32,000 and $22,000 in 1996, 1995 and 1994,
respectively.
14. Income Taxes:
The components of the provision (benefit) for income taxes
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current:
Federal $ 87,000 $27,000 $21,000
State 91,000 39,000 60,000
Deferred:
Federal 172,000 (590,000) 155,000
State - (14,000) (48,000)
--------- --------- --------
$350,000 $(538,000) $188,000
========= ========= ========
</TABLE>
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
14. Income Taxes (continued):
A reconciliation of the Federal statutory rate to the Company's
effective tax rate is as follows:
1996 1995 1994
---- ---- ----
Federal statutory rate 34% 34% 34%
State income tax, net of Federal
income tax effect 3 2 1
Non-deductible expenses 3 7 7
Losses not tax effected - - 1
Valuation allowance (33) (114) (13)
Other, net 6 (4) ( 2)
--- ---- ----
13% (75%) 28%
=== ==== ====
The net deferred tax asset at December 31, 1996 and 1995
comprises the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net operating loss carryforwards $1,441,000 $2,798,000
General business credits 1,856,000 1,856,000
Alternative minimum tax credits 120,000 43,000
Employee benefits and compensation 200,000 166,000
Other, net 216,000 21,000
---------- ----------
3,833,000 4,884,000
Valuation allowances (1,856,000) (2,735,000)
---------- ----------
Net deferred tax asset $1,977,000 $2,149,000
========== ==========
</TABLE>
The decrease in the valuation allowance in 1996, 1995 and 1994 resulted from the
release of valuation allowance based on the re-evaluation of the realizability
of future benefits of net operating loss carryforwards. Realization of the net
deferred tax asset is dependent upon generating sufficient taxable income prior
to expiration of the net operating loss carryfowards (NOL's). Although
realization is not assured, management believes it is more likely than not that
the recorded net deferred tax asset will be realized.
As of December 31, 1996, the Company's federal NOL's of approximately
$4,239,000, expire as follows:
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
14. Income Taxes (continued):
Expiration Date Amount
--------------- ------
2002 $ 232,000
2003 3,133,000
2004 116,000
2005 232,000
2006 526,000
2007 ----------
$4,239,000
==========
General business credit carryforwards of $1,856,000 expire
primarily in 1998.
45
<PAGE>
Commercial Lease Agreement
THIS LEASE AGREEMENT is made and entered into between CORONATION CONSTRUCTION
COMPANY, INC. hereinafter referred to as "lessor' and PIPER PRODUCTIONS, INC.,
hereinafter referred to as Lessee:"
W I T N E S S E T H :
1. LEASED PREMISES. In consideration of the rents, terms, provisions and
covenants of this Lease Agreement, Lessor hereby leases, lets and demises to
Lessee the following described premises (referred to as "leased premises" and
containing approximately 45,619.70 square feet) situated in (a) 4552 36th
Street, Orlando, Florida 32811 (sometimes referred to as "the building" or "the
project").
2. TERM: Subject to and upon the conditions set forth below, the term of this
Lease shall commence on March 1, 1995 (the "commencement date") (the "completion
date", which Lessor shall use its best efforts to establish as ____), and shall
terminate February 28, 1997 (24) months thereafter. (See paragraph 37, page 12).
3. RENT: (a) Lessee agrees to pay monthly as base rental during the term of this
Lease the sum of Twenty Thousand Nine Hundred Fifty Nine and 28/100 includes 6%
sales tax ($20,959.28 includes tax) which amount shall be payable to Lessor at
the address shown below on the first day of the month. One monthly installment
of rent shall be due and payable on the date of execution of this Lease by
Lessee for the first month's rent and a like monthly installment shall be due
and payable on or before the first day of each calendar month succeeding the
"commencement date" or "completion date" during the demised term; provided, that
if the "commencement date" or the "completion date" should be a date other than
the first day of a calendar month, the monthly rental set forth above shall be
prorated to the end of that calendar month, and all succeeding installments of
rent shall be payable or before the first day of each succeeding calendar month
during the demised term.
(b) On the date of execution of this Lease by Lessee, there shall be due
and payable by Lessee a security deposit in an amount equal to one monthly
rental installment to be held for the performance by Lessee of Lessee's
covenants and obligations under this Lease, it being expressly understood that
the deposit shall not be considered an advance payment of rental or a measure of
Lessor's damage in case of default by Lessee. Upon the occurrence of any event
of default by Lessee or breach by Lessee of Lessee's covenants under this Lease,
Lessor may, from time to time, without prejudice to any other remedy, use the
security deposit to the extent necessary to make good any arrears of rent and/or
any damage, injury, expense or liability caused to Lessor by the event of
default or breach of covenant, any remaining balance of the security deposit to
be returned by Lessor or Lessee upon termination of this lease
( c) If any increase in the fire and extended coverage insurance premiums
paid by Lessor for the building in which Lessee occupies space is caused by
Lessee's use and occupancy of the leased premises, or if Lessee vacates the
leased premises and causes an increase in such premiums, then Lessee shall pay
as additional rental the amount of such increase to Lessor.
46
<PAGE>
(d) Other remedies to nonpayment of rent notwithstanding, if the monthly
rental payment is not received by Lessor on or before the tenth day of the month
for which rent is sue, or if any other payment due Lessor by lessee is not
received by Lessor on or before the tenth day of the month next following the
month in which Lessee was invoiced, a service charge of five per cent (5%) of
such past due amount shall become due and payable in addition to such amounts
owed under this Lease.
(e) In the event the operating expenses (as defined below) of Lessor upon
the building and/or project of which the leased premises are a part shall, in
any calendar year during the term of this Lease, exceed the sum of $.90 (1994
Base Year) per square foot, Lessee agrees to pay as additional rental Lessee's
pro-rata share of the excess operating expenses. Lessor may, within nine months
following the close of any calendar year for which additional rental is due
under this paragraph, invoice Lessee for the excess operating expenses. The
invoice shall include in reasonable detail all computations of the additional
rental, and Lessee agrees to make payment of the additional rental to Lessor
within ten days following receipt of the invoice. In the year in which this
Lease terminates, Lessor, in lieu of waiting until the close of the calendar
year in order to determine any excess operating expenses, has the option to
invoice Lessee for Lessee's pro rata share of the operating expenses based upon
the previous year's excess operating expenses; Lessor shall invoice Lessee under
this option within thirty days prior to the termination of the Lease or at any
time thereafter. Lessee shall have the right, at its own expense and at a
reasonable time, to audit Lessor's books relevant to the additional rentals due
under this paragraph.
(f) The term "operating expenses" as used above includes all expenses
incurred with respect to the maintenance and operation of the building and/or
project of which the leased premises are a part, including, but not limited to,
maintenance and repair costs, water, sewer, security, trash and snow removal,
landscaping, wages and fringe benefits payable to employees of Lessor whose
duties are connected with the operation and maintenance of the building and/or
project, amounts paid to contractors or subcontractors for work or services
performed in connection with the operation and maintenance of the building
and/or project, all services, supplies, repairs, replacements or other expenses
for maintaining and operating the building and/or project including common area
and parking area. The term "operating expenses" also includes all real property
taxes and installments of special assessments, including special assessments due
to deed restriction and/or owners' associations, which accrue against the
building and/or project of which the leased premises are a part during the term
of this Lease as well as all insurance premiums Lessor is required to pay or
deems necessary to pay, including public liability insurance, with respect to
the building and/or project. The term "operating expenses" does not include any
capital improvement to the building and/or project of which the leased premises
are a part, nor shall it include repairs, restoration or other work occasioned
by fire, windstorm or other casualty, income and franchise taxes of Lessor,
expenses incurred in leasing to or procuring of tenants, leasing commissions,
advertising expenses, expenses for the renovating of space for new tenants,
interest or principal payments on any mortgage or other indebtedness of Lessor,
compensation paid to any employee of Lessor above the grate of building
superintendent nor depreciation allowance or expense
47
<PAGE>
4. SIGNS: Lessee shall have the right to erect one (1) sign in good taste only
on the front face of the entrance canopy (sign plaque) of the building, (or such
other location as may be designated by lessor) subject to all applicable laws,
deed restrictions and regulations. The sign shall consist of letters or numerals
not exceeding ten inches in height, of non-illuminated plastic, porcelain enamel
or aluminum, and shall be individual cutout letters using the surface of the
canopy (sign plaque) as background. The composition and location of such sign
shall be subject to approval of lessor for the purposes of maintaining
architectural continuity and quality of design. No signs or other object shall
be erected which are attached to the roof of the building and no signs shall be
attached to the building or canopy at right angles suspended by guy wires, but
shall be attached flush to the canopy in a safe and secure manner. All such
signs erected shall advertise Lessee's business only and no revenue producing
advertising shall be erected on the leased premises without specific written
permission of lessor. Lessee shall not paint any signs directly on the walls of
the building or otherwise deface, damage or overload the building. Lessee shall
have the night to place lettering upon the entrance doors or upon the plate
glass windows of the leased premises; provided, however, that the lettering
shall not exceed six inches in height and shall be subject to the approval of
Lessor. No other signs shall be displayed on the leased premises without the
prior written consent of Lessor. Lessee shall remove all signs at the
termination of this lease, at Lessee's sole risk and expense and shall in a
workmanlike manner properly repair any damage and close any holes caused by the
removal of Lessee's signs.
5. USAGE: Lessee warrants and represents to Lessor that the leased premises
shall be used and occupied for the purposes of Staging Productions. Lessee shall
occupy the leased premises, conduct its business and control its agents,
employees, invitees and visitors in such a way as is lawful, reputable and will
not create any nuisance or otherwise interfere with, annoy or disturb any other
tenant in its normal business operations or Lessor in its management of the
building. Lessee shall not commit, or suffer to be committed, any waste on the
leased premises.
6. INSURANCE: Lessee shall not permit the leased premises to be used in any way
which would, in the opinion of Lessor, be extra hazardous on account of fire or
otherwise which would in any way increase or render void the fire insurance on
leasehold improvements or contents in the building belonging to the tenants in
the building. If at any time during the term of this Lease the State board of
Insurance or other insurance authority disallows any of Lessor's sprinkler
credits or imposes an additional penalty or surcharge in Lessor's insurance
premium because of Lessee's original or subsequent placement or use of storage
rack or bins, method of storage or nature of Lessee's inventory or any other act
of Lessee, Lessee agrees to pay as additional rental the increase (between fire
walls) in Lessor's insurance premiums.
6a. liability insurance: Lessee shall carry and pay all premiums for public
liability insurance in limits not less than $500,000 per person and $1,000,000
per accident, and in which the property liability shall be less than $500,000 or
combined single limit of $1,000,000. Such policy or policies shall name Lessor
as additional insured hereunder. Lessee shall deposit memorandum copies of
certificates of such policy or policies with Lessor.
7. UTILITY SERVICE: Lessor shall provide the normal utility service connections
into the leased premises. Lessee shall pay the cost of all utility services,
including but not limited to,
48
<PAGE>
initial connection charges, all charges for gas, water and electricity used on
the leased premises, and for all electric light lamps or tubes. Lessee shall pay
all costs caused by lessee introducing excessive pollutants into the sanitary
sewer system, including permits, fees and charges levied by any governmental
subdivision for any pollutants or solids other than ordinary human waste. Lessee
shall be responsible for the installation and maintenance of any dilution
tanks, holding tanks, settling tanks, sewer sampling devices, sand traps or
similar devices as may be required by the governmental subdivision for Lessee's
sue of the sanitary sewer system. If the leased premises are in a
multi-occupancy building, Lessee shall pay all surcharges levied due to Lessee's
use of sanitary sewer or waste removal services insofar as such surcharges
effect Lessor or other tenants in the building. Lessee shall pay all charges for
pest control and extermination. Lessor shall not be required to pay for any
services, supplies or upkeep in connection with the leased premises. However, in
a multi-occupancy building Lessor may provide water to the leased premises in
which case Lessee agrees to pay to Lessor its pro rate share of such water.
8. RELOCATION: Deleted in entirety.
9. REPAIRS AND MAINTENANCE: (a) Unless otherwise expressly provided herein,
Lessor shall not be required to make any improvements, replacements or repairs
of any kind or character to the leased premises during the term of this Lease
except such repairs as are set forth in this subparagraph. Lessor shall maintain
only the roof, foundation and the structural soundness of the exterior walls
(excluding all windows, window glass, plate glass and all door(s) of the
building in good repair and condition except for reasonable wear and tear.
Lessee shall repair and pay for any damage caused by Lessee's negligence or
default. Lessee shall immediately give written notice to Lessor of the need for
repairs, which repairs shall be made by Lessor beginning not more than fifteen
(15) days after written notice by Lessee.
(b) Lessee shall, at its own risk and expense, maintain all other parts of
the building and other improvements on the leased premises in good repair and
condition (including all necessary replacements), including, but not limited
to, downspouts, dock bumpers, regular removal of debris and its prorate share of
maintenance of the spur railroad track serving the leased premises (if
applicable), and Lessee agrees to sign a joint maintenance agreement with the
railroad company servicing the leased premises, if requested by the railroad
company. However, in a multi-occupancy building, Lessor reserves the right to
perform lawn maintenance and Lessee agrees to pay Lessor the lawn maintenance on
a pro rate basis. Lessee shall repaint the exterior doors or other exposed parts
of the building which reasonably require periodic repainting to prevent
deterioration. Lessee shall take good care of all the property and its fixtures.
Should Lessee neglect to keep and maintain the leased premises, then Lessor
shall have the right, but not the obligation, to have the work done and any
reasonable costs therefore shall be charged to Lessee as additional rental and
shall become payable by Lessee with the payment of the rental next due
hereunder.
(c) At the termination of this Lease, Lessee shall deliver the leased
premises "broom clean" in the same good order and condition as existed at the
commencement date or completion date of this Lease, ordinary wear, natural
deterioration beyond the control of Lessee, damage by fire, tornado or other
casualty excepted.
49
<PAGE>
(d) All requests for repairs or maintenance that are the responsibility of
Lessor pursuant to any provision of this Lease must be made in writing to Lessor
at the address set forth below.
10. COMPLIANCE WITH LAWS, RULES AND REGULATIONS: Lessee shall comply with all
laws, ordinances, orders, rules and regulations of state, federal, municipal or
other agencies or bodies having jurisdiction relating to the use, condition and
occupancy of the leased premises. Lessee will comply with the rules of the
building adopted by Lessor, which are set forth on a schedule attached to this
Lease. Lessor shall have the right at all times to change the rules and
regulations of the building or to amend them to any reasonable manner as may be
deemed advisable for the safety, care and cleanliness, and for the preservation
of good order, of the leased premises. All changes and amendments in the rules
and regulations of the building will be sent by Lessor to Lessee in writing and
shall thereafter be carried out and observed by Lessee.
11. LESSOR IMPROVEMENTS: If construction is to be done by Lessor to the leased
premises prior to Lessee's occupancy, Lessor will at its expense commence and/or
complete the construction of the improvements constituting the leased premises,
including partitions, in accordance with the floor plan and its specifications
agreed to by the parties and made a part of this Lease by reference. The floor
plan shall be approved and signed by the parties prior to the commencement of
construction. Upon completion of the building and other improvements in
accordance with the plans and specifications, Lessee agrees to accept delivery
of the leased premises and to execute and deliver to Lessor a letter accepting
delivery of the leased premises.
12. ALTERATIONS AND IMPROVEMENTS: Lessee shall not make or allow to be made any
alterations or physical additions in or to the leased premises without first
obtaining the written consent of the lessor. Any alterations, physical additions
or improvements to the leased premises made by Lessee shall at once become the
property of Lessor and shall be surrendered to Lessor upon the termination of
this Lease. This clause shall not apply to moveable equipment or furniture owned
by Lessee which may be removed by Lessee at the end of the term of this Lease.
13. CONDEMNATION: (a) If, during the term (or any extension or renewal) of this
Lease, all or a substantial part of the leased premises are taken for any public
or quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain, and the taking would prevent or materially interfere
with the use of the leased premises for the purpose for which they are being
used.
(b) In the event a portion of the leased premises shall be taken for
any public or any quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain and this Lease is not terminated as
provided in the subparagraph above, Lessor may, at Lessor's sole risk and
expense, restore and reconstruct the building any other improvements situated on
the leased premises to the extent necessary to make it reasonably tenantable.
The rent payable under this Lease during the unexpired portion of the term shall
be adjusted to such an extent as may be fair and reasonable under the
circumstances.
50
<PAGE>
14. FIRE AND CASUALTY: (a) If the leased premises should be totally destroyed by
fire, tornado or other casualty, or if the leased premises should be so damaged
so that rebuilding or repairs cannot reasonably be completed within SIXTY (60)
working days after the date of written notification by Lessee to Lessor of the
destruction, this Lease shall terminate and the rent shall be abated for the
unexpired portion of the Lease, effective as of the date of the destruction.
(b) If the leased premises should be partially damaged by fire, tornado
or other casualty, and rebuilding or repairs can reasonably be completed within
SIXTY (60) days from the [text omitted] Lessee shall have the option to
terminate this lease. [Text omitted] this Lease shall not terminate, but Lessor
may at its sole risk and expense proceed with reasonable diligence to rebuild or
repair the building or other improvements to substantially the condition in
which they existed prior to the damage. If the leased premises are to be rebuilt
or repaired and are untenantable in whole or in part following the damage, the
rent payable under this Lease during the period for which the leased premises
are untenantable shall be adjusted to such an extent as may be fair and
reasonable under the circumstances. In the event that Lessor fails to complete
the necessary repairs or rebuilding within SIXTY (60) working days from the date
of the destruction, Lessee may at its option terminate this Lease by delivering
written notice of termination to Lessor, whereupon all rights and obligations
under the Lease shall cease to exist.
15. CASULATY INSURANCE: Lessor shall at all times during the term of this lease
maintain a policy or policies of insurance with the premiums paid in advance,
issued by and binding upon some solvent insurance company, insuring the
building against loss or damage by fire, explosion or other hazards and
contingencies for the full insurable value; provided, that Lessor shall not be
obligated in any way, or manner to insure any personal property (including but
not limited to, any furniture, machinery, goods or supplies) of lessee or which
Lessee may have upon or within the leased premises or any fixtures installed by
or paid for by Lessee upon or within the leased premises or any additional
improvements which Lessee may construct on the leased premises.
16. WAIVER OF SUBROGATION: Any thing in this Lease to the contrary
notwithstanding, Lessor and Lessee hereby waive and release each other of and
from any and all rights of recover, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage that
may occur to the leased premises, improvements to the building of which the
leased premises are a part, or personal property (building contents) within the
building, by reason of fire or the elements regardless of cause or origin,
including negligence of Lessor Lessee and their agents, officers and employee.
Because this paragraph will preclude the assignment of any claim mentioned in it
by way of subrogation (or otherwise) to an insurance company (or any other
person), each party to this Lease agrees immediately to give to each insurance
company which has issued to its policies of fire and extended coverage
insurance, written notice of the terms of the mutual waivers contained in this
paragraph and to have the insurance policies properly endorsed, if necessary,
to prevent the invalidation of the insurance coverage by reason of the mutual
waivers contained in this paragraph.
51
<PAGE>
17. HOLD HARMLESS: Lessor shall not be liable to Lessee's employees, agents,
invitees, lecensees or visitors, or to any other person, for any injury to
person or damage to property on or about the leased premises caused by the
negligence or misconduct of Lessee, its agents, servants or employees, or of any
other person entering upon the leased premises under express or implied
invitation by Lessee, or caused by the by the building and improvernents located
on the leased premises becoming out of repairs, or caused by leakage of gas,
oil, water or steam or by electricity emanating from the leased premises. Lessee
agrees to indemnify and old harmless Lessor of and from any loss, attorney's
fees, expenses or claims arising out of any such damage or injury. Any liability
insurance which may be carried by Lessor or Lessee with respect to the leased
premises shall be for the sole benefit of the party carrying the insurance and
under its sole control.
18. QUIET ENJOYMENT: Lessor warrants that it has full right to execute and to
perform this Lease and to grant the estate dermised and that Lessee, upon
payment of the required rents and performing the terms, condition, covenants and
agreements contained in this Lease, shall peaceably and quietly have, hold and
enjoy the leased premises during the full term of this Lease as well as any
extension or renewal thereof.
19. LESSOR'S RIGHT OF ENTRY: Lessor shall have the right, at all reasonable
hours, to enter the leased premises for the following reasons: inspection;
cleaning or making repairs; making alterations or additions as Lessor may deem
necessary or desirable; determining Lessee's use of the leased premises, or
determining if an act of default under this Lease has occurred,
20. ASSIGNMENT OR SUBLEASE: Lessor shall have the right to transfer and assign,
in whole or in part, its rights and obligations in the building and property
that are the subject of this Lease. Lessee shall not assign this Lease or sublet
all or any part of the leased premises without the prior written consent of
Lessor. In the event of any assignment or subletting, Lessee shall nevertheless
at all times, remain fully responsible and liable for the payment of the rent
and for compliance with all of its other obligations under the terms, provisions
and covenants of this Lease. Upon the occurrence of an "event of default" as
defined below, if all or any part of the leased premises are then assigned or
sublet, Lessor, in addition to any other remedies provided by this Lease or
provided by law, may, at its option, collect directly from the assignee or
subtenant all rents becoming due to Lessee by reason of the assignment or
sublease. Any collection directly by Lessor from the assignee or subtenant shall
not be construed to constitute a novation or a release of Lessee from the
further performance of its obligations under this Lease.
Paragraphs 21 and 22 deleted in entirety.
23. DEFAULT BY LESSEE: The following shall be deemed to be events of default by
Lessee under this Lease: (a) Lessee shall fail to pay when due any installment
of rent or any other payment required pursuant to this Lease; (c) Lessee shall
fail to comply with any term, provision or covenant of this Lease, other than
the payment of rent, and the failure is not cured
52
<PAGE>
within thirty (30) days after written notice to Lessee: (d) Lessee shall file a
petition or be adjudged bankrupt or insolvent under the National Bankruptcy Act,
as amended or any similar law or statute of the United States or any state; or a
receiver or trustee shall be appointed for all or substantially all of the
assets of Lessee; or Lessee shall make a transfer in fraud of creditors or shall
make an assignment for the benefit of creditors; (e) Lessee shall do or permit
to be done any act which results in a lien being filed against the leased
premises.
24. REMEDIES FOR LESSEE'S DEFAULT: Upon the occurrence of any event of default
set forth in this Lease Agreement, Lessor shall have the option to pursue any
one or more of the following remedies without any notice or demand: (a)
Terminate this Lease, in which event Lessee shall immediately surrender the
leased premises to Lessor, and if Lessee fails to surrender the leased premises,
Lessor may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the leased
premises, by picking or changing locks if necessary, without being liable for
prosecution of any claim for damages. Lessee agrees to pay on demand the amount
of all loss and damage which Lessor may suffer by reason of the termination of
the Lease under this subparagraph, whether through inability to relet the leased
premises on satisfactory terms or otherwise.
(b) Enter upon and take possession of the leased premises, by picking
or changing locks if necessary, and lock out, expel or remove Lessee and any
other person who may be occupying all or any part of the leased premises without
being liable for any claim for damages, and relet the leased premises on behalf
of Lessee and receive directly the rent by reason of the reletting. Lessee
agrees to pay Lessor on demand any deficiency that may arise by reason of any
reletting of the leased premises; further, Lessee agrees to reimburse Lessor for
any expenditures made by it for remodeling or repairing in order to relet the
leased premises.
(c) Enter upon the leased premises, by picking or changing locks if
necessary, without being liable for prosecution of any claim for damages, and do
whatever Lessee is obligated to do under the terms of this Lease. Lessee agrees
to reimburse Lessor on demand for any expenses which Lessor may incur in
effecting compliance with Lessee's obligations under this Lease; further, Lessee
agrees that Lessor shall not be liable for any damages resulting to Lessee from
effecting compliance with Lessee's obligations under this subparagraph caused by
the negligence of Lessor or otherwise.
25. WAIVER OF DEFAULT OR REMEDY: Failure of Lessor to declare an event of
default immediately upon its occurrence, or delay in taking any action in
connection with an event of default, shall not constitute a waiver of the
default, but Lessor shall have the right to declare the default at any time and
take such action as is lawful or authorized under this Lease. Pursuit of any one
or more of the remedies set forth in paragraph 24 above shall not pursuit??? Of
any one or more of the other remedies provided elsewhere in this Lease or
provided by law, nor shall pursuit of any remedy provided constitute a
forfeiture or waiver of any rent or damages accruing to Lessor by reason of the
violation of any of the terms, provisions or covenants of this Lease. Failure by
Lessor to enforce one or more of the remedies provided upon an event of default
shall not be deemed or construed to constitute a waiver of the default or of any
other violation or breach of any of the terms, provisions and covenants
contained in this Lease.
53
<PAGE>
26. ACTS OF GOD: Lessor shall not be required to perform any covenant or
obligation in this Lease, or be liable in damages to Lessee, so long as the
performance or nonperformance of the covenant or obligation is delayed, caused
by or prevented by an act of God or force majeure.
27. ATTORNEY'S FEES: In the event Lessee defaults in the performance of any of
the terms, covenants, agreements or conditions contained in this Lease and
Lessor places in the hands of an attorney the enforcement of all or any part of
this Lease, the collection of any rent due or to become due or recovery of the
possession of the leased premises, Lessee agrees to pay Lessor reasonable
attorney's fees for the services of the attorney, whether suit is actually filed
or not. In no event shall the attorney's fees be less than fifteen percent of
the outstanding balance owed by Lessee to Lessor.
Paragraph 28 deleted in entirety.
29. RIGHTS OF MORTGAGEE: Lessee accepts this Lease subject and subordinate to
any recorded mortgage, deed of trust or other lien presently existing upon the
leased premises. Lessor is hereby irrevocably vested with full power and
authority to subordinate Lessee's interest under this Lease to any mortgage,
deed of trust or other lien hereafter placed on the leased premises, and Lessee
agrees upon demand to execute additional instrument subordinating this Lease as
Lessor may require. If the interests of Lessor under this Lease shall be
transferred by reason of foreclosure or other proceedings for enforcement of any
mortgage on the leased premises, Lessee shall be bound to the transferee
(sometimes called the "Purchaser") under the terms, covenants and conditions of
this Lease for the balance of the term remaining, and any extensions or
renewals, with the same force and effect as if the Purchaser were Lessor under
this Lease, and Lessee agrees to attorn to the Purchaser, including the
mortgages under any such mortgage if it be the Purchaser, as its Lessor, the
attornment to be effective and self-operative without the execution of any
further instruments upon the Purchaser succeeding to the interest of Lessor
under this Lease. The respective rights and obligations of Lessee and the
Purchaser upon the attornment, to the extent of the then remaining balance of
the term of this Lease, and any extensions and renewals, shall be and are the
same as those set forth in this Lease.
30. ESTOPPEL CERTIFICATES: Lessee agrees to furnish promptly, from time to time,
upon to the extent true and applicable a statement certifying that Lessee is in
possession of the leased premises; the leased premises are acceptable; the Lease
is in full force and effect; and Lease is unmodified; Lessee claims no present
charge, lien, or claim or offset against rent; the rent is paid for the current
month, but is not paid and will not be paid for more than one month in advance;
there is no existing default by reason of some act or omission by Lessor; and
such other matters as may be reasonably required by Lessor or Lessor's
mortgagee.
31. SUCCESSORS: this Lease shall be binding upon and inure to the benefit of
Lessor and Lessee and their respective heirs, personal representatives,
successors and assigns. It is hereby covenanted and agreed that should Lessor's
interest in the leased premises cease to exist for
54
<PAGE>
any reason during the term of the Lease, the notwithstanding the happening of
such event this Lease nevertheless shall remain unimpaired and in full force and
effect and Lessee hereunder agrees to attorn to the then owner of the leased
premises.
32. RENT TAX: If applicable in the jurisdiction where the leased premises are
situated, Lessee shall pay and be liable for all rental, sales and use taxes or
other similar taxes, if any, levied or imposed by any city, state, county, or
other governmental body having authority, such payments to be in addition to all
other payments required to be paid by Lessor to Lessee under the terms of this
Lease. Any such payment shall be paid concurrently with the payment of the rent
upon which the tax is based as set forth above.
33. NOTICE: (a) All rent and other payments required to be made by Lessee shall
be payable to Lessor at the address set forth below, or any other address Lessor
may specify from time to time by written notice delivered to Lessee.
(b) All payments required to be made by Lessor Lessee shall be payable
to Lessee at the address set forth below, or at any other address within the
United States as Lessee may specify from time to time by written notice.
(c) any notice or document required or permitted to be delivered by
this Lease shall be deemed to be delivered (whether or not actually received)
when deposited in the United States Mail, postage prepaid, certified mail;
return receipt requested, addressed to the parties at the respective addresses
set out below:
LESSOR: LESSEE:
Coronation Construction Co., Inc. Piper Productions, Inc.
851 E. SR 434, Suite # 192 4552 36th Street
Longwood, Florida 32750 Orlando, Florida 32811
Alex Greenspoon David Piper
34. DEFINITIONS: These definitions apply to the terms defined as those terms are
used throughout this Lease. [paragraph (a) deleted]
(b) an "act of god" or "force Majeure" is defined for purpose of this
Lease as strikes, lockouts, sit-downs, material or labor restrictions by any
governmental authority, riots, floods, washouts, explosions, earthquakes, fire,
storms, acts of the public enemy, wars, insurrections and any other cause not
reasonably within the control of lessor and which by the exercise of due
diligence Lessor is unable, wholly or in part, to prevent or overcome.
(c) The "commencement date" shall be the date set forth in paragraph 2.
The "commencement date" shall constitute the commencement of this Lease
Agreement for all purposes, whether or not Lessee has actually taken possession.
(d) The "completion date" shall be the date on which the improvements
erected and to be erected upon the leased premises shall have been completed in
accordance with the plans and specifications described in paragraph 11. Lessor
shall use its best efforts to establish the "completion date" as the date set
forth in paragraph 2. In the event that the improvements have not in fact been
completed as of that date, Lessee shall notify Lessor in writing of its
objections.
55
<PAGE>
Lessor shall have a reasonable time after delivery of the notice in which to
take such corrective action as may be necessary, and shall notify Lessee in
writing as soon as it deems such corrective action has been completed so that
the improvements are completed and ready for occupancy. Taking of possession by
Lessee shall be conclusively deemed to establish that the improvements have been
completed and that the leased premises are in good and satisfactory condition,
as of the date possession was so taken by Lessee, except for latent defects, if
any.
[paragraph (e) deleted]
(f) The captions appearing in this Lease are inserted only as a matter
of convenience and in no way define, limit, construe or describe the scope or
intent of such paragraph.
35. REAL ESTATE COMMISSION: Lessor agrees to pay to the real estate agent named
below, for negotiating this Lease, a commission of NONE per cent of each monthly
rental payment as set forth in paragraph 3 (a) when and if actually received by
Lessor under the terms of this Lease. In the event there is a default by the
Lessee under the terms of this Lease and any rentals due to Lessor are collected
by means of litigation or with the aid of an attorney, the real estate agent
named below shall receive a commission in the amount set forth above of Lessor's
net recovery. Lessor's net recovery is defined as the amount Lessor eventually
collects from Lessee less attorneys' fees, court costs, out-of-pocket expenses
and expenses and/or remodeling/refurbishing costs expended in order to obtain a
new tenant.
36. ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES: IT IS EXPRESSLY AGREED BY
LESSEE, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS
LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE
ENTIRE AGREEMENT OF THE PARTIES. IT IS AGREED THAT THIS LEASE MAY NOT BE
ALTERED, WAIVED, AMENDED OR EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED
BY BOTH LESSOR AND LESSEE.
37. OTHER PROVISIONS:
MONTHLY
RENTAL SCBEDULE BASE RENT 6% SALES TAX TOTAL RENT
--------------- --------- ------------ ----------
3-1-95 - 2-29-96 $19,772.91 $1,186.37 $20,959.28
*3-1-96 - 2-28-97 $20,563.83 $1,233.83 $21,797.66
* Reflects 4% Rental Increase
37A. David Piper will personally and individually guarantee the noted payments
of this lease as described on Page 1, paragraph 3a, and paragraph 37 above to a
maximum guarantee equal to 2-1/2 months of rent payment. David Piper will have
no guarantees or other liabilities beyond that stated here.
56
<PAGE>
37.B SEE ATTACHED
37.C SEE ATTACHED
Signed on this 14th day of February 1995.
LESSOR: LESSEE:
Coronation Construction Company, Inc. Piper Productions, Inc.
- ------------------------------------- ----------------------------
BY: /s/ Alex Greenspoon, President BY: /s/ David Piper, President
Alex Greenspoon/President David Piper, President
- ------------------------- ----------------------
(Type name and title) (Type name and title)
37.B. PROPOSED ENVIRONMENTAL REPRESENTATION
Lessor represents and warrants that, to the best of Lessor's knowledge:
1) Neither the leased premises, the building of which the leased premises are a
part, nor the real property on and about which the building and the leased
premises are located are now, or has at any time in the past been used for the
manufacture, storage, transport, or disposal of any hazardous or toxic
substance, material, or waste, as the same may be defined under any federal,
state, local, or municipal statute, law, rule, regulation or order of any
governmental or quasi-governmental entity having jurisdiction thereover
(collectively "Environmental Laws").
2) Lessor has not received any inquiry or notice, formal or informal, written or
other wise, relating to the leased premises, the building of which the leased
premises are a part, or the real property on and about which the building and
the leased premises are located, from any governmental or quasi-governmental
entity having jurisdiction thereover, regarding any environmental matter
associated therewith.
57
<PAGE>
3) The leased premises, the building which the leased premises are a part, and
the real property on and about which the building and the leased premises are
located are in compliance with any and all applicable Environmental Laws.
34. C The lessee shall have the right to reduce the square footage of the leased
premises by either 20,170 feet or 12,950 feet or by both, with a rent reduction
into a proportionate monthly rate equal to the square footage rented.
The lessee will be responsible to give lessor thirty (30) days written notice of
reduction of square footage.
The lessee will have no guarantees or other liabilities beyond that stated here.
58
<PAGE>
ADDENDUM TO COMMERCIAL LEASE AGREEMENT
DATE FEBRUARY 14,1995
BETWEEN PIPER PRODUCTIONS AND CORONATION
CONSTRUCTION COMPANY, INC.
WHEREAS, Piper Productions is presently leasing 45,418 Sq. Ft., and the Lease
will terminate on February 28, 1997, both parties hereby agree to extend this
Lease on March 1, 1997 and continue up to February 28, 1998,
IT is hereby understood that the present Lease will have a 4% increase and the
rental schedule is as follows:
3-1-97 - 2-28-98 $15,705.18 plus 6% sales tax = $16,647.49
ALL other terms and conditions of this Lease Agreement are hereby ratified and
confirmed.
/s/ Piper Productions, Inc. /s/ Coronation Construction Co., Inc.
- ---------------------------- --------------------------------------
59
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
60
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
61
<PAGE>
LEASE
This Lease is entered into the 29th day of April, 1992: between HELF
INVESTMENTS, a California partnership ("Landlord"), and EXHIBITS CONCEPTS, Inc.,
A CALIFORNIA CORPORATION ("Tenant") who agree as follows:
ARTICLE 1: PREMISES
Section 1.01. Agreement to Lease. Subject to the provisions of this
Lease, Landlord leases to Tenant and Tenant leases from Landlord the real
property (the "Premises") having an area of approximately 33,638 square feet,
substantially as shown as the Premises on attached Exhibit A, located in the
building (the "Building") commonly known as 1919 Friendship Dr., El Cajon, (to
be) located on the land (the "Land") described in attached Exhibit B, in the
City of El Cajon, County of San Diego, State of California, which Building has
an area of approximately 64,907 square feet.
ARTICLE 2: TERM
Section 2.01. Term. The term of this Lease (the "Term") shall commence
on the 1st day of June, 1992 (the "Commencement Date"), and shall expire on the
31st day of May, 1997 (the "expiration Date").
Section 2.02. Landlord's Inability to Deliver Possession. If Landlord
is unable to deliver possession of the Premises by the Commencement Date,
Landlord shall not be liable for any damage caused for failing to deliver
possession, nor shall such failure affect the validity of this lease or the
obligations of Tenant under this lease, nor shall such failure extend the Term,
but, unless Tenant's failure to install or delay in installing any improvements
has caused Landlord's inability to deliver possession, minimum monthly rent (as
set forth in Section 3.02) shall be abated until Landlord can deliver possession
of the premises to Tenant.
Section 2.03. Acceptance of Premises. Tenant's possession of the
Premises on the commencement Date shall constitute Tenant's acceptance of the
Premises in their then "as is" condition and Tenant's acknowledgment that the
premises are in Good condition. For purposes of this Lease, "Good condition"
shall mean first-class, neat, clean and broom-clean and similar phrases
referring to physical adequacy in appearance and for use.
62
<PAGE>
Section 2.04. Surrender of Premises. On the Expiration Date or earlier
termination of this Lease, tenant shall surrender to Landlord the premises and
all Alterations (as defined in Section 5.09) in Good condition (except for
destruction to the premises covered by Article 7) except for alterations that
Tenant has the right to remove or is obligated to remove under Section 5.09. By
the expiration Date or earlier termination of this Lease, Tenant shall remove
all its Personal Property (as defined in Section 4.01) and perform all repairs
and restoration required by the removal of any Alterations or Personal Property.
Landlord may elect to retain or dispose of in any manner any Alterations or
Personal Property that Tenant does not remove from the premises on the
Expiration Date or earlier termination of this Lease as allowed or required by
this Lease by giving written notice to Tenant. Any such Alterations or Personal
Property that Landlord elects to retain or dispose of shall vest in Landlord.
Tenant waives all claims against landlord for any damage to Tenant resulting
from landlord's retention or disposition of any such alterations or Personal
Property. Tenant shall be liable to Landlord for Landlord's costs for storing,
removing or disposing of any such alterations or Personal Property. If Tenant
fails to surrender the Premises to Landlord on the Expiration Date or earlier
termination of this Lease, Tenant shall indemnify and defend Landlord against
all liability, loss and claims resulting from such failure including without
limitation any claim for damages made by a succeeding tenant.
Section 2.05. Holding Over. If Tenant, with Landlord's consent, remains
in possession of the Premises after the Expiration Date or earlier termination
of this Lease, such possession by Tenant shall be deemed to be a month-to-month
tenancy terminable on 30-days' written notice given at any time by Landlord or
Tenant. During any such month-to-month tenancy, Tenant shall pay, as minimum
monthly rent, 110% the Adjusted Minimum Monthly Rent in effect immediately prior
to the Expiration Date or earlier termination of this Lease, as the case may be.
All provisions of this Lease except for those pertaining to Term shall apply to
such month-to-month tenancy.
ARTICLE 3: RENT
Section 3.01. Definitions. For purposes of this Lease, the following
definitions shall apply:
(a) "Adjusted Minimum Monthly Rent" shall mean the minimum monthly rent
set forth in Section 3.02 as adjusted pursuant to Section 3.03;
(b) "Adjustment Date" shall mean the first "April 1" following the
commencement Date and each anniversary of such "April 1"'
(c) "Index" shall mean the consumer price Index for All Urban Consumers
(base year: 82-84) for L.A. Long Beach, Anaheim published by the United States
Department of Labor, Bureau of Labor Statistics;
(d) "Base Index" shall mean the Index published most recently prior to
the commencement Date; May 1992.
(e) "Adjustment Index" shall mean the Index published for the month of
January immediately preceding the applicable Adjustment Date;
63
<PAGE>
(f) "Preceding Rent" shall mean the Adjusted Minimum Monthly Rent in
effect immediately preceding the applicable Adjustment Date; and
(g) "Preceding Index" shall mean (I) for the first Adjustment Date
after the commencement Date, the Base Index, or (ii) for each other Adjustment
Date, the Adjustment Index for the immediately preceding Adjustment Date.
Section 3.02. Minimum Monthly Rent. Tenant shall pay to Landlord as
minimum monthly rent, without deduction, setoff, prior notice, or demand,
(except as provided herein or by law) the sum of Addendum 1 "Rent" (which sum is
subject to adjustment as provided in Section 3.03) per month in advance on the
first day of each month commencing on the commencement Date and continuing
during the Term. Minimum monthly rent for the first month of the Term shall be
paid upon execution of this Lease. If the commencement Date is other than the
first day of a month, then minimum monthly rent for the second month of the Term
and the final monthly of the Term shall be prorated at the rate of 1/30th of the
minimum rent per day. All rent shall be paid to Landlord at its address
specified in Section 14.01.
Section 3.03. Periodic Rent Adjustment. On each Adjustment Date, and
for the period from such Adjustment Date until the next succeeding Adjustment
Date, or the Expiration Date or earlier termination of this Lease, whichever
occurs first, the Adjustment Minimum Monthly Rent shall be increased, if the
Adjustment Index is greater than the Preceding Index, by an amount equal to 100%
of the product of (a) the Preceding Rent and (b) a fraction the numerator of
which is the difference between the Adjustment Index and the Preceding Index and
the denominator of which is the Preceding Index. As a courtesy to Tenant but not
as a condition to Tenant" paying the applicable Adjusted Minimum Monthly Rent,
Landlord will deliver to Tenant, prior to each Adjustment Date, a notice setting
forth the Adjustment Index, the Preceding Index, the Preceding Rent, and the
applicable Adjustment Minimum Monthly Rent. Landlord's delay in delivering such
notice shall not release Tenant of its obligation to pay the applicable Adjusted
Minimum Monthly Rent. Rental adjustment shall not exceed 5% of the previous
adjusted rent.
Section 3.04. Changes in Index. If the Index is changed so that the
base year is not 1967, then the Index shall be converted in accordance with the
conversion factor published by the United States Department of Labor, Bureau of
Labor Statistics. If the Index is discounted or revised during the Term, such
other governmental index or computation with which it is replaced shall be used
in order to obtain substantially the same result as would be obtained if the
Index had not been discontinued or revised.
64
<PAGE>
Section 3.05. Security Deposit. Upon execution of this Lease,
Tenant shall deposit with Landlord the sum of $15,473.48 (Security Deposit on
1810 John Towers shall be credited to this deposit and Tenant shall submit funds
up to the total amount on the security deposit. If building at 1810 John Towers
is not returned in good condition less normal wear and tear, Tenant will be
billed for any deficiencies.) as a security deposit for the performance by
Tenant of its obligations under this Lease, including without limitation
Tenant's obligation to pay Adjusted Minimum Monthly Rent, to repair damages to
the Premises caused by Tenant or Tenant's Representatives (as defined in Section
5.11) and to clean the premises upon termination of this Lease. If Tenant
commits any defaults under this Lease, including without limitation to those set
forth in the preceding sentence, Landlord may use such security deposit to cure
such defaults, and to compensate Landlord for all of Landlord" damage resulting
from such defaults. Upon demand by Landlord, Tenant shall promptly pay to
Landlord a sum equal to the amount so used by Landlord so as to maintain such
security deposit in the amount set forth in the first sentence of this Section.
Within 30 days after the Expiration Date or earlier termination of this Lease,
Landlord shall deliver to Tenant, at Tenant's last known address, any portion of
such security deposit not used by Landlord, as provided in this Section.
Landlord may commingle such security deposit with Landlord's other funds and
Landlord shall not pay to Tenant interest on such Security deposit.
ARTICLE 4: PROPERTY TAXES
Section 4.01. Definitions. For purposes of this Lease, the following
definitions shall apply:
(a) "Real Property" shall mean the Premises, the Building, the Land and
any other improvements that are part of the Building or the Land.
(b) "Real Property Taxes" shall mean all real property taxes and
general and special assessments levied or assessed against the Real Property,
including without limitation any tax, fee or excise on (I) rents, (ii) the
square footage of the Premises, (iii) the act of entering into this Lease or
(iv) the occupancy of Tenant, or any other tax, or excise, however described
including, without limitation, a so-called value-added tax, levied or assessed
against the Real Property by the United States, the State of California or any
political subdivision of the state, including without limitation any county,
city, city and county, public corporation, district, or any other political
entity or public corporation of this state as a direct substitution in whole or
in part for, or in addition to, any real property taxes or general of special
assessments.
(c) "Personal Property" shall mean all personal property installed or
located in or on the Premises including without limitation trade fixtures,
furnishings, equipment and inventory.
(d) "Personal Property Taxes" shall mean all taxes, assessments,
license fees, and other charges that are levied or assessed against the Personal
Property.
(e) "Tenant's Proportionate Share" shall mean, with respect to Personal
Property Taxes, 100%.
65
<PAGE>
(f) "Mortgage" shall mean any deed of trust, mortgage or other written
security instrument or agreement affecting the Real Property, that constitutes
security for the payment of a debt or performance of an obligation.
(g) "Lender" shall mean the beneficiary, mortgagee, secured party, or
other holder of any Mortgage.
Section 4.02. Tenant to Pay Taxes. LANDLORD shall bay any and all Real
Property Taxes. Tenant shall pay before delinquency all Personal Property Taxes
that become payable during the Term. On demand by landlord, Tenant shall furnish
Landlord with satisfactory evidence of such payment. If any Personal Property
Taxes are levied against Landlord or landlord's property, or if the assessed
value of the Real property is increased by the inclusion of a value placed on
the Personal property, then Tenant shall pay to Landlord Personal Property Taxes
in accordance with Article 12.
ARTICLE 5: USE AND MAINTENANCE OF THE PREMISES
Section 5.01. Permitted Use. Tenant may use the Premises for Management
and storage of exhibits and other related reasonable uses and for no other use.
Tenant's business shall be established and conducted throughout the Term in a
first-class manner. Tenant shall not use the Premises for, or carry on, or
permit to be carried on, any offensive, noisy or dangerous trade, business,
manufacture or occupation.
Section 5.02. Insurance. Tenant shall not do, bring or keep anything in
or about the premises that will cause a cancellation of any insurance covering
the premises or the building.
Section 5.03. Compliance with Laws. Tenant shall comply with all laws
concerning the premises and Tenant's use of the Premises, including without
limitation, the obligation at Tenant's sole cost to alter, maintain, or restore
the premises in compliance with all laws relating to the condition, use, or
occupancy of the Premises during the Term.
Section 5.04. Waste or Nuisance. Tenant shall not use the Premises in
any manner that will constitute waste, nuisance or unreasonable annoyance to
owners or occupants of nearby properties. Tenant shall not use the Premises for
sleeping, cooking, washing clothes, or the preparation, manufacture, or mixing
of anything that might emit any odor or objectionable noises or lights onto
nearby properties.
Section 5.05. Overloading. Tenant shall not do anything on the Premises
that will cause damage to the building. Neither the floor nor any other portion
of the Premises shall be overloaded. No machinery, apparatus, or other appliance
shall be used or operated in or on the Premises that will in any manner injure,
vibrate or shake the Premises.
66
<PAGE>
Section 5.06. Access by Landlord.
(a) Landlord and any agent, employee, officer, or independent
contractor of or retained by Landlord (individually and collectively,
"Landlord's Representatives") shall have the right to enter the Premises at all
reasonable times (i) to determine whether the Premises are in Good Condition or
whether Tenant is complying with its obligations under this Lease, (ii) to do
any necessary maintenance or make any restoration to the Premises that the
Landlord has the right or obligation to perform, (iii) to serve, post, or keep
posted any notices required or allowed under Lease, (iv) to post "for sale" or
"for rent" or "for lease" signs, (v) to show the Premises to brokers, agents,
buyers, tenants or other persons interested in a listing of, financing an
exchange of, or occupancy of the Premises or the Building, and (vi) to shore the
foundations, footings, and walls of the Building and other improvements on the
Land and to erect scaffolding and protective barricades around and about the
Premises, but not so as to prevent entry to the Premises and to do any other act
or thing necessary for the safety or preservation of the Premises if any
excavation or other construction is undertaken or is about to be undertaken on
any adjacent property or nearby street. Landlord's rights under this subsection
extend with Landlord's consent to the owner of adjacent property on which
excavation or construction is to take place and the adjacent property owner's
agents, employees, officers and independent contractors.
(b) Landlord shall not be liable for any inconvenience, disturbance,
loss of business, nuisance, or other damage arising out of Landlord's entry on
the premises as provided in this Section, except damage resulting directly from
the acts of Landlord, or Landlord's Representatives, performed negligently.
Tenant shall not be entitled to an abatement or reduction of Adjusted Minimum
Monthly Rent because of the exercise by Landlord of any rights under this
Section. Landlord shall conduct its activities on the Premises as allowed in
this Section in a manner that will cause as little inconvenience, annoyance, or
disturbance to Tenant as reasonably feasible.
Section 5.07. Signs. Tenant shall not have the right to place,
construct, or maintain any sign, advertisement, awning, banner or other exterior
decoration without Landlord's prior written consent. Any sign that Tenant is
permitted by Landlord to place, construct, or maintain shall comply with
Landlord's sign criteria applicable to Landlord's other tenants in the Gillespie
Field Industrial Park, including without limitation criteria relating to size,
color, shape, graphics, location and shall comply with all laws, and Tenant
shall obtain any approval required by such laws. Landlord makes no
representation with respect to Tenant's ability to obtain such approval.
Section 5.08. Parking. As long as Tenant is not in default under this
Lease, Landlord grants to Tenant the right to the non-exclusive use of the
parking area adjacent to and serving the Building.
Section 5.09. Alterations.
67
<PAGE>
(a) Tenant shall not make any alterations, improvements, additions,
installations, or changes of any nature, in or to the Premises (individually and
collective, "Alterations") without Landlord's prior written consent. Any
Alternations that Tenant shall desire to make shall be presented by Tenant to
Landlord in written form, with proposed detailed plans. With respect to any
Alterations, (i) Tenant shall acquire a permit from appropriate governmental
agencies to make the Alterations, (ii) Tenant shall furnish a copy of such
permit to Landlord prior to the commencement of the alternations, (iii) Tenant
shall comply with all conditions of such permit in a prompt and expeditious
manner, and (iv) Tenant shall provide to Landlord, at Tenant's sole cost, a lien
and completion bond in an amount equal to 150% of the estimated cost of the
proposed alterations, to insure Landlord against any liability for mechanics'
and materialmen's liens and to insure completion of the work. In no event shall
any Alternations be commenced until 10 days after Landlord has received notice
from Tenant stating the date the installation of the Alternations is to commence
so that Landlord can post and record an appropriate notice of nonresponsiblity.
AUTHORIZATION SHALL NOT BE UNREASONABLY WITHHELD.
(b) All alterations shall upon installation become the property of
Landlord and shall remain on and be surrendered with the Premises on the
Expiration Date or earlier termination of this Lease, except that Landlord can
elect to require Tenant to remove any Alterations. If Landlord so elects, Tenant
at its sole cost shall, before the last day of the Term or within 30 days after
notice of Landlord's election is given to Tenant, whichever is later, repair and
restore the Premises to the condition of the Premises prior to the installation
of such alterations to be removed.
Section 5.10. Mechanics' Liens. Tenant shall pay all costs for
Alterations and other construction done or caused to be done by it on the
Premises. Tenant shall keep the Premises free and clear of all mechanics' liens
resulting from such Alterations or other construction. Tenant shall have the
right to contest the correctness or validity of any such lien if, immediately on
demand by Landlord, Tenant procures and records a lien release bond, issued by a
corporation satisfactory to Landlord and authorized to issue surety bonds in
California, in an amount equal to 150% of the amount of the claim of lien. The
bond shall meet the requirements of California Civil Code Section 3143, shall
indemnify Landlord against liability for such claim of lien and shall hold the
Real Property free from the effect of such claim of lien. In addition, Landlord
may require Tenant to pay Landlord's attorneys' fees and costs in participating
in such an action.
Section 5.11. Indemnity and Exemption of Landlord from Liability.
(a) Tenant shall indemnify Landlord against all claims arising
from (i) Tenant's use of the Premises, (ii) the conduct of Tenant's business,
(iii) any activity, work or things done, permitted or suffered by Tenant in or
about the Premises or elsewhere, (iv) any breach or default in the performance
of any obligation to be performed by Tenant under this Lease, or (iv) any
negligence of Tenant or any agent, employee, officer, independent contractor,
licensee, invitee, visitor or customer of or retained by Tenant (individually
and collectively, "Tenant's Representatives"), and against all costs, attorneys'
fees, expenses and liabilities incurred in the defense of any such claim and any
action or proceeding brought on such claim. If any action or proceeding is
brought against Landlord by reason of any such claim, Tenant upon notice from
Landlord shall defend such action or proceeding at Tenant's sole cost by counsel
satisfactory to Landlord. Tenant assumes all risk of damage to property and
injury to persons in, upon or about the Premises arising from any cause, and
Tenant waives all claims against Landlord in respect of such damage or injury.
68
<PAGE>
(b) Landlord shall not be liable for injury to Tenant's business
or any loss of income from such business or for damage or injury to the goods,
wares, merchandise, or other property or the person of Tenant, Tenant's
Representatives or any other persons in, upon or about the Premises, whether
such damage, loss or injury is caused by or results from criminal acts, fire,
steam, electricity, gas, water o rain, or from the breakage, leakage,
obstruction or other defects of pipers, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether such
damage, loss or injury results from conditions arising upon the Premises or from
other sources or places and regardless of whether the cause of such damage, loss
or injury or the means of repairing such damage, loss or injury is inaccessible
to Tenant.
Section 5.12. Building Changes. This Lease shall not be affected or
impaired by any change to any sidewalks, streets or improvements nearby the
Building.
Section 5.13. Utilities and Services.
(a) Tenant shall make all arrangements for and pay the cost of
all utilities and services (including, without limitation, their connection
charges) furnished to the premises or used by Tenant, including without
limitation gas, electricity, water, telephone service, and trash collection.
(b) Landlord may, at its election, furnish to the Building any of
the utilities and services set forth in the preceding Subsection. For purposes
of this Lease, "Landlord's Utilities Expense" shall mean Landlord's cost of
furnishing any utilities and services to the building. Tenant shall pay to
Landlord in accordance with Article 12, Tenant's Proportionate Share of
Landlord's Utilities Expense. Landlord may discontinue, without notice to
Tenant, any of the utilities or services furnished by Landlord to the Premises
and no such discontinuance shall be deemed an actual or constructive eviction.
Landlord shall not be liable for failure to furnish utilities or services to the
Premises. If Landlord constructs new or additional utility facilities, including
without limitation wiring, plumbing, conduits, and mains, resulting from
Tenant's changed or increased utility requirements, Tenant shall on demand
promptly pay to Landlord the total cost of these items. LANDLORD SHALL PAY FOR
COMMON AREA EXTERIOR LIGHTING AND WATER.
69
<PAGE>
Section 5.14. Rules and Regulations. Tenant and Tenant's
Representatives shall observe faithfully and comply strictly with such
reasonable rules and regulations as Landlord may from time to time adopt for the
Premises. Landlord shall have no duty or obligation to enforce any rule or
regulation against any other tenant, and Landlord shall not be liable to Tenant
for violation of any rule or regulation by any other tenant, or its agents,
employees, officers, independent contractors, customers, invitees, visitors, or
licensees.
Section 5.15. Maintenance Obligations. Tenant at its sole cost shall
maintain and repair in Good condition all interior portions of the Premises.
Tenant shall be liable for any damage to the building or the Premises resulting
from the acts or omissions of Tenant or Tenant's Representatives. Landlord shall
at his sole cost maintain the exterior portions of the premises and the portion
of the land (and improvements thereon) outside the perimeters of the building.
Tenant waives the provisions of California Civil Code Sections 1941 and 1942
with respect to Landlord's obligations for tenantability of the Premises and
Tenant's right to make repairs and deduct the expenses of such repairs from
rent. If Tenant fails to maintain the Premises as provided above, then Landlord
shall have the right but not the obligation to maintain the premises and Tenant
shall promptly reimburse Landlord for Landlord's actual cost of such
maintenance. LANDLORD SHALL MAINTAIN AND BE RESPONSIBLE FOR THE EXTERIOR OF THE
BUILDING INCLUDING STRUCTYURAL ITEMS AND ROOFING.
ARTICLE 6: INSURANCE
Section 6.01. Insurance Arranged by Landlord. Landlord will at its
election arrange for any of the following insurance, in such amounts or with
such limits as Landlord shall determine in its reasonable discretion:
(a) Public Liability and Property Damage Insurance. Public
liability and property damage insurance and, if Tenant is to sell merchandise or
other products derived from the Premises, products liability insurance, insuring
against all liability of Tenant, Tenant's Representatives, Landlord, and
Landlord's Representatives arising out of or in connection with the Premises;
(b) Fire and Extended Coverage Insurance. Standard fire and
extended coverage insurance on the Real Property, with vandalism and malicious
mischief endorsements;
(c) Plate glass Insurance. Plate glass insurance on the Real
Property;
(d) Earthquake Insurance. Earthquake insurance on the Real
Property; and
(e) Rental Interruption Insurance. Rental interruption insurance
insuring that the Adjusted Minimum Monthly rent will be paid to Landlord for a
period of up to two years if the Premises are destroyed or rendered inaccessible
or unusable by a risk insured against by the policy described in Subsection
6.01(a)(ii).
70
<PAGE>
Section 6.02. Waiver of Subrogation. Landlord and Tenant release each
other, Tenant's Representatives, Landlord's Representatives, and landlord's and
Tenant's respective guests, invitees, customers and licensees from all claims
for damage, loss or injury to the Premises and the Real Property and to the
fixtures, Personal Property, and alterations of either Landlord or Tenant in or
on the Premises provided such damage, loss or injury is fully covered by any
insurance policies carried by landlord or Tenant and in full force at the time
of such damage.
ARTICLE 7: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is une\tenantable
as a result of such damage or less than fifty percent (50%) of Tenant's
operations are materially impaired) and if the proceeds received by Landlord
from the insurance policies described in Paragraph 4.04(b) are sufficient to pay
for the necessary repairs, this Lease shall remain in effect and Landlord shall
repair the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, or if the cause of the damage is
not covered by the insurance policies which Landlord maintains under Paragraph
4.04(b), Landlord may elect either to (i) repair the damage as soon as
reasonably possible, in which case this Lease shall remain in full force and
effect, or (ii) terminate this Lease as of the date the damage occurred.
Landlord shall notify Tenant within thirty (30) days after receipt of notice of
the occurrence of the damage whether Landlord elects to repair the damage or
terminate the Lease. If Landlord elects to repair the damage, Tenant shall pay
Landlord the "deductible amount" (if any) under Landlord's insurance policies
and, if the damage was due to an act or omission of Tenant, or Tenant's
employees, agents, contractors or invitees, the difference between the actual
cost of repair and any insurance proceeds received by Landlord. If Landlord
elects to terminate this Lease, Tenant may elect to continue this Lease in full
force and effect, in which case Tenant shall repair any damage to the Property
and any building in which the Property is located. Tenant shall pay the cost of
such repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
71
<PAGE>
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. Substantial or Total Destruction. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 4.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the preceding
sentence, if the property can be rebuilt within six (6) months after the date of
destruction, Landlord may elect to rebuild the Property at Landlord's own
expense, in which case this Lease shall remain in full force and effect.
Landlord shall notify Tenant of such election within thirty (30) days after
Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant. Tenant shall pay Landlord in advance as construction progresses the
difference between the actual cost of rebuilding and any insurance proceeds
received by Landlord.
Section 7.03. Temporary Reduction of Rent. If the Property is destroyed
or damaged and Landlord or Tenant repairs or restores the Property pursuant to
the provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the %___ any, to
which Tenant's use of the property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.04. Waiver. Tenant waives the protection of any statute, code
or judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8: CONDEMNATION
Section 8.01. Definitions. For purposes of this Lease, the following
definitions shall apply:
(a) "Condemnation" shall mean the exercise of any governmental
power, whether by legal proceeds or otherwise, by a Condemnor (as defined below)
or a voluntary sale or transfer by Landlord to any condemnor, either under
threat of condemnation or while legal proceeds for condemnation are pending;
72
<PAGE>
(b) "Date of Taking" shall mean the date the condemnor has a
right to possession of the property being condemned;
(c) "Award" shall mean all compensation, sums or anything of
value awarded, paid, or received on a total or partial Condemnation of the Real
property; and
(d) "Condemnor" shall mean any public or quasi-public authority,
or private corporation or individual, having the power of Condemnation.
Section 8.02. Governed by Lease. If during the Term, or during the
period of time between the execution of this Lease and the commencement Date,
there is any taking of all or any part of the Real Property or any interest in
this Lease by Condemnation, the rights and obligations of Landlord and Tenant
shall be determined pursuant to this Article.
Section 8.03. Total Taking. If the Premises are totally taken by
condemnation, this Lease shall terminate on the Date of Taking.
Section 8.04. Partial Taking. If any portion, but not all, of the
Premises is taken by condemnation, this Lease shall remain in effect, except
that Tenant may elect to terminate this Lease if the remaining portion of the
Premises is rendered unsuitable for Tenant's continued use of the Premises. If
Tenant elects to so terminate this Lease, Tenant must exercise its right to
terminate by giving notice to Landlord within 30 days after the date that the
nature and the extent of the taking have been determined (the "Determination
Date"), which notice shall set forth the date of termination. Such termination
date shall not be earlier than 30 days nor later than 90 days after Tenant has
notified Landlord of its election to terminate; except that this Lease shall
terminate on the Date of Taking if the Date of Taking falls on a date before the
date of termination as designated by Tenant. If Tenant does not so notify
Landlord within 30 days after the Determination Date, all obligations of Tenant
under this Lease shall remain in effect, except that Adjusted Minimum Monthly
Rent shall be reduced by the ration of (a) the area of the Premises taken to (b)
the area of the Premises immediately prior to the Date of Taking.
Section 8.05. Restoration. Notwithstanding the preceding Section, if,
within 30 days after the Determination Date, Landlord notifies Tenant that
Landlord at its cost will add to the remaining premises so that the area of the
Premises will e substantially the same after the Date of Taking as they were
before the Date of Taking, and Landlord commences the restoration promptly and
completes it within 150 days after Landlord so notifies Tenant, this lease shall
continue in effect. Unless landlord restores the Premises pursuant to the
preceding sentence, if there is a partial taking of the Premises and this Lease
remains in effect pursuant to the preceding Section. Tenant at its sole cost
shall accomplish all necessary restoration to enable Tenant to use the Premises.
All obligations of Tenant under this Lease shall remain in effect, except that
Adjusted Minimum Monthly Rent shall be abated or reduced during the period from
the Date of Taking until the completion of such restoration by the ration of (a)
the area of the premises taken to (b) the area of the Premises immediately prior
to the Date of Taking.
73
<PAGE>
Section 8.06. Award. The Award shall belong to and be paid to Landlord,
Tenant shall have no right to any part of the Award, and Tenant assigns to
Landlord all of Tenant's right, title and interest in and to the Award, except
that Tenant shall receive from the Award any sum paid to Tenant from the
Condemnor for loss of good will.
Section 8.07. Temporary Taking. The taking of the Premises or any part
of the Premises by military or other public authorities shall constitute a
taking of the Premises by condemnation only when the use and occupancy by the
taking authority is continued for longer than 180 consecutive days. During the
180-day period, all obligations of Tenant under this Lease shall remain in
effect, except that Adjusted Minimum Monthly Rent shall be abated or reduced
during such period of taking by the ration of (a) the area of the Premises taken
to (b) the area of the Premises immediately prior to the Date of Taking, and
landlord shall be entitled to whatever Award may be paid for the use and
occupation of the premises for the period involved.
Section 8.08. Waiver of Statute. Landlord and Tenant waive the
provision of California Code of civil procedure Section 1265.130 allowing
Landlord or Tenant to petition the superior court to terminate this Lease in the
event of a partial taking of the Premises.
ARTICLE 9: ASSIGNMENT
Section 9.01. Landlord's Consent.
(a) Tenant shall not assign this Lease or sublet all or any
portion of the Premises, by operation of law or otherwise, without (i) obtaining
the prior written consent of Landlord, which Landlord shall not unreasonably
withhold, and (ii) complying with the provisions of this Article.
(b) For purposes of this Lease, each of the following events
shall be deemed to constitute an assignment of this Lease:
(i) any assignment or transfer of this Lease, or any
interest in this Lease, voluntarily, involuntarily, by operation of law or
otherwise;
(ii) any mortgage, hypothecation, pledge, or collateral
assignment of this Lease or any interest in this Lease:
(iii) any sale, transfer, encumbrance, grant of concessions
or licenses, sublease or other disposition of this Lease, any interest in this
Lease or all or any portion of the Premises;
74
<PAGE>
(iv) any assignment, transfer, disposition, sale, or
acquisition of a Controlling Interest in Tenant (as defined below) to or by any
person, entity, or group of related persons or affiliated entities, whether in a
single transaction or in a series of related or unrelated transactions (for
purposes of this Lease "Controlling Interest in Tenant" shall mean 50% or more
of the aggregate issued and outstanding equitable interest (whether stock,
partnership interests, or otherwise) in Tenant); and
(v) any issuance of an interest or interests in Tenant
(whether stock, partnership interests, or otherwise) to any person, entity, or
group of related persons or affiliated entities, whether in a single transaction
or in a series of related or unrelated transactions, which results in such
person, entity, or group holding a controlling Interest in Tenant.
(c) At least 30 days prior to entering into any assignment of
this Lease or any sublease of all or any portion of the Premises, Tenant shall
submit to Landlord the sum of $250.00 (to cover Landlord's cost of reviewing
such proposed assignment or sublease), the form of such proposed assignment or
sublease, and a written notice ("Tenant's Notice") setting forth in reasonable
detail (i) the name and address of the proposed sublease or assignee, (ii) the
terms and conditions of the proposed assignment or sublease, including without
limitation the proposed commencement date of the sublease or the effective date
of the assignment, which shall be at least 30 days after Tenant's Notice is
given, (iii) the nature and character of the business of the proposed sublease
or assignee, and (iv) current banking, financial, and other credit information
relating to the proposed sublease or assignee, in reasonably sufficient detail,
to enable Landlord to determine the proposed sublessee's or assignee's financial
responsibility.
(d) Within 15 days after Landlord's receipt of the sum of
$250.00, Tenant's Notice and the form of assignment or sublease, Landlord shall
notify Tenant whether Landlord has consented to the proposed assignment or
sublease. Any consent granted by Landlord in any instance shall not constitute a
consent with respect to any other instance or request. If Landlord consents to
any proposed assignment or sublease and Tenant fails to consummate such
assignment or sublease within 75 days after such consent, then such consent
shall be deemed withdrawn and Tenant shall be required again to comply with this
Article before assignment this Lease or subletting all or any portion of the
Premises.
(e) Landlord shall not have unreasonably withheld its consent
with respect to any sublease or assignment if Landlord shall not have received
the sum of $250.00, the form of such proposed assignment or sublease, or
Tenant's Notice as provided above, or if (i) the nature and character of the
proposed sublessee or assignee and the proposed use and occupancy of the
premises by the proposed sublessee or assignee is not in keeping with the
dignity and character of the Building and the surrounding area, (ii) the
proposed sublease or assignment will result in the diminution of the value or
marketability of the Premises, or (iii) upon review of the information furnished
in Tenant" Notice, Landlord is not satisfied that the proposed sublessee or
assignee is creditworthy.
75
<PAGE>
Section 9.02. Subtenant Attornment. Any sublease of all or any portion
of the Premises must contain the following provisions, which provisions whether
contained in such sublease or not, shall apply to such sublease:
(a) Such sublease shall be subject and subordinate to all of the
provisions of this Lease;
(b) At Landlord's option, in the event of cancellation or
termination of this Lease for any reason or the surrender of this Lease, whether
voluntarily, involuntarily, or by operation of law, prior to the expiration of
such sublease, the subtenant shall make full and complete attornment to Landlord
for the balance of the term of such sublease. The attornment shall be evidenced
by an agreement in form and substance satisfactory to Landlord which the
subtenant shall execute and deliver to Landlord within five days after request
by Landlord; and
(c) No sublessee shall be permitted to further sublet all or any
portion of the subleased space without Landlord's prior written consent.
Section 9.03. Tenant and Assignee or Sublessee Fully Liable. No
assignment of this Lease nor any sublease of all or any portion of the Premises
shall release or discharge Tenant from any liability, whether past, present, or
future, under this Lease and Tenant shall continue to remain primarily liable
under this Lease. The assignee of any assignment of this Lease, and the
sublessee of any sublease of all or any portion of the Premises, shall execute,
acknowledge, and deliver to Landlord an agreement satisfactory to Landlord in
which the assignee or sublessee assumes and agrees to be bound by all of the
provisions of this Lease.
Section 9.04. Assignment of Rents. Tenant irrevocably assigns to
Landlord, as security for Tenant's obligations under this Lease, all rent from
any subletting of all or any portion of the Premises, and Landlord, as assignee
and as special attorney-in-fact for Tenant, or a receiver for Tenant appointed
on Landlord's application, may collect such rent and apply it toward Tenant's
obligations under this Lease; except that, unless Tenant defaults under this
Lease, Tenant shall have the right to collect such rent.
ARTICLE 10: DEFAULT AND REMEDIES
Section 10.1. Default. The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant:
(a) the vacating or abandoning of the Premises by Tenant;
(b) the failure by Tenant to make any payment of adjusted Minimum
Monthly Rent, additional rent, prepaid rent, any security deposit, Personal
Property Taxes, Late Charge (as defined in Section 10.03), utilities, or any
other sums payable by Tenant to Landlord under this Lease (individually and
collectively, "Rental") as and when due, where such failure shall continue for a
period of three days after written notice of such failure from Landlord to
Tenant. In the event that Landlord serves Tenant with a Notice to Pay Rent or
Quite pursuant to applicable unlawful detainer statutes, such Notice to Pay Rent
or Quit shall also constitute the notice of such failure;
76
<PAGE>
(c) the failure by Tenant to observe or perform any of the
provisions of this Lease to be observed or performed by Tenant, other than
described in the preceding subsection, where such failure shall continue for a
period of 10 days after written notice of such failure from Landlord to Tenant;
provided, however, that if the nature of Tenant's default is such that more than
10 days are required for its cure, then Tenant shall not be deemed to be in
default if Tenant commenced such cure within such 10-day period and thereafter
diligently prosecutes such cure to completion within 30 days after Landlord's
written notice; or
(d) the making by Tenant of any general arrangement or assignment
for the benefit of creditors; Tenant's becoming bankrupt, insolvent or a
"debtor" as defined in _______ U.S. C. Section 101, or any successor statute
(unless, in the case of a petition filed against Tenant, such petition is
dismissed within 30 days after its original filing); the institution of
proceedings under the bankruptcy or similar laws in which Tenant is the debtor
or bankrupt; the appointing of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease (unless possession is restored to Tenant within 30 days
after such attachment, execution or judicial seizure); or, if Tenant is a
partnership or consists of more than one person or entity, any partners of the
partnership or any such other person or entity becoming bankrupt or insolvent or
making a general arrangement to assignment for the benefit of creditors.
Section 10.02. Landlord's Remedies. Landlord shall have the following
remedies if Tenant commits a default or breach under this Lease; these remedies
are not exclusive, but are cumulative in addition to any remedies provided
elsewhere in this Lease, or now or later allowed by law.
(a) Continuation of Lease. No act by Landlord (including without
limitation the acts set forth in the succeeding sentence) shall terminate
Tenant's right to possession unless Landlord notifies Tenant in writing that
Landlord elects to terminate Tenant's right to possession. As long as Landlord
does not terminate Tenant's right to possession, Landlord may (I) continue this
Lease in effect, (ii) continue to collect Rental when due and enforce all the
other provisions of this Lease, (iii) enter the Premises and relet them, or any
part of them, to third parties for Tenant's account, for a period shorter or
longer than the remaining term of this Lease, and (iv) have a receiver appointed
to collect Rental and conduct Tenant's business. Tenant shall immediately pay to
Landlord all costs Landlord incurs in such reletting, including, without
limitation, brokers' commissions, attorneys' fees, advertising costs and
expenses of remodeling the Premises for such reletting.
77
<PAGE>
(b) Rent from Reletting. If Landlord elects to relet all or any
portion of the Premises as permitted by Subsection 10.02(a), rent that Landlord
receives from such reletting shall be applied to the payment of, in the
following order and priority, (i) any indebtedness from Tenant to Landlord other
than Adjusted Minimum Monthly Rent due from Tenant, (ii) all costs incurred by
Landlord in such reletting, and (iii) adjusted Minimum Monthly Rent due and
unpaid under this Lease. After applying such payments as referred to above, any
sum remaining from the rent Landlord receives from such reletting shall be held
by Landlord and applied in payment of future Adjusted Minimum Monthly Rent as it
becomes due under this Lease. In no event shall Tenant be entitled to any excess
rent received by Landlord.
(c) Termination of Tenant's Right to Possession. Landlord may
terminate Tenants right to possession of the Premises at any time, by notifying
Tenant in writing that Landlord elects to terminate Tenant's right to
possession. On Termination of this Lease, Landlord has the right to recover from
Tenant (i) the work at the time of the award of the unpaid Adjusted Minimum
Monthly Rent which had been earned at the time of such termination, (ii) the
work at the time of the award of the amount by which the unpaid Adjusted Minimum
Monthly Rent which would have been earned after such termination until the time
of the award exceed the amount of such loss of Adjusted Minimum Monthly Rent
that Tenant proves could have been reasonably avoided, (iii) the worth at the
time of the award of the amount by which the unpaid Adjusted Minimum Monthly
Rent for the balance of the Term after the time of award (had there been no such
termination) exceeds the amount of such loss of Adjusted Minimum Monthly Rent
that Tenant proves could be reasonably avoided, and (iv) any other amount
necessary to compensate Landlord for all detriment proximately caused by
Tenant's failure to perform Tenant's obligations under this Lease or in the
ordinary course of things would be likely to result therefrom. The "worth at the
tine of the award" of the amounts referred to in Subsections 10.02( c)( i) and
10.02( c) (ii) is to be computed by allowing interest at the rate equal to 10%
per annum, but in no event greater than the maximum rate permitted by applicable
law. The "worth at the time of award" of the amount referred to in Subsection
10.02( c)(iii) is to 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.
(d) Landlord's Right to Cure Default. Landlord, at any time after
Tenant commits a default or breach under this Lease, may cure such default or
breach at Tenant's sole cost. If Landlord at any time, by reason of Tenant's
default or breach, pays any sum or does any act that requires the payment of any
sum, such sum shall be due immediately from Tenant to Landlord at the time such
sum is paid, and shall be deemed additional rent under this Lease.
Section 10.03. Interest and Late Charges. Rental not paid when due
shall bear interest from the date due at a rate equal to 10% per annum, but in
no event greater than the maximum rate permitted by applicable law. Late payment
by Tenant to Landlord of Rental will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which would be impracticable or
extremely difficult to fix. Such costs include, without limitation, processing,
collection and accounting charges, and late charges that may be imposed on
Landlord by the terms of any Mortgage. Therefore, if any Rental is not received
by landlord within five days of its due date, then, without any requirement for
notice to Tenant, Tenant shall pay to Landlord an additional sum of 10% of such
overdue amount as a late charge (the "Late Charge"). Landlord and Tenant agree
that the Late Charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of any late payment by Tenant, and therefore this
Section is reasonable under the circumstances existing at the time this Lease is
made. Acceptance of the Late Charge by Landlord shall not constitute a waiver of
Tenant's default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies available to Landlord under this
Lease.
78
<PAGE>
Section 10.04. Quarterly Payments. In the event that a Late Charge is
payable under this Lease, whether or not collected, for two installments of
Adjusted Minimum Monthly Rent or other Rental due under this Lease, during any
one calendar year during the Term, then Adjusted Minimum Monthly Rent, and
Tenant's Monthly Payments (as defined in Section 12.02), shall automatically
become due and payable quarterly in advance, rather than monthly. All monies
paid to Landlord under this Section may be commingled with other monies of
Landlord and shall not bear interest. In the event of a default in any
obligation of Tenant under this Lease, any balance remaining from funds paid to
Landlord under the provisions of this Section may, at the option of Landlord, be
applied to the payment of any monetary default of Tenant in lieu of being
applied to the payment of Personal Property Taxes, Real Property Taxes and
insurance premiums.
Section 10.05. Waiver. No delay or omission in the exercise of any
right or remedy of Landlord in the event of any default by Tenant shall impair
such right or remedy or be construed as a waiver. The receipt and acceptance by
Landlord of delinquent Rental shall not constitute a waiver of any default other
than the particular rental payment accepted. Landlord's receipt and acceptance
from Tenant, on any date (the "Receipt Date"), of an amount less than Rental due
on such Receipt Date, or to become due (pursuant to Section 3.03, 12.02 or
12.03) at a later date but applicable to a period prior to such Receipt Date,
shall not release Tenant of its obligation (a) to pay the full amount of such
Rental due on such Receipt Date or (b) to pay when due the full amount of such
Rental to become due at a later date but applicable to a period prior to such
Receipt Date. No act or conduct of landlord, including without limitation, the
acceptance of the keys to the Premises, shall constitute an acceptance by
Landlord of the surrender of the Premises by Tenant before the Expiration Date.
Only a written notice from Landlord to Tenant stating Landlord's election to
terminate Tenant's right to possession of the Premises shall constitute
acceptance of the surrender of the Premises and accomplish a termination of this
Lease. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any other or subsequent act by
Tenant. Any waiver by Landlord of any default must be in writing and shall not
be a waiver of any other default concerning the same or any other provision of
this Lease.
79
<PAGE>
ARTICLE 11: SUBORDINATION, ATTORNMENT AND ESTOPPEL
Section 11.01. Subordination. This lease and Tenant's rights
under this Lease are subject and subordinate to any Mortgage, ground lease, or
underlying lease, and to all renewals, modifications, consolidations,
replacements, or extensions thereof, now or hereafter affecting the Premises.
The provisions of this Section shall be self-operative, and no further
instrument of subordination shall be required. In confirmation of such
subordination, however, Tenant shall promptly execute and deliver any
instruments that Landlord, the holder of any Mortgage, or the lessor of any
ground or underlying lease may request to evidence such subordination. If Tenant
fails to execute and deliver any such instruments, Tenant irrevocably
constitutes and appoints Landlord as Tenant's special attorney-in-fact to
execute and deliver such instruments.
Section 11.02. Attornment. If the holder of any Mortgage, or the lessor
of any ground or underlying lease affecting the Premises, shall hereafter
succeed to the rights of Landlord under this Lease, Tenant shall attorn to and
recognize such successor as Tenant's landlord under this Lease, and shall
promptly execute and deliver any instruments that may be necessary to evidence
such attornment, and Tenant hereby irrevocably appoints Landlord as Tenant's
special attorney-in-fact to execute and deliver such instruments on behalf of
Tenant should Tenant refuse or fail to do so. Upon such attornment, this Lease
shall continue in effect as a direct lease between such successor landlord and
Tenant upon and subject to all of the provisions of this Lease.
Section 11.03. Estoppel Certificates. Landlord and Tenant, within 10
days after notice from the other, shall execute and deliver to the other, in
recordable form, a certificate stating that this Lease is unmodified and in
effect, or in effect as modified, and stating all modifications. Such
certificate shall state also the amount of Adjusted Minimum Monthly Rent, the
dates to which Adjusted Minimum Monthly Rent has been paid in advance, and the
amount of any security deposit, prepaid rent or other payment constituting
Rental which has been paid. Failure to deliver such certificate within such
10-day period shall be conclusive upon the party failing to deliver such
certificate for the benefit of the party requesting such certificate, and any
successor in interest to the party requesting such certificate, that this Lease
is in effect and has not been modified except as may be represented by the party
requesting such certificate. If Landlord or Tenant fails to deliver such
certificate within such 10-day period, then the party failing to deliver such
certificate irrevocably constitutes and appoints the other party as its special
attorney-in-fact to execute and deliver such certificate to any third party.
ARTICLE 12: OPERATING EXPENSES (deleted in its entirety).
ARTICLE 13: SUBJECT TO MASTER LEASE
Section 13.01. Master Lease and Sublease. This Lease is a sublease
under and shall be subject and subordinate to (i) a Master Lease (the "Master
Lease") dated October 18, 1983 between the County of San Diego, as lessor, and
HELF Properties, Inc., a California corporation, as Lessee, which Master Lease
is also known as County of San Diego Contract No. 7051 R, and (ii) a Sublease
dated January 1, 1984 between HELF Properties, Inc., a California corporation,
as sublessor, and HELF Investments, as sublessee.
80
<PAGE>
Section 13.02. Definitions. For purposes of Sections 13.03 through
13.06 only, the following definitions shall apply:
(a) "Sublease" shall mean this Lease;
(b) "Sublessee" shall mean Tenant;
(c) "Sublessor" shall mean Landlord;
(d) "Subleased Premises" shall mean the Premises;
(e) "County" shall mean the County of San Diego; and
(f) all other undefined capitalized terms shall have the meanings
assigned to them in the Master Lease.
Section 13.03. Indemnification. Sublessee shall indemnify and save
harmless County of San Diego, its officers, agents, and employees from and
against any and all claims, demands, liabilities, or loss of any kind or nature
which the County, its officers, agents, or employees may sustain or incur, or
which may be imposed upon them or any of them for injury to, or death of,
persons or damage to property, as a result of, arising out of, or in any manner
connected with this Sublease or with occupancy and use of the Subleased Premises
by Sublessee, its officers, agents, employees, licensees, patrons, or visitors.
Sublessee agrees to pay any and all costs and expenses, including but not
limited to, court costs and reasonable attorney's fees incurred by County of any
such claims, demands, or liabilities.
Section 13.04. Insurance. Sublessee agrees to provide County with a
Certificate of Public Liability in an amount satisfactory to the Lease
Administrator, but in no event less than:
(a) $500,000 bodily injury each person,
(b) $1,000,000 bodily injury each occurrence, and
(c) $100,000 property damage
OR $1,000,000 combined single limit in lieu of above,
(d) Worker's compensation to statutory limits.
Section 13.05. Provisions Constituting Sublease. The Sublease is
subject to all of the terms and conditions of the Master Lease including
Gillespie Field Development Standards and Performance Standards. Sublessee shall
assume and perform the obligations of Sublessor and Lessee in said Master Lease,
to the extent said terms and conditions are applicable to the premises subleased
pursuant to this Sublease. Sublessee shall not commit or permit to be committed
on the Premises any act or omission which shall violate any term or condition of
the Master Lease. In the event of the termination of Sublessor's interest as
lessee under the Master Lease for any reason, then this Sublease shall terminate
coincidently therewith without any liability of Sublessor and County to
Sublessee.
Section 13.06. Federal Aviation Administration Requirements.
(a) Sublessee for itself, its personal representatives,
successors in interest, and assigns, as a part of the consideration hereof, does
hereby covenant and agree that (i) no person on the grounds of race, color, or
national origin shall be excluded from participation, denied the benefits of, or
be otherwise subjected to discrimination in the use of said facilities; (ii)
that in the construction of any improvements on, over, or under such land, and
the furnishing of services thereon, no person on the grounds of race, color, or
national origin shall be excluded from participation in, denied the benefits of,
or otherwise be subjected to discrimination; and (iii) that Sublessee shall use
the premises in compliance with all other requirements imposed by or pursuant to
Title 49, Code of Federal Regulations, Department of Transportation, Subtitle A,
Office of the Secretary, Part 21, Nondiscrimination in Federally-assisted
programs of the Department of Transportation-Effectuation of Title VI of the
Civil Rights Act o 1964, and as said Regulations may be amended.
81
<PAGE>
(b) That in the event of breach of any of the above
nondiscrimination covenants, County shall have the right to terminate the Lease
and to reenter and repossess said land and the facilities thereon, and hold the
same as if said lease had never been made or issued.
(c) Sublessee shall furnish its accommodations and/or services
on a fair, equal and not unjustly discriminatory basis to all users thereof and
it shall charge fair, reasonable and not unjustly discriminatory prices for each
unit or service; PROVIDED, THAT Sublessee may be allowed to make reasonable and
nondiscriminatory discounts, rebates or other similar type of price reductions
to volume purchasers.
(d) Non-compliance with Provision (c) above shall constitute a
material breach thereof and in the event of such non-compliance County shall
have the right to terminate this Lease and the estate hereby created without
liability therefore or at the election of County or the United States either or
both said Governments shall have the right to judicially enforce Provisions (a),
(b) and (c).
(e) Sublessee assures that it will undertake an affirmative
action program as required by 14 CFR, Part 152, Subpart E, to insure that no
person on the grounds of race, creed, color, national origin, or sex be excluded
from participating in any employment activities covered in 14 CFR Part 152,
Subpart E. Sublessee assures that no person shall be excluded on these grounds
from participating in or receiving the services or benefits of any program or
activity covered by this subpart. Sublessee assures that they similarly will
undertake affirmative action programs and that they will require assurances from
their suborganizations, as required by 14 CFT Part 152, Subpart E, to the same
effect.
ATICLE 14: MISCELLANEOUS
Section 14.01. Notices. Any notice, demand, request, consent, approval,
or communication that either Landlord or Tenant desires or is required under
this Lease to give to the other or any other person shall be in writing and
either served personally or sent by certified repaid, first class U.S. mail
addressed to the other at its address as follows:
82
<PAGE>
Landlord: HELF Investments
7917 Ivanhoe Avenue
Suite 200
La Jolla, CA 92038
Tenant: Exhibit Concepts Inc.
1919 Friendship Drive
El Cajon, CA 92020
Either Landlord or Tenant may change its address by notifying the other of the
change of its address in writing pursuant to this Section. Notice, if mailed as
provided in this Section shall be deemed given 48 hours after the time of such
mailing.
Section 14.02. Quitclaim Deed. Tenant shall execute and deliver to
Landlord on the Expiration Date or earlier termination of this Lease, promptly
on Landlord's request, a quitclaim deed to the Premises, in recordable form,
designating Landlord as transferee.
Section 14.03 Sale or Transfer of Premises. If Landlord sells or
transfers any portion of the Premises, Landlord, on consummation of the sale or
transfer, shall be released from any liability thereafter accruing under this
Lease. If any security deposit or prepaid rent has been paid by Tenant, Landlord
may transfer the security deposit and/or prepaid rent to Landlord's
successor-in-interest and on such transfer Landlord shall be discharged from any
further liability in reference to the security deposit or prepaid rent.
Section 14.04 Attorney's Fees. Deleted in its entirety.
Section 14.05 No Merger. The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation of this Lease, or a termination by Landlord,
shall not work a merger, and shall, at the option of Landlord, terminate any
existing subleases or may, at the option of Landlord, operate as an assignment
to Landlord of any such subleases.
Section 14.06 Time of Essence. Time and strict and punctual performance
are of the essence with respect to each provision of this Lease.
Section 14.07 Successors in Interest. Subject to Article 9, this Lease
shall be binding on and inure to the benefit of Landlord and Tenant and their
successors in interest.
Section 14.08 Easements. Landlord reserves to itself the right, from
time to time, to grant such easements, rights and dedications that Landlord
deems necessary or desirable, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Tenant. Tenant shall sign any documents or instruments to accomplish the
foregoing upon request of Landlord, and failure to do so shall constitute a
material breach of this Lease. Tenant irrevocably appoints Landlord as Tenant's
special attorney-in-fact to execute and deliver such documents or instruments on
behalf of Tenant should Tenant refuse or fail to do so.
83
<PAGE>
Section 14.09. Governing Law. This Lease shall be interpreted in
accordance with the laws of the State of California.
Section 14.10. Integration. This Lease contains all the agreements
between Landlord and Tenant relative to this Lease and cannot be amended or
modified except by a written document executed by Landlord and Tenant.
Section 14.11 Provisions Are Covenants and Conditions. All provisions,
whether covenants or conditions, to be performed or observed by tenant shall be
deemed to be both covenants and conditions.
Section 14.12 Person and Gender. Whenever the singular number is used
in this Lease, the same shall include, when appropriate, the plural; and each
gender shall include, when appropriate, any other genders; and the word "person"
shall include, when appropriate, in addition to a natural person, a corporation,
firm, partnership, joint venture, trust, estate or other entity.
Section 14.13 Severability. If any provision of this Lease is held by a
court to be unenforceable or invalid for any reason, the remaining provisions of
this Lease shall be unaffected by such holding.
Section 14.14 Headings and Exhibits. The article, section and
subsection headings of this Lease shall have no affect to its interpretation.
Any exhibits referred to in this Lease are incorporated in it by reference.
Section 14.15 Joint and Several Obligations. If more than one person is
Landlord or Tenant, the obligations imposed on that party shall be joint and
several.
Section 14.16 Payments in United States Currency. All payments to be
made by Tenant to Landlord under this Lease shall be in United States currency.
Section 14.17 Brokers. Tenant represents that, except as disclosed in
writing to Landlord, no real estate broker, agent, finder, or other person is
responsible for bringing about or negotiating this Lease and that Tenant has not
dealt with any real estate broker, agent, finder, or other person, with respect
to this Lease in any manner. Tenant shall indemnify and defend Landlord against
all liability, costs, expenses and charges (including without limitation
attorneys' fees and disbursements) arising from any claims that may be made
against Landlord by any real estate broker, agent, finder, or other person,
alleging to have acted on behalf of or to have dealt with Tenant. Tenant has
used no broker to negotiate this and Landlord shall indemnify tenant against all
claims that may arise against Tenant in this regard.
84
<PAGE>
HELF INVESTMENTS
By: /s/ 5/7/92
EXHIBIT CONCEPTS, INC.
By: /s/ Michel D'Angelo, 4/30/92
Its President
By: /s/ Michael A. Bartley 4/30/92
Its Vice President
ADDENDUM I
RENT
Tenant shall have early occupancy upon execution of this lease. During early
occupancy tenant to have no rent expenses for the premises except that tenant
will be responsible for all utilities.
The beginning monthly rent shall be based on $.46 per square feet on the total
premises of 33,638 per square foot which relates as $15,473.48 per month.
However, tenant is granted beginning 6/1/97 the following rental abatements:
A. 6/1/92 thru 7/31/92 FREE Rent Due NONE
B. 8/1/92 thru 8/30/92 $8,009.06 Rent Due $ 7,464.42
C. 9/1/92 thru 5/30/93 $ 545.10 Rent Due $14,928.38
There is a cost of living adjustment that goes into effect 4/1/93 which will
increase the rental as stated above for the months of April 1993 and May 1993 as
provided by Section 3.03 of this lease.
EXHIBIT A - Floorplans not included herein
EXHIBIT B
1919 FRIENDSHIP DRIVE
EXHIBIT C
OPITON TO RENEW
Provided Tenant has not been in default of any terms and conditions of this
lease, Landlord hereby grants Tenant the option to extend this lease as follows:
1. All the terms and conditions of the existing lease shall apply to
this option with the exception of the rent and term of lease, which shall be
amended as set forth in this option.
85
<PAGE>
2. The extension shall be for a period of five years, commencing June
1, 1997.
3. The rent on the commencement date shall be the then existing market
rent in buildings comparable to leased premises.
4. Tenant must notify Landlord, or his agent, in writing 90 days prior
to expiration of lease of his intention to exercise this option. Failure to
notify Landlord in writing shall invalidate this option.
5. It this option is granted for a period of more than one year, the
rent for subsequent years shall be increased as per the Cost of Living formula
set forth in the lease.
EXHIBIT D
RIGHT OF FIRST REFUSAL
Tenant shall have first Right of Refusal on any space within the building known
as 1919 Friendship Drive that is not currently leased to tenant during the
original term of this lease if space becomes available.
Tenant shall have 72 hours to exercise his Right of Refusal after receiving
written notice from Landlord or Landlord's agent that they have received an
offer to lease said available premises.
If tenant does not promptly notify Landlord within 72 hours after receiving the
notice of his intent to lease said premises then Landlord may without further
notice lease to any prospective tenant making such offer and thereafter this
first Right of Refusal shall be null and void.
If Tenant should lease additional space in the building during the first year of
this lease, the rental rate shall be the same cost per foot as tenant is then
currently paying.
/s/ Landlord /s/ Michel D'angelo, Tenant
5/7/92 5/7/92
EXHIBIT E
Arbitration
In the event of any dispute hereunder between the parties hereto, or in
the event any dispute is anticipated s to which either party desires to obtain
declaratory relief, the same shall be submitted to binding arbitration, upon the
application of either party, in accordance herewith. The party desiring to
initiate such arbitration shall do so by written notice to the other setting
forth the dispute and naming one arbitrator. The other party, within ten (10)
days after receipt of the notice, shall name a second arbitrator and advise the
initiating party thereof in writing. The two arbitrators so named shall meet
promptly and seek to reach a conclusion as to the matter to be determined, and
their decision, rendered in writing and delivered to the parties hereto, shall
be final and binding on the parties. If the arbitrators fail to reach a decision
within twenty (20) days after the appointment of the second arbitrator, they
shall name a third arbitrator within the succeeding period of five (5) days. The
three arbitrators thereafter shall meet promptly for consideration of the matter
to be determined and the decision of any two of the arbitrators rendered in
writing and delivered to the parties hereto shall be final and binding on the
parties.
86
<PAGE>
In the event that the party not initiating the arbitration proceeding
fails to appoint a second arbitrator within the prescribed time, and/or I the
event that any two arbitrators are unable to agree upon the appointment of a
third arbitrator within the prescribed time, the Superior Court of San Diego
County, California, upon request of any arbitrator theretofore appointed, may
appoint the second and/or third arbitrator, as the case may be, and the
arbitrators as a group shall have the same power and authority to render a final
and binding decision as where the appointments are made pursuant to the
provisions of Paragraph 27.1 above. The prevailing party in any arbitration
shall be entitled to recover from the losing party its reasonable expenses,
attorneys' fees, and costs incurred in connection therewith. (The "prevailing
party" means the party determined by the arbitrator to have most nearly
prevailed, not necessarily the one in whose favor a judgment is rendered.) All
arbitrators shall be practicing real estate attorneys with expertise in
commercial real property issues and shall not be currently representing, and
shall not have, within the preceding ten (10) years represented, either party
thereto. At the time of the arbitration, the parties shall agree upon the rules
governing the arbitration. If the parties cannot agree, the arbitrators shall
choose the rules that shall govern the arbitration.
87
<PAGE>
Professional Fees. If either party becomes involved in litigation or arbitration
raising out of this Agreement or the performance thereof, the court in such
litigation or arbitrator in such arbitration shall award legal expenses
(including, but not limited to attorneys' fees) to the prevailing party. The
award for legal expense shall not be computed in accordance with any court
schedule, but shall be as necessary to reimburse fully.
/s/ Landlord /s/ Michel D'angelo, Tenant
5/7/92 5/7/92
EXHIBIT F
CONDITION OF PREMISES
The Landlord shall at Landlord's expense do the following items after
execution of this lease:
1. HVAC units to be serviced and brought up to good working condition.
2. The offices shall be cleaned, vacuumed and in habitable condition.
3. The sink in the downstairs women's bath shall be secured.
4. The water damage in "sold out" room shall be repaired.
5. All damaged ceiling tiles in office shall be replaced.
6. Large plate glass window that is broken shall be replaced
7. Bathroom plumbing and fixtures shall be repaired as necessary.
Currently there is a sewer gas backup in the building. Landlord shall
see that systems are in good working and safe condition.
8. Skylight leaks shall be repaired.
9. Exterior windows shall be cleaned.
10. Front wall shall be sealed to prevent reoccurrence of water seepage damage.
11. Front entry door shall be repaired.
/s/ Landlord /s/ Michel D'angelo, Tenant
5/7/92 5/7/92
EXHIBIT G
1. Tenant has represented to the Landlord that he is negotiating to sell
interest in his business to another firm located in the Eastern United
States that is in a similar business.
If this sale is consummated at any time during this lease, prior to
completion of the sale the new owner or its assignee corporation will agree
to assume full responsibility for the lease and agrees to execute an
assumption agreement.
Upon compliance with the foregoing, the provisions of section 9.01 shall be
deemed fulfilled.
88
<PAGE>
2. Upon execution of this lease Tenant has accepted the property in the "as
is" condition with the exception of those items listed on Exhibit F.
Currently Tenant occupies the premises located at 1800, 1810 and 1820 John
Towers. Tenant has the right to occupy that location rent free until July
30, 1992. For any period beyond July 30th that Tenant occupies the John
Towers locations, rent shall be paid at the rate of .46 per foot for
whatever portion is being used (to be prorated on a 30 day month).
/s/ Landlord /s/ Michel D'angelo, Tenant
5/7/92 5/7/92
89
<PAGE>
LEASE ADDENDUM
This Lease Addendum by and between Helf Investments, a California partnership
(Landlord), and Sparks Exhibits Limited, successor to Exhibit Concepts Inc.,
(Tenant) to that certain lease entered into the 29th day of April, 1992 between
the two parties for premises located at 1919 Friendship Drive, El Cajon,
California.
1. As of January 11, 1995, landlord hereby leases to Tenant the contiguous
premises, consisting of approximately 13,104 square foot and ending
simultaneously with the above described lease on May 31, 1997.
2. The beginning rental shall be $4,717.44 per month payable on or before the
first day of each month during the described term of the Lease. All rental
cost of living adjustments shall be governed by the above referenced lease,
as specifically described in Section 3.01, 3.02, 3.03 and 3.04 of said Lease
and shall take place simultaneously with that Lease.
3. A Security Deposit of $4,717.44 shall be deposited with Landlord as a
Security Deposit for the performance by Tenant of its obligations as
described in Section 3.05 under the above referenced Lease.
4. The premises covered in this Lease addendum is leased to Tenant on a Gross
basis whereby the Landlord is responsible for property taxes, common area
charges and building insurance. Tenant is responsible for all utilities and
all repairs and maintenance within the premises.
5. These premises are leased to Tenant in their "as-is" condition. Landlord
grants Tenant the right to create an opening in the wall separating Tenant's
two demised premises. All costs and expenses associated with opening the
wall and the replacement and repairing necessary to close the opening at the
end of this lease shall be borne solely by Tenant.
6. All other terms and conditions as set forth in the above referenced lease
dated April 29, 1992 shall remain in full force and effect, and apply as
well to this Addendum
HELF INVESTMENTS SPARKS EXHIBITS LIMITED
/s/ Frank M. Goldberg /s/ Michael Tomkin
General Partner President
90
<PAGE>
LEASE ADDENDUM
The Lease Addendum by and between Helf Investments, a California partnership
(Landlord) and Sparks Exhibits Ltd., successor to exhibit concepts Inc.
(Tenant), to that certain lease entered into the 29th day of April 1992 between
the two parties for the premises consisting of approximately 46,742 square feet
located at 1919 Friendship Drive, El Cajon, CA and that Lease Addendum by and
between the two parties as of January 13, 1995.
Although the Tenant currently has an option to extend this lease for an
additional five year term according to the above referenced to lease, Tenant is
requesting of Landlord to cancel the five year option to extend and substitute
in its stead a two year option to extend the term of the lease.
Landlord hereby grants to Tenant an option to extend their existing lease for
an additional two year term on the following terms and conditions
1. The expiration of the oniginal lease is May 31, 1997. This two year
extension extends the lease term to May 31, 1999.
2. the five year option to extend the lease term as represented in the
original lease is hereby voided and of no further use or effect.
3. the rent on the commencement date (June 1, 1997) of this two year extension
shall be at the existing market rent in comparable buildings to the leased
premises on a gross rental basis.
4. For this two year extension to be valid, Tenant must execute this Lease
addendum and return it to Landlord prior to October 10, 1996.
5. All other terms and conditions of the existing lease and the first lease
addendum as referred to above, shall remain M' full force and effect during
this entire two year extension and any holdover thereafter including but not
limited to a cost of living increase as provided for in the original lease
occurring every April 1st on an annual basis.
LANDLORD TENANT
HELF INVESTMENT SPARKS EXHIBITS, LTD
/s/ Frank M. Goldberg /s/ Robert B. Ginsburg
General Partner Chief Executive Officer
10/15/96 10/9/96
91
<PAGE>
STANDARD INDUSTRIAL SUBLEASE
1. Parties. This Sublease, dated, for reference purposes, only, November 21,
1996 is made by and between Orepac Holding Company, an Oregon Corporation
(herein called "Sublessor") and Sparks Exhibits Ltd., a California Corporation
(herein called "Sublessee"),
2. Premises. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of San Diego, State of California, commonly known as 8737 Olive Lane, Santee and
described as approximately 30,000 square feet of warehouse, plus the attached
outside yard of approximately 40,000 square feet.
3. Term.
3.1 Term. The term of this Sublease shall be for twenty nine (29) months
and twenty two days commencing on December 16, 1996 and ending on May 31, 1999
unless sooner terminated pursuant to any provision hereof.
3.2 Delay in Commencement. Notwithstanding said commencement dale, if for
any reason Sublessor cannot deliver possession of the Premises to Sublessee on
said date, Sublessor shall not be subject to any liability therefore, nor shall
such failure affect the validity of this Sublease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case, Sublessee shall
not be obligated to pay rent until possession of the Premises is tendered to
Sublessee; provided, however, that if Sublessor shall not have delivered
possession of the premises within sixty (60) days from said commencement date,
Sublessee may, at Sublessee's option, by notice in writing to Sublessor within
ten (10) days thereafter, cancel this Sublease, in which event the parties shall
be discharged from all obligations thereunder. If Sublessee occupies the
Premises prior to said commencement date, such occupancy shall be subject to all
provisions hereof, such occupancy shall not advance the termination date and
Sublessee shall pay rent for such period at the initial monthly rates set forth
below.
4. Rent. Sublessee shall pay to Sublessor as rent for the Premises equal monthly
payments of $10,500.00, in advance, on the first day of each month of the term
hereof. Sublessee shall pay Sublessor upon the execution hereof $10,500.00 as
rent for December 16, 1996 through January 31, 1997. No additional common area,
operating expense or other rental shall be payable by Sublessee. Rent for any
period during the term hereof which is less than one month shall be a protata
portion of the monthly installment. Rent shall be payable in lawful money of the
United States to Sublessor at the address stated herein or to such other persons
or at such other places as Sublessor may designate in writing.
92
<PAGE>
5. Security Deposit. Sublessee shall deposit with Sublessor upon execution
hereof $10,500.00 as security for Sublessee's faithful performance of Sublessees
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Sublease,
Sublessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default with respect to any provision of
this Sublease. Sublessor may use, apply or retain any portion of said deposit
for the payment of any rent or other charge in default or for the payment of any
other sum to which Sublessor may become obligated by reason of Sublessees
default, or to compensate Sublessor for any loss or damage which Sublessor may
suffer thereby. If Sublessor so uses or applies all or any portion of said
deposit, Sublessee shall within ten (10) days after written demand therefore
deposit cash with Sublessor in an amount sufficient to restore said deposit to
the full amount hereinabove stated and Sublessees failure to do so shall be a
material breach of this Sublease. Sublessor shall not be required to keep said
deposit separate from its general accounts. If Sublessee performs all of
Sublessees obligations hereunder said deposit, or so much thereof as has not
theretofore been applied by Sublessor, shall be returned, without payment of
interest or other increment for its use to Sublessee (or at Sublessor's option,
to the last assignee, if any, of Sublessee's interest hereunder) at the
expiration of the term hereof, and after Sublessee has vacated the Premises. No
trust relationship is created herein between Sublessor and Sublessee with
respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for warehouse,
distribution, refurbishing and storage of exhibits and for no other purpose.
6.2 Compliance with Law.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee will use the
Premises, does not violate any applicable building code regulation or ordinance
at the time that this Sublease is executed. In the event it is determined that
this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessors sole
cost and expense, rectify any such violation. In the event Sublessee does not
give to Sublessor written notice of the violation of this warranty within one
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or nuisance or, if there shall be more
than one tenant in the building containing the Premises, which shall tend to
disturb such other tenants.
6.3 Condition of Premises. Except as otherwise provided in paragraph
6.2(a) Sublessee hereby accepts the Premises in their condition existing as of
the date of the execution hereof, subject to all applicable zoning, municipal,
county and state laws, ordinances, and regulations governing and regulating the
use of the Premises, and accepts this Sublease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Sublessee
acknowledges that neither Sublessor nor Sublessors agent have made any
representation or warranty as to the suitability of the Premises for the conduct
of Sublessees business.
93
<PAGE>
7. Master Lease.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", dated May 21, 1994 wherein Vanier
Graphics Corporation, a California Corporation is the lessor, hereinafter
referred to as the "Master Lessor".
7.2 During the terms of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom: Since Sublessor does not want a copy of the Master Lease to
accompany this Sublease, all paragraphs of the Master Lease are excluded.
7.3 The obligations that Sublessee has assumed under paragraph 7.2 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under Paragraph 7.2 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.4 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessees Assumed Obligations.
7.5 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.6 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party tot he
Master Lease.
8. Assignment of Sublease and Default:
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
default shall occur in the performance of Sublessor's obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the rents accruing
under this Sublease. However, if Sublessor shall default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all rent owning and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
94
<PAGE>
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessors obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this sublease without
the consent of Master lessor.
9. Consent of Master Lessor.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the rent and perform and comply
with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any
one else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
( c) The consent to this Sublease shall not constitute a consent
to any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
any one else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liability
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent subletting and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid rents nor any
security deposit paid by Sublessee, nor shall Master Lessor be liable for any
other defaults of the Sublessor under the Sublease.
95
<PAGE>
9.3 The signatures of the Master Lessor and any Guarantors of Sublessor
at the end of this document shall constitute their consent to the terms of this
Sublease.
9.4 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.5 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. Brokers Fee.
10.1 Upon execution hereof by all parties, Sublessor shall pay to Wiese &
Associates, a licensed real estate broker (herein called "Broker"), a fee as set
forth in a separate agreement between Sublessor and Broker, or in the event
there is no separate agreement between Sublessor and Broker, the sum of
$17,745.00, for brokerage services rendered by Broker to Sublessor in this
transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time of
the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to renew
the Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
part thereof, or any adjacent property which Master Lessor owns or in which it
has an interest, then as to any of said transactions Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due
and payable upon the exercise of any option to extend or renew, as to any
extension or renewal, upon the execution of any new lease, as to the new lease
transaction or the exercise of a right of first refusal to lease; or at the
close of escrow, as to the exercise of any option to purchase or other sale
transaction.
96
<PAGE>
10.5 Any transferee of Sublessor's interest in this Sublease, or of
Master Lessor's interest in the Master Lease, by accepting an assignment
thereof, shall be deemed to have assumed the respective obligations of Sublessor
or Master Lessor under this paragraph 10. Broker shall be deemed to be a third
party beneficiary of this paragraph 10.
11. Attorney's Fees. If any party or the Broker named herein brings an action to
enforce the terms hereof or to declare rights hereunder, the prevailing party in
any such action, on trial and appeal, shall be entitled to his reasonable
attorneys fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall inure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
12. Additional Provisions. [If there are no additional provisions draw a line
from this point to the next printed words after the space left here. If there
are additional provisions place the same here].
If this sublease has been filed in its has been prepared for submission to
your attorney for his approval. No representation or recommendation is made
by the real estate broker or its agents or employees as to the legal
sufficiency, legal effect, or tax consequences of this Sublease or the
transaction related thereto.
Orepac Holding Company Inc., an Oregon Corp.
By: /s/ Alan Kink
----------------------------------------
"Sublessor" (Corporate Seal)
Sparks Exhibits Ltd., a California Corporation
"Sublessee" (Corporate Seal)
By: /s/ Alan Goldberg
----------------------------------------
Vanier Graphics Corporation, a California Corp.
By:
----------------------------------------
"Master Lessor" (Corporate Seal)
97
<PAGE>
Additional Paragraphs
To Sublease between Orepac Holding Company, an Oregon Corporation as Sublessor
and Sparks Exhibits, Ltd., a California Corporation as Sublessee for the
Sublease dated November 21, 1996.
12. Zoning and Permits: This lease is contingent upon:
(a) receiving zoning approval from the City of Santee for
Sublessee's proposed use,
(b) receiving a business license from the City of Santee, and
(c) getting Fire Marshall approval for Sublessee's proposed use.
Sublessee shall have until 5 P.M. on December 15, 1996 to investigate, apply for
and receive all of these permits and licenses. After 5 P.M. on December 15,
1996, unless written notice of cancellation is received by Sublessor or
Sublessor's broker, Sublessee waives the ability to cancel this Sublease as a
result of contingencies 12(a), (b) and ( c).
Since Fire Marshall inspections typically take place a couple of weeks after
Sublessee's occupancy, Sublessee accepts full responsibility for investigating
Fire Marshall requirements prior to occupancy and Sublessee accepts full
responsibility for any expenses associated with permits, licenses or
improvements to the property that the Fire Marshall may require as a result of
Sublessee's proposed use.
13. Broker Indemnification: Sublessor and Sublessee shall hold Brokers harmless
for any expense or liability associated with the investigation, satisfaction
and/or mitigation of:
(a) zoning requirements,
(b) business license requirements,
(c) underground tank/clarifier requirements,
(d) Fire Marshall requirements,
(e) Americans with Disabilities Act requirements, and
(f) Hazardous Waste contamination.
Sublessor and Sublessee shall hold Brokers harmless for any expense or liability
associated with:
(a) Sublessee's non-performance of any provision in the Sublease,
(b) any flooding of the premises,
(c) any earthquake damage,
(d) any electromagnetic radiation damage that could be caused by
surrounding power lines, and
(e) any other damage that may result from a natural disaster,
nuclear accident, act of war, act of God or act of Congress.
98
<PAGE>
14. Hazardous Materials Disclosure: Various construction materials may contain
items that have been or may in the future be determined to be hazardous (toxic)
or undesirable and may need to be specifically handled, treated or removed. For
example, some transformers and other electrical components contain PCB's, and
asbestos has been used in components such as fire-proofing, heating and cooling
systems, air duct insulation, spray-on and tile acoustical materials, linoleum,
floor tiles, roofing, dry-wall and plaster.
Due to prior or current uses of the property or other properties in the area,
the property may have hazardous or undesirable metals, minerals, chemicals,
hydrocarbons, or biological or radioactive items (including electrical and
magnetic fields) in soils, water, building components, above and below ground
containers and other accessible and non-accessible areas. Such items may leak or
otherwise be released.
Weise & Associates and its agents have no expertise in the detection or
correction of hazardous or undesirable items. Expert inspections are necessary
and recommended. Current or future laws may require clean up by past, present
and future operators and/or owners. It is the responsibility of the
Seller/Lessor/Sublessor and the Buyer/Sublessee/Sublessee to retain qualified
experts to detect and correct such matters and to consult with the legal counsel
of their choice to determine what provisions, if any, they may wish to include
in transaction documents regarding the property.
15. Environmental Notification and Indemnification:
(a) Sublessors Duty to Notify Sublessee: If Sublessor knows, or
has reasonable cause to believe, that Hazardous Substance, or a condition
involving or resulting from the same, has been located in, on, under or about
the premises, prior to Sublessee's occupancy, Sublessor shall immediately give
notice of such fact to Sublessee. Sublessor, at Sublessee's written request,
shall immediately give Sublessee a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action or
proceeding, given to or received from any governmental authority or private
party or person entering or occupying the Premises, concerning the presence,
spill, release, discharge of or exposure to any Hazardous Substance or
contamination in, or about the Premises, including but not limited to all such
documents as may be involved in any reportable uses involving the premises. At
this time, Sublessee makes such written request.
(b) Sublessor's Indemnification: Sublessor shall indemnify,
protect, defend and hold Brokers and Sublessee, its agents and employees
harmless from and against any and all damages, liabilities, judgments, costs,
claims, liens, expenses, penalties, permits, attorneys and consultant fees
arising out of or involving any hazardous substance or storage tank on the
Premises prior to Sublessee's occupancy.
99
<PAGE>
Sublessor's obligations under this paragraph shall
include, but not be limited to, the effects of any contamination therein or
injury to person, property or the environment created by Sublessor or any other
previous occupants and the cost of investigation (including consultant and
attorney fees and testing), removal, remediation, restoration and/or abatement
thereof, shall be at the sole expense of the Sublessor.
Sublessor shall be responsible for the expense of required
permits, testing, removal and/or replacement of any underground tanks. Sublessee
agrees not to use any underground tanks during the term of the Sublease.
Sublessor has no reason to believe that there are currently underground tanks on
the property.
(c) Sublessee's Responsibilities: It shall be the Sublessee's
sole responsibility to properly dispose of all wastes generated or used in the
course of Sublessees occupancy. Such disposal shall be made in accordance with
all applicable laws, codes and standards provided for such disposal. Sublessee
shall be solely responsible for any clean up of such wastes generated by
Sublessee's use of the premises. Sublessee is specifically prohibited from
dumping any such waste into any drain, toilet facility or outside yard area on
the leased premises, and if used for such disposal, Sublessee shall be fully
responsible for any subsequent clean up.
16. Broker Disclosure: Americans with Disabilities Act: Sublessee is advised to
consult the City of Santee and/or other appropriate agencies to ascertain
whether any modifications shall need to be done to the existing bathrooms in
order to accommodate Sublessees proposed use.
The United States Congress has enacted the Americans with Disabilities Act of
1990 ("ADA"). Among other things, this act is intended to make many business
establishments equally accessible to persons with a variety of disabilities.
State and Local Laws may also mandate changes. As such, modifications to
existing buildings may be required. The real estate Brokers in this transaction
are not qualified to advise as to what, if any, changes may be required now or
in the future. Sublessor and Sublessee should consult their attorneys and
qualified design professionals of their choice for information regarding the
consequences of ADA.
Sublessee shall at all times keep the premises in compliance with ADA, its
supporting regulations, and all similar federal, state and local laws,
regulations and ordinances. If Sublessors consent would be required for
alterations to bring the Premises into compliance, Sublessor agrees to not
unreasonably withhold such consent.
Also, within seven (7) days of receipt, Sublessee and Sublessor shall advise the
other party in writing and provide the other party with copies of any notices
alleging violation of ADA; any claims made or threatened in writing regarding
noncompliance with ADA; or any governmental or regulatory actions or
investigations taken in response to noncompliance with ADA.
100
<PAGE>
17. Electrical Bill: Sublessor shall apportion 39.15% (30,000 s.f. of proposed
lease space/76,622 s.f. total building size) of the total electrical bill on a
monthly basis to Sublessee. This billed amount shall be capped at a maximum of
$400 per month, and will be paid promptly by Sublessee upon receipt. Sublessor
reserves the right to install, at Sublessor's expense, a separate electrical
meter to more accurately measure Sublessee's electrical use. Should such meter
be installed, Sublessee shall then be fully responsible for the electrical power
usage as indicated by the separate meter.
18. Sublease: This is a Sublease where the Master Tenant is Orepac Holding
Corporation, an Oregoin Corporation (referred to throughout this lease as
Sublessor); the subtenant is Sparks Exhibits, Ltd., a California Corporation;
and the Landlord is Vanier Graphics Corporation, a California Corporation,
D.B.A. Vanier Business Forms and Services. Master Tenant shall provide a letter
in which Landlord authorizes and approves of Subtenant's tenancy. Since, master
Tenant does not want a copy of Master Tenant's Lease to accompany this lease,
Master Tenant warrants that no provision of Master Lease is more restrictive on
Subtenant's proposed use than this Sublease Agreement.
19. Tenant Improvements: Sublessor, at Sublessor's expense, shall:
(a) separate and secure a portion of the warehouse to be leased
by Sublessee,
(b) insure roof is free from any known leaks,
(c) deliver premises in broom swept condition, and
(d) insure electrical system is in working order.
20. Expansion into Additional Space: Sublessor has leased spacke, not prt of the
space Sublessee proposes to lease, to other tenant(s) in the building. Should
such tenant(s) vacate, Sublessee shall have the first right, for a period of 10
days after receipt of written notice, to sublease such space on terms identical
to this Sublease (i.e., $0.33 per square foot) for the remaining period ending
May 31, 1999. Wiese & Associates, in conjunction with Colliers Iliff Thorn,
shall draft any and all lease extensions or purchase agreements and be
compensated for such extensions and/or purchase options as previously agreed by
Sublessor.
21. Leased premises: See enclosed "Exhibit A". Diagram not included herein.
22. Use of Dock Levelers: There are currently three (3) dock high levelers on
the east end of the dock platform. The leveler, furthest to the west, and
unobstructed access to such leveler shall always be available on a first
priority basis to the additional subtenant(s) who occupy the remainder of Master
Tenant's space.
101
<PAGE>
23. Restroom Facilities: Sublessee may contract with a "porta-potty" service,
such as R.L. Deters & Sons (619-460-3925) to supply one such "porta-potty" to
the subject premises at a cost of less than $70 per month. Such expense may be
deducted from Sublessees rent when the bill for such service is sent with the
monthly rent payment.
102
<PAGE>
Exhibit 21
Subsidiaries of the Issuer
The following are the Issuer's significant subsidiaries (including state of
incorporation) and percentage of ownership:
1. Sparks Exhibits Holding Corporation (Delaware) 100%
2. Sparks Exhibits Corp. (Pennsylvania) 100%
3. Sparks Exhibits, Inc. (Georgia) 100%
4. Sparks Exhibits, Ltd. (California) 100%
5. Sparks Exhibits Incorporated (Florida) 100%
6. Expose' Display Systems, Inc. (California) 51%
7. Piper Productions, Inc. (Florida) 100%
103
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Marlton Technologies, Inc. on Form S-8 (File No. 33-3647) of our report dated
March 21, 1997 on our audits of the consolidated financial statements of Marlton
Technologies, Inc. as of December 31, 1996 and 1995 and for the three years in
the period ended December 31, 1996 which report is included in this Form 10-KSB.
COOPERS & LYBRAND, LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 27, 1997
104
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000096988
<NAME> MARLTON TECHNOLOGIES, INC.
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,300,010
<SECURITIES> 0
<RECEIVABLES> 5,604,744
<ALLOWANCES> 180,664
<INVENTORY> 4,344,297
<CURRENT-ASSETS> 13,940,317
<PP&E> 5,190,426
<DEPRECIATION> 3,128,354
<TOTAL-ASSETS> 22,190,615
<CURRENT-LIABILITIES> 8,157,001
<BONDS> 0
21,484,340
0
<COMMON> 0
<OTHER-SE> (7,908,166)
<TOTAL-LIABILITY-AND-EQUITY> 22,190,615
<SALES> 38,315,600
<TOTAL-REVENUES> 38,315,600
<CGS> 27,550,933
<TOTAL-COSTS> 27,550,933
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120,266
<INCOME-PRETAX> 2,690,153
<INCOME-TAX> (350,000)
<INCOME-CONTINUING> 2,340,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,340,153
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.42
</TABLE>
