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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
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COMMISSION FILE NUMBER: 0-21044
UNIVERSAL ELECTRONICS INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0204817
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1864 ENTERPRISE PARKWAY WEST
TWINSBURG, OH 44087
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 487-1110
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's outstanding common stock
held by non-affiliates of the Registrant on February 28, 1997, determined using
the per share closing sale price thereof on the National Market of The Nasdaq
Stock Market of $5.25 on that date, was approximately $31,978,469.
As of February 28, 1997, 6,289,308 shares of Common Stock, par value
$.01 per share, of the Registrant were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for its 1997
Annual Meeting of Stockholders to be held on May 28, 1997 are incorporated by
reference into Part III of this Form 10-K.
Except as otherwise stated, the information contained in this Form 10-K is as
of December 31, 1996.
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UNIVERSAL ELECTRONICS INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
ITEM PAGE
NUMBER NUMBER
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PART I
1 Business 1
2 Properties 7
3 Legal Proceedings 7
4 Submission of Matters to a Vote of Security Holders 9
PART II
5 Market for Registrant's Common Stock and Related 11
Stockholder Matters
6 Selected Consolidated Financial Data 12
7 Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
8 Financial Statements and Supplementary Data 17
9 Changes in and Disagreements with Accountants on 33
Accounting and Financial Disclosure
PART III
10 Directors and Executive Officers of the Registrant 34
11 Executive Compensation 34
12 Security Ownership of Certain Beneficial Owners 34
and Management
13 Certain Relationships and Related Transactions 34
PART IV
14 Exhibits, Financial Statement Schedules and Reports 35
on Form 8-K
Signatures 36
Exhibit Index 38
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PART I
ITEM 1. BUSINESS
BUSINESS OF UNIVERSAL ELECTRONICS INC.
Universal Electronics Inc. was incorporated under the laws of Delaware
in 1986 and began operations in 1987. The principal executive offices of the
Company are located at 1864 Enterprise Parkway West, Twinsburg, Ohio 44087, and
its telephone number is (216) 487-1110. As used herein, the terms "Universal"
and the "Company" refer to Universal Electronics Inc. and its subsidiaries
unless the context indicates to the contrary.
Universal develops and markets easy-to-use, preprogrammed universal
remote controls principally for home video and audio entertainment equipment.
The Company sells its remote control products domestically and internationally
under the One For All(R) brand name. The Company also sells its remote control
products and proprietary technologies to private label customers, original
equipment manufacturers ("OEMs"), and companies involved in the subscription
broadcast industry. The Company also develops and markets a line of home safety
and automation products under the Eversafe(R) brand name. Sales of home safety
and automation products have been primarily focused on the domestic retail
hardware, food and drug, and mass marketing distribution channels.
GENERAL BUSINESS INFORMATION
Universal has developed a broad line of easy-to-use, preprogrammed
universal remote control products which are marketed principally for home video
and audio entertainment equipment through various channels of distribution,
including domestic retailers, international retailers, private label customers,
OEMs, cable operators and others in the subscription broadcast industry. The
Company's remote controls, capable of controlling from one to eight video and
audio devices, are purchased primarily by consumers who seek to replace lost or
broken remotes or to eliminate multiple remotes. The Company believes that its
universal remote controls can operate virtually all infrared remote controlled
TVS, VCRs, cable converters, CD players, audio components and satellite
receivers, as well as most other infrared remote controlled devices worldwide.
The Company believes its remote control products incorporate certain
significant technological advantages. First, the Company has compiled an
extensive library of over 60,000 infrared codes, which the Company believes is
larger than any other existing library of infrared codes for the operation of
home video and audio devices sold worldwide. The Company's library is updated on
a daily basis to add infrared codes used in newly introduced video and audio
devices. Second, the Company's proprietary software and know-how permit infrared
codes to be compressed before being loaded into a Read Only Memory ("ROM"),
Random Access Memory ("RAM") or an electronically erasable ROM ("E2") chip. This
provides significant cost and space efficiencies that enable the Company to
include more codes in the limited memory space of the chip than are included in
similarly priced products of competitors. Third, the Company has developed a
patented technology that provides the capability to easily upgrade the memory of
the remote control by adding codes from its library that were not originally
included. This technology utilizes both RAM and E2 chip technologies.
PRODUCTS
Universal Remote Controls
The Company's family of universal remote controls covers a broad
spectrum of suggested prices and performance capabilities. The Company sells its
remote controls through a number of retailers and service centers under the One
For All brand name and to cable operators under the Uniwand(R) brand name.
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In addition, the Company sells customized products to retailers, consumer
electronic accessory suppliers, private label customers, OEMs, cable operators,
and others in the subscription broadcast industry for resale under their
respective brand names. Under the One For All brand name, the Company markets
remote controls capable of controlling from one to eight video and audio
devices, including, but not limited to, TVs, VCRs, cable converters, CD players,
satellite receivers, laser disc players, amplifiers, tuners, turntables,
cassette players, digital audio tape players, and surround sound systems.
Each of the Company's remotes is designed to simplify the use of video
and audio devices. To appeal to the mass market, the number of buttons are
minimized to include only the most popular functions. The Company's universal
remotes are also designed for ease of initial set-up. For most of the Company
products, the consumer simply inputs a three-digit code for each video or audio
device to be controlled. Each remote contains either a RAM, a ROM, or a
combination of ROM and E2 chips. The RAM and the ROM and E2 combination products
allow the remote to be upgraded with additional codes.
The Company introduced its first product, the One For All, in 1987. In
the United States and European markets, One For All brand name products
accounted for 57.3%, 49.5%, and 56.5% of the Company's sales for the years ended
December 31, 1996, 1995 and 1994, respectively.
The One For All product line also includes an "upgradable" line of
remote control products. These products are capable of controlling five to eight
video and audio devices. Each of these products utilizes the Company's E2
technology, contains the Company's patented upgrade technology and, as a result
of other improvements, retains memory while changing batteries which eliminates
the inconvenience experienced by consumers of having to set-up the remote
control each time the batteries are changed.
In the private label, OEM and subscription broadcast markets, the
Company sells its universal remote controls and proprietary technologies to
consumer electronic accessory suppliers and selected retailers for resale under
their respective brand names. The line of products the Company sells under
private label and to OEMs is similar in breadth to the One For All line. By
providing its remote control technology in many forms, including finished remote
control products, integrated circuits, or custom software packages, the Company
can meet the needs of these customers, enabling those who manufacture or
subcontract their manufacturing requirements to use existing sources of supply
and more easily incorporate the Company's technology. This line includes a
product which enhances the features of electronic program guides by enabling
consumers to record programs for future viewing after identifying their
selection in the electronic program guide.
The Company also offers a variety of remote control products designed
for the cable industry, which are sold to multiple system operators ("MSOs")
under the Uniwand(R) brand name and under private labels. These remotes include
the features important to cable operators and are customized to include the
cable operators' brand names and logos as well as special dedicated tune-in keys
for selected premium channels such as HBO(R), Showtime(R) and Encore(R). Such
keys provide the cable operator the added value of built-in advertising for
continued use of the subscription channels.
New Universal Remote Control Products
During 1996, the Company focused its efforts on improving the consumer
appeal and competitiveness of its products by redesigning its product line to
feature sleek new body styles, streamlined keypad layouts and advanced features
in response to newly developed technologies and audio and video devices. These
new products, developed to meet the specifications and needs of all of its
customers including retail, private label, OEM, and cable, were introduced
during the second and third quarters of 1996 and are intended to replace the Big
Easy product line. In addition, the Company incorporated its advanced radio
frequency technology, called The Finder(TM), into one of these new five device
remote controls. This technology allows the user to locate the remote control at
the push of a button.
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Home Safety and Automation Products
Throughout 1996, the Company continued efforts to revamp its home
safety and automation product line and continued to focus its sales efforts to
the retail hardware, food and drug, and mass-marketing distribution channels.
During the year, the Company introduced a universal garage door opener which
utilizes RF technology and is targeted to those consumers needing to replace a
lost or broken garage door opener.
DISTRIBUTION AND CUSTOMERS
The Company's products are sold to a wide variety of customers in
numerous distribution channels. In the United States, its products are sold to
retailers and service centers under the One For All brand name. Internationally,
the Company sells remotes under the One For All brand name to retailers and to
other customers under private labels through its foreign subsidiaries and
distributors. The Company also sells private label remote controls to consumer
electronics accessory manufacturers and selected retailers for resale under
their respective brand names. In addition, the Company sells remote control
products and its proprietary technologies to OEMs for packaging with their
products. The Company also sells its products under the Uniwand brand name, as
well as customized remotes, to cable operators for sale or rental to their
subscribers. The Eversafe line of products is sold to retailers in the United
States such as hardware cooperatives, mass merchandisers, and home centers.
For the year ended December 31, 1996, sales to Wal-Mart and Radio Shack
accounted for approximately 12.4% and 10.6%, respectively, of the Company's net
sales for the year. While management considers the Company's relationships with
each of its customers to be good, the loss of any one key customer could have a
material adverse effect on the Company's results of operations. The Company does
not have long-term purchase contracts with any of its customers and most of the
Company's customers operate on a purchase order basis.
United States Retail
During 1996, the Company continued its strategy to increase the number
of different One For All products carried by its retail customers. The Company
also developed and implemented unique promotions for each retailer to enable
them to differentiate the One For All products carried in their stores. Prior to
1995, the Company utilized its own employees to effect the sales of its One For
All branded products to retailers in the United States. As a part of its
restructuring in 1995, the Company replaced most of its employee retail sales
force with third-party sales representatives.
International Retail
Throughout 1996, the Company continued its sales and marketing efforts
in Australia, Canada, Mexico and selected countries in Europe, East Asia and
South America. As part of these efforts, the Company has two foreign
subsidiaries, One For All B.V., a Netherlands company, and One For All GmbH,
established in Germany. During 1996, the operations of One For All (UK) Ltd., a
third subsidiary, established in the United Kingdom were substantially reduced
and the Company began using a third party distributor in the United Kingdom in
an effort to reduce costs and expand distribution. In addition to these
subsidiaries, the Company utilizes third party distributors in various European
and South American countries and in Mexico and Canada.
Private Label
As a supplier of technology to private label customers, the Company is
able to achieve greater distribution of its proprietary technology in the retail
market, both by distributing to additional retail outlets and by obtaining
further penetration in certain retail outlets also selling the Company's branded
products.
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During 1996, the Company continued efforts to improve product cycles and
planning to better meet the needs of its customers.
Cable
During 1996, the Company provided MSOs with customized remote controls
to complement services offered to their customers, such as the interactive
electronic programming guide. The Company also sells its remotes to
manufacturers of cable converters for resale with their products. The Company is
continuing to expand its marketing efforts to other MSOs providing cable
services in Canada, in Australia and throughout Europe. In addition, the Company
will focus on improving the manufacturing process to more efficiently and timely
provide products to these cable customers.
OEM
During 1996, the Company continued pursuing a further penetration of
the OEM market in the Far East and Europe. Since 1993, the Company has been
working with a major Japanese supplier of dedicated remote controls to large
consumer electronics manufacturers, which the Company believes has enabled it to
reach a much larger audience of OEM customers with whom the Company does
business.
CONSUMER SERVICE AND SUPPORT
Throughout 1996, the Company continued its strategy to review its
customer support program. In 1996, the Company continued to include clearly
written user instruction guides and a limited 90-day warranty with all product
offerings. The Company, however, modified its service "help line" such that the
majority of calls received are directed through its automated "conversant"
system. Live agent help is still available in certain circumstances.
Furthermore, the Company discontinued its "Double Your Money Back Guarantee" on
new product offerings in 1996. In 1997, the Company will continue to review
these programs to determine their value in enhancing and improving the sales of
the Company's products. As a result of this continued review, some or all of
these programs may be modified or discontinued in the future and new programs
may be added.
RAW MATERIALS AND DEPENDENCE ON SUPPLIERS
The Company utilizes third-party manufacturers in the Far East, Mexico
and the United States to produce its remote controls and home safety and
automation products. Kimex Electronics, Limited ("Kimex"), located in the
Republic of Korea, manufactured approximately 29%, 34% and 20%of the Company's
remote control products during 1996, 1995 and 1994, respectively. The Company
has agreed in principle to exchange 24,000 shares of its Common Stock for a 15%
equity interest in Kimex. The majority of Kimex's business is the manufacturing
of the Company's products.
A manufacturer located in the People's Republic of China produced
approximately 16%, 52% and 60% of the Company's remote control products during
1996, 1995 and 1994, respectively.
With the introduction of the new product line in 1996, the Company
began a program of diversification of suppliers and maintenance of duplicate
tooling for its products. This program has allowed the Company to stabilize its
source for products and negotiate more favorable terms with its suppliers.
The Company generally uses standard parts and components, which are
available from multiple sources. The Company has, since 1994, attempted to
reduce its dependence on one supplier of integrated circuit chips for the
purpose of reducing the potential for manufacturing and shipping delays and the
need to maintain additional inventory of these component parts as safety stock
by purchasing some of its chips from a variety of sources. However, the Company
is still heavily dependent on one supplier of integrated circuit chips.
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PATENTS, TRADEMARKS AND COPYRIGHTS
The Company owns a number of United States and foreign patents relating
to its products and technology and has filed applications for other patents that
are pending and has obtained copyright registration for various of its
proprietary software and libraries of infrared codes. The lives of the Company's
patents will continue for a variety of terms ranging from ten to 15 years. While
the Company follows the practice of obtaining patents or copyright registration
on new developments whenever advisable, in certain cases, the Company has
elected common law trade secret protection in lieu of obtaining such protection.
In the Company's opinion, engineering and production skills and experience are
of more importance to its market position than are patents and copyrights. The
Company further believes that none of its business is dependent to any material
extent upon any single patent or trade secret or group of patents or trade
secrets. The names of most of the Company's products are registered or are being
registered as trademarks in the United States Patent and Trademark Office and in
most of the other countries in which such products are sold. These registrations
are valid for a variety of terms ranging from ten to 20 years, which terms are
renewable as long as the trademarks continue to be used. Management regularly
renews those registrations deemed by them to be important to the Company's
operations.
SEASONALITY
The majority of the Company's sales are to retailers either directly
under its One For All brand name or indirectly through its private label and OEM
customers. The Company has, accordingly, experienced stronger demand for its
products in the third and fourth calendar quarters than in the first half of the
year as retailers purchase remote controls prior to the holiday selling season.
Retail, private label and to a lesser degree OEM customers generally commit to
carry new and existing products for the year in the first and second quarters
and initial manufacturing and deliveries take place in the second and third
quarters. Generally, sales to private label customers peak in the third quarter
and branded product sales to retailers peak in the fourth quarter. See "ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS-NOTE 16" for further details regarding the quarterly results of the
Company.
BACKLOG
As of December 31, 1996, the Company had backlog orders representing
approximately $14.7 million in net sales. This reflects an increase in backlog
orders of approximately 38.5% since December 31, 1995, when the Company had
backlog orders representing approximately $10.6 million in net sales. Although
the Company believes current orders to be firm and expects that substantially
all of the backlog will be shipped in 1997, there can be no assurance that such
orders will be shipped. The Company believes that backlog is not a meaningful
indicator of its future performance.
COMPETITION
The Company's principal competitors in the retail and private label
markets for universal remote controls are currently RCA and Sony. The Company's
principal competitors in the OEM market are the original equipment manufacturers
themselves. The market for home safety and automation devices is fragmented,
consisting of a few large and many small competitors operating in relatively
small markets. The Company has a small share of the home safety and automation
market. The Company competes in its markets on the basis of product quality,
product features, price, and customer and consumer support. The Company believes
that it will need to continue to introduce new and innovative products to remain
competitive and to obtain and retain competent personnel to successfully
accomplish its future objectives. Certain of the Company's competitors have
significantly larger financial, technical, marketing and manufacturing resources
than the Company, and there can be no assurance that the Company will remain
competitive in the future.
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ENGINEERING, RESEARCH AND DEVELOPMENT
During 1996, the Company's engineering efforts focused on modifying
existing products and technology to improve their features and lower their
costs, and to develop measures to protect the Company's proprietary technology
and general know-how. In addition to taking steps in an attempt to control costs
through the more efficient carrying out of its activities and systematizing its
operations, the Company continued to update its library of infrared codes daily
to include codes for features and devices newly introduced both in the United
States and internationally and for uncommon devices. New infrared codes are
identified by the Company through many of its activities. The Company also
continually explores ways to improve its software to preprogram more codes into
its memory chips and to ease the upgrading of its remote control products.
Also during 1996, the Company's research and development efforts
continued to focus on the development of new and innovative remotes with
enhanced capabilities, as well as new applications of remote control technology.
Work on new applications to be used within the information superhighway
continued as the Company increased the number of customers with whom it worked
in this area.
The Company is also exploring various opportunities to supply remote
controls for the operation of additional electronic and other devices in the
home using infrared signals, as well as combinations of infrared signals, radio
frequencies, household electrical circuits and telephone lines. Company
personnel are actively involved with the Electronic Industries Association and
the International Electrotechnical Commission, which are in the process of
setting standards for infrared, radio frequency, power line, telephone and cable
communications and networking in the home. There can be no assurance that any of
the Company's research and development projects will be successfully completed.
The Company's engineering, research and development facility, which
moved to Cypress, California in March 1997, had approximately 54 full-time
employees at December 31, 1996. The Company's expenditures on engineering,
research and development in 1996, 1995 and 1994 were $2.6 million, $2.3 million,
and $3.4 million, respectively, of which approximately $288,000, $268,000, and
$461,000, respectively, were for research and development.
ENVIRONMENTAL MATTERS
The Company believes it has materially complied with all currently
existing federal, state and local statutes and regulations regarding
environmental standards and occupational safety and health matters to which it
is subject. During the years ended December 31, 1996, 1995 and 1994, the amounts
incurred in complying with federal, state and local statutes and regulations
pertaining to environmental standards and occupational safety and health laws
and regulations did not materially affect the Company's earnings or financial
condition. However, future events, such as changes in existing laws and
regulations or enforcement policies, may give rise to additional compliance
costs which could have a material adverse effect upon the capital expenditures,
earnings or financial condition of the Company.
EMPLOYEES
At December 31, 1996, the Company employed approximately 254 employees,
of whom 54 were in engineering, research and development, 34 in sales and
marketing, 61 in consumer service and support, 83 in operations and warehousing
and 22 in executive and administrative staff. None of the Company's employees is
subject to a collective bargaining agreement or is represented by a union. The
Company considers its employee relations to be good.
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FOREIGN OPERATIONS
Financial information relating to the Company's foreign operations for
the years ended December 31, 1996, 1995 and 1994, is included in "ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS-NOTE 13".
1995 RESTRUCTURING
In January 1995, the Company restructured the way in which its domestic
retail sales are made. In the first quarter of 1995, the Company began phasing
out most of its employee retail sales force and began utilizing third party
sales representatives to effect the sale of the Company's branded remote control
products to retailers throughout the United States. Each of the sales
representatives was assigned a given territory and was asked to sign an
agreement which set forth the terms and conditions of appointment. The Company
believes that the terms and conditions of such agreements were standard for the
industry. The terminated employees received a severance package which included a
combination of salary, commission when applicable, and all employee benefits
received during the normal course of employment for a period of time ranging
from one to four months based on years of service. In addition, the Board of
Directors of the Company replaced the President and Chief Executive Officers on
January 24, 1995. The former President and Chief Executive Officer's severance
package included a combination of salary and all employee benefits received
during the normal course of employment until December 31, 1995. As a result of
this restructuring, the Company recorded a pre-tax charge of approximately
$977,000 to net income in the first quarter of 1995.
ITEM 2. PROPERTIES
The Company's headquarters, which was purchased in February 1996, is
located in Twinsburg, Ohio. The Company utilizes the following office and
warehouse facilities:
Square
Location Purpose or Use Feet Status
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Twinsburg, Ohio Corporate headquarters and 57,600 Owned
warehouse
Cypress, California Engineering, research and 30,768 Leased, expires
development December 31, 1998
Enschede, European headquarters and 10,000 Leased, expires upon
Netherlands consumer support 6 months notice
In March 1997, the Company entered into a sublease for its engineering,
research and development facilities to replace the facilities located in
Anaheim, California. The Company believes its existing facilities will be
adequate to meet the Company's needs for the foreseeable future. See "ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS-NOTE 10" for additional information regarding the Company's
obligations under leases.
ITEM 3. LEGAL PROCEEDINGS
On November 22, 1993, the Company filed an action against the United
States, Universal Electronics Inc. v. The United States, Case No. 93-11-00740,
with the United States Court of International Trade seeking a ruling regarding
the correct classification under the United States Harmonized Tariff Schedule
with respect to duties levied in connection with the importation of certain of
the Company's
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multi-brand remote control products. Trial was completed in the second week of
January 1996 and on March 7, 1996, judgment was entered for the United States.
On April 30, 1996, the Company filed an appeal with the United States Court of
Appeals for the Federal Circuit and oral argument was heard on January 7, 1997.
A decision is expected sometime in the second or third quarter of 1997.
Throughout this litigation (including the pendency of the appeal), the Company
has been paying duties at the higher rate claimed by the government.
On July 26, 1995, an ex-employee, Robert D. Gordon, filed suit against
the Company and two of its employees in the Court of Common Pleas in Summit
County, Ohio, Robert D. Gordon v. Universal Electronics Inc., et. al., Case No.
CV 95 07 2602, alleging age discrimination in employment, wrongful discharge and
conspiracy to discriminate. On August 6, 1996, the Company's Motion for Summary
Judgment was granted. In September 1996, Gordon filed a notice of appeal in the
Court of Appeals, Ninth Appellate District, Summit County, Ohio. Briefing is in
the process of being completed and filed. The Company will continue to
vigorously defend against the appeal.
On December 20, 1995, Jasco Products Co., Inc. filed a breach of
contract action against the Company in the U.S. District Court for the Western
District of Oklahoma, Jasco Products Co., Inc. v. Universal Electronics Inc.,
Case No. CIV-95-1988T, alleging that the Company is in breach of warranties with
respect to product delivered by the Company, has failed to return certain
tooling and must continue providing telephonic customer support. On January 5,
1996, the Company filed a breach of contract action against Jasco Products Co.,
Inc. in the U.S. District Court for the Northern District of Ohio, Universal
Electronics Inc. v. Jasco Products Co., Inc., Case No. 5:96CV0029, alleging that
Jasco has failed to pay for product delivered to and received by them. In the
first quarter of 1996, these two cases were consolidated, with the Ohio matter
being transferred to Oklahoma. In January 1997, the Company amended its
complaint against Jasco by adding allegations that Jasco defrauded the Company
in connection with and in addition to breaching its agreement with the Company.
Throughout this litigation, the Company has vigorously denied liability. Jasco
has admitted owing monies to the Company, but it seeks to offset these amounts
against amounts which it believes to be owed it by the Company.
On August 7, 1996, Sentry Switch Inc. filed suit against the Company in
the Court of Common Pleas, Hamilton County, Ohio, Sentry Switch Inc. v.
Universal Electronics Inc., Case No. A 96-04394, alleging that the Company has
failed to pay for product delivered to and received by the Company. The Company
filed its answer denying these claims and will vigorously defend against them.
As is typical in the Company's industry and the nature and kind of
business in which the Company is engaged, from time to time, various claims,
charges and litigation are asserted or commenced by third parties against the
Company arising from or related to product liability, infringement of patent or
other intellectual property rights, breach of warranty, contractual relations,
or employee relations. The amounts claimed may be substantial but may not bear
any reasonable relationship to the merits of the claims or the extent of any
real risk of court awards. In the opinion of management, final judgments, if
any, which might be rendered against the Company in potential or pending
litigation, would not have a material adverse effect on the Company's financial
condition or results of operations. Moreover, management believes that the
Company's products do not infringe any third parties' patent or other
intellectual property rights.
The Company maintains directors' and officers' liability insurance
which insures individual directors and officers of the Company against certain
claims such as those alleged in the above lawsuits, as well as attorney's fees
and related expenses incurred in connection with the defense of such claims.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year through the solicitation of proxies
or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT*
The following table sets forth certain information concerning the
executive officers of the Company as of February 28, 1997.
NAME AGE POSITION
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Paul D. Arling 34 Senior Vice President, Chief Financial Officer
Richard A. Firehammer, Jr. 39 General Counsel and Secretary
David M. Gabrielsen 39 Chairman, President and Chief Executive Officer
Mark S. Kopaskie 39 Executive Vice President and Chief Operating Officer
Dennis P. Mansour 44 Corporate Controller
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*Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Paul D. Arling has been Senior Vice President and Chief Financial
Officer of the Company since May 1996. From 1993 through May 1996, he served in
various capacities at LESCO, Inc. (a manufacturer and distributor of
professional turf care products) with the most recent being Acting Chief
Financial Officer. Prior to LESCO, he worked for Imperial Wallcoverings (a
manufacturer and distributor of wallcovering products) as Director of Planning
and The Michael Allen Company (a strategic management consulting company) where
he was employed as a management consultant. He obtained a B.S. degree from the
University of Pennsylvania in 1985 and an MBA from the Wharton School of the
University of Pennsylvania in 1992.
Richard A. Firehammer, Jr., Esq. has been General Counsel of the
Company since October 1993 and Secretary since February 1994. From November 1992
to September 1993, he was associated with the Chicago, Illinois law firm,
Shefsky & Froelich, Ltd. From 1987 to 1992, he was with the law firm, Vedder,
Price, Kaufman & Kammholz in Chicago, Illinois. He is admitted to the Bars in
the State of Illinois and the State of Ohio. Mr. Firehammer is also a certified
public accountant. He received a B.S. degree from Indiana University and a J.D.
degree from Whittier College School of Law.
David M. Gabrielsen has been President and Chief Executive Officer of
the Company since January 1995, and prior to that, he served as the Company's
Executive Vice President and Chief Operating Officer, a position he assumed upon
joining the Company in December 1994. From 1989 to December 1994, Mr. Gabrielsen
served in various capacities at Mr. Coffee, Inc. (a manufacturer of home coffee
and tea makers and filters), including Executive Vice President and Chief
Operating Officer. He received a BBA degree from Siena College.
Mark S. Kopaskie has been Executive Vice President and Chief Operating
Officer of the Company since December 1995 and prior to that, he served as the
Company's Senior Vice President of Operations, a position he assumed upon
joining the Company in February 1995. From December 1991 to January 1995, Mr.
Kopaskie served in various capacities at Mr. Coffee, Inc., most recently as its
Senior Vice President, Operations. From March 1990 to November 1991 he served as
a Principal and President and
9
12
Chief Executive Officer of Morrison Industries, L.P. (a manufacturer and
distributor of truck parts). From 1984 to February 1990, Mr. Kopaskie was a
Project Manager for OC Birdair (a specialty construction joint venture between
Owens Corning Fiberglass Corp. and Chemical Fabrics Corporation). He received a
B.S. degree from Clarkson University.
Dennis P. Mansour, CPA has been the Corporate Controller of the Company
since August, 1995. From July 1990 to July 1995, he served as Corporate
Controller and Treasurer of HMI Industries, Inc. (a manufacturer of consumer
floor care products) Prior to joining HMI, Mr. Mansour was with Coopers &
Lybrand, certified public accountants, in various capacities. Mr. Mansour
received a BBA degree from the University of Michigan.
10
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock trades on the National Market of The Nasdaq
Stock Market under the symbol "UEIC".
The following table sets forth, for the periods indicated, the high and
low last reported sale prices for the Company's common stock, as reported on the
National Market of The Nasdaq Stock Market:
1996 1995
--------------------------------- -----------------------------------
High Low HIGH LOW
-------------- ---------- ------------- --------------
First Quarter $11-3/4 $7-3/8 $5-1/4 $3-7/8
Second Quarter 12 9-3/8 7-5/8 4
Third Quarter 11-1/2 5-7/8 8-1/4 6-7/8
Fourth Quarter 6-1/4 5-3/8 8-1/8 7
Stockholders of record on December 31, 1996 numbered 277.
The Company has never paid cash dividends on its common stock and does
not intend to pay cash dividends on its common stock in the foreseeable future.
The Company intends to retain its earnings, if any, for the future operation and
expansion of its business. In addition, the terms of the Company's revolving
credit facility limit the Company's ability to pay cash dividends on its common
stock. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-LIQUIDITY AND CAPITAL RESOURCES" and "ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS-NOTE 5."
11
14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(in thousands, except per share data)
Net sales $ 98,589 $ 105,090 $ 95,939 $ 89,001 $ 50,764
Operating income (loss) $ (4,098) $ 1,179 $ (18,232) $ 7,673 $ 5,362
Net income (loss) $ (2,295) $ 320 $ (12,833) $ 4,899 $ 2,623
Net income (loss) per share $ (0.34) $ 0.05 $ (1.91) $ 0.83 $ 0.74
Weighted average common 6,661 6,778 6,708 5,884 3,186
stock and common stock ======== =========== ========== ========== ==========
equivalents outstanding
Unit sales 15,093 15,612 12,732 7,932 3,905
Selling, General and Administrative 29.0% 27.3% 36.3% 33.9% 34.5%
as a percent of sales
Gross margin 24.9% 29.3% 17.3% 42.5% 45.1%
Net income to sales (2.3%) .30% (13.4%) 5.5% 4.7%
Return on average assets (3.5%) 0.4% (17.1%) 9.8% 14.7%
Working capital $ 36,515 $ 43,996 $ 45,433 $ 60,433 $ 5,368
Ratio of current assets to liabilities 4.4 3.2 2.8 6.1 1.3
Total assets $ 59,451 $ 70,105 $ 75,270 $ 74,863 $ 24,901
Long-term debt $ 3,183 - - - -
Stockholders' equity $ 45,627 $ 50,238 $ 49,803 $ 62,831 $ 6,623
Book value per share $ 7.16 $ 7.44 $ 7.39 $ 9.47 $ 2.31
Ratio of liabilities to liabilities and 23.3% 28.3% 33.8% 16.1% 73.4%
stockholders' equity
12
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the
Company expressed as a percentage of net sales for the periods indicated.
Year Ended December 31,
---------------------------------------------
1996 1995 1994
---------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 74.0 70.7 70.5
Inventory write-down 1.1 -- 12.2
---------------------------------------------
Gross profit 24.9 29.3 17.3
Total operating and administrative expenses 29.0 27.3 36.3
Restructuring expense -- 0.9 --
---------------------------------------------
Operating income (loss) (4.1) 1.1 (19.0)
Interest expense (income) 0.8 1.0 1.0
Other expense (income) (0.3) (0.4) (0.1)
---------------------------------------------
Income (loss) before income taxes (4.6) 0.5 (19.9)
Provision (benefit) for income taxes (2.3) 0.2 (6.5)
---------------------------------------------
Net income (loss) (2.3)% 0.3% (13.4)%
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales in 1996 were $98.6 million compared to $105.1 million 1995.
During 1996, sales of branded remote control products in the United States
accounted for approximately 34.3% of total sales compared to 33.3% in 1995.
Revenues for sales of domestic cable and OEM products were approximately 29.4%
of total revenues for 1996, compared to 36.1% in 1995. Private label sales
during 1996 were approximately 10.7% and 10.6% in 1996 and 1995, respectively.
International sales accounted for approximately 23.0% of the total 1996 revenues
compared to 17.7% in 1995. Revenues generated from Eversafe products accounted
for approximately 2.6% of total 1996 revenues compared to 2.3% in 1995. The
decrease in sales of cable and OEM products as a percentage of total net sales
was primarily due to the anticipated loss of two customers in the first quarter
of the year and a delay in the introduction of the new line of cable remotes
until the fourth quarter of 1996. Competitive and consumer pricing pressures
throughout 1996 resulted in modest increases for the domestic branded remote
revenues. The international revenues improved both from volume increases as well
as changes in product mix towards the higher-end remotes with expanded features
and higher average selling prices.
Domestic net unit sales of all remote control products decreased 5.5%
when compared to 1995 and represented 86.6% of 1996 net unit sales. This
decrease was a result of a decrease in the cable and
13
16
OEM unit sales which were down by 11.5% due to the loss of the two customers as
was discussed in the preceding paragraph. International unit sales in 1996
increased by 17.0% compared to 1995 and amounted to 11.2% of the total unit
sales. The increase in international unit sales primarily reflects an increase
in product category awareness. Unit sales for Eversafe products during 1996 were
approximately the same as in 1995.
As expected, the Company's average domestic retail sales price
decreased in 1996 primarily due to consumer demand for lower-priced remote
controls, competitive pressures and the sales of lower-priced products that were
subject to the 1994 write-down of slow moving inventory. Additionally, with the
introduction of the new line of One for All branded remotes in June, special
programs were developed to sell off the remaining inventories of the older
products. The majority of the slow moving inventory subject to the 1994
write-down has now been disposed of and the Company believes the balance should
be sold off during 1997.
The Company's gross profit margin in 1996 was 24.9% compared to a gross
margin of 29.3% in 1995. Approximately 25% of the decrease was a result of a
pre-tax charge of $1.1 million associated with the write-down of certain
microprocessors used in the One for All branded products. The Company decided to
record the write-down after one of its key suppliers announced in December that
a new line of lower cost and more efficient chips would be introduced in the
third or fourth quarter of 1997. The disposition of slow moving inventory at
little or no gross profit margin and the low margin special programs also
contributed to the overall decrease in gross profit margin as compared to 1995.
In addition to the factors discussed here, gross profit margin is affected by
many factors including, among other things, competitive market pressures, shifts
in product mix, fluctuations in manufacturing and freight costs, changes in
customer mix and aggressive consumer promotions.
Selling, general and administrative expenses during 1996, excluding the
1995 first quarter restructuring charge of $977,000, remained unchanged as
compared to 1995 when as a percentage of sales, selling, general and
administrative expenses increased to 29.0% in 1996 from 27.3% in 1995. The
increase as a percent of sales is principally due to the lower net sales for the
year. Advertising expenses increased by approximately $1.1 million which were
offset by cost reductions for legal expenses, rent and property taxes. Beginning
in January 1995, the Company began a restructuring by phasing out its retail
sales force and utilizing third party sales representatives to effect the sale
of the Company's branded remote control products to retailers throughout the
United States.
Interest expense decreased by $282,000 in 1996 to $768,000. This
decrease is due to reduced borrowing under the Company's revolving letter
agreement and the lower interest rate in effect for the year as a result of the
new credit agreement entered into in November 1995. The Company recorded
interest income of approximately $44,000 and $40,000 in 1996 and 1995,
respectively.
The Company had an effective income tax rate for 1996 of 50.0%. This
rate exceeded the 34% United States statutory rate as a result of the
recognition of previously unrecorded deferred state income taxes and federal
research and development tax credits.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales in 1995 increased by 9.5% to $105.1 million from $95.9
million in 1994. The increase resulted primarily from a 22.6% increase in unit
sales of remote control products over 1994. Of the Company's $105.1 million of
net sales in 1995, sales of branded remote control products in the United States
accounted for approximately 33.3% compared to 40.0% in 1994; cable and OEM sales
in the United States accounted for approximately 36.1% of sales compared to
23.4% in 1994; private label sales were approximately 10.6% of sales compared to
13.6% in 1994; international sales accounted for approximately 17.7% compared to
19.1% in 1994; and sales of Eversafe products accounted for approximately 2.3%
compared to 3.9% in 1994. The decrease in sales of domestic branded remote
14
17
control products as a percentage of net sales was primarily due to competitive
and consumer pricing pressures throughout the year and increases in private
label, cable and OEM sales.
Domestic unit sales of all remote control products increased 27.1%
compared to 1994 and represented 90.7% of 1995 net sales, while 1995
international unit sales decreased by 9.1% compared to 1994. The increase
domestically primarily reflects an increase in product category awareness.
As expected, the Company's average sales price decreased in 1995
primarily due to consumer demand for lower-priced remote controls, competitive
pressures and the sales of lower-priced products that were subject to the 1994
write-down of slow moving inventory. Approximately 85% of the slow moving
inventory subject to the write-down was sold in 1995. The sales of these
products improved the Company's cash position, however, the overall gross margin
was negatively impacted by approximately $1.4 million.
The Company's gross profit margin in 1995 was 29.3% compared to a
pre-inventory write-down gross margin of 31.4% in 1994. Most of the decrease
resulted from the disposition of the slow moving inventory at little or no gross
profit margin. In addition to the above, gross profit margin is affected by many
factors including, among other things, competitive market pressures, shifts in
product mix, fluctuations in manufacturing and freight costs, changes in
customer mix and aggressive consumer promotions.
Selling, general and administrative expenses decreased by 17.7% to
$28.7 million in 1995 from $34.8 million in 1994. As a percentage of sales,
selling, general and administrative expenses decreased to 27.3% in 1995 from
36.3% in 1994. The decrease primarily resulted from significant reductions in
advertising expenditures and from restructuring of the Company's sales force and
the consolidation of the Company's operating locations in the United States.
Beginning in January 1995, the Company began to phase out its retail sales force
and utilized third party sales representatives to effect the sale of the
Company's branded remote control products to retailers throughout the United
States. As a result of this restructuring, the Company's 1995 operating results
include a charge of $977,000.
The Company recorded $1.0 million of interest expense for each of 1995
and 1994, primarily as a result of revolving line of credit borrowing made to
fund its operating and working capital needs. The Company recorded interest
income of approximately $40,000 and $70,000 in 1995 and 1994, respectively.
During 1995, the Company recorded other income of approximately
$376,000 compared to other income of approximately $28,000 in 1994. The increase
is due to favorable litigation settlements.
The Company had an effective income tax rate for 1995 of 41.4%. This
rate exceeded the 34% United States statutory rate as a result of state and
local income taxes, the effect of which was partially offset by the effect of
foreign income taxes at lower rates.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the Company entered into a $22 million revolving credit
agreement with The Provident Bank. The interest rate on this credit agreement,
which expires April 30, 1998, was The Provident Bank's prime rate (8.25% at
December 31, 1996) minus three-quarter percent. In January 1997, this credit
agreement was amended for the second time by modifying some of the financial
covenants and adjusting the interest rate at which the Company borrows under the
credit equal to the bank's prime rate plus one-quarter percent. Under the terms
of this revolving credit facility, the Company's ability to pay cash dividends
on its common stock is restricted and the Company is subject to certain
financial covenants, restrictions on repurchase of Common Stock and other
restrictions. Further, amounts available for borrowing under this credit
facility are reduced by the outstanding balance of the Company's import letters
of credit. The Company pays a commitment fee of a maximum rate of 1/8 of 1% per
year on the unused portion of the credit line. The revolving credit
15
18
facility is secured by a pledge of the Company's accounts receivable, inventory,
equipment, and general intangibles as collateral. At December 31, 1996 the
Company's borrowing under this revolving credit facility approximated $3.2
million. The Company believes that the amount available to it under this
revolving credit facility should be sufficient to meet the planned operating
needs of the Company during 1997.
Cash provided from operating activities was $8.6 million for 1996
compared to $7.7 million in 1995 and cash used for operating activities of $13.4
million in 1994. In 1996, the primary contributors to the improved cash position
were decreases in accounts receivable of approximately $6.2 million and
inventories of approximately $7.9 million. During 1996, trade payables and
accrued expenses were reduced by approximately $3.3 million and the short-term
portion of the Company's line of credit was reduced by $6.1 million. The
long-term portion outstanding on the Company's line of credit is the result of
approximately $2.0 million in financing for the February 1996 purchase of the
Company's facility in Ohio, and the previously announced third quarter open
market purchase of the Company's common shares for approximately $2.6 million.
Capital expenditures in 1996, 1995 and 1994 were approximately $3.4
million, $2.8 million, and $2.5 million, respectively. The Company has currently
budgeted approximately $2.3 million in capital expenditures for 1997.
The Company's working capital needs have typically been greatest during
the third and fourth quarters when accounts receivable and inventories increase
in connection with the fourth quarter holiday selling season. At December 31,
1996, the Company had $36.5 million of working capital compared to $44.0 million
at December 31, 1995. The reduction in working capital is principally due to the
decreases discussed above. The Company believes that internally generated cash,
continued savings through the Company's restructuring efforts and funds
available from its borrowing capacity will be sufficient to fund current
business operations as well as anticipated growth at least through the end of
1997.
OUTLOOK
The Company's focus in 1997 is to continue to seek ways to increase its
customer base worldwide, particularly in the areas of subscription broadcasting
(including cable and cable OEM customers) and its international retail business.
In addition, the Company will increase its focus on creating new applications
for its proprietary and/or patented technologies in the consumer electronics OEM
market, home safety and security market and computer/internet control markets.
The Company will also continue in 1997 to control its overall cost of
doing business. Management believes that through product design changes and its
purchasing efforts, improvements in the Company's gross margins and efficiencies
in its selling, general and administrative expenses can be accomplished.
Management believes the Company's overall gross profit margins should also
improve once the Company has sold through its slow moving inventory, which the
Company expects to accomplish during 1997, although the Company makes no
assurances that this will occur.
In addition, during 1997, management will continue to pursue its
overall strategy of seeking out ways to operate all aspects of the Company more
profitably, including most notably, the Company's U.S. retail business. This
strategy will include looking at acceptable divestiture plans, acquisition
targets and strategic partnership opportunities.
While management believes that the forward looking statements made in
this report are based on reasonable assumptions, the actual outcome of such
statements is subject to a number of risks and uncertainties, including
continued acceptance of the Company's technology and products, the impact of
competitive pressures, including products and pricing, locating and finalizing
acceptable divestiture plans, acquisition targets and/or strategic partners, the
availability of financing for acquisitions on terms acceptable to the Company,
fluctuations in currency exchange rates, the consolidation of and new
competition experienced by members in the cable industry, principally from
satellite and other similar broadcast providers, general economic and stock
market conditions and other risks which are otherwise set forth in this Annual
Report on Form 10-K and the Company's other filings with the Securities and
Exchange Commission.
16
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants 18
Consolidated Balance Sheet at December 31, 1996 and 1995 19
Consolidated Statement of Operations for the years 20
ended December 31, 1996, 1995 and 1994
Consolidated Statement of Stockholders' Equity for the years 21
ended December 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years 22
ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements 23
Consolidated Financial Statements Schedules:
Schedules for the years ended December 31, 1996, 1995 and 1994
II - Valuation and Qualifying Accounts 37
and Reserves
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
17
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Universal Electronics Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index appearing on page 17 present fairly, in all material respects, the
financial position of Universal Electronics Inc. and its subsidiaries at
December 31, 1996 and 1995, and the 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. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Cleveland, Ohio
January 23, 1997
18
21
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEET
December 31,
------------------------------------------------
1996 1995
------------------- --------------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 510,471 $ 872,243
Accounts receivable 20,162,976 26,105,730
Inventories 21,208,007 30,278,282
Refundable income taxes 1,413 795,000
Prepaid expenses and other current assets 3,329,584 2,109,901
Deferred income taxes 1,942,875 3,701,579
------------------- --------------------
Total current assets 47,155,326 63,862,735
Equipment, furniture and fixtures 6,697,155 5,123,069
Patents and trademarks 900,115 801,222
Other assets 488,612 317,832
Deferred income taxes 4,209,319 -
------------------- --------------------
Total assets $59,450,527 $70,104,858
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Revolving credit facility $ - $ 6,120,174
Accounts payable 7,171,130 9,162,328
Accrued income taxes 197,280 306,597
Accrued compensation 518,808 755,619
Other accrued expenses 2,752,978 3,522,133
------------------- --------------------
Total current liabilities 10,640,196 19,866,851
------------------- --------------------
Long Term Debt 3,183,475 -
Stockholders' equity:
Preferred stock, $.01 par value, 624,512 shares
authorized; none issued or outstanding
Common stock, $.01 par value, 20,000,000
shares authorized; 6,787,025 and 6,750,898 shares
issued and outstanding at December 31, 1996 and 1995 67,870 67,509
Paid-in capital 53,950,430 53,623,341
Currency translation adjustment (25,084) 25,020
Accumulated deficit (5,772,610) (3,477,863)
------------------- --------------------
48,220,606 50,238,007
Less cost of common stock held in treasury,
415,000 shares in 1996 2,593,750 -
------------------- --------------------
Total stockholders' equity 45,626,856 50,238,007
------------------- --------------------
Total liabilities and stockholders' equity $59,450,527 $70,104,858
=================== ====================
The accompanying notes are an integral part of these financial statements.
19
22
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- --------------------
Net sales $ 98,588,738 $ 105,089,836 $ 95,938,717
Cost of sales 72,943,343 74,273,775 67,601,757
Inventory write-down 1,112,041 - 11,742,454
-------------------- -------------------- ---------------------
Gross profit 24,533,354 30,816,061 16,594,506
Selling, general and administrative expenses 28,631,064 28,660,433 34,826,728
Restructuring expense - 977,000 -
-------------------- -------------------- --------------------
Operating income (loss) (4,097,710) 1,178,628 (18,232,222)
Interest expense 767,500 1,049,457 993,217
Interest income (44,133) (40,443) (70,267)
Other expense (income) (234,486) (375,712) (27,990)
-------------------- -------------------- --------------------
Income (loss) before taxes (4,586,591) 545,326 (19,127,182)
Provision (benefit) for income taxes (2,291,844) 225,799 (6,293,926)
-------------------- -------------------- --------------------
Net income (loss) $ (2,294,747) $ 319,527 $(12,833,256)
==================== ==================== ====================
Net income (loss) per share $ (0.34) $ 0.05 $ (1.91)
==================== ==================== ====================
Weighted average common stock and
common stock equivalents outstanding 6,661,285 6,777,731 6,708,044
The accompanying notes are an integral part of these financial statements.
20
23
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK TREASURY STOCK
--------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Balance at December
31, 1993 6,634,538 $66,345 - -
Stock options
exercised 107,040 1,071 - -
Loans to employees
for purchases of
Common Stock - - - -
Translation
adjustment - - - -
Net Loss - - - -
------------- ----------- ----------- ----------------
Balance at December
31, 1994 6,741,578 67,416 - -
Stock options
exercised 9,320 93 - -
Loans paid by
employees for
purchases of
Common Stock - - - -
Translation
adjustment - - - -
Net Income - - - -
------------- ----------- ----------- ----------------
Balance at December
31, 1995 6,750,898 67,509 - -
Stock options
exercised 23,391 234 - -
Purchase of treasury
shares - - (415,000) (2,593,750)
Additional shares
issued for employee
retirement plan 12,736 127 - -
Loans paid by
employees for
purchases of
Common Stock - - - -
Translation
adjustment - - - -
Net Income - - - -
------------- ----------- ----------- ----------------
Balance at December
31, 1996 6,787,025 $67,870 (415,000) $(2,593,750)
============= =========== =========== ================
Currency
Transla- TOTAL
tion STOCK-
Paid-In Adjust- ACCUMULATED HOLDERS'
Capital ment DEFICIT EQUITY
------- ---- ------- ------
Balance at December
31, 1993 $53,752,611 $(23,564) $ 9,035,866 $62,831,258
Stock options
exercised 228,363 - - 229,434
Loans to employees
for purchases of
Common Stock (484,989) - - (484,989)
Translation
adjustment - 60,435 - 60,435
Net Loss - - (12,833,256) (12,833,256)
-------------- ----------- ---------------- ----------------
Balance at December
31, 1994 53,495,985 36,871 (3,797,390) 49,802,882
Stock options
exercised 54,190 - - 54,283
Repayment of loans
paid by
employees for
purchases of
Common Stock 73,166 - - 73,166
Translation
adjustment - (11,851) - (11,851)
Net Income - - 319,527 319,527
-------------- ----------- ---------------- ----------------
Balance at December
31, 1995 53,623,341 25,020 (3,477,863) 50,238,007
Stock options
exercised 142,518 - - 142,752
Purchase of treasury
shares - - - (2,593,750)
Additional shares
issued for employee
retirement plan 109,189 - - 109,316
Repayment of loans
paid by
employees for
purchases of
Common Stock 75,382 - - 75,382
Translation
adjustment - (50,104) - (50,104)
Net Loss - - (2,294,747) (2,294,747)
-------------- ----------- ---------------- ----------------
Balance at December
31, 1996 $53,950,430 $(25,084) $ (5,772,610) $45,626,856
============== =========== ================ ================
The accompanying notes are an integral part of these financial statements.
21
24
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994
-------------------- --------------------- -------------------
Cash provided by (used for) operating activities:
Net income (loss) $( 2,294,747) $ 319,527 $(12,833,256)
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Depreciation and amortization 1,646,766 1,315,806 923,862
Provision for doubtful accounts 232,769 298,703 968,758
Inventory write-down 1,112,041 - 11,742,454
Deferred income taxes (2,452,028) (77,234) (2,696,874)
Changes in operating assets and liabilities:
Issuance of common stock for retirement plan 109,316 - -
Accounts receivable 6,193,730 (9,201,940) 1,062,964
Inventory 7,935,572 12,708,501 (9,763,041)
Prepaid expenses and other assets (1,336,298) (251,122) (661,719)
Accounts payable and accrued expenses (3,260,796) (515,272) 1,826,384
Accrued and refundable income taxes 722,891 3,143,151 (3,949,403)
--------------------------------------------------------------
Net cash provided by (used for) operating
activities 8,609,216 7,740,120 (13,379,871)
--------------------------------------------------------------
Cash used for investing activities:
Acquisition of fixed assets (3,436,951) (2,800,576) (2,518,272)
Patents and Trademarks (211,373) (177,443) (217,858)
(Loans to) repayments from employees for
Common Stock purchases 75,982 - (484,989)
--------------------------------------------------------------
Net cash used for investing activities (3,572,942) (2,978,019) (3,221,119)
--------------------------------------------------------------
Cash provided by (used for) financing activities:
Short-term bank borrowing 58,506,665 78,589,810 69,723,898
Short-term bank payments (64,626,839) (83,950,914) (58,243,680)
Long-term debt borrowing 4,593,751 - -
Long-term debt repayments (1,410,275) - -
Deferred financing costs - (25,000) (15,000)
Proceeds from stock options exercised 142,752 54,283 229,434
Treasury stock purchased (2,593,750) -
--------------------------------------------------------------
Net cash provided by (used for) financing
activities (5,387,696) (5,331,821) 11,694,652
--------------------------------------------------------------
Effect of exchange rate changes on cash (10,350) 1,629 141,960
--------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (361,772) (568,091) (4,764,378)
Cash and cash equivalents at beginning of period 872,243 1,440,334 6,204,712
--------------------------------------------------------------
Cash and cash equivalents at end of period $ 510,471 $ 872,243 $ 1,440,334
=============================================================
The accompanying notes are an integral part of these financial statements.
22
25
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany accounts and significant transactions have
been eliminated in the consolidated financial statements.
Revenue Recognition
Product revenues are recognized upon product shipment. The Company provides
allowances for estimated returns of defective or damaged product and other sales
promotions and discounts at the time of product shipment.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries are translated to U.S.
dollars using the exchange rates in effect at the balance sheet date. Results of
operations are translated using the average exchange rates during the period.
Resulting translation adjustments are recorded in a separate component of
stockholders' equity, "Currency Translation Adjustment".
Cash and Cash Equivalents
Cash and cash equivalents include cash accounts and all investments purchased
with initial maturities of three months or less.
Inventories
Inventories consist of remote control devices, home safety and automation
devices and related spare parts and are valued at the lower of cost or market.
Cost is determined using the first-in, first-out method.
Equipment, Furniture and Fixtures
Fixed assets are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. Annual rates
of depreciation range from 15% for furniture, fixtures and office equipment to
50% for engineering equipment. Leasehold improvements are amortized over the
terms of the related leases. When fixed assets are retired or otherwise disposed
of, the cost and accumulated depreciation are removed from the appropriate
accounts and any gain or loss is included in current income.
Patents and Trademarks
Patents and trademarks are amortized over ten years. At December 31, 1996, 1995
and 1994, accumulated amortization was $321,980, $212,203 and $120,710,
respectively.
Income Taxes
Income taxes are recognized during the year in which transactions enter into the
determination of financial statement income. Deferred income taxes are provided
utilizing an asset and liability method that requires
23
26
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company's financial
statements or tax returns.
Research and Development
Research and development expenditures are expensed as incurred. Research and
development expense was $287,665, $267,816, and $461,196, for the years ended
December 31, 1996, 1995 and 1994, respectively.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $1,611,841,
$456,987, and $3,028,868 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Net income (loss) per share
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares and common stock equivalents
outstanding. Common stock equivalents for all periods presented are computed
utilizing the treasury stock method.
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, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
presentation utilized in the year ended December 31, 1996.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable are expected to be collected within one year and consist of the following:
1996 1995
------------------ -------------------
Accounts receivable, gross 20,522,456 26,448,180
Allowance for doubtful accounts (359,480) (342,450)
------------------ -------------------
$20,162,976 $26,105,730
================== ===================
NOTE 3 - INVENTORIES:
Inventories consist of the following:
DECEMBER 31,
-----------------------------------------------
1996 1995
------------------ -------------------
Components $ 8,154,609 $14,127,081
Finished goods 13,053,398 16,151,201
------------------ -------------------
$21,208,007 $30,278,282
================== ===================
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The Company carries significant amounts of inventory in order to satisfy certain
of its customers' inventory requirements on a timely basis. New product
innovations and technological advances may shorten a given product's life cycle,
which may require special programs to reduce inventory to desired levels. During
the fourth quarter of 1996, one of the Company's suppliers of integrated
circuits announced new lower cost chips would be available during the second
half of 1997. As a result, management wrote down the inventory of existing chips
on hand to net realizable value to anticipate the impact of this new technology.
Management continually monitors the inventory status and has developed programs,
when necessary, to control inventory levels and dispose of any excess or
obsolete inventories on hand. Management believes an adequate provision has been
made in the financial statements for any loss on disposition of inventory.
NOTE 4 - EQUIPMENT, FURNITURE AND FIXTURES:
Fixed assets consist of the following:
DECEMBER 31,
1996 1995
----------------------- -------------------
Building $ 2,231,459 $ -
Equipment 7,291,484 6,397,441
Furniture and fixtures 628,570 582,778
Leasehold improvements 19,328 355,309
----------------------- -------------------
10,170,840 7,335,528
Accumulated depreciation (3,608,257) (2,717,834)
----------------------- -------------------
6,562,583 4,617,694
----------------------- -------------------
Construction in Progress 134,571 505,375
----------------------- -------------------
$ 6,697,155 $ 5,123,069
======================= ===================
Depreciation expense was $1,531,520, $1,212,325, and $1,004,181, for the years
ended December 31, 1996, 1995 and 1994, respectively.
NOTE 5 - REVOLVING CREDIT LINE:
On November 22, 1995, the Company entered into a $22 million revolving credit
agreement with The Provident Bank which expires on April 30, 1998. The interest
rate on the borrowing is modified periodically based on formulas specified in
the agreement and is based on the bank's prime rate (8.25% at December 31,
1996) less three-quarter percent. Effective in January 1997, the agreement was
amended to modify certain of the financial covenants and adjust the interest
rate to be equal to the bank's prime rate plus one-quarter of one percent.
Under the terms of this revolving credit facility, the Company's ability to pay
cash dividends on its common stock is restricted and the Company is subject to
certain financial covenants with limits on its ability to repurchase its stock
and other restrictions. Further, amounts available for borrowing under this
credit facility are reduced by the outstanding balance of the Company's import
letters of credit. The Company pays a commitment fee of a maximum rate of 1/8
of 1% per year on the unused portion of the credit line. The revolving credit
facility is secured by a first priority security interest in the accounts
receivable, inventory, equipment and general intangibles of the Company.
Prior to November 1995, the Company's credit facility was provided by Society
National Bank.
The Company had approximately $3.2 and $6.1 million at December 31, 1996 and
1995, respectively, outstanding under this revolving credit facility provided
by The Provident Bank and approximately $0.5 million and $2.6 million at
December 31, 1996 and 1995 respectively, of outstanding import letters of
credit. The weighted average interest rate was 7.47% and 8.59% for the years
ended December 31, 1996 and 1995, respectively. Interest paid on
25
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the revolving credit facilities amounted to $780,411, $1,083,951, and $879,352
for the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 6 - FINANCIAL INSTRUMENTS:
The Company's financial instruments consist primarily of investments in cash and
cash equivalents, accounts receivable and accounts payable, as well as
obligations under the credit facility described above. The carrying values of
these instruments approximate fair value because of their short maturity.
The Company enters into forward exchange contracts to hedge foreign currency
transactions on a continuing basis for periods consistent with its committed
exposures. These contracts are with major financial institutions and the risk of
loss due to the financial institutions' nonperformance is considered remote. The
gains and losses on these forward contracts are recognized in net income when
the underlying foreign currency gain and loss is recognized. At December 31,
1996, the Company had no significant forward exchange contracts.
NOTE 7 - STOCKHOLDERS' EQUITY:
Loans to Employees for Common Stock Purchases
During 1994, the Company loaned $484,989 to certain of its officers and key
employees to enable them to purchase 74,409 shares of the Company's Common Stock
on the open market. The principal amount of the loans is due in full five years
from the inception date, with interest on the loans accruing at the minimum rate
required per annum by the Internal Revenue Code and payable at maturity. These
loans are reflected as a reduction of Stockholders' Equity and are secured by
the Common Stock purchased in accordance with the corresponding Stock Pledge
Agreement. The Stock Pledge Agreement in certain instances accelerates debt
repayment and provides for the forgiveness of the debt. During 1996 and 1995,
$5,600 and $216,769, respectively, was forgiven under the terms of these
agreements.
Fair Price Provisions and Other Anti-Takeover Measures
The Company's Restated Certificate of Incorporation, as amended, contains
certain provisions restricting business combinations with interested
stockholders under certain circumstances and imposing higher voting requirements
for the approval of certain transactions ("fair price" provision). Any of these
provisions could delay or prevent a change in control of the Company.
The "fair price" provisions require that holders of at least two-thirds of the
outstanding shares of voting stock approve certain business combinations and
significant transactions with interested stockholders.
Treasury Stock
In September 1996, 415,000 shares of common stock were purchased by the Company
on the open market for a cost of $2.6 million. The shares will generally be held
by the Company, however, some of these shares will be used by the Company to
compensate the outside directors of the Company.
NOTE 8 - STOCK OPTIONS:
1993 Stock Incentive Plan
On January 19, 1993, the Company's stockholders approved the 1993 Stock
Incentive Plan ("1993 Plan"). Under the 1993 Plan, 200,000 shares of Common
Stock are reserved for the granting of incentive and other stock options to
officers, key employees and non-affiliated directors. The 1993 Plan provides for
the granting of incentive and other stock options through January 19, 2003. All
options outstanding at the
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time of termination of the 1993 Plan shall continue in full force and effect in
accordance with their terms. The option price for incentive stock options and
non-qualified stock options will not be less than the fair market value at the
date of grant. The Compensation Committee shall determine when each option is to
expire, but no option shall be exercisable more than ten years after the date
the option is granted. The 1993 Plan also provides for the award of stock
appreciation rights subject to terms and conditions specified by the
Compensation Committee. No stock appreciation rights have been awarded under
this 1993 Plan.
1995 Stock Incentive Plan
On May 19, 1995, the Company's stockholders approved the 1995 Stock Incentive
Plan ("1995 Plan"). Under the 1995 Plan, 400,000 shares of Common Stock are
available for distribution to the Company's key officers, employees and
non-affiliated directors. The 1995 Plan provides for the issuance of stock
options, stock appreciation rights, performance stock units, or any combination
thereof through May 19, 2005, unless otherwise terminated by the resolution of
the Board of Directors. The option price for the stock options will be equal to
the fair market value at the date of grant. The Compensation Committee shall
determine when each option is to expire, but no option shall be exercisable more
than ten years after the date the option is granted.
1996 Stock Incentive Plan
On December 1, 1996, the Company's board of directors approved the 1996 Stock
Incentive Plan ("1996 Plan"). Under the 1996 Plan, 400,000 shares of Common
Stock are available for distribution to the Company's key officers and
employees. The 1996 Plan provides for the issuance of stock options, stock
appreciation rights, performance stock units, or any combination thereof through
November 30, 2007, unless otherwise terminated by the resolution of the
Company's board of directors. The option price for the stock options will be
equal to the fair market value at the date of grant. The Compensation Committee
shall determine when each option is to expire, but no option shall be
exercisable more than ten years after the date the option is granted.
The Company applies the provisions of ABP Opinion No. 25 in accounting for
stock-based employee compensation; therefore, no compensation expense has been
recognized for its fixed stock option plan as options generally are granted at
fair market value on the date of the grant. In October 1995, Statement of
Financial Accounting No. 123 "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), was issued. The Company adopted the disclosure requirements of this
Statement in 1996 and accordingly, had compensation expense been determined
consistent with SFAS No. 123, the Company's 1996 net loss and primary loss per
share would have been $2,658,136 and $0.40, respectively. The effect on 1995
net income and earnings per share amounts was not material.
The imputed fair value of options at date of grant was estimated using the
Black-Scholes model. The following assumptions were used for the grants in 1996
and 1995, respectively: risk-free interest rate of approximately 5.86% and
6.08%; expected volatility of approximately 46.95 and 54.98; and expected life
of ten years for both 1996 and 1995.
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The following table summarizes the changes in the number of shares of Common Stock under option:
NUMBER OF SHARES OPTION PRICE RANGE
======================= =========================
Shares subject to option at December 31, 1993 331,990 $0.01 - $13.000
----------------------- -------------------------
Options granted 50,000 $ 6.310
Options exercised (107,040) $0.01 - $ 6.658
Options forfeited or expired (7,670) $6.658 - $13.000
----------------------- -------------------------
Shares subject to option at December 31, 1994 267,280 $6.31 - $13.000
----------------------- -------------------------
Options granted 295,500 $4.31 - $7.6875
Options exercised (9,320) $4.31 - $ 6.658
Options forfeited or expired (98,605) $4.31 - $13.000
----------------------- -------------------------
Shares subject to option at December 31, 1995 454,855 $4.31 - $13.000
----------------------- -------------------------
Options granted 447,500 $5.6875 - $11.250
Options exercised (23,391) $ 4.31 - $ 6.658
Options forfeited or expired (75,557) $ 4.31 - $13.000
----------------------- -------------------------
Shares subject to option at December 31, 1996 803,407 $ 4.31 - $13.000
----------------------- -------------------------
Exercisable options at December 31, 1994 53,131 $6.658 - $13.000
======================= =========================
Exercisable options at December 31, 1995 111,412 $6.31 - $13.000
======================= =========================
Exercisable options at December 31, 1996 261,914 $4.31 - $13.000
======================= =========================
Significant option groups outstanding at December 31, 1996 and related weighted
average price and life information follows:
GRANT OPTIONS OPTIONS EXERCISE VESTING
DATE OUTSTANDING EXERCISABLE PRICE PERIOD
02/02/93 39,918 29,610 $13.00 25% per year
08/04/94 33,550 13,550 $ 6.31 25% per year
03/20/95 128,625 44,625 $ 4.31 25% per year
12/15/95 95,500 25,375 $ 7.6875 25% per year
01/01/96 50,000 0 $ 7.6875 25% per year
12/01/96 290,000 98,600 $ 5.6875 33% per year
All Others 166,814 50,154 $ 7.6818 25%-33% per year
Options in the all other category were outstanding at prices ranging from $4.31-$11.25.
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NOTE 9 - SIGNIFICANT CUSTOMERS AND SUPPLIERS
The Company had annual sales to two customers that individually exceeded 10% of
the total Company sales in each of the three years ended December 31, 1996, 1995
and 1994. The sales amounted to $12.3 million and $10.5 million, $12.6 million
and $8.2 million, and $16.0 million and $10.8 million, respectively in 1996,
1995 and 1994. Trade receivables with the previously mentioned customers
amounted to $3.0 million and $4.1 million at December 31, 1996 and 1995,
respectively.
Trade receivables subject the Company to a concentration of credit risk with
customers in the retail sector. The risk is limited due to the large number of
customers comprising the Company's customer base and the Company's performance
of ongoing credit evaluations.
The Company currently purchases a significant portion of its integrated circuit
chips from one vendor. Although there are a limited number of manufacturers of
this component part, management believes that other suppliers could provide
similar parts on comparable terms. A change in suppliers, however, could cause a
delay in manufacturing and a possible loss of sales, which would affect
operating results adversely.
NOTE 10 - LEASES:
The Company leases office and warehouse space and certain office equipment under
operating leases. Rental expense under operating leases was $793,779,
$1,134,688, and $1,016,577, for the years ended December 31, 1996, 1995 and
1994, respectively.
The following summarizes future minimum noncancellable operating lease payments
at December 31, 1996:
Year ending December 31: AMOUNT
-------------------
1997 $299,694
1998 233,490
1999 205,542
2000 50,040
2001 & beyond 9,021
-------------------
Total lease commitments $797,787
===================
NOTE 11 - EMPLOYEE BENEFIT PLANS:
The Company maintains a retirement and profit sharing plan under Section 401(k)
of the Internal Revenue Code for all of its domestic employees that meet certain
qualifications. Participants in the plan may elect to contribute from 1% to 15%
of their annual salary to the plan. The Company may, at its discretion, make
contributions to the plan. During 1996, 1995 and 1994, the Company matched
participants' contributions at 25%. During 1996, 1995 and 1994, the Company's
matching contribution expense was $134,899, $96,485, and $111,130, respectively.
The Company's match in 1996 was in the form of shares of common stock of the
Company. In 1995 and 1994 the matching contribution was in cash.
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NOTE 12 - INCOME TAXES:
In 1996, 1995 and 1994, pretax income (loss) was attributed to the following jurisdictions:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
Domestic operations $ (4,867,074) $ (249,105) $(20,074,452)
Foreign operations 280,483 794,431 947,270
--------------------- --------------------- ---------------------
Total $ (4,586,591) $ 545,326 $(19,127,182)
===================== ===================== =====================
The provision (benefit) for income taxes charged to operations was as follows:
YEAR ENDED DECEMBER 31,
1996 1995 1994
-------------------- ------------------ ------------------------
Current tax expense (benefit):
U.S. federal $ (49,797) $ (67,576) $(3,802,754)
State and local 93,900 140,223 86,436
Foreign 118,082 256,976 326,215
-------------------- ------------------ ------------------------
Total current 162,185 329,623 (3,390,103)
-------------------- ------------------ ------------------------
Deferred tax expense (benefit):
U.S. federal (2,286,243) (31,949) (2,668,895)
State and local (167,786) (71,875) (234,928)
Foreign - - -
-------------------- ------------------ ------------------------
Total deferred (2,454,029) (103,824) (2,903,823)
-------------------- ------------------ ------------------------
Total provision (benefit) (2,291,844) $ 225,799 $(6,293,926)
==================== ================== ========================
Deferred tax liabilities (assets) were comprised of the following at December 31:
==================== ================== ========================
1996 1995 1994
-------------------- ------------------ ------------------------
Depreciation $ 636,189 $ 538,476 $ 195,283
Tax basis differential on
acquired assets - - (16,752)
Other - - -
-------------------- ------------------ ------------------------
Gross deferred tax liabilities 636,189 538,476 178,531
-------------------- ------------------ ------------------------
Capitalized packaging costs (93,979) (140,217) (185,358)
Advertising allowance (228,739) (96,242) (137,066)
Inventory reserves (489,398) (922,835) (2,147,438)
Allowance for doubtful
accounts (109,832) (117,277) (159,134)
Sales return reserve (175,685) (207,259) (364,908)
Capitalized inventory costs (136,540) (384,696) (466,470)
NOL and credit carry forwards (5,353,650) (2,147,903) (218,702)
Promotional rebate reserve (12,444) - (201,137)
Other (362,315) (397,825) (96,862)
-------------------- ------------------ ------------------------
Gross deferred tax assets (6,962,582) (4,414,254) (3,977,075)
-------------------- ------------------ ------------------------
Valuation allowance 174,199 174,199 174,199
-------------------- ------------------ ------------------------
$(6,152,194) $( 3,701,579) $(3,624,345)
==================== ================== ========================
The valuation allowance relates primarily to alternative minimum tax and other
credit carry forwards where it is more likely than not that they may fail to be
realized prior to expiration. In management's opinion,
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33
future taxable income will be sufficient to utilize the tax benefit recognized
as deferred tax assets.
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pre-tax
income from operations as a result of the following:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1996 1995 1994
------------------ ------------------- --------------------
Tax provision (benefit) at statutory
U.S. rate $(1,559,441) $ 185,411 $(6,503,242)
Increase (decrease) in tax provision resulting from:
State and local taxes, net (304,177) 45,359 (98,005)
Foreign tax rate differential 22,718 (7,042) 47,797
Tax exempt interest - - (15,215)
Nondeductible items 24,501 22,167 43,518
Research and development credit (349,797) - -
Other (125,648) (20,096) 57,022
Valuation allowance - - 174,199
------------------ ------------------- --------------------
Tax provision (benefit), as above $(2,291,844) $ 225,799 $(6,293,926)
================== =================== ====================
Income taxes paid (refunded) were $(48,897), $(3,185,788), and $183,853, for the
years ended December 31, 1996, 1995 and 1994, respectively. The Company has an
alternative minimum tax credit carryforward of $268,756 and a federal net
operating loss carryforward of $11,757,025 which expires in 2010 and 2011. The
Company also has a research and development credit carryforward of $631,097
which expires in 2006 through 2010. No income taxes have been provided on the
undistributed earnings of foreign subsidiaries as the earnings are expected to
be permanently reinvested in the foreign operations.
NOTE 13 - BUSINESS SEGMENTS AND FOREIGN OPERATIONS:
The Company operates in a single industry segment and is engaged in the
development, manufacturing and marketing of universal remote controls and
related products principally for home video and audio entertainment equipment.
The Company's customers consist primarily of domestic and international
retailers, private label customers, original equipment manufacturers and cable
operators.
31
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The Company's operations by geographic area are presented below:
1996 1995 1994
Net Sales
North & South America $ 77,804,806 $ 90,934,047 $ 84,510,101
Europe 20,783,933 14,155,789 11,428,616
---------------- ------------------- ----------------
$ 98,588,739 $ 105,089,836 $ 95,938,717
================ =================== ================
Operating Profit
North & South America $ (6,991,052) $ (1,431,344) $ (17,027,638)
Europe 2,893,342 2,609,972 (1,204,584)
---------------- ------------------- ----------------
$ (4,097,710) $ 1,178,628 $ (18,232,222)
================ =================== ================
Identifiable Assets
North & South America $ 51,189,554 $ 64,227,365 $ 69,321,295
Europe 5,877,493 5,948,648
8,260,973
---------------- ------------------- ----------------
$ 59,450,527 $ 70,104,858 $ 75,269,943
================ =================== ================
In addition to the operations of the foreign subsidiaries, the Company had
export sales in 1996, 1995 and 1994 of $11,231,679, $13,457,066, and
$12,239,585, respectively. Foreign currency exchange gains (losses) of $42,586,
$10,589, and $(27,209), were included in the determination of net income for the
years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company is a party to several lawsuits and claims arising in the normal
course of its business. In the opinion of management, the Company's liability or
recovery, if any, under pending litigation and claims would not materially
adversely affect its results of operations, cash flows, or financial condition.
NOTE 15 - RESTRUCTURING
During 1995, the Company reorganized various aspects of its operations which
included work force reductions. The majority of terminated employees received a
severance package which ranged from one to four months of compensation based on
years of service and employee classification. The Company's former President and
Chief Executive Officer received a severance package which expired on December
31, 1995. The severance packages included salary, commission when applicable,
and all employee benefits received during the normal course of employment. As a
result of this restructuring, the Company's 1995 first quarter earnings included
a pre-tax charge of approximately $977,000 ($625,000 or $0.09 per share
after tax).
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NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for the years ended December 31, 1996, 1995, and 1994.
1996
---------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER DECEMBER
30, 31,
------------------ ----------------- ----------------- -------------------
Net sales $ 21,904,966 $ 21,526,241 $ 25,641,152 $ 29,516,379
Gross profit (loss) 5,842,020 6,624,515 6,770,965 5,295,854
Operating income (loss) (1,279,314) 373,874 165,462 (3,667,232)
Net income (loss) (570,152) 247,656 112,183 (2,084,434)
=================== =================== =================== ====================
Net income (loss) per share $ (0.08) $ 0.04 $ 0.02 $ (0.33)
=================== =================== =================== ====================
Weighted average common
stock and common stock
equivalents outstanding $ 6,758,000 $ 6,945,000 $ 6,855,000 $ 6,369,000
=================== =================== =================== ====================
1995
---------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER DECEMBER
30, 31,
------------------ ----------------- ----------------- -------------------
Net sales $ 18,573,156 $ 24,667,322 $ 30,725,939 $ 31,123,419
Gross profit (loss) 4,638,547 7,036,591 9,143,269 9,997,655
Operating income (loss) (2,795,276) 209,462 2,321,726 2,423,225
Net income (loss) (2,453,164) 61,143 1,377,164 1,334,384
=================== =================== =================== ====================
Net income (loss) per share $ (0.36) $ 0.01 $ 0.20 $ 0.20
=================== =================== =================== ====================
Weighted average common
stock and common stock
equivalents outstanding $ 6,741,000 $ 6,775,000 $ 6,829,000 $ 6,830,000
=================== =================== =================== ====================
1994
---------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER DECEMBER
30, 31,
------------------ ----------------- ----------------- -------------------
Net sales $ 20,382,226 $ 23,038,347 $ 27,832,849 $ 24,685,295
Gross profit (loss) 6,761,778 6,641,277 8,610,272 (5,418,821)
Operating income (loss) (1,950,536) (1,846,618) 1,029,846 (15,464,914)
Net income (loss) (1,220,259) (1,254,545) 393,663 (10,752,115)
=================== =================== =================== ====================
Net income (loss) per share $ (0.18) $ (0.19) $ 0.06 $ (1.60)
=================== =================== =================== ====================
Weighted average common
stock and common stock
equivalents outstanding $ 6,635,000 $ 6,712,000 $ 6,742,000 $ 6,742,000
=================== =================== =================== ====================
During the fourth quarter of 1994, the Company recorded an inventory write-down
and unusual sales discounts in the form of price protection of approximately
$11,742,000 and $2,181,000, respectively. The total after-tax charge was
$9,189,000 or $1.39 per share. During the fourth quarter of 1996, the Company
wrote down a portion of its inventory of microprocessors after one of its major
suppliers announced a new line of lower cost chips would be available in the
second half of 1997. The write-down amounted to $1,112,000 on a pretax basis or
$0.11 per share for the full year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by Item 401 of Regulation S-K with respect to the
directors of the Company will be contained in and is hereby incorporated by
reference to the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934. Information regarding executive officers of the Company is set forth in
Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 402 of Regulation S-K will be contained in
and is hereby incorporated by reference to the Company's definitive Proxy
Statement for its 1997 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by Item 403 of Regulation S-K will be contained in
and is hereby incorporated by reference to the Company's definitive Proxy
Statement for its 1997 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 404 of Regulation S-K will be contained in
and is hereby incorporated by reference to the Company's definitive Proxy
Statement for its 1997 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
34
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) LIST OF FINANCIAL STATEMENTS
See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS" for a list of the
consolidated financial statements included herein.
(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULES
See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS" for a list of the
consolidated financial statement schedules included herein.
(a)(3) LIST OF EXHIBITS REQUIRED TO BE FILED BY ITEM 601(A) OF THE
REGULATION S-K ARE INCLUDED AS EXHIBITS TO THIS REPORT:
See EXHIBIT INDEX at page 38 of this Form 10-K for a List of
Exhibits to be filed pursuant to Item 601(a) of this
Regulation S-K.
(b) No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1996.
35
38
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Twinsburg, State of Ohio on the 26th day of March, 1997.
UNIVERSAL ELECTRONICS INC.
By:/s/David M. Gabrielsen
------------------------
David M. Gabrielsen
Chairman, President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
David M. Gabrielsen and Paul D. Arling as true and lawful attorneys-in-fact and
agents, each acting alone, with full powers of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this Annual Report on Form 10-K, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully for
all intents and purposes as he might or could do in person, thereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on the 26th day of March, 1997, by the
following persons in the capacities indicated.
NAME & TITLE SIGNATURE
Paul D. Arling
Senior Vice President, Chief Financial Officer /s/Paul D. Arling
and Treasurer and Director ------------------
(Principal Financial Officer)
David M. Gabrielsen /s/David M. Gabrielsen
Chairman, President and Chief Executive Officer -------------------
and Director
(Principal Executive Officer)
Peter L. Gartman /s/Peter L. Gartman
Director -------------------
Bruce A. Henderson /s/Bruce A. Henderson
Director -------------------
Brian J. Jackman /s/Brian J. Jackman
Director -------------------
Mark S. Kopaskie /s/Mark S. Kopaskie
Executive Vice President and Chief Operating Officer -------------------
and Director
Dennis P. Mansour /s/Dennis P. Mansour
Corporate Controller -------------------
(Principal Accounting Officer)
William C. Mulligan /s/William C. Mulligan
Director ------------------
Thomas G. Murdough, Jr. /s/Thomas G. Murdough, Jr.
Director -----------------------
36
39
UNIVERSAL ELECTRONICS INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ADDITIONS
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING OF COSTS AND AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------ --------------- ----------------- -------------- -----------------
Valuation account for accounts
receivable:
Year Ended December 31, 1996 $342,450 $232,625 $215,595 $359,480
Year Ended December 31, 1995 $496,501 $298,703 $452,754 $342,450
Year Ended December 31, 1994 $129,955 $981,770 $615,224 $496,501
* Doubtful accounts are charged off, net of recoveries, directly to operations.
37
40
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- -------------- -------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of Universal Electronics
Inc., as amended (Incorporated by reference to Exhibit 3.1 to
the Company's Form S-1 Registration filed on or about
December 24, 1992 (File No. 33-56358))
3.2 Amended and Restated By-laws of Universal Electronics Inc.
(Incorporated by reference to Exhibit 3.2 to the Company's
Form S-1 Registration filed on or about December 24, 1992
(File No. 33-56358))
3.3 Certificate of Amendment to Restated Certificate of
Incorporation of Universal Electronics Inc. (Incorporated by
reference to Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 filed on
April 1, 1996 (File No. 0-21044))
10.1 Purchase and Sale Agreement dated January 22, 1991, as
amended, by and between Universal Electronics Inc. and
Eveready Battery Company, Inc. (Incorporated by reference to
Exhibit 10.9 to the Company's Form S-1 Registration filed on
or about December 24, 1992 (File No. 33-56358))
*10.2 Stock Option Agreement dated January 1, 1992 by and
between Universal Electronics Inc. and Bruce V. Vereecken
(Incorporated by reference to Exhibit 10.11 to the Company's
Form S-1 Registration filed on or about December 24, 1992
(File No. 33-56358))
*10.3 Form of Stock Option Agreement dated July 24, 1992 by and
between Universal Electronics Inc. and Michael D. Reilly
(Incorporated by reference to Exhibit 10.12 to Amendment No.
1 to the Company's Form S-1 Registration filed on or about
January 21, 1993 (File No. 33-56358))
*10.4 Form of Universal Electronics Inc. 1993 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.13 to Amendment No.
1 to the Company's Form S-1 Registration filed on or about
January 21, 1993 (File No. 33-56358))
10.5 Standard Industrial Lease dated January 24, 1992 by and
between Universal Electronics Inc. and RREEF USA Fund II, Inc.
(Incorporated by reference to Exhibit 10.24 to the Company's
Form S-1 Registration filed on or about June 25, 1993 (File No.
33-65082))
10.6 Revolving Credit Agreement dated as of June 24, 1993 by and
between Universal Electronics Inc. and Society National Bank
(Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1993 (File No. 0-21044))
10.7 First Amendment to Revolving Credit Agreement dated June
10, 1994 by and between Universal Electronics Inc. and
Society National Bank (Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 (File No. 0-21044))
38
41
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- -------------- -------------------------------------------------------------------------
10.8 Promissory Note dated June 10, 1994 by and between
Universal Electronics Inc. and Society National Bank
(Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (File No. 0-21044))
10.9 Security Agreement Account Receivable, Inventory and
Equipment dated June 30, 1994 by and between Universal
Electronics Inc. and Society National Bank (Incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994 (File No. 0-
21044))
10.10 Lock Box Agreement dated June 30, 1994 by and between
Universal Electronics Inc. and Society National Bank
(Incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (File No. 0-21044))
10.11 Form of Secured Promissory Note by and between Universal
Electronics Inc. and certain employees used in connection with
loans made to the employee to enable them to make open
market purchases of shares of Universal Electronics Inc.
Common Stock (Incorporated by reference to Exhibit 10.5 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994 (File No. 0-21044))
10.12 Form of Stock Pledge Agreement by and between Universal
Electronics Inc. and certain employees used in connection with
loans made to the employees to enable them to make open
market purchases of shares of Universal Electronics Inc.
Common Stock (Incorporated by reference to Exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994 (File No. 0-21044))
10.13 Second Amendment to Revolving Credit Agreement dated
October 10, 1994 by and between Universal Electronics Inc.
and Society National Bank (Incorporated by reference to Exhibit
10.19 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 0-21044))
10.14 Loan and Security Agreement dated November 21, 1995 by
and between Universal Electronics Inc. and The Provident Bank
(Incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995 filed on April 1, 1996 (File No. 0-21044))
10.15 Copy of Promissory Note dated November 21, 1995 by and
between Universal Electronics Inc. and The Provident Bank
(Incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995 filed on April 1, 1996 (File No. 0-21044))
39
42
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- -------------- -------------------------------------------------------------------------
10.16 Commercial Letters of Credit Master Agreement dated
November 21, 1996 by and between Universal Electronics Inc.
and The Provident Bank (Incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 filed on April 1, 1996 (File No.
0-21044))
10.17 Intercreditor Agreement dated November 21, 1995 by and
between The Provident Bank and Society National Bank and
acknowledged and agreed to by Universal Electronics Inc.
(Incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995 filed on April 1, 1996 (File No. 0-21044))
10.18 Lockbox Service Contract dated November 10, 1995 by and
between Universal Electronics Inc. and The Provident Bank
(Incorporated by reference to Exhibit 10.24 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995 filed on April 1, 1996 (File No. 0-21044))
*10.19 Form of Universal Electronics Inc. 1995 Stock Incentive Plan
(Incorporated by referenced to Exhibit B to the Company's
Definitive Proxy Materials for the 1995 Annual Meeting of
Stockholders of Universal Electronics Inc. filed on May
1, 1995 (File No. 0-21044))
*10.20 Form of Stock Option Agreement by and between Universal
Electronics Inc. and certain employees used in connection with
options granted to the employees pursuant to the Universal
Electronics Inc. 1995 Stock Incentive Plan (filed herewith)
*10.21 Form of Stock Option Agreement by and between Universal
Electronics Inc. and certain non-affiliated directors used in
connection with options granted to the non-affiliated directors
pursuant to the Universal Electronics Inc. 1995 Stock Incentive
Plan (filed herewith)
10.22 First Amendment to Loan and Security Agreement dated July
31, 1996 by and between Universal Electronics Inc. and The
Provident Bank (filed herewith)
*10.23 Form of Universal Electronics Inc. 1996 Stock Incentive Plan
(Incorporated by reference to Exhibit 4.5 to the Company's
Form S-8 Registration Statement filed on March 26,
1997 (File No. 333-23985))
*10.24 Form of Stock Option Agreement by and between Universal
Electronics Inc. and certain employers used in connection with
options granted to the employees pursuant to the Universal
Electronics Inc. 1996 Stock Incentive Plan (Incorporated by
reference to Exhibit 4.6 to the Company's Form S-8
Registration Statement filed on March 26, 1997 (File
No. 333-23985))
10.25 Sublease dated January 10, 1997 by and between Universal
Electronics Inc. and Edgemont Sales Company, a division of
IKON Office Solutions, Inc. (filed herewith)
40
43
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- -------------- -------------------------------------------------------------------------
11.1 Statement re: computation of per share earnings (filed
herewith)
21.1 List of Subsidiaries of the Registrant (filed herewith)
23.1 Consent of PRICE WATERHOUSE LLP (filed herewith)
24.1 Power of Attorney (filed as part of the signature page hereto)
27.1 Financial Data Schedule (filed herewith)
* Management contract or compensation plan or arrangement identified
pursuant to Item 14(c) of the Form 10-K.
41
1
Exhibit 10.20
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT is made as of the date set forth on the
signature page hereof by and between Universal Electronics Inc., a Delaware
corporation (the "Corporation") and the undersigned Optionee (the "Optionee").
As used in this Agreement, the term "Corporation" shall include, where
applicable, any and all of its subsidiaries.
WHEREAS, the Board of Directors of the Corporation (the "Board") has
approved the Universal Electronics Inc. 1995 Stock Incentive Plan (the "Plan")
and has submitted the Plan to the stockholders of the Corporation for their
approval; and
WHEREAS, the Corporation desires to grant to the Optionee an option
("Option") to purchase shares of the Corporation's common stock, par value $0.01
per share (the "Stock"), upon the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, the parties, intending to be legally bound, hereto
agree as follows:
1. GRANT AND DESIGNATION OF OPTION. Upon the execution and delivery of
this Agreement and the related Stock Option Certificate of even date herewith
(the "Certificate"), the Corporation hereby grants to the Optionee the Option to
purchase the aggregate number of shares of Stock set forth on the Certificate at
the price per share ("Option Price") further set forth on the Certificate. The
Option granted hereunder shall not be treated as an incentive stock option
within the meaning of Section 422A of the Internal Revenue Code of 1986, as
amended.
2. TERM AND EXERCISE OF OPTION. Subject to earlier termination,
acceleration or cancellation of the Option as provided herein, the term of the
Option shall be for that period of time also set forth on the Certificate (the
"Option Period") and, subject to the provisions of this Agreement, the Option
shall be exercisable at such times and as to such number of shares as determined
on the schedule set forth on the Certificate.
3. METHOD OF EXERCISE. The Option may be exercised by written notice to
the Corporation (the "Exercise Notice") at its offices at 1864 Enterprise
Parkway West, Twinsburg, Ohio 44087 (or such other offices of the Corporation
which are hereinafter designated by the Corporation) to the attention of the
Secretary of the Corporation. The Exercise Notice shall state (i) the election
to exercise the Option, (ii) the total number of full shares in respect to which
it is being exercised, and (iii) shall be signed by the person or persons
exercising the Option. The Exercise Notice shall be accompanied by the
Certificate and a certified or cashier's check for the full amount of the
purchase price of such shares, or as may be permitted by the Board, by
certificates for shares of previously owned Stock in lieu of or in combination
with such cash payment. Upon receipt of the foregoing, the Corporation shall
issue the shares of Stock as to which the Option has been duly exercised and
shall return the Certificate, duly endorsed to reflect such exercise, to the
Optionee.
1
2
4. OPTIONEE'S REPRESENTATIONS.
(a) Optionee represents and warrants that any and all shares
acquired through the exercise of rights under the Option granted pursuant to
this Agreement will be acquired for Optionee's own account and not with a view
to, or present intention of, distribution thereof in violation of the Securities
Act of 1933, as amended and the rules and regulations promulgated thereunder
(the "1933 Act") and will not be disposed of in contravention of the 1933 Act.
(b) Optionee acknowledges that Optionee is able to bear the
economic risk of the investment in any and all shares of Stock acquired through
the exercise of rights under the Option for an indefinite period of time because
the Stock has not been registered under the 1933 Act and, therefore, cannot be
sold unless subsequently registered under the 1933 Act or an exemption from such
registration is available.
(c) Optionee has reviewed this Agreement and has had an
opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of Stock and has had full access to such other
information concerning the Corporation as Optionee has requested.
5. RESTRICTION ON EXERCISE. This Option may not be exercised if the
issuance of such shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this Option, the Corporation may require Optionee to make any
representation and warranty to the Corporation as may be required by any
applicable law or regulation. All exercises of the Option must be for full
shares of Stock only.
6. EFFECT OF TERMINATION OF EMPLOYMENT. Except as set forth in
Paragraphs 7 and 8 below, in the event that Optionee's employment with the
Corporation ceases for any reason, Optionee may (or Optionee's estate or
representative, in the event of Optionee's death during the applicable exercise
period as set forth in this Paragraph 6), during the earlier of (i) the 180 day
period following such cessation of employment or (ii) the remaining term of the
Option Period, exercise the Option to the extent such Option was exercisable on
the date such employment ceased and, on such date, that portion of the Option
which was not exercisable shall automatically terminate without further action
by the parties hereto and, in all events, to the extent not exercised, the
Option shall terminate in its entirety at the end of business on the applicable
exercise period as set forth in this Paragraph 6.
7. EFFECT OF TERMINATION OF EMPLOYMENT WITHOUT CAUSE OR DUE TO
CONSTRUCTIVE TERMINATION.
(a) In the event that Optionee's employment with the
Corporation is terminated by the Corporation without "Cause" (as such term is
defined in subparagraph 7(b) below), or in the event of "Constructive
Termination" (as such term is defined in subparagraph 7(c) below), Optionee
shall become immediately fully vested in the Option without further action by
the
2
3
parties hereto, and, to the extent not previously exercised, shall be
exercisable in whole or in part with respect to all remaining shares of Stock
covered by the Option and may be exercised by Optionee (or Optionee's estate or
representative, in the event of Optionee's death) at any time prior to the
expiration of the Option Period.
(b) For purposes of this Agreement, "Cause" shall mean (i) the
willful and continued failure by Optionee to substantially perform Optionee's
duties with the Corporation (other than a failure resulting from Optionee's
death or "Total Disability" (as such term is defined in subparagraph 7(e)
below)) after a demand for substantial performance is delivered to Optionee by
the Corporation which specifically identifies the manner in which it is believed
that Optionee has not substantially performed Optionee's duties; (ii) the
willful engaging by Optionee in gross misconduct materially and demonstrably
injurious to the property or business of the Corporation; or (iii) Optionee's
commission of fraud, misappropriation or a felony. For purposes of this
definition of "Cause", no act or failure to act on Optionee's part will be
considered "willful" unless done, or omitted to be done, by Optionee not in good
faith and without reasonable belief that Optionee's action or omission was in
the interests of the Corporation or not opposed to the interests of the
Corporation.
(c) For purposes of this Agreement, "Constructive Termination"
shall occur on that date on which Optionee resigns from employment with the
Corporation, if such resignation occurs within eighteen (18) months after the
occurrence of (i) the failure of Optionee to be elected or re-elected or
appointed or reappointed to such office which Optionee holds (other than as a
result of a termination for "Cause") if Optionee is an officer of the
Corporation and the office which Optionee holds is one to which Optionee is
elected according to the Corporation's By-laws; (ii) a change in Optionee's
functions, duties, or responsibilities such that Optionee's position with the
Corporation becomes substantially less in responsibility, importance, or scope;
or (iii) a "Change in Control" (as defined in subparagraph 7(d) below).
(d) For purposes of this Agreement, a "Change in Control"
shall be deemed to occur when (i) any "person" or "group" (as such terms are
used in Sections 3(a), 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder (the "1934
Act")), other than (1) a trustee or other fiduciary holding securities under any
employee benefit plan of the Corporation or (2) a corporation owned directly or
indirectly by the stockholders of the Corporation in substantially the same
proportions as their ownership of Stock in the Corporation immediately prior to
any such occurrence, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the total voting power of the then
outstanding securities of the Corporation entitled to vote generally in the
election of directors (the "Voting Stock"); (ii) individuals who are members of
the Board on the date of this Agreement and any individual who becomes a member
of the Board hereafter whose nomination for election as a director was approved
by the affirmative vote of a majority of such Directors, cease to constitute a
majority of the members of the Board; (iii) there occurs a merger or
consolidation of the Corporation with any other corporation or entity, other
than a merger or consolidation which would result in the Voting Stock of the
Corporation immediately outstanding
3
4
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 80% of
the total voting power represented by the Voting Stock or the voting securities
of such surviving entity outstanding immediately after such merger or
consolidation; (iv) there occurs a sale or transfer or disposition of all or
substantially all of the Corporation's assets to any other corporation or
entity, other than a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as their
ownership of Stock in the Corporation immediately prior to such sale, transfer
or disposition; or (v) the dissolution or liquidation of the Corporation.
(e) For purposes of this Agreement, "Total Disability" shall
mean an event of illness or other incapacity of Optionee resulting in Optionee's
failure or inability to discharge Optionee's duties as an employee of the
Corporation for ninety (90) or more days during any period of 120 consecutive
days.
8. EFFECT OF TERMINATION OF EMPLOYMENT DUE TO DEATH OR TOTAL
DISABILITY. In the event that Optionee's employment with the Corporation ceases
or is terminated due to Optionee's death or Total Disability, Optionee (or
Optionee's estate or representative, in the event of Optionee's death) may
during the earlier of (i) the one (1) year period following such cessation or
termination of employment or (ii) the remaining term of the Option Period,
exercise the Option to the extent such Option was exercisable on the date such
employment ceased or was terminated and, on such date, that portion of the
Option which was not exercisable shall automatically terminate without further
action by the parties hereto and, in all events, to the extent not exercised,
the Option shall terminate in its entirety at the end of business on the
applicable exercise period as set forth in this Paragraph 8; provided, however,
the Board, in its sole discretion, may approve the full vesting to Optionee (or
Optionee's estate or representative, in the event of Optionee's death) in the
Option and, in such event, to the extent not previously exercised, the Option
shall be exercisable in whole or in part with respect to all remaining shares of
Stock covered the Option and may be exercised by Optionee (or Optionee's estate
or representative, in the event of Optionee's death) at any time prior to the
expiration of the Option Period.
9. RIGHT OF A STOCKHOLDER. Optionee shall not have any rights as a
stockholder with respect to any shares of Stock unless and until legended
certificates for such shares of such Stock are issued.
10. WITHHOLDING OF TAXES. Whenever the Corporation is required to issue
shares of Stock upon exercise hereunder, the Corporation shall have the right to
require the recipient to remit in cash (or with the consent of the Board, shares
of Stock previously owned by the recipient or issuable upon such exercise) to
the Corporation an amount sufficient to satisfy any federal, state and/or local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares of Stock.
11. ADJUSTMENTS. In the event of any change in the outstanding shares
of Stock of the Corporation by reason of a stock dividend or distribution,
recapitalization, merger,
4
5
consolidation, split-up, combination, exchange of shares or the like, the Board
shall adjust the number of shares of Stock which may be issued under the Plan
and shall provide for an equitable adjustment of any outstanding Option or
shares of Stock issuable pursuant to an outstanding Option under the Plan.
12. COMPLIANCE WITH CERTAIN LAWS AND REGULATIONS. If the Board shall
determine, in its sole discretion, that the listing, registration or
qualification of the shares subject to the Option upon any securities exchange
or under any law or regulation, or that the consent or approval of any
governmental regulatory body is necessary or desirable in connection with the
granting of the Option or the acquisition of shares thereunder, the Optionee
shall supply the Board or the Corporation, as the case may be, with such
certificates, representations and information as the Board or the Corporation,
as the case may be, may request and shall otherwise cooperate with the
Corporation in obtaining any such listing, registration, qualification, consent
or approval.
13. ADDITIONAL RESTRICTIONS ON TRANSFER. The certificates representing
the Stock purchased upon the exercise of the Option will bear the following
legend until such shares of Stock have been registered under an effective
registration statement under the 1933 Act:
The securities represented by this certificate were originally issued
on _____________________, 19___, have not been registered under the
Securities Act of 1933, as amended, or under the securities laws of any
state or other jurisdiction (together, the "Securities Laws") and may
not be offered for sale, sold or otherwise transferred or encumbered in
the absence of compliance with such Securities Laws and until the
issuer hereof shall have received from counsel acceptable to issuer a
written opinion reasonably satisfactory to issuer that the proposed
transaction will not violate any applicable Securities Laws.
14. NOTICES. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, delivered by overnight courier,
or mailed by first class mail, to the Optionee at Optionee's most recent address
on file in the records of the Corporation, to the Corporation at the address set
forth or established pursuant to Paragraph 3 or to such other address or to the
attention of such other person as the recipient party shall have specified by
prior written notice to the sending party. Any notice under this Agreement will
be deemed to have been given when received.
15. SEVERABILITY. This Agreement and each provision hereof shall be
valid and enforced to the fullest extent permitted by law. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision. Without limiting the
generality of the foregoing, if the scope of any provision contained in this
Agreement is too broad to permit enforcement to its fullest extent, such
provision shall be enforced to the maximum extent permitted by law, and the
parties hereby agree that such scope may be judicially modified accordingly.
5
6
16. COMPLETE AGREEMENT. This Agreement and those documents expressly
referred to herein embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
17. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same agreement.
18. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Optionee, the Corporation and
their respective permitted successors and assigns (including personal
representatives, heirs and legatees), and is intended to bind all successors and
assigns of the respective parties, except that Optionee may not assign any of
Optionee's rights or obligations under this Agreement except to the extent and
in the manner expressly permitted hereby.
19. REMEDIES. Each of the parties to this Agreement will be entitled to
enforce its rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may, in its sole discretion,
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement, without the necessity of posting
bond or any other security.
20. WAIVER OR MODIFICATION. Any waiver or modification of any of the
provisions of this Agreement shall not be valid unless made in writing and
signed by the parties hereto. A waiver by either party of any breach of this
Agreement shall not operate as a waiver of any subsequent breach.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
on the day of , 199 .
OPTIONEE UNIVERSAL ELECTRONICS INC.
___________________________ By:_________________________________
Signature Its:________________________________
___________________________
Print Name
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Certificate Number:_____________
UNIVERSAL ELECTRONICS INC.
STOCK OPTION CERTIFICATE
------------------------
THIS CERTIFIES THAT ____________________________has been awarded an
OPTION to purchase _______________shares of common stock, par value $0.01 per
share, of UNIVERSAL ELECTRONICS INC. at a price per share of $___________. This
Certificate is issued in accordance with and is subject to the terms and
conditions of the related Stock Option Agreement of even date herewith (the
"Agreement").
THIS OPTION is not transferable except in accordance with the terms and
conditions of the Agreement.
THIS OPTION shall expire ten (10) years from the date of this
Certificate.
THIS OPTION shall be exercisable as to all or a portion of the number
of shares set forth above as follows:
On and After the Following Maximum Percentage Taking
Dates, But Prior to Expiration Into Account Prior Exercises
- ------------------------------ ----------------------------
____________________________ _________%
____________________________ _________%
____________________________ _________%
____________________________ _________%
____________________________ _________%
IN WITNESS WHEREOF, UNIVERSAL ELECTRONICS INC. has caused this Stock
Option Certificate to be signed by its duly authorized officer the _____ day
of ____________, 199___.
UNIVERSAL ELECTRONICS INC.
By:_____________________________
Its:____________________________
(See Reverse for Record of Option Exercises)
7
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Exhibit 10.21
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT is made as of the date set forth on the
signature page hereof by and between Universal Electronics Inc., a Delaware
corporation (the "Corporation") and the undersigned Optionee (the "Optionee").
As used in this Agreement, the term "Corporation" shall include, where
applicable, any and all of its subsidiaries.
WHEREAS, the Board of Directors of the Corporation (the "Board") has
approved the Universal Electronics Inc. 1995 Stock Incentive Plan (the "Plan")
and has submitted the Plan to the stockholders of the Corporation for their
approval; and
WHEREAS, the Corporation desires to grant to the Optionee an option
("Option") to purchase shares of the Corporation's common stock, par value $0.01
per share (the "Stock"), upon the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, the parties, intending to be legally bound, hereto
agree as follows:
1. GRANT AND DESIGNATION OF OPTION. Upon the execution and delivery of
this Agreement and the related Stock Option Certificate of even date herewith
(the "Certificate"), the Corporation hereby grants to the Optionee the Option to
purchase the aggregate number of shares of Stock set forth on the Certificate at
the price per share ("Option Price") further set forth on the Certificate. The
Option granted hereunder shall not be treated as an incentive stock option
within the meaning of Section 422A of the Internal Revenue Code of 1986, as
amended.
2. TERM AND EXERCISE OF OPTION. Subject to earlier termination,
acceleration or cancellation of the Option as provided herein, the term of the
Option shall be for that period of time also set forth on the Certificate (the
"Option Period") and, subject to the provisions of this Agreement, the Option
shall be exercisable at such times and as to such number of shares as determined
on the schedule set forth on the Certificate.
3. METHOD OF EXERCISE. The Option may be exercised by written notice to
the Corporation (the "Exercise Notice") at its offices at 1864 Enterprise
Parkway West, Twinsburg, Ohio 44087 (or such other offices of the Corporation
which are hereinafter designated by the Corporation) to the attention of the
Secretary of the Corporation. The Exercise Notice shall state (i) the election
to exercise the Option, (ii) the total number of full shares in respect to which
it is being exercised, and (iii) shall be signed by the person or persons
exercising the Option. The Exercise Notice shall be accompanied by the
Certificate and a certified or cashier's check for the full amount of the
purchase price of such shares, or as may be permitted by the Board, by
certificates for shares of previously owned Stock in lieu of or in combination
with such cash payment. Upon receipt of the foregoing, the Corporation shall
issue the shares of Stock as to which the Option has been duly exercised and
shall return the Certificate, duly endorsed to reflect such exercise, to the
Optionee.
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4. OPTIONEE'S REPRESENTATIONS.
(a) Optionee represents and warrants that any and all shares
acquired through the exercise of rights under the Option granted pursuant to
this Agreement will be acquired for Optionee's own account and not with a view
to, or present intention of, distribution thereof in violation of the Securities
Act of 1933, as amended and the rules and regulations promulgated thereunder
(the "1933 Act") and will not be disposed of in contravention of the 1933 Act.
(b) Optionee acknowledges that Optionee is able to bear the
economic risk of the investment in any and all shares of Stock acquired through
the exercise of rights under the Option for an indefinite period of time because
the Stock has not been registered under the 1933 Act and, therefore, cannot be
sold unless subsequently registered under the 1933 Act or an exemption from such
registration is available.
(c) Optionee has reviewed this Agreement and has had an
opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of Stock and has had full access to such other
information concerning the Corporation as Optionee has requested.
5. RESTRICTION ON EXERCISE. This Option may not be exercised if the
issuance of such shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this Option, the Corporation may require Optionee to make any
representation and warranty to the Corporation as may be required by any
applicable law or regulation. All exercises of the Option must be for full
shares of Stock only. In addition, Optionee must continuously serve as a
"Non-affiliated Director" (as such term is defined within the Plan) of the
Corporation for a period of twelve (12) consecutive months from the date of this
Agreement before Optionee can exercise any part of the Option granted hereby.
6. EFFECT OF CEASING TO BE A NON-AFFILIATED DIRECTOR OF THE
CORPORATION.
(a) In the event that Optionee's service with the Corporation
terminates by reason of Optionee's death, Total Disability, retirement from
active service as a director of the Corporation, or if Optionee ceases being a
Non-affiliated Director of the Corporation, Optionee (or Optionee's estate or
representative, in the event of Optionee's death) may during the earlier of (i)
the three (3) year period following such cessation or termination or (ii) the
remaining term of the Option Period, exercise the option to the extent such
Option would on the date of exercise have been exercisable if Optionee had
continued to serve as a Non-affiliated Director of the Corporation, and, in all
events, to the extent not exercised, the Option shall terminate in its entirety
at the end of business on the applicable exercise period as set forth in this
subparagraph 6(a).
(b) For purposes of this Agreement, "Total Disability" shall
mean an event of illness or other incapacity of Optionee resulting in Optionee's
failure or inability to discharge
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Optionee's duties as a Non-affiliated Director of the Corporation for ninety
(90) or more days during any period of 120 consecutive days.
7. RIGHT OF A STOCKHOLDER. Optionee shall not have any rights as a
stockholder with respect to any shares of Stock unless and until legended
certificates for such shares of such Stock are issued.
8. WITHHOLDING OF TAXES. Whenever the Corporation is required to issue
shares of Stock upon exercise hereunder, the Corporation shall have the right to
require the recipient to remit in cash (or with the consent of the Board, shares
of Stock previously owned by the recipient or issuable upon such exercise) to
the Corporation an amount sufficient to satisfy any federal, state and/or local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares of Stock.
9. ADJUSTMENTS. In the event of any change in the outstanding shares of
Stock of the Corporation by reason of a stock dividend or distribution,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like, the Board shall adjust the number of shares of Stock which
may be issued under the Plan and shall provide for an equitable adjustment of
any outstanding Option or shares of Stock issuable pursuant to an outstanding
Option under the Plan.
10. COMPLIANCE WITH CERTAIN LAWS AND REGULATIONS. If the Board shall
determine, in its sole discretion, that the listing, registration or
qualification of the shares subject to the Option upon any securities exchange
or under any law or regulation, or that the consent or approval of any
governmental regulatory body is necessary or desirable in connection with the
granting of the Option or the acquisition of shares thereunder, the Optionee
shall supply the Board or the Corporation, as the case may be, with such
certificates, representations and information as the Board or the Corporation,
as the case may be, may request and shall otherwise cooperate with the
Corporation in obtaining any such listing, registration, qualification, consent
or approval.
11. ADDITIONAL RESTRICTIONS ON TRANSFER. The certificates representing
the Stock purchased upon the exercise of the Option will bear the following
legend until such shares of Stock have been registered under an effective
registration statement under the 1933 Act:
The securities represented by this certificate were originally issued
on _____________________, 19___, have not been registered under the
Securities Act of 1933, as amended, or under the securities laws of any
state or other jurisdiction (together, the "Securities Laws") and may
not be offered for sale, sold or otherwise transferred or encumbered in
the absence of compliance with such Securities Laws and until the
issuer hereof shall have received from counsel acceptable to issuer a
written opinion reasonably satisfactory to issuer that the proposed
transaction will not violate any applicable Securities Laws.
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12. NOTICES. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, delivered by overnight courier,
or mailed by first class mail, to the Optionee at Optionee's most recent address
on file in the records of the Corporation, to the Corporation at the address set
forth or established pursuant to Paragraph 3 or to such other address or to the
attention of such other person as the recipient party shall have specified by
prior written notice to the sending party. Any notice under this Agreement will
be deemed to have been given when received.
13. SEVERABILITY. This Agreement and each provision hereof shall be
valid and enforced to the fullest extent permitted by law. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision. Without limiting the
generality of the foregoing, if the scope of any provision contained in this
Agreement is too broad to permit enforcement to its fullest extent, such
provision shall be enforced to the maximum extent permitted by law, and the
parties hereby agree that such scope may be judicially modified accordingly.
14. COMPLETE AGREEMENT. This Agreement and those documents expressly
referred to herein embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
15. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same agreement.
16. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Optionee, the Corporation and
their respective permitted successors and assigns (including personal
representatives, heirs and legatees), and is intended to bind all successors and
assigns of the respective parties, except that Optionee may not assign any of
Optionee's rights or obligations under this Agreement except to the extent and
in the manner expressly permitted hereby.
17. REMEDIES. Each of the parties to this Agreement will be entitled to
enforce its rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may, in its sole discretion,
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement, without the necessity of posting
bond or any other security.
18. WAIVER OR MODIFICATION. Any waiver or modification of any of the
provisions of this Agreement shall not be valid unless made in writing and
signed by the parties hereto. A
4
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waiver by either party of any breach of this Agreement shall not operate as a
waiver of any subsequent breach.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
on the __ day of __, 199_.
OPTIONEE UNIVERSAL ELECTRONICS INC.
_________________________ By:_______________________________
Signature Its:______________________________
_________________________
Print Name
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Certificate Number: ____
UNIVERSAL ELECTRONICS INC.
STOCK OPTION CERTIFICATE
------------------------
THIS CERTIFIES THAT ____________has been awarded an OPTION to purchase
________ shares of common stock, par value $0.01 per share, of UNIVERSAL
ELECTRONICS INC. at a price per share of $____. This Certificate is issued in
accordance with and is subject to the terms and conditions of the related Stock
Option Agreement of even date herewith (the "Agreement").
THIS OPTION is not transferable except in accordance with the terms and
conditions of the Agreement.
THIS OPTION shall expire ten (10) years from the date of this
Certificate.
THIS OPTION shall be exercisable as to all or a portion of the number
of shares set forth above as follows:
On and After the Following Maximum Percentage Taking
Dates, But Prior to Expiration Into Account Prior Exercises
- ------------------------------ ----------------------------
-------- --%
-------- --%
-------- --%
-------- --%
IN WITNESS WHEREOF, UNIVERSAL ELECTRONICS INC. has caused this Stock
Option Certificate to be signed by its duly authorized officer the __ Day of
____199_.
UNIVERSAL ELECTRONICS INC.
By:____________________________
Its:___________________________
(See Reverse for Record of Option Exercises)
6
1
Exhibit 10.22
FIRST AMENDMENT TO LOAN SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement ("Amendment") is
entered into by and among The Provident Bank ("Bank") and Universal Electronics
Inc., a Delaware corporation ("Borrower").
RECITALS
--------
A. On November 21, 1995, Borrower and Bank entered into a Loan and
Security Agreement (the "Loan Agreement"). Under and subject to the terms and
conditions of the Loan Agreement, Bank agreed to provide a credit facility to
Borrower in the original maximum aggregate principal amount of Twenty Two
Million Dollars ($22,000,000).
B. Borrower and Bank desire to amend the Loan Agreement to, among other
things, permit Borrower to repurchase certain of its issued and outstanding
capital stock, all as set forth in and subject to the terms and provisions of
this Amendment.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is acknowledged, it
is hereby agreed as follows:
1. DEFINED TERMS. Except to the extent otherwise set forth in this
Amendment, all terms used in this Amendment which are defined in the Loan
Agreement are used in this Amendment with the same meanings given them in the
Loan Agreement.
2. AMENDMENT. The Loan Agreement is amended by adding Section 1.16
reading as follows:
" 1.16 On and after the date of this Amendment, each reference
in the Loan Agreement to "this Agreement", "hereunder" and "hereof"
and words of like import referring to the Loan Agreement shall mean
and refer to the Loan Agreement as amended by this Amendment."
3. REPURCHASE OF CAPITAL STOCK. Notwithstanding any provision in the
Loan Agreement or other Loan Documents to the contrary, Borrower is expressly
authorized to proceed to repurchase as
2
many as 1,000,000 shares of its issued and outstanding common stock, and any
share of the common stock so repurchased shall not be deemed Collateral and
nothing contained within the Loan Agreement shall preclude Borrower from dealing
in such stock (and proceeds thereof) as it deems appropriate.
4. FINANCIAL COVENANTS. The first sentence of Section 5.15(a) of the
Loan Agreement is revised in its entirety to read as follows:
"Consolidated Tangible Net Worth of not less than $48,500,000
on December 31, 1995, and, thereafter, not less than $48,000,000 less
the aggregate amount expended by Borrower to repurchase its capital
stock as permitted hereunder but in no event to be decreased below
$40,500,000, which minimum shall increase by seventy-five percent
(75%) of net income if positive on December 31, 1996 and on
December 31 of each year thereafter."
5. INVENTORY. Section 6.11 of the Loan Agreement shall be revised in
its entirety to read as follows:
"Maintain Inventory in excess of $35,000,000."
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER. To induce
Bank to enter into this Amendment and to make (i) future advances, and (ii)
other financial accommodations under the Loan Agreement, Borrower represents and
warrants to Bank that:
(a) Borrower has the right and power and is duly authorized and
empowered to enter into, execute, deliver and perform its obligations
under this Amendment and every other document required to be delivered
by it pursuant to this Amendment. This Amendment and every other
document required to be delivered by Borrower pursuant to this
Amendment and to which Borrower is a party have each been duly
authorized and approved by the Board of Directors of Borrower and are
the valid and binding obligations of Borrower, enforceable against
Borrower in accordance with their respective terms. The execution,
delivery and performance
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of this Amendment and every other document required to be delivered
by Borrower pursuant to this Amendment and to which Borrower is a
party will not conflict with nor result in any breach of the
provisions of, or constitute a default under, or result in the
creation of any lien (other than permitted liens) upon any asset or
property of Borrower under the provisions of the Restated Certificate
of Incorporation, as amended, or the Amended and Restated Bylaws of
Borrower or any material indenture, agreement or other instrument to
which Borrower is a party or by which its assets or properties are
bound.
(b) The representations, warranties and covenants set forth in
this Amendment, as well as all representations, warranties and
covenants in the Loan Agreement (except to the extent that all such
representations, warranties and covenants relate to terms or
documents that have been amended or deleted, as the case may be)
shall continue in effect and shall be binding on Borrower under, and
shall survive the execution of, this Amendment, for the term set
forth in Section 4.19 of the Loan Agreement.
7. CONTINUED EFFECTIVENESS. Notwithstanding anything contained herein,
the terms of this Amendment are not intended to and do not serve to effect a
novation of the Loan Agreement, the Notes or any of the other Loan Documents.
The parties hereto expressly do not intend to extinguish the Loan Agreement, the
Notes or any of the other Loan Documents. Instead, it is the express intention
of the parties hereto to reaffirm the existence of the indebtedness created
under the Loan Agreement, the Notes and the other Loan Documents. Except as
otherwise expressly provided herein or in any of the documents delivered
hereunder, the Loan Agreement, as amended by this Amendment, and each of the
Loan Documents related thereto, remains in full force and effect. The execution,
delivery, and effectiveness of this Amendment shall not operate as a waiver of
any right, power or remedy of Bank under the Loan Agreement or any of the other
Loan Documents to which Bank is a party, nor constitute
3
4
a waiver of any provision in, or Event of Default (now or hereafter existing)
under, the terms of the Loan Agreement or any of the other Loan Documents,
except to the extent that any such term is amended or deleted.
8. CONDITIONS PRECEDENT. Borrower acknowledges that the
effectiveness of this Amendment is subject to the satisfaction of the following
conditions and receipt by Bank on the date hereof, in form and substance
reasonably satisfactory to Bank and its counsel, of the following documents:
(a) Where applicable, the Schedules and Exhibits to Loan
Agreement replacing Schedules and Exhibits delivered at the closing.
(b) A certificate signed by the Treasurer of Borrower and dated
the date of this Amendment, stating that (i) the representations and
warranties set forth in Section 6 of this Amendment are true and correct
on and as of such date, (ii) such Borrower is on such date in compliance
with all of the terms and provisions set forth in this Amendment, and
(iii) on such date no event or condition has occurred or is continuing
which with the giving of notice, the lapse of time, or both, would
constitute an Event of Default.
(c) A certificate of the Secretary of Borrower, dated the date
of this Amendment, certifying that (a) attached thereto is a true and
complete copy of the resolutions, in form reasonably satisfactory to
Bank, adopted by the Board of Directors of Borrower, authorizing the
execution, delivery and performance of the Amendment and every other
document required to be delivered by Borrower pursuant to the Amendment
and the consummation of the transactions contemplated hereby and thereby
and that said resolutions are all of the resolutions adopted with
respect to said subject matter and remain in full force and effect
without modification, and (b)
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attached thereto is a certified copy of Borrower's Certificate of
Incorporation and a true and complete copy of Borrower's Bylaws.
(d) Good standing certificates for Borrower issued by the
Secretary of State of Delaware, and every other jurisdiction in which
the qualification of any of Borrower is required hereunder.
(e) There shall have occurred no material adverse changes to
the other facts and circumstances upon which Bank has based its credit
analysis and approval of which Borrower has knowledge.
(f) Borrower shall have paid all fees and expenses referred to
in Section 9 below.
9. FEES AND EXPENSES. Borrower acknowledges and agrees that
the fees and expenses of Bank incurred in connection with this
Amendment, all documents executed and delivered in connection with this
Amendment and the consummation of the transactions contemplated hereby,
including, without limitation, reasonable attorneys' and paralegals'
fees and disbursements (which amounts shall not exceed $2,000), will be
payable by Borrower to Bank, or as Bank may otherwise direct, on the
date of this Amendment, and are additional Obligations under the Loan
Agreement secured by the Collateral pursuant to the Loan Agreement.
10. APPLICABLE LAW. This Amendment shall be deemed to be a contract
under the laws of the State of Ohio and for all purposes shall be construed in
accordance with the laws of such state.
11. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and either of the parties hereto may execute this Amendment by
signing any such counterpart.
5
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IN WITNESS WHEREOF, the parties have executed this Amendment by their duly
authorized officers effective as of the 31st day of July, 1996
THE PROVIDENT BANK UNIVERSAL ELECTRONICS INC.
By: /s/ James M. Hojnacki By: /s/ Paul Arling
--------------------------------- -------------------------------
Vice President Treasurer
7
SCHEDULE 4.8
TO THE FIRST AMENDMENT TO THE
LOAN AND SECURITY AGREEMENT
BETWEEN
THE PROVIDENT BANK
AND
UNIVERSAL ELECTRONICS INC.
LITIGATION
PHILIPS ELECTRONICS CORPORATION OF NORTH AMERICA V. UNIVERSAL ELECTRONICS INC.,
APPEAL NO.: 96-1475 IN THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL
CIRCUIT. Appeal by Philips from the order of the U.S. District Court for the
District of Delaware (Judge McKelvie) (Civil Action No. CA 94-392-RPM) ruling in
favor of Borrower in a patent infringement matter in which Philips claimed
Borrower infringed Philips' United States patent number 4,703,359.
UNIVERSAL ELECTRONICS INC. V. THE UNITED STATES, 96-1345 IN THE UNITED STATES
COURT OF APPEALS FOR THE FEDERAL CIRCUIT. Appeal by Borrower from the order of
the United States Court of International Trade (Judge Goldberg) (Consolidated
Court No. 93-11-00740) ruling in favor of the Government's classification of
universal infrared remote controls (Slip Opinion 96-48).
UNIVERSAL ELECTRONICS INC. Prior Disclosure Administrative Matter brought to the
attention of US Customs by Borrower regarding incorrect classification of
earlier entries. Action reactivated due to recent decision by United States
Court of international Trade in United States v. Snuggles, Inc. (Slip Opinion
96-141) decided on August 20, 1996.
ROBERT D. GORDON V. UNIVERSAL ELECTRONICS INC, APPEAL CASE NO.: 18071 IN THE
NINTH DISTRICT COURT OF APPEAL, SUMMIT COUNTY, OHIO. Appeal by Gordon (an
ex-employee of Borrower), from order of the Court of Common Please, Summit
County, Ohio (Judge Callahan) granting Borrower's motion for summary judgment
(entered on August 6, 1996) in Gordon's claims against Borrower and Messrs.
Gabrielsen and Gabbert (Case No. CV 95 07 2602 in the Court of Common Pleas,
Summit County, Ohio) alleging unlawful employment discrimination and wrongful
discharge because of age and acts of conspiracy against Mr. Gordon. Gordon had
earlier dismissed, with prejudice, his claims against Messrs. Gabrielsen and
Gabbert.
JASCO PRODUCTS CO., INC. V. UNIVERSAL ELECTRONICS INC. CIV-95-1988T IN THE
UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA (CONSOLIDATED
WITH UNIVERSAL ELECTRONICS INC. V. JASCO PRODUCTS CO., INC. CASE NO. 5:96CV0029
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO). Action
by Jasco against Borrower alleging breach of contract, generally, and
counterclaim by Borrower against Jasco also alleging breach of contract,
generally.
8
SCHEDULE 4.8
TO THE FIRST AMENDMENT TO THE
LOAN AND SECURITY AGREEMENT
BETWEEN
THE PROVIDENT BANK
AND
UNIVERSAL ELECTRONICS INC.
LITIGATION
(CONTINUED)
SENTRY SWITCH INC. V. UNIVERSAL ELECTRONICS INC. A-96-04394 IN THE COURT OF
COMMON PLEAS, HAMILTON COUNTY, OHIO. Claim by Sentry Switch against Borrower
alleging breach of contract, generally.
Various other administrative claims for workers' compensation and unemployment.
9
SCHEDULE 4.9
TO THE FIRST AMENDMENT TO THE
LOAN AND SECURITY AGREEMENT
BETWEEN
THE PROVIDENT BANK
AND
UNIVERSAL ELECTRONICS INC.
COMPLIANCE WITH LAWS
In the event that Borrower is found liable under any of the litigation matters
to which Borrower is a party (see Schedule 4.8 - Litigation attached to the
First Amendment to the Loan and Security Agreement), Borrower would be deemed to
have violated the applicable laws related to the claims made in connection with
such matters.
10
SCHEDULE 4.10
TO THE FIRST AMENDMENT TO THE
LOAN AND SECURITY AGREEMENT
BETWEEN
THE PROVIDENT BANK
AND
UNIVERSAL ELECTRONICS INC.
NO DEFAULT
In the event that Borrower is found liable under any of the litigation matters
to which Borrower is a party (see Schedule 4.8 - Litigation attached to the
First Amendment to the Loan and Security Agreement), Borrower would be deemed to
be in default of the various contracts related to the claims made in connection
with such matters.
11
SCHEDULE 4.13
TO THE FIRST AMENDMENT TO THE
LOAN AND SECURITY AGREEMENT
BETWEEN
THE PROVIDENT BANK
AND
UNIVERSAL ELECTRONICS INC.
RIGHTS OF BORROWER TO ACCOUNTS
In the event that Jasco prevails in its claims against Borrower in the
litigation between them (see Schedule 4.8 - Litigation attached to the First
Amendment to the Loan and Security Agreement), Jasco may be allowed to offset
amounts to which it has been awarded in such litigation against amounts due
Borrower as reflected as an Account in Borrower's books and records.
1
Exhibit 10.25
[WARLAND INVESTMENTS COMPANY LOGO]
[WARLAND INVESTMENTS COMPANY LETTERHEAD]
February 19, 1997
Ms. Birdie Kopp
Chief Financial Officer
Ikon Office Solutions, Inc.
16715 Von Karman, Suite 100
Irvine, CA 92606
Re: Consent to Sublease ("Consent") between Edgemont Sales
Company, a division of IKON Office Solutions ("Sublessor") to
Universal Electronics, Inc., a Delaware corporation ("Sublessee") for
the premises located at 6101 Gateway Drive, Cypress, California
(the "Premises")
Dear Ms. Kopp:
You have asked that Warland Investments Company, a California limited
partnership, formerly Warland Investments, Ltd., a California limited
partnership ("Warland"), as owner of the Premises leased to Sublessor under the
lease between Warland and Sublessor, dated May 31, 1988, as amended by those
certain amendments dated January 15, 1989 and October 18, 1991 (collectively,
the "Master Lease"), consent to the sublease of the Premises (the "Subleased
Space") to Sublessee (the "Sublease"). Please be advised that Warland grants its
consent to the Sublease upon the following terms and conditions:
1. The Sublease shall be in the form and content of attached EXHIBIT A.
Sublessee shall perform faithfully and promptly and be bound by all terms,
conditions and covenants of the Master Lease, attached hereto as Exhibit B,
except those inconsistent with the Sublease. Notwithstanding the foregoing, (i)
all claims of Sublessee under the Sublease or the Master Lease (collectively,
the "Leases") shall be brought only against Sublessor, and Sublessee shall have
no claims against Warland thereunder, (ii) Sublessor shall under no
circumstances assign any claims under the leases to Sublessee for prosecution
against Warland, and (iii) Sublessee shall have no right to further assign or
sublease its interest in the Sublease or the Subleased Space without obtaining
Warland's prior written consent (which consent shall be given or withheld in
accordance with the terms of the Master Lease).
2. The Sublease shall at all times remain subordinate, inferior and subject
to the Master Lease. Notwithstanding any provisions in the Sublease to the
contrary, under no circumstances shall the term of the Sublease extend beyond
the term of the Master Lease.
2
Ms. Birdie Kopp
February 19, 1997
Page Two
3. All insurance obtained by Sublessee under the Sublease shall name
Warland as an additional insured and shall require thirty (30) days advance
written notice to Warland in the event of cancellation of such insurance.
4. Under no circumstances shall this consent (a) release or discharge
Sublessor from any liability to Warland, whether past, present or future, (b) be
construed to modify, waive or affect any of the terms, covenants, conditions or
provisions of the Master Lease, to waive any breach thereof, or to enlarge or
increase the obligations of Warland thereunder, or (C) be construed as a consent
by Warland to any further assignment or subletting.
5. Sublessor warrants and represents to Warland that as of the date of this
consent (i) the Master Lease is in full force and effect, (ii) Warland is not in
default under any provision of the Master Lease, (iii) no rent has been prepaid
under the Master Lease, and (iv) there are no offsets or other claims by
Sublessor against Warland.
6. Warland's consent to the Sublease is not a consent to any alterations or
improvements to the Subleased Space, other than the alterations and improvements
depicted on those certain plans prepared by Howard F. Thompson & Associates,
dated February 10, 1997, which have been submitted to Warland and are hereby
approved. Sublessee shall not permit any mechanic's or materialmen's liens to be
recorded against the Premises as a result of any work undertaken on its behalf.
In the event a mechanic's or materialmen's lien is recorded against the
Premises, Sublessee shall, within thirty (30) days after notice from Warland,
either (i) remove the lien by payment of the secured claim, or (ii) obtain a
release bond in the statutory amount. The provisions of this paragraph do not
modify the respective rights and obligations of Warland and Sublessor as set
forth in Section 5.3 of the Master Lease.
7. Sublessor's rights under Section 9 of the Sublease shall be subject to
the terms and conditions of Section 9 of the Master Lease.
8. Sublessor and Sublessee agree that under no circumstances shall Warland
be liable for any brokerage commission, fee, or other charge or expense in
connection with the Sublease, and both Sublessor and Sublessee agree to
indemnify, defend and hold Warland harmless from and against any claims, cost,
expenses (including attorneys' fees), damages, liability incurred by Warland in
connection with any claim for such brokerage commission or fee.
9. This Consent is effective only upon counter-execution without
modifications
3
Ms. Birdie Kopp
February 19, 1997
Page Three
by authorized signatories of Sublessor and Sublessee and is not assignable.
Very truly yours,
WARLAND INVESTMENTS COMPANY,
California limited partnership
By: /s/ Carl W. Robertson
------------------------------
Carl W. Robertson
Co-Managing Director
By: /s/ John C. Law
------------------------------
John C. Law
Co-Managing Director
AGREED TO AND ACCEPTED this
25 day of February, 1997:
"Sublessor"
EDGEMONT SALES COMPANY,
a division of IKON OFFICE SOLUTIONS, INC.
By: /s/ Birdie Kopp
------------------------------
Birdie Kopp
Chief Financial Officer
"Sublessee"
UNIVERSAL ELECTRONICS, INC.
a Delaware corporation
By: /s/ Mark Kopaskie
------------------------------
Name: Mark Kopaskie
Executive Vice President, C.O.O.
By: _________________________
Name: ________________________
Plant Engineer
4
EXHIBIT "A"
-----------
THE SUBLEASE
------------
(See Attached)
5
[CB COMMERCIAL LOGO] SUBLEASE
CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
1. PARTIES.
This Sublease, dated January 10 , 19 97 , is made between
----------------------- -----
Edgemont Sales Company, a division of IKON Office Solutions, Inc.
----------------------------------------------------------------------------
("Sublessor"), and Universal Electronics, Inc., a Delaware Corporation
---------------------------------------------------------
("Sublessee").
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated May 31 , 19 88
------------- ----,
wherein Warland Investments, Ltd. ("Lessor")
---------------------------------------------------------
leased to Sublessor the real property located in the City of Cypress ,
---------------
County of Orange , State of California ,
---------------------------- --------------------------
described as that certain approximately 30,768 square foot free standing
--------------------------------------------------------------
building located at 6101 Gateway Drive, situated on lot AP# 134-431-19
---------------------------------------------------------------------------
("Master Premises"). Said lease has been amended by the following
amendments _______________________________________________________________;
said lease and amendments are collectively referred to as the "Master Lease"
and are attached hereto as Exhibit "A."
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): the entire premises as described in section
-------------------------------------------------------------
"2. Master Lease" above.
---------------------------------------------------------------------------
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has not
been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will not
be, in default or breach of any of the provisions of the Master Lease, and
that Sublessor has no knowledge of any claim by Lessor that Sublessor is in
default or breach of any of the provisions of the Master Lease.
5. TERM.
The Term of this Sublease shall commence on February 10 , 19 97
--------------------- -----
("Commencement Date"), or when Lessor consents to this Sublease (if such
consent is required under the Master Lease), whichever shall last occur,
and end on December 31 , 19 98 ("Termination Date"),
------------------------------ -----
unless otherwise sooner terminated in accordance with the provisions of this
Sublease. In the event the Term commences on a date other than the
Commencement Date, Sublessor and Sublessee shall execute a memorandum
setting forth the actual date of commencement of the Term. Possession
of the Premises ("Possession") shall be delivered to Sublessee on the
commencement of the Term. If for any reason Sublessor does not deliver
Possession to Sublessee on the commencement of the Term, Sublessor shall
not be subject to any liability for such failure, the Termination Date shall
not be extended by the delay, and the validity of this Sublease shall not
be impaired, but rent shall abate until delivery of Possession. Notwith-
standing the foregoing, if Sublessor has not delivered Possession to
Sublessee within thirty (30) days after the Commencement Date, then at any
time thereafter and before delivery of Possession, Sublessee may give
written notice to Sublessor of Sublessee's intention to cancel this
Sublease. Said notice shall set forth an effective date for such
cancellation which shall be at least ten (10) days after delivery of said
notice to Sublessor. If Sublessor delivers Possession to Sublessee on or
before such effective date, this Sublease shall remain in full force and
effect. If Sublessor fails to deliver Possession to Sublessee on or before
such effective date, this Sublease shall be cancelled, in which case all
consideration previously paid by Sublessee to Sublessor on account of this
Sublease shall be returned to Sublessee, this Sublease shall thereafter be
of no further force or effect, and Sublessor shall have no further liability
to Sublessee on account of such delay or cancellation. If Sublessor permits
Sublessee to take Possession prior to the commencement of the Term, such
early Possession shall not advance the Termination Date and shall not be
subject to the provisions of this Sublease, including without limitation the
payment of rent.
6. RENT.
6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent, without
deduction, setoff, notice, or demand, at
16715 Von Karman, Suite 100, Irvine, CA 92606
---------------------------------------------------------------------------
or at such other place as Sublessor shall designate from time to time by
notice to Sublessee, the sum of
Sixteen Thousand Nine Hundred Twenty-two & No/100ths Dollars ($16,922.00)
------------------------------------------------------- ---------
per month, in advance on the first day of each month of the Term. Sublessee
shall pay to Sublessor upon execution of this Sublease the sum of
Sixteen Thousand Nine Hundred Twenty-two & No/100ths Dollars ($16,922.00)
------------------------------------------------------- ---------
as rent for the month of April 1-30, 1997
--------------------------------------------------------------.
If the Term begins or ends on a day other than the first or last day of a
month, the rent for the partial months shall be prorated on a per diem
basis. Additional provisions: _____________________________________________
6.2 Operating Costs. If the Master Lease requires Sublessor to pay to Lessor
all or a portion of the expenses of operating the building and/or project of
which the Premises are a part ("Operating Costs"), including but not limited
to taxes, utilities, or insurance, then Sublessee shall pay to Sublessor as
additional rent Sublessor's actual costs [percent ( %) of the
---------------------------------- ---
amounts] payable by Sublessor for Operating Costs incurred during the Term.
Such
Language indicated as being shown by strike out in the typeset
document is enclosed in brackets "["and"]" in the electronic format.
1
6
additional rent shall be payable as and when Operating Costs are payable by
Sublessor to Lessor. If the Master Lease provides for the payment by
Sublessor or Operating Costs on the basis of an estimate thereof, then as
and when adjustments between estimated and actual Operating Costs are made
under the Master Lease, the obligations of Sublessor and Sublessee
hereunder shall be adjusted in a like manner; and if any such adjustment
shall occur after the expiration or earlier termination of the Term, then
the obligations of Sublessor and Sublessee under this Subsection 6.2 shall
survive such expiration or termination. Sublessor shall, upon request by
Sublessee, furnish Sublessee with copies of all statements submitted by
Lessor of actual or estimated Operating Costs during the Term.
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of Thirty-three Thousand Thousand Eight Hundred forty-four
--------------------------------------------------------------------
and No/100ths------------ Dollars ($33,844.00) as security for Sublessee's
--------------------------- ---------
faithful performance of Sublessee's obligations hereunder ("Security
Deposit"). If Sublessee fails to pay rent or other charges when due under
this Sublease, or fails to perform any of its other obligations hereunder,
Sublessor may use or apply all or any portion of the Security Deposit for
the payment of any rent or other amount then due hereunder and unpaid, for
the payment of any other sum for which Sublessor may become obligated by
reason of Sublessee's default or breach, or for any loss or damage
sustained by Sublessor as a result of Sublessee's default or breach. If
Sublessor so uses any portion of the Security Deposit, Sublessee shall,
within ten (10) days after written demand by Sublessor, restore the
Security Deposit to the full amount originally deposited, and Sublessee's
failure to do so shall constitute a default under this Sublease. Sublessor
shall not be required to keep the Security Deposit separate from its
general accounts, and shall have no obligation or liability for payment of
interest on the Security Deposit. In the event Sublessor assigns its
interest in this Sublease, Sublessor shall deliver to its assignee so much
of the Security Deposit as is then held by Sublessor. Within ten (10) days
after the Term has expired, or Sublessee has vacated the Premises, or any
final adjustment pursuant to Subsection 6.2 hereof has been made, whichever
shall last occur, and provided Sublessee is not then in default of any of
its obligations hereunder, the Security Deposit, or so much thereof as had
not theretofore been applied by Sublessor, shall be returned to Sublessee
or to the last assignee, if any, of Sublessee's interest hereunder.
8. USE OF PREMISES.
The Premises shall be used and occupied only for warehousing, distribution
---------------------------
and engineering of electronic components, and for no other use or purpose.
----------------------------------------
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part
of the Premises without the prior written consent of Sublessor (and the
consent of Lessor, if such is required under the terms of the Master
Lease).
10. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublessor were the lessor
thereunder, Sublessee the lessee thereunder, and the Premises the Master
Premises, except for the following: There shall be an abatement of
---------------------------------------
rent during the months of February 1 - March 31, 1997.
---------------------------------------------------------------------------
Sublessee assumes and agrees to perform the lessee's obligations under the
Master Lease during the Term to the extent that such obligations are
applicable to the Premises, except that the obligation to pay rent to Lessor
under the Master Lease shall be considered performed by Sublessee to the
extent and in the amount rent is paid to Sublessor in accordance with
Section 6 of this Sublease. Sublessee shall not commit or suffer any act or
omission that will violate any of the provisions of the Master Lease.
Sublessor shall exercise due diligence in attempting to cause Lessor to
perform its obligations under the Master Lease for the benefit of
Sublessee. If the Master Lease terminates, this Sublease shall terminate
and the parties shall be relieved of any further liability or obligation
under this Sublease, provided however, that if the Master Lease terminates
as a result of a default or breach by Sublessor or Sublessee under this
Sublease and/or the Master Lease, then the defaulting party shall be liable
to the nondefaulting party for the damage suffered as a result of such
termination. Notwithstanding the foregoing, if the Master Lease gives
Sublessor any right to terminate the Master Lease in the event of the
partial or total damage, destruction, or condemnation of the Master
Premises or the building or project of which the Master Premises are a
part, the exercise of such right by Sublessor shall not constitute a
default or breach hereunder.
11. ATTORNEYS' FEES.
If Sublessor, Sublessee, or Broker shall commence an action against the
other arising out of or in connection with this Sublease, the prevailing
party shall be entitled to recover its costs of suit and reasonable
attorney's fees.
12. AGENCY DISCLOSURE.
Sublessor and Sublessee each warrant that they have dealt with no other
real estate broker in connection with this transaction except: CB
COMMERCIAL REAL ESTATE GROUP, INC., who represents the Sublessor
----------------------,
and Grubb & Ellis , who represents the Sublessee .
----------------------- -----------------------------
In the event that CB COMMERCIAL REAL ESTATE GROUP, INC. represents both the
Sublessor and Sublessee, Sublessor and Sublessee hereby confirm that they
were timely advised of the dual representation and that they consent to the
same, and that they do not expect said broker to disclose to either of them
the confidential information of the other party.
13. COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such
consent is required under the terms of the Master Lease), Sublessor shall
pay Broker a real estate brokerage commission in accordance with
Sublessor's contract with Broker for the subleasing of the Premises, if
any, and otherwise in the amount of per agreement
--------------------------------------
Dollars ($_______), for services rendered in effecting this Sublease.
Broker is hereby made a third party beneficiary of this Sublease for
the purpose of enforcing its right to said commission.
14. NOTICES.
All notices and demands which may or are to be required or permitted to be
given by either party on the other hereunder shall be in writing. All
notices and demands by the Sublessor to Sublessee shall be sent by United
States Mail, postage prepaid, addressed to the Sublessee at the Premises,
and to the address hereinbelow, or to such other place as Sublessee may
from
7
time to time designate in a notice to the Sublessor. All notices and demands
by the Sublessee to Sublessor shall be sent by United States Mail, postage
prepaid, addressed to the Sublessor at the address set forth herein, and to
such other person or place as the Sublessor may from time to time designate
in a notice to the Sublessee.
To Sublessor: IKON Office Solutions, Inc., Attention: Real Estate
------------------------------------------------------------
Department, 825 Duportail Road, Wayne, PA 19087
------------------------------------------------------------
To Sublessee: Universal Electronics, 1864 Enterprise Parkway, West,
------------------------------------------------------------
Twinsburg, OH 44087
------------------------------------------------------------
15. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER THE
TERMS OF THE MASTER LEASE.
16. COMPLIANCE.
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this
Agreement, including, but not limited to, the 1964 Civil Rights Act and all
amendments thereto, the Foreign Investment in Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and The
Americans With Disabilities Act.
Sublessor: IKON Office Solutions, Inc. Sublessee: Universal Electronics
------------------------------ -------------------------------
By: /s/ Birdie Kopp By: /s/ Mark Kopaskie
------------------------------------- --------------------------------------
Title: CFO Title: EXC. V.P. C.O.O.
---------------------------------- -----------------------------------
By: By: /s/ Bret A. Belknap
------------------------------------- --------------------------------------
Title: Title: Plant Engineer
---------------------------------- -----------------------------------
Date: 2/17/97 Date: 2-10-97
----------------------------------- ------------------------------------
LESSOR'S CONSENT TO SUBLEASE
The undersigned ("Lessor"), lessor under the Master Lease, hereby consents to
the foregoing Sublease without waiver of any restriction in the Master Lease
concerning further assignment or subletting. Lessor certifies that, as of the
date of Lessor's execution hereof, Sublessor is not in default or breach of any
of the provisions of the Master Lease, and that the Master Lease has not been
amended or modified except as expressly set forth in the foregoing Sublease.
Lessor: Warland Investments, Ltd.
---------------------------------
By:
---------------------------------
Title:
---------------------------------
By:
---------------------------------
Title:
---------------------------------
Date:
---------------------------------
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISORS -- This document has been prepared for approval by your
attorney. No representation or recommendation is made by Broker as to the
legal sufficiency or tax consequences of this document or the transaction to
which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
- --------------------------------------------------------------------------------
8
EXHIBIT "B"
-----------
THE MASTER LEASE
----------------
(See Attached)
9
AMENDMENT TO LEASE
-------------------
THIS AMENDMENT TO LEASE (this "Amendment") is made and entered into as
of this 15th day of January, 1989, by and between WARLAND INVESTMENT, LTD., a
California limited partnership ("Warland"); and EDGEMONT SALES COMPANY, INC., a
California corporation ("Edgemont").
R E C I T A L S
- - - - - - - -
WHEREAS Warland and Edgemont as landlord and tenant, respectively,
executed that certain lease (the "Lease") dated May 31, 1988, whereby Warland
leased to Edgemont those certain Premises known as 6101 Gateway Drive, Cypress,
California, and
WHEREAS Warland and Edgemont have agreed that the Basic Monthly Rent
set forth in Section 5 of the Fundamental Lease Provisions of the Lease shall
be increased due to the cost of the Tenant Improvements installed in the
Premises by Landlord on behalf of Tenant,
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. BASIC MONTHLY RENT. The initial Basic Monthly Rent shall be
$19,505.00 per month.
THE PARTIES FURTHER AGREE AS FOLLOWS:
2. TERM COMMENCEMENT DATE. The Term Commencement Date set forth in
Section 8 of the Fundamental Lease Provisions shall be December 12, 1988.
3. RENT COMMENCEMENT DATE. The Rent Commencement Date set forth in
Section 8 of the Fundamental Lease Provisions shall be January 21, 1989.
4. EFFECTIVE DATE. This amendment shall be effective on and as of the
date hereof.
5. SEVERABILITY. If any covenant or agreement of this Amendment or
the application thereof to any person or circumstance shall be held to the
invalid or uneforceable, then in each such event the remainder of this
Amendment or the application of such covenant or agreement to any other person
or any other circumstance shall not be thereby affected, and each covenant and
agreement hereof shall remain valid and enforceable to the fullest extent
permitted by law.
6. FURTHER ASSURANCES. Each of the parties hereto agrees that it will
without further consideration execute and deliver such other documents and take
such other action as may be reasonably requested by the other party to
consummate more effectively the purposes or subject matter of this Amendment,
so long as such actions do not adversely and materially affect the rights
hereunder of the party to whom such action is required.
7. ATTORNEY'S FEES. In the event of any controversy, claim or dispute
between the parties affecting or relating to the purposes or subject matter of
this Amendment, the prevailing party shall be entitled to recover from the
nonprevailing party all of its reasonably expenses, including attorney's and
accountant's fees.
IN WITNESS WHEREOF, the parties hereto have entered into this Amendment
as of the date first above written.
WARLAND INVESTMENTS, LTD.
a California limited partnership
By /s/ Carl W. Robertson
-------------------------------------
Carl W. Robertson
Managing Director
"Landlord"
EDGEMONT SALES COMPANY, INC.,
a California corporation
By /s/ Ronald Kotloff, President
--------------------------------------
Ronald Kotloff, President
"Tenant"
10
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE (this "Second Amendment") is made and
entered into as of this 18th day of October, 1991, by and between WARLAND
INVESTMENTS, LTD., a California limited partnership, as Landlord, (hereinafter
"Landlord"); and EDGEMONT SALES COMPANY, INC., a California corporation, as
Tenant (hereinafter "Tenant").
R E C I T A L S
- - - - - - - -
WHEREAS Landlord and Tenant executed that certain lease (the "Lease")
dated May 31, 1988, and amended by the Amendment to Lease dated January 15,
1989, whereby Landlord leased to Tenant those certain Premises known as 6101
Gateway Drive, Cypress, California, and
WHEREAS Section 6 of the Lease provides that Tenant shall obtain Rental
Insurance as defined in Section 6.1.3,
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
(1) RENTAL INSURANCE
(a) Section 6 of the Lease shall be amended to provide that
Landlord shall obtain the Rental Insurance as defined in Section 6.1.3.
(b) Tenant shall reimburse Landlord in full for the cost of the
insurance obtained by Landlord pursuant to Section 6.1.3 within thirty (30)
days of receipt of written demand therefore by Landlord.
(c) All other insurance provided for in Section 6 of the Lease
shall continue to be obtained and kept in full force and effect by Tenant, at
Tenant's sole cost and expense.
2. OTHER TERMS AND CONDITIONS. All other terms of the Lease dated May
32, 1988, as amended by the Amendment to Lease dated January 15, 1989, shall be
in full force and effect.
3. EFFECTIVE DATE. This Second Amendment shall be effective on and as
of the date hereof.
4. SEVERABILITY. If any covenant or agreement of this Second
Amendment or the application thereof to any person or circumstance shall be
held to be invalid or unenforceable, then and in each such event the remainder
of this Amendment or the application of such covenant or agreement to any other
person or any other circumstance shall not be thereby affected, and each
covenant and agreement hereof shall remain valid and enforceable to the fullest
extent permitted by law.
5. FURTHER ASSURANCES. Each of the parties hereto agrees that it will
without further consideration execute and deliver such other documents and take
such other action as may be reasonably requested by the other party to
consummate more effectively the purposes or subject matter of this Second
Amendment, so long as such actions do not adversely and materially affect the
rights hereunder of the party to whom such action is required.
6. ATTORNEY'S FEES. In the event of any controversy, claim or dispute
between the parties affecting or relating to the purposes or subject matter of
this Second
11
Amendment, the prevailing party shall be entitled to recover from the
nonprevailing party all of its reasonable expenses, including attorney's and
accountant's fees.
IN WITNESS WHEREOF, the parties hereto have entered into this Second
Amendment as of the date first above written.
WARLAND INVESTMENTS COMPANY
a California general partnership
By /s/ Carl W. Robertson
-------------------------------
Carl W. Robertson
Managing Director
"Landlord"
EDGEMONT SALES COMPANY,
a California corporation
By /s/ Tim Duggan
-------------------------------
Tim Duggan
President
"Tenant"
12
LEASE
WARLAND/CYPRESS BUSINESS CENTER
-------------------------------
A Project of Warland Investments, Ltd.
WARLAND INVESTMENTS, LTD.
Landlord,
AND
EDGEMONT SALES COMPANY, INC.,
a California corporation,
Tenant
13
L E A S E
THIS LEASE (this "Lease") is made and entered by and between WARLAND
INVESTMENTS, LTD., a California limited partnership ("Landlord"), and the tenant
("Tenant") described in Item 1 of the Fundamental Lease Provisions.
LEASE OF PREMISES
Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, subject to all of the terms and conditions set forth herein, those
certain premises (the "Premises") containing approximately the number of square
feet of land area described in Item 2(b) of the Fundamental Lease Provisions
outlined in red and cross-hatched on that certain plot plan ("Plot Plan")
attached hereto as Exhibit "A" and legally described on Exhibit "B-1", on which
Landlord has constructed, or will construct pursuant to the Construction
Provisions attached hereto as Exhibit "C" (the "Construction Provisions"),
improvements (the "Building") containing approximately the number of
square feet of rentable area described in Item 2(c) of the Fundamental Lease
Provisions.
The Premises are a part of certain real property owned by Landlord
located in the City of Cypress, County of Orange, State of California more
particularly described on Exhibit "B-2" attached hereto, on which Landlord has
developed the Warland/Cypress Business Center (the "Business Center").
FUNDAMENTAL LEASE PROVISIONS
1. TENANT: EDGEMONT SALES COMPANY, INC.
a California corporation
2. Premises:
(a) Premises Address: 6101 Gateway Drive
Cypress, California
(b) Premises Land Area: 86,681 square feet
(c) Premises Building Area: 30,768 square feet
(d) Premises Parking Spaces: 120 spaces
3. Initial Term: 120 months and one (1) partial month if
the Lease Term commences on a day other than the first
day of a calendar month
(See Section 1)
4. Options to Extend Initial Term: One (1) Ten-Year Option
(See Section 13)
5. Basic Monthly Rent: $18,400 (may be adjusted: See
Section 6 of Exhibit "C", the Construction Provisions)
Partial Lease Month (if any) (prorated on a 30 day
basis): $613.13 per day.
First Month's Rent (payable upon execution): $18,400.00
6. Security Deposit: $18,400.00 (one month's rent)
(See Section 2.3)
7. Permitted Use: Administrative offices, warehouse and
distribution
8. Commencement Date: November 1, 1988
Rent Commencement Date: Thirty (30) days after Term
Commencement Date
14
9. Broker(s) Fremont Properties
970 West 190th, Suite 660
Torrance, CA 90502
10. Address for Notice:
Landlord:
Warland Investments, Ltd.
1299 Ocean Avenue, Suite 300
Santa Monica, California 90401
Attn: Carl W. Robertson,
Managing Director
TENANT:
Edgemont Sales Company, Inc.
11082 Winners Circle
P.O. Box 918
Los Alamitos, CA 90720
Attention: Ron Kotloff, President
11. Contents of Lease: Pages 1-25
Standard Lease Provisions (Sections 1 through 13)
Exhibits "A" Plot Plan
"B-1" Legal Description of the Premises
"B-2" Legal Description of the Business Center
"C" Construction Provisions
"D" Tenant's Certificate
"E" Sign Criteria
"F" Landscape Maintenance Specifications
"G" Painting Specifications
"H" Architect's Certificate
"I" Estoppel Certificate
12. Date of this Lease: May 31, 1988
--------------------
-2-
15
References in the Fundamental Lease Provisions to Sections in this Lease
are for convenience only and designate some of the Sections of the Standard
Lease Provisions in which references to particular Fundamental Lease
Provisions appear. Each reference in this Lease to any of the Fundamental
Lease Provisions shall be construed to incorporate all the terms provided under
each such Fundamental Lease Provision. In the event of any conflict between any
Fundamental Lease Provision and the balance of the Lease, the latter shall
control.
IN WITNESS WHEREOF, the parties hereto have executed this Lease, consisting
of the foregoing provisions and Sections 1 through 13 of the Standard Lease
Provisions which follow, together with the Exhibits described in Item 11 of
the Fundamental Lease Provisions, all of which is incorporated herein by this
reference.
WARLAND INVESTMENTS, LTD.,
a California limited partnership
By /s/ Carl W. Robertson
-------------------------------
Carl W. Robertson
Title: Managing Director
"LANDLORD"
EDGEMONT SALES COMPANY, INC.
a California corporation
By /s/ Ron Kotloff
-------------------------------
Ron Kotloff
Title: President
"TENANT"
-3-
16
TABLE OF CONTENTS
SECTION PAGE
1. Term................................................... 6
1.1 Term .............................................. 6
1.2 Commencement Date ................................. 6
1.3 Tenant's Certificate .............................. 6
1.4 Lease Year ........................................ 6
2. Rent and Security Deposit ............................. 6
2.1 Rent .............................................. 6
2.2 Additional Rent ................................... 7
2.3 Security Deposit .................................. 7
3. Taxes and Utilities ................................... 7
3.1 Real Property Taxes ............................... 7
3.2 Personal Property Taxes ........................... 8
3.3 Utility Charges ................................... 8
4. Operation ............................................. 8
4.1 Use ............................................... 8
4.2 General ........................................... 9
4.3 Signs ............................................. 9
4.4 Parking ........................................... 9
4.5 Hazardous Materials ............................... 9
5. Maintenance, Repairs, and Alterations ................. 10
5.1 Tenant Maintenance, Repair and
Restoration Obligations ........................... 10
5.2 Landlord Maintenance and Repair ................... 11
5.3 Alterations and Additions ......................... 11
5.4 Mechanics' Liens .................................. 12
5.5 Failure ........................................... 12
5.6 Title ............................................. 12
5.7 Surrender ......................................... 12
6. Insurance and Liability ............................... 13
6.1 Insurance ......................................... 13
6.2 Insurer and Policy Form ........................... 13
6.3 Waiver and Subrogation ............................ 14
6.4 Indemnification ................................... 14
7. Casualty .............................................. 14
7.1 Reconstruction .................................... 14
7.2 Termination ....................................... 14
7.3 Waiver of Civil Code Sections ..................... 15
8. Condemnation .......................................... 15
8.1 Definitions ....................................... 15
8.2 Total Condemnation ................................ 15
8.3 Partial Condemnation .............................. 16
8.4 Allocation of Award ............................... 16
8.5 Waiver of Code of Civil Procedure Section ......... 16
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SECTION PAGE
9. Assignment and Subletting .............................. 16
9.1 Assignment and Subletting ........................ 16
9.2 Notice ........................................... 16
9.3 Termination, Sublease or Assign .................. 17
9.4 Consent .......................................... 17
9.5 Additional Transactions .......................... 17
9.6 Limitation ....................................... 17
9.7 Assignment and Subletting Profit Recapture ....... 18
9.8 Permitted Sublesses .............................. 18
10. Subordination .......................................... 18
10.1 Tenant's Agreement to Subordinate ................ 18
10.2 Attornment ....................................... 19
11. Default and Remedies ................................... 19
11.1 Default .......................................... 19
11.2 Remedies ......................................... 20
11.3 Late Charge and Interest ......................... 21
12. Miscellaneous .......................................... 21
12.1 Default by Landlord .............................. 21
12.2 Estoppel Certificates ............................ 21
12.3 Holding Over ..................................... 22
12.4 Quiet Enjoyment .................................. 22
12.5 Force Majeure .................................... 22
12.6 Sale of the Premises ............................. 22
12.7 Construction Warranties .......................... 23
12.8 Recording ........................................ 23
12.9 Financial Statements ............................. 23
12.10 Access by Landlord ............................... 23
12.11 Notice ........................................... 23
12.12 Time ............................................. 23
12.13 Entire Agreement ................................. 23
12.14 Further Assurances ............................... 24
12.15 Applicable Law ................................... 24
12.16 Controversy ...................................... 24
12.17 Headings and Gender .............................. 24
12.18 Successors ....................................... 24
12.19 Corporate Authority .............................. 24
13. Addendum ............................................... 24
13.1 Rental Adjustments ............................... 24
13.2 Option of Renew .................................. 24
13.3 Calculation of Rent During Option Period .........
13.4 Rental Adjustments During Option Period .......... 25
13.5 Rent Relief ...................................... 25
EXHIBIT "A" Plot Plan
EXHIBIT "B-1" Legal Description of the Premises
EXHIBIT "B-2" Legal Description of the Business Center
EXHIBIT "C" Construction Provisions
EXHIBIT "D" Tenant's Certificate
EXHIBIT "E" Sign Criteria
EXHIBIT "F" Landscape Maintenance Specifications
EXHIBIT "G" Painting Specifications
EXHIBIT "H" Architech's Certificate
EXHIBIT "I" Estoppel Certificate
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STANDARD LEASE PROVISIONS
1. TERM
1.1 TERM. The initial term of this Lease ("Initial Term") shall be as
specified in Item 3 of the Fundamental Lease Provisions, commencing as of the
date (the "Commencement Date") described in Section 1.2 and, unless sooner
terminated in accordance with the provisions hereof, ending on the last day of
the Initial Term. Notwithstanding the foregoing, in the event the Commencement
Date is a day other than the first day of a month, there shall be added to the
Initial Term specified in Item 3 of the Fundamental Lease Provisions, the period
(the "Partial Lease Month") from the Commencement Date to the first day of the
next calendar month. As used herein, "Term" shall mean the Initial Term and all
option periods ("Option Periods"), if any, described in Section 13.
1.2 COMMENCEMENT DATE. The Commencement Date shall be either (i) the
date of substantial completion ("Substantial Completion") of Landlord's
obligations for construction of the Premises in accordance the Construction
Provisions (Exhibit "C"), or (ii) November 1, 1988, whichever occurs last.
Substantial Completion is defined as the date Landlord notifies Tenant that
Landlord's obligations for construction of the Premises have been substantially
completed in accordance with the Construction Provisions. Certification by
Landlord's Architect (the "Project Architect") of Substantial Completion shall
be conclusive and binding upon the parties hereto. Notwithstanding the
foregoing, in the event that Substantial Completion is delayed by reason of any
act or omission of Tenant, (a "Tenant Delay"), the date specified in clause
(i) above shall be the date Substantial Completion would have occurred had the
Tenant Delay(s) not occurred. In no event shall Tenant be required to take
possession of the Premises prior to November 1, 1988.
Landlord may provide for Substantial Completion of the Premises on or
after the Target Commencement Date. Landlord shall deliver possession of the
Premises to Tenant on or before the date of Substantial Completion of the
Premises. Landlord shall exercise reasonable efforts to notify Tenant 30 days in
advance of the estimated Commencement Date. However, in the event delivery of
the Premises is delayed beyond the Target Commencement Date for any reason,
Landlord shall not be liable or responsible to Tenant for any loss or damage
suffered by Tenant resulting from such delay.
1.3 TENANT'S CERTIFICATE AND CERTIFICATE OF OCCUPANCY. Tenant shall
execute and deliver to Landlord within 10 days after the Commencement Date a
certificate substantially in the form of Exhibit "D" (the "Tenant's
Certificate"). The failure of Tenant to execute and deliver the Tenant's
Certificate shall constitute an acknowledgment by Tenant that the statements
included in Exhibit "D" are true and correct, without exception. Within 60 days
following the Commencement Date, Landlord shall procure and deliver to Tenant a
copy of the certificate of occupancy for the Premises issued by the appropriate
governmental agency.
1.4 LEASE YEAR. A Lease Year shall consist of a period of 12
consecutive full calendar months. The first Lease Year shall begin on the
Commencement Date or, if the Commencement Date does not occur on the first day
of a calendar month, on the first day of the calendar month next following the
Commencement Date. Each succeeding Lease Year shall commence upon the
anniversary date of the first Lease Year.
2. RENT AND SECURITY DEPOSIT.
2.1 RENT. Tenant shall pay to Landlord as rent ("Rent") for the Partial
Lease Month, if any, and for each month of each Lease Year during the Term,
when due and without offset or deduction, the Basic Monthly Rent described in
Item 5 of the Fundamental Lease Provisions.
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Each installment of Basic Monthly Rent shall be paid in lawful tender
in advance to Landlord at the address specified in Item 10 of the Fundamental
Lease Provisions or such other address as Landlord shall designate in writing to
Tenant on or before the first day of the calendar month for which Rent is due.
If the Commencement Date is on a day other than the first day of a calendar
month, then the Rent for the Partial Lease Month shall be prorated on the basis
of a 30-day month and shall be payable in advance on or before the Commencement
Date.
2.2 ADDITIONAL RENT. Tenant shall also pay as additional rent
("Additional Rent") all other payments, if any, to be made by Tenant pursuant to
the provisions of this Lease, payable when due. Additional Rent and Basic
Monthly Rent are sometimes collectively referred to herein as "Rent."
2.3 SECURITY DEPOSIT. Tenant agrees to deposit with Landlord
simultaneously with the execution of this Lease by Landlord a security deposit
(the "Security Deposit") securing Tenant's faithful performance of all the
terms, covenants and conditions hereunder in the amount set forth in Item 6 of
the Fundamental Lease Provisions. In the event of any default ("Default")
described in Section 11.1, Landlord may from time to time, without any
obligation to do so, use, apply or retain all or any part of the Security
Deposit for the payment of any Rent or any other sum in Default, or for the
payment of any amount which Landlord may spend or become obligated to spend by
reason of Tenant's Default, or to compensate Landlord for any loss or damage
which Landlord may suffer by reason of Tenant's Default. If any portion of the
Security Deposit is so used or applied Tenant shall, within five days after
written demand therefor, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount; Tenant's failure to do so
shall be a Default under this Lease. Landlord shall not be required to keep the
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such deposit. If Tenant shall fully and faithfully
perform every provision of this Lease to be performed by it, the Security
Deposit or any remaining balance thereof, shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interest hereunder) within
10 days following expiration of the Term. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer the Security Deposit
to Landlord's successor in interest.
TAXES AND UTILITIES.
3.1 REAL PROPERTY TAXES.
3.1.1 REAL PROPERTY TAXES DEFINED. "Real Property Taxes" means (i)
any and all forms of tax, assessment, license fee, excise, bond, levy, charge or
imposition (collectively referred to herein as "Taxes", general, special,
ordinary or extraordinary, imposed, levied or assessed against the Building, the
Premises, the Business Center or any interest of Landlord or any mortgagee
thereof in the same, by any authority or entity having the direct or indirect
power to tax, including without limitation, any city, county, state or federal
government, or any fire, school, redevelopment, agricultural, sanitary, street,
lighting, security, drainage or other authority, political subdivision or
improvement district thereof, (ii) any Tax in substitution, partially or
totally, of any Tax now or previously included within the definition of Real
Property Taxes, including without limitation, those imposed, levied or assessed
to increase tax increments to governmental agencies, or for services such as
(but not limited to ) fire protection, police protection, street, sidewalk and
road maintenance, refuse removal or other governmental services previously
provided without charge (or for a lesser charge) to property owners and/or
occupants, (iii) any Taxes allocable to or measured by the area of the Building,
the Premises, the Business Center or any Rent payable hereunder, including
without limitation, any gross income tax or excise tax on the receipt of such
Rent or upon the possession, leasing, operation, maintenance, repair, use or
occupancy by Tenant or Landlord of the Premises, and (iv) any Taxes on the
transfer or transaction directly or indirectly represented by this Lease, by any
subleases or assignments
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hereunder or by other leases in the Business Center or by any document to which
Tenant is a party, creating or transferring (or reflecting the creation or
transfer) of an interest or estate in the Premises. Notwithstanding the
foregoing, during the Initial Term of this Lease, Tenant shall not be obligated
to pay increases in Real Estate Taxes due to the sale of the Building, the
Premises or the Business Center. Real Property Taxes shall not include any
general franchise, income, estate or inheritance tax imposed on Landlord.
3.1.2 PAYMENT. Tenant shall pay all Real Property Taxes applicable
to the Premises during the Term not less than 10 days prior the delinquency date
therefor and within five days thereafter shall provide Landlord with written
evidence satisfactory to Landlord of payment of the same. In the event that any
such Real Property Taxes are applicable to periods other than during the Term,
the parties shall equitably prorate the amount payable by Tenant and shall
provide for reimbursement to Landlord or Tenant, as required. Landlord shall be
responsible for and shall pay the Real Property Taxes up to the Commencement
Date. At Landlord's option, Landlord shall pay on behalf of Tenant the Real
Property Taxes. Landlord shall invoice Tenant for said Real Property Taxes and
Tenant shall remit same within five days for receipt of said invoice. Landlord
shall forward Real Property Taxes statements to Tenant within a reasonable time
period following receipt of same from the County Tax Collector.
3.1.3 SEPARATE ASSESSMENT. Landlord shall use its best efforts to
cause the Premises to be separately assessed from other real property owned by
Landlord. In the event Landlord is unable to obtain a separate assessment of the
Premises, the county assessor's work sheets or other records, if available,
shall be used by Landlord in reasonably determining that portion of the Real
Property Taxes levied or assessed against the tax assessment parcel, of which
the Premises are a part, properly allocable to the Premises. In the event such
work sheets or other records are not available, Landlord shall reasonably and
equitably allocate the Real Property Taxes levied or assessed against the tax
assessment parcel of which the Premises are a part between the Premises and the
remainder of such tax assessment parcel.
3.2 PERSONAL PROPERTY TAXES. Tenant shall pay, or cause to be paid, not
less than 10 days prior to delinquency any and all taxes, assessments, license
fees and other charges levied or assessed during the Term upon all of Tenant's
Alterations, leasehold improvements, equipment, furniture, fixtures, and any
other personal property located in, on or about the Premises. In the event of
any or all of Tenant's Alterations, leasehold improvements, equipment,
furniture, fixtures and other personal property shall be assessed and taxed with
the real property, Tenant shall pay to Landlord such taxes within 10 days after
delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's property.
3.3 UTILITY CHARGES. Tenant shall be solely responsible for, and shall
pay promptly the cost of, (including connection and other charges) all heat,
water, gas, light, electrical, sewer, telephone and other services and utilities
supplied to the Premises, together with any taxes thereon. If any such services
are not separately metered to the Premises, Tenant shall pay Tenant's share, as
reasonably determined by Landlord, of all charges jointly metered with other
real property owned by Landlord.
4. OPERATION.
4.1 USE. Tenant shall use the Premises solely for the purpose set forth
under Item 7 of the Fundamental Lease Provisions and shall not use or permit the
Premises or any part thereof to be used for any other purpose or purposes
whatsoever. Tenant shall keep the Premises and every part thereof, in a clean
and wholesome condition, free from any objectionable noises, odors, or
nuisances, and shall comply with all health and police regulations applicable
thereto in all respects. Tenant
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agrees that all trash and rubbish of Tenant shall be deposited only in
receptacles as provided by Landlord and that there shall be no other trash
receptacles permitted to remain outside the Premises.
4.2 GENERAL. Tenant, for itself, its sub-tenants, concessionaires and
its and their employees, agents, customers, invitees and licensees, agrees (a)
not to cause, permit or suffer any nuisance or waste to or of the Premises or
any disturbance of the quiet enjoyment of any other tenant in the Business Park,
including, without limitation, (i) the use or permission of use of any medium,
such as loudspeakers, sound amplifiers, exterior lighting or other devices,
capable of being heard or seen outside the Premises, such as flashing lights,
searchlights, loudspeakers, phonographs or radio broadcasts, or (ii) the
affixing, posting or distribution in, on or about the Premises or the Business
Center of any signs, handbills, circulars, advertisements or papers or other
materials or matters, except upon the prior written consent of Landlord, (b) to
comply with (i) any and all federal, state, county or municipal statutes, laws,
ordinances, rules, regulations and orders at any time, now or in the future
affecting the Premises, including, without limitation, any of the same requiring
improvements to or alteration of the Premises, (ii) any and all covenants,
conditions, restrictions or easements affecting the Premises or the Property and
(iii) each and all of the provisions of this Lease, any policies of insurance at
any time now or in the future in effect pursuant to this Lease and any deeds of
trust at any time now or in the future affecting the Premises and (c) not to
take or do, permit or suffer any action or thing which would in any way (i)
increase or cause to be increased the rates of any policy of insurance at any
time now or in the future in any way affecting the Premises, or (ii) subject
Landlord, its other tenants or subtenants, or their employees, agents,
customers, invitees or licensees, to any liability for injury to any person or
any property as a result thereof.
4.3 SIGNS. Tenant shall be permitted to construct and maintain on or
about the Premises such monument, free-standing or attached signs ("Signs")
identifying Tenant, the number, type design, color, location, site
configurations and materials which shall be (a) consistent with the Sign
Criteria of the Warland/Cypress Business Center ("Sign Criteria") attached
hereto as Exhibit "E", (b) consistent with applicable governmental statutes,
laws, ordinances, rules, regulations and orders and shall have been approved by
all governmental entities having jurisdiction with respect thereto, (c) approved
by Landlord in advance in writing and (d) subject to the provisions of Section
5.3.
4.4 PARKING. Tenant shall limit its parking to the parking lot on the
Premises. Tenant shall not permit any parking by its employees, agents,
subtenants, customers, invitees, concessionaires or visitors on the streets
surrounding the premises.
4.5 HAZARDOUS MATERIALS. Landlord and Tenant agree as follows with
respect to the existence or use of "Hazardous Material" (as defined below) on
the Premises:
4.5.1 Tenant shall (i) not cause or permit any Hazardous Material
to be brought upon, kept or used in or about the Premises by Tenant, its agents,
employees, contractors or invitees, without the prior written consent of
Landlord which Landlord shall not unreasonably withhold as long as Tenant
demonstrates to Landlord's reasonable satisfaction that such Hazardous Material
is necessary for Tenant's business and will be used, kept and stored in a manner
that complies with all Laws pertaining to any such Hazardous Material. If Tenant
breaches the obligations stated in the preceding sentence, or if the presence of
Hazardous Material on the Premises caused or permitted by Tenant results in
contamination of the Premises, or if contamination of the Premises by Hazardous
Material otherwise occurs for which Tenant is legally liable to Landlord for
damage resulting therefrom, then Tenant shall indemnify, defend and hold
Landlord harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities or losses (including, without limitation, diminution
in value of the Premises, damages for the loss or restriction on use of
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rentable or usable space or of any amenity of the Premises, damages arising
from any adverse impact on marketing of space in the building in which the
Premises is located, and sums paid in settlement of claims, attorneys's fees,
consultant fees and expert fees) which arise during or after the Lease Term as
a result of such contamination. This indemnification of Landlord by Tenant
includes, without limitation, costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state or local government agency or
political subdivision because of Hazardous Material present in the soil or
ground water on or under the Property. Without limiting the foregoing, if the
presence of any Hazards Material on the Premises caused or permitted by Tenant
results in any contamination of the Premises, Tenant shall promptly take all
actions at its sole expense as are necessary to return the Premises to the
condition existing prior to the introduction of any such Hazardous Material to
the Premises; provided that (i) Landlord's approval of such actions shall
first be obtained, which approval shall not be unreasonably withheld so long as
such actions would not potentially have any material adverse long-term or
short-term effect on the Premises and (ii) such actions are calculated to cause
the least amount of inconvenience to other Tenants.
4.5.2 Notwithstanding anything in this Lease to the contrary, it
shall not be unreasonable for Landlord to withhold its consent to any proposed
assignment, sublease of transfer if (i) the proposed transferee's anticipated
use of the Premises involves the generation, storage, use, treatment or disposal
of Hazardous Material; (ii) the proposed transferee has been required by any
prior landlord, lender or governmental authority to take remedial action in
connection with Hazardous Material contaminating a property if the
contamination resulted from such transferee's actions or use of the property in
question; or (iii) the proposed transferee is subject to any enforcement order
issued by any governmental authority in connection with the use, disposal or
storage of a Hazardous Material.
4.5.3 As used herein, the term "Hazardous Material" means any
hazardous or toxic substance, material or waste which is or becomes regulated
by any local governmental authority, the State of California or the United
States Government. The term "Hazardous Material" includes, without limitation,
any material or substance which is (i) defined as a "hazardous waste,"
"extremely hazardous waste" or "restricted hazardous waste" under Sections
25115, 25117 or 25122.7, or listed pursuant to Section 25140, of the California
Health and Safety Code, Division 20, Chapter 6.5 (hazardous Waste Control Law),
(ii) defined as a "hazardous substance" under Section 25316 of the California
Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner
Hazardous Substance Account Act), (iii) defined as a "hazardous material,"
"hazardous substance," or "hazardous waste" under Section 25501 of the
California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous
Materials Release Response Plans and Inventory), (iv) defined as a "hazardous
substance" under Section 25281 of the California Health and Safety Code,
Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances), (v)
petroleum, (vi) asbestos, (vii) listed under Article 9 or defined as hazardous
or extremely hazardous pursuant to Article 11 of Title 22 of the California
Administrative Code, Division 4, Chapter 20 (viii) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317), (ix) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq. (42 U.S.C. Section 6903), or (x) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (421 U.S.C.
Section 9601).
5. MAINTENANCE, REPAIRS, AND ALTERATIONS
5.1 TENANT MAINTENANCE, REPAIR AND RESTORATION OBLIGATIONS. Subject to
the provisions of Sections 5.2, 7.1 and 8.3., Tenant shall,
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during the Term, at Tenant's sole cost and expense, keep the Premises and every
part thereof in good, clean, safe, attractive and lawful order, condition and
repair. The portions of the Premises subject to such maintenance and repair
obligations shall include, but shall not be limited to, the roof, walls and
foundation of the Building, all parts of all electrical, water, gas, telephone,
security, sewage and other utility systems located on the Premises or serving
the Premises, all portions of the heating, ventilation and air conditioning
systems ("HVAC") serving the Premises and all sidewalks, driveways, landscaping,
signs, truck travel lanes, parking lots, and fences located or to be located on
the Premises.
In the performance of its landscape maintenance obligations,
Tenant shall follow the Landscape Maintenance Specifications of the
Warland/Cypress Business Center attached hereto as Exhibit "F". Furthermore,
Tenant shall contract with R&D Landscaping & Irrigation for the on-going
maintenance of the landscaping, or with such other landscaping maintenance firm
as shall be approved by Landlord. Tenant shall obtain a service contract for
repairs and maintenance of the HVAC system, which maintenance contract shall
conform to the requirements of the warranty, if any, provided in connection with
the initial HVAC system, with a copy of the service contract to be furnished to
Landlord within 30 days of execution of this Lease. In addition, Tenant shall be
responsible for the repainting of the exterior of the Premises during the fifth
to sixth year of the Lease Term, if reasonably required, at Tenant's sole cost,
and pursuant to the original Painting Specifications (including, but not limited
to, the color specifications), attached hereto as Exhibit "G". Tenant shall be
responsible for the resurfacing of the parking lot of the Premises during the
fifth to sixth year of the Lease Term, if reasonably required, at Tenant's sole
cost.
Tenant expressly waives the benefits of any statute at any time
now or in the future in effect which would otherwise afford Tenant the right to
make repairs at Landlord's expense or to terminate this Lease because of
Landlord's failure to keep the Premises in good order, condition or repair,
including, without limitation, California Civil Code Sections 1940, 1941 and
1942.
5.2 LANDLORD MAINTENANCE AND REPAIR. Except as specifically provided
in this Section 5.2 and Section 7 and 8, Landlord shall have no obligation to
maintain or repair the Premises. Except as provided in Sections 7 and 8, there
shall be no abatement of Rent and in no case shall there be any liability of
Landlord to Tenant or any other individual or entity by reason of (a) any injury
to unless such injury is directly caused by Landlord's gross negligence or
wilful act) or interference with Tenant's business arising from the making of
any repairs, alterations or improvements in or to any portion of the Business
Center, the Building or to the Premises or in or to fixtures, appurtenances and
equipment therein or (b) any entry onto the Premises by Landlord for purposes of
making such repairs, alterations or improvements or any other purpose.
5.3 ALTERATIONS AND ADDITIONS. Tenant shall not, without Landlord's
prior written consent, which consent shall not be unreasonably withheld, make
any alterations, additions, improvements or utility installations
("Alterations") in, on or about the Premises. Landlord hereby consents to all
nonstructural Alterations to the interior of the Premises, the cost of which
does not exceed $100,000.00 in the aggregate in any one Lease Year. As a
condition to its consent, Landlord may require (a) Alterations to be made under
the supervision of a competent architect or structural engineer in accordance
with plans and specifications approved in advance by Landlord, and (b) Tenant to
provide Landlord, at Tenant's sole cost and expense, with a lien and completion
bond in an amount equal to one and one-quarter times the estimated cost of such
alterations to insure Landlord against any liability for liens and to insure
completion of such Alterations. In determining whether to grant or deny such
consent, Landlord may also consider the aesthetics of any proposed Alterations
and whether such Alterations would enhance the physical appearance and value of
the Premises. Upon completion of any Alterations, Tenant agrees to (i) cause a
Notice of Completion to be
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recorded in the Office of the County Recorder in the County of Orange in
accordance with Section 3093 of the California Civil Code, and (ii) cause
Tenant's Architect to complete and sign the Architect's Certificate in the form
attached hereto as Exhibit "H". All such Alterations shall be done in a good,
workmanlike manner, shall be diligently prosecuted to completion and shall be
performed and done strictly in accordance with all applicable governmental
statutes, laws, rules, regulations, ordinances and orders, including, without
limitation the State of California Title 24 Energy Regulations. In any event,
Tenant shall give Landlord not less than 30 days' written notice prior to the
commencement of any Alterations and Landlord shall have the right to post
notices of nonresponsibility on or about the Premises.
5.4 MECHANICS' LIENS. Tenant agrees (a) that it will promptly pay for
all costs of Alterations or other work done or permitted by it or caused to be
done by it on or about the Premises, (b) that it will keep the Premises free and
clear of any liens arising out of any such Alterations or otherwise, (c) that
should any such lien by made or filed against the Premises on account of such
Alterations, or other work done, permitted, or caused to be done, by Tenant,
Tenant shall, at its sole cost and expense, bond against or discharge such lien
within 10 days after receipt of written request to do so from Landlord.
5.5 FAILURE. In the event that Tenant fails, refuses or neglects to
commence and complete repairs promptly and adequately, to remove any liens, pay
any costs, expense, to reimburse Landlord or to otherwise perform any act or
fulfill any obligation required of Tenant pursuant to this Section 7.5, Landlord
may, at its option, make or complete any such repairs, remove such lien, pay
such costs, or perform such acts, or the like, without prior notice to do so but
at the sole cost and expense of Tenant; Tenant agrees to reimburse Landlord for
all costs and expenses of Landlord thereby incurred within ten (10) days after
receipt by Tenant from Landlord of a statement setting forth an amount of such
costs and expenses. The failure by Tenant to so make repairs, to remove any
lien, to pay any such costs or expense or to so reimburse Landlord (in the case
of reimbursement within such ten (10) day period), shall constitute a default
by Tenant under this Lease and shall carry with it the same consequences as the
failure to pay any installment of rent. Landlord's rights and remedies,
pursuant to this Section 7.5, shall be in addition to any and all other rights
and remedies provided under this lease or by law.
5.6 TITLE. All right, title and interest in and to the Premises and any
Alterations thereto including, without limitation, all improvements constructed
pursuant to the Construction Provisions, shall be held by and retained by
Landlord and shall be free and clear of any claim or interest of Tenant upon
expiration or sooner termination of this Lease. Subject to the provisions of
Section 5.6, Tenant shall not waste, destroy or remove any improvements,
fixtures, or other property affixed to the Premises without the prior written
consent of Landlord, which consent shall not be unreasonably withheld.
5.7 SURRENDER. Upon expiration or any sooner termination of this Lease,
Tenant shall, at its sole cost and expense, excepting reasonable wear and tear
not resulting from the failure of Tenant to perform its obligations under this
Section 5, promptly (i) at Landlord's written election, undo and remove all
trade fixtures, personal property, installations, Alterations, signs and
leasehold improvements made by, on behalf of, or otherwise within the possession
of, Tenant, its subtenants, or their employees or agents, on or about the
Premises requested to be removed and undone by Landlord, (ii) restore, at
Landlord's written election, the floor, ceiling and walls of the Premises to
their condition immediately preceding the Commencement Date, and (iii) surrender
up and deliver possession of the Premises to Landlord, broom clean and in the
same condition, order and repair existing immediately preceding the Commencement
Date.
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6. INSURANCE AND LIABILITY.
6.1 INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
full force during all portions of the Term and effective upon tender of
possession of the Premises:
6.1.1 LIABILITY INSURANCE. A policy of comprehensive public
liability insurance insuring against any liability arising out of the ownership,
use, occupancy or maintenance of the Premises and all areas appurtenant thereto
and contractual indemnity insurance insuring Tenant's obligations under Section
6.5.1 (collectively, "Liability Insurance"). Such Liability Insurance shall have
limits of not less than $6,000,000 for combined single limit for injury, death
or any one or more persons and property damage. The limits of the Liability
Insurance shall never be decreased, but shall be increased in accordance with
increases, if any, reasonably determined by Landlord to be necessary to maintain
policy limits from time to time in amounts customary and usual for premises
comparable to the Premises; such increases, if any, are to be made on a yearly
basis on or about the anniversary of the Commencement Date;
6.1.2 ALL RISK INSURANCE. A policy of All Risk Insurance ("All
Risk Insurance") insuring the Premises, all improvements contained thereon,
Alterations thereto and all other property located on the Premises against loss
by all perils covered under All Risk Insurance including, without limitation,
fire, malicious mischief, extended coverage, vandalism, and special extended
perils in an amount equal to their full new replacement cost. The All Risk
Insurance shall not cover Tenant's personal property, removable trade fixtures
and Alterations not constituting replacements of components of the original
Building demised hereunder.
6.1.3 RENTAL INSURANCE. A policy of rental insurance ("Rental
Insurance") against loss or damage by fire and other perils covered by All Risk
Insurance in an amount, during the Partial Lease Month, if any, and the first
Lease Year, not less than the Basic Annual Rent payable hereunder for the
Partial Lease Month, if any, and the first Lease Year, and during each Lease
Year thereafter in an amount not less than the greater of the Basis Monthly Rent
payable hereunder for such Lease Year or the sum of all Rent which was payable
hereunder for the then immediately preceding Lease Year;
6.1.4 PLATE GLASS INSURANCE. A policy of full coverage plate glass
insurance on the Premises (provided, however, Tenant may self-insure for this
coverage); and
6.1.5 WORKERS' COMPENSATION INSURANCE. A policy of workers'
compensation insurance insuring all of Tenant's employees working on or about
the Premises with coverage limits not less than those required by applicable
law.
6.2 INSURER AND POLICY FORM. All insurance policies required to be obtained
by Tenant pursuant to the provisions of this Section 6, (i) shall be carried
only through responsible insurance companies rated A:XII or better in the most
current "Best's Key Rating Guide", (ii) shall be primary and noncontributing
with, and not in excess of, any insurance coverage which may be carried by
Landlord, (iii) shall name Landlord and any other parties designated by Landlord
as an insured, and (iv) shall contain language or bear endorsements that such
policy or policies shall not lapse, be cancellable or be subject to reduction of
coverage without giving Landlord 30 days' prior written notice thereof. Within
30 days after the initial purchase of said insurance policies, but not more than
25 days after the Commencement Date and within 30 days after every material
change therein, Tenant shall provide Landlord a copy of each such policy of
insurance or a certificate of insurance certifying to the existence of such
insurance ineffect in a form consistent with the requirements of this Section 6.
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6.3 WAIVER OF SUBROGATION. Each policy of insurance obtained by either
party pursuant to this Lease insuring against the perils required to be covered
in the All Risk Insurance, whether or not such policy is required to be obtained
hereunder, shall expressly waive all rights of subrogation against the other and
their respective officers, directors, general partners, employees, agents and
representatives.
6.4 INDEMNIFICATION. From and after the date of execution hereof by
Landlord, Tenant shall indemnify, defend and hold Landlord harmless against and
from all claims, demands, actions, causes of actions, damages, liabilities,
obligations, costs and expenses, including, without limitation, attorneys' fees
arising from (i) the construction, repair, alteration, improvement, use,
occupancy or enjoyment of the Premises by Tenant or any person thereon,
including, without limitation, any labor dispute involving Tenant, (ii) any
breach or default in the performance of any obligation on Tenant's part to be
performed under the terms of this Lease or (iii) any negligent or wrongful act
or omission of Tenant, or any officer, agent, employee, guest or invitee of
Tenant in or about the Premises. Notwithstanding the foregoing, the
indemnifications provided under this Section 6.5.1 shall not apply to any claims
resulting from the gross negligence or wilful misconduct of Landlord.
7. CASUALTY.
7.1 RECONSTRUCTION. Subject to the provisions of Sections 7.1.2 and
7.2, in the event the Premises are damaged by fire or any other peril (other
than, at the option of Landlord, the negligence or wilful misconduct of Tenant,
its employees or contractors), Landlord shall repair, reconstruct and restore
(collectively, "Restore" or "Restoration") with reasonable promptness the
Premises (other than any property of Tenant which is not insured pursuant to
Section 6.1, Restoration of which shall be conducted by Tenant) to a condition
reasonably equivalent to its condition immediately prior to such damage. In such
case, this Lease shall remain in full force and effect, except that in all cases
of damage (other than that resulting from the negligence or wilful misconduct of
Tenant, its employees or contractors) Tenant shall be entitled to a
proportionate reduction of the Basic Annual Rent from the date of damage until
substantial completion, as certified by Landlord's architect, of Restoration of
such damage, based upon the extent to which the damage and making of such
repairs shall reasonably interfere with the occupancy by Tenant of the Premises;
provided, however, that such reduction of Basic Monthly Rent shall by only to
the extent of the proceeds of the rent insurance to be obtained under Section
6.1.3.
7.1.2 INSURANCE DEFICIENCY. In the event of any damage to the
Premises by fire or any other peril required to be insured by Tenant pursuant to
Section 6.1, (i) Tenant shall bear the risk that the insurance coverage to be
provided by Tenant under Sections 6.1.2 and 6.1.3 will be sufficient to cover
the full replacement cost of the Restoration of the Premises by Landlord under
Section 7.1 and any abatement of Basic Monthly Rent under Section 7.1 and (ii)
Tenant shall be solely responsible for the payment of the cost of any deficiency
thereof. Following adjustment of the loss and the obtaining of a guaranteed
maximum cost construction contract covering the Restoration, if Landlord
determines there may be a deficiency in insurance proceeds, Landlord shall
deliver written notice thereof to Tenant, together with an estimate of the
deficiency. Promptly following receipt of such notice, Tenant shall promptly
deposit in cash the amount of such deficiency with Landlord. Following
completion of the Restoration, if the deposit was insufficient Tenant shall pay
the cost of the remaining deficiency; if the deposit was excessive, Landlord
shall return the excess to Tenant. Landlord shall not be required to commence
the Restoration until it has received such deposit.
7.2 TERMINATION.
7.2.1 UNINSURED CASUALTY. In the event the Premises are
damaged as a result of any peril other than the perils covered by
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insurance or self-insured by Tenant pursuant to Section 6.1 (an "Uninsured
Casualty"), then Landlord shall forthwith Restore the same, provided the cost of
such Restoration does not exceed $200,000.00. In the event of an Uninsured
Casualty where the cost of Restoration of the Premises, as reasonably determined
by Landlord, exceeds such amount, then Landlord shall have the option to (a)
Restore such damage, with this Lease continuing in full force and effect, but
with the Basic Annual Rent to be proportionately reduced as provided in Section
7.1, or (b) terminate this Lease. Landlord's option to terminate this Lease
shall be exercisable by delivery of 30 days' prior written notice to Tenant,
given at any time within 60 days of such damage or destruction.
7.2.2 OTHER TERMINATION. In the event that any damage occurs
during the last 12 months of the Term and the cost of Restoration of such damage
exceeds $300,000.00, Landlord and Tenant (except as to Tenant in the case where
such damage results from the negligence or wilful misconduct of Tenant, its
employees or contractors) shall each have the option, exercisable at any time
within 60 days of such damage, to terminate this Lease on 30 days' prior written
notice to the other party.
7.2.3 PAYMENT OF RENT. In the case of any termination of this
Lease pursuant to this Section 7.2, all Rent, reduced for the period from the
date of damage through the date of termination of this Lease in an amount
proportionate to the extent, if any, to which such damage interfered with
Tenant's occupancy of the Premises, shall be paid by Tenant through the date of
such termination.
7.3 WAIVER OF CIVIL CODE SECTIONS. Tenant hereby waives the benefit of
the provisions of Sections 1932(2) and 1933(4) of the California Civil Code with
respect to any partial or total destruction of the Premises.
8. CONDEMNATION.
8.1 DEFINITIONS.
8.1.1 CONDEMNATION. Condemnation ("Condemnation") shall be
defined as (i) the taking of all or any portion of the Premises through the
exercise of any governmental power of condemnation or eminent domain, whether by
legal proceedings or otherwise, by any public or quasi-public authority, private
corporation, entity or individual having the power of condemnation or eminent
domain ("Condemnor") or (ii) any voluntary sale or transfer by Landlord, either
under the threat of Condemnation or while Condemnation proceedings are pending.
8.1.2 TOTAL CONDEMNATION. Total condemnation ("Total
Condemnation") shall be defined as the Condemnation of the entire Premises.
8.1.3 PARTIAL CONDEMNATION. Partial condemnation ("Partial
Condemnation") shall be defined as any Condemnation that does not constitute a
Total Condemnation.
8.1.4 CONDEMNATION DATE. Condemnation date ("Condemnation Date")
shall be defined as the earlier of (i) the date of constructive or actual
possession of that portion of the Premises subject to Condemnation is taken by
the Condemnor or (ii) the date when title to that portion of the Premises
subject to Condemnation vests in the Condemnor or its nominee.
8.1.5 AWARD. Award ("Award") shall be defined as all compensation
awarded, paid or received in connection with a Condemnation.
8.2 TOTAL CONDEMNATION. In the event of a Total Condemnation, this
Lease shall terminate as of the Condemnation Date.
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8.3 PARTIAL CONDEMNATION.
8.3.1 TERMINATION. In the event of any Partial Condemnation of
the Premises which substantially impairs the use of the remainder of the
Premises by Tenant, Tenant and Landlord shall each have the option to terminate
this Lease, exercisable upon 60 days' prior written notice delivered to the
other party at any time within 30 days after the Condemnation Date.
8.3.2 ABATEMENT OF RENT. In the event of any Partial
Condemnation, Rent payable as of the Condemnation Date, but during and only
during the period of such Partial Condemnation, shall be abated by an amount
equal to the then Rent multiplied by a fraction, the numerator of which is equal
to the total square footage of rentable area of that portion of the Premises
which is subject to Condemnation and the denominator of which is equal to the
total ground floor square footage of the Premises.
8.3.3 RESTORATION. In the event of any Partial Condemnation where
this Lease is not terminated pursuant to Section 8.3.1, Landlord shall with
reasonable promptness, Restore the Premises to a single self-contained unit in a
condition as near as reasonably possible to the condition of the Premises
immediately preceding Condemnation; provided, however, Landlord's obligation to
Restore the Premises shall be limited to that portion of the Award received by
Landlord attributable to severance damages.
8.4 ALLOCATION OF AWARD. Subject to the provisions of this Section
8.4, the entire Award made as a result of any Condemnation shall belong solely
to, and shall be the sole property of, Landlord, whether such Award shall be as
compensation for diminution in value of this Lease, for the value of any
unexpired portion of the Term, or as compensation for the fee or for the
Premises, and Tenant shall have no claim against either Landlord or the
Condemnor with respect thereto. Notwithstanding the foregoing, Tenant shall be
entitled to pursue an Award for moving or relocation expenses and for the
unamortized value of any trade fixtures or Alterations of Tenant subject to
Condemnation. Tenant does hereby covenant and agree, upon the request of
Landlord, to execute an assignment of any Award in substance consistent with the
provisions of this Section 8.4.
8.5 WAIVER OF CODE OF CIVIL PROCEDURE SECTION. Each Party hereby
waives the provisions of Section 1265.130 of the California Code of Civil
Procedure and the provisions of any successor or other law of the like import.
9. ASSIGNMENT AND SUBLETTING.
9.1 ASSIGNMENT AND SUBLETTING. Subject to the provisions of Section
9.8 herein, Tenant may not assign, transfer, hypothecate, encumber, by operation
of law or otherwise, this Lease, or any of its interest herein or hereto, nor
sublet the Premises, or any portion thereof, nor grant any license or right of
use or occupancy with respect to the Premises, without the prior written consent
of Landlord which consent (i) in the case of a proposed assignment of the Lease
shall not be unreasonably withheld subject to Section 10.5 and (ii) in all other
cases, including subleases of all or any portion of the Premises, may be
withheld in the sole and absolute discretion of Landlord. Any attempt to do
otherwise shall be absolutely and unconditionally null and void and of no force
or effect whatsoever.
9.2 NOTICE. If Tenant desires to undertake any such transaction, it
shall provide Landlord with written notice of such desire specifying the
consideration for, and all other terms and conditions of, and identifying the
proposed assignee or subtenant (the "Proposed Party") and including with the
notice the current financial statement of the Proposed Party.
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9.3 TERMINATION, SUBLEASE, OR ASSIGN. At any time within 30 days after
Landlord's receipt of the information specified in Section 9.2, Landlord may by
written notice to Tenant elect (i) to sublease from Tenant the Premises or the
portion thereof so proposed to be subleased by Tenant, or to take an assignment
of Tenant's leasehold estate hereunder, or such part thereof as shall be
specified in said notice, upon the same terms as those offered to the proposed
subtenant or assignee, as the case may be, except that the Rent payable by
Landlord in the case of a sublease to Landlord shall be the same rent per square
foot as is payable by Tenant hereunder for the same period; or (ii) to terminate
this Lease as to the portion of the Premises so proposed to be subleased or
assigned (which may include all of the Premises), with a proportionate abatement
in the Rent payable hereunder. In the case where Landlord elects to sublease
space or receive an assignment from Tenant or terminate all or any portion of
this Lease pursuant to this Section 9.3, Landlord may thereafter lease the space
affected to Tenant's proposed assignee or subtenant, without liability to
Tenant, provided, however, in such event Tenant shall be relieved of all
obligations under this Lease to Landlord, with respect to exercise its option to
sublet or receive an assignment from Tenant (or terminate this Lease as to any
portion of the Premises), (i) Landlord and its subtenants shall have the right
to use in common with Tenant all parking spaces, lavatories, corridors and
lobbies within the Premises the use of which is reasonably required for the use
of such sublet, assigned or terminated space.
9.4 CONSENT. Subject to the provisions of Section 9.5, Tenant may
neither consummate, nor agree to consummate, any proposed transaction subject to
the provisions of this Section 9 without the prior written consent of Landlord.
Landlord shall not unreasonably withhold its consent to any assignment of the
Lease or to any sublease of space in excess of 5,000 square feet of building
area; with respect to all other transactions subject to this Section 9,
Landlord may withhold its consent in its sole discretion. In addition, in each
such case Tenant shall pay to Landlord all expenses, including reasonable
attorneys' fees and reasonable accountants' fees, incurred by Landlord in
determining whether or not to consent to any such transaction, (b) Tenant and
its assignees and sublessees shall, within 10 days after Landlord provides
Tenant with written notice to do so, execute and deliver to Landlord such
documents, and take such further action, as Landlord may deem necessary or
advisable to effect or maintain such transaction or to protect Landlord's
rights under this Lease, (c) the acceptance by Landlord of rent from any person
other than Tenant shall not be deemed a consent to any particular assignment,
subletting or other such transfer shall not be deemed a consent to any other
assignment, subletting or other such transfer and (e) the consent to any
assignment, subletting or other such transfer shall not in any way whatsoever
relieve Tenant of any of its obligations under this Lease, whether arising
before or after such consent. In no event shall there be more than one
sublessee in the Premises.
9.5 ADDITIONAL TRANSACTIONS. If Tenant is a corporation which is not the
issuer of any security registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, or is an unincorporated association, trust or partnership,
the transfer, sale, assignment, pledge or hypothecation of any stock or interest
in such corporation, association, trust or partnership in excess of thirty-three
percent in the aggregate during the Term of the total stock or interest in such
corporation, association, trust or partnership shall be deemed to be an
assignment of this Lease for purposes of this Section 9.
9.6 LIMITATION. If Landlord does not terminate this Lease pursuant to
Section 9.2, and if Landlord consents to the proposed transaction pursuant to
Section 9.3, then, at any time within 60 days after such consent, Tenant may
consummate the proposed transaction, at the price, and on the terms and
conditions, and with the parties, specified in the notice referred to in Section
9.1. If the proposed transfer is not so consummated within such 60 day period,
it shall again be subject to all of the provisions of this Section 9.
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9.7 ASSIGNMENT AND SUBLETTING PROFIT RECAPTURE. Subject to the
provisions of Section 9.8 below, in the event that the Tenant receives any net
profits by virtue of any assignment of this Lease or any sublease of the
Premises permitted hereunder, whether in the form of sublease rentals in excess
of the Rent payable hereunder, periodic payments, "key" money, lump-sum
payments, or otherwise, this Lease shall be deemed to be amended to provide, (a)
in a case where such net profits are received in periodic payments, that the
Rent hereunder for the term of such sublease or commencing with the effective
date of such assignment, as the case may be, shall be increased by fifty percent
(100%) of the net profits payable in periodic payments to Tenant in connection
with such sublease or assignment and (b) in the case of "key" money, lump-sum
payments, or other non-continuing payments, that such payments shall be promptly
delivered in full to Landlord. Each assignor and assignee, in the case of an
assignment, and each sublessor and sublessee, in the case of a sublease, shall
be responsible for performance under this Section 9.6. "Net profits" for this
purpose shall refer to all payments or other consideration received by Tenant in
connection with the transaction, directly or indirectly, less reasonable amounts
(collectively, "Deductions") for legal expenses and brokerage commissions
incurred by Tenant with respect to such assignment or sublease and tenant
improvement costs incurred by Tenant solely as an inducement to the transferee
to consummate the assignment or sublease; provided, however, in the case where
such net profits are received by Tenant in periodic payments, Deductions shall
be evenly amortized over the period of such payments. Notwithstanding the
foregoing, in the event that the transaction involves the transfer of property
other than solely a sublease of the Premises or an assignment of Tenant's
interest in the Lease, Landlord shall be fully advised of all relevant
information concerning the transaction (including the total consideration for
all aspects of the transaction) and shall be entitled to allocate a reasonable
amount, based upon then current market rents and the total consideration to be
received by Tenant in connection with the transaction, to the net profits,
realized by Tenant in the sale of its interest in this Lease, notwithstanding
the fact that the Tenant and the transferee may have made some different
allocation among themselves.
9.8 PERMITTED SUBLESSEES. Notwithstanding anything to the contrary
contained in Section 9, Tenant shall be permitted to sublease a portion or all
of the Premises to a wholly-owned subsidiary of Edgemont Sales Company, Inc., or
one in which the controlling interest of the proposed transferee is held by
either Edgemont Sales Company, Inc., or by Mr. Ronald Kotloff, without the prior
consent of Landlord. Landlord shall, however, be notified by Tenant in writing
of such sublease. Tenant shall not be obligated to share with Landlord any
sublease profits from such permitted sublease.
10. SUBORDINATION.
10.1 TENANT'S AGREEMENT TO SUBORDINATE. Tenant, for itself and its
subtenants, agrees, without the necessity of any further consideration or
action, to subordinate all of its right, title and interest in and to this
Lease to the lien of any mortgage or deed of trust now or hereafter encumbering
the Premises or any portion thereof, and to all advances made or hereafter to
be made upon the security thereof, provided, however, (i) that such beneficiary
or beneficiaries shall agree in writing (on such beneficiary's standard
non-disturbance agreement) delivered to Tenant to recognize all of Tenant's
right, title and interest in and to this Lease so long as Tenant performs and
complies with each and all of its covenants, agreements, terms and conditions
under this Lease, (ii) that all terms of such indebtedness, including, but not
by way of limitation, the precise amount thereof and the interest rate with
respect thereto, shall be as determined solely by Landlord and such beneficiary
or beneficiaries, and (iii) Tenant, for itself and its subtenants, shall within
10 days after Landlord or such beneficiary or beneficiaries provide
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Tenant with written notice to do so, execute and deliver to Landlord such
documents and take such further action as Landlord or such beneficiary or
beneficiaries may deem necessary or advisable to effect or maintain such
subordination. Tenant shall be liable to Landlord for all losses incurred by
Landlord in the event of Tenant's failure to comply with Landlord's written
request.
10.2 ATTORNMENT. Tenant, for itself and its subtenants, agrees that
(i) upon delivery to Landlord of the written election of the beneficiary or
beneficiaries of any mortgage or deed of trust encumbrance affecting the
Premises which is superior to this Lease, that such encumbrance shall be deemed
subordinate to this Lease, (a) this Lease shall, without the necessity of any
further consideration or action whatsoever, be deemed superior to such
encumbrance, whether this Lease was executed before or after the execution of
such encumbrance, and (b) the beneficiary or beneficiaries of such encumbrance
shall have the same rights with respect to this Lease as if this Lease had been
executed and delivered prior to execution and delivery of such encumbrance and
had thereafter been assigned to such beneficiary or beneficiaries and (b) if, by
reason of Landlord's default under any encumbrance now or hereinafter affecting
the Premises in any way, any or all of Landlord's right, title or interest in
and to the Premises is terminated, Tenant (a) shall waive all rights at law or
in equity now or hereafter in effect to terminate this Lease and surrender
possession of the Premises, (b) shall attorn to the transferee, whether by
foreclosure, judicial or trustees' sale, deed in lieu of foreclosure or
otherwise, of any or all of Landlord's right, title or interest in or to the
Premises, (c) shall recognize such transferee and its transferees as a Landlord
under this Lease, and (d) shall execute and deliver to Landlord and to such
transferee and its transferees within 10 days after Landlord, such transferee
or its transferees may deem necessary or advisable to effect or maintain such
attornment.
11. DEFAULT AND REMEDIES.
11.1 DEFAULT. Tenant agrees that the occurrence of any of the
following events shall constitute a material default ("Default") under this
Lease by Tenant:
11.1.1 FAILURE TO PAY RENT. The continued failure of Tenant to
pay in full when due any installment of Rent, or any other payment required to
be made by Tenant hereunder, for 10 days after receipt by Tenant of written
notice from Landlord of such failure; provided, however, that any such notice
shall be in lieu of, and not in addition to, any notice required under Section
1161 et seq., of the California Code of Civil Procedure.
11.1.2 ABANDONMENT. The abandonment or vacation of the Premises
by Tenant for more than 10 days without the prior written consent of Landlord,
which consent may be granted or withheld in the sole but reasonable discretion
of Landlord; provided, however, that any such notice shall be in lieu of, and
not in addition to, any notice required under Section 1161 et seq., of the
California Code of Civil Procedure.
11.1.3 BANKRUPTCY. The levy or attachment or other judicial
seizure of all or substantially all of the assets of Tenant located in, on or
about the Premises or of the right, title or interest of Tenant in and to this
Lease unless dismissed within 30 days thereafter, the making by or on behalf of
Tenant of any general assignment for the benefit of creditors, the voluntary
or involuntary filing of a petition for adjudication of Tenant as insolvent or
bankrupt or for reorganization
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or arrangement under an insolvency act or any law relating to bankruptcy,
unless dismissed within 30 days thereafter, the appointment of any receiver or
trustee in any insolvency proceedings for Tenant or for all or substantially
all of the assets of Tenant located in, on or about the Premises or for the
right, title or interest of Tenant in and to this Lease, unless dismissed within
30 days thereafter, or the filing of any petition for or consent to any of the
foregoing insolvency or bankruptcy matters.
11.1.4 OTHER. The continued failure by Tenant in the performance
of or compliance with any of the other covenants, terms, or conditions of this
Lease for 10 days after Landlord shall have given written notice of such failure
to Tenant, provided, however, that if the nature of such Default is such that
Tenant cannot reasonably cure such Default within said 10 day period, such
failure shall not constitute a Default if Tenant shall, within such period of
time, commence such performance and thereafter diligently and continuously
pursue such performance or compliance to completion; and provided further, that
any notice required hereunder shall be in lieu of, and not in addition to, any
notice required under California Code of Civil Procedure Section 1161, as
amended.
11.2 REMEDIES. In the event of a Default, Landlord may, in addition to
all remedies or means of redress to which it may be lawfully or equitably
entitled, in its discretion, while such Default continues:
11.2.1 TERMINATION. Terminate this Lease and any and all rights
of Tenant hereunder, by any lawful means, in which event, Landlord, without the
requirement of any further notice to Tenant, shall have the right immediately to
enter the Premises and take full possession thereof, in which event Landlord
shall also have the right to recover from Tenant (i) the worth at the time of
award made on account of the Default resulting in such termination ("Award"),
together with interest thereon at the maximum lawful interest rate per annum, of
any unpaid portion of the Rent which had been earned by Landlord at the time of
such termination, (ii) the worth at the time of Award, together with interest
thereon at the maximum lawful interest rate per annum, of the amount by which
any unpaid portion of the Rent which would have been earned after such
termination until the time of Award exceeds the amount of loss of any unpaid
portion of the Rent which Tenant proves could have reasonably been avoided,
(iii) the worth at the time of Award, discounted at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the Award plus one percent,
of the amount by which any unpaid portion of the Rent for the balance of the
Term exceeds the amount of loss of any unpaid portion of the Rent which Tenant
proves could have reasonably been avoided, and (iv) any and all other amounts
necessary to compensate Landlord for all detriment proximately caused by such
Default or which in the ordinary course of business would be likely to result
therefrom, including, without limitation, any costs or expenses incurred by
Landlord in maintaining or preserving the Premises after such Default, preparing
the Premises for reletting to a new tenant, accomplishing any repairs or
alterations to the Premises for purposes of such reletting, rectifying any
damage thereto occasioned by the act or omission of Tenant and any other costs
necessary or appropriate to relet the Premises.
11.2.2 CONTINUATION. Continue this Lease in full force and
effect, but enforce any of its other rights and remedies hereunder, including,
without limitation, the right to recover all of the Rent as it becomes due
under this Lease, in which event the rights of Tenant to possession of the
Premises under this Lease and the right of Tenant to assignment and sublease,
if any, pursuant to the provision of Section 9 of this Lease shall continue,
provided, however, that any acts of maintenance or preservation or efforts to
relet the Premises by Landlord or the appointment of a receiver by Landlord to
protect its right, title and interest in and to the Premises or any portion
thereof or this Lease, shall neither constitute termination of this Lease nor
interference with such rights of Tenant to possession, assignment and sublease.
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11.2.3 ADDITIONAL RIGHTS. Pursue all rights and remedies of
Landlord, which shall in any event be cumulative and not alternative, and shall
be in addition to any and all rights provided by law or equity, in connection
with which Tenant does hereby agree that (i) the waiver of any Default by
Landlord shall be effective only if in writing signed and dated by Landlord and
shall not in any event by continuing in nature or otherwise a waiver of any
subsequent Default, (ii) the acceptance of any unpaid but due portion of the
Rent shall be in mitigation of Landlord's damages and shall not, unless in
writing signed and dated by Landlord, (a) constitute a waiver of any Default, or
any of the rights and remedies of Landlord hereunder, at law or at equity or (b)
invalidate or compromise any notice of a Default provided before such
acceptance, or any deadline specified in such notice, and (iii) Landlord, in its
discretion, without prejudice to any other remedies Landlord may have, may,
following the continued failure of Tenant to cure any Default after receipt of
written notice thereof, elect to cure any Default, in which event Tenant shall,
within 10 days after Landlord provides Tenant with written notice to do so, pay
to Landlord any and all costs and expenses incurred by Landlord in connection
therewith.
11.3 LATE CHARGE AND INTEREST.
11.3.1 LATE CHARGE. In the event that any installment of Rent or
any other sum payable by Tenant hereunder is not received by Landlord within
five days of the date when due, a late charge of ten percent of such overdue
installment or other payment shall be immediately and automatically payable by
Tenant to Landlord, without the necessity of delivery of any notice.
11.3.2 INTEREST. In addition to the late charge payable pursuant
to Section 11.3.1, any and all unpaid but due portion of the Rent and other
payments by Tenant hereunder not received by Landlord within thirty days of the
date when due shall bear interest at an annual rate equal to the lesser of (i)
four percent in excess of the discount rate being charged by the Federal Reserve
Bank of San Francisco on advances to member banks pursuant to Sections 13 and
13(a) of the Federal Reserve Act, as amended, as of the 25th day of the month
preceding the date of execution of this Lease and (ii) the maximum rate
permitted by applicable law.
12. MISCELLANEOUS
12.1 DEFAULT BY LANDLORD.
12.1.1 DEFAULT. Landlord shall not be in default under this Lease
unless Landlord has failed to perform the obligations required of Landlord
hereunder for more than 20 days after Tenant delivers written notice to
Landlord; provided, however, that in the event the nature of Landlord's
obligation is such that more than 20 days is required for complete performance,
Landlord shall not be in default pursuant to this Section 12 if Landlord
commences performance within such 20 day period and thereafter diligently
prosecutes such performance to completion.
12.1.2 REMEDIES OF TENANT. Tenant's sole remedies for default by
Landlord under this Lease shall be the right to damages and/or injunctive relief
and in no event shall Tenant have the right to terminate this Lease or abatement
hereunder as the result of Landlord's default.
12.2 ESTOPPEL CERTIFICATES. Tenant, for itself and its subtenants,
hereby covenants and agrees (i) to execute, acknowledge and deliver to Landlord,
from time to time during the Term within 10 days after Landlord provides Tenant
with written notice to do so, an estoppel certificate substantially in the form
attached hereto as Exhibit "I" certifying in writing (a) that this Lease is in
full force and effect, unmodified or modified solely as set forth in such
estoppel certificate, including, without limitation, confirmation of the
Commencement Date, and the date of expiration of the Lease, (b) the dates to
which Rent has been
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paid, and (c) that Landlord has, as of the date of such estoppel certificate,
fully and completely performed and complied with each and all of its covenants,
agreements, terms and conditions under this Lease, without exception or except
only as set forth in such estoppel certificate, (ii) that any such estoppel
certificate may be conclusively relied upon by a prospective purchaser or
encumbrancer of the Premises, and (iii) that the failure of Tenant to so deliver
such estoppel certificate in such period of time shall be conclusive upon Tenant
(a) that this Lease is in full force and effect, without modification except as
may be represented by Landlord, (b) that the Rent has not been prepaid under
this Lease except as required pursuant to the provisions of Section 2 of this
Lease, and (c) that Landlord has, as of the date on which Tenant failed to
deliver such estoppel certificate, fully and completely performed and complied
with each and all of its covenants, agreements, terms and conditions under this
Lease, without exception. At Landlord's option, the failure to deliver such
statement within such time shall be a material default of this Lease by Tenant.
12.3 HOLDING OVER. If Tenant holds over in the Premises after the
expiration of the Term or any extension thereof, with the express or implied
consent of Landlord, such holding over, in the absence of written agreement on
the subject, shall be deemed to have created a tenancy from month to month
terminable upon 30 days' written notice given at any time by either party to the
other, and otherwise subject to all the terms and provisions of this Lease. Rent
shall be paid monthly and shall be computed on the basis of one-twelfth of the
total Rent estimated by Landlord to be payable by Tenant to Landlord for the
next succeeding twelve-month period. Notwithstanding the foregoing, in the event
Tenant fails to surrender the Premises on the expiration of this Lease, in
addition to any other liabilities to Landlord accruing therefrom, Tenant shall
indemnify, defend and hold Landlord harmless from and against any damages, loss
and liability resulting from such failure to surrender, including, without
limitation, any claims of any succeeding Tenant founded upon such failure to
surrender.
12.4 QUIET ENJOYMENT. So long as Tenant continues to perform and comply
with each and all of the terms and conditions to be performed and complied with
under this Lease, and subject to (i) all federal, state, county and municipal
statutes, laws, ordinances, rules, regulations and orders and (ii) all of the
provisions of (a) this Lease, (b) any encumbrance now or in the future affecting
the Premises, (c) any reciprocal easement agreement conditions, covenants or
restrictions now or in the future affecting the Premises and (d) any policy of
insurance now or in the future affecting the Premises, Landlord does hereby
covenant and agree that Tenant shall lawfully, peaceably and quietly have, hold,
occupy and enjoy the Premises during the Term or any extension thereof, without
hindrance or interference with its quiet enjoyment and possession by any persons
lawfully claiming under Landlord.
12.5 FORCE MAJEURE. In the event that either party is delayed or
hindered from the performance of any act required hereunder by reason of
strikes, lock-outs, labor troubles, inability to procure materials not related
to the price thereof, failure of power, restrictive governmental laws and
regulations, riots, insurrection, war or other reasons of a like nature not the
fault of such party, then performance of such acts shall be excused for the
period of the delay, and the period for the performance of any such act shall be
extended for a period equivalent to the period of such delay. The provisions of
this Section 12.5 shall not, however, operate to excuse Tenant from prompt
payment of Rent or any other payment of money required under the terms of this
Lease.
12.6 SALE OF THE PREMISES. In the event of any sale or exchange of the
Premises by Landlord or an assignment by Landlord of this Lease (including,
without limitation, any so-called "sale-leaseback" transaction), Landlord shall
automatically be relived of any and all obligations on the part of Landlord
accruing from and after the date of such sale, exchange, or assignment,
including, without limitation, any obligation to Tenant with respect to the
Security Deposit upon assignment
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of the same to the transferee; provided, however, that (i) the interest of the
transferor, as Landlord, and any funds then in the hands of Landlord in which
Tenant has an interest shall be turned over, subject to such interest, to the
transferee, and (ii) notice of such sale, transfer, exchange or lease shall be
delivered to Tenant as required by law. No holder of a mortgage, deed of trust
or other encumbrance to which this Lease is or may be subordinate shall be
responsible in connection with the transfer of said security deposit hereunder,
unless such mortgagee or holder of such deed of trust or lessor shall have
actually received such security deposit.
12.7 CONSTRUCTION WARRANTIES. Following delivery of the Premises,
following request by Tenant, assign to Tenant the right to enforce any
warranties or guaranties held by Landlord (and which are assignable) with
respect to portions or components of the Premises which Tenant is required to
maintain and repair pursuant to Section 5.1; provided, however, that any
expiration or sooner termination of this Lease shall automatically be deemed an
assignment of the same by Tenant to Landlord and following request by Landlord,
Tenant shall execute and deliver all instruments requested of it to confirm such
assignment.
12.8 RECORDING. Tenant shall not under any circumstances record this
Lease. Should either party desire to evidence this Lease of record, Landlord and
Tenant agree to execute and acknowledge a Memorandum of Lease and the party
requesting recordation shall pay for all costs of recordation and any
documentary transfer tax.
12.9 FINANCIAL STATEMENTS. Upon Landlord's written request, Tenant
shall promptly furnish Landlord, from time to time, with certified financial
statements also certified by Tenant to be true and correct reflecting Tenant's
then current financial condition.
12.10 ACCESS BY LANDLORD. Landlord and Landlord's agents shall have the
right to enter the Premises at reasonable times upon reasonable prior notice
(which notice shall not be necessary in the case of emergency) and in such a
manner so as to not interfere with Tenant's business to examine the Premises and
to show the same to prospective purchasers or tenants of the Premises, to make
such repairs, alterations, improvements or additions as may be required in
connection with the development or maintenance of the Premises, without the same
constituting an eviction of Tenant, in whole or in part, or a trespass;
provided, however, that in no event shall Tenant be entitled to injunctive
relief to enforce any or all of its rights under this Section 12.10, and the
Rent shall not abate while said repairs, alterations, improvements or additions
are being made, by reason of loss or interruption of business of Tenant or
otherwise. During the six months prior to the expiration of the Term, Landlord
may place upon the Premises "to let" or "for sale" notices or signs which Tenant
shall permit to remain thereon. Nothing herein contained shall be deemed or
construed to impose upon Landlord any obligation, responsibility or liability
whatsoever for the care and maintenance or repair of the Premises, or any part
thereof except as is specifically provided in this Lease.
12.11 NOTICES. All notices and other communications pertaining to this
Lease shall be in writing and shall be deemed to have been given only when
delivered personally or 48 hours after being mailed, certified or registered
mail, return receipt requested, postage prepaid, to the respective addresses set
forth in Item 10 of the Fundamental Lease Provisions or to such other addresses
as any of the parties hereto may from time to time in writing designate to the
other parties hereto.
12.12 TIME. Time is of the essence of this Lease with respect to each
and every provision of this Lease in which time is a factor.
12.13 ENTIRE AGREEMENT. This Lease, including, but not by way of
limitation, the exhibits attached hereto and made parts hereof, sets forth the
entire agreement between the parties hereto, fully
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supersedes any and all prior agreements or understandings between the parties
hereto pertaining to the subject matter hereof and no change in, modification of
or addition, amendment or supplement to this Lease shall be valid unless set
forth in writing and signed and dated by each and all of the parties hereto
subsequent to the execution of this Lease.
12.14 FURTHER ASSURANCES. Each of the parties hereto, without further
consideration, agrees to execute and deliver such other documents and take such
other action as may be necessary to more effectively consummate the purposes and
subject matter of this Lease.
12.15 APPLICABLE LAW. The existence, validity, construction and
operational effect of this Lease, all of its covenants, agreements, terms and
conditions and the rights and obligations hereunder of each of the parties
hereto shall be determined in accordance with the laws of the State of
California, provided, however, that any provision of this Lease which may be
prohibited by law or otherwise held invalid shall be ineffective only to the
extent of such prohibition or invalidity and shall not invalidate or otherwise
render ineffective any or all of the remaining provisions of this Lease and
under no circumstances whatsoever shall this Lease be construed as creating
either a partnership, an agency or an employment relationship between the
parties hereto.
12.16 CONTROVERSY. In the event of any controversy, claim or dispute
between the parties hereto arising out of or relating to this Lease, the
prevailing party shall be entitled to recover from the nonprevailing party,
reasonable expense, including without limitation, reasonable accountants' and
attorneys' fees.
12.17 HEADINGS AND GENDER. The section headings used in this Lease are
intended solely for convenience of reference and shall not in any way or manner
amplify, limit, modify or otherwise be used in the interpretation of any of the
provisions of this Lease and the masculine, feminine or neuter gender and the
singular or plural number shall be deemed to include the others whenever the
context so indicates or requires.
12.18 SUCCESSORS. Subject to the provisions of Section 9 of this Lease,
the covenants, agreements, terms and conditions contained in this Lease shall be
binding upon and inure to the benefit of the successors and assigns of the
parties hereto.
12.19 CORPORATE AUTHORITY. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
13. ADDENDUM
The provisions of this Section 13 shall supersede and override any other
provisions in this lease to the extent the same are inconsistent:
13.1 RENTAL ADJUSTMENTS. Commencing with the first day of the 31st full
calendar month of the Initial Term and effective for each month of the
remainder of the Initial Term, Basic Monthly Rent shall be increased by 12.5%.
At the commencement of the 61st and 91st months of the Term, the Basic Monthly
Rent in effect at the time of adjustment shall be similarly increased by 12.5%.
13.2 OPTION TO RENEW. Tenant shall have the option to extend the
Initial Term (the "Option") on the basis of each and all of the terms and
conditions contained in this Lease, as then amended, for one period of ten (10)
years (the "Optional Period") commencing the day after the expiration of the
Initial Term, and unless sooner terminated in accordance with the terms and
conditions hereof, ending on the last day of the tenth consecutive Lease Year
thereafter. Such option shall be exercised by Tenant by giving written notice
("Option Notice") of exercise to Landlord at least 12 months prior to the
expiration of the Initial Term.
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Notwithstanding the foregoing, in the event (1) Tenant is in default on the date
the Option Notice is given or (ii) should Landlord have given to Tenant three or
more notices regarding Tenant's failure to pay rent when due during the Initial
Term, or (iii) should Tenant be in default on the date the Initial Term expires,
then in each event Tenant's Option shall be deemed automatically terminated.
13.3 CALCULATION OF RENT DURING OPTION PERIOD. The initial monthly
installments of Rent for the Option Period shall be the greater of (i) the Rent
payable for the month immediately preceding the Option Period or (ii) the fair
market rental rate prevailing for monthly rent for the lease of an equivalent
amount of comparable space in a building of like quality, use and location
within an area of 10 miles of the Premises with improvements similar to and of
quality comparable with that of the improvements contained within the Premises
(including all such improvements made pursuant to the Construction Provisions)
(the "Fair Market Rental Rate").
13.3.1 CALCULATION OF FAIR MARKET RENTAL RATE. Within thirty (30)
days of Tenant's Option Notice, Landlord shall notify Tenant of the Rent (the
"Proposed Rent") for the Option Period. In the event Landlord and Tenant are
unable to agree upon the fair market rental rate for the Premises within the
30-day period (the "Negotiation Period") following the date Tenant exercises the
Option, the Option shall terminate and be of no further force or effect unless
within fourteen (14) days following the expiration of the Negotiation Period
Tenant delivers to Landlord written notice (the "Appraisal Notice") of its
desire to determine the fair market rental rate for the Premises by the
appraisal method set forth below. In the event Tenant elects for appraisal,
Tenant shall, at Tenant's sole expense, with thirty (30) days from the date of
delivery of the Appraisal Notice, deliver to Landlord a written appraisal
report, prepared by an MAI appraiser of Tenant's choice, which shall state the
appraiser's estimate of the fair market rental rate for the Premises. If
Landlord objects to such appraisal report, Landlord shall, within (30) days of
receipt of such appraisal report, obtain at Landlord's sole expense, an
appraisal of the market rental rate for the Premises from an appraiser of
Landlord's choice. If Landlord and Tenant are unable to agree upon the fair
market rental rate for the Premises after reviewing the two appraisal reports,
the two appraisers shall select a third MAI appraiser, whose expense shall be
borne equally by the parties, and who shall appraise the fair market rental
rate for the Premises. The three appraisers shall then calculate the average of
the two appraisals which are closest in valuation, which average shall be
deemed to be the Fair Market Rental Rate.
13.4 ADJUSTMENTS TO RENTAL RATE DURING OPTION PERIOD. In the event
Tenant exercises the Option as set forth hereinabove, the rent during the Option
Period shall be adjusted at the 31st, 61st and 91st months of the Option Period
in the manner and in the same amount as set forth in Section 13.1 herein.
13.5 RENT RELIEF. Landlord acknowledges that Tenant is presently under
lease at another location in the area of the Premises, said location being 11082
Winners Circle, Los Alamitos, California, and has a rent obligation under the
terms of that lease that is not due to terminate until December 31, 1989.
Landlord hereby agrees that from the Rent Commencement Date herein to such time
as Tenant is relieved of this other rent obligation, but, in any event not
beyond December 31, 1989, Tenant's shall be granted an abatement of its Basic
Monthly Rent herein by an amount equal to fifty percent (50%) or Tenant's base
monthly rental obligation at the other location; provided, however, shall in
no event shall said rent abatement be greater than $2,500.00 per month.
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EXHIBIT "A"
PLOT PLAN OF PREMISES
[GRAPHIC SHOWING PLOT PLAN OF LEASED PREMISES]
39
EXHIBIT "B-1"
LEGAL DESCRIPTION OF THE PREMISES
That certain parcel located on Gateway Drive, Cypress, California, more
specifically described as follows:
Parcel 2 of Parcel Map 85-425, as recorded in Book 211, Pages 42
through 45 of Parcel Maps, Records of Orange County, California
40
EXHIBIT "B-2"
LEGAL DESCRIPTION OF THE BUSINESS CENTER
Parcel 1
- --------
Parcels 1 through 21 inclusive in the City of Cypress, County of
Orange, State of California, as shown on a Parcel Map, filed in Book 124, Pages
5 and 6 of Parcel Maps, in the Office of the County Recorder of said County.
Parcel 2
- --------
That portion of the north half of the south half of section 22,
Township 4 South, Range 11 west in the Rancho Los Alamitos, in the City of
Cypress, County of Orange, State of California, as section is shown on Map No. 2
attached to the final decree of partition entered in the Superior Court of Los
Angeles County, Case No. 13527, a certified copy of said final decree having
been recorded February 2, 1891 in Book 14 page 31 of Deeds of said Orange County
described as follows:
Beginning at the intersection of the westerly line of said south half
of Section 22 with the northeasterly line of said Rancho Los Alamitos,
as shown on a map filed in Book 37 Page 17 of record of surveys,
records of said Orange County; thence along said Rancho line
southeasterly 689.27 feet to the southwesterly corner of Tract No. 4670
as shown on a map recorded in Book 163 pages 48 to 50 inclusive of
miscellaneous maps, records of said Orange County; thence continuing
along said Rancho line and along the southwesterly line of said Tract
No. 4670 and along the southwesterly line of Tract No. 4399 as shown on
a map recorded in Book 175 pages 46 and 47 of miscellaneous maps,
records of said Orange County, southeasterly 1471.10 feet to an angle
point in said Tract No. 4399; thence continuing along said Rancho line
as shown on said map of Tract No. 4399, southeasterly 728.52 feet to
the center line of Holder Street as shown on said map of Tract No.
4399; thence along said center line of Holder Street, South 00 degrees
45 minutes 02 seconds east 34.50 feet to a point in the northerly line
of that 60.00 foot wide strip of land described in the Deed to the
Southern Pacific Railroad Company recorded January 13, 1897 in Book 29
page 328 of Deeds, records of said Orange County, said line being a
curve concave southerly and having a radium of 5759.60 feet, a radial
line to said point bears north 04 degrees 26 minutes 13 seconds east;
thence westerly along said curve through a central angle of 04 degree
24 minutes 00 seconds an arc distance of 442.31 feet and north 89
degrees 57 minutes 47 seconds west 2285.96 feet to said westerly line
of the south half of Section 22; thence along said westerly line north
00 degrees 00 minutes 14 seconds east 968.40 feet to the point of
beginning.
Except therefrom that portion of said land included within the lines of
the land described in Parcel 1 of the Deed to the City of Cypress
recorded July 27, 1967 in Book 8323 page 979 of Official Records,
records of said Orange County.
Also except therefrom that portion of said land included within the
lines of the land described in the deed to the Orange County Flood
Control District recorded
41
December 4, 1959 in Book 4999 page 460 of Official Records, Records of
said Orange County.
Also except all coal, chemicals, petroleum, oil, gas, asphaltum and
other hydrocarbons, and all minerals, metals and mineral ores,
whether similar to those herein specified or not, of every kind and
character now know to exist or hereafter discovered upon, within or
underlying said land, together with the exclusive and perpetual right
of the grantee, its successors and assigns, of ingress and egress
beneath the surface of said land to explore for, extract, mine and
remove the same and to make such use of said land beneath the surface
as is necessary or useful in connection therewith, which use may
include lateral or slant drilling, digging, boring or sinking or
wells, shafts, tunnels or other methods, together with the further
exclusive and perpetual right of the grantee, its successors and
assigns, to make such use of said land as may be necessary to store,
keep, deposit and/or remove all coal, chemicals, petroleum, oil gas,
asphaltum and other hydrocarbons and all minerals, metals and mineral
ores, whether similar to those herein specified or not, of every kind
and character now known to exist or hereafter discovered; provided,
however, that the grantee, its successors or assigns, shall not use
the surface of said land above a five hundred foot depth in the
exercise of any of said rights as granted to Consolidated Pacific
Investment Company, by deed recorded January 29, 1959 in Book 4567
page 496 of Official Records.
Said land is included within the area shown on a map filed in Book 37 page 17 of
Record of Surveys in the Office of the County Recorder of said Orange County.
42
EXHIBIT "C"
CONSTRUCTION PROVISIONS
Landlord shall provide improvements to the Premises, subject to the
terms and conditions set forth below:
1. SUBMISSION AND APPROVAL OF PLANS. Landlord and Tenant acknowledge
that preliminary space plans dated May 26, 1988, (the "Preliminary Plans"),
showing the layout of all partitions and doors and specifications for the works
to be performed in the Premises (the "Tenant Improvements"), have been prepared
by Howard F. Thompson & Associates (the "Project Architect") and have been
approved by both parties, are attached hereto as Attachment 1 and are
incorporated herein by reference. Within thirty (30) days following execution of
this Lease, Tenant shall cause the Project Architect, at Tenant's sole cost and
expense, to prepare and deliver to Landlord working drawings (the "Working
Drawings"). The expense of the Working Drawings may be credited against the
Tenant Improvement Allowance (see Section 6 below). The Working Drawings shall
include mechanical, electrical and structural engineering drawings showing in
detail all Tenant Improvements, including all ducting for heating, ventilation
and air conditioning ("HVAC"). Within 3 days following Landlord's approval of
the Working Drawings, Tenant shall have prepared and delivered to Landlord
complete and final plans (the "Final Plans") which incorporate the information
detailed in the Preliminary Plans, Working Drawings and Landlord's comments
thereto, and which shall include the final space plan for the layout of all
partitions, doors, light fixtures, electrical and telephone outlets, wall,
floor, window and door finishes, hardware, material and coverings, reflected
ceiling plans and all other Tenant Improvements.
2. REVIEW AND APPROVAL PROCESS. Tenant shall submit the Working
Drawings to Landlord for its approval. Within 5 business days of receipt of said
drawings, Landlord shall return them to Tenant marked either "approved" or
"disapproved" (in the latter case modifications and revisions will be noted).
Upon receipt of any such disapproval, Tenant shall (i) promptly revise the
particular plans or drawings to incorporate and satisfy all of Landlord's
objections and take such action as may be reasonably required to provide for
full and final approval of such plans or drawings. Tenant shall not deviate from
the final Plans, once approved by Landlord, unless done so in strict accordance
with the procedures set forth in Paragraph 7 regarding requests for a Change
order, except to the extent such changes are required for permit approval and
issuance. Approval of the Working Drawings or Final Plans by Landlord shall not
constitute the assumption of any responsibility by Landlord for their accuracy,
efficacy or sufficiency, and Tenant shall be solely responsible for such items.
3. COMPLETION OF IMPROVEMENTS. Following approval of the Final Plans
for Tenant Improvements by Landlord and the appropriate governmental
authorities, Landlord shall proceed with due diligence to construct the Tenant
Improvements in a workmanlike manner. Subject to the provisions of these
Construction Provisions, Landlord shall use its best efforts to have the Tenant
Improvements substantially completed (as defined in Paragraph 8) by November 1,
1988; provided, however, in no event shall Landlord be liable to Tenant in the
event such work is not completed by such date.
4. TENANT DELAY. Tenant Delay shall include, but shall not be limited
to, any delay in the occurrence of the Commencement Date or in the completion of
the Tenant Improvements resulting from (i) Tenant's failure to comply with the
provisions of these Construction Provisions, (ii) submission by Tenant of a
request for any Change Order as specified in Paragraph 7, or (iii) any
additional time, as reasonably determined by Landlord, required for
implementation of any Change Order with respect to the Tenant Improvements.
43
5. CONTRACTOR. The General Contractor for the construction of the
Tenant Improvements shall be selected by Landlord after reasonable consultation
with Tenant. The General Contractor shall bid out all major construction
disciplines to a minimum of three subcontractors.
6. COSTS. Landlord shall pay for the costs associated with
construction the Tenant Improvements (the "Tenant Improvement Costs") up to a
maximum amount of $450,000.00, subject to the following conditions:
6.1 If the total Tenant Improvement Costs are less than
$375,000.00, the Base Rental set forth in the Lease shall be reduced by a factor
of 1.075% multiplied by the amount by which the actual Tenant Improvement Costs
are less than $375,000.00.
6.2 If the total Tenant Improvement Costs are greater than
$375,000.00, the Base Rental set forth in the Lease shall be increased by a
factor of 1.075% multiplied by the amount by which the actual Tenant Improvement
Costs exceed $375,000.00; provided that subparagraph 6.2 shall not apply to any
Tenant Improvement Costs to the extent they exceed $450,000.00.
6.3 Tenant (not Landlord) shall be responsible for all Tenant
Improvement Costs in excess of $450,000.00. If at any time prior to completion
of the Tenant Improvements, the General Contractor determines, in the exercise
of its reasonable business judgment, that the Tenant Improvement Costs will
exceed $450,000.00 (the "Excess Tenant Improvement Costs"), then Landlord shall
give Tenant a written statement setting forth the General Contractor's estimate
of the Excess Tenant Improvement Costs necessary to complete the Tenant
Improvements. Tenant shall pay to Landlord, in cash, an amount equal to the
Excess Tenant Improvement Costs set forth therein, as such costs are incurred by
Landlord. If the total amount of actual Excess Tenant Improvement Costs
necessary to complete the Tenant Improvements is greater than the amount of
Excess Tenant Improvement Costs paid by Tenant, then Tenant shall pay to
Landlord, in cash, such difference on or before occupancy of the Premises by
Tenant. If the total amount of actual Excess Tenant Improvement Costs necessary
to complete the Tenant Improvements is less than the amount of Excess Tenant
Improvement Costs paid by Tenant, then Landlord, at its option, may either
reimburse Tenant for this difference or apply such difference to Tenant's first
month's rental payment.
6.4 The Tenant Improvement Costs shall include all costs incurred
by Landlord for the construction of the Tenant Improvements, including, but not
limited to governmental fees and permits, structural engineering review, and out
of pocket architectural fees and costs incurred in reviewing all plans. In
addition, at Tenant's option, the Tenant Improvement Costs may include the out
of pocket costs incurred by Tenant in the preparation of the Preliminary Plans,
Working Drawings and Final Plans prepared in connection with the Tenant
Improvements.
7. PROCEDURE FOR CHANGE ORDERS. Tenant may request any change, addition
or alteration in the Improvements as shown on the Final Plans (a "Change Order")
following preparation and approval thereof, by delivery of a written request
therefor and complete working drawings showing the change, addition or
alteration provided that such change, addition or alteration does not (i) affect
the scheduled completion date of the Improvements or (ii) increase Landlord's
costs. Landlord shall promptly, following receipt of such request, give Tenant a
written description of (i) modifications or revisions required by Landlord in
order to approve such Change Order, (ii) the Tenant Delay expected because of
such Change Order, and (ii) an itemized nonbinding estimate of the cost of
implementing the Change Order. The standards of Landlord's approval for the
Improvements shall also apply to Change Orders. Following receipt of such
description and estimate, Tenant shall deliver to Landlord written notice either
granting or withholding authorization to proceed with the performance of the
work shown on the Change Order. If no such authorization is received by Landlord
within five business days thereafter, Tenant shall be deemed to have withheld
authorization to proceed with the performance of the work shown on the Change
Order.
44
8. SUBSTANTIAL COMPLETION AND PUNCH LIST ITEMS.
(a) For purposes of this Lease, substantial completion of the Tenant
Improvements shall be defined as the date on which the Project Architect
certifies that the Tenant Improvements have been substantially completed in
accordance with the Final Working Drawings such that Tenant could reasonably
occupy or otherwise utilize the Building for the use which it is intended (the
"Tenant Improvements Certificate").
(b) Within 7 business days after receipt of the Tenant Improvements
Certificate, Tenant shall supply to Landlord a written punch list ("Punch List")
setting forth the additional corrective work with respect to the Tenant
Improvements which Tenant believes is required to be performed pursuant to the
Final Working Drawings. In the event that no such punch list is provided by
Tenant within said 7-day period, Tenant shall be deemed to have accepted the
Premises in their entirety and Landlord shall have no further obligation with
respect to completion of the Premises or of the Improvements. Landlord shall use
all reasonable efforts to complete all of the items on the Punch List within 15
business days of receipt of the Punch List from Tenant.
9. ACCEPTANCE OF THE BUILDING. Other than changes to the Building
contemplated by the Tenant Improvements, Tenant hereby accepts the condition of
the Building as of the date hereof and subject to all existing building codes,
zoning ordinances and other municipal, county and state laws, ordinances, and
regulations governing and regulating the Building. Landlord hereby represents
and warrants to Tenant, during the course of construction of the Tenant
Improvements, that the concrete slab on which the Building sits is suitable for
construction thereon of the Tenant Improvements contemplated in these
Construction Provisions. Tenant acknowledges and agrees that neither Landlord
nor Landlord's agents has made any representation or warranty as to the present
or future suitability of the Building for the conduct of Tenant's business.
45
EXHIBIT "D"
TENANT'S CERTIFICATE
To: WARLAND INVESTMENTS, LTD.
Date: _________________________________, 198___
Building Address:
The undersigned as the Tenant under that certain Lease (the "Lease") dated
_____________________, 198___ made and entered into between Warland
Investments, Ltd., as Landlord, and the undersigned, as Tenant, hereby
certifies that:
1. The Commencement Date of the Lease was ____________________, 198___.
2. The expiration date of the Lease is _____________________, 198___.
3. The Lease is in full force and effect and has not been modified or
amended.
Very truly yours,
_____________________________________________________
a____________________________________________________
By___________________________________________________
Its__________________________________________________
Tenant
46
EXHIBIT "E"
SITE SIGNAGE FOR WARLAND/CYPRESS BUSINESS CENTER
The intent of this signage guideline is to provide the regulations and
parameters necessary to achieve a visually coordinated, balanced and appealing
signage system throughout the Warland/Cypress Business Center. A system that
promotes compatibility with the building and landscape design of present and
planned facilities.
A. PROJECT IDENTIFICATION SIGN
Each tenant that occupies an entire building is permitted signage on an exterior
monument sign as outlined in Exhibit A. The sign shall be installed behind any
existing property lines and is subject to any regulations established by the
City of Cypress. The concrete base shall remain unpainted and match all other
monument signs, promoting a visual consistency for all projects in
Warland/Cypress Business Center. The fabricated aluminum cabinet shall be
internally illuminated with all sign copy, colors and graphics subject to
approval by Warland Investments, Ltd. The tenant is responsible for the design
of the sign face, required permits, construction, and installation of all
monument and site signs.
B. PROJECT SITE SIGNS
Each project will require adequate vehicular information signs at each parking
area entry. The signs shall consist of fabricated, non-illuminated, cabinets
with 3M white vinyl copy and unpainted concrete bases. Sizes and specifications
are noted in Exhibit B. All site signs will require permits from the City of
Cypress.
47
[GRAPHIC DEPICTION OF FRONT AND END ELEVATION, INCLUDING SIZES AND
SPECIFICATIONS OF PERMISSIBLE SIGNAGE]
Exhibit A
48
[GRAPHIC DEPICTION OF FRONT AND END ELEVATION, INCLUDING APPLICABLE SIZES
AND SPECIFICATIONS, FOR VEHICULAR INFORMATION SIGNS]
Exhibit B
49
EXHIBIT "F"
-----------
LANDSCAPE MAINTENANCE
SPECIFICATIONS
FOR
WARLAND CYPRESS BUSINESS PARK
50
LANDSCAPE MAINTENANCE SPECIFICATIONS
--------- ----------- --------------
The work involved which shall be performed includes, but is not limited to, any
ground cover areas, lawns, flower beds, pathways and parking lots. Contractor
shall furnish all necessary labor, supervisions, equipment tools, materials,
transportation, permits, insurance, and taxes in his performance of these
specifications. He shall perform maintenance in accordance with the highest
horticultural standards keeping the premises/site in first class condition. All
landscaping debris shall be removed from premises by the contractor.
A. GENERAL MAINTENANCE
------- -----------
1. All lawns shall be mowed and edged weekly or more, if necessary.
2. All cuttings shall promptly be collected and disposed off site and on
the same day.
3. All landscape shall be cleaned of grass cuttings, etc. on the same day
as mowing.
4. The height of grass shall be kept at 2 inches in winter and 2-1/2
inches to 3 inches in summer. This applies to cool season blade grass.
5. Complete chemical weed, fungus, insect control and rodent, as necessary
including materials, labor and permits, if necessary.
6. Complete fertilization of all lawns not less than four times per year
in accordance with subsequent fertilization specifications. Fertilizer
to be purchased and applied by contractor at no additional expense to
the tenant.
7. Adequate watering of all lawn areas unless unnecessary due to rainfall
at least 1/2 inch or more after all fertilization.
B. TREES, SHRUBS, AND PLANTER BEDS
----- ------ --- ------- ----
1. Shrubbery, plants and trees shall be manicured/pruned regularly to
contain their size in respect to specifications, size of planter or
relative to surroundings and to the best health of the plant. NOTE:
"LOLLY-POP" pruning of shrubs is not acceptable. Prune by removing
branches. Shearing is only permitted with hedges. Clarify hedges with
Landscape Architect.
51
See graphic examples for more detail information on shrub pruning.
2. All trees over 10 ft. in height will have a tree pruning service
handle pruning at the tenants company's expense. Pruning of trees will
include a minimum annual pruning. Coral trees will be thinned by
removing whole branches and not topped unless direct to by the
Landscape Architect. Seal all pruned limbs 1-1/4" or larger with proper
seal. Coordinate all pruning with the Landscape Architect. Refer to
graphic examples for specific tree pruning techniques.
3. All cuttings shall be disposed of off-site (the same day).
4. Complete insect and disease control of all trees and shrubs, including
labor and materials.
5. Minor tree surgery as necessary.
6. Adequate watering of all trees, shrubs and planting beds unless
unnecessary due to adequate rainfall.
7. Monthly cultivation of water basin repair of all shrub and tree areas.
8. Deep root feeding of all trees twice per year and during the spring
and late summer months. This is on a "need" basis and will be billed
as an addition to the tenant.
9. Complete fertilization of trees and shrubs not less than twice per year,
by the use of deep root watering applications. Formula to be specified
by Landscape Architect for each site.
C. FLOWER BEDS AND/OR GROUND COVER
------ ---- ------ ------ -----
1. Complete trimming, edging of all flower beds and ground covers, monthly.
Note: Weed whip at base of trees in lawn areas is not allowed due to
damage to cambium at base of tree. Hand pruning is required.
2. Monthly cultivation of all ground cover and flower bed areas.
3. Weeding shall be performed regularly to avoid establishment and seeding.
It will be unsatisfactory to allow weeds to grow unabated for more than
two weeks.
4. Complete insect and disease on all flower and ground cover beds
including labor and materials.
52
5. Adequate watering of all beds unless unnecessary due to rain.
6. Routine repairs of erosion and other damages to beds and slopes due to
normal maintenance conditions.
7. Replacement of ALL damaged or destroyed plants, flowers or ground cover,
in accordance with original planting plan* including only labor.
Materials to be paid for by tenant. Damage caused by vandalism or winds
not covered by this section.
*Contractor to get copies of as-built irrigation and planting plans from
tenant or owner.
8. Complete fertilization not less than four times per year with 16-8-8 in
accordance with subsequent fertilization specifications. Formula to be
verified by Landscape Architect.
D. IRRIGATION SYSTEM
---------- ------
1. Contractor shall continually inspect and repair, as necessary, all
sprinkler heads for full coverage and adjustment. Adjust heads to reduce
spray on buildings, sidewalks or other non-landscaped areas. Should poor
coverage of localized areas become evident, contractor shall rectify
the problem by adding new sprinklers or lines. To be verified by
Landscape Architect, Owner, or representative.
NOTE: The maintenance contractor is required to be aware of all site
conditions such as poor soil, poor drainage, high water table and shade
vs. sun irrigation areas.
2. Contractor shall provide all necessary repairs to maintain system in
effective operating conditions.
3. Contractor shall adjust controllers and clocks for seasonal conditions.
4. Repairs to system shall be made with originally specified materials.
Such materials may be charged extra at contractor's expense.
5. The labor for repairing the irrigation system shall be formulated by
the contractor at no additional charge to the tenant. However, labor
for major repairs such as controllers, valves and mainlines, or
installation on items may be charged extra at current agreed rates.
53
E. FERTILIZATION
-------------
1. Contractor shall fertilize all landscape areas at least four times
annually to keep landscaping in a healthy state and green color.
2. All lawns, trees, shrubs, shrub beds, flower beds and ground covers will
be fertilized not less than four times annually utilizing fertilizer
type 16-8-8 analysis at recommended rates, or if available, revise to
Soil & Plant Lab recommended analysis. Contact Landscape Architect for
a copy of the soils report.
3. All fertilizer materials shall be included at contractors cost.
F. ANNUAL COLOR PLANTING
------ ----- --------
A minimum amount of annual color plants will seasonally be added to the
project. All materials and labor for installation will be provided by the
contractor. Coordination for type and color of plantings will be by
Landscape Architect. In most situations, Begonia richmondesis and Begonia
Indian Maid, 4" pots, 10" O.C. is the theme street color to be used.
G. EXTRA SERVICES
----- --------
1. All plant, shrub, flower beds, ground cover and tree removal or
replacement shall be accomplished only with approval of the tenant or
Landscape Architect.
2. Contractor shall furnish Landscape Architect or tenant with itemized
estimate for any extra work required. He shall not proceed without
authorization from the proper representative.
3. A specified amount of man hours should be provided per week, per project
to comply with adequate maintenance practices.
H. SITE INSPECTION AND REVIEW
---- ---------- --- ------
1. Contractor or representative will inspect entire project at least ONCE
A MONTH and a supervisor will spot check each site at least ONCE A
MONTH.
2. Contractor will communicate with property Owner and tenant every six
months (either verbally or written report).
3. Landscape Architect shall review site at six month intervals, or more
often if warranted.
54
PRUNING
55
GENERAL PRUNING GUIDELINES (Refer to drawings following this text for more
specific information)
The basic reasons for pruning are to maintain plant health by removing dead,
diseased or damaged wood. Proper pruning is both a skill and an art. The skill
is making proper cuts that will heal well. The art is making cuts in the right
places so the plant will develop to its full potential of beauty.
The terminal bud develops at the end of a stem or branch. This causes the stem
to grown in length. In some plants there may be latent buds. These buds lie
dormant but will grown after pruning or injury removes the actively growing
parts of the stem. During the season of active growth, terminal buds draw plant
energy to themselves in order to grow and add length to the stems. Therefore,
when you cut off a branch, it does not mean that there will be a void where the
plant/tree was pruned. In time, the terminal bud will produce a stem to replace
the missing branch or stem. keeping this principal in mind, it makes sense when
pruning a plant. If you want side growth, prune the top of the tree/ shrub
forcing the side buds to elongate and by trimming the side growth, the top will
elongate and grow.
TREE TOPPING
While with some trees (such as; Erythrina caffra or Coral trees), it is
necessary to shape or "head back" the top of the tree in order for it to develop
a good canopy, in general, we do not recommend topping. The life expectancy of a
topped tree declines - sometimes dramatically - in comparison to a tree that is
properly pruned. Excessive removal of mature branches reduces the tree's ability
to manufacture and store food and - very importantly - heal itself. Most people
are aware that a tree has the ability to "grow a new skin" over a wound, but if
a major branch is removed, the large cut can give diseases and insects a greater
opportunity to get a foothold before the slow natural process has a chance to
take place.
THINNING
Thinning or thinning out means removing some branches at the point of origin,
leaving more space between remaining branches. A special form of thinning on
larger trees is called drop crotch pruning in which a main branch is removed at
a large lateral branch, the cut being made at the crotch. It usually
accomplishes the opening up of a plant by simplification of its structure;
removal of old and unproductive growth, weak or excess growth, or limbs that are
growing in directions that detract from the plant's attractiveness.
Observations indicate that a thinned tree will usually take longer to grow back
to the critical height than a headed tree. The finest compliment an arborist can
receive after materially reducing the size or density of a tree is when
passers-by fail to notice its pruned condition. Thinning out requires greater
skill and time than heading, but in most situations, it is worth the effort. It
will retain the tree's characteristic form and will minimize the problems of
decay and regrowth.
56
PRUNING TO SHAPE
"To Shape" is another concept in which the artistic side of pruning comes
forward in determining your concept of what the right shape of a particular
plant should be. Every plant has a "natural" shape; its growth tends to conform
to a natural pattern, whether round, gumdrop shaped, wide spreading, vase
shaped, or arching. Observe what a plant's natural shape is and then prune the
plant in a manner that will allow the natural form to continue to develop.
Remove excess growth that obscures the basic pattern or any errant growth that
departs from the natural form. When pruning to shape, make your cuts above a bud
or side branch that points in the direction you'd like the new growth to take.
PRUNING CUTS
After you understand how to approach a pruning job, you need to know how to make
good pruning cuts. The first lesson is: Never leave a stub. Or to put it another
way, always make a cut just above some sort of growth. There is a right way to
make pruning cuts and several wrong ways. You want to avoid leaving stubs and
you also want to avoid undercutting the bud or branch. Best cuts, place the
lowest part of the cut directly opposite and slightly above the upper side of
the bud or branch to which you are cutting back. Large limbs are heavy, and if
you cut down through one with a single cut, it's likely to split or tear before
the cut is finished (possibly splitting farther back than you intended). Cut
heavy limbs in three stages. The first cut is under branch; make a second cut to
remove the limb, outward from the first cut. Final cut should bisect lower angle
branch forms with the tree trunk. (see illustration below)
[GRAPHIC ILLUSTRATION OF THREE STAGES OF PRUNING CUTS]
SEALER
Most people are aware that a tree has the ability to "grow a new skin" over a
wound, but if a major branch is removed, the large cut can give diseases and
insects a greater opportunity to get a foothold before the slow natural process
has a chance
57
to take place. When any branch over 1 1/2 inches in diameter is cut, ALWAYS use
a water base sealer to paint the wounds. This will hinder any possibility of
infection and stop the bore-type insect problems. This step in the pruning
method is very time consuming, but very important to the health of the tree.
SEASON AND SCHEDULE
For pruning decisions the criteria is for appearance and safety. Remove dead or
broken leaves for a neat appearance. For safety reasons, remove any part that
may become a hazard by falling.
Damaged or broken branches should be trimmed off below the points of injury. The
central "leader" or trunk should be left intact to build a high crown and the
side branches shortened by at least one-half of their length.
TIMING FOR PRUNING
December or January is the most effective and convenient time to prune.
Prune to thin outgrowth and eliminate from blocking wind with heavy foliage. It
can be pruned most any time of the year, although January/February is the best
time to prune before mid-winter/spring winds occur.
FERTILIZATION
Note: We recommend fertilizing the trees in the complex with a "root feeder" and
supplemental iron feedings. With this feeding system, you accomplish two
functions: (1) fertilizing and (2) deep watering. This exercise should be
performed in June, and if no rain by December, a light feeding should be
applied. A feeding of nitrogen once a year, injected into the root zone would be
a proper application for growth response. The best and easiest method would be
the root feeder system using the NITROGEN tab insert. With this injection
system, the deep watering will also be beneficial to the lower root zone. This
application should take place about one month before the hottest time of the
year.
58
[LOGO - RICHARD PRICE & ASSOCIATES LANDSCAPE ARCHITECTS/PLANNERS]
[LINE DRAWING DEPICTING TRISTANIA OR EUCALYPTUS TREE AND ITS DIMENSIONS]
PRUNING INSTRUCTION FOR: TRISTANIA OR EUCALYPTUS
- ------------------------------------------------
DO NOT TOP TREE
---
DO NOT SHEAR EDGES OF TREE
---
- - PRUNE LATERAL GROWTH (ANNUALLY) BY SELECTIVELY REMOVING BRANCHES TO OPEN
INTERIOR SO WIND WON'T BE A PROBLEM.
- - PRUNE UP LOWER GROWTH TO 1/4 OF OVERALL TREE HEIGHT. (6 TO 7 FEET MAX.)
NOTE: TREES WHICH HAVE ALREADY BEEN INCORRECTLY PRUNED BY REMOVING LOWER
BRANCHES TO A HEIGHT GREATER THAN 7 FEET ABOVE THE GROUND, SHALL BE REMOVED
AND REPLACED W/NEW 16 GALLON SIZE TREES. (TRISTANIAS ONLY)
59
[LOGO - RICHARD PRICE & ASSOCIATES LANDSCAPE ARCHITECTS/PLANNERS]
[LINE DRAWING DEPICTING CUPANIA TREE AND ITS DIMENSIONS]
PRUNING INSTRUCTION FOR: CUPANIA (CARROTWOOD)
- ---------------------------------------------
DO NOT TOP TREE
---
DO NOT SHEAR OUTSIDE OF TREE INTO BALL FORM
---
- - PRUNE SELECTIVELY REMOVING LATERAL BRANCHES TO OPEN UP INTERIOR OF TREE
AND ENHANCE THE NATURAL STRUCTURE OF THE TREE
------- ---------
- - PRUNE UP LOWER BRANCHES TO ALLOW FOR VEHICULAR & PEDESTRIAN TRAFFIC
60
[LOGO - RICHARD PRICE & ASSOCIATES LANDSCAPE ARCHITECTS/PLANNERS]
[LINE DRAWING DEPICTING LIQUIDAMBAR TREE AND ITS DIMENSIONS]
PRUNING INSTRUCTION FOR: LIQUIDAMBAR TREE
- -----------------------------------------
DO NOT TOP THIS TREE
---
CENTRAL LEADER (MAIN TRUNK) OF TREE MUST REMAIN INTACT IN ORDER FOR TREE TO
DEVELOP INTO ITS NATURAL FORM.
DO NOT TRIM OR 'HEAD BACK' LATERAL GROWTH
---
PRUNING INSTRUCTIONS:
- --------------------
- - THIN OUT TREE ANNUALLY BY SELECTIVELY REMOVING 10-15% OF LATERAL BRANCHES,
ALL THE WAY BACK TO TRUNK OF TREE.
- - PRUNE UP LOWER BRANCHES TO 1/4 OF OVERALL HEIGHT OF TREE (NOT TO EXCEED A
HEIGHT OF 6 FEET)
NOTE: SLASH THRU BRANCH SHOWS EXAMPLE OF PROPER LOCATION OF PRUNING CUTS.
- ----
61
[LOGO - RICHARD PRICE & ASSOCIATES LANDSCAPE ARCHITECTS/PLANNERS]
[LINE DRAWING DEPICTING MELALEUCA TREE AND ITS DIMENSIONS]
PRUNING INSTRUCTION FOR: MELALEUCA LEUCADENDRA
- ----------------------------------------------
DO NOT TOP TREE
---
DO NOT SHEAR OUTSIDE OF TREE (KEEP FORM NATURAL)
---
- - LIGHTLY THIN-OUT TREE BY REMOVING SECONDARY BRANCHES ONLY WHEN FOLIAGE GROWTH
BECOMES VERY DENSE
- - PRUNE UP LOWER FOLIAGE TO HEIGHT OF 3-4 FEET FOR MATURING TREES (LESS FOR
YOUNGER TREES)
62
[LOGO - RICHARD PRICE & ASSOCIATES LANDSCAPE ARCHITECTS/PLANNERS]
[LINE DRAWING DEPICTING CORAL TREE AND ITS DIMENSIONS]
PRUNING INSTRUCTION FOR: ERYTHRINA CAFFRA TREE
- ----------------------------------------------
- - LIGHTLY "HEAD BACK" GROWTH WHERE NEEDED TO SHAPE OVERALL TREE CANOPY
- - OPEN UP INTERIOR OF TREE BY REMOVING APPROXIMATELY 20-25% OF BRANCHES, WHILE
-------
RETAINING BALANCE TO THE STRUCTURE & ALLOWING WIND TO PASS THRU THE TREE.
-----------------------------------
ALLOW CLEARANCE UNDER BRANCHES FOR VEHICULAR & PEDESTRIAN TRAFFIC
NOTE: SLASH THRU BRANCH SHOWS EXAMPLE OF PROPER LOCATIONS FOR PRUNING CUTS
- ----
NOTE: ALTERNATE PRUNING OF LATERAL GROWTH EVERY (2) YEARS. PRUNE AFTER TREE
- ---- BLOOMS IN WINTER.
63
[LOGO - RICHARD PRICE & ASSOCIATES LANDSCAPE ARCHITECTS/PLANNERS]
[LINE DRAWING DEPICTING CANARY ISLAND PINE]
PRUNING INSTRUCTION FOR: PINUS CANARIENSIS
- ------------------------------------------
DO NOT TOP TREE
---
DO NOT PRUNE BACK LATERAL BRANCHES
---
THIS TREE REQUIRES VERY MINIMAL PRUNING
---------------
- - LIGHTLY THIN OUT SECONDARY GROWTH ON LATERAL BRANCHES STARTING AT TRUNK AND
MOVING OUTWARD. DO THIS ONLY WHERE FOLIAGE IS VERY DENSE.
- - PRUNE UP LOWER GROWTH TO 1/4 OF OVERALL HEIGHT. (6 FEET MAX)
64
[LOGO - RICHARD PRICE & ASSOCIATES LANDSCAPE ARCHITECTS/PLANNERS]
PRUNING INSTRUCTION FOR: SHRUB PLANTINGS
- ----------------------------------------
[LINE DRAWING OF SECTION OF INFORMAL HEDGE]
[LINE DRAWING OF ELEVATION OF INFORMAL HEDGE]
INFORMAL HEDGE (SUCH AS: XYLOSMA, ESCALLONIA, RAPHIOLEPIS, PITTOSPORUM)
DO NOT USE HEDGING SHEARS ON INFORMAL SHRUB PLANTINGS
---
DO NOT SHAPE SHRUBS INTO BALL FORMS
---
- - TO PRUNE, SELECTIVELY REMOVE INDIVIDUAL BRANCHES W/HAND CLIPPERS TO OPEN UP
AND ENHANCE THE NATURAL STRUCTURE OF THE SHRUB.
-----------------
NOTE: ALLOW GROUND COVER TO FILL IN BELOW SHRUBS
- ----
[LINE DRAWING OF SECTION OF FORMAL HEDGE]
[LINE DRAWING OF ELEVATION OF FORMAL HEDGE]
FORMAL HEDGE (SUCH AS: LIGUSTRUM TEXANUM)
- - PRUNE BY SHEARING EDGES OF SHRUBS W/HEDGING SHEARS, INTO "BOX" FORM
NOTE: ALLOW GROUND COVER TO FILL IN BELOW SHRUBS
- ----
65
[LOGO - RICHARD PRICE & ASSOCIATES LANDSCAPE ARCHITECTS/PLANNERS]
[LINE DRAWING DEPICTING SYCAMORE TREE AND ITS DIMENSIONS]
PRUNING INSTRUCTION FOR: PLATANUS (SYCAMORE) TREE
- -------------------------------------------------
DO NOT POLLARD TREE (THIS IS WHEN MAJOR BRANCHES ARE PRUNED BACK SEVERELY TO
---
SAME POINT EACH TIME, IF THIS HAS ALREADY BEEN DONE, SEE NOTE BELOW)
- - SELECTIVELY "HEAD BACK" BRANCHES THAT PROTRUDE OUTSIDE STRUCTURE OF TREE
- - SELECTIVELY THIN-OUT LATERAL BRANCHES TO OPEN UP INTERIOR OF TREE
- - REMOVE LOWER BRANCHES TO 6-7 FEET ABOVE GROUND
- - REVIEW PRUNING OF TREE (2) TIMES A YEAR. PRUNING TO BE DONE PREDOMINANTLY IN
WINTER.
NOTE: FOR TREES WHICH HAVE ALREADY BEEN INCORRECTLY PRUNED BY SEVERELY CUTTING
- ---- BACK PRIMARY LATERAL BRANCHES, PRUNE OUT 60% OF NEW GROWTH (SEE EXAMPLE)
[LINE DRAWING DEPICTING EXAMPLE OF INCORRECTLY PRUNED LATERAL BRANCH]
66
EXHIBIT "G"
PAINTING SPECIFICATIONS
[To be provided by Landlord]
67
EXHIBIT "H"
ARCHITECT'S CERTIFICATE
Re: Alterations Completed On ______________________ [Date]
[Name of Tenant and Address of Premises]
Gentlemen:
We hereby declare based upon our professional opinion, that, to the
best of our knowledge, information and belief, the above referenced project is
in substantial compliance with the construction documents and applicable
building codes.
Very truly yours,
[Name and Address of
Architect]
By:______________________________________
Title:______________________________
68
EXHIBIT "I"
ESTOPPEL CERTIFICATE
SUBJECT: Lease Dated: ___________________________
Between: ___________________________, Lessor
___________________________, Lessee
On Premises located and addressed as:
___________________________
___________________________
___________________________
Gentlemen:
The undersigned as Lessee, hereby confirms to the best of its knowledge, the
following:
1. That is has accepted possession of the premises demised pursuant to the
terms of the aforesaid Lease.
2. That the improvements and space required to be furnished according to
the aforesaid lease have been completed in all respects.
3. That the Lessor has fulfilled all of its duties of an inducement nature.
4. That there are no off-sets or credits against rentals, nor, have rentals
been prepaid except as provided by the lease terms.
5. That said rentals commenced to accrue on the _____ day of ____________,
19_____, and are current. The primary lease term expires on __________________,
and there are no options to extend the term.
6. That we have no notice of a prior assignment, hypothecation or pledge of
rents or the lease.
7. That the aforesaid lease has not been modified, altered or amended.
This Estoppel Certificate shall in no way affect Lessee's rights under the
subject lease.
By: ___________________________
Title: ____________________
1
Exhibit 11.1
UNIVERSAL ELECTRONICS INC.
COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------- --------------------------
1996 1995 1996 1995
-------------- -------------- ---------- -----------
Common stock outstanding,
beginning of period 6,750,898 6,741,578 6,750,898 6,741,578
Weighted average common stock
outstanding from:
Common stock issued for employee
retirement plan 9,961 - 5,100 -
Common stock issued upon
exercise of stock options 23,391 9,059 17,724 2,587
Common stock resulting from
purchase of Treasury stock (415,000) - (112,437)
------- --------- --------- ---------
Weighted average common stock
outstanding 6,369,250 6,821,337 6,661,285 6,744,731
Weighted average common stock
equivalents:
Stock options - 70,700 - 33,566
--------- --------- --------- ---------
Weighted average common stock
and common stock equivalents
outstanding 6,369,250 6,821,337 6,661,285 6,777,731
Net income (loss) attributable to
common stockholders $(2,084,434) $1,334,384 $(2,294,747) $ 319,527
=========== =========== ============ ==========
Net income (loss) per common stock
and common stock equivalents $ (0.33) $ 0.20 $ (0. $ 0 .05
============ =========== ============ ==========
1
Exhibit 21.1
UNIVERSAL ELECTRONICS INC.
LIST OF SUBSIDIARIES OF THE REGISTRANT
One For All B.V. (organized under the laws of The Netherlands)
One For All GmbH (organized under the laws of Germany)
One For All (UK) Ltd. (organized under the laws of the United Kingdom)
1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 No. 33-66426 filed on or about July 23, 1993, No.
333-09021 filed on July 26, 1996, and No. 333-23985 filed on March 26,
1997 of Universal Electronics Inc. of our report dated January 23, 1997,
appearing on page 18 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Cleveland, Ohio
March 26, 1997
5
YEAR
DEC-31-1996
JAN-01-1996
DEC-31-1996
510
0
20,522
(359)
21,208
47,155
10,305
(3,608)
59,451
10,640
3,183
68
0
0
45,559
59,451
98,589
98,589
74,055
28,631
0
(42)
768
(4,587)
2,292
(2,295)
0
0
0
(2,295)
(.34)
0
