-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FFMF7H+j89fz7zgIzwYKSQWyFeUGaoqGcbotyT1Vu004b/GWzhTDSZumN5c2cQUG /f6lB3WnH6ocp+SYZuLcVA== 0001047469-98-025708.txt : 19980630 0001047469-98-025708.hdr.sgml : 19980630 ACCESSION NUMBER: 0001047469-98-025708 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980612 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980629 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VDI MEDIA CENTRAL INDEX KEY: 0001014733 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 954272619 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-21917 FILM NUMBER: 98656112 BUSINESS ADDRESS: STREET 1: 6920 SUNSET BOULEVARD CITY: HOLLYWOOD STATE: CA ZIP: 90028 BUSINESS PHONE: 2139575500 MAIL ADDRESS: STREET 1: 6920 SUNSET BLVD CITY: HOLLYWOOD STATE: CA ZIP: 90028 8-K 1 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JUNE 12, 1998 VDI MEDIA (Exact Name of Registrant as Specified in its Charter) CALIFORNIA 0-21917 95-4272619 (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation) File Number) Identification No.) 6920 SUNSET BOULEVARD HOLLYWOOD, CALIFORNIA 90028 (Address of Principal Executive Offices) (Zip code) (213) 957-5500 Registrant's telephone number, including area code ITEM 2. ACQUISITION OF ASSETS. On June 12, 1998 VDI Media (the "Company") closed an Asset Purchase Agreement (the "Agreement"), dated as of June 11, 1998, with All Post, Inc.( the "Seller"). Pursuant to the Agreement, the Company purchased certain assets of the Seller. The Seller provides technical media services primarily to owners, independent producers and distributors of television programming, feature films and other entertainment content, which business the Company intends to continue. The purchase price for the asset acquisition was $13,000,000. In addition, the Company may be required pay an earn-out if the acquired business achieves a specified gross profit target, subject to certain limitations described in the Agreement. In addition the Company entered into lease agreements with the Seller to occupy premises formerly used by All Post. The purchase price for the All Post acquisition was funded from the Company's line of credit with Union Bank of California. The description of the Agreement contained herein, which does not purport to be complete, is qualified in its entirety by reference to the Agreement, which is attached as an exhibit hereto. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Financial statements relating to this purchase are not currently available. To the extent required, the Company intends to file such financial statements by an amendment to this Current Report on Form 8-K within 60 days of the date of the filing of this Report. (b) PRO FORMA FINANCIAL INFORMATION. Pro forma financial information relating to this purchase is not currently available. To the extent required, the Company intends to file such pro forma financial information by an amendment to this Current Report on Form 8-K within 60 days of the date of the filing of this Report. (c) EXHIBITS 10.16 Asset Purchase Agreement, dated as of June 11, 1998, by between VDI Media and All Post, Inc. 10.17 Lease Agreement, dated as of June 12, 1998, by between VDI Media and All Post, Inc. [Hollywood Way premises] 10.18 Lease Agreement, dated as of June 12, 1998, by between VDI Media and All Post, Inc. [Olive Street premises] SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VDI MEDIA Date: June 26, 1998 /s/ Donald R. Stine ---------------------------- Donald R. Stine Chief Financial Officer and Treasurer EX-10.16 2 EXHIBIT 10.16 ASSET PURCHASE AGREEMENT Dated as of June __, 1998 by and between VDI MEDIA, as Purchaser and ALL POST, INC., as Seller Execution Copy ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of June __, 1998, by and between VDI Media, a California corporation ("Purchaser") and All Post, Inc., a California corporation ("Seller"). R E C I T A L S A. Purchaser desires to purchase from Seller, and Seller desires to sell, convey, transfer, assign and deliver to Purchaser, certain assets of Seller upon the terms and subject to the conditions of this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing and the provisions set forth below, and subject to the terms and conditions set forth herein, the parties agree as follows: ARTICLE 1 DEFINITIONS As used in this Agreement, the following terms shall have the meanings indicated below: "ACCOUNTS RECEIVABLE" shall mean the accounts, notes and other receivables of Seller related to the Business. "ACCOUNTS PAYABLE" shall mean those accounts payable of the Seller related to the Business which are Assumed Liabilities. "ACTION" shall mean any action, claim, suit, litigation, proceeding, labor dispute, arbitral action, governmental audit or inquiry, criminal prosecution, investigation or unfair labor practice charge or complaint. "AFFILIATE" shall mean, in respect of any specified Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with, such specified Person or if such specified Person bears a familial relationship with such other Person. "AFFILIATED PARTIES" shall have the meaning set forth in Section 10.2. "AGREEMENT" shall have the meaning set forth in the Preamble. "AGREEMENTS NOT TO COMPETE" shall mean the agreement in substantially the form of Exhibit A hereto. "ANCILLARY AGREEMENTS" shall mean the Deed of Trust, the Hollywood Lease, the Olive Lease, the Assumption Agreement and the Secured Indemnity Agreement, substantially in the forms attached hereto as Exhibits B, C, D, F, and G, respectively. "ASSETS" shall mean all of the right, title and interest in and to the assets described on Exhibit E hereto, and all of Seller's right, title and interest in the following, in each case only to the extent related to the Business: (i) all Accounts Receivable and contingent rights relating thereto (whether current or noncurrent), refunds, deposits, advances, all advance payments, prepaid expense items and credits relating to the Business, prepayments or prepaid expenses and all other receivables arising out of the Business; (ii) all Contract Rights; (iii) all Personal Property Leases; (iv) all Books and Records; (v) all Proprietary Rights; (vi) all computers and software; (vii) all tape stock on hand on the Closing Date; (viii) the name "ALL POST, INC." and all variations thereof; (ix) all supplies, sales literature, promotional literature, customer, supplier and distributor lists, sales art work, display units, telephone and fax numbers and purchasing records related to the Business; (x) all rights under or pursuant to all warranties, representations and guarantees made by suppliers in connection with the Assets or services furnished to Seller pertaining to the Business or affecting the Assets; (xi) all claims, causes of action (other than the Barsotti Action and the Compact Storage Action), choses in action, rights of recovery and rights of set-off of any kind related to the Assets or the Assumed Liabilities, against any person or entity, including without limitation any liens, security interests, pledges or other rights to payment or to enforce payment in connection with products delivered by Seller on or prior to the Closing Date except to the extent that any of the foregoing relate to any of the Excluded Liabilities; and (xii) all of the Business as a going concern and the goodwill pertaining thereto. 2 "ASSUMED LIABILITIES" shall have the meaning set forth in Section 2.2. "BALANCE SHEET" or "BALANCE SHEETS" shall have the meaning set forth in Section 4.7(a). "BARSOTTI ACTION" means the litigation between Seller, Westar Capital Associates and Scott Barsotti Case Number EC 022591, Superior Court of the State of California for the County of Los Angeles, including any related cross-claims and complaints. "BOOKS AND RECORDS" shall mean (a) all records, files and lists of Seller pertaining to the Assets, (b) all records and lists, customers, suppliers, vendors or clients of Seller pertaining to the Business and (c) all books, ledgers, files, reports, plans, drawings, merchandise and sales promotion literature and promotional and advertising materials, all catalogues, research material, management information systems, software, technology and specifications and operating records of every kind maintained by Seller pertaining to the Business. "BUSINESS" shall mean the following business lines of Seller: duplication, vault storage, audio layback, audio production, editing, telecine, compression and ancillary services, but in no event shall "Business" include the Cinetech Business. "BUSINESS DAY" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the City of Los Angeles. "CINETECH BUSINESS" shall mean the business, as of the date hereof, of Post Optical Services, Inc., doing business as Cinetech, which is limited to the preservation and restoration of film and audio elements. "CLOSING" shall have the meaning set forth in Section 3.1. "CLOSING DATE" shall mean (a) June __, 1998 or (b) such other date as Purchaser and Seller shall mutually agree upon. "COBRA" shall have the meaning set forth in Section 4.15(e). "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMPACT STORAGE ACTION" means the litigation between Seller and Compact Storage Systems, Inc. ("Compact Storage vs. All Post, et al") Case Number EC024064, Superior Court, North Central District, including any related cross-claims and complaints. "CONTRACT" shall mean, other than any Lease, any agreement, contract, note, loan, evidence of indebtedness, purchase order, undertaking, obligation or commitment to which Seller is a party or is bound and which relates to the Business or the Assets, whether oral or written, including, without limitation, purchase commitments for materials and other services, whether or not entered into in the ordinary course of business, relating to the Business, Seller's rights under 3 any confidentiality agreements relating to the Business (if and to the extent assignable), all unfilled sales orders, invoices, contracts and commitments with customers relating to the Business, all unfilled purchase orders, invoices, contracts and commitments with suppliers relating to the Business. "CONTRACT RIGHTS" shall mean all of Seller's rights and obligations under the Contracts, excluding any such Contracts evidencing Financing Obligations. "COPYRIGHTS" shall mean registered copyrights, copyright applications and unregistered copyrights. "COURT ORDER" shall mean any judgment, decision, consent decree, injunction, ruling or order of any federal, state or local court or governmental agency, department or authority that is binding on any person or its property under applicable law. "DAMAGES" shall have the meaning set forth in Section 10.2. "DEFAULT" shall mean (a) a breach of or default under any Contract, Lease or Permit, (b) the occurrence of an event that with the passage of time or the giving of notice or both would constitute a breach of or default under any Contract, Lease or Permit, or (c) the occurrence of an event that with or without the passage of time or the giving of notice or both would give rise to a right of termination, renegotiation or acceleration under any Contract, Lease or Permit. "DEED OF TRUST" shall mean that certain Deed of Trust, dated as of the Closing Date, by Seller, as Trustor, to First American Title Insurance Company, as trustee, for the benefit of Purchaser, as beneficiary, securing Seller's indemnity obligations set forth in the Secured Indemnity Agreement, in substantially the form of Exhibit B hereto. "DISCLOSURE SCHEDULE" shall mean a schedule executed and delivered by Seller to Purchaser as of the date hereof which sets forth the exceptions to the representations and warranties contained in Article IV hereof. Unless otherwise specified, each reference in this Agreement to any numbered schedule is a reference to that numbered schedule which is included in the Disclosure Schedule. "DISCONTINUED OPERATIONS" shall mean any businesses or operations previously sold or otherwise disposed of by Seller and any ongoing indemnification obligations in connection therewith. "EARN-OUT" shall have the meaning set forth in Section 2.4(a)(ii). "EARN-OUT PERIOD" shall mean the period commencing on the day after the Closing Date and ending on the first anniversary of the Closing. "ENCUMBRANCE" shall mean any claim, lien, pledge, option, charge, easement, security interest, deed of trust, mortgage, right-of-way, encroachment, building or use restriction, conditional sales agreement, encumbrance or other right of third parties, whether voluntarily 4 incurred or arising by operation of law, and includes, without limitation, any agreement to give any of the foregoing in the future, and any contingent sale or other title retention agreement or lease in the nature thereof. "ENVIRONMENTAL LIABILITIES FOR PRE-CLOSING MATTERS" shall mean any and all liabilities, damages, losses, costs and expenses arising from any Pre-Closing Environmental Matters, including, without limitation, costs of investigation, cleanup, removal, remedial, corrective or response action, the costs associated with posting financial assurances for the completion of investigation, cleanup, removal, remedial, corrective or response actions, attorneys' fees, the preparation of any closure or other necessary or required plans or analyses, or other necessary reports or analyses submitted to or prepared for regulating agencies. "ENVIRONMENTAL PROTECTION LAWS" shall mean all federal, state, local and foreign laws, statutes, regulations having the force and effect of law, permits, court decrees, judgments, injunctions and written orders concerning (i) public health and safety relating to exposure of humans to toxic or hazardous substances or otherwise relating to Regulated Substances or (ii) pollution or protection of the environment or natural resources, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C. Section 9601 ET SEQ.); the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 ET SEQ. ); the Resource Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901 ET SEQ.); the Clean Water Act (33 U.S.C. Section 1251 ET SEQ.); the Safe Drinking Water Act (14 U.S.C. Section 1401 ET SEQ.); the Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 ET SEQ.), the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.); the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001-11005, 11021-11023, and 11041-11050); the Porter-Cologne Water Quality Act (California Water Code Section 13000-13999.19); the Hazardous Waste Control Law (California Health & Safety Code Section 25100-25250.25); the Safe Drinking Water and Toxic Enforcement Act (California Health & Safety Code Section 25249.5-25249.13); California Health & Safety Code Section 25280-25299.81 (regarding Underground Storage of Hazardous Substances) and Section 25500-25545 (regarding Hazardous Materials Inventories and Emergency Plans); the Hazardous Substance Account Act (California Health & Safety Code Section 25300-25393); and California Health & Safety Code Section 39000-44384 regarding Air Resources; in each case including the regulations promulgated thereunder, including, without limitation, the regulations promulgated by the South Coast Air Quality Management District; each as supplemented or amended from time to time. "EPA" shall mean the United States Environmental Protection Agency, or any successor United States governmental agency. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA AFFILIATE" shall mean with respect to any person (a) any corporation that is a member of a controlled group of corporations, within the meaning of Section 414(b) of the Code, of which that person is a member, (b) any trade or business (whether or not incorporated) that is a member of a group of trades or businesses under common control, within the meaning of Sec- 5 tion 414(c) of the Code, of which that person is a member, and (c) any member of an affiliated service group, within the meaning of Section 414(m) and (o) of the Code, of which that person or any entity described in clause (a) or (b) is a member. "ESCROW AGREEMENT" shall mean the agreement relating to the Holdback Escrow referred to in Section 19 of the Deed of Trust among Purchaser, Seller and the escrow agent named therein. "EXCLUDED LIABILITIES" shall have the meaning set forth in Section 2.3. "FACILITIES" shall mean all plants, offices, manufacturing facilities, stores, warehouses, improvements, administration buildings, and all real property and related facilities which are used or held for use in connection with the Business. "FINANCIALS" shall have the meaning set forth in Section 4.7(a). "FINANCING OBLIGATIONS" shall mean (a) indebtedness of Seller for borrowed money, (b) obligations of Seller evidenced by bonds, notes, debentures, letters of credit or similar instruments, (c) obligations under capitalized leases, (d) obligations under conditional sale, title retention or similar agreements or arrangements creating an obligation of Seller with respect to the deferred purchase price of property (other than customary trade credit), (e) interest rate and currency obligation swaps, hedges and similar arrangements and (f) all obligations of Seller to guaranty any of the foregoing types of obligations on behalf of others, in each case as related to the Business. "FORMER FACILITY" shall mean each plant, office, manufacturing facility, store, warehouse, improvement, administrative building and all real property and related facilities that were owned, leased or operated by Seller at any time prior to the date hereof, but excluding any Facilities. "GAAP" shall mean generally accepted accounting principles consistently applied as in effect at the time in question. "HOLLYWOOD LEASE" shall mean a lease, dated as of the Closing Date, between Seller, as lessor, and Purchaser, as lessee, with respect to that real property located at 1133 N. Hollywood Way, Burbank, California 91505, in the form attached hereto as Exhibit C, as modified on or prior to the Closing by mutual agreement of Purchaser and Seller. "INDEMNIFIED PARTY" shall have the meaning set forth in Section 10.7. "INDEMNIFYING PARTY" shall have the meaning set forth in Section 10.7. "INSURANCE POLICIES" shall mean the insurance policies related to the Assets and/or the Business listed in Section 4.22 of the Disclosure Schedule. "INTANGIBLE PERSONAL PROPERTY" shall have the meaning set forth in Section 4.13(a). 6 "INTERIM BALANCE SHEET" shall have the meaning set forth in Section 4.7(b). "INTERIM FINANCIALS" shall have the meaning set forth in Section 4.7(b). "IRS" shall mean the Internal Revenue Service. "LEASED PERSONAL PROPERTY" shall mean all leased property described in the Personal Property Leases. "LIABILITIES" shall mean any liability of Seller, including, without limitation, any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or endorsement of or by any person of any type, whether accrued, absolute, contingent, matured, unmatured, known, unknown or other, in each case as related to the Business. "LICENSES" shall have the meaning set forth in Section 4.13(a). "MATERIAL CONTRACTS" shall have the meaning set forth in Section 4.16. "MULTI-EMPLOYER PLANS" shall have the meaning set forth in Section 4.14(a). "OLIVE LEASE" shall mean a month-to-month lease, dated as of the Closing Date, between Seller, as lessor, and Purchaser, as lessee, with respect to that real property located at 2660 West Olive Avenue, Burbank, California 91505, in the form attached hereto as Exhibit D, as modified on or prior to the Closing by mutual agreement of Purchaser and Seller. "OLIVE STREET PROPERTY" shall mean that real property located at 2660 West Olive Avenue, Burbank, California 91505 owned by Seller. "PATENTS" shall mean all patents and patent applications and registered designs and registered design applications. "PERMITS" shall mean all licenses, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any governmental authority, whether foreign, federal, state or local, or any other person, necessary or desirable for the past, present or anticipated conduct of, or relating to the operation of, the Business. "PERMITTED ENCUMBRANCES" shall have the meaning set forth in Section 8.13. "PERSON" shall mean any natural person or any corporation, partnership, joint venture, limited liability company or other entity. "PERSONAL PROPERTY" shall have the meaning set forth in Section 4.26. "PERSONAL PROPERTY LEASES" shall have the meaning set forth in Section 4.26. 7 "PLANS" shall have the meaning set forth in Section 4.15(a). "PRE-CLOSING ENVIRONMENTAL MATTERS" shall mean (a) the production, use, generation, storage, treatment, recycling, disposal or other handling or disposition at any time on or prior to the Closing Date (collectively "Handling") of any Regulated Substance, either in, on, under or from any Facility or Former Facility, including, without limitation, the effects of such Handling of Regulated Substances on resources, persons or property within or outside the boundaries of any Facility or Former Facility, (b) any release of Regulated Substances at any time on or prior to the Closing Date occurring in, on or under any Facility or Former Facility regardless of how the Regulated Substances came to rest in, on or under the Facility or Former Facility, (c) the failure on or prior to the Closing Date of any Facility or Former Facility or any operation of Seller to be in compliance with any Environmental Laws, and (d) any other act or omission occurring, or condition existing, with respect to the Assets or the Business on or prior to the Closing Date which gives rise to liability under any Environmental Protection Law. "PRIME RATE" shall mean the lesser of (i) the prime rate as reported from time to time by THE WALL STREET JOURNAL or (ii) the maximum rate permitted by applicable law. "PROPRIETARY RIGHTS" shall mean all of Seller's Copyrights, Patents, Trademarks, technology rights and licenses, computer software (including without limitation any source or object codes therefor or documentation relating thereto), trade secrets, franchises, know-how, inventions, designs, specifications, plans, drawings and intellectual property rights, in each case as relates to the Business. "PURCHASER" shall have the meaning set forth in the Preamble. "REGULATED SUBSTANCE" shall mean any chemical or substance subject to or regulated under any Environmental Protection Law including, without limitation, any "pollutant or contaminant" or "hazardous substance" as those terms are defined in CERCLA, any "hazardous waste" as that term is defined in RCRA, and any other hazardous or toxic wastes, substances, or materials, petroleum (including crude oil and refined and unrefined fractions thereof), polychlorinated biphenyls ("PCBs"), infectious waste, special waste, pesticides, fungicides, solvents, herbicides, flammables, explosives, asbestos and asbestos containing material, and radioactive materials, whether injurious by themselves or in combination with other materials. "REGULATIONS" shall mean any laws, statutes, ordinances, regulations, rules, notice requirements, court decisions and orders of any foreign, federal, state or local government and any other governmental department or agency. "RELEASE DOCUMENTS" shall have the meaning set forth in Section 3.2(a)(vi). "REPRESENTATIVE" shall mean any officer, director, principal, attorney, agent, employee or other representative. "SECURED INDEMNITY AGREEMENT" shall mean the Secured Indemnity Agreement between 8 Purchaser and Seller dated as of the Closing Date, in substantially the form of Exhibit G hereto. "SELLER" shall have the meaning set forth in the Preamble. "SUBSIDIARY" shall mean (a) with respect to Seller, any corporation, association or other business entity of which more than fifty percent (50%) of the total voting power of shares of stock (or equivalent ownership or controlling interest) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by Seller or one or more of the other Subsidiaries of that Person or a combination thereof, (b) any partnership in which Seller is a general partner and any limited liability company in which Seller is the managing member, or (c) any partnership or limited liability company in which Seller possesses a 50% or greater interest in the total capital or total income of such partnership or limited liability company. "TAX" or "TAXES" shall mean any and all taxes imposed or required to be collected by any federal, state or local taxing authority in the United States, or by any foreign taxing authority under any statute or regulation, including, without limitation, all income, gross receipts, sales, use, personal property, use and occupancy, business occupation, mercantile, ad valorem, transfer, license, withholding, payroll, employment, excise, real estate, environmental, capital stock, franchise, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalties and other additions thereto. "TRADEMARKS" shall mean registered trademarks, registered service marks, trademark and service mark applications and unregistered trademarks and service marks. "TRANSACTIONS" shall mean, in respect of any party, all transactions contemplated by this Agreement that involve, relate to or affect such party. "TRANSFERRED EMPLOYEES" shall have the meaning set forth in Section 6.6(a). "UNITED STATES GOVERNMENT" shall mean the government of the United States, including any agencies, commissions, branches, instrumentalities and departments thereof. 9 ARTICLE 2 PURCHASE AND SALE OF ASSETS SECTION 2.1 TRANSFER OF ASSETS. Upon the terms and subject to the conditions contained herein, at the Closing, Seller shall sell, convey, transfer, assign and deliver to Purchaser, and Purchaser shall acquire from Seller, the Assets (including, without limitation, those assets of Seller listed on Exhibit E hereto), free and clear of all Encumbrances. SECTION 2.2 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the conditions contained herein, at the Closing, Purchaser shall assume the Liabilities under the Accounts Payable, Contracts and Leases which are listed on Schedule 2.2 attached hereto (collectively, "Assumed Liabilities"). SECTION 2.3 EXCLUDED LIABILITIES. Notwithstanding any other provision of this Agreement, except for the Assumed Liabilities expressly specified in Section 2.2, Purchaser shall not assume, or otherwise be responsible for, any Liabilities of Seller, whether liquidated or unliquidated, or known or unknown, whether arising out of occurrences prior to, at or after the date hereof (the "Excluded Liabilities"), which Excluded Liabilities include, without limitation, the following: (a) except as otherwise expressly provided in Section 6.6, any Liability to or in respect of any employees or former employees of Seller including without limitation (i) any employment agreement, whether or not written, between Seller and any person, (ii) any Liability under any Employee Benefit Plan at any time maintained, contributed to or required to be contributed to by or with respect to Seller or under which Seller may incur Liability, or any contributions, benefits or Liabilities therefor, or any Liability with respect to Seller's withdrawal or partial withdrawal from or termination of any Employee Benefit Plan, (iii) any claim of an unfair labor practice, or any claim under any state unemployment compensation or worker's compensation law or regulation or under any federal or state employment discrimination law or regulation, which shall have been asserted on or prior to the Closing Date or is based on acts or omissions which occurred on or prior to the Closing Date and (iv) any liabilities or obligations under the Worker Adjustment and Retraining Notification Act of 1988, as amended, including the rules and regulations promulgated thereunder; (b) any Liability of Seller in respect of (i) any income tax or any interest, penalties or additions pertaining thereto, (ii) any other Tax relating to any period or portion thereof prior to the date of the Interim Balance Sheet and not reflected on the Interim Balance Sheet or (iii) any other Tax relating to any period or portion thereof from the date of the Interim Balance Sheet unless such Tax is incurred (A) in the ordinary course of business consistent with past practice and (B) in compliance with the terms of this Agreement; (c) any warranty claims and any Liability arising from any injury to or death of any person or damage to or destruction of any property, whether based on negligence, breach of 10 warranty, express or implied representation, strict liability, enterprise liability or any other legal or equitable theory arising from defects in products manufactured or from services performed by or on behalf of Seller or any other person or entity on or prior to the Closing Date; (d) any Liability of Seller arising out of or related to any Action against Seller or any Action which adversely affects the Assets and which shall have been asserted on or prior to the Closing Date or the basis of which shall have arisen on or prior to the Closing Date; (e) any Liability of Seller resulting from entering into, performing its obligations pursuant to or consummating the transactions contemplated by, this Agreement (including without limitation any Liability of Seller for fees or expenses incurred in connection with such transactions and any Liability of Seller pursuant to Article X hereof); (f) any Liability related to any Former Facility or any of the Discontinued Operations; (g) any Financing Obligation (h) any Environmental Liabilities for Pre-Closing Matters, whether or not disclosed in the Disclosure Schedule; (i) any Liability of Seller for fees or expenses incurred prior to the date hereof in connection with the review by Ernst & Young LLP of the financial statements of Seller; (j) any Liability of Seller not directly related or incurred with respect to the conduct of the Business; (k) except to the extent provided for herein, any indebtedness for borrowed money; (l) any amounts payable to any Affiliate of Seller; (m) liability arising from or in connection with the Barsotti Action or the Compact Storage Action; (n) any cash overdraft liability; and (o) any Liabilities accruing prior to the Closing Date. SECTION 2.4 PURCHASE PRICE. (a) PURCHASE PRICE. The purchase price for the Assets and the Agreements Not To Compete (the "Purchase Price") shall consist of: (i) Thirteen Million Dollars ($13,000,000) (the "Cash Payment"); and 11 (ii) An amount (the "Earn-Out"), payable in accordance with Section 2.4(c) below, equal to (x) the amount of the Accounts Receivable as of the Closing Date minus the amount of the Accounts Payable as of the Closing Date, as verified by Purchaser's post-closing audit, minus (y) the aggregate amounts owing or payable by Seller under Article X below to the extent not previously paid to Purchaser. (b) CLOSING PAYMENT. At the Closing, upon the terms and subject to the conditions set forth herein, Purchaser shall deliver to Seller the Cash Payment by wire transfer at the Closing to an account identified to Purchaser in writing by Seller at least two business days prior to the Closing Date. (c) EARN-OUT. Purchaser shall calculate the Gross Profit (as defined herein) of the Business for the Earn-Out Period. If the Gross Profit for such period is equal to or greater than $6.2 million (the "Gross Profit Target"), then Purchaser shall pay the Seller the Earn-Out. If the Gross Profit for the Earn-Out Period is less than the Gross Profit Target, Purchaser shall have no obligation to pay the Earn-Out. "Gross Profit" shall mean the revenue of the Business, net of direct and pooled expenses calculated as set forth on Schedule 2.4 hereto, as determined in accordance with GAAP. Gross Profit shall not be reduced by any amounts paid under the provisions of Section 10 below. Purchaser agrees to operate the Business in a manner in which the Gross Profit can reasonably be determined and to spend at least $500,000 during the Earn-Out Period on capital expenditures for the Business. Purchaser will use its reasonable best efforts in the exercise of its business judgment to increase the Gross Profit of the Business during the Earn-Out Period. Purchaser shall maintain accurate books, records and documents reasonably necessary for the calculation of Gross Profit. Seller shall, upon request delivered to Purchaser in writing, have reasonable access during normal business hours to inspect such books and records at its cost. Purchaser shall provide Seller with updates regarding the Gross Profit of the Business on a monthly basis, such reports to be provided with 30 days after the end of each month in the Earn-Out Period. Purchaser shall pay to Seller the Earn-Out, if earned, within 45 business days after the last day of month in which the first anniversary of the Closing occurs. If Purchaser shall determine, after consultation with its independent auditors, that the Gross Profit Target was not achieved, it shall so notify Seller on or before the 45th business day after the last day of month in which the first anniversary of the Closing occurs, and include in such notification its calculation of the Gross Profit. Seller shall have a period of 30 days thereafter to present in writing to Purchaser any objections or disagreement with respect to the calculation of Gross Profit. Such notice shall specify, in reasonable detail, the nature and extent of such disagreement. If Seller and Purchaser are unable to resolve any such disagreement with respect to the calculation of Gross Profit within ten (10) days after delivery by Seller of the notice referred to above, the disagreement shall be submitted for final determination to a partner, mutually acceptable to Seller and Purchaser, of Arthur Andersen LLP. Such partner shall follow such procedures as he or she deems appropriate for obtaining the necessary information in considering the positions of Seller and Purchaser but shall not conduct an independent audit. The Arthur Andersen partner shall render his or her determination on the matter within 30 days of its 12 submission by Seller and Purchaser, and such determination shall be final, conclusive and binding upon Purchaser and Seller. The fees and expenses of the Arthur Andersen partner (A) shall be paid by Seller if the Gross Profit for the Earn-Out Period, as determined by the Arthur Andersen partner in accordance with GAAP, is less than $6.2 million, or (B) shall be paid by Purchaser if the Gross Profit for the Earn-Out Period, as determined by the Arthur Andersen partner in accordance with GAAP, is equal to or greater than $6.2 million. (d) ALLOCATION OF PURCHASE PRICE. Purchaser shall prepare IRS Form 8594 allocating the Purchase Price in accordance with Section 1060 of the Code and shall forward it within 120 days after the Closing to Seller for its approval, which approval shall not be unreasonably withheld. The parties agree that Three Hundred Thousand Dollars ($300,000) of the aggregate Purchase Price will be allocable to the Agreements Not to Compete. Purchaser and Seller shall each file with their respective federal income tax return for the tax year in which the Closing occurs, IRS Form 8594 containing the information agreed upon by the parties pursuant to the immediately preceding sentence. Purchaser agrees to report the purchase of the Assets, and Seller agrees to report the sale of such Assets for income tax purposes (including but not limited to, on their respective income tax returns, before any governmental agency charged with the collection of income tax or in any judicial proceeding concerning the income tax consequences of Purchaser's purchase or Seller's sale of the Assets hereunder) in a manner consistent with the information agreed upon by the parties pursuant to this Section 2.4(d) and contained in its IRS Form 8594. SECTION 2.5 CLOSING COSTS; TRANSFER TAXES AND FEES. Seller shall be responsible for any documentary and transfer taxes and any sales, use or other taxes imposed by reason of the transfer of Assets provided hereunder and any deficiency, interest or penalty asserted with respect thereto. Seller shall pay the fees and costs of recording or filing all applicable conveyancing instruments described in Section 3.2(a). 13 ARTICLE 3 CLOSING SECTION 3.1 CLOSING. The Closing of the transactions contemplated herein (the "Closing") shall be held at 10:00 a.m. local time on the Closing Date at the offices of Kaye, Scholer, Fierman, Hays & Handler, LLP, 1999 Avenue of the Stars, Los Angeles, California, unless the parties hereto otherwise agree. SECTION 3.2 CONVEYANCES AT CLOSING. (a) DOCUMENTS DELIVERED BY SELLER. To effect the sale of the Assets and assumption of the Assumed Liabilities Seller shall, at the Closing, execute (as applicable) and deliver to Purchaser: (i) one or more bills of sale, each in the form attached hereto as Exhibit H, conveying in the aggregate all of Seller's owned personal property included in the Assets; (ii) Assignments of Personal Property Leases, each in the form attached hereto as Exhibit I, with respect to the Personal Property Leases; (iii) Assignments of Contracts, each in the form attached hereto as Exhibit J, with respect to the Contract Rights; (iv) Assignments of Seller's rights, title and interest to the name "ALL POST, INC." and all variations thereof); (v) the Ancillary Agreements; (vi) releases of any Encumbrances on the Assets (the "Release Documents"), including: (a) a UCC-2 Financing Statements executed by Sanwa Business Credit Corporation and Westar Capital and affliates with regard to a release of all liens and claims on the Assets and the Olive Street Property and (b) a reconveyance or release of items 12, 13 and 14 of the preliminary Title Policy; (vii) the Deed of Trust in a form suitable for recording in the Los Angeles County Recorder's Office and UCC-1 Financing Statement; (viii) all other third party consents required for the valid transfer of the Assets as contemplated by this Agreement, including the consents specified on Schedule 4.4; and (ix) such other instruments as shall be requested by Purchaser to vest in Purchaser title in and to the Assets in accordance with the provisions hereof. (b) DOCUMENTS DELIVERED BY PURCHASER. To effect the sale of the Assets and 14 assumption of the Assumed Liabilities, Purchaser shall at the Closing execute and deliver to Seller (i) an instrument or instruments of assumption substantially in the form attached as Exhibit F, evidencing Purchaser's assumption, pursuant to Section 2.2, of the Assumed Liabilities (the "Assumption Document"); and (ii) the Ancillary Agreements. (c) FORM OF INSTRUMENTS. To the extent that a form of any document to be delivered hereunder is not attached as an exhibit hereto, such documents shall be in form and substance, and shall be executed and delivered in a manner, reasonably satisfactory to Purchaser and Seller. (d) CERTIFICATES; OPINIONS. Purchaser and Seller shall deliver the certificates, opinions of counsel and other matters described in Articles VII and VIII. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Purchaser that: SECTION 4.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation duly incorporated in the State of California, validly existing and in good standing under the laws thereof, and Seller is duly qualified or authorized to do business in each jurisdiction in which it does business, or owns property, or where such qualification or authorization is otherwise required by virtue of its presence or activities. Schedule 4.l sets forth a complete and correct list of all jurisdictions in which Seller does business or is otherwise required to be qualified or authorized to transact business or own property. SECTION 4.2 ASSETS. Seller owns, and will transfer good and marketable title to, the Assets and upon the consummation of the transactions contemplated hereby, Purchaser will acquire good and marketable title to all of the Assets, free and clear of any Encumbrances. The Assets include all of the business, properties, assets and rights of any kind, whether tangible or intangible, real or personal, used in connection with or relating to the Business or in which Seller has any interest (to the extent related to the Business) and are sufficient to conduct the Business. All tangible assets and properties which are part of the Assets are in good operating condition and repair and are usable in the ordinary course of business and conform in all respects to all applicable Regulations (including Environmental Laws) relating to their construction, use and operation. SECTION 4.3 LICENSES AND PERMITS. Seller is duly licensed, with all requisite permits and qualifications, as required by applicable law for the purpose of conducting its business or owning its properties or both, in each jurisdiction in which it does business or owns property or in which such license, permit or qualification is otherwise required. Seller is in compliance in all respects with all such licenses, permits and qualifications. Schedule 4.3 sets forth a list of all such licenses, permits and qualifications. There are no proceedings pending or threatened, to revoke or terminate any such presently existing license, permit or qualification, and each such presently existing license, permit or qualification can be renewed in the ordinary course of 15 business. SECTION 4.4 NO BREACH. Except as set forth on Schedule 4.4, neither the execution and delivery of this Agreement nor the consummation of the Transactions will (A) violate, result in a breach of any of the terms or provisions of, constitute a default (or any event that, with the giving of notice or the passage of time or both, would constitute a default) under, result in the acceleration of any indebtedness under or performance required by, result in any right of termination of, increase any amounts payable under, decrease any amounts receivable under, change any other rights pursuant to, or conflict with, Seller's Articles of Incorporation, any agreement, indenture or other instrument to which Seller is a party or by which any of its properties are bound, or any judgment, decree, order or award of any court, governmental body or arbitrator (domestic or foreign) applicable to Seller, or (B) require Seller to obtain any authorization, consent, approval or waiver from, or make any filing with, any Person, court or public body or authority. SECTION 4.5 AUTHORITY. Seller has the right to sell, convey, transfer, assign and deliver the Assets to Purchaser hereunder. This Agreement and all agreements and instruments herein contemplated to be executed by Seller have been duly authorized, executed and delivered by Seller and no other corporate action is required on the part of Seller in order to authorize the execution, delivery and performance of this Agreement. This Agreement and all agreements and instruments herein contemplated constitutes the valid and binding obligations of Seller, enforceable in accordance with their respective terms. Schedule 4.5 hereto identifies those agreements which require the consent of third parties to the Transactions, which consents have not been obtained. SECTION 4.6 SUBSIDIARIES. Other than Post Optical Services, Seller has no equity interest in any corporation, partnership, limited liability company or similar entity. SECTION 4.7 FINANCIAL STATEMENTS. (a) The balance sheets of Seller at July 31, 1997, July 31, 1996 and July 31, 1995 (individually, a "Balance Sheet" and collectively, the "Balance Sheets") and the statements of operations and retained earnings and the statements of cash flows of Seller for each of the 12 month periods then ended and notes thereto (collectively, the "Financials"), true and correct copies of which are attached hereto as Schedule 4.7(a), (i) have been prepared from the books and records of Seller in accordance with GAAP consistently applied with prior periods, and (ii) are complete and correct and fairly present in accordance with GAAP, in each case in all respects, the financial condition and results of operations of Seller as of the dates and for the periods indicated thereon. The statements of operations included in the Financials do not contain any items of extraordinary income or any other income not earned in the ordinary course of business. (b) The unaudited balance sheet at March 31, 1998 (the "Interim Balance Sheet"), and the unaudited statements of operations and retained earnings and statements of cash flows for Seller for the nine month period then ended and notes thereto (collectively, the "Interim 16 Financials"), true and correct copies of which are attached hereto as Schedule 4.7(b), (i) have been prepared from the books and records of Seller in accordance with GAAP consistently applied with prior periods, and (ii) are complete and correct and fairly present, in each case in all respects, the financial condition and results of operations of Seller as of the dates and for the periods indicated thereon. (c) The Financials have been audited by the independent accounting firm of Ernst & Young LLP whose reports thereon are part of Schedule 4.7. The books of accounts of Seller have been maintained in all respects in accordance with sound business practices, and there have been no transactions involving Seller that properly should have been set forth therein in accordance with generally accepted accounting principles that have not been accurately so set forth. SECTION 4.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule 4.8, since March 31, 1998, there has not occurred (in each case with respect only to the Assets or the Business): (a) Any adverse change (whether absolute, accrued, contingent or otherwise), condition (financial or otherwise), or results of operations not reflected in the Financials or the Interim Financials and that has resulted in or reasonably could result in a loss to Seller of more than $100,000 in the aggregate; (b) Any guarantee by Seller of any obligation, or any mortgage, pledge or encumbrance on any of the properties or assets of Seller; other than set forth on Schedule 2.2, there are no Assumed Liabilities; (c) Any amendment or modification of any Material Contract (as defined below), or any termination of any agreement that would have been a Material Contract were such agreement in existence on the date hereof; (d) Any entering into of any written or oral agreements, contracts, commitments or transactions that extend beyond the first anniversary hereof or have obligations thereunder in excess of $25,000, including any purchase or sale of any assets. (e) Any increase in excess of $25,000 annually in the compensation (including, without limitation, the rate of commissions) payable to, or any payment of a cash bonus to, any employee or agent of, or consultant to, Seller; (f) Any alteration in the manner of keeping the books, accounts or records of Seller, or in the accounting practices therein reflected; (g) Any declaration or payment of any dividends or distributions by Seller, any acquisition or redemption by Seller of any of its equity securities or any loan by Seller to any other Person; 17 (h) Any loss or threatened loss of a customer or customers during the past two years to which Seller had annual sales in excess of $50,000 in either year; (i) Any damage or destruction to, or loss of, any assets or property owned, leased or used by Seller (whether or not covered by insurance) in excess of $5,000; or (j) Any agreement to do any of the things described in the preceding clauses (a) - (h) of this Section 4.8. SECTION 4.9 ABSENCE OF UNDISCLOSED LIABILITIES. There are no liabilities in excess of $1,000 with respect to the Assets or the Business whether absolute, accrued, contingent or otherwise, and whether due or to become due, not reflected on or reserved for on the Balance Sheet or the Interim Balance Sheet, except as set forth in Schedule 4.9 and except for current liabilities incurred in the ordinary course of business since the respective dates thereof. There are no commitments, contracts or undertakings covering the purchases of items of inventory in excess of Seller's normal operating requirements or covering the purchases of items of machinery and equipment in excess of the requirements of Seller. Seller is not a party to, is not bound by, nor has bid upon any contract or agreement that is adverse to the assets, condition (financial or otherwise), business or prospects of Seller, that will require future expenditures (including incurred costs and allocated overhead and selling, general and administrative expense) in excess of reasonably anticipated receipts by more than $10,000 in the aggregate, or on which Seller expects to lose in excess of $10,000 in the aggregate. SECTION 4.10 ACCOUNTS RECEIVABLE. Schedule 4.10 is an accurate aging of the Accounts Receivable at May 31, 1998 which represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. The Accounts Receivable as of such date and any Accounts Receivable arising since such date are fully collectible, net of the reserves set forth in the Balance Sheet, all of which reserves are adequate in accordance with GAAP. The positive difference between the Accounts Receivable and Accounts Payable as of the Closing Date is at least $1.5 million. SECTION 4.11 REAL PROPERTY; REAL PROPERTY LEASES. Other than the real property to be leased pursuant to the Hollywood Lease and the Olive Lease, there is no real property owned by, leased to (other than as set forth on Schedule 4.11), or otherwise used by Seller in connection with the Business. SECTION 4.12 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 4.12: (a) As to the Assets and the Business, Seller is, and at all times has been, in all respects in compliance in all material respects with all Environmental Protection Laws; (b) Seller has obtained or has timely applied for all permits, licenses and other authorizations under Environmental Protection Laws which are required in connection with the Business, all of which are in full force and effect. Seller is in compliance with all terms and conditions of such permits, licenses and authorizations, no action or proceeding which reasonably could be expected to result in the revocation or suspension of any such permits, 18 licenses and authorizations is pending or, to the best of Seller's knowledge, threatened, and Seller has not engaged in any conduct which reasonably could be expected to cause revocation or suspension of any of its permits, licenses or authorizations under Environmental Protection Laws; (c) Seller has not received at any time prior to the date hereof a summons, citation, notice, directive, letter or other communication, written or oral, from the EPA or any other federal, state, local or other governmental agency or instrumentality, authorized pursuant to an Environmental Protection Law, concerning any intentional or unintentional action or omission (except any pertaining to emissions of fugitive dust and other non-hazardous particulates that are routinely corrected) by Seller constituting a violation or potential violation of any Environmental Protection Law, including, without limitation, violations relating to the releasing, spilling, leaking, pumping, pouring, emitting, emptying, dumping or otherwise disposing of any Regulated Substance into the environment resulting in damage thereto or to the wildlife, biota and other natural resources, and there exist no facts that would form the basis for a finding of such a violation; and (d) Seller has not received at any time prior to the date hereof any summons, citation, notice, directive, letter or other communication, written or oral, of any potential claim or liability under any Environmental Protection Law, including, without limitation, any notification as a potentially responsible party with respect to any Superfund or other clean-up site. There are no events, conditions, circumstances, activities, practices, incidents, actions or plans at or concerning the operations of Seller which may (i) interfere with or prevent continued compliance by Seller with any Environmental Protection Law, (ii) give rise to any claim or liability under any Environmental Protection Law, or (iii) form the basis for any claim, action, suit, proceeding, hearing or investigation under any Environmental Protection Law. (e) Except as set forth on Schedule 4.12(i) , Seller has not received any notice from a governmental authority or otherwise of any health problem of any current or former employee which in any way is or is alleged to be related to the operation of the Business. SECTION 4.13 INTANGIBLE PERSONAL PROPERTY. (a) There are no (i) patent, patent applications, copyright, copyright applications, trademark, trademark applications (in any such case, whether registered or required to be registered in the United States of America or elsewhere), process, invention, trade secret, trade name, computer program, formula and customer list (collectively, the "Intangible Personal Property") of Seller related to, or necessary to continue the operation of, the Business, or (ii) licenses or similar agreements or arrangements ("Licenses") to which Seller is a party either as licensee or licensor for each such item of Intangible Personal Property; and (b) The conduct by Seller of the Business does not infringe the valid patents, trademarks, trade secrets or trade names of others. SECTION 4.14 LABOR AND EMPLOYMENT AGREEMENTS. 19 (a) Schedule 4.14 sets forth as to those employees involved with the Business, a complete and correct list of the following: (i) Each employment, consulting, collective bargaining and similar agreement, whether written or oral, to which Seller is a party or by which it is bound; and (ii) The name of (A) each employee of Seller who since January 1, 1997, was or is being paid $50,000 or more per year, and (B) each agent of or consultant to Seller who since January 1, 1997 was or is being paid $50,000 or more per year. As used in this Section 4.14, the word "agreement" includes both oral and written contracts, understandings, arrangements and other agreements. (b) Seller has complied in all material respects with all applicable laws, rules and regulations relating to the employment of labor, including, without limitation, those related to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by appropriate governmental authorities and has withheld and paid to the appropriate authorities, or is holding for payment not yet due to such authorities, all amounts required to be withheld from such employees and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing. (c) No unfair labor practice complaint is pending against Seller before the National Labor Relations Board or any federal, state or local agency and no labor strike, grievance or other labor dispute affecting Seller is pending or, to the best of Seller's knowledge, threatened. (d) Except as set forth in Schedule 4.14, no organization effort, and no sex discrimination, racial discrimination, age discrimination or other employment-related allegation, claim, suit or proceeding, has been made or is pending or, to the best of Seller's knowledge, threatened with respect to the employees of Seller and no such effort, allegation, claim, suit or proceeding has been made, raised, brought or threatened within the three-year period prior to the date of this Agreement. (e) No arbitration proceeding arising out of or under any collective bargaining agreement applicable to Seller is pending and, to the best of Seller's knowledge, no basis for any such proceeding exists. (f) All reasonably anticipated obligations of Seller, whether arising by operation of law, contract, past custom or otherwise, for unemployment compensation benefits, pension benefits, advances, salaries, bonuses, vacation and holiday pay, sick leave and other forms of compensation payable to the employees or agents of Seller in respect of the services rendered by any of them on or prior to the date of the Financials have been paid or adequate accruals therefor have been made in the books and records of Seller and in the Financials. All such obligations in respect of services rendered on or prior to the date hereof have been paid as of the date hereof, or adequate accruals therefor have been made on the Interim Balance Sheet, in accordance with 20 GAAP. All accrued obligations of Seller applicable to its employees, whether arising by operation of law, contract, past custom or otherwise, for payments to trusts or other funds or to any governmental agency, with respect to unemployment compensation benefits, social security benefits or any other benefits for employees, with respect to employment of said employees through the date of the Financials have been paid or adequate accruals therefor have been made on the books and records of Seller and in the Financials in accordance with GAAP. All such obligations with respect to employment of employees through the date hereof have been paid as of the date hereof, or adequate accruals therefor have been made on the Interim Balance Sheet, in accordance with GAAP. SECTION 4.15 EMPLOYEE BENEFIT PLANS: ERISA. (a) Except as set forth in Section 4.15(a) of the Disclosure Schedule, Seller (i) does not maintain, contribute to or have any obligation with respect to, and none of the employees of the Business is covered by, any bonus, deferred compensation, severance pay, pension, profit-sharing, retirement, insurance, or other fringe benefit plan, arrangement or practice, written or otherwise, or any other "employee benefit plan," as defined in Section 3(3) of ERISA, whether formal or informal (collectively, the "Plans"), (ii) is not a party to a contract for the employment of any employee of the Business or any other person who renders services to the Business, and (iii) does not have any ERISA Affiliates. None of the Plans is, and neither Seller nor any of its ERISA Affiliates has ever maintained or had an obligation to contribute to, (i) a plan subject to Section 412 of the Code or Title I, Subtitle B, Part 3 of ERISA, (ii) a "multi employer plan," as defined in Section 3(37) of ERISA (a "Multi employer Plan"), (iii) a "multiple employer plan," as defined in ERISA or the Code, or (iv) a funded welfare benefit plan, as defined in Section 419 of the Code. Seller does not have any agreement or commitment to create or contribute to any additional Plan, enter into any additional employment agreement or to modify or change any existing Plan or employment agreement. Section 4.15(a) of the Disclosure Schedule contains a complete and accurate list of the following information for each employee of the Business (including each employee who is on a leave of absence or on layoff status): name, employer, job title(s), date of hire, current salary and benefit arrangements, years of service for purposes of eligibility, vesting, and benefit determination under any of the Plans, and current status (E.G., active employee, on leave, etc.). None of the employees of the Business is a "leased employee," as defined in Section 414(n) of the Code. (b) With respect to each Plan, Seller has heretofore delivered or caused to be delivered to Purchaser true, correct and complete copies of (i) all documents that comprise the most current version of such Plan, including any related trust agreements, insurance contracts, or other funding or investment agreements and any amendments thereto, and (ii) with respect to each Plan that is an "employee benefit plan," as defined in Section 3(3) of ERISA, (A) the three most recent Annual Reports (Form 5500 Series) and accompanying schedules for each of the Plans for which such a report is required, (B) the most current summary plan description (and any summary of material modifications), (C) the three most recent certified financial statements for each of the Plans for which such a statement is required or was prepared, and (D) for each Plan intended to be "qualified" within the meaning of Section 401(a) of the Code, all Internal Revenue Service determination letters issued with respect to such Plan. Except as set forth in 21 Section 4.16(b) of the Disclosure Schedule, since the date of the foregoing documents, there has not been any change in the assets or liabilities of any of the Plans or any change in their terms and operations that could reasonably be expected to affect or alter the tax status or affect the cost of maintaining such Plan, and none of the Plans has been or will be amended prior to the Closing Date. Each of the Plans can be amended, modified or terminated by Seller within a period of thirty (30) days, without payment of any additional compensation or amount or the additional vesting or acceleration of any such benefits, except to the extent that such vesting is required under the Code upon the complete or partial termination of any Plan intended to be qualified within the meaning of Section 401(a) of the Code. (c) Seller has performed and complied in all respects with all of its obligations under and with respect to the Plans, and each of the Plans has, at all times, in form, operation and administration complied in all respects with its terms, and, where applicable, the requirements of all applicable laws. Each Plan that is intended to be "qualified" within the meaning of Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified and nothing has occurred that reasonably could be expected to adversely affect such qualified status. (d) Seller has made all contributions with respect to a Plan that are required to have been made as of the date hereof under the terms thereof, or under the terms of any related insurance contract, or any applicable law. (e) All Plans that are group health plans have been operated in compliance with the continuation coverage requirements of Section 4980B of the Code (and any predecessor provisions) and Part 6 of Title I of ERISA ("COBRA"). Seller does not have any obligation to provide health benefits or other non-pension benefits to any retired or other former employees, except as specifically required by COBRA. (f) Neither Seller nor any other "disqualified person" or "party in interest," as defined in Section 4975 of the Code and Section 3(14) of ERISA, respectively, has engaged in any "prohibited transaction," as defined in Section 4975 of the Code or Section 406 of ERISA, with respect to any Plan , and Seller is not aware of any fiduciary violations under ERISA with respect to any Plan, that could subject Seller (or any employee thereof) to any penalty or tax under Section 502(i) of ERISA or Sections 4971 and 4975 of the Code. (g) Except as set forth in Section 4.15(g) of the Disclosure Schedule, with respect to any Plan: (i) no filing, application or other matter is pending with the Internal Revenue Service, the Pension Benefit Guaranty Corporation, the United States Department of Labor or any other governmental body, (ii) there is no action, suit or claim pending (and Seller is not aware of any basis for such a claim), other than routine claims for benefits, and (iii) there are no outstanding liabilities for taxes, penalties or fees. (h) Seller has not incurred any liability or taken any action, and is not aware of any event that has occurred or is likely to occur, that could cause any one of them to incur any liability (i) under Section 412 of the Code or Title IV of ERISA with respect to any "single- 22 employer plan" (as defined in Section 4001(a)(15) of ERISA), (ii) on account of a partial or complete withdrawal (as defined in Sections 4203 and 4205 of ERISA, respectively) with respect to any Multi employer Plan, (iii) on account of unpaid contributions to any Multi employer Plan, or (iv) on account of any reorganization, insolvency or termination of any Multi employer Plan. (i) Neither the execution and delivery of this Agreement nor the consummation of any or all of the Transactions will: (i) entitle any current or former employee of the Business to severance pay, unemployment compensation or any similar payment, (ii) accelerate the time of payment or vesting or increase the amount of any compensation due to any such employee or former employee, or (iii) directly or indirectly result in any payment made or to be made to or on behalf of any person to constitute a "parachute payment" within the meaning of Section 280G of the Code. SECTION 4.16 MATERIAL CONTRACTS AND RELATIONSHIPS. (a) Except for agreements specifically identified on other schedules hereto, Schedule 4.16(a) sets forth a complete and correct list of the following, in each case to the extent related to the Business: (i) All agreements (or groups of agreements with one or more related entities) between Seller and any customer or supplier in excess of $10,000 and all agreements and purchase orders extending beyond 12 months; (ii) In each case to the extent related to Seller, all agreements that relate to the borrowing or lending by Seller of any money or that create or continue any claim, lien, charge or encumbrance against, or right of any third party with respect to, any asset of Seller; (iii) All agreements by which Seller leases any real property, has the right to lease any real property or leases capital equipment or leases any other personal property, and all other leases involving Seller as lessee or lessor; (iv) All agreements to which Seller is a party not in the ordinary course of business; (v) All contracts or commitments relating to commission arrangements with others; (vi) All license agreements, whether as licensor or licensee; (vii) All agreements between Seller and its sales representatives; (viii) All agreements between Seller and its customers relating to volume rebates or price reductions; 23 (ix) All other agreements to which Seller is a party or by which it is bound and that involve $20,000 or more or that extend for a period of one year or more; (x) All other agreements to which Seller is a party or by which it is bound and that are or may be material to the assets, liabilities (whether absolute, accrued, contingent or otherwise), condition (financial or otherwise), results of operations, business or prospects of Seller; and (xi) A current list of Seller's active customers. As used in this Section 4.16, the word "agreement" includes both oral and written contracts, leases, understandings, arrangements and all other agreements. The term "Material Contracts" means the agreements of Seller required to be disclosed on Schedule 4.16(a), including agreements specifically identified in other schedules hereto. (b) All of the Material Contracts are in full force and effect, are valid and binding and are enforceable in accordance with their terms in favor of Seller. There are no liabilities of any party to any Material Contract arising from any breach or default of any provision thereof and no event has occurred that, with the passage of time or the giving of notice or both, would constitute a breach or default by Seller or, to the best of Seller's knowledge, any other party thereto. (c) Seller (i) has fulfilled all obligations required pursuant to each Material Contract to have been performed by it prior to the date hereof, and (ii) as far as reasonably foreseeable based on current conditions, will be able to fulfill all of its obligations under the Material Contracts that remain to be performed after the date hereof. (d) Schedules 4.16(b), (c) and (d) set forth a complete and correct list of each (i) customer (or related group of customers) with whom Seller did $50,000 or more of business during the last fiscal year or the current fiscal year, (ii) supplier (or related group of suppliers) with whom Seller did $50,000 or more of business during the last fiscal year or the current fiscal year, and (iii) agent (or related group of agents) or Representative (or related group of Representatives) who was paid $25,000 or more by Seller during the last fiscal year or the current fiscal year, respectively. (e) Seller has maintained and continues to maintain good relations with its customers, suppliers and agents and, except as set forth in Schedule 4.16(e), Seller does not reasonably expect that any customer (to which Seller had annual sales in excess of $50,000 during the past two years), supplier or agent will stop doing business with Seller or will change the terms on which such customer, supplier or agent has done business with Seller in the past. SECTION 4.17 INVENTORY. Except for tape stock and work in progress and as disclosed on Schedule 4.17, Seller has no inventory relating to the Business. SECTION 4.18 ABSENCE OF CERTAIN BUSINESS PRACTICES. Except as disclosed on Schedule 4.18, neither Seller nor any employee, agent or other person acting on behalf of Seller has, 24 directly or indirectly, given or agreed to give any gift or similar benefit to any customer, supplier, competitor or governmental employee or official (domestic or foreign) related to the Business that would subject Seller to any damage or penalty in any civil, criminal or governmental litigation or proceeding. SECTION 4.19 COMPLIANCE WITH LAWS. Except as set forth on Schedule 4.19, the operation, conduct and ownership of the property or the Business are being, and at all times have been, conducted, in all respects, in material compliance with all federal, state, local and other (domestic and foreign) laws, rules, regulations and ordinances (including without limitation, those relating to employment discrimination, occupational safety, conservation or corrupt practices) and all judgments and orders of any court, arbitrator or governmental authority applicable to it. Except as set forth on Schedule 4.19, there are no proposed federal, state, local and other (domestic or foreign) law, rule, regulation, ordinance, order, judgment, decree, governmental taking, condemnation or other proceeding that would be applicable to the business, operations or properties of Seller. SECTION 4.20 LITIGATION. Schedule 4.20 sets forth a complete and correct list, together with a status report, of each legal, administrative, arbitration or other proceeding, or governmental investigation, to which Seller is a party (or by which Seller's properties are affected), or was a party or was otherwise affected (or by which any of its properties were affected) during the past three years. Except as set forth on Schedule 4.20, there is no legal, administrative, arbitration or other proceeding, or any governmental investigation, pending or, to the best of Seller's knowledge, threatened against or otherwise affecting Seller or any of its assets. Seller has given in a timely manner to its insurers all notices required to be given under each of its insurance policies, if any, with respect to all of the claims and actions disclosed on Schedule 4.20, and no insurer has denied coverage of any of such claims or actions or rejected any of the claims with respect thereto. SECTION 4.21 TAXES. Except as set forth on Schedule 4.21: (a) Seller has timely filed all Tax returns and reports required to have been filed by it for all taxable periods ending on or prior to the date hereof; (b) All Taxes of Seller for all taxable periods ending on or prior to the date hereof have been paid or have been adequately reserved for on the Interim Balance Sheet. The Tax returns and reports filed are true and correct in all respects; (c) None of such returns contains, or will contain, a disclosure statement under Section 6662 of the Code (or any predecessor statute) or any similar provision of state, local or foreign law; (d) Seller has not received notice that the IRS or any other taxing authority has asserted against Seller any deficiency or claim for additional Taxes; (e) All Tax deficiencies asserted or assessed against Seller have been paid or finally 25 settled; (f) There is no pending or, to the best of Seller's knowledge, threatened action, audit, proceeding, or investigation with respect to (i) the assessment or collection of Taxes of Seller or (ii) a claim for refund made by Seller with respect to Taxes previously paid in connection therewith; (g) All amounts that are required to be collected or withheld by Seller or with respect to Taxes of Seller have been duly collected or withheld; all such amounts that are required to be remitted to any taxing authority have been duly remitted; (h) Neither the IRS nor any state, foreign or local taxing authority has examined any income tax return of Seller; (i) Seller has not waived any statute of limitations (that have not expired as of the date hereof) with respect to the assessment of any Tax; (j) Seller has not taken any action not in accordance with past practice that would have the effect of deferring any Tax liability of Seller from any taxable period ending on or before the date hereof to any taxable period ending after such date; (k) No consent has been filed under Section 341(f) of the Code with respect to Seller; (l) There are no liens for Taxes due and payable upon any assets of Seller; (m) Seller has not participated in, or cooperated with, an international boycott within the meaning of Section 999 of the Code; (n) Seller is not currently required to include in income any adjustment pursuant to Section 481(a) of the Code (or similar provisions of other law or regulations) by reason of a change in accounting method nor does Seller have any knowledge that the IRS (or other taxing authority) has proposed, or is considering, any such change in accounting method; (o) Seller is not a party to any agreement, contract, arrangement or plan that would result in the payment of any "excess parachute payment" within the meaning of Section 280G of the Code; (p) None of the assets of Seller is property that is required to be treated as owned by any other person pursuant to the "safe harbor lease" provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954 as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986 and none of the assets of Seller is "tax exempt use property" within the meaning of Section 168(h) of the Code; and (q) None of the assets of Seller secures any debt the interest on which is tax exempt under Section 103 of the Code. 26 SECTION 4.22 INSURANCE MATTERS. (a) Schedule 4.22 sets forth a complete and correct list of: (i) All insurance policies and of all claims made by Seller on any liability or other insurance policies during the past three years (other than worker's compensation claims); (ii) All insurance currently in place and accurately sets forth the coverages, deductible amounts, carriers and expiration dates thereof; and (iii) All insurance with respect to which the policy period has expired, but for which certain of the coverage years are still subject to audit or retrospective adjustment by the carrier, and accurately sets forth such coverage years and the coverages, deductible amounts, carriers and expiration dates hereof. (b) There are no outstanding requirements or recommendations by any insurance company that issued any policy of insurance to Seller or by any board of underwriters or other similar body exercising similar functions or by any governmental authority exercising similar functions that require or recommend any changes in the conduct of the Business or any repairs or other work to be done on or with respect to any of the Assets. (c) Except as set forth on Schedule 4.22, no notice or other communication has been received by Seller from any insurance company within the two years preceding the date hereof canceling or amending or increasing the annual or other premiums payable under any of its insurance policies, and no such cancellation, amendment or increase of premiums is threatened. (d) During the past two years, Seller has maintained occurrence-based comprehensive general liability and completed operations insurance (including product liability insurance) with a single combined annual limit of at least $1,000,000, and no claims have been made or paid, and no claims are currently pending, under any of such comprehensive general liability insurance policies. (e) No lawsuits have been filed and no claims have been made or threatened against Seller as a result of accidents which occurred during the one-year period prior to the date hereof that would give rise to a claim with respect to any services provided by or products designed, manufactured, or sold by Seller or the operations of Seller. SECTION 4.23 NO POWERS OF ATTORNEY OR SURETYSHIPS. Except as set forth on Schedule 4.23, with respect to the Business or the Assets (i) Seller has not granted any general or special powers of attorney and (ii) Seller does not have any obligation or liability (whether actual, contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker, indemnitor, obligor on an asset or income maintenance agreement or otherwise in respect of the obligation of any person, corporation, partnership, joint venture, association, organization or other entity. 27 SECTION 4.24 BROKERAGE FEES. No Person is entitled to any brokerage or finder's fee or other commission from Seller in respect of this Agreement or the Transactions. SECTION 4.25 BANKING FACILITIES. Schedule 4.25 sets forth, with respect to the Business, a complete and correct list of: (a) Each bank, savings and loan or similar financial institution in which Seller has an account or safety deposit box and the numbers of such accounts or safety deposit boxes maintained thereat; and (b) The names of all persons authorized to draw on each such account or to have access to any such safety deposit box, together with a description of the authority (and conditions thereto, if any) of each person with respect thereto. SECTION 4.26 MACHINERY, EQUIPMENT AND OTHER PERSONAL PROPERTY; PERSONAL PROPERTY LEASES. Except as set forth in Schedule 4.26, Seller owns all of the machinery, equipment, vehicles, furniture, fixtures, leasehold improvements, repair parts, tools and other property (collectively, the "Personal Property") used by Seller in connection with, or relating to, the Business. All such Personal Property is in good operating condition and sufficient to carry on the Business in the normal course as it is presently conducted and is free from defects, whether patent or latent. Schedule 4.26 sets forth a complete and correct summary description and identification of each lease (a "Personal Property Lease") of personal property used in the Business or constituting an Asset under which Seller is either a lessee, sublessee, lessor or sublessor. Except as set forth in Schedule 4.26: (a) Each Personal Property Lease is a valid and binding obligation of Seller that is a party thereto, and each such Personal Property Lease is a valid and binding obligation of each of the other parties thereto; and (b) Neither Seller nor any other party to a Personal Property Lease is in default with respect to any term or condition thereof, and no event has occurred that, with the passage of time or the giving of notice or both, would constitute a default thereunder or would cause the acceleration of any obligation of any party thereto or the creation of a lien or encumbrance upon any asset of Seller. SECTION 4.27 PRODUCT WARRANTY AND LIABILITY. Each product designed, manufactured, or sold by Seller in its conduct of the Business and all services performed by Seller in the Business have been in conformity in all respects with all applicable contractual commitments and all express and implied warranties, except for returns of duplicated tapes in an immaterial amount consistent with Seller's history and standard industry experience. Seller does not have any liability, and there is no basis for any present or future action, suit or other proceeding giving rise to any liability, (i) for replacement or repair of any such product or other damages in connection therewith, or (ii) arising out of any injury to persons or property as a result of any such product or any services performed by Seller. Seller has not received any notice that an action, suit or proceeding has been, or in the future may be, made alleging that products or 28 services of Seller are or were defective in any respect. SECTION 4.28 STANDARDS AND CERTIFICATIONS. Products previously designed, manufactured, sold and leased by Seller met and had received at the time of their design, manufacture and sale, and products currently designed, manufactured, sold and leased by Seller meet and have received, all standards established by relevant standard-setting organizations and all certifications from all relevant safety and standards testing and certifying organizations, if any, as were or are, as the case may be, necessary for such products to comply with all applicable fire, safety and similar codes and regulations. SECTION 4.29 DEED OF TRUST. Seller has good and marketable title to the Olive Street Property, free and clear of all liens, claims, security interests, charges and encumbrances except for (i) real property taxes not delinquent and (ii) those exceptions to title listed as items 2 through 11 in Schedule B of the Commitment for Title Insurance, dated May 20, 1998 at 7:30 a.m., issued by First American Title Company of Los Angeles. The Deed of Trust shall constitute on the Closing Date, a valid first lien and valid first priority security interest on the Olive Street Property, subject only to Permitted Encumbrances. The fair market value of the Olive Street Property exceeds $3,000,000. The Olive Street Property is in the county of Los Angeles. SECTION 4.30 TAX CLEARANCE. Purchaser has no obligation to withhold any portion of the Purchase Price for tax purposes. SECTION 4.31 DISCLOSURE. The information provided by Seller in this Agreement, including, without limitation, the schedules hereto, the written information provided to Purchaser in connection with its due diligence review of Seller, and in any other writing delivered pursuant hereto does not and will not contain any untrue statement of a fact or, omit to state a fact required to be stated herein or therein or necessary to make the statements and facts contained herein or therein, in light of the circumstances under which they are made, not false or misleading, it being understood by Purchaser that the foregoing shall not apply to projections, forecasts or predictions made by Seller regarding the Business. Copies of all documents heretofore or hereafter delivered or made available by Seller to Purchaser pursuant hereto were or will be complete and accurate records of such documents. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER The Purchaser hereby represents and warrants to Seller that: SECTION 5.1 ORGANIZATION AND CORPORATE AUTHORITY. Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California. Purchaser has all requisite corporate power and authority to enter into this Agreement and to consummate the Transactions. This Agreement and all agreements and instruments herein contemplated to be executed by Purchaser have been duly authorized, executed and delivered by Purchaser and no other corporate action is required on the part of Purchaser in order to authorize 29 the execution, delivery and performance of this Agreement. This Agreement and all agreements and instruments herein contemplated are the valid and binding agreements of Purchaser, enforceable against Purchaser in accordance with their respective terms. SECTION 5.2 NO BREACH; CONSENTS AND APPROVALS. Neither the execution and delivery of this Agreement or the related agreements and instruments contemplated hereby nor the consummation of the Transactions will violate, result in a breach of any of the terms or provisions of, constitute a default (or any event that, with the giving of notice or the passage of time or both, would constitute a default) under, result in the acceleration of any indebtedness under or performance required by, result in any right of termination of, increase any amounts payable under, decrease any amounts receivable under, change any other rights pursuant to, or conflict with, any agreement, indenture or other instrument to which Purchaser is a party or by which any of its property is bound, its charter documents, or any judgment, decree, order or award of any court, governmental body or arbitrator (domestic or foreign) applicable to Purchaser. Subject to Section 8, all consents, approvals and authorizations of, and declarations, filings and registrations with, any governmental or regulatory authority (domestic or foreign) or any other person (either governmental or private) required in connection with the execution and delivery by Purchaser of this Agreement and the related agreements and instruments contemplated hereby or the consummation of the Transactions have been obtained, made and satisfied. SECTION 5.3 BROKERAGE FEES. No Person is entitled to any brokerage or finder's fee or other commission from Purchaser in respect of this Agreement or the Transactions. SECTION 5.4 SEC DOCUMENTS. Purchaser's Quarterly Report on Form 10-Q, as amended, for the quarter ended March 31, 1998 complied as to form in all material respects with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission thereunder. Purchaser has not filed a Current Report on Form 8-K since March 31, 1998 (it being understood by Seller that Purchaser intends to file a Form 8-K with respect to the Transactions after the Closing). ARTICLE 6 COVENANTS OF SELLER AND PURCHASER Seller and Purchaser each covenant with the other as follows: SECTION 6.1 FURTHER ASSURANCES. Upon the terms and subject to the conditions contained herein, the parties agree, both before and after the Closing, (i) to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, (ii) to execute any documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the transactions contemplated hereunder, and (iii) to cooperate with each other in connection with the foregoing. Without limiting the foregoing, the parties agree to use their respective reasonable efforts (A) to obtain all 30 necessary waivers, consents and approvals from other parties to the Contracts and Leases to be assumed by Purchaser; PROVIDED, HOWEVER, that neither Purchaser nor Seller shall be required to make any payments, commence litigation or agree to modifications of the terms thereof in order to obtain any such waivers, consents or approvals, (B) to obtain all necessary Permits as are required to be obtained under any Regulations, (C) to give all notices to, and make all registrations and filings with third parties, including without limitation submissions of information requested by governmental authorities, and (D) to fulfill all conditions to this Agreement. SECTION 6.2 NO SOLICITATION. (a) NO SOLICITATION. From the date hereof through the Closing Date, neither Seller or its officers, directors or other Representatives will enter into discussions, provide materials to or solicit interest from other potential buyers concerning any sale of all or a portion of the Assets or the Business, or any merger, consolidation, liquidation, dissolution or similar transaction involving Seller. In the event that Seller accepts any offer other than from Purchaser during such exclusivity period, Seller will pay to Purchaser $400,000 from its closing proceeds. Seller represents that it is not now engaged in discussions or negotiations with any party other than Purchaser with respect to any of the foregoing. Seller agrees not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which Seller is a party. (b) NOTIFICATION. Seller shall immediately notify Purchaser (orally and in writing) if any discussions or negotiations are sought to be initiated, or any proposal is made, or any information is requested with respect to any proposed transaction described above. SECTION 6.3 NOTIFICATION OF CERTAIN MATTERS. From the date hereof through the Closing, Seller and Purchaser shall give prompt notice to the other of (a) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement or in any exhibit or schedule hereto to be untrue or inaccurate in any respect and (b) any failure by it to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement or any exhibit or schedule hereto; PROVIDED, HOWEVER, that such disclosure shall not be deemed to cure any breach of a representation, warranty, covenant or agreement or to satisfy any condition. SECTION 6.4 INVESTIGATION BY PURCHASER. From the date hereof through the Closing Date Seller shall, and shall cause any and all of its respective employees and agents to, afford the Representatives of Purchaser and its Affiliates complete access at all reasonable times to the Assets for the purpose of inspecting the same (which inspection shall be conducted at an off-site location mutually agreeable to Seller and Purchaser), and to the employees, agents, attorneys, accountants, properties, Books and Records and Contracts of Seller, and shall furnish Purchaser and its Representatives all financial, operating and other data and information as Purchaser or its Affiliates, through their respective Representatives, may reasonably request, including unaudited individual and consolidated balance sheets and the related statements of income, retained earnings and cash flow for each month from the date of the Balance Sheet through the Closing Date within twenty (20) calendar days after the end of each month which financial statements 31 shall (i) be true, correct and complete, (ii) be in accordance with the books and records of Seller, and (iii) accurately set forth the assets, Liabilities and financial condition, results of operations and other information purported to be set forth therein in accordance with generally accepted accounting principles consistently applied. SECTION 6.5 CONDUCT OF BUSINESS. From the date hereof through the Closing, Seller shall, except as contemplated by this Agreement, or as consented to by Purchaser in writing, operate the Business in the ordinary course of business and in accordance with past practice and use its best efforts to preserve intact the Business and its goodwill, and preserve the goodwill and business relationships with suppliers, distributors, customers and others having business relationships with Seller, and shall not take any action inconsistent with this Agreement or with the consummation of the Closing. Without limiting the generality of the foregoing, with respect to the Business or the Assets, Seller shall not, except as specifically contemplated by this Agreement or as consented to by Purchaser in writing: (a) enter into, extend, modify, terminate or renew any Contract or Lease, except in the ordinary course of business; (b) sell, assign, transfer, convey, lease, mortgage, pledge or otherwise dispose of or encumber any of the Assets, or any interests therein, except in the ordinary course of business, and without limiting the generality of the foregoing, Seller shall continue to operate the Business consistent with its past practices; (c) incur any indebtedness for borrowed money or commitment to borrow money, other than Financing Obligations, guarantee the obligations of others, indemnify others or, except in the ordinary course of business, incur any other Liability; (d) (i) take any action with respect to the grant of any bonus, severance or termination pay or with respect to any increase of benefits payable under Seller's severance or termination pay policies or agreements in effect on the date hereof or increase in any manner the compensation or fringe benefits of any employee or pay any benefit not required by any existing Employee Benefit Plan or policy; (ii) make any change in the key management structure of Seller, including without limitation the hiring of additional management personnel or the termination of existing management personnel; (iii) adopt, enter into or amend any Employee Benefit Plan, agreement (including without limitation any collective bargaining or employment agreement), trust, fund or other arrangement for the benefit or welfare of any employee, except for any such amendment as may be required or, in Seller's reasonable determination, desirable to comply with applicable Regulations; or (iv) fail to maintain all Employee Benefit Plans in accordance with applicable Regulations in any respect; 32 (e) cause Seller to acquire by merger or consolidation with, or merge or consolidate with, or purchase all or substantially all of the assets of, or otherwise acquire any assets or business of any corporation, partnership, association or other business organization or division thereof; (f) willingly allow or permit to be done, any act by which any of the Insurance Policies may be suspended, impaired or canceled; (g) (A) fail to pay its accounts payable and any debts owed or obligations due to it, or pay or discharge when due any Liabilities, in the ordinary course of business; or (B) fail to collect its accounts receivable in the ordinary course of business; (h) fail to maintain the Assets in substantially their current state of repair, excepting normal wear and tear or fail to replace consistent with Seller's past practice inoperable, worn-out or obsolete or destroyed Assets; (i) make any loans or advances on behalf of Seller to any partnership, firm or corporation, or, except for expenses incurred in the ordinary course of business, any individual; (j) make any income tax election or settlement or compromise with tax authorities on behalf of Seller; (k) fail to comply with all Regulations applicable to it, the Assets and the Business; (l) intentionally do any other act which would cause any representation or warranty of Seller in this Agreement to be or become untrue in any respect; (m) fail to use its best efforts to (i) retain Seller's employees and (ii) maintain the Business so that such employees will remain available to Seller on and after the Closing Date, (iii) maintain existing relationships with suppliers, customers and others having business dealings with Seller and (iv) otherwise to preserve the goodwill of the Business so that such relationships and goodwill will be preserved on and after the Closing Date; (n) enter into any agreement, or otherwise become obligated, to do any action prohibited hereunder; (o) make or change any tax election affecting the Assets in the hands of Purchaser; or (p) fail to pay, or cause to be paid, when due all Taxes for which Seller is or may become liable or that are or may become payable with respect to any taxable period ending on or prior to the Closing Date. SECTION 6.6 EMPLOYMENT AGREEMENTS. 33 (a) Purchaser shall hire each employee of Seller identified on Schedule 6.6, subject to Purchaser's Board of Director's right to terminate an employee for performance-related matters, for a base salary for the employee thereto as set forth on Schedule 6.6. Purchaser shall not be required to hire or offer employment to any other employee of Seller not set forth on Schedule 6.6. In the event Purchaser determines to hire such persons, however, all employees of the Business who become employed by Purchaser as of the Closing (or upon expiration of an approved leave of absence) are hereinafter referred to individually as a "Transferred Employee" and collectively as the "Transferred Employees." (b Effective as of the Closing (or the date an employee becomes a Transferred Employee, if later), all Transferred Employees shall cease to participate in, or accrue benefits under, any of Seller's Plans, and Seller shall be solely responsible for all of its Plans and all obligations and liabilities thereunder. Purchaser shall not assume any Plan of Seller or any obligation or liability thereunder. Seller shall be responsible for (i) terminating all employees of Seller who are not employed by Purchaser, and shall be responsible for any and all obligations and liabilities arising in connection with such terminations, including without limitation, any severance or other termination pay, retirement and welfare benefits, (ii) providing the appropriate notices to the employees of the Business pursuant to Section 4980B of the Code and Part 6 of Title I of ERISA, (iii) all liabilities, including without limitation, the cost of extended insurance coverage, for any employee of Seller not actively employed by Seller on the Closing Date until such time, if ever, that such employee returns to active employment and is employed by Purchaser. (c Nothing contained in this Agreement shall confer upon any Transferred Employee that is not an Employee any right with respect to continuance of employment by Purchaser, nor shall anything herein interfere with the right of Purchaser to terminate the employment of any (i) Transferred Employee that is not an Employee at any time, with or without cause, and (ii) any Transferred Employee that is an Employee, at any time, with cause, or restrict Purchaser in the exercise of its independent business judgment in modifying any of the terms and conditions of the employment of the Transferred Employees that are not Partners after the Closing Date. (d No provision of this Agreement shall create any third party beneficiary rights in any Transferred Employee, any beneficiary or dependents thereof, or any collective bargaining representative thereof, with respect to the compensation, terms and conditions of employment and benefits that may be provided to any Transferred Employee by Purchaser or under any benefit plan which Purchaser may maintain. (e Prior to and until Closing, each employee of Seller, shall receive his or her salary and hospitalization, medical, surgical, dental, life insurance and any other welfare and benefits plans and programs, comparable to what such employee of Seller is receiving as of the date of this Agreement. SECTION 6.7 LEASES. At the Closing, the Hollywood Lease and Olive Lease between Purchaser and Seller shall be executed and delivered to Purchaser and Seller. SECTION 6.8 COLLECTION OF ACCOUNTS RECEIVABLE AND LETTERS OF CREDIT. At the 34 Closing, Purchaser shall acquire hereunder, and thereafter Purchaser or its designee shall have the right and authority to collect for Purchaser's or its designee's account, all Accounts Receivable, letters of credit and other items which constitute a part of the Assets, and Seller shall within 48 hours after receipt of any payment in respect of any of the foregoing, properly endorse and deliver to Purchaser any letters of credit, documents, cash or checks received on account of or otherwise relating to any such receivables, letters of credit or other items related to Seller or the Business. Seller shall promptly transfer or deliver to Purchaser or its designee any cash or other property that Seller may receive in respect of any deposit, prepaid expense, claim, contract, license, lease, commitment, sales order, purchase order, letter of credit or receivable of any character, or any other item, constituting a part of the Assets. SECTION 6.9 BOOKS AND RECORDS; TAX MATTERS. (a BOOKS AND RECORDS. Purchaser shall retain all Books and Records in the possession of Purchaser after the Closing Date relating to the operation of the Business prior to the Closing in accordance with all applicable records retention Regulations, including without limitation, all Environment Laws and occupational health and safety laws and regulations. Each party agrees that it shall cooperate with and make available to the other party, during normal business hours, all Books and Records, information and employees (without substantial disruption of employment) retained and remaining in existence after the Closing which are necessary or useful in connection with any tax, environmental or occupational health and safety inquiry, audit, investigation or dispute, any litigation or investigation or any other matter requiring any such Books and Records, information or employees for any reasonable business purpose. The party requesting any such Books and Records, information or employees shall bear all of the out-of-pocket costs and expenses (including without limitation attorneys' fees) reasonably incurred in connection with providing such Books and Records, information or employees. All information received pursuant to this Section 6.9(a) shall be treated as confidential and not disclosed to any person or entity other than the Representatives of Seller or Purchaser, as the case may be, who need to know such information in connection with the proceedings contemplated by this Section 6.9(a). (b COOPERATION AND RECORDS RETENTION. Seller and Purchaser shall (i) each provide the other with such assistance as may reasonably be requested by any of them in connection with the preparation of any return, audit, or other examination by any taxing authority or judicial or administrative proceedings relating to Liability for Taxes, (ii) each retain and provide the other with any records or other information that may be relevant to such return, audit or examination, proceeding or determination, and (iii) each provide the other with any final determination of any such audit or examination, proceeding, or determination that affects any amount required to be shown on any tax return of the other for any period. Without limiting the generality of the foregoing, Purchaser and Seller shall retain, until the applicable statutes of limitations (including any extensions) have expired, copies of all tax returns, supporting work schedules, and other records or information that may be relevant to such returns for all tax periods or portions thereof ending on or before the Closing Date and shall not destroy or otherwise dispose of any such records without first providing the other party with a reasonable opportunity to review and copy the same. 35 SECTION 6.10 BULK SALES. It may not be practicable to comply or attempt to comply with the procedures of the "Bulk Sales Act" or similar law of any or all of the states in which the Assets are situated or of any other state which may be asserted to be applicable to the transactions contemplated hereby. Accordingly, to induce Purchaser to waive any requirements for compliance with any or all of such laws, Seller hereby agrees that the indemnity provisions of Section 10.2 hereof shall apply to any Damages of Purchaser or any institution providing financing to Purchaser arising out of or resulting from the failure of Seller or Purchaser to comply with any such laws. SECTION 6.11 CONFIDENTIALITY. The terms of the Confidentiality Agreement between Seller and Purchaser dated December 19, 1997 shall be extended to, and shall remain in full force and effect during the period between the date hereof and the Closing Date, unless earlier terminated. SECTION 6.12 CONTRACTS TO BE ASSIGNED. To the extent that any of the contracts or agreements which (i) are to be assigned to Purchaser pursuant to this Agreement or (ii) constitute an Assumed Liability, are not assignable without the consent of a third party, which contracts or agreements Seller represents are limited to those contracts or agreements identified on Schedule 4.4 hereto, Seller shall use its best efforts to obtain the consent of the other such party to the assignment to Purchaser. If any required consent is not obtained before the Closing and the Closing is consummated, Seller agrees to use its best efforts to obtain all such required consents and to enforce, on behalf of Purchaser, the rights of Seller under any such non-assigned contracts or agreements. Seller further agrees to cooperate with Purchaser after such date in any reasonable arrangement (such as, but not limited to, sub-contracting, sub-licensing or sub-leasing) designed to ensure for Purchaser, on terms no less favorable than contemplated hereby, all of the economic benefits (after reflecting the related reasonable and necessary costs) under the applicable contracts without causing any such breach or right of termination. Sellers shall remain liable for the performance of all duties and obligations relating to any contract or agreement not properly assigned hereunder. ARTICLE 7 CONDITIONS TO SELLER'S OBLIGATIONS The obligations of Seller to consummate the transactions provided for hereby are subject, in the discretion of Seller, to the satisfaction, on or prior to the Closing Date, of each of the following conditions, any of which may be waived by Seller by written notice to Purchaser: SECTION 7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects at and as of the date of this Agreement and at and as of the Closing Date, except as and to the extent that the facts and conditions upon which such representations and warranties are based are expressly required or permitted to be changed by the terms hereof, and Purchaser shall have performed and satisfied in all material respects all agreements and covenants required 36 hereby to be performed by it prior to or on the Closing Date. SECTION 7.2 NO ACTIONS OR COURT ORDERS. No Action by any governmental authority or other person shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and which could reasonably be expected to damage Seller materially if the transactions contemplated hereby are consummated. There shall not be any Regulation or Court Order that makes the purchase and sale of the Business or the Assets contemplated hereby illegal or otherwise prohibited. SECTION 7.3 ASSUMPTION DOCUMENT. Purchaser shall have executed the Assumption Document. SECTION 7.4 ANCILLARY AGREEMENTS. Purchaser shall have executed and delivered the Ancillary Agreements to which it is a party. SECTION 7.5 CERTIFICATES. Purchaser shall furnish Seller with such certificates to evidence compliance with the conditions set forth in this Article VII as may be requested by Seller. ARTICLE 8 CONDITIONS TO PURCHASER'S OBLIGATIONS The obligations of Purchaser to consummate the transactions provided for hereby are subject, in the discretion of Purchaser, to the satisfaction, on or prior to the Closing Date, of each of the following conditions, any of which may be waived by Purchaser by written notice to Seller: SECTION 8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and warranties of Seller contained in this Agreement shall be true and correct in all respects at and as of the date of this Agreement and at and as of the Closing Date, except as and to the extent that the facts and conditions upon which such representations and warranties are based are expressly required or permitted to be changed by the terms hereof, and Seller shall have performed and satisfied all agreements and covenants required hereby to be performed by it prior to or on the Closing Date. SECTION 8.2 CONSENTS; REGULATORY COMPLIANCE AND APPROVAL. Any necessary consents to the assignment of all Contracts and Leases shall have been obtained, as well as the consents identified on Schedule 4.4 hereof. All Permits, consents, approvals and waivers from governmental authorities necessary to the consummation of the transactions contemplated hereby by Purchaser shall have been obtained. Purchaser shall be satisfied that all approvals required under any Regulations to carry out the transactions contemplated by this Agreement shall have been obtained and that the parties shall have complied with all Regulations applicable to such transactions. 37 SECTION 8.3 NO ACTIONS OR COURT ORDERS. No Action by any governmental authority or other person shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and which could reasonably be expected to damage Purchaser, the Assets or the Business materially if the transactions contemplated hereby are consummated, including without limitation any material adverse effect on the right or ability of Purchaser to own, operate, possess or transfer the Assets after the Closing. There shall not be any Regulation or Court Order that makes the purchase and sale of the Business or the Assets contemplated hereby illegal or otherwise prohibited. SECTION 8.4 OPINION OF COUNSEL. Seller shall have delivered to Purchaser an opinion of McDermott, Will & Emery, counsel to Seller, dated as of the Closing Date, in form and substance reasonably satisfactory to Purchaser, to the effect that: (a Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California; (b Seller has the necessary corporate authority to enter into this Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby; (c The execution, delivery and performance of this Agreement and the Ancillary Agreements by Seller has been duly authorized, and this Agreement and each of the Ancillary Agreements to which it is a party constitute legally valid and binding obligations of Seller, enforceable against Seller, in accordance with their terms, except as limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally or by equitable principles (whether considered in an action at law or in equity) and (ii) limitations imposed by federal or state law or equitable principles upon the availability of specific performance, injunctive relief or other equitable remedies; (d The documents to be delivered by Seller at the Closing to effect the transfer and assignment to Purchaser of all right, title and interest in and to the Assets are effective to do so. (e The Deed of Trust creates a lien upon the fee estate of the Olive Street Property in favor of the trustee named therein for the benefit of Purchaser. The Deed of Trust creates a perfected security interest in favor of Purchaser in any fixtures situated on the Olive Street Property and described therein and in any personal property collateral described therein. SECTION 8.5 CERTIFICATES. Seller shall furnish Purchaser with such certificates to evidence compliance with the conditions set forth in this Article VIII as may be reasonably requested by Purchaser. SECTION 8.6 MATERIAL CHANGES. As of the Closing Date, since January 31, 1998, there shall not have been any actual or threatened adverse change in the Business or the Assets or the liabilities, earnings, results of operations, condition (financial or otherwise) or prospects of Seller. 38 SECTION 8.7 CONVEYANCING DOCUMENTS; RELEASE OF ENCUMBRANCES. Seller shall have executed and delivered each of the documents described in Section 3.2 hereof so as to effect the transfer and assignment to Purchaser of all right, title and interest in and to the Assets, and Seller shall have filed (where necessary) and delivered to Purchaser the Deed of Trust and all documents necessary to release the Assets from all Encumbrances, which documents shall be in a form reasonably satisfactory to Purchaser's counsel. SECTION 8.8 OTHER AGREEMENTS. Seller shall have executed and delivered the Ancillary Agreements in the forms attached as exhibits hereto. SECTION 8.9 NONFOREIGN AFFIDAVIT. Seller shall furnish Purchaser with an affidavit, stating, under penalty of perjury, such Seller's United States taxpayer identification number and that Seller is not a foreign person, pursuant to Section 1445(b)(2) of the Code. SECTION 8.10 CUSTOMER RELATIONS. Purchaser shall be satisfied with the business relationship of Seller with any customer named in Section 4.16(a)(i) of the Disclosure Schedule. SECTION 8.11 DUE DILIGENCE. Purchaser shall be satisfied, in its sole discretion, with the results of its due diligence investigation. SECTION 8.12 FINANCING. Purchaser shall have obtained an amendment to its existing line of credit with Union Bank of California sufficient to provide Purchaser with the Cash Portion. SECTION 8.13 TITLE POLICY. First American Title Insurance Company ("Title Company") shall be ready, willing and able to issue at the Closing to Purchaser the Title Policy insuring that the Deed of Trust constitutes a first priority lien in favor of Purchaser against the Olive Street Property and listing therein no exclusions or exceptions to title other than those that have been reasonably approved by Purchaser in writing ("Permitted Encumbrances"); SECTION 8.14 AGREEMENT WITH ERNST & YOUNG LLP. Purchaser shall have entered into an agreement with Ernst & Young LLP, the Seller's independent auditors, with respect an audit of the Business suitable for inclusion in a Current Report on Form 8-K, including the delivery of any consents needed from such firm related to such audit. ARTICLE 9 RISK OF LOSS SECTION 9.1 RISK OF LOSS. From the date hereof through and including the Closing Date, all risk of loss or damage to the Assets shall be borne by Seller, and thereafter shall be borne by Purchaser. If any portion of the Assets is destroyed or damaged by fire or any other cause on or prior to the Closing Date, other than use, wear or loss in the ordinary course of business, Seller shall give written notice to Purchaser as soon as practicable after, but in any 39 event within five (5) calendar days of, discovery of such damage or destruction, which notice shall set forth in detail the nature of such damage or destruction, the amount of insurance, if any, covering such Assets and the amount, if any, which Seller is otherwise entitled to receive as a consequence. Prior to the Closing, in the event of damage or destruction of any Assets, Purchaser shall have the option, which shall be exercised by written notice to Seller within ten (10) calendar days after receipt of Seller's notice or if there is not ten (10) calendar days prior to the Closing Date, as soon as practicable prior to the Closing Date, of (a) accepting such Assets in their destroyed or damaged condition in which event Purchaser shall be entitled to the proceeds of any insurance or other proceeds payable with respect to such loss and the Purchase Price shall be reduced by the amount, if any, mutually agreed upon between the parties, (b) excluding such Assets from this Agreement, in which event the Purchase Price shall be reduced by the amount allocated to such Assets, as mutually agreed between the parties or (c) terminating this Agreement in accordance with Section 11.1. If Purchaser accepts such Assets, then after the Closing, any insurance or other proceeds shall belong, and shall be assigned to, Purchaser without any reduction in the Purchase Price; otherwise, such insurance proceeds shall belong to Seller. ARTICLE 10 INDEMNIFICATION SECTION 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF SELLER. The representations and warranties made by Seller and Purchaser in this Agreement and any document, schedule, exhibit (other than the Hollywood Lease and the Olive Lease) or other instrument relating hereto shall survive the Closing Date for a period of two years, except that (a) with respect to taxation matters, such period shall be the longer of (i) two years and (ii) the applicable statute of limitations and (b)with respect to representations and warranties made in the Hollywood Lease or the Olive Lease, such period shall be the term of such lease. Notwithstanding anything contained in this Agreement, including, without limitation, this Section 10.1, any claims with respect to representations and warranties made in this Agreement or in any document or other instrument relating hereto shall survive and continue following the expiration of the survival periods stated above (i) if such claim is submitted in writing to the Indemnifying Party (as defined below) prior to the end of the survival periods stated in this Section 10.1 and identified as a claim for indemnification pursuant to this Agreement or (ii) if such claim is based upon fraud or willful breach or misrepresentation by Seller. In either event, such claims shall survive indefinitely. The right to indemnification, payment of Damages or other remedy based on such representations, warranties, covenants, and obligations will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation. SECTION 10.2 INDEMNIFICATION BY SELLER. Seller shall indemnify and hold harmless Purchaser and each of Purchaser's Affiliates, directors, officers, employees, attorneys, agents and Representatives (collectively, the "Affiliated Parties") in respect of any and all claims, losses, damages, liabilities, penalties, interest, costs and expenses, including, without limitation, 40 reasonable attorneys', accountants' and consultants' fees and other expenses (collectively, "Damages"), incurred by Purchaser or Purchaser's Affiliated Parties, together with interest on cash disbursements in connection therewith, at an annual rate equal to the Prime Rate then in effect, from the date such cash disbursements were made by Purchaser or any of their respective Affiliated Parties until paid by Seller, in connection with, or resulting from, any or all of the following: (a Any failure to perform or comply with any covenant, agreement or obligation of Seller contained in this Agreement or any document or other instrument contemplated by this Agreement; (b The Barsotti Action or the Compact Storage Action; (c Any injury to persons or death or property damage resulting from or contributed to by any products designed, manufactured, sold or leased by Seller or any services performed by Seller if the accident, incident or occurrence giving rise to such claim, action, lawsuit or proceeding occurred prior to the Closing Date; (d Failure to obtain any consent, waiver, release or approval specified on Schedule 4.4 hereto; (e Liabilities of the Seller resulting from events occurring before or on the Closing Date, other than a liability or obligation which is included in the Assumed Liabilities; and (f Any claim arising out of the failure of Seller to comply with the bulk transfer or bulk sales laws of any jurisdiction in accordance with Section 6.11; provided, however, that Seller's obligations set forth in this Section shall not apply to any Damages that arise from or are related to any willful misconduct or gross negligence by Purchaser and provided, further, that in no event shall Seller be required to pay Damages (including Damages payable under the Secured Indemnity Agreement) in excess of $8,000,000. No claim, demand, suit or cause of action shall be brought against Seller under this Section 10.2 unless and until the aggregate amount of Damages exceeds $130,000, but then Seller shall be required to pay the full amount of such Damages; PROVIDED, HOWEVER, that this limitation shall not apply to any breach of any of the Seller's representations and warranties of which Seller had knowledge at any time prior to the date on which such representation and warranty is made or any intentional breach by Seller of any covenant or obligation. Seller acknowledges and agrees that the foregoing indemnification obligation of Seller shall be an unsecured obligation of seller (and a personal liability thereof), independent of those certain indemnification obligations set forth in the Secured Indemnity Agreement. SECTION 10.3 INDEMNIFICATION BY SELLER FOR ENVIRONMENTAL MATTERS. For a period of two (2) years, in addition to, and not by way of limitation on, the indemnities set forth in Sec- 41 tion 10.2, Seller shall indemnify and hold harmless Purchaser and Purchaser's Affiliated Parties in respect of any and all claims, losses, damages, liabilities, declines in value of the Assets or the Business, penalties, interest, costs and expenses (including, without limitation, reasonable attorneys', accountants', and consultants' fees and other expenses) incurred by Purchaser or Purchaser's Affiliated Parties, together with interest on cash disbursements in connection therewith, at an annual rate equal to the Prime Rate then in effect, from the date such cash disbursements were made by Purchaser or any of Purchaser's Affiliated Parties until paid by Seller, in connection with, or resulting from, any Environmental Liabilities for Pre-Closing Matters including, without limitation, any of the matters described on Schedule 4.12, regardless of the diligence performed or investigation made by Purchaser or its Representatives with respect thereto. SECTION 10.4 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify and hold harmless Seller in respect of any and all Damages reasonably incurred by Seller, together with interest on cash disbursements in connection therewith, at an annual rate equal to the Prime Rate then in effect, from the date that such cash disbursements were made by Seller until paid by Purchaser, in connection with, or resulting from, any or all of the following: (a Any breach of any representation or warranty made by Purchaser in Article V of this Agreement or in any document or other instrument relating hereto; (b Any misrepresentation contained in any written statement or certificate furnished by Purchaser to Seller pursuant to this Agreement or the Transactions; (c Any failure to perform or comply with any covenant, agreement or obligation of Purchaser contained in this Agreement or any document or other instrument contemplated by this Agreement; and (d) Liabilities of the Business (to parties other than Seller or the shareholders or other affiliates of Seller) arising in relation to the Business, the Assets or the Assumed Liabilities (except as provided in Section 6.12 hereof) resulting from events occurring after the Closing Date; provided, however, that Purchaser's obligations set forth in this Section shall not apply to any Damages that arise from or are related to any willful misconduct or gross negligence by Seller and provided further that in no event shall Purchaser be required to pay Damages in excess of $8,000,000. No claim, demand, suit or cause of action shall be brought against Purchaser under this Section 10.5 unless and until the aggregate amount of Damages exceeds $130,000, but then Purchaser shall be required to pay the full amount of such Damages; provided, however, that this limitation shall not apply to any breach of any of the Purchaser's representations and warranties of which Purchaser had knowledge at any time prior to the date on which such representation and warranty is made or any intentional breach by Purchaser of any covenant or obligation. 42 SECTION 10.5 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for indemnification under this Agreement, the party entitled to indemnification (the "Indemnified Party") shall promptly notify the party obligated to provide indemnification (the "Indemnifying Party") of the claim and, when known, the facts constituting the basis for such claim; provided, however, that the failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligation hereunder to the extent such failure does not materially prejudice the Indemnifying Party. In the event of any claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings by a third party, the notice to the Indemnifying Party shall specify, if known, the amount or an estimate of the amount of the liability arising therefrom. SECTION 10.6 DEFENSE OF CLAIMS. In connection with any claim giving rise to indemnity under this Agreement resulting from or arising out of any claim or legal proceeding by a person who is not a party to this Agreement, the Indemnifying Party at its sole cost and expense and with counsel reasonably satisfactory to the Indemnified Party may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding if (a) the Indemnifying Party acknowledges to the Indemnified Party in writing, within fifteen (15) days after receipt of notice from the Indemnified Party, its obligations to indemnify the Indemnified Party with respect to all elements of such claim based upon the facts then reasonably known to such Indemnifying Party, (b) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against such third-party claims and fulfill its indemnification obligations hereunder, (c) the third-party claim involves only money damages and does not seek an injunction or other equitable relief, and (d) settlement or an adverse judgment of the third-party claim is not, in the good faith judgment of the Indemnified Party, likely to establish a pattern or practice adverse to the continuing business interests of the Indemnified Party. The Indemnified Party shall be entitled to participate in (but not control) the defense of any such action, with its counsel and at its own expense; PROVIDED, HOWEVER, that if there are one or more legal defenses available to the Indemnified Party that conflict with those available to the Indemnifying Party, or if the Indemnifying Party fails to take reasonable steps necessary to defend diligently the claim after receiving notice from the Indemnified Party that it believes the Indemnifying Party has failed to do so, the Indemnified Party may assume the defense of such claim; PROVIDED, FURTHER, that the Indemnified Party may not settle such claim without the prior written consent of the Indemnifying Party, which consent may not be unreasonably withheld. If the Indemnified Party assumes the defense of the claim, the Indemnifying Party shall reimburse the Indemnified Party for the reasonable fees and expenses of counsel retained by the Indemnified Party and the Indemnifying Party shall be entitled to participate in (but not control) the defense of such claim, with its counsel and at its own expense. If the Indemnifying Party thereafter seeks to question the manner in which the Indemnified Party defended such third party claim or the amount or nature of any such settlement, the Indemnifying Party shall have the burden to prove by a preponderance of the evidence that the Indemnified Party did not defend or settle such third party claim in a reasonably prudent manner. The parties agree to render, without compensation, to each other such assistance as they may reasonably require of each other in order to insure the proper and adequate defense of any action, suit or proceeding, whether or not subject to indemnification hereunder. If the indemnification provided for in this Article X is for 43 any reason unenforceable, the party against whom indemnification was sought agrees to contribute to the claims for which such indemnification is unenforceable in such proportion as is appropriate to reflect the relative fault of such party, on the one hand, and the Indemnified Party, on the other hand, as well as any other relevant equitable considerations. SECTION 10.7 MANNER OF INDEMNIFICATION. All indemnification payments hereunder shall be effected by payment of cash or delivery of a certified or official bank check in the amount of the indemnification liability. SECTION 10.8 DEED OF TRUST. Seller's payment obligations under the Secured Indemnity Agreement shall be secured by the Deed of Trust. The Deed of Trust shall not secure any of Seller's other obligations under this Agreement. The Deed of Trust shall create a first priority lien in favor of Purchaser against the Olive Street Property. Purchaser's lien under the Deed of Trust shall be insured by an ALTA Lender's Title Insurance Policy issued by First American Title Insurance Company ("Title Company") in the amount of $3,000,000 ("Title Policy"). The cost of the Title Policy shall be paid by Seller. Purchaser shall re-convey the Deed of Trust upon the occurrence, and subject to the terms and conditions, set forth in Section 19 of the Deed of Trust. 44 ARTICLE 11 MISCELLANEOUS SECTION 11.1 TERMINATION. (a TERMINATION. This Agreement may be terminated at any time prior to Closing: (i0 By mutual written consent of Purchaser and Seller; (ii0 By Purchaser or Seller if the Closing shall not have occurred on or before June __, 1998; PROVIDED, HOWEVER, that this provision shall not be available to Purchaser if Seller has the right to terminate this Agreement under clause (iv) of this Section 11.1, and this provision shall not be available to Seller if Purchaser has the right to terminate this Agreement under clause (iii) of this Section 11.1; (iii0 By Purchaser if there is a breach of any representation or warranty set forth in Article IV hereof or any covenant or agreement to be complied with or performed by Seller pursuant to the terms of this Agreement or the failure of a condition set forth in Article VII to be satisfied (and such condition is not waived in writing by Purchaser) on or prior to the Closing Date, or the occurrence of any event which results or would result in the failure of a condition set forth in Article VIII to be satisfied on or prior to the Closing Date, PROVIDED that, Purchaser may not terminate this Agreement prior to the Closing Date if Seller has not had an adequate opportunity (in any event, not to exceed ten (10) calendar days) to cure such failure; (iv0 By Seller if there is a material breach of any representation or warranty set forth in Article V hereof or of any covenant or agreement to be complied with or performed by Purchaser pursuant to the terms of this Agreement or the failure of a condition set forth in Article VII to be satisfied (and such condition is not waived in writing by Seller) on or prior to the Closing Date, or the occurrence of any event which results or would result in the failure of a condition set forth in Article VIII to be satisfied on or prior to the Closing Date, PROVIDED that, Seller may not terminate this Agreement prior to the Closing Date if Purchaser has not had an adequate opportunity (in any event, not to exceed ten (10) calendar days) to cure such failure. (b IN THE EVENT OF TERMINATION. In the event of termination of this Agreement: (i0 Each party shall redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same (and shall destroy all copies in their possession); and (ii0 No party hereto shall have any Liability to any other party to this Agreement, except as stated in subsections (i) and (ii) of this Section 11.1(b) and Seller's obligations under Section 6.2, except for any willful breach of this Agreement occurring prior to 45 the termination of this Agreement. SECTION 11.2 NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (with subsequent letter confirmation by mail) or three days after being mailed by certified or registered mail, postage prepaid, return receipt requested, to the parties, their successors in interest or their assignees at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: If to Purchaser: VDI Media 6920 Sunset Boulevard Los Angeles, California 90028 Telecopy: (213) 957-2164 Attention: Donald R. Stine With a concurrent copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP 1999 Avenue of the Stars, Suite 1600 Los Angeles, California 90067 Telecopy: (310) 788-1200 Attention: Barry L. Dastin, Esq. Brian Hoye, Esq. If to Seller: All Post, Inc. c/o McDermott, Will & Emery 1301 Dove Street, Suite 500 Newport Beach, California 92660 Telecopy: (714) 851-9348 Attention: All Post, Inc. With a concurrent copy to: McDermott, Will & Emery 1301 Dove Street, Suite 500 Newport Beach, California 92660 Telecopy: (714) 851-9348 Attention: John B. Miles, Esq. With a concurrent copy to: Westar Capital 949 South Coast Drive, Suite 650 Costa Mesa, California 92626 Attention: Robert Polenz. SECTION 11.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement shall not be assignable by any of the parties. This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 46 SECTION 11.4 GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California. SECTION 11.5 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. SECTION 11.6 COMPLETE AGREEMENT. This Agreement, the Secured Indemnity Agreement, the Confidentiality Agreement, the exhibits and schedules hereto and the documents delivered or to be delivered pursuant to this Agreement contain or will contain the entire agreement among the parties with respect to the Transactions and shall supersede all previous oral and written and all contemporaneous oral negotiations, commitments and understandings. SECTION 11.7 MODIFICATIONS, AMENDMENTS AND WAIVERS. This Agreement may be modified, amended or otherwise supplemented only by a writing signed by Purchaser and Seller. No waiver of any right or power hereunder shall be deemed effective unless and until a writing waiving such right or power is executed by the party waiving such right or power. SECTION 11.8 EXPENSES. Except as otherwise expressly provided elsewhere in this Agreement, each party shall pay all fees and expenses incurred by it in connection with the transactions contemplated by this Agreement. SECTION 11.9 INVALIDITY. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. SECTION 11.10 PUBLICITY. Neither Purchaser, on the one hand, nor Seller, including Representatives or Affiliates thereof, on the other hand, shall issue any press release or make any public statement regarding the transactions contemplated hereby, without the prior written approval of the other parties, except as may be required by law but only after prior written notice to the other party; provided that Purchaser shall be entitled to issue a press release regarding the Transactions upon execution of this Agreement. SECTION 11.11 LIMIT ON INTEREST. Notwithstanding anything in this Agreement to the contrary, no party shall be obligated to pay interest at a rate higher than the maximum rate permitted by applicable law. In the event that at any time an interest rate provided in this Agreement exceeds the maximum rate permitted by applicable law, such interest rate shall be deemed to be reduced to such maximum permissible rate. SECTION 11.12 ATTORNEYS' FEES AND COSTS. Each party shall bear its own expenses arising from the preparation, negotiation and delivery of this Agreement and any other document required to be delivered in connection herewith. 47 SECTION 11.13 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of California, County of Los Angeles, and the parties hereto irrevocably submit to the jurisdiction of such courts and waive any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. SECTION 11.14 CONTRACT INTERPRETATION; CONSTRUCTION OF AGREEMENT. (a The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Article, section, exhibit, schedule, preamble, recital and party references are to this Agreement unless otherwise stated. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (b No party, nor its respective counsel, shall be deemed the drafter of this Agreement for purposes of construing the provisions of this Agreement, and all language in all parts of this Agreement shall be construed in accordance with its fair meaning, and not strictly for or against any party. (c Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. 48 IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first above written. ALL POST, INC., as Seller By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: VDI MEDIA, as Purchaser By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: 49 AGREEMENT NOT TO COMPETE Reference is made to that certain Asset Purchase Agreement between VDI Media, a California corporation, and All Post, Inc., a California corporation, dated as of June __, 1998 (the "Agreement"). Capitalized terms used herein without definition shall have the respective meanings set forth therefor in the Agreement. As additional consideration for the payments made or to be made by Purchaser under the Agreement, from the Closing Date to and including the second anniversary thereof Seller hereby agrees that it shall not, for any reason, directly or indirectly, engage or be interested in any business that Competes with Purchaser, and shall not, directly or indirectly, have any interest in, own, manage, operate, control, be connected with as a stockholder (other than as a stockholder of less than five percent (5%) of the issued and outstanding stock of a publicly-held corporation), joint venturer, officer, partner, employee or consultant, or otherwise engage or invest or participate in, any business that Competes with Purchaser. As used herein, the term "Competes with Purchaser" shall mean competing with the Business conducted by Seller at any time during the three year period preceding the date hereof in any county or any other political subdivision of any state of the United States of America or any of its possessions or territories where Seller conducted such businesses at any time during the three year period preceding the Closing Date. All of the parties agree that the duration and area for which the covenant not to compete set forth in this Agreement Not To Compete is to be effective are reasonable. In the event that any court determines that the time period or the geographical areas provided for herein, or both of them, are unreasonable and that such covenant is to that extent unenforceable, such covenant shall remain in full force and effect for the greatest time period and in the greatest geographical area that would not render it unenforceable. The parties intend that this covenant shall be deemed to be a series of separate covenants, one for each and every county of each and every state of the United States of America and for any other territory or possession of the United States of America where this covenant is intended to be effective. Notwithstanding the foregoing, the Cinetech Business shall be deemed not to Compete with Purchaser for the purposes of this Agreement Not To Compete. The parties agree that damages would be an inadequate remedy for Purchaser in the event of a breach or threatened breach of this Agreement Not to Compete and thus, in any such event, Purchaser may, either with or without pursuing any potential damage remedies and in addition to such remedies, immediately obtain and enforce an injunction, and/or a temporary restraining order, prohibiting any party from violating this Agreement, without having to prove actual damages or post bond. IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first above written. ALL POST, INC. By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: VDI MEDIA By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: EX-10.17 3 EXHIBIT 10.17 TABLE OF CONTENTS
PAGE 1. PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 2. PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 3. TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 4. POSSESSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 5. BASE RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 6. SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 7. MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 8. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 9. COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10. ALTERATIONS AND ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 11 11. SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 12. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 13. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . . . 13 14. HOLD HARMLESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 15. SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 16. LIABILITY INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 17. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 18. PROPERTY TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 19. RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 20. HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 21. ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 22. RECONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 23. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 24. REMEDIES FOR DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 25. SUCCESSOR LANDLORD'S LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . 34 26. EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 27. HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 28. OFFSET STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 29. TRAFFIC AND ENERGY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . 39 30. [INTENTIONALLY DELETED.]. . . . . . . . . . . . . . . . . . . . . . . . . . . 39 31. [INTENTIONALLY DELETED.]. . . . . . . . . . . . . . . . . . . . . . . . . . . 39 32. AUTHORITY OF PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 33. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 34. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 -i- TABLE OF CONTENTS (CONTINUED) PAGE 35. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
-ii- BUILDING LEASE 1. PARTIES. This Building Lease ("Lease"), dated for reference purposes only, June 11, 1998, is made by and between ALL POST, INC., a California corporation, herein called "Landlord" and VDI MEDIA, a California corporation, herein called "Tenant." 2. PREMISES. 2.1 Landlord does hereby lease to Tenant and Tenant hereby leases from Landlord that certain real property (herein called "Premises") indicated on EXHIBIT A attached hereto and reference thereto made a part hereof. Said Premises are commonly known as 1133 North Hollywood Way, Burbank, California which has been improved with a building of approximately 32,000 square feet ("Building") and that certain real property commonly known as 1122 North Hollywood Way, Burbank, California, which provides additional parking for the Building. The Premises are more particularly described in EXHIBIT A hereto. Any statement of size set forth in this Lease or that may have been used in calculating rental is an approximation which Tenant and Landlord agree is reasonable. Notwithstanding the foregoing, the Tenant or Landlord may elect, at its sole cost, to cause the square footage of the Building to be measured by a California licensed architect according to the following criteria: (i) the square footage of each above ground floor shall be based on measurements from the exterior of all exterior walls; and (ii) the square footage of the basement area shall be based on measurements from the interior of all basement exterior walls. When completed, Tenant or Landlord, as the case may be, may deliver its measurements and calculations to the other and, if within ten (10) business days of delivery, the other party does not object in writing to the calculated square footage of the Building, such square footage shall be used to recalculate Base Rent as provided at Paragraph 5 below. If the other party disagrees in writing with the calculated square footage within such ten (10) business-day period, then it may conduct its own calculation thereof in accordance with this paragraph which shall be completed as soon as reasonably possible. If after the time periods provided in this paragraph have elapsed and Landlord and Page 1 Tenant are still in disagreement as to the appropriate square footage after the second calculation, the matter shall be submitted to a California licensed architect selected by the other two architects and such architect shall determine which of the two previously made calculations of square footage shall be used. Such architect's determination shall be binding on Landlord and Tenant. Notwithstanding anything herein to the contrary, the recalculation of the square footage of the Building must be commenced by the delivery no later than August 15, 1998 of the initial recalculation by one party to the other. Failure to do so shall be deemed both parties' agreement that the Building contains 32,000 square feet for all purposes under this Lease. 2.2 This Lease is subject to the terms, covenants and conditions herein set forth and Tenant and Landlord covenant to the other as a material part of the consideration for this Lease to keep and perform each and all of said terms, covenants and conditions to be kept and performed by Tenant or Landlord, as applicable, and that this Lease is made upon the condition of said performance. 2.3 Landlord shall deliver the Premises to Tenant broom clean and free of debris and in good operating order, condition and state of repair on the Commencement Date (as defined below) and, so long as the required service contracts as described in subparagraph 7.2 below are obtained by Tenant within thirty (30) days following the Commencement Date warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air condition systems ("HVAC"), loading doors, if any, and all other such elements in the Premises, other than those constructed by Tenant shall be in good, operating condition on the Commencement Date and that the structural elements of the roof, bearing walls and foundation of the Building shall be free of material defects. If a noncompliance with this warranty exists as of the Commencement Date, Landlord shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Tenant setting forth the specificity of the nature and extent of such noncompliance, rectify the same at Landlord's expense. If, within six (6) months of the Commencement Date, Tenant does not give Landlord written notice of any noncompliance with this warranty, correction of such non-compliance shall be the obligation of Tenant at Tenant's sole cost and expense. Page 2 2.4 Landlord warrants that the improvements on the Premises materially comply with all applicable laws, covenants or restrictions of record, building codes, regulations and ordinances ("Applicable Requirements") in effect on the Commencement Date. This warranty does not apply to the use to which Tenant will put the Premises or to any alterations or modifications made or to be made to the Premises by Tenant. If the Premises do not comply with this warranty, Landlord shall, except as otherwise provided herein, promptly after receipt of written notice from Tenant setting forth with specificity the nature and extent of such noncompliance rectify the same at Landlord's expense if mandated by the Applicable Requirements (in other words, Landlord shall not be required to rectify such noncompliance if it is a legal pre-existing condition). If the Applicable Requirements are hereafter changed (as opposed to being in existence at the Commencement Date) so as to require during the term of this Lease construction of an addition to or an alteration of the Building or the reinforcement or other physical modifications of the Building (each such event is referred to herein as "Capital Expenditure"), Landlord and Tenant shall allocate the cost of work as follows: (a) If such Capital Expenditures are required as a result of the specific and unique use of the Premises by Tenant as compared with the uses by tenants in general, Tenant shall be fully responsible for the cost thereof. (b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Tenant (such as, governmentally mandated seismic modifications) then Landlord shall complete the work and Landlord and Tenant shall allocate the obligation to pay for such cost as follows: the cost of the work/modification shall be prorated between Landlord and Tenant and Tenant shall only be obligated to pay, each month during the remainder of the Term, on the date Base Rent is due, an amount equal to the product of multiplying the cost of such work/modification by a fraction, the numerator of which is one, and the denominator of which is the number of months of the useful life of such work/modification as such useful life is specified pursuant to Federal income tax regulations or guidelines for depreciation thereof (including interest on the unamortized balance as is then commercially reasonable in the judgment of Landlord's accountants), with Tenant reserving the right to prepay its obligation at any time. Provided, Page 3 however, (i) in no event shall Tenant be obligated to pay more than One Hundred Thousand dollars ($100,000) on account of such Capital Expenditure; (ii) if the total cost of such Capital Expenditure exceeds the then monthly Base Rent multiplied by twelve (12), Landlord shall have the option to terminate this Lease upon one hundred eighty (180) days prior written notice to Tenant; and (iii) if such Capital Expenditure is required during the last two years of this Lease, Landlord shall have the option to terminate this Lease upon one hundred eighty (180) days' prior written notice to Tenant. Notwithstanding the foregoing, in the event Landlord elects to terminate pursuant to subparagraph 2.4(b)(ii) or (iii), Tenant may notify Landlord, in writing, within ten (10) days after receipt of Landlord's termination notice that Tenant shall pay for such Capital Expenditure and in such event this Lease shall not terminate and Tenant shall pay the entire amount of such Capital Expenditure. The provisions concerning Capital Expenditures are intended only to apply to non-voluntary new Applicable Requirements. If the Capital Expenditures are instead triggered as a result of a Tenant's modification of the Premises, then, and in that event, Tenant shall be fully responsible for the cost thereof; provided, however, Tenant may elect not to effect such modification. 3. TERM. 3.1 The term of this Lease shall be for one hundred twenty (120) months (the "Term"), commencing on the 11th day of June, 1998 ("Commencement Date") and ending on the 10th day of June, 2008, subject to extension or earlier termination as provided herein. 3.2 Landlord hereby grants to Tenant the option to extend the Term (the "Option") for one 60-month period ("Option Term") commencing when the prior term expires upon each and all of the following terms and conditions: (a) In order to exercise the Option, Tenant must give written notice of such election to Landlord and Landlord must receive the same at least nine (9) but not more than fifteen (15) months prior to the date that the option period would commence, time being of the essence. If proper notification of the exercise of the Option is not given and/or received, the Option shall automatically expire. Page 4 (b) Tenant shall have no right to exercise the Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the period commencing with the giving of any notice of default under Paragraph 23 and continuing until the noticed default is cured; or (ii) during the period of time any monetary obligation due Landlord from Tenant is unpaid (provided written notice thereof is given Tenant in accordance with the provisions of this Lease); or (iii) during the time Tenant is in breach of this Lease. The period of time within which the Option may be exercised shall not be extended or enlarged by reason of Tenant's inability to exercise the Option because of the provisions of subparagraph 3.2(a). All rights of Tenant under the provisions of the Option shall terminate and be of no further force or effect, notwithstanding Tenant's due and timely exercise of the Option, (i) if after such exercise and prior to commencement of the Option Term, Tenant fails to pay to Landlord a monetary obligation of Tenant for a period of thirty (30) days after such obligation becomes due (provided written notice thereof to Tenant in accordance with the provisions of this Lease); or (ii) if Tenant is in breach of this Lease on the date the Option Term would otherwise commence. (c) Except for the provisions of this Lease granting the Option, all of the terms and conditions of this Lease except where specifically modified by the Option shall apply. (d) The Option granted to Tenant in this Lease is personal to the original Tenant named in Paragraph 1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Tenant while the original Tenant is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Option, herein granted to Tenant is not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and the Option may not be separated from this Lease in any manner, by reservation or otherwise. (e) The Base Rent for each month of the Option Term shall be calculated as follows, using the method(s) indicated below: (i) On commencement of the Option Term ("Market Rental Value Adjustment Date"), the Base Rent shall be adjusted to the Market Rental Value ("MRV") of the Premises as follows: Page 5 (1) Four (4) months prior to the Market Rental Value Adjustment Date, the parties shall attempt to agree upon what the new MRV will be on the Market Rental Value Adjustment Date. If agreement cannot be reached, within thirty days, then: a. Landlord and Tenant shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next thirty days. Any associated costs will be split equally between the parties, or b. Both Landlord and Tenant shall each immediately make a reasonable determination of the MRV and submit such determination, in writing, to arbitration in accordance with the following provisions: i. Within fifteen (15) days thereafter, Landlord and Tenant shall each select an appraiser of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable consultant to act as a third arbitrator. ii. The three (3) arbitrators shall within thirty (30) days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is, and whether Landlord's or Tenant's submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the parties. iii. If either of the parties fails to appoint an arbitrator within the specified fifteen (15) days, the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the parties. iv. The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, i.e., the one that is NOT the closest to the actual MRV. c. In no event shall any person or entity, or any affiliate of such person or entity, who or which is entitled to any commission or fee arising from this Lease or any person or entity who is an affiliate of either of the parties hereto, or who has provided services to either party hereto, act as an arbitrator for purposes of establishing MRV. Page 6 (2) Notwithstanding the foregoing, the MRV shall not be less than the Base Rent payable for the month immediately preceding the Market Rental Value Adjustment Date multiplied by 1.03. (ii) Upon the commencement of the Option Term, the MRV will become the new "Base Rent" for the purpose of calculating any further adjustments to Base Rent pursuant to Section 5.2. (f) The new Base Rent (i.e., MRV) in effect on the commencement of the Option Term is subject to adjustment as provided at Section 5 and Tenant continues to be responsible for other rental as provided herein. 4. POSSESSION. Landlord shall deliver possession of the Premises to Tenant on the Commencement Date. 5. BASE RENT. 5.1 Tenant agrees to pay to Landlord as Base Rent, without prior notice, offset, deduction or demand, for the Premises the sum of Thirty-two Thousand Dollars ($32,000) (which equates to One Dollar ($1.00) per square foot of the Building and which is subject to adjustment as provided at Subparagraph 2. above), in advance, on or before the first day of the first full calendar month of the term hereof and a like sum on or before the first day of each and every successive calendar month thereafter during the term hereof, except that the first month's rent shall be paid upon execution hereof. Base Rent for any period during the term hereof which is for less than one (1) month shall be a prorated portion of the monthly installment herein, based upon a thirty (30) day month. Said rental shall be paid to Landlord in lawful money of the United States of America, which shall be legal tender at the time of payment, at such place as Landlord may from time to time designate in writing. 5.2 Notwithstanding anything to the contrary contained in Paragraph 5.1 of this Lease, the Base Rent shall increase annually on the first anniversary of the first day of the first calendar month Page 7 immediately following the Commencement Date and on the anniversary of such date thereafter in accordance with Schedule 1 hereto. 6. SECURITY DEPOSIT. Tenant has paid or will pay to Landlord concurrently with the execution and delivery hereof by Tenant the sum of Thirty-two Thousand Dollars ($32,000) representing the first full month's Base Rent during the term of this Lease as security for the full and faithful performance of the terms hereof by Tenant. Within forty-five (45) days of Landlord's receipt of the security deposit, Landlord shall place such deposit in an interest-bearing account mutually acceptable to Landlord and Tenant. The account shall be in Landlord's name, but Tenant shall be entitled to interest thereon. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent, Landlord may, but shall not be required to, use, apply or retain all or any part of this security deposit for the payment of any rent or any other sum in default, or for the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default, including without limitation, reasonable costs and attorneys' fees incurred by Landlord to recover possession of the Premises upon a default by Tenant hereunder. If any portion of said deposit is so used or applied, Tenant shall, within five (5) days after receipt of written demand therefor, deposit cash with Landlord in an amount sufficient to restore the security deposit to its original amount and Tenant's failure to do so shall constitute a default hereunder by Tenant. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the security deposit may be applied against any amounts owed by Tenant to Landlord at the expiration or termination of this Lease and any balance thereof shall be returned to Tenant (or, at Landlord's option, upon written notice to Tenant, to the last assignee of Tenant's interest hereunder) within the time specified in California Civil Code Section 1950.7. As and when Base Rent increases pursuant to the provisions of subparagraphs 3.2 or 5.2 above, Tenant shall deposit with Landlord such additional funds as may be necessary to cause the Security Deposit then held by Landlord to equal the amount of Base Rent then payable under this Lease. Page 8 7. MAINTENANCE AND REPAIRS. 7.1 Subject to Paragraphs 2 and 22 and the provisions of this subparagraph 7.1, Tenant shall, at Tenant's sole expense, keep the Premises in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Tenant, and whether or not the need for such repairs occurs as a result of Tenant's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, heating, ventilating, air-conditioning, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Tenant, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by subparagraph 7.2 below. Tenant's obligations shall include restorations, replacements or renewals when necessary to keep the following components of the Premises in good order, condition and state of repair: HVAC, flooring, interior walls, electrical, plumbing fixtures, signs, landscaping and parking lot surface (including parking lot ingress and egress and restriping). Tenant shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building. Notwithstanding the foregoing, Landlord shall be responsible for all repair and maintenance, to the extent needed, of the structural elements of the Building limited to the foundation, the structural elements of the roof and all load bearing walls. However, Tenant shall be responsible for any and all regular maintenance of the roof. 7.2 Tenant shall, at Tenant's sole expense, procure and maintain contracts, with copies to Landlord, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, (iii) fire extinguishing systems, including fire alarm Page 9 and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) driveways and parking lots, and (vii) elevators. 7.3 Subject to the provisions of subparagraph 7.1 and Paragraphs 2 and 22, it is intended by the parties hereto that Landlord have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of Tenant. It is the intention of the Landlord and Tenant that the terms of this Lease govern the respective obligations of the parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. 7.4 Except as provided in Paragraph 22 hereof, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Building or the Premises or in or to fixtures, appurtenances and equipment therein. As a material inducement to Landlord's entering into this Lease, Tenant expressly waives any right to make repairs at Landlord's expense whether granted by law, statute, ordinance or otherwise now or hereafter in effect, including but not limited to California Civil Code Sections 1941, 1941.1 and 1942. 8. USE. Tenant shall use the Premises for video duplication and audio production services, vault storage of videos, and any ancillary general office use and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Tenant shall not do or permit anything to be done in or about the Premises, nor bring or keep anything therein, which will in any way increase the existing rate of, or adversely affect, any fire insurance upon the Building or any of its contents, or cause cancellation of any insurance policy covering the Building or any part thereof or any of its contents. Tenant shall not allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant, its employees, agents and contractors shall not commit or suffer to be committed any waste in or upon the Premises. Without limiting the generality of the foregoing, Tenant shall not (i) place a load upon any floor of the Premises which exceeds the floor Page 10 load per square foot which such floor was designed to carry or (ii) permit any objectionable sounds or odors to carry outside the Premises. 9. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force, and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting the condition use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's improvement or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of the fact as between the Landlord and Tenant. 10. ALTERATIONS AND ADDITIONS. 10.1 Only if required by law or government regulations and upon giving Tenant as much advance notice thereof as is reasonably practical, Landlord may change the name, number or designation by which the Building is commonly known. Subject to Landlord's approval, Tenant may, at its own cost and expense, remove the signage presently on the Building and replace same with its own signage provided that any and all signage shall be in conformance with applicable laws. Within five (5) days of expiration of the Term, or sooner as reasonably requested by the Landlord, Tenant shall remove any and all signage from the Building at its sole cost and expense. 10.2 Tenant shall not make any alterations, additions or improvements without the prior written consent of Landlord which shall not be unreasonably withheld. All such alterations, additions and improvements shall be made in conformity with plans therefor reasonably approved by Landlord in writing prior to the commencement of such work and shall be performed by a tenant improvements contractor Page 11 reasonably approved by Landlord. All such alterations, additions and improvements (except movable furniture, equipment, furnishings and trade fixtures) shall become the property of Landlord and shall be surrendered with the Premises, as a part thereof, at the expiration or earlier termination of the term hereof. All such alterations, additions or improvements shall, however, be made by Tenant at Tenant's sole expense. Upon termination of the Lease, Tenant shall, upon demand by Landlord, at Tenant's sole cost and expense, forthwith remove any alterations, additions or improvements made by Tenant and designated by Landlord at the time of Landlord's initial approval to be removed, and repair and restore the Premises to their original condition, reasonable wear and tear excepted. Any personal property left on or in the Premises at the expiration or earlier termination of this Lease may, at the option of Landlord, after fifteen (15) days' written notice to Tenant, either be deemed abandoned and retained by Landlord, or be placed in storage at a public warehouse in the name of, for the account of and at the expense and risk of Tenant or otherwise disposed of by Landlord in the manner provided by law. Tenant releases Landlord of and from any and all claims and liability for damage to or destruction or loss of property left by Tenant upon the Premises at the expiration or other termination of this Lease. Tenant further waives all claims to all property (and the proceeds thereof) abandoned by Tenant and retained or disposed of by Landlord. All alterations, additions and improvements to the Premises made by Tenant shall comply with the plans therefor approved in advance by Landlord. Such plans and any specifications associated therewith shall be prepared by an architect or interior designer reasonably approved in advance by Landlord. All such work by Tenant shall comply with all applicable requirements of all governmental authorities having jurisdiction of the Premises and shall comply with all reasonable rules and regulations established by Landlord to ensure the safety, cleanliness and good order of the Building, including but not limited to those relating to establishment of off-Premises staging areas, disposal of refuse and the hours of performing operations which result in the creation of noise, dust and odors. No such alterations, additions or improvements by Tenant shall incorporate therein any hazardous materials, as defined in Paragraph 27. Page 12 10.3 No antenna, satellite dish, microwave receiver or other receiving or transmission equipment shall be installed by Tenant in or on the roof of the Building or elsewhere at the Premises except with the prior written consent of Landlord which shall not be unreasonably withheld. Landlord's consent shall not be withheld unless such installation would materially injure the Premises. Any such installation by Tenant shall be only the particular equipment specifically approved by Landlord, shall be limited to the manner and location approved by Landlord and shall be subject to such terms and conditions as are provided by Landlord to Tenant at the time Landlord approves such installation. 11. SURRENDER. Tenant shall surrender the Premises by the end of the Term or any earlier termination date with all the improvements, parts and services thereof, broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear accepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Tenant shall repair any damage occasioned by the installation, maintenance or removal of its trade fixtures, furnishings and personal property. 12. LIENS. Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished or obligations incurred by or for Tenant. In the event that Tenant shall not, within ten (10) business days following the imposition of any such lien, cause the same to be released of record by payment or posting of a proper lien release bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as it shall deem reasonably proper, including payment of or defense against the claim giving rise to such lien. All sums paid by Landlord and all reasonable expenses incurred by it in connection therewith shall automatically create an obligation of Tenant to pay an equivalent amount as additional rent, which additional rent shall be payable by Tenant within five (5) days after Tenant's receipt of Landlord's demand therefor with interest at the rate of ten percent (10%) per annum permitted by law to be charged from date of payment by Landlord until paid by Tenant. Nothing herein shall imply any consent by Landlord to subject Landlord's estate to liability under any mechanics' or other lien law. Tenant shall give Landlord Page 13 adequate opportunity and Landlord shall have the right to post in or on the Premises such notices of nonresponsibility as are provided for in the mechanics lien laws of the state of California. 13. ASSIGNMENT AND SUBLETTING. 13.1 Tenant shall not, either voluntarily or involuntarily or by operation of law, assign, sublet, mortgage or otherwise encumber all or any portion of its interest in this Lease or in the Premises or permit the Premises to be occupied by anyone other than Tenant or Tenant's employees without obtaining the prior written consent of Landlord, which consent shall be subject to the provisions of subsections 13.2 through 13.8 below. Any such attempted assignment, subletting, mortgage or other encumbrance without such consent shall be null and void and of no effect. 13.2 No assignment, subletting, mortgage or other encumbrance of Tenant's interest in this Lease shall relieve Tenant of its obligation to pay the rent and to perform all of the other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any subletting, assignment, mortgage or other encumbrance. Consent to one sublease, assignment, mortgage or other encumbrance shall not be deemed to constitute consent to any subsequent attempted subletting, assignment, mortgage or other encumbrance. 13.3 If Tenant desires at any time to assign this Lease or to sublet the Premises or any portion thereof, it shall first notify Landlord of its desire to do so and shall submit in writing to Landlord: (i) the name of the proposed subtenant or assignee; (ii) the nature of the proposed subtenant's or assignee's business to be carried on in the Premises; (iii) the terms and provisions of the proposed sublease or assignment and the proposed effective date thereof; (iv) such financial information as Landlord may reasonably request concerning the proposed subtenant or assignee; and (v) the minimum payment of at least $500.00, required pursuant to subparagraph 13.8 below. The submission pursuant to clause (iii) shall include a copy of any agreement, escrow instructions or other document which contains or memorializes the terms and provisions of the transaction for which Landlord's consent is required. Page 14 Similarly, if Tenant desires to mortgage or encumber its interest in this Lease, Tenant shall first supply to Landlord in writing such information as to such transaction as may be reasonably requested by Landlord. 13.4 [INTENTIONALLY DELETED.] 13.5 At any time within thirty (30) days after Landlord's receipt of the last of the information specified in subparagraph 13.3 above, Landlord may, by written notice to Tenant, (i) approve the proposed assignment or sublease; or (ii) subject to the provisions of subparagraph 13.6 below, reasonably disapprove the proposed assignment or sublease. If Landlord does not disapprove the proposed subletting or assignment in writing within said thirty (30) day period, Tenant may thereafter within ninety (90) days after the expiration of said thirty (30) day period enter into a valid assignment or sublease of the Premises or portion thereof, upon the terms and conditions set forth in the information furnished by Tenant to Landlord pursuant to subparagraph 13.3 above. Provided, however, that any material change in such terms shall be subject to Landlord's consent as provided in this Paragraph and, provided further, that any amount to be paid by Tenant in connection with such subletting or assignment pursuant to subparagraph 13.3 above shall be paid to Landlord upon and as a condition to consummation of such transaction. 13.6 Landlord shall have the right to reasonably approve or disapprove any proposed assignee or sublessee. In exercising such right of reasonable approval or disapproval, Landlord shall be entitled to take into account any fact or factor which Landlord reasonably deems relevant to such decision, including, but not necessarily limited to, the following, all of which are agreed to be reasonable factors for Landlord's consideration: (a) The financial strength of the proposed assignee or subtenant. (b) The proposed use of the Premises by such proposed assignee or subtenant and the compatibility of such proposed use with the Building. (c) Any materially adverse impact of the proposed use of the Premises by such proposed assignee or subtenant. Page 15 (d) Whether there then exists any uncured default by Tenant pursuant to this Lease or any non-payment or non-performance by Tenant under this Lease which, with the passage of time and/or the giving of notice, would constitute a default under this Lease. (e) Whether the proposed transferee is a public or governmental agency. Moreover, Landlord shall be entitled to be reasonably satisfied that each and every covenant, condition or obligation imposed upon Tenant by this Lease and each and every right, remedy or benefit afforded Landlord by this Lease is not impaired or diminished by such assignment or subletting. Landlord and Tenant acknowledge that the express standards and provisions set forth in this Lease dealing with assignment and subletting, including those set forth in this subparagraph 13.6, have been freely negotiated and are reasonable at the date hereof taking into account Tenant's proposed use of the Premises and the nature and quality of the Building and the Project. No withholding of consent by Landlord shall give rise to any claim by Tenant or any proposed assignee or subtenant or entitle Tenant to terminate this Lease or to any abatement of rent. Approval of any assignment of Tenant's interest shall, whether or not expressly so stated, be conditioned upon such assignee assuming in writing all obligations of Tenant hereunder. In the event Landlord withholds its consent to an assignment or subletting proposed by Tenant and Tenant believes such withholding is unreasonable, Tenant may submit such matter to binding arbitration in accordance with subparagraph 13.10 below. 13.7 All options to extend the Term contained in this Lease are personal to Tenant. Consent by Landlord to any assignment or subletting shall not include consent to the assignment or transfer of any such options with respect to the Premises granted to Tenant by this Lease, any addendum or amendment hereto or any letter agreement. All such options shall terminate upon such subletting or assignment unless Landlord specifically grants the same in writing to such assignee or subtenant. 13.8 The voluntary or other surrender of this Lease by Tenant or a mutual cancellation hereof shall not work a merger, and shall at the option of Landlord, terminate all or any existing subleases or subtenancies or shall operate as an assignment to Landlord of such subleases or subtenancies. If Tenant is a corporation which is not required under the Securities Exchange Act of 1934 to file periodic Page 16 informational reports with the Securities and Exchange Commission, or is an unincorporated association or partnership, the transfer, assignment or hypothecation of any stock or interest in such corporation, association or partnership in the aggregate in excess of twenty-five percent (25%) shall be deemed an assignment within the meaning and provisions of this Paragraph 13. Tenant agrees to reimburse Landlord, in no event less than $500.00 for each proposed transfer, for Landlord's administrative time and reasonable costs and attorneys' fees incurred in connection with the processing and documentation of any such requested assignment, subletting, transfer, change of ownership or hypothecation of this Lease or Tenant's interest in and to the Premises. 13.9 For purposes of this Lease, an assignment or sublease shall include the merger or consolidation of Tenant. Landlord's consent to such, merger or consolidation shall not be required where (i) the transferee/successor-in-interest to Tenant's rights under this Lease has assumed Tenant's obligations hereunder in writing, (ii) the transferee/successor-in-interest has provided written notice to Landlord of such merger or consolidation, and (iii) the shareholders' equity of such transferee/successor-in-interest immediately after such merger or consolidation is equal to or greater than the lesser of (y) Tenant's shareholders' equity as of March 31, 1998 or (z) Tenant's shareholders' equity on the day immediately preceding such merger or consolidation. 13.10 In the event Tenant believes that Landlord's refusal to consent to an assignment or subletting is unreasonable, Tenant may submit the matter to binding arbitration before a single arbitrator appointed by Judicial Arbitration and Mediation Services (J.A.M.S.). The request for arbitration shall be submitted by Tenant in writing to J.A.M.S. no later than ten (10) business days after delivery of Landlord's written notice to Tenant of its refusal to consent. Tenant's notice to J.A.M.S. shall be sent concurrently to Landlord. Landlord and Tenant may each supply written briefs to the arbitrator and the other party within ten (10) days after receipt of written notice of the appointment of the arbitrator by J.A.M.S. Landlord and Tenant may also deliver written reply briefs to the arbitrator and the other party within five (5) days after receipt of the other party's brief. The arbitrator shall render his/her decision, in writing, as soon as Page 17 reasonably possible after the last day on which the parties can submit reply briefs. The cost of the arbitrator shall be shared equally by Landlord and Tenant. 14. HOLD HARMLESS. 14.1 Except for Landlord's gross negligence or willful misconduct, Tenant shall indemnify, protect, defend and hold harmless the Premises, Landlord and its employees and agents from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultant's fees, expenses and/or liabilities arising out of, involving or in connection with, the use and/or occupancy of the Premises by Tenant and/or Tenant's breach of the terms of the Lease. If any action or proceeding is brought against Landlord by reason of any of the foregoing matters, Tenant shall, upon notice, defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord and Landlord shall cooperate with Tenant in such defense. Landlord need not have first paid any such claim in order to be defended or indemnified. 14.2 Landlord shall not be liable for any damage to property of Tenant entrusted to employees or agents of Landlord, nor for loss or damage to any property by theft or otherwise, nor for any injury to or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Building, or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place resulting from dampness or any other cause whatsoever, unless caused by or due to the gross negligence or willful misconduct of Landlord, its agents, servants or employees. Landlord or its agents shall not be liable to Tenant for interference with the light or other incorporeal hereditaments nor loss of business by Tenant. Landlord or its agents shall not be liable to Tenant for any damages caused by the act or neglect of any third party at the Premises. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the Building or of defects therein or in the fixtures or equipment. 14.3 Except for Tenant's gross negligence or willful misconduct, Landlord shall indemnify, protect, defend and hold harmless Tenant and its agents and employees from and against any and all claims, damages, liens, judgments, penalties, attorneys' and consultant's fees, expenses and/or liabilities Page 18 arising out of, involving or in connection with the gross negligence or willful misconduct of Landlord, its employees and agents in, on or about the Premises and/or Landlord's breach of the terms of this Lease. 15. SUBROGATION. Landlord and Tenant each hereby waive any and all rights of recovery against the other, for loss of or damage to such waiving party or its property or the property of others under its control, arising from any cause insured against under any policy of property insurance required to be carried by such waiving party pursuant to the provisions of this Lease (or any other policy of insurance carried by such waiving party in lieu thereof) at the time of such loss or damage. Landlord and Tenant shall, upon obtaining the policies of insurance which they are required to maintain under this Lease, give notice to their respective insurance carrier(s) that the foregoing mutual waiver of subrogation is contained in this Lease. 16. LIABILITY INSURANCE. 16.1 At all times during the Term, Tenant shall maintain in effect policies of fire insurance covering: (i) all leasehold improvements (including any alterations, additions or improvements as may be made by Tenant pursuant to provisions of Article 10 hereof) in which Tenant may have an insurable interest; and (ii) trade fixtures, merchandise and other personal property from time to time in, on or upon the Premises, in an amount not less than one hundred percent (100%) of their actual replacement cost from time to time during the term of this Lease, providing protection against any peril included within the classification "All-Risk." The proceeds of such insurance shall be used for the repair or replacement of the property so insured. Upon termination of this Lease following a casualty as set forth herein, the proceeds under subpart (i) above shall be paid to Landlord, and the proceeds under subpart (ii) above shall be paid to Tenant. 16.2 Tenant shall, at all times during the Term and at its own cost and expense, procure and continue in force comprehensive general liability insurance for bodily injury and property damage, adequate to protect Landlord against liability for injury to or death of any person, arising in connection with the use, operation or condition of the premises or construction of improvements therein. Such insurance Page 19 at all times shall be in an amount of not less than a combined single limit of Two Million Dollars ($2,000,000.00), insuring against any and all liability of the insured with respect to the Premises or arising out of the use or occupancy thereof. 16.3 Tenant shall, at all times during the Term and at its own cost and expense, procure and continue in force worker's compensation coverage as required by law together with employee's liability coverage. 16.4 If required by Landlord, Tenant shall, at all times during the term hereof and at its own cost and expense, procure and continue in force business interruption and/or loss of income insurance in amounts reasonably satisfactory to Landlord. 16.5 In no event shall the then limits of any policy be considered as limiting the liability of Tenant under this Lease. 16.6 All insurance required to be carried by Tenant hereunder shall be issued by responsible insurance companies, qualified to do business in the State of California, rated A + XII or better in the current Bests' Insurance Guide. Each insurance policy required to be maintained by Tenant hereunder pursuant to subparagraphs 16.1 and 16.2 shall name Landlord, its officers, agents, and employees, and at Landlord's request any mortgagee of Landlord, as additional insureds, as their respective interests may appear, and copies of all policies or certificates evidencing the existence and amounts of such insurance shall be delivered to Landlord by Tenant prior to Tenant's occupancy of the Premises. No such policy shall be cancelable or materially reduced except after thirty (30) days prior written notice to Landlord. Tenant shall furnish Landlord with renewals or "binders" of any such policy at least thirty (30) days prior to the expiration thereof. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to), after fifteen (15) days notice to Tenant, procure said insurance on Tenant's behalf and charge the Tenant the premium, payable upon demand. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by the tenant provided such blanket policies expressly afford coverage to the Premises and to Tenant as required by this Lease. Page 20 16.7 All insurance required to be carried by Tenant hereunder shall also contain an inflation guard protection causing an increase in the annual property insurance coverage amount and liability insurance coverage amount by a factor not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the Los Angeles-Anaheim-Riverside Statistical Area. 16.8 At all times during the Term, Landlord shall maintain in effect a policy or policies of property insurance covering the Building in an amount not less than the replacement cost thereof, providing protection against any peril included within the classification "All Risk," excluding coverage for flood or earthquake (unless Landlord in its sole discretion elects to obtain endorsements for flood or earthquake). 16.9 [INTENTIONALLY DELETED.] 16.10 Tenant shall pay for all insurance required under this Paragraph 16. To the extent insurance is maintained by Landlord pursuant to this Paragraph 16, Tenant shall pay the cost thereof to Landlord within ten (10) days following receipt of an invoice therefor with any premiums for policy periods commencing prior to or extending beyond the Term prorated to correspond with the Term. 17. UTILITIES. Tenant shall pay for all water, gas, heat, light power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If such services are not separately metered to Tenant, Tenant shall pay a reasonable proportion, to be determined by Landlord, of all charges jointly metered. 18. PROPERTY TAXES. 18.1 Tenant shall be liable for and shall pay thirty (30) days before delinquency all taxes, levies and assessments levied against any personal property or trade fixtures placed by Tenant in or about the Premises, and, when possible, Tenant shall cause such personal property and trade fixtures to be assessed and billed separately from the Building and the Premises. If any such taxes, levies and assessments on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property, or if the assessed value of the Building or the Project is increased by the inclusion therein of a Page 21 value placed upon such personal property or trade fixtures of Tenant, and if Landlord pays the taxes, levies and assessments based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall repay to Landlord upon demand, as additional rent, the taxes, levies and assessments so levied against Landlord, or the proportion of such taxes, levies and assessments resulting from such increase in the assessment, together with interest thereon from the date of payment by Landlord to the date of reimbursement by Tenant at the rate of ten percent (10%) per year. Provided, however, that in any such event Tenant shall have the right, in the name of Landlord and with Landlord's full cooperation but without any cost to Landlord, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes, levies and assessments so paid under protest, any amount so recovered to belong to Tenant. 18.2 If the tenant improvements in the Premises, whether installed and/or paid for by Landlord or Tenant, and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which tenant improvements conforming to Landlord's "building standard" for the Building are assessed, then the Real Property Taxes levied against Landlord or the Premises by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of subparagraph 18.1 above. If the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining whether said tenant improvements are assessed at a higher valuation than Landlord's "building standard," such records shall be binding on both Landlord and Tenant; otherwise the actual cost of construction shall be the basis for such determination. 18.3 As used herein, the term "Real Property Taxes" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Landlord in the Premises, Landlord's right to other income therefrom, and/or Landlord's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so Page 22 generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change of ownership of the Premises pursuant to California Revenue and Taxation Code Section 61 ET SEQ. or otherwise. 18.4 Tenant shall pay the Real Property taxes applicable to the Premises during the term of this Lease. Subject to the subparagraph 18.5, all such payments shall be made at least ten (10) days prior to any delinquency date. Tenant shall promptly furnish Landlord with satisfactory evidence that such taxes have been paid upon request by Landlord. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Tenant's share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Landlord shall reimburse Tenant for any overpayment. If Tenant shall fail to pay any required Real Property Taxes, Landlord shall have the right to pay the same, and Tenant shall reimburse Landlord therefor upon demand. 18.5 In the event Tenant incurs a late charge on any rent payment, Landlord may, at Landlord's option, estimate the current Real Property Taxes and premiums for insurance to be carried by Landlord pursuant to Paragraph 16 above, and require that such taxes and premiums be paid in advance to Landlord by Tenant, either (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Landlord elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of Real Property Taxes and insurance premiums divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill and insurance premium is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes and insurance premiums. If the amount collected by Landlord is insufficient to pay such Real Property Taxes and insurance premiums when due, Tenant shall pay Landlord, upon demand, such Page 23 additional sums as are necessary to pay such obligations. All moneys paid to Landlord under this subparagraph may be intermingled with other moneys of Landlord and shall not bear interest. In the event of a default by Tenant in the performance of its obligations under this Lease, then any balance of funds paid to Landlord under the provisions of this subparagraph 18.5 may at the option of Landlord, be treated as an additional security deposit. 18.6 If the Premises are not separately assessed, Tenant's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Landlord from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. 18.7 Payments by Tenant hereunder in addition to Base Rent, which payments include but are not limited to insurance premiums payable to Landlord and Real Property Taxes, are referred to herein as "Additional Rent." 19. RULES AND REGULATIONS. Tenant agrees to abide by all rules and regulations of the Premises imposed by Landlord as set forth in EXHIBIT B attached hereto, as the same may be reasonably changed from time to time by Landlord upon reasonable notice to Tenant. Any such change shall be effective upon delivery of a copy thereof to Tenant. These rules and regulations are imposed for the cleanliness, good appearance, proper maintenance, good order and reasonable use of the Premises and the Building. 20. HOLDING OVER. If Tenant remains in possession of the Premises or any part thereof after the expiration of the term hereof, with the express written consent of Landlord, such occupancy shall be a tenancy from month to month at a rental in the amount of the last monthly rental, plus all other charges payable hereunder, and upon all the terms hereof applicable to a month to month tenancy. Any holding over without the express written consent obtained from Landlord by Tenant shall not constitute a renewal or extension hereof or give Tenant any rights under this Lease. If Tenant shall hold over without the express written consent of Landlord, Landlord may, at its option treat Tenant as a tenant at sufferance only and subject to all of the terms and conditions herein contained, except that the monthly rental shall Page 24 be one-hundred fifty percent (150%) of the total monthly rental applicable at the date of expiration plus all other charges payable hereunder, or at Landlord's then published rent for the Premises without regard to any tenant concessions, whichever is greater. If Tenant fails to surrender the Premises upon the expiration of this Lease, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claims made by any succeeding tenant founded on or resulting from such failure to surrender. Acceptance by Landlord of rent after such expiration or earlier termination shall not constitute a consent to a holdover hereunder or result in a renewal of this Lease. 21. ENTRY BY LANDLORD. Landlord reserves, and shall at reasonable times upon twenty-four (24) hours prior notice (except in the case of an emergency when prior notice will not be required) have, the right to enter the Premises, inspect the same, provide any and all services which are to be provided by Landlord to Tenant hereunder, to submit said Premises to prospective purchasers or tenants, to post notices of non-responsibility and to alter, improve or repair the Premises and any portion thereof that Landlord may deem necessary or desirable and may for that purpose erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed without abatement of rent so long as access to and use of the Premises shall not be blocked or prevented thereby and further providing that the business of Tenant shall not be interfered with unreasonably. So long as access to and use of the Premises is not blocked or prevented by Landlord's actions contemplated by the immediately preceding sentence, Tenant shall have no claim for damages or for any injury or inconvenience to or interference with Tenant's business occasioned thereby. For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults, safes and files, and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency, in order to obtain entry to the Premises without liability to Tenant except for any failure to exercise due care for Tenant's property. Any entry to the Premises obtained by Landlord by any of said means or otherwise shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises or an eviction of Tenant from the Premises or any portion thereof. Page 25 22. RECONSTRUCTION. 22.1 For purposes of this Paragraph 22, the following terms shall have the following meanings: (a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than improvements installed by and/or paid for by Tenant, which can reasonably be repaired in six (6) months or less from the date of the damage or destruction. Landlord shall notify Tenant in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than improvements installed by and/or paid for by Tenant, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction. Landlord shall notify Tenant in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than improvement installed by and/or paid for by Tenant, which was caused by an event required to be covered by the insurance described in Paragraph 16, irrespective of any deductible amounts or coverage limits involved. (d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Landlord at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation. 22.2 If a Premises Partial Damage that is an Insured Loss occurs, then Landlord shall, at Landlord's expense, repair such damage (but not improvements installed by and/or paid for by Tenant) as soon as reasonably possible and this Lease shall continue in full force and effect. Notwithstanding the foregoing, if the required insurance was not in force, the party required to maintain the insurance as required by this Lease shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the Page 26 unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Landlord shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Tenant provides Landlord with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Landlord receives said funds or adequate assurance thereof within said ten (10) day period, Landlord shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Landlord may nevertheless elect by written notice to Tenant within ten (10) days thereafter to: (i) make such restoration and repair as is commercially reasonable with Landlord paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate thirty (30) days thereafter. Tenant shall not be entitled to reimbursement of any funds contributed by Tenant to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 22.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either party. 22.3 If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a grossly negligent or willful act of Tenant (in which event Tenant shall make the repairs at Tenant's expense), Landlord may either: (i) repair such damage as soon as reasonably possible at Landlord's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Tenant within thirty (30) days after receipt by Landlord of knowledge of the occurrence of such damage. Such termination shall be effective sixty (60) days following the date of such notice. In the event Landlord elects to terminate this Lease, Tenant shall have the right within ten (10) days after receipt of the termination notice to give written notice to Landlord of Tenant's commitment to pay for the repair of such damage without reimbursement from Landlord. Tenant shall provide Landlord with said funds or satisfactory assurance thereof within thirty (30) days after making such commitment. In such event this Lease shall continue in full force and effect, and Landlord shall proceed to make such Page 27 repairs as soon as reasonably possible after the required funds are available. If Tenant does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice. 22.4 Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate sixty (60) days following such destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Tenant, Landlord shall have the right to recover Landlord's damages from Tenant, except to the extent covered by insurance. 22.5 If at any time during the last six (6) months of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Landlord may terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving a written termination notice to Tenant within thirty (30) days after the date of occurrence of such damage. Notwithstanding the foregoing, if Tenant at that time has an exercisable option to extend this Lease, then Tenant may preserve this Lease by: (a) exercising such option and (b) providing Landlord with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten days after Tenant's receipt of Landlord's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Tenant duly exercises such option during such period and provides Landlord with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Landlord shall, at Landlord's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Tenant fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Tenant's option shall be extinguished. 22.6 In the event of Premises Partial Damage or Premises Total Destruction for which Tenant is not responsible under this Lease, the Rent payable by Tenant for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Tenant's use of the Premises is impaired. All other obligations of Tenant hereunder shall be performed by Tenant, Page 28 and Landlord shall have no liability for any such damage, destruction, remediation, repair or restoration as provided herein. 22.7 If Landlord shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within ninety (90) days after such obligation shall accrue, Tenant may, at any time prior to the commencement of such repair or restoration, give written notice to Landlord and to any lenders of Landlord of which Tenant has actual notice, of Tenant's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Tenant gives such notice and such repair or restoration is not commenced within thirty (30) days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within said thirty (30) days, this Lease shall continue in full force and effect. If the repair or restoration of the Premises is not substantially completed within two hundred seventy (270) days after the date of the damage or destruction, Tenant may, at any time prior to the substantial completion of such repair or restoration, terminate this Lease on written notice to Landlord. "COMMENCE" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 22.8 Landlord and Tenant agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 23. DEFAULT. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: 23.1 Any failure by Tenant to pay the rent or to make any other payment required to be made by Tenant hereunder at the time specified for payment. Landlord shall give Tenant three (3) days' written notice of default, which 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, as amended. 23.2 The abandonment of the Premises by Tenant. Abandonment is herein defined to include, but is not limited to, any absence by Tenant from the Premises for thirty (30) days or longer, except where Page 29 Tenant has advised Landlord in writing that Tenant has not abandoned the Premises and Tenant continues during such absence to perform all of its obligations under this Lease. 23.3 Any failure by Tenant to observe and perform any other provision of this Lease to be observed or performed by Tenant, where such failure continues for thirty (30) days (except where a different period of time is specified in this Lease) after written notice by Landlord to Tenant; 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, as amended. If the nature of such default is such that the same cannot reasonably be cured within such thirty (30) day period Tenant shall not be deemed to be in default if Tenant shall commence such cure within such period and thereafter diligently prosecute the same to completion. 23.4 Tenant makes or has made or furnishes or has furnished any warranty, representation or statement to Landlord in connection with this Lease, or any other agreement to which Tenant and Landlord are parties, which is or was false or misleading in any material respect when made or furnished. 23.5 [INTENTIONALLY DELETED.] 23.6 The making by Tenant of any general assignment for the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within sixty (60) days; the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within sixty (60) days; or Tenant's convening of a meeting of its creditors or any class thereof for the purpose of effecting a moratorium upon or composition of its debts. 24. REMEDIES FOR DEFAULT. 24.1 In the event of any default by Tenant pursuant to Paragraph 23 above, then in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to Page 30 terminate this Lease and all rights of Tenant hereunder by giving written notice of such intention to terminate. In the event that Landlord shall elect to so terminate this Lease then Landlord may recover from Tenant: (a) The worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (b) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss which Tenant proves reasonably could have been avoided; plus (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the term of this Lease after the time of award exceeds the amount of such rental loss that Tenant proves reasonably could be avoided; plus (d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including without limitation the unamortized balance of any tenant improvement allowance provided to Tenant by Landlord or of any tenant improvements constructed or paid for by Landlord at the commencement of the term hereof, which amount shall be deemed Additional Rent automatically due and payable hereunder upon the occurrence of an event of default by Tenant and shall be recoverable as rent in any unlawful detainer or other action arising out of or pertaining to such default, whether or not specified in any notice given by Landlord as a condition or prior to the commencement of any such action; and at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable California law. 24.2 As used in subparagraphs 24.1(a) and (b) above, the "worth at the time of award" is computed by allowing interest at the rate of ten percent (10%) per annum. As used in subparagraphs 24.1(c), the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent. Page 31 24.3 In the event of any such default by Tenant, Landlord shall also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. 24.4 In the event of the vacation or abandonment of the Premises by Tenant or in the event that Landlord shall elect to re-enter as provided above or shall take possession of the Premises pursuant to legal proceedings or pursuant to any notice provided by law, then if Landlord does not elect to terminate this Lease as provided in this Paragraph 24, Landlord may from time to time, without terminating this Lease, either recover all rental as it becomes due or relet the Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Election by Landlord to proceed pursuant to this subparagraph shall be made upon written notice to Tenant and shall be deemed an election of the remedy described in California Civil Code Section 1951.4 and, unless Landlord re-lets the Premises, Tenant shall have the right to sublet or assign subject to the prior written consent of Landlord. Such consent shall not be unreasonably withheld and shall be subject to all of the terms and provisions of Paragraph 13. 24.5 In the event that Landlord shall elect to so relet, then rentals received by Landlord from such reletting shall be applied: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any reasonable cost of such reletting; third, to the payment of the cost of any repairs to the Premises necessitated by Tenant's use; fourth, to the payment of rent due and unpaid hereunder; and the residue if any, shall be held by Landlord and applied in payment of future amounts as the same may become due and payable hereunder. Should the rent for such reletting, during any month for which the payment of rent is required hereunder, be less than the rent payable during that month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord immediately upon demand therefor by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord as soon as ascertained, any reasonable costs and expenses incurred Page 32 by Landlord in such reletting or in making such repairs not covered by the rentals received from such reletting. 24.6 No re-entry or taking possession of the Premises by Landlord pursuant to this Paragraph 24 shall be construed as an election to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Landlord because of any default by Tenant, Landlord may at any time after such reletting elect to terminate this Lease for any such default. 24.7 In any action for unlawful detainer commenced by Landlord against Tenant by reason of any default hereunder, the reasonable rental value of the Premises for the period of the unlawful detainer shall be the amount of rent reserved in this Lease for such period. The rights and remedies reserved to Landlord herein, including those not specifically described, shall be cumulative and, except as otherwise provided by California statutory law in effect at the time, Landlord may pursue any or all of such rights and remedies, at the same time or otherwise. 24.8 All covenants and agreements to be performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent. If Tenant fails to pay any sum of money, other than rent, required to be paid by it or fails to perform any other act on its part to be performed, and such failure continues beyond any applicable grace period set forth in the Paragraph providing for such obligation (or if no grace period is set forth in such Paragraph, then the applicable grace period pursuant to Paragraph 23), then in addition to any other remedies provided herein Landlord may, but shall not be obligated so to do, without waiving or releasing Tenant from any obligations of Tenant, make any such payment or perform any such other act on Tenant's part, including the removal of any offending signs. Landlord's election to make any such payment or perform any such act on Tenant's part shall not give rise to any responsibility of Landlord to continue making the same or similar payments or performing the same or similar acts. Tenant shall, within ten (10) days after written demand therefor by Landlord, reimburse Landlord for all sums so paid by Landlord and all necessary incidental costs, together with interest thereon at the rate of ten percent (10%) per annum, accruing from Page 33 the date of such payment by Landlord, and Landlord shall have the same rights and remedies in the event of failure by Tenant to pay such amounts as Landlord would have in the event of a default by Tenant in payment of rent. 25. SUCCESSOR LANDLORD'S LIABILITY. The liability of any successor-in-interest to Landlord under this Lease ("Successor Landlord") shall be limited to the Successor Landlord's estate in the Premises. 26. EMINENT DOMAIN. If the whole of the Premises shall be taken, or such part thereof shall be taken as shall substantially interfere with Tenant's use and occupancy of the balance thereof, under power of eminent domain, or sold, transferred, or conveyed in lieu thereof, either Tenant or Landlord may terminate this Lease as of the date of such condemnation or as of the date possession is taken by the condemning authority, whichever date occurs later. If any part of the Premises shall be so taken, sold, transferred or conveyed in lieu thereof, which does not substantially interfere with Tenant's use and occupancy of the balance thereof, this Lease shall not terminate but Landlord's and Tenant's rights shall be as set forth below. No award for any partial or entire taking shall be apportioned, and Tenant hereby assigns to Landlord any award which may be made in such taking or condemnation, together with any and all rights of Tenant now or hereafter arising in or to the same or any part thereof; provided, however, that nothing contained herein shall be deemed to give Landlord any interest in or require Tenant to assign to Landlord any award made to Tenant for the taking of personal property and fixtures belonging to Tenant and removable by Tenant at the expiration of the term hereof, as provided hereunder, or for the interruption of, or damage to Tenant's business or for relocation expenses recovered against the condemning authority. In the event of a partial taking, or a sale, transfer, or conveyance in lieu thereof, which does not result in a termination of this Lease, Landlord shall, to the extent of any funds received from the condemning authority for repair or restoration, restore the Premises substantially to their condition prior to such partial taking, and thereafter Base Rent shall be abated in the proportion which the square footage of the part of the Premises so made unusable bears to the amount of area rented immediately prior to the taking. No taking for a period of less than thirty (30) days of all or a part of the Page 34 Premises shall give Tenant any right to terminate this Lease, but Tenant shall receive an abatement of Base Rent. 27. HAZARDOUS MATERIALS. 27.1 Without limiting the generality of Paragraphs 8 and 9 of this Lease, Tenant covenants and agrees that Tenant, its employees, agents and other third parties entering upon the Premises at the request or invitation of Tenant shall not bring into, maintain upon, generate, produce, use, store, dispose of or release or discharge in or about the Premises any hazardous or toxic substances or hazardous waste, as more fully defined below (collectively, "hazardous materials"). The foregoing covenant shall not extend to substances typically found or used in applications of the type permitted by this Lease so long as: (a) such substances are maintained only in such quantities as are reasonably necessary for Tenant's operations in the Premises; (b) such substances and all equipment which generates such substances are used strictly in accordance with the manufacturers' instructions therefor; (c) such substances are not disposed of in or about the Premises in a manner which would constitute a release or discharge thereof; and (d) all such substances and all equipment which generates such substances are removed from the Premises by Tenant upon the expiration or earlier termination of this Lease. Any introduction, use, storage, generation, maintenance, production, disposal, release or discharge by Tenant of hazardous materials in or about the Premises as is permitted pursuant to this Paragraph shall be carried out in compliance with all applicable federal, state and local laws, ordinances, rules and regulations. Moreover, no hazardous waste resulting from any operations by Tenant shall be stored or maintained by Tenant in or about the Premises for more than thirty (30) days prior to removal by Tenant. In no event shall Tenant install any chemical storage tank in or about the Premises. Tenant shall, annually within thirty (30) days after Tenant's receipt of Landlord's written request therefor, provide to Landlord a written list identifying any hazardous materials then maintained by Tenant in the Premises, the use of each such hazardous material and the approximate quantity of each such hazardous material so maintained by Tenant, together Page 35 with written certification by Tenant stating, in substance, that neither Tenant nor any person for whom Tenant is responsible has released or discharged any hazardous materials in or about the Premises. 27.2 In the event that Tenant proposes to conduct any use or to operate or store any equipment which will or may utilize or generate a hazardous material other than as specified in subparagraph 27.1, Tenant shall first submit in writing such use, storage or equipment proposal to Landlord for approval. No approval by Landlord shall relieve Tenant of any obligation of Tenant pursuant to this Paragraph, including the removal, clean-up and indemnification obligations imposed upon Tenant by this Paragraph. Tenant shall, within five (5) days after receipt thereof, furnish to Landlord copies of all notices or other communications received by Tenant with respect to any actual or alleged release or discharge of any hazardous material in or about the Premises and shall, whether or not Tenant receives any such notice or communication, notify Landlord in writing of any discharge or release of hazardous material in or about the Premises. 27.3 Upon any violation of the foregoing covenants, Tenant shall be obligated, at Tenant's sole cost, to clean-up and remove from the Premises all hazardous materials introduced into the Premises by Tenant or any third party for whom Tenant is responsible. Such clean-up and removal shall include all testing and investigation required by any governmental authorities having jurisdiction and preparation and implementation of any remedial action plan required by any governmental authorities having jurisdiction. All such clean-up and removal activities of Tenant shall, in each instance, be conducted to the reasonable satisfaction of Landlord and all governmental authorities having jurisdiction. Landlord's right of entry pursuant to Paragraph 21 shall include the right to enter and inspect the Premises for violations of Tenant's covenants herein. 27.4 Tenant shall indemnify, defend (with counsel approved by Landlord) and hold harmless Landlord, its partners, directors, officers, employees, agents, lenders and attorneys and their respective successors and assigns from and against any and all claims, liabilities, losses, actions, costs and expenses (including attorneys' fees and costs of defense) incurred by such indemnified persons, or any of them, as the result of: (i) the introduction of any hazardous materials into or about the Premises by Page 36 Tenant, its employees, agents or contractors; (ii) the usage, storage, maintenance, generation, production, disposal, release or discharge of hazardous materials in or about the Premises by Tenant, its employees, agents or contractors; (iii) any injury to or death of persons or damage to or destruction of property resulting from the use, introduction, maintenance, production, storage, generation, disposal, disposition, release or discharge of hazardous materials in or about the Premises by Tenant, its employees, agents or contractors; and/or (iv) any failure of Tenant, its employees, agents or contractors to observe the covenants of this Paragraph 27. Payment shall not be a condition precedent to enforcement of the foregoing indemnification provision. If any claim for indemnification is made by Landlord hereunder, or if Tenant is required hereunder to perform any remedial activity pursuant to this Paragraph, Landlord agrees to grant to Tenant such access to portions of the Premises as is reasonably necessary for the purpose of effecting a remediation of the occurrence giving rise to such claim for indemnification or duty of remediation. 27.5 In the event that Tenant is required by any governmental authority to maintain any hazardous materials license or permit in connection with any use conducted by Tenant or any equipment operated by Tenant in, on or about the Premises, copies of such license or permit, each renewal or revocation thereof, and any communication relating to suspension, renewal or revocation thereof shall be furnished to Landlord within five (5) days after receipt thereof by Tenant. Compliance by Tenant with the provisions of this subparagraph and the second subparagraph of this Paragraph 27 shall not relieve Tenant of any other obligation of Tenant pursuant to this Paragraph. 27.6 Upon any violation of the foregoing covenants Landlord shall be entitled to exercise all remedies available to a landlord against a defaulting tenant, including, but not limited to these set forth in Paragraph 24. Without limiting the generality of the foregoing, Tenant expressly agrees that upon any such violation Landlord may, at its option, (i) immediately terminate this Lease, or (ii) continue this Lease in effect until compliance by Tenant with its clean-up and removal covenant notwithstanding any earlier expiration date of the term of this Lease. No action by Landlord hereunder shall impair the obligations of Tenant pursuant to this Paragraph. Page 37 27.7 As used in this Paragraph 27, the term "hazardous materials" shall mean any hazardous materials, hazardous wastes or hazardous or toxic substances as defined by Environmental Laws. As used in this Paragraph 27, "Environmental Laws" means the Resource Conservation and Liability Act, and Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the Clean Air Act, the toxic Substances Control Act, the Atomic Energy Act, the Endangered Species Act, California Health and Safety Code Section 25316 , and any similar laws affecting the Premises or the use thereof, and any amendments to any of the foregoing. 27.8 Landlord represents and warrants that, as of the Commencement Date, the Premises are in compliance with the applicable environmental laws, rules, regulations, directives or orders of any governmental authority relating to the protection of human health or the environment, relating to the injury or damage to, or restoration or replacement of, natural resources, or relating to land reclamation, including, but not limited to, to the extent applicable, requirements under Environmental Laws. To Landlord's knowledge as of the Commencement Date, there has not been any notice, written or oral, provided to Landlord by any governmental agency or authority, or by any previous tenant or owner, or any other party of any violation, alleging violation, of, or investigation relating to, any Environmental Law. To Landlord's knowledge as of the Commencement Date, there is no legal, administrative, investigatory or other proceedings, pending or threatened against Landlord which relate to any violation of Environmental Law. These representations and warranties, and the indemnification obligations set forth below, shall survive the termination or expiration of the Lease until the lapse of all applicable statutes of limitations, if any. Landlord hereby agrees to indemnify and hold Tenant (including its officers, directors, employees, agents, successors and assigns) harmless from any damages, losses, costs or expenses, suffered or paid as a result of any and all claims, damages, suits, causes of action, proceedings, judgments, liabilities, penalties, interest, losses, damages, costs or expenses, including reasonable attorney's fees incurred in litigation or otherwise, assessed, incurred or sustained by or against Tenant with respect to or arising out of the failure or breach of any representation or warranty contained herein and made by Landlord with respect to Environmental Laws or hazardous materials, or the use, production, storage, Page 38 maintenance, generation, disposal, release or discharge of any hazardous materials into the environment from or at the Premises or from materials which Landlord or any prior tenant or owner of the Premises disposed of or arranged for the disposal of offsite, or any adverse effect or potential adverse effect on humans or the environment deriving therefrom. 27.9 Attached to this Lease at EXHIBIT "C" is a true copy of Environmental Audit Report for the Premises prepared by Ralph Stone and Company, Inc. 28. OFFSET STATEMENT. Tenant shall at any time and from time to time upon not less ten (10) days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing, (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified, is in full force and effect) and the date to which the rental and other charges are paid in advance, if any, and (b) acknowledging that there are not, to Tenant's knowledge, any uncured defaults if any are claimed. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. In the event Tenant does not provide Landlord with an offset statement as required in this paragraph within the ten (10) day period mentioned therein, Tenant shall be deemed to have acknowledged all of the matters set forth herein. 29. TRAFFIC AND ENERGY MANAGEMENT. 29.1 Tenant agrees to cooperate and use reasonable efforts to participate in governmentally mandated traffic management programs generally applicable to businesses located in Burbank, California or to the Premises. Neither this Paragraph nor any other provision in this Lease, however, is intended to or shall create any rights or benefits in any other person, firm, company, governmental entity or the public. 29.2 Tenant agrees to cooperate and use reasonable efforts to comply with any and all mandatory guidelines or controls imposed upon either Landlord or Tenant by federal or state governmental organizations or by any energy conservation association to which Landlord is a party concerning energy management. Page 39 29.3 [INTENTIONALLY DELETED.] 30. [INTENTIONALLY DELETED.] 31. [INTENTIONALLY DELETED.] 32. AUTHORITY OF PARTIES. Each individual executing this Lease on behalf of Landlord and Tenant represents and warrants that the execution and delivery of this Lease on behalf of the party for whom such person is executing is duly authorized, that he or she is authorized to execute and deliver this Lease and that this Lease is binding upon such party in accordance with its terms. If Tenant is a corporation, Tenant shall, within ten (10) days after execution of this Lease, deliver to Landlord a certified copy of a resolution of the Board of Directors of Tenant, or any executive committee thereof, authorizing or ratifying the execution of this Lease. Failure of Tenant to provided such resolution shall not, however, relieve Tenant of its obligations pursuant to this Lease. 33. GENERAL PROVISIONS. 33.1 CLAUSES, PLATS AND RIDERS. Clauses, plats, and riders, if any, signed by the Landlord and the Tenant and endorsed on or affixed to this Lease are a part hereof. 33.2 WAIVER. No waiver by Landlord of any provision of this Lease or of any breach by Tenant hereunder shall be deemed to be a waiver of any other provision hereof, or of any subsequent breach by Tenant of the same or any other provision. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act of Tenant. No act or thing done by Landlord or Landlord's agents during the term of this Lease shall be deemed an acceptance of a surrender of the Premises, unless done in a writing signed by Landlord. Tenant's delivery of keys to any employee or agent of Landlord shall not operate as a termination of this Lease or a surrender of the Premises unless done pursuant to a written agreement to such effect executed by Landlord. The acceptance of any rent by Landlord following a breach of this Lease by Tenant shall not constitute a waiver by Landlord of such Page 40 breach (other than the failure to pay the particular rent so accepted) or any other breach unless such waiver is expressly stated in a writing signed by Landlord. The acceptance of any payment from a debtor in possession, a trustee, a receiver or any other person acting on behalf of Tenant or Tenant's estate shall not waive or cure a default under Paragraph 23.6 or waive the provisions of Paragraph 13. 33.3 NOTICES. All notices and demands which may or are to be required or permitted to be given by either party to the other hereunder shall be in writing. All notices and demands by the Landlord to the Tenant shall be personally served on Tenant at the Premises or shall be sent by United States certified mail, return receipt requested, postage prepaid, addressed to the Tenant at the Premises, or to such other place as Tenant may from time to time designate in a notice to the Landlord. All notices and demands by the Tenant to the Landlord shall be personally served on Landlord at the office of the Building or shall be sent by United States certified mail, return receipt requested, postage prepaid, addressed to the Landlord in care of John B. Miles, Esq., McDermott, Will & Emery at 1301 Dove Street, Suite 500, Newport Beach, California 92660, or to such other person or place as the Landlord may from time to time designate in a notice to the Tenant. All notices shall be deemed effective upon receipt. If personally delivered, notices shall be deemed received at the time of delivery. If any notice is sent by mail, the same shall be deemed delivered and received on the date of receipt, refusal or nondelivery indicated on the return receipt. Any notice provided for herein may also be sent by facsimile transmission or by any reputable overnight courier so long as written confirmation of delivery of such notice is obtained by the sender. 33.4 [INTENTIONALLY DELETED.] 33.5 MARGINAL HEADINGS. The marginal headings and Paragraph titles to the Paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 33.6 TIME. Time is of the essence of this Lease and of each and all of its provisions in which performance is a factor. Page 41 33.7 SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of the parties hereto. 33.8 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant to Landlord of rent or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Landlord by terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or of sum due from Tenant shall not be received by Landlord or Landlord's designee within five (5) days after said amount is due, then Tenant shall pay to Landlord a late charge equal to three percent (3%) of such overdue amount for the first late payment during any twelve (12) month period and six percent (6%) of such overdue amount for any other late payment during such twelve (12) month period. In addition, any amount not paid when due shall bear interest at the rate of ten percent (10%) per year from the due date until paid. The parties hereby agree that such late charges and interest represent a fair and reasonable estimate of the cost that Landlord will incur by reason of the late payment by Tenant. Acceptance of such late charges and interest by the Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder regardless of any indication to the contrary on the check cashed. In the event that any check or other payment device for rent, or any other charge hereunder, is returned due to insufficient funds or any other reason, the foregoing late payment and interest charges shall apply and Landlord may require all further payments to be made by money order, cashier's check or in cash. 33.9 PRIOR AGREEMENTS. This Lease and the Exhibits hereto contain all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreements or understanding pertaining to any such matters shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or Page 42 their respective successors in interest. This Lease shall not be effective or binding on any party until fully executed by both parties hereto. 33.10 INABILITY TO PERFORM. This Lease and the obligations of each party hereunder shall not be affected or impaired because the other party is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such liability or delay is caused by reason of strike, labor troubles, acts of God, or any other cause beyond the reasonable control of such other party. 33.11 ATTORNEYS' FEES. In the event of any action or proceeding brought by either party against the other under this Lease the prevailing party shall be entitled to recover all costs and expenses including the fees of its attorneys in such action or proceeding in such amount as the court may adjudge reasonable as attorneys' fees. If Landlord is involuntarily made a party defendant to any litigation concerning this Lease or the Premises by reason of any act or omission of Tenant, then Tenant shall hold Landlord harmless from all costs, liabilities, damages and expenses by reason thereof, including attorneys' fees and all costs incurred by Landlord in such litigation. 33.12 SALE OF PREMISES BY LANDLORD. In the event of any sale of the Building, Landlord shall be and is hereby entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence or omission occurring after the consummation of such sale; and the purchaser, at such sale or any subsequent sale of the Premises shall be deemed, without any further agreement between the parties or their successors in interest or between the parties and any such purchaser, to have assumed and agreed to carry out any and all of the covenants and obligations of the Landlord under this Lease arising out of any act, occurrence or omission occurring after the consummation of such sale. 33.13 SUBORDINATION, ATTORNMENT. Without the necessity of any additional documents being executed by Tenant for the purpose of effecting a subordination and at the election of Landlord or any mortgagees with a lien on the Building or ground lessor with respect to Building, this Lease is subject and subordinate to any and all ground or underlying leases, mortgages or deeds of trust which may hereafter be executed covering the Premises, the Building and the real property of which it is a part, or any Page 43 renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof. Notwithstanding the foregoing, Tenant agrees, within ten (10) days after Landlord's written request therefor, to: (a) execute, acknowledge and deliver any and all documents or instruments requested by Landlord, or that are necessary or proper to assure the subordination of this Lease to any such mortgages, deeds of trust, or leasehold estates; and (b) supply such financial information concerning Tenant as may be requested by any ground lessor or lender. Notwithstanding such subordination, Tenant's quiet enjoyment of the Premises will not be disturbed so long as Tenant pays rent and observes and performs all of the provisions of this Lease to be observed and performed by Tenant. Notwithstanding anything to the contrary set forth in this Paragraph, Tenant hereby attorns and agrees to attorn to (at the option of) any person, firm, or corporation purchasing or otherwise acquiring the building and the real property of which it is a part, at any sale or other proceeding or pursuant to the exercise of any other rights, powers, or remedies under such mortgages, or deeds of trust, or ground or underlying leases, as if such person, firm or corporation had been named as Landlord herein, provided that such person, firm, or corporation shall accept the Premises subject to this Lease. Tenant hereby appoints Landlord the attorney-in-fact of Tenant, irrevocably, to execute and deliver any documents provided for herein for and in the name of Tenant; such power, being coupled with an interest, being irrevocable. The provisions of this Paragraph to the contrary notwithstanding, and so long as Tenant is not in default hereunder, this Lease shall remain in full force and affect for the full term hereof. 33.14 NAME. Tenant shall not use the name of the Building or of the Project for any purpose other than as an address of the business to be conducted by the Tenant in the Premises. 33.15 SEPARABILITY. Any provision of this Lease which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof and such other provision shall remain in full force and affect. Page 44 33.16 CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 33.17 CHOICE OF LAW. This Lease shall be governed by the laws of the State of California. 33.18 AUCTIONS. Tenant shall not conduct any auction on the Premises without Landlord's prior written consent. 33.19 [INTENTIONALLY DELETED.] 33.20 NEGOTIATED TRANSACTION. This Lease has been negotiated at arm's length. Accordingly, the provisions of this Lease shall be deemed to have been drafted by all of the parties and any rule of law that would require interpretation of this Lease against the party that has drafted it is not applicable and is waived. 33.21 [INTENTIONALLY DELETED.] 33.22 QUITCLAIM OF INTEREST. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within five (5) days after written demand from Landlord to Tenant, any quitclaim deed or other document which may be reasonably requested by any reputable title insurance company to remove this Lease as a matter affecting title to the Premises on a preliminary title report or title policy issued with respect to the Premises. 33.23 [INTENTIONALLY DELETED.] 33.24 SURVIVAL OF INDEMNITIES. The obligations of the indemnifying party under each and every indemnification and hold harmless provision in this Lease shall survive the expiration or earlier termination of this Lease to and until the last to occur of: (a) the last date permitted by law for the bringing of any claim or action with respect to which indemnification may be claimed by the indemnified party against the indemnifying party under such provisions, or (b) the date on which any claim or action for which indemnification may be claimed under such provision is fully and finally resolved and, if applicable, any compromise thereof or judgment or award thereon is paid in full by the indemnifying party and the indemnified party is reimbursed by the indemnifying party for any amounts paid by the indemnified party in compromise thereof or upon a judgment or award thereon and in defense of such action or claim, Page 45 including reasonable attorneys' fees incurred. Notwithstanding anything to the contrary in that certain Asset Purchase Agreement or Secured Indemnity Agreement, each dated approximately of even date herewith and executed by Landlord and Tenant, or that certain Deed of Trust, dated approximately of even date herewith and executed by Landlord, as trustor, in favor of Tenant, as beneficiary, none of the representations, warranties, or other covenants or obligations herein are secured by such Deed of Trust. 33.25 NO REPRESENTATION BY LANDLORD. In no event shall the review, approval, inspection or examination by Landlord of any item to be reviewed, approved, inspected or examined by Landlord under the terms of this Lease be deemed to be an approval of, or representation or warranty as to, the adequacy, accuracy, sufficiency or soundness of any such item or the quality or suitability of such item for its intended use. Any such review, approval, inspection or examination by Landlord shall be for the sole purpose of protecting Landlord's interests in the Building and the Project under this Lease, and no third parties shall have any rights pursuant thereto. 34. BROKERS. Tenant warrants that it has had no dealings with any real estate broker or agents in connection with the negotiation of this Lease and it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease. 35. QUIET ENJOYMENT. Upon the payment by Tenant of Base Rent, Additional Rent and all other sums to be paid hereunder by Tenant and the observance and performance of all covenants, conditions and provisions on Tenant's part to be observed and performed under this Lease, Tenant shall have quiet possession of the Premises for the entire Term subject to all of the provisions of this Lease. Page 46 The parties hereto have executed this Lease at the place and on the dates specified immediately adjacent to their respective signatures. ALL POST, INC., a California corporation By: ----------------------------------- By: ----------------------------------- Address Execution Date: ----------------------------- ---------------------- - ------------------------------------- "Landlord" VDI MEDIA, a California corporation By: ----------------------------------- By: ----------------------------------- Address Execution Date: ----------------------------- ---------------------- - ------------------------------------- "Tenant" Page 47 SCHEDULE 1
BASE RENT Adjustment Date Base Rent Per Month - --------------- ------------------- First Adjustment Date $40,000.00 Second Adjustment Date $41,200.00 Third Adjustment Date $42,436.00 Fourth Adjustment Date $43,709.08 Fifth Adjustment Date $45,020.35 Sixth Adjustment Date $46,370.96 Seventh Adjustment Date $47,762.09 Eighth Adjustment Date $49,194.95 Ninth Adjustment Date $50,670.80
SCHEDULE 1 EXHIBIT A PREMISES DESCRIPTION That certain real property situated in the City of Burbank, County of Los Angeles, State of California, more particularly described as: Lots 185, 187, 189, 191 and the North one-half of Lot 293 of Tract 7383, as per map recorded in Book 84, Pages 20 and 21 of Maps, in the office of the County Recorder of said County. EXHIBIT A EXHIBIT B BUILDING RULES AND REGULATIONS [To be mutually agreed upon by Tenant and Landlord, such agreement not to be unreasonably withheld or delayed] EXHIBIT B EXHIBIT C ENVIRONMENTAL AUDIT REPORT EXHIBIT C EX-10.18 4 EXHIBIT 10.18 BUILDING LEASE 1. PARTIES. This Building Lease ("Lease"), dated for reference purposes only, June 11, 1998, is made by and between ALL POST, INC., a California corporation, herein called "Landlord" and VDI MEDIA, a California corporation, herein called "Tenant." 2. PREMISES. 2.1 Landlord does hereby lease to Tenant and Tenant hereby leases from Landlord that certain real property (herein called "Premises") indicated on EXHIBIT A attached hereto and by reference thereto made a part hereof. Said Premises are commonly known as 2660 West Olive Avenue, Burbank, California and have been improved with a building of approximately 33,000 square feet (the "Building"). The Premises are more particularly described in EXHIBIT A hereto. Any statement of size set forth in this Lease or that may have been used in calculating rental is an approximation which Tenant and Landlord agree is reasonable. Notwithstanding the foregoing, the Tenant or Landlord may elect, at its sole cost, to cause the square footage of the Building to be measured by a California licensed architect according to the following criteria: (i) the square footage of each above ground floor shall be based on measurements from the exterior of all exterior walls; and (ii) the square footage of the basement area shall be based on measurements from the interior of all basement exterior walls. When completed, Tenant or Landlord, as the case may be, may deliver its measurements and calculations to the other and, if within ten (10) business days of delivery, the other party does not object in writing to the calculated square footage of the Building, such square footage shall be used to recalculate Monthly Rent as provided at Paragraph 5 below. If the other party disagrees in writing with the calculated square footage within such ten (10) business-day period, then it may conduct its own calculation thereof in accordance with this paragraph which shall be completed as soon as reasonably possible. If after the time periods provided in this paragraph have elapsed and Landlord and Tenant are still in disagreement as to the appropriate square Page 1 footage after the second calculation, the matter shall be submitted to a California licensed architect selected by the other two architects and such architect shall determine which of the two previously made calculations of square footage shall be used. Such architect's determination shall be binding on Landlord and Tenant. Notwithstanding anything herein to the contrary, the recalculation of the square footage of the Building must be commenced by the delivery no later than August 15, 1998 of the initial recalculation by one party to the other. Failure to do so shall be deemed both parties' agreement that the Building contains 33,000 square feet for all purposes under this Lease. 2.2 This Lease is subject to the terms, covenants and conditions herein set forth and Tenant and Landlord each covenant to the other as a material part of the consideration for this Lease to keep and perform each and all of said terms, covenants and conditions to be kept and performed by Tenant or Landlord, as applicable, and that this Lease is made upon the condition of said performance. 2.3 Landlord shall deliver the Premises to Tenant broom clean and free of debris and in good operating order, condition and repair on the Commencement Date (as defined below) and warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air condition systems ("HVAC"), loading doors, if any, and all other such elements in the Premises, other than those constructed by Tenant shall be in good, operating condition on the Commencement Date and that the structural elements of the roof, bearing walls and foundation of the Building shall be free of material defects. 2.4 Landlord warrants that the improvements on the Premises materially comply with all applicable laws, covenants or restrictions of record, building codes, regulations and ordinances ("Applicable Requirements") in effect on the Commencement Date. This warranty does not apply to the use to which Tenant will put the Premises or to any alterations or modifications made or to be made to the Premises by Tenant. 3. TERM. The term of this Lease shall be for nine (9) months, commencing on the 11th day of June, 1998 ("Commencement Date"), and ending on the 10th day of March, 1999 ("Term"), subject to earlier termination as provided herein. Notwithstanding the foregoing, Landlord may terminate this Lease on not less than thirty (30) days' advance written notice to Tenant with such termination to be effective on the Page 2 date set forth in such notice which date shall not be earlier than December 10, 1998. In addition to Landlord's foregoing right to terminate the Lease, Tenant may, on thirty (30) days' advance written notice to Landlord, (i) terminate this Lease or (ii) reduce the size of the Premises by returning to Landlord portions of the Premises as described in SCHEDULE 1 hereto. Any portion of the Premises returned to Landlord pursuant to this Paragraph 3 is referred to herein as "Former Premises." Effective on the date on which any portion of the Premises are transitioned to Former Premises, the Monthly Rent shall be reduced in an amount equal to the Monthly Rent allocable to the Former Premises as more particularly set forth in SCHEDULE 1. Additionally, "Premises" shall then be defined to exclude all Former Premises. Tenant acknowledges that any Former Premises may be leased by Landlord to third parties. In such event Landlord shall have the right to designate portions of the Premises as "common areas" for joint use by Landlord, Tenant, such third party tenants and others. The common areas shall include only such minimal areas as are necessary to provide for ingress and egress to the Former Premises and areas for use by others in connection with the Former Premises including, by way of example, restroom facilities, stairs, elevators, and parking areas. 4. POSSESSION. Landlord shall deliver possession of the Premises to Tenant on the Commencement Date. 5. MONTHLY RENT. Tenant agrees to pay to Landlord as "Monthly Rent," without prior notice, offset, deduction or demand, for the Premises the sum of Sixty Two Thousand Seven Hundred Dollars ($62,700) ( which equates to One and 90/100 Dollar ($1.90) per square foot of the Building and which is subject to adjustment as provided at Subparagraph 2.1 above), in advance, on or before the first day of the first full calendar month of the term hereof and a like sum on or before the first day of each and every successive calendar month thereafter during the Term, except that the first month's rent shall be paid upon execution hereof. Monthly Rent for any period during the term hereof which is for less than one (1) month shall be a prorated portion of the monthly installment herein, based upon a thirty (30) day month. Page 3 Monthly Rent shall be paid to Landlord in lawful money of the United States of America, which shall be legal tender at the time of payment, at such place as Landlord may from time to time designate in writing. 6. [INTENTIONALLY DELETED.] 7. [INTENTIONALLY DELETED.] 8. USE. Tenant shall use the Premises for video duplication and audio production services, vault storage of videos and any ancillary general office use, and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord which consent shall not be unreasonably withheld. Tenant shall not do or permit anything to be done in or about the Premises, nor bring or keep anything therein, which will in any way increase the existing rate of, or adversely affect, any fire insurance upon the improvements at the Premises or any of its contents, or cause cancellation of any insurance policy covering said improvements or any part thereof or any of its contents. Tenant shall not allow the Premises to be used for any improper, immoral or unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not do or permit to be done anything in or about the Premises which will in any way materially and adversely obstruct or interfere with the rights of other tenants or occupants of the improvements at the Premises or injure or annoy them on or about the Building. Tenant, its employees, agents and contractors shall not commit any waste in or upon the Premises. Without limiting the generality of the foregoing, Tenant shall not: (i) obstruct or store anything in the common areas (including service or exit corridors), (ii) place a load upon any floor of the Premises which exceeds the floor load per square foot which such floor was designed to carry or (iii) permit any objectionable sounds or odors to carry outside the Premises. Except for the specific uses described in the first sentence of this Paragraph 8 (i.e., video duplication, audio production services and vault storage of videos), Landlord shall require similar restrictions on use as contained in this paragraph from any tenants of the Former Premises, if any, for the benefit of Tenant and such other tenants. Page 4 9. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force, and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's improvement or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of the fact as between the Landlord and Tenant. 10. ALTERATIONS AND ADDITIONS. 10.1 Only in the event Tenant returns possession of a portion of the Premises to Landlord pursuant to Paragraph 3 above, Landlord shall have the right, at any time thereafter, to change the arrangement and/or location of entrances or passageways, doors and doorways, corridors, elevators, stairs, toilets, and other public parts of the improvements at the Premises. Only if required by law or government regulations and upon giving Tenant as much advance notice thereof as is reasonably practical, Landlord shall have the right to change the name, number or designation by which the Premises are commonly known. 10.2 Tenant shall not make any alterations, additions or improvements without the prior written consent of Landlord which shall not be unreasonably withheld. All such alterations, additions and improvements shall be made in conformity with plans therefor reasonably approved by Landlord in writing prior to the commencement of such work and shall be performed by a tenant improvements contractor reasonably approved by Landlord. All such alterations, additions and improvements (except movable furniture, equipment, furnishings and trade fixtures) shall become the property of Landlord and shall be Page 5 surrendered with the Premises, as a part thereof, at the expiration or earlier termination of the term hereof. All such alterations, additions or improvements shall, however, be made by Tenant at Tenant's sole expense. Upon termination of this Lease, Tenant shall, upon demand by Landlord, at Tenant's sole cost and expense, forthwith remove any alterations, additions or improvements (except those made initially at the commencement of Tenant's possession of the Premises with Landlord's written approval) made by Tenant and designated by Landlord at the time of Landlord's initial approval to be removed, and repair and restore the Premises to their original condition, reasonable wear and tear excepted. Any personal property left on or in the Premises at the expiration or earlier termination of this Lease may, at the option of Landlord, after fifteen (15) days' written notice to Tenant, either be deemed abandoned and retained by Landlord, or be placed in storage at a public warehouse in the name of, for the account of and at the expense and risk of Tenant, or otherwise disposed of by Landlord in a manner provided by law. Tenant releases Landlord of and from any and all claims and liability for damage to, or destruction or loss of, property left by Tenant upon the Premises at the expiration or other termination of this Lease. Tenant further waives all claims to all property (and the proceeds thereof) abandoned by Tenant and retained or disposed of by Landlord. All alterations, additions and/or improvements to the Premises made by Tenant shall comply with the plans therefor approved in advance by Landlord. Such plans and any specifications associated therewith shall be prepared by an architect or interior designer reasonably approved in advance by Landlord. All such work by Tenant shall comply with all applicable requirements of all governmental authorities having jurisdiction of the Premises and shall comply with all reasonable rules and regulations established by Landlord to ensure the safety, cleanliness and good order of the Premises and its occupants, including but not limited to those relating to usage of elevators and loading docks, establishment of off-Premises staging areas, disposal of refuse and the hours of performing operations which result in the creation of noise, dust and odors. No such alterations, additions or improvements by Tenant shall incorporate therein any hazardous materials, as defined in Paragraph 27. Page 6 10.3 No antenna, satellite dish, microwave receiver or other receiving or transmission equipment shall be installed by Tenant in or on the roof of the improvements at the Premises or elsewhere at the Premises except with the prior written consent of Landlord which shall not be unreasonably withheld. Landlord's consent shall not be withheld unless such installation would materially injure the Premises. Any such installation by Tenant shall be only the particular equipment specifically approved by Landlord, shall be limited to the manner and location approved by Landlord and shall be subject to such terms and conditions as are provided by Landlord to Tenant at the time Landlord approves such installation. 11. SURRENDER/REPAIRS. 11.1 Tenant shall surrender the Premises by the end of the Term or any earlier Termination Date with all the improvements, parts and services thereof, room clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear accepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Tenant shall repair any damage occasioned by the installation, maintenance removal of its trade fixtures, furnishings and personal property. 11.2 Subject to the provisions of Paragraph 22 hereof, Landlord shall repair and maintain the structural portions of the Premises, including the basic plumbing, air conditioning, heating, and electrical systems, installed or furnished by Landlord, unless such maintenance and repairs are necessitated in part or in whole by the act, neglect, fault or omission of any duty of Tenant, its agents, servants, employees or invitees, in which case Tenant shall pay to Landlord the reasonable cost of such maintenance and repairs. Landlord shall not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Except as provided in Paragraph 22 hereof, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Premises or in or to fixtures, appurtenances and/or equipment therein. As a material inducement to Page 7 Landlord's entering into this Lease, Tenant expressly waives any right to make repairs at Landlord's expense whether granted by law, statute, ordinance or otherwise now or hereafter in effect, including but not limited to California Civil Code Sections 1941, 1941.1. and 1942. 12. LIENS. Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished or obligations incurred by or for Tenant. In the event that Tenant shall not, within ten (10) business days following the imposition of any such lien, cause the same to be released of record by payment or posting of a proper lien release bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as it shall reasonably deem proper, including payment of or defense against the claim giving rise to such lien. All sums paid by Landlord, and all reasonable expenses incurred by it in connection therewith, shall create automatically an obligation of Tenant to pay an equivalent amount as additional rent, which additional rent shall be payable by Tenant within five (5) days after Tenant's receipt of Landlord's demand therefor with interest at the rate of ten percent (10%) interest per annum to be charged from date of payment by Landlord until paid by Tenant. Nothing herein shall imply any consent by Landlord to subject Landlord's estate to liability under any mechanics' or other lien law. Tenant shall give Landlord adequate opportunity, and Landlord shall have the right, to post in or on the Premises such notices of nonresponsibility as are provided for in the mechanics lien laws of the State of California. 13. ASSIGNMENT AND SUBLETTING. 13.1 Tenant shall not, either voluntarily, involuntarily or by operation of law, assign, sublet, mortgage or otherwise encumber all or any portion of its interest in this Lease or in the Premises or permit the Premises to be occupied by anyone other than Tenant or Tenant's employees without obtaining the prior written consent of Landlord, which consent shall be subject to the provisions of subparagraphs 13.2 through 13.8 below. Any such attempted assignment, subletting, mortgage or other encumbrance without such consent shall be null and void and of no effect. Page 8 13.2 No assignment, subletting, mortgage or other encumbrance of Tenant's interest in this Lease shall relieve Tenant of its obligation to pay the rent and to perform all of the other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any person other than Tenant shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any subletting, assignment, mortgage or other encumbrance. Landlord's consent to one sublease, assignment, mortgage or other encumbrance shall not be deemed to constitute consent to any subsequent attempted subletting, assignment, mortgage or other encumbrance. 13.3 If Tenant desires at any time to assign this Lease or to sublet the Premises or any portion thereof, it shall first notify Landlord of its desire to do so and shall submit in writing to Landlord: (i) the name of the proposed subtenant or assignee; (ii) the nature of the proposed subtenant's or assignee's business to be carried on in the Premises; (iii) the terms, conditions and provisions of the proposed sublease or assignment and the proposed effective date thereof; (iv) such financial information as Landlord may reasonably request concerning the proposed subtenant or assignee; and (v) the minimum payment of $500.00 required pursuant to subparagraph 13.8 below. The submission pursuant to clause (iii) shall include a copy of any agreement, escrow instructions or other document which contains or memorializes the terms and provisions of the transaction for which Landlord's consent is required. Similarly, if Tenant desires to mortgage or encumber its interest in this Lease, Tenant shall first supply to Landlord in writing such information as to such transaction as may be reasonably requested by Landlord. 13.4 [INTENTIONALLY DELETED] 13.5 At any time within thirty (30) days after Landlord's receipt of the last of the information specified in subparagraph 13.3 above, Landlord may, by written notice to Tenant, (i) approve the proposed assignment or sublease; or (ii) subject to the provisions of subparagraph 13.6 below, reasonably disapprove the proposed assignment or sublease. If Landlord does not disapprove the proposed subletting or assignment in writing within said thirty (30) day period, Tenant may thereafter, within ninety (90) days after the expiration of said thirty (30) day period, enter into a valid assignment or sublease of the Premises or portion thereof, upon the terms and conditions set forth in the information Page 9 furnished by Tenant to Landlord pursuant to subparagraph 13.3 above. Provided, however, that any material change in such terms shall be subject to Landlord's consent as provided in this Paragraph and, provided further, that any amount to be paid by Tenant in connection with such subletting or assignment pursuant to subparagraph 13.4 above shall be paid to Landlord upon and as a condition to consummation of such transaction. 13.6 Landlord shall have the right to reasonably approve or disapprove any proposed assignee or sublessee. In exercising such right of reasonable approval or disapproval, Landlord shall be entitled to take into account any fact or factor which Landlord reasonably deems relevant to such decision, including, but not necessarily limited to, the following, all of which are agreed to be reasonable factors for Landlord's consideration: (a) The financial strength of the proposed assignee or subtenant. (b) The proposed use of the Premises by such proposed assignee or subtenant and the compatibility of such proposed use with the quality of the other uses in the Building. (c) Any violation which the proposed use by such proposed assignee or subtenant would cause of any other rights granted by Landlord to other tenants of the Building. (d) Any materially adverse impact of the proposed use of the Premises by such proposed assignee or subtenant upon the parking or other services provided for Building tenants generally. (e) Whether there then exists any default by Tenant pursuant to this Lease or any non-payment or non-performance by Tenant under this Lease which, with the passage of time and/or the giving of notice, would constitute a default under this Lease. (f) Whether the proposed assignee or subtenant is a public or governmental agency. Moreover, Landlord shall be entitled to be reasonably satisfied that each and every covenant, condition or obligation imposed upon Tenant by this Lease, and each and every right, remedy or benefit afforded Landlord by this Lease, is not impaired or diminished by such assignment or subletting. Landlord and Tenant acknowledge that the express standards and provisions set forth in this Lease dealing with Page 10 assignment and subletting, including those set forth in this subparagraph 13.6, have been freely negotiated and are reasonable at the date hereof taking into account Tenant's proposed use of the Premises and the nature and quality of the Premises. No withholding of consent by Landlord shall give rise to any claim by Tenant or any proposed assignee or subtenant or entitle Tenant to terminate this Lease or to any abatement of rent. Approval of any assignment of Tenant's interest shall, whether or not expressly so stated, be conditioned upon such assignee assuming, in writing, all obligations of Tenant hereunder. In the event Landlord withholds its consent to an assignment or subletting proposed by Tenant and Tenant believes such withholding is unreasonable, Tenant may submit such matter to binding arbitration in accordance with subparagraph 13.9 below. 13.7 All exterior sign rights contained in this Lease are personal to Tenant. Consent by Landlord to any assignment or subletting shall not include consent to the assignment or transfer of any such rights with respect to the Premises or any other special privileges or extra services granted to Tenant by this Lease, any addendum or amendment hereto or any letter agreement. All such rights, privileges and extra services shall terminate upon such subletting or assignment unless Landlord specifically grants the same, in writing, to such assignee or subtenant. 13.8 The voluntary or other surrender of this Lease by Tenant or a mutual cancellation hereof, shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies or shall operate as an assignment to Landlord of such subleases or subtenancies. If Tenant is a corporation which is not required under the Securities Exchange Act of 1934 to file periodic information reports with the Securities and Exchange Commission, or is an unincorporated association or partnership, the transfer, assignment or hypothecation of any stock or interest in such corporation, association or partnership in the aggregate in excess of twenty-five percent (25%) shall be deemed and assignment within the meaning and provisions of this Paragraph 13. Tenant agrees to reimburse Landlord not less than $500.00 for each proposed transfer, for Landlord's administrative time and reasonable costs and attorneys' fees incurred in connection with the processing and documentation of Page 11 any such requested assignment, subletting, transfer, change of ownership or hypothecation of this Lease or Tenant's interest in and to the Premises or any portion thereof. 13.9 For purposes of this Lease, an assignment or sublease shall include the merger or consolidation of Tenant. Landlord's consent to such, merger or consolidation shall not be required where (i) the transferee/successor-in-interest to Tenant's rights under this Lease has assumed Tenant's obligations hereunder in writing, (ii) the transferee/successor-in-interest has provided written notice to Landlord of such merger or consolidation, and (iii) the shareholders' equity of such transferee/successor-in-interest immediately after such merger or consolidation is equal to or greater than the lesser of (y) Tenant's shareholders' equity as of March 31, 1998 or (z) Tenant's shareholders' equity on the day immediately preceding such merger or consolidation. 13.10 In the event Tenant believes that Landlord's refusal to consent to an assignment or subletting is unreasonable, Tenant may submit the matter to binding arbitration before a single arbitrator appointed by Judicial Arbitration and Mediation Services (J.A.M.S.). The request for arbitration shall be submitted by Tenant in writing to J.A.M.S. no later than ten (10) business days after delivery of Landlord's written notice to Tenant of its refusal to consent. Tenant's notice to J.A.M.S. shall be sent concurrently to Landlord. Landlord and Tenant may each supply written briefs to the arbitrator and the other party within ten (10) days after receipt of written notice of the appointment of the arbitrator by J.A.M.S. Landlord and Tenant may also deliver written reply briefs to the arbitrator and the other party within five (5) days after receipt of the other party's brief. The arbitrator shall render his/her decision, in writing, as soon as reasonably possible after the last day on which the parties can submit reply briefs. The cost of the arbitrator shall be shared equally by Landlord and Tenant. 14. HOLD HARMLESS. 14.1 Except for Landlord's gross negligence or willful misconduct, Tenant shall indemnify, protect, defend and hold harmless the Premises, Landlord and its employees and agents from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultant's fees, expenses and/or liabilities arising out of, involving or in connection with, the use and/or occupancy of Page 12 the Premises by Tenant and/or Tenant's breach of the terms of this Lease. If any action or proceeding is brought against Landlord by reason of any of the foregoing matters, Tenant shall, upon notice, defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord and Landlord shall cooperate with Tenant in such defense. Landlord need not have first paid any such claim in order to be defended or indemnified. 14.2 Landlord or its agents shall not be liable for any damage to property entrusted to employees of Landlord, nor for loss or damage to any property by theft or otherwise, nor for any injury to or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Premises (including improvements which comprise a part of the Premises), or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place, resulting from dampness or any other cause whatsoever, unless caused by or due to the gross negligence or willful misconduct of Landlord, its agents, servants or employees. Landlord or its agents shall not be liable to Tenant for interference with the light or other incorporeal hereditaments, loss of business by Tenant. Landlord or its agents shall not be liable to Tenant for any damages caused by the act or neglect of any other tenant in the Building. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or of defects therein or in the fixtures or equipment. 14.3 Except for Tenant's negligence or willful misconduct, Landlord shall indemnify, protect, defend and hold harmless Tenant and its agents and employees from and against any and all claims, damages, liens, judgments, penalties, attorneys' and consultant's fees, expenses and/or liabilities arising out of, involving or in connection with the gross negligence or willful misconduct of Landlord, its employees and agents in, on or about the Premises and/or Landlord's breach of the terms of this Lease. 15. SUBROGATION. Landlord and Tenant each hereby waive any and all rights of recovery against the other, and (to the extent such parties have waived rights of recovery as to Landlord or Tenant, as the case may be) against any other tenant or occupant of the Building and against the officers, employees, agents, representatives, customers and business visitors of such other party and of such other tenant or Page 13 occupant of the Building for loss of, or damage to, such waiving party or its property or the property of others under its control arising from any cause insured against under any policy of property insurance required to be carried by such waiving party pursuant to the provisions of this Lease (or any other policy of insurance carried by such waiving party in lieu thereof) at the time of such loss or damage. Landlord and Tenant shall, upon obtaining the policies of insurance which they are required to maintain under this Lease, give notice to their respective insurance carrier(s) that the foregoing mutual waiver of subrogation is contained in this Lease. 16. LIABILITY INSURANCE. 16.1 At all times during the Term, Tenant shall maintain in effect policies of fire insurance covering: (i) all leasehold improvements (including any alterations, additions or improvements as may be made by Tenant pursuant to provisions of Article 10 hereof) in which Tenant may have an insurable interest, and (ii) trade fixtures, merchandise and other personal property which from time to time are in, on or upon the Premises, in an amount not less than one hundred percent (100%) of their actual replacement cost from time to time during the term of this Lease, providing protection against any peril included within the classification "All-Risk". The proceeds of such insurance shall be used for the repair or replacement of the property so insured. Upon termination of this Lease following a casualty as set forth herein, the proceeds under subpart (i) above shall be paid to Landlord and, the proceeds under subpart (ii) above shall be paid to Tenant. 16.2 Tenant shall, at all times during the Term and at its own cost and expense, procure and continue in force comprehensive general liability insurance for bodily injury and property damage adequate to protect Landlord against liability for injury to or death of any person arising in connection with the use, operation or condition of the premises or construction of improvements thereon. Such insurance at all times shall be in an amount of not less than a combined single limit of Two Million Dollars ($2,000,000.00), insuring against any and all liability of the insured with respect to the Premises or arising out of the use or occupancy thereof. Page 14 16.3 Tenant shall, at all times during the Term and at its own cost and expense, procure and continue in force worker's compensation coverage as required by law together with employees' liability coverage. 16.4 If required by Landlord, Tenant shall, at all times during the term hereof and at its own cost and expense, procure and continue in force business interruption and/or loss of income insurance in amounts satisfactory to Landlord. 16.5 In no event shall the then limits of any policy be considered as limiting the liability of Tenant under this Lease. 16.6 All insurance required to be carried by Tenant hereunder shall be issued by responsible insurance companies, qualified to do business in the State of California, rated A + XII or better in the current Bests' Insurance Guide. Each insurance policy required to be maintained by Tenant hereunder pursuant to subparagraphs 16.1 and 16.2 shall name Landlord, its officers, agents, and employees, and at Landlord's request any mortgagee of Landlord, as additional insureds, as their respective interests may appear, and copies of all policies or certificates evidencing the existence and amounts of such insurance shall be delivered to Landlord by Tenant prior to Tenant's occupancy of the Premises. No such policy shall be cancelable or materially reduced except after thirty (30) days prior written notice to Landlord. Tenant shall furnish Landlord with renewals or "binders" of any such policy at least ten (10) days prior to the expiration thereof. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to), after fifteen (15) days notice to Tenant, procure said insurance on Tenant's behalf and charge the Tenant the premium, payable upon demand. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by the Tenant provided such blanket policies expressly afford coverage to the Premises and to Tenant as required by this Lease. 16.7 [INTENTIONALLY DELETED.] 16.8 At all times during the Term, Landlord shall maintain in effect a policy or policies of property insurance covering the building improvements at the Premises in an amount not less than the Page 15 replacement cost thereof, providing protection against any peril included within the classification "All Risk," excluding coverage for flood or earthquake (unless Landlord in its sole discretion elects to obtain endorsements for flood or earthquake). 16.9 [INTENTIONALLY DELETED.] 17. SERVICES AND UTILITIES. Landlord shall pay for all water, sewer, gas, heat, electrical and trash disposal services supplied to the Premises, together with any taxes thereon. Tenant shall be responsible and pay for any telephone, cable or other communication services supplied to the Premises. 18. PROPERTY TAXES. 18.1 Tenant shall be liable for, and shall pay thirty (30) days before delinquency, all taxes, levies and assessments levied against any personal property or trade fixtures placed by Tenant in or about the Premises, and, when possible, Tenant shall cause such personal property and trade fixtures to be assessed and billed separately from the Premises. If any such taxes, levies and assessments on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property, or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant, and if Landlord pays the taxes, levies and assessments based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall repay to Landlord upon demand, as additional rent, the taxes, levies and assessments so levied against Landlord, or the proportion of such taxes, levies and assessments resulting from such increase in the assessment, together with interest thereon from the date of payment by Landlord to the date of reimbursement by Tenant at the rate of ten percent (10%) per year. Provided, however, that in any such event, Tenant shall have the right, in the name of Landlord and with Landlord's full cooperation but without any cost to Landlord, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes, levies and assessments so paid under protest, any amount so recovered to belong to Tenant. Page 16 18.2 If the tenant improvements in the Premises, installed and/or paid for by Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which tenant improvements conforming to Landlord's "building standard" for the Premises are assessed, then the real property taxes and assessments levied against Landlord or the Premises by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of subparagraph 18.1 above. If the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining whether said tenant improvements are assessed at a higher valuation than Landlord's "building standard', such records shall be binding on both Landlord and Tenant; otherwise the actual cost of construction shall be the basis for such determination. 19. RULES AND REGULATIONS. Tenant agrees to abide by all rules and regulations of the Building and the Premises imposed by Landlord as set forth in EXHIBIT "B" attached hereto, as the same may be reasonably changed from time to time by Landlord upon reasonable notice to Tenant. Any such change shall be effective upon delivery of a copy thereof to Tenant. These rules and regulations are imposed for the cleanliness, good appearance, proper maintenance, good order and reasonable use of the Premises, and as may be necessary for the enjoyment of the Premises and the Former Premises by all tenants and their clients, customers and employees. 20. HOLDING OVER. If Tenant remains in possession of the Premises or any part thereof after the expiration of the term hereof, with the express written consent of Landlord, such occupancy shall be a tenancy from month to month at a rental in the amount of the last monthly rental, plus all other charges payable hereunder, and upon all the terms hereof applicable to a month to month tenancy. Any holding over without the express written consent obtained from Landlord by Tenant, shall not constitute a renewal or extension hereof or give Tenant any rights under this Lease. If Tenant shall hold over without the express written consent of Landlord, Landlord may, at its option, treat Tenant as a tenant at sufferance only and subject to all of the terms and conditions herein contained, except that the monthly rental shall be one-hundred fifty percent (150%) of the Monthly Rent applicable at the date of expiration plus all other Page 17 charges payable hereunder, and upon all the terms hereof applicable to a month to month tenancy, or at the then currently scheduled rent for comparable space in the Building without regard to any tenant concessions, whichever is greater. If Tenant fails to surrender the Premises upon the expiration of this Lease, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claims made by any succeeding tenant or by a purchaser of the Premises founded on or resulting from such failure to surrender. Acceptance by Landlord of rent after such expiration or earlier termination shall not constitute a consent to a holdover hereunder or result in a renewal of this Lease. 21. ENTRY BY LANDLORD. Landlord reserves, and shall at reasonable times, upon twenty-four (24) hours prior notice (except in the case of an emergency when prior notice will not be required), have the right to enter the Premises, inspect the same, provide any and all services which are to be provided by Landlord to Tenant hereunder, to submit said Premises to prospective purchasers or tenants, to post notices of non-responsibility, to post "for sale" and "for rent" signs, and to alter, improve or repair the Premises and any portion of the improvements at the Building that Landlord may deem necessary or desirable and may for that purpose erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, without abatement of rent so long as access to and use of the Premises shall not be blocked or prevented thereby, and further providing that the business of Tenant shall not be interfered with unreasonably. So long as access to and use of the Premises is not blocked or prevented by Landlord's actions contemplated by the immediately preceding sentence, Tenant shall have no claim for damages or for any injury or inconvenience to or interference with Tenant's business occasioned thereby. For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults, safes and files, and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency, in order to obtain entry to the Premises, without liability to Tenant except for any failure to exercise due care for Tenant's property. Any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed Page 18 or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the Premises or any portion thereof. 22. RECONSTRUCTION. 22.1 In the event the Premises are damaged by any peril: (a) In the event of total destruction of the Premises, this Lease shall terminate effective as of the date of such destruction. (b) In the event of partial destruction of the Premises, Landlord or Tenant on written notice to the other given within thirty (30) days of such partial destruction, may terminate this Lease. If neither Landlord nor Tenant so elects to terminate, Landlord shall be responsible for repairing such damage and restoring the Premises. (c) As used herein, a total destruction of the Premises shall have occurred where (a) the repair or restoration thereof, in Landlord's opinion, cannot be completed within one hundred eighty (180) days of commencement of repair or restoration; (b) the estimated cost thereof exceeds the insurance proceeds available for repair or restoration plus any amount which Tenant is obligated or elects to pay for such repair or restoration; (c) the estimated cost of repair or restoration of the Premises exceeds fifty percent (50%) of the full replacement cost of the Premises; or (d) the Premises cannot be restored except in a substantially different structural or architectural form than existed before the damage and destruction. Any other destruction of the Premises shall be deemed a partial destruction. In the event of a partial destruction and either Landlord or Tenant elects to terminate this Lease, this Lease shall expire, and all interest of Tenant in the Premises shall terminate, on the date specified in the notice and rent shall be paid up to the date of termination. Landlord shall refund to Tenant the rent theretofore paid for any period of time subsequent to such date of termination. (d) Notwithstanding anything herein to the contrary, any damage to the Premises not affecting more than ten percent (10%) of the floor area of the Premises may be repaired by Landlord at its Page 19 election and, in such event, Landlord shall diligently pursue such repair to completion and neither Landlord nor Tenant shall have the right to terminate this Lease. 22.2 Upon any termination of this Lease under any of the provisions of this Paragraph 22, the parties shall be released thereby, without further obligation to the other, from the date possession of the Premises is surrendered to the Landlord, except for items which have theretofore accrued and are then unpaid. 22.3 Unless the damage or destruction is caused by the gross negligence of Tenant or its employees or agents, or unless the Premises were unusable for a period of less than five (5) days, if the Premises are rendered totally or partially untenantable, Monthly Rent shall abate during the period of reconstruction in the same proportion to the total Monthly Rent as the portion of the Premises rendered untenantable bears to the entire Premises. In no event shall Tenant be entitled to any compensation or damages for loss of use of the whole or any part of the Premises or for any inconvenience occasioned by any such destruction, rebuilding or restoration of the Premises or access thereto. Tenant waives the provisions of California Civil Code Sections 1932(2) and 1933(4) and any present and future laws and case decisions to the same effect. 22.4 Notwithstanding any destruction or damage to the Premises, including the parking facilities, Tenant shall not be released from any of its obligations under this Lease except to the extent and upon the conditions expressly stated in this Paragraph 22. 22.5 [INTENTIONALLY DELETED.] 22.6 It is hereby acknowledged that if Landlord is obligated to, or elects to, repair or restore the Premises as herein provided, Landlord shall be obligated to make repairs or restoration only of those portions of the Premises which were originally provided at Landlord's expense, and the repair and restoration of items not provided at Landlord's expense shall be the obligation of Tenant. Tenant understands that Landlord will not carry insurance of any kind on Tenant's furniture, furnishings, fixtures, equipment or other personal property, and that Landlord shall not be obligated to repair any damage thereto or replace the same. Page 20 22.7 [INTENTIONALLY DELETED.] 23. DEFAULT. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: 23.1 Any failure by Tenant to pay the rent or to make any other payment required to be made by Tenant hereunder at the time specified for payment. Landlord shall give Tenant three (3) days' written notice of default, which 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, as amended. 23.2 The abandonment or vacation of the Premises by Tenant. Abandonment is herein defined to include, but is not limited to, any absence by Tenant from the Premises for thirty (30) days or longer except where Tenant has advised Landlord in writing that Tenant has not abandoned the Premises and Tenant continues during such absence to perform all of its obligations under this Lease. 23.3 Any failure by Tenant to observe and perform any other provision of this Lease to be observed or performed by Tenant, where such failure continues for thirty (30) days (except where a different period of time is specified in this Lease) after written notice by Landlord to Tenant; 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, as amended. If the nature of such default is such that the same cannot reasonably be cured within such thirty (30) day period Tenant shall not be deemed to be in default if Tenant shall within such period commence such cure and thereafter diligently prosecute the same to completion. 23.4 Tenant makes or has made, or furnishes or has furnished, any warranty, representation or statement to Landlord in connection with this Lease, or any other agreement to which Tenant and Landlord are parties, which is or was false or misleading in any material respect when made or furnished. 23.5 [INTENTIONALLY DELETED.] 23.6 The making by Tenant of any general assignment for the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, Page 21 the same is dismissed within sixty (60) days); the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within sixty (60) days; the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within sixty (60) days; or Tenant's convening of a meeting of its creditors or any class thereof for the purpose of effecting a moratorium upon or composition of its debts. 24. REMEDIES FOR DEFAULT. 24.1 In the event of any default by Tenant pursuant to Paragraph 23 above, then in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder by giving written notice of such intention to terminate. In the event that Landlord shall elect to so terminate this Lease then Landlord may recover from Tenant: (a) The worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (b) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss which Tenant proves reasonably could have been avoided; plus (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the term of this Lease after the time of award exceeds the amount of such rental loss that Tenant proves reasonably could be avoided; plus (d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including without limitation the unamortized balance of any tenant improvement allowance provided to Tenant by Landlord or of any tenant improvements constructed or paid for by Landlord at the commencement of the term hereof, which amount shall be deemed additional rent automatically due and payable hereunder upon the occurrence of an event of Page 22 default by Tenant and shall be recoverable as rent in any unlawful detainer or other action arising out of or pertaining to such default, whether or not specified in any notice given by Landlord as a condition or prior to the commencement of any such action; and (e) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable California law. 24.2 As used in subparagraphs 24.1(a) and (b) above, the "worth at the time of award" is computed by allowing interest at the rate of ten percent (10%) per annum. As used in subparagraph 24.1(c) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent. 24.3 In the event of any such default by Tenant, Landlord shall also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. 24.4 In the event of the vacation or abandonment of the Premises by Tenant or in the event that Landlord shall elect to re-enter as provided above or shall take possession of the Premises pursuant to legal proceedings or pursuant to any notice provided by law, then if Landlord does not elect to terminate this Lease as provided in this Paragraph 24, Landlord may from time to time, without terminating this Lease, either recover all rental as it becomes due or relet the Premises, or any part thereof, for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Election by Landlord to proceed pursuant to this subparagraph shall be made upon written notice to Tenant and shall be deemed an election of the remedy described in California Civil Code Section 1951.4 and, unless Landlord relets the Premises, Tenant shall have the right to sublet or assign subject to the prior written consent of Landlord. Such consent shall not be unreasonably withheld and shall be subject to all of the terms and provisions of Paragraph 13. Page 23 24.5 In the event that Landlord shall elect to so relet, then rentals received by Landlord from such reletting shall be applied: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any reasonable cost of such reletting; third, to the payment of the cost of any repairs to the Premises necessitated by Tenant's use; fourth, to the payment of rent due and unpaid hereunder; and the residue if any, shall be held by Landlord and applied in payment of future amounts as the same may become due and payable hereunder. Should the rent for such reletting, during any month for which the payment of rent is required hereunder, be less than the rent payable during that month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord immediately upon demand therefor by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord as soon as ascertained, any reasonable costs and expenses incurred by Landlord in such reletting or in making such repairs not covered by the rentals received from such reletting. 24.6 No re-entry or taking possession of the Premises by Landlord pursuant to this Paragraph 24 shall be construed as an election to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Landlord because of any default by Tenant, Landlord may at any time after such reletting elect to terminate this Lease for any such default. 24.7 In any action for unlawful detainer commenced by Landlord against Tenant by reason of any default hereunder, the reasonable rental value of the Premises for the period of the unlawful detainer shall be the amount of rent reserved in this Lease for such period. The rights and remedies reserved to Landlord herein, including those not specifically described, shall be cumulative and, except as otherwise provided by California statutory law in effect at the time, Landlord may pursue any or all of such rights and remedies, at the same time or otherwise. 24.8 All covenants and agreements to be performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent. If Tenant fails to pay any sum of money, other than rent, required to be paid by it or fails to perform any other act on its Page 24 part to be performed, and such failure continues beyond any applicable grace period set forth in the Paragraph providing for such obligation (or if no grace period is set forth in such Paragraph, then the applicable grace period pursuant to Paragraph 23), then in addition to any other remedies provided herein Landlord may, but shall not be obligated so to do, without waiving or releasing Tenant from any obligations of Tenant, make any such payment or perform any such other act on Tenant's part. Landlord's election to make any such payment or perform any such act on Tenant's part shall not give rise to any responsibility of Landlord to continue making the same or similar payments or performing the same or similar acts. Tenant shall, within ten (10) days after written demand therefor by Landlord, reimburse Landlord for all sums so paid by Landlord and all necessary incidental costs, together with interest thereon at the rate of ten percent (10%) per annum, accruing from the date of such payment by Landlord: and Landlord shall have the same rights and remedies in the event of failure by Tenant to pay such amounts as Landlord would have in the event of a default by Tenant in payment of rent. 25. LANDLORD'S LIABILITY. The liability of any successor-in-interest to Landlord under this Lease ("Successor Landlord") shall be limited to the Successor Landlord's estate in the Premises. 26. EMINENT DOMAIN. If the whole of the Premises shall be taken, or such part thereof shall be taken as shall substantially interfere with Tenant's use and occupancy of the balance thereof, under power of eminent domain, or sold, transferred, or conveyed in lieu thereof, either Tenant or Landlord may terminate this Lease as of the date of such condemnation or as of the date possession is taken by the condemning authority, whichever date occurs later. If any part of the Premises shall be so taken, sold, transferred or conveyed in lieu thereof, which does not substantially interfere with Tenant's use and occupancy of the balance thereof, this Lease shall not terminate but Landlord's and Tenant's rights shall be as set forth below. No award for any partial or entire taking shall be apportioned, and Tenant hereby assigns to Landlord any award which may be made in such taking or condemnation, together with any and all rights of Tenant now or hereafter arising in or to the same or any part thereof; provided, however, that nothing contained herein shall be deemed to give Landlord any interest in or require Tenant to assign to Landlord any award made to Tenant for the taking of personal property and fixtures belonging to Tenant Page 25 and removable by Tenant at the expiration of the term hereof, as provided hereunder, or for the interruption of, or damage to Tenant's business or for relocation expenses recovered therefor, against the condemning authority. In the event of a partial taking, or a sale, transfer, or conveyance in lieu thereof, which does not result in a termination of this Lease, Landlord shall, to the extent of any funds received from the condemning authority for repair or restoration, restore the Premises substantially to their condition prior to such partial taking, and thereafter Monthly Rent shall be abated in the proportion which the square footage of the part of the Premises so made unusable bears to the amount of area rented immediately prior to the taking. No taking for a period of less than thirty (30) days of all or a part of the Premises, including parking facilities, shall give Tenant any right to terminate this Lease, but Tenant shall receive an abatement of Monthly Rent. 27. HAZARDOUS MATERIALS. 27.1 Without limiting the generality of Paragraphs 8 and 9 of this Lease, Tenant covenants and agrees that Tenant, its employees, agents and other third parties entering upon the Premises at the request or invitation of Tenant shall not bring into, maintain upon, generate, produce, use, store, dispose of or release or discharge in or about the Premises any hazardous or toxic substances or hazardous waste, as more fully defined below (collectively, "hazardous materials"). The foregoing covenant shall not extend to substances typically found or used in applications of the type permitted by this Lease so long as: (a) such substances are maintained only in such quantities as are reasonably necessary for Tenant's operations in the Premises; (b) such substances and all equipment which generates such substances are used strictly in accordance with the manufacturer's instructions therefor; (c) such substances are not disposed of in or about the Premises in a manner which would constitute a release or discharge thereof; and (d) all such substances and all equipment which generates such substances are removed from the Premises by Tenant upon the expiration or earlier termination of this Lease. Any introduction, use, storage, generation, maintenance, production, disposal, release or discharge by Tenant of hazardous materials in or about the Project as is permitted pursuant to this Paragraph shall be carried out in Page 26 compliance with all applicable federal, state and local laws, ordinances, rules and regulations. Moreover, no hazardous waste resulting from any operations by Tenant shall be stored or maintained by Tenant in or about the Premises for more than thirty (30) days prior to removal by Tenant. In no event shall Tenant install any chemical storage tank in or about the Premises. Tenant shall, annually within thirty (30) days after Tenant's receipt of Landlord's written request therefor, provide to Landlord a written list identifying any hazardous materials then maintained by Tenant in the Premises, the use of each such hazardous material and the approximate quantity of each such hazardous material so maintained by Tenant, together with written certification by Tenant stating, in substance, that neither Tenant nor any person for whom Tenant is responsible has released or discharged any hazardous materials in or about the Premises. 27.2 In the event that Tenant proposes to conduct any use, or to operate or store any equipment, which will or may utilize or generate a hazardous material other than as specified in subparagraph 27.1, Tenant shall first submit in writing such use, storage or equipment proposal to Landlord for approval. No approval by Landlord shall relieve Tenant of any obligation of Tenant pursuant to this Paragraph, including the removal, clean-up and indemnification obligations imposed upon Tenant by this Paragraph. Tenant shall, within five (5) days after receipt thereof, furnish to Landlord copies of all notices or other communications received by Tenant with respect to any actual or alleged release or discharge of any hazardous material in or about the Premises and shall, whether or not Tenant receives any such notice or communication, notify Landlord in writing of any discharge or release of hazardous material in or about the Premises. 27.3 Upon any violation of the foregoing covenants, Tenant shall be obligated at Tenant's sole cost, to clean-up and remove from the Premises all hazardous materials introduced into the Premises by Tenant or any third party for whom Tenant is responsible. Such clean-up and removal shall include all testing and investigation required by any governmental authorities having jurisdiction, and preparation and implementation of any remedial action plan required by any governmental authorities having jurisdiction. All such clean-up and removal activities of Tenant shall, in each instance, be conducted to the reasonable satisfaction of Landlord and all governmental authorities having jurisdiction. Landlord's right of entry Page 27 pursuant to Paragraph 21 shall include the right to enter and inspect the Premises for violations of Tenant's covenants herein. 27.4 Tenant shall indemnify, defend (with counsel approved by Landlord) and hold harmless Landlord, its partners, directors, officers, employees, agents, lenders and attorneys and their respective successors and assigns from and against any and all claims, liabilities, losses, actions, costs and expenses (including attorneys' fees and costs of defense) incurred by such indemnified persons, or any of them, as the result of: (i) the introduction into or about the Premises any hazardous materials by Tenant, its employees, agents or contractors; (ii) the usage, storage, maintenance, generation, production, disposal, release or discharge of hazardous materials in or about the Premises by Tenant its employees, agents or contractors; (iii) any injury to or death of persons or damage to or destruction of property resulting from the use, introduction, maintenance, production, storage, generation, disposal, disposition, release or discharge of hazardous materials in or about the Premises by Tenant its employees, agents or contractors; and/or (iv) any failure of Tenant its employees, agents or contractors to observe the covenants of this Paragraph 27. Payment shall not be a condition precedent to enforcement of the foregoing indemnification provision. If any claim for indemnification is made by Landlord hereunder, or if Tenant is required hereunder to perform any remedial activity pursuant to this Paragraph, Landlord agrees to grant to Tenant such access to portions of the Project as is reasonably necessary for the purpose of effecting a remediation of the occurrence giving rise to such claim for indemnification or duty of remediation. 27.5 In the event that Tenant is required by any governmental authority to maintain any hazardous materials license or permit in connection with any use conducted by Tenant or any equipment operated by Tenant in, on or about the Premises, copies of such license or permit, each renewal or revocation thereof, and any communication relating to suspension, renewal or revocation thereof shall be furnished to Landlord within five (5) days after receipt thereof by Tenant. Compliance by Tenant with the provisions of this paragraph and the second paragraph of this Paragraph shall not relieve Tenant of any other obligation of Tenant pursuant to this Paragraph. Page 28 27.6 Upon any violation of the foregoing covenants Landlord shall be entitled to exercise all remedies available to a landlord against a defaulting tenant, including, but not limited to these set forth in Paragraph 24. Without limiting the generality of the foregoing, Tenant expressly agrees that upon any such violation Landlord may, at its option: (i) immediately terminate this Lease, or (ii) continue this Lease in effect until compliance by Tenant with its clean-up and removal covenant notwithstanding any earlier expiration date of the term of this Lease. No action by Landlord hereunder shall impair the obligations of Tenant pursuant to this Paragraph. 27.7 As used in this Paragraph 27, the term "hazardous materials" shall mean any hazardous materials, hazardous wastes or hazardous or toxic substances as defined by Environmental Laws. As used in this Paragraph 27, "Environmental Laws" means the Recourse Conservation and Liability Act, and Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the Clean Air Act, the toxic Substances Control Act, the Atomic Energy Act, the Endangered Species Act, California Health and Safety Code Section 25316, and any similar laws affecting the Premises or the use thereof, and any amendments to any of the foregoing. 27.8 Landlord represents and warrants that, as of the Commencement Date, the Premises are in compliance with the applicable environmental laws, rules, regulations, directives or orders of any governmental authority relating to the protection of human health or the environment, relating to the injury or damage to, or restoration or replacement of, natural resources, or relating to land reclamation, including, but not limited to, to the extent applicable, requirements under Environmental Laws. To Landlord's knowledge as of the Commencement Date, there has not been any notice, written or oral, provided to Landlord by any governmental agency or authority, or by any previous tenant or owner, or any other party of any violation, alleging violation, of, or investigation relating to, any Environmental Law. To Landlord's knowledge as of the Commencement Date, there is no legal, administrative, investigatory or other proceedings, pending or threatened against Landlord which relate to any violation of Environmental Law. These representations and warranties, and the indemnification obligations set forth below, shall survive the termination or expiration of the Lease until the lapse of all applicable statutes of limitations, if Page 29 any. Landlord hereby agrees to indemnify and hold Tenant (including its officers, directors, employees, agents, successors and assigns) harmless from any damages, losses, costs or expenses, suffered or paid as a result of any and all claims, damages, suits, causes of action, proceedings, judgments, liabilities, penalties, interest, losses, damages, costs or expenses, including reasonable attorney's fees incurred in litigation or otherwise, assessed, incurred or sustained by or against Tenant with respect to or arising out of the failure or breach of any representation or warranty contained herein and made by Landlord with respect to Environmental Laws or hazardous materials, or the use, production, storage, maintenance, generation, disposal, release or discharge of any hazardous materials into the environment from or at the Premises or from materials which Landlord or any prior tenant or owner of the Premises disposed of or arranged for the disposal of offsite, or any adverse effect or potential adverse effect on humans or the environment deriving therefrom. 27.9 Attached to this Lease at EXHIBIT "D" is a true copy of Environmental Audit Report for the Premises prepared by Ralph Stone and Company, Inc. 27.10 Tenant acknowledges that Landlord has advised Tenant that the Building contains asbestos containing materials ("ACMs"). If Tenant undertakes any alterations, additions, or improvements to the Premises, Tenant shall, in addition to complying with the other provisions of this Lease, undertake the alterations, additions, or improvements in a manner that avoids disturbing any ACMs present in the Building. If ACMs are likely to be disturbed in the course of such work, Tenant shall encapsulate or remove the ACMs in accordance with an approved asbestos-removal plan and otherwise in accordance with all applicable Environmental Laws, including giving all notices required by California Health and Safety Code Sections 25915-25919.7. 28. OFFSET STATEMENT. Tenant shall at any time and from time to time upon not less ten (10) days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing, (a) certifying that this Lease is unmodified and in full force and effect (or, if modified stating the nature of such modification and certifying that this Lease as so modified, is in full force and effect) and the date to which the rental and other charges are paid in advance, if any, and (b) acknowledging that there Page 30 are not, to Tenant's knowledge, any uncured defaults if any are claimed. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. In the event Tenant does not provide Landlord with an offset statement as required in this paragraph within the ten (10) day period mentioned therein, Tenant shall be deemed to have acknowledged all of the matters set forth herein. 29. TRAFFIC AND ENERGY MANAGEMENT. 29.1 Tenant agrees to cooperate and use reasonable efforts to participate in governmentally mandated traffic management programs generally applicable to businesses located in Burbank, California or to the Premises. Neither this Paragraph nor any other provision in this Lease, however, is intended to or shall create any rights or benefits in any other person, firm, company, governmental entity or the public. 29.2 Tenant agrees to cooperate and use reasonable efforts to comply with any and all mandatory guidelines or controls imposed upon either Landlord or Tenant by federal or state governmental organizations or by any energy conservation association to which Landlord is a party concerning energy management. 29.3 [INTENTIONALLY DELETED.] 30. [INTENTIONALLY DELETED.] 31. COMMON FACILITIES; PARKING. Tenant shall have the non-exclusive right, in common with Landlord and other tenants and occupants of the Building and their employees, agents and business visitors, to the use of all common facilities which constitute a part of the Premises, subject to such reasonable, nondiscriminatory rules and regulations relating to such use as Landlord may from time to time establish. Common facilities shall be identified by Landlord in a writing to Tenant upon creation of any Former Premises and may include any building lobby, elevators, restrooms, stairways and stairwells, elevator lobbies and common entrances, corridors, passageways and serviceways which are not located within the Premises of Tenant or another tenant of the Former Premises. Common facilities also include landscaping, hardscaping and any fountains adjacent to the Building, any parking facilities serving the Page 31 Building (the "Parking Facilities"), all sidewalks, driveways, vehicle and pedestrian entrances and accessways, loading docks, truck tunnels, truck parking and truck turn-around areas, vehicle and pedestrian ramps serving the Building, and any pedestrian walkway connecting the Parking Facilities. The common facilities are depicted on EXHIBIT C attached hereto. Landlord may make reasonable changes at any time and from time to time to the common facilities, and no such change shall entitle Tenant to any abatement of rent. Landlord shall at all times have the sole and exclusive control of the common facilities. To the extent that any common facilities located outside of the Premises are maintained jointly or for the common benefit of Landlord and the owners of adjacent structures, (i) Tenant's non-exclusive right of use of such common facilities shall be in common with Landlord, other tenants and occupants of and visitors to the Former Premises and Premises and the owners, tenants, occupants of and visitors to such other structures. Tenant shall keep all common facilities free and clear of any obstructions created or permitted by Tenant or resulting from Tenant's operations. Nothing herein shall affect the right of Landlord at any time to remove any persons not authorized to use the common facilities or to prevent the use of such facilities by unauthorized persons. Landlord reserves the right, from time to time, to: (a) make alterations in or additions to the common facilities, including without limitation, constructing new structures or changing the location, size, shape and/or number of the driveways, entrances, parking spaces, parking areas, loading and unloading areas, landscape areas and walkways; (b) temporarily close any of the common facilities for maintenance or other purposes as long as reasonable access to the Premises remains available; (c) designate property to be included in, or eliminate property from, the common facilities; and (d) use the common facilities while engaged in making alterations in or additions or repairs to the Premises or Former Premises. 32. AUTHORITY OF PARTIES. Each individual executing this Lease on behalf of Landlord and Tenant represents and warrants that the execution and delivery of this Lease on behalf of the party for whom such person is executing is duly authorized, that he or she is authorized to execute and deliver this Lease and that this Lease is binding upon such party in accordance with its terms. If Tenant is a Page 32 corporation, Tenant shall, within ten (10) days after execution of this Lease, deliver to Landlord a certified copy of a resolution of the Board of Directors of Tenant, or any executive committee thereof, authorizing or ratifying the execution of this Lease. Failure of Tenant to provided such resolution shall not, however, relieve Tenant of its obligations pursuant to this Lease. 33. GENERAL PROVISIONS. 33.1 CLAUSES, PLATS AND RIDERS. Clauses, plats, and riders, if any, signed by the Landlord and the Tenant and endorsed on or affixed to this Lease are a part hereof. 33.2 WAIVER. No waiver by Landlord of any provision of this Lease or of any breach by Tenant hereunder shall be deemed to be a waiver of any other provision hereof, or of any subsequent breach by Tenant of the same or any other provision. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act of Tenant. No act or thing done by Landlord or Landlord's agents during the term of this Lease shall be deemed an acceptance of a surrender of the Premises, unless done in a writing signed by Landlord. Tenant's delivery of keys to any employee or agent of Landlord shall not operate as a termination of this Lease or a surrender of the Premises unless done pursuant to a written agreement to such effect executed by Landlord. The acceptance of any rent by Landlord following a breach of this Lease by Tenant shall not constitute a waiver by Landlord of such breach (other than the failure to pay the particular rent so accepted) or any other breach unless such waiver is expressly stated in a writing signed by Landlord. The acceptance of any payment from a debtor in possession, a trustee, a receiver or any other person acting on behalf of Tenant or Tenant's estate shall not waive or cure a default under Paragraph 23.6 or waive the provisions of Paragraph 13. 33.3 NOTICES. All notices and demands which may or are to be required or permitted to be given by either party to the other hereunder shall be in writing. All notices and demands by the Landlord to the Tenant shall be personally served on Tenant at the Premises or shall be sent by United States certified mail, return receipt requested, postage prepaid, addressed to the Tenant at the Premises, or to Page 33 such other place as Tenant may from time to time designate in a notice to the Landlord. All notices and demands by the Tenant to the Landlord shall be personally served on Landlord at the office of the Building or shall be sent by United States certified mail, return receipt requested, postage prepaid, addressed to the Landlord in care of John B. Miles, Esq., McDermott, Will & Emery at 1301 Dove Street, Suite 500, Newport Beach, California 92660, or to such other person or place as the Landlord may from time to time designate in a notice to the Tenant. All notices shall be deemed effective upon receipt. If personally delivered, notices shall be deemed received at the time of delivery. If any notice is sent by mail, the same shall be deemed delivered and received on the date of receipt, refusal or nondelivery indicated on the return receipt. Any notice provided for herein may also be sent by facsimile transmission or by any reputable overnight courier so long as written confirmation of delivery of such notice is obtained by the sender. 33.4 [INTENTIONALLY DELETED.] 33.5 MARGINAL HEADINGS. The marginal headings and Paragraph titles to the Paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 33.6 TIME. Time is of the essence of this Lease and of each and all of its provisions in which performance is a factor. 33.7 SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of the parties hereto. 33.8 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant to Landlord of rent or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Landlord by terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or of sum due from Tenant shall not be received by Landlord or Landlord's designee within five (5) days after said Page 34 amount is due, then Tenant shall pay to Landlord a late charge equal to three percent (3%) of such overdue amount for the first late payment during any twelve (12) month period and six percent (6%) of such overdue amount for any other late payment during such twelve (12) month period. In addition, any amount not paid when due shall bear interest at the rate of ten percent (10%) per year from the due date until paid. The parties hereby agree that such late charges and interest represent a fair and reasonable estimate of the cost that Landlord will incur by reason of the late payment by Tenant. Acceptance of such late charges and interest by the Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder regardless of any indication to the contrary on the check cashed. In the event that any check or other payment device for rent, or any other charge hereunder, is returned due to insufficient funds or any other reason, the foregoing late payment and interest charges shall apply and Landlord may require all further payments to be made by money order, cashier's check or in cash. 33.9 PRIOR AGREEMENTS. This Lease and the Exhibits hereto contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreements or understanding pertaining to any such matters shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Lease shall not be effective or binding on any party until fully executed by both parties hereto. 33.10 INABILITY TO PERFORM. This Lease and the obligations of each party hereunder shall not be affected or impaired because the other party is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such liability or delay is caused by reason of strike, labor troubles, acts of God, or any other cause beyond the reasonable control of such other party. 33.11 ATTORNEYS' FEES. In the event of any action or proceeding brought by either party against the other under this Lease, the prevailing party shall be entitled to recover all costs and expenses including the fees of its attorneys in such action or proceeding in such amount as the court may adjudge reasonable as attorneys' fees. If Landlord is involuntarily made a party defendant to any litigation Page 35 concerning this Lease or the Premises by reason of any act or omission of Tenant, then Tenant shall hold Landlord harmless from all costs, liabilities, damages and expenses by reason thereof, including attorneys' fees and all costs incurred by Landlord in such litigation. 33.12 SALE OF PREMISES BY LANDLORD. In the event of any sale of the Premises or Former Premises, Landlord shall be, and is hereby, entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence or omission occurring after the consummation of such sale; and the purchaser, at such sale or any subsequent sale of the Premises or Former Premises shall be deemed, without any further agreement between the parties or their successors in interest or between the parties and any such purchaser, to have assumed and agreed to carry out any and all of the covenants and obligations of the Landlord under this Lease arising out of any act, occurrence or omission occurring after the consummation of such sale. 33.13 SUBORDINATION, ATTORNMENT. Without the necessity of any additional documents being executed by Tenant for the purpose of effecting a subordination and at the election of Landlord or any mortgagees with a lien on the Building or ground lessor with respect to Building, this Lease is subject and subordinate to any and all ground or underlying leases, mortgages or deeds of trust which may hereafter be executed covering the Premises and the real property of which it is a part, or any renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof. Notwithstanding the foregoing, Tenant agrees, within ten (10) days after Landlord's written request therefor, to (a) execute, acknowledge and deliver any and all documents or instruments requested by Landlord, or that are necessary or proper to assure the subordination of this Lease to any such mortgages, deeds of trust, or leasehold estates, and (b) supply such financial information concerning Tenant as may be requested by any ground lessor or lender. Notwithstanding such subordination, Tenant's quiet enjoyment of the Premises will not be disturbed so long as Tenant pays rent and observes and performs all of the provisions of this Lease to be observed and performed by Tenant. Notwithstanding anything to the contrary set forth in this Paragraph, Page 36 Tenant hereby attorns and agrees to attorn to (at the option of) any person, firm, or corporation purchasing or otherwise acquiring the building and the real property of which it is a part, at any sale or other proceeding or pursuant to the exercise of any other rights, powers, or remedies under such mortgages, or deeds of trust, or ground or underlying leases, as if such person, firm or corporation had been named as Landlord herein, provided that such person, firm, or corporation shall accept the Premises subject to this Lease. Tenant hereby appoints Landlord the attorney-in-fact of Tenant, irrevocably, to execute and deliver any documents provided for herein for and in the name of Tenant; such power, being coupled with an interest, being irrevocable. The provisions of this Paragraph to the contrary notwithstanding, and so long as Tenant is not in default hereunder, this Lease shall remain in full force and affect for the full term hereof. 33.14 NAME. Tenant shall not use the name of the property of which the Premises are a part for any purpose other than as an address of the business to be conducted by the Tenant in the Premises. 33.15 SEPARABILITY. Any provision of this Lease which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof and such other provision shall remain in full force and affect. 33.16 CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 33.17 CHOICE OF LAW. This Lease shall be governed by the laws of the State of California. 33.18 SIGNS AND AUCTIONS. Tenant may, at its sole cost and expense, place its signage on the Premises so long as Tenant has received Landlord's prior written consent (which consent shall not be unreasonably withheld), has complied with all applicable laws and has agreed to remove such signage at its sole cost upon termination of this Lease. Tenant shall not conduct any auction on the Premises without Landlord's prior written consent. 33.19 [INTENTIONALLY DELETED.] 33.20 NEGOTIATED TRANSACTION. This Lease has been negotiated at arm's length. Accordingly, the provisions of this Lease shall be deemed to have been drafted by all of the parties and any rule of law Page 37 that would require interpretation of this Lease against the party that has drafted it is not applicable and is waived. 33.21 [INTENTIONALLY DELETED.] 33.22 QUITCLAIM OF INTEREST. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within five (5) days after written demand from Landlord to Tenant, any quitclaim deed or other document which may be reasonably requested by any reputable title insurance company to remove this Lease as a matter affecting title to the Premises on a preliminary title report or title policy issued with respect to the Premises. 33.23 [INTENTIONALLY DELETED] 33.24 SURVIVAL OF INDEMNITIES. The obligations of the indemnifying party under each and every indemnification and hold harmless provision in this Lease shall survive the expiration or earlier termination of this Lease to and until the last to occur of (A) the last date permitted by law for the bringing of any claim or action with respect to which indemnification may be claimed by the indemnified party against the indemnifying party under such provisions, or (B) the date on which any claim or action for which indemnification may be claimed under such provision is fully and finally resolved and, if applicable, any compromise thereof or judgment or award thereon is paid in full by the indemnifying party and the indemnified party is reimbursed by the indemnifying party for any amounts paid by the indemnified party in compromise thereof or upon a judgment or award thereon and in defense of such action or claim, including reasonable attorneys' fees incurred. Notwithstanding anything to the contrary in that certain Asset Purchase Agreement or Secured Indemnity Agreement, each dated approximately of even date herewith and executed by Landlord and Tenant, or that certain Deed of Trust, dated approximately of even date herewith and executed by Landlord, as trustor, in favor of Tenant, as beneficiary, none of the representations, warranties, or other covenants or obligations herein are secured by such Deed of Trust. 33.25 NO REPRESENTATION BY LANDLORD. In no event shall the review, approval, inspection or examination by Landlord of any item to be reviewed, approved, inspected or examined by Landlord under the terms of this Lease be deemed to be an approval of, or representation or warranty as to, the Page 38 adequacy, accuracy, sufficiency or soundness of any such item or the quality or suitability of such item for its intended use. Any such review, approval, inspection or examination by Landlord shall be for the sole purpose of protecting Landlord's interests in the Premises under this Lease, and no third parties shall have any rights pursuant thereto. Notwithstanding anything to the contrary in that certain Asset Purchase Agreement or Secured Indemnity Agreement, each dated approximately of even date herewith and executed by Landlord and Tenant, or that certain Deed of Trust, dated approximately of even date herewith and executed by Landlord, as trustor, in favor of Tenant, as beneficiary, none of the representations, warranties, or other covenants or obligations herein are secured by such Deed of Trust. 34. BROKERS. Tenant warrants that it has had no dealings with any real estate broker or agents in connection with the negotiation of this Lease and it knows of no real estate broker or agent who is entitled to a commission in connection with his Lease. 35. QUIET ENJOYMENT. Upon the payment by Tenant of Monthly Rent and all other sums to be paid hereunder by Tenant and the observance and performance of all covenants, conditions and provisions on Tenant's part to be observed and performed under this Lease, Tenant shall have quiet possession of the Premises for the entire Term subject to all of the provisions of this Lease. [SIGNATURES ON FOLLOWING PAGE] Page 39 The parties hereto have executed this Lease at the place and on the dates specified immediately adjacent to their respective signatures. ALL POST, INC., a California corporation By: --------------------------------- By: --------------------------------- Address Execution Date: , 1998 ------------------------ --------------- "Landlord" - -------------------------------- VDI MEDIA, a California corporation By: --------------------------------- By: --------------------------------- Address Execution Date: , 1998 ------------------------ --------------- "Tenant" - -------------------------------- Page 40 SCHEDULE 1 DELINEATION OF PREMISES PORTIONS
Area Monthly Rent Reduction ---- ---------------------- Audio $ 9,897.63 Duplication (including engineering, preproduction and shipping) $19,866.77 Editing $ 3,038.35 Vault (including 6,000 sq. ft. at Mariposa) $23,089.05 Accounting / HR $ 6,808.20 ---------- TOTAL $62,700.00
- -------------------------------- 1. Any area delineated above, or piece thereof, shall become part of the Former Premises if returned to Landlord in accord with paragraph 3 of this Lease. 2. Tenant must return all of any area of the Premises delineated above in order to receive a Monthly Rent reduction. Tenant shall not receive any Monthly Rent reduction whatsoever for returning less than all of any such area of the Premises. Schedule 1 EXHIBIT A PREMISES DESCRIPTION EXHIBIT A EXHIBIT B BUILDING RULES AND REGULATIONS [TO BE MUTUALLY AGREED UPON BY TENANT AND LANDLORD, SUCH AGREEMENT NOT TO BE UNREASONABLY WITHHELD OR DELAYED] EXHIBIT B EXHIBIT C COMMON FACILITIES EXHIBIT C EXHIBIT D ENVIRONMENTAL AUDIT REPORT EXHIBIT D -----END PRIVACY-ENHANCED MESSAGE-----