-----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, SNXgS48oiTCRLbqjMxC2vevTpjNVC1JnKfSB2uK1ui7Nq3MkHyw11/6QKuCKz4Mf DrKpejq5RguD8X1Iw286jw== 0000950005-97-000116.txt : 19970221 0000950005-97-000116.hdr.sgml : 19970221 ACCESSION NUMBER: 0000950005-97-000116 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961227 FILED AS OF DATE: 19970210 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PINNACLE SYSTEMS INC CENTRAL INDEX KEY: 0000774695 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 943003809 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24784 FILM NUMBER: 97522650 BUSINESS ADDRESS: STREET 1: 280 N BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4155261600 MAIL ADDRESS: STREET 1: 280 N BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 27,1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------- ------------ Commission File No. 0-24784 PINNACLE SYSTEMS, INC. ----------------------------------------------------- (Exact name of Registrant as specified in its charter) California 94-3003809 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 280 N. Bernardo Ave. Mountain View, CA 94043 - --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (415)526-1600 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- The number of shares of common stock outstanding as of December 27, 1996 was 7,523,380. INDEX PART I - FINANCIAL INFORMATION ITEM 1 - Condensed consolidated financial statements Condensed consolidated balance sheets - December 31, 1996 and June 30, 1996 3 Condensed consolidated statements of operations - three months and six months ended 4 December 31, 1996 and 1995 Condensed consolidated statements of cash flows - six months ended December 31, 1996 and 1995 5 Notes to condensed consolidated financial statements 6 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION ITEM 6 - Exhibits and Reports on Form 8-K 12 Signatures 13 See accompanying notes to condensed consolidated financial statements. PART I - FINANCIAL INFORMATION Item 1. Financial Statements PINNACLE SYSTEMS, INC. AND SUBSIDARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, June 30, 1996 1996 -------- -------- Assets Current assets: Cash and cash equivalents $ 34,815 $ 27,846 Marketable securities 24,106 29,315 Accounts receivable, less allowance for doubtful accounts and returns of $1,286 and $840 as of December 31, 1996 and June 30, 1996, respectively 6,131 7,526 Inventories 5,242 9,611 Deferred taxes -- 2,091 Prepaid expenses 424 311 -------- -------- Total current assets 70,718 76,700 Property and equipment, net 4,400 2,204 Marketable securities -- 3,973 Deferred taxes -- 1,154 Other assets 628 530 -------- -------- $ 75,746 $ 84,561 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 1,565 $ 1,495 Accrued expenses 2,093 2,621 Deferred revenue 248 247 -------- -------- Total current liabilities 3,906 4,363 -------- -------- Commitments Shareholders' equity: Common stock; authorized 15,000 shares; 7,523 and 7,468 issued and outstanding as of December 31, and June 30, 1996, respectively 78,266 77,902 Deferred compensation, net (23) (34) Retained earnings (deficit) (6,403) 2,330 -------- -------- Total shareholders' equity 71,840 80,198 -------- -------- $ 75,746 $ 84,561 ======== ======== See accompanying notes to condensed consolidated financial statements.
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED COLSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Three Six Months Ended Months Ended December 31, December 31, ------------------------ ------------------------ 1996 1995 1996 1995 -------- -------- -------- -------- Net sales $ 5,345 $ 11,845 $ 16,787 $ 21,166 Cost of sales 7,328 6,139 13,324 10,950 -------- -------- -------- -------- Gross profit (loss) (1,983) 5,706 3,463 10,216 -------- -------- -------- -------- Operating expenses: Engineering and product development 2,063 1,279 3,845 2,211 Sales and marketing 2,514 2,179 5,208 4,055 General and administrative 1,426 609 2,190 1,050 -------- -------- -------- -------- Total operating expenses 6,003 4,067 11,243 7,316 -------- -------- -------- -------- Operating income (loss) (7,986) 1,639 (7,780) 2,900 Interest income, net 729 927 1,492 1,608 -------- -------- -------- -------- Income (loss) before income taxes (7,257) 2,566 (6,288) 4,508 Income tax expense (2,087) (834) (2,445) (1,513) -------- -------- -------- -------- Net income (loss) $ (9,344) $ 1,732 $ (8,733) $ 2,995 ======== ======== ======== ======== Net income (loss) per share $ (1.25) $ 0.22 $ (1.17) $ 0.39 ======== ======== ======== ======== Shares used to compute net income (loss) per share 7,505 7,911 7,489 7,603 ======== ======== ======== ======== See accompanying notes to condensed consolidated financial statements.
PINNACLE SYSTEMS, INC. AND SUBSIDARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands)
Six Months Ended December 31, ----------------------------- 1996 1995 -------- -------- Cash flows from operating activities: Net income (loss) $ (8,733) $ 2,995 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 671 269 Increase of valuation allowance on deferred tax assets 3,245 -- Tax benefit from exercise of common stock options -- 1,565 Loss on disposal of property and equipment 448 -- Changes in operating assets and liabilities: Accounts receivable 1,395 (1,380) Inventories 4,369 (2,925) Accounts payable 70 1,827 Accrued expenses (528) 492 Other (301) (215) -------- -------- Net cash provided by operating activities 636 2,628 -------- -------- Cash flows investing activities: Purchases of property and equipment (3,213) (670) Purchase of marketable securities (14,726) (28,274) Proceeds from maturity of marketable securities 23,908 4,000 -------- -------- Net cash provided by (used in) investing activities 5,969 (29,944) -------- -------- Cash flow from financing activities: Proceeds from issuance of common stock 364 44,268 -------- -------- Net cash provided by financing activities 364 44,268 -------- -------- Net increase in cash and cash equivalents 6,969 21,952 Cash and cash equivalents at beginning of period 27,846 12,626 -------- -------- Cash and cash equivalents at end of period $ 34,815 $ 34,578 ======== ======== Supplemental disclosures of cash paid during the period: Interest $ 9 $ 6 ======== ======== Income taxes $ 330 $ 48 ======== ======== See accompanying notes to condensed consolidated financial statements.
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands) 1. General The accompanying financial statements have been prepared in conformity with generally accepted accounting principles. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in this report reflects all adjustments which, in the opinion of management, are necessary for a fair statement of the consolidated financial position, results of operations and cash flows as of and for the interim periods. Such adjustments consist of items of a normal recurring nature. The condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto, which include information as to significant accounting policies, for the fiscal year ended June 30, 1996 included in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on September 17, 1996. Results of operations for interim periods are not necessarily indicative of results for the full year. 2. Significant Accounting Policies Fiscal Year Pinnacle Systems, Inc. and its subsidiaries (the Company) reports on a fiscal year which ends on June 30. The Company's first three fiscal quarters end on the last Friday in September, December, and March. For financial statement presentation, the Company has indicated its fiscal quarters as ending on the month-end. Net Income Per Share Net income per share is computed using the weighted average number of common shares and dilutive common stock equivalents outstanding using the treasury stock method. 3. Financial Instruments In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115). The Company adopted the provisions of FAS 115 for investments held as of or acquired after July 1, 1994. Under the provisions of FAS 115, debt securities that the Company has both the positive intent and ability to hold to maturity are carried at amortized cost. Presently, the Company classifies all debt securities as held-to-maturity and carries them at amortized cost. Interest income is recorded using an effective interest rate, with the associated premium or discount amortized to "Interest income." The adoption of FAS 115 did not have a material impact on the Company's consolidated financial statements. The fair value of marketable securities is substantially equal to their carrying value as of December 31, 1996. All investments at December 31, 1996 were classified as held-to-maturity. Such investments mature through December 1997. 4. Inventories A summary of inventories follows: December 31, June 30, 1996 1996 ------ ------ Raw materials $3,089 $7,695 Work in process 1,382 405 Finished goods 771 1,511 ------ ------ $5,242 $9,611 ====== ====== Raw materials inventory represents purchased materials, components and assemblies, including fully assembled circuit boards purchased from outside vendors. PINNACLE SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands) 5. Customers and Credit Concentrations During the three and six months ended December 31, 1996, Avid Technology Inc. accounted for approximately 19.1% and 24.6%, respectively, of net sales, compared to 46.0% and 40.6% for the comparable periods ending December 31, 1995. No other customer accounted for more than 10% of sales. Avid Technology Inc. accounted for approximately 12.3% and 36.7% of accounts receivable at December 31, 1996 and June 30, 1996, respectively. Media 100, Inc. (formerly Data Translation, Inc.) accounted for approximately 23.0% of accounts receivable at December 31, 1996. 6. Related Parties The Company and Bell Microproducts Inc. ("Bell") are parties to an agreement ("the Agreement") under which value-added turnkey services are performed by Bell on behalf of the Company. Pursuant to the Agreement, Bell builds certain products in accordance with the Company's specifications. A director of the Company is also a director of Bell. During the three months ended December 31, 1996 and 1995, the Company purchased materials totaling $834 and $4,635, respectively, from Bell pursuant to the Agreement. During the six months ended December 31, 1996 and 1995, the Company purchased materials totaling $2,921 and $7,984, respectively from Bell pursuant to the Agreement. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain Forward-Looking Information Certain statements in this Management's Discussions and Analysis are forward-looking statements based on current expectations, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties are set forth below under "Overview" and "Significant Fluctuations in Future Operating Results." These forward-looking statements include statements in the paragraphs below relating to "Net Sales," the last sentences of the paragraphs below relating to "Engineering and Product Development," "Sales and Marketing" and "Income Tax Expense," and the statements below in the fourth, sixth, seventh and tenth paragraphs under "Overview," among others. Overview The Company designs, manufactures, markets and supports video post-production tools for high quality real time video processing. The Company's products are used to perform a variety of video manipulation functions, including the addition of special effects, graphics and titles to multiple streams of live or previously recorded video material. From the Company's inception in 1986 until 1994, substantially all of the Company's revenues were derived from the sale of products into the traditional video market. With the introduction of Alladin in June 1994, the Company began sales into the desktop video market. The Alladin product family provides real time digital video manipulation capabilities for the desktop video market. Since the introduction of Alladin, the Company's sales have been largely dependent on the success of the Alladin. Alladin sales represented approximately 44.6% and 71.0% of net sales for the three month periods ended December 31, 1996 and 1995, respectively. Sales of Alladin declined significantly during the three months ended December 31, 1996. This decline had a significant impact on the company's overall sales for the period, and resulted from a decline in sales through both the company's dealer channel and to OEM customers. See "Results of Operations--Net Sales." In June 1996, the Company commenced shipment of Genie, a new desktop video product family. The Company is critically dependent upon the successful market acceptance, manufacture, distribution and sale of Genie to increase revenue and profitability in the future. Sales of Genie products represented approximately 15.3% of net sales for the three months ended December 31, 1996. As is typical with any new product introduction, quality and reliability problems may arise and any such problems could result in reduced bookings, manufacturing rework costs, delays in collecting accounts receivable, additional service warranty costs and a limitation on market acceptance of the product. The success of Genie will also require the Company to manage the introduction in order to minimize disruption in customer's ordering patterns for Alladin. Sales of Genie will also be dependent on the successful integration of Genie by various original equipment manufacturers ("OEMs") into their non-linear editing products. Any delay in the Company's ability to manufacture and ship Genie, the failure of Genie to gain market acceptance, and the timing and success in which Genie is integrated into non-linear OEM systems could adversely affect the Company's business, operating results and financial condition, particularly on a quarterly basis. In June 1996, the Company acquired the Video Director product line from Gold Disk, Inc. VideoDirector is low-cost video software package sold primarily to home video enthusiasts. Pinnacle intends to develop a new family of products that combine a subset of its video manipulation technology with VideoDirector technology to enable home video enthusiasts to create professional-looking video content. The introduction of the first such follow-on product, VideoDirector Studio 200, was recently announced by the Company and initial commercial shipments are currently expected to commence during the quarter ending March 31, 1997. The sources of competition for home video market products are not yet well defined. The Company expects that existing computer software manufacturers and new market entrants will develop new products that may compete directly with the Video Director derivative products. Increased competition could result in lower prices, margins and market share than are currently anticipated in designing and developing these products. In addition, the Company expects to expend considerable resources to introduce and promote products in this home video market category. There can be no assurance that the Company will be able to compete successfully against current and future competitors in the home video markets, and to the extent the Company is not successful with the development, introduction and sale of products in this market segment, the Company's business, operating results and financial condition could be adversely affected. The Company has been highly dependent on sales of Alladin and Genie products through OEM's, in particular Avid Technology, Inc. ("Avid") and Media 100, Inc. ("Media 100"). Sales to Avid declined significantly from the year ago period, and accounted for approximately 19.1% and 46.0% of net sales during the three months ended December 31, 1996 and 1995, respectively. Though sales to Media 100 were nominal this quarter, the company has signed an OEM agreement with Media 100 and expects that sales to Media 100 will be an important source of revenues in future quarters. This concentration of net sales to a few OEM's subjects the Company to a number of risks, in particular the risk that its operating results will vary on a quarter to quarter basis as a result of variations in the ordering patterns of the OEM customers. Variations in the timing of revenues can cause significant fluctuations in quarterly results of operations. The Company's results of operations have in the past and could in the future be materially adversely affected by the failure of anticipated orders to materialize and by deferrals or cancellations of orders as a result of changes in Avid and Media 100 requirements. For example, sales to Avid have decreased sequentially for each of the last three quarters contributing to the overall decline in net sales for the Company during those same periods. Although there can be no assurance that this trend will not continue, the Company currently believes that sales to Avid in the quarter ending March 31, 1997 will increase as compared to sales to Avid in the quarter ended December 31, 1996. However, if the Company were to lose Avid or Media 100 as a customer, or if orders from these customers were to further decrease, the Company's business, operating results and financial condition would be materially adversely affected. See "Results of Operations-Net Sales." The Company currently has two product families designed to serve the traditional market: Prizm and FlashFile. Prizm provides real time digital video effects capabilities, compositing, 3D modeling and animation tools, and FlashFile provides sophisticated still store library management capabilities with optional titling, paint and video clips. The Company currently intends to develop and market follow-on products for the traditional video market during calendar 1997. The introduction of such products would have the same market acceptance, distribution and sales risks as described for the Genie family. The introduction of new traditional products could significantly slow or replace sales of Prizm and FlashFile. If this were to occur prior to shipment of any new products, the Company's business, operating results and financial condition would be materially adversely affected. The Company distributes and sells its products to end users through the combination of independent domestic and international dealers, retail distributors, OEMs and, to a lesser extent, a direct sales force. Sales to dealers, distributors and OEMs are generally at a discount to the published list prices. Generally, products sold to OEMs are integrated into systems sold by the OEMs to their customers. The amount of discount, and consequently the Company's gross profit, varies depending on the product and the channel of distribution through which it is sold, the volume of product purchased and other factors. In the United States, the Company supports the sale of desktop products with independent sales representatives that earn commissions based on sales into their region. The Company incurred a significant loss for the quarter ended December 31, 1996, and currently expects to incur an operating loss in the quarter ending March 31, 1997. The Company anticipates that an increase in OEM desktop and Video Director product sales will likely lead to an overall increase in net sales for the March 31, 1997 quarter as compared to the quarter just ended. Operating expenses in total for the quarter ending March 31, 1997 are expected to remain relatively consistent with the December 31, 1997 quarter. However, operating expenses will most likely exceed total gross margins during the quarter ending March 31, 1997, resulting in an operating loss for the quarter. Results of Operations Net Sales. The Company's net sales decreased by 54.9% to $5,345,000 in the three months ended December 31, 1996 from $11,845,000 during the comparable three months in the prior year. Net sales decreased by 20.7% to $16,787,000 in the six months ended December 31, 1996 from $21,166,000 in the six months ended December 31, 1995. The decrease in both periods was primarily attributable to a decline in sales across all product lines, the most significant of which was a decline in sales of desktop products to OEMs, in particular Avid. Sales of desktop products to OEM customers during the three and six month periods ended December 31, 1996 decreased approximately 77% and 30%, respectively, from the comparable periods in the prior year. See "Overview" above. Sales outside of North America were approximately 46.4% and 35.4% of net sales in the three months ended December 31, 1996 and 1995, respectively and 39.4% and 36.7% in the six months ended December 31, 1996 and 1995, respectively. The increase in sales outside of North America in both periods was primarily attributable to the decrease of sales to Avid's North American facility. As previously discussed, sales to the Company's largest customers, Avid and Media 100, declined from the first quarter of fiscal 1997 to the second quarter of fiscal 1997. The Company believes that much of this trend is the result of Avid and Media 100 having previously purchased enough product to satisfy their needs for the quarter ended December 31, 1996. The Company believes that sales to Avid and Media 100 will increase sequentially during the quarter ending March 31, 1997. To the extent that sales to these OEM customers do not increase sequentially, the Company's business, operating results and financial condition will be materially adversely effected. Cost of Sales. Cost of sales consists primarily of costs related to the acquisition of components and subassemblies, labor and overhead associated with procurement, assembly and testing of finished products, warehousing, shipping and warranty costs. During the quarter ending December 31, 1996, the Company incurred a significant charge to cost of sales totaling $4,021,000 relating primarily to inventory write downs in connection with the decline in sales during the quarter. Excluding the charge, gross profit as a percentage of net sales was 38.1% and 48.2% in the three months ended December 31, 1996 and 1995, respectively, and 44.6% compared to 48.3% in the six months ended December 31, 1996 and 1995, respectively. The decrease in gross profit percentage is due to a decreased manufacturing overhead absorption due to lower production volume and higher manufacturing overhead costs related to the new facility in Mountain View, California. Engineering and Product Development. Engineering and product development expenses increased 61.3% to $2,063,000 in the three months ended December 31, 1996 from $1,279,000 during the comparable three months in the prior year. The Company's engineering and product development expenses increased 73.9% to $3,845,000 in the six months ended December 31, 1996 from $2,211,000 during the comparable six months in the prior year. Engineering and product development expenses as a percentage of net sales were 38.6% and 10.8% during the three months ended December 31, 1996 and 1995, and 22.9% and 10.4% during the six months ended December 31, 1996 and 1995, respectively. The increases in each period resulted primarily from growth in the number of persons in the Company's engineering design team. The Company is preparing to introduce several new professional and consumer video products during calendar 1997 and the Company expects to continue to allocate significant resources to engineering and product development efforts. Sales and Marketing. Sales and marketing expenses include compensation and benefits for sales and marketing personnel, commissions paid to independent sales representatives, trade show and advertising expenses and professional fees for marketing services. Sales and marketing expenses increased by 15.4% to $2,514,000 in the three months ended December 31, 1996 from $2,179,000 during the comparable three months in the prior year. The Company's sales and marketing expenses increased 28.4% to $5,208,000 in the six months ended December 31, 1996 from $4,055,000 during the comparable six months in the prior year. Sales and marketing as a percentage of net sales were 47.0% and 18.4% for the three month periods ending December 31, 1996 and 1995, and 31.0% and 19.2% for the six month periods ending December 31, 1996 and 1995, respectively. The increase in sales and marketing expenses was primarily attributable to increased expenditures related to continued promotion of Alladin and Genie products, including expenditures for trade shows, advertising creation and placement, professional fees for marketing services and increases in the number of sales and marketing personnel. The Company expects to allocate significant resources to sales and marketing, particularly during the March 31, 1997 and June 30, 1997 quarters, for the introduction of several new professional and consumer video products. General and Administrative. General and administrative expenses increased 134% to $1,426,000 in the three months ended December 31, 1996 from $609,000 during the comparable three months in the prior year. General and administrative expenditures increased 109% to $2,190,000 in the six months ended December 31, 1996 from $1,050,000 during the comparable six months in the prior year. As a percentage of net sales, general and administrative expenses were 26.7% and 5.1% during the three months ended December 31, 1996 and 1995 and 13.0% and 5.0% during the six months ended December 31, 1996 and 1995, respectively. Included in general and administrative expenses for the three months ended December 31, 1996 is approximately $700,000 relating to an increase in the allowance for doubtful accounts and the disposal of leasehold improvements, furniture and equipment, moving costs and rent overlap incurred as a result of the move to the Company's new facility. Interest Income (Expense), Net. In the three and six months ended December 31, 1996, interest income, net was $729,000 and $1,492,000, respectively, as compared to net interest income of $927,000 and $1,608,000 in the comparable periods a year ago. The decrease was due to a decline in cash and marketable securities as well as a decline in investment yields. All of the Company's cash and marketable securities have maturities of less than one year. Changes in the market interest rates will have an effect on interest income in future periods. Income Tax Expense. The Company recorded a provision for income taxes of $2,087,000 and $834,000 for the three months ended December 31, 1996 and 1995, respectively. Income tax expense was $2,445,000 and $1,513,000 for the six months ended December 31, 1996 and 1995, respectively. Included in income tax expense for the three months and six months ended December 31, 1996 is a charge of $3,245,000 resulting from the establishment of a valuation allowance against the Company's deferred tax asset. The Company does not anticipate any tax benefit or expense for the remaining two quarters in the fiscal year ending June 30, 1997. Significant Fluctuations in Quarterly Operating Results The Company's quarterly operating results have in the past varied, and are expected to vary significantly in the future as a result of a number of factors, including the timing of significant orders from and shipments to customers, in particular Avid and Media 100, the timing and market acceptance of new products or technological advances by the Company and its competitors, the mix of distribution channels through which the Company's products are sold, changes in pricing policies by the Company and its competitors, the accuracy of resellers' forecasts of end user demand, the ability of the Company to obtain sufficient supplies of the major subassemblies used in its products from its subcontractors, the ability of the Company and its subcontractors to obtain sufficient supplies of sole or limited source components for the Company's products, and general economic conditions both domestically and internationally. The Company's expense levels are based, in part, on its expectations as to future revenue and, as a result, net income would be disproportionately affected by a reduction in net sales. The Company experiences significant fluctuations in orders and sales, due mainly to reduced customer purchasing activity during the summer months and the timing of major trade shows. The Company expects that its operating results will fluctuate in the future as a result of these and other factors, including changes in the rate of sales to OEM customers, in particular Avid and Media 100, and the Company's success in developing, introducing and shipping new products, in particular Genie and new products designed for the consumer market. Due to these factors and the potential quarterly fluctuations in operating results, the Company believes that quarter-to-quarter comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance. Liquidity and Capital Resources The Company has financed its operations through private placements of equity securities with aggregate net proceeds of approximately $6.9 million, long-term debt, short-term bank borrowings and cash generated from operations. In addition, the Company completed public offerings of common stock in November 1994 and July 1995 raising approximately $65.5 million, net of offering expenses. The Company's operating activities generated cash of $636,000 in the six months ended December 31, 1996, compared to $2,628,000 for the same period in 1995. The cash generated by operating activities during the six months ended December 31, 1996 was the result of net decreases in the components of working capital, primarily accounts receivable and inventory, partially offset by the net loss of $8,733,000 as adjusted inventory write-downs of $4,021,000, an increase in the valuation allowance on deferred tax assets of $3,245,000, depreciation and amortization of $671,000, and a loss on disposal of property and equipment of $448,000. The Company expects operations to consume a modest amount of cash during the six months ending June 30, 1997 as a result of an anticipated operating loss and an increase in working capital. During the six months ended December 31, 1996, $3,213,000 was invested in property and equipment, compared to $670,000 in the six months ended December 31, 1995. The increase over the prior year is primarily related to leasehold improvements, furniture and equipment for the new Mountain View facility. See "Overview." The Company expects to continue to purchase property and equipment, however at a reduced rate following the completion of improvements to the Mountain View facility. Such investing will be financed from working capital. In January 1997, the Company's board of directors authorized a stock repurchase program pursuant to which the Company may purchase up to 750,000 shares of its common stock on the open market. As of December 31, 1996, the Company had working capital of approximately $66.8 million, including $34.8 million in cash and cash equivalents and $24.1 million in marketable securities. The Company believes that the existing cash and cash equivalent balances as well as marketable securities and anticipated cash flow from operations will be sufficient to support the Company's working capital requirements for the foreseeable future. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On October 24, 1996, the Company held an Annual Meeting of Shareholders for which it solicited votes by proxy. The following is a brief description of the matters voted upon at the meeting and a statement of the number of votes cast for and against, and the number of abstentions. There were no broker non-votes with respect to items 1 and 3 below. 1. To elect six directors to serve until the next Annual Meeting of Shareholders and until their successors are elected. VOTES NOMINEE VOTES WITHHELD ------- ----- -------- Mark L. Sanders 5,867,402 14,738 Ajay Chopra 5,867,402 14,738 John Lewis 5,866,402 15,738 Nyal D. McMullin 5,867,202 14,938 Glenn E. Penisten 5,867,402 14,738 Charles J. Vaughan 5,867,402 14,738
2. To approve the adoption of 1996 Stock Option Plan to reserve 370,000 shares for grant thereunder. FOR: 4,842,084 AGAINST: 926,302 ABSTAIN: 102,635 BROKER NON-VOTES: 11,119
3. To confirm the appointment of KPMG Peat Marwick, LLP as independent auditors of the Company for the fiscal period ending June 30, 1997. FOR: 5,875,939 AGAINST: 4,985 ABSTAIN: 4,762 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.20 Industrial Lease Agreement, dated November 19, 1996 between Registrant and CNC Grand Union Limited 11.1 Statement of Computation of Net Income (Loss) Per Share 27.1 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1996. 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. PINNACLE SYSTEMS, INC. Date: February 10, 1997 By: /s/Mark L. Sanders ----------------------- Mark L. Sanders President, Chief Executive Officer and Director Date: February 10, 1997 By: /s/Arthur D. Chadwick -------------------------- Arthur D. Chadwick Vice President, Finance and Administration and Chief Financial Officer EX-10.20 2 EXHIBIT 10.20 EXHIBIT 10.20 DATED 19th of November, 1996 CNC GRAND UNION LIMITED -and- PINNACLE SYSTEMS LIMITED L E A S E -re- UNIT 7 THE GRAND UNION OFFICE PARK, PACKET BOAT LANE, COWLEY, UXBRIDGE, MIDDLESEX. Messrs., Charsley Harrison, 8 Sheet Street, Windsor, Berkshire. T H I S L E A S E is made the 19th day of November 1996 B E T W E E N:- (1) CNC GRAND UNION LIMITED whose registered office is at Unit 5 The Grand Union Office Park Packet Boat Lane Cowley Uxbridge UB8 2GH ("the Landlord") and (2) PINNACLE SYSTEMS LIMITED OF 7 Portland Business Centre Manor House Lane Datchet Berkshire ("The Tenant) 1. DEFINITIONS IN this Lease, where the context so requires or admits the following expressions have the following meanings:- 1.1 "Adjoining Premises": the land and buildings edged blue on the Plan 1.2 "Adjoining Property": all parts of the Estate (other than the Demised Premises) 1.3 "the Building": the Demised Premises more particularly described in the First Schedule hereto; 1.4 "Car Park": parts of the Estate set aside by the Landlord for the parking of vehicles; 1.5 "Car Spaces": the 24 spaces forming part of the Car Park allocated in accordance with principles of good estate management from time to time by the Landlord for the exclusive use of the Tenant and such spaces being so allocated as at today's date shown for identification purposes only edged brown hatched black on the Plan; 1.6 "the Certificate": the details of the charges properly and reasonably incurred by the Landlord in the provision of the Services as defined in clause 8; 1.7 "the Commencement Date" the 1st day of April 1996 1.8 "Common Areas": the service roads, service areas, service bays, pedestrian areas, yards, forecourts and landscaped areas and also the Car Park waste receptacles and any other amenities on the Estate which are from time to time provided or designated by the Landlord for common use by the tenants and occupiers of the Estate and all persons expressly or by implication authorised by them but excluding the Lettable Areas; 1.9 "Conduits": pipes, down pipes, sewers, drains, soakaways, channels, gullies, gutters, watercourses, conduits, ducts, flues, wire, cables fibre optics and other conducting media of whatsoever nature; 1.10 "the Demised Premises": the Demised Premises as briefly described in the First Schedule and each and every part thereof and shall be deemed to include:- 1.10.1 all buildings now or hereafter erected thereon and in particular but not by way of limitation, the roof, foundations, external walls, internal load bearing walls and the structural parts of the roof, ceilings and floors thereof; 1.10.2 all landlord's fixtures and fittings now or hereafter in or upon the same including but not limited to (if any) window frames, glass, window furniture, sash-cords, doors, door-frames; 1.10.3 lifts, lift-shafts and machinery, boilers, central heating and air-conditioning plant and all electrical and mechanical plant, machinery, equipment and apparatus and the water and sanitary apparatus solely serving the Demised Premises; 1.10.4 all Conduits in, upon, over or under and exclusively serving the Demised Premises; and 1.10.5 all additions, alterations and improvements thereto; Provided that the walls dividing the Demised Premises from any other unit on the Estate shall be party walls 1.11 "Development": development as defined in Section 55 of the Town and Country Planning Act 1990; 1.12 "the Estate": the Estate (of which the Demised Premises forms part) briefly described in the Second Schedule and each and every part thereof and all appurtenances belonging thereto, including:- 1.12.1 all landlord's fixtures and fittings, plant, machinery apparatus and equipment now or hereafter in or upon the same; 1.12.2 additions, alterations and improvements thereto within the Estate; 1.13 "the Guarantor": includes in the case of an individual, the personal representatives of any person who becomes a guarantor for the purposes of Clause 4.26.2.2; 1.14 "Inherent Defect" means any defect in the demised premises or the Estate or in anything installed in or on the Demised Premises or the Estate which is attributable to: 1.14.1 defective design or 1.14.2 defective workmanship or materials 1.14.3 defective supervision of the construction of or the installation of anything in or on the Demised Premises or the property 1.14.4. defective preparation of the site upon which the Demised Premises or the estate are constructed 1.14.5. dampness or past dampness in the concrete oversight floor the raised floor and raised floor stools on the ground floor of the Demised Premises 1.14.6. dampness or past dampness in the raised metal cased floor and metal stools on the first floor of the Demised Premises 1.15 "the Initial Rent": the sum of Sixty Six Thousand Six Hundred and Twenty Five Pounds ((pound)66,625.00) such sum being exclusive of V.A.T. 1.16 "the Insured Risks": fire (including subterranean fires) earthquake subsidence landslip and heave bursting or overflowing of water tanks, apparatus or pipes, terrorism riot or civil commotion strikes labour or political disturbances or damage by malicious persons, explosion (including explosion of boilers and other heating apparatus) lightning thunderbolt storm tempest flood and impact by any road vehicle railway boat aircraft or other aerial device or articles dropped therefrom and accidental damage to underground pipes and cables and such other risks as the Landlord may in its reasonable discretion from time to time determine subject to such exclusions excesses and limitations as may reasonably be imposed by the insurers; 1.17 "the Interest Rate": four per cent (4%) per annum above the Base Rate for the time being of The Royal Bank of Scotland plc or some other London clearing bank nominated from time to time by the Landlord or, in the event of the Base Rate being abolished, such other reasonable comparable rate of interest as the Landlord shall from time to time reasonably determine; 1.18 "Initial Service Charge Payment": (pound) 1,474.20 1.19 "the Landlord": includes the estate owner for the time being entitled to the reversion immediately expectant on the determination of the Term; 1.20 "the Landlord's Surveyor": any person (being an associate or fellow of the Royal Institution of Chartered Surveyors) including an employee of the Landlord appointed by or acting for the Landlord to perform the function of a surveyor for any purpose of this Lease 1.21 "this Lease": this Lease and any document which has been made supplemental hereto, or which is entered into pursuant to or in accordance with the terms hereof 1.22 "the Lettable Areas": those parts of the Estate leased or intended to be leased to occupational tenants or designed to be leased to occupational tenants and "the Other Lettable Areas" shall mean the Lettable Areas excluding the Demised Premises 1.23 "1954 Act": the Landlord and Tenant Act 1954 and any subsequent legislation of a similar nature 1.24 "the Planning Acts": includes the Town and Country Planning Act 1990 and any subsequent legislation of a similar nature and any orders, regulations or directions issued or continued in force under or by virtue of such Acts or legislation or any statutory modification or re-enactment thereof or replacement therefor for the time being in force 1.25 "the Plan": the plan attached to this Lease 1.26 "the President": the President for the time being of the Royal Institution of Chartered Surveyors and includes the duly appointed deputy of such President or any person authorised by such President to make appointments on his behalf 1.27 "Retained Parts" all parts of the Estate which do not comprise the Lettable Areas including but not limited to:- 1.27.1 The Common Areas; 1.27.2 office or other accommodation which may from time to time be reserved on the Estate for Landlord's staff 1.27.3 any parts of the Estate reserved by the Landlord for the housing of plant machinery and equipment or otherwise in connection with or required for the provision of services 1.27.4 all Conduits in upon over or under or exclusively serving the Estate except any that form part of the Lettable Areas 1.27.5 the main structure of all buildings on the Estate (except those parts which are Lettable Areas) 1.27.6 all party structures boundary walls railings and fences and all exterior parts of the Estate and all roads (until such time as the same shall become maintainable at public expense) and 1.27 the Car Park 1.28 "the Review Date" the fifth anniversary of the Commencement Date 1.29 "the Service Charge": Seven point One One per cent (7.11%) of the expenditure as referred to in the Seventh Schedule hereto (subject to Clause 8.6) 1.30 "the Service Charge Commencement Date" 1.31 "the Services": services relating to the Estate and more particularly set out in the Seventh Schedule 1.32 "the Tenant": includes the Tenant's successors in title and assigns and, in the case of an individual, includes his personal representatives 1.33 "Term": the term of years granted by this Lease 1.34 "Utilities": water soil steam air electricity radio television telegraphic telephone telecommunications and other services and supplies of whatsoever nature 1.35 "Value Added Tax": value added tax under the Value Added Tax Act 1994 or other imposition or levy of a like nature 1.36 "the Waste Receptacles": the receptacles for any waste, trade empties, rubbish or refuse forming part of the Retained Parts so designated in accordance with principles of good estate management from time to time by the Landlord for use of the Tenant 2. INTERPRETATION UNLESS there is something in the subject or context inconsistent therewith:- 2.1 Words importing the singular number include the plural number and vice versa and where there are two or more persons included in the expression "the Landlord" "the Tenant" and/or "the Guarantor" covenants expressed to be made by "the Landlord" "the Tenant" and/or "the Guarantor" shall be deemed to be made by such persons jointly and severally 2.2 References to any right exercisable by the Landlord shall where the context so admits include the exercise of such right by any superior lessor and all persons authorised by the Landlord or any superior lessor including agents professional advisers contractors workmen and others 2.3 Any reference to a statute or order in this Lease shall include from time to time throughout the Term any statutory extension or modification or re-enactment of such statute or order and any regulations or orders made thereunder 2.4 Any covenant in this Lease by the Tenant not to do an act or thing shall be deemed to include an obligation not to agree or suffer any act or thing to be done and to use its best endeavours to prevent such act or thing being done by another person 2.5 Any reference in this Lease to parting with possession shall be deemed to include sharing possession or parting with or sharing occupation or holding the Demised Premises on trust for another 2.6 Any payments by the Tenant to the Landlord under this Lease shall in addition (if applicable) bear Value Added Tax subject to the Tenant first receiving a proper Value Added Tax invoice addressed to the Tenant 2.7 The titles or headings appearing in this Lease and the front cover and the index section of this Lease are for reference and shall not affect its construction or its interpretation 2.8 References in this Lease to any Clause or Schedule without further designation shall be construed as a reference to the Clause of or Schedule to this Lease so numbered 2.9 It is intended that this Lease shall be executed as a Deed 3. DEMISE AND RENTS 3.1 THE Landlord DEMISES unto the Tenant the Demised Premises TOGETHER WITH the rights and easements specified in the Third Schedule EXCEPT AND RESERVING in favour of the Landlord and all other persons now entitled or who may become entitled the easements and rights specified in the Fourth Schedule SUBJECT TO and where appropriate with the benefit of the matters contained or referred to in the documents referred to in the Sixth Schedule TO HOLD the Demised Premises unto the Tenant for the term of TEN YEARS commencing on the 1st day of April 1996 Yielding and Paying unto the Landlord during the Term: 3.1.1 In respect of the period commencing on the 1st day of April 1996 until the Review Date the Initial Rent 3.1.2 For the period from the Review Date until the expiry of the Term such yearly rent as shall become payable under and in accordance with the provisions of the Eighth Schedule such Sums to be paid quarterly in advance on the usual quarter days the first of such payments or a proportion thereof to be made on the 1st of May 1996 by standing order if required 3.2 From the Service Charge Commencement Date the due proportion (to be fairly and properly determined by the Landlord's Surveyor) of all sums (including the proper cost of valuations for insurance purposes made no more frequently than once in every three years) which the Landlord shall from time to time pay for insuring the Estate against the Insured Risks and the other matters referred to in Clauses 6.1.1, 6.1.3 and 6.1.4 and the whole of the sums which the Landlord shall from time to time pay for insuring against loss of rent in accordance with Clause 6.1.2 all such sums to be due and paid on demand 3.3 The monies referred to in Clause 4.2 to be paid within seven days of demand and 3.4 From the Service Charge Commencement Date the Service Charge to be paid within seven days of demand in accordance with Clause 8. 4. TENANTS COVENANTS THE Tenant COVENANTS with the Landlord as follows:- 4.1 Rent To pay all rents from time to time reserved by this Lease (whether formally demanded or not) without any deduction counter claim or set off and in the manner stated in this Lease (before and after any judgment) 4.2 Interest If and when the Tenant shall fail to pay the rent or any other monies due under this Lease on the due date (for the avoidance of doubt including interest due from the Tenant to the Landlord hereunder) to pay to the Landlord interest thereon at the Interest Rate calculated from the due date to the date of actual payment to the Landlord (before and after any judgment) or acceptance by the Landlord in the event that the Landlord shall have properly declined the rent due and owing on the ground that to do so would have the effect of waiving a breach of covenant by the Tenant or the Guarantor Provided that interest shall only be payable by a Tenant who shall have assigned this Lease from the date of demand therefor 4.3 Outgoings To pay and discharge or indemnify the Landlord against all existing and future rates, taxes, duties, charges, impositions, outgoings and assessments whatsoever (whether parliamentary, parochial, local or of any other description (including the European Community) and whether or not of a capital or non-recurring nature or of a wholly novel character) including all charges for gas, water and electricity consumed on the Demised Premises which now are or may during the Term be assessed, charged or imposed upon or payable in respect of the Demised Premises or any part of the Demised Premises or upon the owner or occupier of them (except (without prejudice to Clause 2.6) tax payable by the Landlord in respect of rents and other payments arising under this Lease or tax payable as a result of any dealing with the reversion of this Lease) 4.4 Landlord's Costs 4.4.1 To pay and indemnify the Landlord or (as the case may be) any superior lessor, any mortgagee (not being more than two) or their respective professional advisers against all reasonable costs and expenses properly incurred by them in connection with:- 4.4.1.1 all applications by the Tenant for any consent required by this Lease including cases where the application is withdrawn or consent is refused (unless unreasonably) 4.4.1.2 any reasonable and proper proceedings under the Law of Property Act 1925 Section 146 (whether or not any right of re-entry or forfeiture has been waived by the Landlord or a notice served under Law of Property Act 1925 Section 146 is complied with by the Tenant or the Tenant has been relieved under the provisions of the 1954 Act and notwithstanding forfeiture is avoided otherwise than by relief granted by the Court) 4.4.1.3 procuring the remedying of the breach of any covenant by the Tenant including the recovery or attempted recovery of arrears of rent or other sums due from the Tenant 4.4.1.4 abating a nuisance caused by the Tenant on the Demised Premises and executing all such works as may be necessary for abating such nuisance in obedience to a notice served by any local or other authority as a result of any act or omission on the part of the Tenant 4.4.1.5 any breach of covenant by the Tenant or notice requiring the Tenant to remedy a breach of any of the Tenant's covenants 4.5 Repairs 4.5.1 From time to time and at all times during the Term to keep the Demised Premises in good and substantial repair and condition (damage by the Insured Risks excepted save to the extent that payment of the insurance monies shall be withheld by reason of any act neglect default of the Tenant or any undertenant or any person under its or their control) Provided that the Tenant shall not in any circumstances either directly or through the Service Charge be responsible for carrying out or bearing the cost of any works necessary to remedy any Inherent Defect in the Demised Premises or to remedy any repairs and redecorations caused by the Inherent Defect or to reinstate the Demised Premises after the works remedying the Inherent Defect If the Tenant shall in compliance with its obligations hereunder carry out any works to remedy any Inherent Defect or to remedy any want of repair which is attributable to any such Inherent Defect and provided that the Tenant prior to carrying out such works shall obtain the approval of the Landlord to the nature extent and cost of the works such approval not to be unreasonably witheld or delayed and complete such works to the reasonable satisfaction of the Landlord the Landlord shall pay or repay to the Tenant the costs and expenses of and incidental to such works following production to the Landlord of all relevant receipts and invoices or other reasonable evidence of such costs and expenses provided that the Landlord may upon receipt of details of the nature and extent of such works elect to carry out the same itself and such shall be carried out to the reasonable satisfaction of the Surveyor to the Tenant 4.5.2 To replace from time to time any of the Landlord's fixtures and fittings which may be or become in need of replacement with new ones of similar kind and quality 4.6 Decorations 4.6.1 In the year 2001 and also in the last six months of the Term (whether determined by effluxion of time or otherwise) (but not twice in any period of 18 months) in a good and workmanlike manner to prepare and decorate with two coats at least of good quality paint or otherwise treat as appropriate all interior parts of the Demised Premises required to be so treated (the decoration in the last year of the Term if it differs from the present colour or type to be in a colour and type previously approved in writing by the Landlord such approval not to be unreasonably withheld or delayed) and as often as may be reasonably necessary to wash down all tiles glazed bricks and similar washable surfaces 4.6.2 In the year 2001 and also in the last six months of the Term (whether determined by effluxion of time or otherwise) but not twice in any period of 18 months in a good and workmanlike manner to prepare and decorate (with two coats at least of good quality paint) or otherwise treat as appropriate all exterior parts of the Demised Premises required to be so treated (the decoration whenever it differs from the present colour or type to be in a colour and type previously approved in writing by the Landlord such approval not to be unreasonably withheld or delayed) and as often as may be reasonably necessary to wash down all tiles glazed bricks and similar washable surfaces (if any) 4.7 Cleaning To keep the Demised Premises in a clean and tidy condition and at least once in every month properly to clean both sides of all windows and all window frames and all other glass in the Demised Premises (including all the glass in the entrance doors) 4.8 Floor Covering To maintain and when necessary to replace the floor covering now or from time to time laid in the Demised Premises with new floor covering of no less quality and value and not to lay down any other form of floor covering 4.9 Plant and Machinery 4.9.1 To keep all plant machinery apparatus and equipment solely serving the Demised Premises properly maintained and in good working order and condition and for that purpose:- 4.9.1.1 to employ such reputable contractors as may be approved in writing by the Landlord such approval not to be unreasonably withheld or delayed, to regularly inspect maintain and service the same 4.9.1.2 to renew or replace all working and other parts as and when necessary 4.9.1.3 to ensure by directions to the Tenant's staff and otherwise that such plant and machinery is properly operated 4.9.2 Whenever reasonably required to produce to the Landlord copies of contracts and other documentary evidence relating to the maintenance of all plant machinery apparatus and equipment in the Demised Premises 4.10 Overloading Floors and Services Not to do anything which imposes an excessive load or strain on the Demised Premises or which may cause structural damage 4.11 Conduits Not by any act or default to do or permit or suffer to be done anything whereby any Conduit in upon over or under the Demised Premises may become choked obstructed or damaged or might be or become a source of danger or might injure the Conduits or the drainage system of the Demised Premises or any Adjoining Property 4.12 Waste Not to commit or permit or suffer to be committed any waste whether permissive voluntary or ameliorating in or upon the Demised Premises 4.13 Disposal of Refuse Not to deposit on any part of the Common Areas any trade empties rubbish or refuse of any kind other than in the repositories in the Waste Receptacles and not to burn any rubbish or refuse on the Demised Premises 4.14 Yielding Up Provided that no proceedings for a renewal of the Term are pending consequent upon an application by the Tenant at the expiration or sooner determination of the Term at the cost of the Tenant to deliver up the Demised Premises (tenant's fixtures fittings fascia or signs belonging to the Tenant excepted) with vacant possession clean and in repair and decorated as stated in this Lease having first replaced any landlords fixtures and fittings which may be worn, missing or damaged with new articles of a similar kind and quality and having made good any damage resulting from the removal of any tenant's fixtures fittings fascia or signs 4.15 User Not to use or permit or suffer to be used the Demised Premises or any part of the Demised Premises for any purpose whatsoever other than:- 4.15.1 as high quality offices; and/or 4.15.2 for any other use within the meaning of Classes B1 of the Town and Country Planning (Use Classes) Order 1987 (taking no account of any amendment or re-enactment affecting such Order after 1st January 1989) 4.16 Prohibited User 4.16.1 Not to use the Demised Premises or any part of the Demised Premises for any public or political meeting public exhibition or public entertainment show or spectacle of any kind nor for any dangerous noisy noxious or offensive trade business or occupation whatsoever nor for any illegal or immoral purpose nor for residential or sleeping purposes 4.16.2 Not to use the Demised Premises or any part of the Demised Premises for gambling betting gaming or wagering or as a betting office or as a club or for the sale of alcoholic drinks and not to play or use any musical instrument hi-fi equipment or similar apparatus in such manner as to be audible outside the Demised Premises and not to hold any auction on the Demised Premises 4.16.3 Not to place outside the Demised Premises or in the Common Areas nor to expose from the windows of the Demised Premises any articles goods or things of any kind 4.17 Nuisance 4.17.1 Not to do anything in or about the Demised Premises or the Estate which may be or become a nuisance or which may cause damage to the Landlord or the owners tenants or occupiers of the Adjoining Property or which may prejudicially affect depreciate or be injurious to the value tone or character of the Estate 4.17.2 To ensure that any audible signal from any burglar alarm fitted for the Demised Premises cuts out automatically no more than 20 minutes after it has started to ring 4.18 Obstruction of Common Areas Not to do anything whereby the Common Areas or other areas over which the Tenant may have rights of access or use may be damaged or the fair use thereof by others may be obstructed in any manner whatsoever 4.19 Vehicles 4.19.1 Not to load or unload any goods arriving at or dispatched from the Demised Premises in such a way that access to or egress from other parts of the Estate or the Adjoining Property is unreasonably obstructed 4.19.2 Not to permit any vehicles belonging to the Tenant or any persons calling on the Demised Premises expressly or by implication with the authority of the Tenant:- 4.19.2.1 To enter and leave the Demised Premises or the Estate except at the vehicular access points constructed for that purpose; or 4.19.2.2 to park on any road or other parts of the Estate except within the Car Spaces 4.19.2.3 to travel at an excessive speed on the Estate 4.20 Not to keep goods of a dangerous nature etc Not to keep or permit to be kept or deposit for sale or otherwise in or upon the Demised Premises or deposit in the Waste Receptacles any goods of a dangerous hazardous or especially combustible nature (except under conditions of storage and use strictly in accordance with the requirements whether statutory or otherwise of the fire or other appropriate authorities and of the Landlord's insurers) nor any materials of any nature the keeping of which may contravene any statute or local regulation or bye-law or constitute a nuisance to the owners or occupiers of Adjoining Property Provided that (save in case of a requirement of the insurers requiring immediate action) the Tenant shall be given the opportunity of negotiating such requirements with the insurers and if the insurers shall decline to insure unless their requirements are met and such insurance is not otherwise obtainable without such requirements then the Tenant shall comply with such requirements. 4.21 Fire Precaution and Equipment 4.21.1 To comply with the requirements and recommendations and to supply and maintain in good condition at all times such fire fighting equipment as shall be required or recommended by the fire officer or authority and as shall be reasonably required or recommended by the insurers of the Demised Premises and the Landlord Provided that the Tenant shall be given the opportunity of negotiating such requirements with the insurers and if the insurers shall decline to insure unless their requirements are met and such insurance is not otherwise obtainable without such requirements then the Tenant shall comply with such requirements 4.21.2 Not to obstruct the access to or means of working any fire fighting and extinguishing appliances 4.22 Defective Premises Forthwith upon becoming aware of the same to give written notice to the Landlord of any defect in the Demised Premises which might give rise to an obligation on the Landlord to do or refrain from doing any act or thing so as to comply with the duty of care imposed on the Landlord pursuant to the Defective Premises Act 1972 and at all times to display and maintain all notices which the Landlord may from time to time reasonably require to be displayed in respect thereof at the Demised Premises 4.23 Encroachments and easements Not to obstruct any window light easement or way belonging to the Demised Premises nor acknowledge that any light is enjoyed by consent with any other person and to give immediate notice to the Landlord if any easement right or encroachment affecting the Demised Premises shall be made or attempted or at the Landlord's request and the joint and equal cost of the Landlord and Tenant to adopt such means as may be reasonably required to prevent such easement right or encroachment 4.24 Alterations 4.24.1 Not to erect any new building or new structure on the Demised Premises or any part thereof nor to alter add to or change the height elevation or external architectural or decorative design or appearance of the Demised Premises nor to merge the Demised Premises with any Adjoining Property 4.24.2 Not without the consent of the Landlord (such consent not to be unreasonably withheld or delayed) to alter divide cut maim injure or remove any of the principal or load-bearing walls floors beams or columns of the Demised Premises nor to make any other alterations or additions of a structural nature to the Demised Premises provided that for the avoidance of doubt and subject to the requirements of local and statutory authorities no consent shall be required from the Landlord for the making of non-structural internal alterations or additions to the Demised Premises but the Tenant shall supply at its own expense details of such alterations and\or additions provided however that upon the determination of the Term (howsoever determined) the Tenant will if required in writing by the Landlord remove and/or reinstate any such alteration or addition and make good the Demised Premises thereafter 4.24.3 Not to make any alterations or additions to the Landlord's fixtures or to any of the Conduits without obtaining the prior written consent of the Landlord such consent not to be unreasonably withheld or delayed 4.24.4 Upon the determination of this Lease howsoever determined, the Tenant shall reinstate to the reasonable satisfaction of the Landlord's surveyor any wall structure or fabric (together with ancillary works) separating the Demised Premises from the Adjoining Premises 4.25 Signs and Advertisements Not without the Landlord's written consent (such consent not to be unreasonably withheld or delayed) to exhibit any sign advertisement or notice outside the Demised Premises or inside the Demised Premises so as to be seen from the outside or to install any flag pole nor any outside television radio aerial satellite dish or other form of receiving or transmission device or window box on the Demised Premises (which if so required by the Landlord shall be removed at the determination of the Term and all damage thereby occasioned made good by the Tenant) 4.26 Alienation 4.26.1 The Tenant will not assign, underlet, mortgage, charge, agree to underlet, share or part with the possession or occupation of or permit any person or company to occupy the whole or any part of the Premises save as hereinafter expressly set out 4.26.2 The Tenant will not assign the whole of the DemisedPremises without first obtaining the Landlord's written consent which (subject to the provisions set out below) shall not be unreasonably withheld 4.26.3 Without prejudice to the generality of the preceding sub-clause 4.26.2 and any other matter or circumstance which may render reasonable the Landlord withholding its licence or consent to an assignment of the Premises or any other condition subject to which it may be reasonable to grant such licence or consent the Landlord may withhold its licence or consent to an assignment of the Premises in the circumstances set out in sub-clauses 4.26.3.1 to 4.26.3.2 inclusive below or such licence or consent may be granted subject to the conditions set out in sub-clauses 4.26.3.3 to 4.26.3.7 subject to the proposed assignee providing if required by the Landlord a Rent Deposit for an amount equivalent to one half of the annual rent passing at the time of the assignment upon the terms (other than the amount of the Rent Deposit) of the Rent Deposit Deed executed by the parties hereto contemporaneously with this Deed 4.26.3.1 Where in the Landlord's reasonable opinion an assignment to the proposed assignee would materially reduce the open market value of the Landlord's interest by reason of the intended use by the Assignee in either the Premises or the building of which the Premises form part or where such use would materially adversely affect the ability of the Landlord to dispose of its reversionary interest in the Premises or its interest in the building of which the Premises form part in the open market 4.26.3.2 If at a time when an application for the Landlord's Licence or consent to an assignment of the Premises is made there exists any material breach of any of the covenants on the part of the Tenant herein contained unless the Tenant shall (if the Landlord so requires) remedy such breach of covenant to the reasonable satisfaction of the Landlord before the Tenant shall be permitted to complete the proposed assignment 4.26.3.3 That unless the Landlord requires the Asgginee to enter into a Rent Deposit Deed the Tenant and the proposed assignee enter into a Licence to Assign and an Authorised Guarantee Agreement (as defined in Section 16 of the Landlord and Tenant (Covenants) Act 1995) in the form set out in Schedule 5 hereto (mutatis mutandis) 4.26.3.4 If the Landlord reasonably requires a surety for the proposed assignee prior to completion of any assignment of the Premises any such surety shall first (jointly and severally if more than one) covenant as principal debtor with the Landlord that:- 4.26.3.4.1 the proposed assignee will pay the rents reserved by this Lease and will observe and perform the tenant's covenants in this Lease 4.26.3.4.2 indemnify the Landlord against any losses resulting from the act or default of the proposed assignee 4.26.3.4.3 if this Lease is disclaimed on the insolvency of the proposed assignee it will, if the Landlord so requires, take a new lease of the Premises on the same terms and conditions as this Lease (mutatis mutandis) and for a term equal to the period of the fixed term granted by this Lease which is unexpired at the date of the disclaimer 4.26.3.5 That all the Landlord's reasonable and proper costs arising in connection with the application for the Licence to Assign (including without prejudice to the generality of the foregoing solicitors' costs and surveyor's fees) together with disbursements and Value Added Tax shall be paid by the Tenant and it shall be reasonable for the Landlord to require before considering any application for a Licence to Assign the Premises an undertaking form the Tenant or the Tenant's solicitors to pay such reasonable and proper costs whether or not the Licence proceeds to completion 4.26.3.6 That if either the proposed assignee or the surety (if any) is a company incorporated elsewhere than in Great Britain or is an individual not resident in Great Britain (whether or not with other individuals who may be so resident) the proposed assignee (and surety if any) enters into a separate deed with the Landlord which contains the following provisions: 4.26.3.7.1 an agreement by the parties that the rights and obligations of the parties under the Lease and all documents supplemental thereto shall be governed by the laws of England 4.36.3.7.2 an agreement on the part of the proposed assignee that any legal action or proceedings against the proposed assignee with respect to any matter arising under this Lease and any document supplemental thereto may be brought in the English Courts 4.26.3.7.3 the irrevocable and unconditional acceptance by the assignee of the exclusive jurisdiction of the English Courts in relation to anything arising under this Lease or any document supplemental thereto 4.26.3.7.4 an irrevocable appointment of an agent in England or Wales authorised to accept service on the proposed assignee (or surety as the case may be) in England or Wales of any notice under this Lease or any document supplemental thereto or under any statute and/or process in the jurisdiction in the English Courts in any legal action or proceeding arising under this Lease or any document supplemental thereto 4.26.3.7.5 an agreement by the proposed assignee (and surety if any) that should the Landlord bring any judicial proceedings in relating to any matter arising under this Lease or any document supplemental thereto no immunity from such judicial proceedings from attachment of its property or from execution of judgement shall be claimed by the assignee or on the assignee's behalf with respect to the property of the assignee and any such immunity shall be waived by the assignee 4.26.3.7.6 an agreement by the proposed assignee (and surety if any) that nothing in the foregoing provisions should affect the right to serve process in any other manner permitted by law or to commence any legal action or proceedings in any other jurisdiction 4.26.3.7.7 an agreement by the proposed assignee (and surety if any) that any order declaration or other decision of the English Courts may be enforced in the duly constituted Court of the country in which the assignee (being a company) is incorporated or (being an individual) is resident or in the Courts of any other country in which the proposed assignee (and surety if any) has assets and an undertaking by the assignee (and surety if any) to submit to the jurisdiction of such Courts 4.26.4 Not to underlet the whole of the Premises without (a) obtaining the Landlord's consent (such consent not to be unreasonably withheld) and (b) first procuring:- 4.26.4.1 that any underlease to be granted hereunder shall: 4.26.4.1.1 be granted without a fine or premium and at a rent not less than the higher of the rent payable under this Lease at the time of completion of the proposed underlease and the open market rack rent for the Premises at the time of such underlease 4.26.4.1.2 contain a condition for re-entry on breach of any covenant by the undertenant 4.26.4.1.3 contain the same or greater restrictions mutatis mutandis as to assignment underletting [mortgaging] charging or underletting [parting with or sharing the possession or occupation of] the [whole of the] Premises (and the same provision mutatis mutandis for direct covenants and registration) as are in this Lease 4.2.6.4.1.4 contain a covenant by the undertenant to perform and observe all the tenant's covenants and the other provisions contained in this Lease (other than the payment of the rents) so far as the same are applicable to the premises to be thereby demised 4.26.4.1.5 contain a covenant by the undertenant prohibiting the undertenant from doing or suffering any act or thing upon or in relation to the premises to be underlet inconsistent with or in breach of the provisions of this Lease 4.26.4.1.6 be in a form previously approved by the Landlord (such approval not to be unreasonably withheld or delayed) 4.26.4.2 a direct covenant by the prospective undertenant with the Landlord to perform and observe all the tenant's covenants and the other provisions contained in this Lease (other than the payment or the rents) and the proposed underlease 4.26.4.3 if the Landlord shall reasonably so require an acceptable guarantor for any person to whom the Premises are to be underlet who shall execute and deliver to the Landlord a deed containing direct covenants by such guarantor (or, if more than one such guarantor, joint and several covenants) with the Landlord (and any Superior Landlord) as principal debtor 4.26.4.3.1 that the proposed undertenant will observe and perform all the tenant's covenants and other provision in this Lease (other than payment of the rents) and the proposed underlease 4.26.4.3.2 to indemnify against any loss resulting from any breach by the undertenant or in terms from time to time reasonably determined by the Landlord Underletting of part (personal to named tenant) 4.26.5 Subject to obtaining the Landlord's prior written consent and subject to the following conditions the Tenant (here meaning only Pinnacle Systems Limited) may sublet to a suitable tenant part of the Premises 4.26.5.1 The sub tenancy shall not grant nor shall the sub-tenant be allowed into possession until there has been produced to the Landlord a copy of a Court Order excluding in respect of the proposed subletting the provisions of Sections 24 - 28 inclusive of the Landlord and Tenant Act 1954 4.26.5.2 The sub-leasing shall contain an absolute bar upon any assignment underletting or parting with possession of the whole or any part of the sublet premises and also be subject to termination in the event inter alia Blockbuster Entertainment Limited shall cease to be the Tenant of the whole of the Premises for whatever reason 4,26,5.3 To include in such underlease covenants on the part of the undertenant in the same terms (mutatis mutandis) as in this Lease in so far only as the same relate to the sublet premises 4.27 Registration of Dispositions Within 21 days of every assignment transfer assent underlease mortgage charge or any other disposition whether mediate or immediate of or relating to the Demised Premises to produce to and leave with the Landlords solicitors a certified copy of the deed instrument or other document evidencing or effecting such disposition and on such occasion to pay to the Landlord's solicitors a reasonable registration fee being not less than (pound)30.00 4.28 Disclosure of Information Upon making any application or request in connection with the Demised Premises or this Lease to disclose to the Landlord such information as the Landlord may reasonably require and whenever the Landlord shall reasonably request to supply to the Landlord full particulars of all occupations and derivative interests in the Demised Premises however remote or inferior 4.29 Statutory Notices Within 14 days of receipt of the same (or sooner if requisite having regard to the requirements of the notice or order in question or the time limits stated therein) to produce to the Landlord a true copy and any further particulars reasonably required by the Landlord of any notice or order or proposal for the same given to the Tenant and relevant to the Demised Premises or the occupier thereof by any government department or local or public authority and without delay to take all necessary steps to comply with the notice or order as far as the same is the responsi-bility of the Tenant and at the request of the Landlord and at the joint and equal costs of the Landlord and the Tenant to make or join with the Landlord in making such objection or representation against or in respect of any such notice order or proposal as the Landlord shall reasonably deem expedient 4.30 Compliance with Statutes At the Tenant's own expense at all times during the Term to observe and comply in all respects with the provisions and requirements of the Offices Shops and Railway Premises Act 1963 the Factories Act 1961 and the Health and Safety at Work etc Act 1974 and any and every statute now in force or which may hereafter be in force and any other obligations imposed by law relating to the Demised Premises or the user of the Demised Premises 4.31 Compliance with Notices 4.31.1 Whenever the Landlord shall give written notice to the Tenant of any wants of repair which are the responsibility of the Tenant hereunder or breaches of Tenants covenant the Tenant shall within 60 days of such notice or sooner if requisite commence and thereafter diligently proceed to make good and remedy the breach of covenant to the reasonable satisfaction of the Landlord 4.31.2 If the Tenant shall fail within 30 days of such notice or as soon as reasonably possible in the case of an emergency to commence and then diligently and expeditiously to continue to comply with such notice the Landlord may enter the Demised Premises and carry out or cause to be carried out all or any of the works referred to in such notice and all costs and expenses thereby incurred shall be paid by the Tenant to the Landlord on demand and in default of payment shall be recoverable as rent in arrear 4.32 Rights of Entry To permit the Landlord with all necessary workmen materials and appliances at all reasonable times during the Term and (except in cases of emergency) upon reasonable prior notice to enter and (for as long as is necessary) remain upon the Demised Premises for any of the following purposes:- 4.32.1 to view and examine the state and condition of the Demised Premises and to take schedules or inventories of the landlord's fixtures 4.32.2 to ensure that nothing has been done in the Demised Premises that constitutes a breach of any of the covenants contained in this Lease 4.32.3 to exercise any rights excepted and reserved by this Lease 4.32.4 for any other reasonable purpose connected with the interest of the Landlord in the Demised Premises or the Estate including but not limited to valuing or disposing of any interest of the Landlord; the Landlord procuring that the persons so entering shall cause as little disturbance to the Tenant and as little damage as reasonably possible and forthwith making good any damage caused 4.33 Planning 4.33.1 At all times during the Term to comply in all respects with the provisions and requirements of the Planning Acts and all consents permissions and conditions (if any) granted or imposed or having effect thereunder so far as the same respectively relate to or affect the Demised Premises or any part of the Demised Premises or any operations works acts or things already or to be carried out executed done or omitted thereon or the use thereof for any purpose 4.33.2 At the expense of the Tenant to obtain from (as the case may be) the local planning authority or the Secretary of State for the Environment or such other authority as may from time to time be appropriate all such consents and permissions (if any) as may be required for the carrying out of any operations on the Demised Premises or the institution or continuance on the Demised Premises of any use which may constitute Development but so that no application for planning permission shall be made or any notice given to any authority prior to the commencement or carrying out of any Development without the prior written consent of the Landlord such consent not to be unreasonably withheld or delayed Provided that for the purpose of this Clause no consent from the Landlord shall be required for a change of use of the Demised Premises if the use is permitted by Clause 4.15 and/or for alterations permitted by Clause 4.24 4.33.3 To pay and satisfy any charge or levy that may be imposed under the Planning Acts in respect of the carrying out or maintenance of any such operations or the institution of continuance of any such user 4.33.4 Notwithstanding any consent which may be granted by the Landlord under this Lease not to carry out or make any alteration or addition to the Demised Premises or any change of use (the alteration or change of use which is prohibited by or for which the Landlord's consent is required to be obtained under this Lease and for which a planning permission is to be obtained) before a planning permission therefor has been produced to the Landlord and acknowledged by it in writing as satisfactory to it (such acknowledgement not to be unreasonably withheld) but so that the Landlord may refuse so to express its satisfaction with any such planning permission on the ground that the period thereof or anything contained in it or omitted from it in the reasonable opinion of the Landlord's Surveyor would be or be likely to be prejudicial to the Landlord's interest in the Demised Premises whether during the Term or following the determination or expiration of the Term 4.33.5 In the event that the Tenant shall have commenced to implement any part of any planning permission obtained by the Tenant unless the Landlord shall otherwise direct to carry out before the expiration or sooner determination of the Term any work stipulated to be carried out to the Demised Premises by a date subsequent to such expiration or sooner determination as condition of any planning permission which may have been granted to the Tenant on its application during the Term 4.33.6 Not without the prior written consent of the Landlord (such consent not to be unreasonably withheld) to enter into any agreement under Section 106 of the Town and Country Planning Act 1990 or to serve any notice under Part VI of the Town and Country Planning Act 1990 4.33.7 If and when called upon so to do to produce to the Landlord or the Landlord's Surveyor all such plans documents and other evidence as the Landlord may reasonably require in order to satisfy itself that the provisions of Clause 4.33 have been complied with in all respects 4.33.8 Not to serve any purchase notice under the Planning Acts requiring any local or other authority to purchase the Tenant's interest under this Lease without first offering to surrender this Lease to the Landlord at the price which might reasonably be expected to be obtained from the local or other authority pursuant to such purchase notice such price in the absence of agreement between the parties to be referred to the decision of an independent surveyor experienced in the valuation of office properties appointed by the President such surveyor acting as an expert and not an arbitrator PROVIDED THAT if such offer is not accepted by the Landlord within 30 days thereof then the Tenant may proceed with the service of such purchase notice without further reference to the Landlord 4.33.9 If the Tenant shall receive any compensation with respect to its interest under this Lease because of the restriction placed upon the user of the Demised Premises under or by virtue of the Planning Acts then if and when its interest under this Lease shall be determined (for whatever reason) forthwith to make such provision as is just and equitable for the Landlord to receive its due benefit from such compensation 4.34 Reletting and Sale Notice To permit the Landlord at all reasonable times to enter upon the Demised Premises and affix and retain without interference upon any suitable exterior parts of the Building:- 4.34.1 during the last 6 months of the Term notices for reletting the same; and 4.34.2 at any time during the Term notices for selling the Landlord's interest in the Demised Premises; and not to remove or obscure such notices and to permit all persons with the written authority of the Landlord to view the Demised Premises at all reasonable hours in the daytime, upon prior appointment having been made PROVIDED THAT the Landlord shall ensure that such notice shall not obstruct the fenestration or the entrances or exits of the Demised Premises 4.35 Indemnity Save to the extent that any such actions claims and losses are covered by any policy of insurance maintained by the Landlord to keep the Landlord fully indemnified from and against all actions claims and losses arising in any way directly or indirectly out of the state of repair or use of the Demised Premises or any breach of the Tenant's covenants contained in this Lease or arising from any act neglect or default by the Tenant any undertenant or their respective servants or agents or any person on the Demised Premises with the actual or implied authority of any of them 4.36 Taxation Notwithstanding anything contained in this Lease not to do on or in relation to the Demised Premises or any part of the Demised Premises any act or thing (other than the payment of the rents reserved by this Lease or which may arise consequent upon the Landlord's reversionary interest in this Lease) which shall render the Landlord liable for any tax levy charge or other fiscal imposition of whatsoever nature and not to dispose of or deal with this Lease in such a way that the Landlord shall be or become liable for any such tax levy charge or fiscal imposition 4.36.2 If the Tenant shall fail to comply with the provisions of Clause 4.36.1 the Tenant shall indemnify the Landlord against all consequential liability for any tax levy charge or other fiscal imposition of whatsoever nature including but not limited to penalties and interest on overdue tax and penalties for failure to give appropriate notices and information for which the Landlord shall be liable as aforesaid and shall on demand pay to the Landlord the amount of the tax levy charge or fiscal imposition which in default of payment shall be recoverable from the Tenant as rent in arrear 4.37 Covenants Relating to Reversion Not to do or permit any act or thing which conflicts with the covenants and provisions of the documents specified or referred to in the Sixth Schedule (so far as they relate to the Demised Premises) 4.38 Regulations for the Estate To comply with all reasonable regulations made by the Landlord from time to time and notified to the Tenant in writing for the general management and security of the Estate the Common Areas and other areas used or to be used in common with others 4.39 Value Added Tax To pay in addition to all rents costs fees disbursements expenses and other sums payable by the Tenant under this Lease all Value Added Tax (or any similar tax imposed or substituted therefor) which may from time to time be applicable thereto except to the extent that the Landlord can recover the same from H. M. Customs & Excise and in default of payment the same shall be recoverable as rent in arrear 5. LANDLORD'S COVENANTS THE Landlord COVENANTS with the Tenant as follows:- 5.1 Quiet Enjoyment That the Tenant paying the rents reserved by this Lease and performing and observing the covenants conditions and agreements on the part of the Tenant contained in this Lease shall and may peaceably hold and enjoy the Demised Premises during the Term against the Landlord and all persons claiming title through the Landlord or by title paramount 5.2 Provision of Services Subject to the Tenant paying the Service Charge to provide the following services in a good and workmanlike and economical manner using good quality materials:- 5.2.1 So far as may be necessary for the use and enjoyment by the Tenant of the Demised Premises and the Estate to keep the Retained Parts in good repair and condition 5.2.2 To keep clean and maintained in a proper manner the Common Areas and to keep the same lighted where appropriate at such times as the Landlord reasonably shall decide 5.2.3 To employ such staff or contractors as the Landlord may in its reasonable discretion deem desirable or necessary to enable it to provide all or any of the services on the Estate and for the general management and security of the Estate 5.2.4 To repair and maintain those parts of the Retained Parts which are not built upon and to keep the same clear of all rubbish and free from weeds and to provide and maintain at the Landlord's reasonable discretion such plants shrubs trees or garden or grassed areas as may be appropriate and to keep the same planted free from weeds and the grass cut 5.2.5 The matters referred to in the Seventh Schedule hereto 5.3 Inherent Defect The Landlord shall at its own expense make good all Inherent Defect and wants of repair and redecoration resulting therefrom in the Demised Premises as soon as reasonably practicable after the same shall come to the Landlord's attention 5.4 Name Lending Provision 5.4.1 In the event of a Tenant being responsible to repair or to contribute to the repair of the Demised Premises under the provisions of this Lease the Landlord will make available to the Tenant such of the procedures set out in sub-clause 5.4.2 below as the Tenant may reasonably request in writing for the purposes of enforcing for the benefit of the Tenant the Landlord's remedies against third parties involved with or in any connected with the design and construction of the Demised Premises ("the Third Parties") 5.4.2.1 The use by the Tenant of the Landlord's name for the purposes of claiming against the Third Parties in any legal proceedings or Alternative Dispute Resolution whether in Arbitration or the High Court or any other forum in England; 5.4.2.2 The assignment (for the purpose only of enforcing such remedies) of the Landlord's contractual and other rights against the Third Parties in respect of the repairs, subject as appropriate to reassignment when such purposes have been achieved 5.4.2.3 the enforcement by the Landlord (including where appropriate the commencement and prosecution of proceedings) of the benefit of its rights against the Third Parties for the benefit of the Tenant 5.4.3 Subject to the conditions of sub-clauses 5.4.4 and 5.4.5 below, the Tenant will indemnify and keep indemnified the Landlord against any and all liability damages costs losses and/or expenses of whatever nature which the Landlord incurs either directly or indirectly as a result of the operation of sub-clauses 5.4.1 and 5.4.2 including but without prejudice to the generality of the foregoing any award as to liability and/or costs 5.4.4 Where any counterclaim is brought against the Landlord as a part of proceedings under sub-clause 5.4.2 above the indemnity in sub-clause 5.4.3 above shall not extend to liability damages costs losses and/or expenses forming part of or arising as a result of the counterclaim. If any counterclaim is raised to proceedings commenced pursuant to sub-clause 5.4.2.1 above the Tenant shall give written notice of such Counterclaim to the Landlord forthwith after receipt of the same, and those matters will be defended fully in accordance with the Landlord's wishes and at the Landlord's expense 5.4.5 It is a condition precedent to the Tenant's liability to indemnify under sub-clause 5.4.3 above that where the Landlord incurs any liabilities damages costs losses and/or expenses in respect of which he is to be indemnified by the Tenant he shall notify the Tenant at its Registered Office in writing 6. INSURANCE 6.1 Landlord to insure the Estate The Landlord shall insure and keep insured:- 6.1.1 the Estate (including plate or toughened glass forming part of the Demised Premises) subject to such exclusions excesses limitations and requirements as may be imposed by the insurers in the full reinstatement cost of the Estate against loss or damage by the Insured Risks including architects quantity surveyors and other professional fees and other incidental expenses the cost of shoring up demolition and site clearance and similar expenses together with Value Added Tax (or any similar or substituted tax) if applicable on all of the foregoing (with the interest of the Tenant noted on the policy or policies and with the insurer waiving rights of subrogation) Provided that the Tenant shall be given the opportunity of negotiating such exclusions excesses limitations and/or requirements with the insurers and if the insurers shall decline to insure unless such exclusions excesses limitations and/or requirements are imposed and such insurance is not otherwise obtainable without such exclusions excesses limitations and/or requirements then the Tenant shall accept such exclusions excesses limitations and/or requirements 6.1.2 the loss of rent from time to time payable or reasonably estimated by the Landlord's Surveyor to be payable under this Lease for 3 years 6.1.3 explosion of any engineering and electrical plant and machinery to the extent that the same is not covered by Clause 6.1.1 and 6.1.4 property owner's liability and such other normal insurances as the Landlord may from time to time reasonably deem necessary to effect 6.2 Notice by Tenant The Tenant shall give notice to the Landlord upon the happening of any event or thing which might effect any insurance policy relating to the Demised Premises or the Estate taken out by the Landlord in performance of its obligations under this clause 6.3 Suspension of rent If the Demised Premises or the Estate or any part thereof shall at any time be destroyed or damaged by any of the Insured Risks so as to render the Demised Premises unfit for occupation or use (and save to the extent that the insurance shall not have been vitiated or payment of the policy monies refused in whole or in part by reason of some act or default of the Tenant or any undertenant or any person under its or their control) then the rent reserved by Clauses 3.1, 3.2 and 3.4 or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended until the Demised Premises or the Estate or the part destroyed or damaged shall be again rendered fit for use and occupation or until the expiration of 3 years from the date of destruction or damage (whichever shall first occur) and any dispute regarding the suspension of rent shall be referred to a single arbitrator or to be appointed in default of agreement upon the application of either party by or on behalf of the President in accordance with the provisions of the Arbitration Acts 1950 to 1979 6.4 Destruction of the Estate If the Estate or any part thereof is destroyed or damaged by any of the Insured Risks so as to render the Demised Premises unfit for use and occupation or inaccessible then:- 6.4.1 save to the extent that payment of the insurance monies shall be refused in whole or in part by reason of any act or default of the Tenant or any undertenant or any person under its or their control and 6.4.2 subject to the Landlord being able to obtain any necessary planning permission and all other necessary licences approvals and consents in respect of which the Landlord shall use its reasonable endeavours to obtain but shall not be obliged to institute any appeals and 6.4.3 subject to the necessary labour and materials remaining available in respect of which the Landlord shall use its reasonable endeavours to obtain as soon as practicable the Landlord shall with all reasonable expedition lay out the proceeds of such insurance other than any in respect of loss of rent and the Service Charge in the rebuilding and reinstatement of the premises so destroyed or damaged substantially as the same were prior to any such destruction or damage and shall complete such rebuilding and reinstatement as soon as reasonably practicable making up any shortfall in the insurance moneys out of the Landlord's own moneys 6.5 Where reinstatement is prevented If for any reason whatsoever outside the Landlord's control the Landlord is prevented from rebuilding or reinstating the Demised Premises or the Estate the Landlord shall be relieved from such obligation and shall be solely entitled to all the insurance monies and if such rebuilding and reinstatement shall continue to be so prevented for two years and nine months after the date of the destruction or damage the Landlord or (if such rebuilding and reinstatement shall be prevented for two years and nine months after the date of the destruction or damage for whatever reason) the Tenant may at any time after the expiry of such two years and nine months by three months' written notice given to the other determine this demise but without prejudice to any claim by either party against the other in respect of any antecedent breach of covenant 6.6 Payment of insurance monies refused If the payment of any insurance monies is refused as a result of some act or default of the Tenant or any undertenant or any person under its or their control the Tenant shall pay to the Landlord on demand the amount so refused with interest thereon at the Interest Rate 6.7 Benefit of other insurance If the Tenant shall become entitled to the benefit of any insurance on the Demised Premises which is not effected or maintained in pursuance of the obligations herein contained then the Tenant shall apply all monies received from such insurance (in so far as the same shall extend) in making good the loss or damage in respect of which the same shall have been received 6.8 Insurance becoming void The Tenant shall not (by act or omission) do or permit to be done anything that could cause any policy of insurance taken out by the Landlord hereunder to become void or voidable wholly or in part nor anything whereby any additional insurance premiums may become payable (unless the Tenant shall notify the Landlord upon becoming aware of the same or shall have previously notified the Landlord and shall have agreed to pay the increased premiums) and the Tenant shall on demand make payment to the Landlord of all expenses incurred by the Landlord in renewing any such policy and of any increased insurance premiums all such payment being added to the rents reserved by this Lease and recoverable as rent 6.9 Requirements of insurers The Tenant shall at all times comply with all the requirements of the insurers so far as such requirements are communicated to the Tenant Provided that (save in case of a requirement of the insurers requiring immediate action) the Tenant shall be given the opportunity of negotiating such requirements with the insurers and if the insurers shall decline to insure unless their requirements are met and such insurance is not otherwise obtainable without such requirements then the Tenant shall comply with such requirements 6.10 Landlord to produce evidence of insurance At the request and reasonable cost of the Tenant the Landlord shall provide to the Tenant reasonable evidence from the insurers of the terms of any insurance policy and the fact that the policy is subsisting and in effect provided that the Tenant shall be entitled to one copy of the insurance policy in each year without charge 7. PROVISOS 7.1 Forfeiture WITHOUT prejudice to any other right remedy or power contained in this Lease or otherwise applicable to the Landlord: 7.1.1 if the rent reserved by this Lease or by any part of this Lease shall be unpaid for 14 days after such rent becoming payable or 7.1.2 if there shall be a breach of any of the Tenant's covenants contained in this Lease or 7.1.3 if the Tenant being a company takes any corporate action or in respect of which other steps are taken or legal proceedings are commenced or recommenced for its winding up (which proceedings are not dismissed or otherwise stayed within 14 days) dissolution administration or re-organisation (other than for the purposes of a solvent re-organisation or reconstruction and which results in no material adverse change in the status or financial position of the Guarantor) or for the appointment of a Receiver Administrator Administrative Receiver Trustee or similar officer of it or of any or all of its revenue 7.1.4 if the Tenant and/or the Guarantor (if any) (being an individual) or if more than one individual then any one of them) shall become bankrupt or shall have a Receiving Order made against him or an Interim Order under the Insolvency Act 1986 made against him or 7.1.5 if the Tenant and/or the Guarantor (if any) shall make any assignment for the benefit of creditors or make any arrangements with creditors for the liquidation of debts by composition or otherwise or shall suffer any distress or execution to be levied on the Demised Premises then and in any such case the Landlord may at any time thereafter re-enter the Demised Premises or any part of the Demised Premises in the name of the whole and thereupon the Term shall absolutely cease and determine but without prejudice to any rights or remedies which may then have accrued to the Landlord against the Tenant in respect of any antecedent breach of any of the covenants contained in this Lease 7.2 No implied easements Nothing contained in this Lease shall impliedly confer upon or grant to the Tenant any easement right or privilege other than those expressly granted (if any) by this Lease 7.3 Exclusion of warranty as to user 7.3.1 The Tenant acknowledges that the Lease has not been entered into in reliance wholly or partly upon any statement or representation made by or on behalf of the Landlord save insofar as any such statement or representation is expressly set out in this Lease or has been made by the Landlord's solicitors by or on behalf of the Landlord in any written reply to any enquiry from the Tenant's solicitors by or on behalf of the Tenant before the date of entry in this Lease 7.3.2 Nothing contained in this Lease or in any consent or approval granted by the Landlord under this Lease shall imply or warrant that the Demised Premises may be used under the Planning Acts for the purpose herein authorised or for any purpose subsequently authorised by this Lease 7.4 Covenants relating to Adjoining Property Nothing contained in or implied by this Lease shall give the Tenant the benefit of or the right to enforce or to prevent the release or modification of any covenant agreement or condition entered into by any tenant of the Landlord in respect of any property not comprised in this Lease 7.5 Effect of waiver Each of the Tenant's covenants shall remain in full force both at law and in equity notwithstanding that the Landlord shall have waived or released temporarily any such covenant or waived or released temporarily or permanently revocably or irrevocably similar covenant or similar covenants affecting other property belong-ing to the Landlord 7.6 Service of Notices Any notice under this Lease shall comply with the provisions of the Law of Property Act 1925 Section 196 save that if it was sent by post and would in the ordinary course be delivered on a Saturday Sunday Christmas Day Good Friday statutory bank holiday or other public holiday (none of which is a working day for the purposes of this Clause 7.6) it shall be deemed to be served on the next following working day 7.7 Disputes with adjoining occupiers Any dispute arising between the Tenant and the tenants or occupiers of the Estate as to any easement quasi-easement right privilege or Conduit in connection with the Demised Premises or the Estate or as to party or other walls shall be fairly and reasonably determined by the Landlord 7.8 Failure by the Landlord to provide services The Landlord shall not in any event be liable to the Tenant in respect of any failure of the Landlord to perform any of the services referred to in this Lease whether express or implied unless the Landlord has had notice thereof and the Landlord has failed within a reasonable time to remedy the same 7.9 Exclusion of the Landlord's liability 7.9.1 The Landlord shall not in any circumstances incur any liability for any of the following matters if they are outside the control of the Landlord provided the Landlord has not been negligent namely failure or interruption in any of the services provided by the Landlord or for any inconvenience or injury to person or property arising from such failure or interruption due to mechanical breakdown failure or malfunction overhauling maintenance repair or replacement strikes labour disputes or shortages but the Landlord shall use its reasonable endeavours to cause the service in question to be reinstated with the minimum of delay 7.9.2 Any liability of the Landlord under this Lease shall cease with regard to any act or omission after the transfer of the freehold estate in the Estate and shall cease with regard to any act or omission occurring before such transfer unless proceedings (including but not limited to arbitration proceedings) in respect thereof shall be instituted within eighteen months from the date of such transfer 7.10 Submission to Jurisdiction This Lease shall be governed by and construed in accordance with English Law and the Landlord the Tenant and Guarantor hereby submit to the exclusive jurisdiction of the English courts 7.11 Recovery of Monies as Rent If the Tenant shall make default in paying any sum referred to in Clause 3 (whether formally demanded or not) such sums shall be recoverable as if rent in arrears AND the power of the Landlord to distrain upon the Demised Premises for rent in arrear (including any such last mentioned sum) shall extend to and include any Tenants fixtures and fittings not otherwise distrainable 7.12 Landlord's Surveyor and Accountant In any matter relating to the provisions of this Lease the Landlord shall procure that the Landlord's Surveyor and the Accountant (as hereinafter defined) shall act reasonably 7.13 Covenants Relating to Reversions Without prejudice to clause 4.37 to observe and perform all obligations imposed upon the Landlord by the covenants and provisions of the documents specified or referred to in the Sixth Schedule (so far as they relate to the Estate) 7.14 Post Expiry Provision In the event that the Tenant shall not have vacated the Demised Premises upon expiry of the Term the covenants conditions restrictions and obligations on behalf of the Landlord and the Tenant shall remain in full force and effect Inherent Defects 7.15 Notwithstanding the provisions of Clause 8 the Landlord shall not recover or seek to recover from the Tenant any Service Charge or other payment pursuant to this Lease in respect of any cost incurred by the Landlord in or incidental to the remedying of any Inherent Defect in the Estate or of any want of repair attributable to such Inherent Defect 8. SERVICE CHARGE 8.1 In this Lease, where the context so requires or admits, the following expressions shall have the following meanings:- 8.1.1 "Expenditure" means:- 8.1.1.1 the aggregate of all costs, fees, expenses and outgoings whatsoever (including Value Added Tax thereon if applicable except insofar as the landlord can recover the same from H. M. Customs & Excise) reasonably and properly incurred by the Landlord in complying with its covenants in clause 5.2 and in respect of the items set out in the Seventh Schedule (whether or not the Landlord is obliged by this Lease to incur the same); 8.1.1.2 such sums as the Landlord shall, in its reasonable discretion properly exercised in accordance with the principles of good estate management, consider desirable to set aside from time to time for the purpose of providing for periodically recurring items of expenditure, whether recurring at regular or irregular intervals; or 8.1.1.3 such provision for anticipated expenditure in respect of any of the services to be provided by the Landlord or any of the items referred to in the Seventh Schedule as the Landlord shall, in its reasonable discretion properly exercised in accordance with principles of good estate management, consider desirable in the circumstances; 8.1.2 "Financial Year" means the period from the First day of January in every year to the Thirty first day of December of that year or such other period as the Landlord may, in its absolute discretion, from time to time reasonably determine; 8.1.3 "Accountant" means any person (being a qualified chartered accountant in a professional capacity) appointed by the Landlord (including but not limited to an employee of the Landlord) to perform the function of an accountant in relation to the Expenditure. 8.2. Expenditure Account The Landlord shall, as soon as practicable after the end of each Financial Year, prepare an account showing the Expenditure for that Financial Year and containing a fair and accurate summary of the various items comprising the Expenditure and, upon such account being certified by the Accountant (a copy of which shall be supplied to the Tenant), the same shall be conclusive evidence (save for any manifest error therein), for the purposes of this Lease, of all matters of fact referred to in such account. 8.3. Dates of Payment On each of the four usual quarter days in every year during the Term, the Tenant shall pay to the Landlord without any deduction whatsoever such a sum ("the Advance Payment") in advance on account of the Service Charge for the Financial Year then current as the Landlord shall, from time to time, specify as being, in its absolute discretion properly exercised, a fair and reasonable assessment of one-quarter of the likely Service Charge for that particular Financial Year provided that the Advance Payment for the period from the Service Charge Commencement Date to the next following quarter day shall be the Initial Service Charge Payment and made on the date hereof 8.4. Proportions of Service Charge If the Service Charge for any Financial Year shall:- 8.4.1 exceed the Advance Payment for that Financial Year, the excess shall be paid by the Tenant to the Landlord within 7 days of demand; or 8.4.2 be less than the Advance Payment for that Financial Year, the overpayment shall be credited to the Tenant against the next quarterly payment of the Service Charge except in the final year of the term when any overpayment shall be returned to the Tenant forthwith 8.5. Landlord's Omissions Any omission by the Landlord to include in any Financial Year a sum expended or a liability incurred in that Financial Year shall not preclude the Landlord from including such sum or the amount of such liability in any subsequent Financial Year, as the Landlord shall reasonably determine. 8.6 Landlord's Review 8.6.1 the Landlord shall be at liberty at any time to review the heads of cost expenditure charge or allowances included in the Services referred to in the Seventh Schedule as it shall in its absolute discretion consider reasonably appropriate in the interests of good estate management and vary the existing items included in the Service Charge to add thereto any items of cost expenditure charge depreciation or other allowance provision for future anticipated expenditure on or replacement of any installation plant machinery equipment of apparatus or rental value of any parts of the Estate used in connection with the provision of the Services not previously included therein and from and after the relevant date of such review such variations to or additional items of cost expenditure charge allowance provision or value shall be notified to the Tenant in writing and shall be included in the calculation of the Service Charge PROVIDED THAT in no event shall the Services referred to in Clauses 5.2.1 5.2.2. or 5.2.4 be varied 8.6.2 Any expenses which are properly recoverable by the Landlord otherwise than as a part of the Service Charge from any other owner tenant or occupier of the Estate shall not be included in the calculation of the Service Charge 8.6.3 Where the Tenant provides any of the Services for the benefit of the Demised Premises and the Landlord agrees that such provision is in substitution for the obligation of the Landlord hereunder in respect thereof then whilst the Tenant provides the same to the Demised Premises there shall be omitted from the calculation of the Service Charge all items of charge for such of the Services as the Tenant so provides 8.7. Cost of Supplying Documents Any costs charges or expenses (including value added or other tax thereon) reasonably and properly incurred by the Landlord in preparing or supplying copies of the regulations governing the adminstration of the Estate or in doing works for the improvement of the Demised Premises or providing services shall be deemed to have been properly incurred by the Landlord (as appropriate) in pursuance of its obligations under this Clause notwithstanding the absence of any specific covenant on the part of the Landlord relating thereto 8.8. Additions to Services The Landlord may, at its reasonable discretion, withhold, add to, extend, vary or make any alterations to any of the Services from time to time if the Landlord shall reasonably deem it desirable to do so for the more efficient management, security and operation of the Estate, or for the comfort of the tenants on the Estate PROVIDED THAT in no event shall the Services referred to in Clauses 5.2.1 5.2.2 or 5.2.4 be varied 8.9. Continuation of Services The provisions of this clause shall continue to apply notwithstanding the expiration or sooner determination of the Term but only in respect of the period down to such expiration or sooner determination, the Service Charge for that Financial Year being apportioned for the said period on a daily basis. 9. Exclusion from the Landlord & Tenant Act 1954 Having been authorised to do so by an Order of the Lambeth County Court (no ) made on the day of 1996 under the provision of the Landlord and Tenant Act 1954 section 38(4) the parties agree that the provisions of the Landlord and Tenant Act 1954 sections 24 to 28 (inclusive) shall be excluded in relation to the tenancy created by this Lease 10. Tenants right to determine The Tenant may determine this Lease on the fifth anniversary of commencement by giving to the Landlord not less than six months' prior written notice so to do (time being of the essence) and upon payment of the sum of Twenty Thousand Pounds (with VAT at the appropriate rate in addition) such payment to be made simultaneously with the serving of such Notice whereupon this Lease shall determine but without prejudice to any antecedent breaches as at the date hereof IN WITNESS whereof the parties to this Deed have caused their Common Seals to be hereunto affixed the day and year first above written THE SCHEDULES above referred to THE FIRST SCHEDULE Description of the Demised Premises ALL THAT piece or parcel of land forming part of the Estate with the buildings erected thereon or on part thereof and known as Unit 7 The Grand Union Office Park Packet Boat Lane Cowley Uxbridge in the London Borough of Hillingdon shown for identification purposes only edged red on the Plan THE SECOND SCHEDULE Description of the Estate ALL THAT piece or parcel of land known as The Grand Union Office Park being on the North Side of Packet Boat Lane Cowley Uxbridge in the London Borough of Hillingdon as the same is registered at H M Land Registry with Title Absolute under Title Number MX6587 THE THIRD SCHEDULE Rights and Easements granted 1. The right for the Tenant and all persons expressly or by implication authorised by the Tenant (in common with the Landlord and all other persons now entitled or who may become entitled) but subject to any existing or future regulations reasonably made by the Landlord:- 1.1 to use the Common Areas for all proper purposes in connection with the use and enjoyment of the Demised Premises 1.2 to use the service roads on the Estate with or without vehicles (until the same are adopted as public highways) for the purposes only of obtaining access to and egress from the Demised Premises 2. to use the Car Spaces 3. the free and uninterrupted passage and running and use of the Utilities (subject to temporary interruption for necessary repair necessary alteration or necessary replacement) to and from the Demised Premises through the Conduits which are now laid or (within a period of 80 years from the date hereof) shall be laid in under or through other parts of the Estate so far as any of the same are necessary for the reasonable use and enjoyment of the Demised Premises 4. of support and protection for the benefit of the Demised Premises as is now enjoyed from all other parts of the Estate 5. to use the repositories in the Waste Receptacles for the deposit by the Tenant of all rubbish and refuse for collection by the local authority or such contractor as the Landlord may reasonably determine 6. The right at all reasonable times upon reasonable prior notice (or in cases of emergency) when no notice shall be required to enter the Adjoining Property in order to:- 6.1 inspect cleanse maintain and repair and (when necessary) connect remove renew relay and replace with others the Conduits and any other services serving the Demised Premises 6.2 execute repairs and decorations to the Demised Premises PROVIDED THAT the Tenant shall cause as little disturbance and inconvenience as possible and shall make good without delay any damage thereby caused 7. The right to have the Tenant's name included on the Estate signboard THE FOURTH SCHEDULE Exceptions and reservations The following rights and easements are excepted and reserved out of the Demised Premises to the Landlord and any superior landlord of the Estate and of the Adjoining Property and all other persons authorised by the Landlord or any superior landlord or having the like rights and easements:- 1. the free and uninterrupted passage and running of the Utilities through the Conduits which are now or may at any time be in under or passing through or over the Demised Premises 2. at all reasonable times upon reasonable prior notice (or in cases of emergency (when no notice shall be required)) the right to enter the Demised Premises in order to 2.1 inspect cleanse maintain and repair and when necessary connect remove lay renew relay and replace with others and when necessary alter or execute any works to or in connection with the Conduits 2.2 execute repairs and decorations and any necessary alterations and any other necessary works to the Adjoining Property which cannot be carried out without access to the Demised Premises or to do anything whatsoever which the Landlord may do under this Lease Provided that the Landlord or the person exercising the foregoing rights shall cause as little disturbance and inconvenience as possible and shall make good without delay any damage thereby caused 3. The rights of light air support protection and shelter now or hereafter belonging to or enjoyed by the Estate or the Adjoining Property 4. Full right and liberty at any time hereafter to carry out or permit the Development of any Adjoining Property or any part thereof Provided that (1) the person exercising such rights may not obstruct affect or interfere with the amenity or access to the Demised Premises or the passage of light and air to the Demised Premises and (2) the person exercising such rights shall do so in such manner as will cause as little damage and interference as reasonably possible and the Landlord shall forthwith make good any damage (3) the Tenant's future use enjoyment and occupation of the Demised Premises is not materially affected or prejudiced (4) the Landlord may temporarily obstruct or interfere with such amenity or access during the course of such development upon provision of suitable alternative facilities 5. The right to affix and hereafter maintain upon the Demised Premises but not so as to interfere with the business of the occupier of the Demised Premises lighting equipment reasonably necessary for the purpose of illuminating the Common Areas THE FIFTH SCHEDULE [ ] AUTHORISED GUARANTEE AGREEMENT (Long Form) This Deed is made the [ ] day of [ ] 199[ ] Between:- [ ] "the Landlord" (1) [ ] "the Guarantor" (2) [ ] "the Assignee" (3) NOW THIS DEED WITNESSETH AS FOLLOWS: 1. In this Deed the following words and expressions have the meanings ascribed to them: 1.1 "The Lease" a lease dated the day of and made between: (1) (2) (3) 1.2 "The Act" the Landlord and Tenant (Covenants) Act 1995 1.3 The definition and provisions as to interpretation in the Lease shall apply in this Deed where the context so admits 2. IN CONSIDERATION of the consent of the Landlord to the assignment of the Lease to the Assignee the Guarantor as sole or principal debtor covenants with the Landlord that until the determination of the Term or until the Assignee is released by virtue of the Act from the covenants contained in the Lease (whichever shall be earlier): 2.1 The Assignee will pay the rents reserved and observe and perform the covenants conditions and agreements contained in the Lease and on the part of the tenant thereunder to be observed and performed as well after as before any disclaimer of the Lease by any liquidator or trustee in bankruptcy or by the Crown 2.2 If the Assignee (being an individual) shall become bankrupt or (being a company) shall enter into liquidation and if a trustee in bankruptcy of the Assignee or a liquidator of the Assignee (as the case may be) shall disclaim the Lease or if it shall be forfeited or if the Lease shall vest bona vacantia the Landlord may within three months after such disclaimer or forfeiture or vesting by notice in writing require the Guarantor to take a lease of the Demised Premises for a term equal to the residue of the term granted by the Lease immediately before such disclaimer or forfeiture or vesting on the same terms as the lease (such lease to take effect from the date of such disclaimer or forfeiture or vesting at rents corresponding with those payable under the Lease in respect of the period immediately before such disclaimer or forfeiture or vesting but subject to review at the same times as those at which reviews would have occurred had the Lease remained in existence) and the Guarantor will take up such lease and execute and deliver to the Landlord a counterpart of it and will pay the Landlord's proper costs and expenses of and incidental to its grant If the Landlord does not require the Guarantor to take a lease of the Demised Premises and if the Guarantor does not take an Overriding Lease under Section 19 of the Act the Guarantor will nevertheless upon demand pay to the Landlord a sum equal to the rents and other payments that would have been payable under the lease but for the disclaimer or forfeiture until the expiration of 12 months from such disclaimer 2.4 Anything done omitted or agreed by the Assignee is done omitted or agreed with the concurrence of the Guarantor 2.5 The Guarantor shall not be entitled to participate in any security held by the Landlord in respect of the Assignee's obligations to the Landlord under the Lease until the obligations on the part of the Guarantor or of the Assignee under the Lease shall have been performed or discharged in full 2.6 The Guarantor will be liable to the Landlord as sole or principal debtor or covenantor for all obligations on the part of the tenant contained in the Lease and will not be released or discharged by time or indulgence being given to or any arrangement or alteration of terms being made with the Assignee or any other person or by any release or dealing by the Landlord or by any act omission or thing whatsoever whether with or without the express or implied consent of the Guarantor whereby the Guarantor as a guarantor only might have been released or discharged 3. THE Guarantor and the Assignee acknowledge that this Deed is an Authorised Guarantee Agreement within the meaning of the Act 4. IF any provision of this Deed is held to be void or unenforceable by any Court of competent jurisdiction such provision shall be severed from the remainder which shall continue to be valid and binding and of full force and effect 5. THIS Deed is made without prejudice to 5.1 any other guarantee surety or security which the Landlord may have or take in respect of the tenant's covenants or conditions in the Lease IN WITNESS whereof the parties hereto have executed the deed and delivered it on the day and year first before written THE SIXTH SCHEDULE Matters and/or deeds and documents containing matters to which the Demised Premises are subject The exceptions reservations covenants stipulations and provisions contained or referred to in Title number MX6587 as the same is registered at H M Land Registry with Title Absolute THE SEVENTH SCHEDULE Items of Expenditure as referred to in Clause 8 1. When necessary renewing repairing resurfacing maintaining rebuilding and cleansing all roadways car parks pavements open areas sewers drains pipes and watercourses which are now or may be at any time during the period of 80 years from the date hereof constructed laid or installed in under or upon the Common Areas or adjoining and neighbouring land and available in under or upon the Common Areas or adjoining and neighbouring land and available for use of occupiers of the Estate until the same or any of them are adopted by the Local Authority and repaired at public expense 2. When necessary making repairing maintaining rebuilding cleansing and upkeep of all ways roads pavements sewers drains pipes watercourses and party walls structures party fences walls or other conveniences which may belong to or be used for the Common Areas in common with other premises near or adjoining the Common Areas (whether paid by the Landlord or incurred by the Landlord as a contribution) 3. Maintaining the cultivated area of the canal bank on the south side of the Grand Union Canal adjacent to the Estate 4. When necessary providing and maintaining apparatus or facilities provided for the general benefit or use of tenants or occupiers of the Estate 5. Maintaining repairing and renewing as necessary the street lighting and security and other lighting on the Common Areas 6. Providing such reasonable signage as the Landlord shall in its absolute discretion deem advisable giving the Tenant's name and Unit number at the entrance to the Estate and further providing reasonable signage at the entrance to the Building in a form agreed between the Landlord and the Tenant 7. At such times as the Landlord shall in its absolute discretion consider to be necessary (but not more than once in any one period of three years) in a good and workmanlike manner to prepare and decorate with two coats at least of good quality paint or otherwise treat as appropriate all external wood metal stucco and cement work and other exterior parts of any Common Areas required to be so treated and as often as may be reasonably necessary properly to wash down clean restore repoint and make good and wherever appropriate to treat with suitable preservative all stonework brickwork concrete and other finishes 8. The repair and maintenance of any part of the Estate which does not comprise part of the Lettable Areas 9. The payment of the full amount (without deductions of any agency or other commission paid or allowed to the Landlord on such amount or otherwise which the Landlord shall be entitled to retain for its own benefit free of any obligation to bring the same into account under these presents) of every premium payable or other payment incurred by the Landlord from time to time in effecting and maintaining insurance of the Common Areas and of the Landlord against property owners and third party liabilities (including those arising under the Defective Premises Act 1972) in respect of the Estate and its obligations hereunder 10. Taking all steps reasonably deemed desirable or expedient by the Landlord for complying with and for making representations against or otherwise contesting the instance of the provisions of any legislation or orders or statutory requirements thereunder concerning town planning public health highways streets drainage or other matters relating or alleged to relate to the Estate for which parties are not directly liable 11. The payment of all charges assessments and other proper outgoings (if any) relating to the Common Areas (other than tax payable by the Landlord on its income from the Estate or on any dealing with its interest in the Estate) 12. Providing fire fighting equipment and appliances for the Common Areas including the cost of repair and maintenance of the same 13. Installing repair and maintenance of security cameras (together with video recorder backup) throughout the Estate 14. Enforcing or attempting to enforce against any third party tenant or occupier of the Estate the observance of any covenant or agreement regulating that tenant's or occupier's occupation of the Estate or any part thereof the non-observance of which is or may be detrimental both to the Landlord and/or any other third party owners and to the owners tenants or occupiers of the Estate 15. The payment of any compensation or damages to owners tenants or occupiers of parts of the Estate in respect of the Landlord's right of access to carry out works or provide the Services other than compensation or damages payable as a result of the act neglect or default of the Landlord or as may be covered by insurance 16. Employing staff either directly or indirectly for the performance of duties in connection with the maintenance and/or security of the Estate and the provision of the Services thereto and all incidental expenditure in relation to such employment including (but without limiting the generality of such provision) for the payment of statutory and such other insurance health pension welfare and other payments contributions and premiums industrial training levies redundancy and similar or ancillary payments which the Landlord may be required by statute or otherwise to pay or may in its absolute discretion deem reasonably desirable or reasonably necessary in respect of such staff and uniforms working clothes tools appliances cleaning and other materials bins receptacles and other equipment for the proper performance of their duties 17. The management of the Estate by the Landlord or by any management company or agents reasonably or properly appointed therefore and staff employed in connection thereith and the payment of (i) the management fee attributable to the Demised Premises which shall include the proper fees and expenses of the Landlord's Surveyor (ii) all fees and costs incurred in respect of the Certificate and of accounts kept and audits made for the purpose thereof PROVIDED THAT in no event shall the Tenant be liable for the payment of fees for the collection of rent or fees calculated by reference to the amount of the rent payable under this Lease 18. The oil electricity or other fuel required for the plant serving the Estate and the electricity for providing Services to or for the Estate 19. Supplying copies of the Regulations to the owners and occupiers of the Estate together with all amendments and additions made thereto from time to time 20. Arrangements with the local authority or any other contractor for the storage and disposal of refuse on the Estate 21. The maintenance and upkeep of landscaped areas including replanting where necessary and trimming and lopping trees and shrubs from time to time 22. Allowances for the replacement (assessed upon a reasonable and proper basis) of plants pipes apparatus and fittings referred to above such amount so charged for individual items being credited or allowed in account against the costs of the subsequent replacement or renewal of such separate items 23. Items properly attributable to the maintenance of the Estate and the provision of services not specifically dealt with under the above paragraphs but which the Landlord considers to be for the general benefit of the Estate in accordance with the principles of good estate management 24. The actual cost to the Landlord by way of interest commission banking charges or otherwise of borrowing any necessary sums in connection with the provisions of this Schedule as a whole THE EIGHTH SCHEDULE Rent Reviews 1. Definitions In this Schedule the following expressions shall bear the following meanings:- 1.1 "Open Market Rent": the clear yearly rack rent at which the Demised Premises might reasonably be expected to be let at the Review Date by a willing landlord to a willing tenant with vacant possession and without any premium or any other consideration for the grant thereof for a term of years equal to the residue of the Term remaining unexpired on the Review Date and otherwise on the terms and conditions and subject to the covenants and provisions contained in this Lease (other than the amount of rent payable under this Lease but including these provisions for the review of rent) 1.1.1 and making the following assumptions (if not facts) at the Review Date:- 1.1.1.1 that the Demised Premises comprise a nett lettable area of 5125 square feet 1.1.1.2 that the Demised Premises are fit for and fitted out and equipped for immediate occupation and use and are suitable for the use permitted by clause 4.15 of the whole of the Demised Premises and that no rent free period fitting out period or other allowance has been given to the Tenant at the commencement of this Lease 1.1.1.3 that no work has been carried out to the Demised Premises which has diminished the rental value of the Demised Premises and that if the Demised Premises or the Retained Parts have been destroyed or damaged they have been fully restored 1.1.1.4 that the Demised Premises are in a good state of repair and decorative condition 1.1.1.5 that all the covenants on the part of the Tenant and the Landlord contained in this Lease have been fully performed and observed 1.1.1.6 that all Value Added Tax payable by the Tenant to the Landlord under this Lease is recoverable by the Tenant in full or would be recoverable by any/every prospective willing tenant 1.1.1.7 that notwithstanding the Demised Premises may have been altered so that they have been combined with the Adjoining Premises such combination shall be deemed to be ignored 1.1.2 but disregarding the following matters:- 1.1.2.1 any effect on rent of the fact that the Tenant any undertenant or their respective predecessors in title have been in occupation of the Demised Premises or any part thereof 1.1.2.2 any goodwill attached to the Demised Premises by reason of the carrying on at the Demised Premises of the business of the Tenant any undertenant or their respective predecessors in title in their respective business 1.1.2.3 any increase in rental value of the Demised Premises attributable to the existence at the Review Date of any improvement to the Demised Premises carried out after the date of this Lease and carried out otherwise than in pursuance of an obligation to the Landlord or its predecessors in title (save for any obligation imposed by statute) by the Tenant any undertenant or their respective predecessors in title 1.1.2.4 the destruction of or any damage to the Demised Premises by way of the Insured Risks 1.1.2.5 any conditions contained in any planning permission obtained by the Landlord which may adversely affect the rental value of the Demised Premises 1.1.2.6 any effect on rent of the Rent Restrictions 1.1.2.7 any inability of the Tenant to recover Value Added Tax 1.2 "the Surveyor:" an independent chartered surveyor of not less than 10 years standing who is experienced in the valuation and leasing of property similar to the Demised Premises and is acquainted with the market in the area in which the Demised Premises are located appointed from time to time to determine the Open Market Rent pursuant to the provisions of this Schedule 1.3 "Rent Restrictions": the restrictions imposed by any statute for the control of rent in force on the Review Date or on the date on which any increased rent is ascertained in accordance with this Schedule and which operate to impose any limitation (whether in time or amount) on the collection of an increase in the rent first reserved by this Lease or any part thereof 2. Upwards only rent review The rents reserved pursuant to Clause 3.1 (a) of this Lease shall be reviewed on the Review Date in accordance with the provisions of this Schedule and from and including the Review Date such rent shall be equal to the higher of either such rent payable immediately before the Review Date or the Open Market Rent on the Review Date as agreed or determined pursuant to the provisions of this Schedule 3. Agreement or determination of the reviewed rent The Open Market Rent at the Review Date may be agreed in writing at any time between the Landlord and the Tenant but if for any reason (whether through failure or omission to agree or negotiate or to initiate any negotiation) the Landlord and the Tenant have not so agreed within three months of the Review Date then either the Landlord or the Tenant may (whether before or after the Review Date) by notice in writing to the other party require the Open Market Rent to be determined by the Surveyor 4. Appointment of Surveyor In default of agreement between the Landlord and the Tenant upon the appointment jointly of the Surveyor the Surveyor shall be appointed by the President on the written application of either the Landlord or the Tenant who shall be at liberty to make such application not earlier than 3 months before or at any time after the Review Date 5. Functions of the Surveyor 5.1 The Surveyor shall as an expert invite the Landlord and the Tenant to submit to him within such time limits (not being less than 15 working days) as he shall consider appropriate a valuation accompanied if desired by a statement of reasons and such representations and cross-representations as to the amount of the Open Market Rent with such supporting evidence as they may respectively wish 5.2 within 60 days of his appointment or within such extended period as the Landlord and the Tenant shall jointly agree in writing give to each of them written notice of the amount of the Open Market Rent as determined by him 6. Costs of reference to Surveyor The costs (which shall include but shall not be limited to professional fees disbursements application fees and Value Added Tax) of any reference to the Surveyor shall be in the award of the Surveyor and failing such award the costs shall be payable by the parties in equal shares 7. Appointment of new Surveyor If the Surveyor shall fail to give notice of his determination within the time aforesaid or if he shall die or shall be unwilling to act or shall become incapable of acting or if for any other reason he is unable to act then either the Landlord or the Tenant may request the President to discharge the Surveyor and appoint another surveyor in his place which procedure may be repeated as many times as necessary 8. Interim payments pending determination If by the Review Date the amount of the reviewed rent has not been agreed or determined as aforesaid (the date of agreement or determination being herein called "the Determination Date") then in respect of the period of time (herein called "the Interim Period") beginning with the Review Date and ending on the day before the Quarter Day following the Determination Date the Tenant shall pay to the Landlord rent at the yearly rate payable immediately before the Review Date and on the Determination Date the Tenant shall pay to the Landlord on demand the amount by which the reviewed rent exceeds the rent actually paid during the Interim Period (apportioned on a daily basis) together with interest thereon at the Base Rate for the time being of the Royal Bank of Scotland plc from the relevant Quarter Day for payment thereof to the date of actual payment 9. Rent Restrictions 9.1 On each and every occasion during the Term that Rent Restrictions shall prevent or prohibit either wholly or partially:- 9.1.1 the operation of the above provisions for review of the rent or 9.1.2 the normal collection and retention by the Landlord of any increase in the rent of any instalment or part thereof 9.2 then and in each such case respectively:- 9.2.1 the operation of such provisions for review of the rent shall be postponed to take effect on the first date or dates thereafter upon which such operation may occur 9.2.2 the collection of any increase or increases in the rent shall be postponed to take effect on the first date or dates thereafter that such increase or increases may be collected and/or retained in whole or in part and on as many occasions as shall be required to ensure the collection of the whole increase and until the Rent Restrictions shall be relaxed either partially or wholly the rent first hereby reserved shall be the maximum sum from time to time permitted by the Rent Restrictions as may be applicable 10. Memoranda of reviewed rent As soon as the amount of any reviewed rent has been agreed or determined memoranda thereof shall be prepared by the Landlord or its solicitors and thereupon shall be signed by or on behalf of the Landlord and the Tenant and annexed to this Lease and the counterpart thereof and the parties shall bear their own costs in respect thereof 11. Time not of the essence For the purpose of this Schedule and for the avoidance of doubt time shall not be of the essence THE COMMON SEAL OF CNC GRAND ) UNION LIMITED was affixed to ) this Deed in the presence of: ) Director Secretary THE COMMON SEAL OF PINNACLE ) SYSTEMS LIMITED was affixed to this ) Deed in the presence of: ) Director Secretary EX-11.1 3 EXHIBIT 11.1 PINNACLE SYSTEMS, INC. AND SUBSIDIARY Exhibit 11.1 - Statement of Computation of Net Income (Loss) Per Share (In thousands, except per share data)
Three Six Months Ended Months Ended December 31, December 31, ----------------------- ----------------------- 1996 1995 1996 1995 ------- ------- ------- ------- Weighted average shares of common stock outstanding 7,505 7,273 7,489 6,950 Weighted average common stock equivalent shares -- 638 -- 653 ------- ------- ------- ------- Shares used to compute net income (loss) per share 7,505 7,911 7,489 7,603 ======= ======= ======= ======= Net income (loss) used in per share calculation $(9,344) $ 1,732 $(8,733) $ 2,995 ======= ======= ======= ======= Net income (loss) per share $ (1.25) $ 0.22 $ (1.17) $ 0.39 ======= ======= ======= =======
EX-27 4 FINANCIAL DATA SCHEDULE
5 3-MOS JUN-30-1997 SEP-28-1996 DEC-27-1996 34,815,000 24,106,000 6,131,000 1,286,000 5,242,000 70,718,000 5,675,000 1,275,000 75,746,000 3,906,000 0 78,266,000 0 0 (6,426,000) 75,746,000 5,345,000 5,345,000 7,328,000 7,328,000 6,003,000 0 729,000 (7,257,000) 2,087,000 (9,344,000) 0 0 0 (9,344,000) (1.25) (1.25)
-----END PRIVACY-ENHANCED MESSAGE-----