-----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, MkgxLx93Hk+YMftdg6eM9d4WfeeVwl288nHErU9bx7s0Mp4ONwq/lpqxCvHd0TzT RElzy25V+hbujHwFp9JSCw== 0000950133-97-002105.txt : 19970605 0000950133-97-002105.hdr.sgml : 19970605 ACCESSION NUMBER: 0000950133-97-002105 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19970604 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONCEPTS DIRECT INC CENTRAL INDEX KEY: 0000891035 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 521781893 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-26133 FILM NUMBER: 97618826 BUSINESS ADDRESS: STREET 1: 1351 S SUNSET ST CITY: LONGMONT STATE: CO ZIP: 80501 BUSINESS PHONE: 3037729171 MAIL ADDRESS: STREET 1: 1351 SOUTH SUNSET ST CITY: LONGMONT STATE: CO ZIP: 80501 S-1/A 1 CONCEPTS DIRECT FORM S-1/A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1997 REGISTRATION NO. 333-26133 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 CONCEPTS DIRECT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 5961 52-1781893 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
1351 SOUTH SUNSET STREET LONGMONT, COLORADO 80501 (303) 772-9171 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ ROBERT L. BURRUS, JR. MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P. ONE JAMES CENTER RICHMOND, VIRGINIA 23219 (804) 775-1000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: KENNETH R. LAMB GIBSON, DUNN & CRUTCHER LLP ONE MONTGOMERY STREET SAN FRANCISCO, CALIFORNIA 94104 (415) 393-8200 ------------------------ Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 CONCEPTS DIRECT, INC. CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
FORM S-1 ITEM NUMBER AND CAPTION PROSPECTUS CAPTION ------------------------------------------- ------------------------------------------- 1. Forepart of Registration Statement and Forepart of Registration Statement; Outside Front Cover Page of Prospectus..... Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages of Prospectus.............................. of Prospectus 3. Summary Information, Risk Factors.......... Prospectus Summary; Risk Factors 4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds 5. Dilution................................... Not Applicable 6. Selling Security Holders................... Principal and Selling Stockholders 7. Plan of Distribution....................... Outside Front Cover Page of Prospectus; Principal and Selling Stockholders; 8. Description of Securities to be Underwriting Registered................................. Outside Front Cover Page of Prospectus; Dividend Policy; Description of Capital Stock; Underwriting 9. Interests of Named Experts and Counsel..... Legal Matters; Experts 10. Information with Respect to Registrant..... Prospectus Summary; Risk Factors; Capitalization; Dividend Policy; Price Range of Common Stock; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Executive 11. Disclosure of Commission Position on Compensation; Principal and Selling Indemnification for Securities Act Stockholders; Financial Statements Liabilities................................ Not Applicable
3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JUNE 4, 1997 1,600,000 SHARES CONCEPTS DIRECT, INC. [CONCEPTS DIRECT LOGO] COMMON STOCK ------------------------ Of the 1,600,000 shares of Common Stock, par value $.10 per share ("Common Stock"), of Concepts Direct, Inc. (the "Company" or "Concepts Direct") offered hereby, 471,404 shares are being sold by the Company and 1,128,596 shares are being sold by certain stockholders of the Company ("Selling Stockholders"). See "Principal and Selling Stockholders." The Company will not receive any of the proceeds from the sale of the Common Stock offered by the Selling Stockholders. On May 30, 1997, the last sale price of the Company's Common Stock, as reported on the Nasdaq SmallCap Market, was $22.00 per share. The Company's Common Stock is traded under the symbol "CDIR." The Company has applied to have the Common Stock approved for quotation on the Nasdaq National Market under the same symbol. ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ================================================================================================== UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS AND PROCEEDS TO SELLING THE PUBLIC COMMISSIONS(1) THE COMPANY(2) STOCKHOLDERS(3) - -------------------------------------------------------------------------------------------------- Per Share..................... $ $ $ $ - -------------------------------------------------------------------------------------------------- Total......................... $ $ $ $ ==================================================================================================
(1) See "Underwriting" for information concerning indemnification of the Underwriters by the Company and the Selling Stockholders and other matters. (2) Before deducting expenses estimated at $ payable on a pro-rata basis by the Company and Selling Stockholders. (3) The Company has granted the Underwriters a 30-day option to purchase up to 240,000 shares of Common Stock at the Price to the Public less Underwriting Discounts and Commissions, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to the Public, Underwriting Discounts and Commissions and Proceeds to the Company will be , , and , respectively. See "Underwriting." ------------------------ The shares of Common Stock are being offered hereby by the Underwriters named herein, subject to prior sale, when, as and if issued by the Company and delivered to and accepted by the Underwriters and subject to certain prior conditions, including the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York at the offices of EVEREN Clearing Corporation or through the facilities of The Depository Trust Company on or about , 1997. EVEREN SECURITIES, INC. SCOTT & STRINGFELLOW, INC. The date of this Prospectus is , 1997. 4 [CONCEPTS DIRECT LOGO] [PHOTOGRAPHS OF CATALOG COVERS] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET, NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE "UNDERWRITING." IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING STOCKHOLDERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ SMALLCAP MARKET OR THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING." 2 5 [PHOTOGRAPHS AND DESCRIPTIONS OF MERCHANDISE FEATURED IN THE COMPANY'S CATALOGS] 6 [PHOTOGRAPHS AND DESCRIPTIONS OF MERCHANDISE FEATURED IN THE COMPANY'S CATALOGS] 7 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the financial statements and related notes thereto appearing elsewhere in this Prospectus. See "Risk Factors" for a discussion of certain risks associated with an investment in the Common Stock. Unless the context otherwise requires, the terms "Concepts Direct" or the "Company" refer to Concepts Direct, Inc., a Delaware corporation, or, prior to the 1992 spin-off, the Consumer Products Division of Wiland Services, Inc. This Prospectus is being used by the Company and the Selling Stockholders to offer, respectively, 471,404 shares and 1,128,596 shares of Common Stock (the "Offering"). On February 25, 1997, the Company's Board of Directors declared a 2-for-1 split of the Common Stock. Stockholders of record at the close of business on March 14, 1997 were entitled to participate in the stock-split, which was effected in the form of a 100% stock dividend payable on March 31, 1997. All of the share and per share data in this Prospectus has been adjusted to reflect such stock-split. The information set forth herein assumes an offering price of $22.00 per share for the Common Stock offered hereby (the last sale price of the Common Stock as reported on the Nasdaq SmallCap Market on May 30, 1997) and, unless otherwise specified, no exercise of the Underwriters' over-allotment option. THE COMPANY Concepts Direct, Inc. (the "Company") is a direct marketer of personalized labels, paper products, collectibles, gift items, home decorative items and casual apparel (primarily t-shirts and caps) that are selected and designed based on the hobbies, interests and lifestyles of its target customers. The Company markets its merchandise primarily through its three current catalogs, Colorful Images(R), Linda Anderson(R) and Colorful Images Presents Impressions(R) ("Impressions"), which are mailed to prospects derived from rented and exchanged lists and names from its proprietary database. This database includes customers, gift recipients and catalog requestors and had grown to over 6,000,000 names at March 31, 1997, including approximately 1,800,000 customers who had purchased in the prior 12 months. The Company uses a disciplined, analytical approach to marketing and merchandising to target customers. The Company believes that this approach, together with its direct marketing expertise, merchandising capabilities and popular consumable products, have built brand identity and customer loyalty which will serve as a foundation for future growth. The Company mailed approximately 43.5 million catalogs in 1996 (excluding catalogs inserted in product shipments). Colorful Images(R), the Company's flagship catalog, offers over 900 different styles and themes of personalized paper products, as well as t-shirts, collectible figurines and other products that supplement its colorful line of paper products. The Linda Anderson(R) catalog offers a variety of gifts, home decorative items, casual sweaters and sweatshirts, typically at higher price points than Colorful Images(R). Impressions, the Company's third catalog, is dedicated exclusively to personalized gift items. A large segment of the Company's customers are women between the ages of 35 and 54. The Company believes that one of the strengths of its product line is its general appeal to many women. The Company had record net income of $1.9 million and record net sales of $51.1 million in 1996, an increase of 129.8% and 21.4% over 1995. This trend continued in the three month period ended March 31, 1997, when the Company had record first quarter net income of $673,000 and record first quarter net sales of $16.0 million, an increase of 153.3% and 37.7% over the three month period ended March 31, 1996. In addition, net cash provided by operating activities grew to a record $3.6 million in 1996. According to the U.S. Census Bureau, the $46 billion mail order industry has experienced significant growth over the past decade. From 1985 to 1995, the mail order industry surpassed all other retail sectors in growth with a compound annual growth rate of 11.3%, compared to 5.5% growth for the total retail market. Business Strategy -- The Company's goal is to create, build and operate multiple direct marketing concepts that profitably sell merchandise to a targeted customer base. The principal components of its business strategy include effective marketing to the Company's proprietary database and the use of list testing and segment analysis to target mailings to prospective customers. The Company also employs a disciplined approach to merchandise selection and new product development to eliminate products that do not meet 3 8 expectations and replace them with more popular products. These strategies, together with the Company's emphasis on creative presentation and customer satisfaction, are designed to promote repeat purchases, including consumable reorders, increased spending and gift giving. Growth Strategy -- The Company's growth strategy consists of the following principal components: - INCREASE CATALOG CIRCULATION. Total catalogs mailed has increased from approximately 14.5 million in 1993 to approximately 43.5 million in 1996 (excluding catalogs inserted in product shipments), a 44% compound annual growth rate. The Company believes that its list testing strategy, emphasis on evaluation of performance data and recognition of the long-term value of a new customer have allowed it to expand circulation, achieve acceptable response rates and enlarge its proprietary database. As its catalog titles and proprietary database expands, the Company plans to continue to increase catalog circulation. - EXPAND PAGE COUNT AND MERCHANDISE SELECTION. The Company plans to increase catalog page and product count by introducing new merchandise and adding products tailored to the tastes of its customers and prospects. The Company believes this strategy will enhance the appeal of each catalog and provide additional opportunity for contribution to net sales. - INTRODUCE COMPLEMENTARY NEW CATALOG TITLES. The Company believes that its proprietary database and understanding of the product preferences of its primary audience will enable it to introduce new catalogs focused on historically popular product lines such as collectibles and t-shirts. For example, the Company recently entered into a license agreement through September 2001 authorizing it to design, create and distribute a catalog consisting exclusively of merchandise featuring Snoopy(TM), Charlie Brown(TM) and the other PEANUTS(R) characters. - PROMOTE MERCHANDISE FEATURING POPULAR LICENSED CHARACTERS AND BRANDS. The Company offers personalized labels, collectibles, t-shirts and gift merchandise featuring popular licensed characters and brands, including Snoopy(TM) and the other PEANUTS(R) characters, Coca-Cola(R), Precious Moments(R), Dreamsicles(R) and others. The Company has customers in its proprietary database who are interested in licensed or branded merchandise and plans to seek additional arrangements for such merchandise. - EXPAND FACILITIES AND OPERATIONAL CAPABILITIES. The Company has broken ground on a new facility designed to substantially increase its current operational capacity to approximately 117,000 square feet, providing space for growth and allowing more efficient operations and fulfillment functions. The Company plans to continue enhancing its software, manufacturing and fulfillment systems to support its growth plans. The Company believes its past investment in management, systems and its proprietary database will support the growth of its existing catalogs and the introduction of new catalogs. The Company currently plans to test at least three (3) new catalog titles in 1997. These catalogs will feature historically popular merchandise types and themes and are being designed to capitalize on the Company's proprietary database. The Company has budgeted less than $1.6 million, including inventory, to conduct the initial test of these three new catalogs. The Company is a Delaware corporation incorporated in 1992 and is the continuing operation of the Consumer Products Division of Wiland Services, Inc., which merged with Neodata Corporation in September 1992. The Company's executive offices are located at 1351 South Sunset Street, Longmont, Colorado 80501-6549, and its telephone number is (303) 772-9171. 4 9 THE OFFERING Common Stock Offered by the Company................................... 471,404 shares(1) Common Stock Offered by the Selling Stockholders...................... 1,128,596 shares Common Stock to be Outstanding After the Consummation of the Offering............................................................ 4,724,286 shares(1)(2) Use of Proceeds....................................................... Working Capital and General Corporate Purposes Nasdaq SmallCap Market/Proposed Nasdaq National Market Symbol......... CDIR Risk Factors.......................................................... The Common Stock offered hereby involves certain risks. See "Risk Factors."
- --------------- (1) Excludes 240,000 shares of Common Stock subject to the Underwriters' over-allotment option. (2) Excludes 19,334 shares of Common Stock subject to options exercisable as of April 1, 1997. ------------------------ Colorful Images(R), Linda Anderson(R) and Colorful Images Presents Impressions(R) are registered service marks of the Company. The Company has applied for registration of its Linda Anderson's Collectibles(SM) service mark. Tradenames and trademarks of other companies appearing in this Prospectus are the property of their respective holders. 5 10 SUMMARY FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------------------------------------- ------------------- 1992(1) 1993 1994 1995 1996 1996 1997 ------- ------- ------- ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: Net sales.................................. $22,631 $15,936 $20,724 $42,147 $51,126 $11,584 $15,952 Gross profit............................... 8,851 5,876 9,318 19,861 24,292 5,643 7,993 Operating income (loss) from continuing operations............................... (5,629) (2,543) 1,403 638 2,562 263 951 Income (loss) from continuing operations before income taxes...................... (5,578) (2,509) 1,490 937 2,808 375 1,052 Income from discontinued operations........ 23,598 -- -- -- -- -- -- Net income (loss).......................... $20,028 $(2,252) $ 1,490 $ 843 $ 1,937 $ 266 $ 673 ======= ======= ======= ======= ======= ======= ======= Earnings (loss) per share from continuing operations............................... $ (0.99) $ (0.56) $ 0.34 $ 0.19 $ 0.44 $ 0.06 $ 0.15 Net earnings (loss) per share.............. $ 5.56 $ (0.56) $ 0.34 $ 0.19 $ 0.44 $ 0.06 $ 0.15 ======= ======= ======= ======= ======= ======= ======= Weighted average number of common shares and common share equivalents outstanding.............................. 3,604 3,999 4,323 4,404 4,442 4,442 4,482 ======= ======= ======= ======= ======= ======= ======= COMPANY OPERATING DATA: (EXPRESSED AS PERCENTAGES) Net sales growth (decline)................. (29.6)% 30.0% 103.3% 21.3% 37.7% Gross profit growth (decline).............. (33.6) 58.6 113.1 22.3 41.6 Operating profit growth (decline).......... 54.8 155.2 (54.5) 301.6 261.9 Gross margin............................... 36.9 45.0 47.1 47.5 48.7% 50.1 Operating margin........................... (16.0) 6.8 1.5 5.0 2.3 6.0 Net income (loss) margin................... (14.1) 7.2 2.0 3.8 2.3 4.2 SELECTED OPERATING DATA: Total active customers at period end(2).... 804 1,362 1,644 1,474 1,807
AT MARCH 31, 1997 ------------------------ ACTUAL AS ADJUSTED(3) ------- -------------- BALANCE SHEET DATA: Working capital........................................................................... $ 4,503 $ 14,003 Total assets.............................................................................. 14,061 23,561 Long-term debt............................................................................ 0 0 Lease obligations......................................................................... 0 0 Total stockholders' equity................................................................ 7,653 17,153
- --------------- (1) On September 30, 1992, Wiland Services, Inc. ("Wiland") completed a merger transaction with Neodata Corporation. Wiland had two business divisions: Consumer Products and Direct Marketing Services. Concepts Direct, Inc., formerly the Consumer Products division of Wiland, was created in connection with the merger and accounting conventions required that Concepts Direct be treated as the continuing operation. For financial reporting purposes, the operations of the Direct Marketing Services division of Wiland are treated as discontinued operations of Concepts Direct, Inc. (2) "Active customers" is defined as database records on customers who have purchased merchandise from the Company one or more times within the 12 months preceding the end of the period indicated. (3) Adjusted to reflect the sale by the Company of 471,404 shares of Common Stock offered hereby at an assumed price of $22.00 per share (the last sale price of the Common Stock as reported on May 30, 1997), less estimated underwriting discounts and offering expenses payable on a pro-rata basis by the Company and Selling Stockholders. 6 11 RISK FACTORS The following principal risk factors should be considered carefully in addition to the other information contained in this Prospectus before purchasing the Common Stock offered hereby. This Prospectus contains forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because such statements include risks and uncertainties, actual results could differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as those discussed elsewhere in this Prospectus. FLUCTUATIONS IN RESPONSE RATES; RELIANCE ON COLORFUL IMAGES(R) CATALOG The Company's net sales and net income depend on its catalog operations. Response rates to the Company's mailings have fluctuated and can be affected by many factors, including consumer preferences, economic conditions, the timing of catalog mailings, the catalog's merchandise mix, mailing lists utilized and the Company's ability to respond to and process orders in a timely manner, some of which are outside the Company's control. Any inability of the Company to target accurately the appropriate prospects and customers, to achieve adequate response rates or to process orders effectively could result in lower sales, markdowns or write-offs of inventory, increased merchandise returns and lower margins, and thus could adversely affect the Company's net sales and net income. Catalog mailings also entail substantial costs for postage, paper, and printing, virtually all of which costs are incurred prior to the mailing of each catalog. Costs to stock a portion of the merchandise inventory needed to fulfill orders are also incurred before actual orders from a mailing are known. Thus, the Company has limited ability to adjust the costs for a particular mailing to reflect the performance of that mailing. If, for any reason, the Company were to experience a significant shortfall in revenue from a particular mailing, the Company's financial condition and results of operations would be adversely affected. The Company's first catalog, Colorful Images(R), is the only catalog among the Company's offerings that has been successful over a sustained period of time. It accounted for over 90% of Company sales in 1996. The newer Company catalog titles, Linda Anderson(R) and Impressions, are at earlier stages of development. There can be no assurance that they or any planned catalogs or other marketing or distribution strategies the Company may develop will be successful. RISKS ASSOCIATED WITH GROWTH STRATEGY The Company's growth strategy involves various risks, including a high degree of reliance on prospect mailings, which typically have less favorable response rates than customer mailings. In addition, there can be no assurance that the Company will be able to continue to identify and offer new merchandise that appeals to its customer base and prospects, or that the introduction of new marketing or distribution strategies, such as new catalog titles or other offers, will achieve acceptance in the marketplace. The failure of the Company to sustain the growth of catalog sales, to increase its proprietary database, to maintain its customer or prospect response rates or to successfully introduce new catalog titles and merchandise lines could adversely affect the Company's financial condition and results of operations. The Company's ability to pursue its growth strategy also depends on its ability to manage a larger business. Managing growth will require the Company to continue to implement and improve its operations and financial and management information systems and to continue to expand, motivate and effectively manage its workforce. As the Company's sales increase, the Company will be required to maintain higher inventories to provide satisfactory order fulfillment to its customers. This increase in inventory levels may expose the Company to greater risk of excess inventory. The Company's ability to pursue its growth strategy depends on its ability to successfully increase the size of its operation by relocating to a larger facility. Any difficulty in such relocation could adversely affect the Company's business. See "-- Relocation of Company's Operations; Risk of Disaster." In addition, there can 7 12 be no assurance that improvements or expansions in the Company's information systems, telephone systems, order fulfillment functions or related facilities or operations will increase the productivity of the Company or that such changes will meet the future needs of the Company. Continued growth could strain the Company's management, financial, merchandising, marketing, order fulfillment, distribution and other resources. The Company may experience operating difficulties, including difficulties in training and managing an increasing number of employees (many of whom have historically been temporary or part time), in sourcing and managing inventory, in obtaining sufficient materials and manufacturing capacity to produce its merchandise and in upgrading its management information systems. The Company may also experience difficulties related to loss of business if it fails to respond to customer inquiries or process customer orders in an efficient and timely manner, or experiences delays in operations, production or shipment. Failure to manage growth effectively could adversely affect the Company's financial condition and results of operations. See "Reliance on Information Systems -- Potential Disruptions" and "Business -- Growth Strategy." DEPENDENCE ON PRIMARY PRODUCT LINES The Company initially sold only personalized self-adhesive labels but has added new product lines during the past several years, including other paper products, such as note pads, calling cards, memo cubes and Christmas cards, and a selection of non-paper merchandise, including collectibles, gift items, home decorative items and casual apparel (primarily t-shirts and caps). While the percentages of total sales derived from personalized paper products has declined in 1994, 1995 and 1996 to 74%, 65% and 59%, paper products, of which labels remain the principal sales contributor, continue to be the Company's primary product line. Margins achieved by the Company on paper products, particularly its labels, are typically substantially higher than the margins achieved on its other products and overall margins may decline with changes in the merchandise mix. There can be no assurance that the Company will continue to be able to identify and offer new merchandise that appeals to its customers and prospects. Any decrease in sales or margins on paper products, or the rate of growth of such sales, may have a disproportionately adverse effect on the Company's financial condition and results of operations. RELIANCE ON USE OF RENTED AND EXCHANGED LISTS The Company mails catalogs to names from its proprietary database and to prospects whose names are obtained from exchanged and rented lists. Approximately half of the catalogs mailed by the Company in 1996 were sent to names from exchanged or rented lists, and the Company anticipates continuing the use of such lists, possibly in larger proportion to total mail volume than was the case in 1996. Mailings to exchanged or rented lists usually generate lower response rates than mailings to recent Company customers. The Company anticipates that overall response rates may decline if it increases its use of exchanged and rented lists relative to its use of names from its proprietary database. The Company's growth strategy necessitates the expansion of its proprietary database and is dependent on prospecting for new customers through the use of exchanged and rented lists. If the Company is not successful in prospecting, its response rates from mailings to names from its proprietary database could decrease, which may have an adverse effect on the Company's financial condition and results of operations. No assurances can be given that the Company will continue to have access to rented and exchanged lists, or that such lists will be available on terms that are acceptable to the Company. POSTAGE, PAPER AND PRINTING COSTS ASSOCIATED WITH THE DISTRIBUTION OF CATALOGS AND MERCHANDISE Postage, paper and printing costs typically represent more than 75% of the total cost of producing and distributing the Company's catalogs. In addition, the Company ships its merchandise to customers via the United States Postal Service and other carriers. Postage and carrier prices increase periodically and can be expected to increase in the future. The last major U.S. postage rate increase became effective January 1, 1995 and increased standard class postage rates for mailing the Company's catalogs approximately 14%. Based on trade reports, the Company believes that a standard class rate increase within the next 12 to 18 months is likely. Any increase in postage or shipping rates may adversely affect the Company's financial condition and 8 13 results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Paper costs associated with production of Company catalogs have fluctuated significantly as market prices for such paper have been volatile, and the Company has not always been able to predict future paper prices or negotiate fixed rates for specified periods of time. In addition, the paper used to produce the Company's paper products is obtained from several sources, and the rates on this paper are also sometimes volatile. No long term price agreements exist. Printing costs on a unit basis may increase in the future. Any future increases in paper or printing costs for the Company's catalogs or paper products may adversely affect the Company's financial condition and results of operations. Higher postage, paper or printing expenses would increase the Company's cost of doing business. The Company may not be able to pass such increased costs on to its customers through increased prices for its products. In addition, to the extent that the Company attempts to offset such increases through reductions in the circulation of one or more catalog titles either by reducing the number of editions distributed per year or the number of pages, or both, or reducing the number of catalogs mailed, the Company's growth strategy would be adversely affected. See "Business -- Growth Strategy." RELIANCE ON KEY VENDORS The Company relies on a limited number of vendors to produce its label stock and print its catalogs and paper products. Any significant cost increase or inability to obtain raw materials or merchandise could adversely affect the Company's financial condition and results of operations. RELOCATION OF COMPANY'S OPERATIONS; RISK OF DISASTER The Company's success depends, to a large degree, on efficient and uninterrupted operation of its facilities. The Company needs additional space to handle anticipated sales volume increases. The Company is currently constructing a new, substantially larger facility in Longmont, Colorado and plans to move all of its production, administrative and operations functions into this facility by September 1997. If the Company is not able to relocate by the end of August 1997, the Company will need to either extend the lease of its existing headquarters and lease temporary space or make alternative arrangements in order to accommodate anticipated fourth quarter volume. The landlord of the current facility has verbally indicated that it will cooperate if a suitable replacement tenant has not been located and the Company needs to extend its current lease. The landlord, to date, has not been willing to sign an extension option. If construction of the new facility is late and the current landlord will not agree to a lease extension, a significant dispute or business disruption may occur. Any such event or decrease in the Company's efficiency, especially at a time of year when it historically has received a significant portion of its orders and related annual net sales, could adversely affect the Company's business. See "Business -- Properties." If a natural or other disaster were to destroy or significantly damage the Company's one major facility, the Company would need to obtain alternative facilities and additional inventory to conduct its operations, significantly increasing costs and resulting in delays in the fulfillment of customer orders. The Company's business interruption insurance may not be adequate to cover such damage to the Company, including lost goodwill with its customers. RELIANCE ON INFORMATION SYSTEMS; POTENTIAL DISRUPTIONS The Company processes a large volume of relatively small orders. The Company's business depends on the effective operation of its management information and telecommunications systems. Any material disruption or slowdown in the Company's order processing or fulfillment systems resulting from the relocation of the Company's operations, strikes or labor disputes, telephone down times, electrical outages, mechanical 9 14 problems, human error or accidents, fire, natural disasters, adverse weather conditions or other events could cause delays in the Company's ability to receive and distribute orders and may cause orders to be lost or to be shipped or delivered late. In the event the Company is unable to provide prompt, accurate and complete service to its customers on a competitive basis, the Company may lose repeat orders, and customers may cancel orders or return goods which could result in a reduction of net sales and increased administrative and shipping costs. In August 1995, the Company installed a new, internally-developed software system and began retraining most employees to operate the new system. This retraining, in conjunction with certain problems with the new software, led to a low telephone answer rate and other service problems during the third and fourth quarters of 1995 which in turn negatively affected the Company's financial performance. Difficulty in implementing the operations software systems resulted in delayed shipments and correspondingly high backlog during the last half of 1995. During the fourth quarter of 1996, as a result of Company sales exceeding projections, the Company had a shortage of personnel to process orders, leading temporarily to high backlogs. There can be no assurance similar problems will not occur in the future. As the Company's strategies depend in part on maintaining a reputation for good customer service, any impairment of its customer service reputation could result in lost orders and adversely affect the Company's business. The Company attempts to deliver its catalogs to its customers at timely intervals and in appropriate seasons and relies heavily on the United States Postal Service and others to do so. Failure to deliver Company mailings at scheduled times, whether due to postal delays, printing delays, disruptions in the mailing of catalogs or other factors, could affect demand for the Company's products and could adversely affect its business. See "Business -- Customer Service." COMPETITION The markets for the Company's merchandise are highly competitive. The opportunities in these markets have encouraged the entry of new competitors as well as increased competition from established companies. The Company competes with direct marketers, catalog retailers, direct mailers, retail stores and others. Sales of apparel, gift items and home decorative items through home television shopping networks or other electronic media, such as the Internet, could provide additional sources of competition for the Company in the future. Within each merchandise category the Company has significant competitors and may face new competition from new entrants or existing competitors who focus on market segments currently served by the Company. Many competitors are larger and have significantly greater financial, marketing and other resources than the Company. Increased catalog mailings by the Company's competitors may adversely affect response rates to the Company's own catalog mailings. Because the Company currently sources most of its paper products and other merchandise from suppliers, distributors and manufacturers located in the United States, where labor and production costs may be higher than in some foreign countries, there can be no assurance that the Company's merchandise can be competitively priced with merchandise offered by competitors whose sourcing is primarily from abroad. There can be no assurance that the Company will be able to maintain or increase its market share in the future. The failure of the Company to compete successfully could adversely affect the Company's business. See "Business -- Competition." DEPENDENCE ON SIGNIFICANT LICENSE RIGHTS AND BRANDED MERCHANDISE The Company has purchased or licensed rights to certain artwork used in its products. In addition, the Company purchases brand name merchandise and has licensed certain rights on a royalty basis from leading companies. Trademarked merchandise currently appearing in the Company's catalogs include PEANUTS(R), Boyd's Bears(R), Dreamsicles(R), Coca-Cola(R), Looney Tunes(R), Warner Bros(R)and others. There can be no assurance that these products will continue to be available to the Company. Licensed rights are generally short-term, and the potential for renewals is beyond the Company's control. Brand name merchandise may or may not continue to be available to the Company. If the Company were unable to offer a significant portion of such products and merchandise, the Company's business could be adversely affected. See "Business -- Licensing and Service Marks." 10 15 In the past, third parties have asserted that the Company has offered products in violation of the intellectual property rights of others. In certain instances, the Company ceased selling those products as a result of such assertions. To date, the Company has not agreed to pay, nor been required to pay, any damages as a result of such claims. The Company's procedures for determining whether third parties have rights with respect to any particular product are limited and may not always reveal all rights of others. No assurance can be given that the Company will not be required to cease selling products that have been profitable for the Company, or that the Company will not be obligated to make payments to third parties as a result of the Company infringing the rights of others. DEPENDENCE ON KEY PERSONNEL The success of the Company's business is dependant, to a large extent, upon the efforts and abilities of its key employees, particularly Phillip A. Wiland (Chairman and Chief Executive Officer), J. Michael Wolfe (President and Chief Operating Officer) and several other senior staff members of the Company. The loss of one or more of its key employees could adversely affect the Company. The Company's future success will also depend on its ability to employ additional qualified senior management. In addition, the low unemployment rate in the area where the Company is located may make it difficult to hire the employees required to support the Company's further growth. There can be no assurance that the Company will be successful in attracting or retaining additional qualified personnel. See "Management" and "Business." POSSIBLE INCREASE IN MERCHANDISE RETURNS AND REFUNDS The Company emphasizes customer service and has a return policy intended to assure customer satisfaction. The retail value of refunds and merchandise replacements issued under the return policy in 1996 and 1995 was approximately 5.8% and 7.0% of net sales. The Company makes allowances in its financial statements for anticipated merchandise returns and refunds based on historical return rates. There can be no assurance that actual merchandise returns or refunds will not exceed the Company's allowances. In addition, because the Company's allowances are based on historical rates, there can be no assurance that the introduction of new merchandise in existing catalogs or the introduction of new catalogs, changes in the merchandise mix or other factors will not cause actual returns or refunds to exceed return allowances. The Company's growth strategy contemplates the introduction of new catalogs which will offer primarily non-paper merchandise. The Company's historical return and refund rates for apparel, gifts, collectibles and home furnishings products have been higher than its return and refund rates for its personalized labels and other paper products. Consequently, as the Company expands its merchandising efforts, it anticipates that its overall return and refund rate may also increase. Any significant increase in merchandise returns or merchandise refunds that exceed the Company's historic allowances could adversely affect the Company's business. See "Business -- Growth Strategy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." QUARTERLY AND SEASONAL FLUCTUATIONS The Company's results of operations have fluctuated and can be expected to continue to fluctuate as a result of a number of factors including, among other things, seasonal fluctuations in response rates, fluctuations in postage, paper, printing and production costs, the timing of new merchandise and catalog offerings, merchandise returns, adverse weather conditions that affect distribution or shipping and shifts in the timing of certain holidays. In addition, the Company recognizes costs of catalog development and production as sales are realized (such recognition not to exceed twelve months with most costs amortized in the first three months after a catalog is distributed). Consequently, quarter to quarter revenue and expense comparisons will be impacted by the timing of the mailing of the Company's catalogs. Catalog mailing dates may occur in different quarters from year to year depending on the performance of third party couriers, the date of certain holidays and the Company's assessment of market opportunities. A portion of the revenue from any catalog mailing is recognized in quarters after the quarter in which the catalog was mailed and, depending on the exact time a particular catalog offering is mailed in a given year, the revenue from such catalog offering may be recognized in a quarter different from when revenue was recognized in the previous year from an otherwise 11 16 comparable catalog offering. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." The Company's business is seasonal. Historically, a substantial portion of the Company's net sales and net income have been realized during its fourth quarter. If, for any reason, the Company's net sales are substantially below those normally expected during this quarter, the Company's annual results would be adversely affected. In anticipation of increased sales activity during the fourth quarter, the Company incurs significant additional expenses, including costs associated with increasing inventory and the hiring of a substantial number of employees to supplement its staff. If the Company underestimates or overestimates orders, particularly in the fourth quarter, it may incur inventory shortages or write-offs that are higher than historical rates. No assurances can be given that an adequate supply of employees will be available to satisfy the Company's seasonal needs, or that the Company will be able to accurately predict its seasonal personnel needs. In the event the Company overestimates its personnel needs, the Company would incur unnecessary costs and an erosion in its net income. If for any reason the Company is unable to respond and process orders, the Company could not only lose orders but could lose goodwill with customers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." CHANGING CONSUMER PREFERENCES; GENERAL ECONOMIC CONDITIONS The Company's future success depends in part on its ability to anticipate and respond to changes in consumer preferences. No assurance can be given that the Company will respond in a timely or commercially appropriate manner to such changes. Failure to anticipate and respond to changing consumer preferences could lead to, among other things, lower sales of the Company's products, significant markdowns or write-offs of inventory, increased merchandise returns, and lower margins. The Company's business is sensitive to changes in customers' spending and discretionary income patterns which, in turn, are controlled in part by economic conditions. Adverse economic conditions in any area of the United States could have a material adverse effect on the Company's financial condition and results of operations. LIMITED HISTORICAL TRADING VOLUME; POSSIBLE VOLATILITY The Common Stock has experienced low trading volumes due, in part, to the substantial holdings by executive officers, members of the Board of Directors and greater than 5% stockholders who collectively have held a significant portion of the outstanding shares. Following the Offering, approximately 36.5% of the shares (34.7% assuming exercise of the overallotment option) will be held by the Company's executive officers and members of the Board of Directors. The spread between the bid and asked prices for the Common Stock on the Nasdaq SmallCap Market has been quite significant, generally greater than 10%. As of June 2, 1997, the bid was $19.75 and the asked was $24.00. No assurance can be given that an active trading market will develop or continue following the Offering. In addition, even if a more active trading market does develop, no assurance can be given that the market price for the Company's Common Stock will not be volatile. The market price for the Common Stock may be significantly affected by a variety of factors, including a relatively high price to earnings ratio, the Company's operating results, changes in any earnings estimates publicly announced by the Company or by securities analysts, announcements of new merchandise offerings by the Company or its competitors and seasonal effects on sales. In addition, the Nasdaq Stock Market and the Common Stock have historically experienced a high level of price and volume volatility. Wide price fluctuations may not necessarily be related to the operating performance of the Company. Future sales of Common Stock by the Company's existing stockholders following the completion of the Offering and the expiration of the one year lock-up period referred to in "Shares Eligible For Future Sales; Possible Reduction of Stock Price" below could also have an adverse effect on the market price of the Common Stock. For these and other reasons, there can be no assurance the market price of the Common Stock will not decline below the public offering price. See "Shares Eligible for Future Sale; Possible Reduction of Stock Price" and "Underwriting." The market price of the Common Stock is currently at or near an all-time high. Although the market price for the Common Stock has increased significantly over the past few years, there can be no assurance the 12 17 market price of the Common Stock will continue to increase in the future. See "Price Range of Common Stock." RISK OF INCREASED OBLIGATION TO COLLECT STATE SALES TAXES At present, the Company does not collect sales taxes or other similar taxes with respect to shipments of goods into most states and believes that it is not required to do so. However, various states have sought to impose on mail order companies the burden of collecting state sales or use taxes on the sale of merchandise shipped to that state's residents. The U.S. Supreme Court has held that the states, absent Congressional legislation, may not impose tax collection obligations on an out-of-state mail order company whose only contacts with the taxing state are the distribution of catalogs and other advertisement materials, and whose subsequent delivery of purchased goods is by mail or interstate common carriers. While some cases have concluded that greater contact between out-of-state mail order companies and a particular state support the required collection of sales taxes, the Company believes that its only contact with states where it does not currently collect sales tax is the distribution of catalogs and advertising materials and shipment of orders to customers. If Congress enacts legislation imposing an increased state sales tax burden on the Company or if the Company otherwise becomes subject to collection of additional sales or use tax, the imposition of additional tax collection obligations could adversely affect the Company's business. SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE REDUCTION OF STOCK PRICE Assuming the Underwriters do not exercise the over-allotment option, following the Offering the Company will have outstanding 4,724,286 shares of Common Stock. Of such shares, the 1,600,000 shares of Common Stock offered hereby will be freely tradeable. Of the 3,124,286 remaining shares, 1,729,094 will be held by Phillip A. Wiland (the Company's Chairman of the Board and Chief Executive Officer), J. Michael Wolfe (the Company's President and Chief Operating Officer) and certain other officers and members of the Company's Board of Directors who, together with the Company, have agreed not to sell, contract to sell, or otherwise dispose of any shares of Common Stock without the consent of Underwriters for a period of one year after the date of this Prospectus. Upon expiration of such agreements, all of such shares will be freely eligible for sale in the public markets or eligible for sale in accordance with Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). Sales of substantial amounts of Common Stock in the public market following the Offering (including shares issued upon the exercise of stock options) by current holders of the Company's Common Stock and stock options, or the perception that such sales might occur, could also adversely affect the market price of the Common Stock. See "Description of Capital Stock," "Management" and "Underwriting." BROAD DISCRETION AS TO USE OF PROCEEDS The Company expects to use the net proceeds it receives from the Offering primarily for working capital and general corporate purposes. Since the Company has no current specific plan for this portion of the proceeds of the Offering, management will have broad discretion over the use of the proceeds. CONTROL OF THE COMPANY Upon completion of the Offering, 27.8% of the Company will be beneficially owned by Phillip A. and Linda S. Wiland and 36.5% will be beneficially owned by the directors and executive officers of the Company as a group (26.4% and 34.7%, respectively, if the over-allotment option is exercised). By virtue of these holdings, Mr. and Mrs. Wiland alone, as well as the directors and executive officers as a group, will be able to exert substantial influence over actions requiring consent of the Company's stockholders. If the directors and executive officers were to act in concert, and if less than 73% of the total outstanding shares of the Company were present in person or by proxy at an appropriate stockholders' meeting, they would be able to elect all of the Company's directors, effect certain other corporate transactions requiring stockholder approval and generally direct the affairs of the Company (although not transactions which would increase the Company's authorized capital stock, dissolve, merge or sell the assets of the Company, or effect other fundamental corporate transactions). Such degree of control by these individuals may discourage certain types of 13 18 transactions involving an actual or potential change of control of the Company, including transactions in which the holders of Common Stock might receive a premium for their shares over prevailing market prices. USE OF PROCEEDS The net proceeds to the Company from the sale of the 471,404 shares of Common Stock offered hereby by the Company are expected to be approximately $9,500,000 (approximately $14,400,000 if the Underwriters' over-allotment option is exercised in full), assuming a public offering price of $22.00 per share (the last sale price of the Common Stock as reported on May 30, 1997) and after deducting estimated underwriting discounts, commissions and offering expenses payable on a pro rata basis by the Company and Selling Stockholders. The Company intends to use the net proceeds of the Offering primarily for working capital and general corporate purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Company will not receive any proceeds from the sale of the Common Stock by the Selling Stockholders. See "Principal and Selling Stockholders." Pending use of the proceeds, the Company intends to invest the net proceeds from the Offering in short-term, interest-bearing, investment grade securities. 14 19 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1997 (i) on an actual basis and (ii) on an as adjusted basis to reflect the receipt and application of the net proceeds from the sale of 471,404 shares of the Common Stock offered by the Company hereby at an assumed public offering price of $22.00 per share (the last sale price of the Common Stock as reported on May 30, 1997). The following table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements, related notes and other financial information included elsewhere in this Prospectus.
AT MARCH 31, 1997 ---------------------- ACTUAL AS ADJUSTED ------ ----------- (DOLLARS IN THOUSANDS) Cash and cash equivalents............................................... $3,355 $12,855 ======= ======== Long-term debt.......................................................... $ -- $ -- Capitalized lease obligations........................................... -- -- Stockholders' equity Common Stock, $.10 par value; authorized 6,000,000 shares; issued and outstanding 4,252,882 and 4,724,286, actual and as adjusted........ 425 472 Additional paid-in capital............................................ 4,172 13,625 Retained earnings..................................................... 3,056 3,056 ------- -------- Total stockholders' equity....................................... 7,653 17,153 ------- -------- Total capitalization........................................ $7,653 $17,153 ======= ========
15 20 DIVIDEND POLICY The Company does not anticipate paying any cash dividends on its shares of Common Stock because it intends to retain its earnings, if any, to finance the expansion of its business and for general corporate purposes. Any payment of future dividends will be at the discretion of the Board of Directors and will depend upon, among other things, the Company's earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions with respect to the payment of dividends and other factors that the Company's Board of Directors deems relevant. PRICE RANGE OF COMMON STOCK The Common Stock is traded on the Nasdaq SmallCap Market under the symbol "CDIR." The Company has applied to have the Common Stock traded on the Nasdaq National Market under the same symbol. On May 30, 1997, the last sale price of the Common Stock was $22.00 per share. The following table sets forth, for the periods indicated, the range of high and low bid and asked quotations for the Company's Common Stock as reported by the National Association of Securities Dealers, Inc. On May 20, 1997, there were approximately 515 stockholders of record and beneficial holders of the Common Stock. The following prices reflect a 2-for-1 stock split in the form of a 100% stock dividend paid on March 31, 1997 to stockholders of record on March 14, 1997. The quotations represent prices between dealers and do not include retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. While the Common Stock has been publicly traded since the Company's spin-off from Wiland Services, Inc., the Common Stock has experienced low trading volumes due, in part, to the substantial holdings by executive officers, members of the Board of Directors and greater than 5% stockholders who collectively have held a significant portion of the outstanding shares. The spread between the bid and asked prices for the Common Stock on the Nasdaq SmallCap Market has been quite significant, generally greater than 10%. In addition, even if a more active trading market does develop, no assurance can be given that the market price for the Company's Common Stock will not be volatile. See "Risk Factors -- Limited Historical Trading Volume; Possible Volatility."
HIGH LOW -------------------- -------------------- BID ASKED BID ASKED -------- -------- -------- -------- YEAR ENDED DECEMBER 31, 1995 First Quarter............................................. $ 4 1/4 $ 5 $ 2 1/2 $ 3 Second Quarter............................................ 4 4 7/8 3 1/2 4 3/8 Third Quarter............................................. 4 7/8 5 3/4 4 4 7/8 Fourth Quarter............................................ 6 5/8 7 3/8 4 7/8 5 3/4 YEAR ENDED DECEMBER 31, 1996 First Quarter............................................. 10 1/4 10 7/8 6 3/8 7 3/8 Second Quarter............................................ 10 1/4 11 1/4 9 9 7/8 Third Quarter............................................. 9 1/2 10 1/4 8 9 Fourth Quarter............................................ 9 1/4 10 1/4 8 1/2 9 1/2 YEAR ENDING DECEMBER 31, 1997 First Quarter............................................. 17 1/2 20 1/2 9 1/4 10 1/4 Second Quarter (through June 2, 1997)..................... 22 3/4 26 18 1/4 20 3/4
16 21 SELECTED FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA) The following selected financial and operating data (except for "Company Operating Data" and "Selected Operating Data") for the five years ended December 31, 1996 are derived from the financial statements of the Company which have been audited by Ernst & Young LLP, independent auditors. The financial and operating data for the three month periods ended March 31, 1997 and 1996 are derived from unaudited financial statements. The unaudited financial statements include all adjustments, consisting only of normal recurring accruals, which the Company considers necessary for a fair presentation of the financial position and the results of operations for these periods. Operating results for the three months ended March 31, 1997 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1997. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements, related notes, and other financial information included herein.
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------------------------------------- ----------------- 1992(1) 1993 1994 1995 1996 1996 1997 ------- ------- ------- ------- ------- ------- ------- STATEMENT OF INCOME DATA: Net sales....................................... $22,631 $15,936 $20,724 $42,147 $51,126 $11,584 $15,952 Operating costs and expenses Cost of product and delivery.................. 13,780 10,060 11,406 22,286 26,834 5,941 7,959 Selling, general and administrative........... 14,480 8,419 7,915 19,222 21,730 5,380 7,042 -------- -------- -------- -------- -------- -------- -------- Operating income (loss) from continuing operations.................................... (5,629) (2,543) 1,403 638 2,562 263 951 Other income, net............................... 50 34 87 298 246 112 101 -------- -------- -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes.................................. (5,578) (2,509) 1,490 937 2,808 375 1,052 Provision (credit) for income taxes............. (2,008) (257) -- 94 871 109 379 -------- -------- -------- -------- -------- -------- -------- Income (loss) from continuing operations........ (3,570) (2,252) 1,490 843 1,937 266 673 Income from discontinued operations............. 23,598 -- -- -- -- -- -- Net income (loss)............................... $20,028 $(2,252) $ 1,490 $ 843 $ 1,937 $ 266 $ 673 ======== ======== ======== ======== ======== ======== ======== Earnings (loss) per share from continuing operations.................................... $ (0.99) $ (0.56) $ 0.34 $ 0.19 $ 0.44 $ 0.06 $ 0.15 Earnings per share from discontinued operations.................................... $ 6.55 -- -- -- -- -- -- Net earnings (loss) per share................... $ 5.56 $ (0.56) $ 0.34 $ 0.19 $ 0.44 $ 0.06 $ 0.15 ======== ======== ======== ======== ======== ======== ======== Weighted average number of common shares and common share equivalents outstanding.......... 3,604 3,999 4,323 4,404 4,442 4,442 4,482 ======== ======== ======== ======== ======== ======== ======== COMPANY OPERATING DATA: Net sales growth (decline)...................... (29.6)% 30.0% 103.3% 21.3% 37.7% Gross profit growth (decline)................... (33.6) 58.6 113.1 22.3 41.6 Operating profit growth (decline)............... 54.8 155.2 (54.5) 301.6 261.9 Gross margin.................................... 36.9 45.0 47.1 47.5 48.7% 50.1 Operating margin................................ (16.0) 6.8 1.5 5.0 2.3 6.0 Net income (loss) margin........................ (14.1) 7.2 2.0 3.8 2.3 4.2 SELECTED OPERATING DATA: Total active customers at period end(2)......... 804 1,362 1,644 1,474 1,807
AT MARCH 31, 1997 AT DECEMBER 31, ----------------------- ---------------------------------------------------- AS 1992(1) 1993 1994 1995 1996 ACTUAL ADJUSTED(3) ------- ------ ------ ------ ------- ------- ----------- BALANCE SHEET DATA: Working capital.............................. $3,550 $1,962 $3,211 $3,889 $ 5,925 $ 4,503 $14,003 Total assets................................. 8,436 5,047 8,294 9,924 14,487 14,061 23,561 Long-term debt............................... -- -- -- -- -- -- -- Lease obligations............................ 207 155 160 67 -- -- -- Total stockholders' equity................... 4,064 2,681 4,172 5,024 6,969 7,653 17,153
- --------------- (1) On September 30, 1992, Wiland Services, Inc. ("Wiland") completed a merger transaction with Neodata Corporation. Wiland had two business divisions: Consumer Products and Direct Marketing Services. Concepts Direct, Inc., formerly the Consumer Products division of Wiland, was created in connection with the merger and accounting conventions required that Concepts Direct be treated as the continuing operation. For financial reporting purposes, the operations of the Direct Marketing Services division of Wiland are treated as discontinued operations of Concepts Direct, Inc. (2) "Active customers" is defined as database records on customers who have purchased merchandise from the Company within the 12 months preceding the end of the period indicated. (3) Adjusted to reflect the sale by the Company of 471,404 shares of Common Stock offered hereby at an assumed price of $22.00 per share (the last sale price of the Common Stock as reported on May 30, 1997), less estimated underwriting discounts and offering expenses payable on a pro-rata basis by the Company and Selling Stockholders. 17 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Through its three current catalogs, Colorful Images(R), Linda Anderson(R) and Colorful Images Presents Impressions(R), the Company markets personalized labels, paper products, collectibles, gifts, home decorative items and casual apparel (primarily t-shirts and caps). The Company also markets its products, to a much lesser extent, through other media such as newspaper free standing inserts and co-op mailings. The Company uses a disciplined, analytical approach to marketing and merchandising to target its customers. It believes that this approach together with its direct marketing expertise, merchandising capabilities and popular consumable products have built strong brand identity and customer loyalty which will serve as a foundation for future growth. The Company believes its net sales growth of 103% from 1994 to 1995, 21% from 1995 to 1996, and 38% from the three month period ended March 31, 1996 to the three month period ended March 31, 1997 is attributable to a variety of factors. Between January 1, 1995 and December 31, 1996, the Company increased its proprietary database of active customers from approximately 800,000 names to approximately 1,600,000 names, a compound annual growth rate of 41.4%. The Company believes its growth is attributable primarily to increases in the amount of merchandise offered in its catalogs and to improvements in the Company's merchandise selection, creative presentation, database management and list segmenting techniques. The Company's business is seasonal, with a disproportionate percentage of its net sales generated in the fourth quarter. During the fourth quarter of 1995, net sales were adversely affected by the installation of new software. Initially, the new software caused delays in order processing and the Company missed orders. During the fourth quarter of 1996, the new software met management's expectations and actual sales exceeded company projections. As a result of Company sales exceeding projections, the Company had a shortage of personnel to process orders. Consequently, some order shipments were delayed and some potential phone orders were never received. In January 1997, the Company purchased 139 acres of undeveloped land in Longmont, Colorado, and a new facility which is substantially larger than its current facility is currently being constructed on approximately 11 of the 139 acres. The Company intends to hold the remaining land for sale or expansion. The new building is intended to house its production, administrative and warehouse functions. The Company plans to move into this facility by September 1997. Revenues from sales of products are recognized upon shipment. Deferred advertising costs, which consist primarily of expenses incurred for printing and distributing advertising materials, primarily catalogs, are included in selling, general and administrative expenses. These expenses are deferred for financial reporting purposes until the advertising materials are distributed, then amortized over periods of time (not to exceed twelve months with most costs amortized in the first three months after distribution) estimated to approximate the periods during which related sales occur. On February 25, 1997, the Board of Directors authorized the issuance of a 2-for-1 stock-split to be effected in the form of a 100% stock dividend payable March 31, 1997 to stockholders of record on March 14, 1997. Additionally, in 1994 the Board of Directors authorized the issuance of a 2-for-1 stock-split to be effected in the form of a 100% stock dividend payable December 15, 1994 to stockholders of record on November 14, 1994. Historical share and per share data have been adjusted to reflect the effect of these stock-splits. 18 23 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain selected income statement data as a percentage of net sales:
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------- --------------- 1994 1995 1996 1996 1997 ----- ----- ----- ----- ----- Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0% Cost of product and delivery..................... 55.0 52.9 52.5 51.3 49.9 ----- ----- ----- ----- ----- Gross profit..................................... 45.0 47.1 47.5 48.7 50.1 Selling, general and administrative expense...... 38.2 45.6 42.5 46.4 44.1 ----- ----- ----- ----- ----- Operating income................................. 6.8 1.5 5.0 2.3 6.0 Other income, net................................ 0.4 0.7 0.5 1.0 0.6 ----- ----- ----- ----- ----- Income before income taxes....................... 7.2 2.2 5.5 3.3 6.6 ----- ----- ----- ----- ----- Provision for income taxes....................... -- 0.2 1.7 1.0 2.4 Net income....................................... 7.2% 2.0% 3.8% 2.3% 4.2% ===== ===== ===== ===== =====
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996 Net sales increased by $4.4 million, or 37.7%, to $16.0 million for the first quarter of 1997 from $11.6 million for the same period of 1996. This increase resulted primarily from the distribution of a greater number of catalogs and other advertising media, increased page count of the catalogs and an increase in the number of products offered. Increased sales were also attributable to improved catalog response rates. Gross profit increased by $2.4 million, or 41.6%, to $8.0 million for the first quarter of 1997 from $5.6 million for the same period of 1996. Gross profit increased as a percentage of net sales to 50.1% for the first quarter of 1997 from 48.7% for the same period of 1996. The increase in gross profit as a percentage of net sales occurred primarily because of improved efficiencies of operations and higher sales over which to spread fixed costs associated with production and delivery. Selling, general and administrative expense increased $1.6 million, or 30.9%, to $7.0 million for the first quarter of 1997 from $5.4 million for the same period of 1996. Selling, general and administrative expense decreased as a percentage of net sales to 44.1% for the first quarter of 1997 from 46.4% for the same period of 1996. The decrease resulted primarily from improved response to Company advertising, lower paper costs related to catalog preparation and distribution and increased sales over which to spread relatively fixed costs. Operating income increased by $688,000, or 261.9%, to $951,000 for the first quarter of 1997 from $263,000 for the same period of 1996. Operating income increased as a percentage of net sales to 6.0% for the first quarter of 1997 from 2.3% for the same period of 1996. Other income, primarily interest income and vendor payment discounts, was $101,000 for the first quarter of 1997 compared to $112,000 for the same period of 1996. The provision for income taxes amount for the first quarter of 1997 was $379,000 as compared to $109,000 in the first quarter of 1996. The income tax rate was 36% in the first quarter of 1997 as compared to 29% in the same period of 1996 because of the availability of research and development tax credits in the first quarter of 1996. Net income increased by $407,000, or 153.3%, to $673,000 for the first quarter of 1997 from $266,000 for the same period of 1996. Net income increased as a percentage of net sales to 4.2% in the first quarter of 1997 from 2.3% in the same period of 1996. Earnings per share increased $0.09, or 150.0%, to $0.15 for the first quarter of 1997 from $0.06 for the same period of 1996. 19 24 YEAR ENDED 1996 COMPARED TO YEAR ENDED 1995 Net sales increased by $9.0 million, or 21.3%, to $51.1 million in 1996 from $42.1 million in 1995. This increase resulted primarily from the distribution of a greater number of catalogs and other advertising media, increased page count of the catalogs and a greater number of products offered. Increased sales are also attributable to improved response rates. Personalized paper product sales increased by approximately $2.9 million, or 10.1%, to $31.5 million in 1996 from $28.6 million in 1995 and decreased as a percentage of total sales from 65% in 1995 to 59% in 1996. Gross profit increased by $4.4 million, or 22.1%, to $24.3 million in 1996 from $19.9 million in 1995. Gross profit increased as a percentage of net sales to 47.5% in 1996 from 47.1% in 1995. The increase in gross profit as a percentage of net sales occurred primarily because of improved efficiencies of operations, increased sales of paper products (which generally have substantially higher margins than other merchandise) and higher sales over which to spread fixed costs. In both 1996 and 1995, personalized paper product costs were less than 15% of sales price compared to other non-personalized products whose costs were in excess of 30% of sales price. Selling, general and administrative expense increased $2.5 million, or 13.0%, to $21.7 million in 1996 from $19.2 million in 1995. Selling, general and administrative expense decreased as a percentage of net sales to 42.5% in 1996 from 45.6% in 1995. The decrease was primarily due to improved response rates to Company catalogs, lower paper costs during the last few months of the year and increased revenues to absorb relatively stable fixed costs. Operating income increased by $1.9 million, or 297.8%, to $2.6 million in 1996 from $638,000 in 1995. Operating income increased as a percentage of net sales to 5.0% in 1996 from 1.5% in 1995. Other income, consisting primarily of interest income and vendor payment discounts, decreased from $298,000 in 1995 to $246,000 for 1996. Income tax expense increased $777,000 to $871,000 in 1996 from $94,000 in 1995. Income tax expense in 1996 was approximately 31%, which was lower than the statutory rate, because of the availability of research and development credits. Management currently anticipates its effective income tax rate for 1997 will be approximately 36%. Net income increased by $1.1 million, or 129.8%, to $1.9 million in 1996 from $843,000 in 1995. Net income increased as a percentage of net sales to 3.8% in 1996 from 2.0% in 1995. Earnings per share increased $0.25 per share, or 131.6%, to $0.44 in 1996 from $0.19 in 1995. YEAR ENDED 1995 COMPARED TO YEAR ENDED 1994 Net sales increased by $21.4 million, or 103.4%, to $42.1 million in 1995 from $20.7 million in 1994. This increase resulted primarily from the distribution of a greater number of catalogs and other advertising media, increased page count of the catalogs and a greater number of products offered. Increased sales were also attributable to improved response rates. Personalized paper product sales increased by approximately $13.5 million, or 89%, to $28.6 million in 1995 from $15.1 million in 1994 and decreased as a percentage of total sales from 74% in 1994 to 65% in 1995. Gross profit increased by $10.5 million, or 112.9%, to $19.9 million in 1995 from $9.3 million in 1994. Gross profit increased as a percentage of net sales to 47.1% in 1995 from 45.0% in 1994. The increase in gross profit as a percentage of net sales occurred primarily because of improved efficiencies of operations, increased sales of paper products (which have substantially higher margins than other merchandise) and higher sales over which to spread fixed costs. The increase would have been larger had it not been for difficulties in 1995 related to the implementation of new software and systems to perform order fulfillment, inventory control and related functions. In both 1995 and 1994, personalized paper product costs were less than 15% of sales price compared to other non-personalized products whose costs were in excess of 30% of sales price. Selling, general and administrative expense increased $11.3 million, or 142.9%, to $19.2 million in 1995 from $7.9 million in 1994. Selling, general and administrative expense increased as a percentage of net sales to 20 25 45.6% in 1995 from 38.2% in 1994. The increase resulted primarily from the distribution of a greater number of catalogs and other advertising materials to prospects and increased paper and postage costs related to catalog preparation and distribution. Operating income decreased by $765,000, or 54.6%, to $638,000 in 1995 from $1.4 million in 1994. Operating income decreased as a percentage of net sales to 1.5% in 1995 from 6.8% in 1994. Other income, consisting primarily of interest income and vendor payment discounts, increased from $87,000 in 1994 to $298,000 in 1995. Income tax expense increased $94,000 in 1995 from zero in 1994. Income tax expense in 1995 was approximately 10%, which was lower than the statutory rate, due to the availability for book purposes of valuation allowances for deferred tax assets, all of which were utilized in 1995. No income tax expense was recorded in 1994 due to the availability of net operating loss carry-forwards. Net income decreased by $648,000, or 43.2%, to $843,000 in 1995 from $1.5 million in 1994. Net income decreased as a percentage of net sales to 2.0% in 1995 from 7.2% in 1994. Earnings per share decreased $0.15, or 44.1%, to $0.19 in 1995 from $0.34 in 1994. QUARTERLY AND SEASONAL FLUCTUATIONS Company sales have certain seasonal fluctuations that primarily relate to the purchasing patterns of individual consumers and increased distribution of catalogs. These patterns tend to concentrate sales in the fourth quarter. In 1994, 1995 and 1996, approximately 40%, 39% and 41% of net sales occurred in the last three months of the year, respectively. Consequently, net income in the first three quarters compared to the fourth quarter has historically been lower as a percentage of net sales since administrative and certain operating expenses remain relatively constant during the year. During the last three years, prices for the Company's products have not increased significantly. The following table contains selected unaudited quarterly financial data for 1995 and 1996 and for the first three months of 1997. The unaudited information has been prepared on the same basis as the audited financial statements appearing elsewhere in this Prospectus and includes all normal recurring adjustments necessary to present fairly, in all material respects, the information set forth therein.
QUARTER ENDED ----------------------------------------------------------------------------------------------------------- 1995 1996 1997 --------------------------------------------- --------------------------------------------- --------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, 1995 1995 1995 1995 1996 1996 1996 1996 1997 -------- -------- --------- -------- -------- -------- --------- -------- --------- (IN THOUSANDS EXCEPT PER SHARE DATA) Net sales.......... $8,100 $9,491 $ 8,307 $ 16,249 $11,584 $9,000 $ 9,800 $ 20,742 $15,952 Operating costs and expenses Cost of product and delivery......... 4,151 4,530 4,460 9,145 5,941 4,907 5,119 10,867 7,959 Selling, general and administrative... 3,658 4,769 4,129 6,667 5,380 4,438 4,423 7,489 7,042 ------ ------ ------ ------- ------- ------ ------ -------- ------- Operating income (loss)........... 291 192 (282) 437 263 (344) 258 2,386 951 Other income, net.............. 61 80 71 86 112 35 51 48 101 ------ ------ ------ ------- ------- ------ ------ -------- ------- Income (loss) before income taxes............ 352 272 (211) 524 375 (310) 309 2,434 1,052 Provision (credit) for income taxes............ 123 95 (74) (50) 109 (90) 89 763 379 ------ ------ ------ ------- ------- ------ ------ -------- ------- Net income (loss)........... $ 229 $ 177 $ (137) $ 574 $ 266 $ (220) $ 220 $ 1,671 $ 673 ====== ====== ====== ======= ======= ====== ====== ======== ======= Earnings (loss) per share............ $ 0.05 $ 0.04 $ (0.03) $ 0.13 $ 0.06 $(0.05) $ 0.05 $ 0.38 $ 0.15 ====== ====== ====== ======= ======= ====== ====== ======== ======= Weighted average number of common shares and common share equivalents outstanding...... 4,386 4,391 4,412 4,428 4,442 4,441 4,437 4,446 4,482 ====== ====== ====== ======= ======= ====== ====== ======== =======
21 26
QUARTER ENDED ----------------------------------------------------------------------------------------------------------- 1995 1996 1997 --------------------------------------------- --------------------------------------------- --------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, 1995 1995 1995 1995 1996 1996 1996 1996 1997 -------- -------- --------- -------- -------- -------- --------- -------- --------- (PERCENTAGE OF TOTAL NET SALES) Net sales.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Operating costs and expenses Cost of product and delivery......... 51.2 47.7 53.7 56.3 51.3 54.5 52.3 52.4 49.9 Selling, general and administrative. 45.2 50.3 49.7 41.0 46.4 49.3 45.1 36.1 44.1 ------ ------ ------ ------- ------- ------ ------ ----- ------- Operating income (loss)........... 3.6 2.0 (3.4) 2.7 2.3 (3.8) 2.6 11.5 6.0 Other income, net.............. 0.7 0.9 0.9 0.5 0.9 0.4 0.5 0.2 0.6 ------ ------ ------ ------- ------- ------ ------ ----- ------- Income (loss) before income taxes............ 4.3 2.9 (2.5) 3.2 3.2 (3.4) 3.1 11.7 6.6 Provision (credit) for income taxes............ 1.5 1.0 (0.9) (0.3) 0.9 (1.0) 0.9 3.7 2.4 ------ ------ ------ ------- ------- ------ ------ ----- ------- Net income (loss)........... 2.8% 1.9% (1.6)% 3.5% 2.3% (2.4)% 2.2% 8.0% 4.2% ====== ====== ====== ======= ======= ====== ====== ===== =======
LIQUIDITY AND CAPITAL RESOURCES Since the Company was spun off from Wiland in 1992, the Company has funded its growth primarily through funds generated from operations and has not generally relied on external sources of financing. Cash and cash equivalents decreased by $3.1 million in the first quarter of 1997, increased by $3.1 million in 1996, decreased by $13,000 in 1995 and increased by $1.9 million in 1994. Activity in several significant areas had the greatest impact on cash and cash equivalents as described below. The increase in deferred advertising costs of $1.6 million in 1996 primarily related to the Company's incurring costs for significant portions of January 1997 catalogs in 1996 and increased catalog circulation in January 1997 as compared to the same period in 1996. The increase in deferred advertising costs of only $58,000 in 1995 primarily related to the distribution of January 1996 catalogs in early January as compared to distribution of January 1995 catalogs in late December of 1994. If the January 1996 Colorful Images(R) catalog had been distributed in December 1995, management believes deferred advertising costs and accounts payable in 1995 would have increased by approximately $1.0 million. Increased distribution of catalogs over 1993 levels was the primary reason for increased deferred advertising costs of $1.2 million in 1994 and increased accounts payable of $1.3 million. The increases of inventories of $1.6 million and $386,000 in 1995 and 1994, respectively, primarily related to increased sales. The decrease in accounts payable of $1.6 million in the first quarter of 1997 resulted primarily from the payment in early January 1997 for inventory and advertising cost purchased or incurred in the fourth quarter of 1996. The increase in accounts payable of $2.2 million in 1996 primarily related to the incurring of significant advertising costs for January 1997 mailings near the end of 1996 and timing of payments for inventory. The large increase in sales in the fourth quarter of 1995 was the primary reason for the $480,000 increase in customer liabilities (primarily unshipped customer orders and a reserve for future customer warranty costs and product returns). Net income of $673,000, $1.9 million, $843,000 and $1.5 million in the first quarter of 1997, and in 1996, 1995 and 1994, respectively, contributed significantly to increased cash in these periods. Significant items of use of cash during 1996, 1995 and 1994 were purchases of property and equipment of $377,000, $550,000 and $502,000, respectively. These purchases primarily related to computer equipment, order fulfillment equipment and furnishings acquisitions to accommodate the sales growth and expansion. The Company had $3.4 million of unencumbered cash and cash equivalents at March 31, 1997 and $6.4 million at December 31, 1996. Management believes that results of operations, continued operational planning review, funds from the Offering plus current cash balances will produce funds necessary to meet its anticipated working capital requirements for the current year. The Company is currently constructing a new facility on the approximately 139 acres of undeveloped land purchased in January 1997. The Company expects to use current cash balances and outside sources, most likely from a bank, to finance this construction on a portion of the property, at a total building and development cost of approximately $8.5 million (excluding land). The Company intends to hold the remaining land for sale or expansion. 22 27 Significant items of investing activities during the first quarter of 1997 were purchases of property and equipment of $2.2 million and the use of $500,000 to collateralize a letter of credit. The purchases of property and equipment primarily related to the purchase of undeveloped land and certain costs of the new facility currently under construction on the property. The letter of credit relates to certain obligations generally expected to be resolved within one year, in connection with improvements to the building site. The Company has entered into a $3.7 million secured credit facility with Bank One, Colorado, N.A. ("Bank One"), bearing interest at a variable rate equal to Bank One's prime rate, currently 8.5%. The credit facility is secured by the Company's cash, inventories, accounts receivable and equipment. The Company must comply with certain financial and performance covenants contained in the credit facility, including a minimum current ratio, a minimum tangible net worth, a maximum total debt to equity ratio and a minimum debt service coverage ratio and maintenance of its primary accounts with the bank. At April 30, 1997, the Company was in compliance with all such covenants. Of the total facility, $700,000 may be used for furniture and equipment purchases and, until April 1998, amounts funded may be converted to a three year term note at a variable rate equal to Bank One's prime rate. The remaining $3 million of the credit facility is made up of two revolving lines of credit, $1 million for the purchase of paper to be used in future catalog mailings and $2 million for general working capital purposes. The revolving lines of credit expire in April 1998, at which time the Company anticipates being able to renew the arrangements, either through Bank One or another lending institution. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS The provisions of the Private Securities Litigation Reform Act of 1995 (the "Act") provide companies with a "safe harbor" when making forward-looking statements. This "safe harbor" encourages companies to provide prospective information without fear of litigation. Company statements that are not historical facts, including statements about management's expectations, beliefs, plans and objectives for 1997 and beyond, are forward-looking statements (as such term is defined in the Act) and involve various risks and uncertainties. Factors that could cause the Company's actual results to differ materially from management's projections, forecasts, estimates and expectations include, but are not limited to, the following: reliance on catalog operations in general, and on the Colorful Images(R) catalog in particular; potential inability to cost-effectively implement its growth strategy; dependence on paper products as a predominant product line; potential inability to effectively manage and develop its proprietary database; changes in postal rates or the costs of paper and printing; reliance on third parties for shipping; reliance on a limited number of key vendors; the Company's ability to complete construction of and transfer to the Company's new facilities by September 1997 at a time of the year when it historically has received a significant portion of its orders and related annual net sales; risk of disaster; potential disruptions in order processing or fulfillment; increased competitive activity and other competitive factors including name recognition and the Company's relative newness to the mail order catalog business; dependence on significant license rights and branded merchandise; dependence on key personnel; merchandise returns and refunds; quarterly and seasonal fluctuations; changes in the general economic conditions of the United States; changes in consumer spending generally or specifically with reference to the types of merchandise that the Company offers in its catalogs; and state tax issues relating to the taxation of out of state mail order companies. See "Risk Factors." 23 28 BUSINESS OVERVIEW Concepts Direct, Inc. (the "Company") is a direct marketer of personalized labels, paper products, collectibles, gift items, home decorative items and casual apparel (primarily t-shirts and caps) that are selected and designed based on the hobbies, interests and lifestyles of its target customers. The Company markets its merchandise primarily through its three current catalogs, Colorful Images(R), Linda Anderson(R), and Colorful Images Presents Impressions(R) ("Impressions"), which are mailed to prospects derived from rented and exchanged lists and names from its proprietary database. This database includes customers, gift recipients and catalog requestors and had grown to over 6,000,000 names at March 31, 1997, including approximately 1,800,000 customers who had purchased in the prior 12 months. The Company uses a disciplined, analytical approach to marketing and merchandising to target customers. The Company believes that this approach, together with its direct marketing expertise, merchandising capabilities and popular consumable products, have built brand identity and customer loyalty which will serve as a foundation for future growth. From 1988 to September 30, 1992, Company operations were conducted in the Consumer Products division of Wiland Services, Inc. ("Wiland"), a company that provided a variety of database management, list processing and marketing research services to the direct marketing industry. The Company's historical roots in Wiland, where several of the Company's senior executives developed their knowledge of the direct marketing industry, provided the foundation for the Company's list, database and results analysis expertise. Headquartered in Longmont, Colorado, the Company began independent operations under its name on September 30, 1992, as a result of a spin-off from Wiland in connection with Wiland's merger with Neodata Corporation. INDUSTRY OVERVIEW The direct marketing industry has experienced significant growth over the past decade. According to the U.S. Census Bureau, the mail order industry accounted for $46 billion of the total $2.3 trillion retail market in 1995, up from $11 billion of the total $957 billion retail market in 1980. From 1985 to 1995, the total mail order sector surpassed other retail sectors in growth with a compound annual growth rate of 11.3% compared to 5.5% growth for the total retail trade market. The Company believes that this growth trend and relatively small current proportion of catalog sales to total retail sales will allow the catalog direct marketing industry opportunities to experience continued growth in the future. According to an industry trade magazine, each of the top ten largest North American consumer catalogs had a twelve month buyers list consisting of at least 2,200,000 names. As of March 31, 1997, the Company's proprietary database included approximately 1,800,000 names of customers who made purchases within the last twelve months. BUSINESS STRATEGY The Company's goal is to create, build and operate multiple direct marketing concepts that profitably sell merchandise to a targeted customer base. Its principal strategies for achieving this goal are set forth below. Analytical Approach to Prospecting for New Customers. The Company's analytical approach to prospecting for new customers emphasizes list testing (for example, by mailing a catalog initially to only a small percentage of a rented or exchanged list) and segment analysis, adherence to list performance guidelines and recognition of the long-term value of a customer. A principal operating strategy of the Company is to prospect, primarily through the use of rented and exchanged lists, for new customers who can be added to its existing proprietary database. When prospects buy as a result of Company mailings, they are added to the proprietary database, increasing the number of customers available for future mailings. Effective Marketing to Proprietary Customer Database. The Company seeks to maximize the effective use of its proprietary database of over 6,000,000 names. In addition to the recency, frequency and monetary data typically used in database direct marketing, the Company also maintains information concerning the types and themes of merchandise purchased by its customers. This data provides insight into customer hobbies, interests and lifestyles, not only for Company mailings but also for list rental and exchange purposes. The use of this data, in conjunction with purchase history data such as latest order date and order size, helps 24 29 the Company make niche selections from its database, offer products which are suited to the styles and tastes of its customers and develop new catalogs. Disciplined Approach to Merchandising. The Company employs a disciplined approach to selecting merchandise likely to generate purchases by its customers and prospects. The Company attempts to make merchandise selections that fit a market niche and price point rather than simply selecting items of general popularity in the retail market. Products offered are subject to "Ruthless Elimination" based on square inch and incremental contribution analysis that identifies products that do not achieve acceptable performance standards. Merchandise Assortments Created for Targeted Audiences. The Company seeks to create numerous product lines targeting the Company's primary audience of adult women. It then makes customer contact through its catalogs. Colorful Images(R) presents an assortment of mid to low price point merchandise primarily for women who are interested in personalized paper products (labels, note pads, cards, memo cubes, etc.), collectibles and gifts. Linda Anderson(R) typically offers higher price point gifts, home decorative items and casual apparel. The Impressions catalog presents personalized merchandise. Promotion of Repeat Purchases, Including Consumable Reorders, Increased Spending and Gift Giving. A strategy of the Company in creating Colorful Images(R) was to develop a line of consumable products which customers would subsequently re-order and supplement the consumables line with an assortment of other merchandise. Labels and paper products, which are a major segment of the Colorful Images(R) product line, are used at varying rates by different consumers, but all are subject to consumption and potential reorder. The other merchandise promotes gift giving and is intended to increase customer spending. The Company encourages repeat business from its customers by offering products which have met expectations in the past, testing new products and developing new catalogs. Excellent Catalog Shopping Experience. The Company attempts to provide a catalog shopping experience that achieves customer satisfaction through exclusive designs, popular licensed and branded merchandise, creative presentation, product quality and good service. The Company strives to provide friendly, knowledgeable telephone service, prompt fulfillment of orders and courteous resolution of customer complaints, including a "Satisfaction Guaranteed" exchange policy. GROWTH STRATEGY The Company's growth strategy consists of the following principal components: Increase Catalog Circulation. The Company plans to expand total circulation of its catalogs within the parameters of its marketing strategy. The Company believes that its list testing strategy, evaluation of performance data and recognition of the long-term value of a new customer have been significant contributing factors to its historical success in expanding circulation, achieving acceptable overall response rates and enlarging its proprietary database. Total catalogs mailed has increased from approximately 14.5 million in 1993 to approximately 43.5 million in 1996 (excluding catalogs inserted in product shipments), a 44% compound annual growth rate. This increase in circulation has been a significant factor in the 47.5% compound annual net sales growth rate achieved during the same period. As its catalog titles and proprietary database expands, Concepts Direct plans to continue to increase catalog circulation. Expand Page Count and Merchandise Selection. As part of its growth strategy, the Company plans to further expand its catalogs by increasing and refining its merchandise selection. The Colorful Images(R) catalog, which began as a flyer offering only a few styles of personalized labels, increased to 104 pages during the fall 1996 season. This substantial expansion was achieved by adding more merchandise offerings, including many label styles, a variety of other paper products and an assortment of collectible, gift, home decorative and apparel items. This strategy has allowed the Company to assess the appeal of its merchandise offerings and attempt to offer merchandise tailored to the tastes of its customers and prospects. The Company plans to continue to expand the page count and merchandise selection of its existing catalogs as long as it believes results warrant. 25 30 Introduce Complementary New Catalog Titles. The Company intends to leverage its proprietary database and understanding of product preferences of its primary audience by introducing new complementary catalog titles. For example, Colorful Images(R) and other Company catalogs have produced a database comprised in part of customers who collect figurines. The Company believes this provides an opportunity to launch a new catalog featuring a wide assortment of popular collectibles. In addition, many Company customers have purchased t-shirts from the Colorful Images(R) and other Company catalogs. Many of these shirts reflect customer personalities or interests. The Company plans to use this database segment as it develops a new catalog featuring primarily t-shirts and moderately priced casual apparel. In addition, the Company recently entered into a license agreement through September 2001 authorizing it to design, create and distribute a catalog consisting exclusively of merchandise featuring Snoopy(TM), Charlie Brown(TM) and the other PEANUTS(R) characters. The first PEANUTS(R) catalog is planned for distribution in the third or fourth quarter of 1997. Promote Merchandise Featuring Popular Licensed Characters and Brands. The Company offers personalized labels, collectibles, t-shirts and gift merchandise featuring popular licensed characters and brands. The Company has a license to use the PEANUTS(R) characters, including Snoopy(TM), Charlie Brown(TM), Woodstock(TM), Lucy(TM) and Linus(TM), on label products. It has also been granted licenses to feature popular collectibles such as Boyds Bears(R) and Dreamsicles(R) on its paper products. The Company also sells popular branded merchandise bearing the trademarks Coca-Cola(R), Warner Bros(R) and others. The Company has developed customer segments in its proprietary database who are interested in licensed or branded merchandise and plans to seek additional arrangements for such merchandise. Expand Facilities and Operational Capabilities. The Company has broken ground on a new facility designed to substantially increase the Company's current operational capacity, providing space for growth and allowing more efficient organization of operations and fulfillment functions. The Company believes that its computer software systems supporting customer service, order processing and other key activities are important to its direct marketing success. The Company plans to continue enhancing its systems to support the Company's growth plans. The Company is also seeking to improve its manufacturing and order fulfillment processes. CURRENT CATALOGS AND OTHER MARKETING CHANNELS The Company currently markets its products primarily under three catalog titles: Colorful Images(R). Colorful Images(R) provides customers interesting means to express their hobbies, interests and lifestyles in their choice of personalized self-adhesive labels, paper products, collectibles, home decorative items, gift merchandise and t-shirts. The Company believes it has assembled one of the largest assortments of personalized labels available to consumers. A consumer may choose a floral design, an angel theme, a country look, a Victorian style, a Monet reproduction or a ballet dancing pig from among the more than 750 different labels offered. The Company also offers self-adhesive labels with popular licensed characters such as Snoopy(TM) and the other PEANUTS(R) characters, Boyds Bears(R) and Dreamsicles(R). The Company believes the depth and diversity of the Colorful Images(R) product assortment and its creative format have allowed it to establish a loyal segment of its customers who enjoy the catalog and have adopted Company products as their personal trademark. Price points in the Colorful Images(R) catalog generally range from $6.95 to $49.95, excluding shipping and handling. The Colorful Images(R) catalog is produced in separate versions for customers and prospects. The prospect version generally contains fewer pages and is typically limited to merchandise items which have been popular in past mailings to prospects. The customer version contains merchandise which has been popular in past mailings to customers, additional merchandise in existing categories and new merchandise that the Company wishes to test. The Company believes that creating separate catalogs with fewer pages for prospects than for customers is an effective technique to improve performance of the Colorful Images(R) catalog with both groups. 26 31 As the Company's proprietary database has grown, the number of editions of its flagship catalog, Colorful Images(R), has increased from five (5) in 1994, to six (6) and seven (7) in 1995 and 1996. In addition, the Company has made and plans to continue making smaller mailings to niche segments of the proprietary database. The Company has experienced a steady increase in performance of the catalog based on mailings to the best 2 million customers with this group's revenue increasing by approximately 47% over the past three years.
Colorful Images(R) Best 2,000,000 Customers Analysis Consisting of the best performing customer segments during the past three years. Average RPM Index* Year Average Revenue Per Thousand Index ---- ---------------------------------- 1994 Catalogs 1.0 1995 Catalogs 1.31 1996 Catalogs 1.47
*Revenue per thousand catalogs mailed. 1994 is base year index of 1.0 The Company believes that Colorful Images(R) sales have improved as a result of a variety of factors, including its analytical approach to prospecting, increases in page count per catalog, improvement in catalog creative presentation, expansion of product lines and modifications in the merchandise mix. The Company reevaluates these factors prior to each new catalog edition, taking into account the most recent performance data available. Information contained in the Company's proprietary database, particularly product purchasing characteristics of its customers, is helpful in designing new catalogs. The Company believes its ability to evaluate performance data has contributed to improving response rates. The Company is exploring other methods of contacting Colorful Images(R) customers, including preferred customer clubs, seasonal catalog editions and special offers. Linda Anderson(R). Linda Anderson(R) offers an assortment of gifts, home decorative merchandise and casual apparel, generally at higher price points than Colorful Images(R) (typically ranging from $10.95 to $249.95, excluding shipping and handling). The Company's goal is for its catalogs to develop their own personalities and an affinity with customers who find the merchandise consistent with their tastes. The Company is positioning and refining the Linda Anderson(R) catalog as it accumulates new data from each mailing. Products for Linda Anderson(R) are selected and the creative presentation is designed to make Linda Anderson(R) attractive to the target audience. The most responsive customers for Linda Anderson(R) in past mailings have been recent previous buyers from the catalog. Certain Colorful Images(R) customers have also performed well for Linda Anderson(R), reinforcing the Company's belief that it can successfully launch new catalogs in part by using its proprietary database. As Colorful Images(R) continues to grow, some of the new customers it generates may also respond to the Linda Anderson(R) line of products. 27 32 Linda Anderson(R) Catalog Results for Mailings To Selected Segments Fourth Quarter, 1995 vs. 1996
1995 Quantity 1995 Average 1996 Quantity 1996 Average Segment Mailed RPM Index* Mailed RPM Index* ------- ------------- -------------- ------------- -------------- Linda Anderson(R) 13,248 1.0 22,562 1.6 Existing Customers Colorful Images(R) 211,539 1.0 495,205 1.13 Customers Outside Prospect 435,580 1.0 862,733 1.45 Homes Total 660,367 1.0 1,380,500 1.34
*Revenue per thousand catalogs mailed. 1995 is base year index of 1.0 During the period from 1994 until the fall of 1996, the Company mailed three (3) test editions of the Linda Anderson(R) catalog. The fall 1996 edition produced a positive contribution to operating results. This result exceeded Company expectations despite the fact that several prospect lists were being used for Linda Anderson(R) for the first time. Based on this response, the Company plans to mail the Linda Anderson(R) catalog four (4) times in 1997. Colorful Images Presents Impressions(R). Impressions was introduced in the second quarter of 1996, offering various products such as coffee mugs, mouse pads, note pads, stationery and gift items, many of which were personalized products. The Impressions catalog relies heavily on the Colorful Images(R) customer base of merchandise buyers. The Company has now decided to offer only personalized products in Impressions and is attempting to develop a popular assortment of personalized merchandise which will not overlap with Colorful Images(R). Impressions had developed a small base of more than 12,000 customers at March 31, 1997 and, during the three-month period ended March 31, 1997, made a small positive contribution to operating results as an insert with Colorful Images(R) and Linda Anderson(R) product shipments. The Company plans to continue using Impressions as a package insert, test other distribution channels and conduct test mailings until a further rollout is justified. The latest edition of Impressions contains only 24 pages and offers only personalized merchandise. The Company expects page count to increase in future editions. Prices charged for Impressions products typically range from $5.95 to approximately $60.00, excluding shipping and handling. The Company plans at least one (1) new edition of Impressions in 1997. 28 33 Other Marketing Channels. The Company also employs a variety of alternate media to generate sales for its Colorful Images(R) products. Alternate media includes primarily direct mail co-ops and advertisements in newspaper free standing inserts. During the first half of 1996, the Company used such media more extensively than in 1995. Results have been inconsistent and have varied by media type. In 1997, the Company expects to use alternate media somewhat more extensively than in 1996. The Company may gradually increase its circulation in such media if results warrant, but expects alternate media to account for less than 10% of net sales in 1997. The Company's two small retail outlets are used for inventory liquidation purposes and accounted for less than 1% of net sales in 1996. The Company has no immediate plans to open additional retail stores. NEW CONCEPTS As part of its growth strategy, the Company continues to consider other direct marketing concepts that may justify additional catalogs featuring successful product lines from existing catalogs. The Company has identified several product lines which meet this standard and currently plans to test at least three (3) new catalogs during 1997. Specific timing for these catalogs will depend on when the Company believes each is ready for launch from a marketing, merchandise and operations standpoint. Linda Anderson's Collectibles(sm). The initial edition of this new catalog is scheduled for launch during the third quarter of 1997 and is expected to include at least 35 lines of collectible merchandise with over 300 individual items. The catalog will include information about collecting and may offer a club membership for customers who regularly purchase from the catalog. The Company has previously offered a more limited selection of collectibles lines in existing catalogs and has been pleased with the performance of these products. As a result, the Company's proprietary database contains a number of collectibles buyers. Linda Anderson's Collectibles(sm) will present a selection of collectibles from an assortment of recognized companies and established artists. The Company believes this proposed catalog should be attractive not only to collectors in the Company's proprietary database but also to collectors obtained through rented and exchanged lists. T-shirt Catalog. The Company has capitalized on the popularity of casual apparel by offering t-shirts, sweatshirts and a limited selection of caps, shorts and skirts in its Colorful Images(R), Linda Anderson(R) and Impressions catalogs. T-shirts with a humorous theme or which reflect the hobbies, interests and lifestyles of the consumer have been among the Company's best-selling products. The Company's proprietary database now contains a segment of such buyers. A new catalog will attempt to target this segment as well as prospects from rented and exchanged lists. This new catalog is scheduled for launch during the summer of 1997 and will contain over 250 different t-shirts, caps and other colorful, casual apparel items. PEANUTS(R) Catalog. The Company has recently entered into a license agreement with United Feature Syndicate, the licensing agent for Charles M. Schulz, the creator of the PEANUTS(R) comic strip, to design, create and distribute a catalog consisting exclusively of merchandise featuring Snoopy(TM), Charlie Brown(TM) and the other PEANUTS(R) characters. Since September 1996, the Company has had a license to feature PEANUTS(R) characters on personalized label products. The characters have proven to be a popular addition to the Colorful Images(R) product line. As a result of this arrangement, and in conjunction with other merchandise featuring the PEANUTS(R) characters sold by the Company in its Colorful Images(R) and Linda Anderson(R) catalogs, the Company has information in its proprietary database on previous buyers of PEANUTS(R) merchandise. A title for the new PEANUTS(R) catalog has not yet been finalized. The Company plans to develop and circulate the first edition of the new PEANUTS(R) catalog in the third or fourth quarter of 1997 offering merchandise manufactured by vendors authorized by United Feature Syndicate. In addition, the Company has the right to design and manufacture exclusive merchandise for inclusion in the catalog, subject to approval of particular merchandise by the licensor. The Company will pay a royalty on sales generated by the catalog. The Company plans multiple editions of the catalog each year, although actual distributions will depend on results. The Company plans to mail the catalog to names from its proprietary database and to prospects on rented and exchanged lists. In addition, the Company plans to distribute the new PEANUTS(R) catalog as an insert in its product shipments. Prospects who purchase merchandise from the PEANUTS(R) catalog will be added to the Company's proprietary database. Business-to-Business Catalog. The Company is evaluating the business/home office market and developing a plan to launch a new catalog to serve this market by offering a diverse line of paper and other business- 29 34 oriented products. Such a catalog should benefit from the Company's knowledge of paper products and their distribution through Colorful Images(R), the Company's existing vendor relationships, its existing paper products manufacturing expertise and its ability to target this market using marketing techniques already in place. While there is a significant established direct market for products similar to those the Company is considering, the Company believes it can bring a fresh design approach to products in this market. The Company also believes that this market may be receptive to complementary, nonpaper merchandise lines. Planning is proceeding but the Company has neither established a firm date to test this concept nor made a final decision to go forward with a business and home office catalog. Investment in a New Catalog Launch. The cost of launching a new catalog varies substantially depending on factors such as research and creative design, size of the test catalog (in pages and in number of products offered), number of test catalogs circulated and the amount of test inventory purchased. Risks are associated with each test and a new catalog and tests may continue until the catalog provides a positive contribution or the Company decides to discontinue its efforts. Ultimately, the amount of investment in a new launch depends primarily on the number and scale of tests conducted. The Company has budgeted less than $1.6 million, including inventory, to conduct the initial test of the Linda Anderson's Collectibles,(SM)t-shirt and PEANUTS(R) catalogs. DEVELOPMENT OF CUSTOMER BASE AND MARKETING Proprietary Database. The Company's proprietary database stores information on each customer. The information is derived primarily from customer transactions and is updated as new transactions are recorded. The Company relies on prospect mailings to rented and exchanged mailing lists obtained from mail order companies, magazine publishers and other sources. New customers are also obtained as a result of alternate media advertising such as newspaper inserts and co-op mailings. The use of these sources has been and is expected to continue to be a component of the Company's efforts to obtain new customers and add them to the proprietary database. During 1996, the Company mailed over 43.5 million copies of three different catalog titles (excluding catalogs inserted in product shipments), of which over half were mailed to prospective customers. At March 31, 1997, the Company's proprietary database contained information on over 6,000,000 customers, catalog requesters and gift recipients. Approximately 1,600,000 customers placed orders with the Company during the 12 months ended December 31, 1996, compared to approximately 800,000 for the 12 months ended December 31, 1994, a compound annual growth rate of 41.4%. The active customer count increased to approximately 1,800,000 at March 31, 1997. According to an industry trade magazine, each of the top ten largest North American consumer catalogs had a twelve month buyers list consisting of at least 2,200,000 names. 30 35 ACTIVE CUSTOMERS IN PROPRIETARY DATABASE(1)
DATE ACTIVE CUSTOMERS IN DATABASE ---- ---------------------------- 12/31/94 804,000 12/31/95 1,362,000 12/31/96 1,644,000 3/31/97 1,807,000
(1) "Active customers" is defined as database records on customers who have purchased merchandise from the Company one or more times within the 12 months preceding the end of the period indicated. In recent years, the Company has not mailed a single offer to its entire proprietary database. For each customer mailing the Company seeks to select names it believes are likely to respond to the offer at an acceptable rate. The Company's database system, selection methodologies and outside services help the Company segment its proprietary database according to certain variables and analyze each segment's performance. The Company believes that its ability to analyze its database and select recipients for a particular direct marketing campaign are critical components of its success. The Company utilizes various indicators, such as frequency and size of order, date of last order, and style and theme of products purchased to target its catalog mailings. Marketing Objectives. The Company's marketing programs are designed to attract new customers and generate additional sales from existing customers. Attracting new customers is principally accomplished through prospecting using mailings to individuals identified through rented and exchanged mailing lists. Generating additional sales from existing customers requires expanding and improving the merchandise mix, improving creative presentation, mailing based on customers' past purchase histories and launching new offers which prove to be popular with customers. The Company's Customers. Information provided to the Company by independent sources indicates that a large segment of the Company's customers are women between the ages of 35 and 54. The Company believes that one of the strengths of its product line is its general appeal to many women. Prospecting for New Customers; Growth of Mailing List. The Company exchanges lists with and rents lists from other direct marketers in order to gain new customers. The Company also uses alternate media such as newspaper inserts and co-op mail to prospect for new customers. Prospects receive a catalog or other direct marketing offer tailored to what the Company believes to be their merchandise tastes and preferences based on available data. Product and media performance are analyzed based on profitability. Product continuation and media utilization are determined based on these analyses. To effectively use outside mailing lists, the Company evaluates list profiles provided by list brokers and uses analytical tools. Multivariate regression analysis, profile analysis, geographic analysis, predictive modeling and cooperative databases are being used in a limited number of cases and are expected to become more important in the Company's analysis of outside lists. Customer Clubs and Other Programs. Beginning in 1996, the Company introduced the Colorful Images(R) Preferred Customer Club. An initial one year free membership was given to a segment of the 31 36 proprietary database in a special mailing which announced the club and described benefits. Orders produced by that initial mailing were above expectations. The Company is now selling memberships which provide discounts to club members. In addition, the Company may produce special seasonal catalogs and "Thank You", "Welcome", "Mover" or other packages to increase customer loyalty and average annual spending by current customers. Encouraging Gift Giving. The Company offers a selection of low cost items with the goal that its customers will purchase them as gifts. The Company encourages gift giving by providing a gift section on certain order forms. Gift recipients are added to the proprietary database and are sent offers from the Company. MERCHANDISING Merchandise Mix. The Company initially offered only personalized labels, but has steadily increased its breadth of paper products to over 900 different styles and themes, including over 750 personalized label choices. This assortment allows Colorful Images(R) to appeal to a diverse group of customers. Other Colorful Images(R) products include t-shirts, collectible figurines and other products. Linda Anderson(R) presents a variety of gift items, home decorative items, casual sweaters and sweatshirts. Impressions presents a collection of personalized gift items. The Company's planned new catalogs, Linda Anderson's Collectibles(sm) and the t-shirt catalog, are being designed as more specialized catalogs offering a wider selection for some of the Company's popular product lines. New Products. The Company believes that "new" sells. New merchandise regularly incorporated into existing catalogs helps to keep catalogs interesting to customers who see them frequently. "New" may also allow the Company to take advantage of popular trends in consumer preferences. The Company attempts to add new merchandise and believes that doing so in the past has been an important part of improved response. Exclusive Merchandise. Some of the paper products offered in Colorful Images(R) are proprietary designs developed by the Company's in-house art department and freelance artists. The Company is also in the early stages of working with vendors to create other merchandise exclusive to the Company. The Company believes its efforts to be a sole source supplier for certain products, particularly consumables, offer it a competitive advantage and an increased likelihood of repeat business. Merchandise Sourcing and Vendor Relationships. The Company purchased its merchandise from approximately 400 vendors in 1996. The Company's merchandise acquisition strategy emphasizes relationships with domestic vendors, including domestic representatives of foreign manufacturers, to facilitate inventory management processes by providing acceptable quality control and turnaround times for merchandise reorders. In 1996, over 99% of the Company's merchandise was either manufactured in the United States or ordered from domestic representatives of foreign firms. The Company believes that its vendor relationships are generally excellent. No single vendor accounted for more than 15% of total merchandise purchases in 1996. CUSTOMER SERVICE The Company seeks to emphasize customer service from the initial contact through ultimate order fulfillment and, if necessary, merchandise return or exchange. Call Center. The Company staffs a call center that can be contacted through its toll-free telephone numbers 24 hours a day, seven days a week to place orders, request a catalog or inquire concerning order status. During 1996, approximately 40% of the Company's orders were received by telephone with the remaining 60% of its orders received by mail or facsimile. Order Entry. The Company uses a system that allows its staff to accomplish on-line entry of telephone, mail or facsimile orders. This transaction processing system supports mail and telephone orders, credit authorization, order processing, distribution and shipment. Company personnel process orders directly into the on-line system which provides, among other things, customer history information, merchandise availability information and merchandise specifications. The Company attempts to have telephone agents who are knowledgeable in key merchandise features and have access to samples, which enable them to answer inquiries from customers. On average, the Company completes typical telephone orders in two to four 32 37 minutes. Customers must pay telephone and facsimile orders with a major credit card. Credit cards, checks or money orders are accepted with mail orders. All credit charges are preauthorized prior to shipment. Order Fulfillment. After a customer's order is entered in the system, orders are processed, picked, packed and shipped (or, in a small percentage of cases, forwarded to a drop shipper). Merchandise, quantity and ship date are entered into the proprietary database. In-stock items typically are shipped within one to ten days of order entry depending on the items ordered and workload. The Company attempts to adjust the number of employees to meet variable demand levels, particularly during the peak fourth quarter selling season. The Company's ability to fulfill orders on a timely basis, especially during the fourth quarter holiday season, is important to the Company's operations. This ability depends in part on the availability of employees who have adequate training and the efficiency of the Company's telephone call center. In 1996, the Company shipped approximately 2.4 million packages, approximately 60% of which were sent by standard class mail through the U.S. Postal Service and the balance by other carriers. Priority or express service is available for an extra charge. The Company's order backlog was approximately $468,000 as of December 31, 1995 and $422,000 as of December 31, 1996. Orders represented by this backlog are normally shipped within approximately ten days. Difficulty in implementing software systems to perform order fulfillment and related functions resulted in delayed shipments and correspondingly high backlog during the last half of 1995. During the fourth quarter of 1996, the new software met management's expectations and processed actual sales which exceeded Company projections. However, as a result of Company sales exceeding projections, the Company had a shortage of personnel to process orders, leading temporarily to high backlogs. Employee Training. The Company has established an employee training program conducted by a full time trainer. To date, training programs have been primarily associated with the call center, order entry and customer service functions. The Company intends to provide for two classrooms in its new facility currently under construction and plans to increase the scope and depth of its training programs. Return Policy. The Company has a return policy intended to assure customer satisfaction and to encourage first time and repeat orders. The retail value of refunds and merchandise replacements issued under the returns policy in 1996 was approximately 5.8% of net sales. If returned merchandise cannot be restocked it is returned to the manufacturer, held for disposal in inventory liquidation processes or discarded. Product and order problem inquiries are directed to customer service personnel who are trained to resolve customer issues. INFORMATION SYSTEMS AND TECHNOLOGY The Company currently uses an internally developed order processing system. This system is used for order entry and fulfillment tasks, the recording of orders, credit authorization, order processing, shipment, inventory control, management information and related functions. All of the Company's order fulfillment systems are located at its Longmont, Colorado facility. The Company's main hardware platforms are manufactured by Xerox Corporation and Data General Corporation. The Company expects to change and add computer hardware prior to the time it moves to its new facility and anticipates that these additions should accommodate the Company's near-term growth strategy. These changes and additions, in combination with expiring leases, are expected to result in a small decrease in monthly expenses. Prior to installation of the new software in August 1995, the Company had used various licensed computer software packages to perform order fulfillment, inventory control and related functions. The new software uses Oracle as the primary software platform. Certain difficulties were experienced with the fall 1995 software implementation. These difficulties delayed customer shipments and related sales recognition in 1995. The Company believes that those software problems have been substantially corrected, and the software met management's expectations in 1996. Company personnel are working on further improvements to the software. MATERIALS AND INVENTORY In 1996 the Company purchased over 95% of its materials and product inventory from domestic manufacturers, importers and domestic representatives of foreign manufacturers. Purchase arrangements with suppliers are generally for a specified product, price and quantity of product. While the Company purchases its 33 38 base paper stock for most of its personalized labels from one primary vendor, management believes alternative vendors are available, if needed. The material used in the production of the Company's catalogs is available from many different sources. The Company spends significant amounts on paper used in the production of its catalogs and paper products. The cost of paper fluctuates. In the first half of 1996, the cost of paper the Company used to produce its catalogs was higher than in previous periods. Accordingly, the Company's cost of doing business increased. Unit cost of such paper declined during the latter part of 1996, which was reflected in lower costs as a percentage of net sales. Except for a few specialized items which are drop shipped directly from suppliers, the Company maintains an inventory of products it sells. Based on analysis of past catalog mailings, evaluation of probable customer buying patterns and projections for new products, the Company believes it has been able to plan its inventory needs without the necessity of committing an excessive amount of working capital. Furthermore, the Company believes its gross margins on paper products have tended to minimize the inventory required for a given dollar sales volume. If the Company's merchandise mix changes, additional capital may be required for larger inventories. The Company's collectibles, gift, home decorative and apparel inventory liquidation processes include product exchange agreements with vendors, sale of products through its small retail outlets and discarding of some items. COMPETITION Direct marketing is highly competitive. Thousands of companies offer products via catalog, direct mail, newspaper inserts, television and other media. The Company competes on the basis of the quality, diversity and price of merchandise offered and customer service. Management believes that, although many companies offer personalized labels, there are only a few companies that offer a broad variety of personalized labels comparable to that sold by the Company, which the Company believes is a competitive advantage. The Company's other merchandise product lines face even greater competition in the marketplace than the Company's paper products. A substantial number of competitors distribute catalogs that offer the merchandise categories contained in the Company's catalogs. In addition, certain of the merchandise sold in the Company's catalogs is available through retail stores and other sources. Certain of the Company's current and potential competitors have significantly greater development, order fulfillment, marketing and capital resources and name recognition than the Company. See "Risk Factors -- Competition." EMPLOYEES As of December 31, 1996, the Company had approximately 479 employees, 265 of whom were part-time. Of the 214 full-time employees, 14 supported information technology, 11 supported creative and marketing functions, 170 supported operations and 19 supported other functions. None of the employees are covered by collective bargaining agreements. The Company considers its relationship with its employees to be generally good. PROPERTIES The Company's corporate headquarters, administrative offices and operations are located in Longmont, Colorado, approximately 40 miles from downtown Denver. While the Company believes that the facilities it occupies are well maintained and in good operating condition, the Company is crowded in the current facility. In January 1997, the Company purchased 139 acres of undeveloped land in Longmont, Colorado, and a new facility which is substantially larger than its current facility is currently being constructed on approximately 11 of the 139 acres. The Company intends to hold the remaining land for sale or expansion. The new building is intended to house production, administrative and warehouse functions. The Company plans to move into this facility by September 1997. If the Company is not able to relocate by the end of August 1997, the Company will need to either extend the lease of its existing headquarters and lease temporary space or make alternative arrangements in order to accommodate anticipated fourth quarter volume. The landlord of the current facility has verbally indicated that it will cooperate if a suitable replacement tenant has not been located and the 34 39 Company needs to extend its current lease. The landlord, to date, has not been willing to sign an extension option. If construction of the new facility is late and the current landlord will not agree to a lease extension, a significant dispute or business disruption may occur. In addition, the Company also leases temporary warehouse space from time to time. The following table sets forth the primary real property which the Company owns and leases.
LEASE 1997 LOCATION FUNCTION EXPIRATION RENT SQUARE FEET - ----------------- -------------------- --------------- -------- ----------- Longmont, CO New Headquarters Owned Owned 117,000(1) Longmont, CO(2) Current Headquarters August 31, 1997 $306,000(3) 58,064 Longmont, CO Retail Outlet August 30, 1997 $ 15,600 1,700 Cheyenne, WY Retail Outlet October 1, 1997 $ 9,200 1,100 Longmont, CO(2) Warehouse Space August 31, 1997 $ 30,000(3) 10,000
- --------------- (1) Currently under construction (2) To be vacated on completion of the move to the new facility currently under construction (3) January 1, 1997 -- August 31, 1997 LICENSING AND SERVICE MARKS The Company has federally registered the service marks used for each of its three existing catalogs. The Company anticipates that it will seek registration of the service marks used for catalogs that it develops in the future. The Company has developed certain artwork used in its labels and other products. In addition, the Company has purchased or licensed rights to certain artwork from third parties, generally for a period of at least five years. Certain rights are also licensed on a royalty basis, including PEANUTS(R), The Boyds Collection Ltd.(R), Dreamsicles(R) and others. The Company has recently entered into a license agreement with United Feature Syndicate, the licensing agent for Charles M. Schulz, the creator of the PEANUTS(R) comic strip, to design, create and distribute a catalog consisting exclusively of merchandise featuring the PEANUTS(R) characters. The first PEANUTS(R) catalog is planned for distribution in the third or fourth quarter of 1997. The license agreement will terminate on September 30, 2001 unless earlier terminated by United Feature Syndicate in the event (i) the Company breaches any of its material obligations under the agreement, (ii) of certain bankruptcy or insolvency matters involving the Company, (iii) the Company does not meet certain prescribed levels of retail sales of the licensed products, (iv) the Company does not meet prescribed catalog circulation guidelines for the PEANUTS(R) catalog or (v) the Company does not distribute the first issue of the catalog by November 15, 1997. If the new catalog is successful, failure to renew this agreement or any early termination thereof could have a material adverse impact on the Company's business. From time to time, the Company sells brand name products supplied by vendors who license rights to the trade names and trademarks associated with the products. The Company generally relies on representations and assurances from vendors regarding these rights. In the past, third parties have asserted that the Company has offered products in violation of the intellectual property rights of others. In certain instances, the Company ceased selling those products as a result of such assertions. To date, the Company has not agreed to pay, or been required to pay, any damages as a result of such claims. The Company's procedures for determining whether third parties have rights with respect to any particular product are limited and may not always reveal all rights of others. GOVERNMENT REGULATIONS; STATE SALES TAXES The Company must comply with Federal, state and local laws that affect its business. In particular, the Company is subject to Federal Trade Commission regulations governing the Company's advertising and trade 35 40 practices, including the merchandise Mail Order Rule and related regulations, which require that mail order merchants ship goods within the time promised or within a reasonable time, or else offer the consumer a refund. The Company has historically collected and remitted sales and similar taxes only in those states in which it operates a location. In recent years a number of states have asserted that advertising by a corporation within their borders provides sufficient nexus to require the collection and remittance of such taxes. In a decision rendered on May 26, 1992, the United States Supreme Court held that application of North Dakota's use tax statute against an out-of-state mail order firm with neither sales representatives nor outlets in the state placed an unconstitutional burden on interstate commerce. However, the Court also noted that Congress may be better equipped to resolve the issue presented by the case. If Congress should pass legislation supporting the states' taxing authority, it could have a negative impact on the financial condition and results of operations of the Company. The actual impact would depend on the specifics of any such legislation. Some states also require residents of the state who purchase products by mail order to remit to the state the state sales tax that would be collected by the merchant if the product was sold from a location within the state. To date, this type of legislation has not had a material impact on the Company's business. LEGAL PROCEEDINGS The Company is engaged in claims and litigation that arise in the ordinary course of business, none of which management believes to be material. 36 41 MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES The following table sets forth certain information concerning each of the directors, executive officers and certain key employees of the Company as of March 31, 1997.
YEARS WITH DIRECTORS AND EXECUTIVE OFFICERS AGE COMPANY(1) POSITION - -------------------------------- --- ---------- ---------------------------------------------- Phillip A. Wiland 50 25 Chairman of the Board and Chief Executive Officer J. Michael Wolfe 38 15 President and Chief Operating Officer H. Franklin Marcus, Jr. 51 20 Secretary, Treasurer and Chief Financial Officer Michael T. Buoncristiano 55 17 Director Robert L. Burrus, Jr. 62 12 Director Stephen R. Polk 41 9 Director Phillip D. White, Ph.D. 50 9 Director
CERTAIN KEY EMPLOYEES - -------------------------------- Julie G. Andresen 40 7 Vice President, Creative Design Thomas P. Murray 35 10 Vice President, Marketing R.C. Lloyd 52 1 Vice President, Operations Phillip A. Tobias 43 22 Vice President, Information Technology Vickie J. Slade 39 10 Vice President, Merchandise David H. Haddon 38 12 Controller
- --------------- (1) Includes years at Concepts Direct, Inc. and its predecessor, Wiland Services, Inc., either as an employee or as a director. Wiland Services, Inc. was acquired by Neodata Corporation in 1992. DIRECTORS AND EXECUTIVE OFFICERS Phillip A. Wiland has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since December 18, 1992. Mr. Wiland was President of the Company from September 30, 1992 until December 18, 1992. Mr. Wiland was President and Chief Executive Officer of Wiland Services, Inc. from 1971 to September 30, 1992. J. Michael Wolfe has served as President and Chief Operating Officer of the Company since December 18, 1992. Mr. Wolfe was Vice President of Wiland Services, Inc. from 1989 to 1992 and served as Vice President, Product Marketing of Wiland Services, Inc. from 1987 to 1989. Mr. Wolfe held other positions at Wiland Services, Inc. from 1981 to 1987. H. Franklin Marcus, Jr. has served as Secretary-Treasurer and Chief Financial Officer of the Company since September 30, 1992. Mr. Marcus served as Secretary-Treasurer of Wiland Services, Inc. from 1978 to 1992 and as Chief Financial Officer from 1989 to 1992. Michael T. Buoncristiano has served as a Director of the Company since 1992. Mr. Buoncristiano has been the President of AVANTI! Direct Marketing Services, Inc. since 1990. Mr. Buoncristiano served as Executive Vice President, Marketing of Wiland Services, Inc. from 1985 to 1990 and Vice President, Sales from 1979 to 1984. Robert L. Burrus, Jr. has served as a Director of the Company since 1992 and served as a Director of Wiland Services, Inc. from 1984 to 1992. He has served as Chairman of the law firm of McGuire, Woods, Battle & Boothe, L.L.P. since 1990. Mr. Burrus is also a Director of CSX Corporation, Heilig-Meyers Company, O'Sullivan Corporation, S&K Famous Brands, Inc. and Smithfield Foods, Inc. 37 42 Stephen R. Polk has served as a Director of the Company since 1992 and served as a Director of Wiland Services, Inc. from 1987 to 1992. He has served as the Chairman of the Board and Chief Executive Officer of R.L. Polk & Co. since 1994. From 1990 to 1994, Mr. Polk served as the President of R.L. Polk & Co. Phillip D. White, Ph.D. has served as a Director of the Company since 1992 and served as a Director of Wiland Services, Inc. from 1987 to 1992. Dr. White is an Associate Professor and past Chairman of Marketing, College of Business and Administration, University of Colorado at Boulder (currently on leave). Dr. White has written and lectured extensively on marketing and, since 1996, has been the President of Phillip D. White & Associates, Inc. CERTAIN KEY EMPLOYEES Julie G. Andresen has served as Vice President, Creative Design of the Company since 1993. Ms. Andresen served as Director, Creative Design from 1992 to 1993 and as Manager Creative Design of Wiland Services, Inc. from 1989 to 1992. Ms. Andresen was Project Coordinator with Knudsen Printing from 1988 to 1989 and Associate Manager of Graphic Design for Communications Art, Inc. from 1984 to 1985. Thomas P. Murray has served as Vice President, Marketing of the Company since 1995. He served as Product Manager with Neodata Corporation from 1994 to 1995 and Account Director with Neodata Corporation from 1992 to 1994. Mr. Murray served as Account Executive with Wiland Services, Inc. from 1989 to 1992 and held other positions at Wiland Services, Inc. from 1984 to 1989. R. C. Lloyd has served as Vice President, Operations of the Company since 1996. Mr. Lloyd was a Product Management Consultant during 1995 and served as General Manager of Neodata Corporation from 1992 to 1995. Mr. Lloyd was General Manager of Presort, Inc. from 1991 to 1992, Circulation Manager with Group Publishing from 1990 to 1991 and Manager of Administration with Ball Aerospace from 1984 to 1989. Phillip A. Tobias has served as Vice President, Information Technology of the Company since 1995. He was an Information Systems Architect with Neodata Corporation from 1992 to 1995. Mr. Tobias served as Vice President, Special Projects with Wiland Services, Inc. from 1989 to 1992 and held other positions at Wiland Services, Inc. from 1972 to 1989. Vickie J. Slade has served as Vice President, Merchandise of the Company since April 1997. Ms. Slade was Merchandise Manager from 1992 to April 1997. Ms. Slade was the Executive Assistant to the President with Wiland Services, Inc. from 1990 to 1992 and held other positions at Wiland Services, Inc. from 1986 to 1990. David H. Haddon has served as Controller of the Company since 1995. Mr. Haddon served as Senior Accounting Manager with the Company from 1992 to 1995, Senior Accounting Manager with Wiland Services, Inc. from 1990 to 1992 and Accounting Manager with Wiland Services, Inc. from 1984 to 1990. Mr. Haddon was formerly a Certified Public Accountant with Ernst & Young LLP. COMMITTEES OF THE BOARD The standing committees of the Board of Directors include an Audit Committee and a Compensation and Nominations Committee. Messrs. Polk, White and Buoncristiano are the members of the Audit Committee, which met four times in 1996. The principal function of the Audit Committee is to oversee the performance of the Company's independent accountants. In this capacity, the Audit Committee recommends the firm to be engaged by the Company for independent auditing and reviews the overall scope and results of the annual audit. It also reviews, among other things, the functions and performance of the Company's internal accounting controls, the performance of nonaudit services, and changes in accounting policies. Messrs. Burrus, Polk, White and Buoncristiano are the members of the Compensation and Nominations Committee, which met two times in 1996. The principal functions of the Compensation and Nominations Committee are to review and set the direct and indirect compensation of the directors and officers of the Company, to administer the Company's incentive compensation and stock option plans and consider 38 43 nominations for director made by stockholders of the Company. The Committee reviews the salaries and bonuses for all officers and certain other executives, recommends special benefits and perquisites for management, and consults with management regarding employee benefits and general personnel policies and recommends persons to be considered for election to the Board of Directors, membership on committees of the Board of Directors, and positions as executive officers of the Company. COMPENSATION OF DIRECTORS The Company pays to each director who is not a Company employee an annual retainer of $4,000 and $500 for each meeting of the Board of Directors or any committee meeting of the Board of Directors attended. All directors are reimbursed for travel expenses incurred as a result of service on the Board of Directors. Directors who are not employees of the Company also receive awards under the 1992 Non-Employee Directors Stock Option Plan (the "1992 Plan"). Stock option grants under the 1992 Plan are automatic. Each eligible director of the Company on the effective date of the 1992 Plan, December 18, 1992, automatically received an option to purchase 6,000 shares of Common Stock (split adjusted). Each eligible director newly elected by the Company's stockholders on and after the effective date of the 1992 Plan automatically receives an option to purchase 6,000 shares on the date the director is elected by the stockholders. In addition, on the second anniversary of the date on which an eligible director receives his or her initial grant of an option, and biannually thereafter, each then eligible director will automatically receive an option to acquire an additional 4,000 shares of Common Stock (split adjusted). The number of shares of Common Stock currently reserved for issuance under the 1992 Plan is 80,000 (split adjusted). The exercise price of the options granted under the 1992 Plan is the fair market value of the Common Stock on the date of the option grant. Option grants under the 1992 Plan are exercisable in annual increments of 33.3% commencing one year following the date of grant. On December 18, 1996, the fourth anniversary date on which each eligible director received his initial grant of options, four non-employee members of the Board of Directors were automatically granted an aggregate of 16,000 stock options in accordance with the 1992 Plan, at an option price of $9.75 per share, the fair market value on the date of the grant. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Burrus, a member of the Compensation and Nominations Committee, is Chairman and partner of the law firm of McGuire, Woods, Battle & Boothe, L.L.P., which has served as general counsel to the Company since 1992 and previously served as general counsel to Wiland Services, Inc. 39 44 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth, for the years ended December 31, 1994, 1995 and 1996, certain compensation awarded to, earned by, or paid to the Company's Chief Executive Officer and to the Company's other executive officers whose annual compensation exceeded $100,000 for the year ended December 31, 1996.
LONG TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SECURITIES - ------------------------------------------------------------------------- UNDERLYING ALL OTHER SALARY BONUS OTHER ANNUAL OPTIONS/SARS COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION (#) ($)(1) - --------------------------------- ---- ------- ------ ------------ ------------ ------------ Phillip A. Wiland,............... 1996 167,390 57,025 (2) 0 3,939 Chairman and Chief 1995 133,424 31,860 (2) 0 3,403 Executive Officer 1994 107,804 36,389 (2) 16,000 2,283 J. Michael Wolfe,................ 1996 150,690 51,054 (2) 0 2,709 President and 1995 131,597 30,654 (2) 0 1,427 Chief Operating Officer 1994 100,323 35,543 (2) 16,000 1,454 H. Franklin Marcus, Jr........... 1996 86,010 29,316 (2) 0 2,173 Chief Financial Officer and 1995 78,689 18,314 (2) 0 2,147 Secretary, Treasurer 1994 61,680 22,346 (2) 8,000 1,554
- --------------- (1) These amounts were paid by the Company as matching contributions under the Company's Retirement Savings Plan. (2) None of the named executive officers received Other Annual Compensation in excess of the lesser of $50,000 or 10% of combined salary and bonus for 1994, 1995 or 1996. 1992 EMPLOYEE STOCK OPTION PLAN The Company's 1992 Employee Stock Option Plan (the "Stock Option Plan") was adopted by the Board of Directors on December 18, 1992 and approved by the stockholders on July 30, 1993. Under the Stock Option Plan, 280,000 shares of Common Stock (split adjusted) have been authorized for issuance pursuant to incentive awards. Such incentive awards may be in the form of stock options, stock appreciation rights, restricted stock or incentive stock. All present and future employees of the Company who hold positions with management responsibilities are eligible to receive incentive awards under the Stock Option Plan, if specifically recommended by the Compensation and Nominations Committee of the Board of Directors and approved by the full Board. The Stock Option Plan is administered by the Compensation and Nominations Committee of the Board of Directors. As of May 20, 1997, options to purchase 240,000 shares were outstanding, of which options to purchase 19,000 shares were presently exercisable. INCENTIVE COMPENSATION PLAN Since 1992, the Board of Directors of the Company has adopted an Incentive Compensation Plan each year to encourage certain employees to increase Company earnings steadily and significantly. Under these Incentive Compensation Plans, certain employees of the Company receive annual or quarterly incentive bonuses if the Company reaches certain earnings per share ("EPS") or return on average equity ("ROAE") thresholds. Depending upon the level of EPS and ROAE on quarter-to-quarter and year-to-date bases, eligible employees may receive cash bonuses equal to certain percentages of their base salary. To participate in an Incentive Compensation Plan, eligible employees must be an employee on the first business day and last calendar day of the period covered. These Incentive Compensation Plans are administered by the Compensation and Nominations Committee of the Board of Directors. The Company's 1997 Incentive Compensation Plan was adopted by the Board of Directors on December 7, 1996 and covers 16 employees. 40 45 OPTIONS/SAR EXERCISES AND YEAR-END VALUE TABLE The following table sets forth information concerning each exercise of stock options and SARs during the year ended December 31, 1996, and the year-end value of unexercised options and SARs, for each of the executive officers named in the Summary Compensation Table.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND YEAR END OPTION/SAR VALUES - ---------------------------------------------------------------------------------------------------------------------------- NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT SHARES VALUE 12/31/96(#) 12/31/96(1)($) ACQUIRED ON REALIZED ----------------------------- ----------------------------- NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - -------------------------- --------------- -------- ----------- ------------- ----------- ------------- Phillip A. Wiland......... 0 0 2,000 30,000 $18,345 $ 254,775 J. Michael Wolfe.......... 0 0 4,000 44,000 36,690 383,810 H. Franklin Marcus, Jr.... 0 0 2,000 22,000 18,345 191,905
- --------------- (1) The value calculation is based on the market value of the underlying stock at year end, minus the exercise price. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On May 20, 1993, Mr. Wolfe, an executive officer of the Company, purchased 160,000 shares of Common Stock from the Company at the price of $.5625 per share. Mr. Wolfe made a down payment of $27,000 on the purchase and financed the remaining $63,000 by delivering to the Company a non-recourse installment note accruing interest at a rate of 5.5% per annum. The note provided that payment of interest must be made on a quarterly basis and that the principal be paid in four annual installments, each equal to 10% of the principal amount, commencing on May 1, 1994, with a balloon payment of the remaining balance on May 1, 1998. Mr. Wolfe pledged the entire 160,000 shares of Common Stock to the Company as collateral for the loan. Mr. Wolfe paid off the loan in full in 1996. 41 46 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth information with respect to the Company's Common Stock beneficially owned as of May 20, 1997 by (i) each person known by the Company to be the beneficial owner of more than 5% of the shares of Common Stock, (ii) each selling stockholder, (iii) each director individually, (iv) each executive officer individually and (v) all executive officers and directors as a group. All shares have been adjusted to reflect the 2-for-1 stock split on March 31, 1997.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP BEFORE OFFERING(1) AFTER OFFERING --------------------- NUMBER --------------------- NUMBER OF SHARES NUMBER NAME OF SHARES PERCENT TO BE SOLD OF SHARES PERCENT - ---------------------------------------- --------- ------- ---------- --------- ------- Phillip A. Wiland....................... 1,515,468(2) 35.47% 197,468 1,318,000 27.79% 1351 S. Sunset Longmont, CO 80501 Michael T. Buoncristiano................ 77,898(3) 1.82 32,500 43,898 * 450 7th Street, Suite LL8 Hoboken, NJ 07030 Robert L. Burrus, Jr.................... 8,668 * 0 8,668 * One James Center Richmond, VA 23219 H. Franklin Marcus, Jr.................. 85,196 1.99 6,000 79,196 1.67 1351 S. Sunset Longmont, CO 80501 Phillip D. White, Ph.D.................. 128,666(4) 3.01 34,000 94,666 2.00 200 Camden Place Boulder, CO 80302 J. Michael Wolfe........................ 188,528 4.41 12,528 176,000 3.71 1351 S. Sunset Longmont, CO 80501 Stephen R. Polk......................... 8,666(7) * 0 8,666 * 1155 Brewery Park Blvd. Detroit, MI 48207 All Directors and....................... 2,013,090 47.12 282,496 1,729,094 36.45 Executive Officers as a Group (7 Persons) Patricia Buoncristiano.................. 1,000 * 1,000 0 * 450 7th Street, Suite LL8 Hoboken, NJ 07030 Louise A. Buoncristiano................. -- * 1,500(5) 0 * 450 7th Street, Suite LL8 Hoboken, NJ 07030 5% OWNERS Laifer Capital.......................... 793,200(6) 18.57 0 793,200 16.72 Management, Inc. 114 West 47th Street New York, NY 10036 R.L. Polk & Co. ........................ 843,600(7) 19.75 843,600 0 * 1155 Brewery Park Blvd. Detroit, MI 48207
- --------------- * Does not exceed 1% of the outstanding shares of the Company (1) Except as described in footnotes (2), (3), (4), (5), (6) and (7) below, each individual has sole voting power and sole investment power with respect to the Common Stock set forth opposite his name. Includes, as to Mr. White 2,666 shares, as to Messrs. Buoncristiano and Burrus 1,334 shares, as to Messrs. Marcus and Wiland 2,000 shares, and as to Mr. Wolfe 4,000 shares of Common Stock, that could be acquired through exercise of stock options that are currently exercisable or will become exercisable within 60 days of the date of this Prospectus. 42 47 (2) Includes 1,497,968 shares owned in joint tenancy by Mr. Wiland and his wife, who share voting and investment power as to the shares, 12,900 shares held by Mr. Wiland as custodian for his minor children under the Uniform Gifts to Minors Act and for which Mr. Wiland has sole voting and investment power and 4,600 shares owned by Mr. Wiland's daughter and for which Mr. Wiland shares voting and investment power. (3) Includes 71,564 shares owned by Mr. Buoncristiano, 4,000 shares held in an IRA in the name of Mr. Buoncristiano for which Mr. Buoncristiano has sole voting and investment power, and 1,000 shares held by Mr. Buoncristiano as custodian for his minor child under the Uniform Transfer to Minors Act and for which Mr. Buoncristiano has sole voting and investment power. (4) Includes 10,000 shares owned by Dr. White and 106,000 shares held in an IRA in the name of Dr. White for which Dr. White has sole voting and investment power and 10,000 shares held by the Phillip D. White Family Limited Partnership for which Dr. White's wife has sole voting and investment power. (5) Represents shares to be transferred from Michael T. Buoncristiano prior to the Offering. (6) Ownership information is based on the Schedule 13D filed on May 19, 1997. According to this Schedule 13D, Laifer Capital Management, Inc. holds 552,200 shares with sole voting and dispositive power and 241,000 shares with shared dispositive power. (7) Stephen R. Polk, a Director of the Company, is Chairman of the Board and Chief Executive Officer of R.L. Polk & Co., and may by virtue of these positions be deemed to share voting and investment power over shares owned by R.L. Polk & Co. Mr. Polk disclaims any such shared control of shares owned by R.L. Polk & Co. 43 48 DESCRIPTION OF CAPITAL STOCK The following description of the Company's capital stock is subject in all respects to the General Corporation Law of the State of Delaware ("Delaware GCL") and to the provisions of the Company's Amended and Restated Certificate of Incorporation ("Certificate of Incorporation") and Bylaws, which are exhibits to the Registration Statement. GENERAL The Company's Certificate of Incorporation currently provides that the Company is authorized to issue 6,000,000 shares of Common Stock, par value $.10 per share. As of May 20, 1997, the Company had 4,252,882 shares of Common Stock outstanding. Upon completion of this Offering, there will be 4,724,286 shares of Common Stock outstanding. In addition, an aggregate of 328,666 shares of Common Stock are reserved for issuance under the 1992 Stock Option Plan and the 1992 Non-Employee Directors Stock Option Plan. COMMON STOCK Holders of Common Stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of the liquidation, dissolution or winding up of the Company, the holders of Common Stock will be entitled to share ratably in all assets remaining after payment of liabilities. The Company's Common Stock has no preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions in the Company's Certificate of Incorporation. The issued and outstanding shares of Common Stock are fully paid and nonassessable. Stockholders are entitled to one vote for each share of Common Stock held of record on all matters on which stockholders are entitled or permitted to vote. The Common Stock does not have cumulative voting rights. As a result, the holders of more than 50% of the shares of Common Stock voting for the election of directors can elect all the directors if they choose to do so, and in such event, the holders of the remaining shares of Common Stock will not be able to elect any other person or persons to the Board of Directors of the Company. CERTAIN PROVISIONS OF DELAWARE LAW The Company is subject to Section 203 of the Delaware GCL. In general, Section 203 prevents an "interested stockholder" (defined generally as a person owning 15% or more of a corporation's outstanding voting stock) from engaging in a "business combination" (as defined) with a Delaware corporation for three years following the date such person became an interested stockholder unless (i) before such person became an interested stockholder, the board of directors of the corporation approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination; (ii) upon consummation of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding shares owned by persons who are both officers and directors of the corporation, and shares held by certain employee stock ownership plans); or (iii) following the transaction in which such person became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of at least two-thirds of the outstanding voting stock of the corporation not owned by the interested stockholder. LIMITATION ON LIABILITY AND BYLAW PROVISIONS The Company's Certificate of Incorporation provides that to the fullest extent permitted by the Delaware GCL, a director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. Under the Delaware GCL, liability of a director may not be limited (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or 44 49 omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or repurchases, and (iv) for any transaction from which the director derives an improper personal benefit. The effect of this provision of the Company's Certificate of Incorporation is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (iv) above. This provision does not limit or eliminate the rights of the Company or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, the Company's Bylaws provide that it shall indemnify its directors, officers, employees and agents to the fullest extent permitted by the Delaware GCL. The Company's Bylaws provide that the number of directors will be fixed from time to time by the Board of Directors. The number of directors is currently fixed at five. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is Norwest Bank Minnesota, N.A., 161 North Concord Exchange, South St. Paul, Minnesota, 55075. 45 50 UNDERWRITING Subject to the terms and certain conditions of the Underwriting Agreement (the "Underwriting Agreement"), the underwriters named below (the "Underwriters"), for whom EVEREN Securities, Inc. and Scott & Stringfellow, Inc. are acting as representatives (the "Representatives"), have severally agreed to purchase an aggregate of 1,600,000 shares of Common Stock from the Company and the Selling Stockholders. The number of shares of Common Stock that each Underwriter has agreed to purchase is set forth opposite its name below.
UNDERWRITER NUMBER OF SHARES ------------------------------------------------------------- ---------------- EVEREN Securities, Inc....................................... Scott & Stringfellow, Inc.................................... --------- Total.............................................. 1,600,000 =========
The Underwriting Agreement provides that the obligations of the several Underwriters who are parties thereunder are subject to certain conditions. If any of the shares of Common Stock are purchased by the Underwriters pursuant to the Underwriting Agreement, all such shares of Common Stock (other than the shares of Common Stock covered by the over-allotment option described below) must be so purchased. The Company has been advised by the Representatives that the Underwriters propose to offer the Common Stock to the public initially at the price to the public set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not to exceed $ per share. The Underwriters may allow, and such dealers may re-allow, discounts not to exceed $ per share to certain other dealers. After the initial public offering of the shares of Common Stock, the public offering price and the other selling terms may be changed by the Representatives. The Company has granted to the Underwriters an option to purchase up to an aggregate of 240,000 additional shares of Common Stock at the price to the public set forth on the cover page of this Prospectus, less underwriting discounts and commissions, solely to cover over-allotments, if any. Such option may be exercised at any time until 30 days after the date of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will be committed, subject to certain conditions, to purchase a number of option shares proportionate to such Underwriter's initial commitment as indicated in the preceding table. The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The public offering price for the Common Stock set forth on the cover page of this Prospectus was determined by negotiations among the Company and the Representatives. The factors considered in determining the public offering price include the information set forth in this Prospectus and otherwise available to the Representatives, the trading history of the Common Stock on the Nasdaq SmallCap Market, the history of and prospects for the industry in which the Company competes, the ability of the Company's management, the past and present operations of the Company, the historical results of the operations of the Company, the prospects for future earnings of the Company, the general condition of the securities market at the time of this offering and the recent market prices of securities of generally comparable companies. Prior to this offering, trading in the Company's Common Stock has been quite limited. There can be no assurance as to the liquidity of any market that may develop for the Common Stock or the ability of holders to sell their Common Stock, nor can there be any assurance that the price at which holders are able to sell their Common Stock will not be lower than the price at which the Common Stock is sold to the public by the Underwriters. See "Risk Factors -- Limited Historical Trading Volume; Possible Volatility." 46 51 The Company, Phillip A. Wiland (the Company's Chairman of the Board and Chief Executive Officer), J. Michael Wolfe (the Company's President and Chief Operating Officer), H. Franklin Marcus, Jr. (the Company's Chief Financial Officer) and each of the Company's other directors (Mr. Wiland, Mr. Wolfe, Mr. Marcus and such other directors will beneficially own an aggregate of 1,729,094 shares of Common Stock after this offering) have agreed with the Underwriters not to (other than in connection with this offering and in connection with certain transfers of Common Stock to entities organized for the exclusive benefit of family members of such persons), directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, any shares of Common Stock of the Company or issue any securities convertible into or exercisable or exchangeable (except pursuant to the terms of the Company's employee or non-employee director stock plans) for Common Stock, or enter into any swap or other agreement to do any of the foregoing, for a period of 12 months after the date of this Prospectus without the written consent of EVEREN Securities, Inc. (the "Lock-Up Agreement"). The other Selling Stockholders have also agreed to such restrictions. These "lock-up" restrictions do not apply to the estate of any person described above in the event such person dies during the 12-month "lock-up" period and do not prohibit any person from exercising options (but would prohibit the sale during the restricted period of any shares of Common Stock purchased upon exercise of such options). As part of the Lock-Up Agreement, the Company has also agreed with the Underwriters that it will not, without the written consent of EVEREN Securities, Inc., file a registration statement relating to shares of capital stock (including the Common Stock), or securities convertible into or exercisable or exchangeable for, or warrants, options or rights to purchase or acquire, capital stock, during such 12-month period, with the exception of the filing of Registration Statements on Form S-8 with respect to the Company's employee stock plans. In connection with the Offering, certain Underwriters and selling group members and their respective affiliates may engage in transactions that stabilize, maintain or otherwise affect the market price of the Common Stock. Such transactions may include stabilization transactions effected in accordance with the Securities Exchange Act of 1934 pursuant to which such persons may bid for or purchase Common Stock for the purpose of stabilizing its market price. The Underwriters also may create a short position for the account of the Underwriters by selling more Common Stock in connection with the Offering than they are committed to purchase from the Company and the Selling Stockholders, and in such case may purchase Common Stock in the open market following completion of the Offering to cover all or a portion of such shares of Common Stock or may exercise the Underwriters' over-allotment option referred to above. In addition, the Representative, on behalf of the Underwriters, may impose "penalty bids" under contractual arrangements with the Underwriters whereby it may reclaim from an Underwriter (or dealer participating in the Offering), for the account of the other Underwriters, the selling concession with respect to Common Stock that is distributed in the Offering but subsequently purchased for the account of the Underwriters in the open market. Any of the transactions described in this paragraph may result in the maintenance of the price of the Common Stock at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph are required, and, if they are undertaken, they may be discontinued at any time. LEGAL MATTERS The validity of the shares of Concepts Direct, Inc. offered hereby will be passed upon for the Company and the Selling Stockholders by McGuire, Woods, Battle & Boothe, L.L.P., Richmond, Virginia. Certain legal matters relating to the Offering will be passed upon for the Underwriters by Gibson, Dunn & Crutcher LLP, San Francisco, California. Lawyers of McGuire, Woods, Battle & Boothe, L.L.P. own approximately 9,000 shares of the Common Stock. EXPERTS The financial statements of Concepts Direct, Inc. at December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing 47 52 elsewhere herein, are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The Registration Statement, of which this Prospectus is a part, as well as such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices located at 7 World Trade Center, New York, New York 10048 and Northwest Atrium, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission also maintains a Worldwide Web site (address: http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Common Stock is traded on the Nasdaq SmallCap Market and the Company has applied to have the Common Stock traded on the Nasdaq National Market. Reports and other information concerning the Company may also be inspected at the offices of the Nasdaq Stock Market, 1725 K Street, N.W., Washington, D.C. 20006. As permitted by the rules and regulations of the Commission, this Prospectus omits certain information contained in the Registration Statement on Form S-1 (the "Registration Statement") of which this Prospectus is a part. For such information, reference is made to the Registration Statement and the exhibits thereto. Statements made in this Prospectus as to the contents of any contract, agreement or other document are not necessarily complete; with respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement or incorporated by reference herein, reference is made to such contract, agreement or other document for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference. 48 53 CONCEPTS DIRECT, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors....................................................... F-2 Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited)....... F-3 Income Statements for the years ended December 31, 1994, 1995 and 1996 and the three-month periods ended March 31, 1996 and 1997 (unaudited)...................... F-4 Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996 and the three-month period ended March 31, 1997 (unaudited)................... F-5 Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and the three-month periods ended March 31, 1996 and 1997 (unaudited)...................... F-6 Notes to Financial Statements........................................................ F-7
F-1 54 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Concepts Direct, Inc. We have audited the accompanying balance sheets of Concepts Direct, Inc. as of December 31, 1996 and 1995, and the related income statements, statements of stockholders' equity, and statements of cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 16(b). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Concepts Direct, Inc. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Denver, Colorado January 31, 1997 except for Note 7 as to which the date is February 25, 1997 F-2 55 CONCEPTS DIRECT, INC. BALANCE SHEETS
DECEMBER 31, MARCH 31, -------------------------- ----------- 1995 1996 1997 ---------- ----------- ----------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents.......................... $3,324,838 $ 6,425,137 $ 3,354,506 Restricted cash.................................... 0 0 500,000 Accounts receivable, less allowances............... 108,102 165,833 154,836 Deferred advertising costs......................... 2,207,244 3,818,827 3,927,976 Inventories, less allowances....................... 2,798,878 2,783,999 2,755,697 Prepaid expenses and other......................... 283,254 248,920 218,364 ---------- ----------- ----------- Total current assets....................... 8,722,316 13,442,716 10,911,379 Property and equipment, net.......................... 994,744 792,199 2,913,204 Other assets......................................... 206,768 252,068 236,813 ---------- ----------- ----------- $9,923,828 $14,486,983 $14,061,396 ========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable................................... $3,107,174 $ 5,323,278 $ 3,751,333 Current maturities of lease obligations............ 87,275 59,457 34,804 Accrued employee compensation...................... 638,943 584,868 663,141 Customer liabilities............................... 908,264 762,491 962,269 Current and deferred income taxes payable.......... 90,925 787,643 996,643 ---------- ----------- ----------- Total current liabilities.................. 4,832,581 7,517,737 6,408,190 Lease obligations.................................... 67,493 -- -- Commitments and contingencies Stockholders' equity Common Stock, $.10 par value, authorized 6,000,000 shares; issued and outstanding 4,242,216 and 4,232,882 in 1996 and 1995, respectively, 4,250,882 shares at March 31, 1997.............. 211,644 212,111 425,088 Additional paid-in capital......................... 4,366,633 4,374,455 4,172,274 Retained earnings.................................. 445,477 2,382,680 3,055,844 ---------- ----------- ----------- Total stockholders' equity................. 5,023,754 6,969,246 7,653,206 ---------- ----------- ----------- $9,923,828 $14,486,983 $14,061,396 ========== =========== ===========
See notes to financial statements. F-3 56 CONCEPTS DIRECT, INC. INCOME STATEMENTS
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, --------------------------------------- ---------------------------- 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- -------------- (UNAUDITED) (UNAUDITED) Net Sales....................... $20,723,829 $42,146,997 $51,125,844 $11,583,964 $15,952,360 Operating costs and expenses Cost of product and delivery................... 11,406,063 22,286,173 26,833,956 5,941,346 7,959,421 Selling, general and administrative............. 7,914,501 19,222,425 21,729,621 5,379,896 7,042,032 ----------- ----------- ----------- ----------- ----------- Total operating costs and expenses...................... 19,320,564 41,508,598 48,563,577 11,321,242 15,001,453 ----------- ----------- ----------- ----------- ----------- Operating income................ 1,403,265 638,399 2,562,267 262,722 950,907 Other income, net............... 87,195 298,266 245,936 112,047 101,257 ----------- ----------- ----------- ----------- ----------- Income before income taxes...... 1,490,460 936,665 2,808,203 374,769 1,052,164 Provision for income taxes...... -- 94,000 871,000 109,000 379,000 ----------- ----------- ----------- ----------- ----------- Net income...................... $ 1,490,460 $ 842,665 $ 1,937,203 $ 265,769 $ 673,164 =========== =========== =========== =========== =========== Earnings per share.............. $ 0.34 $ 0.19 $ 0.44 $ 0.06 $ 0.15 =========== =========== =========== =========== =========== Weighted average number of common shares and common share equivalents outstanding....... 4,323,096 4,404,332 4,441,664 4,442,132 4,482,159
See notes to financial statements. F-4 57 CONCEPTS DIRECT, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
NUMBER OF SHARES OF ADDITIONAL RETAINED TOTAL COMMON COMMON PAID-IN EARNINGS STOCKHOLDERS' STOCK STOCK CAPITAL (DEFICIT) EQUITY --------- -------- ---------- ----------- ------------- Balance at December 31, 1993.......... 1,055,387 $105,539 $4,463,295 ($1,887,648) $ 2,681,186 Net income.......................... -- -- -- 1,490,460 1,490,460 Stock split......................... 1,055,387 105,538 (105,538) -- -- --------- -------- ---------- ----------- ----------- Balance at December 31, 1994.......... 2,110,774 211,077 4,357,757 (397,188) 4,171,646 Net income.......................... -- -- -- 842,665 842,665 Exercise of stock options........... 5,667 567 8,876 -- 9,443 --------- -------- ---------- ----------- ----------- Balance at December 31, 1995.......... 2,116,441 211,644 4,366,633 445,477 5,023,754 Net income.......................... -- -- -- 1,937,203 1,937,203 Exercise of stock options........... 4,667 467 7,822 -- 8,289 --------- -------- ---------- ----------- ----------- Balance at December 31, 1996.......... 2,121,108 212,111 4,374,455 2,382,680 6,969,246 Net income (Unaudited).............. -- -- -- 673,164 673,164 Exercise of stock options (Unaudited)...................... 4,333 433 10,363 -- 10,796 Stock split (Unaudited)............. 2,125,441 212,544 (212,544) -- -- --------- -------- ---------- ----------- ----------- Balance at March 31, 1997 (Unaudited)......................... 4,250,882 $425,088 $4,172,274 $ 3,055,844 $ 7,653,206 ========= ======== ========== =========== ===========
See notes to financial statements. F-5 58 CONCEPTS DIRECT, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, --------------------------------------- ------------------------ 1994 1995 1996 1996 1997 ----------- ----------- ----------- ---------- ----------- (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES Net income.............................. $ 1,490,460 $ 842,665 $ 1,937,203 $ 265,769 $ 673,164 Adjustments to reconcile net income to net cash provided by operating activities: Provision for (recovery of) losses on accounts receivable................ (18,870) (3,130) 23,000 7,000 -- Provision (credit) for losses in inventory values................... 247,364 32,602 41,721 (41,538) 60,657 Depreciation and amortization........ 376,537 507,689 520,698 121,512 74,603 Increase in current and deferred income taxes payable............... -- 90,925 696,718 29,000 209,000 Loss on disposals of property and equipment.......................... 1,779 -- 59,013 -- -- Changes in operating assets and liabilities: Accounts receivable.................. 174,152 119,339 (80,731) (78,808) 10,997 Deferred advertising costs........... (1,163,440) (57,560) (1,611,583) (326,592) (109,149) Inventories.......................... (385,961) (1,639,514) (26,842) 544,719 (32,355) Prepaid expenses and other........... 80,368 (13,681) 34,334 38,847 30,556 Accounts payable..................... 1,312,468 94,078 2,216,104 (679,892) (1,571,945) Accrued employee compensation........ 230,699 191,755 (54,075) (242,806) 78,273 Customer liabilities................. 182,274 480,173 (145,773) (481,738) 199,778 ----------- ----------- ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING 2,527,830 645,341 3,609,787 (844,527) (376,421) ACTIVITIES.............................. INVESTING ACTIVITIES Cash restricted as collateral........... -- -- -- -- (500,000) Purchases of property and equipment..... (502,186) (550,328) (377,426) (71,157) (2,195,608) Sales of property, equipment and 900 -- 260 -- -- investments.......................... Other investing activities, net......... (31,796) (38,135) (45,300) (47,229) 15,255 ----------- ----------- ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES..... (533,082) (588,463) (422,466) (118,386) (2,680,353) FINANCING ACTIVITIES Principal payment of lease (61,530) (79,498) (95,311) (24,851) (24,653) obligations.......................... Sale of Common Stock and exercise of stock options........................ -- 9,443 8,289 7,134 10,796 ----------- ----------- ----------- ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES..... (61,530) (70,055) (87,022) (17,717) (13,857) ----------- ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... 1,933,218 (13,177) 3,100,299 (980,630) (3,070,631) Cash and cash equivalents at beginning of year.............................. 1,404,797 3,338,015 3,324,838 3,324,838 6,425,137 ----------- ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period............................... $ 3,338,015 $ 3,324,838 $ 6,425,137 $2,344,208 $ 3,354,506 =========== =========== =========== =========== ===========
See notes to financial statements. F-6 59 CONCEPTS DIRECT, INC. NOTES TO FINANCIAL STATEMENTS (INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Organization: Concepts Direct, Inc. markets various products directly to individual consumers, including a line of personal labels, stationery, desk accessories and other merchandise under various catalog titles. The Company's corporate and operations facilities are located in Longmont, Colorado. The Company sells its products nationwide and in Canada. Interim Financial Statements: The Company, in its opinion, has included all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of its financial position at March 31, 1997 and the results of its operations for the three months ended March 31, 1997 and 1996. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the results for a full year. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Revenue Recognition: Revenues from the sale of products are recognized when products are shipped. The Company's sales are attributable entirely to United States operations. Export sales to Canada were approximately 4.6%, 2.5% and 1.9% of total sales in 1994, 1995 and 1996, respectively, and 2.1% and 1.3% for the three months ended March 31, 1996 and 1997, respectively. Export sales excluding Canada, were insignificant in all periods reported. Cash Equivalents: The Company considers all highly liquid investments, including marketable securities, with a maturity of three months or less when purchased to be cash equivalents. Marketable securities are carried at cost which approximates market value and consisted of the following at:
DECEMBER 31, MARCH 31, ------------------------- ---------- 1995 1996 1997 ---------- ---------- ---------- (UNAUDITED) U.S. Government Obligations.......... $ 986,600 $4,555,206 $1,230,471 Commercial Certificates of Deposit... 720,000 360,000 784,000 ---------- ---------- ---------- Total Marketable Securities.......... $1,706,600 $4,915,206 $2,014,471 ========== ========== ==========
Deferred Advertising Costs: These costs primarily relate to printing and distribution of advertising materials. Such costs are deferred for financial reporting purposes until the advertising materials are distributed, then amortized over succeeding periods (not to exceed twelve months) on the basis of estimated sales. Amortization is accelerated in the earlier months of the amortization period. Historical sales statistics are the principle factors used in estimating the amortization rate. Other advertising and promotional costs are expensed as incurred. Advertising costs were $6,142,000, $16,477,000 and $18,373,000 in 1994, 1995 and 1996, respectively, and $4,626,000 and $6,075,000 for the three months ended March 31, 1996 and 1997, respectively. Inventories: Inventories of products, net of valuation allowances of $692,000 and $400,000 at December 31, 1995 and 1996, respectively, and $447,000 at March 31, 1997, are stated at the lower of cost (first-in, first-out method) or market. Property and Equipment: Such assets are stated on the basis of cost. Purchased and leased computer software is depreciated using the straight-line method. All other property and equipment is depreciated using accelerated methods. F-7 60 CONCEPTS DIRECT, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Warranties: The Company's sales of products are subject to a satisfaction guarantee. Certain sales of products are also under warranty against defects in material and workmanship for various periods. The Company accrues for anticipated future warranty costs and product returns with periodic adjustments to reflect actual experience. Income Taxes: Deferred income taxes are based on the liability method as prescribed by Statement of Financial Accounting Standards No. 109 which requires an adjustment to the deferred tax liability to reflect income tax rates currently in effect rather than historical rates. When income tax rates increase or decrease a corresponding adjustment to income tax expense is recorded by applying the rate change to the cumulative temporary differences. Earnings Per Common Share: Earnings per common share computations are based on the weighted average number of common shares and common stock equivalents (stock options determined under the treasury stock method) outstanding during the period. Primary and fully diluted earnings per share are the same. Dividend Policy: At the present time, the Company intends to retain earnings to provide funds for operations and expansion of the Company's business. Thus, it does not foresee paying cash dividends in the future. NOTE 2. STATEMENTS OF CASH FLOWS Following is supplemental information to the statements of cash flows:
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ---------------------------- ----------------------------- 1994 1995 1996 1996 1997 ------- ------- -------- ----------- --------------- (UNAUDITED) (UNAUDITED) Non-cash investing and financing activities: Lease obligation incurred in connection with acquisition of data processing equipment.............................. $92,619 $ -- $ -- $ -- $ -- Cash - flow data: Cash paid during the year for: Interest............................... $17,081 $19,197 $ 12,801 $ 4,887 $ 1,425 Income taxes........................... $ -- $ 3,075 $174,282 $80,000 $ 170,000
NOTE 3. PROPERTY AND EQUIPMENT Following is a summary of property and equipment at:
DECEMBER 31, MARCH 31, PRINCIPAL ------------------------- ----------- ESTIMATED 1995 1996 1997 USEFUL LIVES ----------- ----------- ----------- ------------ (UNAUDITED) Data processing equipment.................... $ 1,091,440 $ 1,071,792 $ 1,105,575 5-7 years Purchased and leased computer software....... 609,406 389,269 389,269 5 years Furniture and equipment...................... 743,008 761,350 761,350 1-5 years Leasehold improvements....................... 368,233 368,233 368,233 5 years Building under construction.................. -- -- 698,615 Land......................................... -- 182,676 1,641,625 ----------- ----------- ----------- 2,812,087 2,773,320 4,964,667 Less accumulated depreciation and amortization............................... (1,817,343) (1,981,121) (2,051,463) ----------- ----------- ----------- $ 994,744 $ 792,199 $ 2,913,204 =========== =========== ===========
F-8 61 CONCEPTS DIRECT, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) NOTE 3. PROPERTY AND EQUIPMENT (CONTINUED) In January, 1997, the Company purchased approximately 139 acres of undeveloped land near the Company's offices for approximately $1,400,000. The Company intends to use a portion of this land for a new facility, hold some of the land for expansion, and attempt to sell most of the remaining acreage to other parties. The Company anticipates completing a new building, costing approximately $8,500,000, during the summer of 1997. The lease on the Company's current facility in Longmont, Colorado expires August 31, 1997. The Company also anticipates significant additions to furniture and equipment during 1997. On March 25, 1997, an irrevocable standby letter of credit for $500,000 was issued by a regional bank. The letter relates to certain obligations anticipated to be resolved within one year, in connection with improvements to the building site. The letter of credit is collateralized by $500,000 of cash held on deposit in an interest bearing account at the issuing bank. NOTE 4. LEASE OBLIGATIONS Future minimum lease payments due for all non-cancelable leases are as follows at:
DECEMBER 31, 1996 MARCH 31, 1997 -------------------- ------------------------ OPERATING CAPITAL OPERATING CAPITAL ---------- ------- ---------- ----------- (UNAUDITED) (UNAUDITED) 1997............................................ $1,085,000 $61,871 $ -- $ -- 1998............................................ 687,000 -- 956,000 35,802 1999............................................ 671,000 -- 697,000 -- 2000............................................ 471,000 -- 653,000 -- 2001............................................ 234,000 -- 396,000 -- 2002............................................ -- -- 160,000 Thereafter........................................ -- -- -- -- ----------- ------- ----------- ------- Total future minimum lease payment................ $3,148,000 61,871 $2,862,000 35,802 =========== =========== Less imputed interest........................ (2,414) (998) ------- ------- Present value of capital lease obligations... $59,457 $34,804 ======= =======
The Company leases various buildings and equipment used in operations under agreements which expire at various dates through November 2000, excluding various renewal options available, some of which are subject to annual adjustments for cost escalation. Total rental expense for all continuing operations operating leases amounted to $834,000, $1,072,000 and $1,269,000 for the years ended December 31, 1994, 1995 and 1996, respectively, and $299,000 and $281,000 for the three months ended March 31, 1996 and 1997, respectively. Capital lease are classified with data processing equipment and purchased and leased computer software. Unamortized values were $137,261 and $60,865 at December 31, 1995 and 1996, respectively, and $49,650 at March 31, 1997. F-9 62 CONCEPTS DIRECT, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) NOTE 5. OTHER INCOME, NET Following is a summary of the Company's other income (deductions):
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ------------------------------ ---------------------------- 1994 1995 1996 1996 1997 -------- -------- -------- ----------- -------------- (UNAUDITED) (UNAUDITED) Interest income........................... $ 79,050 $144,718 $161,430 $ 50,397 $ 61,883 Interest expense.......................... (17,081) (19,197) (12,801) (4,487) (1,425) Vendor payment discounts.................. 27,135 134,771 121,149 31,095 40,755 Other, net................................ (1,909) 37,974 (23,842) 35,042 44 -------- -------- -------- --------- --------- $ 87,195 $298,266 $245,936 $ 112,047 $ 101,257 ======== ======== ======== ========= =========
NOTE 6. INCOME TAXES The differences between federal statutory income tax rates and the Company's effective tax rates are as follows:
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, --------------------------------- ---------------------------- 1994 1995 1996 1996 1997 --------- --------- --------- ----------- -------------- (UNAUDITED) (UNAUDITED) Federal tax expense (benefit) at statutory rate....................... $ 507,000 $ 318,000 $ 955,000 $ 127,000 $ 358,000 Effect of permanent differences........ 3,000 3,000 3,000 1,000 1,000 State income tax less federal tax benefits............................. 6,000 7,000 17,000 2,000 21,000 Utilization of net operating loss carryforwards........................ (516,000) -- -- -- -- Research and experimentation tax credits.............................. -- -- (104,000) (21,000) (1,000) Valuation allowance for deferred tax assets............................... -- (234,000) -- -- -- --------- --------- --------- --------- --------- $ -- $ 94,000 $ 871,000 $ 109,000 $ 379,000 ========= ========= ========= ========= =========
The income tax expense (benefit) consists of the following:
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, --------------------------------------------------------------------------------------------------------------------- 1994 1995 1996 1996 1997 ------------------ ------------------ ------------------- ------------------------- ------------------------- CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED ------- -------- ------- -------- -------- -------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Federal... $ -- $ -- $54,000 $ 37,000 $141,000 $702,000 $ 104,000 $ 3,000 $ 311,000 $47,000 State..... -- -- 2,000 1,000 7,000 21,000 1,000 1,000 19,000 2,000 ------- -------- ------- -------- -------- -------- --------- ------- --------- ------- $ -- $ -- $56,000 $ 38,000 $148,000 $723,000 $ 105,000 $ 4,000 $ 330,000 $49,000 ======= ======== ======= ======== ======== ======== ========= ======= ========= =======
F-10 63 CONCEPTS DIRECT, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) NOTE 6. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets consist of the following:
DECEMBER 31, MARCH 31, ----------------------------------- ----------------------- 1994 1995 1996 1996 1997 --------- --------- ----------- --------- ----------- (UNAUDITED) (UNAUDITED) Deferred tax liabilities: Deferred advertising costs........ ($752,000) ($773,000) $(1,337,000) ($887,000) ($1,414,000) Deferred tax assets: Allowance for doubtful accounts... 7,000 6,000 14,000 9,000 15,000 Inventory differences............. 646,000 376,000 236,000 469,000 261,000 Property and equipment............ 156,000 142,000 160,000 156,000 167,000 Other nondeductible accruals...... 120,000 211,000 166,000 211,000 161,000 Net operating loss carryforwards.................. 57,000 -- -- -- -- --------- --------- ----------- --------- ----------- Total deferred tax assets......... 986,000 735,000 576,000 845,000 604,000 Valuation allowance for deferred tax assets..................... (234,000) -- -- -- -- --------- --------- ----------- --------- ----------- Net deferred tax assets............. 752,000 735,000 576,000 845,000 604,000 --------- --------- ----------- --------- ----------- Net deferred tax liabilities........ $ -- ($ 38,000) ($ 761,000) ($ 42,000) ($ 810,000) ========= ========= =========== ========= ===========
At December 31, 1996 and March 31, 1997 the Company has no tax carryforwards available. NOTE 7. STOCKHOLDERS' EQUITY On February 25, 1997, the Board of Directors approved a two-for-one stock split, effected in the form of a stock dividend payable March 31, 1997 to shareholders of record on March 14, 1997. Accordingly, March 31, 1997 balances reflect the split with an increase in Common Stock and a reduction in additional paid-in capital of $212,544. Number of shares outstanding, stock option and per share data have been retroactively adjusted to reflect the split. On October 29, 1994, the Board of Directors approved a two-for-one stock split, effected in the form of a stock dividend, payable December 15, 1994 to shareholders of record on November 14, 1994. Accordingly, December 31, 1994 balances reflect the split with an increase in Common Stock and a reduction in additional paid-in capital of $105,538. Number of shares outstanding, stock option and per share data have been retroactively adjusted to reflect the split. During 1993, the Company issued and sold 584,000 shares of Common Stock to officers and directors at market value. 160,000 shares sold to an officer were financed in part by a $63,000 note receivable, collateralized by the Common Stock financed. The note receivable was due in annual installments through 1998 with interest, payable quarterly, at 5.5%. The outstanding loan balance was $50,400 as of December 31, 1995. The note receivable was paid in full during 1996. Under the terms of the Concepts Direct, Inc. 1992 Employee Stock Option Plan, certain key employees were granted options to purchase shares of Common Stock of the Company at an option price equal to fair market value on the date of the grant. Options granted are exercisable in annual increments of 25% commencing four years following the date of grant and expire ten years following the date of grant. The 1992 Employee Stock Option Plan also provides for the issuance of incentive stock to key employees. There were F-11 64 CONCEPTS DIRECT, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED) 280,000, 278,000 and 278,000 shares of Common Stock reserved for issuance under the plan as of December 31, 1995, December 31, 1996 and March 31, 1997, respectively. Under the terms of the Concepts Direct, Inc. 1992 Non-Employee Directors Stock Option Plan, the outside directors were granted options to purchase shares of Common Stock of the Company at an option price equal to fair market value on the date of grant. Options are exercisable in annual increments of 33.3% commencing one year following the date of grant and expire five years following the date of the grant. There were 68,666, 61,332 and 52,666 shares of Common Stock reserved for issuance under the plan as of December 31, 1995, December 31, 1996 and March 31, 1997, respectively. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its stock options because, as discussed below, the alternative fair value accounting provided for by Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement No. 123), requires use of option valuation models that were not developed for use in valuing the stock options. Under APB 25, because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by Statement No. 123, and has been determined as if the Company had accounted for its stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
1995 1996 ---------- ---------- Risk-free interest rate................................ 5.5% 5.5% Dividend yields........................................ 0.0% 0.0% Volatility factors of the expected market price of the Company's common stock............................... 0.587 0.587 Weighted-average expected life of the employee stock options.............................................. 5.5 years 5.5 years Weighted-average expected life of the non-employee stock options........................................ 2 years 2 years
The weighted-average fair value of options granted were as follows:
1995 1996 ----- ----- 1992 Employee Plan........................................... $2.14 $5.20 1992 Non-Employee Plan....................................... -- $3.38
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. F-12 65 CONCEPTS DIRECT, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The Company's pro forma information follows:
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ----------------------- --------------------------- 1995 1996 1996 1997 -------- ---------- ----------- ----------- (UNAUDITED) (UNAUDITED) Pro forma net income........ $827,705 $1,907,467 $ 259,730 $ 653,637 Pro forma earnings per share..................... $ 0.19 $ 0.43 $ 0.06 $ 0.15
Because Statement No. 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 2001. A summary of the Company's stock option activity, and related information follows:
1992 EMPLOYEE PLAN 1992 NON-EMPLOYEE PLAN -------------------- ---------------------- WEIGHTED WEIGHTED NUMBER AVERAGE NUMBER AVERAGE OF EXERCISE OF EXERCISE SHARES PRICE SHARES PRICE ------- -------- ------- -------- Outstanding at December 31, 1993.................. 156,000 $ 0.54 24,000 $ 0.58 Granted at market price......................... 64,000 $ 1.51 16,000 $ 2.75 Canceled........................................ (44,000) $ 0.60 -- $ -- ------- ------ ------- ------ Outstanding at December 31, 1994.................. 176,000 $ 0.88 40,000 $ 1.45 Granted at market price......................... 49,000 $ 3.77 -- $ 0.00 Exercised....................................... -- -- (11,334) $ 0.83 ------- ------ ------- ------ Outstanding at December 31, 1995.................. 225,000 $ 1.51 28,666 $ 1.69 Granted at market price......................... 25,000 $ 9.12 16,000 $ 9.75 Exercised....................................... (2,000) $ 0.58 (7,334) $ 0.97 Canceled........................................ (8,000) $ 0.88 -- -- ------- ------ ------- ------ Outstanding at December 31, 1996.................. 240,000 $ 2.33 37,332 $ 5.28 Exercised (unaudited)........................... -- $ -- (8,666) $ 1.24 ------- ------ ------- ------ Outstanding at March 31, 1997 (unaudited)......... 240,000 $ 2.33 28,666 $ 6.51 ======= ====== ======= ======
F-13 66 CONCEPTS DIRECT, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED) A summary of outstanding options, by year they become exercisable, follows:
YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31, ---------------------------------------- ------------------------------------------- (UNAUDITED) 1992 NON-EMPLOYEE 1992 NON-EMPLOYEE 1992 EMPLOYEE PLAN PLAN 1992 EMPLOYEE PLAN PLAN ------------------ ----------------- --------------------- ----------------- WEIGHTED WEIGHTED WEIGHTED WEIGHTED NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE OF EXERCISE OF EXERCISE OF EXERCISE OF EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE ------- -------- ------ -------- ------- ----------- ------ -------- 1996........ 12,000 $ 0.58 16,004 $ 1.66 -- $ -- -- $ -- 1997........ 30,000 $ 0.54 10,664 $ 6.25 12,000 $0.58 7,334 $ 2.16 1998........ 42,000 $ 0.88 5,336 $ 9.75 30,000 $0.54 10,668 $ 6.25 1999........ 54,250 $ 1.53 5,328 $ 9.75 48,000 $1.14 5,336 $ 9.75 2000........ 46,500 $ 2.84 -- $ -- 54,250 $1.53 5,328 $ 9.75 2001........ 30,500 $ 4.06 -- $ -- 46,500 $2.84 -- $ -- 2002........ 18,500 $ 5.58 -- $ -- 30,500 $4.06 -- $ -- 2003........ 6,250 $ 9.13 -- $ -- 12,500 $6.81 -- $ -- 2004........ -- $ -- -- $ -- 6,250 $9.13 -- $ -- ------- ------ ------ ------ ------- ----- ------ ------ Outstanding...... 240,000 $ 2.33 37,332 $ 5.28 240,000 $2.33 28,666 $ 6.51 ======= ====== ====== ====== ======= ===== ====== ======
DECEMBER 31, 1996 MARCH 31, 1997 ----------------- -------------- (UNAUDITED) Exercise price range of options outstanding: 1992 Employee Plan.......................... $0.50-$9.13 $ 0.50-$9.13 1992 Non-Employee Plan...................... $0.58-$9.75 $ 0.58-$9.75 Weighted-average remaining contractual life of options outstanding: 1992 Employee Plan.......................... 7.3 years 7.1 years 1992 Non-Employee Plan...................... 2.8 years 3.7 years
NOTE 8. EMPLOYEE RETIREMENT SAVINGS PLAN In May 1985, the Company adopted a Retirement Savings Plan under Section 401(k) of the Internal Revenue Code. Participation in the Plan is available to any employee of the Company who has completed one year of service and is age twenty-one or older. The Company contributes $10 monthly for each eligible employee, plus up to $0.50 for each dollar contributed by each participant on the first 4% of eligible compensation, depending on years of service. The Company may contribute an additional amount if it has sufficient profits. The Company's contributions to employees of Concepts Direct, Inc. were $27,000, $33,000 and $55,000 in 1994, 1995 and 1996, respectively, and $16,000 and $11,000 for the three months ended March 31, 1996 and 1997, respectively. F-14 67 CONCEPTS DIRECT, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) NOTE 9. CREDIT FACILITY In May 1997, the Company entered into a $3.7 million credit facility with a bank, bearing interest at a variable rate equal to the bank's prime rate, secured by the Company's cash, inventories, accounts receivable and equipment. The Company must comply with certain financial and performance covenants contained in the credit facility, including a minimum current ratio, a minimum tangible net worth, a maximum total debt to equity ratio and a minimum debt service coverage ratio and maintenance of its primary accounts with the bank. Of the total facility, $700,000 may be used for furniture and equipment purchases and, until April 1998, amounts funded may be converted to a three year term note at a variable rate equal to the bank's prime rate. The remaining $3 million of the credit facility is made up of two revolving lines of credit, $1 million for the purchase of paper to be used in future catalog mailings and $2 million for general working capital purposes. The credit facility expires in April 1998, at which time the Company anticipates being able to renew the arrangements. NOTE 10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
INCOME NET EARNINGS (LOSS) NET (LOSS) FROM INCOME PER COMMON SALES OPERATIONS (LOSS) SHARE ------- ----------- ------ --------------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1994: First....................... $ 3,652 $ 148 $ 161 $ 0.04 Second...................... 4,107 129 151 0.04 Third....................... 4,669 350 372 0.09 Fourth...................... 8,296 776 806 0.18 1995: First....................... $ 8,100 $ 291 $ 229 $ 0.05 Second...................... 9,491 192 177 0.04 Third....................... 8,307 (282) (137) (0.03) Fourth...................... 16,249 437 574 0.13(a) 1996: First....................... $11,584 $ 263 $ 266 $ 0.06 Second...................... 9,000 (344) (220) (0.05) Third....................... 9,800 258 220 0.05 Fourth...................... 20,742 2,386 1,671 0.38 1997: First....................... $15,952 $ 951 $ 673 $ 0.15
(a) The 1995 fourth quarter was favorably impacted by the reversal of a $234,000 deferred tax asset valuation allowance which reversal resulted from the Company having taxable temporary differences greater than deductible temporary differences and loss carryforwards at December 31, 1995. F-15 68 [PHOTOGRAPHS AND DESCRIPTIONS OF MERCHANDISE FEATURED IN THE COMPANY'S CATALOGS] 69 [PHOTOGRAPHS AND DESCRIPTIONS OF MERCHANDISE FEATURED IN THE COMPANY'S CATALOGS] 70 [PHOTOGRAPHS OF CATALOG COVERS AND SELECTED PAGES FROM CATALOGS] 71 ================================================================================ NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 7 Use of Proceeds....................... 14 Capitalization........................ 15 Dividend Policy....................... 16 Price Range of Common Stock........... 16 Selected Financial and Operating Data................................ 17 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 18 Business.............................. 24 Management............................ 37 Executive Compensation................ 40 Principal and Selling Stockholders.... 42 Description of Capital Stock.......... 44 Underwriting.......................... 46 Legal Matters......................... 47 Experts............................... 47 Additional Information................ 48 Index to Financial Statements......... F-1
================================================================================ ================================================================================ 1,600,000 SHARES CONCEPTS DIRECT, INC. [CONCEPTS DIRECT LOGO] COMMON STOCK ------------------- PROSPECTUS ------------------- EVEREN SECURITIES, INC. SCOTT & STRINGFELLOW, INC. , 1997 ================================================================================ 72 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable on a pro-rata basis by the Company and the Selling Stockholders in connection with the sale of the Common Stock being registered. All the amounts shown are estimates except for the SEC registration fee, the NASD filing fee and the Nasdaq National Market application fee. SEC registration fee.................................................... $ 11,918 NASD filing fee......................................................... 4,433 Nasdaq National Market application fee.................................. 28,611 Blue Sky fees and expenses.............................................. 10,000 Printing and engraving expenses......................................... 80,000 Legal fees and expenses................................................. 200,000 Accounting fees and expenses............................................ 50,000 Transfer Agent and Registrar fees....................................... 10,000 Miscellaneous........................................................... 45,000 -------- Total......................................................... $439,962 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware GCL permits a corporation to indemnify its directors and officers against expenses (including attorney's fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties, if such directors or officers acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful. In a derivative action, i.e., one by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors and officers in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interest of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine upon application that the defendant officers or directors are reasonably entitled to indemnity for such expenses despite such adjudication of liability. The Company's Bylaws provide that it shall indemnify its directors, officers, employees and agents to the fullest extent permitted by the Delaware GCL. In addition, the Company's Certificate of Incorporation provides that to the fullest extent permitted by the Delaware GCL, a director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. Under the Delaware GCL, liability of a director may not be limited (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or repurchases, and (iv) for any transaction from which the director derives an improper personal benefit. The effect of this provision in the Company's Certificate of Incorporation is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situation described in clauses (i) through (iv) above. This provision does not limit or eliminate the rights of the Company or any stockholders to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. II-1 73 Pursuant to Section 145 of the Delaware GCL, the Company maintains directors and officers' liability insurance coverage. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Not applicable. ITEM 16. EXHIBITS. (a) EXHIBITS:
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ * 1.1 Form of Underwriting Agreement. 3.1 Registrant's Amended and Restated Certificate of Incorporation filed as Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, is expressly incorporated herein by this reference. 3.2 Registrant's Bylaws and Statement of Organization of the Incorporator filed as Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, is expressly incorporated herein by this reference. * 5.1 Opinion and consent of McGuire, Woods, Battle & Boothe, L.L.P. 10.1 Lease dated March 17, 1992 between Registrant and Pratt Partnership filed as Exhibit 2 to Wiland Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 (File No. 0-12967), is expressly incorporated herein by this reference. 10.2 Amendment dated May 16, 1996 to Lease dated March 17, 1992 between Registrant and Pratt Partnership filed as Exhibit 2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is expressly incorporated herein by this reference. 10.3 Real Estate Contract and Purchase and Sale Agreement dated March 20, 1996 between Registrant and Richard B. Norton filed as Exhibit 1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is expressly incorporated herein by this reference. 10.4 First amendment dated May 10, 1996 to Purchase and Sale Agreement dated March 20, 1996 between Registrant and Richard B. Norton filed as Exhibit 1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is expressly incorporated herein by this reference. 10.5 Second amendment dated November 26, 1996 to Purchase and Sale Agreement dated March 20, 1996 between Registrant and Richard B. Norton filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, is expressly incorporated herein by this reference. 10.6 Contract between Registrant and Intergroup, Inc. as Architect for the Provision of Architectural Services, dated September 4, 1996, in connection with the design of a new facility for Registrant in Longmont, Colorado filed as Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, is expressly incorporated herein by this reference. 10.7 Registrant's amended Profit Sharing Plan, reflecting an amendment under Section 401(k) of the Internal Revenue Code dated May 31, 1985 filed as Exhibit 10(1) to Wiland Services, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1985 (File No. 0-12967), is expressly incorporated herein by this reference. 10.8 Registrant's 1997 Incentive Compensation Plan for officers of the Registrant filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, is expressly incorporated herein by this reference. 10.9 Registrant's 1992 Stock Option Plan filed as Exhibit A to Registrant's definitive proxy statement dated June 29, 1993 for the Annual Meeting of Shareholders held on July 30, 1993, is expressly incorporated herein by this reference.
II-2 74
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ 10.10 Registrant's 1992 Non-Employee Directors Stock Option Plan filed as Exhibit B to the Registrant's definitive proxy statement dated June 29, 1993 for the Annual Meeting of Shareholders held on July 30, 1993, is expressly incorporated herein by this reference. *10.11 Standard Form of Agreement between Registrant and Saunders Construction, Inc. as Contractor, dated May 1, 1997, in connection with construction of a new facility for Registrant in Longmont, Colorado. *10.12 Loan Agreement between Registrant and Bank One, Colorado, N.A. as lender, dated May 1, 1997, in connection with a $3.7 million credit facility. *23.1 Consent of Ernst & Young, LLP. *23.2 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included in Exhibit 5.1). +24.1 Powers of Attorney.
- --------------- + Previously filed. * Filed herewith. (b) FINANCIAL STATEMENT SCHEDULES The following financial statement schedules of Concepts Direct, Inc. are filed herewith: Schedule II -- Valuation and Qualifying Accounts All other schedules are omitted because they are not required, they are not applicable or the information is already included in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 75 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Amendment No. 1 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Longmont, State of Colorado, on June 3, 1997. CONCEPTS DIRECT, INC. By: /s/ PHILLIP A. WILAND ------------------------------------ Phillip A. Wiland Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the registration statement has been signed on June 3, 1997 by the following persons in the respective capacities indicated opposite their names.
SIGNATURE TITLE - ----------------------------------------------- -------------------------------------------- /s/ PHILLIP A. WILAND Chief Executive Officer and Chairman of the - ----------------------------------------------- Board Principal Executive Officer Phillip A. Wiland /s/ MICHAEL T. BUONCRISTIANO* Director - ----------------------------------------------- Michael T. Buoncristiano /s/ ROBERT L. BURRUS, JR.* Director - ----------------------------------------------- Robert L. Burrus, Jr. /s/ STEPHEN R. POLK* Director - ----------------------------------------------- Stephen R. Polk /s/ PHILLIP D. WHITE* Director - ----------------------------------------------- Phillip D. White /s/ H. FRANKLIN MARCUS, JR. Secretary/Treasurer - ----------------------------------------------- Chief Financial Officer H. Franklin Marcus, Jr. Principal Financial and Accounting Officer *By: /s/ H. FRANKLIN MARCUS, JR. - ----------------------------------------------- H. Franklin Marcus, Jr. Attorney-in-fact
II-4 76 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS CONCEPTS DIRECT, INC. YEAR ENDED DECEMBER 31, 1996
COL. C COL. D COL. B CHARGED CHARGED TO COL. F BALANCE AT (CREDITED) OTHER COL. E BALANCE AT COL. A BEGINNING TO COSTS ACCOUNTS -- DEDUCTIONS END DESCRIPTION OF PERIOD AND EXPENSES DESCRIBE DESCRIBE OF PERIOD - -------------------------------------- ---------- ------------ ---------- ---------- ---------- Year Ended December 31, 1996 Deducted from asset accounts: Allowance for doubtful accounts....................... $ 18,078 $ 23,000 $ -- $ (78)(a) $ 41,000 Allowance for inventory obsolescence................... 691,542 41,721 -- (333,263)(b) 400,000 ---------- ------------ ---------- ---------- ---------- Totals deducted from asset accounts....................... $ 709,620 $ 64,721 $ -- $ (333,341) $ 441,000 ---------- ------------ ---------- ---------- ---------- Product warranty liability.......... $ 383,084 $ (128,840) $ -- $ -- $ 254,124 ======== ========== ======== ========= ======== Year Ended December 31, 1995 Deducted from asset accounts: Allowance for doubtful accounts....................... $ 21,130 $ (3,130) $ -- $ 78(a) $ 18,078 Allowance for inventory obsolescence................... 761,981 32,602 -- (103,041)(b) 691,542 ---------- ------------ ---------- ---------- ---------- Totals deducted from asset accounts....................... $ 783,111 $ 29,472 $ -- $ (102,963) $ 709,620 ---------- ------------ ---------- ---------- ---------- Product warranty liability.......... $ 129,111 $ 253,953 $ -- $ -- $ 383,064 ======== ========== ======== ========= ======== Year Ended December 31, 1994 Deducted from asset accounts: Allowance for doubtful accounts....................... $ 40,000 $ (18,870) $ -- $ -- $ 21,130 Allowance for inventory obsolescence................... 679,969 247,364 -- (165,352)(b) 761,981 ---------- ------------ ---------- ---------- ---------- Totals deducted from asset accounts....................... $ 719,969 $ 228,494 $ -- $ (165,352) $ 783,111 ---------- ------------ ---------- ---------- ---------- Product warranty liability.......... $ 92,718 $ 36,393 $ -- $ -- $ 129,111 ======== ========== ======== ========= ========
- --------------- (a) Uncollectible accounts written off, net of recoveries. (b) Inventory written off, net of recoveries. 77 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ------- -------------------------------------------------------------------------------- * 1.1 Form of Underwriting Agreement. 3.1 Registrant's Amended and Restated Certificate of Incorporation filed as Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, is expressly incorporated herein by this reference. 3.2 Registrant's Bylaws and Statement of Organization of the Incorporator filed as Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, is expressly incorporated herein by this reference. * 5.1 Opinion and consent of McGuire, Woods, Battle & Boothe, L.L.P. 10.1 Lease dated March 17, 1992 between Registrant and Pratt Partnership filed as Exhibit 2 to Wiland Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 (File No. 0-12967), is expressly incorporated herein by this reference. 10.2 Amendment dated May 16, 1996 to Lease dated March 17, 1992 between Registrant and Pratt Partnership filed as Exhibit 2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is expressly incorporated herein by this reference. 10.3 Real Estate Contract and Purchase and Sale Agreement dated March 20, 1996 between Registrant and Richard B. Norton filed as Exhibit 1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is expressly incorporated herein by this reference. 10.4 First amendment dated May 10, 1996 to Purchase and Sale Agreement dated March 20, 1996 between Registrant and Richard B. Norton filed as Exhibit 1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is expressly incorporated herein by this reference. 10.5 Second amendment dated November 26, 1996 to Purchase and Sale Agreement dated March 20, 1996 between Registrant and Richard B. Norton filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, is expressly incorporated herein by this reference. 10.6 Contract between Registrant and Intergroup, Inc. as Architect for the Provision of Architectural Services, dated September 4, 1996, in connection with the design of a new facility for Registrant in Longmont, Colorado filed as Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, is expressly incorporated herein by this reference. 10.7 Registrant's amended Profit Sharing Plan, reflecting an amendment under Section 401(k) of the Internal Revenue Code dated May 31, 1985 filed as Exhibit 10(1) to Wiland Services, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1985 (File No. 0-12967), is expressly incorporated herein by this reference. 10.8 Registrant's 1997 Incentive Compensation Plan for officers of the Registrant filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, is expressly incorporated herein by this reference. 10.9 Registrant's 1992 Stock Option Plan filed as Exhibit A to Registrant's definitive proxy statement dated June 29, 1993 for the Annual Meeting of Shareholders held on July 30, 1993, is expressly incorporated herein by this reference.
78
EXHIBIT NO. DESCRIPTION ------- -------------------------------------------------------------------------------- 10.10 Registrant's 1992 Non-Employee Directors Stock Option Plan filed as Exhibit B to the Registrant's definitive proxy statement dated June 29, 1993 for the Annual Meeting of Shareholders held on July 30, 1993, is expressly incorporated herein by this reference. *10.11 Standard Form of Agreement between Registrant and Saunders Construction, Inc. as Contractor, dated May 1, 1997, in connection with construction of a new facility for Registrant in Longmont, Colorado. *10.12 Loan Agreement between Registrant and Bank One, Colorado, N.A. as lender, dated May 1, 1997, in connection with a $3.7 million credit facility. *23.1 Consent of Ernst & Young, LLP. *23.2 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included in Exhibit 5.1). +24.1 Powers of Attorney.
- --------------- + Previously filed. * Filed herewith. EX-1.1 2 UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 - ------------------------------------------------------------------------------- 1,840,000 SHARES CONCEPTS DIRECT, INC. COMMON STOCK JUNE __, 1997 UNDERWRITING AGREEMENT EVEREN SECURITIES, INC. & SCOTT & STRINGFELLOW, INC. - ------------------------------------------------------------------------------- 2 1,840,000 Shares Concepts Direct, Inc. Common Stock ($.10 par value) UNDERWRITING AGREEMENT June __, 1997 EVEREN Securities, Inc. Scott & Stringfellow, Inc. As Representatives of the Several Underwriters c/o EVEREN Securities, Inc. 77 West Wacker Drive Chicago, Illinois 60601-1994 Ladies and Gentlemen: Concepts Direct, Inc., a Delaware corporation (the "Company"), and the stockholders of the Company set forth on Schedule I hereto (collectively referred to as the "Selling Stockholders"), confirm their agreement with each other and the several underwriters listed in Schedule II hereto (the "Underwriters"), for whom EVEREN Securities, Inc. and Scott & Stringfellow, Inc. (collectively, the "Representatives") have been duly authorized to act as representatives, as follows: 1. The Shares. Subject to the terms and conditions set forth in this agreement (the "Agreement"), the Company proposes to issue and sell Four Hundred Seventy-One Thousand, Four Hundred and Four (471,404) shares of its authorized but unissued Common Stock, $.10 par value (the "Common Stock"), to the several Underwriters, and the Selling Stockholders propose 1 3 to sell an aggregate of One Million One Hundred Twenty-Eight Thousand, Five Hundred Ninety-Six (1,128,596) shares of issued and outstanding Common Stock to the several Underwriters in the amounts set forth on Schedule II. Such One Million Six Hundred Thousand (1,600,000) shares of Common Stock proposed to be sold by the Company and the Selling Stockholders are hereinafter referred to as the "Firm Shares." The Company also proposes to grant to the Underwriters an option to purchase up to Two Hundred Forty Thousand (240,000) additional shares of Common Stock (the "Additional Shares") if requested by the Underwriters as provided in Section 3 hereof. The Firm Shares and the Additional Shares are herein collectively called the "Shares." The Company and each of the Selling Stockholders hereby confirm their respective agreements with the Underwriters as follows: 2. Registration Statement and Prospectus. The Company has prepared and duly filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-1 (File No. 333-26133) including a prospectus, relating to the Shares. To the extent the registration statement has been amended, each such amendment has been prepared and duly filed with the Commission. The registration statement, as amended, at the time when it became or becomes effective, including all financial schedules and exhibits thereto and all of the information (if any) deemed to be part of the registration statement at the time of its effectiveness pursuant to Rule 430A under the Act ("Rule 430A"), is hereinafter referred to as the "Registration Statement"; the prospectus in the form first provided to the Underwriters by the Company in connection with the offering and sale of the Shares (whether or not required to be filed pursuant to Rule 424(b) under the Act ("Rule 424(b)")) is hereinafter referred to as the "Prospectus," except that if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Shares that differs from the Prospectus (whether or not any such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) under the Act), the term "Prospectus" shall refer to the revised prospectus from and after the time it is first provided to the Underwriters for such use. Each preliminary prospectus included in the Registration Statement prior to the time it became or becomes effective is herein referred to as a "Preliminary Prospectus." 3. Agreements to Sell and Purchase. On the basis of the representations and warranties contained in this Agreement, and subject to the terms and conditions hereof, (i) the Company agrees to issue and sell to the Underwriters, at a price of $_____ per Share (the "Purchase Price"), Four Hundred Seventy-One Thousand, Four Hundred and Four (471,404) newly issued Firm Shares, (ii) each Selling Stockholder agrees to sell to the Underwriters, at the Purchase Price, the number of Firm Shares set forth next to such Selling Stockholder's name on Schedule I; and (iii) each Underwriter agrees, severally and not jointly, to purchase from the Company and the Selling Stockholders, at the Purchase Price, the aggregate number of Firm Shares set forth opposite the name of such Underwriter in Schedule II hereto. The number of Firm Shares to be purchased by each Underwriter from the Company and each Selling Stockholder shall be as nearly as practicable in the same proportion as the number of Firm Shares 2 4 being sold by the Company and each Selling Stockholder bears to the total number of Firm Shares to be sold hereunder. On the basis of the representations and warranties contained in this Agreement, and subject to the terms and conditions hereof, (i) the Company agrees to sell to the Underwriters, at the Purchase Price, up to Two Hundred Forty Thousand (240,000) Additional Shares; and (ii) the Underwriters shall have the right to purchase, severally and not jointly, from time to time, up to an aggregate of Two Hundred Forty Thousand (240,000) Additional Shares at the Purchase Price. Additional Shares may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter, severally and not jointly, agrees to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as the Representatives may determine) that bears the same proportion to the total number of Additional Shares to be purchased as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule II bears to the total number of Firm Shares. For a period of 12 months from the date this Agreement becomes effective, the Company covenants and agrees that it will not, without the prior written consent of EVEREN Securities, Inc. on behalf of the Underwriters (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise; provided, however, that this clause shall not apply to the transactions expressly contemplated by this Agreement or the granting of options to purchase shares of Common Stock to the Company's directors and employees pursuant to the exercise of options under the 1992 Non-Employee Directors Stock Option Plan or the 1992 Employee Stock Option Plan (collectively, the "Option Plans"). For a period of 12 months from the date this Agreement becomes effective, the Company covenants and agrees that it will not, without the prior written consent of EVEREN Securities, Inc. on behalf of the Underwriters, file a registration statement relating to shares of capital stock (including the Common Stock) or securities convertible into or exercisable or exchangeable for, capital stock, or warrants, options or rights to purchase or acquire, capital stock, with the exception of the filing of Registration Statements on Form S-8 with respect to the Option Plans. For a period of 12 months from the date this Agreement becomes effective, each Selling Stockholder covenants and agrees that such Selling Stockholder will not, without the prior written consent of EVEREN Securities, Inc. on behalf of the Underwriters (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (2) enter into any swap or other agreement that transfers, in 3 5 whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise; provided, however, that this clause shall not apply to the transactions expressly contemplated by this Agreement or to transfers of Common Stock to partnerships, limited liability companies, trusts or similar entities organized for the exclusive benefit of family members of Selling Stockholders for financial and estate planning purposes so long as any transferee that receives Common Stock as a result of such transfer shall agree upon such transfer to be bound by the terms of this paragraph and shall be capable of being so bound. 4. Agreements of the Company as to Delivery and Payment. The Company and Selling Stockholders agree with each Underwriter that: (a) Delivery to the Underwriters of and payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on the third full business day (such time and date being referred to as the "Closing Date") following the date of the initial public offering of the Firm Shares as advised to you by the Company, at such place as you shall designate. (b) Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at such place as the Representatives shall designate, at 10:00 A.M., New York City time, on such date or dates (individually, an "Option Closing Date" and collectively, the "Option Closing Dates"), which may be the same as the Closing Date but shall in no event be earlier than the Closing Date, as shall be specified in a written notice from the Representatives to the Company of the Underwriters' determination to purchase a number, specified in said notice, of Additional Shares. Any such notice may be given at any time prior to the thirty-first (31st) day after the date of this Agreement. (c) Certificates for the Shares shall be registered in such names and issued in such denominations as you shall request in writing not later than two business days prior to the Closing Date or the applicable Option Closing Date, as the case may be, and shall be made available for inspection not later than 9:30 A.M., New York City time, on the business day next preceding the Closing Date or the applicable Option Closing Date, as the case may be, with any transfer taxes payable upon initial issuance or the transfer thereof duly paid by the Company for the respective accounts of the Underwriters against payment of the Purchase Price therefor by certified or official bank check or checks payable in New York Clearing House or similar next-day funds to the order of the Company and the Selling Stockholders. 5. Further Agreements of the Company. The Company also agrees with each Underwriter that: (a) it will, if the Registration Statement has not heretofore become effective under the Act, file an amendment to the Registration Statement or, if necessary pursuant to Rule 430A under the Act, a post-effective amendment to the Registration Statement, as soon as practicable after the execution and delivery of this Agreement, and will use its best 4 6 efforts to cause the Registration Statement or such post-effective amendment to become effective at the earliest possible time; and the Company will comply fully and in a timely manner with the applicable provisions of Rule 424(b), Rule 430A and the other rules under the Act; (b) it will advise you promptly and, if requested by you, confirm such advice in writing, (i) when the Registration Statement has become effective, if and when the Prospectus is sent for filing pursuant to Rule 424 under the Act and when any post-effective amendment to the Registration Statement becomes effective, (ii) of the receipt of any comments from the Commission that relate to the Registration Statement or requests by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, or of the suspension of qualification of the Shares for offering or sale in any jurisdiction, or the initiation or, to the best knowledge of the Company, threat of any proceedings for such purpose by the Commission or any state securities commission or other regulatory authority, and (iv) of the happening of any event or information becoming known during the period referred to in paragraph (e) below that makes any statement of a material fact made in the Registration Statement untrue or that requires the making of any additions to or changes in the Registration Statement (as amended or supplemented from time to time) in order to make the statements therein not misleading or that makes any statement of a material fact made in the Prospectus (as amended or supplemented from time to time) untrue or that requires the making of any additions to or changes in the Prospectus (as amended or supplemented from time to time) in order to make the statements therein, not misleading; if at any time the Commission shall issue or institute proceedings (or threaten to institute any such proceedings) to issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue or institute proceedings (or threaten to institute proceedings) to issue an order suspending the qualification or exemption of the Shares under any state securities or Blue Sky laws, the Company shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (c) it will furnish to you without charge three signed copies of the Registration Statement as first filed with the Commission and of each amendment to it, including all exhibits filed therewith, and will furnish to you and each Underwriter designated by you such number of conformed copies of the Registration Statement as so filed and of each amendment to it, without exhibits, as you may reasonably request; (d) it will not file any amendment or supplement to the Registration Statement, whether before or after the time when it becomes effective, or make any amendment or supplement to the Prospectus of which you shall not previously have been advised and provided a copy a reasonable period of time prior to the filing thereof or to which you or your counsel shall reasonably object; and it will prepare and file with the Commission, promptly upon your reasonable request, any amendment to the Registration Statement or supplement to the Prospectus that may be necessary or advisable in connection with the 5 7 distribution of the Shares by you in your or your counsel's opinion, and will use its best efforts to cause the same to become effective as promptly as possible; (e) promptly after the Registration Statement becomes effective, and from time to time thereafter for such period as a prospectus is required by the Act to be delivered in connection with the sales by an underwriter or a dealer (in the opinion of your counsel), it will furnish to each Underwriter and dealer without charge as many copies of the Prospectus (and any amendment or supplement of the Prospectus) as such Underwriter or dealer may reasonably request for the purposes contemplated by the Act; the Company consents to the use of the Prospectus and any amendment or supplement thereto by any Underwriter or any dealer, both in connection with the offering or sale of the Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection therewith; (f) if during the period specified in paragraph (e) any event shall occur or information become known as a result of which in the opinion of your counsel it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in light of the circumstances existing as of the date the Prospectus is delivered to a purchaser, not misleading, or it is necessary to amend or supplement the Prospectus to comply with any law, forthwith to prepare and, subject to paragraph 5(d) above, it will file with the Commission at the sole expense of the Company an appropriate amendment or supplement to the Prospectus so that the statements of any material facts in the Prospectus, as so amended and supplemented, will not in light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with law and it will furnish to the Underwriters and to such dealers as the Underwriters shall specify, at the sole expense of the Company, such number of copies thereof as such Underwriters or dealers may reasonably request; (g) prior to any public offering of the Shares, it will cooperate with you and counsel for the Underwriters in connection with the registration or qualification of the Shares for offer and sale by the several Underwriters and by dealers under the state securities or Blue Sky laws of such jurisdictions as you may request (provided, that the Company shall not be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to take any action which would subject it to general consent to service of process in any jurisdiction in which it is not now so subject); the Company will continue such qualification in effect so long as required by law for the distribution of the Shares and will file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification (provided, that the Company shall not be obligated to take any action that would subject it to general consent to service of process in any jurisdiction in which it is not now so subject); (h) it will not, prior to the exercise in full or termination or expiration of the option to purchase the Additional Shares, incur any liability or obligation, direct or contingent, or enter into any material transaction, other than in the ordinary course of business, except as contemplated by the Prospectus and except for the long term credit agreements currently being negotiated by the Company with Bank One; 6 8 (i) it will not acquire any capital stock of the Company prior to the exercise in full or termination or expiration of the option to purchase the Additional Shares nor will the Company declare or pay any dividend or make any other distribution upon the Common Stock payable to stockholders of record on a date prior to the exercise in full or termination or expiration of the option to purchase the Additional Shares; (j) it will mail and make generally available to its security holders and furnish to the Underwriters as soon as reasonably practicable a consolidated earnings statement covering a period of at least 12 months beginning after the "effective date" (as defined in Rule 158 under the Act) of the Registration Statement (but in no event commencing later than 90 days after such date) that will satisfy the provisions of Section 11(a) of the Act and Rule 158 thereunder and to advise you in writing when such statement has been made so available; (k) during the period of five years after the date of this Agreement, it will furnish to you a copy (i) as soon as practicable after the filing thereof, of each report filed by the Company with the Commission, any securities exchange or the National Association of Securities Dealers, Inc. ("NASD"); (ii) as soon as practicable after the release thereof, of each press release relating to the Company; (iii) as soon as available, of each report of the Company mailed to stockholders; and (iv) as soon as available, such other publicly available information concerning the Company as you may reasonably request; (l) whether or not the transactions contemplated hereby are consummated or this Agreement becomes effective as to all of its provisions or is terminated, to pay all costs, fees, expenses and taxes incident to the performance by the Company of its obligations hereunder, including (i) the preparation, printing, filing and distribution under the Act of the Registration Statement (including financial statements and exhibits), each preliminary Prospectus and all amendments and supplements to any of them prior to or during the period specified in paragraph (e) above of this Section 5, (ii) the word processing, reproduction and distribution of this Agreement, the Blue Sky Survey and any other agreements, memoranda, correspondence and other documents prepared and delivered by the Underwriters or their counsel in connection with the offering of the Shares (including in each case any disbursements of counsel for the Underwriters relating to such preparation and delivery), (iii) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states, including in each case the fees and disbursements of counsel for the Underwriters, relating to such registration or qualification and memoranda relating thereto, (iv) filings and clearance with the NASD in connection with the offering and sale of the Shares, (v) the approval for quotation of the Shares on the Nasdaq National Market, (vi) furnishing such copies of the Registration Statement, each Preliminary Prospectus, the Prospectus and all amendments and supplements thereto as may be requested for use in connection with the offering or sale of the Shares by the Underwriters or by dealers to whom the Shares may be sold, (vii) obtaining the opinions to be provided pursuant to Section 8(g) of this Agreement and (viii) the performance by the Company of all of its other obligations under this Agreement; if the sale of the Shares provided for herein is not consummated because the Underwriters 7 9 exercise their right to terminate this Agreement pursuant to Section 9 hereof and any of the following have occurred during the term of this Agreement: (a) there has been any material adverse change in the condition (financial or otherwise), earnings, affairs, business or prospects of the Company, or (b) the Company or any of the Selling Stockholders shall refuse or be unable to comply with any provision hereof (except as the result of a breach of this Agreement by the Underwriters), the Company will promptly reimburse the Underwriters upon demand for all reasonable out-of-pocket expenses (including the fees and disbursements of counsel for the Underwriters) that shall have been incurred by the Underwriters in connection with the proposed purchase and sale of Shares; (m) it intends to use the net proceeds received by it from the sale of the Shares being sold by it in the manner specified in the Prospectus and it will file such reports with the Commission with respect to the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act and will furnish you copies of any such reports as soon as practicable after the filing thereof; (n) if, at the time of effectiveness of the Registration Statement, any information shall have been omitted therefrom in reliance upon Rule 430A, then immediately following the execution and delivery of this Agreement, it will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b), copies of an amended prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended prospectus), containing all information so omitted; (o) it will cause the Shares to be approved for quotation, subject to notice of issuance or sale, on the Nasdaq National Market; it will comply with all registration, filing and reporting requirements of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") and the Nasdaq National Market; and (p) it will use its best efforts to do and perform all things required to be done and performed under this Agreement by it prior to or after the Closing Date or any Option Closing Date, as the case may be, and to satisfy all conditions precedent to the delivery of the Shares. 6. Representations and Warranties. (a) The Company represents and warrants, and the Selling Stockholders severally and not jointly represent and warrant, to each Underwriter as of the date hereof, the Closing Date and each Option Closing Date that: (i) the Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus relating to the proposed offering of the Shares nor instituted or threatened any proceedings for that purpose. The Registration Statement, on the date it became or becomes effective, each Preliminary Prospectus, on the date of the filing 8 10 thereof with the Commission, and the Prospectus and any amendment or supplement thereto, on the date of filing thereof with the Commission (or if not filed, on the date provided by the Company to the Underwriters in connection with the offering and sale of the Shares) and at the Closing Date and each Option Closing Date conformed or will conform with the requirements of the Act and the rules and regulations promulgated thereunder ("Rules and Regulations"); the Registration Statement, on the date it became or becomes effective, did not or will not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; each Preliminary Prospectus, on the date of the filing thereof with the Commission, and the Prospectus and any amendment or supplement thereto, on the date of filing thereof with the Commission (or if not filed, on the date provided by the Company to the Underwriters in connection with the offering and sale of the Shares) and at the Closing Date and each Option Closing Date did not and will not include an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; the foregoing shall not apply to statements in or omissions from the Registration Statement and the Prospectus made or omitted in reliance upon, and in conformity with, information relating to the Underwriters furnished in writing to the Company by or on behalf of the Underwriters with your consent expressly for use therein; the Company and the Selling Stockholders hereby acknowledge for all purposes under this Agreement that (A) the statements set forth under the caption "Underwriting" in the Prospectus, (B) the stabilization and passive market making legends on the gate-fold of the Prospectus and (C) footnotes 1 and 3 and the last paragraph of text on the cover page of the Prospectus constitute the only written information furnished to the Company by or on behalf of the Underwriters for use in the preparation of the Registration Statement or the Prospectus or any amendment or supplement thereto; (ii) the Company has no subsidiaries and has never had a subsidiary; the Company has been duly incorporated and is a validly existing corporation in good standing under the laws of Delaware, with full corporate power and authority to own or lease its properties and assets and to conduct its business as described in the Registration Statement and the Prospectus and is duly qualified to do business in each jurisdiction in which it owns or leases real property or in which the conduct of its business or the ownership or leasing of property requires such qualification, except where the failure to be so qualified, either individually or in the aggregate, would not have a material adverse effect on the condition (financial or otherwise), business, assets, prospects, net worth or results of operations of the Company taken as a whole (a "Material Adverse Effect"); (iii) the capitalization of the Company is, and upon consummation of the transactions contemplated hereby and by the Prospectus will be, as set forth in the Registration Statement and the Prospectus under the caption "Capitalization;" all of the outstanding shares of capital stock of the Company have been duly authorized and are validly issued, are fully paid and non-assessable and conform to the description thereof in the Registration Statement and the Prospectus and were 9 11 not issued in violation of any preemptive rights or other rights to subscribe for or purchase securities; and, except as set forth in the Registration Statement and the Prospectus with respect to the Option Plans, no options, warrants or other rights to purchase from the Company, agreements or other obligations of the Company to issue or other rights to convert any obligation into, or exchange any securities for, shares of capital stock of or ownership interests in the Company are outstanding; the description of the Company's 1992 Stock Option Plan and the other options or rights granted and exercised thereunder, as set forth in the Registration Statement and the Prospectus, accurately and fairly presents the information required to be shown under the Act with respect to such options and rights; (iv) subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as described therein, (A) the Company has not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business, (B) the Company has not purchased any of its outstanding capital stock or declared, paid or otherwise made any dividend or distribution of any kind on its capital stock or otherwise and (C) there has not been any material adverse change in the Company's condition (financial or otherwise), business, affairs, prospects or results of operations or any material change in the Company's capital stock, short-term debt or long-term debt; (v) the Shares to be sold by the Company pursuant to this Agreement have been duly and validly authorized and, when issued, delivered and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable, and will conform to the description thereof contained in the Prospectus; (vi) this Agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding agreement of the Company enforceable in accordance with its terms, except (i) as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general equity principles and (ii) that rights to indemnity or contribution hereunder may be limited by Federal or state securities laws or the public policy underlying such laws; (vii) the Company is not in violation of its Certificate of Incorporation or by-laws; the Company is not in violation of or in breach of or in default in (nor has any event occurred that with notice or lapse of time, or both, would be a breach of or a default in) the performance of any obligation, agreement or condition contained in any agreement, lease, contract, permit, license, franchise agreement, mortgage, loan agreement, debenture, note, deed of trust, bond, indenture or other evidence of indebtedness or any other instrument or obligation (collectively, "Obligations and Instruments") to which the Company is a party or by which the Company or any of its properties or assets is bound or affected (except for such contravention or default as would not have a Material Adverse Effect); the 10 12 Company is not in violation of any statute, judgment, decree, order, Rule or regulation (collectively, "Laws") applicable to the Company or any of its properties or assets that, alone, or together with other violations of Laws would result in a Material Adverse Effect; and, to the best knowledge of the Company, no other party under any contract or other agreement to which the Company is a party is in material default thereunder except for such defaults as would not individually or in the aggregate result in a Material Adverse Effect; (viii) the execution, delivery and performance of this Agreement and delivery of the Shares by the Company and compliance by the Company with all the provisions hereof and the consummation of the transactions contemplated hereby and as described in the Prospectus will not, alone or upon notice or the passage of time or both (A) require any consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body or third party (except such as may be required under the Act and the securities or Blue Sky laws of the various states or by the NASD), (B) result in the creation or imposition of any lien, charge or encumbrance upon any of the properties or assets of the Company pursuant to the terms and provisions of any Obligation or Instrument, (C) conflict with or constitute a breach or default under any Obligation or Instrument to which the Company is a party or by which the Company or any of its properties or assets is bound, (except for such creation, conflict, breach or default as would not have a Material Adverse Effect), or (D) assuming compliance with the Act and all applicable state securities or Blue Sky laws, violate or conflict with any Laws applicable to the Company or any of its properties or assets (except for such violation or conflict as could not have a Material Adverse Effect); no action, suit or proceeding before any court or arbitrator or any governmental body, agency or official (domestic or foreign) is pending against or, to the knowledge of the Company, threatened against the Company, that, if adversely determined, could reasonably be expected to in any manner invalidate this Agreement; (ix) except as set forth in the Prospectus, there is no action, suit, proceeding, inquiry or investigation, governmental or otherwise before any court, arbitrator or governmental agency or body (collectively, "Proceedings") pending to which the Company is a party or to which any of its properties or assets are subject, that, if determined adversely to the Company, might result in a Material Adverse Effect, or that might materially and adversely affect the properties or assets thereof, or that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of any of the Shares to be sold hereunder or the consummation of the transactions described in the Prospectus and, to the best knowledge of the Company after due inquiry, no such Proceedings are threatened or contemplated; and there is no contract, document, agreement or transaction to which the Company is a party, or that involved or involves the Company or any of its properties or assets that are required to be described in or filed as exhibits to the Registration Statement or the Prospectus by the Act or the Rules and Regulations that have not been so described or filed; no action has been 11 13 taken with respect to the Company, and, to the best knowledge of the Company and the Selling Stockholders, no statute, Rule or regulation or order has been enacted, adopted or issued by any governmental agency that suspends the effectiveness of the Registration Statement, prevents or suspends the use of any Preliminary Prospectus or the Prospectus or suspends the sale of the Shares in any jurisdiction referred to in Section 5(g) hereof; no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction has been issued with respect to the Company that might prevent the issuance of the Shares, suspend the effectiveness of the Registration Statement, prevent or suspend the use of any Preliminary Prospectus or the Prospectus or suspend the sale of the Shares in any jurisdiction referred to in Section 5(g) hereof; and every request of the Commission, or any securities authority or agency of any jurisdiction, for additional information (to be included in the Registration Statement or the Prospectus or otherwise) has been complied with in all material respects; (x) the Company has not violated any foreign, federal, state or local law or regulation relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), nor any foreign, Federal, state or local law relating to discrimination in the hiring, promotion or pay of employees nor any applicable foreign, Federal or state wages and hours laws, nor any provisions of the Employee Retirement Income Security Act of 1974, as amended or the rules and regulations promulgated thereunder or similar foreign laws, that, in each case or in the aggregate, might result in a Material Adverse Effect; none of the property leased by the Company is contaminated with any waste or hazardous substances (except that certain leased locations may contain asbestos or certain cleaning materials, the presence of which will not result in a Material Adverse Effect), nor may the Company be deemed an "owner or operator" of a "facility" or "vessel" that owns, possesses, transports, generates, discharges or disposes of a "hazardous substance" as those terms are defined in Section 9601 of the Comprehensive Response Compensation and Liability Act of 1980, U.S.C. Section 9601 et seq.; (xi) the Company has such permits, licenses, franchises and authorizations of governmental or regulatory authorities or third parties ("Permits"), including, without limitation, under any applicable Environmental Laws, as are necessary to own, lease and operate its properties and assets and to conduct its businesses, except where the failure to have any such Permit would not have a Material Adverse Effect; the Company has fulfilled and performed all of its material obligations with respect to such Permits and no event has occurred that allows, or after notice or lapse of time, or both would allow, revocation or termination thereof or result in any other material impairment of the rights of the holder of any such Permit; and except as described in the Prospectus, such Permits contain no restrictions that are materially burdensome to the Company; (xii) the Company is not, and does not intend to conduct its business in a manner in which it would become, an "investment company" or a company 12 14 "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"); (xiii) except as otherwise set forth in the Prospectus, the Company has good and marketable title, free and clear of all liens, claims, encumbrances and restrictions (except liens for taxes not yet due and payable) to all property and assets described in the Registration Statement as being owned by it; all leases to which the Company is a party are subsisting, valid and binding and no default of the Company or, as applicable, any of the Selling Stockholders or their respective affiliates or, to the best knowledge of the Company and the Selling Stockholders, any other person has occurred or is continuing thereunder that might result in a Material Adverse Effect; and the Company enjoys peaceful and undisturbed possession under all such leases to which the Company is a party as lessee with such exceptions as do not materially interfere with the use made thereof by the Company; (xiv) the Company maintains reasonably adequate insurance for the conduct of its business in accordance with prudent business practices (and the insurance maintained by retailers generally) with reputable third-party insurers; (xv) to the best knowledge of the Company and the Selling Stockholders, Ernst & Young LLP, the accounting firm that has certified or reviewed, or shall certify or review, the financial statements and supporting schedules filed or to be filed with the Commission as part of the Registration Statement and the Prospectus, is an independent public accounting firm with respect to the Company as required by the Act; (xvi) the consolidated financial statements of the Company, together with related notes and schedules of the Company included in the Registration Statement and the Prospectus, are accurate and present fairly the financial position, results of operations and cash flows of the Company at the indicated dates and for the indicated periods; such financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied throughout the periods involved, and all adjustments necessary for a fair presentation of results for such periods have been made and any unaudited financial statements have been prepared on a basis substantially consistent with that of the audited operating financial statements included in the Registration Statement and the Prospectus; and the summary and selected financial and operating data included in the Registration Statement and the Prospectus presents fairly the information shown therein and have been compiled on a basis consistent with the audited and any unaudited financial statements, as the case may be, included therein; and the pro forma information included in the Prospectus present fairly the information shown therein, have been prepared in accordance with GAAP and the Commission's rules and guidelines with respect to pro forma financial statements and other pro forma information, have been properly compiled on the pro forma basis described therein, and the assumptions used in the preparation thereof are 13 15 reasonable and the adjustments used therein are appropriate under the circumstances; (xvii) no holder of any security of the Company has any right to require inclusion of any such security in the Registration Statement; there are no preemptive rights with respect to the offering being made by the Prospectus; (xviii) except as disclosed in the Registration Statement and the Prospectus, no labor dispute with the employees of the Company exists, or to the best knowledge of the Company after due inquiry, is imminent, that could result in a Material Adverse Effect; and the Company has not received notice of any existing or imminent labor disturbance by the employees of any of its principle suppliers, customers, manufacturers or contractors that could result in any Material Adverse Effect; (xix) the Company has filed or caused to be filed, or has properly filed extensions for, all foreign, federal, state and local income, value added and franchise tax returns and has paid all taxes and assessments shown thereon as due, except for such taxes and assessments as are disclosed or adequately reserved against and that are being contested in good faith by appropriate proceedings, promptly instituted and diligently conducted; all material tax liabilities are adequately provided for on the books of the Company, and there is no material tax deficiency that has been or might be asserted against the Company that is not so provided for; (xx) the Company owns or possesses, or can acquire on reasonable terms, the patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, "Patents and Proprietary Rights") currently employed by it in connection with the business it now operates except where the failure to so own, possess or acquire such Patents and Proprietary Rights would not have a Material Adverse Effect; and the Company has not received any notice and is not otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Patent or Proprietary Rights that, if the subject of any unfavorable decision, ruling or finding, singly or in the aggregate, could result in a Material Adverse Effect; (xxi) the Company has conducted, is conducting and intends to conduct its business so as to comply in all material respects with applicable federal, state, local and foreign government Laws, except where the failure to comply would not have a Material Adverse Effect; and except as set forth in the Registration Statement and the Prospectus, the Company is not charged with or, to the Company's knowledge after due inquiry, under investigation with respect to, any material violation of any such Laws; 14 16 (xxii) the Company has not taken and will not take, directly or indirectly, any action designed to or which has constituted or that might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares; (xxiii) neither the Company nor, to the best knowledge of the Company and the Selling Stockholders, any employee or agent of the Company has made any payment of funds of the Company or received or retained any funds in violation of any law, Rule or regulation (including, without limitation, the Foreign Corrupt Practices Act) or of a character required to be disclosed in the Prospectus; the Company has not, at any time during the past five years, (1) made any unlawful contributions to any candidate for any political office, or failed fully to disclose any contribution in violation of law, or (2) made any unlawful payment to state, federal or foreign government officer or officers, or other person charged with similar public or quasi-public duty; (xxiv) no transaction has occurred between or among the Company and any of the Company's officers or directors or any affiliate or affiliates of any such officer or director that is required to be described in and is not described in the Registration Statement and the Prospectus; (xxv) other than as provided to the Underwriters under this Agreement, the Company has not incurred any liability for finder's or broker's fees or agent's commissions in connection with the execution and delivery of this Agreement, the offer and sale of the Shares or the transactions hereby contemplated; (xxvi) the Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for inventory is compared with the existing inventory at reasonable intervals and appropriate action is taken with respect to any differences; and (xxvii) there is no material document of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that is not described or filed as required. (b) In addition to the foregoing, the Selling Stockholders severally and not jointly represent and warrant to, and agree with, the Underwriters that: (i) Such Selling Stockholder has all requisite power to enter into this Agreement and to sell, assign, transfer and deliver to the Underwriters the Shares 15 17 to be sold by such Selling Stockholder hereunder in accordance with the terms of this Agreement. This Agreement has been duly executed and delivered by such Selling Stockholder and constitutes and will constitute the legal, valid and binding obligation of such Selling Stockholder enforceable against such Selling Stockholder in accordance with its terms, except (i) as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the creditors' rights generally and by general equity principles and (ii) that rights to indemnity or contribution hereunder may be limited by Federal or state securities laws or the public policy underlying such laws. (ii) Such Selling Stockholder has duly executed and delivered a power of attorney and custody agreement (with respect to such Selling Stockholder, the "Power-of-Attorney" and the "Custody Agreement," respectively), each in the form heretofore delivered to the Representatives, appointing each of Phillip Wiland and Franklin Marcus, individually, as such Selling Stockholder's attorney-in-fact (in each case, the "Attorney-in-Fact") with authority to execute, deliver and perform this Agreement on behalf of such Selling Stockholder and appointing Norwest Bank Minnesota, N.A., as custodian thereunder (the "Custodian"). Certificates in negotiable form, endorsed in blank or accompanied by blank stock powers duly executed, with signatures appropriately guaranteed, representing the Shares to be sold by such Selling Stockholder hereunder have been deposited with the Custodian pursuant to the Custody Agreement for the purpose of delivery pursuant to this Agreement. Such Selling Stockholder has full power to enter into the Custody Agreement and the Power-of-Attorney and to perform its obligations under the Custody Agreement. The Custody Agreement and the Power-of-Attorney have been duly executed and delivered by such Selling Stockholder and are the legal, valid, binding and enforceable instruments of such Selling Stockholder, except (i) as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general equity principles and (ii) that rights to indemnity or contribution hereunder may be limited by Federal or state securities laws or the public policy underlying such laws. Such Selling Stockholder agrees that each of the Shares represented by the certificates on deposit with the Custodian is subject to the interests of the Underwriters hereunder, that the arrangements made for such custody, the appointment of the Attorneys-in-Fact and the right, power and authority of the Attorneys-in-Fact to execute and deliver this Agreement and to carry out the terms of this Agreement, are to that extent irrevocable and that the obligations of such Selling Stockholder hereunder shall not be terminated, except as provided in this Agreement or the Custody Agreement, by any act of such Selling Stockholder, by operation of law or otherwise, whether in the case of any individual Selling Stockholder by the death or incapacity of such Selling Stockholder, in the case of a trust or estate by the death of the trustee or trustees or the executor or executors or the termination of such trust or estate, or in the case of a corporate or partnership Selling Stockholder by its liquidation or dissolution or by the occurrence of any other event. If any individual Selling 16 18 Stockholder, trustee or executor should die or become incapacitated or any such trust should be terminated, or if any corporate or partnership Selling Stockholder shall liquidate or dissolve, or if any other event should occur, before the delivery of such Shares hereunder, the certificates for such Shares deposited with the Custodian shall be delivered by the Custodian in accordance with the respective terms and conditions of this Agreement as if such death, incapacity, termination, liquidation or dissolution or other event had not occurred, regardless of whether or not the Custodian or the Attorneys-in-Fact shall have received notice thereof. (iii) Such Selling Stockholder is the lawful record and beneficial owner of the Shares to be sold by such Selling Stockholder hereunder. Upon sale and delivery of, and payment for, such Shares, as provided herein, such Selling Stockholder will convey good and marketable title to such Shares, free and clear of any security interests, liens, encumbrances, equities, claims, options, rights of third parties or other defects. (iv) Such Selling Stockholder has reviewed the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) and the Registration Statement, and the information regarding such Selling Stockholder set forth therein under the caption "Principal and Selling Stockholders" is complete and accurate. (v) The sale by such Selling Stockholder of Shares pursuant hereto is not prompted by any adverse information concerning the Company or any Subsidiary that is not set forth in the Registration Statement or the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus). (vi) The sale of the Shares to the Underwriters by such Selling Stockholder pursuant to this Agreement, the compliance by such Selling Stockholder with the other provisions of this Agreement, the Custody Agreement and the consummation of the other transactions herein contemplated do not (A) require the consent, approval, authorization, registration or qualification of or with any governmental authority, except such as have been obtained, such as may be required under state and foreign Blue Sky laws and, if the Registration Statement is not effective under the Securities Act as of the time of execution hereof, such as may be required (and shall be obtained as provided in this Agreement) under the Securities Act and the Exchange Act, or (B) result in a breach or violation of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust, lease or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder or any of such Selling Stockholder's properties are bound, or any statute or any judgment, decree, order, rule or regulation of any court or other governmental authority or any arbitrator applicable to such Selling Stockholder; and 17 19 (vii) none of the Selling Stockholders nor any trustee or beneficiary of the Selling Stockholders is affiliated as a director, officer, partner, stock holder, or otherwise with any securities broker or dealer which is a member of the NASD or any other organization that owns or controls any member of the NASD. (c) Any certificate signed by any officer of the Company and delivered to you or to counsel for the Underwriters shall be deemed a representation and warranty made by the Company and each of the Selling Stockholders to each Underwriter as to the matters covered thereby and, severally and not jointly, shall be deemed incorporated herein in its entirety and shall be effective as if such representation and warranty were made herein; and any certificate signed by the Selling Stockholders as such and delivered to you or to counsel for the Underwriters shall also be deemed a representation and warranty made by the Company and, severally and not jointly, each of the Selling Stockholders to each Underwriter as to the matters covered thereby and shall also be deemed incorporated herein in its entirety and shall be effective as if such representation and warranty were made herein; provided, however, that the indemnification contained in this paragraph with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter or any employee of such Underwriter) on account of any such loss, liability, claim, damage or expense arising from the sale of the Firm Shares or Additional Shares by such Underwriter to any person if a copy of the Prospectus shall not have been sent to such person within the time required by the Act and the Regulations, and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Preliminary Prospectus was corrected in the Prospectus, as amended or supplemented, provided that the Company had delivered the Prospectus, as amended or supplemented, to the several Underwriters on a timely basis to permit such delivery or sending. 7. Indemnification. (a) The Company agrees, and, subject to Section 7(e) below, the Selling Stockholders, severally and not jointly agree, to indemnify and hold harmless each of the Underwriters and each person, if any, who controls each of the Underwriters within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (collectively the Underwriters and each such person are referred to herein as the "indemnified parties") from and against any and all losses, claims, damages, liabilities and judgments caused by, arising out of, related to or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A, if applicable, or the Prospectus or any Preliminary Prospectus or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that neither the Company nor any Selling Stockholder shall be liable in any such case to the extent that such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission made or omitted in reliance upon, and in conformity with, 18 20 information relating to the Underwriters furnished in writing to the Company by or on behalf of the Underwriters with your consent expressly for use therein. (b) In case any action shall be brought against any of the indemnified parties, based upon any Preliminary Prospectus, the Registration Statement or the Prospectus or any amendment or supplement thereto and with respect to which indemnity may be sought against the Company or any Selling Stockholder, such indemnified parties shall promptly notify the Company (and the Selling Stockholders, care of the Company) in writing (but the failure so to notify shall not relieve the Company or the Selling Stockholders of any liability that they may otherwise have to such indemnified parties under this Section 7 (although the Company's and the Selling Stockholders' liability to an indemnified party may be reduced on a monetary basis to the extent, but only to the extent, they have been prejudiced by such failure on the part of such indemnified party)), and the Company and the Selling Stockholders shall promptly assume the defense thereof, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses. The indemnified parties shall each have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified parties unless (i) the employment of such counsel shall have been specifically authorized by the Company, (ii) the Company and the Selling Stockholders shall have failed to assume promptly the defense or to employ counsel reasonably satisfactory to such indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified parties and the Company or the Selling Stockholders, and an indemnified party shall have been advised by counsel that there may be one or more legal defenses available to one or more of the indemnified parties that are different from or additional to those available to the Company or the Selling Stockholders (in which case the Company and the Selling Stockholders shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, that the Company and the Selling Stockholders shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for the indemnified parties, which firm shall be designated in writing by EVEREN Securities, Inc., and that all such fees and expenses shall be reimbursed promptly as they are incurred). The Company and the Selling Stockholders shall not be liable for any settlement of any such action effected without their written consent, which consent shall not be unreasonably withheld, but if settled with the written consent of the Company and the Selling Stockholders, the Company and the Selling Stockholders agree to indemnify and hold harmless the indemnified parties from and against any and all loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 10 business days after delivery by registered or certified mail to the proper address for notice 19 21 to such indemnifying party of the aforesaid request (whether or not such delivery is accepted) and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could reasonably have been expected to have been made a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional and complete release in writing of such indemnified party from any and all liability on claims that are the subject matter of such proceeding, which such settlement shall be in form and substance reasonably satisfactory to the indemnified party. The indemnification provided in this Section 7 will be in addition to any liability which the Company and the Selling Stockholders may otherwise have. (c) The Underwriters agree, severally and not jointly, to indemnify and hold harmless the Selling Stockholders, the Company, its directors, its officers who sign the Registration Statement and any person controlling the Company or any Selling Stockholder within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company and the Selling Stockholders to the Underwriters but only with reference to information stated in or omitted from the Registration Statement, the Prospectus or any Preliminary Prospectus in reliance upon, and in conformity with, information relating to the Underwriters furnished in writing to the Company by or on behalf of the Underwriters with your consent expressly for use therein. In case any action shall be brought against the Company, any of the Selling Stockholders, any of the Company's directors, any such officers or any person controlling the Company based on the Registration Statement, the Prospectus or any Preliminary Prospectus and in respect of which indemnity may be sought against the Underwriters, the Underwriters shall have the rights and duties given to the Company and the Selling Stockholders by Section 7(b) hereof (except that if the Company and the Selling Stockholders shall have assumed the defense thereof, such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such Underwriter), and the Selling Stockholders, the Company, its directors, any such officers and any person controlling the Company shall have the rights and duties given to the "indemnified parties" by Section 7(b) hereof. (d) To provide for just and equitable contribution, if an indemnified party makes a claim for indemnification pursuant to Section 7 (subject to the limitations hereof) but it is found in a final judicial determination, not subject to further appeal, that such indemnification may not be enforced in such case, even though this Agreement expressly provides for indemnification in such case, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the 20 22 allocation provided in clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering and sale of the Shares (before deducting expenses) received by the Company and the Selling Stockholders on the one hand, and the total underwriting discounts and commissions received by the Underwriters on the other, bears to the total price to the public of the Shares, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company, the Selling Stockholders and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or the alleged omission to state a material fact relates to information supplied by the Company, the Selling Stockholders or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation (even if the Underwriters or the Selling Stockholders were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise paid or been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and the Selling Stockholders shall not be required to contribute, more in the aggregate than the Maximum Amount (as defined below). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligation in this Section 7(d) to contribute are several in proportion to the respective amount of Shares purchased hereunder by each Underwriter and not joint. (e) (i) The liability of each Selling Stockholder under this Section 7, together with any liability for any breach of any representation, warranty, covenant or other provision of this Agreement, shall be limited to the proceeds received by such Selling Stockholder from the sale of such Selling Stockholder's Shares pursuant to this Agreement, net of (i) underwriting discounts and commissions paid by such Selling 21 23 Stockholder to the Underwriters in connection with such sale, and (ii) federal and state income taxes paid by such Selling Stockholder on the proceeds received by such Selling Stockholder as a consequence of such sale. The foregoing limitation for each Selling Stockholder is referred to as the "Maximum Amount." (ii) In addition, the liability of each Selling Stockholder under this Section 7, together with any liability for any breach of any representation, warranty, covenant or other provision of this Agreement, shall be proportional based on the ratio that the number of Shares being sold by such Selling Stockholder bears to the total number of Shares being sold by all Selling Stockholders; provided, however, that with respect to the breach of any representation or warranty in Section 6(b), such liability shall not be so proportional, no Selling Stockholder shall be liable for the breach of any such representation or warranty by any other Selling Stockholder, and each Selling Stockholder shall be liable in full (not to exceed the Maximum Amount) with respect to any breach thereof by such Selling Stockholder. (f) No Underwriter or controlling person may obtain any remedies from any Selling Stockholder for any specific claim under this Agreement (except for any claim based upon the breach by any Selling Stockholder of any representation or warranty in any of Section 6(b)(i) through Section 6(b)(vii) to which this restriction shall not apply), until such Underwriter or controlling person has first used all reasonable efforts to pursue and exhaust all remedies it may have against the Company with respect to such specific claim. Without limiting the generality of the foregoing, an Underwriter or controlling person shall be deemed to have used all reasonable efforts to pursue and exhaust all remedies it may have against the Company with respect to such specific claim, and may pursue any remedies it may have against the Selling Stockholder, if (A) such Underwriter or controlling person is in the process of pursuing remedies against the Company and any of the following events occurs, or, prior to the time at which such Underwriter or controlling person commences the process of pursuing remedies against the Company, any of the following events has occurred and is continuing: (1) the Company files a petition, answer or any pleading seeking or acquiescing in any reorganization, liquidation or other relief under chapter 7 or 11 of the Bankruptcy Code; (2) the Company seeks or acquiesces in the appointment of a trustee (other than a trustee appointed solely for the purposes of facilitating the issuance of any debt securities of the Company), receiver or liquidator of all or part of its assets; or (3) the Company makes a general assignment for the benefit of its creditors, (B) a court of competent jurisdiction: (1) appoints a trustee, receiver or liquidator of all or part of the Company's assets; or (2) determines in any action, suit or proceeding that the Company is insolvent (in the accounting, bankruptcy, equity or legal definitions), or (C) a court or arbitration panel of competent jurisdiction enters an order in any action, suit or proceeding by such Underwriter or controlling person against the Company that is materially adverse to such Underwriter or controlling person, and is either an order on the merits of such action, suit or proceeding, or is an order relating to a procedural question which likely would materially impact the ability of such Underwriter or controlling person to recover its claims against the Company. Notwithstanding the foregoing, if, in the reasonable judgment of any Underwriter or controlling person, the applicable statute of limitations for any potential action, suit or proceeding by such Underwriter or controlling person for indemnification against the Selling Stockholder will expire, such Underwriter or controlling person may name the Selling Stockholder in any action, suit or proceeding to which the Company is also a party solely for purposes of 22 24 preserving any rights such Underwriter or controlling person may have to seek indemnification from the Selling Stockholder after having used its reasonable efforts to pursue and exhaust all remedies it may have against the Company. 8. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm Shares on the Closing Date and the Additional Shares on any Option Closing Date are subject to the fulfillment of each of the following conditions on or prior to the Closing Date and each Option Closing Date: (a) All the representations and warranties of the Company and the Selling Stockholders contained in this Agreement and in any certificate delivered hereunder shall be true and correct on the Closing Date and each Option Closing Date with the same force and effect as if made on and as of the Closing Date or Option Closing Date, as applicable. The Company and the Selling Stockholders shall not have failed at or prior to the Closing Date or Option Closing Date, as applicable, to perform or comply in all respects with any of the agreements herein contained and required to be performed or complied with by the Company or the Selling Stockholders at or prior to the Closing Date. (b) If the Registration Statement is not effective at the time of the execution and delivery of this Agreement, the Registration Statement shall have become effective (or, if a post-effective amendment is required to be filed pursuant to Rule 430A under the Act, such post-effective amendment shall have become effective) not later than 9:30 A.M., New York City time, on the date of this Agreement or such later time as you may approve in writing or, if the Registration Statement has been declared effective prior to the execution and delivery hereof in reliance on Rule 430A, the Prospectus shall have been filed as required hereby, if necessary; and at the Closing Date and each applicable Option Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending before or, to the best knowledge of the Underwriters, the Company or the Selling Stockholders, threatened by the Commission; every request for additional information on the part of the Commission shall have been complied with to the Underwriters' satisfaction; no stop order suspending the sale of the Shares in any jurisdiction referred to in Section 5(g) shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or threatened. (c) The Shares shall have been qualified for sale under the Blue Sky laws of such states as shall have been specified by the Representatives. (d) The legality and sufficiency of the authorization, issuance and sale or transfer and sale of the Shares hereunder, the validity and form of the certificates representing the Shares, the execution and delivery of this Agreement and all corporate proceedings and other legal matters incident thereto, and the form of the Registration Statement and the Prospectus (except financial statements) shall have been approved by counsel for the Underwriters exercising reasonable judgment, and no Underwriter shall have advised the Company that the Registration Statement or the Prospectus, or any amendment or supplement thereto, contains an untrue statement of material fact, or omits 23 25 to state a fact that in your opinion is material and is required to be stated therein or is necessary to make the statements therein not misleading. (e) Subsequent to the execution and delivery of this Agreement, there shall not have occurred any material change, or any material development involving a prospective change, in or affecting particularly the business or properties of the Company, whether or not arising in the ordinary course of business, that, in the judgment of the Representatives, makes it impractical or inadvisable to proceed with the public offering or purchase of the Shares as contemplated hereby. (f) You shall have received an agreement from each of the officers and directors who are not Selling Stockholders of the Company (the "Additional Stockholders"), whereby each such officer or director agrees to be bound by an agreement to the same effect as the covenants set forth in the last paragraph of Section 3 of this Agreement (the "Lock-Up Agreements"). (g) You shall have received an opinion (satisfactory to you and your counsel) dated the Closing Date or the Option Closing Date, as the case may be, of McGuire, Woods, Battle & Boothe, L.L.P., counsel for the Company and the Selling Stockholders, in form and substance satisfactory to the Representatives as set forth in Exhibit A. (h) You shall have received an opinion of Gibson, Dunn & Crutcher LLP, counsel for the Underwriters, dated the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to the Representatives. (i) You shall have received, in connection with the execution of this Agreement and on the Closing Date and each Option Closing Date, a "cold comfort" letter from Ernst & Young LLP, dated as of each such date in form and substance satisfactory to you with respect to the financial statements and certain financial information and data contained in the Registration Statement and the Prospectus. (j) You shall have received from the Company a certificate, signed by Phillip A. Wiland, J. Michael Wolfe and H. Franklin Marcus, Jr. in their capacities as Chief Executive Officer, President and Chief Financial Officer of the Company, respectively, addressed to the Underwriters and dated the Closing Date or Option Closing Date, as applicable to the effect that: (i) such officer does not know of any Proceedings instituted, threatened or contemplated against the Company of a character required to be disclosed in the Prospectus that are not so disclosed; such officer does not know of any material contract required to be filed as an exhibit to the Registration Statement which is not so filed; (ii) such officer has carefully examined the Registration Statement and the Prospectus and all amendments or supplements thereto and, in such officer's opinion, such Registration Statement or such amendment as of its effective date 24 26 and as of the Closing Date, and the Prospectus or such supplement as of its date and as of the Closing Date, did not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and, in such officer's opinion, since the effective date of the Registration Statement, no event has occurred or information become known that should have been set forth in an amendment to the Registration Statement or a supplement to the Prospectus which has not been so set forth in such amendment or supplement; (iii) the representations and warranties of the Company set forth in Section 6(a) of this Agreement are true and correct as of the date of this Agreement and as of the Closing Date or the Option Closing Date, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date; and (iv) the Commission has not issued an order preventing or suspending the use of the Prospectus or any preliminary prospectus filed as a part of the Registration Statement or any amendment thereto; no stop order suspending the effectiveness of the Registration Statement has been issued; and, to the best knowledge of the respective signers, no proceedings for that purpose have been instituted or are pending or contemplated under the Act. The delivery of the certificate provided for in this subparagraph shall be and constitute a representation and warranty of the Company as to the facts set forth in said certificate. (k) You shall have received a certificate of each Selling Stockholder dated the Closing Date or the Option Closing Date, as the case may be, to the effect that the representations and warranties of such Selling Stockholder set forth in Sections 6(a) and 6(b) of this Agreement are true and correct as of such date and the Selling Stockholder has complied with all the agreements and satisfied all the conditions on the part of such Selling Stockholder to be performed or satisfied at or prior to such date. (l) You and Gibson, Dunn & Crutcher LLP, counsel for the Underwriters, shall have received on or before the Closing Date or the Option Closing Date, as the case may be, such further documents, opinions, certificates and schedules or instruments relating to the business, corporate, legal and financial affairs of the Company as you and they shall have reasonably requested from the Company. (m) Each Selling Stockholder will deliver to EVEREN Securities, Inc., prior to the Effective Date, a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). 25 27 9. Effective Date of Agreement, Termination and Defaults. This Agreement shall become effective upon, and shall not be deemed delivered until, the later of (i) execution of this Agreement and (ii) when notification of the effectiveness of the Registration Statement has been released by the Commission. This Agreement may be terminated at any time prior to the Closing Date and any exercise of the option to purchase Additional Shares may be canceled at any time prior to any Option Closing Date by the Underwriters by written notice to the Company if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or development involving a prospective material adverse change in the condition, financial or otherwise, of the Company or the earnings, assets, liabilities, affairs, prospects, management or business of the Company, whether or not arising in the ordinary course of business, that would, in the Representatives' sole judgment, make it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus, (ii) any outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic conditions or in the financial markets of the United States that, in the Representatives' judgment, is material and adverse and would, in the Representatives' judgment, make it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus, (iii) the suspension or material limitation of trading in securities on the NYSE, the American Stock Exchange or the Nasdaq Stock Market or limitation on prices for securities on either such exchange or the Nasdaq Stock Market, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, Rule or order of any court or other governmental authority that in the Representatives' opinion materially and adversely affects, or will materially and adversely affect, the business or operations of the Company, (v) the declaration of a banking moratorium by either federal or Illinois, New York or Colorado state authorities, (vi) the taking of any action by any Federal, state or local government or agency in respect of its monetary or fiscal affairs that in the Representatives' opinion has a material adverse effect on the financial markets in the United States, (vii) there shall be any change in financial markets or in political, economic or financial conditions which, in the opinion of the Representatives, either renders it impracticable or inadvisable to proceed with the offering and sale of the Shares on the terms set forth in the Prospectus or materially adversely affects the market for the Shares, or (vii) any conditions to the Underwriters' obligations shall not have been fulfilled when and as required by this Agreement. If on the Closing Date or on any Option Closing Date, as the case may be, any of the Underwriters shall fail or refuse to purchase the Firm Shares or Additional Shares, as the case may be, which it has agreed to purchase hereunder on such date, and the aggregate number of Firm Shares or Additional Shares, as the case may be, that such defaulting Underwriter or Underwriters agreed but failed or refused to purchase does not exceed, in the aggregate, 10% of the total number of Shares that all Underwriters are obligated to purchase on such date, each non-defaulting Underwriter shall be obligated, in the proportion which the number of Firm Shares set forth opposite its name in Schedule II hereto bears to the total number of Firm Shares or Additional Shares, as the case may be, that all the non-defaulting Underwriters have agreed to purchase, or in such other proportion as you may specify, to purchase the Firm Shares or Additional Shares, as the case may be, that such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date. If, on the Closing Date or on the Option Closing 26 28 Date, as the case may be, any of the Underwriters shall fail or refuse to purchase the Firm Shares or Additional Shares, as the case may be, in an amount that exceeds, in the aggregate, 10% of the total number of the Shares, and arrangements satisfactory to you and the Company for the purchase of such Shares are not made within 48 hours after such default, this Agreement shall terminate without liability on the part of the non-defaulting Underwriters, the Company and the Selling Stockholders, except as otherwise provided in this Section 9. In any such case that does not result in termination of this Agreement, either you or the Company may postpone the Closing Date or the Option Closing Date, as the case may be, for not longer than seven (7) days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve a defaulting Underwriter from liability in respect of any default of any such Underwriter under this Agreement. The indemnity and contribution provisions and other agreements, representations and warranties of the Company, the Selling Stockholders and the Company's officers and directors set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Shares, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of any of the Underwriters or by or on behalf of the Company or any Selling Stockholder or the officers or directors of the Company or any controlling person of the Company, (ii) acceptance of the Shares and payment therefor hereunder or (iii) termination of this Agreement. Notwithstanding any termination of this Agreement, the Company shall be liable for and shall pay all expenses it has agreed to pay pursuant to Section 5(l). Except as otherwise provided, this Agreement has been and is made solely for the benefit of, and shall be binding upon, the Company, the Selling Stockholders, the Underwriters, any indemnified person referred to herein and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The terms "successors and assigns" shall not include a purchaser of any of the Shares from any of the several Underwriters merely because of such purchase. 10. Effectiveness of Registration Statement. You, the Company and the Selling Stockholders will use your, its and their best efforts to cause the Registration Statement to become effective, if it has not yet become effective, and to prevent the issuance of any stop order suspending the effectiveness of the Registration Statement and, if such stop order be issued, to obtain as soon as possible the lifting thereof. 11. Miscellaneous. All communications hereunder will be in writing and, if sent to the Underwriters will be mailed, delivered or telegraphed and confirmed to you c/o EVEREN Securities, Inc., 77 West Wacker Drive, Chicago, Illinois 60601-1994, Attention: Syndicate Department, with a copy to Gibson, Dunn & Crutcher LLP, One Montgomery Street, San Francisco, California 94104, Attention: Kenneth R. Lamb; if sent to the Company will be mailed, delivered or telegraphed and confirmed to the Company at its corporate headquarters, attention Chief Executive Officer with a copy to McGuire, Woods, Battle & Boothe, L.L.P., One James Center, Richmond, Virginia 23219, Attention: Robert L. Burrus, Jr.; and if sent to the Selling 27 29 Stockholders will be mailed, delivered or telegraphed care of the Company, with a copy to, or in any case to such other address as the person to be notified may have requested in writing. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. 28 30 Please confirm that the foregoing correctly sets forth the agreement among the Company, the Selling Stockholders and the several Underwriters, including you. Very truly yours, CONCEPTS DIRECT, INC., a Delaware corporation By: ---------------------------------- Name: Phillip A. Wiland Title: Chief Executive Officer Selling Stockholders: ----------------------------------------- Phillip A. Wiland ----------------------------------------- Michael T. Buoncristiano ----------------------------------------- H. Franklin Marcus, Jr. ----------------------------------------- Phillip D. White ----------------------------------------- J. Michael Wolfe ----------------------------------------- Patricia Buoncristiano ----------------------------------------- Louise A. Buoncristiano R.L. POLK & CO. By: -------------------------------------- Title: ----------------------------------- Print Name: ----------------------------- The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. EVEREN Securities, Inc. Acting as Representatives of the several Underwriters named in Schedule II. 29 31 By: EVEREN Securities, Inc. By: -------------------------------- Todd Jadwin 30 32 SCHEDULE I
NAME AND ADDRESS OF SELLING STOCKHOLDER NUMBER OF FIRM SHARES Phillip A. Wiland 197,468 1351 South Sunset Longmont, Colorado 80501 Michael T. Buoncristiano 32,500 450 7th Street, Suite LL8 Hoboken, New Jersey 07030 H. Franklin Marcus, Jr. 6,000 1351 South Sunset Longmont, Colorado 80501 Phillip D. White 34,000 200 Camden Place Boulder, Colorado 80302 J. Michael Wolfe 12,528 1351 South Sunset Longmont, Colorado 80501 Patricia Buoncristiano 1,000 c/o Michael T. Buoncristiano 450 7th Street, Suite LL8 Hoboken, New Jersey 07030 Louise A. Buoncristiano 1,500 c/o Michael T. Buoncristiano 450 7th Street, Suite LL8 Hoboken, New Jersey 07030 R.L. Polk & Co. 843,600 1155 Brewery Park Boulevard Detroit, Michigan 48207
31 33 SCHEDULE II
UNDERWRITER NUMBER OF FIRM SHARES TO BE PURCHASED EVEREN Securities, Inc...................................... Scott & Stringfellow, Inc................................... TOTAL 1,600,000 =========
32 EX-5.1 3 OPINION AND CONSENT 1 Exhibit 5.1 McGuire, Woods, Battle & Boothe, L.L.P. One James Center Richmond, Virginia 23219 June 3, 1997 Concepts Direct, Inc. 1351 South Sunset Street Longmont, Colorado 80501 Concepts Direct, Inc. Registration Statement on Form S-1 Gentlemen: We are acting as your counsel in connection with the Registration Statement on Form S-1 (Registration No. 333-26133) (the "Registration Statement"), filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "1933 Act"), relating to the offer and sale of up to 1,840,000 shares of Common Stock, par value $.10 per share (the "Shares"), of Concepts Direct, Inc. (the "Company"). Defined terms not otherwise defined herein have the meaning ascribed to them in the Registration Statement. We have participated in the preparation of the Registration Statement and have examined such corporate records and documents, statements and certificates of officers of the Company and public officials and other materials as we have deemed necessary to the issuance of this opinion. Based on the foregoing, we are of the opinion that: 1. The Company is duly organized and validly existing under the laws of the State of Delaware. 2. The 1,840,000 Shares covered by the Registration Statement have been duly authorized. 3. The 1,128,596 Shares being sold by the Selling Stockholders referred to in the Registration Statement are, and the 471,404 Shares being sold by the Company and the 240,000 Shares covered by the over-allotment option granted by the Company to the Underwriters referred to in the Registration Statement, when issued and paid for as described in the Registration Statement, will be validly issued, fully paid and nonassessable. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the statement made in reference to our firm under the caption "Legal Matters" in the related Prospectus and in any amendment or supplement to the Prospectus. We do not admit by giving this consent that we are in the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, /s/ McGuire, Woods, Battle & Boothe, L.L.P. EX-10.11 4 STANDARD FORM OF AGREEMENT 1 EXHIBIT 10.11 SAUNDERS 111 STANDARD FORM OF AGREEMENT BETWEEN OWNER AND CONTRACTOR Where the basis of payment is the COST OF THE WORK PLUS A FEE with or without a Guaranteed Maximum Price 1995 Edition This Document has important legal consequences; consultation with an attorney is encouraged with respect to its completion or modification. The 1987 Edition of AIA Document A201, General Conditions of the Contract for Construction, is adopted in this document by reference. Do not use with other general conditions unless this document is modified. AGREEMENT Made as of the 1st day of May in the year of Nineteen Hundred and Ninety Seven. BETWEEN the Owner: CONCEPTS DIRECT, INC. (Name and Address) 1351 South Sunset Street Longmont, CO 80501-6549 and the Contractor: SAUNDERS CONSTRUCTION, INC. (Name & Address) 6950 South Jordan Road PO Box 3908 Englewood, CO 80155 the Project is: CONCEPTS DIRECT (Name & Address) 2950 Colorful Avenue Longmont, CO 80504 part of in The Architect is: INTERGROUP, INC. 2696 South Colorado Boulevard Denver, CO 80222 The Owner and Contractor agree as set forth below. 2 ARTICLE 1 THE CONTRACT DOCUMENTS 1.1 The Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions). Drawings, Specifications, Addenda issued prior to execution of this Agreement, other documents listed in this Agreement and Modifications issued after execution of this Agreement, these form the Contract and are as fully a part of the Contract as if attached to this Agreement or repeated herein. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. An enumeration of the Contract Documents, other than Modifications, appears in Article 16. If anything in the other Contract Documents is inconsistent with the Agreement, this Agreement shall govern. ARTICLE 2 THE WORK OF THIS CONTRACT 2.1 The Contractor shall execute the entire Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others, or as follows: All Work for the Project will be in accordance with the Contract Documents with the Budget/Qualifications noted in Attachment B. This contract is expressly contingent on the Owner providing to Saunders Construction, Inc. not later than May 15, 1997, a written BANK COMMITMENT of construction funding in terms acceptable to Saunders Construction, Inc. this evidence will reference to the source of funds. The Owner agrees to supply evidence of CONCEPTS DIRECT CORPORATE RESOLUTION FOR EXECUTION OF this agreement. THE CONTRACTOR WILL PERMIT OWNER TO ASSIGN THIS AGREEMENT TO A LENDER AS ADDITIONAL COLLATERAL FOR THE CONSTRUCTION LOAN AND CONTRACTOR WILL PERMIT THIS AGREEMENT TO BE REASONABLY AMENDED TO SATISFY CONSTRUCTION LENDERS REQUIREMENTS. ARTICLE 3 RELATIONSHIP OF THE PARTIES 3.1 The Contractor accepts the relationship of trust and confidence established by this Agreement and covenants with the Owner to cooperate with the Architect and utilize the Contractor's best skill, efforts and judgment in furthering the interests of the Owner; to furnish efficient business administration and supervision; to make bets efforts to furnish at all times an adequate supply of workers and materials; and to perform the Work in the best way and most expeditious and economical manner consistent with the interests of the Owner. The Owner agrees to exercise best efforts to enable the Contractor to perform the Work in the best way and most expeditious manner by furnishing and approving in a timely way information required by the Contractor and making payments to the Contractor in accordance with requirements of the Contract Documents. ARTICLE 4 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION 4.1 The date of commencement is the date from which the Contract Time of Subparagraph 4.2 is measured; it shall be the date of this Agreement, as first written above, unless a different date is stated below or provision is made for the date to be fixed in a notice to proceed issued by the Owner. DATE OF COMMENCEMENT IS: FEBRUARY 27, 1997. Execution of this agreement constitutes the Notice to Proceed from the Owner subject to any restrictions noted above. 4.2 The Contractor shall achieve Substantial Completion of the entire Work not later than SEPTEMBER 9, 1997. * IF CONTRACTOR ACHIEVES EARLIER SUBSTANTIAL COMPLETION DATE THEN THE BONUS 3 PROVISION OF SUPPLEMENTAL CONDITIONS (9.12.1) WILL PREVAIL, subject to adjustments of this Contract Time as provided in the Contract Documents. The Owner agrees to be responsible for applying for utility installations and for clarifying and modifying the Construction Documents as required by all approving authorities. The Contractor agrees to apply for all building permits, BONDS and to aid the Owner in coordinating with the building department and other governmental approving authorities for the release of all construction permits. The Contractor also agrees to aid the Owner in coordinating with the public utility companies for the timely installation of all utility installations. The Contractor will not be responsible for any delays caused by the Owner or his agents nor by the approving authorities or public utility companies. The completion date of the Work is subject to release of all permits and the installation of all public utilities so as not to delay the progress of construction. CONTRACTOR AGREES THAT THE OWNER SHALL HAVE THE RIGHT TO DELIVER FURNITURE AND EQUIPMENT INTO THE BUILDING PRIOR TO SUBSTANTIAL COMPLETION, IF THIS FURNITURE AND EQUIPMENT DOES NOT SERIOUSLY INTERFERE WITH THE CONTRACTORS OPERATIONS. QUESTIONS OF WHAT CONSTITUTES INTERFERENCE SHALL BE DEFINED BY THE ARCHITECT WHOSE DECISION SHALL BE FINAL. THE OWNER'S RIGHT TO OCCUPY PORTIONS OF THE PROJECT PRIOR TO SUBSTANTIAL COMPLETION SHALL BE GOVERNED BY THE SUPPLEMENTAL CONDITIONS. ARTICLE 5 CONTRACT SUM 5.1 The Owner shall pay the Contractor in current funds for the Contractor's performance of the Contract the Contract Sum consisting of the Cost of the Work as defined in Article 7 and the Contractor's Fee determined as follows: (State a lump sum, percentage of Cost of the Work or other provision for determining the Contractor's Fee, and explain how the Contractor's Fee is to be adjusted for changes in the Work.) The Contractor will be reimbursed for all Costs of the Work and a lump sum fee of $244,285.00. The Contractor will be entitled to a mark-up for overhead and fee of 10% on all changes. 5.2 GUARANTEED MAXIMUM PRICE (IF APPLICABLE) 5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by the Contractor not to exceed Six Million, Three Hundred Fifty One Thousand, Four Hundred Sixteen Dollars ($6,351,416.00), subject to additions and deductions by Change Order as provided in the Contract Documents. Such maximum sum is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Contractor without reimbursement by the Owner. (Insert specific provisions if the Contractor is to participate in any savings.) Saunders Construction, Inc. guarantees that the total cost of the Project, including the Contractor's fee, will not exceed the Guaranteed Maximum Price based on the Work as defined in this agreement; the cost for specific installations or line items is not guaranteed. 5.2.2 The Guaranteed Maximum Price is based upon the following alternates, if any, which are described in the Contract Documents and are hereby accepted by the Owner: (State the numbers or other identification of accepted alternates, but only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2.1. If decisions on other alternates are to be made by the Owner subsequent to the execution of this Agreement, attach a schedule of such other alternates showing the amount for each and the date under which that amount is valid.) ANY SAVINGS IN THE COST OF THE WORK SHALL BE CREDITED ONE HUNDRED PERCENT (100%) THEREOF TO OWNER. 5.2.3 The amounts agreed to for unit prices, if any, are as follows: (State unit prices only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2.1.) ARTICLE 6 CHANGES IN THE WORK 6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 4 6.1.1 Adjustments to the Guaranteed Maximum Price on account of changes in the Work may be determined by any of the methods listed in Subparagraph 7.3.3 of the General Conditions. 6.1.2 In calculating adjustments to subcontracts (except those awarded with the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and "fee" as used in Clause 7.3.3.3 of the General conditions and the terms "costs" and "a reasonable allowance for overhead and profit" as used in Subparagraph 7.3.6 of the General Conditions shall have the meanings assigned to them in the General Conditions and shall not be modified by Articles 5.7 and 8 of this Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on the basis of cost plus a fee shall be calculated in accordance with the terms of those subcontracts. 6.1.3 In calculating adjustments to this Contract, the terms "cost" and "costs" as used in the above referenced provisions of the General Conditions shall mean the Cost of the Work as defined in Article 7 of this Agreement and the terms "fee" and "a reasonable allowance for overhead and profit" shall mean the Contractor's Fee as defined in Paragraph 5.1 of this Agreement. 6.3 ALL CONTRACTS 6.3.1 If no specific provision is made in Paragraph 5.1 for adjustment of the Contractor's Fee in the case of changes in the Work, or if the extent of such changes is such, in the aggregate, that application of the adjustment provisions of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the Contractor's Fee shall be equitably adjusted on the basis of the Fee established for the original Work. ARTICLE 7 --------- COSTS TO BE REIMBURSED 7.1 The terms Cost of the Work shall mean costs necessarily incurred by the Contractor in the proper performance of the Work. Such costs shall be at rates not higher than the standard paid at the place of the Project except with prior WRITTEN consent of the Owner. The Cost of the Work shall include only the items set forth in this Article 7. 7.1.1 LABOR COSTS 7.1.1.1 Wages of construction workers directly employed by the Contractor to perform the construction of the Work at the site or, with the Owner's agreement, at off-site workshops. 7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative personnel when stationed at OR IN TRANSIT TO the site with the Owner's ADVANCE WRITTEN agreement. (If it is intended that the wages or salaries of certain personnel stationed at the Contractor's principal or other offices shall be included in the Cost of the Work, identify in Article 14 the personnel to be included and whether for all or only part of their time). 7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative personnel engaged, at factories, workshops or on the road, in expediting the projection or transportation of materials or equipment required for the Work, but only for that portion of their time required for the Work. 7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance, assessments and benefits such as sick leave, medical and health benefits, holidays, vacations and pensions, provided such costs are based on wages and salaries included in the Cost of the Work under Clauses 7.1.1.1 through 7.1.1.3. 7.1.2 SUBCONTRACT COSTS Payments made by the Contractor to Subcontractors in accordance with the requirements of the subcontracts, BUT SUBJECT TO THE TERMS AND LIMITS IN THE SUPPLEMENTAL CONDITIONS. 7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION 5 7.1.3.1 Costs, including transportation, of materials and equipment incorporated or to be incorporated in the completed construction. 7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess of those actually installed but required to provide reasonable allowance for waste and for spoilage. Unused excess materials, if any, shall be handed over to the owner at the completion of the Work or, at the Owner's option, shall be sold by the Contractor; amounts realized, if any, from such sales shall be credited to the Owner as a deduction from the Cost of the Work. 7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED ITEMS 7.1.4.1 Costs, including transportation, installation, maintenance, dismantling and removal of materials, supplies, temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by Contractor at the site and fully consumed in the performance of the Work, and cost less salvage value on such items if not fully consumed, whether sold to others or retained by the Contractor. Cost for items previously used by the Contractor shall meet fair market value. 7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Contractor at the site, whether rented from the Contractor or others, and costs of transportation, installation, minor repairs and replacements, dismantling and removal thereof. Rates and quantities of equipment rented shall be subject to the Owner's prior approval. RENTAL CHARGES SHALL IN NO EVENT BE HIGHER THAN PREVAILING RATES IN THE AREA. 7.1.4.3 Costs or removal of debris from the site. 7.1.4.4 Costs of telegrams and long distance telephone calls, postage and parcel delivery charges, telephone services at the site and reasonable petty cash expenses of the site office. 7.1.4.5 That portion of the reasonable travel expenses of the Contractor's personnel incurred while traveling in discharge of duties connected with the Work, SUBJECT TO ESTIMATED COST COVERED IN THE G.M.P. 7.1.5 MISCELLANEOUS COSTS 7.1.5.1 That portion directly attributable to this Contract of premiums for insurance and bonds. 7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which are related to the Work and for which the Contractor is liable. 7.1.5.3 Fees and assessments for the building permit and for other permits, licenses and inspections for which the Contractor is required by the Contract Documents to pay. 7.1.5.4 Fees of testing laboratories for test required by the Contract Documents, except those related to defective or nonconforming Work for which reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or other provisions of the Contract Documents and which do not fall within the scope of Subparagraphs 7.2.2 through 7.2.4 below. 7.1.5.6 Deposits lost for causes other than the Contractor's fault or negligence. 7.1.6 OTHER COSTS 7.1.6.1 Other costs incurred in the performance of the Work is and to the extent approved in advance in writing by the Owner. 7.2 EMERGENCIES; REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK The Cost of the work shall also include costs described in Paragraph 7.1 which are incurred by the Contractor. 7.2.1 In taking action to prevent threatened damage, injury or loss in case of an emergency affecting the safety of persons and property, as provided in Paragraph 10.3 of the General Conditions. 7.2.2 In repairing or correcting Work damaged or improperly executed by construction workers in the employ of the Contractor, provided such damage or improper execution did not result from the fault or negligence of the Contractor or the Contractor's foremen, engineers or superintendents, or other supervisory, administrative or managerial personnel of the Contractor.** 6 7.2.3. In repairing damaged work other than that described in Subparagraph 7.2.2. provided such damage did not result from the fault or negligence of the Contractor or the Contractor's personnel, and only to the extent that the cost of such repairs is not recoverable by the Contractor from others and the Contractor is not compensated therefor by insurance or otherwise.** 7.2.4. In correcting defective or nonconforming Work performed or supplied by a Subcontractor or material supplier and not corrected by them, provided such defective or nonconforming Work did not result from the fault or neglect of the Contractor or the Contractor's personnel adequately to supervise and direct the Work of the Subcontractor or material supplier, and only to the extent that the cost of correcting the defective or nonconforming Work is not recoverable by the Contractor from the Subcontractor or material supplier.** *CONTRACTOR IS BEING HIRED BY OWNER TO PERFORM FIRST CLASS WORK IN EVERY RESPECT, AND IT MUST EXERCISE ITS BEST PROFESSIONAL JUDGMENT, SKILL AND CARE DURING ALL ASPECTS OF THE CONSTRUCTION. IN A PROJECT OF THIS MAGNITUDE THERE WILL BE SOME INSTANCES WHERE CORRECTIVE WORK IS REQUIRED, BUT CONTRACTOR WILL NOT BE REIMBURSED FOR ANY COSTS, LOSSES OR DAMAGES WHICH, UNDER PREVAILING INDUSTRY STANDARDS, FOR FIRST CLASS COMMERCIAL CONTRACTORS, IS THE RESULT OF A CLEAR LACK OF CARE OR SKILL ON THE PART OF THE CONTRACTOR. ARTICLE 8 COSTS NOT TO BE REIMBURSED 8.1 The Cost of the Work shall not include: 8.1.1 Salaries and other compensation of the Contractor's personnel stationed at the Contractor's principal office or offices other than the site office, except as specifically provided in Clauses 7.1.1.2 and 7.1.1.3. 8.1.2 Expenses of the Contractor's principal office and offices other than the site office. 8.1.3 Overhead and general expenses, except as may be expressly included in Article 7. 8.1.4 The Contractor's capital expenses, including interest on the Contractor's capital employed for the work. 8.1.5 Rental costs of machinery and equipment, except as specifically provided in Clause 7.1.4.2. 8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph 13.6 of this Agreement, costs due to the fault or negligence of the Contractor, anyone directly or indirectly employed by any of them, or for whose acts any of them may be liable, including but not limited to costs for the correction of damages, defective or nonconforming Work, disposal and replacement of materials and equipment incorrectly ordered or supplied, and making good damage to property not forming part of the Work. 8.1.7 Any cost not specifically and expressly described in Article 7. 8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be exceeded. ARTICLE 9 DISCOUNTS, REBATES AND REFUNDS 9.1 Cash discounts obtained on payments made by the Contractor shall accrue to the Owner, if (1) before making the payment, the Contractor included them in an Application for Payment and received payment therefor from the Owner, or (2) the Owner has deposited funds with the Contractor with which to make payments; otherwise, cash discounts shall accrue to the Contractor. Trade discounts, rebates, refunds and amounts received from sales of surplus materials and equipment shall accrue to the Owner, and the Contractor shall make provisions so that they can be secured. 9.2 Amounts which accrue to the Owner in accordance with the provisions of Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the Work. ARTICLE 10 SUBCONTRACTS AND OTHER AGREEMENTS 7 10.1 Those portions of the Work that the Contractor does not customarily perform with the Contractor's own personnel shall be performed under subcontracts or by other appropriate agreements with the Contractor. The Contractor shall obtain bids from Subcontractors and from suppliers of materials or equipment fabricated especially for the Work and shall deliver such bids to the Architect. The Owner will then determine, with the advice of the Contractor and subject to the reasonable objection of the Architect, which bids will be accepted. The Owner may designate specific persons or entities from whom the Contractor shall obtain bids; however, if a Guaranteed Maximum Price has been established, the Owner may not prohibit the Contractor from obtaining bids from others. The Contractor shall not be required to contract with anyone to whom the Contractor has reasonable objection. 10.2 If a Guaranteed Maximum Price has been established and a specific bidder among those whose bids are delivered by the Contractor to the Architect (1) is recommended to the Owner by the Contractor; (2) is qualified to perform that portion of the Work; and (3) has submitted a bid which conforms to the requirements of the Contract Documents without reservation or exceptions, but the Owner requires that another bid be accepted; then the Contractor may require that a Change Order be issued to adjust the Guaranteed Maximum Price by the difference between the bid of the person or entity recommended to the Owner by the Contractor and the amount of the subcontract or other agreement actually signed with the person or entity designated by the Owner. 10.3 Subcontracts or other agreements shall conform to the payment provisions of Paragraphs 12.7 and 12.8, and shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner. ARTICLE 11 ACCOUNTING RECORDS 11.1 The Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Contract; the accounting and control systems shall be satisfactory to the Owner. The Owner and Owner's accountants shall be afforded access to the Contractor's records, books, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to this Contract, and the Contractor shall preserve these for a period of three years after final payment, or for such longer period as may be required by law. ARTICLE 12 PROGRESS PAYMENTS 12.1 Based upon Applications for Payment submitted to the Architect by the Contractor and Certificates for Payment issued by the Architect, the Owner shall make progress payments on account of the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents. 12.2 The period covered by each Application for Payment shall be one calendar month ending the last day of the month, or as follows: 12.3 Provided an Application for Payment is received by the Architect not later than the FIRST day of a month, the Owner shall make payment to the Contractor not later than the FIFTEENTH day of the SAME month. If an Application for Payment is received after the application date fixed above, payment shall be made by the Owner not later than FIFTEEN days after the Architect receives the Application for Payment. 12.4 The Contractor will submit two copies of the Application of Payment using Saunders Application INCLUDING SCHEDULE OF VALUES G702 for Payment Form to the Architect not later than the first day of each month. Interim applications will be made on a percentage completion basis of items listed in the Schedule of Values submitted and agreed upon by all parties. The Contractor will submit with each application except the first interim lien waivers from all subcontractors and major material suppliers paid under the previous application. Saunders Construction, Inc. will execute an interim lien waiver upon receipt of each payment. Interim lien waivers do not cover unpaid retainage or work in progress which has not been included in the payment application. 8 The final Application for Payment will include ALL SUCH AFFIDAVITS, CERTIFICATES, CONSENTS AND STATEMENTS REQUIRED BY 9.10.2 OF SUPPLEMENTAL CONDITIONS INCLUDING INSURANCE AND SUCH AFFIDAVITS OR CERTIFICATES AS OWNERS LENDER MAY REASONABLY REQUIRE AND AN AFFIDAVIT TO ALLOW OWNERS TITLE COMPANY TO REMOVE MECHANICS LIEN EXCEPTIONS OR HAVE SAID EXCEPTIONS BONDED OVER AND a substantiation of costs, consisting of computer printouts. Records of all Project costs will be kept at the main office of Saunders Construction, Inc. for review by the Owner as required; all records will be maintained for at least two years after the date of Substantial Completion of the Project. Final lien waivers from Saunders Construction, Inc., subcontractors, and major material suppliers will be exchanged for the final payment. 12.5 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 12.5.1 Each Application for Payment shall be based upon the most recent Schedule of Values submitted by the Contractor in accordance with the Contract Documents. The Schedule of Values shall allocate the entire Guaranteed Maximum Price among the various portions of the Work, except that the Contractor's Fee shall be shown as a single separate item. The Schedule of Values shall be prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for Payment. 12.5.2 Applications for Payment shall show the percentage completion of each portion of the Work as of the end of the period covered by the Application for Payment. The percentage completion shall be the lesser of (1) the percentage of that portion of the Work which has actually been completed or (2) the percentage obtained by dividing (a) the expense which has actually been incurred by the Contractor on account of that portion of the Work for which the Contractor has made or intends to make actual payment prior to the next Application for Payment by (b) the share of the Guaranteed Maximum Price allocated to that portion of the Work in the Schedule of Values. 12.5.3 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 12.5.3.1 Take that portion of the Guaranteed Maximum Price properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Work by the share of the Guaranteed Maximum Price allocated to that portion of the Work in the Schedule of Values. Pending final determination of cost to the Owner of changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of the General Conditions, even though the Guaranteed Maximum Price has not yet been adjusted by Change Order. 12.5.3.2 Add that portion of the Guaranteed Maximum Price properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing. 12.5.3.3 Add the Contractor's Fee. The Contractor's Fee shall be computed upon the Cost of the Work described in the two preceding Clauses at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, shall be an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the two preceding Clauses bears to a reasonable estimate of the probable Cost of the Work upon its completion. 12.5.3.3.1 Subtract the retainage as defined in Paragraph 12.5.4. 12.5.3.4 Subtract the aggregate of previous payments made by the Owner. 12.4.3.5 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.4 to substantiate prior Applications for Payment, or resulting from errors subsequently discovered by the Owner's accountants in such documentation. 12.5.3.6 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9.5 of the General Conditions. 12.5.4 Retainage, if any, shall be as follows: (If it is intended to retain additional amounts from progress payments to the Contractor beyond (1) the retainage from the Contractor's fee provided in Clause 12.5.3.3, (2) the retainage from Subcontractors provided in Paragraph 12.7 below, and (3) the retainage, if any, provided by other provisions of the Contract, insert provision for such additional retainage here. Such provision, if made, should also describe any arrangement for limiting or reducing the amount retainage after the Work reaches a certain state of completion.) A retainage of ten percent (10%) will be withheld from all payments until the Project is fifty percent (50%) complete AS CERTIFIED BY THE ARCHITECT. Should progress of the Work be acceptable to the Owner at 9 this point, additional retainage will be withheld AT THE RATE OF 4% UNTIL FINAL COMPLETION OF THE WORK, SUCH AT THE TIME OF FINAL PAYMENT THE MAXIMUM AMOUNT OF RETAINAGE WILL NOT EXCEED SEVEN PERCENT (7%) OF THE SUM OF THE GUARANTEED MAXIMUM COST AND CONTRACTOR'S FEE. 10 12.8 Except with the Owner's prior approval, the Contractor shall not make advance payments to suppliers for materials or equipment which have not been delivered and stored at the site. 12.9 In taking action on the Contractor's Applications for Payment, the Architect shall be entitled to rely on the accuracy and completeness of the information furnished by the Contractor and shall not be deemed to represent that the Architect has made a detailed examination, audit or arithmetic verification of the documentation submitted in accordance with Paragraph 12.4 or other supporting data; that the Architect has made exhaustive or continuous on-site inspections or that the Architect has made examinations to ascertain how or for what purposes the Contractor has used amounts previously paid on account of the Contract. Such examinations, audits and verifications, if required by the Owner, will be performed by the Owner's accountants acting in the sole interest of the Owner. ARTICLE 13 FINAL PAYMENT 13.1 Final payment shall be made by the Owner to the Contractor when (1) the Contract has been fully performed by the Contractor except for the Contractor's responsibility to correct defective or nonconforming Work, as provided in Subparagraph 12.2.2 of the General Conditions, and to satisfy other requirements, if any, which necessarily survive final payment; (2) a final Application for Payment and a final accounting for the Cost of the Work have been submitted by the Contractor and reviewed by the Owner's accountants; and (3) a final Certificate for Payment has then been issued by the Architect; such final payment shall be made by the Owner not more than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: AND ALL CONDITIONS OF ARTICLE 12.4 AND 9.10.2 OF SUPPLEMENTAL CONDITIONS HAVE BEEN MET. 13.2 The amount of the final payment shall be calculated as follows: 13.2.1 Take the sum of the Cost of the Work substantiated by the Contractor's final accounting and the Contractor's Fee; but not more than the Guaranteed Maximum Price, if any. 13.2.2 Subtract amounts, if any, for which the Architect withholds, in whole or in part, a final Certificate for Payment as provided in Subparagraph 9.5.1 of the General Conditions or other provisions of the Contract Documents. 13.2.3 Subtract the aggregate of previous payments made by the Owner. If the aggregate of previous payments made by the Owner exceeds the amount due the Contractor, the Contractor shall reimburse the difference to the Owner. 13.3 The Owner's accountants will review and report in writing on the Contractor's final accounting within 30 days after delivery of the final accounting to the Architect by the Contractor. Based upon such Cost of Work as the Owner's accountants report to be substantiated by the Contractor's final accounting, and provided the other conditions of Paragraph 13.1 have been met, the Architect will, within seven days after receipt of the written report of the Owner's accountants, either issue to the Owner a final Certificate for Payment with a copy to the Contractor, or notify the Contractor and Owner in writing of the Architect's reasons for withholding a certificate as provided in Subparagraph 9.5.1 of the General Conditions. The time periods stated in this Paragraph 13.3 supersede those stated in Subparagraph 9.4.1 of the General Conditions. 13.4 If the Owner's accountants report the Cost of Work as substantiated by the Contractor's final accounting to be less than claimed by the Contractor, the Contractor shall be entitled to demand arbitration of the disputed amount without a further decision of the Architect. Such demand for arbitration shall be made by the Contractor within 30 days after the Contractor's receipt of a copy of the Architect's final Certificate for Payment; failure to demand arbitration within this 30-day period shall result in the substantiated amount reported by the Owner's accountants becoming binding on the Contractor. Pending a final resolution by arbitration, the Owner shall pay the Contractor the amount certified in the Architect's final Certificate for Payment. 13.5 If, subsequent to final payment and at the Owner's request, the Contractor incurs costs described in Article 7 and not excluded by Article 8 to correct defective or nonconforming Work, the Owner shall reimburse the Contractor such costs and the Contractor's Fee applicable thereto on the same basis as if such costs had been incurred prior to final payment, but not in excess of the Guaranteed Maximum Price, if any. If the Contractor has participated in savings as provided in Paragraph 5.2, the amount of such savings shall be recalculated and appropriate credit given to the Owner in determining the net amount to be paid by the Owner to the Contractor. 11 13.6 THE CONTRACTOR SHALL NOT RECEIVE FINAL PAYMENT OF ANY AMOUNTS PAYABLE BY THE CONTRACTOR TO SUBCONTRACTORS, LENDERS OR MATERIAL SUPPLIERS UNTIL SUCH TIME AS: (i) ALL WORK IS PROPERLY COMPLETED, PUNCHLIST ITEMS ARE PROPERLY CORRECTED AND COMPLETED, ALL WAIVERS OR RELEASE OF LIENS HAVE BEEN SUBMITTED, ALL OPERATING MANUALS AND DRAWINGS RECEIVED, ALL DISPUTE, CLAIMS OR CREDITS RESOLVED OR BONDED OVER; (ii) ALL CHANGE ORDERS EXECUTED; AND (iii) ALL OTHER CONDITIONS TO FINAL PAYMENT SATISFIED. ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 Where reference is made in this Agreement to a provision of the General Conditions or another Contract Document, the reference refers to that provision as amended or supplemented by other provisions of the Contract Documents. 14.2 Payments due and unpaid under the Contract shall bear interest from the date payment is due at the rate stated below, or in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. (insert rate of interest agreed upon, if any.) Interest will be paid at the prime interest plus ONE percent (1%) as established by the Union Bank and Trust, 100 Broadway, Denver, Colorado. (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Contractor's principal places of business, the location of the Project and elsewhere may affect the validity of this provision. Legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers.) 14.3 Other provisions: 14.3.1 Should the Owner elect to terminate the Contract without cause, the Contractor shall be reimbursed for all costs due under Article 5 as of the date of termination, any unavoidable costs of termination, and a PERCENTAGE amount of the Contractor's Fee PROPORTIONAL TO THE VALUE OF THE WORK IN PLACE. In no case shall the Contractor's fee be less than 20% of the estimated fee as of the date of execution of this agreement and as modified by changes to the Agreement. The Owner will not be entitled to use the Contractor's equipment without the written agreement of the Contractor. 14.3.2 All reasonable attorney fees and/or legal expenses incurred by either party to enforce the terms or provisions of this agreement shall be paid by the party not prevailing in any such act. 14.3.3 The Contractor agrees to record all as-built information on a set of construction documents at the jobsite. At the completion of the Project, the Contractor will turn over to the Architect all notes of locations or details which differ from the original Construction Documents or from written modifications. The Contractor will not be responsible for transferring to the as-built documents any addenda, clarifications, or changes documented by the consultants. 14.3.4 The Owner agrees to indemnify and hold harmless Saunders Construction, Inc., its employees and its subcontractors, for any and all claims, fines, penalties, and legal costs including attorneys fees arising out of the performance of the Work which may involve asbestos or other contaminants which may exist on the Owner's property and is not a part of this agreement. 14.3.5 The Contractor reserves the right to reject changes in the Work which would require the Contractor to include responsibilities not customarily performed or managed by the Contractor or to reject the assignment by the Owner of any subcontractor to this agreement based on the Contractor's reasonable assessment of the Subcontractor's qualifications. 14.3.6 The Contractor agrees to provide submittals consisting of samples, colors, product specifications and details; the Contractor is not responsible to provide architectural or engineering design details not indicated in the Contract Documents except to demonstrate compliance with current design or to support the design professionals in resolving details. 14.3.7 NO MEMBER OF THE OWNER OR ANY EMPLOYEES, OFFICERS, DIRECTORS, STOCKHOLDERS OR AFFILIATES THEREOF SHALL BE PERSONALLY LIABLE FOR THE OBSERVANCE OR PERFORMANCE OF ANY OF THE OWNER'S OBLIGATIONS HEREUNDER, ALL SUCH LIABILITY BEING STRICTLY LIMITED TO CONCEPTS DIRECT, INC. AS A CORPORATE ENTITY. 12 14.3.8 THE CONTRACTORS PROJECT MANAGER AND PROJECT ADMINISTRATOR'S TIME WILL BE CHARGED TO THE COST OF THE WORK WHEN IN TRANSIT TO AND WHEN SPENDING TIME AT THE JOBSITE. ARTICLE 15 TERMINATION OR SUSPENSION 15.1 The Contract may be terminated by the Contractor as provided in Article 14 of the General Conditions; however, the amount to be paid to the Contractor under Subparagraph 14.1.2 of the General Conditions shall not exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below, except that the Contractor's Fee shall be calculated as if the Work had been fully completed by the Contractor, including a reasonable estimate of the Cost of the Work for Work not actually completed. 15.2 If a Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions; however, the amount, if any, to be paid to the Contractor under Subparagraph 14.2.4 of the General Conditions shall not cause the Guaranteed Maximum Price to be exceeded, nor shall it exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below. 15.3 If no Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions; however, the Owner shall then pay the Contractor an amount calculated as follows: 15.3.1 Take the Cost of the Work incurred by the Contractor to the date of termination. 15.3.2 Add the Contractor's Fee computed upon the Cost of Work to the date of termination at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ration to that fixed-sum Fee as the Cost of the Work at the time of termination bears to a reasonable estimate of the probable Cost of the Work upon its completion. 15.3.3 Subtract the aggregate of previous payments made by the Owner. The Owner shall also pay the Contractor fair compensation, either by purchase or rental at the election of the Owner, for any equipment owned by the Contractor which the Owner elects to retain and which is not otherwise included in the Cost of the Work under Subparagraph 15.3.1. To the extent that the Owner elects to take legal assignment of subcontracts and purchase orders (including rental agreements), the Contractor shall, as a condition of receiving the payments referred to in this Article 15, execute and deliver all such papers and take all such steps, including the legal assignment of such subcontracts and other contractual rights of the Contractor, as the Owner may require for the purpose of fully vesting in the Owner the rights and benefits of the Contractor under such subcontracts or purchase orders. 15.4 The Work may be suspended by the Owner as provided in Article 14 of the General Conditions; in such case, the Guaranteed Maximum Price, if any, shall be increased as provided in Subparagraph 14.3.2 of the General Conditions except that the term "cost of performance of the Contract" in that Subparagraph shall be understood to mean the Cost of the Work and the term "profit" shall be understood to mean the Contractor's Fee as described in Paragraphs 5.1 and 6.3 of this Agreement. ARTICLE 16 ENUMERATION OF CONTRACT DOCUMENTS 16.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows: 16.1.1 The Agreement is this executed Standard Form of Agreement Between Owner and Contractor, SCI 111, 1995 Edition. 16.1.2 The General Conditions are the General Conditions of the Contract for Construction, AIA Document A201, 1987 Edition. 16.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated ___________________, and are as follows: 13 Document Title Pages REFER TO ATTACHMENT "A" 16.1.4 The Specifications are those contained in the Project Manual dated as in Paragraph 16.1.3, and are as follows: (Either list the Specifications here or refer to an exhibit attached to this Agreement.) Section Title Pages REFER TO ATTACHMENT "A" 16.1.5 The Drawings are as follows, and are dated ___________ unless a different date is shown below: (Either list the Drawings here or refer to an exhibit attached to this Agreement.) Number Title Date REFER TO ATTACHMENT "A" 16.1.6 The Addenda, if any, are as follows: Number Date Pages REFER TO ATTACHMENT "A" Portions of Addenda relating to bidding requirements are not part of the Contract Documents unless the bidding requirements are also enumerated in this Article 16 14 16.1.7 Other Documents, if any, forming part of the Contract Documents are as follows: (List here any additional documents which are intended to form part of the Contract Documents. The General Conditions provide that bidding requirements such as advertisement or invitation to bid, Instructions to Bidders, sample forms and the Contractors bid are not part of the Contract Documents unless enumerated in this Agreement. They should be listed here only if intended to be part of the Contract Documents.) ATTACHMENT "A" - List of Contract documents Attachment "B" - Budget/Qualifications, dated 5/1/97. SUPPLEMENTAL CONDITIONS This Agreement is entered into as of the day and year first written above and is executed in at least three original copies of which one is to be delivered to the Contractor, one to the Architect for use in the administration of the Contract, and the remainder to the Owner. OWNER CONTRACTOR SAUNDERS CONSTRUCTION, INC. /S/ PHILLIP A. WILAND /S/ DARRELL EASTWOOD - --------------------------------- ------------------------------------- (Signature) (Signature) Phillip A. Wiland, Chairman & CEO Darrell Eastwood, Project Executive - --------------------------------- ------------------------------------- (Printed Name & Title) (Printed Name & Title) PM /s/PM PCS/s/PCS ------ ------ 15 T H E A M E R I C A N I N S T I T U T E O F A R C H I T E C T S [LOGO] - -------------------------------------------------------------------------------- AIA Document A201 GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS MODIFICATION - -------------------------------------------------------------------------------- 1987 EDITION TABLE OF ARTICLES 1. GENERAL PROVISIONS 2. OWNER 3. CONTRACTOR 4. ADMINISTRATION OF THE CONTRACT 5. SUBCONTRACTORS 6. CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS 7. CHANGES IN THE WORK 8. TIME 9. PAYMENTS AND COMPLETION 10. PROTECTION OF PERSONS AND PROPERTY 11. INSURANCE AND BONDS 12. UNCOVERING AND CORRECTION OF WORK 13. MISCELLANEOUS PROVISIONS 14. TERMINATION OR SUSPENSION OF THE CONTRACT This document has been approved and endorsed by the Associated General Contractors of America. Copyright 1911, 1915, 1918, 1925, 1937, 1951, 1958, 1961, 1963, 1966, 1967, 1970, 1976, (c) 1987 by The American Institute of Architects, 1735 New York Avenue, N.W., Washington, D.C. 20006. Reproduction of the material herein or substantial quotation of its provisions without written permission of the AIA violates the copyright laws of the United States and will be subject to legal prosecutions. - -------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA - (c) 1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 A201-1987 1 16 INDEX ----- Acceptance of Nonconforming Work.............................. 9.6.6, 9.9.3, 12.3 Acceptance of Work ........................................... 9.6.6, 9.8.2, 9.9.3, 9.10.1, 9.10.3 Access to Work .............................................. 3.16, 6.2.1, 12.1 Accident Prevention .......................................... 4.2.3, 10 Acts and Omissions ........................................... 3.2.1, 3.2.2, 3.3.2, 3.12.8, 3.18, 4.2.3, 4.3.2, 4.3.9, 8.3.1, 10.1.4, 10.2.5, 13.4.2, 13.7, 14.1 Addenda ...................................................... 1.1.1.3.11 Additional Cost, Claims for .................................. 4.3.6, 4.3.7, 4.3.9, 6.1.1, 10.3. Additional Inspections and Testing ........................... 4.2.6, 9.8.2, 12.2.1, 13.5 Additional Time, Claims for .................................. 4.3.6, 4.3.8, 4.3.9, 8.3.2 ADMINISTRATION OF THE CONTRACT ............................... 3.3.3.4, 9.4, 9.5 Advertisement or Invitation to Bid ........................... 1.1.1 Aesthetic Effect ............................................. 4.2.13, 4.5.1 Allowances ................................................... 3.8 All-risk Insurance ........................................... 11.3.1.1 Applications for Payment ..................................... 4.2.5, 7.3.7, 9.2, 9.3, 9.4, 9.5.1, 9.6.3, 9.8.3, 9.10.1, 9.10.3, 9.10.4, 11.1.3, 14.2.4 Approvals .................................................... 2.4, 3.3.3, 3.5.3, 10.2, 3.12.4 through 3.12.8, 3.18.3, 4.2.7, 9.3.2, 11.3.1.4, 13.4.2, 13.5 Arbitration .................................................. 4.1.4, 4.3.2, 4.3.4, 4.4.4, 4.5, 8.3.1, 10.1.2, 11.3.9, 11.3.10 Architect .................................................... 4.1 Architect, Definition of ..................................... 4.1.1 Architect, Extent of Authority ............................... 2.4.3.12.6, 4.2, 4.3.2, 4.3.6, 4.4, 5.2, 6.3, 7.1.2, 7.2.1, 7.3.6, 7.4, 9.2, 9.3.1, 9.4, 9.5, 9.6.3, 9.8.2, 9.8.3, 9.10.1, 9.10.3, 12.1, 12.2.1, 13.5.1, 13.5.2, 14.2.2, 14.2.4 Architect, Limitations of Authority and Responsibility........ 3.3.3, 3.12.8, 3.12.11, 4.1.2, 4.2.1, 4.2.2, 4.2.3, 4.2.6, 4.2.7, 4.2.10, 4.2.12, 4.2.13, 4.3.2, 5.2.1, 7.4, 9.4.2, 9.6.4, 9.6.6 Architect's Additional Services and Expenses ................. 2.4, 9.8.2, 11.3.1.1, 12.2.1, 12.2.4, 13.5.2, 13.5.3, 14.2.4 Architect's Administration of the Contract ................... 4.2, 4.3.6, 4.3.7, 4.4, 9.4, 9.5 Architect's Approvals ........................................ 2.4, 3.5.1, 3.10.2, 3.12.6, 3.12.8, 3.18.3, 4.2.7 Architect's Authority to Reject Work ......................... 3.5.1, 4.2.6, 12.1.2, 12.2.1 Architect's Copyright ........................................ 1.3 Architect's Decisions ........................................ 4.2.6, 4.2.7, 4.2.11, 4.2.12, 4.2.13, 4.3.2., 4.3.6, 4.4.41, 4.4.4, 3.4.5, 6.3, 7.3.6, 7.3.8, 8.1.3, 8.3.1, 9.2, 9.4, 9.5.1, 9.8.2, 9.9.1, 10.1.2, 13.5.2, 14.2.2, 14.2.4 Architect's Inspections ...................................... 4.2.2, 4.2.9, 4.3.6, 9.4.2, 9.8.2 Architect's Instructions ..................................... 4.2.6, 4.2.7, 4.2.8, 4.3.7, 7.4.1, 12.1, 13.5.2 Architect's Interpretations .................................. 4.2.11, 4.2.12, 4.3.7 Architect's On-Site Observations ............................. 4.2.2, 4.2.5,. 4.3.6, 9.4.2, 9.5.1, 9.10.1, 13.5 Architect's Project Representative ........................... 4.2.10 Architect's Relationship with Contractor...................... 1.1.2, 3.2.1, 3.2.2, 3.3.3, 3.5.1, 3.7.3, 3.11, 3.12.8, 3.12.11, 3.16, 3.18, 4.2.3, 4.2.4, 4.2.6, 4.2.12, 5.2, 6.2.2, 7.3.4, 9.8.2, 11.3.7. Architect's Relationship with Subcontractors ................. 1.1.2, 3.2.1, 3.2.2, 3.3.3, 3.5.1, 3.7.3, 3.11, 3.12.8, 3.12.11, 3.16, 3.18, 4.2.3, 4.2.4, 4.2.6, 5.2.12, 5.2, 6.2.2, 7.3.4, 9.8.2, 11.3.7, 12.1, 13.5 Architect's Representations .................................. 9.4.2, 9.5.1, 9.10.1 Architect's Site Visits ...................................... 4.2.2, 4.2.5, 4.2.9, 4.3.6, 9.4.2, 9.5.1, 9.8.2, 9.9.2, 9.10.1, 13.5 Asbestos ..................................................... 10.1 Attorneys' Fees .............................................. 3.18.1, 9.10.2, 10.1.4 Award of Separate Contracts .................................. 6.1.1 Award of Subcontracts and Other Contracts for Portions of the Work ................................... 5.2 Basic Definitions ............................................ 1.1 Bidding Requirements ......................................... 1.1.1, 1.1.7, 5.2.1, 11.4.1 Boiler and Machinery Insurance ................................ 11.3.2 Bonds, Lien .................................................. 9.10.2 Bonds, Performance and Payment ............................... 7.3.6.4, 9.10.3, 11.3.9, 11.4 Building Permit .............................................. 3.7.1 Capitalization ............................................... 1.4 Certificate of Substantial Completion ........................ 9.8.2 Certificates for Payment ..................................... 4.2.5, 4.2.9, 9.3.3, 9.4, 9.5, 9.6.1, 9.6.6, 9.7.1. 9.8.3., 9.10.1, 9.10.3, 13.7, 14.1.1.3, 14.2.4 Certificates of Inspection, Testing or Approval .............. 3.12.11, 13.5.4 Certificates of Insurance .................................... 9.3.2, 9.10.2, 11.1.3 Change Orders ................................................ 1.1.1, 2.4.1, 3.8.2.4.3.11, 4.2.8, 4.3.3, 5.2.3, 7.1, 7.2, 7.3.2, 8.3.1, 9.3.1.1, 9.10.3, 11.3.1.2, 11.3.4, 11.3.9, 12.1.2 Change Orders, Definition of ................................. 7.2.1 Changes ...................................................... 7.1 CHANGES IN THE WORK .......................................... 3.11, 4.2.8, 7, 8.3.1, 9.3.1.1, 10.1.3 Claim, Definition of ......................................... 4.3.1 Claims and Disputes .......................................... 4.3, 4.4, 4.5, 6.2.5, 8.3.2, 9.3.1.2, 9.3.3, 9.10.4, 10.1.4 Claims and Timely Assertion of Claims ........................ 4.5.6 Claims for Additional Cost ................................... 4.3.6, 4.3.7, 4.3.9, 6.1.1, 10.3 Claims for Additional Time ................................... 4.3.6, 4.3.8, 4.3.9, 8.3.2 Claims for Concealed or Unknown Conditions ................... 4.3.6 Claims for Damages ........................................... 3.18, 4.3.9, 6.1.1, 6.2.5, 8.3.2, 9.5.1.2, 10.1.4 Claims Subject to Arbitration ................................ 4.3.2, 4.4.4, 4.5.1 Cleaning Up .................................................. 3.15, 6.3 Commencement of Statutory Limitation Period .................. 13.7 Commencement of the Work, Conditions Relating to ............. 2.1.2, 2.2.1, 3.2.1, 3.2.2, 3.7.1, 3.10.1, 3.12.6, 4.3.7, 5.2.1, 6.2.2, 8.1.2, 8.2.2, 9.2, 11.1.3, 11.3.6, 11.4.1 Commencement of the Work, Definition of ...................... 8.1.2 Communications Facilitating Contract Administration .......... 3.9.1, 4.2.4, 5.2.1 Completion, Conditions Relating to ........................... 3.11, 3.15, 4.2.2, 4.2.9, 4.3.2, 9.4.2, 9.8, 9.9.1, 9.10, 11.3.5, 12.2.2, 13.7.1 COMPLETION, PAYMENTS AND ..................................... 9 Completion, Substantial ...................................... 4.2.9, 4.3.5.2, 8.1.3, 8.2.3, 9.8, 9.9.1, 12.2.2, 13.7 Compliance with Laws ......................................... 1.3, 3.6, 3.7, 3.13., 4.1.1, 10.2.2, 11.1, 11.3, 13.1, 13.5.1, 13.5.2, 13.6, 14.1.1, 14.2.1.3 Concealed or Unknown Conditions .............................. 4.3.6 Conditions of the Contract ................................... 1.1.1, 1.1.7, 6.1.1 Consent, Written ............................................. 1.3.1, 3.12.8, 3.14.2, 4.1.2, 4.3.4, 4.5.5, 9.3.2, 9.8.2, 9.9.1, 9.10.2, 9.10.3, 10.1.2, 10.1.3, 11.3.1, 11.3.1.4, 11.3.11, 13.2, 13.4.2 CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS ............. 1.1.4.6 Construction Change Directive, Definition of ................. 7.3.1 Construction Change Directives ............................... 1.1.1, 4.2.8, 7.1.7.3, 9.3.1.1 Construction Schedules, Contractor's ......................... 3.10, 6.1.3 Contingent Assignment of Subcontracts ........................ 5.4 Continuing Contract Performance .............................. 4.3.4 Contract, Definition of ...................................... 1.1.2 CONTRACT, TERMINATION OR SUSPENSION OF THE ................... 4.3.7, 5.4.1.1, 14 Contract Administration ...................................... 3.3.3, 4.9.4, 9.5 Contract Award and Execution, Conditions Relating to ......... 3.7.1, 3.10, 5.2, 9.2, 11.1.3, 11.3.6, 11.4.1 Contract Documents, The ...................................... 1.1, 1.2, 7 Contract Documents, Copies Furnished and Use of .............. 1.3, 2.2.5, 5.3 Contract Documents, Definition of ............................ 1.1.1 Contract Performance During Arbitration ...................... 4.3.4, 4.5.3 Contract Sum ................................................. 3.8, 4.3.6, 4.3.7, 4.4.4, 5.2.3, 6.1.3, 7.2, 7.3, 9.1, 9.7, 11.3.1, 12.2.4, 12.2.4, 12.3, 14.2.4 Contract Sum, Definition of .................................. 9.1 Contract Time ................................................ 4.3.6, 4.3.8, 4.4.4, 7.2.1.3, 7.3, 8.2.1, 8.3.1, 9.7, 12.1.1 Contract Time, Definition of ................................. 8.1.1 - ------------------------------------------------------------------------------------------------------------------------------------ AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA - (C) 1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006
2 A201-1987 17 CONTRACTOR........................................................................... 3 Contractor, Definition of............................................................ 3.7, 6.1.2 Contractor's Bid..................................................................... 1.1.1 Contractor's Construction Schedules.................................................. 3.10, 6.1.3 Contractor's Employees............................................................... 3.3.2, 3.4.2, 3.8.1, 3.9.3.18, 4.2.3, 4.2.6, 8.1.2, 10.2, 10.3, 11.1.1, 14.2.1.1 Contractor's Liability insurance..................................................... 11.1 Contractor's Relationship with Separate Contractors and Owner's Forces..................................................................... 2.2.6, 3.12.5, 3.14.2, 4.2.4.6, 12.2.5 Contractor's Relationship with Subcontractors........................................ 1.2.4, 3.3.2, 3.18.1, 3.18.2., 5.2, 5.3, 5.4, 9.6.2, 11.3.7, 11.3.8, 14.2.1.2 Contractor's Relationship with the Architect......................................... 1.1.2, 3.2.1, 3.2.2, 3.3.3, 3.5.1, 3.7.3, 3.11, 3.12.8, 3.16, 3.18, 4.2.3, 4.2.4, 4.2.6, 4.2.12, 5.2, 6.2.2, 7.3.4, 9.8.2, 11.3.7, 12.1, 13.5 Contractor's Representations......................................................... 1.2.2, 3.5.1, 3.12.7, 6.2.2, 8.2.1, 9.3.3 Contractor's Responsibility for Those Performing the Work................................................................ 3.3.2, 3.18, 4.2.3, 10 Contractor's Review of Contract Documents............................................ 1.2.2, 3.2, 3.7.3 Contractor's Right to Stop the Work.................................................. 9.7 Contractor's Right to Terminate the Contract......................................... 14.1 Contractor's Submittals.............................................................. 3.10, 3.11, 3.12, 4.2.7, 5.2.1, 5.2.3, 7.3.6, 9.2, 9.3.1, 9.8.2, 9.9.1, 9.10.2. 9.10.3, 10.1.2, 11.4.2, 11.4.3 Contractor's Superintendent.......................................................... 3.9, 10.2.6 Contractor's Supervision and Construction Procedures................................. 1.2.4, 3.3, 3.4, 4.2.3, 8.2.2, 8.2.3, 10 Contractual Liability Insurance...................................................... 11.1.1.7, 11.2.1 Coordination and Correlation......................................................... 1.2.2, 1.2.4, 3.3.1, 3.10, 3.12.7, 6.1.3, 6.2.1 Copies Furnished of Drawings and Specifications...................................... 1.3, 2.2.5, 3.11 Correction of Work................................................................... 2.3.2.4, 4.2.1, 9.8.2, 9.9.1, 12.1.2, 12.2, 13.7.1.3 Cost, Definition of.................................................................. 7.3.6, 14.3.5 Costs................................................................................ 2.4, 3.2.1, 3.7.4, 3.8.2, 3.15.2, 4.3.6, 4.3.7, 4.3.8.1, 5.2.3, 6.1.1, 6.2.3, 6.3, 7.3.3.3, 7.3.6, 7.3.7, 9.7, 9.8.2, 9.10.2, 11.3.1.2, 11.3.1.3, 11.3.4, 11.3.9, 12.1, 12.2.1, 12.2.4, 12.2.5, 13.5, 14 Cutting and Patching ................................................................ 3.14, 6.2.6 Damage to Construction of Owner or Separate Contractors.............................. 3.14.2, 6.2.4, 9.5.1.5, 10.2.1.2, 10.2.5, 10.3, 11.1, 11.3, 12.2.5 Damage to the Work................................................................... 3.14.2, 9.9.1, 10.2.1.2, 10.2.5, 10.3, 11.3 Damages Claims for................................................................... 3.18, 4.3.9, 6.1.1, 6.2.5, 8.3.2, 9.5.1.2, 10.1.4 Damages for Delay.................................................................... 6.1.1, 8.3.3, 9.5.1.6, 9.7 Date of Commencement of the Work. Definition of...................................... 8.1.2 Date of Substantial Completion, Definition of........................................ 8.1.3 Day, Definition of................................................................... 8.1.4 Decisions of the Architect........................................................... 4.2.6, 4.2.7, 4.2.11, 4.2.12, 4.2.13, 4.3.2 4.3.6, 4.4.1, 4.4.4, 4.5, 6.3, 7.3.6, 7.3.8, 8.1.3, 8.3.1, 9.2, 9.4, 9.5.1, 9.8.2, 9.9.1, 10.1.2, 13.5.2, 14.2.2, 14.2.4 Decisions to Withhold Certification.................................................. 9.5, 9.7, 14.1.1.3 Defective or Nonconforming Work, Acceptance Rejection and Correction of.............. 2.3, 2.4, 3.5.1.4.2.1, 4.2.6, 4.3.5, 9.5.2, 9.8.2, 9.9.1, 10.2.5, 12. 13.7.1.3 Defective Work, Definition of........................................................ 3.5.1 Definitions.......................................................................... 1.1.2.1.1, 3.1, 3.5.1.3.12.1, 3.12.1, 3.12.2, 3.12.3, 4.1.1, 4.3.1, 5.1, 6.1.2, 7.2.1, 7.3.1, 7.3.6, 8.1, 9.1, 9.8.1 Delays and Extensions of Time........................................................ 4.3.1, 4.3.8.1, 4.3.8.2, 6.1.1, 6.2.3, 7.2.1, 7.3.1, 7.3.4, 7.3.5, 7.3.8, 7.3.9, 8.1.1, 8.3, 10.3.1, 14.1.1.4 Disputes............................................................................. 4.1.4, 4.3.4.4, 4.5, 6.2.5, 6.3, 7.3.8, 9.3.1.2 Documents and Samples at the Site.................................................... 3.11 Drawings, Definition of............................................................... 1.1.5 Drawings and Specifications. Use and Ownership of................................... 1.1.1, 1.3, 2.2.5, 3.11, 5.3 Duty to Review Contract Documents and Field Conditions............................... 3.2 Effective Date of Insurance.......................................................... 8.2.2, 11.1.2 Emergencies.......................................................................... 4.3.7, 10.3 Employees, Contractor's.............................................................. 3.3.2, 3.4.2, 3.8.1, 3.9, 3.18.1, 3.18.2, 4.2.3, 4.2.6, 8.1.2, 10.2, 10.3, 11.1.1, 14.2.1.1 Equipment, Labor Materials and....................................................... 1.1.3, 1.1.6, 3.4, 3.5.1, 3.8.2, 3.12.3, 3.12.7 3.12.11, 3.13, 3.15.1, 4.2.7, 6.2.1, 7.3.6, 9.3.2, 9.3.3, 11.3, 12.2.4, 14 Execution and Progress of the Work................................................... 1.1.3, 1.2.3, 3.2, 3.4.1, 3.5.1, 4.2.2, 4.2.3, 4.3.4, 4.3.8, 6.2.2, 7.13, 7.3.9, 8.2, 8.3, 9.5, 9.9.1, 10.2, 14.2, 14.3 Execution, Correlation and Intent of the Contract Documents.......................... 1.2, 3.7.1 Extensions of Time................................................................... 4.3.1, 4.3.8, 7.2.1.3, 8.3, 10.3.1 Failure of Payment by Contractor..................................................... 9.5.1.3, 14.2.1.2 Failure of Payment by Owner.......................................................... 4.3.7, 9.7, 14.1.3 Faulty Work (See Defective or Nonconforming Work) Final Completion and Final Payment................................................... 4.2.1, 4.2.9, 4.3.2, 4.3.5, 9.10, 11.1.2, 11.1.3, 11.3.5, 12.3.1, 13.7 Financial Arrangements, Owner's...................................................... 2.2.1 Fire and Extended Coverage Insurance.................................................. 11.3 GENERAL PROVISIONS................................................................... 1 Governing Law........................................................................ 13.1 Guarantees (See Warranty and Warranties) Hazardous Materials.................................................................. 10.1, 10.2.4 Identification of Contract Documents................................................. 1.2.1 Identification of Subcontractors and Suppliers....................................... 5.2.1 Indemnification...................................................................... 3.17, 3.19, 9.10.2, 10.1.4, 11.3.1.2, 11.3.7 Information and Services Required of the Owner....................................... 2.1.2, 2.2 4.3.4, 6.1.3, 6.1.4, 6.2.6, 9.3.2, 9.6.1, 9.6.4, 9.8.3, 9.9.2, 9.10.3, 10.1.4, 11.2, 11.3, 13.5.1, 13.5.2 Injury or Damage to Person or Property............................................... 4.3.9 Inspections.......................................................................... 3.3.3, 3.3, 4.3, 7.1, 4.2.2, 4.2.6, 4.2.9 4.3.6, 9.4.2, 9.8.2, 9.9.2, 9.10.1, 13.5 Instructions to Bidders.............................................................. 1.1.1 Instructions to the Contractor....................................................... 3.8.1, 4.2.8, 5.2.1.7, 12.1, 13.5.2 Insurance............................................................................ 4.3.9, 6.1.1, 7.3.6.4, 9.3.2, 9.8.2, 9.9.1, 9.10.2, 11 Insurance Boiler and Machinery....................................................... 11.3.2 Insurance, Contractor's Liability.................................................... 11.1 Insurance, Effective Date of......................................................... 8.2.2, 11.1.2 Insurance, Loss of Use............................................................... 11.3.3 Insurance, Owner's Liability......................................................... 11.2 Insurance, Property.................................................................. 10.2.5, 11.3 Insurance, Stored Materials.......................................................... 9.3.2, 11.3.1.4 INSURANCE AND BONDS.................................................................. 11 Insurance Companies, Consent to Partial Occupancy.................................... 9.9.1, 11.3.11 Insurance Companies, Settlement with................................................. 11.3.10 Intent of the Contract Documents..................................................... 1.2.3, 3.12.4, 4.2.6, 4.2.7, 4.2.12, 4.2.13, 7.4 Interest............................................................................. 13.6 Interpretation....................................................................... 1.2.5, 1.4, 1.5, 4.1.1, 4.3.1, 5.1, 6.1.2, 8.1.4 Interpretations, Written............................................................. 4.2.11, 4.2.12, 4.3.7 Joinder and Consolidation of Claims Required......................................... 4.5.6 Judgment on Final Award.............................................................. 4.5.1, 4.5.4.1, 4.5.7 Labor and Materials, Equipment....................................................... 1.1.3, 1.1.6, 3.4, 3.5.1, 3.8.2, 3.12.2, 3.12.3, 3.12.7, 3.12, 11.3, 13, 3.15.1, 4.2.7, 6.2.1, 7.3.6, 9.3.2, 9.3.3, 12.2.4, 14 Labor Disputes....................................................................... 8.3.1 Laws and Regulations................................................................. 1.3, 3.6, 3.7, 3.13, 4.1.1, 4.5.5, 4.5.7, 9.9.1, 10.2.2, 11.1, 11.3, 13.1, 13.4, 13.5.1, 13.5.2, 13.6 Liens................................................................................ 2.1.2, 4.3.2, 4.3.5.1, 8.2.2, 9.3.3, 9.10.2 Limitation on Consolidation of Joinder............................................... 4.5.5 Limitations, Statutes of............................................................. 4.5.4.2, 12.2.6, 13.7 Limitations, of Authority............................................................ 3.3.1, 4.1.2, 4.2.1, 4.2.3, 4.2.7, 4.2.10, 5.2.2, 5.2.4, 7.4, 11.3.10
18 Limitations of Liability................................. 2.3, 3.2.1, 3.5.1, 3.7.3, 3.12.8, 3.12.11, 3.17, 3.18, 4.2.6, 4.2.7, 4.2.12 6.2.2, 9.4.2, 9.6.4, 9.10.4, 10.1.4, 10.2.5, 11.1.2, 11.2.1, 11.3.7, 13.4.2, 13.5.2 Limitations of Time, General............................. 2.2.1, 2.2.4, 3.2.1, 3.7.3, 3.8.3, 3.10, 3.12.5, 3.15.1, 4.2.1, 4.2.7, 4.2.11, 4.3.2, 4.3.3, 4.3.4, 4.3.6, 4.3.9, 4.5.4.2, 5.2.1, 5.2.3, 6.2.4, 7.3.4, 7.4, 8.2, 9.5, 9.6.2, 9.8, 9.9, 9.10, 11.1.3, 11.3.1, 11.3.2, 11.3.5, 11.3.6, 12.2.1, 12.2.2, 13.5, 13.7 Limitations of Time, Specific........................... 2.1.2, 2.2.1, 2.4, 3.10, 3.11, 3.15.1, 4.2.1, 4.2.11, 4.3, 4.4, 4.5, 5.3, 5.4, 7.3.5, 7.3.9, 8.2, 9.2, 9.3.1, 9.3.3, 9.4.1, 9.6.1, 9.7, 9.8.2, 9.10.2, 11.1.3, 11.3.6, 11.3.10, 11.3.11, 12.2.2, 12.2.4, 12.2.6, 13.7, 14 Loss of Use Insurance................................... 11.3.3 Material Suppliers...................................... 1.3.1, 3.12.1, 4.2.4, 4.2.6, 5.2.1, 9.3.1, 9.3.1.2, 9.3.3, 9.4.2, 9.6.5, 9.10.4 Materials, Hazardous.................................... 10.1, 10.2.4 Materials, Labor, Equipment and......................... 1.1.3, 1.1.6, 3.4, 3.5.1, 3.8.2, 3.12.2, 3.12.3, 3.12.7, 3.12.11, 3.13, 3.15.1, 4.2.7, 6.2.1 7.3.6, 9.3.2, 9.3.3, 12.2.4, 14 Means, Methods, Techniques, Sequences and Procedures of Construction........................... 3.3.1, 4.2.3, 4.2.7, 9.4.2 Minor Changes in the Work.............................. 1.1.1, 4.2.8, 4.3.7, 7.1, 7.4 MISCELLANEOUS PROVISIONS............................... 13 Modifications, Definition of........................... 1.1.1 Modifications to the Contract.......................... 1.1.1, 1.1.2, 3.7.3, 3.11, 4.1.2, 4.2.1, 5.2.3, 7, 8.3.1, 9.7 Mutual Responsibility.................................. 6.2 Nonconforming Work, Acceptance of...................... 12.3 Nonconforming Work, Rejection and Correction of........ 2.3.1, 4.3.5, 9.5.2, 9.8.2, 12, 13.7.1.3 Notice.................................................. 2.3, 2.4, 3.2.1, 3.2.2, 3.7.3, 3.7.4, 3.9, 3.12.8, 3.12.9, 3.17, 4.3, 4.4.4, 4.5, 5.2.1, 5.3, 5.4.1.1, 8.2.2, 9.4.1, 9.5.1, 9.6.1, 9.7, 9.10, 10.1.2, 10.2.6, 11.1.3, 11.3, 12.2.2, 12.2.4, 13.3, 13.5.1, 13.5.2, 14 Notice, Written......................................... 2.3, 2.4, 3.9, 3.12.8, 3.12.9, 4.3, 4.4.4, 4.5, 5.2.1, 5.3, 5.4.1.1, 8.2.2, 9.4.1, 9.5.1, 9.7, 9.10, 10.1.2, 10.2.6, 11.1.3, 11.3, 12.2.2, 12.2.4, 13.3, 13.5.2, 14 Notice of Testing and Inspections....................... 13.5.1, 13.5.2 Notice to Proceed....................................... 8.2.2 Notices, Permits, Fees and.............................. 2.2.3, 3.7, 3.13, 7.3.6.4, 10.2.2 Observations, Architect's On-Site....................... 4.2.2, 4.2.5, 4.3.6, 9.4.2, 9.5.1, 9.10.1, 13.5 Observations, Contractor's............................. 1.2.2, 3.2.2 Occupancy............................................... 9.6.6, 9.8.1, 9.9, 11.3.11 On-Site Inspections by the Architect.................... 4.2.2, 4.2.9, 4.3.6, 9.4.2, 9.8.2, 9.9.2, 9.10.1 On-Site Observations by the Architect................... 4.2.2, 4.2.5, 4.3.6, 9.4.2, 9.5.1, 9.10.1, 13.5 Orders, Written......................................... 2.3, 3.9, 4.3.7, 7, 8.2.2, 11.3.9, 12.1, 12.2, 13.5.2, 14.3.1 OWNER................................................... 2 Owner, Definition of.................................... 2.1 Owner, Information and Services Required of the......... 2.1.2, 2.2, 4.3.4, 6, 9, 10.1.4, 11.2, 11.3, 13.5.1, 14.1.1.5, 14.1.3 Owner's Authority....................................... 3.8.1, 4.1.3, 4.2.9, 5.2.1, 5.2.4, 5.4.1, 7.3.1, 8.2.2, 9.3.1, 9.3.2, 11.4.1, 12.2.4, 13.5.2, 14.2, 14.3.1 Owner's Financial Capability............................ 2.2.1, 14.1.1.5 Owner's Liability Insurance............................. 11.2 Owner's Loss of Use Insurance........................... 11.3.3 Owner's Relationship with Subcontractors................ 1.1.2, 5.2.1, 5.4.1, 9.6.4 Owner's Right to Carry Out the Work..................... 2.4, 12.2.4, 14.2.2.2 Owner's Right to Clean Up............................... 6.3 Owner's Right to Perform Construction and to Award Separate Contracts.............................. 6.1 Owner's Right to Stop the Work.......................... 2.3, 4.3.7 Owner's Right to Suspend the Work....................... 14.3 Owner's Right to Terminate the Contract................ 14.2 Ownership and Use of Architect's Drawings, Specifications and Other Documents................................... 1.1.1, 1.3, 2.2.5, 5.3 Partial Occupancy or Use................................ 9.6.6, 9.9, 11.3.11 Patching, Cutting and................................... 3.14, 6.2.6 Patents, Royalties and.................................. 3.17 Payment, Applications for............................... 4.2.5, 9.2, 9.3, 9.4, 9.5.1, 9.8.3, 9.10.1, 9.10.3, 9.10.4, 14.2.4 Payment, Certificate for................................ 4.2.5, 4.2.9, 9.3.3, 9.4, 9.5, 9.6.1, 9.6.6, 9.7.1, 9.8.3, 9.10.1, 9.10.3, 13.7, 14.1.1.3, 14.2.4, Payment, Failure of..................................... 4.3.7, 9.5.1.3, 9.7, 9.10.2, 14.1.1.3, 14.2.1.2 Payment, Final.......................................... 4.2.1, 4.2.9, 4.3.2, 4.3.5, 9.10, 11.1.2 11.1.3, 11.3.5, 12.3.1 Payment Bond, Performance Bond and...................... 7.3.6.4, 9.10.3, 11.3.9, 11.4 Payments, Progress...................................... 4.3.4, 9.3, 9.6, 9.8.3, 9.10.3, 13.6, 14.2.3 PAYMENTS AND COMPLETION................................. 9, 14 Payments to Subcontractors.............................. 5.4.2, 9.5.1.3, 9.6.2, 9.6.3, 9.6.4, 11.3.8, 14.2.1.2 PCB..................................................... 10.1 Performance Bond and Payment Bond....................... 7.3.6.4, 9.10.3, 11.3.9, 11.4 Permits, Fees and Notices............................... 2.2.3, 3.7, 3.13, 7.3.6.4, 10.2.2 PERSONS AND PROPERTY, PROTECTION OF..................... 10 Polychlorinated Biphenyl................................ 10.1 product Data, Definition of............................. 3.12.2 Product Data and Samples, Shop Drawings................. 3.11, 3.12, 4.2.7 Progress and Completion................................. 4.2.2, 4.3.4, 8.2 Progress Payments....................................... 4.3.4, 9.3, 9.6, 9.8.3, 9.10.3, 13.6, 14.2.3 Project, Definition of the.............................. 1.1.4 Project Manual, Definition of the....................... 1.1.7 Project Manuals......................................... 2.2.5 Project Representatives................................. 4.2.10 Property Insurance...................................... 10.2.5, 11.3 PROTECTION OF PERSONS AND PROPERTY...................... 10 Regulations and Laws.................................... 1.3.3.6, 3.7, 3.13, 4.1.1, 4.5.5, 4.5.7, 10.2.2, 11.1, 11.3, 13.1, 13.4 13.5.1, 13.5.2, 13.6, 14 Rejection of Work....................................... 3.5.1, 4.2.6, 12.2 Releases of Waivers and Liens........................... 9.10.2 Representations......................................... 1.2.2, 3.5.1, 3.12.7, 6.2.2, 8.2.1, 9.3.3, 9.4.2, 9.5.1, 9.8.2, 9.10.1 Representatives......................................... 2.1.1, 3.1.1, 3.9, 4.1.1, 4.2.1, 4.2.10, 5.1.1, 5.1.2, 13.2.1 Resolution of Claims and Disputes....................... 4.4, 4.5 Responsibility for Those Performing the Work............ 3.3.2, 4.2.3, 6.1.3, 6.2, 10 Retainage............................................... 9.3.1, 9.6.2, 9.8.3, 9.9.1, 9.10.2, 9.10.3 Review of Contract Documents and Field Conditions by Contractor.............................. 1.2.2, 3.2, 3.7.3, 3.12.7 Review of Contractor's Submittals by Owner and Architect................................... 3.10.1, 3.10.2, 3.11, 3.12, 4.2.7, 4.2.9, 5.2.1, 5.2.3, 9.2, 9.8.2 Review of Shop Drawings, Product Data and Samples by Contractor............................. 3.12.5 Rights and Remedies..................................... 1.1.2, 2.3, 2.4, 3.5.1, 3.15.2, 4.2.6, 4.3.6, 4.5, 5.3, 6.1, 6.3, 7.3.1, 8.3.1, 9.5.1, 9.7, 10.2.5, 10.3, 12.2.2, 12.2.4, 13.4, 14 Royalties and Patents................................... 3.17
19 Rules and Notices for Arbitration........................... 4.5.2 Safety of Persons and Property.............................. 10.2 Safety Precautions and Programs............................. 4.2.3. 4.2.7, 10.1 Samples, Definition of...................................... 3.12.3 Samples, Shop Drawings, Product Data and.................... 3.11, 3.12, 4.2.7 Samples at the Site, Documents and.......................... 3.11 Schedule of Values.......................................... 9.2, 9.3.1 Schedules, Construction..................................... 3.10 Separate Contracts and Contractors.......................... 1.1.4, 3.14.2, 4.2.4, 4.5.5, 6, 11.3.7, 12.1.2, 12.2.5 Shop Drawings, Definition of................................ 3.12.1 Shop Drawings, Product Data and Samples..................... 3.11, 3.12, 4.2.7 Site, Use of................................................ 3.13, 6.1.1, 6.2.1 Site Inspections............................................ 1.2.2, 3.3.4, 4.2.2, 4.2.9, 4.3.6, 9.8.2, 9.10.1, 13.5 Site Visits, Architect's.................................... 4.2.2, 4.2.5, 4.2.9, 4.3.6, 9.4.2, 9.5.1, 9.8.2, 9.9.2, 9.10.1, 13.5 Special Inspections and Testing............................. 4.2.6, 12.2.1, 13.5 Specifications, Definition of the........................... 1.1.6 Specifications, The......................................... 1.1.1, 1.1.6, 1.1.7, 1.2.4, 1.3, 3.11 Statutes of Limitations..................................... 4.5.4.2, 12.2.6, 13.7 Stopping the Work........................................... 2.3, 4.3.7, 9.7, 10.1.2, 10.3, 14.1 Stored Materials............................................ 6.2.1, 9.3.2, 10.2.1.2, 11.3.1.4, 12.2.4 Subcontractor, Definition of................................ 5.1.1 SUBCONTRACTORS.............................................. 5 Subcontractors, Work by..................................... 1.2.4, 3.3.2, 3.12.1, 4.2.3, 5.3, 5.4 Subcontractual Relations.................................... 5.3, 5.4, 9.3,1.2, 9.6.2, 9.6.3, 9.6.4, 10.2.1, 11.3.7, 11.3.8, 14.1.1, 14.2.1.2, 14.3.2 Submittals.................................................. 1.3, 3.2.3, 3.10, 3.11, 3.12, 4.2.7, 5.2.1, 5.2.3, 7.3.6, 9.2, 9.3.1, 9.8.2, 9.9.1, 9.10.2, 9.10.3, 10.1.2, 11.1.3 Subrogation, Waivers of..................................... 6.1.1, 11.3.5, 11.3.7 Substantial Completion...................................... 4.2.9, 4.3, 5.2, 8.1.1, 8.1.3, 8.2.3, 9.8, 9.9.1, 12.2.1, 12.2.2, 13.7 Substantial Completion, Definition of....................... 9.8.1 Substitution of Subcontractors.............................. 5.2.3, 5.2.4 Substitution of the Architects.............................. 4.1.3 Substitutions of Materials.................................. 3.5.1 Sub-subcontractor, Definition of............................ 5.1.2 Subsurface Conditions....................................... 4.3.6 Successors and Assigns...................................... 13.2 Superintendent.............................................. 3.9, 10.2.6 Supervision and Construction Procedures..................... 1.2.4, 3.3, 3.4, 4.2.3, 4.3.4, 6.1.3, 6.2.4, 7.1.3, 7.3.4, 8.2, 8.3.1, 10, 12, 14 Surety...................................................... 4.4.1, 4.4.4, 5.4.1.2, 9.10.2, 9.10.3, 14.2.2 Surety, Consent of.......................................... 9.9.1, 9.10.2, 9.10.3 Surveys..................................................... 2.2.2, 3.18.3 Suspension by the Owner for Convenience..................... 14.3 Suspension of the Work...................................... 4.3.7, 5.4.2, 14.1.1.4, 14.3 Suspension or Termination of the Contract................... 4.3.7, 5.4.1.1, 14 Taxes....................................................... 3.6, 7.3.6.4 Termination by the Contractor............................... 14.1 Termination by the Owner for Cause.......................... 5.4.1.1, 14.2 Termination of the Architect................................ 4.1.3 Termination of the Contractor............................... 14.2.2 TERMINATION OR SUSPENSION OF THE CONTRACT................... 14 Tests and Inspections....................................... 3.3.3, 4.2.6, 4.2.9, 9.4.2, 12.2.1, 13.5 TIME........................................................ 8 Time, Delays and Extensions of.............................. 4.3.8, 7.2.1, 8.3 Time Limits, Specific....................................... 2.1.2, 2.2.1, 2.4, 3.10, 3.11, 3.15.1, 4.2.1, 4.2.11, 4.3, 4.4, 4.5, 5.3, 5.4, 7.3.5, 7.3.9, 8.2, 9.2, 9.3.1, 9.3.3, 9.4.1, 9.6.1, 9.7, 9.8.2, 9.10.2, 11.1.3, 11.3.6, 11.3.10, 11.3.11, 12.2.2, 12.2.4, 12.2.6, 13.7, 14 Time Limits on Claims....................................... 4.3.2, 4.3.3, 4.3.6, 4.3.9, 4.4, 4.5 Title to Work............................................... 9.3.2, 9.3.3 UNCOVERING AND CORRECTION OF WORK........................... 12 Uncovering of Work.......................................... 12.1 Unforeseen Conditions....................................... 4.3.6, 8.3.1, 10.1 Unit Prices................................................. 7.1.4, 7.3.3.2 Use of Documents............................................ 1.1.1, 1.3, 2.2.5, 3.12.7, 5.3 Use of Site................................................. 3.13, 6.1.1, 6.1.2 Values, Schedule of......................................... 9.2, 9.3.1 Waiver of Claims; Final Payment............................. 4.3.5, 4.5.1, 9.10.3 Waiver of Claims by the Architect........................... 13.4.2 Waiver of Claims by the Contractor.......................... 9.10.4, 11.3.7, 13.4.2 Waiver of Claims by the Owner............................... 4.3.5, 4.5.1, 9.9.3, 9.10.3, 1.3.3, 11.3.5, 11.3.7, 13.4.2 Waiver of Liens............................................. 9.10.2 Waivers of Subrogation...................................... 6.1.1, 11.3.5, 11.3.7 Warranty and Warranties..................................... 3.5, 4.2.9, 4.3.5.3, 9.3.3, 9.8.2, 9.9.1, 12.2.2, 13.7.1.3 Weather Delays.............................................. 4.3.8.2 When Arbitration May Be Demanded............................ 4.5.4 Work, Definition of......................................... 1.1.3 Written Consent............................................. 1.3.1, 3.12.8, 3.14.2, 4.1.2, 4.3.4, 4.5.5, 9.3.2, 9.8.2, 9.9.1, 9.10.2, 9.10.3, 10.1.2, 10.1.3, 11.3.1, 1.3.1.4, 11.3.11, 13.2, 13.4.2 Written Interpretations..................................... 4.2.11, 4.2.12, 4.3.7 Written Notice.............................................. 2.3, 2.4, 3.9, 3.12.8, 3.12.9, 4.3, 4.4.4, 4.5, 5.2.1, 5.3, 5.4.1.1, 8.2.2, 9.4.1, 9.5.1, 9.7, 9.10, 10.1.2, 10.2.6, 11.1.3, 11.3, 12.2.2, 12.2.4, 13.3, 13.5.2, 14 Written Orders.............................................. 2.3, 3.9, 4.3.7, 7, 8.2.2, 11.3.9, 12.1, 12.2, 13.5.2, 14.3.1 - ----------------------------------------------------------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (c)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 A201-1987 5
20 - -------------------------------------------------------------------------------- GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - ------------------------------------------------------------------------------- ARTICLE 1 GENERAL PROVISIONS 1.1 BASIC DEFINITIONS 1.1.1 THE CONTRACT DOCUMENTS The Contract Documents consist of the Agreement between Owner and Contractor (hereinafter the Agreement), Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, addenda issued prior to execution of the Contract, other documents listed in the Agreement and Modifications issued after execution of the Contract. A Modification is (1) a written amendment to the Contract signed by both parties, (2) a Change Order, (3) a Construction Change Directive or (4) a written order for a minor change in the Work issued by the Architect. Unless specifically enumerated in the Agreement, the Contract Documents do not include other documents such as bidding requirements (advertisement or invitation to bid, Instructions to Bidders, sample forms, the Contractor's bid or portions of addenda relating to bidding requirements). 1.1.2 THE CONTRACT The Contract Documents form the Contract for Construction. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. The Contract may be amended or modified only by a Modification. The Contract Documents shall not be construed to create a contractual relationship of any kind (1) between the Architect and Contractor, (2) between the Owner and a Subcontractor or Sub-subcontractor or (3) between any persons or entities other than the Owner and Contractor. The Architect shall, however, be entitled to performance and enforcement of obligations under the Contract intended to facilitate performance of the Architect's duties. 1.1.3 THE WORK The term "Work" means the construction and services required by the Contract Documents, whether completed or partially completed, and includes all other labor, materials, equipment and services provided or to be provided by the Contractor to fulfill the Contractor's obligations. The Work may constitute the whole or a part of the Project. 1.1.4 THE PROJECT The Project is the total construction of which the Work performed under the Contract Documents may be the whole or a part and which may include construction by the Owner or by separate contractors. 1.1.5 THE DRAWINGS The Drawings are the graphic and pictorial portions of the Contract Documents, wherever located and whenever issued, showing the design, location and dimensions of the Work, generally including plans, elevations, sections, details, schedules and diagrams. 1.1.6 THE SPECIFICATIONS The Specifications are that portion of the Contract Documents consisting of the written requirements for materials, equipment, construction systems, standards and workmanship for the Work, and performance of related services. 1.1.7 THE PROJECT MANUAL The Project Manual is the volume usually assembled for the Work which may include the bidding requirements, sample forms, Conditions of the Contract and Specifications. 1.2 EXECUTION, CORRELATION AND INTENT 1.2.1 The Contract Documents shall be signed by the Owner and Contractor as provided in the Agreement. If either the Owner or Contractor or both do not sign all the Contract Documents, the Architect shall identify such unsigned Documents upon request. 1.2.2 Execution of the Contract by the Contractor is a representation that the Contractor has visited the site, become familiar with local conditions under which the Work is to be performed and correlated personal observations with requirements of the Contract Documents. 1.2.3 The intent of the Contract Documents is to include all items necessary for the proper execution and completion of the Work by the Contractor. The Contract Documents are complementary, and what is required by one shall be as binding as if required by all; performance by the Contractor shall be required only to the extent consistent with the Contract Documents and reasonably inferable from them as being necessary to produce the intended results. 1.2.4 Organization of the Specifications into divisions, sections and articles, and arrangement of Drawings shall not control the Contractor in dividing the Work among Subcontractors or in establishing the extent of Work to be performed by any trade. 1.2.5 Unless otherwise stated in the Contract Documents, words which have well-known technical or construction industry meanings are used in the Contract Documents in accordance with such recognized meanings. 1.3 OWNERSHIP AND USE OF ARCHITECT'S DRAWINGS, SPECIFICATIONS AND OTHER DOCUMENTS 1.3.1 The Drawings. Specifications and other documents prepared by the Architect are instruments of the Architect's service through which the Work to be executed by the Contractor is described. The Contractor may retain one contract record set. Neither the Contractor not any Subcontractor, Sub-subcontractor or material or equipment supplier shall own or claim a copyright in the Drawings, Specifications and other documents prepared by the Architect, and unless otherwise indicated the Architect shall be deemed the author of them and will retain all common law, statutory and other reserved rights, in addition to the copyright. All copies of them, except the Contractor's record set, shall be returned or suitably accounted for to the Architect, on request, upon completion of the Work. The Drawings, Specifications and other documents prepared by the Architect, and copies thereof furnished to the Contractor, are for use solely with respect to this Project. They are not to be used by the Contractor or any Subcontractor, Sub-subcontractor or material or equipment supplier on other projects or for additions to this Project outside the scope of the - -------------------------------------------------------------------------------- 6 A201-1987 AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 21 Work without the specific written consent of the Owner and Architect. The Contractor, Subcontractors, Sub-subcontractors and material or equipment suppliers are granted a limited license to use and reproduce applicable portions of the Drawings. Specifications and other documents prepared by the Architect appropriate to and for use in the execution of their Work under the Contract Documents. All copies made under this license shall bear the statutory copyright notice, if any, shown on the Drawings, Specifications and other documents prepared by the Architect. Submittal or distribution to meet official regulatory requirements or for other purposes in connection with this Project is not to be construed as publication in derogation of the Architect's copyright or other reserved rights. 1.4 CAPITALIZATION 1.4.1 Terms capitalized in these General Conditions include those which are (1) specifically defined, (2) the titles of numbered articles and identified references to Paragraphs, Subparagraphs and Clauses in the document or (3) the titles of other documents published by the American Institute of Architects. 1.5 INTERPRETATION 1.5.1 In the interest of brevity the Contract Documents frequently omit modifying words such as "all" and "any" and articles such as "the" and "an," but the fact that a modifier or an article is absent from one statement and appears in another is not intended to affect the interpretation of either statement. ARTICLE 2 OWNER 2.1 DEFINITION 2.1.1 The Owner is the person or entity identified as such in the Agreement and is referred to throughout the Contract Documents as if singular in number. The term "Owner" means the Owner or the Owner's authorized representative. 2.1.2 The Owner upon reasonable written request shall furnish to the Contractor in writing information which is necessary and relevant for the Contractor to evaluate, give notice of or enforce mechanic's lien rights. Such information shall include a correct statement of the record legal title to the property on which the Project is located, usually referred to as the site, and the Owner's interest therein at the time of execution of the Agreement and, within five days after any change, information of such change in title, recorded or unrecorded. 2.2 INFORMATION AND SERVICES REQUIRED OF THE OWNER 2.2.1 The Owner shall, at the request of the Contractor, prior to execution of the Agreement and promptly from time to time thereafter, furnish to the Contractor reasonable evidence that financial arrangements have been made to fulfill the Owner's obligations under the Contract. [Note: Unless such reasonable evidence were furnished on request prior to the execution of the Agreement, the prospective contractor would not be required to execute the Agreement or to commence the Work.] 2.2.2 The Owner shall furnish surveys describing physical characteristics, legal limitations and utility locations for the site of the Project, and a legal description of the site. 2.2.3 Except for permits and fees which are the responsibility of the Contractor under the Contract Documents, the Owner shall secure and pay for necessary approvals, easements, assessments and charges required for construction, use or occupancy of permanent structures or for permanent changes in existing facilities. 2.2.4 Information or services under the Owner's control shall be furnished by the Owner with reasonable promptness to avoid delay in orderly progress of the Work. 2.2.5 Unless otherwise provided in the Contract Documents, the Contractor will be furnished, free of charge, such copies of Drawings and Project Manuals as are reasonably necessary for execution of the Work. 2.2.6 The foregoing are in addition to other duties and responsibilities of the Owner enumerated herein and especially those in respect to Article 6 (Construction by Owner or by Separate Contractors), Article 9 (Payments and Completion) and Article 11 (Insurance and Bonds). 2.3 OWNER'S RIGHT TO STOP THE WORK 2.3.1 If the Contractor fails to correct Work which is not in accordance with the requirements of the Contract Documents as required by Paragraph 12.2 or persistently fails to carry out Work in accordance with the Contract Documents, the Owner, by written order signed personally or by an agent specifically so empowered by the Owner in writing, may order the Contractor to stop the Work, or any portion thereof, until the cause for such order has been eliminated; however, the right of the Owner to stop the Work shall not give rise to a duty on the part of the Owner to exercise this right for the benefit of the Contractor or any other person or entity, except to the extent required by Subparagraph 6.1.3. 2.4 OWNER'S RIGHT TO CARRY OUT THE WORK 2.4.1 If the Contractor defaults or neglects to carry out the Work in accordance with the Contract Documents and fails within a seven-day period after receipt of written notice from the Owner to commence and continue correction of such default or neglect with diligence and promptness, the Owner may after such seven-day period give the Contractor a second written notice to correct such deficiencies within a second seven-day period. If the Contractor within such second seven-day period after receipt of such second notice fails to commence and continue to correct any deficiencies, the Owner may, without prejudice to other remedies the Owner may have, correct such deficiencies. In such case an appropriate Change Order shall be issued deducting from payments then or thereafter due the Contractor the cost of correcting such deficiencies, including compensation for the Architect's additional services and expenses made necessary by such default, neglect or failure. Such action by the Owner and amounts charged to the Contractor are both subject to prior approval of the Architect. If payments then or thereafter due the Contractor are not sufficient to cover such amounts, the Contractor shall pay the difference to the Owner. ARTICLE 3 CONTRACTOR 3.1 DEFINITION 3.1.1 The Contractor is the person or entity identified as such in the Agreement and is referred to throughout the Contract Documents as if singular in number. The term "Contractor" means the Contractor or the Contractor's authorized representative. - -------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR A201-1987 7 CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 22 3.2 REVIEW OF CONTRACT DOCUMENTS AND FIELD CONDITIONS BY CONTRACTOR 3.2.1 The Contractor shall carefully study and compare the Contract Documents with each other and with information furnished by the Owner pursuant to Subparagraph 2.2.2. and shall at once report to the Architect errors, inconsistencies or omissions discovered. The Contractor shall not be liable to the Owner or Architect for damage resulting from errors, inconsistencies or omissions in the Contract Documents unless the Contractor recognized such error, inconsistency or omission and knowingly failed to report it to the Architect. If the Contractor performs any construction activity knowing it involves a recognized error, inconsistency or omission in the Contract Documents without such notice to the Architect, the Contractor shall assume appropriate responsibility for such performance and shall bear an appropriate amount of the attributable costs for correction. 3.2.2 The Contractor shall take field measurements and verify field conditions and shall carefully compare such field measurements and conditions and other information known to the Contractor with the Contract Documents before commencing activities. Errors, inconsistencies or omissions discovered shall be reported to the Architect at once. 3.2.3 The Contractor shall perform the Work in accordance with the Contract Documents and submittals approved pursuant to Paragraph 3.12. 3.3 SUPERVISION AND CONSTRUCTION PROCEDURES 3.3.1 The Contractor shall supervise and direct the Work, using the Contractor's best skill and attention. The Contractor shall be solely responsible for and have control over construction means, methods, techniques, sequences and procedures and for coordinating all portions of the Work under the Contract, unless Contract Documents give other specific instructions concerning these matters. 3.3.2 The Contractor shall be responsible to the Owner for acts and omissions of the Contractor's employees, Subcontractors and their agents and employees, and other persons performing portions of the Work under a contract with the Contractor. 3.3.3 The Contractor shall not be relieved of obligations to perform the Work in accordance with the Contract Documents either by activities or duties of the Architect in the Architect's administration of the Contract, or by tests, inspections or approvals required or performed by persons other than the Contractor. 3.3.4 The Contractor shall be responsible for inspection of portions of Work already performed under this Contract to determine that such portions are in proper condition to receive subsequent Work. 3.4 LABOR AND MATERIALS 3.4.1 Unless otherwise provided in the Contract Documents, the Contractor shall provide and pay for labor, materials, equipment, tools, construction equipment and machinery, water, heat, utilities, transportation, and other facilities and services necessary for proper execution and completion of the Work, whether temporary or permanent and whether or not incorporated or to be incorporated in the Work. 3.4.2 The Contractor shall enforce strict discipline and good order among the Contractor's employees and other persons carrying out the Contract. The Contractor shall not permit employment of unfit persons or persons not skilled in tasks assigned to them. 3.5 WARRANTY 3.5.1 The Contractor warrants to the Owner and Architect that materials and equipment furnished under the Contract will be of good quality and new unless otherwise required or permitted by the Contract Documents, that the Work will be free from defects not inherent in the quality required or permitted, and that the Work will conform with the requirements of the Contract Documents. Work not conforming to these requirements, including substitutions not properly approved and authorized, may be considered defective. The Contractor's warranty excludes remedy for damage or defect caused by abuse, modifications not executed by the Contractor, improper or insufficient maintenance, improper operation, or normal wear and tear under normal usage. If required by the Architect, the Contractor shall furnish satisfactory evidence as to the kind and quality of materials and equipment. 3.6 TAXES 3.6.1 The Contractor shall pay sales, consumer, use and similar taxes for the Work or portions thereof provided by the Contractor which are legally enacted when bids are received or negotiations concluded, whether or not yet effective or merely scheduled to go into effect. 3.7 PERMITS, FEES AND NOTICES 3.7.1 Unless otherwise provided in the Contract Documents, the Contractor shall secure and pay for the building permit and other permits and governmental fees, licenses and inspections necessary for proper execution and completion of the Work which are customarily secured after execution of the Contract and which are legally required when bids are received or negotiations concluded. 3.7.2 The Contractor shall comply with and give notices required by laws, ordinances, rules, regulations and lawful orders of public authorities bearing on performance of the Work. 3.7.3 It is not the Contractor's responsibility to ascertain that the Contract Documents are in accordance with applicable laws, statutes, ordinances, building codes, and rules and regulations. However, if the Contractor observes that portions of the Contract Documents are at variance therewith, the Contractor shall promptly notify the Architect and Owner in writing, and necessary changes shall be accomplished by appropriate Modification. 3.7.4 If the Contractor performs Work knowing it to be contrary to laws, statutes, ordinances, building codes, and rules and regulations without such notice to the Architect and Owner, the Contractor shall assume full responsibility for such Work and shall bear the attributable costs. 3.8 ALLOWANCES 3.8.1 The Contractor shall include in the Contract Sum all allowances stated in the Contract Documents. Items covered by allowances shall be supplied for such amounts and by such persons or entities as the Owner may direct, but the Contractor shall not be required to employ persons or entities against which the Contractor makes reasonable objection. 3.8.2 Unless otherwise provided in the Contract Documents: .1 materials and equipment under an allowance shall be selected promptly by the Owner to avoid delay in the Work; .2 allowances shall cover the cost to the Contractor of materials and equipment delivered at the site and all required taxes, less applicable trade discounts: - -------------------------------------------------------------------------------- 8 A201-1987 AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 23 .3 Contractor's costs for unloading and handling at the site, labor, installation costs, overhead, profit and other expenses contemplated for stated allowance amounts shall be included in the Contract Sum and not in the allowances; .4 whenever costs are more than or less than allowances, the Contract Sum shall be adjusted accordingly by Change Order. The amount of the Change Order shall reflect (1) the difference between actual costs and the allowances under Clause 3.8.2.2 and (2) changes in Contractor's costs under Clause 3.8.2.3. 3.9 SUPERINTENDENT 3.9.1 The Contractor shall employ a competent superintendent and necessary assistants who shall be in attendance at the Project site during performance of the Work. The superintendent shall represent the Contractor, and communications given to the superintendent shall be as binding as if given to the Contractor. Important communications shall be confirmed in writing. Other communications shall be similarly confirmed on written request in each case. 3.10 CONTRACTOR'S CONSTRUCTION SCHEDULES 3.10.1 The Contractor, promptly after being awarded the Contract, shall prepare and submit for the Owner's and Architect's information a Contractor's construction schedule for the Work. The schedule shall not exceed time limits current under the Contract Documents, shall be revised at appropriate intervals as required by the conditions of the Work and Project, shall be related to the entire Project to the extent required by the Contract Documents, and shall provide for expeditious and practicable execution of the Work. 3.10.2 The Contractor shall prepare and keep current, for the Architect's approval, a schedule of submittals which is coordinated with the Contractor's construction schedule and allows the Architect reasonable time to review submittals. 3.10.3 The Contractor shall conform to the most recent schedules. 3.11 DOCUMENTS AND SAMPLES AT THE SITE 3.11.1 The Contractor shall maintain at the site for the Owner one record copy of the Drawings, Specifications, addenda, Change Orders and other Modifications, in good order and marked currently to record changes and selections made during construction, and in addition approved Shop Drawings, Product Data, Samples and similar required submittals. These shall be available to the Architect and shall be delivered to the Architect for submittal to the Owner upon completion of the Work. 3.12 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES 3.12.1 Shop Drawings are drawings, diagrams, schedules and other data specially prepared for the Work by the Contractor or a Subcontractor, Sub-subsonctractor, manufacturer, supplier or distributor to illustrate some portion of the Work. 3.12.2 Product Data are illustrations, standard schedules, performance charts, instructions, brochures, diagrams and other information furnished by the Contractor to illustrate materials or equipment for some portion of the Work. 3.12.3 Samples are physical examples which illustrate materials, equipment or workmanship and establish standards by which the Work will be judged. 3.12.4 Shop Drawings, Product Data, Samples and similar submittals are not Contract Documents. The purpose of their submittal is to demonstrate for those portions of the Work for which submittals are required the way the Contractor proposes to conform to the information given and the design concept expressed in the Contract Documents. Review by the Architect is subject to the limitations of Subparagraph 4.2.7. 3.12.5 The Contractor shall review, approve and submit to the Architect Shop Drawings, Product Data, Samples and similar submittals required by the Contract Documents with reasonable promptness and in such sequence as to cause no delay in the Work or in the activities of the Owner or of separate contractors. Submittals made by the Contractor which are not required by the Contract Documents may be returned without action. 3.12.6 The Contractor shall perform no portion of the Work requiring submittal and review of Shop Drawings, Product Data, Samples or similar submittals until the respective submittal has been approved by the Architect. Such Work shall be in accordance with approved submittals. 3.12.7 By approving and submitting Shop Drawings, Product Data, Samples and similar submittals, the Contractor represents that the Contractor has determined and verified materials, field measurements and field construction criteria related thereto, or will do so, and has checked and coordinated the information contained within such submittals with the requirements of the Work and of the Contract Documents. 3.12.8 The Contractor shall not be relieved of responsibility for deviations from requirements of the Contract Documents by the Architect's approval of Shop Drawings, Product Data, Samples or similar submittals unless the Contractor has specifically informed the Architect in writing of such deviation at the time of submittal and the Architect has given written approval to the specific deviation. The Contractor shall not be relieved of responsibility for errors or omissions in Shop Drawings, Product Data, Samples or similar submittals by the Architect's approval thereof. 3.12.9 The Contractor shall direct specific attention, in writing or on resubmitted Shop Drawings, Product Data, Samples or similar submittals, to revisions other than those requested by the Architect on previous submittals. 3.12.10 Informational submittals upon which the Architect is not expected to take responsive action may be so identified in the Contract Documents. 3.12.11 When professional certification of performance criteria of materials, systems or equipment is required by the Contract Documents, the Architect shall be entitled to rely upon the accuracy and completeness of such calculations and certifications. 3.13 USE OF SITE 3.13.1 The Contractor shall confine operations at the site to areas permitted by law, ordinances, permits and the Contract Documents and shall not unreasonably encumber the site with materials or equipment. 3.14 CUTTING AND PATCHING 3.14.1 The Contractor shall be responsible for cutting, fitting or patching required to complete the Work or to make its parts fit together properly. 3.14.2 The Contractor shall not damage or endanger a portion of the Work or fully or partially completed construction of the Owner or separate contractors by cutting, patching or otherwise altering such construction, or by excavation. The Contractor shall not cut or otherwise alter such construction by the - -------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR A201-1987 9 CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 24 Owner or a separate contractor except with written consent of the Owner and of such separate contractor; such consent shall not be unreasonably withheld. The Contractor shall not unreasonably withhold from the Owner or a separate contractor the Contractor's consent to cutting or otherwise altering the Work. 3.15 CLEANING UP 3.15.1 The Contractor shall keep the premises and surrounding area free from accumulation of waste materials or rubbish caused by operations under the Contract. At completion of the Work the Contractor shall remove from and about the Project waste materials, rubbish, the Contractor's tools, construction equipment, machinery and surplus materials. 3.15.2 If the Contractor fails to clean up as provided in the Contract Documents, the Owner may do so and the cost thereof shall be charged to the Contractor. 3.16 ACCESS TO WORK 3.16.1 The Contractor shall provide the Owner and Architect access to the Work in preparation and progress wherever located. 3.17 ROYALTIES AND PATENTS 3.17.1 The Contractor shall pay all royalties and license fees. The Contractor shall defend suits or claims for infringement of patent rights and shall hold the Owner and Architect harmless from loss on account thereof, but shall not be responsible for such defense or loss when a particular design, process or product of a particular manufacturer or manufacturers is required by the Contract Documents. However, if the Contractor has reason to believe that the required design, process or product is an infringement of a patent, the Contractor shall be responsible for such loss unless such information is promptly furnished to the Architect. 3.18 INDEMNIFICATION 3.18.1 To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architects consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, but only to the extent caused in whole or in part by negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Paragraph 3.18. 3.18.2 In claims against any person or entity indemnified under this Paragraph 3.18 by an employee of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, the indemnification obligation under this Paragraph 3.18 shall not be limited by a limitation on amount or type of damages, compensation or benefits payable by or for the Contractor or a Subcontractor under workers' or workmen's compensation acts, disability benefit acts or other employee benefit acts. 3.18.3 The obligations of the Contractor under this Paragraph 3.18 shall not extend to the liability of the Architect, the Architect's consultants, and agents and employees of any of them arising out of (1) the preparation or approval of maps, drawings, opinions, reports, surveys, Change Orders, designs or specifications, or (2) the giving of or the failure to give directions or instructions by the Architect, the Architect's consultants, and agents and employees of any of them provided such giving or failure to give is the primary cause of the injury or damage. ARTICLE 4 --------- ADMINISTRATION OF THE CONTRACT 4.1 ARCHITECT 4.1.1 The Architect is the person lawfully licensed to practice architecture or any entity lawfully practicing architecture identified as such in the Agreement and is referred to throughout the Contract Documents as if singular in number. The term "Architect" means the Architect or the Architect's authorized representative. 4.1.2 Duties, responsibilities and limitations of authority of the Architect as set forth in the Contract Documents shall not be restricted, modified or extended without written consent of the Owner, Contractor and Architect. Consent shall not be unreasonably withheld. 4.1.3 In case of termination of employment of the Architect, the Owner shall appoint an architect against whom the Contractor makes no reasonable objection and whose status under the Contract Documents shall be that of the former architect. 4.1.4 Disputes arising under Subparagraphs 4.1.2 and 4.1.3 shall be subject to arbitration. 4.2 ARCHITECT'S ADMINISTRATION OF THE CONTRACT 4.2.1 The Architect will provide administration of the Contract as described in the Contract Documents, and will be the Owner's representative (1) during construction, (2) until final payment is due and (3) with the Owner's concurrence, from time to time during the correction period described in Paragraph 12.2. The Architect will advise and consult with the Owner. The Architect will have authority to act on behalf of the Owner only to the extent provided in the Contract Documents, unless otherwise modified by written instrument in accordance with other provisions of the Contract. 4.2.2 The Architect will visit the site at intervals appropriate to the stage of construction to become generally familiar with the progress and quality of the completed Work and to determine in general if the Work is being performed in a manner indicating that the Work, when completed, will be in accordance with the Contract Documents. However, the Architect will not be required to make exhaustive or continuous on-site inspections to check quality or quantity of the Work. On the basis of on-site observations as an architect, the Architect will keep the Owner informed of progress of the Work, and will endeavor to guard the Owner against defects and deficiencies in the Work. 4.2.3 The Architect will not have control over or charge of and will not be responsible for construction means, methods, techniques, sequences or procedures, or for safety precautions and programs in connection with the Work, since these are solely the Contractor's responsibility as provided in Paragraph 3.3. The Architect will not be responsible for the Contractor's failure to carry out the Work in accordance with the Contract Documents. The Architect will not have control over or charge of and will not be responsible for acts or omissions of the Con- - -------------------------------------------------------------------------------- 10 A201-1987 AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 25 tractor. Subcontractors, or their agents or employees, or of any other persons performing portions of the Work. 4.2.4 COMMUNICATIONS FACILITATING CONTRACT ADMINISTRATION. Except as otherwise provided in the Contract Documents or when direct communications have been specially authorized, the Owner and Contractor shall endeavor to communicate through the Architect. Communications by and with the Architect's consultants shall be through the Architect. Communications by and with Subcontractors and material suppliers shall be through the Contractor. Communications by and with separate contractors shall be through the Owner. 4.2.5 Based on the Architect's observations and evaluations of the Contractor's Applications for Payment, the Architect will review and certify the amounts due the Contractor and will issue Certificates for Payment in such amounts. 4.2.6 The Architect will have authority to reject Work which does not conform to the Contract Documents. Whenever the Architect considers it necessary or advisable for implementation of the intent of the Contract Documents, the Architect will have authority to require additional inspection or testing of the Work in accordance with Subparagraphs 13.5.2 and 13.5.3, whether or not such Work is fabricated, installed or completed. However, neither this authority of the Architect nor a decision made in good faith either to exercise or not to exercise such authority shall give rise to a duty or responsibility of the Architect to the Contractor, Subcontractors, material and equipment suppliers, their agents or employees, or other persons performing portions of the work. 4.2.7 The Architect will review and approve or take other appropriate action upon the Contractor's submittals such as Shop Drawings, Product Data and Samples, but only for the limited purpose of checking for conformance with information given and the design concept expressed in the Contract Documents. The Architect's action will be taken with such reasonable promptness as to cause no delay in the Work or in the activities of the Owner, Contractor or separate contractors, while allowing sufficient time in the Architect's professional judgment to permit adequate review. Review of such submittals is not conducted for the purpose of determining the accuracy and completeness of other details such as dimensions and quantities, or for substantiating instructions for installation or performance of equipment or systems, all of which remain the responsibility of the Contractor as required by the Contract Documents. The Architect's review of the Contractor's submittals shall not relieve the Contractor of the obligations under Paragraphs 3.3, 3.5 and 3.12. The Architect's review shall not constitute approval of safety precautions or, unless otherwise specifically stated by the Architect, of any construction means, methods, techniques, sequences or procedures. The Architect's approval of a specific item shall not indicate approval of an assembly of which the item is a component. 4.2.8 The Architect will prepare Change Orders and Construction Change Directives, and may authorize minor changes in the Work as provided in Paragraph 7.4. 4.2.9 The Architect will conduct inspections to determine the date or dates of Substantial Completion and the date of final completion, will receive and forward to the Owner for the Owner's review and records written warranties and related documents required by the Contract and assembled by the Contractor, and will issue a final Certificate for Payment upon compliance with the requirements of the Contract Documents. 4.2.10 If the Owner and Architect agree, the Architect will provide one or more project representatives to assist in carrying out the Architect's responsibilities at the site. The duties, responsibilities and limitations of authority of such project representatives shall be as set forth in an exhibit to be incorporated in the Contract Documents. 4.2.11 The Architect will interpret and decide matters concerning performance under and requirements of the Contract Documents on written request of either the Owner or Contractor. The Architect's response to such requests will be made with reasonable promptness and within any time limits agreed upon. If no agreement is made concerning the time within which interpretations required of the Architect shall be furnished in compliance with this Paragraph 4.2, then delay shall not be recognized on account of failure by the Architect to furnish such interpretations until 15 days after written request is made for them. 4.2.12 Interpretations and decisions of the Architect will be consistent with the intent of and reasonably inferable from the Contract Documents and will be in writing or in the form of drawings. When making such interpretations and decisions, the Architect will endeavor to secure faithful performance by both Owner and Contractor, will not show partiality to either and will not be liable for results of interpretations or decisions so rendered in good faith. 4.2.13 The Architect's decisions on matters relating to aesthetic effect will be final if consistent with the intent expressed in the Contract Documents. 4.3 CLAIMS AND DISPUTES 4.3.1 DEFINITION. A Claim is a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of Contract terms, payment of money, extension of time or other relief with respect to the terms of the Contract. The term "Claim" also includes other disputes and matters in question between the Owner and Contractor arising out of or relating to the Contract. Claims must be made by written notice. The responsibility to substantiate Claims shall rest with the party making the Claim. 4.3.2 DECISION OF ARCHITECT. Claims, including those alleging an error of omission by the Architect, shall be referred initially to the Architect for action as provided in Paragraph 4.4. A decision by the Architect, as provided in Subparagraph 4.4.4, shall be required as a condition precedent to arbitration or litigation of a Claim between the Contractor and Owner as to all such matters arising prior to the date final payment is due, regardless of (1) whether such matters relate to execution and progress of the Work or (2) the extent to which the Work has been completed. The decision by the Architect in response to a Claim shall not be a condition precedent to arbitration or litigation in the event (1) the position of Architect is vacant, (2) the Architect has not received evidence or has failed to render a decision within agreed time limits, (3) the Architect has failed to take action required under Subparagraph 4.4.4 within 30 days after the Claim is made, (4) 45 days have passed after the Claim has been referred to the Architect or (5) the Claim relates to a mechanic's lien. 4.3.3 TIME LIMITS ON CLAIMS. Claims by either party must be made within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later. Claims must be made by written notice. An additional Claim made after the initial Claim has been implemented by Change Order will not be considered unless submitted in a timely manner. AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C) 1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 A201-1987 11 26 4.3.4 CONTINUING CONTRACT PERFORMANCE. Pending final resolution of a Claim including arbitration, unless otherwise agreed in writing the Contractor shall proceed diligently with performance of the Contract and the Owner shall continue to make payments in accordance with the Contract Documents. 4.3.5 WAIVER OF CLAIMS; FINAL PAYMENT. The making of final payment shall constitute a waiver of Claims by the Owner except those arising from: .1 liens, Claims, security interests or encumbrances arising out of the Contract and unsettled; .2 failure of the Work to comply with the requirements of the Contract Documents; or .3 terms of special warranties required by the Contract Documents. 4.3.6 CLAIMS FOR CONCEALED OR UNKNOWN CONDITIONS. If conditions are encountered at the site which are (1) subsurface or otherwise concealed physical conditions which differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature, which differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, then notice by the observing party shall be given to the other party promptly before conditions are disturbed and in no event later than 21 days after first observance of the conditions. The Architect will promptly investigate such conditions and, if they differ materially and cause an increase or decrease in the Contractor's cost of, or time required for, performance of any part of the work, will recommend an equitable adjustment in the Contract Sum or Contract Time, or both. If the Architect determines that the conditions at the site are not materially different from those indicated in the Contract Documents and that no change in the terms of the Contract is justified, the Architect shall so notify the Owner and Contractor in writing, stating the reasons. Claims by either party in opposition to such determination must be made within 21 days after the Architect has given notice of the decision. If the Owner and Contractor cannot agree on an adjustment in the Contract Sum or Contract Time, the adjustment shall be referred to the Architect for initial determination, subject to further proceedings pursuant to Paragraph 4.4. 4.3.7 CLAIMS FOR ADDITIONAL COST. If the Contractor wishes to make Claim for an increase in the Contract Sum, written notice as provided herein shall be given before proceeding to execute the Work. Prior notice is not required for Claims relating to an emergency endangering life or property arising under Paragraph 10.3. If the Contractor believes additional cost is involved for reasons including but not limited to (1) a written interpretation from the Architect, (2) an order by the Owner to stop the Work where the Contractor was not at fault, (3) a written order for a minor change in the Work issued by the Architect, (4) failure of payment by the Owner, (5) termination of the Contract by the Owner, (6) Owner's suspension or (7) other reasonable grounds, Claim shall be filed in accordance with the procedure established herein. 4.3.8 CLAIMS FOR ADDITIONAL TIME 4.3.8.1 If the Contractor wishes to make Claim for an increase in the Contract Time, written notice as provided herein shall be given. The Contractor's Claim shall include an estimate of cost and of probable effect of delay on progress of the Work. In the case of a continuing delay only one Claim is necessary. 4.3.8.2 If adverse weather conditions are the basis for a Claim for additional time, such Claim shall be documented by data substantiating that weather conditions were abnormal for the period of time and could not have been reasonably anticipated, and that weather conditions had an adverse effect on the scheduled construction. 4.3.9 INJURY OR DAMAGE TO PERSON OR PROPERTY. If either party to the Contract suffers injury or damage to person or property because of an act or omission of the other party, of any of the other party's employees or agents, or of others for whose acts such party is legally liable, written notice of such injury or damage, whether or not insured, shall be given to the other party within a reasonable time not exceeding 21 days after first observance. The notice shall provide sufficient detail to enable the other party to investigate the matter. If a Claim for additional cost or time related to this Claim is to be asserted, it shall be filed as provided in Subparagraphs 4.3.7 or 4.3.8. 4.4 RESOLUTION OF CLAIMS AND DISPUTES 4.4.1 The Architect will review Claims and take one or more of the following preliminary actions within ten days of receipt of a Claim: (1) request additional supporting data from the claimant, (2) submit a schedule to the parties indicating when the Architect expects to take action, (3) reject the Claim in whole or in part, stating reasons for rejection, (4) recommend approval of the Claim by the other party or (5) suggest a compromise. The Architect may also, but is not obligated to, notify the surety, if any, of the nature and amount of the Claim. 4.4.2 If a Claim has been resolved, the Architect will prepare or obtain appropriate documentation. 4.4.3 If a Claim has not been resolved, the party making the Claim shall, within ten days after the Architect's preliminary response, take one or more of the following actions: (1) submit additional supporting data requested by the Architect, (2) modify the initial Claim or (3) notify the Architect that the initial Claim stands. 4.4.4 If a Claim has not been resolved after consideration of the foregoing and of further evidence presented by the parties or requested by the Architect, the Architect will notify the parties in writing that the Architect's decision will be made within seven days, which decision shall be final and binding on the parties but subject to arbitration. Upon expiration of such time period, the Architect will render to the parties the Architect's written decision relative to the Claim, including any change in the Contract Sum or Contract Time or both. If there is a surety and there appears to be a possibility of a Contractor's default, the Architect may, but is not obligated to, notify the surety and request the surety's assistance in resolving the controversy. 4.5 ARBITRATION 4.5.1 CONTROVERSIES AND CLAIMS SUBJECT TO ARBITRATION. Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof, except controversies or Claims relating to aesthetic effect and except those waived as provided for in Subparagraph 4.3.5. Such controversies or Claims upon which the Architect has given notice and rendered a decision as provided in Subparagraph 4.4.4 shall be subject to arbitration upon written demand of either party. Arbitration may be commenced when 45 days have passed after a Claim has been referred to the Architect as provided in Paragraph 4.3 and no decision has been rendered. - ----------------------------------------------------------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION 12 A201-1987 AIA(R) - (c)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006
27 4.5.2 RULES AND NOTICES FOR ARBITRATION. Claims between the Owner and Contractor not resolved under Paragraph 4.4 shall, if subject to arbitration under Subparagraph 4.5.1, be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect, unless the parties mutually agree otherwise. Notice of demand for arbitration shall be filed in writing with the other party to the Agreement between the Owner and Contractor and with the American Arbitration Association, and a copy shall be filed with the Architect. 4.5.3 CONTRACT PERFORMANCE DURING ARBITRATION. During arbitration proceedings, the Owner and Contractor shall comply with Subparagraph 4.3.4. 4.5.3 WHEN ARBITRATION MAY BE DEMANDED. Demand for arbitration of any Claim may not be made until the earlier of (1) the date on which the Architect has rendered a final written decision on the Claim, (2) the tenth day after the parties have presented evidence to the Architect or have been given reasonable opportunity to do so, if the Architect has not rendered a final written decision by that date, or (3) any of the five events described in Subparagraph 4.3.2. 4.5.4.1 When a written decision of the Architect states that (1) the decision is final but subject to arbitration and (2) a demand for arbitration of a Claim covered by such decision must be made within 30 days after the date on which the party making the demand receives the final written decision, then failure to demand arbitration within said 30 days period shall result in the Architect's decision becoming final and binding upon the Owner and Contractor. If the Architect renders a decision after arbitration proceedings have been initiated, such decision may be entered as evidence, but shall not supercede arbitration proceedings unless the decision is acceptable to all parties concerned. 4.5.4.2 A demand for arbitration shall be made within the time limits specified in Subparagraphs 4.5.1 and 4.5.4 and Clause 4.5.4.1 as applicable, and in other cases within a reasonable time after the Claim has arisen, and in no event shall it be made after the date when institution of legal or equitable proceedings based on such Claim would be barred by the applicable statute of limitations as determined pursuant to Paragraph 13.7. 4.5.5 LIMITATION ON CONSOLIDATION OR JOINDER. No arbitration arising out of or relating to the Contract Documents shall include, by consolidation or joinder or in any other manner, the Architect, the Architect's employees or consultants, except by written consent containing specific reference to the Agreement and signed by the Architect, Owner, Contractor and any other person or entity sought to be joined. No arbitration shall include, by consolidation or joinder or in any other manner, parties other than the Owner, Contractor, a separate contractor as described in Article 6 and other persons substantially involved in a common question of fact or law whose presence is required if complete relief is to be accorded in arbitration. No person or entity other than the Owner, Contractor or a separate contractor as described in Article 6 shall be included as an original third party or additional third party or additional third party to an arbitration whose interest or responsibility is insubstantial. Consent to arbitration involving an additional person or entity shall not constitute consent to arbitration of a dispute not described therein or with a person or entity not named or described therein. The foregoing agreement to arbitrate and other agreements to arbitrate with an additional person or entity duly consented to by parties to the Agreement shall be specifically enforceable under applicable law in any court having jurisdiction thereof. 4.5.6 CLAIMS AND TIMELY ASSERTION OF CLAIMS. A party who files a notice of demand for arbitration must assert in the demand all Claims then known to that party on which arbitration is permitted to be demanded. When a party fails to include a Claim through oversight, inadvertence or excusable neglect, or when a Claim has matured or been acquired subsequently, the arbitrator or arbitrators may permit amendment. 4.5.7 JUDGMENT ON FINAL AWARD. The award rendered by the arbitrator or arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. ARTICLE 5 --------- SUBCONTRACTORS 5.1 DEFINITIONS 5.1.1 A Subcontractor is a person or entity who has a direct contract with the Contractor to perform a portion of the Work at the site. The term "Subcontractor" is referred to throughout the Contract Documents as if singular in number and means a Subcontractor or an authorized representative of the Subcontractor. The term "Subcontractor" does not include a separate contractor or subcontractors of a separate contractor. 5.1.2 A Sub-subcontractor is a person or entity who has a direct or indirect contract with a Subcontractor to perform a portion of the Work at the site. The term "Sub-subcontractor" is referred to throughout the Contract Documents as if singular in number and means a Sub-subcontractor or an authorized representative of the Sub-subcontractor. 5.2 AWARD OF SUBCONTRACTS AND OTHER CONTRACTS FOR PORTIONS OF THE WORK 5.2.1 Unless otherwise stated in the Contract Documents or the bidding requirements, the Contractor, shall furnish in writing to the Owner through the Architect the names of persons or entities (including those who are to furnish materials or equipment fabricated to a special design) proposed for each principal portion of the Work. The Architect will promptly reply to the Contractor in writing stating whether or not the Owner or the Architect, after due investigation, has reasonable objection to any such proposed person or entity. Failure of the Owner or Architect to reply promptly shall constitute notice of no reasonable objection. 5.2.2 The Contractor shall not contract with a proposed person or entity to whom the Owner or Architect has made reasonable and timely objection. The Contractor shall not be required to contract with anyone to whom the Contractor has made reasonable objection. 5.2.3 If the Owner or Architect has reasonable objection to a person or entity proposed by the Contractor, the Contractor shall propose another to whom the Owner or Architect has no reasonable objection. The Contract Sum shall be increased or decreased by the difference in cost occasioned by such change and an appropriate Change Order shall be issued. However, no increase in the Contract Sum shall be allowed for such change unless the Contractor has acted promptly and responsively in submitting names as required. 5.2.4 The Contractor shall not change a Subcontractor, person or entity previously selected if the Owner or Architect makes reasonable objection to such change. - ------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 A201-1987 13 28 5.3 SUBCONTRACTUAL RELATIONS 5.3.1 By appropriate agreement, written where legally required for validity, the Contractor shall require each Subcontractor, to the extent of the Work to be performed by the Subcontractor, to be bound to the Contractor by terms of the Contract Documents, and to assume toward the Contractor all the obligations and responsibilities which the Contractor, by these documents, assumes toward the Owner and Architect. Each subcontract agreement shall preserve and protect the rights of the Owner and Architect under the Contract Documents with respect to the work to be performed by the Subcontractor so that subcontracting thereof will not prejudice such rights, and shall allow to the Subcontractor, unless specifically provided otherwise in the subcontract agreement, the benefit of all rights, remedies and redress against the Contractor that the Contractor, by the Contract Documents, has against the Owner. Where appropriate, the Contractor shall require each subcontractor to enter into similar agreements with Sub-subcontractors. The Contractor shall make available to each proposed Subcontractor, prior to the execution of the subcontract agreement, copies of the Contract Documents to which the Subcontractor will be bound, and, upon written request of the Subcontractor, identify to the Subcontractor terms and conditions of the proposed subcontract agreement which may be at variance with the Contract Documents. Subcontractors shall similarly make copies of applicable portions of such documents available to their respective proposed Sub-subcontractors. 5.4 CONTINGENT ASSIGNMENT OF SUBCONTRACTS 5.4.1 Each subcontract agreement for a portion of the Work is assigned by the Contractor to the Owner provided that: .1 assignment is effective only after termination of the Contract by the Owner for cause pursuant to Paragraph 14.2 and only for those subcontract agreements which the Owner accepts by notifying the Subcontractor in writing; and .2 assignment is subject to the prior rights of the surety, if any, obligated under bond relating to the Contract. 5.4.2 If the Work has been suspended for more than 30 days, the Subcontractor's compensation shall be equitably adjusted. ARTICLE 6 --------- CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS 6.1 OWNER'S RIGHT TO PERFORM CONSTRUCTION AND TO AWARD SEPARATE CONTRACTS 6.1.1 The Owner reserves the right to perform construction or operations related to the Project with the Owner's own forces, and to award separate contracts in connection with other portions of the Project or other construction or operations on the site under Conditions of the Contract identical or substantially similar to these including those portions related to insurance and waiver of subrogation. If the Contractor claims that delay or additional cost is involved because of such action by the Owner, the Contractor shall make such Claim as provided elsewhere in the Contract Documents. 6.1.2 When separate contracts are awarded for different portions of the Project or other construction or operations on the site, the term "Contractor" in the Contract Documents in each case shall mean the Contractor who executes each separate Owner-Contractor Agreement. 6.1.3 The Owner shall provide for coordination of the activities of the Owner's own forces and of each separate contractor with the Work of the Contractor, who shall cooperate with them. The Contractor shall participate with other separate contractors and the Owner in reviewing their construction schedules when directed to do so. The Contractor shall make any revisions to the construction schedule and Contract Sum deemed necessary after a joint review and mutual agreement. The construction schedules shall then constitute the schedules to be used by the Contractor, separate contractors and the Owner until subsequently revised. 6.1.4 Unless otherwise provided in the Contract Documents, when the Owner performs construction or operations related to the Project with the Owner's own forces, the Owner shall be deemed to be subject to the same obligations and to have the same rights which apply to the Contractor under the Conditions of the Contract, including, without excluding others, those stated in Article 3, this Article 6 and Articles 10, 11 and 12. 6.2 MUTUAL RESPONSIBILITY 6.2.1 The Contractor shall afford the Owner and separate contractors reasonable opportunity for introduction and storage of their materials and equipment and performance of their activities and shall connect and coordinate the Contractor's construction and operations with theirs as required by the Contract Documents. 6.2.2 If part of the Contractor's Work depends for proper execution or results upon construction or operations by the Owner or a separate contractor, the Contractor shall, prior to proceeding with that portion of the Work, promptly report to the Architect apparent discrepancies or defects in such other construction that would render it unsuitable for such proper execution and results. Failure of the Contractor so to report shall constitute an acknowledgment that the Owner's or separate contractors' completed or partially completed construction is fit and proper to receive the Contractor's Work, except as to defects not then reasonably discoverable. 6.2.3 Costs caused by delays or by improperly timed activities or defective construction shall be borne by the party responsible therefor. 6.2.4 The Contractor shall promptly remedy damage wrongfully caused by the Contractor to completed or partially completed construction or to property of the Owner or separate contractors as provided in Subparagraph 10.2.5. 6.2.5 Claims and other disputes and matters in question between the Contractor and a separate contractor shall be subject to the provisions of Paragraph 4.3 provided the separate contractor has reciprocal obligations. 6.2.6 The Owner and each separate contractor shall have the same responsibilities for cutting and patching as are described for the Contractor in Paragraph 3.14. 6.3 OWNER'S RIGHT TO CLEAN UP 6.3.1 If a dispute arises among the Contractor, separate contractors and the Owner as to the responsibility under their respective contracts for maintaining the premises and surrounding area free from waste materials and rubbish as described in Paragraph 3.15, the Owner may clean up and allocate the cost among those responsible as the Architect determines to be just. - ------------------------------------------------------------------------------- 14 A201-1987 AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C) 1997 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 29 ARTICLE 7 --------- CHANGES IN THE WORK 7.1 CHANGES 7.1.1 Changes in the Work may be accomplished after execution of the Contract, and without invalidating the Contract, by change Order, Construction Change Directive or order for a minor change in the Work, subject to the limitations stated in this Article 7 and elsewhere in the Contract Documents. 7.1.2 A Change Order shall be based upon agreement among the Owner, Contractor and Architect; a Construction Change Directive requires agreement by the Owner and Architect and may or may not be agreed to by the Contractor; an order for a minor change in the Work may be issued by the Architect alone. 7.1.3 Changes in the Work shall be performed under applicable provisions of the Contract Documents, and the Contractor shall proceed promptly, unless otherwise provided in the Change Order, Construction Change Directive or order for a minor change in the Work. 7.1.4 If unit prices are stated in the Contract Documents or subsequently agreed upon, and if quantities originally contemplated are so changed in a proposed Change Order or Construction Change Directive that application of such unit prices to quantities of Work proposed will cause substantial inequity to the Owner or Contractor, the applicable unit prices shall be equitably adjusted. 7.2 CHANGE ORDERS 7.2.1 A Change Order is a written instrument prepared by the Architect and signed by the Owner, Contractor and Architect, stating their agreement upon all of the following: .1 a change in the Work; .2 the amount of the adjustment in the Contract Sum, if any; and .3 the extent of the adjustment in the Contract Time, if any. 7.2.2 Methods used in determining adjustments to the Contract Sum may include those listed in Subparagraph 7.3.3. 7.3 CONSTRUCTION CHANGE DIRECTIVES 7.3.1 A Construction Change Directive is a written order prepared by the Architect and signed by the Owner and Architect, directing a change in the Work and stating a proposed basis for adjustment, if any, in the Contract Sum or Contract Time, or both. The Owner may by Construction Change Directive, without invalidating the Contract, order changes in the Work within the general scope of the Contract consisting of additions, deletions or other revisions, the Contract Sum and Contract Time being adjusted accordingly. 7.3.2 A Construction Change Directive shall be used in the absence of total agreement on the terms of a Change Order. 7.3.3 If the Construction Change Directive provides for an adjustment to the Contract Sum, the adjustment shall be based on one of the following methods: .1 mutual acceptance of a lump sum properly itemized and supported by sufficient substantiating data to permit evaluation; .2 unit prices stated in the Contract Documents or subsequently agreed upon; .3 cost to be determined in a manner agreed upon by the parties and a mutually acceptable fixed or percentage fee; or .4 as provided in Subparagraph 7.3.6. 7.3.4 Upon receipt of a Construction Change Directive, the Contractor shall promptly proceed with the change in the Work involved and advise the Architect of the Contractor's agreement or disagreement with the method, if any, provided in the Construction Change Directive for determining the proposed adjustment in the Contract Sum or Contract Time. 7.3.5 A Construction Change Directive signed by the Contractor indicates the agreement of the Contractor therewith, including adjustment in Contract Sum and Contract Time or the method for determining them. Such agreement shall be effective immediately and shall be recorded as a Change Order. 7.3.6 If the Contractor does not respond promptly or disagrees with the method for adjustment in the Contract Sum, the method and the adjustment shall be determined by the Architect on the basis of reasonable expenditures and savings of those performing the Work attributable to the change, including, in case of an increase in the Contract Sum, a reasonable allowance for overhead and profit. In such case, and also under Clause 7.3.3.3, the Contractor shall keep and present, in such form as the Architect may prescribe, an itemized accounting together with appropriate supporting data. Unless otherwise provided in the Contract Documents, costs for the purposes of this Subparagraph 7.3.6 shall be limited to the following: .1 costs of labor, including social security, old age and unemployment insurance, fringe benefits required by agreement or custom, and workers' or workmen's compensation insurance; .2 costs of materials, supplies and equipment, including costs of transportation, whether incorporated or consumed; .3 rental costs of machinery and equipment, exclusive of hand tools, whether rented from the Contractor or others; .4 costs of premiums for all bonds and insurance, permit fees, and sales, use or similar taxes related to the Work; and .5 additional costs of supervision and field office personnel directly attributable to the change. 7.3.7 Pending final determination of cost to the Owner, amounts not in dispute may be included in Applications for Payment. The amount of credit allowed by the Contractor to the Owner for a deletion or change which results in a net decrease in the Contract sum shall be actual net cost as confirmed by the Architect. When both additions and credits covering related Work or substitutions are involved in a change, the allowance for overhead and profit shall be figured on the basis of net increase, if any, with respect to that change. 7.3.8 If the Owner and Contractor do not agree with the adjustment in Contract Time or the method for determining it, the adjustment or the method shall be referred to the Architect for determination. 7.3.9 When the Owner and Contractor agree with the determination made by the Architect concerning the adjustments in the Contract Sum and Contract Time, or otherwise reach agreement upon the adjustments, such agreement shall be effective immediately and shall be recorded by preparation and execution of an appropriate Change Order. - ------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT A201-1987 15 FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 30 7.4 MINOR CHANGES IN THE WORK 7.4.1 The Architect will have authority to order minor changes in the Work not involving adjustment in the Contract Sum or extension of the Contract Time and not inconsistent with the intent of the Contract Documents. Such changes shall be effected by written order and shall be binding on the Owner and Contractor. The Contractor shall carry out such written orders promptly. ARTICLE 8 TIME 8.1 DEFINITIONS 8.1.1 Unless otherwise provided, Contract Time is the period of time, including authorized adjustments, allotted in the Contract Documents for Substantial Completion of the Work. 8.1.2 The date of commencement of the Work is the date established in the Agreement. The date shall not be postponed by the failure to act of the Contractor or of persons or entities for whom the Contractor is responsible. 8.1.3 The date of Substantial Completion is the date certified by the Architect in accordance with Paragraph 9.8. 8.1.4 The term "day" as used in the Contract Documents shall mean calendar day unless otherwise specifically defined. 8.2 PROGRESS AND COMPLETION 8.2.1 Time limits stated in the Contract Documents are of the essence of the Contract. By executing the Agreement the Contractor confirms that the Contract Time is a reasonable period for performing the Work. 8.2.2 The Contractor shall not knowingly, except by agreement or instruction of the Owner in writing, prematurely commence operations on the site or elsewhere prior to the effective date of insurance required by Article 11 to be furnished by the Contractor. The date of commencement of the Work shall not be changed by the effective date of such insurance. Unless the date of commencement is established by a notice to proceed given by the Owner, the Contractor shall notify the Owner in writing not less than five days or other agreed period before commencing the Work to permit the timely filing of mortgages, mechanic's liens and other security interests. 8.2.3 The Contractor shall proceed expeditiously with adequate forces and shall achieve Substantial Completion within the Contract Time. 8.3 DELAYS AND EXTENSIONS OF TIME 8.3.1 If the Contractor is delayed at any time in progress of the Work by an act or neglect of the Owner or Architect, or of an employee of either, or of a separate contractor employed by the Owner, or by changes ordered in the Work, or by labor disputes, fire, unusual delay in deliveries, unavoidable casualties or other causes beyond the Contractor's control, or by delay authorized by the Owner pending arbitration, or by other causes which the Architect determines may justify delay, then the Contract Time shall be extended by Change Order for such reasonable time as the Architect may determine. 8.3.2 Claims relating to time shall be made in accordance with applicable provisions of Paragraph 4.3. 8.3.3 This Paragraph 8.3 does not preclude recovery of damages for delay by either party under other provisions of the Contract Documents. ARTICLE 9 PAYMENTS AND COMPLETION 9.1 CONTRACT SUM 9.1.1 The Contract Sum is stated in the Agreement and, including authorized adjustments, is the total amount payable by the Owner to the Contractor for performance of the Work under the Contract Documents. 9.2 SCHEDULE OF VALUES 9.2.1 Before the first Application for Payment, the Contractor shall submit to the Architect a Schedule of values allocated to various portions of the Work, prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for Payment. 9.3 APPLICATIONS FOR PAYMENT 9.3.1 At least ten days before the date established for each progress payment, the Contractor shall submit to the Architect an itemized Application for Payment for operations completed in accordance with the schedule of values. Such application shall be notarized, if required, and supported by such data substantiating the Contractor's right to payment as the Owner or Architect may require, such as copies of requisitions from Subcontractors and material suppliers, and reflecting retainage if provided for elsewhere in the Contract Documents. 9.3.1.1 Such applications may include requests for payment on account of changes in the Work which have been properly authorized by Construction Change Directives but not yet included in Change Orders. 9.3.1.2 Such applications may not include requests for payment of amounts the Contractor does not intend to pay to a Subcontractor or material supplier because of a dispute or other reason. 9.3.2 Unless otherwise provided in the Contract Documents, payments shall be made on account of materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work. If approved in advance by the Owner, payment may similarly be made for materials and equipment suitably stored off the site at a location agreed upon in writing. Payment for materials and equipment stored on or off the site shall be conditioned upon compliance by the Contractor with procedures satisfactory to the Owner to establish the Owner's title to such materials and equipment or otherwise protect the Owner's interest, and shall include applicable insurance, storage and transportation to the site for such materials and equipment stored off the site. 9.3.3 The Contractor warrants that title to all Work covered by an Application for Payment will pass to the Owner no later than the time of payment. The Contractor further warrants that upon submittal of an Application for Payment all Work for which Certificates for Payment have been previously issued and payments received from the Owner shall, to the best of the Contractor's knowledge, information and belief, be free and clear of liens, claims, security interests or encumbrances in favor of the Contractor, Subcontractors, material suppliers, or other persons or entities making a claim by reason of having provided labor, materials and equipment relating to the Work. 9.4 CERTIFICATES FOR PAYMENT 9.4.1 The Architect will, within seven days after receipt of the Contractor's Application for Payment, either issue to the - -------------------------------------------------------------------------------- 16 A201-1987 AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 31 Owner a Certificate for Payment, with a copy to the Contractor, for such amount as the Architect determines is properly due, or notify the Contractor and Owner in writing of the Architect's reasons for withholding certification in whole or in part as provided in Subparagraph 9.5.1. 9.4.2 The issuance of a Certificate for Payment will constitute a representation by the Architect to the Owner, based on the Architect's observations at the site and the data comprising the Application for Payment, that the Work has progressed to the point indicated and that, to the best of the Architect's knowledge, information and belief, quality of the Work is in accordance with the Contract Documents. The foregoing representations are subject to an evaluation of the Work for conformance with the Contract Documents upon Substantial Completion, to results of subsequent tests and inspections, to minor deviations from the Contract Documents correctable prior to completion and to specific qualifications expressed by the Architect. The issuance of a Certificate for Payment will further constitute a representation that the Contractor is entitled to payment in the amount certified. However, the issuance of a Certificate for Payment will not be a representation that the Architect has (1) made exhaustive or continuous on-site inspections to check the quality or quantity of the Work, (2) reviewed construction means, methods, techniques, sequences or procedures, (3) reviewed copies of requisitions received from Subcontractors and material suppliers and other data requested by the Owner to substantiate the Contractor's right to payment or (4) made examination to ascertain how or for what purpose the Contractor has used money previously paid on account of the Contract Sum. 9.5 DECISIONS TO WITHHOLD CERTIFICATION 9.5.1 The Architect may decide not to certify payment and may withhold a Certificate for Payment in whole or in part, to the extent reasonably necessary to protect the Owner, if in the Architect's opinion the representations to the Owner required by Subparagraph 9.4.2 cannot be made. If the Architect is unable to certify payment in the amount of the Application, the Architect will notify the Contractor and Owner as provided in Subparagraph 9.4.1. If the Contractor and Architect cannot agree on a revised amount, the Architect will promptly issue a Certificate for Payment for the amount for which the Architect is able to make such representations to the Owner. The Architect may also decide not to certify payment or, because of subsequently discovered evidence or subsequent observations, may nullify the whole or a part of a Certificate for Payment previously issued, to such extent as may be necessary in the Architect's opinion to protect the Owner from loss because of: .1 defective Work not remedied; .2 third party claims filed or reasonable evidence indicating probable filing of such claims; .3 failure of the Contractor to make payments properly to Subcontractors or for labor, materials or equipment; .4 reasonable evidence that the Work cannot be completed for the unpaid balance of the Contract Sum; .5 damage to the Owner or another contractor; .6 reasonable evidence that the Work will not be completed within the Contract Time, and that the unpaid balance would not be adequate to cover actual or liquidated damages for the anticipated delay; or .7 persistent failure to carry out the Work in accordance with the Contract Documents. 9.5.2 When the above reasons for withholding certification are removed, certification will be made for amounts previously withheld. 9.6 PROGRESS PAYMENTS 9.6.1 After the Architect has issued a Certificate for Payment, the Owner shall make payment in the manner and within the time provided in the Contract Documents, and shall so notify the Architect. 9.6.2 The Contractor shall promptly pay each Subcontractor, upon receipt of payment from the Owner, out of the amount paid to the Contractor on account of such Subcontractor's portion of the Work, the amount to which said Subcontractor is entitled, reflecting percentages actually retained from payments to the Contractor on account of such Subcontractor's portion of the Work. The Contractor shall, by appropriate agreement with each Subcontractor, require each Subcontractor to make payments to Sub-subcontractors in similar manner. 9.6.3 The Architect will, on request, furnish to a Subcontractor, if practicable, information regarding percentages of completion or amounts applied for by the Contractor and action taken thereon by the Architect and Owner on account of portions of the Work done by such Subcontractor. 9.6.4 Neither the Owner nor Architect shall have an obligation to pay or to see to the payment of money to a Subcontractor except as may otherwise be required by law. 9.6.5 Payment to material suppliers shall be treated in a manner similar to that provided in Subparagraphs 9.6.2, 9.6.3 and 9.6.4. 9.6.6 A Certificate for Payment, a progress payment, or partial or entire use or occupancy of the Project by the Owner shall not constitute acceptance of Work not in accordance with the Contract Documents. 9.7 FAILURE OF PAYMENT 9.7.1 If the Architect does not issue a Certificate for Payment, through no fault of the Contractor, within seven days after receipt of the Contractor's Application for Payment, or if the Owner does not pay the Contractor within seven days after the date established in the Contract Documents the amount certified by the Architect or awarded by arbitration, then the Contractor may, upon seven additional days' written notice to the Owner and Architect, stop the Work until payment of the amount owing has been received. The Contract Time shall be extended appropriately and the Contract Sum shall be increased by the amount of the Contractor's reasonable costs of shut-down, delay and start-up, which shall be accomplished as provided in Article 7. 9.8 SUBSTANTIAL COMPLETION 9.8.1 Substantial Completion is the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so the Owner can occupy or utilize the Work for its intended use. 9.8.2 When the Contractor considers that the Work, or a portion thereof which the Owner agrees to accept separately, is substantially complete, the Contractor shall prepare and submit to the Architect a comprehensive list of items to be completed or corrected. The Contractor shall proceed promptly to complete and correct items on the list. Failure to include an item on such list does not alter the responsibility of the Contractor to complete all Work in accordance with the Contract Documents. Upon receipt of the Contractor's list, the Architect will make an inspection to determine whether the Work or desig- - ------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C)1987 THE A201-1987 17 AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON D.C. 20006 32 nated portion thereof is substantially complete. If the Architect's inspection discloses any item, whether or not included on the Contractor's list, which is not in accordance with the requirements of the Contract Documents, the Contractor shall, before issuance of the Certificate of Substantial Completion, complete or correct such item upon notification by the Architect. The Contractor shall then submit a request for another inspection by the Architect to determine Substantial Completion. When the Work or designated portion thereof is substantially complete, the Architect will prepare a Certificate of Substantial Completion which shall establish the date of Substantial Completion, shall establish responsibilities of the Owner and Contractor for security, maintenance, heat, utilities, damage to the Work and insurance, and shall fix the time within which the Contractor shall finish all items on the list accompanying the Certificate. Warranties required by the Contractor Documents shall commence on the date of Substantial Completion of the Work or designated portion thereof unless otherwise provided in the Certificate of Substantial Completion. The Certificate of Substantial Completion shall be submitted to the Owner and Contractor for their written acceptance of responsibilities assigned to them in such Certificate. 9.8.3 Upon Substantial Completion of the Work or designated portion thereof and upon application by the Contractor and certification by the Architect, the Owner shall make payment, reflecting adjustment in retainage, if any, for such Work or portion thereof as provided in the Contract Documents. 9.9 PARTIAL OCCUPANCY OR USE 9.9.1 The Owner may occupy or use any completed or partially completed portion of the Work at any age when such portion is designated by separate agreement with the Contractor, provided such occupancy or use is consented to by the insurer as required under Subparagraph 11.3.11 and authorized by public authorities having jurisdiction over the Work. Such partial occupancy or use may commence whether or not the portion is substantially complete, provided the Owner and Contractor have accepted in writing the responsibilities assigned to each of them for payments, retainage if any, security, maintenance, heat, utilities, damage to the Work and insurance, and have agreed in writing concerning the period for correction of the Work and commencement of warranties required by the Contract Documents. When the Contractor considers a portion substantially complete, the Contractor shall prepare and submit a list to the Architect as provided under Subparagraph 9.8.2. Consent of the Contractor to partial occupancy or use shall not be unreasonably withheld. The stage of the progress of the Work shall be determined by written agreement between the Owner and Contractor or, if no agreement is reached, by decision of the Architect. 9.9.2 Immediately prior to such partial occupancy or use, the Owner, Contractor and Architect shall jointly inspect the area to be occupied or portion of the Work to be used in order to determine and record the condition of the Work. 9.9.3 Unless otherwise agreed upon, partial occupancy or use of a portion or portions of the Work shall not constitute acceptance of Work not complying with the requirements of the Contract Documents. 9.10 FINAL COMPLETION AND FINAL PAYMENT 9.10.1 Upon receipt of written notice that the Work is ready for final inspection and acceptance and upon receipt of a final Application for Payment, the Architect will promptly make such inspection and, when the Architect finds the Work acceptable under the Contract Documents and the Contract fully performed, the Architect will promptly issue a final Certificate for Payment stating that to the best of the Architect's knowledge, information and belief, and on the basis of the Architect's observations and inspections, the Work has been completed in accordance with terms and conditions of the Contract Documents and that the entire balance found to be due the Contractor and noted in said final Certificate is due and payable. The Architect's final Certificate for Payment will constitute a further representation that conditions listed in Subparagraph 9.10.2 as precedent to the Contractor's being entitled to final payment have been fulfilled. 9.10.2 Neither final payment nor any remaining retained percentage shall become due until the Contractor submits to the Architect (1) an affidavit that payrolls, bills for materials and equipment, and other indebtedness connected with the Work for which the Owner or the Owner's property might be responsible or encumbered (less amounts withheld by Owner) have been paid or otherwise satisfied, (2) a certificate evidencing that insurance required by the Contract Documents to remain in force after final payment is currently in effect and will not be cancelled or allowed to expire until at least 30 days' prior written notice has been given to the Owner, (3) a written statement that the Contractor knows of no substantial reason that the insurance will not be renewable to cover the period required by the Contract Documents, (4) consent of surety, if any, to final payment and (5), if required by the Owner, other data establishing payment or satisfaction of obligations, such as receipts, releases and waivers of liens, claims, security interests or encumbrances, arising out of the Contract, to the extent and in such form as may be designated by the Owner. If a Subcontractor refuses to furnish a release or waiver required by the Owner, the Contractor may furnish a bond satisfactory to the Owner to indemnify the Owner against such lien. If such lien remains unsatisfied after payments are made, the Contractor shall refund to the Owner all money that the Owner may be compelled to pay in discharging such lien, including all costs and reasonable attorneys' fees. 9.10.3 If, after Substantial Completion of the Work, final completion thereof is materially delayed through no fault of the Contractor or by issuance of Change Orders affecting final completion and the Architect so confirms, the Owner shall, upon application by the Contractor and certification by the Architect, and without terminating the Contract, make payment of the balance due for that portion of the Work fully completed and accepted. If the remaining balance for Work not fully completed or corrected is less than retainage stipulated in the Contract Documents, and if bonds have been furnished, the written consent of surety to payment of the balance due for that portion of the Work fully completed and accepted shall be submitted by the Contractor to the Architect prior to certification of such payment. Such payment shall be made under terms and conditions governing final payment, except that it shall not constitute a waiver of claims. The making of final payment shall constitute a waiver of claims by the Owner as provided in Subparagraph 4.3.5. 9.10.4 Acceptance of final payment by the Contractor, a Subcontractor or material supplier shall constitute a waiver of claims by that payee except those previously made in writing and identified by that payee as unsettled at the time of final Application for Payment. Such waivers shall be in addition to the waiver described in Subparagraph 4.3.5. - -------------------------------------------------------------------------------- 18 A201-1987 AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 33 ARTICLE 10 PROTECTION OF PERSONS AND PROPERTY 10.1 SAFETY PRECAUTIONS AND PROGRAMS 10.1.1 The Contractor shall be responsible for initiating, maintaining and supervising all safety precautions and programs in connection with the performance of the Contract. 10.1.2 In the event the Contractor encounters on the site material reasonably believed to be asbestos or polychlorinated biphenyl (PCB) which has not been rendered harmless, the Contractor shall immediately stop Work in the area affected and report the condition to the Owner and Architect in writing. The Work in the affected area shall not thereafter be resumed except by written agreement of the Owner and Contractor if in fact the material is asbestos or polychlorinated biphenyl (PCB) and has not been rendered harmless. The Work in the affected area shall be resumed in the absence of asbestos or polychlorinated biphenyl (PCB), or when it has been rendered harmless, by written agreement of the Owner and Contractor, or in accordance with final determination by the Architect on which arbitration has not been demanded, or by arbitration under Article 4. 10.1.3 The Contractor shall not be required pursuant to Article 7 to perform without consent any Work relating to asbestos or polychlorinated biphenyl (PCB). 10.1.4 To the fullest extent permitted by law, the Owner shall indemnify and hold harmless the Contractor, Architect, Architect's consultants and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work in the affected area if in fact the material is asbestos or polychlorinated biphenyl (PCB) and has not been rendered harmless, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, but only to the extent caused in whole or in part by negligent acts or omissions of the Owner, anyone directly or indirectly employed by the Owner or anyone for whose acts the Owner may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Subparagraph 10.1.4. 10.2 SAFETY OF PERSONS AND PROPERTY 10.2.1 The Contractor shall take reasonable precautions for safety of, and shall provide reasonable protection to prevent damage, injury or loss to: .1 employees on the Work and other persons who may be affected thereby: .2 the Work and materials and equipment to be incorporated therein, whether in storage on or off the site, under care, custody or control of the Contractor or the Contractor's Subcontractors or Sub-subcontractors; and .3 other property at the site or adjacent thereto, such as trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal, relocation or replacement in the course of construction. 10.2.2 The Contractor shall give notices and comply with applicable laws, ordinances, rules, regulations and lawful orders of public authorities bearing on safety of persons or property or their protection from damage, injury or loss. 10.2.3 The Contractor shall erect and maintain, as required by existing conditions and performance of the Contract, reasonable safeguards for safety and protection, including posting danger signs and other warnings against hazards, promulgating safety regulations and notifying owners and users of adjacent sites and utilities. 10.2.4 When use or storage of explosives or other hazardous materials or equipment or unusual methods are necessary for execution of the Work, the Contractor shall exercise utmost care and carry on such activities under supervision of properly qualified personnel. 10.2.5 The Contractor shall promptly remedy damage and loss (other than damage or loss insured under property insurance required by the Contract Documents) to property referred to in Clauses 10.2.1.2 and 10.2.1.3 caused in whole or in part by the Contractor, a Subcontractor, a Sub-subcontractor, or anyone directly or indirectly employed by any of them, or by anyone for whose acts they may be liable and for which the Contractor is responsible under Clauses 10.2.1.2 and 10.2.1.3, except damage or loss attributable to acts or omissions of the Owner or Architect or anyone directly or indirectly employed by either of them, or by anyone for whose acts either of them may be liable, and not attributable to the fault or negligence of the Contractor. The foregoing obligations of the Contractor are in addition to the Contractor's obligations under Paragraph 3.18. 10.2.6 The Contractor shall designate a responsible member of the Contractor's organization at the site whose duty shall be the prevention of accidents. This person shall be the Contractor's superintendent unless otherwise designated by the Contractor in writing to the Owner and Architect. 10.2.7 The Contractor shall not load or permit any part of the construction or site to be loaded so as to endanger its safety. 10.3 EMERGENCIES 10.3.1 In an emergency affecting safety of persons or property, the Contractor shall act, at the Contractor's discretion, to prevent threatened damage, injury or loss. Additional compensation or extension of time claimed by the Contractor on account of an emergency shall be determined as provided in Paragraph 4.3 and Article 7. ARTICLE 11 INSURANCE AND BONDS 11.1 CONTRACTOR'S LIABILITY INSURANCE 11.1.1 The Contractor shall purchase from and maintain in a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located such insurance as will protect the Contractor from claims set forth below which may arise out of or result from the Contractor's operations under the Contract and for which the Contractor may be legally liable, whether such operations be by the Contractor or by a Subcontractor or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable: .1 claims under workers' or workmen's compensation, disability benefit and other similar employee benefit acts which are applicable to the Work to be performed; - -------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR A201-1987 19 CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C) 1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 34 .2 claims for damages because of bodily injury, occupational sickness or disease, or death of the Contractor's employees; .3 claims for damages because of bodily injury, sickness or disease, or death of any person other than the Contractor's employees; .4 claims for damages insured by usual personal injury liability coverage which are sustained (1) by a person as a result of an offense directly or indirectly related to employment of such person by the Contractor, or (2) by another person; .5 claims for damages, other than to the Work itself, because of injury to or destruction of tangible property, including loss of use resulting therefrom; .6 claims for damages because of bodily injury, death of a person or property damage arising out of ownership, maintenance or use of a motor vehicle; and .7 claims involving contractual liability insurance applicable to the Contractor's obligations under Paragraph 3.18. 11.1.2 The insurance required by Subparagraph 11.1.1 shall be written for not less than limits of liability specified in the Contract Documents or required by law, whichever coverage is greater. Coverages, whether written on an occurrence or claims-made basis, shall be maintained without interruption from date of commencement of the Work until date of final payment and termination of any coverage required to be maintained after final payment. 11.1.3 Certificates of Insurance acceptable to the Owner shall be filed with the Owner prior to commencement of the Work. These Certificates and the insurance policies required by this Paragraph 11.1 shall contain a provision that coverages afforded under the policies will not be cancelled or allowed to expire until at least 30 days' prior written notice has been given to the Owner. If any of the foregoing insurance coverages are required to remain in force after final payment and are reasonably available, an additional certificate evidencing continuation of such coverage shall be submitted with the final Application for Payment as required by Subparagraph 9.10.2. Information concerning reduction of coverage shall be furnished by the Contractor with reasonable promptness in accordance with the Contractor's information and belief. 11.2 OWNER'S LIABILITY INSURANCE 11.2.1 The Owner shall be responsible for purchasing and maintaining the Owner's usual liability insurance. Optionally, the Owner may purchase and maintain other insurance for self-protection against claims which may arise from operations under the Contract. The Contractor shall not be responsible for purchasing and maintaining this optional Owner's liability insurance unless specifically required by the Contract Documents. 11.3 PROPERTY INSURANCE 11.3.1 Unless otherwise provided, the Owner shall purchase and maintain, in a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located, property insurance in the amount of the initial Contract Sum as well as subsequent modifications thereto for the entire Work at the site on a replacement cost basis without voluntary deductibles. Such property insurance shall be maintained, unless otherwise provided in the Contract Documents or otherwise agreed in writing by all persons and entities who are beneficiaries of such insurance, until final payment has been made as provided in Paragraph 9.10 or until no person or entity other than the Owner has an insurable interest in the property required by this Paragraph 11.3 to be covered, whichever is earlier. This insurance shall include interests of the Owner, the Contractor, Subcontractors and Sub-subcontractors in the Work. 11.3.1.1 Property insurance shall be on an all-risk policy form and shall insure against the perils of fire and extended coverage and physical loss or damage including, without duplication of coverage, theft, vandalism, malicious mischief, collapse, false-work, temporary buildings and debris removal including demolition occasioned by enforcement of any applicable legal requirements, and shall cover reasonable compensation for Architect's services and expenses required as a result of such insured loss. Coverage for other perils shall not be required unless otherwise provided in the Contract Documents. 11.3.1.2 If the Owner does not intend to purchase such property insurance required by the Contract and with all of the coverages in the amount described above, the Owner shall so inform the Contractor in writing prior to commencement of the Work. The Contractor may then effect insurance which will protect the interests of the Contractor, Subcontractors and Sub-subcontractors in the Work, and by appropriate Change Order the cost thereof shall be charged to the Owner. if the Contractor is damaged by the failure or neglect of the Owner to purchase or maintain insurance as described above, without so notifying the Contractor, then the Owner shall bear all reasonable costs property attributable thereto. 11.3.1.3 If the property insurance requires minimum deductibles and such deductibles are identified in the Contract Documents, the Contractor shall pay costs not covered because of such deductibles. If the Owner or insurer increases the required minimum deductibles above the amounts so identified or if the Owner elects to purchase this insurance with voluntary deductible amounts, the Owner shall be responsible for payment of the additional costs not covered because of such increased or voluntary deductibles. If deductibles are not identified in the Contract Documents, the Owner shall pay costs not covered because of deductibles. 11.3.1.4 Unless otherwise provided in the Contract Documents, this property insurance shall cover portions of the Work stored off the site after written approval of the Owner at the value established in the approval, and also portions of the Work in transit. 11.3.2 BOILER AND MACHINERY INSURANCE. The Owner shall purchase and maintain boiler and machinery insurance required by the Contract Documents or by law, which shall specifically cover such insured objects during installation and until final acceptance by the Owner; this insurance shall include interests of the Owner, Contractor, Subcontractors and Sub-subcontractors in the Work, and the Owner and Contractor shall be named insureds. 11.3.3 LOSS OF USE INSURANCE. The Owner, at the Owner's option, may purchase and maintain such insurance as will insure the Owner against loss of use of the Owner's property due to fire or other hazards, however caused. The Owner waives all rights of action against the Contractor for loss of use of the Owner's property, including consequential losses due to fire or other hazards however caused. 11.3.4 If the Contractor requests in writing that insurance for risks other than those described herein or for other special hazards be included in the property insurance policy, the Owner shall, if possible, include such insurance, and the cost thereof shall be charged to the Contractor by appropriate Change Order. - -------------------------------------------------------------------------------- 20 A201-1987 AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 35 11.3.5 If during the Project construction period the Owner insures properties, real or personal or both, adjoining or adjacent to the site by property insurance under policies separate from those insuring the Project, or if after final payment property insurance is to be provided on the completed Project through a policy or policies other than those insuring the Project during the construction period, the Owner shall waive all rights in accordance with the terms of subparagraph 11.3.7 for damages caused by fire or other perils covered by this separate property insurance. All separate policies shall provide this waiver of subrogation by endorsement or otherwise. 11.3.6 Before an exposure to loss may occur, the Owner shall file with the Contractor a copy of each policy that includes insurance coverages required by this Paragraph 11.3. Each policy shall contain all generally applicable conditions, definitions, exclusions and endorsements related to this Project. Each policy shall contain a provision that the policy will not be cancelled or allowed to expire until at least 30 days' prior written notice has been given to the Contractor. 11.3.7 WAIVERS OF SUBROGATION. The Owner and Contractor waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other, and (2) the Architect, Architect's consultants, separate contractors described in Article 6, if any, and any of their subcontractors, sub-subcontractors, agents and employees, for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 11.3 or other property insurance applicable to the Work, except such rights as they have to proceeds of such insurance held by the Owner as fiduciary. The Owner or Contractor, as appropriate, shall require of the Architect, Architect's consultants, separate contractors described in Article 6, if any, and the subcontractors, sub-subcontractors, agents and employees of any of them, by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated herein. The policies shall provide such waivers of subrogation by endorsement or otherwise. A waiver of subrogation shall be effective as to a person or entity even though that person or entity would otherwise have a duty of indemnification, contractual or otherwise, did not pay the insurance premium directly or indirectly, and whether or not the person or entity had an insurable interest in the property damaged. 11.3.8 A loss insured under Owner's property insurance shall be adjusted by the Owner as fiduciary and made payable to the Owner as fiduciary for the insureds, as their interests may appear, subject to requirements of any applicable mortgagee clause and of Subparagraph 11.3.10. The Contractor shall pay Subcontractors their just shares of insurance proceeds received by the Contractor, and by appropriate agreements, written where legally required for validity, shall require Subcontractors to make payments to their Sub-subcontractors in similar manner. 11.3.9 If required in writing by a party in interest, the Owner as fiduciary shall, upon occurrence of an insured loss, give bond for proper performance of the Owner's duties. The cost of required bonds shall be charged against proceeds received as fiduciary. The Owner shall deposit in a separate account proceeds so received, which the Owner shall distribute in accordance with such agreement as the parties in interest may reach, or in accordance with an arbitration award in which case the procedure shall be as provided in Paragraph 4.5. If after such loss no other special agreement is made, replacement of damaged property shall be covered by appropriate Change Order. 11.3.10 The Owner as fiduciary shall have power to adjust and settle a loss with insurers unless one of the parties in interest shall object in writing within five days after occurrence of loss to the Owner's exercise of this power; if such objection be made, arbitrators shall be chosen as provided in Paragraph 4.5. The Owner as fiduciary shall, in that case, make settlement with insurers in accordance with directions of such arbitrators. If distribution of insurance proceeds by arbitration is required, the arbitrators will direct such distribution. 11.3.11 Partial occupancy or use in accordance with Paragraph 9.9 shall not commence until the insurance company or companies providing property insurance have consented to such partial occupancy or use by endorsement or otherwise. The Owner and the Contractor shall take reasonable steps to obtain consent of the insurance company or companies and shall, without mutual written consent, take no action with respect to partial occupancy or use that would cause cancellation, lapse or reduction of insurance. 11.4 PERFORMANCE BOND AND PAYMENT BOND 11.4.1 The Owner shall have the right to require the Contractor to furnish bonds covering faithful performance of the Contract and payment of obligations arising thereunder as stipulated in bidding requirements or specifically required in the Contract Documents on the date of execution of the Contract. 11.4.2 Upon the request of any person or entity appearing to be a potential beneficiary of bonds covering payment of obligations arising under the Contract, the Contractor shall promptly furnish a copy of the bonds or shall permit a copy to be made. ARTICLE 12 ---------- UNCOVERING AND CORRECTION OF WORK 12.1 UNCOVERING OF WORK 12.1.1 If a portion of the Work is covered contrary to the Architect's request or to requirements specifically expressed in the Contract Documents, it must, if required in writing by the Architect, be uncovered for the Architect's observation and be replaced at the Contractor's expense without change in the Contract Time. 12.1.2 If a portion of the Work has been covered which the Architect has not specifically requested to observe prior to its being covered, the Architect may request to see such work and it shall be uncovered by the Contractor. If such Work is in accordance with the Contract Documents, costs of uncovering and replacement shall, by appropriate Change Order, be charged to the Owner. If such Work is not in accordance with the Contract Documents, the Contract shall pay such costs unless the condition was caused by the Owner or a separate contractor in which event the Owner shall be responsible for payment of such costs. 12.2 CORRECTION OF WORK 12.2.1 The Contractor shall promptly correct Work rejected by the Architect or failing to conform to the requirements of the Contract Documents, whether observed before or after Substantial Completion and whether or not fabricated, installed or completed. The Contractor shall bear costs of correcting such rejected Work, including additional testing and inspections and compensation for the Architect's services and expenses made necessary thereby. 12.2.2 If, within one year after the date of Substantial Completion of the work or designated portion thereof, or after the date - ------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT A201-1987 21 FOR CONSTRUCTION - FOURTEENTH EDITION AIA(?) - (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 36 for commencement of warranties established under Subparagraph 9.9.1, or by terms of an applicable special warranty required by the Contract Documents, any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of written notice from the Owner to do so unless the Owner has previously given the Contractor a written acceptance of such condition. This period of one year shall be extended with respect to portions of work first performed after Substantial Completion by the period of time between Substantial Completion and the actual performance of the Work. This obligation under this Subparagraph 12.2.2 shall survive acceptance of the Work under the Contract and termination of the Contract. The Owner shall give such notice promptly after discovery of the condition. 12.2.3 The Contractor shall remove from the site portions of the Work which are not in accordance with the requirements of the Contract Documents and are neither corrected by the Contractor nor accepted by the Owner. 12.2.4 If the Contractor fails to correct nonconforming Work within a reasonable time, the Owner may correct it in accordance with Paragraph 2.4. If the Contractor does not proceed with correction of such nonconforming Work within a reasonable time fixed by written notice from the Architect, the Owner may remove it and store the salvable materials or equipment at the Contractor's expense. If the Contractor does not pay costs of such removal and storage within ten days after written notice, the Owner may upon ten additional days' written notice sell such materials and equipment at auction or at private sale and shall account for the proceeds thereof, after deducting costs and damages that should have been borne by the Contractor, including compensation for the Architect's services and expenses made necessary thereby. If such proceeds of sale do not cover costs which the Contractor should have borne, the Contract Sum shall be reduced by the deficiency. If payments then or thereafter due the Contractors are not sufficient to cover such amount, the Contractor shall pay the difference to the Owner. 12.2.5 The Contractor shall bear the cost of correcting destroyed or damaged construction, whether completed or partially completed, of the Owner or separate contractors caused by the Contractor's correction or removal of work which is not in accordance with the requirements of the Contract Documents. 12.2.6 Nothing contained in this Paragraph 12.2 shall be construed to establish a period of limitation with respect to other obligations which the Contractor might have under the Contract Documents. Establishment of the time period of one year as described in Subparagraph 12.2.2 relates only to the specific obligation of the Contractor to correct the Work, and has no relationship to the time within which the obligation to comply with the Contract Documents may be sought to be enforced, nor to the time within which proceedings may be commenced to establish the Contractor's liability with respect to the Contractor's obligations other than specifically to correct the work. 12.3 ACCEPTANCE OF NONCONFORMING WORK 12.3.1 If the Owner prefers to accept Work which is not in accordance with the requirements of the Contract Documents, the Owner may do so instead of requiring its removal and correction, in which case the Contract Sum will be reduced as appropriate and equitable. Such adjustment shall be effected whether or not final payment has been made. ARTICLE 13 MISCELLANEOUS PROVISIONS 13.1 GOVERNING LAW 13.1.1 The Contract shall be governed by the law of the place where the Project is located. 13.2 SUCCESSORS AND ASSIGNS 13.2.1 The Owner and Contractor respectively bind themselves, their partners, successors, assigns and legal representatives to the other party hereto and to partners, successors, assigns and legal representatives of such other party in respect to covenants, agreements and obligations contained in the Contract Documents. Neither party to the Contract shall assign the Contract as a whole without written consent of the other. If either party attempts to make such an assignment without such consent, that party shall nevertheless remain legally responsible for all obligations under the Contract. 13.3 WRITTEN NOTICE 13.3.1 Written notice shall be deemed to have been duly served if delivered in person to the individual or a member of the firm or entity or to an officer of the corporation for which it was intended, or if delivered at or sent by registered or certified mail to the last business address known to the party giving notice. 13.4 RIGHTS AND REMEDIES 13.4.1 Duties and obligations imposed by the Contract Documents and rights and remedies available thereunder shall be in addition to and not a limitation of duties, obligations, rights and remedies otherwise imposed or available by law. 13.4.2 No action or failure to act by the Owner, Architect or Contractor shall constitute a waiver of a right or duty afforded them under the Contract, nor shall such action or failure to act constitute approval of or acquiescence in a breach thereunder, except as may be specifically agreed in writing. 13.5 TESTS AND INSPECTIONS 13.5.1 Tests, inspections and approvals of portions of the Work required by the Contract Documents or by laws, ordinances, rules, regulations or orders of public authorities having jurisdiction shall be made at an appropriate time. Unless otherwise provided, the Contractor shall make arrangements for such tests, inspections and approvals with an independent testing laboratory or entity acceptable to the Owner, or with the appropriate public authority, and shall bear all related costs of tests, inspections and approvals. The Contractor shall give the Architect timely notice of when and where tests and inspections are to be made so the Architect may observe such procedures. The Owner shall bear costs of tests, inspections or approvals which do not become requirements until after bids are received or negotiations concluded. 13.5.2 If the Architect, Owner or public authorities having jurisdiction determine that portions of the Work require additional testing, inspection or approval not included under Subparagraph 13.5.1, the Architect will, upon written authorization from the Owner, instruct the Contractor to make arrangements for such additional testing, inspection or approval by an entity acceptable to the Owner, and the Contractor shall give timely notice to the Architect of when and where tests and inspections are to be made so the Architect may observe such procedures. - ----------------------------------------------------------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION - FOURTEENTH EDITION 22 A201-1987 AIA(R) - (c)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006
37 The Owner shall bear such costs except as provided in Subparagraph 13.5.3. 13.5.3 If such procedures for testing, inspection or approval under Subparagraphs 13.5.1 and 13.5.2 reveal failure of the portions of the Work to comply with requirements established by the Contract Documents, the Contractor shall bear all costs made necessary by such failure including those of repeated procedures and compensation for the Architect's services and expenses. 13.5.4 Required certificates of testing, inspection or approval shall, unless otherwise required by the Contract Documents, be secured by the Contractor and promptly delivered to the Architect. 13.5.5 If the Architect is to observe tests, inspections or approvals required by the Contract Documents, the Architect will do so promptly and, where practicable, at the normal place of testing. 13.5.6 Tests or inspections conducted pursuant to the Contract Documents shall be made promptly to avoid unreasonable delay in the Work. 13.6 INTEREST 13.6.1 Payments due and unpaid under the Contract Documents shall bear interest from the date payment is due at such rate as the parties may agree upon in writing or, in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. 13.7 COMMENCEMENT OF STATUTORY LIMITATION PERIOD 13.7.1 As between the Owner and Contractor: .1 BEFORE SUBSTANTIAL COMPLETION. As to acts or failures to act occurring prior to the relevant date of Substantial Completion, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of Substantial Completion; .2 BETWEEN SUBSTANTIAL COMPLETION AND FINAL CERTIFICATE FOR PAYMENT. As to acts or failures to act occurring subsequent to the relevant date of Substantial Completion and prior to issuance of the final Certificate for Payment, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than the date of issuance of the final Certificate for Payment; and .3 AFTER FINAL CERTIFICATE FOR PAYMENT. As to acts or failures to act occurring after the relevant date of issuance of the final Certificate for Payment, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than the date of any act or failure to act by the Contractor pursuant to any warranty provided under Paragraph 3.5, the date of any correction of the Work or failure to correct the Work by the Contractor under Paragraph 12.2, or the date of actual commission of any other act or failure to perform any duty or obligation by the Contractor or Owner, whichever occurs last. ARTICLE 14 ---------- TERMINATION OR SUSPENSION OF THE CONTRACT 14.1 TERMINATION BY THE CONTRACTOR 14.1.1 The Contractor may terminate the Contract if the Work is stopped for a period of 30 days through no act or fault of the Contractor or a Subcontractor. Sub-subcontractor or their agents or employees or any other persons performing portions of the Work under contract with the Contractor, for any of the following reasons: .1 issuance of an order of a court or other public authority having jurisdiction; .2 an act of government, such as a declaration of national emergency, making material unavailable; .3 because the Architect has not issued a Certificate for Payment and has not notified the Contractor of the reason for withholding certification as provided in Subparagraph 9.4.1, or because the Owner has not made payment on a Certificate for Payment within the time stated in the Contract Documents; .4 If repeated suspensions, delays or interruptions by the Owner as described in Paragraph 14.3 constitute in the aggregate more than 100 percent of the total number of days scheduled for completion, or 120 days in any 365-day period, whichever is less; or .5 the Owner has failed to furnish to the Contractor promptly, upon the Contractor's request, reasonable evidence as required by Subparagraph 2.2.1 14.1.2 If one of the above reasons exists, the Contractor may, upon seven additional days' written notice to the Owner and Architect, terminate the Contract and recover from the Owner payment for Work executed and for proven loss with respect to materials, equipment, tools, and construction equipment and machinery, including reasonable overhead, profit and damages. 14.1.3 If the Work is stopped for a period of 60 days through no act or fault of the Contractor or a Subcontractor or their agents or employees or any other persons performing portions of the Work under contract with the Contractor because the Owner has persistently failed to fulfill the Owner's obligations under the Contract Documents with respect to matters important to the progress of the Work, the Contractor may, upon seven additional days' written notice to the Owner and the Architect, terminate the Contract and recover from the Owner as provided in Subparagraph 14.1.2. 14.2 TERMINATION BY THE OWNER FOR CAUSE 14.2.1 The Owner may terminate the Contract if the Contractor: .1 persistently or repeatedly refuses or fails to supply enough properly skilled workers or proper materials; .2 fails to make payment to Subcontractors for materials or labor in accordance with the respective agreements between the Contractor and the Subcontractors; .3 persistently disregards laws, ordinances, or rules, regulations or orders of a public authority having jurisdiction; or .4 otherwise is guilty of substantial breach of a provision of the Contract Documents. 14.2.2 When any of the above reasons exist, the Owner, upon certification by the Architect that sufficient cause exists to jus- - ------------------------------------------------------------------------------- AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT A201-1987 23 FOR CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C)1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON,, D.C. 20006 38 tify such action, may without prejudice to any other rights or remedies of the Owner and after giving the Contractor and the Contractor's surety, if any, seven days' written notice, terminate employment of the Contractor and may, subject to any prior rights of the surety: .1 take possession of the site and of all materials, equipment, tools, and construction equipment and machinery thereon owned by the Contractor; .2 accept assignment of subcontracts pursuant to Paragraph 5.4; and .3 finish the Work by whatever reasonable method the Owner may deem expedient. 14.2.3 When the Owner terminates the Contract for one of the reasons stated in Subparagraph 14.2.1, the Contract shall not be entitled to receive further payment until the Work is finished. 14.2.4 If the unpaid balance of the Contract Sum exceeds costs of finishing the Work, including compensation for the Architect's services and expenses made necessary thereby, such excess shall be paid to the Contractor. If such costs exceed the unpaid balance, the Contractor shall pay the difference to the Owner. The amount to be paid to the Contractor or Owner, as the case may be, shall be certified by the Architect, upon application, and this obligation for payment shall survive termination of the Contract. 14.3 SUSPENSION BY THE OWNER FOR CONVENIENCE 14.3.1 The Owner may, without cause, order the Contractor in writing to suspend, delay or interrupt the Work in whole or in part for such period of time as the Owner may determine. 14.3.2 An adjustment shall be made for increases in the cost of performance of the Contract, including profit on the increased cost of performance, caused by suspension, delay or interruption. No adjustment shall be made to the extent: .1 that performance is, was or would have been so suspended, delayed or interrupted by another cause for which the Contractor is responsible; or .2 that an equitable adjustment is made or denied under another provision of this Contract. 14.3.3 Adjustments made in the cost of performance may have a mutually agreed fixed or percentage fee. - -------------------------------------------------------------------------------- AIA DOCUMENT 201 - GENERAL CONDITIONS OF THE CONTRACT FOR 24 A201-1987 CONSTRUCTION - FOURTEENTH EDITION AIA(R) - (C) 1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1755 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 3/87 39 ATTACHMENT "A" List of Contract Documents for CONCEPTS DIRECT
Number Title/Description Date - ------ ----------------- ---- S1.1 General Notes 3/18/97 S1.2 Structural Details 3/18/97 S1.3 Structural Details 3/18/97 S2.1 Drilled Pier Schedule S2.2 Foundation Plan 3/18/97 S2.3 Foundation Plan 3/18/97 S2.4 Foundation Plan 3/18/97 S2.5 Foundation Plan 3/18/97 S2.6 Foundation Plan 3/18/97 S2.7 Foundation Plan 3/18/97 S2.8 Mezzanine Floor Framing Plan 3/18/97 S3.1 Special Joist Load Schedule 3/18/97 S3.2 Roof Framing Plan 3/18/97 S3.3 Roof Framing Plan 3/18/97 S3.4 Roof Framing Plan 3/18/97 S3.5 Roof Framing Plan 3/18/97 S3.6 Roof Framing Plan 3/18/97 S3.7 Roof Framing Plan 3/18/97 S3.8 Truss A, B, & C Details 3/18/97 S4.1 Tilt-up Wall Panel Reinforcing Schedule 3/18/97 S4.2 Wall Panel Details 3/18/97 S4.3 Wall Panel Details 3/18/97 S4.4 Wall Panel Details 3/18/97 S5.1 Roof Framing Details 3/18/97 S5.2 Structural Details 3/18/97 Civil 14 of 23 Lot 1 Site Plan 2/5/97 Civil 15 of 23 Lot 1 Utility Plan 2/5/97 Civil 16 of 23 Lot 1 Utility Profiles 2/5/97 Civil 17 of 23 Lot 1 Grading Plan 2/5/97 Civil 18 of 23 Final Drainage Plan 2/5/97 Civil 19 of 23 Erosion Control Plan 2/5/97 Civil 20 of 23 Detail Sheet 1/29/97 Civil 21 of 23 Detail Sheet 1/29/97 Landscape Sheet 1 Landscape Plan 1/6/97 Landscape Sheet 2 Landscape Plan 1/6/97 Landscape Sheet 3 Landscape Plan 1/6/97
40 ATTACHMENT "A" Page Two for CONCEPTS DIRECT
Number Title/Description Date - ------ ----------------- ---- Sheet I-1 Irrigation Plan 1/6/97 Sheet I-2 Irrigation Plan 1/6/97 Sheet I-3 Irrigation Plan 1/6/97 Sheet I-4 Irrigation Plan 1/6/97 A1.1 Site/Roof Plan 3/18/97 A1.2 Site Details 3/18/97 A1.3 Roof Details 3/18/97 A2.1 Master Floor Plan 3/18/97 A2.2-A2.7 Partial Floor Plan 3/18/97 A2.8 Enlarger Plans 3/18/97 A2.9 Enlarger Plans 3/18/97 A2.10 Enlarger Plans 3/18/97 A3.1 Master Reflected Ceiling Plan 3/18/97 A3.2-A3.7 Partial Reflected Ceiling Plan 3/18/97 A4.1 Elevations 3/18/97 A4.2-A4.5 Partial Elevations 3/18/97 A5.2-A5.14 Sections 3/18/97 A6.1 Door/Hardware Schedule 3/18/97 A6.2 Door/Window Details 3/18/97 A6.3-A6.6 Casework Elevations 3/18/97 A7.1 Finish Schedule 3/18/97 A8.1-A8.5 Interior Details 3/18/97 M1.2-M1.7 Partial Floor Plans 3/7/97 M1.8 Mechanical Schedule 3/7/97 P1.1 Plumbing Floor Plan 3/7/97 P1.2 Plumbing Enlarger Plans 3/7/97 E1.0 One Line Diagram 4/18/97 E1.1 Electrical Site Plan 4/7/97 E1.2 Mechanical Schedule 4/7/97 E1.3 Luminiare Schedule 4/18/97 E1.4 Electrical Room Panels 4/7/97 E1.5 Electrical Closets/Equipment Room Panels 4/7/97 E2.1 Fire Alarm & Mechanical Equipment Plan 4/7/97 E2.2 thru E2.5 Partial Electrical Plans 4/18/97 E2.6 thru E3.3 Partial Electrical Plans 4/7/97 E3.4 thru E3.7 Partial Electrical Plans 4/18/97
41 ATTACHMENT "A" List of Contract Documents For CONCEPTS DIRECT Geotechnical Engineering Report prepared by Terracon dated December 9, 1996. Saunders Construction Inc. project scheduled, revised February 20, 1997. Addendum #1 to Bid Package #3 - dated April 10, 1997 Addendum #2 to Bid Package #3 - dated April 15, 1997 Project Specifications Entitled Concepts Direct Office/Manufacturing/ Distribution Facility as Prepared by Intergroup, Inc. Dated February 14, 1997 Supplemental Conditions Supplementary General Conditions 42 - ------------------------------------------------------------------------------- ATTACHMENT B COST SUMMARY SAUNDERS OWNER: ARCHITECT: 6950 S. Jordan Road CONCEPTS DIRECT INTERGROUP, INC. Englewood, Colorado DENVER, COLORADO Prepared BY: GC/DH GMP ESTIMATE FOR: ESTIMATE NUMBER: 96091 DATE: 4/30/97 CONCEPTS DIRECT WAREHOUSE REV: 5/1/97 Building and Site Development BUILDING AREA: 118800 SF Longmont, Colorado
- ------------------------------------------------------------------------------- DESCRIPTION AMOUNT $/PER SE ----------- ------ -------- SITEWORK Site Preparation and Earthwork $291,474 $2.45 Site Concrete $179,868 $1.51 Asphalt Paving $183,539 $1.54 Site Utilities $69,357 $0.58 Site Specialties $83,803 $0.71 Landscape and Irrigation $253,783 $2.14 Subtotal $1,061,825 $8.94 CONCRETE Foundations/Footings/Caissons $257,472 $2.17 Floor Slabs and Infills $274,253 $2.31 Site Cast Tilt-up Wall Panels $318,166 $2.68 Grout $14,363 $0.12 Subtotal $864,254 $7.27 MASONRY Block Masonry $0 $0.00 Stonework $0 $0.00 Subtotal $0 METALS Structural Steel Material $519,514 $4.37 Steel Erection $0 $0.00 Bar Joists and Metal Deck $0 $0.00 Miscellaneous Metal Items $22,454 $0.19 Subtotal $541,967 $4.56 CARPENTRY Rough Carpentry $27,221 $0.23 Finish Carpentry $136,227 $1.15 Subtotal $163,448 $1.36 THER/MOIST PROTECTION Dampproofing / Waterproofing $5,149 $0.04 Batt and Foundation Insulation $13,460 $0.11 Membrane Roofing and Sheet Metal $214,289 $1.80 Metal Wall Panels $13,000 $0.11 Roof Hatches and Skylights $37,146 $0.31 Caulking and Sealants $21,383 $0.18 Subtotal $304,426 $2.56 DOORS & WINDOWS Hollow Metal Doors, Frames and Hardware $87,414 $0.74 Wood Doors $28,716 $0.24 Overhead Doors $13,061 $0.11 Special Doors $13,283 $0.11 Aluminum Framing and Glazing $86,406 $0.73 Subtotal $228,880 $1.93
- ------------------------------------------------------------------------------- Prepared by Saunders 5/2/97 43
- ------------------------------------------------------------------------------------------------------------------------------------ DESCRIPTION AMOUNT ----------- ------ FINISHES Metal Studs and Drywall $404,185 $3.40 Ceramic Tile $41,398 $0.35 Accoustical Ceilings $66,630 $0.56 Carpeting $145,043 $1.22 Painting $93,500 $0.79 Subtotal $750,756 $6.32 SPECIALITIES $24,137 $0.20 EQUIPMENT $47,498 $0.40 FURNISHINGS $60,688 $0.51 MECHANICAL Fire Sprinklers $98,514 $0.83 Plumbing $228,967 $1.93 Heating, Ventilating, Air Conditioning, and Piping $623,179 $5.25 Subtotal $950,660 $8.00 ELECTRICAL $764,496 $6.44 -------- ----- - ------------------------------------------------------------------------------------------------------------------------------------ Subtotal HARD COSTS $5,763,036 $48.51 18500 CONSTRUCTION CONTINGENCY $120,000 $1.01 GENERAL CONDITIONS/SUPERVISION/INSURANCE $216,920 $1.83 BUILDING PERMIT & PLAN CHECK FEES N/A Paid by Owner 18100 MISC PERMITS AND FEES $3,054 $0.03 USE TAX N/A Paid by Owner 18300 PERFORMANCE & PAYMENT BONDS $0 Alternate 18003 BUILDER'S RISK INSURANCE $4,122 $0.03 ------ ----- SUBTOTAL $6,107,131 $51.41 CONSTRUCTION FEE $244,285 $2.06 -------- ----- --------------------------------------------------------------------------------------------------------------- 300 TOTAL $6,351,416 $53.46 --------------------------------------------------------------------------------------------------------------- DEVELOPMENT FEES Mountain View Fire District - Plan review & inspections N/A Paid by Owner Development Fees N/A Paid by Owner --------------------------------------------------------------------------------------------------------------- PROJECT TOTAL $6,351,416 $53.46 --------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------
Prepared by Saunders 5/2/97 44
- ------------------------------------------------------------------------------------------------------------------------------------ SAUNDERS OWNER: ARCHITECT: 6950 S. Jordan Road CONCEPTS DIRECT INTERGROUP, INC. Englewood, Colorado DENVER, COLORADO PREPARED BY: GC/DH GMP ESTIMATE FOR: ESTIMATE NUMBER: 96091 DATE: 4/30/97 CONCEPTS DIRECT WAREHOUSE REV: 5/1/97 Building and Site Development BUILDING AREA: 118800 SF Longmont, Colorado - ------------------------------------------------------------------------------------------------------------------------------------ Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ------------------------------------------------------------------------------------------------------------------------------------ DIVISION I - GENERAL CONDITIONS 1001 Licenses & Misc. Bonds 1 LS $3,053.57 $3,054 $0.03 1026 Field Meetings 30 WKS $25.00 $750 $0.01 1027 Superintendents's Truck Expense 7.5 MO $524.56 $3,934 $0.03 1029 PM/PE Mileage 30 WKS $45.00 $1,350 $0.01 - 1 Trip per week 1031 Safety Labor and Materials 7.5 MO $104.23 $782 $0.01 1031 Safety Overhead 1 LS $6,683.03 $6,683 $0.06 1031 Safety Inspections 2 EA $350.00 $700 $0.01 1040 General Superintendent N/A $0 Not Required 1041 Superintendent 30 WKS $1,996.00 $59,880 $0.50 1043 Project Manager 30 WKS $520.00 $15,600 $0.13 1044 Project Engineer 30 WKS $1,562.00 $46,860 $0.39 1045 Project Administrator 30 WKS $180.00 $5,400 $0.05 1050 General Labor and Clean-up 30 WKS $368.00 $11,064 $0.09 1312 Project Photographs 7.5 MO $20.76 $156 $0.00 1313 Blueprinting and Duplication 1 LS $1,500.00 $1,500 $0.01 Shop Drawings, Etc. 1314 As-Built Survey 1 LS $1,000.00 $1,000 $0.01 1316 Mailing and Shipping 1 LS $250.00 $250 $0.00 1501 Temporary Power Consumption 7.5 MO $1,000.00 $7,500 $0.06 1504 Temporary Telephone 7.5 MO $1,200.00 $9,000 $0.08 1505 Temporary Water 7.5 MO $125.00 $938 $0.01 1505 Drinking Water 7.5 MO $85.00 $638 $0.01 1506 Temporary Toilet 7.5 MO $250.00 $1,875 $0.02 1507 Temporary Fire Protection 1 LS $150.00 $150 $0.00 1508 Temporary Storage Trailer 7.5 MO $100.00 $750 $0.01 1509 Temporary Construction Office 7.5 MO $250.00 $1,875 $0.02 1509 Move-in/Out Temporary Trailers 1 LS $1,582.77 $1,583 $0.01 1511 Communications Equipment N/A $0 1522 Small Tools and Equipment 1 LS $4,455.35 $4,455 $0.04 1522 Consumable Small Tools 1 LS $1,038.00 $1,038 $0.01 1525 Trash Dumpsters 48 EA $230.00 $11,040 $0.09 1610 Material Deliveries 1 LS $8,910.70 $8,911 $0.08 1700 Punchlist 1 LS $1,366.94 $1,367 $0.01 1710 Final Clean-up - Manufacturing 53,300 SF $0.03 $1,599 $0.01 1710 Final Clean-up - Office 65,500 SF $0.08 $5,240 $0.04 ------ ----- ------ ----- -------------------------------------------------------------------------------------------------------------------------- TOTALS General Conditions $216,920 $1.83 -------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 1 11:00 AM 5/2/97 45
- ------------------------------------------------------------------------------------------------------------------------------------ SAUNDERS OWNER: ARCHITECT: 6950 S. Jordan Road CONCEPTS DIRECT INTERGROUP, INC. Englewood, Colorado DENVER, COLORADO PREPARED BY: GC/DH GMP ESTIMATE FOR: ESTIMATE NUMBER: 96091 DATE: 4/30/97 CONCEPTS DIRECT WAREHOUSE REV: 5/1/97 Building and Site Development BUILDING AREA: 118800 SF Longmont, Colorado - ------------------------------------------------------------------------------------------------------------------------------------ Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ------------------------------------------------------------------------------------------------------------------------------------ DIVISION II - SITEWORK 2200 SITE PREPARATION AND EARTHWORK 2048 Layout labor 1 LS $2,570.40 $2,570 $0.02 2048 Restaking / Second Survey 1 LS $5,000.00 $5,000 $0.04 2022 Temp. Barricade, etc. 8 MO $208.45 $1,583 $0.01 2200 Earthwork Subquote 1 SC $180,500.00 $180,500 $1.52 Horn Contruction 2200 Stabilize subgrades - change order 1 SC $45,467.00 $45,467 $0.38 Horn Construction Road work for perimeter roads INCL $0 2055 Remove irrigation canal for road work 1 LS $2,420.00 $2,420 $0.02 Vehicle Tracking Control/Silt Fence 1 SC In Subquote Sawcut Asphalt @ Street N/A $0 None Required Sawcut Sidewalk N/A $0 None Required Sawcut Street Curbs N/A $0 None Required Clear and grub site - total site INCL In Subquote Strip & Stockpile topsoil INCL In Subquote 6" Across Site Cuts to fills direct on site INCL In Subquote Import fill material INCL In Subquote Move from adjacent Site Excavate detention pond INCL In Subquote Scarify & Recompact @ Site Conc. INCL In Subquote Structural Fill From Borrow - 3' INCL In Subquote At Building Pad Structual fill under slab & footings N/A $0 Not Required Excavate/Backfill building perimeter INCL In Subquote Finish grade building pad INCL In Subquote Replace topsoil @ landscaped areas INCL In Subquote 6" Thick Fine grade parking & landscape INCL In Subquote Build Temporary road - 9" road base INCL In Subquote Remove temp. road, topsoil cover INCL In Subquote Silt Fence INCL In Subquote 2200 Proof roll & repairs (stabilize subgrades) 1 LS $5,000.00 $5,000 $0.04 ALLOWANCE 2040 Scarify & recompact under temp. road 1 SC $3,500.00 $3,500 $0.03 2040 Miscellaneous regrading 1 LS $3,500.00 $3,500 $0.03 Under drain & piping in streets N/A $0 Later bid package 2040 Temporary Drives and Parking 1 LS $3,184.40 $3,184 $0.03 Trailer parking lot Frost / Mud / Snow removal N/A $0 Draw from contingency if needed Import pit run under dock paving N/A $0 Draw from contingency if needed 2051 Pumping water 1 LS $568.80 $569 $0.00 2522 Skid Steer Loader 3 MO $2,249.45 $6,748 $0.06 2522 Misc. Rental Equip 1 LS $2,822.48 $2,822 $0.02 Compactors, etc. 2200 Bury culvert @ borrow pit 1 LS $2,500.00 $2,500 $0.02 2040 Gravel for crane / fire truck access 1 LS $13,000.00 $13,000 $0.11 Place dirt over vapor barrier 2,220 CY $0 Not included $11,000 Perimeter drain N/A $0 Not Required 2480 Gravel @ Planters 14 CY $50.00 $700 $0.01 2480 Filter Fabric in Planters 320 SF $1.00 $320 $0.00 2480 Topsoil @ Planters 28 CY $30.00 $840 $0.01 2040 Maintain access road 6 MO $921.93 $5,532 $0.05 2054 Maintenance & removal of silt fence 6 M0 $273.18 $1,639 $0.01 2050 Sweep/Clean public roads 6 MO $197.52 $1,185 $0.01 2054 Dust Control 3 MO $971.28 $2,914 $0.02 1hrs 3x/week 2500 ASPHALT PAVING Layout N/A By Owner Paving subquote 1 SC $173,273.00 $173,273 $1.46 Bituminous Scarify and recompact subgrade 1 SC $6,839.00 $6,839 $0.06 Bituminous 2500 Parking lot paving 5' Depth 16,175 SY $0 - ------------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 2 11:00 AM 5/2/97 46
- ------------------------------------------------------------------------------------------------------------------------------------ Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ------------------------------------------------------------------------------------------------------------------------------------ 2500 Truck paving @ docks 7" Depth 3,264 SY $0 Add second move-in INCL $0 Raise water valves and manholes 1 LS $3,427.20 $3,427 $0.03 Repair Asphalt @ Curb Cuts/Utilities N/A $0 Not Required 2532 CONCRETE PAVING 2048 Layout labor 1 LS $4,051.90 $4,052 $0.03 2532 Fine Grade 14,257 SF $0.25 $3,564 $0.03 2522 Skid Steer Loader 1 MO $2,249.45 $2,249 $0.02 2522 Air Compressor 1 MO $2,113.12 $2,113 $0.02 2532 Edge Form 404 LF $2.35 $951 $0.01 3097 Form number 404 LF $0.36 $147 $0.00 2532 Doweled Edge & Bulkhead Forms 32 LF $2.62 $84 $0.00 3097 Form number 32 LF $0.42 $13 $0.00 2532 Keyway on Edge Form 32 LF $0.75 $24 $0.00 3097 Form number 32 LF $0.52 $17 $0.00 2532 Expansion Jt. Filler - 8" 302 LF $1.41 $425 $0.00 3203 Place 3/4" Dia. x 18" Smooth Dowels 22 EA $1.05 $23 $0.00 3203 Furnish 3/4" x 18" Smooth Dowels 22 EA $1.09 $24 $0.00 3220 Wire Mesh - 6X6/W2.9XW2.9 151 SQS $17.19 $2,597 $0.02 3300 Concrete Material 389 CY $56.62 $22,036 $0.19 2800 Pump Concrete @ Truck Aprons 1 LS $1,500.00 $1,500 $0.01 2532 Place & Finish 14,257 SF $0.50 $7,129 $0.06 3390 Sawcut Control Joints for Seal 1,901 LF $0.70 $1,331 $0.01 2532 Cure and Protect 14,257 SF $0.05 $743 $0.01 Weather Protection 1 LS $0 Not Required 2535 SLOPED DOCK WALLS 2535 Fine grade/hand excavate slope 720 SF $0.92 $664 $0.01 2535 Edge form - top and bottom 252 LF $3.66 $923 $0.01 3097 Form lumber 252 LF $0.52 $131 $0.00 2535 Expansion Joint Filler 12 SF $4.54 $54 $0.00 3300 Concrete Material 14 CY $56.62 $793 $0.01 2535 Place & finish slab 660 SF $0.75 $495 $0.00 2180 Strip and face curbs 252 LF $3.50 $882 $0.01 3201 Rebar 1,200 LBS (In Quote) 2535 Cure & protect 912 SF $0.05 $45 $0.00 2180 CURB AND GUTTER 2180 Fine Grade 11,180 SF $0.26 $2,925 $0.02 2180 Form & Place 5,590 LF $4.50 $25,155 $0.21 Subcontract 2180 Trowel finish curbs 168 HRS $28.56 $4,798 $0.04 2180 Expansion Joint Filler 559 LF $2.40 $1,342 $0.01 3300 Concrete Material 342 CY $60.20 $20,573 $0.17 2180 Cure and Protect 14,000 SF $0.05 $730 $0.01 DRAIN CHASES N/A Underground drains 2185 CROSS PANS @ CURB CUTS 2185 Fine Grade 4,382 SF $0.26 $1,146 $0.01 2185 Form Edges 1,459 LF $2.50 $3,648 $0.03 3097 Form lumber 1,459 LF $0.36 $530 $0.00 3300 Concrete Material 88 CY $56.62 $4,962 $0.04 3220 Wire Mesh - 6X6/W1.4XW1.4 47 SQS $17.19 $813 %0.01 2185 Place and Finish Concrete 4,382 SF $0.50 $2,191 $0.02 2185 Cure and Protect 4,382 SF $0.05 $228 $0.00 2190 SIDEWALKS @ BUILDING PERIMETER 2190 Fine Grade 9,900 SF $0.26 $2,590 $0.02 2190 Form Edges and Bulkheads 496 LF $2.50 $1,240 $0.01 3097 Form lumber 496 LF $0.36 $180 $0.00 2190 Expansion Joint Filler 678 LF $0.78 $530 $0.00 3300 Concrete Material 131 CY $56.62 $7,399 $0.06 3220 Wire Mesh - 6X6/W1.4XW1.4 119 SQS $17.19 $2,045 $0.02 2190 Place and Finish Concrete 9,900 SF $0.50 $4,950 $0.04 2190 Cure and Protect 9,900 SF $0.05 $516 $0.00 2532 DOLLY STRIP AT TRUCK PARKING 2532 Fine Grade 340 SF $0.26 $89 $0.00 2532 Form Edges and Bulkheads 178 LF $2.50 $445 $0.00 3097 Form lumber 178 LF $0.36 $65 $0.00 3300 Concrete Material 7 CY $56.62 $385 $0.00 3220 Wire Mesh - 6X6/W1.4XW1.4 4 SQS $17.19 $63 $0.00 2532 Place and Finish Concrete 340 SF $0.50 $170 $0.00 2532 Cure and Protect 340 SF $0.05 $18 $0.00 - ------------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 3 11:00 AM 5/2/97 47
- ------------------------------------------------------------------------------------------------------------------------------------ Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ------------------------------------------------------------------------------------------------------------------------------------ 2194 STOOPS AT EXIT DOORS - 6' x 6' 2194 Fine Grade 216 SF $0.26 $57 $0.00 2194 Form Edges and Bulkheads 103 LF $2.86 $309 $0.00 3097 Form lumber 2194 Expansion Joint Filler 432 LF $0.78 $338 $0.00 3300 Concrete Material 6 CY $56.62 $340 $0.00 3220 Wire Mesh - 6X6/W1.4XW1.4 3 SQS $17.19 $52 $0.00 2194 Place and Finish Concrete 216 SF $0.50 $108 $0.00 2194 Cure and Protect 216 SF $0.05 $11 $0.00 2194 TRANSFORMER PAD - 20' x 10' 2194 Fine Grade 200 SF $0.26 $52 $0.00 2194 Form Edges and Bulkheads 76 LF $2.50 $190 $0.00 3097 Form lumber 76 LF $0.36 $28 $0.00 2194 Expansion Joint Filler 12 LF $0.78 $9 $0.00 3300 Concrete Material 4 CY $56.62 $226 $0.00 3220 Wire Mesh - 6X6/W1.4XW1.4 3 SQS $17.19 $52 $0.00 2194 Place and Finish Concrete 200 SF $0.50 $100 $0.00 2194 Cure and Protect 200 SF $0.05 $10 $0.00 SIDEWALKS OUTSIDE P.L. N/A Not Included 2185 DRAIN PANS 2185 Fine Grade 3,916 SF $0.26 $1,025 $0.01 2185 Form Edges and Bulkheads 1,538 LF $1.57 $2,414 $0.02 3097 Form lumber 1,538 LF $0.26 $399 $0.00 2185 Expansion Joint Filler 154 LF $0.78 $120 $0.00 3300 Concrete Material 78 CY $56.62 $4,435 $0.04 2185 Place and Finish Concrete 3,916 SF $0.50 $1,958 $0.02 2185 Cure and Protect 3,916 SF $0.05 $204 $0.00 2532 BASKETBALL SLAB 2532 Fine Grade 1,280 SF $0.26 $335 $0.00 2532 Form Edges and Bulkheads 144 LF $1.57 $226 $0.00 3097 Form lumber 144 LF $0.26 $37 $0.00 3300 Concrete Material 17 CY $56.62 $957 $0.01 3220 Wire Mesh - 6X6/W1.4XW1.4 14 SQS $17.19 $233 $0.00 2532 Place and Finish Concrete 1,280 SF $0.50 $640 $0.01 2532 Cure and Protect 1,280 SF $0.05 $67 $0.00 HOOP POLE BASE 2532 Excavate/backfill for pole base 2 CY $73.76 $111 $0.00 2532 Place concrete base 1 CY $160.34 $224 $0.00 3300 Concrete material 1 CY $56.62 $79 $0.00 2181 CURB @ VOLLEYBALL PERIMETER 2181 Fine Grade 180 LF $1.00 $180 $0.00 2181 Form Edges over 12" 720 SF $3.50 $2,520 $0.02 3098 Form rental 720 SF $0.50 $360 $0.00 3099 Form hardware & accessories 720 SF $0.52 $374 $0.00 3201 Rebar 600 LBS $0.43 $259 $0.00 3300 Concrete Material 10 CY $56.62 $566 $0.00 2181 Place Concrete 180 LF $4.00 $720 $0.01 2181 Finish Top 180 LF $1.01 $183 $0.00 2181 Cure and Protect 840 SF $0.05 $44 $0.00 Sand fill at court 30 CY $34.95 $1,035 $0.01 2181 CURB @ SIDE ENTRANCE PLANTERS 2181 Fine Grade 78 LF $1.00 $78 $0.00 2181 Form Edges over 12" - curved 234 SF $5.00 $1,170 $0.01 3097 Form lumber 234 SF $1.56 $364 $0.00 3201 Rebar 300 LBS $0.43 $129 $0.00 3300 Concrete Material 2 CY $56.62 $135 $0.00 2181 Place Concrete 78 LF $4.00 $312 $0.00 2181 Finish Top & Sides 78 LF $2.00 $156 $0.00 2181 Cure and Protect 273 SF $0.05 $14 $0.00 2195 LIGHT POLE BASES 2195 Site light poles 19 EA $331.68 $6,302 $0.05 3305 CONCRETE ENCASEMENTS ON TELEPHONE CONDUITS 3305 Place Encasements 60 CY $76.62 $4,597 $0.04 Exterior work only 3201 Rebar 1,800 LBS $0.43 $776 $0.01 Exterior work only 2534 HANDICAP RAMPS 2534 Fine Grade 420 SF $0.26 $110 $0.00 2534 Form Edges 4" 98 LF $2.86 $281 $0.00 2534 Curb Form 28 LF $4.44 $124 $0.00 - ------------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 4 11:00 AM 5/2/97 48
- ------------------------------------------------------------------------------------------------------------------------------------ Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ------------------------------------------------------------------------------------------------------------------------------------ 2534 Expansion Joint Filler 14 LF $0.78 $11 $0.00 3220 Wire Mesh - 6X6/W1.4XW1.4 5 SQS $16.86 $84 $0.00 3300 Concrete Material 7 CY $77.85 $549 $0.00 Colored ? 2534 Place and Finish Concrete 420 SF $0.55 $231 $0.00 2534 Strip and Face Curbs 28 LF $3.50 $98 $0.00 2534 Cure and Protect 420 SF $0.05 $22 $0.00 2700 SITE UTILITIES Surveying and Staking N/A $0 By Owner 2700 Water Service N/A $0 By Owner 2700 Storm Sewer 1 SC $64,425.00 $64,425 $0.54 Excavating Engineers Trash guards 2 EA $2,166.14 $4,332 $0.04 2700 Roof Drain Piping INCL $0 In Above 2700 Sanitary Sewer N/A $0 By Owner 2700 Install sleeves for gas main - 2 each 2 EA $300.00 $600 $0.01 2620 SITE SPECIALITY ITEMS 2577 Parking Lot Striping 1 SC $3,500.00 $3,500 $0.03 2620 Bike racks 2 EA $890.19 $1,780 $0.01 2620 Precast planters @ entrances 2 EA $2,849.43 $5,699 $0.05 Handicap/Fire Lane Signs 1 SC $3,500.00 $3,500 $0.03 2610 Directional Signage INCL $0 With allowance below 2611 Monument Sign at Entries 7 EA $7,000.00 $49,000 $0.41 ALLOWANCE 2611 Monument Sign at Highway 119 1 EA $20,000.00 $20,000 $0.17 ALLOWANCE Horseshoe Pit 2620 Wood timbers @ perimeter 32 LF $9.00 $288 $0.00 2480 Sand fill for pit 1 CY $30.00 $36 $0.00 2480 LANDSCAPING AND IRRIGATION 2480 Landscape and Irrigation 1 SC $175,347.00 $175,347 $1.48 Urban Farmer 2480 Interior plantings 1 ALLOW $10,000.00 $10,000 $0.08 SCI Allowance 2480 Spread topsoil @ borrow pit 1 SC $3,500.00 $3,500 $0.03 2480 Reseed Borrow areas 185,000 SF $0.12 $22,320 $0.19 2480 Reseed Temporary road area 21,800 SF $0.12 $2,616 $0.02 2480 Landscaping @ Lot 3 & Hwy. 119 1 ALLOW $40,000.00 $40,000 $0.34 ALLOWANCE - ---------- ------- ----- ----------------------------------------------------------------------------------------------------------------------------- TOTALS Site Development $1,061,825 $8.94 ----------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ DIVISION III - CONCRETE 3048 Layout labor 1 LS $12,686.30 $12,686 $0.11 3201 REINFORCING 3201 Rebar Quote 1 SC $57,688.70 $57,689 $0.49 Dalco 3201 Rebar Placing Quote 1 SC $27,071.00 $27,071 $0.23 Great Western Caisson rebar 14 TN (In Quote) Exterior columns casings 0 TN (In Quote) Grade Beams / Pier Caps 4 TN (In Quote) Exterior CIP Columns 3 TN (In Quote) Miscellaneous dowels, embeds 1 LS $3,500.00 $3,500 $0.03 SLABS 3220 WWF @ 5" Slab 5,724 SF $0.20 $1,163 $0.01 3220 Supports for Reinforcing Steel 5,724 SF $0.03 $178 $0.00 3201 Misc. Rebar @ thickened, edges 1 LS $1,038.00 $1,038 $0.01 Rebar - #3's @ 18" oc ew 28 TN (In Quote) 3201 Supports for Reinforcing Steel 113,532 SF $0.03 $3,535 $0.03 3072 CAISSONS Caissons (18") - 77 ea 62 CY Caissons (24") - 102 ea 143 CY 3048 Layout Caissons 179 EA $31.14 $5,574 $0.05 3070 Drill Caissons - 18" & 24" 1 SC $48,786.00 $48,786 $0.41 Snows Caissons Drill Caissons - 18" 939 LF INCL Drill Caissons - 24" 1,232 LF INCL Core drilling at rock INCL $0 Remove Caisson Spoils INCL (With Earthwork) 3072 Place Caissons 402 CY $11.42 $4,592 $0.04 3300 Concrete Material 402 CY $53.72 $21,594 $0.18 3800 Pump concrete 11 DAYS $1,609.09 $17,700 $0.15 3072 Form Tops 358 LF $18.95 $6,784 $0.06 3195 Embed Plates 108 EA $10.90 $1,177 $0.01 3195 Anchor Bolt Sets 87 EA $18.17 $1,581 $0.01 - ------------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 5 11:00 AM 5/2/97 49
- ----------------------------------------------------------------------------------------------------------------------------------- Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ----------------------------------------------------------------------------------------------------------------------------------- Pump Water INCL INCL 3305 EXTERIOR COLUMN CASINGS 3305 Form Tops - Sonotube 15 LF $18.95 $275 $0.00 3305 Place Columns 1 CY $42.85 $45 $0.00 3300 Concrete Material 1 CY $53.72 $56 $0.00 3110 GRADE BEAMS / PIER CAPS 2260 Fine Grade 179 SF $0.50 $90 $0.00 3110 Form Sides Over 12" 3,034 SF $2.86 $8,665 $0.07 3098 Form Rental 3,034 SF $0.50 $1,517 $0.01 3099 Form Hardware 3,034 SF $0.47 $1,417 $0.01 3097 Form Lumber for Bulkhead 66 LF $0.52 $34 $0.00 3195 Embed Plates 14 EA $10.90 $153 $0.00 3195 Anchor Bolt Sets 13 EA $18.17 $236 $0.00 3300 Concrete Material 44 CY $53.72 $2,354 $0.02 3320 Place and Finish 44 CY $21.42 $939 $0.01 3320 Trowel Finish Tops 290 SF $0.10 $29 $0.00 3395 Point & Patch 679 SF $0.22 $149 $0.00 3398 Rub Exterior 679 SF $1.01 $685 $0.01 3393 Cure Formed Surfaces/Memb. Cur 3,034 SF $0.05 $158 $0.00 3140 CIP Columns 3140 Form Sides 1,200 SF $4.28 $5,141 $0.04 3098 Form Rental 1,200 SF $1.83 $2,196 $0.02 3099 Form Hardware 1,200 SF $0.47 $561 $0.00 3195 Embed Plates 8 EA $10.90 $87 $0.00 3300 Concrete Material 24 CY $53.72 $1,289 $0.01 3345 Place and Finish 24 CY $21.42 $514 $0.00 3395 Point & Patch 1,200 SF $0.22 $264 $0.00 3398 Rub Exterior 1,024 SF $1.01 $1,034 $0.01 3393 Cure Formed Surfaces/Memb. Cur 1,200 SF $0.05 $63 $0.00 3800 PUMP CONCRETE 24 CY $20.00 $480 $0.00 EXTERIOR MASONRY WALL FOOTINGS N/A NOT REQUIRED 3148 DOCK PIT WALLS 3148 Sideform(3'-3") 1,521 SF $3.55 $5,403 $0.05 3098 Form Rental 1,521 SF $0.40 $608 $0.01 3099 Form Hardware 1,521 SF $0.42 $632 $0.01 3395 Point & Patch 1,521 SF $0.22 $334 $0.00 3300 Concrete Material 20 CY $53.72 $1,075 $0.01 3340 Place and Finish 20 CY $20.93 $419 $0.00 3800 Pump Concrete 20 CY $7.00 $140 $0.00 3393 Cure Formed Surfaces/Memb. Cur 1,521 SF $0.05 $79 $0.00 3148 COMPUTER ROOM PIT WALLS 3148 Sideform(1'-4") 1,045 SF $3.55 $3,712 $0.03 3098 Form Rental 1,045 SF $0.40 $418 $0.00 3099 Form Hardware 1,045 SF $0.42 $434 $0.00 3395 Point & Patch 1,045 SF $0.22 $230 $0.00 3300 Concrete Material 10 CY $53.72 $561 $0.00 3340 Place and Finish 10 CY $20.93 $219 $0.00 3800 Pump Concrete 10 CY $7.00 $73 $0.00 3393 Cure Formed Surfaces/Memb. Cure 1,045 SF $0.05 $55 $0.00 VAULT WALL FOOTINGS N/A Thickened Slab EXTERIOR PLANTER/COLUMN FOOTINGS N/A Pier Cap - Above 3150 SLAB ON GRADE 2265 Fine Grade 118,832 SF $0.15 $18,101 $0.15 2265 Regrade at Pipe Trenches, etc 1 LS $1,500.00 $1,500 $0.01 Vapor Barrier 118,832 SF $0 Not included $.15, $.50 Slab prep overtime 128 1/2 HRS $14.28 $1,826 $0.02 8 men - 2 weekends 2522 Skid Steer Loader 1 MO $2,249.45 $2,249 $0.02 3522 Air Compressor 1 MO $2,113.12 $2,113 $0.02 3150 Edge Form - 6" @ Doors 94 LF $1.83 $172 $0.00 3150 Edge Form - 6" @ Pit Slabs 678 LF $1.83 $1,242 $0.01 3097 Materials for Edge Form 772 LF $0.36 $280 $0.00 3150 Edge Form (12") @ Recess slabs 608 LF $3.55 $2,160 $0.02 3097 Materials for Recess Form 608 LF $1.04 $631 $0.01 3151 Doweled Edge Form @ Pourback 1,526 LF $3.15 $4,801 $0.04 3151 Doweled Bulkhead Form 1,195 LF $3.14 $3,754 $0.03 3097 Materials for Bulkheads 2,721 LF $0.42 $1,130 $0.01 3155 Styro @ Column Diamond Blockout 263 SF $2.62 $687 $0.01 3155 Materials for Blockout 263 SF $0.52 $136 $0.00 - -----------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 6 11:00 AM 5/2/97 50
- ----------------------------------------------------------------------------------------------------------------------------------- Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ----------------------------------------------------------------------------------------------------------------------------------- 3155 Sawcut Blockouts 420 LF $0.50 $210 $0.00 Remove blockouts 1 LS $1,475.20 $1,475 $0.01 3151 Pourback Blockouts 263 SF $1.64 $431 $0.00 3155 Styro @ Plumbing/Electrical Blockouts 348 SF $2.62 $910 $0.01 3155 Materials for Blockout 348 SF $0.52 $181 $0.00 3155 Sawcut Blockouts 588 LF $0.50 $294 $0.00 3151 Pourback Blockouts 348 SF $1.64 $571 $0.00 3195 Place Embedded Angle @ dock door 117 LF $3.57 $418 $0.00 3195 Materials to Place Angle 117 LF $0.16 $18 $0.00 3150 Expansion Joint Filler - 4" 1,472 LF $0.78 $1,152 $0.01 3151 Column Diamond Prep 90 EA $6.29 $566 $0.00 2265 Thickened Stab Prep @ Vault 144 SF $0.52 $76 $0.00 3203 3/4" Dia. x 48" Smooth Rod @ PB 385 EA $2.14 $823 $0.01 3203 3/4" Dia. x 18" Smooth Rod @ CJ 1,195 EA $2.14 $2,553 $0.02 3204 #3's x 14" Smooth Rod @ Diamonds 360 EA $2.14 $769 $0.01 3300 Concrete Material for Slab - 6" 1/2 1,149 CY $58.65 $67,386 $0.57 3300 Concrete Material for Slab - 6" 1/2 1,149 CY $56.76 $65,239 $0.55 3300 Concrete Material for Slab - 5" 90 CY $56.78 $5,108 $0.04 3300 Concrete @ Vault Thcknd. Slab 3 CY $56.78 $167 $0.00 3300 Accelerator for Slabs 2,298 CY $0 Draw from contingency 3800 Pump Concrete 2,391 CY $5.70 $13,624 $0.11 if needed 3522 Power Screed 1 MO $1,759.50 $1,760 $0.01 3522 Power Trowel 118,832 SF $0.01 $1,188 $0.01 3350 Place & Finish Interior Slabs - 6" 103,038 SF $0.37 $38,364 $0.32 3350 Place & Finish Pourback Slabs - 6" 9,774 SF $0.39 $3,844 $0.00 3350 Place & Finish Recess Slabs - 6" 5,300 SF $0.39 $2,084 $0.02 3350 Place & Finish Dock Pit Slabs - 6" 720 SF $0.39 $263 $0.00 3390 Sawcut Control Joints 15,228 LF $0.55 $8,411 $0.07 3351 Place and Finish Column Diamonds 563 SF $1.52 $857 $0.01 3393 Cure and Protect on Slab 118,832 SF $0.04 $4,187 $0.04 3393 Cure and Protect/Column Diamonds 563 SF $0.08 $46 $0.00 3029 Weather Protection for Slabs 1 LS $5,519.00 $5,519 $0.05 3354 SLAB ON DECK @ MEZZANINE - 3" 3031 Perimeter handrail 92 LF $3.92 $360 $0.00 3050 Clean Deck 1,448 SF $0.16 $227 $0.00 3220 WWF 1,564 SF $0.20 $318 $0.00 3300 Concrete Material for Slab 19 CY $56.78 $1,105 $0.01 3800 Pump Concrete 19 CY $9.00 $175 $0.00 3354 Place & Finish Interior Slabs 1,448 SF $0.37 $539 $0.00 3393 Cure and Protect 1,448 SF $0.05 $75 $0.00 3354 SLAB ON DECK @ PLATFORM - 3" 3050 Clean Deck 925 SF $0.16 $145 $0.00 3220 WWF 999 SF $0.20 $203 $0.00 3300 Concrete Material for Slab 12 CY $56.78 $706 $0.01 3800 Pump Concrete 12 CY $9.00 $112 $0.00 3354 Place & Finish Interior Slabs 925 SF $0.37 $344 $0.00 3393 Cure and Protect 925 SF $0.05 $48 $0.00 STAIR PAN FILL 3050 Clean Pans 70 SF $0.52 $37 $0.00 3300 Concrete Material 1 CY $56.78 $40 $0.00 3360 Place & Finish 70 LF $3.05 $214 $0.00 3393 Cure and Protect 130 SF $0.14 $18 $0.00 EQUIPMENT PADS 3710 Clean Floor 60 SF $0.52 $31 $0.00 3300 Concrete Material 1 CY $56.78 $45 $0.00 3710 Edge Form 46 LF $3.66 $168 $0.00 3710 Materials for Edge Form 46 LF $0.36 $17 $0.00 3710 Place & Finish Interior Slabs 60 SF $0.37 $22 $0.00 3383 Cure and Protect 60 SF $0.05 $3 $0.00 TILT-UP WALL PANELS 3401 Panel Layout - Standard 46 EA $93.42 $4,297 $0.04 3401 Panel Layout - Other 59 EA $93.42 $5,512 $0.05 Columns/Spandrels/Vault 2522 Skid Steer Loader 1 MO $2,249.45 $2,249 $0.02 2522 Forklift 1 MO $3,817.24 $3,817 $0.03 3522 Air Compressor 1 MO $2,113.12 $2,113 $0.02 3404 Edge Form - Standard 7,687 LF $1.53 $11,791 $0.10 - -----------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 7 11:00 AM 5/2/97 51
- ----------------------------------------------------------------------------------------------------------------------------------- Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ----------------------------------------------------------------------------------------------------------------------------------- 3404 Edge Form (9") 446 LF $1.53 $684 $0.01 3404 Edge Forms (16") 580 SF $4.08 $2,368 $0.02 3406 Opening Forms 1,783 LF $3.83 $6,827 $0.06 3412 Chamfer 9,388 LF $0.38 $3,541 $0.03 3413 Reveal Strip 3,912 LF $0.92 $3,591 $0.03 3412 Bevel Tops of Panels 1,730 LF $1.04 $1,803 $0.02 3412 Mitre Panel Corners 397 LF $7.60 $3,015 $0.03 3414 Strip tilt-up panes 105 EA $40.60 $4,263 $0.04 3416 Lifting Inserts - 6" 44 EA $14.56 $641 $0.01 3416 Lifting Inserts -7" 620 EA $14.72 $9,124 $0.08 3416 Lifting Inserts - 9" 32 EA $15.86 $507 $0.00 3416 Lifting Inserts - 16" 8 EA $30.91 $247 $0.00 3416 Lifting Inserts - Edge Pick 76 EA $22.61 $1,718 $0.01 3416 Brace Inserts - 6" 18 EA $13.00 $234 $0.00 3416 Brace Inserts - 7" 182 EA $13.11 $2,386 $0.02 3416 Brace Inserts - 9" 8 EA $13.11 $105 $0.00 3416 Brace Inserts - 16" 6 EA $25.72 $206 $0.00 3416 Stiffback inserts 17 EA $6.62 $113 $0.00 3420 Embed Misc. Plates/Angles 540 EA $4.19 $2,261 $0.02 3420 Recessed Embed Plates/Pts. w/rebar 820 EA $14.30 $11,727 $0.10 3416 Embed Angles - OH Jambs 272 LF $4.07 $1,107 0.01 3422 Bond Breaker 42,382 SF $0.06 $2,649 0.02 3201 Reinforcing Steel and Supports 70 TN (IN QUOTE) 3201 Misc. rebar at lifting points, etc. 1 LS $3,925.40 $3,925 $0.03 3300 Concrete Material 1,000 CY $56.78 $56,779 $0.48 3300 High Early Strength Concrete Premium 250 CY $3.11 $779 $0.01 3800 Pump Concrete 1 SC $6,250.00 $6,250 $0.05 3425 Place and Float Finish 32,372 SF $0.31 $10,065 $0.08 Not incl. trowel finish 3428 Place and Trowel Finish 10,016 SF $0.37 $3,715 $0.03 3427 Special Finish at Lobby 5,140 SF $7.00 $35,980 $0.30 Colorado Hardscapes 3428 Cure and Protect 42,382 SF $0.05 $2,209 $0.02 3430 Panel Cleanup 105 EA $47.20 $4,956 $0.04 PANEL ERECTION/BRACE REMOVAL 105 EA 3434 Panel erection - subcontract 1 SC $46,400.00 $46,400 $0.39 D & G 3523 Transit Rental 1 MO $272.66 $273 $0.00 3510 Deadmen - Large 38 EA $239.72 $9,109 $0.08 3434 Brace Removal 216 EA $15.70 $3,391 $0.03 3438 Brace Rental 216 EA $23.36 $5,045 $0.04 3442 Power Wash Panels 1 LS $4,000.00 $4,000 $0.03 3442 Patch and Rub Panels 37,000 SF $0.46 $17,898 $0.15 3522 Personnel Lifts and Fuel 2 MO $3,540.78 $7,082 $0.06 3444 Patch Floor Slabs 42,382 SF $0.16 $6,645 $0.06 3448 Panel Engineering 50 EA $30.00 $1,500 $0.01 3446 Panel Shop Drawings 105 EA $31.14 $3,270 $0.03 3450 GROUT 3450 Tilt-up Panel Bottom 30 CF $52.23 $1,567 $0.01 3450 Grout Recessed Inserts 150 EA $11.82 $1,772 $0.01 3600 Grout Base Plates 12 CF $122.01 $1,464 $0.01 3600 Hollow Metal Door Frames 9 EA $104.44 $940 $0.01 MISCELLANEOUS 5510 Concrete Bollard Bases 110 EA $78.36 $8,620 $0.07 --- ------ ------ ----- ---------------------------------------------------------------------------------------------------------------------- TOTALS Concrete $864,254 $5.46 ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- DIVISION IV - MASONRY 4001 MASONRY Exterior screen walls N/A Not Required STONEWORK Sandstone veneer - exterior N/A Not Required ---------------------------------------------------------------------------------------------------------------------- TOTALS Masonry $0 $0.00 ---------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 8 11:00 AM 5/2/97 52
- ---------------------------------------------------------------------------------------------------------------------------------- Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ---------------------------------------------------------------------------------------------------------------------------------- DIVISION V - METALS 5100 Layout labor 20 HRS $32.18 $6.44 $0.01 Structural Steel and Misc. Metals 1 SC $518,870.00 $518,870 $4.37 Boulder Steel Steel Subcontract INCL $0 Roof Framing INCL $0 Mezzanine Framing INCL $0 Raised Floor INCL $0 BAR JOIST/GIRDER/ROOF DECK MATERIAL Roof Framing INCL $0 Mezzanine Framing INCL $0 Metal Decks on Canopies INCL $0 Raised Floor INCL $0 STEEL ERECTION Roof Framing INCL $0 Mezzanine Framing INCL $0 Raised Floor INCL $0 STRUCTURAL STUD FRAMING Framing @ front entrance N/A $0 Tilt-up Framing above vestibule INCL $0 w/Gyp. Board MISCELLANEOUS METALS Fabricated light fixtures 11 EA 1,250.00 $13,750 $0.12 Site Chain Barrier 2 EA $476.67 $953 $0.01 Embed Angles @ Overhead Doors INCL $0 Embed Angles @ Strip Doors INCL $0 Embed Angles @ Leveler Pits INCL $0 Mezzanine Stair & Handrails INCL $0 Strips Ladder & Rails INCL $0 Framing at Skylight INCL $0 Tube Steel Canopies @ Side Entries INCL $0 Tube Steel Canopy @ Front Entry INCL $0 Pipe rail at print room door 5 LF $65.00 $325 $0.00 Pipe Bollards - install 110 EA $49.32 $5,425 $0.05 Skylight Angles INCL $0 Opening Frames as HVAC Units INCL $0 Miscellaneous Steel 1 LS $2,000,000 $2,000 $0.02 ---- ---------- ------ ----- ----------------------------------------------------------------------------------------------------------------------------- TOTALS Metals $541,967 $4.65 -----------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------- DIVISION VI - CARPENTRY ROUGH CARPENTRY Blocking @ Skylights and Hatch 304 LF $1.88 $571 $0.00 2X4 Telephone/Electrical Backboards 868 SF $1.93 $1,676 $0.01 All sides of 4 rooms Locker bases 232 LF $1.36 $316 $0.00 Nailers above canopy purlins 1,384 LF $2.41 $3,332 $0.03 2X4's Plywood @ standing seam roof 3,756 SF $1.35 $5,070 $0.04 Plywood @ shipping/receiving docks 2,400 SF $1.03 $2,467 $0.02 On wall furring Parapet cap blocking 334 LF $3.38 $1,130 $0.01 Wood Bucks @ overhead doors 446 LF $5.84 $2,603 $0.02 2X8's Wood Bucks @ strip doors 20 LF $5.84 $117 $0.00 2X8's Blocking @ interior window perimeters 1,146 LF $1.88 $2,153 $0.02 2X4's Blocking @ base of furring 2,000 LS $1.23 $2,466 $0.02 Miscellaneous Room Blocking 118,000 SF $0.04 $4,958 $0.04 Rough Hardware 1 LS $363.30 $363 $0.00 FINISH CARPENTRY ALLOWANCE Built-in counters & cabinets 1 ALLOW $75,000.00 $75,000 $0.63 ALLOWANCE Built-in lunchroom seating 1 ALLOW $27,000.00 $27,000 $0.23 ALLOWANCE CEO conference - wall unit & doors 1 ALLOW $5,000.00 $5,000 $0.04 ALLOWANCE Trim @ interior windows 1,002 LF $5.00 $5,010 $0.04 Restroom vanities 105 LF $40.00 $4,200 $0.04 Coat rod & shelf 91 LF $15.00 $1,358 $0.01 Wood covers on baseboard heaters 100 LF $25.00 $2,500 $0.02 $25.00/LF Wainscoat trim @ executive offices/conf 100 SF $15.00 $1,500 $0.01 ALLOWANCE Miscellaneous Trim 1 LS $5,000.00 $5,000 $0.04 ALLOWANCE Window Silts - 5" Oak 320 LF $8.51 $2,724 $0.02 Architects Quantities - -----------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 9 11:00 AM 5/2/97 53
- ------------------------------------------------------------------------------------------------------------------------------- Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ------------------------------------------------------------------------------------------------------------------------------- Plam light valances 325 LF $10.00 $3,250 $0.03 Wood cap @ mezzanine low wall 15 LF $8.00 $120 $0.00 Wood base @ executive offices 477 LF $7.47 $3,565 $0.03 --- ----- ------ ----- -------------------------------------------------------------------------------------------------------------------------- TOTALS Carpentry $163,448 $1.38 -------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- DIVISION VII - THERMAL & MOISTURE DAMPPROOFING & WATERPROOFING 1 SC $1,925.00 $1,925 $0.02 RSI Dampproofing @ Concrete Walls 1 SC $3,000.00 $3,000 $0.03 Waterproof planter boxes 280 SF $0.80 $224 $0.00 Add waterproofing for new planters INSULATION Foundation Insulation 4,401 SF $0.94 $4,121 $0.03 Vapor Barrier @ Humidified Rooms INCL (In "09250") Vinyl faced insulation @ exterior walls 1 SC $8,929.00 $8,929 $0.08 MATO Batt & Blanket Insulation - Exterior 23,991 INCL (In "09250") Rigid Insulation @ back of Vestibule walls 440 SF $0.93 $410 $0.00 Insulation @ top of walls - Docks 260 INCL (In "09250") 7500 MEMBRANE ROOFING Membrane roofing subquote 1 SC $214,289.00 $214,289 $1.80 CEI West Vapor barrier on roof - over print/comp. INCL $0 Membrane roofing - high roof INCL $0 Membrane roofing - low roof INCL $0 Membrane roofing - vestibule INCL $0 Bond on Roofing Subcontractor INCL $0 SHEETMETAL Perimeter counterflashing INCL (w/Roofing) Roof penetrations INCL (w/Roofing) STANDING SEAM ROOF Curved roof at entries INCL (w/Roofing) METAL SOFFIT/WALL PANELS Metal ceiling panels at vestibule/lobby 1 SC $12,500.00 $12,500 $0.11 Elward Caulking at Alucabond panels 1 LS $500.00 $500 $0.00 Perf. Metal Soffits @ Canopies INCL (w/Roofing) ROOF ACCESSORIES Roof Access Hatch 1 EA $768.42 $768 $0.01 Rio Grande Plastic Skylights - 5'x 5' 1 LS $1,996.34 $1,996 $0.02 Wozniak KalWall Subquote 1 SC $34,381.00 $34,381 $0.29 Includes Tube Framing 7900 CAULKING AND SEALANTS Caulking Subquote 1 SC 20,500.00 $20,500 $0.17 Division 7 Miscellaneous Building & Panel INCL $0 Manufacturing Floor Saw & Perim. INCL $0 Curb to Sidewalks INCL $0 Miscellaneous Saunders Caulk 1 LS $882.60 $883 $0.01 -- ------- ---- ----- ---------------------------------------------------------------------------------------------------------------------------- TOTALS Thermal & Moisture $304,426 $2.56 ----------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------- DIVISION VIII - DOORS & WINDOWS HOLLOW METAL DOORS & FRAMES Layout Door Locations 121 EA $31.14 $3,768 $0.03 Hollow Metal Door Frames - Single 101 EA $37.13 $3,750 $0.03 Hollow Metal Door Frames - Double 20 EA $37.13 $743 $0.01 Hollow Metal Doors - Exterior 10 EA $52.33 $523 $0.00 Hollow Metal Windows - Interior 17 EA $42.84 $728 $0.01 Misc Anchors and Fasteners 1 LS $519.00 $519 $0.00 HM Windows at north exterior wall 14 EA $181.68 $2,544 $0.02 Hollow Metal material 1 PO $20,237.89 $20,238 $0.17 Powers Products WOOD DOORS Oak Doors - 3' x 7' 131 EA $57.12 $7,483 $0.06 Closet Doors Slide - Pairs 2 EA $321.84 $644 $0.01 Closet Doors Swing - Pairs 3 EA $321.84 $966 $0.01 Wood Door Material 1 PO $19,624.43 $19,624 $0.17 Colonial Door OVERHEAD DOORS Overhead Doors - Subquote 1 SC $13,061.00 $13,061 $0.11 Raynor Door - oval lites - ----------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 10 11:00 AM 5/27/97 54
- ------------------------------------------------------------------------------------------------------------------------------------ Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ------------------------------------------------------------------------------------------------------------------------------------ Overhead Doors - 12' x 14' INCL $0 Electric Operators - 12' x 14' doors INCL $0 Overhead Doors - 8' x 8' INCL $0 Overhead Doors - 9' x 10' INCL $0 SPECIAL DOORS Strip doors - 9 x 10 1 SC $2,959.00 $2,959 $0.02 Door Tech Studio Blackout Curtain 180 SF $6.00 $1,080 $0.01 Print storage room high speed door 1 EA $9,244.00 $9,244 $0.08 Materials Handling STOREFRONTS / GLAZING Aluminum / Glazing Subquote 1 SC $78,443.00 $78,443 $0.66 Harding Glass Security hardware - Interwest specs 1 SC $2,293.00 $2,293 $0.02 Add Heat Mirror to Cust. Service Glazing 7 EA $810.00 $5,670 $0.05 SCI Recommendation Entry curtainwall - 2 sides INCL $0 Exterior storefront INCL $0 Exterior punched windows INCL $0 Entry doors - Special (Etched) INCL $0 Entry doors - Standard INCL $0 Interior HM Windows INCL $0 Interior Wood Windows INCL $0 Glazing @ HM Frames INCL $0 Mirrors INCL $0 Breakmetal Trim @ Mullions INCL $0 Shower doors N/A $0 Curtains FINISH HARDWARE Furnish & Install Finish Hardware 141 LV $73.26 $10,329 $0.09 Vault door lock 1 PO $3,103.62 $3,104 $0.03 "Cypher" lock Added security hardware 15 DOORS $255.44 $3,757 $0.03 Changed 4.22.97 Hardware material 1 PO $37,411.60 $37,412 $0.31 ALLOWANCE - ---------- ------- ----- ---------------------------------------------------------------------------------------------------------------------------- TOTALS Doors & Windows $228,880 $1.93 ---------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ DIVISION IX - FINISHES Layout Finishes 8 WKS $1,245.60 $9,965 $0.08 9250 METAL STUDS AND DRYWALL Gyp. Board Quote 1 SC $387,120.00 $387,120 $3.26 Delta FRP columns 4 EA $1,200.00 $4,800 $0.04 Columns at break-room Gyp. board bulkhead walls @ ceiling INCL $0 Drop walls @ skylights INCL $0 Partitions to above ceiling INCL $0 Furr exterior walls to structure INCL $0 Office areas Furr exterior walls above storefront INCL $0 Furr exterior walls to structure INCL $0 North Warehouse wall Full-height partitions INCL $0 Fire walls - full height INCL $0 Gyp. board ceilings INCL $0 Beam & exterior soffits INCL $0 Open office areas Exterior soffits - EIFS INCL $0 Troweled acrylic finish on planters 300 SF $5.00 $1,500 $0.01 Gyp. board wrap on columns INCL $0 Access panels 1 LS $800.00 $800 $0.01 9300 CERAMIC TILE ALLOWANCE Flooring tile 2,710 SF $5.00 $13,550 $0.11 Base tile 896 LF $5.50 $4,928 $0.04 Wall tile 3,584 SF $5.00 $17,920 $0.15 Stone tile - lobby, COO, CEO 1 ALLOW $5,000.00 $5,000 $0.04 ALLOWANCE ACOUSTICAL CEILINGS SAC Quote 1 SC $51,250.00 $51,520 $0.43 Acoustics Systems, Inc. 2x4 SAC ceiling INCL $0 2x2 SAC ceiling INCL $0 Eggcrate louvers at light valances 325 SF $8.00 $2,600 $0.02 Sound Panels in Printer Room 1 LS $2,350.00 $2,350 $0.02 Tackable wall surface - conference rooms 950 SF $5.00 $4,750 $0.04 White boards - install 420 SF $4.00 $1,680 $0.01 Add fixture support wires 1 LS $4,000.00 $4,000 $0.03 RESILIENT FLOORING & BASE ALLOWANCE Rubber base 7,278 LF $1.10 $8,006 $0.07
GMP Estimate Page 11 11:00 AM 5/2/97 55
- ------------------------------------------------------------------------------------------------------------------------------------ Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ------------------------------------------------------------------------------------------------------------------------------------ VCT flooring 805 SF $1.50 $1,208 $0.01 CARPETING ALLOWANCE Carpet Material w/waste - Executive 1,808 SY $18.00 $19,432 $0.16 Architects allowance - installed Carpet Material w/waste - Standard 5,263 SY $18.00 $94,736 $0.80 Architects allowance - installed Carpet installation INCL $0 SPECIAL FLOORING Sealed concrete floors - standard 6,305 SF $0.25 $1,576 $0.01 Sealed concrete floors - special 57,386 SF $0.35 $20,085 $0.17 Clear coat 9900 PAINTING & WALLCOVERING Painting Subquote 1 SC $89,500.00 $89,500 $0.75 Gene Lessar Painting Painted gyp. board walls INCL $0 Painted gyp. board ceilings INCL $0 Paint H.M. door frames INCL $0 Paint H.M. doors INCL $0 Finish wood doors INCL $0 Vinyl wallcovering 1 ALLOW $4,000.00 $4,000 $0.03 ALLOWANCE - --------- ------ ----- ----------------------------------------------------------------------------------------------------------------------------- TOTALS Finishes $750,756 $6.32 ----------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ DIVISION 10 - SPECIALITIES 10005 KNOX BOXES Knox Box at Entry 1 EA $264.99 $265 $0.00 Knox Box at Driveway Gates 2 EA $264.99 $530 $0.00 TOILET ACCESSORIES Subquote 1 SC $17,200.00 $17,200 $0.14 CBS Standard Toilet Partitions INCL $0 Handicap Toilet Partitions INCL $0 Urinal Screens INCL $0 Grab Bars INCL $0 Toilet Paper Holders INCL $0 Soap Dispensers INCL $0 Waste Receptacles INCL $0 Paper Towel Dispenser INCL $0 Coat Hooks INCL $0 Shower rod/curtains 1 SC $150.00 $150 $0.00 10400 SIGNAGE AT INTERIOR DOORS ALLOWANCE Interior Doors 43 EA $35.00 $1,505 $0.01 Conference & utility doors 10500 LOCKERS Employee lockers N/A $0 By furniture supplier FIRE EXTINGUISHER/CABINETS 10520 Fire Extinguishers & Cabinets - install 1 LS $4,486.98 $4,487 $0.04 Flash - --------- ------ ----- ----------------------------------------------------------------------------------------------------------------------------- TOTALS Specialities $24,137 $0.20 ----------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ DIVISION XI - EQUIPMENT 11130 AUDIO VISUAL EQUIPMENT Projection Screen 1 EA $1,500.00 $1,500 $0.01 Main conference room 11160 DOCK EQUIPMENT Subquote Equipment 1 SC $44,644.00 $44,644 $0.38 Forklift Systems "Kelly" dock levelers INCL $0 Vehicle restraints for docks INCL $0 Embed plates for restraints INCL $0 Dock Bumpers @ Dock Doors INCL $0 Dock Shelters @ Dock Doors INCL $0 11480 ATHLETIC EQUIPMENT Outdoor volleyball net & poles 1 SET $684.95 $685 $0.01 Basketball hoop & net 1 EA $669.00 $669 $0.01 ------- ---- ----- ----------------------------------------------------------------------------------------------------------------------------- TOTALS Equipment $47,498 $0.00 ----------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 12 11:00 AM 5/2/97 56
- ------------------------------------------------------------------------------------------------------------------------------------ Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ------------------------------------------------------------------------------------------------------------------------------------ DIVISION XII - FURNISHINGS 12270 ACCESS FLOORING Flooring Subquote 1 SC $53,500.00 $53,500 $0.45 AC Systems Raised access flooring - 16" Rm 1094 INCL $0 Raised access flooring - Heavy Rm 1018 INCL $0 12510 WINDOW BLINDS Accoustical & light seal blind @ CEO conf 1 EA $600.00 $600 $0.01 Window blinds 1 SC $5,436.00 $5,436 $0.05 Lu-Tek 12670 ENTRY MAT Pedimat at vestibule 72 SF $16.00 $1,152 $0.01 -- ------ ------ ----- ----------------------------------------------------------------------------------------------------------------------------- TOTALS Furnishings $60,688 $0.45 ----------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ DIVISION XV - MECHANICAL 15300 FIRE SPRINKLERS/DESIGN 1 SC $98,514.00 $98,514 $0.83 15400 PLUMBING, INCLUDING DESIGN Plumbing INCL $0 With HVAC Sanitary sewer INCL $0 Storm sewer INCL $0 Domestic water piping INCL $0 Gas piping INCL $0 Compressed air piping INCL $0 Engineering INCL $0 15500 HVAC, INCLUDING DESIGN HVAC/Plumbing Quote 1 SC $839,553.00 $839,553 $7.07 Plumbing changes 1 SC $0 HVAC changes 1 SC $0 Bond 1 SC $12,593.30 $12,593 $0.11 - ---------- ------- ----- ----------------------------------------------------------------------------------------------------------------------------- TOTALS Mechanical $950,660 $8.00 ----------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ DIVISION XVI - ELECTRICAL 16000 ELECTRICAL, INCLUDING DESIGN Electrical Quote 1 SC $746,276.00 $746,276 $6.28 Added service phones 0 ? $0 Site sign lighting 1 ALLOW $3,220.00 $3,220 $0.03 ALLOWANCE Service Equipment INCL $0 Mechanical Equipment - Additional Hook-up INCL $0 Fire Alarm INCL $0 Manuf., pick-pack shipping & receiving INCL $0 General Power INCL $0 Phone and Data INCL $0 Lighting INCL $0 Other INCL $0 Design Fee INCL $0 Bond INCL $0 Temporary Electric 1 LS $15,000.00 $15,000 $0.13 - ---------- ------- ----- ----------------------------------------------------------------------------------------------------------------------------- TOTALS Electrical $764,496 $6.44 ----------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------- Subtotal HARD COSTS $5,763,036 $48.51 - ------------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 13 11:00 AM 5/2/97 57
- ------------------------------------------------------------------------------------------------------------------------------------ Cost Description QTY UM Unit Amount $/SF Remarks Code Cost - ------------------------------------------------------------------------------------------------------------------------------------ 18500 CONSTRUCTION CONTINGENCY $120,000 $1.01 GENERAL CONDITIONS/SUPERVISION/INSURANCE $216,920 $1.83 BUILDING PERMIT & PLAN CHECK FEES N/A Paid by Owner 18100 MISC PERMITS AND FEES $3,054 $0.03 USE TAX N/A Paid by Owner 18300 PERFORMANCE & PAYMENT BONDS $0 Alternate 18003 BUILDER'S RISK INSURANCE $4,122 $0.03 ------ ----- SUBTOTAL $6,107,131 $51.41 CONSTRUCTION FEE $244,285 $2.06 -------- ----- ----------------------------------------------------------------------------------------------------------------------------- 300 TOTAL $6,351,416 $53.46 ----------------------------------------------------------------------------------------------------------------------------- DEVELOPMENT FEES Mountain View Fire District - Plan review & inspections N/A Paid by Owner Development Fees N/A Paid by Owner ----------------------------------------------------------------------------------------------------------------------------- PROJECT TOTAL $6,351,416 $53.46 ----------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------
GMP Estimate Page 14 11:00 AM 5/2/97 58 ATTACHMENT B SAUNDERS OWNER: ARCHITECT: 6950 So. Jordan Road CONCEPTS DIRECT INTERGROUP, INC. Englewood, Colorado CLARIFICATIONS AND QUALIFICATIONS FOR: Estimate Number: PREPARED BY: DFH/GC NEW CONCEPTS DIRECT FACILITY 96091 DATE: 11/19/96 Westview Business Park REVISED: 5/1/97 Longmont, CO Total Building Area: 118,800
CLARIFICATIONS, QUALIFICATIONS, AND ASSUMPTIONS: GENERAL 1. This budget pricing is based upon the drawings dated March 18, 1997 and specifications dated February 14, 1997, along with Addendum Number 1 dated April 10, 1997, Addendum Number 2 dated April 15, 1997, and miscellaneous field directives, all issued by Intergroup, Inc. for the construction of the building and related site improvements, exclusive of manufacturing equipment and furniture. It is also based upon a series of assumptions which are itemized in the following notes. 2. Please note that due to the aggressive construction schedule, there may be some miscellaneous work such as painting and landscaping that may continue past the date of substantial completion. 3. The specifications require us to provide temporary connections to water, electrical power, and telephone, which is included, but we have not included any costs associated with providing permanent services of electricity, natural gas, telephone, data transmission lines, or cable television to the building. Due to the method of assessing and subsequently refunding many of these charges, it is better if these are paid directly by the Owner. 4. We have included the cost to layout our work, but per verbal agreement, we have excluded building and site layout. Property corner pins and benchmarks will be provided and certified by the Owner. 5. The scope of work of this pricing includes sitework within the property lines of the site only (except landscaping). We have assumed that the developer of the business park will construct the site improvements outside of the property lines and provide utility taps and services at the locations indicated on the drawings. Per verbal direction, we have included the cost of constructing the curb cuts for our site as shown on the site plan. Please note that utility services must be constructed and operational according to our schedule in order to complete testing and obtain a Certificate of Occupancy for the building. Also, please note that fire officials will require water mains to be operational before roofing operations can begin. An allowance is included for constructing the landscaping and irrigation along Fairview Street and Highway 119. 6. The cost of a performance and payment bond is excluded from this pricing. 7. Any costs of identifying, testing, remediation, or removal of any contaminated soils or hazardous materials are not included in this pricing or scope of work. Prior to the start of work, the Owner must certify that no contaminated soils or hazardous materials exist that would pose a threat to Saunders personnel or those of our subcontractors. In addition, any cost impacts associated with scheduling or phasing the work around hazardous material removal are not included. 8. This pricing is based upon constructing the work as depicted on the drawings and required by the specifications. We have not included any contingencies for modifications that my be required for compliance with codes and regulations, or the interpretations of code enforcement agencies. 9. Per the specifications, we have excluded costs for field testing and inspections for soils, concrete, asphalt, masonry, steel, etc. These will be contracted and paid by the Owner. 10. This pricing does not include any labor, materials, or equipment for relocating or storing product, storage shelving, racks, etc. or for disassembly and removal of existing Owner equipment or furnishings. 11. Per verbal agreement, we have excluded costs for permit and plan check fees and use taxes. These will be paid directly by the Owner. SITEWORK 1. Saunders will make reasonable efforts to locate existing underground utilities, but cannot be responsible for costs associated with repair or relocation of underground utilities that are unknown or unanticipated. No relocation of existing utilities is included. 2. We have assumed that some overexcavation and recompaction of subgrades will be required at miscellaneous soft spots, but we have not included any major overexcavation or recompaction work for the site. The costs expended to date for stabilizing the building pad have been included. We have assumed that on-site soils will be suitable for reuse, and have not included any importing of structural fill material. 3. No underslab gravel or vapor barrier is included for either interior or exterior slabs. 4. We have included a budget for replacing topsoil into berms in landscaped areas, but have not included waterproofing or perimeter drains around the building. 5. This pricing does not include any allowances for the removal of buried debris or structures that may be encountered during excavation. We have assumed that all soils removed from excavations may be used as backfill around the new structure. 59 ATTACHMENT B CONCEPTS DIRECT OFFICE AND MANUFACTURING FACILITY CLARIFICATIONS, QUALIFICATIONS, AND ASSUMPTIONS, CONTINUED: SITEWORK, CONTINUED: 6. Due to the required completion date of the project, it will not be possible to allow time for the building pad to settle as was originally planned. Please note that some settlement in the floor slab may occur. 7. The cost of constructing water mains, fire hydrants, dometic water tap, and sanitary sewer mains is not included. Per verbal agreement, this work is being installed by the street utility contractor. STRUCTURAL 1. The letters that have been previously signed to authorize Saunders to proceed with structural components do not include the cost of modifications that have been made subsequently in the field. Costs for the changes made to date have been included in this pricing. 2. The letters that have been previously signed to authorize Saunders to proceed with caissons do not include costs associated with core drilling through rock, which was not anticipated, but was subsequently required. Costs for this additional work have been included in this pricing. THERMAL AND MOISTURE PROTECTION 1. Standing seam metal roofing has been assumed to be a manufacturer's standard color. Soffit panels will be field painted. 2. No gutters or downspouts have been included for the entry canopy roofs 3. We have not included wood nailers at the perimeter of the membrane roofing. This is typically not required by the manufacturers. 4. The specifications (Section 7530) make reference to Factory Mutual requirements for the roof. Please note that Factory Mutual has not tested ballasted roofs, but offers recommendations for ballasted roofs. These recommendations will be followed where appropriate, but the roof will not carry a Factory Mutual approval. A mechanically attached roof can be provided for additional cost. 5. Vapor barrier under roof insulation is provided over humidified rooms only. 6. Alucobond panels have been provided at the main entry vestibule with joint locations and spacing as verbally agreed between the subcontractor and the Architect. 7. Per previous discussions, smoke ventilation is not included in the warehouse. This will need to be added in the future in the event stored material extends above 12'. DOORS, WINDOWS, AND HARDWARE 1. An allowance has been included for finish hardware. Once security requirements have been finalized, this cost can be determined. 2. Per discussions with the Owner and Architect, this pricing includes furnishing two oval window lights in each overhead door (three in the large door) in lieu of the solid glass panels shown in the drawings. FINISHES AND SPECIALTIES 1. This pricing is based upon the use of manufacturer's standard colors and finishes for floor coverings, tile, toilet partitions, etc. 2. Allowances are included for cabinetry and millwork, floor finishes, wall coverings, signage, etc. This pricing will be adjusted to reflect the difference between the allowance amounts and actual cost for this work once final bids are received. 3. Per discussions with the Architect, the allowance for carpet includes installation, and not just material as mentioned in Section 01210 of the Specifications. EQUIPMENT 1. No labor, equipment, rigging, or protection materials are included for unloading, storing, or handling any Owner-furnished materials handling systems or equipment. MECHANICAL 1. Fire sprinklers have been included throughout the facility, but no pre-action or heat detection systems are included. In addition, no rack sprinklers. A spare valve and 4" main is provided for future rack sprinklers. Since no single space is larger than 50,000 square feet, we have not included draft curtains. We have assumed an Ordinary Hazard, Group II requirement. 2. At the time of preparation of this proposal, no water pressure and flow rates were available for the mains to be constructed in the adjoining roads. We have assumed that pressures and flows will be adequate, and that a fire pump will not be required. 3. We have included a total of 15 compressed air drops in the manufacturing/assembly area. ELECTRICAL 1. No telephone, security, data, or communications wiring, or equipment, or the connection of this equipment, is included. 60 ATTACHMENT B CONCEPTS DIRECT OFFICE AND MANUFACTURING FACILITY ALLOWANCES: The following allowance amounts are included in this pricing: Proof Rolling and Subgrade Repairs in Parking Lot $5,000 Landscaping Along Fairview and Highway 119 $40,000 Interior Plantings $10,000 Finish Hardware $35,000 Exterior Site Signage $69,000 Interior Signage $1,500 Built-in Counters and Cabinets and Stone Countertop $80,000 Built-in Lunchroom Seating $27,000 Wood Wainscots and Miscellaneous Trim $6,500 Carpet and Installation $18/SY Ceramic and Resilient Tile - Installed $45,000 Stone/Quarry Tile in Reception and Conference Rooms - Installed $5,000 Vinyl Wall Covering in Executive Areas - Installed $4,000 Electrical Connection and/or Lighting of Sign at Highway 119 $3,200
EXCLUSIONS: The following items are excluded from the scope of this pricing: 1. Architect's and consultant's fees (except for design/build portions of the work). 2. Printing and duplication costs for construction documents and progress printings. 3. US West, Public Service Company and cable television charges. 4. Cost of testing and inspections. 5. Damage from expansive soils. 6. Allowances for buried or unforeseen conditions. 7. Security fencing around the construction site, guard services, or night watchman. 8. Flagpoles, benches, trash receptacles, etc. 9. Handrail or guardrail except as shown on the drawings. 10. Remote monitoring of the fire alarm, security, or fire sprinkler systems. 11. Water quality holding and filtration systems. 12. Performance and payment bonds. 13. Electrical and mechanical connections of Owner-furnished telephone, or computer systems, 14. Foundations, structural reinforcement, roof openings, etc. for Owner-furnished equipment. 15. Work tables, shelves, racks, desks, or furnishings, except as noted. 16. CCTV monitors, cameras, or security system. 17. Painting of exposed structural framing. 18. Fireproofing of the structure. 19. Patterned or colored concrete sidewalks or paving. 20. Importing of topsoil in landscaped areas. These areas will have amendments to the existing topsoil. 21. Kitchen or breakroom appliances. 22. Tackboards, bulletin boards, etc., except in Conference Rooms, 23. Wire mesh partitions or interior fencing. 24. Floor drains or trench drains in the manufacturing/assembly and dock areas. 25. Centering of fire sprinkler heads in acoustical ceiling tile. 26. Standby electric generator or transfer switch. 27. Access control or card key systems. 28. Water and sewer tap and development fees. These will be paid directly by the Owner. 29. Permit and plan check fees and use taxes. These will be paid directly by the Owner. 30. Smoke ventilation or skylights in the warehouse. 31. Furnishing or installation of audio/visual presentation equipment, except for projection screens. 61 SUPPLEMENTAL CONDITIONS This Agreement regarding supplemental conditions is made as of the day of March, 1997 by and between CONCEPTS DIRECT, INC. ("Owner") and SAUNDERS CONSTRUCTION, INC. ("Contractor"). A. General The following supplemental conditions modify, change, delete from or add to the "General Conditions of the Contract for Construction," AIA Document A201, Fourteenth Edition, 1987 (hereinafter referred to as the "General Conditions"). These supplemental General Conditions are intended to be read in conjunction with the Architect's Supplementary General Conditions, which are attached hereto as Exhibit A and incorporated herein by reference, and which conditions Contractor accepted in responding to and being awarded the Contract for Owner's Project. Where any portion of the Architect's Supplementary General Conditions conflicts with these Architect's Supplementary Conditions, the Supplemental General Conditions shall control. Where any portion of the General Conditions is modified or deleted by these Supplemental Conditions, or the Architect's Supplementary General Conditions, the remaining unaltered provisions of the General Conditions shall remain in effect. B. Article 1: General Provisions 1.1.8 PROVIDE Except as otherwise defined in greater detail, the term "provide" means "furnish and install, complete and ready for intended use", as applicable in each instance." C. Article 2: Owner 2.3 Owner's Right to Stop the Work: Add the following to Subparagraph 2.3.1: "Failure of the Owner to notify the Contractor of necessary corrections or to stop the work shall not relieve the Contractor of any responsibilities or obligations of the Contract Documents." D. Article 3: Contractor Add a new Subparagraph 3.1.2 to read as follows: "The Contractor will permit the Owner to assign this agreement to a Lender as additional collateral for the construction loan and 62 Contractor will permit this agreement to be amended to satisfy reasonable requirements Owner's construction lender may have in regard to the Project. The Contractor shall execute and properly complete the entire Work described in the Contract Documents, except as to the extent specifically indicated in the Contract Documents to be the responsibility of others. All Work for the Project will be in accordance with the Contract Documents." 3.9 Superintendent: Add the following to the end of Subparagraph 3.9.1: "The superintendent shall be satisfactory to the Architect and the Owner and the Contractor shall not replace the superintendent without the prior written consent of the Owner and the Architect. The Superintendent shall remain full time on the Project until the completion of the Punch List, unless authorized by Architect in writing." Add Paragraph 3.19, "During the performance of this Contract, the Contractor agrees as follows: "(a) The Contractor will not discriminate against any employee or applicant for employment because of race, religion, color, sex, or national origin, except where religion, sex, or national origin is a bona fide occupational qualification reasonably necessary to the normal operation of the Contractor. The Contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices setting forth the provisions of this nondiscrimination clause. "(b) The Contractor will, in all solicitations or advertisements for employees placed by or on behalf of the Contractor, state that such Contractor is an equal opportunity employer; provided, however, that notices, advertisements and solicitations placed in accordance with federal law, rule or regulation shall be deemed sufficient for the purpose of meeting the requirements of this chapter." E. Article 5: Subcontractors Add the following to Subparagraph 5.2.2 after the phrase "contract with" in the first line: "or purchase or install such products manufactured by". F. Article 6: Construction by Owner or by Separate Contractors -2- 63 6.1 Owner's Right to Perform Construction and to Award Separate Contracts: Add Subparagraph 6.1.5: "The Owner shall have the right to deliver furniture and equipment into the building prior to completion of the work by the Contractor if this equipment does not seriously interfere with the Contractor's operations. Questions of what constitutes interference shall be referred to the Architect and his decision shall be final." G. Article 7: Changes in the Work 7.1 Change Orders: In the first sentence of Subparagraph 7.3.6, delete the words "a reasonable allowance for overhead and profit" and substitute in their place "an allowance for overhead and profit in accordance with the schedules set forth in Subparagraph 7.3.10 below." 7.3 Construction Change Directives: Add the following Subparagraphs 7.3.10 and 7.3.11: "7.3.10 In Subparagraph 7.3.6 the allowance for overhead and profit combined, included in the total cost to the Owner, shall be based on the following schedule: .1 For the Contractor, for any Work performed by the Contractor's own forces, 10 percent of the cost. .2 For the Contractor, the Work performed by his Subcontractor, 10 percent of the amount due the Subcontractor. .3 For each Subcontractor of Sub-subcontractor involved, for any Work performed by that Subcontractor's own forces, 10 percent of the cost. .4 For each Subcontractor, for Work performed by his Subsubcontractors, 10 percent of the amount due the Subsubcontractor. .5 Cost to which overhead and profit is to be applied shall be determined in accordance with Subparagraph 7.3.6. .6 In order to facilitate checking of quotations for extras or credits, all proposals, except those so minor that their propriety can be seen by inspection, shall be accompanied by a complete itemization of all costs including labor, materials, and subcontracts. Labor and materials shall be itemized in the manner prescribed above. Where major cost items are subcontracts, they shall be itemized also. In no case will a change involving over $100.00 be approved without such itemization." -3- 64 H. Article 8: Time 8.2 Progress and Completion: Add the following to the end of Subparagraph 8.2.1: "and the Contractor is capable of properly completing the work within the contract time." I. Article 9: Payments and Completion 9.8 Substantial Completion: Add the following to Subparagraph 9.8.1: "Work will not be considered "Substantially Complete" until all systems and equipment to be installed by Contractor as part of the Work for the Project have been tested and found to be functioning properly." 9.12 Early Completion Bonus: Add the following Subparagraph 9.12.1: "The Contractor shall be entitled to an early completion bonus in accordance with the following schedule: Bonus is for Delivery of Certificate of Occupancy by Date Indicated A. August 18, 1997 = $50,000 B. August 25, 1997 = $30,000 C. September 1, 1997 = $10,000 D. September 8, 1997 = $ 5,000 E. September 9, 1997, = $ No Bonus or later if Contractor substantially completes the Project on or prior to the date next to the applicable bonus sum and delivers to the Owner a properly processed and approved Certificate of Occupancy which allows Owner to fully use and occupy the Work and the Project with no restrictions on use and all security required by the applicable jurisdiction for uncompleted items of the Project having been posted by Contractor ("Bonus Completion Date"). For the purposes of determining the Contractor's entitlement to the early completion bonus, the Contractor will not be entitled to any extensions of time of the Bonus Completion Date for delays caused for any reason. The Bonus Completion Date will not be extended by any other extensions of time for which the Contractor becomes entitled to an extension of the date of Substantial Completion. The Contractor recognizes that the Bonus Completion Date is the date on which the Contractor delivers to the Owner the Certificate of Occupancy as described above and is not the same as the date of Substantial Completion and that there may be extensions to the date of Substantial Completion for which there are no corresponding extensions to the Bonus Completion Date. This Early Completion Bonus is being given as an incentive to encourage early completion of the Work." -4- 65 J. Article 10: Protection of Persons and Property Add the following Subparagraph 10.1.5: "To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner and the Owner's consultants and separate contractors, any of their subcontractors, sub-subcontractors, agents and employees from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from environmental problems caused in whole or in part by the operations of the Contractor, the Contractor's contractors, anyone directly or indirectly employed by either, or anyone by whose acts either may be liable, regardless of whether or not they were caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge or otherwise reduce the indemnification obligations of the Contractor under Paragraph 3.18. Nothing in this Indemnity Agreement shall impose liability on the Contractor for pre-existing conditions, except to the extent that such pre-existing conditions are made worse because of negligent acts or omissions of the Contractor, the Contractor's contractors, anyone directly or indirectly employed by either, or anyone by whose acts either may be liable." 10.2 Safety of Persons and Property: Add the following to Subparagraph 10.2.3: "The Contractor shall at all times protect the excavation, trenches, and construction from damage caused by rain water, ground water and all other water. The Contractor shall provide pumps, drainage ditches, enclosures and other equipment required to provide this protection. The Contractor shall provide all shoring, bracing and sheeting required for safety and proper execution of the work and shall have the same removed when the work is complete. All shoring, bracing and sheeting shall meet the requirements of the local governing unit." Add the following subparagraph 10.2.4.1: "When use or storage of explosives or other hazardous materials or equipment or unusual methods are necessary, the Contractor shall give the Owner reasonable advance written notice thereof." K. Article 11: Insurance and Bonds 11.1 Contractor's Liability Insurance: Modify Subparagraph 11.1.1 by adding in the first line, following the word "maintain", the words "in a company or companies licensed or authorized to do business in the State of Colorado. 11.1.1.1 Delete the semicolon at the end of Clause 11.1.1.1 and add: , including private entities performing -5- 66 Work at the site and exempt from the coverage on account of number of employees or occupation, which entities shall maintain voluntary compensation coverage at the same limits specified for mandatory coverage for the duration of the Project. 11.1.1.2 Delete the semicolon at the end of Clause 11.1.1.2 and add: or persons or entities excluded by statute from the requirements of Clause 11.1.1.1 but required by the Contract Documents to provide the insurance required by that Clause: 11.1.1.8 Liability insurance shall include all major divisions of coverage and be on a comprehensive basis including: .1 Premises Operations (including X, C and U coverages as applicable). .2 Independent Contractor's Protective. .3 Products and Completed Operations. .4 Personal Injury Liability with Employment Exclusion deleted. .5 Contractual, including specified provision for Contractor's obligation under Paragraph 3.18. .6 Owned, non-owned and hired motor vehicles. .7 Broad Form Property Damage including Completed Operations. .8 Umbrella Excess Liability. 11.1.1.9 If the General Liability coverages are provided by a Commercial General Liability Policy on a claims-made basis, the policy date or Retroactive Date shall predate the Contract; the termination date of the policy or applicable extended reporting period shall be no earlier than the termination date of coverages required to be maintained after final payment, certified in accordance with Subparagraph 9.10.2. Add the following Clause 11.1.2.1 to 11.1.2: 11.1.2.1 The insurance required by Subparagraph 11.1.1 shall be written for not less than the following limits, or greater if required by law: (a) State: Statutory (b) Applicable Federal (e.g. Longshoremen's): Statutory (c) Employer's Liability: -6- 67 $100,000.00 per Accident $500,000.00 Disease, Policy Limit $500,000.00 Disease, Each Employee .2 Comprehensive Commercial General Liability (including Premises Operations; Independent Contractor's Protective; products and Combined Operations; Broad Form Property Damage): (a) Bodily Injury: $1,000,000.00 Occurrence $1,000,000.00 Aggregate (b) Property Damage: $1,000,000.00 Each Occurrence $1,000,000.00 Aggregate (c) Products and Completed Operations to be maintained for five years after final payment: $1,000,000.00 Aggregate (d) Property Damage Liability insurance shall provide X, C and U coverage. (e) Broad Form Property Damage Coverage shall include Completed Operations. .3 Contractual Liability: (a) Bodily Injury: $1,000,000.00 Each Occurrence $1,000,000.00 Aggregate (b) Property Damage: $1,000,000.00 Each Occurrence $1,000,000.00 Aggregate .4 Personal Injury, with Employment Exclusion deleted: $1,000,000.00 Aggregate .5 Business Auto Liability (including owned, non-owned and hired vehicles): (a) Bodily Injury: $1,000,000.00 Each Occurrence $1,000,000.00 Aggregate (b) Property Damage: $1,000,000.00 Each Occurrence .6 If the General Liability coverages are provided by a Commercial Liability policy the: -7- 68 (a) General Aggregate shall be not less than $1,000,000.00 on any one fire. (b) Fire Damage Limit shall be not less than $1,000,000.00 on any one fire. (c) Medical Expense Limit shall be not less than $50,000.00 on any one person. .7 Umbrella Excess Liability: $5,000,000.00 over primary insurance. (10,000.00 retention for self-insured hazards each occurrence. 11.1.2 Add the following sentence to Subparagraph 11.1.3: The certificate shall be ACORD form 25S with AIA Document G715, Supplemental Attachment. 11.3 Property Insurance 11.3.1.1 Add the following sentence to Clause 11.3.1.1: The form of policy for this coverage shall be Completed Value. 11.3.1.3 Add the following sentence to Clause 11.3.1.3: This property insurance is written with a deductible of $10,000.00 per occurrence ($50,000.00 for flood damage) with a deductible aggregate of $10,000.00 ($50,000.00 for flood damage). Delete the first three sentences of Subparagraph 11.3.9 and substitute the following: 11.3.9 If required in writing by a party in interest, the Owner as fiduciary shall, upon occurrence to insured loss, deposit in a separate account proceeds so received, which the Owner shall distribute in accordance with such agreement as the parties in interest may reach, or in accordance with an arbitration award in which case the procedure shall be as provided in Paragraph 4.5. L. Article 13: Miscellaneous Provisions: 13.5 Tests and Inspections: Add Paragraph 13.5.7: "The use of permanent equipment for temporary heat or other construction activities shall in no way affect the warranty period for equipment. The warranty period shall commence upon actual use of the equipment by the Owner or when the above mentioned tests have been successfully performed." -8- 69 13.6 Interest: Delete Subparagraph 13.6.1 in its entirety and replace it with the following: "Payments due and unpaid under the Contract Documents shall bear interest from the date payment is due at the rate of prime plus one." 13.2 Successors and Assigns: Delete Subparagraph 13.2.1 in its entirety and replace it with the following: 13.2.1 The Owner and the Contractor each binds itself, its successors, assigns and legal representatives to the other party hereto and to the successors, assigns and legal representatives of such other party with respect to all covenants, agreements and obligations contained in the Contract Documents. The Contractor may not assign its rights or obligations under the Contract Documents without the prior written consent of the Owner which the Owner may withhold for any reason. The Owner may assign its rights and obligations under the Contract Documents to the Owner's Lender, but may not assign its rights and obligations under the Contract Documents to any other assignee or to any subsequent owner of the property on which the Project is to be constructed without the prior written consent of the Contractor, which consent Contractor agrees to not unreasonably withhold or delay. Any such assignment shall not relieve the Contractor of its obligations hereunder." Add a new Subparagraph 13.3.2: "13.3.2 Should either party to the Contract suffer injury or damage to person or property because of any act or omission of the other party or of any of his employees, agents or others for whose acts he is legally liable, claim shall be made in writing to such other party within a reasonable time after the first observance of such injury or damage, provided the foregoing shall not limit, impair or prejudice the Owner's rights and remedies under the Contract Documents respective defective or non-conforming work." Add a new Subparagraph 13.4.3: "13.4.3 The invalidity of any part or provision of the Contract Documents shall not impair or affect in any manner the validity, enforceability or effect of the remainder of the Contract Documents." -9- 70 13.6 Tests 13.6.1 If the Contract Documents, laws, ordinances, rules, regulations or orders of any public authority having jurisdiction require any portion of the Work to be inspected, tested or approved, the Contractor shall give the Architect and the Owner timely notice of his readiness so the Architect and the Owner may observe such inspection, testing or approval. The Contractor shall bear all costs of such inspections, tests or approvals conducted by public authorities. Delete existing Subparagraph 13.5.2 and substitute the following: "13.5.2 If the Architect, owner or public authorities having jurisdiction determine that any Work requires special inspection, testing, or approval which Subparagraph 13.5.1, above, does not include, he shall, upon written authorization from the Owner, instruct the Contractor to order such special inspection, testing or approval, and the Contractor shall give notice as provided in Subparagraph 13.6.1, above. If such special inspection or testing reveals a failure of the Work to comply with the requirements of the Contract Documents, the Contractor shall bear all costs thereof, including compensation for the Architect's additional services made necessary by such failure; otherwise the Owner shall bear such costs, and an appropriate Change Order shall be issued." Delete existing Subparagraph 13.5.4 and substitute the following: "13.5.4 Certificates of inspection, testing or approval, including certificate of occupancy under the building code, operating permits for any mechanical apparatus (such as elevators, boilers and compressors) and all other such certificates which may be required to permit full use and occupancy of the Work by the Owner or by its tenants shall be secured and paid for by the Contractor as provided in Subparagraph 3.7.1, above, and promptly delivered to the Architect and the Owner. Compliance with the foregoing shall occur on or before issuance of the temporary certificate of occupancy and shall be a condition precedent to Substantial Completion of the Work unless delays in issuance of a certificate of occupancy is not due to the fault of the Contractor." Add the following new Subparagraph 13.8: "13.8 Entry and Use Before Completion -10- 71 13.8.1 Entry by separate contractors to perform work as permitted pursuant to Article 6, above, (including without limitation construction of leasehold improvements or installation of certain equipment) shall not constitute acceptance of any portion of the Work or occupancy of any portion thereof for purposes of the Contract Documents and shall not alter or relieve any of the Contractor's rights or obligations under the Contract Documents. Following Final Completion of the Work, the Contractor shall be relieved of the primary responsibility for the protection of the Work. 13.8.2 The Owner shall have the right to occupy portions of the Project. Any such occupancy prior to Substantial Completion shall be subject to the following provisions: (a) Such occupancy shall not constitute or be deemed to be completion or Substantial Completion of the Work or applicable portion thereof for any purposes under the Contract Documents and shall not relieve any obligation of the Contractor under the Contract Documents for the remainder of the Work. (b) Such occupancy shall not waive any claims the Owner may have against the Contractor for damages for default under the Contract or otherwise relieve the Contractor of his obligation fully to complete the portion of the Work so occupied. (c) The Owner shall take reasonable precautions so as not to unduly interfere with the continued progress of the Work. (d) The Contractor shall exercise caution and shall be responsible for damage to any of the Owner's property or the property of any tenant of the Owner moved into the space so occupied, caused by or arising from any Fault of the Contractor. (e) The Contractor shall be responsible for security within any space so occupied until Final Completion of the Work. Add the following new Subparagraph 13.9: "13.9 The Contractor's Certificate of Completion 13.9.1 The Contractor shall provide to the Owner a certificate of completion certifying that the Work has been completed in accordance with all applicable laws, rules, regulations, building codes, ordinances including all zoning, -11- 72 subdivision and environmental laws, relating to the Project in a form requested by the Owner. At the request of the Owner, the Contractor shall issue a copy of the plans, so certified, based upon which the occupancy permits were issued with respect to the Project." 13.10 No member of the Owner or any employees, officers, directors, stockholders or affiliates thereof shall be personally liable for the observance or performance of any of the Owner's obligations hereunder, all such liability to Concepts Direct, Inc. as such liability being strictly limited to Concepts Direct, Inc. as a corporate entity. The parties after careful review and consultation with counsel, have agreed to all the terms above and have signed this Agreement intending to be fully and legally bound thereby as of the date inserted on page 1 of this Agreement. OWNER: CONCEPTS DIRECT, INC. /s/ [Signature Unreadable] By: /s/ Phillip A. Wiland - -------------------------- -------------------------- Witness Phillip A. Wiland Chairman CONTRACTOR: SAUNDERS CONSTRUCTION, INC. By: /s/ Darrell Eastwood ------------------------- Name: Darrell Eastwood Title: Project Executive EXHIBIT A: Architect's Supplementary General Conditions (Section 00800); attached and incorporated herein by reference -12- 73 SECTION 00800 SUPPLEMENTARY GENERAL CONDITIONS PART 1 GENERAL A. The General Conditions covering this contract shall be "The General Conditions of the Contract for the Construction of Buildings" of the American Institute of Architects, Document A-201, 1987, 14th Edition, hereinafter referred to as the General Conditions. The General Conditions shall remain in full effect as published except as modified, rescinded, or supplemented by these Supplementary General Conditions, which have precedence over and shall revise the following Articles of the General Conditions, and shall be used in conjunction with them as part of the Contract Documents. The General Conditions and these Supplementary General Conditions shall apply to each and every section of the work as though written in full therein. ARTICLE ONE - GENERAL PROVISION: 1.2 EXECUTION, CORRELATION AND INTENT: ADD the following to 1.2.6: Where a conflict occurs between or within standards, Specifications, and Drawings, the more stringent or higher quality requirements shall apply. The precedence of the Construction Documents is in the following sequence: 1). Addenda and modifications to the Drawings and Specifications take precedence over the original construction documents. 2). Should there be a conflict within the Specifications or on the Drawings, the Architect shall decide which stipulation will provide the best installation and his decision shall be final. 3). Should a conflict arise between the Drawings and the Specifications, the Specifications shall have precedence over the Drawings. 4). In the Drawings, the precedence shall be drawings of a larger scale over those of a smaller scale, figured dimensions over scaled dimensions, and noted materials over graphic indications. ARTICLE TWO - OWNER: No Change ARTICLE THREE - CONTRACTOR: 3.4 LABOR AND MATERIALS ADD the following subparagraph: 3.4.3 Bidders shall base their bid upon the use of any of the items specifically named in the Specifications or on the Drawings, or as approved in an Addendum issued by the Architect. No changes or substitutions will be considered after the award of the contract except those 74 that will result in a better job, a savings to the Owner, or both. 3.6 TAXES ADD the following subparagraph: 3.6.2 Subcontractors shall be responsible for payment of all sales and use taxes and shall show proof of payment of such taxes before release of any retained funds. 3.7 PERMITS, FEES AND NOTICES 3.7.1 ADD the following: Building permits will be obtained by the General Contractor. Electrical and mechanical permits will be obtained by the Mechanical and Electrical Subcontractors. The Contractor shall call for all inspections required by the Local Building Inspection Authority. Subcontractors to call for their respective inspections. Assessments against the property are the obligation of the Owner and will be paid by the Owner as necessary to assure issuance of permits specified above. This includes sewer and water charges for capital improvements, including plant investment fees and connection charges based on the cost of mains serving the site. ADD the following Article: 3.7.5 Any reference in the specification text to codes, standard specifications or manufacturer's instructions will mean the latest printed edition of each in effect at the contract date. It will be the responsibility of the Contractor to obtain such specifications or instructions prior to installation. 3.10 CONTRACTOR'S CONSTRUCTION SCHEDULES ADD Article 3.10.4 as follows: 3.10.4 Completed progress schedule will be submitted to Architect no later than fourteen (14) calendar days after date of Agreement and will be updated during construction as required to keep it current. Nothing in this requirement will be deemed to be an usurpation of the Contractor's authority and responsibility to plan and schedule the work as he sees fit subject to all other requirements of the Contractor Documents. 3.12 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES: ADD the following: 3.12.12 After approval by the Contractor, the Contractor will submit one (1) sepia and three (3) sets of blue line reproductions of shop drawings to the Architect. Architect will retain one 75 copy. Contractor shall be responsible for procuring shop drawings for his own use as he may require for the progress of the work and for review of shop drawings prior to submittal to Architect. Architect will review these drawings as time permits at the request of the Contractor and after approval by the Contractor. 3.12.13 Manufacturer's Instructions: Where any item of work is required by specification to be furnished, installed or performed in accordance with a specified product manufacturer's instructions, Contractor shall procure and distribute the necessary copies of such instructions to all concerned parties. 3.15 CLEANING UP: ADD the following Articles: 3.15.3 Besides the "broom cleaning", the following special cleaning is required just prior to acceptance: 1). Remove stains, wash and polish glass, inside and outside. This work shall be done by persons skilled and equipped for such work. 2). Remove foreign matter, marks, stains, foreign paint, finger prints, soil and dirt from (and have in a clean condition where appropriate) the following: a. Painted, decorated and stained work. b. All hardware, fixtures and incorporated equipment. c. All finished surfaces and metal surfaces, whether interior or exterior. d. All doors and windows. ARTICLE FOUR - ADMINISTRATION OF THE CONTRACT: 4.2 ARCHITECTS ADMINISTRATION OF THE CONTRACT To Article 4.2.13 ADD the following: The terms "artistic effect" as used herein refers to color, texture, profile and juxtaposition of masses. The Architect will be the sole interpreter of the design intent with respect to such matters, but the Architect's authority with respect thereto will not contravene any other rights of either the Owner or the Contractor ascribed to them by other provisions of the Contractor. ARTICLE FIVE -- SUBCONTRACTORS: No Change ARTICLE SIX -- CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS: No Change ARTICLE SEVEN -- CHANGES IN THE WORK: 7.2 CHANGE ORDERS ADD the following: 7.2.3 The cost or credit to the Owner resulting from a change in the work 76 shall be determined in one of the following ways: 1). By unit prices named in the bid. Unit prices shall include all Contractors costs, including materials, labor, supervision, taxes, insurance, bond overhead and profit, and shall be applied directly to the quantities or the differences in quantities for which unit prices are requested. 2). By reasonable estimated cost of: a. Labor, including foreman (labor costs shall be direct costs) b. Social Security and old age and unemployment contributions. c. Materials entering permanently into the work (including taxes). d. The ownership or rental cost of construction plant and equipment during the time of use on the extra work. 7.2.4 The Contractor's proposal shall include an itemized breakdown showing quantities, until costs, hours and rates of labor, and any other costs in such detail as may be required to allow the reasonableness of costs to be established. Similar cost information covering Subcontractor's work shall be included as part of the Contractor's proposal. Minimum Charges for "handling" will not be acceptable. Request for change order quotations shall be returned to the Architect within ten (10) calendar days of receipt by the Contractor. ARTICLE EIGHT -- TIME: 8.2 PROGRESS AND COMPLETION ADD the following subparagraphs: 8.2.4 The Owner shall have the right, if he deems it necessary or advisable, to take possession of, or use any complete or partially completed portions of the Work even if the time for completing the entire Work has not expired and even if the Work has not been finally accepted. Such possession and use shall not constitute an acceptance or completion of such portions of the Work. The Owner shall also have the right to enter the premises for the purpose of doing work not covered under this Contract. If the completion of any items of work under this Contract must await the completion of work under separate Contracts entered into by the Owner, the Contractor will be granted an extension of time to complete the work affected by the separate Contract(s). 8.2.5 The Contractor agrees to the use and occupancy of a portion or unit of the project before formal acceptance by the Owner, under the following conditions: 1). A Certificate Of Substantial Completion shall be prepared and executed as provided in Paragraph 9.1 of the General Conditions of the Contract for Construction, except that when, in the opinion of the Owner, the Contractor is chargeable with unwarranted delay in completing work of other contract requirements, the signature of the Contractor will not be required. The Certificate of Substantial Completion shall be accompanied 77 by a written endorsement of the Contractor's insurance carrier and surety permitting occupancy by the Owner during the remaining period of project work. 2). Occupancy by the Owner shall not be construed by the Contractor as being acceptance of that part of the project to be occupied. 3). The Contractor shall not be held responsible for any damage to the occupied part of the project resulting from the Owner's occupancy. 4). Occupancy by the Owner shall not be deemed to constitute a waiver of existing claims in behalf of the Owner or Contractor against each other. 8.2.6 With the exception of Paragraph 8.2.5 use and occupancy by the Owner prior to project acceptance does not relieve the Contractor of his responsibility to maintain all insurance and bonds required of the Contractor under the Contract until the project is completed and accepted by the Owner. 8.2.7 It is agreed that time is of the essence and that the Owner will suffer substantial damages if the work is not completed within the time stated in the Agreement. The Contractor agrees to make diligent efforts to keep the project on schedule and substantially complete the project within the contract time. ARTICLE NINE -- PAYMENTS AND COMPLETIONS: - ---------------------------------------- 9.2 SCHEDULE OF VALUES 9.2.1 ADD the following: The Schedules of Values shall be prepared in such a manner that each major item of subcontract work is shown as a single line item. 9.3 APPLICATION FOR PAYMENTS 9.3.1 ADD the following: The form of application for payment shall be AIA Document G702, Application and Certification for Payment, supported by AIA Document G702A, Continuation Sheet. ARTICLE TEN -- PROTECTION OF PERSONS AND PROPERTY: - -------------------------------------------------- No Change ARTICLE ELEVEN -- INSURANCE AND BONDS - ------------------------------------- 11.1.1.1 Delete the semicolon at the end of Clause 11.1.1.1 and add:, including private entities performing Work at the site and exempt from the coverage on account of number of employees or occupation, which entities shall maintain voluntary compensation coverage at the same limits specified for mandatory coverage for the duration of the Project. 78 11.1.1.2 Delete the semicolon at the end of Clause 11.1.1.2 and add: or persons or entities excluded by statute from the requirements of Clause 11.1.1.1 but required by the Contract Documents to provide the insurance required by that Clause; 11.1.1.8 Liability insurance shall include all major divisions of coverage and be on a comprehensive basis including: .1 Premises Operations (including X, C and U coverages as applicable). .2 Independent Contractor's Protective. .3 Products and Completed Operations. .4 Personal Injury Liability with Employment Exclusion deleted. .5 Contractual, including specified provision for Contractor's obligation under Paragraph 3.18. .6 Owned, non-owned and hired motor vehicles. .7 Broad Form Property Damage including Completed Operations. .8 Umbrella Excess Liability. 11.1.1.9 If the General Liability coverages are provided by a Commercial General Liability Policy on a claims-made basis, the policy date or Retroactive Date shall predate the Contract; the termination date of the policy or applicable extended reporting period shall be no earlier than the termination date of coverages required to be maintained after final payment, certified in accordance with Subparagraph 9.10.2. Add the following Clause 11.1.2.1 to 11.1.2: 11.1.2.1 The insurance required by Subparagraph 11.1.1 shall be written for not less than the following limits, or greater if required by law: (a) State: Statutory (b) Applicable Federal (e.g. Longshoremen's): Statutory (c) Employer's Liability: $100,000.00 per Accident $500,000.00 Disease, Policy Limit $500,000.00 Disease, Each Employee .2 Comprehensive or Commercial Liability (including Premises Operations; Independent Contractor's Protective; products and Combined Operations; Broad Form Property Damage): (a) Bodily Injury: $1,000,000.00 Occurrence $1,000,000.00 Aggregate (b) Property Damage: $1,000,000.00 Each Occurrence $1,000,000.00 Aggregate (c) Products and Completed Operations to be maintained for five years after final payment: $1,000,000.00 Aggregate (d) Property Damage Liability Insurance shall provide X, C and U coverage. (e) Broad Form Property Damage Coverage shall include Completed Operations. .3 Contractual Liability: (a) Bodily Injury: $1,000,000.00 Each Occurrence $1,000,000.00 Aggregate (b) Property Damage: $1,000,000.00 Each Occurrence $1,000,000.00 Aggregate 79 .4 Personal injury, with Employment Exclusion deleted: $1,000,000.00 Aggregate .5 Business Auto Liability (including owned, non-owned and hired vehicles): (a) Bodily Injury: $1,000,000.00 Each Occurrence $1,000,000.00 Aggregate (b) Property Damage: $1,000,000.00 Each Occurrence .6 If the General Liability coverages are provided by a Commercial Liability policy the: (a) General Aggregate shall be not less than $1,000,000.00 on any one fire. (b) Fire Damage Limit shall be not less than $1,000,000.00 on any one fire. (c) Medical Expense Limit shall be not less than $50,000.00 on any one person. .7 Umbrella Excess Liability: $5,000,000.00 over primary insurance. $10,000.00 retention for self-insured hazards each occurrence. 11.1.3 Add the following sentence to Subparagraph 11.1.3: The certificate shall be ACORD form 25S with AIA Document G715, Supplemental Attachment. 11.3 Property Insurance 11.3.1.1 Add the following sentence to Clause 11.3.1.1: The form of policy for this coverage shall be Completed Value. 11.3.1.3 Add the following sentence to Clause 11.3.1.3: This property insurance is written with a deductible of $10,000.00 per occurrence ($50,000.00 for flood damage) with a deductible aggregate of $10,000.00 ($50,000.00 for flood damage). Delete the first three sentences to Subparagraph 11.3.9 and substitute the following: 11.3.9 If required in writing by a party in interest, the Owner as fiduciary shall, upon occurrence to insured loss, deposit in a separate account proceeds so received, which the Owner shall distribute in accordance with such agreement as the parties in interest may reach, or in accordance with an arbitration award in which case the procedure shall be as provided in Paragraph 4.5. 11.4 Performance Bond and Payment Bond Delete Subparagraph 11.4.1 and substitute the following: 11.4.1 The Contractor shall furnish bonds covering faithful performance of the Contract and payment of obligations arising thereunder. Bonds may be obtained through the Contractor's usual source and the cost thereof shall be included in the Contract Sum. The amount of each bond shall be equal to 100 percent of the Contract Sum. 11.4.1.2 The Contractor shall require the attorney-in-fact who executes the required bonds on behalf of the surety to affix thereto a certified and current copy of the power of attorney. 80 ARTICLE TWELVE - UNCOVERING AND CORRECTION OF WORK: No Change ARTICLE THIRTEEN - MISCELLANEOUS PROVISIONS: 13.5 TESTS AND INSPECTIONS 13.5.6 ADD the following: The Contractor shall provide such equipment and facilities as the Architect may require for conducting field tests and for collecting and forwarding samples. The Contractor shall not use any material or equipment represented by samples found to be unacceptable. The Contractor shall give the Architect and testing laboratory timely notice for required tests. See specifications, Section 01400 for detailed procedures. ARTICLE FOURTEEN - TERMINATION OR SUSPENSION OF THE CONTRACT: No Change ARTICLE FIFTEEN - MEASUREMENTS: ADD this article: 15.1 Before ordering any material or doing any work, the Contractor shall verify all measurements at the project and shall be responsible for the correctness of same. No extra charge or compensation shall be allowed on account of difference between actual dimensions and the measurements indicated on the Drawings. Any difference which may be found shall be submitted to the Owner for consideration before proceeding with the work. The Architect and Owner shall not be responsible for scaling of Drawings. ARTICLE SIXTEEN - LEGAL ACTIONS: ADD this article: 16.1 As a condition precedent to and as additional consideration for the award of any contract or subcontract pursuant to these Specifications, the Contractor and all Subcontractors, suppliers, engineers, and other parties to the performance of the work required by these specifications, do agree that in the event any party institute a suit against any party because of any alleged failure to perform properly hereunder, or any alleged error, omission, breach of warranty, negligence or mere malpractice hereunder; and if such suit is not successfully prosecuted to a judgement in favor of the party plaintiff, or if it is dismissed, or if a judgement is rendered for any defendant or defendants, to the party instituting the suit hereby agrees to pay in full all actual costs of defense, including but not limited to attorney fees, expert witness fees, costs of investigations in preparation for trial, professional time expended by principals and employees of the prevailing party and that the same shall be taxed as cost in said action and judgement entered thereon. END OF SECTION EX-10.12 5 LOAN AGREEMENT 1 EXHIBIT 10.12 [BANK ONE LOGO] LOAN AGREEMENT
- ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS $3,700,000 05-01-1997 04-29-1998 410 - ----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - -------------------------------------------------------------------------------- Borrower: CONCEPTS DIRECT, INC. Lender: BANK ONE, COLORADO, N.A. A DELAWARE CORPORATION DOWNTOWN BOULDER BANKING CENTER 1351 SOUTH SUNSET BLVD. 2696 SOUTH COLORADO BLVD. LONGMONT, CO 80501 DENVER, CO 80222 ================================================================================ THIS LOAN AGREEMENT between CONCEPTS DIRECT, INC., A DELAWARE CORPORATION ("Borrower") and BANK ONE, COLORADO, N.A. ("Lender") is made and executed on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans and other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. All such loans and financial accommodations, together with all future loans and financial accommodations from Lender to Borrower, are referred to in this Agreement individually as the "Loan" and collectively as the "Loans." Borrower understands and agrees that: (a) In granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements, as set forth in this Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (c) all such Loans shall be and shall remain subject to the following terms and conditions of this Agreement. TERM. This Agreement shall be effective as of May 1, 1997, and shall continue thereafter until all indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Agreement. The word "Agreement" means this Loan Agreement, as this Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Loan Agreement from time to time. Advance. The word "Advance" means a disbursement of Loan funds under this Agreement. Borrower. The word "Borrower" means CONCEPTS DIRECT, INC., A DELAWARE CORPORATION. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates." Borrowing Base. The words "Borrowing Base" mean AS DESCRIBED IN EXHIBIT "A" ATTACHED. Business Day. The words "Business Day" mean a day on which commercial banks are open for business in the State of Colorado. CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. Collateral. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. The word "Collateral" includes without limitation all collateral described below in the section titled "COLLATERAL." Debt. The word "Debt" means all of Borrower's liabilities excluding Subordinated Debt. Event of Default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT." Expiration Date. The words "Expiration Date" mean the date of termination of Lender's commitment to lend under this Agreement. Grantor. The word "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, including without limitation all Borrowers granting such a Security Interest. Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with an Indebtedness. Indebtedness. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter exiting, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such Indebtedness may be or hereafter may become barred by any statute or limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable. Inventory. The word "Inventory" means all of Borrower's raw materials, work in process, finished goods, merchandise, parts and supplies, of every kind and description, and goods held for sale or lease or furnished under contracts of service in which Borrower now has or hereafter acquires any right, whether held by Borrower or others, and all documents of title, warehouse receipts, bills of lading, and all other documents of every type covering all or any part of the foregoing. Inventory includes inventory temporarily out of Borrower's custody or possession and all returns on Accounts. Lender. The word "Lender" means BANK ONE, COLORADO, N.A., its successors and assigns. Line of Credit. The words "Line of Credit" mean the facility described in the Section titled "LINE OF CREDIT" below. Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus Borrower's readily marketable securities. Loan. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Note. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. Permitted Liens. The words "Permitted Liens" mean: (a) liens and security interests securing indebtedness owed by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. 2 04-29-1997 LOAN AGREEMENT Page 2 Loan No (Continued) ================================================================================ Security Interest. The words "Security Interest" mean and include without limitation any type of collateral security, wether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. Subordinated Debt. The words "Subordinated Debt" mean indebtedness and liabilities of Borrower which have been subordinated by written agreement to indebtedness owned by Borrower to Lender in form and substance acceptable to Lender. Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total Debt. Working Capital. The words "Working Capital" mean Borrower's current assets, less Borrower's current liabilities. LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time from the date of this Agreement to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base. Within the foregoing limits, Borrower may borrow, partially or wholly prepay, and reborrow under this Agreement as follows. Conditions Precedent to Each Advance. Lender's obligation to make any Advance to or for the account of Borrower under this Agreement is subject to the following conditions precedent, with all documents, instruments, opinions, reports, and other items required under this Agreement to be in form and substance satisfactory to Lender: (a) Lender shall have received evidence that this Agreement and all Related Documents have been duly authorized, executed, and delivered by Borrower to Lender. (b) Lender shall have received such opinions of counsel, supplemental opinions, and documents as Lender may request. (c) The security interests in the Collateral shall have been duly authorized, created, and perfected with first lien priority and shall be in full force and effect. (d) All guaranties required by Lender for the Line of Credit shall have been executed by each Guarantor, delivered to Lender, and be in full force and effect. (e) Lender, at its option and for its sole benefit, shall have conducted an audit of Borrower's Inventory, books, records, and operations, and Lender shall be satisfied as to their condition. (f) Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable. (g) There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement, and Borrower shall have delivered to Lender the compliance certificate called for in the paragraph below titled "Compliance Certificate." Making Loan Advances. Advances under the credit facility, as well as directions for payment from Borrower's accounts, may be requested orally or in writing by authorized persons. Lender may, but need not, require that all oral requests be confirmed in writing. Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of Borrower (a) when credited to any deposit account of Borrower maintained with Lender or (b) when advanced in accordance with the Instructions of an authorized person. Lender, at its option, may set a cutoff time, after which all requests for Advances will be treated as having been requested on the next succeeding Business Day. Mandatory Loan Repayments. If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, Borrower, immediately upon written or oral notice from Lender, shall pay to Lender an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid principal amount of all Advances then outstanding and all accrued unpaid interest, together with all other applicable fees, costs and charges, if any, not yet paid. Loan Account. Lender shall maintain on its books a record of account in which Lender shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facility. Lender shall provide Borrower with periodic statements of Borrower's account, which statements shall be considered to be correct and conclusively binding on Borrower unless Borrower notifies Lender to the contrary within thirty (30) days after Borrower's receipt of any such statement which Borrower deems to be incorrect. COLLATERAL. To secure payment of the Line of Credit and performance of all other Loans, obligations and duties owed by Borrower to Lender, Borrower (and others, if required) shall grant to Lender Security Interests in such property and assets as Lender may require (the "Collateral"), including without limitation Borrower's present and future Inventory, Lender's Security Interests in the Collateral shall be continuing liens and shall include the proceeds and products of the Collateral, including without limitation the proceeds of any insurance. With respect to the Collateral, Borrower agrees and represents and warrants to Lender. Perfection of Security Interests. Borrower agrees to execute such financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's Security Interests in the Collateral. Upon request of Lender, Borrower will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Borrower will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Contemporaneous with the execution of this Agreement, Borrower will execute one or more UCC financing statements and any similar statements as may be required by applicable law, and will file such financing statements and all such similar statements in the appropriate location or locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue any Security Interest. Lender may at any time, and without further authorization from Borrower, file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement. Borrower will reimburse Lender for all expenses for the perfection, termination, and the continuation of the perfection of Lender's security interest in the Collateral. Borrower promptly will notify Lender of any change in Borrower's name including any change to the assumed business names of Borrower. Borrower also promptly will notify Lender of any change in Borrower's Social Security Number or Employer Identification Number. Borrower further agrees to notify Lender in writing prior to any change in address or location of Borrower's principal governance office or should Borrower merge or consolidate with any other entity. Collateral Records. Borrower does now, and at all times hereafter shall, keep correct and accurate records of the Collateral, all of which records shall be available to Lender or Lender's representative upon demand for inspection and copying at any reasonable time. With respect to the Inventory, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Inventory and records itemizing and describing the kind, type, quality, and quantity of inventory, Borrower's Inventory costs and selling prices, and the daily withdrawals and additions to Inventory. Collateral Schedules. Concurrently with the execution and delivery of this Agreement, Borrower shall execute and deliver to Lender a schedule of Inventory and Eligible Inventory, in form and substance satisfactory to the Lender. Thereafter and at such frequency as Lender shall require, Borrower shall execute and deliver to Lender such supplemental schedules of Eligible Inventory specifying the value thereof, and such other matters and information relating to Borrower's Inventory as Lender may request. Representations and Warranties Concerning Inventory. With respect to the Inventory, Borrower represents and warrants to Lender; (a) All Inventory represented by Borrower to be Eligible Inventory for purposes of this Agreement conforms to the requirements of the definition of Eligible Inventory; (b) All Inventory values listed on schedules delivered to Lender will be true and correct, subject to immaterial variance; (c) The value of the Inventory will be determined on a consistent accounting basis; (d) Except for bulk paper label stock at printers and as agreed to the contrary by Lender in writing, all Eligible Inventory is now and at all times hereafter will be in Borrower's physical possession and shall not be held by others on consignment, sale on approval, or sale or return; (e) Except as reflected in the Inventory schedules delivered to Lender, all Eligible Inventory is now and at all times hereafter will be of good and merchantable quality, free from detects; (f) Eligible Inventory is not now and will not at any time hereafter be stored with a bailee, warehouseman, or similar party without Lender's prior written consent, and, in such event, Borrower will concurrently at the time of bailment cause any such bailee, warehouseman, or similar party to issue and deliver to Lender, in form acceptable to Lender, warehouse receipts in Lender's name evidencing the storage of Inventory; and (g) Lender, its assigns, or agents shall have the right at any time and at Borrower's expense to inspect and examine the Inventory and to check and test the same as to quality, quantity, value, and condition. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: Organization. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the State of Delaware and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. Authorization. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower, do not require the consent or approval of any other person, regulatory authority or governmental body, and do not conflict with, result in a violation of, or constitute a default under (a) any 3 04-29-1997 LOAN AGREEMENT Page 3 Loan No (Continued) - ------------------------------------------------------------------------------- provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. Financial Information. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. Legal Effect. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. Properties. Except for Permitted Liens, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. Hazardous Substances. The terms "hazardous waste." "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA"" SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 5901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing. Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, about or from any of the properties. (b) Borrower has no knowledge of, or reason to believe that there has been (ii) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance on, under, about or from the properties by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, about or from any of the properties: and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its Agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Borrower's ownership or interest in the properties, whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure of otherwise. Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes ) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claim, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. Taxes. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be fixed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in writing. Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. Binding Effect. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. Commercial Purposes. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. Employee Benefit Plans. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan. (ii) Borrower has not withdrawn from any such plan or initiated steps to do so. (iii) no steps have been taken to terminate any such plan, and (iv) there are no unfunded liabilities other than those previously disclosed to Lender in writing. Location of Borrower's Offices and Records. Borrower's place of business, or Borrower's Chief executive office, if Borrower has more than one place of business, is located at 1351 SOUTH SUNSET BLVD., LONGMONT, CO 80501. Unless Borrower has designated otherwise in writing this location is also the office or offices where Borrower keeps its records concerning the Collateral. Information. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. Survival of Representations and Warranties. Borrower understands and agrees that Lender, without independent investigating, is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: Litigation. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. Financial Records. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. Financial Statements. Furnish Lender with, as soon as available, but in no event later than one hundred twenty (120) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender, and, as soon as available, but in no event later than forty five (45) days after the end of each month, Borrower's balance sheet and profit and loss statement for the period ended, prepared and certified as correct to the best knowledge and belief by Borrower's chief financial officer or other officer or person acceptable to Lender. All financial reports required to be provided under this Agreement shall be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. Additional Information. Furnish such additional information and statements, lists or assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. Financial Covenants and Ratios. Comply with the following covenants and ratios: Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net Worth of less than 2.25 to 1.00. Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained and the manner of 4 04-29-1997 LOAN AGREEMENT Page 4 Loan No. (Continued) ================================================================================ determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income, or profits. Performance. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. Operations. Maintain executive officers with substantially the same qualifications and experience as the present executive officers; provide written notice to Lender of any change in executive officers, conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a thirty party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. Compliance Certificate. Unless waived in writing by Lender, provide Lender MONTHLY and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: Indebtedness and Liens. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, INCLUDING ADDITIONAL LOANS TO FINANCE DEVELOPMENT OF REAL ESTATE NOT OCCUPIED BY BORROWER, AND including capital leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except to Lender. Continuity of Operations. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended). Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt, (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender. EXHIBIT "A". An exhibit, titled "EXHIBIT "A"," is attached to this Agreement and by this reference is made a part of this Agreement just as if all the provisions, terms and conditions of the Exhibit had been fully set forth in this Agreement. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Default on Indebtedness. Failure of Borrower to make any payment when due on the Loans. Other Defaults. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason. Insolvency. The dissolution or termination of Borrower's assistance as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any 5 04-29-1997 LOAN AGREEMENT Page 5 Loan No (Continued) =============================================================================== proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrower's deposit accounts with Lender. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lender's option, all indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Agreement has been delivered to Lender and accepted by Lender in the State of Colorado. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of BOULDER County, the State of Colorado. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. Costs and Expenses. Borrower agrees to pay upon demand all of Lender's expenses, including without limitation attorneys' fees, incurred in connection with the preparation, execution, enforcement, modification and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile, and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower will keep lender informed at all times of Borrower's current address(es). Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower. Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival. All warranties, representations, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf. Time Is of the Essence. Time is of the essence in the performance of this Agreement. Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any obligations of Borrower or of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender. 6 04-29-1997 LOAN AGREEMENT Page 6 Loan No (Continued) =============================================================================== BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF APRIL 29, 1997. BORROWER: CONCEPTS DIRECT INC., A DELAWARE CORPORATION By: /s/ H. Franklin Marcus, Jr. ------------------------------------------------ H. FRANKLIN MARCUS, JR., CHIEF FINANCIAL OFFICER LENDER: BANK ONE, COLORADO, N.A. By: /s/ [Signature Unreadable] ------------------------------------------------ Authorized Officer =============================================================================== 7 EXHIBIT "A" - ------------------------------------------------------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $2,000,000.00 05 01 1997 04 29 1998 410 - -------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - -------------------------------------------------------------------------------- Borrower: CONCEPTS DIRECT, INC., A DELAWARE CORPORATION 1351 SOUTH SUNSET BLVD. LONGMONT, CO 80501 Lender: BANK ONE, COLORADO, N.A. DOWNTOWN BOULDER BANKING CENTER 2696 SOUTH COLORADO BLVD. DENVER, CO 80222 ================================================================================ This EXHIBIT "A" is attached to and by this reference is made a part of each Business Loan Agreement or Negative Pledge Agreement, dated April 29, 1997, and executed in connection with a loan or other financial accommodations between BANK ONE, COLORADO, N.A. and CONCEPTS DIRECT, INC., A DELAWARE CORPORATION. The following borrowing base will apply to the $1,000,000.00 loan facility for catalog stock paper purchases: The lesser of (a) $1,000,000.00 or, (b) 50.00% of raw paper stock inventory. The following advance rate will apply to the $700,000.00 loan facility for equipment and furniture acquisitions: Up to $700,000.00, based on Lender approved purchases of equipment and furniture at 80.00% of cost. ADDITIONAL AFFIRMATIVE COVENANTS. FINANCIAL STATEMENTS. In addition to the requirements set forth in the Loan Agreement under the paragraph entitled "Financial Statements" Borrower will furnish Lender with (a) as soon as available, but in no event later than 120 days after the end of each fiscal year, Borrower's 10-K for the year ended, (b) within 45 days after the end of each quarter, Borrower's quarterly financial statements prepared as form 10-Q, and (c) within 45 days after the end of each month, a Borrowing Base and Compliance Certificate. FINANCIAL COVENANTS AND RATIOS. In addition to the covenants and ratios set forth in the Loan Agreement under the paragraph entitled "Financial Covenants and Ratios", borrower will comply with the following: TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of $6,000,000.00 prior to December 31, 1997 and $7,000,000.00 on December 31, 1997 and thereafter. CURRENT RATIO. Maintain a ratio of Current Assets to Current Liabilities in excess of 1.10 to 1.00 prior to December 31, 1997 and 1.25 to 1.00 on December 31, 1997 and thereafter. DEBT SERVICE COVERAGE RATIO. Show a ratio of Net Income plus Depreciation and Interest Expense for the fiscal year ended divided by Current Maturities of Long Term Debt Repaid and Interest Expense Incurred for the fiscal year ended greater than or equal to 1.3:1. THIS EXHIBIT "A" IS EXECUTED ON MAY 1, 1997. BORROWER: CONCEPTS DIRECT, INC., A DELAWARE CORPORATION By: /s/ H. Franklin Marcus, Jr. ------------------------------------------------ H. FRANKLIN MARCUS, JR., CHIEF FINANCIAL OFFICER LENDER: BANK ONE, COLORADO, N.A. By: /s/ [Signature Unreadable] ------------------------------------------------ Authorized Officer ================================================================================ EX-23.1 6 CONSENT OF ERNST & YOUNG, LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial and Operating Data" and "Experts" and to the use of our report dated January 31, 1997 except for Note 7 as to which the date is February 25, 1997, in the Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 and related Prospectus of Concepts Direct, Inc. dated June 3, 1997. ERNST & YOUNG LLP Denver, Colorado June 2, 1997 -----END PRIVACY-ENHANCED MESSAGE-----