-----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, VrSr1unCgbXlh9ohGPpN1KrzKtculE0iGgi2i4i1vf0p3DVnFEZbWXh9MozMxTwN ZZ6QRxxyDPUHzLDDxgDy0g== 0000898430-97-004077.txt : 19970930 0000898430-97-004077.hdr.sgml : 19970930 ACCESSION NUMBER: 0000898430-97-004077 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JAVELIN SYSTEMS INC CENTRAL INDEX KEY: 0001021917 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 521945748 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-21477 FILM NUMBER: 97686893 BUSINESS ADDRESS: STREET 1: 1881 LANGLEY AVE CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 7142235130 MAIL ADDRESS: STREET 1: JAVELIN SYSTEMS, INC STREET 2: 2882 C WALNUT AVENUE CITY: TUSTIN STATE: CA ZIP: 92786 10KSB 1 FORM 10KSB U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NO. JUNE 30, 1997 000-21477 JAVELIN SYSTEMS, INC. (Name of Small Business Issuer in its Charter) DELAWARE 52-1945748 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1881 Langley Avenue, Irvine, California 92614 (Address of Principal Executive Offices)(Zip Code) Issuer's telephone number: (714) 223-5130 Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.01 Par Value - -------------------------------------------------------------------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Check if there is no disclosure of delinquent filers in response to Item 405 of regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [_] The issuer's revenues for the fiscal period ended June 30, 1997 were $7,014,571. The aggregate market value of the voting stock held by non-affiliates of the issuer as of August 29, 1997, was $7,650,000. Shares of common stock held by each officer and director and by each person who owns 5% or more of the outstanding common stock of the Company have been excluded because such persons may be deemed to be affiliates. The total number of shares outstanding of the Issuer's Common Stock was 3,020,650 as of August 29, 1997. - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Issuer's definitive Proxy Statement to be filed with the Commission pursuant to Regulation 14A in connection with the Issuer's 1997 Annual Meeting of Stockholders is incorporated herein by reference into Part III of this report. JAVELIN SYSTEMS, INC. FORM 10-KSB YEAR ENDED JUNE 30, 1997 TABLE OF CONTENTS
Item Number Page ------ ---- PART I 1. Description of Business.................................................................. 1 2. Description of Property.................................................................. 11 3. Legal Proceedings........................................................................ 11 4. Submission of Matters to a Vote of Security Holders...................................... 11 PART II 5. Market for Common Equity and Related Stockholders Matters................................ 12 6. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 14 7. Financial Statements..................................................................... 16 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..... 16 PART III 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act....................................................... 17 10. Executive Compensation................................................................... 17 11. Security Ownership of Certain Beneficial Owners and Management........................... 17 12. Certain Relationships and Related Transactions........................................... 17 PART IV 13. Exhibits, Lists and Reports on Form 8-K.................................................. 17 Signatures............................................................................... 19 Power of Attorney........................................................................ 20
This Annual Report on Form 10-KSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends that such statements shall be protected by the safe harbors provided for in such sections. Such statements are subject to risks and uncertainties that could cause actual results to vary materially from those projected in the forward- looking statements. The Company may experience significant fluctuations in future operating results due to a number of economic, competitive, governmental and technological factors, including, among other things, changes in laws, the size and timing of customer orders, new or increased competition, delays in new product enhancements and new product introductions, quality control difficulties, changes in market demand, market acceptance of new products, product returns and seasonality in product purchases by distributors. Any of these factors, or others, could cause operating results to vary significantly from those in prior periods, and those projected in the forward-looking statements. Additional information with respect to these and other factors which could materially affect the Company and its operations is included in the Company's filings with the Securities and Exchange Commission, including the Registration Statement on Form SB-2 dated October 25, 1996 and any subsequent filings. PART I ITEM 1. DESCRIPTION OF BUSINESS. GENERAL Javelin Systems, Inc. (the "Company") designs, develops, markets and sells open system touch screen point-of-sale ("POS") computers targeted to the foodservice and retail industries and the information kiosk markets. The Company's family of network-ready computers integrate substantially all of the functionality of a standard desktop PC into a small footprint, family of systems that run on industry standard operating systems, such as Microsoft's DOS, Windows, Windows 95 and Windows NT. The Company's open systems provide quick service restaurants ("QSRs"), full service restaurants and hospitality and retail establishments with a hardware solution for transaction processing, in- store controls and management information. The Company's systems are sealed to protect against liquid and other foreign matter entering the interior electronic chamber. The Company's systems are currently being marketed by a number of original equipment manufacturers ("OEMs") and value added resellers ("VARs", and collectively with OEMs, "Resellers"). The Company believes it has achieved a strategic advantage by introducing high performance, network ready systems that can utilize off-the-shelf, industry-specific application software developed by its Resellers and niche market software developers. The foodservice industry, which provided 70 percent of the Company's fiscal 1997 revenues, is divided into four major foodservice market segments: QSRs, full-service restaurants, hotel restaurants, and noncommercial foodservice. According to Restaurant Consulting Group, Inc. ("RCG"), an Illinois-based research firm, the total number of restaurants in the United States as of the Spring of 1995 was 394,420. The Company is primarily a supplier to the QSR and full-service restaurant segments and intends to increase its penetration into the hotel restaurant and noncommercial foodservice segments. The Company's products are primarily distributed through strategic relationships with Resellers. Over 90% of the Company's net sales were within the United States during the fiscal years ended June 30, 1996 and June 30, 1997. The Company was incorporated in the State of Delaware on September 19, 1995 and commenced shipments of its products in December 1995. INDUSTRY OVERVIEW While PC-based systems have become the standard platform in many industries, the foodservice POS industry can be characterized as a unique vertical market that has not kept pace with the technological developments and productivity gains associated with using open systems. Until recently, the solutions provided by foodservice POS vendors have been of proprietary design and high cost. This is particularly true of some major providers of POS systems whose hardware will only operate with the software they provide. The Company believes the foodservice industry is in the beginning of its transition to PC- based systems. 1 The Company believes that the foodservice POS industry provides a major market opportunity because of the scope of the overall restaurant industry and the current shift towards open systems restaurant management software developed for Microsoft operating systems and hardware that uses Intel or similar microprocessors. In responding to this market shift, the Company has elected to focus its efforts on the development and sale of open system PC-based hardware for the foodservice POS industry. MARKET SEGMENTS. The Company targets the following market segments: Quick Service Restaurants. This market is the largest segment within the foodservice industry with approximately 206,000 units in the United States as of the Spring of 1995 according to RCG. The fast food restaurants were generally the first to accept the latest touch screen technology like the NexDisplay-4. The Company's products have been sold by its Resellers to certain Taco Bell, Blimpies, Claim Jumper, Chart House and Kenny Rogers Roasters restaurants. Full Service Restaurants. According to RCG, this segment represented approximately 111,000 units in the United States as of the Spring of 1995. The Company has found this segment to be more price sensitive and more likely to adopt technology later in the product life cycle. The Company's product has been accepted in this market in head-to-head challenges with similar featured products from Micros Systems, Inc. ("Micros") and International Business Machines ("IBM"). The Company's products have been sold by its Resellers to certain Chart House, Claim Jumper and Billboard Cafe restaurants, and to the American Culinary Institute. Hotel Restaurants. According to Technomic, Inc., an Illinois-based foodservice market research firm, this segment represented approximately 20,260 units in the United States in 1995. The Company believes that the casino, theme park, and cruise line industries are potential growth areas within this segment. Kiosks. The Company has been introduced to the fast-growing, evolving information kiosk market by its vertical market software integrators who found the Company's flexible touch screen computers ideally suited for the many environments in which information kiosks are located. Currently the Company's NexDisplay touch screen computers are installed in a prestigious hotel chain providing Internet access to hotel guests, and are also being used in an automated ticketing application for a well-known museum as well as in an automated reservation system in a sports milieu. The information kiosk market potential is the subject of ongoing market research. Industrial Process Control. The Company's product is being utilized as an operator interface by Mitsubishi/Siltec, a leading supplier of manufacturing equipment to the semiconductor industry. The market potential for the Company's products in this segment is currently the subject of a market research study by the Company. PRODUCTS NexDisplay-4 The NexDisplay-4 is a small footprint, high performance color touch screen computer. Unlike standard off-the-shelf PC products, the NexDisplay-4 has been designed and manufactured for harsh environments and optimized with features required by the foodservice industry, such as an integrated customer display. As a result of the product's inherent flexibility and rugged design, it is being successfully marketed and sold as a POS workstation, a customer activated system, and as an industrial operator interface. NexDisplay-P The NexDisplay-P, believed by the Company to be the first fully integrated, Pentium-based touch screen computer, was announced in March of 1997 and shipped in June 1997. NexDisplay-P provides end users the ability to dramatically increase speed and performance when using graphically intensive POS applications that operate in Windows 95 and Windows NT environments. 2 NexDisplay-LC The NexDisplay-LC is a small footprint, fully-integrated network computer. NexDisplay-LC has a footprint of less than eight square inches and supports both 10.4 and 12.1 inch touch screen displays. This versatile system can be wall- mounted, fixed to an adjustable base or attached to an articulated arm. The Company believes the NexDisplay-LC is well suited to meet the needs of the foodservice, retail, industrial and information kiosk vertical markets because of its size, flexibility and rugged design. PRODUCT DISTRIBUTION The Company's products are primarily distributed through strategic relationships with OEMs and VARs. These Resellers typically provide installation, support and service directly to their customers. By distributing its products through Resellers, the Company has been able to take advantage of the existing name recognition and market position of its Resellers and reach a broader market for its products while minimizing expenditures for direct sales, marketing, technical support and service. The Company intends to continue to distribute its products through Resellers and intends to expand its national and international distribution network by using the following channels: Original Equipment Manufacturers (OEMs) The Company currently sells its products to OEMs with significant market presence in the foodservice and specialty retail industries. The Company's current OEMs include Hospitality Systems, Inc., POSNET Computers, Inc., Riva Technologies, Siemens Nixdorf Information Systems Retail Americas Group, and Omron Systems of America Inc. The OEMs market the Company's products under their own names and sell either through dealers or directly. Because of the high likelihood of the Company's product being offered by more than one OEM into an end user account, the Company offers the OEM an opportunity to choose its own customized design. The OEM is charged for mechanical design, prototyping, and tooling. Sales to OEMs represented approximately 30% of the Company's net sales during the fiscal year ended June 30, 1997. One of the Company's principal strategies is to expand the OEM distribution channel both domestically and internationally. Value Added Resellers (VARs) The Company also sells its products to VARs who integrate industry-specific software with the Company's hardware product for resale into various vertical markets. The Company works closely with these VARs as well as the various software developers to stay abreast of the diversified needs of the Company's targeted markets. By the end of fiscal 1997, the Company had expanded its network from 125 to 250 VARs. The Company believes that VAR distribution channels are advantageous to the Company as they generally have existing geographically diverse customers, focus their businesses on providing customized solutions to their customers and maintain their own sales and technical support staff. The Company has entered into a multi-year distribution agreement with ScanSource, Inc., the nation's largest distributor of POS solutions to VARs. This agreement greatly expanded the Company's efforts to broaden the availability and acceptance of its NexDisplay family of products. During the fiscal year ended June 30, 1996 sales of the Company's products to two customers accounted for approximately 54% of the Company's net sales. During the fiscal year ended June 30, 1997 sales of the Company's products to two customers accounted for approximately 16% each of the Company's net sales. Sales were not to the same major customers in 1996 and 1997. MARKETING AND SALES The Company's marketing and sales staff, primarily located at the Company's Irvine, California office, is responsible for the development and support of the Company's domestic and international distribution network. The sales staff is augmented by one independent sales representative. Commissions to sales representatives are negotiated on a customer-by-customer basis and the Company has no long term agreements with any of its sales 3 representatives. The Company intends to expand its sales force to a total of five salespersons in 1998, each of whom will be given regional responsibilities but will be based out of the Company's executive offices located in Irvine, California. The Company maintains a computerized order entry system at its Irvine office to track incoming orders and orders in process. The Company sells to a technically sophisticated customer base of OEMs and VARs that is expected to handle most technical problems without reliance on the Company, thereby reducing the need for the Company to maintain a large in-house technical support staff. The Company's technical support staff currently consists of two people responsible for telephonic support and return merchandise authorization. The Company expects that an increased volume of sales will place an increased burden on its technical support staff and intends to add at least one more technician in 1998. The Company consults with the Company's Resellers to assist in identifying potential product enhancements, new product development and potential new markets. The Company believes that this marketing feedback is a critical component in the Company's ability to maintain its competitive edge in terms of rapid and seamless design innovation as well as maintaining its time-to-market advantage for product enhancements and new products. The Company currently markets its products with a Company brochure and participates in trade shows both in the United States and abroad. The Company also focuses on additional methods to promote its products, including product refinement, new product introduction and competitive pricing, all with the goal of increasing the distribution of the Company's products. SOURCES OF MANUFACTURING AND QUALITY ASSURANCE The Company's motherboards are manufactured by third party contract manufacturers located in Hong Kong and California. The Company imports some of the motherboards utilized in its products from Sunwood Services Limited ("Sunwood"), a Hong Kong-based company owned by John R. Amos, a founder and stockholder of the Company, under purchase orders submitted from time to time. The Company also uses other United States-based manufacturers capable of manufacturing the Company's motherboard. In addition, the Company purchases its LCD displays from All American, a distributor located in California. The Company has no written long term contracts with the manufacturers of its products or with any suppliers of the components used in the Company's products. Moreover, the Company historically has placed orders for products and components based on its projected sales over the next approximately 90 days and does not normally have binding purchase orders for products at the time it places its orders with its manufacturers and suppliers. Consequently, the Company is subject to significant risk if actual sales of its products do not approximate its projected sales. To date, the Company has not experienced any material delays in the delivery of its products or components; however, delivery schedules are subject to various factors beyond the control of the Company and any delays in the future could adversely affect the Company's results of operations. The Company currently maintains an approximately 45 to 50-day supply of products in its inventory. However, the Company believes that a 60- day supply is more desirable, and the Company intends to increase its inventory of products. Because the Company orders components and has products manufactured in advance of binding commitments for the sale of its products, and because the Company does not have firm contracts with any of its Resellers providing for a minimum purchase requirement, no assurance can be given that the Company will be able to continue to appropriately match its inventory levels to its actual sales in the future. The principal components that make up the Company's products are standard electronics available from a wide variety of suppliers. Certain of the components utilized in the Company's products, however, are currently provided by a single supplier. The Company believes that, with respect to these components, there are a number of alternative suppliers that could supply components that could be integrated into the Company's products without any significant interruption in the Company's operations. No assurance can be given, however, that the Company will be able to successfully obtain alternative sources of supply for all of its components, or that the Company will be able to redesign its products on an appropriate timetable to incorporate alternative components. Any significant interruption in the supply of components could have a material adverse effect on the Company's results of operations and financial condition. The Company designs all of the hardware sub-assemblies used in its products and employs the services of an ISO 9000 certified manufacturer to build and test these sub-assemblies. Final assembly, configuration and 4 testing of the Company's products is performed by the Company which utilizes burn-in, automated testing and comprehensive inspection to assure the quality of the finished products. The Company also conducts ongoing reliability testing to ensure that all products meet the reliability requirements of its customers. The Company's manufacturing operations consist of the procurement of components and the assembly, testing and quality assurance of finished goods for shipment to its customers. The principal components that make up the Company's products are standard electronics available from a known variety of suppliers. BACKLOG As of June 30, 1997, the Company did not have any significant backlog. COMPETITION The market for the Company's products is highly competitive and the Company expects this competition to increase as open systems architecture becomes more common. The principal elements of the competition in the Company's markets include product features and performance, price, quality and reliability, brand awareness, compatibility with open systems, accuracy of touch screen input, quality of display and level of customer service. The Company's products compete with a number of products designed to provide user friendly touch screen workstations. Most of the Company's competitors, as well as certain potential competitors, are more established, benefit from greater name recognition, have significantly greater financial, production and marketing resources, and have more established distribution networks than the Company. The Company believes its use of open systems architecture and time to market advantage are important competitive elements. Several of the Company's competitors currently also offer open systems and the Company believes that the number of competitors offering open systems solutions will grow over the next several years. In order to effectively compete against these competitors, the Company will need to continue its growth and attain sufficient revenues to have the resources for the timely development of new products in response to evolving technology and customer demands and to sell products through a broad distribution channel in competition with these other existing and potential competitors. No assurance can be given that the Company will be able to grow sufficiently to enable it to compete effectively in this marketplace. The Company's competitors include a substantial number of large well- established companies including IBM, Micros, PAR Technology Corporation, National Cash Register ("NCR"), Panasonic and Olivetti, each of which also offers open systems architecture. Although the Company believes that it currently has a competitive advantage with respect to these competitors from a technological and cost standpoint, including compatibility with open systems, there can be no assurance that the Company will be able to maintain its competitive advantage or that these existing substantial competitors, or new competitors, will not develop competitive products utilizing open systems architecture and with favorable pricing. There can be no assurance that the Company will be able to successfully compete in this marketplace or develop sufficient new products to remain competitive, and any failure to do so could have a material adverse effect on its results of operations and financial condition. GOVERNMENTAL REGULATION The Company's operations are subject to a number of federal, state and local laws relating to health, safety and labor matters. The Company believes its business is operated in substantial compliance with all material applicable government regulations. There can be no assurance that future regulations will not require the Company to modify its products, business or operations to meet health, safety or labor requirements, or that the Company will be able, for financial or other reasons, to comply with such future requirements. Failure to comply with future governmental regulations could subject the Company to fines and injunctions, which could result in a material adverse effect on the Company's results of operations and financial condition. Although the Company is not aware of any claim involving violation of health, safety or labor laws or regulations, there can be no assurance that such claim may not arise in the future, which may have a material adverse effect on the Company. 5 INTELLECTUAL PROPERTY The Company relies on nondisclosure agreements to protect its intellectual property. The Company holds no patents and believes that its competitive position is not materially dependent upon patent protection. The Company believes that most of the current technology used in the design and manufacture of most of the Company's products is generally known and available to others. EMPLOYEES As of June 30, 1997, the Company had approximately 35 full-time employees, including 4 employed in sales and marketing, 25 employed in research and development, engineering, technical support and production, and 6 employed as administrative and support staff. None of the Company's employees are represented by unions and the Company considers its employee relations to be good. RESEARCH AND DEVELOPMENT For the fiscal years ended June 30, 1997 and June 30, 1996, the Company spent approximately $396,000 and $47,000, respectively, on research and development. RISK FACTORS Lack of Operating History The Company was incorporated in September 1995 and commenced shipment of its initial products in December 1995. Consequently, the Company has a limited operating history upon which an evaluation of the Company and its prospects can be based. Because of the Company's limited operating history, the Company's prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies with a limited operating history. To address these risks, the Company must, among other things, continue to attract, retain and motivate qualified personnel, continue to develop and improve its technologies and products and continue to expand its customer base and distribution network. There can be no assurance that the Company will be successful in addressing such risks. Moreover, because of the limited time Company has been in operation, there can be no assurance that the Company will be able to successfully market its products over an extended period of time. History of Operating Losses; Continued Profitability Uncertain From September 1995 through the present, the Company has expended significant resources in developing its technologies and products and establishing distribution channels for its products, which has resulted in the Company incurring a net loss of approximately $827,000 (which included a non- cash interest expense of approximately $636,000 related to the issuance of certain private placement warrants) for the fiscal year ended June 30, 1997. There can be no assurance that the Company will be able to realize sufficient revenues in the future to sustain profitable operations. Evolving Technology and Market The POS computer industry is characterized by evolving technology and industry standards. The Company's touch screen computers presently consist of the NexDisplay-4, the NexDisplay-P and the NexDisplay-LC, which are sold in various configurations to meet the needs of the Company's customers. The Company is in the process of developing additional touch screen computers and intends to introduce several new products during the fiscal year ending June 30, 1998, although no assurance can be given that the Company will be successful in developing any new products. The Company's success will depend, in part, on its ability to maintain and enhance its existing products and broaden its product offerings by developing and introducing new products that keep pace with technological developments in a cost effective manner, respond to evolving customer preferences and requirements and achieve market acceptance. Lack of market acceptance for the Company's existing or new products, the 6 Company's failure to introduce new products in a timely or cost-effective manner or the Company's failure to achieve a technological advantage over its competition while also remaining price competitive, could materially adversely affect the Company's results of operations and financial condition. There can be no assurance that the Company will be successful in its product development efforts. In addition, there can be no assurance that the Company's products, even if successfully developed, will achieve timely market acceptance. Moreover, the introduction of products embodying new technology and the emergence of new industry standards could render the Company's existing products obsolete and unmarketable. The Company's future success will depend on its ability to continue to develop and manufacture new competitive products and to enhance its existing products, both of which will require continued investment in engineering and product development. The success of product enhancements and new products depends on a variety of factors, including product selection and specification, timely and efficient completion of product design, cost-effective implementation of the manufacturing and assembly processes and effective sales and marketing efforts. There can be no assurance that the Company will be able to successfully manage all of the diverse aspects of successful new product development in order to develop and maintain competitive products. Competition The market for the Company's products is highly competitive, and the Company expects this competition to increase as open systems architecture in its targeted industries becomes more common. The principal elements of competition in the Company's markets include product features and performance, price, quality and reliability, brand awareness, compatibility with open systems, accuracy of touch screen input, quality of display, and level of customer service. The Company's products compete with a number of products designed to provide user friendly touch screen workstations. Most of the Company's competitors, as well as certain potential competitors, are more established, benefit from greater name recognition, have significantly greater financial, technological, production and marketing resources, and have more extensive distribution networks than the Company. The Company believes its use of open systems architecture in its targeted industries is an important competitive element. Several of the Company's competitors currently also offer open systems and the Company believes that the number of competitors offering open systems solutions will grow over the next several years. The Company anticipates that a significant source of such future competition may be from existing competitors in the POS market that the Company believes are currently attempting to develop POS systems utilizing open systems architecture. Due to the greater sales, marketing, product development and financial resources of the Company's competitors, the Company anticipates that competition from these competitors will intensify in the future. In order to effectively compete against these competitors, the Company will need to continue its growth trend and attain sufficient revenues to have the resources to timely develop new products in response to evolving technology and customer demands and to sell products through a broad distribution channel in competition with these other existing and potential competitors. No assurance can be given that the Company will be able to grow sufficiently to enable it to compete effectively in this marketplace. The Company's competitors include a substantial number of large well- established companies including IBM, Micros, PAR Technology Corporation, NCR, Panasonic and Olivetti, each of which also offers open systems architecture. Although the Company believes that it currently has a competitive advantage with respect to these competitors from a technological and cost standpoint, including compatibility with open systems, there can be no assurance that the Company will be able to maintain its competitive advantage or that these existing substantial competitors, or new competitors, will not develop competitive products utilizing open systems architecture and with favorable pricing. Moreover, the Company has little or no proprietary barriers to entry that could keep its competitors from developing similar products and technology or selling competing products in the Company's markets. Increased competition from manufacturers or distributors of products similar to or competitive with the Company's products could result in price reductions, reduced margins and loss of market share or could render the Company's technology obsolete, all of which could have a material adverse effect on the Company's results of operations and financial condition. There can be no assurance that the Company will be able to successfully 7 compete in this marketplace or develop sufficient new products to remain competitive, and any failure to do so could have a material adverse effect on its results of operations and financial condition. Management of Company Growth The Company is currently experiencing rapid growth and expansion, which has placed, and will continue to place, a strain on its administrative, engineering and operations resources and increased demands on its systems and controls. Currently, the Company feels it has sufficient management personnel in place but anticipates that its continued growth will require it to recruit and hire a number of new engineers. There can be no assurance that the Company will be successful at hiring or retaining these personnel. The Company's ability to manage its growth successfully will also require the Company to continue to expand and improve its operational, management and financial systems and controls. If the Company's management is unable to manage growth effectively, the Company's business, results of operations and financial condition may be materially and adversely affected. In addition, the Company plans to increase its operating expenses in order to expand its product line, increase its sales and marketing operations, develop new distribution channels and broaden its customer support capabilities. There can be no assurance that such internal expansion will be successfully implemented, that the cost of such expansion will not exceed the revenues generated, or that the Company's sales and marketing organization will be able to successfully compete against the significantly more extensive and well-funded sales and marketing operations of many of the Company's current or potential competitors. If the Company is unable to effectively manage its internal expansion, the Company's results of operations and financial condition could be materially adversely affected. Moreover, the foregoing expenses may be incurred prior to any potential positive impact on revenues. If such expenses are not subsequently followed by sufficient increased revenues, the Company's operating results and financial condition would be materially adversely affected. Evolving Distribution Channels The Company's distribution strategy is to develop multiple distribution channels. The Company has historically sold its products through Resellers and intends to continue to utilize these distribution channels in the future. The Company's net sales have been significantly dependent on sales by Resellers, with such sales representing approximately 100% of the Company's net sales since inception. Any factors, such as general adverse economic conditions, high inventory levels, intellectual property issues, financial condition, marketing considerations or governmental regulations and restrictions, that affect the ability of the Company's Resellers to sell the Company's products will adversely affect the Company's sales and could have a material adverse impact on the Company's results of operations and financial condition. The use by the Company of these secondary distribution channels to sell its products may limit the Company's knowledge of the requirements and concerns of the end users of the Company's product and thereby reduce the ability of the Company to anticipate or react quickly to changes in the market for open system products. There is no assurance that circumstances affecting the Company's Resellers will not have an adverse effect on the Company. There can be no assurance that the Company will be able to attract Resellers that will be able to market the Company's products effectively and will be qualified to provide timely and cost-effective customer support and service or that the Company will be able to manage conflicts among its Resellers. In addition, the Company's agreements with Resellers typically do not restrict Resellers from distributing competing products, and in most cases may be terminated by either party without cause. The inability to recruit, manage or retain important Resellers, or their inability to penetrate their respective market segments, could materially adversely affect the Company's results of operations and financial condition. Dependence Upon Significant Customers During its fiscal year ended June 30, 1997, the Company derived from two customers approximately 16% each of its total net sales. No other customers accounted for more than 10% of the Company's net sales during the fiscal year ended June 30, 1997. Any significant decrease in sales to the Company's principal customers, or any termination of existing relationships with any of the Company's principal Resellers which are not offset by increases 8 in sales to other existing or new Resellers, could have a material adverse effect upon the Company's results of operations and financial condition. Dependence Upon Independent Software Providers The Company's business strategy is to produce PC-based open system hardware for the foodservice and retail industries as well as the newly targeted industrial and information kiosk markets. The Company does not develop or sell software. Consequently, the Company is dependent upon third party software providers to develop new and improved software that runs on the Company's hardware platform. As in other sectors of the computer industry, hardware sales are often driven by advances in software technology. Accordingly, if software providers do not continue to provide state-of-the-art software that runs on the Company's hardware, the Company's results of operations and financial condition could be materially adversely affected. Variability in Operating Results As a result of the Company's limited operating history, the Company does not have extensive historical financial data on which to base planned operating expenses. The Company typically operates with little backlog. As a result, quarterly sales and operating results generally depend on the volume and timing of and ability to fulfill orders received within the quarter, which can be difficult to forecast. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected changes in revenues. Accordingly, any significant shortfall of demand for the Company's products in relation to the Company's expectations would have an adverse impact on the Company's results of operations and financial condition. The Company may experience significant fluctuations in future operating results due to number of factors including, among other things, demand for the Company's products, the size and timing of customers orders, new or increased competition, delays in products enhancements and new product introductions, quality control difficulties, changes in market demand, market acceptance of new products, product returns, seasonability in product purchases by Resellers and end users, the mix of domestic and international revenues, fluctuations in costs of components, pricing trends in the open systems industry in general and in the specific markets in which the Company is active and general economic conditions. Any of these factors could cause operating results to vary significantly from prior periods. Significant variability in orders during any period may have a material adverse impact on the Company's cash flow, and any significant decrease in orders could have a material adverse impact on the Company's results of operations and financial condition. As a result, the Company believe that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance and that one or more periods of favorable results should not be relied upon as an indication of future favorable results. Fluctuations in the Company's operating results could cause the price of the Company's Common Stock to fluctuate substantially. FUTURE CAPITAL REQUIREMENTS The Company expects that the net proceeds from its initial public offering, together with other available funds, will enable the Company to maintain its current and planned operations for the next 12 months. There can be no assurance that these available funds will be sufficient to enable the Company to increase its revenues in an amount sufficient to sustain profitable operations. To the extent that the proceeds from the initial public offering and cash flow from operations, if any, are insufficient to fund the Company's activities, the Company will be required to raise additional funds through equity or debt financings. No assurance can be given that such financings will be available on terms acceptable to the Company, if at all, and, if available, such financings may result in further dilution to the Company's stockholders and/or in additional interest expense. Lack of Patents The Company holds no patents and believes that its competitive position is not materially dependent upon patent protection. The Company believes that most of the technology used in the design and manufacture of most of the Company's products is generally known and available to others. Consequently, there can be no assurances that 9 others will not develop, market and sell products substantially equivalent to the Company's products, or utilize technologies similar to those used by the Company. Although the Company believes that its products do not infringe on any third party's patents, there can be no assurance that the Company will not become involved in litigation involving patents or proprietary rights. Patent and proprietary rights litigation entails substantial legal and other costs, and there can be no assurance that the Company will have the necessary financial resources to defend or prosecute its rights in connection with any such litigation. Responding to, defending or bringing claims related to the Company's rights to its intellectual property may require the Company's management to redirect its resources to address such claims, which could have a material adverse effect on the Company's business, financial condition and results of operations. Control by Existing Stockholders At June 30, 1997, the Company's directors and officers collectively beneficially owned approximately 62.5% of the Company's Common Stock. Consequently, these persons will have the ability to control the election of all the Company's directors, to determine the outcome of most corporate actions submitted to the vote of the Company's stockholders and to generally control the affairs and management of the Company. In addition, such concentration of ownership and control may have the effect of delaying, deferring or preventing a change of control in the Company. Dependence on Key Personnel; Limited Experience The Company's success is dependent, in part, upon the continued services of certain key executive officers, including Richard P. Stack, the Company's President and Chief Executive Officer, C. Norman Campbell, the Company's Vice President Engineering, and Alexander J. Nelson, the Company's Vice President, Sales and Marketing. The Company's success depends to a significant degree upon the continued contributions of its existing key management, sales, marketing, research and development and manufacturing personnel, many of whom would be difficult to replace. If certain of these employees were to leave, the Company could be materially and adversely affected. The Company believes its future success will also depend largely upon its ability to attract and retain highly- skilled hardware engineers, managerial, and sales and marketing personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting and retaining the necessary personnel. Possible Issuance of Preferred Stock; Anti-takeover Effect of Delaware Law and Certain Charter Provisions The Company is authorized to issue up to 1,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"). The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by the Company's stockholders, and may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions as determined by the Board of Directors. Although the Company has no present plans to issue shares of Preferred Stock, the issuance of any additional shares of Preferred Stock in the future could affect the rights of the holders of Common Stock and thereby reduce the value of the Common Stock. In particular, specific rights granted to future holders of Preferred Stock could be used to restrict the Company's ability to merge with or sell its assets to a third party, thereby preserving control of the Company by its present owners. In addition, the Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain provisions creating a classified board. These provisions, together with certain provisions of Delaware law, may also have the effect of delaying or preventing changes in control or management of the Company which could adversely affect the market price of the Company's Common Stock. No Dividends The Company has never paid any cash dividends on shares of its Common Stock and does not anticipate that it will pay dividends in the foreseeable future. The Company intends to apply any earnings to fund the development of its business. 10 Possible Effect of Outstanding Options and Warrants As of June 30, 1997, there were 300,000 shares of Common Stock reserved for issuance upon exercise of outstanding stock options granted and available for grant under the Company's 1996 Stock Incentive Award Plan. Of such reserved shares, there were 245,500 shares of Common Stock reserved for issuance upon the exercise of outstanding stock options and 54,500 shares were available for future grant. None of the outstanding options were exercisable at June 30, 1997. The Company has agreed to sell to Meridian Capital Group, Inc. ("Meridian"), for a total of $8.50, warrants (the "Meridian Warrants") to purchase up to 85,000 shares of Common Stock at an exercise price per share of $6.25. The Meridian Warrants are exercisable for a period of four years beginning October 25, 1997, and are not transferable for a period of one year therefrom except to officers of Meridian or any successor to Meridian. In addition, the Company has granted certain rights to the holders of the Meridian Warrants to register the Common Stock underlying the Meridian Warrants under the Securities Act of 1933, as amended. In the event a significant number of outstanding options and/or warrants were to be exercised in any period, the trading price of the Common Stock may be adversely impacted. Price Volatility The Common Stock is quoted on the Nasdaq SmallCap Market, which has experience and is likely to experience in the future significant price and volume fluctuations which could adversely affect the market price of the Common Stock without regard to the operating performance of the Company. In addition, the Company believes that factors such as quarterly fluctuation in the financial results of the Company, the condition of the overall economy and the condition of the financial markets could cause the price of the Common Stock to fluctuate substantially. ITEM 2. DESCRIPTION OF PROPERTY The Company's executive offices, research and product development, warehousing and distribution facilities are currently housed in a single leased industrial unit comprised of approximately 13,000 square feet located in Irvine, California. Under the terms of the lease, the Company presently pays rent of approximately $8,822 per month with scheduled increases during the second and third years of the lease to approximately $9,087 and $9,359 per month, respectively. The lease expires on June 30, 2002. The Company believes that its existing facilities are adequate to meet its needs for at least the next three years. The Company also continues to lease a facility in Tustin, California. This lease expires October 31, 1998. Currently, monthly rent is $2,843 and is scheduled to increase in November 1997 to $2,922 per month. Effective October 1, 1997, the Company has subleased this facility. ITEM 3. LEGAL PROCEEDINGS. The Company is not a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 11 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock trades on the Nasdaq SmallCap Market under the symbol "JVLN." The following table sets forth, for the periods indicated, the high and low sales prices of the Company's Common Stock as furnished by Nasdaq. Prices reflect inter-dealer prices without retail mark-up, mark-down or commissions, and may not necessarily reflect actual transactions.
HIGH LOW YEAR ENDED JUNE 30, 1997 ------------ ------------- Second Quarter (from October 25, 1996) $ 5.37 $ 4.75 Third Quarter 5.50 4.75 Fourth Quarter 6.25 4.75
There were approximately 533 holders of record as of August 29, 1997. No dividends have been declared or paid on the Company's Common Stock. Recent Sales of Unregistered Securities. Since inception (September 19, 1995), the Company has sold and issued the following securities which were not registered under the Securities Act of 1933, as amended (the "Act"): 1. On September 26, 1995, the Company issued 430,000 shares of Common Stock to Richard P. Stack, 288,100 shares of Common Stock to C. Norman Campbell and 77,400 shares of Common Stock to John R. Amos at a per share price of approximately $.006. The issuance of the Common Stock was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuance did not involve a public offering. 2. On November 1, 1995, the Company issued 288,100 shares of Common Stock to C. Norman Campbell and 107,500 shares of Common Stock to Alex Nelson at a per share price of approximately $.006. The issuance of the Common Stock was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuance did not involve a public offering. 3. On January 9, 1996, the Company issued 180,600 shares of Common Stock to The Steven J. Goodman Revocable Living Trust ("Goodman") and 25,800 shares of Common Stock to GAK Limited, a Delaware limited partnership ("GAK"), of which Horace and Madeleine Hertz are the general partners, at a per share price of approximately $.02. The issuance of the Common Stock was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuance did not involve a public offering. 4. On April 1, 1996, the Company issued 430,000 shares of Common Stock to Richard P. Stack at a per share price of approximately $.19 upon conversion of a convertible promissory note originally issued in October 1995. The issuance of the convertible promissory note and the Common Stock was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuance did not involve a public offering. 5. On April 3, 1996, the Company issued 116,100 shares of Common Stock to Goodman at a per share price of approximately $.22. The issuance of the Common Stock was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuance did not involve a public offering. 12 6. On May 1, 1996, the Company issued 86,000 shares of Common Stock to Teresa M. McRae at a per share price of approximately $.47 upon conversion of a convertible promissory note originally issued in October 1995. The issuance of the convertible promissory note and the Common Stock was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuance did not involve a public offering. 7. On May 23, 1996, the Company issued 38,780 shares of Common Stock to GAK at a per share price of approximately $.65. The issuance of the Common Stock was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuance did not involve a public offering. 8. On May 31, 1996, the Company issued 17,200 shares of Common Stock to Richard A. Stack at a per share price of approximately $.70 upon conversion of a convertible promissory note originally issued in October 1995. The issuance of the convertible promissory note and the Common Stock was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuance did not involve a public offering. 9. On June 3, 1996, the Company issued 10,750 shares of Common Stock to Herbert R. and Janice N. Donica, as joint tenants by the entireties, at a per share price of approximately $2.33. The issuance of the Common Stock was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuance did not involve a public offering. 10. On October 1, 1995, the Company issued a Promissory Note in the amount of $15,000 to Richard P. Stack. The issuance of the Promissory Note was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuance did not involve a public offering. 11. In February 1996, the Company issued two Promissory Notes, each in the original principal amount of $20,000, to each of Peter Aiello and Jim Cox. The Promissory Note issued to Mr. Cox is convertible at his option into shares of Common Stock at a per share price of $2.50 per share. Effective as of June 30, 1997, Mr. Cox converted his Promissory Note into 8,000 shares of Common Stock. The issuance of the Promissory Notes and the Common Stock issued upon conversion of Mr. Cox's Promissory Note was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuance did not involve a public offering. 12. At various times commencing May 1996 through August 1996, the Company issued Promissory Notes to the following accredited investors in the following original principal amounts: (1) The Steven J. Goodman Charitable Remainder Trust (the "Goodman CRT"), $50,000; (2) John R. Amos, $25,000; (3) Kanayo Partabrai Gangwani, $25,000; (4) Jack S. Kompan, two Promissory Notes aggregating $50,000; (5) Universal Partners, L.P., a partnership that specializes in providing bridge financing of which Windy City Bridges, Inc. is a general partner, $25,000; (6) Scott Robinson, $25,000; (7) Rebecca L. Gregarek, $12,500; (8) David M. Munch, $25,000; (9) David J. Gregarek, $25,000; (10) Jay Louis Kear Family Trust, $25,000; (11) Mildred J. Geiss, $37,500; (12) Westerling Family Trust, $100,000; (13) Yu Family Revocable Trust, $25,000; (14) Kenneth and Linda Bloom, $25,000; (15) Christopher Neil, $25,000; (16) Izzy Rabinowitz, $50,000; (17) Don R. Thorne, $50,000; (18) Mark Ratto, $12,500; (19) B.C. Investments, $12,500; (20) Chris Brown, $50,000; (21) Victor A. Ince and Terry A. Ince, joint tenants, $25,000; (22) Caribou Bridge Fund, LLC, $25,000. Concurrent with the issuance of each of the foregoing Promissory Notes, the Company issued warrants to purchase shares of Common Stock (the "Warrants") in an amount equal to the number of shares that results from dividing $5.00 into the original principal amount of the Promissory Note, with the exception of the Promissory Notes issued to Mr. Amos, Mr. Gangwani and Mr. Kompan which provided for $2.50 being divided into the original principal amount of their respective Promissory Notes. The total purchase price for all of the shares of Common Stock issuable upon the exercise of such Warrants is an aggregate of $1.00 per Warrant, or $23.00 in the aggregate. The Warrants became exercisable October 25, 1996 and were all exercised between October and December 1996. In connection with the sales of certain of the Promissory Notes and Warrants, the Company paid a total of $15,000 in commissions to Spencer Edwards in its capacity as a selling agent 13 and $27,500 to Meridian in its capacity as a selling agent. The issuance of the Promissory Notes and the Warrants was deemed to be exempt from registration under the Act by virtue of Section 4(2) of the Act and Rule 504 of Regulation D promulgated thereunder because the issuances did not involve a public offering. The foregoing information has been adjusted to reflect a 4,300 for 1 stock split of the Common Stock effected in August 1996. 13. Subsequent to July 1, 1996 and on various dates through October 25, 1996, the Company issued incentive and nonstatutory stock options to purchase an aggregate of 185,000 shares of Common Stock to directors, executive officers, employees and consultants. The exercise price for such options ranges from $2.50 to $5.00 per share. The Company issued such options in reliance upon the exemption provided by Rule 701 under the Act. Subsequent to October 25, 1996 and on various dates through August 29, 1997, the Company issued incentive and nonstatutory stock options to purchase an aggregate of 96,500 shares of Common Stock to directors, officers, employees and consultants. The exercise price for such options ranges from $4.75 to $5.75 per share. The Company issued such options in reliance upon the exemption provided by Section 4(2) of the Act. The following discussion and analysis should be read together with the financial statements and notes thereto included elsewhere in this Annual Report on Form 10-KSB. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company is an innovative designer, manufacturer and marketer, of open system touch screen computers targeted for the foodservice and retail industries, industrial companies and the information kiosk markets. This Annual Report on Form 10-KSB contains forward-looking statements within the meaning of Section 27A of the Act, and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. The Company may experience significant fluctuations in future operating results due to a number of factors, including, among other things, the size and timing of customer orders, new or increased competition, delays in new product enhancements and new product introductions, quality control difficulties, changes in market demand, market acceptance of new products, product returns, changes in inventory levels, and pricing trends in the industry in general, and in the specific markets in which the Company is active. Any of these factors could cause operating results to vary significantly from prior periods. Significant variability in orders during any period may have a material adverse impact on the Company's cash flow or work flow, and any significant decrease in orders could have a material adverse impact on the Company's results of operations and financial condition. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. Fluctuations in the Company's operating results could cause the price of the Company's Common Stock to fluctuate substantially. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, all of which are difficult or impossible to predict accurately, and many of which are beyond the control of the Company. In addition, the business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. RESULTS OF OPERATIONS The Company's fiscal year in 1996 was approximately nine months and its fiscal year in 1997 was twelve months. The results of operations for the nine months ended June 30, 1996 and the twelve months ended June 30, 1997 were as follows: 14
----------------------------------------- Fiscal Year ----------------------------------------- 1996 1997 ---- ---- Net Sales $1,463,627 $7,014,571 Cost of Sales 1,104,171 5,499,490 ---------- ---------- Gross Profit 359,456 1,515,081 Operating Expenses: Research and Development 46,771 396,365 Selling and Marketing 83,495 390,834 General and Administrative 244,736 859,863 ---------- ---------- Total Operating Expenses 375,002 1,647,062 ---------- ---------- Operating Income (loss) (15,546) (131,981) Interest Expense (38,796) (709,447) Interest Income -- 14,542 ========== ========== Net Income $ (54,342) $ (826,886) ========== ==========
Fiscal 1997 Compared to Fiscal 1996. The Company's fiscal 1997 revenues totaled $7,014,571 from the sales of its NexDisplay-4, NexDisplay-P and NexDisplay-LC compared with fiscal 1996 revenues of $1,463,627 from sales of the NexDisplay-4, an increase of 379%. The increase in revenues for fiscal 1997 was attributable to the large growth in the number of the Company's VARs and the Company's successful shift in sales strategy to concentrate on sales to OEMs. Additionally, the Company introduced two new products, the NexDisplay-P and the NexDisplay-LC, during the second half of fiscal 1997 that addressed new targeted markets. Cost of sales for fiscal 1997 was 78% of revenues compared with 75% for fiscal 1996. The increase in fiscal 1997 was primarily attributable to component cost increases. In the future, the Company's gross margins may be affected by several factors, including the mix of products sold, the price of products sold, price competition, manufacturing volumes, fluctuations in component costs, changes in other components of cost of sales and the technological innovations in products sold. Timing and new product introductions may impact gross margins and result in excess or obsolete inventories. Research and development expenses for fiscal 1997 increased by $349,594 (approximately 747%) to $396,365 from $46,771 for fiscal 1996. The primary reasons for the increase were payroll costs and the introduction of two new products. For the fiscal year ending June 30, 1998, management anticipates a continued increase in product development costs primarily due to the anticipated introduction of several product enhancements and new products. The increase is also attributable to the Company's belief that its future success depends on a high level of research and development and its ability to attract and retain highly skilled engineers. Selling and marketing expenses for fiscal 1997 increased by $307,339 (approximately 368%) to $390,834 from $83,495 for fiscal 1996. These increases in expenses were due to the addition of sales, marketing and technical support personnel. The growth in personnel was primarily due to the need to manage the activities of an increased number of VAR and OEM customers and the introduction of new products. Management anticipates that such expenses will continue to increase in fiscal 1998 as the Company implements its strategy to expand its product line, distribution network and markets. General and administrative expenses for fiscal 1997 increased by $615,127 (approximately 251%) to $859,863 from $244,736 for fiscal 1996. The major reasons for the increase were the addition of personnel and consultants. The Company grew from 8 to 35 employees during fiscal 1997. For fiscal 1998 management anticipates an increase in general and administrative costs, primarily related to payroll costs as the Company expands its personnel. 15 Interest expense for fiscal 1997 increased by $670,651 (approximately 1,729%) to $709,447 from $38,796 for fiscal 1996. Such expense included a non- cash interest expense of $636,097 related to the issuance of private placement warrants (see Note 6 of Notes to the Financial Statements). A provision for federal and state income taxes was not required since the Company incurred losses for fiscal 1997. The net loss for fiscal 1997 was $826,886 compared to $54,342 for fiscal 1996. The increase in net loss was primarily due to the non-cash interest expense related to warrants issued in connection with certain promissory notes in the aggregate principal amount of $636,097 and to the increase in expenses due to the growth of the Company. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its development activities through a combination of an initial public offering and cash generated through operations. Net proceeds from the October 25, 1996 initial public offering amounted to approximately $3,238,694. At June 30, 1997, the Company had working capital of $3,028,833, including inventory of $1,674,097. As of June 30, 1997, the Company had cash of $686,167. The Company does not require substantial working capital to fund its business as inventory is maintained on a just-in-time basis from the Company's suppliers and product is built to order. The Company's future capital requirements will depend on many factors, including the rate of revenue growth, the timing and extent of spending to support product development efforts and expansion of sales and marketing, the timing of introductions of new products and enhancements to existing products, and market acceptance of the Company's products. In January 1997, the Company secured a revolving line of credit with a bank, from which it may borrow an amount equal to 80 percent of the Company's eligible accounts receivable (as defined therein) with monthly interest based upon the prime rate of a national financial institution. Borrowings under the line of credit are collateralized by substantially all of the assets of the Company. As of June 30, 1997, borrowings under the line aggregated $200,000 and there was approximately $972,225 available for future borrowings. ITEM 7. FINANCIAL STATEMENTS. The information required by this item is included in Pages F-1 through F- 14 attached hereto and incorporated herein by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 16 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The information required by this item is incorporated herein by reference from Issuer's Definitive Proxy Statement to be filed with the Commission pursuant to Regulation 14A in connection with the Issuer's 1997 Annual Meeting of Stockholders (the "Proxy Statement") under the headings "Proposal 1--Election of Directors," "Compliance with Section 16(a) of the Securities Exchange Act of 1934" and "Additional Information--Management." ITEM 10. EXECUTIVE COMPENSATION. The information required by this item is incorporated herein by reference from Issuer's Proxy Statement under the heading "Executive Compensation." ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated herein by reference from Issuer's Proxy Statement under the heading "Security Ownership of Certain Beneficial Owners and Management." ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated herein by reference from Issuer's Proxy Statement under the heading "Certain Relationships and Related Transactions." ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. 1. (a) Financial Statements. Financial statements are attached to this report as pages F-1 through F-14. The index to the financial statements is found in the Financial Section on page F-1. (b) The Company did not file any reports on Form 8-K during the quarter ended June 30, 1997. 2. Exhibits. See Exhibit Index below.
Exhibit Number Description of Document - ------- ----------------------- 3.1(1) Amended and Restated Certificate of Incorporation of Registrant. 3.2(1) Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant. 3.3(1) Amended and Restated Bylaws of Registrant. 3.4(1) Amendment to Amended and Restated Bylaws of Registrant. 4.1 Reference is made to Exhibits 3.1 through 3.4. 4.2(1) Specimen stock certificate. 10.1(1) 1996 Stock Incentive Award Plan of Registrant. 10.2(1) Form of Director Non-Qualified Stock Option Agreement.
17
10.3(1) Form of 1996 Employee Non-Qualified Stock Option Agreement. 10.4(1) Employment Agreement dated August 19, 1996 by and between the Registrant and Richard P. Stack. 10.5(1) Employment Agreement dated August 19, 1996 by and between the Registrant and C. Norman Campbell. 10.6(1) Form of Indemnity Agreement entered into with each of the Registrant's officers and directors. 10.7(1) Standard Industrial/Commercial Single-Tenant Lease-Gross dated October 19, 1995 by and between Robert P. Peebles Trust, dated 4/11/79, and the Registrant for that certain real property located at 2882 C Walnut Avenue, Tustin, California 92780. 10.8 Standard Industrial/Commercial Single-Tenant Lease-Net dated May 5, 1997 by and between Klein-Miller Investment Co. and the Registrant for that certain real property located at 1881 Langley Avenue, Irvine, California 92714. 10.9 Standard Sublease dated September 9, 1997 by and between the Registrant and D. Howard Lewis and William R. Miller for that certain real property located at 2882-C Walnut Avenue, Tustin, California 92780. 10.10(1) Securities Purchase Agreement dated July 2, 1996 by and between the Registrant and Jack S. Kompan. 10.11(1) Promissory Note dated July 2, 1996 in the original principal amount of $25,000 payable by the Registrant in favor of Jack S. Kompan. 10.12(1) Letter Agreement dated July 22, 1996 between the Registrant and John R. Amos regarding the transfer of certain intellectual property by John R. Amos to the Registrant. 10.13(1) Letter Agreement dated July 29, 1996 between the Registrant and C. Norman Campbell regarding the transfer of certain intellectual property by C. Norman Campbell to the Registrant. 10.14 Distributor Agreement dated March 14, 1997 between the Registrant and ScanSource, Inc. 11.1 Statement re Calculation of Net Loss Per Share. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 24.1 Power of Attorney. Reference is made to page 21. 27.1 Financial Data Schedule. - ----------------- (1) Filed as an exhibit to Registrant's Registration Statement on Form SB-2, as amended (No. 333-11217), and incorporated herein by reference.
18 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Javelin Systems, Inc. Date: September 25, 1997 By: /s/ RICHARD P. STACK ------------------------------------- Richard P. Stack President and Chief Executive Officer Date: September 25, 1997 By: /s/ LAWRENCE W. MCCORKLE ------------------------------------- Lawrence W. McCorkle Controller, Treasurer and Secretary 19 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard P. Stack his attorney-in-fact, with the power of substitution, for him, in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and conforming all that the attorney-in-fact, or his substitute, may do or cause to be done by virtue hereof. In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ RICHARD P. STACK President, Chief Executive September 25, 1997 - ---------------------------------------------------- Officer, Director Richard P. Stack /s/ C. NORMAN CAMPBELL Vice President, Engineering September 25, 1997 - ---------------------------------------------------- Director C. Norman Campbell /s/ STEVEN J. GOODMAN Director September 25, 1997 - ---------------------------------------------------- Steven J. Goodman /s/ JAY L. KEAR Director September 25, 1997 - ---------------------------------------------------- Jay L. Kear /s/ ANDREW F. PUZDER Director September 25, 1997 - ---------------------------------------------------- Andrew F. Puzder
20 EXHIBIT INDEX
Exhibit Number Description of Document - ------- ----------------------- 3.1(1) Amended and Restated Certificate of Incorporation of Registrant. 3.2(1) Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant. 3.3(1) Amended and Restated Bylaws of Registrant. 3.4(1) Amendment to Amended and Restated Bylaws of Registrant. 4.1 Reference is made to Exhibits 3.1 through 3.4. 4.2(1) Specimen stock certificate. 10.1(1) 1996 Stock Incentive Award Plan of Registrant. 10.2(1) Form of Director Non-Qualified Stock Option Agreement. 10.3(1) Form of 1996 Employee Non-Qualified Stock Option Agreement. 10.4(1) Employment Agreement dated August 19, 1996 by and between the Registrant and Richard P. Stack. 10.5(1) Employment Agreement dated August 19, 1996 by and between the Registrant and C. Norman Campbell. 10.6(1) Form of Indemnity Agreement entered into with each of the Registrant's officers and directors. 10.7(1) Standard Industrial/Commercial Single-Tenant Lease-Gross dated October 19, 1995 by and between Robert P. Peebles Trust, dated 4/11/79, and the Registrant for that certain real property located at 2882 C Walnut Avenue, Tustin, California 92780. 10.8 Standard Industrial/Commercial Single-Tenant Lease-Net dated May 5, 1997 by and between Klein-Miller Investment Co. and the Registrant for that certain real property located at 1881 Langley Avenue, Irvine, California 92714. 10.9 Standard Sublease dated September 9, 1997 by and between the Registrant and D. Howard Lewis and William R. Miller for that certain real property located at 2882-C Walnut Avenue, Tustin, California 92780. 10.10(1) Securities Purchase Agreement dated July 2, 1996 by and between the Registrant and Jack S. Kompan. 10.11(1) Promissory Note dated July 2, 1996 in the original principal amount of $25,000 payable by the Registrant in favor of Jack S. Kompan. 10.12(1) Letter Agreement dated July 22, 1996 between the Registrant and John R. Amos regarding the transfer of certain intellectual property by John R. Amos to the Registrant.
21
10.13(1) Letter Agreement dated July 29, 1996 between the Registrant and C. Norman Campbell regarding the transfer of certain intellectual property by C. Norman Campbell to the Registrant. 10.14 Distributor Agreement dated March 14, 1997 between the Registrant and ScanSource, Inc. 11.1 Statement re Calculation of Net Loss Per Share. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 24.1 Power of Attorney. Reference is made to page 21. 27.1 Financial Data Schedule. - ------------- (1) Filed as an exhibit to Registrant's Registration Statement on Form SB-2, as amended (No. 333-11217), and incorporated herein by reference.
22 JAVELIN SYSTEMS, INC. FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1997 CONTENTS
Report of Independent Auditors........................................................................ F-2 Financial Statements Balance Sheets........................................................................................ F-3 Statements of Operations.............................................................................. F-4 Statement of Stockholders' Equity..................................................................... F-5 Statements of Cash Flows.............................................................................. F-6 Notes to Financial Statements......................................................................... F-7
F-1 Report of Independent Auditors The Board of Directors Javelin Systems, Inc. We have audited the accompanying balance sheets of Javelin Systems, Inc. as of June 30, 1997 and 1996, and the related statements of operations, stockholders' equity and cash flows for each of two years in the period ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit 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 provides 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 Javelin Systems, Inc. at June 30, 1997 and 1996, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 1997 in conformity with generally accepted accounting principles. Ernst & Young LLP Orange County, California August 1, 1997 F-2 Javelin Systems, Inc. Balance Sheets
As of June 30 1997 1996 ---------- --------- Assets Current assets: Cash....................................................................... $ 686,167 $ 6,404 Accounts receivable, net of allowance for doubtful accounts of $41,000 and $0 in 1997 and 1996, respectively........................ 2,470,591 693,679 Inventories................................................................ 1,674,097 209,350 Other current assets....................................................... 46,535 4,107 ---------- --------- Total current assets......................................................... 4,877,390 913,540 Furniture, fixtures and equipment, at cost: Computer equipment......................................................... 112,837 21,960 Furniture and fixtures..................................................... 150,787 4,455 Leasehold improvements..................................................... 72,703 4,551 ---------- --------- 336,327 30,966 Less accumulated depreciation and amortization............................. 40,808 3,044 ---------- --------- Net property, plant and equipment....................................... 295,519 27,922 Other assets, net............................................................ 30,101 9,851 ---------- --------- Total assets................................................................. $5,203,010 $ 951,313 ========== ========= Liabilities and stockholders' equity Current liabilities: Line of credit............................................................. $ 200,000 $ 206,552 Accounts payable........................................................... 1,503,825 356,769 Accrued expenses........................................................... 144,732 32,973 Current maturities of notes payable to stockholders........................ -- 65,000 Current maturities of long-term debt....................................... -- 20,000 ---------- --------- Total current liabilities.................................................... 1,848,557 681,294 Notes payable to stockholders, net of current portion........................ -- 25,000 Long-term debt, net of current portion....................................... -- 50,000 Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value: Authorized shares -- 1,000,000 Issued and outstanding shares -- none................................... -- -- Common stock, $0.01 par value: Authorized shares -- 10,000,000 Issued and outstanding shares -- 3,119,250.............................. 31,193 21,043 Additional paid-in capital................................................. 4,295,291 348,163 Deferred compensation...................................................... (90,803) (119,845) Accumulated deficit........................................................ (881,228) (54,342) ---------- --------- Total stockholders' equity................................................... 3,354,453 195,019 Total liabilities and stockholders' equity................................... $5,203,010 $ 951,313 ========== =========
See accompanying notes. F-3 Javelin Systems, Inc. Statements of Operations For the period from September 19, 1995 (date of inception) to June 30, 1996 and for the year ended June 30, 1997
1997 1996 ---------- ---------- Net sales.................................................................... $7,014,571 $1,463,627 Cost of sales................................................................ 5,499,490 1,104,171 ---------- ---------- Gross profit................................................................. 1,515,081 359,456 Operating expenses: Research and development................................................... 396,365 46,771 Selling and marketing...................................................... 390,834 83,495 General and administrative................................................. 859,863 244,736 ---------- ---------- Total operating expenses..................................................... 1,647,062 375,002 ---------- ---------- Operating loss............................................................... (131,981) (15,546) Interest expense............................................................. (709,447) (38,796) Interest income.............................................................. 14,542 -- ---------- ---------- Net loss..................................................................... $ (826,886) $ (54,342) ========== ========== Net loss per share........................................................... $ (0.30) $ (0.03) ========== ========== Shares used in computing net loss per share.................................. 2,782,535 2,086,260 ========== ==========
See accompanying notes. F-4 Javelin Systems, Inc. Statement of Stockholders' Equity For the period from September 19, 1995 (date of inception) to June 30, 1996 and for the year ended June 30, 1997
Deferred charge related to warrants issued in Common stock Additional connection -------------------- Paid-in Deferred with notes Accumulated Shares Amount Capital Compensation payable deficit Total ------------------------------------------------------------------------------------------- Issuance of common stock for cash......................... 1,274,950 $12,750 $ 72,300 $ -- $ -- $ -- $ 85,050 Issuance of common stock for equipment.................... 288,100 2,881 (1,206) -- -- -- 1,675 Issuance of common stock upon conversion of notes payable.. 541,200 5,412 147,069 -- -- -- 152,481 Value assigned to warrants issued in connection with notes payable................ -- -- 130,000 -- (130,000) -- -- Amortization of deferred charge....................... -- -- -- -- 10,155 -- 10,155 Net loss...................... -- -- -- -- -- (54,342) (54,342) ------------------------------------------------------------------------------------------- Balance at June 30, 1996...... 2,104,250 21,043 348,163 -- (119,845) (54,342) 195,019 Value assigned to warrants issued in connection with notes payable................ -- -- 516,252 -- (516,252) -- -- Amortization of deferred charge....................... -- -- -- -- 636,097 -- 636,097 Exercise of warrants.......... 165,000 1,650 1,682 -- -- -- 3,332 Proceeds from initial public offering, net................ 850,000 8,500 3,230,194 -- -- -- 3,238,694 Deferred stock compensation... -- -- 199,000 (199,000) -- -- -- Amortization of deferred stock compensation................. -- -- -- 108,197 -- -- 108,197 Net loss...................... -- -- -- -- -- (826,886) (826,886) ------------------------------------------------------------------------------------------- Balances, June 30, 1997....... 3,119,250 $31,193 $4,295,291 $ (90,803) $ -- $(881,228) $3,354,453 ===========================================================================================
See accompanying notes. F-5 Javelin Systems, Inc. Statements of Cash Flows For the period from September 19, 1995 (date of inception) to June 30, 1996 and For the year ended June 30, 1997
1997 1996 ----------- --------- Operating activities Net loss..................................................................... $ (826,886) $ (54,342) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.............................................. 37,764 3,251 Amortization of deferred charge related to warrants........................ 636,097 10,155 Amortization of deferred stock compensation................................ 108,197 -- Changes in operating assets and liabilities: Accounts receivable..................................................... (1,776,912) (693,679) Inventories............................................................. (1,464,747) (209,350) Other current assets.................................................... (42,428) (4,107) Accounts payable........................................................ 1,147,056 356,769 Accrued expenses........................................................ 111,759 32,973 ----------- --------- Net cash used in operating activities........................................ (2,070,100) (558,330) Investing activities Purchase of furniture, fixtures and equipment................................ (305,361) (29,291) Other assets................................................................. (20,250) (8,542) ----------- --------- Net cash used in investing activities........................................ (325,611) (37,833) Financing activities Net borrowings under line of credit.......................................... (6,552) 206,552 Proceeds from issuance of notes payable to related parties................... -- 222,481 Payments of notes payable to related parties................................. (90,000) -- Increase (decrease) in long-term debt........................................ (70,000) 90,000 Issuance of common stock..................................................... -- 85,050 Net proceeds from initial public offering.................................... 3,238,694 -- Proceeds from exercise of warrants........................................... 3,332 -- Deferred offering costs...................................................... -- (1,516) ----------- --------- Net cash provided by financing activities.................................... 3,075,474 602,567 ----------- --------- Net increase in cash......................................................... 679,763 6,404 Cash at beginning of period.................................................. 6,404 -- ----------- --------- Cash at end of period........................................................ $ 686,167 $ 6,404 =========== ========= Supplementary disclosure of cash paid during the period for: Interest..................................................................... $ 71,367 $ 28,641 State franchise taxes........................................................ $ 800 $ 800 Supplementary disclosure of non cash financing activities: Equipment acquired for common stock.......................................... $ -- $ 1,675 Notes payable converted to common stock...................................... $ -- $ 152,481
See accompanying notes. F-6 Javelin Systems, Inc. Notes to Financial Statements 1. Summary of Significant Accounting Policies General Javelin Systems, Inc. ("the Company") was incorporated in the State of Delaware under the name of Sunwood Research, Inc. on September 19, 1995. Subsequently, the Company changed its name to Javelin Systems, Inc. on August 25, 1996. The Company designs, develops, markets and sells open system touch screen point-of- sale ("POS") computers, primarily for the foodservice industry. The ability of the Company to establish itself as a successful operating entity on an ongoing basis is dependent upon future events, including further marketing of its products and achieving profitable operations. 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 accompanying financial statements. Actual results could differ from those estimates. Inventories Inventories consist primarily of computer hardware and components and are stated at the lower of cost (first-in, first-out) or market. Property, Plant and Equipment Additions to property, plant and equipment and leasehold improvements are recorded at cost. Depreciation is computed using the straight line method over the estimated useful lives of the respective assets, generally three to five years. Long-Lived Assets Effective July 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." In accordance with SFAS No. 121, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. The adoption of SFAS No. 121 had no impact on the Company's financial condition or results of operations. Revenue Recognition Revenues from sales of products are recognized upon shipment of the products. The Company generally does not have any significant remaining obligations upon shipment of its products. Product returns and sales allowances, which have not been significant historically, are provided for at the date of sale. F-7 Javelin Systems, Inc. Notes to Financial Statements -- (Continued) 1. Summary of Significant Accounting Policies (continued) Warranties The Company's products are under warranty for defects in material and workmanship for one year. Certain components included in the Company's products are covered by manufacturer's warranties. Costs related to after-sale service and repair are accrued as warranty expense at the time of sale, and to date, such costs have been insignificant. Advertising The Company expenses the costs of advertising as incurred. To date, advertising expenses have not been significant. Research and Development The Company expenses the cost of research and development as incurred. Income Taxes Deferred taxes are provided for items recognized in different periods for financial and tax reporting purposes in accordance with Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes. Stock Based Compensation Effective July 1, 1996, the Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" (SFAS No. 123) and accordingly, is continuing to account for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. The adoption of SFAS No. 123 had no impact on the Company's results of operations or financial position. Net Loss Per Common Share Net loss per common share is computed using the weighted average number of common shares and common share equivalents outstanding during the period presented. Common share equivalents result from the effect of outstanding options and warrants to purchase common stock. Pursuant to the requirements of the Securities and Exchange Commission, common shares and common share equivalents issued by the Company during the twelve months immediately preceding the initial public offering have been included in the calculation of the shares used in computing net loss per common share as if they were outstanding for the entire period presented, using the treasury stock method. Concentration of Business and Credit Risk The Company operates within an industry that is subject to rapid technological advancement, intense competition and uncertain market acceptance. The introduction of new technologies, competitors' alternative products and ultimate market acceptance of the products sold by the Company, could have a substantial impact on the future operations of the Company. F-8 Javelin Systems, Inc. Notes to Financial Statements -- (Continued) 1. Summary of Significant Accounting Policies (continued) Financial instruments which potentially subject the Company to a concentration of credit risk consist primarily of trade receivables. In the normal course of business, the Company provides credit terms to its customers and collateral is generally not required. Accordingly, the Company performs ongoing credit evaluations of its customers and maintains allowances for potential losses which, when realized, have been within the range of management's expectations. During fiscal year ended June 30, 1997 two customers aggregated 16% each of net sales. During the period ended June 30, 1996 two customers aggregated 30% and 24%, respectively, of net sales. Sales were not to the same major customers in 1997 and 1996. Impact of Recently Issued Accounting Standards In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share", which requires the disclosure of basic earnings per share and diluted earnings per share. The Company expects to adopt SFAS 128 in fiscal 1998 and anticipates it will not have an impact on previously reported earnings per share. Additionally, in February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 129 ("SFAS 129"), "Disclosure of Information about Capital Structure", which requires certain additional disclosures of information about an entity's capital structure. The Company expects to adopt SFAS 129 in fiscal 1998 and does not believe the effect of the adoption will be material. 2. Inventories Inventories consist of the following at June 30:
1997 1996 ------------------ ------------------ Raw materials $1,525,653 $203,950 Finished goods 148,444 5,400 ------------------ ------------------ $1,674,097 $209,350 ================== ==================
3. Line of Credit The Company has a line of credit with a financial institution under which it may borrow up to 80% of the Company's eligible accounts receivable (as defined) with monthly interest based upon the prime rate of a national financial institution (8.5% at June 30, 1997 and no less than 2.5% per month at June 30, 1996). Borrowings under the line of credit are collateralized by substantially all the assets of the Company. As of June 30, 1996, borrowings under the line aggregated $206,552 and there was $20,898 available for future borrowings. As of June 30, 1997, borrowings aggregated $200,000 and there was $972,225 available for future borrowings. The line of credit expires in December 1997. F-9 Javelin Systems, Inc. Notes to Financial Statements -- (Continued) 4. Notes Payable to Stockholders and Long-Term Debt Notes payable to stockholders at June 30, 1996 consists of the following: Promissory notes, bearing interest at 10%, due on various dates in 1997 and 1998................................. $75,000 Unsecured, noninterest bearing demand note....................... 15,000 ------------------ 90,000 Less current portion............................................. 65,000 ------------------ $25,000 ==================
Long-term debt at June 30, 1996 consists of the following: Unsecured demand note, bearing interest at 8%.................... $20,000 Promissory notes, bearing interest at 10% due on various dates in 1997 and 1998................................. 50,000 ------------------ 70,000 Less current portion............................................. 20,000 ------------------ $50,000 ==================
Due to their short-term nature and/or market rate of interest, the fair values of the Company's notes payable to stockholders, long-term debt and other financial instruments approximate their carrying values. All notes payable and long-term debt amounts at June 30, 1996 were paid in full during fiscal 1997. The Company had no long-term debt at June 30, 1997. 5. Commitments and Contingencies Operating Leases The Company leases its facilities and certain equipment under noncancelable operating leases subject to scheduled rent increases. The leases expire at various dates through June 30, 2002. Future minimum annual lease payments at June 30, 1997 are as follows: 1998....................................... $145,500 1999....................................... 114,633 2000....................................... 109,042 2001....................................... 112,313 2002....................................... 115,682 Thereafter................................. -- ----------------- $597,170 =================
Rent expense under operating lease agreements aggregated $34,251 for the year ended June 30, 1997 and $16,596 for the period ended June 30, 1996 and is included in general and administrative expenses in the accompanying statement of operations. Effective October 1, 1997, the Company subleased its Tustin facility. This sublease expires on October 31, 1998. F-10 Javelin Systems, Inc. Notes to Financial Statements -- (Continued) 6. Stockholders' Equity Registration Statement In November 1996, the Board of Directors authorized the Company to file a registration statement on Form SB-2 with the Securities and Exchange Commission for an initial public offering of 850,000 shares of common stock at an offering price of $5.00 per share. Warrants In connection with the issuance of $725,000 of the Company's 10% promissory notes at various dates through August 1996 and the initial public offering, the Company granted warrants to purchase shares of the Company's common stock. The warrants entitled the holders to purchase a total of 165,000 shares of the Company's common stock at an aggregate price of $3,332. The outstanding warrants became exercisable following the effectiveness of the public offering of the Company's common stock and had no expiration date. As of June 30, 1997, all warrants have been exercised. The Company has assigned a value of $646,252 to the warrants which has been accounted for as additional paid in capital in the accompanying financial statements at June 30, 1997. The deferred charge related to the warrants was fully amortized after the exercise of all the warrants. Stock Split On August 23, 1996, the Company effected a 4,300-for-1 stock split. All references in the accompanying financial statements and notes to shares outstanding and per share amounts have been adjusted to reflect the impact of this stock split. Stock Option Plans 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 employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123 requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, the Company recognizes as compensation expense the difference between the exercise price and the fair market value of the underlying stock on the date of grant. Stock based compensation expense is deferred and amortized over the life of the stock option. During fiscal 1997, the Company recognized $108,197 in stock based compensation expense. No stock options were granted for the period ended June 30, 1996. F-11 Javelin Systems, Inc. Notes to Financial Statements -- (Continued) In August 1996, the Company adopted a stock incentive award plan (the "Plan") under which the Board of Directors, or a committee appointed for such purpose, may from time to time grant options, restricted stock or other stock-based compensation to the directors, officers, eligible employees or consultants of the Company to acquire up to an aggregate of 300,000 shares of common stock, in such numbers, under such terms and at such exercise prices as are determined by the Board or such committee. Options vest over a 3 year period based on the following schedule: 40% after year one, 30% after year two, and 30% at the end of year three. All options expire five years from the date of grant. It is the Company's intention to grant options under the Plan principally to employees. The following is a summary of changes in options pursuant to the Plan for the year ended June 30, 1997. No stock options were granted for the period ended June 30, 1996:
Weighted Average Exercise For options granted at fair market value on the date of grant: Options Price - ------------------------------------------------------------- ------- -------- Outstanding - beginning of year -- -- Granted 68,000 $4.90 Exercised -- -- Canceled -- -- ------ Outstanding - end of year 68,000 $4.90 ====== Exercisable at end or year -- -- Weighted-average fair value of options granted during the year at fair market value $ 1.68
Weighted Average Exercise For options granted at less than fair market value on the date of grant: Options Price - ------------------------------------------------------------------------ -------- -------- Outstanding - beginning of year -- -- Granted 191,000 $3.71 Exercised -- -- Canceled 13,500 $3.50 ------- Outstanding - end of year 177,500 $3.73 ======= Exercisable at end or year -- -- Weighted-average fair value of options granted during the year at less than fair market value $ 1.65
The range of exercise prices for options outstanding at June 30, 1997 was $2.50 to $5.00. The weighted average remaining contractual life of options outstanding at June 30, 1997 was approximately 4.3 years. F-12 Javelin Systems, Inc. Notes to Financial Statements -- (Continued) Pro forma information regarding net income and earnings per share is required by SFAS 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to June 30, 1996 under the fair value method of the 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 for fiscal 1997: risk-free interest rate equal to 6.0%; no dividend yield; a volatility factor of the expected market price of the Company's common stock of 0.41; and a weighted- average expected life of each option equal to 3 years. 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 employee 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 employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information for the year ended June 30, 1997 follows:
As reported Pro forma ----------- --------- Net loss $826,886 $885,986 Loss per share $ 0.30 $ 0.32
Because SFAS 123 is applicable only to options granted subsequent to June 30, 1996, its pro forma effect will not be fully reflected until fiscal 1999. 7. Income Taxes No provision for federal or state income taxes is required since the Company has incurred losses since inception. Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their bases for financial reporting purposes. Temporary differences which give rise to deferred tax assets are as follows at June 30:
1997 1996 -------- -------- Net operating loss carryforwards................. $ 38,400 $ 7,200 Inventory adjustments............................ 35,600 -- Accrued liabilities.............................. 15,700 10,400 Valuation allowance.............................. (89,700) (17,600) -------- -------- Net deferred tax assets.......................... $ -- $ -- ======== ========
The Company has incurred operating losses since inception, and due to the uncertainty regarding future results of operations, the Company has provided a full valuation allowance against its net deferred tax assets. The Company's effective income tax rate is different than the federal statutory rate primarily due to nondeductible capital expenditures and changes in the valuation allowance. F-13 Javelin Systems, Inc. Notes to Financial Statements -- (Continued) At June 30, 1997, the Company has federal and state net operating loss carryforwards available to offset future taxable income of approximately $90,000 and $89,000, respectively. These losses begin to expire in 2011 and 2004, respectively. Under the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for federal and state income tax reporting purposes may be subject to annual limitations. Should a change in ownership occur, the ability to utilize net operating loss carryforwards may be limited in future years. 8. Related Party During the year ended June 30, 1997 and the period ended June 30, 1996, the Company purchased electronic components from a company owned by a stockholder and founder of the Company totaling $1,234,328 and $445,000, respectively. Included in accounts payable at June 30, 1997 and 1996 is $116,360 and $73,580 respectively, due to that Company. F-14 EX-10.8 2 AMERICAN INDUSTRIAL REAL ESTATE CONTRACT EXHIBIT 10.8 [AIR LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS) 1. Basic Provisions ("Basic Provisions") 1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only, May 5, 1997, is made by and between Klein-Miller Investment Co., a general -------------------------------------- partnership ("LESSOR") and Javelin Systems, Inc., a Delaware corporation - ----------- --------------------------------------------------- ("LESSEE"), (collectively the "PARTIES", or individually a "PARTY"). 1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 1881 Langley Avenue, Irvine, located in the County of Orange, State of --------------------------- ------ California 92714, and generally described as (describe briefly the nature of the - ---------------- property and, if applicable, the "PROJECT", if the property is located within a Project) an approximate 12,880 square foot industrial building and adjacent ------------------------------------------------------------------- parking. ("PREMISES") (See also Paragraph 2) - -------- 1.3 TERM: 5 years and 0 months ("ORIGINAL TERM") commencing --- --- July 1, 1997 ("COMMENCEMENT DATE") and ending June 30, 2002 - ------------ ------------- ("EXPIRATION DATE"). (See also Paragraph 3) 1.4 EARLY POSSESSION: JUNE 1, 1997 ("EARLY POSSESSION DATE"). (See also ------------ Paragraphs 3.2 and 3.3) 1.5 BASE RENT: $8,565.20 per month ("BASE RENT"), payable on the 1st day --------- --- of each month commencing July 1, 1997 (See also Paragraph 4) ------------ [x] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. See Addendum Paragraph 50. 1.6 BASE RENT PAID UPON EXECUTION: $8,565.20 as Base Rent for the period ------------------------------------- July 1, 1997 through July 31, 1997. - ---------------------------------- 1.7 SECURITY DEPOSIT: $ 17,130.40 ("Security Deposit"). (See also ----------- Paragraph 5) 1.8 AGREED USE: Offices, design, research and development, manufacturing, --------------------------------------------------------- assembly, warehousing and marketing. (See also Paragraph 6) ------------------------------------ 1.9 INSURING PARTY. Lessor is the "INSURING PARTY" unless otherwise stated herein. (See also Paragraph 8) 1.10 REAL ESTATE BROKERS: (See also Paragraph 15) (a) REPRESENTATION: The following real estate brokers (collectively, the "BROKERS") and brokerage relationships exist in this transaction (check applicable boxes): [x] CB Commercial Real Estate Group, Inc., represents Lessor exclusively ------------------------------------- ("LESSOR'S BROKER"); [x] Daum Commercial Real Estate Services represents Lessee exclusively ------------------------------------ ("LESSEE'S BROKER"); or [ ] represents both Lessor -------------------------- and Lessee (DUAL AGENCY). (b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of % of the total Base Rent for the brokerage services rendered by said Broker) in the manner agreed to in said agreement. 1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by -------------------------------------------------------- ("Guarantor"). (See also Paragraph 37) - -------------------------------------- 1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda consisting of Paragraphs 50 through 64 and Exhibits A and B, all of which -- -- ------- constitute a part of this Lease. 2. PREMISES. 2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating rental, is an approximation which the Parties agree is reasonable and the rental based thereon is not subject to revision whether or not the actual size is more or less. 2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("START DATE"), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee within thirty (30) days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the "BUILDING") shall be free of material defects. If a non-compliance with said warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If, after the Start Date, Lessee does not give Lessor written notice of any non-compliance with this warranty within; (i) one year as to the surface of the roof and the structural portions of the roof, foundations and bearing walls, (ii) six (6) months as to the HVAC systems, (iii) thirty (30) days as to the remaining systems and other elements of the Building, correction of such non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. See Addendum Paragraph 52 2.3 Compliance. Lessor warrants that the improvements on the Premises comply with all applicable laws, covenants or restrictions of record, building codes, regulations and ordinances ("applicable requirements") in effect on the Start Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If the Applicable Requirements are hereafter changed (as opposed to being in existence at the Start Date, which is addressed in Paragraph 6.2(e) below) so as to require during the term of this Lease the construction of an addition to or an alteration of the Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as follows: and compliance is required PAGE 1 Initials RS LM ----- (a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last two (2) years of this Lease and the cost thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee in writing, within ten (10) days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to six (6) months's Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least ninety (90) days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure. (b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided, however, that if such Capital Expenditure is required during the last two years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within ten (10) days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon thirty (30) days written notice to Lessor. (c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease. 2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements), and their suitability for Lessee's intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (a) Broker has made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (b) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants. 2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work. 3. TERM. 3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date. 3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises. If possession is not delivered within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing within ten (10) days after the end of such sixty (60) day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said ten (10) day period, Lessee's right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee when required and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered with four (4) months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing. 3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied. 4. RENT. 4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("rent"). 4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due. Rent for any period during the term hereof is for less than one (1) full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its Obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from the Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee. Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on said change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within fourteen (14) days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within thirty (30) days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease. 6. USE. 6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or occupants, or causes damage to neighboring properties. Lessor shall not unreasonably withhold Page 2 Initials RS LM ----- or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within five (5) business days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in use. 6.2 HAZARDOUS SUBSTANCES. (a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used in this Lease shall mean any product, substance or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable stature or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation. possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit. Lessor may withhold its consent in its absolute discretion. (b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance. (c) LESSEE REMEDIATION. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party. (d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities judgments, claims, expenses, penalties, and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY LESSOR AND LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN WRITING AT THE TIME OF SUCH AGREEMENT. (e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or intentional acts of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. (f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities. (g) LANDLORD TERMINATION OPTION. If a Hazardous Substance Condition occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within ten (10) days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days following such commitment. In such event, this Lease shall continue in full force and effect and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination. 6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise provided in this Lease, Lessee, shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall, within ten (10) days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. 6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender and consultants shall have the right to enter into premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspections, so long as such inspection is reasonably related to the violation or contamination. 7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS. 7.1 LESSEE'S OBLIGATIONS. See Addendum Paragraph 53 (a) IN GENERAL. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep Initial: RS LM ---- ---- PAGE 3 the Premises. Utility Installations, and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessees use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building. (b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, ("basic elements"), if any, as and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire protection systems, (iv) landscaping and irrigation systems, (v) roof covering and drains, and (vi) asphalt and parking lots, (vii) clarifiers and (viii) any other equipment, if reasonably required by Lessor. (c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if the Basic Elements described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such Basic Elements, then such Basic Elements shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is the number of months of the useful life of such replacement as such useful life is specified pursuant to Federal income tax regulations or guidelines for depreciation thereof (including interest on the unamortized balance as is then commercially reasonable in the judgment of Lessor's accountants), with Lessee reserving the right to prepay its obligation at any time. 7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. 7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS. (a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "ALTERATIONS" shall mean any modification of the improvements, other than Utility installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed $50,000 in the aggregate or $10,000 in any one year. (b) CONSENT. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount equal to the greater of one month's Base Rent, or $10,000, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor. (c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one and one-half times the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs. 7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION. (a) OWNERSHIP. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises. (b) REMOVAL. By delivery to Lessee of written notice from Lessor not later than ninety (90) days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent. (c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, furnishings, and equipment as well as the removal of any storage tank installed by or for the Lessee, and the removal, replacement, or remediation of any soil, material or groundwater contaminated by Lessee. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below. 8. INSURANCE; INDEMNITY. 8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000.000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice. 8.2 LIABILLTY INSURANCE. See Addendum Paragraph 55 (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a Commercial General Liability Policy of Insurance protecting Lessee Initials RS LM ---- ---- PAGE 4 and Lessor against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $2,000,000 per occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE. (a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lenders, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss. (b) RENTAL VALUE. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one (1) year. Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of Rent from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss. (c) ADJACENT PREMISES. If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. 8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE. (a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force. (b) BUSINESS INTERRUPTION. If reasonably available, and if Lessor requests Lessee to do so in writing, Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils. (c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease. 8.5 INSURANCE POLICIES. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior, to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to a decrease in the amount or items covered except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same. 8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. 8.7 INDEMNITY. Except for Lessor's sole negligence, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except in the event of fraud, gross negligence or willful acts of Lessor, its partners, employees, agents, directors, officers, shareholders, invitees or contractors, Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITIONS. (a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total. Initials RS LM ---- ---- PAGE 5 (c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation. (e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this lease by giving written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective sixty (60) days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within ten (10) days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice. 9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate sixty (60) days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as provided in Paragraph 8.6. 9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving a written termination notice to Lessee within thirty (30) days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished. 9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) ABATEMENT. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein. (b) REMEDIES. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within thirty (30) days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within said thirty (30) days, this Lease shall continue in full force and effect. "COMMENCE" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor. 9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. REAL PROPERTY TAXES. 10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL PROPERTY TAXES" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises. See Addendum Paragraph 56. 10.2 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes applicable to the Premises during the term of this Lease. Subject to Paragraph 10.2(b), all such payments shall be made at least ten (10) days prior to any delinquency date. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes shall cover any period of time prior to or after the expiration or Initials RS LM ---- --- PAGE 6 termination of this Lease, Lessee's share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee shall fail to pay any required Real Property Taxes, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand. (b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any Rent payment, Lessor may, at Lessor's option, estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sums as are necessary to pay such obligations. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may at the option of Lessor, be treated as an additional Security Deposit. 10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. 10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause such property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement. 11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. (a) Lessee shall not voluntarily or by operation of law assign, transfer mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent. (d) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may: (i) terminate this Lease. (e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief. 12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING. See Addendum Paragraph 57 (a) Regardless of Lessors consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee. (b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach. (c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting. (d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing. 12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary. (b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor. Initials RS LM ---- --- PAGE 7 (c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. DEFAULT; BREACH; REMEDIES. 13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or rules under this Lease. A "BREACH" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period: (a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism. (b) The failure of Lessee to make any payment of Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) business days following written notice to Lessee. (c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy Statement, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "DEBTOR" as defined in 11 U.S.C. /s/101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within sixty (60) days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease. 13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or obligations, within ten (10) days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach: (a) Terminate Lessee's right to possession to the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not Initials RS LM ---- --- PAGE 8 be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not he received by Lessor within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten percent (10%) of each such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date on which it was due, shall bear interest from the thirty-first (31st) day after it was due. The interest ("INTEREST") charged shall be equal to the prime rate charged by the largest state chartered bank in the state in which the Premises are located plus 4%, but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4. 13.6 BREACH BY LESSOR. (a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. (b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that neither Lessor nor Lender cures said breach within thirty (30) days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent an amount equal to the greater of one month's Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor. 14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "CONDEMNATION"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of any building, or more than twenty-five percent (25%) of the land area not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation. 15. BROKERS' FEE. 15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's interest in this Lease shall be deemed to have assumed Lessor's obligation hereunder. Each Broker shall be a third party beneficiary of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts due as and for commissions pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within ten (10) days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor's Broker. 15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto. 16. TENANCY STATEMENT/ESTOPPEL CERTIFICATE. 16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days alter written notice from the other party (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party an estoppel certificate in writing, in form similar to the then most current "TENANCY STATEMENT" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title of interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, the original Lessor under this Lease, and all subsequent holders of the Lessors interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above. 18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. Initials RS LM ---- --- PAGE 9 19. DAYS. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days. 20. LIMITATION ON LIABILITY. Except with respect to Lessor's fraud, gross negligence or willful misconduct, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal as sets for such satisfaction. 21. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. 23. NOTICES. 23.1 NOTICE REQUIREMENTS. All policies required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing. 23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day. 24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees applicable thereto. 26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to one hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee. See Addendum Paragraph 58 27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the parties, but rather according to its fair meaning as a whole, as if both parties had prepared it. 29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE. 30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "SECURITY DEVICE"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one (1) month's rent. 30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within sixty (60) days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non- Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at Lessee's option, directly contact Lessor's lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement. 30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein. 31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or Initials RS LM ---- --- PAGE 10 judgment. The term, "PREVAILING PARTY" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. 32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and Lessor may during the last six (6) months of the term hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or about the Premises any ordinary "FOR SUBLEASE" sign. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction. 34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place any sign upon the Premises without Lessor's prior written consent. All signs must comply with all Applicable Requirements. See Addendum Paragraph 59 35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within ten (10) days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within ten (10) business days following such request. 37. GUARANTOR. 37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease. 37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect. 38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof. 39. OPTIONS. See Addendum Paragraph 60 39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor. 39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given three (3) or more notices of Default, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a). (c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (ii) Lessor gives to Lessee three (3) or more notices of separate Default during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and that Lessee will pay its fair share of common expenses incurred in connection therewith. 41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. 44. AUTHORITY. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within thirty (30) days after request, deliver to the other party satisfactory evidence of such authority. Page 11 Initials RS LM -- --- 45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. OFFER. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto. 47. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises. 48. MULTIPLE PARTIES. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease. 49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease [ ] IS [x] IS NOT attached to this Lease. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. ATTENTION; NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN - --------- INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO: 1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. 2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE. WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN - ------- PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED. The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.
Executed at: Executed at: --------------------------------------- ---------------------------------------- on: on: ------------------------------------------------- ----------------------------------------- By LESSOR: By LESSEE: KLEIN-MILLER INVESTMENT CO., JAVELIN SYSTEMS, INC. - ------------------------------------------------------ ---------------------------------------------------------- a general partnership a Delaware corporation - ------------------------------------------------------ ---------------------------------------------------------- By: /s/ LEO MILLER By: /s/ RICHARD STACK -------------------------------------------------- ------------------------------------------------------ Name Printed: Leo Miller, Trustee Name Printed: Richard Stack --------------------------------------- -------------------------------------------- Title: General Partner Title: President --------------------------------------- --------------------------------------------------- By: By: --------------------------------------------------- ------------------------------------------------------ Name Printed: Leo Miller, Trustee Name Printed: Richard Stack --------------------------------------- -------------------------------------------- Title: General Partner Title: President --------------------------------------- --------------------------------------------------- By: By: --------------------------------------------------- ------------------------------------------------------ Name Printed: Name Printed: ----------------------------------------- -------------------------------------------- Title: Title: ------------------------------------------------ --------------------------------------------------- Address: Address: ---------------------------------------------- -------------------------------------------------- ---------------------------------------------- -------------------------------------------------- Telephone: ( ) Telephone: ( ) ------------------------------------ -------------------------------------- Facsimile: ( ) Facsimile: ( ) ------------------------------------ -------------------------------------- Federal ID No. Federal ID No. ------------------------------------ -------------------------------------- BROKER: BROKER: - ------------------------------------------------------ ---------------------------------------------------------- Executed at: Executed at: ------------------------------------------ --------------------------------------------- on: on: -------------------------------------------------- ------------------------------------------------------ By: By: --------------------------------------------------- ------------------------------------------------------ Name Printed: Name Printed: ----------------------------------------- -------------------------------------------- Title: Title: ------------------------------------------------ --------------------------------------------------- Address: Address: ---------------------------------------------- -------------------------------------------------- ---------------------------------------------- -------------------------------------------------- Telephone: ( ) Telephone: ( ) ------------------------------------ -------------------------------------- Facsimile: ( ) Facsimile: ( ) ------------------------------------ -------------------------------------- Federal ID No. Federal ID No. ------------------------------------ --------------------------------------
NOTE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777. Fax No. (213) 687-8616 PAGE 12 ADDENDUM Addendum to Standard Industrial/Commercial Single-Tenant Lease-Net by and between KLEIN-MILLER INVESTMENT CO., a general partnership ("Lessor") and JAVELIN SYSTEMS, INC., a Delaware corporation ("Lessee") dated, for reference purposes only, May 5, 1997 for the property located at 1881 Langley Avenue, Irvine, California 92714 (the "Premises"). The promises, covenants, agreements and declarations made and set forth in this Addendum are intended to and shall have the same force and effect as if set forth at length in the body of the Lease. The terms herein, if defined in the Lease, shall have the same meaning as set forth in the Lease. The parties intend and agree that the provisions of this Addendum shall supersede any inconsistent or conflicting provisions of the Lease, and are as follows: 50. MODIFICATION OF BASE RENT: The Base Rent set forth in Paragraph 1.5 of the Lease shall be increased as follows: A. Commencing July 1, 1998, the Base Rent shall be $8,822.16 per month; B. Commencing July 1, 1999, the Base Rent shall be $9,086.82 per month; C. Commencing July 1, 2000, the Base Rent shall be $9,359.42; and, D. Commencing July 1, 2001, the Base Rent shall be $9,640.20. 51. PARTIAL CREDIT OF SECURITY DEPOSIT: Provided that Lessee has not previously been in Default under this Lease, Lessor shall credit one-half of the initial amount of Security Deposit it holds towards the Basic Rent due from Lessee for the month of July, 1998 and Lessee shall only deliver to Lessor the additional sum of $256.96 as the balance of rent due for July, 1998. Thereafter, Lessee shall only be required to maintain on deposit with Lessor a Security Deposit equivalent to one month's Base Rent. 52. CONDITION OF PREMISES: Except as otherwise set forth in Paragraphs 2.2, 2.3 and 61 of this Lease, the Premises are delivered to Lessee in an "as is" condition. Notwithstanding anything to the contrary contained in this Lease, it is expressly understood and agreed to by Lessee that any change, modification, repair or alteration to the Premises which is required under any Applicable Requirements, whether currently in effect or hereafter coming into existence, triggered or arising as a result of Lessee undertaking any Alterations, installation of Trade Fixtures or Utility Installations shall be made by Lessee, at Lessee's sole cost and expense. 53. MAINTENANCE: The Service Contracts required to be maintained by Lessee pursuant to paragraph 7.2(b) for the heating, air conditioning and ventilation equipment shall provide for monthly service of the equipment. It shall be Lessee's obligation to insure that such monthly service occurs. Subject to Lessee's compliance with its service and maintenance obligations as set forth in this Lease, and notwithstanding and modifying the provisions of paragraph 2.2 and 7.1 as they relate to the HVAC equipment, Lessor shall reimburse Lessee in the amount that any necessary repair expense payable by Lessee to a HVAC unit costs exceeds Four Hundred Dollars ($400.00) per incident. Except as hereinafter provided, Lessee shall be obligated to perform all such repairs. Lessor shall reimburse Lessee within ten (10) business days of receipt from Lessee of a copy of the invoice therefor and proof of payment. Notwithstanding the forgoing, absent an emergence, Lessee shall not undertake any repair of a HVAC unit if the expense is going to exceed Four Hundred Dollars ($400.00) without first giving Lessor written notice thereof, including a copy of all written reports and estimates concerning said repair. Lessor shall have ten (10) business days after receipt of this written notice to investigate the nature and cost of repair. Within said time period, Lessor may notify Lessee that it will cause the repair to be completed and Lessee shall reimburse Lessor the lesser of Four Hundred Dollars ($400.00) or the actual cost to Lessor of said repair. Lessee shall undertake the repair or maintenance in the event Lessor fails to give Lessee said written notice. Nothing in the forgoing is intended to modify the provisions of paragraph 7.1(c) of the Lease. The forgoing provisions concerning the HVAC units shall not apply to the HVAC unit designated as Unit 6 until it is replaced, if it is replaced. Subject to the servicing, repairs and the maintenance which is covered under the maintenance contract required to be obtained by Lessee, Lessor, at its sole cost and expense, shall reimburse Lessee for all necessary maintenance or repairs of Unit 6. The provisions regarding reimbursement and the performance of repairs, including, but not limited to, written notice to Lessor by Lessee prior to undertaking a repair absent an emergency, as set forth above for repairs above Four Hundred Dollars ($400.00) shall also apply to the repairs to Unit 6 regardless of cost. If reasonably necessary, or if it desires, Lessor, at its sole cost and expense shall replace Unit 6. In the event Unit 6 is replaced, it shall be subject to all other provisions of this Lease concerning HVAC units except the initial replacement cost shall not be considered a replacement of a Basic Element. Notwithstanding any provision to the contrary contained in this Lease, but subject to the provisions concerning Capital Expenditures, and except for damage, modifications, maintenance or repairs relating to, arising out of, or caused by any negligent or intentional act or omission of Lessee, its agents, employees, licensee, guests or contractors, in which event Lessee, at Lessee's sole cost and expense shall undertake the maintenance, repair the damage or make the modifications or repairs, Lessor, at its sole cost and expense, shall keep in good order and repair the structural components of the Premises, including the foundations, and the structural condition of the exterior walls, interior bearing walls and exterior roof. The obligations of Lessor hereinabove set forth are as to the structural integrity of the Premises only and do not include cosmetic or non-structural damage items. 54. LESSEE'S COOPERATION: Lessee agrees to cooperate with Lessor to facilitate Lessor's compliance with its obligations under paragraphs 2.2, 2.3, 7.1(c), 9 and 14 of this Lease, including by way of example, removal by Lessee of all items of personal property, fixtures and trade fixtures from those portions of the Premises designated by Lessor. If Lessee fails to remove such items from those portions of the Premises designated by Lessor within ten (10) calendar days after written notice is delivered to Lessee to do so, Lessor shall have the right to enter upon the Premises to effect such removal, at Lessee's expense, and Lessor shall not be liable to Lessee as a result of such removal or the manner of effecting the same, except as to actual damage to said items caused by the gross negligence or intentional misconduct of Lessor, its agents, employees or contractors. In connection therewith, Lessor shall make all repairs and/or replacements in a manner which, to the extent reasonable and practicable, does not interfere with the conduct of Lessee's business. Lessor shall be able to undertake such repairs during normal business hours. The monthly rental shall be abated during the period of such modification or reconstruction to the same extent as the portion of the floor area bears to the Premises as a whole. Except for the abatement of rent set forth herein, Lessor shall not be liable in any manner whatsoever to Lessee for damage, loss or injury resulting from the work performed on the Premises by Lessor or Lessor's contractors provided that Lessor uses due care to avoid damage to Lessee's personal property or bodily injury. In no event shall Lessor be liable for Lessee's loss of business or reduction of income by reason of such modification or reconstruction by Lessor. 55. INSURANCE AMPLIFICATION: Paragraph 8.2 of the Lease is modified by adding the following: Lessor may require from time to time that Lessee increase the limits of coverage provided hereunder to an amount which is consistent either with the increased risks attendant to the perils covered by such policy or increased levels of coverage generally required by Lessors. 2. 56. REAL PROPERTY TAXES DOES NOT INCLUDE A PORTION OF INCREASE DUE TO CHANGE IN OWNERSHIP: The term Real Property Taxes as defined in paragraph 10.2 of the Lease shall not include fifty percent (50%) of any increase in any tax, levy, assessment or charge imposed by reason of a "Change in ownership" as defined in Part 0.5, Chapter 2 of the Revenue and Taxation Code of the State of California. ------------------------- 57. ASSIGNMENT OR SUBLETTING: A. Paragraph 12.1(c) is replaced with the following: "Any transfer or assignment of this Lease to (i) a parent, subsidiary or affiliate of Lessee; (ii) to any entity with which Lessee may merge or consolidate, or (iii) to any entity acquiring all or substantially all of the assets of Lessee shall be an assignment requiring Lessor's consent. Notwithstanding the forgoing, in any such event, Lessor may only withhold its consent if the assignee does not meet Lessor's then current credit standards. Lessor agrees to be reasonable in providing or withholding its consent and applying its credit standards, in such circumstances. Lessor further agrees that it may not attempt to alter the terms of this Lease in connection with providing its consent to any of the aforementioned transfers or assignments. B. The following sentence is added to paragraph 12.2(e). Lessee shall also pay Lessor all costs incurred by Lessor, including a reasonable allocation for its internal operational expenses, reasonable accountant's fees and reasonable attorneys fees and costs, in connection with the request for consent to a proposed assignment or sublease up to the total sum of Fifteen Hundred Dollars ($1,500.00). C. The following paragraph is added as paragraph 12.2(g) to the Lease: 12.2(g) Any rental or other consideration agreed to by an assignee, Sublessee, or transferee of Lessee's interest, whether or not Lessor has given its consent, in excess of the rentals provided for in this Lease shall be for the benefit of and shall be immediately paid to Lessor by Lessee and shall be deemed additional rent due under this Lease. The determination of excess rent shall be made based on a pro-rata allocation of the rents by approximate square footage. The transfer or sale consideration paid to Lessee in connection with a transaction described in paragraph 57(A) above shall not be considered in calculating excess rents unless designated as rental payments, specifically designated as payment for the assignment of the Lease or is reasonably determined to be a disguised payment of additional rent. 58. HOLDING OVER: Paragraph 26 of the Lease is modified as follows: If Lessee holds over after the expiration or earlier termination of this Lease without the written consent of Lessor, the same shall be a tenancy at will terminable at any time, and Lessee shall be liable to Lessor for, and Lessee shall indemnify, protect, defend and hold Lessor harmless from and against all liabilities, losses, costs, expenses or claims suffered or incurred by such holdover, including damages and costs related to any successor tenant of the Premises to whom Lessor could not deliver possession of the Premises when promised. All of the other terms and conditions of this Lease shall be applicable during any holdover period, with or without the consent of Lessor, except that Lessee shall pay to Lessor from time to time upon demand, as Base Rent for the period of any holdover, an amount equal to one hundred fifty percent (150%) of the then applicable Base Rent computed on a daily basis for each day of the holdover period. No holding over by Lessee, whether with or without consent of Lessor shall operate to extend this Lease. The preceding provisions of the Paragraph 58 shall not be construed as Lessor's consent to any holding over by Lessee. 59. SIGNS AND AWNINGS: Paragraph 34 of the Lease is amplified as follows: The placement of any sign, lettering, marquee or awning in, on or about the Premises shall be at Lessee's sole cost and expense. Any 3. sign, lettering, marquee, awning or display approved by Lessor or allowed herein without Lessor's approval shall only be installed upon the Lessee obtaining any and all appropriate and necessary permits from the appropriate governmental entity and/or agency and shall be otherwise in compliance with all applicable government codes, ordinances, statutes, and regulations and shall be subject to the provisions of Paragraph 7 of this Lease. Lessee shall remove, repair or replace any awnings, marquees, signs, lettering, window shades or draperies previously permitted by Lessor or allowed under this Lease without permission whenever Lessor shall notify Lessee that such removal, repair or replacement is advisable to promote a well-kept appearance upon the Premises. Notwithstanding the forgoing, Lessor's right to require removal during the Lease term of any of the items set forth in the forgoing sentence which installation was pre-approved by Lessor shall be limited to those pre-approved items which Lessee has failed to maintain and keep in good condition and repair. Nothing in the forgoing is intended to limit the obligations of Lessee to remove said items upon the expiration of the term of the Lease. Lessee shall indemnify Lessor and hold Lessor harmless from any and all claims, losses, damages, liabilities, costs and expenses, including reasonable attorney's fees, arising out of or relating to any sign, awning, marquee or lettering. 60. OPTION TO EXTEND: Subject to the provisions of paragraph 39 of the Lease, Lessor hereby grants to Lessee one (1) Option to extend the Original Term for a period of sixty (60) months ("Option Term") commencing on the expiration of the Original Term. The Option to extend shall be on the same terms and conditions as the Original Term with the exception of the monthly Base Rent which shall be determined as set forth below, but which in no event shall be less than the Base Rent payable by Lessee for the last month of the Original Term times one hundred three percent (103%). The monthly Base Rent during the Option Term shall be increased annually so that each year the monthly base rent shall be one hundred three percent (103%) of the monthly Base Rent payable during the preceding year of the Option Term. Lessee shall exercise its option by written notice delivered to Lessor not earlier than February 1, 2001 nor later than August 1, 2001. Lessee's failure to give its written notice of exercise of its option within the time period set forth above shall terminate the option and it shall have no force and effect. The Option set forth above may not be assigned by Lessee separate and apart from an assignment of the Lease as a whole. The initial monthly Base Rent payable during the Option Term shall be the current fair market rental for comparable properties within the Irvine Business Complex or the Base Rent payable for the last month of the Original Term of this Lease times one hundred three percent (103%), whichever is greater. The "current fair market rental" shall mean the applicable monthly Base Rent for premises leased on triple net basis with terms similar to this Lease, including a term of five (5) years, payable by tenants of comparable size and financial strength taking into account all monetary concessions amortized over the Option Term. The current fair market rental shall be mutually determined by the parties. If within thirty (30) days after Lessee gives written notice of its exercise of its option as hereinabove set forth, the parties are unable to agree upon the current fair market rental, said rental shall be determined by arbitration in the following manner: (a) Lessor and Lessee shall each appoint, within Fifteen (15) days after the Thirty (30) day period, One (1) arbitrator who shall, by profession, be a MAI real estate appraiser, and who shall have been active for at least Five (5) years in the appraisal of commercial and industrial properties in the area. (b) The two arbitrators supplied shall agree upon and appoint, within Fifteen (15) days of the date of the appointment of the last supplied arbitrator, a third arbitrator who shall be similarly qualified. (c) The Three (3) arbitrators shall reach a decision within thirty (30) days of the appointment of the third arbitrator, and notify Lessor and Lessee thereof. 4. (d) The decision of the majority of the three (3) arbitrators shall be binding upon Lessor and Lessee. The failure of a majority of said arbitrators to reach an agreement shall result in the fair market rental rate being determined by averaging the appraisal of each arbitrator, ignoring for purposes of such averaging any appraisal which is more than ten percent (10%) in excess of or less than the middle appraisal. (e) If either Lessor or Lessee fails to appoint an arbitrator within the time period set forth in subparagraph (a), above, the arbitrator appointed by one of them shall reach a decision, notify Lessor and Lessee thereof, and such arbitrator's decision shall be binding upon Lessor and Lessee. (f) If the two (2) arbitrators fail to agree upon and appoint a third arbitrator, both arbitrators shall be dismissed and the matter to be decided shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association. (g) Except as set forth below, all costs of arbitration shall be paid by Lessor and Lessee equally. (h) Lessee shall have the lesser of thirty (30) days after the determination of the current fair market rental or the period of time between this determination and December 31, 2001, to notify Lessor in writing if it continues to desire to exercise this Option and occupy the Premises under the terms of this Option at the initial Base Rent as determined pursuant to this paragraph 60. Lessee's failure to affirmatively notify Lessee in writing that it continues to desire to exercise its Option at the initial Base Rent determined pursuant to this paragraph 60 within the time period set forth above, shall be conclusively deemed to be an election by Lessee not to exercise its Option and its Option rights shall terminate and be of no force and effect. If after its notice of exercise of its Option, Lessee notifies or is deemed to have notified Lessor (as provided in this paragraph 60) that it is no longer exercising its Option rights or if the Option rights terminate pursuant to any provision of this Lease, all costs of arbitration shall be paid by Lessee. (i) In the event that the initial Base Rent for the Option Term has not be determined prior to December 31, 2001, Lessee shall have ten (10) business days within which to notify Lessor in writing if it desires to terminate its option. In the event that it does not so notify Lessor it shall be conclusively presumed that it does not desire to terminate its option. In the event its Option is not terminated pursuant to this subparagraph, Lessee shall be conclusively deemed to have committed to exercising its option at the Base Rent for the Option Term as determined hereunder and it shall have no rights to terminate this option upon the determination of said Base Rent. (j) If the initial Option Base Rent is not determined prior to the commencement date of the Option Term and Lessee has elected not to terminate this Option as provided above, Lessee shall pay Base Rent to Lessor in an amount equal to the Base Rent payable by Lessee for the last month of the Original Term of this Lease times one hundred three percent (103%) and within ten (10) days after the determination of the initial Base Rent for the Option Term, Lessee shall pay to Lessor any underpayment of Base Rent. 61. LESSOR'S IMPROVEMENTS: Subject to Force Majeure, Lessor, at Lessor's cost and expense, shall substantially complete the improvements set forth on Exhibit "B" ("Lessor Improvements") prior to the Commencement Date. The Lessor Improvements shall be deemed substantially completed even though there may be some minor "punch list" type items, the completion, correction or repair of which will not materially affect the use of the Premises by Lessee. 62. LESSEE'S IMPROVEMENTS: Lessee shall have the right to install a dropped ceiling and air conditioning in the warehouse area. Lessee shall also have the right to paint an approximately 20' by 60' area with epoxy based non-toxic paint. Lessee shall comply with all provisions of this Lease concern- 5. ing said improvements, including, but not limited to the provisions of paragraph 7.3. Lessor's consent to such improvements by the existence of this paragraph shall not alleviate the obligation of Lessee to provide Lessor with detailed plans as required under the provisions of paragraph 7.3. Lessor shall also reasonably approve the location of the painted area. Lessee shall not be required to remove the improvements set forth in this paragraph upon the expiration or termination of this Lease. Upon receipt of copies of the paid invoices for the painting referenced in this paragraph, Lessor shall reimburse Lessee for the cost thereof up to Five Hundred Dollars ($500.00). 63. FORCE MAJEURE: Except as otherwise specifically provided herein, in any case where either party hereto is required to do any act, delays caused by or resulting from acts of God, war, civil commotion, fire or other casualty, labor difficulties, shortages of labor, materials or equipment, government regulations, or other caused beyond such party's reasonable control shall not be counted in determining the time during which work shall be completed, whether such time be designated by a fixed date, a fixed time, or a "reasonable time". 64. SECTION/ARTICLE HEADINGS: The Section/Article headings herein are inserted for convenience only and form no part of this lease. LESSEE: LESSOR: Javelin Systems, Inc. Klein-Miller Investment Co., a Delaware corporation a general partnership By: /s/ RICHARD STACK By: /s/ LEO MILLER ----------------- -------------- Richard Stack Leo Miller, Trustee Its: President General Partner 6. EXHIBIT A NOTICE TO OWNERS AND PROSPECTIVE TENANTS AND BUYERS OF REAL PROPERTY REGARDING THE AMERICANS WITH DISABILITIES ACT AND HAZARDOUS WASTE MATERIALS Please be advised that an owner or tenant of real property may be subject to the Americans With Disabilities Act (the ADA), a Federal law codified at 42 USC Section 12101 et seq. Among other requirements of the ADA that could apply to your property, Title III of the ADA requires owners and tenants of "public accommodations" to remove barriers to access by disabled persons and provide auxiliary aids and services for hearing, vision or speech impaired persons by January 26, 1992. The regulations under Title III of the ADA are codified at 28 CFR Part 36. We recommend that you and your attorney review the ADA and the regulations, and, if appropriate, your proposed lease or purchase agreement, to determine if this law would apply to you, and the nature of the requirements. These are legal issues. You are responsible for conducting your own independent investigation of these issues. Also, in any real estate transaction, it is recommended that you consult with a professional, such as civil engineer, industrial hygienist or other person with experience in evaluating the condition of the property, including the possible presence of asbestos, hazardous materials and underground storage tanks. CB Commercial cannot give you legal advice on these issues. Please acknowledge your receipt of this notice by signing and dating it below. Thank you. LANDLORD Received on 5/30 , 1997 ----------------------- Signature: /s/ LEO MILLER ----------------------- Printed Name: LEO MILLER --------------------- TENANT Received on 5/29 , 1997 ------------------------ Signature: /s/ RICHARD STACK ------------------------ Printed Name: Richard Stack ---------------------- EXHIBIT B LANDLORD RESPONSIBILITIES Demolition - ---------- Remove all carpet and rubber base. Remove all VCT and vinyl flooring throughout. Remove demountable partitions. Remove abandoned wiring on walls. Remove all shelves in warehouse. Remove blackboard front wall. Remove counters in front area mailroom. Cleaning - -------- Clean all air registers in office area prior to painting ceilings. Clean all light lenses. Asphalt - ------- Asphalt patch, slurry and stripe Fill in planters. Concrete - -------- Cut out and replace raised concrete at roll up Door - 2'6" x 8' New curbs at both driveways and around small parking lot. Steel - ----- Steel trash enclosure Foil Insulation - --------------- Warehouse area - reattach or new foil insulation. Caulking - -------- Caulk stitch joints on block wall. Caulk concrete to storefront metal at entrance - approximately 20'. Glass - Storefront - ------------------ Replace broken glass and remove tint from entry glass. Refurbish storefront metal and polish. Reattach metal trim at all glass areas. Install new tint on entry glass. Replace right front entry door closer. Check all storefront, reseal and align doors. Toilet Partitions/Accessories - ----------------------------- New partitions in large restrooms. New accessories in large restrooms. New accessories in small restrooms. New FRP in large restrooms. New FRP in small restrooms. New paper towel dispenser at lunch sink. Plumbing - -------- Small restrooms - new faucets and toilet Seats, and lavatories. Large restrooms - new designs with New lav, toilet & seat. Rehab dishwasher. Lunch room - new faucet. Lunch room - new garbage disposal. H.V.A.C - ------- Do a maintenance service on all H.V.A.C. units. New lunch room exhaust fan. Small restrooms - new exhaust fans. Large restrooms - new exhaust fans. Electrical - ---------- Replace yellow light lens covers or broken lenses. Relamp all light to the same cool, White lamps. Remove all power poles. Replace burned out or missing lamps. New light fixture in toilets. Flooring - -------- New sheet vinyl in all bathrooms. New sheet vinyl or VCT in lunch room. Replace carpeting. Clean warehouse floor and paint, if necessary. EXHIBIT B LANDLORD RESPONSIBILITIES (continued) Drywall Repair/Patch - -------------------- Patch all holes and texture to match. T-Bar Ceiling - --------------- Replace damaged ceiling tile throughout to provide a more uniform appearance. Painting - -------- Paint all walls including warehouse. Paint office and T-bar ceilings throughout. Install trim on cabinet face on each side of dishwasher. Paint base of steel yellow - was previously covered by shrubs. EX-10.9 3 AMERICAN INDUSTRIAL REAL ESTATE STANDARD SUBLEASE EXHIBIT 10.9 STANDARD SUBLEASE American Industrial Real Estate Association [LOGO of AMERICAN INDUSTRIAL] 1. PARTIES. This Sublease, dated, for reference purposes only, September 9th, 1997, is made by and between Javelin Systems, Inc., a Delaware Corporation (herein called "Sublessor") and D. Howard Lewis & William R. Miller (herein called "Sublessee"). 2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby subleases from Sublessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of Orange, State of California, commonly known as 2882-C Walnut Avenue, Tustin and described as an approximately 3,949 square foot planned unit development unit located in the Park Irvine Business Center. Said real property, including the land and all improvements thereon, is hereinafter called the "Premises". 3. TERM. 3.1 TERM. The term of this Sublease shall be for Thirteen months commencing on October 1, 1997 and ending on October 31, 1998 unless sooner terminated pursuant to any provision hereof. 3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if for any reason Sublessor cannot deliver possession of the Premises to Sublessee on said date, Sublessor shall not be subject to any liability therefore, nor shall such failure affect the validity of this Lease or the obligations of Sublessee hereunder or extend the term hereof, but in such case Sublessee shall not be obligated to pay rent until possession of the Premises is tendered to Sublessee; provided, however, that if Sublessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date. Sublessee may, at Sublessee's option, by notice in writing to Sublessor within ten (10) days thereafter, cancel this Sublease, in which event the parties shall be discharged from all obligations thereunder. If Sublessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof, such occupancy shall not advance the termination date and Sublessee shall pay rent for such period at the initial monthly rates set forth below. 4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal monthly payments of $2,965.00, in advance, on the 1st day of each month of the term hereof. Sublessee shall pay Sublessor upon the execution hereof $2,965.00 as rent for October 1, 1997 through October 31, 1997. Rent for any period during the term hereof which is for less than one month shall be a prorata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Sublessor at the address stated herein or to such other persons or at such other places as Sublessor may designate in writing. 5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution hereof $3,000.00 as security for Sublessee's faithful performance of Sublessee's obligations hereunder. If Sublessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Sublease, Sublessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Sublessor may become obligated by reason of Sublessee's default, or to compensate Sublessor for any loss or damage which Sublessor may suffer thereby. If Sublessor so uses or applies all or any portion of said deposit, Sublessee shall within ten (10) days after written demand therefore deposit cash with Sublessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Sublessee's failure to do so shall be a material breach of this Sublease. Sublessor shall not be required to keep said deposit separate from its general accounts. If Sublessee performs all of Sublessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Sublessor, shall be returned, without payment of interest or other increment for its use to Sublessee (or at Sublessor's option, to the last assignee, if any, of Sublessee's interest hereunder) at the expiration of the term hereof, and after Sublessee has vacated the Premises. No trust relationship is created herein between Sublessor and Sublessee with respect to said Security Deposit. 6. USE. 6.1 USE. The Premises shall be used and occupied only for Design, assembly and sales of computer components and for no other purpose. 6.2 COMPLIANCE WITH LAW. (a) Sublessor warrants to Sublessee that the Premises, in its existing state, but without regard to the use for which Sublessee will use the Premises, does not violate any applicable building code regulation or ordinance at the time that this Sublease is executed. In the event that it is determined that this warranty has been violated, then it shall be the obligation of the Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole cost and expense, rectify any such violation. In the event that Sublessee does not give to Sublessor written notice of the violation of this warranty within 1 year from the commencement of the term of this Sublease, it shall be conclusively deemed that such violation did not exist and the correction of the same shall be the obligation of the Sublessee. (b) Except as provided in paragraph 6.2(a), Sublessee shall, at Sublessee's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, restrictions of record, and requirements in effect during the term or any part of the term hereof regulating the use by Sublessee of the Premises. Sublessee shall not use or permit the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be more than one tenant of the building containing the Premises, which shall tend to disturb such other tenants. 6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a) Sublessee hereby accepts the Premises in their condition existing as of the date of the execution hereof, subject to all applicable zoning, municipal, county and state laws, ordinances, and regulations governing and regulating the use of the Premises, and accepts this Sublease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Sublessee acknowledges that neither Sublessor nor Sublessor's agents have made any representation or warranty as to the suitability of the Premises for the conduct of Sublessee's business. 7. MASTER LEASE 7.1 Sublessor is the lessee of the Premises by virtue of a lease, hereinafter referred to as the "Master Lease", a copy of which is attached hereto marked Exhibit 1, dated 10-19, 1995 wherein Robert P. Peebles Trust, dated 4-11-79 is the lessor, hereinafter referred to as the "Master Lessor". 7.2 This Sublease is and shall be at all times subject and subordinate to the Master Lease. 7.3 The terms, conditions and respective obligations of Sublessor and Sublessee to each other under this Sublease shall be the terms and conditions of the Master Lease except for those provisions of the Master Lease which are directly contradicted by this Sublease in which event the terms of this Sublease document shall control over the Master Lease. Therefore, for the purposes of this Sublease, wherever in the Master Lease the word "Lessor" is used it shall be deemed to mean the Sublessor herein and wherever in the Master Lease the word "Lessee" is used it shall be deemed to mean the Sublessee herein. 7.4 During the term of this Sublease and for all periods subsequent for obligations which have arisen prior to the termination of this Sublease. Sublessee does hereby expressly assume and agree to perform and comply with, for the benefit of Sublessor and Master Lessor, each and every obligation of Sublessor under the Master Lease except for the following paragraphs which are excluded therefrom: none. 7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof are hereinafter referred to as the "Sublessee's Assumed Obligations". The obligations that Sublessee has not assumed under paragraph 7.4 hereof are hereinafter referred to as the "Sublessor's Remaining Obligations". 7.6 Sublease shall hold Sublessor free and harmless of and from all liability, judgments, costs, damages, claims or demands, including reasonable attorneys fees, arising out of Sublessee's failure to comply with or perform Sublessee's Assumed Obligations. 7.7 Sublessor agrees to maintain the Master Lease during the entire term of this Sublease, subject, however, to any earlier termination of the Master Lease without the fault of the Sublessor, and to comply with or perform Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and from all liability, judgments, costs, damages, claims or demands arising out of Sublessor's failure to comply with or perform Sublessor's Remaining Obligations. 7.8 Sublessor represents to Sublessee that the Master Lease is in full force and effect and that no default exists on the part of any party to the Master Lease. 8. ASSIGNMENT OF SUBLEASE AND DEFAULT. 8.1 Sublessor hereby assigns and transfers to Master Lessor the Sublessor's interest in this Sublease and all rentals and income arising therefrom, subject however to terms of Paragraph 8.2 hereof. 8.2 Master Lessor, by executing this document, agrees the until a default shall occur in the performance of Sublessor's Obligations under the Master Lease, that Sublessor may receive, collect and enjoy the rents accruing under this Sublease. However, if Sublessor shall default in the performance of its obligations to Master Lessor then Master Lessor may, at its option, receive and collect, directly from Sublessee, all rent owing and to be owed under this Sublease. Master Lessor shall not, by reason of this assignment of the Sublease nor by reason of the collection of the rents from the Sublessee, be deemed liable to Sublessee for any failure of the Sublessor to perform and comply with Sublessor's Remaining Obligations. 8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon receipt of any written notice from the Master Lessor stating that a default exists in the performance of Sublessor's obligations under the Master Lease, to pay to Master Lessor the rents due and to become due under the Sublease. Sublessor agrees that Sublessee shall have the right to rely upon any such statement and request form Master Lessor, and that Sublessee shall pay such rents to Master Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Sublessor to the contrary and Sublessor shall have no right or claim against Sublessee for any such rents so paid but Sublessee. 8.4 No changes or modifications shall be made to this Sublease without the consent of Master Lessor. 9. CONSENT OF MASTER LESSOR. 9.1 In the event that the Master Lease requires that Sublessor obtain the consent of Master Lessor to any subletting by Sublessor then, this Sublease shall not be effective unless, within 10 days of the date hereof, Master Lessor signs this Sublease thereby giving its consent to this Subletting. 9.2 In the event that the obligations of the Sublessor under the Master Lease have been guaranteed by third parties then this Sublease, nor the Master Lessor's consent, shall not be effective unless, within 10 days of the date hereof, said guarantors sign this Sublease thereby giving guarantors consent to this Sublease and the terms thereof. 9.3 In the event that Master Lessor does give such consent then: (a) Such consent will not release Sublessor of its obligations or alter the primary liability of Sublessor to pay the rent and perform and comply with all of the obligations of Sublessor to be performed under the Master Lease. (b) the acceptance of rent by Master Lessor from Sublessee or any one else liable under the Master Lease shall not be deemed a waiver by Master Lessor of any provisions of the Master Lease. (c) The consent to this Sublease shall not constitute a consent to any subsequent subletting or assignment. (d) In the event of any default of Sublessor under the Master Lease, Master Lessor may proceed directly against Sublessor, any guarantors or any one else liable under the Master Lease or this Sublease without first exhausting Master Lessor's remedies against any other person on entity liable thereon to Master Lessor. (e) Master Lessor may consent to subsequent sublettings and assignments of the Master Lease or this Sublease or any amendments or modifications thereto without notifying Sublessor nor any one else liable under the Master Lease and without obtaining their consent and such action shall not relieve such persons from liability. (f) In the event that Sublessor shall default in its obligations under the Master Lease, then Master Lessor, at its option and without being obligated to do so, may require Sublessee to attorn to Master Lessor in which event Master Lessor shall undertake the obligations of Sublessor under the Sublease from the time of the exercise of said option to termination of this Sublease but Master Lessor shall not be liable for any prepaid rents nor any security deposit paid by Sublessee, nor shall Master Lessor be liable for any other defaults of the Sublessor under the Sublease. 9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at the end of this document shall constitute their consent to the terms of this Sublease. 9.5 Master Lessor acknowledges that, to the best of Master Lessor's knowledge, no default presently exists under the Master Lease of obligations to be performed by Sublessor and that the Master Lease is in full force and effect. 9.6 In the event the Sublessor defaults under its obligations to be performed under the Master Lease by Sublessor, Master Lessor agrees to deliver to Sublessee a copy of any such notice of default. Sublessee shall have the right to cure any default of Sublessor described in any notice of default within ten days after service of such notice to default on Sublessee. If such default is cured by Sublessee then Sublessee shall have the right of reimbursement and offset from and against Sublessor. 10. BROKERS FEE. 10.1 Upon execution hereof by all parties, Sublessor shall pay to The Seeley Company, a licensed real estate broker, (herein called "Broker"), a fee as set forth in a separate agreement between Sublessor and Broker, or in the event there is no separate agreement between Sublessor and Broker, the sum of $1,156.35 for brokerage services rendered by Broker to Sublessor in this transaction. 10.2 Sublessor agrees that if Sublessee exercises any option or right of first refusal granted by Sublessor herein, or any option or right substantially similar thereto, either to extend the term of this Sublease, to renew this Sublease, to purchase the Premises, or to lease or purchase adjacent property which Sublessor may own or in which Sublessor has an interest, or if Broker is the procuring cause of any lease, sublease, or sale pertaining to the Premises or any adjacent property which Sublessor may own or in which Sublessor has an interest, then as to any of said transactions Sublessor shall pay to Broker a fee, in cash, in accordance with the schedule of Broker in effect at the time of the execution of this Sublease. Notwithstanding the foregoing, Sublessor's obligation under this Paragraph 10.2 is limited to a transaction in which Sublessor is acting as a sublessor, lessor or seller. 10.3 Master Lessor agrees, by its consent to this Sublease, that if Sublessee shall exercise any option or right of first refusal granted to Sublessee by Master Lessor in connection with this Sublease, or any option or right substantially similar thereto, either to extend the Master Lease, to renew the Master Lease, to purchase the Premises or any part thereof, or to lease or purchase adjacent property which Master Lessor may own or in which Master Lessor has an interest, or if Broker is the procuring cause of any other lease or sale entered into between Sublessee and Master Lessor pertaining to the Premises, any part thereof, or any adjacent property which Master Lessor owns or in which it has an interest, then as to any of said transactions Master Lessor shall pay to Broker a fee, in cash, in accordance with the schedule of Broker in effect at the time of its consent to this Sublease. 10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due and payable upon the exercise of any option to extend or renew, as to any extension or renewal; upon the execution of any new lease, as to a new lease transaction or the exercise of a right of first refusal to lease; or at the close of escrow, as to the exercise of any option to purchase or other sale transaction. 10.5 Any transferee of Sublessor's interest in this Sublease, or of Master Lessor's interest in the Master Lease, by accepting an assignment thereof, shall be deemed to have assumed the respective obligations of Sublessor or Master Lessor under this Paragraph 10. Broker shall be deemed to be a third-party beneficiary of this paragraph 10. 11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party in any such action, on trial and appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the Court. The provision of this paragraph shall inure to the benefit of the Broker named herein who seeks to enforce a right hereunder. 12. ADDITIONAL PROVISIONS. [If there are no additional provisions draw a line from this point to the next printed word after the space left here. If there are additional provisions place the same here.] a) Sublessor shall Paint all office and warehouse walls b) Clean restrooms, carpets and windows c) Deliver the premises clean, free of debris, and all mechanical, lighting, plumbing, HVAC, and doors shall be in good working order. d) The Sublessees hereunder are majority owners of a company they intend to sublease the premises to. By signing below, Sublessor and Master Lessor give consent to said sublease. The company is involved in the operations set forth under Paragraph 6 of this document. There will be no release from obligations of Sublessee hereunder. IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE TRANSACTION RELATING THERETO. Executed at______________________________ Javelin Systems, Inc., a Delaware Corporation 9-16-97 /s/ RICHARD P. STACK on_______________________________________ By____________________________________________ Richard P. Stack, President 1881 Langley Avenue address__________________________________ Irvine, California 92164 _________________________________________ "Sublessor" (Corporate Seal) D Howard Lewis & William R. Miller Executed at______________________________ ______________________________________________ Sept. 16, 1997 /s/ D HOWARD LEWIS on_______________________________________ by____________________________________________ D Howard Lewis 2882-C Walnut Avenue address__________________________________ Tustin, California 92780 /s/ WILLIAM R. MILLER _________________________________________ by____________________________________________ William R. Miller Tustin, CA Executed at______________________________ "Sublessee" (Corporate Seal) Robert P. Peebles Trust, 9/17/97 dated 4-11-79 on_______________________________________ /s/ ROBERT P. PEEBLES (Trustee) address__________________________________ by____________________________________________ Robert P. Peebles _________________________________________ by____________________________________________ St. Helena, CA "Master Lessor" (Corporate Seal) Executed at______________________________ ______________________________________________ on_______________________________________ ______________________________________________ 1011 Greenfield Road ______________________________________________ address__________________________________ "Guarantors" St. Helena, CA 94574-9625 _________________________________________
NOTE: These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower St., Ste 600, Los Angeles, CA 90017. (213) 687-8777. EX-10.14 4 DISTRIBUTOR AGREEMENT WITH SCANSOURCE, INC. EXHIBIT 10.14 DISTRIBUTOR AGREEMENT This Agreement is entered into between Javelin Systems, Inc. (hereinafter ----------------------- referred to as "Manufacturer"), and ScanSource, Inc., 6 Logue Court, Suite G, Greenville, South Carolina, 29615 (hereinafter referred to as "Distributor"). This Agreement is effective upon the date of the last signature, the "Effective Date". W I T N E S S E T H : - - - - - - - - - - WHEREAS, Distributor desires to purchase certain products from Manufacturer from time to time; and WHEREAS, Manufacturer desires to sell certain products to Distributor in accordance with the terms and conditions set forth in this Agreement; and WHEREAS, Manufacturer desires to appoint Distributor as its non-exclusive distributor to market products within the territory defined in Appendix B, the "Territory"; NOW THEREFORE, in consideration of the mutual premises herein contained and other good and valuable consideration, Distributor and Manufacturer hereby agree as follows: ARTICLE I. TERM OF AGREEMENT ----------------- 1.1 Term of Agreement. During the term of the Agreement, Manufacturer will ----------------- provide to Distributor the Products in accordance with the terms and conditions set forth in this Agreement. The term of this Agreement shall commence on the Effective Date and, unless terminated by either party as set forth in this Agreement, shall remain in full force. 1.2 Definitions. The following definitions shall apply to this Agreement. ----------- (a) "APPLICABLE SPECIFICATION" shall mean the functional performance, operational and compatibility characteristics of a Product agreed upon in writing by the parties or, in the absence of an agreement, as described in applicable Documentation. (b) "DOCUMENTATION" shall mean user manuals, training materials, product descriptions 1 and specifications, technical manuals, license agreements, supporting materials and other printed information relating to the Products, whether distributed in print, electronic, or video format, in effect as of the date of the applicable Purchase Order. (c) "PRODUCTS" shall mean, individually or collectively as appropriate, licensed software, Documentation, developed products and hardware, supplies, accessories, and other commodities related to any of the foregoing, provided or to be provided by Manufacturer pursuant to this Agreement. (d) "STANDARD PRODUCTS" shall mean Products requiring no changes, alterations, or additions, from those Products customarily offered by Manufacturer. (e) "CUSTOMIZED PRODUCTS" shall mean any Products Manufacturer must purchase or develop requiring Manufacturer to perform changes, alterations, assembly, additions or special packaging prior to shipping to Distributor. (f) "CUSTOMERS" of Distributor shall include dealers, resellers, value added resellers and other similar customers. (g) "END USERS" shall mean final retail purchasers or licensees who have acquired Products for their own use and not for resale, remarketing or redistribution. (h) "SERVICES" means any warranty, maintenance, advertising, marketing or technical support and any other services performed or to be performed by Manufacturer. 1.3 Appointment as Distributor. Manufacturer hereby grants to Distributor the -------------------------- non-exclusive right to distribute products during the term of this Agreement within North America. Manufacturer reserves the right to appoint other authorized distributors both within and outside of the Territory. Distributor will use its best efforts to promote sales of the Products, see Rider 2A. Distributor agrees to conduct business in a manner that reflects favorably on the Products and Manufacturer. RIDER 2A 1.4 TERRITORY. Distributor shall distribute Products only within the Territory --------- and shall not solicit orders from any prospective purchaser with its principal place of business located outside the Territory. If Distributor receives any order from a prospective purchaser whose principal place of business is located outside of the Territory, Distributor shall not accept such order and shall immediately refer such order to Manufacturer. Distributor may not deliver or tender (or cause to be delivered or tendered) any Product outside of the Territory. Distributor shall not sell, directly or indirectly, Products outside the Territory or to any person or entity in the Territory knowing or having reason to believe that such person or entity will or intends to sell or resell Products outside the Territory. Advertising or promotion of Products by Distributor to any customer, retailer or dealer 2 outside the Territory or distribution of Products by Distributor to any dealer who resells or otherwise redistributes such Products for use outside the Territory will constitute a material breach of this Agreement. If Products originally shipped to Distributor are located or identified by manufacturer as available for sale or distribution by any unauthorized source, whether inside or outside the Territory, such location or identification by Manufacturer shall be presumptive evidence of a material breach by Distributor of this Section. 1.5 GENERAL OBLIGATIONS. Distributor shall: (a) Not obligate or purport to obligate Manufacturer by issuing or making any affirmations, representations, warranties or guaranties with respect to the Products to any third party, other than the warranties described in Article IV hereof; and (b) Use Manufacturer's trade names, trademarks and service marks on a non- exclusive basis in the Territory only for the duration of this Agreement and solely for displaying or advertising purposes in connection with selling and distributing the Products in accordance with this Agreement. 3 ARTICLE II. PURCHASE ORDERS --------------- 2.1 Preparation of Purchase Orders. From time to time, or at Distributor's ------------------------------ request, Manufacturer shall inform Distributor of Products available from Manufacturer including, but not limited to, replacement Products, new releases, enhancements or versions of existing Products. 2.2 Issuance and Acceptance of Purchase Orders. Distributor may purchase and ------------------------------------------ Manufacturer shall sell to Distributor, Products as described below: (a) Distributor may issue to Manufacturer one or more purchase orders identifying the Products Distributor desires to purchase from Manufacturer. Each Purchase Order may include other terms and conditions which are consistent with the terms and conditions of this Agreement or which are necessary to place a Purchase Order, such as billing and shipping information, required delivery dates, delivery location, and the purchase price or charges for Products, as per Manufacturer's then existing price lists for the said products. Purchase orders will be placed by Distributor by telephone or FAX and followed by a written purchase order. (b) Manufacturer shall indicate acceptance of Purchase Orders and/or alterations to Purchase Orders by providing to Distributor a written acceptance of such Purchase Order or alteration, or by commencing performance pursuant to such Purchase Order or alteration. Manufacturer shall accept a Purchase Order or alteration if (i) the Purchase Order or alteration does not establish new or conflicting terms and conditions from those set forth in this Agreement or as set forth on the Price List referenced as Exhibit A attached hereto, or (ii) the terms and conditions set forth in the Purchase Order or alteration have been separately agreed upon in writing by the parties. Purchase Orders and altered Purchase Orders accepted in accordance with this subsection are referred to herein as "Purchase Orders". A Purchase Order shall be deemed accepted by Manufacturer unless Manufacturer notifies Distributor within three (3) days after receiving the Purchase Order and giving specific reasons therefor. (c) After the expiration of this Agreement, Manufacturer shall accept Purchase Orders from Distributor for additional Products which Distributor is then contractually obligated to furnish to its customers and does not have in its inventory upon the termination of this Agreement; provided Distributor notifies Manufacturer of any and all such transactions in writing within thirty (30) days of the termination date of this Agreement. 2.3 Purchase Order Alteration. Prior to shipment of Standard Products, ------------------------- Manufacturer shall accept an alteration to a Purchase Order in order to: (i) change a location for delivery, 4 (ii) modify the quantity or type of Products to be delivered or (iii) correct typographical or clerical errors. Distributor may not alter any Purchase Order for Customized Products after such time as the Manufacturer has commenced the manufacturing, development or purchase of the Products. 2.4 Cancellation of Purchase Orders. Except as otherwise agreed upon by the ------------------------------- parties, Distributor may cancel a Purchase Order for Standard Products without charge or penalty with 7 day notice prior to shipment of the Products specified in such Purchase Order. Distributor may not cancel any Purchase Order for Customized or Special Order Products after such time as the Manufacturer has commenced the manufacturing, development or purchase of the Products. 2.5 Evaluation Purchase Orders. Distributor may issue Purchase Orders in order -------------------------- to evaluate newly developed Products by Manufacturer at no charge. After evaluation, Distributor shall have the option to purchase the Products or to return such products to Manufacturer at Distributor's expense within 30 days. 2.6 Product Shortages. If for any reason Manufacturer's production is not on ----------------- schedule, Manufacturer agrees to allocate Product to Distributor's orders based upon a percentage equal to the same percentage as Manufacturer's like customers purchasing like volume. ARTICLE III. DELIVERY AND ACCEPTANCE OF PRODUCTS ----------------------------------- 3.1 Acceptance of Products. Distributor shall inspect each shipment, and within ---------------------- 5 days after receipt of shipment accept each Product on the date (the "Acceptance Date") when such Products and all necessary documentation are delivered to Distributor in accordance with the Purchase Order and the Product specifications. 3.2 Defective Products. In the event any Products are received in a defective ------------------ condition or not in accordance with Manufacturer's published specifications or the documentation relating to such Products, Distributor may return the Products for full credit. Products shall be deemed defective if the Product, or any portion of the Product, fails to operate properly when the system is booted or used as applicable. Distributor shall have the right to return any such Products that are returned to Distributor from its customers or end users within thirty (30) days of the Products' initial delivery date to the end user. In such event, Manufacturer shall issue a Return Authorization to Distributor for all such defective 5 Products; and Distributor shall return defective products to Manufacturer for full credit. 3.3 Transportation of Products. Manufacturer shall deliver the Products to -------------------------- Distributor at the location shown and on the delivery date set forth in the applicable Purchase Order. Charges for transportation of the Products, including freight, insurance, shipping and taxes, shall be paid by the Distributor. 3.4 Title and Risk of Loss. Title to Products shall pass to Distributor at the ---------------------- time that the Products are delivered to the carrier. All risk of loss or damage to the Products shall be borne by Manufacturer until delivery of such Products to the carrier. 3.5 In Warranty Products. Manufacturer shall provide warranty service direct to -------------------- resellers based upon Manufacturer's then current standard warranty policy. The reseller must provide proof - of - purchase to validate the warranty and obtain an RMA from the manufacturer. Manufacturer will bear all processing costs to return product back to the reseller. 3.6 Resale of Products by Distributor. During the term of this Agreement, --------------------------------- Distributor may market, promote, distribute and resell Products to customers of Distributor, in accordance with the following terms and conditions: (a) Manufacturer shall extend to Distributor and each customer of Distributor Manufacturer's then current warranties with respect to Products purchased and resold hereunder. (b) Manufacturer shall extend to Distributor and each customer of Distributor the same warranties and indemnifications, with respect to Products purchased and resold hereunder as Manufacturer extends to its end-user customers. (c) The term of warranties extended by Manufacturer to an end user shall commence upon delivery of the Product to the end user. (d) Manufacturer shall make available at no charge to Distributor reasonable training, technical support and other services related to the Products that are currently offered or that may be offered by Manufacturer. Manufacturer also agrees to provide Distributor with telephone support at no charge during Manufacturer's normal business hours. (e) Distributor may refer to itself as Manufacturer's authorized distributor of the Products and Distributor may obtain written permission from Manufacturer to use trademarks and trade names of Manufacturer. Distributor is not authorized to use Manufacturer's name or any trademarks or trade name of Manufacturer other than in connection with the sale of Products in accordance with this Agreement, and all such permitted uses shall be subject to a prior written approval of Manufacturer. Distributor recognizes 6 Manufacturer may have rights and/or ownership of certain trademarks, trade names and patents associated with the Products. Distributor will act consistently with such rights, and Distributor shall comply with any reasonable, written guidelines when provided by Manufacturer relating to such trademark or trade name usage. Distributor is not authorized and shall not be required to instigate legal action on behalf of Manufacturer against third parties for infringement. Distributor will notify Manufacturer of any infringement if which Distributor has actual knowledge. Distributor shall discontinue use of Manufacturer's trademarks or trade names upon termination of this Agreement. 3.7 Inventory Adjustment. Manufacturer agrees to accept, on a quarterly basis -------------------- commencing with the end of the first calendar quarter following the effective date of this agreement, a shipment of current nondiscontinued Products in factory sealed cartons returned by Distributor for full credit, provided that distributor complies with each of the following conditions: (a) Distributor obtains a Return Authorization from Manufacturer prior to any such return; (b) Distributor pays all return freight charges; (c) Distributor places an offsetting order of equal or greater value. (d) Maximum return on any given quarter will be limited to 15% of the prior quarter's net sales. For purposes of determining whether Products are eligible for rotation pursuant to this section, Products shall be deemed to be "Current Nondiscontinued Products" if they are listed on Manufacturer's current price sheet, or if Manufacturer announces the discontinuance of such Products within the ninety (90) days preceding the claim for inventory adjustment. Customized Products shall not be eligible for repurchase pursuant to this section. In addition, Distributor shall have the right to return for full credit, without limitation as to the dollar amount, all Products that become obsolete or are removed from Manufacturer's current price list; provided Distributor returns such Products within thirty (30) days after Distributor receives notice that such Products are obsolete. 7 ARTICLE IV. WARRANTIES, INDEMNITIES AND LIABILITIES --------------------------------------- 4.1 Warranty. Manufacturer warrants that: -------- (a) Manufacturer is the exclusive, legal owner of products defined on the Price List referenced as Appendix A and has full power and authority to license said products to Distributor and convey all other rights and licenses granted to Distributor under this Agreement; (b) Manufacturer knows of no instance where Products infringe upon the proprietary rights of any other person; (c) Manufacturer's warranty with respect to the Products is set forth in Manufacturer's standard warranty card. Manufacturer does not make any express or implied representation nor warranty as to the merchantability or fitness for particular purpose of its Products to Distributor applications. 4.3 Limitation of Liability. Neither party shall be liable to the other ----------------------- pursuant to this Agreement for any amounts representing loss of profits, loss of business or indirect, incidental, special, consequential, or punitive damages of the other party. 4.4 Unauthorized Representations. Distributor shall have no authority to alter ---------------------------- or extend any of the warranties of Manufacturer expressly contained or referred to in this Agreement without prior written approval of Manufacturer. 4.5 Disclaimer of Warranties. Manufacturer has made expressed warranties in ------------------------ this Agreement and in documentation, promotional and advertising materials. EXCEPT AS SET FORTH THEREIN, MANUFACTURER DISCLAIMS ALL WARRANTIES WITH REGARD TO THE PRODUCTS, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, see Rider 7B. RIDER 7A 4.6 INDEMNIFICATION. Distributor and Manufacturer shall indemnify, protect and save its affiliates, successors and assigns and all officers, directors, employees and agents thereof (collectively, the "Indemnitees") harmless from and against all claims, damages, losses, costs, expenses, demands, suits or actions (including attorneys' fees incurred in connection therewith) 8 which may be asserted against the Distributor or Manufacturer for any kind of damages, including but without limitation, damage or injury to property or persons which may be sustained by any third party or any of the Indemnitees occurring out of or incident to the sale by Distributor or Manufacturer of any Products. RIDER 7B 4.7 MANUFACTURER'S LIABILITY ARISING OUT OF THE MANUFACTURE, SALE OR SUPPLYING OF THE PRODUCTS OR THEIR USE OR DISPOSITION, WHETHER BASED UPON WARRANTY, CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE ACTUAL PURCHASE PRICE PAID BY DISTRIBUTOR FOR THE PRODUCTS. IN NO EVENT SHALL MANUFACTURER BE LIABLE TO DISTRIBUTOR OR ANY OTHER PERSON OR ENTITY FOR PUNITIVE, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR LOSS OF SE DAMAGES) ARISING OUT OF THE MANUFACTURE, SALE OR SUPPLYING OF THE PRODUCTS, EVEN IF MANUFACTURER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSS. 9 ARTICLE V. PAYMENT TO MANUFACTURER ----------------------- 5.1 Charges, Prices and Fees for Products. Charges, prices, quantities and ------------------------------------- discounts, if any, for Products shall be determined as set forth in Manufacturer's Price List referenced in Exhibit A, or as otherwise agreed upon by the parties, and may be confirmed at the time of order. Manufacturer shall have the right to increase prices from time to time, upon written notice to Distributor not less than thirty (30) days prior to the effective date of such increase. All orders placed prior to the effective date of the increase, for shipment within thirty (30) days after the effective date, shall be at the old price. 5.2 Payment. Except as otherwise set forth herein, any undisputed sum due to ------- Manufacturer pursuant to this Agreement shall be payable within 30 days after the invoice date. Manufacturer shall invoice Distributor no earlier than the applicable shipping date for the Products covered by such invoice. 5.3 Price Protection. Manufacturer shall grant to Distributor a retroactive ---------------- price credit for the full amount of any Manufacturer price decrease on all Products on order, in transit and in its inventory on the effective date of such price decrease. Distributor shall supply to Manufacturer, within ten (10) days of a price decrease, an inventory list specifying the number of units within the current inventory which qualifies for the price decrease. Manufacturer may elect to audit such claims at their expense. All orders scheduled for shipment or in transit to Distributor at the time of notice of the price decrease shall be adjusted to the decreased price. 5.4 Monthly Shipment Reports. Manufacturer shall, if requested, render monthly ------------------------ reports to Distributor setting forth the separate Products, dollars invoiced for each product, and total dollars invoiced to Distributor for the month, and such other information as Distributor may reasonably request. POS reports will also be sent monthly. 5.5 Inventory. Distributor will submit to Manufacturer a quarterly, non- --------- binding forecast for the upcoming quarter, fifteen (15) days after completion of previous quarter. The forecasted quarters will coincide with the calendar year. 10 ARTICLE VI. TERMINATION ----------- 6.1 Termination Without Cause. Either party may terminate this agreement, with ------------------------- or without cause, upon giving the other party thirty (30) days prior written notice. 6.2 Termination for Cause. In the event that either party materially or --------------------- repeatedly defaults in their performance of any of its duties or obligations set forth in this Agreement, and such default is not substantially cured within thirty (30) days after the written notice, specified below, is given to the defaulting party specifying the default, then the party not in default may, by giving written notice thereof to the defaulting party, terminate this Agreement or the applicable Purchase Order relating to such default as of the date specified in such notice of termination. 6.3 Termination for Insolvency or Bankruptcy. This Agreement and any Purchase ---------------------------------------- Order shall be automatically terminated without act of or notice from any party in the event of (i) the liquidation or insolvency of either party, (ii) the appointment of a receiver or similar officer for any party, (iii) an assignment by any party for the benefit of all or substantially all of its creditors, (iv) entry by any party into an agreement for the composition, extension, or readjustment of all or substantially all of its obligations, or (v) the filing of a meritorious petition in bankruptcy by or against any party under any bankruptcy or debtors' law for its relief of reorganization. 6.4 Termination for Non-Payment. Manufacturer may terminate a Purchase Order, --------------------------- or any portion thereof, terminate this Agreement, or suspend delivery of any Products if Distributor fails to pay any amounts due and such failure continues for a period of thirty (30) days after the day payment is due. 6.5 Rights Upon Termination. Termination of any Purchase Order or this ----------------------- Agreement shall not affect Manufacturer's right to be paid for invoices for Products already shipped. The termination of this Agreement shall not affect any of Manufacturer's warranties, indemnifications or obligations relating to returns, credits or any other matters set forth in this Agreement that specifically state that they are to survive termination. Upon termination of this Agreement, Distributor shall discontinue holding itself out as a distributor of Manufacturer's Products. The expiration of the term of this Agreement shall not affect the obligations of either party to the other party pursuant to any Purchase Order previously forwarded to Manufacturer, provided that such Purchase Order is reasonable and consistent in quantity and time of requested delivery. 6.6 Inventory Adjustments. If this Agreement is terminated by Manufacturer, the --------------------- Manufacturer, with or without cause, will repurchase Distributor's inventory under the 11 following conditions: (a) There price to be paid for the repurchase of said inventory shall be at the Distributor's net cost at time of purchase. (b) All Products shall be in good merchantable condition. (c) All Products shall be shipped to Manufacturer's designated facility, freight prepaid. If this Agreement is terminated by Distributor, with or without cause, Manufacturer shall, at its option, thirty (30) days of such termination repurchase all unsold Products that are in excess of Distributor's contractual obligations to Manufacturer subject to the following: (a) The price to be paid for the repurchase of said inventory shall be at the Distributor's net cost at the time of purchase, less any price protection allowance. (b) All Products shall be in good and merchantable condition. (c) All Products shall be shipped to Manufacturer's designated facility, freight prepaid. 12 ARTICLE VII. MISCELLANEOUS ------------- 7.1 Binding Nature, Assignment, and Subcontracting. This Agreement shall be ---------------------------------------------- binding on the parties and their respective successors and permitted assigns, but neither party shall have the power to assign this Agreement without the prior written consent of the other party. 7.2 Counterparts. This Agreement may be executed in several counterparts, all ------------ of which taken together shall constitute one single agreement between the parties. 7.3 Heading. The Article and Section heading used in this Agreement are for ------- reference and convenience only and shall not enter into the interpretation hereof. 7.4 Relationship of Parties. Distributor is performing pursuant to this ----------------------- Agreement only as an independent contractor. Distributor has the sole obligation to supervise, manage, contract, direct, procure, perform or cause to be performed its obligations set forth in this Agreement, except as otherwise agreed upon by the parties. Nothing set forth in this Agreement shall be construed to create the relationship of principal and agent between Distributor and Manufacturer. Neither party shall act or represent itself, directly or by implication, as an agent of the other party or its affiliates or in any manner assume or create any obligation on behalf of, or in the name of, the other party or its affiliates. 7.5 Confidentiality. Each party acknowledges that in the course of performance --------------- of its obligations pursuant to this Agreement, it may obtain certain confidential and/or proprietary information of the other party. Each party hereby agrees that all such information communicated to it by the other party, its affiliates, or customers, whether before or after the Effective Date, shall be and was received in strict confidence, shall be used only for purposes of this Agreement, and shall not be disclosed without the prior written consent of the other party, except as may be necessary by reason of legal or regulatory requirements beyond either party's reasonable control. The provisions of this Section shall survive the term or termination of this Agreement for any reason. 7.6 Media Releases. Except for any announcement intended solely for internal -------------- distribution or any disclosure required by legal or regulatory requirements beyond the reasonable control of either party, and except for catalogs, advertising and marketing materials customarily used by Distributor in the normal course of business, all media releases, public announcements or public disclosures relating to this Agreement or its subject matter, or including the name of either party, shall be approved in writing (within 48 hours of submission) by the other party prior to the release thereof. 13 7.7 Disputes Resolution. In the event of any disagreement regarding performance ------------------- under or interpretation of this Agreement, prior to the commencement of any formal proceedings, the parties shall continue performance as set forth in this Agreement and shall attempt in good faith to reach a negotiated resolution by designating an officer or authorized representative of the party to resolve the dispute. 7.8 Arbitration. Should Manufacturer and Distributor disagree on any ----------- performance hereunder, the shall be decided by binding arbitration. Arbitration shall be conducted in Greenville, South Carolina in accordance with the then existing rules of the American Arbitration Association. There are to be three (3) mutually agreed upon arbitrators. Judgement upon any award by the arbitrators may be entered by the state or federal court having jurisdiction. The parties intend that this Agreement to arbitrate the aforementioned issue contained in this Paragraph 7.8 be irrevocable and limited to said issue. 7.9 Compliance with Laws. In supplying the Products pursuant to this Agreement, -------------------- Distributor and Manufacturer shall comply with the requirements of all applicable laws, ordinances and regulations of the United States or any state, country or other governmental entity. 7.10 Notices. Wherever one party is required or permitted to give notice to the ------- other pursuant to this Agreement, such notice shall be deemed given when delivered in hand, by telex, cable, facsimile, or when mailed by registered or certified mail, return receipt requested, postage prepaid, and addressed as follows: In the case of Manufacturer: In the case of Distributor: ---------------------------- --------------------------- Javelin Systems, Inc. ScanSource, Inc. 2882C Walnut Ave. 6 Logue Ct. Tustin, CA 92780 Suite G Att: President Greenville, SC 29615 Fax #: 714-734-1599 Fax #: 864-288-5515 Either party may from time to time change its address for notification purposes by giving the other party written notice of the new address and the date upon which it will become effective. 7.11 Force Majeure. If the performance of this Agreement, or any obligations ------------- hereunder, is prevented, restricted, or interfered with by reason of fire or other casualty or accidents; strikes or labor disputes; inability to provide raw materials, power, or supplies; declarations of war or other violence; any law, order, proclamation, regulation, ordinance, demand or other requirement of any governmental authority; the parties so affected, upon giving prompt notice to the other party, will be excused from performance to the extent of the prevention, restriction, or interference, provided that the party so affected uses its best 14 efforts to avoid or remove the causes of non-performance and continues performance hereunder whenever those causes are removed. 7.12 Severability. Whenever possible, each provision of this Agreement shall ------------ be interpreted in such a manner as to be effective and valid under the applicable law. In the event that any provision(s) contained in this Agreement is held to be unenforceable, this Agreement shall be construed without such provision(s). 7.13 Waiver. No delay or omission by either party to exercise any right or ------ power shall impair any such right or power or be construed to be a waiver thereof. A waiver by either of the parties of any covenants, conditions or agreements to be performed by the other or any breach thereof shall not be construed to be a waiver of any succeeding breach thereof or of any other covenant, condition or agreement herein contained. No change, waiver, or discharge hereof shall be valid unless presented in writing to all interested parties and signed by an authorized representative of the party against which such change, waiver, or discharge is sought to be enforced. 7.14 Remedies. All remedies set forth in this Agreement shall be cumulative -------- and in addition to and not in lieu of any other remedies available to either party at law, in equity or otherwise, and may be enforced concurrently or from time to time. 7.15 Survival of Terms. Termination or expiration of this Agreement for any ----------------- reason shall not release either party from any liabilities or obligations set forth in this Agreement which (i) the parties have expressly agreed shall survive any such termination or expiration, or (ii) remain to be performed or by their nature would be intended to be applicable following any such termination or expiration. 7.16 Nonexclusive Market and Purchase Rights. It is expressly understood and --------------------------------------- agreed that this Agreement does not grant to Manufacturer or Distributor an exclusive right to purchase or sell Products and shall not prevent either party from developing or acquiring other suppliers or customers. 7.17 Entire Agreement. This Agreement, including any Exhibits and documents ---------------- referred to in this Agreement or attached hereto, constitutes the entire and exclusive statement of Agreement between the parties with respect to its subject matters and there are no oral or written representations, understandings or agreements relating to this Agreement which are not fully expressed herein. 7.18 Governing law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of South Carolina. 15 7.19 Attorneys' Fees. The prevailing party in any proceedings (including, --------------- without limitation any arbitration proceedings) arising in connection with this Agreement shall be entitled to reimbursement for its reasonable costs incurred in connection therewith, including reasonable attorneys' fees. IN WITNESS WHEREOF, the parties have each caused this Agreement to be signed and delivered by its duly authorized officer or representative as of the Effective Date.
DISTRIBUTOR MANUFACTURER /s/ MICHAEL L. BAUR /s/ RICHARD STACK - ------------------------------------ --------------------------------- Signature Signature MICHAEL L. BAUR RICHARD STACK - ------------------------------------ --------------------------------- Printed or Typed Name Printed or Typed Name PRESIDENT PRESIDENT - ------------------------------------ --------------------------------- Title Title 3-14-97 2-27-97 - ------------------------------------ --------------------------------- Date Date
16 EX-11.1 5 STATEMENT RE: CALCULATION EXHIBIT 11.1 CALCULATION OF NET LOSS PER SHARE
Period from September 19, 1995 Year ended to June 30, 1997 June 30, 1996 ------------------ ------------------ PRIMARY Net loss $ (826,886) $ (54,342) ================== ================== Weighted average number of common shares outstanding during the period 2,726,510 2,086,260 Incremental common shares attributable to exercise of outstanding options and warrants 56,025 - ------------------ ------------------ Total shares 2,782,535 2,086,260 ================== ================== Net loss per share $ (0.30) $ (0.03) ================== ==================
EX-23.1 6 CONSENT OF E&Y EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to the 1996 Stock Incentive Award Plan of Javelin Systems, Inc. of our report dated August 1, 1997, with respect to the financial statements and schedule of Javelin Systems, Inc. included in the Annual Report (Form 10-KSB) for the year ended June 30, 1997. ERNST & YOUNG LLP Orange County, California September 26, 1997 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS OF THE COMPANY AS OF AND FOR THE YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 686,167 0 2,511,591 41,000 1,674,097 4,877,390 336,327 40,808 5,203,010 1,848,557 0 0 0 31,193 3,323,260 5,203,010 7,014,571 7,014,571 5,499,490 5,499,490 1,647,062 41,000 709,447 (826,886) 0 0 0 0 0 (826,886) (0.30) (0.30)
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