-----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, LzvdfLBOzbYn274/Ayf1QI6TKvzP2HTxFC4jjm0bEVmQ/OyuD3obRpS3Wa6LBhz8 sNGqQdZdUxMu8gAKM7LPWg== 0000892569-01-501327.txt : 20020413 0000892569-01-501327.hdr.sgml : 20020413 ACCESSION NUMBER: 0000892569-01-501327 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAM COMMERCE SOLUTIONS INC CENTRAL INDEX KEY: 0000819334 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 953866450 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16569 FILM NUMBER: 1819667 BUSINESS ADDRESS: STREET 1: 17520 NEWHOPE ST #100 CITY: FOUNTAIN VALLEY STATE: CA ZIP: 92708 BUSINESS PHONE: 7142419241 MAIL ADDRESS: STREET 1: 17520 NEWHOPE ST CITY: FOUNTAIN VALLEY STATE: CA ZIP: 92708 FORMER COMPANY: FORMER CONFORMED NAME: CAM COMMERCE SOULUTIONS DATE OF NAME CHANGE: 20000414 FORMER COMPANY: FORMER CONFORMED NAME: CAM DATA SYSTEMS INC DATE OF NAME CHANGE: 19920703 10-K 1 a78003e10-k.txt FORM 10-K FISCAL YEAR ENDED SEPTEMBER 30, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: __________ to __________ Commission file number : 0-16569 CAM COMMERCE SOLUTIONS, INC. (Exact name of registrant as specified in its Charter) DELAWARE 95-3866450 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 17520 NEWHOPE STREET FOUNTAIN VALLEY, CALIFORNIA 92708 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (714) 241-9241 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Title of each class ------------------- Common Stock $.001 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of voting stock held by non-affiliates of the Registrant as of December 5, 2001 was approximately $10,391,000. As of December 5, 2001, there were outstanding 3,023,000 shares of common stock of the Registrant. DOCUMENTS INCORPORATED BY REFERENCE. Part II Annual Report to Stockholders for fiscal year ended September 30, 2001 PART I ITEM 1. BUSINESS - -------------------------------------------------------------------------------- GENERAL Except for the historical information contained herein, this Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed in this report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section as well as the section entitled "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." THE COMPANY CAM Commerce Solutions, Inc. (the "Company") was incorporated in California in 1983, and reincorporated in Delaware in 1987. The Company's principal business is to provide total commerce solutions for small to medium size, traditional retailers and web retailers. These solutions are based on the Company's open architecture software products for managing inventory, point of sale, sales transaction processing and accounting. In addition to software, these solutions often include hardware, installation, training, service and consulting provided by the Company. Sales, service, research, and development are located in California and Nevada, while the Company's customers are located throughout the United States. WORKPRO ACQUISITION In November 2000, the Company acquired the customer base, source code and application code for the Work Pro software. The acquisition was accounted for using the purchase method of accounting. The total amount of cash paid was $600,000 for the purchase of both intangible and tangible assets, of which $580,000 has been capitalized as an intangible asset. This intangible asset is being amortized over a five-year period. Effective October 1, 2002 this intangible asset will no longer be amortized but instead, will be subject to annual impairment tests in accordance with Statement 142, Goodwill and Other Intangible Assets. Work Pro software is used by customers in the retail paint store industry. THE SYSTEMS The Company offers four turn key systems: (1) THE CAM SYSTEM -- designed for hard goods retailers whose inventory is re-orderable in nature. (2) THE PROFIT$ SYSTEM -- designed for apparel and shoe retailers whose inventory is seasonable in nature, and color and size oriented. (3) THE RETAIL STAR SYSTEM -- a Windows-based system designed to incorporate multiple functions of both the CAM and Profit$ systems. (4) THE MICROBIZ SYSTEM -- a Windows-based system designed for single store hard goods retailers that are generally smaller in size than customers that utilize the CAM System. Each of the Company's systems offer the ability to obtain: (i) automated pricing of each item; (ii) billing for charge account customers; (iii) printing of a customer invoice; (iv) tracking of inventory count on an item by item basis; (v) computation of gross profit, dollars and/or percentage of each item; and (vi) tracking of sales by clerk and department by hour, day and/or month. In addition, the Company's systems provide full management reporting including zero sales reports, inventory ranking, overstock and understock, sales analysis, inventory valuation (cost, average cost and retail) and other reports. The systems can also provide accounting functions including accounts receivable, accounts payable, and general ledger. 1 The Company's systems integrate Intel-based personal computers, computer point of sale stations, hand-held and table top barcode laser scanners, terminal or computer work stations, printers, and the Company's software. The Company is able to adapt its software to existing Intel-based personal computer. Each system is configured to meet the customer's particular needs and, as a result, the components included in each system, including the personal computer, printer, point of sale station and the Company's software, depend on the needs, the size and the industry type of the customer. The Company's software is derived from software originally designed and subsequently licensed to (or acquired by) the Company by Retail Solutions, Inc., for the CAM system, by MicroStrategies, Inc., for the Profit$ system, by Teamsoft, Inc. for the Retail Star system, by MicroBiz Inc. for the MicroBiz system. The Company continues to make modifications and enhancements to the software. The Company provides an entire system to each customer on a "turn key" basis, in that the Company provides all of the hardware and the software as well as the installation of a system on the customer's premises. All systems, except the MicroBiz system, are capable of handling multiple stores for a given customer. In a multiple-store system, the Company typically installs a computer network. The server computer at each store communicates with the server computer at the customer's main office. The main server computer compiles all information from the other locations for processing and reporting. INVENTORY MANAGEMENT The Company believes that inventory control is the most important and time consuming task facing the management of retail stores. Each of the Company's systems were designed to address the retailer's need for simpler and yet more accurate means of controlling a large and diverse inventory. All inventory information, once entered into the system, is updated for each sale that is transmitted from the point of sale station to the main computer. The systems are able to provide for the following managerial reports: (1) POPULARITY RANKING. The systems will report on the popularity of each item in the store by producing a report listing each item of inventory ranked according to the number of sales of each item. The report is generated automatically and can produce a list of daily, weekly, monthly, year-to-date and/or trailing 13 months of sales basis. The systems will also analyze the popularity data and indicate to the retailer which particular items of inventory are needed and which items are overstocked. (2) ZERO SALES REPORT. The systems provide a sales analysis on a monthly and year-to-date basis for inventory items for which no sales have been made. The analysis can be reported on a total sales basis or on a departmental or item level basis. (3) INVENTORY TABULATION AND VALUATION. The systems provide reports listing all inventory on hand, the valuation of such inventory on a cost and retail basis, the average cost of each item in inventory, and all items of inventory on order but not yet received. (4) AUTOMATIC PURCHASING. The systems provide a report listing all items that should be ordered based upon historical data stored in the system, including the number of items in inventory, the number on the shelf, the number on order and the minimum quantities required. The systems can also automatically provide a purchase order if desired. (5) PRICING. The systems are capable of producing price stickers in 20 customized label formats, assigning Uniform Purchase Code numbers and printing barcodes directly upon the price labels for reading by laser scanners. In addition, if there is a price change, the systems will automatically update the pricing information and, if desired, print new pricing labels. (6) REPORTS. The systems permit the retailer to customize and produce reports and forms utilizing data in the system in a format preferred by the retailer. ACCOUNTING MANAGEMENT The CAM System is capable of performing accounting functions through the M.A.S. 90(R) accounting software available from the Company. The Company has developed its own accounting software, which is integrated to its Retail Star software product. 2 SERVICE AND SUPPORT Customer service and support is a critical element in maintaining customer satisfaction. For a monthly fee, each purchaser of a system receives service and support from the Company. The service and support provided by the Company includes: (1) HARDWARE SERVICE. The Company offers hardware service to its customers on a time and material billing basis. The Company's service representatives are trained to determine the source of the problem or malfunction in the hardware and, once determined, replace the defective component. Defective components are either repaired at the Company's facility or sent to a manufacturer's authorized service center for repair. (2) TECHNICAL PHONE SUPPORT AND SOFTWARE ENHANCEMENTS. The Company provides technical support by troubleshooting the customer's systems problems via the telephone and via modem. The Company, while not performing any significant customizing of its software for particular customers, is receptive to comments from customers concerning the Company's software. Such comments, together with planned enhancements to the software, result in improvements, which are provided without additional cost to all customers on a service contract. (3) INSTALLATION AND TRAINING. In order to assure customers that they will be able to properly integrate the Company's system into their business, the Company offers on-site installation and training on the use and application of the system to each customer. The training can take place at the Company's in-house training facility or at the customer location. The amount of training required depends upon the knowledge and experience of the user plus the complexity of the business to which the system is being implemented. The Company also offers training to its customers via the telephone. MARKETING DIRECT SALES The Company markets its systems primarily through the Company's direct sales force consisting of thirty-eight salespersons and sales associates, all of whom work exclusively for the Company. The Company's marketing efforts extend nationwide with offices in the states of California, Nevada, Washington, Colorado, Georgia, Minnesota, Florida, Missouri, Massachusetts and New Jersey. Each salesperson is assigned a specific geographical territory and is responsible for following up on sales leads in that territory. Each salesperson is provided with a sales kit and demonstration equipment. Each salesperson is trained by the Company to be able to define the needs of the potential customer, recommend a system configuration, and provide appropriate price quotes. Upon the execution of a typical sales contract, the Company is generally able to install an entire system within four to six weeks. The Company is paid directly by the customer or by third-party leasing companies. Compensation for salespeople is based on a percentage of gross profit for each system sold. BROCHURES, TRADE SHOWS, AND ADVERTISING MEDIA The Company markets its systems by advertising in trade journals, the World Wide Web, and other print media targeted at retail businesses, by attending industry specific trade shows, by using sales promotional videos, and by direct mail advertising. SOURCES OF SUPPLY The computer hardware, which makes up the Company's systems, consists primarily of standard components purchased by the Company from outside distributors and includes products such as Intel-based personal computers, Okidata (printers), Symbol Technologies (hand-held laser scanners and portable data terminals), Ithaca (40-column printers), and U.S. Robotics (modems). For most computer hardware components, the Company has more than one source of supply. 3 BACKLOG The Company purchases component hardware for its systems based upon system purchase orders and its forecast of demand for its products. Orders from customers are usually shipped by the Company pursuant to an agreed upon schedule. However, orders may be canceled or rescheduled by the customer with a minimal penalty. For this reason, management believes such backlog information is not indicative of the Company's future sales or business trends and is subject to fluctuation. As of December 5, 2001, backlog was approximately $401,000 as compared to $1,031,000 on December 5, 2000. Backlog is based upon purchase orders placed with the Company which the Company believes are firm orders. COMPETITION The industry in which the Company operates is highly competitive. The Company competes with suppliers dedicated to one type of business and suppliers of software that provide functions similar to the Company's software. Most competitors sell their products through independent dealers on a regional basis. The Company sells on a direct sales basis. The Company competes on the basis of the capabilities and features of its systems. It believes the Windows-based Retail Star software product gives it a competitive advantage because some of the Company's competitors are still selling DOS-based software products. The Company considers its systems to have greater capabilities for the small and medium size retailers than suppliers of other systems. Included among such capabilities are ongoing software enhancement, and a service organization in place to support the customer after the initial sale. The Company also competes with vertical market suppliers of automated retail systems, which include hardware and software intended for use by a particular retail industry segment. Some of these suppliers compete with the Company on the basis of lower pricing. The ability of the Company to meet competition will depend upon, among other things, the Company's ability to maintain its marketing effort, increase the capabilities of its systems through ongoing enhancements and improvements, and to obtain financing when, and if, needed. PATENTS AND TRADEMARKS The Company has federal trademark registrations pending for the following two trademarks: Retail Star, Retail Ice, Retail America, I.Star and X-charge. The Company relies on a combination of trade secrets, copyright laws, and technical measures to protect its rights to its proprietary software. The software included in a system is not accessible by customers for purposes of revisions or copying, as the Company does not release the software source code to customers. 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 are no assurances that 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 is 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 is no assurance that the Company will have the necessary financial resources to defend or prosecute its rights in connection with any 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 these claims, which could have a material adverse effect on the Company's business, financial condition and results of operations. SEASONALITY The Company believes that seasonality has not had a significant effect on its business. 4 SOFTWARE DEVELOPMENT The Company's software has been developed using a modular approach. Modular designing allows a programmer to incorporate, replace or delete parts of a computer software program without affecting the operation of the remaining parts of the program. Accordingly, modular design facilitates the development of the Company's software and new products enabling the Company's programmers to incorporate entire sections from existing programs into the designs for such products. The incorporation of existing software, which has already been fully tested, into new products, reduces the time and expense that the Company would otherwise incur in developing and enhancing its products. The Company spent approximately $2,187,000, $2,035,000, and $1,607,000 on software development, including amounts capitalized during the years ended September 30, 2001, 2000, and 1999, respectively. The Company anticipates that it will continue to incur software development costs in connection with enhancements and improvements of its software and the development of new products. These activities may require an increase in the Company's programming and technical staff. EMPLOYEES As of September 30, 2001, the Company had 185 full time employees, including 15 employed in finance and administration, 32 in programming and quality assurance, 46 in sales and marketing, 26 in training and installation, 50 in technical support, 11 in operations and 5 in consulting. None of the Company's employees are represented by a labor union and the Company believes that it enjoys harmonious relationships with its employees. ENVIRONMENTAL REGULATIONS There has been no material effect on the Company from compliance with environmental regulations. ITEM 2. PROPERTIES - -------------------------------------------------------------------------------- The Company currently leases approximately 22,000 square feet of space in Fountain Valley, California pursuant to a five-year lease expiring April 1, 2002, at an average annual rent of approximately $192,000. This facility houses the Company's corporate headquarters which includes: executive and administrative offices, service and support staff, system integration, and inventory warehouse. The Company signed a five-year lease agreement for approximately 26,000 square feet of space for a new building in Fountain Valley, at an average annual rent of $343,000, with the expected move in date in March 2002. In addition, the Company also leases the following properties: (i) approximately 11,000 square feet of office space in Henderson, Nevada, which houses the Company's research and development team, the inside sales and telemarketing group, and the accounting services division on a ten-year lease that expires March 31, 2007, at an average annual rent of $136,000; (ii) approximately 3,600 square feet of office space in Upper Saddle River, New Jersey for MicroBiz Division on a three-year lease that expires August 31, 2004; and (iii) various immaterial month-to-month leases for sales offices throughout the country. ITEM 3. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- Because of the nature of its business, the Company is from time to time threatened or involved in legal actions. The Company does not believe any of the legal actions now pending against it will result in material adverse effect on the Company and, further, does not consider that any such proceedings fall outside ordinary, routine litigation incidental to the business of the Company. 5 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - -------------------------------------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 6 PART II PURSUANT TO GENERAL INSTRUCTION G (2), ITEMS 5, 6, 7, AND 8 HAVE BEEN OMITTED SINCE THE REQUIRED INFORMATION IS CONTAINED IN THE COMPANY'S 2001 ANNUAL REPORT TO STOCKHOLDERS PURSUANT TO RULE 14A-3(b), WHICH IS INCORPORATED HEREIN BY REFERENCE BELOW.
- ----------------------------------------------------------------------------------------- FORM 10-K ANNUAL REPORT TO STOCKHOLDERS - ----------------------------------------------------------------------------------------- ITEM 5: MARKET FOR REGISTRANT'S COMMON PAGE 16: STOCK AND DIVIDEND DATA EQUITY AND RELATED STOCKHOLDER'S MATTERS - ----------------------------------------------------------------------------------------- ITEM 6: SELECTED FINANCIAL DATA PAGE 17: SELECTED FINANCIAL DATA SEE NOTE (A) BELOW - ----------------------------------------------------------------------------------------- ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS PAGES 4-5: MANAGEMENT'S DISCUSSION AND OF FINANCIAL CONDITION AND RESULTS OF ANALYSIS OF FINANCIAL CONDITION AND OPERATIONS RESULTS OF OPERATIONS - ----------------------------------------------------------------------------------------- ITEM 8: FINANCIAL STATEMENTS AND SEE BELOW SUPPLEMENTARY DATA - -----------------------------------------------------------------------------------------
Note (A) The selected financial data incorporated herein by reference to the Company's 2001 Annual Report to Stockholders as of September 30, 2001 and 2000 and for each of the years in the three-year period ended September 30, 2001, have been derived from the Company's audited financial statements included elsewhere in this report by reference. The selected financial data as of September 30, 1999 and for the years ended September 30, 1998 and 1997 have been derived from audited financial statements of the Company not included herein. The data is qualified in its entirety by reference to, and should be read in conjunction with, the Company's financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this report by reference. Information for Item 8 is included in the Company's consolidated financial statements as of September 30, 2001 and 2000, and for each of the years in the three-year period ended September 30, 2001, and the Company's unaudited quarterly financial data for the two years ended September 30, 2001 and 2000, on pages 6 through 15 and page 17, respectively, of the Company's 2001 Annual Report to Stockholders which is hereby incorporated by reference. The report of the independent auditors is included on page 16 of the Annual Report to Stockholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------------------- INTEREST RATE RISK At September 30, 2001 and 2000, the Company's cash equivalents and short-term investments were approximately $9,451,000 and $10,444,000, respectively. Since the Company typically does not purchase fixed-income securities, its cash equivalents are not subject to significant interest rate risk. The Company places substantially all of its interest bearing investments with major financial institutions and by policy limits the amount of credit exposure to any one financial institution. Additionally, the Company does not hold or issue financial instruments for trading, profit or speculative purposes. EQUITY PRICE RISK The Company does not invest in available-for-sale equity securities, and is not subject to significant equity price risk. 7 FOREIGN EXCHANGE RATE RISK The Company does not operate internationally and, therefore, is not subject to market risk from changes in foreign exchange rates. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - -------------------------------------------------------------------------------- None. 8 PART III MANAGEMENT ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY - -------------------------------------------------------------------------------- As of September 30, 2001, the executive officers and directors of the Company and their ages are as follows:
- -------------------------------------------------------------------------------- NAME AGE POSITION WITH THE COMPANY - -------------------------------------------------------------------------------- Geoffrey D. Knapp 43 Chief Executive Officer, Chairman of the Board, and Secretary - -------------------------------------------------------------------------------- Greg Freeze 42 Chief Operating Officer - -------------------------------------------------------------------------------- Paul Caceres 41 Chief Financial Officer and Chief Accounting Officer - -------------------------------------------------------------------------------- Walter W. Straub 58 Director - -------------------------------------------------------------------------------- Corley Phillips 47 Director - -------------------------------------------------------------------------------- David A. Frosh 43 Director - -------------------------------------------------------------------------------- Scott Broomfield 44 Director - --------------------------------------------------------------------------------
GEOFFREY D. KNAPP, founder of the Company, has been a Director, and an officer of the Company since its organization in September 1983. Mr. Knapp received a bachelor's degree in marketing from the University of Oregon in 1980. GREG FREEZE is the Chief Operating Officer of the Company, hired in 1998 as Vice President of Software Support. Prior to joining the Company, Greg has held numerous positions in several software companies including Ultimate Southern California (1985-1988), Legal Management Systems (1988-1995), and DataWorks (1995-1998). Positions held included: programmer/analyst; senior programmer analyst; classroom training manager; telemarketing manager; account executive; marketing manager and vice president. Mr. Freeze holds a bachelor's degree in Business Administration and a MBA degree in International Business from California State University, Fullerton. He also holds the CPIM title awarded by the American Production and Inventory Control Society. PAUL CACERES has been the Chief Financial Officer and Chief Accounting Officer of the Company since September 1987. From 1982 to 1987, Mr. Caceres worked in Public Accounting and was employed by Arthur Young & Company, the predecessor to Ernst & Young LLP, as an Audit Senior and in 1987, was promoted to Audit Manager. Mr. Caceres is a Certified Public Accountant, licensed in the state of California. He received a bachelor's degree in business administration from the University of Southern California in 1982. WALTER W. STRAUB has been a Director of the Company since May 1989. From October 1983 to the present he has also served as the President, Chief Executive and Director or Rainbow Technologies, Inc., a public company engaged in the business of designing, developing, manufacturing and marketing of proprietary computer related security products. Mr. Straub received a bachelor's degree in electrical engineering in 1965 and a master's degree in finance in 1970 from Drexel University. CORLEY PHILLIPS joined the Company as Director in September 1996. Mr. Phillips is an independent investor. From 1996 to 1997, Mr. Phillips served as President, CEO and Director for Telephone Response Technologies, a Roseville, California-based developer of computer technology software. From 1995 to 1996, Mr. Phillips served as Vice President of marketing and product support for State of The Art, an 9 accounting software company based in Irvine, California. From 1990 to 1994, Mr. Phillips served as President and CEO of Manzanita Software Systems, a developer of Windows-based accounting software. From 1984 to 1990, Mr. Phillips was President and co-founder of Grafpoint, a developer of software for computer applications based in San Jose, California. Mr. Phillips has also held various sales and marketing positions with Envision Technology and Hewlett-Packard. Mr. Phillips holds both a bachelor's degree and a master's degree in electrical engineering from Washington University in St. Louis, Missouri, as well as a master's degree in business administration from Santa Clara University in Santa Clara, California. DAVID A. FROSH has been a member of the board of directors since August 1991. He is presently the President of Sperry Van Ness, a commercial real estate brokerage firm. Mr. Frosh was employed by CAM Commerce as President from June 1996 to March 2001. From June 1990 to June 1996, Mr. Frosh was employed as sales executive for the national accounts division of Automatic Data Processing "ADP". ADP provides computerized transaction processing, data communications and information services. From June 1988 to June 1990, Mr. Frosh served as Director of Marketing for Optima Retail Systems, a privately held company, which manufactured and marketed inventory control systems for the retail apparel industry. Mr. Frosh received a bachelor's degree in marketing from Central Michigan University in 1980 and a master's degree in business administration from Claremont Graduate School in 1999. SCOTT BROOMFIELD has over 20 years experience, with 15 years direct experience with high technology firms and companies in distress. He is presently the CEO of VisualE, a start-up software company specializing in solutions that enable businesses to rapidly deploy business systems that can be modified quickly to meet constantly changing business requirements. From 1998 through 2001, Scott was the CEO of Centura Software Corporation, a $55 million software company, where he was recruited to return capital for the investors. He was successful in the repositioning Centura to wireless computing and accomplished a ten-fold capital return to its major investors, before eventually selling the business to Platinum Equity Holdings. From 1989 through 1997, he was a principal with Hickey & Hill, Inc. a business turn around management firm. In this capacity, as a principal, he held senior operational, financial and advisory positions with Trilogy Systems, Dazix, DEC, Etec, InVision and Samsung. Mr. Broomfield holds an MBA from Santa Clara University. The terms of office of directors expire at the next Annual Meeting of Shareholders, or at such time as their successors have been duly elected and qualified. Directors who are not officers of the Company are entitled to an expense reimbursement for attending meetings. Officers serve at the discretion of the Board of Directors. There are no arrangements or understandings by or between any director or executive officer and any other person(s), pursuant to which he or she was or is to be selected as a director or officer, respectively. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of the Company's common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission "SEC". Officers, directors, and greater than ten percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such reports furnished to the Company, the Company believes all Section 16(a) filing requirements applicable to all such persons were complied with during the fiscal year covered by this report. CERTAIN SIGNIFICANT EMPLOYEES The Company does not have any significant employees who are not officers. FAMILY RELATIONSHIPS There are no family relationships by or between any director and officer of the Company. 10 ITEM 11. EXECUTIVE COMPENSATION - -------------------------------------------------------------------------------- The following table sets forth information concerning compensation paid by the Company for services rendered to the Company during fiscal year ended September 30, 2001, and the prior two fiscal years, to the Company's Chief Executive Officer and each additional executive officer whose total compensation exceeded $100,000 (each "Named Executive Officer"):
- ------------------------------------------------------------------------------------------ SUMMARY COMPENSATION TABLE - ------------------------------------------------------------------------------------------ ANNUAL COMPENSATION LONG-TERM COMPENSATION - ------------------------------------------------------------------------------------------ AWARDS - ------------------------------------------------------------------------------------------ SECURITIES NAME AND UNDERLYING PRINCIPAL OTHER ANNUAL OPTIONS/ ALL OTHER POSITION YEAR SALARY BONUS(1) COMPENSATION SARS (#) COMPENSATION(2) - ------------------------------------------------------------------------------------------ Geoffrey Knapp 2001 $266,000 $ -- -- 0 $2,000 Chairman of the 2000 $242,000 $ -- -- 0 $8,000 Board and CEO 1999 $223,000 $140,000 -- 0 $9,000 - ------------------------------------------------------------------------------------------ Paul Caceres 2001 $141,000 $ -- -- 0 $5,000 CFO and CAO 2000 $141,000 $ -- -- 0 $4,000 1999 $137,000 $ 62,000 -- 0 $5,000 - ------------------------------------------------------------------------------------------
(1) Bonuses paid to the Named Executive Officers are pursuant to annual incentive compensation programs established each year for selected employees of the Company, including the Company's executive officers. Under this program, performance goals, relating to such matters as sales growth, gross profit margin and net income as a percentage of sales and individual efforts were established each year. Incentive compensation, in the form of cash bonuses, was awarded based on the extent to which the Company and the individual achieved or exceeded the performance goals. (2) All other compensation consists of interest on employee notes payable to the Company and the amortization of the notes that was declared compensation during the year. STOCK OPTIONS GRANTED AND EXERCISED DURING 2001
- ----------------------------------------------------------------------------------------- OPTION GRANTS IN FISCAL YEAR 2001 -- INDIVIDUAL GRANTS - ----------------------------------------------------------------------------------------- % OF POTENTIAL REALIZABLE NUMBER OF TOTAL VALUE AT ASSUMED SHARES OPTIONS ANNUAL RATES OF UNDERLYING GRANTED EXERCISE STOCK PRICE OPTIONS TO OR BASE APPRECIATION FOR GRANTED EMPLOYEES PRICE EXPIRATION OPTION TERM NAME NUMBER(1) IN 2001 ($/SHARE) DATE 5%($)/10%($) - ----------------------------------------------------------------------------------------- Geoffrey Knapp -- -- -- -- -- - ----------------------------------------------------------------------------------------- Greg Freeze 15,000 5% $3.56 4/26/11 $34,000/$85,000 - ----------------------------------------------------------------------------------------- Paul Caceres 15,000 5% $3.56 4/26/11 $34,000/$85,000 - -----------------------------------------------------------------------------------------
(1) Options granted in fiscal 2001 vest over a four year period. (2) The exercise price was equal to the market price on the date of grant. The following table sets forth certain information concerning options exercised by the Named Executive Officers during the fiscal year covered by this report, and outstanding options at the end of such year held by the Named Executive Officers. 11
- -------------------------------------------------------------------------------- AGGREGATE OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES - -------------------------------------------------------------------------------- NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS SHARES VALUE SEPT. 30, 2001 AT SEPT. 30, 2001 ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE (1) UNEXERCISABLE UNEXERCISABLE - -------------------------------------------------------------------------------- Geoff Knapp -- -- 95,000/35,000 $76,000/$-- - -------------------------------------------------------------------------------- Greg Freeze -- -- 2,000/13,000 $--/$-- - -------------------------------------------------------------------------------- Paul Caceres -- -- 31,000/24,000 17,000/$-- - --------------------------------------------------------------------------------
(1) Market value of the underlying securities at the exercise date minus the exercise price of the options. REPORT OF COMPENSATION COMMITTEE TO: THE BOARD OF DIRECTORS As members of the Compensation Committee, it is our duty to review and recommend the compensation levels for members of the Company's management, evaluate the performance of management and administer the Company's various incentive plans. This Committee has reviewed in detail the Compensation of the Company's three executive officers. In the opinion of the Committee, the compensation of the three executive officers of the Company is reasonable in view of its performance and the respective contributions of such officers to the Company's performance. In determining the management compensation, this Committee compares the compensation paid to management to the level and structure of compensation paid to management of competing companies. Additionally, the Committee considers the sales and earnings performance of the Company compared to competing and similarly situated companies. The Committee also takes into account such relevant external factors as general economic conditions, geographic market of work place, stock price performance and stock market prices. Management compensation is comprised of 60% to 70% of fixed salary, and 30% to 40% variable compensation based on performance factors. Stock options are granted at the discretion of the Board of Directors, and there is no set minimum or maximum amount of options that can be issued. Performance factors that determine management compensation are sales, net income of the Company, and individual performance. The committee examines compilations of executive compensation such as various industry compensation surveys for middle market companies. In 2001, the compensation for the Chief Executive Officer and the other executive officers was comparable to other Chief Executive Officers and executive offices of middle market companies in related industries. Mr. Knapp, a member of the Committee, is also an executive officer of the Company. However, Mr. Knapp abstained from any considerations with respect to any decision directly affecting his compensation. COMPENSATION COMMITTEE WALTER STRAUB, SCOTT BROOMFIELD, AND GEOFFREY D. KNAPP DECEMBER 1, 2001 12 1993 STOCK OPTION PLAN In April 1993, the shareholders of the Company approved the Company's 1993 Stock Option Plan (the "1993 Plan") under which non-statutory options may be granted to key employees and individuals who provide services to the Company, at a price not less than the fair market value at the date of grant, and expire ten years from the date of grant. The options are exercisable based on vesting periods as determined by the Board of Directors. The Plan allows for the issuance of an aggregate of 1,200,000 shares of the Company's common stock. The Plan has a term of ten years. There have been 1,154,000 options granted under the 1993 Plan as of September 30, 2001. 2000 STOCK OPTION PLAN In April 2000, the Board of Directors of the Company approved the Company's 2000 Stock Option Plan (the "2000 Plan") under which non-statutory options may be granted to key employees and individuals who provide services to the Company, at a price not less than the fair market value at the date of grant, and expire ten years from the date of grant. The options are exercisable based on vesting periods as determined by the Board of Directors. The Plan allows for the issuance of an aggregate of 500,000 shares of the Company's common stock. The Plan term is unlimited in duration. There have been 319,000 options granted under the 2000 Plan as of September 30, 2001. 401-K PLAN In July 1991, the Company adopted a contributory profit-sharing plan under Section 401(k) of the Internal Revenue Code, which covers substantially all employees. Under the plan, eligible employees are able to contribute up to 15% of their compensation. The Company's contributions are at the discretion of the board of directors. There was no Company contribution for the fiscal year ended September 30, 2001. STOCK PRICE PERFORMANCE GRAPH The following graph shows a comparison of cumulative total returns for the Company, the Nasdaq Composite Stock Market Index and the Nasdaq Computer and Data Processing Services Index, during the period commencing on September 30, 1996 and ending on September 30 2001. The comparison assumes $100 was invested on September 30, 1996 in each of the Common stock, the Nasdaq Stock Market Composite Index, and the Nasdaq Computer and Data Processing Services Stock Index and assumes the reinvestment of all dividends, if any. 13 [PERFORMANCE GRAPH]
1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- NASDAQ STOCK MARKET 100 137 139 228 302 124 NASDAQ COMPUTER & DATA PROCESSING 100 135 175 298 374 134 SERVICES STOCKS CAM COMMERCE SOLUTIONS STOCK 100 62 74 224 108 70
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------------------------------------------------------------------------------- The following table sets forth as of September 30, 2001, certain information regarding ownership of the Company's Common Stock by (i) each person that the Company knows is the beneficial owner of more than 5% of the Company's outstanding Common Stock, (ii) each director and executive officer of the Company who owns Common Stock and (iii) all directors and officers as a group.
- -------------------------------------------------------------------------------- SHARES BENEFICIALLY OWNED - -------------------------------------------------------------------------------- NAME AND ADDRESS OF AMOUNT & NATURE OF PERCENTAGE OF CLASS TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER(9) (10) - -------------------------------------------------------------------------------- Common Stock Geoffrey D. Knapp(1) 396,000(2) 11.8% - -------------------------------------------------------------------------------- Common Stock Paul Caceres(1) 31,000(3) 0.9% - -------------------------------------------------------------------------------- Common Stock Walter W. Straub(1) 107,000(4) 3.2% - -------------------------------------------------------------------------------- Common Stock David Frosh(1) 59,000(5) 1.8% - -------------------------------------------------------------------------------- Common Stock Corley Phillips(1) 49,000(6) 1.5% - -------------------------------------------------------------------------------- Common Stock Scott Broomfield(1) 23,000(7) 0.7% - -------------------------------------------------------------------------------- Common Stock Greg Freeze(1) 2,000(8) 0.5% - -------------------------------------------------------------------------------- Common Stock All Directors and Officers as a Group (of 6 persons)(1) 666,000 20.4% - --------------------------------------------------------------------------------
(1) The address of each beneficial owner is in care of CAM Commerce Solutions, Inc., 17520 Newhope Street, Fountain Valley, California 92708. 14 (2) Includes (i) an aggregate of 3,100 shares of Common Stock held in trust for three daughters of Mr. Geoffrey Knapp over which he has shared voting power (ii) options to purchase an aggregate of 10,000 shares until the sooner of October 12, 2002, or twelve months after ceasing to serve as a director at a price of $2.34 per share. (iii) options to purchase an aggregate of 50,000 shares until the sooner of October 20, 2003 or twelve months after ceasing to serve as a director at a price of $1.93 per share (iv) options to purchase an aggregate of 20,000 shares until the sooner of December 16, 2006 or twelve months after ceasing to serve as a director at a price of $3.75 per share (v) options to purchase an aggregate of 50,000 shares until the sooner of August 2, 2010 or twelve months after ceasing to serve as a director at a price of $5.91 per share. (3) Includes options to purchase (i) an aggregate of 15,000 shares of Common Stock until January 3, 2004, at a price of $2.13 per share (ii) options to purchase an aggregate of 10,000 shares until December 16, 2006, at a price of $3.75 per share (iii) options to purchase an aggregate of 15,000 shares until August 2, 2010, at a price of $5.37 per share (iv) options to purchase an aggregate of 15,000 shares until April 26, 2011, at a price of $3.56 per share. (4) Includes options to purchase (i) an aggregate of 7,500 shares until the sooner of October 19, 2003, or twelve months after ceasing to serve as a director at a price of $1.75 per share (ii) an aggregate of 7,500 shares until the sooner of May 25, 2005, or twelve months after ceasing to serve as a director at a price of $2.38 per share (iii) an aggregate of 7,500 shares until the sooner of May 9, 2006, or twelve months after ceasing to serve as a director at a price of $2.50 per share (iv) an aggregate of 7,500 shares until the sooner of May 8, 2007, or twelve months after ceasing to serve as a director at a price of $3.38 per share (v) an aggregate of 4,400 shares until the sooner of May 8, 2007, or twelve months after ceasing to serve as a director at a price of $3.38 per share (vi) an aggregate of 10,000 shares until the sooner of May 7, 2008, or twelve months after ceasing to serve as a director at a price of $2.75 per share (vii) an aggregate of 7,500 shares until the sooner of May 6, 2009, or twelve months after ceasing to serve at a director at a price of $5.38 per share (viii) an aggregate of 7,500 shares until the sooner of August 2, 2010, or twelve months after ceasing to serve as a director at a price of $5.38 per share (ix) an aggregate of 7,500 shares until the sooner of April 5, 2011, or twelve months after ceasing to serve as a director, at a price of $3.56 per share. (5) Includes options to purchase (i) an aggregate of 7,500 shares until the sooner of May 9, 2006, or twelve months after ceasing to serve as a director at a price of $5.50 per share (ii) an aggregate of 40,000 shares until June 10, 2006, at a price of $2.50 per share (iii) an aggregate of 4,400 shares until the sooner of May 8, 2007 or twelve months after ceasing to serve as a director, at a price of $3.38 per share (iv) an aggregate of 7,500 shares until the sooner of April 5, 2011, or twelve months after ceasing to serve as a director, at a price of $3.56 per share. (6) Includes options to purchase (i) an aggregate of 5,000 shares until the sooner of September 23, 2006, or twelve months after ceasing to serve as a director at a price of $2.50 per share (ii) an aggregate of 7,500 shares until the sooner of May 8, 2007, or twelve months after ceasing to serve as a director at a price of $3.38 per share (iii) an aggregate of 10,000 shares until the sooner of May 7, 2008, or twelve months after ceasing to serve as a director at a price of $2.75 per share (iv) an aggregate of 7,500 shares until the sooner of May 6, 2009, or twelve months after ceasing to serve as a director at a price of $5.38 per share (v) an aggregate of 7,500 shares until the sooner of August 2, 2010, or twelve months after ceasing to serve as a director at a price of $5.38 per share (vi) an aggregate of 7,500 shares until the sooner of April 5, 2011, or twelve months after ceasing to serve as a director, at a price of $3.56 per share. (7) Includes options to purchase (i) an aggregate of 7,500 shares until the sooner of May 6, 2009, or twelve months after ceasing to serve at a director at a price of $5.38 per share (ii) an aggregate of 360 shares until the sooner of April 22, 2009, or twelve months after ceasing to serve as a director at a price of $5.25 per share (iii) an aggregate of 7,500 shares until the sooner of August 2, 2010, or twelve months after ceasing to serve at a director at a price of $5.38 per share (iv) an aggregate of 7,500 shares until the sooner of April 5, 2011, or twelve months after ceasing to serve as a director, at a price of $3.56 per share. (8) Includes options to purchase an aggregate of 15,000 shares, until the sooner of April 26, 2011, at a price of $3.56 per share. (9) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage 15 ownership of that person, shares of Common Stock subject to options or warrants held by that person that are currently exercisable, or will become exercisable within 60 days from the date hereof, are deemed outstanding. Such shares, however, are not deemed outstanding for purposes of computing the percentage ownership of any other person. (10) The percentage of ownership of the class of voting securities in the above table has been calculated by dividing (i) the aggregate number of shares of such class actually owned plus all shares of such class which may be deemed to be "beneficially owned," by (ii) the number of shares of such class actually outstanding plus the number of shares of such class such "beneficial owner" may be deemed to "beneficially own" assuming no other acquisitions of shares of such class through the exercise of any option, warrant or right by any other person. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------------------------------- During the fiscal year ended September 30, 2001, the Company granted non-qualified options to certain employees and directors to purchase an aggregate of 324,000 shares of Common Stock of the Company at a price ranging from $3.56 to $7 per share expiring ten years from the date of grant. The Company leases a building from an officer of the Company. The Company paid $144,000 in lease payments to the officer during the fiscal year ended September 30, 2001. 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------------- (a) 1. CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements required to be filed hereunder are listed on page 7 hereof. See Part II, Item 8 of this report for information regarding the incorporation by reference herein of such financial statements. (a) 2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE The following financial statement schedule of the Company is included on the page hereof indicated below: Page Schedule II - Valuation and Qualifying Accounts 24 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (a) 3. OTHER EXHIBITS 3(a) Certification of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3(a) to the 1988 Annual Report on Form 10-K filed on January 12, 1989 -- SEC File No. 0-16569). 3(b) By-Laws of the Company (incorporated by reference to Exhibit 3(b) to the S-18 Registration Statement filed July 13, 1987 -- SEC File No. 33-15821-LA). 10(a) Company's Lease for premises at Fountain Valley, California (incorporated by reference to Exhibit 10(b) to the 1988 Annual Report on Form 10-K filed on January 12, 1989 -- SEC File No. 0-16569). 10(b) 1993 Stock Option Plan (incorporated by reference to the exhibits on Form S-8 Registration Statement filed on June 21, 1993). 10(c) Individual Option Agreements (incorporated by reference to the exhibits on Form S-3 SEC File No. 33-57564 Registration Statement filed on June 17, 1993). 10(d) Extension to Company's Lease for premises at Fountain Valley, California (incorporated by reference to Exhibit 10 (i) to the 1993 Annual Report on Form 10-K filed on December 27, 1993 --SEC File No. 0-16569). 10(e) Employment Agreement, and Change in Control Agreements for Geoffrey D. Knapp, dated January 1, 1996, (incorporated by reference to Exhibits 10 (h) and (i) to the Form 10-Q for the period ended March 31, 1996, filed on May 7, 1996). 10(f) Employment Agreement, and Change in Control Agreements for Paul Caceres, dated January 1, 1996, (incorporated by reference to Exhibits 10 (j) and (k) to the Form 10-Q for the period ended March 31, 1996, filed on May 7, 1996). 17 10(h) Amendment to 1993 Stock Option Plan (incorporated by reference to the exhibits on Form S-8 Registration Statement filed on June 26, 1998). 10(i) 2000 Stock Option Plan (incorporated by reference to Exhibit 10(i) to the 2000 Annual Report on Form 10-K filed on December 21, 2000). 10(j) Fountain Valley New Office Lease Agreement. 13(a) Annual Report to Stockholders for the fiscal year ended September 30, 2001. 23 Consent of Independent Auditors. (b) REPORTS ON FORM 8-K There was no Form 8-K filed during the year ended September 30, 2001. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be filed on its behalf by the undersigned, thereunto duly authorized. CAM COMMERCE SOLUTIONS, INC. By: /s/ Geoffrey D. Knapp --------------------------------- Geoffrey D. Knapp, Chief Executive Officer By: /s/ Paul Caceres. --------------------------------- Paul Caceres, Chief Financial Officer and Chief Accounting Officer Date: December 20, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Geoffrey D. Knapp Chief Executive December 20, 2001 - ----------------------- Officer and Chairman Geoffrey D. Knapp of the Board /s/ David Frosh Director December 20, 2001 - ----------------------- David Frosh /s/ Walter W. Straub Director December 20, 2001 - ----------------------- Walter W. Straub /s/ Corley Phillips Director December 20, 2001 - ----------------------- Corley Phillips /s/ Scott Broomfield Director December 20, 2001 - ----------------------- Scott Broomfield
19 CAM COMMERCE SOLUTIONS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE ITEM 14(a)
Page Reference -------------- Annual Report to Stockholders Form 10-K --------------- --------- Report of Independent Auditors 16 Consolidated Balance Sheets at September 30, 2001 and 2000 6 Statements of Consolidated Operations for the Years Ended September 30, 2001, 2000 and 1999 7 Statements of Consolidated Cash Flows for the Years Ended September 30, 2001, 2000 and 1999 8 Statement of Consolidated Stockholders' Equity for the Years Ended September 30, 2001, 2000 and 1999 9 Notes to Consolidated Financial Statements 10-15 Report of Independent Auditors on Financial Statement Schedule 21 II. Valuation and Qualifying Accounts for the Years Ended September 30, 2001, 2000 and 1999 24 Consent of Independent Auditors 24
All other financial statement schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 20 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE The Board of Directors CAM Commerce Solutions, Inc. We have audited the consolidated financial statements of CAM Commerce Solutions, Inc. as of September 30, 2001 and 2000, and for each of the three years in the period ended September 30, 2001, and have issued our report thereon dated November 9, 2001. Our audits also included the financial statement schedule of CAM Commerce Solutions, Inc. listed in the accompanying index to consolidated financial statements and financial statement schedule (Item 14(a)). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this schedule based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Orange County, California November 9, 2001 21 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3(a) Certification of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3(a) to the 1988 Annual Report on Form 10-K filed on January 12, 1989 -- SEC File No. 0-16569). 3(b) By-Laws of the Company (incorporated by reference to Exhibit 3(b) to the S-18 Registration Statement filed July 13, 1987 -- SEC File No. 33-15821-LA). 10(a) Company's Lease for premises at Fountain Valley, California (incorporated by reference to Exhibit 10(b) to the 1988 Annual Report on Form 10-K filed on January 12, 1989 -- SEC File No. 0-16569). 10(b) 1993 Stock Option Plan (incorporated by reference to the exhibits on Form S-8 Registration Statement filed on June 21, 1993). 10(c) Individual Option Agreements (incorporated by reference to the exhibits on Form S-3 SEC File No. 33-57564 Registration Statement filed on June 17, 1993). 10(d) Extension to Company's Lease for premises at Fountain Valley, California (incorporated by reference to Exhibit 10 (i) to the 1993 Annual Report on Form 10-K filed on December 27, 1993 --SEC File No. 0-16569). 10(e) Employment Agreement, and Change in Control Agreements for Geoffrey D. Knapp, dated January 1, 1996, (incorporated by reference to Exhibits 10 (h) and (i) to the Form 10-Q for the period ended March 31, 1996, filed on May 7, 1996). 10(f) Employment Agreement, and Change in Control Agreements for Paul Caceres, dated January 1, 1996, (incorporated by reference to Exhibits 10 (j) and (k) to the Form 10-Q for the period ended March 31, 1996, filed on May 7, 1996).
22 10(h) Amendment to 1993 Stock Option Plan (incorporated by reference to the exhibits on Form S-8 Registration Statement filed on June 26, 1998). 10(i) 2000 Stock Option Plan (incorporated by reference to Exhibit 10(i) to the 2000 Annual Report on Form 10-K filed on December 21, 2000). 10(j) Fountain Valley New Office Lease Agreement. 13(a) Annual Report to Stockholders for the fiscal year ended September 30, 2001. 23 Consent of Independent Auditors.
23 CAM COMMERCE SOLUTIONS, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
- ------------------------------------------------------------------------------------------ (REDUCTIONS)/ BALANCE AT ADDITIONS DEDUCTIONS/ACCOUNTS BEGINNING OF CHARGED TO WRITTEN OFF NET BALANCE AT END YEAR INCOME OF RECOVERIES OF YEAR - ------------------------------------------------------------------------------------------ Allowance for Doubtful Accounts Receivable - ------------------------------------------------------------------------------------------ 2001 $310,000 $108,000 $168,000 $250,000 - ------------------------------------------------------------------------------------------ 2000 $380,000 $417,000 $487,000 $310,000 - ------------------------------------------------------------------------------------------ 1999 $235,000 $490,000 $345,000 $380,000 - ------------------------------------------------------------------------------------------
24 EX-10.(J) 3 a78003ex10-j.txt EXHIBIT 10(J) EXHIBIT 10(j) [LOGO] STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. BASIC PROVISIONS ("BASIC PROVISIONS"). 1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only December 12, 2000, is made by and between Pelican Center LLC, a California Limited Liability Company ("LESSOR") and CAM Commerce Solutions, Inc., a Delaware Corporation ("LESSEE"), (collectively the "PARTIES", or individually a "PARTY"). 1.2(a) PREMISES: That certain portion of the Project (as defined below), including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of New Hope Street (Address to follow), south of Warner, located in the City of Fountain Valley, County of Orange, State of California, with zip code 92708, as outlined on Exhibit A attached hereto ("PREMISES") and generally described as (describe briefly the nature of the Premises): approximately 26,000 square foot unit, part of larger 56,800 square foot corporate headquarters industrial building. In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the building containing the Premises ("BUILDING") or to any other buildings in the Project. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "PROJECT." (See also Paragraph 2) 1.2(b) PARKING:4/1000 per rentable area unreserved vehicle parking spaces ("UNRESERVED PARKING SPACES"); and four (4) reserved vehicle parking spaces ("RESERVED PARKING SPACES"). (See also Paragraph 2.6) 1.3 TERM: five (5) years and zero (0) months ("ORIGINAL TERM") commencing December 1, 2001 ("COMMENCEMENT DATE") and ending November 30, 2006 ("EXPIRATION DATE"). (See also Paragraph 3) 1.4 EARLY POSSESSION: November 1, 2001 ("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3) 1.5 BASE RENT: $28,600.00 per month ("BASE RENT"), payable on the first day of each month commencing December 1, 2001. (See also Paragraph 4) [X] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. (Actual percentage to be determined) 1.6 LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Forty-six percent (46%) ("LESSEE'S SHARE"). 1.7 BASE RENT AND OTHER MONIES PAID UPON EXECUTION: (a) BASE RENT: $28,600.00 for the period December 1-31, 2001. (b) COMMON AREA OPERATING EXPENSES: $_________ for the period TBD throughout lease term. (c) SECURITY DEPOSIT: $32,189.55 ("SECURITY DEPOSIT"). (See also Paragraph 5) (d) OTHER: $_________ for ___________________________. (e) TOTAL DUE UPON EXECUTION OF THIS LEASE: $60,789.55. 1.8 AGREED USE: General office, assembly and distribution of software products. (See also Paragraph 6) 1.9 INSURING PARTY. Lessor is the "INSURING PARTY". (See also Paragraph 8) 1.10 REAL ESTATE BROKERS: (See also Paragraph 15) (a) REPRESENTATION: The following real estate brokers (the "BROKERS") and brokerage relationships exist in this transaction (check applicable boxes): [X] CB Richard Ellis represents Lessor exclusively ("LESSOR'S BROKER"); [ ] ______________________ 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 Brokers the brokerage fee agreed to in a separate written agreement (or if there is no such agreement, the sum of ___ or __% of the total Base Rent for the brokerage services rendered by the Brokers). 1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by None ("GUARANTOR"). (See also Paragraph 37) 1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda consisting of Paragraphs 50 through 55 and Exhibits A through 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 Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. 2.2 CONDITION. Lessor shall deliver that portion of the Premises contained within the Building ("UNIT") 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 and in effect within thirty 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 Unit, 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 the Unit shall be free of material defects. If a non-compliance with such warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, 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, malfunction or failure, rectify same at Lessor's expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, Page 1 of 12 and (ii) 30 days as to the remaining systems and other elements of the Unit. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee's sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls - see Paragraph 7). *Construction warranties for the HVAC, electrical and plumbing shall pass through to tenant. 2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed, and also with all applicable laws, covenants or restrictions of record, regulations, and ordinances in effect on the Start Date ("APPLICABLE REQUIREMENTS"). 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 APPLICABLE REQUIREMENTS, AND ESPECIALLY THE ZONING, ARE 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 Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as follows: (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 is such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 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 6 months' 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 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises 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 the portion of such costs reasonably attributable to the Premises pursuant to the formula set out in Paragraph 7.1(d); provided, however, that is such Capital Expenditure is required during the last 2 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 90 days prior written notice to Lessee unless Lessee notifies Lessor in writing, within 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 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 the Americans with Disabilities Act), 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 Brokers have 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: (i) Brokers have made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants. 2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE VEHICLES." Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor. (a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. (b) Lessee shall not service or store any vehicles in the Common Areas. (c) If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.7 COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Unit that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and landscaped areas. 2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations ("RULES AND REGULATIONS") for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project. 2.10 COMMON AREAS -- CHANGES. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Common Areas including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remain available; (c) To designate other land outside the boundaries of the Project to be a part of the Common Areas; (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof; and (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate. 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 Lessee's Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such Page 2 of 12 period. Any such early possession shall not affect the Expiration Date.*"During the Early Possession period (30 days) the CAM charges shall be abated. See second sentence of paragraph 3.2. 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 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 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 10 day period, Lessee's right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date 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 within 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 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following: (i) The operation, repair and maintenance, in neat, clean, good order and condition of the following: (aa) The Common Areas and Common Area improvements, including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, and roof drainage systems. (bb) Exterior signs and any tenant directories. (cc) Any fire detection and/or sprinkler systems. (ii) The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered. (iii) Trash disposal, pest control services, property management, security services, and the costs of any environmental inspections. (iv) Reserves set aside for maintenance and repair of Common Areas. (v) Real Property Taxes (as defined in Paragraph 10). (vi) The cost of the premiums for the insurance maintained by Lessor pursuant to Paragraph 8. (vii) Any deductible portion of an insured loss concerning the Building or the Common Areas. (viii) The cost of any Capital Expenditure to the Building or the Project not covered under the provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such Capital Expenditure over a 12 year period and Lessee shall not be required to pay more than Lessee's Share of 1/144th of the cost of such Capital Expenditure in any given month. (ix) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense. (b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building in the Project or to the operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project. (c) The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them. (d) Lessee's Share of Common Area Operating Expenses shall be payable by Lessee within 10 days after a reasonably detailed statement of actual expenses is presented to Lessee. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Common Area Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each 12 month period of the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee within 60 days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee's payments under this Paragraph 4.2(d) during the preceding year exceed Lessee's Share as indicated on such statement, Lessor shall credit the amount of such over-payment against Lessee's Share of Common Area Operating Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(d) during the preceding year were less than Lessee's Share as indicated on such statement, Lessee shall pay to Lessor the amount of the deficiency within 10 days after delivery by Lessor to Lessee of the statement. 4.3 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one 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. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any late charges which may be due. 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 the Security Deposit, Lessee shall within 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 Lessor, deposit additional monies 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 such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 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 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 nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold 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, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in the Agreed Use. 6.2 HAZARDOUS SUBSTANCES. Page 3 of 12 (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 potentially liability of Lessor to any governmental agency or third party under any applicable statute 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. (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 areas outside of the Project). 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, including the cost of remediation, 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 willful misconduct 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 measure required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. 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) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition (see Paragraph 9.1(e)) 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 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 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 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 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 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 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 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" (as defined in Paragraph 30) 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 inspection, 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. (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 the Premises, Utility Installations (intended for Lessee's exclusive use, no matter where located), 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 Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2. 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. (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, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, (iii) clarifiers, and (iv) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof. (c) FAILURE TO PERFORM. If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly reimburse Lessor for the cost thereof. (d) 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 an item 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 item, then such item 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 Page 4 of 12 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 144 (i.e. 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor's accountants. Lessee may, however, prepay its obligation at any time. 7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives 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. 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). (b) CONSENT. 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 a sum equal to 3 month's Base Rent in the aggregate or a sum equal to one month's Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. 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 in excess of one month's Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of 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 materialman's lien against the Premises or any interest therein. Lessee shall give Lessor not less than 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 150% of 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 earlier than 90 and not later than 30 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. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. 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 OF PREMIUMS. The cost of the premiums for the insurance policies required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Start Date or Expiration Date. 8.2 LIABILITY INSURANCE. (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance and a policy of Worker's Compensation insurance protecting Lessee and Lessor as an additional insured 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 $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, 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. Copies of all such policies shall be given to Lessor within ten (10) days after occupancy of the Premises by Lessee. (b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and 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. Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor, with loss payable to Lessor, any ground-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 Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4. 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. (b) RENTAL VALUE. Lessor shall also 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 year with an extended period of indemnity for an additional 180 days ("Rental Value insurance"). 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 12 month period. (c) ADJACENT PREMISES. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. Page 5 of 12 (d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. 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. 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 modification except after 30 days prior written notice to Lessor. Lessee shall, at least 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 gross negligence or willful misconduct, 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. 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, 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 nor from the failure of Lessor to enforce the provisions of any other lease in the Project. 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 3 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 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 improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than 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 $5,000 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 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 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 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 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 (ii) have this Lease terminate 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 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 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 30 days after marking 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 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 6 months of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 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 10 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 Page 6 of 12 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 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 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 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. See Addendum 60. 10.1 DEFINITION. 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 Project, 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 Project 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 Project is 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 Project or any portion thereof or a change in the improvements thereon. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common. 10.2 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes applicable to the Project, and except as otherwise provided in Paragraph 10.3, any such amounts shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2. 10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Project by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee's request. 10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real Property Taxes allocated to the Building 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 determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 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. Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor's sole judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or other commonly metered utilities, or that Lessee is generating such a large volume of trash as to require an increase in the size of the dumpster and/or an increase in the number of times per month that the dumpster is emptied, then Lessor may increase Lessee's Base Rent by an amount equal to such increased costs. 12. ASSIGNMENT AND SUBLETTING. See Addendum 52. 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. (b) A change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles. (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 either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent. (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. (a) Regardless of Lessor's consent, no assignment or subletting shall: (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) after 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 any 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 with a fee of $1,000 or 10% of the current monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, 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. (g) Lessor's consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2) 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 Page 7 of 12 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. (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 and Regulations 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 Security Deposit 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 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 any unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 41 (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 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 2.9 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee's Default is such that more than 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 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. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 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 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 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 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 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 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 of 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. 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 reasonably 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 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 CHARGE. 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 be received by Lessor within 10 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 10% of each such overdue amount or $100, whichever is greater. 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 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Page 8 of 12 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, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest ("INTEREST") charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due 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 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 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 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 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 not 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 10% of the floor area of the Unit, or more than 25% of Lessee's Reserved Parking Spaces, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 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. BROKERAGE FEES. 15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires from Lessor any rights to the Premises or other premises owned by Lessor and located within the Project, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease. 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. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees 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 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 for the limited purpose of collecting any brokerage fee owned. 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. ESTOPPEL CERTIFICATES. (a) Each Party (as "RESPONDING PARTY") shall within 10 days after written notice from the other Party (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "ESTOPPEL CERTIFICATE" 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. (b) If the Requesting Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's rent has been paid in advance. Prospective purchasers and encumbrances may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate. (c) 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 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 or 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, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent holders of the Lessor's 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 6.2 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. 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. Subject to the provisions of Paragraph 17 above, 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 assets 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. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys' fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker. 23. NOTICES. 23.1 NOTICE OF REQUIREMENTS. All notices required or permitted by this Lease or applicable law 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 Page 9 of 12 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 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 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 (confirmation report from fax machine is sufficient), 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. DISCLOSURE REGARDING THE NATURE OF A REAL ESTATE AGENCY RELATIONSHIP. (a) When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows: (i) Lessor's Agent. A Lessor's agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor's agent or subagent has the following affirmative obligations: To the Lessor: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in performance of the agent's duties. (b) A duty of honest and fair dealing and good faith. (c) A duly to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above. (ii) Lessee's Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor's agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in performance of the agent's duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above. (iii) Agent Representing Both Lessor and Lessee. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional. (b) Brokers have no responsibility with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys' fees), of any Broker with respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker. (c) Buyer and Seller agree to identify to Brokers as "Confidential" any communication or information given Brokers that is considered by such Party to be confidential. 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 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee. 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 (in this Lease together referred to as "LENDER") 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, whereupon 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. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of such new owner, this Lease shall automatically become a new Lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor's obligations hereunder, except that such new owner shall not; (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month's rent, or (d) be liable for the return of any security deposit paid to any prior lessor. 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 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 60 days, then Lessee may, at Lessee's option, directly contact 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. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's 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 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 ($200 is a reasonable minimum per occurrence for such services and consultation). 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 Page 10 of 12 an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or tenants, 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 6 months of the term hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on 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 which may be placed only on the Premises, Lessee shall not place any sign upon the Project without Lessor's prior written consent. All signs must comply with all Applicable Requirements.* 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 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 10 business days following such request. 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) an Estoppel Certificate, 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. If Lessee is granted an option, as defined below, then the following provisions shall apply. 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. 39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting that Lessee has no intention of thereafter assigning or subletting. 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 3 or more notices of separate Default, whether or not the Defaults are cured, during the 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, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee 3 or more notices of separate Default during any 12 month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. SECURITY MEASURES. Lessee hereby acknowledges that the Rent 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. 41. RESERVATIONS. Lessor reserves the right: (i) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to create and/or install new utility raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights. 42. 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. 43. 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 30 days after request, deliver to the other party satisfactory evidence of such authority. 44. 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. 45. 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. 46. 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. 47. 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. 48. WAIVER OF JURY TRIAL. The Parties hereby waive their respective rights to trial by jury in any action or proceeding involving the Property or arising out of this Agreement. 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, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE. WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE * Lessor agrees to allow Lessee to place a company sign on the building with equal prominence with the neighboring tenant. Page 11 of 12 REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED. The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures. Executed at: Fountain Valley, CA Executed at: Fountain Valley, CA -------------------------- -------------------------- on: January 5, 2001 on: January 5, 2001 ---------------------------------- ---------------------------------- BY LESSOR: BY LESSEE: Pelican Center, LLC, a California CAM Commerce Solutions, Inc., a - -------------------------------------- -------------------------------------- Limited Liability Company Delaware Corporation - -------------------------------------- -------------------------------------- By: /s/ JOHN TILLOTSON By: /s/ PAUL CACERES ----------------------------------- ----------------------------------- Name Printed: John Tillotson Name Printed: Paul Caceres ------------------------- ------------------------- Chief Financial Officer & Title: Member Title: Officer of Co. -------------------------------- -------------------------------- By: /s/ DAN HOWSE By: ----------------------------------- ----------------------------------- Name Printed: Dan Howse Name Printed: ------------------------- ------------------------- Title: Member Title: -------------------------------- -------------------------------- Address: 15272 Bolsa Chica Road Address: ------------------------------ ------------------------------ Huntington Beach, CA 92649 - -------------------------------------- -------------------------------------- Telephone: (714) 895-9652 Telephone: (714) 241-9241 --- ---------------------- --- ---------------------- Facsimile: (714) 895-6321 Facsimile: (714) 241-9893 --- ---------------------- --- ---------------------- Federal ID No. Federal ID No. 953866450 ------------------------ ------------------------ 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 SOUTH FLOWER STREET, SUITE 600, LOS ANGELES, CA 90017. (213) 687-8777 (C)COPYRIGHT 1999 - BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION. ALL RIGHTS RESERVED. NO PART OF THESE WORKS MAY BE REPRODUCED IN ANY FORM WITHOUT PERMISSION IN WRITING. PAGE 12 OF 12 REVISED ADDENDUM TO THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET DATED DECEMBER 12, 2000 BY AND BETWEEN PELICAN CENTER, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY AS LESSOR AND CAM COMMERCE SOLUTIONS, A CALIFORNIA CORPORATION AS LESSEE. - -------------------------------------------------------------------------------- 50. BASE RENT SCHEDULE: The base rent for the premises shall be adjusted as follows: MONTHS RENT ------ ---- 1-12 $1.10 NNN per square foot The rent shall increase on the first day of the 13th month and every annual anniversary thereafter in accordance with the increase at the beginning of each twelve (12) month period by an amount equal to the increase in the Consumer Price Index (Los Angeles, Anaheim, Riverside). However, in no event, shall the increase be greater than 6% nor less than 3% annually. Rent Increases: CPI numbers for the first annual base rent adjustment would be accomplished by dividing the CPI for September, 2002 by the CPI for September, 2001, multiplied by the original base rent amount (subject to the min/max provisions). This formula with appropriate dates will be calculated each year. 51. OPTION TO EXTEND: Lessee shall be granted one (1) five (5) year option to extend the lease. The new initial lease rate shall increase the first day of said option period and adjust the first day of the 13th month and every annual anniversary thereafter in accordance with the increase at the beginning of each twelve (12) month period by an amount equal to the increase in the Consumer Price Index (Los Angeles, Anaheim, Riverside). However, in no event, shall the increase be greater than 6% nor less than 3% annually. Lessee shall provide Lessor at least six (6) months prior written notice to extend the lease. If such notice is not received, then such option shall be null and void. The rent increases will be calculated annually as set forth in paragraph 50 above. 52. TENANT IMPROVEMENTS: Landlord shall provide Tenant a "turn-key" space based upon the cost breakdown, dated 1/2/01 referenced and Exhibit "A" attached hereto. 53. OPERATING EXPENSE/REAL ESTATE TAXES: Electrical/HVAC - Landlord shall separately meter Tenant's premises, and Tenant will be billed directly for usage. Janitorial - Tenant shall separately contract with a janitorial service. Common Area Charges (CAM) - Tenant shall pay its prorata share of CAM charges to include: taxes, building insurance, including earthquake coverage, roof/HVAC maintenance, landscaping, window washing, sweeping, common area lighting, common area maintenance and janitorial. The tax calculation portion of the above CAM Charge shall include a fully assessed property. Tenant shall have reasonable expense audit rights, per Lease document. 54. EXPANSIONS: Tenant shall have the right of notification on contiguous space, as they become available. Any expansion by Tenant shall be handled by a Lease Amendment for the expansion premises. The minimum term for an expansion premises shall be five (5) years. All terms and conditions of the original lease shall remain in effect with the exception of base rent and tenant improvements, which shall be negotiated between parties. 55. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS: Given the fact that this is a new building and the Lease term is for five (5) years, the exterior roof and/or roof replacement, structural integrity of the walls and foundation shall not be a Lessee/Tenant responsibility nor subject to Lessee reimbursement unless damage is caused by Lessee/Tenant. AGREED & ACCEPTED: /s/ JOHN TILLOTSON Date: 1/5/01 --------------------------------------- ------ John Tillotson -- Member Pelican Center, LLC/Lessor AGREED & ACCEPTED: /s/ DAN HOWSE Date: 1/5/01 --------------------------------------- ------ Dan Howse -- Member Pelican Center, LLC/Lessor AGREED & ACCEPTED: /s/ PAUL CACERES Date: 1/5/01 --------------------------------------- ------ Paul Caceres -- Chief Financial Officer CAM Commerce Solutions, Inc.
EXHIBIT A COST BREAKDOWN DATE: 1/2/01 MILLER CONTRACTING COMPANY TENANT: CAM COMMERCE SOLUTIONS 18207 E. MCDURMOTT, SUITE E PROJECT: TENANT IMPROVEMENT AT PELICAN CENTER IRVINE, CA 92614 ADDRESS: (949) 852-2244 TELE FOUNTAIN VALLEY CA (949) 852-2250 FAX ESTIMATE: PRELIMINARY PRICE #2 LIC. # 621229 AREA SF: 26000 USF ================================================================================
QTY UN $/UN. EXT. TOTALS 06100 ROUGH CARPENTRY A.C. Unit Roof Platforms 12 EA 250 3000 ---------- TOTAL ROUGH CARPENTRY $ 3,000 06200 MILLWORK L.P. Base Cabinet @ Lunch Rm 10 LF 145 1450 L.P. Upper Cabinet @ Lunch Rm 14 LF 110 1540 L.P. Base Cabinet @ Coffee 10 LF 145 1450 L.P. Upper Cabinet @ Coffee 10 LF 110 1100 L.P. Counter Tops in First Floor RR 24 LF 125 3000 ---------- TOTAL MILLWORK $ 8,540 07200 INSULATION Wall Insulation R-11 23504 SF 0.30 7051 Ceiling Insulation R-19 @ Board Room 378 SF 0.35 132 Ceiling Insulation R-19 @ RR 1196 SF 0.35 419 ---------- TOTAL INSULATION $ 7,602 08100 DOORS, FRAMES & HARDWARE Single Interior Door 24 EA 785 18840 Paired Interior Door 0 PR 1500 0 Sidelight Frames 4 EA 240 960 ---------- TOTAL DOORS, FRAMES & HARDWARE $19,800 08800 GLASS & GLAZING 1/4" Sidelites 4 EA 165 660 Full Height Glazing @ Board Room 260 SF 18 4680 Aluminum End Cap 10 EA 30 300 ---------- TOTAL GLASS & GLAZING $ 5,640 09250 DRYWALL Interior Partition 9'H 1032 LF 24 24768 Demising Partition @ Office/Warehous 282 LF 82 23124 Full Height Lobby Walls 0 LF 82 0 Wall Furring Along Window Line 416 LF 16 6656 Gyp Lid @ Restroom 1196 SF 3.25 3887 Soffit Allowance 816 SF 6 4896 Box Out Columns 4 EA 250 1000 Stocking & Cleanup 1 LS 750 750 ---------- TOTAL DRYWALL $65,081
Page 1 COST BREAKDOWN DATE: 1/2/01 MILLER CONTRACTING COMPANY TENANT: CAM COMMERCE SOLUTIONS 18207 E. MCDURMOTT, SUITE E PROJECT: TENANT IMPROVEMENT AT PELICAN CENTER IRVINE CA 92814 ADDRESS: (949) 852-2244 TELE FOUNTAIN VALLEY CA (949) 852-2250 FAX ESTIMATE: PRELIMINARY PRICE #2 LIC. #621229 AREA SF: 26000 USF - --------------------------------------------------------------------------------
QTY UN $/UN. EXT. TOTALS 09300 CERAMIC TILE Wall Tile @ Restrooms (6' High) 1650 SF 7 11550 Floor Tile @ Restrooms 1196 SF 7 8372 Granite Floor In Lobby 525 SF 10 5250 ----- TOTAL CERAMIC TILE $25,172 09500 ACOUSTICAL CEILING New Grid & Tile 16104 SF 1.65 26572 ----- TOTAL ACOUSTICAL CEILING $26,572 09650 FLOORCOVERING Carpet 1925 SY 20.00 38500 *Rubber Base molding - conf rooms/lobby 3044 LF 1.05 3196 Stair Labor 2 EA 450.00 900 VCT (Lunch, Video & Computer) 971 SF 1.25 1214 ----- TOTAL FLOORCOVERING $43,810 09900 PAINTING Painting (Flat) 41996 SF 0.20 8399.2 Painting (Enamel) @ Restrooms 2800 SF 0.30 840 Wallcovering WC-1 @ Recep/Conf 2000 SF 2.50 5000 Wallcovering Primer 2000 SF 0.15 300 Stain Doors 24 EA 90 2160 ------ TOTAL PAINTING $16,699 10520 FIRE EXTINGUISHER Fire Extinguisher Cabinet (Semi rec) 8 EA 65 520 Fire Extinguisher 2A10BC 5# 8 EA 50 400 ------ TOTAL FIRE EXTINGUISHERS $ 920 10800 TOILET PARTITIONS & ACCESS. Paper Towel & Waste Dispenser 4 EA 175 700 Soap Dispenser B155 10 EA 60 600 Toilet Paper Dispenser B2730 13 EA 41 533 Seat Cover Dispenser B301 13 EA 26 338 Napkin Disposal B254 2 EA 175 350 Napkin Vendor 2 EA 225 450 Grab Bars B6106-36/48 13 EA 55 715 Toilet Partition-Plastic Lam. 13 EA 425 5525 Urinal Screen-Plastic Lam. 2 EA 125 250 Signage 4 EA 30 120 ----- TOTAL PARTITIONS & ACCESSORIES $ 9,581
Page 2 COST BREAKDOWN
DATE: 1/2/01 MILLER CONTRACTING COMPANY TENANT: CAM COMMERCE SOLUTIONS 18207 E. MCDURMOTT, SUITE E PROJECT: TENANT IMPROVEMENT AT PELICAN CENTER IRVINE CA 92614 ADDRESS: (949) 852-2244 TELE FOUNTAIN VALLEY CA (949) 852-2250 FAX ESTIMATE: PRELIMINARY PRICE #2 LIC. # 621229 AREA SF: 26000 USF ============================================================================================= QTY UN $/UN. EXT. TOTALS 11420 APPLIANCES Dishwasher in Lunchroom 1 EA 634 634 Cooktop & Oven in Lunchroom 1 EA 2200 2200 ----- TOTAL APPLIANCES $ 2,834 12500 WINDOW COVERING Mini-Blinds 3'-0" x 6'-0" @ Exterior 78 EA 125 9750 Mini-Blinds @ Sidelights 4 EA 125 500 Vertical Blinds @ Board Room 260 SF 8 2080 ----- TOTAL WINDOW COVERING $ 12,220 15300 FIRE SPRINKLERS New Heads 250 EA 105 26250 Plans, Permit & Engineering 1 LS 2500 2500 ----- TOTAL FIRE SPRINKLERS $ 28,750 15400 PLUMBING Kitchen/Break Room Sink 2 EA 1800 3600 Toilets 13 EA 925 12025 Urinal 3 EA 900 2700 Lavatory 10 EA 900 9000 Janitor Sink 1 EA 900 900 Drinking Fountain 2 EA 1850 3700 Garbage Disposal 2 EA 135 270 Waterheater 2 EA 650 1300 Water Lines 2 EA 75 150 Floor Drain 4 EA 325 1300 Floor Sink 2 EA 375 750 Dishwasher Rough in 1 EA 185 185 Condensate Line 1 LS 3500 3500 ----- TOTAL PLUMBING $ 39,380 15500 HVAC New AC Units 26000 SF 2.55 66300 New Distribution Thruout 26000 SF 2.10 54600 ----- TOTAL HVAC $120,900 16000 ELECTRICAL New 2x4 Light Fixture 218 EA 155 33790 Incandescent Downlight 20 EA 105 2100 Wall Washers 8 EA 110 880 Single Face Exit Sign 6 EA 195 1170 Single Gang Switch 8 EA 50 400
Page 3 COST BREAKDOWN DATE: 1/2/01 MILLER CONTRACTING COMPANY TENANT: CAM COMMERCE SOLUTIONS 18207 E. MCDURMOTT, SUITE E PROJECT: TENANT IMPROVEMENT AT PELICAN CENTER IRVINE, CA 92614 ADDRESS: (949) 852-2244 TELE FOUNTAIN VALLEY CA (949) 852-2250 FAX ESTIMATE: PRELIMINARY PRICE #2 LIC. # 621229 AREA SF: 26000 USF ================================================================================
QTY UN $/UN. EXT. TOTALS Wall Motion Sensor 20 EA 145 2900 Ceiling Motion Sensor 10 EA 175 1750 Duplex Outlet 48 EA 45 2160 Duplex Outlet 20Amp 4 EA 60 240 Duplex Outlet (GFI) 3 EA 70 210 Floor Furniture Feed Power 6 EA 850 5100 Floor Furniture Feed Tele 6 EA 425 2550 Wall Power Furniture Feed 16 EA 650 10400 Wall Tele Furniture Feed 16 EA 300 4800 Telephone Homerun 3" 150 LF 7 1050 Garbage Disposal Hookup 2 EA 145 290 Exhaust Fan Hookup 4 EA 85 340 Water Heater Hookup 2 EA 240 480 Air Conditioning Unit Hookup 12 EA 1250 15000 Roof Receptacle 12 EA 95 1140 200 Amp Feeder 120 LF 24 2880 200 Amp 277/480V Panel 2 EA 510 1020 200 Amp 120/208V Panel 2 EA 650 1300 75 KVA Transformer 2 EA 1500 3000 75 KVA Transformer Feeder 75 LF 12 900 Transformer Ground 2 EA 150 300 Emergency Battery Packs 12 EA 150 1800 Manufacturing Area Power 8700 SF 1.5 13050 Manufacturing Area Lighting 8700 SF 0.75 6525 ------- TOTAL ELECTRICAL $ 117,525 18000 SPECIALTIES 19140 Final Cleanup 26000 SF 0.16 4160 19160 Temporary Protection 1 LS 1500 1500 -------- TOTAL SPECIALTIES $ 5,660 --------- SUBTOTAL $ 559,796 COST PER SQUARE FOOT $ 21.53
ALTERNATE: Provide engineering on a design build basis for Mechanical, Electrical and Plumbing for Cam Suite Only. ADD: $13,000 CLARIFICATIONS: The costs stated above do not include the contractors General Conditions or Fee and are based on completing the work concurrently with the shell construction. Page 4 [DIAGRAM] SCHEME A FIRST FLOOR PLAN CAM: FIRST FLOOR AREA = 18400 S.F. ADMIN SMALL CUBES = 14 ADMIN LARGE CUBE = 2 WAREHOUSE = 8700 S.F. RETAIL-QA SMALL CUBES = 17 RETAIL-QA LARGE CUBE = 1 OFFICE = 9700 S.F. SUPPORT SMALL CUBES = 18 SUPPORT LARGE CUBES = 3 SECOND FLOOR AREA = 7600 S.F. EXTRA CUBES = 14 OFFICE = 7600 S.F. TOTAL FIRST FLOOR CUBES = 69 TOTAL CAM = 26,000 S.F. TENANT B TOTAL FIRST FLOOR AREA = 18,400 S.F. TOTAL FIRST FLOOR = 36,800 S.F. TOTAL BUILDING AREA = 56,800 S.F. 1/02/01 [DIAGRAM] SCHEME A SECOND FLOOR PLAN SUPPORT SMALL CUBES = 41 SALES LARGE CUBES = 12 TOTAL 2ND FLOOR CUBES = 53 TOTAL CUBES ON BOTH FLOORS = 122 CAM SECOND FLOOR AREA = 7,600 S.F. TENANT B SECOND FLOOR AREA = 12,400 S.F. TOTAL SECOND FLOOR AREA = 20,000 S.F. 1/02/01 EXHIBIT B [DIAGRAM] SCHEME A FIRST FLOOR PLAN CAM: FIRST FLOOR AREA = 18400 S.F. ADMIN SMALL CUBES = 14 ADMIN LARGE CUBE = 2 WAREHOUSE = 8700 S.F. RETAIL-QA SMALL CUBES = 17 RETAIL-QA LARGE CUBE = 1 OFFICE = 9700 S.F. SUPPORT SMALL CUBES = 18 SUPPORT LARGE CUBES = 3 SECOND FLOOR AREA = 7600 S.F. EXTRA CUBES = 14 OFFICE = 7600 S.F. TOTAL FIRST FLOOR CUBES = 69 TOTAL CAM = 26,000 S.F. TENANT B TOTAL FIRST FLOOR AREA = 18,400 S.F. TOTAL FIRST FLOOR = 36,800 S.F. TOTAL BUILDING AREA = 56,800 S.F. 1/02/01 EXHIBIT B [DIAGRAM] SCHEME A SECOND FLOOR PLAN SUPPORT SMALL CUBES = 41 SALES LARGE CUBES = 12 TOTAL 2ND FLOOR CUBES = 53 TOTAL CUBES ON BOTH FLOORS = 122 CAM SECOND FLOOR AREA = 7,600 S.F. TENANT B SECOND FLOOR AREA = 12,400 S.F. TOTAL SECOND FLOOR AREA = 20,000 S.F. 1/02/01 EX-13.(A) 4 a78003ex13-a.txt EXHIBIT 13(A) EXHIBIT 13(a) Geoffrey D. Knapp Founder and [PICTURE] Chief Executive Officer Letter to Shareholders - -------------------------------------------------------------------------------- Dear valued Shareholder, During the past year we continued to make progress on the detailed strategic plan we have been implementing for the past couple of years. By fiscal 4th quarter, ended September 30th, we had achieved profitability for the first time in the past two years and we saw 25% sales growth year over year in the 4th quarter. We also closed the year with nearly $9.5 million in cash ($3.15 per share) and no debt. Achieving the level of success we expect is taking longer than we would have hoped in many areas but I can honestly say that we are making positive progress in all the key areas of our business. Sales and Marketing Changes Last year we determined that our sales and marketing departments were in need of some positive changes after carefully reviewing our results along with current processes and their effectiveness. As a result we built an inside sales force of 10 sales professionals that did not exist last year. This inside sales group was created to handle the initial contact with the many thousands of prospective customers that contact us each year along with making outbound calls into our database of over 50,000 past prospective customers whose status was uncertain. The result has been dramatically better customer service on initial contacts with potential customers and the generation of thousands of qualified sales leads from our historical database. The inside sales force has not only made us more efficient and effective in creating and initially handling new sales opportunities, but they have allowed the outside sales force more time to focus on qualified sales prospects. The inside sales group has also allowed us to take on focused marketing projects within our own customer base. The group really wasn't fully on-line until this past summer. I am very pleased with their progress and the results. I believe we are just beginning to see the longer term benefits of this key change to our sales and marketing strategy. At the beginning of the year we created and staffed a new Vice President of Marketing position in order to enhance the company's marketing effectiveness. The results have been very positive. The changes to our marketing programs along with the inside sales group have resulted in record numbers of sales leads and opportunities being passed to our outside sales force. During the year we completed the implementation and roll out to our entire sales organization a sales management and customer relationship system that allows for significantly enhanced distribution and tracking of prospective customer and customer information. This new software allows our entire sales force to share the same database and to communicate electronically on a daily basis. This new software, which took a major effort over 18 months to deploy within our company, gives CAM significant operational advantages over other companies in our market place. The sales force, along with the rest of the company has instant access to important information about customers and prospective customers that they either did not have before or was not timely. Furthermore, our management team now has a much better ability to analyze the effectiveness of our sales and marketing efforts. Lots of Significant Product Releases Our i.STAR product, which is our unique integrated web storefront software, came of age with the release of version 2 and later version 3 during the year. This product is truly unique, offering our customers the ability to seamlessly extend their presence to the Internet with a fully integrated web storefront. We hope that over time we will be able to educate the market as to why i.STAR is a product that is not only unbelievably affordable for what it is, but is something that to the best of my knowledge nobody else is offering in the seamless, integrated fashion that we are. It has been a slow process so far. We did pick up some recognizable customers during the year for the product such as the Cincinnati Bengals of the NFL, The University of Nebraska Cornhuskers and the Casio Service Center. To see several of our i.STAR customers sites you can find links to them on our web site at www.camcommerce.com Go to "Products" and the "i.STAR" section. You will also find a link to a 7-minute i.STAR web video that we created to help prospective customers understand the product and what it is capable of. I recommend viewing it if you want to understand what our i.STAR offering really is. We had major new releases of our Retail STAR, Retail ICE and CAM-32 products as well as new releases for MicroBiz and Profit$. We worked on improving the performance of our products as well as adding new features. I am happy to say that all of our products are the most reliable and feature rich that they have ever been. Our market analysis shows that we are in the most enviable position we have ever been, in relation to our competition. For Retail STAR and Retail ICE we released a complete accounting software suite that is fully integrated with the back office management and point of sale system. This 1 Letter to Shareholders cont. - -------------------------------------------------------------------------------- software is something that has been in the works for a few years now. It is a very significant offering and something that none of our primary competition offers. When you consider that proper accounting controls are at the core of most long-term successful businesses, we now have something very unique to offer our customers that most of them need. The level of integration is the key to this product. New Credit Card Processing Software & Service Perhaps the most significant new product we released this past year was our new integrated credit card processing software and service called X-Charge. X-Charge allows our customers to process credit card transactions in an integrated fashion with their point of sale or back office order entry systems. It also allows for integrated check authorization. X-Charge has been integrated with all of our system offerings and has even been offered with a competitor's product. We really didn't begin to implement the program until early in the year. We have already signed up over 500 retailers on the software and are realizing over $500,000 per year in annual processing fees revenue. This number continues to grow each month as we sign up new customers. This division is already profitable and should slowly become a significant contributor to bottom line profits. CPA Partner Program Towards the end of the year we launched a new program to partner with CPA firms around the country to allow these firms to provide services to our customers and to allow the CPA firms to provide training and referrals on our products. As of this writing we had signed up high profile firms in Indiana, Oklahoma and Utah. We have also signed up smaller firms in several other areas. The CPA firms wishing to become fully involved with our products pay an annual fee for which we provide training and customer referrals. The initial reaction to the plan has been highly favorable. We are just beginning to launch our marketing programs after initial test marketing, and are beginning to receive quality sales leads. We expect a 12 to 24 month roll out with the goal of having a key CPA partner in every major U.S. city and lots of the smaller ones as well. Our CPA partners will give us a greater local presence throughout the U.S. as well as greatly expanding our capacity to install new systems and train customers anywhere in the U.S. It will also reduce the cost of installation to the customer by eliminating travel expenses in many cases. Finally, we expect the CPA partner program to generate a meaningful number of new sales opportunities for systems along with our credit card processing software and service. EBay Alliance Last December we signed a deal with eBay to provide a complete auction management system that was fully integrated with our customer's back office and point of sale systems. The agreement called for us to develop and deliver software that would allow a retailer to place, track, manage and fulfill eBay auctions from their CAM system in an integrated fashion. This software development effort is based on a new set of programming instructions called "API's" which eBay released for the first time earlier this year. We ran into some initial delays in the development of the software due to uncertainties surrounding the launch of the API's but I am pleased to report that we are close to finishing the first version of our new product called "Auction Star" (pending the trademark process). This product will open up new revenue and profit opportunity based on the successful completion of auctions placed by our customers. The business model for Auction Star we have in place now is actually significantly better than the one we envisioned in late 2000. However, this is a product and service that will take time to roll out. There is an education component with our customers. I don't expect the Auction Star product along with the eBay alliance to contribute to profits in the coming year, but it could offer significant upside in subsequent years. MicroBiz Acquisition Finally Working The MicroBiz acquisition, which we completed approximately 18 months ago, did not work out the way we hoped it would. For the full fiscal year MicroBiz was a big contributor to our losses. The short story is that we made some inaccurate assumptions going into the acquisition, caught the company at the start of a market downturn and failed to execute with the original structure of the company. As a result, we made major changes this past year at MicroBiz. The easiest way to sum up those changes is that MicroBiz is now a CAM product line rather than a separate company. This resulted in structural and strategic changes in relation to MicroBiz. We have added recurring service revenue that did not exist at the beginning of the year along with doing a better job at matching resources to expected revenues. MicroBiz should make a positive contribution to CAM's results in 2002. Impact of Economic Conditions There is no question that declining economic conditions have hurt the small retailer and thus limited some of our opportunities in the short term. However, CAM is in a very strong position financially in relation to our competitors and in fact we have seen a number of competitors either go out of business or substantially pull back their marketing efforts and thus their presence in the market place. Many of them have contacted us about selling out or about some kind of 2 LETTER TO SHAREHOLDERS CONT. - -------------------------------------------------------------------------------- survival partnership. In the mean time we continue to expand our marketing and sales efforts, invest in new products and create new market opportunities. While it is impossible to know for sure, it is my expectation that we will see a few tough months followed by a general pick up in the market. We have improved our operational efficiencies and continue to increase our recurring revenues. Furthermore we wrote off a large chunk of our soft assets this past year, such as the goodwill on our balance sheet associated with the MicroBiz acquisition. The net result is that we are in a much better position going into 2002 than last year in terms of our profit opportunities. Focus in 2002 We are focused on building recurring revenue streams. These include service revenue related to our thousands of system customers, X-Charge processing services, eBay, i.STAR, etc. We are concentrating on growing the customer base as quickly as we can. We have found some new ways to increase the number of retailers and small businesses adopting our Retail ICE product. This is our single user, single location retailing system we offer for a nominal shipping and handling fee. We are also planning some new marketing strategies focused on greatly increasing our brand awareness within our target markets. We are committed to customer satisfaction in every area of our business from software development to accounting. We have internal initiatives in most areas of our company focused on obtaining the highest possible level of customer satisfaction. We are emphasizing product knowledge and selling skills within our sales force. We believe our products are both unique and second to none. The breadth of our product offering to our target market is something we feel that no company can currently match, nor do we see this changing in the foreseeable future. Furthermore, we have the greatest number of sales leads the company has ever seen. It is now up to our outside sales force to take advantage of this enviable combination, thus the focus on product knowledge and selling skills. We are targeting market opportunities that offer us "leverage", in that they give us the ability to reach a much greater audience than we could do on our own for our products and services. The CPA partnership program and the eBay alliance are both examples of this strategy. Finally, we are dedicated to improving our own corporate culture, by retaining and hiring those individuals who possess not only high skill levels for their profession but also bring enthusiasm and a positive outlook to our company. We are working behind the scenes in many specific ways to make our company as customer and employee friendly as possible. It is a never ending pursuit but one we think is as important as any other to the long term success of the company. Summary After more than 18 years since founding CAM, I would love to be able to report that we are farther along than we are in building our company. We have not yet realized on a consistent basis the type of sales and earnings growth that both we and our investors want. I could tell you what a difficult business we are in, but aren't they all? What I can tell you is that we are better as a company today than we have ever been in almost every way. I have seen dramatic improve- ments this past year in our company even though they might not yet be evident by reading the financial statements. I think the key to us finally achieving a consistent level of financial success is the recurring revenue streams we are building. If you use the razor and the razor blade analogy, our system offerings are the razor and the add-on revenue streams like service, eBay, X-Charge, i.STAR, etc. are the razor blades. Right now we are not moving enough razor blades to cover the razors but we can see that changing based on the strategic initiatives we have in place along with their progress to date. Personally, I am as committed and enthusiastic as I have ever been about our company and our longer-term prospects. I am optimistic that we will make significant progress towards our goals in the coming year. I want to sincerely thank those of you that have provided encouragement and been understanding with the time it is taking for us to turn our strategic plans and vision into a meaningful return on investment for our shareholders. I can assure you that your management team is working very hard to make CAM the most successful company it can be. Best Regards, Geoff Knapp Chairman & CEO CAM Commerce Solutions, Inc. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (ALL FIGURES IN THOUSANDS) - -------------------------------------------------------------------------------- Results of Operations Fiscal 2001 Compared with Fiscal 2000 Net revenues for the year ended September 30, 2001 decreased 3% to $20.8 million, consisting of an 8% decrease in system revenues, and a 19% increase in service revenues compared to the year ended September 30, 2000. The decrease in system revenues was due to lower sales of new systems to the vertical market of Profits and CAM products in comparison to the higher amount of system upgrades sold in fiscal 2000. This decrease was slightly offset by an increase in sales of the Company's Retail Star product, supplies, and MicroBiz software. The increase in service revenues was related to the acquisition of the MicroBiz and WorkPro customer bases. Gross margin on system revenues for the fiscal year ended September 30, 2001 was 49% compared to 44% for the same period of 2000. The increase in gross margin for system revenues was due to the lower costs of computer equipment in addition to a higher percentage of software sales and X-Charge credit card processing fees. Software sales and credit card processing fees yield a higher gross margin overall than other peripheral equipment and hardware sales. Gross margin on service revenue for the year ended September 30, 2001 was 48% as compared to gross margin of 45% for the year ended September 30, 2000. The increase in gross margin for service revenue is related to the acquisition of the WorkPro customer base, which yielded higher margins due to lower costs to support this product. Selling, general and administrative expenses plus asset impairment charge expressed as a percentage of net revenues increased to 61% for the year ended September 30, 2001 as compared to 43% for the same period of 2000. Selling, general and administrative expenses plus asset impairment charge for the year ended September 30, 2001 totaled $12,562 as compared to $9,149 for the year ended September 30, 2000. The increase was related to the one-time charge for the write down of certain intangible assets and the increases in payroll expense, travel expenses, trade show expense, insurance expense, and telephone expense. Research and development expense for the year ended September 30, 2001 totaled $1,948 compared to $1,744 for the year ended September 30, 2000. The increase was attributed to an increase in research and development expense related to Retail Star and the development of new products. Income taxes, the estimated tax benefit rate for the year ended September 30, 2001 was 4% as compared to the effective tax benefit rate of 34% for the year ended September 30, 2000. The decrease in the effective tax benefit rate is primarily due to an increase in the valuation allowance and nondeductible goodwill amortization. Results of Operations Fiscal 2000 Compared with Fiscal 1999 Net revenues for the year ended September 30, 2000 decreased 23% to $21,311, consisting of a 28% decrease in system revenues, and a 1% decrease in service revenues compared to the year ended September 30, 1999. The decrease in system revenues was due to a relatively soft demand for the Company's products in comparison to the large amount of computer hardware upgrades that were sold in fiscal 1999 to prepare for the "Year 2000". This decrease was partially offset by an increase in sales of the Company's Retail Star product. Service revenues decreased due to a small portion of the Company's customer base canceling service after the "Year 2000" and the closure of one of the Company's hardware service divisions. Gross margin on system revenues for the fiscal year ended September 30, 2000 was consistent at 44% with the fiscal year ended September 30, 1999. Gross margin for service revenue for the year ended September 30, 2000 was 45% as compared to gross margin of 47% for the year ended September 30, 1999. The decrease in gross margin for service revenue is related to the increase in labor costs due to the expansion of the Retail Star technical support department to support the increased customer base of Retail Star. Selling, general and administrative expenses expressed as a percentage of net revenues increased to 43% for the year ended September 30, 2000 as compared to 33% for the year ended September 30, 1999. Selling, general and administrative expenses for the year ended September 30, 2000 totaled $9,149 as compared to $9,086 for the year ended September 30, 1999. The increase was related to increases in marketing expense, travel expenses in conjunction with increased trade show expense and payroll expense. Research and development expense increased 62% to $1,744 for the year ended September 30, 2000, from $1,075 for the same period in 1999. The increase was attributed to an increase in research and development expenses related to Re- tail Star and the development of new products, including the hiring of additional programmers related to the acquisition of the Cubig accounting software product. Income Taxes, the estimated tax benefit rate for the year ended September 30, 2000 was 34% as compared to the effective tax rate of 35% for the year ended September 30, 1999. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (ALL FIGURES IN THOUSANDS) - -------------------------------------------------------------------------------- Liquidity and Capital Resources The Company's cash and cash equivalents totaled $9,451 on September 30, 2001 compared to $10,444 on September 30, 2000. The Company generated cash of $249 from operations in fiscal September 30, 2001 compared to using cash of $483 in fiscal 2000. The Company expended $678 of cash in fiscal 2001 compared to cash expenditures of $729 in fiscal 2000 for the purchase of fixed assets and capitalized software. The Company spent $600 for the acquisition of WorkPro and received $36 in proceeds from the exercise of stock options in fiscal 2001. The Company has no significant commitments for expenditures. Management believes the Company's existing working capital, coupled with funds generated from the Company's operations will be sufficient to fund its presently anticipated working capital requirements for the foreseeable future. Inflation has had no significant impact on the Company's operations. 5 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA) - --------------------------------------------------------------------------------
SEPTEMBER 30, ---------------------- 2001 2000 ---------------------- ASSETS Current assets: Cash and cash equivalents $ 9,451 $ 10,444 Accounts receivable, net of an allowance for doubtful accounts of $250 in 2001 and $310 in 2000 2,262 1,782 Inventories 465 696 Other current assets 500 893 ---------------------- Total current assets 12,678 13,815 Property and equipment, net 763 922 Intangible assets, net 1,323 3,262 Other assets 408 297 ---------------------- Total assets $ 15,172 $ 18,296 ====================== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 733 $ 644 Accrued compensation and related expenses 522 477 Customer deposits and deferred service revenue 1,084 854 Other accrued liabilities 255 373 ---------------------- Total current liabilities 2,594 2,348 Deferred income taxes 376 91 Commitments and contingencies (note 4) Stockholders' equity: Common stock, $.001 par value, 12,000 shares authorized, 3,023 shares issued and outstanding in 2001 and 3,012 shares in 2000 3 3 Paid-in capital in excess of par value 13,628 13,592 Notes receivable for purchase of common stock -- (7) Retained earnings (deficit) (1,429) 2,269 ---------------------- Total stockholders' equity 12,202 15,857 ---------------------- Total liabilities and stockholders' equity $ 15,172 $ 18,296 ======================
See accompanying notes. 6 STATEMENT OF CONSOLIDATED OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) - --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, ------------------------------------ 2001 2000 1999 ------------------------------------ Revenues Net system revenues $ 15,293 $ 16,706 $ 23,078 Net service revenues 5,464 4,605 4,669 ------------------------------------ Total net revenues 20,757 21,311 27,747 ------------------------------------ Costs and Expenses Cost of system revenues 7,754 9,425 12,967 Cost of service revenues 2,845 2,528 2,455 ------------------------------------ Total cost of revenues 10,599 11,953 15,422 Selling, general and administrative expenses 10,663 9,149 9,086 Research and development expenses 1,948 1,744 1,075 Asset impairment charge 1,899 -- -- Interest income (493) (400) (126) ------------------------------------ Total costs and expenses 24,616 22,446 25,457 ------------------------------------ Income (loss) before taxes (3,859) (1,135) 2,290 Provision (benefit) for income taxes (161) (389) 810 ------------------------------------ Net income (loss) $ (3,698) $ (746) $ 1,480 ==================================== Basic net income (loss) per share $ (1.22) $ (.28) $ .69 ==================================== Diluted net income (loss) per share $ (1.22) $ (.28) $ .59 ==================================== Shares used in computing basic net income (loss) per share 3,020 2,644 2,157 ==================================== Shares used in computing diluted net income (loss) per share 3,020 2,644 2,519 ====================================
See accompanying notes. 7 STATEMENTS OF CONSOLIDATED CASH FLOWS (IN THOUSANDS) - --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, ------------------------------------ 2001 2000 1999 ------------------------------------ Operating activities: Net income (loss) $ (3,698) $ (746) $ 1,480 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,477 929 735 Asset impairment charge 1,899 -- -- Provision for doubtful accounts (60) (70) 145 Decrease in notes receivable/other assets -- -- 8 Net change in operating assets and liabilities 631 (596) 868 ------------------------------------ Cash provided by (used in) operating activities 249 (483) 3,236 ------------------------------------ Investing activities: Purchase of property and equipment (439) (438) (770) Capitalized software development costs (239) (291) (532) Business acquisitions (600) (1,800) -- ------------------------------------ Cash used in investing activities (1,278) (2,529) (1,302) ------------------------------------ Financing activities: Proceeds from equity private placement -- 7,579 -- Proceeds from exercise of stock options 36 828 303 ------------------------------------ Cash provided by financing activities 36 8,407 303 ------------------------------------ Net increase (decrease) in cash and cash equivalents (993) 5,395 2,237 Cash and cash equivalents at beginning of year 10,444 5,049 2,812 ------------------------------------ Cash and cash equivalents at end of year $ 9,451 $ 10,444 $ 5,049 ====================================
See accompanying notes. 8 STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999 (IN THOUSANDS) - --------------------------------------------------------------------------------
NOTES PAID-IN RECEIVABLE FOR COMMON STOCK CAPITAL IN PURCHASE OF RETAINED ----------------------- EXCESS OF PAR COMMON EARNINGS SHARES AMOUNT VALUE STOCK (DEFICIT) TOTAL ------------------------------------------------------------------------------------- Balance at September 30, 1998 2,139 $ 2 $ 4,283 $ (23) $ 1,535 $ 5,797 Issuance of common stock upon exercise of stock options 74 -- 303 -- -- 303 Notes receivable write-off -- -- -- 8 -- 8 Net and comprehensive income -- -- -- -- 1,480 1,480 ------------------------------------------------------------------------------------- Balance at September 30, 1999 2,213 2 4,586 (15) 3,015 7,588 Issuance of common stock upon exercise of stock options 269 -- 828 -- -- 828 Issuance of units for private placement 500 1 7,578 -- -- 7,579 Issuance of common stock for software and licensing rights 30 -- 600 -- -- 600 Notes receivable write-off -- -- -- 8 -- 8 Net and comprehensive income (loss) -- -- -- -- (746) (746) ------------------------------------------------------------------------------------- Balance at September 30, 2000 3,012 3 13,592 (7) 2,269 15,857 Issuance of common stock upon exercise of stock options 11 -- 36 -- -- 36 Notes receivable write-off -- -- -- 7 -- 7 Net and comprehensive loss -- -- -- -- (3,698) (3,698) ===================================================================================== Balance at September 30, 2001 3,023 $ 3 $ 13,628 $ -- $ (1,429) $ 12,202 =====================================================================================
See accompanying notes. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION, BUSINESS, AND PRESENTATION CAM Commerce Solutions Inc., (CAM or the Company), (formerly known as CAM Data Systems, Inc.) provides total commerce solutions for small to medium size, traditional and web retailers that are based on the Company's open architecture software products for managing inventory, point of sale, sales transaction processing and accounting. In addition to software, these solutions often include hardware, installation, training, service and consulting provided by the Company. The accompanying financial statements consolidate the accounts of the Company and its wholly-owned subsidiary. Effective April 1, 2001 CAM Commerce Solutions, Inc. dissolved its wholly owned subsidiary Microbiz Corporation ("MicroBiz") and have incorporated the product and operations into CAM. All significant intercompany balances and transactions have been eliminated. CASH EQUIVALENTS Cash equivalents represent highly liquid investments with original maturities of three months or less. CONCENTRATIONS OF CREDIT RISK The Company sells its products primarily to small to medium size retailers. Credit is extended based on an evaluation of the customer's financial condition and collateral is generally not required. Credit losses have traditionally been minimal and such losses have been within management's expectations. INVENTORIES Inventories are stated at the lower of cost determined on a first-in, first-out basis, or net realizable value, and are composed of electronic point of sale hardware and computer equipment used in the sale and service of the Company's products. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist principally of cash and cash equivalents, accounts receivable and accounts payable. The Company believes all of the financial instruments' recorded values approximate current values. PROPERTY AND EQUIPMENT Property and equipment is stated at cost and is composed of the following:
SEPTEMBER 30, ------------------ 2001 2000 ------------------ Computer equipment and furniture $2,210 $2,066 Automobiles 64 64 Demonstration and loaner equipment 207 223 ------------------ 2,481 2,353 Less accumulated depreciation 1,718 1,431 ------------------ $ 763 $ 922 ==================
Depreciation is provided on the straight-line method over the estimated useful lives (primarily three to five years) of the respective assets. LONG-LIVED ASSETS Statement of Financial Accounting Standards No. 121 , Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS 121), requires impairment losses to be recorded on long-lived assets used in operations when indicators of asset impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. During the quarter ended June 30, 2001, the Company performed a review for impairment of all long-lived assets. Based on its evaluation, the Company determined that all long-lived assets related to MicroBiz were fully impaired and other long-lived assets related to ICS and capitalized software were partially impaired. As a result, the Company recorded an impairment charge of $1,899. The Company believes no additional impairment exists related to the long-lived assets at September 30, 2001. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- REVENUE RECOGNITION POLICY The Company derives revenues from the sale of computer hardware, computer software, post contract customer support (PCS), installation and consulting services. Revenue from hardware and software sales is recognized at the time of shipment. Revenue allocable to PCS is recognized ratably on a monthly basis over the period of the service contract. Consulting revenue is recognized in the period the service is performed. The Company defers and recognizes installation revenue upon completion of the installation process. The Company adopted Staff Accounting Bulletin No 101, "Revenue Recognition in Financial Statements" ("SAB 101"), which clarifies certain existing accounting principles for the timing of revenue recognition and its classification in the financial statements, in the first quarter of fiscal 2001. The adoption of SAB 101 had no material impact on the Company's results of operations or financial position. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2001 the FASB issued Statement No. 141, Business Combinations ("Statement 141"), and No. 142, Goodwill and Other Intangible Assets ("Statement 142"), effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but, instead, will be subject to annual impairment tests in accordance with Statement 142. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning the first quarter of fiscal 2002. Based on the Company's current goodwill level, amortization expense will decrease by approximately $122,000 annually beginning October 1, 2001. In August 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", ("Statement 144") effective for fiscal years beginning after December 15, 2001. Under Statement 144 assets held for sale will be included in discontinued operations if the operations and cash flows will be or have been eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations of the component. The Company is planning to adopt Statement 144 in its fiscal year beginning October 1, 2001. The Company believes the adoption of Statement 144 will not have a material impact on the Company's results of operations or financial position. PER SHARE INFORMATION Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding and common equivalent shares outstanding for the period. Common equivalent shares include stock options assuming conversion under the treasury stock method. Common equivalent shares are excluded from diluted earnings per share if their effect is anti-dilutive. The computation of basic and diluted earnings per share for the three years ended September 30, 2001, 2000, and 1999 is as follows:
YEARS ENDED SEPTEMBER 30, -------------------------------------- 2001 2000 1999 -------------------------------------- Numerator: Net income (loss) for basic and diluted net income (loss) per share $ (3,698) $ (746) $ 1,480 -------------------------------------- Denominator: Weighted-average shares outstanding 3,020 2,644 2,157 -------------------------------------- Denominator for basic net income (loss) per share - weighted-average shares 3,020 2,644 2,157 Effect of dilutive securities: Stock options -- -- 362 -------------------------------------- Denominator for diluted net income (loss) per share - weighted-average shares and assumed conversions 3,020 2,644 2,519 -------------------------------------- Basic net income (loss) per share $ (1.22) $ (.28) $ .69 ====================================== Diluted net income (loss) per share $ (1.22) $ (.28) $ .59 ======================================
ADVERTISING The Company expenses the production costs of advertising as incurred. Advertising expenses for the years ended September 30, 2001, 2000, and 1999 were $863, $773 and $326, respectively. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- RESEARCH AND DEVELOPMENT EXPENDITURES Research and development expenditures are expensed in the period incurred. STATEMENTS OF CASH FLOWS Net changes in operating assets and liabilities as shown in the statements of cash flows are as follows:
YEARS ENDED SEPTEMBER 30, ------------------------------------ 2001 2000 1999 ------------------------------------ Decrease (increase) in: Accounts receivable $ (420) $ 1,727 $ (575) Inventories 231 67 (141) Other current assets 393 (820) (7) Other assets (104) 302 (15) Increase (decrease) in: Accounts payable 89 (1,000) 454 Accrued compensation 45 (633) 545 Customer deposits 230 (45) 375 Other accrued liabilities 167 (194) 232 ------------------------------------ Net changes in operating assets and liabilities $ 631 $ (596) $ 868 ====================================
STOCK OPTION PLANS The Company intends to continue to account for employee stock options under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and has made pro forma disclosures as required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). SEGMENTS Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131), established standards for the way that public business enterprises report selected financial information about operating segments in annual and interim financial statements and significant foreign operations. Because the Company operates in one business segment and has no significant foreign operations, no additional reporting is required under SFAS 131. RECLASSIFICATIONS Certain reclassifications have been made to the 2000 financial statements to conform with the fiscal 2001 presentation. 2. INTANGIBLE ASSETS The Company capitalizes costs incurred to develop new marketable software and enhance the Company's existing systems software. Costs incurred in creating the software are charged to expense when incurred as research and development until technological feasibility has been established through the development of a detailed program design. Once technological feasibility has been established, software production costs are capitalized and reported at the lower of amortized cost or net realizable value. License agreements, capitalized software, and goodwill are amortized on the straight-line method over estimated useful lives ranging from three to eight years. Amortization of capitalized software costs commence when the products are available for general release to customers. Intangible assets are stated at cost and consist of the following:
SEPTEMBER 30, ------------------ 2001 2000 ------------------ Capitalized software costs $2,856 $2,617 Goodwill 2,617 2,037 ------------------ 5,473 4,654 Less: Accumulated amortization 2,251 1,392 Asset impairment charge 1,899 -- ------------------ $1,323 $3,262 ==================
During the current year, the Company capitalized $239 in software costs related to the CAM and Star products. Amortization of capitalized software costs and goodwill, charged to cost of sales and expense for the years ended September 30, 2001, 2000 and 1999, were $859, $362, and $131, respectively. In November 2000, the Company acquired the customer base, source code and application code for the Work Pro software. The acquisition was accounted for using the purchase method of accounting. The total amount of cash paid was $600 for the purchase of both intangible and tangible assets, of which $580 has been capitalized as an intangible asset. This intangible asset is being amortized over a five-year period. Effective October 1, 2001 this intangible asset will no longer be amortized, but instead will be subject to annual impairment tests in accordance with Statement 142. Work Pro software is used by customers in the retail paint store industry. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- 3. Income Taxes The Company utilizes the liability method of accounting for income taxes whereby deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. The provision (benefit) for income taxes consists of the following:
YEARS ENDED SEPTEMBER 30, ------------------------------ 2001 2000 1999 ------------------------------ Current: Federal $ -- $ (684) $ 708 State (70) 25 164 ------------------------------ (70) (659) 872 Deferred: Federal (135) 279 (92) State 44 (9) 30 ------------------------------ (91) 270 (62) ============================== Total provision (benefit) $ (161) $ (389) $ 810 ==============================
A reconciliation of taxes computed at the statutory federal income tax rate to income tax expense (benefit) is as follows:
YEARS ENDED SEPTEMBER 30, -------------------------------------- 2001 2000 1999 -------------------------------------- Income tax at statutory rate $ (1,312) $ (386) $ 779 Increases (decreases) in taxes resulting from: Change in valuation allowance 639 (3) (166) Research and development tax credit (95) (89) (32) State income taxes, net of federal benefit (17) 10 128 Nondeductible goodwill 570 28 -- Other, net 54 51 101 -------------------------------------- $ (161) $ (389) $ 810 ======================================
Deferred income taxes are recorded to 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 and net operating loss carryforwards which give rise to deferred tax assets and liabilities are as follows:
SEPTEMBER 30, -------------------------------------- 2001 2000 1999 -------- -------- -------- Deferred tax assets: Accruals not currently deductible for tax $ 400 $ 244 $ 226 Book depreciation in excess of tax depreciation 71 24 (6) R & D tax credit carryforwards 211 112 -- Net operating loss carryforwards 1,890 1,642 -- -------------------------------------- Total deferred tax assets 2,572 2,022 220 Valuation allowance for deferred tax assets (2,378) (1,584) -- -------------------------------------- 194 438 220 Deferred tax liabilities: Software costs capitalized for book purposes (194) (529) (41) -------------------------------------- Net deferred tax asset (liability) $ -- $ (91) $ 179 ======================================
At September 30, 2001 the balance sheet contained deferred tax asset of $376, which was included in other current assets, and deferred tax liability of $376. This resulted in a net deferred tax asset of $0. Income taxes paid were $0, $426, and $768 during the years ended September 30, 2001, 2000 and 1999, respectively. The Company has provided a valuation allowance against a portion of its deferred tax assets due to uncertainties surrounding their realization. At September 30, 2001, federal and state net operating loss carryforwards were $4.8 million and $3.2 million, respectively. Federal net operating loss carryforwards begin to expire in 2020, while state operating loss carryforwards begin to expire in 2005. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- 4. Commitments and contingencies The Company is committed at September 30, 2001 under various operating leases for office facilities and equipment through June 2007. Minimum payments due under these leases, including amounts due to a related party as discussed below, are as follows:
YEARS ENDING SEPTEMBER 30, - -------------------------- 2002 $ 455 2003 497 2004 502 2005 507 2006 512 Thereafter 318 - -------------------------- $2,791 ==========================
Total rent expense for the years ended September 30, 2001, 2000 and 1999 was $565, $437 and $444, respectively. In June 1997, the Company entered into a lease agreement with an officer of the Company to lease a building for a term of ten years, at current fair market value rates. The total original commitment under this lease term was $1.3 million. Rent expense incurred under this lease for the years ended September 30, 2001, 2000 and 1999 totaled $144, $136 and $136, respectively. 5. Stock options The Company has elected to follow 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 123 requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. In April 1993, the stockholders of the Company approved the Company's 1993 Stock Option Plan (the "1993 Plan") under which nonstatutory options may be granted to key employees and individuals who provide services to the Company, at a price not less than the fair market value at the date of grant, and expire ten years from the date of grant. The options are exercisable based on vesting periods as determined by the Board of Directors. The Plan allows for the issuance of an aggregate of 1,200 shares of the Company's common stock. The Plan has a term of ten years. There have been 1,154 options granted under the 1993 Plan as of September 30, 2001. The company has 788 shares reserved for issuance related to the plan. In April 2000, the Company's Board of Directors approved the Company's 2000 Stock Option Plan (the "2000 Plan") under which nonstatutory options may be granted to key employees and individuals who provide services to the Company, at a price not less than the fair market value at the date of grant, and expire ten years from the date of grant. The options are exercisable based on vesting periods as determined by the Board of Directors. The Plan allows for the issuance of an aggregate of 500 shares of the Company's common stock. The term of the plan is unlimited in duration. There have been 319 options granted under the plan as of September 30, 2001. The Company has 500 shares reserved for issuance. A summary of stock option activity follows:
WEIGHTED WEIGHTED AVERAGE AVERAGE NON-ISO EXERCISE FAIR VALUE SHARES PRICE OF OPTIONS ------------------------------------------ Outstanding at September 30, 1998 815 $ 2.89 Granted 185 $ 4.58 $ 1.54 Exercised (74) $ 3.85 Expired (32) $ 3.52 ----------------------------------------- Outstanding at September 30, 1999 894 $ 3.14 Granted 356 $ 8.40 $ 3.15 Exercised (269) $ 3.07 Expired (45) $ 17.76 ----------------------------------------- Outstanding at September 30, 2000 936 $ 4.45 Granted 324 $ 3.92 $ 2.31 Exercised (11) $ 3.44 Expired (177) $ 7.06 ----------------------------------------- Outstanding at September 30, 2001 1,072 $ 3.87 =========================================
14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- The following table summarizes information about stock options outstanding at September 30, 2001:
WEIGHTED AVERAGE REMAINING WEIGHTED NUMBER CONTRACTUAL AVERAGE OUTSTANDING: OUTSTANDING LIFE EXERCISE PRICE ------------------------------------------- Range of Exercise Prices $1.75 to $3.00 358 5.3 $ 2.47 $3.13 to $7.00 702 8.2 $ 4.40 $9.19 to $15.00 12 8.3 $14.03 ======================================
WEIGHTED NUMBER AVERAGE EXERCISABLE: EXERCISABLE EXERCISE PRICE ---------------------------------- Range of Exercise Prices $1.75 to $3.00 329 $ 2.46 $3.13 to $7.00 401 $ 4.41 $9.19 to $15.00 5 $13.90 ----------------------------- Total: 735 $ 3.60 =============================
The weighted-average remaining contractual life of stock options outstanding at September 30, 2001, 2000 and 1999 was 7.2 years, 7.5 years and 7.3 years, respectively. 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 September 30, 1995 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2001, 2000 and 1999; risk free interest rate of 4.5%; no dividend yield; a volatility factor of the expected market price of the Company's common stock of .600, .577 and .337; and a weighted-average life of each option of five 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 are amortized to expense over the option's vesting period. The Company's pro forma information follows:
2001 2000 1999 -------------------------------------- Pro forma earnings (loss) $ (4,213) $ (1,011) $ 1,280 Pro forma basic earnings (loss) per share $ (1.40) $ (.38) $ .59 Pro forma diluted earnings (loss) per share $ (1.40) $ (.38) $ .51
6. BENEFIT PLAN The Company sponsors a 401(k) Plan for all eligible employees. The costs for the benefit plan totaled $16 for the year ended September 30, 2001. The Company may provide a matching contribution at the discretion of the Company's Board of Directors. There was no contribution made in fiscal 2001. 7. EQUITY PRIVATE PLACEMENT In March 2000, the Company closed an $8 million equity private placement with a group of institutional investors. The units sold in the private placement were sold at a price of $16 per unit, with registration rights that called for the shares to be registered within 90 days of the closing. Each unit was comprised of 1 share of common stock and a warrant to purchase .7 of one share. The agreement on pricing for the private equity placement was based on a 60-day trailing average of the closing price of the Company's stock less 15% or $16 per share, whichever was greater at the time of the close. After expenses, net proceeds to the Company were approximately $7.6 million. The Company received $4 million in funding upon the close and an additional $4 million after the shares were registered with the Securities and Exchange Commission. Under the agreement, each purchaser of ten shares of common stock in the private placement also received "warrants" to purchase an additional seven shares. At September 30, 2001 there are warrants outstanding for 175,000 shares exercisable at $24.94 per share, and 175,000 shares exercisable at $8.44 per share. The warrants have a 5 year life and expire September 2005. Proceeds, if any, will be used for general working capital requirements and to expand the Company's market share. 15 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- Board of Directors CAM Commerce Solutions, Inc. We have audited the accompanying consolidated balance sheets of CAM Commerce Solutions, Inc. as of September 30, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CAM Commerce Solutions, Inc. at September 30, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Orange County, California November 9, 2001 STOCK AND DIVIDEND DATA - -------------------------------------------------------------------------------- The common stock of CAM Commerce Solutions, Inc., is traded on the Nasdaq National Market under the Nasdaq symbol CADA. Prior to February 18, 2000, the common stock was traded over the counter on the Nasdaq SmallCap Market. The quarterly market price information shown below represents the high and low sales prices for the periods and the high and low bid quotations for the periods. High and low bid quotations reflect inner-dealer prices, without retail mark up, markdown or commission and may not represent actual transactions.
FISCAL YEAR ENDED SEPTEMBER 30, 2001 FISCAL YEAR ENDED SEPTEMBER 30, 2000 QUARTER ENDED: HIGH LOW QUARTER ENDED: HIGH LOW ---------------------------------------------------- --------------------------------------------- December 31 $ 5.00 $ 2.75 December 31 $ 27.50 $ 8.25 March 31 5.375 3.125 March 31 28.875 13.00 June 30 4.68 3.20 June 30 17.00 4.938 September 30 4.60 2.20 September 30 7.875 4.625
As of December 10, 2001, there were approximately 200 holders of record of the Company's common stock. The Company estimates there are in excess of 800 beneficial owners of the Company's common stock. The Company has not paid dividends in the past and the payment of dividends in the future is at the discretion of the Board of Directors, subject to any limitations imposed by the laws of the State of Delaware. The Company does not anticipate paying dividends in the foreseeable future. 16 SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) - --------------------------------------------------------------------------------
2001 FISCAL QUARTER ENDED ------------------------------------------------- IN THOUSANDS, EXCEPT PER SHARE DATA. DEC 31 MAR 31 JUNE 30 SEPT 30 ------------------------------------------------- Net system and service revenues $ 5,174 $ 5,077 $ 4,978 $ 5,528 Gross profit 2,499 2,342 2,464 2,853 Income (loss) before taxes (614) (969) (2,334) 58 Net income (loss) (614) (969) (2,334) 219 Basic net income (loss) per share (.20) (.32) (.77) .07 Diluted net income (loss) per share (.20) (.32) (.77) 07 =================================================
2000 FISCAL QUARTER ENDED ------------------------------------------------- DEC 31 MAR 31 JUNE 30 SEPT 30 ------------------------------------------------- Net system and service revenues $ 6,639 $ 5,290 $ 4,961 $ 4,421 Gross profit 3,082 2,412 2,097 1,767 Income (loss) before taxes 339 (272) (257) (945) Net income (loss) 220 (175) (201) (590) Basic net income (loss) per share .10 (.07) (.07) (.20) Diluted net income (loss) per share .08 (.07) (.07) (.20) =================================================
IN THOUSANDS, EXCEPT PER-SHARE DATA 2001 2000 1999 1998 1997 ------------------------------------------------------------------ Net system and service revenues $ 20,757 $ 21,311 $ 27,747 $ 18,781 $ 17,480 Income (loss) before taxes (3,859) (1,135) 2,290 241 257 Net income (loss) (3,698) (746) 1,480 167 177 Basic net income (loss) per share (1.22) (.28) .69 .08 .09 Diluted net income (loss) per share (1.22) (.28) .59 .08 .08 Total assets 15,172 18,296 11,899 8,502 7,608 Working capital 10,084 11,467 5,013 3,804 3,726 Long-term debt -- -- -- -- -- Stockholders' Equity $ 12,202 $ 15,857 $ 7,588 $ 5,797 $ 5,284 Shares used in computing net income (loss) per share: Basic: 3,020 2,644 2,157 2,092 1,990 Diluted: 3,020 2,644 2,519 2,160 2,155 ==================================================================
17 COMPANY INFORMATION - -------------------------------------------------------------------------------- BOARD OF DIRECTORS REGISTRAR AND TRANSFER AGENT Geoffrey D. Knapp American Stock Transfer Company Chairman and Chief Executive Officer 59 Maiden Lane CAM Commerce Solutions, Inc. New York, NY 10007 David Frosh INDEPENDENT AUDITORS President Sperry Van Ness Ernst & Young LLP 18111 Von Karman Avenue Suite 1000 Walter Straub Irvine, CA 92612 Chief Executive Officer Rainbow Technologies SECURITIES COUNSEL Corley Phillips Haddan & Zepfel LLP Investor 4675 MacArthur Court #710 Newport Beach, CA 92660 Scott Broomfield Chief Executive Officer GENERAL COUNSEL Visual, Inc. Lundell & Spadafore OFFICERS 1065 Asbury Street San Jose, CA 95126 Geoffrey D. Knapp Chief Executive Officer FORM 10-K Greg Freeze A copy of the Company's annual report on Chief Operating Officer Form 10-K, (without exhibits), as filed with the Securities and Exchange Paul Caceres Jr. Commission, will be furnished to any Chief Financial Officer stockholder free of charge upon written request to the Company's Corporate CORPORATE OFFICE Finance Department. 17520 Newhope Street Fountain Valley, CA 92708 (714) 241-9241 Facsimile: (714) 241-9893 Internet address: http://www.camcommerce.com 18 EX-23 5 a78003ex23.txt EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of CAM Commerce Solutions, Inc. of our report dated November 9, 2001, included in the 2001 Annual Report to Stockholders of CAM Commerce Solutions, Inc. We also consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to the 1993 Stock Option Plan of CAM Data Systems, Inc. of our reports dated November 9, 2001, with respect to the consolidated financial statements and financial statement schedule of CAM Commerce Solutions, Inc. incorporated by reference and included, respectively, in this Annual Report (Form 10-K) for the year ended September 30, 2001. /s/ ERNST & YOUNG LLP Orange County, California December 14, 2001 -----END PRIVACY-ENHANCED MESSAGE-----