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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
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: 0-28123
LANVISION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1455414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Financial Way, Suite 400
Cincinnati, Ohio 45242-5859
(Address of principal executive offices) (Zip Code)
(513) 794-7100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ----
Number of shares of Registrant's Common Stock ($.01 par value per
share) issued and outstanding, as of December 9, 1997: 8,896,500.
This report consists of 58 pages, and the Exhibit Index appears on page
21.
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TABLE OF CONTENTS
Page
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
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Condensed Consolidated Balance Sheets at October 31, 1997 and January 31, 1997 . . . . 3
Condensed Consolidated Statements of Operations for the three and nine months ended
October 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows for the nine months ended
October 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 19
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
(Unaudited) (Audited)
October 31, January 31,
1997 1997
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Current assets:
Cash and cash equivalents $ 680,599 $ 664,223
Investment securities 5,104,127 16,407,270
Accounts receivable, net of allowance for doubtful
accounts of $250,000 and $205,000, respectively 2,618,677 2,934,230
Unbilled receivables 1,212,742 663,626
Other 1,335,420 572,968
-------------- --------------
Total current assets 10,951,565 21,242,317
Property and equipment:
Computer equipment 2,261,157 1,536,513
Computer software 334,618 173,359
Office furniture, fixtures and equipment 1,326,698 962,880
Leasehold improvements 759,851 267,244
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4,682,324 2,939,996
Accumulated depreciation and amortization (1,320,564) (687,832)
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3,361,760 2,252,164
Investment securities 10,015,784 9,520,279
Capitalized software development costs, net of accumulated
amortization of $623,563 and $533,563, respectively 451,367 244,366
Other 74,564 40,519
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$ 24,855,040 $ 33,299,645
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See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
(Unaudited) (Audited)
October 31, January 31,
1997 1997
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Current liabilities:
Accounts payable $ 950,988 $ 1,249,337
Accrued compensation 686,983 555,235
Accrued other expenses 1,540,197 1,073,167
Deferred revenues 1,196,195 500,783
-------------- ------------
Total current liabilities 4,374,363 3,378,522
Stockholders' equity:
Preferred stock, $.01 par value per share, 5,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, $.01 par value per share, 25,000,000 shares
authorized, 8,896,500 shares issued and outstanding 88,965 88,965
Capital in excess of par value 35,110,817 35,110,817
Accumulated (deficit) (14,399,905) (5,359,265)
Unrealized net gains on investment securities, net 110,988 80,606
Treasury stock, at cost, 90,500 shares (430,188) --
-------------- --------------
Total stockholders' equity 20,480,677 29,921,123
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$ 24,855,040 $ 33,299,645
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See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended October 31,
(Unaudited)
Three Months Ended Nine Months Ended
----------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------- -------------
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Revenues:
Systems sales $ 1,160,116 $ 1,588,253 $ 2,758,963 $ 6,032,012
Service, maintenance and support 1,168,599 1,447,043 3,251,731 2,486,914
------------ ------------ ------------- -------------
Total revenues 2,328,715 3,035,296 6,010,694 8,518,926
Operating expenses:
Cost of systems sales 493,633 986,867 1,658,513 3,500,029
Cost of service, maintenance and support 1,276,395 1,373,306 3,630,152 2,622,354
Selling, general and administrative 2,205,518 1,888,878 7,129,460 4,342,548
Product research and development 1,304,364 421,974 3,534,214 999,155
------------ ------------ ------------- -------------
Total operating expenses 5,279,910 4,671,025 15,952,339 11,464,086
------------ ------------ ------------- -------------
Operating (loss) (2,951,195) (1,635,729) (9,941,645) (2,945,160)
Interest income 287,484 456,269 901,005 926,622
Interest expense -- -- -- (79,684)
------------ ------------ ------------- -------------
Net (loss) $(2,663,711) $(1,179,460) $ (9,040,640) $ (2,098,222)
============ ============ ============= =============
(Loss) per common share $ (.30) $ (.13) $ (1.02) $ (.26)
============ ============ ============= =============
Number of shares used in per common share computation 8,806,000 8,896,500 8,834,716 8,078,024
============ ============ ============= =============
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended October 31,
(Unaudited)
1997 1996
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Operating activities:
Net (loss) $ (9,040,640) $ (2,098,222)
Adjustments to reconcile net (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 722,732 208,932
Cash provided by (used for) assets and liabilities:
Accounts and unbilled receivables (233,563) (1,772,368)
Other assets (762,452) (306,610)
Accounts payable and accrued expenses 300,429 1,843,351
Deferred revenues 695,412 (337,739)
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Net cash provided by (used for) operating activities (8,318,082) (2,462,656)
Investing activities:
Purchases of investment securities (20,990,860) --
Sales of investment securities 31,828,880 --
Purchases of property and equipment (1,742,328) (1,857,537)
Capitalization of software development costs (297,000) (125,000)
Other (34,046) --
------------- -------------
Net cash provided by (used for) investing activities 8,764,646 (1,982,537)
Financing activities:
Payments on line of credit, net -- (600,000)
Issuance of common stock -- 34,304,782
Purchase of treasury stock (430,188) --
------------- -------------
Net cash provided by (used for) financing activities (430,188) 33,704,782
------------ -------------
Increase (decrease) in cash 16,376 29,259,589
Cash and short term cash equivalents at beginning of period 664,223 --
------------- -------------
Cash and short term cash equivalents at end of period $ 680,599 $ 29,259,589
============= =============
Supplemental cash flow disclosures:
Income taxes paid $ -- $ --
Interest paid $ -- $ 79,684
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See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared by the Company without audit, in accordance with generally accepted
accounting principles for interim financial information, pursuant to the rules
and regulations applicable to quarterly reports on Form 10-Q of the Securities
and Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the Condensed Consolidated Financial Statements have been included. These
Condensed Consolidated Financial Statements should be read in conjunction with
the financial statements and notes thereto included in the LanVision Systems,
Inc. Annual Report on Form 10-K, Commission File Number 0-28132. Operating
results for the three and nine months ended October 31, 1997, are not
necessarily indicative of the results that may be expected for the fiscal year
ending January 31, 1998.
Note 2 - CASH EQUIVALENTS
Short-term cash equivalents include demand deposits, overnight repurchase
agreements and money market funds (which invests in U.S. Treasury Securities).
For purposes of the Condensed Consolidated Statements of Cash Flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
Note 3 - PUBLIC OFFERING OF COMMON STOCK
On April 18, 1996, the Company issued 2,912,500 Shares of Common Stock in an
initial public offering. The net proceeds to the Company, before expenses, was
$35,211,147.
Note 4 - CHANGES IN ACCOUNT BALANCES
Interest income consists primarily of interest on investment securities, and
interest expense consists of interest on outstanding indebtedness, prior to the
initial public offering, in the first quarter of fiscal 1996.
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Other current assets consist primarily of prepaid insurance, prepaid
commissions, and acquired software and hardware awaiting installation. The
increase at October 31, 1997, results primarily from the acquisition of hardware
and software purchased for installation at customers and increases in prepaid
commissions and insurance.
The decrease in current investment securities results from the sale of
short-term investments to fund current operations and purchase additional fixed
assets.
The decrease in accounts receivable is the result of lower sales volume and
increased collections.
The increase in unbilled receivables results from the progress billing terms and
conditions of the sales agreements and the associated revenue recognized during
the recent quarter.
The decrease in accounts payable is due to a reduction in purchases of hardware
and third party software for resale and reduced levels of capital expenditures.
The increase in accrued compensation reflects increased employment levels and
increased accrued commissions.
The increase in accrued other expenses results primarily from increases in
warranty, franchise tax, professional fees, etc. accruals, as the Company
expands its operations.
The increase in deferred revenues relates primarily to the increase in advance
payments on customer installations for which revenue has been deferred.
Note 5 - EARNINGS PER SHARE
On April 18, 1996, the Company issued 2,912,500 shares of Common Stock in an
Initial Public Offering and issued 1,496,000 common shares upon conversion of
the Company's Convertible Redeemable Preferred Stock. (See Note 3.) Per share
data and numbers of common shares contained in these Condensed Consolidated
Financial Statements and in Management's Discussion and Analysis of Financial
Condition and Results of Operations reflect the 4,408,500 shares issued.
The (loss) per common share is calculated using the weighted average number of
common shares outstanding during the period. During the first nine months of
fiscal 1996, the common shares outstanding (8,078,024), assumes the conversion
of the Convertible Redeemable Preferred Stock to 1,496,000 shares of Common
Stock, on an if converted basis as of the beginning of the year, and the
issuance of 2,912,500 common shares on April 18, 1996, the date of the Initial
Public Offering.
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The (loss) per common share calculation, excludes the effect of the common stock
equivalents (stock options) as the inclusion thereof would be antidilutive.
Note 6 - COMMITMENTS
The Virtual Healthware Services ("VHS") division of the Company has entered into
two agreements to provide document imaging, workflow and related services from a
Cincinnati, Ohio-based data center. The Company currently estimates that
approximately $3,000,000 in capital expenditures will be required through
January 31, 1999 to support these agreements and enable the Company to provide
similar services for additional hospitals.
Note 7 - OTHER
Recently the Financial Accounting Standards Board has issued several
pronouncements. These include: Statement of Financial Accounting Standards No.
128 - Earnings Per Share; No. 129 - Disclosure of Information about Capital
Structure; No. 130 - Reporting Comprehensive Income; and No. 131 - Disclosures
about Segments of an Enterprise and Related Information. In addition, the
American Institute of Certified Public Accountants has issued Statement of
Position 97-2 - Software Revenue Recognition. The Company is in the process of
reviewing these recent pronouncements, and believes, based upon a preliminary
review of the pronouncements, that they will not have any material impact on the
financial reporting and disclosures of the Company.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information contained herein, this Discussion and
Analysis contains forward-looking statements. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements, including those discussed below. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revision to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS:
GENERAL
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LanVision(TM) is a leading provider of healthcare information access systems
that enable hospitals and integrated healthcare networks to capture, store,
manage, retrieve and process vast amounts of clinical and financial patient
information. The Company's systems deliver on-line enterprise-wide access to
fully-updated patient information which historically was maintained on a variety
of media, including paper, magnetic disk, optical disk, x-ray film, video, audio
and microfilm. LanVision's systems, which incorporate data management, document
imaging and workflow technologies, consolidate patient information into a single
repository and provide fast and efficient access to patient information from
universal workstations located throughout the enterprise, including the point of
patient care. The systems are specifically designed to meet the needs of
physicians and other medical and administrative personnel and can accommodate
multiple users requiring simultaneous access to patient information, thereby
eliminating file contention. By providing access to all forms of patient
information, the Company believes that its healthcare information access systems
are essential components of the computer-based patient record.
The Company's revenues are derived from the licensing and sale of systems
comprised of internally developed software, third party software and hardware,
and from professional services, maintenance and support services. The
professional services include consulting, implementation, training, project
management and custom software development and currently are provided only to
the company's customers with installed systems or who are in the process of
installing systems. Revenues from professional services, maintenance and support
services typically are expected to increase as the number of installed systems
increases, although the margins on these revenues are expected to fluctuate
based upon the negotiated terms of the agreement with each customer and the
Company's ability to fully utilize its professional services, maintenance and
support services staff. The highest margin on systems sales is on proprietary
software with lower margins on third party hardware and software. Systems sales
to any given customer may include differing configurations of software and
hardware, resulting in varying margins among contracts.
The decision by a healthcare provider to replace, substantially modify or
upgrade its information systems is a strategic decision and often involves a
large capital commitment requiring an extended approval process. The sales cycle
for the Company's systems have typically taken six to eighteen months, or
sometimes longer, from initial contact to the execution of an agreement. As a
result, the length of the sales cycle causes variations in quarter to quarter
results. The agreements cover the entire implementation of the systems and
specify the implementation schedule, which typically takes place in one or more
phases. The agreements generally provide for the licensing of the Company's
software and third party software with a one-time perpetual license fee that is
adjusted depending on the number of workstations using the software. Third party
hardware is usually sold outright, with a one-time fee charged for installation
and training. Specific software customization, development of interfaces to
existing customer systems and other professional services are sold on a fixed
fee or a time and material basis.
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LanVision enters into agreements with its customers to specify: the scope of the
systems to be installed and services to be provided by LanVision, the agreed
upon aggregate price and the preliminary timetable for implementation. The
agreements typically provide that the Company will deliver the systems in
phases, thereby allowing the customer flexibility in the timing of its receipt
of systems and to make adjustments that may arise upon changes in technology or
changes in customer needs. The Company's master agreements generally provide
that the customer may terminate its agreement upon a material breach by the
Company, may delay certain aspects of the installation and may terminate the
agreement at the customer's discretion without penalty and without regard to the
Company's performance. Customers have canceled, delayed or suspended certain
parts of current or future phases and have modified the original configuration
in the master agreement to meet their evolving needs. The sales agreements also
allow the customer to request additional components as the installation
progresses, which additions are then separately negotiated as to price and
terms. Historically, customers have ultimately purchased systems and services in
addition to those originally contemplated by the original agreement, although
there can be no assurance that this trend will continue in the future.
The Company's new VHS division, (Virtual Healthware Services), will provide, as
a service bureau, high quality, transaction-based document imaging and workflow
related services to healthcare providers from a centralized data center. The VHS
(Service Bureau) offers an alternative to purchasing health information access
systems for hospitals, outpatient clinics and integrated delivery networks. VHS
will utilize LanVision applications across an Intranet. VHS will establish a
centralized data center(s) capable of serving hospitals and integrated
healthcare delivery networks throughout the United States. The centralized data
center will maintain the computers, software and other equipment necessary to
provide data base services, magnetic storage, optical storage, and network
services, which will be used in providing electronic medical record and other
information to and from hospitals and integrated delivery networks.
Additionally, VHS will provide the equipment and personnel necessary to provide
on-site scanning and indexing services at the hospital or integrated delivery
network. Customers will be charged fees, on a per transaction basis, for
documents scanned, stored and retrieved from the VHS data center.
YEAR 2000 COMPLIANCE
The Company is actively engaged in reviewing all of the relevant Year 2000
compliance issues. All Company software under development will be Year 2000
compliant and the Company believes that changes to existing products will not
require significant modification. However, the Company's products rely upon
third party software and a review of third party products used in conjunction
therewith has been undertaken with the respective vendors to determine what
actions, if any, are required for compliance. The Company does not believe,
based upon its current understanding of the issues, that there will be a
material impact on the financial results of the Company.
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UNEVEN PATTERNS OF QUARTERLY OPERATING RESULTS
The Company's revenues from systems sales have varied, and may continue to vary,
significantly from quarter to quarter as a result of the volume and timing of
systems sales and delivery. Professional services revenues also fluctuate from
quarter to quarter as a result of the timing of the installation of software and
hardware, project management and customized programming. Revenues from
maintenance services do not fluctuate significantly from quarter to quarter, but
have been increasing as the number of customers increase. Revenues from VHS
services which are expected to commence in February, 1998, are expected to
increase over time, as more documents are stored on the systems and the number
of retrievals increase from the ever increasing data base of stored documents.
Because a significant percentage of the Company's operating costs are expensed
as incurred, a variation in the usage of VHS services, the timing of systems
sales and installations and the resulting revenue recognition, can cause
significant variations in operating results from quarter to quarter.
Accordingly, the Company believes that quarter-to-quarter comparisons of its
revenues and operating results may not necessarily be meaningful and should not
be relied upon as indicators of future performance.
Generally, revenue from systems sales is recognized when an agreement is signed
and products are shipped. Revenue recognition related to routine installation,
integration and other insignificant obligations is deferred until the work is
performed. If an agreement requires the Company to perform services and
modifications that are deemed significant to system acceptance, revenue related
to the delivered hardware and/or software components is deferred until such
obligations are deemed insignificant. Revenue from consulting, training and
implementation is recognized as the services are performed. Revenue from
short-term support and maintenance agreements is recognized ratably over the
term of the agreements. Because the progress billing terms and conditions of the
agreements often do not coincide with the revenue recognition, billings to
customers prior to the recognition of the revenue are classified as deferred
revenue. Revenue recognized prior to progress billings to customers is recorded
as unbilled receivables. Revenues from VHS services will be invoiced monthly
based upon the number of document images added to the system, other data
electronically transmitted to the system, quantity of information stored, and
the retrieval of information. Retrieval revenue will be dependent upon customer
usage, but retrieval is expected to increase as more documents are archived and
retrieval workstations are expanded throughout a customer site. The VHS Data
Center is expected to begin operations in February, 1998. The Company believes
that VHS could be a substantial portion of its business going forward.
The Company's revenues and operating results may vary significantly from quarter
to quarter as a result of a number of other factors, many of which are outside
the Company's control. These factors include the relatively high purchase price
of a LanVision document imaging and workflow system, unpredictability in the
number and timing of systems sales, length of the sales
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cycle, delays in the installation process and changes in the customer's
financial condition or budget. As a result, period to period comparisons may not
be meaningful with respect to the past operations of the Company nor are they
necessarily indicative of the future operations of the Company.
REVENUES:
Revenues for the third fiscal quarter ended October 31, 1997, were $2,328,715
compared with $3,035,296 in the comparable quarter of 1996. Revenues for the
nine months ended October 31, 1997, were $6,010,694 compared with $8,518,926 in
the comparable period of 1996.
During the third quarter, the Company signed two significant contracts with the
Children's Medical Center of Dallas and Harris Methodist Health, Inc. These two
contracts are expected to generate revenue in excess of $4,700,000, over the
next two years, of which $1,014,000 of this revenue was recognized in the third
quarter.
During the third quarter the Company's newly formed Virtual Healthware Services
(VHS) division signed contracts with its first two healthcare providers - The
Detroit Medical Center and Providence Health System. These two VHS contracts are
expected to generate revenue in excess of $7,000,000 in transaction fees over
the first three years of operation. Transaction fees (service bureau) revenue
from these two agreements is expected to commence in the first quarter of fiscal
1998.
Of the approximately $8,000,000 in new agreements for systems (excluding VHS
service bureau revenue) signed to date in fiscal 1997, approximately $1,420,000
in revenues were recorded during the third quarter and approximately $2,769,000
in the nine months ended October 31, 1997. The remaining portion of these new
agreements will be implemented in future periods. The remaining revenues during
the quarter and the first nine months came from implementation of previously
signed agreements (backlog) and from add-on sales to existing customers. As
previously discussed, after an agreement is executed, LanVision does not record
revenues until it ships the hardware and software or performs the agreed upon
services. The commencement of revenue recognition varies depending on the size
and complexity of the system and the scheduling of the implementation, training,
interface development and other services requested by the customer. Accordingly,
significant variations in revenues can result as more fully discussed under
"Uneven Patterns of Quarterly Operating Results." Three customers, including two
of the new fiscal 1997 customers, accounted for approximately 46% of the
revenues for the first nine months of 1997 and three customers accounted for 52%
of the revenues for the first nine months of 1996.
OPERATING EXPENSES:
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Cost of System Sales
The cost of systems sales includes amortization of capitalized software
development costs on a straight-line basis, royalties and the cost of third
party software and hardware. Cost of systems sales as a percentage of systems
sales may vary from period to period depending on the hardware and software
configuration of the systems sold. The cost of systems sales as a percentage of
systems sales for the third quarter of 1997 and 1996 were 43% and 62%,
respectively, and 60% and 58%, respectively for the first nine months of 1997
and 1996.
Cost of Service, Maintenance and Support
The cost of service, maintenance and support includes compensation and benefits
for support and professional services personnel and the cost of third party
maintenance contracts. As a percentage of service, maintenance and support
revenues, the cost of such service, maintenance and support was 109% and 95% for
the third quarter of fiscal 1997 and 1996, respectively and 112%, and 105%,
respectively, for the first nine months of 1997 and 1996.
The service, maintenance and support staff consisted of thirty, twenty-nine, and
twenty-nine employees respectively, in the first, second and third quarters of
1997 compared with fifteen, twenty-two, and twenty-three in the comparable prior
quarters. LanVision's Professional Services and Customer Support staffs were
expanded, subsequent to the initial public offering, in anticipation of
increases in systems sales. The number of new systems sales has been less than
expected, and accordingly, revenue from professional services and support has
been less than the Company's internal plan.
Selling, General and Administrative
Selling, General and Administrative expenses consist primarily of: compensation
and related benefits and reimbursable travel and living expenses related to the
Company's sales, marketing and administrative personnel; advertising and
marketing expenses, including trade shows and similar type sales and marketing
expenses; and general corporate expenses, including occupancy costs. During the
third quarter of fiscal 1997, selling, general and administrative expenses
increased to $2,205,518 compared with $1,888,878 in the comparable prior quarter
and increased to $7,129,460 in the first nine months compared with $4,342,548 in
the comparable prior period. In order to take advantage of the growth market
opportunities in the healthcare information systems market, the Company
significantly expanded its direct sales and marketing and indirect sales
operations during the second through fourth quarters of fiscal 1996, including
the infrastructure necessary to support its anticipated future operations. At
the end of the third quarter of 1997, the selling, general and administrative
staff consisted of forty-eight employees which was approximately the number of
employees at the end of the third quarter of 1996. Additionally, expenses for
advertising, trade shows and other marketing programs for the first nine months
of fiscal 1997, were approximately $277,000 greater than the first nine months
of
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fiscal 1996. Selling, general and administrative expenses include $180,000 in
the first quarter of fiscal 1997, related to an employee severance agreement.
Product Research and Development
Product research and development expenses consist primarily of: compensation and
related benefits; the use of independent contractors for specific development
projects; and an allocated portion of general overhead costs, including
occupancy. At October 31, 1997, the product research and development staff
consisted of thirty-one employees compared with fifteen employees at October 31,
1996. In addition, the Company has increased substantially the use of
independent contractors and software development firms to supplement the
internal research and development staff. The majority of product research and
development expenses for the current quarter and last nine months relate to: the
continued enhancement and increased functionality of ChartVision(R) and
development of a new version of AccountVision(TM); the development of new
products to expand the breadth of the product portfolio, including, On-Line
Chart Completion(TM) which automates the identification of deficiencies in
patient charts and automatic routing to appropriate personnel for on-line
processing and completion, MultiView(TM), an add-on module to ChartVision to
enable the display of multiple documents and enable users to pre-define search
criteria and tailor data, Enterprisewide Correspondence(TM) module to fulfill
requests for information by allowing electronic searches and distribution of
patient information, OmniVision(TM), an image enabling and workflow technology
software that allows access to information through existing hospital
applications and WebView(TM), a web browser-based application for retrieving and
viewing medical records. The Company capitalized, in accordance with Statement
of Financial Accounting Standards No. 86, $297,000, and $125,000 of product
research and development costs in the first nine months of fiscal 1997 and 1996,
respectively.
Net loss
The net loss for the third fiscal quarter of 1997 was $2,663,711 ($.30) compared
with a net loss of $1,179,460 ($.13) in the third quarter of 1996. The net loss
for the first nine months of 1997 was $9,040,640 ($1.02) compared with a net
loss of $2,098,222 ($.26) in the first nine months of 1996. The increased
operating loss is due to the significant expansion of the Company discussed in
the previous paragraphs and fewer new systems sales than expected. The shortfall
in systems sales occurred for several reasons: intense competition from other
healthcare document imaging and workflow providers; growing pains resulting from
the addition of many new employees and several management changes; extended
sales cycles where several potential customers have either indefinitely
postponed or delayed plans to implement document imaging due to a variety of
operating/capital decisions, including potential mergers, reprioritization of
projects, change in management, etc. Additionally, it has taken the Company
longer than anticipated to deliver products in development. Late delivery of
some products has resulted in less revenue from existing customers and adversely
affected the Company's competitive position.
15
<PAGE> 16
In spite of the less than anticipated number of new customer agreements signed
in the current fiscal year, management continues to believe that the healthcare
document imaging and workflow market is going to be a significant market.
Management believes it has made the investments in the talent and technology
necessary to establish the Company as a leader in this marketplace, and believes
the Company is well positioned to experience significant revenue growth.
Since commencing operations in 1989, the Company has from time to time incurred
operating losses. Although the Company achieved profitability in fiscal years
1992 and 1993, the Company incurred a net loss in fiscal years 1994, 1995 and
1996. In view of the Company's prior operating history, there can be no
assurance that the Company will be able to achieve consistent profitability on a
quarterly or annual basis or that it will be able to sustain or increase its
revenue growth in future periods. Based upon the expenses associated with
current and planned staffing levels, profitability is dependent upon increasing
revenues.
LIQUIDITY AND CAPITAL RESOURCES
On April 18, 1996, the Company, in its Initial Public Offering, issued 2,912,500
Shares of Common Stock, with net proceeds to the Company, before expenses, of
$35,211,147. The Company has no significant obligations for capital resources
other than operating leases for the existing facilities. However, the Company
anticipates that during the next six months it will spend approximately
$3,000,000 for the furniture, building improvements and equipment necessary to
establish the new VHS division. Additionally, because VHS is a start up
operation and because the revenue stream will start small and then grow as more
data is stored and retrieved, management expects VHS will operate at a loss and
negative cash flow for at least the first year of operation. Since the public
offering, the Company's operating losses, capital expenditures, and working
capital needs have decreased cash and investments by approximately $19,000,000.
Additionally, based upon the expenses associated with the current staffing
levels, profitability and positive cash flow is dependent upon increasing
revenues. Management believes the Company will be able to increase revenues and
believes existing cash and cash equivalents, and investment securities, as well
as cash provided from operations, will be sufficient to meet anticipated cash
requirements. However, management anticipates the capital expenditures needed by
the VHS division will be funded by a combination of short and long-term debt,
which is yet to be secured.
The Company's customers typically have been well-established hospitals or
medical facilities with good credit history, and payments have been received
within normal time frames for the industry. Agreements with customers often
involve significant amounts, and contract terms typically require customers to
make progress payments
Subsequent to the close of the quarter, the Company completed the acquisition of
the Optika Imaging Systems, Inc. healthcare specific products, the
FPhealthcare(TM) suite of products of which
16
<PAGE> 17
the Company intends to integrate certain of these software products with its
existing AccountVision product. The acquisition price was not material.
SIGNED AGREEMENTS - BACKLOG
At October 31, 1997, the Company's customers had entered into agreements for
systems and related services (excluding support and maintenance, and transaction
based revenues for VHS) which had not yet been delivered, installed and accepted
which, if fully performed, would generate sales of approximately $11,300,000.
See "Results of Operations: General" for a description of the Company's
agreements with customers. The systems and services related to the agreements
are expected to be delivered or performed, based upon customer implementation
schedules, over the next two to three years. Of the backlog at October 31, 1997,
the Company has received purchase orders for approximately $4,600,000 of systems
and services (excluding maintenance).
In addition, the Company's agreements also generally provide for an initial
maintenance period and give the customer the right to subscribe for maintenance
services on a monthly, quarterly or annual basis.
The VHS division has entered into two agreements which are expected to generate
revenues, starting in fiscal 1998, in excess of $7,000,000 over the first three
years of operations.
17
<PAGE> 18
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently engaged in any litigation.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use Of Proceeds
(1) Effective date of the Registration Statement (Commission File Number
2-01494) for which Use of Proceeds information is provided is April
17, 1996.
(2) The offering date of the Registration Statement was April 18, 1996.
(3) The Managing Underwriters were:
Jefferies & Company, Inc.
Unterberg Harris
McDonald & Company Securities, Inc.
(4) The Securities Registered was - Common Stock, $.01 Par Value.
(5) Aggregate offering price of securities registered and sold to date
for the account of:
<TABLE>
<S> <C> <C>
Issuer -
Amount Registered 2,912,500 Shares
Aggregate Price of Offering Amount Registered $37,862,500
Amount Sold 2,912,500 Shares
Aggregate Offering Price of Amount Sold $37,862,500
Selling Security Holders -
Amount Registered 750,000 Shares
Aggregate Offering Price of Amount Registered $9,750,000
Amount Sold 750,000 Shares
Aggregate Offering Price of Amount Sold $9,750,000
</TABLE>
(6) Amount of expenses incurred for the Registrant's account in
connection with the issuance and distribution of the Securities
Registered, all of which were made to "others" and none to directors,
officers, general partners or affiliates of the Registrant.
18
<PAGE> 19
Underwriting Discount and Commission $2,651,353
Finders Fees -
Expenses paid to or for Underwriters -
Other Expenses, Estimated at $906,365
(7) Net offering proceeds to the Registrant after total expenses above
$34,304,782.
(8) From the effective date of the Registration Statement through the end
of the quarterly period of this Form 10-Q, the Registrant made direct
or indirect payments to "others" in the amounts listed below. No
payments direct or indirect were made to Directors, Officers, General
Partners, or Affiliates of the Registrant.
<TABLE>
<S> <C>
Construction of plant, building and facilities $ -
Purchase and installation of machinery and equipment $ 4,076,123
Purchase of real estate $ -
Acquisition of other business(es) $ -
Repayment of indebtedness $ 1,110,266
Working capital $ 1,455,622 *
Expanded Staff, facilities, advertising, and
software development $ 13,795,169 *
Repurchase of treasury stock $ 430,188
Temporary investment in U.S. Treasury Securities $ 13,437,414
<FN>
*Represents estimates.
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10) Material Contracts:
(1) Lease for Office Space between Duke Realty Limited
Partnership and LanVision, Inc. dated September 23, 1997.
(2) Third Amendment to Office Lease with Duke Realty Limited
Partnership and LanVision, Inc. dated September 23, 1997.
(11) Computation of Earnings (Loss) Per Common Share
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LANVISION SYSTEMS, INC.
DATE: December 9, 1997 By: /s/ J. BRIAN PATSY
---------------------- -----------------------------------------
J. Brian Patsy
Chief Executive Officer and
President
DATE: December 9, 1997 By: /s/ THOMAS E. PERAZZO
---------------------- -----------------------------------------
Thomas E. Perazzo
Vice President, Chief Operating Officer,
Chief Financial Officer and Treasurer
20
<PAGE> 21
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Sequential
Exhibit No. Exhibit Page No.
----------- ------- --------
<S> <C> <C>
10.1 Lease for Office Space between Duke Realty Limited Partnership
and LanVision, Inc. dated September 23, 1997 . . . . . . . . . . . . . . . . . . . . 22
10.2 Third Amendment to Office Lease with Duke Realty Limited
Partnership and LanVision, Inc. dated September 23, 1997 . . . . . . . . . . . . . . 50
11 Computation of Earnings (Loss) Per Common Share. . . . . . . . . . . . . . . . . . . 57
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
21
<PAGE> 22
Exhibit 10.1
LANVISION SYSTEMS, INC.
LEASE AGREEMENT
THIS LEASE AGREEMENT, executed this 23rd day of September, 1997, by and
between DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership
("Lessor"), and LANVISION, INC., an Ohio corporation ("Lessee").
WITNESSETH
1. Basic Lease Provisions. The following constitute the "Basic Lease
Provisions" and definitions :
A. Building Name/Number: 4700 Governor's Pointe;
Address: 4700 Duke Drive, Suite 170, Mason, OH 45040;
B. Rentable Area: approximately 9,200 square feet;
C. Building Expense Percentage: 12%;
D. Minimum Annual Rent:
Year 1 $ 0.00 (months 1-7)*
Year 1 $38,333.35 (months 8-12)
Year 2 $92,000.04 per year
Year 3 $92,000.04 per year
Year 4 $92,000.04 per year
Year 5 $92,000.04 per year
Year 6 $53,666.69 (months 1-7);
* See Paragraph 36 below.
E. Monthly Rental Installments:
Months 1-7 $ 0.00 per month*
Months 8-67 $7,666.67 per month;
* See Paragraph 36 below.
F. Term: Five (5) years and seven (7) months;
G. Commencement Date: December 1, 1997;
22
<PAGE> 23
H. Base Amount: $0.00;
I. Security Deposit: Intentionally Omitted;
J. Broker(s): Duke Realty Services Limited Partnership representing
Lessor and none representing Lessee;
K. Address for payments and notices as follows:
Lessor: Duke Realty Limited Partnership
4555 Lake Forest Drive, Suite 400
Cincinnati, OH 45242
Lessee: LanVision, Inc.
One Financial Way, Suite 400
Montgomery, OH 45242
Address for rental
and other payments: Duke Realty Limited Partnership
P.O. Box 960664
Cincinnati, OH 45296-0664
2. The Leased Premises. Lessor hereby leases and demises to Lessee and
Lessee agrees to lease from Lessor a portion of the certain building described
in Item A of the Basic Lease Provisions (the "Building"). The portion of the
Building hereby leased to Lessee has a gross area of approximately the square
footage shown in Item B of the Basic Lease Provisions, and is cross-hatched on
the floor plan attached hereto as Exhibit A which is incorporated herein by
reference (the "Leased Premises").
Lessor also grants to Lessee, together with and subject to the
same rights granted from time to time by Lessor to other lessees and occupants
of the Building, the non-exclusive right to use the common parking area
adjoining the Building, access roads, ingress-egress and any other facilities
intended for common use by all lessees within the Building.
3. Term.
(A) The term of this Lease shall be for the period shown in Item F
of the Basic Lease Provisions (the "Lease Term") commencing on the Commencement
Date shown in Item G of the Basic Lease Provisions.
(B) Lessee has personally inspected the Leased Premises and
accepts the same "as is" without representation or warranty by Lessor of any
kind and with the understanding that Lessor shall
23
<PAGE> 24
have no responsibility with respect thereto except to construct in a good and
workmanlike manner the improvements, if any, designated as Lessor's obligations
in the attached Exhibit B, so that the Leased Premises will be available for
Lessee's occupancy by the Commencement Date, unless prevented by causes beyond
Lessor's reasonable control. Such improvements shall be in accordance with and
at the expense of the party indicated on Exhibit B. Lessor shall provide Lessee
an allowance for the tenant finish improvements for the Leased Premises in an
amount up to Sixty-four Thousand Four Hundred Dollars ($64,400) ("Allowance").
The Allowance shall be used solely for the work described on Exhibit B.
Lessor's construction management fee of seven percent (7%) shall be charged to
the work paid out of the Allowance and additional work paid by Lessee. All work
performed in the Leased Premises shall be done by Lessor or its affiliate.
Lessee shall pay to Lessor ninety percent (90%) of the entire cost of the
computer room as set forth on Exhibit B at the time of the execution of this
Lease and the remaining cost of the computer room within fifteen (15) days of
completion of the computer room as set forth on Exhibit B. Lessor shall not be
responsible for any delays in the Commencement Date as a result of delays
caused by Lessee and the Commencement Date shall be the date such improvements
would have been completed except for such delays caused by Lessee.
(C) Lessee agrees that if Lessor is unable to deliver possession
of the Leased Premises on the Commencement Date, then Lessor shall not be liable
to Lessee for any loss or damage therefrom, nor shall this Lease be void or
voidable; but in such event the Commencement Date, termination date and all of
the dates of the Lease Term shall be extended to conform to the time of Lessor's
tendered possession of the Leased Premises to Lessee, and Lessee shall not be
obligated to pay Minimum Annual Rent or other sums due Lessor until possession
of the Leased Premises is tendered to Lessee.
4. Minimum Rent.
(A) Lessee agrees to pay as minimum rent for the Leased Premises
the sum of the Minimum Annual Rent as set forth in Item D of the Basic Lease
Provisions payable in Monthly Rental Installments as set forth in Item E of the
Basic Lease Provisions without deduction or set-off. The Monthly Rental
Installments shall be paid in advance beginning on the Commencement Date and on
the first day of each month thereafter for the term of this Lease (the "Minimum
Rent"). The Monthly Rental Installments for partial months shall be prorated
based on the number of the days in such month which are included within the
Lease Term divided by thirty (30).
(B) Lessee acknowledges that Lessor shall incur certain additional
unanticipated costs and expenses, including administrative costs and attorneys'
fees, if Lessee fails to timely pay any payment required hereunder. Therefore,
as compensation for such additional expenses, and in addition to the other
remedies available to Lessor hereunder, if any payment of Minimum Rent or any
other sum or charge required to be paid by Lessee to Lessor hereunder shall
become overdue for a period of ten (10) days, a late charge of seven percent
(7%) of the payment so due shall be paid by Lessee as additional rent. In
addition, if Lessee fails to pay within thirty (30) days after the same is due
and payable any
24
<PAGE> 25
sum or charge required to be paid by Lessee to Lessor, such unpaid amount shall
bear interest from the due date thereof to the date of payment at the rate of
fifteen percent (15%) per annum.
5. Additional Rent. Lessee agrees to pay as "Additional Rent" its
proportionate share of the amount paid or incurred by Lessor during the Lease
Term for real estate taxes, insurance premiums and common area expenses for the
Building and appurtenant common areas (collectively "Operating Expenses") to the
extent any such amount exceeds the Base Amount per square foot of the Building
area per year as set forth in Item H of the Basic Lease Provisions. Operating
Expenses shall include all Lessor's expenses for operation, repair, replacement
and maintenance as necessary to keep the Building and appurtenant common areas
in good order, condition and repair, including but not limited to, utilities (to
the extent such are not separately metered), expenses associated with the
driveways, access roads and parking areas (including repaving and snow, trash
and ice removal), security systems, lighting facilities, landscaped areas,
walkways, directional signage, curbs, drainage strips, sewer lines, roof,
painting, inspection fees, environmental and pollution testing and consultation
fees related thereto, all charges assessed against the Building pursuant to any
applicable easements, covenants or development standards, and management fees.
Operating Expenses shall not include the costs for capital improvements unless
such costs are required by any governmental authority, or are replacements of
existing improvements but such shall be amortized as reasonably determined by
Lessor. The proportionate share to be paid by Lessee shall be a percentage based
upon the proportion that the square footage of the Leased Premises bears to the
total square footage of the Building, which proportion shall be the amount set
forth as the Building Expense Percentage in Item C of the Basic Lease
Provisions. Lessor shall be entitled to estimate the total amount of Additional
Rent to be paid by Lessee during each calendar year and, upon notice to Lessee
of such estimate, to collect such estimate in twelve (12) equal installments,
each such installment due with the Monthly Rental Installment payable under this
Lease. Within a reasonable time after the end of such calendar year, Lessor
shall submit to Lessee a statement of the actual amount of Operating Expenses
and the Additional Rent due from Lessee hereunder, and within thirty (30) days
after receipt of such statement, Lessee shall pay any deficiency between the
actual amount owed and the estimates paid during such calendar year, or in the
event of overpayment of Additional Rent paid by Lessee, Lessor shall credit the
amount of such overpayment toward the next Monthly Rental Installments of
Minimum Rent. It is not intended, however, that Lessee be required to pay its
share of any increased tax assessments resulting from additional improvements
constructed for other lessees in the Building after the Building has been fully
completed and assessed.
As used herein, the term "real estate taxes" shall include any form of
real estate tax or assessment, general, special, ordinary or extraordinary, and
any license fee, commercial rental tax, improvement bond or bonds, levy or tax
(other than inheritance, personal income or estate taxes) or service payments
made in lieu thereof imposed upon the Leased Premises by any authority having
the direct or indirect power to tax, including any city, state or federal
government or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, or against Lessor's business of leasing the
Leased Premises. If the Leased Premises are not separately assessed, then
Lessee's liability shall be an equitable proportion of the real estate taxes for
all of the land and
25
<PAGE> 26
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in Assessor's
worksheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith shall be conclusive.
Lessee shall pay, prior to delinquency, all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Leased Premises or elsewhere. Lessee shall
cause such trade fixtures, furniture, equipment and all other personal property
to be assessed and billed separately from the Leased Premises.
Notwithstanding anything to the contrary contained herein, for purposes
of this Lease, "Operating Expenses" shall not include the following fees, costs
and expenses:
a. Mortgage principal and interest payments, fees and points;
b. Refinancing or sale costs;
c. Depreciation and amortization of Building or equipment;
d. Capital improvements or replacements, except expressly allowed
herein;
e. Advertising costs;
f. Brokerage, leasing, commissions and marketing costs;
g. Alterations for other tenants;
h. Costs reimbursed by or paid directly by Lessee or by other
tenants;
i. Costs reimbursed by insurance or governmental authorities;
j. Special service costs paid directly by Lessee or by other tenants;
k. Legal fees for enforcing other tenants' leases;
l. Art work in the Building;
m. Services performed by Lessor or its related parties at
above-market cost;
n. Taxes on net income, stock, capital, transfer, successions or
franchises;
o. Repairs or maintenance covered under any warranty or guarantees;
26
<PAGE> 27
p. The cost of land or the construction of the Building, whether
initially or in connection with any replacement due to faulty
construction or expansion thereof, whether mandated by law or
otherwise, including, without limitation, costs of correcting:
(i) defective conditions in the Building or Leased Premises
resulting from defects in or inadequacy of the initial design or
construction of the same; or
(ii) code violations or the payment of fines or citations in
connection therewith;
q. The initial cost of the initial installation of the parking areas,
landscaping, and/or other facilities or the amortization or
depreciation of that initial cost or the initial establishment of
janitorial and cleaning services and building security, if any;
r. Any bad debt loss, rent loss, or reserves for bad debt or rent
loss;
s. Costs associated with Lessor's management office and Building
Manager, including Building Manager's wages.
6. Utilities. Lessee shall pay the costs of all utilities serving the
Leased Premises. Lessor does not warrant the uninterrupted availability of such
utilities and any interruption shall not be deemed an eviction or disturbance of
Lessee's right to possession, occupancy and use of the Leased Premises or any
part thereof or render Lessor liable to Lessee for damages by abatement of rent
or otherwise or relieve Lessee from the obligation to perform its covenants
under this Lease.
7. Security Deposit. Intentionally Omitted.
8. Use of Leased Premises. The Leased Premises are to be used by Lessee
for office use, warehousing, storage and related purposes, and for no other
purpose without the prior written consent of Lessor. Lessee shall not use the
Leased Premises or fail to maintain them in any manner, constituting a violation
of the covenants or any ordinance, statute, regulation or order of any
governmental authority, including but not limited to those governing zoning,
health, safety and occupational hazards, and pollution and environmental
control. Lessee shall not maintain or permit any nuisance to occur on the Leased
Premises; nor shall Lessee's use of the Leased Premises interfere with the
reasonable use of the Building or the common parking areas associated therewith
by other lessees. Lessee shall comply with and obey all reasonable directions of
Lessor including the Rules and Regulations attached to this Lease as Exhibit C
and those that may be adopted by Lessor from time to time.
Lessee covenants and agrees that Lessee will use, maintain and occupy
the Leased Premises in a careful, safe and proper manner and will not commit
waste thereon.
9. Maintenance and Repairs. During the term of this Lease:
27
<PAGE> 28
(A) Lessee shall, at its own cost and expense, maintain in good
condition and repair the interior of the Leased Premises, including but not
limited to the maintenance, repair and replacement of the electrical systems,
heating, air conditioning and ventilation systems, plate glass, windows and
doors, sprinkler and plumbing systems. Lessee's obligations to repair and
maintain the Leased Premises shall include without limitation all plumbing and
sewage facilities within the Leased Premises; fixtures; interior walls; floors;
ceilings; windows in the storefront; doors; plate glass; show cases; skylights;
all electrical facilities and equipment including without limitation lighting
fixtures, lamps, fans and any exhaust equipment and systems; electrical motors;
and all other appliances and equipment of every kind and nature located in, upon
or about the Leased Premises except as to such maintenance and repair as is the
obligation of Lessor pursuant to Subparagraph 9(B) herein. All glass, both
interior and exterior, is at the sole risk of Lessee; and any broken glass shall
be promptly replaced at Lessee's expense by glass in kind, size and quality.
Lessee shall obtain a preventative maintenance contract on the heating,
ventilating and air conditioning systems ("HVAC Systems") which shall be subject
to the reasonable approval of Lessor and paid for by Lessee. Within thirty (30)
days after the Commencement Date, Lessee may have the HVAC Systems inspected by
a respectable company acceptable to Lessor and Lessor shall make such repairs as
are reasonably required by any report prepared by such company. Lessor shall
make all repairs to the HVAC Systems and the other systems set forth above as
Lessee's responsibility during the first year of the Lease Term unless such
repairs are made necessary by the acts or omissions of Lessee.
(B) Lessor shall maintain in good condition and repair the
exterior walls, roof, foundation and structural frame of the Building and the
parking and landscaped areas, the costs of which shall be included in Operating
Expenses provided, however, that to the extent any of the foregoing items
require repair or replacement because of the negligence, misuse or default of
Lessee, its employees or invitees, Lessor shall make such repairs at Lessee's
expense.
(C) Lessor shall not be liable to Lessee or to any other person
for any damage occasioned by failure in any utility system or by the bursting or
leaking of any vessel or pipe in or about the Leased Premises; or for any damage
occasioned by water coming into the Leased Premises or arising from the acts or
neglects of occupants of adjacent property or the public.
10. Alterations. Lessee shall not permit alterations of or upon any
part of the Leased Premises or additions to the Leased Premises without first
obtaining the written consent of Lessor. As a condition of such consent, Lessor
may require Lessee to remove the alterations and restore the Leased Premises
upon termination of this Lease.
Any alterations, improvements or utility installations in, on or about
the Leased Premises that Lessee shall desire to make which require the consent
of Lessor shall be presented to Lessor in written form with proposed detailed
plans. If Lessor shall give its consent, such consent shall be deemed
conditioned upon (i) Lessee's acquiring a permit to do so from appropriate
governmental agencies, (ii) the furnishing of a copy thereof to Lessor prior to
the commencement of the work and (iii) the
28
<PAGE> 29
compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner. All alterations and additions to the Leased Premises shall
be made in accordance with all applicable laws and Lessee shall indemnify and
save harmless Lessor from all costs, loss or expense in connection with any
construction or installation. All alterations, additions or improvements shall
be installed at Lessee's sole expense in compliance with all applicable laws
and by a licensed contractor approved in writing by Lessor. Lessor may require
Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half (1-1/2) times the
estimated cost of such improvements to insure against any liability for
mechanic's and materialmen's liens and to insure completion of the work. No
person shall be entitled to any lien directly or indirectly derived through or
under Lessee or through or by virtue of any act or omission of Lessee upon the
Leased Premises for any improvements or fixtures made thereon or installed
therein or for or on account of any labor or material furnished to the Leased
Premises or for or on account of any matter or thing whatsoever; and nothing in
this Lease contained shall be construed to constitute a consent by Lessor to
the creation of any lien. In the event any lien is filed against the Leased
Premises, or any part thereof, for work claimed to have been done for or
material claimed to have been furnished to Lessee, Lessee shall cause such lien
to be discharged of record within thirty (30) days after filing by bonding or
as provided or required by law or in any other lawful manner. Lessee shall
indemnify and save harmless Lessor from all costs, losses, expenses, and
attorneys' fees in connection with any such lien.
11. Inspection. Lessor or Lessor's agent shall be permitted to inspect
or examine the Leased Premises at any reasonable time, and Lessor shall have the
right to make any repairs to the Leased Premises which are necessary for its
preservation; provided, however, that any repairs made by Lessor shall be at
Lessee's expense, except as provided in Section 9(B) hereof. In addition, during
the last ninety (90) days of the Lease Term, Lessor shall have the right to show
the Leased Premises to prospective lessees; provided, however, that Lessor shall
use good faith efforts to minimize any disruption to Lessee's business. Lessor
shall incur no liability to Lessee for such entry, nor shall such entry
constitute an eviction of Lessee or termination of this Lease, or entitle Lessee
to any abatement of rent.
12. Assignment and Sublease. Lessee shall not assign or sublet this
Lease in whole or in part without the prior written consent of Lessor, which
consent shall not be unreasonably withheld. In the event Lessor consents to such
assignment or subletting, Lessee shall remain primarily liable to perform all of
the covenants and conditions contained in this Lease, including but not limited
to payment of Minimum Rent and Additional Rent as provided herein. The
acceptance of rent from any other person shall not be deemed to be a waiver of
any of the provisions of this Lease or to be a consent to the assignment of this
Lease or the subletting of the Leased Premises.
Without in any way limiting Lessor's right to refuse to give consent to
any assignment or subletting of this Lease, Lessor reserves the right to refuse
to give consent if in Lessor's discretion and opinion (i) the use of the Leased
Premises is or may be in any way adversely affected; (ii) the business
reputation of the proposed assignee or sublessee is deemed unacceptable; or
(iii) the financial worth of the proposed assignee or sublessee is less than
that of Lessee. Lessor further expressly reserves the
29
<PAGE> 30
right to refuse to give its consent to any subletting if the proposed rent is
to be less than the then current rent for similar premises in the development
of which the Building is a part (the "Development"). Lessee agrees to reimburse
Lessor for reasonable accounting and attorneys' fees incurred in conjunction
with the processing and documentation of any such requested transfer,
assignment, subletting or any other hypothecation of this Lease or Lessee's
interest in and to the Leased Premises.
If Lessee, having obtained Lessor's consent, shall assign this Lease or
sublet the Leased Premises or any part thereof at a rental or for other
consideration in excess of the Minimum Rent or pro rata portion thereof due and
payable by Lessee under this Lease, then Lessee shall pay to Lessor as
additional rent all such excess rent or other monetary consideration immediately
upon receipt thereof from said assignee or sublessee. If only a portion of the
Leased Premises is being sublet, the Minimum Rent due under the terms of this
Lease shall be allocated on a square foot basis to the portion so sublet, and
all excess rent or other consideration due from the sublessee for such month
over the portion of the Minimum Rent so allocated shall be paid to Lessor
immediately upon receipt thereof. It is agreed, however, that Lessor shall not
be responsible for any deficiency if Lessee shall assign this Lease or sublet
the Leased Premises or any part thereof at a rental less than provided for
herein.
Notwithstanding the above, Lessee may assign this Lease to a parent of
Lessee without Lessor's prior consent, provided (i) such parent or affiliate of
Lessee has a net worth of at least equal to Lessee's at the Commencement Date of
this Lease; (ii) that Lessee remains fully liable under this Lease; and (iii)
that Lessee provides Lessor with thirty (30) days' written notice of such
assignment.
13. Fire and Extended Coverage Insurance. During the term of this
Lease, Lessor shall maintain fire and extended coverage insurance on the
Building (the premiums for which shall be included in Operating Expenses), but
shall not protect Lessee's property on the Leased Premises; and, Lessor shall
not be liable for any damage to Lessee's property, unless caused by Lessor's
gross negligence or willful misconduct. Lessee agrees to maintain insurance on
all of its property in the Leased Premises. Lessee hereby expressly waives any
right of recovery against Lessor (or any other lessee of the Building) for
damage to any property of Lessee located in or about the Leased Premises, unless
caused by Lessor's gross negligence or willful misconduct; and, Lessor hereby
expressly waives any rights of recovery against Lessee for damage to the Leased
Premises or the Building resulting from the perils insured against under
Lessor's fire and extended coverage insurance. All insurance policies maintained
by Lessor or Lessee as provided in this Section shall contain an agreement by
the insurer waiving the insurer's right of subrogation against the other party
to this Lease or agreeing not to acquire any rights of recovery which the
insured has expressly waived prior to loss.
Lessee shall not use the Leased Premises in any manner or store
anything in or upon the Leased Premises which would result in an increase in the
premiums for the fire and extended coverage insurance.
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14. Fire and Other Casualty. In the event of total or partial
destruction of the Leased Premises by fire or other casualty insured under the
fire and extended coverage insurance provided pursuant to the terms of this
Lease, and in the event that the insurance proceeds are released by any
mortgagee entitled to such proceeds, Lessor agrees to promptly restore and
repair the Leased Premises at Lessor's expense; provided, however, that in the
event the Leased Premises are (i) so destroyed that they cannot be repaired or
rebuilt within one hundred twenty (120) days after the date of the damage or
destruction; or (ii) destroyed by a casualty which is not covered by the
insurance required hereunder, then, in the case of a clause (i) casualty, either
Lessor or Lessee may, or, in the case of a clause (ii) casualty, then Lessor
may, upon thirty (30) days written notice to the other party, terminate and
cancel this Lease; and all further obligations hereunder shall thereupon cease
and terminate. Any proceeds from the fire and extended coverage insurance
policies not utilized by Lessor in restoring or repairing the Leased Premises
shall become the sole property of Lessor. Rent shall proportionately abate
during the time that the Leased Premises or part thereof are unusable by reason
of any such damage thereto.
15. Liability Insurance. Lessor shall not be liable to Lessee or to any
other person for (i) damage to property or injury or death to persons due to the
condition of the Leased Premises, the Building or the appurtenant common areas,
or (ii) the occurrence of any accident in or about the Leased Premises or the
appurtenant common areas, or (iii) any act or neglect of Lessee or any other
lessee or occupant of the Building or of any other person, unless such damage,
injury or death is directly the result of Lessor's gross negligence or willful
misconduct; and Lessee hereby releases Lessor from any and all liability for the
same. Lessee shall be liable for, and shall indemnify and defend Lessor and hold
it harmless from, any and all liability for (i) any act or neglect of Lessee and
any person coming on the Leased Premises or appurtenant common areas by the
license of Lessee, express or implied, (ii) any damage to the Leased Premises,
and (iii) any loss of or damage or injury to any person (including death
resulting therefrom) or property occurring in, on or about the Leased Premises,
regardless of cause, except for any loss or damage from fire or casualty insured
as provided herein and except for that caused directly by Lessor's gross
negligence or willful misconduct. Notwithstanding the foregoing, Lessee shall
bear the risk of any loss or damage to its property unless caused by Lessor's
gross negligence or willful misconduct.
Lessee, in order to insure against the liabilities specified in this
Lease, shall at all times during the term of this Lease carry, at its own
expense, one or more policies of general public liability and property damage
insurance, issued by one or more insurance companies holding a general
policyholder's rating of at least A+ as set forth in the most current issue of
"Best's Insurance Guide," and acceptable to Lessor, with the following minimum
coverages:
A. Worker's Compensation: minimum statutory amount.
B. Comprehensive General Liability Insurance, including blanket,
contractual liability, broad form property damage, personal injury,
completed operations, products liability, and fire damage: Not less
than $1,000,000 Combined Single Limit for both bodily injury and
property damage.
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C. Fire and Extended Coverage, Vandalism and Malicious Mischief, and
Sprinkler Leakage insurance, if applicable, for the full cost of
replacement of Lessee's property.
D. Business interruption insurance.
The insurance policy or policies shall protect Lessee and Lessor as
their interests may appear, naming Lessor and Lessor's managing agent and
mortgagee as additional insureds, and shall provide that they may not be
cancelled on less than thirty (30) days prior written notice to Lessor. Lessee
shall furnish Lessor with Certificates of Insurance evidencing all required
coverage. Should Lessee fail to carry such insurance and furnish Lessor with
such Certificates of Insurance after a request to do so, Lessor shall have the
right to obtain such insurance and collect the cost thereof from Lessee as
additional rent.
16. Waiver of Subrogation. Lessor and Lessee each hereby release and
relieve the other and waive their entire right of recovery against the other for
loss or damage arising out of or incident to the perils insured against or which
are required to be insured against pursuant to the terms of this Lease, which
perils occur in, on or about the Leased Premises.
17. Eminent Domain. If all or any substantial part of the Building or
appurtenant common areas shall be acquired by the exercise of eminent domain,
Lessor may terminate this Lease by giving written notice to Lessee thirty (30)
days prior to possession thereof is so taken. If all or any part of the Leased
Premises shall be acquired by the exercise of eminent domain in such a manner
that the Leased Premises shall become unusable by Lessee for the purpose for
which it is then being used, Lessee may terminate this Lease by giving written
notice to Lessor within fifteen (15) days after notice of condemnation and this
Lease shall terminate upon the date the Leased Premises or part thereof is so
taken. Lessee shall have no claim against Lessor on account of any such
acquisition for the value of any unexpired lease term remaining after possession
of the Leased Premises is taken. All damages awarded shall belong to and be the
sole property of Lessor; provided, however, that Lessee shall be entitled to any
award expressly made to Lessee by any governmental authority for the cost of or
the removal of Lessee's stock, equipment and fixtures and other moving expenses.
18. Lessor's Right to Mortgage. Lessee agrees at any time, and from
time to time, to execute a consent to the assignment of this Lease by Lessor to
its mortgagee. Lessee's rights shall be subject and subordinate to any bona fide
mortgage now existing upon or hereafter placed upon the Leased Premises by
Lessor; provided, however, that if the mortgagee shall take title to the Leased
Premises through foreclosure or deed in lieu of foreclosure, Lessee shall be
allowed to continue in possession of the Leased Premises as provided for in this
Lease so long as Lessee shall not be in default. Within ten (10) days following
receipt of a written request from Lessor, Lessee shall execute and deliver to
Lessor without cost any instrument confirming the subordination of this Lease.
19. Default and Remedy.
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A. The occurrence of any of the following shall be deemed an "Event
of Default":
(1) Lessee shall fail to pay any Monthly Rental Installment or
Additional Rent within five (5) days after the same shall be due and payable, or
Lessee shall fail to pay any other amounts due Lessor from Lessee within ten
(10) days after the same shall be due and payable.
Lessor shall provide Lessee with a written courtesy notice of such
default and Lessee shall have an additional five (5) days to cure such default
before Lessor exercises its default remedies; provided, however, that Lessor
shall not be required to give such courtesy notice more than one (1) time with
respect to any particular default, nor more than two (2) times in the
consecutive twelve (12) month period with respect to any payment defaults in the
aggregate.
(2) Lessee shall fail to perform or observe any term, condition,
covenant or obligation as required under this Lease for a period of thirty (30)
days after notice thereof from Lessor; provided, however, that if the nature of
Lessee's default is such that more than thirty (30) days are reasonably required
to cure, then such default shall be deemed to have been cured if Lessee
commences such performance within said thirty-day period and thereafter
diligently completes the required action within a reasonable time.
(3) All or substantially all of Lessee's assets in the Leased
Premises or Lessee's interest in this Lease are attached or levied under
execution (and Lessee does not discharge the same within sixty (60) days
thereafter); a petition in bankruptcy, insolvency, or for reorganization or
arrangement is filed by or against Lessee (and Lessee fails to secure a stay or
discharge thereof within sixty (60) days thereafter); Lessee shall be insolvent
and unable to pay its debts as they become due; Lessee makes a general
assignment for the benefit of creditors; Lessee takes the benefit of any
insolvency action or law; the appointment of a receiver or trustee in bankruptcy
for Lessee or its assets if such receivership has not been vacated or set aside
within thirty (30) days thereafter; dissolution or other termination of Lessee's
corporate charter if Lessee is a corporation.
B. Upon the occurrence of any Event of Default, Lessor shall have the
following rights and remedies, in addition to those allowed by law, any one or
more of which may be exercised without further notice to or demand upon Lessee:
(1) Lessor may apply the security deposit or re-enter the Leased
Premises and cure any default of Lessee, and Lessee shall reimburse Lessor as
additional rent for any costs and expenses which Lessor thereby incurs; and
Lessor shall not be liable to Lessee for any loss or damage which Lessee may
sustain by reason of Lessor's action, regardless of whether caused by Lessor's
negligence or otherwise.
(2) Lessor may terminate this Lease or, without terminating this
Lease, terminate Lessee's right to possession of the Leased Premises as of the
date of such default, and thereafter (i) neither
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Lessee nor any person claiming under or through Lessee shall be entitled to
possession of the Leased Premises, and Lessee shall immediately surrender the
Leased Premises to Lessor; and (ii) Lessor may re-enter the Leased Premises and
dispossess Lessee and any other occupants of the Leased Premises by any lawful
means and may remove their effects, without prejudice to any other remedy which
Lessor may have. Upon the termination of this Lease, Lessor may declare the
present value (as determined by Lessor) of all rent which would have been due
under this Lease for the balance of the Lease Term to be immediately due and
payable, whereupon Lessee shall be obligated to pay the same to Lessor,
together with all loss or damage which Lessor may sustain by reason of Lessee's
default ("Default Damages"), which shall include without limitation expenses of
preparing the Leased Premises for re-letting, demolition, repairs, tenant
finish improvements, and brokers' and attorneys' fees, it being expressly
understood and agreed that the liabilities and remedies specified in this
subsection (2) shall survive the termination of this Lease.
(3) Lessor may, without terminating this Lease, re-enter the
Leased Premises and re-let all or any part thereof for a term different from
that which would otherwise have constituted the balance of the Lease Term and
for rent and on terms and conditions different from those contained herein,
whereupon Lessee shall be immediately obligated to pay to Lessor as liquidated
damages the difference between the rent provided for herein and that provided
for in any lease covering a subsequent re-letting of the Leased Premises, for
the period which would otherwise have constituted the balance of the Lease Term,
together with all of Lessor's Default Damages.
(4) Lessor may sue for injunctive relief or to recover damages for
any loss resulting from the breach.
C. Neither party's failure or delay in exercising any of its rights or
remedies or other provisions of this Lease shall be construed to be a waiver
thereof or affect its right thereafter to exercise or enforce each and every
such right or remedy or other provision. No waiver of any default shall be
deemed to be a waiver of any other default. Lessor's receipt of less than the
full rent due shall not be construed to be other than a payment on account of
rent then due, nor shall any statement on Lessee's check or any letter
accompanying Lessee's check be deemed an accord and satisfaction, and Lessor may
accept such payment without prejudice to Lessor's right to recover the balance
of the rent due or to pursue any other remedies provided in this Lease. No act
or omission by Lessor or its employees or agents during the term of this Lease
shall be deemed an acceptance or a surrender of the Leased Premises, and no
agreement to accept such a surrender shall be valid unless in writing and signed
by Lessor.
20. Waiver. No waiver of any covenant or condition or the breach of any
covenant or condition of this Lease shall be taken to constitute a waiver of any
subsequent breach of such covenant or condition nor justify or authorize a
non-observance on any other occasion of such covenant or condition or any other
covenant or condition; nor shall the acceptance of rent by Lessor at any time
when Lessee is in default of any covenant or condition hereof be construed as a
waiver of such default or of Lessor's right to terminate this Lease on account
of such default.
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21. Right to Relocate. Lessor shall have the right, at its option, upon
at least one hundred eighty (180) days prior written notice to Lessee, to
relocate Lessee and to substitute for the Leased Premises described in the Lease
other space in the Development or Building containing at least as much rentable
area as the Leased Premises. Such substituted space shall be improved by Lessor,
at its expense, with improvements at least equal in quantity and quality to
those in the Leased Premises. Lessor shall pay all reasonable expenses incurred
by Lessee in connection with such relocation. Upon completion of the relocation,
Lessor and Lessee shall execute an amendment to the Lease to change the
description of the Leased Premises and any other matters pertinent thereto.
22. Surrender and Holdover. Upon the expiration or other termination of
this Lease, Lessee shall quit and surrender to Lessor the Leased Premises,
together with all other property affixed to the Leased Premises, broom clean,
and in good order and condition, ordinary wear and tear, fire and similar
casualty excepted. Lessee shall remove the computer room fixtures and such shall
not become the property of Lessor unless abandoned by Lessee. Any damage caused
to the Leased Premises by removal of any property shall be promptly repaired by
Lessee. Lessee shall remove all property of Lessee as directed by Lessor; and
failing to do so, Lessor may cause all of said property to be removed at the
expense of Lessee, and Lessee hereby agrees to pay all the costs and expenses
thereby reasonably incurred. Lessee's obligation to observe or perform this
covenant shall survive the expiration or other termination of this Lease.
Lessee shall, prior to the expiration of the Lease Term, remove all of
Lessee's trade fixtures and equipment, and any damage to the Leased Premises
shall be promptly repaired; provided, however, that all alterations or additions
to the Leased Premises shall, at the option of Lessor, become a part of the
Building and the property of Lessor. Lessee shall give written notice to Lessor
at least thirty (30) days prior to vacating the Leased Premises and shall
arrange to meet with Lessor for a joint inspection of the Leased Premises prior
to vacating. In the event of Lessee's failure to give such notice or arrange
such joint inspection, Lessor's inspection at or after Lessee's vacating the
Leased Premises shall be conclusively deemed correct for purposes of determining
Lessee's responsibility for repairs and restoration.
If Lessee shall remain in possession of all or any part of the Leased
Premises after the expiration of the Lease Term, then Lessee shall be deemed a
lessee of the Leased Premises from month to month with the Minimum Rent being
increased to an amount equal to 125% of the Minimum Rent in effect at the end of
the Lease Term and the term of the Lease shall be month-to-month. All other
terms and conditions of this Lease shall remain in full force and effect during
such time Lessee remains in possession of all or any part of the Leased
Premises. Acceptance by Lessor of rent after such expiration or earlier
termination shall not result in a renewal of this Lease and Lessee shall vacate
and surrender the Leased Premises to Lessor upon Lessee being given thirty (30)
days' prior written notice from Lessor to vacate.
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23. Covenant of Quiet Enjoyment. Lessor agrees that if Lessee shall
perform all of the covenants and agreements herein provided to be performed on
Lessee's part, Lessee shall, at all times during the Lease Term, have the
peaceable and quiet enjoyment of possession of the Leased Premises without any
manner of hindrance from Lessor or any persons lawfully claiming under Lessor,
except as may be provided in this Lease.
24. Notice. Any notice required or permitted to be given or served by
either party to this Lease shall be deemed to have been given or served by
either party if it is written and delivered in person or delivered by overnight
courier or mailed, by certified or registered mail, addressed to the addresses
set forth in Item K of the Basic Lease Provisions. All rental payments shall be
made to Lessor at the above address. The addresses may be changed from time to
time by either party by serving notice as above provided.
25. Benefit of Lessor and Lessee. This Lease and all of the terms and
provisions hereof shall inure to the benefit of and be binding upon Lessor and
Lessee and their respective heirs, successors, assigns and legal
representatives.
26. Governing Law. This Lease shall be governed in accordance with the
laws of the State of Ohio.
27. Attorneys' Fees. The defaulting party shall be liable for and
hereby agree to pay any and all expenses, including reasonable attorneys' fees,
incurred by the other party in connection with any default under the terms,
covenants and conditions contained in this Lease.
28. Signs. Lessee may, at its own expense, erect a sign concerning the
business of Lessee which shall be in keeping with the decor and other signs on
the Building. All signage (including the signage described in the preceding
sentence) in or about the Leased Premises shall be first approved by Lessor and
shall be in compliance with the applicable codes and any recorded restrictions
applicable to the Building. Lessee agrees to maintain any sign in good state of
repair, and upon expiration of the Lease Term, Lessee agrees to promptly remove
such signs and repair any resulting damage to the Leased Premises.
29. Estoppel Certificate. Lessee shall, within fifteen (15) days
following receipt of a request from Lessor, execute, acknowledge and deliver to
Lessor, or to any lender, holder of any mortgage, purchaser or prospective
lender or purchaser designated by Lessor, a written statement in such form as
Lessor may reasonably request certifying (i) that this Lease is in full force
and effect and unmodified (or, if modified, stating the nature of such
modification); (ii) the date to which the Minimum Rent, Additional Rent, and
other charges have been paid; and (iii) that there are not, to Lessee's
knowledge, any uncured defaults (or specifying such defaults if any are
claimed). Any such statement may be relied upon by any prospective purchaser or
mortgagee. Lessee's failure to deliver such statement within such period shall
be conclusive upon Lessee that this Lease is in full force and effect and
unmodified and that there are no uncured defaults in Lessor's performance
hereunder.
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30. Broker. Lessee has engaged no brokers who would be entitled to any
commission or fee based on the execution of this Lease, other than those set
forth in Item J of the Basic Lease Provisions.
31. Limitation of Lessor's Liability. If Lessor shall fail to perform
or observe any term, condition, covenant or obligation required to be performed
or observed by it under this Lease and if Lessee shall, as a consequence
thereof, recover a money judgment against Lessor, Lessee agrees that it shall
look solely to Lessor's right, title and interest in and to the Building for the
collection of such judgment, that being the sole asset to which Lessee may look
for payment of any such judgment; and Lessee further agrees that no other assets
of Lessor, wherever situate, shall be subject to levy, execution or other
process for the satisfaction of Lessee's judgment and that Lessor shall not be
liable for any deficiency.
The references to "Lessor" in this Lease shall be limited to mean and
include only the owner or owners, at the time, of the fee simple interest in the
Building. In the event of a sale or transfer of such interest (except a mortgage
or other transfer as security for a debt), the "Lessor" named herein, or, in the
case of a subsequent transfer, the transferor, shall, after the date of such
transfer, be automatically released from all personal liability for the
performance or observance of any term, condition, covenant or obligation
required to be performed or observed by Lessor hereunder; and the transferee
shall be deemed to have assumed all of such terms, conditions, covenants and
obligations.
32. Hazardous Materials. Lessee shall not in any manner use, maintain
or allow the use or maintenance of the Leased Premises in violation of any law,
ordinance, statute, regulation, rule or order of any governmental authority
(collectively "Laws"), including but not limited to laws governing zoning,
health, safety (including fire safety), occupational hazards, pollution and the
environment. Lessee shall not use, maintain or allow the use or maintenance of
the Leased Premises or any part thereof to treat, store, dispose of, transfer,
release, convey or recover hazardous, toxic or infectious waste nor shall Lessee
otherwise, in any manner, possess or allow the possession of any hazardous,
toxic or infectious waste on or about the Leased Premises; provided, however,
any toxic material lawfully permitted and generally recognized as necessary and
appropriate for general office use may be stored and used on the Leased Premises
so long as (i) such storage and use is in the ordinary course of Lessee's
business permitted under this Lease; (ii) such storage and use is performed in
compliance with all applicable laws and in compliance with the highest standards
prevailing in the industry for the storage and use of such materials; (iii)
Lessee delivers prior written notice to Lessor of the identity of and
information regarding such materials as Lessor may require; and (iv) Lessor
consents thereto. Hazardous, toxic or infectious waste shall mean any solid,
liquid or gaseous waste, substance or emission or any combination thereof which
may (i) cause or significantly contribute to an increase in mortality or in
serious illness, or (ii) pose the risk of a substantial present or potential
hazard to human health, to the environment or otherwise to animal or plant life,
and shall include without limitation hazardous substances and materials
described in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended; the Resource Conservation and Recovery Act,
as amended; and any other applicable federal, state or local laws. Lessee shall
immediately notify
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Lessor of the presence or suspected presence of any hazardous, toxic or
infectious waste on or about the Leased Premises and shall deliver to Lessor any
notice received by Lessee relating thereto.
Lessor and its agents shall have the right, but not the duty, to inspect
the Leased Premises and conduct tests thereon at any time to determine whether
or the extent to which there is hazardous, toxic or infectious waste on the
Leased Premises. Lessor shall have the right to immediately enter upon the
Leased Premises to remedy any contamination found thereon. In exercising its
rights herein, Lessor shall use reasonable efforts to minimize interference with
Lessee's business but such entry shall not constitute an eviction of Lessee in
whole or in part, and Lessor shall not be liable for any interference, loss or
damage to Lessee's property or business caused thereby. If any lender or
governmental agency shall ever require testing to ascertain whether there has
been a release of hazardous materials, then the reasonable costs thereof shall
be reimbursed by Lessee to Lessor upon demand as Additional Rent if such
requirement arose in whole or in part because of Lessee's use of the Leased
Premises. Lessee shall execute affidavits, representations and the like from
time to time, at Lessor's request, concerning Lessee's best knowledge and belief
regarding the presence of any hazardous, toxic or infectious waste on the Leased
Premises or Lessee's intent to store or use toxic materials on the Leased
Premises. Lessee shall indemnify and hold harmless Lessor from any and all
claims, loss, liability, costs, expenses or damage, including attorneys' fees
and costs of remediation, incurred by Lessor in connection with any breach by
Lessee of its obligations under this section. The covenants and obligations of
Lessee hereunder shall survive the expiration or earlier termination of this
Lease.
33. Miscellaneous.
(A) Because the Leased Premises are on the open market and are
presently being shown, this Lease shall be treated as an offer with the Leased
Premises being subject to any prior lease and such offer shall be subject to
withdrawal or non-acceptance by Lessor or to another use of the Leased Premises
without notice, and this Lease shall not be valid or binding unless and until
accepted by Lessor in writing and a fully executed copy delivered to both
parties hereto.
(B) Lessee acknowledges having reviewed and signed the attached
Agency Disclosure Statement. Duke Realty Services Limited Partnership, its agent
and employees, have represented only the Lessor, and have not in any way
represented the Lessee, in the marketing, negotiation, and completion of this
Lease transaction.
(C) Upon prior written request, during the Lease Term and any
extensions thereof, Lessee shall provide to Lessor on an annual basis, a copy of
Guarantor's, as hereinafter defined, most recent certified and audited financial
statements prepared as of the end of Lessee's fiscal year. Such financial
statements shall be prepared in conformity with generally accepted accounting
principles.
(D) The undersigned represents and warrants to Lessor that (i)
Lessee is a corporation that is duly organized, validly existing and in good
standing in accordance with the laws of the state under which it was organized;
(ii) all action necessary to authorize the execution of this Lease has been
taken
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by Lessee; and (iii) the individual executing and delivering this Lease on
behalf of Lessee has been authorized to do so, and such execution and delivery
shall bind Lessee. Lessee, at Lessor's request, shall provide Lessor with
evidence of such authority.
(E) Any representations and indemnifications of Lessor contained
in the Lease shall not be binding upon (i) any mortgagee having a mortgage
presently existing or hereafter placed on the Building, or (ii) a successor to
Lessor which has obtained or is in the process of obtaining fee title interest
to the Building as a result of a foreclosure of any mortgage or a deed in lieu
thereof, so long as such successor agrees not to disturb this Lease and Lessor's
obligations hereunder shall continue in full force and effect.
(F) In consideration of Lessor's leasing the Leased Premises to
Lessee, Lessee shall provide Lessor with an Unconditional Guaranty of Lease in
the form attached hereto as Exhibit D which shall be executed contemporaneously
with this Lease by LanVision Systems, Inc. ("Guarantor").
34. Option to Extend.
A. Grant and Exercise of Option. Provided that (i) Lessee is not in
default , (ii) the tangible net worth of Lessee is at least Fifteen Million
Dollars ($15,000,000.00), (iii) Lessee originally named herein or its successors
remain in possession of and have continuously operated in the entire Leased
Premises throughout the Term of this Lease ("Original Term") and (iv) the
current use of the Leased Premises is acceptable to Lessor, Lessee shall have
one (1) option to extend the Original Term for one (1) additional period of five
(5) years (the "Extension Term"). The Extension Term shall be upon the same
terms and conditions contained in the Lease for the Original Term except (i)
Lessee shall not have any further option to extend and (ii) the Minimum Annual
Rent shall be adjusted as set forth herein ("Rent Adjustment"). Lessee shall
exercise such option by delivering to Lessor, no later than nine (9) months
prior to the expiration of the Original Term, written notice of Lessee's desire
to extend the Original Term. Lessee's failure to properly exercise such option
shall waive it. If Lessee properly exercises its option to extend, Lessor shall
notify Lessee of the Rent Adjustment no later than ninety (90) days prior to the
commencement of the Extension Term. Lessee shall be deemed to have accepted the
Rent Adjustment if it fails to deliver to Lessor a written objection thereto
within ten (10) business days after receipt thereof. If Lessee properly
exercises its option to extend, Lessor and Lessee shall execute an amendment to
the Lease (or, at Lessor's option, a new lease on the form then in use for the
Building) reflecting the terms and conditions of the Extension Term.
B. Market Rent Adjustment. The Minimum Annual Rent for the Extension
Term shall be an amount equal to the Minimum Annual Rent then being quoted by
Lessor to renewal lessees or prospective new tenants of the Building for space
of comparable size and quality and with similar or equivalent improvements as
are found in the Building, and if none, then in similar buildings in the
vicinity, provided, however, that in no event shall the Minimum Annual Rent
during the Extension Term be less than the highest Minimum Annual Rent payable
during the Original Term. The
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Minimum Monthly Rent shall be an amount equal to one-twelfth (1/12) of the
Minimum Annual Rent for the Extension Term and shall be paid at the same time
and in the same manner as provided in the Lease.
35. Right of First Refusal.
Provided that (i) Lessee is not then in default hereunder during the
Lease Term, (ii) the tangible net worth of Lessee is at least Fifteen Million
Dollars ($15,000,000.00), (iii) Lessee originally named herein or its successors
remain in possession of and have continuously operated in the entire Leased
Premises throughout the Lease Term, and (iv) the current use of the Leased
Premises is acceptable to Lessor, and subject to any rights of other tenants to
the Refusal Space, Lessee shall have the right of first refusal ("Refusal
Option") to lease additional space contiguous to the Leased Premises in the
Building crosshatched on the attached Exhibit E ("Refusal Space") as such space
becomes available for leasing during the Lease Term. The term for the Refusal
Space shall be coterminous with the Lease Term, provided, however, that the
minimum term for the Refusal Space shall be three (3) years and the Lease Term
shall be extended, if necessary, to be coterminous with the term for the Refusal
Space. The Refusal Space shall be offered to Lessee at the rental rate and upon
such other terms and conditions, excluding free rent and other concessions, as
are then being offered by Lessor to a specific third party prospective tenant
for such space, but in no event shall such rental rate be less than the then
current rental rate under this Lease. In the event that the Refusal Space is not
leased to the initial third party prospective tenant, then this Refusal Option
shall remain in effect in the event of an offer to any other specific third
party prospective tenant and the Refusal Space shall again be offered to Lessee
in accordance herewith.
Upon notification in writing by Lessor that the Refusal Space is
available, Lessee shall have five (5) business days in which to notify Lessor in
writing of its election to lease the Refusal Space at such rental rates
described above, in which event this Lease shall be amended to incorporate such
Refusal Space.
In the event Lessee declines or fails to elect to lease the Refusal
Space, then this Refusal Option shall automatically terminate and shall
thereafter be null and void as to such space.
It is understood and agreed that this Refusal Option shall not be
construed to prevent any tenant in the Building from extending or renewing its
lease.
36. Ohio National Building Lease. Lessor and Lessee acknowledge that
each is entering into this Lease with the agreement that Lessee shall surrender
approximately 7,979 square feet of space ("Reduced Space"), leased by Lessee
from Lessor pursuant to that certain lease dated May 7, 1996, as amended July
12, 1996, February 25, 1997 and as of the date hereof (collectively "ONB
Lease"). Lessor shall market the Reduced Space and shall lease such Reduced
Space in amounts and upon terms acceptable to Lessor. Upon the rental
commencement date of a lease for any of the Reduced Space during the first seven
(7) months of the Lease Term, the Minimum Annual Rent under the ONB
40
<PAGE> 41
Lease shall be reduced proportionately by the amount of square feet of the
Reduced Space leased and the Minimum Annual Rent under this Lease shall be
increased proportionately by the amount of the Reduced Space leased. For
example, if Lessor leases 797.90 square feet of the Reduced Space the Minimum
Annual Rent for the Leased Premises shall be $766.67 per month for the period
from the rent commencement date of the new lease and continuing until the
expiration of the seventh (7th) month of the term of this Lease. Upon the eighth
(8th) month of the term of this Lease, the Minimum Annual Rent shall be as set
forth in Paragraph 1 Sections D and E of the Basic Lease Provisions regardless
of whether any or all of the Reduced Space has been leased by Lessor.
37. Emergency Power. Lessor agrees to allow Lessee to provide emergency
power to the Leased Premises in the form of a diesel generator in the location
reflected on Exhibit E. Lessee shall provide Lessor with plans and
specifications relating to the installation of such generator which shall
include the erection of a fence around the generator of such materials which
shall prevent the generator from being viewed from outside such fence. Lessor
shall approve the plans and specifications for such generator prior to Lessee's
installation of such. Notwithstanding anything in this section to the contrary,
Lessee shall be responsible for all costs associated with the installation,
maintenance and use of such generator and shall provide Lessor with copies of
all governmental permits required for the installation of such generator prior
to such installation. Lessee agrees to indemnify, defend and hold Lessor
harmless from and against any and all liability, damages (including, but not
limited to personal injury, death and property damages), costs, expenses and
attorney's fees incurred by Lessor arising from the generator, or related cause
whatsoever, including those arising from the installation, use, maintenance and
removal thereof except for Lessor's gross negligence.
EXECUTED BY LESSOR, this 25th day of September, 1997.
DUKE REALTY LIMITED PARTNERSHIP,
an Indiana limited partnership
By: Duke Realty Investments, Inc.,
WITNESSES: its general partner
/s/ Joan Wolpin
- ---------------
Joan Wolpin By: /s/ James W. Gray
- ------------------------- ----------------------------
(Printed) James W. Gray
/s/ Naomi Gump Vice President and
- ------------------------- General Manager
Naomi Gump
- -------------------------
(Printed)
41
<PAGE> 42
EXECUTED BY LESSEE, this 23rd day of September, 1997.
LANVISION, INC., an Ohio corporation
WITNESSES:
/s/ Alan J. Hartman By: /s/ Eric S. Lombardo
- ------------------------ -------------------------------
Alan J. Hartman
- ------------------- Printed: Eric S. Lombardo
(Printed) --------------------------
/s/ Kimberly S. Farris Title: Executive Vice President
- ------------------------ ----------------------------
Kimberly S. Farris
- ------------------------
(Printed)
42
<PAGE> 43
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State, personally
appeared James W. Gray, by me known and by me known to be the Vice President and
General Manager of Duke Realty Investments, Inc., an Indiana corporation, the
general partner of Duke Realty Limited Partnership, an Indiana limited
partnership, who acknowledged the execution of the foregoing "Lease Agreement"
on behalf of said partnership.
WITNESS my hand and Notarial Seal this 25th day of September, 1997.
/s/ Joan Wolpin
----------------------------
Notary Public
(SEAL)
Joan Wolpin
----------------------------
(Printed Signature)
My Commission Expires: 6-7-2000
--------------
My County of Residence: Hamilton
--------------
STATE OF Ohio )
--------------
) SS:
COUNTY OF Hamilton )
--------------
Before me, a Notary Public in and for said County and State, personally
appeared Eric S. Lombardo, by me known and by me known to be the Executive Vice
President of LanVision, Inc., an Ohio corporation, who acknowledged the
execution of the foregoing "Lease Agreement" on behalf of said corporation.
43
<PAGE> 44
WITNESS my hand and Notarial Seal this 23rd day of September, 1997.
/s/ Carol Daniels Richmond
------------------------------
Notary Public
(SEAL)
Carol Daniels Richmond
------------------------------
(Printed Signature)
My Commission Expires: 9-30-2001
---------
My County of Residence: Hamilton
---------
(Exhibit A - Floor Plan)
(Exhibit B - Detail List of Leasehold Improvements)
44
<PAGE> 45
EXHIBIT C
RULES AND REGULATIONS
(These Rules and Regulations have been adopted for the purpose of
insuring order and safety in the Building and of maintaining the rights of
Lessee and of the Lessor.)
1. The sidewalks, entrances, driveways and roadways serving and adjacent
to the Leased Premises, are the property of the Lessor, and shall not be
obstructed or used for any purpose other than ingress and egress. The Lessor
shall in all cases retain the right to control and prevent access to the
Property, of all persons whose presence, in the judgment of the Lessor or its
employees, shall be prejudicial to the safety, character, reputation or
interests of the property or neighboring buildings.
2. No awnings or other projections shall be attached to the outside walls
of the Building. Neither the interior nor the exterior of any windows shall be
coated or otherwise sunscreened without written consent of Lessor.
3. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags or other substances shall be thrown herein. All damages
resulting from any misuse of the fixtures shall be borne by the Lessee who, or
whose sublessees, assignees or any of their servants, employees, agents,
visitors or licensees shall have caused the same.
4. No Lessee shall mark, paint, drill into or in any way deface any part
of the exterior Leased Premises or in the Building. No boring, cutting or
stringing of wires shall be permitted, except with the prior written consent of
the Lessor and Lessor may direct.
5. No birds or animals of any kind shall be brought onto or kept in or
about the Property, and no cooking shall be done or permitted by any Lessee on
the Leased Premises, except that the preparation of coffee, tea, hot chocolate
and similar items for Lessees and their employees shall be permitted provided
power shall not exceed that amount which can be provided by a 30-amp circuit. No
Lessee shall cause or permit any unusual or objectionable odors to be produced
or permeate outside the Leased Premises.
6. The Leased Premises shall not be used for manufacturing, unless the
use conforms to the zoning applicable to the area and the Lessor provides
written consent. No Lessee shall operate a business or an office in the Leased
Premises for the manufacture or sale of liquor, narcotics, or tobacco in any
form, or as a retail or wholesale store or general office, in contradiction to
the permitted use in
45
<PAGE> 46
this Lease, without the express written consent of Lessor, not to be
unreasonably withheld. The Leased Premises shall not be used for lodging or
sleeping or for any immoral or illegal purpose.
7. No Lessee shall make, or permit to be made, any noise which may
disturb or interfere with occupants of neighboring buildings whether by the use
of any musical instrument, radio, phonograph, unusual noise or in any other way.
8. No Lessee, sublessee or assignees nor any of its servants, employees,
agents, visitors or licensees shall at any time bring or keep upon the Leased
Premises any flammable, combustible or explosive fluid, chemical or substance,
other than that which is ordinary and necessary for the Lessee's use of the
Leased Premises, as contemplated herein.
9. Each Lessee must upon the termination of its tenancy, deliver to the
Lessor all keys to the offices, storage rooms, toilet rooms, either furnished
to, or otherwise procured by, such Lessee.
10. All persons employed by any Lessee to do work upon the Leased
Premises, while in the Building and outside of the Leased Premises, shall be
subject to and under the control and direction of the Lessee, and Lessee shall
be responsible for all acts of such persons.
11. Canvassing, soliciting and peddling in the adjacent buildings are
prohibited, and each Lessee shall report and otherwise cooperate to prevent the
same.
12. Lessee agrees that it shall not discriminate upon the basis of race,
color, religion, sex or national origin in the use and occupancy or in any
sublease or subletting of the Leased Premises.
13. No outside storage is permitted including without limitation the
storage of trucks and other vehicles.
14. The Lessor reserves the right to reasonably rescind, modify or
supplement any of these rules and to make such other and further reasonable
rules and regulations which, in the Lessor's judgment may from time to time be
necessary for the safety and cleanliness of the Leased Premises, and for the
assurance of good order therein. Lessor agrees to provide Lessee with a copy of
said rules which shall be deemed a part of this Lease.
Anything contained in these Rules and Regulations which is contrary to or
inconsistent with any express provision of the Lease shall be void and of no
force and effect.
46
<PAGE> 47
EXHIBIT D
UNCONDITIONAL GUARANTY OF LEASE
This Unconditional Guaranty of Lease is entered into as of the 23rd day
of September, 1997, by the undersigned, LANVISION, SYSTEMS, INC., a Delaware
corporation ("Guarantor").
R E C I T A L S
WHEREAS, LANVISION, INC., an Ohio corporation ("Lessee") desires to
enter into a certain Lease with DUKE REALTY LIMITED PARTNERSHIP, an Indiana
limited partnership ("Lessor"), for certain space described therein and more
commonly known as 4700 Governor's Pointe, Suite 170, Mason, Ohio (the "Lease");
and
WHEREAS, Lessor is willing to enter into the Lease only if it receives
a guaranty of obligations thereunder from the undersigned upon the terms and
conditions set forth below; and
WHEREAS, in order to induce Lessor to enter into the Lease, Guarantor
is willing and agrees to enter into this Unconditional Guaranty of Lease upon
the following terms and conditions; and
WHEREAS, Guarantor is a shareholder of Lessee and will be benefited by
the Lease;
NOW, THEREFORE, in consideration of the foregoing recitals and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantor agrees as follows:
1. Guarantor hereby becomes surety for and unconditionally guarantees
(i) the prompt payment of all rents, additional rents and other sums to be paid
by Lessee under the terms of the Lease; and (ii) the performance by Lessee of
the covenants, conditions and terms of the Lease (such payment and performance
to be referred to collectively as "Obligations"). In the event Lessee defaults
in the performance of the Obligations during the term of the Lease, Guarantor
hereby promises and agrees to pay to Lessor all rents and any arrearages thereof
and any other amounts that may be or become due and to fully satisfy all
conditions and covenants of the Lease to be kept and performed by Lessee.
47
<PAGE> 48
2. As conditions of liability pursuant to this Guaranty, Guarantor
hereby unconditionally waives (a) any notice of default by Lessee in the payment
of rent or any other amount or any other term, covenant or condition of the
Lease; (b) any requirement that Lessor exercise or exhaust its rights and
remedies against Lessee or against any person, firm or corporation prior to
enforcing its rights against Guarantor, and (c) any and all rights of
reimbursement, indemnity, subrogation or otherwise which, upon payment under
this Guaranty, Guarantor may have against Lessee.
3. Lessor may, without notice to Guarantor, and Guarantor hereby
consents thereto, (a) modify or otherwise change or alter the terms and
conditions of the Lease; and (b) waive any of its rights under the Lease or
forbear to take steps to enforce the payment of rent or any other term or
condition of the Lease against Lessee.
4. Guarantor hereby agrees, upon the request of Lessor, to execute,
acknowledge and deliver to Lessor a statement in writing certifying, if this be
the fact, that this Guaranty of the referenced Lease is unmodified, in full
force and effect, and there are no defenses or offsets thereto; and other things
Lessor reasonably requests.
In the event Lessee fails during the term of this Lease to pay any
rent, additional rent or other payments when due or fails to comply with any
other term, covenant or condition of the Lease, Guarantor, upon demand of
Lessor, shall make such payments and perform such covenants as if they
constituted the direct and primary obligations of Guarantor; and such
obligations of Guarantor shall be due with attorneys' fees and all costs of
litigation and without relief from valuation or appraisement laws.
The rights and obligations created by this Guaranty shall inure to
the benefit of and be binding upon the successors, assigns and legal
representatives of Guarantor and Lessor.
IN WITNESS WHEREOF, Guarantor has executed this Unconditional
Guaranty of Lease as of the date set forth above.
"GUARANTOR"
LANVISION SYSTEMS, INC., a
Delaware corporation
By: /s/ Eric S. Lombardo
--------------------------------
Printed: Eric S. Lombardo
--------------------------
Title: Executive Vice President
----------------------------
48
<PAGE> 49
Address: One Financial Way, Suite 400
----------------------------
Cincinnati, OH 45242
--------------------
STATE OF Ohio )
----------
) SS:
COUNTY OF Hamilton )
------------
Before me, a Notary Public in and for said County and State,
personally appeared Eric S. Lombardo, the Executive Vice President of LanVision
Systems, Inc., who acknowledged the execution of the above and foregoing
"Unconditional Guaranty of Lease" as his/her voluntary act and deed.
WITNESS my hand and Notarial Seal this 23rd day of September, 1997.
/s/ Carol Daniels Richmond
---------------------------------
Notary Public
(SEAL)
Carol Daniels Richmond
---------------------------------
(Printed)
My County of Residence: Hamilton
------------
My Commission Expires: 9-30-2001
------------
(Exhibit E - Floor Plan = Right of First Refusal Space)
49
<PAGE> 50
Exhibit 10.2
LANVISION SYSTEMS, INC.
THIRD LEASE AMENDMENT
THIS THIRD LEASE AMENDMENT (the "Amendment") is executed this 23rd day
of September, 1997, by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana
limited partnership ("Landlord"), and LANVISION, INC., an Ohio corporation
("Tenant").
W I T N E S S E T H :
WHEREAS, Landlord and Tenant entered into a certain lease dated May 7,
1996, as amended July 12, 1996 and February 25, 1997 (collectively, the
"Lease"), whereby Tenant leased from Landlord certain premises consisting of
approximately 23,285 square feet of space (the "Original Premises") located in
Suite 400, One Financial Way, Cincinnati, Ohio 45242; and
WHEREAS, Landlord and Tenant desire to reduce the Original Premises by
approximately 7,979 square feet (the "Reduced Space"); and
WHEREAS, Landlord agreed to such reduction in consideration of Tenant
entering into a lease with Landlord dated of even date herewith for
approximately 9,200 square feet of space located at 4700 Duke Drive, Suite 170,
Mason, Ohio; and
WHEREAS, Landlord and Tenant desire to amend certain provisions of the
Lease to reflect such reduction;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants herein contained and each act performed hereunder by the parties,
Landlord and Tenant hereby enter into this Amendment.
1. Amendment of Article 1.
Commencing December 1, 1997, Section 1.01 of Article 1 of the
Lease is hereby amended by substituting Amended Exhibit A-1, attached hereto and
incorporated herein by reference, on which the Original Premises less the
Reduced Space is depicted, in lieu of Amended Exhibit A attached to the Lease.
The Original Premises less the Reduced Space shall hereinafter be referred to as
the "Leased Premises."
2. Amendment of Basic Lease Provisions.
50
<PAGE> 51
Commencing July 1, 1998, Subsections B, C, D and E of Section
1.02 of Article 1 of the Lease are hereby deleted and the following subsections
are substituted in lieu thereof:
B. Rentable Area: approximately 15,306 rentable square
feet;
Landlord shall use commercially reasonably standards,
consistently applied, in determining the Rentable Area and the
rentable area of the Building. The Rentable Area shall include
the area within the Leased Premises plus a pro rata portion of
the area covered by the Common Areas within the Building, as
reasonably determined by Landlord from time to time.
Landlord's determination of Rentable Area made in good faith
shall conclusively be deemed correct for all purposes
hereunder, including without limitation the calculation of the
Building Expense Percentage and the Minimum Annual Rent.
Notwithstanding anything to the contrary contained herein,
Tenant's pro rata portion of the area covered by the Common
Areas within the Building shall be the product of (i) the
Usable Area within the Leased Premises, as such amount may
change from time to time pursuant to the terms of this Lease
and (ii) Tenant's Common Area Factor. For purposes of this
Lease, Tenant's Common Area Factor shall be as reasonably
determined by Landlord; provided, however, that Tenant's
Common Area Factor shall not exceed 1.135.
C. Building Expense Percentage: 7.2% (15,306 / 212,125);
D. Minimum Annual Rent:
July 1, 1998 - September 13, 1998 $ 41,900.18 (2 mos., 13 days)
September 14, 1998 - September 13, 1999 $206,631.00 per year
September 14, 1999 - September 13, 2000 $210,457.56 per year
September 14, 2000 - September 13, 2001 $210,457.56 per year;
E. Monthly Rental Installments:
July 1, 1998 - August 31, 1998 $17,219.25 per month
September 1, 1998 - September 13, 1998 $ 7,461.68 (13 days)
September 14, 1998 - September 13, 1999 $17,219.25 per month
September 14, 1999 - September 13, 2001 $17,538.13 per month;
3. Amendment of Section 20.07. Right of Second Refusal. Section 20.07
of the Lease is hereby amended to provide that the Right of Second Refusal shall
not apply to the Reduced Space.
51
<PAGE> 52
4. Amendment of Article 20. Article 20 of the Lease is hereby amended
by adding the following additional section:
A. Article 20.12. Reduction of Space. Commencing December 1,
1997, Tenant hereby delivers possession to Landlord of the Reduced
Space for Landlord to commence leasing the Reduced Space in such
amounts and upon such terms as are acceptable to Landlord. Upon the
rental commencement date of a lease for any of the Reduced Space,
Landlord and Tenant shall enter into an Amendment of this Lease to
reduce the Minimum Annual Rent, Monthly Rental Installments and
Building Expense Percentage in accordance with the amount of square
feet of the Reduced Space leased to such third party and such other
changes as the parties deem necessary. Tenant agrees to deliver the
Reduced Space to Landlord in accordance with the Lease on or before
December 1, 1997. Commencing July 1, 1998, the Basic Lease Provisions
shall be changed as set forth in Paragraph 2 of this Amendment,
regardless of whether or not Landlord has leased the Reduced Space.
5. Tenant's Representations and Warranties. The undersigned represents
and warrants to Landlord that (i) Tenant is duly organized, validly existing and
in good standing in accordance with the laws of the state under which it was
organized; (ii) all action necessary to authorize the execution of this
Amendment has been taken by Tenant; and (iii) the individual executing and
delivering this Amendment on behalf of Tenant has been authorized to do so, and
such execution and delivery shall bind Tenant. Tenant, at Landlord's request,
shall provide Landlord with evidence of such authority.
6. Examination of Amendment. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation or option,
and it is not effective until execution by and delivery to both Landlord and
Tenant.
7. Definitions. Except as otherwise provided herein, the capitalized
terms used in this Amendment shall have the definitions set forth in the Lease.
8. Incorporation. This Amendment shall be incorporated into and made a
part of the Lease, and all provisions of the Lease not expressly modified or
amended hereby shall remain in full force and effect.
52
<PAGE> 53
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed on the day and year first written above.
LANDLORD:
DUKE REALTY LIMITED PARTNERSHIP,
WITNESSES: an Indiana limited partnership
/s/ Joan Wolpin
- -------------------- By: Duke Realty Investments, Inc.,
Joan Wolpin its general partner
- --------------------
(Printed)
By: /s/ James W. Gray
/s/ Naomi Gump ------------------------
- -------------------- James W. Gray
Naomi Gump Vice President and
- -------------------- General Manager
(Printed)
TENANT:
LANVISION, INC., an Ohio
corporation
WITNESSES:
/s/ Alan J. Hartman By: /s/ Eric Lombardo
- ---------------------- ------------------------
Alan J. Hartman Eric Lombardo
- ---------------------- Executive Vice President
(Printed)
/s/ Kimberly S. Farris
- ----------------------
Kimberly S. Farris
- ----------------------
(Printed)
53
<PAGE> 54
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State, personally
appeared James W. Gray, by me known and by me known to be the Vice President and
General Manager of Duke Realty Investments, Inc., an Indiana corporation, the
general partner of Duke Realty Limited Partnership, an Indiana limited
partnership, who acknowledged the execution of the foregoing "Third Lease
Amendment" on behalf of said partnership.
WITNESS my hand and Notarial Seal this 25 day of September, 1997.
/s/ Joan Wolpin
-------------------------------
Notary Public
(SEAL)
Joan Wolpin
-------------------------------
(Printed Signature)
My Commission Expires: 6-7-2000
----------
My County of Residence: Hamilton
----------
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State, personally
appeared Eric Lombardo, by me known and by me known to be the Executive Vice
President of LanVision, Inc., an Ohio corporation, who acknowledged the
execution of the foregoing "Third Lease Amendment" on behalf of said
corporation.
54
<PAGE> 55
WITNESS my hand and Notarial Seal this 23rd day of September, 1997.
/s/ Carol Daniels Richmond
-------------------------------
Notary Public
(SEAL)
Carol Daniels Richmond
-------------------------------
(Printed Signature)
My Commission Expires: 9-30-2001
-------------
My County of Residence: Hamilton
-------------
55
<PAGE> 56
CONSENT OF GUARANTOR
The undersigned Guarantor to the Lease hereby consents to the foregoing
Third Lease Amendment and reaffirms that the Unconditional Guaranty of Lease
dated May 7, 1996, remains in full force and effect.
"Guarantor"
LANVISION SYSTEMS, INC., a
Delaware corporation
By:/s/ Eric Lombardo
---------------------------------
Eric Lombardo
Executive Vice President
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State, personally
appeared Eric Lombardo, by me known and by me known to be the Executive Vice
President of LanVision, Inc., an Ohio corporation, who acknowledged the
execution of the foregoing "Consent of Guarantor" on behalf of said corporation.
WITNESS my hand and Notarial Seal this 23rd day of September, 1997.
/s/ Carol Daniels Richmond
----------------------------
Notary Public
(SEAL)
Carol Daniels Richmond
----------------------------
(Printed Signature)
My Commission Expires: 9-30-2001
-------------
My County of Residence: Hamilton
-------------
(Attached Floor Plan Amended Exhibit A-1)
56
<PAGE> 1
<TABLE>
<CAPTION>
Exhibit 11
LANVISION SYSTEMS, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
Three Months Ended
October 31,
----------------------------------------
1997 1996
------------------- -----------------
<S> <C> <C>
Net (loss) $ (2,663,711) $ (1,179,460)
=================== ===================
Weighted average number of shares outstanding 8,806,000 8,896,500
=================== ===================
(Loss) per common share amount $ (.30) $ (.13)
=================== ===================
<CAPTION>
Nine Months Ended
October 31,
----------------------------------------
1997 1996
------------------- -----------------
<S> <C> <C>
Net (loss) $ (9,040,640) $ (2,098,222)
=================== =================
Weighted average number of shares outstanding 8,834,716 8,078,024
=================== =================
(Loss) per common share amount $ (1.02) $ (.26)
=================== =================
</TABLE>
57
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 680,599
<SECURITIES> 5,104,127
<RECEIVABLES> 3,831,419
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,951,565
<PP&E> 4,682,324
<DEPRECIATION> 1,320,564
<TOTAL-ASSETS> 24,855,040
<CURRENT-LIABILITIES> 4,374,363
<BONDS> 0
0
0
<COMMON> 88,965
<OTHER-SE> 20,391,712
<TOTAL-LIABILITY-AND-EQUITY> 24,855,040
<SALES> 6,010,694
<TOTAL-REVENUES> 6,010,694
<CGS> 5,288,665
<TOTAL-COSTS> 15,592,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,040,640)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,040,640)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,040,640)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> 0
</TABLE>
