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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS
ISSUERS PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
PACIFIC POWER GROUP, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 95-4431083
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
656A Monterey Pass Road, Monterey Park, California 91754
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 293-8458
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
to be so registered on which each class is
to be registered
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
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(Title of class)
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(Title of class)
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PART I
ITEM 1. BUSINESS
Pacific Power Group, Inc., a Nevada corporation (the "Company"), designs,
develops, markets and distributes consumer electronic products that include
smart card readers, signal extenders for digital satellite systems, electronic
casino games, karaoke sing-along systems, car audio products, electronic
organizers, pocket telephone terminals, dictionaries, spell checkers, language
translators and electronic music keyboards. Each of these products is described
below.
The Company's sales are primarily to original equipment manufacturing
customers including Selectronics N.A., Inc. and Motorsound Corporation, which
market the Company's products under their brand names. In addition, the Company
markets and distributes its products under the Company's own brands, including
GAME+PLUS(R), RJP(R) and SING-ALONG CENTER through its approximately 30
independent sales representatives to specialty electronic retailers, catalogs,
department stores, warehouse clubs, mass merchandisers and original equipment
manufacturing customers. The Company's retail customers include Toys R Us, Radio
Shack, Federated Stores, Shopko Stores and Bill's Dollar Stores.
The Company was originally incorporated on August 11, 1981 in the State of
Utah under the name Super Jet, Inc. In November, 1982, the Company changed its
name to Fullerton Zip Nut, Inc. as a development stage company. On February 26,
1985, the Company completed a change of domicile merger with Fullerton, Inc., a
Nevada corporation, and thereby changed the domicile of the Company from the
State of Utah to the State of Nevada. Following this change of domicile, the
Company remained as a development stage company with no active business
operations until October, 1994. On October 13, 1994, the Company acquired all
of the outstanding shares of RJP Electronics Inc., a California corporation
("RJP USA"), by issuing 9,670,000 shares through a reverse merger.
On April 30, 1994, RJP USA merged with three Hong Kong companies, Kidder
Industrial Limited ("Kidder Industrial"), Big Apple Limited ("Big Apple") and
Goldwell Nominees Limited ("Goldwell"). RJP USA issued 2,100,832 shares of its
common stock in exchange for all of the outstanding common stock of Kidder
Industrial, Big Apple and Goldwell. The mergers were treated as a
reorganization of entities under common control, which is accounted for in a
manner analogous to a pooling of interests.
Kidder Industrial designs, develops, manufactures and sells the Company's
electronic hand held game products. Kidder Industrial manufactures its products
at an approximately 45,000 square foot manufacturing plant located in Yan Tin,
China. In addition to the factory, the manufacturing compound includes
dormitories for approximately 450 employees. The facility currently houses the
Company's manufacturing operations as well as the silk-screening and circuit
board assembly operations. Big Apple markets and sells the consumer electronic
products in Europe (Germany, the United Kingdom, and France). Customers for the
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Company's products are primarily original equipment manufacturing customers,
which market the products under their own brand names. Goldwell has been used to
acquire and hold the Company's real estate investments in Hong Kong.
The Company's products sold in the United States are currently not subject
to U.S. import duties. China currently enjoys most favored nation ("MFN") trade
status under U.S. tariff law, which provides a favorable category of U.S. import
duties. As a result of opposition to certain policies of the Chinese government
and China's growing trade surpluses with the United States, there has been, and
in the future may be, opposition the extension of MFN status for China. The
loss of MFN status for China, changes in current tariff structures or adoption
in the United States of other trade policies adverse to China could have an
adverse effect on the Company's business.
The success of the Company's current and future operations in China and
Hong Kong (which will become a Special Administrative Region of China in 1997)
is highly dependent on the Chinese government's continued support of economic
reform programs that encourage private investment, and particularly foreign
private investment. Although the Chinese government has adopted an "open door"
policy with respect to foreign investment, there can be no assurance that such
policy will continue. A change in policies by the Chinese government could
adversely affect the Company by, among other things, imposing confiscatory
taxation, restricting currency conversion, imports and sources of supplies, or
expropriating private enterprises. Although the Chinese government has been
pursuing economic reform policies for the past fifteen years, no assurance can
be given that the Chinese government will continue to pursue such policies or
that such policies may not by significantly altered, especially in the event of
change in leadership or other social or political disruptions.
China does not have a comprehensive system of laws. Enforcement of
existing laws may be sporadic and implementation and interpretation thereof
inconsistent. The Chinese judiciary is relatively inexperienced in enforcing
the laws that exist, leading to a higher than usual degree of uncertainty as to
the outcome of any litigation. Even where adequate law exists in China, it may
be impossible to obtain swift and equitable enforcement of such law, or to
obtain enforcement of a judgment by a court of another jurisdiction.
The Company believes that its success to date has resulted from its ability
to control production costs. The Company has been able to utilize the large
available pool of relatively inexpensive manufacturing labor available in
mainland China while taking advantage of the transportation facilities in Hong
Kong to inexpensively export its finished goods.
The market for electronic consumer products is highly competitive and
subject to rapid technological change. The Company believes that competition in
this market is likely to intensify as a result of increasing demand for consumer
electronic products. Many of the Company's potential competitors have
significantly greater financial, marketing, technical and other competitive
resources than the Company. As a result, they may be able to adapt more quickly
to new or emerging technologies and changes in customer requirements, or to
devote
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greater resources to the promotion and sales of their products than can the
Company. Competition could increase if new companies enter the market or if
existing competitors expand their product lines. An increase in competition
could result in price reductions and loss of market share. Any resulting
reduction in gross margins could have a material adverse effect on the Company's
financial condition or results of operations. Although the Company believes it
has certain technological and other advantages over its competitors, maintaining
such advantages will require continued investment by the Company in research and
development and sales and marketing. There can be no assurance that the Company
will have sufficient resources to make such investments or that the Company will
be able to maintain its competitive advantages. The Company's major
competitors include Sony, JVC, Pioneer, Sharp, Casio, Panasonic, Grand Prix,
York, and Tiger.
Business Strategy and Plans
The Company believes that its continued growth depends on its ability to
maintain and expand business relations with its existing customers, open new
markets and develop new products. The Company's strategy to achieve these
objectives is set forth below.
Maintaining and expanding business relations with existing customers. The
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Company has made an effort to reduce the number of original equipment
manufacturing customers for its car audio products, electronic organizers and
linguistic products to a relatively small number of original equipment
manufacturing customers in order to ensure quality service and operation
effectiveness. As a result, maintaining good relations with these customers is
of paramount importance.
Opening new markets and developing new products. The Company has formed a
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new division to be part of the Radio Shack Express Order program to distribute
over 500 Karaoke products such as Karaoke videotapes, audio cassettes and
compact disks. The Express Orders will carry in excess of 3,000 prerecorded
song titles. The Company is also increasing its sales and marketing efforts to
expand its own distribution channels from specialty gift shops to general
retailers. The Company intends to increase its own distribution of its products
through its approximately 30 independent sales representatives. The Company
believes this will improve its control over the marketing of its products and
result in additional revenue due to the more favorable margins for sales
directly to retailers.
In order to sustain growth, the Company intends to expand into related
businesses, including original product manufacturing of car radio compact disk
players, and development of pagers.
As of June 30, 1996, the Company employed approximately 485 persons full
time, comprised of the Company's five executive officers, 30 staff employees and
approximately 450 production employees.
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Products
The Company has ten product lines being developed and marketed, the smart
card readers, signal extenders for digital satellite systems, car audio
products, electronic linguistic products, karaoke sing-along products,
electronic organizers, electronic handheld games, voice data organizers, voice
recording calculators and pocket telephone terminals. The Company continues to
engage in on-going development and testing activities for various other
products, both through alliances with its original equipment manufacturing
customers and on its own.
Smart Card Readers. The smart card reader is a small, light and very cost
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effective device, used to read smart cards. The smart card readers are portable
hand-held devices that can be used to check a bank balance by reading the smart
card without requiring a trip to the bank or ATM machine. Smart cards are
credit-card sized devices that contain a microprocessor and storage function
for recording and storing data and that can be used to provide ready access to a
variety of information including, health, insurance and frequent flier records
or driver's license information. The smart card reader displays the balance
and the last transaction conducted, whether it is a purchase or a load
transaction. It consists of an eight character, numeric display. The device is
designed to insert the smart card between the plastic casing material and the
printed circuit board of the device. No components are in the smart card
insertion path to drag across the chip face. The device is designed to permit
insertion of an embossed card without damage to the chip face or embossed
surface of the card. The switch is specified to withstand more than 8,000
insertions. The Company has two models of Smart card readers.
Signal Extender for Digital Satellite System. This is a system for
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extending the effective operational range of an infrared remote control system
of the type having a remote control unit with an infrared transmitter and a
controlled device having an infrared receiver. It can boost the range of any
video or audio component's existing remote, and let the user control their video
or audio equipment from any room in the house - up to 150 feet away. The
transmitter sends the commands wirelessly. It can send commands from a remote
viewing or listening room. The signal extender picks up the infrared signals
from remotes, converts them into radio frequencies and sends them through walls,
floors, doors, even outside for use around a patio or pool. The system includes
a first repeater positioned physically in the area where the remote control unit
will be used. An infrared receiver is contained within the first repeater and
generates an electrical output signal representative of the infrared signal
received from the remote control unit. A radio transmitter at the first repeater
then transmits a radio signal to a radio receiver at a second repeater which is
physically adjacent to the controlled device(s). The radio receiver generates a
second electrical signal representative of the received radio signal and this
second electrical signal activates an infrared transmitter which transmits an
infrared signal to the controlled device(s). The Company has four models of
Signal extenders.
Car Audio Products. The Company has a selection of car audio products such
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as anti-theft detachable faceplate AM/FM cassette, PLL digital tuning, AM/FM
cassette and pull-out
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system cassette. The Company has also developed a digital weather band car
radio with a 24-hour hotline to National Weather Service forecasts, storm
warnings and traveler's advisories broadcast on commercial-free VHF stations.
The Company has ten models of car audio products.
Electronic Linguistic Products. The Company's electronic dictionary line
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provides phonetic spelling features which allow the user to obtain the correct
spelling of a word. The linguistic products include electronic spell checkers
and electronic language translators. The electronic spell checkers have an
84,000 word capacity and a built-in calculator. The electronic dictionary
includes 330,000 synonyms, an 84,000 word spell checker and built-in calculator.
The language translators include German/English, Spanish/English,
French/English, Italian/English, Japanese/English, Dutch/English and
Portuguese/English. The Company has 13 models of electronic linguistic products.
Karaoke Sing-Along Products. The Company's sing-along systems combine
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amplifier, speakers and dual cassettes into a versatile sound system. The dual
cassette with continuous playback allows the user to perform along sets of
music, record a mix of voice and music from the first deck or dub personal
cassettes. A music/voice fader for the blend of music and voice,
tape/microphone balance control for adjusting the emphasis from voice to music,
echo control for added effect and microphone volume control are also included.
It has two microphone inputs and auxiliary input for singing along with sound
from a VCR or compact disk player. The Company markets and distributes an
extensive sing-along library on videotapes, audio cassettes and compact disks.
The Company has 12 models of Karaoke Sing - along products.
Electronic Organizers. The Company produces a product that organizes and
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keeps track of the user's checking, credit card accounts, loans, assets and
other accounts for accurate management of the user's income and expenses. It
holds up to 700 entries. It helps with bookkeeping, budgeting and end-of-year
taxes by continually tracking spending, budgets, calculating balances and
reconciling accounts with bank statements. It can also store 1,000 names,
addresses and phone numbers in its fast-search address book while an electronic
memo pad ends the need for paper note pads and reminders. It also includes a
200-year perpetual calendar. The Company has 19 models of electronic organizers.
Electronic Handheld Games. The Company's current casino-theme games are
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designed to simulate the commercial gaming machines found in casinos but without
any monetary risk or reward. The electronic games allow players to bet points
with automatic score keeping. The games have the same basic rules and award
points at approximately the same odds as commercial casino machines. Players
can therefore play for entertainment or practice for playing on commercial
casino machines. In addition, the Company offers models that allow two players
to compete against each other. The Company's games also offer a variety of
different features intended to further simulate casino playing, such as variable
betting and music melody on winners. The sound of games can be turned off to
permit silent play. The Company has 50 models of electronic handheld games.
Voice Data Organizers. The Company believes its voice data organizer is a
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unique product, which competes indirectly with electronic personal organizers
and paper bound personal
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organizers, both of which have developed markets of substantial size. The
Company believes that the voice data organizer's unique voice data entry
distinguishes it from other electronic and paper based organizer products. The
Company has five models of voice data recorders.
Voice Recording Calculators. The Company is aware of several products
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which perform similar functions (i.e., digital recording and playback) to the
voice recording calculator. The Company believes its products will compete
successfully against such other products due to the low-price and unique design
present in the voice recording calculator. The Company has one model of voice
recording calculator.
Pocket Telephone Terminal. This product represents the first in a series
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of DTMF terminals to be manufactured by the Company. This product is designed
to provide the features of a tone dialer, a pocket data directory, and an
interactive data input terminal. It features a standard 12-key touch-tone
keypad, a full alphabetic keypad, and a number of special character and function
keys. The keyboard layout is designed to support simple operation in both
interactive mode and repertory or memory mode. It functions as a standard
pocket tone dialer, as a data directory for often-used numbers, and a data input
terminal for interactive or batch entry of information. For transmission of
character information, the product offers several protocol options, all based on
DTMF tone sequences. It also offers a choice of two output speeds and a remote
acoustic coupling mechanism that makes interactive use convenient. The Company
has one model of pocket telephone terminal.
Product Development
The Company believes that one of its greatest strengths is its ability to
develop new products. Product development is managed by a five-person product
planning group comprised of the Company's top management which reviews proposed
products submitted from inside and outside the Company, analyzes and reviews the
Company's products to target product line extensions or deficiencies and
identify new opportunities, and reviews and updates products that can be
repackaged or modified to maintain or improve sales levels. The Company spent
approximately $120,000 and $135,000 for product development in fiscal years 1994
and 1995, respectively.
Once a basic product idea is agreed upon by the group, multi-functional
teams consisting of production, art and technical personnel research,
illustrate, engineer, make models, and graphically design each product. During
this process, step-by-step progress is monitored directly by executive,
operating or marketing officers of the Company. A product development team can
generally produce most products within a six month period. The Company
typically works on 10 to 15 development project simultaneously in order to
provide a steady flow of new products for introduction.
During 1993, the Company entered into a manufacturing agreement with Pana-
Pacific Corporation to develop a 3 Channel Weatherband Car Radio product. In
1995, the Company entered into a licensing agreement with Inso Corporation for
the use of word lists incorporated in a Spell Checker and Data Organizer product
based on Roget's thesaurus data base. The
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Company obtained a license term period of five years from the owner of the data
base. The Company does not consider any certain manufacturing agreements with
its customers to be significant to its current operations.
Manufacturing and Materials
The Company currently manufactures and subcontracts the manufacturing of
its products in southern China. The Company's manufacturing is generally
limited to a specific number of products. The Company orders customized
components and parts from suppliers and uses subcontractors for more complicated
operations such as the making of the Company's proprietary software onto the
semiconductor chips used in its products and tooling of the molds for its
plastic parts. The Company subcontracts the manufacturing of a substantial
portion of its own products in order to provide it with flexibility to increase
production.
The Company's quality control department conducts tests at several key
points during the production process and tests all the functions on each product
produced by the Company or a subcontractor prior to packing. In addition, the
quality control department tests a statistical sample of each production lot.
The Company's products are not required to obtain any quality approvals
prior to sales in the United States. The Company, however, has obtained
European regulatory and safety approval for its products sold in Europe.
The Company transfers most of its consumer products manufacturing to RJP
International. There are no agreements which would require the Company to make
minimum payments to the supplier, nor is the supplier obligated to maintain
capacity available for the Company's benefit. The Company's dependence on an
external and foreign supplier for its consumer products presents risks of
interruption for reasons out of its control, including possible political
developments. The territory of Hong Kong will revert to China pursuant to a
long-term land lease which expires after June 30, 1997. The Company cannot
predict what impact the expiration of this lease might have on the Company's
operations. However, the Company has benefited from China's recent policy of
encouraging foreign investment and has benefited from China's "most favored
nation" tariff status. Accordingly, changes in tariffs might have an adverse
effect on the cost of goods imported.
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Sales and Distribution
The Company distributes its products to retail and wholesale distributors
through two methods: domestic sales, i.e., shipment of products from the
Company's inventory; and direct sales, i.e., shipments directly from
manufacturers in the Far East of products sold by the Company's sales force.
Domestic sales are made for customers located throughout the United States from
the Company's inventories maintained at its warehouse facility and a bonded
warehouse in Los Angeles.
The Company's strategy of selling products from a domestic warehouse
enables it to provide timely delivery and serve as a domestic supplier of
imported goods. The Company purchases the products overseas for its own account
and warehouses the products in leased facilities and a bonded warehouse in Los
Angeles. The Company is responsible for costs of shipping, insurance, system
clearance and duties, storage and distribution related to such warehouse
products and therefore, warehouse sales command a higher sales process that
direct sales. The Company generally sells from its own inventory in less than
container-sized lots to customers.
Some products sold by the Company are shipped directly to its customers
from the Far East through RJP International. Sales made through RJP
International are completed by either delivering products to the customers'
common carriers at the shipping points or by shipping the products to customers'
distribution centers, warehouses or stores. Direct sales are made in large
quantities (generally container-sized lots) to customers located in Italy,
Spain, France, Germany, England, Canada, and the United States, who pay the
Company or its wholly-owned subsidiary companies pursuant to their own
international, irrevocable, transferable letters of credit or on open credit.
The Company relies on its management's ability to determine the existence
and extent of available markets for its products. Members of the Company's
management have considerable marketing and sales backgrounds and devote a
significant portion of their time to marketing related activities. The Company
achieves both domestic and direct sales primarily through its own sales force
and approximately 30 independent sales representatives. The Company's sales
representative agreements are generally one year agreements which automatically
renew on an annual basis, unless terminated by either party on 30 days notice.
Over the last five years, the Company has expanded its customer base from
original equipment manufacturing customers and other specialty shops to general
retailers. The Company intends to increase its own distribution of its
products. The Company believes this will improve the control over the marketing
of its products and result in additional revenue due to the more favorable
margins for sales directly to retailers. The Company expects to increase the
number of regional sales managers and independent sales representatives. The
sales representatives are not employees of the Company and work on a commission
basis. The Company is pursuing the
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development and acquisition of additional distribution capabilities outside the
United States, especially in China.
The Company is increasing its sales and marketing efforts. In addition to
promoting its products at gift, electronic goods and other trade shows, the
Company is working directly with retailers on store displays and catalog
layouts. The Company also offers display stands which it designs specifically
for its products. In addition, the Company has opened a toll-free telephone
number for customer inquiries and requests. The Company has a distribution
warehouse facility to facilitate product shipment in the United States.
The Company's customers normally provide indications of interest, which may
be canceled at any time, from three to six months prior to scheduled delivery,
but only confirm orders eight weeks in advance of delivery. Accordingly, the
Company generally operates without a significant backlog of orders.
The Company does not sell any of its products on consignment and accepts
returns only for defective merchandise. Returns thus far have been
insignificant. In certain instances, where retailers are unable to resell the
quantity of products which they have ordered from the Company, the Company may,
in accordance with industry practice, assist retailers to enable them to sell
such excess inventory by offering discounts and other concessions. Concessions
to retailers thus far have been insignificant. A portion of firm orders may be
canceled by their terms if shipment is not made by a certain date. Canceled
orders thus far have been insignificant.
The Company's products generally carry a one year consumer warranty from
the date of sale. In addition, the Company generally honors warranty claims
even after the one year period.
The Company has no patents, licenses, franchises, concessions or royalty
agreements that are material to its business as a whole. Due to the rapid
technological changes in the Company's products, the Company does not believe
the absence of patents owned by the Company has had or will have a material
impact on its business. The Company has obtained trademark registrations in the
United States for the mark Game + Plus (R) and RJP (R).
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This analysis of the Company's financial condition, capital resources and
results of operations should be read in conjunction with the financial
statements incorporated herein.
The Company derives its revenues principally from manufacturing and
distributing its electronic products and subassemblies for original equipment
manufacturing customers in the consumer electronics industry.
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The consumer electronics industry is very competitive and the Company is
continuously under pressure to lower the selling price, and therefore reduce the
gross profit margin of its existing product lines. In response to these
pressures, the Company is striving to upgrade its technology and to obtain
manufacturing orders for more advanced high technology products with higher unit
prices and gross profit margins. The Company believes there is less competition
in more advanced products due to the technical difficulties in manufacturing
such products.
Results of Operations
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The following table sets forth selected income data as a percentage of
sales for the periods indicated.
<TABLE>
<CAPTION>
Year ended August 31 Six months ended February 28
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<S> <C> <C> <C> <C>
1995 1994 1996 1995
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Sales 100% 100% 100% 100%
Cost of Sales 91.4 78.9 79.4 90.8
Gross profit 8.6 21.1 20.6 9.2
Selling, general and
administrative 16.5 16.6 19.8 19.2
Research and
development 1.1 1 1 1
Other income (expense) 2.6 2.5 1.6 2.1
Income before tax (6.4) 6 1.6 (8.8)
Provision for tax -- .7 .6 .4
Net income (6.3) 5.2 .9 (9.2)
</TABLE>
Six Months Ended February 29, 1996
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Compared to Six Months Ended February 28, 1995
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Sales: The Company's sales decreased 20% from $6,517,746 for the six months
ended February 28, 1995 to $5,217,131 for the six months and February 29, 1996,
primarily as a result of decreased sales volumes to the Company's customers.
Cost of Sales: Cost of sales was $4,142,896 or 79.4% for the six months
ended February 29, 1996 compared with $5,919,129 or 90.8% for the six months
ended February 28, 1995, due to a decrease in sales in the Company's products.
Gross Profit: Gross margin, expressed as a percentage of sales, increased
from 9.2% to 20.6% due to an increase in sales of higher profit margin products.
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Selling, General and Administrative: Selling, general and administrative
expenses decreased by 17.4% from $1,248,291 for the six months ended February
28, 1995 to $1,031,044 for the six months ended February 29, 1996. This
decrease was attributable primarily to decreased sales commissions, freight and
shipping expenses.
Research and Development: Research and development expenses decreased from
$65,000 during the six months ended February 28, 1995 to $50,000 for the six
months ended February 29, 1996, primarily as a result of the completion of
development of some products.
Interest: Interest expense was $55,530 for the six months ended February
28, 1995 compared with $56,028 for the six months ended February 29, 1996.
Higher loan balances accounted for the increase.
Other Income: Other income was $83,896 for the six months ended February
29, 1996 compared with $138,454 for the six months ended February 28, 1995. The
decrease was primarily due to no gain from the sale of real estate property.
Net Income: Net income was $48,413 for the six months ended February 29,
1996 compared with a net loss of $600,368 for the six months ended February 28,
1995. The change was caused primarily by increased sales of higher margin
products.
Fiscal 1995 Compared with Fiscal 1994
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At August 31, 1995, the Company had current assets of $4,784,219 and
current liabilities of $4,932,703 which resulted in negative working capital of
$148,484. This compares to negative working capital at August 31, 1994 of
$517,718. The changes in working capital were primarily attributable to a
decrease in accounts payable during the fiscal year of 1995.
Sales: Sales increased to $12,419,791 in fiscal 1995 compared to
$11,864,398 in fiscal 1994, an increase of 4.7%. The Company's sales continued
to increase mainly from growth in products sales.
Cost of Sales: Cost of sales was $11,353,375, or 91.4% for fiscal year 1995
compared with $9,358,618 or 78.9% for fiscal 1994. The higher average cost of
sales was primarily due to an increase in the cost of imported parts and
components, which resulted from an increase in the Japanese yen in value against
the U.S. dollars. In addition, inflation continues to be a problem for China.
This has resulted in cost increases for local supplies and materials purchased
by the Company in China.
Gross Profit: Gross profit margin was $1,066,416 in fiscal 1995 compared to
$2,505,780 in fiscal 1994, a decrease of 57.4%, due to the lower gross profit
percentage related to sales to the Company's customers.
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Selling, General and Administrative: Selling, general and administrative
expenses increased by $97,846 for fiscal 1995, compared with 1994. Sales volume
for fiscal 1995 produced increased sales commissions, freight and shipping
expenses.
Operating Income/Loss: Operating loss for the year ended August 31, 1995
was $1,116,748 versus operating income of $420,462 for the year ended August 31,
1994. The decrease was due primarily to the lower gross profit percentage
related to sales to the Company's customers and higher operating costs.
Research and Development: Research and development expenses included labor,
materials, supplies and outside subcontractors. Major costs are salaries for
development team members. Some of the Company's research and development costs
have been incurred under product development agreements with prospective
customers. Pursuant to these agreements, the customers for future products fund
a portion of the Company's product development costs and grant the Company
rights to supply these products to them in the future. These expenses are
classified according to their nature instead of recorded separately as research
and development expense. The Company received funding under product development
agreements aggregating $20,000 for 1995 and $73,125 for 1994. Product
development costs funded by customers are included in "other Income" in the
financial statements.
Interest: Interest expense was $119,943 for fiscal 1995 compared with
$97,474 in fiscal 1994. Higher loan balances accounted for the increase.
Other Income: Other income was $327,912 for fiscal 1995 compared with
$293,137 for fiscal 1994. The increase was attributable to the recognition of
income from the sale of real estate.
Net Income: Net income was $621,978 for fiscal 1994 compared with a net
loss of $784,030 for fiscal 1995. The decrease was primarily the result of
decreased sales of higher margin products.
Cash Flows: Cash flows for the years ended August 31, 1995 and 1994 were
$262,169 and ($45,645) respectively. In 1995, cash flows used in operating
activities were $1,235,233, cash provided from investing activities $622,808 and
cash provided from financing activities $874,454. As of August 31, 1994, cash
flows provided from operating activities were $493,571, cash provided from
investing activities $194,281 and cash used in financing activities $736,992.
Accounts Receivable: From August 31, 1994 to August 31, 1995 trade
accounts receivable increased from $1,166,928 to $1,642,878. This increase of
$475,950 resulted from increase in sales from the distribution channel.
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Liquidity and Capital Resources
- -------------------------------
The increase in trade accounts receivable experienced by the Company during
fiscal 1995 were reflections of increased sales.
Inventory decreased from $3.1 million in fiscal 1994 to $1.8 million in
fiscal 1995. The decrease of $1.3 million in inventory resulted from an
increase in sales and faster inventory turnover. Sales increased by $1.5 million
because new products were introduced and these new products turn over fast.
Since August, 1994, management has implemented a monitoring program for better
inventory planning and control, average inventory turnover has reduced from 3.5
months to 2.5 months.
The Company has sold 134,560 shares of common stock in transactions exempt
from registration pursuant to Regulation S of the Securities Act of 1933, as
amended. The Company received $91,989 in proceeds from such sales to fund the
operating activities.
Some of the Company's research and development costs have been incurred
under product development agreements with prospective customers. Pursuant to
these agreements, the customers for future products fund a portion of the
Company's product development costs and grant the Company rights to supply these
products to them in the future.
The Company has financed its operations, inventory needs, and other capital
requirements through a combination of vendor financing, bank borrowings and
internally guaranteed cash flow. At present, management believes that cash
flows from operating activities will continue to be sufficient for the Company's
operating requirements, although no assurance that this will continue to be the
case can be given. Substantially all the Company's revenues continue to be
derived from sales of consumer products which are characterized by short lead
times and certain seasonal peaks in volume. Accordingly, the Company's backlog
and revenues ordinarily fluctuate.
General banking facilities amounted to $1,418,662 with three Hong Kong
banks at August 31, 1995. As of August 31, 1995, $693,265 was payable to the
bank plus interest at one to three percent above the prime rate. The loan was
collateralized by a security interest in accounts receivable, inventories and by
personal guarantees of directors of Kidder Industrial and Big Apple.
ITEM 3: DESCRIPTION OF PROPERTY
The Company leases approximately 8,000 square feet on a year-to-year basis
for approximately $42,000 per year, in Monterey Park, California for its
executive offices and services operations.
14
<PAGE>
The Company owns a facility comprising approximately 45,000 square feet of
manufacturing and workers' dormitories at Yan Tin, China. The facility currently
houses the Company's manufacturing operations as well as the silkscreening and
circuit board assembly operations.
The Company also owns an industrial property consisting of approximately
675 square feet, located at Unit C, 7th Floor, Kwong Ga Factory Building, 64
Victoria Road, Western District, Hong Kong encumbered by a mortgage of
approximately $44,240 at 10.75% interest per annum to be paid off in 1998; an
office and warehouse facility, consisting of approximately 1,943 square feet,
located at 1455 Monterey Pass Road, Suite 102, Monterey Park, California 91754,
U.S.A. encumbered by a mortgage of approximately $59,458 at 11.25% interest per
annum to be paid off in 2002; and a residential property, consisting of
approximately 2,365 square feet, located at 1047 Woodacre Lane, Arcadia, CA
91006, U.S.A. encumbered by a mortgage of approximately $65,269 at 8% per annum
to be paid off in 2017.
The residential property in Arcadia, California was transfered to the
Company in April, 1994 by one of the Company's shareholders when he moved to
Hong Kong. The Company held title to this residential property and recorded it
as non-cash capital contribution from that shareholder. The primary use of this
property is to accommodate sales representatives coming to California for shows
and marketing purposes. In addition, suppliers and officers from Hong Kong
subsidiaries will stay in this house when they come to the United States for
trade shows about five times a year. The Company does not charge these guests
for their stay.
ITEM 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 9, 1996, the beneficial
ownership of the Company's Common Stock by each person known by the Company to
beneficially own more than 5% of the Company's Common Stock outstanding as of
such date and by the officers and directors of the Company as a group. Except as
otherwise indicated, all shares are owned directly. All share totals take into
account the three - to - one reverse stock split effectuated on March 18, 1996,
which resulted in the conversion of 11,170,224 outstanding shares of common
stock into 3,723,408 outstanding shares of common stock .
<TABLE>
<CAPTION>
Person or Group Number of Shares (1) Percent
- --------------- -------------------- -------
<S> <C> <C>
Raymond S. Lee 2,931,396 68.57
Paul S. Li 2,931,396 68.57
Victor T. Li 2,931,396 68.57
Joel A. Abrams 21,667 0 .51
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
Yonie Hsin 6,667 0.16
Joseph Liu 100,000 2.34
All directors and executive 3,059,730 71.57
officers as a group (6 persons) --------- -----
</TABLE>
(1) Messrs. Raymond S. Lee, Paul S. Li and Victor T. Li are each treated as the
beneficial owners of the 2,931,396 shares held of record by Li's Family
Trust, which is owned 40% by Mr. Raymond S. Lee, 30% by Mr. Paul S. Li and
30% by Mr. Victor T. Li.
There are no arrangements known to the Company, the operation of which may
at a subsequent date result in a change in control of the Company.
ITEM 5: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following information sets forth the names of the officers and
directors of the Company, their present positions with the Company and
biographical information. Mr. Raymond S. Lee and Mr. Paul S. Li are brothers
and Mr. Victor T. Li is a nephew to each of them.
NAME POSITION
Raymond S. Lee Chairman of the Board of Directors, Chief
Executive Officer and Secretary
Joel A. Abrams President and Chief Operations Officer
Joseph H. T. Liu Director
Paul S. Li Director
Victor T. Li Director
Yonie Hsin Vice President of Finance and Treasurer
Raymond S. Lee (age 32) is a Director, the Chief Executive Officer and Secretary
- --------------
of the Company. Mr. Lee has been employed by the Company since 1991. Prior to
his engagement by the Company, Mr. Lee was Marketing Director for RJP
International Limited in Hong Kong, and responsible for marketing of the
Company's products in the United States. Mr. Lee graduated from Chui Hai
College, Hong Kong in 1988 with a B.S. in Business Administration.
Joel A. Abrams (age 54) is the President/Chief Operations Officer of the
- --------------
Company. Mr. Abrams has been employed by the Company since October 1990. Prior
to his joining the Company he was the President of Technitime, Inc. Mr. Abrams
graduated in 1968 from the University of Southern California with a B.S. in
Business Administration.
16
<PAGE>
Joseph H.T. Liu (age 33) currently serves on the Company's Board of Directors.
- ---------------
Mr. Liu operates and serves as President of JL Investment Co. and Southern
California Dental Service. Mr. Liu received his Doctor of Dental Surgery Degree
from the University of Southern California.
Paul S. Li (age 40) is a Director of the Company. He was the co-founder of
- ----------
Kidder International Trading Limited from its establishment until September
1993. Mr. Li resides in Hong Kong where he also is Vice President of the
Manufacturing Division of the Company.
Victor T. Li (age 26) is a Director of the Company. Mr. Li joined the Company
- ------------
in July 1993. He received a B.S. in Business Administration from the University
of Southern California.
Yonie Hsin (age 42) is the Vice President of Finance and the Treasurer of the
- ----------
Company. Ms. Hsin has been employed by the Company since 1988. Ms. Hsin
graduated from Ming-Chun College, Taipei, in 1974 with a B.S. in Accounting.
ITEM 6: EXECUTIVE COMPENSATION
The following table sets forth certain information as to each of the
Company's five highest paid executive officers and directors for the fiscal year
ended August 31, 1995.
<TABLE>
<CAPTION>
Other Restricted
Cash Annual Stock All Other
Name of Individual Capacities in Which Served Compensation Bonus ($) Compensations ($) Awards ($) Options Compensation($)
- ------------------ -------------------------- ------------ --------- ----------------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Raymond S. Lee Chairman of the Board of $ 81,600 -0- -0- -0- -0- -0-
Directors, Chief Executive
Officer and Secretary
Joel A. Abrams President and Chief Operations $ 90,000 -0- -0- -0- -0- 7,200(1)
Officer
Yonie Hsin Vice-President of Finance $ 44,676 -0- -0- -0- -0- -0-
and Treasurer
Victor T. Li Director $ 30,000 -0- -0- -0- -0- -0-
Paul S. Li Director $ 24,615 -0- -0- -0- -0- -0-
</TABLE>
(1) Principally consist of payments reimbursing Mr. Joel A. Abrams for his
personal use of his automobiles.
In fiscal 1995, the aggregate amount of compensation paid to all executive
officers and directors as a group for services in all capacities was
approximately $271,791.
ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April, 1994, the Company acquired all of the outstanding common stock of
Kidder Industrial, Big Apple and Goldwell in exchange for the shareholders of
such companies receiving 2,100,832 shares of the Company's Common Stock. The
shareholders of such acquired
17
<PAGE>
companies included Paul S. Li, a Director of the Company and brother of Raymond
S. Lee, and Li Shu Nui and Li Shu Yuk, each a sister of Paul S. Li and Raymond
S. Lee. The Company issued the following shares of its common stock in exchange
for all of the outstanding common stock of Kidder Industrial, Big Apple and
Goldwell.
<TABLE>
<CAPTION>
Kidder Big
Total Industrial Apple Goldwell
<S> <C> <C> <C> <C>
Shares Issued $2,100,832 $1,020,152 $687,700 $392,980
Net Worth at April 30, 1994 2,410,256 1,170,406 788,989 450,861
</TABLE>
In addition, in October, 1994, RJP Electronics Incorporated was acquired by
the Company in exchange for 9,670,000 shares of the Company. Raymond S. Lee was
the sole shareholder of RJP Electronics Incorporated prior to this transaction.
Mr. Paul S. Li, a director of the Company, is indebted to the Company in
the amount of $203,044 as of June 30, 1996. This amount represents advances for
personal expenses to Mr. Li from the Company, which are unsecured, and will bear
interest at a rate of 8% per annum beginning September 1, 1996.
Raymond Lee, shareholder and Chief Executive Officer of the Company, is
also a major shareholder of another US company. Transactions with the US
company are as follows:
<TABLE>
<CAPTION>
Accounts Accounts
Sales Receivable Purchases Payable
------- ---------- --------- -------
<S> <C> <C> <C> <C>
February 29, 1996 $ 2,732 $ 7,157 $ -0- $ -0-
August 31, 1995 14,202 4,443 -0- -0-
February 28, 1995 8,409 49,294 11,020 50,703
August 31, 1994 22,819 41,752 76,960 41,033
August 31, 1993 27,950 24,546 81,511 242
</TABLE>
Paul Li, director of the Company and Kidder Industrial, is also director of
another Hong Kong company. Transactions with that Hong Kong company are as
follows:
18
<PAGE>
<TABLE>
<CAPTION>
Accounts
Sales Receivable Purchases
---------- ---------- ---------
<S> <C> <C> <C>
February 29, 1996 $ 614,938 $151,656 $ -0-
August 31, 1995 1,734,374 443,234 173,454
February 28, 1995 807,592 138,808 -0-
August 31, 1994 2,089,358 339,878 23,002
</TABLE>
As of February 29, 1996, the Company has a receivable of $360,255 from a
Goldwell director and payable of $203,044 to two directors of Kidder Industrial.
These advances and loans are unsecured, non-interest bearing and no terms
specified.
ITEM 8: DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation, as amended, authorize the issuance
of 50,000,000 shares of Common Stock, $.001 par value per share, of which
4,275,381 shares were outstanding as of July 9, 1996, and held by 633
shareholders of record. Holders of shares of Common Stock are entitled to one
vote for each share on all matters to be voted on by the stockholders. There are
no provisions in the Company's Articles of Incorporation, as amended or the
Company's Bylaws which would delay, defer or prevent a change in control of the
Company. Holders of Common Stock have no cumulative voting rights. Holders of
shares of Common Stock are entitled to share ratably in dividends, if any, as
may be declared, from time to time by the Board of Directors in its discretion,
from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, the holders of shares of Common Stock
are entitled to share pro rata all assets remaining after payment in full of all
liabilities. Holders of Common Stock have no preemptive rights to purchase the
Company's Common Stock. There are no conversion rights or redemption or sinking
fund provisions with respect to the common stock. All of the outstanding shares
of Common Stock are fully paid and non-assessable.
PART II
ITEM 1: MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's Common Stock began trading on the N.A.S.D. Bulletin Board in
October 1995 and trades under the symbol PPOR. The following table lists the
high and low closing prices for the Company's Common Stock for each calendar
quarter since the fourth quarter of 1995, the first calendar quarter in which
the Company's Common Stock was traded. No dividends have been paid on the
Company's Common Stock.
19
<PAGE>
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
Calendar 1995 $2.50 $0.75
Fourth Quarter
Calendar 1996 $2.75 $0.75
First Quarter
Calendar 1996 $5.50 $3.00
Second Quarter
</TABLE>
ITEM 2: LEGAL PROCEEDINGS
The Company is aware of no legal proceedings which may have a material
impact on its business.
ITEM 3: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4: RECENT SALES OF UNREGISTERED SECURITIES
In January 1996, the Company sold 134,560 shares of Common Stock in
transactions exempt from registration pursuant to Regulation S of the Securities
Act of 1933, as amended. The Company received $91,989 in proceeds from such
sales. Such shares are restricted pursuant to Regulation S and no such shares
have been sold on the NASD Bulletin Board. The names of those individuals who
purchased the Company's Common Stock in such transactions are as follows:
Huey Ling Chen
Pei Tao Wu
Yue Mei Wang
Chien Chang Yeh
Chih Hong Young
Yin-Yu Tseng
Chi Wei Chen
Tsui-Chih Chang Kuo
In addition, in April 1994 the Company issued certain shares of restricted
stock in connection with certain mergers. These issuances are discussed in Item
7 above.
20
<PAGE>
ITEM 5: INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened or pending action, suit, or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he, his testator, or intestate is or was a director of officer
of the Company, or is or was serving at the request of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise, or as a member of any committee or similar
body against all expenses (including attorneys' fees), judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding (including appeals) or the
defense or settlement thereof or any claim, issue, or matter therein, to the
fullest extent permitted by the laws of the State of Nevada as they exist from
time to time.
PART F/S
The Company's unauditied Financial Statements for the six months ended
February 29, 1996 and February 28, 1995, the Company's audited Financial
Statements for the fiscal years ended August 31, 1995, 1994 and 1993 are set
forth below, along with the consent of Fung T. Yen to include such financial
statements with this registration statement. In addition, the audited financial
statements of Big Apple Limited and Goldwell Nominees Limited, each for the
fiscal years ended August 31, 1995 and 1994 are set forth below along with the
consent of K.S. Li & Company to include such financial statements with this
registration statement. Also, the audited financial statements of Kidder
Industrial Limited for the fiscal years ended August 31, 1995 and 1994 are set
forth below along with the consent of Fan, Mitchell & Co. to include such
financial statements with this registration statement.
21
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of the audited financial statements which
we prepared of Pacific Power Group, Inc., (the "Company") for the fiscal years
ended August 31, 1994 and 1995 and of the unaudited financial statements which
we prepared of the Company's registration on Form 10-SB to be filed with the
Securities and Exchange Commission.
San Gabriel, California
July 5, 1996
/S/
--------------------------------------------
Fung T. Yen
22
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of the audited financial statements which
we prepared of Goldwell Nominees Limited and Big Apple Limited for the fiscal
years ended August 31, 1994 and 1995 in Pacific Power Group, Inc.'s registration
statement on Form 10-SB to be filed with the Securities and Exchange Commission.
Hong Kong
July 5, 1996
/S/
--------------------------------------
K.S. Li & Company
23
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of the audited financial statements
which we prepared of Kidder Industrial Limited for the fiscal years ended August
31, 1994 and 1995 in Pacific Power Group, Inc.'s registration statement on Form
10-SB to be filed with the Securities and Exchange Commission
Hong Kong
July 5, 1996
/s/
----------------------------
Fan, Mitchell & Co.
24
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(REVIEW REPORT)
<PAGE>
FUNG T.YEN
CERTIFIED PUBLIC ACCOUNTANT
1130 S. SAN GABRIEL BLVD., #201
SAN GABRIEL, CA 91776
TEL.:(818) 292-7781 * FAX:(818) 292-6732
The Board of Directors
Pacific Power Group, Inc.
Monterey Park, California
ACCOUNTANT'S REVIEW REPORT
I have reviewed the accompanying consolidated balance sheet of Pacific Power
Group, Inc. and Subsidiaries as of February 29, 1996 and the related statements
of operations, stockholders' equity and cash flows for the six months then ended
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Pacific Power Group, Inc.
A review consists principally of injuries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
examination in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, I do not express such an opinion.
Based on my review, I am not aware of any material modifications that should be
made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/Funf T. Yen
San Gabriel, California
April 26, 1996
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 1996
(See Accountant's Review Report)
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $1,231,688
Accounts receivable, net of allowance
for doubtful accounts of $21,862 1,927,378
Inventory 1,175,194
Prepayments 162,168
Other current assets 408,184
----------
Total current assets 4,904,612
Property and equipment, net 2,404,172
Other assets 63,515
----------
$7,372,299
==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C>
Accounts payable $3,507,874
Bank loan payables 740,768
Note payables 74,451
Income tax payable 83,274
Customer deposits 16,420
Other current liabilities 436.662
----------
Total current liabilities 4,859,449
Tenant deposit 4,201
Note payables 113,854
STOCKHOLDERS' EQUITY:
Common stock 10,452
Paid in capital 4,041,281
Deficit (1,652,502)
Cumulative translation adjustments (4,436)
----------
2,394.795
----------
$7,372,299
==========
</TABLE>
The accompanying notes are an integral part of the
financial statements
2
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 1996
(See Accountant's Review Report)
<TABLE>
<CAPTION>
<S> <C>
SALES $5,217,131
COST OF SALES 4.142,896
----------
GROSS PROFIT 1,074,235
EXPENSES:
Advertising 30,340
Amortization 9,746
Bank and collection charge 20,263
Commission 136,895
Depreciation 28,712
Insurance 21,206
Miscellaneous 23,374
Outside labor 15,431
Postage and shipping 87,242
Professional fee 19,881
Rent 65,821
Repair and maintenance 5,333
Salaries 445,322
Supplies 16,337
Taxes and license 18,807
Telephone and telex 23,483
Travel and entertainment 112,851
----------
1,081,044
----------
LOSS FROM OPERATIONS (6,809)
OTHER INCOME OR (EXPENSES):
Interest expenses (56,028)
Other income 144,823
Exchange loss (4,899)
----------
83,896
----------
INCOME BEFORE TAXES 77,087
PROVISION FOR TAXES 28,674
----------
NET INCOME $ 48,413
==========
EARNINGS PER SHARE $0.005
==========
</TABLE>
The accompanying notes are an integral part of the
financial statements
3
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED FEBRUARY 29, 1996
(See Accountant's Review Report)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK PAID-IN TRANSLATION
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT
------ ------ -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance, September 1,
1995 10,317,664 $10,317 $3,949,427 $988 $(l,700,915)
Shares issued 134,560 135 91,854
Net income 48,413
Foreign currency
translation (5,424)
---------- ------- ---------- ----- ---------
Balance, February 29,
1996 10,452,224 $10,452 $4,041,281 $(4,436) $(1,652,502)
========== ======= ========== ======= =========
</TABLE>
The accompanying notes are an integral part of the
financial statements
4
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 1996
(See Accountant's Review Report)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $48,413
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation 79,731
Amortization 9,746
Increase in accounts receivable (284,500)
Decrease in inventory 643,864
Increase in prepayments (28,314)
Increase in other current assets (43,135)
Increase In other assets (1,141)
Decrease in accounts payable (190,188)
Decrease in customer deposits (16,827)
Increase in income tax payable 25,106
Increase in other current liabilities 92 716
---------
Net cash flows from operating activities 335,471
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (16,718)
---------
Net cash flows used by investing activities (16,718)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings from banks 97,430
Repayment of bank loans (49,927)
Decrease in note payables : (49,826)
Issuance of common stock 91,989
---------
Net cash flows from financing activities 89,666
Effect of exchange rate changes on cash (111)
---------
NET INCREASE IN CASH 408,308
CASH AT THE BEGINNING OF PERIOD 823,380
----------
CASH AT THE END OF PERIOD $1,231,688
==========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $56,028
Income taxes $3,568
</TABLE>
The accompanying notes are an integral part of the
financial statements
5
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(See Accountant's Review Report)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
--------
The corporation included in the combined financial statements are as
follows:
1). Fullerton, Inc. a Nevada corporation (Issuer)
2). RJP Electronics, Inc. a California corporation (Combiner)
Fullerton, Inc. (the Issuer) was organized under the laws of the State
of Utah on July 28, 1981 as Super Jet, Inc. On February 18, 1985, the
Company changed its domicile to Nevada and changed its name to
Fullerton, Inc., by merging into a newly formed Nevada corporation,
Fullerton, Inc. The Company has had no operations for several years and
Is considered a development stage company. After the combination, the
name of the company is changed to Pacific Power Group, Inc.
RJP Electronics, Inc. (the Company) was incorporated
in the state of California on September 17, 1984, engaged in the
business of wholesale and marketing of consumer electronic products.
Fiscal year:
------------
The Company's fiscal year ends on August 31.
Principles of consolidation:
---------------------------
The consolidated financial statements include the accounts of the
Company and its three wholly--owned foreign subsidiaries. The accounts
of foreign subsidiaries have been adjusted to conform to U.S. accounting
principles and practices and converted to appropriate U.S. dollar
equivalents. All material inter-company accounts and transactions have
been eliminated in consolidation.
6
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(See Accountant's Review Report)
(Continued)
Business combination on:
- -----------------------
On October 21, 1994, Combiner merged into Issuer and Issuer changed its domicile
to the State of Nevada. Capital stock of Combiner became exchange able for
shares. of Issuer on a share for share basis for a total of 9,670,000 shares.
The pooling-of-interests accounting method is used for the combination, and,
accordingly, "the accompanying financial information has been restated to
September 1, 1994 to include the accounts of RJP Electronics, Inc. for the
period presented. Since the Issuer has no business transacted during the period,
combined results is the same as the Combiner's separate results of operation.
Foreign currency translation:
- ----------------------------
The three foreign subsidiaries are located in Hong Kong and their functional
currencies are, Hong Kong dollars. Foreign subsidiaries translate their assets
and liabilities into U.S. dollars at current exchange rates in effect at the
balance sheet date. The revenue and expense accounts of Foreign subsidiaries are
translated into U.S. dollars at, the average exchange rates that prevailed
'during the per riod. The gains or losses that result from this process are
shown in the cumulative translation adjustments account in the stockholders'
equity section of the balance sheet. Gains or losses resulting from foreign
currency transactions are included in "Other income or expenses."
Cash equivalents:
- ----------------
The company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.
Inventory:
- ---------
Inventory is stated at the lower of cost (first-in, first-out) or market and
consists of:
<TABLE>
<S> <C>
Raw materials $ 250,453
Work in process 46,643
Finished goods 878,098
----------
$1,175,194
==========
</TABLE>
7
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(See Accountant's Review Report)
(Continued)
Property and equipment:
----------------------
Property and equipment are stated at cost. Depreciation is being
provided for on the straight-line method over the estimated useful lives
of the assets or over the remaining term of the lease.
Income taxes:
------------
The Company adopted FASB Statement No. 109, "Accounting for Income
Taxes." The cumulative effect of prior years at the date of adoption was
not material to the results of operations or the financial position of
the Company. Deferred income taxes arise from temporary differences
between income tax and financial reporting and principally relate to
income recognition on depreciation. It is the Company's intention to
reinvest undistributed earnings of its foreign subsidiaries and thereby
indefinitely postpone their remittance. Accordingly, deferred income
taxes have not been provided for accumulated undistributed earnings of
$417,335.
Income tax benefits have not been recorded for operating losses carry-
forwards.
Earnings per share:
------------------
Earnings per share are determined by dividing earnings by the weighted-
average number of common shares outstanding during the period.
NOTE 2. MAJOR CUSTOMERS:
For the period ended February 29, 1996, sales to two major customers
amounted to $616,779 and $614,938 which both accounted for 12% of
consolidated revenue. As of February 29, 1996, accounts receivable
includes $167,686 due from these customers.
8
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(See Accountant's Review Report)
(Continued)
NOTE 3. PROPERTY AND EQUIPMENT:
The cost of the principal classes of property and equipment and the
estimated useful lives in computing depreciation are as follows:
<TABLE>
<CAPTION>
Cost Lives
---- -----
<S> <C> <C>
Land and building $2,052,139 31.5-50 years
Buildings and improvements 5,853 7 years
Plant and machinery 267,813 7 years
Furniture and equipment 135,617 5-7 years
Automobile 76,376 3-7 years
Molds 281,622 5 years
Sign 450 7 years
---------
2,819,870
Less: Accumulated depreciation (415,698)
---------
$2,404,172
=========
</TABLE>
Depreciation expense for the period amounted to $79,731. Property and
equipment of $1,494,121 are pledged as collateral to note payables. (See
Note 6 and 9)
NOTE 4. PACKAGING DESIGN AND TRADEMARK:
The Company defers the costs incurred for designing the packaging of
products. These costs are being amortized on a straight-line basis over
5 years. Amortization expense for the period amounted to $9,077.
The Company capitalizes trademark application fee for products.
Trademark is amortized on a straight-line basis over 5 years.
Amortization expense for the period amounted to $669.
Other assets included $35,179 packaging design, and $2,485 trademark net
of accumulated amortization of $55,590 and $4,201, respectively.
9
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(See Accountant's Review Report)
(Continued)
NOTE 5. BANK LOAN PAYABLES:
The Company has entered into agreement with three banks, providing for
term loan, letters of credit and advances of up to an aggregate of
$1,459,250. The credit facility is subject to sublimits of $459,249 for
letters of credit, $708,927 for advances and $291,074 for term loan.
Open letters of credit at February 29, 1996 amounted to $62,134,,
payable from 60 to 90 days. At February 29, 1996, term loan balance is
$291,074, monthly payment includes interest only, balloon payment due at
maturity, with interest at prime plus 1 = 3%. Bank advances balance is
$387,560, repayable on demand with interest at prime plus 1 - 2.5%.
All credit extended to the Company through the agreements is
collateralized by accounts receivable, imported inventory, shareholders'
real property and personal bank accounts, and is personally guaranteed
by the shareholders.
NOTE 6. NOTE PAYABLES:
<TABLE>
<CAPTION>
Current Long term
------- ---------
<S> <C> <C>
2% above prime mortgage note (10.5% at
February 29, 1996), collateralized
by building, payable $1,928 per month,
including interest through March, 1998 $19,523 $23,594
9.5% mortgage note, collateralized by office
building, payable $1,966 per month, from
September, 1994 for eight years, including
interest 13,110 90,260
9.3% equipment finance note, payable $7,160 per
month, including interest, through August, 1996 41,818 -0-
------ -------
$74,451 $113,854
======= =======
</TABLE>
Minimum payments required on the notes in each of the years subsequent
to February 29, 1996 are approximately:
<TABLE>
<S> <C>
1997 $ 89,688
1998 46,728
1999 25,513
2000 23,592
2001 23,592
Thereafter 11,796
--------
$220,909
========
</TABLE>
10
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(See Accountant's' Review Report)
(Continued)
NOTE 7. INCOME TAXES:
Pretax income (loss) from continuing operations consisted of:
<TABLE>
<S> <C>
Hong Kong $155,638
United States (78,551)
--------
$ 77,087
========
The provision for income taxes consisted of:
Hong Kong: Current $ 27,874
United States: State franchise tax 800
--------
$ 28,674
========
</TABLE>
Temporary difference between the financial statement carrying amounts
and tax bases of assets and liabilities that give rise to significant
portions of the deferred income tax asset are as follows:
Deferred tax asset
Net operating loss carry forward $653,000
Less valuation allowance (653,000)
-------
Net deferred tax asset $ - 0 -
=======
Income tax benefit is recognized only when its realization is assured.
Accordingly, potential future income tax benefit resulting from net
operating loss incurred to date is not reflected in the consolidated
financial statements.
Undistributed earnings of foreign subsidiaries aggregated $417,335 on
February 29, 1996, which, under existing law, will not be subject to
U.S. tax until distributed as dividends. Since the earnings are intended
to be indefinitely reinvested in foreign operations, no provision has
been made for any U.S. taxes. At February 29, 1996, for federal income
tax purpose, the Company had a net operating loss carry forward of about
$1,922,000 expiring in 2010. The provision for state franchise tax
represents the minimum franchise tax of $800 for the Company with
operating loss.
11
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(See Accountant's Review Report),
(Continued)
NOTE 8. STOCKHOLDERS' EQUITY:
At February 29, 1996, common stock consists of $0.00l par value per
share, 30,000,000 shares authorized, of which 10,452,224 shares were
issued and outstanding.
NOTE 9. COMMITMENTS AND CONTINGENCIES:
Land and building of $1,367,713 located in Hong Kong and in the
People's Republic of China are under long term lease (50 years).
The Company also leases premises under various operating leases.
Rental expenses for the period ended February 29, 1996 was
$65,821.
Capitalized leased equipment with imputed interest rate of 9.3% at
February 29, 1996 amounted to $126,408.
At February 29, 1996, the Company was obligated under capital leases and
operating leases requiring minimum rentals as follows:
<TABLE>
<S> <C>
February 28, 1997 $195,873
February 28, 1998 32,375
February 28, 1999 4,041
February 28, 2000 4,041
February 28, 2001 4,041
Thereafter 167,702
--------
$408,073
========
</TABLE>
12
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(See Accountant's Review Report)
(Continued)
NOTE 10. SEGMENT INFORMATION:
Information about the Company's operation in
different geographic areas is summarized as follows:
<TABLE>
<CAPTION>
HONG KONG UNITED STATES TOTAL
--------- ------------- -----
<S> <C> <C> <C>
Net sales $2,881,303 $2,344,232 $5,225,535
Income(Loss) from operations 155,638 (78,551) 77,087
Identifiable assets 4,781,482 2,590,817 7,372,299
</TABLE>
Information about the Company's operation in different business is
summarized as follows:
<TABLE>
<CAPTION>
Trading and Real
distribution Manufacturing estate Total
------------ ------------- ------ -----
<S> <C> <C> <C> <C>
Net sales $4,021,566 $1,195,565 $8,404 $5,225,535
Income (Loss)
from operations (46,794) 119,283 4,598 77,087
Identifiable assets 3,905,095 2,845,672 621,532 7,372,299
</TABLE>
NOTE 11. RELATED PARTY TRANSACTIONS:
Certain shareholders of the Company are also major shareholder of other
companies. As of February 29, 1996 accounts receivable consisted of
$158,813 from these related companies. Sales to these related companies
amounted to $617,652 for the period ended February 29, 1996.
Other current assets included $360,255 receivable from director.
Other current liabilities included $203,044 interest free loan from
directors.
NOTE 12. SUBSEQUENT EVENTS:
Subsequent to February 29, 1996, the Company is in the process of
listing on a major stock exchange and raising additional capital
through public offerings of its shares of common stock.
13
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995
(REVIEW REPORT)
<PAGE>
FUNG T. YEN
CERTIFIED PUBLIC ACCOUNTANT
1130 S. SAN GABRIEL BLVD., #201
SAN GABRIEL, CA 91776
TEL.:(818) 292-7781 * FAX:(818) 292-6732
The Board of Directors
Pacific Power Group, Inc.
Monterey Park, California
ACCOUNTANT'S REVIEW REPORT
I have reviewed the accompanying consolidated balance sheet of Pacific Power
Group, Inc. and Subsidiaries as of February 28, 1995 and the related statements
of operations, stockholders' equity and cash flows for the six months then ended
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Pacific Power Group, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
examination in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, I do not express such an opinion.
Based on my review, I am not aware of any material modifications that should be
made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ Fung T. Yen
San Gabriel, California
April 19, 1995
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1995
(See Accountant's Review Report)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $429,183
Certificate of deposit 224,368
Accounts receivable, net of allowance
for doubtful accounts 2,213,212
Inventory 1,763,658
Prepayments 106,429
Other current assets 470,962
----------
Total current assets 5,207,812
Property and equipment, net 2,523,705
Other assets 72,320
----------
$7,803,837
==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES:
Bank overdraft $29,046
Accounts payable 4,420,208
Bank loan payables 326,507
Note payables 105,828
Income tax payable 130,793
Customer deposits 394,149
Other current liabilities 503,749
---------
Total current liabilities 5,910,280
Tenant deposit 4,200
Note payables 176,650
Deferred tax payable 12,614
STOCKHOLDERS' EQUITY:
Common stock 10,317
Paid in capital 3,212,517
Deficit (1,517,253)
Cumulative translation adjustments (5,488)
---------
1,700,093
---------
$7,803,837
=========
</TABLE>
The accompanying notes are an integral part of the
financial statements
2
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1995
(See Accountant's Review Report)
<TABLE>
<CAPTION>
<S> <C>
SALES $6,517,746
COST OF SALES 5,919,129
---------
GROSS PROFIT 598,617
EXPENSES:
Advertising 11,451
Amortization 8,761
Bank and collection charge 9,992
Commission 190,952
Depreciation 82,868
Insurance 9,523
Miscellaneous 30,150
Outside labor 21,478
Postage and shipping 126,898
Professional fee 26,432
Rent 98,366
Repair and maintenance 6,796
Royalty 4,500
Salaries 470,986
Supplies 9,011
Taxes and license 30,800
Telephone and telex 29,235
Travel and entertainment 145,092
---------
1,313,291
---------
LOSS FROM OPERATIONS (714,674)
OTHER INCOME OR (EXPENSES):
Interest income 12,314
Interest expenses (55,530)
Other income 72,838
Exchange gain 11,696
Gain from sale of assets 97,136
---------
138,454
---------
LOSS BEFORE TAXES (576,220)
PROVISION FOR TAXES 24,148
---------
NET LOSS $ (600,368)
=========
LOSS PER SHARE $(0.06)
=========
</TABLE>
The accompanying notes are an integral part of the
financial statements
3
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1995
(See Accountant's Review Report)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK PAID-IN TRANSLATION
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT
------ ------ ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance, September 1,
1994 12,933,956 $12,934 $24,300 -0- $(37,234)
Shares reverse
split 1 for 40 (12,610,607) (12,611) 12,611
Pooling of interests 9,670,000 9,670 3,175,930 $310 (879,651)
--------- ----- --------- ---- --------
Balance, as restated 9,993,349 9,993 3,212,841 310 (916,885)
Shares issued 324,315 324 (324)
Net loss (600,368)
Foreign currency
translation (5,798)
---------- ------ --------- ----- ---------
Balance, February 28,
1995 10,317,664 $10,317 $3,212,517 $(5,488) $(l,517,253)
========== ====== ========= ===== =========
</TABLE>
The accompanying notes are an integral part of the
financial statements
4
<PAGE>
PACIFIC POWER GROUP, IN C. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1995
(See Accountant's Review Report)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (600,368)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation 82,868
Amortization 8,761
Deferred income tax 266
Gain from sale of assets (97,136)
Increase in accounts receivable (1,046,284)
Decrease in inventory 1,340,964
Decrease in prepayments 7,095
Increase in other current assets (369,939)
Increase in other assets (3,914)
Increase in bank overdraft 29,046
Decrease in accounts payable (316,798)
Increase in income taxes payable 35,291
Increase in customer deposits 254,620
Increase in other current liabilities 350,062
Decrease in tenant deposit (15,678)
-----------
Net cash flows used by operating activities (341,144)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (12,953)
Proceeds on sale of assets 680,894
Increase in other assets (12,675)
-----------
Net cash flows from investing activities 655,266
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in note payable (310,292)
Increase in borrowing from banks 86,933
-----------
Net cash flows used by financing activities (223,359)
Effect of exchange rate changes on cash 1,577
-----------
NET INCREASE IN CASH 92,340
CASH AT THE BEGINNING OF PERIOD 561,211
-----------
CASH AT THE END OF PERIOD $ 653,551
===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $55,330
Income taxes $5,131
</TABLE>
The accompanying notes are an integral part of the
financial statements
5
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
(See Accountant's Review Report)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
-------
The corporation included in the combined financial statements are as
follows:
1). Fullerton, Inc. a Nevada corporation (Issuer)
2). RJP Electronics, Inc. a California corporation (Combiner)
Fullerton, Inc. (the Issuer) was organized under the laws of the State
of Utah on July 28, 1981 as Super Jet, Inc. On February 18, 1985, the
Company changed its domicile to Nevada and changed its name to
Fullerton, Inc., by merging into a newly formed Nevada corporation,
Fullerton, Inc. The Company has had no operations for several years and
is considered a development stage company. After the combination, the
name of the company is changed to Pacific Power Group, Inc.
RJP Electronics, Inc. (the Company) was incorporated
in the state of California on September 17, 1984, engaged in the
business of wholesale and marketing of consumer electronic products.
Fiscal year:
------------
The Company's fiscal year ends on August 31.
Principles of consolidation:
----------------------------
The consolidated financial statements include the accounts of the
Company and its three wholly-owned foreign subsidiaries. The accounts of
foreign subsidiaries have been adjusted to conform to U.S. accounting
principles and practices and converted to appropriate U.S. dollar
equivalents. All material inter-company accounts and transactions have
been eliminated in consolidation.
6
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
(See Accountant's Review Report)
(Continued)
Business combination:
- --------------------
On October 21, 1994, Combiner merged into Issuer and Issuer changed its domicile
to the State of Nevada. Capital stock of Combiner became exchangeable for shares
of Issuer on a share for share basis for a total of 9,670,000 shares.
The pooling-of-interests accounting method is used for the combination, and,
accordingly, the accompanying financial information has been restated to
September 1, 1994 to include the accounts of RJP Electronics, Inc. for the
period presented. Since the Issuer has no business transacted during the period,
combined results is the same as the Combiner's separate results of operation.
Foreign currency translation:
- -----------------------------
The three foreign subsidiaries are located in Hong Kong and their functional
currencies are Hong Kong dollars. Foreign subsidiaries translate their assets
and liabilities into U.S. dollars at current exchange rates in effect at the
balance sheet date. The revenue and expense accounts of Foreign subsidiaries are
translated into U.S. dollars at the average exchange rates that prevailed during
the period. The gains or losses that result from this process are shown in the
cumulative translation adjustments account in the stockholders' equity section
of the balance sheet. Gains or losses resulting from foreign currency
transactions are included in "Other income or expenses."
Cash equivalents:
- -----------------
The company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.
Inventory:
- ----------
Inventory is stated at the lower of cost (first-in, first-out) or market and
consists of:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $ 367,414
Work in process 24,700
Finished goods 1,371,544
----------
$1,763,658
==========
</TABLE>
7
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
(See Accountant's Review Report)
(Continued)
Property and equipment:
----------------------
Property and equipment are stated at cost. Depreciation is being
provided for on the straight-line method over the estimated useful lives
of the assets or over the remaining term of the lease.
Income taxes:
------------
The Company adopted FASB Statement No. 109, "Accounting for Income
Taxes." The cumulative effect of prior years at the date. of adoption
was not material to the results of operations or the financial position
of the Company. Deferred income taxes arise from temporary differences
between income tax and financial reporting and principally relate to
income recognition on depreciation. It is the Company's intention to
reinvest undistributed earnings of its foreign subsidiaries and thereby
indefinitely postpone their remittance. Accordingly, deferred income
taxes have not been provided for accumulated undistributed earnings of
$346,984.
Income tax benefits have not been recorded for operating losses carry-
forwards.
Loss per share:
--------------
Loss per share is determined by dividing loss by the weighted-average
number of common shares outstanding during the period.
NOTE 2. MAJOR CUSTOMERS:
For the period ended February 28, 1995, sales to two major customers
amounted to $1,015,649 and $870,592 which accounted for 16% and 13%
respectively of consolidated revenue. As of February 28, 1995, accounts
receivable includes $183,950 due from these customers.
8
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
(See Accountant's Review Report)
(Continued)
NOTE 3. PROPERTY AND EQUIPMENT:
The cost of the principal classes of property and equipment and the
estimated useful lives in computing depreciation are as follows:
<TABLE>
<CAPTION>
Cost Lives
---- ----------
<S> <C> <C>
Land and building $2,057,200 31.5-50 years
Plant and machinery 269,885 7 years
Furniture and equipment 121,846 5-7 years
Automobile 76,363 3-7 years
Molds 275,218 5 years
Leasehold improvement 11,230 10 years
Sign 450 7 years
----------
2,812,192
Less: Accumulated depreciation (288,487)
--------
$2,523,705
=========
</TABLE>
Depreciation expense for the period amounted to $82,868. Property and
equipment of $1,769,034 are pledged as collateral to note payables. (See
Note 6 and 9)
NOTE 4. PACKAGING DESIGN AND TRADEMARK:
The Company defers the co sts incurred for designing the packaging of
products. These costs are being amortized on a straight-line basis over
5 years. Amortization expense for the period amounted to $8,123.
The Company capitalizes trademark application fee for products.
Trademark is amortized on a straight-line basis over 5 years.
Amortization expense for the period amounted to $638.
Other assets included $47,717 packaging design, and $3,761 trademark net
of accumulated amortization of $37,821 and $2,925, respectively.
9
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
(See Accountant's Review Report)
(Continued)
NOTE 5. BANK LOAN PAYABLES:
The Company has entered into agreements with two banks, providing for
letters of credit and advances up to an aggregate of $594,931. The
credit facility is subject to sublimits of $129,333 for letters of
credit and $465,598 for advances. These loan arrangements are secured by
one shareholder's personal bank accounts and personal guarantee given by
that shareholder.
Bank loan payable bears interest 7.5% per annum subject to market
fluctuation and is at the bank's discretion to revise or recall.
As of February 28, 1995, bank loan payable balance was $326,507.
NOTE 6. NOTE PAYABLES:
<TABLE>
<CAPTION>
Current Long term
------- ---------
<S> <C> <C>
2% above prime mortgage note (11% at
February 28, 1995), collateralized
by building, payable $8,810 per quarter,
including interest through November, 1996
with balloon payment at maturity $13,311 $47,260
9.5% mortgage note, collateralized by office
building, payable $1,966 per month, from
September, 1994 for eight years, including
interest 14,512 87,583
9.3% equipment finance note, payable $7,159
per month, including interest, through
August, 1996 78,005 41,807
-------- --------
$105,828 $176,650
======== ========
</TABLE>
Minimum payments required on the notes in each of the years
subsequent to February 28, 1995 are approximately:
<TABLE>
<S> <C>
1996 $144,740
1997 92,976
1998 46,560
1999 46,560
2000 46,560
Thereafter 58,980
--------
$436,376
========
</TABLE>
10
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
(See Accountant's Review Report)
(Continued)
NOTE 7. INCOME TAXES:
Pretax loss from continuing operations consisted of:
<TABLE>
<S> <C>
Hong Kong $(333,740)
United States (242,480)
---------
$(576,220)
=========
</TABLE>
The provision for income taxes consisted of:
<TABLE>
<S> <C>
Hong Kong: Current $23,348
United States: State franchise tax 800
-------
$24,148
=======
</TABLE>
Temporary difference between the financial statement carrying amounts
and tax bases of assets and liabilities that give rise to significant
portions of the deferred income tax asset and liability are as follows:
<TABLE>
<S> <C>
Deferred tax asset
Net operating loss carry forward $585,000
Deferred tax liability
Temporary difference in depreciation (12.614)
--------
572,386
Less valuation allowance (585,000)
--------
Net deferred tax liability $(12,614)
========
</TABLE>
Income tax benefit is recognized only when its realization is assured.
Accordingly, potential future income tax benefit resulting from net
operation loss incurred to date is not reflected in the consolidated
financial statements.
Undistributed earnings of foreign subsidiaries aggregated $346,984 on
February 28, 1995, which, under existing law, will not be subject to
U.S. tax until distributed as dividends. Since the earnings are intended
to be indefinitely reinvested in foreign operations, no provision has
been made for any U.S. taxes. At February 28, 1995, for federal income
tax purpose, the Company had a net operating loss carry forward of about
$1,720,000 expiring in 2009. The provision for state franchise tax
represents the minimum franchise tax of $800 for the Company with
operating loss.
11
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
(See Accountant's Review Report)
(Continued)
NOTE 8. STOCKHOLDERS' EQUITY:
At February 28, 1995, common stock consists of $0.00l par value per
share, 30,000,000 shares authorized, of which 10,317,664 shares were
issued and outstanding.
NOTE 9. COMMITMENTS AND CONTINGENCIES:
Land and building of $1,372,774 located in Hong Kong and in the
People's Republic of China are under long term lease (50 years).
The Company also leases premises under various operating leases.
Rental expenses for the period ended February 28, 1995 was
$98,366.
Capitalized leased equipment with imputed rate of 9.3% at February 28,
1995 amounted to $126,375.
At February 28, 1995, the Company was obligated under capital leases and
operating leases requiring minimum rentals as follows:
<TABLE>
<S> <C>
February 28, 1996 $ 210,550
February 28, 1997 125,596
February 28, 1998 82,642
February 28, 1999 82,642
February 28, 2000 82,642
Thereafter 1,756,143
----------
$2,340,215
==========
</TABLE>
12
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
(See Accountant's Review Report)
(Continued)
NOTE 10. SEGMENT INFORMATION:
Information about the Company's operation in different geographic.
areas is summarized as follows:
<TABLE>
<CAPTION>
HONG KONG UNITED STATES TOTAL
--------- ------------- ----------
<S> <C> <C> <C>
Net sales $2,723,123 $3,820,826 $6,543,949
Income(Loss) from operation (333,740) (242,480) (576,220)
Identifiable assets 5,108,400 2,695,437 7,803,837
</TABLE>
Information about the Company's operation in different business is
summarized as follows:
<TABLE>
<CAPTION>
Trading and Real
distribution Manufacturing estate Total
------------ ------------- ------ ----------
<S> <C> <C> <C> <C>
Net sales $5,543,883 $973,863 $26,203 $6,543,949
Income (Loss)
from operations (186,131 (475,238) 85,149 (576,220)
Identifiable assets 3,828,835 3,345,034 629,968 7,803,837
</TABLE>
NOTE 11. RELATED PARTY TRANSACTIONS:
Certain shareholders of the Company are also major shareholder of other
companies. As of February 28, 1995 accounts receivable consisted of
$217,284 from these related companies, sales and purchase from these
related companies amounted to $920,282 and $6,500, respectively for the
period ended February 28, 1995.
Other current assets included $360,162 receivable from director.
Other current liabilities included $277,540 interest free loan
from directors.
NOTE 12. SUBSEQUENT EVENTS:
Subsequent to February 28, 1995, the Company is in the process of
listing on a major stock exchange and raising additional capital
through public offerings of its shares of common stock.
On March 1, 1995, the Company moved to a new office located in the same
city.
13
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
<PAGE>
FUNG T. YEN
CERTIFIED PUBLIC ACCOUNTANT
1130 S. SAN GABRIEL BLVD., #201
SAN GABRIEL, CA 91776
TEL.:(818) 292-7781 * FAX:(818) 292-6732
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
Pacific Power Group, Inc.
Monterey Park, California
I have audited the accompanying consolidated balance sheet of Pacific Power
Group, Inc. and Subsidiaries as of August 31, 1995 and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit. I did not audit the financial statements of three wholly-owned foreign
subsidiaries, which statements reflect total assets constituting 62 percent as
of August 31, 1995 and total revenues constituting 47 percent for the year then
ended. Those statements were audited by other auditors whose reports have been
furnished to me, and my opinion, insofar as it relates to the amounts included
for these subsidiaries, is based solely on the reports of the other auditors.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit and the reports of the other auditors provides a
reasonable basis for my opinion.
In my opinion, based on my audit and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Pacific Power Group, Inc. and
Subsidiaries as of August 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/Fung T. Yen
San Gabriel, California
April 22, 1996
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 823,380
Accounts receivable, net of allowance
for doubtful accounts of $21,862 1,642,878
Inventory 1,819,058
Prepayments 133,854
Other current assets 365,049
----------
Total current assets 4,784,219
Property and equipment, net 2,470,907
Other assets 73,720
----------
$7,328,846
==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES:
Accounts payable $3,698,062
Bank loan payables 693,265
Note payables 106,015
Income tax payable 58,168
Customer deposits 33,247
Other current liabilities 343,946
----------
Total current liabilities 4,932,703
Tenant deposit 4,210
Note payables 132,116
STOCKHOLDERS' EQUITY:
Common stock 10,317
Paid in capital 3,949,427
Deficit (1,700,915)
Cumulative translation adjustment 988
----------
2,259,817
----------
$7,328,846
==========
</TABLE>
The accompanying notes are an integral part of the
financial statements
2
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
<S> <C>
SALES $12,419,791
COST OF SALES 11,353,375
-----------
GROSS PROFIT 1,066,416
EXPENSES:
Advertising 19,824
Amortization 18,060
Bad debt 76,266
Bank and collection charge 20,515
Commission 316,297
Depreciation 57,066
Insurance 33,618
Miscellaneous 46,290
Outside labor 46,864
Postage and shipping 204,815
Professional fee 54,031
Rent 137,198
Repair and maintenance 11,439
Royalty 4,500
Salaries 822,687
Supplies 21,293
Taxes and license 31,344
Telephone and telex 44,974
Travel and entertainment 216,083
-----------
2,183,164
-----------
LOSS FROM OPERATIONS (1,116,748)
OTHER INCOME OR (EXPENSES):
Interest income 29,027
Interest expenses (119,943)
Other income 328,542
Exchange gain 7,687
Gain from sale of assets 82,599
-----------
327,912
-----------
LOSS BEFORE TAXES (788,836)
PROVISION FOR TAXES (4,806)
-----------
NET LOSS $ (784,030)
===========
L0SS PER SHARE $(0.08)
===========
</TABLE>
The accompanying notes are an integral part of the
financial statements
3
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK PAID-IN TRANSLATION
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT
------ ------ ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance, September 1,
1994 12,933,956 $12,934 $24,300 -0- $(37,234)
Shares reverse
split 1 for 40 (12,610,607) (12,611) 12,611
Pooling of interests 9,670,000 9,670 3,175,930 $310 (879,651)
---------- ------- --------- --- -------
Balance, as restated 9,993,349 9,993 3,212,841 310 (916,885)
Shares issued 324,315 324 736,586
Net loss (784,030)
Foreign currency
translation 678
---------- ------- ---------- ---- --------
Balance, August 31,
1995 10,317,664 $10,317 $3,949,427 $988 $(1,700,915)
========== ======= ========== ==== ===========
</TABLE>
The accompanying notes are an integral part of the
financial statements
4
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(784,030)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation 170,261
Amortization 18,060
Deferred income tax (12,348)
Gain from sale of assets (82,599)
Increase in accounts receivable (475,950)
Decrease in inventory 1,285,564
Increase in prepayments (20,330)
Increase in other current assets (264,026)
Increase in other assets (23,374)
Decrease in accounts payable (1,038,944)
Decrease in customer deposits (106,282)
Decrease in income tax payable (37,334)
Increase in other current liabilities 190,259
Decrease in tenant deposit (15,668)
---------
Net cash flows used by operating activities (1,196,741)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (53,245)
Proceeds on sale of assets 676,053
---------
Net cash flows from investing activities 622,808
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowing from banks 479,020
Repayment of bank loans (25,329)
Decrease in note payables (354,639)
Increase in paid in
capital 736,910
---------
Net cash flows from financing activities 835,962
Effect of exchange rate changes on cash 140
-----------
NET INCREASE IN CASH 262,169
CASH AT THE BEGINNING OF PERIOD 561,211
-----------
CASH AT THE END OF PERIOD $ 823,380
==========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $119,943
Income taxes $44,879
</TABLE>
The accompanying notes are an integral part of the
financial statements
5
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
--------
The corporation included in the combined financial statements are as
follows:
1). Fullerton, Inc. a Nevada corporation (Issuer)
2). RJP Electronics, Inc. a California corporation (Combiner)
Fullerton, Inc. (the Issuer) was organized under the laws of the State
of Utah on July 28, 1981 as Super Jet, Inc. On February 18, 1985, the
Company changed its domicile to Nevada and changed its name to
Fullerton, Inc., by merging into a newly formed Nevada corporation,
Fullerton, Inc. The Company has had no operations for several years and
is considered a development stage company. After the combination, the
name of the company is changed to Pacific Power Group, Inc.
RJP Electronics, Inc. (the Company) was incorporated
in the state of California on September 17, 1984, engaged in the
business of wholesale and marketing of consumer electronic products.
Fiscal year:
------------
The Company's fiscal year ends on August 31.
Principles of consolidation:
----------------------------
The consolidated financial statements include the accounts of the
Company and its three wholly-owned foreign subsidiaries. The accounts of
foreign subsidiaries have been adjusted to conform to U.S. accounting
principles and practices and converted to appropriate U.S. dollar
equivalents. All material inter-company accounts and transactions have
been eliminated in consolidation.
6
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
Business combination:
- ---------------------
On October 21, 1994, Combiner merged into Issuer and Issuer changed its domicile
to the State of Nevada. Capital stock of Combiner became exchangeable for shares
of Issuer on a share for share basis for a total of 9,670,000 shares.
The pooling-of-interests accounting method is used for the combination, and,
accordingly, the accompanying financial information has been restated to
September 1, 1994 to include the accounts of RJP Electronics, Inc. for the
period presented. Since the Issuer has no business transacted during the period,
combined results is the same as the Combiner's separate results of operation.
Foreign currency translation:
- -----------------------------
The three foreign subsidiaries are located in Hong Kong and their functional
currencies are Hong Kong dollars. Foreign subsidiaries translate their assets
and liabilities into U.S. dollars at current exchange rates in effect at the
balance sheet date. The revenue and expense accounts of Foreign subsidiaries are
translated into U.S. dollars at the average exchange rates that prevailed during
the period. The gains or losses that result from this process are shown in the
cumulative translation adjustments account in the stockholders' equity section
of the balance sheet. Gains or losses resulting from foreign currency
transactions are included in "Other income or expenses."
Cash equivalents:
- -----------------
The company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.
Inventory:
- ----------
Inventory is stated at the lower of cost (first-in, first-out) or market and
consists of:
<TABLE>
<S> <C>
Raw materials $354,103
Work in process 69,661
Finished goods 1,395,294
---------
$1,819,058
=========
</TABLE>
7
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
Property and equipment:
-----------------------
Property and equipment are stated at cost. Depreciation is being
provided for on the straight-line method over the estimated useful lives
of the assets or over the remaining term of the lease.
Income taxes:
-------------
The Company adopted FASB Statement No. 109, "Accounting for Income
Taxes." The cumulative effect of prior years at the date of adoption was
not material to the results of operations or the financial position of
the Company. Deferred income taxes arise from temporary differences
between income tax and financial reporting and principally relate to
income recognition on depreciation. It is the Company's intention to
reinvest undistributed earnings of its foreign subsidiaries and thereby
indefinitely postpone their remittance. Accordingly, deferred income
taxes have not been provided for accumulated undistributed earnings of
$289,441.
Income tax benefits have not been recorded for operating losses carry
forwards.
Loss per share:
---------------
Loss per share is determined by dividing loss by the weighted-average
number of common shares outstanding during the year.
NOTE 2. MAJOR CUSTOMERS:
For the year ended August 31, 1995, sales to two major customers
amounted to $2,000,331 and $1,815,266 which accounted for 16% and 15%
respectively of consolidated revenue. As of August 31, 1995, accounts
receivable includes $562,287 due from these customers.
8
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
NOTE 3. PROPERTY AND EQUIPMENT:
The cost of the principal classes of property and equipment and the
estimated useful lives in computing depreciation are as follows:
<TABLE>
<CAPTION>
Cost Lives
---- -----
<S> <C> <C>
Land and building $2,055,153 31.5-50 years
Plant and machinery 284,941 7 years
Furniture and equipment 140,500 5-7 years
Automobile 76,495 3-7 years
Molds 283,243 5 years
Sign 450 7 years
---------
2,840,782
Less: Accumulated depreciation (369,875)
---------
$2,470,907
=========
</TABLE>
Depreciation expense for the year amounted to $170,261. Property and
equipment of $l,497,413 are pledged as collateral to notes payable. (See
Note 6 and 9)
NOTE 4. PACKAGING DESIGN AND TRADEMARK:
The Company defers the costs incurred for designing the packaging of
products. These costs are being amortized on a straight-line basis over
5 years. Amortization expense for the year amounted to $16,815.
The Company capitalizes trademark application fee for products.
Trademark is amortized on a straight-line basis over 5 years.
Amortization expense for the year amounted to $1,245.
Other assets included $44,265 packaging design, and $3,154 trademark net
of accumulated amortization of $46,513 and $3,532, respectively.
9
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
NOTE 5. BANK LOAN PAYABLES:
The Company has entered into agreement with three banks, providing for
term loan, letters of credit and advances of up to an aggregate of
$1,418,662. The credit facility is subject to sublimits of $460,262 for
letters of credit, $666,685 for advances and $291,715 for term loan.
Open letters of credit at August 31, 1995 amounted to $141,259, payable
from 60 to 90 days. At August 31, 1995, term loan balance is $291,715,
monthly payment includes interest only, balloon payment due at maturity,
with interest at prime plus 1 - 3%. Bank advances balance is $260,291,
repayable on demand with interest at prime plus 1 - 2.5%.
All credit extended to the Company through the agreements is
collateralized by accounts receivable, imported inventory, shareholders'
real property and personal bank accounts, and is personally guaranteed
by the shareholders.
NOTE 6. NOTE PAYABLES:
<TABLE>
Current Long term
------- ---------
<S> <C> <C>
2% above prime mortgage note (11% at
August 31, 1995), collateralized
by building, payable $1,943 per month,
including interest through March, 1998 $18,470 $33,713
9.5% mortgage note, collateralized by office
building, payable $1,971 per month, from
September, 1994 for eight years, including
interest 10,999 98,403
9.3% equipment finance note, payable $7,176 per
month, including interest, through August, 1996 76,546 -0-
-------- -------
$106,015 $132,116
======= =======
</TABLE>
Minimum payments required on the notes in each of the years subsequent
to August 31, 1995 are approximately:
<TABLE>
<S> <C>
1996 $133,080
1997 46,968
1998 37,253
1999 23,652
2000 23,652
Thereafter 23,652
--------
$288,257
========
</TABLE>
10
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
NOTE 7. INCOME TAXES:
Pretax loss from continuing operations consisted of:
<TABLE>
<S> <C>
Hong Kong $(420,237)
United States (368,599)
---------
$(788,836)
=========
</TABLE>
<TABLE>
<S> <C>
The provision for income taxes consisted of:
Hong Kong: Current $(5,606)
United States: State franchise tax 800
-----
$(4,806)
=====
</TABLE>
Temporary difference between the financial statement carrying amounts
and tax bases of assets and liabilities that give rise to significant
portions of the deferred income tax asset are as follows:
<TABLE>
<S> <C>
Deferred tax asset
Net operating loss carryforward $639,100
Temporary difference in depreciation 12,350
-------
651,450
Less valuation allowance (651,450)
-------
Net deferred tax asset $ - 0 -
=======
</TABLE>
Income tax benefits are recognized only when their realization is
assured. Accordingly, potential future income tax benefits resulting
from net operating loss incurred to date are not reflected in the
consolidated financial statements.
Undistributed earnings of foreign subsidiaries aggregated $289,441 on
August 31, 1995, which, under existing law, will not be subject to U.S.
tax until distributed as dividends. Since the earnings are intended to
be indefinitely reinvested in foreign operations, no provision has been
made for any U.S. taxes. At August 31, 1995, for federal income tax
purpose, the Company had a net operating loss carryforward of about
$1,800,000 expiring in 2010. The provision for state franchise tax
represents the minimum franchise tax of $800 for the Company with
operating loss.
11
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
NOTE 8. STOCKHOLDERS' EQUITY:
At August 31, 1995, common stock consists of $0.00l par value per
share, 30,000,000 shares authorized, of which 10,317,664 shares were
issued and outstanding.
NOTE 9. COMMITMENTS AND CONTINGENCIES:
Land and building of $1,370,727 located in Hong Kong and in the
People's Republic of China are under long term lease (50 years). The
Company also leases premises under various operating leases. Rental
expenses for the year ended August 31, 1995 was $137,198.
Capitalized leased equipment with imputed interest rate at 9.3% at
August 31, 1995 amounted to $126,686.
At August 31, 1995, the Company was obligated under capital leases and
operating leases requiring minimum rentals as follows:
<TABLE>
<S> <C>
August 31, 1996 $240,446
August 31, 1997 93,829
August 31, 1998 46,945
August 31, 1999 4,045
August 31, 2000 4,045
Thereafter 169,890
--------
$559,200
========
</TABLE>
12
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
(Continued)
NOTE 10. SEGMENT INFORMATION:
Information about the Company's operation in different geographic
areas is summarized as follows:
<TABLE>
<CAPTION>
HONG KONG UNITED STATES TOTAL
--------- ------------- ------------
<S> <C> <C> <C>
Net sales $5,875,098 $6,579,349 $12,454,447
Loss from operations (420,237) (368,599) (788,836)
Identifiable assets 4,516,980 2,811,866 7,328,846
</TABLE>
Information about the Company's operation in different business is
summarized as follows:
<TABLE>
<CAPTION>
Trading and Real
distribution Manufacturing estate Total
------------ ------------- ------ ------------
<S> <C> <C> <C> <C>
Net sales $9,874,046 $2,545,745 $34,656 $12,454,447
Income (Loss)
from operations (266,001) (601,831) 78,996 (788,836)
Identifiable assets 4,035,727 2,674,715 618,404 7,328,846
</TABLE>
NOTE 11. RELATED PARTY TRANSACTIONS:
Certain shareholders of the Company are also major shareholder of
other companies. As of August 31, 1995 accounts receivable consisted
of $447,677 from these related companies, sales to and purchase from
these related companies amounted to $1,927,272 and $173,454,
respectively for the year ended August 31, 1995.
Other current assets included $361,049 receivable from director.
Other current liabilities included $120,089 interest free loan from
directors.
NOTE 12. SUBSEQUENT EVENTS:
Subsequent to August 31, 1995, the Company is in the process of
listing on a major stock exchange and raising additional capital
through public offerings of its shares of common stock.
13
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1994
<PAGE>
FUNG T.YEN
CERTIFIED PUBLIC ACCOUNTANT
1130 S. SAN GABRIEL BLVD., #201
SAN GABRIEL, CA 91776
TEL.: (818) 292-7781. FAX: (818) 292-6732
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
Pacific Power Group, Inc.
Monterey Park, California
I have audited the accompanying consolidated balance sheet of Pacific Power
Group, Inc. and Subsidiaries as of August 31, 1994 and the related statements of
income, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit. I did not audit the financial statements of three wholly-owned foreign
subsidiaries, which statements reflect total assets constituting 58 percent as
of August 31, 1994 and total revenues constituting 57 percent for the year then
ended. Those statements were audited by other auditors whose reports have been
furnished to me, and my opinion, insofar as it relates to the amounts included
for these subsidiaries, is based solely on the reports of the other auditors.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit and the reports of the other auditors provides a
reasonable basis for my opinion.
In my opinion, based on my audit and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Pacific Power Group, Inc. and
Subsidiaries as of August 31, 1994 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Fung T. Yen
San Gabriel, California
November 18, 1994
<PAGE>
PACIFIC POWER GROUP, INC. SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1994
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS:
<S> <C>
Cash $ 561,211
Accounts receivable, net of allowance
for doubtful accounts 1,166,928
Inventory (Note 1) 3,104,622
Prepayments 113,524
Other current assets 101,023
----------
Total current assets 5,047,308
Property and equipment, net (Note 1 and 3) 3,180,839
Other assets (Note 4) 68,406
----------
$8,296,553
==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C>
Accounts payable $4,737,006
Bank loan payable (Note 5) 239,574
Note payables (Note 6) 162,561
Income tax payable (Note 7) 95,502
Customer deposits 139,529
Other current liabilities 153,687
----------
Total current liabilities 5,527,859
Tenant deposit 19,878
Note payables (Note 6) 430,209
Deferred tax payable (Note 7) 12,348
STOCKHOLDERS' EQUITY
Common stock (Note 8) 2,811,258
Paid in capital 374,342
Deficit (879,651)
Cumulative translation adjustments 310
----------
2,306,259
----------
$8,296,553
==========
</TABLE>
The accompanying notes are an integral part of the
financial statements
2
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<S> <C>
SALES $11,864,398
COST OF SALES 9,358,618
----------
GROSS PROFIT 2,505,780
EXPENSES:
Advertising 35,983
Amortization 14,500
Bad debt 38,237
Bank and collection charge 8,214
Commission 229,124
Depreciation 48,567
Insurance 31,175
Miscellaneous 35,055
Outside labor 25,042
Postage and shipping 144,575
Professional fee 134,420
Rent 140,925
Repair and maintenance 11,570
Royalty 67,796
Salaries 728,390
Supplies 11,843
Taxes and license 45,735
Telephone and telex 54,436
Travel and entertainment 279,731
----------
2,085,318
----------
INCOME FROM OPERATIONS 420,462
OTHER INCOME OR (EXPENSES)
Interest income 19,821
Interest expenses (97,474)
Other income 288,888
Exchange gain 18,563
Gain from sale of assets 63,339
----------
293,137
----------
INCOME BEFORE TAX 713,599
PROVISION FOR TAX (Note 7) 91,621
----------
NET INCOME $ 621,978
==========
EARNINGS PER SHARE $0.26
==========
</TABLE>
The accompanying notes are an integral part of the
financial statements
3
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK PAID-IN TRANSLATION
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT
------ ------ ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance, September 1, 1,000 $26,000 $374,342 -0- $(l,408,521)
1993
Pooling of interests 2,100.832 2,100,832 (193) (93,108)
--------- --------- ------- --- ---------
Balance, as restated 2,101,832 2,126,832 374,342 (193) (1,501,629)
Stock split 25,000
Issuance of shares 684,426 684,426
Net income 621,978
Foreign currency
translation $503
--------- --------- ------- --- ---------
Balance, August 31,
1994 2,811,258 $2,811,258 $374,342 $310 $ (879,651)
========= ========= ======= === =========
</TABLE>
The accompanying notes are an integral part of the
financial statements
4
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATION ACTIVITIES:
<S> <C>
Net income $ 621,978
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation 120,880
Amortization 14,500
Deferred income tax 12,348
Gain from sale of assets (63,339)
Decrease in accounts receivable 245,571
Increase in inventory (1,872,682)
Increase in prepayments (53,262)
Increase in other current assets (99,905)
Increase in deposits (13,900)
Increase in accounts payable 1,533,906
Decrease in customer deposits (137,990)
Increase in income taxes payable 47,187
Increase in other current liabilities 76,623
Decrease in tenant deposit (11,521)
-----------
Net cash flows provided by operating activities 420,394
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (292,811)
Proceeds on sale of assets 508,430
Increase in other assets (21,338)
-----------
Net cash flows from investing activities 194,281
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank loan (194,730)
Decrease in note payables (310,986)
Decrease in loan payable to shareholders (158,099)
-----------
Net cash flows used by financing activities (663,815)
Effect of exchange rate changes on cash 3,495
-----------
NET DECREASE IN CASH (45,645)
CASH AT THE BEGINNING OF PERIOD 690,856
-----------
CASH AT THE END OF PERIOD $ 561,211
===========
</TABLE>
The accompanying notes are an integral part of the
financial statements
5
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1994
(Continued)
<TABLE>
<S> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 97,474
Income taxes 32,086
Non-cash investing and financing transactions:
Non-cash capital contribution, transfer of
assets and cancellation of debt to shareholder $2,759,098
Liabilities incurred by acquisition of assets $ 190,532
</TABLE>
The accompanying notes are an integral part of the
financial statements
6
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
--------
RJP Electronics, Inc. (the Company) was incorporated in the state of
California on September 17, 1984, engaged in the business of wholesale
and marketing of consumer electronic products.
The name of the Company was changed to Pacific Power Group, Inc. on
April 11, 1994.
Fiscal Year:
------------
The Company's fiscal year ends on August 31.
Principles of consolidation:
----------------------------
The consolidated financial statements include the accounts of the
Company and its three wholly-owned foreign subsidiaries. The accounts
of foreign subsidiaries have been adjusted to conform to U.S.
accounting principles and practices and converted to appropriate U.S.
dollar equivalents. All material inter-company accounts and
transactions have been eliminated in consolidation.
Business combination:
---------------------
On April 30, 1994, Kidder Industrial Limited, Big Apple Limited and
Goldwell Nominees Limited (Foreign subsidiaries) were merged with and
into the Company, and 2,100,832 shares of the Company's common stock
were issued in exchange for all of the outstanding common stock of
Foreign subsidiaries. The merger was accounted for as a pooling of
interests, and accordingly, the accompany financial statements have
been restated to include the accounts and operations of Foreign
subsidiaries for the period from September 1, 1993 to August 31, 1994.
7
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
(Continued)
Foreign currency translation:
-----------------------------
The three foreign subsidiaries are located in Hong Kong and their
functional currencies are Hong Kong dollars. Foreign subsidiaries
translate their assets and liabilities into U.S. dollars at current
exchange rates in effect at the balance sheet date. The revenue and
expense accounts of Foreign subsidiaries are translated into U.S.
dollars at the average exchange rates that prevailed during the
period. The gains or losses that result from this process are shown in
the cumulative translation adjustments account in the stockholders'
equity section of the balance sheet. Gains or losses resulting from
foreign currency transactions are included in "Other income or
expenses."
Cash equivalents:
-----------------
The company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
Inventory:
----------
Inventory is stated at the lower of cost (first-in, first-out) or
market and consists of:
<TABLE>
<S> <C>
Raw materials $ 797,394
Work in process 53,994
Finished goods 2,253,234
----------
$3,104,622
</TABLE>
Property and equipment:
-----------------------
Property and equipment are stated at cost. Depreciation is being
provided for on the straight-line method over the estimated useful
lives of the assets or over the remaining term of the lease.
8
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
(Continued)
Income taxes:
-------------
The Company adopted FASB Statement No. 109, "Accounting for Income
Taxes." The cumulative effect of prior years at the date of adoption
was not material to the results of operations or the financial
position of the Company. Deferred income taxes arise from temporary
differences between income tax and financial reporting and principally
relate to income recognition on depreciation. It is the Company's
intention to reinvest undistributed earnings of its foreign
subsidiaries and thereby indefinitely postpone their remittance.
Accordingly, deferred income taxes have not been provided for
accumulated undistributed earnings of $887,963.
Income tax benefits have not been recorded for operating losses carry
forwards.
Earnings per share:
-------------------
Earnings per share are determined by dividing earnings by the
weighted-average number of common shares outstanding during the year.
NOTE 2. MAJOR CUSTOMERS:
For the period ended August 31, 1994, sales to two major customers
amounted to $1,783,569 and $2,131,682 which accounted for 15% and 18%
respectively of consolidated revenue. As of August 31, 1994, accounts
receivable includes $406,539 due from these customers.
9
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
(Continued)
NOTE 3. PROPERTY AND EQUIPMENT:
The cost of the principal classes of property and equipment and the
estimated useful lives in computing depreciation are as follows:
<TABLE>
<CAPTION>
Cost Lives
---- -----
<S> <C> <C>
Land and building $2,643,467 31.5-50 years
Plant and machinery 266,869 7 years
Furniture and equipment 119,600 5-7 years
Automobile 76,481 3-7 years
Molds 268,813 5 years
Leasehold improvement 11,230 10 years
Sign 450 7 years
---------
Total 3,386,910
Less: Accumulated depreciation (206,071)
---------
Total $3,180,839
=========
</TABLE>
Depreciation expense for the period amounted to $120,880. Property and
equipment of $1,772,933 are pledged as collateral to note payables.
(See Note 6 and 9)
NOTE 4. PACKAGING DESIGN AND TRADEMARK:
The Company defers the costs incurred for designing the packaging of
products. These costs are being amortized on a straight-line basis
over 5 years. Amortization expense for the period amounted to $13,426.
The Company capitalizes trademark application fee for products.
Trademark is amortized on a straight-line basis over 5 years.
Amortization expense for the period amounted to $1,074.
Other assets included $47,665 packaging design, and $3,399 trademark
net of accumulated amortization of $29,698 and $2,287, respectively.
10
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
(Continued)
NOTE 5. BANK LOAN PAYABLE:
The Company has entered into agreements with one bank, providing for
line of credit to an aggregate of $259,235. These loan arrangement are
secured by one shareholder's personal bank accounts, and personal
guarantee given by that shareholder
Bank loan payable bears interest 7.5% per annum subject to market
fluctuation and is at the bank's discretion to revise or recall.
As of August 31, 1994, bank loan payable balance was $239,574.
NOTE 6. NOTE PAYABLES:
<TABLE>
<CAPTION>
Current Long term
------- ---------
<S> <C> <C>
2% above prime mortgage note (9.75% at
August 31, 1994), collateralized
by building, payable $8,810 per quarter,
including interest through March,
1998, with balloon payment at maturity $75,511 $255,115
9.5% mortgage note, collateralized by office
building, payable $1,979 per month, from July,
1994 for eight years, including interest 13,872 95,220
9.3% equipment finance note, payable $7,174 per
month, including interest, through August, 1996 73,178 79,874
------- -------
$162,561 $430,209
======= =======
</TABLE>
Minimum payments required on the mortgage in each of the years
subsequent to August 31, 1994 are approximately:
<TABLE>
<S> <C>
1995 $144,968
1996 144,968
1997 58,880
1998 25,697
1999 23,640
Thereafter 66,980
-------
$465,133
=======
</TABLE>
11
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
(Continued)
NOTE 7. INCOME TAXES:
Pretax income (loss) from continuing operations consisted of:
<TABLE>
<S> <C>
Hong Kong $887,963
United States (174,364)
--------
$713,599
========
</TABLE>
The provision for income taxes consisted of:
<TABLE>
<S> <C>
Hong Kong: Current $78,473
Deferred 12,348
United States: State franchise tax 800
------
$91,621
</TABLE>
Temporary difference between the financial statement carrying amounts
and tax bases of assets and liabilities that give rise to significant
portions of the deferred income tax asset and liability are as
follows:
<TABLE>
<S> <C>
Deferred tax asset
Net operating loss carryforward $502,000
Deferred tax liability
Temporary difference in depreciation (12,348)
--------
489, 652
Less valuation allowance (502,000)
--------
Net deferred tax liability $(12,348)
========
</TABLE>
Income tax benefit is recognized only when its realization is assured.
Accordingly, potential future income tax benefit resulting from net
operation loss incurred to date is not reflected in the consolidated
financial statements.
Undistributed earnings of foreign subsidiaries aggregated $704,034 on
August 31, 1994, which, under existing law, will not be subject to
U.S. tax until distributed as dividends. Since the earnings are
intended to be indefinitely reinvested in foreign operations, no
provision has been made for any U.S. taxes. At August 31, 1994, for
federal income tax purpose, the Company had a net operating loss
carryforward of about $1,490,000 expiring in 2009. The provision for
state franchise tax represents the minimum franchise tax of $800 for
the Company with operating loss.
12
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
(Continued)
NOTE 8. STOCKHOLDERS' EQUITY
During the period ended August 31, 1994, the Company approved an
amendment which increased the authorized shares of common stock from
10,000 shares to 5,000,000 shares and decreased the par value from $26
to $1.
The Company issued 2,100,832 shares of common stock to merge with
Foreign subsidiaries. Shareholders' non-cash capital contribution for
the period amounted to $2,759,098, including transfer of assets
$1,623,445 and cancellation of debt $1,135,653.
At August 31, 1994, 2,811,258 shares of common stock were issued and
outstanding.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Land and building of $1,950,059 located in Hong Kong and in the
People's Republic of China are under long term lease (50 years).
The Company also leases premises under various operating leases.
Rental expenses for the period ended August 31, 1994 was $146,654.
Capitalized leased equipment with imputed rate of 9.3% at August 31,
1994 amounted to $126,654.
At August 31, 1994, the Company was obligated under capital leases and
operating leases requiring minimum rentals as follows:
<TABLE>
<S> <C>
August 31, 1995 $ 146,886
August 31, 1996 106,599
August 31, 1997 20,511
August 31, 1998 20,511
August 31, 1999 20,511
Thereafter 881,973
---------
$1,196,991
=========
</TABLE>
13
<PAGE>
PACIFIC POWER GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
(Continued)
NOTE 10. SEGMENT INFORMATION:
Information about the Company's operation in different geographic
areas is summarized as follows:
<TABLE>
<CAPTION>
HONG KONG UNITED STATES TOTAL
--------- ------------- ---------
<S> <C> <C> <C>
Net sales $6,878,236 $5,092,977 $11,971,213
Income(Loss) from operations 887,963 (174,364) 713,599
Identifiable assets 4,801,630 3,494,923 8,296,553
</TABLE>
Information about the Company's operation in different business is
summarized as follows:
<TABLE>
Trading and Real
distribution Manufacturing estate Total
------------- ------------- --------- ----------
<S> <C> <C> <C> <C>
Net sales $9,479,852 $2,384,546 $106,815 $11,971,213
Income from operations 96,722 519,398 97,479 713,599
Identifiable assets 4,498,173 2,963,476 834,904 8,296,553
</TABLE>
NOTE 11. RELATED PARTY TRANSACTIONS:
Certain shareholders of the Company are also major shareholder of
other companies. As of August 31, 1994 accounts receivable consisted
of $394,817 from these related companies, sales to and purchase from
these related companies amounted to $2,261,249 and $86,956,
respectively for the period ended August 31, 1994.
Other current liabilities consisted of $3,235 loan from shareholders.
NOTE 12. SUBSEQUENT EVENTS:
On October 21, 1994, Fullerton, Inc., a Nevada corporation, acquired
100% of the issued and outstanding shares of the Company by issuing
nine million, six hundred and seventy thousand (9,670,000) shares of
Fullerton's restrictive common stock. Fullerton, Inc. has never had
any operations and is considered a development stage company. The
pooling-of-interests accounting method is used for the combination.
After the combination, the name of the company is changed to Pacific
Power Group, Inc.
Subsequent to August 31, 1994, the Company is in the process of
listing on the American Stock Exchange and raising additional capital
through public offerings of its shares of common stock.
14
<PAGE>
PACIFIC POWER GROUP, INC.
FINANCIAL STATEMENTS
AUGUST 31, 1993
<PAGE>
FUNG T. YEN
CERTIFIED PUBLIC ACCOUNTANT
1130 S. SAN GABRIEL BLVD., #201
SAN GABRIEL, CA 91776
TEL.: (818) 292-7781. FAX: (818) 292-6732
To the Board of Directors
Pacific Power Group, Inc.
Monterey Park, California
I have audited the accompanying balance sheet of Pacific Power Group, Inc. as of
August 31, 1993 and the related statements of operations, stockholder's
deficiency and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Pacific Power Group, Inc. as of
August 31, 1993 and the results of its operations and its cash flow for the year
then ended in conformity with generally accepted accounting principles.
/s/ Fung t. Yen
San Gabriel, California
April 20, 1994
<PAGE>
PACIFIC POWER GROUP, INC.
BALANCE SHEET
AUGUST 31, 1993
A S S E T S
<TABLE>
<CAPTION>
CURRENT ASSETS:
<S> <C>
Cash $ 140,422
Accounts receivable, net of allowance for
doubtful accounts of $3,014 (Note 2) 960,545
Inventory (Note 1) 660,785
Prepaid expenses 1,118
----------
Total current assets 1,762,870
Property and equipment, at cost, net of
accumulated depreciation of $16,773 (Note 3) 29,548
Packaging design, net of
accumulated amortization of $16,272 (Note 4) 40,357
Trademark, net of accumulated amortization of
$1,213 (Note 4) 3,869
Deposits 3,442
----------
$1,840,086
==========
</TABLE>
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C>
Accounts payable (Note 5) $ 2,536,284
Advance from customer 241,236
Accrued expenses (Note 5) 70,745
----------
Total current liabilities 2,848,265
STOCKHOLDER'S DEFICIENCY
Common stock (Note 7) 26,000
Paid in capital 374,342
Deficit (1,408,521)
----------
(1,008,179)
----------
$1,840,086
==========
</TABLE>
The accompanying notes are an integral part of the
financial statements
2
<PAGE>
PACIFIC POWER GROUP, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1993
<TABLE>
<S> <C>
SALES $3,643,824
COST OF SALES 3,296,038
---------
GROSS PROFIT 347,786
EXPENSES:
Advertising 16,882
Amortization 11,840
Auto 2,797
Bad debt 10,000
Bank charge 4,917
Brokerage 3,003
Commission 223,383
Computer 1,835
Contribution 1,050
Depreciation 6,964
Dues and subscriptions 1,077
Equipment rental 1,688
Insurance 18,015
Security 609
Office 6,147
Outside service 14,127
Postage and shipping 60,529
Printing 5,205
Professional fee 20,099
Rent 19,920
Repair and maintenance 4,642
Salaries 235,355
Sample 285
Selling 37,381
Show 37,004
Taxes and license 20,789
Telephone 32,297
Travel and entertainment 45,014
Utilities 1,653
---------
(844,507)
---------
LOSS FROM OPERATIONS (496,721)
STATE FRANCHISE TAX (Note 6) 800
---------
NET LOSS $ (497,521)
=========
LOSS PER SHARE $ (497.52)
=========
</TABLE>
The accompanying notes are an integral part of the
financial statements
3
<PAGE>
PACIFIC POWER GROUP, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEAR ENDED AUGUST 31, 1993
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, August 31,
1992 1,000 $26,000 $270,367 $(911,000) $ (614,633)
Non-cash capital
contribution 103,975 103,975
Net loss (497,521) (497,521)
----- ------- -------- ----------- -----------
Balance, August 31,
1993 1,000 $26,000 $374,342 $(1,408,521) $(1,008,179)
===== ======= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
financial statements
4
<PAGE>
PACIFIC POWER GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1993
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATION ACTIVITIES:
Net loss $(497,521)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation 6,964
Amortization 11,840
Increase in accounts receivable (230,478)
Increase in inventory (75,726)
Decrease in prepaid expenses 908
Increase in deposits (1,320)
Increase in accounts payable 673,060
Increase in advance from customer 211,663
Increase in accrued expenses 7,178
-------
Net cash flows used by operating activities 106,568
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant assets (4,573)
Increase in packaging design (3,715)
Increase in trademark (1,544)
-------
Net cash flows used by investing activities (9,832)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in loan from shareholder (21,805)
-------
Net cash flows used by financing activities (21,805)
-------
NET INCREASE IN CASH 74,931
CASH AT THE BEGINNING OF PERIOD 65,491
-------
CASH AT THE END OF PERIOD $140,422
-------
Non-cash investing and financing transactions:
Non-cash capital contribution:
Cancellation of loan payable to shareholder $99,365
Cancellation of rents payable to shareholder 4,610
</TABLE>
The accompanying notes are an integral part of the
financial statements
5
<PAGE>
PACIFIC POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
--------
RJP Electronics, Inc. (the Company) was incorporated in the state of
California on September 17, 1984, engaged in the business of wholesale
and marketing of consumer electronic products.
The name of the Company was changed to Pacific Power Gr oup, Inc. on
April 11, 1994.
Fiscal year:
------------
The Company's fiscal year ends on August 31.
Inventory:
----------
Inventory is stated at the lower of cost (first-in, first-out) or
market and consists entirely of finished goods.
Property and equipment:
-----------------------
Property and equipment are stated at cost. Depreciation is being
provided for on the straight-line method over the estimated useful
lives of the assets.
Loss per share:
---------------
Loss per share is determined by dividing loss by the weighted-average
number of common shares outstanding during the year.
NOTE 2. MAJOR CUSTOMERS:
For the year ended August 31, 1993, sales to two major customers
amounted to $1,183,893 and $500,117 which accounted for 32% and 14%
respectively of revenue. As of August 31, 1993, accounts receivable
includes $507,147 due from these customers.
6
<PAGE>
PACIFIC POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
AUGUST 31, 1993
(Continued)
NOTE 3. PROPERTY AND EQUIPMENT:
The cost of the principal classes of property and equipment and the
estimated useful lives in computing depreciation are as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation Net Lives
------- ------------ ------- -------
<S> <C> <C> <C> <C>
Automobile $22,690 $ 7,198 15,492 7 years
Sign 450 261 189 7 years
Furniture and fixture 2,172 1,136 1,036 7 years
Equipment 9,779 3,341 6,438 7 years
Leasehold improvement 11,230 4,837 6,393 7 years
------ ------ ------
$46,321 $16,773 $29,548
======= ====== ======
</TABLE>
Depreciation expense for the period amounted to $6,964.
NOTE 4. PACKAGING DESIGN AND TRADEMARK:
The Company defers the costs incurred for designing the packaging of
products. These costs are being amortized on a straight-line basis
over 5 years. Amortization expense for the year amounted to $10,981.
The Company capitalizes trademark application fee for products.
Trademark is amortized on a straight-line basis over 5 years.
Amortization expense for the year amounted to $859.
7
<PAGE>
PACIFIC POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
AUGUST 31, 1993
(Continued)
NOTE 5. RELATED PARTY TRANSACTIONS:
The stockholder of the Company is a major shareholder of another
company. During the year the Company purchased $242 of goods from this
company. Sales to this company comprise of 0.8% of gross sales. At
August 31, 1993, accounts receivable included $24,546 from this
company.
Loan from shareholder represents advances from shareholder. No
interest or specified terms were made. For the year ended August 31,
1993, $21,805 was paid to this shareholder for his personal expenses.
The remaining balance of $99,365 was transferred as paid in capital.
The shareholder has agreed to relieve corporation from its liability
by making a noncash capital contribution to the company.
The Company occupies office and warehouse in a building owned by the
stockholder. Rental is on a month-to-month basis at $1,155 per month.
As of August 31, 1993, rents payable of $4,610 to the shareholder is
also relieved by the shareholder as noncash capital contribution to
the company.
NOTE 6. INCOME TAXES:
At August 31, 1993, for federal income tax purposes, the Company has a
net operating loss car ryforward of about $1,364,000 expiring in 2008.
The provision for state franchise tax represents the minimum franchise
tax of $800 for the Company with operating loss.
8
<PAGE>
PACIFIC POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1993
(Continued)
NOTE 7. STOCKHOLDER'S EQUITY:
Common stock consists of $26 par value per share, 10,000 shares
authorized, of which 1,000 shares were issued and outstanding at
August 31, 1993.
Non-cash capital contribution at August 31, 1993 was classified as
paid in capital and consisted of:
Cancellation of loan payable to shareholder $99,365
Cancellation of rent payable to shareholder 4,610
-------
$103,975
=======
<PAGE>
[LOGO OF CHINESE LETTERING APPEARS HERE]
FINANCIAL STATEMENTS
AND AUDITORS' REPORT
OF
GOLDWELL NOMINEES LIMITED
-------------------------
FOR THE YEAR ENDED 31ST AUGUST, 1995
------------------------------------
CONTENTS PAGES
- ----------- -----
REPORT OF THE DIRECTORS 1
AUDITORS' REPORT 2
BALANCE SHEET 3
PROFIT AND LOSS ACCOUNT 4
NOTES TO THE FINANCIAL STATEMENTS 5 - 6
[SEAL APPEARS HERE]
K S. LI & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
HONG KONG
<PAGE>
GOLDWELL NOMINEES LIMITED
-------------------------
REPORT OF THE DIRECTORS
-----------------------
The directors have pleasure in submitting their annual report together with the
audited financial statements of the Company for the year ended 31st August,
1995.
PRINCIPAL ACTIVITIES
- --------------------
The Company is principally engaged in property investment for rental income.
RESULTS OF OPERATIONS
- ---------------------
The net profit of the Company for the year amounted to HK$598,903.
DIVIDENDS & RESERVES
- --------------------
The retained profits of the Company as of 31st August, 1995 amounted to
HK$1,284,114. The directors do not recommend the payment of any dividends.
There has been no transfer to reserves.
FIXED ASSETS
- ------------
Movements in fixed assets during the year are set out in Note 5 to the
accompanying financial statements.
DIRECTORS
- ---------
The directors who held office during the year were:-
Li Shu Nui
Li Shu Yuk
In accordance with article 7 of the Company's Articles of Association, all the
directors shall retire from office and, being eligible, offer themselves for re-
election.
Except for the transactions with related parties as disclosed in the notes to
the accompanying financial statements, the Company has not entered into any
contract, commitment or agreement with any other company in which any director
or member of the Company's management has interest, either directly or
indirectly; nor has the Company made any arrangement to enable any director or
member of the Company's management to obtain benefits by means of the
acquisition of shares in, or debentures of, the Company or any other body
corporate.
AUDITORS
- --------
Messrs. K. S. Li & Company retire and, being eligible, offer themselves for re-
appointment.
On Behalf of the Board of Directors
[SIGNATURE APPEARS HERE]
------------------------
Hong Kong, 18 Mar, 1996
- 1 -
<PAGE>
[K. S. LI & COMPANY LETTERHEAD APPEARS HERE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUDITORS' REPORT
----------------
TO THE SHAREHOLDERS OF GOLDWELL NOMINEES LIMITED
------------------------------------------------
(Incorporated in Hong Kong with limited liability)
We have audited the financial statements on pages 3 to 6 which have been
prepared in accordance with accounting principles generally accepted in Hong
Kong.
Respective responsibilities of directors and auditors
The Companies Ordinance requires the directors to prepare financial
statements which give a true and fair view. In preparing financial
statements which give a true and fair view it is fundamental that appropriate
accounting policies are selected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit,
on those statements and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Statements of Auditing Standards
issued by the Hong Kong Society of Accountants. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of
the significant estimates and judgments made by the directors in the
preparation of the financial statements, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we
also evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis
for our opinion.
Opinion
In our opinion the financial statements give a true and fair view, in all
material respects, of the state of affairs of the company as at 31st August,
1995 and of its profit for the year then ended and have been properly
prepared in accordance with the Companies Ordinance.
[SIGNATURE APPEARS HERE]
K. S. LI & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
Hong Kong, 18 MAR, 1996
-2-
<PAGE>
GOLDWELL NOMINEES LIMITED
-------------------------
BALANCE SHEET AS AT 31ST AUGUST, 1995
-------------------------------------
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
Notes 1995 1994
----- ---- ----
<S> <C> <C> <C>
FIXED ASSETS, net 5 $2,016,000 $7,200,000
- -----------------
CURRENT ASSETS
- --------------
Cash at Bank and in Hand 30,473 31,791
Accounts Receivable 188,332 101,740
Amount due from Director 3 2,784,773 -
---------- ----------
TOTAL CURRENT ASSETS 3,003,578 133,531
---------- ----------
LESS:
- ----
CURRENT LIABILITIES
- -------------------
Current Portion of Long-term
Bank Loan 4 142,456 582,571
Accounts Payable & Accruals 13,000 9,500
Rental Deposit Received 32,472 153,360
Profits Tax Payable 137,678 127,203
Amount due t0 Director - 15,227
---------- ----------
TOTAL CURRENT LIABILITIES 325,606 887,861
---------- ----------
NET CURRENT
ASSETS/(LIABILITIES) 2,677,972 (754,330)
LONG-TERM BANK LOAN 4 (260,027) (1,968,212)
- ------------------- ---------- ----------
NET ASSETS $4,433,945 $ 4,477,458
========== ===========
Represented by:
SHARE CAPITAL
- -------------
Authorized:
$3,000,000 divided into 3,000,000
ordinary shares of $1 each
Issued and Fully Paid:
2,900,002 ordinary shares of $1 each $2,900,002 $ 2,900,002
REVALUATION RESERVE 6 249,829 892,245
- ------------------- ---------- -----------
RETAINED PROFITS 1,284,114 685,211
- ---------------- ---------- -----------
$4,433,945 $ 4,477,458
========== ===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
Approved by the Board of Directors on 18 MAR 1996.
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
-------------------------- --------------------------
Director Director
-3-
<PAGE>
GOLDWELL NOMINEES LIMITED
-------------------------
PROFIT AND LOSS ACCOUNT
-----------------------
FOR THE YEAR ENDED 31ST AUGUST, 1995
------------------------------------
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
RENTAL INCOME $ 267,338 $ 824,133
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
Auditors' Remuneration 13,000 19,000
Business Registration Fee 2,250 1,250
Secretarial Fee 146,644 19,121
Insurance Paid 11,600 11,600
Sundry Expenses 5,170 500
Rates 19,232 -
Stationery - 186
---------- ---------
(197,896) (51,657)
PROFIT FROM OPERATIONS 69,442 772,476
========== =========
OTHER INCOME/(EXPENSES)
Bank Charges and Interest (502) (487)
Bank Loan Interest (133,048) (389,483)
---------- ---------
LOSS/PROFIT BEFORE PROFITS TAX &
EXCEPTIONAL ITEM (64,108) 382,506
EXCEPTIONAL ITEM 673,486 369,597
---------- ---------
PROFIT BEFORE PROFITS TAX 609,378 752,103
PROFITS TAX PAYABLE (10,475) (116,649)
---------- ---------
NET PROFIT FOR THE YEAR 598,903 635,454
RETAINED PROFITS, BROUGHT FORWARD 685,211 49,757
---------- ---------
RETAINED PROFITS, CARRIED FORWARD $1,284,114 $ 685,211
========== =========
</TABLE>
The accompanying notes are an integral part of this profit and loss account.
- 4 -
<PAGE>
GOLDWELL NOMINEES LIMITED
-------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
FOR THE YEAR ENDED 31ST AUGUST, 1995
------------------------------------
(Expressed in Hong Kong Dollars)
(1) THE COMPANY AND ITS OPERATIONS
------------------------------
The Company is a private limited company incorporated in Hong Kong. It is
principally engaged in property investment for rental income.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) Basis of accounting
-------------------
The financial statements are prepared under the historical cost
convention modified by revaluation of certain properties and in
accordance with the applicable Hong Kong accounting standards.
(b) Fixed Assets
------------
Fixed assets are stated at cost or revaluation less accumulated
depreciation except for land and building held on long lease and
located in Hong Kong.
(c) Rental Income
-------------
Rental income is accounted for on accrual basis.
(d) Hong Kong Profits Tax
---------------------
The Company provides for Hong Kong Profits Tax on the basis of its
income for financial reporting purposes, adjusted for income and
expense items which are not assessable or deductible for profits tax
purposes.
(3) RELATED PARTY TRANSACTIONS
--------------------------
Amount due from Director
--------------------------
Pursuant to the Companies Ordinance, details of the advances to the
director are disclosed as follows:
<TABLE>
<S> <C>
Name of Borrower : Li Shu Nui
Beginning balance : $ -
Ending balance : 2,784,773
Maximum balance outstanding
during the year : 2,784,773
</TABLE>
The amount due from is unsecured, interest-free and repayable on demand.
(4) BANKING FACILITIES
------------------
The banking facilities granted to the Company are secured by the properties
of the Company.
- 5 -
<PAGE>
(5) SUPPLEMENTAL INFORMATION REQUIRED UNDER THE COMPANIES ORDINANCE
---------------------------------------------------------------
A. Net profit for the year was arrived at after charging:-
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Auditors remuneration $13,000 $19,000
Directors' emoluments
- Fees - -
- Other emoluments - -
</TABLE>
B. Movements in fixed assets during the year were as follows:
<TABLE>
<CAPTION> Land and Building
--------------------
1995 1994
---- ----
<S> <C> <C>
At Cost/Valuation
-----------------
Beginning Balance $ 7,200,000 $ 9,705,891
Disposal at cost (4,541,584) (3,398,l36)
Revaluation Reserve
Written Back
re properties sold (642,416) -
----------- -----------
2,016,000 6,307,755
Revaluation during the year - 892,245
----------- -----------
Ending balance $ 2,016,000 $ 7,200,000
=========== ===========
</TABLE>
The land and building are held under long lease and located in Hong
Kong.
(6) REVALUATION RESERVE
-------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Beginning balance $ 892,245 $ -
Revaluation during the year - 892,245
Written back (642,416) -
--------- ---------
Ending balance $ 249,829 $ 892,245
========= =========
</TABLE>
(7) EXCEPTIONAL ITEMS
-----------------
This represents the surplus on disposal of fixed assets.
(8) COMPARATIVE FIGURES
-------------------
Certain comparative figures have been reclassified & conform with current
year's presentation.
- 6 -
<PAGE>
GOLDWELL NOMINEES LIMITED
BALANCE SHEET TRANSLATION
AUGUST 31, 1995
<TABLE>
<CAPTION>
BALANCE BALANCE
IN EXCHANGE IN
HONG KONG RATE U.S.
DOLLARS USED DOLLARS
----------------------------------------
<S> <C> <C> <C>
CASH 30,473 7.713 3,951
ACCOUNTS RECEIVABLE 188,332 7.713 24,418
FIXED ASSETS 1,766,171 7.713 228,986
DUE FROM DIRECTOR 2,784,773 7.713 361,049
----------------------------------------
4,769,749 618,404
========================================
ACCOUNTS PAYABLE 13,000 7.713 1,685
MORTGAGE PAYABLE - CURRENT PORTION 142,456 7.713 18,470
INCOME TAX PAYABLE 137,678 7.713 17,850
DUE TO DIRECTOR 0 7.713 0
MORTGAGE PAYABLE - LONG TERM 260,027 7.713 33,713
TENANT DEPOSITS 32,472 7.713 4,210
COMMON STOCK 2,900,002 7.716 375,843
PAID IN CAPITAL 0 7.716 0
RETAINED EARNINGS - BEGINNING 685,211 7.715 88,815
CURRENT PERIOD INCOME 598,903 7.714 77,638
CUMULATIVE TRANSLATION ADJUSTMENTS 180
----------------------------------------
4,769,749 618,404
========================================
</TABLE>
<PAGE>
GOLDWELL NOMINEES LIMITED
INCOME STATEMENT TRANSLATION
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
BALANCE BALANCE
IN EXCHANGE IN
HONG KONG RATE U.S.
DOLLARS USED DOLLARS
----------------------------------------
<S> <C> <C> <C>
RENTAL INCOME 267,338 7.714 34,656
EXPENSES:
PROFESSIONAL FEE 13,000 7.714 1,685
BUSINESS LICENSE 2,250 7.714 292
OUTSIDE SERVICE 146,644 7.714 19,010
TAX 0 7.714 0
BUILDING MANAGEMENT 19,232 7.714 2,493
INTEREST 133,048 7.714 17,248
INSURANCE 11,600 7.714 1,504
COMMISSION 0 7.714 0
MISCELLANEOUS 5,170 7.714 670
BANK CHARGE 502 7.714 65
----------------------------------------
331,446 7.714 42,967
----------------------------------------
LOSS FROM OPERATIONS (64,108) 7.714 (8,311)
----------------------------------------
GAIN FROM SALE OF ASSETS 673,486 7.714 87,307
----------------------------------------
INCOME BEFORE TAX 609,378 7.714 78,996
PROVISION FOR TAX 10,475 7.714 1,358
----------------------------------------
NET INCOME 598,903 7.714 77,638
========================================
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
AND AUDITORS' REPORT
OF
BIG APPLE LIMITED
-----------------
FOR THE YEAR ENDED 31ST AUGUST, 1995
--------------------------------------
<TABLE>
<CAPTION>
CONTENTS PAGES
- -------- -----
<S> <C>
REPORT OF THE DIRECTORS 1
AUDITORS' REPORT 2
BALANCE SHEET 3
PROFIT AND LOSS ACCOUNT 4
CASH FLOW STATEMENT 5
NOTES T0 THE FINANCIAL STATEMENTS 6-8
</TABLE>
[K. S. LI & COMPANY SEAL APPEARS HERE]
K. S. LI & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
HONG KONG
<PAGE>
BIG APPLE LIMITED
-----------------
REPORT OF THE DIRECTORS
-----------------------
The directors have pleasure in submitting their annual report together with
audited financial statements of the Company for the year ended 31st August,
1995.
PRINCIPAL ACTIVITIES
- --------------------
The Company is principally engaged in trading of electronic appliances.
RESULTS OF OPERATION
- --------------------
Net profit of the Company for the year ended 31st August, 1995 amounted to
HK$636,984.
DIVIDENDS & RESERVES
- --------------------
The retained profits of the Company as at 31st August, 1995 amounted to
HK$2,801,7O1. The directors do not recommend payment of any dividends.
There has been no transfer to reserves.
FIXED ASSETS
- ------------
Movements in fixed assets during the year are set out in Note 6 to the
accompanying financial statements.
DIRECTORS
- ---------
The directors who held office during the year were:-
Chan Siu Yee
Li Shu Nui
Wolfgang Ernst Kleiber
In accordance with article 7 of the Company's Articles of Association, all the
directors shall retire and, being eligible, offer themselves for re-
appointment.
The Company has not entered into any contract, commitment or agreement with any
other company in which any director or member of the Company's management has
interest, either directly or indirectly; nor has the Company made any
arrangement t0 enable any director or member of the Company's management to
obtain benefits by means of the acquisition of shares in, or debentures of, the
Company or any other body corporate.
AUDITORS
- --------
Messrs. K. S. Li & Company retire and, being eligible, offer themselves for re-
appointment.
On Behalf of the Board of Directors
[SIGNATURE APPEARS HERE]
-----------------------------------
Hong Kong, 1st March, 1996
- 1 -
<PAGE>
[LETTERHEAD OF K. S. LI & COMPANY APPEARS HERE}
AUDITORS' REPORT
----------------
TO THE SHAREHOLDERS OF BIG APPLE LIMITED
----------------------------------------
(Incorporated in Hong Kong with limited liability)
We have audited the financial statements on pages 3 t0 8 which have been
prepared in accordance with accounting principles generally accepted in Hong
Kong.
Respective responsibilities of directors and auditors
The Companies Ordinance requires the directors to prepare financial
statements which give a true and fair view. In preparing financial
statements which give a true and fair view it is fundamental that
appropriate accounting policies are selected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit,
on those statements and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Statements of Auditing Standards
issued by the Hong Kong Society of Accountants. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of
the significant estimates and judgments made by the directors in the
preparation of the financial statements, and of whether the accounting
policies are appropriate t0 the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order t0 provide us with
sufficient evidence t0 give reasonable assurance as t0 whether the financial
statements are free from material misstatement. In forming our opinion we
also evaluated the overall adequacy of the presentation of information in
the financial statements. We believe that our audit provides a reasonable
basis for our opinion.
Opinion
In our opinion the financial statements give a true and fair view, in all
material respects, of the state of affairs of the company as at 31st August,
1995 and of its profit and cash flows for the year then ended and have been
properly prepared in accordance with the Companies Ordinance.
/s/ K. S. LI & CO.
K. S. LI & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
Hong Kong, 1st March, 1996
- 2 -
<PAGE>
BIG APPLE LIMITED
-----------------
BALANCE SHEET AS AT 31ST AUGUST, 1995
-------------------------------------
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
Notes 1995 1994
----- ---- ----
<S> <C> <C> <C>
FIXED ASSETS, net 6 $ 151,239 $ 277,008
- -----------------
CURRENT ASSETS
- --------------
Cash at Bank and in Hand 5,429,998 3,795,344
Accounts Receivable 2,210,280 2,005,692
Deposits and Prepayments 194,881 208,790
Goods in Transit 1,453,245 1,453,245
----------- -----------
TOTAL CURRENT ASSETS 9,288,404 7,463,071
----------- -----------
LESS:
- ----
CURRENT LIABILITIES
- -------------------
Accounts Payable & Accruals 1,518,103 272,823
Amounts due to Directors 3 9,725 9,725
Deposits Received 256,431 253,425
Profits Tax Payable 273,663 459,369
----------- -----------
TOTAL CURRENT LIABILITIES 2,057,922 995,342
----------- -----------
NET CURRENT ASSETS 7,230,482 6,467,729
----------- -----------
NET ASSETS $ 7,381,721 $ 6,744,737
=========== ===========
Represented by:
SHARE CAPITAL
- -------------
Authorized:
$4,700,000 divided into 4,700,000
ordinary shares of $1 each
Issued and Fully Paid:
4,580,020 ordinary shares of $1 each $ 4,580,020 $ 4,580,020
RETAINED PROFITS 2,801,701 2,164,717
- ---------------- ----------- -----------
$ 7,381,721 $ 6,744,737
=========== ===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
Approved by the Board of Directors on 1st March, 1996.
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
---------------------------- ----------------------------
Director Director
- 3 -
<PAGE>
BIG APPLE LIMITED
-----------------
PROFIT AND LOSS ACCOUNT
-----------------------
FOR THE YEAR ENDED 31ST AUGUST, 1995
------------------------------------
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
Note 1995 1994
---- ---- ----
<S> <C> <C> <C>
SALES $ 25,415,292 $ 33,846,933
COST OF SALES (21,181,074) (28,940,348)
------------ ------------
GROSS PROFIT 4,234,218 4,906,585
GENERAL AND ADMINISTRATIVE EXPENSES (4,452,430) (4,025,150)
------------ ------------
PROFIT FROM OPERATIONS (218,212) 881,435
OTHER INCOME (EXPENSES)
Rental Income 424,700 280,861
Sample Income 207,253 294,609
Commission Received 82,680 395,046
Sundry Income 224,058 92,693
Bank Charges and Interest (249,299) (194,230)
Exchange Gain/ (Loss) 96,348 154,325
Interest Income 223,916 152,933
Commission Paid - (5,616)
------------ ------------
PROFIT BEFORE PROFITS TAX 791,444 2,052,056
PROFITS TAX PAYABLE (154,460) (338,589)
------------ ------------
PROFIT BEFORE EXTRAORDINARY ITEM 636,984 1,713,467
EXTRAORDINARY ITEM 8 - 39,500
------------ ------------
NET PROFIT FOR THE YEAR 636,984 1,752,967
RETAINED PROFITS, BROUGHT FORWARD 2,164,717 411,750
------------ ------------
RETAINED PROFITS, CARRIED FORWARD $ 2,801,701 $ 2,164,717
============ ============
</TABLE>
The accompanying notes are an integral part of this profit and loss account.
- 4 -
<PAGE>
BIG APPLE LIMITED
-----------------
CASH FLOW STATEMENT
-------------------
FOR THE YEAR ENDED 31ST AUGUST, 1995
------------------------------------
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
Note 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net cash outflow from operating activities 7 $2,037,053 $(3,575,374)
Returns on investments and servicing
of finance
Interest received 223,916 152,933
Interest paid (249,299) (194,230)
---------- -----------
Net cash outflow from returns on
investments and servicing of finance (25,383) (41,297)
---------- -----------
Taxation
Profits tax paid (340,166) (240,692)
---------- -----------
Tax Paid (340,166) (240,692)
---------- -----------
Investing activities
Purchase of fixed assets (36,850) (343,668)
Sale Proceeds - 50,000
---------- -----------
Net cash outflow from investing
activities (36,850) (293,668)
---------- -----------
Financing
Issue of ordinary share capital - 4,580,000
---------- -----------
Net cash inflow from financing - 4,580,000
---------- -----------
Increase in cash and cash equivalents 1,634,654 428,969
Cash and Cash equivalents at the beginning
of the year 3,795,344 3,366,375
---------- -----------
Cash and cash equivalents at the end
of the year $5,429,998 $ 3,795,344
========== ===========
Analysis of the balance of
Cash and cash equivalents
Cash at bank and in hand $ 5,429,998 $ 3,795,344
=========== ===========
</TABLE>
The accompanying notes are an integral part of this cash flow statement.
- 5 -
<PAGE>
BIG APPLE LIMITED
-----------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
FOR THE YEAR ENDED 31ST AUGUST, 1995
------------------------------------
(Expressed in Hong Kong Dollars)
(1) THE COMPANY AND ITS OPERATIONS
------------------------------
The Company is a private limited company incorporated in Hong Kong. It is
principally engaged in trading of electronic appliances.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) Fixed Assets
------------
Fixed assets are stated at cost less accumulated depreciation is
calculated to write off the costs of fixed assets using straight line
method over their estimated useful lives at the following rates:
Furniture and Equipment 20% per annum
Motor Vehicle 30% per annum
(b) Sales
-----
Sales are recognized upon the transfers of title to goods to the
customers.
(c) Foreign Currency Translation
----------------------------
The Company maintains its books and records in Hong Kong dollars
Transactions denominated in foreign currencies are translated into
Hong Kong dollars at exchange rates ruling at transaction dates
Monetary assets and liabilities denominated in foreign currency are
translated into Hong Kong dollars at exchange rates ruling at the
balance sheet date. Exchange gains or losses are dealt with in the
profit and loss account.
(d) Hong Kong Profits Tax
---------------------
The Company provides for Hong Kong Profits Tax on the basis of it
income for financial reporting purposes, adjusted for income and
expense items which are not assessable or deductible for profits tan
purposes.
(e) Goods in Transit
----------------
Goods in transit are stated at lower of cost (first-in, first-out or
net realizable value.
(3) AMOUNTS DUE TO DIRECTORS
------------------------
The amounts due to are unsecured, interest-free and repayable on demand.
- 6 -
<PAGE>
(4) COMMITMENT UNDER OPERATING LEASE
--------------------------------
As at 31st August, 1995, the Company had approximately $620,000 rental
commitment in the next year with respect to the lease of the Company's
office premises which is due to expire on 31st March, 1997.
(5) BANKING FACILITIES
------------------
The banking facilities granted to the Company to the extent of $1.7 million
are secured by the fixed deposits of the Company together with the personal
guarantee given by a third party.
(6) SUPPLEMENTAL INFORMATION REQUIRED UNDER THE COMPANIES ORDINANCE
---------------------------------------------------------------
A. Net profit for the year was arrived at after charging:-
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Auditors' remuneration $ 23,000 $ 21,000
Directors' emoluments
- Fees 1,195,375 1,316,987
- Other emoluments 414,000 414,000
Depreciation 162,619 188,803
</TABLE>
B. Movements in fixed assets during the year were as follows:
<TABLE>
<CAPTION>
Furniture Motor
& Equipment Vehicle Total
----------- --------- ---------
<S> <C> <C> <C>
At Cost
-------
Beginning balance $299,155 $340,000 $639,155
Additions 36,850 - 36,850
-------- -------- --------
Ending balance 336,005 340,000 676,005
-------- -------- --------
Accumulated Depreciation
------------------------
Beginning balance 243,147 119,000 362,147
Charge for the year 60,619 102,000 162,619
-------- -------- --------
Ending balance 303,766 221,000 524,766
-------- -------- --------
Net Book Value
--------------
End of the year $32,239 $119,000 $151,239
======== ======== ========
Beginning of the year $ 56,008 $221,000 $277,008
======== ======== ========
</TABLE>
- 7 -
<PAGE>
(7) RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH (OUTFLOW) FROM
-------------------------------------------------------------------
OPERATING ACTIVITIES:
---------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Profit Before Taxation $ 791,444 $ 2,052,056
Interest Received (223,916) (152,933)
Interest Paid & Bank Charge 249,299 194,230
Depreciation 162,619 188,803
Increase in Accounts Receivable (204,588) (519,206)
(Increase) in Stocks - (1,453,245)
(Increase) in Deposits & Prepayment 13,909 19,931
(Decrease) in Accounts Payable & Accruals 1,245,280 (999,055)
(Decrease) in Amounts Due to Directors - (2,880,000)
(Decrease) in Deposits Received 3,006 (25,955)
----------- ------------
Net cash outflow from operating activities $ 2,037,053 $ (3,575,374)
=========== ============
</TABLE>
- 8 -
<PAGE>
BIG APPLE LIMITED
BALANCE SHEET TRANSLATION
AUGUST 31, 1995
<TABLE>
<CAPTION>
BALANCE BALANCE
IN EXCHANGE IN
HONG KONG RATE U.S.
DOLLARS USED DOLLARS
------------------------------------
<S> <C> <C> <C>
CASH 5,429,998 7.713 704,006
CERTIFICATE OF DEPOSIT 0 7.713 0
ACCOUNTS RECEIVABLE 2,210,280 7.713 286,566
INVENTORY 1,453,245 7.713 188,415 -
PREPAYMENTS 194,881 7.713 25,266
FIXED ASSETS 151,239 7.713 19,608
------------------------------------
9,439,643 1,223,861
====================================
ACCOUNTS PAYABLE 1,518,103 7.713 196,824
BANK LOAN PAYABLE 0 7.713 0
INCOME TAX PAYABLE 273,663 7.713 35,481
CUSTOMER DEPOSITS 256,431 7.713 33,247
LOAN PAYABLE TO DIRECTOR 9,725 7.713 1,261
COMMON STOCK 4,580,020 7.716 593,574
RETAINED EARNINGS - BEGINNING 2,164,717 7.715 280,585
CURRENT PERIOD INCOME 636,984 7.714 82,575
CUMULATIVE TRANSLATION
ADJUSTMENTS 314
------------------------------------
9,439,643 1,223,861
====================================
</TABLE>
<PAGE>
BIG APPLE LIMITED
INCOME STATEMENT TRANSLATION
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
EXCHANGE
TOTAL IN RATE TOTAL IN
H.K. $ USED U.S. $
----------------------------------------
<S> <C> <C> <C>
SALES 25,415,292 7.714 3,294,697
COST OF SALES 21,181,074 7.714 2,745,797
----------------------------------------
GROSS PROFIT 4,234,218 7.714 548,900
EXPENSES:
Advertising 98,266 7.714 12,739
Auditors' remuneration 23,000 7.714 2,982
Bad debts 33,151 7.714 4,298
Business registration 11,127 7.714 1,442
Depreciation 162,619 7.714 21,081
Directors' fee 1,609,375 7.714 208,630
Electricity 6,323 7.714 820
Entertainment 114,961 7.714 14,903
Insurance 36,080 7.714 4,677
License 0 7.714 0
Membership 3,700 7.714 480
Newspaper 4,379 7.714 568
Telephone 111,807 7.714 14,494
Parking 31,877 7.714 4,132
Penalty 1,700 7.714 220
Postage 82,859 7.714 10,741
Professional fee 17,500 7.714 2,269
Rent 620,072 7.714 80,383
Repair & maintenance 38,534 7.714 4,995
Salary 935,195 7.714 121,233
Service charge 46,835 7.714 6,071
Sundries 9,799 7.714 1,270
Local travel 64,455 7.714 8,356
Oversea travel 388,816 7.714 50,404
----------------------------------------
4,452,430 7.714 577,188
----------------------------------------
LOSS FROM OPERATION (218,212) 7.714 (28,288)
----------------------------------------
OTHER INCOME:
RENTAL INCOME 424,700 7.714 55,056
SAMPLE INCOME 207,253 7.714 26,867
COMMISSION INCOME 82,680 7.714 10,718
SUNDRY INCOME 224,058 7.714 29,046
BANK CHARGE & INTEREST (249,299) 7.714 (32,318)
EXCHANGE GAIN/(LOSS) 96,348 7.714 12,490
INTEREST INCOME 223,916 7.714 29,027
----------------------------------------
1,009,656 7.714 130,886
----------------------------------------
INCOME BEFORE TAX 791,444 7.714 102,598
PROVISION FOR TAX 154,460 7.714 20,023
----------------------------------------
NET INCOME 636,984 7.714 82,575
========================================
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
REPORT OF THE DIRECTORS
AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST AUGUST, 1995
- --------------------------------------------------------------------------------
FAN, MITCHELL & CO.
[FOREIGN VERBAGE APPEARS HERE]
CERTIFIED PUBLIC ACCOUNTANTS
HONG KONG
<PAGE>
KIDDER INDUSTRIAL LIMITED
-------------------------
REPORT OF THE DIRECTORS
-----------------------
The Directors present their annual report and audited financial statements for
the year ended 31 August, 1995.
PRINCIPAL ACTIVITY
The principal activities of the Company are manufacturing of electronic game
products and trading of watches. It has also started leasing of properties
during the year.
FINANCIAL STATEMENTS
The results of the Company for the year ended 31 August, 1995 and the state of
the Company's affairs at that date are set out in the financial statements on
pages 2 to 11.
PROPERTIES AND EQUIPMENT
The Company has acquired fixed assets totaling HK$243,248 during the year.
particulars are set out in Note 4 to the financial statements on page 7.
DIRECTORS
The Directors of the Company during the financial year and at the date of this
report were
Mr. Li Shu Wing
Mr. Chau Shun Tin
Ms. Li Shu Nui
Mr. Chiu Kam Yau
In accordance with the Company's Articles of Association, all the Directors
retire and, being eligible, offer themselves for re-appointment
DIRECTORS' INTEREST
Except as disclosed in Note 12 to the financial statements, no other
Directors had beneficial interest, either direct or indirect, in any significant
contract to which the Company was a party at the balance sheet date or at any
time during the year.
At no time during the year was the Company a party to any arrangement to enable
the Directors of the Company to acquire benefits by means of the acquisition of
shares in or debentures of the Company or any other body corporate.
AUDITORS
The financial statements have been audited by Fan Mitchell & Co., who offer
themselves for re-appointment
On Behalf of the Board
/s/ SIGNATURE APPEARS HERE
Chairman
Hong Kong, 11 April 1996
<PAGE>
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF
---------------------------------------------
KIDDER INDUSTRIAL LIMITED
-------------------------
(Incorporated in Hong Kong with limited liabilities)
--------------------------------------------------
We have audited the financial statements on pages 2 to 11 Which have been
prepared in accordance with accounting principles generally accepted in Hong
Kong.
Respective responsibilities of directors and auditors
The Companies Ordice requires the directors to prepare financial statements
which give a true and fair view. In preparing financial statements which give a
true and fair view it is fundamental that appropriate accounting policies are
selected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit, on
those statements and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Statements of Auditing Standards
issued by the Hong Kong Society of Accountants, which do not differ in any
material respect from those corresponding International Auditing Standards. An
audit includes examination, on a test basis, of evidence relevant to the amounts
and disclosures in the financial statements. It also includes an assessment of
the significant estimates and judgements made by the directors in the
preparation of the financial statements, and of whether the accounting policies
are appropriate to the Company's circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Opinion
In our opinion the financial statements give a true and fair view, in all
material respects, of the state of the Company's affairs as at 31 August, 1995
and of its loss and cash flow for the year then ended and have been properly
prepared in accordance with the Companies Ordinance.
/s/ FAN, MITCHELL & CO.
FAN, MITCHELL & CO.
Certified Public Accountants
Hong Kong,
11 April 1996
<PAGE>
-2-
KIDDER INDUSTRIAL LIMITED
BALANCE SHEET
31 AUGUST 1995
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
Note 1995 1994
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and bank balances 251,507 247,896
Accounts receivable 2 4,601,025 1,591,672
Inventories and work in progress 3 4,279,771 8,623,133
Prepaid expenses and other current assets 70,295 281,296
---------- ----------
Total current assets 9,202,598 10,743,997
Properties and equipment 4 11,427,473 12,119,222
---------- ----------
Total assets 20,630,071 22,863,219
========== ==========
LIABILITES
Current liabilities
Bank overdrafts and other loans 5 6,671,392 2,501,241
Accounts payable 5,525,349 7,078,776
Accrued expenses and other current liabilites 759,384 267,839
Taxation 6 37,311 150,230
---------- ----------
Total current liabilities 12,993,436 9,998,086
---------- ----------
Long term liabilities 7 758,986 1,457,876
---------- ----------
Deferred taxation 6 - 95,262
---------- ----------
SHAREHOLDERS' EQUITY
Share capital 8 8,730,000 8,730,000
(Accumulated losses)/Retained earnings (1,852,351) 2,581,995
---------- ----------
Total shareholders' equity 6,887,649 11,311,995
---------- ----------
---------- ----------
Total liabilities and shareholders' equity 20,630,071 22,863,219
========== ==========
</TABLE>
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
- -------------------------- --------------------------
Director Director
The accompanying notes are an integral part of these financial statements.
<PAGE>
KIDDER INDUSTRIAL LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 AUGUST 1995
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
27/4/1993
Year ended to
Note 31/8/1995 31/8/1994
<S> <C> <C> <C>
TURNOVER 9 20,177,881 22,829,916
------------ ------------
(LOSS)/PROFIT BEFORE TAXATION 10 (4,642,527) 2,827,487
TAXATION 6 (208,181) 245,492
------------ ------------
(LOSS)/PROFIT FOR THE YEAR/PERIOD (4,434,346) 2,581,995
RETAINED EARNINGS BROUGHT FORWARD 2,581,995 -
------------ ------------
(ACCUMULATED LOSSES)/RETAINED EARNINGS
CARRIED FORWARD (1,852,351) 2,581,995
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
KIDDER INDUSTRIAL LIMITED
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 AUGUST 1995
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
27/4/1993
Year ended to
31/8/1995 31/8/1994
<S> <C> <C>
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES
(Note 13) (1,591,983) 649,499
------------ ------------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid (542,886) (196,711)
------------ ------------
INVESTING ACTIVITIES
Payments to acquire properties and equipment (243,248) (4,815,449)
Receipts from sale of properties and equipment - 80,000
------------ ------------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (243,248) (4,735,449)
------------ ------------
------------ ------------
NET CASH OUTFLOW BEFORE FINANCING (2,378,117) (4,282,661)
------------ ------------
FINANCING
Shares issued for cash - 2,530,000
New short term loans (Note 14) 5,933,834 447,440
Loans and finance lease obligations repayments (Note 14)(3,376,574) (295,200)
------------ ------------
2,557,260 2,682,240
------------ ------------
------------ ------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 179,143 (1,600,421)
CASH AND CASH EQUIVALENTS AT 1 SEPTEMBER, 1994 (1,600,421) -
------------ ------------
CASH AND CASH EQUIVALENTS AT 31 AUGUST, 1995 (1,421,278) (1,600,421)
============ ============
ANALYSIS OF THE BALANCES OF CASH AND CASH
EQUIVALENTS
Cash and bank balances 251,507 247,896
Bank overdrafts (1,672,785) (1,848,317)
------------ ------------
(1,421,278) (1,600,421)
============ ============
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
1 Significant accounting policies
(a) Translation of foreign currencies
Foreign currency transactions during the year are translated into Hong
Kong dollars at the exchange rates ruling at the transaction dates.
Monetary assets and liabilities in foreign currencies are translated
in Hong Kong dollars at approximately the market rates ruling at the
balance sheet date. Exchange gains and losses on foreign currency
translation are dealt with in the profit and loss account.
(b) Inventories and work in progress
Inventories and work in progress are stated at the lower of cost
(determined on a first-in, first-out basis) and net realisable value.
Cost includes materials, and apportionment of labour and factory
overheads where appropriate. Net realisable value represents estimated
selling price determined under the prevailing market conditions, and
after allowance of further costs to incur.
(c) Properties and equipment
Properties and equipment are stated at cost or at valuation, less
depreciation. Depreciation is provided on the straight line method
over their estimated useful lives at the following annual rates.
Land and buildings over the remaining term of the lease
Plant and machinery 15%
Furniture and fixture 15%
Moulds 20%
Motor vehicle 25%
(d) Related parties
Parties are considered to be related if one party has the ability to
control the other party or exercise significant influence over the
other party in making financial and operating decisions.
(e) Accounting for finance leases as lessee
Leased assets financed by leasing agreements that transfers
substantially all the risks and rewards incidental to ownership of the
assets are capitalised in the financial statements and the
corresponding obligations are treated as liabilities. The assets so
capitalised are depreciated in accordance with the Company's policy.
The total interest, being the difference between the total amount of
installments payable and the capital cost, is charged to the profit
and loss account over the year of the respective leases.
(f) Taxation
Profits tax is provided on the estimated assessable profits at the tax
rate ruling during the year. Deferred tax is provided at the
anticipated tax rate on timing differences using the liability method,
to the extent that there is a reasonable probability that a liability
will crystallise in the foreseeable future.
-5-
<PAGE>
- 6 -
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
2 Accounts receivable
<TABLE>
<CAPTION>
1995 1994
HKS HKS
<S> <C> <C>
Related parties 3,418,664 733,262
Others 1,182,361 858,410
------------ ------------
4,601,025 1,591,672
============ ============
</TABLE>
3 Inventories and work in progress
<TABLE>
<CAPTION>
1995 1994
HKS HKS
<S> <C> <C>
Raw materials 3,031,193 6,151,895
Work-in-progress 537,298 416,565
Finished goods 1,011,280 2,054,673
------------ ------------
4,579,771 8,623,133
Less: Provision for stock obsolescence (300,000) -
------------ ------------
4,279,771 8,623,133
============ ============
</TABLE>
4 Properties and equipment
<TABLE>
<CAPTION>
Land Furniture
and Plant and and Motor
building machinery fixtures Moulds Vehicle Total
-------- --------- -------- ------ ------- -----
HKS HKS HKS HKS HKS HKS
At cost
<S> <C> <C> <C> <C> <C> <C>
At 1 September, 1994 8,806,250 2,133,897 521,334 1,634,140 - 13,095,621
Additions during the year - 63,850 89,938 14,460 75,000 243,248
----------- ----------- --------- ----------- --------- -------------
At 31 August, 1995 8,806,250 2,197,747 611,272 1,648,600 75,000 13,338,869
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Accumulated Depreciation
At 1 September, 1994 69,300 277,742 151,550 477,807 - 976,399
Charge for the year 163,650 461,293 61,813 229,491 18,750 934,997
----------- ----------- --------- ----------- --------- -------------
At 31 August, 1995 232,950 739,035 213,363 707,298 18,750 1,911,396
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
----------- ----------- --------- ----------- --------- -------------
Net book value
At 31 August, 1995 8,573,300 1,458,712 397,909 941,302 56,250 11,427,473
=========== =========== ========= =========== ========= =============
At 31 August, 1994 8,736,950 1,856,155 369,784 1,156,333 - 12,119,222
=========== =========== ========= =========== ========= =============
</TABLE>
Certain land and buildings are situated at Feng Gang Town, Dongguan City,
China under a 50 years term lease starting from August 1992. All buildings on
that piece of land will be surrendered to the Town District Office on expiry of
the lease. The land and building were acquired from a director at value
determined by professional valuers, RHL International Property Consultants, on
25 April 1994 on an open market value basis, and were further revalued by the
directors in the same month.
<PAGE>
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
4 Properties and equipment (Continued)
The net book value of the land and buildings are further classified by
locations as follows:-
<TABLE>
<CAPTION>
HKS
<S> <C>
Hong Kong 1,527,500
China 7,045,800
-----------
8,573,300
===========
</TABLE>
Properties and equipment also include assets purchased under a finance lease
with net book value of HK$719,992 (1994 : HK$997,132).
One of the Company's land and buildings is pledged to a bank to secure the
bank loans and general banking facilities granted to the Company.
5 Bank overdrafts and other loans
<TABLE>
<CAPTION>
1995 1994
HKS HKS
<S> <C> <C>
Secured :-
Bank overdrafts 1,672,785 1,848,317
Bank loans 334,838 88,354
Bills payable 60,187 -
Finance lease obligation -
current position 322,875 564,570
Unsecured
Other loans 3,251,361 -
Bills payable 1,029,346 -
----------- -----------
6,671,392 2,501,241
=========== ===========
</TABLE>
<PAGE>
- 8 -
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
6 Taxation 27/4/1993
Year ended to
a) Taxation in the profit and loss account represents: 31/8/1995 31/8/1994
HKS HKS
<S> <C> <C>
Provision for Hong Kong profits tax on the
estimated assessable profits
at 17.5% - 53,700
at 16.5% - 96,530
Deferred Taxation (95,262) 95,262
Overprovision in prior year (112,919) -
---------- ----------
(208,181) 245,492
========== ==========
1995 1994
HKS HKS
b) Taxation in the balance sheet represents:
Provision for Hong Kong profits tax for the prior year 150,230 150,230
Less: Refund for prior year (112,919) -
---------- ----------
37,311 150,230
========== ==========
No provision for Hong Kong Profits tax has been made as the Company has no assessable profits
for the year.
1995 1994
HKS HKS
c) Deferred taxation in balance sheet represents:
Balance brought forward 95,262 -
Charged to/(Reversed from) profit and loss account (95,262) 95,262
---------- ----------
Balance carried forward - 95,262
========== ==========
No provision of deferred taxation for the year has been made as the Company has a net deferred tax
debit.
7 Long Term Liabilities 1995 1994
HKS HKS
Bank mortgage loan 758,986 841,646
Other loan - 267,525
Finance lease obligations - 348,705
--------- ----------
758,986 1,457,876
========= ==========
Long term liabilities are repayable as below:
Between second to fifth year 758,986 969,647
Over 5 years - 488,229
--------- ----------
758,986 1,457,876
========= ==========
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
8 Share Capital
1995 1994
HK$ HK$
<S> <C> <C>
Authorised
10,000,000 shares of HK$1 each 10,000,000 10,000,000
============ ============
Issued and fully paid
8,730,000 shares of HK$1 each 8,730,000 8,730,000
============ ============
9 Turnover
Turnover for the year represents invoiced sales of goods less returns and
discounts. It also includes rental income less outgoings while in previous
year there was no such income.
10 (Loss)/profit before taxation 27/4/1993
Year ended to
31/8/1995 31/8/1994
(Loss)/profit before taxation is arrived at HK$ HK$
after charging
Auditors' remuneration 100,000 130,000
Depreciation - own assets 780,713 777,896
- leased assets 154,284 51,428
Interest expenses
- on bank overdraft and other loans wholly
repayable within five years 462,201 196,711
- finance lease charges 80,685 -
Provision for stock obsolescence 300,000 -
============ ============
after deducting:
Rental income less outgoings 540,000 -
============ ============
11 Directors' Remuneration
Directors' remuneration disclosed pursuant to Section 161 of the Companies
Ordinance is as follows: -
27/4/1993
Year ended to
31/8/1995 31/8/1994
HK$ HK$
Fees Nil Nil
Other emoluments 305,533 180,000
============ ============
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
12 Related parties transactions
The following is a summary of significant transactions with related parties
and directors as recorded during the year not otherwise disclosed in the
financial statements:
<TABLE>
<CAPTION>
27/4/1993
Year ended to
31/8/1995 31/8/1994
HKS HKS
<S> <C> <C>
Purchase of fixed assets from a director 75,000 -
Purchase of business from directors - 589,829
Purchase of a property in China from a director - 6,200,000
Sales to related parties 13,378,960 22,552,598
Subcontracting charge received from related parties - 326,551
Management fee received from a related party 84,000 -
Rental income received from a related party 540,000 -
Purchases from related parties 1,338,021 232,432
============ ============
13 Reconciliation of Operating (Loss)/Profit to Net Cash (Outflow)/Inflow from Operating Activities
27/4/1993
Year ended to
31/8/1995 31/8/1994
HKS HKS
(Loss)/profit before taxation (4,642,527) 2,827,487
Interest paid 542,886 196,711
Depreciation 934,997 829,324
Gain on disposal of fixed assets - (54,537)
Decrease/(increase) in inventories and work in progress 4,343,362 (8,623,133)
Increase in accounts receivable (3,009,353) (1,591,672)
Decrease /(increase) in prepaid expenses and other current assets 211,001 (281,296)
(Decrease)/increase in accounts payable and bills payable (463,894) 7,078,776
Increase in accrued expenses and other current liabilities 491,545 267,839
============ ============
(1,591,983) 649,499
============ ============
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
14 Analysis of Changes in Financing during the Year
<TABLE>
<CAPTION>
Share Loans and Finance
Capital Lease Obligations
HKS HKS
<C> <S> <S>
Balance at beginning of the year 8,730,000 2,110,800
New short term loans - 5,933,834
Repayments - (3,376,574)
--------- -----------
Balance at end of the year 8,730,000 4,668,060
--------- -----------
</TABLE>
15 Comparative figures
Certain comparative figures have been reclassified so to conform with
current year's presentation.
16 Approval of financial statements
The financial statements from pages 2 to 11 were approved by directors on 11
April 1996.
<PAGE>
KIDDER INDUSTRIAL LIMITED
MANUFACTURING, TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 AUGUST 1995
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
27/4/1993
Year ended to
31/8/1995 31/8/1994
Note Game Watch Total Total
<S> <C> <C> <C> <C> <C>
COST OF RAW MATERIALS CONSUMED
Purchases 12,302,114 1,139,285 13,441,399 16,535,324
Less: Returns Outwards 1,975,429 20,444 1,995,873 730,919
Discounts Received 3,207 - 3,207 106,359
------------ ------------ ------------ ------------
10,323,478 1,118,841 11,442,319 15,698,046
Add: Opening Inventories and work in progress 7,417,469 1,205,664 8,623,133 2,781,382
------------ ------------ ------------ ------------
17,740,947 2,324,505 20,065,452 18,479,428
Less: Closing Inventories and work in progress 3,630,097 649,674 4,279,771 8,623,133
------------ ------------ ------------ ------------
14,110,850 1,674,831 15,785,681 9,856,295
DIRECT EXPENSES 1 2,754,626 216,392 2,971,018 4,985,295
------------ ------------ ------------ ------------
PRIME COST 16,865,476 1,891,223 18,756,699 14,842,145
FACTORY OVERHEAD EXPENSES 2 4,069,333 289,521 4,358,854 2,629,241
------------ ------------ ------------ ------------
COST OF PRODUCTION CARRIED DOWN 20,934,809 2,180,744 23,115,553 17,471,386
============ ============ ============ ============
SALES 18,153,299 1,778,139 19,931,438 22,837,796
LESS: RETURN INWARDS 152,040 - 152,040 369
DISCOUNTS ALLOWED 141,517 - 141,517 7,511
------------ ------------ ------------ ------------
17,859,742 1,778,139 19,637,881 22,829,916
ADD: SUB-CONTRACTING CHARGES RECEIVED - 259,707 259,707 222,892
------------ ------------ ------------ ------------
17,859,742 2,037,846 19,897,588 23,052,808
LESS: COST OF PRODUCTION BROUGHT DOWN 20,934,809 2,180,744 23,115,553 17,471,386
------------ ------------ ------------ ------------
GROSS (LOSS)/PROFIT (3,075,067) (142,898) (3,217,965) 5,581,422
ADD: SUNDRY INCOME 300,784 9,673 310,457 123,174
RENTAL INCOME 420,000 120,000 540,000 -
------------ ------------ ------------ ------------
(2,354,283) (13,225) (2,367,508) 5,704,596
LESS: ADMINISTRATION AND
GENERAL EXPENSES 3 1,850,203 424,816 2,275,019 2,877,109
------------ ------------ ------------ ------------
(LOSS)/PROFIT BEFORE TAXATION (4,204,486) (438,041) (4,642,527) 2,827,487
============ ============ ============ ============
</TABLE>
<PAGE>
(FOR MANAGEMENT PURPOSES ONLY)
KIDDER INDUSTRIAL LIMITED
NOTES TO MANUFACTURING, TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 AUGUST 1995
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
27/4/1993
Year ended to
31/8/1995 31/8/1994
Game Watch Total Total
<S> <C> <C> <C> <C>
1. DIRECT EXPENSES
Artwork and Film 35,795 1,200 36,995 114,983
Consumable Store 175,961 16,529 192,490 232,459
Direct Labour 339,632 - 339,632 967,847
Packing Charges 1,287,440 14,202 1,301,642 1,347,259
Printing and Label 326,453 62 326,515 975,229
Screen Printing Charges 5,859 - 5,859 19,490
Sub-Contracting Charges 529,234 180,842 710,076 1,056,392
Tooling Charges 54,252 3,557 57,809 260,341
Translation Charges - - - 11,850
--------- --------- --------- ---------
2,754,626 216,392 2,971,018 4,985,850
========= ========= ========= =========
2. FACTORY OVERHEAD EXPENSES
China Government Charges 190,327 - 190,327 153,829
Compensation and Penalty - - - 3,952
Cleaning Charges - - - 1,733
Contract Charges and Stamp Duty 20,216 - 20,216 24,484
Declaration and Certificate 46,845 - 46,845 36,758
Depreciation 864,956 8,228 873,184 741,617
Electricity 362,909 3,546 366,455 353,205
Entertainment 12,210 - 12,210 40,470
Exchange Charges - - - 2,118
Houseware 7,229 - 7,229 15,646
Inspection Charges - - - 17,333
Insurance 10,721 - 10,721 10,607
Management Fee 16,857 - 16,857 69,630
Medical Expenses - - - 28,333
Messing 272,556 - 272,556 259,796
Motor Car Expenses 20,846 - 20,846 19,189
Postage - China - - - 22
Printing and Stationery 9,501 - 9,501 22,627
Rent 20,800 - 20,800 65,227
Repair and Maintenance 106,392 - 106,392 70,251
Sundry Expenses 9,531 - 9,531 13,428
Telephone 104,153 - 104,153 77,480
Transportation 14,642 - 14,642 17,677
Travelling Expenses 23,930 - 23,930 30,008
Wages 1,891,628 277,747 2,169,375 499,760
Water 585 - 585 2,311
Welfare and Allowance 62,499 - 62,499 51,750
--------- --------- --------- ---------
4,069,333 289,521 4,358,854 2,629,241
========= ========= ========= =========
</TABLE>
<PAGE>
3. ADMINISTRATION AND GENERAL EXPENSES
<TABLE>
<CAPTION>
27/4/1993
Year ended to
31/8/1995 31/8/1994
Game Watch Total Total
<S> <C> <C> <C> <C>
Accessory Materials - - - 13,768
Accountancy and Secretarial Fee 4,250 - 4,250 28,735
Audit Fee 100,000 - 100,000 130,000
Bad Debt - - - 10,323
Bank Charges 73,406 15 73,421 23,965
Bank Loan Interest 133,188 - 133,188 27,349
Bank Overdraft Interest 84,400 145,567 229,967 152,412
Bonus - - - 34,038
Building Management Fee 8,620 4,320 12,940 18,899
Business Registration Fee 2,573 - 2,573 4,816
Cleaning Charges 234 - 234 351
Commission Paid 15,624 - 15,624 4,940
Compensation and Penalty 7,750 - 7,750 7,800
Declaration and Certificate 23,294 721 24,015 23,681
Depreciation - Furniture and
Fixtures 60,764 1,049 61,813 87,707
Electricity 7,314 2,642 9,956 13,783
Entertainment 22,616 5,150 27,766 15,368
Exchange Difference 17,824 - 17,824 3,057
Gain on Disposal of Properties
and equipment - - - (54,537)
Hire Purchase Interest 80,685 - 80,685 6,150
Insurance 5,550 - 5,550 7,916
Local Travelling Expenses 68,941 27,695 96,636 83,390
Loan Interest - Hong Kong 99,046 - 99,046 10,800
Medical Expenses - Hong Kong - - - 361
Messing 27,908 15,700 43,608 33,995
Oversea Travelling Expenses 21,240 7,094 28,334 46,368
Paging Charges - - - 3,290
Postage and Stamp 1,127 - 1,127 520
Printing and Stationery 14,283 213 14,496 41,279
Repairs and Maintenance 1,278 - 1,278 9,327
Rent and Rate 6,269 154,398 160,667 160,141
Salaries 586,438 43,179 629,617 1,370,247
Sample Charges 2,868 896 3,764 9,046
Solicitors Fee 66,024 - 66,024 10,050
Stamp Duty - - - 58,800
Sundry Expenses 21,750 132 21,882 22,761
Telephone 15,710 10,472 26,182 77,172
Testing Charges 5,206 - 5,206 15,195
Transportation 264,023 5,573 269,596 363,507
Water - - - 339
--------- ------- --------- ---------
1,850,203 424,816 2,275,019 2,877,109
--------- ------- --------- ---------
--------- ------- --------- ---------
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
BALANCE SHEET TRANSLATION
AUGUST 31, 1995
<TABLE>
<CAPTION>
BALANCE BALANCE
IN EXCHANGE IN
HONG KONG RATE U.S.
DOLLARS USED DOLLARS
-----------------------------------------
<S> <C> <C> <C>
CASH 251,507 7.713 32,608
CERTIFICATE OF DEPOSIT 0 7.713 0
ACCOUNTS RECEIVABLE 4,601,025 7.713 596,529
INVENTORY 4,279,771 7.713 554,878
PREPAYMENTS 70,295 7.713 9,114
FIXED ASSETS 11,427,473 7.713 1,481,586
-----------------------------------------
20,630,071 2,674,715
=========================================
ACCOUNTS PAYABLE 5,257,824 7.713 681,683
BANK LOAN PAYABLE 5,347,155 7.713 693,265
OTHER CURRENT LIABILITIES 759,384 7.713 98,455
INCOME TAX PAYABLE 37,311 7.713 4,837
NOTE PAYABLE 675,238 7.713 87,545
DEFERRED TAX PAYABLE 0 7.713 0
LONG TERM LIABILITIES 758,986 7.713 98,403
LOAN PAYABLE TO DIRECTORS 916,524 7.713 118,828
COMMON STOCK 8,730,000 7.716 1,131,415
RETAINED EARNINGS - BEGINNING 2,581,995 7.715 334,672
CURRENT PERIOD LOSS (4,434,346) 7.714 (574,844)
CUMULATIVE TRANSLATION ADJUSTMENTS 456
-----------------------------------------
20,630,071 2,674,715
=========================================
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
INCOME STATEMENT TRANSLATION
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
TOTAL EXCHANGE TOTAL
IN H.K. RATE IN U.S.
DOLLARS USED DOLLARS
-------------------------------------
<S> <C> <C> <C>
SALES 19,637,881 7.714 2,545,745
COST OF SALES 23,115,553 7.714 2,996,572
-------------------------------------
GROSS PROFIT (3,477,672) 7.714 (450,827)
GENERAL AND ADMINISTRATION EXPENSE:
ACCOUNTING 104,250 7.714 13,514
BANK CHARGE 73,421 7.714 9,518
BUILDING MANAGEMENT 12,940 7.714 1,677
BUSINESS REGISTRATION 2,573 7.714 334
CLEANING 234 7.714 30
COMMISSION 15,624 7.714 2,025
COMPENSATION AND PENALTY 7,750 7.714 1,005
DECLARATION AND CERTIFICATE 24,015 7.714 3,113
DEPRECIATION 61,813 7.714 8,013
ELECTRICITY 9,956 7.714 1,291
ENTERTAINMENT 27,766 7.714 3,599
MESSING & REFRESHMENT 43,608 7.714 5,653
INSURANCE 5,550 7.714 719
OVERSEA TRAVEL 28,334 7.714 3,673
POSTAGE 1,127 7.714 146
PRINTING AND STATIONARY 14,496 7.714 1,879
REPAIR AND MAINTENANCE 1,278 7.714 166
RENT 160,667 7.714 20,828
SALARIES 629,617 7.714 81,620
SAMPLE 3,764 7.714 488
SOLICITY 66,024 7.714 8,559
SUNDRY 21,882 7.714 2,837
TELEPHONE 26,182 7.714 3,394
TESTING 5,206 7.714 675
TRANSPORTATION 269,596 7.714 34,949
TRAVEL 96,636 7.714 12,527
-------------------------------------
TOTAL G & A 1,714,309 7.714 222,232
-------------------------------------
LOSS FROM OPERATIONS (5,191,981) 7.714 (673,059)
INTEREST EXPENSES (542,886) 7.714 (70,377)
OTHER INCOME 1,110,164 7.714 143,915
EXCHANGE DIFFERENCE (17,824) 7.714 (2,310)
-------------------------------------
549,454 7.714 71,228
-------------------------------------
LOSS FROM OPERATION (4,642,527) 7.714 (601,831)
PROVISION FOR TAX (208,181) 7.714 (26,987)
-------------------------------------
NET LOSS (4,434,346) 7.714 (574,844)
=====================================
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
AND AUDITORS' REPORT
OF
GOLDWELL NOMINEES LIMITED
-------------------------
FOR THE YEAR ENDED 31ST AUGUST, 1994
------------------------------------
CONTENTS PAGES
- -------- -----
REPORT OF THE DIRECTORS 1 - 2
AUDITORS' REPORT 3
BALANCE SHEET 4
PROFIT AND LOSS ACCOUNT 5
NOTES TO THE FINANCIAL STATEMENTS 6 - 7
[SEAL OF
K.S. LI & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
HONG KONG
APPEARS HERE]
<PAGE>
GOLDWELL NOMINEES LIMITED
-------------------------
REPORT OF THE DIRECTORS
-----------------------
The directors have pleasure in submitting their annual report together with the
audited financial statements of the Company for the year ended 31st August,
1994.
PRINCIPAL ACTIVITIES
- --------------------
The Company is principally engaged in property investment for rental income.
RESULTS OF OPERATIONS
- ---------------------
The net profit of the Company for the year amounted to HK$635,454.
DIVIDENDS & RESERVES
- --------------------
The retained profits of the Company as of 31st August, 1994 amounted to
HK$685,211. The directors do not recommend the payment of any dividends. There
has been no transfer to reserves.
FIXED ASSETS
- ------------
Movements in fixed assets during the year are set out in Note 5 to the
accompanying financial statements.
DIRECTORS
- ---------
The directors who held office during the year were:-
Cheong Pui Limited (Resigned on 30th April, 1994)
Fit Profit Trading Company Limited (Resigned on 30th April, 1994)
Li Shu Nui (Appointed on 30th April, 1994)
Li Shu Yuk (Appointed on 30th April, 1994)
In accordance with article 7 of the Company's Articles of Association, all the
directors shall retire from office and, being eligible, offer themselves for
re-election.
Except for the transactions with related parties as disclosed in the notes to
the accompanying financial statements, the Company has not entered into any
contract, commitment or agreement with any other company in which any director
or member of the Company's management has interest, either directly or
indirectly; nor has the Company made any arrangement to enable any director or
member of the Company's management to obtain benefits by means of the
acquisition of shares in, or debentures of, the Company or any other body
corporate.
-1-
<PAGE>
AUDITORS
- --------
Messrs. K. S. Li & Company retire and, being eligible, offer themselves for
re-appointment.
On Behalf of the Board of Directors
/s/ SIGNATURE APPEARS HERE
-----------------------------------
Hong Kong, 10th November, 1994
-2-
<PAGE>
[LETTERHEAD OF K. S. LI & COMPANY APPEARS HERE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUDITORS' REPORT TO THE MEMBERS OF
----------------------------------
GOLDWELL NOMINEES LIMITED
-------------------------
We have audited the financial statements on pages 4 to 7 in accordance with
Auditing Standards.
In our opinion, the financial statements give a true and fair view of the state
of the Company's affairs at 31st August, 1994 and of its profit for the year
then ended and have been properly prepared in accordance with the Companies
Ordinance.
[SIGNATURE APPEARS HERE]
K. S. LI & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
Hong Kong, 10th November, 1994
- 3 -
<PAGE>
GOLDWELL NOMINEES LIMITED
-------------------------
BALANCE SHEET AS AT 31ST AUGUST, 1994
-------------------------------------
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
Notes 1994 1993
----- ---- ----
<S> <C> <C> <C>
FIXED ASSETS, net 5 $ 7,200,000 $ 9,705,891
- -----------------
CURRENT ASSETS
- --------------
Cash at Bank and in Hand 31,791 214,265
Amount Received 101,740 -
----------- -----------
TOTAL CURRENT ASSETS 133,531 214,265
----------- -----------
LESS:
- ----
CURRENT LIABILITIES
- -------------------
Current Portion of Long-term Bank Loan 4 582,571 555,498
Account Payable & Accruals 9,500 12,998
Rental Deposit Received 153,360 241,776
Profits Tax Payable 127,203 10,554
Amount due to a Director 3 15,227 4,113,239
----------- -----------
TOTAL CURRENT LIABILITIES 887,861 4,934,065
----------- -----------
NET CURRENT (LIABILITIES) (754,330) (4,719,800)
LONG-TERM BANK LOAN 4 (1,968,212) (4,936,332)
- ------------------- ----------- -----------
NET ASSETS $ 4,477,458 $ 49,759
=========== ===========
Represented by:
SHARE CAPITAL
- -------------
Authorized:
$3,000,000 divided into 3,000,000
ordinary shares of $1 each
Issued and Fully Paid:
2,900,002 ordinary shares of $1 each $ 2,900,002 $ 2
REVALUATION RESERVE
- ------------------- 6 892,245 -
RETAINED PROFITS 685,211 49,757
- ---------------- ----------- -----------
$ 4,477,458 $ 49,759
=========== ===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
Approved by the Board of Directors on 10th November, 1994.
/s/ Signature Appears Here /s/ Signature Appears Here
--------------------------- ---------------------------
Director Director
- 4 -
<PAGE>
GOLDWELL NOMINEES LIMITED
-------------------------
PROFIT AND LOSS ACCOUNT
-----------------------
FOR THE YEAR ENDED 31ST AUGUST, 1994
------------------------------------
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
18.4.1991
to
1994 31.8.1993
---- ---------
<S> <C> <C>
RENTAL INCOME $ 823,133 $ 241,776
GENERAL AND ADMINISTRATION EXPENSES
- -----------------------------------
Auditor's Remuneration (19,000) (3,000)
Business Registration Fee (1,250) -
Legal Fee Expenses (4,110) (47,348)
Secretarial Fee (19,121) -
Stamp Duty (17,940) -
Stationery (186) -
Insurance Paid (11,600) -
Commission Paid (3,000) -
Sundry Expenses (500) -
--------- ---------
PROFIT FROM OPERATIONS 747,426 191,428
OTHER INCOME/(EXPENSES)
Bank Charges and Interest (487) (11,333)
Bank Loan Interest (389,483) (119,784)
Profit on Disposal of Fixed Assets 394,647 -
--------- ---------
PROFIT BEFORE PROFITS TAX 752,103 60,311
PROFITS TAX PAYABLE (116,649) (10,554)
--------- ---------
NET PROFIT FOR THE YEAR 635,454 49,757
RETAINED PROFITS, BROUGHT FORWARD 49,757 -
--------- ---------
RETAINED PROFITS, CARRIED FORWARD $ 685,211 $ 49,757
========= =========
</TABLE>
The accompanying notes are an integral part of this profit and loss account.
- 5 -
<PAGE>
GOLDWELL NOMINEES LIMITED
-------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
FOR THE YEAR ENDED 31ST AUGUST, 1994
------------------------------------
(Amounts Expressed in Hong Kong Dollars)
(1) THE COMPANY AND ITS OPERATIONS
------------------------------
The Company is a private limited company incorporated in Hong Kong. It is
principally engaged in property investment for rental income.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) Fixed Assets
------------
Fixed assets are stated at cost less accumulated depreciation except
for land and building held on long lease located in Hong Kong.
(b) Rental Income
-------------
Rental income is accounted for on accrual basis.
(c) Hong Kong Profits Tax
---------------------
The Company provides for Hong Kong Profits Tax on the basis of its
income for financial reporting purposes, adjusted for income and
expense items which are not asssessable or deductible for profits tax
purposes.
(3) RELATED PARTY TRANSACTIONS
--------------------------
Amount due to a Director
------------------------
The amount due a is unsecured, interest-free and repayable on demand.
(4) BANKING FACILITIES
------------------
The banking facilities granted to the Company are secured by the properties
of the Company.
-6-
<PAGE>
(5) SUPPLEMENTAL INFORMATION REQUIRED UNDER THE COMPANIES ORDINANCE
---------------------------------------------------------------
A. Net profit for the year was arrived at after charging:-
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Auditors' remuneration $19,000 $3,000
Directors' emoluments
- Fees - -
- Other emoluments - -
</TABLE>
B. Movements in fixed assets during the year were as follows:
<TABLE>
<CAPTION>
Land and Building
-----------------
At Cost
-------
<S> <C>
Beginning Balance $ 9,705,891
Disposal (3,398,136)
-----------
6,307,755
Revaluation during the year 892,245
-----------
Ending balance 7,200,000
===========
</TABLE>
The land and building are held under long lease and located in Hong
Kong.
(6) REVALUATION RESERVE
-------------------
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Beginning balance $ - $ -
Revaluation during the year 892,245 -
---------- ----------
Ending balance $ 892,245 $ -
========== ==========
</TABLE>
The revaluation was done by a qualified surveyor in Hong Kong.
- 7 -
<PAGE>
GOLDWELL NOMINEES LIMITED
BALANCE SHEET TRANSLATION
AUGUST 31, 1994
<TABLE>
<CAPTION>
BALANCE BALANCE
IN EXCHANGE IN
HONG KONG RATE U.S.
DOLLARS USED DOLLARS
------------------------------------------
<S> <C> <C> <C>
CASH 31,791 7,715 4,121
ACCOUNTS RECEIVABLE 101,740 7,715 13,187
FIXED ASSETS 6,307,755 7,715 817,596
------------------------------------------
6,441,286 834,904
==========================================
ACCOUNTS PAYABLE 9,500 7.715 1,231
MORTGAGE PAYABLE - CURRENT PORTION 582,571 7.715 75,511
INCOME TAX PAYABLE 127,203 7.715 16,488
DUE TO DIRECTOR 15,227 7.715 1,974
MORTGAGE PAYABLE - LONG TERM 1,968,212 7.715 255,115
TENANT DEPOSITS 153,360 7.715 19,878
COMMON STOCK 2,900,002 7.716 375,843
PAID IN CAPITAL 0 7.716 0
RETAINED EARNINGS - BEGINNING 49,757 7.716 6,449
CURRENT PERIOD INCOME 635,454 7.7155 82,361
CUMULATIVE TRANSLATION ADJUSTMENTS 54
------------------------------------------
6,441,286 834,904
==========================================
</TABLE>
<PAGE>
GOLDWELL NOMINEES LIMITED
INCOME STATEMENT TRANSLATION
FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<CAPTION>
BALANCE BALANCE
IN EXCHANGE IN
HONG KONG RATE U.S.
DOLLARS USED DOLLARS
----------------------------------------
<S> <C> <C> <C>
RENTAL INCOME 824,133 7.7155 106,815
EXPENSES:
PROFESSIONAL FEE 23,110 7.7155 2,995
BUSINESS LICENSE 1,250 7.7155 162
OUTSIDE SERVICE 19,121 7.7155 2,478
TAX 17,940 7.7155 2,325
SUPPLIES 186 7.7155 24
INTEREST 389,483 7.7155 50,481
INSURANCE 11,600 7.7155 1,503
COMMISSION 3,000 7.7155 389
MISCELLANEOUS 500 7.7155 65
BANK CHARGE 487 7.7155 63
----------------------------------------
466,677 7.7155 60,485
----------------------------------------
INCOME FROM OPERATIONS 357,456 7.7155 46,330
----------------------------------------
GAIN FROM SALE OF ASSETS 394,647 7.7155 51,150
----------------------------------------
INCOME BEFORE TAX 752,103 7.7155 97,480
PROVISION FOR TAX 116,649 7.7155 15,119
----------------------------------------
NET INCOME 635,454 7.7155 82,361
========================================
</TABLE>
<PAGE>
[FOREIGN VERBAGE APPEARS HERE]
FINANCIAL STATEMENTS
AND AUDITORS' REPORT
OF
BIG APPLE LIMITED
-----------------
FOR THE YEAR ENDED 31ST AUGUST, 1994
------------------------------------
<TABLE>
<CAPTION>
CONTENTS PAGES
- -------- -----
<S> <C>
REPORT OF THE DIRECTORS 1 - 2
AUDITORS' REPORT 3
BALANCE SHEET 4
PROFIT AND LOSS ACCOUNT 5
CASH FLOW STATEMENT 6
NOTES TO THE FINANCIAL STATEMENTS 7 - 9
</TABLE>
[SEAL APPEARS HERE]
[FOREIGN VERBAGE APPEARS HERE]
K. S. LI & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
HONG KONG
<PAGE>
BIG APPLE LIMITED
-----------------
REPORT OF THE DIRECTORS
-----------------------
The directors have pleasure in submitting their interim report together with
audited financial statements of the Company for the year ended 31st August,
1994.
PRINCIPAL ACTIVITIES
- --------------------
The Company is principally engaged in trading of electronic appliances.
RESULTS OF OPERATIONS
- ---------------------
Net profit of the Company for the year ended 31st August, 1994 amounted to
HK$1,752,967.
DIVIDENDS & RESERVES
- --------------------
The retained profits of the Company as at 31st August, 1994 amounted to
HK$2,164,717. The directors do not recommend payment of any dividends. There has
been no transfer to reserves.
INCREASE OF CAPITAL
- -------------------
By an ordinary resolution passed on 27th April, 1994, the authorized capital of
the Company was increased from $10,000 to $3,000,000 by the creation of
2,990,000 additional ordinary shares of HK$1 each ranking pari passu with
existing share. On the same day, 2,880,000 ordinary shares of HK$1 each ranking
pari passu with existing shares were allotted payable in full in cash at par.
By an ordinary resolution passed on 30th April, 1994, the authorized capital of
the Company was increased from $3,000,000 to $4,700,000 by the creation of
1,700,000 additional ordinary shares of HK$1 each ranking pari passu with
existing shares. On the same day, 1,700,000 ordinary shares of HK$1 each
ranking pari passu with existing shares were allotted payable in full in cash
at par. The purpose of the issue was to strengthen the capital base of the
Company.
FIXED ASSETS
- ------------
Movements in fixed assets during the year set out in Note 6 to the accompanying
financial statements.
DIRECTORS
- ---------
The directors who held office during the year were:-
Chan Siu Yee
Hung So Haan, Janice (resigned on 1st May, 1994)
Li Shu Nui (appointed on 1st May, 1994)
Wolfgang Ernst Kleiber
In accordance with article 7 of the Company's Articles of Association, all the
directors shall retire and, being eligible, offer themselves for reappointment.
The Company has not entered into any contract, commitment or agreement with any
other company in which any director or member of the Company's management has
interest, either directly or indirectly; nor has the Company made any
arrangement to enable any director or member of the Company's management to
obtain benefits by means of the acquisition of shares in, or debentures of the
Company or any other body corporate.
- 1 -
<PAGE>
AUDITORS
- --------
Messrs. K. S. Li & Company retire and, being eligible, offer themselves for
re-appointment.
On behalf of the Board of Directors
[SIGNATURE APPEARS HERE]
-----------------------------------
Hong Kong, 10th November, 1994
- 2 -
<PAGE>
[LETTERHEAD OF K. S. LI & COMPANY APPEARS HERE]
AUDITORS' REPORT TO THE MEMBERS OF
----------------------------------
BIG APPLE LIMITED
-----------------
We have audited the financial statements on pages 4 to 9 in accordance with
Auditing Standards.
In our opinion, the financial statements give a true and fair view of the state
of the Company's affairs at 31st August, 1994 and of its profit and cash flow
position for the year then ended and have been properly prepared in accordance
with the Companies Ordinance.
/s/ K. S. LI & Company
K. S. LI & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
Hong Kong, 10th November, 1994
<PAGE>
BIG APPLE LIMITED
-----------------
BALANCE SHEET AS AT 31ST AUGUST, 1994
-------------------------------------
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
Notes 1994 1993
----- ---- ----
<S> <C> <C> <C>
FIXED ASSETS, net 6 $ 277,008 $ 132,643
- -----------------
CURRENT ASSETS
- --------------
Cash at Bank and in Hand 3,795,344 3,366,375
Accounts Receivable 2,005,692 1,486,486
Deposits and Prepayments 208,790 228,721
Goods in Transit 1,453,245 -
---------- ----------
TOTAL CURRENT ASSETS 7,463,071 5,081,582
LESS:
- ----
CURRENT LIABILITIES
- -------------------
Accounts Payable & Accruals 272,823 1,271,878
Amounts due to Directors 3 9,725 2,889,725
Deposits Received 253,425 279,380
Profits Tax Payable 459,369 361,472
---------- ----------
TOTAL CURRENT LIAILITIES 995,342 4,802,455
---------- ----------
NET CURRENT ASSETS 6,467,729 279,127
---------- ----------
NET ASSETS $6,744,737 $ 411,770
========== ==========
Represented by:
SHARE CAPITAL
- -------------
Authorized:
$4,700,000 (1993 - $10,000) divided
into 4,700,000 (1993 - 10,000)
ordinary shares of $1 each
Issued and Fully Paid:
4,580,020 (1993 - 20) ordinary
shares of $1 each $4,580,020 $ 20
RETAINED PROFITS 2,164,717 411,750
- ---------------- ---------- ----------
$6,744,737 $ 411,770
========== ==========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
Approved by the Board of Directors on 10th November, 1994.
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
------------------------ ------------------------
Director Director
- 4 -
<PAGE>
BIG APPLE LIMITED
-----------------
PROFIT AND LOSS ACCOUNT
-----------------------
FOR THE YEAR ENDED 31ST AUGUST, 1994
------------------------------------
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
1.7.1993
to
Note 1994 31.8.1993
---- ---- ---------
<S> <C> <C> <C>
SALES $33,846,933 $ 5,988,411
COST OF SALES (28,940,348) (5,066,772)
----------- -----------
GROSS PROFIT 4,906,585 921,639
GENERAL AND ADMINISTRATIVE EXPENSES (4,025,150) (547,106)
----------- -----------
PROFIT FROM OPERATIONS 881,435 374,533
OTHER INCOME/(EXPENSES)
Rental Income 280,861 45,483
Sample Income 294,609 26,673
Commission Received 395,046 100,845
Sundry Income 92,693 2,387
Bank Charges and Interest (194,230) (30,129)
Exchange Gain/(Loss) 154,325 (5,568)
Interest Income 152,933 20,533
Commission Paid (5,616) -
----------- -----------
PROFIT BEFORE PROFITS TAX 2,052,056 534,757
PROFITS TAX PAYABLE (338,589) (145,291)
----------- -----------
PROFIT BEFORE EXTRAORDINARY ITEM 1,713,467 389,466
EXTRAORDINARY ITEM 8 39,500 -
----------- -----------
NET PROFIT FOR THE YEAR/PERIOD 1,752,967 389,466
RETAINED PROFITS, BROUGHT FORWARD 411,750 22,284
----------- -----------
RETAINED PROFITS, CARRIED FORWARD $ 2,164,717 $ 411,750
=========== ===========
</TABLE>
The accompanying notes are an integral part of this profit and loss account.
- 5 -
<PAGE>
BIG APPLE LIMITED
-----------------
CASH FLOW STATEMENT
-------------------
FOR THE YEAR ENDED 31ST AUGUST, 1994
------------------------------------
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
Note 1994
---- ----
<S> <C> <C>
Net cash outflow from operating activities 7 $ (3,575,374)
Returns on investments and servicing
of finance
Interest received 152,933
Interest paid (194,230)
-------------
Net cash outflow from returns on
investments and servicing of finance (41,297)
-------------
Taxation
Profits tax paid (240,692)
-------------
Tax Paid (240,692)
-------------
Investing activities
Purchase of fixed assets (343,668)
Sale Proceeds 50,000
-------------
Net cash outflow from investing
activities (293,668)
-------------
Financing
Issue of ordinary share capital 4,580,000
-------------
Net cash inflow from financing 4,580,000
-------------
Increase in cash and cash equivalents 428,969
Cash and Cash equivalents at the beginning
of the year 3,366,375
-------------
Cash and cash equivalents at the end
of the year $ 3,795,344
=============
Analysis of the balance of
Cash and cash equivalents
Cash at bank and in hand $ 3,795,344
=============
</TABLE>
The accompanying notes are an integral part of this cash flow statement.
-6-
<PAGE>
BIG APPLE LIMITED
-----------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
FOR THE YEAR ENDED 31ST AUGUST, 1994
------------------------------------
(Amounts Expressed in Hong Kong Dollars)
(1) THE COMPANY AND ITS OPERATIONS
------------------------------
The Company is a private limited company incorporated in Hong Kong. It is
principally engaged in trading of electronic appliances.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) Fixed Assets
------------
Fixed assets are stated at cost less accumulated depreciation.
Depreciation is calculated to write off the costs of fixed assets
using straight line method over their estimated useful lives at the
following rates:
Furniture and Equipment 20% per annum
Motor Vehicle 30% per annum
(b) Sales
-----
Sales are recognized upon the transfers of title to goods to the
customers.
(c) Foreign Currency Translation
----------------------------
The Company maintains its books and records in Hong Kong dollars.
Transactions denominated in foreign currencies are translated into
Hong Kong dollars at exchange rates ruling at transaction dates.
Monetary assets and liabilities denominated in foreign currencies
are translated into Hong Kong dollars at exchange rates ruling at the
balance sheet date. Exchange gains or losses are dealt with in the
profit and loss account.
(d) Hong Kong Profits Tax
---------------------
The Company provides for Hong Kong Profits Tax on the basis of its
income for financial reporting purposes, adjusted for income and
expense items which are not assessable or deductible for profits tax
purposes.
(e) Goods in Transit
----------------
Goods in transit are stated at lower of cost (first-in, first-out)
or net realisable value.
(3) AMOUNTS DUE TO DIRECTORS
------------------------
The amounts due are unsecured, interest-free and repayable on demand.
- 7 -
<PAGE>
(4) COMMITMENT UNDER OPERATING LEASE
--------------------------------
As at 31st August, 1994, the Company had approximately $210,000 rental
commitment in the next year with respect to the lease of the Company's
office premises which is due to expire on 31st March, 1995.
(5) BANKING FACILITIES
------------------
The banking facilities granted to the Company to the extent of $1.6 million
are secured by the fixed deposits of the Company together with the personal
guarantee given by a third party.
(6) SUPPLEMENTAL INFORMATION REQUIRED UNDER THE COMPANIES ORDINANCE
---------------------------------------------------------------
A. Net profit for the year was arrived at after charging:-
<TABLE>
<CAPTION>
1.7.1993
to
1994 31.8.1993
---- ---------
<S> <C> <C>
Auditors' remuneration $ 21,000 $ 3,000
Directors' emoluments
- Fees 1,316,987 -
- Other emoluments 414,000 103,838
Depreciation 188,803 -
</TABLE>
B. Movements in fixed assets during the year were as follows:
<TABLE>
<CAPTION>
Furniture Motor
& Equipment Vehicle Total
----------- ------- -----
At Cost
-------
<S> <C> <C> <C>
Beginning balance $ 295,487 $ 105,000 $ 400,487
Additions 3,668 340,000 343,668
Disposal - (105,000) (105,000)
--------- --------- ---------
Ending balance 299,155 340,000 639,155
--------- --------- ---------
Accumulated Depreciation
------------------------
Beginning balance 173,344 94,500 267,844
Charge for the year 69,803 119,000 188,803
Written back on disposal - (94,500) (94,500)
--------- --------- ---------
Ending balance 243,147 119,000 362,147
--------- --------- ---------
Net Book Value
--------------
End of the year $ 56,008 $ 221,000 $ 277,008
========= ========= =========
Beginning of the year $ 122,143 $ 10,500 $ 132,643
========= ========= =========
</TABLE>
- 8 -
<PAGE>
(7) RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH (OUTFLOW) FROM
-------------------------------------------------------------------
OPERATING ACTIVITIES:
--------------------
<TABLE>
<CAPTION>
1994
----
<S> <C>
Profit Before Taxation $ 2,052,056
Interest Received (152,933)
Interest Paid & Bank Charge 194,230
Depreciation 188,803
Increase in Accounts Receivable (519,206)
(Increase) in Stocks (1,453,245)
(Increase) in Deposits & Prepayment 19,931
(Decrease) in Accounts payable & Accruals (999,055)
(Decrease) in Amounts Due to Directors (2,880,000)
(Decrease) in Deposits Received (25,955)
-----------
Net cash outflow from operating activities $(3,575,374)
===========
</TABLE>
(8) EXTRAORDINARY ITEM
------------------
During the year the Company disposed of a motor vehicle at a profit of
$39,500.
- 9 -
<PAGE>
BIG APPLE LIMITED
BALANCE SHEET TRANSLATION
AUGUST 31, 1994
<TABLE>
<CAPTION>
BALANCE BALANCE
IN EXCHANGE IN
HONG KONG RATE U.S.
DOLLARS USED DOLLARS
------------------------------------
<S> <C> <C> <C>
CASH 3,795,344 7.715 491,943
CERTIFICATE OF DEPOSIT 0 7.715 0
ACCOUNTS RECEIVABLE 2,005,692 7.715 259,973
INVENTORY 1,453,245 7.715 188,366
PREPAYMENTS 208,790 7.715 27,063
FIXED ASSETS 277,008 7.715 35,905
------------------------------------
7,740,079 1,003,250
====================================
ACCOUNTS PAYABLE 272,823 7.715 35,363
BANK LOAN PAYABLE 0 7.715 0
INCOME TAX PAYABLE 459,369 7.715 59,542
CUSTOMER DEPOSITS 253,425 7.715 32,848
LOAN PAYABLE TO DIRECTOR 9,725 7.715 1,261
COMMON STOCK 4,580,020 7.716 593,574
RETAINED EARNINGS - BEGINNING 411,750 7.716 53,363
CURRENT PERIOD INCOME 1,752,967 7.7155 227,201
CUMULATIVE TRANSLATION ADJUSTMENTS 98
------------------------------------
7,740,079 1,003,250
====================================
</TABLE>
<PAGE>
BIG APPLE LIMITED
INCOME STATEMENT TRANSLATION
FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE> <CAPTION>
EXCHANGE
TOTAL IN RATE TOTAL IN
H.K. $ USED U.S. $
--------------------------------------------
<S> <C> <C> <C>
SALES 33,846,933 7.7155 4,386,875
COST OF SALES 28,940,348 7.7155 3,750,936
--------------------------------------------
GROSS PROFIT 4,906,585 7.7155 635,939
EXPENSES:
Advertising 113,927 7.7155 14,766
Auditors' remuneration 21,001 7.7155 2,722
Bad debts 0 7.7155 0
Business registration 31,147 7.7155 4,037
Depreciation 188,806 7.7155 24,471
Directors' fee 1,730,988 7.7155 224,352
Electricity 5,648 7.7155 732
Entertainment 96,104 7.7155 12,456
Insurance 33,045 7.7155 4,283
Membership 3,703 7.7155 480
Newspaper 7,353 7.7155 953
Telephone 101,914 7.7155 13,209
Parking 25,885 7.7155 3,355
Penalty 1,157 7.7155 150
Postage 62,287 7.7155 8,073
Rent 559,844 7.7155 72,561
Repair & maintenance 57,087 7.7155 7,399
Salary 539,761 7.7155 69,958
Service charge 54,587 7.7155 7,075
Sundries 9,127 7.7155 1,183
Local travel 27,938 7.7155 3,621
Oversea travel 353,841 7.7155 45,861
-------------------------------------------
4,025,150 7.7155 521,697
-------------------------------------------
INCOME FROM OPERATIONS 881,435 7.7155 114,242
-------------------------------------------
OTHER INCOME:
RENTAL INCOME 280,861 7.7155 36,402
SAMPLE INCOME 294,609 7.7155 38,184
COMMISSION INCOME 395,046 7.7155 51,202
INTEREST INCOME 152,933 7.7155 19,821
OTHER INCOME 92,693 7.7155 12,014
EXCHANGE GAIN 154,325 7.7155 20,002
GAIN FROM SALE OF ASSETS 39,500 7.7155 5,120
INTEREST EXPENSE (194,230) 7.7155 (25,174)
COMMISSION PAID (5,616) 7.7155 (728)
-------------------------------------------
1,210,121 7.7155 156,843
-------------------------------------------
INCOME BEFORE TAX 2,091,556 7.7155 271,085
PROVISION FOR TAX 338,589 7.7155 43,884
-------------------------------------------
NET INCOME 1,752,967 7.7155 227,201
-------------------------------------------
-------------------------------------------
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
FINANCIAL STATEMENTS
FOR THE PERIOD FROM 1 MAY 1994 TO 31 AUGUST 1994
- --------------------------------------------------------------------------------
[LOGO OF FAN, MITCHELL & CO. APPEARS HERE]
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS OF
------------------------------------
KIDDER INDUSTRIAL LIMITED
-------------------------
We have audited the financial statements on pages 2 to 9 in accordance with
Auditing Standards. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company at 31 August 1994 and the results of its operation for
the period from 1 May 1994 to 31 August 1994.
/s/ Fan, Mitchell + Co.
FAN, MITCHELL & CO.
Certified Public Accountants
Hong Kong, 15 November, 1994
<PAGE>
-2-
KIDDER INDUSTRIAL LIMITED
BALANCE SHEET
31 AUGUST 1994
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
Note 31/8/1994 30/4/1994
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and bank balances 247,896 164,762
Accounts receivable 2 1,591,672 382,059
Inventories 3 8,623,133 7,277,808
Prepaid expenses and other current assets 281,296 35,978
------------ ------------
Total current assets 10,743,997 7,860,607
Property and equipment 4 12,119,222 9,499,045
------------ ------------
Total assets 22,863,219 17,359,652
============ ============
LIABILITIES
Current liabilities
Bank overdrafts 5 1,848,317 1,860,786
Accounts payable 7,731,700 5,643,085
Accrued expenses and other current liabilities 267,839 736,604
Taxation 6 150,230 -
------------ ------------
Total current liabilities 9,998,086 8,240,475
------------ ------------
Long term liabilities 7 1,457,876 -
------------ ------------
Deferred taxation 6 95,262 93,000
------------ ------------
SHAREHOLDERS' EQUITY
Share capital 8 8,730,000 8,730,000
Retained earnings 2,581,995 296,177
------------ ------------
Total shareholders' equity 11,311,995 9,026,177
------------ ------------
------------ ------------
Total liabilities and shareholders' equity 22,863,219 17,359,652
============ ============
</TABLE>
/s/ Illegible Signature Appears Here /s/ Illegible Signature Appears Here
- ------------------------------------- -------------------------------------
Director Director
The accompanying notes are an integral part of these financial statements.
<PAGE>
KIDDER INDUSTRIAL LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE PERIOD FROM
1 MAY 1994 TO 31 AUGUST 1994
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
1/5/1994 1/9/1993
to to
Note 31/4/1994 30/4/1994
<S> <C> <C> <C>
TURNOVER 9 8,957,271 9,448,204
=========== ===========
PROFIT BEFORE TAXATION 10 2,438,310 1,569,106
TAXATION 6 152,492 93,000
----------- -----------
NET PROFIT FOR THE PERIOD 2,285,818 1,476,106
LESS:ACCUMULATED LOSS BROUGHT FORWARD 296,177 (1,179,929)
----------- -----------
RETAINED EARNINGS CARRIED FORWARD 2,581,995 296,177
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
1 Significant accounting policies
(a) Translation of foreign currencies
Foreign currency transactions during the period are translated into
Hong Kong dollars at the exchange rates ruling at the transaction
dates. Monetary assets and liabilities in foreign currencies are
translated in Hong Kong dollars at approximately the market rates
ruling at the balance sheet date. Exchange gains and losses on foreign
currency translation are dealt with in the profit and loss account.
(b) Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) and net realisable value, and include materials,
labour and factory overheads. Net realisable value represents estimated
selling price determined under the prevailing market conditions, and
after allowance of further costs to incur.
(c) Property and equipment
Property and equipment are stated at cost or at valuation, less
depreciation. Depreciation is provided on the straight line method over
their estimated useful lives at the following annual rates:-
Land and building over the remaining term of the lease
Plant and machinery 15%
Furniture and fixture 15%
Moulds 20%
Motor vehicle 15%
(d) Related Parties
Parties are considered to be related if one party has the ability to
control the other party or exercise significant influence over the
other party in making financial and operating decisions.
(c) Accounting for Finance Leases as Lessee
Leased assets financed by leasing agreements that transfers
substantially all the risks and rewards incidental to ownership of the
assets are capitalised in the accounts and the corresponding
obligations are treated as liabilities. The assets so capitalised are
depreciated in accordance with the Company's policy.
The total interest, being the difference between the total amount of
instalments payable and the capital cost, is charged to the profit and
loss account over the period of the respective leases.
(f) Taxation
Profits tax is provided on the estimated assessable profits at the tax
rate ruling during the year. Deferred tax is provided at the
anticipated tax rate on timing differences using the liability method,
to the extent that there is a reasonable probability that a liability
will crystallise in the foreseeable future.
<PAGE>
- 5 -
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
2 Accounts receivable
<TABLE>
<CAPTION>
31/8/1994 30/4/1994
HKS HKS
<S> <C> <C>
Related parties 2,622,159 525,619
Others 858,410 13,815
----------- -----------
3,480,569 539,434
========== ===========
</TABLE>
3 Inventories
<TABLE>
<CAPTION>
31/8/1994 30/4/1994
HKS HKS
<S> <C> <C>
Raw materials 6,151,895 4,850,110
Work-in-progress 416,565 523,977
Finished goods 2,054,673 1,903,721
----------- -----------
8,623,133 7,277,808
========== ===========
</TABLE>
<PAGE>
- 6 -
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
4 Property and equipment
<TABLE>
<CAPTION>
Land Furniture
and Plant and and Motor
building machinery fixtures Moulds vehicle Total
-------- --------- -------- ------ ------- -----
HK$ HK$ HK$ HK$ HK$ HK$
At cost
<S> <C> <C> <C> <C> <C> <C>
Balance at 1/5/1994 7,245,000 1,129,291 429,675 1,433,540 75,000 10,312,506
Additions 1,561,250 1,092,236 91,659 200,600 - 2,935,745
- (152,630) - - - (152,630)
-----------------------------------------------------------------------
8,806,250 2,058,897 521,334 1,634,140 75,000 13,095,621
-----------------------------------------------------------------------
Accumulated Depreciation
Balance at 1/5/1994 20,900 286,964 125,483 368,864 11,250 813,461
Charge for the period 48,400 102,945 26,067 108,943 3,750 290,105
Written back on disposal - (127,167) - - - (127,167)
-----------------------------------------------------------------------
69,300 262,742 151,550 477,807 15,000 976,399
-----------------------------------------------------------------------
Net book value
At 31 August 1994 8,736,950 1,796,155 369,784 1,156,333 60,000 12,119,222
=======================================================================
At 30 April 1994 7,224,100 842,327 304,192 1,064,676 63,750 9,499,045
=======================================================================
</TABLE>
Certain land and buildings are situated at Feng Gang Town, Dougguan City,
China under a 50 years term lease starting from August 1992. All
buildings on that piece of land will be surrendered to the Town District
Office on expiry of the lease.
Other land and buildings are situated at Hong Kong on long leases.
The net book value of the land and buildings are further classified by
locations as follows:-
<TABLE>
<CAPTION>
HK$
<S> <C>
Hong Kong 1,561,250
China 7,175,700
-----------
8,736,950
===========
</TABLE>
Fixed assets includes assets purchased under a finance lease with total
net book of HK$977,132.
<PAGE>
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
5 Bank Overdraft
General banking facilities are secured by personal properties belonging to
directors.
<S> <C> <C>
6 Taxation 1/5/1994 1/9/1993
to to
a) Taxation in the profit and loss 31/8/1994 30/4/1994
account represents : HK$ HK$
Provision for Hong Kong profits
tax at 16.5% on the estimated
assessable profits of the period 150,230 -
Deferred Taxation 2,262 93,000
---------- ----------
152,492 93,000
========== ==========
<CAPTION>
31/8/1994 30/4/1994
HK$ HK$
<S> <C> <C>
b) Taxation in the balance sheet
represents :
Provision for Hong Kong profits
tax for the period 150,230 -
========== ==========
c) Deferred taxation in blanace sheet
represents :
Balance brought forward 93,000 -
Provision for the period 2,262 93,000
---------- ----------
95,262 93,000
========== ==========
<CAPTION>
Deferred taxation represents the tax effect on the excess of captial
allowance claimed in tax computation over the related depreciation
charged in the financial statements.
<S> <C> <C>
7 Long Term Liabilities 31/8/1994 30/4/1994
HK$ HK$
Bank mortgage loan 841,646 -
Other loan 267,525 -
Finance lease obligations 348,705 -
---------- ---------
1,457,876 -
========== =========
<CAPTION>
Other loan and finance lease obligations are both repayable by monthly
instalments up to August 1996 and carry interest at approximately 15%p.a.,
Long term liabilities are repayable as below :
<S> <C> <C>
Between second to fifth year 969,647 -
Over 5 years 488,229 -
---------- ---------
1,457,876 -
========== =========
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
8 Share Capital
<TABLE>
<CAPTION>
31/8/1994 30/4/1994
HKS HKS
<S> <C> <C>
Authorised
10,000,000 shares of HK$1 10,000,000 10,000,000
---------- ----------
Issued and fully paid
8,730, shares of HK$1 8,730,000 8,730,000
---------- ----------
</TABLE>
9 Turnover
Turnover represents invoiced sales of goods less returns and discounts.
<TABLE>
<CAPTION>
10 Profit before taxation 1/5/1994 1/9/1993
to to
31/8/1994 30/4/1994
<S> <C> <C>
Profit before taxation is arrived at HKS HKS
after charging
Auditors' remuneration 25,000 105,650
Depreciation - own assets 238,676 539,218
- leased assets 51,428 -
Interest paid - bank 51,428 132,110
- others 11,550 5,400
-------- --------
</TABLE>
11 DIRECTORS' REMUNERATION
Directors' remuneration disclosed pursuant to Section 161 of the Companies
Ordinance is as follows:-
<TABLE>
<CAPTION>
1/5/1994 1/9/1993
to to
31/8/1994 30/4/1994
<S> <C> <C>
Fees Nil Nil
Other Emoluments 120,000 60,000
-------- ---------
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
NOTES TO FINANCIAL STATEMENTS
12 Related parties transactions
The following is a summary of significant transactions with related parties
recorded during the period not otherwise disclosed in financial statements:
Trading transactions
The following transactions were made during the period with companies in
which directors have interest:
<TABLE>
<CAPTION>
1/5/1994 1/9/1993
to to
31/8/1994 30/4/1994
HKS HKS
<S> <C> <C>
Sales to related parties 7,029,367 9,091,075
Subcontracting charge received from related parties 117,936 208,615
Purchases from related parties 15,912 161,560
</TABLE>
13 COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the current
period's presentation.
14 Approval of Financial Statements
The financial statements from pages 2 to 9 were approved by directors on
15 November, 1994.
<PAGE>
(FOR MANAGEMENT PURPOSES ONLY)
KIDDER INDUSTRIAL LIMITED
MANUFACTURING, TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE PERIOD FROM 1 MAY 1994 TO 31 AUGUST 1994
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
1/5/1994 1/9/1993
to to
Note 31/8/1994 30/4/1994
<S> <C> <C> <C>
COST OF RAW MATERIALS CONSUMED
Purchases 4,971,048 7,631,224
Less: Returns Outwards 602,006 69,916
Discounts Received 46,730 59,629
------------ ------------
Add: Opening Stock 4,322,312 7,501,679
7,277,808 4,019,937
------------ ------------
11,600,120 11,521,616
Less: Closing Stock 8,623,133 7,277,807
------------ ------------
2,976,987 4,243,809
DIRECT EXPENSES 1 1,819,710 1,584,847
------------ ------------
PRIME COST 4,796,697 5,828,656
FACTORY OVERHEAD EXPENSES 2 838,604 1,086,451
------------ ------------
COST OF PRODUCTION CARRIED DOWN 5,635,301 6,915,107
============ ============
SALES 8,957,271 9,448,204
LESS: DISCOUNTS ALLOWED - 7,510
------------ ------------
8,957,271 9,440,694
ADD:SUB-CONTRACTING CHARGES RECEIVED 124,636 94,682
------------ ------------
9,081,907 9,535,376
LESS:COST OF PRODUCTION BROUGHT DOWN 5,635,301 6,915,107
------------ ------------
GROSS PROFIT 3,446,606 2,620,269
ADD:SUNDRY INCOME 24,846 97,407
------------ ------------
3,471,452 2,717,676
LESS:ADMINISTRATION AND GENERAL EXPENSES 3 1,033,142 1,148,570
------------ ------------
NET PROFIT BEFORE TAX 2,438,310 1,569,106
TAXATION 152,492 93,000
------------ ------------
NET PROFIT AFTER TAX 2,285,818 1,476,106
PROFIT/(LOSS) BROUGHT FORWARD 296,177 (1,179,929)
------------ ------------
PROFIT CARRIED FORWARD 2,581,995 296,177
============ ============
</TABLE>
<PAGE>
(FOR MANAGEMENT PURPOSES ONLY)
KIDDER INDUSTRIAL LIMITED
NOTES TO MANUFACTURING, TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE PERIOD FROM 1 MAY 1994 TO 31 AUGUST 1994
(Expressed in Hong Kong Dollars)
<TABLE>
<CAPTION>
1/5/1994 1/9/1993
to to
1. DIRECT EXPENSES 31/4/1994 30/4/1994
<S> <C> <C>
Artwork and Film 27,694 39,712
Consumable Store 93,461 96,136
Direct Labour 342,358 474,585
Packing Charges 598,013 399,119
Printing and Label 233,314 234,358
Screen Printing Charges 4,037 2,843
Sub-Contracting Charges 446,402 261,483
Tooling Charges 68,231 76,611
Translation Charges 6,200 -
----------- -----------
1,819,710 1,584,847
=========== ===========
2. FACTORY OVERHEAD EXPENSES
Compensation and Penalty 3,303 596
Cleaning Charges 72 1,314
Contract Charges and Stamp Duty 6,010 11,459
Declaration and Certificate 8,713 21,805
Depreciation 264,038 293,894
Electricity 134,033 138,783
Entertainment 18,331 17,831
Government Charges 99,998 53,468
Houseware 1,356 13,183
Inspection Charges - 6,299
Insurance 2,411 2,996
Management Fee 1,368 35,798
Medical Expenses 323 16,429
Messing 81,721 118,069
Motor Car Expenses 6,752 8,237
Postage - China - 21
Printing and Stationery 4,238 12,939
Rent - 44,200
Repair and Maintenance 23,222 30,077
Sundry Expenses 290 (137)
Telephone 31,816 33,203
Transportation 6,130 5,998
Travelling Expenses 16,722 8,029
Wages 118,800 184,625
Water 485 281
Welfare and Allowance 8,472 27,054
--------- -----------
838,604 1,086,451
========= ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1/5/1994 1/9/1993
to to
3. ADMINISTRATION AND GENERAL EXPENSES 31/4/1994 30/4/1994
<S> <C> <C>
Accountancy and Secretarial Fee 16,575 9,100
Audit Fee 25,000 -
Bad Debt - 10,322
Bank Charges 10,690 9,387
Bank Loan Interest 3,631 18,567
Bank Overdraft Interest 47,456 81,743
Bonus 1,643 32,395
Building Management Fee 5,368 10,256
Business Registration Fee 2,250 1,316
Cleaning Charges 128 223
Commission Paid - 4,940
Compensation and Penalty - 7,800
Declaration and Certificate 5,994 11,188
Depreciation - Furniture and Fixtures 26,067 37,932
Electricity - 5,426
Entertainment 4,813 6,746
Exchange Difference 7,961 3,138
Gain on disposal of Fixed Assets (54,537) -
Government - Hong Kong (84) 58,800
Hire Purchase Interest 6,150 -
Insurance 5,046 -
Local Travelling Expenses 58,291 17,424
Loan Interest - Hong Kong 5,400 5,400
Medical Expenses - Hong Kong - 362
Messing 9,930 20,981
Oversea Travelling Expenses - 25,885
Paging Charges - 2,370
Postage and Stamp 120 276
Printing and Stationery 3,979 21,155
Repairs and Maintenance 2,715 (17)
Rent and Rate 52,404 105,849
Salaries 600,218 380,360
Sample Charges 6,902 1,060
Solicity Fee - 3,525
Sundry Expenses 3,823 11,582
Telephone 17,934 38,728
Testing Charges 9,105 4,090
Transportation 148,085 94,416
Water 85 195
--------- ---------
1,033,142 1,148,570
========= =========
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
BALANCE SHEET TRANSLATION
AUGUST 31, 1994
<TABLE>
<CAPTION>
BALANCE EXCHANGE BALANCE
IN RATE IN
HONG KONG USED U.S.
DOLLARS DOLLARS
------------------------------------
<S> <C> <C> <C>
CASH 247,896 7.7150 32,132
ACCOUNTS RECEIVABLE 1,591,672 7.7150 206,308
INVENTORY 8,623,133 7.7150 1,117,710
PREPAYMENTS 281,296 7.7150 36,461
FIXED ASSETS 12,119,222 7.7150 1,570,865
------------------------------------
22,863,219 2,963,476
====================================
ACCOUNTS PAYABLE 7,389,596 7.7150 957,823
BANK LOAN PAYABLE 1,848,317 7.7150 239,574
OTHER CURRENT LIABILITIES 267,839 7.7150 34,717
DEFERRED TAX PAYABLE 95,262 7.7150 12,348
INCOME TAX PAYABLE 150,230 7.7150 19,472
NOTE PAYABLE 958,334 7.7150 124,217
LONG TERM LIABILITIES 841,646 7.7150 109,092
COMMON STOCK 8,730,000 7.7160 1,131,415
RETAINED EARNINGS-BEGINNING (1,179,929) 7.7160 (152,920)
CURRENT PERIOD INCOME 3,761,924 7.7155 487,580
CUMULATIVE TRANSLATION ADJUSTMENTS 158
------------------------------------
22,863,219 2,963,476
====================================
</TABLE>
<PAGE>
KIDDER INDUSTRIAL LIMITED
INCOME STATEMENT TRANSLATION
FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<CAPTION>
TOTAL EXCHANGE TOTAL
IN H.K. RATE IN U.S.
DOLLARS USED DOLLARS
-----------------------------------------
<S> <C> <C> <C>
SALES 18,397,965 7.7155 2,384,546
COST OF SALES 12,550,408 7.7155 1,626,649
-----------------------------------------
GROSS PROFIT 5,847,557 7.7155 757,897
GENERAL AND ADMINISTRATION EXPENSE:
ACCOUNTING 131,325 7.7155 17,021
AUDITOR'S FEES 24,998 7.7155 3,240
BAD DEBT 10,323 7.7155 1,338
BANK CHARGE 20,076 7.7155 2,602
BUILDING MANAGEMENT 15,624 7.7155 2,025
BUSINESS REGISTRATION 62,280 7.7155 8,072
CLEANING 355 7.7155 46
COMMISSION 4,938 7.7155 640
DECLARATION AND CERTIFICATE 17,182 7.7155 2,227
DEPRECIATION 64,000 7.7155 8,295
ELECTRICITY 5,702 7.7155 739
ENTERTAINMENT 11,558 7.7155 1,498
MESSING & REFRESHMENT 30,908 7.7155 4,006
INSURANCE 5,408 7.7155 701
OVERSEA TRAVEL 25,885 7.7155 3,355
POSTAGE 393 7.7155 51
PRINTING AND STATIONARY 25,137 7.7155 3,258
REPAIR AND MAINTENANCE 2,700 7.7155 350
RENT 158,253 7.7155 20,511
SALARIES 1,022,417 7.7155 132,515
SAMPLE 7,962 7.7155 1,032
SOLICITY 3,526 7.7155 457
SUNDRY 15,416 7.7155 1,998
TELEPHONE 59,031 7.7155 7,651
TESTING 13,194 7.7155 1,710
TRANSPORTATION 242,499 7.7155 31,430
TRAVEL 75,713 7.7155 9,813
-----------------------------------------
TOTAL G & A 2,056,803 7.7155 266,581
-----------------------------------------
INCOME FROM OPERATIONS 3,790,754 7.7155 491,316
-----------------------------------------
INTEREST EXPENSES (168,347) 7.7155 (21,819)
OTHER INCOME 341,571 7.7155 44,271
GAIN FROM SALE OF ASSETS 54,537 7.7155 7,069
EXCHANGE GAIN/LOSS (11,099) 7.7155 (1,439)
-----------------------------------------
216,662 7.7155 28,082
-----------------------------------------
INCOME BEFORE TAX 4,007,416 7.7155 519,398
PROVISION FOR TAX 245,492 7.7155 31,818
-----------------------------------------
NET INCOME 3,761,924 7.7155 487,580
=========================================
</TABLE>
<PAGE>
PART III
ITEM 1: INDEX TO EXHIBITS
Exhibit 3.1 Articles of Incorporation, as amended
Exhibit 3.2 By-laws
Exhibit 10.1 Fulfillment Agreement with Radio Shack
Division of Tandy Corporation
Exhibit 10.2 Exclusivity Agreement with Sing-A-Long
International, Inc.
Exhibit 10.3 Exclusivity Agreement with Spacetech by
S.N.S.T. Inc.
Exhibit 10.4 Copyright and Indemnification Agreement
with Spacetech by S.N.S.T. Inc.
Exhibit 10.5 Lease Agreement with Koon King Inc.
Exhibit 10.6 Agreement with Pana-Pacific Corporation
Exhibit 10.7 Letter of Intent with Object A Inc.
Exhibit 10.8 Supply Agreement with TeleSolutions,
Inc.
Exhibit 10.9 License Agreement with INSO Corporation
Exhibit 10.10 Lease Agreement with Pitney Bowes, Inc.
Exhibit 10.11 License Agreement with Custom
Calculations Inc.
Exhibit 10.12 Form of Common Stock Certificate
Exhibit 22 Subsidiaries of the Registrant
ITEM 2: DESCRIPTION OF EXHIBITS
Not applicable.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PACIFIC POWER GROUP, INC.
July 11, 1996.
By /S/ Raymond S. Lee
-----------------------------------------------
Chairman of the Board,
Chief Executive Officer and
Secretary
By /S/ Joel A. Abrams
-----------------------------------------------
Director, President and
Chief Operations Officer
<PAGE>
EXHIBIT 3.1
<PAGE>
FILING FEE: $300.00
BY: VARGAS & BARTLETT
SUITE 300
201 WEST LIBERTY STREET
P O BOX 281
RENO, NEVADA 89504
ARTICLES OF INCORPORATION
OF
FULLERTON, INC.
---------------
That we, the undersigned, have this day voluntarily associated
ourselves together for the purpose of forming a corporation under the laws of
the State of Nevada, and to that end, we do hereby certify:
FIRST: The name of the corporation is
-----
FULLERTON, INC.
---------------
SECOND: The location of the principal office of this corporation
------
within the State of Nevada is Suite 300, 201 West Liberty Street, Reno, Washoe
County, State of Nevada and the Resident Agent in charge thereof is Robert W.
Marshall.
THIRD: The purpose for which this corporation is formed, and the
-----
nature of the business and objects proposed to be transacted and carried on by
it are:
To engage in any lawful activity whatsoever in the State of
Nevada and/or in any state of the United States of America, and/or any territory
or possession of the United Stated of America, and/or the District of Columbia,
and/or any foreign country.
FOURTH: The authorized capital of this corporation shall consist of
------
one hundred million (100,000,000) shares of stock of the par value of One Cent
($.01) per share. Each
<PAGE>
such share, when issued, shall have one (1) vote.
FIFTH: The members of the governing Board of the corporation shall
-----
be styled "Directors", and their number shall be not less than three (3) and not
more than seven (7), and in this respect, the Board of Directors of this
corporation is expressly vested with the power to increase or decrease the
number of such Directors within the limits so stated, provided, however, that in
the event all of the issued and outstanding shares of this corporation are owned
beneficially and of record by one or two stockholders, the number of Directors
may be less than three (3), but not less than the number of stockholders.
The names and post office addresses of the initial Board of
Directors, which shall be three (3) in number, are as follows:
NAME POST OFFICE ADDRESS
---- -------------------
Garth Scallon 555 Capitol Mall
Sacramento, CA 95814
A.J. Bradford Post Office Box 307
Crystal Bay, NV 89402
Robert L. Fullerton Post Office Box 4199
Incline Village, NV 89450
SIXTH: The names and post office addresses of each of the
-----
incorporators signing these Articles of Incorporation are as follows:
-2-
<PAGE>
NAME POST OFFICE ADDRESS
---- -------------------
Robert W. Marshall 2440 Holcomb Lane
Reno, NV 89511
Flora L. Harrison Post Office Box 1288
Reno, NV 89504
Anna M. Skailand Post Office Box 281
Reno, NV 89504
SEVENTH: The capital stock of this corporation, after the amount
-------
of the subscription price has been paid, shall not be subject to assessment to
pay the debts of the corporation, and no stock issued as fully paid shall be
assessable or assessed, nor shall the private property of the stockholders,
directors or officers of this corporation be subject to the payment of any
corporate debts to any extent whatsoever, and in this particular, the Articles
of Incorporation shall not be subject to amendment.
EIGHTH: This corporation shall have perpetual existence.
------
NINTH: Every person who was or is a party, or is threatened to
-----
be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or a person of whom he is the legal representative is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, or as its
representative in a
-3-
<PAGE>
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless to the fullest extent legally permissible under the laws of the
State of Nevada from time to time against all expenses, liability and loss
(including attorneys' fees, judgments, fines and amounts paid or to be paid in
settlement) reasonably incurred or suffered by him in connection therewith.
Such right of indemnification shall be a contract right which may be enforced in
any manner desired by such person. Such right of indemnification shall not be
exclusive of any other right which such Directors, officers or representatives
may have or hereafter acquire, and, without limiting the generality of such
statement, they shall be entitled to their respective rights of indemnification
under any by-law, agreement, vote of stockholders, provision of law, or
otherwise, as well as their rights under this Article.
Without limiting the application of the foregoing, the Board of
Directors may adopt by-laws from time to time with respect to indemnification,
to provide at all times the fullest indemnification permitted by the laws of the
State of Nevada, and may cause the corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, or as its representative in a
-4-
<PAGE>
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such status, whether or not the corporation would have the power to indemnify
such person.
TENTH: Unless otherwise determined by the Board of Directors, no
-----
holder of stock of the corporation shall be entitled as such, as a matter of
right, to purchase or subscribe for any stock of any class which the corporation
may issue or sell, whether or not exchangeable for any stock of the corporation
of any class or classes, and whether out of unissued shares authorized by the
Articles of Incorporation of the corporation as originally filed or by any
amendment thereof, or out of shares of stock of the corporation acquired by it
after the issue thereof, and whether issued for cash, labor performed, personal
property, real property, or leases thereof, nor shall he be entitled to any
right of subscription to any thereof; nor, unless otherwise determined by the
Board of Directors, shall any holder of any shares, as a matter of right, to
purchase or subscribe for any obligation which the corporation may issue or sell
that shall be convertible into or exchangeable for any shares of the stock of
its capital stock of any class or classes.
IN WITNESS WHEREOF, we have hereunto set our hands
-5-
<PAGE>
this 29th day of March, 1984, hereby declaring and certifying that the facts
stated hereinabove are true.
/s/ ROBERT W. MARSHALL
----------------------
Robert W. Marshall
/s/ ANNA M. SKAILAND
----------------------
Anna M. Skailand
/s/ FLORA L. HARRISON
----------------------
Flora L. Harrison
STATE OF NEVADA, )
: SS.
COUNTY OF WASHOE. )
On this 29th day of March, 1984, personally appeared before me, a
Notary Public, Robert W. Marshall, Anna M. Skailand and Flora L. Harrison, who
acknowledged to me that they executed the foregoing instrument.
/s/ MARLENE G. HUMPHREY
-----------------------
Notary Public
[NOTARY PUBLIC SEAL APPEARS HERE]
-6-
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
FULLERTON, INC.
We, the undersigned, Joel A. Abrams, President, and Raymond S. Lee,
Secretary of Fullerton Inc., do hereby certify:
That at a Special Meeting of the Shareholders of said corporation duly
convened, held on October 21, 1994, the shareholders adopted the following
resolutions to amend the Articles of Incorporation as follows.
Article I is hereby amended to read as follows: The name of the corporation
is Pacific Power Group, Inc.
Article IV is hereby amended to read as follows: The authorized capital of
this corporation shall consist of thirty million (30,000,000) shares of common
stock of the par value of $0.001 per share. Each said share, when issued, shall
have one vote.
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation is twelve million, nine hundred
thirty-three thousand, nine hundred fifty-six (12,933,956); that said changes
and amendment have been consented to and approved by a majority of the vote of
the stockholders
<PAGE>
holding at least a mujority of each class of stock outstanding and entitled to
vote thereon.
/s/ JOEL A. ABRAMS
-------------------------
Joel A. Abrams, President
/s/ RAYMOND S. LEE
-------------------------
Raymond S. Lee, Secretary
State of California )
) ss.
County of Los Angeles )
On November 14, 1994, personally appeared before me, a Notary Public,
Joel A. Abrams and Raymond S. Lee, who ackowledged that they executed the above
instrument.
/s/ SOPHIA YANG
-------------------------
NOTARY PUBLIC
[NOTARY PUBLIC SEAL OF SOPHIA YANG APPEARS HERE]
-2-
<PAGE>
STATE OF NEVADA
Department of
State
I hereby certify that this is a
true and complete copy of the document
as filed in this office.
DATED: DEC 02 1994
-------------
[SIGNATURE OF CHERYL A. LAU APPEARS HERE]
CHERYL A. LAU
Secretary of State
By /s/ D. Farmer
-------------
<PAGE>
CERTIFICATE OF DECREASE IN
NUMBER OF AUTHORIZED AND OUTSTANDING
SHARES OF COMMON STOCK
OF
PACIFIC POWER GROUP, INC.
We the undersigned as President and Secretary of Pacific Power Group, Inc.
do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened
and held on the 14th day of March, 1996 adopted a resolution changing the number
of its authorized class of common stock and effecting a one-to-three (1:3) share
reverse split of its issued and outstanding common stock.
1. At the time of the change the corporation had 30,000,000 authorized
shares of common stock, par value $0.001 per share; and
2. Following the change, the corporation has 10,000,000 authorized shares
of common stock, par value $0.001 per share; and
3. Following the change three (3) shares of duly issued and outstanding
common stock shall be exchanged for one (1) share of the newly authorized common
stock, par value $0.001 per share; therefore, following the reverse split the
11,170,224 shares of common stock outstanding at the time of the change shall be
reduced to 3,723,408 shares of outstanding common stock; and
4. Any fractional shares created by the reverse split shall be rounded off
to the nearest whole share of common stock; and
5. Reduction in the number of authorized shares of common stock, par value
$0.001 per share and the one-for-three (1:3) reverse split has been consented to
and approved by the owners of a majority of the duly issued and outstanding
shares of common stock which represent a majority of the sole class of common
stock outstanding and entitled to vote thereon.
6. The change is effective immediately upon the filing of this
Certificate.
/s/ JOEL A. ABRAMS
-------------------------
Joel A. Abrams, President
/s/ RAYMOND LEE
-------------------------
Raymond Lee, Secretary
<PAGE>
RESOLUTIONS OF THE BOARD OF DIRECTORS
OF
PACIFIC POWER GROUP, INC., A NEVADA
CORPORATION
The undersigned, constituting the duly elected members of the Board of
Directors of Pacific Power Group, Inc. a Nevada corporation (the "Corporation"),
hereby adopt the following resolutions as authorized pursuant to the provisions
of the Nevada Revised Statutes:
WHEREAS, it has been proposed that the Corporation engage in a reverse
stock split of its authorized, issued and outstanding common stock on a
one-for-three (1:3) basis; and
WHEREAS, it has been proposed that the Corporation amend its Articles of
Incorporation to increase the number of post reverse split authorized shares of
common stock; and
WHEREAS, the undersigned as directors of the Corporation believe that
each of the proposed actions would be beneficial for the Corporation and its
shareholders;
NOW, THEREFORE, BE IT:
RESOLVED, that the Board of Directors of the Corporation hereby
determine that the proposed reverse stock split of the authorized, issued and
outstanding common stock of the Corporation on a one-for-three (1:3) basis which
would reduce the issued and outstanding common stock of the Corporation from
11,170,224 shares to approximately 3,723,408 shares is advisable and to the
advantage and for the benefit of the Corporation and its shareholders, and such
reverse stock split is adopted and approved; and
FURTHER RESOLVED, that any fractional shares created as a result of the
reverse stock split can be combined with similar fractional shares and when said
combination reaches one hundred percent said combined fractional shares can be
exchanged for a whole share of common stock; and
FURTHER RESOLVED, that the Board of Directors of the Corporation hereby
determine that the proposed amendment to the Corporation's Certificate of
Incorporation set forth in Exhibit "A" which is attached hereto and incorporated
herein by reference is advisable and to the advantage and for the benefit of
the Corporation and its shareholders, and such amendment be and hereby is
adopted and approved; and
FURTHER RESOLVED, that the proper officers of the Corporation be, and
they hereby are, authorized and directed to do all other acts and to execute and
deliver all documents as may
<PAGE>
WRITTEN CONSENT IN LIEU OF
SPECIAL MEETING OF SHAREHOLDERS OF
PACIFIC POWER GROUP, INC.
A NEVADA CORPORATION
The undersigned being the owners of outstanding and issued common stock
of Pacific Power Group, Inc. a Nevada corporation, which represent a majority of
the outstanding and issued shares of common stock of that corporation, do hereby
consent in writing, pursuant to Nevada Revised Statutes (S) 78.207
NOW, THEREFORE, BE IT
RESOLVED, that the reverse stock split of the issued and outstanding
shares of the common stock of the corporation as proposed by the board of
directors is hereby approved and the authorized, issued and outstanding common
stock of the corporation is reduced pursuant to the one-for-three (1:3) share
reverse split; and
FURTHER RESOLVED, that after the reverse split the Corporation shall
have 10,000,000 authorized shares of common stock par value $0.001, per share
and the 11,170,224 shares of outstanding common stock shall be reduced to
3,723,408 shares of duly issued and outstanding common stock, par value $0.001
per share; and
FURTHER RESOLVED, that any fractional shares created by the reverse
stock split will remain intact and will be eligible for and subject to
combination and as combined can be exchanged for whole shares of common stock;
and
FURTHER RESOLVED, that a majority of the shareholders of the Corporation
hereby determine that the proposed amendment to the Corporation's Articles of
Incorporation increasing the number of authorized shares of post reverse split
common stock from 10,000,000 to 50,000,000 shares, par value $0.001 per share is
hereby approved; and
FURTHER RESOLVED, that the board of directors of the corporation is
hereby authorized to take such actions as necessary to complete the reverse
stock split and complete the exchange of the currently issued and outstanding
stock certificates representing pre-reverse shares with new certificates.
DATED this 18th day of March 1996.
/s/ RAYMOND LEE
---------------
Raymond Lee
<PAGE>
be required, necessary or appropriate in the opinion of legal counsel, to carry
out the intent of these resolutions including calling a special meeting of the
shareholders of the Corporation for the purpose of presenting said resolutions
to the Corporation's shareholders for consideration and approval.
DATED this 18 day of March 1996.
/s/ JOEL A. ABRAMS
------------------
JOEL A. ABRAMS
/s/ RAYMOND LEE
------------------
RAYMOND LEE
/s/ YONIE HSIN
------------------
YONIE HSIN
<PAGE>
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
PACIFIC POWER GROUP, INC.
We the undersigned as President and Secretary of Pacific Power Group,
Inc. do hereby certify:
That the Board of Directors of said Corporation at a
meeting duly convened and held by telephone on the 14th day of March,
1996 adopted a Resolution to amend the original Articles as follows:
A. Delete Article IV in its entirety and
substitute in its place the following:
Article Four (Capital Stock). The Corporation
------------
shall have authority to issue fifty million (50,000,000)
shares of common stock, par value $0.001 per share.
The holders of shares of capital stock of the
Corporation shall not be entitled to preemptive or
preferential rights to subscribe to any unissued stock
or any other securities which the Corporation may now or
hereafter be authorized to issue.
The Corporation's capital stock may be
issued and sold from time to time for such consideration
as may be fixed by the board of directors.
The stockholders shall not possess cumulative
voting rights at all shareholder meetings called for the
purpose of electing a board of directors.
Said Amendment has been consented to and approved by the owners of a
majority of the duly issued and outstanding shares of common stock which
represent a majority of the sole class of common stock outstanding and entitled
to vote thereon.
The change is effective immediately upon the filing of this Certificate.
/s/ JOEL A. ABRAMS
-------------------------
Joel A. Abrams, President
<PAGE>
/s/ RAYMOND LEE
----------------------
Raymond Lee, Secretary
STATE OF CALIFORNIA )
: ss.
COUNTY OF LOS ANGELES )
On this 18 day of March, 1996, personally appeared before me Joel A.
Abrams, personally known to me or provided to me on the basis of satisfactory
evidence to be the person whose name is signed on the preceding document, and
acknowledged to me that he signed it voluntarily for its stated purpose.
/s/ SOPHIA YANG
-----------------------
[NOTARY SEAL APPEARS HERE] Notary Public
STATE OF CALIFORNIA )
: ss.
COUNTY OF LOS ANGELES )
On this 18 day of March, 1996, personally appeared before me Raymond
Lee, personally known to me or provided to me on the basis of satisfactory
evidence to be the person whose name is signed on the preceding document, and
acknowledged to me that he signed it voluntarily for its stated purpose.
/s/ SOPHIA YANG
-----------------------
[NOTARY SEAL APPEARS HERE] Notary Public
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On this 18 day of March, 1996, personally appeared before me Joel A.
Abrams, personally known to me or provided to me on the basis of satisfactory
evidence to be the person whose name is signed on the preceding document, and
acknowledged to me that he signed it voluntarily for its stated purpose.
/s/ SOPHIA YANG
-----------------------------
[NOTARY SEAL APPEARS HERE] Notary Public
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On this 18 day of March, 1996, personally appeared before me Raymond
Lee, personally known to me or provided to me on the basis of satisfactory
evidence to be the person whose name is signed on the preceding document, and
acknowledged to me that she signed it voluntarily for its stated purpose.
/s/ SOPHIA YANG
-----------------------------
[NOTARY SEAL APPEARS HERE] Notary Public
<PAGE>
EXHIBIT 3.2
<PAGE>
BYLAWS
OF
--FULLERTON, INC.--
ARTICLE I
OFFICES
-------
1.1 Business Office
---------------
The principal business office ("principal office") of the Corporation shall
be located at any place either within or without the State of Nevada as
designated in the Corporation's most current Annual Report filed with the Nevada
Secretary of State. The Corporation may have such other offices, either within
or without the State of Nevada, as the business of the Corporation may require
from time to time.
1.2 Registered Office
-----------------
The registered office of the Corporation required by the State of Nevada to
be maintained in the State of Nevada may be, but need not be, changed, from time
to time, by the Board of Directors.
ARTICLE II
STOCKHOLDERS
------------
2.1 Annual Stockholders Meeting
---------------------------
The Annual Meeting of Stockholders shall be held at the principal office of
the Corporation on the 1st of May or at such other times as the Board of
Directors may, from time to time, determine. If the day so designated falls upon
a legal holiday, then the meeting shall be held upon the first business day
thereafter. The Secretary shall serve personally or by mail a written notice
thereof, not less than ten (10) nor more than fifty (50) days previous to such
meeting, addressed to each stockholder at his address as it appears on the stock
book; but at any meeting at which all stockholders not present have waived
notice in writing, the giving of notice as above required may be dispensed with.
2.2 Special Stockholder Meetings
----------------------------
Special Meetings of Stockholders other than those regulated by statute, may
be called at any time by a majority of the Directors. Notice of such meeting
stating the place, day, and hour, and the purpose for which it is called, shall
be served personally or by mail, not less than (10) days before the date set for
such meeting. If mailed, it shall be directed to a stockholder at his address as
it appears on the stock book; but at any meeting at which all stockholders not
present have waived notice in writing, the giving of notice as above described
may be dispensed with. The stockholders may also call a Special Meeting of
Stockholders whenever stockholders representing not less than ten percent (10%)
of the capital stock of the Corporation entitled to vote at the meeting request
it.
<PAGE>
The President may in his discretion call a special meeting of stockholders
upon ten (10) days notice. No business other than that specified in the call for
the meeting shall be transacted at any special meeting of the stockholders,
except upon the unanimous consent of all the stockholders entitled to notice
thereof.
2.3 Closing of Transfer Books or Fixing of Record Date
--------------------------------------------------
For the purpose of determining stockholders entitled to receive notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
stockholders entitled to receive payment of any dividend; or in order to make a
determination of stockholders for any other proper purpose, the Board of
Directors of the Corporation may provide that the stock transfer books shall be
closed for at least ten (10) days immediately preceding such meeting. In lieu of
closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of stockholders, such date in
any case to be not more than seventy (70) days, and in case of a meeting of
stockholders, not less that ten (10) days prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of stockholders entitled to receive notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination as to
stockholders. When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
2.4 Voting
------
At all meetings of the stockholders of record having the right to vote,
subject to the provisions of Section 3, each stockholder of the Corporation is
entitled to one (1) vote for each share 6f stock having voting power standing in
the name of such stockholder on the books of the Corporation. Votes may be cast
in person or by written authorized proxy.
2.5 Proxy
-----
Each proxy must be executed in writing by the stockholder of the
Corporation or his attorney-in-fact. Such proxy shall be filed with the
Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after the expiration of eleven (11) months from the date of its
execution unless it shall have specified therein its duration.
Every proxy shall be revocable at the discretion of the person executing it
or of his personal representatives or assigns.
2
<PAGE>
2.6 Voting of Shares by Certain Holders
-----------------------------------
Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the bylaws of such corporation may prescribe, or, in
the absence of such provision, as the Board of Directors of such corporation may
determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him either in person or by proxy without a transfer of such shares into
his name. Shares standing in the name of a trustee may be voted by him either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the Corporation or held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
2.7 Election of Directors
---------------------
At each election of Directors, every stockholder entitled to vote at such
election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are Directors to be elected and
for whose election he has a right to vote. There shall be no cumulative voting.
2.8 Quorum
------
A majority of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of the
stockholders.
If a quorum shall not be present or represented, the stockholders entitled
to vote thereat, present in person or by proxy, shall have the power to adjourn
the meeting, from time to time, until a quorum shall be present or represented.
At such rescheduled meeting at which a quorum shall be present or represented,
business may be transacted which might have been transacted at the meeting as
originally notified.
If a quorum exists, a majority vote of those shares present and voting at a
duly organized meeting shall suffice to defeat or enact any proposal unless the
Statutes of the State of Nevada,
3
<PAGE>
the Articles of Incorporation or these Bylaws require a greater-than-majority
vote, in which event the higher vote shall be required for the action to
constitute the action of the Corporation.
2.9 Informal Action by Stockholders
-------------------------------
Any action required to be taken at a meeting of the stockholders, or any
other action which may be taken at a meeting of the stockholders, may be taken
at a meeting if a consent in writing setting forth the action so taken shall be
signed by all of the stockholders entitled to vote with respect to the subject
matter thereof.
ARTICLE III
DIRECTORS
---------
3.1 Number
------
The affairs and business of this Corporation shall be managed by a Board of
Directors. The first Board of Directors shall consist of two (2) members.
Thereafter, the number of directors may be increased to not more than nine (9)
by resolution of the Board of Directors. Directors need not be residents of the
State of Nevada and need not be stockholders of the Corporation.
3.2 Election
--------
The Directors shall be elected at each annual meeting of the stockholders,
but if any such annual meeting is not held, or the Directors are not elected
thereat, the Directors may be elected at any special meeting of the stockholders
held for that purpose.
3.3 Term of Office
--------------
The term of office of each of the Directors shall be one (1) year, which
shall continue until his successor has been elected and qualified.
3.4 Duties
------
The Board of Directors shall have the control and general management of the
affairs and business of the Corporation. Such Directors shall in all cases act
as a Board, except as herein provided in Section 1, regularly convened, by a
majority, and may adopt such rules and regulations for the conduct of meetings
and the management of the Corporation, as may be deemed proper, so long as it is
not inconsistent with these Bylaws and the laws of the State of Nevada.
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<PAGE>
3.5 Directors' Meetings
-------------------
Regular meetings of the Board of Directors shall be held immediately
following the annual meeting of the stockholders, and at such other time and
places as the Board of Directors may determine, pursuant to two (2) days notice.
3.6 Notice of Meetings
------------------
Notice of meetings other than the regular annual meeting shall be given at
least two (2) days prior thereto, either orally or in writing. At any Directors
meeting at which a quorum of the Board of Directors shall be present, any and
all business may be transacted which might have been transacted if the meeting
had been duly called if a quorum of the Directors waive or are willing to waive
the notice requirements of such meeting.
Any Director may waive notice of any meeting under the provisions of
Article XII. The attendance of a Director at a meeting u shall constitute a
waiver of notice of such meeting except where a Director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully convened or called.
3.7 Voting
------
At all meetings of the Board of Directors, each Director is to have one (1)
vote. The act of a majority of the Directors present at meetings at which a
quorum is present shall be the act of the Board of Directors.
3.8 Vacancies
---------
Vacancies in the Board occurring between annual meetings shall be filled
for the remaining portion of the term by a majority of the remaining Directors.
3.9 Removal of Directors
--------------------
Any one or more of the Directors may be removed, with or without cause, at
any time, by a vote of the stockholders holding a majority of the stock, at any
special meeting called for that purpose.
3.10 Quorum
------
The number of Directors who shall be present at any meeting of the Board of
Directors in order to constitute a quorum for the transaction of any business or
any specified item of business shall be a majority.
The number of votes of Directors that shall be necessary for the
transaction of any business of any specified item of business at any meeting of
the Board of Directors shall be a majority.
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If a quorum shall not be present at any meeting of the Board of Directors,
those present may adjourn the meeting, from time to time, until a quorum shall
be present.
3.11 Executive Committee
-------------------
By resolution of the Board of Directors and at their option, the Directors
may designate an Executive Committee which includes at least three (3) Directors
to manage and direct the daily affairs of the Corporation. Said Executive
Committee shall have and may exercise all of the authority that is vested in the
Board of Directors as if the Board of Directors were regularly convened, except
that the Executive Committee shall not have authority to amend these Bylaws.
At all meetings of the Executive Committee, each member of said committee
shall have one (1) vote and the act of a majority of the members present at a
meeting at which a quorum is present shall be the act of the Executive
Committee.
The number of Executive Committee members who shall be present at any
meeting of the Executive Committee in order to constitute a quorum for the
transaction of business or any specified item of business shall be a majority.
The number of votes of Executive Committee members that shall be necessary
for the transaction of any business or any specified item of business at any
meeting of the Executive Committee shall be a majority.
3.12 Compensation
------------
By resolution of the Board of Directors, the Directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors or
each may be paid a stated salary as a Director. No such payment shall preclude
any Director from serving the Corporation in any other capacity and receiving
compensation therefor.
3.1 Presumption of Assent
---------------------
A Director of the Corporation who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent is entered in the minutes
of the meeting or unless he shall file his written dissent to such action
u with the person acting as the Secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
ARTICLE IV
OFFICERS
--------
4.1 Number
------
The officers of the Corporation shall be: President, Vice-President,
Secretary, and Treasurer, and such Assistant Secretaries as the President shall
determine. An officer may hold more than one (1) office.
6
<PAGE>
4.2 Election
--------
All officers of the Corporation shall be elected annually by the Board of
Directors at its meeting held immediately following the meeting of stockholders,
and shall hold office for the term of one (1) year or until their successors are
duly elected. Officers need not be members of the Board of Directors.
The Board may appoint such other officers, agents and employees as it shall
deem necessary who shall have such authority and shall perform such duties as,
from time to time, shall be prescribed by the Board.
4.3 Duties of Officers
------------------
The duties and powers of the officers of the Corporation shall be as
follows:
PRESIDENT
---------
The President shall, when present, preside at all of the Stockholders and
Directors. He shall present at each Annual Meeting of the Stockholders and
Directors, a report of the condition of the business of the Corporation. He
shall cause to be called regular and special meetings of the Stockholders and
Directors in accordance with these Bylaws. He shall appoint and remove, employ
and discharge, and fix the compensation of all agents, employees, and clerks of
the Corporation other than the duly appointed officers, subject to the approval
of the Board of Directors. He shall sign and make all contracts and agreements
in the name of the Corporation, subject to the approval of the Board of
Directors. He shall see that the books, reports, statements and certificates
required by the statutes are properly kept, made and filed according to law. He
shall sign all certificates of stock, notes, drafts, or bills of exchange,
warrants or other orders for the payment of money duly drawn by the Treasurer;
and he shall enforce these Bylaws and perform all the duties incident to the
position and office, and which are required by law.
VICE-PRESIDENT
--------------
During the absence or inability of the President to render and perform his
duties or exercise his powers, as set forth in these Bylaws or in the acts under
which the Corporation is organized, the same shall be performed and exercised by
the Vice-President; and when so acting, he shall have all the powers and be
subject to all the responsibilities hereby given to or imposed upon such
President.
SECRETARY
---------
The Secretary shall keep the minutes of the meetings of the Board of
Directors and of the stockholders in appropriate books provided for that
purpose. He shall give and serve all notices of the Corporation. He shall be
custodian of the records and of the corporate seal and affix the latter when
required. He shall keep the stock and transfer books in the manner prescribed by
law, so as to show at all times the amount of capital stock issued and
outstanding; the manner and the
7
<PAGE>
time compensation for the same was paid; the names of the owners thereof,
alphabetically arranged; the number of shares owned by each; the time at which
each person became such owner and the amount paid thereon; and keep such stock
and transfer books open daily during the business hours of the office of the
Corporation, subject to the inspection of any stockholder of the Corporation,
and permit such stockholder to make extracts from said books to the extent
prescribed by law. He shall sign all stock certificates. He shall present to the
Board of Directors at their stated meetings all communications addressed to him
officially by the President or any officer or stockholder of the Corporation,
and he shall attend to all correspondence and perform all the duties incident to
the office of Secretary.
TREASURER
---------
The Treasurer shall have the care and custody of and be responsible for all
the funds and securities of the Corporation, and deposit all such funds in the
name of the Corporation in such bank or banks, trust company or trust companies
or safe deposit vaults as the Board of Directors may designate. He shall exhibit
at all reasonable times his books and accounts to any Director or stockholder of
the Corporation upon application at the office of the Corporation during
business hours. He shall render a statement of the condition of the finances of
the Corporation at each regular meeting of the Board of Directors, and at such
other times as shall be required of him, as well as a full financial report at
the annual meeting of the Stockholders. He shall keep, at the office of the
Corporation, correct books of account of all its business and transactions and
such other books of account as the Board of Directors may require. He shall do
and perform all duties pertaining to the office of Treasurer. The Treasurer
shall, if required by the Board Of Directors, give to the Corporation such
security or bond for the faithful discharge of his duties as the Board may
direct. He shall perform such other duties as from time to time may be assigned
to him by the President or by the Directors.
4.4 Bond
----
The Treasurer shall, if required by the Board of Directors, give to the
Corporation such security for faithful discharge of his duties as the Board may
direct.
4.5 Vacancies, How Filled
---------------------
All vacancies in any office shall be filled by the Board of Directors
without undue delay, either at its regular meeting or at a meeting specifically
called for that purpose. In the case of the absence of any officer of the
Corporation or for any reason that the Board of Directors may deem sufficient,
the Board may, except as specifically otherwise provided in these Bylaws,
delegate the power or duties of such officers to any other officer or Director
for the time being, provided a majority of the entire Board concur therein.
4.6 Compensation of Officers
------------------------
The officers shall receive such salary or compensation as may be determined
by the Board of Directors.
8
<PAGE>
4.7 Removal of Officers
-------------------
The Board of Directors may remove any officer, by a majority vote, at any
time with or without cause.
ARTICLE V
CERTIFICATES OF STOCK
---------------------
5.1 Description of Stock Certificates
---------------------------------
The certificates of stock representing shares shall be in such form as
shall be determined by the Directors and shall be numbered and registered in the
order in which they are issued. They shall by bound in a book and shall be
issued in consecutive order therefrom, and in the margin thereof shall be
entered the name of the person owning the shares therein represented, with the
number of shares and the date thereof. Such certificates shall exhibit the
holder's name, number of shares and date of issue. They shall be signed by the
President or Vice-President, and countersigned by the Secretary or Treasurer and
sealed with the Seal of the Corporation.
5.2 Transfer of Stock
-----------------
The stock of the Corporation shall be assignable and transferable on the
books of the Corporation only by the person in whose name it appears on said
books, his legal representatives or by his duly authorized agent. In case of
transfer by attorney, the power of attorney, duly executed and acknowledged,
shall be deposited with the Secretary. In all cases of transfer, the former
certificate must be surrendered up and canceled before a new certificate may be
issued. No transfer shall be made upon the books of the Corporation within ten
(10) days next preceding the Annual Meeting of the Stockholders.
5.3 Lost Certificates
-----------------
If a stockholder shall claim to have lost or destroyed a certificate or
certificates of stock issued by the Corporation, the Board of Directors may, at
its discretion, direct a new certificate or certificates to be issued, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost or destroyed, and upon the deposit of a bond or other indemnity
in such form and with such securities, if any, that the Board may require.
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<PAGE>
ARTICLE VI
SEAL
----
6.1 Seal
----
The seal of the Corporation shall be as follows:
ARTICLE VII
DIVIDENDS
---------
7.1 When Declared
-------------
The Board of Directors shall by vote declare dividends from the surplus
profits of the Corporation whenever, in their opinion, the condition of the
Corporation's affairs will render it expedient for such dividends to be
declared.
7.2 Reserve
-------
The Board of Directors may set aside, out of the net profits of the
Corporation available for dividends, such sum or sums (before payment of any
dividends) as the Board, in their absolute discretion, think proper as a reserve
fund, to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other purpose as the
Directors shall think conducive to the interest of the Corporation, and they may
abolish or modify any such reserve in the manner which it was created.
ARTICLE VIII
INDEMNIFICATION
---------------
8.1 Indemnification
---------------
Any person made a party to or involved in any civil, criminal or
administrative action, suit or proceeding by reason of the fact that he or his
testator or intestate is or was a Director, officer, or employee of the
Corporation, or of any corporation which he, the testator, or intestate served
as such at the request of the Corporation, shall be indemnified by the
Corporation against expenses reasonably incurred by him or imposed on him in
connection with or resulting from the defense of such action, suit, or
proceeding and in connection with or resulting from any appeal thereon, except
with respect to matters as to which it is adjudged in such action, suit or
proceeding that such officer, Director, or employee was liable to the
Corporation, or to such other corporation, for negligence or misconduct in the
performance of his duty. As used herein the term "expense" shall include all
obligations incurred by such person for the payment of money, including without
limitation, attorneys fees, judgments, awards, fines, penalties, and amounts
paid
10
<PAGE>
in satisfaction of judgment or in settlement of any such action, suit, or
proceedings, except amounts paid to the corporation or such other corporation by
him.
A judgment or conviction whether based on plea of guilty or nolo contendere
or its equivalent, or after trial, shall not of itself be deemed an adjudication
that such Director, officer or employee is liable to the Corporation, or such
other corporation, for negligence of misconduct in the performance of his
duties. Determination of the rights of such indemnification and the amount
thereof may be made at the option of the person to be indemnified pursuant to
procedure set forth, from time to time, in the Bylaws or by any of the following
procedures:
a) order of the Court or administrative body or agency having jurisdiction
on the action, suit, or proceeding;
b) resolution adopted by a majority of the quorum of the Board of
Directors of the Corporation without counting in such majority any Directors who
have incurred expenses m connection with such action, suit or proceeding;
c) if there is no quorum of Directors who have not incurred expense in
connection with such action, suit, or proceeding, then by resolution adopted by
a majority of the Committee of Stockholders and Directors who have not incurred
such expenses appointed by the Board of Directors;
d) resolution adopted by a majority of the quorum of the Directors
entitled to vote at any meeting; or
e) order of any Court having jurisdiction over the Corporation.
Any such determination that a payment by way of indemnification should be
made will be binding upon the Corporation. Such right of indemnification shall
not be exclusive of any other right which such Directors, officers and employees
of the Corporation and other person above mentioned may have or hereafter
acquire, and without limiting the generality of such statement, they shall be
entitled to their respective rights of indemnification under any bylaw,
agreement, vote of stockholders, provision of law, or otherwise in addition to
their rights under this Article. The provisions of this Article shall apply to
any member of any committee appointed by the Board of Directors as fully as
though each person had been Director, officer or employee of the Corporation.
ARTICLE IX
AMENDMENTS
----------
9.1 How Amended
-----------
These Bylaws may be altered, amended, repealed or added to by the vote of
the Board of Directors of the Corporation at any regular meeting of said Board,
or at a Special Meeting of Directors called for that purpose, provided a quorum
of the Directors as provided by law and by the Articles of Incorporation, are
present at such regular meeting or special meeting. These
11
<PAGE>
Bylaws and amendments thereto and Bylaws added by the Directors may be amended,
altered or replaced by the stockholders at any annual or special meeting of the
stockholders.
ARTICLE X
FISCAL YEAR
-----------
10.1 Fiscal Year
-----------
The fiscal year shall begin January 1 and end December 31.
ARTICLE XI
WAIVER OF NOTICE
----------------
11.1 Waiver of Notice
----------------
Whenever any notice C is required to be given to any shareholders or
Directors of the Corporation under the provisions of these Bylaws or under the
Articles of Incorporation, a waiver thereof, in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
12
<PAGE>
EXHIBIT 10.1
<PAGE>
RadioShack UNLIMITED(SM)
FULFILLMENT AGREEMENT
This Agreement is made and entered into this 22 day of April, 1996, by and
between the RadioShack Division of Tandy Corporation ("RadioShack") and RJP
Electronics ("RJP"), located at 656A Monterey Pass Road, Monterey Park,
California 91302.
RECITALS
A. RadioShack sells various electronic components and products through its
retail stores and dealers.
B. RJP sells certain products, which RadioShack may, at its discretion, offer
to customers through RadioShack stores and dealers and through the
RadioShack Unlimited(SM) catalog ordering service.
AGREEMENT
1. RJP represents that it is capable of order fulfillment and Electronic Data
Interchange ("EDI") link with RadioShack for purposes of processing
RadioShack's merchandise purchase orders and invoices, the terms and
conditions of which shall apply to the extent they are not inconsistent with
the Agreement. RJP agrees to comply with RadioShack's EDI requirements and
specifications. RJP also agrees that the Terms and Conditions of Purchase on
the attached Exhibit A, as amended from time to time, shall apply to all
purchases under this Agreement. To the extent that such Terms and Conditions
of Purchase are in conflict with this Agreement, this Agreement shall
control.
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<PAGE>
2. RJP agrees to maintain adequate inventory to fill RadioShack orders. RJP
agrees to provide to RadioShack a reproducible copy of the text of any and
all warranties on products RJP sells to or through RadioShack.
3. RJP agrees to process all orders and returns (with accompanying return
authorization number) within 48 hours from receipt. RJP shall ship
merchandise ordered by customers through RadioShack either directly to the
customer (in which case, the order shall be subject to the standard Tandy
warehouse P.O. Terms and Conditions), or to a warehouse chosen by
RadioShack, (in which case, the order shall be subject to the standard Tandy
warehouse P.O. Terms and Conditions), by UPS, U.S. Postal Service First
Class Mail, Common Carrier Truck, or other acceptable means of shipment, all
in accordance with RadioShack's instructions. RJP must notify RadioShack
within 48 hours if RJP cannot ship merchandise ordered within the time
requirements. RJP must relate the purchase order number, RadioShack
Unlimited(SM) catalog number, reasons for the delay, and the projected
delivery date via EDI or fax (back-order report). If RJP is unable to ship
order within 21 days of notification or customer is unwilling to wait,
RadioShack reserves the right to cancel the order. RJP also agrees to advise
RadioShack at least 5 days in advance in the event of a scheduled plant or
warehouse closing that interrupts or delays normal shipping.
4. RJP agrees to process all requests by RadioShack for shipping information on
purchase orders and provide the request information to RadioShack within the
same business day.
5. RJP will issue a 100% credit to RadioShack on all returns for stock
balancing, damaged or defective merchandise and errors in shipping. A
central return location within RadioShack will handle customer returns and
exchanges and processing the return back to RJP. Credit is to be issued on
all returns within 21 days of return. RadioShack reserves the right to debit
RJP if credit is not issued within 21 days of return.
2
<PAGE>
6. Payment by RadioShack to RJP will be 30 days net from the later of RJP's
invoice date or the date of shipment of the goods to the customer. RJP
agrees to send a monthly statement of outstanding invoices to RadioShack.
7. RadioShack reserves right to final approval of all ad copy, art, printing,
and conditions of sale.
8. RJP agrees to reimburse RadioShack for the costs to produce and print
catalog pages showing RJP products. RadioShack will provide RJP with
examples of printed pages, page design formats and specifications, and
required graphic specifications. RJP will, in turn, provide RadioShack with
creative input to RadioShack specification, photography samples at no
charge and camera ready copy that will be edited and printed by RadioShack.
The costs per sheet will be agreed to prior to printing.
9. RJP will produce a packing slip to RadioShack specifications to be included
with all orders. The packing slip should include the purchase order number,
the RadioShack Unlimited(SM) Returns Center address (401 N.E. 38th Street,
Fort Worth, TX 76106) and the RadioShack Unlimited(SM) catalog number(s)
and product description(s). Pricing must never appear on the packing slip.
10. RadioShack will reimburse RJP for actual freight charges less discounts by
United Parcel Service, U.S. Mail, or common carrier. Shipments to Puerto
Rico, the Virgin Islands and the Caribbean must be sent via U.S. Express
Mail, Federal Express, or as otherwise instructed by RadioShack.
11. To the extent any claim against RadioShack is based on damage caused by the
alleged action or failure to act of RJP, RJP agrees to defend, indemnify
and hold RadioShack and its employees and affiliates harmless from and
against all claims, demands, losses, costs, suits or judgments arising from
or relating to products or the sale of products supplied by RJP, including
but not limited to claims of patent, trademark
3
<PAGE>
or copyright infringement and claims that the products are defective. Such
indemnity shall be subject to the terms and conditions of Exhibit A,
provided that if RJP is simply the Distributor of an unaltered product
manufactured by another party then RJP shall transfer to RadioShack the
indemnity provided to RJP by the manufacturer, and to the extent such
transfer is effective, RJP's indemnity duty will be satisfied. RadioShack
contemplates that RJP will obtain fully transferable indemnification from
its suppliers to the extent possible.
12. This Agreement will be for a term of one year starting from the date of
signing and will automatically renew on a yearly basis until either party
provides written notice to the other party 120 days in advance of the date
of termination.
13. Nothing contained herein shall be construed to create any obligation on the
part of RadioShack to buy any products from RJP or to offer or to continue
to offer RJP's products through RadioShack stores or dealers.
14. Force Majeure. Neither RadioShack nor RJP shall be liable for any failure
-------------
to perform in accordance with the terms of this Agreement due to wars, strikes,
fires, an act of God or the public enemy, labor difficulties, freight embargoes
or other causes beyond their control. In the event RJP is unable to perform due
to any of the foregoing events, RadioShack shall be entitled, in addition to its
other rights, to (a) obtain ordered items from such other sources as RadioShack
may determine for the duration of RJP's inability to perform and (b) reduce
without any obligation to RJP, the quantity of items ordered.
15. Waiver and Additional Remedies. No course of dealing of the parties nor any
------------------------------
delay or omission of the parties to exercise any right or remedy granted under
this Agreement shall operate as a waiver of any rights of the parties, and every
right and remedy provided herein shall be cumulative and concurrent, unless
otherwise expressly provided herein, and shall be in addition to every other
right or remedy provided for herein or now or hereafter existing at law or in
equity or by statute or otherwise. In the event either party waives any term or
condition, such waiver shall not constitute a waiver of the same terms or
conditions in prior or
4
<PAGE>
subsequent transactions or different terms or conditions in the same, prior or
subsequent transactions.
16. Assignment. Neither this Agreement, nor any right or obligation accruing
----------
hereunder, is assignable by RJP without RadioShack's written consent, which
shall not be unreasonably withheld.
17. Severability. If any provision of this Agreement is found to be illegal
------------
or otherwise unenforceable by any court or other judicial or administrative
body, it shall be severed and the remaining provisions of this Agreement shall
remain in full force and effect.
18. Entire Agreement. This document contains the entire understanding and
----------------
agreement of the parties upon the subject matter hereof. There is no agreement,
oral or otherwise, which is not set forth in this Agreement and this Agreement
replaces and controls any and all prior Agreements between the parties regarding
the subject matter contained herein. No modifications of this Agreement shall be
binding unless in writing and signed by both parties hereto.
19. United Nations Convention on the International Sale of Goods. RadioShack
------------------------------------------------------------
and RJP expressly agree that the United Nations Convention on Contracts for the
International Sale of Goods does not apply to this Agreement or to the contract
resulting from acceptance of this Agreement.
20. CONSTRUCTION, JURISDICTION, AND VENUE. THIS AGREEMENT SHALL BE CONSTRUED,
-------------------------------------
INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS, EXCLUDING THE LAWS OF THE STATE OF TEXAS REGARDING CHOICE
OF LAW, AND THE LAWS OF THE UNITED STATES OF AMERICA. THE PARTIES HEREBY AGREE
TO SUBMIT TO JURISDICTION AND VENUE IN THE STATE OF TEXAS OR UNITED STATES OF
AMERICA WHEREVER RJP, RADIOSHACK OR ITS AGENT MAY SUE OR BE SUED.
5
<PAGE>
21. Service of Process. In the event litigation is instituted hereunder, the
------------------
parties agree that the internal law of the forum state shall govern service of
process under this Agreement. THE PARTIES HEREBY EXPRESSLY WAIVE ANY TREATY OR
CONVENTION REQUIREMENTS COVERING SERVICE OF PROCESS WHICH MIGHT OTHERWISE BE
APPLICABLE.
22. Survival. The terms, provisions, representations and warranties contained
--------
in this Agreement shall survive the delivery of the items, payment of the
purchase price and transfer of title.
RadioShack, a division of ---------------------------------
Tandy Corporation
/s/ RAYMOND LEE
- ---------------------------------- ---------------------------------
Authorized Representative Authorized Representative
Raymond Lee
- ---------------------------------- ---------------------------------
Name Name
Director
- ---------------------------------- ---------------------------------
Title Title
April 22, 1996
- ---------------------------------- ---------------------------------
Date Date
6
<PAGE>
EXHIBIT A
---------
RadioShack UNLIMITED(SM)
PURCHASE ORDER TERMS AND CONDITIONS
All Purchase Orders issued by RadioShack Unlimited are issued subject to the
following Terms and Conditions:
1. ACCEPTANCE. This Purchase Order ("Order") constitutes RadioShack Unlimited's
(the "BUYER") offer and SELLER'S acceptance and is expressly subject to the
terms and conditions in this Order unless agreed to in writing by an officer of
BUYER. Any provisions in SELLER'S invoices, billing, statements, acknowledgement
forms or similar documents which are at variance with the provisions of this
Order shall be of no force or effect unless specifically agreed to in writing by
an officer of BUYER. Any request or demand for or statement purporting to make
SELLER'S acceptance conditional on BUYER'S assent to additional or different
terms are hereby rejected and shall be of no effect. Any of the following acts
by SELLER shall constitute acceptance of this Order and all of the terms and
conditions: signing and returning a copy of this Order; delivery of any items
ordered; informing the BUYER in any manner of commencement of performance; or
returning SELLER'S own form of acknowledgement. This Order may not be changed or
terminated verbally.
2. INVOICING. SELLER shall render separate invoices in duplicate for each
shipment under this Order. Each shipment must contain a packing slip showing
Order number, number of cartons and quantity in each carton. BUYER assumes no
obligation for items shipped in excess of this Order. Unless otherwise
specified in the Order, the prices, in U.S. dollars appearing herein include
all packaging, crating and federal and local taxes and are firm for the delivery
period shown. All taxes of any nature whatsoever levied upon the items delivered
pursuant to this Order and based upon SELLER'S gross or net income shall be
borne by the SELLER.
3. TERMS COMMENCEMENT. All cash discount terms will begin upon date of receipt
of the ordered items.
4. EXTRA CHARGES. BUYER shall pay no extra charges, including but not limited
to charges for prepacks, cartons, handling, drop shipments, insurance, carriage
or minimum Order or because of any taxes or excises levied on processors,
manufacturers, wholesalers or otherwise unless agreed to in writing and signed
by an officer of BUYER. Merchandise shipped by freight or express will be
packed, marked and described so as to obtain the lowest rate possible under
freight or express classifications, except when otherwise specified by BUYER and
penalties or increased charges due to failure to do so will be charged to
SELLER.
5. DELIVERY AND ACCEPTANCE OF ITEMS. The time specified for delivery of the
items covered by this Order is of the essence to this Order. All items will be
subject to BUYER inspection at BUYER'S receiving location. In addition to other
rights provided by law, BUYER reserves the right to cancel, without SELLER
authorization, at any time, any unshipped portion of this Order, and to reject
all or part of items shipped hereunder, which; are defective in material or
workmanship; differ in any way from specifications or warranties herein
contained or implied by law; are shipped contrary to instruction, not in
recognized standard containers, or not on specified shipping dates. SELLER shall
have no right to cure such defects or failure to conform after BUYER gives
notice of cancellation. At its option, BUYER may return rejected items or hold
items at SELLER'S risk and expense, and may in any event charge SELLER with cost
of transportation, shipping, unpacking, examining, repacking, reshipping, and
other like expenses. SELLER may not refuse any return so made, and shall be
liable for all charges, costs, expenses and consequential damages resulting from
or arising out of said refusal. In the event BUYER shall have made payments to
SELLER for items so returned, SELLER shall promptly refund such payments to
BUYER. Notwithstanding the foregoing, BUYER shall be under no duty to inspect
items prior to resale and neither retention nor resale of such items shall be
deemed to constitute an acceptance of items not in compliance with the
requirements of this Order.
6. REPAIR PARTS. SELLER shall supply repair parts for seven (7) years after the
last shipment of items under this Order at a customary and reasonable price.
SELLER agrees to give BUYER 120 days notice before discontinuance of any repair
part needed by BUYER to service the items ordered under this Purchase Order.
SELLER agrees that, upon receipt of such notice, BUYER may place a one-time
order for such parts as BUYER deems necessary to service items purchased
hereunder.
7. SELLER'S WARRANTY
7.1 MERCHANTABILITY. SELLER represents and warrants that all items
---------------
delivered pursuant to this Order will, in addition to any express warranty
or guarantees heretofore or hereafter made by SELLER, conform to a
description thereof contained herein and any specifications, drawings,
samples or other descriptions previously furnished by SELLER, be free from
any defects in material or workmanship, be merchantable at the time of
delivery to BUYER and at the time of use by BUYER'S customers, and be fit
and safe for sale and any use by BUYER or its customers for which such items
are ordinarily intended and any particular intended use of which SELLER or
its agents should have knowledge or have knowledge. The SELLER will maintain
and carry liability insurance which includes but is not limited to
employer's liability, workman's compensation general liability, public
liability, property damage liability, product liability, and contractual
liability in amounts set forth or incorporated in this Order with insurance
carriers acceptable to BUYER and if no amounts are so set forth therein,
amounts acceptable to and approved by the BUYER, but in no event shall such
amounts be less than minimum statutory requirements, if any. SELLER will, at
BUYER'S request, furnish certificates of insurance from its carrier on the
foregoing coverages, which shall provide that such coverage shall not be
reduced without thirty days advance written notification to the BUYER from
the carrier.
7.2 GOVERNMENTAL REQUIREMENTS. SELLER represents and warrants that all
-------------------------
items: delivered pursuant to this Order are manufactured in compliance with
and meet the standards of United States Consumer Product Safety Act ("CPSA")
and the rules, regulations and standards of the United States Consumer
Product Safety Commission; furnished hereunder which are produced in the
United States will be produced in compliance with the applicable
requirements of the Fair Labor Standards Act of 1930, as amended to the date
hereof, and regulation and orders of the United States Department of Labor
issued under Section 14 thereof, and that all provisions of Executive Order
11246 as amended, 41CFR60-250 and 41CFRG0-741 are incorporated by reference
herein as though set forth in full; are manufactured, shipped, packaged,
labeled, tagged and invoiced in compliance with all applicable federal,
national, state, and local laws, statutes, rules, regulations or ordinances
including but not limited to the CPSA, state flammability laws, country of
origin labeling requirements, Federal Food, Drug and Cosmetic Act, Packaging
and Labeling Act, Federal Hazardous Substance Labeling Act and any
applicable DOT, FTC or Consumer Product Safety Commission rules or
regulations and any state laws related thereto. SELLER represents and
warrants that it will, upon written demand, furnish BUYER with Material
Safety Data Sheets ("MSDS's") for items furnished hereunder. Said MSDS's are
to comply with requirements of Federal and State Right to Know Laws and
Occupational Safety and Health Acts.
7.3 ANTITRUST. SELLER represents and warrants that the prices hereunder or
---------
the items covered by this Order are lawful under Section [XXXXXXXXXXXXXXXX]
of the Clayton Antitrust Act, as amended by the Robinson-Patman Act, and
further specifically, expressly and unconditionally represents and warrants
to BUYER that any and all payments or allowances to be made to BUYER by
SELLER for services and/or facilities furnished by BUYER in
<PAGE>
respect of or relating to such items and any and all services or facilities
to be furnished by SELLER to BUYER in respect of or relating to such items
(whether to be made or furnished pursuant to this Order or otherwise) are
made available by SELLER on proportionally equal terms to all other
customers of SELLER competing with BUYER in the distribution of the same
items.
8. INDEMNIFICATION. SELLER agrees, from and after the date BUYER or its agent
faxes, telexes, or mails SELLER notice, to appear, cooperation with, indemnify
(from the date of this Order) and hold harmless BUYER, its successors, assigns,
agents, and users of items furnished hereunder, from any against and all
actions, litigation, claims, suits, liabilities, losses, damages, expenses, or
costs (including reasonable attorneys fees) which may arise on of, relate to, or
be connected in any way with: SELLER'S breach of the terms of this Order;
SELLER'S WARRANTIES, as provided herein or by law; BUYER'S advertisements, based
upon SELLER'S specifications for items purchased hereunder; BUYER'S offer for
sale or sale of items furnished hereunder including, without limitation,
liability based upon death or injury to any person (including BUYER'S employees)
or damage to property resulting or arising of alleged to result or arise from or
out of the resale and/or use of said items. If SELLER does not appear and
cooperate with BUYER or its agent in the defense of any action, claim or
litigation within ten days after receiving notice of such from BUYER or its
agent as set forth above, then SELLER shall owe as liquidated damages and not as
penalty in addition to any other damages, costs or expenses, $1,000.00 per day
to BUYER or its agent for every day in which SELLER has not appeared or
cooperated with BUYER in defense of the matter as provided for herein. Such
damages, liquidated damages, costs and expenses, in addition to any other
damages, costs and expenses shall be paid to BUYER or its agent by SELLER
immediately upon demand or BUYER or its agent may deduct or set-off said
damages, liquidated damages, costs and expenses against any sums owed SELLER
under any orders with BUYER or its agent.
9. LICENSE: USE OF TRADE NAMES AND TRADEMARKS. The SELLER, as part of the
consideration for this Order and without further cost to BUYER hereby grants and
agrees to grant BUYER an irrevocable, non-exclusive, world-wide, royalty-free
right and license to use, sell, lease or otherwise dispose of the items
purchased hereunder. BUYER shall have the right to use SELLER'S trade name and
trademark in the advertising and marketing of the items purchased under this
Order.
10. PATENT INDEMNITY
10.1 REPRESENTATIONS. SELLER represents and warrants that:
---------------
10.1.1 It has the right to disclose or use, without liability to
others, all subject matter, including ideas, inventions, works,
processes designs and methods that SELLER will disclose or use in
performance of this Order;
10.1.2 The items, and BUYER'S use thereof, do not and will not infringe
on any patent, trademark, trade name, service mark, trade secret, mask
work, copyright, design, or any other proprietary right of others; and
10.1.3 In connection with its performance under this Order, SELLER will
not infringe any patent, trademark, trade name, service mark, trade
secret, mask work, copyright, design or any other proprietary right of
a third party.
10.2 INDEMNITY BY SELLER. SELLER will indemnify, hold harmless, and at
-------------------
BUYER'S request defend, BUYER and BUYER'S subsidiaries, affiliates, and
customers from and against any loss, cost, liability or expense (including
court costs and reasonable fees of attorney and other professionals) arising
out of or resulting from any breach or claimed breach of the above
representations or from any claim that BUYER'S use, sale or other
disposition of the items purchased hereunder infringes anywhere in the
world, any patent, trademark, trade name, service mark, trade secret, mask
work, copyright, design or any other proprietary right of any third party.
In the event of any such claim, BUYER agrees: (i) to notify SELLER of claim,
(ii) if BUYER has not requested that SELLER defend the claim, to permit
SELLER, at SELLER'S expense to participate in the defense thereof with
counsel of SELLER'S choosing, subject to BUYER'S supervision and control,
and (iii) if BUYER has requested that SELLER defend the claim to provide
SELLER with all needed information, assistance and authority necessary for
SELLER to do so. If the use by BUYER or any of its customers of any of the
items purchased under this Order is enjoined, or in BUYER'S opinion is
likely to be enjoined, the BUYER'S request and option, and without prejudice
to BUYER'S rights and remedies, SELLER at its expense will: (x) procure from
the person or persons claiming or likely to claim infringement, a license
for BUYER to sell and its customers to continue to use such items; or (y)
modify such items to avoid the infringement, without materially impairing
performance or compliance with BUYER'S specifications on this Order.
11. PRICE PROTECTION. SELLER represents and warrants, on date of this Order,
that the prices charged for the items covered by this Order will be as low as
the lowest price charged by SELLER to any customer purchasing such items in
similar quantities under like circumstances. This Order is not to be filled at a
price higher than shown on the Order unless authorized in writing by an officer
of BUYER. Should there be a decline in price between the date of this Order and
the delivery date specified in this Order or the actual delivery date; whichever
is later, BUYER may charge back to SELLER'S account the amount of decline on any
items on hand or in transit at the time of the price decline.
12. TERMINATION. At its option, BUYER may terminate all or a part of this Order
for any reason, or for no reason, upon prior written notice being faxed,
telexed, or mailed to SELLER. Such termination shall be at no charge, cost or
expense to BUYER.
2
<PAGE>
FULFILLMENT AGREEMENT
This Agreement is made and entered into this 18th day of June 1993 by and
between the Radio Shack Division of Tandy Corporation ("Radio Shack") and RJP
Electronics, Inc., a California corporation located at 1455 Monterey Pass Road,
Ste. 102, Monterey Park, CA 91754 ("RJP Electronics, Inc.").
RECITALS
A. Radio Shack sells various electronic components and products through its
retail stores and dealers.
B. RJP Electronics, Inc. sells certain products, which Radio Shack may, at its
discretion, offer to customers through Radio Shack stores and dealers and
through a catalog ordering service.
AGREEMENT
1. RJP Electronics, Inc. represents that it is capable of fulfillment marketing
and Electronic Data Interchange ("EDI") link with Radio Shack for purposes
of processing merchandise orders, invoices, and payment for such orders. RJP
Electronics, Inc. agrees to comply with Radio Shack's EDI terms and
conditions attached hereto. RJP Electronics, Inc. and Radio Shack also agree
to comply with the terms and conditions set forth in Addendum I attached
hereto, which is incorporated as part of this Agreement.
2. A product merchandising fee will be paid to RJP Electronics, Inc. to Radio
Shack. This cost covers distribution of information to Radio Shack retail
stores and dealers. See Addendum I.
3. RJP Electronics, Inc. agrees to maintain adequate inventory to fill Radio
Shack orders.
<PAGE>
4. RJP Electronics, Inc. agrees to process all orders and returns (with
accompanying return authorization number) within 48 hours from receipt. RJP
Electronics, Inc. shall ship merchandise ordered by customers through Radio
Shack by UPS, U.S. Postal Service First Class Mail, or Common Carrier Truck.
RJP Electronics, Inc. must notify Radio Shack within 48 hours if RJP
Electronics, Inc. cannot ship merchandise ordered within the time
requirements, relate the reasons for the delay, and the projected delivery
date via EDI. If RJP Electronics, Inc. is unable to ship order within 21
days of notification or customer is unwilling to wait, Radio Shack reserves
the right of canceling the order.
5. RJP Electronics, Inc. will issue a 100% credit to Radio Shack on all returns
for stock balancing, damaged or defective merchandise and errors in
shipping. A central return location within Radio Shack will handle customer
returns and exchanges and processing the return back to RJP Electronics,
Inc. Credit to be issued within 21 days of return.
6. Payment by Radio Shack to RJP Electronics, Inc. will be 30 days net from the
later of RJP Electronics, Inc.'s invoice date or shipment of the goods to
the customer.
7. Radio Shack reserves right to final approval of all ad copy, art, printing,
and condition of sale.
8. Radio Shack will reimburse RJP Electronics, Inc. for actual freight charges
less discounts by United Parcel Service, U.S. Mail, or common carrier.
9. To the extent RJP Electronics, Inc. is indemnified by the vendor whose
product is the subject of the dispute, RJP Electronics, Inc. agrees to
defend, indemnify and hold Radio Shack and its employees and affiliates
harmless from and against all claims, demands, losses, costs, suits or
judgments arising from or relating to products or the sale of products
supplied by RJP Electronics, Inc., including but not limited to claims of
patent, trademark or copyright infringement and claims that the products are
defective. Radio Shack contemplates that RJP Electronics, Inc. will obtain
indemnification from its suppliers to the extent possible.
10. Either party may cancel this Agreement by providing written notice to the
other party 120 days in advance of the date of termination. This Agreement
will be for a
<PAGE>
term of one year starting from the date of signing or June 30, 1993,
whichever is later.
11. Nothing contained herein shall be construed to create any obligation on the
part of Radio Shack to buy any products from RJP Electronics, Inc. or to
offer or to continue to offer RJP Electronics, Inc.'s products through Radio
Shack stores or dealers.
/s/ RAYMOND LEE /s/ [SIGNATURE ILLEGIBLE]
------------------------------- -------------------------------
Representative, Raymond Lee Representative
DIRECTOR Senior Product Manager
------------------------------- -------------------------------
Title Title
RJP ELECTRONICS, INC. [COMPANY NAME ILLEGIBLE]
------------------------------- -------------------------------
Company Name Company Name
JUNE 18, 1993 6-25-93
------------------------------- -------------------------------
Date Date
<PAGE>
Addendum I
1. RJP Electronics, Inc. will supply Radio Shack with 7000, 8 1/2"x11" color
catalogs, with all Radio Shack pertinent information printed on same.
2. A product merchandising fee of $13,500 is due Radio Shack on or before June
30, 1993.
<PAGE>
EXHIBIT 10.2
<PAGE>
EXCLUSIVITY AGREEMENT
---------------------
This Agreement is made on the twenty-fifth day of May 1993 by and between RJP
Electronics, Inc., a California corporation having its principal offices at
1455 Monterey Pass Road, Suite 102, Monterey Park, CA 91754 USA (hereinafter
referred to as "RJP") and Sing-A-Long International, Inc., a California
corporation having its principal offices at 4500 Campus Drive, Suite 116,
Newport Beach, CA 92660, (hereinafter referred to as "Sing-A-Long").
Product Item: Sing-A-Long VHS Video Cassette tape
Trademarks or copyrights: Vocomotion
Exclusive Account: RADIO SHACK
-----------
WITNESSETH:
Whereas, Sing-A-Long International Inc and its affiliates manufactures a series
of Sing-Along Videotapes.
WHEREAS, RJP represents that RJP is a wholesaler with adequate facilities,
ability and knowledge to sell vocomotion Sing-along Videotape products;
NOW THEREFORE, the parties in consideration of the mutual covenants and
agreements hereinafter set forth, do agree with each other as follows:
1. APPOINTMENT
Sing-A-Long hereby appoints RJP and RJP hereby accepts appointment as exclusive
authorized distributor for the abovementioned exclusive account. Sing-A-Long
expressly acknowledges that RJP will devote considerable time/effort into
development of the Product line, and accordingly Sing-A-Long agrees not to sell
any Products to aforementioned exclusive account.
2. TRADEMARKS
(a) Sing-A-Long represents and warrants that it owns uncontested
intellectual throughout the Territory.
(b) In case there should be (i) any actual or threatened infringement upon
Vocomotion's tradenames or trademarks relating to the Products in the Territory
by any party, or (ii) any claim, suit, threatened suit or any other dispute
taking place against RJP
<PAGE>
or its customers in connection with such tradenames or trademarks of Vocomotion,
RJP shall inform Sing-A-Long of such actual or threatened infringement as soon
as it becomes aware of it and sing-A-Long shall take all proper measures, at
Sing-A-Long sole expense, to prevent or remove such infringement.
3. Sing-A-Long International, Inc. agrees to maintain adequate inventory to
fill RJP orders.
4. Sing-A-Long International, Inc. agrees to process all orders and returns
(with accompanying return authorization number) within 48 hours from receipt.
Sing-A-Long International, Inc. must notify RJP within 48 hours if Sing-Along
International, Inc. cannot ship merchandise ordered within the time
requirements, relate the reasons for the delay, and the projected delivery date.
If Sing-A-Long International, Inc. is unable to ship order within 21 days of
notification or customer is unwilling to wait, RJP reserves the right of
canceling the order.
5. Sing-A-Long International, Inc. will exchange over the counter to RJP on all
returns for stock balancing, damaged or defective merchandise and errors in
shipping.
6. COPYRIGHT AND INDEMNIFICATION
In order to sell the merchandise purchased from your company, RJP must be
certain that all designations and promotions matter - including, but not limited
to, copyrights, trademarks, slogans, endorsements, copyrighted material,
promotional claims, and package either used on or associated with the
merchandise - are authorized for use by RJP; are in conformity with all
governing laws and regulations; and are not violative of any rights of others.
Accordingly, please acknowledge by signing on the line provided, that you
authorize RJP to use those designations, such as copyrights, trademarks and
promotional matters, which are listed below and that, further, you agree to
indemnify RJP and to defend RJP against, and hold harmless RJP authorized use of
any designation or promotional matter on or in connection with merchandise
purchased from you.
Please return one copy of enclosed agreement.
7. Minimum Order quantity for exclusivity: 1,000 pcs per year (Excluding
Special Edition Sing-Along Videotape)
8. DURATION OF AGREEMENT:
The term of this agreement shall be terminable in the event that RJP terminates
to sell the Sing-Along videotape products to the
<PAGE>
abovementioned exclusive account for a duration of five years.
9. ATTORNEYS' FEES
In any legal action undertaken in connection this Agreement, RJP is entitled to
recover reasonable attorneys' fees, costs and expenses.
RJP Electronics, Inc. Sing-A-Long International, Inc.
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ BENNETT KURTZE
------------------------- ------------------
Title: Director Title: President
--------------------- --------------
Date: 5/28/93 Date: 5/28/93
---------------------- ---------------
<PAGE>
EXHIBIT 10.3
<PAGE>
EXCLUSIVITY AGREEMENT
---------------------
This Agreement is made on the twenty-fifth day of May 1993 by and between RJP
Electronics, Inc., a California corporation having its principal offices at
1455 Monterey Pass Road, Suite 102, Monterey Park, CA 91754 USA (hereinafter
referred to as "RJP") and SPACETECH by S.N.S.T. Inc., a California corporation
having its principal offices at 967 E. 12th Street, Los Angeles, CA 90021,
(hereinafter referred to as "SPACETECH").
Product Item: Sing Along VHS Video Cassette tape
Trademarks or copyrights: VideoKaraoke
Exclusive Account: RADIO SHACK (USA ONLY)
----------------------
WITNESSETH:
Whereas, SPACETECH by S.N.S.T. Inc. and its affiliates manufactures a series of
Sing-Along Videotapes.
WHEREAS, RJP represents that RJP is a wholesaler with adequate facilities,
ability and knowledge to sell VideoKaraoke Sing-along Videotape products;
NOW THEREFORE, the parties in consideration of the mutual covenants and
agreements hereinafter set forth, do agree with each other as follows:
1. APPOINTMENT
SPACETECH hereby appoints RJP and RJP hereby accepts appointment as exclusive
authorized distributor for the abovementioned exclusive account. SPACETECH
expressly acknowledges that RJP will devote considerable time/effort into
development of the Product line, and accordingly SPACETECH agrees not to sell
any Sing-Along Videotape products to aforementioned exclusive account.
2. TRADEMARKS
(a) SPACETECH represents and warrants that it owns uncontested
intellectual throughout the Territory.
(b) In case there should be (i) any actual or threatened infringement upon
VideoKaraoke's tradenames or trademarks relating to the Products in the
Territory by any party, or (ii) any claim, suit, threatened suit or any other
dispute taking place against RJP
<PAGE>
or its customers in connection with such tradenames or trademarks of
VideoKaraoke, RJP shall inform SPACETECH of such actual or threatened
infringement as soon as it becomes aware of it and SPACETECH shall take all
proper measures, at SPACETECH sole expense, to prevent or remove such
infringement.
3. SPACETECH by S.N.S.T. Inc. agrees to maintain adequate inventory to fill RJP
orders.
4. SPACETECH by S.N.S.T. Inc. agrees to process all orders and returns (with
accompanying return authorization number) within 48 hours from receipt.
SPACETECH by S.N.S.T. Inc. must notify RJP within 48 hours if SPACETECH by
S.N.S.T. Inc. cannot ship merchandise ordered within the time requirements,
relate the reasons for the delay, and the projected delivery date. If SPACETECH
by S.N.S.T. Inc. is unable to ship order within 21 days of notification or
customer is unwilling to wait, RJP reserves the right of cancelling the order.
5. SPACETECH by S.N.S.T. Inc. will exchange over the counter to RJP on all
returns for stock balancing, damaged or defective merchandise and errors in
shipping.
6. COPYRIGHT AND INDEMNIFICATION
In order to sell the merchandise purchased from your company, RJP must be
certain that all designations and promotional matter - including, but not
limited to, copyrights, trademarks, slogans, endorsements, copyrighted material,
promotional claims and package either used on or associated with the merchandise
- - are authorized for use by RJP; are in conformity with all governing laws and
regulations; and are not violative of any rights of others.
Accordingly, please acknowledge by signing on the line provided, that you
authorize RJP to use those designations, such as copyrights, trademarks and
promotional matters, which are listed below and that, further, you agree to
indemnify RJP and to defend RJP against, and hold harmless RJP authorized use of
any designation or promotional matter on or in connection with merchandise
purchased from you.
Product Item: Sing-A-Long VHS Video Cassette Tape
Trademarks or copyrights: VideoKaraoke, SING ALONG VIDEO
Please return one copy of enclosed agreement.
7. Minimum Order quantity for exclusivity: 1,000 pcs per six months.
<PAGE>
8. DURATION OF AGREEMENT:
The term of this agreement shall be terminable in the event that RJP terminates
to sell the Sing-Along videotape products to the abovementioned exclusive
account.
9. ATTORNEYS' FEES
In any legal action undertaken in connection with this Agreement, RJP is
entitled to recover reasonable attorneys' fees, costs and expenses.
RJP Electronics, Inc. SPACETECH by S.N.S.T. Inc.
By: [SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
--------------------- ---------------------
Title: Director Title: [ILLEGIBLE]
----------------- -----------------
Date: May 28, 1993 Date: 5/28/93
------------------ ------------------
<PAGE>
EXHIBIT 10.4
<PAGE>
[LETTERHEAD OF RJP ELECTRONICS INC. APPEARS HERE]
April 8, 1992
Mr. Shaul Naba
SPACETECH
967 E. 12th St.,
Los Angeles, CA 90021
Re: Copyright and Indemnification Agreement
---------------------------------------
Dear Mr. Naba,
In order to sell the merchandise purchased from your company, RJP must be
certain that all designations and promotional matter - including, but not
limited to, copyrights, trademarks, slogans, endorsements, copyrighted material,
promotional claims and package either used on or associated with the merchandise
- - are authorized for use by RJP; are in conformity with all governing laws and
regulations; and are not violative of any rights of others.
Accordingly, please acknowledge by signing on the line provided, that you
authorize RJP to use those designations, such as copyrights, trademarks and
promotional matters, which are listed below and that, further, you agree to
indemnify RJP and to defend RJP against, and hold harmless RJP authorized use of
any designation or promotional matter on or in connection with merchandise
purchased from you.
Product Item: Sing-A-Long VHS Video Cassette Tape
Trademarks or copyrights: VideoKaraoke, SING ALONG VIDEO
Please return one copy of enclosed agreement.
AGREED AND ACCEPTED THIS
April 8, 1992
/s/ SHAUL NABA /s/ RAYMOND LEE
- ------------------------ ------------------------
Shaul Naba Raymond Lee
SPACETECH RJP ELECTRONICS INC.
<PAGE>
EXHIBIT 10.5
<PAGE>
[LOGO OF AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION APPEARS HERE]
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-GROSS
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
January 17, 1995, is made by and between Koon King, Incorporated ("Lessor")
and RJP Electronic, Inc. ("Lessee"), (collectively the "Parties," or
individually a "Party").
1.2 Premises: That certain real property, including all improvements therein
or to be provided by Lessor under the terms of this Lease, and commonly known by
the street address of 656 Monterey Pass Road, #A, Monterey Park, located in the
County of Los Angeles, State of California and generally described as (describe
briefly the nature of the property) N/A ("Premisis"). (See Paragrahp 2 for
further provisions.)
1.3 Term: one years and n/a months ("Original Term") commencing March 1, 1995
("Commencement Date") and ending February 29, 1996 ("Expiration Date"). (See
Paragraph 3 for further provisions.)
1.4 Early Possessions: n/a ("Early Possession Date"). (See Paragraphs 3.2 and
3.3 for further provisions.)
1.5 Base Rent: $3,500.00 per month ("Base Rent"), payable on the first day of
each month commencing March 1, 1995. (See Paragraph 4 for further provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 Base Rent Paid Upon Execution: $3,500.00 as Base Rent for the period
March 1, 1995 to March 31, 1995.
1.7 Security Deposit: $3,500.00 ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 Permitted Use: warehouse and offices. (See paragraph 5 for further
provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party." $555.00 is the "Base
Premium." (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively, the
"Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
George Realty represents
[X] Lessor exclusively ("Lessor's Broker"); [ ] both Lessor and Lessee, and
Takenaka & Company represents
[X] Lessee exclusively ("Lessee's Broker"); [ ] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by n/a ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs one through four and Exhibits N/A all of which constitute a part of
this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Promises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor warrants
to Lessee that the improvements on the Premises comply with all applicable
covenants or restrictions of record and applicable building codes, regulations
and ordinances in effect on the Commencement Date. Said warranty does not apply
to the use to which Lessee will put the Premises or to any Alterations or
Utility installations (as defined in Paragraph 7.3(a)) made or to be made by
Lessee. If the Premises do not comply with said warranty, Lessor shall, except
as otherwise provided in this Lease, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents,
has made any oral or written representations or warranties with respect to the
said matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
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3.3 Delay in Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed [XXXXXXXXXXXXXXXXXXXXX] if one is specified
in Paragraph 1.4, or, if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall; upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under the Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined
in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including by not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), ceilings, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises, but excluding foundations, the exterior roof and the
structural aspects of the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or abut the Premises
(including through the plumbing or sanitary sewer system) and shall promptly, at
Lessee's expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of any
contamination of, and for the maintenance, security and/or monitoring of, the
Premises, the elements surrounding same, or neighboring properties, that was
caused or materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance and/or storage tank brought onto the Premises by or for
Lessee or under its control. Lessee, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance practices.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 Lessor's Obligations. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair, Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor receives
written notice of the need for such repairs. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) Lessee shall pay to Lessor any insurance cost increase ("Insurance
Cost Increase") occurring during the term of this Lease. "Insurance Cost
Increase" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("Required Insurance"),
over and above the Base Premium, as hereinafter defined, calculated on an annual
basis. "Insurance Cost Increase" shall include, but not be limited to, increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, and/or a premium rate increase. If the
parties insert a dollar amount in Paragraph 1.9, such amount shall be considered
the "Base Premium." In lieu thereof, if the Premises have been previously
occupied, the "Base Premium" shall be the annual premium applicable to the most
recept occupancy. If the Premises have never been occupied, the "Base Premium
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the commencement of the Original Term, assuming the most nominal
use possible of the Premises. In no event, however, shall Lessee be responsible
for any portion of the premium cost attributable to liability insurance coverage
in excess of $1,000,000 procured under Paragraph 8.2(b) (Liability Insurance
Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost Increase
attributable only to the Premises showing in reasonable detail the manner in
which such amount as computed. Premiums for policy periods commencing prior to,
or extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement or Expiration of the Lease term.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises"
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Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any Intra-Insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "Insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by Lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance--Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than
full replacement cost. Lessee Owned Alterations and Utility Installations shall
be insured by Lessee under Paragraph 8.4. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy or policies shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. Since Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insured,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lendors, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair
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any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost of repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence in a substantial
and meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 Termination--Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10.0 Real Property Taxes.
10.1 (a) Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("Tax Increase"). Subject to Paragraph
10.1(b), payment of any such Tax Increase shall be made by Lessee within thirty
(30) days after receipt of Lessor's written statement setting forth the amount
due and the computation thereof. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes to be
paid by Lessee shall cover any period of time prior to or after the expiration
or earlier termination of the term hereof, Lessee's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal year
this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment
after such proration.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Tax Increase to be paid in advance
to Lessor by Lessee, either: (i) in a lump sum amount equal to the amount due,
at least twenty (20) days prior to the applicable delinquency date, or (ii)
monthly in advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Tax Increase as the same becomes due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary
to pay such obligation. All moneys paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at
the option of Lessor, be treated as an additional Security Deposit under
Paragraph 5.
(c) Additional Improvements. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
Real Property Taxes assessed by reason of Alterations or Utility Installations
placed upon the Premises by Lessee or at Lessee's request.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property 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) imposed upon the 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, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof and whether or
not contemplated by the Parties.
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10.3 Joint Assessment. If the Premises are not separately assessed, Lessee's
liability shall be an equitable proportion of the Real Property Taxes for all of
the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
the assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessor's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement selling forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and subject
to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The Involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice (Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the now fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the now
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment. (e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee
or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee
of any obligations hereunder, or (iii) alter the primary liability of Lessee
for the payment of Base rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment of subletting by Lessee or to
any subsequent or successive assignment of subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased to an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the amount required to
establish such Security Deposit a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises and then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease.
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
this or any other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublease, be deemed liable to the sublessee for
any failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by
said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior
Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with Lessee Default or Breach (as hereinafter
defined), $350.00 is a reasonable minimum sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default.
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and that Lessor may include the cost of such services and costs in said notice
as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same,
or the abandonment of the Premises.
(b) Except as expressly otherwise provided in the Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation of
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf or
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in the Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be
made only by cashier's check. In the event of a Breach of this Lease by Lessee,
as defined in Paragraph 13.1, with or without further notice or demand, and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
approximately caused by the Lessee's failure to perform its obligations under
this Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default
or Breach of the Lease shall not waive Lessor's right to recover damages under
this Paragraph. if termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee had the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
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14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expense incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $6) for brokerage services rendered by said
Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
30.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the Indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the thirty-
first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that is has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject
to and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3,
Lessee agrees to attorn to a Lender or any other party who acquires ownership of
the Premises by reason of a foreclosure of a Security Device, and that in the
event of such foreclosure, such new owner shall not: (i) be liable for any act
or omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership, (ii) be subject to any offsets or defenses which
Lessee might have against any prior lessor, or (iii) be bound by prepayment of
more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor
after the execution of this Lease, Lessee's subordination of this Lease shall be
subject to receiving assurance (a "non-disturbance agreement") from the Lender
that Lessee's possession and this Lease, including any options to extend the
term hereof, will not be disturbed so long as Lessee is not in Breach hereof and
attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and right to install, and all
revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lessor estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of the
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in the Lease the consent of a Party is required to an act by or
for the other Party, such consent shall not be unreasonably withheld or delayed.
Lessor's actual reasonable costs and expenses (including but not limited to
architects', attorneys', engineers' or other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent
pertaining to this Lease or the Premises, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. Subject to Paragraph 12.2(e)
(applicable to assignment or subletting), Lessor may, as a condition to
considering any such request by Lessee, require that Lessee deposit with Lessor
an amount of money (in addition to the Security Deposit held under Paragraph 5)
reasonably calculated by Lessor to represent the cost Lessor will incur in
considering and responding to Lessee's request. Except as otherwise provided,
any unused portion of said deposit shall be refunded to Lessee without interest.
Lessor's consent to any act, assignment of this Lease or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the
form of the guaranty to be executed by each such Guarantor shall be in the form
most recently published by the American Industrial Real Estate Association, and
each said Guarantor shall have the same obligations as Lessee under this Lease,
including but not limited to the obligation to provide the Tenancy Statement
and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any such
Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the "Option" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee
Initials [Initials Appear Here]
----------------------
Initials [Initials Appear Here]
----------------------
PAGE 9
<PAGE>
is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease in
any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, cure, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there were no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Monterey Park Executed at Monterey Park
------------------- ---------------------
on January 17, 1995 on January 17, 1995
---------------------------- ------------------------------
by LESSOR: by LESSEE:
Koon King, Incorporated RJP Electronics, Inc.
----------------------------- ------------------------------
By /s/ PAUL HUI By /s/ RAYMOND LEE
----------------------------- ------------------------------
Name Printed: Paul Hui Name Printed: Raymond Lee
------------------- --------------------
Title: President Title: Director
-------------------------- ---------------------------
By By
----------------------------- ------------------------------
Name Printed: Name Printed:
----------------------------- ------------------------------
Title: Title:
----------------------------- ------------------------------
Address: Address:
----------------------------- ------------------------------
Tel. No. (818) 2810244 Tel. No. (818) 2639883
----------------------- ------------------------
Fax No. ( ) Fax No. ( )
------------------------ -------------------------
PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always wright or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8616.
Fax. No (213) 687-8616.
(C) Copyright 1990--By American Industrial Real Estate Association. All rights
reserved.
<PAGE>
RJP ELECTRONICS, INC.
656A Monterey Pass Road
Monterey Park, Ca 91754
January 10, 1996
Paul Hui
Koon King, Inc.
648 Monterey Pass Road
Monterey Park, Ca 91754
Dear Sir:
Re: Lease Agreement dated - January 17, 1995
Expiring on - February 29, 1996
Premises: 656 unit A, Monterey Pass Road
Monterey Park, Ca 91754
- --------------------------------------------
We here by give you notice that we will exercise the option of the said lease by
one additional year immediately following the current lease. The renewal should
commence on March 1, 1996 and end on February 29, 1997.
According to the "Addendum to Lease" Item 4, the rent for the renewal should be
adjusted based on the C.P.I.. With the C.P.I. rate of 1.5%, the renewal annual
rent will be $3,550.00 per month plus $25.00 Trash Fee.
Sincerely,
/s/ Raymond Lee
Raymond Lee
RJP Electronics, Inc.
<PAGE>
ADDENDUM TO LEASE
The undersigned parties to the Standard Industrial/Commercial Single-Tenant
Lease-Gross, dated January 17, 1995 the "Lease" for the subject property known
as 656 Monterey Pass Road, Unit A, in city of Monterey Park, California
(hereinafter known as the "Property"), hereby mutually agree to the following:
1. The lessor shall not offer to sell, transfer, assign, lease or sublet any
interest in the Property, including the adjacent unit "B", or any part
thereof, without first offering the same to RJP Electronic Inc., the
Lessee, exclusively, at a stated price and on stated terms. The Lessor, or
the current owner as the case may be, of the Property and the adjacent unit
B, shall also provide the Lessee with all information requested by the
Lessee which is deemed reasonable and necessary to consider such offer,
including but not limited to, complete financial statements for the
Property and the adjacent unit B for the immediately preceding thirty-six
(36) months, a copy of the current lease agreements, a copy of the offer,
and a copy of all correspondence and agreements pertaining to or arising
out of the offer. The price and terms which are offered to Lessee shall be
the same and on as favorable terms of payment as may be offered to or by
any other person.
2. Lessor agrees to provide three (3) additional parking spaces to be located
at the adjacent parking lot during the term of the Lease agreement,
including any extensions or renewals at no additional cost.
3. Lessor hereby grants to Lessee two (2) consecutive options to extend the
term of the Lease ("option to renew") for periods of one (1) year each (the
"option terms").
4. Annual rent increases shall be adjusted based on the Los Angeles-Anaheim-
Riverside consumer price index, however, annual rent increases shall not
exceed five percent (5%) during the term of the lease, including any
extension or renewals.
Lessor: Lessee:
Koon King, Incorporated RJP Electronics, Inc.
By: /s/ Paul Hui By: /s/ Raymond Lee
----------------------------- -----------------------------
Paul Hui Raymond Lee
President Director
Date: Jan. 17, 1995 Date: Jan. 17, 1995
------------------------- -------------------------
<PAGE>
EXHIBIT 10.6
<PAGE>
[LETTERHEAD OF RJP ELECTRONICS INC. APPEARS HERE]
AUGUST 14, 1992
MR. JOHN TRENBERTH
PANA-PACIFIC CORPORATION
541 DIVISION ST.,
PCAMPBELL, CA 95008
A G R E E M E N T
-----------------
1. ITEM NUMBER: PPC500
2. DESCRIPTION: 3 CHANNEL WEATHERBAND CAR RADIO/AM-FM, CASSETTE, AUTO
STOP, CLOCK SEPERATE BASS AND TREBLE, LOCKING FAST
FORWARD, REF: RJP MODEL 9106.
3. UNIT PRICE: $41.00
4. QUANTITY: 5,000 PCS FIRST ORDER
90,000 PCS WITHIN 36 MONTHS
2,500 PCS MINIMUM PER MONTH
5. FREIGHT: PREPAID TO CAMPBELL
6. TERMS: 50% DEPOSIT IN ADVANCE $102,500, BALANCE BY L/C PRIOR TO
PRODUCTION $97,500 WHICH REFLECTS $1.00 PER UNIT CREDIT FOR
INITIAL 5,000 PIECES
7. PROJECT ENGINEERING COST: $25,000.00 PAID IN ADVANCE
$1.00 PER UNIT CREDIT ON 1ST 25,000 UNITS
8. DEVELOPMENT SCHEDULE:
AVAILABILITY OF ENGINEERING SAMPLE FOR APPROVAL: EARLY OCT. 92
DELIVERY OF FIRST 1,000 PCS: DEC. 92.
9. WARRANTY - ONE YEAR - DEFECTIVE RETURN FOR REPLACEMENT
CONFIRMED AND AGREED BY:
/s/ JOEL A. ABRAMS
- ------------------------------------- --------------------------------
JOEL A. ABRAMS JOHN TRENBERTH
DIRECTOR OF NORTH AMERICAN OPERATIONS VICE PRESIDENT/OEM ENGINEERING
<PAGE>
EXHIBIT 10.7
<PAGE>
[LETTERHEAD OF OBJECT A, INC. APPEARS HERE]
Letter of Intent
Agreement:
- ---------
Object A, Inc. agrees to purchase and RJP Electronics, Inc. agrees to
manufacture handheld computers for tracking baseball statistics.
Purchaser: Object A, Inc.
- ---------
Seller: RJP Electronics, Inc.
- ------
Terms of the Agreement:
- ----------------------
1. RJP Electronics, Inc. agrees to produce exclusively for Object A, Inc. a
handheld computer dedicated to tracking baseball statistics.
2. RJP Electronics, Inc. will provide development work necessary for the
manufacture of the hardware platform for the baseball product. This
includes: mechanical design, electrical design, tooling for the plastic
case, electrical design, PCB design, LCD design, production assembly, and
packaging.
3. Object A, Inc. will provide the software for the baseball application to
execute on the hardware platform made available by RJP Electronics, Inc.
4. Object A, Inc. will purchase the baseball products for US$33.50 each.
5. Object A, Inc. will order a minimum of 2,000 units of the baseball product.
6. Object A, Inc. hereby places the first order for 2,000 units of the baseball
product at the price of US$33.50 for a total initial order of US$67,000.00
and these funds will be made available to RJP Electronics, Inc. upon
execution of this agreement by RJP Electronics, Inc.
7. RJP Electronics, Inc. agrees to produce these 2,000 units of the baseball
product, delivered to Object A, Inc. in California, at a time no later than
April 1, 1994. In the event that RJP Electronics, Inc. is unable or
unwilling to produce these 2,000 units of the baseball product by April 1,
1994, Object A, Inc. will be immediately entitled to a complete refund of
the US$67,000.00 used to purchase the 2,000 units of the baseball product.
/s/ EMERIE J. MCDONALD /s/ RAYMOND LEE
- ---------------------------------- --------------------------------------
Emerie J. McDonald Raymond Lee
Object A, Inc. Date: 12-15-93 RJP Electronics, Inc. Date: 12-15-93
<PAGE>
EXHIBIT 10.8
<PAGE>
SUPPLY AGREEMENT
THIS AGREEMENT, dated as of March 11, 1993 by and between TeleSolutions, Inc. of
Richardson, Texas ("TSI"), and RJP Electronics, Inc. of 1455 Monterey Pass Road,
Suite 102, Monterey Park, California ("RJP").
WHEREAS, TSI is engaged in the development and distribution of electronic
communications products, and
WHEREAS, RJP is engaged in the design, production, and manufacture of electronic
products, and
WHEREAS, TSI desires to retain RJP to design, produce and manufacture certain
electronic communications products according to TSI specifications under the
terms and conditions hereinafter set forth:
NOW THEREFORE, TSI and RJP do hereby mutually agree as follows:
1. Appointment TSI hereby retains RJP as an independent contractor and RJP
-----------
hereby accepts such retainer, upon the terms and conditions herein set forth.
During the term hereof, RJP shall serve at the sole direction of R. Eugene
Helms in his capacity as president of TSI. It is understood that RJP shall
not act as an agent for TSI nor shall RJP enter into any agreement with third
parties nor incur any obligation on TSI's behalf. Further, it is understood
that RJP is responsible for all taxes, insurance, and duties and any other
obligations that may exist as the result of its performance under this a
Agreement or otherwise.
2. Services to be Rendered RJP agrees to design and develop the PTT-100 product
-----------------------
according to the specifications set forth in the PTT-100 Product Description
contained in Exhibit 1, under the terms set forth in Paragraph 3. It is further
agreed that following the design and
<PAGE>
development of the PTT-100 and the acceptance of software operation and product
performance by TSI, RJP shall manufacture and ship units of the PTT-100 to TSI
according to the terms set forth in Paragraph 4.
3. Development Payments The non-recurring engineering cost for design and
--------------------
development of the PTT-100 shall be a total of US$30,000 (thirty thousand
dollars). Breakdown of this cost is shown in Exhibit 2. One-half of this
total amount (fifteen thousand dollars) is provided with the execution of
this Agreement and the balance (fifteen thousand dollars) shall be due upon
the acceptance by TSI that the PTT-100 as designed and developed by RJP fully
meets the operational and performance requirements set forth in the PTT-100
Product Description contained in Exhibit 1. Functional samples of the PTT-100
shall be available and provided to TSI within 120 (one hundred twenty) days
from the date of this Agreement.
4. Product Cost and Delivery The unit cost to TSI for the PTT-100 shall be
-------------------------
US$17.00 (seventeen dollars) for orders of less than ten thousand pieces and
US$18.50 (eighteen and one-half dollars) for orders of at least ten thousand
pieces. All such costs are F.O.B. Richardson, Texas. Minimum order size shall be
1,000 (one thousand) units. Shipments to TSI shall take place within 90 (ninety)
days of receipt of order by RJP. All PTT-100 units shipped to TSI shall be fully
tested and properly packaged prior to shipment to TSI. RJP shall provide a one
year warranty on all units, with replacement of defective units provided to TSI
within 30 (thirty) days of receipt of returned units by RJP.
5. Term of the Agreement This Agreement shall be effective for a period of five
---------------------
years from the date of this Agreement. This Agreement can be terminated by
either party upon the material breach and lack of remedy within 90 (ninety) days
of any such breach of this Agreement by the other party.
<PAGE>
6. Intellectual Property It is expressly understood and agreed that all
---------------------
software, firmware, hardware, and designs developed hereunder for the PTT-100,
and all intellectual property relating thereto, is the sole and exclusive
property of TSI. RJP agrees to comply with all aspects of the non-disclosure
agreements it has executed with respect to TSI products and intellectual
property during and subsequent to the term of this Agreement.
7. Miscellaneous The invalidity or unenforceability of any provision of this
-------------
Agreement shall not effect the validity or enforceability of any other
provision of this Agreement. This Agreement may be amended only by written
consent of both parties and shall inure to the benefit of and be binding upon
the parties and their heirs, successors, and assigns. This Agreement shall be
governed by and shall be construed in accordance with the laws of the State of
Texas.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as of the date above written.
TeleSolutions, Inc. RJP Electronics, Inc.
By: /s/ R. Eugene Helms By:
------------------- ----------------------
R. Eugene Helms, President Raymond Lee, Director
<PAGE>
EXHIBIT 1
---------
PRODUCT DESCRIPTION
PTT-100
TELESOLUTIONS, INC.
March 1, 1993
Confidential & Proprietary
<PAGE>
I. PRODUCT OVERVIEW
The PTT-100 represents the first in a series of DTMF terminals to be offered by
TeleSolutions, Inc. This product is a low-cost Pocket Telephone Terminal
designed to provide the features of a tone dialer, a pocket data directory, and
an interactive data input terminal.
The PTT-100 features a standard 12-key touchtone keypad, a full alphabetic
keypad, and a number of special character and function keys. The keyboard
layout, shown in Figure 1, is designed to support simple operation in both
Interactive Mode and repertory or Memory Mode.
The PTT-100 functions as a standard pocket tone dialer, as a data directory for
often-used numbers, and a data input terminal for interactive or batch entry of
information. For transmission of characters, the PTT-100 offers several protocol
options, all based on DTMF tone sequences, as defined in Character Coding
Tables. It also offers a choice of two output speeds and a remote acoustic
coupling mechanism that makes interactive use convenient.
The PTT-100 is simple and straight-forward to use, featuring three principal
dimensions to its operational configuration. These are a) the protocol selected
(one of three) for output of information. b) the output rate, and c)
interactive versus memory-oriented operation. A default condition for these is
automatically set at power-up which allows the PTT-100 to be used directly in
Interactive Mode with Primary Coding Table. This default feature frees the user
from having to make any adjustments to the PTT-100 operational configuration
when it is turned on if it is going to be used in its basic mode of operation,
which is for the 12-key touchtone pad to function identically to a standard
telephone touchtone keypad, to output two-tone DTMF sequences for the alphabetic
characters, and to output data with every keystroke at the rate of ten tones per
second.
If an alternate output protocol is required, the user can select, at any point
prior to the output, either the Secondary Coding Table or the Custom Coding
Table to govern output protocol. If the user desires to enter data into the
PTT-100 memory and have it retained for subsequent or repeated use, the Memory
Mode can be selected. This allows character strings to be entered, edited,
reviewed, and saved in memory and then output on demand.
The PTT-100 features 26 alphabetic memory locations (A-Z) which allows
alphanumeric character strings to be assigned to locations that have some
logical relationship with the string, such as location A for address, B for
bank number, C for car number, etc. In addition, there are one hundred (0-99)
numeric locations that strings may be stored at for such things as sets of order
information or text messages. In aggregate, there is memory for 2000 characters
to be stored.
<PAGE>
II. PHYSICAL DESCRIPTION
The PTT-100 is based on the 1102D platform. It is comprised of a base unit,
which is a modified 1102D, and an external speaker unit. The external speaker
unit provides an alternate tone output mechanism which, when used, effects an
acoustic coupling with a telephone handset without the requirement that the base
unit be held up to the handset microphone. If the external speaker unit is not
attached, then the internal speaker is used for tone output, as with the 1102D.
The physical modifications to the 1102D that are required are:
1) Keyboard: Change key labels. The same three color schemes will be used as in
the 1102D, though with a different layout. See Figures 1 and 2.
2) Top case: Same color as 1102D. Put "TSI" above display on left and
"PTT-100" above display on right. Put "CODE" below right-most character of
display and "MEM" under character to left of that. Put "DELETE","PAUSE",
"NEXT", AND "SEND" above the keys CLEAR, YES, NO, ENTER, respectively.
See Figure 3.
3) Bottom case: Same color as 1102D. Modify to accommodate miniature phone
jack on left side. Must provide for no side-ways tilt or rocking when keys are
depressed while sitting on a flat surface.
4) Internal: Introduce miniature phone jack on side to accept miniature phone
plug from external speaker cable. The phone jack shall include a switch that
directs audio signal to external speaker when plug is inserted and directs audio
signal to internal speaker when it is not. A new memory mask for the processor
is required to reflect functionality of the PTT-100.
The external speaker unit is comprised of four elements:
5) Loudspeaker: Same as used for internal speaker of 1102D. Operation and
performance of the PTT-100 shall be identical whether internal speaker is used
or whether external speaker is used.
6) Speaker Enclosure: A flat-black plastic circular holder with minimal height
and minimal diameter, sufficient to hold speaker securely. It has an open front,
from which the speaker faces outward, and closed back. A black foam screen shall
fit over the enclosure and covers the face of the speaker. The enclosure has
cut-outs around the front rim and a groove on the top. See Figure 4.
7) Cable: A flat-black, two-conductor shielded cable with diameter
approximately 0.125" and length of 30 inches.
8) Phone Plug: Miniature phone plug; two-conductor; right angle; flat-black
plastic housing.
<PAGE>
III. OPERATIONAL DESCRIPTION
Functional Overview
The PPT-100 is meant to provide the functions of a dialer, a data directory, and
a data entry device. These functions are accomplished through two operational
modes, Interactive and memory. In the Interactive Mode, the PTT-100 outputs
data immediately in response to the depression of a key. In Memory Mode, the
PTT-100 outputs data strings contained in memory in batch form in response to a
SEND command.
The PTT-100 operates in a manner similar to that of a pocket touchtone dialer,
except that an alphanumeric character set can be transmitted. The PTT-100 is
capable of transmitting 45 distinct characters and function codes in Interactive
Mode. These are: A_Z, 0-9, #, *, ., -, SPACE, CLEAR, YES, NO, ENTER. In Memory
Mode, the keys labeled with the last four elements in the preceding list take on
their secondary functions, which are labeled immediately above the keys, and do
not generate output data.
When a key associated with one of the above 45 elements is pressed, a DTMF
output sequence is generated according to a Character Coding Table. There are
three such coding tables, which can define three distinct output protocols as
shown in Tables 1-3.
The Primary Coding Table (Table 1) is the default table used for character
encoding. It features single-length DTMF sequences for the 0-9, *, #, and
double-length sequences for all other characters. The Secondary Coding Table
(Table 2) is identical to Table 1 except that 0-9, *, #, have double-length
sequences assigned to them. The Custom Coding Table (Table 3) is a structure
that allows a customized encoding scheme to be defined. It is preset to be
identical to Table 1. Any element in this table can be modified by using the
DEFine function while in Interactive Mode.
At output, each character is translated into the appropriate DTMF sequence
according to the coding table that is active at the time the output is
initiated and the selected output rate. Upon power-up, Table 1/Rate H is
automatically selected to be active. A "1" and an "H" is put in the bottom
display directly above the CODE label and the RATE label, respectively. These
are the Coding Table and Output Rate Indicators, which always show which coding
table is active (1-3) and the selected output rate ("H"igh/"L"o).
The active code table and the output rate for characters can be changed by using
the SELect key. This key will cause the active code table and output rate
selection to by cycled through the six possibilities in the order of Table
1/Rate H, Table 1/Rate L, Table 2/Rate H, Table 2/Rate L, Table 3/Rate H. Table
3/Rate L, one step per key depression. Each time the coding table selection or
output rate changes, the new selection is reflected in the Coding Table
Indicator and the Output Rate Indicator, respectively.
<PAGE>
The DEFine function allows the user to specify the contents of Table 3. This
function can be performed only in Interactive Mode. When this key is depressed,
the PTT-100 is put into an off-line state until the DEFine key is again pressed,
which then returns the unit to its standard operational state in Interactive
Mode. Following DEFine key depression, the message "WHICH KEY?"is put in the top
display. At this point, the key for which a new output code is to be defined
must be entered. This can be any of the 45 keys which generate output in the
Interactive Mode, i.e. any of the elements in the coding tables.
If the DEFine key is pressed at this point, the DEFine state is aborted with no
changes taking place in Table 3. If SELect is pressed at this point, the active
code table is changed and the PTT-100 continues to display the prompt and wait
for entry of the target character. If an invalid character is entered at this
points(<or> or MEMORY), then the message "ERROR" is displayed in the top display
for one second and the prompt message is then returned to the display. Once the
target key has been pressed, the selected key name is displayed in the top
display right-justified. At this point a new code sequence can be entered to
replace the old sequence.
A sequence of length 1, 2, or 3 can be entered for any character as a new code
sequence. The only valid entries for defining the sequence are 0-9, *, #. When
the first of these is entered, the old sequence in the right of the top
display is erased and a new character is put in the right-most character of
the display. If subsequent entries are made (up to three total), the characters
are shifted to the left to continue to display the whole sequence right-
justified in the display, while the key name continues to be shown in the left
of the display.
No more than three characters will be accepted - any beyond that will be
ignored. In an error is made while entering the sequence, depression of the
CLEAR key will erase the new entry sequence and return the sequence to that
which existed when the DEFine state was entered. If the user desires to change a
number of key codes in the table, the NEXT key can be used to advance from one
table location to the next. This is accomplished merely by pressing the NEXT key
after the new code has been entered for the current table entry. This saves the
new code in the table for the current entry and moves to the nest table entry
in the order reflected in Tables 1-3. When this is done, the key name and
present code sequence is put in the display in the same manner as described
above. Consequently, the NEXT key serves to step through Table 3 in order,
starting at the entry specified following the DEFine key depression. Once the
end of the table is reached, the NEXT key has no effect if pressed, though
"ERROR" will appear for one second in the top display and then the original
display contents is returned. The DEFine key must be pressed to exit the Define
state and return to operational Interactive Mode.
<PAGE>
Interactive Mode
The basic mode of operation for the PTT-100 is Interactive mode. When the unit
is powered on (by pressing the CLEAR key), the PTT-100 comes up in Interactive
Mode with the Memory Mode Indictor turned off (black), the Coding Table
Indicator set to "1", the Output Rate Indicator set to "H", the message "READY"
left-justified in the top display, and message showing the number of available
characters in memory is shown in brackets, [xxxx], left justified in the bottom
display. Both messages are erased when the first key is pressed.
In Interactive Mode, the act of pressing one of the 45 keys that generate output
will result in the immediate generation of the DTMF sequence associated with
that character in the code table that is active at that moment. The duration of
each DTMF tone is a fixed length, except in the case where Code Table 1 is
active and one of the keys 0-9,*,# is pressed. Under these conditions, the
duration of the DTMF tone shall be equals to the length of time the key is held
down. This effects an emulation of the standard 12-key touchtone keypad.
As keys are pressed, the association character of function is displayed in the
top display, filling from the left and scrolling to the left when the display is
full. (A space is used to indicate that SPACE was entered, a lower-case "c" for
CLEAR, a lower-case "y" for YES, a lower-case "n" for NO, and a lower-case "e"
for ENTER).
While in Interactive Mode, all keys have the function that is labeled on the
key. (The <and> have no function in this mode and are ignored.) When the
MEMORY key is pressed, the Memory Mode is entered and all keys have functions
except the DEFine key, which can be used only in Interactive Mode. Further, in
Memory mode the CLEAR, YES, NO, and ENTER keys take on their secondary functions
which are labeled directly above the keys. (CLEAR becomes DELETE, YES becomes
PAUSE, NO becomes NEXT, and ENTER becomes SEND).
Memory Mode
The Memory Mode is entered and exited via the MEMORY key. Upon depression of the
MEMORY key, the Memory Mode Indicator is turned on (underscore) and the top
display shows the message "LOCATION?". Valid inputs at this point are A-Z, 0-99
(leading zeros are optional for 0-9 entries), SELect, and MEMORY; any other
input causes "ERROR" to show in the top display for one second and then
"LOCATION?" is returned. if SELect is depressed, the active coding table and
output rate is bumped and the Code Table Indicator and Output Rate Indicator in
the bottom display is updated and the unit continues to wait for entry of the
desired memory location. If MEMORY is depressed again, the Memory Mode is
exited and the Memory Mode Indicator is turned off.
<PAGE>
6
When the MEMORY key is initially pressed, the PTT-100 exits the Interactive Mode
and enters the Memory Mode. While in the Memory Mode, the Memory Mode Status
Indicator remains on and the YES, NO, ENTER, and CLEAR keys have the functions
of PAUSE, NEXT, SEND, and DELETE, respectively. During this time, key
depressions do not immediately send DTMF sequences, as is the case in
Interactive Mode. Rather, character strings can be constructed, saved,
recalled, reviewed, edited, and output. Once in the Memory Mode, the PTT-100
remains in that mode until the MEMORY key is again depressed, which returns the
unit to Interactive Mode and turns off the Memory Mode Indicator.
The Memory feature of the PTT-100 allows a character string to be constructed
and saved in memory for subsequent and/or repeated output. The PTT-100 provides
126 storage locations for character strings, 26 alpha locations (A-Z) and 100
numeric locations (0-99). The location for the desired character string is
entered immediately following MEMORY key depression. The location can be a
single entry such as with A-Z and 0-9, or a double entry such as with 10-99. If
a second digit is not entered within two seconds of the first digit, it is
assumed that the user is specifying a one-digit location; leading zeros for the
ten single digit locations can be optionally entered.
Once the Memory Mode is entered and the desired character string location is
specified, the first twelve characters of the string stored at that location are
put in the top display, the location is put in the left-most two characters of
the bottom display (only if it is a numeric location), and the length of the
character string is put in the middle of the bottom display. If the selected
location is empty, the top display will show all blanks and the string length
will show zero.
To construct a character string for storage at an empty location, the user
merely presses keys corresponding to the characters he wishes to enter. As the
characters are entered, the top display fills from the left and begins to shift
to the left with each character entered once the display is full. Valid
characters for entry into character strings are A-Z, 0-9, #, *, ., -, SPACE, and
PAUSE. (PAUSE introduces a two second delay in the output string; it is
represented in the display by a lower-case "p".) When the user has finished
entering the string, it is automatically saved at the selected location when the
MEMORY key is pressed to exit the Memory Mode. It is also saved when the user
presses the NEXT key to go to the next location or should the unit power-off
while still in the Memory Mode.
To edit a character string that has been previously stored in memory or is being
constructed, the user must position the string in the top display using the
left and right scroll keys (Less-than and Greater-than) so that the insertion
or deletion point is right-justified. Consequently, a character is deleted by
positioning it in the right end of the display and pressing the DELETE key.
Each time DELETE is pressed the right-most character is deleted and the display
<PAGE>
7
shifts right one character. Similarly, a character can be inserted in a
character string by positioning the string so that the desired insertion
follows the right-most character in the top display. Each time a key is pressed,
the display shifts left one character and the inserted character is put in the
right character position. As characters are inserted and deleted from a string,
the string length in the bottom display is updated. The scroll keys can be used
for reviewing a stored string, as well as positioning it for editing.
To delete an entire character string that has been previously stored, the DELETE
key must be pressed immediately following a) the entry of the memory location
when the Memory Mode is entered, or b) the NEXT key when locations are being
accessed sequentially. If any other key is pressed before the DELETE key, the
Delete function will have the effect of a single character deletion. It is
possible to delete a string one character at a time by positioning the last
character in the string in the right-most position of the display and pressing
the DELETE key until all characters in the string have been deleted. Once a
string has been deleted, the location is again deemed to be empty. A string
comprised of all spaces is considered to be null and cannot occupy a memory
location.
A character string can be output at any time during the entry or editing
process. Depression of the SEND key will cause the character string as it is
comprised at that time to be translated into DTMF signals according to the
active coding table and transmitted. Once the SEND key is depressed, the entire
string will be sent. This output can be aborted by pressing the DELETE key while
the output is in progress. Following completion of the output or an aborted
output, the unit returns to the state it was in when the SEND key was depressed.
Sequential memory locations can be accessed without leaving the Memory Mode by
using the NEXT function. Depression of the NEXT key while in Memory Mode saves
the current character string in its present state and jumps to the character
string at the next sequential location. The sequence of location progression is
alphabetical for alpha locations (A to B, B to C, ..., Y to Z) and numerical
order (0 to 1, 1 to 2, ..., 98 to 99) for numeric locations. Once location Z or
99 is reached, depression of the NEXT key has no effect, though "ERROR" will
appear in the top display for one second and then the original contents of the
display will return.
When the unit is powered on, the number of available characters in memory is
displayed until the first key is pressed. The top display shows "READY" and the
bottom shows the number of available characters left-justified in brackets. If
memory becomes full at any time, a "MEMORY FULL" message is displayed for one
second in the top display and then the original display contents are returned.
Should this condition arise, memory can be made available by deleting unneeded
character strings. There is no particular limit to the length of a character
string, other than that of the overall memory available. Trailing spaces in a
string are not saved in memory.
<PAGE>
IV. PERFORMANCE REQUIREMENTS
The PTT-100 must meet all of the following performance requirements:
DTMF Signaling
- --------------
The PTT-100 will generate DTMF tones at two rates. The High Rate shall be ten
tones per second (50 msec on and 50 msec off). The Lo Rate shall be five tones
per second (100 msec on and 100 msec off). All DTMF signals must meet the
specifications set forth in the Bellcore RS-464 document. Any DTMF tone output
by the PTT-100 through the internal speaker shall be identical in all pertinent
respects with that achieved through the external speaker unit.
Battery
- -------
The PTT-100 shall employ the same battery mechanism as that of the 1102D.
Battery replacement must be practical without loss of memory contents. Battery
life shall be comparable to that of the 1102D. The PTT-100 shall contain an
automatic power-off feature that occurs after approximately five minutes of
inoperation. There shall be a RESET feature that allows the user to reset the
PTT-100 without the loss of memory contents.
Memory
- ------
The PTT-100 shall have memory sufficient to store two thousand characters. There
shall be 126 logical locations in memory for storage of character strings.
Physical Requirements
- ---------------------
The PTT-100 shall have the same size, shape, color, and display as does the
1102D. Changes required to the 1102D and requirements for the external speaker
unit are documented in Section II.
Keypad
- ------
The PTT-100 keypad requirements are shown in Figures 1 and 2. The PTT-100 must
allow key-ahead so that in the event the user is pressing keys faster than
characters can be output in Interactive Mode, key depressions will be buffered
to assure that no key depression is lost.
Environmental
- -------------
The PTT-100 must exhibit tolerance to temperature, humidity, electrostatic
discharge, and physical shock consistent with industry standards for similar
pocket devices such as calculators, data directories, and tone dialers.
<PAGE>
Table 1. Primary Coding Table
CHAR. CODE CHAR. CODE CHAR. CODE
- ----------------------------------------------------------------------------
A 2-1 B 2-2 C 2-3
D 3-1 E 3-2 F 3-3
G 4-1 H 4-2 I 4-3
J 5-1 K 5-2 L 5-3
M 6-1 N 6-2 O 6-3
P 7-1 Q 7-7 R 7-2
S 7-3 T 8-1 U 8-2
V 8-3 W 9-1 X 9-2
Y 9-3 Z 9-9 0 0
1 1 2 2 3 3
4 4 5 5 6 6
7 7 8 8 9 9
* * # # . *
- *-1 SPACE *-2 CLEAR *-3
YES 1 NO 2 ENTER *-4
<PAGE>
Table 2. Secondary Coding Table
CHAR. CODE CHAR. CODE CHAR. CODE
- ----------------------------------------------------------------------------
A 2-1 B 2-2 C 2-3
D 3-1 E 3-2 F 3-3
G 4-1 H 4-2 I 4-3
J 5-1 K 5-2 L 5-3
M 6-1 N 6-2 O 6-3
P 7-1 Q 7-7 R 7-2
S 7-3 T 8-1 U 8-2
V 8-3 W 9-1 X 9-2
Y 9-3 Z 9-9 0 0-0
1 1-0 2 2-0 3 3-0
4 4-0 5 5-0 6 6-0
7 7-0 8 8-0 9 9-0
* *-0 # #-0 . *-0
- *-1 SPACE *-2 CLEAR *-3
YES 1-0 NO 2-0 ENTER *-4
<PAGE>
Table 3. Custom Coding Table (Initial state)
CHAR. CODE CHAR. CODE CHAR. CODE
- ----------------------------------------------------------------------------
A 2-1 B 2-2 C 2-3
D 3-1 E 3-2 F 3-3
G 4-1 H 4-2 I 4-3
J 5-1 K 5-2 L 5-3
M 6-1 N 6-2 O 6-3
P 7-1 Q 7-7 R 7-2
S 7-3 T 8-1 U 8-2
V 8-3 W 9-1 X 9-2
Y 9-3 Z 9-9 0 0
1 1 2 2 3 3
4 4 5 5 6 6
7 7 8 8 9 9
* * # # . *
- *-1 SPACE *-2 CLEAR *-3
YES 1 NO 2 ENTER *-4
<PAGE>
A B C C E F
G H I J K L
M N O P Q R
S T U V W X
Y Z DEF SEL LESS-THAN GREATER-THAN
. 1 2 3 MEMORY
- 4 5 6 YES
SPACE 7 8 9 NO
CLEAR * 0 # ENTER
Figure 1. Keyboard Layout
<PAGE>
- ----------------------------------------------------------
A B C D E F
G H I J K L
1
M N O P Q R
S T U V W X
Y Z DEF SEL LESS-THAN GREATER-THAN
----------------------------------------------
----------------------- --------
. 1 2 3 MEMORY
- 4 5 6 YES
SPACE 7 8 9 NO
- ------------
-------
CLEAR * 0 # ENTER
-----------------------
2
3
Scheme 1: Dark grey with white labels
Scheme 2: Light grey with black labels
Scheme 3: Red with white labels
Figure 2. Keyboard Colors
<PAGE>
- --------------------------------
TSI PIT-100
------------------------
------------------------
MEM RATE CODE
PAUSE
NEXT
DELETE SEND
- --------------------------------
Figure 3. Top Case Labels
<PAGE>
TOP GROOVE IN FLAT TOP (1/16")
[GRAPHIC OF SPEAKER ENCLOSURE APPEARS HERE]
LOUDSPEAKER CUT-OUTS
Figure 4. Speaker Enclosure (Side View)
<PAGE>
EXHIBIT 2
[LETTERHEAD OF RJP ELECTRONICS INC. APPEARS HERE]
- --------------------------------------------------------------------------------
Date : November 23, 1992
To : TeleSolutions
Attn : Dr. Gene Helms
From : Raymond Lee
Q U O T A T I O N
-----------------
PROJECT : PTT-100 POCKET TELEPHONE TERMINAL
SOFTWARE DEVELOPMENT : USD 20,000.00
I.C. MASKING : USD 5,000.00
PLASTIC MOLD TOOLING : USD 5,000.00
RUBBER-KEY TOOLING : N/A
LCD DISPLAY MASKING : N/A
ELECTRICAL DESIGN : N/A
-------------
USD 30,000.00
=============
DEVELOPMENT SCHEDULE :
SOFTWARE DEVELOPMENT : 2 MONTHS
AVAILABILITY OF WORKING
ENGINEERING SAMPLES : 2 MONTHS
-----------
4 MONTHS
========
CONFIRMED AND AGREED BY :
/S/ Raymond Lee
-------------------------
RAYMOND LEE
DIRECTOR
<PAGE>
Telesolutions, Inc.
2605 Sherrill Park Drive
Richardson, TX 75082
Tel. 214-690-3651 Fax: 214-690-0202
CONTRACT AMENDMENT
------------------
This document sets forth mutually agreed changes to the Supply Agreement dated
March 11,1993 between Telesolutions, Inc. and RJP Electronics, Inc.
Amendment 1
- -----------
The first sentence of Section 4 (Product Cost and Delivery) presently reads:
"The unit cost to TSI for the PTT-100 shall be US$17.00 (seventeen dollars) for
orders of less than ten thousand pieces and US$18.50 (eighteen and one-half
dollars) for orders of at least ten thousand pieces."
The first sentence of Section 4 (Product Cost and Delivery) shall be amended to
read:"The unit cost to TSI for the PTT-100 shall be US$19.20 (nineteen dollars
------------------------------------------------------------------------
and twenty cents) for orders of less than ten thousand pieces and US$17.70
- ------------------------------------------------------------------------------
(seventeen dollars and seventy cents) for orders of at least ten thousand
- ------------------------------------------------------------------------------
pieces."
- ---------
Amendment 2
- ------------
All references to "2000 characters" in Exhibit 1 (PTT-100 Product Description)
shall be amended to read "7000 Characters".
Telesolutions, Inc. RJP Electronics, Inc.
By:[SIGNATURES APPEARS HERE] By:[SIGNATURES APPEARS HERE]
------------------------- -------------------------
Title: President Title:
---------------------- ----------------------
Date: 6/30/93 Date:
---------------------- ----------------------
- -------------------------------------------------------
<PAGE>
EXHIBIT 10.9
<PAGE>
CONFIDENTIAL RJP/INSO
9/26/95
INDEX
INSO CORPORATION
LICENSE AGREEMENT
Agreement
- ---------
1. Definitions
2. Licenses and Proprietary Rights, Term
3. Delivery, Acceptance, Support
4. Royalties
5. Non-Disclosure of Confidential Information
6. Warranties
7. Defense of Legal Claims
8. Taxes, Export Regulations
9. Assignment
10. Default and Termination
11. General Provisions
Exhibit A: Specifications of Components
- ---------------------------------------
International CorrectSpell(TM) spelling correction system
IntelliFinder(R) reference engine with the Enhanced Roget's US
Electronic Thesaurus and The American Heritage Concise Dictionary. Third
-----------------------------------------------
Edition Databases
-------
Exhibit B: Description of INSO Product
- --------------------------------------
1. Description of INSO Product
2. Royalties
<PAGE>
CONFIDENTIAL RJP/INSO
9/26/95
INSO CORPORATION
LICENSE AGREEMENT
GENERAL TERMS AND CONDITIONS
This Agreement, effective as of the 26th day of September, 1995, is by and
between
INSO CORPORATION and RJP ELECTRONICS, INC.
a corporation organized under a corporation organized under the laws
the laws of the State of Delaware of the State of California and RJP
("INSO") ELECTRONICS, LTD. a corporation
organized under the laws of Hong Kong,
jointly and severally
(the "Licensee")
This Agreement includes all Exhibits now or hereafter appended hereto by mutual
agreement of the parties.
WHEREAS, INSO is the proprietor of certain computer-aided reference tools,
proofreading programs, and electronic databases, and
WHEREAS, the Licensee desires rights to adapt and distribute materials
proprietary to INSO in connection with the Licensee's electronic products,
NOW, THEREFORE, the parties agree as follows:
1. Definitions
-----------
1.1 The "Component(s)" refer(s) individually and collectively to the source
code, Databases, documentation, and any other materials described as INSO
Components in a Product Description, in all forms, formats, and media. The
term includes all Upgrades that INSO supplies under this Agreement.
1.2 "Database" refers to a Component consisting of a compilation of words and
lexical information for use in electronic products, in ally form including
print and machine-readable versions, whether compressed or uncompressed.
<PAGE>
CONFIDENTIAL RJP/INSO
9/26/95
1.3 "Delivery" means that the Licensee has received all Components for the
specific INSO Product, and that such Components conform to the
specifications of Section 1 of the applicable Product Description.
1.4 "INSO Confidential Information" refers to the following elements of the
Components which are deemed by INSO to be trade secrets:
a. source code, uncompressed Databases, and software documentation;
b. INSO's proprietary techniques with regard to product function, even if
supplied to the Licensee solely as embodied in the Components; and
C. subject to the exclusions in Section 5.3 below, any other information,
oral or written, identified in writing as confidential information of
INSO
1.5 "INSO Product" refers to any set of Components which INSO markets as a
separate product. Each set of Components providing a different function or
using a different language Database is considered a separate INSO Product.
1.6 "Licensed Product" refers to the specific Licensee product or products in
which the Licensee is licensed to use the Components and Modified
Components as permitted by this Agreement. The initial Licensed Products
are identified in Exhibit B; others may only be added by amendment to this
Agreement agreed to in writing by both parties.
1.7 "Modified Component" refers to a product or work prepared by the Licensee
(or by a third party for the Licensee) that is based upon or derived from
any part of any Component, whether or not such product would, if prepared
without INSO's authorization, constitute a copyright infringement of such
Component.
1.8 An "Upgrade" is defined as a correction, improvement, Database update, or
other modification of an INSO Product which INSO makes generally available
to its licensees for no additional fee.
1.9 "Product Description" refers to the description of an INSO Product
contained in an Exhibit A attached to this Agreement.
2. License, Use, Term, Payment
---------------------------
2.1 INSO hereby grants, and the Licensee accepts, a non-exclusive license to
use the Components solely to develop, use, and support Licensed Products in
accordance with the terms and conditions of this Agreement. The right to
use the Components for that purpose includes the right to use and reproduce
the Components, to prepare Modified Components, and to distribute Licensed
Products worldwide, directly or indirectly; provided, however, that the
-----------------
Licensee shall not prepare a Modified Component of any Database without
INSO's prior written consent.
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CONFIDENTIAL RJP/INSO
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2.2 The Licensee's rights to use the Components as provided herein shall
continue only so long as the Licensee:
a. distributes Licensed Products in which the source code portion of the
Components has been converted to executable code, and which do not
provide functions to decode any Database, or to download, copy, print,
or otherwise reproduce significant portions of any Database at any one
time;
b. uses documentation supplied by INSO solely for internal development of
Licensed Products;
c. pays INSO pursuant to this Agreement; and
d. is in compliance with all other material terms of this Agreement.
2.3 The Licensee may sublicense Licensed Products only to end-users, directly
or through third party distributors and dealers, and solely on terms as
protective as the Licensee requires for its own proprietary information and
which enable the Licensee to meet its obligations under this Agreement.
Sublicenses to end-users shall provide that end-users shall be permitted to
use the Components and Modified Components only as part of the Licensed
Products. Any other sublicense shall be subject to the prior written
approval of INSO. The Licensee shall provide copies of its standard
software licenses to INSO upon request.
2.4 The Licensee may subcontract the distribution of the Licensed Products
provided that the Licensed Products are distributed and marketed solely
under the name of the Licensee and not of said distributor or any other
third party. The Licensee will, as INSO may reasonably request, give INSO
the names of such subcontractors and other information on its procedures
for protecting the Licensed Products in the reproduction process. The
Licensee shall be responsible for the payment of any royalties resulting
from distribution by any such subcontractor.
2.5 The term of this Agreement is specified in Exhibit B attached hereto, and
the licenses granted herein shall terminate automatically on expiration
without any action by the parties. This Agreement and the licenses granted
herein shall be terminated or suspended prior to such expiration only as
provided in Sections 2.2 and 11.
2.6 In consideration for the licenses granted herein, the Licensee shall pay
INSO royalties as set forth in Exhibit C attached hereto.
3. Delivery and Acceptance
-----------------------
3.1 INSO will deliver the Components and services, if any, specified in the
applicable Product Description.
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CONFIDENTIAL RJP/INSO
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3.2 The Components will be deemed accepted upon Delivery. Upon Delivery INSO
shall be entitled to the minimum royalty as set out in Exhibit C, whether
or not the Licensee subsequently develops and markets the Licensed
Products.
4. Proprietary Rights and Notices
------------------------------
4.1 This Agreement does not transfer to the Licensee any title in or ownership
of the Components or Modified Components or any INSO or third party
trademarks, nor (except as provided herein) any right to use INSO or third
party copyrighted material or INSO or third party trademark, or INSO
Confidential Information embodied therein except the rights to use the
Components and Modified Components in Licensed Products as expressly
permitted by this Agreement. The Components and INSO Confidential
Information embodied therein are and shall at all times remain the sole and
exclusive property of INSO.
4.2 The Licensee shall take all responsible steps to protect INSO's and any
third party's copyright interest in and to the Components including, at a
minimum, the display of the applicable INSO or third party proprietary
notices, in and in connection with the Licensed Products as specified in
the applicable Product Description. INSO reserves the right to require the
Licensee to make reasonable changes to such notices, to be implemented by
the Licensee at the next reasonable opportunity.
4.3 The Licensee may not use trademarks, logos, trade dress, or titles of INSO
Products or publications in any way, except as provided herein or with
INSO's express prior written permission. INSO reserves the right to
restrict the Licensee's use of the name "INSO," the title of any INSO
Product or publication, and any other name appearing in INSO proprietary
notices including, but not limited to, in connection with any Licensed
Product which contains Components altered in ways unacceptable to INSO.
4.4 The Licensee shall provide INSO with representative samples of its initial
packaging and promotional materials and user documentation related to the
Licensed Products and any usage by the Licensee of the trademarks licensed
herein at least twenty (20) business days before first releasing any such
materials, and thereafter at INSO's request. INSO shall have the right to
require, at its discretion, the correction or deletion of any inaccurate
material from such materials.
4.5 The Licensee shall notify INSO as promptly as reasonably possible of any
suspected unauthorized use or possession of any Component, Modified
Component, or Licensed Product. In the event of unauthorized use arising
from the Licensee's or its permitted sublicensees' or distributors' custody
of the Components, the Licensee shall cooperate with INSO in any
appropriate action INSO may take or request to protect its rights in the
Components. Unless such unauthorized use or possession arises from the
Licensee's or such sublicensees' or distributors' negligence or breach of
this Agreement, the cost of such action shall be borne by
INSO.
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5. Non-Disclosure of Confidential Information
------------------------------------------
5.1 In performing its obligations under this Agreement, the Licensee may
receive confidential information of INSO If such information is identified
in writing as confidential information of INSO, the Licensee shall take
reasonable steps to protect such confidential information. Such steps shall
include, but not be limited to:
a. designating the Licensee group responsible for controlling access to
such confidential information
b. following the procedures the Licensee takes to protect its own
confidential information of similar character;
c. limiting disclosure to Licensee personnel solely on a need to know
basis, informing such personnel, by use of non-disclosure agreements
and display of confidentiality notices and other instructions, of the
restrictions on use, reproduction, and disclosure; and
d. preventing disclosure to any third party without INSO's prior written
permission in such case, except that the Licensee may disclose INSO's
confidential information to a consultant or subcontractor with a need
to know, providing services to the Licensee which directly relate to
the rights or obligations of the parties pursuant to this Agreement,
provided that each such consultant or subcontractor has signed an
appropriate written agreement, of. which INSO shall be an explicit
third party beneficiary, not to disclose such confidential information
or use such confidential information for any purpose other than the
performance of such services.
5.2 The Licensee shall not disclose the terms of this Agreement without INSO's
prior consent or as may be required by law or by order of court or request
of government agency, and in the case of such order or request, after
notice to INSO that such disclosure has been requested.
5.3 The Licensee shall be entitled to disclose information received from INSO
in confidence if:
a. such information was, prior to its receipt from INSO, properly in the
Licensee's possession or known to the Licensee;
b. such information is developed by or for the Licensee independently of
INSO confidential information received hereunder;
c. such information is or becomes public knowledge without the fault of
the Licensee; or
d. such disclosure is required by court or government action.
5
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CONFIDENTIAL RJP/INSO
9/26/95
in the event that disclosure of confidential information is required under
the circumstances described in Section 5.3(d), the Licensee will use its
best efforts to ensure that such information does not become generally
available to the public.
5.4 The provisions of this Section 5 shall survive the termination or
expiration of this Agreement.
6. Warranties
----------
6.1 INSO warrants that it knows of no third party copyright, trademark trade
secret, or United States patent that is infringed by the Components.
6.2 INSO warrants that the Components will perform substantially as specified
in Section 1 of the applicable Product Description.
6.3 INSO shall not be responsible in any way for any portion of software or
database prepared by or added to the Components by the Licensee or any
third party. If the Licensee requests that INSO make changes or adjustments
for difficulties or defects traceable to the Licensee's errors or
modifications, and INSO agrees to do so, INSO may bill the Licensee for
such services at INSO's then prevailing rates, as agreed in advance.
6.4 THE FOREGOING WARRANTIES GIVEN BY INSO ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR
OTHERWISE, UNDER OR RELATED TO THIS AGREEMENT OR THE COMPONENTS,
INCLUDING BUT NOT LIMITED TO IMPLIED Warranties OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
6.5 Components provided under this Agreement may contain or be derived from
portions of materials provided by a third party licensor under license to
INSO. INSO or the Licensee have assumed responsibility for the selection
of such materials and their use in producing the Components or Licensed
Products, respectively, licensed hereunder. THE THIRD PARTY LICENSOR
DISCLAIMS ALL WARRANTEes EXPRESS OR IMPLIED WITH RESPECT TO THE USE OF SUCH
MATERIALS IN CONNECTION WITH THE COMPONENTS OR LICENSED PRODUCTS,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
7. Defense of Legal Claims
-----------------------
7.1 INSO will defend or settle any allegation or claim by a third party
("Claim") against the Licensee that the Components infringe upon any United
States copyright, trade secret, patent, or other proprietary right of a
third party, and shall indemnify the Licensee and hold it harmless from any
and all such Claims and all resulting costs, expenses, compromises,
damages, and attorneys' fees, provided that (i) INSO is given prompt
written notice of the Claim, (ii) INSO is given the sole authority to
defend or settle the Claim, and (iii) the Licensee does not compromise or
settle the Claim without INSO's prior written consent. The Licensee shall
cooperate fully with all
6
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CONFIDENTIAL RJP/INSO
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reasonable requests of INSO in connection with any such Claim. In lieu of
defending a Claim, INSO may, at its sole option, procure for the Licensee
the right to continue using the disputed material, or modify the Components
so that they become non-infringing. Any such modification shall not
unnaturally affect the functionality of the Components. INSO shall have no
obligation to defend or indemnify the Licensee for any Claim based upon the
combination, operation, or use of the Components with elements not supplied
by INSO, or upon modifications to the Components by the Licensee, where
such Claim would not exist without such elements or modifications to the
Components by the Licensee.
7.2 The Licensee will defend or settle any Claim against INSO involving
elements of the Licensed Products other than the Components, or where such
Claim would not exist without the Licensee's modification to the
Components, and the Licensee shall indemnify INSO and hold it harmless
from any and all such Claims and all resulting costs, expenses,
compromises, damages, and attorney's fees, provided that (i) the Licensee
is given prompt written notice of the Claim, (ii) the Licensee is given the
sole authority to defend or settle the Claim, and (iii) INSO does not
compromise or settle the Claim without the Licensee's prior written
consent. INSO shall cooperate fully with all reasonable requests of the
Licensee in connection with any Claim described in this Section 7.2.
8. Limitation of Liability
-----------------------
8.1 ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING, INSO SHALL NOT BE
LIABLE TO THE LICENSEE OR ANY THIRD PARTY FOR ANY LOSS OF PROFITS, OR
SPECIAL, CONSEQUENTIAL, OR INCIDENTAL DAMAGES ARISING OUT OF THE
LICENSE, DELIVERY, INSTALLATION, OPERATION, MAINTENANCE OR SUPPORT
OF THE COMPONENTS, WHETHER SUCH CLAIM ARISES IN TORT OR CONTRACT
AND EVEN IF ADVISED OF THE POSSIBILITY OF THE SAME AND IN NO EVENT
SHALL INSO'S LIABILITY TO THE LICENSEE FOR DAMAGES OR COSTS
HEREUNDER, IF ANY, EXCEED THE AMOUNTS PAID TO INSO BY THE LICENSEE
FOR LICENSING THE COMPONENTS UNDER THIS AGREEMENT. THE LIMITATION
OF LIABILITIES DESCRIBED IN THIS SECTION ALSO APPLY TO ANY THIRD-PARTY
SUPPLIER OF MATERIALS SUPPLIED TO THE LICENSEE. INSO AND ITS THIRD-PARTY
SUPPLIER LIMITATIONS OF LIABILITIES ARE NOT CUMULATIVE. THE
THIRD PART SUPPLIER IS AN INTENDED BENEFICIARY OF THIS SECTION.
8.2 No action arising out of the licenses granted under this Agreement,
regardless of form, may be brought by any party more than one (1) year
after the cause of action has become known to the party bringing such
action, except that an action for nonpayment may be brought by INSO within
one (1) year of the date of the last payment.
9. Taxes, Export Regulations
-------------------------
9.1 The Licensee shall pay all import duties, levies or imposts, and all sales,
use, value added or other taxes of any nature (excluding taxes based on
INSO's income), assessed upon or with
7
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CONFIDENTIAL RJP/INSO
9/26/95
respect to any products, programs or services licensed by or purchased
from INSO hereunder. If the Licensee is required by law to make any
deduction or to withhold from any sum payable to INSO by the Licensee
hereunder, then the sum payable by the Licensee on which the deduction or
withholding is based shall be increased to the extent necessary to ensure
that, after such deduction or withholding, INSO receives and retains,
free from liability for such deduction or withholding, a net amount equal
to the amount INSO would have received and retained in the absence of such
required deduction or withholding.
9.2 The Licensee shall be responsible for meeting any other requirement of any
government and procuring government approvals, such as export licenses,
restrictions on export of technical data, or other procedures required to
make this Agreement effective and enforceable.
10. Assignment
----------
The Licensee may, upon thirty (30) days written notice to INSO, assign
this Agreement in connection with a change of ownership, which is defined
as a sale or transfer of shares which entitles a new holder to voting
rights in excess of fifty (50%) percent of any class of the Licensee's
outstanding voting securities or interest or a sale of substantially all
of the Licensee's assets, except as bona fide underwritten initial public
offering of the Licensee's capital stock, unless INSO (i) reasonably
determines that the assignee is a direct competitor of INSO and (ii)
notifies ties the Licensee of such determination prior to the expiration
of the thirty day notice period. INSO may assign this Agreement, or any of
its rights, obligations or benefits hereunder, without the consent of the
Licensee.
11. Default and Termination
-----------------------
11.1 Except as provided in Section 11.2 and 11.3 below, if either party should
breach any material provision of this Agreement, the non-defaulting party
may declare a default, and may terminate this Agreement in its entirety if
the other party should fail to remedy such default within thirty (30) days
after receipt of written notice thereof.
11.2 If either party should breach the restrictions on disclosure or use of the
other's confidential information as provided herein, the non-defaulting
party may immediately terminate this Agreement or seek equitable relief to
protect its proprietary interests, or both, without waiting for any cure
period to elapse.
11.3 If the Licensee should fail to make any of the payments required by this
Agreement, INSO may declare a default, and may terminate the Agreement in
its entirety should the Licensee fail to remedy such default within ten
(10) days of receipt of written notice thereof. At such time, all
outstanding minimum royalty payments and any other charges due INSO
pursuant to this Agreement shall be deemed to have accrued and shall
immediately be payable in full to INSO notwithstanding any other provision
hereof. The Licensee's obligation to pay all accrued charges shall survive
the expiration or termination of this Agreement.
8
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11.4 In the event that either party becomes insolvent, or a party to
bankruptcy, receivership, or similar proceedings affecting its financial
condition, or seeks to make a compromise, assignment, or other arrangement
for the benefit of its creditors, or ceases doing business in the ordinary
course, the other may terminate this Agreement, effective upon receipt of
written notice thereof, and take any steps to protect its proprietary
information as may be appropriate.
11.5 If INSO should fail to complete Delivery of the Components for any INSO
Product within ninety (90) days of the date of execution of this
Agreement, the Licensee may terminate this Agreement, provided that the
Licensee has given INSO the information and cooperation needed in order to
complete Delivery, with respect to such INSO Product, as its sole and
exclusive remedy. In such event, the Licensee shall return all Components
for such INSO Product and any payments to INSO for such INSO Product shall
be refunded.
11.6 Upon termination, the Licensee will immediately cease development,
distribution, and production of Licensed Products utilizing such INSO
Product. The Licensee may permit sublicenses previously granted to end-
users to remain in effect, but shall return or certify destruction of all
copies of the Components and all INSO Confidential Information not needed
to support end-users. Any other permitted sublicenses shall terminate upon
termination of the Agreement between INSO and the Licensee.
11.7 Termination shall not relieve the Licensee from liability for any breach
occurring prior to such termination.
12. General Provisions
------------------
12.1 Entire Agreement. This Agreement, together with its Exhibits, constitutes
----------------
the entire agreement between the parties with respect to the Components,
and may be modified only in writing, signed by an authorized
representative of each party. This Agreement supersedes all other
representations, proposals, and other communications between the parties
relating hereto with respect to the Components.
12.2 Waiver. Any waiver by either party of any requirement of this Agreement
------
shall not constitute a waiver of any other requirement of this Agreement,
nor of the same requirement on a separate occasion.
12.3 Notice. Any notice required under this Agreement shall be in writing and
------
shall be given by certified mail, express courier service or facsimile
transmission with a confirming copy sent via certified mail or express
courier service, to the address given in Exhibit B or to such other
address as either party may designate in writing to the other. Any notice
thus given shall be deemed effective upon sending.
12.4 No Agency. This Agreement shall not be construed as creating an agency,
---------
partnership, joint venture or other relationship between the parties other
than one of independent contractors.
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12.5 Force Majeure. Neither party shall incur liability to the other for any
-------------
failure or delay in) fulfilling its obligations under this Agreement for
causes beyond its reasonable control, including, but without limiting the
generality of the foregoing, labor or industrial disturbances, acts of
God, floods, lightning, utility or communication failures, earthquakes,
acts of the public enemy, riots, insurrection, embargoes, blockages,
actions, restrictions, regulations or orders of any government, agency or
subdivision thereof.
12.6 Interpretation. Whenever possible, each provision of this Agreement shall
--------------
be interpreted so as to be effective and valid under applicable law, but
if any portion of any provision should be invalid or prohibited by
applicable law, such portion shall not invalidate the remaining provisions
of this Agreement. All headings are for reference purposes only and shall
not affect the interpretation of this Agreement.
12.7 Governing Law. This Agreement shall be deemed a contract made and
--------------
performed in Massachusetts, shall be construed under and governed by the
laws of the Commonwealth of Massachusetts, and shall bind the parties,
their successors, and permitted assigns. The parties stipulate that the
proper forum, venue and court for any legal action arising from or in
connection with this Agreement shall be the state courts of the
Commonwealth of Massachusetts for Suffolk County or the United States
District Court for the District of Massachusetts. The Licensee agrees that
it will not commence any action against INSO except in such courts.
IN WITNESS WHEREOF, the parties execute this Agreement by their duly authorized
representatives, effective as of the (late first above written.
RJP ELECTRONICS, INC. INSO CORPORATION
By By /s/ Bruce G. Hill
---------------------------- -----------------------------
Signature Signature
Name: Bruce G. Hill
-----------------------------
Title: Vice President and General Counsel
----------------------------
RJP ELECTRONICS, LTD.
By
----------------------------
Signature
Name:
-----------------------------
Title:
----------------------------
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INSO CORPORATION
LICENSE AGREEMENT
EXHIBIT A-I
PRODUCT DESCRIPTION
International CorrectSpell(TM) Spelling Correction System
(Version 3.3)
1 . The International CorrectSpell(TM) Spelling Correction System Components
------------------------------------------------------------------------
1.1 International CorrectSpell(TM) spelling correction system is a multilingual
spelling verifier and corrector (with access to one or more personal
dictionaries), which also provides capitalization correction, wildcard
retrieval, amid anagram processing.
International CorrectSpell(TM) spelling correction system provides a single
interface that accepts a white-space to white-space input string in the
INSO Character Set. Word parsing and character set conversion routines are
provided as run-time options.
The system is comprised of source code routines and one or more language
Databases.
1.2 INSO will deliver the following Components for the International
CorrectSpell(TM) spelling correction system:
a. "C" source code for International CorrectSpell(TM) spelling correction
system, Personal Dictionary and International Hyphenator, including
sample driver source code,
b. "C" source code for Windows(R) dynamic link library, including sample
driver source code,
c. binary run-time Databases, and
d. technical documentation.
The Components will be delivered on MS-DOS(R) format 3.5" high-density
diskettes.
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1.3 The Databases to be delivered to the Licensee are as follows:
Databases
---------
English Standard
(American words)
(British -ise words)
(British -ize words)
1.4 The Components will perform as specified above on the following platforms:
Operating System Compiler
---------------- --------
Microsoft(R) Windows Version 3.1 Microsoft C/C++ Version 7.0
Borland C++ Version 3.1 (large memory
model DLL only)
1.5 The Licensee is solely responsible for all calls to the International
CorrectSpell/T/M/ spelling correction system Components, and for all other
elements of the Licensed Product(s) except the Components.
2. Delivery
--------
INSO will ship Components for the international CorrectSpell(TM)
spelling correction system specified in Section 1 above within ten (10)
business days of the execution of this Agreement.
3. Support Services
----------------
3.1 INSO will assist the Licensee with its initial implementation of the
Components and provide information about the Licensee callable functions,
as reasonably requested, without charge to the Licensee for a period of
ninety (90) days from the date Components are shipped to the Licensee. If,
at the time of the Licensee's initial implementation, INSO has developed a
more recent version of the Components, INSO will provide this latest
version to the Licensee free of charge, and support services will be
applicable to such new version.
3.2 INSO will correct any defects identified by the Licensee during the first
ninety (90) days after the Components are shipped to the Licensee. A
"defect" is defined as a malfunction in the Components that causes the
Components not to function in accord with Section 1 of the applicable
Product Description. The absence of particular words from any Database is
not a "defect."
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3.3 If the Licensee requests that INSO provide consulting services in addition
to those support services specified above, including, for example,
modifications necessary to port the product to any INSO unwarranted
platform, and INSO agrees to provide such services, such services shall be
provided at terms mutually agreed.
4. Required Proprietary Notices
----------------------------
4.1 The Licensee shall display the applicable notices below (or an accurate
translation thereof) in connection with Licensed Products using the
International CorrectSpell(TM) spelling correction system Components:
a. At an appropriate point in the screen display, on the label for
software media (where applicable), and on any permitted copies,
printouts, and/or other reproductions:
International CorrectSpell/T/M/ spelling correction system (C) 1994 by
INSO Corporation. All rights reserved.
If the symbol (C) is not feasible on the screen, it may be deleted,
provided that the word "Copyright" or "Copr." is displayed.
If the symbol/T/M/ is not feasible on the screen, it may be deleted,
provided that the phrase "International CorrectSpell is a trademark of
INSO Corporation" is displayed.
b. In user documentation and training manuals (on the copyright page and
in specific sections as appropriate), and as a first appropriate
record in machine readable copies:
International CorrectSpell(TM) English spelling correction system (C)
1994 by INSO Corporation. All rights reserved. Reproduction or
disassembly of embodied algorithms or database prohibited.
c. For packaging and promotional materials mentioning the spelling
correction function:
English spelling software developed by INSO Corporation.
4.2 In cases where the copyright notice is translated into the same language as
the spelling corrector used in that language, it is not necessary to give
the language name in the translated notice. When displayed in any other
language, however, the appropriate language name must be used.
4.3 Other forms of notice may be used with INSO's prior approval.
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5. Use of Names
------------
INSO reserves the right to restrict the Licensee's use of the name "INSO"
and its licensors trademarks, trade names or corporate names in connection
with any Licensed Product.
- --------------------------------------------------------------------------------
MS-DOS(R) and Microsoft(R) and Windows(R) are registered trademarks of
Microsoft Corporation.
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INSO CORPORATION
LICENSE AGREEMENT
EXHIBIT A-II
PRODUCT DESCRIPTION
IntelliFinder(R) reference engine (Version 2.3) with The American Heritage(R)
------------------------
Concise Dictionary, Third Edition and the International Electronic
---------------------------------
Thesaurus Databases
l . The IntelliFinder(R) reference engine. Version 2.3 (the "Reference Engine"
---------------------------------------------------------------------------
Components)
-----------
1.1 The Reference Engine Components include data retrieval algorithms. The
algorithms provide retrieval entries from Reference Engine compatible
databases. Entries differ according to the Database in use. Other Reference
Engine features include spelling correction, closest match, headword
retrieval, wildcard expansion, and generation of anagrams.
1.2 INSO will deliver the following Components for the Reference Engine:
a. "C" source code for the Reference Engine, including sample driver
source code.
b. binary run-time Databases, and
C. technical documentation.
The Components will be delivered on MS-DOS(R) format 3.5" high-density
diskettes.
1.3 The Databases to be delivered to the Licensee are as follows:
a. The American Heritage(R) Concise Dictionary, Third Edition
----------------------------------------------------------
("AHConD ILL")
AHConD III consists of a compressed definition Database and dictionary
index based on The American Heritage Dictionary of the English
-----------------------------------------------
Language, Third Edition.
------------------------
INSO will deliver the following Components for AHConD III:
i. binary run-time Database, and
ii. documentation of format codes used in the Database.
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b. The International Electronic Thesaurus Database
-----------------------------------------------
The International Electronic Thesaurus ("IET") consists of Databases
and includes synonyms organized by sense and parts of speech plus
additional information as available for a given language.
INSO will deliver the following Components for the IET:
i. binary run-time Databases, and
ii. documentation of format codes used in the Database.
The Database to be delivered to the Licensee is as follows:
Enhanced Roget's US
1.4 All Components will perform as specified above on the following platforms:
Operating System Compiler
---------------- --------
Microsoft(R) Windows(R) Version 3.1 Microsoft C/C++ Version 1.5 1
Microsoft(R) Windows(R) Version 3.1 Borland C++ Version 4.5
1.5 Licensee is solely responsible for all calls to the Reference Engine
Components, and for all other elements of the Licensed Products except the
Components.
2. Delivery
--------
lNSO will ship the Components specified in Section 1 above within ten (10)
business days of the execution of this Agreement.
3. Support Services
----------------
3.1 INSO will assist the Licensee with its initial implementation of the
Components and provide information about the Licensee callable functions,
as reasonably requested, without charge to the Licensee for a period of
ninety (90) days from the date Components are shipped to the Licensee. If,
at the time of the Licensee's initial implementation, INSO has developed a
more recent version of the Components, INSO will provide this latest
version to the Licensee free of charge, and support services will be
applicable to such new version.
3.2 INSO will correct any defects identified by the Licensee during the first
ninety (90) days after the Components are shipped to the Licensee. A
"defect" is defined as a malfunction
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CONFIDENTIAL RJP/INSO
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in the Components that causes the Components not to function in accord
with Section 1 of the applicable Product Description. The absence of
particular words from any Database is not a "defect."
3.3 If the Licensee requests that INSO provide consulting services in addition
to those support services specified above, including, for example,
modifications necessary to port the product to any INSO unwarranted
platform, and INSO agrees to provide such services, such services shall be
provided at terms mutually agreed.
4. Required Proprietary Notices
----------------------------
4.1 The Licensee shall display the applicable notices below (or an accurate
translation thereof) in connection with Licensed Products using the
IntelliFinder(R) reference engine, Version 2.3 with the International
Electronic Thesaurus Databases:
a. At an appropriate point in the screen display, on the label for
software media (where applicable), and on any permitted copies,
printouts, and/or other reproductions:
Enhanced Roget's US Electronic Thesaurus (C) 1995 by INSO Corporation.
Adapted from the Oxford Thesaurus (C) 1991 by Oxford University Press
and from Roget's II: The New Thesaurus (C) 1980 by Houghton Mifflin
-----------------------------
Company. All rights reserved.
If the symbol (C) is not feasible on the screen, it may be deleted,
provided that the word "Copyright" or "Copr." is displayed.
b. In user documentation and training manuals (on the copyright page and
in specific sections as appropriate), and as a first appropriate
record in machine readable copies:
Enhanced Roget's US Electronic Thesaurus (C) 1995 by INSO Corporation.
Adapted from the Oxford Thesaurus (C) 1991 by Oxford University Press
and from Roget's II: The New Thesaurus (C) 1980 by Houghton Mifflin
-----------------------------
Company. All rights reserved. Reproduction or disassembly of embodied
programs and databases prohibited.
C. For packaging and promotional materials mentioning the thesaurus
function:
Enhanced Roget's US Electronic Thesaurus developed by INSO Corporation
in collaboration with Oxford University Press and Houghton Mifflin
Company.
4.2 The Licensee shall display the applicable notices below (or an accurate
translation thereof) in connection with the Licensed Products using the
IntelliFinder(R) reference
17
<PAGE>
CONFIDENTIAL RJP/INSO
9/26/95
engine, Version 2.3 with The American Heritage(R) Concise Dictionary. Third
--------------------------------------------------
Edition
-------
Database:
a. At an appropriate point in the screen display, on the label for
software media (where applicable), and on any permitted copies,
printouts, and/or other reproductions:
The American Heritage(R) Concise Dictionary. Third Edition Copyright
----------------------------------------------------------
(C) 1994 by Houghton Mifflin Company. Electronic version licensed
from and portions copyright (C) 1995 by INSO Corporation. All rights
reserved.
b. In user documentation and training manuals (on the copyright page and
in specific sections as appropriate), and as a first appropriate
record in machine readable copies:
The American Heritage(R) Concise Dictionary. Third Edition Copyright
----------------------------------------------------------
(C) 1994 by Houghton Mifflin Company. Electronic version licensed from
and portions copyright (C) 1995 by INSO Corporation. No part of this
database may be reproduced or otherwise used without prior written
permission from the publisher unless such use is expressly permitted
by applicable law.
No investigation has been made of common-law trademark rights in any
word. Words that are known to have current trademark registrations arc
shown with an initial capital and are also identified as trademarks.
The inclusion or exclusion of any word, or its capitalization, in this
dictionary is not, however, an expression of the publisher's opinion
as to whether or not it is subject to proprietary rights, nor is it to
be regarded as affecting the validity of any trademark.
American Heritage and the eagle logo are registered trademarks of
Forbes Inc. Their use is pursuant to a license agreement with Forbes
Inc.
c. For packaging and promotional materials mentioning The American
------------
Heritage(R) Concise Dictionary. Third Edition:
----------------------------------------------
The American Heritage(R) Concise Dictionary. Third Edition published
----------------------------------------------------------
by Houghton Mifflin Company. Electronic version licensed from and
portions copyright (C) 1995 by INSO Corporation. All rights reserved.
4.3 Other forms of notice may be used with INSO's prior approval.
18
<PAGE>
CONFIDENTIAL RJP/INSO
9/26/95
5. Use of Names
------------
INSO reserves the right to restrict the Licensee's use of the names "INSO,"
and its licensors trademarks, trade names or corporate names in connection
with any Licensed Product.
6. Term
----
Notwithstanding anything to the contrary provided herein, in no event shall
the Licensee's license The American Heritage(R) Concise Dictionary. Third
--------------------------------------------------
Edition license for exceed December 3 1, 2005.
-------
- --------------------------------------------------------------------------------
MS-DOS(R), Microsoft(R) and Windows(R) are registered trademarks of
Microsoft.
19
<PAGE>
CONFIDENTIAL RJP/INSO
9/26/95
INSO CORPORATION
LICENSE AGREEMENT
EXHIBIT B
ADDITIONAL PROVISIONS
1. Term
-----
1.1 The Effective Date shall be the date set forth at the beginning of this
Agreement.
1.2 The Expiration Date of this Agreement shall be September 30, 2000.
2. Licensed Products
-----------------
The Licensed Products as of execution of this Agreement consist of the
following:
i) The Licensee's hand-held personal information manager, currently
unnamed, incorporating international CorrectSpell/T/M/ spelling
correction system (Version 3.3) with the English Standard
Database and IntelliFinder(R) reference engine (Version 2.3) with
The American Heritage(R) Concise Dictionary Third Edition and the
---------------------------------------------------------
Enhanced Roget's US Electronic Thesaurus Databases,
ii) Platform: the Licensee's proprietary operating system, and
iii) Media: ROM.
The Licensee shall notify INSO in writing the name of Licensed Product
within thirty (30) days of first customer shipment thereof.
3. Access to INSO Confidential Information
---------------------------------------
As provided in Section 5 of the Agreement, the Licensee shall restrict
access to INSO Confidential Information to the specific Licensee group
expressly charged with development of Licensed Product under the direction
of Raymond Lee, Director.
20
<PAGE>
CONFIDENTIAL RJP/INSO
9/26/95
4. Addresses for Purposes of Notices
---------------------------------
To INSO: INSO Corporation
31 St. James Avenue, 11th Floor
Boston, MA 02116-3764
Attention: Bruce G. Hill
General Counsel
To the Licensee: RJP Electronics, Inc.
656 A Monterey Pass Road
Monterey Park, CA 91754
Attention: Raymond Lee
Director
5. Permitted Usage of Trademarks
-----------------------------
5.1 The Licensee is expressly permitted to use the following trademarks or
trade names in connection with the Licensee's use of the Licensed Products,
solely as part of the proprietary notices as set forth in Exhibit A-I,
Section 4, and Exhibit A-II, Section 4, identification of the Components in
the Licensed Product and marketing of the Licensed
Products: International CorrectSpell/T/M/ spelling correction system
IntelliFinder(R) reference engine
The American Heritage(R) Concise Dictionary, Third Edition
INSO Corporation
5.2 The Licensee shall not use the "Roget's II", "American Heritage", eagle
logo or Houghton Mifflin trademarks, in any way, including, without
limitation, as part of the title of the Licensed Products, except as
provided in Section 5.1, above, without prior written permission from INSO
5.3 INSO and its third party licensors reserve the right to exercise quality
control over the use of their trademarks.
21
<PAGE>
CONFIDENTIAL RJP/INSO
9/26/95
INSO CORPORATION
LICENSE AGREEMENT
EXHIBIT C
PAYMENT OF ROYALTIES
1. General Provisions
------------------
1.1 The Licensee shall pay INSO the applicable royalty as provided herein on
every transfer of a copy of a Licensed Product:
a. A "transfer" shall be deemed to occur, and the royalty to accrue to
INSO, at the time of initial shipment or other transfer of every copy
of or grant of right of access to a Licensed Product from the Licensee
to any third party, including but not limited to distributors, dealers,
end-users, and affiliated companies.
b. No royalty shall be due, however, on a reasonable number of copies for
internal use by the Licensee, or on a reasonable number of copies
distributed free for promotional use to promote Licensed Products, the
numbers to be approved by INSO prior to release. Promotional copies of
Licensed Products must be clearly labeled as not for sale.
c. "Net Receipts" shall be defined as the Licensee's gross receipts from
the Licensed Products, less discounts, allowances, shipping, returns
and handling fees, and any applicable taxes.
1.2 The Licensee shall on each payment date pay INSO the amount necessary to
make the cumulative total of amounts paid to INSO, whether as prepaid or
accrued royalties, equal to whichever of the following is larger:
a. the cumulative minimum royalty due INSO for such Licensed Product as
scheduled, or
b. the cumulative royalties accrued for transfers of such Licensed
Product.
For each Licensed Product subject to a minimum royalty, any amounts paid
INSO in excess of accreted royalties may be credited toward accrued
royalties for such Licensed Product in subsequent quarters.
22
<PAGE>
CONFIDENTIAL RJP/INSO
9/26/95
1.3 The Licensee at all times shall keep an accurate account of the transfers
subject to this Agreement and shall render to INSO quarterly statements in
a form to be mutually agreed. The statements shall record the transfers of
each Licensed Product, and identify separately:
a. the full name and model or version number of each Licensed Product, and
b. the name, version number and language Database of each INSO Product
implemented therein.
Statements, together with payments due INSO, shall account for the
transfers of Licensed Product(s) during each quarter ending March 31, June
30, September 30, and December 31, respectively. Royalty statements and
payments shall be sent to:
Controller
INSO Corporation
31 St. James Avenue, 11th Floor
Boston, Massachusetts 02116-4101
Royalty payments which exceed $25,000 shall be made by wire transfer, and
all other payments may be made by wire transfer, of immediately available
funds to INSO's accountant at the following bank:
Shawmut Bank N.A.,
One Federal Street
Boston, MA 02210
ABA No. 011000206
Account Number 0501268998
Attention: INSO Corporation
1.4 The royalty payment dates shall be the twenty-fifth day after the end of
each quarter. In the event that the Licensee fails to make any payment on
or before the payment date, INSO may require the Licensee to pay interest
at a rate equal to the lesser of (i) 1.5% per month, compounded monthly,
or (ii) the maximum rate permitted by applicable law. INSO shall be
entitled to recover all costs and expenses, including attorneys' fees,
incurred by it in connection with the enforcement of the terms of this
Agreement, including without limitation the collection of any overdue
amounts.
1.5 All payments shall be made in United States dollars.
1.6 The Licensee shall maintain records adequate to verify the amounts due to
INSO hereunder. INSO or its representatives shall have the right to inspect
the relevant books and records of the Licensee as reasonably necessary to
verify the correctness of the account or to determine the sums due INSO
thereunder. Such inspection shall be made during normal business hours,
within 15 business days of notice from INSO and no more than once each
year. If errors exceeding 5%
23
<PAGE>
CONFIDENTIAL RJP/INSO
9/26/95
of the royalties are found, the expense of examining the Licensee's records
will be borne by the Licensee.
1.7 The Licensee shall, at INSO's request, provide INSO with ten (10)
complimentary copies of each Licensed Product, and with the opportunity to
purchase additional Licensed Products at a favorable discount.
2 Payment Schedule
----------------
2.1 The Licensee shall pay INSO a royalty of four percent (4%) of Net Receipts,
with a minimum of $0.40 per unit, from transfers of the Licensed Product.
2.2 A non-refundable, prepaid, minimum royalty applies for the Licensed
Product(s). INSO is entitled to the minimum royalty whether or not the
Licensee subsequently develops and markets the Licensed Products. The
minimum royalty of the entire Agreement is $50,000, due upon execution and
shall become payable upon the following schedule:
<TABLE>
<CAPTION>
Minimum Cumulative
------- ----------
Dates Royalty Minimum Royalty
----- ------- ---------------
<S> <C> <C>
Agreement Execution $12,500 $12,500
December 26, 1995 $12,500 $25,000
March 25, 1996 $12,500 $37,500
June 25, 1996 $12,500 $50,000
</TABLE>
2.3 Invoices for amounts due in Section 2.2 above shall be sent to:
Name:
Title:
RJP Electronics, Inc.
656 A Monterey Pass Road
Monterey Park, CA 91754
Phone: (818)293-8458
Fax: (818)293-1915
INSO's failure to provide invoices for non-refundable, prepaid, minimum
royalties or Licensee's failure to receive such invoices shall not relieve
the Licensee of its obligation to make timely payments pursuant to Section
2.2, above.
24
<PAGE>
EXHIBIT 10.10
<PAGE>
- -------------------------------------------------
QTY. MODEL # EQUIPMENT DESCRIPTION
- -------------------------------------------------
1 J630 Star 600 [ARTWORK APPEARS HERE]
- -------------------------------------------------
1 J680003 VGA MONOCHROME MONITOR
- -------------------------------------------------
1 J736 Reconditioned Electronic Scale
- -------------------------------------------------
1 J739 Reconditioned Report Printer
- -------------------------------------------------
1 J744 Reconditioned Label Printer
- -------------------------------------------------
1 J71B Document Label Software
- -------------------------------------------------
1 170D Carrier Log (1 only)
- -------------------------------------------------
1 R500 Optional Rates (USB USPS 1st/
International Priorty
- -------------------------------------------------
1 R502 Optional Rates
- -------------------------------------------------
- -------------------------------------------------
See Last page for standard rates
- -------------------------------------------------
LEASE BILLING INFORMATION
- -------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
INITIAL LEASE BILLING FREQUENCY TRADE-IN EQUIPMENT EQUIPMENT REPLACEMENT LAST COMMITMENT FEE
TERM [_] MONTHLY [X] QUARTERLY OWNED BY: [X] PBCC LEASE PAYMENT AN AMOUNT EQUAL
(IN MONTHS) 48 [_] OTHER_________________ [_] CUSTOMER [_] OTHER YES [X] NO [_]________ ---------------------- TO THE FIRST
- -------------------------------------------------------------------------------------------- # $ EACH TOTAL PAYMENT
# OF LEASE EMA SOFTGUARD METER/REGISTER SUB-TOTAL SALES TOTAL PAYMENT MUST ACCOMPANY
PAYMENTS PAYMENT PAYMENT PAYMENT PAYMENT TAX ---------------------- THIS OFFER. UP ON
- -------------------------------------------------------------------------------------------- TAX EXEMPT # ACCEPTANCES OF
FIRST 12 MOS. THE OFFER, THIS
4 876.00 N/C -- 876.00 72.27 948.27 AMOUNT SHALL NOT
- -------------------------------------------------------------------------------------------- BE REFUNDED BUT
NEXT SHALL BE APPLIED
12 876.00 267.00 -- 1143.00 94.30 1237.30 TO THE FIRST
- -------------------------------------------------------------------------------------------- (ATTACH CERTIFICATE) TOTAL PAYMENT.
NEXT ---------------------- ----------------
CUSTOMER PO # COMMITMENT FEE
- --------------------------------------------------------------------------------------------
NEXT
$
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LEASE TERMS AND CONDITIONS
By your execution as lessee below, you request that we lease to you the personal
property described above or on any schedule attached hereto (the "Equipment")
for business or commercial purposes. Your offer will be binding on us when we
accept it by having an authorized employee sign it. This lease shall thereupon
commence, and Lease Payments and other sums and to become due shall be payable
only to us at our executive office, until we direct you otherwise in writing.
1. Claims Against Vendor. If you have any claims regarding the Equipment or any
other matter arising from your relationship with the vendor, you must make them
against the vendor since neither vendor nor any of its sales or other
representatives are our agents. To enable you to make Equipment related claims,
we assign to you any warranty rights we have against the vendor.
2. Lease Term; Noncancelability; Nonassignability. This lease shall continue
for the number of months shown in the space above as Initial Lease Term and end
after you have fulfilled all of your obligations. THIS LEASE CANNOT BE CANCELED
OR TERMINATED FOR ANY REASON EXCEPT AS EXPRESSLY PROVIDED HEREIN. YOU MAY NOT
ASSIGN, TRANSFER OR SUBLET ANY INTEREST IN THIS LEASE OR THE EQUIPMENT WITHOUT
OUR PRIOR WRITTEN CONSENT.
3. Total Payment. You will pay each and every "Total Payment", as shown above,
the first of which is due on the Commencement Date, whcih is a date after
Equipment delivery on which we elect to begin invoicing you. Subsequent payments
will be due on the same day of each month (or other calendar period indicated
above) following the Commencement Date, whether or not we invoice you.
REGARDLESS OF ANY DISPUTE WITH THE VENDOR OF THE EQUIPMENT, INCLUDING, BUT NOT
LIMITED TO, DISPUTES UNDER THE VENDOR WARRANTIES OR ANY EQUIPMENT MAINTENANCE
AGREEMENT, OR LOSS OR DAMAGE TO THE EQUIPMENT OR ANY OTHER REASON, YOU ARE
REQUIRED TO PAY
4. Last Lease Payment(s). If there is an amount shown in the Last Lease
Payment(s) box above, such payment(s) shall be applied to the Last Lease
Payment(s) of the Initial Lease Term.
5. Serial Numbers. You authorize us to insert in this Lease serial numbers of
Equipment when we so determine them.
6. Equipment Location. Equipment shall be delivered to and not removed without
our prior written consent from the "Equipment Location" shown below, or, if no
location is specified, your billing address. We shall have the right to inspect
Equipment at any reasonable time during business hours.
7. Equipment, Maintenance Agreement ("EMA"). When there is an amount shown in
the EMA Payment box above, you have entered into an EMA with Pitney Bowes Inc.,
but will remit payments thereunder to us. We collect these payments as an
accomodation to you, but only Pitney Bowes Inc. is responsible for performance
under the EMA. Refer to your EMA for terms and conditions.
8. Software. You are hereby authorized by us under license from Pitney Bowes
Inc. to use the software program(s) only in the normal course of your business
for the term of this Lease. Your use of the software program(s) shall be subject
and subordinate to the terms and conditions of the Software License Agreement
between us and Pitney Bowes Inc. and subject this Lease. When there is an amount
shown in the Softguard Payment box above, you have entered into a Software
Maintenance Agreement with Pitney Bowes Inc., but will remit payment thereunder
to us. We collect these payments as an accomodation to you, but only Pitney
Bowes Inc. is responsible for performance under the Software Maintenance
Agreement, it is XXXXXX
SEE REVERSE SIDE FOR ADDITIONAL TERMS AND CONDITIONS
WHICH ARE PART OF THIS LEASE
- -------------------------------------------------------------------------------
PITNEY BOWES INC. (VENDOR)
16035 E. PHOENIX DR.
CITY OF INDUSTRY, CA 917451691
- -------------------------------------------------------------------------------
PHONE (800) 322-8000
- -------------------------------------------------------------------------------
SALES REP REP NO. DISTRICT NO. SPL%
G TOLEDO 909556 050 100
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BY:___________________________________________________________________________
PITNEY BOWES CREDIT CORPORATION (LESSOR)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FULL LEGAL NAME OF LESSEE
R J P E L E C T R O N I C S
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
P A C I F I C P O W E R G R O U P
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
BILLING ADDRESS
1 4 5 5 5 M O N T E R E Y P A S S R D
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CITY COUNTY STATE ZIP + 4
MONTEREY PARK LA CA 91754
- -------------------------------------------------------------------------------
EQUIPMENT LOCATION IF NOT SAME AS ABOVE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CITY COUNTY STATE ZIP CODE + 4
- -------------------------------------------------------------------------------
SEND INVOICE TO THE ATTENTION OF CONTACT PHONE
ACCOUNTS PAYABLE JOANNA CHANG (213) 263-9883
- -------------------------------------------------------------------------------
WHEN AN AMOUNT IS SHOWN IN THE EMA PAYMENT, SOFTGUARD PAYMENT AND/OR
METER/REGISTER PAYMENT BOX(ES) ABOVE, YOU UNDERSTAND AND AGREE THAT YOU HAVE
ENTERED INTO AN EQUIPMENT MAINTENANCE AGREEMENT, "SOFTWARE MAINTENANCE
AGREEMENT", "POST METER RENTAL AGREEMENT" AND/OR "REGISTER RENTAL AGREEMENT"
WITH PITNEY BOWES INC.
- --------------------------------------------------------------------------------
LESSEE PLEASE SIGN BELOW TITLE DATE
X /s/ Connie Hsin CONTROLLER 11/9/9
--------------------------------------------
PRINT
NAME C O N N I E H S I N
- - - - - - - - - - - - - - - - - - - - - -
X
--------------------------------------------
PRINT
<PAGE>
- -------------------------------------------------
QTY. MODEL # EQUIPMENT DESCRIPTION
- -------------------------------------------------
1 1180 1180 Controller [ARTWORK APPEARS HERE]
- -------------------------------------------------
1 E896002 Echoplex Kit
- -------------------------------------------------
1 1182 Report Printer & 100 lb Scale
- -------------------------------------------------
1 1501 Shipper & Doc Label Printer
- -------------------------------------------------
1 LTA
- -------------------------------------------------
1 ICL8 Carrier Log(1)
- -------------------------------------------------
1 RS02 Rates
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
LEASE BILLING INFORMATION
- -------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
INITIAL LEASE BILLING FREQUENCY TRADE-IN EQUIPMENT EQUIPMENT REPLACEMENT LAST COMMITMENT FEE
TERM [X] MONTHLY [_] QUARTERLY OWNED BY: [X] PBCC LEASE PAYMENT AN AMOUNT EQUAL
(IN MONTHS) 48 [_] OTHER_________________ [_] CUSTOMER [_] OTHER YES [X] NO [_]________ ---------------------- TO THE FIRST
- -------------------------------------------------------------------------------------------- # $ EACH TOTAL PAYMENT
# OF LEASE EMA SOFTGUARD METER/REGISTER SUB-TOTAL SALES TOTAL PAYMENT ---------------------- MUST ACCOMPANY
PAYMENTS PAYMENT PAYMENT PAYMENT PAYMENT TAX TAX EXEMPT # THIS OFFER. UP 0N
- -------------------------------------------------------------------------------------------- ACCEPTANCES OF
FIRST 12 MOS. THE OFFER, THIS
12 287.16 N/C 33- 320.16 26.41 346.57 AMOUNT SHALL NOT
- -------------------------------------------------------------------------------------------- BE REFUNDED BUT
NEXT SHALL BE APPLIED
36 287.16 $77- 33 397.16 32.77 429.93 TO THE FINAL
- -------------------------------------------------------------------------------------------- (ATTACH CERTIFICATE) TOTAL PAYMENT.
NEXT ---------------------- ----------------
CUSTOMER PO # COMMITMENT FEE
- --------------------------------------------------------------------------------------------
NEXT
$
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LEASE TERMS AND CONDITIONS
By your execution as lessee below, you request that we lease to you the personal
property described above or on any schedule attached hereto (the "Equipment")
for business or commercial purposes. Your offer will be binding on us when we
accept it by having an authorized employee sign it. This lease shall thereupon
commence, and Lease Payments and other sums due and to become due shall be
pauable only to us at our executive office, until we direct you otherwise in
writing.
1. Claims Against Vendor. If you have any claims regarding the Equipment or any
other matter arising from your relationship with the vendor, you must make them
against the vendor since neither vendor nor any of its sales or other
representatives are our agents. To enable you to make Equipment related claims,
we assign to you any warranty rights we have against the vendor.
2. Lease Term; Noncancelability; Nonassignability. This lease shall continue
for the number of months shown in the space above as Initial Lease Term and end
after you have fulfilled all of your obligations. THIS LEASE CANNOT BE CANCELED
OR TERMINATED FOR ANY REASON EXCEPT AS EXPRESSLY PROVIDED HEREIN. YOU MAY NOT
ASSIGN, TRANSFER OR SUBLET ANY INTEREST IN THIS LEASE OR THE EQUIPMENT WITHOUT
OUR PRIOR WRITTEN CONSENT.
3. Total Payment. You will pay each and every "Total Payment", as shown above,
the first of which is due on the Commencement Date, which is a date after
Equipment delivery on which we elect to begin invoicing you. Subsequent
payments will be due on the same day of each month (or other calendar period
indicated above) following the Commencement Date, whether or not we invoice
you. REGARDLESS OF ANY DISPUTE WITH THE VENDOR OF THE EQUIPMENT, INCLUDING,
BUT NOT LIMITED TO, DISPUTES UNDER THE VENDOR WARRANTIES OR ANY EQUIPMENT
MAINTENANCE AGREEMENT, OR LOSS OR DAMAGE TO THE EQUIPMENT OR ANY OTHER REASON,
YOU ARE REQUIRED TO PAY.
4. Last Lease Payment(s). If there is an amount shown in the Last Lease
Payment(s) box above, such payment(s) shall be applied to the Last Lease
Payment(s) of the Initial Lease Term.
5. Serial Numbers. You authorize us to insert in this Lease serial numbers of
Equipment when we so determine them.
6. Equipment Location. Equipment shall be delivered to and not removed without
our prior written consent from the "Equipment Location" shown below, or, if no
location is specified, your billing address. We shall have the right to inspect
Equipment at any reasonable time during business hours.
7. Equipment, Maintenance Agreement ("EMA"). When there is an amount shown in
the EMA Payment box above, you have entered into an EMA with Pitney Bowes Inc.,
but will payments thereunder to us. We collect these payments as an accomodation
to you, but only Pitney Bowes Inc. is responsible for performance under the EMA.
Refer to your EMA for terms and conditions.
8. Software. You are hereby authorized by us under license from Pirtney Bowes
Inc. to use the software program(s) only in the normal course of your business
for the term of this Lease. Your use of the software program(s) shall be subject
and subordinate to the terms and conditions of the Software License Agreement
between us and Pitney Bowes Inc. and subject this Lease. When there is an amount
shown in the Softguard Payment box above, you have entered into a Software
Maintenance Agreement with Pitney Bowes Inc., but will remit payment thereunder
to us. We collect these payments as an accomodation to you, but only Pitney
Bowes Inc. is responsible for performance under the Software Maintenance
Agreement, it is XXXXXX
SEE REVERSE SIDE FOR ADDITIONAL TERMS AND CONDITIONS
WHICH ARE PART OF THIS LEASE
- -------------------------------------------------------------------------------
PITNEY BOWES INC. (VENDOR)
16035 E. PHOENIX DR.
CITY OF INDUSTRY, CA 917451691
- -------------------------------------------------------------------------------
PHONE (800) 322-8000
- -------------------------------------------------------------------------------
SALES REP REP NO. DISTRICT NO. SPi%
GTOLEDO 909556 050 100
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BY:
----------------------------------------------------------------------------
PITNEY BOWES CREDIT CORPORATION (LESSOR)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FULL LEGAL NAME OF LESSEE
R J P E L E C T R O N I C S
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
BILLING ADDRESS
1 4 5 5 M O N T E R E Y P A S S R D
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CITY COUNTY STATE ZIP + 4
MONTEREY PARK LA CA 91754
- -------------------------------------------------------------------------------
EQUIPMENT LOCATION IF NOT SAME AS ABOVE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CITY COUNTY STATE ZIP CODE + 4
- -------------------------------------------------------------------------------
SEND INVOICE TO THE ATTENTION OF CONTACT PHONE
(213) 263-9883
- -------------------------------------------------------------------------------
WHEN AN AMOUNT IS SHOWN IN THE EMA PAYMENT, SOFTGUARD PAYMENT AND/OR
METER/REGISTER PAYMENT BOX(ES) ABOVE, YOU UNDERSTAND AND AGREE THAT YOU HAVE
ENTERED INTO AN EQUIPMENT MAINTENANCE AGREEMENT, "SOFTWARE MAINTENANCE
AGREEMENT", "POST METER RENTAL AGREEMENT" AND/OR "REGISTER RENTAL AGREEMENT"
WITH PITNEY BOWES INC.
- --------------------------------------------------------------------------------
LESSEE PLEASE SIGN BELOW TITLE DATE
X /s/ Raymond Lee DIRECTOR 6/30/XX
--------------------------------------------
PRINT
NAME R A Y M O N D L E E
- - - - - - - - - - - - - - - - - - - - - -
X
--------------------------------------------
PRINT
<PAGE>
15977091
--------------
LEASE PLAN
----------
- --------------------------------------------------------------------------------
Postage meter will be rented from Pitney Bowes Inc., according to the terms
specified in this agreement. Invoices will be rendered to you by Pitney Bowes
Credit Corporation, (PBCC), on a monthly or other periodic basis, as specified
in your PBCC Lease Agreement.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
- ---------------------------------------------------------------
BILLING LOCATION I.D. INSTALL LOCATION I.D.
- ---------------------------------------------------------------
<S> <C> <C>
ADDITIONAL POSTAGE BY PHONE. INFORMATION METER TO-USE A MASTER POSTAGE RESET INCREMENT
- ------------------------------------------------- ACCOUNT? [_] YES [_] NO [_] $200 [_] $2000
POSTAGE DEPOSIT [_] VAR.
STATEMENT NO.
- ------------------
FIRM
NAME AUTHORIZATION CODE
------------------------------------------- ------------------
TAX EXEMPT NO.
ATTENTION IF YES, THE EXISTING MASTER
OF ACCT. NO. IS _________________
-------------------------------------------
ADDRESS
-------------------------------------------
CITY, STATE,
ZIP
- ------------------------------------------------------------------------------
ADVANCE POSTAGE DEPOSIT CHECK CHECK NUMBER CHECK AMOUNT DATE MAILED [_] MASTER POSTAGE ACCT NO.
CORRECT AGREEMENT COPY ATTACHED TO BE ASSIGNED (ATTACH CERTIFICATE)
MAILED TO POSTAGE BY PHONE* SYSTEM
- ------------------------------------------------------------------------------------------------------------------------------------
INSTALLATION INFORMATION TONE GENERATOR MODEL NO.
[_] YES [_] NO
- ------------------------------------------------------------------------------------------------------------------------------------
CUSTOMER PHONE NO. CUSTOMER CONTACT UNIT NUMBER SIC CODE EMP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
EXAMINING POSTAL UNIT (BRANCH OR STATION) EXAMINING POSTAL UNIT ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MAKE CHECK PAYABLE TO POSTAGE BY PHONE OR POSTMASTER
POSTAGE METER TERMS
1. RENTAL AND RESET CHARGES: Your rental charges will not be increased during
the initial Term specified in this agreement, from the date of installation.
After the end of the initial Term, the then current rental rates will apply. For
replacement of all models during the initial Term, the prevailing rate for the
replacement model at the time of installation shall apply. After the initial
Term, we may increase our standard rental rates and POSTAGE BY PHONE* SYSTEM
charges, but we will give you 90 days' notice. When you receive this notice,
you may terminate as of date the price change becomes effective.
2. TAXES AND OTHER CHARGES: You are responsible for taxes, assessments, and
other governmental charges except for taxes based on net income. We may also
charge you to cover any costs we incur when your meter moved.
Additional terms and conditions on reverse side.
- --------------------------------------------------------------------------------
FULL LEGAL NAME OF LESSEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BILLING ADDRESS
- --------------------------------------------------------------------------------
CITY COUNTY STATE ZIP + 4
- --------------------------------------------------------------------------------
EQUIPMENT LOCATION IF NOT SAME AS ABOVE
- --------------------------------------------------------------------------------
CITY COUNTY STATE ZIP + 4
- --------------------------------------------------------------------------------
SEND INVOICE TO THE ATTENTION OF CONTACT PHONE
( )
- --------------------------------------------------------------------------------
----------------------------------------------------------
MAILER'S SIGNATURE TITLE
----------------------------------------------------------
BY
X_______________________________
PRINT NAME DATE
----------------------------------------------------------
METER AGREEMENT
<PAGE>
[LOGO OF PBCC PBCC
APPEARS HERE] Pitney Bowes Credit Corporation
LEASE AGREEMENT ADDENDUM
ADJUSTMENT FOR
EQUIPMENT MAINTENANCE AGREEMENT (EMA)
AND/OR
METER/REGISTER RENTAL AGREEMENT
In consideration of the mutual covenants contained herein and for other good and
valuable consideration, that certain Lease dated 11/30/94 by and
___________________
(Date Lease Signed)
between Pitney Bowes Credit Corporation as Lessor and
FIP ELECTRONICS - PACIFIC POWER GROUP, INC.
______________________________________________________________________________
(Full legal name of Lessee)
as Lessee (Lessee # 6751231 - 662 ), is hereby amended as follows:
_____________ ___________
- --------------------------------------------------------------------------------
Billing Frequency
[_] Add Ema [_] Correct EMA ------------------- New EMA
[_] Monthly [X] Quarterly Payment $
--------
-----------------
Add Meter/ Correct Meter/
[_] Register [_] Register [_] Other New Meter/
--------------- Register
(Check any that apply) (Specify) Payment $ 0
--------
- --------------------------------------------------------------------------------
Your obligation to remit Lease Payments under the above referenced Lease is not
affected by this addendum. This addendum applies only to the EMA and/or
----
Meter/Register payments and their applicable taxes, if any.
Equipment Maintenance Agreement ("EMA"). When there is an amount shown in the
New EMA Payment box above, you have entered into an EMA with Pitney Bowes Inc.,
but will remit payments thereunder to us. We collect these payments as an
accommodation to you, but only Pitney Bowes Inc. is responsible for performance
under the EMA. Refer to your EMA for its terms and conditions.
Meter/Register Payment. When there is an amount shown in the New Meter/Register
Payment box above, you have entered into a Postage Meter Rental Agreement and/or
Register Rental Agreement with Pitney Bowers Inc., but will remit payment
thereunder to us. We collect these payments as an accommodation to you, but
only Pitney Bowes Inc. is responsible for performance under the Postage Meter
Rental Agreement and/or Register Rental Agreement. Refer to your Postage Meter
Rental Agreement and/or Register Rental Agreement for their terms and
conditions. Not withstanding anything contained herein, any meter(s) and/or
register(s) will at all times remain the property of Pitney Bowes Inc.
Except as specifically provided herein, all the terms and conditions of the
above referenced Lease shall remain in full force and effect as provided
therein.
Lessor: Pitney Bowes Credit Corporation Lessee: FIP ELECTRONICS -
PACIFIC POWER GROUP, INC.
- ----------------------------------------- -------------------------------------
(Full Legal Name of Lessee)
By: By: [SIGNATURE APPEARS HERE]
- ----------------------------------------- --------------------------------------
(Lessee Signature)
--------------------------------------
(Print Name/Title)
Date: Date:
- ----------------------------------------- --------------------------------------
- --------------------------------------------------------------------------------
EMA and/or Meter/Register pricing
approved by: District Name:
-----------------------------------------------------
Signature: Title: Date:
------------------------------- ---------------- ----------
<PAGE>
<TABLE>
Small
Lease
PITNEY BOWES CREDIT CORPORATION (LESSOR)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
ACCOUNT # SCH # MODEL # EQUIPMENT DESCRIPTION
---------------------------------- VENDOR: PITNEY BOWES INC.
- ------------------- POSTAGE METER PHONE NUMBER ( )
[_] CORPORATION [_] NON-PROFIT CORP ---------------------------------- DISTRICT:
[_] GOVERNMENT [_] PARTNERSHIP
[_] PROPRIETORSHIP ---------------------------------- ADDRESS:
- --------------------------------------
SOCIAL SECURITY NUMBER OF OWNER ----------------------------------
IF PROPRIETORSHIP OR
PARTNER IF PARTNERSHIP ---------------------------------- ---------------------------------------------
-----------------
- -------------------------------------- ---------------------------------- SALES REP.
TAX EXEMPT # (ATTACH CERTIFICATE) ---------------------------
- -------------------------------------- ---------------------------------- SALES REP. NO.
INITIAL LEASE TERM # QUARTERLY SALES TOTAL QUARTERLY -----------------------
(IN MONTHS) PAYMENTS QUARTERLY PAYMENT TAX PAYMENT DISTRICT NO.
--------------------------------------------------- -------------------------
[_]36 [_]39 [_]48 FIRST 4 $ 118 9.74 $ 127.74 CAN #
[X]51 [_]60 [_]63 --------------------------------------------------- --------------------------------
- --------------------- NEXT 13 $ 142 11.72 $ 153.72
---------------------------------------------------
NEXT $
---------------------------------------------------
NEXT $
INITIAL CHECK AMOUNT --------------------------------------------------- ---------------------------------------------
$ NEXT $ $
- ------------------------------------------------------------------------- Postage by Phone Information
FULL LEGAL NAME OF LESSEE (PLEASE PRINT)
Postal Unit (branch or station)
- ------------------------------------------------------------------------- ------
DBA NAME --------------------------------------
- ------------------------------------------------------------------------- Examining Postal Unit Zip
BILLING ADDRESS ------------
- ------------------------------------------------------------------------- ---------------------------------------------
CITY COUNTY STATE ZIP +4
Check #
- ------------------------------------------------------------------------- ------------------------------
EQUIPMENT INSTALLATION ADDRESS IF NOT SAME AS ABOVE Amount
-------------------------------
- ------------------------------------------------------------------------- Authorization Code
CITY COUNTY STATE ZIP +4 -------------------
Postage by Phone System Reset
- ------------------------------------------------------------------------- Charge
PHONE SEND INVOICE TO THE ATTENTION OF -------------------------------
( )
- -----------------------------------------------------------------------------------------------------------------------
INITIAL AN AMOUNT EQUAL TO THE FIRST TOTAL QUARTERLY PAYMENT MUST ACCOMPANY THIS OFFER UPON ACCEPTANCE OF THIS OFFER,
PAYMENT THIS AMOUNT SHALL NOT BE REFUNDED BUT SHALL BE APPLIED TO THE FIRST TOTAL QUARTERLY PAYMENT.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
LEASE TERMS AND CONDITIONS
You request that we lease to you the personal property shown above (the
"Equipment"), excluding the postage meter, for business or commercial purposes.
Your offer will be binding on us when we accept it by having an authorized
employee sign in the space provided below. All Quarterly Payments and other
sums due and to become due shall be payable to us at our executive office, until
we direct you otherwise in writing.
- --------------------------------------------------------------------------------
1. Total Quarterly Payment. You will pay each and every "Total Quarterly
Payment", as shown above, the first of which is due on the Commencement Date,
which is a date after Equipment delivery on which we elect to begin invoicing
you. Subsequent payments will be due on the same day of each quarterly interval
following the Commencement Date, whether or not we invoice you, regardless of
any dispute with the vendor of the Equipment and regardless of the occurrence of
any other event.
2. Equipment Location. Equipment shall be delivered to, and not be removed
without our prior written consent from, the Equipment Installation Address shown
above or if no location is specified, your billing address. We shall have the
right to inspect Equipment at any reasonable time during business hours.
3. Ownership; Personal Property. This Equipment is our property (except for
the postage meter), and you have no right to or interest in it except as
expressly set forth herein. The Equipment is and shall at all times remain
personal property.
4. Assignment; Offset. YOU MAY NOT ASSIGN, TRANSFER, OR SUBLET ANY INTEREST IN
THIS LEASE OR THE EQUIPMENT WITHOUT OUR PRIOR WRITTEN CONSENT. We may assign
this Lease or mortgage the Equipment, or both, in whole or in part without
notice to you. If you receive notice, you will acknowledge receipt thereof in
writing. Each assignee or mortgagee of ours shall have all of our rights, but
none of our obligation under this Lease. You shall not assert against assignee
or mortgagee any defenses, counterclaims, or offsets you may have against us.
This Lease inures to the benefit of and is binding upon the heirs, legalees,
successors, and assigns of the parties hereto. You acknowledge that any
assignment by us will neither materially change your duties hereunder
nor increase your burdens or risks hereunder.
5. Lessee's Options After Initial Lease Term.
After the Initial Lease Term and assuming that no default has occurred and is
continuing, you have the following options: (a) To renew the Lease on the terms
and conditions hereof, excluding those related to meter from year to
SEE REVERSE SIDE FOR ADDITIONAL TERMS AND CONDITIONS WHICH ARE PART OF THIS
LEASE
Pitney Bowes Credit Corporation (LESSOR) BY
X
----------------------------------------- The undersigned affirms that he/she
is duly authorized to execute this Lease Contract
EXECUTIVE OFFICE: 201 MERRIT SEVEN NORWALK, CT 06856-5151
- ---------------------------------------------------
LESSEE SIGNATURE TITLE
- ----------------------------------
BY
X
-------------------------------- ----------------
PRINT NAME DATE
- ---------------------------------------------------
- --------------------------------------------------------------------------------
This form consists of 3 separate agreements: a PDCC Lease Agreement, a Pitney
Bowes Postage Motor Rental Agreement, and a Postage by Phone Trust Agreement.
Your signature in the space provided confirms your acceptance of the terms and
conditions contained in each of these agreements.
<PAGE>
EXHIBIT 10.11
<PAGE>
[LETTERHEAD OF RJP ELECTRONICS INC. APPEARS HERE]
AGREEMENT
---------
RJP Electronics, Inc. (RJP), a corporation organized under the laws of the State
of California and Custome Calculations Inc. ("CCI"), a corporation organized
under the laws of the State of Florida, hereby enters this agreement:
A. Item Description: "The Great Electronic Countdown Food Pyramid"
B. Unit Price: I.C. & LCD Display: US$1.36
Other components and
factory overhead US$1.84 US$3.20
Plus royalty for CCI: US$1.00
---------
US$4.20
Profit (Share 50/50 between RJP & CCI): US$2.68
---------
US$6.88
Rep. Organization Expense: US$1.51
---------
Distribution Cost: US$8.39
Suggested Retail Price: US$11.99
C. RJP will have an exclusive right for Food/Grocery and Drug Store
market. CCI will license this product to RJP on a royalty and profit
sharing rate basis. The royalty and profit sharing rate is determined
on the basis of the above calculation. RJP will have exclusive
marketing rights for the above mentioned markets for three years or
more provided a minimum of 10,000 units are attained yearly. Should
10,000 units not be attained in a given year, CCI would have the right,
if they so chose, to make the items available to the markets mentioned
through other marketers as well.
RJP Electronics, Inc. Custom Calculation Inc.
656A Monterey Pass Road 1474 N.E. 130 Street
Monterey Park, CA 91754 Miami, Florida 33161
By: /s/ RAYMOND LEE By:
------------------------- --------------------------
Signature Signature
Name: Raymond Lee Name: Gary Duboff
Title: Director Title: President
Date: December 26, 1995 Date: December 26, 1995
<PAGE>
EXHIBIT 10.12
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
NUMBER SHARES
8063
PACIFIC POWER
GROUP, INC.
30,000,000 SHARES AUTHORIZED $.001 PAR VALUE COMMON STOCK
THIS CERTIFIES THAT [SAMPLE]
IS THE RECORD HOLDER OF
PACIFIC POWER GROUP, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[PACIFIC POWER GROUP INC. [SIGNATURE OF SECRETARY [SIGNATURE OF PRESIDENT
CORPORATE SEAL APPEARS HERE] APPEARS HERE] APPEARS HERE]
Countersigned & Registered:
STANDARD REGISTRAR & TRANSFER COMPANY, INC.
12528 South 1840 East
Draper, UT 84020
By:
---------------------------------------
Authorized Signature
<PAGE>
EXHIBIT 22
<PAGE>
EXHIBIT 22
The subsidiaries of the Company and their respective state or county of
organization are listed below.
RJP Electronics, Inc., a California corporation
Kidder Industrial Limited, a Hong Kong corporation
Big Apple Limited, a Hong Kong corporation
Goldwill Nominees Limited, a Hong Kong corporation
