SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-QSB
(Mark One)
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
___ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File No.: 000-21557
ACI TELECENTRICS, INC.
(Name of Small Business Issuer as specified in its charter)
MINNESOTA 41-1572571
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3100 WEST LAKE STREET, SUITE 300, MINNEAPOLIS, MINNESOTA 55416
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (612) 928-4700
Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The Company had 5,767,121 shares of common stock, no par value per share,
outstanding as of May 8, 2000.
Transitional Small Business Disclosure Format (Check One): YES [ ] NO [X]
<PAGE>
ACI TELECENTRICS, INCORPORATED
FORM 10-QSB
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Balance Sheets
Statements of Operations
Statements of Cash Flows
Notes to Financial Statements
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
Signature Page
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ACI TELECENTRICS, INCORPORATED
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 199,295
Trade receivables, less allowance for doubtful
accounts of $190,000 and $140,000, respectively 7,222,305 5,413,351
Income tax receivable -- 20,312
Deferred income taxes 539,000 539,000
Prepaid expenses 88,776 141,742
Other current assets 61,836 66,595
------------ ------------
Total current assets 7,911,917 6,380,295
Property and equipment, net of accumulated depreciation 2,675,884 2,701,923
OTHER ASSETS:
Goodwill, less accumulated amortization of
$187,000 and $169,000, respectively 864,264 881,783
Other assets 522,487 57,434
------------ ------------
Total other assets 1,386,751 939,217
------------ ------------
TOTAL ASSETS $ 11,974,552 $ 10,021,435
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 1,340,267 $ 850,000
Checks written in excess of bank balance 38,401 --
Trade accounts payable 1,678,356 872,542
Accrued compensation 551,995 461,584
Accrued expenses 107,568 161,786
Income taxes payable 196,722 --
Current portion of long-term debt and capital lease obligations 494,953 452,998
------------ ------------
Total current liabilities 4,408,262 2,798,910
LONG-TERM LIABILITIES:
Long-term debt and capital lease obligations, less current portion 590,849 523,160
Deferred capital lease liabilities, less current portion 245,000 280,000
Deferred income taxes 323,000 323,000
------------ ------------
Total long-term liabilities 1,158,849 1,126,160
SHAREHOLDERS' EQUITY:
Common stock, no par value;
Authorized - 15,000,000
Issued and outstanding shares - 5,767,121
and 5,756,267, respectively 6,646,889 6,638,531
Accumulated deficit (239,448) (542,166)
------------ ------------
Total shareholders' equity 6,407,441 6,096,365
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,974,552 $ 10,021,435
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ACI TELECENTRICS, INCORPORATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31
-----------------------------
2000 1999
------------ ------------
TELEMARKETING REVENUES $ 7,834,528 $ 4,688,767
COST OF SERVICES 4,826,741 2,678,013
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,480,598 1,809,314
------------ ------------
OPERATING INCOME 527,189 201,440
OTHER INCOME (EXPENSE)
Interest income 1,711 6,597
Interest expense (32,182) (11,119)
------------ ------------
Total other income (expense) (30,471) (4,522)
------------ ------------
INCOME BEFORE TAXES 496,718 196,918
INCOME TAX EXPENSE 194,000 74,800
------------ ------------
NET INCOME $ 302,718 $ 122,118
============ ============
Basic and diluted net income
per share $ .05 $ .02
============ ============
Basic shares used in computing net
income per share 5,766,377 5,742,434
============ ============
Diluted shares used in computing net
income per share 5,928,122 5,756,921
============ ============
See accompanying notes to consolidated financial statements.
<PAGE>
ACI TELECENTRICS, INCORPORATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 302,718 $ 122,118
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 283,890 251,080
Provision for losses on accounts receivable 50,000 (13,056)
Amortization of deferred capital lease liabilities (40,350) (47,850)
Deferred income taxes -- 74,800
Changes in operating assets and liabilities:
Checks written in excess of bank balance 38,401
Trade receivables (1,858,954) (2,326,431)
Prepaid expenses 52,966 2,422
Other current assets 4,759 77,740
Trade accounts payable, accrued compensation
and accrued expenses 842,007 629,784
Income taxes 217,034 (10,000)
------------ ------------
Net cash used in operating activities (107,529) (1,239,393)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (38,025) (73,123)
Decrease (increase) in other assets (465,053) 24,870
------------ ------------
Net cash used in investing activities (503,078) (48,253)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 3,980,515 600,000
Payments on revolving line of credit (3,490,248)
Net proceeds from issuance of common stock 8,358 3,616
Repayments of long-term debt and capital leases (87,313) (45,491)
------------ ------------
Net cash provided by financing activities 411,312 558,125
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (199,295) (729,521)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 199,295 1,300,681
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 571,160
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NON CASH INVESTING AND FINANCING TRANSACTIONS:
Equipment acquired through capital leases $ 202,307 $ --
CASH PAID FOR INTEREST AND TAXES:
Income taxes paid (refunds received), net $ (10,175) $ 10,000
Cash paid for interest $ 28,057 $ 9,241
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ACI TELECENTRICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(1) BASIS OF PRESENTATION
The balance sheet of ACI Telecentrics, Incorporated (the "Company") as of
March 31, 2000 and the related statements of operations and cash flows
for the three months ended March 31, 2000 and 1999, have been prepared by
the Company without being audited. In the opinion of management, these
statements reflect all adjustments consisting of all normal recurring
entries necessary to present fairly the financial position of the Company
as of March 31, 2000 and the results of operations and cash flows for all
periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. Therefore,
these financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1999
Form 10-KSB. The results of operations for interim periods are not
necessarily indicative of results which will be realized for the full
fiscal year.
(2) EARNINGS PER SHARE (SFAS 128)
Basic earnings per share are computed by dividing earnings available to
common shareholders by the weighted average number of common shares
outstanding during each period. Diluted earnings per share are computed
after giving effect to the exercise of all dilutive outstanding options
and warrants. Both basic and diluted earnings per share for the three
months ending March 31, 2000 and 1999 were the same. The following table
reconciles the denominators used in computing basic and diluted earnings
per share:
Three Months Ended
March,
2000 1999
---- ----
Weighted average common shares outstanding 5,766,377 5,742,434
Effect of dilutive stock options 161,745 14,487
------------------------
5,928,122 5,756,921
========================
(3) PROPERTY AND EQUIPMENT
<PAGE>
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
<S> <C> <C>
Furniture $ 1,170,966 $ 1,161,088
Equipment 4,477,065 4,469,976
Leasehold improvements 110,341 109,313
------------ ------------
5,758,372 5,740,377
------------ ------------
Less accumulated depreciation and amortization 3,082,488 3,038,454
Net property and equipment $ 2,675,884 $ 2,701,923
============ ============
</TABLE>
At March 31, 2000 and December 31, 1999, the Company has equipment
under capitalized leases totaling $1,364,409 and $1,162,102,
respectively.
(4) LINE OF CREDIT
On January 30, 1998, the Company entered into a $2,000,000 revolving line
of credit agreement, which accrues interest at the prime rate or LIBOR
rate plus 2 3/4% on outstanding borrowings (9.0% at March 31, 2000). The
borrowing base includes, and is secured by, certain accounts receivable
and furniture and equipment. The loan agreement also contains provisions
requiring compliance with certain financial covenants including
prohibiting the payment of cash dividends without the bank's consent.
Effective April 30, 1999, the Company and its lending institution
executed an "Amended and Restated Revolving Credit Loan Agreement" that
amended certain loan covenants and other loan provisions. The loan was
extended on April 13, 2000 and expires on April 30, 2001. As of March 31,
2000, the Company was in compliance with all covenants. At March 31,
2000, the Company had outstanding borrowings of $1,340,267 under the
revolving line of credit with an available credit line of $659,733.
(5) SUBSEQUENT EVENT
Subsequent to March 31, 2000, the Company opened a 100 seat call center
in Sherbrooke, Quebec, Canada. This call center is the Company's 11th
call center and increased the Company's overall call center capacity by
approximately 18%. This call center is equipped with a new technology
that will enable the Company to provide outbound, inbound and
Internet-based consumer contact services from the same teleservices
equipment.
PART I FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ACI Telecentrics, Incorporated (ACI) provides telephone-based sales and
marketing services primarily to the telecommunications, insurance, publishing
and financial services industries. ACI was established in 1987 in Minneapolis,
Minnesota. The Company operates ten outbound call centers; nine of which are
located in five Midwest states and one in the state of California. As of March
31, 2000, these 10 call centers had 546 calling stations. The Company had 849
full and part-time employees as of March 31, 2000.
Revenue from telemarketing services is recognized as these services are
performed and is generally based on an hourly rate. Certain telemarketing
service revenues are performance-based. Cost of services includes compensation
and commissions for telephone sales representatives, payroll taxes and other
benefits associated with such personnel, telephone expenses and other direct
costs associated with providing services to customers. Selling,
<PAGE>
general and administrative expenses include administrative, sales, marketing,
occupancy, depreciation and other indirect costs.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000, COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUE. Revenues for the three months ended March 31, 2000 increased
$3,145,761, or 67.1% to $7,834,528, compared to first quarter 1999 revenues of
$4,688,767. Billable hours increased by 72.6% when compared to the prior year
period, however, revenue per billable hour decreased by approximately 3.2% when
compared to the first quarter of 1999. During the period the Company also
utilized other telemarketing companies to perform some of its services, although
to a greater extent than during the same period in 1999. The Company derived
21.6% of its first quarter 2000 revenues from outsourcing compared to 5.6%
during the same period in 1999. The increase in the use of other telemarketing
companies was due to significantly increased client demand. The Company operated
an average of 546 call stations during the first quarter of 2000 compared to an
average of 454 for the same period in 1999.
Financial services clients provided approximately 48% of first quarter
2000 revenues compared to approximately 22% of revenues during the first quarter
of 1999. During the 2000 period the Company's largest client represented
approximately 21% of total revenue. During the prior year period the Company's
largest client represented approximately 35% of total revenue. Other industry
segments and their percentages of revenue in 2000 include publishing (17%),
insurance (8%) and telecommunications (25%).
COST OF SERVICES. Cost of services in the first quarter of 2000 increased
$2,148,728, or 80.2% to $4,826,741, compared to $2,678,013 in the first quarter
of 1999. First quarter 2000 labor and benefit costs increased by $882,048, or
46.9% when compared to the first quarter of 1999. Long distance telephone costs
for telemarketing operations increased by $38,026, or 7.2% in the first quarter
of 2000 when compared to the 1999 period. Outsourced telemarketing service costs
for the 2000 period increased $1,266,993, or 633.5% when compared to the same
period of 1999.
As a percentage of revenue, cost of services for the first quarter of
2000 increased by 4.5% to 61.6% compared to 57.1% in the first quarter of 1999.
This increase was primarily the result of outsourced services expenses
increasing, as a percentage of revenue, to 18.7% in 2000 as compared to 4.3% in
1999. Outsourcing services are costs associated with the Company's utilization
of other telemarketing companies for telemarketing some of its clients'
programs. During the first quarter of 2000 the outsourced services had a cost of
86.7% compared to 75.8% during the 1999 period. First quarter of 2000 cost of
services for internally generated telemarketing was 54.7% in 2000 and 56.0% in
1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total selling, general and
administrative expenses for the first quarter of 2000 increased $671,284, or
37.1% to $2,480,598, from $1,809,314 during the first quarter of 1999. As a
percentage of revenue, selling, general and administrative expenses decreased to
31.7% in 2000 compared to 38.6% during the first quarter of 1999. The absolute
dollar increase in expenses for call center operations was approximately
$229,000 during the first quarter of 2000 when compared to the same period in
1999. The increase can be primarily attributed to the expenses associated with
the Redding, California call center which was opened in September 1999.
Corporate selling, general and administrative absolute dollar increase in
expenses was approximately $442,000 during the same period. The increase in
corporate expenses was primarily the result of an increase in personnel costs,
additions to the bad debt reserve, higher commissions being paid on increased
revenues and an increase in travel associated with new business opportunities.
OPERATING INCOME. As a result of the factors discussed above, the Company
experienced first quarter operating income of $527,189, a $325,749 increase
compared to the first quarter 1999 operating income of $201,440. As a percentage
of revenue, operating income during the quarter was 6.7% compared to 4.3% during
the first quarter of 1999.
OTHER INCOME AND EXPENSES, NET. Other expenses were $30,471 in 2000
compared to $4,522 in 1999. The increase in net interest expense was the result
of an increase in borrowing activity under the Company's line of
<PAGE>
credit, an increase in equipment lease financing and lower cash investment
balances producing lower interest income.
NET INCOME AND NET INCOME PER SHARE. Pretax income for the first quarter
of 2000 was $496,718, a $299,800 increase compared to a pretax income of
$196,918 in the first quarter of 1999. The Company recorded income tax expense
of $194,000, an effective tax rate of 39%, for the first quarter of 2000
compared to an income tax expense of $74,800, an effective tax rate of 38%, in
the first quarter of 1999. Net income for the first quarter 2000 was $302,718,
or $.05 per share on a basic and fully diluted basis compared to a net income of
$122,118, or $.02 per basic share in the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically used cash from operating activities, bank
borrowings, capital leases and public and private sector financing received in
connection with the opening of call centers as its primary sources of liquidity.
The public and private sector (grants/financings) included low interest rate
loans, forgivable loan arrangements, and reimbursement for certain expenses and
leasehold improvements. On January 30, 1998, the Company entered into a
$2,000,000 revolving line of credit agreement, which accrues interest at the
prime rate or LIBOR rate plus 2 3/4% on outstanding borrowings (9.0% at March
31, 2000). The borrowing base includes, and is secured by, certain accounts
receivable and furniture and equipment. The loan agreement also contains
provisions requiring compliance with certain financial covenants including
prohibiting the payment of cash dividends without the bank's consent. Effective
April 30, 1999, the Company and its lending institution executed an "Amended and
Restated Revolving Credit Loan Agreement" that amended certain loan covenants
and other loan provisions. The loan was extended on April 13, 2000 and expires
on April 30, 2001. As of March 31, 2000, the Company was in compliance with all
covenants. At March 31, 2000, the Company had outstanding borrowings of
$1,340,267 under the revolving line of credit with an available credit line of
$659,733.
At March 31, 2000, the Company had checks written in excess of the bank
balance of $38,401 compared to cash and cash equivalents to $199,295 at December
31, 1999. For the three months ended March 31, 2000 cash used by operating
activities was $107,529 compared to cash used by operating activities of
$1,239,393 in the 1999 period. Included in cash used by operating activities in
the 2000 period is $703,787 of changes in working capital components related to
the growth of the Company offset by depreciation and amortization of $283,890
and other non-cash charges of $9,650. Cash provided by operating activities in
the 2000 period was primarily from net income of $302,718. Cash used in 1999
first quarter operating activities was primarily the result of an increase of
$2,326,431 in Accounts Receivable balances which resulted from the 32.9%
increase in first quarter revenue. This increase was partially offset by cash
provided by first quarter net income of $122,118, depreciation and amortization
of $251,080, changes in other working capital components of $699,946 and
non-cash items of $13,894.
Net cash used by investing activities in the three months ended March 31,
2000 was $503,078 compared to net cash used of $48,253 in 1999. The primary uses
of cash by investing activities included a down payment of approximately
$429,000 for equipment for the new Quebec, Canada call center and expenditures
for property and equipment of $38,025. During the 1999 period the Company had
net purchases of property and equipment of $73,123 which were offset by a
decrease of $24,870 in other assets.
Net cash provided by financing activities during the three months of 2000
was $411,312 compared to $558,125 during 1999. The primary source of cash during
the first quarter of 2000 was $490,267 of net borrowings under the Company's
revolving line of credit. In addition, the Company issued stock under its
Employee Stock Purchase Plan for $7,858 and for the exercise of stock options
for $500. Proceeds for 2000 were partially offset by repayments of long-term
debt and capital leases in the amount of $87,313. Cash flows from financing
activities during the first three months of 1999 included $600,000 borrowed
under the revolving line of credit and proceeds of $3,616 from the issuance of
common stock under the Company's Employee Stock Purchase Plan. These cash
proceeds were partially offset by repayment of long-term debt and capital leases
in the amount of $45,491.
During the three months ending March 31, 2000, the Company acquired
assets, at a cost of $202,307 through capital leases. During the comparable 1999
period the Company did not acquire any assets through capital leases.
As a result, net cash and cash equivalents decreased by $199,295 during
the first three months of 2000 compared to a decrease of $729,521 in 1999. The
Company believes that funds which should be generated from
<PAGE>
future operations, amounts available under the renegotiated revolving line of
credit arrangement and funds obtained through equipment financing leases will be
sufficient to finance its current and future business operations including
working capital requirements although there can be no guarantee that these funds
will be available at terms acceptable to the Company, if at all.
In connection with the opening of a new call center in Sherbrooke,
Quebec, Canada in April 2000 the Company has entered into a seven year building
lease commitment totaling $180,000 per year. This lease is cancelable after four
years. In addition, the Company has a commitment of approximately $860,000 for
capital expenditures, of which $429,000 was paid as of March 31, 2000, for
computer equipment related to the opening of the Sherbrooke call center.
QUARTERLY RESULTS
The telemarketing industry tends to be slower in the first and third
quarters of the year because client marketing and customer service programs are
typically slower in the post-holiday and summer months. The Company has
experienced, and expects to continue to experience, quarterly fluctuations in
revenues and operating income principally as a result of the timing of clients'
telemarketing campaigns, the commencement of new contracts, changes in the
Company's revenue mix, opening of new call centers, and the additional selling,
general and administrative expenses to acquire and support such new business.
OUTLOOK
Certain of the statements in this section are "forward-looking
statements" within the meaning of the federal securities laws. The following
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed or implied by
such statements.
Management believes that total marketing expenditures by US companies
directed towards telemarketing will continue to grow and that the trend for
these companies will be towards outsourcing their telemarketing programs to
companies like ACI. In addition, the Company believes that Internet-based online
customer service support is the next step in consumer contact and may be a
growth opportunity in 2000. The Company anticipates that the demand for its
traditional telemarketing services will continue to grow in 2000 along with
growth resulting from the Company's expansion into the Internet customer service
business. In order to meet this increased demand for traditional telemarketing
services and Internet-based customer service, the Company has opened during
April 2000 a new 100 seat call center in Sherbrooke, Quebec, Canada. In
addition, the Company may open one additional call center with 100 to 200 seats
to meet the anticipated demand. The Company plans to equip these call centers
with a new technology that will enable the Company to provide outbound, inbound
and Internet-based consumer contact services from the same teleservices
equipment. In 2000, the Company expects to spend approximately $4,000,000, on
capital expenditures to equip these call centers and develop the Internet
customer service business applications. The Company intends to finance the
majority of its capital expenditure needs through equipment financing leases,
however, there is no assurance that equipment financing leases will be available
at terms acceptable to the Company.
There is no assurance that the Company's marketing efforts will generate
new business or that businesses will continue to outsource their telemarketing
needs. As is common in the telemarketing industry, the Company's projects are
often not subject to formal contracts, the agreements with its clients do not
assure that ACI will generate a specific level of revenue, do not designate ACI
as the client's exclusive service provider, and are terminable by the client on
relatively short notice and without penalty. In addition, the amount of revenues
ACI generates from a particular client generally is dependent upon their
customers' interest in, and use of, the client's products or services. While the
Company anticipates an increase in demand for its services in 2000, there is no
assurance that the Company, due to the current low unemployment levels, will be
able to hire and train sufficient telemarketing sales representatives to fully
utilize the capacity to meet anticipated increased demands for the Company's
services.
During the first quarter of 2000, the Company reduced its selling,
general and administrative expenses to 31.7% of revenue compared to 38.6% in
1999. These reductions are a result of the Company's sales effort and an effort
to improve its processes to contain costs and increase the efficiency of the
organization. However, there can be no assurance that containment of these costs
can be continued or that further efficiencies can be realized.
<PAGE>
INFLATION
Inflation has not had a material impact on operating results and the
Company does not expect it to have a significant impact in the future. However,
there can be no assurance that the Company's business will not be affected by
inflation in the future.
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.34 Lease Agreement by and between Lease Finance Group, Inc. and
ACI Telecentrics, Inc. dated March 20, 2000
(b) 27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACI TELECENTRICS, INCORPORATED
Registrant
Dated: /s/May 15, 2000 By:/s/RUSSEL JACKSON
------------------- Russell Jackson
Chief Financial Officer
(Principal Accounting Officer)
Dated: /s/May 15, 2000 By:/s/RICK N. DIAMOND
------------------- Rick N. Diamond
Chief Executive Officer and
Director
Exhibit 10.34
LEASE AGREEMENT Lease No. 3263
For and in consideration of the mutual covenants and promises hereinafter set
forth, the individual, company or other legal person identified on the signature
page of this Lease as the lessor ("Lessor") and the individual, company or other
legal person identified on the signature page of this Lease as the lessee
("Lessee") hereby agree as follows:
LEASE. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor,
all machinery, equipment, motor vehicles and other property described in any
schedule or schedules executed by the parties, concurrently herewith or
hereafter, which schedules state they are subject to this Lease (collectively,
the "Schedules"). All machinery, equipment, motor vehicles and other property
described in any Schedule and all replacement parts, additions, repairs and
accessories incorporated in, or attached or affixed to, any such property is
collectively referred to in this Lease as the "Equipment."
2. TERM OF LEASE. This lease shall commence on the date it is executed and,
unless sooner terminated by Lessor as provided in Section 19, shall continue
until the total number of "Payments" shown on each Schedule shall have been made
and all amounts Lessee is required to pay under Section 15 (if any) have been
paid.
3. RENT. As rent for the Equipment described on each Schedule, Lessee agrees to
pay to Lessor the sum of (x) the rent payments shown under "Rent Payment" on
that Schedule, multiplied by the total number of "Payments" shown on that
Schedule, plus (y) any additional rent specified on that Schedule, plus (z)
"Interim Rent" amounts payable with respect to the period between the
Commencement Date and the first Rent Payment Due Date, based on a 30-day month
and the number of days between the Commencement Date and the first Rent Payment
Due Date. Payments are to be made on each and every Rent Payment Due Date shown
on the Schedule until the total number of payments have been made. The first
rent payment with respect to each Schedule is due upon (i) Lessee's execution of
a delivery receipt, if the Equipment described in that Schedule is motor
vehicles, or (ii) upon Lessee's acceptance (as described in Section 9) of any
Equipment other than motor vehicles described in that Schedule. Rent shall be
paid on the dates specified in the Schedule at the office of Lessor or to such
other person or at such other place as Lessor may from time to time designate in
writing. In addition to the rent payments described above, Lessee shall pay the
amount of any personal property taxes or other taxes and all maintenance,
insurance and other costs and expenses with respect to the Equipment (including
amounts, if any, required to be paid under Sections 14 and 16 of this Lease). If
Lessee fails to make any such payment or pay any other expense required to be
paid by Lessee pursuant to this Lease, Lessor, at its option, may pay such
expense, which shall constitute additional rent and be due and payable from
Lessee to Lessor upon demand thereof.
4. LATE CHARGE. The Payments described in Section 3 shall be paid when due to
the person entitled to those payments. In the event Lessee's rental payments or
any sum required to be paid to Lessor shall become past due, Lessee agrees to
pay to Lessor, not later than one month thereafter, an amount equal to 5 % of
the scheduled lease payment or twenty dollars ($20.00), whichever is greater,
but only to the extent allowed by law.
5. ESTIMATED COST. The rent payments specified in each Schedule have been
computed on the basis of the total cost of the Equipment to Lessor, as estimated
at the time that Schedule is executed. Total cost includes the cost to Lessor of
purchasing and delivering the Equipment to Lessee, transportation, installation,
and all other charges with respect to the Equipment. Lessee hereby authorizes
Lessor to correct the rent payments to reflect any difference between the actual
cost of the Equipment and the estimated cost.
6. SECURITY DEPOSIT. Lessee has deposited or will deposit with Lessor the sum
shown as "Security Deposit", if any, on each Schedule as a security deposit and
not as advance rent. Lessor may, at its option, apply any security deposit to
cure any default by Lessee under the Lease, in which event Lessee shall promptly
pay a sufficient amount to Lessor to restore the security deposit to the full
amount specified on the Schedule. Upon termination of this Lease, Lessor shall
return any remaining balance of the security deposit, if any, to Lessee if, and
only if, Lessee has fulfilled all of its obligations under the Lease
7. SELECTION OF EQUIPMENT AND SUPPLIER. Lessee has selected the Equipment and
the supplier of the Equipment. Lessor agrees to order the Equipment from the
supplier in accordance with Lessor's customary practices, and Lessor shall not
be obligated to lease the Equipment to Lessee unless the supplier fills the
order. Lessor will have no liability because of any delay by the supplier in
filling the order. Lessee will accept the Equipment if delivered in good repair
and authorizes Lessor to add to the Schedules any serial numbers or other
identification of the Equipment when known. Any delay, in the delivery of the
Equipment will not affect the validity of this Lease.
8. WARRANTIES. LESSOR MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AS TO THE
CONDITION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF, THE ABSENCE
OR ANY CLAIM OF INFRINGEMENT OR THE LIKE WITH RESPECT TO, OR ANY OTHER MATTER
CONCERNING, THE EQUIPMENT AND EXPRESSLY DISCLAIMS ANY SUCH WARRANTIES OR ANY
OTHER WARRANTIES IMPLIED BY LAW. LESSEE HEREBY WAIVES ANY CLAIM IT MIGHT HAVE
AGAINST LESSOR FOR ANY LOSS, DAMAGE OR EXPENSE CAUSED
<PAGE>
BY THE EQUIPMENT OR BY ANY DEFECT THEREIN, OR BY THE USE OR MAINTENANCE OF, OR
SERVICING OR ADJUSTMENT TO, THE EQUIPMENT AND, AS TO LESSOR, LEASES THE
EQUIPMENT AS-IS AND WITH ALL FAULTS AND WITHOUT WARRANTY OF ANY KIND. LESSOR
WILL NOT BE LIABLE FOR ANY LOSS OR INTERRUPTION OF OR DAMAGE TO LESSEE'S
BUSINESS ON ACCOUNT OF ANY MECHANICAL FAILURE OR DELAY IN CONNECTION WITH THE
FURNISHING OR USE OF THE EQUIPMENT. Lessee acknowledges that Lessor is not a
dealer or manufacturer of equipment of any kind and is not the seller of the
Equipment, and that each unit of Equipment is of a type, size, design and
capacity selected solely by Lessee. Lessee also acknowledges that Lessor
supplies the Equipment without any obligation to install, test, erect, service
or maintain the Equipment. If the Equipment is not properly installed, does not
operate as represented or warranted by the manufacturer or seller thereof, or is
unsatisfactory for any reason, Lessee shall make any claim on account thereof
solely against the manufacturer or seller and no such occurrence shall relieve
Lessee of any of its obligations under this Lease. The only warranty applicable
to any Equipment is the manufacturer's warranty, if any (in the case of new
Equipment), and Lessor makes no warranty to Lessee beyond that contained in the
manufacturer's warranty, if any. Lessee acknowledges receipt of the
manufacturer's warranty with respect to any new Equipment. So long as Lessee is
not in default under this Lease, Lessor assigns to Lessee any manufacturer's,
seller's or other warranty, whether express or implied, on the Equipment and any
claim that Lessor may have as owner of the Equipment against the manufacturer or
supplier or any other person. All claims or actions on any warranty shall be
made or prosecuted by Lessee, at its sole expense, and Lessor shall have no
obligation whatsoever to make any claim on such warranty. Any recovery in cash
or cash equivalents under such warranty shall be made payable jointly to Lessee
and Lessor. At Lessor's option, all cash proceeds or cash equivalents from such
warranty recovery may be used to repair or replace the Equipment. Lessee shall
continue to pay rent to Lessor as specified in this Lease, notwithstanding any
claim for breach of warranty.
9. INSPECTION AND ACCEPTANCE BY LESSEE. Upon delivery of the Equipment, Lessee
shall promptly make all necessary inspections and tests of the Equipment in
order to determine whether the Equipment conforms to specifications and is in
good condition and repair. Lessee shall promptly notify Lessor in writing of any
defect or other objection to the type or condition of the Equipment. If Lessee
fails to notify Lessor in writing of any defect in or objection to the Equipment
within ten (10) days after delivery of the Equipment to Lessee, it shall
conclusively be established, as between Lessor and Lessee, that Lessee has fully
inspected the Equipment and that Lessee is satisfied with and has accepted the
Equipment as in good condition and repair for all purposes of this Lease. If
Lessee determines that the Equipment is in good condition and repair before the
expiration of ten (10) days after the Equipment is delivered, and in all events
prior to placing the Equipment in service, Lessee shall execute and deliver to
Lessor a certificate of acceptance in a form satisfactory to Lessor. Lessee's
acceptance of any Equipment with knowledge of a nonconformity cannot be revoked
because of such nonconformity.
10. LOCATION AND RIGHT OF INSPECTION. The Equipment shall be delivered to and,
with the exception of motor vehicles, at all times be located at the address of
Lessee shown on this Lease, or at such other place as shall be mutually agreed
upon in writing between Lessor and Lessee. Any motor vehicles included in
Equipment are leased principally for use in the United States, and will not be
used outside of the United States and Canada. Lessor shall at any and all times
during business hours have the right to enter into and upon the premises where
the Equipment is located for the purpose of inspecting the Equipment or
observing its use. Lessee shall not move any equipment other than motor vehicles
from the location to which said Equipment is delivered except with the prior
written consent of Lessor. Lessee shall promptly advise Lessor of any
circumstances with respect to location of the Equipment which may in any manner
affect Lessor's title thereto.
11. USE. The Equipment shall be kept by Lessee in its possession and control.
Lessee shall use the Equipment with due care, and shall comply with all laws,
ordinances or regulations applicable to the use, operation or maintenance of the
Equipment and the requirements of any insurer. Lessee shall put the Equipment
only to the use contemplated by the manufacturer. Lessee shall use any motor
vehicles included in the Equipment only in the course of Lessee's own business,
and shall permit any such vehicles to be operated only by Lessee's agents or
employees or members of Lessee's immediate family who, in each case, are legally
licensed to operate such vehicles. No driver of any motor vehicle included in
the Equipment shall have the authority to act on behalf of Lessor without prior
written authorization from Lessor. If Lessor as owner of any motor vehicle
included in the Equipment receives a notice of a parking or traffic violation
which involves the payment of a fine or penalty, Lessor may (but is not required
to) pay the fine or penalty. If Lessor does so, Lessee will immediately repay
Lessor the amount of fine or penalty and an additional $10 handling and
administrative fee. If any Equipment is confiscated by any public authority, or
if Lessor suffers any damage because of Lessee's use of the Equipment for an
illegal purpose, Lessee shall pay to Lessor the amount of any such damage and,
in the case of confiscation, the Stipulated Loss Value determined in accordance
with the relevant Schedule(s) and Lessor may, at its option, terminate this
Lease.
12. INDEMNITY. Lessee shall hold Lessor harmless from, and pay to Lessor the
amount of, any fines, penalties or other amounts for which Lessor is held liable
as a result of, and any legal expenses Lessor has arising out of, the use,
condition, ownership or operation of any items of Equipment, including any
claims made under the strict liability doctrine, and as a result of any lien,
encumbrance or claim made on the Equipment by anyone, including Lessee's
employees and agents. Lessee shall indemnify Lessor against and hold Lessor
harmless from, any and all claims, actions, damages (including reasonable
attorneys' fees), obligations, liabilities and liens (including any of the
foregoing arising or imposed without Lessee's fault or negligence, or in
connection with latent or other defects, or any claim for patent, trademark or
copyright infringement or under the doctrine of "strict liability"), imposed or
incurred by or asserted against Lessor or its successors or assigns, arising out
of the manufacture, purchase, lease, possession, operation, condition,
<PAGE>
return or use of the Equipment by operation of law or by Lessee's failure to
comply with the terms of this Lease. Upon written notice by Lessor of the
assertion of any claim hereby indemnified against, Lessee shall assume full
responsibility for the defense thereof. This section shall survive termination
of this Lease.
13. ALTERATIONS, REPAIRS AND MAINTENANCE. Lessee will, at its expense, keep and
maintain the Equipment in good working order, supply and install all replacement
parts and accessories when required to maintain the Equipment in good working
order, which parts and accessories shall be and become the sole property of
Lessor, and furnish all gasoline, oil, repairs, parts, tires, tubes, batteries,
accessories, service, maintenance and all other items of a similar nature
necessary for the operation of the Equipment. Lessee shall not, without the
prior written consent of Lessor, make any alterations, modifications, additions,
subtractions or improvements to, or mark the Equipment, but if so authorized by
Lessor, any such alterations, modifications, additions or improvements shall
become the property of Lessor and shall be deemed to be a part of the Equipment.
Lessee shall pay all costs required to repair all damage to, or alter, the
Equipment or any accessories, or to make the Equipment conform to any federal,
state or municipal requirements. Lessee shall follow any maintenance program
required or recommended by the manufacturer of the Equipment to make sure that
its warranty remains valid.
14. LICENSING, REGISTRATION AND TAXES. If the Equipment or use of the Equipment
requires licensing by or registration with any governmental authority, Lessee
shall, at its expense, obtain and maintain such license or registration
continuously during the term of this Lease. As additional rent, Lessee shall pay
when due all federal, state or local license and registration fees, assessments,
sales, use, heavy vehicle use, property and other taxes (excluding any tax
measured by Lessor's net income), together with any penalties or interest
applicable thereto, now or hereafter imposed by any governmental authority upon
any item of the Equipment or the rent payable hereunder or by reason of the use,
operation or maintenance of the Equipment. Lessee shall pay all such fees or
taxes whether they are payable by or assessed to Lessor or Lessee but, if under
law or custom such payments shall be made only by Lessor, Lessee shall promptly
notify Lessor and shall reimburse Lessor, upon demand, for all payments thereof
made by Lessor. If by law any such registration, license fee or tax is billed to
Lessor, Lessee, at its expense, will do any and all things required to be done
by Lessor in connection with the licensing or registration procedure and the
levy or assessment of any tax, including the billing or payment thereof. Upon
request, Lessee shall provide Lessor with proof of payment of any such fee or
tax.
15. PURCHASE. Upon the payment of the total number of rent payments specified in
any Schedule under this Lease, Lessee shall (a) Cure any default under this
lease, (b) If there is a dollar amount specified on the "Purchase Option" line
on the Schedule, have the option, upon not less than sixty (60) days prior
written irrevocable notice, to purchase all of the equipment described in that
Schedule for the amount specified, plus applicable sales tax, (c) If the words
"Fair Market Value" appear on the "Purchase Option" line on the Schedule, have
the option, upon not less than sixty (60) days prior written irrevocable notice,
to purchase all of the equipment described in that Schedule for the Fair Market
Value, as defined below, plus applicable sales tax, and (d) If there is a dollar
amount specified on the "Purchase Agreement" line on the Schedule, be required
(and Lessee hereby irrevocably agrees) to purchase all of the Equipment
described in that Schedule for the amount specified, plus applicable sales tax.
Any purchase of any Equipment pursuant to the preceding sentence shall be "as
is, where is", with all faults and without any warranty whatsoever (and Lessor
shall convey the Equipment to Lessee by Bill of Sale containing a disclaimer of
warranties similar to Section 8 above). For purposes of this Lease, "Fair Market
Value" means the Fair Market Value of the Equipment to
as determined either (i) by written agreement of Lessor and Lessee, (ii) at
Lessee's expense, by a professional appraiser acceptable to Lessor , or (iii) if
the Fair Market Value cannot be determined by either of the preceding methods,
as determined by Lessor in a commercially reasonable manner. Lessor may require
payment of the Purchase Option or Purchase Agreement amount at any time not more
than thirty (30) days prior to the expiration of the lease term with respect to
the relevant schedule.
16. INSURANCE. Lessee, at its expense, shall procure, maintain and pay for (a)
with respect to any Equipment other than motor vehicles, insurance against the
loss or theft of or damage to the Equipment, for the "Stipulated Loss Value"
determined in accordance with the relevant Schedule(s), naming Lessor and its
assigns as loss payee, (b) comprehensive general liability insurance providing
coverage for bodily injury and property damage with combined single limits of at
least $1 million not subject to an annual aggregate, naming Lessor and its
assigns as an additional insured, and endorsed to act as primary insurance with
respect to Lessor, (c) in the case of motor vehicles included in the Equipment,
comprehensive and collision damage coverage for the actual cash value of the
motor vehicle(s) and with a deductible not greater than the insurance deductible
specified in the Schedule, naming Lessor and its assigns as loss payee, (d) in
the case of motor vehicles included in the Equipment, motor vehicle liability
insurance covering bodily injury or property damage arising out of the
ownership, maintenance or use of the vehicle with combined single limits of at
least $1 million and naming Lessor and its assigns as additional insured, and
endorsed to act as primary insurance with respect to Lessor, and (e) any other
insurance required by Lessor or any governmental authority. All such insurance
shall be in form and amount, and provided by an insurer, satisfactory to Lessor.
Lessee shall deliver the policies of insurance or duplicates thereof or
certificates of insurance to Lessor at the time the lease is signed or prior to
the delivery of the Equipment and thereafter thirty (30) days prior to each
policy renewal. Each insurer shall agree by endorsement upon the policy or
policies issued by it or by independent instrument furnished to Lessor that the
insurer will provide thirty (30) days prior written notice to Lessor of any
cancellations or non-renewal of the policy or any material change in policy
conditions. Lessee shall comply with all restrictions (including any
geographical limitations) contained in any insurance policies. All insurance
policies shall provide that the insurance shall not be invalidated as to Lessor
by any act, omission or neglect of Lessee. Lessee shall notify Lessor
immediately in writing of any accident involving the Equipment regardless of the
<PAGE>
amount of damage, and shall cooperate fully with Lessor and all insurance
companies in the investigation, prosecution and defense of claims. The proceeds
of any insurance, at the option of Lessor, shall be applied (aa) toward the
replacement, restoration or repair of the Equipment, or (bb) toward payment of
the obligations of Lessee under this Lease. Lessee hereby appoints Lessor as
Lessee's attorney-in-fact to make claim for, receive payment of, and execute and
endorse all documents, checks or drafts for loss or damage under any such
insurance or pay said fees, assessments, charges and taxes, as the case may be.
In that event Lessee shall reimburse Lessor for the cost thereof upon demand,
and failure to repay the same shall constitute an Event of Default under this
Lease.
17. LOSS AND DAMAGE. Lessee hereby assumes and shall bear the entire risk of
loss, theft, damage or destruction of all or any item of the Equipment from any
cause whatsoever; and no loss, theft, damage or destruction of all or any item
of the Equipment shall relieve Lessee of its obligation to pay rent or of any
other obligation under this Lease, which shall continue in full force and
effect, notwithstanding such loss, theft, damage or destruction. This risk of
loss shall pass to Lessee on the earlier of (i) delivery of the Equipment to a
carrier for shipment to Lessee; (ii) tender of the Equipment to Lessee; or (iii)
acknowledgment by a bailee who holds the Equipment of Lessee's right to
possession of the Equipment. In the event of damage to any item of Equipment,
Lessee shall immediately place the same in good repair (ordinary wear and tear
excepted). If Lessor determines that any item of Equipment is lost, stolen,
destroyed or damaged beyond repair, Lessee, at the option of Lessor, will (a)
replace the same with similar equipment in good repair, or (b) pay Lessor in
cash all of the following: (aa) all amounts then owed by Lessee to Lessor under
this Lease, and (bb) the Stipulated Loss Value of said item of Equipment,
determined as of that date in accordance with the Schedule(s), less any proceeds
of insurance thereon received by Lessor. Upon Lessor's receipt of such payment,
Lessee shall be entitled to whatever interest Lessor may have in said item of
Equipment, in its then condition and location, without warranties, express or
implied, and this Lease shall be terminated with respect to such item.
18. DEFAULTS. The occurrence of any one or more of the following events shall
constitute an Event of Default under this Lease:
(a) Lessee shall fail to make any rent or other payment when due; or
(b) Lessee shall fail to perform or observe any other covenant, condition or
agreement to be performed or observed by it under this Lease and such failure
shall continue for a period of ten (10) days after written notice thereof is
delivered to Lessee by Lessor; or
(c) Any representation or warranty made by Lessee in this Lease or in any
document or certificate furnished to Lessor in connection with or pursuant to
this Lease (including but not limited to financial statements) shall have been
false in any material respect when made or furnished; or
(d) Lessee shall become insolvent or bankrupt or make an assignment for the
benefit of creditors or consent to the appointment of a trustee or receiver, or
a trustee or receiver shall be appointed for Lessee or for a substantial part of
its property without its consent and shall not be dismissed for a period of
thirty (30) days, or bankruptcy, reorganization or insolvency proceedings shall
be instituted by or against Lessee and, if instituted against Lessee shall no be
dismissed for a period of thirty (30) days, or Lessee dies, is dissolved,
terminates its existence or its business is discontinued; or
(e) Lessee attempts to remove, sell, transfer, encumber, part with
possession of or sublet all or any item of the Equipment; or
(f) Lessee is liquidated or dissolved, or commences any acts relative
thereto, or, without the prior written consent of Lessor, (i) Lessee sells or
otherwise disposes of all or substantially all of the assets of Lessee, (ii)
Lessee merges or consolidates with any other person, or (iii) if Lessee is a
corporation. ownership, control, or power to vote fifty percent(50%) or more of
the outstanding shares of any class of voting securities of Lessee is
transferred by the current holders, in one or more transactions: or
(g) Any indebtedness of Lessee (including but not limited to indebtedness to
Lessor or any of its affiliates) is not paid when due, or Lessee defaults under
any bond, debenture, note or other evidence of indebtedness of Lessee or under
any indenture or other instrument under which any such evidence of indebtedness
has been issued or by which it is governed and payment of such indebtedness is
accelerated.
19. REMEDIES. Upon the occurrence and during the continuation of any Event of
Default, Lessor shall have all the rights and remedies provided by applicable
law and by this Lease. In addition to the rights and remedies provided by
applicable law, Lessor may, at its option, declare this Lease to be in default.
Upon declaring this Lease to by in default, Lessor, at its sole discretion, may
exercise any one or more of the following remedies:
(a) terminate this Lease; or
(b) declare immediately due and payable, without notice or demand to Lessee,
the sum of (i) the accrued and unpaid rent payments for the period ending on the
date of default; (ii) the present value of any and all rent payments for the
period from the date of default throughout the scheduled expiration of this
lease; (iii) any purchase agreement amount specified on the Purchase Agreement
line on the relevant Schedule(s); (iv) if and only if Lessee has previously
exercised an option to purchase pursuant to Section 15 hereof, any purchase
option amount specified on the Purchase Option line on the relevant Schedule(s);
and (v) any other sums then payable under the Lease; or
(c) cause Lessee, upon written demand of Lessor and at Lessee's expense, to
return promptly any or all items of Equipment to Lessor in accordance with all
of the terms of Section 22 hereof, or Lessor, at its option, may take possession
of any or all items of Equipment without demand or notice where the same may be
located without any court order or process of law and remove the same without
liability for injuries suffered through or loss caused by such repossession, and
such repossession shall not constitute termination of this Lease unless Lessor
expressly terminates this Lease in writing, and Lessee waives any and all rights
to notice and
<PAGE>
judicial hearing with respect to the repossession or attachment of the Equipment
by Lessor in the event of default under this Lease by Lessee; or
(d) sell or lease any or all items of Equipment at public or private sale or
lease at such time(s) as Lessor may determine and, if notice thereof is required
by law, any notice in writing of such sale or lease by Lessor to Lessee not less
than ten (10) days prior to the date thereof shall constitute reasonable notice
thereof to Lessee; or otherwise dispose of, hold, use, operate, or keep idle
such Equipment, all as Lessor, at its sole discretion, may determine and all
free and clear of any rights of Lessee and without any duty to account to Lessee
for such action or inaction or for any proceeds with respect thereto; or
(e) exercise any other right or remedy which may be available to Lessor
under the Uniform Commercial Code or any other applicable law or proceed by
appropriate court action to enforce the terms of this Lease, to recover
possession of the Equipment, to recover damages for the breach of this Lease or
to rescind this Lease as to any or all Equipment. Lessor may elect, whether
before or after recovering possession of the Equipment, by written notice to
Lessee, to cause Lessee to pay Lessor as liquidated damages for loss of a
bargain and not as a penalty, and in lieu of all other sums due to Lessor for
the remaining term of this Lease (except any indemnification obligation under
Section 12, which shall survive the payment of the Stipulated Loss Value) on the
date specified in such notice, an amount equal to the rent payment or payments
and other payments under the Lease that are due and payable as of the date of
the written notice, plus a sum equal to the Stipulated Loss Value of the
Equipment, determined as of the date of the written notice in accordance with
the Schedule(s), reduced by any net proceeds of the disposition of the Equipment
which were previously received by the Lessor. In the event Lessor collects the
liquidated damages specified in the preceding sentence and has not previously
sold or re-leased the Equipment, Lessor shall appoint Lessee as Lessor's agent
to dispose of the Equipment at the best price obtainable on an "as is, where is"
basis and Lessee shall be entitled to the proceeds of such sale of the Equipment
to the extent they do not exceed the Stipulated Loss Value and shall pay any
excess to Lessor.
Lessee shall pay Lessor all costs and expenses, including attorneys' fees,
incurred by Lessor in exercising any of its rights or remedies under this Lease
or in enforcing any of the terms or conditions of this Lease. Lessee shall
continue to be liable for all indemnities under this Lease and for all legal
fees and other costs and expenses resulting from an event of Default or the
exercise of Lessor's remedies, including placing any Equipment in the condition
required by Section 22 of this Lease, notwithstanding Lessor's exercise of any
right or remedy under this Lease. Except as expressly provided above, no remedy
is exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Lessor at law or in equity. The
repossession or subsequent sale or lease by Lessor of any item of Equipment
shall not bar an action for a deficiency as herein provided and the bringing of
any action or the entry of judgment against Lessee shall not bar Lessor's right
to repossess any or all items of Equipment. No express or implied waiver by
Lessor of any default shall constitute a waiver of any other default by Lessee
or a waiver of any of Lessor's rights. To the extent permitted by applicable
law, Lessee hereby waives any rights now or hereafter conferred by statute or
otherwise which may require Lessor to sell, lease or otherwise use any Equipment
in mitigation of Lessor's damages as set forth in this Section 19 or may
otherwise limit or modify any of Lessor's rights or remedies under this Section
19.
LESSEE AGREES THAT ANY ACTION BY LESSEE OR LESSOR CONCERNING THE LEASE SHALL BE
VENUED IN THE COURTS OF THE STATE OF MINNESOTA, AND LESSEE HEREBY SUBMITS TO THE
PERSONAL JURISDICTION OF THE COURTS OF MINNESOTA. BOTH FEDERAL AND STATE, IN ANY
ACTION WITH RESPECT TO THIS LEASE AND AGREES THAT ANY STATE COURT ACTION SHALL
BE VENUED IN THE DISTRICT COURT OF HENNEPIN COUNTY, MINNESOTA. LESSOR AND LESSEE
EACH IRREVOCABLY WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS LEASE OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
20. ASSIGNMENT. Lessee shall not assign, pledge or hypothecate this Lease in
whole or in part, nor any interest in this Lease, nor shall Lessee sublet or
lend any item of the Equipment, nor pledge, mortgage or otherwise encumber the
Equipment or permit it to be encumbered, without the prior written consent of
Lessor. Lessee's interest herein may not be assigned or transferred by operation
of the law. Consent to any of the foregoing acts shall not be deemed to be
consent to any subsequent similar act. Lessor may assign this Lease or mortgage
the Equipment or both in whole or in part, without notice to Lessee. If Lessee
is given notice of such assignment, it shall acknowledge receipt of that notice
in writing. Each assignee or mortgagee from Lessor shall have all of the rights,
but none of the obligations, of Lessor under this Lease. Lessee shall not assert
against any assignee and/or mortgagee any defense, counterclaim or offset that
Lessee may have against Lessor. Upon receipt from Lessor of written notice of
assignment, Lessee will pay to the assignee any portion of the rent assigned to
the assignee. Lessee's obligation to pay rent to the assignee shall be absolute
and unconditional and shall not be subject to any defense or offset and said
obligations shall continue until Lessee receives a written notice from the
assignee that all indebtedness secured by such assignment has been paid in full.
Notwithstanding any assignment, Lessor warrants that Lessee shall quietly enjoy
use of the Equipment, subject to the terms and conditions of this Lease. Subject
to this Section 20, this Lease inures to the benefit of and is binding upon the
heirs, legatees, personal representatives, successors and assigns of Lessor and
Lessee.
21.OWNERSHIP. The Equipment is and shall at all times remain the sole and
exclusive property of Lessor. Lessee shall have no right, title or interest
therein or thereto except as expressly set forth in this Lease. Lessee has no
right, title or interest in the property except as Lessee. The Equipment shall
remain personal property regardless of whether it becomes affixed or attached to
real property, or permanently rests upon any real property or any improvement
thereon. Lessee shall not attach the Equipment to any personal or real property
so as to cause the property to become an accession or fixture thereto or take
any action which would confer upon any person having an interest in such real or
personal property an interest in the Equipment. Lessee agrees to execute all
such agreements and other documents, and to obtain the execution thereof, in
recordable form, by all parties having an interest in any real property to
<PAGE>
which any of the Equipment is affixed, as Lessor may, from time to time,
reasonably request with respect to the identity of the Equipment as personal
property, and Lessee further consents to the recordation of all such agreements
and documents. Lessee shall affix to the Equipment and maintain thereon such
labels, plates or decals as may be provided by Lessor, or conspicuously mark the
Equipment with such language as Lessor may reasonably request, to the effect
that such Equipment is owned by Lessor. Lessor is hereby authorized at Lessee's
expense to cause this Lease or any financing statement in respect thereto,
showing the interest of Lessor in the Equipment. to be filed or recorded with
any governmental office deemed appropriate by Lessor. A carbon, photographic or
other reproduction of this Lease or any financing statement filed pursuant to
this Lease may be filed by Lessor as a financing statement. Lessee shall execute
all documents requested by Lessor to effect any filing.
22. SURRENDER. Upon expiration of this Lease with respect to each unit of
Equipment, Lessee shall (unless Lessee shall have exercised an option, or have
been required, to purchase such unit of Equipment and shall have paid all
amounts payable pursuant to Section 15 with respect thereto) return each unit of
Equipment to Lessor free of all advertising or insignia placed thereon by
Lessee, and in good condition, repair and working order (ordinary wear and tear
resulting from the proper use of the Equipment excepted). Absence or
malfunctioning of a catalytic converter or other pollution control equipment
with respect to any motor vehicle included in the Equipment shall not be
considered ordinary wear and tear. Lessee shall return the Equipment, in
accordance with Lessor's instructions, either (a) by delivering the Equipment at
Lessee's sole cost and expense, to any location selected by Lessor, within the
county to which the Equipment was moved with Lessor's consent, to the nearest
office of Lessor, or the location identified on the relevant Schedule for return
of the Equipment (whichever of the foregoing is selected by Lessor at its sole
discretion); or (b) by loading the Equipment on board any carrier designated by
Lessor and shipping the same, freight collect, to a destination selected by
Lessor. If Lessee fails to return a unit of Equipment to Lessor at the
expiration of this Lease, Lessee shall pay rent at the rate stated on the
Schedule until the Equipment is returned to Lessor. This provision shall not be
construed to be right of renewal, or to authorize Lessee to retain the Equipment
after the expiration of the Lease.
23. NO OFFSET; IRREVOCABLE AND INDEPENDENT PROMISES. Upon Lessee's acceptance of
any Equipment, Lessee's promises to pay rent and perform all other obligations
with respect to such Equipment shall become irrevocable and independent, and
shall not be subject to cancellation, termination, modification, repudiation,
excuse or substitution without the consent of Lessor or any assignee. Lessee
hereby waives any and all existing and future claims and offsets against any
rent or other payments due hereunder, and agrees to pay the rent and other
amounts due hereunder regardless of any offset or claim which may be asserted by
Lessee or on its behalf against Lessor or any other person. This is a net lease
and rent due under this Lease shall not be subject to abatement for any reason
whatsoever. Lessee hereby further acknowledges that the manufacturer or vendor
of the Equipment and their agents and employees were at no time and are not now
the agents or under the supervision of Lessor, and that Lessor was not and is
not the agent of the manufacturer or vendor.
24. WAIVERS. No waiver of Lessee's obligations, conditions or covenants shall be
deemed to take place unless the waiver is in writing and signed by Lessor.
Failure to exercise any remedy which Lessor may have under this Lease or any
acquiescence in the default of Lessee by Lessor shall not constitute a waiver of
any obligation of Lessee, including the obligation as to which Lessee is in
default; and Lessor shall be entitled to pursue any remedy available to it under
this Lease until Lessee has rendered complete performance of all obligations
under this Lease.
25. FINANCIAL AND OTHER REPORTS. During the term of this Lease, Lessee shall
furnish Lessor with annual financial statements within one hundred twenty (120)
days after the end of Lessee's fiscal year, and Lessee shall provide Lessor such
other financial information as Lessor may from time to time request, including,
without limitation, any reports filed with federal or state regulatory agencies.
Lessee hereby warrants and represents that all financial statements previously
delivered or to be delivered to Lessor by or on behalf of Lessee, and any
statements and data submitted in writing to Lessor in connection with this
Lease, are or will be true and correct and did or will fairly present the
financial condition of Lessee for the periods involved.
26. MASTER LEASE. In the event Lessor shall hereafter lease to Lessee additional
Equipment, the Equipment shall be described on a Schedule executed by the
parties which shall refer to this Lease. Each Schedule shall, in addition to
describing the Equipment to be leased thereunder, set forth the term of the
Lease with respect to that Equipment, the amount of rent, the manner of payment
of the rent, the number of rent payments, the commencement of the rent payments,
the amount of any security deposit and the stipulated loss value with respect to
that Equipment, whether Lessee has the option, or shall be required, to purchase
the Equipment and at what price, and may include other provisions. Each such
Schedule when executed by the parties shall be deemed to be a part of this
Lease, and all of the provisions of this Lease, except such provisions as may be
explicitly amended by a Schedule, shall govern such Schedule(s), it being
understood and agreed that this Lease shall be the Master Lease.
27. CROSS DEFAULT. Lessee hereby agrees that any default by Lessee in the
payment of rent or performance of any other term or condition of any lease
between Lessor and Lessee, or under any Schedule, whether previously or
hereafter entered into, shall at the option of Lessor constitute an Event of
Default in all Leases or Schedules, including this Lease between Lessor and
Lessee, and that thereupon the provisions of Section 19 above shall be
applicable.
28. NOTICES. All notices required or permitted under this Lease shall be
sufficient if delivered personally or mailed to the party receiving the notice
at the address set forth below that party's signature, or at such other address
as either party may designate in
<PAGE>
writing delivered to the other party from time to time. Any such notice shall be
effective upon delivery or forty-eight (48) hours after it has been deposited in
the United States mail, duly addressed and postage prepaid.
29. MISCELLAN'EOUS. LESSEE ACKNOWLEDGES, AND AGREES THAT THIS LEASE IS INTENDED
AS A "FINANCE LEASE" AS DETERMINED IN MINN. STAT. SECTION 336.2A-103(l)(G), AND
THAT LESSOR IS ENTITLED TO ALL BENEFITS, PRIVILEGES AND PROTECTIONS OF A LESSOR
UNDER A FINANCE LEASE. This Lease contains the entire agreement between the
parties and embodies any oral representations, negotiations or agreement made in
connection herewith. If more than one party executes this Lease as Lessee, all
obligations to be performed by Lessee shall be the joint and several liability
of all such parties. Wherever the context permits, Lessee's representations,
warranties and covenants under this Lease shall survive the delivery and return
of the Equipment. Any provision of this Lease which may be determined by
competent authority to be prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective, to the extent of such prohibition or
unenforceability, without invalidating the remaining provisions of this Lease,
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provisions in any other jurisdiction. To
the extent permitted by applicable law, Lessee hereby waives any provision of
law which renders any provision of this Lease prohibited or unenforceable in any
respect. No term or provision of this Lease may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which the enforcement of the change, waiver, discharge or termination is
sought. To the extent that payments hereunder do constitute interest, the
parties agree that any interest to be paid the Lessor shall in no contingency
exceed the maximum amount permissible under applicable law. If under any
circumstances whatsoever, interest would otherwise be payable to Lessor at a
rate in excess of that permitted under applicable law, then the interest payable
to Lessor shall be reduced to the maximum amount permitted under applicable law,
and if under any circumstance Lessor shall ever receive anything of value deemed
interest by applicable law which would exceed interest at the highest lawful
rate, any amount equal to any excessive interest shall be applied to the
reduction of the principal amount of the obligation owing to Lessor and not to
the payment of interest, or if such excessive interest exceeds the unpaid
principal amount of such obligation, such excess shall be refunded to the
Lessee. All interest paid or agreed to be paid to Lessor shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full period until payment in full of the principal amount of the
obligations owing to the Lessor so that the rate of interest thereon for such
full period shall not exceed the maximum amount permitted by applicable law.
Nothing herein contained shall give or convey to Lessee any right, title or
interest in and to any Equipment leased hereunder except as Lessee.
NOTWITHSTANDING THE PRECEDING SENTENCE, LESSEE ACKNOWLEDGES THAT FOR INCOME TAX
PURPOSES ONLY, LESSOR IS TREATING LESSEE AS OWNER OF THE EQUIPMENT AND THAT
LESSEE HAS NEITHER SOUGHT NOR RECEIVED TAX ADVICE FROM LESSOR AS TO THE
AVAILABILITY TO LESSEE OF ANY TAX BENEFITS WITH RESPECT TO THE EQUIPMENT. In the
event this lease is construed by a court as a security agreement rather than as
a lease (which is hereby declared contrary to the intent of the parties), Lessee
hereby grants Lessor a first priority security interest in the Equipment free
and clear of any other liens, encumbrances or security interests and agrees to
execute any financing statements, fixture filings or other instruments necessary
or expedient for filing, recording or perfecting the interest and title of
Lessor and any assignee of Lessor at the request of Lessor, and all costs
incurred in connection therewith (including, without limitation, filing fees and
taxes) shall be paid by Lessee. The captions in this Lease are for convenience
of reference only and shall not define or limit any of the terms or provisions
hereof. As used in this Lease, the term "Lease' shall include all exhibits and
schedules related to this Lease. The neuter includes the masculine or feminine,
the singular includes the plural. and the word "Lessor" includes all assignees
of Lessor. THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS (BUT NOT THE LAW OF CONFLICTS) OF THE STATE
OF MINNESOTA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
Time is of the essence hereof. Lessee's obligations hereunder shall survive the
expiration or earlier termination thereof. This Lease shall not become effective
or binding until executed by Lessor at its place of business in Eden Prairie,
Minnesota. Lessee shall promptly notify Lessor of any changes in Lessee's
address. Lessee warrants and agrees that the Equipment is leased and will be
used for business purposes only and that the Equipment will not be used for
personal, family or household purposes.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease the 20th day of
March 2000.
ACI TELECENTRICS, INC., LESSEE LEASE FINANCE GROUP, INC., LESSOR
By: /s/ Russell Jackson By: /s/ Kathleen Hanson
------------------- -------------------
Title: CFO Title: Vice President-Operations
--- -------------------------
Address: Suite 300 Address: Suite 203
3100 West Lake Street 7700 Equitable Drive
Minneapolis, MN 55416 Eden Prairie. MN 55344
<PAGE>
SCHEDULE TO LEASE AGREEMENT
LESSOR: LEASE FINANCE GROUP, INC. LEASE NO. 3263
------------------------------------- -----------------------
LESSEE: ACI TELECENTRICS, INC. SCHEDULE NO. 1
------------------------------------- -----------------------
- --------------------------------------------------------------------------------
EQUIPMENT
- --------------------------------------------------------------------------------
Computer Equipment, per attached Schedule "A"
- --------------------------------------------------------------------------------
Location of Equipment (if other than
Lessee's address on the Lease): See Exhibit "A" County:
------------------------------- ----------
INITIAL LEASE TERM RENT PAYMENT RENT PAYMENT DUE DATE
36 Months $ 6,530.93 per month, The __ tenth _X_ twentieth
- -- ---------- day of each month
36 Payments (plus applicable taxes)
- --
PAYMENT APPLIES TO: STIPULATED LOSS VALUE:
1st Payment $ 13,061.86 YEAR YEAR YEAR
-----------
Taxes ____% $ $206,353 1 $ 4 $ 7
----------- ---------- ----------- ---------
Administrative Fee $ 50.00 $161,845 2 $ 5 $ 8
----------- ---------- ----------- ---------
Other $ 0.00 $105,200 3 $ 6 $ 9
----------- ---------- ----------- ---------
Security Deposit $ 0.00
-----------
Total $ 13,111.86
-----------
Amount Received $ 0.00 CHECK APPLICABLE LINE
-----------
Amount Due $ 13,111.86 _____ Purchase Option $
----------- ----------
__X__ Purchase Agreement $ 1.00
----------
Other Terms: "1st Payment" refers to the first and thirty-sixth
--------------------------------------------------------------------
lease payments, to be due at lease inception.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Rent Payments shall commence upon Lessee's acceptance of the Equipment and shall
be made on each Rent Payment Due Date thereafter until the total number of
Payments has been made. Lessor herebv leases to Lessee and Lessee hereby leases
from Lessor the Equipment described above on the terms and conditions set forth
above and pursuant to and subject to all terms and conditions of the Lease
Agreement between Lessor and Lessee dated March 20, 2000
ACCEPTED DATED AS OF March 20, 2000
----------------------
LEASE FINANCE GROUP, INC. (LESSOR) ACI TELECENTRICS, INC. (LESSEE)
By:/s/ Kathleen Hanson By:/s/ Russell Jackson
----------------------------------- -----------------------------------
Title: Vice President-Operations Title: CFO
----------------------------- -----------------------------
By: By:
----------------------------------- -----------------------------------
Title: Title:
------------------------------ -------------------------------
<PAGE>
SCHEDULE A (MULTIPLE EQUIPMENT/MULTIPLE LOCATIONS) PAGE _1_ OF _1_
- ----------------------------------------------- --------------- ----------------
LOCATION OF EQUIPMENT
- ----------------------------------------------- --------------- ----------------
Equip. Cost Rental Amount
Street: 3100 West Lake Street, Suite 300 $ 44,457.70 $ 1,435.20
- ----------------------------------------------- --------------- ----------------
Tax % Tax Amount
City: Minneapolis
- ----------------------------------------------- --------------- ----------------
State: MN Zip 55416 TOTAL $ 1,435.20
- ----------------------------------------------- --------------- ----------------
Manufacturer/
Description: See Exhibit "A"
- ----------------------------------------------- --------------- ----------------
- ----------------------------------------------- --------------- ----------------
LOCATION OF EQUIPMENT
- ----------------------------------------------- --------------- ----------------
Equip. Cost Rental Amount
Street: 2951 Churn Creek Road $ 157,849.16 $ 5,095.073
- ----------------------------------------------- --------------- ----------------
Tax % Tax Amount
City: Redding
- ----------------------------------------------- --------------- ----------------
State: CA Zip 96002 TOTAL $ 5,095.73
- ----------------------------------------------- --------------- ----------------
Manufacturer/
Description: See Exhibit "A"
- ----------------------------------------------- --------------- ----------------
- ----------------------------------------------- --------------- ----------------
LOCATION OF EQUIPMENT
- ----------------------------------------------- --------------- ----------------
Equip. Cost Rental Amount
Street: $ $
- ----------------------------------------------- --------------- ----------------
Tax % Tax Amount
City:
- ----------------------------------------------- --------------- ----------------
State: Zip TOTAL $
- ----------------------------------------------- --------------- ----------------
Manufacturer/
Description:
- ----------------------------------------------- --------------- ----------------
- ----------------------------------------------- --------------- ----------------
LOCATION OF EQUIPMENT
- ----------------------------------------------- --------------- ----------------
Equip. Cost Rental Amount
Street: $ $
- ----------------------------------------------- --------------- ----------------
Tax % Tax Amount
City:
- ----------------------------------------------- --------------- ----------------
State: Zip TOTAL $
- ----------------------------------------------- --------------- ----------------
Manufacturer/
Description:
- ----------------------------------------------- --------------- ----------------
- ----------------------------------------------- --------------- ----------------
LOCATION OF EQUIPMENT
- ----------------------------------------------- --------------- ----------------
Equip. Cost Rental Amount
Street: $ $
- ----------------------------------------------- --------------- ----------------
Tax % Tax Amount
City:
- ----------------------------------------------- --------------- ----------------
State: Zip TOTAL $
- ----------------------------------------------- --------------- ----------------
Manufacturer/
Description:
- ----------------------------------------------- --------------- ----------------
This Schedule is attached to and made a This Schedule A is hereby verified
part of that Lease No. 3263-1 dated the as correct by the Lessee.
20 day of March, 2000, between the
Lessee and LEASE FINANCE GROUP, INC. LESSEE: ACI TELECENTRICS, INC.
By: /s/ Russell Jackson
-------------------------------
Title: CFO
----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 7,412,031
<ALLOWANCES> 189,726
<INVENTORY> 0
<CURRENT-ASSETS> 7,911,917
<PP&E> 5,758,372
<DEPRECIATION> 3,082,488
<TOTAL-ASSETS> 11,974,552
<CURRENT-LIABILITIES> 4,408,262
<BONDS> 0
0
0
<COMMON> 6,646,889
<OTHER-SE> (239,448)
<TOTAL-LIABILITY-AND-EQUITY> 11,974,552
<SALES> 7,834,528
<TOTAL-REVENUES> 7,834,528
<CGS> 4,826,741
<TOTAL-COSTS> 7,307,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,471
<INCOME-PRETAX> 496,718
<INCOME-TAX> 194,000
<INCOME-CONTINUING> 302,718
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 302,718
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
