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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NO.
JUNE 30, 1998 000-21477
JAVELIN SYSTEMS, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 52-1945748
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
17891 Cartwright Road, Irvine, California 92614
(Address of Principal Executive Offices)(Zip Code)
Issuer's telephone number: (949) 440-8000
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.01 Par Value
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405
of regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended June 30, 1998 were $29,646,100.
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the issuer as of September 10, 1998, was $17,233,785. Shares
of common stock held by each officer and director and by each person who owns 5%
of more of the outstanding common stock of the Company have been excluded
because such persons may be deemed to be affiliates.
The total number of shares outstanding of the Issuer's Common Stock was
4,111,962 as of September 10, 1998.
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DOCUMENTS INCORPORATED BY REFERENCE
Issuer's definitive Proxy Statement to be filed with the Commission pursuant to
Regulation 14A in connection with the Issuer's 1998 Annual Meeting of
Stockholders is incorporated herein by reference into Part III of this report.
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THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY INTENDS
THAT SUCH STATEMENTS SHALL BE PROTECTED BY THE SAFE HARBORS PROVIDED FOR IN SUCH
SECTIONS. SUCH STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS. THE COMPANY MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS
IN FUTURE OPERATING RESULTS DUE TO A NUMBER OF ECONOMIC, COMPETITIVE,
GOVERNMENTAL AND TECHNOLOGICAL FACTORS, INCLUDING, AMONG OTHER THINGS, CHANGES
IN LAWS, THE SIZE AND TIMING OF CUSTOMER ORDERS, NEW OR INCREASED COMPETITION,
DELAYS IN NEW PRODUCT ENHANCEMENTS AND NEW PRODUCT AND/OR SERVICE INTRODUCTIONS,
QUALITY CONTROL DIFFICULTIES, CHANGES IN MARKET DEMAND, MARKET ACCEPTANCE OF NEW
PRODUCTS AND/OR SERVICES, PRODUCT RETURNS AND SEASONALITY IN PRODUCT AND
SERVICES PURCHASES. ANY OF THESE FACTORS, OR OTHERS, COULD CAUSE OPERATING
RESULTS TO VARY SIGNIFICANTLY FROM THOSE IN PRIOR PERIODS, AND THOSE PROJECTED
IN THE FORWARD-LOOKING STATEMENTS. ADDITIONAL INFORMATION WITH RESPECT TO THESE
AND OTHER FACTORS WHICH COULD MATERIALLY AFFECT THE COMPANY AND ITS OPERATIONS
IS INCLUDED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Javelin Systems, Inc. ("Javelin" or the "Company") designs, manufactures
and markets open system touch screen point-of-sale ("POS") computers and
provides POS systems integration services primarily for the food service and
retail industries. POS systems incorporating the Company's products enable
restaurants and retailers to capture, analyze, disseminate and use
information throughout an enterprise on a real-time basis, from the point of
sale to the in-store "back office" to the enterprise's headquarters. These
POS systems provide transaction processing, in-store operating controls, and
timely information used to manage inventory and costs, analyze sales data and
customize products and services. The Company's product family of
network-ready computers integrates substantially all of the functionality of
standard desktop personal computers into durable, small footprint touchscreen
workstations that run on industry standard open operating systems. The
Company's products utilize off-the-shelf, industry-specific application
software developed by third parties. The Company's products are currently
being marketed by value added resellers ("VARs"), original equipment
manufacturers ("OEMs") and directly to end users through the Company's sales
force. The Company's systems integration services are generally sold
directly to multi-site operators.
In December 1997, Javelin made two strategic acquisitions, CCI Group, Inc.
("CCI") and POSNET Computers, Inc. ("POSNET") that have enabled the Company to
offer full turn-key systems integration services, including system design,
staging, training, deployment and after-market product support and maintenance.
In addition to providing the Company with a significant new end user customer
base, the Company believes these acquisitions provide it with the ability to
become a national POS systems integrator in the food service and retail markets.
In early 1998, Javelin established international sales and support
subsidiaries in England, Australia and Singapore. The Company intends to
replicate its domestic distribution and acquisition strategies in the growing
international marketplace. In June 1998, the Company acquired Aspact IT
Services ("Aspact"), a consulting and systems integration business based in
Singapore. In July 1998, the Company entered into a letter of intent to
acquire RGB Trinet Limited ("RGB/Trinet") and Jade Communications Limited
("Jade") both POS service provider companies based in England.
INDUSTRY OVERVIEW
The Company estimates that there are more than 350,000 restaurants and more
than 1.5 million retail stores in the United States. These restaurants and
retail stores are increasingly part of multi-location chains that have to
capture, analyze and disseminate information throughout the entire enterprise in
order to better manage inventory
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and costs, make pricing decisions, analyze sales data and provide customized
products and services. Moreover, businesses that encounter local demographic
changes or seek to expand globally face additional challenges, such as
multilingual customer and employee bases, multiple currency transactions and
local regulatory requirements. Consequently, food service providers and
retailers now require robust, integrated POS systems and services that are
able to reliably and efficiently capture and manage large numbers of
individual transactions generated by diversified points of sale.
The critical front and back office roles of integrated POS systems are
now being recognized by distinct market segments within the food service and
retail industries. Quick service restaurants ("QSRs") and full service
restaurants, the largest market segments within the food service industry,
both are investing in advanced POS systems, with quick service restaurants
generally being the first to adopt the latest POS technology and full service
restaurants being more price sensitive and therefore more likely to adopt POS
technology later in the product life cycle. A typical QSR requires four to
seven POS workstations to operate efficiently, while a full service
restaurant generally requires at least seven POS workstations. The food
service industry also encompasses hotel restaurants and restaurants located
in other hospitality locations, such as stadiums and arenas, casinos, theme
parks and cruise lines. Retail establishments, such as convenience stores,
gas stations, record stores and clothing stores, are increasingly utilizing
POS systems to expedite in-store transactions and more effectively monitor
inventory on a current basis.
Initial POS systems targeted for the food service and retail industries
were generally designed to satisfy the individual operating requirements of a
particular large chain of restaurants or stores. These initial POS systems
were custom designed to meet the individual enterprise's needs and, as such,
were generally proprietary with all hardware, software and service developed
or provided by a single vendor. Because this focus on single company
solutions resulted in no generic POS standard operating system or computer
architecture, many large food service providers and retailers became captive
to the relatively small companies that had designed their proprietary POS
systems. In addition, the POS companies found it difficult to achieve
significant economies of scale due to the highly customized nature of their
products. Instead, early POS companies were forced to focus on establishing
and maintaining long product life cycles in order to recoup their high costs
from developing custom products for a limited customer base. There was
little opportunity for these POS companies to leverage their niche success
into market-wide success.
The POS industry has begun evolving from proprietary, customized single
platform systems to open-architecture systems in which a variety of hardware
and software products from different manufacturers can be combined to obtain
the mix of features desired by the customer. With the advent of hardware and
software systems that use industry standard open-architecture, food service
providers and retailers are no longer captive to single solution vendors that
had initially created their POS systems. As in other markets for computer
products and systems where open systems are replacing proprietary platforms,
new entrants have been drawn to the growing POS market, increasing
competition for POS software and hardware and enhancing competitive pressure
through faster design cycles.
In addition to relying on single solution vendors, large multi-unit food
service and retail chains frequently implemented and maintained their
proprietary POS systems utilizing internal resources. However, as a result
of the competitive environment in which these businesses operate and the
growing complexity and multiplicity of available POS systems, food service
providers and retailers have found it increasingly difficult to design,
implement and manage these systems on their own. For example, a typical
multi-chain enterprise requires a POS system that is capable of supporting
multiple applications and processing high volumes of data across
geographically remote locations. In addition, the increasing variety of
hardware and software applications utilized in the food service and retail
industries has resulted in connectivity and compatibility problems for many
POS systems. Multi-unit chains now generally require a total systems
integration solution including design, consulting, system creation,
acquisition of software applications and required hardware, system
installation and configuration, product support services and ongoing system
service and maintenance. The high demand for qualified network engineers and
other technical personnel has also made it increasingly difficult for these
types of businesses to recruit and train qualified POS technology
professionals. Consequently, many food service providers and retailers now
rely upon third parties for the technological expertise and personnel to meet
their POS systems needs. Javelin believes that the increasing
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complexity and rapid evolution of POS system technologies have created a
significant opportunity for companies specializing in providing POS system
solutions to the food service and retail industries.
THE JAVELIN SOLUTION
Javelin designs, manufactures and markets open system touch screen POS
computers and provides POS systems integration services primarily for the
food service and retail industries. The Company's product family of
network-ready computers integrates substantially all of the functionality of
standard desktop personal computers into durable, small footprint touchscreen
workstations that run on industry standard open operating systems. The
Company's products utilize off-the-shelf, industry specific application
software developed by third parties. POS systems incorporating the Company's
products enable restaurants and retailers to capture, analyze, disseminate
and use information throughout an enterprise on a real-time basis, from the
point of sale to the in-store "back office" to the enterprise's headquarters.
These POS systems provide transaction processing, in-store operating
controls, and timely information used to manage inventory and costs, analyze
sales data and customize products and services.
Javelin also has a global POS systems integration business that assists
large multi-site corporate customers in identifying the best multi-vendor open
systems solution for the customer's particular business, and then manages the
full deployment and ongoing support of the POS solution. The Company has
extensive experience resolving the integration, implementation and management
issues faced by food service providers and retailers and substantial knowledge
of advanced information technologies, POS systems and the numerous software
applications developed by information system and software vendors for these
markets. The Company serves as a single point of contact to objectively assess
its customers' POS technology requirements, taking into account the products and
applications of various hardware and software vendors. The Company then selects
the optimal mix of applications and products of various hardware and software
vendors to create tailored advanced POS systems. By acting as the project
manager during the installation and implementation of the POS system, the
Company frees its customers from much of the time and difficulties associated
with large-scale systems installations, including managing the variety of other
vendors involved in the systems' installation. The Company believes that its
cumulative experience, food service and retail focus and technology expertise
enable it to understand its customers' core business dynamics and deliver
customized advanced POS systems and services to satisfy its customers'
specialized needs.
BUSINESS STRATEGY
The Company's objective is to become a leading developer of POS hardware
systems and to be the premier POS systems integrator for multi-site chain
operators in the food service and retail industries. The Company plans to
achieve these objectives through internal growth and development and, to the
extent suitable acquisition candidates are identified, through the acquisition
of complementary businesses. Key elements of Javelin's strategy include the
following:
- PURSUE LARGE CUSTOMERS. The Company intends to increase its sales
of products to large chains with over 100 stores through
direct sales efforts and by utilizing the Company's relationships
with its OEMs. The evolution to open systems has also created an
opportunity for full service systems integrators which have an
in-depth knowledge of the industry standard POS software and
hardware packages and the ability to integrate them into a
successful POS solution for clients. The Company's acquisitions of
CCI and POSNET have given Javelin an immediate entrance and client
base in the POS systems integration business on a domestic basis.
- INTRODUCE TIMELY NEW PRODUCTS. The Company intends to continue to
develop new POS hardware systems incorporating advanced PC technology
utilizing its engineering team composed of PC industry veterans. As
part of its sales strategy, the Company consults with its OEMs and
VARs in order to identify new product platforms and product
refinements. The Company also obtains direct customer feedback
through its systems integration business. Because a significant
portion of the Company's management is experienced in the PC industry,
the Company has been able to quickly
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launch new products in the POS system industry and respond quickly
to its customers' specific needs. This experience has enabled
Javelin to rapidly establish itself in the POS market by developing
and introducing new products with advanced features in an average
of six months compared to the industry standard of twelve to
eighteen months. The Company intends to leverage its history of
timely new product introductions and successful customer engagements
and expand its marketing programs to enhance its market presence and
visibility with the goal of making Javelin a recognized leader in
providing POS solutions.
- FOCUS ON INTERNATIONAL BUSINESS OPPORTUNITIES. The Company has
established sales and support branches in England, Australia and
Singapore to capture identified sales opportunities. The Company also
continues to pursue its acquisition strategy internationally,
including its recent acquisition of Aspact, and the proposed
acquisitions of RGB/Trinet and Jade, which provide the Company with
additional systems integration services and complementary networking
products and services. The Company believes that the international
markets continue to be fundamentally under-served with respect to
technologically advanced POS systems, and, in particular, the Company
believes that Western Europe presents a particularly attractive
market for its products and services.
- MINIMIZE PRODUCTION COSTS. The Company plans to continue to outsource
the manufacturing and assembly of its products in order to maintain
low overhead and production costs. The Company also controls its
costs by utilizing components that are generally available in the PC
industry and anticipates streamlining its product line in order to
further develop economies of scale. The Company believes that it will
be able to maintain its cost advantage in the future through economies
of scale and because the Company utilizes in-house design capabilities
and integrates the design and manufacturing engineering of its
products, which reduces engineering costs and costly design changes.
In addition, the Company intends to utilize contract manufacturers
based in Singapore commencing later in fiscal 1999, which the Company
believes will provide many benefits, including high quality,
components cost reduction and lower corporate income tax.
- GROW RECURRING SERVICE REVENUE. The Company currently receives
recurring revenue from its help desk, depot repair, managed network
services and field services. The Company intends to expand certain of
these services in the future because the Company believes that an
increase in these revenues can lessen the Company's reliance on
product sales, which tend to fluctuate over time, and provide the
Company with stable, recurring billings and cash flow. The Company
also plans to leverage CCI's name recognition in the field of systems
integration to expand the service component of the Company's business.
PRODUCTS AND SERVICES
THE JAVELIN PRODUCT LINE
Javelin's product line offers customers a fully functioning PC inside a
small footprint touch screen POS workstation. All of Javelin's systems are
network ready and support industry standard operating systems, enabling the
easy installation and setup of leading industry standard POS software
programs. The Javelin system also virtually eliminates configuration
conflicts due to the Javelin system's proprietary embedded firmware. In
addition, its single motherboard design reduces costly trouble shooting and
service calls, and Javelin's systems are sealed to protect against liquid and
other foreign matter entering the interior electronic chamber. Javelin
believes that its POS computer systems offer its clients more features and
better reliability than its competitors' products at lower price points. The
retail price of the Company's products to end users generally ranges from
$2,500 to $3,700. The Javelin product line is currently comprised of the
Javelin-Wedge 5, Javelin-Wedge P, Javelin-LC and Javelin-LCP series.
JAVELIN-WEDGE 5. The Javelin-Wedge 5 is a small footprint, high
performance color LCD touch screen computer which is approximately 12.75"(W),
10.25"(D) and 6.0"(H). The Javelin-Wedge 5 features a 133mHz
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processor, system memory from 4 MB of RAM up to 64 MB of RAM, 1 MB of video
memory, a 10.4 or 12.1 inch TFT active matrix screen, 4 serial ports, 1
enhanced parallel port, 2 electronic cash drawer ports, a 10 Base-T Ethernet
port and an integrated customer display. As a result of the product's
inherent flexibility and rugged design, it is being successfully marketed and
sold as a POS workstation and as an industrial operator interface.
JAVELIN-WEDGE P. The Javelin-Wedge P is a product line extension of the
Javelin-Wedge 5 series and is believed by the Company to be the first fully
integrated, Pentium-based touch screen computer designed specifically for the
POS marketplace. The Wedge P features a 200 mHz Intel Pentium processor with
additional features such as a 512K Pipeline Burst cache and up to 128 MB of RAM.
The Wedge P approximately doubles the speed and performance of the Wedge 5 which
provides end users the ability to dramatically increase speed and performance
when using graphically intensive POS applications that operate in Windows 95 and
Windows NT environments.
JAVELIN-LC. The Javelin-LC product line offers customers what the Company
believes is the smallest footprint of any POS computer in the industry with a
footprint of less than eight inches square and has been designed to be more
compact and elegant in appearance, making it suitable for both the food service
market and the retail market. In addition, the systems reduced size and flat
panel display allow it to be mounted in a variety of ways, including
wall-mounted, fixed to an adjustable base or attached to an articulated arm.
The Javelin-LC features a 133mHz processor, system memory from 4 MB of RAM up to
64 MB of RAM, 1 MB of video memory, a 10.4 or 12.1 inch TFT active matrix
screen, 2 serial ports, 1 enhanced parallel port and a 10 Base-T Ethernet port.
JAVELIN-LCP. The Javelin LCP is a product line extension of the
Javelin-LC. This is a Pentium based LC product which, like the LC, is believed
to have the smallest footprint of any POS computer in the industry. The speed
of the Pentium-based CPU offers clients the ability to dramatically increase
speed and performance when using graphically intensive POS applications. The
LCP features a 200 mHz Intel Pentium processor with additional features such as
an integrated sound card and full screen video, 3 serial ports and up to 128 MB
of RAM. The food service industry, especially the QSR segment, is demanding the
latest generation hardware to be based around the Pentium processor. The
Javelin LCP is specifically designed to meet the industry's unique hardware
requirements for speed, space, flexibility and multimedia features.
NEW PRODUCTS
JAVELIN-LP. The Company intends to release the Javelin LP in fiscal 1999.
The Javelin LP is designed to be a compact, low profile PC for the high-traffic,
POS environment. The LP is planned to be network-ready with an integrated
100/10BaseT Ethernet controller. With 4 serial ports, two of which can supply
+5Volt power, the LP should accommodate a variety of peripheral equipment such
as cash drawers, card readers, scanners and printers. The Javelin LP's rugged,
aluminum die-cast, convection cooled case should provide the Javelin LP with a
significant advantage over other POS systems. The LP is designed to be
spill-resistant with a solid cover, and, because it has no fans, is expected to
be noiseless and have no vents into which airborne debris can enter and collect
inside the system. The LP's low profile design should require minimal counter
space, and I/O connectors planned to be located at the bottom of the unit should
allow easy routing of cables through a small opening in a counter or desk top.
The Javelin LP is expected to come with an integrated touchscreen controller
supporting both Elographics and Microtouch Bus Monitors, eliminating the need
for an external controller.
JAVELIN-HHT 40. The Javelin HHT-40 is being developed for the Company by a
third party, and the Company anticipates that the HHT-40 will become available
in fiscal 1999. The HHT-40 is designed to be a compact, lightweight, wireless
handheld system that provides service people the ability to enter orders quickly
and efficiently and offers the benefit of sending information remotely to the
kitchen, bar, etc. With its built-in customer display and paging system, the
HHT-40 would expedite customer transactions, reduce operator errors, and most
significantly, increase table turns. The HHT-40 is planned to be based on a main
module where a battery, magnetic card reader or end-piece can be connected to
any side of the main module.
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SYSTEMS INTEGRATION
NETWORK DESIGN/PROJECT MANAGEMENT. The Company provides network
services ranging from network design to large-scale network implementation,
which would include a review and audit of a customer's existing POS
technology infrastructure, an assessment of the functional requirements of
the customer's POS system, the preparation of network specifications and
technical design documentation and diagrams. The Company's network
implementation services involve the purchase, delivery, testing and
installation of enterprise-wide POS systems. The Company acts as the single
project manager for all parties involved in a multi-unit installation, to
effectively converge and integrate of all the client's business processes.
The Company believes that the delivery of a combination of design,
implementation and management services through a project manager enables the
Company's personnel to fully understand the customer's computing and
operating environments, install POS systems that meet the customer's
specialized requirements and train the customer's users and internal POS
system staff prior to the full migration to a new POS system. The Company's
personnel have extensive experience resolving the integration, implementation
and management issues faced by its customers, and the personnel involved in
any particular project are carefully selected for their technical expertise
to meet the requirements of the specific project. The Company assesses its
customers' POS system requirements and selects the optimal mix of
applications and products of various hardware and software vendors, and does
not exclusively use Javelin products. The Company's expertise extends
through each area of POS system networking to create a tailor-made
infrastructure for the client, including structured cabling, power, local
area network (LAN), wide area network (WAN) and internet technologies.
BUSINESS PROCESS INTEGRATION. The Company offers total software
integration solutions for POS clients who already have existing software
platforms (e.g. accounting, inventory, payroll, and food costing) in place.
Programs are provided and written in Visual Basic, C++ and Crystal Reports.
The Company believes that the future of software systems integration is to
develop and implement Intranet and Internet connections within multi-unit
chains resulting in the localization of all critical operational data.
SUPPORT SERVICES
MANAGED NETWORK SERVICES. As POS systems become more complex, food
service providers and retailers are experiencing difficulties in hiring,
training and retaining technology professionals who can maintain the
performance and functionality of their POS systems. Accordingly, these
companies are increasingly outsourcing certain maintenance and management
functions for their POS systems in order to minimize the potentially high
costs associated with POS system outages. The Company provides a range of
enterprise network support and management services that are designed to
maintain the effective performance of a customer's POS system. The Company
uses its technical expertise and staffing experience to package, price and
deliver combinations of these services, and the customer benefits from the
Company's experience in providing network management services in a broad
range of operating environments. The Company's network management services
include combinations of the following services, which are selected by the
customer to meet its specific needs: network health checks, baseline
documentation and management maintenance, break/fix remote network management
and diagnostics help desk services network outsourcing.
HELP DESK. The Company's emergency software hotline is available for
questions customers may have with respect to specific application software
and operating systems. The Help Desk is designed to provide service and
support for issues that can be resolved without an on-site visit. If at any
time
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during the Help Desk call it is determined that hardware service is required,
the support personnel will expedite the call to the hardware service
department.
HARDWARE SERVICE/HARDWARE MAINTENANCE/PREVENTATIVE MAINTENANCE. A
variety of hardware maintenance options are currently provided on a 24 hour,
seven day a week basis. Calls placed to a central service center are greeted
with assistance to determine the nature of the call. Once the failure is
determined, the responding field technician will answer the call in
accordance with services needed and contracted coverage. Depot service
supplies configured equipment directly to the location for uninterrupted
operations while defective equipment is returned from the site to the service
center for repair via courier. Full service maintenance offers on site
technical maintenance from the Company's field service technician for both
front and back of house equipment.
TRAINING/INSTALLATION. Site-specific training is available through
customer support personnel beginning with pre-install configuration and
database building through installation and "live" date. Hardware preparation
such as software load, equipment burn-in, cabling and performance testing of
"pre-live" system is an essential component prior to staging and
installation.
PRODUCT DEVELOPMENT
For the fiscal years ended June 30, 1998 and June 30, 1997, the Company
spent approximately $874,000 and $396,000, respectively, on research and
development. The Company maintains an engineering staff of nine people, with
expertise in electronics, mechanical and software design, who are responsible
for prototyping, tooling and testing the Company's products. The Company's
engineering and manufacturing staff then coordinate with systems engineers
and quality control personnel to progress from the final design stage to mass
production. The Company intends to hire additional engineers and project
managers to better coordinate the product development process as the Company
expands its product development efforts.
PRODUCT DISTRIBUTION
The Company's products are primarily distributed through strategic
relationships with OEMs and VARs that have a strong reputation in the food
service and retail POS markets. By distributing its products through OEMs and
VARs, the Company has been able to take advantage of the existing name
recognition and market position of its OEMs and VARs and quickly establish a
market for its products, while minimizing expenditures for direct sales,
marketing, technical support and service. The Company intends to continue to
expand these relationships to further penetrate its existing domestic and
international markets, as well as to gain access to new market segments and
international markets.
To date, the Company's sales have been predominantly to small-to-mid size
restaurant chains. Javelin believes a major opportunity exists for it to
further penetrate large accounts (100 site or more chain organizations) with its
existing systems and ability to provide a total solution to the client. Large
accounts often require a "total solution" including initial consulting, hardware
and software installation, ongoing support and maintenance, product support
services and a super-regional or national presence. Consequently, in order to
meet this need, the Company recently purchased three established and
well-regarded systems integrators: CCI Group, POSNET and Aspact. CCI and
POSNET, both based in the US, have been consolidated and operate as CCI Group,
Inc. Aspact's activities have been primarily focused on the Singapore and Hong
Kong markets. The Company believes that by targeting different markets through
its different distribution channels, it can more effectively penetrate multiple
markets while minimizing costs associated with channel conflicts.
VARS. The Company sells its products to VARs who integrate
industry-specific software with the Company's hardware product for resale into
various vertical markets comprised of relatively small customers (less than 50
stores). The Company works closely with these VARs as well as the various
software developers to stay abreast of the diversified needs of the Company's
targeted markets. The Company's VAR network currently totals approximately 250
VARS. The Company believes that VAR distribution channels are advantageous to
the
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Company as they generally have existing geographically diverse customers,
focus their businesses on providing customized solutions to their customers and
maintain their own sales and technical support staff.
OEMS. The Company also sells its products to OEMs with significant market
presence in the food service and specialty retail industries. The OEMs market
the Company's products under their own names and sell either through dealers or
directly to mid-sized customers (50 to 100 stores). Because of the high
likelihood of the Company's product being offered by more than one OEM into an
end user account, the Company offers the OEM an opportunity to choose its own
customized design. The OEM is charged for mechanical design, prototyping and
tooling. One of the Company's principal strategies is to expand the OEM
distribution channel both domestically and internationally.
DIRECT SALES ORGANIZATION (CCI). The Company's acquisitions of CCI and
POSNET allow it to sell directly to corporate accounts. Since the acquisitions,
the Company has focused its efforts principally on large customers (100+ stores)
because these customer opportunities are beyond the scope that can be
effectively managed by the Company's regional VAR marketing partners. In this
manner, the Company believes it can minimize any potential distribution channel
conflict with its VARs. The Company typically provides a multi-vendor POS
solution for its corporate accounts, and the hardware utilized in any particular
account may not be Javelin hardware. The standardized nature of franchised
operations enables the Company to design and rapidly deploy customized solutions
for these large-scale customers. The Company intends to focus on growing its
direct sales business in the near future to take advantage of a scarcity of POS
service providers currently in the marketplace.
CUSTOMERS
Certain end users of the Company's products are:
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JAVELIN HARDWARE SERVICES BOTH JAVELIN HARDWARE AND SERVICES
- ---------------- -------- ---------------------------------
<S> <C> <C>
Blimpies International ARAMARK Corp. Universal Studios
Madison Square Garden -Stadiums and Arenas Red Robin International Inc.
Greyhound Lines Inc. -National Parks Direct Express
Club Corporation of America AFC Enterprises, Inc. Chevron Corporation
Greennall's Pubs and Restaurants -Popeye's Inc. Claim Jumper Restaurants
Ogden Entertainment Services Inc. -Church's Fried Chicken Inc.
Mitsubishi Silicon America -Seattle's Best Coffee
Sonic Corp.
Allied Domecq PLC
-Baskin-Robbins USA Co.
-Dunkin' Donuts Incorporated
Jamba Juice Co.
</TABLE>
SALES AND MARKETING
The Company's sales and marketing efforts are dedicated to developing the
Company's direct and indirect distribution channels on a worldwide basis. The
Company's sales efforts in its indirect distribution channels are divided into
four regional groups, United States, Europe, Australia and Asia, with
international sales efforts directed from the Company's international
subsidiaries. In its indirect distribution channel, the Company has a sales
force of ten salespersons spread throughout the regions, all of whom are
dedicated to developing the Company's OEM and VAR distribution channels. Three
of these salespersons have also recently been dedicated to specific domestic
channels linked to the application software that is integrated with the Javelin
POS system with the intent of increasing sales from these channels. The
Company's technically sophisticated OEMs and VARs are responsible for all end
user interaction, including sales and warranty support, thereby reducing the
need for the Company to maintain large in-house sales or technical support staff
while increasing the Company's presence in the food service and retail markets.
The Company also consults with its OEMs and VARs in order to identify new
product opportunities and product refinements.
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The Company's direct sales and marketing efforts are staffed by 11
salespersons located in regional offices in the Unites States, England,
Australia and Singapore. The Company's direct sales business has grown
significantly through acquisitions of its POS systems integrators: CCI and
POSNET in the United States and Aspact in Singapore. The Company expects its
systems integration business to operate under labels other than "Javelin" in
order to reinforce the independent role of the systems integrator in a
multi-vendor marketplace. The Company eventually expects to adopt a single
brand identity for all of its regional system integration subsidiaries. In the
United States, for example, the POSNET sales force has been merged into CCI's
sales force.
The Company's primary direct selling efforts for its system integration
services are through CCI. CCI is an expert in touchscreen POS technology focused
in the foodservice and retail markets. This expertise combined with a vendor
independent, open systems commitment have positioned CCI as a client partner as
opposed to a vendor.
MANUFACTURING
The Company designs all of the hardware and certain of the firmware
components for all Javelin products. The Company's manufacturing operations
consist of the procurement of components and the assembly, testing and quality
assurance of finished goods for shipment to its customers. The fabrication of
major sub-assemblies, such as circuit boards and sheet metal chassis, and the
supply of other finished components, such as touchscreens, are provided by
third-party manufacturers. Javelin monitors the quality of its purchased and
manufactured components through source and incoming inspection. The Company
evaluates and monitors suppliers based on quality, reputation, responsiveness
and price. To date, the Company has undertaken substantially all of the final
assembly for its products at its facility in Irvine, California.
The principal components that make up the Company's products are standard
electronics available from a wide variety of suppliers. A single supplier
currently provides certain components utilized in the Company's products. The
Company believes that, with respect to these components, there are a number of
alternative suppliers that could supply components that could be easily
integrated into the Company's products without any significant interruption in
the Company's operations. The Company has no written long-term contracts with
the manufacturers of its products or with any suppliers of the components used
in the Company's products. The Company historically has placed orders for
products and components based on its projected sales over the next approximately
90 days, and the Company currently maintains a 60-day supply of product
components in inventory.
The Company recently has begun to outsource some final assembly of its
products to a U.S.-based contract manufacturer. The Company believes that
outsourcing will reduce the likelihood of capacity constraints as production
volumes for its products increase. In addition, the Company has contracted
with a manufacturer based in Singapore to manufacture one of Javelin's
proposed new products, the Javelin LP, on a turnkey basis. Under the turnkey
program, the Singapore manufacturer will ship finished products to Javelin,
with the manufacturer managing the day-to-day purchasing, manufacturing and
quality control requirements. The Company initially plans to have all
finished products inspected at its Irvine, California facility prior to
shipment to customers. The Company ultimately plans to have the manufacturer
ship products directly to the Company's subsidiaries and distributors for
final integration of the products and shipment to customers. The Company
expects to have all of its new products similarly manufactured and shipped by
third parties in the future.
Any termination of, or significant disruption in, the Company's
relationship with the third-party manufacturers of its products may prevent the
Company from filling customer orders in a timely manner, as the Company
generally does not maintain large inventories of its products or components.
The Company has occasionally experienced and may in the future experience delays
in delivery of products and delivery of products of inferior quality from some
of its third-party manufacturers. Although alternate manufacturers are
available to produce the Company's products, the number of manufacturers of some
products is limited, and qualifying a replacement manufacturer could take
several months. In addition, the Company's use of third-party manufacturers
reduces control over product quality, manufacturing timing, yields and costs
since the Company must rely on the third-party manufacturers' ability to
identify the Company's requirements for products and components, the
manufacturers' general competence and ability to progress along the learning
curve relating to the manufacture of
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the Company's products, and the manufacturers' schedules and capacity.
Disruption of the manufacture of the Company's products or failure of a
third-party manufacturer to remain competitive in functionality or price
could delay or interrupt the Company's ability to manufacture or deliver its
products to customers on a timely basis and would have a material adverse
effect on the Company's business, financial condition and results of
operations. Moreover, although arrangements with the Company's manufacturers
may contain provisions for warranty obligations on the part of the
third-party manufacturers, the Company remains primarily responsible to its
customers for warranty obligations.
The Company also depends upon third-party suppliers to deliver components
that are free from defects, competitive in functionality and cost and in
compliance with the Company's specifications and delivery schedules. Disruption
in supply, a significant increase in the cost of one or more components or
failure of a third-party supplier to comply with any of the Company's
procurement needs could delay or interrupt the Company's ability to manufacture
or deliver its products to customers on a timely basis and would have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, any factors, such as general adverse economic conditions,
financial condition or government regulations and restrictions, that affect the
Company's third-party manufacturers or suppliers could have a material adverse
impact on the Company's business, financial condition and results of operations.
PRODUCT WARRANTY
The Company's computer products have a warranty that covers defective
material and workmanship during the twelve-month warranty period commencing on
the date of delivery of the products. During the warranty period, the Company
will, at its sole option, repair or replace parts found to be defective or
refund the purchase price of products or parts. Certain of the Company's major
distributors also provide warranty service for the Company's products.
COMPETITION
The Company believes that the open system architecture of its products and
systems integration services makes it well positioned to take advantage of the
current POS marketplace. The migration to open systems architecture in the POS
industry has been disruptive to many POS companies that built their businesses
on the proprietary operating model. While the Company focuses on large-scale
solutions to multi-site customer POS problems, companies promoting proprietary
systems have faced significant pressure on their operating margins due to high
product costs and substantial overheads. Many of these proprietary vendors have
now left the POS marketplace through acquisitions or financial failure, and the
remaining proprietary vendors generally have undergone reorganizations that have
resulted in rapid exits from significant market segments and/or distribution
channels. With the largest multinational open systems computer companies not
yet fully appreciating the potential of the open systems POS market, the Company
is focused on providing food service providers and retailers with cost-effective
POS solutions that satisfy their POS needs, including system design, hardware
and software installation and implementation and ongoing support and
maintenance.
The market for the Company's products and services is highly competitive,
subject to rapid change and sensitive to new product introductions or
enhancements and marketing efforts by industry participants. The Company
expects to continue to experience significant and increasing levels of
competition in the future, in part as open systems architecture in its targeted
industries becomes more common. The principal elements of competition related
to the Company's products include price, product features and performance,
compatibility with open systems, quality and reliability, brand awareness, level
of customer service and quality of display. The POS systems integration industry
is also highly competitive and undergoing continual change. The principal
elements of competition related to the Company's systems integration services
include reputation, scope of services provided, availability of resources and
price. In many of the Company's markets, traditional computer hardware
manufacturing, communications and consulting companies provide the most
significant competition. The Company must also compete with smaller service
providers that have been able to develop strong local or regional customer
bases. Most of the Company's competitors for its products and services, as well
as certain potential competitors, are
10.
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more established, benefit from greater name recognition, have significantly
greater financial, technological, production and marketing resources, and
have more extensive distribution networks than the Company.
The Company believes the use of open systems architecture in its targeted
industries is an important competitive element. Several of the Company's
competitors currently also offer open systems and the Company believes that the
number of competitors offering open systems solutions will grow over the next
several years. The Company anticipates that a significant source of future
competition may be from existing competitors in the POS products and services
market that the Company believes are currently attempting to develop POS systems
and support services utilizing open systems architecture. Due to the greater
sales, marketing, product development and financial resources of the Company's
competitors, the Company anticipates that competition from these competitors
will intensify in the future. In order to effectively compete against these
competitors, the Company will need to continue its growth trend and attain
sufficient revenues to have the resources to timely develop new products and
services in response to evolving technology and customer demands and to sell
products and services through a broad distribution channel in competition with
these other existing and potential competitors. No assurance can be given that
the Company will be able to grow sufficiently to enable it to compete
effectively in this marketplace.
The Company's competitors include a substantial number of large
well-established companies including International Business Machines (IBM),
MICROS Systems, Inc., Par Technology Corporation, Radiant Systems, Inc., NCR
Corp., Panasonic Communications and Systems Co., Fujitsu, Ltd. and ICL Retail
Systems, each of which also offers open systems architecture products and
services related thereto. There can be no assurance that the Company will be
able to compete effectively or that these existing substantial competitors,
or new competitors, will not develop competitive products and services with
favorable pricing. Moreover, the Company has little or no proprietary
barriers to entry that could keep its competitors from developing similar
products or services and technology or selling competing products or services
in the Company's markets.
Increased competition from manufacturers or distributors of products
similar to or competitive with the Company's products, or from service providers
that provide services similar to the Company's services, could result in price
reductions, reduced margins and loss of market share or could render the
Company's technology obsolete, all of which could have a material adverse effect
on the Company's results of operations and financial condition. There can be no
assurance that the Company will be able to successfully compete in this
marketplace or develop sufficient new products and services to remain
competitive, and any failure to do so could have a material adverse effect on
its results of operations and financial condition.
EMPLOYEES
As of August 31, 1998 the Company had approximately 165 full-time
employees, including 16 employed in sales and marketing, 118 employed in
research and development, engineering, technical support and production, and
31 employed as administrative and support staff. None of the Company's
employees are represented by unions, and the Company considers its employee
relations to be good.
RISK FACTORS
LIMITED OPERATING HISTORY; RECENT OPERATING PROFITABILITY
The Company was incorporated in September 1995 and has a limited
operating history upon which to base an evaluation of its business and
prospects. Although the Company had net income of approximately $1.0 million
for its fiscal year ended June 30, 1998, the Company has experienced
operating losses in the past. The Company's operating results for future
periods are subject to all of the risks and uncertainties inherent in the
development and maturation of the business. The Company anticipates that in
the future it will make significant investments in its operations,
particularly to support new product development and increased sales
activities. The Company intends to make investments on an ongoing basis,
primarily from cash generated from operations, and to the extent necessary,
funds available from the Company's line of credit, as the Company develops
and introduces new products and services and expands into new markets. There
can be no assurance that recent revenue growth is indicative of future sales
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growth, if any. The Company has only recently achieved profitability on both
a quarterly and annual basis, and there can be no assurance that the Company
will be able to sustain profitability in any future period.
MANAGEMENT OF GROWTH
The Company is currently experiencing rapid growth and expansion, which
has placed, and will continue to place, a strain on its administrative,
engineering and operating resources and increased demands on its systems and
controls. The Company anticipates that continued growth will require it to
recruit and hire a number of additional management personnel, particularly in
operational management. There can be no assurance that the Company will be
successful at hiring or retaining these personnel. The Company's ability to
manage its growth successfully will also require the Company to continue to
expand and improve its operational, management and financial systems and
controls. If the Company's management is unable to manage growth
effectively, the Company's business, financial condition and results of
operations may be materially and adversely affected.
In addition, the Company plans to increase its operating expenses in order
to expand its product line, increase its sales and marketing operations,
increase the volume of products manufactured, develop new distribution channels,
broaden its customer support capabilities, grow its international sales force,
and develop and fully integrate its international operations. There can be no
assurance that this internal expansion will be successfully implemented, that
the cost of this expansion will not exceed the revenues generated, or that the
Company's sales and marketing organization will be able to successfully compete
against the significantly more extensive and well-funded sales and marketing
operations of many of the Company's current or potential competitors, both
domestically and internationally. Moreover, the foregoing expenses may be
incurred prior to any potential positive impact on revenues. If these expenses
are not subsequently followed by sufficient increased revenues, the Company's
operating results and financial condition would be materially adversely
affected. If the Company is unable to effectively execute its expansion, the
Company's results of operations and financial condition could be materially
adversely affected.
SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced in the past and may in the future experience
significant fluctuations in its operating results. Such fluctuations may be
caused by many factors, including, but not limited to: the size and timing
of individual orders, some of which may be of significant size; seasonality
of revenues; employee hiring and retention, particularly with respect to
sales and consulting personnel; lengthy sales and implementation cycles;
reduction in demand for existing products and services and shortening of
product life cycles; the timing of the introduction of products, product
enhancements or services by the Company or its competitors; competition and
pricing in the POS systems industry; market acceptance of new products;
service personnel utilization rates; the ability of the Company to expand its
international and domestic sales, as well as the mix of such sales; foreign
currency exchange rates; changes in the mix of products and services sold;
general health of the restaurant industry, particularly the quick service
restaurant segment; the ability of the Company to generate service
agreements; product quality problems; the ability of the Company to control
costs; the Company's success in establishing and expanding its direct and
indirect distribution channels; the mix of distribution channels through
which the Company's products are sold; and general economic conditions. The
Company's products are typically shipped shortly after orders are received
and, consequently, order backlog at the beginning of any quarter typically
represents only a small portion of that quarter's expected revenues. As a
result, product revenues in any quarter are substantially dependent on orders
booked and shipped in that quarter, and revenues for any future quarter are
not predictable with any significant degree of accuracy. Product revenues
are also difficult to forecast because the market for the Company's products
is rapidly evolving and the Company's sales and implementation cycles, from
initial evaluation to multiple product purchases and the provision of support
services, vary substantially from customer to customer. The Company has in
the past experienced and expects to continue to experience quarters or
periods with individual product or service orders which are significantly
larger than its typical product or service orders, adding to the
unpredictability of the Company's revenues. The Company's expense levels,
however, are based in significant part on the Company's expectations of
future revenues and therefore are relatively fixed in the near term. In
addition, the Company expects expense levels to increase in the near term as
the Company attempts to expand its operations. Net income may be
disproportionately affected by an unanticipated decline in revenue for a
particular quarter because a
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relatively small amount of the Company's expenses varies with its revenue in
the near term. Moreover, the POS systems industry is generally dependent on
system roll-outs with fixed time horizons. The Company's operating results,
particularly with respect to its systems integration business, may vary
significantly because of the Company's failure to obtain major projects, the
cancellation or delays in the progress of major projects for any reason and
the Company's failure to timely replace projects that have been completed or
are nearing completion. Any of these factors could cause the Company's
results of operations to fluctuate significantly from period to period,
including on a quarterly basis. The Company may also experience relatively
weaker demand for its products in August, particularly in international
markets, and December as a result of reduced sales activities during those
months.
As a result of the above factors, revenues and earnings for any quarter are
subject to significant variation and the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Fluctuations in
operating results may also result in volatility in the price of the Company's
Common Stock. Accordingly, it is likely that in some future quarter the
Company's total revenues or operating results will be below the expectations of
public market analysts or investors. In such event, or in the event that
adverse conditions prevail or are perceived to prevail generally or with respect
to the Company's business, the price of the Common Stock would likely be
materially adversely affected.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company has recently acquired CCI Group, Inc., POSNET Computers,
Inc. and Aspact IT Services Ltd. Acquisitions involve numerous risks,
including difficulties in the assimilation of the operations and personnel of
the acquired business, the integration of management information and
accounting systems of the acquired business, the diversion of management's
attention from other business concerns, risks of entering markets in which
the Company has no direct prior experience, and the potential loss of key
employees of the acquired business. In particular, CCI, POSNET and Aspact,
have self-contained management information and accounting systems, and the
Company has not yet implemented a management information and accounting
system that fully integrates each acquired entity's system and overall
enterprise. Further, CCI, POSNET and Aspact are POS systems integrators and
service providers and therefore operate in a market in which the Company has
no direct prior experience. The Company currently intends as part of its
business strategy to continue to pursue additional acquisitions of
complementary businesses. The Company's management will be required to
devote substantial time and attention to the integration of the recently
acquired, or any future acquired, businesses and to any material operational
or financial problems arising as a result of the acquisitions. There can be
no assurance that operational or financial problems will not occur as a
result of any acquisition. Failure to effectively integrate acquired
businesses could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company intends to continue to evaluate potential acquisitions of, or
investments in, companies which the Company believes will complement or enhance
its existing business. In July 1998, the Company entered into a letter of
intent to acquire RGB/Trinet and Jade; however, there can be no assurance that
the Company will consummate such acquisitions, or if consummated, that such
acquisitions will ultimately be beneficial to the Company. Future acquisitions
by the Company may result in potentially dilutive issuances of equity
securities, the incurrence of additional debt and amortization expenses related
to goodwill and other tangible assets which could adversely affect the Company's
business, results of operations and financial condition. Except for the letter
of intent to acquire RGB/Trinet and Jade, the Company currently does not have
any arrangements or understandings with respect to any specific future
acquisitions. There can be no assurance that the Company will be able to
identify or consummate any acquisition in the future or, if consummated, that
any acquisition will ultimately be beneficial to the Company.
RISKS OF INTERNATIONAL SALES AND INTERNATIONAL OPERATIONS
The Company derived approximately 10% of its total revenues from sales
outside North America, principally in Europe, in the year ended June 30,
1998. If the Company completes its acquisitions of RGB/Trinet and Jade, the
Company anticipates that the percentages of revenues attributable to sales in
international markets will increase. The Company believes that its growth
and profitability will require additional expansion of its sales in foreign
markets. The Company has sales
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or support staff located in Singapore, Australia and England. The Company's
expansion into foreign countries has required and will continue to require
significant management attention and financial resources, particularly with
respect to the expansion of the Company's sales force, the transferring of a
significant portion of the Company's manufacturing operations to a
third-party manufacturer in Singapore, and the Company's operation and
management of its recently acquired service-based subsidiary in Singapore.
To increase international sales in subsequent periods, the Company must
establish additional foreign operations, hire additional personnel and
recruit additional international resellers. To the extent the Company is
unable to expand international sales in a timely and cost-effective manner,
the Company's business, financial condition and results of operations would
be materially adversely affected.
In addition, there can be no assurance that the Company will be able to
maintain or increase international market demand for the Company's products
or services. Although the Company's product sales are currently denominated
in U.S. dollars, the Company's international service contracts are currently
denominated in local currency and, accordingly, gains and losses on the
conversion to U.S. dollars of accounts receivable and accounts payable
arising from international service revenues may contribute to fluctuations in
the Company's operating results. The Company does not currently utilize
foreign currency hedging instruments. There can be no assurance that
fluctuations in currency rates will not materially adversely impact the
Company's business, financial condition and results of operations in the
future. Additional risks inherent in the Company's international business
activities, including its relationship with the expected third-party
manufacturer of the Company's products in Singapore, include various and
changing regulatory requirements, costs and risks of relying upon local
subcontractors, increased sales and marketing and research and development
expenses, export restrictions and availability of export licenses, tariffs
and other trade barriers, political and economic instability, difficulties in
staffing and managing foreign operations, longer payment cycles, seasonal
reduction in business activities, potentially adverse tax laws, complex
foreign laws and treaties and the potential for difficulty in accounts
receivable collection. Any of these factors could have a material adverse
effect on the Company's business, financial condition or results of
operations. Certain of the Company's customer purchase agreements are
governed by foreign laws, which may differ significantly from U.S. laws.
Therefore, the Company may be limited in its ability to enforce its rights
under such agreements and to collect amounts owing to the Company should any
customer refuse to pay such amounts. In addition, the Company is subject to
the Foreign Corrupt Practices Act (the "FCPA") which may place the Company at
a competitive disadvantage to foreign companies that are not subject to the
FCPA.
To date, the Company has not been negatively affected by the recent turmoil
in Asian markets; however, certain of the Company's customers, suppliers and
third-party manufacturers located in Asian markets may encounter financial
difficulties resulting from foreign currency fluctuations or other economic,
social or political instabilities which could restrict their ability to fulfill
their contractual obligations to the Company. In particular, the Company
operates a consulting and systems integration subsidiary in Singapore and plans
to transfer a significant portion of its manufacturing operations to a
third-party manufacturer in Singapore. There can be no assurance that a decline
in the value of any relevant foreign currency relative to the U.S. dollar or an
economic, social or political change in any relevant country, will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
The Company has derived, and believes that it may continue to derive, a
significant portion of its revenues from a limited number of large customers.
For the fiscal year ended June 30, 1998, AFC Enterprises, Inc. accounted for
11% of the Company's revenues. For the fiscal year ended June 30, 1997,
ScanSource Inc. and CompUSA Inc. each accounted for 16% of the Company's
revenues, respectively. Most customer product orders are placed within the
quarter that delivery is expected; therefore, projections of future orders
may be unreliable. In addition, the amount of the Company's products or
services required by any of its customers can be adversely affected by a
number of factors, including technological developments and the internal
budget cycles of its customers. Moreover, the volume of work performed for
specific customers is likely to vary from year to year, and a major customer
in one year may not purchase the Company's products or services in a
subsequent year. The completion, cancellation or significant reduction in
the scope of a large customer product or service order, or the failure by the
Company to obtain future orders from a significant customer, could have a
material adverse effect on the Company's business, financial
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condition and results of operations. As a result of the Company's focus in
specific vertical markets, economic and other conditions that affect these
industries could lead to a reduction in capital spending by its target
customers, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success is dependent, in part, upon the continued services
of certain key executive officers, including Richard P. Stack, the Company's
President and Chief Executive Officer, Robert D. Nichols, the Company's
Executive Vice President and President of CCI Group, Inc., C. Norman
Campbell, the Company's Vice President Engineering, and Horace M. Hertz, the
Company's Chief Financial Officer and Secretary. The Company believes that
its future success depends to a significant degree upon the continued
contributions of its existing key management, sales, marketing, research and
development and manufacturing personnel, many of whom would be difficult to
replace. The Company has entered into employment agreements with Messrs.
Stack, Nichols and Campbell, and the Company carries key-man life insurance
on Messrs. Stack and Campbell. The Company also believes its future success
will also depend largely upon its ability to attract and retain
highly-skilled hardware engineers, managerial, and sales and marketing
personnel. Competition for such personnel is intense, and the Company
competes in the market for personnel against numerous companies, including
larger, more established companies with significantly greater financial
resources than the Company. There can be no assurance that the Company will
be successful in attracting and retaining skilled personnel. The loss of
certain key employees or the Company's inability to attract and retain other
qualified employees could have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The market for the Company's products and services is highly competitive,
subject to rapid change and sensitive to new product introductions or
enhancements and marketing efforts by industry participants. The Company
expects to continue to experience significant and increasing levels of
competition in the future, in part as open systems architecture in its targeted
industries becomes more common. The principal elements of competition related
to the Company's products include price, product features and performance,
compatibility with open systems, quality and reliability, brand awareness, level
of customer service and quality of display. The POS systems integration industry
is also highly competitive and undergoing continual change. The principal
elements of competition related to the Company's systems integration services
include reputation, scope of services provided, availability of resources and
price. In many of the Company's markets, traditional computer hardware
manufacturing, communications and consulting companies provide the most
significant competition. The Company must also compete with smaller service
providers that have been able to develop strong local or regional customer
bases. Most of the Company's competitors for its products and services, as well
as certain potential competitors, are more established, benefit from greater
name recognition, have significantly greater financial, technological,
production and marketing resources, and have more extensive distribution
networks than the Company.
The Company believes the use of open systems architecture in its targeted
industries is an important competitive element. Several of the Company's
competitors currently also offer open systems and the Company believes that the
number of competitors offering open systems solutions will grow over the next
several years. The Company anticipates that a significant source of future
competition may be from existing competitors in the POS products and services
market that the Company believes are currently attempting to develop POS systems
and support services utilizing open systems architecture. Due to the greater
sales, marketing, product development and financial resources of the Company's
competitors, the Company anticipates that competition from these competitors
will intensify in the future. In order to effectively compete against these
competitors, the Company will need to continue its growth trend and attain
sufficient revenues to have the resources to timely develop new products and
services in response to evolving technology and customer demands and to sell
products and services through a broad distribution channel in competition with
these other existing and potential competitors. No assurance can be given that
the Company will be able to grow sufficiently to enable it to compete
effectively in this marketplace.
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The Company's competitors include a substantial number of large
well-established companies including International Business Machines (IBM),
MICROS Systems, Inc., Par Technology Corporation, Radiant Systems, Inc., NCR
Corp., Panasonic Communications and Systems Co., Fujitsu, Ltd. and ICL Retail
Systems, each of which also offers open systems architecture products
and services related thereto. There can be no assurance that the Company
will be able to compete effectively or that these existing substantial
competitors, or new competitors, will not develop competitive products and
services with favorable pricing. Moreover, the Company has little or no
proprietary barriers to entry that could keep its competitors from developing
similar products or services and technology or selling competing products or
services in the Company's markets.
Increased competition from manufacturers or distributors of products
similar to or competitive with the Company's products, or from service providers
that provide services similar to the Company's services, could result in price
reductions, reduced margins and loss of market share or could render the
Company's technology obsolete, all of which could have a material adverse effect
on the Company's results of operations and financial condition. There can be no
assurance that the Company will be able to successfully compete in this
marketplace or develop sufficient new products and services to remain
competitive, and any failure to do so could have a material adverse effect on
its results of operations and financial condition.
DISTRIBUTION RISKS
The Company presently markets its products primarily through OEMs, VARs
and direct sales to end-users, and intends to continue to utilize these
distribution channels in the future. Moreover, as part of the Company's
strategy to increase international sales, the Company will need to more fully
develop similar distribution channels in international markets. The Company
also anticipates that its services business will increase in the future,
resulting in a greater emphasis on marketing and distributing directly to end
users. As the Company increasingly relies on direct sales to end users, the
Company anticipates competing to a certain extent with its OEMs and VARs.
This competition may harm the Company's relationship with certain of its OEMs
and VARs, potentially resulting in the termination of some relationships with
the Company. Failure by the Company to expand its distribution channels,
develop its international distribution channels or manage any potential
channel conflicts could have a material adverse effect on the Company's
growth. Moreover, any factors, such as general adverse economic conditions,
high inventory levels, financial condition, marketing considerations or
governmental regulations and restrictions, that affect the ability of the
Company's resellers to sell the Company's products will adversely affect the
Company's sales and could have a material adverse impact on the Company's
financial condition and results of operations.
There can be no assurance that the Company will be able to attract
resellers or OEMs that will be able to market the Company's products effectively
and will be qualified to provide timely and cost-effective customer support and
service or that the Company will be able to manage conflicts among its resellers
and/or OEMs. In addition, the Company's agreements with resellers typically do
not restrict resellers from distributing competing products, and in most cases
may be terminated by either party without cause. The inability to recruit,
manage or retain important resellers or OEMs, or their inability to penetrate
their respective market segments, could materially adversely affect the
Company's financial condition and results of operations.
The Company's future success will also depend in part upon the ability of
the Company to attract, integrate, train, motivate and retain sales and
technical support personnel. The Company intends to rely more heavily in the
future on direct sales to end users, and there can be no assurance that the
Company's efforts to expand its direct sales force will be successful or that
the cost of these efforts will not exceed the revenue generated. In addition,
the Company expects to experience a significant time lag between the date sales
personnel are hired and the date sales personnel become fully productive. The
Company's inability to manage its sales force expansion effectively could have a
material adverse effect on the Company's business, financial condition and
results of operations. Competition for sales and support personnel is intense,
and the Company competes in the market for sales personnel against numerous
companies, including larger, more established companies with significantly
greater financial resources than the Company. There also can be no assurance
that the Company will be successful in attracting and retaining sales personnel,
and the loss of certain sales personnel or the Company's inability to
16.
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attract and retain other qualified sales personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISK OF PRODUCT DEFECTS; PRODUCT AND OTHER LIABILITY.
Computer products and systems as complex as those sold by the Company
often contain undetected errors or performance problems, particularly during
new and enhanced product launches. Despite product testing prior to
introduction, the Company's products have in the past, on occasion, contained
errors that were discovered after commercial introduction. Errors or
performance problems may also be discovered in the future. In addition, the
Company's computer products have a warranty that covers defective material
and workmanship during the twelve-month warranty period commencing on the
date of delivery of the products. Any future defects discovered after
shipment of the Company's products could result in loss of sales, delays in
or elimination of market acceptance, damage to its brand or to the Company's
reputation, or product returns and warranty costs, particularly in the quick
service restaurant market where certain product defects could cause a
restaurant's POS systems and cash registers to be inoperable for periods of
time. Any loss of sales, delays in market acceptance or product returns and
warranty costs that result from defects discovered after shipment could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company attempts to make adequate allowance in
its new product release schedule for testing of product performance. Because
of the complexity of the Company's products, however, the release of new
products by the Company may be postponed should test results indicate the
need for redesign and retesting, or should the Company elect to add product
enhancements in response to customer feedback. In addition, third-party
products, upon which the Company's products are dependent, may contain
defects which could reduce or undermine entirely the performance of the
Company's products.
In addition, although the Company's sales agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims, there can be no assurance that these
limitations of liability would be enforceable or would otherwise protect the
Company from liability for damages to a customer resulting from a defect in
one of the Company's products. Although the Company maintains product
liability insurance covering certain damages arising from implementation and
use of the Company's products, there can be no assurance that this insurance
would cover or be sufficient to cover any claims sought against the Company.
Any product liability or other claims against the Company, if successful and
of sufficient magnitude, could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE UPON THIRD-PARTY MANUFACTURERS AND SUPPLIERS
Although the Company has capacity to manufacture limited volumes of its
products, the Company currently relies upon, and intends in the future to
rely more heavily upon, third-party manufacturers for the manufacture,
assembly and subassembly of its products. In particular, the Company intends
to transfer a significant portion of its manufacturing operations to a
third-party manufacturer in Singapore. Any termination of, or significant
disruption in, the Company's relationship with third-party manufacturers of
its products may prevent the Company from filling customer orders in a timely
manner, as the Company generally does not maintain large inventories of its
products or components. The Company has occasionally experienced and may in
the future experience delays in delivery of products and delivery of products
of inferior quality from some of its third-party manufacturers. Although
alternate manufacturers are available to produce the Company's products, the
number of manufacturers of some products is limited, and qualifying a
replacement manufacturer could take several months. In addition, the
Company's use of third-party manufacturers reduces direct control over
product quality, manufacturing timing, yields and costs since the Company
must rely on the third-party manufacturers' ability to identify the Company's
requirements for products and components, the manufacturers' general
competence and ability to progress along the learning curve relating to the
manufacture of the Company's products, and the manufacturers' schedules and
capacity. Disruption of the manufacture of the Company's products or failure
of a third-party manufacturer to remain competitive in functionality or price
could delay or interrupt the Company's ability to manufacture or deliver its
products to customers on a timely basis and would have a material adverse
effect on the Company's business, financial condition and results of
operations. Moreover, although arrangements with the Company's manufacturers
may contain provisions for warranty obligations on the part of the
third-party manufacturers, the Company remains primarily responsible to its
customers for warranty obligations.
The Company also depends upon third-party suppliers to deliver
components that are free from defects, competitive in functionality and cost
and in compliance with the Company's specifications and delivery schedules.
Disruption in supply, a significant increase in the cost of one or more
components or failure of a third-party supplier to comply with any of the
Company's procurement needs could delay or interrupt the Company's ability to
manufacture or deliver its products to customers on a timely basis and would
have a material adverse effect on the Company's business, financial condition
and results of operations. Moreover, any factors, such as general adverse
economic conditions, financial condition or government regulations and
restrictions, that affect the Company's third-party manufacturers or
suppliers could have a material adverse impact on the Company's business,
financial condition and results of operations.
17.
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RISK OF EXPANSION IN CERTAIN MARKET SECTORS
Although the Company has historically sold most of its products and
services to the food service industry, the Company is increasingly focusing on
selling its products and services to retailers and the industrial market. To
date, the Company has only recognized a limited amount of revenue in these
markets. There can be no assurance that the Company's products and services
will gain acceptance in or meet these sectors' expectations and needs. In
addition, the Company may attempt to penetrate other markets. The inability of
the Company, for any reason, to successfully sell its products and services into
these markets could materially adversely affect the Company's growth.
EVOLVING TECHNOLOGY AND MARKET
The POS computer industry is characterized by evolving technology and
industry standards. The Company's touch screen computers presently consist of
the Javelin-Wedge 5, the Javelin-Wedge P, the Javelin-LC and the Javelin-LCP,
which are sold in various configurations to meet the needs of the Company's
customers. The Company is in the process of developing additional touch
screen computers and intends to introduce new products during the
fiscal year ending June 30, 1999, although no assurance can be given that the
Company will be successful in developing or introducing any new products. The
Company's success will depend, in part, on its ability to maintain and
enhance its existing products and broaden its product offerings by developing
and introducing new products that keep pace with technological developments
in a cost effective manner, respond to evolving customer preferences and
requirements and achieve market acceptance. Lack of market acceptance for the
Company's existing or new products, the Company's failure to introduce new
products in a timely or cost-effective manner or the Company's failure to
achieve a technological advantage over its competition while also remaining
price competitive, could materially adversely affect the Company's results of
operations and financial condition. There can be no assurance that the
Company will be successful in its product development efforts. In addition,
there can be no assurance that the Company's products, even if successfully
developed, will achieve timely market acceptance. Moreover, the introduction
of products embodying new technology and the emergence of new industry
standards could render the Company's existing products obsolete and
unmarketable.
The Company's future success will depend on its ability to continue to
develop and manufacture new competitive products and to enhance its existing
products, both of which will require continued investment in engineering and
product development. The success of product enhancements and new products
depends on a variety of factors, including product selection and specification,
timely and efficient completion of product design, cost-effective implementation
of the manufacturing and assembly processes and effective sales and marketing
efforts. There can be no assurance that the Company will be able to successfully
manage all of the diverse aspects of successful new product development in order
to develop and maintain competitive products.
LACK OF PATENT PROTECTION
The Company holds no patents and believes that its competitive position is
not materially dependent upon patent protection. The Company believes that most
of the technology used in the design and manufacture of most of the Company's
products is generally known and available to others. Consequently, there can be
no assurances that
18.
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others will not develop, market and sell products substantially equivalent to
the Company's products, or utilize technologies similar to those used by the
Company. The Company is aware of at least one competitor that has attempted
to copy the Company's products in the past, and there can be no assurance
that similar attempts will not be made in the future. Although the Company
believes that its products do not infringe on any third party's patents,
there can be no assurance that the Company will not become involved in
litigation involving patents or proprietary rights. Patent and proprietary
rights litigation entails substantial legal and other costs, and there can be
no assurance that the Company will have the necessary financial resources to
defend or prosecute its rights in connection with any litigation. Responding
to, defending or bringing claims related to the Company's rights to its
intellectual property may require the Company's management to redirect its
resources to address these claims, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
The Company's principal stockholders, executive officers, directors and
affiliated individuals and entities together beneficially own approximately
53.9% of the outstanding shares of the Company's Common Stock. As a result,
these stockholders, acting together, may be able to influence significantly
and possibly control most matters requiring approval by the stockholders of
the Company, including approval of amendments to the Company's Certificate of
Incorporation, mergers, sales of all or substantially all of the assets of
the Company, going private transactions and other fundamental transactions.
In addition, the Company's Certificate of Incorporation does not provide for
cumulative voting with respect to the election of directors. Consequently,
the present directors and executive officers of the Company, together with
the Company's principal stockholders, may be able to control the election of
the members of the Board of Directors of the Company. Such a concentration of
ownership could have an adverse effect on the price of the Common Stock, and
may have the effect of delaying or preventing a change in control of the
Company, including transactions in which stockholders might otherwise receive
a premium for their shares over then current market prices.
FUTURE CAPITAL REQUIREMENTS
The Company has expended and will continue to expend substantial funds
on expansion of its sales and marketing efforts, expansion of its services
business, potential acquisitions and product development. Consequently, the
Company may require additional funds to finance its operations. The precise
amount and timing of the Company's funding needs cannot be determined at this
time, and will depend upon a number of factors, including the market demand
for the Company's products and services, the progress of the Company's
product development efforts, and the Company's management of its cash,
accounts payable, inventory and other working capital items. There can be no
assurance that, if required by the Company in the future, funds will be
available on terms satisfactory to the Company, if at all. If additional
funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of the existing stockholders of the
Company will be reduced, the existing stockholders may experience additional
dilution and such securities may have rights, preferences or privileges
senior to those of the holders of the Company's Common Stock. Additionally,
any debt financing that may be available to the Company may include
restrictive covenants on the Company. Any inability to obtain needed funding
on satisfactory terms may require the Company to reduce planned capital
expenditures, to scale back its manufacturing or other operations or to enter
into financing arrangements on terms which it would not otherwise accept, and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE UPON INDEPENDENT SOFTWARE PROVIDERS
The Company produces PC-based open system hardware for the food service and
retail industries; however, the Company does not develop software. Consequently,
the Company is dependent upon third party software providers to develop the POS
application software that operates on the Company's hardware platform. As in
other sectors of the computer industry, hardware sales can often be driven by
advances in software technology. Accordingly, if software providers do not, or
are unable to, continue to provide state-of-the-art POS application software
that runs on the Company's hardware, the Company's financial condition and
results of operations could be materially adversely affected.
IMPACT OF YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The year 2000 problem is
pervasive and complex as virtually every computer operation will be affected in
some way by the rollover of the two digit year value to "00". The issue is
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. The Company
is reviewing both its information technology and its non-information technology
systems to determine whether they are year 2000 compliant, and to date the
Company has not identified any material systems which are not year 2000
compliant. The Company has not made any material expenditure to address the year
2000 problem and at present does not anticipate that it will be required to make
any such material expenditures in the future.
The Company has initiated formal communications with all significant
suppliers and service providers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate the year 2000 problem.
Although the Company has received verbal assurances of year 2000 compliance from
certain of such third parties, the Company has not yet received written
assurances of year 2000 compliance from the third parties with whom it has
relationships. The Company believes its operations will not be significantly
disrupted even if third parties with whom the Company has relationships are not
year 2000 compliant. In the event that the Company's suppliers are unable to
provide sufficient quantities of materials or goods to the Company as a result
of their failure to be year 2000 compliant, the Company believes that it can
obtain adequate supplies of materials and goods at comparable prices from other
sources. In the event that the Company's OEMs and VARs are adversely affected by
any failure to become year 2000 compliant and are therefore unable to purchase
anticipated quantities of the Company's products on a timely basis, the Company
may seek to replace such OEMs and VARs. Nevertheless, the Company believes that
any year 2000 compliance problems of its suppliers, OEMs or VARs could cause the
Company's results of operations to fluctuate on a period to period basis.
Uncertainty exists concerning the potential costs and effects associated with
any year 2000 compliance, and the Company intends to continue to make efforts to
ensure that third parties with whom it has relationships are year 2000
compliant. Any year 2000 compliance problem of either the Company or third
parties with whom the Company has relationships could materially adversely
affect the Company's business, financial condition or results of operations.
19.
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The Year 2000 problem could also have an effect on the Company's revenues.
Demand for the Company's products and services may decline after January 1,
2000 as the Company may not be able to incorporate its products and services
into a customer's Year 2000 driven POS retrofit. Similarly, many companies
may spend substantial resources to prevent or minimize problems associated
with the Year 2000 problem and therefore may choose not to, or not have the
budget capacity to, upgrade their current POS systems for some period of
time. Any lessening of demand for the Company's products and services could
have a material adverse effect on the Company's business, financial condition
and results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has been, and is likely to continue
to be, volatile. Factors such as announcements of new customer orders or
services by the Company or its competitors, changes in pricing policies by
the Company or its competitors, quarterly fluctuations in the Company's
operating results, announcements relating to strategic relationships or
acquisitions, changes in earnings estimates by analysts, government
regulatory actions, general conditions in the market for POS systems, overall
stock market conditions and other factors may have a significant impact on
the market price of Common Stock. In addition, in recent periods the stock
market in general, and the shares of technology companies in particular, have
experienced extreme price fluctuations. This volatility has had a substantial
effect on the market prices of securities issued by many companies for
reasons unrelated to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of the
Common Stock. In addition, in the past the Company has not experienced
significant trading volume in its Common Stock, has not been actively
followed by stock market analysts and has had limited market-making support
from broker-dealers. If greater market-making support is not generated,
supported by broader analyst coverage, resulting in greater average trading
volume in the Company's Common Stock, there can be no assurance that an
adequate trading market will exist to sell large positions in the Company's
Common Stock.
POSSIBLE ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF DELAWARE LAW AND
CERTAIN CHARTER PROVISIONS
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). The Preferred Stock
may be issued in one or more series, the terms of which may be determined at the
time of issuance by the Board of Directors, without further action by the
Company's stockholders, and may include voting rights, preferences as to
dividends and liquidation, conversion and redemption rights, and sinking fund
provisions as determined by the Board of Directors. Although the Company has no
present plans to issue shares of Preferred Stock, the issuance of any additional
shares of Preferred Stock in the future could affect the rights of the holders
of Common Stock and thereby reduce the value of the Common Stock. In particular,
specific rights granted to future holders of Preferred Stock could be used to
restrict the Company's ability to merge with or sell its assets to a third
party, thereby preserving control of the Company by its present owners. The
issuance of Preferred Stock, rights to purchase Preferred Stock or additional
shares of Common Stock may have the effect of delaying or preventing a change in
control of the Company. In addition, the possible issuance of Preferred Stock
or additional shares of Common Stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of the Company's Common Stock
or limit the price that investors might be willing to pay for shares of the
Company's Common Stock. Further, the Company's Restated Certificate of
Incorporation (the "Restated Certificate") provides that any action required or
permitted to be taken by stockholders of the Company must be effected at a duly
called annual or special meeting of stockholders and may not be effected by
written consent. Special meetings of the stockholders of the Company may be
called only by the Chairman of the Board of Directors, the Chief Executive
Officer of the Company, by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors or by the
holders of 10% of the outstanding voting stock of the Company. The Restated
Certificate and the Company's Bylaws also provide for staggered terms for the
members of the Board of Directors. These and other provisions contained in the
Restated Certificate and the Company's Bylaws, as well as certain provisions of
Delaware law, could delay or make more difficult certain types of transactions
involving an actual or potential change in control of the Company or its
management (including transactions in which stockholders might otherwise receive
a premium for their shares over then current market prices) and may limit the
ability of stockholders to remove current management of the Company or approve
transactions that stockholders may deem to be in their best interests and,
therefore, could adversely affect the price of the Company's Common Stock.
20.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices, research and product development,
warehousing and distribution facilities are currently housed in a single leased
industrial unit comprised of approximately 29,000 square feet located in Irvine,
California. Under the terms of the lease, the Company presently pays rent of
approximately $23,500 per month with predetermined monthly rent increases at
annual intervals. The lease expires in July 2003. CCI Group, Inc. leases a
warehousing and distribution facility of approximately 11,700 square feet in
Earth City, Missouri under a lease that expires on October 31, 1998 and provides
for monthly rental of approximately $8,700. CCI Group, Inc. is in the process
of seeking larger facilities; however, no lease has been consummated.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
21.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the Nasdaq SmallCap Market under the
symbol "JVLN." The following table sets forth, for the periods indicated, the
high and low sales prices of the Company's Common Stock as reported by Nasdaq.
Prices reflect inter-dealer prices without retail mark-up, mark-down or
commissions, and may not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997 HIGH LOW
----- -----
<S> <C> <C>
Second Quarter (from October 25, 1996) 5 1/2 4 1/2
Third Quarter 5 1/2 4 1/2
Fourth Quarter 6 3/8 4 5/8
YEAR ENDED JUNE 30, 1998
First Quarter 11 1/4 4 1/2
Second Quarter 10 13/16 8 1/2
Third Quarter 10 3/4 7 1/2
Fourth Quarter 15 9 3/8
</TABLE>
There were approximately 73 holders of record as of September 10, 1998.
This number does not reflect the number of beneficial holders of the Company's
Common Stock which the Company believes to be in excess of 600 holders.
No dividends have been declared or paid on the Company's Common Stock. The
Company currently intends to retain any future earnings to finance the growth
and development of its business and therefore does not anticipate paying any
cash dividends in the foreseeable future. In addition, the Company's loan
agreement prohibits the payment of cash dividends on its capital stock without
the consent of the bank.
RECENT SALES OF UNREGISTERED SECURITIES.
The Company has sold and issued the following securities which were not
registered under the Securities Act of 1933, as amended (the "Act") since July
1, 1997:
1. On December 19, 1997, the Company issued an aggregate of 225,000
shares of the Company's Common Stock to Mark LeMay, Paul Amestoy, Greg Kosin and
Ralph E. Rudzik, Jr. in consideration for all of the outstanding capital stock
of POSNET Computers, Inc., a California corporation ("POSNET"). The issuance of
the Common Stock was deemed to be exempt from registration under the Act by
virtue of Section 4(2) of the Act and Rule 506 promulgated thereunder.
2. On December 22, 1997, the Company issued a warrant to purchase up to
10,000 shares of the Company's Common Stock to L.H. Friend, Weinress, Frankson &
Presson, Inc. at an exercise price of $9.36 per share. The issuance of the
warrant and the Common Stock underlying the warrant are deemed to be exempt from
registration under the Act by virtue of Section 4(2) of the Act.
3. On December 22, 1997, the Company issued an aggregate of 670,000
shares of the Company's Common Stock to Robert Nichols, Robert Hess, Melissa
Sobo and Renee Voirol in consideration for all of the outstanding capital stock
of CCI Group, Inc., a Missouri corporation. The issuance of the Common Stock
was deemed to be exempt from registration under the Act by virtue of Section
4(2) of the Act and Rule 506 promulgated thereunder.
4. On March 31, 1998, the Company issued and aggregate of 18,750 shares
of the Company's Common Stock to Mark LeMay, Paul Amestoy, Greg Kosin and Ralph
E. Rudzik, Jr. as further consideration for all of the outstanding capital stock
of POSNET pursuant to the earnout provisions of the Stock Purchase Agreement
dated December 19, 1997, among the Company, POSNET, Mark LeMay, Paul Amestoy,
Greg Kosin and Ralph E. Rudzik,
22.
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Jr. The issuance of the Common Stock was deemed to be exempt from
registration under the Act pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
5. On April 23, 1998, the Company issued an aggregate of 36,362 shares of
the Company's Common stock to Meridian Capital group, Inc ("Meridian") and
certain officers of Meridian upon exercise of warrants held by such entity and
individuals pursuant to the net-exercise provision contained in such warrants.
The issuance of the Common Stock was deemed to be exempt from registration under
the Act by virtue of Section 4(2) under the Act.
6. On May 10, 1998, the Company issued 15,300 shares of the Company's
Common Stock to Aspact Enterprise, Ltd. as partial consideration for all of the
outstanding capital stock of Aspact IT Services Pte Ltd., a corporation
organized under the laws of Singapore. The issuance of the Common Stock was
deemed to be exempt from registration under the Act by virtue of Section 4(2) of
the Act.
7. On June 9, 1998, the Company issued warrants to purchase an aggregate
of 25,000 shares of the Company's Common Stock to L.H. Friend, Weinress,
Frankson & Presson, Inc. ("L.H. Friend") and certain of L.H. Friend's officers
at an exercise price of $12.65 per share. The issuance of such warrants and the
Common stock underlying such warrants was deemed to be exempt from registration
under the Act by virtue of Section 4(2) of the Act.
8. On June 12, 1998, the Company issued a warrant to purchase 100,000
shares of the Company's Common Stock to Finova Capital Corporation ("FINOVA") at
an exercise price per share of $9.00. The issuance of the warrant and the
Common Stock underlying the warrant was deemed to be exempt from registration
under the Act by virtue of Section 4(2) of the Act.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Registrant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto and the other
financial information included elsewhere in this Annual Report on Form 10-KSB.
This discussion contains forward-looking statements that include risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of any number of
factors, including those set forth under "Risk Factors" and elsewhere in this
Annual Report on Form 10-KSB.
OVERVIEW
The Company was incorporated in September 1995 and commenced shipping its
initial products in December 1995. From its inception through the quarter ended
March 31, 1997, the Company experienced operating losses primarily as a result
of costs incurred in connection with product development and the establishment
of distribution channels, partially offset by revenues from product sales.
Javelin sells its hardware products through its direct sales force and
indirectly through OEMs and VARs.
In December 1997, the Company acquired all of the outstanding capital stock
of CCI Group, Inc. ("CCI") and POSNET Computers, Inc. ("Posnet"). CCI and Posnet
have been combined and now operate as CCI. CCI sells the Javelin product line as
well as hardware from other manufacturers and provides POS systems integration
and support services directly to end-users. These acquisitions were consummated
to enable the Company, among other things, to sell products and services
directly to large end-users and to capture a greater proportion of each
customer's POS system expenditures, including system design, installation,
maintenance and help desk. These acquisitions and increased product sales have
resulted in substantial growth in revenues, operating profits and net income.
Through March 31, 1998, substantially all of the Company's sales had been
made to domestic customers. To implement its marketing strategy internationally,
the Company established foreign subsidiaries in March and April 1998 in England,
Singapore and Australia and in July 1998 entered into a letter of intent to
acquire all of the outstanding capital stock of two companies based in England,
RGB/Trinet Limited ("RGB/Trinet") and Jade Communications Limited ("Jade"). In
addition to the ongoing service revenues that Jade's existing operations may
generate, the Company anticipates that these acquisitions will increase
international sales of Javelin's product line through indirect distribution
channels. Although the Company is not presently contemplating the acquisition of
companies other than RGB/Trinet and Jade, the Company may pursue opportunities,
if they arise, for strategic acquisitions both domestically and internationally.
The acquisitions of CCI and Posnet were accounted for using the purchase
method, and accordingly, the results of operations of these subsidiaries have
been consolidated with those of the Company commencing on the respective dates
of acquisition. The acquisitions of RGB/Trinet and Jade, if completed, will also
be accounted for using the purchase method, and accordingly, their results of
operations will be included with those of the Company from the date of any such
acquisition. The Company amortizes goodwill resulting from its acquisitions over
25 years.
The replacement cycle for hardware in the POS food service industry is
generally long, and consequently, revenues for hardware products to a specific
end-user tend to be non-recurring. Certain services, such as system design and
installation, also tend to be non-recurring. Other services, such as maintenance
and help desk, are of an ongoing nature, and the related revenues tend to be
recurring. Through December 31, 1997, the Company's revenues consisted solely of
product sales. Due to the acquisition of CCI, service revenues represented 11.3%
of total revenues in the six months ended June 30, 1998 and 8.5% in fiscal 1998.
The Company anticipates that service revenues in the future will increase and
become a more significant percentage of total revenues.
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If the Company's strategy to increase sales to large end-users who have
volume purchasing power is successful, the Company believes its gross margins
may decline over time. Notwithstanding such potential decline in gross margins,
the Company believes that increased sales to large end-users may improve
operating margins because (i) related sales and marketing costs as a percentage
of revenues may be lower than the costs incurred to generate sales to indirect
distribution channels, and (ii) increased related general and administrative
costs necessary to support the additional revenues should not be significant. In
addition, sales to large end-users may result in significant variations in
revenues or profits from period to period due to, among other things, the timing
and size of large orders, delays in system installations or the Company's
inability to generate new sales on a timely basis to large end-users.
Revenues from product sales are generated from the sale of hardware
manufactured by Javelin and other independent manufacturers and are recorded as
the products are shipped. Service revenues are generated by the installation of
products and the provision of consulting and other services. Service revenues
are recognized upon the completion of installation or ratably over the term of
related contracts.
Cost of revenues from product sales consists of the acquisition costs of
non-Javelin product line hardware that is resold by the Company and the costs of
components and payroll and related costs for assembly, manufacturing,
purchasing, quality control and repairs of Javelin products. The cost of the
components incorporated in the Javelin product line represents in excess of 85%
of the total cost of such products. The cost of five components represents in
excess of 80% of the cost of all components included in the Javelin product
line. While the Company has in the past experienced reductions in the cost of
components due to increased volume of purchases, it believes that these costs
have now stabilized and that further material reductions may be difficult to
achieve. The Company is in the process of qualifying two independent outside
contract manufacturers to assist the Company in the manufacturing of new
products and with increased capacity needs for existing products. The Company
anticipates that the cost of manufacturing its products will not be affected by
the shifting of production to outside contract manufacturers. Cost of service
revenues consists primarily of payroll and related costs for the technical and
support staff providing the services.
24
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Product sales................................................ 100.0% 100.0% 91.5%
Service...................................................... -- -- 8.5
--------- --------- ---------
Total revenues................................................. 100.0 100.0 100.0
--------- --------- ---------
Cost of revenues:
Cost of product sales(1)..................................... 75.4 78.4 73.1
Cost of services(1).......................................... -- -- 75.8
--------- --------- ---------
Total cost of revenues......................................... 75.4 78.4 73.3
--------- --------- ---------
Gross profit................................................... 24.6 21.6 26.7
--------- --------- ---------
Operating expenses:
Research and development..................................... 3.2 5.7 2.9
Selling and marketing........................................ 5.7 5.6 4.0
General and administrative................................... 16.7 12.2 14.2
--------- --------- ---------
Total operating expenses....................................... 25.6 23.5 21.1
--------- --------- ---------
Income (loss) from operations.................................. (1.0) (1.9) 5.6
Interest expense............................................... (2.7) (10.1) (0.4)
Other income................................................... -- -- 0.2
Interest income................................................ -- 0.2 --
Provision for income taxes..................................... -- -- (2.0)
--------- --------- ---------
Net income (loss).............................................. (3.7)% (11.8)% 3.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Expressed as a percentage of related revenues, not of total revenues.
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
REVENUES. Revenues increased by 322.9% to $29.6 million in fiscal 1998
compared to revenues of $7.0 million in fiscal 1997. The change is due to a
154.2% increase in revenues relating to Javelin product sales of $10.8 million,
product sales from CCI of $8.4 million, service revenues from CCI of $2.5
million and revenues derived primarily from the sale of products by the
Company's newly established foreign subsidiaries of $900,000. The increase
relating to Javelin is attributable primarily to increases in the number of
units sold as the average sales price of Javelin products remained relatively
constant in fiscal 1997 and 1998.
GROSS PROFIT. Gross profit increased by 422.1% to $7.9 million in fiscal
1998 compared to a gross profit of $1.5 million in fiscal 1997. The change is
due to a 224.0% increase in gross profit relating to Javelin of $3.4 million,
gross profit relating to hardware sales by CCI of $2.2 million, gross profit
relating to services provided by CCI of $500,000 and gross profit from the newly
established foreign subsidiaries of $300,000. Gross margins on revenues from
product sales increased to 26.9% in fiscal 1998 from 21.6% in fiscal 1997
primarily due to a reduction in the cost of its products and the realization of
manufacturing efficiencies. The reduction in the cost of the Company's products
was attributable to decreases in prices from the Company's suppliers resulting
from increased volume of purchases by the Company. The increased gross margins
on revenues from product sales were partially offset by lower gross margins on
sales of non-Javelin products by CCI. Gross margin on service revenues were
24.2% in fiscal 1998. The Company anticipates that annual gross margins will not
increase in fiscal 1999.
25
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. All research and development is
performed by Javelin at its corporate headquarters. Research and development
expenses consist primarily of payroll and related costs and the cost of tooling
and prototypes. The Company expenses research and development costs as incurred.
Research and development expenses increased by 120.5% to $900,000 in fiscal 1998
compared to research and development expenses of $400,000 in fiscal 1997. The
increase is primarily attributable to increased payroll costs due to the hiring
of additional engineers. The Company anticipates a continued increase in
research and development expenses primarily due to the anticipated introduction
of several new products and enhancements to existing products.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist
primarily of payroll and related costs, including commissions, of salespersons
and of the customer service department, and of travel, entertainment and
advertising costs. Selling and marketing expenses increased by 201.9% to $1.2
million in fiscal 1998 compared to selling and marketing expenses of $400,000 in
fiscal 1997. The increase is primarily attributable to additional personnel and
advertising costs associated with the growth of the business. The Company
anticipates that selling and marketing costs will increase as the Company
increases its sales force, both domestically and internationally, and attempts
to enhance the recognition of its brand name; however, to the extent that
revenues increase in future periods, the Company anticipates that such costs may
decrease as a percentage of revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of payroll and related costs, facility costs, depreciation and
amortization and costs associated with being a public company. General and
administrative expenses increased by 387.9% to $4.2 million in fiscal 1998
compared to general and administrative of $900,000 in fiscal 1997. The change is
due to an increase in general and administrative expenses relating to Javelin of
$1.2 million (138.9%), general and administrative expenses from the acquired
domestic subsidiaries of $1.9 million and general and administrative expenses
from the newly established foreign subsidiaries of $300,000. As a percentage of
revenues, general and administrative expenses increased from 12.2% to 14.2%. The
increase at Javelin consisted primarily of increased payroll costs due primarily
to an increase in the number of employees, increased facility costs due to
relocations and costs associated with being a public company. The Company
believes that general and administrative expenses will continue to increase as
the Company invests additional resources to improve its operating systems, to
expand its international presence and to sustain its anticipated continued
growth; however, to the extent that revenues increase in future periods, the
Company anticipates that general and administrative expenses may remain
relatively constant as a percentage of revenues.
INTEREST EXPENSE. Interest expense decreased by $600,000 to $100,000 in
fiscal 1998 compared to interest expense of $700,000 in fiscal 1997. The
decrease is due to the inclusion of $600,000 in interest expense in fiscal 1997
related to warrants issued in connection with certain promissory notes. This
non-recurring interest expense incurred in fiscal 1997 is attributable to the
imputation of interest based upon the fair value of the warrants and did not
represent a cash expense to the Company.
INCOME TAXES. A provision for federal, state and foreign income taxes of
$600,000 was required in fiscal 1998 since the Company generated taxable income
while no provision was required for fiscal 1997 as the Company incurred a net
taxable loss for that period. The tax benefits of the Company's historical
operating losses were realized during the year ended June 30, 1998 resulting in
an effective tax rate lower than the U.S. statutory tax rate. The Company
anticipates that in the future its tax rate on U.S. income will increase due to
the lack of additional tax benefits and the non-deductibility of certain
expenses, including the amortization of goodwill. This anticipated increase may
be mitigated to the extent that increases from revenues result from the
Company's foreign subsidiaries operating in jurisdictions with lower income tax
rates than those in the United States.
26
<PAGE>
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
REVENUES. Revenues increased by 379.3% to $7.0 million in fiscal 1997
compared to revenues of $1.5 million in fiscal 1996. The increase is
attributable primarily to increases in the number of units sold.
GROSS PROFIT. Gross profit increased by 321.6% to $1.5 million in fiscal
1997 compared to a gross profit of $359,000 in fiscal 1996. Gross margins
decreased to 21.6% in fiscal 1997 from 24.6% in fiscal 1996 primarily due to
component cost increases.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by 747.5% to $396,000 in fiscal 1997 compared to research and
development expenses of $47,000 in fiscal 1996, primarily due to increased
payroll costs and the introduction of two new products.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased by
368.1% to $391,000 in fiscal 1997 compared to selling and marketing expenses of
$84,000 in fiscal 1996, primarily due to additional personnel necessary to
manage the activities of an increased number of VAR and OEM customers and the
introduction of new products.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by 251.3% to $860,000 in fiscal 1997 compared to general and
administrative expenses of $245,000 in fiscal 1996, primarily due to an
increased in payroll costs and consulting fees.
INTEREST EXPENSE. Interest expense increased by $671,000 to $709,000 in
fiscal 1997 compared to interest expense of $38,000 in fiscal 1996. The increase
is due to the inclusion of $636,000 in interest expense in fiscal 1997 related
to warrants issued in connection with certain promissory notes. This non-
recurring interest expense in fiscal 1997 is attributable to the imputation of
interest based upon the fair market value of the warrants and did not represent
a cash expense to the Company.
INCOME TAXES. A provision for income taxes was not required for fiscal 1997
as the Company incurred a net taxable loss for that period.
QUARTERLY RESULTS OF OPERATIONS
The following tables present quarterly operating results for fiscal 1998.
This information has been derived from unaudited consolidated financial
statements and has been prepared on the same basis as the Javelin Consolidated
Financial Statements which appear elsewhere in this Prospectus. In the opinion
of the Company's management, this information reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such information in accordance with generally accepted
accounting principles. The operating results for any quarter are not necessarily
indicative of the results for any future period.
27
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
SEPTEMBER 30, 1997 DECEMBER 31, 1997 MARCH 31, 1998 JUNE 30, 1998
--------------------- -------------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Product sales................... $ 2,950,100 $ 4,452,200 $ 9,357,400 $ 10,372,500
Service......................... -- -- 1,286,000 1,227,700
----------- ----------- ---------------- --------------
Total revenues................ 2,950,100 4,452,200 10,643,400 11,600,200
----------- ----------- ---------------- --------------
Cost of revenues:
Cost of product sales........... 2,268,800 3,427,500 6,864,100 7,270,800
Cost of service................. -- -- 891,700 1,012,900
----------- ----------- ---------------- --------------
Total cost of revenues........ 2,268,800 3,427,500 7,755,800 8,283,700
----------- ----------- ---------------- --------------
Gross profit...................... 681,300 1,024,700 2,887,600 3,316,500
----------- ----------- ---------------- --------------
Operating expenses:
Research and development........ 137,200 169,500 250,100 317,200
Selling and marketing........... 147,500 261,300 438,100 333,000
General and administrative...... 374,700 448,200 1,581,700 1,791,000
----------- ----------- ---------------- --------------
Total operating expenses...... 659,400 879,000 2,269,900 2,441,200
----------- ----------- ---------------- --------------
Income from operations............ 21,900 145,700 617,700 875,300
Interest expense.................. (1,900) (6,900) (26,800) (79,400)
Other income (expense)............ (2,800) 8,900 23,200 11,900
Interest income................... 3,900 4,100 2,200 2,000
----------- ----------- ---------------- --------------
Income before income taxes........ 21,100 151,800 616,300 809,800
Provision for income taxes........ -- (59,200) (262,900) (262,800)
----------- ----------- ---------------- --------------
Net income........................ $ 21,100 $ 92,600 $ 353,400 $ 547,000
----------- ----------- ---------------- --------------
----------- ----------- ---------------- --------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
SEPTEMBER 30, 1997 DECEMBER 31, 1997 MARCH 31, 1998 JUNE 30, 1998
----------------------- --------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Product sales................... 100.0% 100.0% 87.9% 89.4%
Service......................... -- -- 12.1 10.6
----- ----- ----- -----
Total revenues................ 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
Cost of product sales(1)........ 76.9 77.0 73.4 70.1
Cost of service(1).............. -- -- 69.3 82.5
----- ----- ----- -----
Total cost of revenues........ 76.9 77.0 72.9 71.4
----- ----- ----- -----
Gross profit...................... 23.1 23.0 27.1 28.6
----- ----- ----- -----
Operating expenses:
Research and development........ 4.7 3.8 2.3 2.7
Selling and marketing........... 5.0 5.9 4.1 2.9
General and administrative...... 12.7 10.0 14.9 15.4
----- ----- ----- -----
Total operating expenses...... 22.4 19.7 21.3 21.0
----- ----- ----- -----
Income from operations............ 0.7 3.3 5.8 7.6
Interest expense.................. -- (0.2) (0.2) (0.7)
Other income (expense)............ (0.1) 0.2 0.2 0.1
Interest income................... 0.1 0.1 -- --
----- ----- ----- -----
Income before income taxes........ 0.7 3.4 5.8 7.0
Provision for income taxes........ -- (1.3) (2.5) (2.3)
Net income........................ 0.7% 2.1% 3.3% 4.7%
</TABLE>
- ------------------------
(1) Expressed as a percentage of related revenues, not of total revenues.
Gross margins on revenues from product sales increased from 23.1% in the
first quarter of 1998 to 29.9% in the fourth quarter of 1998 primarily due to
decreases in prices from the Company's suppliers resulting from increased volume
of purchases by the Company. The increase in the number of Javelin products sold
has enabled the Company to obtain volume discounts from its suppliers and to
procure certain products directly from the manufacturers rather than from
distributors.
Cost of service consists primarily of payroll and related costs for
technical and support staff providing the services and are of a relatively fixed
nature in the short term. Gross margins on service revenues decreased from 30.7%
in the third quarter of 1998 to 17.5% in the fourth quarter of 1998 due
primarily to the completion in the third quarter of a significant retrofit by
CCI of 66 stores of one customer and increased costs in the fourth quarter
incurred to support anticipated future projects.
General and administrative expenses increased from $448,000 in the second
quarter of 1998 to $1.8 million in the fourth quarter of 1998 primarily due to
the acquisitions of CCI and Posnet in the third quarter and the establishment of
three foreign subsidiaries in the fourth quarter.
The Company has experienced in the past and may in the future experience
significant fluctuations in its operating results. Such fluctuations may be
caused by many factors, including, but not limited to: the size and timing of
individual orders, some of which may be of significant size; seasonality of
revenues; employee hiring and retention, particularly with respect to sales and
consulting personnel; lengthy sales and implementation cycles; reduction in
demand for existing products and services and shortening of product life cycles;
the timing of the introduction of products, product enhancements or services by
the Company or its competitors; competition and pricing in the POS systems
industry; market acceptance of new products; service personnel utilization
rates; the ability of the Company to expand its international
29
<PAGE>
and domestic sales, as well as the mix of such sales; foreign currency exchange
rates; changes in the mix of products and services sold; general health of the
restaurant industry, particularly the QSR segment; the ability of the Company to
generate service agreements; product quality problems; the ability of the
Company to control costs; the Company's success in establishing and expanding
its direct and indirect distribution channels; the mix of distribution channels
through which the Company's products are sold; and general economic conditions.
The Company's operating results, particularly with respect to its systems
integration business, may vary significantly because of the Company's failure to
obtain major projects, the cancellation or delays in the progress of major
projects for any reason and the Company's failure to timely replace projects
that have been completed or are nearing completion. Any of these factors could
cause the Company's results of operations to fluctuate significantly from period
to period, including on a quarterly basis.
LIQUIDITY AND CAPITAL RESOURCES
On June 8, 1998, the Company and its U.S. subsidiaries obtained a credit
facility of $7.5 million from a financial institution. The credit facility
expires on June 8, 2001 and consists of a line of credit of up to $6.0 million
and a term loan of $1.5 million. Under the line of credit, the Company may
borrow up to 80% of eligible receivables (as defined) and 50% of eligible
inventory (as defined) with monthly interest based upon the prime rate of a
national financial institution plus 1.75% (10.25% as of June 30, 1998). As of
June 30, 1998 borrowing outstanding under the line amounted to $1.3 million with
approximately $2.8 million available for future borrowings. Borrowings under the
term loan are collateralized by substantially all of the assets of the Company
and bear interest at 13.65% per annum. The Company is required to repay $25,000
per month with all unpaid principal and interest due on June 8, 2001. As of June
30, 1998, the Company had working capital of $4.1 million.
Cash used in operating activities in fiscal 1998 totaled $1.8 million and
consisted primarily of increases in trade receivables and inventories. Cash used
in net investing activities in fiscal 1998 totaled $400,000 and resulted
primarily from the acquisition of capital equipment offset by cash received from
acquired businesses. The Company anticipates that expenditures for capital
equipment will decrease in fiscal 1999. Cash provided by financing activities in
fiscal 1998 totaled $1.6 million and consisted primarily of net borrowings under
the line of credit and a term loan obtained in June 1998.
The Company anticipates that its working capital needs will increase with
the growth of the Company. The Company believes that operating income,
together with the availability of its line of credit, will be sufficient to
meet its capital requirements for the next twelve months. Depending on the
rate of growth and profitability, the Company may require additional equity
or debt financing to meet its future working capital and capital expenditures
needs. There can be no assurance that such additional financing will be
available or, if available, that such financing can be obtained on terms
satisfactory to the Company.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The year 2000 problem is
pervasive and complex as virtually every computer operation will be affected in
some way by the rollover of the two digit year value to "00". The issue is
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. The Company
is reviewing both its information technology and its non-information technology
systems to determine whether they are year 2000 compliant, and to date the
Company has not identified any material systems which are not year 2000
compliant. The Company has not made any material expenditure to address the year
2000 problem and at present does not anticipate that it will be required to make
any such material expenditures in the future.
30
<PAGE>
The Company has initiated formal communications with all significant
suppliers and service providers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate the year 2000 problem.
Although the Company has received verbal assurances of year 2000 compliance from
certain of such third parties, the Company has not yet received written
assurances of year 2000 compliance from the third parties with whom it has
relationships. The Company believes its operations will not be significantly
disrupted even if third parties with whom the Company has relationships are not
year 2000 compliant. In the event that the Company's suppliers are unable to
provide sufficient quantities of materials or goods to the Company as a result
of their failure to be year 2000 compliant, the Company believes that it can
obtain adequate supplies of materials and goods at comparable prices from other
sources. In the event that the Company's OEMs and VARs are adversely affected by
any failure to become year 2000 compliant and are therefore unable to purchase
anticipated quantities of the Company's products on a timely basis, the Company
may seek to replace such OEMs and VARs. Nevertheless, the Company believes that
any year 2000 compliance problems of its suppliers, OEMs or VARs could cause the
Company's results of operations to fluctuate on a period to period basis.
Uncertainty exists concerning the potential costs and effects associated with
any year 2000 compliance, and the Company intends to continue to make efforts to
ensure that third parties with whom it has relationships are year 2000
compliant. Any year 2000 compliance problem of either the Company or third
parties with whom the Company has relationships could materially adversely
affect the Company's business, financial condition or results of operations.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes standards for the reporting and display of comprehensive income and
its components. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. This standard will require that an enterprise display an amount
representing total comprehensive income for the period. SFAS 130 will be
effective for the Company's year ending June 30, 1999. Adoption of SFAS 130 is
for presentation only and will not affect the Company's financial position or
results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") which supersedes Statement of Financial Accounting Standards No.
14. This statement changes the way that publicly-held companies report
information about operating segments as well as disclosures about products and
services, geographic areas and major customers. Operating segments are defined
as revenue-producing components of the enterprise, which are generally used
internally for evaluating segment performance. SFAS 131 will be effective for
the Company's year ending June 30, 1999 and will not affect the Company's
financial position or results of operations.
31
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The information required by this item is included in Pages [F-1 through
F-20] attached hereto and incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On May 28, 1998, the Company elected to replace Ernst & Young LLP ("Ernst &
Young") as its independent accountants. The reports of Ernst & Young on the
Company's financial statements as of June 30, 1996 and 1997 and for the period
from inception to June 30, 1996 and for the year ended June 30, 1997 contained
no adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. The Company's audit
committee approved the Company's dismissal of Ernst & Young and the engagement
of PricewaterhouseCoopers LLP as the Company's independent accountants.
During the Company's two most recent fiscal years and through May 28, 1998,
there were no disagreements with Ernst & Young on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of Ernst &
Young would have caused them to make reference thereto in their report. During
the two most recent fiscal years and through May 28, 1998, there have been no
reportable events (as defined in Regulation S-K Item 304(a)(1) (v)). Ernst &
Young has furnished the Company with a letter addressed to the SEC stating that
it agrees with the above statements.
The Company engaged PricewaterhouseCoopers LLP as its new independent
accountants as of May 28, 1998. During the two most recent fiscal years and
through May 28, 1998, the Company has not consulted with PricewaterhouseCoopers
LLP on items which (i) are described in Regulation S-K Item 304(a)(2)(i) or (ii)
concerned the subject matter of a disagreement or reportable event with the
former accountants (as described in Regulation S-K Item 304(a)(2)(ii)).
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by this item is incorporated herein by reference
from Issuer's Definitive Proxy Statement to be filed with the Commission
pursuant to Regulation 14A in connection with the Issuer's 1998 Annual Meeting
of Stockholders (the "Proxy Statement") under the headings "Proposal 1--Election
of Directors," "Compliance with Section 16(a) of the Securities Exchange Act of
1934" and "Additional Information--Management."
ITEM 10: EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by reference
from Issuer's Proxy Statement under the heading "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated herein by reference
from Issuer's Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated herein by reference
from Issuer's Proxy Statement under the heading "Certain Relationships and
Related Transactions."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
1. (a) Financial Statements. Financial statements are attached to this
report as pages F-1 through F-20. The index to the financial
statements is found in the Financial Section on page F-1.
(b) The Company filed a Current Report on Form 8-K June 2, 1998 to
report a change in accountants.
2. Exhibits. See Exhibit Index below.
32.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- ------------------------
<S> <C>
3.1(1) -- Registrant's Amended and Restated Certificate of
Incorporation.
3.2(1) -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation.
3.3(1) -- Registrant's Amended and Restated Bylaws.
4.1(1) -- Form of Common Stock Certificate of Registrant.
10.1(1) -- Form of Indemnity Agreement entered into between the Company
and its directors and executive officers.
10.2(1) -- 1996 Stock Incentive Award Plan (the 1996 Plan).
10.3(1) -- Form of Director Non-Qualified Stock Option Agreement under
the 1996 Plan.
10.4(1) -- Form of Employee Non-Qualified Stock Option Agreement under
the 1996 Plan.
10.5 -- 1997 Equity Incentive Plan, as amended.
10.6 -- Form of Incentive Stock Option Agreement under the 1997 Plan.
10.7 -- Form of Nonstatutory Stock Option Agreement under the 1997
Plan.
10.8(1) -- Employment Agreement dated August 19, 1996 by and between the
Company and Richard P. Stack.
10.9(1) -- Employment Agreement dated August 19, 1996 by and between the
Company and C. Norman Campbell.
10.10 -- Standard Industrial/Commercial Multi-Tenant Lease-Modified
Net dated January 27, 1998 by and between the Company and
BRS-Campo Investment Company LP.
10.11(1) -- Standard Industrial/Commercial Single-Tenant Lease-Gross
dated October 19, 1995 by and between the Company and Robert
P. Peebles Trust, dated April 11, 1979.
10.12(2) -- Standard Sublease dated September 9, 1997 by and between the
Company, D. Howard Lewis and William R. Miller.
10.13 The Business Center Office/Warehouse Lease dated April 4,
1997 by and between CCI Group, Inc and Nooney Krombech
Company.
10.14(2) -- Distributor Agreement dated March 14, 1997 by and between the
Company and ScanSource, Inc.
10.15(3) -- Stock Purchase Agreement dated December 19, 1997 by and among
the Company, POSNET Computers, Inc., Paul R. Amestoy, Greg
Kolin, Mark LeMay and Ralph E. Rudzik, Jr.
10.16(4) -- Amendment to Stock Purchase Agreement dated January 23, 1998
by and between the Company and Mark LeMay as agent for Paul
R. Amestoy, Mark LeMay, Greg Kosin and Ralph E. Rudzik, Jr.
10.17(5) -- Plan of Reorganization and Stock Purchase Agreement dated
December 22, 1997 by and among the Company and CCI Group,
Inc., Robert Nichols, Robert Hess, Melissa Sobo and Renee
Voirol.
10.18 -- Loan and Security Agreement dated June 8, 1998 by and among
the Company, CCI Group, Inc., Posnet Computers, Inc. and
FINOVA Capital Corporation and related Secured Promissory
Note, Pledge Agreement and Secured Continuing Corporate
Guaranty.
10.19 -- Form of Warrant issued by the Company in favor of FINOVA
Capital Corporation.
10.20 -- Employment Agreement dated January 1, 1998 by and between
CCI Group, Inc. and Robert Nichols.
10.21 -- Letter of Intent dated July 20, 1998 by and among the
Company, RGB/Trinet Limited and Jade Communications Limited.
16.1 -- Letter on change in Certifying Accountant dated May 29,
1998 from Ernst & Young LLP to the SEC.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
24.1 -- Power of Attorney. Reference is made to page 36.
27.1 -- Financial Data Schedule.
</TABLE>
- --------------------
(1) Filed as a exhibit to the Company's Registration Statement on Form SB-2, as
amended (No. 333-11217), and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Current Report on Form 8-K dated
December 30, 1997 and incorporated herein by reference.
33.
<PAGE>
(4) Filed as an exhibit to the Company's Current Report on Form 8-K/A dated
March 4, 1998 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Current Report on Form 8-K dated
January 5, 1998 and incorporated herein by reference.
34.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Javelin Systems, Inc.
Date: September 22, 1998 By: /s/ Richard P. Stack
-------------------------------
Richard P. Stack
President and Chief Executive
Officer
Date: September 22, 1998 By: /s/ Horace Hertz
-------------------------------
Horace Hertz
Chief Financial Officer
35.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard P. Stack and Horace Hertz, his
attorney-in-fact, with the power of substitution, for him, in any and all
capacities, to sign any amendments to this report, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and conforming all that the
attorney-in-fact, or his substitute, may do or cause to be done by virtue
hereof.
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Richard P. Stack President, Chief Executive September 22, 1998
- ----------------------- Officer, Director
Richard P. Stack (PRINCIPAL EXECUTIVE OFFICER)
/s/ Horace Hertz Chief Financial Officer September 22, 1998
- ----------------------- (PRINCIPAL FINANCIAL AND
Horace Hertz ACCOUNTING OFFICER)
/s/ C. Norman Campbell Vice President, Engineering September 22, 1998
- -----------------------
C. Norman Campbell
/s/ Steven J. Goodman Director September 22, 1998
- -----------------------
Steven J. Goodman
Director September __, 1998
- -----------------------
Jay L. Kear
Director September __, 1998
- -----------------------
Andrew F. Puzder
/s/ Robert Nichols Director September 22, 1998
- -----------------------
Robert Nichols
36.
<PAGE>
JAVELIN SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants:
PricewaterhouseCoopers LLP..................................................................... F-2
Ernst & Young LLP.............................................................................. F-3
Consolidated Balance Sheets as of June 30, 1997 and 1998......................................... F-4
Consolidated Statements of Operations for the Years Ended June 30, 1997 and 1998................. F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997 and 1998................. F-6
Consolidated Statement of Stockholders' Equity for the Years Ended June 30, 1997 and 1998........ F-7
Notes to Consolidated Financial Statements....................................................... F-8
</TABLE>
F-1.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Javelin Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Javelin
Systems, Inc. and its subsidiaries at June 30, 1998, and the results of their
operations and their cash flows for the year in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Costa Mesa, California
August 25, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Javelin Systems, Inc.
We have audited the accompanying balance sheet of Javelin Systems, Inc. as of
June 30, 1997, 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. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Javelin Systems, Inc. at June
30, 1997, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Orange County, California
August 1, 1997
F-3
<PAGE>
JAVELIN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 686,200 $
Accounts receivable--net of allowance for doubtful accounts of $41,000 as of June
30, 1997 and of $248,800 as of June 30, 1998................................... 2,470,600 7,449,700
Inventories...................................................................... 1,674,100 5,925,300
Deferred income taxes............................................................ 204,900
Other current assets............................................................. 46,500 426,900
------------ -------------
Total current assets........................................................... 4,877,400 14,006,800
Property and equipment, net...................................................... 295,600 1,036,400
Excess of cost over net assets of purchased businesses........................... 6,457,500
Deferred financing costs......................................................... 889,000
Other assets, net................................................................ 30,000 141,600
------------ -------------
Total assets................................................................... $ 5,203,000 $ 22,531,300
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 200,000 $ 1,343,000
Accounts payable................................................................. 1,503,800 5,636,900
Accrued expenses................................................................. 144,700 625,000
Current maturities of long-term debt............................................. 300,000
Customer deposits................................................................ 1,197,200
Deferred maintenance revenues.................................................... 385,300
Income taxes payable............................................................. 438,700
------------ -------------
Total current liabilities...................................................... 1,848,500 9,926,100
------------ -------------
Long-term debt, net of current portion............................................. 1,200,000
Deferred rent expense.............................................................. 6,300
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $0.01 par value: authorized shares--1,000,000; issued and
outstanding shares--none
Common stock, $.01 par value: authorized shares--10,000,000; issued and
outstanding shares--3,119,250 as of June 30, 1997 and 4,111,962 as of June 30,
1998........................................................................... 31,200 41,100
Additional paid in capital....................................................... 4,295,300 11,270,900
Deferred compensation............................................................ (90,800) (39,200)
Retained earnings (accumulated deficit).......................................... (881,200) 132,900
Cumulative translation adjustment................................................ (6,800)
------------ -------------
Total stockholders' equity..................................................... 3,354,500 11,398,900
------------ -------------
Total liabilities and stockholders' equity..................................... $ 5,203,000 $ 22,531,300
------------ -------------
------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
JAVELIN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues:
Product sales........................................................... $ 7,014,600 $ 27,132,400
Service................................................................. 2,513,700
------------------ ------------------
Total revenues.......................................................... 7,014,600 29,646,100
------------------ ------------------
Cost of revenues:
Cost of product sales................................................... 5,499,500 19,831,300
Cost of service......................................................... 1,904,700
------------------ ------------------
Total cost of revenues.................................................. 5,499,500 21,736,000
------------------ ------------------
Gross profit............................................................ 1,515,100 7,910,100
------------------ ------------------
Operating expenses:
Research and development................................................ 396,400 874,000
Selling and marketing................................................... 390,800 1,179,900
General and administrative.............................................. 859,900 4,195,500
------------------ ------------------
Total operating expenses.................................................. 1,647,100 6,249,400
------------------ ------------------
Income (loss) from operations............................................. (132,000) 1,660,700
Interest expense.......................................................... (709,500) (115,000)
Other income.............................................................. 41,100
Interest income........................................................... 14,600 12,200
------------------ ------------------
Income (loss) before income taxes......................................... (826,900) 1,599,000
Provision for income taxes................................................ (584,900)
------------------ ------------------
Net income (loss)......................................................... $ (826,900) $ 1,014,100
------------------ ------------------
------------------ ------------------
Earnings (loss) per common share:
Basic................................................................... $ (0.30) $ 0.28
------------------ ------------------
------------------ ------------------
Diluted................................................................. $ (0.30) $ 0.27
------------------ ------------------
------------------ ------------------
Shares used in computing
Earnings (loss) per share:
Basic................................................................... 2,782,535 3,622,604
------------------ ------------------
------------------ ------------------
Diluted................................................................. 2,782,535 3,750,611
------------------ ------------------
------------------ ------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
JAVELIN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................................... $ (826,900) $ 1,014,100
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization........................................... 37,800 354,900
Amortization of deferred charge related to warrants..................... 636,100
Amortization of deferred compensation................................... 108,200 51,600
Loss on disposal of assets.............................................. 55,100
Deferred income taxes................................................... (204,900)
Deferred rent expense................................................... 6,300
Income tax benefit from exercise of stock options....................... 59,200
Non-cash allowances:
Inventories........................................................... 312,800
Accounts receivable................................................... 243,800
Other................................................................. 130,000
Changes in operating assets and liabilities, net of acquisitions:.......
Accounts receivable................................................... (1,776,900) (3,403,500)
Inventories........................................................... (1,464,800) (2,985,800)
Other current assets.................................................. (42,500) (313,900)
Accounts payable...................................................... 1,147,100 2,838,100
Accrued expenses...................................................... 111,800 35,100
Deferred maintenance revenues......................................... 129,200
Customer deposits..................................................... (408,500)
Income taxes payable.................................................. 239,000
------------------ ------------------
Net cash used in operating activities................................... (2,070,100) (1,847,400)
------------------ ------------------
INVESTING ACTIVITIES
Purchase of equipment................................................... (305,300) (724,600)
Cash received from purchased businesses................................. 392,400
Other assets............................................................ (20,300) (75,200)
------------------ ------------------
Net cash used in investing activities................................... (325,600) (407,400)
------------------ ------------------
FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit........................ (6,600) 774,200
Proceeds from issuance of long-term debt................................ 1,500,000
Payments of notes payable to related parties............................ (90,000) (515,500)
Repayment of notes payable.............................................. (70,000)
Deferred financing costs................................................ (278,900)
Net proceeds from initial public offering............................... 3,238,700
Exercise of stock options and warrants.................................. 3,400 95,600
------------------ ------------------
Net cash provided by financing activities............................. 3,075,500 1,575,400
------------------ ------------------
CUMULATIVE TRANSLATION ADJUSTMENT......................................... (6,800)
------------------ ------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... 679,800 (686,200)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 6,400 686,200
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 686,200 $ --
------------------ ------------------
------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income tax paid......................................................... $ 800 $ 298,000
------------------ ------------------
------------------ ------------------
Interest paid........................................................... $ 71,400 $ 113,200
------------------ ------------------
------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING
ACTIVITIES:
See Note 3 for the acquisition of businesses in exchange for 910,300
shares of the Company's common stock
See Note 5 for the warrants issued in connection with credit facility.
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
JAVELIN SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
DEFERRED CHARGE
RELATED TO RETAINED
COMMON STOCK ADDITIONAL WARRANTS ISSUED EARNINGS CUMULATIVE
------------------ PAID-IN DEFERRED IN CONNECTION (ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL COMPENSATION WITH DEBT DEFICIT) ADJUSTMENT TOTAL
--------- ------- ----------- ------------ --------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of July 1,
1996.................. 2,104,250 $21,100 $ 348,100 $ -- $(119,800) $ (54,300) $ -- $ 195,100
Value assigned to
warrants issued in
connection with
debt.................. 516,300 (516,300) 0 --
Amortization of deferred
charge................ 636,100 636,100
Exercise of warrants.... 165,000 1,600 1,700 3,300
Proceeds from initial
public offering,
net................... 850,000 8,500 3,230,200 3,238,700
Deferred stock
compensation.......... 199,000 (199,000) --
Amortization of deferred
stock compensation.... 108,200 108,200
Net loss................ (826,900) (826,900)
--------- ------- ----------- ------------ --------------- ------------ ---------- -----------
Balance, June 30,
1997.................. 3,119,250 31,200 4,295,300 (90,800) -- (881,200) -- 3,354,500
Value assigned to
warrants issued in
connection with credit
facility.............. 621,900 621,900
Issuances of shares for
acquisitions.......... 929,050 9,300 6,199,500 6,208,800
Amortization of deferred
stock compensation.... 51,600 51,600
Exercise of stock
options and exchange
of warrants for common
stock................. 63,662 600 95,000 95,600
Income tax benefit from
exercise of stock
options............... 59,200 59,200
Cumulative translation
adjustment............ (6,800) (6,800)
Net income.............. 1,014,100 1,014,100
--------- ------- ----------- ------------ --------------- ------------ ---------- -----------
Balance, June 30,
1998.................. 4,111,962 $41,100 $11,270,900 $ (39,200) $ -- $ 132,900 $(6,800) $11,398,900
--------- ------- ----------- ------------ --------------- ------------ ---------- -----------
--------- ------- ----------- ------------ --------------- ------------ ---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Javelin Systems, Inc. ("Javelin") was incorporated in the State of Delaware
on September 19, 1995 under the name of Sunwood Research, Inc. Javelin designs,
develops, markets and sells open systems touch screen point-of-sale ("POS")
computers.
On November 1, 1996, Javelin completed an initial public offering (the
"IPO") of 850,000 shares of its common stock at $5.00 per share, netting
proceeds of approximately $3.2 million. Proceeds were used to repay debt with an
outstanding balance of approximately $745,000 and for working capital.
In December 1997, Javelin acquired all of the outstanding common stock of
POSNET Computers, Inc.("Posnet") and CCI Group, Inc. ("CCI") as described in
Note 3. Posnet and CCI provide full turn-key systems integration services,
including system consulting, staging, training, deployment, product support and
maintenance.
In March and April 1998, Javelin established three international
subsidiaries to expand its sales and distribution channels in the international
marketplace. The international subsidiaries are: Javelin Systems (Europe)
Limited ("Javelin Europe") headquartered in England; Javelin Systems
International Pte Ltd ("Javelin Asia") headquartered in Singapore; and Javelin
Systems Australia Pty Limited ("Javelin Australia") headquartered in Australia.
In May 1998, Javelin Asia acquired all of the outstanding common stock of
Aspact IT Services (Singapore) Pte Ltd ("Aspact") as described in Note 3. Aspact
is headquartered in Singapore and provides consulting and system integration
services.
In July 1998, Javelin entered into a letter of intent to acquire all of the
outstanding capital stock of RGB/Trinet Ltd. ("RGB/Trinet") and Jade
Communications Ltd ("Jade"). RGB/Trinet and Jade are headquartered in England
and provided complementary Wide Area Networking (WAN) products and services
primarily to large retail, hospitality, and telecommunications companies. See
Note 9 for description of these planned acquisitions.
Hereinafter, Javelin and its subsidiaries are referred to as the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Javelin and of
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could materially differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of the financial instruments could be different
than that recorded on a historical basis in the accompanying
F-8
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
consolidated financial statements. The financial instruments consist of cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses and
debt. The carrying amounts of the Company's financial instruments as of June 30,
1997 and 1998 approximate their respective fair values.
CONCENTRATION OF BUSINESS AND CREDIT RISK
Javelin operates within an industry that is subject to rapid technological
advancement, intense competition and uncertain market acceptance. The
introduction of new technologies, competitors' alternative products and ultimate
market acceptance of the products sold by Javelin, could have a substantial
impact on the future operations of the Company.
Financial instruments which potentially subject the Company to a
concentration of credit risk consist primarily of trade receivables. In the
normal course of business, the Company provides credit terms to its customers
and collateral is generally not required. Accordingly, the Company performs
ongoing credit evaluations of its customers and maintains allowances for
potential losses which, when realized, have been within the range of
management's expectations.
During the year ended June 30, 1997 two customers aggregated approximately
16% each of net sales. During the year ended June 30, 1998 one customer
aggregated approximately 11% of net sales. Sales were not to the same major
customers in 1997 and 1998. Export sales, principally to Europe, during the year
ended June 30, 1998 aggregated approximately 10% of net sales. Export sales
during the year ended June 30, 1997 were not significant.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist primarily of computer hardware and components and are
stated at the lower of cost (first-in, first-out) or market as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1998
------------ ------------
<S> <C> <C>
Raw materials..................................................... $ 1,525,700 $ 3,572,500
Finished goods.................................................... 148,400 2,352,800
------------ ------------
$ 1,674,100 $ 5,925,300
------------ ------------
------------ ------------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred, and the costs of additions and betterments are
capitalized. Depreciation is provided in amounts, which amortize costs over the
useful lives of the related assets, generally three to five years, utilizing the
straight-line method. Leasehold improvements are amortized over the terms of the
respective leases or useful lives of the improvements, whichever is shorter.
Management of the Company assesses the recoverability of property and
equipment when certain events are known to management which may affect the
carrying value of such assets in relation to fair value. Management assesses
fair value by determining whether the carrying value of such assets over their
F-9
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
remaining lives can be recovered through projected undiscounted cash flows. The
amount of impairment, if any, is measured based on projected undiscounted cash
flows and is charged to operations in the period in which such impairment is
determined by management. To date, management has not identified any impairment
of property and equipment.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1998
---------- ------------
<S> <C> <C>
Machinery and equipment............................................. $ 112,800 $ 603,000
Furniture and fixtures.............................................. 150,800 638,000
Leasehold improvements.............................................. 72,700 35,200
---------- ------------
336,300 1,276,200
Less accumulated depreciation and amortization...................... (40,700) (239,800)
---------- ------------
Property and equipment, net......................................... $ 295,600 $ 1,036,400
---------- ------------
---------- ------------
</TABLE>
EXCESS OF COST OVER NET ASSETS OF PURCHASED BUSINESSES
Excess of cost over net assets of purchased businesses (goodwill) represents
the excess of purchase price over the fair value of the net assets of acquired
businesses. Goodwill is stated at cost and is amortized on a straight-line basis
over 25 years. The Company assesses the recoverability of this intangible asset
by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through projected undiscounted cash flows. The
amount of goodwill impairment, if any, is measured based on projected
undiscounted cash flows and is charged to operations in the period in which
goodwill impairment is determined by management. To date, management has not
identified any impairment of goodwill.
DEFERRED FINANCING COSTS
Deferred financing costs represent incremental costs to unrelated parties
incurred in connection with the credit facility described in Note 5 and are
deferred and amortized over the term of the related debt.
CUSTOMER DEPOSITS
Customer deposits as of June 30, 1998 consists principally of amounts
received for contracts to be started in fiscal 1999.
FOREIGN CURRENCY TRANSLATION
The consolidated financial statements of the Company's non-U.S. operations
are translated into U.S. dollars for financial reporting purposes. The assets
and liabilities of non-U.S. operations whose functional currencies are other
than the U.S. dollar are translated at rates of exchange at fiscal year-end, and
revenues and expenses are translated at average exchange rates for the fiscal
year. The cumulative translation effects are reflected in stockholders' equity.
Foreign currency gains and losses on transactions denominated in other than the
functional currency of an operation are reflected in other income (expense).
F-10
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
Revenues from sales of products are recognized upon shipment of the
products. The Company does not have any significant remaining obligations upon
shipment of the products. Product returns and sales allowances, which
historically have not been significant, are provided for at the date of sale.
Revenues from the installation of products are recognized upon the
completion of the installation of the product as acknowledged by the customer.
Service contract revenues are recognized ratably over the term of the
related contract.
WARRANTIES
The Company's products are under warranty for defects in material and
workmanship for one year. Certain components included in the Company's products
are covered by manufacturers' warranties. The Company establishes an accrual for
estimated warranty costs at the time of sale.
ADVERTISING COSTS
The Company expenses the costs of advertising as incurred.
RESEARCH AND DEVELOPMENT
The Company expenses the cost of research and development, principally
comprised of payroll and related costs and the cost of prototypes.
STOCK-BASED COMPENSATION
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for
stock-based compensation. However, SFAS 123 allows an entity to continue to
measure compensation cost related to stock and stock options issued to employees
using the intrinsic method of accounting prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees."
Entities electing to use APB 25 for accounting for stock-based compensation to
employees must make pro forma disclosures of net income or loss, as if the fair
value method of accounting defined in SFAS 123 had been applied. The Company has
elected to account for its stock-based compensation to employees under APB 25.
INCOME TAXES
The Company accounts for its income taxes using the asset and liability
method whereby deferred tax assets and liabilities are determined based on
temporary differences between bases used for financial reporting and income tax
reporting purposes. Income taxes are provided based on the enacted tax rates in
effect at the time such temporary differences are expected to reverse. A
valuation allowance is provided for certain deferred tax assets if it is more
likely than not that the Company will not realize those tax assets through
future operations.
EARNINGS (LOSS) PER COMMON SHARE
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
specifies the computation, presentation and disclosure requirements for earnings
per share ("EPS"). It replaces the presentation of primary and fully
F-11
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
diluted EPS with basic and diluted EPS. Basic EPS excludes all dilution and it
is based upon the weighted average number of common shares outstanding during
the period. Diluted EPS reflects the potential dilution that would occur if
securities or other contracts to issue common stock which are dilutive were
exercised or converted into common stock. The Company has adopted SFAS 128 in
the quarter ended December 31, 1997 and has restated all previously reported per
share amounts to conform to the new presentation.
Diluted loss per common share is computed using the weighted average number
of common shares outstanding during the period. Common share equivalents were
not included in the 1997 computation of diluted loss per common share since
their effect would have been anti-dilutive.
A reconciliation of basic and diluted EPS for the years ended June 30, 1997
and 1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997 YEAR ENDED JUNE 30, 1998
-------------------------- --------------------------
BASIC DILUTED BASIC DILUTED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss).................... $ (826,900) $ (826,900) $ 1,014,100 $ 1,014,100
Weighted average common shares
outstanding........................ 2,782,535 2,782,535 3,622,604 3,622,604
Additional shares due to potential
exercise of stock options.......... 128,007
Diluted weighted average common
shares outstanding................. 2,782,535 2,782,535 3,622,604 3,750,611
Earnings (loss) per share............ $ (0.30) $ (0.30) $ 0.28 0.27
</TABLE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes standards for the reporting and display of comprehensive income and
its components. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. This standard will require that an enterprise display an amount
representing total comprehensive income for the period. SFAS 130 will be
effective for the Company's year ending June 30, 1999. Adoption of SFAS 130 is
for presentation only and will not affect the Company's financial position or
results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") which supersedes Statement of Financial Accounting Standards No.
14. This statement changes the way that publicly-held companies report
information about operating segments as well as disclosures about products and
services, geographic areas and major customers. Operating segments are defined
as revenue-producing components of the enterprise, which are generally used
internally for evaluating segment performance. SFAS 131 will be effective for
the Company's year ending June 30, 1999 and will not affect the Company's
financial position or results of operations.
F-12
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS
Cash received in connection with the Company's purchase acquisitions is as
follows:
<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill.............. $10,422,000
Less liabilities assumed....................................... 4,561,200
Less stock and cash issued to sellers.......................... 6,253,200
----------
Cash received.................................................. $ 392,400
----------
----------
</TABLE>
In December 1997, the Company acquired all of the outstanding capital
stock of Posnet. Posnet sells, installs and maintains POS systems and turnkey
retail automation systems. The original purchase price for the Posnet capital
stock consisted of 225,000 shares of the Company's common stock. The Company
may be required to issue an additional 75,000 shares (the "Contingency
Shares") of its common stock in 1998 and shares of its common stock with a
market value of $500,000 in each of 1999 and 2000 (the "Additional
Contingency Shares") based upon the cumulative net profits of Posnet during
the three years ending December 31, 2000. The Contingency Shares and
Additional Contingency Shares are collectively known as the "Earnout Shares."
The acquisition has been accounted for by the purchase method, and
accordingly, the results of operations of Posnet have been included with
those of the Company commencing on the date of acquisition. The original
purchase price of $1,594,200 (including acquisition costs of approximately
$75,500) was determined by discounting the value of the common stock issued
by 25% from the quoted price principally due to restrictions and liquidity
factors and resulted in excess of acquisition costs over net assets of
approximately $2,036,000. Such excess (which will increase for any contingent
payments) is being amortized on a straight-line basis over 25 years. The
final allocation of the purchase price may vary as additional information is
obtained, and accordingly, the ultimate allocation may differ from that used
in accompanying consolidated financial statements. During the year ended June
30, 1998, the Company issued 18,750 Contingency Shares as additional
consideration. See Note 9 for amendment to the additional contingent
consideration.
In December 1997, the Company acquired all of the outstanding capital
stock of CCI. CCI sells, installs and maintains POS systems and turnkey
retail automation systems. The purchase price for the CCI capital stock
consisted of 670,000 shares of the Company's common stock. The acquisition
has been accounted for by the purchase method, and accordingly, the results
of operations of CCI have been included with those of the Company commencing
on the date of acquisition. The purchase price of $4,476,800 (including costs
of acquisition of approximately $111,300) was determined by discounting the
value of the common stock issued by 25% from the quoted price principally due
to restrictions and liquidity factors and resulted in excess of acquisition
costs over net assets of approximately $4,097,500. Such excess is being
amortized on a straight-line basis over 25 years. The final allocation of the
purchase price may vary as additional information is obtained, and
accordingly, the ultimate allocation may differ from that used in
accompanying consolidated financial statements.
F-13
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited pro forma consolidated results of operations as if the
acquisitions of Posnet and CCI had occurred as of July 1, 1996 and July 1,
1997, respectively, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Revenues....................................................... $ 19,462,200 $ 36,951,000
Cost of revenues............................................... 14,750,000 26,987,300
------------- -------------
Gross profit................................................... 4,712,200 9,963,700
Operating expenses............................................. 5,081,100 8,170,300
------------- -------------
Income (loss) from operations.................................. (368,900) 1,793,400
Other income (expense)......................................... (733,600) (64,900)
------------- -------------
Income (loss) before income taxes.............................. (1,102,500) 1,728,500
Provision for income taxes..................................... (8,500) (615,400)
------------- -------------
Net income (loss).............................................. $ (1,111,000) $ 1,113,100
------------- -------------
------------- -------------
Income (loss) per share:
Basic........................................................ $ (0.30) $ 0.25
------------- -------------
------------- -------------
Fully diluted................................................ $ (0.30) $ 0.24
------------- -------------
------------- -------------
</TABLE>
The above unaudited pro forma amounts are not necessarily indicative of what
the actual results might have been if the acquisitions had occurred as of July
1, 1996.
On May 14, 1998, Javelin Asia acquired all of the outstanding common stock
of Aspact for $170,000 in cash and 15,300 shares of the Company's common stock.
The acquisition of Aspact has been accounted for as a purchase. Accordingly, the
purchase price of $567,400 has been allocated to assets and liabilities based on
their estimated fair value at the date of acquisition. Results of operations of
Aspact have been included in the consolidated financial statements from the date
of acquisition. The purchase price resulted in excess of acquisition costs over
net assets of approximately $320,000. Such excess is being amortized on a
straight-line basis over 25 years. The results of operations of Aspact prior to
May 14, 1998 were not material.
See Note 9 regarding planned future acquisitions.
F-14
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
No provision for federal or state income taxes was required for the year
ended June 30, 1997 since the Company incurred losses from inception to June 30,
1997. The components of income tax expense for the year ended June 30, 1998 are
as follows:
<TABLE>
<S> <C>
Current:
Federal........................................................ $ 686,300
State.......................................................... 70,700
Foreign........................................................ 32,800
---------
789,800
---------
Deferred:
Federal........................................................ (157,400)
State.......................................................... (47,500)
Foreign........................................................ --
---------
Total............................................................ (204,900)
---------
$ 584,900
---------
---------
</TABLE>
The Company's effective tax rate differs from the U.S. federal statutory tax
rate, as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Income tax provision at statutory tax rates.................................... 34.0% 34.0%
State taxes, net of federal tax effect......................................... 2.5
Goodwill....................................................................... 2.7
Non-deductible items........................................................... 4.1
Net operating loss benefit..................................................... (34.0) (8.7)
Other.......................................................................... -- 2.0
--------- ---
Total.......................................................................... 0% 36.6%
--------- ---
--------- ---
</TABLE>
Components of the deferred income tax balance are as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................................... $ 38,400 $ --
Accrued expenses.................................................... 15,700 195,000
Other................................................................. 35,600 9,900
---------- ----------
Deferred tax assets................................................... $ 89,700 $ 204,900
---------- ----------
---------- ----------
Valuation allowance................................................... $ 89,700 $ 0
---------- ----------
---------- ----------
Net deferred tax asset................................................ $ 0 $ 204,900
---------- ----------
---------- ----------
</TABLE>
Management believes it is more likely than not that the Company will realize
its deferred tax asset based upon current year and expected results.
F-15
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LINE OF CREDIT AND LONG-TERM DEBT
On June 8, 1998, the Company and its U.S. subsidiaries obtained a credit
facility of $7,500,000 from an unrelated financial institution. The credit
facility expires on June 8, 2001 and consists of a line of credit of up to
$6,000,000 and a term loan of $1,500,000. The Company issued warrants to
purchase 135,000 shares of common stock in connection with the credit facility.
See Note 7 regarding warrants.
Under the terms of the line of credit, the Company may borrow up to 80% of
eligible accounts receivable (as defined) and 50% of eligible inventory (as
defined) with monthly interest payments based upon the prime rate of a national
financial institution plus 1.75% (10.25% as of June 30, 1998). Borrowings under
the line of credit are collateralized by substantially all the assets of the
Company. As of June 30, 1998, borrowings outstanding under the line amounted to
$1,343,000 with approximately $2,800,000 available for future borrowings.
Borrowings under the term loan are collateralized by substantially all of
the assets of the Company, bear interest at 13.65% per annum and are repayable
at $25,000 per month with all unpaid principal and interest due on June 8, 2001.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities and certain equipment under noncancelable
operating leases subject to scheduled rent increases. The leases expire at
various dates through August 2003.
Future minimum annual lease payments as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
- --------------------------------------------------------------------------------
<S> <C>
1999............................................................................ $ 605,100
2000............................................................................ 670,900
2001............................................................................ 638,700
2002............................................................................ 572,200
2003............................................................................ 473,600
Thereafter...................................................................... 1,700
------------
Total........................................................................... $ 2,962,200
------------
------------
</TABLE>
Rent expense under operating lease agreements aggregated approximately
$34,300 and $230,100 for the year ended June 30, 1997 and 1998, respectively,
and is included in general and administrative expenses in the accompanying
consolidated statement of operations.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with eleven employees of the Company,
which expire at various dates through December 2002. Some of the agreements
provide for incentive bonuses which are payable if specified management goals
are attained.
F-16
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future annual minimum payments under the employment agreements as of June
30, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------------------------------------------------------------------
<S> <C>
1999............................................................................ $ 1,040,000
2000............................................................................ 320,000
2001............................................................................ 320,000
2002............................................................................ 320,000
2003............................................................................ 160,000
------------
Total........................................................................... $ 2,160,000
------------
------------
</TABLE>
7. STOCKHOLDERS' EQUITY
COMMON STOCK
On August 23, 1996, the Company effected a 4,300-for-1 stock split. All
references in the accompanying consolidated financial statements and notes to
shares outstanding and per share amounts have been adjusted to reflect the
impact of the stock split.
In November 1996, the Company completed its initial public offering by
issuing 850,000 shares of common stock at an offering price of $5.00 per share.
During the year ended June 30, 1998, the Company issued 929,050 shares of
its common stock in connection with the acquisitions described in Note 3, 27,300
shares of common stock upon the exercise of stock options with a weighted
average exercise price of $3.50 per share and 36,362 shares of its common stock
upon the exercise of warrants issued to the underwriter in connection with the
initial public offering.
STOCK OPTION PLANS
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. Under APB 25, the Company recognizes
as compensation expense the difference between the exercise price and the fair
market value of the common stock on the date of grant. Stock based compensation
expense is deferred and recognized over the vesting period of the stock option.
During the years ended June 30, 1997 and 1998, the Company recognized $108,200
and $51,600, respectively, in stock based compensation expense.
In August 1996, the Company adopted a stock incentive award plan (the
"Plan") under which the Board of Directors (the "Board"), or a committee
appointed for such purpose, may from time to time grant options, restricted
stock or other stock-based compensation to the directors, officers, eligible
employees or consultants of the Company to acquire up to an aggregate of 300,000
shares of common stock, in such numbers, under such terms and at such exercise
prices as are determined by the Board or such committee. Options vest over a
3-year period based on the following schedule: 40% after year one, 30% after
year two, and 30% at the end of year three. All options expire ten years from
the date of grant. It is the Company's intention to grant options under the Plan
principally to employees.
In December 1997, the stockholders approved the Company's 1997 Equity
Incentive Plan (the "1997 Plan") under which the Board, or a committee appointed
for such purpose, may from time to time grant options, restricted stock or other
stock-based compensation to the directors, officers, eligible employees or
consultants of the Company to acquire up to an aggregate of 1,100,000 shares of
common stock, in such numbers, under such terms and at such exercise prices as
are determined by the Board or such committee.
F-17
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options generally vest 20% per year over a 5-year period. All options expire ten
years from the date of grant. It is the Company's intention to grant options
under the Plan principally to employees.
The following option activity occurred in the years ended June 30, 1997 and
1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- -----------------
<S> <C> <C>
FOR OPTIONS GRANTED AT LESS THAN FAIR
MARKET VALUE ON THE DATE OF GRANT:
Outstanding as of July 1, 1996...................................
Granted.......................................................... 191,000 $ 3.71
Exercised........................................................
Canceled......................................................... 13,500 $ 3.50
---------
Balance, June 30, 1997........................................... 177,500 $ 3.73
Granted..........................................................
Exercised........................................................ 27,300 $ 3.50
Canceled.........................................................
---------
Balance, June 30, 1998........................................... 150,200 $ 3.77
---------
---------
Exercisable at June 30, 1998..................................... 112,536 $ 3.80
--------- -----
--------- -----
Outstanding as of July 1, 1996...................................
Granted.......................................................... 68,000 $ 4.90
Exercised........................................................
Canceled......................................................... --
---------
Balance, June 30, 1997........................................... 68,000 $ 4.90
Granted.......................................................... 623,000 $ 9.42
Exercised........................................................
Canceled......................................................... 7,500 $ 9.50
---------
Balance, June 30, 1998........................................... 683,500 $ 8.96
---------
Exercisable at June 30, 1998..................................... 58,943 $ 5.47
--------- -----
--------- -----
</TABLE>
The weighted average remaining contractual life of options outstanding as of
June 30, 1998 was 9.3 years.
The range of exercise prices for options outstanding as of June 30, 1998 was
$2.50 to $12.50. The weighted-average fair value of options granted at less than
fair market value in 1997 was $1.65. The weighted-average fair value of options
granted at fair market value in 1997 and 1998 was $1.68 and $3.62, respectively.
Income tax benefits from the exercise of the stock options during the fiscal
year ended June 30, 1998 of approximately $59,000 has been credited to
additional paid-in capital in the accompanying consolidated balance sheet.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company accounted for its employee stock options granted subsequent to
June 30, 1996 under the fair value method of the statement. The fair value
F-18
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Risk free interest rate......................................... 6.0% 6.0%
Dividend yield.................................................. None None
Volatility factor of the expected market price of the Company's
common stock.................................................. 0.41 0.57
Weighted-average expected life of each option................... 3 years 3 years
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of fair value of its employee stock options. For purpose of pro forma
disclosures, the estimated fair value of the options is amortized to expenses
over the options vesting period. The Company's pro forma information for the
years ended June 30, 1997 and 1998 follows:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Net income (loss) as reported...................................... $ (826,900) $ 1,014,100
Net income (loss)--SFAS 123 adjusted............................... $ (886,000) $ 743,300
Earnings (loss) per share as reported:
Basic............................................................ $ (0.30) $ 0.28
Diluted.......................................................... $ (0.30) $ 0.27
Earnings (loss) per share-SFAS 123 adjusted:
Basic............................................................ $ (0.32) $ 0.21
Diluted.......................................................... $ (0.32) $ 0.20
</TABLE>
WARRANTS
In connection with the issuance of $725,000 of the Company's 10% promissory
notes at various dates through August 1996 and the initial public offering, the
Company granted warrants to purchase shares of the Company's common stock. The
warrants entitled the holders to purchase a total of 165,000 shares of the
Company's common stock at an aggregate price of approximately $3,300. The
outstanding warrants became exercisable following the effectiveness of the
public offering of the Company's common stock and had no expiration date. As of
June 30, 1997, all warrants had been exercised. The Company assigned a value of
approximately $646,300 to the warrants, which has been accounted for as
additional paid in capital in the accompanying consolidated financial
statements. The deferred charge related to the warrants was fully amortized
after the exercise of all the warrants.
In connection with its initial public offering, the Company sold the
representatives of the underwriters a warrant to purchase 85,000 shares of the
Company's common stock at $6.25 per share. During the year ended June 30, 1998,
warrants to purchase 65,670 shares of the Company's common stock were exchanged
into 36,362 shares of common stock. The fair value of the common stock issued
approximated the fair value of the warrants received.
F-19
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the credit facility described in Note 5, the Company
issued warrants to purchase 100,000 shares of its common stock at $9.00 per
share to the financial institution and warrants to purchase 35,000 shares of its
common stock at prices ranging from $9.36 to $12.65 to its independent financial
advisors. The fair value of these warrants was estimated at $621,900 at the date
of grant using a Black-Scholes pricing model with the assumptions described
above. The fair value of the warrants has been reflected as deferred financing
costs and additional paid in capital in the accompanying consolidated balance
sheet.
8. RELATED PARTY TRANSACTIONS
During the year ended June 30, 1997, the Company purchased electronic
components from a company owned by a stockholder and founder of the Company
totaling $1,234,328. Purchases from the related company during the year ended
June 30, 1998 were not significant. Included in accounts payable at June 30,
1997 is $116,360 due to that company.
In connection with the acquisitions of Posnet and CCI described in Note 3,
the Company assumed certain debt payable to former shareholders of the acquired
entities and current shareholders of the Company. All of such debt was repaid
prior to June 30, 1998.
9. SUBSEQUENT EVENTS
In August 1998, the Company agreed to issue 56,250 shares of its common
stock to the former shareholders of Posnet in consideration for the elimination
of any future Earnout Shares (see Note 3). The value of these shares will be
recorded as additional goodwill.
In July 1998, the Company entered into a letter of intent to acquire all of
the outstanding capital stock of RGB/Trinet Limited ("RGB/Trinet") and 52.5% of
the outstanding common stock of Jade Communications Limited ("Jade"). The
remaining 47.5% of the outstanding common stock of Jade is owned by RGB/Trinet.
RGB/Trinet and Jade are located in England and provide complementary wide area
network products and services primarily to large retail, hospitality and
telecommunications customers in Europe. The aggregate purchase price for the
RGB/Trinet and Jade capital stock would consist of $1,510,100 in cash,
$1,817,700 in shares of the Company's common stock and an additional 25,000
shares of the Company's common stock. The Company may be required to issue
additional shares of its common stock with a market value of $3,290,000 in each
of 1999 and 2000 based upon the cumulative net profits of RGB/Trinet and Jade
during the twenty four months ending September 30, 2000. The acquisitions will
be accounted for by the purchase method, and accordingly, the results of
operations of RGB/Trinet and Jade will be included with those of the Company
commencing on the date of acquisition.
F-20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- ------------------------
<S> <C>
3.1(1) -- Registrant's Amended and Restated Certificate of
Incorporation.
3.2(1) -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation.
3.3(1) -- Registrant's Amended and Restated Bylaws.
4.1(1) -- Form of Common Stock Certificate of Registrant.
10.1(1) -- Form of Indemnity Agreement entered into between the Company
and its directors and executive officers.
10.2(1) -- 1996 Stock Incentive Award Plan (the 1996 Plan).
10.3(1) -- Form of Director Non-Qualified Stock Option Agreement under
the 1996 Plan.
10.4(1) -- Form of Employee Non-Qualified Stock Option Agreement under
the 1996 Plan.
10.5 -- 1997 Equity Incentive Plan, as amended.
10.6 -- Form of Incentive Stock Option Agreement under the 1997 Plan.
10.7 -- Form of Nonstatutory Stock Option Agreement under the 1997
Plan.
10.8(1) -- Employment Agreement dated August 19, 1996 by and between the
Company and Richard P. Stack.
10.9(1) -- Employment Agreement dated August 19, 1996 by and between the
Company and C. Norman Campbell.
10.10 -- Standard Industrial/Commercial Multi-Tenant Lease-Modified
Net dated January 27, 1998 by and between the Company and
BRS-Campo Investment Company LP.
10.11(1) -- Standard Industrial/Commercial Single-Tenant Lease-Gross
dated October 19, 1995 by and between the Company and Robert
P. Peebles Trust, dated April 11, 1979.
10.12(2) -- Standard Sublease dated September 9, 1997 by and between the
Company, D. Howard Lewis and William R. Miller.
10.13 The Business Center Office/Warehouse Lease dated April 4,
1997 by and between CCI Group, Inc and Nooney Krombech
Company.
10.14(2) -- Distributor Agreement dated March 14, 1997 by and between the
Company and ScanSource, Inc.
10.15(3) -- Stock Purchase Agreement dated December 19, 1997 by and among
the Company, POSNET Computers, Inc., Paul R. Amestoy, Greg
Kolin, Mark LeMay and Ralph E. Rudzik, Jr.
10.16(4) -- Amendment to Stock Purchase Agreement dated January 23, 1998
by and between the Company and Mark LeMay as agent for Paul
R. Amestoy, Mark LeMay, Greg Kosin and Ralph E. Rudzik, Jr.
10.17(5) -- Plan of Reorganization and Stock Purchase Agreement dated
December 22, 1997 by and among the Company and CCI Group,
Inc., Robert Nichols, Robert Hess, Melissa Sobo and Renee
Voirol.
10.18 -- Loan and Security Agreement dated June 8, 1998 by and among
the Company, CCI Group, Inc., Posnet Computers, Inc. and
FINOVA Capital Corporation and related Secured Promissory
Note, Pledge Agreement and Secured Continuing Corporate
Guaranty.
10.19 -- Form of Warrant issued by the Company in favor of FINOVA
Capital Corporation.
10.20 -- Employment Agreement dated January 1, 1998 by and between
CCI Group, Inc. and Robert Nichols.
10.21 -- Letter of Intent dated July 20, 1998 by and among the Company,
RGB/Trinet Limited and Jade Communications Limited.
16.1 -- Letter on change in Certifying Accountant dated May 29,
1998 from Ernst & Young LLP to the SEC.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
24.1 -- Power of Attorney. Reference is made to page 36.
27.1 -- Financial Data Schedule.
</TABLE>
- -------------------
(1) Filed as a exhibit to the Company's Registration Statement on Form SB-2, as
amended (No. 333-11217), and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 and incorporated herein by reference.
<PAGE>
(3) Filed as an exhibit to the Company's Current Report on Form 8-K dated
December 30, 1997 and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Current Report on Form 8-K/A dated
March 4, 1998 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Current Report on Form 8-K dated
January 5, 1998 and incorporated herein by reference.
<PAGE>
JAVELIN SYSTEMS, INC.
SECOND AMENDED 1997 EQUITY INCENTIVE PLAN
ADOPTED BY THE BOARD OF DIRECTORS SEPTEMBER 2, 1997
APPROVED BY THE STOCKHOLDERS DECEMBER 12, 1997
AMENDED BY THE BOARD OF DIRECTORS MARCH 3, 1998 AND JUNE 25, 1998
AMENDMENT APPROVED BY THE STOCKHOLDERS _________________
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options and (iii) Stock Appreciation Rights, all as defined
below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Options granted pursuant to Section 6 hereof, including Incentive Stock
Options and Nonstatutory Stock Options, or Stock Appreciation Rights granted
pursuant to Section 7 hereof. All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and
in such form as issued pursuant to Section 6, and a separate certificate or
certificates will be issued for shares purchased on exercise of each type of
Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
1.
<PAGE>
(e) "COMMON STOCK" means the shares of the Company's Common Stock, $.01
par value.
(f) "COMPANY" means Javelin Systems, Inc., a Delaware corporation.
(g) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 7(b)(ii) of the Plan.
(h) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board, in its sole
discretion, may determine whether Continuous Status as an Employee, Director or
Consultant shall be considered interrupted in the case of: (i) any leave of
absence approved by the Board, including sick leave, military leave, or any
other personal leave; or (ii) transfers between the Company, Affiliates or their
successors.
(j) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(k) "DIRECTOR" means a member of the Board.
(l) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the fair market value of
the Common Stock of the Company determined in accordance with Section 6(b) of
the Plan or otherwise as determined by the Board pursuant to Rule 260.140.50 of
Title 10 of the California Code of Regulations.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a
right granted pursuant to subsection 7(b)(iii) of the Plan.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company, or its parent or
subsidiary for services rendered as a
2.
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consultant or in any capacity other than as a Director (except for an amount
as to which disclosure would not be required under Item 404(a) of Regulation
S-K ("Regulation S-K") promulgated pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means a stock option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(v) "OPTIONEE" means a person who holds an outstanding Option.
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliate corporation" (within the meaning of the
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of 162(m) of the Code.
(x) "PLAN" means this Javelin Systems, Inc. 1997 Equity Incentive Plan.
(y) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(z) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 7 of the Plan.
(aa) "STOCK AWARD" means any right granted under the Plan, including any
Option and any Stock Appreciation Right.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
(cc) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 7(b)(i) of the Plan.
3.
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3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option or a Stock Appreciation Right, or a combination of the
foregoing; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; whether a person shall be permitted to
receive stock upon exercise of an Independent Stock Appreciation Right; and the
number of shares with respect to which a Stock Award shall be granted to each
such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Non-Employee Directors and/or Outside Directors. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board (and references in this Plan to the Board shall thereafter be to
the Committee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding the foregoing, but only to the
extent permitted by applicable law, the Board may delegate to any executive
officer or executive officers of the Company authority to grant Stock Awards to
eligible persons who are not then subject to Section 16 of the Exchange Act and
the term "Committee" shall apply to any such executive officer or executive
officers to whom such authority has been delegated. Any such delegation,
however, shall include aggregate and individual limits on the size of Stock
Awards to be made by such a committee.
(d) Any requirement that an administrator of the Plan be a Non-Employee
Director shall not apply if the Board or the Committee expressly declares that
such requirement shall not apply. Any Non-Employee Director shall otherwise
comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate
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one million one hundred thousand (1,100,000) shares of the Company's Common
Stock. If any Stock Award shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full, the
Common Stock not acquired under such Stock Award shall revert to and again
become available for issuance under the Plan. Shares of Common Stock subject
to Stock Appreciation Rights exercised in accordance with Section 7 of the
Plan shall not be available for subsequent issuance under the Plan.
(b) The Common Stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) All Employees, Directors and Consultants of the Company (or any
business entity in which the Company owns directly or indirectly fifty percent
(50%) or more of the total voting power) capable of contributing significantly
to the successful performance of the Company, other than an employee who has
irrevocably elected not to be eligible, are eligible to be Participants in the
Plan.
(b) No person shall be eligible for the grant of an Option if, at the time
of grant, such person owns (or is deemed to own pursuant to Section 424(d) of
the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any of its Affiliates
unless the exercise price of such Option is at least one hundred ten percent
(110%) of the Fair Market Value of such stock at the date of grant and if the
Option is an Incentive Stock Option the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options and Stock
Appreciation Rights under the Plan covering more than seventy-five thousand
(75,000) shares of the Company's Common Stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The Board will establish the exercise price of a Stock Award
at the time the Stock Award is granted. Subject to Section 5(b) the exercise
price will not be less than one hundred percent (100%) of the Fair Market Value
of the Common Stock on the date of the Stock Award, provided that in the case of
a Nonstatutory Stock Option, the exercise price may be less than one hundred
percent (100%) of Fair Market Value on the date of such Award; provided,
however, that in no event will the exercise price be less than eighty-five
percent (85%) of Fair Market Value on the date of grant. For so long as the
Company's Common Stock is traded on
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any stock exchange or interdealer quotation system, the Fair Market Value of
the Common Stock shall be the closing price of the Common Stock on the date
of grant.
(c) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board, as determined either at the time of the grant of
the Option or at any time thereafter, (A) by delivery to the Company of other
Common Stock of the Company, (B) according to a deferred payment arrangement,
except that payment of the Common Stock's "par value" (as defined in the
Delaware General Corporation Law) shall not be made by deferred payment, or
other arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock of the Company) with the person to whom
the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by will
or by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such Optionee or
such Optionee's guardian or legal representative; provided, however, that the
Board may, in its discretion, waive such restriction in any case when such
restriction is no longer required by applicable law; provided, further that each
Nonstatutory Stock Option may be transferred to the spouse, children, lineal
ancestors and lineal descendants of the Optionee (or to a trust created solely
for the benefit of the Optionee or the foregoing persons) or to an organization
exempt from taxation pursuant to Section 501(c)(3) of the Code or to which tax
deductible charitable contributions may be made under Section 170 of the Code
(excluding such organizations classified as private foundations under applicable
regulations and rulings).
(e) VESTING. The total number of shares of Common Stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The vesting provisions of individual Options may vary, but in
the case of an Option granted to a non-officer employee, will provide for
vesting of at least twenty percent (20%) per year of the total number of shares
subject to the Option. The provisions of this subsection 6(e) are subject to
any Option provisions governing the minimum number of shares as to which an
Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option
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(to the extent that the Optionee was entitled to exercise it as of the date
of termination) but only within such period of time ending on the earlier of
(i) the date three (3) months after the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant (or such longer or
shorter period, which in no event shall be less than thirty (30) days,
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionee does not exercise his or her Option within the time specified in the
Option Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the Option Agreement, or (ii) the expiration
of a period of three (3) months after the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant during which three (3)
month period the exercise of the Option would not be in violation of such
registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period, which in no
event shall be less than six (6) months, specified in the Option Agreement), or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option Agreement after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise the
Option as of the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date eighteen (18) months following the date of death (or such longer or shorter
period, which in no event shall be less than six (6) months, specified in the
Option Agreement), or (ii) the expiration of the term of such Option as
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set forth in the Option Agreement. If, at the time of death, the Optionee
was not entitled to exercise his or her entire Option, the shares covered by
the unexercisable portion of the Option shall revert to and again become
available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again become available
for issuance under the Plan.
7. STOCK APPRECIATION RIGHTS.
(a) The Board (or Committee) shall have full power and authority,
exercisable in its discretion, to grant Stock Appreciation Rights under the Plan
to Employees or Directors of or Consultants to, the Company or its Affiliates.
To exercise any outstanding Stock Appreciation Right, the holder must provide
written notice of exercise to the Company in compliance with the provisions of
the Stock Award Agreement evidencing such right. If a Stock Appreciation Right
is granted to an individual who is at the time subject to Section 16(b) of the
Exchange Act (a "Section 16(b) Insider"), the Stock Award Agreement of grant
shall incorporate all the terms and conditions at the time necessary to assure
that the subsequent exercise of such right shall qualify for the safe-harbor
exemption from short-swing profit liability provided by Rule 16b-3 promulgated
under the Exchange Act (or any successor rule or regulation). No limitation
shall exist on the aggregate amount of cash payments the Company may make under
the Plan in connection with the exercise of a Stock Appreciation Right.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 7, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of Common Stock based on
Fair Market Value on the date of the Option surrender) in an amount up to the
excess of (A) the Fair Market Value (on the date of the Option surrender) of the
number of shares of Common Stock covered by that portion of the surrendered
Option in which the Optionee is vested over (B) the aggregate exercise price
payable for such vested shares.
(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will
be granted appurtenant to an Option and may apply to all or any portion of the
shares of Common Stock subject to the underlying Option and shall, except as
specifically set forth in this Section 7, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of Common
Stock to which the Concurrent Right pertains. The appreciation distribution
payable on an exercised Concurrent Right shall be in cash (or, if so provided,
in an equivalent number of shares of Common Stock based on Fair Market Value on
the date of the exercise of the Concurrent Right) in an amount equal to such
portion as shall be determined by the Board at the time of the grant of the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Concurrent Right) of the
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vested shares of Common Stock purchased under the underlying Option which
have Concurrent Rights appurtenant to them over (B) the aggregate exercise
price paid for such shares.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights will
be granted independently of any Option and shall, except as specifically set
forth in this Section 7, be subject to the same terms and conditions applicable
to Nonstatutory Stock Options as set forth in Section 6. They shall be
denominated in share equivalents. The appreciation distribution payable on the
exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Common Stock equal to the number
of share equivalents in which the holder is vested under such Independent Right,
and with respect to which the holder is exercising the Independent Right on such
date, over (B) the aggregate Fair Market Value (as determined on the date of the
grant of the Independent Right, or if so provided in the Independent Stock
Appreciation Right on the date of hire as an Employee if such date is within
ninety (90) days of the date of grant and such value is not less than
eighty-five percent (85%) of the aggregate Fair Market Value on the date of
grant) of such number of shares of Common Stock. The appreciation distribution
payable on the exercised Independent Right shall be in cash or, if so provided,
in an equivalent number of shares of Common Stock based on Fair Market Value on
the date of the exercise of the Independent Right.
8. CANCELLATION AND RE-GRANT OF OPTIONS. The Board shall have the authority
to effect, at any time and from time to time, (i) the repricing of any
outstanding Options and/or any Stock Appreciation Rights under the Plan and/or
(ii) with the consent of the affected holders of Options and/or Stock
Appreciation Rights, the cancellation of any outstanding Options and/or any
Stock Appreciation Rights under the Plan and the grant in substitution therefor
of new Options and/or Stock Appreciation Rights under the Plan covering the same
or different numbers of shares of stock, but having an exercise price per share
not less than eighty-five percent (85%) of the Fair Market Value (one hundred
percent (100%) of the Fair Market Value in the case of an Incentive Stock Option
or, in the case of a ten percent (10%) shareholder (as described in subsection
5(b)), not less than one hundred ten percent (110%) of the Fair Market Value)
per share of Common Stock on the new grant date. Notwithstanding the foregoing,
the Board may grant an Option and/or Stock Appreciation Right with an exercise
price lower than that set forth above if such Option and/or Stock Appreciation
Right is granted as part of a transaction to which section 424(a) of the Code
applies.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of Common Stock upon exercise of the Stock Award;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Stock Award or any stock
issued or issuable pursuant to any such Stock Award. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of Common
9.
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Stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Common Stock upon exercise of such Stock Awards
unless and until such authority is obtained.
10. MISCELLANEOUS.
(a) Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
(b) Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred under subsection 6(d) shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such person has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) Throughout the term of any Stock Award, the Company shall deliver to
the holder of such Stock Award, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the term of such
Stock Award, a balance sheet and an income statement. This section shall not
apply when issuance is limited to key employees whose duties in connection with
the Company assure them access to equivalent information.
(d) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate (or to continue acting as a Director or Consultant) or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without cause, to remove any Director as provided in the
Company's Bylaws and the provisions of the General Corporation Law of the State
of Delaware or to terminate the relationship of any Consultant in accordance
with the terms of that Consultant's agreement with the Company or Affiliate to
which such Consultant is providing services.
(e) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(f) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d),
as a condition of exercising or acquiring Common Stock under any Stock Award,
(1) to give written assurances satisfactory to the Company, if any, that are
necessary to ensure compliance with federal securities laws. These
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of Common Stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws.
10.
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(g) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means or by a combination of
such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold shares from the shares of the Common Stock otherwise issuable to the
participant as a result of the exercise or acquisition of Stock under the Stock
Award; or (3) delivering to the Company owned and unencumbered shares of the
Common Stock of the Company.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the Stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a), and the
maximum number of securities subject to award to any person during any calendar
year pursuant to Section 5(c) and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board or the Committee, the determination of which shall be final,
binding and conclusive. If considered appropriate, the Board or the Committee
may make a provision for a cash payment with respect to all or part of an
outstanding Stock Award instead of or in addition to any such adjustment.
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation; (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; or (3) a sale of all or substantially all of the assets of the
Company, then: (i) any surviving or acquiring corporation shall assume any
Stock Awards outstanding under the Plan or shall substitute similar stock awards
(including an award to acquire the same consideration paid to the stockholders
in the transaction described in this subsection 11(b)) for those outstanding
under the Plan, or (ii) in the event any surviving or acquiring corporation
refuses to assume such Stock Awards or to substitute similar Stock Awards for
those outstanding under the Plan, then such Stock Awards shall be terminated if
not exercised prior to such event. In the event of a dissolution or liquidation
of the Company, any Stock Awards outstanding under the Plan shall terminate if
not exercised prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company to the extent shareholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 under the
Exchange Act or any Nasdaq or securities exchange listing requirements.
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(b) The Board may, in its sole discretion, submit any other amendment to
the Plan for shareholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless: (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
some or all Stock Awards; provided, however, that if the Board determines that
the effect of an amendment, taken as a whole, would be to impair rights and
obligations under any Stock Award then such amendment shall not be effective as
to a particular Stock Award unless: (i) the Company requests the consent of the
person to whom the Stock Award was granted and (ii) such person consents in
writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Stock Award was granted.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board,
and, if required, an appropriate permit has been issued by the Commissioner of
Corporations of the State of California.
12.
<PAGE>
INCENTIVE STOCK OPTION
_______________________, Optionee:
JAVELIN SYSTEMS, INC. (the "Company"), pursuant to its 1997 Equity
Incentive Plan (the "Plan"), has granted to you, the optionee named above, an
option to purchase shares of the common stock of the Company ("Common Stock").
This option is intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants. Defined terms not explicitly
defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is ____________________
(__________).
2. VESTING. Subject to the limitations contained herein, __________
[INDICATE A FRACTION OR PERCENTAGE (E.G., 25% OR 12/48THS)] of the shares will
vest (become exercisable) on ____________, 19__ and __________ of the shares
will then vest each ____________ [INDICATE APPLICABLE TIME PERIOD (E.G., MONTH
OR YEAR)] thereafter until either (i) you cease to provide services to the
Company for any reason, or (ii) this option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
___________________________ ($___________) per share, being not less than the
fair market value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is
due in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable statutes
and regulations, to make payment of the exercise price under one of the
following alternatives:
1.
<PAGE>
(i) Payment of the exercise price per share in cash (including
check) at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or
(iv) Payment by a combination of the methods of payment permitted
by subparagraph 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Act or, if such
shares are not then so registered, the Company has determined that such exercise
and issuance would be exempt from the registration requirements of the Act.
6. TERM. The term of this option commences on __________, 19__, the date
of grant, and expires on ________________________ (the "Expiration Date," which
date shall be no more than ten (10) years from the date this option is granted),
unless this option expires sooner as set forth below or in the Plan. In no
event may this option be exercised on or after the Expiration Date. This option
shall terminate prior to the Expiration Date as follows: THREE (3) MONTHS after
the termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company unless one of the following
circumstances exists:
(a) Your termination of Continuous Status as an Employee, Director or
Consultant is due to your disability. This option will then expire on the
earlier of the Expiration Date set forth above or twelve (12) months following
such termination of Continuous Status as an Employee, Director or Consultant.
You should be aware that if your disability is not considered a permanent and
total disability within the meaning of Section 422(c)(6) of the Code, and you
exercise this option more than three (3) months
2.
<PAGE>
following the date of your termination of employment, your exercise will be
treated for tax purposes as the exercise of a "nonstatutory stock option"
instead of an "incentive stock option."
(b) Your termination of Continuous Status as an Employee, Director or
Consultant is due to your death or your death occurs within THREE (3) MONTHS
following your termination of Continuous Status as an Employee, Director or
Consultant for any other reason. This option will then expire on the earlier of
the Expiration Date set forth above or eighteen (18) months after your death.
(c) If during any part of such THREE (3) MONTH period you may not
exercise your option solely because of the condition set forth in paragraph 5
above, then your option will not expire until the earlier of the Expiration Date
set forth above or until this option shall have been exercisable for an
aggregate period of THREE (3) MONTHS after your termination of Continuous Status
as an Employee, Director or Consultant.
(d) If your exercise of the option within THREE (3) MONTHS after
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or with an Affiliate of the Company would result in liability
under section 16(b) of the Securities Exchange Act of 1934, then your option
will expire on the earlier of (i) the expiration date set forth above, (ii) the
tenth (10th) day after the last date upon which exercise would result in such
liability or (iii) six (6) months and ten (10) days after the termination of
your Continuous Status as an Employee, Director or Consultant with the Company
or an Affiliate of the Company.
However, this option may be exercised following termination of Continuous
Status as an Employee, Director or Consultant only as to that number of shares
as to which it was exercisable on the date of termination of Continuous Status
as an Employee, Director or Consultant under the provisions of paragraph 2 of
this option.
In order to obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company or an
Affiliate of the Company, except in the event of your death or permanent and
total disability. The Company has provided for continued vesting or extended
exercisability of your option under certain circumstances for your benefit, but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you provide services to the Company or an Affiliate of the
Company as a consultant or exercise your option more than three (3) months after
the date your employment with the Company and all Affiliates of the Company
terminates.
3.
<PAGE>
7. EXERCISE.
(a) This option may be exercised, to the extent specified above,
by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise of this
option, the Company may require you to enter an arrangement providing for the
payment by you to the Company of any tax withholding obligation of the Company
arising by reason of (1) the exercise of this option; (2) the lapse of any
substantial risk of forfeiture to which the shares are subject at the time of
exercise; or (3) the disposition of shares acquired upon such exercise; and
(ii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of this option that occurs within two (2) years after the
date of this option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of this option.
8. TRANSFERABILITY. This option shall not be transferable except by will
or by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person and
such person's guardian or legal representative; provided, however, that the
Board may, in its discretion, waive such restriction in any case when such
restriction is no longer required by applicable law.
9. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective shareholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
10. NOTICES. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
4.
<PAGE>
11. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions
of the Plan, a copy of which is attached hereto and its provisions are hereby
made a part of this option, including without limitation the provisions of
Section 6 of the Plan relating to option provisions, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of this option and those of the Plan, the
provisions of the Plan shall control.
Dated the ____ day of __________________, 19__.
Very truly yours,
------------------------------------
By
------------------------------------
Duly authorized on behalf of the
Board of Directors
ATTACHMENTS:
Javelin Systems, Inc. 1997 Equity Incentive Plan
Notice of Exercise
5.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE _______________________
(Initial)
OTHER ___________________________________
___________________________________
___________________________________
___________________________________
OPTIONEE
Address: ___________________________________
___________________________________
6.
<PAGE>
NONSTATUTORY STOCK OPTION
________________________, Optionee:
JAVELIN SYSTEMS, INC. (the "Company"), pursuant to its 1997 Equity
Incentive Plan (the "Plan"), has granted to you, the optionee named above, an
option to purchase shares of the common stock of the Company ("Common Stock").
This option is not intended to qualify and will not be treated as an "incentive
stock option" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants. Defined terms not explicitly
defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is _____________________
(____________).
2. VESTING. Subject to the limitations contained herein, __________
[INDICATE A FRACTION OR PERCENTAGE (E.G., 25% OR 12/48THS)] of the shares will
vest (become exercisable) on ____________, 19__ and __________ of the shares
will then vest each ____________ [INDICATE APPLICABLE TIME PERIOD (E.G., MONTH
OR YEAR)] thereafter until either (i) you cease to provide services to the
Company for any reason, or (ii) this option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
_______________ ($____________) per share, being not less than 85% of the fair
market value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is
due in full upon exercise of all or any part of each installment which has
accrued to you. You
1.
<PAGE>
may elect, to the extent permitted by applicable statutes and regulations, to
make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash (including
check) at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of already-owned shares of Common Stock, held
for the period required to avoid a charge to the Company's reported earnings,
and owned free and clear of any liens, claims, encumbrances or security
interests, which Common Stock shall be valued at its fair market value on the
date of exercise; or
(iv) Payment by a combination of the methods of payment permitted
by subparagraph 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Act or, if such
shares are not then so registered, the Company has determined that such exercise
and issuance would be exempt from the registration requirements of the Act.
6. TERM. The term of this option commences on _________, 19__, the date
of grant and expires on _____________________ (the "Expiration Date," which date
shall be no more than ten (10) years from the date this option is granted),
unless this option expires sooner as set forth below or in the Plan. In no
event may this option be exercised on or after the Expiration Date. This option
shall terminate prior to the Expiration Date as follows: THREE (3) MONTHS after
the termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company for any reason or for no reason
unless:
(a) such termination of Continuous Status as an Employee, Director or
Consultant is due to your disability, in which event the option shall expire on
the earlier
2.
<PAGE>
of the Expiration Date set forth above or twelve (12) months following such
termination of Continuous Status as an Employee, Director or Consultant; or
(b) such termination of Continuous Status as an Employee, Director or
Consultant is due to your death or your death occurs within THREE (3) MONTHS
following your termination for any other reason, in which event the option shall
expire on the earlier of the Expiration Date set forth above or eighteen (18)
months after your death; or
(c) during any part of such THREE (3) MONTH period the option is not
exercisable solely because of the condition set forth in paragraph 5 above, in
which event the option shall not expire until the earlier of the Expiration Date
set forth above or until it shall have been exercisable for an aggregate period
of THREE (3) MONTHS after the termination of Continuous Status as an Employee,
Director or Consultant; or
(d) exercise of the option within THREE (3) MONTHS after termination
of your Continuous Status as an Employee, Director or Consultant with the
Company or with an Affiliate of the Company would result in liability under
section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act), in
which case the option will expire on the earlier of (i) the Expiration Date set
forth above, (ii) the tenth (10th) day after the last date upon which exercise
would result in such liability or (iii) six (6) months and ten (10) days after
the termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company.
However, this option may be exercised following termination of Continuous
Status as an Employee, Director or Consultant only as to that number of shares
as to which it was exercisable on the date of termination of Continuous Status
as an Employee, Director or Consultant under the provisions of paragraph 2 of
this option.
7. EXERCISE.
(a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require.
(b) By exercising this option you agree that as a precondition to the
completion of any exercise of this option, the Company may require you to enter
an arrangement providing for the cash payment by you to the Company of any tax
withholding obligation of the Company arising by reason of: (1) the exercise of
this option; (2) the lapse of any substantial risk of forfeiture to which the
shares are subject at the time of exercise; or (3) the disposition of shares
acquired upon such exercise. You also agree that any exercise of this option
has not been completed and that the Company
3.
<PAGE>
is under no obligation to issue any Common Stock to you until such an
arrangement is established or the Company's tax withholding obligations are
satisfied, as determined by the Company; and
8. TRANSFERABILITY. This option shall not be transferable except by will
or by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person and
such person's guardian or legal representative; provided, however, that the
Board may, in it discretion, waive such restriction in any case when such
restriction is no longer required by applicable law; provided further that this
option may be transferred to the spouse, children, lineal ancestors and lineal
descendants of the person to whom this option is granted (or to a trust created
solely for the benefit of the person to whom this option is granted or the
foregoing persons) or to an organization exempt from taxation pursuant to
Section 501(c)(3) of the Code or to which tax deductible charitable
contributions may be made under Section 170 of the Code (excluding such
organizations classified as private foundations under applicable regulations and
rulings).
9. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective shareholders, Board of Directors, officers, or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
10. NOTICES. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
11. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions
of the Plan, a copy of which is attached hereto and its provisions are hereby
made a part of this option, including without limitation the provisions of
Section 6 of the Plan relating to option provisions, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of this option and those of the Plan, the
provisions of the Plan shall control.
4.
<PAGE>
Dated the ____ day of __________________, 19__.
Very truly yours,
-----------------------------------
By
-----------------------------------
Duly authorized on behalf of the
Board of Directors
ATTACHMENTS:
Javelin Systems, Inc. 1997 Equity Incentive Plan
Notice of Exercise
5.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE _______________________
(Initial)
OTHER ____________________________________
____________________________________
____________________________________
____________________________________
OPTIONEE
Address: _________________________________
_________________________________
_________________________________
6.
<PAGE>
[LOGO]
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS"):
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
January 27, 1998, is made by and between BRS - Campo Investment Company LP, a
California limited partnership ("Lessor") and Javelin Systems, Inc., a
Delaware corporation ("Lessee"), (collectively, the "Parties," or
individually a "Party").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this
Lease, commonly known by the street address of 17891 Cartwright Avenue,
located in the City of Irvine, County of Orange, State of California, with
zip code 92714, as outlined on Exhibit A attached hereto ("Premises"). The
"Building" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): An approximate
29,184 square foot freestanding corporate headquarters building, part of a
larger complex. In addition to Lessee's rights to use and occupy the Premises
as hereinafter specified, Lessee shall have non-exclusive rights to the
Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified,
but shall not have any rights to the roof, exterior walls or utility raceways
of the Building of to any other buildings in the Industrial Center. The
Premises, the Building, the Common Areas, the land upon which they are
located, along with all other buildings and improvements thereon, are herein
collectively referred to as the "Industrial Center." (Also see Paragraph 2.)
1.2(b) PARKING: 54% of the existing parking as unreserved vehicle
parking spaces ("Unreserved Parking Spaces"); See also paragraph 58 of the
Addendum.
1.3 TERM: 5 years and 0 months ("Original Term") commencing upon
substantial completion of tenant ("Commencement Date") and ending sixty
months after ("Expiration Date"). (Also see Paragraph 3.) improvements with a
target commencement date.
1.4 EARLY POSSESSION: N/A ("Early Possession Date"). (Also see
Paragraphs 3.2 and 3.3.) of March 15, 1998.
1.5 BASE RENT: $23,347.20 per month ("Base Rent"), payable on the
1st day of each month commencing on the second month*. (Also see Paragraph 4)*
of occupancy.
/X/ If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 1, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $23,347.20 as Base Rent for the
first month of occupancy.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: fifty-four
percent (54%) ("Lessee's Share") as determined by
/X/ pro rata square footage of the Premises as compared to the total square
footage of the Building or / / other criteria as described in Addendum____.
1.7 SECURITY DEPOSIT: $26,277.48 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: General office, assembly, light manufacturing,
warehousing and distribution of touch screen computers, and all related uses.
("Permitted Use"). (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "Insuring Party." (Also see
Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
/X/ John Griffin of Voit Commercial represents Lessor exclusively
("Lessor/s Broker");
/X/ Bill Rauth of Grubb & Ellis represents Lessee exclusively ("Lessee's
Broker"); or
/ / _____________________ represents both Lessor and Lessee ("Dual
Agency"). (Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) 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 Broker(s) for brokerage
services rendered by said Broker(s) in connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by N/A ("Guarantor"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 60, and Exhibits A through C, all of
which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
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 and/or Common Area
Operating Expenses, is an approximation which Lessor and Lessee agree is
reasonable and the rental and Lessee's Share (as defined in Paragraph 1.6(b))
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 Premises to Lessee clean
and free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, electrical systems, fire sprinkler system, lighting, air
conditioning and heating systems 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 that any improvements (other than those constructed by Lessee
or at Lessee's direction) on or in the Premises which have been constructed
or installed by Lessor or with Lessor's consent or at Lessor's direction
shall comply with all applicable covenants or restrictions of record and
applicable building codes, regulations and ordinances in effect on the
Commencement Date. Lessor further warrants to Lessee that Lessor has no
knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations, or
ordinances exist with regard to the Premises as of the Commencement Date.
Said warranties shall not apply to any Alterations or Utility Installations
(defined in Paragraph 7.3(a), made or to be made by Lessee. If the Premises
do not comply with said warranties, Lessor shall, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
given within six (6) months following the Commencement Date and setting forth
with specificity the nature and extent of such non-compliance, take such
action, at Lessor's expense, as may be reasonable or appropriate to rectify
the non-compliance. Lessor makes no warranty that the Permitted Use in
Paragraph 1.8 is permitted for the Premises under Applicable Laws (as defined
in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) 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, seismic and
earthquake requirements, and compliance with the Americans with Disabilities
Act and applicable zoning, municipal, county, state and federal laws,
ordinances and regulations and any covenants or restrictions of record
(collectively, "Applicable Laws") 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, is
satisfied with reference thereto, and assumes all responsibility therefore as
the same relate to Lessee's occupancy of the Premises and/or the terms of
this Lease; and (c) that neither Lessor, nor any of Lessor's agents, has made
any oral or written representations or warrants with respect to said matters
other than as set forth in this Lease.
2.5 LESSEE AS 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 noncompliance of the Premises with said warranties.
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2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said
number. Said parking spaces shall be used for parking by vehicles no larger
than full-size passenger automobiles or pick-up trucks, herein called
"Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles shall
be parked and loaded or unloaded as directed by Lessor in the Rules and
Regulations (as defined in Paragraph 40) issued by Lessor. (Also see
Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center and interior utility raceways within
the Premises that are provided and designated by the Lessor from time to time
for the general non-exclusive use of Lessor, Lessee and other lessees of the
Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers,
contractors and invitees, during the term of this Lease, the non-exclusive
right to use, in common with others entitled to such use, the Common Areas as
they exist from time to time, subject to any rights, powers, and privileges
reserved by Lessor under the terms hereof or under the terms of any rules and
regulations governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be
deemed to include the right to store any property, temporarily or
permanently, in the Common Areas. Any such storage shall be permitted only by
the prior written consent of Lessor or Lessor's designated agent, which
consent may be revoked at any time. In the event that any unauthorized
storage shall occur then Lessor shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove the
property and charge the cost to Lessee, which cost shall be immediately
payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time,
to establish, modify, amend and enforce reasonable Rules and Regulations with
respect thereto in accordance with Paragraph 40. Lessee agrees to abide by
and conform to all such Rules and Regulations, and to cause its employees,
suppliers, shippers, customers, contractors and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other Lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. So long as Lessee's use and enjoyment of
the Premises is not unreasonably disturbed, Lessor shall have the right, in
Lessor's sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, landscaped areas, walkways and utility
raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor
may, in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligation
to pay Base Rent shall be abated for the period of such early occupancy. All
other terms of this Lease, however, (including but not limited to the
obligations to pay Lessee's Share of Common Area Operating Expenses and to
carry the insurance required by Paragraph 8) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, 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 thirty (30) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days after the end of said thirty (30) day period, cancel
this Lease, in which event the Parties shall be discharged from all
obligations hereunder. Except as may be otherwise provided, and regardless of
when the Original 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 the period during which the
Lessee would have otherwise 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 pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to 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
changes for any period during the term hereof which is for less than one full
month shall be prorated based upon the actual number of days of the month
involved. Payment of Base Rent and other charges shall be made to Lessor at
its address state herein or to such other persons or at such other addresses
as Lessor may from time to time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified
in Paragraph 1.5(b)) of all Common Area Operating Expenses, as hereinafter
defined, during each calendar year of the term of this Lease, in accordance
with the following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common
Area lighting facilities, fences, and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any routine environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to
be paid by Lessor for the Building and the Common Areas under Paragraph 10
hereof.
(vi) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building
in the Industrial Center or to the operation, repair and maintenance thereof,
shall be allocated entirely to the Building or to such other building.
However, any Common Area Operating Expenses and Real Property Taxes that are
not specifically attributable to the Building or to any other building or to
the operation, repair and maintenance thereof, shall be equitably allocated
by Lessor to all buildings in the Industrial Center.
(c) The inclusion of the Improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to
provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement
of actual expenses is presented to Lessee by Lessor. At Lessor's option,
however, an amount may be estimated by Lessor from time to time of Lessee's
Share of annual Common Area Operating Expenses and the same shall be payable
monthly or quarterly, as Lessor shall designate, during each 12-month period
of the Lease term, on the same day as the Base Rent is due hereunder. Lessor
shall deliver to Lessee within days (60) days after the expiration of each
calendar year a reasonably detailed statement showing Lessee's Share of the
actual Common Area Operating Expenses incurred during the preceding year. If
Lessee's payments under this Paragraph 4.2(d) during said preceding year
exceed
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Lessee's Share as indicated on said statement, Lessee shall be credited the
amount of such over-payment against Lessee's Share of Common Area Operating
Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(d)
during said preceding year were less than Lessee's Share as indicated on
said statement, Lessee shall pay to Lessor the amount of the deficiency
within ten (10) days after delivery by Lessor to Lessee of said statement.
Lessee shall have the right to review the Common Area Operating Expenses per
Paragraph 60 of the Addendum.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's
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 reasonable 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 monies with Lessor
sufficient to restore said Security Deposit to the full amount required by
this Lease. 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 monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste
or a nuisance, or that disturbs owners and/or occupants of, or causes damage
to the Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or
delay its consent to any written request by Lessee, Lessee's assignees or
subtenants, and by prospective assignees and subtenants of Lessee, its
assignees and subtenants, for a modification of said Permitted Use, so long
as the same will not impair the structural integrity of the improvements on
the Premises or in the Building or the mechanical or electrical systems
therein, does not conflict with uses by other lessees, is not significantly
more burdensome to the Premises or the Building 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 after
such request 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 potential
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 or by-products thereof. Lessee shall not engage in any activity in
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 Requirements (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, and (iii) the presence in, on
or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require 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 upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary
and customary materials reasonably required to be used by Lessee in the
normal course of the Permitted Use, 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 any reportable Use of any Hazardous Substance 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 therefor, including but not limited to the installation (and, at
Lessor's option, 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 has come to be located in, on,
under or about the Premises of the Building, other than as previously
consented to by Lessor, Lessee shall immediately give Lessor written notice
thereof, together with 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
concerning the presence, spill, release, discharge of, or exposure to, such
Hazardous Substance including but not limited to all such documents as may be
involved in any Reportable Use involving the Premises. Lessee shall not cause
or permit any Hazardous Substance to be spilled or released in, on, under or
about the Premises (including, without limitation, through the plumbing or
sanitary sewer system).
(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 damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under
Lessee's control. Lessee's obligations under this Paragraph 6.2(c) 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 consultants' and attorneys' 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, unless
specifically so agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at
Lessee's sole cost and expense, fully, diligently and in a timely manner,
comply with all "Applicable Requirements," which term is used in this Lease
to mean 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), now
in effect or which may hereafter come into effect. 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 Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving failure by
Lessee or the Premises to comply with any Applicable Requirements.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition),
2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2
(Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation),
Lessee shall, at Lessee's sole cost and expense and at all times, keep the
Premises and every party thereof in good order, condition and repair,
including, without limiting the generality of the foregoing, all equipment or
facilities specifically serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire hose connections if within the Premises,
fixtures, interior walls, interior surfaces of exterior walls, ceilings,
floors, windows, doors, plate glass, and skylights, but excluding any items
which are the responsibility of Lessor pursuant to Paragraph 7.2 below.
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 a contract, with copies to Lessor, in customary form and
substance for and with a contractor specializing and experienced in the
inspection, maintenance and service of the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1 Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and
put the Premises in good order, condition and repair, in accordance with
Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraph
2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building
Code). 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessor, subject
to reimbursement pursuant to Paragraph 1.2, shall keep in good order,
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, exterior roof, fire sprinkler and/or standpipe and
hose (if located in the Common Areas) or other automatic fire extinguishing
system including fire alarm and/or smoke detection systems and equipment, fire
hydrants, parking, etc.
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walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or
interior surfaces of exterior walls nor shall Lessor be obligated to
maintain, repair or replace windows, doors or plate glass of the Premises.
Lessee expressly waives the benefit of any statute now or hereafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Building, Industrial Center or Common Areas in good order, condition and
repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(A) DEFINITIONS; CONSENT REQUIRED. The term "Utility
Installations" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
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 machines and equipment which can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises which are
provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures. "Lessee-Owned Alterations and/or Utility
Installations" are defined as Alterations and/or Utility Installations made
by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
Lessee shall not make nor cause to be made 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) without
Lessor's consent but upon notice to Lessor, so long as they are not visible
from the outside of the Premises, do not involve puncturing, relocating or
removing the roof or any existing walls, or changing or interfering with the
fire sprinkler or fire detection systems and the cumulative cost thereof
during the term of this Lease as extended does not exceed $2,500.00.
(B) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. 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 be in compliance with all Applicable Requirements. 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 $2,500.00 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.
(C) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on, or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of 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 reasonable attorneys' 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
and to cause Lessee to become the owner thereof as hereinafter provided in
this Paragraph 7.4, all Alterations and Utility Installations 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 the premises and be
surrendered with the Premises by Lessee.
(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 that their installation may have been consented to by Lessor.
Lessor may require the removal at any time of all or any part of any
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,
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 herein, the Premises, as
surrendered, shall include the Alterations and 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 Lessee-Owned Alterations and 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 groundwater contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
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 PREMIUMS. The cost of premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy
periods commencing prior to, or extending beyond, the term of this Lease
shall be prorated to coincide with the corresponding Commencement Date or
Expiration Date.
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, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insureds) 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"
endorsement and contain the "Amendment of the Pollution Exclusion"
endorsement for damage caused by heat, smoke or fumes from a hostile fire.
The policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under this Lease as an "Insured contract" for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance 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. 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. Lessor 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 to any Lender(s), insuring against loss
or damage to the Premises. Such insurance shall be for full replacement cost,
as the same shall exist from time to time, or the amount required by any
Lender(s), 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, Trade
Fixtures and Lessee's personal property shall be insured by Lessee pursuant
to Paragraph 8.4. If the coverage is available and commercially appropriate,
Lessor's 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 building 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 loss, but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu
of any co-insurance 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 also 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 any Lender(s), insuring the loss of the full
rental and other charges payable by all lessees of the Building to Lessor for
one year (including all Real Property Taxes, insurance costs, all Common Area
Operating Expenses and any scheduled rental increases). Said insurance may
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
co-insurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, Real Property Taxes, insurance premium
costs and other expenses, if any, otherwise payable, for the next 12-month
period. Common Area Operating Expenses shall include any deductible amount in
the event of such loss.
(C) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas
or other buildings in the Industrial Center if said increase is directly and
proximately caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(D) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY 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, Trade Fixtures and
Lessee-Owned Alterations and Utility Installations in, on, or about the
Premises similar in coverage to that carried by Lessor as the Insuring Party
under Paragraph 8.3(a). Such insurance shall be full replacement cost
coverage with a deductible not to exceed $1,000.00 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement
of personal property and the restoration of Trade Fixtures and Lessee-Owned
Alterations and Utility Installations. Upon request from Lessor, Lessee 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, as set forth in the most current issue of "Best's Insurance Guide."
Lessee shall not do or permit to be done anything which invalidates the
insurance policies referred to in this Paragraph 8. Lessee shall cause to
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be delivered to Lessor, within seven (7) days after the earlier of the
Early Possession Date or the Commencement Date, certified copies of, or
certificates evidencing the existence and amounts of, the insurance 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 its 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 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 or damage to their 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 carried or required, or by any deductibles
applicable thereto. Lessor and Lessee agree to have their respective
insurance companies issuing property damage insurance waive any right to
subrogration that such companies may have against Lessor or Lessee, as the
case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's 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 Lenders, from and against any and all claims, loss of rents
and/or damages, costs, liens, judgments, penalties, loss of permits,
reasonable attorneys' and consultants' fees, expenses and/or liabilities
directly and principally arising out of 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. 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.
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, leaking, obstruction or other defects of pipes, fire
sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether 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, 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 lessee of Lessor nor
from the failure by Lessor to enforce the provisions of any other lease in the
Industrial Center. 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 Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than
fifty percent (50%) of the then Replacement Cost (as defined in sub-paragraph
9.1(d)) of the Premises (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures) immediately prior to such damage or
destruction.
(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 fifty
percent (50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building) of the
Building shall, at the option of Lessor, be deemed to be Premises Total
Destruction.
(c) "Insured Loss" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible
amounts or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to
their condition existing immediately prior thereto, including demolition,
debris removal and upgrading required by the operation of applicable 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 PREMISES PARTIAL DAMAGE - INSURED LOSS. If 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. In the event, however,
that there is a shortage of insurance proceeds and such shortage is due to
the fact that, by reason of the unique nature of the improvements in the
Premises, 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) days period, Lessor 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 Lessor does not
receive such funds or assurance within such ten (10) day period, and if
Lessor does not so elect to restore and repair, 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
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than this 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 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), 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 date 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 (30) days following such commitment from Lessee. In such event
this Lease shall continue in full force and effect, and Lessor shall proceed
to make such repairs as soon as reasonably possible after the required funds
are available. If Lessee does not 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 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 9.7, or as specified
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 to repair
exceeds one 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 (a) exercising such option, and (b)
providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten (10) days after Lessee's receipt of Lessor's written
notice purporting to terminate this Lease, or (ii) the day prior to the date
upon which such option expires. If Lessee duly exercises such option during
such period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense,
repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
and provide such funds or assurance during such period, then this Lease shall
terminate as of the date set forth in the first sentence of this Paragraph
9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible,
the Base Rent, Common Area Operating Expenses and other charges, if any,
payable by Lessee hereunder for the period during which such damage or
condition, its repair, remediation or restoration continues, shall be abated
in proportion to the degree to which Lessee's use of the Premises is
impaired, but not in excess of proceeds from insurance required to be carried
under Paragraph 8.3(b). Except for abatement of Base Rent, Common Area
Operating Expenses 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 damage, destruction, repair, remediation 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 the receipt of such notice, this Lease shall continue in full force and
effect. "Commence" as used in this Paragraph 9.6 shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever occurs first.
*Notwithstanding any provisions contained above,if Landlord has not restored
or repaired the Premises within one hundred eighty (180) days from the date
of receipt of insurance proceeds, Lessee may terminate this lease with thirty
(30) days written notice to Lessor.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make an investigation and remediation thereof required by
Applicable Requirements and this Lease shall continue in full force and
effect, but subject to Lessor's rights under
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Paragraph 6.2(c) and Paragraph 13). Lessor may, at Lessor's option, either
(i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to investigate and remediate such condition exceeds twelve (12) times
the then monthly Base Rent, give written notice to Lessee within thirty (30)
days after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the date of such notice. In the event Lessor elects
to give 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 excess
costs of (a) investigation and remediation of such Hazardous Substance
Condition to the extent required by Applicable Requirements, over (b) 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
said commitment by Lessee. 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 after the required funds are
available. If Lessee does not give such notice and provide the required funds
or assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance
payment made by Lessee to Lessor and 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 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it
is inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in
the calculation of Common Area Operating Expenses in accordance with the
provision of Paragraph 4.2
10.2 REAL PROPERTY TAX DEFINITION. 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 Industrial Center 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 Industrial Center or any portion
thereof, 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 Industrial Center or in the improvement thereon, the
execution of this Lease, or any modification, amendment or transfer thereof,
and whether or not contemplated by the Parties. In calculating Real Property
Taxes for any calendar year, the Real Property Taxes for any real estate tax
year shall be included in the calculation of Real Property Taxes for such
calendar year based upon the number of days which such calendar year and tax
year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall
not include Real Property Taxes specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the
Industrial Center by other lessees or by Lessor for the exclusive enjoyment
of such other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall,
however, pay to Lessor at the time Common Area Operating Expenses are payable
under Paragraph 4.2, the entirety of any increase in Real Property Taxes if
assessed solely by reason of Alterations, Trade Fixtures or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable
proportion of the Real Property Taxes for all of the land and improvements
included within the tax parcel assessed, such proportion to be determined by
Lessor from the respective valuations assigned in the assessor's work sheets
or such other information as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and
Utility Installations, Trade Fixtures, furnishings, equipment and all
personal property of Lessee contained in the Premises or stored within the
Industrial Center. When possible, Lessee shall cause Lessee-Owned Alterations
and Utility Installations, Trade Fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor. If any of Lessee's said property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee's property within ten (10) days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity,
telephone, security, gas and cleaning of the Premises, together with any taxes
thereon. If any such utilities or services are not separately metered to the
Premises or separately billed to the Premises, Lessee shall pay to Lessor a
reasonable proportion to be determined by Lessor of all such charges jointly
metered or billed with other premises in the Building, in the manner and
within the time periods set forth in Paragraph 4.2(d).
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,
"assign") 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 the subject
to the terms of Paragraph 36, except to any wholly-owned or controlled
subsidiary, parent, or affiliated corporation of Lessee who has the same or
better net worth.
(b) A change in the control or Lessee shall constitute an
assignment requiring Lessor's consent. The transfer of fifty (50) percent 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 full execution and delivery 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
reasonable option, be a Default curable after notice per Paragraph 13.1, or a
non-curable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unconsented to assignment or subletting as a
non-curable 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 for the Premises to the greater of the then
fair market rental value of the Premises, as reasonably determined by Lessor,
or one hundred ten percent (110%) of the Base Rent then in effect. Pending
determination of the new fair market rental value, if disputed by Lessee,
Lessee shall pay the amount set forth in Lessor's Notice, with any
overpayment credit 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 rental 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 as reasonably
determined by Lessor (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, (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 new rental bears to the Base Rent in
effect immediately prior to the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, 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, nor (iii) after 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 for 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 or substituting
by Lessee or to any subsequent or successive assignment or subletting by the
assignee or 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 under this Lease or the
sublease and without obtaining their consent, and such action shall not
relieve such persons from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublease, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises, if
any, together with a non-refundable deposit of $1,000.00 or ten percent
(10%) of the monthly Base Rent applicable to the portion of the Premises
which is the subject of the proposed assignment or sublease, 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.
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(g) The occurrence of a transaction described in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to three (3) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase 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 schedule of the
rent payable under this Lease be adjusted to what is then the market value
and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
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 the foregoing provision or any other assignment of such sublease
to Lessor, nor by reason of the collection of the rents from a sublessee, 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 such 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 time to 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
shall require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor 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 a 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, 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" by
Lessee is defined as a failure by Lessee to observe, comply with or perform
any of the terms, covenants, conditions or rules applicable to Lessee under
this Lease. A "Breach" by Lessee 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, and shall entitle Lessor to
pursue the remedies set forth in Paragraph 13.2 and/or 13.3:
(a) (Intentionally omitted.)
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder 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 ten (10) 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
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (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 or information which Lessor
may reasonably require of Lessee under the terms of this Lease, where any
such failure continues for a period of ten (10) days following written notice
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 13.1(a), (b) or (c) above, where such
Default continues for a period of thirty (30) days after written notice
thereof by or on behalf of 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. Code
Section 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 in the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within
thirty (30) days; or (iv) the attachment, execution or other judicial seizure
of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within
thirty (30) days; provided, however, in the event that any provision of this
Subparagraph 13.1(e) is contrary to any applicable law, such provision shall
be of no force or effect, and shall not affect the validity of the remaining
provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, 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 of security
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
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 own option, may require all future payments to be made under
this Lease by Lessee 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 rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of any leasing commission paid by Lessor in connection
with this Lease applicable to the unexpired term of this Lease. The worth at
the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount
at the discount rate of the Federal Reserve Bank of San Francisco or the
Federal Reserve Bank District in which the Premises are located at the time
of award plus one percent (1%). Efforts by Lessor to mitigate damages caused
by Lessee's default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph 13.2. 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 the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under Subparagraph 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case 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 under sub-paragraph 13.1(b), (c) or (d). In
such case, the applicable notice for grace period purposes required under
subparagraph 13.1 (b), (c) or (d). In such case, the applicable grace period
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 (2) 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 stature.
(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 recover the rent as it becomes due, provided Lessee has the right
to sublet or assign, subject only to reasonable limitations. Lessor and
Lessee agree that the limitations on assignment and subletting in this Lease
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 this 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 of 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.
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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 (as defined in Paragraph 13.1) of this Lease by
Lessee, any such Inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid
by Lessor under such 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 13.3 shall not be deemed a waiver
by Lessor of the provisions of this Paragraph 13.3 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 with may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering
the Premises. Accordingly, if any installment of rent or other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
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 any Lender(s) whose name and address shall have been
furnished to 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.
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 (25%) of
the portion of the Common Areas designated for Lessee's parking, 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 Premises. No reduction of Base Rent shall occur if the
condemnation does not apply to any portion of the Premises. 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 of 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 Lessee's Share of the legal
and other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are
the procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise
agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as
defined in Paragraph 39.1) granted under this Lease or any Option
subsequently granted, or (b) if Lessee acquires any rights to the Premises or
other premises in which Lessor has an interest, 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 Broker(s) a fee in accordance with the
schedule of said Broker(s) in effect at the time of the execution of this
Lease.
15.3 ASSUMPTION OF OBLIGATIONS. 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 an intended third party beneficiary of the
provisions of Paragraph 1.10 and 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.
15.4 REPRESENTATIONS AND WARRANTIES. 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 as named in Paragraph 1.10(a) 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 Broker(s) 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, and/or
attorneys' fees reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. 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 a 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 FINANCIAL STATEMENT. If Lessor desires to finance, refinance,
or sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors 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. 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 15.3, 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 ten (10)
days following the date on which it was due, shall bear interest from the
date due at the prime rate charged by the largest state chartered bank in the
state in which the Premises are located plus four percent (4%) per annum, but
not exceeding the maximum rate allowed by law, in addition to the potential
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 to contemporaneous agreement or understanding shall
be effective. Lessor and Lessee each represents and warrants to the Brokers
that it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party
to this Lessee 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. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. 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 during normal business hours, 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 DATE OF NOTICE. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is shown, the postmark
thereon. If sent by regular mail, the notice shall be deemed given
forty-eight (48) hours after the same is addressed as required therein and
mailed with postage prepaid. Notices delivered by United States Express Mail
or overnight courier that guarantees next day delivery shall be deemed given
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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 or
facsimile confirmation of receipt of the transmission thereof, provided a
copy is also delivered via delivery or mail, if notice is received on a
Saturday or a Sunday or a 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 any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such 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 Default or Breach by Lessee of any provision hereof. Any payment given
Lessor by Lessee may be accepted by Lessor on account of monies 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.
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. In the event that Lessee holds over in violation of this
Paragraph 26 then the Base Rent payable from and after the time of the
expiration or earlier termination of this Lease shall be increased to one
hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding such expiration or earlier termination. Nothing
contained herein shall be construed as a consent by Lessor to any holding
over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. 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 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
pursuant to Paragraph 13.5. 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 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 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. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereinafter defined) in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorneys' fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by
compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fee award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorneys' fees reasonably incurred. Lessor shall be
entitled to attorneys' fees, costs and expenses incurred in 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. Broker(s) shall be intended third party
beneficiaries of this Paragraph 31.
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, 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 eighty (180) 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
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 exterior of the
Premises or the Building, 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 so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. 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).
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination of cancellation, have the option to continue any one
or all of any existing substances. 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 this Lease the consent of a Party is required to
an act by or for the other Party, such consent shall not be unreasonably
withheld or delayed. Lessor's actual reasonable costs and expenses (including
but not limited to architects', attorneys', engineers' and other consultants'
fees) incurred in the consideration of, or response to, a request by Lessee
for any Lessor consent 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, shall be paid by Lessee to Lessor upon
receipt of an invoice and supporting documentation therefor. In addition to
the deposit described in Paragraph 12.2(e), 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 Lessees' request. Any unused
portion of said deposit shall be refunded to Lessee without interest.
Lessor's consent to any act, assignment of the Lease or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(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
impositions 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 FORM OF GUARANTY. 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 Estate Association, and each such 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 required in
Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTORS. 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 resolution of its board of directors
authorizing the making of such guaranty, together with a certificate of
incumbency showing the signatures 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.
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38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises
and the 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 Lease, the word "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 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 Options 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 separate Defaults
under Paragraph 13.1 during the twelve (12) month period immediately
preceding the exercise of the Option, whether or not the Defaults are cured.
(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 separate Defaults 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. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
or tenants of the Building and the Industrial Center and their invitees.
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 the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways and dedications that Lessor deems necessary, and to cause
the recordation of parcel maps and restrictions, so long as such easements,
rights of way, utility raceways, dedications, maps and restrictions do not
reasonably interfere with the use of the Premises by Lessee. Lessee agrees to
sign any documents reasonably requested by Lessor to effectuate any such
easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay 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 either Lessor or Lessee or Lessor's
agent and submission of same to Lessee or Lessor shall not be deemed an offer
to lease. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. 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 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.
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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 YOUR
ATTORNEYS REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, 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 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 and on the dates
specified above to their respective signatures.
Executed at: Executed at:
--------------------------- -----------------------
on: on: March 4, 1998
------------------------------------ --------------------------------
BY LESSOR: BY LESSEE:
BRS - Campo Investment Company LP, Javelin Systems, Inc.
- --------------------------------------- ------------------------------------
a California limited partnership a Delaware corporation
- --------------------------------------- ------------------------------------
By: Blackpoint Investment Corp. By: /s/ Horace Hertz
----------------------------------- --------------------------------
Name Printed: Named Printed: HORACE HERTZ
----------------------------------- --------------------------------
Title: Its General Partner Title: CFO
----------------------------------- --------------------------------
By: /s/ Marc R. Brutten By:
----------------------------------- --------------------------------
Name Printed: MARC R. BRUTTEN Named Printed:
----------------------------------- --------------------------------
Title: President Title:
----------------------------------- --------------------------------
Address: 4660 La Jolla Village Dr. #800 Address:
----------------------------------- --------------------------------
San Diego, CA 92122
----------------------------------- --------------------------------
Telephone: (619) 678-8500 Telephone:
----------------------------------- --------------------------------
Facsimile: (619) 678-8504 Facsimile:
----------------------------------- --------------------------------
BROKER: VOIT COMMERCIAL BROKERAGE BROKER: GRUBB & ELLIS
Executed at: Executed at:
- --------------------------------------- -----------------------------------
on: on:
- --------------------------------------- -----------------------------------
- --------------------------------------- -----------------------------------
- --------------------------------------- -----------------------------------
By: /s/ John D. Griffin By:
----------------------------------- --------------------------------
Name Printed: JOHN D. GRIFFIN Named Printed: Bill Rauth
----------------------------------- --------------------------------
Title: Senior Vice President Title:
----------------------------------- --------------------------------
Address: 18500 Von Karman Avenue Address: 4000 MacArthur Boulevard
----------------------------------- --------------------------------
Suite 150 Suite 1500
----------------------------------- --------------------------------
Irvine, CA 92612 Newport Beach, CA 92660
----------------------------------- --------------------------------
Telephone: 714/851-5100 Telephone: 714/833-2900
----------------------------------- --------------------------------
Facsimile: 714/261-9092 Facsimile: 714/833-8037
----------------------------------- --------------------------------
NOTICE: These forms are often modified to meet changing requirements of
law and industry needs. Please Write or call us to make sure that you are
utilizing the most current form. We can be reached at the American Industrial
Real Estate Association, 700 South Flower, Suite 600, Los Angeles, CA 90017.
(213) 687-8777 Fax (213) 687-8616
- -C- 1993 by American Industrial Real Estate Association. All rights reserved.
No part of these words may be reproduced in any form without permission in
writing.
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17891 CARTWRIGHT ADDENDUM TO LEASE
This Addendum to Lease ("Addendum") is made to the Lease dated as of January
27, 1998 ("Lease"), by and between BRS-Campo Investment Company LP, a
California Limited Partnership ("Lessor") and Javelin Systems, Inc., a
Delaware corporation ("Lessee").
Lessor and Lessee hereby agree that notwithstanding anything contained in the
Lease to the contrary, the provisions set forth below shall be deemed to be a
part of the Lease and shall supersede, to the extent appropriate, any
contrary provision in the Lease. All references in the Lease and in this
Addendum to "Lease" shall be construed to mean the Lease as amended and
supplemented by this Addendum. All capitalized terms used in the Addendum
unless specifically defined in this Addendum shall have the same meaning as
the terms used in the Lease.
50. BASE RENT:
Lessee shall pay to Lessor as Base Rent for the Premises, monthly payments
as follows:
Months 1 through 12 of the Initial Term: $23,347.20 per month, NNN
Months 13 through 24 of the Initial Term: $24,047.62 per month, NNN
Months 25 through 36 of the Initial Term: $24,769.04 per month, NNN
Months 37 through 48 of the Initial Term: $25,512.12 per month, NNN
Months 49 through 60 of the Initial Term: $26,277.48 per month, NNN
(a) Lessor and Lessee acknowledge that the Base Rent set forth in Paragraph
(1. Base Rent) shall be the monthly fixed Base Rent paid by Lessee to
Lessor pursuant to the terms of this Lease for the Initial Term hereof. For
purposes hereof "Base Rent" shall mean the monthly fixed payment of rent.
The term "rent" shall mean Base Rent plus Lessee's Share of Common Area
Operating Expenses, taxes, insurance and all other amounts to be paid by
Lessee pursuant to the terms of this Lease.
51. CONDITION: The following shall be added to Article 2.2 of the Lease:
Post-commencement Date compliance with ADA and other applicable
regulatory requirements is the responsibility of Lessee.
52. HAZARDOUS SUBSTANCES: Article 6.2 of the Lease shall be deemed deleted
and the following shall be deemed inserted in place thereof:
6.2 (a) ENVIRONMENTAL QUESTIONNAIRE: Disclosure. Prior to the execution of
this Lease, Lessee shall complete, execute and deliver to Lessor an
Environmental Questionnaire and Disclosure Statement (the "Environmental
Questionnaire") in the form of Exhibit "C", and Lessee shall certify to
Lessor all information contained in the Environmental Questionnaire as true
and correct to the best of Lessee's knowledge and belief. The completed
Environmental Questionnaire shall be deemed incorporated into this Lease
for all purposes, and Lessor shall be entitled to rely fully on the
information contained therein. On each anniversary of the Commencement Date
(each such date is hereinafter referred to as a "Disclosure Date"), until
and including the first Disclosure Date occurring after the expiration or
sooner termination of this Lease, Lessee shall disclose to Lessor upon
request, in writing the names and amounts of all Hazardous Substances, or
any combination thereof, which were stored, generated, used or disposed of
on, under or about the Premises for the 12-month period prior to and after
each Disclosure Date, or which Lessee intends to store, generate, use or
dispose of on, under or about the Premises. At Lessor's option, Lessee's
disclosure obligations under this paragraph 6.2 (a) shall include a
requirement that Lessee annually update, execute and deliver to Lessor the
Environmental Questionnaire, as the same may be modified by Lessor from
time to time.
1
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6.2 (b) HAZARDOUS SUBSTANCES.
1. The term "Hazardous Substance(s)" as used in the Lease, is defined as
follows: Any element, compound, mixture, solution, particle or
substance, which presents danger or potential danger for damage or
injury to health, welfare or to the environment including but not
limited to:
(a) Except normal janitorial and/or cleaning solutions, those
substances which are inherently or potentially radioactive,
explosive, ignitable, corrosive, reactive, carcinogenic or toxic;
and
(b) Those substances which have been recognized as dangerous or
potentially dangerous to health, welfare or to the environment by
an federal, municipal, state, county or other governmental or
quasi-governmental authority and/or any department or agency
thereof.
2. Tenant represents and warrants to Landlord that at all times during
the term of this Lease and any extensions or renewals thereof, Tenant
shall:
(a) Obtain Lessor's prior written consent, which consent shall be
granted or withheld in Lessor's sole discretion, to the
manufacturing, processing, distributing, using, producing,
treating, storing, (above or below ground level), disposing of,
or allowing to be present (the "Presence") of any Hazardous
Substance in or about the Premises. In connection with each such
consent requested by Lessee, Lessee shall submit to Lessor a
description, including the composition, quantity and all other
information requested by Lessor concerning the proposed Presence
of any Hazardous Substance. Lessor's consent to the Presence of
any Hazardous Substance may be deemed given only by inclusion of
a description of the composition and quantity of the proposed
Hazardous Substance which Lessor has agreed to the Presence
thereof shall be deemed to be an Allowed Substance for purposes
of this Article. All Hazardous Substances described on the
Environment Questionnaire and Disclosure Statement attached
hereto as Exhibit "C" are deemed to be Allowed Substances.
Lessor's consent to the Presence of any Hazardous Substance at
any time during the Lease term or any renewal thereof shall not
waive the requirement of obtaining Lessor's consent to the
subsequent Presence of any other, or increased quantities of any
Hazardous Substance, such consent shall be deemed given only by
amendment of Exhibit "C" to this Lease;
(b) Refrain from (and prohibit others from) allowing, on and after
the Commencement Date, the Presence of any Hazardous Substances
in or about the Premises which is not an Allowed Substance;
(c) Promptly comply at Lessee's own cost and expense with all laws,
order, rules, regulations, certificates or occupancy, or other
requirements, as the same now exist or hereafter may be enacted,
amended, or promulgated, of any federal, state, county,
municipal, or other governmental or quasi-governmental
authorities and/or any department or agency thereof relating to
the Presence of Hazardous Substances in or about the Premises,
whether or not such substances are Allowed Substances, which
Presence of Hazardous Substances arose on or after the
Commencement Date.
(d) At all times conduct, or caused to be conducted, maintenance on
the HVAC system equipment at the Premises in accordance with the
requirements of all applicable federal, state, and local laws and
regulations. In the event of leak or other contamination of any
Hazardous Substance from the HVAC system, Lessee shall promptly
repair such leak or other source of contamination from the HVAC
system in accordance with the requirements of such federal, state
and local laws and regulations, and in the time period required
thereby.
2
<PAGE>
(e) Indemnify and hold Lessor, its agents and employees, harmless
from any and all demands, claims, causes of action, penalties,
liabilities, judgments, damages (including consequential damages)
and expenses including without limitation, court costs and
reasonable attorney's fees incurred by Lessor as a result of (a)
Lessee's failure or delay in complying with the provisions of
sections 2 (a) and (b), above; (b) Lessee's failure or delay in
complying properly with such law, order, rule, regulation,
certificate of occupancy or other requirement referred to in
subsections 2 (c) and (d), above; or (c) any adverse effect which
results from the presence of any Hazardous Substance which is an
Allowed Substance. If any action or proceeding is brought against
Lessor, Lessor's agents or employees by reason of any such claim,
Lessee, upon notice from Lessor, will defend such claim at
Lessee's expense with counsel satisfactory to Lessor. This
indemnification by Lessee of Lessor shall survive the termination
of the Lease;
(f) Promptly disclose to Lessor by delivering, in the manner
prescribed for delivery of notice in the Lease, a copy of any
forms, submissions, notices, reports or other written
documentation (Communications) relating to the presence of any
Hazardous Substance in or about the Premises, whether such
Communications are delivered to Lessee or are requested of Lessee
by any federal municipal, state, county or other government or
quasi-government authority and/or any department or agency
thereof;
(g) Notwithstanding any other provisions of this Lease, (1) allow
Lessor, and Lessor's Agents, access and the right to enter and
inspect the Premises for the presence of any Hazardous Substance,
whether or not such Hazardous Substance is an Allowed Substance,
at any time deemed reasonable by Lessor, without prior notice to
Lessee, and (2) in the event a release of Hazardous Substances
occurs on or affects the Premises, Lessee shall permit Lessor or
Lessor's Agents to enter the Premises at any time, without prior
notice, to inspect, monitor, take emergency or long term remedial
action, discharge Lessee's obligations hereunder if Lessee has
failed to do so, or take any other action to restore the Premises
to its original condition.
(h) Compliance by lessee with any provision of this Article 6.2 shall
not be deemed a waiver of any other provision hereof. Without
limiting the foregoing, Lessor's consent to the presence of any
Hazardous Substance shall not relieve Lessee of its indemnity
obligations under the terms of this Article 6.2.
53. PROPERTY INSURANCE BUILDING, IMPROVEMENTS AND RENTAL VALUE: Article 8.3 (a)
-Lessor's policy or policies shall insure against the perils of flood and
earthquake, at Lessor's option.
54. INDEMNITY. The first sentence of Article 8.7 of the Lease shall be modified
as follows: insert gross before negligence.
55. SIGNAGE: Lessor agrees that, for so long as Javelin Systems, Inc. leases
and occupies more that 25,000 rentable square feet of the Premises, Javelin
Systems, Inc. may place its name on the monument identified on the attached
EXHIBIT D. Javelin Systems, Inc. shall be entitle to utilize a specific
sign panel area (as designated by Lessor) within the monument sign. All
costs associated with Javelin Systems, Inc.'s contemplated sign panels with
the proposed monument sign as well as the maintenance of same shall be paid
for solely by Javelin Systems, Inc. The exact copy, color and size of the
proposed sign panel within said monument sign shall be previously approved
by Lessor in writing (and any other applicable authorities).
3
<PAGE>
56. LIMITATION ON LESSOR'S LIABILITY: Notwithstanding any provisions to the
contrary set forth in this Lease, Lessor shall not in any event or at any
time be personally liable for the payment or performance of any obligation
required or permitted of Lessor pursuant to this Lease or in any document
executed in connection herewith. In the event of any breach or default by
Lessor under this Lease or any such document, the sole recourse of lessee
shall be against Lessor's interest in the Premises, and no attachment,
execution, writ or other process shall be sought or obtained, and no
judicial proceeding shall be initiated by or on behalf of Lessee against
Lessor personally or Lessor's assets except with respect to Lessor's
interest in the Premises.
57. OPTION TO EXTEND: Lessee shall have the option to extend the Term of this
Lease (the "Option") for one (1) period of five (5) years (each such period
an "extension term") provided Lessee gives Lessor written notice of its
election to exercise the Option at lease 180 days prior to the expiration
of the Term of this Lease (or the then applicable extension term, to the
extent the Term has been previously extended by the terms of this Article).
The terms and conditions governing each such extension term will be the
same as those for the Initial lease Term, except and to the extend modified
by the terms of Paragraph E, below. Time is of the essence.
A. The Option is personal to the Lessee originally named in this Lease
and may not be exercised by or be assigned to, voluntarily or
involuntarily, any other person or entity. The Option herein granted
to Lessee may not be assigned with any permitted assignment or this
Lease or sublease of the Premises (or any portion thereof).
B. Lessee shall not have the right to exercise the Option,
notwithstanding anything set forth above to the contrary:
1. During any period of time commencing from the date Lessor gives
to Lessee a written notice that Lessee is in default under any
provision of this Lease, and continuing until the default alleged
in said notice is cured;
2. During the period of time commencing on the day after a monetary
obligation to Lessor is due from Lessee and unpaid (without any
necessity for notice thereof to Lessee) and continuing until the
obligation is paid;
3. At any time after the occurrence of any default described in
Paragraph 13 of the Lease other than those described in the
preceding paragraphs (without any necessity of Lessor to give
notice of such default to Lessee); or
4. In the event that Lessor has given to Lessee two or more notices
of default or a late charge has become payable under the Lease
during the twelve month period prior to the time that Lessee
intends to exercise the Option.
C. The period of time within which the Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise
the Option because of the foregoing provisions of Paragraph B, even if
the effect thereof is to eliminate Lessee's right to exercise the
Option.
D. All rights with respect to the Option shall terminate and be of no
further force or effect even after Lessee's due and timely exercise of
the Option, if, after such exercise, but prior to the commencement of
the applicable extension term, (1) Lessee fails to pay to Lessor a
monetary obligation of Lessee for a period of ten days after such
obligation become due (without any necessity of Lessor to give notice
thereof to Lessee); (2) Lessee fails to cure a non-monetary default
within 30 days after the date the Lessor gives notice to Lessee of
such default; or (3) Lessor gives to Lessee two or more notifies of
default or a late charge becomes payable for any such default, whether
or not such defaults are cured.
4
<PAGE>
E. The Basic Monthly Rent shall be increased on the first day of each
extension term (the "Rental Adjustment Date") to the "fair rental
value" prevailing for comparable space in the Irvine Business Complex,
determined in the following manner:
1. Not later than 120 days prior to the applicable Rental Adjustment
Date, Lessor and Lessee shall meet in an effort to negotiate, in
good faith, the fair rental value of the Premises as of such
applicable Rental Adjustment Date. If Lessor and lessee have not
agreed upon the fair rental value of the Premises at least 90
days prior to the applicable Rental Adjustment Date, the fair
rental value shall be determined by appraisal as described below.
2. If Lessor and Lessee are not able to agree upon the fair rental
value of the Premises within the time period prescribed in
Paragraph 1, then Lessor and Lessee shall attempt to agree in
good faith upon a single appraiser not later than 75 days prior
to the applicable Rental Adjustment Date. If Lessor and Lessee
are unable to agree upon a single appraiser not later than 65
days prior to the applicable Rental Adjustment Date. Within five
days thereafter, the two appointed appraisers shall appoint a
third appraiser. If Lessor and Lessee agree upon an appraiser, or
if either Lessor or Lessee fail to appoint its appraiser within
the prescribed time period, the single appraiser appointed shall
determine the fair rental value of the Premises. If both parties
fail to appoint appraisers within the prescribed time periods,
then the first appraiser thereafter selected by a party shall
determine the fair rental value of the Premises. Each party shall
bear the cost of its own appraiser and the parties shall share
equally the cost of the single or third appraiser if applicable.
Each such appraiser must have a least five years experience in
the appraisal of commercial/industrial real property in the area
in which the Project is located and shall be members of a
professional organization such as MAI or equivalent.
3. For the purposes of such appraisal, the term "fair rental value"
shall mean the price that a ready and willing Lessee would pay,
as of the applicable Rental Adjustment Date, as monthly rent to a
ready and willing Lessor of property comparable to the Premises
if such property were exposed for lease on the open market for a
reasonable period of time and taking into account all of the
purposes for which such property may be used. If a single
appraiser is chosen, then such appraiser shall determine the fair
rental value of the Premises. Otherwise, the fair rental value of
the Premises shall be the arithmetic average of the two of the
three appraisals which are closest in amount, and the third
appraisal shall be disregarded. In no event, however, shall the
Basic Monthly Rent be reduced by reason of such computation or
the operation of this Article.
Lessor and Lessee shall instruct the appraiser(s) to complete
their determination of the fair rental value no later than 30
days prior to the applicable Rental Adjustment Date. If,
notwithstanding such instruction, the fair rental value is not
determined before the first day of an extension term, then Lessee
shall continue to pay to Lessor the Basic Monthly Rent applicable
to the Premises immediately prior to such extension term, until
the fair rental value of the Premises is determined. When the
fair rental value of the Premises is determined, Lessor shall
deliver notice thereof to Lessee, and Lessee shall pay to Lessor,
within ten days after receipt of such notice, the difference
between the Basic Monthly Rent actually paid by Lessee to Lessor
and the new Basic Monthly Rent determined hereunder.
5
<PAGE>
Notwithstanding the foregoing, in no event shall the monthly Base
Rent payable during an Option Term be less than the monthly Base
Rent payable during the last month of the Initial Term or the
proceeding Option Term, as applicable.
58. PARKING: Lessor shall grant to Lessee its pro rata share of existing
parking at the Project. Lessor will stripe twenty (20) of those parking
spaces as reserved for Lessee and three (3) spaces as "visitor" parking as
depicted on Exhibit A. Lessor shall not be responsible for enforcing
Lessee's Reserved Parking Spaces or Visitor Parking Spaces.
59. RIGHT OF FIRST REFUSAL: Provided (i) there is no continuing and uncured
default by Lessee under this Lease and (ii) Lessee has not assigned this
Lease or sublet all or any portion of the Premises in a transfer which
requires Lessor's consent, Lessor hereby grants to Lessee, during the
Original Term only, a right of first refusal to lease the second floor of
the building known as 17881 Cartwright Road, consisting of approximately
12,400 square feet. Such right of first refusal may be exercised only
following the failure by General Power Systems, Inc. ("GPSI") to exercise
its first right of refusal to lease the second floor of the 17881 building
so long as such right is still in effect. In the event that Lessor receives
an offer to lease all or a part of the 17881 Building, subject to the right
of GPSI and only following GPSI's failure to exercise its option, if any,
to lease the second floor if the offer to lease relates to the second
floor, Lessor shall notify Lessee of the rental rate, the length of the
lease term, and the other material terms of the offer. If Lessee has not
elected in writing to accept all such terms within five (5) business days
of receipt of such notice, Lessee shall be deemed to have waived all of its
rights under this paragraph as to the portion of the 17881 Building covered
by such offer. If Lessee elects in writing to accept such terms, Lessor
shall prepare and deliver to Lessee, and Lessee shall execute and deliver
to lessor within five (5) business days of delivery, a lease in
substantially the form of this Lease, modified as necessary due to the
prior occupancy of Lessee in the Premises. Failure by lessee to so execute
such Lease shall be deemed as a noncurable default under this Lease and a
waiver by Lessee of any further rights as to the 17881 building.
60. AUDIT RIGHTS;
a. AUDIT THRESHOLD. In the event Lessee's Share of Common Area Operating
Expenses increases by more than five percent (5%) in any Lease Year,
Lessee may audit Lessor's common area operating costs in order to
verify the accuracy of Common Area Operating Expenses provided that:
(i) Lessee specifically designates the fiscal year(s) that Lessee
intends to audit, which shall be a year within three (3) years
of the date of the audit but must be within the Term of this
Lease; and
(iii) Such audit will be conducted only during normal business hours
at the office where Lessor maintains Common Area Operating
Expense records and only after Lessee gives Lessor fourteen
(14) days' notice.
b. COPY OF AUDIT. Lessee shall deliver to Lessor a copy of the results of
such audit within fifteen (15) days of its receipt by Lessee. No such
audit shall be conducted if any other Lessee has conducted an audit
for the time period Lessee intends to audit and Lessor furnishes to
Lessee a copy of the results of such audit.
c. TENANT NOT IN DEFAULT. No audit shall be conducted at any time that
Lessee is in default of any of the terms of the Lease.
d. LIMITS FOR SUBTENANTS AND ASSIGNEES. No subtenant shall have any right
to conduct an audit and no assignee shall conduct an audit for any
period during which such assignee was not in possession of the
Premises.
6
<PAGE>
e. CONFIDENTIALITY. Lessee and its agents or representatives agree not to
disclose any information obtained from any such audit to any other
Lessee in the Project.
AGREED AND ACCEPTED:
LESSOR: BRS-CAMPO INVESTMENT COMPANY LP, a California limited partnership
By: Blackpoint Investment Corp., Its General Partner
By: /s/ Marc R. Brutten Date:
---------------------------- -------------------------
Marc R. Brutten, President
LESSEE: JAVELIN SYTEMS, INC., a Delaware corporation
By: Date: March 4, 1998
---------------------------- -------------------------
7
<PAGE>
Exhibit "A"
TENANT WORK LETTER
Lessor and Lessee are executing simultaneously with this Tenant Improvement
Agreement ("Agreement"), a written lease ("Lease") covering those certain
premises more particularly described in Exhibit A to the Lease ("Premises"), in
the Building more particularly described in the Lease. Lessor and Lessee agree
that Lessor shall improve and prepare the Premises on Lessee's behalf and for
Lessee's occupancy, on the terms and conditions set forth in this Agreement. To
induce Lessor and Lessee to enter into the Lease (which is hereby incorporated
by reference to the extent that the provisions of this Agreement may apply
thereto) and in consideration of the mutual covenants hereinafter contained,
Lessor and Lessee mutually agree as follows:
1. DEFINITIONS AND REPRESENTATIVES: All terms used herein which are
not defined shall have the meanings ascribed to them in the Lease.
Lessor appoints Lessor's Representative to act for Lessor and
Lessee appoints Lessee's Representative to act for Lessee in all
matters covered by this Agreement. All inquiries, requests,
instructions, authorizations and other communications with respect
to matters covered by this Agreement will be made to Lessor's
Representative or Lessee's Representative, as the case may be.
Lessee will not make any inquiries of or requests to, and will not
give any instructions or authorizations to, any other employee or
agent of Lessor, including Lessor's architect, engineers and
contractors or any of their agents or employees, with regard to
matters covered by this Agreement. Either party may change its
Representative under this Agreement at any time with three business
(3) days' prior written notice to the other party.
Lessee's Representative: Horace Hertz
-------------------------------
Lessor's Representative: Jim Ingebritsen
-------------------------------
Lessor's Space Planner
("Space Planner"): John Farndale
-------------------------------
Lessor's Contractor ("Contractor"): DBAC
-------------------------------
2. PLANS AND SPECIFICATIONS/LESSEE IMPROVEMENTS: The Premises shall be
improved by Lessor with certain Lessee improvements ("Lessee
Improvements") in accordance with plans and specifications prepared by
Lessor's Space Planner and Lessor's standard Lessee finishes, which
have not been finalized as of the Date of Lease, but which shall be
incorporated into this Lease when approved by Lessor and lessee
("Plans and Specifications"). Lessor and Lessee shall use best good
faith efforts to agree upon Plans and Specifications. Lessor's
approval of the Plans and Specifications for the Lessee Improvements
shall create no responsibility or liability on the part of lessor for
their completeness, design sufficiency, or compliance with all laws,
rules, and regulations of governmental agencies or authorities. The
cost of the Lessee Improvements shall be allocated between Lessor and
lessee as provided in Section 8 of this Agreement.
3. CHANGE ORDERS: Lessee may authorize changes in the work during
construction, only by written instructions from Lessee's
Representative to lessor's Representative on a form approved by
Lessor. All such changes shall be subject to Lessor's prior written
approval in accordance with Section 4 of this Agreement. Prior to
commencing any change, Lessor shall prepare and deliver to lessee, for
Lessee's approval, a change order (the "Change Order") setting forth
the additional time required to perform the change and the total cost
of such change, which will include associated architectural,
engineering and constructions contractor's fees, delay costs,
additional coordination costs, and the costs of Lessor's overhead at
the rate of fifteen percent (15%) of the amount of the Change Order.
If Lessee fails to approve such Change Order within two (2) business
days after delivery by Lessor, Lessee shall be deemed to have
withdrawn the proposed Change Order and Lessor shall not proceed to
perform the change and Lessee
<PAGE>
shall pay for such Change Order at the time Contractor starts work on
such Change Order.
4. LESSOR'S APPROVAL: Lessor may withhold its approval of any revisions
to the Plans and Specifications requested by Lessee, or any Lessee
Change orders which require work which: (i) exceeds or affects the
structural integrity of the Building, or any part of the Utility
Installations or HVAC System; (ii) is not approved by the holder of
any Mortgage encumbering the Building at the time the work is
proposed; (iii) violates any agreement which affects the Building or
which binds the Lessor; (iv) Lessor reasonably believes will increase
the cost of operation or maintenance of any of the systems of the
Building; (v) Lessor reasonably believes will reduce the market value
of the Building at the end of the Term; (vi) does not conform to
applicable building codes or is not approved by any governmental
authority with jurisdiction over the Premises and/or Building; (vii)
does not conform to Lessor's "Building Standard" Lessee improvement
specifications unless otherwise approved by Lessor; or (viii) Lessor
reasonably believes will result in a delay in the completion of the
Lessee Improvements, or result in an increase in the cost of the
Lessee Improvements (unless Lessee pays such excess in advance).
5. LESSOR'S FEE: Lessor shall be paid a fee in connection with Lessor's
obligations set forth in Section 2 with respect to reviewing and
approving the design and construction of the Lessee Improvements for
the Premises in the amount of five percent (5%) of the total cost to
design, permit and construct the Lessee Improvements which amount
shall be deducted from the Tenant Improvement Allowance.
6. SUBSTANTIAL COMPLETION AND COMMENCEMENT DATE: The Commencement Date
under the Lease shall not occur until the earlier to occur of (i)
Substantial Completion of the Lessee Improvements and tender of
possession of the Premises to lessee; or (ii) the date Lessee opens
for business in the Premises; or (iii) the date that Substantial
Completion of the Lessee Improvements would have occurred but for
Lessee Delays. If Substantial Completion of the Lessee Improvements
shall be delayed as a result of a Lessee Delay, the Commencement Date
shall be accelerated by the number of days of such Lessee Delay. Each
of the following events shall be deemed a "Lessee Delay"; (a) delays
resulting from any direction by Lessee that Lessor suspend work or
otherwise hold up construction of any portion of the Lessee
Improvements because portions of Lessee Improvements cannot be
performed until work to be performed by or on behalf of Lessee is
performed; (c) delays due to the failure of Lessee to pay when due any
amount payable pursuant to this Agreement; (d) delays which result
directly or indirectly from Lessee's changes in the Plans and
Specifications; or (e) any other action or inaction of Lessee that
directly or indirectly delays Lessor in completing the Lessee
Improvements. Lessee shall pay any actual and documented costs or
expenses incurred by Lessor as a result of any lessee Delays,
including without limitation, any increases in costs or expenses for
labor or materials.
As used in this Lease and this Agreement, the term "Substantial
Completion of the Lessee Improvements" shall mean that (i) all of the
Base Building Systems are operational to the extent necessary to
service the Premises, (ii) Lessor has procured an Authorized to
Occupy/Certificate of Occupancy (or an equivalent from the City for
such work), either temporary or final, and (iii) Lessor has completed
the Lessee Improvements substantially in accordance with this
Agreement except for finishing details of construction, decoration,
mechanical, and other adjustments and other items of the type commonly
found on an architectural "punch list", none of which materially
interfere with Lessee's use or occupancy of the Premises for normal
business operations.
7. LESSEE'S PUNCH LIST: Prior to Lessor's delivery of the Premises to
Lessee, Lessor shall give Lessee three (3) business days prior
notification of a meeting for Lessee to inspect the Lessee
improvements. Lessee's Representative shall completely examine the
Premises and prepare with Lessor's Representative and Contractor a
<PAGE>
list of all visible items to be completed by Contractor to finish the
Lessee Improvements. The list shall be signed by both Lessor and
Lessee and all items shall be completed as soon as reasonably
possible. Any items damaged during Lessee's move in or occupancy shall
be repaired or replaced by Contractor at Lessee's sole cost and
expense and not as part of the Tenant Improvement Allowance.
8. TENANT IMPROVEMENT ALLOWANCE: Lessor agrees to provide Lessee an
allowance in an amount not to exceed one hundred seventy five thousand
dollars ($175,000) which shall be completed at Lessor's cost ("Tenant
Improvement Allowance"). The Tenant Improvement Allowance shall
include without limitation any and all costs of construction, city
permits, space planning, engineering and the cost of Lessor's
overhead. Prior to the commencement of construction of the Lessee
Improvements, Lessee shall supply Lessor with cash in an amount (the
"Over-Allowance Amount") by which the costs to construct the Lessee
Improvements exceeds the Tenant Improvements Allowance. Lessee shall
be solely responsible for the Over-Allowance Amount. The Tenant
Improvement Allowance and Over-Allowance Amount shall be used solely
toward the cost of constructing the Lessee Improvements and for no
other purpose. The Tenant Improvement Allowance and/or Over-Allowance
Amount will not be utilized for any modular workstations or lessee-
specific furniture. The allowance is designed to be utilized to
construct improvements which will remain with the property. Lessee may
use up to $1.00 per useable square foot of the Tenant Improvement
Allowance for cable and network systems.
<PAGE>
[LOGO] EXHIBIT "C"
ENVIRONMENTAL QUESTIONNAIRE AND DISCLOSURE STATEMENT
The purpose of this form is to obtain information regarding the use of
hazardous substances on the premises. Prospective tenants should answer the
questions in light of their proposed operations on the premises. Existing
tenants should answer the questions as they relate to ongoing operations on
the premises and should update any information previously submitted. If
additional space is needed to answer the questions, you may attach separate
sheets of paper to this form.
Your cooperation in this matter is appreciated. Any questions should be
directed to, and when completed, the form should be mailed to:
-----------------------------------------
-----------------------------------------
1. GENERAL INFORMATION
Company Name: Javelin Systems, Inc
-----------------------------------------------
<PAGE>
[LOGO]
4. SPILLS
4.1 During the past year, have any spills occurred on the premises?
Yes No X
------- -------
If so, please describe the spill and attach the results of any testing
conducted to determine the extent of such spills.
4.2 Were any agencies notified in connection with such spills?
Yes No N/A
------- -------
If so, attach copies of any spill reports or other correspondence with
regulatory agencies.
4.3 Were any clean up actions undertaken in connection with the spill?
Yes No N/A
------- -------
If so, briefly describe the actions taken. Attach copies of any clearance
letters obtained from any regulatory agencies involved and the results of
any final soil or ground water sampling done upon completion of the clean
up work.
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-------------------------------------------------------------------------
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5. WASTE MANAGEMENT
5.1 Has your company been issued an EPA Hazardous Waste Generator I.D. number?
Yes No X
------- -------
5.2 Has your company filed a biennial report as hazardous waste generator?
Yes No X
------- -------
If so, attach a copy of the most recent report files.
5.3 Attach a list of the hazardous waste, if any, generated or to be generated
at the premises, its hazardous class and the quantity generated on a
monthly basis.
-3-
<PAGE>
[LOGO]
5.4 Describe the method(s) of disposal for each waste. Indicate where and how
often disposal will take place.
N/A
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5.5 Indicate the name of the person(s) responsible for maintaining copies of
hazardous manifests completed for off-site shipments of hazardous waste.
N/A
-------------------------------------------------------------------------
5.6 Is any treatment or processing of hazardous wastes currently conducted or
proposed to be conducted at the premises?
Yes No N/A
-------- ---------
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5.7 Attach copies of any hazardous waste permits or licenses issued to your
company with respect to its operations on the premises.
N/A
6. WASTE WATER TREATMENT/DISCHARGE
6.1 Do you discharge waste water to:
Storm drain? Sewer?
----- ------
Surface water? X No industrial discharge
----- ------
6.2 Is your waste water treated before discharge?
Yes No N/A
-------- ---------
If yes, describe the type of treatment conducted.
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6.3 Attach copies of any waste water discharge permits issued to your company
with respect to its N/A operations on the premises. N/A
-4-
<PAGE>
[LOGO]
7. AIR DISCHARGES
7.1 Do you have any air filtration systems or stacks that discharge into the
air?
Yes No X
-------- ---------
7.2. Do you operate any of the following types of equipment, or any other
equipment requiring an air emissions permit?
Spray booth
---------
Dip tank
---------
Drying oven
---------
Incinerator
---------
Other
--------- ---------------
X No equipment requiring air permits
---------
7.3 Are air emissions from your operation monitored?
Yes No X
-------- ---------
If so, indicate the frequency of monitoring and a description of the
monitoring results.
-------------------------------------------------------------------
7.4 Attach copies of any air emissions permits pertaining to your operations on
the premises. N/A
8. HAZARDOUS MATERIALS DISCLOSURES
8.1 Does your company handle hazardous materials in a quantity equal to or
exceeding an aggregate of 500 pounds, 5 gallons, or 200 cubic feet ?
Yes No X
-------- ---------
8.2 Has your company prepared a hazardous materials management plan ("business
plan") pursuant to Orange County Fire Department requirement?
Yes No X
-------- ---------
8.3 Are any of the chemicals used in your operation regulated under Proposition
65?
Yes No X
-------- ---------
8.4 Describe the procedure followed to comply with OSHA Hazard Communication
Standard requirements.
-5-
<PAGE>
[LOGO]
9. ENFORCEMENT ACTIONS, COMPLAINTS
9.1 Has your company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees?
Yes No X
-------- ---------
If so, describe the actions and any continuing compliance obligations
imposed as a result of these actions.
9.2 Has your company ever received requests for information, notice or demand
letters, or any other inquiries regarding its operation ?
Yes No X
-------- ---------
9.3 Have there ever been, or are there now pending, any lawsuits against the
company regarding any environmental or health and safety concerns ?
Yes No X
-------- ---------
9.4 Has an environmental audit ever been conducted at your company's current
facility?
Yes No X
-------- ---------
9.5 Have there been any problems or complaints from neighbors at the company's
current facility?
Yes No X
-------- ---------
JAVELIN SYSTEMS, INC
---------------------------------
Company
By:
-----------------------------
Title: Chief Financial Officer
-----------------------------
Date: March 3, 1998
------------------------------
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THE BUSINESS CENTER
OFFICE/WAREHOUSE LEASE
THIS LEASE, made this 4th day of April, 1997, by and between the Owner of the
leased premises through its Agent, Nooney Krombach Company, a Missouri
corporation (hereinafter referred to as "Landlord"), and CCI Group, Inc., a
Missouri corporation (hereinafter referred to as "Tenant");
WITNESSETH:
1. LEASED PREMISES. Landlord hereby demises and leases to Tenant that
certain space located at 13739, Rider Trail North, St. Louis, Missouri
63045, which space contains approximately 11,719 square feet of space, as
more fully described on Exhibit "A", attached hereto and made a part hereof
(hereinafter referred to as the "Premises"), plus the use of all common areas
in and about Landlord's building, and the real estate thereunder (hereinafter
referred to as the "Property").
Tenant has Inspected the Premises and accepts the same in its present
"AS IS" condition, acknowledging that the Premises are in good order and
satisfactory condition as of the date of Tenant's possession. Tenant further
acknowledges that Landlord has made no representations to Tenant with respect
to any alterations, repairs or Improvements to be constructed within the
Premises.
2. USE. The Premises shall be used only for the purpose of general
offices and/or receiving, storing and shipping materials, products and
merchandise made and/or distributed by Tenant. Outside storage including,
without limitation, drop shipments, dock storage, trucks and other vehicles,
is prohibited without Landlord's prior written consent Tenant shall obtain,
at Tenant's sole cost and expense, any and all licenses and permits necessary
for Tenant's contemplated use of the Premises. Tenant shall comply with all
existing and future governmental laws, ordinances and regulations applicable
to the use of the Premises, as well as all requirements of Landlord's
Insurance carrier. Tenant shall not permit any objectionable or unpleasant
odors, smoke, dust, gas, noise or vibrations to emanate from the Premises,
nor take any other action which would constitute a nuisance or which would
disturb or endanger any third-party tenants of the Property, or unreasonably
interfere with such third-party tenants' use of their respective space.
Tenant shall not receive, store or otherwise handle any product, material or
merchandise which is explosive or highly inflammable. Tenant shall comply
with all statutes, ordinances, rules, codes, regulations and requirements of
any federal, state, municipal or other governmental or quasi-governmental
authority with respect to any hazardous wastes (as such term is defined from
time to time by any governmental or regulatory authority) which are stared,
produced, manufactured, treated, or disposed of by Tenant within the
Premises; and Tenant agrees to indemnity, defend and hold Landlord harmless
from and against any and all liabilities or claims by reason of any injury to
persons or damage to property arising out of the discharge, disbursement,
release, or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic
chemicals, hazardous wastes, liquid or gasses, waste materials or other
irritants, contaminants or pollutants into or about the Premises or Property,
which originate from any products stored, produced, manufactured, treated, or
disposed of by Tenant within the Premises. The aforesaid indemnification and
defenses shall survive the term of this Lease.
3. COMMENCEMENT. The term of this Lease shall be one (1) year and zero
(0) months, commencing on the 1st day of November 1997, and expiring on the
31st day of October 1998 both inclusive. See ADDITIONAL PROVISIONS, Section
33.
4. RENT. Tenant shall pay the following Base Rent and Additional Rent
(hereinafter collectively referred to as "Rent") during the term of this
Lease, in advance, on the first day of each calendar month, or as otherwise
set forth in this Lease, without setoff or deduction, at the office of
Landlord. In the event any Rent is due for a partial calendar month or year,
the Rent shall be equitably adjusted to reflect that portion of the lease
term within such month or year. All accrued Rent shall survive the lease term.
(a) BASE. Tenant shall pay to Landlord, as Base Rent, the sum of Ninety
Thousand, Eight Hundred Twenty-eight and 00/100 Dollars ($90,828.00), per year,
payable in equal monthly installments of Seven Thousand, Five Hundred Sixty-nine
and 00/100 Dollars ($7,569.00) each.
<PAGE>
(b) ADDITIONAL. Tenant shall pay to Landlord, as Additional Rent, Tenant's
pro rata share of the common area maintenance charges incurred by Landlord for
and on behalf of the Property; and, in addition thereto, Tenant shall pay to
Landlord, as Additional Rent, Tenant's pro rata share of any increase in Taxes
and Insurance over the actual Taxes and Insurance payable by Landlord in the
1997 calendar year.
(i) TAXES. Taxes shall include, without limitation, any tax,
assessment, trustees' fee, or governmental charge (herein collectively referred
to as "Tax") imposed against the Property, or against any of Landlord's personal
property located therein. Taxes, as herein defined, are predicated upon the
present system of taxation in the state of Missouri. Therefore, if due to a
future change in the method of taxation any rent, franchise, use, profit or
other tax shall be levied against Landlord in lieu of any Tax which would
otherwise constitute a "real estate tax", such rent, franchise, use, profit or
other tax shall be deemed to be a Tax for the purposes herein. In the event
Landlord is assessed with a Tax which Landlord, in its sole discretion, deems
excessive, Landlord may challenge said Tax or may defer compliance therewith to
the extent legally permitted; and, in the event thereof, Tenant shall be liable
for Tenant's pro rata share of all costs in connection with such challenge.
(ii) INSURANCE. Insurance shall include, without limitation, premiums
for liability, property damage, fire, workers compensation, rent and any and all
other insurance (herein collectively referred to as "Insurance") which Landlord
deems necessary to carry on, for, or in connection with Landlord's operation of
the Property. In addition thereto, in the event Tenant's use of the Premises
shall result in an increase of any of Landlord's Insurance premiums, Tenant
shall pay to Landlord, upon demand, as Additional Rent, an amount equal to such
increase in Insurance. Such payments of Insurance shall be in addition to all
premiums of insurance which Tenant is required to carry pursuant to Section 19
of this Lease.
(iii) COMMON AREA MAINTENANCE. Common area maintenance charges
(hereinafter referred to as "CAM") shall include without limitation: the
maintenance, repair and replacement, if necessary, of the downspouts, gutters
and the non-structural portions of the roof, the paving of all parking
facilities, access roads, driveways, sidewalks and passageways; trunk-line
plumbing (as opposed to branch-line plumbing); common utilities and exterior
lighting; landscaping; snow removal; fire protection; exterior painting and
interior painting of the common areas of the Property; management fees; and all
other expenses incurred by Landlord for or on behalf of the Property.
Notwithstanding the aforesaid, in no event shall CAM expenses include any
expense chargeable to a capital account or capital improvement under generally
accepted accounting principles as currently employed by Landlord; nor shall It
include any expense for which Landlord is otherwise reimbursed.
(iv) PAYMENT OF ADDITIONAL RENT. Landlord shall have the right to
invoice Tenant monthly, quarterly, or otherwise from time to time, for Tenant's
pro rata share of the actual Taxes, Insurance and CAM expenses payable by Tenant
under this Lease; and Tenant shall pay to Landlord, as Additional Rent, those
amounts for which Tenant is invoiced within thirty (30) days after receipt of
said invoice.
Alternatively, at Landlord's election, Landlord shall have the right to
invoice Tenant monthly for Tenant's pro rata share of such expenses, as
reasonably estimated by Landlord, based upon the expenses incurred by and on
behalf of the Property in the preceding calendar year. Any monies paid in
advance to Landlord by Tenant shall not accrue interest thereon. At the end
of each calendar year, Landlord shall deliver a statement to Tenant setting
forth the difference between Tenant's actual pro rata share of Taxes,
Insurance and/or CAM expenses and the total amount of monthly payments, paid
by Tenant to Landlord. Tenant shall thereafter pay to Landlord the full
amount of any difference between Tenant's actual obligation over the total
amount of Tenant's estimated payments, within thirty (30) days after receipt
of said statement; conversely, in the event Tenant's estimated payments exceed
Tenant's actual obligation, Landlord shall either refund the overpayment to
Tenant or credit said overpayment against Tenant's monthly obligation in the
forthcoming year.
For purposes of this Lease, Tenant's pro rata share is hereinafter
defined as a fraction, the numerator of which shall be the square footage of
the Premises, and the denominator of which shall be the square footage of the
rentable area of the Property, which pro rata share is hereby agreed to be
equal to 18.20%. In the event this Lease expires on a date other than the end
of a billing period, Tenant's obligation with respect to any amounts owed to
Landlord shall survive the expiration of the lease term, and shall be
invoiced to Tenant when the same have been accurately determined or, at
Landlord's option, such amounts shall be reasonably estimated by Landlord to
reflect the period of time the Lease was in effect during such billing period.
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<PAGE>
Landlord shall maintain complete and accurate records of all Taxes,
insurance and CAM expenses incurred in connection with the Property. Tenant
shall have the right to inspect such records at Tenant's sole cost and
expense, at the office of Landlord's managing agent during said agent's
normal business hours, upon five (5) days prior written notice. Landlord
shall not be obligated to provide Tenant with detailed summaries or receipts
for any expenses incurred by or on behalf of the Property; but Landlord shall
provide Tenant with one or mare statements setting forth such expenses,
categorized by class and amount. Notwithstanding the aforesaid, unless Tenant
asserts specific errors within ninety (90) days after receipt of any invoice,
or year-end statement, it shall be deemed that said Invoice, or year-end
statement, is correct.
5. LATE CHARGE. In the event Tenant is late in the payment of any Rent
or other charge due Landlord, Tenant shall be assessed a late charge for
Landlord's increased administrative expenses, which late charge shall be
equal to five percent (5%), per month, of all outstanding amounts owed
Landlord.
6. UTILITIES. Landlord agrees to supply water, gas, electricity end
sewer connections to the Premises. Tenant shall pay for all gas and
electricity used by Tenant within the Premises, together with any taxes,
penalties, surcharges or the like pertaining thereto, and Tenant shall be
liable for all maintenance and equipment with respect to the continued
operation thereof including, without limitation, all electric light bulbs,
tubes and starters. Normal usage of water and sewer is included in the Base
Rent; however, in the event Tenant's consumption of water and/or sewer is in
excess of normal usage, as reasonably determined by Landlord's independent
consultant, Tenant shall pay for such excess usage, from time to time, as
determined by a submeter placed upon such utilities or as reasonably
determined by said consultant. In no event shall Landlord be liable for any
interruption or failure of any utility servicing the Property.
7. LANDLORD'S REPAIRS AND MAINTENANCE. Landlord, at Landlord's sole
cost and expense, shall maintain, repair and replace, if necessary, the
structural portions of the roof and the exterior walls. Notwithstanding the
aforesaid, in the event any such maintenance or repairs are caused by the
negligence of Tenant or Tenant's employees, agents or invitees, Tenant shall
reimburse to Landlord, as Additional Rent, the cost of all such maintenance
and repairs within thirty (30) days after receipt of Landlord's Invoice for
same. For purposes of this Section, the term "exterior walls" shall not
include windows, plate glass, office doors, dock doors, dock bumpers, office
entries, or any exterior improvement made by Tenant. Landlord reserves the
right to designate all sources of services in connection with Landlord's
obligations under this Lease. Tenant hereby grants to Landlord the right to
enter upon the Premises, at reasonable times, and upon reasonable notice,
except in emergencies exclusively determined by Landlord, for the purpose of
making inspections and/or repairs. Tenant shall have the duty to periodically
inspect the Premises and notify Landlord should Tenant observe a need for
repairs or maintenance of any obligation to be performed by Landlord under
this Lease. Upon receipt of Tenant's notice, Landlord shall have a reasonable
period of time to make such repairs or maintenance; however, it is expressly
understood that Landlord's liability with respect to the failure or delay to
make any such repairs or maintenance shall be limited to the cost of such
repairs or maintenance.
8. TENANT'S REPAIRS AND MAINTENANCE. Tenant, at Tenant's sole cost and
expense, shall have the affirmative duty to periodically inspect, maintain,
service, repair and replace, if necessary, all portions of the Premises which
are not expressly the responsibility of Landlord including, but not limited
to, any windows, plate glass, office doors, dock doors, office entries,
interior walls and finish work, floors and floor coverings, water heaters,
electrical systems and fixtures, sprinkler systems, dock bumpers, branch
plumbing and fixtures, and pest extermination. In addition thereto, Tenant
shall keep the Premises and the dock area servicing the Premises in a clean
and sanitary condition, and shall keep the common parking areas, driveways
and loading docks free of Tenant's debris. Tenant shall not store materials,
waste or pallets outside of the Premises, and shall timely arrange for the
removal and/or disposal of all pallets, crates and refuge owned by Tenant
which cannot be disposed of in the dumpster servicing the Property.
Tenant shall have the affirmative duty to periodically inspect,
maintain, service, repair and/or replace the heating, ventilating and air
conditioning (HVAC) system which exclusively services the Premises, in a
manner and as often as is reasonably required to keep said system operating
properly and efficiently. In the event said HVAC system requires repairs or
replacement during the lease term, or any extension thereto, Tenant shall
make such repairs or replacement at Tenant's sole cost and expense. In the
event that tenant does not periodically inspect, maintain, service, repair
and/or replace the HVAC system, Landlord shall have the option to enter into
a regularly scheduled preventative maintenance/service contract on said HVAC
system, for and on behalf of
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<PAGE>
Tenant. Such contract may include, without limitation, all services suggested
or recommended by the equipment manufacturer in the operation and maintenance
of such system. In the event Landlord elects such option, Tenant shall
reimburse to Landlord, as Additional Rent, all of Landlord's costs in
connection with said contract, as well as Landlord's actual costs of repair
and maintenance of the HVAC system.
Upon the expiration or earlier termination of this Lease, Tenant shall
return the Premises to Landlord in substantially the same condition as when
received, reasonable wear and tear excepted. Tenant shall perform all repairs
and maintenance in a good and workmanlike manner, using materials and labor
of the same character, kind and quality as originally employed within the
Property; and all such repairs and maintenance shall be in compliance with
all governmental and quasi-governmental laws, ordinances and regulations, as
well as all requirements of Landlord's insurance carrier. In the event Tenant
fails to properly perform any such repairs or maintenance within a reasonable
period of time, Landlord shall have the option to perform such repairs on
behalf of Tenant, in which event Tenant shall reimburse to Landlord, as
Additional Rent, the costs thereof within thirty (30) days after receipt of
Landlord's Invoice for same.
9. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements to the Premises or Property without the prior written consent of
Landlord. Notwithstanding the aforesaid, Tenant, at Tenant's sole cost and
expense, may install such trade fixtures as Tenant may deem necessary, so
long as such trade fixtures do not penetrate or disturb the structural
integrity and support provided by the roof, exterior walls or subfloors. All
such trade fixtures shall be constructed and/or installed by contractors
approved by Landlord, in a good and workmanlike manner, and in compliance
with all applicable governmental and quasi-governmental laws, ordinances and
regulations, as well as all requirements of Landlord's insurance carrier.
Upon the expiration or earlier termination of this Lease, Tenant shall
remove all trade fixtures and any other alterations, additions or
improvements installed by Tenant within the Premises; and, upon such removal,
Tenant shall restore the Premises to a condition substantially similar to
that condition when received by Tenant. However, notwithstanding the
aforesaid, upon Landlord's written election, such alterations, additions and
improvements shall revert to Landlord and shall remain within the Premises.
In no event shall Landlord have any right to any of Tenant's trade fixtures;
and, except as otherwise set forth in this Lease, Tenant may remove such
trade fixtures upon the termination of this Lease, provided Tenant repairs
any damage caused by such removal.
10. DESTRUCTION. If the Premises or the Property are damaged in whole
or in part by casualty so as to render the Premises untenantable, and if the
damages cannot be repaired within one hundred eighty (180) days from the date
of said casualty, this Lease shall terminate as of the date of such casualty.
If the damages can be repaired within said one hundred eighty (180) days, and
Landlord does not elect within sixty (60) days after the date of such
casualty to repair same, then either party may terminate this Lease by
written notice served upon the other. In the event of any such termination,
the parties shall have no further obligations to the other, except for those
obligations accrued through the effective date of such termination; and, upon
such termination, Tenant shall immediately surrender possession of the
Premises to Landlord. Should Landlord elect to make such repairs, this Lease
shall remain in full force and effect, and Landlord shall proceed with all
due diligence to repair and restore the Premises to a condition substantially
similar to that condition which existed prior to such casualty. In the event
the repair and restoration of the Premises extends beyond one hundred eighty
(180) days after the date of such casualty due to causes beyond the control
of Landlord, this Lease shall remain in full force and effect, and Landlord
shall not be liable therefor, but Landlord shall continue to complete such
repairs and restoration with all due diligence. Tenant shall not be required
to pay any Rent for any period in which the Premises are untenantable. In the
event only a portion of the Premises are untenantable, Tenant's Rent shall be
equitably abated in proportion to that portion of the Premises which are so
unfit. However, there shall be no Rent abatement if said damage is due to the
fault or negligence of Tenant or Tenant's agents, employees or invitees.
11. INSPECTION. Landlord shall have the right to enter and inspect the
Premises at any reasonable time for the purpose of ascertaining the condition
of the Premises, or in order to make such repairs as may be required or
permitted to be made by Landlord under the terms of this Lease. In addition
thereto, during the last six (6) months of the lease term, Landlord shall
have the right to enter the Premises at any reasonable time for the purpose
of showing the Premises to prospective third-party tenants; and, during said
six (6) months, Landlord shall have the right to erect on the Property and/or
Premises suitable signs indicating that the Premises are available for lease.
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<PAGE>
Tenant shall give Landlord thirty (30) days written notice prior to
Tenant vacating the Premises, for the purpose of arranging a joint inspection
of the Premises with respect to any obligation to be performed therein by
Tenant including, without limitation, the necessity of any repair or
restoration of the Premises. In the event Tenant fails to notify Landlord of
such inspection, Landlord's inspection after Tenant vacates shall be
conclusively deemed correct for purposes of determining Tenant's
responsibility for repairs and restoration.
12. SIGNS. Tenant shall not install any signs upon the Premises or
Property without Landlord's prior written consent. Any such approval by
Landlord for any signs shall be subject to any applicable governmental or
quasi-governmental laws, ordinances, regulations as well as all requirements
of the Earth City Board of Trustees, or its successors. Upon the expiration
or earlier termination of this Lease, Tenant shall remove all such signs and
repair the Premises and/or Property to the condition which existed prior to
the installation of such signs including, without limitation, any
discoloration caused by such installation and/or removal.
13. SUBLETTING AND ASSIGNING. Tenant shall not assign or sublet the
Premises, or any portion thereof, nor allow the same to be used or occupied
by any other person or for any other use than herein specified, without the
prior written consent of Landlord. For purposes of this Section, the transfer
of any majority interest in any corporation or partnership shall be deemed to
be an assignment of this Lease. In the event Landlord consents to any
sublease or assignment, the same shall not constitute a release of Tenant
from the full performance of Tenant's obligations under this Lease, Further,
in the event of any such sublease or assignment, Tenant shall reimburse
Landlord for all reasonable attorneys' fees in connection with reviewing
and/or drafting any appropriate documents to effect such transfer of Tenant's
interests.
14. DEFAULT. This Lease and Tenant's right to possession of the
Premises is made subject to and condition upon Tenant performing all of the
covenants and obligations to be performed by Tenant hereunder, at the times
and pursuant to terms and conditions set forth herein. If Tenant should fail
to pay any Rent or other charge when the same is due, or if Tenant should
fail to perform any other obligation to be performed by Tenant within the
time or times set forth herein, Tenant shall be in Default under this Lease.
In the event any Default shall continue for five (5) days after receipt of
written notice from Landlord, or if Tenant makes an assignment for the
benefit of creditors, vacates or abandons the Premises for more than thirty
(30) days, files or has filed against it a petition in bankruptcy, has a
receiver, trustee or liquidator appointed over a substantial portion of its
property, or is adjudicated insolvent, Landlord may either (a) terminate this
Lease, or (b) terminate Tenant's right of possession to the Premises without
terminating this Lease. In either event, Landlord shall have the right to
dispossess Tenant, or any other person in occupancy, together with their
property, and re-enter the Premises. Upon such re-entry, Tenant shall be
liable for all expenses incurred by Landlord in recovering the Premises,
including, without limitation, cleanup costs, legal fees, removal, storage or
disposal of Tenant's property, and restoration costs.
In the event Landlord elects to terminate this Lease, all Rent through
the effective date of termination shall immediately become due, together with
any late fees payable to Landlord and the aforesaid expenses incurred by
Landlord to recover possession, plus an amount equal to all tenant
concessions granted to Tenant including, but not limited to, free or reduced
rent, all tenant finish constructed within the Premises, or any contribution
paid to Tenant in lieu thereof.
In the event Landlord elects not to terminate this Lease, but only to
terminate Tenant's right of possession to the Premises, Landlord may re-enter
the Premises without process of law if Tenant has vacated the Premises or, if
Tenant has not vacated the Premises by an action for ejection, unlawful
detainer, or other process of law. No such dispossession of Tenant or
re-entry by Landlord shall constitute or be construed as an election by
Landlord to terminate this Lease, unless Landlord delivers written notice to
Tenant specifically terminating this Lease. Upon Landlord recovering
possession, Landlord shall use reasonable efforts to mitigate its damage and
relet the Premises upon terms and conditions satisfactory to Landlord;
however, Landlord shall have no duty to prioritize the reletting of the
Premises over the leasing of other vacant space within the Property. Tenant
shall remain liable for all past due Rent and late fees, plus the aforesaid
expenses incurred by Landlord to recover possession of the Premises. In
addition, Tenant shall be liable for all Rent thereafter accruing under this
Lease, payable at Landlord's election: (a) monthly as such Rent accrues, in
an amount equal to the Rent payable under this Lease less the rent (if any)
collected from any reletting, or (b) in a lump sum within thirty (30) days
after Landlord repossesses the Premises, in an amount equal to the total Rent
payable under this Lease for the unexpired term, discounted at the rate of
six percent (6%), per annum. In the event the Premises are relet, Tenant
shall also be liable for all costs of reletting, including, without
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<PAGE>
limitation, any brokers fees, legal fees, and/or tenant finish required to be
paid in connection with any reletting.
In addition to any other remedy afforded Landlord under this Lease,
Tenant hereby grants to Landlord a continuing security interest upon all of
Tenant's goods, wares, equipment, fixtures, furniture, inventory, accounts,
contract rights, chattel paper and other personal property (hereinafter
collectively referred to as "Security") situated within the Premises. In the
event Tenant shall be in Default under this Lease, Tenant shall not remove
any such Security from the Premises without the prior written consent of
Landlord; and Landlord shall have all rights and remedies under the Uniform
Commercial Code including, without limitation, the right to sell such
Security at public or private sale upon five (5) days prior written notice to
Tenant. Tenant hereby agrees to execute financing statements and other
reasonable instruments necessary or desirable, in Landlord's discretion, to
perfect any security interest hereby created. The lien hereby created shall
be in addition to any statutory lien granted under the laws of the state of
Missouri.
No payment of money by Tenant after the termination of this Lease,
service of any notice, commencement of any suit, or after final judgment for
possession of the Premises, shall reinstate this Lease or affect any such
notice, demand or suit, or imply consent for any action for which Landlord's
consent is required. Tenant shall pay all costs and attorney's fees incurred
by Landlord from enforcing the covenants of this Lease. Should Landlord elect
not to exercise its rights in the event of a Default, it shall not be deemed
a waiver of such rights as to subsequent Defaults.
15. HOLDOVER. Upon the expiration or earlier termination of this Lease,
Tenant shall surrender the Premises to Landlord, without demand, in as good
condition as when delivered to Tenant, reasonable wear and tear excepted. If
Tenant shall remain in possession of the Premises after the termination of
this Lease, and hold over for any reason, Tenant shall be deemed guilty of
unlawful detainer, or, at Landlord's election, Tenant shall be deemed a
holdover tenant and shall pay to Landlord monthly Rent equal to two hundred
fifty percent (250%) of the total Rent payable hereunder during the last
month prior to any such holdover, as well as any other damages incurred by
Landlord as a result of such holdover. Should any of Tenant's property remain
within the Premises after the termination of this Lease, it shall be deemed
abandoned, and Landlord shall have the right to store or dispose of it at
Tenant's cost and expense.
16. RIGHT TO CURE TENANT'S DEFAULT. In the event Tenant is in Default
under any provision of this Lease, other than for the payment of Rent, and
Tenant has not cured same within five (5) days after receipt of Landlord's
written notice, Landlord may cure such Default on behalf of Tenant, at
Tenant's expense. Landlord may also perform any obligation of Tenant, without
notice to Tenant, should Landlord deem the performance of same to be an
emergency. Any monies expended by Landlord to cure any such Default(s), or
resolve any deemed emergency shall be payable by Tenant as Additional Rent.
If Landlord incurs any expense, including reasonable attorney's fees, in
prosecuting and/or defending any action or proceeding by reason of any
emergency or Default, Tenant shall reimburse Landlord for same, as Additional
Rent, with interest thereon at thirteen percent (13%) annually from the date
such payment is due Landlord.
17. HOLD HARMLESS. Landlord shall not be liable to Tenant for any
damages to the Premises or the Property, nor for any damages to Tenant on or
about the Property, nor for any other damages arising from the action or
negligence of Landlord, Tenant, co-tenants or other occupants of the Property
and Tenant hereby releases, discharges and shall indemnify, hold harmless and
defend Landlord, at Tenant's sole cost and expense, from all losses, claims,
liability, damages, and expenses (including reasonable attorney's fees) due
to any damage or injury to persons or property of the parties hereto or of
third persona, caused by Tenant's use or occupancy of the Premises, Tenant's
breach of any covenant under this Lease, or Tenant's use of any equipment,
facilities or property in, on, or adjacent to the Property. In the event any
suit shall be instituted against Landlord by any third person for which
Tenant is hereby indemnifying and holding Landlord harmless, Tenant shall
defend such suit at Tenant's sole cost and expense with counsel reasonably
satisfactory to Landlord; or, in Landlord's discretion, Landlord may elect to
defend such suit, in which event Tenant shall pay Landlord, as Additional
Rent, Landlord's costs of such defense.
18. CONDEMNATION. If the whole or any part of the Property or the
Premises shall be taken in condemnation, or transferred by agreement in lieu
of condemnation, either Tenant or Landlord may terminate this Lease by
serving the other party with written notice of same, effective as of the
taking date; provided in the case of termination by Tenant that the Premises
(or the remaining portion thereof) may no longer be adequately used for the
purpose set forth in Section 2 of this Lease. If neither Tenant
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nor Landlord elect to terminate this Lease as aforesaid, then this Lease
shall terminate on the taking date only as to that portion of the Premises so
taken, and the Rent and other charges payable by Tenant shall be reduced
proportionally. Landlord shall be entitled to the entire condemnation award
for all realty and improvements. Tenant shall only be entitled to an award
for Tenant's fixtures, personal property, and moving expenses, provided
Tenant independently petitions the condemning authority for same.
Notwithstanding the aforesaid, if any condemnation takes a portion of the
parking area the result of which does not reduce the minimum required parking
ratio below that established by local code or ordinance, this Lease shall
continue in full force and effect without modification.
19. INSURANCE. Tenant shall maintain in full force and effect
throughout the term of this Lease policies providing "ail risk" insurance
coverage protecting against physical damage (including, but not limited to,
fire, lightning, vandalism, sprinkler leakage, water damage, collapse, and
other extended coverage perils) to the extent of 100% of the replacement cost
of Tenant's property and improvements, as well as broad form comprehensive or
commercial general liability insurance, in an occurrence form, insuring
Landlord and Tenant jointly against any liability (including bodily injury,
property damage and contractual liability) arising out of Tenant's use or
occupancy of the Premises, with a combined single limit of not less than
$1,000,000, or for a greater amount as may be reasonably required by Landlord
from time to time. All such policies shall be of a form and content
satisfactory to Landlord; and Landlord shall be named as an additional
insured on all such policies. All policies shall be with companies licensed
to do business in the State of Missouri, and rated A+:XV in the most current
issue of Best's Key Rating Guide. Tenant shall furnish Landlord with
certificates of all policies at least ten (10) days prior to occupancy; and,
further, such policies shall provide that not less than thirty (30) days
written notice be given to Landlord before any such policies are cancelled or
substantially changed to reduce the insurance provided thereby. All such
policies shall be primary and non-contributing with or in excess of any
insurance carried by Landlord. Tenant shall not do any act which may make
void or voidable any insurance on the Premises or Property and, in the event
Tenant's use of the Premises shall result in an increase in Landlord's
insurance premiums, Tenant shall pay to Landlord upon demand, as Additional
Rent, an amount equal to such increase in insurance.
Notwithstanding anything to the contrary in this Lease, it is expressly
agreed that the parties shall each bear the risk of their own property; and
each party hereby waives any and all right of recovery against the other
party directly, by way of subrogation or otherwise, due to the negligence of
either party, their agents or employees, for any real or personal property
damage occurring to the Premises, the Property, or any personal property
located therein (whether or not the parties carry, or are required to carry,
insurance for the same). The parties shall each have the affirmative duty to
inform their respective insurance carriers of this Section and the mutual
waiver of subrogation contained herein.
20. MORTGAGES. This Lease is subject and subordinated to any mortgagee,
deeds of trust or underlying leases, as well as to any extensions or
modifications thereof (hereinafter collectively referred to as "Mortgages"),
now of record or hereafter placed of record. In the event Landlord exercises
its option to further subordinate this Lease, Tenant shall at the option of
the holder of said Mortgage attorn to said holder. Any subordination shall be
self-executing, but Tenant shall, at the written request of Landlord, execute
such further assurances as Landlord deems desirable to confirm such
subordination. In the event Tenant should fall or refuse to execute any
instrument required under this Section, within fifteen (15) days after
Landlord's request, Landlord shall be granted a limited power of attorney to
execute such instrument in the name of Tenant. In the event any existing or
future lender, holding a mortgage, deed of trust or other commercial paper,
requires a modification of this Lease which does not increase Tenant's Rent
hereunder, or does not materially change any obligation of Tenant hereunder,
Tenant agrees to execute appropriate instruments to reflect such
modification, upon request by Landlord.
21. LIENS. Tenant shall not mortgage or otherwise encumber or allow to
be encumbered its interest herein without obtaining the prior written consent
of Landlord. Should Tenant cause any mortgage, lien or other encumbrance
(hereinafter singularly or collectively referred to as "Encumbrance") to be
filed, against the Premises or the Property, Tenant shall dismiss or bond
against same within fifteen (15) days alter the filing thereof. If Tenant
fails to remove said Encumbrance within said fifteen (15) days, Landlord
shall have the absolute right to remove said Encumbrance by whatever measures
Landlord shall deem convenient including, without limitation, payment of such
Encumbrance, in which event Tenant shall reimburse Landlord, as Additional
Rent, all costs expended by Landlord, including reasonable attorneys fees, in
removing said Encumbrance. All of the aforesaid rights of Landlord shall be
in addition to any remedies which either Landlord or Tenant may have
available to them at law or in equity.
-7-
<PAGE>
22. GOVERNMENT REGULATIONS. Tenant, at Tenant's sole cost and expense,
shall conform with all laws and requirements of any Municipal, State, or
Federal, authorities now in force, or which may hereafter be in force,
pertaining to the Premises, as well as any requirement of Landlord's
insurance carrier with respect to Tenant's use of the Premises. The judgment
of any court, or an admission of Tenant in any action or proceeding at law,
whether Landlord be a party thereto or not, shall be conclusive of the fact
as between Landlord and Tenant.
23. NOTICES. All Rents which are required to be paid by Tenant shall be
delivered to Landlord by the United States Mail, postage prepaid, at
Landlord's address set forth below. All notices which are required to be
given hereunder shall be in writing, and delivered by either (a) United
States registered or certified mail, return receipt requested or (b) an
overnight commercial package courier/deliver service with a follow-up letter
sent by United States mail; and such notices shall be sent postage prepaid,
addressed to the parties hereto at their respective addresses below:
LANDLORD: TENANT:
Nooney Krombach Company CCI Group, Inc.
7701 Forsyth Boulevard 13739 Rider Trail North
Clayton, MO 63105 Earth City, MO 63045
Either party may designate a different address by giving notice to the other
party of same at the address set forth above. Notices shall be deemed
received on the date of the return receipt. If any such notices are refused,
or if the party to whom any such notice is sent has relocated without leaving
a forwarding address, then the notice shall be deemed received on the date
the notice-receipt is returned stating that the same was refused or is
undeliverable at such address.
24. PARKING. Tenant shall be liable for all vehicles owned, rented or
used by Tenant or Tenant's agents and invitees in or about the Property.
Tenant shall not store any equipment, inventory or other property in any
trucks, nor store any trucks on the parking lot of the Property.
Notwithstanding the aforesaid, in the event the Premises have access to a
loading dock which exclusively services the Premises, and no other space,
Tenant may store one or more of its vehicles in and about such dock area,
provided such storage does not restrict truck access or maneuverability for
any other tenant or person to or from any other loading dock servicing the
Property. In the event the Premises have access to a loading dock which does
not exclusively service the Premises, Tenant shall not park its trucks in the
dock area longer than the time it takes to reasonably load or unload its
trucks. In no event shall Tenant park any vehicle in or about a loading dock
which exclusively services another tenant within the Property, or in a
thoroughfare, driveway, street, or other area not specifically designated for
parking. Landlord reserves the right to establish uniform rules and
regulations for the loading and unloading of trucks upon the Property, which
rules may include the right to designate specific parking spaces for tenants'
use. Upon request by Landlord, Tenant shall move its trucks and vehicle if,
in Landlord's reasonable opinion, said vehicles are in violation of any of
the above restrictions. In addition to Tenant's rights to park its trucks in
any dock exclusively servicing the Premises, Tenant shall have the right to
use twenty (20) parking spaces an the parking lot of the Property on a
non-reserved basis.
25. OWNERSHIP. Notwithstanding anything in this Lease to the contrary,
the term "Landlord" as used in this Lease, shall be defined as the current
owner of the Property. In the event of any transfer of the Property, the
party conveying same shall thereafter be automatically released from all
liability with respect to Landlord's performance of any obligations
thereafter occurring or covenants thereafter to be performed. It is expressly
understood and agreed that none of Landlord's covenants under this Lease are
personal in nature, and that Tenant agrees to look solely to the Property for
recovery of any damages for breach or non-performance of any of the
obligations of Landlord hereunder.
26. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of
Seven Thousand, Five Hundred Sixty-nine and 00/100 Dollars ($7,569.00), as
security for the full and faithful performance of Tenant's obligations under
this Lease. The parties agree that, unless otherwise required by law,
Landlord shall not be required to keep said security deposit separate from
its general funds, nor pay any interest thereon to Tenant. Such security
deposit shall not be construed as an advance Rent payment, or as a measure of
Landlord's damages in the event of a Default by Tenant. If Tenant should be
placed in Default with respect to any provision of this Lease, Landlord may
apply all or a portion of said security deposit for the payment of any sum In
Default or for the payment of any amount which Landlord expends by reason of
such Default. If any portion of said deposit is so applied, Tenant shall
deposit with Landlord, within five (5) days after receipt of Landlord's
written demand, an amount
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sufficient to restore said security deposit to its original amount. Upon the
expiration of this Lease, Landlord shall return said security deposit to
Tenant, provided Tenant has paid to Landlord all sums owing to Landlord under
this Lease, and Tenant has returned the Premises to Landlord in as good order
and satisfactory condition as when Tenant took possession.
27. ESTOPPEL CERTIFICATES. Upon Landlord's written request, Tenant
shall execute and return to Landlord, within fifteen (15) days, a statement
in writing certifying that this Lease is unmodified and in full force and
effect, that Tenant has no defenses, offsets or counterclaims against its
obligations to pay any Rent or to perform any other covenants under this
Lease, that there are no uncured Defaults of Landlord or Tenant, and setting
forth the dates to which the Rent and other charges have been paid, and any
other information reasonably requested by Landlord. In the event Tenant fails
to return such statement within said fifteen (15) days, setting forth the
above or, alternatively, setting forth those lease modifications, defenses
and/or uncured Defaults, Tenant shall be in default hereunder or, at
Landlord's election, it shall be deemed that Landlord's statement is correct
with respect to the information therein contained. Any such statement
delivered pursuant to this Section may be relied upon by any prospective
purchaser, mortgagee, or assignee of any mortgagee of the Property.
28. SUBSTITUTE PREMISES. If the Premises are less than 5,000 square
feet, Landlord reserves the right, upon prior written notice to Tenant, to
relocate Tenant to any other substantially similar space within the Property,
at Landlord's sole cost and expense, which costs shall include all costs of
moving, construction and buildout; however, Landlord shall not be liable for
any lost profits or consequential damages due to any interruption in Tenant's
business. In the event of any such relocation, all of the terms, covenants,
and conditions of this Lease shall remain in full force and effect and shall
be deemed applicable to such new space. Should Tenant refuse to relocate
within thirty (30) days from the date of Landlord's notice, Landlord shall
have the right to terminate this Lease.
29. PERSONAL PROPERTY TAXES. Tenant shall timely pay all taxes assessed
against Tenant's personal property and all improvements to the Premises in
excess of Landlord's standard installations. If said personal property and
improvements are assessed with the property of Landlord, Tenant shall pay to
Landlord an amount equal to Tenant's share of such taxes, within ten (10)
days after receipt of Landlord's statement for same.
30. BROKERAGE. The parties warrant that they have dealt with no other
broker or person in connection with this transaction other than NOONEY
KROMBACH COMPANY. This provision shall survive the termination of this Lease.
31. SEVERABILITY. In the event any provision of this Lease is invalid
or unenforceable, the same shall not affect or impair the validity or
enforceability of any other provision.
32. MISCELLANEOUS. (a) In addition to the terms and conditions set
forth herein, Landlord and Tenant shall be bound by those certain Rules and
Regulations, set forth on Exhibit "B", attached hereto and made a part hereof.
(b) All of the covenants of Tenant hereunder shall be deemed and
construed to be "conditions" as well as "covenants" as though both words were
used in each separate instance.
(c) This Lease shall not be recorded by Tenant without the prior
written consent of Landlord.
(d) The paragraph headings appearing in this Lease are inserted only as
a matter of convenience, and in no way define or limit the scope of any
paragraph.
(e) Except with respect to Tenant's obligation for the payment of Rent
hereunder, in the event any obligation to be performed by either Landlord or
Tenant is prevented or delayed due to labor disputes, acts of God, inability
to obtain materials, government restrictions, casualty, or other causes
beyond the control of the parties hereto, the party liable to perform such
obligation shall be excused from performing same for a period of time equal
to any aforesaid delay.
(f) Submission of this Lease shall not be deemed to be an offer, or an
acceptance, or a reservation of the Premises; and Landlord shall not be bound
hereby until Landlord has delivered to Tenant a fully executed copy of this
Lease, signed by both of the parties on the last page of this Lease in the
spaces herein provided. Until such delivery, Landlord reserves the right to
exhibit and lease the Premises to other prospective tenants. Notwithstanding
anything contained herein to the contrary, Landlord may withhold possession
of the Premises from Tenant until such time as Tenant has paid to
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Landlord the security deposit required by Section 25 of this Lease, and the
first month of Base Rent as set forth in Section 4 of this Lease.
(g) All of the terms of this Lease shall extend to and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
(h) This Lease and the parties' respective rights hereunder shall be
governed by the laws of the State of Missouri. In the event of litigation,
suit shall be brought in St. Louis County, Missouri. Landlord and Tenant
hereby waive any and all right to a trial by jury on any issue to enforce any
term or condition of this Lease, or with respect to Landlord's right to
terminate this Lease, or terminate Tenant's right of possession.
(i) This Lease is modified and affected by the following Exhibits which
are attached hereto and made a part hereof.
Additional Provisions
Exhibit "A": Floor Plan
Exhibit "B": Rules and Regulations
WHEREFORE, Landlord and Tenant have respectively signed and sealed this
Lease the day and year first above written.
TENANT: LANDLORD:
CCI GROUP, INC., NOONEY KROMBACH COMPANY,
a Missouri corporation Agent for the Owner
By: /s/ Robert D. Nichols By: /s/ Gregory J. Nooney, Jr.
----------------------------- ---------------------------------
Print Name: Robert D. Nichols Print Name: Gregory J. Nooney, Jr.
--------------------- -------------------------
Title: President Title: Chairman
-------------------------- ------------------------------
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ADDITIONAL PROVISIONS TO LEASE BY AND BETWEEN
NOONEY KROMBACH COMPANY, AS LANDLORD,
AND CCI GROUP, INC., AS TENANT
33. OPTION TO RENEW. Tenant shall have the right and option to extend the
term of this Lease for one (1) renewal period of one (1) year, upon the
following additional terms and conditions:
a. Tenant shall not have received a notice of Default from Landlord which
has not been cured by Tenant or waived by Landlord at the time Tenant exercises
its option or at the time the primary term expires.
b. Tenant shall give to Landlord written notice exercising Tenant's
option to extend the term of this Lease not less than six (6) months prior to
the expiration of the primary term,
c. During the extended term the Base Rent shall remain the same.
d. All other terms and conditions of this Lease shall be binding upon
Landlord and Tenant and in full force and effect, as if such terms and
conditions were again fully recited herein.
e. In the event Tenant does not exercise its option to extend this Lease
as herein provided, Landlord shall have the right, during the six (6) months
prior to the end of the primary term, to show the Premises during normal
business hours to other prospective tenants.
WHEREFORE, Landlord and Tenant have executed these Additional Provisions to
Lease the day and year first above written.
TENANT: LANDLORD:
CCI GROUP, INC., NOONEY KROMBACH COMPANY,
a Missouri corporation Agent for the Owner
By: /s/ Robert D. Nichols By: /s/ Gregory J. Nooney, Jr.
----------------------------- ---------------------------------
Print Name: Robert D. Nichols Print Name: Gregory J. Nooney, Jr.
--------------------- -------------------------
Title: President Title: Chairman
-------------------------- ------------------------------
<PAGE>
(Map goes here)
THE BUSINESS CENTER IN EARTH CITY
<PAGE>
EXHIBIT "B"
RULES AND REGULATIONS
---------------------
Tenant agrees to comply with the following rules and regulations, and
any subsequent rules or regulations which Landlord may reasonably adopt or
modify from time to time. Tenant shall be bound by such rules and regulations
to the same extent as if such rules and regulations were covenants of this
Lease; and any non-compliance thereof shall constitute grounds for Default
under this Lease. Landlord shall not be liable for the non-observance of said
rules and regulations by any other tenant.
(1) Tenant shall not use any picture or likeness of the Property in any
notices or advertisements, without Landlord's prior written consent.
(2) In the event Tenant requires any telegraph, telephone or satellite
dish connections, Landlord shall have the right to prescribe additional rules
and regulations regarding the same including, but not limited to, the size,
manner, location and attachment of such equipment and connections.
(3) No additional locks shall be placed upon any door of the Premises,
and Tenant shall not permit any duplicate keys to be made, without the prior
consent of Landlord. Upon the expiration or earlier termination of this
Lease, Tenant shall surrender to Landlord all keys to the Premises and
Property.
(4) Tenant shall not install or operate any steam or internal combustion
engine, boiler, machinery, or carry on any mechanical business within the
Premises. Tenant shall not use any fuel source within the Premise other than
the fuel source(s) provided by Landlord.
(5) Tenant shall not permit within the Premises any animals other than
service animals; not shall Tenant create or allow any foul or noxious gas,
noise, odors, sounds, and/or vibrations to emanate from the Premises, or
create any interference with the operation of any equipment or radio or
television broadcasting/reception from within or about the Property, which
may obstruct or interfere with the rights of other tenant(s) in the Property.
(6) All sidewalks, loading areas, stairways, doorways, corridors, and
other common areas shall not be obstructed by Tenant or used for any purpose
other than for ingress and egress. Landlord retains the right to control all
public and other areas not specifically designated as the Premises, provided
nothing herein shall be construed to prevent access to the Premises or the
common areas of the Property by Tenant or Tenant's invitees.
(7) Tenant shall not install any window treatments other then existing
treatments or otherwise obstruct the windows of the Premises without
Landlord's prior written consent.
(8) After business hours, Tenant shall lock all doors and windows of the
Premises which enter upon any common areas of the Property; and Tenant shall
be liable for all damages sustained by Landlord or other tenants within the
Property resulting from Tenant's default or carelessness in this respect.
(9) Any person(s) who shall be employed by Tenant for the purpose of
cleaning the Premises shall be employed at Tenant's cost. Tenant shall
indemnify and hold Landlord harmless from all losses, claims, liability,
damages, and expenses for any injury to person or damage to property of
Tenant, or third persons, caused by Tenant's cleaning contractor.
(10) Tenant shall not canvass or solicit business, or allow any employee
of Tenant to canvass or solicit business, from other tenants in the Property,
unless the same is within the scope of Tenant's normal business.
(11) Landlord reserves the right to place into effect a "no smoking"
policy within all or selected portions of the common areas of the Property,
wherein Tenant, its agents, employees and invitees shall not be allowed to
smoke. Tenant shall not be allowed to smoke in any common stairwells,
elevators or bathrooms; nor shall Tenant dispose of any smoking material
including, without limitation, matches, ashes and cigarette butts on the
floors of the Property, about the grounds of the Property, or in any
receptacle other than a specifically designated receptacle for smoking.
<PAGE>
[LOGO]
LOAN AND SECURITY AGREEMENT
JAVELIN SYSTEMS, INC.
1881 LANGLEY AVENUE
IRVINE, CALIFORNIA 92614
FED. TAX ID NO. 52-1945748
CCI GROUP, INC.
13739 RIDER TRAIL NORTH
EARTH CITY, MISSOURI 63045
FED. TAX ID NO. 43-1702004
AND
POSNET COMPUTERS, INC.
16351 GOTHARD, SUITE D
HUNTINGTON BEACH, CALIFORNIA 92647
FED. TAX ID NO. 33-0527802
AS BORROWERS
$7,500,000
CREDIT LIMIT
JUNE 8, 1998
- --------------------------------------------------------------------------------
CORPORATE FINANCE
- --------------------------------------------------------------------------------
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1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . . .8
2. LOANS; INTEREST RATE AND OTHER CHARGES. . . . . . . . . . . . . . . .9
2.1 Total Facility . . . . . . . . . . . . . . . . . . . . . . . . .9
2.2 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.3 Overlines; Overadvances. . . . . . . . . . . . . . . . . . . . .9
2.4 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . .9
2.5 Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.6 Interest; Fees . . . . . . . . . . . . . . . . . . . . . . . . .9
2.7 Default Interest Rate. . . . . . . . . . . . . . . . . . . . . .9
2.8 Examination Fee. . . . . . . . . . . . . . . . . . . . . . . . .9
2.9 Excess Interest. . . . . . . . . . . . . . . . . . . . . . . . .9
2.10 Principal Payments; Proceeds of Collateral. . . . . . . . . . 11
2.11 Application of Collateral. . . . . . . . . . . . . . . . . . . 12
2.12 Application of Payments. . . . . . . . . . . . . . . . . . . . 13
2.13 Notification of Closing. . . . . . . . . . . . . . . . . . . . 13
3. SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1 Security Interest in the Collateral. . . . . . . . . . . . . . 13
3.2 Perfection and Protection of Security Interest . . . . . . . . 14
3.3 Preservation of Collateral . . . . . . . . . . . . . . . . . . 14
3.4 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.5 Collateral Reporting; Inventory. . . . . . . . . . . . . . . . 15
3.6 Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.7 Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.8 Other Liens; No Disposition of Collateral. . . . . . . . . . . 16
3.9 Collateral Security. . . . . . . . . . . . . . . . . . . . . . 17
4. CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . 17
4.1 Initial Advance. . . . . . . . . . . . . . . . . . . . . . . . 17
4.2 Subsequent Advances. . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . 21
5.1 DUE ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . 21
5.2 OTHER NAMES. . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.3 DUE AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . 21
5.4 BINDING OBLIGATION . . . . . . . . . . . . . . . . . . . . . . 21
5.5 INTANGIBLE PROPERTY. . . . . . . . . . . . . . . . . . . . . . 21
5.6 CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.7 MATERIAL LITIGATION. . . . . . . . . . . . . . . . . . . . . . 22
5.8 TITLE; SECURITY INTERESTS OF FINOVA. . . . . . . . . . . . . . 22
5.9 RESTRICTIVE AGREEMENTS; LABOR CONTRACTS. . . . . . . . . . . . 22
5.10 LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.11 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.12 DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.13 FINANCIAL CONDITION. . . . . . . . . . . . . . . . . . . . . . 22
5.14 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.15 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.16 LOCATIONS; FEDERAL TAX ID NO.. . . . . . . . . . . . . . . . . 23
5.17 BUSINESS RELATIONSHIPS . . . . . . . . . . . . . . . . . . . . 23
5.18 YEAR 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.19 REAFFIRMATIONS . . . . . . . . . . . . . . . . . . . . . . . . 23
6. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . 23
6.2 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . 25
7. DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3 Standards for Determining Commercial Reasonableness. . . . . . 30
8. EXPENSES AND INDEMNITIES. . . . . . . . . . . . . . . . . . . . . . 30
8.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2 Environmental Matters . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.1 Examination of Records; Financial Reporting. . . . . . . . . . 31
9.2 Term; Termination. . . . . . . . . . . . . . . . . . . . . . . 32
9.3 Recourse to Security; Certain Waivers. . . . . . . . . . . . . 32
9.4 No Waiver by FINOVA. . . . . . . . . . . . . . . . . . . . . . 32
9.5 Binding on Successor and Assigns . . . . . . . . . . . . . . . 32
9.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.7 Amendments; Assignments. . . . . . . . . . . . . . . . . . . . 33
9.8 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.10 Evidence of Obligations. . . . . . . . . . . . . . . . . . . . 33
9.11 Loan Requests. . . . . . . . . . . . . . . . . . . . . . . . . 33
9.12 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.13 Brokerage Fees . . . . . . . . . . . . . . . . . . . . . . . . 34
9.14 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.15 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.16 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.17 Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . 34
9.18 Counterparts; Facsimile Execution. . . . . . . . . . . . . . . 34
9.19 Construction . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.20 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . 34
9.21 Limitation of Actions. . . . . . . . . . . . . . . . . . . . . 34
9.22 Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.23 Notice of Breach by FINOVA . . . . . . . . . . . . . . . . . . 35
9.24 Application of Insurance Proceeds. . . . . . . . . . . . . . . 35
9.25 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . 36
9.26 Governing Law; Waivers . . . . . . . . . . . . . . . . . . . . 36
9.27 Mutual Waiver of Right to Jury Trial . . . . . . . . . . . . . 36
9.28 Confidential Information . . . . . . . . . . . . . . . . . . . 37
</TABLE>
-iii-
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THIS LOAN AND SECURITY AGREEMENT (collectively with the Schedule to Loan
Agreement (the "SCHEDULE") attached hereto, the "AGREEMENT") dated the date set
forth on the cover page, is entered into by and between the borrowers named on
the cover page (jointly and severally, the "Borrower"), whose address is set
forth on the cover page and FINOVA CAPITAL CORPORATION ("FINOVA"), whose address
IS 355 South Grand Avenue, Los Angeles, California 90071.
1. DEFINITIONS.
1.1 DEFINED TERMS. As used in this Agreement, the following terms
have the definitions set forth below:
"ADA" has the meaning set forth in Section 4.1(z) hereof.
"ADDITIONAL SUMS" has the meaning set forth in Section 2.9(a) hereof.
"AFFILIATE" means any Person controlling, controlled by or under common
control with Borrower. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause direction of
the management and policies of any Person, whether through ownership of common
or preferred stock or other equity interests, by contract or otherwise. Without
limiting the generality of the foregoing, each of the following shall be an
Affiliate: any (i) officer, (ii) director, (iii) management employee,
(iv) other agent of Borrower with the power to direct or cause direction of the
management and policies of Borrower, and (v) any Material Shareholder or
subsidiary of Borrower.
"AGREEMENT" has the meaning set forth in the preamble.
"APPLICABLE USURY LAW" has the meaning set forth in Section 2.9(b)
hereof.
"BUSINESS DAY" means any day on which commercial banks in both Los
Angeles, California and Phoenix, Arizona are open for business.
"CAPITAL EXPENDITURES" means all expenditures made and liabilities
incurred for the acquisition of any fixed asset or improvement, replacement,
substitution or addition thereto which has a useful life of more than one year
and including, without limitation, those arising in connection with Capital
Leases.
"CAPITAL LEASE" means any lease of property by Borrower that, in
accordance with GAAP, should be capitalized for financial reporting purposes and
reflected as a liability on the balance sheet of Borrower.
"CCI" means CCI Group, Inc., a Missouri corporation.
"CLOSING FEE" has the meaning set forth in the Schedule.
"CLOSING DATE" means the date of the initial advance made by FINOVA
pursuant to this Agreement.
"CODE" means the Uniform Commercial Code as adopted and in effect in the
State of Arizona from time to time.
"COLLATERAL" has the meaning set forth in Section 3.1 hereof.
"COLLATERAL MONITORING FEE" has the meaning set forth in the Schedule.
"CURRENT ASSETS" at any date means the amount at which the current assets
of Borrower would be shown on a balance sheet of Borrower as at such date,
prepared in accordance with GAAP, PROVIDED that amounts due from Affiliates,
investments in Affiliates and cash from customer deposits shall be excluded
therefrom.
"CURRENT LIABILITIES" at any date means the amount at which the current
liabilities of Borrower would be shown on a balance sheet of
<PAGE>
FINOVA LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
Borrower as at such date, prepared in accordance with GAAP, PROVIDED that
outstanding Revolving Credit Loans shall be considered Current Liabilities
hereunder and customer deposits shall be excluded therefrom.
"DEPOSIT ACCOUNTS" has the meaning set forth in Section 9105 of the Code.
"DISCOUNTED VALUE" has the meaning set forth in the Schedule.
"DOMINION ACCOUNT" has the meaning set forth in Section 2.10(c) hereof.
"ELIGIBLE INVENTORY" means Inventory of Borrower which FINOVA, in its
Permitted Discretion, deems Eligible Inventory, based on such considerations as
FINOVA may from time to time deem reasonably appropriate. Without limiting the
generality of the foregoing, no Inventory shall be Eligible Inventory unless, in
FINOVA's Permitted Discretion, such Inventory (i) consists of raw materials in
good, new and salable condition which are not obsolete or unmerchantable, and
are not comprised of work in process, packaging materials, finished goods,
products manufactured by Javelin (whether held as Inventory of Javelin, CCI or
Posnet) or supplies; (iii) meets in all material respects all applicable
standards imposed by any governmental agency or authority; (iv) conforms in all
material respects to the warranties and representations set forth herein; (v) is
at all times subject to FINOVA's duly perfected, first priority security
interest; and (vi) is situated at a location in compliance with Section 5.16
hereof.
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course
of Borrower's business from the sale of goods or rendition of services, which
FINOVA, in its Permitted Discretion, shall deem eligible based on such
considerations as FINOVA may from time to time deem reasonably appropriate.
Without limiting the foregoing, a Receivable shall not be deemed to be an
Eligible Receivable if (i) the account debtor has failed to pay the Receivable
within a period of ninety (90) days after invoice date or, if less, within sixty
(60) days from due date, to the extent of any amount remaining unpaid after such
period; (ii) the account debtor has failed to pay more than 25% of all
outstanding Receivables owed by it to Borrower within ninety (90) days after
invoice date or, if less, within sixty (60) days past due date; (iii) the
account debtor is an Affiliate of Borrower or is another entity comprising
Borrower; (iv) the goods relating thereto are placed on consignment, guaranteed
sale, "bill and hold," "COD" or other terms pursuant to which payment by the
account debtor may be conditional; (v) the account debtor is not located in the
United States, unless the Receivable is supported by a letter of credit or other
form of guaranty or security, in each case in form and substance satisfactory to
FINOVA; (vi) the account debtor is the United States or any department, agency
or instrumentality thereof or any State, city or municipality of the United
States; (vii) Borrower is liable to the account debtor for goods sold or
services rendered by the account debtor to Borrower, to the extent of such
liability; (viii) the account debtor's total obligations to Borrower exceed 15%
of all Eligible Receivables of Borrower, on an aggregate basis, to the extent of
such excess; (ix) the account debtor disputes liability or makes any claim with
respect thereto (up to the amount of such liability or claim), or is subject to
any insolvency or bankruptcy proceeding, or becomes insolvent, fails or goes out
of a material portion of its business; (x) the amount thereof consists of late
charges or finance charges; (xi) the amount thereof consists of a credit balance
more than ninety (90) days past due; (xii) the face amount thereof exceeds
$100,000, unless accompanied by evidence of shipment of the goods relating
thereto satisfactory to FINOVA in its Permitted Discretion; (xiii) the invoice
constitutes a progress billing on a project not yet completed, except that the
final billing at such time as the matter has been completed and delivered to the
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customer may be deemed an Eligible Receivable; or (xiv) the amount thereof is
not yet represented by an invoice or bill issued in the name of the applicable
account debtor.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"ENVIRONMENTAL COSTS" has the meaning set forth in Section 8.2(b) hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated and whether or not foreign) which is or may hereafter become a
member of a group of which Borrower is a member and which is treated as a single
employer under ERISA Section 4001(b)(1) or IRC Section 414(b) or 414(c).
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of
this Agreement.
"EXAMINATION FEE" has the meaning set forth in the Schedule.
"EXCESS AVAILABILITY" means, as of the date of determination thereof, the
amount by which the average daily total principal balance of the Revolving
Credit Loans facility which Borrower would be permitted to have outstanding over
the prior 30 days, based on the formulas and reserves set forth in the
Schedule, exceeds the sum of the Receivable Loans and the Inventory Loans then
actually outstanding, such excess then being reduced by an amount necessary to
provide for the payment of all accounts payable of Borrower which are more than
30 days past due date and all book overdrafts.
"EXCESS CASH FLOW" means Operating Cash Flow/Permitted less Total
Contractual Debt Service.
"FINOVA AFFILIATE" has the meaning set forth in Section 9.22 hereof.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Boards which are applicable to the circumstances
as of the date of determination consistently applied, except that, for the
financial covenants set forth in this Agreement, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to FINOVA
prior to the date hereof.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints,
Trademarks, Copyrights, Licenses and Patents, names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, rights to purchase or sell real or personal
property, rights as a licensor or licensee of any kind, royalties, telephone
numbers, proprietary information, purchase orders, and all insurance
3
<PAGE>
policies and claims (including without limitation credit, liability, property
and other insurance) tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower to secure payment of any of the Receivables by an
account debtor, all rights to indemnification and all other intangible property
of every kind and nature (other than Receivables).
"GUARANTOR(S)" has the meaning set forth in the Schedule.
"HAZARDOUS SUBSTANCE" has the meaning set forth in Section 8.2(a) hereof.
"INDEBTEDNESS" means all of Borrower's present and future obligations,
liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by Borrower, even though Borrower has not assumed or become
liable therefor, (iii) obligations and liabilities created or arising under any
lease (including Capital Leases) or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities and
(v) deferred taxes.
"INITIAL TERM" has the meaning set forth on the Schedule.
"INSURANCE COLLATERAL" has the meaning set forth in Section 4.1(u)
hereof.
"INVENTORY" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease, all raw materials, work
in process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in Borrower's business or
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise or other personal property, and all
documents of title or other documents representing them.
"INVENTORY LOANS" has the meaning set forth in the Schedule.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"JAVELIN" means Javelin Systems, Inc., a Delaware corporation.
"LIFE INSURANCE POLICY" has the meaning set forth in Section 4.1(u)
hereof.
"LOANS" has the meaning set forth in Section 2.2 hereof.
"LOAN DOCUMENTS" means, collectively, this Agreement, any note or notes
executed by Borrower and payable to FINOVA, and any other present or future
agreement entered into in connection with this Agreement, together with all
alterations, amendments, changes, extensions, modifications, refinancings,
refundings, renewals, replacements, restatements, or supplements, of or to any
of the foregoing.
"LOAN PARTY" means Borrower, each Guarantor, each Subordinating Creditor
and each other party (other than FINOVA) to any Loan Document.
"LOAN RESERVES" means, as of any date of determination, such amounts as
FINOVA may from time to time establish and revise in good faith in its Permitted
Discretion, reducing the amount of Revolving Credit Loans which would otherwise
be available to Borrower under the lending formula(s) provided in the Schedule:
4
<PAGE>
(a) to reflect events, conditions, contingencies or risks which, as determined
by FINOVA in good faith in its Permitted Discretion, do or could reasonably be
expected to affect either (i) the Collateral or any other property which is
security for the Obligations or its value, (ii) the assets, business or
prospects of Borrower or any Guarantor or (iii) the security interests and other
rights of FINOVA in the Collateral (including the enforceability, perfection and
priority thereof) or (b) to reflect FINOVA's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
or any Guarantor to FINOVA is or may have been incomplete, inaccurate or
misleading in any material respect or (c) in respect of any state of facts which
FINOVA determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default.
"LOAN YEAR" means each twelve month period commencing on the Closing Date
or any anniversary of the Closing Date.
"MAKE WHOLE PREMIUM" has the meaning set forth in the Schedule.
"MAXIMUM INTEREST RATE" has the meaning set forth in Section 2.9(b)
hereof.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the
Property, business, operations, financial condition, prospects, liabilities or
capitalization of Borrower, (b) the ability of Borrower to perform its
obligations under any of the Loan Documents to which it is a party, (c) the
validity or enforceability of any of the Loan Documents, (d) the rights
remedies, powers and privileges of FINOVA under any of the Loan Documents, or
(e) the timely payment of the Obligations.
"MATERIAL SHAREHOLDER" means a Person owning 5% or more of any class of
voting securities of Borrower.
"MINIMUM INTEREST CHARGE" has the meaning set forth in the Schedule.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in ERISA
Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of
Borrower or any ERISA Affiliate.
"NET WORTH" at any date means the Borrower's net worth as determined in
accordance with GAAP.
"OBLIGATIONS" means all present and future loans, advances, debts,
liabilities, obligations, covenants, duties and indebtedness at any time owing
by Borrower to FINOVA, whether evidenced by this Agreement, any Guaranty, any
note or other instrument or document executed and delivered pursuant to or in
connection with this Agreement, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by FINOVA in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, Examination Fee, Collateral Monitoring Fee, Closing
Fee, Termination Fee and any other sums chargeable to Borrower hereunder or
under any other agreement with FINOVA.
"OPERATING CASH FLOW/ACTUAL" means, for any period, Borrower's net income
or loss (excluding the effect of any extraordinary gains or losses), determined
in accordance with GAAP, PLUS or MINUS each of the following items, to the
extent deducted from or added to the revenues of Borrower in the calculation of
net income or loss: (i) depreciation; (ii) amortization and other non-cash
charges; (iii) interest expense; and (iv) total federal and state income tax
expense determined as the accrued liability of Borrower in respect of such
period, regardless of what portion of such expense has actually been paid by
Borrower
5
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during such period, and after deduction for each of (a) federal and state income
taxes, to the extent actually paid during such period; (b) any non-cash income;
and (c) all actual Capital Expenditures made during such period and not
financed.
"OPERATING CASH FLOW/PERMITTED" means, for any period, Borrower's net
income or loss (excluding the effect of any extraordinary gains or losses),
determined in accordance with GAAP, PLUS or MINUS each of the following items,
to the extent deducted from or added to the revenues of Borrower in the
calculation of net income or loss: (i) depreciation; (ii) amortization and
other non-cash charges; (iii) interest expense; and (iv) total federal and state
income tax expense determined as the accrued liability of Borrower in respect of
such period, regardless of what portion of such expense has actually been paid
by Borrower during such period, and after deduction for each of (a) federal and
state income taxes, to the extent actually paid during such period; (b) any
non-cash income; and (c) all permitted Capital Expenditures (without regard to
any waiver given by FINOVA with respect to any limitation on such Capital
Expenditures) actually made during such period and not financed.
"OVERADVANCE" has the meaning set forth in Section 2.3.
"OVERLINE" has the meaning set forth in Section 2.3.
"PBGC" means the Pension Benefit Guarantee Corporation.
"PERMITTED DISCRETION" means FINOVA's commercially reasonable judgment
exercised in good faith based upon its consideration of any factor which FINOVA
believes in good faith: (i) will or could materially adversely affect the value
of any material portion of Collateral, the enforceability or priority of
FINOVA's liens thereon or the amount which FINOVA would be likely to receive
(after giving consideration to delays in payment and costs of enforcement) in
the liquidation of such Collateral; (ii) suggests that any collateral report or
financial information delivered to FINOVA by any Person on behalf of the
Borrower is incomplete, inaccurate or misleading in any material respect;
(iii) materially increases the likelihood of a bankruptcy, reorganization or
other insolvency proceeding involving the Borrower, any Loan Party or any of the
Collateral, or (iv) creates or reasonably could be expected to create an Event
of Default. In exercising such judgment, FINOVA may consider such factors
already included in or tested by the definition of Eligible Receivables or
Eligible Inventory, as well as any of the following: (i) the financial and
business climate of the Borrower's industry and general macroeconomic
conditions, (ii) changes in collection history and dilution with respect to the
Receivables, (iii) changes in demand for, and pricing of, Inventory,
(iv) changes in any concentration of risk with respect to Receivables and/or
Inventory, and (v) any other factors that change the credit risk of lending to
the Borrower on the security of the Receivables and Inventory.
"PERMITTED ENCUMBRANCE" means each of the liens, mortgages and other
security interests (if any) set forth on the Schedule.
"PERMITTED SENIOR INDEBTEDNESS" has the meaning set forth in the
Schedule.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, government, or any agency or political division thereof, or
any other entity.
"PLAN" means any plan described in ERISA Section 3(2) maintained for
employees of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.
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"PLEDGOR" has the meaning set forth in Section 4.1(bb) hereof.
"POSNET" means Posnet Computers, Inc., a California corporation.
"PREPARED FINANCIALS" means the balance sheets of Javelin as of the date
set forth in the Schedule in the section entitled 'Reporting Requirements', and
as of each subsequent date on which audited balance sheets are delivered to
FINOVA from time to time hereunder, and the related statements of operations,
changes in stockholders' equity and changes in cash flow for the periods ended
on such dates.
"PRIME RATE" has the meaning set forth in the Schedule.
"PROHIBITED TRANSACTION" means any transaction described in Section 406
of ERISA which is not exempt by reason of Section 408 of ERISA, and any
transaction described in IRC Section 4975(c) which is not exempt by reason of
IRC Section 4975(c)(2).
"PROPERTY" has the meaning set forth in Section 8.2(a) hereof.
"RECEIVABLE LOANS" has the meaning set forth on the Schedule.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), proceeds of any letters of
credit naming Borrower as beneficiary, contract rights, chattel paper,
instruments, documents and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, whether secured or
unsecured, all merchandise returned to or repossessed by Borrower, and all
rights of stoppage in transit and all other rights or remedies of an unpaid
vendor, lienor or secured party.
"REINVESTMENT YIELD" has the meaning set forth in the Schedule.
"REMAINING SCHEDULED PAYMENT AMOUNT" has the meaning set forth in the
Schedule.
"RENEWAL TERM" has the meaning set forth on the Schedule.
"REPORTABLE EVENT" means a reportable event described in ERISA Section
4043 or the regulations thereunder for which notice to the PBGC is not waived
under the applicable regulations, a withdrawal from a plan described in ERISA
Section 4063, or a cessation of operations described in ERISA Section 4062(e).
"REVOLVING CREDIT LOANS" has the meaning set forth in the Schedule.
"REVOLVING CREDIT LIMIT" has the meaning set forth in the Schedule.
"REVOLVING INTEREST RATE" has the meaning set forth in the Schedule.
"SCHEDULE" has the meaning set forth in the preamble.
"SENIOR CONTRACTUAL DEBT SERVICE" means, for any period, the sum of
payments made or required to be made by Borrower during such period for
(i) interest and scheduled principal payments due on the Term Loans (excluding
voluntary prepayment and payments made from Borrower's Excess Cash Flow, as
required pursuant to the Schedule), (ii) interest only payments due on the
Revolving Credit Loans facility plus the Collateral Monitoring Fee, the Facility
Fee and the Unused Line Fee, and (iii) principal and interest payments due on
the Permitted Senior Indebtedness.
"START DATE" has the meaning set forth in the Schedule.
"STOCK PLEDGE AGREEMENT" has the meaning set forth in Section 4.1(bb)
hereof.
"SUBORDINATED DEBT" means liabilities of Borrower the repayment of which
is subordinated to the payment and performance of the Obligations pursuant to a
subordination
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agreement acceptable to FINOVA in its sole discretion.
"SUBORDINATING CREDITOR" has the meaning set forth in the Schedule.
"TERM LOAN" has the meaning set forth in the Schedule.
"TERMINATION FEE" has the meaning set forth in Section 9.2(d) hereof.
"TOTAL CONTRACTUAL DEBT SERVICE" means, for any period, the sum of
payments made (or, as to clause (i) of this sentence, required to be made) by
Borrower during such period for (i) Senior Contractual Debt Service, and
(ii) interest and scheduled principal payments due on any and all other
Indebtedness of Borrower, including without limitation the Subordinated
Indebtedness.
"TOTAL FACILITY" has the meaning set forth in Section 2.1 hereof.
"TRADEMARKS, COPYRIGHTS, LICENSES AND PATENTS" means all of Borrower's
right, title and interest in and to, whether now owned or hereafter acquired:
(i) trademarks, trademark registrations, trade names, trade name registrations,
and trademark or trade name applications, including without limitation such as
are listed on the Schedule attached hereto and made a part hereof, as the same
may be amended from time to time, and (a) renewals thereof, (b) all income,
royalties, damages and payments now and hereafter due and/or payable with
respect thereto, including without limitation, damages and payments for past or
future infringements thereof, (c) the right to sue for past, present and future
infringements thereof, (d) all rights corresponding thereto throughout the
world, and (e) the goodwill of the business operated by Borrower connected with
and symbolized by any trademarks or trade names; (ii) copyrights, copyright
registrations and copyright applications, including without limitation such as
are listed on the Schedule attached hereto and made a part hereof, as the same
may be amended from time to time, and (a) renewals thereof, (b) all income,
royalties, damages and payments now and hereafter due and/or payable with
respect thereto, including without limitation, damages and payments for past or
future infringements thereof, (c) the right to sue for past, present and future
infringements thereof, and (d) all rights corresponding thereto throughout the
world; (iii) license agreements, including without limitation such as are listed
on the Schedule attached hereto and made a part hereof, and the right to prepare
for sale, sell and advertise for sale any Inventory now or hereafter owned by
Borrower and now or hereafter covered by such licenses; and (iv) patents and
patent applications, registered or pending, including without limitation such as
are listed on the Schedule attached hereto, together with all income, royalties,
shop rights, damages and payments now and hereafter due and/or payable with
respect thereto, the right to sue for infringements thereof, and all rights
thereto throughout the world and all reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof.
"UNUSED LINE FEE" has the meaning set forth in the Schedule.
"WARRANTS" has the meaning set forth on the schedule.
"WEIGHTED AVERAGE LIFE TO MATURITY" has the meaning set forth in the
Schedule.
1.2 OTHER TERMS. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
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2. LOANS; INTEREST RATE AND OTHER CHARGES.
2.1 TOTAL FACILITY. Upon the terms and conditions set forth herein
and provided that no Event of Default or event which, with the giving of notice
or the passage of time, or both, would constitute an Event of Default, shall
have occurred and be continuing, FINOVA shall, upon the request of each company
comprising Borrower, make advances to such company from time to time in an
aggregate outstanding principal amount for all such companies not to exceed the
Total Facility amount (the "TOTAL FACILITY") set forth on the Schedule hereto,
or for each such company, its lending limit set forth on the Schedule hereto,
subject to deduction of Loan Reserves for accrued interest and other permitted
purposes, and less amounts FINOVA may be obligated to pay in the future on
behalf of Borrower. If the reason for FINOVA's implementation of a Loan Reserve
ceases to exist, FINOVA shall promptly release such Loan Reserve. The Schedule
is an integral part of this Agreement and all references to "herein", "herewith"
and words of similar import shall for all purposes be deemed to include the
Schedule.
2.2 LOANS. Advances under the Total Facility ("LOANS" and
individually, a "LOAN") shall be comprised of the amounts shown on the Schedule.
2.3 OVERLINES; OVERADVANCES. If at any time or for any reason the
outstanding amount of advances extended pursuant hereto exceeds any of the
dollar limitations ("OVERLINE") or percentage limitations ("OVERADVANCE") in the
Schedule, then Borrower shall, upon FINOVA's demand, immediately pay to FINOVA,
in cash, the full amount of such Overline or Overadvance which shall be applied
to reduce the outstanding principal balance of the Loans; PROVIDED, HOWEVER,
that Borrower shall have three (3) Business Days to cure an Overadvance (but not
an Overline) of less than $100,000. Without limiting Borrower's obligation to
repay to FINOVA on demand the amount of any Overline or Overadvance, Borrower
agrees to pay FINOVA interest on the outstanding principal amount of any
Overline or Overadvance, on demand, at the rate set forth on the Schedule and
applicable to the Revolving Credit Loans.
2.4 INTENTIONALLY OMITTED.
2.5 LOAN ACCOUNT. All advances made hereunder shall be added to and
deemed part of the Obligations when made. FINOVA may from time to time charge
all Obligations of Borrower to Borrower's loan account with FINOVA.
2.6 INTEREST; FEES. Borrower shall pay FINOVA interest on the daily
outstanding balance of the Obligations at the applicable per annum rates set
forth on the Schedule. Borrower shall also pay FINOVA the fees set forth on the
Schedule.
2.7 DEFAULT INTEREST RATE. Upon the occurrence and during the
continuation of an Event of Default, Borrower shall at FINOVA's election pay
FINOVA interest on the daily outstanding balance of the Obligations at rates per
annum which are in each case two percent (2%) in excess of the rate which would
otherwise be applicable thereto pursuant to the Schedule.
2.8 EXAMINATION FEE. Borrower agrees to pay to FINOVA the Examination
Fee in the amount set forth on the Schedule in connection with each audit or
examination of Borrower performed by FINOVA prior to or after the date hereof.
2.9 EXCESS INTEREST. The contracted for rate of interest of the loan
contemplated hereby, without limitation, shall consist of the following:
(i) the interest rate set forth on the Schedule, calculated and applied to
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the principal balance of the Obligations in accordance with the provisions of
this Agreement; (ii) interest after an Event of Default, calculated and applied
to the amount of the Obligations in accordance with the provisions hereof; and
(iii) all Additional Sums (as herein defined), if any. Borrower agrees to pay an
effective contracted for rate of interest which is the sum of the
above-referenced elements. The Examination Fee, attorneys fees, expert witness
fees, collateral monitoring fees, closing fees, Unused Line Fees, Termination
Fees, Minimum Interest Charges, other charges, goods, things in action or any
other sums or things of value paid or payable by Borrower (collectively, the
"ADDITIONAL SUMS"), whether pursuant to this Agreement or any other documents or
instruments in any way pertaining to this lending transaction, or otherwise with
respect to this lending transaction, that under any applicable law may be deemed
to be interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by Borrower as, and shall
be deemed to be, additional interest and for such purposes only, the agreed upon
and "contracted for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting from the inclusion of
the Additional Sums.
(b) It is the intent of the parties to comply with the
usury laws of the State of Arizona (the "APPLICABLE USURY LAW"). Accordingly,
it is agreed that notwithstanding any provisions to the contrary in this
Agreement, or in any of the documents securing payment hereof or otherwise
relating hereto, in no event shall this Agreement or such documents require the
payment or permit the collection of interest in excess of the maximum contract
rate permitted by the Applicable Usury Law (the "MAXIMUM INTEREST RATE"). In
the event (a) any such excess of interest otherwise would be contracted for,
charged or received from Borrower or otherwise in connection with the loan
evidenced hereby, or (b) the maturity of the Obligations is accelerated in whole
or in part, or (c) all or part of the Obligations shall be prepaid, so that
under any of such circumstances the amount of interest contracted for, shared or
received in connection with the loan evidenced hereby, would exceed the Maximum
Interest Rate, then in any such event (1) the provisions of this paragraph shall
govern and control, (2) neither Borrower nor any other Person now or hereafter
liable for the payment of the Obligations shall be obligated to pay the amount
of such interest to the extent that it is in excess of the Maximum Interest
Rate, (3) any such excess which may have been collected shall be either applied
as a credit against the then unpaid principal amount of the Obligations or
refunded to Borrower, at FINOVA's option, and (4) the effective rate of interest
shall be automatically reduced to the Maximum Interest Rate. It is further
agreed, without limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law; (x) all calculations of interest which
are made for the purpose of determining whether such rate would exceed the
Maximum Interest Rate shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from
Borrower or otherwise in connection with such loan; and (y) in the event that
the effective rate of interest on the loan should at any time exceed the Maximum
Interest Rate, such excess interest that would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law shall be paid to
FINOVA from time to time, if and when the effective interest rate on the loan
otherwise falls below the Maximum Interest Rate, to the extent that interest
paid to the date of calculation does not exceed the Maximum Interest Rate, until
the entire amount of interest which would otherwise have been collected had
there been no ceiling imposed by
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the Applicable Usury Law has been paid in full. Borrower further agrees that
should the Maximum Interest Rate be increased at any time hereafter because of a
change in the Applicable Usury Law, then to the extent not prohibited by the
Applicable Usury Law, such increases shall apply to all indebtedness evidenced
hereby regardless of when incurred; but, again to the extent not prohibited by
the Applicable Usury Law, should the Maximum Interest Rate be decreased because
of a change in the Applicable Usury Law, such decreases shall not apply to the
indebtedness evidenced hereby regardless of when incurred.
2.10 PRINCIPAL PAYMENTS; PROCEEDS OF COLLATERAL.
(a) PRINCIPAL PAYMENTS. Except where evidenced by notes
or other instruments issued or made by Borrower to FINOVA specifically
containing payment provisions which are in conflict with this Section 2.10 (in
which event the conflicting provisions of said notes or other instruments shall
govern and control), that portion of the Obligations consisting of principal
payable on account of Loans shall be payable by Borrower to FINOVA immediately
upon the earliest of (i) the receipt by FINOVA or Borrower of any proceeds of
any of the Collateral, to the extent of said proceeds, (ii) the occurrence of an
Event of Default in consequence of which FINOVA elects to accelerate the
maturity and payment of such loans, or (iii) any termination of this Agreement
pursuant to Section 9.2 hereof; PROVIDED, HOWEVER, that any Overadvance or
Overline shall be payable on demand pursuant to the provisions of Section 2.3
hereof.
(b) COLLECTIONS. Until FINOVA notifies Borrower to the
contrary, Borrower may make collection of all Receivables for FINOVA by
directing all account debtors and other third parties to remit all payments
owing to Borrower to the respective Dominion Account. In the event Borrower
shall nevertheless directly receive any payments or other financial proceeds of
any Collateral outside of the Dominion Account, Borrower shall receive all such
payments as trustee of FINOVA and immediately deliver all payments to FINOVA in
their original form as set forth below, duly endorsed in blank or cause the same
to be deposited into a Dominion Account. FINOVA or its designee may, at any
time during the continuance of an Event of Default, notify account debtors that
the Receivables have been assigned to FINOVA and of FINOVA's security interest
therein, and may collect the Receivables directly and charge the collection
costs and expenses to Borrower's loan account. Borrower agrees that, in
computing the charges under this Agreement, all items of payment shall be deemed
applied by FINOVA on account of the Obligations two (2) Business Days after
receipt by FINOVA of good funds which have been finally credited to FINOVA's
account, whether such funds are received directly from Borrower or from the
Dominion Account bank, pursuant to Section 2.10(c) hereof, and this provision
shall apply regardless of the amount of the Obligations outstanding or whether
any Obligations are outstanding; PROVIDED that so long as no Event of Default is
continuing (i) proceeds of a secondary offering of Javelin's common stock may be
deposited directly to Javelin's operating account without first passing through
the Dominion Account, and (ii) items of payment received by FINOVA that are not
proceeds of Collateral shall, upon Borrower's written notice within five (5)
Business Days after the end of the month in which such items of payment are
received by FINOVA, be deemed applied by FINOVA on account of the Obligations on
the day of receipt by FINOVA of good funds which have been finally credited to
FINOVA's account; and, PROVIDED FURTHER, that if any such good funds are
received after 12:00 noon (Los Angeles time) on any Business Day or at any time
on any day not constituting a Business
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Day, such funds shall be deemed received on the immediately following Business
Day. FINOVA is not, however, required to credit Borrower's account for the
amount of any item of payment which is unsatisfactory to FINOVA in its Permitted
Discretion and FINOVA may charge Borrower's loan account for the amount of any
item of payment which is returned to FINOVA unpaid.
(c) ESTABLISHMENT OF A LOCKBOX ACCOUNT OR DOMINION
ACCOUNT. Unless Borrower shall be otherwise directed by FINOVA in writing, each
of Javelin, CCI and Posnet shall cause all proceeds of Collateral to be
deposited into a depository account in the name of such company ("Dominion
Account") pursuant to an arrangement with FINOVA and such bank as may be
selected by such company and be acceptable to FINOVA which proceeds, unless
otherwise provided herein, shall be forwarded on a daily basis to such company's
loan account with FINOVA and applied in payment of the Obligations in such order
as FINOVA determines in its sole discretion. Borrower shall issue to any such
bank an irrevocable letter of instruction directing said bank to transfer such
funds so deposited to FINOVA, either to any account maintained by FINOVA at said
bank or by wire transfer to appropriate account(s) of FINOVA. All funds
deposited in a Dominion Account shall immediately become subject to the security
interest of FINOVA and Borrower shall obtain the agreement by such bank to waive
any offset rights against the funds so deposited. FINOVA assumes no
responsibility for any Dominion Account arrangement, including without
limitation, any claim of accord and satisfaction or release with respect to
deposits accepted by any bank thereunder.
(d) PAYMENTS WITHOUT DEDUCTIONS. Borrower shall pay
principal, interest, and all other amounts payable hereunder, or under any other
Loan Document, without any deduction whatsoever, including, but not limited to,
any deduction for any setoff or counterclaim.
(e) COLLECTION DAYS UPON REPAYMENT. In the event
Borrower repays the Obligations in full at any time hereafter, such payment in
full shall be credited (conditioned upon final collection) to Borrower's loan
account two (2) Business Days after FINOVA's receipt thereof.
(f) MONTHLY ACCOUNTINGS. FINOVA shall provide Borrower
monthly with an account of advances, charges, expenses and payments made
pursuant to this Agreement. Such account shall be deemed correct, accurate and
binding on Borrower and an account stated (except for reverses and
reapplications of payments made and corrections of errors discovered by FINOVA),
unless Borrower notifies FINOVA in writing to the contrary within thirty (30)
days after each account is rendered, describing the nature of any alleged errors
or admissions.
2.11 APPLICATION OF COLLATERAL. Except as otherwise provided herein,
FINOVA shall have the continuing and exclusive right to apply or, after notice
to Borrower, reverse and re-apply any and all payments to any portion of the
Obligations in such order and manner as FINOVA shall determine in its sole
discretion. To the extent that Borrower makes a payment or FINOVA receives any
payment or proceeds of the Collateral for Borrower's benefit which is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver or any
other party under any bankruptcy law, common law or equitable cause, or
otherwise, then, to such extent, the Obligations or part thereof intended to be
satisfied shall be revived and continue as if such payment or proceeds had not
been received by FINOVA.
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2.12 APPLICATION OF PAYMENTS. The amount of all payments or amounts
received by FINOVA with respect to the Loan shall be applied to the extent
applicable under this Agreement: (i) first, to accrued interest through the date
of such payment, including any Default Interest; (ii) then, to any late fees,
overdue risk assessments, Examination Fee and expenses, collection fees and
expenses and any other fees and expenses due to FINOVA hereunder; and
(iii) last, the remaining balance, if any, to the unpaid principal balance of
the Loan; provided however, while an Event of Default exists under this
Agreement, or under any other Loan Document, each payment hereunder shall be
(x) at FINOVA's election, reasonably exercised, held as cash collateral to
secure Obligations relating to any contingent obligations arising under the Loan
Documents and/or (y) applied to amounts owed to FINOVA by Borrower as FINOVA in
its sole discretion may determine. In calculating interest and applying
payments as set forth above: (a) interest shall be calculated and collected as
provided in Section 2.10(b); (b) interest on the outstanding balance shall be
charged during any grace period permitted hereunder; (c) at the end of each
month, all accrued and unpaid interest and other charges provided for hereunder
shall be added to the principal balance of the Loan; and (d) to the extent that
Borrower makes a payment or FINOVA receives any payment or proceeds of the
Collateral for Borrower's benefit that is subsequently invalidated, set aside or
required to be repaid to any other Person, then, to such extent, the Obligations
intended to be satisfied shall be revived and continue as if such payment or
proceeds had not been received by FINOVA and FINOVA may adjust the Loan balances
as FINOVA, in its sole discretion, deems appropriate under the circumstances.
2.13 NOTIFICATION OF CLOSING. Borrower shall provide FINOVA with at
least forty-eight (48) hours prior written notice of the Closing Date, to enable
FINOVA to arrange for the availability of funds (subject to such longer period
as may be required if a fixed interest rate option is selected by Borrower for
the Term Loan). In the event the closing does not take place on the date
specified in Borrower's notice to FINOVA, other than through the fault of
FINOVA, Borrower agrees to reimburse FINOVA for FINOVA's costs to maintain the
necessary funds available for the closing, at the Term Interest Rate with
respect to the amount of the Term Loan specified in the Schedule, and at the
Revolving Interest Rate with respect to an amount equal to the initial advance
under the Revolving Credit Loans facility which is to be made on the Closing
Date, for the number of days which elapse between the date specified in
Borrower's notice and the date upon which the closing actually occurs (which
number of days shall not include the date specified in Borrower's notice, but
shall include the Closing Date).
3. SECURITY.
3.1 SECURITY INTEREST IN THE COLLATERAL. To secure the payment and
performance of the Obligations when due, Borrower hereby grants to FINOVA a
first priority security interest (subject only to Permitted Encumbrances) in all
of Borrower's now owned or hereafter acquired or arising Inventory, Equipment,
Receivables, life insurance policies and the proceeds thereof, Trademarks,
Copyrights, Licenses and Patents, Investment Property (as defined in Section
9-115 of the Code) and General Intangibles, including, without limitation, all
of Borrower's Deposit Accounts, money, any and all property now or at any time
hereafter in FINOVA's possession (including claims and credit balances), and all
proceeds (including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties), all products and all books and records and
computer data related to any of the foregoing (all of the foregoing, together
with all other property in
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which FINOVA may be granted a lien or security interest, is referred to herein,
collectively, as the "COLLATERAL"); PROVIDED that there shall be excluded from
the "Collateral" all licenses and other General Intangibles which by their terms
(if valid and enforceable) or as a matter of law are not assignable without the
consent of the licensor or other third Person where and to the extent that the
assignment effected by the foregoing creation of a security interest (or the
perfection thereof) would result in a default under such license or other
General Intangible for which the available remedies for such default would
include the right to terminate such license or other General Intangible;
PROVIDED FURTHER, however, that nothing herein shall be deemed to limit FINOVA's
security interest in the proceeds of or payments resulting from any such
excluded licenses or other General Intangibles.
3.2 PERFECTION AND PROTECTION OF SECURITY INTEREST. Borrower shall,
at its expense, take all reasonable actions requested by FINOVA at any time to
perfect, maintain, protect and enforce FINOVA's first priority security interest
and other rights in the Collateral and the priority thereof from time to time,
including, without limitation, (i) executing and filing financing or
continuation statements and amendments thereof as FINOVA shall require, all in
form and substance satisfactory to FINOVA, (ii) maintaining a perpetual
inventory and complete and accurate stock records, (iii) delivering to FINOVA
warehouse receipts covering any portion of the Collateral located in warehouses
and for which warehouse receipts are issued, and transferring Inventory to
warehouses designated by FINOVA, (iv) placing notations on Borrower's books of
account to disclose FINOVA's security interest therein and (v) delivering to
FINOVA all letters of credit on which Borrower is named beneficiary. FINOVA may
file, without Borrower's signature, one or more financing statements disclosing
FINOVA's security interest under this Agreement. Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. If any Collateral
is at any time in the possession or control of any warehouseman, bailee or any
of Borrower's agents or processors, Borrower shall notify such Person of
FINOVA's security interest in such Collateral and, upon FINOVA's request,
instruct them to hold all such Collateral for FINOVA's account subject to
FINOVA's instructions. From time to time, Borrower shall, upon FINOVA's
request, execute and deliver confirmatory written instruments pledging the
Collateral to FINOVA, but Borrower's failure to do so shall not affect or limit
FINOVA's security interest or other rights in and to the Collateral. Until the
Obligations have been fully satisfied and FINOVA's obligation to make further
advances hereunder has terminated, FINOVA's security interest in the Collateral
shall continue in full force and effect.
3.3 PRESERVATION OF COLLATERAL. FINOVA may, in its Permitted
Discretion, at any time discharge any lien or encumbrance on the Collateral or
bond the same, pay any insurance, maintain guards, pay any service bureau,
obtain any record or take any other action to preserve the Collateral and charge
the cost thereof to Borrower's loan account as an Obligation.
3.4 INSURANCE. Borrower will maintain and deliver evidence to FINOVA
of such insurance as is required by FINOVA, written by insurers, in amounts, and
with lender's loss payee, additional insured, and other endorsements, reasonably
satisfactory to FINOVA. All premiums with respect to such insurance shall be
paid by Borrower as and when due. Accurate and certified copies of the policies
shall be delivered by Borrower to FINOVA. If Borrower fails to comply with this
Section, FINOVA may (but shall not be required to) procure such insurance and
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endorsements at Borrower's expense and charge the cost thereof to Borrower's
loan account as an Obligation.
3.5 COLLATERAL REPORTING; INVENTORY.
(a) INVOICES. Borrower shall not re-date any invoice or
sale from the original date thereof or make sales on extended terms beyond those
customary in Borrower's industry, or otherwise extend or modify the term of any
Receivable. If Borrower becomes aware of any material matter affecting any
material Receivable, including information affecting the credit of the account
debtor thereon, Borrower shall promptly notify FINOVA in writing.
(b) INSTRUMENTS. In the event any one or more
Receivables in an aggregate amount in excess of $25,000 are or become evidenced
by one or more promissory notes, trade acceptances or any other instruments for
the payment of money, Borrower shall immediately deliver such instrument(s) to
FINOVA appropriately endorsed to FINOVA and, regardless of the form of any
presentment, demand, notice of dishonor, protest and notice of protest with
respect thereto, Borrower shall remain liable thereon until such instrument(s)
are paid in full.
(c) PHYSICAL INVENTORY. Borrower shall conduct a
physical count of the Inventory at such intervals as FINOVA reasonably requests
and promptly supply FINOVA with a copy of such accounts accompanied by a report
of the value (calculated at the lower of cost or market value on a first in,
first out basis) of the Inventory and such additional information with respect
to the Inventory as FINOVA may request from time to time. Notwithstanding the
foregoing, Borrower shall not be required to conduct more than two physical
counts of the Inventory during any calendar year in which no Event of Default
occurred or was continuing.
(d) RETURNS. For so long as no Event of Default has
occurred and is continuing and subject to the provisions of Section 3.6(b), if
any account debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the account debtor (sending a copy to
FINOVA) in the appropriate amount. In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for FINOVA, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as FINOVA's property, and (iv) immediately notify FINOVA of the return
of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on FINOVA's request deliver such
returned Inventory to FINOVA.
(e) CONSIGNMENTS. Borrower shall not consign any
Inventory.
3.6 RECEIVABLES.
(a) ELIGIBILITY. Borrower represents and warrants
that each Receivable covers and shall cover a bona fide sale or lease and
delivery by it of goods or the rendition by it of services in the ordinary
course of its business, and shall be for a liquidated amount and FINOVA's
security interest shall not, unless Borrower notifies FINOVA in writing, be
subject to any offset, deduction, counterclaim, rights of return or
cancellation, lien or other condition. If any representation or warranty herein
is breached as to any Receivable or any Receivable ceases to be an Eligible
Receivable for any reason other than payment thereof, then FINOVA may, in
addition to its other rights hereunder, designate
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any and all Receivables owing by that account debtor as not Eligible
Receivables; PROVIDED, that FINOVA shall in any such event retain its security
interest in all Receivables, whether or not Eligible Receivables, until the
Obligations have been fully satisfied and FINOVA's obligation to provide loans
hereunder has terminated.
(ii) FINOVA, in the good faith exercise of its
Permitted Discretion based upon such business and other factors as it deems
material, at any time shall be entitled to (i) establish and increase or
decrease reserves against Eligible Receivables and Eligible Inventory,
(ii) reduce the advance rates in the Schedule or restore such advance rates to
any level equal to or below the advance rates set forth in the Schedule or
(iii) impose additional restrictions (or eliminate the same) to the standards of
eligibility set forth in the definitions of "Eligible Receivables" and "Eligible
Inventory." FINOVA may but shall not be required to rely on the schedules
and/or reports delivered to FINOVA in connection herewith in determining the
then eligibility of Receivables and Inventory. Reliance thereon by FINOVA from
time to time shall not be deemed to limit the right of FINOVA to revise advance
rates or standards of eligibility as provided above. Without limiting FINOVA's
discretion as described above, FINOVA shall establish a dilution reserve in an
amount equal to 1% of the gross amount of Receivables (excluding inter-Borrower
Receivables) for each percent of dilution between 7.5% and 10.0%, and equal to
2% of the gross amount of Receivables (excluding inter-Borrower Receivables) for
each percent of dilution in excess of 10.0%.
(b) DISPUTES. Borrower shall notify FINOVA promptly of
all disputes or claims and settle or adjust such disputes or claims at no
expense to FINOVA, but no discount, credit or allowance shall be granted to any
account debtor and no returns of merchandise shall be accepted by Borrower
without FINOVA's consent, except for discounts, credits and allowances made or
given in the ordinary course of Borrower's business. FINOVA may, at any time
after the occurrence and during the continuance of an Event of Default, settle
or adjust disputes or claims directly with account debtors for amounts and upon
terms which FINOVA considers advisable in its reasonable credit judgment and, in
all cases, FINOVA shall credit Borrower's loan account with only the net amounts
received by FINOVA in payment of any Receivables.
3.7 EQUIPMENT. Borrower shall keep and maintain the Equipment in good
operating condition and repair and make all necessary replacements thereto to
maintain and preserve the value and operating efficiency thereof at all times
consistent with Borrower's past practice, ordinary wear and tear excepted.
Borrower shall not permit any item of Equipment to become a fixture (other than
a trade fixture) to real estate or an accession to other property.
3.8 OTHER LIENS; NO DISPOSITION OF COLLATERAL. Borrower represents,
warrants and covenants that except for FINOVA's security interest, Permitted
Encumbrances, and such other liens, claims and encumbrances as may be permitted
by FINOVA in its sole discretion from time to time in writing, (a) all
Collateral is and shall continue to be owned by it free and clear of all liens,
claims and encumbrances whatsoever and (b) Borrower shall not, without FINOVA's
prior written approval, sell, encumber or dispose of or permit the sale,
encumbrance or disposal of any Collateral or all or any substantial part of any
of its other assets (or any interest of Borrower therein), except for the sale
of Inventory and obsolete or unusable equipment in the ordinary course of
Borrower's business. In the event FINOVA gives any such prior written approval
with respect to any such sale of Collateral, the same may be conditioned on the
sale price being equal to, or greater than,
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an amount acceptable to FINOVA. The proceeds of any such sales of Collateral
shall be remitted to FINOVA pursuant to this Agreement for application to the
Obligations; provided that Borrower may use the proceeds of permitted Equipment
sales to purchase new or replacement Equipment to be used in its business.
3.9 COLLATERAL SECURITY. The Obligations shall constitute one loan
secured by the Collateral. FINOVA may, in its sole discretion, (i) exchange,
enforce, waive or release any of the Collateral, (ii) apply Collateral and
direct the order or manner of sale thereof as it may determine, and
(iii) settle, compromise, collect or otherwise liquidate any Collateral in any
manner without affecting its right to take any other action with respect to any
other Collateral.
4. CONDITIONS OF CLOSING.
4.1 INITIAL ADVANCE. The obligation of FINOVA to make the initial
advance hereunder is subject to the fulfillment, to the satisfaction of FINOVA
and its counsel, of each of the following conditions on or prior to the date set
forth on the Schedule (or such later date as is set forth in Section 4.1(p) and
4.1(u)):
(a) LOAN DOCUMENTS. FINOVA shall have received each of
the following Loan Documents: (i) the Agreement fully and properly executed by
Borrower; (ii) promissory notes in such amounts and on such terms and
conditions as FINOVA shall specify, executed by Borrower; (iii) Guaranties
executed by each of the Guarantors; (iv) such security agreements, intellectual
property assignments, pledge agreements, mortgages and deeds of trust as FINOVA
may reasonably require with respect to this Agreement and any Guaranties,
executed by each of the parties thereto and, if applicable, duly acknowledged
for recording or filing in the appropriate governmental offices;
(v) Subordination Agreements in form and substance acceptable to FINOVA,
executed by each of the Subordinating Creditors, together with copies of all
instruments subject thereto showing a legend indicating such subordination;
(vi) such Blocked Account or Dominion Account agreements as it shall determine;
and (vii) such other documents, instruments and agreements in connection
herewith as FINOVA shall reasonably require, executed, certified and/or
acknowledged by such parties as FINOVA shall designate;
(b) MINIMUM EXCESS AVAILABILITY. Borrower shall have
Excess Availability under the Revolving Credit Loans facility of not less than
the amount specified in the Schedule, after paying accounts payable to within
the number of days specified on the Schedule, after giving effect to the initial
advance hereunder and after giving effect to any applicable Loan Reserves
against borrowing availability under the Revolving Credit Loans.
(c) TERMINATIONS BY EXISTING LENDER. Borrower's
existing lender(s) shall have executed and delivered UCC termination statements
and other documentation evidencing the termination of its liens and security
interests in the assets of Borrower or a subordination agreement in form and
substance satisfactory to FINOVA in its sole discretion;
(d) CHARTER DOCUMENTS. FINOVA shall have received
copies of Borrower's By-laws and Articles or Certificate of Incorporation, as
amended, modified, or supplemented to the Closing Date, certified by the
Secretary of Borrower;
(e) GOOD STANDING. FINOVA shall have received a
certificate of corporate status with respect to Borrower, dated within ten (10)
days of the Closing Date, by the Secretary of State of the state of
incorporation
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of Borrower, which certificate shall indicate that Borrower is in good standing
in such state;
(f) FOREIGN QUALIFICATION. FINOVA shall have received
certificates of corporate status with respect to Borrower and each other Loan
Party, each dated within ten (10) days of the Closing Date, issued by the
Secretary of State of each state in which such party's failure to be duly
qualified or licensed would have a material adverse effect on its financial
condition or assets, or on the ability of Borrower to collect its Receivables,
indicating that such party is in good standing;
(g) AUTHORIZING RESOLUTIONS AND INCUMBENCY. FINOVA
shall have received a certificate from the Secretary of Borrower attesting to
(i) the adoption of resolutions of Borrower's Board of Directors, and
shareholders or members if necessary, authorizing the borrowing of money from
FINOVA and execution and delivery of this Agreement and the other Loan Documents
to which Borrower is a party, and authorizing specific officers of Borrower to
execute same, and (ii) the authenticity of original specimen signatures of such
officers;
(h) INSURANCE. FINOVA shall have received the insurance
certificates and copies of policies required by Section 3.4 hereof, in form and
substance satisfactory to FINOVA and its counsel, together with an additional
insured endorsement in favor of FINOVA with respect to all liability policies
and a lender's loss payable endorsement in favor of FINOVA with respect to all
casualty and business interruption policies, each in form and substance
acceptable to FINOVA and its counsel;
(i) MERGER. Each of CCI's subsidiaries shall have
merged with and into CCI, with CCI as the surviving entity, all on terms and in
form and substance acceptable to FINOVA.
(j) SEARCHES; CERTIFICATES OF TITLE. FINOVA shall have
received searches reflecting the filing of its financing statements and fixture
filings in such jurisdictions as it shall determine, and shall have received
certificates of title with respect to the Collateral which shall have been duly
executed in a manner sufficient to perfect all of the security interests granted
to FINOVA;
(k) LANDLORD, BAILEE AND MORTGAGEE WAIVERS. FINOVA
shall have received landlord, bailee and/or mortgagee waivers from the lessors,
bailees and/or mortgagees of all locations requested by FINOVA where any
Collateral is located;
(l) FEES. Borrower shall have paid all fees payable by
it on the Closing Date pursuant to this Agreement;
(m) OPINION OF COUNSEL. FINOVA shall have received an
opinion of Borrower's counsel covering such matters as FINOVA shall determine in
its sole discretion;
(n) OFFICER CERTIFICATE. FINOVA shall have received a
certificate of the President and the Chief Financial Officer or similar official
of Borrower, attesting to the accuracy of each of the representations and
warranties of Borrower set forth in this Agreement and the fulfillment of all
conditions precedent to the initial advance hereunder;
(o) SOLVENCY CERTIFICATE. If requested, FINOVA shall
have received a signed certificate of the Borrower's duly elected Chief
Financial Officer concerning the solvency and financial condition of Borrower,
on FINOVA's standard form;
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(p) DOMINION ACCOUNT. The Dominion Accounts referred to
in Section 2.10(c) hereof shall be established to the satisfaction of FINOVA in
its sole discretion within 30 days after the Closing Date;
(q) INTENTIONALLY OMITTED.
(r) INTENTIONALLY OMITTED.
(s) SEARCH AND REFERENCES. FINOVA shall have received
and approved the results of UCC, tax lien, litigation, judgment, and bankruptcy
searches regarding Borrower, and shall have received satisfactory customer,
vendor and credit reference checks on Borrower.
(t) INTENTIONALLY OMITTED.
(u) LIFE INSURANCE. FINOVA shall require that within 30
days after the Closing Date Borrower establish and maintain a life insurance
policy on the life of the persons specified in the Schedule in an amount
specified in the Schedule (the "LIFE INSURANCE POLICY"). The Life Insurance
Policy shall within 30 days after the Closing Date be collaterally assigned to
FINOVA (pursuant to an assignment in form satisfactory to FINOVA, hereinafter
referred to as the "ASSIGNMENT OF LIFE INSURANCE") and be accepted and
acknowledged in writing by the applicable insurer or its authorized
representative. Borrower hereby grants to FINOVA a security interest in the
Life Insurance Policy, all replacements thereof, any supplementary contract
issued in connection therewith, and all proceeds of the foregoing (including
without limitation, the beneficiary's interest therein, collectively referred to
as the "INSURANCE COLLATERAL") to secure Borrower's payment and performance of
all the Obligations. The insurer under the Life Insurance Policy and the terms
and conditions of the Life Insurance Policy are subject to the approval of
FINOVA. The original of the policy evidencing the Life Insurance Policy, signed
by an authorized insurance company representative, shall be delivered to FINOVA
at the closing together with a duly executed Collateral Assignment of Life
Insurance which has been accepted and acknowledged in writing by the applicable
insurer or its authorized representative. The Life Insurance Policy shall
require the insurer to provide FINOVA with thirty (30) days advance written
notice of any cancellation and/or any material change in coverage. Borrower
warrants and represents that it is and will be (throughout the entire term of
the Loan) the owner and beneficiary of the Life Insurance Policy.
Notwithstanding anything herein to the contrary, upon the maturity of the Life
Insurance Policy or upon the death of the individual insured, the proceeds of
the Life Insurance Policy shall be paid directly to FINOVA, shall (at the option
of FINOVA) be treated as a prepayment and, if treated as a prepayment, shall be
applied in order against (a) all of Borrower's Obligations, other than as set
forth in the remaining subsections of this paragraph, (b) all costs and expenses
of FINOVA in connection with such prepayment, (c) accrued interest, and (d) the
unpaid principal balance of the Loans in such manner as FINOVA shall elect. No
prepayment premium or Termination Fee shall be due and owing in connection with
such prepayment. To the extent that the proceeds of said Life Insurance Policy
exceed the amount of Borrower's Obligations, any such excess shall be paid by
FINOVA directly to Borrower. Notwithstanding anything to the contrary herein,
the obligations, undertakings and representations of Borrower under this
Section 4.1(u) shall survive the Closing Date and shall be a continuing
obligation and agreement of Borrower hereunder.
(v) NO MATERIAL ADVERSE CHANGES. Between March 31, 1998
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and the Closing Date, there shall have occurred no material adverse change in
the business, operations, profits or prospects of Borrower or in the condition
of the assets of Borrower.
(w) MATERIAL AGREEMENTS. FINOVA shall have received,
reviewed and approved all material agreements to which Borrower shall be a
party.
(x) INTENTIONALLY OMITTED.
(y) INTENTIONALLY OMITTED.
(z) ADA COMPLIANCE. If necessary, as of the Closing
Date, Borrower shall be in compliance in all material respects with the
Americans with Disabilities Act of 1990 ("ADA") or, if any renovations of
Borrower's facilities or modifications of Borrower's employment practices shall
be required to bring them into compliance with the ADA, review and reasonable
approval by FINOVA of Borrower's proposed plan to come into such compliance.
Borrower shall deliver representations and warranties to FINOVA concerning
Borrower's compliance in all material respects with the ADA, and no evidence
shall have come to the attention of FINOVA indicating that Borrower is not in
compliance with the ADA (except to the extent that FINOVA has reviewed and
approved Borrower's plan to come into compliance).
(aa) INTENTIONALLY OMITTED.
(bb) STOCK PLEDGE. The Pledgor under the Stock Pledge
Agreement ("PLEDGOR") of even date herewith ("STOCK PLEDGE AGREEMENT") shall
have executed and delivered the Stock Pledge Agreement, pledging in favor of
FINOVA all of the issued and outstanding common capital stock of CCI and Posnet.
FINOVA shall be in possession on the Closing Date of original stock certificates
evidencing the shares of stock so pledged to FINOVA, and of undated stock powers
and Assignments Apart from Certificate, executed in blank by Pledgor with
respect to all such shares.
(cc) INTENTIONALLY OMITTED.
(dd) INTENTIONALLY OMITTED.
(ee) INTENTIONALLY OMITTED.
(ff) TRANSACTION COSTS. Borrower shall provide to
FINOVA a complete, itemized summary of all broker's fees or costs of investment
bankers paid or incurred by Borrower in connection with the making of the Loans.
(gg) SCHEDULE CONDITIONS. Borrower shall have complied
with all additional conditions precedent as set forth in the Schedule attached
hereto.
(hh) OTHER MATTERS. All other documents and legal
matters in connection with the transactions contemplated by this Agreement shall
have been delivered, executed and recorded and shall be in form and substance
satisfactory to FINOVA and its counsel including, without limitation, each of
the items listed on the Closing Checklist attached as EXHIBIT 4.1 hereto.
4.2 SUBSEQUENT ADVANCES. The obligation of FINOVA to make any advance
hereunder (including the initial advance) shall be subject to the further
conditions precedent that, on and as of the date of such advance: (a) the
representations and warranties of Borrower set forth in this Agreement shall be
accurate, before and after giving effect to such advance and to the application
of any proceeds thereof; (b) no Event of Default and no event
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which, with notice or passage of time or both, would constitute an Event of
Default has occurred and is continuing, or would result from such advance or
from the application of any proceeds thereof; (c) no material adverse change has
occurred in the Borrower's business, operations, financial condition, in the
condition of the Collateral or other assets of Borrower or in the prospect of
repayment of the Obligations; and (d) FINOVA shall have received such other
approvals, opinions or documents as FINOVA shall reasonably request.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
5.1 DUE ORGANIZATION. It is a corporation duly organized, validly
existing and in good standing under the laws of the State set forth on the
Schedule, is qualified and authorized to do business and is in good standing in
all states in which such qualification and good standing are necessary in order
for it to conduct its business and own its property and where the failure to so
qualify could reasonably be expected to have a Material Adverse Effect, and has
all requisite power and authority to conduct its business as presently
conducted, to own its property and to execute and deliver each of the Loan
Documents to which it is a party and perform all of its Obligations thereunder,
and has not taken any steps to wind-up, dissolve or otherwise liquidate its
assets;
5.2 OTHER NAMES. Borrower has not, during the preceding five (5)
years, been known by or used any other corporate or fictitious name except as
set forth on the Schedule, nor has Borrower been the surviving corporation of a
merger or consolidation or acquired all or substantially all of the assets of
any Person during such time (other than (a) the December 1997 acquisition by
Javelin of the stock of CCI and Posnet and (b) the merger contemplated by
Section 4.1(i) hereof);
5.3 DUE AUTHORIZATION. The execution, delivery and performance by
Borrower of the Loan Documents to which it is a party have been authorized by
all necessary corporate action and do not and shall not constitute a violation
of any applicable law or of Borrower's Articles or Certificate of Incorporation
or By-Laws or any other document, agreement or instrument to which Borrower is a
party or by which Borrower or its assets are bound;
5.4 BINDING OBLIGATION. Each of the Loan Documents to which Borrower
is a party is the legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, except as enforcement thereof may
be limited by bankruptcy, insolvency or other laws affecting the enforcement of
creditors' rights generally or by the application of equitable principles;
5.5 INTANGIBLE PROPERTY. Borrower possesses adequate assets,
licenses, patents, patent applications, copyrights, trademarks, trademark
applications and trade names for the present and planned future conduct of its
business without any known conflict with the rights of others, and each is valid
and, to the extent Borrower has, in accordance with Section 6.1.15 hereof or in
the exercise of its business judgment determined to register or file the same,
has been duly registered or filed with the appropriate governmental authorities;
each of Borrower's patents, patent applications, copyrights, trademarks and
trademark applications which have been registered or filed with any governmental
authority (including the U.S. Patent and Trademark Office and the Library of
Congress) are listed by name, date and filing number on the Schedule;
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5.6 CAPITAL. Borrower has capital sufficient to conduct its business,
is able to pay its debts as they mature, and owns property having a fair salable
value greater than the amount required to pay all of its debts (including
contingent debts);
5.7 MATERIAL LITIGATION. Borrower has no pending or overtly
threatened litigation, actions or proceedings which would materially and
adversely affect its business, assets, operations, prospects or condition,
financial or otherwise, or the Collateral or any of FINOVA's interests therein;
5.8 TITLE; SECURITY INTERESTS OF FINOVA. Borrower has good and
merchantable title to the Collateral and, upon the execution and delivery of the
Loan Documents, the filing of UCC-1 Financing Statements, delivery of the
certificate(s) evidencing any pledged securities, the filing of any collateral
assignments or security agreements regarding Trademarks, Copyrights, Licenses
and/or Patents, if any, with the appropriate governmental offices and the
recording of any mortgages or deeds of trust with respect to real property, in
each case in the appropriate offices, this Agreement and such documents shall
create valid and perfected first priority liens in the Collateral, subject only
to Permitted Encumbrances;
5.9 RESTRICTIVE AGREEMENTS; LABOR CONTRACTS. Borrower is not a party
or subject to any contract or subject to any charge, corporate restriction,
judgment, decree or order materially and adversely affecting its business,
assets, operations, prospects or condition, financial or otherwise, or which
restricts its right or ability to incur Indebtedness, and it is not party to any
labor dispute. In addition, no labor contract is scheduled to expire during the
Initial Term of this Agreement, except as disclosed to FINOVA in writing prior
to the date hereof;
5.10 LAWS. Borrower is not in violation of any applicable statute,
regulation, ordinance or any order of any court, tribunal or governmental
agency, in any respect materially and adversely affecting the Collateral or its
business, assets, operations, prospects or condition, financial or otherwise;
5.11 CONSENTS. Borrower has obtained or caused to be obtained or
issued any required consent of a governmental agency or other Person in
connection with the financing contemplated hereby;
5.12 DEFAULTS. Borrower is not in default with respect to any note,
indenture, loan agreement, mortgage, lease, deed or other agreement to which it
is a party or by which it or its assets are bound, having an aggregate amount
outstanding of at least $100,000, nor has any event occurred which, with the
giving of notice or the lapse of time, or both, would cause such a default;
5.13 FINANCIAL CONDITION. The Prepared Financials fairly present
Borrower's financial condition and results of operations and those of such other
Persons described therein as of the date thereof in accordance with GAAP; there
are no material omissions from the Prepared Financials or other material facts
or circumstances not reflected in the Prepared Financials; and there has been no
material and adverse change in such financial condition or operations since the
date of the initial Prepared Financials delivered to FINOVA hereunder;
5.14 ERISA. The Borrower and any Plans are in compliance in all
material respects with the provisions of ERISA and the qualification
requirements of IRC Section 401(a) and Borrower has received no notice
indicating that it or any Plan does not so comply. No notice of intent to
terminate a Plan has been filed under Section 4041 of ERISA, nor has any Plan
been terminated under ERISA.
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The PBGC has not instituted proceedings to terminate, or appointed a trustee to
administer, a Plan. No lien upon the assets of Borrower has arisen with respect
to a Plan. No Prohibited Transaction or Reportable Event has occurred with
respect to a Plan. Neither Borrower nor any ERISA Affiliate has incurred any
withdrawal liability with respect to any Multiemployer Plan. Borrower and each
ERISA Affiliate have made all contributions required to be made by them to any
Plan or Multiemployer Plan when due. There is no accumulated funding deficiency
in any Plan, whether or not waived;
5.15 TAXES. Borrower has filed all tax returns and such other reports
as it is required by law to file and has paid or made adequate provision for the
payment on or prior to the date when due of all taxes, assessments and similar
charges that are due and payable, except to the extent Borrower in good faith
and by appropriate proceedings is contesting its liability thereunder and has
fully reserved such amounts in its financial statements, provided that in any
such case no lien could arise in favor of a taxing authority, which lien could
impair the enforceability or priority of FINOVA's security interest in the
Collateral;
5.16 LOCATIONS; FEDERAL TAX ID NO. Borrower's chief executive office
and the offices and locations where it keeps the Collateral (except for
Inventory in transit) are at the locations set forth on the Schedule, except to
the extent that such locations may have been changed after notice to FINOVA in
accordance with Section 6.4 hereof; Borrower's federal tax identification number
is as shown on the Schedule;
5.17 BUSINESS RELATIONSHIPS. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially and
adversely affect Borrower or prevent Borrower from conducting such business
after the consummation of the transactions contemplated by this Agreement in
substantially the same manner in which it has heretofore been conducted;
5.18 YEAR 2000. Borrower has taken all action necessary to assure that
there will be no material adverse change to Borrower's business by reason of the
advent of the year 2000, including without limitation that all computer-based
systems, embedded microchips and other processing capabilities effectively
recognize and process dates after April 1, 1999; and
5.19 REAFFIRMATIONS. Each request for a loan made by Borrower pursuant
to this Agreement shall constitute (i) an automatic representation and warranty
by Borrower to FINOVA that there does not then exist any Event of Default and
(ii) a reaffirmation as of the date of said request of all of the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents.
6. COVENANTS.
6.1 AFFIRMATIVE COVENANTS. Borrower covenants that, so long as any
Obligation remains outstanding and this Agreement is in effect, it shall:
6.1.1 TAXES. File all tax returns and pay or make adequate
provision for the payment of all taxes, assessments and other charges on or
prior to the date when due, except to the extent Borrower in good faith and by
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appropriate proceedings is contesting its liability thereunder and has fully
reserved such amounts in its financial statements, provided that in any such
case no lien could arise in favor of a taxing authority, which lien could impair
the enforceability or priority of FINOVA's security interest in the Collateral;
6.1.2 NOTICE OF LITIGATION. Promptly notify FINOVA in writing
of any litigation, suit or administrative proceeding which may materially and
adversely affect the Collateral or Borrower's business, assets, operations,
prospects or condition, financial or otherwise, whether or not the claim is
covered by insurance;
6.1.3 ERISA. Notify FINOVA in writing (i) promptly upon the
occurrence of any Reportable Event with respect to a Plan, other than a
termination, partial termination or merger of a Plan or a transfer of a Plan's
assets and (ii) prior to any termination, partial termination or merger of a
Plan or a transfer of a Plan's assets;
6.1.4 CHANGE IN LOCATION. Notify FINOVA in writing thirty (30)
days prior to any change in the location of Borrower's chief executive office or
the location of any Collateral, or Borrower's opening or closing of any other
place of business;
6.1.5 CORPORATE EXISTENCE. Maintain its corporate existence and
its qualification to do business and good standing in all states necessary for
the conduct of its business and the ownership of its property and maintain
adequate assets, licenses, patents, copyrights, trademarks and trade names for
the conduct of its business;
6.1.6 LABOR DISPUTES. Promptly notify FINOVA in writing of any
labor dispute to which Borrower is or may become subject and the expiration of
any labor contract to which Borrower is a party or bound;
6.1.7 VIOLATIONS OF LAW. Promptly notify FINOVA in writing of
any violation of any law, statute, regulation or ordinance of any governmental
entity, or of any agency thereof, applicable to Borrower and of which Borrower
becomes aware which may materially and adversely affect the Collateral or
Borrower's business, assets, prospects, operations or condition, financial or
otherwise;
6.1.8 DEFAULTS. Notify FINOVA in writing within five (5)
Business Days of Borrower's default under any note, indenture, loan agreement,
mortgage, lease or other agreement to which Borrower is a party or by which
Borrower is bound, or of any other default under any Indebtedness of Borrower
under which at least $25,000 remains outstanding;
6.1.9 CAPITAL EXPENDITURES. Promptly notify FINOVA in writing
of the making of any Capital Expenditure in excess of $100,000;
6.1.10 BOOKS AND RECORDS. Keep adequate records and books of
account with respect to its business activities in which proper entries are made
in accordance with GAAP, reflecting all of its financial transactions;
6.1.11 LEASES; WAREHOUSE AGREEMENTS. Provide FINOVA, promptly
after entering into any Lease, storage agreement, or similar arrangement, with
(i) copies of all agreements between Borrower and any landlord, warehouseman or
bailee which owns any premises at which any Collateral may, from time to time,
be located (whether for processing, storage or otherwise), and (ii) without
limiting the landlord, bailee and/or mortgagee waivers to be provided
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pursuant to Section 4.1(k) hereof, additional landlord, bailee and/or mortgagee
waivers in form acceptable to FINOVA with respect to all locations reasonably
requested by FINOVA where any Collateral is hereafter located. In addition,
Javelin covenants that it will not modify, nor will it permit the modification
of, its lease for the Irvine, California facility on terms less favorable to
Javelin;
6.1.12 ADDITIONAL DOCUMENTS. At FINOVA's reasonable request,
promptly execute or cause to be executed and delivered to FINOVA any and all
documents, instruments or agreements deemed necessary by FINOVA to facilitate
the collection of the Obligations or the Collateral or otherwise to give effect
to or carry out the terms or intent of this Agreement or any of the other Loan
Documents. Without limiting the generality of the foregoing, if any of the
Receivables with a face value in excess of $25,000 arises out of a contract with
the United States of America or any department, agency, subdivision or
instrumentality thereof, Borrower shall promptly notify FINOVA of such fact in
writing;
6.1.13 FINANCIAL COVENANTS. Comply with the financial covenants
set forth on the Schedule;
6.1.14 YEAR 2000. Borrower shall take all action necessary to
assure that there will be no material adverse change to Borrower's business by
reason of the advent of the year 2000, including without limitation that all
computer-based systems, embedded microchips and other processing capabilities
effectively recognize and process dates after April 1, 1999. At FINOVA's
reasonable request, Borrower shall provide to FINOVA assurance reasonably
acceptable to FINOVA that Borrower's computer-based systems, embedded microchips
and other processing capabilities are year 2000 compatible;
6.1.15 COPYRIGHTS. Borrower shall promptly and duly register
with the United States Copyright Office all of Borrower's copyrightable
material, unless FINOVA consents in writing to Borrower's election not to so
register such material; and
6.1.16 LOCATIONS OF COLLATERAL; WAIVERS. Not later than June 30,
1998, all Collateral pledged by Javelin and Posnet will be situated at 17891
Cartwright Road, Irvine, California 92614, and Borrower shall have delivered to
FINOVA a landlord waiver duly executed and notarized by the owner of such real
property, and not later than September 5, 1998, all Collateral pledged by CCI
will be situated at CCI's new Earth City, Missouri location, and Borrower shall
have delivered to FINOVA a landlord waiver duly executed and notarized by the
owner of such real property, each such landlord waiver to be acceptable to
FINOVA in its discretion. Without limiting the foregoing, FINOVA shall
establish a Loan Reserve against CCI's revolving line of credit in an amount
equal to three months' rent at 13739 Rider Trail North, Earth City, Missouri,
such Loan Reserve to remain in place until CCI has completed its move to the new
location. Until such move has been completed, CCI shall deliver to FINOVA each
month a copy of its rent check for the 13739 Rider Trail North location.
6.2 NEGATIVE COVENANTS. Without FINOVA's prior written consent, so
long as any Obligation remains outstanding and this Agreement is in effect,
Borrower shall not:
6.2.1 MERGERS. Merge or consolidate with (other than the merger
of CCI and/or Posnet with and into Javelin, so long as Javelin is the surviving
entity and FINOVA has received not less than ten Business Days prior
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notice of such merger) or acquire any other Person, or make any other material
change in its capital structure or in its business or operations which might
have a Material Adverse Effect;
6.2.2 LOANS. Make advances, loans or extensions of credit to
(other than trade credit in the ordinary course of Borrower's business,
consistent with past practice), or invest in, any Person, except for loans or
cash advances to employees which are permitted in the Schedule;
6.2.3 DIVIDENDS. Declare or pay cash dividends upon any of its
stock or distribute any of its property or redeem, retire, purchase or acquire
directly or indirectly any of its stock; PROVIDED THAT Javelin may pay cash
dividends on its common stock if, and only if, both immediately before and
immediately after giving effect to such distribution (i) no Default or Event of
Default exists, (ii) Borrower has Excess Availability of not less than
$1,500,000, and (iii) Borrower's Total Debt Service Coverage Ratio is not less
than 1.5:1.0;
6.2.4 ADVERSE TRANSACTIONS. Enter into any transaction which
materially and adversely affects the Collateral or its ability to repay the
Obligations in full as and when due;
6.2.5 INDEBTEDNESS OF OTHERS. Guarantee or become directly or
contingently liable for the Indebtedness of any Person, except by endorsement of
instruments for deposit and except for the existing guarantees made by Borrower
prior to the date hereof, if any, which are set forth in the Schedule and the
Guaranties in favor of FINOVA;
6.2.6 REPURCHASE. Make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment,
or any other repurchase or return basis, other than sales to Nimax, Inc. and
Scansource, Inc. pursuant to which such customers have the option, on a
quarterly basis, to return inventory, but only so long as (i) such customer is
required to place an offsetting order of equal or greater value, and (ii) the
maximum return in any given quarter is limited to 15% of the prior quarter's net
sales to such customer; PROVIDED that if Borrower's Senior Debt Service Coverage
Ratio is below 1.3:1.0 at any time, FINOVA may (in addition to its other rights
and remedies hereunder) consider such Receivables ineligible or create
appropriate Loan Reserves.
6.2.7 NAME. Use any corporate or fictitious name other than its
corporate name as set forth in its Articles or Certificate of Incorporation on
the date hereof or as set forth on the Schedule;
6.2.8 PREPAYMENT. Prepay any Indebtedness other than trade
payables and other than the Obligations;
6.2.9 CAPITAL EXPENDITURE. Make or incur any Capital
Expenditure if, after giving effect thereto, the aggregate amount of all Capital
Expenditures by Borrower in any fiscal year would exceed the amount set forth on
the Schedule;
6.2.10 COMPENSATION. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts and other payments,
whether directly or indirectly, in money or otherwise, during any fiscal year to
all of Borrower's executives, officers and directors (or any relative thereof)
in an amount in excess of the amount set forth on the Schedule;
6.2.11 INDEBTEDNESS. Create, incur, assume or permit to exist
any Indebtedness (including Indebtedness in connection with Capital Leases) in
excess of the amount set forth on the Schedule, other than (i) the Obligations,
(ii) trade payables and other contractual obligations to suppliers and
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customers incurred in the ordinary course of business, and (iii) other
Indebtedness existing on the date of this Agreement and reflected in the
Prepared Financials (except Indebtedness paid on the date of this Agreement from
proceeds of the initial advances hereunder), and (iv) Subordinated Debt;
6.2.12 AFFILIATE TRANSACTIONS. Except as set forth below, sell,
transfer, distribute or pay any money or property to any Affiliate, or invest in
(by capital contribution or otherwise) or purchase or repurchase any stock or
Indebtedness, or any property, of any Affiliate, or become liable on any
guaranty of the indebtedness, dividends or other obligations of any Affiliate
(other than pursuant to the Guaranties in favor of FINOVA and the unsecured
guaranty, if any, by Javelin of lease payments owing by Javelin Systems Europe,
Ltd.). Notwithstanding the foregoing, Borrower may pay compensation permitted
by Section 6.2.10 to employees who are Affiliates and, if no Event of Default
has occurred, each company comprising Borrower may (i) engage in transactions
with Affiliates in the normal course of business, in amounts and upon terms
which are fully disclosed to FINOVA and which are no less favorable to such
company than would be obtainable in a comparable arm's length transaction with a
Person who is not an Affiliate, (ii) make transfers to another company
comprising Borrower, provided that the aggregate amount of such transfers by any
such company do not exceed $150,000 (in cash or fair market value of property)
in any 12 consecutive month period, and (iii) make loans to another company
comprising Borrower, provided that the aggregate outstanding amount of such
loans by any such company do not exceed $150,000 (in cash or fair market value
of property) at any time;
6.2.13 NATURE OF BUSINESS. Enter into any new business or make
any material change in any of Borrower's business objectives, purposes or
operations;
6.2.14 FINOVA'S NAME. Use the name of FINOVA in connection with
any of Borrower's business or activities, except in connection with internal
business matters or as required in dealings with governmental agencies and
financial institutions or with trade creditors of Borrower, solely for credit
reference purposes; or
6.2.15 MARGIN SECURITY. Borrower will not (and has not in the
past) engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation G or Regulation U issued by the Board of
Governors of the Federal Reserve System), and no proceeds of any Loan or other
advance will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock, or in any
manner which might cause such Loan or other advance or the application of such
proceeds to violate (or require any regulatory filing under) Regulation G,
Regulation T, Regulation U, Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System, in each case as in effect on the date
or dates of such Loan or other advance and such use of proceeds. Further, no
proceeds of any Loan or other advance will be used to acquire any security of a
class which is registered pursuant to Section 12 of the Securities Exchange Act
of 1934.
6.2.16 REAL PROPERTY. Purchase or acquire any real property
without FINOVA's prior written consent, which consent shall not be unreasonably
withheld but a condition of which consent may at FINOVA's election include
delivery of appropriate environmental reports and analysis, in form and
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substance satisfactory to FINOVA and its counsel.
7. DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. Any one or more of the following events shall
constitute an Event of Default under this Agreement:
(a) Borrower fails to pay when due and payable any
portion of the Obligations at stated maturity, upon acceleration or otherwise
(subject to the proviso at the end of the first sentence of Section 2.3 hereof);
(b) (i) Borrower fails or neglects to perform, keep or
observe any covenant contained in Sections 6.1.1, 6.1.4, 6.1.5, 6.1.14, 6.1.16
or 6.2.2, or the Net Worth or Current Ratio Covenants set forth on the Schedule,
and such failure or neglect shall continue for more than five (5) days after
such performance was due, or if such failure is not suspectible to cure within
such period, Borrower shall have such additional time as is reasonably required
to effect such cure, not to exceed ten (10) additional days; or (ii) Borrower or
any Guarantor fails or neglects to perform, keep, or observe any other
Obligation including, but not limited to, any other term, provision, condition,
covenant or agreement contained in any Loan Document to which Borrower or such
other Loan Party is a party;
(c) Any material adverse change occurs in Borrower's
business, assets, operations, prospects or condition, financial or otherwise (on
a consolidated basis);
(d) The prospect of repayment of any portion of the
Obligations or the value or priority of FINOVA's security interest in the
Collateral is materially impaired;
(e) Any portion of Borrower's assets with an aggregate
value in excess of $50,000 is seized, attached, subjected to a writ or distress
warrant, is levied upon or comes into the possession of any judicial officer;
(f) Borrower shall generally not pay its debts as they
become due or shall enter into any agreement (whether written or oral), or offer
to enter into any agreement, with all or a significant number of its creditors
regarding any moratorium or other indulgence with respect to its debts or the
participation of such creditors or their representatives in the supervision,
management or control of the business of Borrower;
(g) Any bankruptcy or other insolvency proceeding is
commenced by Borrower, or any such proceeding is commenced against Borrower and
remains undischarged or unstayed for forty-five (45) days;
(h) Any notice of lien, levy or assessment is filed of
record with respect to any of Borrower's assets with an aggregate value in
excess of $50,000;
(i) Any judgments are entered against Borrower in an
aggregate amount exceeding $50,000 in any fiscal year;
(j) Any default shall occur under (i) any material
agreement between Borrower and any third party, which default could reasonably
be expected to have a Material Adverse Effect, including, without limitation,
any default which would result in a right by such third party to accelerate the
maturity of any Indebtedness of Borrower to such third party having an aggregate
amount outstanding of at least $50,000, or (ii) any Subordinated Debt;
(k) Any representation or warranty made or deemed to be
made by Borrower or any Guarantor, any Affiliate or any other Loan Party in any
Loan Document or any other statement, document or
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report made or delivered to FINOVA in connection therewith shall prove to have
been misleading in any material respect;
(l) Any Guarantor terminates or attempts to terminate
its Guaranty or any security therefor or becomes subject to any bankruptcy or
other insolvency proceeding;
(m) Any of the following which could have a material
adverse effect on the financial condition of Borrower: any Prohibited
Transaction or any Reportable Event shall occur with respect to a Plan; any lien
upon the assets of Borrower in connection with any Plan shall arise; Borrower or
any of its ERISA Affiliates shall fail to make full payment when due of all
amounts which Borrower or any of its ERISA Affiliates may be required to pay to
any Plan or any Multiemployer Plan as one or more contributions thereto;
Borrower or any of its ERISA Affiliates creates or permits the creation of any
accumulated funding deficiency in any Plan, whether or not waived; or
(n) Any one of the Horace Hertz, Richard P. Stack or C.
Norman Campbell shall cease to be employed by Borrower in an executive capacity,
and Borrower shall fail to replace such person within 90 days with a person
reasonably acceptable to FINOVA.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, FINOVA
RESERVES THE RIGHT TO CEASE MAKING ANY LOANS DURING ANY CURE
PERIOD STATED ABOVE, AND THEREAFTER IF AN EVENT OF DEFAULT HAS
OCCURRED.
7.2 REMEDIES. Upon the occurrence of an Event of Default, FINOVA may,
at its option and in its sole discretion and in addition to all of its other
rights under the Loan Documents, cease making Loans, terminate this Agreement
and/or declare all of the Obligations to be immediately payable in full.
Borrower agrees that FINOVA shall also have all of its rights and remedies under
applicable law, including, without limitation, the default rights and remedies
of a secured party under the Code, and upon the occurrence of an Event of
Default Borrower hereby consents to the appointment of a receiver by FINOVA in
any action initiated by FINOVA pursuant to this Agreement and to the
jurisdiction and venue set forth in Section 9.26 hereof, and Borrower waives
notice and posting of a bond in connection therewith. Further, FINOVA may, at
any time, take possession of the Collateral and keep it on Borrower's premises,
at no cost to FINOVA, or remove any part of it to such other place(s) as FINOVA
may desire, or Borrower shall, upon FINOVA's demand, at Borrower's sole cost,
assemble the Collateral and make it available to FINOVA at a place reasonably
convenient to FINOVA. FINOVA may sell and deliver any Collateral at public or
private sales, for cash, upon credit or otherwise, at such prices and upon such
terms as FINOVA deems advisable, at FINOVA's discretion, and may, if FINOVA
deems it reasonable, postpone or adjourn any sale of the Collateral by an
announcement at the time and place of sale or of such postponed or adjourned
sale without giving a new notice of sale. Borrower agrees that FINOVA has no
obligation to preserve rights to the Collateral or marshal any Collateral for
the benefit of any Person. FINOVA is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, name, trade
secrets, trade names, trademarks and advertising matter, or any similar
property, in completing production, advertising or selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
FINOVA's benefit. Any requirement of reasonable notice shall be met if such
notice is mailed postage prepaid to Borrower at its address set forth in the
heading to this Agreement at least five (5)
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days before sale or other disposition. The proceeds of sale shall be applied,
first, to all attorneys fees and other expenses of sale, and second, to the
Obligations in such order as FINOVA shall elect, in its sole discretion. FINOVA
shall return any excess to Borrower and Borrower shall remain liable for any
deficiency to the fullest extent permitted by law.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
FINOVA agree that the following conduct by FINOVA with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by FINOVA, including, but not limited to, FINOVA's use in its
sole discretion of other or different times, places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable): Any
public or private disposition: (i) which is conducted at any place designated by
FINOVA, with or without the Collateral being present; and (ii) which commences
at any time between 8:00 a.m. and 5:00 p.m. Without limiting the generality of
the foregoing, Borrower expressly agrees that, with respect to any disposition
of accounts, instruments and general intangibles, it shall be commercially
reasonable for FINOVA to direct any prospective purchaser thereof to ascertain
directly from Borrower any and all information concerning the same, including,
but not limited to, the terms of payment, aging and delinquency, if any, the
financial condition of any obligor or account debtor thereon or guarantor
thereof, and any collateral therefor.
8. EXPENSES AND INDEMNITIES
8.1 EXPENSES. Borrower covenants that, so long as any Obligation
remains outstanding and this Agreement remains in effect, it shall promptly
reimburse FINOVA for all reasonable costs, fees and expenses incurred by FINOVA
in connection with the negotiation, preparation, execution, delivery,
administration and enforcement of each of the Loan Documents, including, but not
limited to, the attorneys' and paralegals' fees of in-house and outside counsel,
expert witness fees, lien, title search and insurance fees, appraisal fees, all
charges and expenses incurred in connection with any and all environmental
reports and environmental remediation activities, and all other costs, expenses,
taxes and filing or recording fees payable in connection with the transactions
contemplated by this Agreement, including without limitation all such costs,
fees and expenses as FINOVA shall incur or for which FINOVA shall become
obligated in connection with (i) any inspection or verification of the
Collateral, (ii) any proceeding relating to the Loan Documents or the
Collateral, (iii) actions taken with respect to the Collateral and FINOVA's
security interest therein, including, without limitation, the defense or
prosecution of any action involving FINOVA and Borrower or any third party,
(iv) enforcement of any of FINOVA's rights and remedies with respect to the
Obligations or Collateral and (v) consultation with FINOVA's attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving any Loan Party or any Affiliate, whether or not suit is filed or the
issues are peculiar to federal bankruptcy or state insolvency laws. Borrower
shall also pay all FINOVA charges in connection with bank wire transfers,
forwarding of loan proceeds, deposits of checks and other items of payment,
returned checks, establishment and maintenance of Dominion Accounts, and all
other bank and administrative matters, in accordance with FINOVA's schedule of
bank and administrative fees and charges in effect from time to time.
8.2 ENVIRONMENTAL MATTERS. The Environmental Certificates executed
by each of Javelin, CCI and Posnet, each dated on or about the date of this
Agreement, are incorporated herein for all purposes as if fully stated in this
Agreement.
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9. MISCELLANEOUS.
9.1 EXAMINATION OF RECORDS; FINANCIAL REPORTING.
(a) EXAMINATIONS. FINOVA shall at all reasonable times
and upon reasonable notice have full access to and the right to examine, audit,
make abstracts and copies from and inspect Borrower's records, files, books of
account and all other documents, instruments and agreements relating to the
Collateral and the right to check, test and appraise the Collateral; PROVIDED,
that FINOVA shall have such access and other rights at any time, with or without
notice to Borrower, during the continuance of an Event of Default or at any time
that FINOVA reasonably believes that a fraud or other material breach has
occurred. Borrower shall deliver to FINOVA any instrument necessary for FINOVA
to obtain records from any service bureau maintaining records for Borrower. All
instruments and certificates prepared by Borrower showing the value of any of
the Collateral shall be accompanied, upon FINOVA's request, by copies of related
purchase orders and invoices. FINOVA may, at any time after the occurrence of
an Event of Default, remove from Borrower's premises Borrower's books and
records (or copies thereof) or require Borrower to deliver such books and
records or copies to FINOVA. Borrower shall have no liability for more than
four audits during any calendar year in which no Event of Default occurred or
was continuing (for purposes of such limitation, an audit of Borrower shall
consist of an audit of each of Javelin, CCI and Posnet, whether or not conducted
concurrently). FINOVA may, without expense to FINOVA, use such of Borrower's
personnel, supplies and premises as may be reasonably necessary for maintaining
or enforcing FINOVA's security interest.
(b) REPORTING REQUIREMENTS. Borrower shall furnish
FINOVA, upon request, such information and statements as FINOVA shall reasonably
request from time to time regarding Borrower's business affairs, financial
condition and the results of its operations. Without limiting the generality of
the foregoing, Borrower shall provide FINOVA with: (i) FINOVA's standard form
collateral and loan report, daily, and upon FINOVA's request, copies of sales
journals, cash receipt journals, and deposit slips; (ii) upon FINOVA's request,
copies of sales invoices, customer statements and credit memoranda issued,
remittance advices and reports; (iii) copies of shipping and delivery documents,
upon request; (iv) on or prior to the date set forth on the Schedule, monthly
agings (aged from invoice date) and reconciliations of Receivables (with
listings of concentrated accounts), payables reports, inventory reports,
compliance certificates and unaudited financial statements with respect to the
prior month prepared on a basis consistent with such statements prepared in
prior months and otherwise in accordance with GAAP; (v) audited annual
consolidated and consolidating financial statements, prepared in accordance with
GAAP applied on a basis consistent with the most recent Prepared Financials
provided to FINOVA by Borrower, including balance sheets, income and cash flow
statements, accompanied by the unqualified report thereon of independent
certified public accountants acceptable to FINOVA, as soon as available, and in
any event, within ninety (90) days after the end of each of Borrower's fiscal
years; (vi) promptly after the sending or filing thereof, as the case may be,
copies of any proxy statements, financial statements or reports which Javelin
has made available to its shareholders and copies of any regular, periodic and
special reports or registration statements which Javelin files with the
Securities and Exchange Commission or any governmental authority which may be
substituted therefor, or any national securities exchange; and (vii) such
certificates relating to the foregoing as FINOVA
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may reasonably request, including, without limitation, a monthly certificate
from the president and the chief financial officer of Borrower showing
Borrower's compliance with each of the financial covenants set forth in this
Agreement, and stating whether any Event of Default has occurred or event which,
with giving of notice or the passage of time, or both, would constitute an Event
of Default, and if so, the steps being taken to prevent or cure such Event of
Default. All reports or financial statements submitted by Borrower shall be in
reasonable detail and shall be certified by the principal financial officer of
Borrower as being complete and correct.
9.2 TERM; TERMINATION.
(a) TERM. The Initial Term of the Revolving Credit
Loans facility and the obligation of FINOVA to made advances with respect
thereto in accordance with this Agreement shall be as set forth on the Schedule,
and the Revolving Credit Loans facility and this Agreement shall be
automatically renewed for one or more Renewal Term(s) as set forth in the
Schedule, unless earlier terminated as provided herein.
(b) PRIOR NOTICE. Each party shall have the right to
terminate this Agreement effective at the end of the Initial Term or at the end
of any Renewal Term by giving the other party written notice not less than sixty
(60) days prior to the effective date of such termination, by registered or
certified mail.
(c) PAYMENT IN FULL. Upon the effective date of
termination, the Obligations shall become immediately due and payable in full in
cash.
(d) EARLY TERMINATION; TERMINATION FEE. In addition to
the procedure set forth in Section 9.2(b), Borrower may terminate this Agreement
at any time but only upon sixty (60) days' prior written notice and prepayment
of the Obligations. Upon any such early voluntary termination by Borrower or
any termination of this Agreement by FINOVA upon the occurrence of an Event of
Default, then, and in any such event, Borrower shall pay to FINOVA upon the
effective date of such termination a fee (the "TERMINATION FEE") in an amount
equal to the amount shown on the Schedule; PROVIDED, HOWEVER, that if Borrower
terminates this Agreement within one hundred twenty (120) days after an
assignment by FINOVA contemplated by clause (iii) of the third sentence of
Section 9.7, after giving proper notice pursuant to Section 9.2(b), no
Termination Fee shall be payable.
9.3 RECOURSE TO SECURITY; CERTAIN WAIVERS. All Obligations shall be
payable by Borrower as provided for herein and, in full, at the termination of
this Agreement; recourse to security shall not be required at any time.
Borrower waives presentment and protest of any instrument and notice thereof,
notice of default and, to the extent permitted by applicable law, all other
notices to which Borrower might otherwise be entitled.
9.4 NO WAIVER BY FINOVA. Neither FINOVA's failure to exercise any
right, remedy or option under this Agreement, any supplement, the Loan Documents
or other agreement between FINOVA and Borrower nor any delay by FINOVA in
exercising the same shall operate as a waiver. No waiver by FINOVA shall be
effective unless in writing and then only to the extent stated. No waiver by
FINOVA shall affect its right to require strict performance of this Agreement.
FINOVA's rights and remedies shall be cumulative and not exclusive.
9.5 BINDING ON SUCCESSOR AND ASSIGNS. All terms, conditions,
promises, covenants, provisions and warranties shall inure to the benefit of and
bind FINOVA's and
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Borrower's respective representatives, successors and assigns.
9.6 SEVERABILITY. If any provision of this Agreement shall be
prohibited or invalid under applicable law, it shall be ineffective only to such
extent, without invalidating the remainder of this Agreement.
9.7 AMENDMENTS; ASSIGNMENTS. This Agreement may not be modified,
altered or amended, except by an agreement in writing signed by Borrower and
FINOVA. Borrower may not sell, assign or transfer any interest in this
Agreement or any other Loan Document, or any portion thereof, including, without
limitation, any of Borrower's rights, title, interests, remedies, powers and
duties hereunder or thereunder. FINOVA may, at any time or times hereafter,
without Borrower's consent (i) sell participations in this Agreement and the
other Loan Documents, (ii) assign, sell, transfer or otherwise dispose of all or
any part of this Agreement and the other Loan Documents, so long as FINOVA
serves as agent for purposes of managing the Loans, and (iii) assign, sell,
transfer or otherwise dispose of all of this Agreement and the other Loan
Documents in connection with a sale of all or substantially all of FINOVA's Los
Angeles based loan portfolio or in connection with a merger by or acquisition of
FINOVA, in each case including, without limitation, FINOVA's rights, title,
interests, remedies, powers and duties hereunder or thereunder. In connection
therewith, FINOVA may disclose all documents and information which FINOVA now or
hereafter may have relating to Borrower or Borrower's business provided that
such Person has previously agreed to be bound by the confidentiality provisions
contained in Section 9.28. To the extent that FINOVA assigns its rights and
obligations hereunder to a third party, FINOVA shall thereafter be released from
such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third party.
9.8 INTEGRATION. This Agreement, together with the Schedule (which is
a part hereof) and the other Loan Documents, reflect the entire understanding of
the parties with respect to the transactions contemplated hereby and supercede
any prior or contemporaneous agreements between or among the parties.
9.9 SURVIVAL. All of the representations and warranties of Borrower
contained in this Agreement shall survive the execution, delivery and acceptance
of this Agreement by the parties. No termination of this Agreement or of any
guaranty of the Obligations shall affect or impair the powers, obligations,
duties, rights, representations, warranties or liabilities of the parties hereto
and all shall survive such termination.
9.10 EVIDENCE OF OBLIGATIONS. Each Obligation may, in FINOVA's
discretion, be evidenced by notes or other instruments issued or made by
Borrower to FINOVA. If not so evidenced, such Obligation shall be evidenced
solely by entries upon FINOVA's books and records.
9.11 LOAN REQUESTS. Each oral or written request for a loan by any
Person who purports to be any employee, officer or authorized agent of Borrower
shall be made to FINOVA on or prior to 11:00 a.m., Pacific time, on the Business
Day on which the proceeds thereof are requested to be paid to Borrower and shall
be conclusively presumed to be made by a Person authorized by Borrower to do so
and the crediting of a loan to Borrower's operating account shall conclusively
establish Borrower's obligation to repay such loan. Unless and until Borrower
otherwise directs FINOVA in writing, all loans shall be wired to Borrower's
operating account set forth on the Schedule.
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9.12 NOTICES. Any notice required hereunder shall be in writing and
addressed to the Borrower and FINOVA at their addresses set forth at the
beginning of this Agreement. Notice properly given to Javelin shall be proper
notice also to CCI and Posnet. Notices hereunder shall be deemed received on
the earlier of receipt, whether by mail, personal delivery, facsimile, or
otherwise, or upon deposit in the United States mail, postage prepaid.
9.13 BROKERAGE FEES. Borrower represents and warrants to FINOVA that,
with respect to the financing transaction herein contemplated, no Person is
entitled to any brokerage fee or other commission (other than the fee payable by
Borrower to L.H. Friend, Weinress, Frankson & Presson, Inc.), and Borrower
agrees to indemnify and hold FINOVA harmless against any and all such claims.
9.14 DISCLOSURE. No representation or warranty made by Borrower in
this Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to Borrower
or which reasonably should be known to Borrower which Borrower has not disclosed
to FINOVA in writing with respect to the transactions contemplated by this
Agreement which materially and adversely affects the business, assets,
operations, prospects or condition (financial or otherwise), of Borrower.
9.15 PUBLICITY. FINOVA is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation of
this transaction and the aggregate amount thereof.
9.16 CAPTIONS. The Section titles contained in this Agreement are
without substantive meaning and are not part of this Agreement.
9.17 INJUNCTIVE RELIEF. Borrower recognizes that, in the event
Borrower fails to perform, observe or discharge any of its Obligations under
this Agreement, any remedy at law may prove to be inadequate relief to FINOVA.
Therefore, FINOVA, if it so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
9.18 COUNTERPARTS; FACSIMILE EXECUTION. This Agreement may be executed
in one or more counterparts, each of which taken together shall constitute one
and the same instrument, admissible into evidence. Delivery of an executed
counterpart of this Agreement by telefacsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile shall also
deliver a manually executed counterpart of this Agreement, but the failure to
deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
9.19 CONSTRUCTION. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments
or exhibits hereto.
9.20 TIME OF ESSENCE. Time is of the essence for the performance by
Borrower of the Obligations set forth in this Agreement.
9.21 LIMITATION OF ACTIONS. Borrower agrees that any claim or cause of
action by Borrower against FINOVA, or any of
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FINOVA's directors, officers, employees, agents, accountants or attorneys, based
upon, arising from, or relating to this Agreement, or any other present or
future agreement, or any other transaction contemplated hereby or thereby or
relating hereto or thereto, or any other matter, cause or thing whatsoever,
whether or not relating hereto or thereto, occurred, done, omitted or suffered
to be done by FINOVA, or by FINOVA's directors, officers, employees, agents,
accountants or attorneys, whether sounding in contract or in tort or otherwise,
shall be barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the latest of (a) the first act, occurrence or omission
upon which such claim or cause of action, or any part thereof, is based or (b)
Borrower's first becoming aware thereof, and service of a summons and complaint
on an officer of FINOVA or any other Person authorized to accept service of
process on behalf of FINOVA, within 30 days thereafter. Borrower agrees that
such one-year period of time is a reasonable and sufficient time for Borrower to
investigate and act upon any such claim or cause of action. The one-year period
provided herein shall not be waived, tolled, or extended except by a specific
written agreement of FINOVA. This provision shall survive any termination of
this Loan Agreement or any other agreement.
9.22 LIABILITY. Neither FINOVA nor any FINOVA Affiliate shall be
liable for any indirect, special, incidental or consequential damages in
connection with any breach of contract, tort or other wrong relating to this
Agreement or the Obligations or the establishment, administration or collection
thereof (including without limitation damages for loss of profits, business
interruption, or the like), whether such damages are foreseeable or
unforeseeable, even if FINOVA has been advised of the possibility of such
damages. Neither FINOVA, nor any FINOVA Affiliate shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by the Borrower through the ordinary negligence of FINOVA,
or any FINOVA Affiliate. "FINOVA AFFILIATE" shall mean FINOVA's directors,
officers, employees, agents, attorneys or any other Person or entity affiliated
with or representing FINOVA.
9.23 NOTICE OF BREACH BY FINOVA. Borrower agrees to give FINOVA
written notice of (i) any action or inaction by FINOVA or any attorney of FINOVA
in connection with any Loan Documents that may be actionable against FINOVA or
any attorney of FINOVA or (ii) any defense to the payment of the Obligations for
any reason, including, but not limited to, commission of a tort or violation of
any contractual duty or duty implied by law. Borrower agrees that unless such
notice is fully given as promptly as possible (and in any event within one
hundred eighty (180) days) after Borrower has knowledge, or with the exercise of
reasonable diligence should have had knowledge, of any such action, inaction or
defense (but not later than the date of termination of this Agreement and
payment in full of the Obligations), Borrower shall not assert, and Borrower
shall be deemed to have waived, any claim or defense arising therefrom.
9.24 APPLICATION OF INSURANCE PROCEEDS. The net proceeds of any
casualty insurance insuring the Collateral, after deducting all costs and
expenses (including attorneys' fees) of collection, shall be applied, at
FINOVA's option, either toward replacing or restoring the Collateral, in a
manner and on terms satisfactory to FINOVA, or toward payment of the
Obligations. Any proceeds applied to the payment of Obligations shall be
applied in such manner as FINOVA may elect. In no event shall such application
relieve Borrower from payment in full of all installments of principal and
interest which
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thereafter become due in the order of maturity thereof.
9.25 POWER OF ATTORNEY. Borrower appoints FINOVA and its designees as
Borrower's attorney, with the power to endorse Borrower's name on any checks,
notes, acceptances, money orders or other forms of payment or security that come
into FINOVA's possession; after the occurrence and during the continuance of any
Event of Default to sign Borrower's name on any invoice or bill of lading
relating to any Receivable, on drafts against customers, on assignments of
Receivables, on notices of assignment, financing statements and other public
records, on verifications of accounts and on notices to customers or account
debtors; to send requests for verification of Receivables to customers or
account debtors; to notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by FINOVA and to open and
dispose of all mail addressed to Borrower; and to do all other things FINOVA
deems necessary or desirable to carry out the terms of this Agreement. Borrower
hereby ratifies and approves all acts of such attorney. Neither FINOVA nor any
of its designees shall be liable for any acts or omissions nor for any error of
judgment or mistake of fact or law while acting as Borrower's attorney except
for FINOVA's gross negligence or willful misconduct. This power, being coupled
with an interest, is irrevocable until the Obligations have been fully satisfied
and FINOVA's obligation to provide loans hereunder shall have terminated
9.26 GOVERNING LAW; WAIVERS. THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION ENFORCEMENT OF THE OBLIGATIONS, SHALL BE INTERPRETED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF
ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED
THAT TO THE EXTENT THE UNIFORM COMMERCIAL CODE AS ADOPTED IN A PARTICULAR STATE
HAS PROVISIONS GOVERNING THE ATTACHMENT AND PERFECTION OF A SECURITY INTEREST IN
DEPOSIT ACCOUNTS (e.g. CALIFORNIA HAWAII, IDAHO, ILLINOIS AND OREGON) THE LAW OF
THAT JURISDICTION SHALL APPLY BUT ONLY WITH RESPECT TO SUCH DEPOSIT ACCOUNTS AND
WITHOUT OTHERWISE AFFECTING THE ARIZONA CHOICE OF LAW HEREUNDER. BORROWER
HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF MARICOPA IN THE STATE OF ARIZONA OR, AT THE SOLE
OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND
VENUE. BORROWER FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT,
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN
SECTION 9.12 HEREOF FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES ANY RIGHT
IT MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.
9.27 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA and Borrower each
hereby waives the right to trial by jury in any action or proceeding based upon,
arising out of, or in any way relating to: (i) this Agreement or any other Loan
Document; (ii) any other present or future instrument or agreement between
FINOVA and Borrower; or (iii) any conduct, acts or omissions
36
<PAGE>
of FINOVA or Borrower or any of their directors, officers, employees, agents,
attorneys or any other persons affiliated with FINOVA or Borrower; in each of
the foregoing cases, whether sounding in contract or tort or otherwise.
9.28 CONFIDENTIAL INFORMATION. FINOVA agrees to take normal and
reasonable precautions and exercise due care to maintain the confidentiality of
all information identified as "confidential" by Borrower and provided to it by
Borrower in connection with this Agreement or any other Loan Document, and
neither it nor any of its affiliates shall use any such information for any
purpose or in any manner other than pursuant to the terms contemplated by this
Agreement, EXCEPT to the extent such information (i) was or becomes generally
available to the public other than as a result of a disclosure by FINOVA, or
(ii) was or becomes available on a non-confidential basis from a source other
than Borrower, PROVIDED that such source is not bound by a confidentiality
agreement with the Borrower known to FINOVA; PROVIDED, HOWEVER, that FINOVA may
disclose such information (A) at the request or pursuant to any requirement of
any governmental authority to which FINOVA is subject or in connection with an
examination of FINOVA by any such authority; (B) pursuant to subpoena or other
court process or in connection with any litigation to which FINOVA is a party;
(C) when required to do so in accordance with the provisions of any applicable
law; and (D) to FINOVA's independent auditors and other professional advisors,
PROVIDED that such auditors and professional advisors shall be required to
similarly protect the confidentiality of such information. Notwithstanding the
foregoing, Borrower authorizes FINOVA to disclose to any participant or assignee
(each, a "Transferee") and to any prospective Transferee, such financial or
other information in FINOVA's possession concerning Borrower which has been
delivered to FINOVA pursuant to this Agreement or which has been delivered to
FINOVA by Borrower in connection with FINOVA's credit evaluation of Borrower
prior to entering into this Agreement; PROVIDED that, unless otherwise agreed by
Borrower, such Transferee agrees in writing to keep such information
confidential to the same extent required of FINOVA hereunder.
BORROWER:
JAVELIN SYSTEMS, INC.
FED. TAX ID #52-1945748
BY
-------------------------------------
PRESIDENT OR VICE PRESIDENT
CCI GROUP, INC.
FED. TAX ID #43-1702004
BY
-------------------------------------
PRESIDENT OR VICE PRESIDENT
POSNET COMPUTERS, INC.
FED. TAX ID #33-0527802
BY
-------------------------------------
PRESIDENT OR VICE PRESIDENT
FINOVA:
FINOVA CAPITAL CORPORATION
BY
-------------------------------------
TITLE
----------------------------------
37
<PAGE>
STATE OF CALIFORNIA )
) ss.
LOS ANGELES )
On ____________, 199___ , before me,
__________________________________________
(Name and Title of Officer)
personally appeared ___________________________________________________________
/ / personally known to me
-OR-
/ / proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged
to me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed
the instrument.
WITNESS my hand and official seal.
-------------------------------------------
Signature Of Notary
OPTIONAL
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER
/ / Individual DESCRIPTION OF ATTACHED DOCUMENT
/ / Corporate Officer
-------------------------------- --------------------------------------------
Title Or Type Of Document
/ / Partner(s) / / Limited
/ / General --------------------------------------------
/ / Attorney-In-Fact Number Of Pages
/ / Trustee(s)
/ / Guardian/Conservator
/ / Other:__________________ --------------------------------------------
Date Of Document
Signer is representing:
Name Of Person(s) Or Entity(ies) --------------------------------------------
Signer(s) Other Than Named Above
--------------------------------
--------------------------------
<PAGE>
STATE OF CALIFORNIA )
) ss.
LOS ANGELES )
On ____________, 199___ , before me,
__________________________________________
(Name and Title of Officer)
personally appeared ___________________________________________________________
/ / personally known to me
-OR-
/ / proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged
to me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed
the instrument.
WITNESS my hand and official seal.
-------------------------------------------
Signature Of Notary
OPTIONAL
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER
/ / Individual DESCRIPTION OF ATTACHED DOCUMENT
/ / Corporate Officer
-------------------------------- --------------------------------------------
Title Or Type Of Document
/ / Partner(s) / / Limited
/ / General --------------------------------------------
/ / Attorney-In-Fact Number Of Pages
/ / Trustee(s)
/ / Guardian/Conservator
/ / Other:_________________ --------------------------------------------
Date Of Document
Signer is representing:
Name Of Person(s) Or Entity(ies) --------------------------------------------
Signer(s) Other Than Named Above
--------------------------------
--------------------------------
<PAGE>
STATE OF CALIFORNIA )
) ss.
LOS ANGELES )
On ____________, 199___ , before me,
__________________________________________
(Name and Title of Officer)
personally appeared ___________________________________________________________
/ / personally known to me
-OR-
/ / proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged
to me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed
the instrument.
WITNESS my hand and official seal.
-------------------------------------------
Signature Of Notary
OPTIONAL
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER
/ / Individual DESCRIPTION OF ATTACHED DOCUMENT
/ / Corporate Officer
-------------------------------- --------------------------------------------
Title Or Type Of Document
/ / Partner(s) / / Limited
/ / General --------------------------------------------
/ / Attorney-In-Fact Number Of Pages
/ / Trustee(s)
/ / Guardian/Conservator
/ / Other:__________________ --------------------------------------------
Date Of Document
Signer is representing:
Name Of Person(s) Or Entity(ies) --------------------------------------------
Signer(s) Other Than Named Above
--------------------------------
--------------------------------
<PAGE>
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWERS: JAVELIN SYSTEMS, INC.
1881 LANGLEY AVENUE
IRVINE, CALIFORNIA 92614
FED. TAX ID NO. 52-1945748
CCI GROUP, INC.
13739 RIDER TRAIL NORTH
EARTH CITY, MISSOURI 63045
FED. TAX ID NO. 43-1702004
AND
POSNET COMPUTERS, INC.
16351 GOTHARD, SUITE D
HUNTINGTON BEACH, CALIFORNIA 92647
FED. TAX ID NO. 33-0527802
DATE: JUNE 8, 1998
This Schedule forms an integral part of the Loan and Security Agreement between
the above Borrower and FINOVA Capital Corporation dated the above date, and all
references herein and therein to "this Agreement" shall be deemed to refer to
said Agreement and to this Schedule.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEFINITIONS (SECTION 1):
"GUARANTOR(S)" means each of Javelin, CCI and Posnet
"PERMITTED SENIOR INDEBTEDNESS" means: not applicable
"SUBORDINATING CREDITOR" means: not applicable
- --------------------------------------------------------------------------------
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TOTAL FACILITY (SECTION 2.1):
$7,500,000
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- --------------------------------------------------------------------------------
LOANS (SECTION 2.2):
REVOLVING CREDIT LOANS: Revolving Credit Loans shall be made directly to each
of Javelin, CCI and Posnet, consisting of loans against Eligible Receivables
("RECEIVABLE LOANS") and against Eligible Inventory ("INVENTORY LOANS") (the
Receivable Loans and the Inventory Loans shall be collectively
S-1
<PAGE>
referred to as the "REVOLVING CREDIT LOANS") based on the following borrowing
formula for each such company, and provided that the aggregate outstanding
Revolving Credit Loans to Javelin, CCI and Posnet shall at no time exceed
$6,000,000 (the "REVOLVING CREDIT LIMIT"):
JAVELIN: A revolving line of credit to Javelin consisting of loans
against Javelin's Eligible Receivables and against Javelin's Eligible
Inventory in an aggregate outstanding principal amount not to exceed
the lesser of (a) or (b) below:
(a) Six Million Dollars ($6,000,000), LESS any Loan Reserves, or
(b) the sum of
(i) an amount equal to 80% of the net amount of Javelin's
Eligible Receivables; PLUS
(ii) an amount not to exceed the lesser of:
(A) 50% of the value of Javelin's Eligible Inventory,
calculated at the lower of cost or market value and
determined on a first-in, first-out basis; or
(B) $2,000,000; LESS
(iii) any Loan Reserves.
CCI: A revolving line of credit to CCI consisting of loans against
CCI's Eligible Receivables and against CCI's Eligible Inventory in an
aggregate outstanding principal amount not to exceed the lesser of (a)
or (b) below:
(a) Two Million Dollars ($2,000,000), LESS any Loan Reserves, or
(b) the sum of
(i) an amount equal to 80% of the net amount of CCI's Eligible
Receivables; PLUS
(ii) an amount not to exceed the lesser of:
(A) 50% of the value of CCI's Eligible Inventory,
calculated at the lower of cost or market value and
determined on a first-in, first-out basis; or
(B) $1,000,000; LESS
(iii) any Loan Reserves.
POSNET: A revolving line of credit to Posnet consisting of loans
against Posnet's Eligible Receivables and against Posnet's Eligible
Inventory in an aggregate outstanding principal amount not to exceed
the lesser of (a) or (b) below:
(a) Five Hundred Thousand Dollars ($500,000), LESS any Loan Reserves,
or
S-2
<PAGE>
(b) the sum of
(i) an amount equal to 80% of the net amount of Posnet's
Eligible Receivables; PLUS
(ii) an amount not to exceed the lesser of:
(A) 50% of the value of Posnet's Eligible Inventory,
calculated at the lower of cost or market value and
determined on a first-in, first-out basis; or
(B) $300,000; LESS
(iii) any Loan Reserves.
TERM LOAN: a term loan to Javelin against the value of Javelin's
machinery, equipment and/or real estate ("TERM LOAN") in an aggregate
outstanding principal amount not to exceed $1,500,000; PROVIDED, that
the Terms Loan shall be in such amount and on such terms as are set
forth on a separate promissory note of Javelin in the form of
EXHIBIT A hereto. The Term Loan shall be amortized on a straight line
basis over a period of 60 months, with all principal and accrued but
unpaid interest due at the end of the Initial Term or upon any earlier
termination of this Agreement. Subject to payment of the fees and
other amounts described below, along with accrued interest on the
amount prepaid, the Term Loan may be prepaid in whole, but not in
part, at any time.
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- --------------------------------------------------------------------------------
INTEREST AND FEES (SECTION 2.6):
REVOLVING INTEREST RATE. Borrower shall pay FINOVA interest on the
daily outstanding balance of Borrower's Revolving Credit Loans at a
fluctuating per annum rate of 1.75% in excess of the rate of interest
announced publicly by Citibank, N.A., (or any successor thereto), from
time to time as its "prime rate" (the "PRIME RATE") which may not be
such institution's lowest rate. The interest rate chargeable
hereunder in respect of the Revolving Credit Loans (herein, the
"REVOLVING INTEREST RATE") shall be increased or decreased, as the
case may be, without notice or demand of any kind, upon the
announcement of any change in the Prime Rate. Each change in the
Prime Rate shall be effective hereunder on the first day following the
announcement of such change. Interest charges and all other fees and
charges herein shall be computed on the basis of a year of 360 days
and actual days elapsed and shall be payable to FINOVA in arrears on
the first day of each month.
TERM INTEREST RATE: Javelin shall pay FINOVA interest on the daily
outstanding balance of the Term Loan at a fixed per annum rate of
13.65%. Interest charges and all other fees and charges herein shall
be computed on the basis of a year of 360 days and actual days elapsed
and shall be payable to FINOVA in arrears on the first day of each
month. FINOVA may in its
S-3
<PAGE>
discretion establish Loan Reserves from time to time against the
Revolving Credit Loans for interest rate risk on the Term Loan.
MINIMUM INTEREST CHARGE. With respect to each calendar month or
portion thereof during the term of this Agreement (excluding the
calendar month in which this Agreement is executed), Borrower shall
also pay FINOVA, on the first day of the next month, as a minimum
charge, the amount by which accrued interest pursuant to the Revolving
Interest Rate section above for such month or portion thereof is less
than $10,000 (the "MINIMUM INTEREST CHARGE"). Notwithstanding the
occurrence of any Event of Default hereunder or termination of this
Agreement by FINOVA as a result thereof, the Minimum Interest Charge
shall be paid by Borrower for the unexpired portion of the Initial
Term or any Renewal Term of this Agreement, not to exceed $100,000.
COLLATERAL MONITORING FEE. At the closing of this transaction and on
the first day of each calendar month thereafter, Borrower shall pay
FINOVA a collateral monitoring fee of $1,000 ("COLLATERAL MONITORING
FEE").
CLOSING FEE. At the closing of this transaction, Borrower shall pay
to FINOVA a closing fee in the amount of $56,250 ("CLOSING FEE"),
which fee was fully earned upon execution of the April 24, 1998
Commitment Letter by Borrower. FINOVA shall apply to the Closing Fee
the unexpended portion (if any) of the good faith deposit previously
received by FINOVA.
UNUSED LINE FEE. With respect to each calendar month, or portion
thereof during the term of this Agreement, Borrower shall
unconditionally pay to FINOVA a fee equal to one-half of one percent
(0.50%) per annum of the difference between the Revolving Credit Limit
and the average daily outstanding balance of the Revolving Credit
Loans during such month, or portion thereof ("UNUSED LINE FEE"), which
fee shall be calculated and payable monthly, in arrears, and shall be
due and payable, commencing on the first Business Day of the first
calendar month following the Closing Date and continuing on the first
Business Day of each calendar month thereafter; PROVIDED, that, for
any month in which a Minimum Interest Charge is payable, the Revolving
Credit Limit shall be reduced (for purposes of this calculation only)
by the amount of additional Revolving Credit Loans which would have
had to be outstanding during such month in order for no Minimum
Interest Charge to be payable.
EXAMINATION FEE. Borrower agrees to pay to FINOVA an examination fee
in the amount of $600 per person per day in connection with each audit
or examination of Borrower performed by FINOVA prior to or after the
date hereof, plus all reasonable costs and expenses incurred in
connection therewith (the "EXAMINATION FEE"), subject to
Section 9.1(a). All Examination Fees
S-4
<PAGE>
incurred prior to the date hereof have been fully earned and shall be
due and payable upon the closing of this transaction, and shall be
deducted from any good faith deposit paid by Borrower to FINOVA prior
to the date of this Agreement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDITIONS OF CLOSING (SECTION 4.1):
The obligation of FINOVA to make the initial advance hereunder is
subject to the fulfillment, to the satisfaction of FINOVA and its
counsel, of each of the following conditions, in addition to the
conditions set forth in Sections 4.1 and 4.2 above:
(a) MINIMUM EXCESS AVAILABILITY (SECTION 4.1(b)). Not less than
$3,000,000 in the aggregate. Accounts payable outstanding: 30 days
or more from their due date.
(b) LEASE AND LANDLORD'S CONSENT (SECTION 4.1(k)). Location(s):
13739 Rider Trail North, Earth City, Missouri 63045
16351 Gothard, Suite D, Huntington Beach, California 92647
(c) LIFE INSURANCE (SECTION 4.1(t)). One or more life insurance
policies shall be maintained on the following individual and at
the following amount:
Richard P. Stack, of not less than $1,000,000
(d) NO MATERIAL ADVERSE CHANGE (SECTION 4.1(v)). Further, no
material adverse change has occurred in the Borrower's business,
operations, financial condition, or assets or in the prospect of
repayment of the Obligations since February 28, 1998.
(e) INTENTIONALLY OMITTED.
(f) TRANSACTION COSTS (SECTION 4.1(ff)). Not to exceed $250,000
(g) WARRANTS. Borrower shall have delivered to FINOVA prior to
the Closing Date separate and detachable warrants to purchase
100,000 shares of common stock of Javelin ("WARRANTS"). The
Warrants shall be in all respects acceptable to FINOVA in its
sole discretion and shall include, among other things,
anti-dilution and piggy-back registration provisions, and shall
have an expiration date 5 years from the Closing Date. The
per-share exercise price for the Warrants shall be equal to the
lesser of (i) $9.00 or (ii) the trailing 20 trading day moving
average per-share price for Javelin's common stock.
Borrower shall cause the conditions precedent set forth in
Section 4.1 of this Agreement and set forth above in this
Schedule to be satisfied, and shall provide evidence to FINOVA
that all such conditions precedent have been satisfied, on or
before June 11, 1998.
S-5
<PAGE>
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- --------------------------------------------------------------------------------
BORROWER INFORMATION:
Borrower's State of Incorporation (Section 5.1): Javelin: Delaware
CCI: Missouri
Posnet: California
Borrower's copyrights, patents trademarks, and licenses (Section 5.5):
None
Fictitious Names/Prior Corporate Names (Section 5.2):
Prior Corporate Names: Javelin's prior corporate name was:
Sunwood Research, Inc.
Fictitious Names: None
Borrower Locations (Section 5.16)
JAVELIN: 1881 Langley Avenue, Irvine, California 92614
(prior to June 27, 1998)
17891 Cartwright Road, Irvine, California 92614 (after
June 27, 1998)
CCI: 13739 Rider Trail North, Earth City, Missouri 63045
(new location in Earth City, Missouri commencing on or about
September 1, 1998)
POSNET: 16351 Gothard, Suite D, Huntington Beach, California
92647 (prior to June 27, 1998)
17891 Cartwright Road, Irvine, California 92614 (after
June 27, 1998)
Borrower's Federal Tax Identification Number (Section 5.16):
Javelin: 52-1945748
CCI: 43-1702004
Posnet: 33-0527802
Permitted Encumbrances (Section 1.1): See EXHIBIT B.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL COVENANTS (SECTION 6.1.13):
Borrower shall comply with all of the following
covenants. Compliance shall be determined as of the
end of each month (or, for so long as no Event of
Default exists and Borrower maintains Excess
Availability of not less than $1,500,000 and a Total
Debt Service Coverage Ratio of not less 1.25:1.0,
quarterly), except as otherwise specifically provided
below:
CURRENT RATIO. Borrower shall maintain a ratio of Current Assets to
Current Liabilities of not less than 1.15 to 1.0;
NET WORTH. Borrower shall maintain Net Worth of not less than
Three Million Dollars ($3,000,000);
S-6
<PAGE>
SENIOR DEBT SERVICE
COVERAGE RATIO As of the last day of each calendar month (or quarter,
if applicable), Borrower's Operating Cash Flow/Actual
for the consecutive 12-month period ending as of such
last day must be at least 1.3 times (or, for the months
of May, June, July and August of 1998, 1.0 times) the
amount necessary to meet Borrower's Senior Contractual
Debt Service for such 12-month period; PROVIDED
HOWEVER, that, with respect to the calculations for the
first 12 months after the Closing Date, Borrower's
Operating Cash Flow/Actual and Senior Contractual Debt
Service shall be determined over the period beginning
on the Closing Date and ending on the respective
measurement dates; and, PROVIDED FURTHER, that all such
determinations shall be made on a consolidated basis.
TOTAL DEBT SERVICE
COVERAGE RATIO As of the last day of each calendar month (or quarter,
if applicable), Borrower's Operating Cash Flow/Actual
for the consecutive 12-month period ending as of such
last day must be at least 1.25 times (or, for the
months of May, June, July and August of 1998, 0.95
times) the amount necessary to meet Borrower's Total
Contractual Debt Service for such 12-month period;
PROVIDED HOWEVER, that, with respect to the
calculations for the first 12 months after the Closing
Date, Borrower's Operating Cash Flow/Actual and Total
Contractual Debt Service shall be determined over the
period beginning on the Closing Date and ending on the
respective measurement dates; and, PROVIDED FURTHER,
that all such determinations shall be made on a
consolidated basis.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEGATIVE COVENANTS (SECTION 6.2):
EMPLOYEE ADVANCES: Borrower shall not make any loans or advances to
Employees except in the ordinary course of
business and consistent with past practices of
Borrower in an aggregate amount not exceeding at
any time $20,000.
EXISTING GUARANTIES: None.
CAPITAL EXPENDITURES: Borrower shall not make or incur any Capital
Expenditure if, after giving effect thereto, the
aggregate amount of all Capital Expenditures by
Borrower in any fiscal year (beginning with the 1998
fiscal year) would exceed $800,000.
COMPENSATION: Borrower shall not pay total compensation, including
salaries, withdrawals, fees, bonuses, commissions,
drawing accounts and other payments, whether directly
or indirectly, in money or otherwise, during any fiscal
year to all of Borrower's executives, officers and
directors (or any relative thereof) in an amount in
excess of that set forth in EXHIBIT C.
INDEBTEDNESS: Borrower shall not create, incur, assume or permit to
exist any Indebtedness (including Indebtedness in
connection with Capital Leases) in excess of $100,000
other than (i) the Obligations, (ii) trade payables and
other contractual obligations to suppliers and
customers incurred in the
S-7
<PAGE>
ordinary course of business and (iii) other
Indebtedness existing on the date of this Agreement and
reflected in EXHIBIT D attached hereto (other than
Indebtedness paid on the date of this Agreement from
proceeds of the initial advances hereunder).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORTING REQUIREMENTS (SECTION 9.1):
1. Borrower shall provide FINOVA with monthly agings aged by invoice date
and reconciliations of Receivables within ten (10) days after the end
of each month.
2. Borrower shall provide FINOVA with monthly accounts payable agings
aged by invoice date, outstanding or held check registers and
inventory certificates within ten (10) days after the end of each
month.
3. Borrower shall provide FINOVA with monthly perpetual inventory reports
for the Inventory valued on a first-in, first-out basis at the lower
of cost or market (in accordance with GAAP) or such other inventory
reports as are reasonably requested by FINOVA, all within ten (10)
days after the end of each month.
4. Borrower shall provide FINOVA with monthly unaudited financial
statements (i) of each of Javelin, Posnet and CCI, on an
unconsolidated basis, within thirty (30) days after the end of each
month and (ii) of Borrower, on a consolidated basis, within forty-five
(45) days after the end of each month.
5. Borrower shall provide FINOVA with audited consolidated and
consolidating fiscal financial statements within ninety (90) days
after the end of each fiscal year, as more specifically described in
Section 9.1(b) hereof, and with an opinion issued by a Certified
Public Accountant which is acceptable to FINOVA.
6. Borrower shall provide FINOVA with annual operating budgets (including
income statements, balance sheets and cash flow statements, by month)
for the then current fiscal year of Borrower within thirty (30) days
after the beginning of such fiscal year of Borrower.
7. Borrower's balance sheets for purposes of the definition of Prepared
Financials shall be as of June 30, 1997.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TERM (SECTION 9.2):
The initial term of this Agreement shall be three (3) years from the date
hereof (the "INITIAL TERM") and shall be automatically renewed for
successive periods of one (1) year each (each, a "RENEWAL TERM"), unless
earlier terminated as provided in Section 7 or 9.2 above or elsewhere in
this Agreement.
S-8
<PAGE>
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- --------------------------------------------------------------------------------
TERMINATION FEE (SECTION 9.2):
(A) REVOLVING CREDIT LOANS FACILITY. The Termination Fee applicable
to the Revolving Credit Loans facility provided for in Section 9.2(d)
shall be an amount equal to the following percentage of the Revolving
Credit Limit:
(i) three percent (3%), if such early termination occurs on or prior
to the first anniversary of the date of this Agreement;
(ii) two percent (2%), if such early termination occurs after the
first anniversary of the date of this Agreement but prior to the
second anniversary of the date of this Agreement; and
(iii) one percent (1%) if such early termination occurs after the
second anniversary of the date of this Agreement.
(B) TERM LOANS. The Termination Fee applicable to the Term Loans
provided for in Section 9.2(d) (upon a prepayment of the Term Loan
only, without a termination of the Agreement), shall be equal to:
(i) two percent (2%) of the amount prepaid if such prepayment is made
during the Loan Year beginning on the Closing Date; and
(ii) zero percent (0%) of the amount prepaid if such prepayment is
made at any time thereafter.
Notwithstanding the foregoing, if the Term Loan is prepaid within 90
days of a prepayment of the Total Facility and termination of the
Agreement, then Borrower shall pay a Termination Fee equal to the
following percentage of the outstanding amount of the Term Loan at the
time of prepayment:
(i) three percent (3%) if such early termination occurs on or prior to
the first anniversary of the date of this Agreement;
(ii) two percent (2%) if such early termination occurs after the first
anniversary of the date of this Agreement but prior to the second
anniversary of the date of this Agreement; and
(iii) one percent (1%) if such early termination occurs after the
second anniversary of the date of this Agreement.
(C) MAKE WHOLE PREMIUM. Any prepayment of the Term Loan using a fixed
interest rate and not a floating interest rate, other than a
prepayment made pursuant to the Excess Cash Flow Sweep described below
under "Additional Provisions," shall also be accompanied by a payment
equal to the Make Whole Premium. The following definitions shall
apply:
1. "MAKE WHOLE PREMIUM" means the positive difference, if any,
between (i) the Discounted Value immediately prior to any
S-9
<PAGE>
prepayment of that portion of the Term Loan which is being
prepaid and (ii) the principal balance of the Term Loan being
prepaid as of the date of any such prepayment.
2. "DISCOUNTED VALUE" means the amount determined by discounting the
Remaining Scheduled Payment Amounts from their respective due
dates to the date of the prepayment of the Term Loan, at a
discount factor equal to the Reinvestment Yield.
3. "REMAINING SCHEDULED PAYMENT AMOUNT" means the amount of each
scheduled payment of principal of and interest on a Term Loan
that would be due on or after the date of a prepayment of such
Term Loan if no payment of the Term Loan were made prior to its
scheduled due date.
4. "REINVESTMENT YIELD" means the rates shown under the column
heading "Ask YLD" for "Govt. Bonds & Notes" in the "Treasury
Bonds, Notes & Bills" section of the Wall Street Journal, Eastern
Edition, published on the Business Day prior to the date of any
proposed prepayment of a Term Loan for the government bond or
note with a maturity date having the closest matching maturity to
the Weighted Average Life to Maturity, or, if there is more than
one government bond or note with a maturity date having the
closest matching maturity to the Weighted Average Life to
Maturity, the highest of the rates shown in the "Ask YLD" column
for any such bond or note, plus 8%.
4. "WEIGHTED AVERAGE LIFE TO MATURITY" means the number of years
(calculated to the nearest one-twelfth year) obtained by dividing
(i) the sum of the products obtained by multiplying each
remaining scheduled payment of principal under the Term Loan by
the number of years (calculated to the nearest one-twelfth) which
will elapse between the date of a prepayment of the Term Loans
and the scheduled due date of such remaining scheduled principal
payments, by (ii) the outstanding principal balance of the Term
Loans on such prepayment date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISBURSEMENT (SECTION 9.11):
Unless and until Borrower otherwise directs FINOVA in writing, all
loans shall be wired to Borrower's following operating account:
IF TO JAVELIN: City National Bank, 4100 MacArthur Boulevard, Newport
Beach, California 92660. Account No. 0123717727, Routing No.
122016066.
IF TO CCI: ______________________________
IF TO POSNET: ____________________________
S-10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL PROVISIONS:
EXCESS CASH FLOW PREPAYMENTS. Within sixty (60) days following
receipt by FINOVA of Borrower's annual audited financial statements,
commencing with such financial statements for Borrower's fiscal year
ending June 30, 1998, FINOVA may deliver a notice to Borrower
requiring Borrower to prepay the Term Loan in an amount up to thirty
percent (30%) of Borrower's Excess Cash Flow for such year. Any
prepayments required under this section are strictly at the sole
option of FINOVA, and are payable within thirty (30) days following
the date of demand by FINOVA. All amounts paid pursuant to this
section shall be applied to the Term Loan in the inverse order of
maturity of payments. No Termination Fee or other form of prepayment
premium shall be applied to any payments made under this section.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S-11
<PAGE>
BORROWER: FINOVA:
JAVELIN SYSTEMS, INC. FINOVA CAPITAL
FED. TAX ID #52-1945-748 CORPORATION
BY______________________________
BY_______________________________ TITLE____________________________
PRESIDENT OR VICE PRESIDENT
CCI GROUP, INC.
FED. TAX ID #43-1702004
BY______________________________
PRESIDENT OR VICE PRESIDENT
POSNET COMPUTERS, INC.
FED. TAX #33-0527802
BY______________________________
PRESIDENT OR VICE PRESIDENT
S-12
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On ____________, 199___ , before me,
__________________________________________
(Name and Title of Officer)
personally appeared ___________________________________________________________
/ / personally known to me
-OR-
/ / proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged
to me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed
the instrument.
WITNESS my hand and official seal.
-------------------------------------------
Signature Of Notary
OPTIONAL
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER
/ / Individual DESCRIPTION OF ATTACHED DOCUMENT
/ / Corporate Officer
-------------------------------- --------------------------------------------
Title Or Type Of Document
/ / Partner(s) / / Limited
/ / General --------------------------------------------
/ / Attorney-In-Fact Number Of Pages
/ / Trustee(s)
/ / Guardian/Conservator
/ / Other:__________________ --------------------------------------------
Date Of Document
Signer is representing:
Name Of Person(s) Or Entity(ies) --------------------------------------------
Signer(s) Other Than Named Above
--------------------------------
--------------------------------
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On ____________, 199___ , before me,
__________________________________________
(Name and Title of Officer)
personally appeared ___________________________________________________________
/ / personally known to me
-OR-
/ / proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged
to me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed
the instrument.
WITNESS my hand and official seal.
-------------------------------------------
Signature Of Notary
OPTIONAL
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER
/ / Individual DESCRIPTION OF ATTACHED DOCUMENT
/ / Corporate Officer
-------------------------------- --------------------------------------------
Title Or Type Of Document
/ / Partner(s) / / Limited
/ / General --------------------------------------------
/ / Attorney-In-Fact Number Of Pages
/ / Trustee(s)
/ / Guardian/Conservator
/ / Other:__________________ --------------------------------------------
Date Of Document
Signer is representing:
Name Of Person(s) Or Entity(ies) --------------------------------------------
Signer(s) Other Than Named Above
--------------------------------
--------------------------------
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On ____________, 199___ , before me,
__________________________________________
(Name and Title of Officer)
personally appeared ___________________________________________________________
/ / personally known to me
-OR-
/ / proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged
to me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed
the instrument.
WITNESS my hand and official seal.
-------------------------------------------
Signature Of Notary
OPTIONAL
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER
/ / Individual DESCRIPTION OF ATTACHED DOCUMENT
/ / Corporate Officer
-------------------------------- --------------------------------------------
Title Or Type Of Document
/ / Partner(s) / / Limited
/ / General --------------------------------------------
/ / Attorney-In-Fact Number Of Pages
/ / Trustee(s)
/ / Guardian/Conservator
/ / Other:__________________ --------------------------------------------
Date Of Document
Signer is representing:
Name Of Person(s) Or Entity(ies) --------------------------------------------
Signer(s) Other Than Named Above
--------------------------------
--------------------------------
<PAGE>
EXHIBIT A
FORM OF TERM NOTE
SECURED PROMISSORY NOTE
$1,500,000 Phoenix, Arizona
June 8, 1998
FOR VALUE RECEIVED, JAVELIN SYSTEMS, INC., a Delaware corporation
("Borrower"), promises to pay to the order of FINOVA CAPITAL CORPORATION, a
Delaware corporation ("FINOVA"), at its offices at 355 South Grand Avenue, Suite
2400, Los Angeles, California 90071, or at such other place or places as FINOVA
may from time to time designate in writing, the principal sum of One Million
Five Hundred Thousand Dollars ($1,500,000), plus interest in the manner and upon
the terms and conditions set forth below. This Secured Promissory Note ("Note")
is made pursuant to that certain Loan and Security Agreement of even date among
FINOVA, Borrower, CCI Group, Inc. and Posnet Computers, Inc. (the "LOAN
AGREEMENT"), the provisions of which are incorporated herein by this reference.
Capitalized terms herein, unless otherwise noted, shall have the meaning set
forth in the Loan Agreement.
1.0 SCHEDULE OF PAYMENTS; RATE AND PAYMENT OF INTEREST; PREPAYMENT.
1.1 This Note shall be payable as follows:
a. Thirty-five (35) equal successive monthly installments of
principal of Twenty-five Thousand Dollars ($25,000) each on
the first Business Day of each month, beginning July 1,
1998, and continuing through and including June 1, 2001; and
b. A final installment of all remaining principal on June 7,
2001, together with accrued interest on the principal
balance from time to time remaining unpaid, payable
monthly on the first day of each and every month, beginning
July 1, 1998. Without limiting the foregoing, this Note
shall be subject to the mandatory Excess Cash Flow
Prepayments provided for in the Loan Agreement.
1.2 Prepayment may be made under this Note in whole but not in part,
subject to the prepayment provisions set forth in the Loan Agreement, provided
that such prepayment (if of this Note only) is preceded by not less than five
(5) Business Days prior written notice to FINOVA and accompanied by all accrued
but unpaid interest and the full amount of the applicable Termination Fee and,
if applicable, the Make Whole Premium. Notwithstanding anything herein to the
contrary, in the event the Loan Agreement is terminated by Borrower, by FINOVA
or by any other person at any time for any reason, then the entire unpaid
principal balance of this Note, together with all accrued and unpaid interest
hereon and, to the extent applicable, the full amount of the Termination Fee
and, if applicable, the Make Whole Premium, shall become immediately due and
payable in full on the effective date of such termination, without presentment,
notice or demand of any kind.
1.3 Interest shall be computed on the basis of a 360-day year for the
actual number of days elapsed, and shall be at the fixed rate of 13.65%,
computed on the basis of a 360-day year; provided, however, upon the occurrence
and during the continuance of an event of default (as hereinafter defined),
A-1
<PAGE>
interest shall at FINOVA's option accrue on the outstanding principal balance of
this Note at a default rate (the "DEFAULT RATE") of two (2) percentage points
above such rate, and shall be payable on demand.
2.0 EVENTS OF DEFAULTS; REMEDIES.
2.1 Upon the occurrence of any Event of Default, in addition to FINOVA's
right to charge interest on the Obligations at the Default Rate: (a)
at the option of FINOVA, the entire unpaid amount of all of the
Obligations, including without limitation the Termination Fee and, if
applicable, the Make Whole Premium, shall become immediately due and
payable without demand, notice or legal process of any kind; (b)
FINOVA may, at its option, without demand, notice or legal process of
any kind, exercise any and all rights and remedies granted to it by
the Loan Agreement or by any other agreement now or hereafter existing
between FINOVA and Borrower or between FINOVA and any guarantor of
part or all of Borrower's liabilities to FINOVA; and (c) FINOVA may at
its option exercise from time to time any other rights and remedies
available to it under the Uniform Commercial Code or other law of the
State of Arizona.
2.2 The remedies of FINOVA as provided herein and in the Loan Agreement
shall be cumulative and concurrent, and may be pursued singularly,
successively, or together, at the sole discretion of FINOVA. No act of
omission or commission of FINOVA, including specifically any failure
to exercise any right, remedy or recourse, shall be deemed to be a
waiver or release of the same, such waiver or release to be effected
only through a written document executed by FINOVA and then only to
the extent specifically recited therein. A waiver or release with
reference to any one event shall not be construed as continuing, as a
bar to, or as a waiver or release of, any subsequent right, remedy or
recourse as to a subsequent event.
3.0 GENERAL PROVISIONS.
3.1 Borrower warrants and represents to FINOVA that Borrower has used and
will continue to use the loans and advances represented by this Note
solely for proper business purposes, and consistent with all
applicable laws and statutes and with the Loan Agreement.
3.2 This Note is secured by the Collateral described in the Loan
Agreement.
3.3 Borrower waives presentment, demand and protest, notice of protest,
notice of presentment and all other notices and demands in connection
with the enforcement of FINOVA's rights hereunder, except as
specifically provided and called for by this Note, and hereby consents
to, and waives notice of, the release, addition, or substitution, with
or without consideration, of any collateral or of any person liable
for payment of this Note. Any failure of FINOVA to exercise any right
available hereunder or otherwise shall not be construed as a waiver of
the right to exercise the same or as a waiver of any other right at
any other time.
3.4 If this Note is not paid when due or upon the occurrence of an Event
of Default, Borrower further promises to pay all costs of collection,
foreclosure fees, attorneys' fees and expert
A-2
<PAGE>
witness fees incurred by FINOVA, whether or not suit is filed hereon,
and the fees, costs and expenses as provided in the Loan Agreement.
3.5 The contracted for rate of interest of the loan contemplated hereby,
without limitation, shall consist of the following: (i) the interest
rate set forth in Section 1.3 hereof, calculated and applied to the
principal balance of this Note in accordance with the provisions of
this Note; (ii) interest after an Event of Default, calculated and
applied to the amounts due under this Note in accordance with the
provisions hereof; and (iii) all Additional Sums (as herein defined),
if any. Borrower agrees to pay an effective contracted for rate of
interest which is the sum of the above-referenced elements. All
examination fees, attorneys fees, expert witness fees, letter of
credit fees, collateral monitoring fees, closing fees, facility fees,
Termination Fees, other charges, goods, things in action or any other
sums or things of value paid or payable by Borrower (collectively, the
"ADDITIONAL SUMS"), whether pursuant to this Note, the Loan Agreement
or any other documents or instruments in any way pertaining to this
lending transaction, or otherwise with respect to this lending
transaction, that under any applicable law may be deemed to be
interest with respect to this lending transaction, for the purpose of
any applicable law that may limit the maximum amount of interest to be
charged with respect to this lending transaction, shall be payable by
Borrower as, and shall be deemed to be, additional interest and for
such purposes only, the agreed upon and "contracted for rate of
interest" of this lending transaction shall be deemed to be increased
by the rate of interest resulting from the inclusion of the Additional
Sums.
3.6 It is the intent of the parties to comply with the usury law of the
State of Arizona (the "APPLICABLE USURY LAW"). Accordingly, it is
agreed that notwithstanding any provisions to the contrary in this
Note, or in any of the documents securing payment hereof or otherwise
relating hereto, in no event shall this Note or such documents require
the payment or permit the collection of interest in excess of the
maximum Interest Rate, then in any such event (1) the provisions of
the paragraph shall govern and control, (2) neither Borrower nor any
other person or entity now or hereafter liable for the payment hereof
shall be obligated to pay the amount of such interest to the extent
that it is in excess of the Maximum Interest Rate, (3) any such excess
which may have been collected shall be either applied as a credit
against the then unpaid principal amount hereof or refunded to
Borrower, at FINOVA's option, and (4) the effective rate of interest
shall be automatically reduced to the Maximum Interest Rate. It is
further agreed, without limiting the generality of the foregoing, that
to the extent permitted by the Applicable Usury Law; (x) all
calculations of interest which are made for the purpose of determining
whether such rate would exceed the Maximum Interest Rate shall be made
by amortizing, prorating, allocating and spreading during the period
of the full stated term of the loan evidenced hereby, all interest at
any time contracted for, charged or received from Borrower or
otherwise in connection with such loan; and (y) in the event that the
effective rate of interest on the loan should at any time exceed the
Maximum Interest Rate, such excess interest that would otherwise have
been collected had there been no ceiling imposed by the Applicable
Usury Law shall be paid to FINOVA from time to time, if and when the
effective interest rate on the loan otherwise falls below the Maximum
Interest Rate, until the entire amount of interest which would
otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law has been
A-3
<PAGE>
paid in full. Borrower further agrees that should the Maximum
Interest Rate be increased at any time hereafter because of a change
in the Applicable Usury Law, then to the extent not prohibited by the
Applicable Usury Law, such increases shall apply to all indebtedness
evidenced hereby regardless of when incurred; but, again to the extent
not prohibited by the Applicable Usury Law, should the Maximum
Interest Rate be decreased because of a change in the Applicable Usury
Law, such decreases shall not apply to the indebtedness evidenced
hereby regardless of when incurred.
3.7 FINOVA may transfer this Note and FINOVA's rights in any or all
collateral securing this Note in accordance with the terms set forth
in Section 9.7 of the Loan Agreement, and FINOVA thereafter shall be
relieved from all liability with respect to such collateral arising
after the date of such transfer.
3.8 This Note shall be binding upon Borrower and its legal
representatives, successors and assigns. Wherever possible, each
provision of this Note shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of the
Note shall be prohibited by or invalid under such law, such provision
shall be severable, and be ineffective to the extent of such
prohibition or invalidity, without invalidating the remaining
provisions of this Note.
THIS NOTE HAS BEEN DELIVERED FOR ACCEPTANCE BY FINOVA IN PHOENIX,
ARIZONA AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ARIZONA, AS
THE SAME MAY FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE
UNIFORM COMMERCIAL CODE AS ADOPTED IN ARIZONA. BORROWER HEREBY (i) IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN MARICOPA
COUNTY, ARIZONA OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER
ARISING FROM OR RELATED TO THIS NOTE; (ii) WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE
BY MESSENGER, CERTIFIED MAIL OR REGISTERED MAIL DIRECTED TO BORROWER AT THE
ADDRESS SET FORTH BELOW AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME SHALL HAVE BEEN
POSTED TO BORROWER'S ADDRESS; (iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv) AGREES THAT A FINAL JUDGMENT
IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY
OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW; (v) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST FINOVA
OR ANY OF FINOVA'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY,
CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS NOTE IN ANY COURT OTHER
THAN ONE LOCATED IN MARICOPA COUNTY, ARIZONA; AND (vi) IRREVOCABLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION ARISING UNDER OR IN CONNECTION WITH THIS
NOTE. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR IMPAIR FINOVA'S RIGHT TO SERVE
LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW
A-4
<PAGE>
OR FINOVA'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
"Borrower"
JAVELIN SYSTEMS, INC.
a Delaware corporation
By:
---------------------------------------
Name:
Title:
Federal Taxpayer Identification
Number: 52-1945748
Address: 1881 Langley Avenue
Irvine, CA 92614
A-5
<PAGE>
EXHIBIT B
PERMITTED ENCUMBRANCES
"PERMITTED ENCUMBRANCES" means the following:
(1) liens and security interests existing as of this date and
disclosed in EXHIBIT B-1 attached hereto and incorporated herein by this
reference;
(2) liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith
by appropriate proceedings; provided in each case that no lien could arise
in favor of a taxing authority, which lien could impair the enforceability
or priority of FINOVA's security interest in the Collateral;
(3) liens and security interests (a) upon any equipment acquired
or held by Borrower to secure the purchase price of such equipment or
indebtedness incurred solely for the purpose of financing the acquisition
of such equipment and in an amount not greater than the purchase price
thereof or (b) existing on such equipment at the time of its acquisition,
PROVIDED that the lien and security interest is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment, in each case to the extent the acquisition of such equipment in
permitted hereunder;
(4) liens consisting of leases or subleases and licenses and
sublicenses granted to others in the ordinary course of Borrower's business
not interfering in any material respect with the business of Borrower and
any interest or title of a lessor or licensor under any lease or license,
as applicable;
(5) liens securing claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons or entities
imposed without action of such parties, PROVIDED that the payment thereof
is not yet required, and subject to the waivers required in the Agreement;
(6) liens incurred or deposits made in the ordinary course of
Borrower's business in connection with worker's compensation, unemployment
insurance, social security and other like laws;
(7) liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default;
(8) easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or
encumbrances affecting real property not interfering in any material
respect with the ordinary conduct of Borrower's business;
(9) liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in connection with the
importation of goods;
(10) liens that are not prior to FINOVA's security interest
which constitute rights of set-off of a customary nature;
B-1
<PAGE>
(11) any interest or title of a lessor in equipment subject
to any Capital Lease otherwise permitted hereunder; and
(12) any liens arising from the filing of any financing
statements relating to true leases otherwise permitted hereunder.
B-2
<PAGE>
EXHIBIT B-1
1. liens in existence on the date hereof encumbering only the
following motor vehicles owned by Posnet: 1994 Ford, serial
no. IFMCA11U3RZA69027; 1990 Ford, serial no. IFMDA31U5LZB10619; 1990 Mitsubishi,
serial no. JA46J5152LJ012622.
B-1-1
<PAGE>
EXHIBIT C
COMPENSATION
Until such time as FINOVA has reviewed Javelin's proposed new salary structure,
as proposed by Javelin's independent compensation consultant (after the
completion of the report related to the new salary structure) (the "Review
Date"), total annual cash compensation (other than commissions, compensation in
stock of Javelin, options or securities convertible into stock of Javelin)
("Annual Compensation") to each of the following individuals shall not exceed
the following amounts: Richard Stack, $150,000; Norm Campbell, $130,000; and
Horace Hertz, $130,000. After FINOVA's review of such proposal, the Annual
Compensation of such individuals may change as provided in the proposal, so long
as Borrower's Senior Debt Service Coverage Ratio for the period from January 1,
1998 to the Review Date (giving effect on a pro forma basis to such revised
compensation, as if implemented on January 1, 1998) would be at least 1.3:1.0
(the "Minimum Ratio"). In the event that Borrower's Senior Debt Service
Coverage Ratio is below the Minimum Ratio after giving effect on a pro forma
basis to such revised compensation, then such individuals' Annual Compensation
may be increased, in the discretion of Javelin's Compensation Committee, such
that the Senior Debt Service Coverage Ratio for the period from January 1, 1998
to the Review Date (giving effect on a pro forma basis to such revised
compensation, as if implemented on January 1, 1998) is at least 1.3:1.0.
Thereafter, in any fiscal year of Javelin, such Annual Compensation may increase
for such individuals by the following percentages, provided that the average of
Borrower's Senior Debt Service Coverage Ratio for the preceding 12 months was
not less than the corresponding ratio:
<TABLE>
<CAPTION>
Percent Increase Permitted Senior Debt Service Coverage Ratio
-------------------------- ----------------------------------
<S> <C>
15% 1.3:1.0
30% 1.5:1.0
50% 1.7:1.0
unlimited 2.0:1.0
</TABLE>
The foregoing relates to potential increases and in no way contemplates or
requires the reduction of such individuals' compensation regardless of Javelin's
performance.
C-1
<PAGE>
EXHIBIT D
EXISTING INDEBTEDNESS
CCI owes Javelin $600,000
Posnet owes Javelin $200,000
D-1
<PAGE>
SECURED PROMISSORY NOTE
$1,500,000 Phoenix, Arizona
June 8, 1998
FOR VALUE RECEIVED, JAVELIN SYSTEMS, INC., a Delaware corporation
("Borrower"), promises to pay to the order of FINOVA CAPITAL CORPORATION, a
Delaware corporation ("FINOVA"), at its offices at 355 South Grand Avenue, Suite
2400, Los Angeles, California 90071, or at such other place or places as FINOVA
may from time to time designate in writing, the principal sum of One Million
Five Hundred Thousand Dollars ($1,500,000), plus interest in the manner and upon
the terms and conditions set forth below. This Secured Promissory Note ("Note")
is made pursuant to that certain Loan and Security Agreement of even date among
FINOVA, Borrower, CCI Group, Inc. and Posnet Computers, Inc. (the "LOAN
AGREEMENT"), the provisions of which are incorporated herein by this reference.
Capitalized terms herein, unless otherwise noted, shall have the meaning set
forth in the Loan Agreement.
1.0 SCHEDULE OF PAYMENTS; RATE AND PAYMENT OF INTEREST; PREPAYMENT.
1.1 This Note shall be payable as follows:
a. Thirty-five (35) equal successive monthly installments of
principal of Twenty-five Thousand Dollars ($25,000) each on the first Business
Day of each month, beginning July 1, 1998, and continuing through and including
June 1, 2001; and
b. A final installment of all remaining principal on June 7,
2001, together with accrued interest on the principal balance from time to time
remaining unpaid, payable monthly on the first day of each and every month,
beginning July 1, 1998. Without limiting the foregoing, this Note shall be
subject to the mandatory Excess Cash Flow Prepayments provided for in the Loan
Agreement.
1.2 Prepayment may be made under this Note in whole but not in
part, subject to the prepayment provisions set forth in the Loan Agreement,
provided that such prepayment (if of this Note only) is preceded by not less
than five (5) Business Days prior written notice to FINOVA and accompanied by
all accrued but unpaid interest and the full amount of the applicable
Termination Fee and, if applicable, the Make Whole Premium. Notwithstanding
anything herein to the contrary, in the event the Loan Agreement is terminated
by Borrower, by FINOVA or by any other person at any time for any reason, then
the entire unpaid principal balance of this Note, together with all accrued and
unpaid interest hereon and, to the extent applicable, the full amount of the
Termination Fee and, if applicable, the Make Whole Premium, shall become
immediately due and payable in full on the effective date of such termination,
without presentment, notice or demand of any kind.
1.3 Interest shall be computed on the basis of a 360-day year for
the actual number of days elapsed, and shall be at the fixed rate of 13.65%,
computed on the basis of a 360-day year; provided, however, upon the occurrence
and during the continuance of an event of default (as hereinafter defined),
interest shall at FINOVA's option accrue on the outstanding principal balance of
this Note at a default rate (the "DEFAULT RATE") of two (2) percentage points
above such rate, and shall be payable on demand.
<PAGE>
2.0 EVENTS OF DEFAULTS; REMEDIES.
2.1 Upon the occurrence of any Event of Default, in addition to
FINOVA's right to charge interest on the Obligations at the Default Rate: (a)
at the option of FINOVA, the entire unpaid amount of all of the Obligations,
including without limitation the Termination Fee and, if applicable, the Make
Whole Premium, shall become immediately due and payable without demand, notice
or legal process of any kind; (b) FINOVA may, at its option, without demand,
notice or legal process of any kind, exercise any and all rights and remedies
granted to it by the Loan Agreement or by any other agreement now or hereafter
existing between FINOVA and Borrower or between FINOVA and any guarantor of part
or all of Borrower's liabilities to FINOVA; and (c) FINOVA may at its option
exercise from time to time any other rights and remedies available to it under
the Uniform Commercial Code or other law of the State of Arizona.
2.2 The remedies of FINOVA as provided herein and in the Loan
Agreement shall be cumulative and concurrent, and may be pursued singularly,
successively, or together, at the sole discretion of FINOVA. No act of omission
or commission of FINOVA, including specifically any failure to exercise any
right, remedy or recourse, shall be deemed to be a waiver or release of the
same, such waiver or release to be effected only through a written document
executed by FINOVA and then only to the extent specifically recited therein. A
waiver or release with reference to any one event shall not be construed as
continuing, as a bar to, or as a waiver or release of, any subsequent right,
remedy or recourse as to a subsequent event.
3.0 GENERAL PROVISIONS.
3.1 Borrower warrants and represents to FINOVA that Borrower has
used and will continue to use the loans and advances represented by this Note
solely for proper business purposes, and consistent with all applicable laws and
statutes and with the Loan Agreement.
3.2 This Note is secured by the Collateral described in the Loan
Agreement.
3.3 Borrower waives presentment, demand and protest, notice of
protest, notice of presentment and all other notices and demands in connection
with the enforcement of FINOVA's rights hereunder, except as specifically
provided and called for by this Note, and hereby consents to, and waives notice
of, the release, addition, or substitution, with or without consideration, of
any collateral or of any person liable for payment of this Note. Any failure of
FINOVA to exercise any right available hereunder or otherwise shall not be
construed as a waiver of the right to exercise the same or as a waiver of any
other right at any other time.
3.4 If this Note is not paid when due or upon the occurrence of an
Event of Default, Borrower further promises to pay all costs of collection,
foreclosure fees, attorneys' fees and expert witness fees incurred by FINOVA,
whether or not suit is filed hereon, and the fees, costs and expenses as
provided in the Loan Agreement.
3.5 The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the interest
rate set forth in Section 1.3 hereof, calculated and applied to the principal
balance of this Note in accordance with the
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<PAGE>
provisions of this Note; (ii) interest after an Event of Default, calculated and
applied to the amounts due under this Note in accordance with the provisions
hereof; and (iii) all Additional Sums (as herein defined), if any. Borrower
agrees to pay an effective contracted for rate of interest which is the sum of
the above-referenced elements. All examination fees, attorneys fees, expert
witness fees, letter of credit fees, collateral monitoring fees, closing fees,
facility fees, Termination Fees, other charges, goods, things in action or any
other sums or things of value paid or payable by Borrower (collectively, the
"ADDITIONAL SUMS"), whether pursuant to this Note, the Loan Agreement or any
other documents or instruments in any way pertaining to this lending
transaction, or otherwise with respect to this lending transaction, that under
any applicable law may be deemed to be interest with respect to this lending
transaction, for the purpose of any applicable law that may limit the maximum
amount of interest to be charged with respect to this lending transaction, shall
be payable by Borrower as, and shall be deemed to be, additional interest and
for such purposes only, the agreed upon and "contracted for rate of interest" of
this lending transaction shall be deemed to be increased by the rate of interest
resulting from the inclusion of the Additional Sums.
3.6 It is the intent of the parties to comply with the usury law
of the State of Arizona (the "APPLICABLE USURY LAW"). Accordingly, it is agreed
that notwithstanding any provisions to the contrary in this Note, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Note or such documents require the payment or permit the collection
of interest in excess of the maximum Interest Rate, then in any such event (1)
the provisions of the paragraph shall govern and control, (2) neither Borrower
nor any other person or entity now or hereafter liable for the payment hereof
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the Maximum Interest Rate, (3) any such excess which may have been
collected shall be either applied as a credit against the then unpaid principal
amount hereof or refunded to Borrower, at FINOVA's option, and (4) the effective
rate of interest shall be automatically reduced to the Maximum Interest Rate.
It is further agreed, without limiting the generality of the foregoing, that to
the extent permitted by the Applicable Usury Law; (x) all calculations of
interest which are made for the purpose of determining whether such rate would
exceed the Maximum Interest Rate shall be made by amortizing, prorating,
allocating and spreading during the period of the full stated term of the loan
evidenced hereby, all interest at any time contracted for, charged or received
from Borrower or otherwise in connection with such loan; and (y) in the event
that the effective rate of interest on the loan should at any time exceed the
Maximum Interest Rate, such excess interest that would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law shall be
paid to FINOVA from time to time, if and when the effective interest rate on the
loan otherwise falls below the Maximum Interest Rate, until the entire amount of
interest which would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Borrower further
agrees that should the Maximum Interest Rate be increased at any time hereafter
because of a change in the Applicable Usury Law, then to the extent not
prohibited by the Applicable Usury Law, such increases shall apply to all
indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law, should the Maximum Interest
Rate be decreased because of a change in the Applicable Usury Law, such
decreases shall not apply to the indebtedness evidenced hereby regardless of
when incurred.
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<PAGE>
3.7 FINOVA may transfer this Note and FINOVA's rights in any or
all collateral securing this Note in accordance with the terms set forth in
Section 9.7 of the Loan Agreement, and FINOVA thereafter shall be relieved from
all liability with respect to such collateral arising after the date of such
transfer.
3.8 This Note shall be binding upon Borrower and its legal
representatives, successors and assigns. Wherever possible, each provision of
this Note shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Note shall be prohibited by or
invalid under such law, such provision shall be severable, and be ineffective to
the extent of such prohibition or invalidity, without invalidating the remaining
provisions of this Note.
THIS NOTE HAS BEEN DELIVERED FOR ACCEPTANCE BY FINOVA IN PHOENIX,
ARIZONA AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ARIZONA, AS
THE SAME MAY FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE
UNIFORM COMMERCIAL CODE AS ADOPTED IN ARIZONA. BORROWER HEREBY (i) IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN MARICOPA
COUNTY, ARIZONA OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER
ARISING FROM OR RELATED TO THIS NOTE; (ii) WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE
BY MESSENGER, CERTIFIED MAIL OR REGISTERED MAIL DIRECTED TO BORROWER AT THE
ADDRESS SET FORTH BELOW AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME SHALL HAVE BEEN
POSTED TO BORROWER'S ADDRESS; (iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv) AGREES THAT A FINAL JUDGMENT
IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY
OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW; (v) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST FINOVA
OR ANY OF FINOVA'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY,
CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS NOTE IN ANY COURT OTHER
THAN ONE LOCATED IN MARICOPA COUNTY, ARIZONA; AND (vi) IRREVOCABLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION ARISING UNDER OR IN CONNECTION WITH THIS
NOTE. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR IMPAIR FINOVA'S RIGHT TO SERVE
LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW
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<PAGE>
OR FINOVA'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR
BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
"Borrower"
JAVELIN SYSTEMS, INC.
a Delaware corporation
By:
-----------------------------------------
Name:
Title:
Federal Taxpayer Identification
Number: 52-1945748
Address: 1881 Langley Avenue
Irvine, CA 92614
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<PAGE>
SECURED CONTINUING CORPORATE GUARANTY
OF JAVELIN SYSTEMS, INC.
FOR VALUE RECEIVED, and in consideration of any loan or other
financial accommodation heretofore or hereafter at any time made or granted to
either CCI Group, Inc., a Missouri corporation, or Posnet Computers, Inc., a
California corporation (jointly and severally, "Borrower"), by FINOVA CAPITAL
CORPORATION ("Lender"), the undersigned, Javelin Systems, Inc., a Delaware
corporation ("Guarantor"), hereby agrees as follows:
1. GUARANTY OF OBLIGATIONS. Guarantor unconditionally,
absolutely and irrevocably guarantees the full and prompt payment and
performance when due, whether by acceleration or otherwise, and at all times
thereafter, of all obligations of Borrower to Lender, howsoever created, arising
or evidenced, whether direct or indirect, absolute or contingent, or now or
hereafter existing or due or to become due, including, without limitation, under
or in connection with that certain Loan and Security Agreement of even date,
among Borrower, Guarantor and Lender (the "Loan Agreement") and each of the
documents, instruments and agreements executed and delivered in connection
therewith, as each may be modified, amended, supplemented or replaced from time
to time (all such obligations are herein referred to collectively as the
"Liabilities", and all documents evidencing or securing any of the Liabilities
are herein referred to, collectively, as the "Loan Documents"). This Secured
Continuing Corporate Guaranty (this "Continuing Guaranty") is a guaranty of
payment and performance when due and not of collection.
In the event of any default by Borrower in making payment of, or
default by Borrower in performance of, any of the Liabilities, Guarantor agrees
on demand by Lender to pay and perform all of the Liabilities as are then or
thereafter become due and owing or are to be performed under the terms of the
Loan Documents. Guarantor further agrees to pay all expenses (including
reasonable attorneys' fees and expenses) paid or incurred by Lender in
endeavoring to collect the Liabilities, or any part thereof, and in enforcing
this Continuing Guaranty.
2. SECURITY FOR CONTINUING GUARANTY. This Continuing Guaranty is
secured by the collateral pledged by Guarantor pursuant to the Loan Agreement
and the other Loan Documents.
3. CONTINUING NATURE OF GUARANTY AND LIABILITIES. This
Continuing Guaranty shall be continuing and shall not be discharged, impaired or
affected by:
(a) the insolvency of Borrower or the payment in full of
all of the Liabilities at any time or from time to time;
(b) the power or authority or lack thereof of Borrower to
incur the Liabilities;
(c) the validity or invalidity of any of the Loan Documents
or the documents securing the same;
<PAGE>
(d) the existence or non-existence of Borrower as a legal
entity;
(e) any transfer by Borrower of all or any part of any
collateral in which Lender has been granted a lien or security interest
pursuant to the Loan Documents;
(f) any statute of limitations affecting the liability of
Guarantor under this Continuing Guaranty or the Loan Documents or the
ability of Lender to enforce this Continuing Guaranty or any provision of
the Loan Documents; or
(g) any right of offset, counterclaim or defense of
Guarantor, including, without limitation, those which have been waived by
Guarantor pursuant to Paragraph 7 hereof.
4. INSOLVENCY OF BORROWER OR GUARANTOR. Without limiting the
generality of any other provision hereof, Guarantor agrees that, in the event of
the dissolution or insolvency of Borrower or Guarantor or the inability of
Borrower or Guarantor to pay their respective debts as they mature, or an
assignment by Borrower or Guarantor for the benefit of creditors, or the
institution of any proceeding by or against Borrower or Guarantor alleging that
Borrower or Guarantor is insolvent or unable to pay its respective debts as they
mature, Guarantor will pay to Lender forthwith the full amount which would be
payable hereunder by Guarantor if all of the Liabilities were then due and
payable, whether or not such event occurs at a time when any of the Liabilities
are otherwise due and payable.
5. PAYMENT OF THE LIABILITIES. Any amounts received by Lender
from whatever source on account of the Liabilities may be applied by Lender
toward the payment of such of the Liabilities, and in such order of application,
as Lender may from time to time elect, and notwithstanding any payments made by
or for the account of Guarantor pursuant to this Continuing Guaranty.
Guarantor agrees that, if at any time all or any part of any payment
theretofore applied by Lender to any of the Liabilities is or must be rescinded
or returned by Lender for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy or reorganization of Borrower), such Liabilities
shall, for the purposes of this Continuing Guaranty and to the extent that such
payment is or must be rescinded or returned, be deemed to have continued in
existence notwithstanding such application by Lender, and this Continuing
Guaranty shall continue to be effective or be reinstated, as the case may be, as
to such Liabilities, all as though such application by Lender had not been made.
6. PERMITTED ACTIONS OF LENDER. Lender may from time to time, in
its sole discretion and without notice to Guarantor, take any or all of the
following actions:
(a) retain or obtain a security interest in any assets of
Borrower or any third party to secure any of the Liabilities or any
obligations of Guarantor hereunder;
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(b) retain or obtain the primary or secondary obligation of
any obligor or obligors, in addition to Guarantor, with respect to any of
the Liabilities;
(c) extend or renew for one or more periods (whether or not
longer than the original period), alter or exchange any of the Liabilities;
(d) waive, ignore or forbear from taking action or
otherwise exercising any of its default rights or remedies with respect to
any default by Borrower under the Loan Documents;
(e) release, waive or compromise any obligation of
Guarantor hereunder or any obligation of any nature of any other obligor
primarily or secondarily obligated with respect to any of the Liabilities;
(f) release its security interest in, or surrender, release
or permit any substitution or exchange for, all or any part of any
collateral now or hereafter securing any of the Liabilities or any
obligation hereunder, or extend or renew for one or more periods (whether
or not longer than the original period) or release, waive, compromise,
alter or exchange any obligations of any nature of any obligor with respect
to any such property; and
(g) demand payment or performance of any of the Liabilities
from Guarantor at any time or from time to time after they shall have
become due (whether at maturity, by acceleration, or otherwise), whether or
not Lender shall have exercised any of its rights or remedies with respect
to any property securing any of the Liabilities or any obligation hereunder
or proceeded against any other obligor primarily or secondarily liable for
payment or performance of any of the Liabilities.
7. SPECIFIC WAIVERS. Without limiting the generality of any
other provision of this Continuing Guaranty, Guarantor hereby expressly waives:
(a) notice of the acceptance by Lender of this Continuing
Guaranty;
(b) notice of the existence, creation, payment, nonpayment,
performance or nonperformance of all or any of the Liabilities;
(c) presentment, demand, notice of dishonor, protest,
notice of protest and all other notices whatsoever with respect to the
payment or performance of the Liabilities or the amount thereof or any
payment or performance by Guarantor hereunder;
(d) all diligence in collection or protection of or
realization upon the Liabilities or any thereof, any obligation hereunder
or any security for or guaranty of any of the foregoing;
(e) any right to direct or affect the manner or timing of
Lender's enforcement of its rights or remedies;
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<PAGE>
(f) any and all defenses which would otherwise arise upon
the occurrence of any event or contingency described in Paragraph 1 hereof
or upon the taking of any action by Lender permitted hereunder;
(g) any defense, right of set-off, claim or counterclaim
whatsoever and any and all other rights, benefits, protections and other
defenses available to Guarantor now or at any time hereafter, including,
without limitation, under California Civil Code Sections 2787 to 2855,
inclusive, and California Code of Civil Procedure Sections 580a, 580b, 580d
or 726, and all successor sections; and
(h) all other principles or provisions of law, if any, that
conflict with the terms of this Continuing Guaranty, including, without
limitation, the effect of any circumstances that may or might constitute a
legal or equitable discharge of a guarantor or surety.
8. IRREVOCABILITY. Guarantor hereby further waives all rights to
revoke this Continuing Guaranty at any time, and all rights to revoke any
agreement executed by Guarantor at any time to secure the payment and
performance of Guarantor's obligations under this Continuing Guaranty,
including, without limitation, the Loan Documents.
9. STATUTORY WAIVER OF RIGHTS AND DEFENSES REGARDING ELECTION OF
REMEDIES. Guarantor waives all rights and defenses arising out of an election
of remedies by Lender, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed Guarantor's rights of subrogation and reimbursement against
Borrower by the operation of any applicable law, including without limitation
Section 580d of the California Code of Civil Procedure, or otherwise.
10. SUBORDINATION. Except as specifically provided to the
contrary in the Loan Agreement, including the permitted loans and indebtedness
between Borrower and Guarantor as set forth therein (i) Guarantor hereby
subordinates any and all indebtedness of Borrower to Guarantor to the full and
prompt payment and performance of all of the Liabilities and (ii) Guarantor
agrees that Lender shall be entitled to receive payment of all Liabilities prior
to Guarantor's receipt of payment of any amount of any indebtedness of Borrower
to Guarantor. Any payments on such indebtedness to Guarantor if made in
violation of this provision, if Lender so requests, shall be collected, enforced
and received by Guarantor, in trust, as trustee for Lender and shall be paid
over to Lender on account of the Liabilities, but without reducing or affecting
in any manner the liability of Guarantor under the other provisions of this
Guaranty. So long as an Event of Default has occurred and is continuing, Lender
is authorized and empowered, but not obligated, in its discretion, (a) in the
name of Guarantor, to collect and enforce, and to submit claims in respect of,
any indebtedness of Borrower to Guarantor and to apply any amounts received
thereon to the Liabilities, and (b) to require Guarantor (i) to collect and
enforce, and to submit claims in respect of, any indebtedness of Borrower to
Guarantor, and (ii) to pay any amounts received on such indebtedness to Lender
for application to the Liabilities.
11. SUBROGATION. Guarantor will not exercise any rights which it
may acquire by way of subrogation under this Continuing Guaranty, by any payment
hereunder or
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<PAGE>
otherwise, until all of the Liabilities have been paid in full, in cash, and
Lender shall have no further obligations to Borrower under the Loan Documents or
otherwise. If any amount shall be paid to Guarantor on account of such
subrogation rights at any other time, such amount shall be held in trust for the
benefit of Lender and shall be forthwith paid to Lender to be credited and
applied to the Liabilities, whether matured or unmatured, in such manner as
Lender shall determine in its sole discretion.
12. ASSIGNMENT OF LENDER'S RIGHTS. Lender may, from time to time,
to the same extent provided in Section 9.7 of the Loan Agreement, assign or
transfer any or all of the Liabilities or any interest therein and,
notwithstanding any such assignment or transfer of the Liabilities or any
subsequent assignment or transfer thereof, the Liabilities shall be and remain
the Liabilities for the purpose of this Continuing Guaranty. Each and every
immediate and successive assignee or transferee of any of the Liabilities or of
any interest therein shall, to the extent of such party's interest in the
Liabilities, be entitled to the benefits of this Continuing Guaranty to the same
extent as if such assignee or transferee were Lender; provided, however, that
unless Lender shall otherwise consent in writing, Lender shall have an
unimpaired right, prior and superior to that of any such assignee or transferee,
to enforce this Continuing Guaranty for its own benefit as to those of the
Liabilities which Lender has not assigned or transferred.
13. INDULGENCES NOT WAIVERS. No delay in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by Lender of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy; nor shall any
modification or waiver of any of the provisions of this Continuing Guaranty be
binding upon Lender, except as expressly set forth in a writing duly signed and
delivered by Lender. No action of Lender permitted hereunder shall in any way
affect or impair the rights of Lender or the obligations of Guarantor under this
Continuing Guaranty.
14. FINANCIAL CONDITION OF BORROWER. Guarantor represents and
warrants that it is fully aware of the financial condition of Borrower, and
Guarantor delivers this Continuing Guaranty based solely upon its own
independent investigation of Borrower's financial condition and in no part upon
any representation or statement of Lender with respect thereto. Guarantor
further represents and warrants that it is in a position to and hereby does
assume full responsibility for obtaining such additional information concerning
Borrower's financial condition as Guarantor may deem material to its obligations
hereunder, and Guarantor is not relying upon, nor expecting Lender to furnish it
any information in Lender's possession concerning Borrower's financial condition
or concerning any circumstances bearing on the existence or creation, or the
risk of nonpayment or nonperformance of the Liabilities.
Guarantor hereby waives any duty on the part of Lender to disclose to
Guarantor any facts it may now or hereafter know about Borrower, regardless of
whether Lender has reason to believe that any such facts materially increase the
risk beyond that which Guarantor intends to assume or has reason to believe that
such facts are unknown to Guarantor.
Guarantor hereby knowingly accepts the full range of risk encompassed
within a contract of "Continuing Guaranty" which includes, without limitation,
the possibility that Borrower
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<PAGE>
will contract for additional indebtedness for which Guarantor may be liable
hereunder after Borrower's financial condition or ability to pay its lawful
debts when they fall due has deteriorated.
15. REPRESENTATIONS AND WARRANTIES. Guarantor represents and
warrants to Lender that each of the following statements is accurate and
complete as of the date of this Continuing Guaranty:
(a) this Continuing Guaranty has been duly executed and
delivered by Guarantor and constitutes a legal, valid and binding
obligation of Guarantor, enforceable against Guarantor in accordance with
its terms, except as limited by bankruptcy, insolvency or other laws of
general application relating to or affecting the enforcement of creditors'
rights generally, and except as may be limited by the application of
principles of equity;
(b) the execution, delivery and performance of this
Continuing Guaranty do not (i) violate any provisions of law or any order
of any court or other agency of government (each, a "Requirement of Law")
applicable to Guarantor, (ii) contravene any provision of any material
contract or agreement to which Guarantor is a party or by which Guarantor
or Guarantor's assets are expressly bound (each, a "Contractual
Obligation"), or (iii) result in the creation or imposition of any lien,
charge or encumbrance of any nature upon any property, asset or revenue of
Guarantor except pursuant to or as set forth in the Loan Documents;
(c) all consents, approvals, orders and authorizations of,
and registrations, declarations and filings with, any governmental agency
or authority or other person or entity (including, without limitation, the
shareholders or partners of any entity), if any, which are required to be
obtained in connection with the execution and delivery of this Continuing
Guaranty or the performance of Guarantor's obligations hereunder have been
obtained, and each is in full force and effect;
(d) Guarantor has paid all taxes and other charges imposed
by any governmental agency or authority due and payable by Guarantor other
than those which are being challenged in good faith by appropriate
proceedings;
(e) Guarantor is not in violation of any Requirement of Law
or Contractual Obligation other than any violation the consequences of
which could not have a material adverse effect on Guarantor's ability to
perform its obligations hereunder (a "Material Adverse Effect");
(f) no action, proceeding, investigation or litigation is
pending or, to the knowledge of Grantor, overtly threatened against
Guarantor by any person or entity which, if adversely determined, could
have a Material Adverse Effect; and
(g) each of the representations and warranties in the Loan
Agreement is accurate and complete on and as of the date hereof.
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16. GUARANTOR FINANCIAL INFORMATION. Guarantor will provide
Lender in writing such financial and other information with respect to
Guarantor's assets and liabilities as Lender shall reasonably request from time
to time, in form satisfactory to Lender.
17. BINDING UPON SUCCESSORS. This Continuing Guaranty shall be
binding upon Guarantor and Guarantor's successors and assigns and shall inure to
the benefit of Lender and its successors and assigns.
All references herein to Borrower shall be deemed to include its
successors and assigns, and all references herein to Guarantor shall be deemed
to include Guarantor and Guarantor's successors and assigns.
In addition and notwithstanding anything to the contrary contained in
this Continuing Guaranty or in any other document, instrument or agreement
between or among any of Lender, Borrower, Guarantor or any third party, the
obligations of Guarantor with respect to the Liabilities shall be joint and
several with any other person or entity that now or hereafter executes a
guaranty of any of the Liabilities separate from this Continuing Guaranty.
18. NOTICES. All notices required or permitted to be given
hereunder shall be in writing and shall be given and deemed received in
accordance with Section 9.12 of the Loan Agreement.
19. GOVERNING LAW; ADDITIONAL WAIVERS. This Continuing Guaranty
has been delivered and shall be governed by and construed in accordance with the
internal laws (as opposed to the conflicts of law provisions) of the State of
Arizona, provided that Guarantor agrees that each of the waivers and agreements
of Guarantor herein which refer to provisions of the California Civil Code and
the California Code of Civil Procedure shall be effective and enforceable to the
extent permitted under applicable law, and to the extent that any court of
competent jurisdiction shall apply the laws of the State of California to
determine the relative rights or remedies of Lender and Guarantor hereunder,
such waivers and agreements by Guarantor shall be governed by the laws of the
State of California.
GUARANTOR HEREBY
(i) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE
OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS CONTINUING GUARANTY,
AND ACKNOWLEDGES THAT LENDER ALSO WAIVES SUCH RIGHT;
(ii) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED IN MARICOPA COUNTY, ARIZONA, OVER ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS
CONTINUING GUARANTY;
(iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT GUARANTOR MAY
EFFECTIVELY DO SO, THE DEFENSE OF AN
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INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING;
(iv) agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in any other jurisdictions by suit
on the judgment or in any other manner provided by law; and
(v) agrees not to institute any legal action or proceeding against
Lender or any of Lender's directors, officers, employees, agents or
property concerning any matter arising out of or relating to this
Continuing Guaranty in any court other than one located in Maricopa County,
Arizona.
(vi) Nothing herein shall affect or impair Lender's right to serve
legal process in any manner permitted by law or Lender's right to bring any
action or proceeding against Guarantor or its property in the courts of any
other jurisdiction. Wherever possible each provision of this Continuing
Guaranty shall be interpreted as to be effective and valid under applicable
law, but if any provision of this Continuing Guaranty shall be prohibited
by or invalid under such law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Continuing
Guaranty.
20. ADVICE OF COUNSEL. GUARANTOR ACKNOWLEDGES THAT GUARANTOR HAS
EITHER OBTAINED THE ADVICE OF COUNSEL OR HAS HAD THE OPPORTUNITY TO OBTAIN SUCH
ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF THIS CONTINUING GUARANTY.
8
<PAGE>
21. ENTIRE AGREEMENT. This Continuing Guaranty contains the
complete understanding of the parties hereto with respect to the subject matter
herein. Guarantor acknowledges that Guarantor is not relying upon any
statements or representations of Lender not contained in this Continuing
Guaranty and that such statements or representations, if any, are of no force or
effect and are fully superseded by this Continuing Guaranty. This Continuing
Guaranty may only be modified by a writing executed by Guarantor and Lender.
IN WITNESS WHEREOF, Guarantor has executed this Continuing Guaranty
this _____ day of June, 1998.
"Guarantor"
JAVELIN SYSTEMS, INC.
By:
--------------------------------------------
Title:
-----------------------------------------
Fed. Tax ID# 52-1945748
9
<PAGE>
PLEDGE AGREEMENT
This Pledge Agreement is entered into as of the 8th day of June, 1998,
by and between:
PLEDGOR: JAVELIN SYSTEMS, INC., a Delaware corporation
AND
PLEDGEE: FINOVA CAPITAL CORPORATION
1. PLEDGE OF COLLATERAL AND DELIVERY OF PLEDGED COLLATERAL.
1.1 Pledgor hereby pledges and assigns to Pledgee and
grants to Pledgee a security interest in all of the Collateral described in
Section 2 below, whether now owned or hereafter acquired, now or at any time
hereafter in the possession, custody or control of Pledgee or its agents,
whether held for safekeeping, in a safe deposit box, or otherwise ("Collateral")
to secure prompt payment and full performance of the obligations described in
Section 3 below (collectively, "Obligations").
1.2 All certificates or instruments representing or
evidencing the Collateral shall be delivered to and held by or on behalf of
Pledgee pursuant hereto and shall be in suitable form for transfer by delivery,
or shall be accompanied by duly executed instruments of transfer or assignment
in blank, all in form and substance satisfactory to Pledgee. In addition,
Pledgee shall have the right at any time to exchange certificates or instruments
representing or evidencing Collateral for certificates or instruments of smaller
or larger denominations.
2. COLLATERAL. The Collateral consists of the following:
2.1 All the shares of common stock of CCI Group, Inc., a
Missouri corporation ("CCI"), and Posnet Computers, Inc., a California
corporation ("Posnet"), owned beneficially and of record by Pledgor and listed
on Schedule I attached hereto and made a part hereof, and all cash, dividends,
other securities, instruments, rights and other property at any time and from
time to time received or receivable in respect thereof or in exchange for all or
any part thereof, including without limitation, stock dividends, warrants,
rights to subscribe, conversion rights, liquidating dividends and other stock
rights, and in the event Pledgor receives any of the foregoing, subject to
Section 7.1.2, Pledgor acknowledges that the same shall be received IN TRUST for
Pledgee and agrees immediately to deliver the same to Pledgee in original form
of receipt, together with any stock or bond powers, assignments, endorsements or
other documents or instruments as Pledgee may reasonably request to establish,
protect or perfect Pledgee's interest in respect of such Collateral; and
2.2 All other property hereafter delivered to Pledgee (or
any agent or bailee holding on behalf of Pledgee) by Pledgor in substitution for
or in addition to any of the foregoing, all certificates and instruments
representing or evidencing such other property and all cash, dividends, other
securities, instruments, rights and other property at any time and from time
<PAGE>
to time received or receivable in respect thereof or in exchange for all or any
part thereof, including without limitation, stock dividends, warrants, rights to
subscribe, conversion rights, liquidating dividends and other stock rights, and
in the event Pledgor receives any of the foregoing, subject to Section 7.1.2,
Pledgor acknowledges that the same shall be received IN TRUST for Pledgee and
agrees immediately to deliver the same to Pledgee in original form of receipt,
together with any stock or bond powers, assignments, endorsements or other
documents or instruments as Pledgee may request to establish, protect or perfect
Pledgee's interest in respect of such Collateral; and
2.3 All proceeds of all of the foregoing.
3. OBLIGATIONS. The Obligations secured under this Pledge
Agreement are the obligations of Pledgor under (i) the Loan Agreement (defined
below), (ii) its Secured Continuing Corporate Guaranty of even date herewith
made in favor of Pledgee ("Guaranty"); and (iii) this Pledge Agreement, and all
extensions, amendments, modifications and renewals of any of the foregoing.
4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
warrants on the date hereof, and shall be deemed to represent and warrant on the
date of each loan or advance made by Pledgee to Borrower (as defined in the Loan
Agreement), that:
4.1 Except as heretofore disclosed to Pledgee in writing,
Pledgor is the sole legal, beneficial and, if applicable, record owner of the
Collateral (or, in the case of after-acquired Collateral, will be the sole such
owner thereof), having good and marketable title thereto, free of all liens,
security interests, encumbrances or claims of any kind except Permitted
Encumbrances;
4.2 All information heretofore, herein or hereafter given
to Pledgee by or on behalf of Pledgor is complete, true and correct in all
material respects;
4.3 All shares of stock constituting Collateral (a) have
been duly and validly issued in compliance with all applicable state and federal
laws (including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act")), (b) are fully paid, nonassessable and free of preemptive
rights, (c) are not subject to any restrictions upon the voting rights or upon
the transfer thereof other than as may appear on the face of the certificates
evidencing such Collateral, (d) constitute all securities of CCI and Posnet
owned beneficially and of record by Pledgor and/or any of its affiliates and
(e) include 100% of the issued and outstanding shares of each class of voting
stock of CCI and Posnet;
4.4 The fair salable value of Pledgor's assets exceeds
Pledgor's liabilities, and Pledgor meets its debts as they mature;
4.5 Pledgor's balance sheet and income statements, copies
of which have been delivered to Pledgee, fairly represent Pledgor's financial
condition as it existed as of the date thereof, and since such date there has
been no material adverse change in the financial condition of Pledgor;
-2-
<PAGE>
4.6 No Event of Default has occurred and is continuing;
4.7 The execution, delivery and performance by Pledgor of
this Pledge Agreement have been authorized by all necessary corporate action and
do not and shall not constitute a violation of any applicable law or of
Pledgor's Certificate of Incorporation or bylaws or any other document,
agreement or instrument to which Pledgor is a party or by which Pledgor or any
of its assets are bound; and
4.8 This Pledge Agreement is the legal, valid and binding
obligation of Pledgor enforceable against Pledgor in accordance with its terms,
except to the extent enforcement thereof is limited by bankruptcy, insolvency or
other laws of general application relating to or affecting enforcement of
creditors rights generally and except as limited by the application of
principles of equity.
5. COVENANTS OF PLEDGOR. Until the Obligations are paid in full,
Pledgor agrees to:
5.1 Preserve and protect the Collateral;
5.2 Not create, incur, assume or permit to exist any liens,
encumbrances, security interests, levies, assessments or charges on or in any of
the Collateral, except those approved in writing by Pledgee;
5.3 Promptly pay and discharge before the same become
delinquent all taxes, assessments and governmental charges or levies imposed on
Pledgor or any of the Collateral except to extent the same are being contested
in good faith by appropriate proceedings and the amount thereof is being
reserved in accordance with GAAP, provided that in any such case no lien could
arise in favor of a taxing authority, which lien could impair the enforceability
or priority of Pledgee's security interest in the Collateral;
5.4 Not sell, encumber, or otherwise dispose of or transfer
any Collateral, or any right or interest therein and agrees that it will (i)
cause CCI and Posnet not to issue any other voting stock in addition to or in
substitution for the Collateral, except to Pledgor, or in connection with
outstanding stock options or with the prior written consent of Pledgee and
(ii) pledge hereunder, immediately upon Pledgor's acquisition (directly or
indirectly) thereof, any and all additional shares of stock or other securities
of CCI and Posnet;
5.5 Appear in and defend, at Pledgor's own expense, any
action or proceeding which may affect Pledgor's title to or Pledgee's interest
in the Collateral;
5.6 Procure or execute and deliver, from time to time, in
form and substance satisfactory to Pledgee, any stock powers, bond powers,
endorsements, assignments, financing statements, estoppel certificates or other
writings reasonably deemed necessary or appropriate by Pledgee to perfect,
maintain or protect Pledgee's security interest in the Collateral and the
priority thereof, and take such other action and deliver such other documents,
instruments and agreements pertaining to the Collateral as Pledgee may
reasonably request to effectuate the intent of this Pledge Agreement;
-3-
<PAGE>
5.7 If Pledgee gives value for the stated purpose of
enabling Pledgor to acquire rights in or use of any Collateral, use such value
only for such purpose;
5.8 Keep separate, accurate and complete records of the
Collateral and provide Pledgee with access thereto and to Pledgor's financial
records, in each case with the right to make extracts therefrom in accordance
with the Loan Agreement;
5.9 Provide Pledgee with copies of all reports, if any,
filed by Pledgor with the Securities and Exchange Commission within ten (10)
business days after the last date such report is required to be filed;
5.10 Provide Pledgee with such other information pertaining
to the Collateral as Pledgee may reasonably request from time to time; and
5.11 Maintain and preserve its corporate or other legal
existence and all rights, privileges, franchises and other authority necessary
for the conduct of its business.
6. AUTHORIZED ACTION BY PLEDGEE.
6.1 After the occurrence and during the continuation of an
Event of Default (as defined herein), Pledgor hereby irrevocably appoints
Pledgee as its attorney-in-fact to do (but Pledgee shall not be obligated to and
shall not incur any liability to Pledgor or any third party for failure so to
do) any act which Pledgor is obligated by this Pledge Agreement to do, and to
exercise such rights and powers as Pledgor might exercise with respect to the
Collateral, including, without limitation, the right to:
6.1.1 collect by legal proceedings or otherwise and
endorse, receive and receipt for all payments, proceeds and other sums and
property now or hereafter payable on or in respect of proceeds and other sums
and property now or hereafter payable on or in respect of the Collateral,
including dividends and interest payments;
6.1.2 enter into any extension, reorganization,
deposit, merger or consolidation agreement or other agreement pertaining to the
Collateral, and in connection therewith may deposit or surrender control of the
Collateral thereunder, accept other property in exchange therefor, and do and
perform such acts and things as it may deem proper, and any money or property
secured in exchange therefor shall be applied to the Obligations or held by
Pledgee pursuant to the provisions of this Pledge Agreement;
6.1.3 insure (if applicable), protect and preserve
the Collateral;
6.1.4 transfer the Collateral to its own or its
nominee's name; and
6.1.5 make any compromise, settlement or adjustment,
and take any action it deems advisable, with respect to the Collateral.
6.2 Pledgor agrees to reimburse Pledgee upon demand for any
costs and expenses, including reasonable attorneys' fees, Pledgee may incur
while acting as Pledgor's attorney-in-fact hereunder, all of which costs and
expenses are included in the Obligations
-4-
<PAGE>
secured hereby and are payable upon demand. It is further agreed and understood
between the parties hereto that such care as Pledgee gives to the safekeeping of
its own property of like kind shall constitute reasonable care of the Collateral
when in Pledgee's possession; provided, however, that Pledgee shall not be
required to make any presentment, demand or protest, or give any notice and need
not take any action to preserve any rights against any prior party or any other
person in connection with the Obligations or with respect to the Collateral.
6.3 All the foregoing powers authorized herein, being
coupled with an interest, are irrevocable so long as any Obligations are
outstanding.
7. TRANSFER, VOTING, DIVIDENDS, ETC.
7.1 Notwithstanding any other provision hereof, so long as
no Event of Default (as defined herein) shall have occurred and be continuing:
7.1.1 Pledgor shall be entitled to exercise all
voting powers pertaining to all shares of stock and other securities
constituting Collateral for all purposes not inconsistent with the terms of this
Pledge Agreement;
7.1.2 Pledgor shall be entitled to receive and retain
all dividends (other than stock or liquidating dividends) and all interest
payments payable in respect of the Collateral; PROVIDED, HOWEVER, that such
dividends and/or interest payments are made in accordance with the terms of the
Loan Documents (as that term is defined in the Loan and Security Agreement of
even date herewith among Pledgor, Pledgee, CCI and Posnet ("Loan Agreement"));
and PROVIDED FURTHER, HOWEVER, that all stock or property representing stock or
liquidating dividends or a distribution or return of capital upon or in respect
of the shares of stock constituting Collateral or resulting from a split-up,
revision or reclassification of such Collateral or received in exchange
therefor, as a result of a merger, consolidation or otherwise, shall be paid or
transferred directly to Pledgee immediately upon receipt thereof by Pledgor, and
shall be retained by Pledgee as Collateral hereunder (or applied to the
Obligations, consistent with the terms of the Loan Agreement); and
7.1.3 in order to permit Pledgor to exercise such
voting powers and to receive such dividends Pledgee shall, if necessary, upon
the written request of the Pledgor, from time to time, execute and deliver to
Pledgor appropriate proxies.
7.2 If any Event of Default (as defined herein) shall have
occurred and while the same is continuing:
7.2.1 Pledgee, or its nominee or nominees, shall, if
Pledgee so elects, upon prior reasonable notice to Pledgor, have the sole and
exclusive right to exercise all voting powers pertaining to the shares of stock
constituting Collateral, and shall exercise such powers in such manner as
Pledgee may elect, and Pledgor hereby grants Pledgee an irrevocable proxy,
coupled with an interest to vote such shares of stock; PROVIDED, HOWEVER, that
such proxy shall terminate upon termination of Pledgee's security interest
therein; and
-5-
<PAGE>
7.2.2 All dividends and other distributions made upon
or in respect of shares of stock constituting Collateral and all interest
payments shall be paid directly to and shall be retained by Pledgee as
Collateral hereunder (or applied to the Obligations, consistent with the terms
of the Loan Agreement).
8. DEFAULT AND REMEDIES.
8.1 The occurrence of an Event of Default under and as
defined in the Loan Agreement shall constitute an "Event of Default" hereunder.
8.2 Upon the occurrence and during the continuation of any
Event of Default, Pledgee may, at its option, without notice to or demand on
Pledgor, declare all Obligations immediately due and payable, and Pledgee shall
have all the default rights and remedies of a secured party under Chapter 5 of
Division 9 of the Arizona Uniform Commercial Code and other applicable law as
well as the following rights and remedies, all of which may be exercised with or
without further notice to Pledgor, at Pledgee's sole option and as Pledgee in
its sole discretion may deem advisable:
8.2.1 to notify any and all obligors on the
Collateral that the same has been assigned to Pledgee and that all payments
thereon are to be made directly to Pledgee;
8.2.2 to settle, compromise or release, on terms
acceptable to Pledgee, in whole or in part, any amounts owing on the Collateral,
and to extend the time of payment, in Pledgee's name or in the name of Pledgor,
in respect thereof;
8.2.3 to apply to the payment of the Obligations, or
collect the Collateral, notwithstanding any forfeiture of interest or loss of
other rights of Pledgor against any obligor on the Collateral resulting from
such action; and
8.2.4 to sell or otherwise dispose of the Collateral,
or any part thereof, either at public or private sale, on any broker's board or
securities exchange, in lots or in bulk, for cash, on credit or otherwise, with
or without representations or warranties, and upon such terms as shall be
acceptable to Pledgee.
8.3 The net cash proceeds resulting from the collection,
liquidation, sale, or other disposition of the Collateral shall be applied
first, to the expenses (including all attorneys' fees) of holding, storing,
preparing for sale, selling, collecting, liquidating and the like, including any
brokerage commissions and stamp or transfer taxes, and then to the satisfaction
of all Obligations secured hereby, application as to any particular obligation
or indebtedness or against principal or interest to be in Pledgee's absolute
discretion.
8.4 If by reason of any prohibition contained in the
Securities Act of 1933, as now or hereafter in effect, or in applicable Arizona
or other state securities laws, as now or hereafter in effect, or in any rules
or regulations pertaining to any of the foregoing laws, Pledgee believes in its
sole judgment that it is compelled to resort to one or more private sales of
shares of stock constituting Collateral to a single purchaser or a restricted
group of purchasers
-6-
<PAGE>
who will be obliged to agree, among other things, to acquire such securities for
their own account, for investment and not with a view to the distribution or
resale thereof, Pledgor acknowledges and agrees that private sales of such
Collateral may be held notwithstanding that such sales may be at prices and on
other terms less favorable to Pledgor than if such Collateral were sold at
public sale. Pledgor further agrees that Pledgee has no obligation to delay the
sale of any such Collateral for the period of time necessary to permit
registration of the Collateral, even if the issuer thereof would, or should,
agree to register such Collateral for public sale under applicable securities
laws. Pledgor specifically agrees that private sales made under the foregoing
circumstances shall be deemed to have been made in a "commercially reasonable"
manner.
8.5 Pledgor further acknowledges and recognizes that
Pledgee may be unable to effect a public sale of all or a part of the Collateral
and may be compelled to resort to one or more private sales of shares of stock
constituting Collateral to a single purchaser or a restricted group of
purchasers who will be obligated to agree, among other things, to acquire the
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable to Pledgee than those of
public sales, and agrees that such private sales shall be deemed to have been
made in a commercially reasonable manner and that Pledgee has no obligation to
delay the sale of any Collateral to permit the issuer thereof to register it for
public sale under the Securities Act.
9. DUTY OF PLEDGEE. Pledgee shall not be under any duty or
obligation whatsoever to collect any dividends, interest or other payments due
or accruing in respect of the Collateral or to take any action to preserve
rights in connection with any Collateral, including, without limitation, making
or giving any presentment, demands for performance, notices of non-performance,
protests, notices of protest or notices of dishonor in connection with any
Collateral.
10. CUMULATIVE RIGHTS. The rights, powers and remedies of Pledgee
under this Pledge Agreement shall be in addition to all rights, powers and
remedies given to Pledgee under any statute or rule of law or any other
agreement, all of which rights, powers and remedies shall be cumulative and may
be exercised successively or concurrently.
11. WAIVER. Any forbearance, failure or delay by Pledgee in
exercising any right, power or remedy shall not preclude the further exercise
thereof, and every right, power or remedy of Pledgee shall continue in full
force and effect until such right, power or remedy is specifically waived in a
writing executed by Pledgee. Pledgor waives any right to require Pledgee to
proceed against any person or to exhaust any Collateral or to pursue any remedy
in Pledgee's power prior to pursuing Pledgor in respect of the Obligations.
12. BINDING UPON SUCCESSORS. All rights of Pledgee under this
Pledge Agreement shall inure to the benefit of its successors and assigns, and
all obligations of Pledgor shall bind the representatives, executors,
administrators, heirs, successors and assigns of the Pledgor.
13. ENTIRE AGREEMENT; SEVERABILITY. This Pledge Agreement
contains the entire pledge agreement between Pledgee and Pledgor with respect to
the Collateral. If any of
-7-
<PAGE>
the provisions of this Pledge Agreement shall be held invalid or unenforceable,
this Pledge Agreement shall be construed as if not containing those provisions
and the rights and obligations of the parties hereto shall be construed and
enforced accordingly.
14. RETURN; ACQUITTANCE. Pledgee may at any time deliver any
Collateral to Pledgor and the receipt thereof by Pledgor shall be a complete and
full acquittance in respect of the Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
15. REFERENCES. The singular includes the plural. The captions
or titles of the sections of this Pledge Agreement are for convenience of
reference only and shall not define or limit the provisions hereof.
16. CHOICE OF LAW. This Pledge Agreement shall be construed in
accordance with and governed by the laws of the State of Arizona, and, where
applicable and except as otherwise defined herein, terms used herein shall have
the meanings given them in the Arizona Uniform Commercial Code. Pledgor
irrevocably and unconditionally submits to the jurisdiction of the Superior
Court of the State of Arizona for the County of Maricopa or the United States
District Court for the District of Arizona, as Pledgee may deem appropriate, or
if required, the Municipal Court of the State of Arizona for the County of
Maricopa, in connection with any legal action or proceeding arising out of or
relating to this Pledge Agreement, and Pledgor waives any objection relating to
the basis for personal or in rem jurisdiction or to venue which it may now or
hereafter have in any such suit, action or proceeding.
17. JURY TRIAL. PLEDGOR AND PLEDGEE WAIVE THE RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF
OR RELATED TO ANY OF THE OBLIGATIONS HEREIN.
18. NOTICE. Any written notice, consent or other communication
provided for in this Pledge Agreement shall be given and deemed received as
provided in Section 9.12 of the Loan Agreement.
19. EXPENSES. Pledgor will reimburse Pledgee for all reasonable
out-of-pocket expenses incurred by Pledgee arising out of the enforcement of
this Agreement, including without limitation, reasonable attorneys' fees and
costs whether or not suit is filed.
20. INDEMNIFICATION. Pledgor agrees to pay, and on demand to
indemnify and hold harmless, Pledgee, its successors, assigns, agents and
servants, from and against any and all claims, damages, losses, liabilities,
demands, suits, judgments, causes of action and all legal proceedings, whether
civil or criminal, penalties, fines and other sanctions, and any costs and
expenses incurred in connection therewith, including reasonable attorneys' fees,
which may result from, relate to or arise out of this Pledge Agreement or any
Collateral, including the ownership, purchase, delivery, acceptance or
rejection, use, possession or disposition of any item of Collateral, but not
including any claims arising out of the gross negligence or willful misconduct
of Pledgee or its agents and servants.
EXECUTED as of June 8, 1998.
-8-
<PAGE>
PLEDGOR: JAVELIN PLEDGEE: FINOVA CAPITAL
SYSTEMS, INC. CORPORATION
By: By:
---------------------------- -----------------------------
Its: Its:
--------------------------- ----------------------------
-9-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
CLASS OF STOCK NO. OF SHARES
<S> <C> <C>
1. Common Stock of CCI Group, Inc.
registered in the name of ------------------------------
Javelin Systems, Inc.
2. Common Stock of Posnet Computers, Inc.
registered in the name of ------------------------------
Javelin Systems, Inc.
</TABLE>
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of June 8, 1998 (the "Agreement"), between
Javelin Systems, Inc., a Delaware corporation ("Borrower") and FINOVA Capital
Corporation, an Arizona corporation ("Lender").
PRELIMINARY STATEMENTS
A. Lender is entering into a Loan and Security Agreement dated the
date hereof with Borrower and the other parties named therein (such agreement as
it may be amended from time to time, the "Loan Agreement") pursuant to which
Lender has agreed to extend certain Loans to Borrower subject to the terms and
conditions thereof. Capitalized terms used herein and not defined herein shall
have the meanings set forth in the Warrant and, if not defined therein, in the
Loan Agreement.
B. It is a condition to the funding of the Loans by Lender that
Borrower shall issue to Lender a Warrant for the purchase of Common Stock in the
form of Annex A to this Agreement (the "Warrant").
C. Borrower is willing to issue and sell to Lender the Warrant on
the terms set forth herein to induce Lender to fund the Loan.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
1. ISSUANCE OF WARRANT AND CLOSING.
1.1 ISSUANCE OF WARRANT. Pursuant to the terms set forth in this
Agreement, Borrower hereby agrees to issue and sell to Lender the Warrant on the
Closing Date in exchange for the funding of the Loans by Lender in accordance
with the terms and conditions of the Loan Agreement.
1.2 THE CLOSING. The closing (the "Closing") of the purchase and sale of
the Warrant shall take place on the Closing Date. At the Closing, the Borrower
shall deliver to Lender the Warrant. The Closing shall occur at the offices of
Orrick, Herrington & Sutcliffe LLP, 777 South Figueroa Street, Suite 3200, Los
Angeles, California or at such other place as the parties may mutually agree.
2. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby represents and
warrants to Lender that the following statements are true, correct and complete
as of the Closing Date:
2.1 ORGANIZATION. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Borrower
has full corporate power and authority and full legal right to own or to hold
under lease its properties and to carry on the
<PAGE>
business in which it is presently engaged. Borrower is duly qualified and in
good standing as a foreign corporation and is licensed, admitted or approved to
do business as a foreign corporation in each jurisdiction wherein the character
of the properties owned or held under lease by it, or the nature of the business
conducted by it, makes such qualification necessary, except where the failure to
qualify would not have a material adverse effect on Borrower or any of its
subsidiaries, and would not have any adverse effect on the enforceability of
this Agreement.
2.2 AUTHORITY. Borrower has full corporate power and authority to execute
and deliver this Agreement and to issue the Warrant and to perform its
obligations hereunder and thereunder. This Agreement has been duly authorized,
executed and delivered by Borrower and the Warrant has been duly authorized and
issued by Borrower and each is valid, binding and enforceable against Borrower
in accordance with its terms.
2.3 VALID ISSUANCE OF COMMON STOCK. The Common Stock to be issued to
Lender upon exercise of the Warrant, when issued and delivered in accordance
with the terms thereof, will be duly and validly issued and, upon receipt by
Borrower of the funds equal to the Warrant Price, will be fully paid and
nonassessable and issued in compliance with all applicable federal and state
securities laws.
2.4 NO CONFLICTS. None of the execution, delivery or performance of this
Agreement by Borrower, the issuance of the Warrant or the issuance of the Common
Stock upon exercise of the Warrant will conflict with Borrower's Certificate of
Incorporation or By-Laws or result in any material breach of any terms or
provisions of, or constitute a material default under, any material contract,
agreement or instrument to which Borrower is a party or by which Borrower is
bound.
2.5 CAPITALIZATION. At the Closing Date, the authorized Common Stock of
Borrower will consist of 10,000,000 shares of Common Stock, $0.01 par value.
3. INVESTMENT REPRESENTATIONS OF LENDER. Lender hereby represents and
warrants to Borrower that the following statements are true, correct and
complete as of the Closing Date:
3.1 INVESTMENT. Lender is purchasing the Warrant and the shares of
underlying the Warrant (the "Warrant Shares") for investment purposes with no
intention of distributing or reselling the Warrant or any part thereof, or
interest therein, in any transaction which would be in violation of the
securities laws of the United States or any state thereof, without prejudice,
however, to Lender's right at all times to sell or otherwise dispose of all or
any part of the Warrant or Warrant Shares under an effective registration
statement under the Act or under an exemption from such registration
requirements available under the Act, and subject, nevertheless, to the
disposition of Lender's property being at all times within Lender's control.
3.2 NO PUBLIC MARKET. Lender understands that neither the Warrant nor the
Warrant Shares have been registered under the Act by reason of its issuance in a
transaction exempt from the registration and prospectus delivery requirements of
the Act pursuant to Section 4(2) and Regulation D thereof, and that it (or the
person for whose account it is acting) will have to hold
2
<PAGE>
the Warrant and/or Warrant Shares, and bear the economic risk of such
investment, indefinitely unless a subsequent disposition thereof is registered
under the Act or is exempt from registration.
3.3 EXPERIENCE. Without in any way limiting the force or effect of the
representations and warranties of Borrower or any other party contained in this
Agreement or any other Loan Document, the Lender acknowledges that it and its
representatives are experienced in, and capable of, evaluating the financial
condition and prospects of corporations like Borrower.
3.4 ACCREDITED INVESTOR. Lender is an "accredited investor" as such term
is defined in Rule 501(a) promulgated under the Act.
4. LEGEND REQUIREMENTS. The Warrant and each certificate representing the
Warrant Shares shall bear substantially the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT."
5. REPORTING REQUIREMENTS. So long as the Warrant and any warrants issued in
substitution, combination or subdivision thereof remain outstanding, Borrower
shall deliver to Lender and any other holder of the Warrant and any warrants
issued in substitution, combination or subdivision thereof (i) copies of all
financial statements and reports regarding Borrower and/or any of its
subsidiaries which Borrower is required at any time to deliver to holders of its
Common Stock, whether required under the terms of any agreement with respect to
such Common Stock (whether or not such agreement remains in full force and
effect and whether or not such Common Stock remains outstanding) or otherwise
and (ii) promptly, copies of all filings and notices made with the Securities
and Exchange Commission or any other Federal or state Governmental Authority or
regulatory body.
6. MISCELLANEOUS.
6.1 BINDING EFFECT. The provisions of this Agreement shall be binding
upon and accrue to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns.
6.2 AMENDMENT. This Agreement may be amended only by a written instrument
signed by the parties hereto.
6.3 APPLICABLE LAW. The laws of the State of Arizona shall govern the
interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under principles of conflicts of law
except that matters with respect to the general corporate laws of the State of
Delaware shall be governed by, and construed and enforced in accordance with,
the internal laws of the State of Delaware.
3
<PAGE>
6.4 NOTICES. All notices and other communications provided for herein
shall be given in the manner provided in Section 9.12 of the Loan Agreement, to
the party to whom it is directed:
(a) If to Borrower, to it at the following address:
Mr. Richard Stack
President & Chief Executive Officer
Javelin Systems, Inc.
1881 Langley Avenue
Irvine, CA 92614
(b) If to Lender, to it at the address set forth in the Loan
Agreement, or at such other address as either party shall have specified by
notice in writing to the other.
6.5 DESCRIPTIVE HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein.
6.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
6.7 SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein.
6.8 EXPENSES. Regardless of whether the transactions contemplated hereby
are consummated, Borrower shall pay or reimburse Lender for all expenses
reasonably incurred by Lender in connection with the transactions contemplated
hereby and by the Warrant, or any enforcement of any rights granted under this
Agreement or the Warrant, including, without limitation: (x) the cost and
expenses of preparing and duplicating this Agreement and the Warrant; (y)
out-of-pocket expenses, including fees, expenses and disbursements of Lender's
counsel, in connection with the transactions contemplated by this Agreement or
the Warrant, or in connection with any waivers or amendments relating to or any
efforts to enforce the provisions of such agreements, or in connection with or
arising out of any litigation, investigation or proceeding instituted with
respect to such agreements or any transaction contemplated thereby; and (z) all
documentary, stamp, transfer and similar taxes, including interest and penalties
and any recording fees and filing fees at any time payable in respect of the
consummation of the transactions contemplated by this Agreement or the issuance
of the Warrant. Borrower also agrees to save Lender harmless from all claims in
respect of the fees of brokers and finders (other than brokers or finders
retained by the Lender), including, without limitation, fees which might be
owing to any depositaries or transfer and other agents retained in connection
with the transactions contemplated hereby.
4
<PAGE>
6.9 INDEMNITY. In addition to the payment of expenses pursuant to Section
6.8 hereof, whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to indemnify and hold Lender and its partners,
investors, officers, directors, trustees, advisory committee members, employees
and agents (collectively the "indemnitees") free and harmless from and against
any and all actions, causes of action, suits, losses, liabilities and damages,
and reasonable expenses in connection therewith, including, without limitation,
attorneys' fees and disbursements (the "indemnified liabilities"), reasonably
incurred in any capacity by the indemnitees or any of them as a result of, or
arising out of, or relating to the execution, delivery, performance or
enforcement of this Agreement or the Warrant; provided, however, that Borrower
shall have no obligation to an indemnitee hereunder with respect to indemnified
liabilities arising out of or resulting from the gross negligence or willful
misconduct of that indemnitee. To the extent that the undertaking to indemnify
and hold harmless set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, Borrower shall contribute
the maximum portion which it is permitted to pay and satisfy under applicable
law to the payment and satisfaction of all indemnified liabilities incurred by
the indemnitees or any of them.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
JAVELIN SYSTEMS, INC.
By
--------------------------------------
Its
--------------------------------
FINOVA CAPITAL CORPORATION
By
-------------------------------------
Its
--------------------------------
5
<PAGE>
ANNEX A
FORM OF WARRANT
See attached.
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED UPON THE
EXERCISE HEREOF AS HEREIN PROVIDED HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
Warrant No. 0001
WARRANT
JAVELIN SYSTEMS, INC.
Expiring June 8, 2003
This is to certify that, for value received, FINOVA Capital Corporation
("LENDER"), or registered assigns, is entitled during the Exercise Period to
purchase, from time to time, from Javelin Systems, Inc., a Delaware corporation
(together with its successors and assigns, the "COMPANY"), at the Warrant
Office, 100,000 shares of the duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock of the Company as of the Closing Date
(defined below), at the Warrant Price. The number of shares of Common Stock
purchasable hereunder is subject to adjustment from time to time in the manner
provided in Section 4 hereof.
This Warrant was issued on the same date as the closing date (the "CLOSING
DATE") under the Loan and Security Agreement (as amended, extended or replaced
from time to time, the "LOAN AGREEMENT") dated as of June 8, 1998 among the
Company, the Lender and the other parties named therein, pursuant to which
credit is being extended to the Company on the terms and subject to the
conditions set forth therein. This Warrant is separate from the credit extended
under the Loan Agreement and may be assigned by the holder hereof without
restriction, subject to certain rights of the Company set forth in Section 3.
Certain terms used in this Warrant are defined in Section 5.
SECTION 1. EXERCISE OF WARRANTS.
1.1 METHOD OF EXERCISE FOR COMMON STOCK. Subject to the provisions
of Section 3 of this Warrant, to exercise this Warrant for Common Stock in whole
or in part, the holder hereof shall deliver to the Company at the Warrant Office
designated pursuant to Section 2.1 not less than ten (10) days prior to the date
on which all or part of this Warrant shall be exercised: (i) a written notice,
in substantially the form of the Subscription Notice appearing at the end of
this Warrant, of such holder's election to exercise this Warrant, which notice
shall specify the number of shares of Common Stock to be purchased, the nature
of payment, whether by check or Warrants (pursuant to Section 1.3) or by a
combination thereof, and the date as of which such holder is exercising, in
whole or in part, this Warrant (the "WARRANT EXERCISE DATE"), (ii) a certified
or official bank check payable to the order of the Company and/or Warrants
and/or any other form of consideration which the Company may have agreed to
accept in payment of the Warrant Price in the aggregate equal to the aggregate
Warrant Price of the number of shares of Common Stock being purchased and (iii)
this Warrant. The Company shall execute and deliver or cause to be executed and
delivered, in accordance with said notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in said
notice, dated as of the Warrant Exercise Date. The stock certificate or
certificates so delivered shall be in the denomination of whole shares as may be
specified in said notice and shall be issued in the name of such holder or such
other name as shall be designated in said notice. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Warrantholder would
otherwise be entitled, the Company shall make a cash payment to the
Warrantholder equal to the Fair Market Value of the Common Stock multiplied by
such fraction. Such certificate or certificates shall be deemed to have been
issued and such Warrantholder or any other person so designated to be named
therein shall be deemed for all purposes to have become a holder of record of
such shares as of the Warrant Exercise Date as aforesaid, subject to the prior
delivery by the holder hereof of the items described in clauses (i)
<PAGE>
through (iii) above. The Company shall pay all expenses, taxes (other than
transfer taxes) and other charges payable in connection with the preparation,
issuance and delivery of such stock certificates, except that, in case such
stock certificates shall be registered in a name or names other than the name of
the holder of this Warrant, funds sufficient to pay all stock transfer taxes
which shall be payable upon the issuance of such stock certificate or
certificates shall be paid by the holder hereof at the time of delivering the
notice of exercise mentioned above or promptly upon receipt of a written request
of the Company for payment of the same. If this Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of said
certificate or certificates, deliver to such holder a new Warrant evidencing the
rights of such holder to purchase the remaining shares of Common Stock called
for by this Warrant, which new Warrant shall in all other respects be identical
with this Warrant, or, at the request of such holder, appropriate notation may
be made on this Warrant and the same returned to such holder. The Company shall
pay all expenses, taxes (other than transfer taxes) and other charges payable in
connection with the preparation, issuance and delivery of such stock
certificates and new Warrants, except that, in case such stock certificates or
new Warrants shall be registered in a name or names other than the name of the
holder of this Warrant, funds sufficient to pay all stock transfer taxes which
shall be payable upon the issuance of such stock certificate or certificates or
new Warrants shall be paid by the holder hereof at the time of delivering the
notice of exercise mentioned above or promptly upon receipt of a written request
of the Company for payment of the same.
1.2 WARRANT SHARES TO BE FULLY PAID AND NONASSESSABLE. All shares of
Common Stock issued upon the exercise of this Warrant shall be validly issued,
fully paid and nonassessable and, if the Common Stock is then listed on a
securities exchange, shall be duly listed thereon.
1.3 PAYMENT OF WARRANT PRICE WITH WARRANTS. Upon any exercise of
this Warrant as provided in Section 1.1, the holder hereof may, in lieu of
payment of the Warrant Price in cash, surrender any Warrant (valued for such
purpose at the Current Market Price of the underlying Common Stock for which
such Warrant is exercisable on the date of such exercise less the Warrant Price)
and apply all or a portion of the amount so determined to the payment of the
Warrant Price for the number of shares of Common Stock being purchased.
1.4 LEGEND ON WARRANT SHARES. Each certificate for Warrant Shares
initially issued upon exercise of this Warrant, unless at the time of exercise
such Warrant Shares are registered under the Act, shall bear the following
legend (and any additional legend required by any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of (i) a sale pursuant to an effective registration statement or (ii) an exempt
sale pursuant to Rule 144 under the Act of the securities represented thereby)
shall also bear such legend unless, in the written opinion of Orrick, Herrington
& Sutcliffe LLP or such other counsel for the holder thereof as shall be
reasonably acceptable to the Company, delivered to the Company to the effect
that the securities represented thereby need no longer be subject to the
restrictions contained in said Section 3. The Company agrees to pay the fees
and expenses of any such counsel representing the Initial Warrantholder
rendering such opinion but in all other cases such fees and expenses shall be
borne by the Warrantholder. The provisions of said Section 3 shall be binding
upon all subsequent holders of this Warrant.
1.5 ACKNOWLEDGMENT OF CONTINUING OBLIGATION. The Company will, at
the time of any exercise of this Warrant in whole or in part, upon request of
the holder hereof, acknowledge in writing their continuing obligation to such
holder in respect of Sections 3, 5, 6(d) and 6(e) hereof and Sections 5 and 6.9
of the Warrant Agreement to which such holder shall continue to be entitled
after such exercise in accordance with this Warrant; PROVIDED, HOWEVER, that the
failure of such holder to make any such request shall not affect the continuing
obligations of the Company to such holder in respect of such rights.
<PAGE>
SECTION 2. WARRANT OFFICE; TRANSFER, DIVISION OR COMBINATION OF WARRANTS.
2.1 WARRANT OFFICE. The Company shall maintain an office for certain
purposes specified herein (the "WARRANT OFFICE"), which office shall initially
be the Company's office located at 1881 Langley Avenue, Irvine, California
92614, and may subsequently be such other office of the Company or of any
transfer agent of the Common Stock in the continental United States as to which
written notice has previously been given to the Warrantholder.
2.2 OWNERSHIP OF WARRANT. The Company may deem and treat the person
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Section 2.
2.3 TRANSFER OF WARRANTS. The Company agrees to maintain at the
Warrant Office books for the registration and registration of transfer of the
Warrants, and, subject to the provisions of Section 3 hereof, this Warrant and
all rights hereunder (except as provided herein) are transferable, in whole or
in part, on said books at said office, upon surrender of this Warrant at said
office, together with a written assignment of this Warrant duly executed by the
holder hereof or its duly authorized agent or attorney and funds sufficient to
pay any transfer taxes payable upon the making of such transfer. Upon such
surrender and payment the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denominations
specified in such instrument of assignment, and this Warrant shall promptly be
canceled. A Warrant may be exercised by a new holder for the purchase of shares
of Common Stock without having a new Warrant issued.
2.4 DIVISION OF WARRANTS. This Warrant may be divided or combined
with other Warrants upon presentation hereof and of any Warrant or Warrants with
which this Warrant is to be combined at the Warrant Office, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the holder hereof and thereof or their respective duly
authorized agents or attorneys. Subject to compliance with Section 2.3 as to
any transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice.
2.5 EXPENSES OF DELIVERY OF WARRANTS. The Company agrees to pay all
expenses, taxes (other than transfer taxes) and other charges payable in
connection with the preparation, issuance and delivery of any Warrant hereunder.
SECTION 3. RESTRICTIONS ON EXERCISE AND TRANSFER; REGISTRATION RIGHTS.
3.1 RESTRICTIONS ON EXERCISE AND TRANSFER. Notwithstanding any
provisions contained in this Warrant to the contrary, this Warrant and the
related Warrant Shares shall not be transferable except pursuant to (and subject
to compliance by the holder hereof with) the provisions of Section 3.2 hereof
and then only in compliance with the provision contained in the following
sentence or the other conditions specified in this Section 3, intended, among
other things, to insure compliance with the provisions of the Act and applicable
state law in respect of the transfer of this Warrant or such Warrant Shares.
The holder of this Warrant, by its acceptance hereof, agrees that it will not
transfer this Warrant or the related Warrant Shares until registration of such
Warrant or Warrant Shares under the Act has become effective or a sale of such
Warrant Shares has been consummated pursuant to Rule 144 or other exemption
under the Act. Any transfer of this Warrant may only be in whole and not in
part.
3.2 NOTICE OF INTENTION TO TRANSFER; OPINION OF COUNSEL. The holder
of this Warrant, by its acceptance hereof, agrees that prior to or concurrently
with any transfer of this Warrant or of the related Warrant Shares (other than
to an affiliate of such holder or pursuant to a registration under the Act),
such holder will give written notice to the Company of its intention to effect
such transfer and, if requested by the Company, a written opinion of Orrick,
Herrington & Sutcliffe LLP or other counsel for such holder, to the effect that
such transfer may be effected without registration under the Act of this Warrant
and/or such Warrant Shares. Additionally, such notice may indicate that
<PAGE>
the proposed transfer requires that the Company take any action and/or execute
and file with the Commission and/or any state securities authority with
jurisdiction and/or deliver to the holder of this Warrant and/or such Warrant
Shares or any other person any form or document (other than a registration
statement under the Act) in order to establish the entitlement of the holder
hereof to take advantage of such method of disposition without registration
under the Act, and if such notice so indicates, the Company agrees promptly to
take any such action and/or execute and file and/or deliver any such form or
document. The Company agrees to pay the expense associated with any action
taken by the Company pursuant to the preceding sentence except any fees related
to any "Blue Sky" filings requested by the holder, and the Company agrees to pay
the fees and expenses of such counsel referred to above if such counsel
represents the Initial Warrantholder.
3.3 "PIGGYBACK" REGISTRATIONS. If the Company at any time proposes
to register any of its equity securities (as defined in the Act), other than
securities which are convertible into shares of Common Stock, under the Act on
Forms S-1, S-2 or S-3 (but not Form S-4 or S-8) or on any other form upon which
may be registered securities similar to the Warrant Shares, it will at each such
time give written notice at least fifteen (15) days prior to the filing of the
registration statement to the Warrantholder of its intention so to do. Such
notice shall specify the proposed date of the filing of the registration
statement and advise each Warrantholder of its right to participate therein.
Upon the written request of any Warrantholder given not less than seven (7) days
prior to the proposed date of filing set forth in such notice, the Company will
use its best efforts to cause the Warrant Shares which the Company has been
requested to register by such Warrantholder to be registered under the Act, all
to the extent requisite to permit the sale or other disposition by such
Warrantholder of the Warrant Shares so registered. If such registration
statement is being filed in connection with an underwritten offering, the
Warrant Shares held by the Warrantholder may only be included in such
registration if, in the written opinion of the underwriter or underwriters
managing the offering, the total amount of all securities of the Company to be
so registered will not exceed the maximum amount of securities of the Company
which can then be successfully marketed (1) by the managing underwriter in its
sole reasonable discretion, and (2) without otherwise materially and adversely
affecting the entire offering. To the extent that the amount of securities to
be registered must be reduced in order to obtain the opinion referred to in the
preceding sentence, such reduction shall be achieved by first eliminating from
the registration some or all of the securities to be offered by persons
(including, but not limited to, any persons or entities that have any
registration rights with respect to any securities) other than the
Warrantholder, PROVIDED, HOWEVER, that no such reduction shall reduce the
securities being offered directly by the Company through such underwriter or
underwriters. The right of any Warrantholder to have its Warrant Shares
included in any registration statement being filed in connection with any
underwritten offering shall be subject to such Warrantholder participating in
the underwriting to the extent required under the Act or any rule thereunder or
to the extent reasonably required by the underwriters and agreeing to be bound
by the terms imposed by the underwriters that such underwriters deem reasonably
necessary to the success of the offering.
3.4 COMPANY'S OBLIGATIONS IN REGISTRATION. The obligation of the
Company to use its best efforts to register any Warrant Shares pursuant to
Section 3.3 hereof includes the obligation to use its best efforts to
register under the same registration statement the related Warrants if such
registration is necessary to effect the offer and sale of underlying Warrant
Shares to the public; PROVIDED, HOWEVER, that the foregoing proviso shall not
restrict any Warrantholder from selling any Warrant to the underwriter or
underwriters of any offering registered pursuant to Section 3.3 hereof so
long as only Warrant Shares are offered and sold to the public.
3.5 PAYMENT OF REGISTRATION EXPENSES. The Company agrees to pay the
costs and expenses of all registrations under the Act and of all other actions
which the Company is required to take or effect pursuant to this Section 3
(including, without limitation, all registration, qualification and filing fees,
printing expenses, expenses of distributing prospectuses and other documents,
fees and disbursements of counsel for the Company, expenses of any special
audits incident to or required in connection with any such registration) and all
fees and disbursements of special counsel for the Initial Warrantholder.
3.6 INFORMATION FROM THE WARRANTHOLDER. Notices and requests
delivered by the Warrantholder to the Company pursuant to this Section 3 shall
contain such information regarding the Warrant Shares and Warrants and the
intended method of disposition thereof as shall reasonably be required in
connection with the action to be taken,
<PAGE>
and each Warrantholder for whom Warrant Shares or Warrants are at any time being
registered pursuant to Section 3.3 agrees to furnish promptly such additional
information as the Company may reasonably request.
3.7 COMPANY'S INDEMNIFICATION. In the event of any registration
under the Act of any Warrant Shares or Warrants pursuant to this Section 3, the
Company hereby agrees to indemnify and hold harmless each Warrantholder selling
such Warrant Shares and each other person, if any, who controls such
Warrantholder within the meaning of the Act against any losses, claims, damages
or liabilities, joint or several, to which such Warrantholder or controlling
person may become subject under the Act or otherwise, in so far as such losses,
claims, damages or liabilities (or proceedings in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which such Warrant Shares were registered under the Act, in any
preliminary prospectus or final prospectus contained therein, or in any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances made not misleading, and will reimburse such Warrantholder and
each such controlling person for any legal or any other expenses incurred by
such Warrantholder or such controlling person in connection with investigating
or defending any such loss, claim, damage, liability or proceeding; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon (a) an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, said preliminary or final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Warrantholder or such controlling person, as the case may be, specifically for
use in the preparation thereof or (b) an untrue statement or alleged untrue
statement, omission or alleged omission in a prospectus if such untrue statement
or alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the prospectus or in the final prospectus, which
amendment, supplement or final prospectus is delivered to such Warrantholder and
such Warrantholder thereafter fails to deliver such prospectus as so amended or
supplemented prior to or concurrently with the sale of Warrant Shares to the
person asserting such loss, claim, damage, liability or expense.
3.8 CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any action, suit, or
proceeding or investigation is commenced, as to which an indemnitee demands
indemnification pursuant to Section 3.7, such indemnitee shall notify the
Company with reasonable promptness. If any such action, suit, proceeding or
investigation shall be brought against such indemnitee and if such indemnitee
shall notify the Company of the commencement of any such action, suit,
proceeding or investigation, and if the Company is not in material default of
any of its covenants and obligations under this Warrant or the Loan Agreement
and shall have acknowledged its obligations to indemnify such indemnitee
hereunder in respect thereof, then the Company shall be entitled to assume the
defense of such action, suit, proceeding or investigation with counsel of its
choice at its expense. Notwithstanding the election of the Company to assume
the defense of such action, suit, proceeding or investigation, such indemnitee
shall have the right to employ separate counsel and to participate in the
defense of the action, suit, proceeding or investigation, however, the Company
shall bear the reasonable fees, costs and expenses of such separate counsel only
if (i) the use of counsel chosen by the Company to represent such Indemnitee
would in the written opinion of counsel chosen by such Indemnitee present
counsel chosen by the Company with a conflict of interest; (ii) the Company did
not employ counsel to represent such Indemnitee within a reasonable time after
notice of the institution of such action, suit, proceeding or investigation; or
(iii) the Company shall authorize such Indemnitee to employ separate counsel at
the expense of the Company.
3.9 PUBLIC INFORMATION. The Company covenants and agrees that if and
for so long as the Common Stock shall be registered under Section 12 of the
Exchange Act, at any time when any Warrantholder so entitled desires to make
sales of any Warrant Shares or Warrants in reliance on Rule 144 or Rule 144A
under the Act either (i) there will be available adequate current public
information with respect to the Company as required by paragraph (c) of said
Rule 144, or information with respect to the Company satisfying the requirements
of paragraph (d)(iv) of said Rule 144A, as the case may be, or (ii) if such
information is not available the Company will use its best efforts to make such
information available without delay. Without limiting the foregoing, after the
time of any such registration the Company will timely file with the Commission
all reports required to be filed under Sections 13 and
<PAGE>
15(d) of the Exchange Act and will promptly furnish to any Warrantholder so
requesting a written statement that the Company has complied with all such
reporting requirements.
3.4 NO CONFLICTING REGISTRATION RIGHTS. The Company covenants and
agrees that if and so long as any Warrants or any Warrant Shares shall remain
outstanding and the holders thereof shall have any rights under this Section 3,
it will not enter into any agreement with any person creating any rights with
respect to the registration of any shares of Common Stock or any other security
in conflict with or inconsistent with any rights retained by any holder of
Warrants or Warrant Shares pursuant to this Section 3. Subject to the foregoing
limitation, the Company may issue registration rights to other persons.
SECTION 4. ANTI-DILUTION PROVISIONS.
4.1 ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and
kind of securities issuable upon the exercise of this Warrant shall be subject
to adjustment from time to time upon the happening of certain events as follows:
(a) ADJUSTMENT OF DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. In case at any time or from time to time on or after the date hereof
the holders of the Common Stock of the Company (or any shares of stock or other
securities at the time receivable upon the exercise of this Warrant) shall have
received, or, on or after the record date fixed for the determination of
eligible stockholders, shall have become entitled to receive, without payment
therefor, other or additional stock or other securities or property (other than
cash) of the Company by way of dividend, then and in each case, the holder of
this Warrant shall, upon the exercise hereof, be entitled to receive, in
addition to the number of shares of Common Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Company which such holder would hold on the date of such exercise had it
been the holder of record of such Common Stock on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period, giving effect to all adjustments called
for during such period by paragraphs (b) and (c) of this Section 4.
(b) ADJUSTMENT FOR RECLASSIFICATION, REORGANIZATION OR
MERGER. In case of any reclassification or change of the outstanding securities
of the Company or of any reorganization of the Company (or any other corporation
the stock and securities of which are at the time receivable upon the exercise
of this Warrant) or any similar corporate reorganization on or after the date
hereof, then and in each such case the holder of this Warrant, upon the exercise
hereof at any time after the consummation of such reclassification, change,
reorganization, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities and property receivable upon the exercise hereof
prior to such consummation, the stock or other securities or property to which
such holder would have been entitled to upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a) and (c); and in each such case, the
terms of this Section 4 shall be applicable to the shares of stock or other
securities properly receivable upon the exercise of this Warrant after such
consummation.
(c) STOCK SPLITS AND REVERSE STOCK SPLITS. If at any time
on or after the date hereof the Company shall subdivide its outstanding shares
of Common Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of shares receivable upon exercise of the Warrant shall thereby
be proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding number of shares of Common Stock shall be combined
into a smaller number of shares, the Warrant Price in effect immediately prior
to such combination shall thereby be proportionately increased and the number of
shares receivable upon exercise of this Warrant shall thereby be proportionately
decreased.
<PAGE>
4.2 NOTICE OF ADJUSTMENT. Upon the occurrence of any event
requiring an adjustment pursuant to Section 4.1 or effecting a change in the
rights of the holder hereof, then and in each such case the Company shall
promptly prepare a schedule setting forth the adjustment required pursuant to
Section 4.1 and the Warrant Price of such Shares hereunder and the amount
thereof receivable as a result of such change in rights, and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. The Company shall promptly mail a copy of such schedule
to the registered holder of this Warrant.
4.3 OTHER NOTICES. In case at any time while this Warrant is
exercisable:
(a) there shall be any capital reorganization, or
reclassification of the Common Stock of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation or other
entity; or
(b) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then, in any one or
more of such cases, the Company shall give to the holder of this
Warrant (i) at least twenty (20) days and not more than sixty
(60) days prior written notice of the date on which the books of
the Company shall close or a record shall be taken for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, at least thirty (30) days
prior written notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same
shall take place. Any notice in accordance with the foregoing
clause (ii) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, as the case may be. Each
such notice shall also state whether the action in question or
the record date is subject to the effectiveness of a registration
statement under the Act or to a favorable vote of such security
holders.
4.4 PROHIBITION OF CERTAIN ACTIONS. The Company will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 4 and in the taking of all such action as may
reasonably be requested by the holder of any Warrant in order to protect the
rights of the Warrantholder to exercise their Warrants for Shares against
dilution or other impairment, consistent with the tenor and purpose of this
Section 4.
SECTION 5. CERTAIN DEFINITIONS.
For all purposes of this Warrant, unless the context otherwise requires,
the following terms shall have the following respective meanings:
"ACT": the Securities Act of 1933, as amended from time to time, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"AFFILIATE" of an entity: any person controlling, controlled by or under
common control with such entity, including, but not limited to (i) any director
or officer of such entity or any of its subsidiaries and (ii) any person who
owns beneficially or of record 5% or more of the shares of the Common Stock of
such entity or any of its subsidiaries or of which such entity, directly or
indirectly, owns beneficially or of record 5% or more of the shares of Common
Stock.
<PAGE>
"COMMISSION": the Securities and Exchange Commission, or any other federal
agency then administering the Act.
"COMMON STOCK": the Company's authorized Common Stock, par value $[.001]
per share, as such class existed on the Closing Date, including stock of the
Company of any class thereafter authorized which ranks, or is entitled to a
participation, as to assets or dividends substantially on a parity with Common
Stock.
"COMPANY": see the first paragraph of this Warrant.
"CONVERTIBLE SECURITIES": any securities convertible or exchangeable for
shares of Common Stock.
"CURRENT MARKET PRICE" (per share of Common Stock at any date): the
average of the daily market prices over a period of twenty (20) consecutive
business days before such date. The market price for each such business day
shall be the last sale price on such day on the principal securities exchange on
which the Common Stock is then listed or admitted to trading, or, if no sale
takes place on such day on any such exchange, the average of the closing bid and
asked prices on such day as officially quoted on any such exchange, or if the
Common Stock is not then listed or admitted on any stock exchange, the market
price for each such business day shall be the last sale price on such day, or,
if no sale takes place on such day, the average of the closing bid and asked
prices on such day in the over-the-counter market, in either case as reported
through NASDAQ, or, if such prices are not at the time so reported, as furnished
by any member of the National Association of Securities Dealers, Inc. selected
by the Company. If and so long as there shall be no exchange or
over-the-counter market for the Common Stock during the 20-day period prior to
the date on which Current Market Price is to be determined, the Current Market
Price shall be the Fair Market Value; PROVIDED, HOWEVER, that in case the
Company makes an underwritten public offering of shares of Common Stock, for
purposes of the adjustment, if any, pursuant to Section 4, the Current Market
Price with respect to such shares shall be deemed to be the price to the public
shown in the final prospectus used in connection with such public offering.
"EXERCISE PERIOD": the period commencing on 5:00 P.M., local time, June 9,
1998 and ending at 5:00 P.M., local time, June 8, 2003.
"EXCHANGE ACT": the Securities Exchange Act of l934, as amended from time
to time, or any successor federal statute, and the rules and regulations of the
Commission thereunder.
"FAIR MARKET VALUE": (a) as to securities regularly traded in the
organized securities markets, the Current Market Price; and (b) as to all
securities not regularly traded in the securities markets and other property,
the fair market value thereof as shall be determined in good faith by the Board
of Directors of the Company.
"INITIAL WARRANTHOLDER": FINOVA Capital Corporation.
"OUTSTANDING": when used with reference to Common Stock at any date, all
issued shares of Common Stock (including, but without duplication, shares deemed
issued pursuant to Section 4) at such date, except shares then held in the
treasury of the Company.
"PERSON": an individual, corporation, partnership, joint venture, trust
estate, unincorporated organization or government or an agency or political
subdivision thereof.
"SHARES": see definition of "Warrant Shares" below in this Section 5.
"WARRANT EXERCISE DATE": see Section 1.1.
"WARRANT OFFICE": see Section 2.1.
"WARRANT PRICE" (per share of Common Stock at any date): the price at
which one share of Common Stock may be purchased hereunder at any time, which
shall equal for each share of Common Stock the lesser of (i) $9.00
<PAGE>
per share and (ii) the Current Market Price as of the date the delivery of a
Subscription Notice by a Warrantholder pursuant to Section 1.1 hereof.
"WARRANT SHARES OR SHARES": the shares of Common Stock purchasable or
purchased by the Warrantholder upon the exercise of the Warrant. Unless
otherwise expressly stated herein, Warrant Shares shall not include shares of
Common Stock purchased upon exercise of a Warrant which has been sold by a
Warrantholder pursuant to (i) a registration statement under the Act or (ii)
Rule 144 under the Act, and, in either case, have come to rest in the hands of a
holder other than a Warrantholder or an Affiliate of a Warrantholder.
"WARRANTHOLDER": the registered holder of a Warrant or Warrants or any
related Warrant Shares.
"WARRANTS": the warrant originally issued by the Company in connection
with the initial closing under the Loan Agreement evidencing the right initially
to purchase an aggregate of 100,000 shares of Common Stock outstanding at the
date of such purchase and all warrants issued in substitution, combination or
subdivision of any thereof.
SECTION 6. CERTAIN COVENANTS OF THE COMPANY
The Company covenants and agrees that
(a) it will reserve and set apart and have at all times,
free from preemptive rights, a number of shares of authorized but
unissued Common Stock or other securities or property deliverable
upon the exercise of the Warrants sufficient to enable it at any
time to fulfill all its obligations thereunder;
(b) before taking any action which would cause an
adjustment reducing the Warrant Price below the then par value of
the shares of Common Stock issuable upon exercise of the
Warrants, it will take any corporate action which may be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of such Common Stock at such
adjusted Warrant Price;
(c) if any shares of Common Stock required to be reserved
for the purposes of the exercise of this Warrant require
registration with or approval of any governmental authority under
any federal law (other than the Act) or under any state law
before such shares may be issued upon exercise of this Warrant,
the Company will, at its expense, as expeditiously as possible,
cause such shares to be duly registered or approved, as the case
may be;
(d) if and so long as the Common Stock is listed on any
national securities exchange (as defined in the Exchange Act), it
will, at its expense, obtain and maintain the approval for
listing upon official notice of issuance of all shares of Common
Stock issuable upon the exercise of the Warrants at the time
outstanding and maintain the listing of such shares after their
issuance; and the Company will so list on such national
securities exchange, will register under the Exchange Act (or any
similar statute then in effect) and will maintain such listing of
any other securities that at any time are issuable upon exercise
of the Warrants if, and at the time that, any securities of the
same class shall be listed on such national securities exchange
by the Company;
(e) so long as any of the Warrants or Warrant Shares are
outstanding, the Company shall furnish the holder thereof such
other information as shall be requested by the holder thereof
(provided that such holder shall have given the Company
reasonable notice and opportunity to prepare such information),
with respect to any information required to comply with any
regulations of any governmental agency or body having
jurisdiction over such holder or reasonably required by the
independent auditors of such holder; and
<PAGE>
(f) this Warrant shall be binding upon any corporation
succeeding to the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets.
SECTION 7. NOTICE.
Any notice or other document required to be given or delivered to the
Warrantholder shall be delivered at, or sent by certified or registered mail to,
each such holder at the last address shown on the books of the Company
maintained at the Warrant Office for the registration and registration of
transfer of the Warrants or at any more recent address of which any
Warrantholder shall have notified the Company in writing. Any notice or other
document required or permitted to be given or delivered to holders of record of
outstanding Warrant Shares shall be delivered at, or sent by certified or
registered mail to, each such holder at such holder's address as the same
appears on the stock records of the Company. Any notice or other document
required or permitted to be given or delivered to the Company, other than such
notice or documents required to be delivered to the Warrant Office, shall be
delivered at, or sent by certified or registered mail to, the Warrant Office or
such other address within the United States of America as shall have been
furnished by the Company to the Warrantholder and the holders of record of
Warrant Shares. Any notice or other document sent by certified or registered
mail, return receipt requested, shall be deemed to have been delivered and
received five (5) days after deposit in the mail if the receipt is appropriately
completed and returned. Notices or documents delivered in any other manner
shall be deemed to have been delivered only when and if received.
SECTION 8. LIMITATIONS OF LIABILITY; NOT STOCKHOLDERS.
No provision of this Warrant shall be construed as conferring upon the
holder hereof the right to vote, consent, receive dividends or receive notice
other than as herein expressly provided in respect of meetings of stockholders
for the election of directors of the Company or any other matter whatsoever as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the holder hereof to purchase shares of Common Stock, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the purchase price of any Warrant
Shares or as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
SECTION 9. LOSS, DESTRUCTION, ETC. OF WARRANTS.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
mutilation or destruction of any Warrant, or in the case of any such loss, theft
or destruction upon delivery of a bond of indemnity in such form and amount as
shall be reasonably satisfactory to the Company, or in the event of such
mutilation upon surrender and cancellation of the Warrant, the Company will make
and deliver a new Warrant, of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant; provided, however, that neither any Initial
Warrantholder nor any other financial institution having combined net capital,
capital surplus and undivided profits in excess of $50,000,000 which shall
become a Warrantholder shall be required to provide any such bond of indemnity.
Any Warrant issued under the provisions of this Section 9 in lieu of any Warrant
alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant,
shall constitute an original contractual obligation on the part of the Company.
SECTION 10. LAW GOVERNING.
THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF ARIZONA EXCEPT THAT MATTERS WITH RESPECT
TO THE GENERAL CORPORATE LAWS OF THE STATE OF DELAWARE SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
DELAWARE.
<PAGE>
IN WITNESS WHEREOF, each of the Company has caused this Warrant to be
signed on its behalf.
Dated: June 8, 1998
JAVELIN SYSTEMS, INC.
By:
--------------------------------
Title:
Attest:
- ------------------------------
Secretary/Asst Secretary
<PAGE>
SUBSCRIPTION NOTICE
Javelin
__The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented by said Warrant for, and to purchase
thereunder, ________ shares of the Common Stock covered by said Warrant and
herewith (a) makes payment in full therefor of (i) $________ by certified or
official bank check payable to the order of the Company; and/or (ii) $________
in respect of the foregoing Warrant (calculated as provided in Section 1.3 of
the foregoing Warrant) and (b) requests (1) that certificates for such shares
(and any securities or other property issuable upon such exercise) be issued in
the name of and delivered to ________ , whose address is ________ and (2) if
such shares shall not include all of the shares issuable as provided in said
Warrant, that a new Warrant of like tenor and date for the balance of the shares
issuable thereunder be delivered to the undersigned.
__
---------------------------------
Signature Guaranteed:
Dated:
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________ the rights represented by the foregoing Warrant of Javelin
and appoints _______________ attorney to transfer said rights on the books of
said corporation, with full power of substitution in the premises.
---------------------------------
Signature Guaranteed:
Dated:
<PAGE>
CCI GROUP, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into effective
as of the 1st day of January 1998 by and between CCI Group, Inc. (the "Company")
and Robert Nichols (the "Employee").
RECITALS
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company, upon the terms and conditions set forth in this
Agreement.
AGREEMENT
NOW THEREFORE, the parties agree as follows:
ARTICLE 1 EMPLOYMENT, TERMS AND DUTIES
1.1 TERM. The Company agrees to employ the Employee and Employee hereby
accepts such employment, in accordance with the terms of this Agreement,
for a period of five (5) years commencing on January 1, 1998, unless the
Agreement is earlier terminated as provided herein.
1.2 SERVICES AND EXCLUSIVITY OF SERVICES. So long as this Agreement shall
continue in effect, Employee shall devote Employee's full business time,
energy and ability exclusively to the business, affairs and interests of
the Company and matters related thereto; shall use Employee's best efforts
and abilities to promote the Company's interests; and shall perform the
services contemplated by this Agreement in accordance with policies
established by and under the direction of the Board of Directors of the
Company (the "Board"). Without the prior express written authorization of
the Board, Employee shall not, directly or indirectly, during the term of
this Agreement: (a) render services to any other person or firm for
compensation, or (b) engage in any activity competitive with or adverse to
the Company's business, whether alone, as a partner, officer, director,
employee or significant investor of or in any other entity. (An investment
of greater than 5% of the outstanding capital or equity securities of an
entity shall be deemed significant for these purposes).
<PAGE>
1.3 DUTIES AND RESPONSIBILITIES. During the term of this Agreement, Employee
shall serve as Chief Executive Officer of the Company; shall discharge the
obligations and responsibilities normally associated with such office; and
shall use his best efforts to promote the interests of the Company and
refrain from acts which may adversely affect the reputation or business of
the Company.
1.4 RETURN OF PROPRIETARY PROPERTY. The Employee agrees that all property in
the Employee's possession belonging to the Company, including without
limitation, all documents, reports, manuals, memoranda, computer
print-outs, customer lists, credit cards, keys, identification, products,
access cards and all other property relating in any way to the business of
the Company is the exclusive property of the Company, even if the Employee
authored, created or assisted in authoring or creating, such property. The
Employee shall return to the Company all such documents (and copies and
summaries thereof) and property immediately upon termination of employment
or at any time upon the request of the Company.
ARTICLE 2. COMPENSATION AND BENEFITS
2.1 BASE SALARY. During the term of this Agreement, the Company will pay the
Employee a base salary at the rate of One Hundred Thousand Dollars
($100,000) per year (the "Base Salary") commencing on January 1, 1998,
payable in accordance with the Company' s usual payroll practice.
2.2 QUARTERLY BONUS. Employee shall be entitled to a bonus determined in
accordance with the following provisions: For purposes of this Section,
Employee's base bonus shall be $50,000 (the "Base Bonus"). The term
"Quarterly Bonus" shall mean 25% of the Base Bonus, or $12,500. Commencing
with the quarter ending March 31, 1998 and for each of the quarterly
periods thereafter through and including December 31, 1998, the Employee
shall be entitled to receive on the last business day of each quarter a
payment equal to 50% of his Quarterly Bonus (the "Quarterly Base Bonus")
If the Company attains 100% of the profitability levels set forth in the
annual projections attached as Exhibit A hereto for the year ended December
31, 1998 (the "Profit Target"), then Employee shall be entitled to receive,
no later than 90 days after the end of the year, the difference between the
aggregate amount of Quarterly Base Bonuses previously paid to Employee and
the Base Bonus (the "Year-End Bonus"); provided, however, that if the
Company attains less than 100% but more than or equal to 70% of the Profit
Target for such year, then Employee shall only be entitled to receive a
Year-End Bonus equal to the amount that results from subtracting (1)
<PAGE>
the Quarterly Base Bonus amounts previously paid to Employee from (2) the
amount that results from multiplying (a) the percentage of the Profit
Targets actually attained by (b) the Base Bonus; and provided further,
however, that in the event that the Company attains more than 100% of its
Profit Target for such year, then the Employee shall be entitled to receive
a Year-End Bonus equal to the amount that results from subtracting (1) the
Quarterly Base Bonus amounts previously paid to Employee from (2) the
amount that results from multiplying (a) the percentage of the Profit
Targets actually attained (but in no event shall such percentage exceed
120%) by (b) the Base Bonus. The Quarterly Base Bonus and Year-End Bonus
for each year subsequent to December 31, 1998 shall be paid in accordance
with the foregoing provision and shall be determined based upon the Profit
Targets set forth on Exhibit A hereto, or as otherwise agreed to between
the Company and Employee. The determination of whether a Profit Target has
been met for any particular year shall be determined based upon the
Company's final year end financial statements as approved and accepted by
the Board of Directors of the Company and such determination shall be
binding upon the Company and Employee.
2.3 ADDITIONAL BENEFITS. Employee shall also be entitled to all rights and
benefits for which Employee is eligible under the Company's 401(k) plan,
life, medical, dental, disability or insurance plan, in effect from time to
time, and that the Company generally provides to its senior level
executives from time to time.
2.4 PERIODIC REVIEW. The Board shall review Employee's Base Salary and benefits
then being paid to Employee and Employees performance not less frequently
than every twelve (12) months. Following such review, the Company may in
its discretion increase (but shall not be required to increase) the Base
Salary and any other benefits.
2.5 VACATION. The Employee shall be entitled to three (3) weeks paid vacation
each year during the term of this Agreement.
2.6 OVERALL QUALIFICATION. The Company reserves the right to modify, suspend or
discontinue any and all benefits at any time (whether before or after
termination of employment) without notice to or recourse by Employee so
long as such action is taken generally with respect to other similarly
situated persons and does not single out Employee.
2.7 LONG TERM INCENTIVE OPTIONS. Concurrently with the execution hereof,
Javelin Systems, Inc.("Javelin") will grant an option to Employee under the
Javelin's Equity Incentive Plan to purchase 5,000 shares of Javelin's
common stock at a price equal to the market value of the common stock at
the date of grant (the "Option"). The Option shall be exercisable at the
times, in the amounts and upon the terms and conditions set forth in the
Option Agreement attached as Exhibit B hereto.
<PAGE>
ARTICLE 3. TERMINATION
3.1 This Agreement and all obligations hereunder (except the obligations
contained in Article 5, which shall survive any termination hereunder)
shall terminate upon the earliest to occur of any of the following:
(a) EXPIRATION OF TERM; RESIGNATION. The expiration of the term
provided for in Section 1.1 or the voluntary termination or
resignation by Employee or retirement from the Company in
accordance with the normal retirement policies of the Company or
the mutual agreement of the Company and Employee. In the event
of any termination under this Section 3.1(a), Employee will not
be entitled to receive any further payments or benefits from the
Company and the Company shall be released from any and all
obligations under this Agreement.
(b) DEATH OR DISABILITY OF THE EMPLOYEE. The death or any illness,
disability or other incapacity of Employee that results in
Employee being unable to perform Employee's duties with the
Company on a full-time basis for a period of three (3)
consecutive months, or for shorter periods aggregating 90 or more
days in any twelve (12)-month period with or without
accommodation. If Employee shall become ill, disabled or
incapacitated as set forth above, Employee's employment may be
terminated by written notice from the Company to Employee.
(c) FOR CAUSE. The Company may by delivering written notice to
Employee terminate Employee's employment and all of the
Employee's rights to receive Base Salary, Annual Bonus and any
benefits hereunder for cause. Such written notice shall be
effective upon delivery to Employee. For purposes of this
Agreement, the term "cause" shall be defined as any of the
following:
(i) Employee's material breach of any of the duties and
responsibilities under this Agreement ( other than as a
result of illness, incapacity or disability) or
engaging in any activities competitive with or
injurious to the Company, in either case in the good
faith reasonable judgment of the Board of Directors;
(ii) Employee's conviction by, or entry of a plea of guilty
or nolo contendre in, a court of competent and final
jurisdiction for a felony or a misdemeanor involving
moral turpitude (other than minor traffic violations or
similar offenses);
<PAGE>
(iii) Employee's commission of an act of fraud upon the
Company or personal dishonesty, or willful misconduct;
or
(iv) Employee's willful failure or refusal to perform
Employee's duties or responsibilities under this
Agreement or Employee's material violation of any duty
of loyalty to the Company or a breach of Employee's
fiduciary duty involving personal profit.
In the event Employee's employment is terminated at
any time with cause, Employee will not be entitled
to any further payments or benefits from the Company
and the Company shall be immediately released from any
and all obligations under this Agreement.
(d) WITHOUT CAUSE. Notwithstanding any other provision of this
Section 3.1, the Company shall have the right to terminate
Employee's employment with the Company without cause at any time.
If Employee is so terminated without cause, then the Company
shall pay to the Employee, within thirty (30) days after the date
of such termination, a lump sum equal to the Employee's annual
Base Salary in lieu of all rights of Employee hereunder,
including, without limitation, any rights to Annual Bonus and to
benefits hereunder, all of which shall terminate upon the payment
of such lump sum. The Company agrees, however, that
notwithstanding anything to the contrary in the preceding
sentence, the rights of Employee under the Option Agreement
attached as Exhibit B hereto shall remain in effect and such
rights may be exercised by Employee in accordance with the terms
of the Option Agreement.
(e) TERMINATION OF EMPLOYMENT AFTER A CHANGE OF CONTROL. In the
event of a voluntary termination of employment with the Company
by the Employee within ninety (90) days following a Change of
Control (as hereafter defined), Employee shall be entitled to
receive, within thirty (30) days of such termination, a lump sum
equal to Employee's annual Base Salary in lieu of all rights of
Employee hereunder, including, without limitation, any rights to
Annual Bonus and to benefits hereunder, all of which shall
terminate upon the payment of such lump sum. The Company agrees,
however, that notwithstanding anything to the contrary in the
preceding sentence, the rights of Employee under the Option
Agreement attached as Exhibit B hereto shall remain in effect and
<PAGE>
such rights may be exercised by Employee in accordance with the
terms of the Option Agreement. As used in this Section 3.1(e),
"Change of Control" shall mean the acquisition by an Unrelated
Party (as hereafter defined) of sufficient voting stock of the
Company's parent, Javelin Systems, Inc. ("Javelin"), to enable
such Unrelated Party to effect a change in the majority of the
Board of Directors of Javelin; provided that the sale or
acquisition of shares of voting stock in a registered public
offering and the sale or acquisition of shares of voting stock in
connection with normal trading activities shall not constitute a
Change of Control. As used in this Section 3.1(e), "Unrelated
Party" shall mean any individual, corporation, partnership or
other entity, or any group of such entities acting in concert,
other than Richard Stack.
3.2 EXCLUSIVE REMEDY. Employee agrees that the payments expressly provided and
contemplated by Section 3 of this Agreement shall constitute the sole and
exclusive obligation of the Company in respect of employee's employment with
and relationship to the Company and that the payment thereof shall be the sole
and exclusive remedy for any termination of Employee's employment.
ARTICLE 4. BUSINESS EXPENSES
4.1. BUSINESS EXPENSES. During the term of this Agreement, to the extent that
such expenditures satisfy the criteria under the Internal Revenue Code for
deductibility for federal income tax purposes as ordinary and necessary business
expenses, the Company shall reimburse Employee promptly for reasonable business
expenditures, including travel, entertainment and parking, made and
substantiated in accordance with policies, practices and procedures established
from time to time by the Company and incurred in the pursuit and furtherance of
the Company's business and goodwill.
ARTICLE 5. CONFIDENTIAL INFORMATION;
NON COMPETITION AGREEMENT
5.1 CONFIDENTIALITY. Employee agrees to be bound by the provisions of the
Employee Proprietary Information and Inventions Agreement ("Proprietary
Information Agreement") attached hereto as Exhibit A.
5.2. COVENANT NOT TO COMPETE. Employee acknowledges and agrees that the
Company's reputation and goodwill are an integral part of the business
success throughout the areas where the Company conducts its business. In
consideration and recognition of the fact that Employee's position involves
fiduciary responsibility to the Company and access to the Company's
confidential proprietary information, Employee agrees
<PAGE>
that Employee shall not, without the Company's prior written consent,
directly or indirectly own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or be
connected as a director, officer, employee, partner, consultant or
otherwise with, any business or organization anywhere in the United
States, which directly or indirectly, competes with the businesses of
the Company or Javelin, as presently conducted or proposed to be
conducted; provided, however that ownership of an equity interest in any
business or organization constituting less than one percent (1%) of the
outstanding equity interest of such business or organization shall not
constitute a breach of this Section. This Section 5.2 shall survive for
a period of two (2) years from the date of termination of this
Agreement. In the event the covenant in this Section 5.2 shall be
determined by any court of competent jurisdiction to be unenforceable by
reason of its extending for too great a period of time or over too great
a geographical area or by reason of its being too extensive in any other
respect, it shall be interpreted to extend only over the maximum period
of time for which it may be enforceable, and/or over the maximum
geographical area as to which it may be enforceable and/or to the
maximum extent in all other respects as to which it may be enforceable,
all as determined by such court in such action.
5.3 SOLICITATION OF EMPLOYEES. In consideration and recognition of the fact
that Employee's position with the Company is an executive position
involving fiduciary responsibility to the Company and access to the
Company's confidential, proprietary information, Employee agrees that
Employee will not, directly or indirectly, solicit or take away any
employees of the Company for employment by any enterprise that competes
with, or is engaged in a substantially similar business to, the business of
the Company or Javelin as presently conducted or proposed to be conducted.
This Section 5.3 shall survive for a period of two (2) years from the date
of termination of this Agreement.
5.4 REPRESENTATION BY EMPLOYEE. Employee represents and warrants that Employee
is under no restriction or disability by reason of any prior contract or
otherwise which would prevent Employee from entering into and performing
Employee's duties and obligations under this Agreement.
ARTICLE 6. DISPUTE RESOLUTION
6.1 DISPUTES SUBJECT TO ARBITRATION. To ensure rapid and economical resolution
of any disputes which may arise under this Agreement, Employee and the Company
hereby agree than any and all disputes or controversies, whether of law or fact
of any nature whatsoever arising from or regarding the interpretation,
performance, enforcement or breach of this Agreement (including, but not limited
to, all state and federal statutory and discrimination claims), with the sole
exception of those disputes which may arise from your Proprietary Information
and Inventions Agreement, shall be resolved by final and
<PAGE>
binding arbitration conducted by an arbitrator in accordance with the rules
and regulations of the American Arbitration Association; provided, however,
that depositions will be conducted as follows: each party may take no more
than three depositions (pursuant to the Revised Missouri Statutes) with a
maximum of six hours of examination per deposition. All arbitration hearings
will take place exclusively in Saint Louis, Missouri, and will be held no
earlier than ninety (90) days after the arbitrator has been selected. The
arbitrator shall apply Missouri law and shall be able to decree any and all
relief of an equitable nature, including, but not limited to such relief as a
temporary restraining order, a preliminary injunction, a permanent
injunction, or replevin of Employee's property.
6.7 ATTORNEYS FEES, COSTS AND EXPENSES. The prevailing party shall be entitled
to recover reasonable attorney fees, costs and expenses incurred in arbitration
from the non-prevailing party, including the cost of the arbitrator.
ARTICLE 7. MISCELLANEOUS
7.1 MODIFICATIONS. This Agreement supersedes all prior agreements and
understandings between the parties relating to the employment of the Employee by
the Company, and it may not be changed or terminated orally. No modification,
termination, or attempted waiver of any other provisions of this Agreement will
be valid unless in writing signed by both parties hereto.
7.2 ENFORCEABILITY AND SEVERABILITY. If any term of this Agreement is deemed
void, voidable, invalid or unenforceable for any reason by an arbitrator or a
court of competent jurisdiction, such term will be deemed severable from all
other terms of this Agreement, which will continue in full force and effect. In
the event that any term is held by an arbitrator or a court of competent
jurisdiction to over broad as written, the term will be deemed amended to narrow
its application to the extent necessary to make the term enforceable.
7.3 WITHHOLDING. To the extent required by any applicable law, including,
without limitation, any federal or state income tax or excise tax law or laws,
the Federal Insurance Contributions Act, the Federal Unemployment Tax Act or any
comparable federal, state or local laws, the Company retains the right to
withhold such portion of any amount or amounts payable to the Employee under
this Agreement as the Company deems necessary.
7.4 CAPTIONS. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.5 GOVERNING LAW. The validity, interpretation, construction, performance,
enforcement and remedies of or relating to this Agreement, and the rights and
obligations of the parties hereunder, shall be governed by the substantive laws
of the State of Missouri, and any
<PAGE>
and every legal proceeding (other than arbitration proceedings conducted in
accordance with Article 6 hereof) arising out of or in connection with this
Agreement shall be brought in the appropriate courts of the State of
Missouri, each of the parties hereby consenting to the exclusive jurisdiction
of said courts for this purpose.
7.6 SUCCESSION. This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns and any such successor or
assignee shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" and "assignee" shall
include any person, firm, corporation or other business entity which at any
time, whether by purchase, merger or otherwise, directly or indirectly
acquires the stock of the Company or to which the Company assigns this
Agreement by operation of law or otherwise. The obligations and duties of
Employee hereunder are personal and otherwise not assignable. Employee's
obligations and representations under this Agreement will survive the
termination of Employee's employment, regardless of the manner of such
termination.
7.7 WAIVERS. No failure on the part of either party to exercise, and no delay
in exercising, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy
hereunder preclude any other further exercise thereof or the exercise of any
right or remedy granted hereby or by law.
7.8 INJUNCTIVE RELIEF. The Employee acknowledges and agrees that any breach
or threatened breach of this Agreement or the Proprietary Information
Agreement might cause irreparable harm to the Company and that in such case,
the Company would have no adequate remedy at law. In the event of a breach
or threatened breach by the Employee of this Agreement or the Proprietary
Information Agreement, the Company may, in addition to any other rights and
remedies it may have pursuant to this Agreement, immediately seek any
judicial action that the Company may deem necessary or appropriate, including
without limitation, the obtaining of injunctive relief against the Employee
without the necessity of posting a bond or other security and without
prejudice to any other remedies which may be available to the Company at law
or in equity.
7.9 ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior or contemporaneous agreements or understandings, oral or
written, between the parties hereto with respect to the subject matter hereof.
7.10 REPRESENTATION BY COUNSEL; INTERPRETATION. The Company and Employee each
acknowledges that each party to this Agreement has been represented by
counsel in connection with this Agreement and the matters contemplated by
this Agreement. Accordingly, any rule of law or any legal decision that
would require interpretation of any claimed ambiguities in this Agreement
against the party that drafted it has no application and is expressly waived.
The provisions of this Agreement shall be interpreted in a reasonable manner
to effect the intent of the parties.
<PAGE>
7.11 NOTICES. All notices, requests, demands or other communications under
this Agreement shall be in writing and shall be validly given or made to
another party if given by personal delivery, telex, facsimile, telegram, or
if deposited in the United States mail, certified or registered, postage
prepaid, return receipt requested. If such notice, demand or other
communication is given by personal delivery, telex, facsimile or telegram,
service shall be conclusively deemed made at the time of receipt. If such
notice, demand or other communication is given by mail, such notice shall be
conclusively deemed given forty-eight (48) hours after the deposit thereof in
the United States mail addressed to the party to whom such notice, demand or
other communication is to be given as hereinafter set forth:
If to Company: 13739 Rider Trail North
Earth City, Missouri 63045
Attention: Robert Nichols
If to Employee: Robert Nichols
Include appropriate address
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES
"EMPLOYEE" "COMPANY"
- ---------------------- CCI GROUP, Inc.
Robert Nichols
Individually
By:
------------------------
Its:
-------------------------
<PAGE>
EXHIBIT 10.21
JAVELIN SYSTEMS, INC.
1881 Langley Avenue
Irvine, CA 92614
July 20, 1998
Mr. Gary Green
RGB Trinet Limited
Archway House, Bath Road
Padworth, Reading
Berkshire RG7 5HR
Mr. Bertram R. Badminton
Jade Communications Limited
Communications House
Whitbrook Way
Middleton
Manchester M24 2SS
Re: LETTER OF INTENT FOR PROPOSED ACQUISITION OF ENTIRE ISSUED SHARE CAPITAL
OF RGB TRINET LIMITED AND OF JADE COMMUNICATIONS LIMITED.
Dear Mr. Green and Mr. Badminton:
This letter will confirm the intention of Javelin Systems, Inc., a Delaware
corporation ("Javelin"), to proceed with the proposed acquisition by Javelin
of 100% of the outstanding equity interests (collectively, the "Shares") of
RGB Trinet Limited ("RGB") and of Jade Communications Limited ("Jade"), upon
the terms and subject to the conditions generally outlined below and subject
to the execution of a definitive share purchase agreement (the "Definitive
Agreement"). With the exceptions of paragraphs 10 through 16, this letter is
not intended to be legally binding on any party but instead is designed to
constitute the basis for preparing the Definitive Agreement. The parties'
legal obligations will be established by the Definitive Agreement, when
executed. Our understanding is as follows:
1. FORM. Javelin will acquire the Shares free and clear of all liens
and encumbrances.
2. CONSIDERATIONS.
(a) INITIAL PAYMENT. Javelin shall purchase the Shares from the
respective shareholders of RGB on the Closing Date (as defined below) for the
aggregate consideration of US$2,472,435 payable as follows: US$852,110 in
cash and US$1,620,325 in shares of Javelin Common Stock valued at the average
of the daily reported closing prices per share of Javelin Common Stock as
reported on the Nasdaq SmallCap Market during the ten (10) trading days
immediately preceding the date on which the transactions contemplated in the
Definitive Agreement are to be consummated (the "Closing Date"). However, if
in November 1999 the price per
<PAGE>
Mr. Gary Green
July 20, 1998
Page 2
share of Javelin Common Stock remains below US$9.00 per share for five
consecutive trading days, then the number of shares given to the shareholders
of RGB as additional consideration for this purchase shall be as follows. The
number of shares owned by the shareholders of RGB as of November 1, 1999
shall be multiplied by the ratio of $9.00 divided by the average price per
share of Javelin Common Stock for all trading days during November 1999, less
the number of shares owned by the shareholders of RGB as of November 1, 1999.
For example, if as of November 1, 1999, the shareholders of RGB own 135,000
shares of Javelin Common Stock and the average price per share of Javelin
Common Stock for November 1999 is $8.00, then the shareholders of RGB shall
receive an additional 16,875 shares of Javelin Common Stock computed as
follows: (135,000 multiplied by 9 divided by 8) less 135,000.
Any and all currently issued and outstanding options, warrants or other
rights to purchase or acquire any securities of RGB (either from RGB directly
or from a current shareholder of RGB) shall be exercised or terminated prior
to the Closing Date.
Javelin shall purchase the Shares from the respective shareholders of Jade on
the Closing Date (as defined below) for the aggregate consideration of 25,000
shares of Javelin Common Stock plus US$855,400 payable as follows: US$658,000
in cash and US$197,400 in shares of Javelin Common Stock valued at the
average of the daily reported closing prices per share of Javelin Common
Stock as reported on the Nasdaq SmallCap Market during the five (5) trading
days immediately preceding and five (5) immediately after the date on which
the transactions contemplated in the Definitive Agreement are to be
consummated (the "Closing Date").
Any and all currently issued and outstanding options, warrants or other
rights to purchase or acquire any securities of Jade (either from Jade
directly or from a current shareholder of Jade) shall be exercised or
terminated prior to the Closing Date.
(b) QUARTERLY EARNOUT SHARES. In addition to the considerations
described in paragraph 2(a), Javelin shall issue to each shareholder of
RGB/Jade (see paragraph 2(c)), such shareholder's pro-rata percentage (as set
forth in an exhibit to be provided to Javelin at the Closing Date) of the
number of shares of Javelin Common Stock (the "Earnout Shares") equal to
$6,580,000 in value (as defined below) upon the verification by Javelin that
RGB/Jade has met 100% of its Quarterly profit projections agreed upon by
Javelin and RGB/Jade and included in an exhibit to the Definitive Agreement.
The Earnout Shares will be issued quarterly in installments of $822,500 in
value following the verification that the quarterly profit projections have
been met in the following basis.
1) If quarterly verified achievement is below 50% of the agreed Quarterly
profit projections, no Earnout Shares will be issued;
2) If quarterly verified agreement is between 50% and 125% of the agreed
Quarterly profit projections, Earnout Shares will be issued pro-rata to the
agreed Quarterly profit
<PAGE>
Mr. Gary Green
July 20, 1998
Page 3
projections.
To recognize that performance between quarters may be subject to fluctuations
but that cumulative performance compared to the agreed Quarterly profit
projections is the prime objective, the following will apply.
1) Profit in excess of 125% of a quarter's agreed upon projection can be
carried back to previous quarters where achievement was below 125%. If
cumulative performance is over 125%, the excess profit can be carried forward
to subsequent quarters.
2) Profit earned in any quarter where the achievement is below 50% of the
agreed Quarterly profit projection will be included in the calculation of
cumulative performance set out above.
The number of Earnout Shares to be issued will be determined based upon the
average of the daily reported closing prices per share of Javelin Common
Stock as reported on the Nasdaq Smallcap Market during the five (5) trading
days immediately preceding and five (5) days immediately after the end of the
quarter.
Verification and issue of the Earnout Shares must be completed within 45 days
from the end of each quarter.
(c) CONSOLIDATION OF RGB/JADE. Immediately after the Closing Date,
RGB and Jade shall be formed into a single unit to become a wholly-owned
subsidiary of Javelin on terms and in form and substance acceptable to
Javelin and the shareholders of RGB and Jade. The two companies in this
structure are referred to as RGB/Jade within this agreement.
(d) CHANGE OF CONTROL. In the event there is a "change of
control" (as defined below) of Javelin before the completion of the earnout
period, immediately prior to the change of control and in full satisfaction
of Javelin's obligations under Section 2(b), Javelin shall issue to the
Shareholders that number of shares of Javelin Common Stock equal to $822,500
in Value (as defined in subsection 2(b)) times the number of calendar
quarters for which earnout shares are still due. For the purpose of this
Section 2(c), a "change in control" of Javelin shall be any merger,
consolidation, business combination or similar transaction where Javelin is
not the surviving corporation.
3. DEFINITIVE AGREEMENT. Consummation of the transactions contemplated
herein is subject to, among other things, negotiation, execution and delivery
of the Definitive Agreement and related documentation, which shall be subject
to approval by the Board of Directors of Javelin and the shareholders of
RGB/Jade and, if required, the stockholders of Javelin, containing customary
terms and conditions, including the following:
(a) Usual and customary representation and warranties;
<PAGE>
Mr. Gary Green
July 20, 1998
Page 4
(b) Usual and customary conditions that must be satisfied before
parties are obligated to close, including, without limitation, (i) the receipt
of favorable opinions on such legal, tax and accounting matters in connection
with the transactions contemplated by the Definitive Agreements as are usual
and customary in similar transactions and (ii) the execution of the Definitive
Agreement by all of the shareholders of RGB and of Jade as of the Closing Date
and the purchase by Javelin of 100% of the equity interests of RGB and of Jade;
(c) Appropriate covenants for non-competition;
(d) Terms and provisions called for herein; and
4. INDEMNITY AND ESCROW. The shareholders of RGB and of Jade shall
indemnify Javelin against loss from breaches of representations and warranties
of the Company and the shareholders of RGB and of Jade in the Definitive
Agreement.
5. EMPLOYMENT AGREEMENTS. As a condition to Javelin's obligation to
consummate the purchase of the Shares, certain key employees, including but not
limited to Gary Green, Roger Scarlett, Peter Mayo, Tony Sampson and Bertram
Badminton, of RGB/Jade shall enter into employment or consultancy agreements
with the Company as may be designated by Javelin at mutually agreeable salaries
and containing customary terms, including confidentiality and protection of
trade secrets and providing for options to purchase shares of Javelin common
stock, all of which shall be acceptable to Javelin.
6. NO BROKERS OR FINDERS. No party hereto has employed a broker or
finder in connection with the transactions and no broker's or finder's fee is or
will be payable by any party with respect thereto.
7. SCHEDULE. It is the intention of the parties to negotiate and execute
the Definitive Agreement setting forth in detail the terms and conditions
generally confirmed in this letter of intent as soon as possible and to
consummate the transactions no later than September 30, 1998.
8. OPERATION OF BUSINESS; DUE DILIGENCE. From and after the date of
this letter of intent, each of RGB and Jade shall (a) conduct business only
in the ordinary and usual course and consistent with past practice, (b) use
its best efforts to preserve intact its customers, suppliers, vendors,
manufacturers, employees and others having business relations with it, (c)
not purchase, sell, lease or dispose of any property or assets or incur any
liability, or make any commitment or enter into any other transactions,
except in the usual and ordinary course of business, (d) not declare or pay
any dividend on, or make any distribution to the holders of any shares of its
capital stock, (e) not increase the amount of any compensation payable to any
of its employees unless subject to prior arrangements, except RGB will be
entitled to pay additional aggregate directors' emoluments of 300,000 pounds
to Mr. Gary Green and/or Mr. Roger Scarlett, (f) not issue any shares of its
capital stock or any options or other rights to acquire shares of its capital
stock. The additional directors'
<PAGE>
Mr. Gary Green
July 20, 1998
Page 5
emolument, if any, will be borrowed by RGB and repaid to Mr. Green and/or
Mr. Scarlett no later than three months after the Closing Date if RGB/Jade
has sufficient cash to maintain normal operations. Between the date hereof
and the Closing Date, each of RGB and Jade will consult with Javelin
regarding any material developments affecting the business of the Company.
Each of the companies and its respective officers and employees shall assist
the representatives of Javelin in their investigation of the business and
affairs of the Company, providing such representatives full access to the
properties, books, records and personnel and business of the Company and
furnishing all information related to those matters as may be requested. It
is understood that if the purchase of the shares is not consummated for any
reason, Javelin shall keep confidential any confidential information (unless
ascertainable from public or published information or trade sources or
obtained from third parties) obtained from each of the companies concerning
the operations and business of the companies.
9. COOPERATION. Each of the shareholders and RGB and Jade shall cooperate
in all respects with Javelin to expedite the transactions contemplated herein,
including obtaining all necessary or appropriate regulatory or governmental
approvals.
10. "NO-SHOP" AGREEMENT. From the date of execution hereof by Javelin,
until the execution of the Definitive Agreement but no later than September
30, 1998, RGB, Jade and their shareholders will not, and each will cause the
officers, directors, agents, employees or representatives (including without
limitation, investment bankers, attorneys and accountants) of each company
not to, directly of indirectly solicit or initiate any discussions or
negotiations with, or encourage or respond to any inquiries or proposals by,
or participate in any negotiations with or provide any information to or
otherwise cooperate in any other way with, any corporation, partnership,
person or other entity or group, other than Javelin and its representatives,
employees and agents, concerning the sale of all or a substantial portion of
the assets of each of the companies, or of any shares of capital stock of
each of the companies, or any merger, consolidation, liquidation, dissolution
or similar transaction involving the each of the companies (collectively,
"Acquisition Transactions"). Any such actions with respect to an Acquisition
Transaction pending on the date hereof shall be immediately terminated and
the shareholders and each of the companies shall immediately notify Javelin
if any discussions or negotiations are sought to be initiated, an inquiry or
proposal is made, or any information is requested with respect to, any
Acquisition Transaction and communicate to Javelin the terms of any proposal
which he or they may receive in respect of any such Acquisition Transaction.
11. PUBLICITY. All press releases, announcements or other publicity
pertaining to the transactions contemplated hereby must be approved by Javelin,
RGB and Jade prior to release.
12. EACH PARTY TO BEAR ITS OWN EXPENSES. Each party shall bear its own
respective expenses in connection with preparing for and consummating the
transactions contemplated by this letter of intent.
<PAGE>
Mr. Gary Green
July 20, 1998
Page 6
13. NON-BINDING NATURE OF LETTER OF INTENT. All parties recognize that,
if this letter of intent is countersigned by the shareholders and each of the
companies except for paragraphs 7 through 16 which are intended to be binding
contractual promises, the foregoing will represent a statement of intent only
and is subject to the conditions set forth herein, including the negotiation
and execution of the Definitive Agreement, and any necessary corporate and other
approvals. Subject to such exceptions, no party shall be liable to any other
for any damages arising hereunder for failure to consummate the transactions
contemplated hereby unless and until the Definitive Agreement has been executed
and only as set forth therein.
14. TERMINATION. This letter of intent shall terminate on the soonest to
occur of (a) execution and delivery of the Definitive Agreement which by its
express terms supersedes this letter of intent, (b) mutual written agreement of
all of the parties hereto or (c) at the election of Javelin or RGB/Jade (and
unless extended by Javelin in its sole discretion) on July 31, 1998; provided
that paragraphs 6, 11 and 12 shall survive any termination of this letter of
intent.
15. COUNTERPART EXECUTION. This letter of intent may be executed in one
or more counterparts each of which shall be deemed an original but all of which
together shall constitute a single agreement.
16. GOVERNING LAW. This letter of intent shall be governed by and
construed in accordance with the laws of England. The parties hereto consent
to the non-exclusive jurisdiction of the English courts.
If the foregoing is acceptable, please indicate by signing in the place provided
below and returning the enclosed copy of this letter on or before 5:00 p.m.
(London time), Friday, July 31, 1998.
Sincerely,
JAVELIN SYSTEMS, INC.
By /s/ Richard P. Stack
--------------------------------------
Richard P. Stack
President and Chief Executive Officer
<PAGE>
Mr. Gary Green
July 20, 1998
Page 7
The foregoing is satisfactory to the undersigned and reflects the undersigned's
intention in principle as to the matters specified therein.
/s/ Gary N.A. Green GARY N.A. GREEN 27 JUL 1998
- ----------------------------------
Shareholder Name
/s/ Roger L. Scarlett 27/July/1998 By /s/ Richard Stack
- ---------------------------------- --------------------------------
Shareholder Name Roger L. Scarlett Name Richard Stack
------------------------------
Title CEO
-----------------------------
Date July 27, 1998
------------------------------
/s/ B.R. Badminton
- ----------------------------------
Shareholder Name For Jade Communications DD
B R BADMINTON - Contech Consultants DD
27/July/1998
- ----------------------------------
Shareholder Name
Date:
----------------------------
<PAGE>
May 29, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read Item 4 of Form 8-K dated May 28, 1998, of Javelin Systems, Inc.
and are in agreement with the statements contained in paragraphs (a)(ii),
(a)(iv), (a)(v) and (a)(vi). We have no basis to agree or disagree with other
statements of the registrant contained therein.
/s/ ERNST & YOUNG LLP
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. CCI Group, Inc., a corporation organized under the laws of Missouri.
2. POSNET Computers, Inc., a corporation organized under the laws of
California.
3. Javelin Systems (Europe) Limited, a corporation organized under the laws
of England.
4. Javelin Systems International Pte Ltd., a corporation organized under the
laws of Singapore.
5. Aspact IT Services (Singapore) Pte Ltd., a corporation organized under
the laws of Singapore, and a wholly-owned subsidiary of Javelin Systems
International Pte Ltd.
6. Javelin Systems Australia Pty Limited, a corporation organized under the
laws of Australia.
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-29481) of Javelin Systems, Inc. of our report
dated August 25, 1998 appearing on page F-2 of this Annual Report on Form
10-KSB.
PricewaterhouseCoopers LLP
Costa Mesa, California
September 21, 1998
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-20481) pertaining to the 1996 Stock Incentive Award Plan of
Javelin Systems, Inc. of our report dated August 1, 1997, with respect to the
financial statements of Javelin Systems, Inc. included in the Annual Report
(Form 10-KSB) for the year ended June 30, 1998.
Ernst & Young LLP
Orange County, California
September 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 7,698,500
<ALLOWANCES> 248,800
<INVENTORY> 5,925,300
<CURRENT-ASSETS> 14,006,800
<PP&E> 1,276,200
<DEPRECIATION> 239,800
<TOTAL-ASSETS> 22,531,300
<CURRENT-LIABILITIES> 9,926,100
<BONDS> 1,206,300
0
0
<COMMON> 41,100
<OTHER-SE> 11,357,800
<TOTAL-LIABILITY-AND-EQUITY> 22,531,300
<SALES> 29,646,100
<TOTAL-REVENUES> 29,646,100
<CGS> 21,736,000
<TOTAL-COSTS> 6,249,400
<OTHER-EXPENSES> (53,300)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,000
<INCOME-PRETAX> 1,599,000
<INCOME-TAX> 584,900
<INCOME-CONTINUING> 1,014,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,014,100
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.27
</TABLE>
