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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/x/ ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED] for the transition period from ________ to _________
COMMISSION FILE NO. 0-12641
[LOGO]
PERSONAL COMPUTER PRODUCTS, INC.
(Name of small business issuer in its charter)
DELAWARE 33-0021693
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
11031 Via Frontera
San Diego, California 92127
(619) 485-8411
(Address of principal executive offices and issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.005 PAR VALUE
(Title of Class)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes /x/ No
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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. / /
Registrant's total consolidated revenues for the fiscal year ended June 30, 1996
were $11,621,000.
At August 7, 1996, the aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $48,282,317, based on the last
trade price as reported by the NASD electronic bulletin board.
At August 7, 1996, there were 33,839,955 shares of common stock, $0.005 par
value, of the registrant issued and outstanding.
Information required by Part III of this Form 10-KSB is incorporated therein by
reference from the Company's definitive Proxy Statement with respect to its 1996
annual meeting of stockholders to be filed pursuant to Regulation 14A within 120
days after June 30, 1996.
Transitional Small Business Disclosure Format
Yes No /x/
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PART I
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ITEM 1.
DESCRIPTION OF BUSINESS
Personal Computer Products, Inc. was incorporated in March, 1982 under the laws
of the State of California, and reincorporated in May, 1983 under the laws of
the State of Delaware. Prima Inc., a California corporation doing business as
Prima International ("Prima"), is a wholly-owned subsidiary of Personal Computer
Products, Inc. (collectively "PCPI" or the "Company").
PCPI (1) develops and licenses laser printer technology; (2) manufactures,
markets, and distributes laser printer controllers and accessories; and (3)
markets and distributes internationally a variety of personal computer accessory
products. The following diagram illustrates the organization of the Company.
PCPI
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PCPI Technology Distribution
--------------- ------------
Controller Printer
Development PC and Mac
Technology Transfer Imaging
R&D
Engineering Direct Sales
Tiered Distribution
Adobe-Registered Trademark-
PostScript-Registered Trademark-
Imaging International
--------------------------------- --------------------
Through its technology division ("PCPI Technology"), the Company designs,
develops, and markets firmware (embedded software), circuit boards,
application-specific integrated circuits ("ASICs") and software for use in laser
and other types of imaging printers. The Company's technology and products are
used primarily in laser printers and multifunction devices (combined printer,
scanner, copier, and facsimile). The Company sells these controllers separately
to sellers of laser printers, and licenses its controller board technology to
other producers of laser printer engines and/or controllers. Recent PCPI
Technology customers have included: Xerox Corporation, Matsushita Electric
Company, Ltd. (Panasonic), Hypertec, Inc., Integrated Device Technology, Inc.,
Minolta Company Ltd., NEC Electronics, Inc. and Canon USA.
Through its distribution division (the "Distribution Division"), which is
composed of the Company's Prima subsidiary, the Company provides enhancement and
accessory products to the personal computer markets both in the U.S. and
overseas. The Distribution Division markets and distributes value-added personal
computer accessory products, including memory products such as floppy and hard
disk drives, tape drives, and CD-ROM drives; and PCMCIA products that include
miniaturized accessories such as memory devices and fax/modems for laptop and
notebook computers.
INDUSTRY OVERVIEW
Page printers, especially laser printers, have become an established means of
printing data generated by computers. The market for laser printers has grown
significantly over the past several years. Industry figures revealed that there
was a worldwide installed base of approximately 14 million units in 1993 with
page printer (laser, LED, inkjet, etc.) sales accounting for 58 percent of total
printer sales. The worldwide installed base of such devices was expected to grow
to over 21 million units by 1997. It is also important to note that laser
technology is the only printer technology primarily sourced from Japan. At this
time, over 75% of printer engines are sourced from Japan. The worldwide printer
market is dominated by the U.S., which is expected to continue through 1997. The
U.S. is expected, however, to account for less market share over time due to
market maturation.
Inkjet printers were introduced in the late 1970's. In the last few years,
inkjet has become the fastest growing technology, setting new growth records due
to its relatively low cost and good quality reproduction in both monochrome and
color. Speed is the greatest concern at this time. Most inkjet
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printers produce output at 3 pages per minute. If speed is to be increased, ink
drying times will have to improve. Higher end inkjet models, particularly color
models, typically incorporate Adobe PostScript software functionality.
Laser printers continue to be the dominant technology in use for page printing
and high-end imaging. PostScript printers make up a significant portion of that
market. The PostScript language is a general-purpose computer language developed
by Adobe Systems Incorporated, that describes the appearance of a page,
including elements such as text, graphics and scanned images, to a printer or
other output device. Since its introduction in 1985, the PostScript language has
become the printing and imaging technology of choice for multinational
corporations, the vast majority of professional publishers and government
agencies throughout the world. Because a PostScript file is independent of the
device that created it and the device that prints it, users can print documents
regardless of printing device, computer platform or operating system. Currently,
there are more than 60 manufacturers producing more than 300 output devices
including Adobe PostScript software at unit prices ranging from less than $700
to $100,000 and higher.
Features that tend to differentiate printers, particularly in the high volume,
high growth page printer technologies such as inkjet and laser, include the
presence of Adobe's proprietary PostScript software, high resolution capability,
network-ready connectivity, and output at rated engine speed.
Color laser printers entered the market in early 1994 and since that time there
has been increasing demand for color as prices decrease. The color market is
maturing and prices are declining significantly. While the overall printer
market is relatively flat, unit volume is increasing and the color segment is
expanding. Color printer unit sales are expected to grow 128% between 1994 to
1999 (International Data Corp.). The general office environment is starting to
demand color printing for reports, presentations and proposals. By 1999, color
printers should be the norm in general office environments and the technology
will drive growth in the market as color laser printers become less expensive,
faster, more compact and easier to use.
Multiple features will also become part of the market for color laser printers
and vendors will eventually add document-finishing features such as sorting and
stapling. Communications features are also expected to be added. The key element
for vendors is to produce high-quality, high-performance machines that can be
used by computer networks in the office. PCPI offers the technology and industry
relationships to help vendors reach this goal.
Color capability is an important issue in desktop printing. For color capability
on other technologies such as laser, dye sublimation, and thermal transfer,
PostScript Level 2 (the latest iteration of the PostScript page description
language) capability is important for graphics compatibility and high quality
reproduction.
Color copiers have been on the market for about 20 years. They have evolved from
stand-alone, walk-up machines in central reproduction departments to
ultra-sophisticated, multiple-function products. U.S. sales of color copiers
have concentrated on pay-for-print centers, copy outlets and professional users
of color machines. Installations of color copiers, including analog and digital
machines, in the United States were 65,000 units in 1995 and 81,000 units in
1996 with projected installations of 100,000 and 125,000 in 1997 and 1998,
respectively. Canon commands approximately 55% of the installed base with Xerox
following with slightly more than 11%. The U.S. color copier market reached a
volume of $185 million in 1993 and is projected to be over $1.2 billion by 1998.
More recently, printer manufacturers are attempting to add value to monochrome
printers by adding new functions such as printing, copying, scanning and faxing.
This new multi-functionality of desktop printing devices provides the end user
with printer, copier, facsimile and scanning all in the same device.
In order to be successful in the future, copier and printer vendors will have to
adopt new product strategies to differentiate their product offerings. The key
element of this strategy is multi-functionality so that high-quality,
high-performance machines can be used by computer networks in the office.
BUSINESS STRATEGY
PCPI's technology strategy is focused on the continued development and
implementation of laser printer and copier technology. The Company's development
resources are directed toward the development of controllers containing Adobe
PostScript software and, potentially, Adobe's Configurable PostScript
Interpreter ("CPSI"), host-based implementations of PostScript software. This
technology will be directed toward the development of controllers that support
multifunction devices (combining printer,
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facsimile/modem, copier, scanner) on the low-end (LaserImage-TM-); and
development of controllers that support high-functionality color digital
copier/printers on the high-end (ColorImage-TM-). PCPI intends to target four
market segments which include (1) the monochrome and color printing device
market, (2) the multi-function printing market (monochrome and color), (3) the
large format plotter market (monochrome and color), and (4) the color digital
copier market.
The Company's mission has been the development of intelligent embedded software
on board-level devices that would add value to personal computers and peripheral
devices.
Since 1983, the Company has been an active licenser and/or OEM provider of its
LaserImage printer controller technology to a number of companies throughout the
world. These include or have included: AEG Olympia (Germany), Elebra (Brazil),
Fujitsu (Japan), Goldstar (Korea), Hypertec (Korea), Matsushita Electric Company
- - Panasonic (Japan), Mita (Japan), Ricoh (Japan), Tandy Corporation (United
States), Tokyo Electric Company (Japan), Xerox (United States), and others. In
order to accommodate the manufacturing requirements of its licensees, the
Company also has established relationships for manufacturing both in the U.S.
and overseas that allow PCPI to provide manufacturing capabilities so that PCPI
will not need to invest and build an extensive manufacturing infrastructure.
The Company has extensive technical relationships that enable it to offer the
latest technology to its customers. These include arrangements for joint
development of ASIC semiconductor components for laser printer controllers with
Motorola and DP-Tek; authorized developer relationships with Adobe Systems
Incorporated, Hewlett Packard, Microsoft and Apple; and font licensing
agreements with Agfa Compugraphic and The Company (URW).
In November 1993, PCPI consummated its arrangement with Adobe Systems
Incorporated as an authorized co-developer for the implementation of the
PostScript software on printers. Adobe, in order to accommodate the needs of
printer companies who wish to incorporate Adobe PostScript software into their
hardware products, has appointed a few third-parties to provide some of the
custom engineering resources required to integrate PostScript software on
printer controllers. The PostScript software integration process on printer
controllers is complex, requiring considerable expertise in hardware design and
firmware development and implementation. PCPI serves a critical function in
providing the latest hardware and software technology and rapid time-to-market
to those companies who wish to remain competitive in the printer market by
offering features that meet the ever evolving standards of the computer
industry.
PCPI TECHNOLOGY
The principal business of PCPI Technology has been the development, licensing,
and marketing of imaging technology and products.
PCPI's technology strategy has been to attempt to adjust to the evolving
personal computer market by developing and/or implementing technology that will
enable it and its licensees to compete with, or supplement, the products of the
industry's dominant printer and copier manufacturers.
PCPI sells and licenses, usually on a non-exclusive basis, its printer
controller technology and its proprietary software called ImageBase-TM-. Its
typical customers are manufacturers of laser printers and controllers. In the
majority of cases, PCPI transfers existing technology, or modifies that
technology to meet the specifications of the customer. Typically, the licensing
fees and/or royalties derived from these activities are based on the number of
units sold by the licensee that incorporate the licensed technology. In
addition, PCPI receives, in most cases, initial engineering fees for adapting
its technology to the requirements of the particular purchaser or licensee.
The widespread availability of laser printers spawned a new class of
applications software for desktop publishing. Using this software, a user can
create, on a personal computer, a finished, high-quality, printed document that
incorporates a variety of type sizes, styles, and fonts previously available
only through a commercial printer.
As printers become more capable and sophisticated, it has become more difficult
for users to know exactly what combination of features is best or more
appropriate. At the most basic level, however, users want a printer that creates
professional looking documents; and they want one that works with their computer
system, regardless of the software on that system. Only one kind of printer
meets all the criteria of the end-user - a printer that comes with genuine Adobe
PostScript software. Unlike printers using other software (including PostScript
clones), printers that use genuine Adobe PostScript software place no limits on
usability; nor what kind of document can be created or printed. This means that
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whether users are employing DOS, Windows, OS/2-TM-, UNIX-Registered Trademark-,
Macintosh, a mini or mainframe computer system, or any combination of these
platforms, they can output work on any printer equipped with Adobe PostScript
software. The PostScript language is the most dependable way to print for
business users and PostScript files can also be sent over networks.
The Company's Adobe PostScript Interpreter ("APSI") project, which includes its
COLORIMAGE SERIES of color controllers, includes the implementation of Adobe
PostScript software for OEM customers. These controllers are based on NEC's
powerful 64-bit Vr 4300-TM- MIPS RISC (reduced instruction set circuit)
processor or IDT's R3081 and R4000 MIPS RISC processors. Associated ASIC chips
are to be implemented as dictated by functionality. Some of the important
features and functions of an APSI based controller are defined as follows:
- Adobe platform
- Adobe PostScript Level 2
- PCL5 (LaserJet4) emulation
- Parallel and Appletalk-TM- (Macintosh) communications
The ColorImage Series may also include a robust color management system that has
been designed to provide complete control over the color calibration of any
input or output device including scanners, monitors, digital cameras, photo CD,
printers, film recorders, proofing devices, etc. ColorImage software is, in
effect, a color engine that makes every input device see a target profile that
matches the objectives of the user. The quality and consistency of documents
created using the ColorImage system is assured through a comprehensive,
user-controlled calibration process.
Target customers are OEMs who wish to market Adobe PostScript printers to
resellers and end-users. The OEM must also be an Adobe OEM licensee in order to
distribute APSI technology.
To enhance its ability to market its technology, PCPI has entered into a sales
representative agreement with Nippo, Ltd. of Japan for the promotion of
licensing the Company's Adobe PostScript controllers. Nippo had also made an
equity investment in PCPI in the amount of approximately $1.7 million. Japanese
laser printer developers represent the dominant customer base for the Company's
technology. Nippo is currently a supplier of copier and laser printer engine
mechanical parts to the Japanese copier and laser printer industry.
PCPI recently announced its strategic relationship with NEC Electronics, Inc.
PCPI has designed another advanced ColorImage Series printer controller around
NEC's 64-bit Vr 4300 MIPS RISC microprocessor. PCPI is using the MIPS RISC
microprocessor to create a whole new generation of high-performance printer
controllers. The new controller, which maximizes the performance of the printing
engine and speeds the processing of Adobe PostScript Level 2 software, has
already been selected by Canon USA for their 24-page-per-minute printer. The new
technology is important because it allows PCPI to offer a rich set of networking
capabilities and the highest performance controller solution, at an extremely
competitive price. NEC Electronics was ranked fourth in the U.S and second in
the world in semiconductor sales in 1995 and is an affiliate of NEC Corporation
(NIPNY), a $43 billion international manufacturer of computer, communications
and semiconductor products.
PCPI's LaserImage Series of monochrome controllers are available in a variety of
different configurations. They typically provide, either as part of the
controller, or through add-on boards or plug-in cartridges, industry-standard
printer emulations, such as PCL from Hewlett Packard. The controller boards have
been designed to minimize the use of microchip and memory components, thereby
enabling production of each controller at a cost lower than would otherwise be
the case. Its past relationship with Motorola, Inc., yielded for example,
resulted in the development of a family of specialty circuits (ASICs) that are
designed specifically for laser printer controllers. As part of this technology,
the Company also provides Microsoft Windows-TM- compatibility to laser printers.
PCPI can foresee considerable growth in technology sales, largely on the
strength of its relationships with technology companies such as Adobe, NEC and
IDT.
DISTRIBUTION
In October 1993, PCPI acquired Prima International, a world-wide distributor of
high technology products. Prima provides manufacturers with international
distribution and marketing capabilities, as well as
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offering U.S. purchasing facilities for international buyers. Prima functions in
three basic areas: product distribution, product representation and buying
office/commodity sales.
Prima has been active in the international market for over 13 years, and
understands the multi-cultural, multilingual requirements of this business. It
has developed a network of highly qualified resellers located in every country
of significance. In addition, its headquarters, located in the heart of Silicon
Valley, California, provides access to the premier suppliers of disk and tape
drives, controllers, scanners, terminals, network boards, modems, fax cards, and
graphics products, as well as relationships with manufacturers developing new
technologies.
Prima offers international market penetration for U.S. high-technology
manufacturers through use of Prima's extensive sales channels including
sub-distributors and resellers; and also by representing products to the OEM and
end-user communities. Prima tailors international sales and distribution
programs suited to specific product needs. For many international buyers,
locating a trustworthy, reliable source to purchase U.S. products on an "as
needed" basis is essential to their ability to build systems and maintain a
complete product offering to their customers. Prima offers these customers
in-depth knowledge of the high technology market, proximity to the major
producers of high technology products, and industry associations which date back
to the 1960's. Through close relationships with many manufacturers,
distributors, and representatives, Prima provides immediate access to hardware,
software, firmware, media, accessories, and components for its international
clients. Prima offers its international clients a vast network of Prima
associates which may result in increased marketing opportunities and options and
decreased "time-to-market."
Prima's domestic (U.S.) business focuses on direct sales to end-users via its
PERIPHERALS DIRECT operating unit, formed in early 1994. The purpose of this
operating unit is to add incremental sales of the Company's products at margins
higher than would be possible through multi-tier distribution. Prima serves as a
corporate-wide focal point for sales of products to resellers (dealers and
distributors) worldwide as well as a conduit for products to end-users at
competitive price points on high-demand computer peripheral products such as
disk drives.
Prima exports and imports a variety of high technology products with an emphasis
on peripherals and accessories compatible with IBM, Apple Macintosh, the leading
brands of small business computers, and UNIX and Novell. The focus on these
markets has afforded Prima the ability to develop the technical expertise needed
to fully support suppliers and customers.
Principal product lines include: (1) PDQ memory products for PCs and Macintosh
computers and (2) PCMCIA products, which represent new technology in storage
products and value-added computer accessories for notebook and palmtop devices.
PRODUCTION AND SOURCES OF SUPPLY
PCPI presently contracts for the manufacture of its products with a number of
suppliers located in the San Diego and San Jose, California areas. The suppliers
assemble products, utilizing components purchased by the Company from other
sources. The terms of supply contracts are negotiated separately in each
instance. The Company is satisfied that its present assembly contractors have
sufficient capacity to meet projected market demand for the Company's products,
or that alternate sources are available without undue disruption. PCPI has not
experienced any significant difficulty over the past several years in engaging
contractors, or in purchasing components.
PCPI contract suppliers generally perform a multi-step quality control test
prior to shipping their products to the Company. PCPI, in turn, performs
additional tests on the products, adds appropriate software, and then packages
and ships the products to customers. In addition to buying such items as printed
circuit boards and other components from outside suppliers, the Company
purchases software programs, in the form of floppy disks, from vendors who have
licenses to sell such software to the Company from the originators of such
software, and has, from time to time, directly licensed system software used in
certain PCPI products.
MARKETING
Marketing and sales activities are conducted by approximately 12 Company
employees. Each of the divisions and subsidiaries utilizes dedicated sales
personnel.
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RESEARCH AND DEVELOPMENT
Despite the fact that there can be no assurance that PCPI can successfully
produce new products, nor that such products will be profitable, the Company
will be required to spend resources on research and development in the
foreseeable future in order to enhance existing products, and to develop new
products. New technology developed, or products introduced, by other entities,
including major computer companies, could adversely affect the marketability of
the Company's products. Consequently, the Company is compelled to continue
development of new technologies, and the implementation of new technologies, in
order to remain competitive.
COMPETITION
The markets for computer hardware and software have been characterized by rapid
and continuing technological change, and by intense competition. The Company
provides differentiation in the laser printer controller/accessories marketplace
through the capability of its controllers, the quality and extent of
accompanying printer emulation software, and the ability of these controllers to
provide added-value through differentiating features, such as speed, cost and
networking. Printer and computer accessories are often commodities that do not
provide significant differentiation. The Company strives to differentiate itself
by providing superior customer service, timely delivery of products to its
customers, and competitive pricing.
PROPRIETARY PROTECTION
PCPI's software is copyrighted; however, such protection as the copyright laws
provide does not prevent other companies from emulating the effects achieved by
such software. PCPI owns no patents, but has obtained registration of several of
its trade-names or trademarks, including: PCPI, LaserImage, ColorImage,
ImageScript and ImageFont.
Adobe and PostScript are trademarks of Adobe Systems Incorporated.
EMPLOYEES
The Company, including its Prima subsidiary, employed a total of 56 persons
(which includes 3 part-time employees) at June 30, 1996, of whom 7 were in
corporate administration and finance, 35 in engineering and research and
development, 2 in production, and 12 in sales and marketing.
OTHER
The costs and effects of compliance with Federal, state, and local environmental
laws and other existing or probable governmental regulations are not, and are
not expected to be, material. In certain cases, government (Federal
Communications Commission) approval is required with respect to PCPI's
controller products.
ITEM 2.
DESCRIPTION OF PROPERTY
The Company leases approximately 14,000 square feet of space in a facility
located 11031 Via Frontera, San Diego, California 92127, at a monthly rental
rate of approximately $10,000. The lease expires on January 31, 1999. The
Company owns no real property.
Prima International leases approximately 5,000 square feet of space in a
facility located at 3350 Scott Boulevard, Building No. 7, Santa Clara,
California 95054, on a month-to-month basis at a monthly rental rate of $3,750.
ITEM 3.
LEGAL PROCEEDINGS
The Company, because of the nature of its business, is from time to time
threatened or involved in legal actions. The Company, after discussion with
legal counsel, does not consider that any of these legal actions now pending
will result in a material adverse effect on the consolidated financial position
or
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results of operations of the Company and, further, does not consider that any
such proceedings fall outside ordinary, routine litigation incidental to the
business of the Company.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
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ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market, and quoted
on the NASD electronic bulletin board (symbol: PCPI).
The following table sets forth the high and low bid quotations of the Company's
common stock for the periods indicated as reported by the NASD electronic
bulletin board. Prices shown in the table represent inter-dealer quotations,
without adjustment for retail markup, markdown, or commission, and do not
necessarily represent actual transactions.
High Low
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YEAR ENDED JUNE 30, 1995
FIRST QUARTER $ .88 $ .50
SECOND QUARTER .78 .41
THIRD QUARTER .59 .25
FOURTH QUARTER .56 .19
YEAR ENDED JUNE 30, 1996
FIRST QUARTER $ .50 $ .25
SECOND QUARTER .53 .18
THIRD QUARTER .94 .38
FOURTH QUARTER 2.56 .75
-------------------------------------------------------
The number of stockholders of record of common stock, $.005 par value, of the
Company was 3,100 at June 30, 1996.
PCPI has never declared, or paid, any cash dividends on PCPI's Common Stock.
PCPI currently intends to retain earnings, if any, after any payment of
dividends on its 5% Convertible Preferred Stock and 5% Series B Convertible
Preferred Stock, for use in its business and therefore, does not anticipate
paying any cash dividends on PCPI's Common Stock.
Holders of the 5% Convertible Preferred Stock are entitled to receive, when and
as declared by the Board of Directors, but only out of amounts legally available
for the payment thereof, cumulative cash dividends at the annual rate of $50.00
per share, payable semi-annually, and commencing on October 15, 1986. PCPI has
never declared, or paid, any cash dividends on PCPI's 5% Convertible Preferred
Stock. Dividends in arrears at June 30, 1996 were $1,789,000.
Holders of the 5% Series B Convertible Preferred Stock are entitled to receive,
when and as declared by the Board of Directors, but only out of amounts legally
available for the payment thereof, cumulative cash dividends at the annual rate
of $500 per share, payable annually. PCPI has never declared, or paid, any cash
dividends on PCPI's 5% Series B Convertible Preferred Stock. Dividends in
arrears at June 30, 1996 were $58,000.
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ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
The Company has been in a transitional period, from older technology and
products, to becoming a leading technology-based supplier of state-of-the-art
printer controllers to OEM customers. The implementation of the strategy of the
development of the new Adobe PostScript Interpreter (APSI) project, which
includes its ColorImage Series controller implementation of Adobe PostScript
software for OEM customers, and its LaserImage Series controllers including
HP-based (PCL) multi-function technology is beginning to show promising results.
During fiscal 1996, Matsushita Electric Company, Ltd. (Panasonic) accepted the
multi-function printer product that the Company had been designing during the
previous eighteen months.
For the quarter ended June 30, 1996, PCPI reflected net income of $144,000
compared to a loss of $597,000 for the quarter ended June 30, 1995. Gross
revenues for the quarter ended June 30, 1996 were $3,577,000, which included
engineering fees of $935,000 and license and royalty income of $439,000 from
past products. Gross revenues for the quarter ended June 30, 1995 were
$3,736,000, which included engineering fees of $381,000 and license and royalty
income of $67,000.
The Company has been successful in attracting several major customers, with
substantial resources and marketing capabilities, that desire to utilize the
current technologies of the Company. Current contracts to adapt the Company's
software products to controllers that will be integrated with the hardware
products of various OEM customers, include Integrated Device Technology, Inc.
(IDT), Matsushita Electric Company, Ltd. (Panasonic), Minolta Company, Ltd., NEC
Electronics, Inc. and Canon USA.
The Company recognized non-recurring engineering fees ("NRE") to adapt the
Company's software products to controllers designed for its OEM customers of
approximately $2,379,000 for the year ended June 30, 1996 compared to $1,097,000
for the year ended June 30, 1995, an increase of 117%. PCPI's strategy has
required the Company to alter its focus away from some of its traditional
revenue sources and to make expenditures in support of these efforts. As a
result, the Company's business continues to be in a significant transitional
phase and year-to-year financial comparisons may be of limited usefulness due to
these important changes in the Company's business.
The Company had a net loss from continuing operations of $3,729,000 for the year
ended June 30, 1996 (which included a one-time, non-cash restructuring charge of
$2,058,000) compared to $2,510,000 for the year ended June 30, 1995. Total
revenues were $11,621,000 for the year ended June 30, 1996 versus $14,394,000
for the year ended June 30, 1995.
REVENUES
Sales of products from continuing operations were $8,639,000 for the year ended
June 30, 1996 versus $13,043,000 for the year ended June 30, 1995.
The Company's sales of products from continuing operations were derived
primarily from Prima International. Prima's business consists of product
distribution and integration, including sales of its PDQ-TM- line of memory
storage devices featuring removable cartridge and magneto optical technologies.
The reduction in sales is attributed to reduced product availability by
SyQuest-TM-, a product transition by Prima that places less reliance on
SyQuest's products and technologies and a shortage of working capital during the
year, all of which imposed limitations on Prima's operations. These reductions
were partially offset by an increase in Prima's sales of PCMCIA-based memory and
communications products.
The Company has been transitioning from older technology and products, to new
technology-based printer controller products over the past few years. It is
anticipated that certain of these new technology-based products can be
distributed to Prima's customer base. Non-Prima sales of printer products and
accessories for the years ended June 30, 1996 and 1995, which represents sales
of these older technology based products, were $58,000 and $556,000. Product
sales for the year ended June 30, 1995 included sales, to a single customer, of
$231,000 of laser printer engines.
During fiscal 1996, the Company performed work on engineering projects that were
funded by OEM customers under non-recurring engineering contracts. NRE revenue
for the years ended June 30, 1996 and 1995 was $2,379,000 and $1,097,000,
respectively, which was recognized during the course of development based on the
percentage of completion method.
9
<PAGE>
License fees and royalty revenue for the year ended June 30, 1996 were $603,000
compared to $254,000 for the year ended June 30, 1995. In the past, License fees
and royalty revenue have shown significant year-to-year fluctuations. With the
exception of $160,000 recognized during fiscal 1996, the License fees and
royalty revenue recognized during fiscal 1996 and 1995 were derived from
"older-technology" based products. PCPI has submitted several proposals to
prospective customers in order to develop Adobe PostScript-based controllers and
other controllers based upon its ImageBase-TM- technology. While the Company has
entered into some contracts with OEM customers for controller development, there
can be no assurance that additional contracts will be obtained for the
development of such controllers, or that the existing contracts will be
completed, or that products will be shipped by the customer which may result in
the generation of future royalty and license revenues or that these products,
once generating royalties, will continue to do so.
COST OF PRODUCTS SOLD
Cost of products sold from continuing operations for the year ended June 30,
1996 and 1995 was $7,652,000 and $11,883,000, respectively, representing a gross
margin of 11.4% and 8.9%. The increase in the gross margin is attributed to a
change in the product mix between the periods. During fiscal 1996, sales of
higher margin PCMCIA-based memory products and replacement lines for SyQuest
products have been increasing as a percentage of Prima's sales which has
improved the margins during fiscal 1996. These increased margins have been
partially offset by a continued decline in the margins and sales levels of
old-technology based products and in Prima's SyQuest product lines.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses from continuing operations for
fiscal 1996 were $3,206,000 versus $3,149,000 for fiscal 1995. The increase is
primarily the result of increased sales commissions to Nippo, Ltd. on NRE
contracts due to an increase in the amount and timing of NRE payments received
against active contracts and an increase in selling expenses in an attempt to
stimulate technology and product sales. In addition, the Company has reduced its
administrative costs as a result of reductions in force due to attrition in
personnel and reductions in operating expenses related to the strategic
direction of the Company.
NON-CASH RESTRUCTURING CHARGE
In fiscal 1996, based on a shift in business direction and a desire to focus its
resources, the Company reassessed the future benefit of certain
"older-technology" product lines. As a result, the Company took a one-time,
non-cash write-down of $2,058,000 against capitalized software ($937,000),
prepaid licenses and royalties ($583,000), inventories ($204,000) and certain
pre-paid assets ($334,000) to reduce these assets to their net realizable value.
COST OF ENGINEERING FEES AND RESEARCH AND DEVELOPMENT
Cost of engineering fees and research and development expenditures from
continuing operations for fiscal 1996 were $2,135,000 versus $1,283,000 for
fiscal 1995, an increase of 66.4%. These expenditures consist of engineering
expenses associated with the development of controller technologies and designs
for PCPI technology customers.
OTHER INCOME AND LOSS
Net interest expense from continuing operations was $62,000 for the year ended
June 30, 1996 versus $109,000 for the year ended June 30, 1995. The reduction in
net interest expense is attributed to the reductions in the outstanding debt of
PCPI and an increase in interest income associated with the increased cash being
invested.
During fiscal 1996 and 1995, the Company converted an aggregate of $3,394,000 of
outstanding accounts and notes payable and accrued interest into unregistered
shares of the Company's common and preferred stock. The Company recognized
extraordinary gains on certain issuances of common stock of approximately
$116,000 and $209,000, respectively, representing the difference in the
aggregate conversion price and the market value of the shares on the conversion
date.
During fiscal 1995, the conversion rate under the then outstanding 5%
Convertible Notes was reduced from $1.50 to $0.625. As a result of this
reduction, the Company recognized a non-cash accounting loss in the amount of
$204,000 pursuant to FAS 84 (Statement of Financial Accounting Standards No. 84
- - "Induced Conversions of Convertible Debt"). The Notes were converted in
January 1995.
10
<PAGE>
DISCONTINUED OPERATIONS
Effective March 24, 1995, the Company sold 81% of its ImageSoft subsidiary.
The Company's discontinued ImageSoft subsidiary (software distribution and
publishing) for the year ended June 30, 1995 had sales of approximately $93,000
and operating expenses of approximately $164,000.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, PCPI's liquidity improved as the result of the equity
placement of its common stock of approximately $2.5 million and the exercise of
options and warrants of approximately $3.3 million. In addition, the conversion
of over $3.5 million of outstanding debt and other liabilities into equity
during fiscal 1996, 1995 and 1994 had also improved the Company's liquidity. At
June 30, 1996, the Company had working capital of $3,976,000 compared to a
negative working capital of $649,000 as of June 30, 1995. During fiscal 1995 and
the first three quarters of fiscal 1996, the Company had experienced operating
difficulties due to its lack of working capital. The shift in focus toward Adobe
co-development projects presents continuing liquidity problems because, in the
short-term, these activities are net users of working capital. Although the
Company has improved its cash and liquidity, adequate working capital is
necessary to continue the Company's operations, develop its technology licensing
business and to deliver the resulting products to contract customers in an
efficient and timely manner. In addition, as noted above, while the Company has
entered into several contracts with OEM customers for controller development,
there can be no assurance that additional contracts will be obtained for the
development of such controllers, or that the existing contracts will be
completed, or that products will be shipped by the customer that will generate
future royalty and license revenues or that once these products are being
shipped by the Company's customers that they will continue to generate
royalties.
As of June 30, 1996, the unused portion of Prima's restricted line of credit was
$365,000.
PCPI has no material commitments for capital expenditures.
11
<PAGE>
ITEM 7.
FINANCIAL STATEMENTS
PAGE
Report of independent accountants. . . . . . . . . . . . . . . . . . . . . 13
Consolidated balance sheet as of June 30, 1996 . . . . . . . . . . . . . . 14
Consolidated statement of operations for the year ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . 15
Consolidated statement of cash flows for the year ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . 16
Consolidated statement of shareholders' equity for the year ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . 17
Notes to consolidated financial statements . . . . . . . . . . . . . . . . 18
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF PERSONAL COMPUTER PRODUCTS, INC.
We have audited the consolidated balance sheet of Personal Computer Products,
Inc. and its subsidiaries as of June 30, 1996 and the related consolidated
statements of operations, cash flows, and shareholders' equity for the two years
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Personal Computer Products, Inc. and its subsidiaries as of June 30, 1996, and
the results of their operations and their cash flows for the two years then
ended in conformity with generally accepted accounting principles.
BOROS & FARRINGTON APC
San Diego, California
August 8, 1996
13
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Current assets:
Cash $ 4,390,000
Certificate of Deposit 50,000
Accounts receivable, net 1,679,000
Inventories 205,000
Other current assets 48,000
----------
Total current assets 6,372,000
Property and equipment, net 359,000
Prepaid licenses and royalties, net 56,000
Capitalized software, net 23,000
----------
$ 6,810,000
----------
----------
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,380,000
Accrued expenses 346,000
Deferred revenues 388,000
Notes payable and capital leases 282,000
----------
Total current liabilities 2,396,000
----------
Commitments and contingencies- Note 10
Shareholders' equity:
5% convertible preferred stock
$1,000 PAR VALUE, 7,500 SHARES AUTHORIZED,
2,318 ISSUED AND OUTSTANDING 2,318,000
5% Series B convertible preferred stock
$1,000 PAR VALUE, 117 SHARES AUTHORIZED,
116.2 ISSUED AND OUTSTANDING 1,162,000
Preferred stock
$1,000 PAR VALUE, 2,383 AUTHORIZED,
NO SHARES ISSUED AND OUTSTANDING
Common stock
$.005 PAR VALUE, 50,000,000 SHARES AUTHORIZED,
33,824,955 SHARES ISSUED AND OUTSTANDING 169,000
Paid-in capital 24,756,000
Shareholder loans (8,000)
Accumulated deficit (23,983,000)
----------
Total shareholders' equity 4,414,000
----------
$ 6,810,000
----------
----------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
14
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30,
1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Sales of products $ 8,639,000 $ 13,043,000
Engineering fees 2,379,000 1,097,000
License fees and royalty 603,000 254,000
---------- ----------
11,621,000 14,394,000
---------- ----------
Costs and expenses:
Cost of products sold 7,652,000 11,883,000
Selling, general and administrative 3,206,000 3,149,000
Amortization of capitalized software development costs 233,000 499,000
Cost of engineering fees and research and development 2,135,000 1,283,000
Non-cash restructuring charge 2,058,000
---------- ----------
15,284,000 16,814,000
---------- ----------
Loss from operations (3,663,000) (2,420,000)
---------- ----------
Other income (expense):
Interest, net (62,000) (109,000)
Settlement of license agreements 234,000
Loss on conversion of convertible debt (204,000)
Other (3,000)
---------- ----------
(62,000) (82,000)
---------- ----------
Net loss from continuing operations before provision for
income taxes (3,725,000) (2,502,000)
Provision for taxes 4,000 8,000
---------- ----------
Net loss from continuing operations (3,729,000) (2,510,000)
Discontinued operations:
Loss from operations of discontinued subsidiary (71,000)
Gain on disposal of subsidiary 227,000
---------- ----------
Net loss before extraordinary item (3,729,000) (2,354,000)
Extraordinary gain on the conversion of notes payable into
common stock 116,000 209,000
---------- ----------
Net loss $ (3,613,000) $ (2,145,000)
---------- ----------
Primary loss per common share from continuing operations $ (0.19) $ (0.18)
---------- ----------
---------- ----------
Primary loss per common share before extraordinary item $ (0.19) $ (0.17)
---------- ----------
---------- ----------
Primary loss per common share $ (0.18) $ (0.15)
---------- ----------
Weighted average common shares outstanding 20,735,100 14,799,800
</TABLE>
- ------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
15
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,613,000) $(2,145,000)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH USED BY OPERATING ACTIVITIES:
Depreciation and amortization of equipment 126,000 121,000
Amortization of capitalized software development costs 233,000 499,000
Amortization of prepaid licenses and royalties 56,000 219,000
Non-cash restructuring charge 2,058,000
Gain on disposal of subsidiary (227,000)
Loss on conversion of convertible debt 204,000
Extraordinary gain on conversion of notes payable into common stock (116,000) (209,000)
Changes in assets and liabilities:
Accounts receivable (429,000) 133,000
Inventories 112,000 691,000
Other current assets (156,000) (1,000)
Accounts payable and accrued expenses 96,000 211,000
Deferred revenues 361,000 (154,000)
---------- ----------
NET CASH USED BY OPERATING ACTIVITIES (1,272,000) (658,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Prepaid licenses and royalties (169,000) (68,000)
Capital expenditures (311,000) (67,000)
Purchase of certificate of deposit (50,000)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (530,000) (135,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 125,000 761,000
Repayment of notes payable (525,000) (407,000)
Proceeds from line of credit 255,000 329,000
Repayment of line of credit (406,000) (43,000)
Principal payments under capital lease obligations (19,000) (50,000)
Net proceeds from exercise of employee options and warrants 88,000 275,000
Net proceeds from exercise of warrants 3,272,000
Net proceeds from sale of common stock 2,567,000 88,000
Proceeds from shareholder loans 9,000
Net proceeds from sale of warrants 513,000
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,870,000 962,000
---------- ----------
Net increase in cash 4,068,000 169,000
Cash at the beginning of the year 322,000 153,000
---------- ----------
Cash at the end of the year $4,390,000 $ 322,000
---------- ----------
---------- ----------
NON-CASH FINANCING ACTIVITIES:
Conversion of notes payable to common stock $ 198,000 $1,186,000
---------- ----------
---------- ----------
Conversion of accounts payable and accrued expenses to common stock $ 319,000
----------
----------
Conversion of accrued interest to principal on notes payable $ 54,000 $ 54,000
---------- ----------
---------- ----------
Fixed assets acquired under capital leases $ 28,000 $ 7,000
---------- ----------
---------- ----------
Conversion of accrued interest to common stock $ 12,000 $ 38,000
---------- ----------
---------- ----------
Common stock exercised with loans $ 8,000
----------
----------
Conversion of accounts payable to preferred stock $1,162,000
----------
----------
Common stock options exercised with accounts payable $ 479,000
----------
----------
Conversion of preferred to common stock $ 93,000
----------
----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 62,000 $ 19,000
---------- ----------
---------- ----------
Cash paid during the period for income taxes $ 4,000 $ 11,000
---------- ----------
---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK 5% CONVERTIBLE 5% SERIES B CONVERTIBLE
------------ PAID-IN PREFERRED STOCK PREFFERED STOCK
--------------- ---------------
SHARES AMOUNT CAPITAL SHARES AMOUNT SHARES AMOUNT
------ ------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994 13,451,253 $ 69,000 $15,881,000 2,411 $2,411,000
Exercise of employee stock
options 166,500 1,000 84,000
Exercise of employee
warrants 1,125,366 6,000 864,000
Conversion of preferred
stock 26,427 93,000 (93) (93,000)
Common stock issued on
conversion of notes
payable 1,959,388 8,000 1,192,000
Preferred stock issued on
conversion of accounts
payable 116.2 $ 1,162,000
Private sales of common
stock 700,000 3,000 105,000
Repayment of shareholder
loans
Net loss
---------- ---------- ----------- ----- ----------- ----- ----------
BALANCE AT JUNE 30, 1995 17,428,934 87,000 18,019,000 2,318 2,318,000 116.2 1,162,000
Exercise of employee stock
options 81,700 1,000 95,000
Exercise of warrants 6,133,333 30,000 3,242,000
Common stock issued on
conversion of accounts
payable 880,009 4,000 307,000
Common stock issued on
conversion of notes
payable 294,312 2,000 100,000
Private sales of common
stock 9,006,667 45,000 2,480,000
Sales of warrants 513,000
Net loss
---------- ---------- ----------- ----- ----------- ----- ----------
BALANCE AT JUNE 30, 1996 33,824,955 $ 169,000 $24,756,000 2,318 $ 2,318,000 116.2 $1,162,000
---------- ---------- ----------- ----- ----------- ----- ----------
---------- ---------- ----------- ----- ----------- ----- ----------
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER ACCUMULATED
LOANS DEFICIT TOTAL
----- ------- -----
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1994 $(9,000) $(18,225,000) $127,000
Exercise of employee stock
options 85,000
Exercise of employee
warrants 670,000
Conversion of preferred
stock
Common stock issued on
conversion of notes
payable 1,200,000
Preferred stock issued on
conversion of accounts
payable 1,162,000
Private sales of common
stock 108,000
Repayment of shareholder 9,000 9,000
Net loss (2,145,000) (2,145,000)
------- ---------- ----------
BALANCE AT JUNE 30, 1995 0 (20,370,000) 1,216,000
Exercise of employee stock
options (8,000) 88,000
Exercise of warrants 3,272,000
Common stock issued on
conversion of accounts
payable 311,000
Common stock issued on
conversion of notes
payable 102,000
Private sales of common
stock 2,525,000
Sales of warrants 513,000
Net loss (3,613,000) (3,613,000)
------- ---------- ----------
BALANCE AT JUNE 30, 1996 $ (8,000) $(23,983,000) $ 4,414,000
------- ---------- ----------
------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Personal Computer Products, Inc., a Delaware corporation, and its subsidiaries
("PCPI" or the "Company"), (1) develop and license laser printer technology; (2)
manufacture, market, and distribute laser printer controllers and accessories;
and (3) market and distribute internationally a variety of personal computer
accessory products.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PCPI and its only
active subsidiary, Prima International. All significant inter-company accounts
and transactions have been eliminated.
- -INVENTORIES
Inventories are valued at the lower of cost or market; cost being determined by
the first-in, first-out method.
- -PREPAID LICENSES AND ROYALTIES
Up-front payments for licenses of software and royalties are recorded as prepaid
licenses and royalties. Amortization of prepaid licenses is recorded on a
straight-line basis over estimated useful lives generally ranging from three to
five years, commencing from the date the underlying technology is available for
use by the Company. Amortization of prepaid royalties is recorded based on the
recognition of revenue from the underlying technology.
- -PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation, including
amortization of assets recorded under capitalized leases, is generally computed
on a straight-line basis over the estimated useful lives of assets ranging from
three to five years. Amortization of leasehold improvements is provided over the
initial term of the lease, on a straight-line basis.
- -REVENUES
Revenue from the sale of products is recognized as of the date shipments are
made to customers. Revenue from long-term software and technology license fees
is recognized once the collection is made, or is "probable" as prescribed in
AICPA Statement of Position 91-1 "Software Revenue Recognition," and there are
no further contractual obligations under the license agreement. Royalties are
recognized upon the sale of such products by the licensee.
The Company currently has development contracts with original equipment
manufacturers ("OEMs") to adapt the Company's software products to the OEMs'
hardware products. Revenues under these contracts are recognized based on the
percentage-of-completion method. Deferred revenue comprises payments received in
advance of revenue to be recognized on such contracts.
- -RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred. The cost of
engineering fee revenue is included as a component of research and development.
- -EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is based on the weighted average number of
shares of common stock and dilutive common stock equivalents, if any,
outstanding during the period, and is computed after giving effect to the
dividend requirements of the 5% Convertible Preferred Stock ($116,000 and
$118,000 during fiscal 1996 and fiscal 1995, respectively) and the 5% Series B
Convertible Preferred Stock ($58,000 during fiscal 1996). The effect of the
conversion privileges of convertible preferred stock and convertible notes
payable is antidilutive for the periods presented. Accordingly, such effect is
not reflected in the calculation of primary loss per common share.
18
<PAGE>
- -FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" requires the disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. The carrying
value of the financial instruments on the consolidated balance sheet are
considered reasonable estimates of the fair value.
- -RECLASSIFICATIONS
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform to the presentation in the 1996 consolidated financial
statements.
NOTE 2 - CAPITAL RESOURCES AND OPERATING ACTIVITIES
During the past several years and through the first nine months of fiscal 1996,
the Company has been operating with limited resources. During this period, the
Company has suffered continued recurring losses from continuing operations and
had negative working capital of $649,000 as of June 30, 1995. The Company's
liquidity needs during this time have been managed through the conversion of
outstanding debt into equity, and the deferral of compensation and the financing
of certain transactions by the Company's executive management and outside
directors. In order to provide additional incentives to all of the Company's
optionees of the Company's common stock during this time, in October 1995, the
Board of Directors authorized a one-time reduction in the exercise price of
outstanding employee options and warrants to the market value of the Company's
common stock on that date.
During the last six months of fiscal 1996, the Company was successful in closing
equity placements of approximately $3,080,000. In addition, during the fourth
quarter of fiscal 1996, approximately $3,360,000 of options and warrants were
exercised.
NON-CASH RESTRUCTURING CHARGE
In fiscal 1996, based on a shift in business direction and a desire to focus its
resources, the Company reassessed the future benefit of certain "older-
technology" product lines. As a result, the Company took a one-time, non-cash
write-down of $2,058,000 against capitalized software ($937,000), prepaid
licenses and royalties ($583,000), inventories ($204,000) and certain pre-paid
assets ($334,000) to reduce these assets to their net realizable value.
EXTRAORDINARY GAINS
During fiscal 1996 and 1995, the Company converted an aggregate of $3,394,000 of
outstanding accounts and notes payable and accrued interest into unregistered
shares of the Company's common and preferred stock. The Company recognized
extraordinary gains on certain issuances of common stock of approximately
$116,000 and $209,000, respectively, representing the difference in the
aggregate conversion price and the market value of the shares on the conversion
date.
NON-CASH LOSS ON CONVERTIBLE DEBT
During fiscal 1995, the conversion rate under the then outstanding 5%
Convertible Notes was reduced from $1.50 to $0.625. As a result of this
reduction, the Company recognized a non-cash accounting loss in the amount of
$204,000 pursuant to FAS 84 (Statement of Financial Accounting Standards No. 84
- - "Induced Conversions of Convertible Debt"). The Notes were converted in
January 1995.
DISCONTINUED OPERATIONS
Effective March 24, 1995, the Company sold 81% of the common stock of its then
wholly-owned subsidiary ImageSoft Incorporated ("ImageSoft"), to ImageSoft's
president in consideration of a $100,000 Promissory Note ("Note"). The Note is
secured by the assets and technologies of ImageSoft and matures on March 24,
2000. The Note bears interest at the annual rate of 7%, payable annually, and
calls for the principal to be paid at maturity. The Note has not been reflected
in the financial statements and a gain will be recognized as the cash payments
are received. As a result of the sale, the Company accounts for its investment
in ImageSoft under the cost method; accordingly, the results of ImageSoft's
operations have been excluded from the consolidated operations from the date of
sale. The Company's remaining 19% investment is recorded at zero.
19
<PAGE>
NOTE 3 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
JUNE 30, 1996
-------------
Accounts receivable:
Trade $ 857,000
Less allowance for doubtful accounts (197,000)
----------
660,000
Current license fees and royalties 1,019,000
----------
$1,679,000
----------
----------
Inventories:
Materials and supplies $ 104,000
Finished goods 101,000
----------
$ 205,000
----------
----------
Property and equipment, at cost:
Computers and other equipment $ 894,000
Office furniture and fixtures 198,000
Leasehold improvements 22,000
----------
1,114,000
Less accumulated depreciation and amortization (755,000)
----------
$ 359,000
----------
----------
Accrued liabilities:
Compensation and vacation $ 257,000
Accrued interest 11,000
Other 78,000
----------
$ 346,000
----------
----------
NOTE 4 - NOTES PAYABLE
The following is a summary of the outstanding debt as of June 30, 1996:
PCPI 7% Convertible Note with a director; payable $100,000
on demand; convertible at the market price of $0.31.
Prima International 8% Note with a private investor; 10,000
payable on demand.
Prima International $500,000 Line of Credit; prime 135,000
rate of interest plus 1.5% (9.75% as of June 30
1996); expiring on August 31, 1996; restricted to
finance the inventory purchases for sales to certain
pre-qualified foreign customers; guaranteed under an
agreement with the California Export Finance Office
("CEFO") and PCPI and is secured by substantially all
of the assets of Prima
PCPI capital leases 37,000
----------
Total notes payable and capital leases $ 282,000
----------
----------
As of June 30, 1996, Prima International was in default of the net worth and
profitability covenants under the line of credit.
NOTE 5. PREFERRED STOCK
5% CONVERTIBLE PREFERRED STOCK
Holders of the 5% convertible preferred stock are entitled to receive, when and
as declared by the Board of Directors, but only out of amounts legally available
for the payment thereof, cumulative cash dividends at the annual rate of $50.00
per share, payable semi-annually. Dividends in arrears at June 30, 1996 were
$1,789,000.
The 5% convertible preferred stock is convertible, at any time, into shares of
the Company's common stock, at a price of $3.50 per common share. This
conversion price is subject to certain antidilution adjustments, in
20
<PAGE>
the event of certain future stock splits or dividends, mergers, consolidations
or other similar events. During fiscal 1995 a total of 93 shares were converted
into 26,427 shares of common stock.
The Company shall reserve, and keep reserved, out of its authorized but unissued
shares of common stock, sufficient shares to effect the conversion of all shares
of the 5% convertible preferred stock. At June 30, 1996, 662,286 shares of the
Company's unissued common stock had been reserved for conversion.
In the event of any involuntary or voluntary liquidation, dissolution, or
winding up of the affairs of the Company, the 5% convertible preferred
stockholders shall be entitled to receive $1,000 per share, together with
accrued dividends, to the date of distribution or payment, whether or not earned
or declared.
The 5% convertible preferred stock is callable, at the Company's option, at call
prices ranging from $1,050 to $1,100 per share. No call on the 5% convertible
preferred stock was made during fiscal 1996 or 1995.
5% SERIES B CONVERTIBLE PREFERRED STOCK
In January, 1995, the Company designated 117 shares of previously undesignated
Preferred Stock as 5% Series B Convertible Preferred Stock, par value $1,000 per
share with a face value of $10,000 per share ("Series B"). Each share may be
converted into 9,523 shares of the Company's common stock at the conversion rate
of $1.05. The holders of the Series B have a liquidation preference of $10,000
per Series B share over the common shareholders but are junior to the
liquidation preference of the existing 5% Convertible Preferred Stock
shareholders. Holders of the Series B are entitled to receive, when and as
declared by the Board of Directors, but only out of amounts legally available
for the payment thereof, cumulative cash dividends at the annual rate of $500
per share, payable annually.
In January 1995, the Company issued 116.2 shares of the 5% Series B Convertible
Preferred Stock as settlement of accounts payable totaling $1,162,000. Dividends
in arrears at June 30, 1996 were $58,000.
The Company shall reserve, and keep reserved, out of its authorized but unissued
shares of common stock, sufficient shares to effect the conversion of all shares
of the Series B. At June 30, 1996, 1,106,667 shares of the Company's unissued
common stock had been reserved for conversion.
NOTE 6. COMMON STOCK WARRANTS
The Company, from time-to-time, grants warrants to employees, directors, outside
consultants and other key persons, to purchase shares of the Company's common
stock, at an exercise price equal to no less than the fair market value of such
stock on the date of grant. The terms and vesting of these warrants are
determined by the Board of Directors on a case-by-case basis. The following is a
summary of the warrant activity:
SHARES OF
COMMON STOCK
WARRANT PRICES UNDERLYING
PER SHARE WARRANTS
-------------- ------------
June 30, 1994 $0.50 to $1.50 3,893,501
Warrants granted $0.70 to $0.75 250,000
Warrants exercised $0.50 to $0.75 (1,125,366)
-----------
June 30, 1995 $0.60 to $1.50 3,018,135
Warrants granted $0.20 to $1.00 17,212,187
Warrants exercised $0.30 to $0.62 (6,133,333)
Warrants canceled $0.60 to $0.75 (1,753,035)
-----------
June 30, 1996 $0.20 to $1.00 12,343,954
-----------
-----------
Warrants exercisable
June 30, 1996 $0.20 to $1.00 12,274,954
In July 1995, the Company issued to one of its then officers five-year warrants
to purchase an aggregate of 150,000 shares of common stock at $0.20 per share,
the fair market value of the Company's stock on the date the warrants were
granted.
21
<PAGE>
As discussed in Note 2, in October 1995, the Board of Directors authorized the
exercise price for employee options and warrants to be reduced to the current
market value. Accordingly, an aggregate of 1,753,035 warrants were canceled and
reissued at an exercise price $0.20 per share. In addition, the Company issued
to three of its officers and its two outside directors warrants to purchase an
aggregate of 2,077,300 shares of the Company's common stock. Warrants to
purchase 2,820,335 shares were immediately exercisable; 950,000 were exercisable
on April 12, 1996; and 20,000 each are exercisable on September 22, 1996, 1997
and 1998.
As a result of the aforementioned reduction, one of its executive officers
incurred a liability to the Company under Section 16 of approximately $72,000.
This was subsequently paid, along with interest through the date of payment, to
the Company and has been included as a component of paid-in capital as of
June 30, 1996.
In September 1995, two-year warrants to purchase 200,000 shares of the Company's
unregistered common stock at $0.50 per share was issued to an investor group
that provided the Company loan financing in consideration for $6,000 and a six
month extension to their existing loan. Warrants to purchase 100,000 were
exercisable immediately and the remaining 100,000 warrants were exercisable
after six months.
In September 1995, the Company issued to each of two investors groups that
provided a loan financing, two-year warrants to purchase 30,926 shares (an
aggregate of 61,852 shares) of the Company's unregistered common stock at $0.50
per share. Warrants to purchase 15,463 were exercisable immediately and the
remaining 15,463 warrants were exercisable after six months for each investor
group. All of these warrants were issued in exchange for cash consideration of
approximately $2,000 which management believes approximates their fair market
value
In October 1995, the Company issued as part of a financing, five-year warrants
to purchase 250,000 unregistered shares of the Company's common stock at $0.25
per share.
Between January and April 1996, the Company issued to various consultants
warrants to purchase an aggregate of 2,720,000 shares of the Company's common
stock at prices ranging from $0.30 to $1.00 per share. As of June 30, 1996,
2,620,000 warrants were exercised generating gross proceeds of $1,272,000. The
remaining 100,000 warrants expire in January 2001 and are exercisable at the
price of $1.00 per share.
In January 1996, the Company sold to its Chairman for $500,000 five-year
warrants to purchase 10,000,000 unregistered shares of its common stock at the
rate of $1.00 per share. The warrant contained certain anti-dilution provisions
should the Company issue equity instruments at less than 50% of the exercise
price. In connection with a private placement with various private investors of
approximately $2.5 million, the exercise price of this warrant was subsequently
reduced to $0.60 per share in accordance with this provision. In June 1996,
warrants to purchase 3,333,333 shares were exercised.
NOTE 7. COMMON STOCK OPTIONS
In July 1984 ("1984 Plan"), and in November 1987 ("1988 Plan"), the Company
adopted stock option plans, under which incentive stock options and non-
qualified stock options may be granted to employees, directors, and other key
persons, to purchase shares of the Company's common stock, at an exercise price
equal to no less than the fair market value of such stock on the date of grant,
with such options exercisable in installments at dates typically ranging from
one to not more than ten years after the date of grant.
Under the terms of the 1988 Stock Option Plan, loans may be made to option
holders which permit the option holders to pay the option price, upon exercise,
in installments. A total of 1,060,000 shares of common stock are authorized for
issuance under the 1988 Stock Option Plan.
No shares are available for future issuance under the 1984 Stock Option Plan due
to the expiration of the plan during 1994. Options to acquire 200,844 shares
remained available for grant under the 1988 Plan.
In addition, the Board of Directors, outside the 1984 and 1988 Plans ("Outside
Plan"), grants to employees, directors and other key persons of PCPI or its
subsidiaries options to purchase shares of the Company's common stock, at an
exercise price equal to no less than the fair market value of such stock on the
date of grant. Options are exercisable in installments at dates typically
ranging from one to not more than ten years after the date of grant.
As discussed in Note 2, in October 1995, the Board of Directors authorized the
exercise price for employee options and warrants to be reduced to the current
market value. Accordingly, the exercise price on an
22
<PAGE>
aggregate of 91,100 and 1,375,000 options under the 1988 and Outside Plans,
respectively, were canceled and reissued at an exercise price of $0.20 per
share.
The following is a summary of the stock option activity:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
UNDERLYING OPTIONS
----------------------
OPTION PRICES 1984 AND 1988 OTHER OPTION PRICES
PER SHARE PLANS OPTIONS PER SHARE
------------- ------------- ------- -------------
<S> <C> <C> <C> <C>
June 30, 1994 $0.50 to $1.02 552,325 800,000 $0.72
Options granted $0.33 to $0.53 36,000 600,000 $0.33 to $0.52
Options exercised $0.50 to $0.82 (166,500)
Options canceled $0.50 to $1.02 (61,950) (75,000) $0.52
--------- -----------
June 30, 1995 $0.50 to $1.02 359,875 1,325,000 $0.33 to $0.72
Options granted $0.20 to $1.00 154,100 1,668,000 $0.20
Options exercised $0.20 (9,700) (40,000) $0.20
Options canceled $0.32 to $1.02 (343,008) (1,390,000) $0.20 to $0.72
--------- -----------
June 30, 1996 $0.20 to $1.02 171,267 1,563,000 $0.20
--------- -----------
--------- -----------
Option exercisable
June 30, 1996 $0.20 to $1.02 59,866 718,000 $0.20
</TABLE>
In October 1995, outside of the 1984 and 1988 Plans, the Company issued to two
officers of its Prima subsidiary, options to purchase an aggregate of 100,000
shares of PCPI common stock at an exercise price of $0.20 per share, the fair
market value of the Company's common stock on the date of grant. These options
expire in December 1999, with 34,000 exercisable on October 12, 1996 and 1997
and the remaining 32,000 options exercisable on October 12, 1998.
In October 1995, outside of the 1984 and 1988 Plans, the Company issued to
certain employees (one of which was an officer) options to purchase an aggregate
of 193,000 shares of PCPI common stock at an exercise price of $0.20 per share,
the fair market value of the Company's common stock on the date of grant. These
options expire in October 2005, with 23,000 options exercisable immediately,
57,000 exercisable on October 12, 1996 and 1997 and the remaining 56,000 options
exercisable on October 12, 1998.
NOTE 8 - SIGNIFICANT CUSTOMERS, REVENUE DATA, AND CONCENTRATION OF CREDIT RISK
As of and during the year ended June 30, 1996, Narbon Technologies accounted for
27% of consolidated accounts receivable and 4% of total consolidated revenues;
Canon USA accounted for 11% of consolidated accounts receivable and 3% of total
consolidated revenues; Computer 2000 accounted for 8% of consolidated accounts
receivable and 17% of total consolidated revenues; and Modo SRL accounted for 2%
of consolidated accounts receivable and 3% of total consolidated revenues.
As of and during the year ended June 30, 1995, Computer 2000 accounted for 27%
of consolidated accounts receivable and 24% of total consolidated revenues; Modo
SRL accounted for 14% of consolidated accounts receivable and 7% of total
consolidated revenues; and Xerox Corporation accounted for 10% of consolidated
accounts receivable and less than 1% of total consolidated revenues.
The majority of the Company's sales in fiscal 1996 and 1995 were to European
distributors (denominated in U.S. dollars) in the computer peripherals and
accessories market through its wholly-owned subsidiary, Prima.
During the years ended June 30, 1996 and 1995, 84% and 77% of total consolidated
revenues, respectively, were from foreign customers, as reflected in the
following table:
YEAR ENDED JUNE 30,
--------------------------
1996 1995
------------ -----------
Europe $ 6,605,000 $ 8,622,000
Far East 2,784,000 1,742,000
Others 355,000 733,000
------------ -----------
$ 9,744,000 $11,097,000
------------ -----------
------------ -----------
23
<PAGE>
The Company typically has not required collateral for its sales. However, it has
required letters of credit or prepayment from time-to-time as deemed necessary.
NOTE 9 - INCOME TAXES
The Company's provision for income taxes is accounted for in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS 109). FAS 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under the FAS 109 asset and
liability method, deferred tax assets and liabilities are determined based upon
the difference between the financial statement and tax bases of assets and
liabilities using the enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is then provided for
deferred tax assets which are more likely than not to not be realized.
The provision for income taxes for the years ended June 30, 1996 and 1995
comprises:
YEAR ENDED JUNE 30,
--------------------------
1996 1995
------------ -----------
Current:
State $ 4,000 $ 4,000
Federal
Foreign 4,000
------------ -----------
$ 4,000 $ 8,000
------------ -----------
------------ -----------
The components of deferred income taxes at June 30, 1996 are as follows:
Deferred tax assets:
Federal net operating loss carryforwards $ 5,841,000
State net operating loss carryforwards 644,000
Book reserves and accrued liabilities 1,171,000
Federal general business and other tax credits 517,000
State R&D and other credits 102,000
-----------
8,275,000
Valuation allowance (8,275,000)
-----------
Deferred taxes $ 0
-----------
-----------
The Company's Federal and state net operating loss carryforwards expire in 1997
through 2011. Additionally, the Company's Federal and state research and
development credits expire in 1998 through 2009. During 1991 the Company
sustained a change in ownership as defined in Section 382 of the Internal
Revenue Code; as a result, an annual limitation of approximately $350,000 was
imposed on the utilization of the net operating loss carryforwards generated
prior to the date of change. In addition, Section 383 places a limitation on the
usage of tax credits generated prior to such a change. Subsequent to the date of
the ownership change in 1991, there have been numerous additional equity
issuances; as a result, the Company may have experienced, or could experience in
the future, similar ownership changes, which could result in additional
limitations on the annual utilization of the Company's net operating loss
carryforwards and tax credits generated prior to the new change in ownership.
The provision for income taxes results in an effective rate which differs from
the Federal statutory rate. A reconciliation between the actual tax provision
and taxes computed at the statutory rate follows:
YEAR ENDED JUNE 30,
--------------------------
1996 1995
----------- ----------
Benefit at Federal statutory income tax rate $ (729,000) $(729,000)
Losses for which no current benefit is available 729,000 729,000
State income taxes 4,000 4,000
Foreign income taxes 4,000
--------- ---------
$ 8,000 $ 8,000
---------- ---------
---------- ---------
24
<PAGE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under non-cancelable capital leases, which
are included in property and equipment. As of June 30, 1996, the cost and
accumulated amortization of such equipment was $47,000 and $24,000,
respectively.
The Company entered into a non-cancelable agreement to lease its operating
facilities in San Diego, California, for 3 years, commencing February 1, 1996.
The Company has an option which expires on February 1, 1997, to extend the term
of the lease for an additional two years.
Future minimum rental commitments under non-cancelable leases are reflected in
the following table:
YEAR ENDED JUNE 30, CAPITAL LEASES OPERATING LEASES
- ------------------- -------------- ----------------
1997 $ 26,000 $ 125,000
1998 14,000 133,000
1999 5,000 71,000
-------- ---------
Total minimum lease payments 45,000 $ 153,000
---------
---------
Amount representing interest (8,000)
---------
Net present value of minimum lease pmts. $ 37,000
---------
---------
Total rental expense was approximately $217,000 in fiscal 1996 and $202,000 in
fiscal 1995.
The Company, because of the nature of its business, is from time to time
threatened or involved in legal actions. The Company, after discussion with
legal counsel, does not consider that any of these legal actions now pending
will result in a material adverse effect on the consolidated financial position
or results of operations of the Company and, further, does not consider that any
such proceedings fall outside ordinary, routine litigation incidental to the
business of the Company.
NOTE 11 - RELATED PARTY TRANSACTIONS
A director receives compensation as a consultant to the Company on corporate
matters and investment banking issues. These consulting fees amounted to
$108,000 during fiscal 1996 and 1995. On April 1, 1994, the Company and the
director entered into a five-year consulting agreement for the director to
continue to provide these services payable in monthly installments of $9,000.
During fiscal 1996, approximately $81,000 of accrued consulting fees and $27,000
for accrued directors fees owed to the Director were converted into unregistered
shares of the Company's common stock. During fiscal 1995, approximately $63,000
owed to the Director was converted into common stock through the exercise of
outstanding options.
As discussed in Note 4, one of the Company's directors loaned to the Company an
aggregate of $100,000 with interest at the rate of 7% per year. As of June 30,
1996, borrowing under this Note aggregated $100,000.
25
<PAGE>
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
26
<PAGE>
PART III
- --------------------------------------------------------------------------------
PURSUANT TO GENERAL INSTRUCTION E(3) TO FORM 10-KSB, THE INFORMATION REQUIRED BY
ITEMS 9, 10, 11, AND 12 OF PART III IS INCORPORATED BY REFERENCE FROM THE
COMPANY'S DEFINITIVE PROXY STATEMENT WITH RESPECT TO ITS 1995 ANNUAL MEETING OF
STOCKHOLDERS, TO BE FILED PURSUANT TO REGULATION 14A WITHIN 120 DAYS AFTER JUNE
30, 1995.
ITEM 13.
EXHIBITS, LIST, AND REPORTS ON FORM 8-K
(a) The following exhibit list states, in the case of certain exhibits, a prior
SEC filing which contains the exhibit and from which it is incorporated by
reference.
3(a) Certificate of Incorporation of the Company, as amended, and
currently in effect. See also Item 4(a). (Incorporated by reference to
Exhibit 3(a) to 1988 Form 10-K.)
3(b) Certificate of Amendment of Certificate of Incorporation of the
Company, filed February 8, 1995, as amended, and currently in effect.
(Incorporated by reference to Exhibit 3(b) to 1995 Form 10-K.)
3(c) By-Laws of the Company, as amended, and currently in effect.
(Incorporated by reference to Exhibit 3(b) to 1987 Form 10-K)
4(a) Amended Certificate of Designation of Personal Computer Products,
Inc. with respect to the 5% Convertible Preferred Stock. (Incorporated
by reference to Exhibit 4(d) to 1987 Form 10-K.)
4(b) Amended Certificate of Designation of Personal Computer Products,
Inc. with respect to the 5% Series B Convertible Preferred Stock.
(Incorporated by reference to Exhibit 4(b) to 1988 Form 10-K.)
10(a.1) 1984 Stock Option Plan for the Company. (Incorporated by
reference to Form S-8 Filed October 26, 1984, File No. 2-93993.)
10(a.2) Forms of standard Non-Qualified and Incentive Stock Option
Agreement for 1984 Stock Option Plan. (Incorporated by reference to
Form S-8 filed October 26, 1984, File No. 2-93993.)
10(b.1) 1988 Stock Option Plan for the Company. (Incorporated by
reference to Exhibit 10(g) in 1989 Form 10-K.)
10(b.2) Amendment and Restatement of 1988 Stock Option Plan.
(Incorporated by reference to Exhibit 10(d) to 1991 Form 10-K.)
10(b.3) Forms of standard Non-Qualified and Incentive Stock Option
Agreement for 1988 Stock Option Plan. (Incorporated by reference to
Exhibit 10(e) to 1991 Form 10-K)
10(c) Standard Industrial Lease Multi-Tenant - Modified Net dated
January 24, 1996 between the Company and Bernardo View, Ltd.; addendum
I to lease; addendum II to lease; Addendum III to Lease.
10(d) Reference is made to the various stock options and warrants
granted in 1996 to directors and executive officers as described in
Notes 6 and 7 to the 1996 financial statements. (Incorporated by
reference to Forms S-8 dated February 12, 1996, File Nos. 333-00871,
333-00873 and 333-00879).
27
<PAGE>
10(e.1) Executive Employment Agreement, as amended, between the
Company and Edward W. Savarese, dated July 1, 1990 and amended as of
February 25, 1994. (Incorporated by reference to Exhibit 10(k) to 1994
Form 10-KSB).
10(e.2) Compensation Agreement between the Company and Edward W.
Savarese, dated November 16, 1992. (Incorporated by reference to
Exhibit 10(af) to 1993 Form 10-KSB.)
10(f) Compensation Agreement between the Company and Harry J. Saal,
dated November 16, 1992. (Incorporated by reference to Exhibit 10(ad)
to 1993 Form 10-KSB.)
10(g.1) Compensation Agreement between the Company and Irwin Roth,
dated November 16, 1992. (Incorporated by reference to Exhibit 10(ag)
to 1993 Form 10-KSB.)
10(g.2) Consulting Agreement, dated April 1, 1994, between the Company
and Irwin Roth. (Incorporated by reference to Exhibit 10(az) to 1994
Form 10-KSB.)
10(h) Acquisition Agreement for acquisition of Prima International
subsidiary on October 1, 1993. (Incorporated by reference to Exhibit
2.1 to Amendment No. 1 to Form 8K/A dated October 14, 1993.)
10(i.1) Third Party Development Partner License Agreement, effective
October 22, 1993, between the Company and Adobe Systems Incorporated.
(Incorporated by reference to Exhibit 10(ai) to 1994 Form 10-KSB)
10(i.2) Reference Port Appendix No. 1, dated October 22, 1993, to the
Postscript Support Source and Object Code Distribution License
Agreement between Adobe Systems Incorporated and the Company.
(Incorporated by reference to Exhibit 10(aj) to 1994 Form 10-KSB)
10(j) PCPI/APS License Agreement, dated March 28, 1994, between the
Company and Integrated Device Technology, Inc. (Incorporated by
reference to Exhibit 10(ak) to 1994 Form 10-KSB)
10(k) International Sales Representative Agreement, dated October 15,
1993, between the Company and Nippo Ltd. (Incorporated by reference to
Exhibit 10(ao) to 1994 Form 10-KSB).
10(l) Consulting Agreement dated September 17, 1993 between the
Company and Marius A. Robinson. (Incorporated by reference to Exhibit
10(aq) to 1994 Form 10-KSB)
10(m.1) Warrant Purchase Agreement, dated September 17, 1993, between
the Company and Robinson International, Ltd. (Incorporated by
reference to Exhibit 10(ar) to 1994 Form 10-KSB).
10(m.2) Warrant Certificate for 250,000 Warrants to Purchase Shares of
Common Stock of the Company at $1.50 per share, dated September 17,
1993, between the Company and Robinson International, Ltd.
(Incorporated by reference to Exhibit 10(as) to 1994 Form 10-KSB)
10(m.3) Warrant Certificate for 250,000 Warrants to Purchase Shares of
Common Stock of the Company at $1.00 per share, dated September 17,
1993, between the Company and Robinson International, Ltd.
(Incorporated by reference to Exhibit 10(at) to 1994 Form 10-KSB)
28
<PAGE>
10(n) PCPI/MEI License Agreement, dated September 30, 1994 between
the Company and Matsushita Electric Industrial Co., Ltd. (Incorporated
by reference to Exhibit 10(aac) to 1994 Form 10-KSB)
10(o) Form of standard Warrant Agreement dated January 3, 1996 issued
to Harry J. Saal as described in Note 6 to the 1996 financial
statements.
10(p) Form of standard Warrant and Consulting Agreement issued to
consultants as described in Note 6 to the 1996 financial statements.
(Incorporated by reference to Form S-8 dated May 9, 1996, File Number
333-03375)
10(q) Compensation Agreement between the Company and Brian Bonar,
dated September 1, 1994.
10(r) Prima International Note and Security Agreement dated April 11,
1995.
21 List of Subsidiaries of the Company
23 Consent of Independent Accountants
Exhibits 10(a.1), (a.2), (b.1), (b.2), (b.3), (d), (e.1), (e.2), (f), (g.1),
(g.2), and (q) are management contracts or compensatory plans or arrangements.
The Company will furnish a copy of any exhibit to a requesting stockholder upon
payment of the Company's reasonable expenses in furnishing such exhibit.
(b) No reports on Form 8-K were filed during the last quarter of fiscal 1996
29
<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.
PERSONAL COMPUTER PRODUCTS, INC.
By: EDWARD W. SAVARESE
------------------
Edward W. Savarese
Vice Chairman, President, and
Chief Executive Officer
August 21, 1996
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
--------- ----- ----
HARRY J. SAAL Chairman of the Board of Directors August 21, 1996
- -------------
Harry J. Saal
EDWARD W. SAVARESE Vice Chairman of the Board of August 21, 1996
- ------------------ Directors, President, and Chief
Edward W. Savarese Executive Officer
RALPH R. BARRY Secretary and Chief Financial Officer August 21, 1996
- -------------- (PRINCIPAL FINANCIAL OFFICER AND
Ralph R. Barry PRINCIPAL ACCOUNTING OFFICER)
BRIAN BONAR Executive Vice President and Director August 21, 1996
- -----------
Brian Bonar
IRWIN ROTH Director August 21, 1996
- ----------
Irwin Roth
30
<PAGE>
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
NUMBER DESCRIPTION OF EXHIBIT PAGE
3(a) Certificate of Incorporation of the Company, as amended, and
currently in effect. See also Item 4(a). (Incorporated by
reference to Exhibit 3(a) to 1988 Form 10-K.). . . . . . . . . . *
3(b) Certificate of Amendment of Certificate of Incorporation of the
Company, filed February 8, 1995. (Incorporated by reference to
Exhibit 3(b) to 1995 Form 10-K.) . . . . . . . . . . . . . . . . *
3(c) By-Laws of the Company, as amended, and currently in effect.
(Incorporated by reference to Exhibit 3(b) to 1987 Form 10-K). . *
4(a) Amended Certificate of Designation of Personal Computer Products,
Inc. with respect to the 5% Convertible Preferred Stock.
(Incorporated by reference to Exhibit 4(d) to 1987 Form 10-K.) . *
4(b) Amended Certificate of Designation of Personal Computer Products,
Inc. with respect to the 5% Series B Convertible Preferred Stock
(Incorporated by reference to Exhibit 4(b) to 1995 Form 10-K.) . *
10(a.1) 1984 Stock Option Plan for the Company. (Incorporated by
reference to Form S-8 Filed October 26, 1984, File No.
2-93993.). . . . . . . . . . . . . . . . . . . . . . . . . . . . *
10(a.2) Forms of standard Non-Qualified and Incentive Stock Option
Agreement for 1984 Stock Option Plan. (Incorporated by reference
to Form S-8 filed October 26, 1984, File No. 2-93993.). . . . . *
10(b.1) 1988 Stock Option Plan for the Company. (Incorporated by
reference to Exhibit 10(g) in 1989 Form 10-K.) . . . . . . . . . *
10(b.2) Amendment and Restatement of 1988 Stock Option Plan.
(Incorporated by reference to Exhibit 10(d) to 1991 Form
10-K.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
10(b.3) Forms of standard Non-Qualified and Incentive Stock Option
Agreement for 1988 Stock Option Plan. (Incorporated by reference
to Exhibit 10(e) to 1991 Form 10-K). . . . . . . . . . . . . . . *
10(c) Standard Industrial Lease Multi-Tenant - Modified Net dated
January 24, 1996 between the Company and Bernardo View, Ltd.;
addendum I to lease; addendum II to lease; Addendum III to
Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10(d) Reference is made to the various stock options and warrants
granted in 1996 to directors and executive officers as
described in Notes 6 and 7 to the 1996 financial statements.
(Incorporated by reference to Forms S-8 dated February 12, 1996,
File Nos. 333-00871, 333-00873 and 333-00879). . . . . . . . . . *
10(e.1) Executive Employment Agreement, as amended, between the Company
and Edward W. Savarese, dated July 1, 1990 and amended as of
February 25, 1994. (Incorporated by reference to Exhibit 10(k)
to 1994 Form 10-KSB.). . . . . . . . . . . . . . . . . . . . . . *
10(e.2) Compensation Agreement between the Company and Edward W. Savarese,
dated November 16, 1992. (Incorporated by reference to Exhibit
10(af) to 1993 Form 10-KSB.) . . . . . . . . . . . . . . . . . . *
* EXHIBIT IS INCORPORATED BY REFERENCE ONLY AND A COPY IS NOT INCLUDED IN THIS
FILING.
31
<PAGE>
NUMBER DESCRIPTION OF EXHIBIT PAGE
10(f) Compensation Agreement between the Company and Harry J. Saal,
dated November 16, 1992. (Incorporated by reference to Exhibit
10(ad) to 1993 Form 10-KSB.) . . . . . . . . . . . . . . . . . . *
10(g.1) Compensation Agreement between the Company and Irwin Roth, dated
November 16, 1992. (Incorporated by reference to Exhibit 10(ag)
to 1993 Form 10-KSB) . . . . . . . . . . . . . . . . . . . . . . *
10(g.2) Consulting Agreement, dated April 1, 1994, between the Company
and Irwin Roth. (Incorporated by reference to Exhibit 10(az) to
1994 Form 10-KSB.) . . . . . . . . . . . . . . . . . . . . . . . *
10(h) Acquisition Agreement for acquisition of Prima International
subsidiary on October 1, 1993. (Incorporated by reference to
Exhibit 2.1 to Amendment No. 1 to Form 8K/A dated October 14,
1993.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
10(i.1) Third Party Development Partner License Agreement, effective
October 22, 1993, between the Company and Adobe Systems
Incorporated. (Incorporated by reference to Exhibit 10(ai) to
1994 Form 10-KSB.) . . . . . . . . . . . . . . . . . . . . . . . *
10(i.2) Reference Port Appendix No. 1, dated October 22, 1993, to the
Postscript Support Source and Object Code Distribution License
Agreement between Adobe Systems Incorporated and the Company.
(Incorporated by reference to Exhibit 10(aj) to 1994 Form
10-KSB.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
10(j) PCPI/APS License Agreement, dated March 28, 1994, between the
Company and Integrated Device Technology, Inc. (Incorporated by
reference to Exhibit 10(ak) to 1994 Form 10-KSB.). . . . . . . . *
10(k) International Sales Representative Agreement, dated October 15,
1993, between the Company and Nippo Ltd. (Incorporated by
reference to Exhibit 10(ao) to 1994 Form 10-KSB.). . . . . . . . *
10(l) Consulting Agreement dated September 17, 1993 between the Company
and Marius A. Robinson. (Incorporated by reference to Exhibit
10(aq) to 1994 Form 10-KSB.) . . . . . . . . . . . . . . . . . . *
10(m.1) Warrant Purchase Agreement, dated September 17, 1993, between
the Company and Robinson International, Ltd. (Incorporated by
reference to Exhibit 10(ar) to 1994 Form 10-KSB.). . . . . . . . *
10(m.2) Warrant Certificate for 250,000 Warrants to Purchase Shares of
Common Stock of the Company at $1.50 per share, dated September
17, 1993, between the Company and Robinson International, Ltd.
(Incorporated by reference to Exhibit 10(as) to 1994 Form
10-KSB.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
10(m.3) Warrant Certificate for 250,000 Warrants to Purchase Shares of
Common Stock of the Company at $1.00 per share, dated September 17,
1993, between the Company and Robinson International, Ltd.
(Incorporated by reference to Exhibit 10(at) to 1994 Form
10-KSB.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
* EXHIBIT IS INCORPORATED BY REFERENCE ONLY AND A COPY IS NOT INCLUDED IN THIS
FILING.
32
<PAGE>
NUMBER DESCRIPTION OF EXHIBIT PAGE
10(n) PCPI/MEI License Agreement, dated September 30, 1994 between
the Company and Matsushita Electric Industrial Co., Ltd.
(Incorporated by reference to Exhibit 10(aac) to 1994 Form
10-KSB.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
10(o) Form of standard Warrant Agreement dated January 3, 1996 issued
to Harry J. Saal as described in Note 6 to the 1996 financial
statements.. . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10(p) Form of standard Warrant and Consulting Agreement issued to
consultants as described in Note 6 to the 1996 financial
statements. (Incorporated by reference to Form S-8 dated May 9,
1996, File Number 333-03375) . . . . . . . . . . . . . . . . . . *
10(q) Compensation Agreement between the Company and Brian Bonar dated
September 1 , 1994. (Incorporated by reference to Exhibit 10(r)
to 1995 Form 10-KSB).. . . . . . . . . . . . . . . . . . . . . . *
10(r) Prima International Note and Security Agreement dated April 11,
1995. (Incorporated by reference to Exhibit 10(u) to 1995
Form 10-KSB).. . . . . . . . . . . . . . . . . . . . . . . . . . *
21 List of Subsidiaries of the Company. . . . . . . . . . . . . . . 82
23 Consent of Independent Accountants . . . . . . . . . . . . . . . 83
* EXHIBIT IS INCORPORATED BY REFERENCE ONLY AND A COPY IS NOT INCLUDED IN THIS
FILING.
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STANDARD INDUSTRIALICOMMERCIAL 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 14, 1996 is made by and between Bernardo View Ltd. ("Lessor")
and Personal Computer Products, 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 11031 Via
Frontera, Suite 100 , located in the City of San Diego, County of
San Diego, State of California, with zip code 92127, as outline 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): 11031 Via Frontera,
of the R.B. Tech Center Project.
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 or 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: 36 unreserved vehicle parking spaces ("Unreserved
Parking Spaces"); and 0 reserved vehicle parking spaces ("Reserved
Parking Spaces"). (Also see Paragraph 2.6)
1.3 TERM: 3 year and 0 months ("Original Term") commencing
February 1, 1996 ("Commencement ate") and ending January 31, 1999
"(Expiration Date"). (Also see Paragraphs 3.)
1.4 EARLY POSSESSION: N/A ("Early Possession Date"). (Also see
Paragraph 3.2 and 3.3)
1.5 BASE RENT: $8,765.28 per month ("Base Rent"), payable on the
1st day of each month commencing February 1, 1996. (Also see
Paragraph 4.)
If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum I, attached hereto.
1.6 (a) BASE RENT PAID UPON EXECUTION: $8,765.28 as Base Rent for the
period February 1-29, 1996.
1.6 (b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: 17.50
percent (17.50%) ("Lessee's Share") as determined by prorata square footage
of the Premises as compared to the total square footage of the Building
or ___ other criteria as described in Addendum I.
1.7 SECURITY DEPOSIT: $8,765.28 ("Security Deposit"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: OFFICE AND MANUFACTURING. ("Permitted Use") (Also
see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "Insuring Party" (Also see
Paragraph 6.)
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):
N/A represents Lessor exclusively ("Lessor's Broker");
N/A represent Lessee exclusively ("Lessee's Broker"); or
N/A represent 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) (or in the
event there is no separate written agreement between Lessor and said
Broker(s), the sum of $0.00) for brokerage services rendered by said
Broker(s) in connection with this transaction.
EXHIBIT 10( c )
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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 49 through 54, and Exhibits A through B,
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, or 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 or 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 of 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, 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 warranties 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 non-
compliance of the Premises with said warranties.
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<PAGE>
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 invites 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 terms "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, 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, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the 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. 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;
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(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 sixty (60) 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 sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder: provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period Lessee's fight to cancel this Lease hereunder shall
terminate and be of no further force or effect. 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 off set or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one 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 stated 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 1.6(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.
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(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 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 operating, 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 improvement, facilities and services set forth in
Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to
either have said improvement 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 of
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 sixty (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 Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such
overpayment 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 ware 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.
5. SECURITY DEPOSITS. 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 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 therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. 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
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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 of 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 or Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not
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 governrnental
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 of 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 or the building, other than as
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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 above 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 of by anyone under I-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 thereat, or of any contamination therein involved,
and shall strive 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.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust of ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspection shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing of imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14
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(Condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements of the age of such portion of the Premises), 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, roofs, 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 ventilation system for the
Premises. However, Lessor reserves the right, upon notice to Lessee, to procure
and maintain the contract for 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 the case of an emergency, in which case no notice
shall be required), perform such obligations on Lease'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 Paragraphs 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 4.2, 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
Initials:
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and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a common Area 0parating 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 machinery 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 of 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 he 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 any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereon
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 affect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
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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 of 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 Lessees 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
redemption of any soil, material or ground water 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 the 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 or 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 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 the 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
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 and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as
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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 0perating 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 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 requirernents 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 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 shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to 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 the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
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8.6 WAIVER OF SUBROGATION. Without affecting any other fights 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 fight to recover damages shall not be limited by the
amount of insurance 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 subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's 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, judgrnents, penalties, loss of permits, attorneys' and
consultants' fees, expenses and/or liabilities arising out of, involving, or in
connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether 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 of 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 of 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 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. Ihe
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
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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 affect. 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 of adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and affect. 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 of destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If 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-a
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 fight within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessees. 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 then the time 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.
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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 or 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 proved 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 reasonable 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 which 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.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs unless Lessee is legally responsible therefor (in which case Lessee shall
make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and affect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (1) 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 affect, or (11) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Bass Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
1he 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. It Lessee does not
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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 to 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 lO.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 provisions
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, at 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 improvements 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
Properly 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 Alternations, 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 worksheets or such other information as
rnaybe 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 its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within 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
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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 and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiting Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose,
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise),whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results of 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 Lesser 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 option, be a
Default curable after notice per Paragraph l3.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or sublettimg 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, a
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 credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and 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 lair 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 affect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the now
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 here under, nor (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this
Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a
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waiver of 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 subletting 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 of 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 sublessee, 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 responsibilities and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to
the portion of 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
reasonable 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 six (6) 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 fight 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, al its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease:
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further assign
or sublet all or any port 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 Paragraphs 13.2and/or 13.3:
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(a) The vacating of the Premises without the intention of reoccupy the
same, or the abandonment of the Premises.
(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 of surety bond required under this Lease, of the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable 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 of
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraph 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 (casements), or (viii) any other documentation of
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or an 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 he 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 at 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.
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(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 of the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) 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 assurances 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 chock 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 to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawfull
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: (1) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment 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 attorney's 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 l3.2. 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 lease for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph 13.1
(b), (c) or (d). In such case, the applicable grace period under the unlawful
detainer statue shall fun concurrently after the one such statutory notice, and
the failure of Lessee 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
statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 195l.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
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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 where in the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same maybe 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 an
inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 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 which 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 of 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 of sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the 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
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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 renewable 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 of 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 of 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, at 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
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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
of 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 PART-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 AGREEMENT; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its won investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. 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 of 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 there under
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 herein and mailed with postage
prepaid. Notices delivered by United States Express Mail or overnight
courier that Guarantees next day delivery shall be deemed
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given twenty-four (24) hours after delivery of the same to the United States
postal Service or courier. If any notice is transmitted by facsimile
transmission or similar means, the same shall be deemed served or delivered upon
telephone 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 fender
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 moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at of 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 two
hundred percent (200%) 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 Devices"), 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.
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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 of Broker brings an action or proceeding to
enforce the terms hereof or declare fights hereunder, the Prevailing Party (as
hereafter 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 the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant
such consent.
34. SIGNS. Lessee shall not place any sign upon the 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 Lessor shall be subject
to the provisions of Paragraph 7 (Maintenance, Repairs, Utility
Installations, Trade Fixtures and Alterations). Unless otherwise expressly
agreed herein, Lessor reserves all rights to the use or the roof of the
Building and the right to install advertising signs on the Building,
including the roof, which do not unreasonably interfere with the conduct of
Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
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35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary of other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, of a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate and sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withhold 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(a), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default of Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver or 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 Real
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 GUARANTOR. 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 or 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.
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.
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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 of 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 Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), of (iii) during the time Lessee is in
Breach of this Lease, of (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 with in 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, at
(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
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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 or Lessee'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 or refinancing
of the property of which the Promises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person at 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 VOUNTARY 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 ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORACE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTAION 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 their respective signatures.
Executed at: San Diego, California Executed at: San Diego, California
on: on:
By LESSOR: By LESSEE:
Bernardo View Ltd. Personal Computer Products, Inc.
By: William J. Brehm/s Edward W. Savarese/s
Name Printed: William J. Brehm Name Printed: Edward W. Savarese
Title: Managing Partner Title: Chairman, President and CEO
Address: 17065 Via Del Campo, #200 Address: 10865 Rancho Bernardo Road
Telephone: (619) 451-6200 Telephone: (619)
Facsimile: (619) 451-3814
BROKER: BROKER:
Executed at: Executed at:
on: on:
By: By:
Name Printed: Name Printed:
Title: Title:
Address: Address:
Telephone: Telephone:
Facsimile: Facsimile:
NOTE: These forms are often modified to meet changing requirements and needs
of the industry. Always write or call to make sure you are utilizing the most
current form; AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa
St., M-1, Los Angeles, CA 9007l. (213) 687-8777.
Initials
MULTI-TENANT - MODIFIED NET
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American Industrial Real Estate Association 1993
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ADDENDUM I TO LEASE
This amendment to that certain real estate Lease dated January 24, 1996, by and
between Bernardo View Ltd. (Lessor) and Personal Computer Products, Inc.
(Lessee) as tenants.
Witnesseth
Whereas, Landlord and Tenant desire to modify the Lease in certain respects:
Now, therefore, in consideration of the foregoing intending to be legally bound,
Landlord and Tenant agree as follows:
49. UTILITIES: Tenant is responsible for and agrees to pay separately
metered utilities.
50. HVAC: Tenant agrees to maintain HVAC for the term of the lease and to
contract for regularly scheduled maintenance.
51. RENT SCHEDULE: The base rent schedule is as follows:
Year 1 - 12,174 sq. ft. at $.72/sq. ft. = $8,765.28
Year 2 - 12,174 sq. ft. at $.76/sq. ft. = $9,252.24
Year 3 - 12,174 sq. ft. at $.80/sq. ft. = $9,739.20
52. OPTION TO EXTEND: Landlord agrees to grant tenant one (1)
option to extend the terms of the lease for two (2) years (provided tenant is
not in default of the lease) in accordance with the following schedule:
Year 4 - 12,174 sq. ft. at $.84/sq. ft. = $10,226.16
Year 5 - 12,174 sq. ft. at $.88/sq. ft. = $10,713.12
Tenant must provide Landlord notice of intent to exercise this option no later
than January 31, 1997.
53. COMMON AREA EXPENSE: Tenant's pro rata share of the common area
expenses is 17.50% and will be approximated (based on the previous year's
expenses) and billed on a monthly basis. A statement will be prepared annually
and any monies due will be paid within thirty(30) days of receipt. Landlord
reserves the right to increase or decrease the monthly supplemental amount.
54. CONDITION OF PREMISES: Landlord and Tenant have agreed on certain
modifications to the premises and Tenant agrees to accept the premises as per
Exhibit B.
Landlord's Initials: Tenant's Initials:
William J. Brehm/s Edward W. Savarese/s
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ADDENDUM II TO LEASE
This amendment to that certain real estate Lease dated January 24, 1996, by and
between Bernardo View Ltd. (Lessor) and Personal Computer Products, Inc.
(Lessee) as tenants.
Witnesseth
Whereas, Landlord and Tenant desire to modify the Lease in certain respects:
Now, therefore, in consideration of the foregoing intending to be legally bound,
Landlord and Tenant agree as follows:
1 . AVAILABILITY OF ADDITIONAL SPACE: Provided Tenant is not in default under
this lease, Landlord agrees to notify Tenant should the adjacent suite (2,150
square feet) become available and Tenant will have three (3) days to respond to
same.
Landlord's Initials: Tenant's Initials:
William J. Brehm Edward W. Savarese
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AMENDMENT III TO LEASE
This amendment to that certain real estate Lease dated January 24, 1996, by and
between Bernardo View Ltd. (Lessor) and Personal Computer Products, Inc.
(Lessee) as tenant.
Witnesseth
Whereas, Landlord and Tenant desire to modify the Lease in certain respects:
Now, therefore, in consideration of the foregoing intending to be legally bound,
Landlord and Tenant agree as follows:
1. ADDITIONAL SQUARE FOOTAGE: Landlord agrees to lease to Tenant the
adjacent 2,150 square foot space (suite #304) effective May 1, 1996,
2. RENT SCHEDULE- The base rent shall be as follows:
Year 1 - 2,150 sq. ft. at $.63/sq. ft. = $1,354.50
Year 2 - 2,150 sq. ft. at $.70/sq. ft. = $1,505.00
Year 3 - 2,150 sq. ft. at $.80/sq. ft. = $1,720.00
3. UTILITIES: Tenant is responsible for and agrees to pay separately
metered utilities.
4. HVAC: Tenant agrees to maintain the HVAC and to contract for
regularly scheduled maintenance.
5. OPTION TO EXTEND: Provided tenant is not in default under this lease,
Tenant will be allowed one (1) option to extend this lease for a total of two
(2) years in accordance with the following schedule:
Year 4 - 2,150 sq. ft. at $.84/sq, ft. = $1,806.00
Year 5 - 2,150 sq. ft. at $.88/sq. R. = $1,892.00
Tenant must provide Landlord notice of intent to exercise this option no later
than January 1, 1997.
6. COMMON AREA EXPENSE: Tenant's pro rata share of the common area
expenses is 2.86% and will be approximated (based on the previous year's
expenses) and billed on a monthly basis. A statement will be prepared annually
and any monies due will be paid within thirty (30) days of receipt. Landlord
reserves the right to increase or decrease the monthly supplemental amount.
7. Condition of Premises: Landlord agrees to provide a "doorway" between
tenants suites and Tenant agrees to accept the premises "as is",
Landlord's Initials: Tenant's Initials:
William J. Brehm Edward W. Savarese
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THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO AN
EXEMPTION TO SUCH ACT.
WARRANT FOR THE
PURCHASE OF SHARES OF COMMON STOCK
OF
PERSONAL COMPUTER PRODUCTS, INC.
THIS CERTIFIES THAT Harry J. Saal Trust, dated July 19, 1972, as amended
(or any permitted transferee or assignee, the "Holder"), is entitled, subject to
the terms set forth in this Warrant, to purchase from Personal Computer
Products, Inc., a Delaware corporation (or any successor in interest, the
"Company"), up to 10,000,000 shares of common stock, as adjusted (the "Common
Stock"), of the Company effective upon the date set forth on the signatures page
hereto (the "Warrant Issue Date"), upon surrender hereof, at the principal
office of the Company, with the subscription form attached hereto duly executed,
and simultaneous payment therefor as hereinafter provided, at the Exercise Price
as set forth herein. The number, character and Exercise Price of such shares of
Common Stock are subject to adjustment as provided herein. The term "Warrant"
as used herein shall include this Warrant and any warrants delivered in
substitution or exchange therefor as provided herein. The purchase price for
the issuance and sale of this Warrant shall equal five hundred thousand dollars
($500,000) and shall be due and payable concurrently with the execution of this
Warrant.
1. TERM OF WARRANT.
1 TERM OF WARRANT. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, at any time, in whole or in part, at
the sole option of the Holder, without any obligation to do so, during the term
commencing on the Warrant Issue Date and ending at 5:00 p.m., Pacific Standard
Time, on January 3, 2001 (the "Warrant Term"), and shall be null and void
thereafter. Ninety days prior to the expiration date of this Warrant, the
Company shall provide written notice of such expiration date to the Holder at
the address specified by the Holder. Failure to provide timely notice shall
extend the period of exercisability until such notice is actually received by
the Holder.
2 EXERCISE PRICE. The Exercise Price at which this Warrant may be
exercised shall be $1.00 per share of Common Stock, as adjusted from time to
time pursuant to the terms hereof. Such Exercise Price shall be paid as set
forth herein.
2. EXERCISE OF WARRANT.
1 Subject to the terms of this Warrant, the purchase rights
represented by this Warrant are exercisable in whole or in part by the Holder
but not for fewer than 1,000 shares at a time (or such lesser number of shares
which may then constitute the maximum number purchasable; such number being
subject to adjustment as provided below), during the Warrant Term and period of
exercisability by surrender of this Warrant and the attached Notice of Exercise,
duly completed and executed on behalf of the Holder, at the principal office of
the Company, upon payment solely at the discretion of the Holder (i) in cash or
by check to the Company or by means of a promissory note (with the following
terms: a two-year note, with a balloon payment at maturity, bearing interest at
Citibank, N.A.'s prime rate of
EXHIBIT 10 ( o )
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interest, plus 3%, (ii) by cancellation by the Holder of indebtedness of the
Company to the Holder or (iii) by a combination of (i) and (ii) above.
2 This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
3 RIGHTS OF A STOCKHOLDER. Subject to the terms of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance, or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the shares of Common Stock purchasable upon the exercise hereof shall have
been issued, as provided herein. The Company understands and agrees that
nothing in this Warrant or any other agreement with Holder or any actions of
Holder shall obligate Holder to exercise any of its rights to purchase the
capital stock of the Company.
4. CERTAIN ADJUSTMENTS.
1 SPLITS AND SUBDIVISIONS. In the event the Company should at any
time or from time to time fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
the holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as the
"Common Stock Equivalents") without payment of any consideration by such Holder
for the additional shares of Common Stock or Common Stock Equivalents (including
the additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such distribution, split
or subdivision if no record date is fixed), the Exercise Price shall be
appropriately decreased and the number of shares of Common Stock as to which
purchase rights under this Warrant exist at the time shall be appropriately
increased in proportion to such increase (or potential increase) of outstanding
shares.
2 RECLASSIFICATION, ETC. If the Company at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided herein.
3 COMBINATION OF SHARES. If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination of
the outstanding shares of Common Stock, the Exercise Price shall be
appropriately increased and the number of shares of Common Stock as to which
purchase rights under this Warrant
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exist at the time shall be appropriately decreased in proportion to such
decrease in outstanding shares.
4 ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event the Company
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights, then, in each such case for the purpose of this
subsection 4.4, upon exercise of this Warrant, the Holder hereof shall be
entitled to a proportionate share of any such distribution as though such Holder
was the holder of the number of shares of Common Stock of the Company into which
this Warrant may be exercised as of the record date fixed for the determination
of the holders of Common Stock of the Company entitled to receive such
distribution.
5 REORGANIZATION, CHANGE OF CONTROL AND CONSOLIDATION. In case of
any capital reorganization, change of control, sale of assets, merger,
liquidation, dissolution, acquisition, or other change in the Common Stock of
the Company (other than as a result of a split, subdivision, combination, or
reclassification provided for in this Section 4 above), then, as a condition of
such reorganization, change of control, sale of assets, merger, liquidation,
dissolution, acquisition or other similar change, lawful provision shall be
made, and duly executed documents evidencing the same from the Company or its
successor shall be delivered to the Holder of this Warrant, so that the Holder
of this Warrant shall have the right at any time prior to the expiration of this
Warrant on January 3, 2001 to purchase, at a total price equal to that payable
upon the exercise of this Warrant, the kind and amount of shares of stock and
other securities and property receivable in connection with such reorganization,
change of control, sale of assets, merger, liquidation, dissolution, acquisition
or other similar change by a holder of the same number of shares of Common Stock
as were purchasable by the Holder of this Warrant immediately prior to such
reorganization, change of control, sale of assets, merger, liquidation,
dissolution, acquisition or other similar change. In any such case, appropriate
provisions shall be made with respect to the rights and interest of the Holder
of this Warrant so that the provisions hereof shall thereafter be applicable
with respect to any shares of stock or other securities and property deliverable
upon exercise hereof, and appropriate adjustments shall be made to the purchase
price per share payable hereunder, provided the aggregate purchase price shall
remain the same.
6 ADDITIONAL ADJUSTMENTS. If, after the execution date of this
Warrant, the Company shall issue additional shares of Common Stock or securities
convertible into or exchangeable for Common Stock ("Additional Stock") without
consideration or for a consideration per share less than one-half of the
Exercise Price in effect immediately prior to such issuance of Additional Stock,
then the Exercise Price in effect immediately prior to such issuance shall
forthwith be reduced to twice the consideration per share paid for the
Additional Stock; provided, however, that no adjustment to the Exercise Price
pursuant to this Paragraph 4.6 shall have the effect of increasing the Exercise
Price above the Exercise Price in effect immediately prior to such adjustment.
7 CERTIFICATE AS TO ADJUSTMENTS. In the case of each adjustment or
readjustment of the Exercise Price pursuant to this Section 4, the Company will
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based
to be delivered to the Holder. The Company will, upon the written request at
any time of the Holder, furnish or cause to be furnished to such Holder a
certificate setting forth:
(a) Such adjustments and readjustments;
(b) The Exercise Price at the time in effect; and
(c) The number of shares of Common Stock and the amount, if any,
of other property at the time receivable upon the exercise of this Warrant.
8 NOTICES OF RECORD DATE, ETC. In the event of:
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(a) Any taking by the Company of a record of the holders of any
class of securities of the Company for the purpose of determining the
holders thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right; or
(b) Any reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any sale of assets,
change of control, acquisition of the Company to any other person or any
consolidation or merger involving the Company; or
(c) Any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, the Company will mail to the Holder at least
twenty (20) days prior to the earliest date specified therein, a notice
specifying:
(i) The date on which any such record is to be taken for
the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right; and
(ii) The date on which any such reorganization,
reclassification, transfer, change of control, acquisition, consolidation,
merger, dissolution, liquidation or winding-up is expected to become
effective and the record date for determining stockholders entitled to vote
thereon.
5. FRACTIONAL SHARES. No fractional shares shall be issued in
connection with any exercise of this Warrant. In lieu of the issuance of such
fractional share, the Company shall make a cash payment equal to the then fair
market value of such fractional share as determined in good faith by the
Company's Board of Directors.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Holder that, except as set forth on a Schedule of
Exceptions attached hereto as Schedule I, which exceptions shall be deemed to be
representations and warranties of the Company made hereunder:
1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted.
2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of the
Company consists of 50,000,000 shares of common stock, par value $0.005 ("Common
Stock") and 10,000 shares of Preferred Stock, of which 18,093,610 shares of
Common Stock are currently issued and outstanding, 2,318 shares of 5%
Convertible Preferred Stock are currently issued and outstanding and 116.2
shares of 5% Series B Preferred Stock are currently issued and outstanding. The
outstanding shares of Common Stock and Preferred Stock of the Company are all
duly and validly authorized and issued, fully paid and nonassessable. Except
for this Warrant and options and warrants to purchase 7,589,598 shares of Common
Stock, there are not outstanding any options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from the Company of any shares of its capital stock. Other than as set forth
herein, no holder of any securities of the Company has any registration rights
on such securities.
3 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Warrant, the performance of all obligations of
the Company hereunder, and the authorization, issuance (or reservation for
issuance), sale and delivery of the Common Stock issuable upon exercise of this
Warrant, has been taken prior to the execution of this Warrant, and this Warrant
constitutes a valid and legally binding obligation of the Company, enforceable
in accordance with its terms.
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4 VALID ISSUANCE OF COMMON STOCK. The Common Stock issuable upon
exercise of this Warrant has been duly and validly reserved for issuance and,
upon issuance in accordance with the terms of the Company's Certificate of
Incorporation, will be duly and validly issued, and nonassessable, and will be
free of restrictions on transfer other than restrictions under applicable state
and Federal securities laws or pursuant to this Warrant.
5 FINANCIAL STATEMENTS. The financial statements (consisting of
June 30, 1995 audited financial statements and September 30, 1995 unaudited
financial statements) of the Company provided to the Holder have been prepared
in accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission and the Securities Act of
1933, as amended and accurately reflect the results of operations and condition
of the Company as of the dates specified therein.
6 GOVERNMENTAL AND THIRD PARTY CONSENTS. No consent of any third
party or consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any Federal, state or
local governmental authority on the part of the Company is required in
connection with the consummation of the transactions contemplated by this
Warrant.
7 COMPLIANCE WITH INSTRUMENTS. The Company is not in violation or
default in any respect of any provision of its incorporation documents or
Bylaws, or in any respect of any instrument, agreement, judgment, order, writ,
decree or contract to which it is a party or by which it is bound or of any
provision of any statute, rule or regulation applicable to it. The execution,
delivery and performance of this Warrant, and the consummation of the
transactions contemplated hereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, agreement,
judgment, order, writ, decree or contract or an event that results in the
creation of any lien, charge or encumbrance upon any assets of the Company or
the suspension, revocation, impairment, forfeiture, or nonrenewal of any permit,
license, authorization, or approval applicable to the Company, its business or
operations or any of its assets or properties.
8 DISCLOSURE. The Company has fully provided the Holder with all
the information relating to the business and proposed business of the Company
that the Company believes is necessary to enable the Holder to make an
investment in the Company. No written statements or certificates made or
written information delivered in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading. There is no presently existing
event, fact or condition that could or would have a material adverse effect upon
the business condition on the Company or that could be expected to do so, which
has not been set forth in an exhibit to this Warrant or otherwise disclosed by
the Company to Holder.
7. COVENANTS.
1 FURNISHING OF INFORMATION. The Company will provide Holder with
any additional information, written or oral, that would adversely affect or is
likely to adversely affect the condition (financial or otherwise), business,
prospects or results or operations of the Company, including without limitation,
threatened litigation or any change or development that would affect or are
likely to adversely affect the accuracy of any of the representations or
warranties made by the Company. In addition to the foregoing, the Company shall
from time to time update Holder on the status of any such claim, condition or
development.
2 INDEMNIFICATION MATTERS. The Company agrees to indemnify and
hold harmless Holder against any losses, claims, damages, or liabilities to
which it may become subject that arise out of or are based upon any breach by
the Company of or inaccuracies of or failure to comply with any of the
representations, warranties, agreements or covenants made by such party.
3 RESERVATION OF STOCK. The Company covenants at all times that
during the term of this Warrant, the Company will reserve from its authorized
and unissued
71
<PAGE>
shares of Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its certificate of incorporation to provide
sufficient reserves of shares of Common Stock issuable upon exercise of this
Warrant. The Company further covenants that all shares that may be issued upon
the exercise of rights represented by this Warrant, upon exercise of the rights
represented by this Warrant and payment of the Exercise Price, all as set forth
herein, will be free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
or otherwise specified herein). The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the exercise of this Warrant.
8. LEGENDS. It is understood that the certificates evidencing the
Common Stock issuable upon exercise of this Warrant may bear one or all of the
following legends:
1 "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO AN EXEMPTION TO SUCH ACT."
2 Any legend required by the laws of the State of
California and any other state in which the securities will be issued.
9. COMPLIANCE WITH SECURITIES LAWS.
The Holder, by acceptance hereof, acknowledges that this Warrant and
the shares of Common Stock to be issued upon exercise hereof or conversion
thereof are being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell, or otherwise dispose of this Warrant or any shares of Common Stock
to be issued upon exercise hereof or conversion thereof except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws. Upon exercise of this Warrant, Holder
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the shares of Common Stock so purchased are being acquired
solely for the Holder's own account and not as a nominee for any other party,
for investment, and not with a view toward distribution or resale.
10. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1 DEFINITIONS. For purposes of this Section 10:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the
Company with the SEC and is used for offering securities on a delayed or
continuous basis pursuant to Rule 415 under the Act.
(c) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
72
<PAGE>
(d) The term "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(e) The term "Registrable Securities" means (i) the shares of
Common Stock issued or issuable upon exercise of this Warrant; and (ii) any
shares of Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of the securities referenced in (i) above.
(f) The term "SEC" shall mean the Securities and Exchange
Commission.
2 COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holder) any of its stock
or other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration statement relating either
to the sale of securities to participants in a Company stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), the Company shall, at
such time, promptly give Holder written notice of such registration. Upon the
written request of Holder given within twenty (20) days after mailing of such
notice by the Company in accordance with this Section 10 hereof, the Company
shall cause to be registered under the Act under the same registration statement
as the Company is then utilizing all of the Registrable Securities that such
Holder has requested to be registered. If such registration shall be
underwritten and the underwriters determine that for marketing reasons, no
shares of any stockholder shall be registered and sold pursuant to such
registration statement, the Holder shall not be entitled to these registration
rights pursuant to this Warrant for such registration statement; provided,
however, that if any stockholder shares are registered and sold, the Holder
shall be entitled to register and sell its requested proportional number of
securities pursuant to a registration statement.
3 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 10 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of
the Holder, keep such registration statement effective for a period of up
to one hundred twenty (120) days or until the distribution contemplated in
the Registration Statement has been completed; provided, however, that (i)
such one hundred twenty (120) day period shall be extended for a period of
time equal to the period the Holder refrains from selling any securities
included in such registration at the request of an underwriter of Common
Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such one hundred twenty (120) day
period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold or up to one year
after effectiveness, whichever shall first occur, provided that Rule 415,
or any successor rule under the Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Act
governing the obligation to file a post-effective amendment permit, in lieu
of filing a post-effective amendment which (I) includes any prospectus
required by Section 10(a)(3) of the Act or (II) reflects facts or events
representing a material or fundamental change in the information set forth
in the registration statement, the incorporation by reference of
information required to be included in (I) and (II) above to be contained
in periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act
in the registration statement.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus based on
standard financial statements
73
<PAGE>
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of
all securities covered by such registration statement.
(c) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities
owned by such Holder.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Holder; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless the Company is already subject to service in such jurisdiction and
except as may be required by the Act.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. The Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify the Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of
such registration.
(i) Furnish, at the request of the Holder requesting
registration of Registrable Securities pursuant to this Section 10, on the
date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 10, if such
securities are being sold through underwriters, or, if such securities are
not being sold through underwriters, on the date that the registration
statement with respect to such securities becomes effective, (a) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holder requesting registration of
Registrable Securities and (b) a letter dated such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holder requesting registration of
Registrable Securities.
74
<PAGE>
4 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 10 with
respect to the Registrable Securities of the Holder that such Holder shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
5 EXPENSES OF REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to any Section 10.2 registration, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for each of the Company and
the Holder hereunder, shall be paid for by the Company. All of such expenses
incurred in connection with registrations, filings or qualifications pursuant to
any Section 10.8 registration shall be borne by the Holder, the Company and any
other stockholder registering stock pursuant to such registration pro rata by
each seller based on the number of shares of stock being registered and sold by
each such seller.
6 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 10 or otherwise:
(a) The Company will indemnify and hold harmless the Holder, any
underwriter (as defined in the Act) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the Act
or the 1934 Act, against any losses, claims, damages or liabilities (joint
or several) to which they may become subject under the Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading, or (iii) any violation or
alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the
1934 Act or any state securities law; and the Company will pay to such
Holder, underwriter or controlling person, as incurred, any legal or other
expenses incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 10.6(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by such
Holder, underwriter or controlling person. Such indemnification rights
shall be in addition to any indemnification rights available to Holder
pursuant to any agreement, the certificate of incorporation or the bylaws
of the Company.
(b) Holder will indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration
statement, each person, if any, who controls the Company within the meaning
of the Act, any underwriter and any controlling person of any such
underwriter, against any losses, claims, damages or liabilities to which
any of the foregoing persons may become subject, under the Act, the 1934
Act or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with
such registration; and such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 10.6(b), in connection with investigating or
defending any such loss,
75
<PAGE>
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection 10.6(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, that, in no event shall any
indemnity under this subsection 10.6(b) exceed the net proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 10.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this
Section 10.6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party (together with all other
indemnified parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party
would be inappropriate in the reasonable opinion of the indemnifying party
due to actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such proceeding.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if prejudicial to
its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 10.6, to the
extent of such actual prejudice, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that
it may have to any indemnified party otherwise than under this Section
10.6.
(d) If the indemnification provided for in this Section 10.6 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage or expense
as well as any other relevant equitable considerations. The relative fault
of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
(f) The obligations of the Company and Holder under this
Section 10.6 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 10, and
otherwise.
7 REPORTS UNDER THE 1934 ACT. With a view to making available to
the Holder the benefits of Rule 144 promulgated under the Act and any other rule
or regulation of the SEC that may at any time permit the Holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the
76
<PAGE>
effective date of the first registration statement filed by the Company for
the offering of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to
enable the Holder to utilize Form S-3 for the sale of its Registrable
Securities, such action to be taken as soon as practicable after the end of
the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is
declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to the Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC
Rule 144 (at any time after ninety (90) days after the effective date of
the first registration statement filed by the Company), the Act and the
1934 Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a
copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any
rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
8 FORM S-3 REGISTRATION. In case the Company shall receive from
the Holder a written request that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder, the Company will:
(a) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of
such Holder's Registrable Securities as are specified in such request;
provided, however, that the Company shall not be obligated to effect any
such registration, qualification or compliance, pursuant to this
Section 10.8: (1) if Form S-3 is not available for such offering by the
Holder; (2) more than three times in the aggregate for such Holder; (3) if
the Company shall furnish to the Holder a certificate signed by the
President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such Form S-3 Registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than
four (4) months after receipt of the request of the Holder under this
Section 10.8; provided, however, that the Company shall not utilize this
right more than twice in any twelve month period; (4) if the Company has,
within the twelve (12) month period preceding the date of such request,
already effected one registration on Form S-3 for the Holder at its request
pursuant to this Section 10.8; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute
a general consent to service of process in effecting such registration,
qualification or compliance. Subject to the foregoing, the Company shall
file a registration statement covering the Registrable Securities as soon
as practicable after receipt of the request of the Holder.
9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 10 may be
assigned by the Holder to any transferee or assignee of such securities,
provided such transferee or assignee is a member of Holder's immediate family,
or is a trust, partnership or like entity, the principal beneficiaries of which
are the Holder or the members of his immediate family or such transfer or
assignment is made pursuant to gift or the laws of descent and distribution or
intestacy.
77
<PAGE>
11. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant
shall be binding upon the Company and the Holder and their respective successors
and assigns, subject at all times to the restrictions set forth herein.
12. AMENDMENTS AND WAIVERS. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of both the Company and the Holder. Any such amendment
or waiver shall be binding on the parties.
13. EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
14. SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of this Warrant shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
15. GOVERNING LAW. The terms and conditions of this Warrant shall be
governed by and construed in accordance with the laws of the State of
California.
16. COUNTERPARTS. This Warrant may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. TITLES AND SUBTITLES. The titles and subtitles used in this
Warrant are used for convenience only and are not to be considered in construing
or interpreting the terms of this Warrant.
18. NOTICES. Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
PERSONAL COMPUTER PRODUCTS, INC.
By:
------------------------------
Title:
-------------------------
Address:
-------------------------
-----------------------------------
Dated: January 3, 1996
ACCEPTED AND AGREED:
HARRY J. SAAL TRUST, DATED
JULY 19, 1972, AS AMENDED
By:
------------------------------------
Harry J. Saal
Title: Trustee
Address:
------------------------
------------------------
Dated: January 3, 1996
78
<PAGE>
NOTICE OF EXERCISE
To: Personal Computer Products, Inc.
Attn: Secretary
The undersigned hereby elects to purchase _______________ shares of
the Common Stock of Personal Computer Products, Inc. (the "Company") at a
purchase price of $1.00 per share pursuant to the terms of that certain Warrant
to Purchase Shares of Common Stock of the Company dated as of January 3, 1996
(the Warrant").
The undersigned hereby:
_______ Tenders payment of the aggregate exercise price in
cash, check, promissory note or cancellation of
debt.
The undersigned requests that the Company issue a certificate or
certificates representing said shares of the Common Stock of the Company in the
name of the undersigned or in such other name as is specified below:
---------------------------------------
(Print Name)
By its signature below, the undersigned hereby confirms and
acknowledges that the shares of Common Stock issuable upon exercise of the
Warrant are being acquired solely for the account of the undersigned and not as
a nominee for any other party, and for investment, and that the undersigned will
not offer, sell or otherwise dispose of any such shares of Common Stock except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws.
Date: Very truly yours,
-----------
----------------------------------------
(Print Name)
----------------------------------------
(Signature)
By:
-----------------------------------
(Name and title of signatory, if
non-natural person)
79
<PAGE>
ASSIGNMENT OR TRANSFER FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant in accordance with the terms
of the attached Warrant, with respect to the number of shares of Common Stock
set forth below:
Name of Assignee Address No. Of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint _____________________________
_______________________ attorney to make such transfer on the books of PERSONAL
COMPUTER PRODUCTS, INC., maintained for the purpose, with full power of
substitution in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise hereof or conversion thereof are being acquired for investment and
that the Assignee will not offer, sell or otherwise dispose of this Warrant or
any shares of stock to be issued upon exercise hereof or conversion thereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws. Further, the
Assignee has acknowledged that upon exercise of this Warrant, the Assignee
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the shares of stock so purchased are being acquired for
investment and not with a view toward distribution or resale.
DATED:
---------------------------------------------
Signature of Holder
80
<PAGE>
SCHEDULE I
SCHEDULE OF EXCEPTIONS
NONE
81
<PAGE>
EXHIBIT 21 - LIST OF SUBSIDIARIES OF THE COMPANY
1. Prima Inc., a California corporation and a wholly-owned subsidiary of PCPI
2. Laser Printer Accessories Corporation, a Delaware corporation and a wholly-
owned subsidiary of PCPI (Inactive)
3. Personal Computer Products, Inc., a California corporation and a wholly-
owned subsidiary of PCPI (Inactive)
4. Co-Processors, Inc., a California corporation and a wholly-owned subsidiary
of PCPI (Inactive)
5. PCPI Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of
PCPI (Inactive)
82
<PAGE>
EXHIBIT 23 - CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each of the Registration
Statements on Form S-8 (No.'s 2-93993, 33-25980, 33-41396, 33-57372, 33-86262,
33-86376 333-00871, 333-00873 and 333-00879) of Personal Computer Products, Inc.
of our report dated August 8, 1996 appearing on page 13 of this Form 10-KSB.
BOROS & FARRINGTON APC
San Diego, California
August 21, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 4440
<SECURITIES> 0
<RECEIVABLES> 1876
<ALLOWANCES> 197
<INVENTORY> 205
<CURRENT-ASSETS> 6372
<PP&E> 1114
<DEPRECIATION> 755
<TOTAL-ASSETS> 6810
<CURRENT-LIABILITIES> 2396
<BONDS> 0
0
3480
<COMMON> 169
<OTHER-SE> 765
<TOTAL-LIABILITY-AND-EQUITY> 6810
<SALES> 8639
<TOTAL-REVENUES> 11621
<CGS> 7652
<TOTAL-COSTS> 10020
<OTHER-EXPENSES> 2058
<LOSS-PROVISION> (3)
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> (3725)
<INCOME-TAX> 4
<INCOME-CONTINUING> (3729)
<DISCONTINUED> 0
<EXTRAORDINARY> 116
<CHANGES> 0
<NET-INCOME> (3613)
<EPS-PRIMARY> (0.188)
<EPS-DILUTED> (0.183)
</TABLE>
