<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
YARC SYSTEMS CORPORATION, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
CALIFORNIA 77-0185650
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
900 CALLE PLANO, SUITES J & K, CAMARILLO, CALIFORNIA 93012
(Address of principal executive offices) (Zip Code)
</TABLE>
(800) 275-9272
(Issuer's telephone number, including area code)
-------------------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
YARC Systems Corporation, Inc., (the "Company" or "YARC"), develops, produces
and markets software and color servers that connect desktop computers with color
laser copiers and large format printers. The Company's products enable laser
copiers and large format printers to produce high quality printouts at high
speeds. The Company's products support various user network platforms (Windows,
UNIX and Macintosh) and offer Internet connectivity. The Company's LINUX servers
have been designed specifically for total integration with the Internet. These
servers can receive images over the Internet and can be configured and upgraded
from any standard Internet browser. The Company's proprietary Postscript Raster
Image Processor (RIP) software, allows a computer image, whether it comes from a
digital camera, a scanner, or from a desktop publisher, to be professionally
printed using desktop proofers, laser copiers, or large format printers that
make display signage.
Incorporated in California in 1988, YARC has focused, for most of its history,
on creating a portfolio of advanced technologies and products. The Company
decided in the mid-1990s to implement Open Source software environments,
including the LINUX Operating System in its products. This decision enabled
YARC's products to utilize Internet technologies which are recognized as some of
the best in the printing industry.
The Company's products and technologies include YARC's XP(TM) Color Server, its
RIP Software, and its YARC-RIP(TM) and YARC-EZ(TM) Mac(TM) devices.
Websites
The Company's primary website is located at the following domain names:
yarc.com yark.com yarc.net yark.net visual-edge.com
The company operates a Business to Consumer (B2C) and Business to Business (B2B)
E-Commerce website at:
SecureShop.yarcrip.com
The Company operates websites for engineering and technology information at:
ftp.yarcrip.com yarcrip.com yarcxp.com yarcez.com
The following domain names are currently inactive:
epsononlineshop.com epsononlinestore.com epson-online.com
onlineepsonshop.com onlineepsonstore.com epsononline.com
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The Company operates websites for 3D Printing and Signage at:
photo-motion.com 3-Ddisplays.com
3D-signs.com 3Dsigns.com 3-Dsigns.com
3-Dsign.com flip-signs.com lenticular-signs.com
lenticularsigns.com motion-signs.com lenticular-development.com
big3-D.com big-3D.com superiorgrafics.com
superiorgraphix.com 3Dprints.com 3-Dprints.com
3-Dposters.com 3Dposter.com 3-Dposter.com
3Dsigns.net 3-Dsigns.net 3Dsign.net
3Dprints.net 3-Dprints.net
None of the information on any of these websites, and domains, including their
subdomains such as "www.*", is a part of this Registration Statement and none of
this information is incorporated by reference into this Registration Statement.
STRATEGY
Management believes that the Company's technology offers superior
performance capabilities which provide important competitive advantages to its
customers. The Company intends to pursue this opportunity through programs
designed to expand the Company's overall market exposure and penetration. The
key elements of the Company's strategy to accomplish these goals are the
following:
Focus on Internet Connectivity; Disintermediation
The Company intends to focus its product offerings on Internet connectivity.
Internet connectivity refers to communication between the user and the output
device via the Internet. The Company's LINUX servers, for example, can receive
images over the Internet and can be configured and upgraded from any standard
Internet browser. This direct link between the artist and output device is in
contrast to the traditional brokerage model wherein where a broker acts as a
specialist intermediary between the artist and the printing press professional.
The Company believes that eliminating the intermediary would improve output
quality and would result in time and cost savings to the end-user.
Focus on Broadband Delivery
YARC intends to focus on technologies and products which are ready to take
advantage of the growth in Broadband delivery. Broadband is the infrastructure
required to transport large files (such as proofs) quickly and economically.
Brochures, catalogs and newspapers are created by graphic artists using computer
software. The files associated with commercial publishing are very large,
typically in the range of 20 Megabytes to 100 Megabytes. Broadband delivery
would enable artists to transmit their works to the output device directly via
the Internet. The Company believes that its solution is attractive to graphic
artists because it leverages the latest technology in order to shift control of
the printing process to the artist.
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Utilize Mergers and Acquisitions for Growth
The Company intends to grow by merger or acquisition. The Company intends to
seek merger partners with strong sales channels, especially partners in market
segments where sales growth of the Company's products could be rapidly achieved.
In August of 1999, the Company signed a merger agreement with Quik Pix Inc.,
Buena Park, CA. On February 4th, 2000, Management of both companies decided not
to proceed with the merger transaction. No merger documents were filed in the
respective states. YARC intends to seek out other potential partners in the 3D
printing and signage industry.
Enter the Computer To Plate Market
The Company's intends to enter the Computer To Plate (CTP) segment of the
printing market via a merger or acquisition. The Company believes that a
business combination with a CTP manufacturer would create a symbiotic
environment where YARC's software and Internet technologies would give the
business combination a significant edge in the Internet economy. CTP is a method
for making printing press plates directly from the computer software output,
without any intervening manual handling of photographic films or materials. The
Company's approach empowers the graphic artist professional by giving the artist
control over all phases of the printing of the artwork. For example, after
transmission of the files to a YARC Internet Server, a proof can automatically
be created, and, upon verification of that proof, the CTP plates can be
manufactured for the printing press. The Company believes that this method will
ensure optimal quality and minimal delay as compared with the traditional broker
model.
In 1999, YARC entered into discussions with CTI Imaging Systems Inc., and its
principal, Mr. Hank Bechard, regarding a potential acquisition of Autologic
Information International, Inc. ("Autologic"). Mr. Bechard is a founder of
Autologic. Autologic manufactures printers which use CTP technology. In January
2000, the Company made an offer to Volt Information Sciences Inc (VIS) to
acquire a majority interest in Autologic. The Company subsequently received a
letter from a law firm representing VIS indicating that VIS would not enter into
any negotiations with YARC. The Company intends to continue its attempts to
acquire Autologic.
The Company has entered into discussions with Printware Inc, a manufacturer of
CTP products, regarding a possible business combination. No agreement has been
signed at this time, and no assurance can be given that any such agreement will
be achieved.
Principal Technologies and Products
Postscript Raster Image Processor (RIP) Software.
When a printed page is stored in a computer it consists of bit-mapped images,
text, and drawn
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objects. The page layout in the computer is sent out to a printer using a format
known as a Page Description Language ("PDL"), which is a software language that
describes the layout and contents of the final printed page. Like the storage
format used in the computer itself, the PDL data is usually created in what is
called an object-oriented, or vector graphics format; meaning that the image
elements are described in terms of geometrical objects, such as lines, arcs, and
circles. "Postscript" is the PDL that has become the standard in the
professional printing and pre-press industries.
When Postscript data is sent to a printer or a monitor it is necessary to
convert the image from the vector data to a form in which the objects in the
image can be displayed as a "raster" pattern of dots. This is the function of
the Raster Image Processor ("RIP"). The RIP software interprets the Postscript
vector data and converts it to bit-mapped data for printing or display. Although
desktop printers often simply output a rasterized version of the monitor display
using "Printer Drivers", this approach does not yield sufficiently high
resolution for the professional pre-press marketplace. Consequently, the vast
majority of professional printers use Postscript RIP software. The quality of a
print-out is governed to a large extent by the quality of the Postscript
software.
Adobe Systems Inc. ("Adobe") defined the Postscript language. Only a handful of
companies, worldwide, have produced Postscript Interpreters capable of being
used by printing industry professionals. YARC is one of those companies. The
vast majority of printer manufacturers license their Postscript interpretation
software from Adobe.
The Company believes that one of the most significant competitive advantages it
has is having its own Postscript PDL. This itself means that YARC does not pay
royalties to Adobe on the printing products that it itself manufactures. This
gives YARC a significantly higher gross margin on its LINUX based Servers and
Macintosh Software RIP products.
Competitors for the Postscript RIP Software.
The Company believes that there are three other public companies licensing
Postscript RIP software which produce substantially the same results as YARC's
RIP in the professional digital color output marketplace. These are Xionics Inc
(recently acquired by Oak Technologies, Inc), Harlequin Ltd. and Adobe Systems
Inc.
The YARC-XP Linux Color Server
The Company's XP SERVER(TM) is primarily sold to the Printing and Pre-press
industries. It utilizes the LINUX operating system and offers improved
connectivity and reliability as compared with most of the competitors' products
that are most often based on variants of Windows NT. The XP
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Server connects directly to the Internet, as well as to Corporate networks of
Windows, Macintosh or Unix workstations. The XP is the only server currently
available where all of the server's internal functions, including color
management, are made available to the user, over the network, using a standard
Internet browser.
Any XP Server can also be accessed by YARC's staff over the Internet, or via a
PPP dial-in line. The Company can provide customers with technical support and
services remotely which significantly lowers the overhead associated with
maintaining a worldwide force of service technicians.
In 1998, YARC placed one of its XP Servers on the Internet at http://yarcxp.com
to enable potential customers to evaluate the Internet connectivity of the
server.
Competitors for the YARC XP Server
The Company believes that there are two other public companies that offer Color
Servers which offer similar functionality to the Company's XP Server.
Electronics for Imaging, Inc, sells the Windows-NT-based "Fiery(TM)" servers,
aimed primarily at the Office user but also now supporting proofing
functionality for the Pre-press industry. Splash Technology Holdings, Inc., has
a range of servers based on the Macintosh computer platform.
Splash has recently announced that it has LINUX based servers, and that it
intends to grow its business during 2000 by expanding that part of its product
range.
The Company believes that its Color Server is the only one of its kind that has
fully integrated communication over the Internet.
The YARC-EZ and YARC-RIP Software Rips for Macintosh Computers
YARC has non-server versions of its RIP software for Macintosh users, who
comprise much of the professional publishing marketplace. The YARC-EZ(TM)
Postscript Software RIP, is a low cost Macintosh Application, primarily
used for proofing by the Printing and Pre-press industries. The YARC-RIP(TM)
Postscript RIP is similar to the YARC-EZ but includes its own PowerPC Computing
Coprocessor for improved multi-tasking and better networking.
Competitors for the YARC-EZ and YARC-RIP Software RIP Products
The Company believes that there are four public companies who compete with the
Company for the software RIP products segment. There are also a number of small
private companies with products in the printing and pre-press segment of the
industry. Adobe Systems PressReady(TM) software RIP competes in the Proofing
segment of the market. Onyx Graphics sells the "PosterShop(TM)" software RIP
product, primarily aimed at the sign making marketplace. The Scanvec Company
Ltd. sells the AccuPrint(TM) and PhotoPrint(TM) Software RIP products for both
PC and Macintosh personal computers. The Harlequin software RIP has been
licensed by
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several private OEM's who sell and support products based on Harlequin software
in the retail marketplace.
HISTORY OF THE BUSINESS
The Company was incorporated on January 27, 1988 to develop and market a new
method of increasing the power of personal computers ("PC") using UNIX based
software tools.
The Company's initial technology focus was "Computing Coprocessors", add-in
cards containing an advanced CPU and proprietary YARC Operating System software,
that allowed the UNIX tools, especially C and Fortran Compilers, to operate in
both MSDOS and Macintosh PC environments. This proprietary software was later
extended to PC's running Microsoft Windows and Windows NT.
The Company's initial business model was to supply engineering services, and
subsequently sell the proprietary Computing Coprocessors under OEM agreements.
During the early 1990s, YARC performed design services for Microsoft Inc.,
working as an OEM partner on Microsoft's "TrueImage(TM)" Postscript Raster Image
Processor (RIP). YARC also shipped product to the German printing firm, Linotype
AG. Other early printing industry partners included Pipeline Associates
(acquired by Electronics For Imaging, Inc), Advanced Micro Devices, Inc., and
Agfa Compugraphic, a division of Europe's Agfa-Gevaert Group. YARC also entered
into an agreement with Dai Nippon Screen to supply Screen with YARC Computing
Coprocessors to be used in Screen DTP imagesetter controllers. These controllers
were based on RIP software from Harlequin Ltd., in the UK. YARC continued to
supply this product to Screen until 1996.
YARC also achieved early recognition in sales of systems into the Macintosh 3D
Graphics marketplace. YARC's formed alliances with several vendors, selling
versions of their application software together with its Computing Coprocessors.
PIXAR produced a version of their "RenderMan(TM)" software specially adapted for
the YARC Coprocessor technology. The YARC version of PIXAR's Renderman could use
as many YARC CPU cards as the user wanted to install, and the speed of the
rendering increased as each additional YARC CPU was installed. This was achieved
through YARC's innovative Parallel Processing technology.
In 1993, YARC was awarded the prestigious MacUser "Eddy" Statue for the Best
Accelerator Card of 1993.
In 1994, YARC decided to de-emphasize its 3D Graphics business and focus its
engineering effort towards the goal of producing its own version of Adobe
Systems Inc. Postscript RIP software.
At the same time, YARC became involved in the Open Software Foundation's Open
Source project, the precursor to the LINUX operating system. By 1994, YARC had
based its tools on the GNU C compiler, which in the subsequent years grew into
the tools for the Operating System
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now known as LINUX.
YARC initially shipped its GNU based Hydra Multiprocessing coprocessor card in
1995, and also released its first RIP software. Both were developed using the
Open Software Foundation tools..
YARC shipped the first full color versions of its Postscript RIP software in
June 1995, when a Canon Laser Copier RIP controller was displayed at PC Expo in
New York. Subsequently, in October 1995, YARC demonstrated its first wide-format
color RIP in the "Masters of Media" section of Seybold Seminars, in San
Francisco.
In November of 1996, YARC Systems Ltd. was Incorporated in the United Kingdom to
provide product and sales support for YARC's United Kingdom and European
customer base.
In December, 1997, YARC released and demonstrated the YARC-XP Color Server. This
was the first RIP Color Server in the industry which (i) used the LINUX
operating system, and (ii) was designed for direct connectivity to the Internet.
In January, 1998, after exhaustive testing of the Company's Postscript software,
Japan's Roland DG chose to OEM the YARC-EZ Postscript RIP software for sale with
their new wide-format printers for the Japanese signmaking industry. This OEM
partnership has continued to date.
In the hopes of improving its U.S. Sales and Marketing performance, YARC
appointed Mr. Joseph LaBruna as President at the beginning of 1998. The Company
was unable to compete effectively against its larger competitors, and Mr.
LaBruna left the company later that year.
MARKETING AND DISTRIBUTION CHANNELS
E-Commerce
The Company's operates an E-Commerce website, at http://SecureShop.yarcrip.com/,
which was launched in October of 1998. In April, 1999, the Company enhanced the
site with the capability to handle B2B transactions from dealers and
distributors as well as end-user transactions. Most of YARC's U.S. RIP sales
result from contacts generated by this website.
International
YARC sells its product in Asia and Europe through both exclusive and
non-exclusive distributors.
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OEM business
Several manufacturers have sold YARC's products as part of a complete system,
usually badged with the OEM's own name. Principal OEM partnerships have been
struck with Linotype AG, Dai Nippon Screen, DCA Inc., Honeywell Commercial
Aviation Systems and Japan's Roland DG.
MANUFACTURING
The Company currently contracts with outside suppliers for certain components,
including but not limited to, circuit boards. Assembly, quality control and
shipping are all done at the Company's headquarters.
DEPENDENCE UPON KEY SUBCONTRACTORS.
YARC uses subcontractors to handle assembly of printed circuit boards and
computer chassis. YARC has, from time to time, used a variety of local
subcontractors to perform its manufacturing, and is not dependent on any
particular manufacturing partner.
DEPENDENCE UPON KEY SUPPLIERS.
YARC's product range has been designed to use as many "off-the-shelf" components
as possible. Although industry conditions may change, especially due to normal
product life cycles, YARC has little dependence upon any particular supplier.
YARC is currently using Power-PC(TM) Microprocessors which are manufactured only
by IBM Microelectronics and Motorola. YARC also uses MACH(TM) FPGA devices
designed by Advanced Micro Devices and Vantis. Vantis has recently been acquired
by Lattice Inc., but no interruptions of supplies has been observed to date.
DEPENDENCE UPON KEY CUSTOMERS.
The nature of the OEM business is a reliance from time to time on relationships
with manufacturers and business partners which amount to a significant
proportion of YARC's income in any one year. Over the last five years YARC's
income has significant depended on the relationships with Dai Nippon Screen,
D.C.A., Inc., and Honeywell Commercial Aviation Systems.
YEAR 2000 COMPLIANCE
During 1999, the Company completed a comprehensive review of its computer
systems and its products to identify all software that could be affected by the
inability of many existing computer systems to process time-sensitive data
accurately beyond December 31, 1999 ("Y2K"). The Company has not received any
reports of troubles with its products related to Y2K. Minimal disruption
occurred to the Company's MRP and Accounting systems, and no significant
remedial costs have been incurred.
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RESEARCH AND DEVELOPMENT
In proportion to its revenues, YARC spent heavily on Research and Development
throughout its history. During Fiscal 1998 and 1999 YARC spent $277,773 and
$272,862, respectively.
EMPLOYEES
YARC maintains a core staff of experienced managers, technical experts and
marketing professionals. This core management currently numbers seven full time
employees. The Company augments this staff with up to twenty (20) additional
employees as needed to satisfy project needs. None of the employees are subject
to a collective bargaining agreement, and the Company believes that its
relations with its employees is good.
INTELLECTUAL PROPERTY
The Company does not currently hold patents, copyright marks or service
marks on any of its products. The Company relies on confidentiality agreements
and other contractual provisions to protect its intellectual property. The
Company endeavors to manufacture hardware in such a manner as to reduce the
likelihood of reverse engineering. There can be no assurance, however, that the
steps taken by the Company to protect its proprietary rights will be appropriate
to prevent misappropriation of such rights or that third parties will not
independently develop a functional equivalent or superior technology.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are housed in a 4,537 square foot
facility located in Camarillo, California. The premises are used for all of the
Company's general office and administrative purposes, as well as research,
design and production of computer products. The lease terminates on December 31,
2000.
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND SIGNIFICANT EMPLOYEES
The following table sets forth certain information concerning the
directors, executive officers and certain other significant employees of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dr. Trevor G. Marshall 51 Chairman of the Board, Chief Executive Officer
and President
Frances E. Marshall 50 Director, Chief Financial Officer, and Secretary
Dr. Karsten Jeppesen 41 Director
</TABLE>
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<TABLE>
<S> <C> <C>
Neil Eastwood 32 Graphic Arts Manager
Dion Whittaker 28 Chief Engineer
</TABLE>
Dr. Trevor G. Marshall has been Chairman of the Board, and Chief Executive
Officer, since he founded Yarc Systems Corporation, Inc. in 1988. Dr. Marshall
has extensive experience starting and managing companies which specialize in
electronic equipment and related parts. Mr. Marshall is also a Contributing
Editor for BYTE.com. He is widely recognized as an industry expert on LINUX and
Internet computing technology, writing a regular column titled "Trevor's Linux"
In addition to Bachelors and Masters degrees in Engineering from the University
of Adelaide, South Australia, Dr. Marshall holds a Doctorate in Philosophy from
the University of Western Australia.
Dr. Karsten Jeppesen has served YARC as V.P. Engineering from 1993 until
1999, as a Director between 1996 and 1999, and has agreed to serve as a Director
in 2000. Dr. Jeppesen's extensive entrepreneurial experience began when he
founded Dus A/S (Denmark) in 1980 with venture funding from the LEGO
Corporation. Dus manufactured UNIX-based computer aided instruction systems for
schools and universities. Dr. Jeppesen has been developing RIP technology for
the printing industry since 1983. He was an early contributor to the LINUX
organization, introducing GNU into YARC's product range in 1994 and LINUX in
1995. Dr Jeppesen has extensive experience with Multiple CPU computer systems
and Array Processors, most recently using the LINUX operating system to control
these arrays. Dr. Jeppesen received a Doctor of Dental Surgery degree from
Aarhus University in 1985.
Frances E. (Liz) Marshall currently serves as Chief Financial Officer,
Secretary and Director. Ms. Marshall has been with the Company since it was
founded in 1988, filling a number of key management roles, including those of
Production Management and Financial Controller. During 1982, she published a
professional paper on Microprocessor Based Inventory Control in hospital
pharmacy. Ms. Marshall received her Graduate Diploma in Pharmacy from Curtin
University, in Western Australia. Ms. Marshall is married to Dr. Trevor
Marshall.
Neil Eastwood joined the Company in 1998. Mr. Eastwood is an expert in
the inter-relation between Photographic Imaging and Digital Technologies. Mr.
Eastwood lectured on Digital Imaging at Blackburn College, in the United
Kingdom, from 1995-1998. Mr. Eastwood graduated with a Higher National Diploma
in Art and Design from Watford College of Art and Design (UK) in 1986, and has
over decade of experience in the Digital Printing industry.
Dion Whittaker has been with the Company since 1995. Mr. Whittaker wrote
the LINUX spooler subsystem for the Company's XP Server. He also designed,
together with Dr. Jeppesen, the hardware and software RIP components that
interact with the LINUX execution environment. Mr. Whittaker received a Bachelor
of Engineering in computer science, with first class honors, from Curtin
University in Western Australia.
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The officers of the Company serve at the discretion of the Board. Each
director of the Company serves until such director's successor is elected and
qualified or until the director's death, retirement, resignation or removal.
ITEM 4. REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth certain information concerning compensation
paid by the Company to each of the three highest paid persons who are officers
or directors of the Company for the fiscal year ended January 31, 2000.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL CAPACITIES IN WHICH AGGREGATE
OR IDENTITY OF GROUP REMUNERATION WAS RECEIVED REMUNERATION
- -------------------- ------------------------- ------------
<S> <C> <C>
Dr. Trevor G. Marshall President, Chief Executive Officer and $ 7,375
Chairman of the Board
Frances E. Marshall Director, Chief Financial Officer $ 5,625
and Secretary
Dr. Karsten Jeppesen Director, V.P.Engineering --
Officer and Directors as a group $13,000
(number of persons) 3
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has not entered into employment agreements with any executive
officer.
STOCK OPTION PLAN
The Company established the 1992 Nonstatutory Stock Option Plan ("Option
Plan") to attract and retain qualified persons for positions of substantial
responsibility within the Company and to provide an incentive to the employees
to promote the Company's business. The Option Plan is administered by the Board
of Directors.
The Options granted under the Option Plan were not intended to qualify as
"Incentive Stock Options" within the meaning of Section 422(b) of the Internal
Revenue Code, as amended, but were implemented to encourage stock ownership
among the Company's directors, officers, and certain key persons performing
services for the Company to encourage such persons to acquire proprietary
interest in the success of the Company and to serve as an incentive to remain
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in the Company's service. Each Option granted is evidenced by a Stock Option
Agreement and is granted for a maximum period of three (3) years. The price per
share of Common Stock granted by the Option is determined by the Board of
Directors, in its sole discretion. The Option Plan authorizes the issuance of a
maximum of 8,000,000 shares of Common Stock.
Directors do not receive compensation for their services. The Company does
not currently intend to pay directors any cash compensation for services, but
will reimburse them for out-of-pocket expenses they may incur on behalf of the
Company. No such expenses were reported or reimbursement provided for the
previous three fiscal years or the current interim period
ITEM 5. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
As of February 11, 2000, there were approximately 19,046,871 shares of the
Company's Common Stock outstanding. The table below sets forth, as of February
11, 2000, the number of shares of the Company's Common Stock beneficially owned
by each of the Company's current officers and directors, the named executive
officers, any other person or group who owned of record or who was known to
beneficially own more than ten percent (10%) of the Company's outstanding shares
and the officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
TITLE OF NAME AND ADDRESS BENEFICIALLY PERCENT
CLASS OF BENEFICIAL OWNER(1) OWNED OF CLASS
------- ---------------------- ---------------- --------
<S> <C> <C> <C>
Common Dr. Trevor G. Marshall 4,960,000(2) 26.0%
Common Frances E. Marshall 730,000 3.8%
Common Dr. Karsten Jeppesen 962,462 5.1%
Common Officers and Directors as a Group 6,652,462 34.9%
</TABLE>
- --------
(1) All persons listed above have an address c/o the Company's principal
executive offices and have sole voting and investment power with respect to
their shares, except to the extent authority is shared by spouses under
applicable law.
(2) Dr. Trevor G. Marshall and Ms. Frances E. Marshall are husband and wife.
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The table below sets forth, as of February 11, 2000, the number of shares
of the Company's Series A Preferred Stock beneficially owned by each of the
Company's current officers and directors, the named executive officers, and any
other person or group who owned of record or who was known to beneficially own
more than ten percent (10%) of the Company's outstanding shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES
TITLE OF NAME AND ADDRESS BENEFICIALLY PERCENT
CLASS OF BENEFICIAL OWNER OWNED OF CLASS
-------- --------------------- ---------------- --------
<S> <C> <C> <C>
Series A Dr. Trevor G. Marshall 258,638(3) 100%
</TABLE>
The table below sets forth, as of February 11, 2000, the number of shares
of the Company's Series B Preferred Stock beneficially owned by each of the
Company's current officers and directors, the named executive officers, and any
other person or group who owned of record or who was known to beneficially own
more than ten percent (10%) of the Company's outstanding shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES
TITLE OF NAME AND ADDRESS BENEFICIALLY PERCENT
CLASS OF BENEFICIAL OWNER OWNED OF CLASS
-------- --------------------- ---------------- --------
<S> <C> <C> <C>
Series B Dr. Trevor G. Marshall 68,334(4) 100%
</TABLE>
- --------
(3) The Company issued 258,638 shares of Series A Preferred to Dr. Marshall in
1992, to retire certain indebtedness resulting from reimbursements due Dr.
Marshall for money advanced on behalf of the Company.
(4) Dr. Marshall purchased 68,334 shares of Series B Preferred from Mr. Harvey
Raider in the period from 1993 to 1995, as a part of a settlement
agreement between the Company and Mr. Raider. Dr. Marshall purchased such
shares on behalf of the Company. The Company has acknowledged its
obligation to repurchase such shares from Dr. Marshall at the redemption
value of $2.00 per share as soon as allowable under applicable law.
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<PAGE> 15
Stock Option Grants
The following table sets forth certain information concerning options granted by
the Company to each of the three highest paid persons who are officers or
directors of the Company for the fiscal year ended January 31, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME UNDERLYING OPTIONS EXERCISE PRICE EXPIRATION DATE
- ---- ------------------ -------------- ---------------
<S> <C> <C> <C>
Dr. Trevor G. Marshall -- -- --
Frances E. Marshall 300,000 $0.20 January, 2003
Dr. Karsten Jeppesen -- -- --
</TABLE>
Option Exercise and Holdings
The following table sets forth certain information concerning options granted by
the Company and exercised and unexercised by each of the three highest paid
persons who are officers or directors of the Company for the fiscal year ended
January 31, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME UNDERLYING OPTIONS EXERCISE PRICE EXERCISE DATE
- ---- ------------------ -------------- ---------------
<S> <C> <C> <C>
Dr. Trevor G. Marshall -- -- --
Frances E. Marshall 300,000 $0.20(5) January, 2000
Dr. Karsten Jeppesen -- -- --
</TABLE>
ITEM 6. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Since the Company's inception Dr. Jeppesen and Dr. Marshall were
involved in a series of transactions with the Company in which the amount
involved exceeded $50,000. Such transactions consisted of a series of payments
made by Dr. Marshall and Dr. Jeppesen of business expenses on the Company's
behalf. The outstanding balance of these transactions was $408,249 at January
31, 2000, a majority of which related to Dr. Marshall. These advances are not
evidenced by a written instrument.
During the past two years, Ms. Marshall has been involved in a series of
transactions with the Company in which the amount involved exceeded $50,000.
Such transactions consisted of a series of loans to the Company which were used
to supplement cash flow. The outstanding balance of these transactions was
approximately $120,000 at January 31, 2000. These loans are not evidenced by a
written instrument, bear interest at 10% per annum, and have no maturity date.
ITEM 7. SECURITIES
The following summary description of the Company's Common Stock, which is
covered by this Registration Statement, is qualified in its entirety by
reference to the Company's Articles of Incorporation included as an exhibit to
this Registration Statement.
- --------
(5) The Company paid the exercise price for 80,000 of the shares exercised.
15
<PAGE> 16
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock (the "Common Stock") and 15,000,000 shares of Preferred Stock
(the "Preferred Stock").
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
requiring a vote of shareholders. The Common Stock does not have cumulative
voting rights. Subject to the prior rights of holders of Preferred Stock, the
holders of Common Stock are entitled to receive dividends on a pro-rata basis
when, if and, as declared by the Board of Directors out of funds legally
available therefore. Upon liquidation or dissolution, each outstanding share of
Common Stock will be entitled to share equally in the assets of the Company
legally available for distribution to shareholders after the payment of all
debts, liabilities, and other obligations, including the preferences of any
outstanding shares of Preferred Stock. Shares of Common Stock are not
redeemable, have no conversion rights and carry no preemptive or other rights to
subscribe to or purchase additional shares of the Company's stock.
PREFERRED STOCK
Series A Preferred Stock. The Company has authorized one class of Series A
Preferred Stock consisting of 300,000 shares, 258,638 of which are issued and
outstanding. The Series A Preferred Stock is entitled to a $1.00 per share
liquidation preference over the Common Stock. Holders of Preference A stock are
entitled to five votes per share on all matters requiring a vote of
shareholders. Other than with respect to the liquidation preference and accrued
but unpaid dividends, the Series A Preferred Stock will not share in liquidation
payments. The Series A Stock is entitled to a $0.10 per share cumulative
dividend payable quarterly. The Company may, at any time after the issuance of
Series A Preferred Stock, redeem all or any part of the shares of Series A
Preferred Stock issued and outstanding by paying to holder of such shares $1.00
per share plus an amount equal to all dividends on Series A Preferred Stock
accrued and unpaid up to and including the date of redemption.
Series B Preferred Stock. The Company has authorized one class of Series B
Preferred Stock consisting of 100,000 shares, 68,334 of which are issued and
outstanding. Preference B stock confers no voting rights. The Series B Preferred
Stock is entitled to a $2.00 per share liquidation preference over the Common
Stock. Other than with respect to the liquidation preference, the Series B
Preferred Stock will not share in liquidation payments. The Company may, at any
time after the issuance of Series B Preferred Stock, redeem all or any part of
the shares of Series B Preferred Stock issued and outstanding by paying to
holder of such shares $2.00 per share. The holders of Series B Preferred Stock
have no voting rights, except as required by law.
16
<PAGE> 17
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The following table sets forth the range of high and low bid quotations
per shares for the Company's Common Stock for the periods indicated as reported
by the OTC Bulletin Board, where the stock trades under the symbol "YARC." Such
market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
YEAR CALENDAR PERIOD HIGH LOW
- ---- --------------- ---- ---
<S> <C> <C> <C>
1998 First Quarter $0.875 $0.468
Second Quarter 0.875 0.40
Third Quarter 1.04 0.28
Fourth Quarter 0.50 0.28
1999 First Quarter 0.41 0.18
Second Quarter 0.42 0.23
Third Quarter 0.32 0.19
Fourth Quarter 2.906 0.19
2000 First Quarter 1.593 0.906
(through March 10, 2000)
</TABLE>
On March 10, 2000 the closing bid price of the Common Stock as reported on
the OTC Bulletin Board was $1.187 per share. As of March 10, 2000, there were
approximately 87 holders of record of the Common Stock.
DIVIDENDS
To date, the Company has not declared or paid any cash dividends with
respect to its Common Stock. The policy of the Board of Directors has been, and
continues to be, to retain earnings in order to provide for the growth of the
Company. Consequently, no cash dividend or any other dividend is expected to be
paid on the Common Stock in the foreseeable future. Although the Company's
Common Stock is entitled to receive dividends, there can be no assurance that
the Company will have sufficient funds to pay such dividends, or even if such
funds are available, that the Company will be permitted to make such dividend
payments under the provisions of the California General Corporation Law and
other applicable laws. California law prohibits the Company from paying
dividends or making other distributions if the Company
17
<PAGE> 18
would be unable to pay its debts as they become due in the usual course of
business or if the Company's assets would be less than its liabilities after
giving effect to such dividend or distribution. The Company does not anticipate
the payment of dividends on the Shares in the foreseeable future, even if funds
are legally available for dividends.
ITEM 2. LEGAL PROCEEDINGS
In January 2000, the Company received a letter from Seiko Epson
Corporation and Epson America, Inc. (collectively "Epson"), alleging that
certain Internet domain names registered by the Company in March 1999
constituted the unlawful use of the EPSON trademark. The domain names cited
included: onlineepsonshop.com, onlineepsonstore.com, epson-online.com,
epsononline.com, epsononlineshop.com, and epsononlinestore.com. The letter
requested that the Company desist from using these domain names and that it
transfer ownerships of such domain names to Epson. The Company believes any
disagreement will be settled amicably in light of the relationship between the
parties.
In June, 1999, the Company received a letter from Visual Edge Technologies
Inc., alleging that an Internet domain name registered by the Company in
November 1998 constituted the unlawful use of two trademarks. The domain name
cited was "visual-edge.com". The letter requested that the Company desist from
using this domain name. The last communication from counsel for Visual Edge was
received in July 1999. The Company believes this matter will be settled
amicably.
In April 1999, a lawsuit entitled LaBruna v. Yarc Systems Corp, et al.,
No. PAS-L1796-99 was filed against the Company and its officers in Passaic
County Superior Court in New Jersey. The lawsuit by Joseph LaBruna, the
Company's former President, alleges that the Company breached its employment
agreement with Mr. LaBruna. The complaint did not specify the damages sought. On
January 19, 2000, the parties attended a mandatory non-binding arbitration the
result of which was an award in favor of Mr. LaBruna in the amount of $37,560 in
back wages and 100,000 shares of the Company's common stock. The arbitration
award became binding on February 18, 2000. The Company does not intend to
contest the arbitrator's award.
In May 1998, the Company received a letter from Electronics For Imaging,
Inc. ("EFI") alleging that the Company's ColorSync technology infringed on
patents commonly referred to as the "919" patent and "048" patent. The Company
believes that EFI is the assignee/owner of both patents. These patents cover
the technology used to match the color on printer paper with the color in the
original image on the user's monitor. The Company responded by noting that: (i)
the Company developed the ColorSync technology in conjunction with Apple
Computers, Inc. ("Apple"), (ii) ColorSync was the subject of a valid license
agreement between EFI and Apple, and (iii) the settlement between EFI and
Apple in early 1996 extended protection to certain third parties such as the
Company using ColorSync technology. On August 7, 1998, the Company received an
email from EFI acknowledging that the Company's ColorSync technology was
18
<PAGE> 19
subject to a valid license agreement between EFI and Apple, but that using this
licensed technology beyond the MAC platform would not be. Since August 1998, the
Company has not received any correspondence from EFI regarding its ColorSync
technology or patents 919 and 048.
In addition, the Company is involved from time to time in litigation
arising in the normal course of its business. The Company believes that the
ultimate resolution of such claims will not materially affect the Company's
business or financial condition.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has never had any disagreements with its principal independent
accountant on any matter related to the Company's accounting principles or
practices, financial disclosure, or auditing scope or procedure, or any other
matter.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the period from February 1997 through February 2000, the Company
exchanged 1,917,256 shares of its common stock in full and complete satisfaction
of outstanding notes and debts with existing security holders. Upon issuance of
the shares, the notes and debts were canceled. No commission or remuneration was
paid directly or indirectly for soliciting such exchange. The common stock was
issued pursuant to an exemption from registration under Section 3(a)(9) of the
Securities Act of 1933 (the "Act").
Pursuant to the Company's 1992 Nonstatutory Stock Option Plan, the Company
granted options to purchase 4,220,000 shares of its common stock to certain key
employees from December 1998 through January 2000 at prices ranging from $0.20
to $0.44. To date, options representing 1,905,645 shares have been exercised.
The shares were issued subject to an exemption from registration under Section
4(2) and Rule 701 of the Act. All of the securities issued in such transactions
contained restrictive legends.
During the period from July 1997 through March 1998, the Company sold
1,756,000 shares of its common stock at $0.57 per share to accredited investors
only. The offering was not underwritten, and there were no underwriting
discounts or commissions. Investors acquired the shares for their own account
and not with a view to resale. The sales were made in reliance upon an exemption
from registration pursuant to Section 4(2)and Regulation D promulgated under
the Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation do not provide for indemnification
of the Company's directors and officers, however, such indemnification is
permitted in accordance with and as limited by its Bylaws and California General
Corporation Law ("Corporation Law").
19
<PAGE> 20
The Company's Bylaws provide that the Company is permitted to indemnify
its directors and officers to the maximum extent permitted by the Corporation
Law. The Bylaws further provide that the Company has the power to indemnify its
directors and officers against expenses, judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any proceeding
arising out of any circumstance in which such person was acting as an agent of
the Company. The Company also has the power to advance to each such person those
expenses incurred in defending any such proceeding to the maximum extent
permitted by the Corporation Law.
Pursuant to Section 317 of the Corporation Law, the Company has the power
to indemnify a director or officer in a civil proceeding if such director or
officer was acting on behalf of the Company at the time and in the circumstances
giving rise to the proceeding and was acting in good faith and in a manner such
officer or director reasonably believed to be in the best interests of the
Company at such time. In the case of a criminal proceeding, the Company has the
power to indemnify its directors and officers provided that such person had no
reasonable cause to believe that their conduct was lawful. The Corporation Law
limits the Company's ability to indemnify its directors and officers where the
director or officer is deemed to be liable to the Company in the execution and
performance of their duties to the Company. Notwithstanding the previous
sentence, the Corporation Law allows the Company to purchase and maintain
insurance on behalf of any agent of the Company whether or not the Company would
have the power to indemnify such agent against liability pursuant to Section 317
of the Corporation Law.
20
<PAGE> 21
PART F/S
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Financial Statements ...........................................................F-1
Yarc Systems Corporation, Inc.
Independent Auditor's Report.........................................................F-3
Balance Sheets-Years Ended January 31, 1998,
and January 31, 1997 ............................................................F-4
Statement of Operations- Years Ended January 31, 1998,
and January 31, 1997.............................................................F-5
Statement of Cash Flows-Years Ended January 31, 1998,
and January 31, 1997.............................................................F-6
Statement of Stockholder's Equity-Years Ended
January 31, 1998, and January 31, 1997...........................................F-7
Notes to Financial Statements........................................................F-8
Independent Auditor's Report........................................................F-18
Balance Sheets-For the Years Ended January 31, 1999
and January 31, 1998............................................................F-19
Statement of Operations-For the Years Ended January 31, 1999
and January 31, 1998............................................................F-20
Statement of Cash Flows-For the Years Ended January 31, 1999
and January 31, 1998............................................................F-21
Statements of Stockholder's Equity-For the Years Ended
January 31, 1999 and January 31, 1998 .........................................F-22
Notes to Financial Statements.......................................................F-23
Balance Sheets-Unaudited For the Year Ended January 31, 2000
and For the Year Ended January 31, 1999.........................................F-33
Statement of Operations-Unaudited For the Year Ended January 31, 2000
and For the Year Ended January 31, 1999.........................................F-34
Statement of Cash Flows-Unaudited For the Year Ended January 31, 2000
and For the Year Ended January 31, 1999.........................................F-35
Statements of Stockholder's Equity-Unaudited For the Year Ended
January 31, 2000 and For the Year Ended January 31, 1999 ......................F-36
Notes to Financial Statements.......................................................F-37
</TABLE>
F-1
<PAGE> 22
YARC SYSTEMS CORPORATION, INC.
FINANCIAL STATEMENT
JANUARY 31, 1998 AND 1997
bg BARRY GLASSER & COMPANY
A PROFESSIONAL ACCOUNTANCY CORPORATION
F-2
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Yarc Systems Corporation
Camarillo, California
We have audited the balance sheets of Yarc Systems Corporation as of January 31,
1998 and 1997 and the related statements of operations, shareholders' equity,
and cash flows for each of the two years in the period ended January 31, 1998.
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Yarc Systems Corporation as of
January 31, 1998 and 1997, and the results of it's operations and cash flows for
each of the two years in the period ended January 31, 1998 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Note 1 to the financial statements
describes various factors that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BARRY GLASSER & COMPANY
Agoura Hills, California
April 27, 1998
30423 CANWOOD STREET, SUITE 218, AGOURA HILLS, CALIFORNIA 91301
(818) 874-9940 FAX (818) 874-9945
F-3
<PAGE> 24
YARC SYSTEMS CORPORATION
BALANCE SHEET
JANUARY 31,
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 12,259 $ --
Accounts Receivable, Less Allowance for
Doubtful Accounts of $3,048 (1998) and
$16,646 (1997) (Note 3) 80,267 86,058
Inventories (Note 4) 315,887 336,817
----------- -----------
Total Current Assets 408,413 424,892
Property and Equipment at Cost, Less Accumulated
Depreciation of $343,648 (1998) and $297,267 (1997)
(Note 5) 116,011 144,588
Contract and Licenses 25,000 25,000
Deposit 9,726 9,447
Investments and Advances to Unconsolidated
Subsidiary Carried at Cost (Note 6) 174,148 17,808
----------- -----------
Total Assets $ 733,296 $ 619,718
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Bank Overdraft $ -- $ 2,916
Accounts Payable 494,596 536,930
Accrued Payroll and Payroll Taxes (Note 8) 521,595 265,907
Income Taxes Payable (Receivable) (6,651) (6,651)
Dividend Payable (Note 15) 118,539 92,676
Bridge Loan (Note 7) 400,328 355,000
Due to Stockholder (Note 10) 154,715 33,914
Current Portion of Obligation Under
Capital Leases (Note 9) 33,223 38,613
----------- -----------
Total Current Liabilities 1,716,345 1,319,305
----------- -----------
Obligation Under Capital Leases, Less Current Portion
(Note 9) 12,431 38,900
----------- -----------
Stockholder's Equity (Note 7, 13 and 15)
Preferred Stock Series A, $1 Par Value 10% Cumulative
Voting Shares, Authorized 15,000,000 Shares: Issued
and Outstanding 258,638 Shares 258,638 258,638
Preferred Stock Series B, No Par Value, Non-Voting
Shares; Issued and Outstanding 68,334 Shares 42,667 42,667
Common Stock, No Par Value, Authorized 25,000,000
Shares, 12,700,721 Shares and 12,040,321 Issued and
Outstanding at January 31, 1998 and 1997, Respectfully 2,321,898 1,741,498
Retained Earnings (Deficit) (3,618,683) (2,781,290)
----------- -----------
Total Stockholder's Equity (Deficit) (995,480) (738,487)
Total Liabilities and Stockholders Equity $ 773,296 $ 619,718
=========== ===========
</TABLE>
See Accompanying Notes to These Financial Statements.
F-4
<PAGE> 25
YARC SYSTEMS CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenue, Net of Returns and Allowances $ 1,317,422 $ 1,601,547
Cost of Sales (414,923) (564,760)
----------- -----------
Gross Profit 902,499 1,036,787
----------- -----------
Operating Expenses
Selling Expenses 209,893 226,313
Research and Development 277,773 266,529
General and Administrative Expenses 1,126,316 928,822
----------- -----------
Total Operating Expenses 1,613,982 1,421,664
----------- -----------
Operating Income (Loss) (711,483) (384,879)
Interest Expense (99,247) (42,747)
----------- -----------
Income (Loss) Before Extraordinary Loss (810,730) (427,624)
Extraordinary Loss on Extinguishment
Of Debt (Note 5) -- --
----------- -----------
Income (Loss) Before Income Taxes (810,730) (427,624)
Provision (Benefit) for Income Taxes (Note 12) 800 800
----------- -----------
Net Income (Loss) $ (811,530) $ (428,424)
=========== ===========
(Loss) per Common Share
Basic $ (.06) $ (.03)
=========== ===========
Diluted $ (.06) $ (.03)
=========== ===========
Weighted Average Common Shares 13,431,640 13,174,527
=========== ===========
Weighted Average Common Shares - Assuming Dilution 13,431,640 13,174,527
=========== ===========
</TABLE>
See Accompanying Notes to These Financial Statements.
F-5
<PAGE> 26
YARC SYSTEMS CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Operating Activities:
Net Income (Loss) $(811,530) $(428,424)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by (Used in) Operating
Activities:
Sales to Unconsolidated Subsidiary Not Paid For (85,916) --
Allowance for Doubtful Accounts (13,598) --
Depreciation and Amortization 46,384 55,514
Accrued Interest on Bridge Loans 55,162 --
Decrease (Increase) in Accounts Receivable 19,389 (53,584)
Decrease (Increase) in Inventories 20,930 57,300
Decrease (Increase) in Deposits (279) --
(Decrease) Increase in Accounts Payable (42,334) 15,804
(Decrease) Increase in Accrued Expenses 255,688 118,930
--------- ---------
Net Cash (Used in) Operating Activities (556,104) (245,460)
--------- ---------
Investing Activities:
Advances to Unconsolidated Subsidiary (70,423) (17,808)
Acquisition of Property and Equipment (10,567) (660)
--------- ---------
Net Cash (Used in) Provided by Investing Activities (80,990) (18,468)
--------- ---------
Financing Activities:
Proceeds From Bridge Loans 40,000 300,000
Net Advances (Payment) From Stockholder 120,000 (16,905)
Net Borrowing (Payment) Under Capital
Lease Obligation (34,834) (45,384)
Proceeds From Sale of Stock 565,400 25,000
Repayment of Bridge Loans (39,098) --
--------- ---------
Net Cash Provided (Used) by Financing Activities 652,269 262,711
--------- ---------
Increase (Decrease) in Cash 15,175 (1,217)
Cash (Overdraft) at Beginning of Period (2,916) (1,699)
--------- ---------
Cash (Overdraft) at End of Period $ 12,259 $ (2,916)
========= =========
Cash Paid For:
Interest $ 65,877 $ 42,747
========= =========
Income Taxes $ 800 $ 800
========= =========
Non Cash Transaction From Bridge Loan Interest $ -- $ --
========= =========
Non Cash Transaction From Dividend on
Preferred Stock Series A $ 25,863 $ 25,863
========= =========
Non Cash Capitalized Lease Obligation $ 7,239 $ 29,927
========= =========
</TABLE>
See Accompanying Notes to These Financial Statements.
F-6
<PAGE> 27
YARC SYSTEMS CORPORATION, INC.
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock
Series A Series B
--------------- ---------------
Shares Issued Shares Issued
& Outstanding Amount & Outstanding Amount
-------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Balance at January 31, 1996 258,638 $ 258,638 68,334 $ 42,667
Net Loss
Issuance of Stock at $1 Per Share
Dividend-Preferred Stock at $.10 Per Share
Balance at January 31, 1997 258,638 $ 258,638 68,334 $ 42,667
Net Loss
Sale of Common Stock at $1 Per Share
Sale of Common Stock at $.50 Per Share
Issuance of Stock Under Conversion From
Bridge Loan at $1 Per Share
Dividend - Preferred Stock at $.10 Per Share
Balance at January 31, 1998 258,638 $ 258,638 68,334 $ 42,667
<CAPTION>
Common Stock
-------------
Shares Issued Treasury Retained Earnings
& Outstanding Amount Stock (Deficit) Total
------------- ----------- ---------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1996 12,522,570 $ 1,716,498 0 $(2,180,655) $ (162,852)
Net Loss (428,424) (428,424)
Issuance of Stock at $1 Per Share 25,000 25,000 25,000
Dividend-Preferred Stock at $.10 Per Share (25,863) (25,863)
----------- -----------
Balance at January 31, 1997 12,547,570 $ 1,741,498 0 $(2,781,290) $ (738,487)
Net Loss (811,530) (811,530)
Sale of Common Stock at $1 Per Share 485,400 485,400 485,400
Sale of Common Stock at $.50 Per Share 160,000 80,000 80,000
Issuance of Stock Under Conversion From
Bridge Loan at $1 Per Share 15,000 15,000 15,000
Dividend - Preferred Stock at $.10 Per Share (25,863) (25,863)
----------- -----------
Balance at January 31, 1998 13,207,970 $ 2,321,898 0 $(3,618,683) $ (995,480)
</TABLE>
See Accompanying Notes to These Financial Statements.
F-7
<PAGE> 28
YARC SYSTEMS CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION
Yarc Systems Corporation (the Company) was founded in January, 1988 to
develop and market a new method of increasing the power of personal computers
called "Computing Coprocessors". The Company designs and manufactures special
purpose computer engines for major software OEM's. Its key technologies include
a range of proprietary software and hardware packages which allow application
developers to provide their users with more computing power. In September 1996,
the Company formed a subsidiary in the Britain called YARC Systems limited. The
purpose of the subsidiary is to provide local sales and support within Europe.
YARC Systems Limited has not been consolidated because through January 31, 1998,
its operations were minor and the subsidiary did not operate for most of the
1999 fiscal year. (See Note 6)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from product sales at the time of
shipment or when a service is performed.
Research and Development Costs
The company follows the guidance provided in FASB-2, Accounting for
Research and Development Costs and FASB-86, Accounting for the Costs of Computer
Software to be Sold, Leased or otherwise Marketed. Accordingly, all costs
related to research and development are expensed until such time that
technological feasibility is established. Once technological feasibility is
established all costs incurred in the production of the product matters are
capitalized.
Cash & Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided via
the straight-line method over the estimated useful lives of the assets,
principally five (5) years.
F-8
<PAGE> 29
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1997
Note 1 - Continued
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Advertising
The Company expenses advertising costs as incurred. During the year
ended January 31, 1998 and 1997, the Company incurred $52,775 and $15,853 in
advertising costs.
Stock-Based Compensation
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation (FAS 123"), which
the Company adopted in fiscal 1997, the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee stock
option plans. Under APB 25, if the exercise price of the Company's employee
stock options equals or exceeds the fair value of the underlying stock on the
date of grant, no compensation is recognized. Information regarding the
Company's pro forma disclosure of stock-based compensation pursuant to FAS 123
has not been included since no stock options have been granted. (See Note 13)
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 balance sheets are considered
reasonable estimates of the fair value.
Reclassifications
Certain prior year financial statement classifications have been
reclassified to conform with the current year's presentation.
F-9
<PAGE> 30
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1997
Note 1 - Continued
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share ("Basic EPS") excludes dilution
and is computed by dividing net income (loss) available to common shareholders
(the "numerator") by the weighted average number of common shares outstanding
(the "denominator") during the period. Diluted earnings (loss) per common share
("Diluted EPS") is similar to the computation of Basic EPS except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
issued. The computation of Diluted EPS does not assume exercise or conversion of
securities that would have an anti-dilutive effect on net earnings (loss) per
share.
<TABLE>
<CAPTION>
Earnings (loss) Shares Per-Share
(Numerator) (Denominator) Amount
--------------- ------------- ---------
<S> <C> <C> <C>
January 31, 1998
Net (loss) $(811,530)
Preferred Dividends (25,863)
---------
Basic and Diluted EPS $(837,393) 13,431,640 $ (0.06)
========== ========== ==========
January 31, 1997
Net (loss) $(428,424)
Preferred Dividends (25,863)
---------
Basic and Diluted EPS$ (454,287) 13,174,527 $ (0.03)
========= ========== ==========
</TABLE>
NOTE 2 - GOING CONCERN CONSIDERATIONS
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. At January 31, 1998, the Company
had a net loss, negative working capital, and a decline in net worth which raise
substantial doubt about its ability to continue as a going concern. The
Company's losses have resulted primarily from an inability to achieve product
sales and contract revenue targets due to insufficient working capital. Yarc's
ability to continue operations will depend on positive cash flow, if any, from
future operations and on the Company's ability to raise additional funds through
equity or debt financing. The Company has cut back and/or discontinued some of
its operations and, if it is unable to raise or obtain needed funding, the
Company may be forced to discontinue operations generally. To date, through
further equity infusion into the Company, primarily in the form of the exercise
of options by employees of the Company, operations have continued. Without
additional funding sufficient to satisfy the creditors of the Company, as well
as providing working capital for the Company, there can be no assurances that
such operations can continue. The Company continues to actively work with
entities capable of providing such funding. Management has continued to
implement its restructuring plan including reductions of personnel,
consolidation of facilities and disposal of subsidiaries. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
F-10
<PAGE> 31
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1997
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, consists of:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Accounts Receivable, Trade $ 82,573 $ 88,882
Accounts Receivable, Other 742 13,822
83,315 102,704
Less: Allowance for Doubtful Accounts (3,048) (16,646)
$ 80,267 $ 86,058
========= =========
</TABLE>
NOTE 4 - INVENTORIES
Inventories at January 31, consists of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Raw Materials $210,146 $204,883
Work-in-Process 102,618 128,531
Sales Demonstration 3,123 3,403
-------- --------
$315,887 $336,817
======== ========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at January 31, consists of:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Machinery and Equipment $ 120,642 $ 110,075
Office Equipment 44,798 44,798
Engineering Under Capital Lease 65,134 65,134
Equipment Under Capital Lease 178,971 171,731
Software 47,614 47,614
Leasehold Improvements 2,500 2,500
--------- ---------
459,659 441,852
Less Accumulated Depreciation (343,648) (297,264)
--------- ---------
$ 116,011 $ 144,588
========= =========
</TABLE>
Depreciation expense charged to operations was $46,384 and $44,514 for
January 31, 1998 and 1997, respectively.
Amortization of equipment under capital lease in the amount of $76,365
and $100,501 for January 31, 1998 and 1997, respectively, is included in
accumulated depreciation.
F-11
<PAGE> 32
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1997
NOTE 6 - INVESTMENTS AND ADVANCES TO UNCONSOLIDATED SUBSIDIARY CARRIED AT
COST
In September 1996, the Company formed a subsidiary in Great Britain by
the name of YARC Systems Limited. The purpose of the subsidiary is to provide
local sales and support within Europe. Through January 31, 1997, the subsidiary
was organizing and had very minor operations.
Following is a summary of the financial position of YARC Systems Limited
as of January 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current Assets $ 41,038 $ 4,549
Property, Plant and Equipment (Net) 71,948 26,693
--------- ---------
Total Assets $ 112,986 $ 31,362
========= =========
Current Liabilities $ 223,902 $ --
Noncurrent Liabilities 15,049 --
Total Liabilities 238,951 --
(125,986) --
Stockholder's Equity (Deficiency) $ 112,986 $ 31,362
========= =========
</TABLE>
There is no market for the common stock of YARC Systems Limited and,
accordingly, no quoted market price is available.
Sales to Yarc Systems Limited amounted to $85,916 in 1998 and $0 in
1997. The Company has not received payment on these sales and the receivable has
been included in the investment and advances to unconsolidated subsidiary. The
Company sold product to Yarc Systems Limited at cost.
During the 1999 fiscal year the subsidiary has ceased operations.
However, the subsidiary is still in good standing and operations could be
recommenced upon approval of the board of directors
NOTE 7 - BRIDGE LOAN/COMMON STOCK
For the year ended January 31, 1997, there were no compensation
arrangements involving common stock.
In June 1996, the Company borrowed $300,000 from 10 borrowers under an
intercreditor agreement. The notes are secured by the accounts receivable and
inventory.
The notes draw interest at 10% per annum. The principal balance plus the
accrued interest was scheduled to be paid in 12 equal installments beginning
June, 1997. The Company has partially repaid one of the notes. The Company has
been accruing the interest on these notes. During the year ended January 31,
1998, the Company received $40,000 as an additional bridge loan; $15,000 of
which was converted into 15,000 shares of common stock. During the years ended
January 31, 1999 and 2000, the Company converted $120,000 and $200,000
respectively to common stock at $.50 per share. Thus at January 31, 2000, all of
the outstanding bridge loan obligation had been satisfied.
F-12
<PAGE> 33
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1997
NOTE 8 - ACCRUED PAYROLL AND PAYROLL TAXES
Included in accrued payroll and payroll taxes at January 31, 1997 was
$210,000. This sum had increased to approximately $420,000 by January 31, 1998.
The company had negotiated with the taxing authorities a payment plan to pay the
outstanding obligation. The Company has not fulfilled its obligations under the
negotiated plan but has been in renegotiations with the tax authorities.
NOTE 9 - OBLIGATION UNDER CAPITAL LEASES
The Company leases various equipment under capital leases expiring in
various years through 2003. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. Minimum future lease payments under capital leases as
of January 31, 1998 for each of the future years in the aggregate are:
<TABLE>
<CAPTION>
Year Ended Jan 31,
<S> <C>
1999 $33,223
2000 8,270
2001 1,480
2002 1,618
2003 1,063
-------
45,654
Less: Current portion 33,223
-------
Long-Term portion $12,431
=======
</TABLE>
Interest rates on capitalized leases vary from 9% to 23% and are imputed
based on the lower of the Company's incremental borrowing rate at the inception
of each lease or the lessor's implicit rate of return.
NOTE 10 - DUE TO SHAREHOLDER
Due to shareholder consists principally of business expenses paid for by
the Company's president and not reimbursed by the Company. All of the amounts
are payable upon demand. The officer shareholder has agreed not to demand
payment until at least February, 2000.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company was leasing its facilities under a five year lease, which
was due to expire on January 14, 2000.
During the year ended January 31, 1999, the landlord requested that the
Company vacate the facilities. Since the Company was not fully utilizing the
space, the Company and the landlord mutually rescinded the lease effective
March, 1999. In April, 1999, the Company moved into a new facility.
In addition, the Company is obligated to pay its proportionate share of
real estate taxes.
Additionally, the Company is required to maintain a $ 1,000,000
liability insurance policy and replacement cost fire and extended coverage
insurance.
Rent expense under operating leases was $142,296 and $129,305 for the
year ended January 31, 1998 and 1997 respectively.
F-13
<PAGE> 34
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1997
NOTE 12 - INCOME TAXES
At January 31, 1998, the Company had approximately $3,300,000 and
$1,400,000 of net operating loss carryforwards for federal and state income tax
purposes respectively. The carryforwards expire through 2013.
The components of the provision (benefit) for income taxes at January
31, are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current
Federal $ - $ -
State 800 800
----------- -----------
$ 800 $ 800
=========== ===========
Deferred tax asset consist of the following:
Net Operating Loss Carryforwards $ 1,122,000 $ 850,000
Valuation Allowance - Net Operating Losses (1,122,000) (850,000)
----------- -----------
Net Deferred Tax Asset $ 0 $ 0
=========== ===========
</TABLE>
There were no deferred tax liabilities at January 31, 1998 or 1997.
The reconciliation of federal income taxes computed at the statutory
rate to the income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
Year Ending January 31,
1998 1997
----------- -----------
<S> <C> <C>
Income Tax Benefit at Statutory Rate $ (272,000) $ (145,000)
Increase in Valuation Allowance 272,000 145,000
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
NOTE 13 - COMMON STOCK/PURCHASE PLAN
In August 1992, the Board of Directors approved an employee stock
purchase plan. The Board directed that a maximum of 2,000,000 shares be offered
to the employees. This was increased to 8,000,000 in 1995. The Board has the
authority to offer key employees the option of any number of shares up to the
plan maximum. As of January 31, 1998 and 1997, there are 7,650,000 shares
remaining under this plan. During the year ended January 31, 1999, the Board
granted options to purchase 2,570,000 shares at market price on the date of the
grant.
F-14
<PAGE> 35
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1997
NOTE 14 - LITIGATION
In the fourth quarter of 1993, Yarc filed a suit for libel against an
individual resident of Denmark, Mr. Flemming Stanley and his Danish company in
formation, "Stantech." In December 1993, Yarc won a judgment in the Superior
Court of California against the individual and his business in the amount of
$843,000. This judgment is currently unsatisfied. Yarc also filed an action for
libel in the Maritime and Commercial Court of Copenhagen against the same
defendants. Thereafter, Stantech filed a cross-complaint against Yarc which
alleged copying infringement under the Danish "Marketing Act" and claimed Yarc's
Linotronic RIP product infringed a Stantech product. In November, 1996 the
Maritime and Commercial Court held that Flemming Stanley had committed libel and
that there was no evidence of infringement as there was no copyrightable
material and imposed a fine against Mr. Stanley. The Maritime and Commercial
Court also imposed a fine in the approximate amount of U.S.$ 112,000 against
Yarc for disturbing Stantech's market under the Danish Marketing Act. If Yarc
establishes a presence in Denmark the fine will have to be paid as the 843,000
unsatisfied judgement can not be enforced in Denmark.
NOTE 15 - DIVIDENDS AND PREFERRED STOCK
The Preferred Stock Series A was issued to the Company's president in
1992 as payment of reimbursements due the president for money advanced on behalf
of the Corporation.
The holders of outstanding Series A Preferred shares shall be entitled
to receive, when and as declared by the Board of Directors of the corporation,
out of any assets at the time legally available dividends at the annual rate of
$ .10 per Series A Preferred Share, and no more, payable in cash quarterly on
the last day of March, June, September, and December to the holders of Series A
Preferred shares of record on a date not more than 60 nor fewer than 10 days
preceding each respective payment date as specified by the Board of Directors
or, if not so specified, as provided by law. Dividends shall accrue on each
Series A Preferred Share form the date of its original issuance and shall accrue
from day to day, whether or not earned or declared. Dividends shall be
cumulative so that if dividends in respect of any previous quarterly dividend
period at that annual rate per share shall not have been paid on or declared and
set apart of all Series A Preferred shares at the time outstanding, the
deficiency shall be fully paid on or declared and set apart for those shares
before the Board of Directors of the corporation declares or pays any dividend
to holders of Common shares.
At present, the dividends have not been declared by the Board of
Directors but it will be cumulative under dividend payable.
Dividend payable at January 31, 1998 and 1997 consist of:
<TABLE>
<S> <C>
Balance at January 31, 1996 $ 66,813
Dividend - for the year January 31, 1997 25,863
--------
Balance at January 31, 1997 92,676
Dividend - for the year January 31, 1998 25,863
--------
$118,439
========
</TABLE>
F-15
<PAGE> 36
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1997
Note 15 Continued
All of the outstanding Series A Preferred Shares are held by the
president of the Company. The president has agreed to forego payment of the
dividends until such time as the Company has adequate resources.
The Preferred Stock Series B was purchased on behalf of the Company by
the president from a former officer during the period 1993 to 1995, pursuant to
a legal settlement between the Company and a former officer. The Company has
committed to repurchase those shares from the president at its redemption value
of $2 per share when it is able.
NOTE 16 - TRANSACTIONS WITH MAJOR CUSTOMERS
One domestic customer accounted for approximately $625,700 or 47% of
year ended January 31, 1998 sales. No other customer amounted to more than 1% of
sales.
F-16
<PAGE> 37
YARC SYSTEMS CORPORATION, INC.
FINANCIAL STATEMENT
JANUARY 31, 1999 AND 1998
F-17
<PAGE> 38
[BARRY GLASSER & COMPANY LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Yarc Systems Corporation
Camarillo, California
We have audited the balance sheets of Yarc Systems Corporation as of January 31,
1999 and 1998 and the related statements of operations, shareholders' equity,
and cash flows for each of the two years in the period ended January 31, 1999.
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Yarc Systems Corporation as of
January 31, 1999 and 1998, and the results of it's operations and cash flows for
each of the two years in the period ended January 31, 1999 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Note 1 to the financial statements
describes various factors that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BARRY GLASSER & COMPANY
Agoura Hills, California
February 11, 2000
F-18
<PAGE> 39
YARC SYSTEMS CORPORATION
BALANCE SHEET
JANUARY 31,
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 4,330 $ 12,259
Accounts Receivable, Less Allowance for
Doubtful Accounts of $0 (1999) and
$13,048 (1998) (Note 3) 16,282 80,267
Inventories (Note 4) 194,375 315,887
----------- -----------
Total Current Assets 214,987 408,413
Property and Equipment at Cost, Less Accumulated
Depreciation of $388,186 (1999) and $343,648 (1998)
(Note 5) 78,951 116,011
Contract and Licenses 0 25,000
Deposit 3,600 9,726
Investments and Advances to Unconsolidated
Subsidiary Carried at Cost (Note 6) 0 174,146
----------- -----------
Total Assets $ 297,538 $ 733,296
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts Payable $ 643,785 $ 494,596
Accrued Payroll and Payroll Taxes (Note 8) 697,472 521,595
Income Taxes Payable (Receivable) 0 (6,651)
Dividend Payable (Note 15) 144,402 118,539
Bridge Loan (Note 7) 544,161 400,328
Due to Stockholder (Note 10) 174,219 154,715
Current Portion of Obligation Under
Capital Leases (Note 9) 8,270 33,223
----------- -----------
Total Current Liabilities 2,212,209 1,716,345
----------- -----------
Obligation Under Capital Leases, Less Current Portion
(Note 9) 4,358 12,431
----------- -----------
Stockholder's Equity (Note 7, 13 and 15)
Preferred Stock Series A, $1 Par Value 10% Cumulative
Voting Shares, Authorized 15,000,000 Shares: Issued
and Outstanding 258,638 Shares 258,638 258,638
Preferred Stock Series B, No Par Value, Non-Voting
Shares; Issued and Outstanding 68,334 Shares 42,667 42,667
Common Stock, No Par Value, Authorized 25,000,000
Shares, 16,293,809 Shares and 13,893,370 Issued and
Outstanding at January 31, 1999 and 1998, Respectfully 3,206,348 2,321,898
Retained Earnings (Deficit) (5,426,682) (3,618,683)
----------- -----------
Total Stockholder's Equity (Deficit) (1,919,029) (995,480)
----------- -----------
Total Liabilities and Stockholders Equity $ 297,538 $ 773,296
=========== ===========
</TABLE>
See Accompanying Notes to These Financial Statements.
F-19
<PAGE> 40
YARC SYSTEMS CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenue, Net of Returns and Allowances $ 766,562 $ 1,317,422
Cost of Sales (333,415) (415,923)
------------ ------------
Gross Profit 433,147 902,499
------------ ------------
Operating Expenses
Selling Expenses 204,213 209,893
Research and Development 272,862 277,773
General and Administrative Expenses 1,398,109 1,126,316
------------ ------------
Total Operating Expenses 1,857,184 1,613,982
------------ ------------
Operating Income (Loss) (1,442,037) (711,483)
Interest Expense (58,009) (99,247)
------------ ------------
Income (Loss) Before Extraordinary Loss (1,500,046) (810,730)
Write-off of Investment and Advances
To Unconsolidated Subsidiary (281,290) --
------------ ------------
Income (Loss) Before Income Taxes (1,781,336) (810,730)
Provision (Benefit) for Income Taxes (Note 12) 800 800
------------ ------------
Net Income (Loss) $ (1,782,136) $ (811,530)
============ ============
(Loss) per Common Share
Basic $ (.12) $ (.06)
============ ============
Diluted $ (.12) $ (.06)
============ ============
Weighted Average Common Shares 15,092,688 13,431,640
============ ============
Weighted Average Common Shares - Assuming Dilution 15,092,688 13,431,640
============ ============
</TABLE>
See Accompanying Notes to These Financial Statements.
F-20
<PAGE> 41
YARC SYSTEMS CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Operating Activities:
Net Income (Loss) $(1,782,136) $ (811,530)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by (Used in) Operating
Activities:
Write-off of Contract and Licenses 25,000 --
Write-off of Investment and Advances
to Subsidiary 281,290 --
Sales to Unconsolidated Subsidiary Not Paid For (67,099) (85,916)
Allowance for Doubtful Accounts 3,048 (13,598)
Depreciation and Amortization 44,538 46,384
Accrued Interest on Bridge Loans 32,432 55,162
Decrease (Increase) in Accounts Receivable 60,937 19,389
Decrease (Increase) in Inventories 121,512 20,930
Decrease (Increase) in Deposits 6,126 (279)
(Decrease) Increase in Accounts Payable 149,189 (42,334)
(Decrease) Increase in Accrued Expenses 182,528 255,688
----------- -----------
Net Cash (Used in) Operating Activities (942,635) (556,104)
----------- -----------
Investing Activities:
Advances to Unconsolidated Subsidiary (40,045) (70,423)
Acquisition of Property and Equipment (7,478) (10,567)
----------- -----------
Net Cash (Used in) Provided by Investing Activities (47,523) (80,990)
----------- -----------
Financing Activities:
Proceeds From Bridge Loans 246,420 40,000
Net Advances (Payment) From Stockholder 19,504 120,000
Net Borrowing (Payment) Under Capital
Lease Obligation (33,126) (34,834)
Proceeds From Sale of Stock 392,800 565,400
Repayment of Bridge Loans (15,019) (39,098)
Proceeds From Exercise of Employee Stock Options 371,650 --
----------- -----------
Net Cash Provided (Used) by Financing Activities 982,229 652,269
----------- -----------
Increase (Decrease) in Cash (7,929) 15,175
Cash (Overdraft) at Beginning of Period 12,259 (2,916)
----------- -----------
Cash (Overdraft) at End of Period $ 4,330 $ 12,259
=========== ===========
Cash Paid For:
Interest $ 40,576 $ 65,877
=========== ===========
Income Taxes $ 800 $ 800
=========== ===========
Non Cash Conversion of Bridge Loan to Capital Stock $ 120,000 $ --
=========== ===========
Non Cash Transaction From Dividend on
Preferred Stock Series A $ 25,863 $ 25,863
=========== ===========
Non Cash Capitalized Lease Obligation $ -- $ 7,239
=========== ===========
</TABLE>
See Accompanying Notes to These Financial Statements.
F-21
<PAGE> 42
YARC SYSTEMS CORPORATION, INC.
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock
Series A Series B Common Stock
------------- ------------- -------------
Shares Issued Shares Issued Shares Issued
& Outstanding Amount & Outstanding Amount & Outstanding
------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1997 258,638 $258,638 68,334 $42,667 13,192,970
Net Loss
Sale of Common Stock at $1 Per Share 485,400
Sale of Common Stock at $.50 Per Share 160,000
Issuance of Stock Under Conversion From
Bridge Loan at $1 Per Share 15,000
Dividend - Preferred Stock at $.10 Per Share
Balance at January 31, 1998 258,638 $258,638 68,334 $42,667 13,853,370
Net Loss
Issuance of Stock Under Conversion From
Bridge Loan at $.50 Per Share 240,000
Sale of Common Stock at $.50 Per Share 785,600
Exercise of Employee Stock Options at:
$.20 Per Share 290,000
$.31 Per Share 429,839
$.44 Per Share 410,000
Issuance of Shares to Previous Purchases of
Stock Who Paid $1 Per Share 285,000
Dividend - Preferred Stock at $.10 Per Share
Balance of January 31, 1999 258,638 $258,638 68,334 $42,667 16,293,809
<CAPTION>
Treasury Retained Earnings
Amount Stock (Deficit) Total
---------- -------- ----------------- ----------
<S> <C> <C> <C> <C>
Balance at January 31, 1997 $1,741,498 0 $(2,781,290) $(738,487)
Net Loss (811,530) (811,530)
Sale of Common Stock at $1 Per Share 485,400 485,400
Sale of Common Stock at $.50 Per Share 80,000 80,000
Issuance of Stock Under Conversion From
Bridge Loan at $1 Per Share 15,000 15,000
Dividend - Preferred Stock at $.10 Per Share (25,863) (25,863)
Balance at January 31, 1998 $2,321,898 0 $(3,618,683) $ (995,480)
Net Loss $(1,782,136) $(1,782,136)
Issuance of Stock Under Conversion From
Bridge Loan at $.50 Per Share 120,000 120,000
Sale of Common Stock at $.50 Per Share 392,800 392,800
Exercise of Employee Stock Options at:
$.20 Per Share 58,000 58,000
$.31 Per Share 133,250 133,250
$.44 Per Share 180,400 180,400
Issuance of Shares to Previous Purchases of
Stock Who Paid $1 Per Share 0 0
Dividend - Preferred Stock at $.10 Per Share $ (25,863) $ (25,863)
Balance at January 31, 1999 $3,206,348 0 $(5,426,682) $(1,919,029)
</TABLE>
F-22
<PAGE> 43
YARC SYSTEMS CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION
Yarc Systems Corporation (the Company) was founded in January, 1988 to
develop and market a new method of increasing the power of personal computers
called "Computing Coprocessors". The Company designs and manufactures special
purpose computer engines for major software OEM's. Its key technologies include
a range of proprietary software and hardware packages which allow application
developers to provide their users with more computing power.
In September 1996, the Company formed a subsidiary in the Britain called
YARC Systems limited. The purpose of the subsidiary is to provide local sales
and support within Europe.
YARC Systems Limited has not been consolidated because through January
31, 1998, its operations were minor and the subsidiary did not operate for most
of the 1999 fiscal year. (See Note 6)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from product sales at the time of
shipment or when a service is performed.
Research and Development Costs
The company follows the guidance provided in FASB-2, Accounting for
Research and Development Costs and FASB-86, Accounting for the Costs of Computer
Software to be Sold, Leased or otherwise Marketed. Accordingly, all costs
related to research and development are expensed until such time that
technological feasibility is established. Once technological feasibility is
established all costs incurred in the production of the product matters are
capitalized.
Cash & Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided via
the straight-line method over the estimated useful lives of the assets,
principally five (5) years.
F-23
<PAGE> 44
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
Note 1 - Continued
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Advertising
The Company expenses advertising costs as incurred. During the year
ended January 31, 1999 and 1998, the Company incurred $50,214 and $52,775 in
advertising costs.
Stock-Based Compensation
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation (FAS 123"), which
the Company adopted in fiscal 1997, the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee stock
option plans. Under APB 25, if the exercise price of the Company's employee
stock options equals or exceeds the fair value of the underlying stock on the
date of grant, no compensation is recognized. Information regarding the
Company's pro forma disclosure of stock-based compensation pursuant to FAS 123
has not been included since no stock options have been granted. (See Note 12)
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 balance sheets are considered
reasonable estimates of the fair value.
Reclassifications
Certain prior year financial statement classifications have been
reclassified to conform with the current year's presentation.
F-24
<PAGE> 45
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
Note 1 - Continued
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share ("Basic EPS") excludes dilution
and is computed by dividing net income (loss) available to common shareholders
(the "numerator") by the weighted average number of common shares outstanding
(the "denominator") during the period. Diluted earnings (loss) per common share
("Diluted EPS") is similar to the computation of Basic EPS except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
issued. The computation of Diluted EPS does not assume exercise or conversion of
securities that would have an anti-dilutive effect on net earnings (loss) per
share.
<TABLE>
<CAPTION>
Earnings (loss) Shares Per-Share
(Numerator) (Denominator) Amount
--------------- ------------- -----------
<S> <C> <C> <C>
January 31, 1999
Net (loss) $(1,782,136)
Preferred Dividends (25,863)
-----------
Basic and Diluted EPS $(1,807,999) 15,092,688 $ (.12)
=========== =========== ===========
January 31, 1998
Net (loss) $ (811,530)
Preferred Dividends (25,863)
-----------
Basic and Diluted EPS $ (837,393) 12,751,383 $ (.06)
=========== =========== ===========
</TABLE>
NOTE 2 - GOING CONCERN CONSIDERATIONS
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. At January 31, 1999, the Company
had a net loss, negative working capital, and a decline in net worth which raise
substantial doubt about its ability to continue as a going concern. The
Company's losses have resulted primarily from an inability to achieve product
sales and contract revenue targets due to insufficient working capital. Yarc's
ability to continue operations will depend on positive cash flow, if any, from
future operations and on the Company's ability to raise additional funds through
equity or debt financing. The Company has cut back and/or discontinued some of
its operations and, if it is unable to raise or obtain needed funding, the
Company may be forced to discontinue operations generally. To date, through
further equity infusion into the Company, primarily in the form of the exercise
of options by employees of the Company, operations have continued. Without
additional funding sufficient to satisfy the creditors of the Company, as well
as providing working capital for the Company, there can be no assurances that
such operations can continue. The Company continues to actively work with
entities capable of providing such funding. Management has continued to
implement its restructuring plan including reductions of personnel,
consolidation of facilities and disposal of subsidiaries. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
F-25
<PAGE> 46
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, consists of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accounts Receivable, Trade $ 15,540 $ 82,573
Accounts Receivable, Other 742 742
-------- --------
16,282 83,315
Less: Allowance for Doubtful Accounts -- (3,048)
-------- --------
$ 16,282 $ 80,267
======== ========
</TABLE>
NOTE 4 - INVENTORIES
Inventories at January 31, consists of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Raw Materials $140,116 $210,146
Work-in-Process 51,938 102,618
Sales Demonstration 2,321 3,123
-------- --------
$194,375 $315,887
======== ========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at January 31, consists of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Machinery and Equipment $ 120,642 $ 120,642
Office Equipment 44,798 44,798
Engineering Under Capital Lease 65,134 65,134
Equipment Under Capital Lease 178,971 178,971
Software 55,092 47,614
Leasehold Improvements 2,500 2,500
--------- ---------
467,137 459,659
Less Accumulated Depreciation (388,186) (343,648)
--------- ---------
$ 78,951 $ 116,011
========= =========
</TABLE>
Depreciation expense charged to operations was $44,538 and $46,384 for
January 31, 1999 and 1998, respectively.
Amortization of equipment under capital lease in the amount of $130,430
and $76,365 for January 31, 1999 and 1998, respectively, is included in
accumulated depreciation.
F-26
<PAGE> 47
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 6 - INVESTMENTS AND ADVANCES TO UNCONSOLIDATED SUBSIDIARY CARRIED AT COST
In September 1996, the Company formed a subsidiary in Great Britain by
the name of YARC Systems Limited. The purpose of the subsidiary is to provide
local sales and support within Europe. Through January 31, 1997, the subsidiary
was organizing and had very minor operations.
Following is a summary of the financial position of YARC Systems Limited
as of January 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Current Assets $ 13,715 $ 41,038
Property, Plant and Equipment (Net) 37,052 71,948
--------- ---------
Total Assets $ 50,767 $ 112,986
========= =========
Current Liabilities $ 342,324 $ 223,902
Noncurrent Liabilities 9,144 15,049
--------- ---------
351,468 238,951
Stockholder's (Deficiency) (300,701) (125,986)
--------- ---------
$ 50,767 $ 112,986
========= =========
</TABLE>
There is no market for the common stock of YARC Systems Limited and,
accordingly, no quoted market price is available.
Sales to Yarc Systems Limited amounted to $67,099 in 1999 and $85,916 in
1998. The Company had not received payment on these sales and the receivable had
been included in the investment and advances to unconsolidated subsidiary. The
Company sold product to Yarc Systems Limited at cost.
During the 1999 fiscal year the subsidiary has ceased operations.
However, the subsidiary is still in good standing and operations could be
recommenced upon approval of the board of directors
NOTE 7 - BRIDGE LOAN/COMMON STOCK
For the year ended January 31, 1997, there were no compensation
arrangements involving common stock.
In June 1996, the Company borrowed $300,000 from 10 borrowers under an
intercreditor agreement. The notes are secured by the accounts receivable and
inventory.
The notes draw interest at 10% per annum. The principal balance plus the
accrued interest was scheduled to be paid in 12 equal installments beginning
June, 1997. The Company has partially repaid one of the notes. The Company has
been accruing the interest on these notes. During the year ended January 31,
1998, the Company received $40,000 as an additional bridge loan; $15,000 of
which was converted into 15,000 shares of common stock. During the years ended
January 31, 1999 and 2000, the Company converted $120,000 and $200,000
respectively to common stock at $.50 per share. Thus at January 31, 2000, all of
the outstanding bridge loan obligation had been satisfied.
NOTE 16 - TRANSACTIONS WITH MAJOR CUSTOMERS
One domestic customer accounted for approximately $366,700 or 48%,
$625,700 or 47% of the year ended January 31, 1999 and 1998 sales respectively.
No other customer amounted to more than 1% of sales.
F-27
<PAGE> 48
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 8 - ACCRUED PAYROLL AND PAYROLL TAXES
Included in accrued payroll and payroll taxes at January 31, 1997 was
$210,000. This sum had increased to approximately $420,000 by January 31, 1998.
The company had negotiated with the taxing authorities a payment plan to pay the
outstanding obligation. The Company has not fulfilled its obligations under the
negotiated plan but has been in renegotiations with the tax authorities.
NOTE 9 - OBLIGATION UNDER CAPITAL LEASES
The Company leases various equipment under capital leases expiring in
various years through 2003. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. Minimum future lease payments under capital leases as
of January 31, 1999 for each of the future years in the aggregate are:
<TABLE>
<CAPTION>
Year Ended Jan 31,
<S> <C>
2000 $ 8,270
2001 1,480
2002 1,618
2003 1,160
-------
12,528
Less: Current Portion 8,270
-------
Long-Term Portion $ 4,358
=======
</TABLE>
Interest rates on capitalized leases vary from 9% to 23% and are imputed
based on the lower of the Company's incremental borrowing rate at the inception
of each lease or the lessor's implicit rate of return.
NOTE 10 - DUE TO SHAREHOLDER
Due to shareholder consists principally of business expenses paid for by
the Company's president and not reimbursed by the Company. All of the amounts
are payable upon demand. The officer shareholder has agreed not to demand
payment until at least February, 2000.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company was leasing its facilities under a five year lease, which
was due to expire on January 14, 2000.
During the year ended January 31, 1999, the landlord requested that the
Company vacate the facilities. Since the Company was not fully utilizing the
space, the Company and the landlord mutually rescinded the lease effective
March, 1999. In April, 1999, the Company moved into a new facility.
In addition, the Company is obligated to pay its proportionate share of
real estate taxes.
Additionally, the Company is required to maintain a $1,000,000 liability
insurance policy and replacement cost fire and extended coverage insurance.
Rent expense under operating leases was $159,043 and $142,296 for the
year ended January 31, 1999 and 1998 respectively.
F-28
<PAGE> 49
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 12 - INCOME TAXES
At January 31, 1999, the Company had approximately $5,089,000 and
$2,290,000 of net operating loss carryforwards for federal and state income tax
purposes respectively. The carryforwards expire through 2019.
The components of the provision (benefit) for income taxes at January
31, are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current
Federal $ -- $ --
State 800 800
----------- -----------
$ 800 $ 800
=========== ===========
Deferred tax asset consist of the following:
Net Operating Loss Carryforwards $ 1,728,000 $ 1,122,000
Valuation Allowance - Net Operating Losses (1,728,000) (1,122,000)
----------- -----------
Net Deferred Tax Asset $ 0 $ 0
=========== ===========
</TABLE>
There were no deferred tax liabilities at January 31, 1999 or 1998.
The reconciliation of federal income taxes computed at the statutory
rate to the income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
Year Ending January 31,
1999 1998
--------- ---------
<S> <C> <C>
Income Tax Benefit at Statutory Rate $(606,000) $(272,000)
Increase in Valuation Allowance 606,000 272,000
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
NOTE 13 - COMMON STOCK/PURCHASE PLAN
In August 1992, the Board of Directors approved an employee stock
purchase plan. The Board directed that a maximum of 2,000,000 shares be offered
to the employees. This was increased to 8,000,000 in 1995. The Board has the
authority to offer key employees the option of any number of shares up to the
plan maximum. As of January 31, 1998, there are 7,650,000 shares remaining under
this plan. During the year ended January 31, 1999, the Board granted options to
purchase 2,570,000 shares at market price on the date of the grant.
F-29
<PAGE> 50
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 14 - LITIGATION
In the fourth quarter of 1993, Yarc filed a suit for libel against an
individual resident of Denmark, Mr. Flemming Stanley and his Danish company in
formation, "Stantech." In December 1993, Yarc won a judgment in the Superior
Court of California against the individual and his business in the amount of
$843,000. This judgment is currently unsatisfied. Yarc also filed an action for
libel in the Maritime and Commercial Court of Copenhagen against the same
defendants. Thereafter, Stantech filed a cross-complaint against Yarc which
alleged copying infringement under the Danish "Marketing Act" and claimed Yarc's
Linotronic RIP product infringed a Stantech product. In November, 1996 the
Maritime and Commercial Court held that Flemming Stanley had committed libel and
that there was no evidence of infringement as there was no copyrightable
material and imposed a fine against Mr. Stanley. The Maritime and Commercial
Court also imposed a fine in the approximate amount of U.S.$ 112,000 against
Yarc for disturbing Stantech's market under the Danish Marketing Act. If Yarc
establishes a presence in Denmark the fine will have to be paid as the 843,000
unsatisfied judgement can not be enforced in Denmark.
NOTE 15 - DIVIDENDS AND PREFERRED STOCK
The Preferred Stock Series A was issued to the Company's president in
1992 as payment of reimbursements due the president for money advanced on behalf
of the Corporation.
The holders of outstanding Series A Preferred shares shall be entitled
to receive, when and as declared by the Board of Directors of the corporation,
out of any assets at the time legally available dividends at the annual rate of
$ .10 per Series A Preferred Share, and no more, payable in cash quarterly on
the last day of March, June, September, and December to the holders of Series A
Preferred shares of record on a date not more than 60 nor fewer than 10 days
preceding each respective payment date as specified by the Board of Directors
or, if not so specified, as provided by law. Dividends shall accrue on each
Series A Preferred Share form the date of its original issuance and shall accrue
from day to day, whether or not earned or declared. Dividends shall be
cumulative so that if dividends in respect of any previous quarterly dividend
period at that annual rate per share shall not have been paid on or declared and
set apart of all Series A Preferred shares at the time outstanding, the
deficiency shall be fully paid on or declared and set apart for those shares
before the Board of Directors of the corporation declares or pays any dividend
to holders of Common shares.
At present, the dividends have not been declared by the Board of
Directors but it will be cumulative under dividend payable.
Dividend payable at January 31, 1999 and 1998 consist of:
<TABLE>
<S> <C>
Balance at January 31, 1997 $ 92,676
Dividend - for the year January 31, 1998 25,863
--------
Balance at January 31, 1998 118,539
Dividend - for the year January 31, 1999 25,863
--------
Balance at January 31, 1999 $144,402
========
</TABLE>
F-30
<PAGE> 51
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
Note 15 Continued
All of the outstanding Series A Preferred Shares are held by the
president of the Company. The president has agreed to forego payment of the
dividends until such time as the Company has adequate resources.
The Preferred Stock Series B was purchased on behalf of the Company by
the president from a former officer during the period 1993 to 1995, pursuant to
a legal settlement between the Company and a former officer. The Company has
committed to repurchase those shares from the president at its redemption value
of $2 per share when it is able.
F-31
<PAGE> 52
YARC SYSTEMS CORPORATION, INC.
FINANCIAL STATEMENT
JANUARY 31, 2000 (UNAUDITED) AND 1999 (AUDITED)
F-32
<PAGE> 53
YARC SYSTEMS CORPORATION
BALANCE SHEET
JANUARY 31,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 1,746 $ 4,330
Accounts Receivable, Less Allowance for
Doubtful Accounts of $1,758 (2000) and
$0 (1999) (Note 3) 65,158 16,282
Inventories (Note 4) 173,472 194,375
----------- -----------
Total Current Assets 240,376 214,987
Property and Equipment at Cost, Less Accumulated
Depreciation of $419,235 (2000) and $388,186 (1999)
(Note 5) 46,877 78,951
Deposit 0 3,600
----------- -----------
Total Assets $ 287,253 $ 297,538
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Bank Overdraft $ 25,690 $ 0
Accounts Payable 396,895 643,785
Accrued Payroll and Payroll Taxes (Note 8) . 645,573 697,472
Dividend Payable (Note 15) 170,265 144,402
Loans From Stockholders 132,297 0
Bridge Loan (Note 7) 35,109 544,161
Due to Stockholder (Note 10) 408,249 174,219
Current Portion of Obligation Under
Capital Leases (Note 9) 1,480 8,270
----------- -----------
Total Current Liabilities 1,815,558 2,212,309
----------- -----------
Obligation Under Capital Leases, Less Current Portion
(Note 9) 2,778 4,258
----------- -----------
Stockholder's Equity (Note 7, 13 and 15)
Preferred Stock Series A, $1 Par Value 10% Cumulative
Voting Shares, Authorized 15,000,000 Shares: Issued
and Outstanding 258,638 Shares 258,638 258,638
Preferred Stock Series B, No Par Value, Non-Voting
Shares; Issued and Outstanding 68,334 Shares 42,667 42,667
Common Stock, No Par Value, Authorized 25,000,000
Shares, 18,046,871 Shares and 16,293,809 Issued and
Outstanding at January 31, 2000 and 1999, Respectfully 4,161,080 3,206,348
Retained Earnings (Deficit) (5,993,468) (5,426,682)
----------- -----------
Total Stockholder's Equity (Deficit) (1,531,083) (1,919,029)
----------- -----------
Total Liabilities and Stockholders Equity $ 287,253 $ 297,538
=========== ===========
</TABLE>
See Accompanying Notes to These Financial Statements.
F-33
<PAGE> 54
YARC SYSTEMS CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Revenue, Net of Returns and Allowances $ 478,546 $ 766,562
Cost of Sales (117,421) (333,415)
------------ ------------
Gross Profit 361,125 433,147
------------ ------------
Operating Expenses
Selling Expenses 26,701 204,213
Research and Development 139,930 272,862
General and Administrative Expenses 700,931 1,398,109
------------ ------------
Total Operating Expenses 867,562 1,875,184
------------ ------------
Operating Income (Loss) (506,437) (1,442,037)
Interest Expense (33,686) (58,009)
------------ ------------
Income (Loss) Before Extraordinary Loss (540,123) (1,500,046)
Write-off of Investment and Advances
To Unconsolidated Subsidiary (Note 6) 0 (281,290)
------------ ------------
Income (Loss) Before Income Taxes (540,123) (1,781,336)
Provision (Benefit) for Income Taxes (Note 12) 800 800
------------ ------------
Net Income (Loss) $ (540,923) $ (1,782,136)
============ ============
(Loss) per Common Share
Basic $ (.03) $ (.12)
============ ============
Diluted $ (.03) $ (.12)
============ ============
Weighted Average Common Shares 16,785,144 15,092,688
============ ============
Weighted Average Common Shares - Assuming Dilution 16,785,144 15,092,688
============ ============
</TABLE>
See Accompanying Notes to These Financial Statements.
F-34
<PAGE> 55
YARC SYSTEMS CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Operating Activities:
Net Income (Loss) $ (540,923) $(1,782,136)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by (Used in) Operating Activities:
Write-off of Contract and Licenses 0 25,000
Write-off of Investment and Advances
to Subsidiary 0 281,290
Sales to Unconsolidated Subsidiary Not Paid For 0 (67,099)
Stock Issued for Payment of Services 81,000 0
Allowance for Doubtful Accounts 1,758 3,048
Depreciation and Amortization 33,549 44,538
Accrued Interest on Bridge Loans 24,360 32,432
Decrease (Increase) in Accounts Receivable (50,634) 60,937
Decrease (Increase) in Inventories 20,903 121,512
Decrease (Increase) in Deposits 3,600 6,126
(Decrease) Increase in Accounts Payable (4,336) 149,189
(Decrease) Increase in Accrued Expenses (51,899) 182,528
----------- -----------
Net Cash (Used in) Operating Activities (482,622) (942,635)
----------- -----------
Investing Activities:
Advances to Unconsolidated Subsidiary 0 (40,045)
Acquisition of Property and Equipment (1,475) (7,478)
----------- -----------
Net Cash (Used in) Provided by Investing Activities (1,475) (47,523)
----------- -----------
Financing Activities:
Unsecured Loans From Stockholders 119,000 0
Proceeds From Bridge Loans 0 246,420
Net Advances (Payment) From Stockholder 234,030 19,504
Net Borrowing (Payment) Under Capital
Lease Obligation (8,270) (33,126)
Proceeds From Sale of Stock 0 392,800
Repayment of Bridge Loans (2,937) (15,019)
Proceeds From Exercise of Employee Stock Options 114,000 371,650
----------- -----------
Net Cash Provided (Used) by Financing Activities 455,823 982,229
----------- -----------
Increase (Decrease) in Cash (28,274) (7,929)
Cash at Beginning of Period 4,330 12,259
----------- -----------
Cash (Overdraft) at End of Period $ (23,944) $ 4,330
=========== ===========
Cash Paid For:
Interest $ 14,952 $ 40,576
=========== ===========
Income Taxes $ 800 $ 800
=========== ===========
Non Cash Conversion of Bridge Loan to Capital Stock $ 517,178 $ 120,000
=========== ===========
Non Cash Transaction From Dividend on
Preferred Stock Series A $ 25,863 $ 25,863
=========== ===========
Non Cash Conversion of Accounts Payable to
Common Stock $ 242,554 $ --
=========== ===========
</TABLE>
See Accompanying Notes to These Financial Statements.
F-35
<PAGE> 56
YARC SYSTEMS CORPORATION, INC.
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock
Series A Series B Common Stock
--------------- --------------- ------------
Shares Issued Shares Issued Shares Issued
& Outstanding Amount & Outstanding Amount & Outstanding
-------------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1998 258,638 $ 258,638 68,334 $ 42,667 13,853,370
Net Loss
Issuance of Stock Under Conversion From
Bridge Loan at $.50 Per Share 240,000
Sale of Common Stock at $.50 Per Share 785,600
Exercise of Employee Stock Options at:
$.20 Per Share 290,000
$.31 Per Share 429,839
$.44 Per Share 410,000
Issuance of Shares to Previous Purchases of
Stock Who Paid $1 Per Share 285,000
Dividend - Preferred Stock at $.10 Per Share
Balance at January 31, 1999 258,638 $ 258,638 68,334 $ 42,667 16,293,809
Net Loss
Exercise of Employee Stock Options at:
$.20 Per Share 530,000
$.31 Per Share 25,806
Issuance of Stock Under Conversion From
Bridge Loan at:
$.10 Per Share 325,000
$.20 Per Share 220,000
$.25 Per Share 48,000
$.50 Per Share 745,940
$.55 Per Share 50,000
$1.00 Per Share 28,208
Issuance of Stock in Exchange for Services 300,000
Issuance of Stock in Payment of
Outstanding Invoices 480,108
Dividends-Preferred Stock at $.10 Per Share
Balance at January 31, 2000 258,638 $ 258,638 68,334 $ 42,667 19,046,871
<CAPTION>
Treasury Retained Earnings
Amount Stock (Deficit) Total
----------- -------- ----------------- ------------
<S> <C> <C> <C> <C>
Balance at January 31, 1998 $ 2,321,898 0 $(3,618,683) $ (995,480)
Net Loss $(1,782,136) $(1,782,136)
Issuance of Stock Under Conversion From
Bridge Loan at $.50 Per Share 120,000 120,000
Sale of Common Stock at $.50 Per Share 392,800 392,800
Exercise of Employee Stock Options at:
$.20 Per Share 58,000 58,000
$.31 Per Share 133,250 133,250
$.44 Per Share 180,400 180,400
Issuance of Shares to Previous Purchases of
Stock Who Paid $1 Per Share 0 0
Dividend - Preferred Stock at $.10 Per Share $ (25,863) $ (25,863)
Balance at January 31, 1999 $ 3,206,348 0 $(5,426,682) $(1,919,029)
Net Loss $ (540,923) $ (540,923)
Exercise of Employee Stock Options at:
$.20 Per Share 106,000 $ 106,000
$.31 Per Share 8,000 $ 8,000
Issuance of Stock Under Conversion From
Bridge Loan at:
$.10 Per Share 32,500 $ 32,500
$.20 Per Share 44,000 $ 44,000
$.25 Per Share 12,000 $ 12,000
$.50 Per Share 372,970 $ 372,970
$.55 Per Share 27,500 $ 27,500
$1.00 Per Share 28,208 $ 28,208
Issuance of Stock in Exchange for Services 81,000 $ 81,000
Issuance of Stock in Payment of
Outstanding Invoices 242,554 $ 242,554
Dividends-Preferred Stock at $.10 Per Share $ (25,863) $ (25,863)
Balance at January 31, 2000 $ 4,161,080 0 $(5,993,468) $(1,531,083)
</TABLE>
F-36
<PAGE> 57
YARC SYSTEMS CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 (UNAUDITED) AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION
Yarc Systems Corporation (the Company) was founded in January, 1988 to
develop and market a new method of increasing the power of personal computers
called "Computing Coprocessors". The Company designs and manufactures special
purpose computer engines for major software OEM's. Its key technologies include
a range of proprietary software and hardware packages which allow application
developers to provide their users with more computing power.
In September 1996, the Company formed a subsidiary in the Britain called
YARC Systems limited. The purpose of the subsidiary is to provide local sales
and support within Europe.
YARC Systems Limited has not been consolidated because through January
31, 1998, its operations were minor and the subsidiary did not operate for most
of the 1999 fiscal year. (See Note 6)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from product sales at the time of
shipment or when a service is performed.
Research and Development Costs
The company follows the guidance provided in FASB-2, Accounting for
Research and Development Costs and FASB-86, Accounting for the Costs of Computer
Software to be Sold, Leased or otherwise Marketed. Accordingly, all costs
related to research and development are expensed until such time that
technological feasibility is established. Once technological feasibility is
established all costs incurred in the production of the product matters are
capitalized.
Cash & Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided via
the straight-line method over the estimated useful lives of the assets,
principally five (5) years.
F-37
<PAGE> 58
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 (UNAUDITED) AND 1999
Note 1 - Continued
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Advertising
The Company expenses advertising costs as incurred. During the year
ended January 31, 2000 and 1999, the Company incurred $1,877 and $50,214 in
advertising costs.
Stock-Based Compensation
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation (FAS 123)", which
the Company adopted in fiscal 1997, the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee stock
option plans. Under APB 25, if the exercise price of the Company's employee
stock options equals or exceeds the fair value of the underlying stock on the
date of grant, no compensation is recognized. Information regarding the
Company's pro forma disclosure of stock-based compensation pursuant to FAS 123
has not been included since no stock options have been granted. (See Note 12)
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 balance sheets are considered
reasonable estimates of the fair value.
Reclassifications
Certain prior year financial statement classifications have been
reclassified to conform with the current year's presentation.
F-38
<PAGE> 59
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 (UNAUDITED) AND 1999
Note 1 - Continued
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share ("Basic EPS") excludes dilution
and is computed by dividing net income (loss) available to common shareholders
(the "numerator") by the weighted average number of common shares outstanding
(the "denominator") during the period. Diluted earnings (loss) per common share
("Diluted EPS") is similar to the computation of Basic EPS except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
issued. The computation of Diluted EPS does not assume exercise or conversion of
securities that would have an anti-dilutive effect on net earnings (loss) per
share.
<TABLE>
<CAPTION>
Earnings (loss) Shares Per-Share
(Numerator) (Denominator) Amount
--------------- ------------- -----------
<S> <C> <C> <C>
January 31, 2000
Net (loss) $ (540,923)
Preferred Dividends (25,863)
-----------
Basic and Diluted EPS $ (566,786) 16,785,144 $ (.03)
=========== =========== ===========
January 31, 1999
Net (loss) $(1,782,136)
Preferred Dividends (25,863)
-----------
Basic and Diluted EPS $(1,807,999) 15,092,688 $ (.12)
=========== =========== ===========
</TABLE>
NOTE 2 - GOING CONCERN CONSIDERATIONS
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. At January 31, 2000, the Company
had a net loss, negative working capital, and a decline in net worth which raise
substantial doubt about its ability to continue as a going concern. The
Company's losses have resulted primarily from an inability to achieve product
sales and contract revenue targets due to insufficient working capital. Yarc's
ability to continue operations will depend on positive cash flow, if any, from
future operations and on the Company's ability to raise additional funds through
equity or debt financing. The Company has cut back and/or discontinued some of
its operations and, if it is unable to raise or obtain needed funding, the
Company may be forced to discontinue operations generally. To date, through
further equity infusion into the Company, primarily in the form of the exercise
of options by employees of the Company, operations have continued. Without
additional funding sufficient to satisfy the creditors of the Company, as well
as providing working capital for the Company, there can be no assurances that
such operations can continue. The Company continues to actively work with
entities capable of providing such funding. Management has continued to
implement its restructuring plan including reductions of personnel,
consolidation of facilities and disposal of subsidiaries. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
F-39
<PAGE> 60
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 (UNAUDITED) AND 1999
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, consists of:
<TABLE>
<CAPTION>
2000 1999
------- -------
(Unaudited)
<S> <C> <C>
Accounts Receivable, Trade $63,542 $15,540
Accounts Receivable, Other 3,374 742
------- -------
66,916 16,282
Less: Allowance for Doubtful Accounts 1,758 --
------- -------
$65,158 $16,282
======= =======
</TABLE>
NOTE 4 - INVENTORIES
Inventories at January 31, consists of:
<TABLE>
<CAPTION>
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
Raw Materials $173,472 $140,116
Work-in-Process 0 51,938
Sales Demonstration 0 2,321
-------- --------
$173,472 $194,375
======== ========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at January 31, consists of:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Machinery and Equipment $ 120,642 $ 120,642
Office Equipment 44,798 44,798
Engineering Equipment 66,609 65,134
Equipment Under Capital Lease 178,971 178,971
Software 55,092 55,092
Leasehold Improvements 0 2,500
--------- ---------
466,112 467,137
Less Accumulated Depreciation (419,235) (388,186)
--------- ---------
$ 46,877 $ 78,951
========= =========
</TABLE>
Depreciation expense charged to operations was $33,549 and $44,538 for
January 31, 2000 and 1999, respectively.
Amortization of equipment under capital lease in the amount of $154,091
and $130,430 for January 31, 2000 and 1999, respectively, is included in
accumulated depreciation.
F-40
<PAGE> 61
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 (UNAUDITED) AND 1999
NOTE 6 - INVESTMENTS AND ADVANCES TO UNCONSOLIDATED SUBSIDIARY CARRIED AT COST
In September 1996, the Company formed a subsidiary in Great Britain by
the name of YARC Systems Limited. The purpose of the subsidiary is to provide
local sales and support within Europe. Through January 31, 1997, the subsidiary
was organizing and had very minor operations.
Following is a summary of the financial position of YARC Systems Limited
as of January 31, 1999:
<TABLE>
<S> <C>
Current Assets $ 13,715
Property, Plant and Equipment (Net) 37,052
---------
Total Assets $ 50,767
=========
Current Liabilities $ 342,324
Noncurrent Liabilities 9,144
---------
351,468
Stockholder's (Deficiency) (300,701)
---------
$ 50,767
=========
</TABLE>
There is no market for the common stock of YARC Systems Limited and,
accordingly, no quoted market price is available.
Sales to Yarc Systems Limited amounted to $ 0 in 2000 and $67,099 in
1999. The Company had not received payment on these sales and the receivable had
been included in the investment and advances to unconsolidated subsidiary. The
Company sold product to Yarc Systems Limited at cost.
During the 1999 fiscal year the subsidiary has ceased operations.
However, the subsidiary is still in good standing and operations could be
recommenced upon approval of the board of directors
NOTE 7 - BRIDGE LOAN/COMMON STOCK
For the year ended January 31, 1997, there were no compensation
arrangements involving common stock.
In June 1996, the Company borrowed $300,000 from 10 borrowers under an
intercreditor agreement. The notes are secured by the accounts receivable and
inventory.
The notes draw interest at 10% per annum. The principal balance plus the
accrued interest was scheduled to be paid in 12 equal installments beginning
June, 1997. The Company has partially repaid one of the notes. The Company has
been accruing the interest on these notes. During the year ended January 31,
1998, the Company received $40,000 as an additional bridge loan; $15,000 of
which was converted into 15,000 shares of common stock. During the years ended
January 31, 1999 and 2000, the Company converted $120,000 and $200,000
respectively to common stock at $.50 per share. Thus at January 31, 2000, all of
the outstanding bridge loan obligation had been satisfied.
F-41
<PAGE> 62
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 (UNAUDITED) AND 1999
NOTE 8 - ACCRUED PAYROLL AND PAYROLL TAXES
Included in accrued payroll and payroll taxes at January 31, 1997 was
$210,000. This sum had increased to approximately $420,000 by January 31, 1998.
The company had negotiated with the taxing authorities a payment plan to pay the
outstanding obligation. The Company has not fulfilled its obligations under the
negotiated plan but has been in renegotiations with the tax authorities.
NOTE 9 - OBLIGATION UNDER CAPITAL LEASES
The Company leases various equipment under capital leases expiring in
various years through 2003. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. Minimum future lease payments under capital leases as
of January 31, 1999 for each of the future years in the aggregate are:
<TABLE>
<CAPTION>
Year Ended Jan 31,
<S> <C>
2000 $1,480
2001 1,618
2003 1,160
------
4,258
Less: Current Portion 1,480
------
Long-Term Portion $2,778
======
</TABLE>
Interest rates on capitalized leases vary from 9% to 23% and are imputed
based on the lower of the Company's incremental borrowing rate at the inception
of each lease or the lessor's implicit rate of return.
NOTE 10 - DUE TO SHAREHOLDER
Due to shareholder consists principally of business expenses paid for by
the Company's president and not reimbursed by the Company. All of the amounts
are payable upon demand. The officer shareholder has agreed not to demand
payment until at least February, 2000.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company was leasing its facilities under a five year lease, which
was due to expire on January 14, 2000.
During the year ended January 31, 1999, the landlord requested that the
Company vacate the facilities. Since the Company was not fully utilizing the
space, the Company and the landlord mutually rescinded the lease effective
March, 1999. In April, 1999, the Company moved into a new facility. The new
lease expires on December 31, 2000 and requires monthly rent payments of $3,130.
Additionally, the Company is required to maintain a $ 1,000,000
liability insurance policy and replacement cost fire and extended coverage
insurance.
Rent expense under operating leases was $41,691 and $159,043 for the
year ended January 31, 2000 and 1999 respectively.
F-42
<PAGE> 63
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 (UNAUDITED) AND 1999
NOTE 12 - INCOME TAXES
At January 31, 2000, the Company had approximately $5,089,000 and
$2,290,000 of net operating loss carryforwards for federal and state income tax
purposes respectively. The carryforwards expire through 2019.
The components of the provision (benefit) for income taxes at January
31, are as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Current
Federal $ -- $ --
State 800 800
----------- -----------
$ 800 $ 800
=========== ===========
Deferred tax asset consist of the following:
Net Operating Loss Carryforwards $ 1,912,000 $ 1,728,000
Valuation Allowance - Net Operating Losses (1,912,000) (1,728,000)
----------- -----------
Net Deferred Tax Asset $ 0 $ 0
=========== ===========
</TABLE>
There were no deferred tax liabilities at January 31, 1999 or 1998.
The reconciliation of federal income taxes computed at the statutory
rate to the income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
Year Ending January 31,
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Income Tax Benefit at Statutory Rate $(184,000) $(660,000)
Increase in Valuation Allowance 184,000 660,000
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
NOTE 13 - COMMON STOCK/PURCHASE PLAN
In August 1992, the Board of Directors approved an employee stock
purchase plan. The Board directed that a maximum of 2,000,000 shares be offered
to the employees. This was increased to 8,000,000 in 1995. The Board has the
authority to offer key employees the option of any number of shares up to the
plan maximum. As of January 31, 1998, there are 7,650,000 shares remaining under
this plan. During the year ended January 31, 1999, the Board granted options to
purchase 845,000 shares at market price on the date of the grant.
F-43
<PAGE> 64
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 (UNAUDITED) AND 1999
NOTE 14 - LITIGATION
In the fourth quarter of 1993, Yarc filed a suit for libel against an
individual resident of Denmark, Mr. Flemming Stanley and his Danish company in
formation, "Stantech." In December 1993, Yarc won a judgment in the Superior
Court of California against the individual and his business in the amount of
$843,000. This judgment is currently unsatisfied. Yarc also filed an action for
libel in the Maritime and Commercial Court of Copenhagen against the same
defendants. Thereafter, Stantech filed a cross-complaint against Yarc which
alleged copying infringement under the Danish "Marketing Act" and claimed Yarc's
Linotronic RIP product infringed a Stantech product. In November, 1996 the
Maritime and Commercial Court held that Flemming Stanley had committed libel and
that there was no evidence of infringement as there was no copyrightable
material and imposed a fine against Mr. Stanley. The Maritime and Commercial
Court also imposed a fine in the approximate amount of U.S.$ 112,000 against
Yarc for disturbing Stantech's market under the Danish Marketing Act. If Yarc
establishes a presence in Denmark the fine will have to be paid as the 843,000
unsatisfied judgement can not be enforced in Denmark.
NOTE 15 - DIVIDENDS AND PREFERRED STOCK
The Preferred Stock Series A was issued to the Company's president in
1992 as payment of reimbursements due the president for money advanced on behalf
of the Corporation.
The holders of outstanding Series A Preferred shares shall be entitled
to receive, when and as declared by the Board of Directors of the corporation,
out of any assets at the time legally available dividends at the annual rate of
$ .10 per Series A Preferred Share, and no more, payable in cash quarterly on
the last day of March, June, September, and December to the holders of Series A
Preferred shares of record on a date not more than 60 nor fewer than 10 days
preceding each respective payment date as specified by the Board of Directors
or, if not so specified, as provided by law. Dividends shall accrue on each
Series A Preferred Share form the date of its original issuance and shall accrue
from day to day, whether or not earned or declared. Dividends shall be
cumulative so that if dividends in respect of any previous quarterly dividend
period at that annual rate per share shall not have been paid on or declared and
set apart of all Series A Preferred shares at the time outstanding, the
deficiency shall be fully paid on or declared and set apart for those shares
before the Board of Directors of the corporation declares or pays any dividend
to holders of Common shares.
At present, the dividends have not been declared by the Board of
Directors but it will be cumulative under dividend payable.
Dividend payable at January 31, 2000 and 1999 consist of:
<TABLE>
<S> <C>
Balance at January 31, 1998 $118,539
Dividend - for the year January 31, 1999 25,863
--------
Balance at January 31, 1999 144,402
Dividend - for the year January 31, 2000 25,863
--------
Balance at January 31, 2000 $170,265
========
</TABLE>
F-44
<PAGE> 65
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 (UNAUDITED) AND 1999
Note 15 Continued
All of the outstanding Series A Preferred Shares are held by the
president of the Company. The president has agreed to forego payment of the
dividends until such time as the Company has adequate resources.
The Preferred Stock Series B was purchased on behalf of the Company by
the president from a former officer during the period 1993 to 1995, pursuant to
a legal settlement between the Company and a former officer. The Company has
committed to repurchase those shares from the president at its redemption value
of $2 per share when it is able.
NOTE 16 - TRANSACTIONS WITH MAJOR CUSTOMERS
One domestic customer accounted for $242,000 or 51%, $366,700 or 48% of
the year ended January 31, 2000 and 1999 sales respectively. One other domestic
customer accounted for $81,400 or 17% of the year ended January 31, 2000. No
other customers accounted for more than 1% of sales.
F-45
<PAGE> 66
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
YARC SYSTEMS CORPORATION, INC.
Dated March 13, 2000 By: /s/ Dr. Trevor G. Marshall
----------------------------------
Dr. Trevor G. Marshall,
Chairman, Chief Operating
Officer and President
Dated March 13, 2000 By: /s/ Frances E. Marshall
----------------------------------
Frances E. Marshall,
Director,Chief Financial Officer,
and Secretary
Dated March 13, 2000 By: /s/ Dr. Karsten Jeppesen
----------------------------------
Dr. Karsten Jeppesen,
Director
<PAGE> 67
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Title of Exhibit
- -------------- ----------------
<S> <C>
2.1 Articles of Incorporation
2.2 Bylaws
3.1 Certificate of Determination of Preferences of Series A
Preferred Shares
3.2 Certificate of Determination of Preferences of Series B
Preferred Shares
3.3 Certificate of Determination of Preferences of Series C
Preferred Shares
6.1 Lease Agreement between CPBC, Ltd and Yarc Systems
Corporation, Inc., dated September 7, 1999.
6.2 Yarc Systems Corporation, Inc. 1992 Nonstatutory Stock
Option Plan
6.3 Amendment No. 1 to Yarc Systems Corporation, Inc.
1992 Nonstatutory Stock Option Plan
6.4 Letter of Credit
10.(a).1 Consent of Auditor
</TABLE>
<PAGE> 1
EXHIBIT 2.1
ARTICLES OF INCORPORATION
OF
COTEK CORPORATION
ARTICLE I
The name of this corporation is COTEK CORPORATION.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporation's Code.
ARTICLE III
The name and address in this State of this corporation's initial agent
for service of process is T. Randolph Catanese, Esq., 325 East Hillcrest Drive,
Suite 220, Thousand Oaks, California 91360.
ARTICLE IV
This corporation is authorized to issue only one class of shares, which
shall be designated "common" shares. The total authorized number of such shares
that may be issued is FIVE MILLION (5,000,000).
Dated: January 14, 1988 /s/ T. RANDOLPH CATANESE, ESQ.
------------------------------------
T. Randolph Catanese, Esq.
<PAGE> 2
DECLARATION OF INCORPORATOR
I declare that I am the person who executed the above Articles of
Incorporation, and their instrument is my act and deed.
Dated: January 14, 1988 /s/ T. RANDOLPH CATANESE, ESQ.
------------------------------------
T. Randolph Catanese, Esq.
Incorporator
<PAGE> 3
[STATE OF CALIFORNIA LOGO]
CORPORATION DIVISION
I, BILL JONES, Secretary of State of the States of California,
hereby certify:
That the annexed transcript has been compared with the corporate record on
file in this office, of which it purports to be a copy, and that same is full,
true and correct.
IN WITNESS WHEREOF, I, execute
this certificate and affix the Great
Seal of the State of California this
Oct 24, 1995
---------------------------------
[SEAL]
/s/ BILL JONES
Secretary of State
<PAGE> 4
A 380626 ENDORSED
FILED
In the office of the
Secretary of State
of the State of
California
DEC 6 1989
MARCH FONG EU,
Secretary of State
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
YARC SYSTEMS CORPORATION, INC.
TREVOR MARSHALL and HARVEY RAIDER certify that:
1. They are the President and the Secretary, respectively, of YARC
SYSTEMS CORPORATION, INC., a California corporation.
2. ARTICLE IV is amended to read as follows:
"IV: This corporation is authorized to issue only one class of shares,
which shall be designated 'common' shares. The total authorized number of
such shares that mat be issued is TWENTY FIVE MILLION (25,000,000)."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment has been duly approved by the required
consent of shareholders in accordance with Section 902 of the Corporations
Code. The corporation has only one class of shares and the number of
outstanding shares is 2,185,000. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated: November 24th, 1989 /s/ TREVOR MARSHALL
-------------------- -----------------------------
Trevor Marshall, President
/s/ HARVEY RAIDER
-----------------------------
Harvey Raider, Secretary
<PAGE> 5
STATE OF CALIFORNIA
OFFICE OF THE SECRETARY OF STATE
CORPORATION DIVISION
I, MARCH FONG EU, Secretary of State of the State of California,
hereby certify:
That the annexed transcript has been compared with the corporate record on
file in this office, of which it purports to be a copy, and that same is full,
true and correct.
IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
January 5, 1990
---------------------------------
[SEAL]
/s/ MARCH FONG EU
Secretary of State
<PAGE> 6
E N D O R S E D
F I L E D
in the office of the
Secretary of State
of California
MAY 27, 1988
MARCH FONG EU,
Secretary of State
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
COTEK, CORPORATION
1. I, TREVOR G. MARSHALL, being the sole director of COTEK, INC. and
there being no shareholders of said corporation at the date hereof, the
Articles of Incorporation of COTEK CORPORATION are amended as follows.
2. BE IT RESOLVED, that the succeeding amendments to the Articles of
Incorporation of this corporation are hereby adopted and approved.
ARTICLE I is amended to read:
"ARTICLE I.
The name of this corporation is YARC SYSTEMS CORPORATION, INC.
3. The foregoing amendment of the Articles of Incorporation has been
duly approved by a majority of the existing directors of this corporation.
The undersigned being the sole director of this corporation declares under
penalty of perjury under the laws of the State of California that the matters
set forth in this certificate are true and correct of his own knowledge.
Dated: April 29, 1988
/s/ TREVOR G. MARSHALL
----------------------
Trevor G. Marshall
<PAGE> 7
STATE OF CALIFORNIA
OFFICE OF THE SECRETARY OF STATE
CORPORATION DIVISION
I, MARCH FONG EU, Secretary of State of the State of California,
hereby certify:
That the annexed transcript has been compared with the corporate record on
file in this office, of which it purports to be a copy, and that same is full,
true and correct.
IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
June 20, 1988
---------------------------------
[SEAL]
/s/ MARCH FONG EU
Secretary of State
<PAGE> 8
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
YARC SYSTEMS CORPORATION, INC.
TREVOR MARSHALL and GEORGE COX certify that:
1. They are the Chairman of the Board of Directors and Secretary,
respectively, of YARC SYSTEMS CORPORATION, INC., a California corporation.
2. ARTICLE IV of the Articles of Incorporation is amended to read as
follows:
ARTICLE IV
This Corporation is authorized to issue two classes of shares which
shall be designated Common Stock and Preferred Stock, respectively. The
total number of shares of Common Stock the Corporation is authorized to
issue is 25,000,000, and the total number of shares of Preferred Stock the
Corporation is authorized to issue is 15,000,000. Preferred Stock may be
issued from time to time in one or more series, and the Board of Directors
of the Corporation is hereby authorized to determine the designation of
any such series, to fix the number of shares of any such series, and to
determine and alter the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock.
The Board of Directors is also authorized, within the limits and
restrictions stated in any resolution or resolutions of the Board
originally fixing the number of shares constituting any series of Preferred
Stock, to increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of such series subsequent to
the issue of shares of that series.
The holders of the Common Stock shall be entitled to one vote per
share of Common Stock in the election of directors and upon each other
matter coming before any vote of shareholders.
<PAGE> 9
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment has been duly approved by the required vote
of shareholders in accordance with Section 902 of the Corporations Code. The
Corporation has only one class of shares prior to this amendment and the number
of outstanding shares is 9,555,000. The number of shares voting in favor of this
amendment equaled or exceeded the vote required. The percentage vote required
was a majority of the outstanding shares (greater than 50%).
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Dated: August 22, 1992 /s/ TREVOR MARSHALL
-----------------------------
Trevor Marshall, Chairman
of the Board of Directors
/s/ GEORGE COX
-----------------------------
George Cox, Secretary
<PAGE> 1
EXHIBIT 2.2
BY-LAWS OF
YARC SYSTEMS CORPORATION, INC.
(A California Corporation)
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES
The Board of Directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside this state, the
Board of Directors shall fix and designate a principal business office in the
State of California.
Section 2. OTHER OFFICES
The Board of Directors may at any time establish branch or subordinate
offices at any place or places.
ARTICLE II
MEETING OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the Board of Directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
Section 2. ANNUAL MEETING
The annual meeting of shareholders shall be held each year on a date and
at a time designated by the Board of Directors. The date so designated shall be
within five (5) months after the end of the fiscal year of the corporation, and
within fifteen (15) months after the last annual meeting. At each annual meeting
directors shall be elected, and any other proper business within the power of
the shareholders may be transacted.
Section 3. SPECIAL MEETING
A special meeting of the shareholders may be called at any time by the
Board of Directors, or by the Chairman of the Board, or by the President or
Vice-President, or by one or more shareholders holding shares in the aggregate
entitled to cast not less than 10% (ten percent) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in
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writing, specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
Chairman of the Board, the President, any Vice-President, or the secretary of
the corporation. The office receiving the request shall cause notice to be
promptly given to the shareholders entitled to vote, in accordance with the
provisions of Sections 4 and 5 of this Article II, that a meeting will be held
at the time requested by the person or persons calling the meeting, not less
than 30 (thirty) nor more than 45 (forty-five) days after the receipt of the
request. Nothing contained in this paragraph of this Section 3 shall be
construed as limiting, fixing, or affecting the time when a meeting of
shareholders called by action of the Board of Directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders whether regular or special shall
be sent or otherwise given in accordance with Section 5 of this Article II not
less than 14 (fourteen) nor more than 45 (forty-five) days before the date of
the meeting. The notice shall specify the place, date and hour of the meeting
and (a) in the case of a special meeting, the general nature of the business to
be transacted, or (b) in the case of the annual Meeting, those matters which the
Board of Directors, at the time of giving the notice, intend to present for
action by the shareholders. The notice of any meeting wherein directors are to
be elected shall include the name of any nominee or nominees whom, at the time
of the notice, management intends to present for election.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of any shareholder's meeting shall be given either personally or
by first class mail or telegraphic or other written communication, charges
prepaid, addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally, deposited in the mail, delivered to a
common carrier for transmission to the recipient, actually transmitted by
electronic means to the recipient by the person giving the notice, or sent by
other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting may be executed by the Secretary, Assistant Secretary, or
any transfer agent of the corporation giving the notice, and filed and
maintained in the minute book of the corporation.
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Section 6. CONSENT
The transaction of any meeting, however called and noticed, and wherever
held, shall be as valid as though had at a meeting duly held after regular call
and notice, if a quorum is present and if, either before or after the meeting,
each of the shareholders or his proxy signs a written waiver of notice or a
consent to the holding of the meeting or an approval of the minutes thereof. All
such waivers, consents and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting. Attendance of a person at a
meeting constitutes a waiver of notice of such meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting shall -constitute a waiver of any right to object to the
consideration of matters required by the General Corporation Law to be included
in the notice if such objection is expressly made at the meeting. Except as
otherwise provided in subdivision (f) of section 601 of the General Corporation
Law, neither the business to be transacted at nor the purpose of any regular or
special meeting need be specified in any written waiver of notice.
Section 7. CONDUCT OF MEETING
Meetings of the shareholders shall be presided over by one of the
following officers in the order of seniority and if present and acting--the
Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the
President, if any, a Vice-President, or, if none of the foregoing is in office
and present and acting, by a chairman to be chosen by the shareholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but, if neither the Secretary nor an
Assistant Secretary is present, the Chairman of the meeting shall appoint a
secretary of the meeting.
Section 8. PROXY REPRESENTATION
Every shareholder may authorize another person or persons to act as his
proxy at a meeting or by written action. No proxy shall be valid after the
expiration of eleven (11) months from the date of its execution unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
person executing it prior to the vote or written action pursuant thereto, except
as otherwise provided by the General Corporation Law. As used herein, a "proxy"
shall be deemed to mean a written authorization signed by a shareholder or a
shareholder's attorney in fact giving another person or persons power to vote or
consent in writing with respect to the shares of such shareholder, and "Signed"
as used herein shall be deemed to mean the placing of typewriting, telegraphic
transmission or otherwise by such shareholder or such shareholder's attorney in
fact. Where
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applicable, the form of any proxy shall comply with the provisions of section
604 of the General Corporation Law.
Section 9. INSPECTORS - APPOINTMENT
In advance of any meeting, the Board of Directors may appoint inspectors
of election to act at the meeting and any adjournment thereof. If inspectors of
election are not so appointed, or, if any persons so appointed fail to appear or
refuse to act, the Chairman of any meeting of shareholders may, and on the
request of any shareholder or a shareholder's proxy shall, appoint inspectors of
election, or persons to replace any of those who so fail or refuse, at the
meeting. The number of inspectors shall be either one (1) or three (3). If
appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares represented shall determine whether one (1) or three (3)
inspectors are to be appointed.
The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the authenticity, validity, and effect of proxies,
receive votes, ballots, if any, or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result, and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders. If there are three (3) inspectors of
election, the decision, act, or certificate of a majority shall be effective in
all respects as the decision, act, or certificate of all.
Section 10. SUBSIDIARY CORPORATIONS
Shares of this corporation owned by a subsidiary shall not be entitled
to vote on any matter. A subsidiary for these purposes is defined as a
corporation, the shares of which possessing more than TWENTY FIVE PERCENT (25%)
of the total combined voting power of all classes of shares entitled to vote,
are owned directly or indirectly through one or more subsidiaries.
Section 11. QUORUM; VOTE; WRITTEN CONSENT
The holders of a majority of the voting share shall constitute a quorum
at a meeting of Shareholders for the transaction of any business. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum if any action
taken, other than adjournment, is approved by at least a majority of the shares
required to constitute a quorum. In the absence of
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a quorum, any meeting of shareholders may be adjourned from time to time by the
vote of a majority of the shares represented thereat, but no other business may
be transacted except as hereinbefore provided.
In the election of directors, a plurality of the votes cast shall elect.
No shareholder shall be entitled to exercise the right of cumulative voting at a
meeting for the election of directors unless the candidate's name or the
candidates' names have been placed in nomination prior to the voting and the
shareholder has given notice at the meeting prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
such candidates in nomination.
Except as otherwise provided by the General Corporation Law, the
Articles of Incorporation or these By-Laws, any action required or permitted to
be taken at a meeting at which a quorum is present shall be authorized by the
affirmative vote of a majority of the shares represented at the meeting.
Except in the election of directors by written consent in lieu of a
meeting, and except as may otherwise be provided by the General Corporation Law,
the Articles of Incorporation or these By-Laws, any action which may be taken at
any annual or special meeting may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, shall be
signed by holders of shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Directors may not be
elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors. Notice of any shareholder
approval pursuant to sections 310, 317, 1201 or 2007 without a meeting by less
than unanimous written consent shall be given least ten (10) days before the
consummation of the action authorized by such approval, and prompt notice shall
be given of the taking of any other corporate action approved by shareholders
without a meeting by less than unanimous written consent to those shareholders
entitled to vote who have not consented in writing.
Section 12. BALLOT
Elections of directors at a meeting need not be by ballot unless a
shareholder demands election by ballot at the election and before the voting
begins. In all other matters, voting need not be by ballot.
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Section 13. SHAREHOLDERS' AGREEMENTS
Notwithstanding the above provisions in the event this corporation
elects to become a close corporation, an agreement between two (2) or more
shareholders thereof, if in writing and signed by the parties thereof, may
provide that in exercising any voting rights the shares held by them shall be
voted as provided therein or in section 706, and may otherwise modify these
provisions as to shareholders' meetings and actions.
ARTICLE III
DIRECTORS
Section 1. POWERS
Subject to the provisions of the California Corporation Law and any
limitations in the Articles of Incorporation and these By-Laws relating to
action required to be approved by the shareholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS
A director need not be a shareholder of the corporation, a citizen of
the United States, or a resident of the State of California. The authorized
number of directors constituting the Board of Directors until further changed
shall be three (3). Subject to the foregoing provisions, the number of directors
may be changed from time to time by an amendment of these By-Laws adopted by the
shareholders. Any such amendment reducing the number of directors to fewer than
two (2) cannot be adopted if the votes cast against its adoption at a meeting or
the shares not consenting in writing in the case of action by written consent
are equal to more than SIXTEEN AND TWO-THIRDS PERCENT (16 2/3%) of the
outstanding shares. No decrease in the authorized number of directors shall have
the effect of shortening the term of any incumbent director.
Section 3. ELECTION OF TERM
The initial board of Directors shall consist of the persons elected at
the meeting of the incorporator(s), all of whom shall hold office until the
first annual meeting of shareholders and until their successors have been
elected and qualified, or until their earlier resignation or removal from
office. Thereafter, directors who are elected to replace any or all of the
members of the initial Board of Directors or who are elected at an annual
meeting of shareholders, and directors who are elected in the interim to fill
vacancies, shall hold office until the next annual meeting of shareholders and
until their successors have
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been elected and qualified, or until their earlier resignation, removal from
office, or death. In the interim between annual meetings of shareholders or of
special meetings of shareholders called for the election of directors, any
vacancies in the Board of Directors, including vacancies resulting from an
increase in the authorized number of directors which have not been filled by the
shareholders, including any other vacancies which the General Corporation Law
authorized directors to fill, and including vacancies resulting from the removal
of directors which are not filled at the meeting of shareholders at which any
such removal has been effected, if the Articles of Incorporation or a Bylaw
adopted by the shareholders so provides, may be filled by the vote of a majority
of the directors then in office or of the sole remaining director, although less
than a quorum exists. Any director may resign effective upon giving written
notice to the Chairman of the Board, if any, the President, the Secretary or the
Board of Directors, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to the office when the resignation becomes
effective.
The shareholders may elect a director at any time to fill any vacancy
which the directors are entitled to fill, but which they have not filled. Any
such election by written consent shall require the consent of a majority of the
shares.
Section 4. PLACE OF MEETINGS AND MEETING BY TELEPHONE
Regular meetings of the Board of Directors may be held at any place
within or outside the State of California that has been designated from time to
time by the Board. In the absence of such a designation, regular meetings shall
be held at the principal special, may be held by conference telephone or similar
communication equipment, as long as all directors participating in the meeting
can hear one another, and all such directors shall be deemed to be present in
person at the meeting.
Section 5. REGULAR MEETINGS
Meetings of the Board of Directors may be held without call at such time
as shall from time to time be fixed by the Board of Directors. Such regular
meetings may be held without notice.
Section 6. SPECIAL MEETINGS
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the Chairman of the Board or the President, any
Vice-President, the Secretary, or any two (2) directors, if more than one (1)
director.
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Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least five (5) days before the
time of meeting. Where the notice is delivered personally or by telephone or
telegram, it shall be delivered personally or by telephone or to the telegraph
company at least forty-eight (48) hours before the time of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director when the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice shall specify the purpose of and a brief agenda for the meeting.
Section 7. QUORUM AND ACTION
A majority of the authorized number of directors shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided such
majority shall constitute at least either one-third (1/3) of the authorized
number of directors or at least two (2) directors, whichever is larger, or
unless the authorized number of directors is only one (1). A majority of the
directors present, whether or not a quorum is present, may adjourn any meeting
to another time and place. If the meeting is adjourned for more than twenty-four
(24) hours, notice of any adjournment to another time or place shall be given
prior to the time of the adjourned meeting to the directors, if any, who were
not present at the time of the adjournment. Except as the Articles of
Incorporation, these ByLaws and the General Corporation Law may otherwise
provide, the act or decision done or made by a majority of the directors present
at a meeting duly held at which a quorum is present shall be the act of the
Board of Directors. Members of the Board of Directors may participate in a
meeting through use of conference telephone or similar communications equipment,
so long as all members participating in such meeting can hear one another, and
participation by such use shall be deemed to constitute presence in person at
any such meeting.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, provided that any
action which may be taken is approved by at least a majority of the required
quorum for such meeting.
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Section 8. WAIVER OF NOTICE
The transactions of any meeting of the Board of Directors, however
called and noticed or wherever held, shall be valid as though had at a meeting
duly held after regular call and notice of a quorum is present and if each
director (a) has received notice of the meeting, (b) attends the meeting without
protesting before or at the beginning of the meeting, the lack of notice of such
director, or (c) before or after the meetings signs a waiver of notice, a
consent to holding the meeting, or an approval of the minutes of the meeting.
All such waivers, consents, and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting (and made a part of the
minutes of the meeting when a special meeting of directors is called).
Section 9. CHAIRMAN OF THE MEETING
The Chairman of the Board, if any and if present and acting, the Vice
Chairman of the Board, if any and if present and acting, shall preside at all
meetings. Otherwise, the President, if any and present and acting, or any
director chosen by the Board, shall preside.
Section 10. REMOVAL OF DIRECTORS
The entire Board of Directors or any individual director may be removed
from office without cause by approval of the holders of at least a majority of
the shares provided, that unless the entire Board is removed, an individual
director shall not be removed when the votes cast against such removal, or not
consenting in writing to such removal, would be sufficient to elect such
director is voted cumulatively at an election of directors at which the same
total number of votes were cast, or, if such action is taken by written consent,
in lieu of a meeting, all shares entitled to vote were voted, and the entire
number of directors authorized at the time of the director's most recent
election were then being elected. If any or all directors are so removed, new
directors may be elected at the same meeting or by such written consent. The
Board of Directors may declare vacant the office of any director who has been
declared of unsound mind by an order of court or convicted of a felony.
Section 11. COMMITTEES
The Board of Directors, by resolution adopted by a majority of the
authorized number of directors, may designate one (1) or more committees, each
consisting of two (2) or more directors to serve at the pleasure of the Board of
Directors. The Board of Directors may designate one or more directors as
alternate members of any such committee, who may replace any absent member at
any meeting of such committee. Any such committee, to the
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extent provided in the resolution of the Board of Directors, shall have all the
authority of the Board of Directors except such authority as may not be
delegated by the provisions of the General Corporation Law.
Section 12. INFORMAL ACTION
The transactions of any meeting of the Board of Directors, however
called and noticed or wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum is present and if,
either before or after the meeting, each of the directors not present signs a
written waiver of notice, a consent to holding the meeting, or an approval of
the minutes thereof. All such waivers, consents, or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Section 13. WRITTEN ACTION
Any action required or permitted to be taken may be taken without a
meeting if all of the members of the Board of Directors shall individually or
collectively consent in writing to such action. Any such written consent or
consents shall be filed with the minutes of the proceedings of the Board. Such
action by written consent shall have the same force and effect as a unanimous
vote of such directors.
Section 14. ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
Section 15. ACTION WITHOUT MEETING
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, if all members of the Board shall individually
or collectively consent in writing to that action. Such action by written
consent or consents shall be filed with minutes of the proceedings of the Board.
Section 16. FEES AND COMPENSATION OF DIRECTORS
Directors may receive such compensation, if any, for their services, and
such reimbursement of expense, as may be fixed or determined by resolution of
the Board of Directors. This Section 16 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
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ARTICLE IV
OFFICERS
Section 1. OFFICERS
The officers of the corporation shall be a President, Secretary, and
Treasurer, (Chief Financial Officer). The corporation may also have, at the
discretion of the Board of Directors, a Chairman of the Board, one or more
Vice-Presidents, one or more Assistant Secretaries, and such other officers as
may be appointed in accordance with the provisions of Section 3 of this Article
IV. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 3 or Section 5 of this
Article IV, shall be chosen by the Board of Directors, and each shall serve at
the pleasure of the Board, subject to the rights, if any, of an officer under
contract of employment.
Section 3. SUBORDINATE OFFICERS
The Board of Directors may appoint, and may empower the President to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in the By-Laws or as the Board of Directors may from
time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
Board of Directors, at any regular or special meeting of the Board, or, except
in the case of an officer chosen by the Board of Directors, by any officer upon
whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified by such notice. Unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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Section 5. VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification, or any other cause shall be filled in the manner prescribed in
these By-Laws for regular appointments to that office.
Section 6. CHAIRMAN OF THE BOARD
The Chairman of the Board, if there shall be such an Officer, shall, if
present, preside at all meetings of the Board of Directors, and exercise and
perform such other powers and duties as may be from time to time assigned to him
by the Board of Directors or prescribed by these By-Laws.
Section 7. PRESIDENT
The President shall be the general manager and Chief Executive Officer
of the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction, and control of the business and the
officers of the corporation. He shall have the general powers and duties of
management usually vested in the office of President of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or these By-Laws.
Section 8. SECRETARY
The Secretary shall keep or cause to be kept, at the principal executive
office or such other place as the Board of Directors may direct, committees of
directors, and shareholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice given, the names of
those present at directors' meetings or committee meetings, the number of shares
present or represented at shareholders' meetings and the proceedings.
The Secretary shall keep or cause to be kept, at the principal executive
office or at the office of the corporations' transfer agent or registrar, as
determined by resolution of the Board of Directors, a record of shareholders, or
a duplicate record of shareholders, showing the names of all shareholders and
the number and date of certificates issued for the same, and the number and date
of cancellation of every certificate surrendered for cancellation.
The Secretary or assistant secretary, or if they are absent or unable to
act or refuse to act, any other officer of the corporation, shall give, or cause
to be given, notice of all meetings of the shareholders, of the Board of
Directors, and of committees of the Board of Directors, required by these
By-Laws or by law to be given. The Secretary shall keep the seal of the
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corporation if one is adopted, in safe custody, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors or
these By-Laws.
Section 9. TREASURER/CHIEF FINANCIAL OFFICER
The Treasurer (Chief Financial Officer) shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings, and shares. The books of account shall at
all reasonable times be open to inspection by any director.
The Treasurer shall deposit all monies and other valuables in the name
and to the credit of the corporation with such depositories as may be designated
by the Board of Directors. He shall render to the President and directors,
whenever they request it, an account of all of his transactions as Treasurer and
of the financial condition of the corporation, and shall have other powers and
perform such other duties as may be prescribed by the Board of Directors or
these By-Laws.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
The corporation shall, to the maximum extent permitted by the California
General Corporation Law, have power to indemnify each of its agents against
expenses, judgment, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of fact any such
person is or was an agent of the corporation, and shall have power to advance to
each such agent expenses incurred in defending any such proceeding to the
maximum extent permitted by that law. For purposes of this Article, an "agent"
of the corporation includes any person who is or was a director, officer,
employee, or other agent of the corporation, or is or was serving at the request
of another corporation, partnership, joint venture, trust or other enterprise,
or was a director, officer, employee and active within the scope of such
person's agency relationship with the corporation.
ARTICLE VI
CERTIFICATES AND TRANSFER OF SHARES
Section 1. CERTIFICATES FOR SHARES
Each certificate for shares shall set forth therein the name of the
record holder of the shares represented thereby, the number of shares and the
class or series of shares owned by said
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holder, the par value, if any, of the shares represented thereby, and such other
statements as applicable, prescribed by Sections 416 - 419, inclusive, and other
relevant sections of the General Corporation Law of the State of California (the
"General Corporation Law") and such other statements, as applicable, which may
be prescribed by the Corporate Securities Law of the State of California and any
other applicable provision of the law. Each such certificate issued shall be
signed in the name of the corporation by the Chairman of the Board of Directors,
if any, or the Vice Chairman of the Board of Directors, if any, the President,
if any, or a Vice President, if any, and by the Chief Financial Officer or an
Assistant Treasurer or the Secretary or an Assistant Secretary. Any or all of
the signatures on a certificate for shares may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate for shares shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
In the event that the corporation shall issue the whole or any part of
its shares as partly paid and subject to call for the remainder of the
consideration to be paid therefor, any such certificate for shares shall set
forth thereon the statements prescribed by Section 409 of the General
Corporation Law.
Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES
The corporation may issue a new certificate for shares or for any other
security in the place of any other certificate theretofore issued by it, which
is alleged to have been lost, stolen or destroyed. As a condition to such
issuance, the corporation may require any such owner of the allegedly lost,
stolen or destroyed certificate or any such owner's legal representative to give
the corporation a bond, or other adequate security, sufficient to indemnify it
against any claim that may be made against it, including any expense or
liability, on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. SHARE TRANSFERS
Upon compliance with any provisions of the General Corporation Law
and/or the Corporate Securities Law of 1968 which may restrict the
transferability of shares, transfers of shares of the corporation shall be made
only on the record of shareholders of the corporation by the registered holder
thereof, or by his attorney hereunto authorized by power of attorney duly
executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares properly endorsed and
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the payment of all taxes, if any, due thereon.
Section 4. RECORD DATE OF SHAREHOLDERS
In order that the corporation may determine the shareholders entitled to
notice of any meeting or to vote or be entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the Board of
Directors may fix, in advance a record date, which shall not be more than sixty
(60) days or fewer than ten (10) days prior to the date of such meeting or more
than sixty (60) days prior to any other action
If the Board of Directors shall not have fixed a record date as
aforesaid, the record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; the record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given; and the record date for determining shareholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto, or the sixtieth
(6Oth) day prior to the day of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days from the date set for the original
meeting.
Except as may be otherwise provided by the General Corporation Law,
shareholders on the record date shall be entitled to notice and to vote or to
receive any dividend, distribution or allotment of rights or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date.
Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS
Shares of other corporations standing in the name of this corporation
may be voted or represented and all incidents thereto may be exercised on behalf
of the corporation by the Chairman of the Board, the President or any Vice
President or any other person authorized by resolution of the Board of
Directors.
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<PAGE> 16
Section 6. MEANING OF CERTAIN TERMS
As used in these By-Laws in respect of the right to notice of a meeting
of shareholders or a waiver thereof or to participate or vote thereat or to
assent or consent or dissent in writing in lieu of a meeting, as the case may
be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an
outstanding share or shares and to a holder or holders of record or outstanding
shares when the corporation is authorized to issue only one class of shares, and
said reference is also intended to include any outstanding shares of any class
upon which or upon whom the Articles of Incorporation confer such rights where
there are two (2) or more classes or series of shares or upon which or upon whom
the General Corporation Law confers such rights notwithstanding that the
Articles of Incorporation may provide for more than one (1) class or series of
shares, one or more of which are limited or denied such rights thereunder.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF RECORD OF SHAREHOLDERS
The corporation shall keep at its principal executed office, or at the
office of its transfer agent or registrar, if either be appointed and as
determined by resolution of the Board of Directors, a record of its
shareholders, giving the names and addresses of all shareholders and the number
and class of shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholder's names and
addresses and shareholdings on the corporation, and (ii) obtain from the
transfer agent of the corporation on written demand and on the tender of such
transfer agent's usual charges for such list, a list of the election of
directors, and their shareholdings, as of the most recent record date for which
that list has been compiled or as of a date specified by the shareholder after
the date of demand. This list shall be made available to any such shareholder or
shareholders by the transfer agent on or before the later of five (5) days after
the demand is received or the date specified in the demand of any shareholder or
holder of a voting trust certificate, at any time during usual business hours,
for a purpose reasonably related to the holder's interests or as the holder of a
voting trust certificate making the demand.
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<PAGE> 17
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS
The corporation shall keep at its principal executive office, or if its
principal executive office is now in the State of California, at its principal
business office in this state, the original or a copy of these By-Laws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable time during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in this state, the Secretary shall upon the written
request of any shareholder, furnish to that shareholder a copy of these By-Laws
as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATION
RECORDS
The accounting books and records and minutes of proceedings of the
shareholders and the Board of Directors and any committee or committees of the
Board of Directors shall be kept at such place or places designated by the Board
of Directors, or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate, at any reasonable
time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney,
and shall include the right to copy and make extracts.
Section 4. INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents or every kind and the physical
properties of the corporation and each of its subsidiary corporations. This
inspection by a director may be made in person or by an agent or attorney and
the right of inspection includes the right to copy and make extracts of
documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS
Any annual report to shareholders referred to in the California General
Corporation Law is expressly dispensed with, but nothing herein shall be
interpreted as prohibiting the Board of Directors from issuing annual or other
periodic reports to the shareholders of the corporation as they consider
appropriate.
17
<PAGE> 18
Section 6. FINANCIAL STATEMENTS
A copy of any financial statement and any income statement of the
corporation for each quarterly period of each fiscal year, and any accompanying
balance sheet of the corporation as of the end of each such period, that has
been prepared by the corporation shall be kept on file in the principal
executive office of the corporation for twelve (12) months and each such
statement shall be exhibited at all reasonable times to any shareholder
demanding an examination of any such statement or a copy shall be mailed to any
such shareholder.
If a shareholder or shareholders holding at least five (5%) of the
outstanding shares of any class of stock of the corporation make a written
request to the corporation for an income statement of the corporation for the
three-month, six- month or nine-month period of the current fiscal year ended
more than thirty (30) days before the date of the request, and a balance sheet
of the corporation as of the end of that period, the Chief Financial Officer
shall cause that statement to be prepared, if not already prepared, and shall
deliver personally or mail that statement or statements to the person making the
request within thirty (30) days after the receipt of the request. If the
corporation has to send the shareholders its annual report for the last fiscal
year, this report shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual, or quarterly
income statement which it has prepared, and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of certificate of an
authorized officer of the corporation that the financial statements were
prepared without audit from the books and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION
The corporation shall, each year during the calendar month in which its
Articles of Incorporation originally were filed with the California Secretary of
State, or during the preceding five (5) calendar months, file with the Secretary
of State, on the prescribed form, a statement setting forth the authorized
number of directors, the names and complete business or residence addresses of
all incumbent directors, the names and complete business or residence addresses
of the President, Secretary, and Treasurer, the street address of its principal
executive office or principal business office in this state, and the general
type of business constituting the principal business activity of the
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corporation, together with a designation of the agent of the corporation for the
purpose of service of process, all in compliance with the Corporations Code of
California.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS
All checks, drafts or other order for payment of money, notes, or other
evidences of indebtedness, issued in the name of or payable to the corporation,
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the Board of Directors.
Section 2. CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The Board of Directors, except as otherwise provided in these By-Laws,
may authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation, and this authority may be general or confined to specific
instances; and, unless so authorized or ratified by the Board of Directors or
within the agency power of an officer, no officer, agent, or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS
New By-Laws may be adopted or these By-Laws may be amended or repealed
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote, except as otherwise provided by law, these By-Laws, or
the Articles of Incorporation.
Section 2. AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 1 of
this Article IX, By-Laws, other than a By-Law or an amendment of a By-Law
changing the authorized number of directors, may be adopted, amended, or
repealed by the Board of Directors.
19
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF DETERMINATION OF
PREFERENCES OF SERIES A PREFERRED SHARES OF
YARC SYSTEMS CORPORATION, INC.,
a California Corporation
The undersigned, Dr. Trevor Marshall, certifies that:
1. He is the duly elected and acting Chairman of the Board and Chief
Financial Officer of the corporation.
2. Pursuant to authority given by the corporation's Articles of
Incorporation, the Board of Directors of the corporation has duly adopted the
following recitals and resolutions:
WHEREAS, the Articles of Incorporation of this corporation provide for a
class of shares known as Preferred Stock, issuable from time to time in one or
more series; and
WHEREAS, the Board of Directors of this corporation is authorized to
determine or alter the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series, and to determine the designation
thereof; and
WHEREAS, this corporation has not issued any shares of Preferred Stock
and the Board of Directors of this corporation desires, pursuant to its
authority, to determine and fix the rights, preferences, privileges, and
restrictions relating to the initial series of Preferred Stock and the number of
shares constituting and the designation of the series;
NOW, THEREFORE, BE IT RESOLVED, the Board of Directors hereby fixes and
determines the designation of, the number of shares constituting, and the
rights, preferences, privileges, and restrictions relating to, the initial
series of Preferred Stock as follows:
SECTION 1. Designation.
The initial series of Preferred Stock of this corporation shall be
designated and known as "Series A Preferred shares." The number of shares
constituting the Series A Preferred shares shall be 300,000 shares.
SECTION 2. Liquidation.
in the event of a voluntary or involuntary liquidation, dissolution, or
winding up of the corporation, and subject to the rights of any series of
Preferred shares having priority to payments and distributions upon liquidation,
dissolution or winding up, the holders of Series A Preferred shares shall be
entitled to receive out of the assets of the corporation, whether those assets
are capital or surplus of any nature, an amount equal to $1.00 per Series A
Preferred share and a
1
<PAGE> 2
further amount equal to any dividend accrued and unpaid thereon, to the date
that payment is made available to the holders of Series A Preferred shares,
whether earned or declared or not, and no more, before any payment shall be made
or any assets distributed to the holders of Common shares.
If upon liquidation, dissolution, or winding up, the assets thus
distributed among the holders of the Series A Preferred shares shall be
insufficient to permit the payment to those shareholders of the full
preferential amounts, then the entire assets of the corporation to be
distributed shall be distributed ratably among the holders of Series A Preferred
shares. However, distribution of assets upon liquidation, dissolution, or
winding-up, among the holders of Series A Preferred shares are subject to prior
rights of any series of Preferred shares having priority upon liquidation,
dissolution, or winding-up.
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of the corporation, subject to all of the preferential rights of
the holders of Preferred shares on distribution or otherwise, the holders of
Common shares shall be entitled to receive, ratably, all remaining assets of the
corporation.
A consolidation or merger of the corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the corporation, shall not be deemed to be a liquidation, dissolution, or
winding up within the meaning of this Section 2.
SECTION 3. Dividend.
The holders of outstanding Series A Preferred shares shall be entitled
to receive, when and as declared by the Board of Directors of the corporation,
out of any assets at the time legally available dividends at the annual rate of
$.l0 per Series A Preferred share, and no more, payable in cash quarterly on the
last day of March, June, September, and December to the holders of Series A
Preferred shares of record on a date not more than 60 nor fewer than 10 days
preceding each respective payment date as specified by the Board of Directors
or, if not so specified, as provided by law. Dividends shall accrue on each
Series A Preferred share from the date of its original issuance and shall accrue
from day to day, whether or not earned or declared. Dividends shall be
cumulative so that if dividends in respect of any previous quarterly dividend
period at that annual rate per share shall not have been paid on or declared and
set apart for all Series A Preferred shares at the time outstanding, the
deficiency shall be fully paid on or declared and set apart for those shares
before the Board of Directors of the corporation declares or pays any dividend
to holders of Common shares. Notwithstanding the foregoing, the dividend
provisions provided in this Section 3 shall be junior to the redemption
provisions of this corporation's Series 13 B Preferred shares which may be
issued in the future.
SECTION 4. Voting.
The holders of the Series A Preferred shares shall be entitled to Notice
of all shareholders' meetings and to vote on all matters which the holders of
the corporation's Common Shares are
2
<PAGE> 3
entitled to vote. Each holder of Common shares shall have one vote for each
Common share held and each holder of Series A Preferred shares shall have five
votes for each Series A Preferred share held.
SECTION 5. Redemption.
Subject to the provisions of the California General Corporation Law and
to any other applicable restrictions on the right of a corporation to redeem its
own shares, the corporation, at the discretion of the board of directors, may at
any time after the date of issuance redeem the whole or any part of the
outstanding Series A Preferred shares.
In the event the corporation elects to redeem a portion of the
outstanding Series A Preferred shares, the board of directors, at its
discretion, shall select the manner in which the shares are to be redeemed.
Upon redemption the corporation shall pay for each share redeemed cash
in the amount of $1.00 per share plus an amount in cash equal to all dividends
on Series A Preferred shares accrued and unpaid as provided in Section 3 hereof,
whether earned or declared or not, to and including the date for redemption
(referred to as the "redemption price").
At least ten days previous notice by mail, postage prepaid, shall be
given to the holders of record of the Series A Preferred shares to be redeemed
as of the date of mailing or as of a record date lawfully fixed. Such notice
shall be addressed to each such shareholder at the address of that holder
appearing on the books of the corporation or given by that holder to the
corporation for the purpose of notice, or if no such address appears or is so
given, at the place where the principal office of the corporation is located.
The notice shall state the date fixed for redemption, the redemption price and
shall call upon that holder to surrender to the corporation on the date fixed
and at the place designated in the notice the holder's certificate or
certificates representing the Series A Preferred shares to be redeemed if those
shares are certificated. On or after the date fixed for redemption and stated in
that notice, each holder of Series A Preferred shares called for redemption
shall, if those shares are certificated, surrender the certificate evidencing
the shares to the corporation at the place designated in the notice and shall
thereupon be entitled to receive payment of' the redemption price. If less than
all the shares represented by any such surrendered certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares. If the
notice of redemption shall have been duly given, and if on the date fixed for
redemption funds necessary -for the redemption shall be available to pay the
redemption price, then, notwithstanding that the certificates evidencing any
Series A Preferred shares so called for redemption shall not have been
surrendered, the dividends with respect to the shares so called for redemption
shall cease to accrue after the date fixed for redemption and all rights with
respect to the shares so called for redemption shall after that date cease and
desist, except that only the right of the holders to receive the redemption
price without interest upon surrender of their certificates shall remain, if
those Series A Preferred shares are certificated.
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<PAGE> 4
RESOLVED FURTHER, that the Chairman of the Board, the President or any
Vice President, and the Secretary, the Chief Financial Officer, the Treasurer,
or any Assistant Secretary or Assistant Treasurer of this corporation are each
authorized to execute, verify, and file a certificate of determination of
preferences in accordance with California law.
3. The authorized number of shares of Preferred Stock of the corporation
is 15,000,000, and the number of shares constituting Series A, none of which has
been issued, is 300,000.
IN WITNESS WHEREOF the undersigned has executed this certificate on June
24, 1993.
/s/ TREVOR MARSHALL
------------------------------------
Dr. Trevor Marshall,
Chairman of the Board and
Chief Financial Officer
4
<PAGE> 5
VERIFICATION
The undersigned, Dr. Trevor Marshall, the Chairman of the Board and
Chief Financial Officer of Yarc Systems Corporation, Inc. declares under penalty
of perjury that the matters set out in the foregoing Certificate are true of his
own knowledge.
Executed at Newbury Park, California, on June 24, 1993.
/s/ TREVOR MARSHALL
------------------------------------
Dr. Trevor Marshall,
Chairman of the Board and
Chief Financial Officer
5
<PAGE> 6
[STATE OF CALIFORNIA LOGO]
CORPORATION DIVISION
I, BILL JONES, Secretary of State of the State of California, hereby
certify:
That the annexed transcript has been compared with the corporate record on
file in this office, of which it purports to be a copy, and that same is full,
true and correct.
IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
OCTOBER 24, 1995
--------------------------------
[SEAL] /s/ BILL JONES
--------------------------------
Secretary of State
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF DETERMINATION OF
PREFERENCES OF SERIES B PREFERRED SHARES OF
YARC SYSTEMS CORPORATION, INC.,
a California Corporation
The undersigned, Dr. Trevor Marshall, certifies that:
1. He is the duly elected and acting Chairman of the Board and Chief
Financial Officer of the corporation.
2. Pursuant to authority given by the corporation's Articles of
Incorporation, the Board of Directors of the corporation has duly adopted the
following recitals and resolutions:
WHEREAS, the Articles of Incorporation of this corporation provide for a
class of shares known as Preferred Stock, issuable from time to time in one or
more series; and
WHEREAS. the Articles of Incorporation provide that the initial series
of Preferred Stock shall consist of 300,000 shares designated "Series A
Preferred shares" and that the Board of Directors is authorized within the
limitations and restrictions stated in the Articles of Incorporation to
determine or alter the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series, and to determine the designation
thereof; except Series A; and
WHEREAS, the Board of Directors of this corporation desires, pursuant to
its authority, to fix the terms of an additional series of Preferred Stock, the
number of shares constituting that series, and the designation of that series;
NOW, THEREFORE, BE IT RESOLVED, the Board of Directors hereby fixes and
determines the designation of, the number of shares constituting, and the
rights, preferences, privileges, and restrictions relating to, an additional
series of Preferred Stock as follows:
SECTION 1. Designation.
The additional series of Preferred Stock of this corporation shall be
designated and known as "Series B Preferred shares." The number of shares
constituting the Series B Preferred shares shall be 100,000 shares.
SECTION 2. Liquidation.
In the event of a voluntary or involuntary liquidation, dissolution, or
winding up of the corporation, the holders of Series B Preferred shares shall be
entitled to receive out of the assets of the corporation, whether those assets
are capital or surplus of any nature, an amount equal to $2.00 per Series B
Preferred share and no more, before any payment shall be made or any assets
<PAGE> 2
distributed to the holders of Common shares or Series A Preferred shares.
If upon liquidation, dissolution, or winding up, the assets thus
distributed among the holders of the Series B Preferred shares shall be
insufficient to permit the payment to those shareholders of the full
preferential amounts, then the entire assets of the corporation to be
distributed shall be distributed ratably among the holders of Series B Preferred
shares.
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of the corporation, subject to all of the preferential rights of
the holders of Preferred shares on distribution or otherwise, the holders of
Common shares shall be entitled to receive, ratably, all remaining assets of the
corporation.
A consolidation or merger of the corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the corporation, shall not be deemed to be a liquidation, dissolution, or
winding up within the meaning of this Section 2.
SECTION 3. Voting.
The holders of the Series B Preferred shares shall have no voting
rights, except where Series B Preferred shares are required to vote by law.
SECTION 4. Redemption.
Subject to the provisions of the California General Corporation Law and
to any other applicable restrictions on the right of a corporation to redeem its
own shares, the corporation, at the discretion of the board of directors, may at
any time after the date of issuance redeem the whole or any part of the
outstanding Series B Preferred shares.
In the event the corporation elects to redeem a portion of the
outstanding Series B Preferred shares, the board of directors, at its
discretion, shall select the manner in which the shares are to be redeemed.
Upon redemption the corporation shall pay for each share redeemed cash
in the amount of $2.00 per share (referred to as the "redemption price").
At least ten days previous notice by mail, postage prepaid, shall be
given to the holders of record of the Series B Preferred shares to be redeemed
as of the date of mailing or as of a record date lawfully fixed. Such notice
shall be addressed to each such shareholder at the address of that holder
appearing on the books of the corporation or given by that holder to the
corporation for the purpose of notice, or if no such address appears or is so
given, at the place where the principal office of the corporation is located.
The notice shall state the date fixed for redemption, the redemption price and
shall call upon that holder to surrender to the corporation on the date fixed
and at the place designated in the notice the holder's certificate or
certificates representing the Series B Preferred shares to be redeemed if those
shares are certificated. On or after the date
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<PAGE> 3
fixed for redemption and stated in that notice, each holder of Series B
Preferred shares called for redemption shall, if those shares are certificated,
surrender the certificate evidencing the shares to the corporation at the place
designated in the notice and shall thereupon be entitled to receive payment of
the redemption price. If less than all the shares represented by any such
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. If the notice of redemption shall have been
duly given, and if on the date fixed for redemption funds necessary for the
redemption shall be available to pay the redemption price, then, notwithstanding
that the certificates evidencing any Series B Preferred shares so called for
redemption shall not have been surrendered, all rights with respect to the
shares so called for redemption shall after that date cease and desist, except
that only the right of the holders to receive the redemption price without
interest upon surrender of their certificates shall remain if those Series B
Preferred shares are certificated. Notwithstanding the foregoing, notice of
redemption by the corporation may be effected by the corporation by entering
into a written agreement with any holder of Series B Preferred shares wherein a
redemption procedure is specified.
RESOLVED FURTHER, that the Chairman of the Board, the President or any
Vice President, and the Secretary, the Chief Financial Officer, the Treasurer,
or any Assistant Secretary or Assistant Treasurer of this corporation are each
authorized to execute, verify, and file a certificate of determination of
preferences in accordance with California law.
3. The authorized number of shares of Preferred Stock of the corporation
is 15,000,000, and the number of shares constituting Series B, none of which has
been issued, is 100,000.
IN WITNESS WHEREOF, the undersigned executed this certificate on June
24, 1993.
/s/ TREVOR MARSHALL
------------------------------------
Dr. Trevor Marshall,
Chairman of the Board and
Chief Financial Officer
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<PAGE> 4
VERIFICATION
The undersigned, Dr. Trevor Marshall, Chairman of the Board and Chief
Financial Officer of Yarc Systems Corporation, Inc. declares under penalty of
perjury that the matters set out in the foregoing Certificate are true of his
own knowledge.
Executed at Newbury Park, California, on June 24, 1993.
/s/ TREVOR MARSHALL
------------------------------------
Dr. Trevor Marshall,
Chairman of the Board and
Chief Financial Officer
4
<PAGE> 1
EXHIBIT 6.1
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
September 7, 1999, is made by and between CPBC, Ltd., a California Limited
Partnership ("LESSOR") and YARC Systems Corporation, a California 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 900 Calle Plano, Unit(s) J/K, located in
the City of Camarillo, County of Ventura, State of California, with zip code
93012, as outlined on Exhibit A attached hereto ("PREMISES"). The "BUILDING" is
that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): an approximately 79,139 square
foot multi-tenant industrial complex consisting of three (3) buildings. (Unit(s)
J/K are approximately 4,537 square feet). 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: Fourteen (14) unreserved vehicle parking spaces
("UNRESERVED PARKING SPACES"); and none (0) reserved vehicle parking
spaces ("RESERVED PARKING SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: one (1) years and none (0) months ("ORIGINAL TERM") commencing
January 1, 2000 ("COMMENCEMENT DATE") and ending December 31, 2000 ("EXPIRATION
DATE"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: Upon Execution ("EARLY POSSESSION DATE"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $3,130.00 per month ("BASE RENT"), payable on the first day
of each month commencing January 1, 2000 (Also see Paragraph 4.)
[ ] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum _______, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $0.00 as Base Rent for the period
N/A
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: 5.73 percent
("LESSEE'S SHARE") as determined by [X] prorata square footage of the Premises
as compared to the total square footage of the Building or [ ] other criteria as
described in Addendum.
1.7 SECURITY DEPOSIT: $3,130.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: design and assembly of digital imaging equipment,
related administration and all lawfully permitted uses incidental thereto
("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[X] Equity Commercial Real Estate Services represents Lessor exclusively
("LESSOR'S BROKER");
[X] DAUM Commercial represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _____________________ represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$_______________) for brokerage services rendered by said Broker(s) in
connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A
("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 54, and Exhibits A through N/A, and an
Americans with Disabilities Act and Hazardous Materials Disclosure, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems, and loading doors, if any, in the Premises, other than
those constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be
reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations, and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or 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.
MULTI-TENANT - GROSS
(C) American Industrial Real Estate Association 1993
<PAGE> 2
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
nonexclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, 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;
(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 right 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 offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one 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:
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2(b)) for the Building and the
Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph
8.1).
(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, Lessee shall be credited the amount of such over-
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<PAGE> 3
payment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including 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
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank; (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority; and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including,
but not limited to, the installation (and, at Lessor's option, removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including, but not limited to, all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including,
but not limited to, matters pertaining to (i) industrial hygiene; (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions; and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including,
but not limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or 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
inspections 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 or 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 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and 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 Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of 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
and/or smoke detection
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<PAGE> 4
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 Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's 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 or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor, in an
amount equal to one and one-half times the amount of such contested lien claim
or demand, indemnifying Lessor against liability for the same, as required by
law for the holding of the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or 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 PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is defined
as any increase in the actual cost of the insurance applicable to the Building
and required to be carried by Lessor pursuant to Paragraphs 8.2(b), 8.3(a) and
8.3(b), ("REQUIRED INSURANCE"), over and above the Base Premium, as hereinafter
defined, calculated on an annual basis. "Insurance Cost Increase" shall include,
but not be limited to, requirements of the holder of a mortgage or deed of trust
covering the Premises, increased valuation of the Premises, and/or a general
premium rate increase. The term "Insurance Cost Increase" shall not, however,
include any premium increases resulting from the nature of the occupancy of any
other lessee of the Building. If the parties insert a dollar amount in Paragraph
1.9, such amount shall be considered in the "BASE PREMIUM." If a dollar amount
has not been inserted in Paragraph 1.9 and if the Building has been previously
occupied during the twelve (12) month period immediately preceding the
Commencement Date, the "Base Premium" shall be the annual premium applicable to
such twelve (12) month period. If the Building was not fully occupied during
such twelve (12) month period, the "Base Premium" shall be the lowest annual
premium reasonably obtainable for the Required Insurance as of the Commencement
Date, assuming the most nominal use possible of the Building. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Building required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
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(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
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.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount 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, judgments, 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 or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE -- INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may, at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
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(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 effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may, at
Lessor's option, either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increase in such amounts over the Base
Real Property Taxes 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 DEFINITIONS.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including, but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be
the amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause 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 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 requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of 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 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment 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 fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) 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 waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or 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 or the sublease.
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(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 responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(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 right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from 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 part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
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 or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located 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.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative 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 check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such pro-
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ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (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 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five 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 taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be
entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above Lessee's Share of
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKERS' FEES
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed in
writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted, or
(b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including, but not limited to, Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior 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 own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
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23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of monies or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to 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 DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
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 Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof 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.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination 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 withheld
or delayed. Lessor's actual reasonable costs and expenses (including, but not
limited to, architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including, but not
limited to, consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to 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 or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial 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.
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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
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the Rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("RULES AND REGULATIONS") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent 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 Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Los Angeles, California Executed at: Camarillo, California
on: 1-7-2000 on: 4 Nov 1999
------------------------------------ ----------------------------------
BY LESSOR: BY LESSEE:
CPBC, Ltd., YARC Systems Corporation,
a California Limited Partnership a California corporation
By: /s/ JANE D.MILLER By: /s/ TREVOR G. MARSHALL
------------------------------------ ----------------------------------
Name Printed: Jane D. Miller Name Printed: Trevor G. Marshall
Title: Vice President Title: Chairman & CEO
Address: 12381 Wilshire Blvd. Address: 900 Calle Plano, Unit(s) JK
Los Angeles, California 90025 Camarillo, California 93012
Telephone: (310) 826-6555 Telephone: (805) 482-1879
Facsimile: (310) 207-4444 Facsimile: (805) 482-5209
BROKER: BROKER:
Equity Commercial DAUM Commercial
Real Estate Services
Executed at: Thousand Oaks, California Executed at:
on:___________________________________ on:___________________________________
By:___________________________________ By:___________________________________
Name Printed: Kent R. Pierce Name Printed: Stuart Scott
Address: 1459 Thousand Oaks Boulevard, Address: 711 Daily Drive, Suite 100
Bldg. G Camarillo, California 93010
Thousand Oaks, California 91362
Telephone: (805) 497-2866 Telephone: (805) 987-8866
Facsimile: (805) 497-0145 Facsimile: (805) 987-7645
NOTE: These forms are often modified to meet changing requirements of law 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-I, Los Angeles, CA 90071. (213)
687-8777.
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<PAGE> 12
ADDENDUM TO STANDARD INDUSTRIAL LEASE MULTI-TENANT, DATED SEPTEMBER 7, 1999 BY
AND BETWEEN CPBC, LTD., A CALIFORNIA LIMITED PARTNERSHIP (LESSOR) AND YARC
SYSTEMS CORPORATION, A CALIFORNIA CORPORATION (LESSEE) FOR THE PROPERTY
COMMONLY KNOWN BY THE STREET ADDRESS OF 900 CALLE PLANO, UNIT(S) J/K,
CAMARILLO, CALIFORNIA
49. PARKING: Notwithstanding the provisions of Paragraph 2.6 hereof, Lessee
shall be entitled to park in common with other tenants of Lessor in the portion
of the Common Areas designated for parking. Lessee agrees not to overburden the
parking facilities and agrees to cooperate with Lessor and other tenants in the
use of parking facilities. Lessor reserves the right in its absolute discretion
to determine whether parking facilities are becoming crowded and in such event,
to allocate parking spaces among Lessee and other tenants. In the event
allocation is deemed necessary by Lessor, Lessee shall be entitled to the use of
no more than the number of parking spaces designated in Paragraph 1.2(b).
Lessee hereby agrees not to occupy or permit its employees, customers, or
invitees to occupy more than the number of spaces specified above, nor to park
elsewhere than in parking stalls assigned and designated as such by painted
signs, parking lines and parking bumpers. Parking is permitted in designated
striped areas only. All other vehicles not parked in such areas are subject to
being towed away at owner's expense (22658 CVC).
THERE WILL BE NO OVERNIGHT STORAGE OF VEHICLES OR TRAILERS IN THE COMMON
AREA. BUSINESS VEHICLES USED ON A REGULAR BASIS ARE EXEMPT. THERE WILL BE NO
STORAGE OF WRECKED OR DAMAGED CARS AT ANY TIME AT THE INDUSTRIAL CENTER.
50. PERMITS AND APPROVALS. Lessee shall be obligated to obtain any and all
permits and approvals necessary for Lessee's occupancy of, and operation
within, the Premises as may be required by any agency having jurisdiction over
the Premises. Said permits and approvals to be obtained at Lessee's sole
direction and expense and may include but shall not be limited to zone
clearance and occupancy permit.
51. REFUSE. No rubbish containers or debris are to be left outside of the
premises. All refuse is to be placed in designated trash bins. Any debris is
subject to immediate removal by Lessor at Lessee's expense. It will be
necessary for Lessee to provide additional dumpster(s) and collection
arrangements when trash and debris created, produced or resulting from Lessee's
activities exceeding a volume of two (2) cubic yards per week.
52. HAZARDOUS SUBSTANCES. Lessee, at Lessee's sole cost, shall comply with all
laws relating to the storage, use and disposal of hazardous, toxic or
radioactive matter, including those materials identified in Sections 66680
through 66685 of Title 22 of the California Administrative Code, Division 4,
Chapter 30 ("Title 22") as they may be amended from time to time (collectively,
"Toxic Materials"). If Lessee does store, use or dispose of any Toxic
Materials, Lessee shall notify Lessor in writing at least ten (10) days prior
to their first appearance on the premises, Lessee shall be solely responsible
for and shall defend, indemnify, and hold Lessor, its agents and contractors,
harmless from and against all claims, costs and liabilities, including
attorney's fees and costs, arising out of or in connection with its storage, use
and disposal of Toxic Materials. If the presence of Toxic Materials on the
Premises caused or permitted by Lessee results in contamination or
deterioration of water or soil resulting in a level of contamination greater
than the levels established by any governmental agency having jurisdiction over
such contamination, then Lessee shall promptly take any and all action
necessary to clean up such condition to the issuance or continuing
effectiveness of any governmental approval which relates to the use of the
Premises. At any time prior to the expiration of the Lease term, Lessee shall
have the right to conduct appropriate tests of water and soil to deliver to
Lessor the results of such tests to demonstrate that no contamination in excess
of permitted levels has occurred as a result of Lessee's use of the Premises.
Lessee shall further be solely responsible for, and shall defend, indemnify and
hold Lessor, its agents and contractors, harmless from and against all claims,
costs and liabilities, including attorney's fees and costs, arising out of or
in connection with any removal, clean-up and restoration work and materials
required hereunder to return the Premises and any other property, of whatever
nature, to their condition existing prior to the appearance of the Toxic
Materials and/or contamination of the Premises or such other property, as the
case may be. Lessee's obligations hereunder shall survive the termination of
this Lease.
53. Lessee is aware of the existence of Camarillo Airport and Point Mugu Naval
Air Station and will not oppose or object to normal airport operation and
noise, now and in the future. Lessee also agrees that any electromagnetic
disturbance that causes interference with radio transmission, aircraft
instruments, navigational aids, or other electromagnetic receptors shall be
modified or abated upon the written request of the Camarillo Airport Authority
or the Point Mugu Naval Air Station.
54. Lessor shall supply each unit with a fire extinguisher. It shall be the
Lessee's responsibility to maintain, recharge, and provide property access to
said fire extinguisher as per requirements of the Ventura County Fire
Department.
ADDITIONAL ADDENDA ITEMS PER BENEFICIARY'S REQUEST: Notwithstanding
anything in the lease documents to the contrary:
(a) Tenant hereby agrees not to look to the mortgagee, mortgagee in
possession, or successor in title to the property, for accountability for any
security deposit required by the Landlord hereunder, unless said sums have
actually been received by said mortgagee as security for the Tenant's
performance of this Lease.
(b) Tenant hereby agrees not to handle, store or dispose of any hazardous or
toxic waste or substance upon the Premises which is prohibited by federal,
state or local statutes, ordinances or regulations. Tenant hereby covenants to
indemnify and hold Landlord, its successors and assigns, harmless from any
loss, damage, claims, costs, liabilities or clean-up costs arising out of
Tenant's use, handling, storage or disposal of any such hazardous or toxic
wastes or substances on the Premises.
(c) The Lessee herein covenants by and for himself, his heirs, executors,
administrators and assigns, and all persons claiming under or through him, and
this Lease is made and accepted upon and subject to the following conditions:
That there shall be no discrimination against, or segregation of, any
person or group of persons on account of race, color, creed, national origin,
or ancestry, in the leasing, subleasing, transferring, use, occupancy, tenure
or enjoyment of the Premises herein leased, nor shall the Lessee himself or any
persons claiming under or through him, establish or permit any such practices
of discrimination or segregation.
<PAGE> 13
AMERICANS WITH DISABILITIES ACT AND HAZARDOUS MATERIALS DISCLOSURE
The United States Congress has enacted the Americans with Disabilities Act.
Among other things, this act is intended to make many business establishments
equally accessible to persons with a variety of disabilities; modifications to
real property may be required. State and local laws also may mandate changes.
The real estate brokers in this transaction are not qualified to advise you as
to what, if any, changes may be required now, or in the future. Owners and
tenants should consult the attorneys and qualified design professionals of
their choice for information regarding these matters. Real Estate brokers
cannot determine which attorneys or design professionals have the appropriate
expertise in this area.
Various construction materials may contain items that have been or may be in
the future be determined to be hazardous (toxic) or undesirable and may need to
be specifically treated/handled or removed. For example, some transformers and
other electrical components contain PCB's, and asbestos has been used in
components such are fire-proofing, heating and cooling systems, air duct
insulation, spray-on and tile acoustical materials, linoleum, floor tiles,
roofing, dry wall and plaster. Due to prior or current uses of the Property or
in the area, the Property may have hazardous or undesirable metals, minerals,
chemicals, hydrocarbons, or biological or radioactive items (including electric
and magnetic fields) in soils, water, building components, above or below-ground
containers or elsewhere in areas that may not be accessible or noticeable.
Such items may leak or otherwise be released. Real estate agents have no
expertise in the detection or correction of hazardous or undesirable items.
Expert inspections are necessary. Current or future laws may require clean up by
past, present and/or future owners and/or operators. It is the responsibility of
the Lessor and Tenant to retain qualified experts to detect and correct such
matters and to consult with legal counsel of their choice to determine what
provisions, if any, they may wish to include in transaction documents regarding
the Property.
To the best of Lessor's knowledge, Lessor has attached to this Disclosure copies
of all existing surveys and reports known to Lessor regarding asbestos and
other hazardous materials and undesirable substances related to the Property.
Lessors are required under California Health and Safety Code Section 25915 et
seq. to disclose reports and surveys regarding asbestos to certain persons,
including their employees, contractors, co-owners, purchasers and tenants.
Tenants have similar disclosure obligations. Lessors and Tenants have
additional hazardous materials disclosure responsibilities to each other under
California Health and Safety Code Section 25359.7 and other California laws.
Consult your attorney regarding this matter. The Broker(s) identified in
paragraph 1.10(b) is (are) not qualified to assist you in this matter or
provide you with other legal or tax advice.
LESSOR: LESSEE:
CPBC, Ltd., YARC Systems Corporation,
a California Limited Partnership a California corporation
by: /s/ JANE D. MILLER by: /s/ TREVOR G. MARSHALL
---------------------------------- ----------------------------------
Jane D. Miller, Trevor G. Marshall,
Vice President Chairman and CEO
Dated: 1-8-2000 Dated: 4-Nov 1999
------------------------------- -------------------------------
<PAGE> 14
EXHIBIT A
CALLE PLANO BUSINESS CENTER
850, 880 & 900 CALLE PLANO
CAMARILLO, CALIFORNIA
[FLOOR PLAN]
<PAGE> 1
EXHIBIT 6.2
YARC SYSTEMS CORPORATION, INC.
1992 NONSTATUTORY STOCK OPTION PLAN
1. Name and Purpose of the Plan. This Plan document is intended to
implement and govern the Nonstatutory Stock Option Plan of Yarc Systems
Corporation, Inc., a California corporation (the "Company"). The Plan provides
for the granting of options that are not intended to qualify as "Incentive Stock
Options" within the meaning of Section 422(b) of the Internal Revenue Code, as
amended. The purpose of the Plan is to serve as an incentive to and to encourage
stock ownership by certain directors, officers, employees and certain persons
rendering services to the Company, so that they may acquire or increase their
proprietary interest in the success of the Company, and to encourage them to
remain in the Company's service.
2. Definitions. For purposes of the Plans, the following terms will have
the respective meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company;
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(c) "Common Stock" shall mean the common stock of the Company;
(d) "Company" shall mean Yarc Systems Corporation, Inc., a California
corporation;
(e) "Committee" shall mean the committee appointed by the Board in
accordance with Paragraph 3(a) of this Plan document, if one is appointed;
(f) "Eligible Person" shall mean any Employee, director or officer,
independent contractor or other person who has, is or will render services
to the Company;
(g) "Employee" shall mean any person, including an officer or
director, who is an employee of the Company, any parent, any subsidiary or
any successors to any of the foregoing;
(h) "Non-Statutory Option" shall mean an option which does not qualify
as an Incentive Option;
(i) "Option" shall mean a stock option granted pursuant to the Plan;
(j) "Option Agreement" shall mean an agreement substantially in the
form attached hereto as Exhibit A, or such
<PAGE> 2
other form or forms as the Board (subject to the terms and conditions of the
Plan) may from time to time approve, evidencing an Option;
(k) "Option Grant Date" shall mean the date on which an Option is
granted by the Board;
(l) "Optioned Stock" shall mean the Common Stock subject to an Option
granted pursuant to the Plan;
(m) "Optionee" shall mean an Employee or other Eligible Person who
receives an Option;
(n) "Outstanding Option" shall mean any Option which has not yet been
exercised in full or has not yet expired by lapse of time;
(o) "Parent" shall mean a "parent corporation" as defined in Sections
425(e) and (9) of the Code;
(p) "Plan" shall mean this Yarc Systems Corporation, Inc. 1992
Nonstatutory Stock Option Plan;
(q) "Predecessor Corporation" shall mean a corporation which is a
party to a transaction described in Code Section 425(a) (or which would be so
described if a substitution or assumption under such section had been effected)
with the Company, a Parent, a Subsidiary or a predecessor corporation of any
such corporations.
(r) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 12 of this Plan document;
(s) "Stock Purchase Agreement" shall mean an agreement substantially
in the form attached hereto as Exhibit B or such other form or forms as the
Board (subject to the terms and conditions of this Plan) may from time to time
approve, which is to be executed as a condition of purchasing Optioned Stock
upon exercise of an Option as provided in the Plan; and,
(t) "Subsidiary" shall mean a subsidiary corporation as defined in
Sections 425(f) and (9) of the Code.
3. Administration of Plan.
(a) Procedure. The Plan shall be administered by the Board. The Board
may appoint a Committee consisting of not less than two (2) members of the Board
to administer the Plan on behalf of the Board, subject to such terms and
conditions as the Board may prescribe. Once appointed, the Committee shall
continue to serve until otherwise directed by the Board. From time to time, the
Board may increase the size of the Committee and appoint additional members
thereof, remove members of the Committee, and thereafter, directly administer
the Plan. Any references herein to the Board shall refer to the Committee, if
one is appointed, to the extent of
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<PAGE> 3
the Committee's authority.
(b) Limitations on Members of Board. Members of the Board who are
either eligible for options or have been granted Options may vote on any matters
affecting the administration of the Plan or the grant of any Options pursuant to
the Plan; except that no such member shall act in connection with an Option to
himself or herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to Options of such member.
(c) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion, to make all determinations
necessary or advisable for the administration of the Plan, including without
limitation:
(i) to determine, upon review of relevant information, the then
fair market value per share of the Common Stock;
(ii) to determine the exercise price of the Options to be
granted;
(iii) to determine the Eligible Persons to whom, and the time or
times at which, Options shall be granted, and the number of shares of Optioned
Stock to be represented by each Option;
(iv) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(v) to determine the terms and provisions of each Option granted
under the Plan (which need not be identical) and to modify or amend each Option
(with or without consent of the Optionee, if necessary);
(vi) to accelerate the exercise date of any Option;
(vii) to construe and interpret the Plan, the Option Agreements,
Stock Purchase Agreements and any other agreements provided for hereunder; and
(viii) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted by the Board or to take such other actions as may be necessary or
advisable with respect to the Company's rights pursuant to the Option, Stock
Purchase Agreement or other agreement approved hereunder.
(d) Effect of the Board's or Committee's Decision. All decisions,
determinations and interpretations of the Board or the Committee shall be final
and binding on all Optionees and any other
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<PAGE> 4
proper holders of any Options granted under the Plan.
4. Stock Subject to the Plan. Subject to the provisions of Section 12 of
this Plan document, the maximum aggregate number of shares which may be optioned
under this Plan is TWO MILLION (2,000,000) shares of authorized Common Stock.
This constitutes an absolute cumulative limitation on the total number of shares
that may be optioned under this Plan. All shares to be optioned under the Plan
may be either authorized but unissued shares or shares held in the treasury.
Shares of Common Stock that (a) are repurchased by the Company after issuance
hereunder pursuant to the exercise of an Option or (b) are not purchased by the
Optionee prior to the expiration of the applicable Option Period (as described
hereinbelow) shall again become available to be covered by Options to be issued
hereunder and shall not, as of the effective date of such repurchase or
expiration, be counted as having been previously optioned for purposes of the
above-described maximum number of shares which may be optioned hereunder.
5. Eligibility. Options under the Plan may be granted to any Employee,
Eligible Person, any Non-Employee director of Company or any Parent or
Subsidiary, and any consultant or independent contractors who provide valuable
services to the Company (or its Parent or Subsidiary), all as designated by the
Board in its discretion. An Optionee who has been granted an Option may, if
otherwise eligible, be granted an additional Option or Options. Options may be
granted to one or more persons without being granted to other eligible persons,
as the Board may deem fit.
6. Term of the Plan. The Plan shall become effective immediately upon its
adoption by the Board and its approval by vote of a majority of the outstanding
shares of the Company entitled to vote on the adoption of such Plan. The Plan
shall continue in effect until December 31, 1996 unless sooner terminated under
Sections 14 or 17 of this Plan document. No Option may be granted under a Plan
after its expiration.
7. Option Period. Each Option granted pursuant to the Plan shall be
evidenced by an Option Agreement. Each Option shall expire and all rights
thereunder shall end at the expiration of such period (which shall in no event
be more than three (3) years) after the Option Grant Date as shall be fixed by
the Board, subject in all cases to earlier expiration as provided in Section 10
of this Plan document.
8. Option Price and Consideration.
(a) Price. The per share Option price for the Shares to be issued
pursuant to an Option granted under either Plan shall be such price as is
determined by the Board in its sole discretion.
(b) Form of Consideration. The form of consideration to
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<PAGE> 5
be paid for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Board and may consist of cash,
promissory notes, a combination thereof, or such other consideration and method
of payment for the issuance of Shares as is permitted under applicable law.
9. Exercise of Option.
(a) General Terms. Any option granted hereunder shall be exercisable
at such times and under such conditions as may be determined by the Board (which
conditions may include performance criteria with respect to the Company and/or
the Optionee or provisions for vesting over a period of time conditioned upon
continued employment and shall include the contemporaneous execution of a Stock
Purchase Agreement in a form approved by the Board and as shall be permissible
under the terms of the Plan. In all events, in order to exercise an Option
hereunder the Optionee shall execute a Stock Purchase Agreement in a form
approved by the Board and shall deliver the required (or permitted) exercise
consideration to the Company. As a condition to the exercise of an Option, the
Board may require the Optionee pursuant to the Option Agreement to agree to
restrictions on the sale or other transfer of ownership of the Common Stock
acquired by an Optionee or to sell such Shares to the Company upon termination
of employment.
(b) Partial Exercise. An Option may be exercised in accordance with
the provisions of either Plan as to all or any portion of the Shares then
exercisable under an Option, from time to time during the term of the Option. An
Option may not be exercised for a fraction of a Share.
(c) Time of Exercise. An Option shall be deemed to be exercised when
the Company has received at its principal business office: (i) written notice of
such exercise in accordance with the terms of the Option Agreement and given by
the person entitled to exercise the Option; (ii) full payment for the Shares
with respect to which the Option is exercised; (iii) the executed Stock Purchase
Agreement if required; and (iv) any other representations or agreements required
by the terms of this Plan or the Option Agreement. Full payment may consist of
such consideration as is authorized by the Board as provided hereunder.
(d) No Rights as Shareholder Until Exercise. Until this Option is
properly exercised hereunder and the Company receives full payment for the
Shares with respect to which the Option is exercised, no right to receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the Option is properly exercised and
payment in full is received, except as provided in Section 12 of this Plan
document.
5
<PAGE> 6
(e) Issuance of Share Certificates. As soon as practicable after any
proper exercise of an Option in accordance with the provisions of this Plan
document and payment in full for the exercised Shares, the Company shall,
without transfer or issue tax to the Optionee, deliver to the Optionee at the
principal business office of the Company, or such other place as shall be
mutually acceptable, a certificate or certificates representing the Shares of
Common Stock as to which the Option has been exercised. The time of issuance and
delivery of the certificate(s) representing the Shares of Common Stock may be
postponed by the Company for such period as may be required for it, with
reasonable diligence, to comply with any applicable listing requirements of any
national or regional securities exchange and any law or regulation applicable to
the issuance and delivery of such Shares.
(f) Reduction of Shares Upon Exercise. Exercise of an Option in any
manner shall result in a decrease in the number of Shares which thereafter may
be available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.
10. Termination of Employment.
(a) General. If an Optionee ceases to be an Employee or Eligible
Person then, any Option of the Optionee, whether vested or non-vested, shall
terminate as of the date of termination of employment or, in the case of an
Eligible Person, the date Optionee ceases to render services on behalf of the
Company.
11. Non-Transferability of Options. The Options and any rights and
privileges granted under any Option Agreement are not transferable by the
Optionee, either voluntarily or by operation of law, otherwise than by will and
the laws of descent and distribution and shall be exercisable during Optionee's
lifetime only by Optionee.
12. Adjustments Upon Changes in Capitalization.
(a) Reorganizations, Recapitalization, Etc. If the outstanding shares
of Common Stock of the Company are increased, decreased, changed into or
exchanged for a different number or kind of shares or securities of the Company
through reorganization, recapitalization, reclassification, stock dividend (but
only on Common Stock), stock split, reverse stock split or other similar
transaction, then an appropriate and proportional adjustment shall be made in
(i) the number and kind of shares of stock covered by each outstanding option,
(ii) the number and kind of shares of stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted (or
which have been returned to the Plan upon cancellation of an Option), and (iii)
the exercise price per share of stock covered by each such outstanding
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<PAGE> 7
Option. Notwithstanding the foregoing, no adjustment need be made under this
paragraph if, upon the advice of counsel, the Board determines that such
adjustment may result in federal taxable income to the holders of Options or
Common Stock or other classes of the Company's securities.
(b) Dissolution, Liquidation, Etc. Upon the dissolution or liquidation
of the Company, or upon a reorganization, merger or consolidation of the Company
with one or more corporations as a result of which the Company is not the
surviving corporation, or upon a sale (or exchange through merger) of
substantially all the property or more than fifty percent (50%) of the then
outstanding stock of the Company to another corporation, the Plan shall
terminate, and any Option theretofore granted hereunder shall terminate.
Notwithstanding the foregoing, the Board may provide in writing in connection
with, or in contemplation of, such transaction for any, all or none of the
following alternatives (separately or in combination): (i) for all or a portion
of the Options theretofore granted to become immediately exercisable; (ii) for
the assumption by the successor corporation of the Options theretofore granted
or the substitution by such corporation for such Options of new options covering
the stock of the successor corporation, or a Parent or Subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; or (iii)
for the continuance of the Plan by such successor corporation in which event the
Plan and the options theretofore granted shall continue in the manner and under
the terms so provided.
(c) No Fractional Shares. No fractional shares of the Common Stock
shall be issuable on account of any action under this Paragraph 12, and the
aggregate number of shares into which Shares then covered by an Option, when
changed as the result of such action, shall be reduced to the largest number of
whole Shares resulting from such action. Notwithstanding the foregoing, the
Board, in its sole discretion, may determine to issue scrip certificates, in
respect to any fractional shares, which scrip certificates, in such event, shall
be in a form and have such terms and conditions as the Board in its discretion
shall prescribe.
(d) Binding Effect of Board Determinations. All adjustments under this
Paragraph 12 shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive.
(e) No Other Adjustments. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares of Common
Stock subject to the Plan or any Options.
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<PAGE> 8
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time and from time
to time suspend or terminate the Plan. The Board may also amend or revise the
Plan from time to time in such respects as the Board may deem advisable.
(b) Effect of Termination. Except as otherwise provided in Section 12,
without the written consent of the Optionee, any such termination of the Plan
shall not affect Options already granted and such Options shall remain in full
force and effect as if the Plan had not been terminated.
14. Conditions Upon Issuance of Shares. Options granted under the Plan are
conditioned upon the Company obtaining any required permit, or exemption from
the qualification or registration provisions of any applicable federal and state
securities law and other appropriate governmental agencies, authorizing the
Company to issue such Options and Optioned Stock upon terms and conditions
acceptable to the Company. Shares shall not be issued with respect to an Option
granted under either Plan unless the exercise of such Option and the issuance
and delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Board may require the person
exercising such Option to execute an agreement approved by the Board, and may
require the person exercising such Option to make any representation and
warranty to the Company as may, in the judgment of counsel to the Company, be
required under applicable laws or regulations.
15. Reservation of Shares. During the term of the Plan, the Company will at
all times reserve and keep available the number of Shares as shall be sufficient
to satisfy the requirements of the Plan. During the term of the Plan, the
Company will use its best efforts to seek to obtain from appropriate regulatory
agencies any requisite authorization in order to issue and sell such number of
Shares of its Common Stock as shall be sufficient to satisfy the requirements of
the Plan. The inability of the Company to obtain from any such regulatory agency
the requisite authorization(s) deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, or the inability of the
Company to confirm to its satisfaction that any issuance and sale of any Shares
hereunder will meet applicable legal requirements,
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<PAGE> 9
shall relieve the Company of any liability in respect to the non- issuance or
sale of such Shares as to which such requisite authority shall not have been
obtained.
16. Taxes, Fees, Expenses and Withholding of Taxes.
(a) Issue and Transfer Taxes. The Company shall pay all original issue
and transfer taxes (but not income taxes, if any) with respect to the grant of
Options and the issue and transfer of Shares pursuant to the exercise of such
Options, and all other fees and expenses necessarily incurred by the Company in
connection therewith, and will use its best efforts to comply with all laws and
regulations which, in the opinion of counsel for the Company, shall be
applicable thereto.
(b) Withholding. The grant of Options hereunder and the issuance of
Shares of Common Stock pursuant to the exercise of such Options are conditioned
upon the Company's reservation of the right to withhold, in accordance with any
applicable law, from any compensation payable to the Optionee any taxes required
to be withheld by federal, state or local law as a result of the grant or
exercise of such Option or the sale of the Shares issued upon exercise of the
Option.
17. Shareholder Approval of the Plan . The Plan and the effectiveness of
any Option granted under such Plan shall be subject to approval of the Plan by
the holders of the outstanding voting stock of the Company within twelve (12)
months before or after the date the Plan is adopted by the Board. Any Options
granted under the Plan prior to obtaining such shareholder approval of the Plan
shall be granted upon the conditions that the Options so granted: (i) shall not
be exercisable prior to such approval and (ii) shall become null and void ab
initio if such shareholder approval is not obtained.
18. Notices. Any notice to be given to the Company pursuant to the
provisions of the Plan shall be addressed to the Company in care of its
Secretary at its principal office, and any notice to be given to an Optionee
shall be delivered personally or addressed to such Optionee at the address given
beneath such Optionee's signature on such Optionee's Stock Option Agreement, or
at such other address as such Employee (or any transferee) upon the transfer of
the Optioned Stock may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, registered or certified, and deposited, postage
and registry or certification fee prepaid, in a post office or branch post
office regularly maintained by the United States Postal Service. It shall be the
obligation of each Optionee and each transferee holding Shares purchased upon
exercise of an Option to
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<PAGE> 10
provide the Secretary of the Company, by letter mailed as provided hereinabove,
with written notice of such person's direct mailing address.
19. No Enlargement of Employee Rights. This Plan is purely voluntary on the
part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment of any Employee. Nothing
contained in this Plan shall be deemed to give any Employee the right to be
retained in the employ of the Company, its Parent, Subsidiary or a successor
corporation, or to interfere with the right of the Company or any such
corporations to discharge or retire any Employee thereof at any time. No
Employee shall have any right to or interest in Options authorized hereunder
prior to the grant of such Option to such employee, and upon such grant he or
she shall have only such rights and interests as are expressly provided herein,
subject, however, to all applicable provisions of the Company's Articles of
Incorporation, as the same may be amended from time to time.
20. Legends on Certificates.
(a) Federal Law. Unless an appropriate registration statement is filed
pursuant to the Federal Securities Act of 1933, as amended, with respect to the
Options and Shares issuable under the Plans, each certificate representing such
Options and Shares shall be endorsed on its face with a legend substantially as
follows:
"THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) State Legend. If required by applicable state authorities each
certificate representing the Options and Shares issuable under the Plans shall
be endorsed on its face with any legends required by such authorities or deemed
advisable by counsel for Company.
(c) Additional Legends. Each certificate representing the Options and
Shares issuable under the Plan shall also contain legends as are set forth in
any Stock Purchase Agreement or other agreement the execution of which is a
condition to the exercise of an Option under this Plan. In addition, each Option
Agreement shall be endorsed with a legend substantially as follows:
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<PAGE> 11
"THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE
AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO
BE ENTERED INTO BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY AS A
CONDITION TO EXERCISE OF THIS OPTION."
21. Availability of Plan. A copy of the Plan shall be delivered to the
Secretary of the Company and shall be shown by him to any eligible person making
reasonable inquiry concerning it.
22. Invalid Provisions. In the event that any provision of the Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.
23. Applicable Law. The Plan shall be governed and construed in accordance
with the laws of the State of California applicable to contracts executed, and
to be fully performed, in California, with jurisdiction and venue deemed proper
in Ventura County, California.
IN WITNESS WHEREOF, pursuant to the due authorization and adoption of the
Plan by the Board on August 21, 1992, the Company has caused the Plan to be duly
executed by its duly authorized officers, effective as of August 21, 1992.
YARC SYSTEMS CORPORATION, INC.,
a California corporation
By: __________________________
Title: _______________________
11
<PAGE> 12
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION Is NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO
BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS OPTION.
NONSTATUTORY
STOCK OPTION AGREEMENT
AGREEMENT made as of the day of , 19 _, by and between
YARC SYSTEMS CORPORATION, INC., a California corporation (hereinafter called
"Company"), and (hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's 1992
NonStatutory Stock Option Plan (the "Plan") for the purpose of attracting and
retaining the services of selected key employees (including officers and
employee directors) and others (collectively, "Eligible Persons"), who
contribute to the financial success of the Company or its parent or subsidiary
corporations.
B. Optionee is an Eligible Person and this Agreement is executed
pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the Company's grant of a stock option to Optionee.
C. The granted option is not intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422(b) of the Internal
Revenue Code, but is rather a non-statutory option.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. Subject to and upon the terms and conditions set
forth in this Agreement, there is hereby granted to Optionee, as of the date of
this Agreement (the "Grant Date"), a stock option to purchase up to _______
shares of the Company's Common
1
<PAGE> 13
Stock (the "Optioned Shares") from time to time during the option term at the
option price of $ _______________ per share.
2. Plan. The options granted hereunder are in all instances subject to
the terms and conditions of the Plan. In the event of any conflict between this
Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. Option Term. This option shall have a maximum term of
__________(_____) years measured from the Grant Date and shall accordingly
expire at the close of business on _______,19 _ (the "Expiration Date"), unless
sooner terminated in accordance with Paragraph 6 or 8(a).
4. Option Nontransferable; Exception. This option shall be neither
transferable nor assignable by Optionee, either voluntarily or involuntarily,
other than by will or by the laws of descent and distribution and may be
exercised, during Optionee's lifetime, only by Optionee.
5. Conditions Precedent to Exercise. This option shall not be
exercisable until such time as the following condition(s) have been satisfied:
Once exercisable, options shall remain so exercisable until the expiration or
sooner termination of the option term under Paragraph 6 or Paragraph 8(a) of
this Agreement. In no event, however, shall this option be exercisable for any
fractional shares.
6. Accelerated Termination of Option Term. The option term specified in
Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraphs (ii), (iii) or
(iv) below, should Optionee cease to be an Employee of the Company at any time
during the option term then, this option shall automatically terminate and cease
to be outstanding.
(ii) Should Optionee die while this option is outstanding, then
the executors or administrators of Optionee's estate or Optionee's heirs or
legatees (as the case may be) shall have the right to exercise this option for
the number of shares (if any) for which the option is exercisable on the date of
the
2
<PAGE> 14
optionee's death. Such right shall lapse and this option shall cease to be
exercisable upon the earlier of (i) three (3) months from the date of the
Optionee's death or (ii) the Expiration Date.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to be an Employee of the Company at any time during the option
term, then Optionee shall have a period of three (3) months (commencing with the
date of such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any time
after the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is, by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of not
less than twelve (12) months, unable to perform his/her usual duties for the
Company or its Parent or Subsidiary corporations. Upon the expiration of the
limited period of exercisability or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iv) Should Optionee's status as an Employee be terminated for
cause (including, but not limited to, any act of dishonesty, willful misconduct,
failure to perform material duties, fraud or embezzlement or any unauthorized
disclosure or use of confidential information or trade secrets) or should
Optionee make or attempt to make any unauthorized use or disclosure of the
confidential information or trade secrets of the Company or any parent or
subsidiary corporations, then in any such event this option shall terminate and
cease to be exercisable immediately upon such termination of Employee status or
such unauthorized disclosure or use of confidential or secret information or
attempt thereat.
(v) For purposes of this Paragraph 6 and for all other purposes
under this Agreement, if Optionee is an Employee, Optionee shall be deemed to be
an Employee of the Company and to continue in the Company's employ for so long
as Optionee remains an Employee of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan.
For purposes of this Paragraph 6 and for all other purposes under this
Agreement, if Optionee is not an Employee, but is eligible because Optionee is a
director, consultant or contractor of Company or a parent or subsidiary
corporation, Optionee shall be deemed to be an Eligible Person for so long as
Optionee remains a director, consultant or contractor of the Company or one or
more of its parent or subsidiary corporations as such terms are defined in the
Plan.
7. Adjustment in Option Shares.
(a) In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, combination of
shares, or other change affecting the
3
<PAGE> 15
outstanding Common Stock as a class without receipt of consideration (as set
forth in the Plan), then appropriate adjustments will be made to (i) the total
number of Optioned Shares subject to this option and (ii) the option price
payable per share in order to reflect such change and thereby preclude a
dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or
other business combination, then this option, if outstanding under the Plan
immediately after such merger or other business combination shall be
appropriately adjusted to apply and pertain to the number and class of
securities to which Optionee immediately prior to such merger or other business
combination would have been entitled to receive in the consummation of such
merger or other business combination.
8. Special Termination of Option.
(a) In the event of one or more of the following transactions (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Company is not
the surviving entity, except for a transaction the principal purpose of which is
to change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) any other corporate reorganization or business
combination in which fifty percent (50%) or more of the Company's outstanding
voting stock is transferred, or exchanged through merger, to different holders
in a single transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by the
successor corporation or parent thereof. The Company shall provide Optionee with
at least thirty (30) days prior written notice of the specified date for the
Corporate Transaction. The Company can give no assurance that the options shall
be assumed by the successor corporation or its parent company and it may occur
that some options outstanding under the Plan will be assumed while these options
are terminated.
(b) In the event of a Corporate Transaction, the Company may, at
its option, accelerate the conditions precedent to exercise contained in Section
5 hereof, but shall have no obligation to do so. The Company shall have the
right to accelerate other options outstanding under the Plan or any other plan,
even if it does not accelerate the options of Optionee hereunder.
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<PAGE> 16
(c) This Agreement shall not in any way affect the right of the
Company to make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
9. Privilege of Stock Ownership. The holder of this option shall not
have any of the rights of a shareholder with respect to the Optioned Shares
until such individual shall have exercised the option and paid the option price
in accordance with this Agreement.
10. Manner of Exercising Option.
(a) In order to exercise this option with respect to all or any
part of the Optioned Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Execute and deliver to the Secretary of the Company
a stock purchase agreement in substantially the form of Exhibit ______ to this
Agreement (the "Purchase Agreement");
(ii) Pay the aggregate option price for the purchased
shares in cash, unless another form of consideration is permitted as described
in Exhibit B. if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with
respect to the number of Optioned Shares specified in the Purchase Agreement at
such time as the executed Purchase Agreement for such shares shall have been
delivered to the Company and all other conditions of this Section have been
fulfilled. Payment of the option price shall immediately become due and shall
accompany the Purchase Agreement. As soon thereafter as practical, the Company
shall mail or deliver to Optionee or to the other person or persons exercising
this option a certificate or certificates representing the shares so purchased
and paid for.
11. Compliance with Laws and Regulations.
(a) The exercise of this option and the issuance of Optioned
Shares upon such exercise shall be subject to compliance by the Company and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange on which shares of the Company's
Common Stock may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee
shall execute and deliver to the Company such
5
<PAGE> 17
representations in writing as may be requested by the Company in order for it to
comply with the applicable requirements of federal and state securities laws.
12. Successors and Assigns. Except to the extent otherwise provided in
Paragraph 4 or 8(a), the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
13. Liability of Company.
(a) If the Optioned Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may without
shareholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares unless shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to the Company in its reasonable
discretion shall relieve the Company of any liability with respect to the
nonissuance or sale of the Common Stock as to which such approval shall not have
been obtained. The Company, however, shall use its best efforts to obtain all
such approvals.
14. No Employment Contract. Except to the extent the terms of any
written employment contract between the Company and Optionee may expressly
provide otherwise, the Company (or any parent or subsidiary corporation of the
Company employing Optionee) shall be under no obligation to continue the
employment of Optionee for any period of specific duration and may terminate
Optionee's status as an Employee at any time, with or without cause.
15. Notices. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Company in care of its Secretary at its corporate offices. Any notice required
to be given or delivered to Optionee shall be in writing and addressed to
Optionee at the address indicated below Optionee's signature line on this
Agreement. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
16. Withholding. Optionee acknowledges that, upon any exercise of this
option, the Company shall have the right to require Optionee to pay to the
Company an amount equal to the
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<PAGE> 18
amount the Company is required to withhold as a result of such exercise for
federal and state income tax purposes.
17. Loans or Guarantees. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. Construction. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Company with respect to any question or issue arising under the Plan or this
Agreement shall be conclusive and binding on all persons having an interest in
this option.
19. Governing Law. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California.
20. REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTIONED SHARES
ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF
THE COMPANY AND ITS ASSIGNS TO REPURCHASE SUCH SHARES IN ACCORDANCE WITH THE
TERMS AND CONDITIONS SPECIFIED IN THE PURCHASE AGREEMENT.
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<PAGE> 19
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate on its behalf by its duly authorized officer and Optionee has also
executed this Agreement in duplicate, all as of the day and year indicated
above.
YARC SYSTEMS CORPORATION, INC.,
a California corporation
By:
---------------------------------
Title:
------------------------------
- ----------------------------------
OPTIONEE
- ----------------------------------
[Print Name]
Address:
--------------------------
--------------------------
--------------------------
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<PAGE> 20
EXHIBIT B
TO NONSTATUTORY STOCK AGREEMENT
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only acceptable form of
consideration for the exercise of the options.]
9
<PAGE> 21
EXHIBIT "C"
STOCK PURCHASE AGREEMENT
This Agreement is made as of this ____ day of ___________, 19 ___, by
and among Yarc Systems Corporation, Inc., a California corporation
("Corporation"), and ___________________, the holder of a stock option under the
Corporation's 1992 NonStatutory Stock Option Plan ("Optionee"), and , the
Optionee's spouse.
1. EXERCISE OF OPTION
1.1 Exercise. Optionee hereby purchases _______________ shares of Common
Stock of the Corporation ("Purchased Shares") pursuant to that certain option
("Option") granted Optionee on ______________, 19 _ ("Grant Date") under the
Corporation's NonStatutory Stock Option Plan ("Plan") to purchase up to
___________ shares of the Corporation's Common Stock ("Total Purchasable
Shares") at an option price of $ ______________ per share ("Option Price").
1.2 Payment. Concurrently with the delivery of this Agreement to the
Secretary of the Corporation, Optionee shall pay the Option Price for the
Purchased Shares in accordance with the provisions of the agreement between the
Corporation and Optionee evidencing the Option ("Option Agreement") and shall
deliver whatever additional documents may be required by the Option Agreement as
a condition for exercise.
2. INVESTMENT REPRESENTATIONS
2.1 Investment Intent. Optionee hereby warrants and represents that
Optionee is acquiring the Purchased Shares for Optionee's own account and not
with a view to their resale or distribution and that Optionee is prepared to
hold the Purchased Shares for an indefinite period and has no present intention
to sell, distribute or grant any participating interests in the Purchase Shares.
Optionee hereby acknowledges the fact that the Purchased Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
that the Corporation is issuing the Purchased Shares to Optionee in reliance on
the representations made by Optionee herein.
2.2 Restricted Securities. Optionee hereby confirms that Optionee has
been informed that the Purchased Shares may not be resold or transferred unless
the Purchased Shares are first registered under the Federal securities laws or
unless an exemption from such registration is available. Accordingly, Optionee
hereby acknowledges that Optionee is prepared to hold the Purchased Shares for
an indefinite period and that Optionee is aware that Rule 144 of the Securities
and Exchange Commission issued under the 1933 Act is not presently available to
exempt the sale of the Purchased Shares from the registration requirements of
the 1933 Act. Should Rule 144 subsequently become available, Optionee is aware
that any
<PAGE> 22
sale of the Purchased Shares effected pursuant to the Rule may, depending upon
the status of Optionee as an "affiliate" or "non-affiliate" under the Rule, be
made only in limited amounts in accordance with the provisions of the Rule, and
that in no event may any Purchased Shares be sold pursuant to the Rule until
Optionee has held the Purchased Shares for the requisite holding period
following payment in cash of the Option Price for the Purchased Shares.
2.3 Optionee Knowledge. Optionee represents and warrants that he or she
has a preexisting business or personal relationship with the officers and
directors of the Corporation, that he or she is aware of the business affairs
and financial condition of the Corporation and that he or she has such knowledge
and experience in business and financial matters with respect to companies in
business similar to the Corporation to enable him or her to evaluate the risks
of the prospective investment and to make an informed investment decision with
respect thereto. Optionee further represents and warrants that the Corporation
has made available to Optionee the opportunity to ask questions and receive
answers from the Corporation concerning the terms and conditions of the issuance
of the Purchased Shares and that he or she could be reasonably assumed to have
the capacity to protect his or her own interests in connection with such
investment.
2.4 Speculative Investment. Optionee represents and warrants that he or
she realizes that his or her purchase of the Purchased Shares will be a
speculative investment and that he or she is able, without impairing his or her
financial condition, to hold the Purchased Shares for an indefinite period of
time and to suffer a complete loss of his or her investment. Optionee represents
and warrants that he or she is aware and fully understands the implications of
the restrictions upon transfer imposed by the Plan and therefore on the
Purchased Shares.
2.5 Disposition of Shares. Optionee hereby agrees that Optionee shall
make no disposition of the Purchased Shares (other than a permitted transfer
under paragraph 3.1) unless and until:
(a) Optionee shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares; and
(b) Optionee shall have provided the Corporation with written
assurances, in form and substance satisfactory to the Corporation, that (i) the
proposed disposition does not require registration of the Purchased Shares under
the 1933 Act or (ii) all appropriate action necessary for compliance with the
registration requirements of the 1933 Act or of any exemption from registration
available under the 1933 Act has been taken.
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<PAGE> 23
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this Article 2 or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee to
whom the Purchased Shares have been transferred in contravention of this
Agreement.
2.6 Restrictive Legends. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with restrictive legends, including legends similar to
the following:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The
shares have been acquired for investment and may not be
sold or offered for sale in the absence of (a) an
effective registration statement for the shares under
such Act, (b) a "no action" letter of the Securities and
Exchange Commission with respect to such sale or offer,
or (c) satisfactory assurances to the Corporation that
registration under such Act is not required with respect
to such sale or offer."
(ii) The legend provided for in paragraph 5.7 hereof.
(iii) Any legend required by applicable state securities laws.
2.7 Stockholder Rights. Until such time as the Corporation actually
exercises its repurchase rights under this Agreement, Optionee (or any successor
in interest) shall have all the rights of a stockholder (including voting and
dividend rights) with respect to the Purchased Shares, subject, however, to the
transfer restrictions of Article 3.
3. TRANSFER RESTRICTIONS
3.1 Restriction on Transfer. Optionee shall not transfer, assign,
encumber or otherwise dispose of any of the Purchased Shares which are subject
to the Corporation's Repurchase Right under Article 4. Such restrictions on
transfer, however, shall not be applicable to (i) a gratuitous transfer of the
Purchased Shares made to the Optionee's spouse or issue, including adopted
children, or to a trust for the exclusive benefit of the Optionee or the
Optionee's spouse or issue, (ii) a transfer of title to the Purchased Shares
effected pursuant to the Optionee's will or the laws of intestate succession or
(iii) a transfer to the Corporation in pledge as security for any purchase-money
indebtedness incurred
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<PAGE> 24
by the Optionee in connection with the acquisition of the Purchased
Shares.
3.2 Transferee Obligations. Each person (other than the Corporation) to
whom the Purchased Shares are transferred by means of one of the permitted
transfers specified in paragraph 3.1 must, as a condition precedent to the
validity of such transfer, acknowledge in writing the Corporation's repurchase
rights granted hereunder, to the same extent such shares would be so subject if
retained by the Optionee.
3.3 Definition of Owner. For purposes of Articles 4 of this Agreement,
the term "Owner" shall include the Optionee and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a permitted
transfer from the Optionee in accordance with paragraph 3.1.
4. REPURCHASE RIGHT
4.1 Grant. The Corporation is hereby granted the right (the "Repurchase
Right"), exercisable at any time during the ninety (90) day period following the
date the Optionee ceases for any reason to be a Service Provider to the
Corporation or (if later) during the ninety (90) day period following the
execution date of this Agreement, to repurchase at the Option Price all or (at
the discretion of the Corporation) any portion of the Purchased Shares in which
the Optionee has not acquired a vested interest in accordance with the vesting
provisions of paragraph 4.3 (such shares to be hereinafter called the "Unvested
Shares"). For purposes of this Agreement, the Optionee shall be deemed to be a
Service Provider to the Corporation for so long as the Optionee renders periodic
services to the Corporation or one or more of its parent or subsidiary
corporations as either an employee, nonemployee member of the Board of
Directors, or an independent nonemployee consultant.
4.2 Exercise of the Repurchase Right. The Repurchase Right shall be
exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable ninety (90) day period specified in
paragraph 4.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. Owner shall, prior
to the close of business on the date specified for the repurchase, deliver to
the Secretary of the Corporation the certificates representing the Unvested
Shares to be repurchased, each certificate to be properly endorsed for transfer.
The Corporation shall, concurrently with the receipt of such stock certificates,
pay to Owner in cash or cash equivalents (including the cancellation of any
purchase-money indebtedness), an amount equal to the Option Price previously
paid for the Unvested Shares which are to be repurchased.
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<PAGE> 25
4.3 Termination of the Repurchase Right.
(a) The Repurchase Right shall terminate with respect to any
Unvested Shares for which it is not timely exercised under paragraph 4.2. In
addition, the Repurchase Right shall terminate, and cease to be exercisable,
with respect to any and all Purchased Shares in which the Optionee vests in
accordance with the schedule below. Accordingly, provided the Optionee continues
to be a Service Provider to the Corporation, the Optionee shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to, the Purchased
Shares in accordance with the following provisions:
(i) Two (2) years from the date of exercise of the
Option and execution of this Stock Purchase Agreement for the Purchased Shares.
4.5 Fractional Shares. No fractional shares shall be repurchased
by the Corporation. Accordingly, should the Repurchase Right extend to a
fractional share (in accordance with the vesting computation provisions of
paragraph 4.3) at the time the Optionee ceases to be a Service Provider to the
Corporation, then such fractional share shall be added to any fractional share
in which the Optionee is at such time vested in order to make one whole vested
share no longer subject to the Repurchase Right.
4.6 Additional Shares or Substituted Securities. In the event of
any stock dividend, stock split, recapitalization or other transaction affecting
the Corporation's outstanding Common Stock as a class without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased
Shares shall be immediately subject to the Repurchase Right, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number of Purchased Shares and Total Purchasable Shares for all
purposes relating to the Repurchase Right Appropriate adjustments shall also be
made to the price per share to be paid upon the exercise of the Repurchase Right
in order to reflect the effect of any such transaction upon the Corporation's
capital structure; provided, however, that the aggregate purchase price shall
remain the same.
4.7 Special Termination of Repurchase Right.
(a) In the event of any of the following transactions (a
"Corporate Transaction"):
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<PAGE> 26
(i) a merger or acquisition in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State in which the Corporation is incorporated,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, or
(iii) any other corporate reorganization or business combination
in which fifty percent (50%) or more of the outstanding voting stock of the
Corporation is transferred, or exchanged through merger, to different holders in
a single transaction of the Corporation or a series of related transactions,
then the Corporation shall have full power and authority to terminate the
"Repurchase Right in whole or in part as of the effective date of the
Corporation Transaction.
(b) In the event the Corporation elects not to exercise such
discretionary authority, the Repurchase Right shall remain in full force and
effect and shall apply to the new capital stock or other property (including
money) received in exchange for the Purchased Shares in consummation of such
transaction, but only to the extent the Purchased Shares are at the time covered
by such right. Appropriate adjustments shall also be made to the price per share
payable upon exercise of the Repurchase Right to reflect the effect of such
transaction upon the Corporation's, outstanding securities; provided, however,
that the aggregate purchase price shall remain the same.
5. GENERAL PROVISIONS APPLICABLE TO REPURCHASE RIGHT.
5.1 Assignment. The Corporation may assign its Repurchase Rights under
Article 4 to any person or entity selected by the Corporation's Board of
Directors, including (without limitation) one or more shareholders of the
Corporation.
If the assignee of the Repurchase Right is other than a parent or
subsidiary corporation of the Corporation, then such assignee must make a cash
payment to the Corporation, upon the assignment of the Repurchase Right, in an
amount equal to the excess (if any) of the fair market value of the Unvested
Shares at the time subject to the Repurchase Right and the aggregate repurchase
price payable for such Unvested Shares.
5.2 Definitions. For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:
(i) Any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation shall be considered to be a
parent corporation of the Corporation, provided
6
<PAGE> 27
each such corporation in the unbroken chain (other than the Corporation) owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
(ii) Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a subsidiary of the Corporation, provided each such corporation
(other than the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
5.3 No Employment Contract. Except to the extent the terms of any
written employment or service contract with the Optionee may expressly provide
otherwise, the Corporation (or any parent or subsidiary corporation employing
Optionee) is under no obligation to continue the Service Provider status of
Optionee for any period of specific duration and may terminate the Optionee/s
Service Provider status at any time, with or without cause.
5.4 Notices. Any notice required in connection with (i) the Repurchase
Right or (ii) the disposition of any Purchased Shares covered thereby shall be
given in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States mail, registered or certified, postage prepaid and
addressed to the party, entitled to such notice at the address indicated below
such party's signature line on the Agreement or at such other address as such
party may designate by 10 days advance written notice under this paragraph 5.4
to all other parties to this Agreement.
5.5 No Waiver. The failure of the Corporation (or its assignees) in any
instance to exercise the Repurchase Rights granted under Article 4, shall not
constitute a waiver of any other repurchase rights that may subsequently arise
under the provisions of this Agreement or any other agreement between the
Corporation and the Optionee. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver or any other or subsequent breach or
condition, whether of like or different nature.
5.6 Cancellation of Shares. If the Corporation (or its assignees) shall
make available, at the time and place and in the amount and form provided in
this Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement), and such shares shall be
deemed purchased in accordance
7
<PAGE> 28
with the applicable provisions hereof and the Corporation (or its assignees)
shall be deemed the owner and holder of such shares, whether or not the
certificates therefor have been delivered to the Corporation pursuant to this
Agreement.
5.7 Legend. All certificates representing the Purchased Shares shall be
endorsed with the following legend:
"THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY MAY NOT BE
SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED, OR IN ANY MANNER
DISPOSED OF EXCEPT IN CONFORMITY WITH THE TERMS OF A WRITTEN
AGREEMENT, DATED , 19 , BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER OF THE SHARES (OR ITS ASSIGNEES) WHICH GRANTS
THE CORPORATION CERTAIN REPURCHASE RIGHTS UPON THE SALE,
ASSIGNMENT, TRANSFER, ENCUMBRANCE OR OTHER DISPOSITION OF THE
CORPORATION'S SHARES OR UPON TERMINATION OF SERVICE WITH THE
CORPORATION. THE CORPORATION WILL UPON WRITTEN REQUEST FURNISH A
COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."
6. MISCELLANEOUS PROVISIONS
6.1 Optionee Undertaking. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
6.2 Agreement is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof.
This Agreement is made pursuant to the provisions of the Plan and shall in all
respects be construed in conformity with the express terms and provisions of the
Plan
6.3 Governing Law. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
6.4 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
6.5 Successors and Assigns. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Corporation and its successors and
assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transfer by operation of law, whether or not
any such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.
8
<PAGE> 29
6.6 Power of Attorney. Optionee's spouse hereby appoints Optionee his or
her true and lawful attorney in fact, for him or her and in his or her name,
place and stead, and for his or her use and benefit, to agree to any amendment
or modification of this Agreement and to execute such further instruments and
take such further actions as may reasonably be necessary to carry out the intent
of this Agreement. Optionee's spouse further gives and grants unto Optionee as
his or her attorney in fact full power and authority to do and perform every act
necessary and proper to be done in the exercise of any of the foregoing powers
as fully as he or she might or could do if personally present, with full power
of substitution and revocation, hereby ratifying and confirming all that
Optionee shall lawfully do and cause to be done by virtue of this power of
attorney.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
YARC SYSTEMS CORPORATION, INC.
a California corporation
By;
---------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
Optionee
Address:
------------------------------------
------------------------------------
------------------------------------
Optionee's Spouse
Address:
------------------------------------
------------------------------------
9
<PAGE> 1
EXHIBIT 6.3
AMENDMENT NO. 1
YARC SYSTEMS CORPORATION, INC.
1992 NONSTATUTORY STOCK OPTION PLAN
Pursuant to the unanimous written consent of the Board of Directors of Yarc
Systems Corporation, Inc. ("Yarc") dated January 23, 1995 and the written
consent of shareholders of Yarc dated January 23, 1995, the number of shares of
common stock of Yarc subject to Yarc's 1992 Nonstatutory Stock Option Plan is
increased from Two Million (2,000,000) to Eight Million (8,000,000).
<PAGE> 1
EXHIBIT 6.4
S3875717
025717 CINAB UF
492500377 DBAG
01 MARCH, 2000
OUR TLX REF: DB-0191-0300
FROM : DEUTSCHE BANK AG, MAIN OFFICE ------------------------
TAUNUSANLAGE 12 DEUTSCHE BANK [/]
60262 FRANKFURT, GERMANY /S/
FRANKFURT, GERMANY
------------------------
TO : CITY NATIONAL BANK
9 EXECUTIVE CIRCLE
IRVINE, CA 92614
U.S.A.
ATTENTION : MS. DANA DE FILIPPO
TEL. NO. +949 862-7006
MR. JACK A. VIGIL (INT'L DEPT.)
TEL. NO. +213 347-2348
RE ACCOUNT NAME : TRADE DIRECT CORP.
ACCOUNT NO. : 402-114010
FOR FURTHER BENEFIT OF : YARC SYSTEMS INC.
ADDRESS : 13960 MILTON AVE. SUITE 302
WESTMINSTER, CA 92683
U.S.A.
01.03.00 TEST: 59218 FOR AMT USD10,000,000.00. TEST IS BETWEEN
ABN-AMRO BANK, AMSTERDAM, THE NETHERLANDS AND OUR BANK.
- -------------------------------------------------------------------------------
W/OUT ANY RESP N LIAB ON YR PART, PLS INFORM YR ABOVE REFERENCED CLIENT THAT
WE HAVE TODAY ISSUED IN THEIR FAVOUR OUR FOLLOWING STANDBY LETTER OF CREDIT:
LETTER OF CREDIT
----------------
LETTER OF CREDIT NO. : DB-0855-02-00SLC
AMOUNT : USD10,000,000.00 (UNITED STATES DOLLARS
TEN MILLION)
DATE OF ISSUE : O1 MARCH, 2000
DATE OF MATURITY : 01 MARCH, 2001
DATE OF EXPIRY : 16 MARCH, 2001
WE, THE UNDERSIGNED, HEREBY OPEN OUR UNCONDITIONAL, IRREVOCABLE, TRANSFERABLE
AND CONFIRMED LETTER OF CREDIT IN FAVOUR OF TRADE DIRECT CORP. FOR FURTHER
BENEFIT OF YARC SYSTEMS INC. OR ASSIGNS, FOR THE AMOUNT OF USD10,000,000.00
(UNITED STATES DOLLARS TEN MILLION) DUE IN ONE YEAR FROM THE DATE OF ISSUE.
PAYMENT IS AVAILABLE UPON BENEFICIARY'S FIRST WRITTEN DEMAND
<PAGE> 2
VIA TESTED TELEX, DEMAND HEREUNDER MUST BE MARKED 'DRAWN UNDER
LETTER OF CREDIT NO. DB-0855-02-00SLC DATED 01 MARCH, 2000'.
WE ENGAGE WITH YOU THAT DEMAND DRAWN UNDER AND IN COMPLIANCE WITH
THE TERMS OF THIS LETTER OF CREDIT SHALL BE DULY HONOURED ON DUE
PRESENTATION TO US.
THIS LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS (1993 REVISION), I.C.C. PUBLICATION NO. 500.
THIS IS A CABLE OPERATIVE INSTRUMENT. ALL CHARGES ARE FOR THE
ACCOUNT OF THE APPLICANT.
REGARDS,
DEUTSCHE BANK AG, MAIN OFFICE
FRANKFURT, GERMANY
(SGD) ROLF-E. BREUER - MANAGING DIRECTOR
(SGD) JOSEF ACKERMANN - DIRECTOR
**** ----------------------
NNNN DEUTSCHE BANK [/]
/S/
FRANKFURT, GERMANY
----------------------
192500377 DBAG
825717 CINAB UF 01 MAR 2000
<PAGE> 3
FRI, 03-MAR-00 13:03
23825717+
826717 CINAB UF CONFIRMATION
492600381 ABNA
03 MARCH, 2000
TO : CITY NATIONAL BANK --------------------
9 EXECUTIVE CIRCLE [LOGO] ABN - AMRO
IRVINE, CA 92614 /S/
U.S.A. AMSTERDAM
--------------------
ATTENTION : MS. DANA DE FILIPPO
MR. JACK A. VIGIL (INT'L DEPT.)
FROM : ABN AMRO BANK N.V., HEAD OFFICE
AMSTERDAM, THE NETHERLANDS
RE ACCOUNT NAME : TRADE DIRECT CORP.
ACCOUNT NO. : 402-114010
FOR FURTHER BENEFIT OF : YARC SYSTEMS INC.
SUBJECT: TEST 59218 FOR AMT USD10,000,000.00 DD 01.03.2000
BETWEEN OURSELVES AND DEUTSCHE BANK AG, FRANKFURT
- --------------------------------------------------------------------------------
W/OUT ANY RESP N LIAB ON OUR PART, PLS BE ADVISED THAT THE ABOVE SUBJECT MATTER
PERTAINING TO A LETTER OF CREDIT NO. DB-0855-02-00SLC WAS DULY TESTED, VALIDATED
AND AUTHENTICATED CORRECT TO BE MEANT FOR YOUR ACTION.
REGARDS,
GLOBAL TESTKSY OPERATIONS/ADMIN
VVVV ------------------------
[LOGO] ABN - AMRO
/S/
AMSTERDAM
------------------------
482500381 ABNA
*
825717 CINAB UF 03 MAR 2000
<PAGE> 1
EXHIBIT 10.(a).1
CONSENT
BY AUDITOR
The undersigned hereby consent to: (i) the inclusion and use of our
opinions with respect to Yarc Systems Corporation, Inc., in the Registration
Statement filed with the Securities and Exchange Commission by Yarc Systems
Corporation, Inc., and (ii) the references to us in the Registration Statement.
Barry Glasser & Company
Date: March 13, 2000 By: /s/ BARRY GLASSER
---------------------------------
Barry Glasser
