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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19378
LIUSKI INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3065217
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6585 Crescent Drive, Norcross, Georgia 30071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 447-9454
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the last sale price of the registrant's
Common Stock on March 18, 1997, was $4,223,141.
As of March 18, 1997, the registrant had 4,380,525 shares of Common Stock, $.01
par value per share outstanding.
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<PAGE>
PART I
ITEM 1. BUSINESS
General
The Company is a distributor of microcomputer peripherals, components and
accessories throughout the U.S. and in certain foreign countries. The Company
also offers its own Magitronic brand of IBM-compatible personal computers and
notebooks, as well as Magitronic private-label components and accessories. The
Company distributes over 1,800 products made by over 70 U.S. manufacturers,
including such nationally recognized names as Seagate Technologies, Inc.
("Seagate"), Toshiba America Information Systems, Inc. ("Toshiba"), NEC
Technologies, Inc. ("NEC"), Samsung Information Systems America, Inc.
("Samsung"), Hewlett-Packard, Citizen America Corporation, Western Digital
Corporation, Panasonic Communications and Systems Company ("Panasonic"), and
Exabyte Corporation. In addition, the Company distributes over 170 private-label
products made by over 20 foreign manufacturers. Customers of the Company are
value-added resellers, systems integrators, consultants, retail stores, smaller
distributors, end-user corporations and government entities.
The Company's headquarters and primary assembly operations were relocated
from Melville, New York to Norcross, Georgia, a suburb of Atlanta, during 1995.
Prior to this relocation, all of the Company's products were supplied from ten
distribution centers. The distribution centers were consolidated from ten
locations to four primary centers with limited assembly operations being
performed at the Toronto distribution center. The Company's primary distribution
and sales centers are now in Norcross, Los Angeles, Miami, and Toronto (which
exclusively houses Magitronic products), with Norcross serving as the primary
distribution hub; the Company continues to maintain sales offices in Chicago,
Melville and Dallas. In 1997, the Company reopened distribution centers in
Chicago and Melville on a limited basis to facilitate sales to customers in
close proximity to these centers. In addition, in June 1996, the Company closed
its ProCORP mail-order business.
Although the Company's business is not highly seasonal, the second calendar
quarter is generally a period of weaker net sales in comparison to the rest of
the year.
The Company is a Delaware holding company and the sole owner of nine active
subsidiaries which operate its business. The names of these nine subsidiaries
are: Liuski International New York, Inc.; Liuski International Miami, Inc.;
Liuski International Texas, Inc.; Liuski International Illinois, Inc.; Liuski
International California, Inc.; Liuski International Atlanta, Inc.; Magitronic
Technology, Inc.; Liuski International Toronto, Inc.; and Liuski International
Taiwan, Inc.
Strategy
The Company's long-term objective is to become one of the leading
distributors of microcomputer peripherals, components and accessories in North
and South America with an increasing emphasis on assembling its own Magitronic
personal computers and notebooks as well as expanding its line of private-label
products. The Company believes that its ability to act quickly and appropriately
in response to short and long-term trends in the microcomputer marketplace is
critical to its success in a very dynamic industry characterized by short
product life cycles and continuous pricing pressures. The Company also believes
that as a result of intense competition in the industry, increased and continued
focus on operating efficiencies including cost controls and improvement in
product management systems is critical to the Company's future.
The Company has implemented its objective to expand its business by (i)
increasing sales through its current distribution system with emphasis on higher
profit margin business; (ii) emphasizing a separate subsidiary that focuses
exclusively on Magitronic products; (iii) re-evaluating product lines the
Company will offer based on profitability; and (iv) targeting new markets where
customers are receptive to the price/performance advantages of Magitronic
products, including governmental agencies and foreign markets.
Magitronic Brand Products. The Company's goal is to establish its Magitronic
brand as well recognized, value-priced, brand name products. To enhance the
visibility of the Magitronic line, the Company emphasized its separate
Magitronic subsidiary which focuses on distributing Magitronic products in new
markets.
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Product Lines. The Company distributes over 1,800 products made by over 70
U.S. manufacturers. The Company is re-evaluating the product lines it will offer
in the future and will attempt to emphasize higher profit margin business. The
Company will continuously upgrade its lines of personal computers to apply and
integrate state of the art technology and reach the market earlier with its own
brand of higher performance and cost competitive systems.
Target Markets. Despite the Company's focus on smaller, price-conscious,
value-added resellers as its primary market, management believes that there are
various other markets in which customers would recognize the price/performance
advantages of Magitronic products including, among others, large corporate
end-users, governmental agencies, and foreign markets. The Company's activities
so far in these markets have been increasing as the Company allocates resources
towards developing each market. The Company has been approved by the General
Services Administration ("GSA") as an approved vendor of personal computers,
components and accessories to U.S. Government purchasers.
Regional Sales
The following table sets forth a regional breakdown for the periods
indicated of the Company's net sales and the percentage of the Company's total
net sales represented thereby:
<TABLE>
Year Ended December 31,
1996 1995 1994
-----------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
REGION
Northeast(1) $ 82,772 19.6% $ 98,803 25.0% $104,791 28.7%
Southeast 218,427 51.7% 148,021 37.4% 115,476 31.6%
Mid- and Southwest 73,336 17.4% 100,315 25.4% 104,392 28.6%
West 43,301 10.3% 36,235 9.2% 33,687 9.2%
Pacific(2) 1,230 0.3% 4,402 1.1% 6,755 1.9%
Mail Order(3) 3,244 0.7% 7,359 1.9% --- ---
-------- ----- -------- ----- -------- -----
--- Total $422,310 100.0% $395,135 100.0% $365,101 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
(1) Includes the distribution center located in Toronto, Canada.
(2) Includes Hong Kong sales center which was closed during 1996.
(3) The Company discontinued its direct mail operations (ProCORP) in June 1996.
Products
In addition to its Magitronic private-label products, the Company markets a
mix of products for nationally recognized manufacturers. The Company stocks
approximately 1,800 products made by over 70 U.S. manufacturers and continually
evaluates new products, the demand for its current products and its product mix.
Products are selected only after careful evaluation of features, availability,
reliability, serviceability, brand recognition and value to the customer in
terms of price and performance. The Company attempts to source products from
more than one supplier when management feels it is desirable to provide
protection against shortages and different price points for the same item. The
Company's goal is to improve its ability to apply and integrate state of the art
technology into its Magitronic personal computers so that it can decrease its
reaction time in response to technological changes and reach the market earlier.
Sales of the Company's Magitronic brand of personal computers and notebooks
as a percentage of total net sales were 20.1%, 17.3% and 21.0% for the years
ended December 31, 1994, 1995 and 1996, respectively. Included in Magitronic
personal computers are private-label and brand-name components that the Company
also sells separately in its distribution business. During 1996, sales of
monitors supplied primarily for Magitronic by Samsung were 6.1% of net sales,
and sales of hard disk drives supplied primarily by Seagate and Samsung were
14.2% of net sales. Sales of the Company's other products, including
microcomputer peripherals, components and accessories, comprised the remaining
sales for the year.
2
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The major categories of products presently distributed by the Company are
described below.
Magitronic Microcomputers and Notebooks. The Company distributes
approximately 15 standard Magitronic brand IBM-compatible personal computers
which have a variety of microprocessors, memory configurations and other
features. Magitronic offers a wide range of systems to the industry ranging from
133MHz Pentium systems to the high-performance Pentium Pro/200MHz. The Company
also custom assembles Magitronic computers to the customer's order. The Company
distributes approximately 8 standard Magitronic brand IBM-compatible notebook
computers that range from the low end Pentium/133MHz to the 600 series
multimedia notebook that features Pentium/166MHz microprocessors.
The company's standard Magitronic brand microcomputers are currently sold by
the company at prices ranging from $670 to $3,100. Each is compatible with at
least three of the following operating systems: Microsoft DOS version 6.22;
Novell Netware Versions 3.12 and 4.1, as workstation and file servers; OS/2;
Windows 3.11, Windows for Workgroups 3.11, Windows NT workstation and fileserver
and Windows 95. (Refer to the section entitled "Assembly Operations.")
Other Magitronic Brand Products. The Company's other Magitronic brand
products consist of monitors, power supplies, keyboards, chassis', motherboards,
add-on boards, I/O boards, video display boards, surge suppressers, sound
boards, multimedia kits, fax modems, and various network products.
Mass Storage. The Company distributes Seagate, Toshiba, Western Digital, and
Samsung hard disk drives, Adaptec, Inc., Data Technology ("DTC," a division of
Qume Corporation) controllers, and Distributed Processing Technology, Inc.
("DPT") and Advansys, Inc. hard disk controllers, ALPS and NEC floppy disk
drives, Goldstar, Toshiba, and Samsung CD-ROMs, and 3M floppy diskettes. The
Company also distributes tape back-up systems from Seagate and Exabyte
Corporation.
Monitors. The Company distributes Magitronic, NEC, Goldstar Technology,
Inc., CTX Corp., Mag Innovision, Inc., Hyundai, Samtron, Inc., Techmedia and
Samsung monitors. For 1994 and 1995, the Company was the number one distributor
for computer related products sold by Samsung in the United States.
Multimedia. Soundboards, video cards and speakers facilitate music, sound
and video pictures that are produced by computers. The Company distributes
multimedia products from Creative Labs, Inc., Magitronic, Newcom, Cardinal
Technologies Inc. ("Cardinal"), Diamond Computer Systems, Inc., and NEC.
Communications. Modems and fax boards allow communication among computers.
The Company distributes modems and modems with fax boards of Cardinal, Practical
Peripherals, Inc. (both Hayes Companies), BOCA Research, Inc. ("BOCA"), U.S.
Robotics, and Magitronic. Some of Cardinal's products are bundled with Prodigy
software.
Networking Products. Local area networks (LANs) allow communication among
computers. The Company sells networking products of Microdyne, D-Link Systems,
Inc., BOCA, C-Net Technologies, Inc., Novell (through Microdyne), and Kingston.
Printers. The Company distributes a broad line of dot matrix and laser
printers sourced primarily from Panasonic, Hewlett-Packard, Samsung,
International Business Machines, Inc. ("IBM"), Lexmark, Brother, Inc. and
Citizen America.
Software. Along with its own Magitronic personal computers, the Company
bundles Lotus Smart Suite, MS-DOS and Windows software under licenses from Lotus
and Microsoft and network operating systems by Novell. The Company also bundles
a number of software titles from Netcom along with its Magitronic systems.
Notebooks. The company distributes notebooks from Magitronic and Samsung.
3
<PAGE>
Suppliers
Substantially all of the Company's brand name products are purchased from
over 70 suppliers located in the U.S., while substantially all of the Company's
private-label products (including subassemblies and parts for Magitronic
personal computers) are purchased via its Trading Affiliates from over 20
suppliers in the Far East (Refer to Item 13. Certain Relationships and Related
Transactions). Products are selected by the Company to minimize competition
among suppliers' products, while maintaining some overlap to provide protection
against product shortages and discontinuations, and to provide different price
points for certain items. Management believes the Company's relationships with
its suppliers are enhanced by providing feedback to suppliers on products,
advising them of customer preferences, working with them to develop marketing
programs and offering suppliers the opportunity to provide seminars for the
Company's customers.
The Company has agreements with most of its U.S. suppliers which it believes
are in a form customarily used by each manufacturer. Like most of its
competitors, the Company distributes products throughout the U.S. on a
non-exclusive basis without geographic restrictions. These agreements usually
contain provisions which allow termination, without cause, by either party
generally upon 30 to 60 days notice. None of the Company's material supply
agreements require the sale of specified quantities of products. The Company is
not restricted from selling similar products manufactured by competitors. The
Company has the ability to terminate or curtail sales of one product line in
favor of another product line as a result of technological change, pricing
considerations, customer demand, or supplier distribution policy.
Most of the Company's U.S. suppliers provide price protection, by way of
credits, against price reductions by the supplier between the time of the
initial sale to the Company and the subsequent sale by the Company to its
customer. Not all of the Company's products are covered by these programs. Such
suppliers accept defective merchandise returned within 12 to 15 months after
shipment to the Company and most permit the Company to rotate its inventory by
returning slow moving inventory for other inventory. These programs, in part,
reduce the Company's risk with respect to slow moving inventories. Credits,
refunds or other payments to which the Company was entitled by reason of price
protection, advertising allowances, stock rotations and refunds for defective
merchandise totaled approximately 1.8% of net sales for 1996.
While the Company distributes products of more than 70 U.S. suppliers,
approximately 13% and 7% of the Company's net sales for 1996 were derived from
products manufactured by Seagate and Samsung, respectively, the Company's two
largest U.S. suppliers. The Company has written supply agreements with Seagate
and Samsung. The loss of either of these two suppliers or a shortage in a
particular product supplied by either of them could have a material adverse
impact on the Company during the period the Company believes it would need to
establish alternate sources of supply at required volume levels.
Since 1984, the Company has been purchasing products for its private-label
lines in the Far East through Marie-Claude Co., Ltd. and Liuski International,
Inc. (Taiwan) (collectively the "Trading Affiliates") which provide certain
purchasing services for the Company (Refer to Item 13. Certain Relationships and
Related Transactions). The Company currently has written agreements with the
Trading Affiliates pursuant to which the Company may, but is not required to,
purchase products from the Trading Affiliates at a price of 2% above the
manufacturers' charge to them plus reimbursement of certain out-of-pocket costs.
The total purchases of products from the Trading Affiliates were approximately
$69,580,000, $72,190,000 and $88,025,000 during the three years ended December
31, 1994, 1995 and 1996, respectively, for which the Company paid contract
consideration to the Trading Affiliates of approximately $1,364,000, $1,444,000
and $1,761,000, respectively. Services performed for the Company by the Trading
Affiliates include: the confirmation of pricing; availability of products and
shipping dates; quality checks at the manufacturers' locations; and the handling
of shipping logistics from the manufacturers' locations to the Company's
distribution centers. In addition, if requested, the Trading Affiliates assist
in evaluating the quality and attractiveness of potential new product lines.
It is the Company's belief that the domicile of the Trading Affiliates and
their banking relationships in Taiwan allow the Trading Affiliates to receive
favorable credit terms from manufacturers and in turn to provide favorable
credit terms which may not otherwise be available to the Company. The agreements
with each of the Trading Affiliates expire on December 31 of each year.
4
<PAGE>
The Trading Affiliates source products for the Company from approximately
twenty manufacturers, primarily located in the Far East. Despite the existence
of these intermediaries, it is the Company's practice to establish direct
relationships with each supplier in order to select products and negotiate
price, quality and other supply issues. The Company is in continual telephone
contact and periodic face-to-face contact with its major suppliers directly from
its Norcross headquarters and through its Trading Affiliates. While several of
the manufacturers are based in Taiwan, the Company believes that most of the
products, except notebooks, can be sourced directly from other countries, if
required.
Assembly Operations
The Company assembles its Magitronic brand of personal computers primarily
at its facility located in Norcross, Georgia. The Atlanta Distribution Center
was relocated to this new facility in January 1995 and the Company relocated its
primary assembly facility from Melville (N.Y.) to Norcross during the first
quarter of 1995. The Company also relocated its corporate headquarters from
Melville to Norcross. The Company does not manufacture any of the subassemblies
or components used in the assembly of its Magitronic personal computers. All of
the subassemblies and components are items included in the products offered by
the Company in its distribution operations. Accordingly, the chassis' "bare"
motherboards, video display boards, floppy disk controllers, interface cards,
and power supplies and cabling are Magitronic components that are manufactured
for the Company, while the hard disk drives, floppy disk drives and memory
modules are products that are currently sourced principally from Western
Digital, Seagate, Toshiba, and Samsung. High value chips such as microprocessors
and random access memories are added to "bare" motherboards at the Company's
Norcross facility.
The Company currently assembles approximately 15 standard IBM-compatible
personal computer models. Magitronic personal computers target a broad range of
performance and functionality, ranging from Pentium 133MHz to Pentium
Pro/200MHz. The Company is currently planning to introduce other models, such as
those containing the new MMX 200MHz microprocessor. Magitronic standard personal
computers are currently based on microprocessors manufactured by Intel and AMD.
(Refer to the section entitled "Products.")
The Company's new product development activities relate principally to the
upgrading of its personal computers so that they are competitive in terms of
price and performance. Company marketing and engineering personnel work together
in the testing and evaluation of the available technology, primarily relating to
motherboards and notebooks. Such Company personnel also work in conjunction with
the Company's Trading Affiliates in evaluating such products. These activities
have not required any material expenditure of capital by the Company. The
Company's new product development activities depend in significant part on the
research and development expenditures and technological advances made by the
suppliers of its components and subassemblies.
Most subassemblies and parts used by the Company are available from multiple
suppliers. However, from time to time the Company may be subject to shortages of
key components required to assemble Magitronic personal computers and
motherboards. Any shortage in the supply of components may cause price increases
and production delays which may have a material adverse effect on the Company's
assembly operations. The Company purchases Pentium microprocessors directly from
Intel. All of the other subassemblies and components of the Company's Magitronic
personal computers are available from multiple sources. Currently, the only
shortages the Company has been experiencing are with respect to Intel's Pentium
microprocessors and certain hard disk drives, which have not had a material
adverse effect on the Company's operations.
Investment in production equipment is not material to the Company's assembly
operations. Semi-skilled and skilled workers assemble Magitronic personal
computers using a conveyor belt workstation system that is commonly used for
similar operations. The Company generally cross-trains its workers so that they
are able to work at all workstations. Once assembled, all systems undergo a test
cycle, including environmental and stress testing, using sophisticated
diagnostics procedures.
5
<PAGE>
Currently, the Company is assembling over 7,000 standard Magitronic personal
computers per month, and has the capacity to assemble approximately 9,000
Magitronic personal computers per month at its Norcross facility. The Company
has the requisite space and believes it could purchase the components and
subassemblies, acquire the necessary equipment, and hire and train the personnel
necessary to increase the assembly capacity at such facility to 15,000
Magitronic personal computers per month, within a 120-day period, if demand
justified such an increase. The Company also assembles custom-order Magitronic
personal computers at the Toronto distribution center.
Backlog is not material to the Company's assembly operations. Orders for the
Company's standard IBM compatible personal computer models are filled the same
day from inventory and orders for custom models are generally filled within
three to five days after receipt of an order.
Magitronic, after a 10 month preparation process, was certified for ISO 9001
on October 14, 1996. ISO 9001 is the most comprehensive standard in the ISO 9000
family and requires that the Company follow a specific set of standards and
procedures from the purchasing of components through the design and production
process. These standards and procedures provide a framework designed to provide
the customer with quality products. ISO 9000 certification has become accepted
by and, in most cases, is required by companies in Europe and throughout the
world. ISO 9001 has opened up many new markets for Magitronic which, until now,
had been inaccessible because of the lack of certification.
Federal Communications Commission ("FCC") regulations govern radio frequency
emission standards for computing equipment. All of the standard Magitronic
personal computers currently being marketed by the Company meet the FCC's Class
A requirements and certain of the Company's products qualify for the more
stringent Class B requirements. Delays in securing FCC Class B approvals have
been experienced by the Company and may occur in the future. The Company does
not believe that such delays will have any significant adverse impact on the
Company's ability to sell its Magitronic personal computers.
With more and more computers being used in LANs, it has become important
that the Company's products meet one or more of the networking standards. Some
of the Magitronic Systems have been tested and have passed Novell certification.
Also, most of the systems offered by Magitronic have gone through and have
passed IBM's OS/2 Hardware Compatibility and Microsoft's Windows NT Hardware
Compatibility.
Sales and Marketing
The Company's sales operations are currently conducted from four
strategically located distribution and sales centers in, or in the vicinity of,
Norcross, Los Angeles, Miami, and Toronto (collectively the "Primary
Distribution Centers"), and in sales offices located in Dallas, Melville and
Chicago. The Company's Norcross distribution center, which serves as the main
distribution hub, primarily services the southern and eastern U.S., and the
western U.S. is primarily serviced by the Los Angeles distribution center. South
America, Latin America and Canada are serviced primarily by the Company's
distribution centers in Miami and Toronto, respectively. The Dallas and Chicago
sales offices primarily service customers in Texas and the Midwest,
respectively, while the Melville sales office services customers in the
Northeast.
The Company consolidated its sales efforts in 1995 by relocating many of the
sales, administrative, technical and customer service personnel to the Norcross
facility, with the goal of increasing sales productivity and decreasing
administrative costs. As a result of this consolidation, the Company closed its
distribution centers in Baltimore, Houston, Dallas, and San Jose. The Company
temporarily closed its distribution centers in Melville and Chicago, which were
reopened on a limited basis during 1996. The Company maintains sales offices at
each of its distribution centers.
The Primary Distribution Centers and sales offices have a sales manager who
works with the center's account executives. The account executives principally
market and sell to customers in the center's designated geographic territory. In
addition to a sales manager, the Primary Distribution Centers have a general
manager and technical service, accounting and customer service departments.
6
<PAGE>
Sales to customers are principally made by telephone. Occasionally, account
executives will take orders at a customer's premises, particularly if the
customer is a corporate end-user. The Company accommodates customers who prefer
to pick-up their orders directly at a center. Account executives are available
to assist in selecting complete systems that suit the needs of customers. Upon
request, the Company's systems engineers will fully assemble a system and test
it before shipment to the customer for a nominal service charge. (Refer to the
section entitled "Assembly Operations.")
Generally, an order written by 5:00 p.m. will be shipped the same day,
except for orders requiring assembly and testing. The Company's order processing
capability, distribution center locations, and agreements with major carriers
permit the Company to deliver products by economical ground transportation
within one or two days following an order placed in the continental U.S. The
amount of inventory backlog is minimal since almost all orders are filled
promptly from current inventory.
The Company's customers are principally value-added resellers, retailers and
smaller distributors. The Company has more than 7,500 active customers each
month and currently maintains a customer list of approximately 35,000. No single
customer accounted for more than 2.5% of the Company's revenue during 1996. Most
of the Company's customers rely upon distributors, such as the Company, as their
principal source of personal computers, peripherals, microcomputer components
and accessories.
Customer Support
The Company provides technical assistance to customers contacting the
customer service departments during normal business hours. Defective Magitronic
personal computers that are returned to the Company during the one year warranty
period (two years for notebooks) are tested by the Company and replaced entirely
or repaired if the Company is able to simply replace the defective component(s).
The Company services Magitronic personal computers that are no longer covered by
warranty and charges the customers for these services. Generally, the Company
will ship returns of other defective products to the manufacturer or send them
to an authorized manufacturer repair center. The Company generally will accept
returns of "Dead On Arrival" products within 30 days from invoice. The Company
provides full refunds for products returned within two weeks due to the
Company's error in filling or writing a product order.
Returns have historically been approximately 5% of net sales. The Company
does not maintain separate records with respect to the rate of return of its
Magitronic brand personal computers as compared to its other products. The
Company does not believe that the cost of product returns is material as
substantially all of these costs are reimbursed to the Company by its suppliers
through credits and/or replacements; however, the Company accrues for losses and
warranty costs for returned goods, which are not covered by supplier protection,
at the time of sale.
Management Information Systems
The Company's operations are computerized with inventory, accounts
receivable and payable, order entry, payroll and general ledger software
systems. The Company changed its management information systems software in
March of 1996. The Company experienced disruption as a result of this change,
but believes this change was essential in order to accommodate future growth.
The Company has implemented a new bar coding inventory control system at the
Norcross facility and is evaluating its operational and cost efficiencies.
Employees
As of March 7, 1997, the Company had 526 full-time employees, including 198
in sales and marketing, 59 in engineering, technical and customer service, 84 in
warehouse, 101 in administrative (including four executive officers), 71
assembly workers and 13 in data processing. The Company considers its
relationship with employees to be satisfactory. The Company is evaluating its'
staffing requirements and is initiating certain reductions in force.
7
<PAGE>
Patents, Trademarks and Licenses
The Company does not have any patents and does not consider patents
significant to its Magitronic assembly operations. The Company believes that the
knowledge and experience of its management and personnel and their ability to
market and keep abreast of technological trends and developments in the design
and assembly of microcomputers are more significant than patents to the
Company's success.
The trademarks "Magitronic", "Magitronic - The Power of Value", and
"ProCORP" are registered in the U.S., Canada and certain foreign countries and
registrations are pending in several others. The trade name Liuski is registered
in the U.S., Canada and certain foreign countries.
Competition
The microcomputer distribution industry is intensely competitive and is
characterized by constant pricing pressures and rapid product performance
improvement and technological change resulting in relatively short product life
cycles and rapid product obsolescence. Competition is primarily based on product
lines and availability, price, delivery and other support services. Distributor
competitors of the Company include other national distributors, regional
distributors and manufacturers' direct sales organizations, many of which have
substantially greater technical, financial and other resources than the Company.
Major wholesale electronic distribution competitors include Ingram Micro, Inc.,
Merisel, Inc., Tech Data Corporation, Arrow Electronics, Inc., Synnex and
Southern Electronics Corporation.
The Company's Magitronic personal computers and private-label Magitronic
products compete with a large number of manufacturers, most of which have
significantly greater financial, technological and marketing resources than the
Company and many of which market products principally on the basis of price.
Microcomputer manufacturing competitors include Compaq Computer Corp., Dell
Computer Corp., Packard-Bell, Toshiba, IBM, and ACER, as well as private-label
manufacturers. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for further information.
8
<PAGE>
ITEM 2. REAL PROPERTY
During 1995, the Company relocated its executive and administrative offices
to its largest distribution center located in Norcross, Georgia (a suburb of
Atlanta). Most of the Company's leases have initial terms not exceeding five
years to allow the Company flexibility to accommodate potential expansion and
relocation. Information is set forth below regarding the Company's distribution
and sales centers.
Floor Area Current
Approximate Lease Annual
Location Square Feet Expiration Date Rent
- - -------- ----------- --------------- ---------
Norcross, GA 156,000 December 31, 1999 $546,700
Melville, NY 30,000 July 31, 1998 204,000
Chicago, IL 34,000 December 31, 1999 178,600
Los Angeles, CA 28,100 March 31, 1997 105,000
Miami, FL 28,800 October 31, 2000 213,000
Dallas, TX 16,900 May 31, 1998 22,900
Toronto, Canada 34,100 April 30, 2000 90,300
------- ----------
Total 327,900 $1,360,500
======= ==========
The Dallas, TX location and a portion of the Melville, NY facility have been
subleased to third parties.
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ITEM 3. LEGAL PROCEEDINGS
In March 1994, several shareholders of the Company filed class action
lawsuits in the United States District Court for the Eastern District of New
York against the Company and certain of its officers asserting violation of
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b)5 promulgated
thereunder. The actions, since consolidated into a single action, purported to
be based on statements contained in a press release and SEC Form 10-Q issued by
the Company in the latter part of 1993 and was entitled "In re Liuski
International, Inc. Securities Litigation," Civil Action No. 94-CV-1045. The
plaintiffs' consolidated amended complaint asserted that the Company's purported
omissions or misrepresentations falsely inflated the value of the Company's
stock. The plaintiffs sought to represent purchasers who acquired the Company's
common stock during various periods, the earliest of which commenced on November
8, 1993 and ended on March 4, 1994. No class was ever certified. The complaint
demanded damages in an unspecified amount. In September, 1995, the plaintiffs
filed and served a second amended and consolidated complaint.
On December 4, 1995, the Company and its named officers filed a motion to
dismiss the action for failure to state a cause of action and failure to plead
fraud with particularity. That motion was granted by United States District
Court Judge Frederick Block by order dated December 8, 1996 in which the Court
found that the plaintiff's complaint failed to state a claim for fraud or to
adequately plead scienter. By judgment dated January 8, 1997, the Court
dismissed the case. No Appeal was filed.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $.01 per share, is quoted on
NASDAQ-NMS under the symbol "LSKI." As of December 31, 1996, there were
approximately 110 holders of record of the Company's common stock. On May 10,
1996, the record date for the Company's 1996 annual meeting, there were
approximately 2,054 beneficial owners of the Company's Common Stock. The
following table sets forth the high and low last sale prices for the Company's
Common Stock, as reported by the NASDAQ-NMS, for the periods indicated.
Calendar Period High Low
- - --------------- ---- ---
Year Ended December 31, 1995
First quarter 5 1/2 3 1/2
Second quarter 5 1/8 3 1/2
Third quarter 5 1/8 3 5/8
Fourth quarter 4 2 3/8
Year Ended December 31, 1996
First quarter 4 3/4 3 1/8
Second quarter 5 1/2 3 1/4
Third quarter 4 3/8 3 1/2
Fourth quarter 4 1/8 1 11/16
The last sale price of the Company's Common Stock on March 18, 1997 was 1 11/16.
Dividend Policy
Since its inception, the Company has not paid any dividends other than S
Corporation distributions with respect to periods prior to the completion of its
initial public offering of common stock ("IPO"), and does not currently intend
to declare or pay cash dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
11
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
The following table sets forth certain selected consolidated financial data
of the Company for the five years ended December 31, 1996.
Data relating to the years ended December 31, 1996, 1995, 1994, and 1993 is
derived from the Consolidated Financial Statements appearing elsewhere in this
Report which have been audited by BDO Seidman, LLP, independent certified public
accountants. The selected consolidated financial data should be read in
conjunction with, and is qualified in its entirety by reference to, the
consolidated financial statements, the notes thereto and the report thereon
included elsewhere in this Report.
Income Statement Data:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $422,310 $395,135 $365,101 $293,122 $212,133
Gross Profit $ 26,072 $ 29,592 $ 28,424 $ 26,369 $ 21,866
Selling, General and
Administrative expenses $ 33,352 $ 29,202 $ 25,375 $ 19,947 $ 16,042
Income (Loss) from Operations $ (7,280) $ 390 $ 3,049 $ 6,421 $ 5,825
Net Income (Loss) $ (7,815) $ (1,069) $ 1,042 $ 3,578 $ 3,201
Net Income (Loss) per
Common Share $ (1.78) $ (.24) $ .23 $ .91 $ 1.00
Balance Sheet Data:
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Working Capital $15,953 $44,650 $44,968 $24,848 $11,833
Total Assets $90,454 $83,708 $74,043 $56,350 $38,398
Long-Term Liabilities $ 406 $21,667 $21,119 $ 804 $ 137
Stockholders' Equity $18,524 $26,339 $27,408 $26,241 $13,014
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Years ended December 31, 1996 and 1995
Net Sales: Net sales for the year ended December 31, 1996 were $422,310,269,
representing a net increase of $27,175,156 (6.9%) from $395,135,113 for the year
ended December 31, 1995. The Company's distribution sales, which excludes
Magitronic systems and notebooks, for the year ended December 31, 1996 increased
to $333,621,593 (79.0% of net sales) from $326,650,927 (82.7% of net sales) for
the year ended December 31, 1995. Sales from distribution centers in the
following regions of the U.S. changed as follows: Northeast region (including
the Canadian distribution center), -16.2%; Southeast region, +47.6%; Mid- and
Southwest region, -26.9%; Western region, +19.5%; and Pacific region -72.1%. The
Company believes the decreases in the Northeast and Mid- and Southwest regions
were affected by the closings of the Chicago and Melville, New York distribution
centers in December 1995.
Also during March 1996, the Company changed its computerized management
information systems software. Early in the transition, the Company experienced
several problems that temporarily impacted its ability to process orders and
ship products. While these problems are typical for such a systems conversion
and minor in nature, they nonetheless negatively impacted sales during 1996.
Generally, sales were affected negatively by intense price competition in the
industry. Sales also were impacted as a result of price increases to allow for
the recovery of shipping costs related to certain heavy, low margin products. To
a lesser extent, sales during 1996 were negatively affected by shortages the
Company experienced with respect to certain multimedia kits.
Sales of the Company's Magitronic brand of personal computers and notebooks
for the year ended December 31, 1996 increased to $88,688,676 (21.0% of net
sales) from $68,484,186 (17.3% of net sales) for the year ended December 31,
1995. The Company believes that the increase in sales of these products was due
to the success of the Company's high end notebook computers, competitive
pricing, fast delivery of custom-made systems as well as the growing acceptance
of the Company's Magitronic brand in the market. In addition, sales of
Magitronic computers in 1995 were negatively affected by production problems
associated with relocating the Company's assembly operations from Melville, New
York to Norcross, Georgia. To enhance the visibility of Magitronic products, in
January 1996, the Company created its Magitronic subsidiary that focused on
distributing Magitronic products. The Company expects the demand for its
Magitronic brand personal computers to continue to increase.
Sales during the latter part of 1995 were negatively affected by the
shortages the Company experienced with respect to Magitronic 600 series
notebooks and certain models of hard drives that were only available on an
allocation basis.
While management expects net sales of Magritronic products for 1997 to
continue to increase, the rate of increase is likely to diminish as compared to
prior years. Although the Company's business is not highly seasonal, the second
calendar quarter is generally a period of weaker net sales in comparison to the
rest of the year.
Gross Profit: Gross profit decreased by $3,520,251 to $26,072,144 (6.2% of
net sales) for the year ended December 31, 1996 from $29,592,395 (7.5% of net
sales) for the year ended December 31, 1995. The gross profit margins for the
year ended December 31, 1996, were negatively affected by intense price
competition and decreases in the Company's utilization of vendor programs such
as rebates, returns and price protection due to difficulties experienced with
the Company's new management information systems and turnover issues in the
product management department. Additionally, the Company re-examined its methods
of assessing and estimating the adequacy of allowances for doubtful vendor
receivables. It was determined that such allowances were inadequate and an
increase was required. The Company increased reserves and write-offs with
respect to vendor related receivables such as rebates, returns, price protection
and co-operative advertising in the amount of $2,560,808 (.6% of net sales). In
addition, due to sales expansion, Magitronic increased reserves in 1996 for
rebates, price protection and warranty offered to customers in the amount of
$677,024 (.8% of Magitronic sales). The Company also increased its provision
for inventory obsolescence in the amount of $1,002,662 (.2% of net sales) due to
the increase in age of certain goods.
13
<PAGE>
Over the last few years, the computer industry has experienced intense price
competition and management believes that the price competitive conditions in the
industry will continue.
Selling, General and Administrative Expenses:, Selling, general and
administrative expenses increased as a percentage of net sales from 7.4% for the
year ended December 31, 1995 to 7.9% for the year ended December, 31, 1996. Such
expenses increased from $29,201,935 in 1995 to $33,352,034 in 1996, partly as a
result of higher sales levels. The Company's bad debt expense increased to
$5,330,234 (1.2% of net sales) for the year ended December 31, 1996, from
$1,150,181 (.3% of net sales) for the year ended December 31, 1995, due to the
Company providing and extending credit terms to a growing percentage of its
customer base, as well as difficulties experienced in the Company's systems of
processing, tracking and monitoring the collection of accounts. The conversion
of the Company's management information systems contributed to these
difficulties as well as turnover issues in the credit department. Salaries for
the year ended December 31, 1996 increased to $13,901,605 from $13,369,601 for
the year ended December 31, 1995 but remained constant as a percentage of net
sales at 3.3%. In March of 1995, the Company relocated its corporate
headquarters and assembly operations for Magitronic personal computers from New
York to Norcross, Georgia. Additional expenses of $1,189,000 (.3% of net sales)
were incurred in relocating, setting up the facility, hiring and training
employees and travel.
Other Charges: Interest expense decreased to $2,105,015 in 1996 from
$2,153,991 in 1995. The interest rate paid by the Company under its revolving
credit loan ranged from 125 basis points over LIBOR to 1/4 over the prime rate.
Income Taxes: The income tax benefit increased $987,000 to $1,652,000 for
1996 from $665,000 for 1995. The increase is due to the increase in taxable
loss. The current tax benefit results from carrying back losses to obtain
refunds of taxes paid in previous years. The deferred tax benefit has been
reduced by a valuation allowance provided against net deferred tax assets.
Consequently, the Company's effective income tax (benefit) rate is (17.5%).
Net Loss: Net loss increased by $6,746,900 to $7,815,440 (1.9%) for the year
ended December 31, 1996 from a loss of $1,068,540 (.3% of net sales), for the
year ended December 31, 1995. The Company's net loss for the year ended December
31, 1996 was substantially affected by the increase in bad debt expense to
$5,123,334 and the significant decrease in gross profit which was discussed
above.
Years ended December 31, 1995 and 1994
Net Sales: Net sales for the year ended December 31, 1995 were $395,135,113,
representing a net increase of $30,033,785 (8.2%) from $365,101,328 for the year
ended December 31, 1994. Sales from distribution centers in the following
regions changed as follows: Northeast region (including Canadian distribution
center), -5.7%; Southeast region, +28.2%; Mid- and Southwest regions, -3.9%;
Western region, +7.6%; and Pacific Region, -34.8%. Part of the decrease in the
Northeast region and the increase in the Southeast region was caused by
crediting corporate sales previously allocated to New York to Georgia in
conjunction with the relocation of corporate sales personnel to the Georgia
office. The Company also commenced mail order sales efforts through a
wholly-owned subsidiary, ProCORP, Inc., which was organized in November 1994.
Net sales from the Company's mail order activities were $7,358,881 for the year
ended December 31, 1995, compared to $23,576 for the year ended December 31,
1994.
Sales of the Company's Magitronic brand of personal computers and notebooks
for the year ended December 31, 1995 decreased to $68,484,186 (17.3% of net
sales) from $73,268,851 (20.1% of net sales) for the year ended December 31,
1994. Sales of the Magitronic computers were affected by production problems
associated with relocating the Company's assembly operations from Melville, New
York to Norcross, Georgia.
Sales during the later part of 1995 were negatively affected by the
shortages the Company experienced with respect to Magitronic 600 series
notebooks and certain models of hard drives that were only available on an
allocation basis.
14
<PAGE>
Gross Profit: Gross profit increased by $1,168,514 to $29,592,395 (7.5% of
net sales) for the year ended December 31, 1995 from $28,423,881 (7.8% of net
sales) for the year ended December 31, 1994. The gross profit margin for the
year ended December 31, 1994, was substantially affected by an inventory write
down of $2,262,189 during the fourth quarter of 1994. The lower gross margin for
the year ended December 31, 1995 was due to intense price competition and lower
manufacturer's incentives than those available in 1994. The decrease in sales of
Magitronic personal computers, which have higher margins, also impacted gross
margin in 1995. Management believes that the price-competitive conditions of the
industry will continue.
Selling, General and Administrative Expenses: In March of 1995, the Company
relocated its corporate headquarters and assembly operations for the Magitronic
personal computers from New York to Norcross, Georgia. Additional selling,
general and administrative expenses were incurred in relocating, setting up the
facility, hiring employees, and related training and travel expenses. Selling,
general and administrative expenses increased as a percentage of net sales from
6.9% for the year ended December 31, 1994 to 7.4% for the year ended December
31, 1995. Such expenses increased from $25,375,225 in 1994 to $29,201,935 in
1995. Salaries for the year ended December 31, 1995 increased to $13,369,601
from $12,315,471 for the year ended December 31, 1994 but remained constant as a
percentage of net sales at 3.4%. The Company's bad debt expense increased to
$1,150,181 (.3% of net sales) for the year ended December 31, 1995 from $584,206
(.2% of net sales) for the year ended December 31, 1994, as a result of the
Company providing credit terms to a higher percentage of its customers.
Throughout 1995, the total costs incurred with the relocation from New York to
Georgia and the Company's strategic streamlining program were approximately
$1,189,000 (.3% of net sales)
Other Charges: Interest expense increased to $2,153,991 in 1995 from
$1,218,518 in 1994 as a result of increased borrowings to support sales growth.
The interest paid by the Company under its revolving credit loans ranged from
125 basis points over LIBOR to 1/4 of a point over the prime rate.
Income Taxes: Income taxes decreased $(1,360,018) to $(665,000) for 1995
from $695,018 for 1994. The decrease is due to the decrease in taxable income.
The current tax benefit results from carrying back losses to obtain refunds of
taxes paid in previous years.
Net Income(Loss): Net income decreased by $2,110,855 to a loss of $1,068,540
(.3% of net sales) for the year ended December 31, 1995 from net income of
$1,042,315 (.3% of net sales), for the year ended December 31, 1994. The
Company's net income for the year ended December 31, 1995 was affected by the
relocation costs associated with moving the Company's headquarters and an income
tax benefit of $665,000 which will result in a refund of taxes previously paid
by the Company. The Company's net income during 1994 was substantially affected
by an inventory write down of $2,262,189 during the fourth quarter of 1994.
Impact of Inflation
The Company has not been adversely affected by inflation because
technological advances and competition within the microcomputer industry have
generally caused prices of products sold by the Company to decline. The Company
has flexibility in its pricing because it has no long-term contracts with most
of its customers and, accordingly, could, if necessary, pass along price changes
to its customers.
Liquidity and Capital Resources
The Company finances its growth through borrowings under its revolving
credit loan, equity capital and credit terms from its major suppliers. Net cash
used by operating activities was $6,856,898 in 1996 and $322,154 in 1995. The
change in net cash flows from operating activities between 1996 and 1995 in the
amount of $6,534,744 primarily resulted from an increase in the Company's net
loss, an increase in inventories and prepaid expenses offset by increases in
accounts payable and accrued expenses. The Company expects to receive income tax
refunds ranging from $1,500,000 to $2,000,000 during 1997 which will increase
its working capital. The Company may experience shifts in cash flow in the
future, particularly if its suppliers provide more restrictive credit terms than
the Company currently is afforded. For the years ended 1995 and 1996, the
Company generally paid its suppliers approximately 35 to 45 days from date of
invoice. Terms vary from one day to 60 days.
15
<PAGE>
Working capital was $15,953,069, as of December 31, 1996 and $44,649,616 as
of December 31, 1995. On June 23, 1995, the Company signed a three-year
$50,000,000 credit facility replacing the Company's existing $25,000,000
revolving credit loan and $14,000,000 line for floorplanning of inventory. The
facility provides for revolving cash borrowings of up to $35,000,000, limited by
available collateral and $15,000,000 for inventory floorplanning. Borrowings
under the revolving credit loan bear interest at 125 basis points over LIBOR or
prime rate plus 1/4% and are based upon a formula of up to 85% of eligible
receivables and 50% (30% for Magitronic goods) of eligible inventory not to
exceed $15,000,000. As of December 31, 1996 and 1995, the Company owed
$28,614,929 and $20,965,263, respectively, under its revolving credit loan. As
of December 31, 1996, the Company had $1,641,424 available for cash borrowings
under its revolving credit loan and $11,128,407 available for the floorplanning
of inventory purchases.
As of December 31, 1996, the Company is in violation of two financial
covenants under its credit facility agreement. The Company's lender has
preserved all of the rights available to it as a result of the Company's default
of these financial covenants. Consequently, the balance of the revolving credit
loan is classified as a current liability at December 31, 1996. The Company is
discussing these defaults with its lender with the goal of renegotiating these
covenants. If such negotiations are successful, the amended terms will likely be
less favorable to the Company than those that now exist. There can be no
assurance that these negotiations will be successfully completed.
Asset Management
Inventory. Management attempts to maximize product availability and delivery
while minimizing inventory levels to lessen the risk of product obsolescence and
price fluctuations. Most products are stocked to provide a 30 to 45-day supply.
The Company often reduces prices of products in its inventory in order to
improve its turnover rate. The Company turned its inventory on average every 43
days during 1996 and 44 days during 1995. The Company takes a physical inventory
every month which is compared to its perpetual inventory and monitors inventory
levels daily according to sales made by product and distribution center.
Most of the Company's U.S. suppliers provide price protection, by way of
credits, against price reductions by the supplier between the time of the
initial sale to the Company and the subsequent sale by the Company to its
customer. Not all of the Company's products are covered by these programs. Such
suppliers accept defective merchandise returned within 12 to 15 months after
shipment to the Company and some permit the Company to rotate its inventory by
returning slow moving inventory for other inventory. These programs, in part,
reduce the Company's risk with respect to slow moving inventories.
While the Company distributes products of more than 70 U.S. suppliers,
approximately 13% and 7% of the Company's net sales for 1996 were derived from
products manufactured by Seagate and Samsung, respectively, which are the
Company's two largest U.S. suppliers. The Company has written supply agreements
with both Seagate and Samsung. The loss of either of these two suppliers, or a
shortage in a particular product supplied by them, could have a material adverse
impact on the Company during the period the Company believes it would need in
order to establish alternate sources of inventory supply at required volume
levels.
Accounts Receivable. The Company primarily sells its products on the basis
of cash, C.O.D. or on terms of up to 30 days, however, the Company has expanded
its' extension of credit terms. The Company's average days' receivable was
approximately 30 days and 26 days for the years ended December 31, 1996 and
December 31, 1995, respectively. The increase in the average days sales
receivable was a result of the Company offering and extending credit to more of
its customers.
16
<PAGE>
Management's Plans Regarding Negative Trends
The Company has experienced net losses of $7,815,440 and $1,068,540 for the
years ended December 31, 1996 and 1995, respectively. The Company has also
experienced steady declines in its gross profit as a percentage of net sales
over the last several years. As of December 31, 1996 the Company is in violation
of two financial covenants under its credit facility. The Company's lender has
preserved all of the rights available to it as a result of the Company's default
of these financial covenants. Management plans to address these negative trends
and losses as follows:
*During March 1997, the Company reduced its work force by approximately 100
personnel or 19%. Management will continue to evaluate its staffing requirements
to manage personnel costs.
*Management intends to improve gross profit as a percentage of sales by
emphasizing higher margin products and more profitable vendor relationships and
by expanding its sales of Magitronic systems and notebooks. Additionally,
management intends to increase the utilization of vendor discount, rebate and
price protection programs.
*Management intends to reduce and monitor its selling, general and
administrative expenses by instituting strict budgetary controls.
*Management is discussing its lending relationship with its lenders with
the goal of renegotiating the financial covenants in its lending agreements.
While management believes these plans will be successfully implemented
there can be no assurance that further corrective measures, such as additional
restructuring and alternative sources of financing, will be not necessary or, if
so, can be successfully accomplished.
Management Estimates
Financial statements prepared in conformity with generally accepted
accounting principles necessitates the use of management estimates. Management
has estimated reserves for inventory obsolescence and uncollectible vendor and
accounts receivables based upon historical and developing trends, aging of
items, and other information it deems pertinent to estimate collectibility and
realizability. It is reasonably possible that these reserves will change within
a year, and the effect of the change could be material to the consolidated
financial statements.
Forward-Looking Information May Prove Inaccurate
This report contains forward-looking statements and information that are
based on management's beliefs, as well as assumptions made by, and information
currently available to, management. When used in this document, the words
"anticipate," "believe," "estimate," "intends" and "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
involve a number of risks and uncertainties. Among the factors that could cause
actual results to differ materially are the following: business conditions,
rapid or unexpected technological changes, product development, inventory risks
due to shifts in product demand, competition, domestic and foreign government
regulations, fluctuations in foreign exchange rates, rising costs for components
or unavailability of components, the timing of orders booked, lender
relationships and the risk factors listed from time to time in the Company's SEC
reports.
17
<PAGE>
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which establishes financial and
reporting standards for stock-based employee compensation plans. The Standard
encourages, but does not require, companies to recognize compensation expense
based upon the fair value of grants of stock options and other equity
instruments to employees. Companies which do not adopt the expense recognition
provision of the Standard, must disclose pro forma net income and earnings per
share. The Company has adopted this statement during its year ended December 31,
1996 and continues to apply the prior accounting rules and has provided the pro
forma disclosures.
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company adopted this statement during its year ended
December 31, 1996. This statement did not have a material impact on the
Company's consolidated financial statements.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." This Standard provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. This Standard is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996. The
adoption of this Standard is not expected to impact the Company's consolidated
financial statements.
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share." The new Standard simplifies the standards for computing
earnings per share and requires presentation of two new amounts, basic and
diluted earnings per share. The Company will be required to retroactively adopt
this standard when it reports its operating results for the quarter and year
ending December 31, 1997. The Company does not expect the effect of this new
Standard to be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a)(1) and (2) of Part IV of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Positions and Offices
---- --- ---------------------
Morries Liu 48 Chairman of the Board of Directors and Chief
Executive Officer
Manuel C. Tan 40 President, Chief Operating Officer and Director
Edward A. Williams 36 Acting Chief Financial Officer
Shirley Lee 35 Sr. Vice President-Sales and Marketing-Magitronic
Edwin J. Feinberg 65 Director
Paul J. Konigsberg 61 Director
Kenny Liu 43 Director
Eric Bashford 37 Director
Morries Liu has been the Company's Chairman of the Board of Directors and
Chief Executive Office since founding the Company in 1984. He also served as its
President until the election of Mr. Tan in April 1993. Prior to founding the
Company, he worked for Northern Telecom, Inc. as a systems engineer for more
than two years. He graduated from the Chinese Cultural University, Taiwan, in
1972 with a B.A. degree in Journalism.
Manuel C. Tan has been with the Company since 1984 and was the Company's
Executive Vice President, Chief Operating Officer, and Secretary from 1988 until
April 1993, when he was elected President of the Company. He has been a director
of the Company since June 1991. Prior to joining the Company, he was the general
manager for two years of a wholesale and retail lumber company located in the
Philippines. He graduated from De Lasalle University, Philippines in 1979 with a
B.A. degree in General Studies.
Shirley Lee has been with the Company since 1985 and was the Company's
Senior Vice President--Sales and Marketing from April 1992 until April 1993,
when she was elected Executive Vice President--Sales and Marketing. From 1985 to
April 1992, she was the Company's Vice President--Sales and Marketing. Prior
thereto, Ms. Lee graduated from the National Taiwan University in 1984 with a
B.A. degree in Business Administration and took courses toward an M.B.A. at New
York University.
Edward A. Williams has been with the Company since July 1996 and is the
Company's controller and acting Chief Financial Officer. Prior to joining the
Company, he was employed by Aviation Service Corporation, a subsidiary of
Aerospatiale, since 1985. He held the position of Controller from March 1993
until May 1996 and was also a member of the board of directors. Aviation Service
Corporation is the second largest wholesale distributor of aircraft parts in the
world. Mr. Williams graduated from East Tennessee State University in 1984 with
a BBA in Accounting and is a member of the American Institute of Certified
Public Accountants.
19
<PAGE>
Edwin J. Feinberg was the Company's Vice President--Finance and Chief
Financial Officer from 1988 to November 1994. Since December of 1994, he has
served as a consultant to the Company. Prior thereto, he was Controller and
Chief Financial Officer of BWP Holding Corp., a distributor of automotive
replacement parts, for more than three years. He has been a director of the
Company since June 1991. Mr. Feinberg has approximately 35 years of accounting
experience, including three years as Corporate Controller, from 1974 to 1977, of
Lafayette Radio Electronics Corp., which was then an American Stock Exchange
listed company engaged in the wholesale and retail sale of consumer electronic
products and components, and four years as Corporate Controller, from 1977 to
1981, of Diplomat Electronics Corp., which was then traded over-the-counter and
engaged in the distribution of electronic components. Mr. Feinberg graduated
from New York University (School of Commerce) in 1955 with a B.S. degree in
Accounting.
Paul J. Konigsberg has been a senior partner of Konigsberg Wolf & Co.,
P.C., an accounting firm, since 1972. Mr. Konigsberg received a B.B.A. degree in
Business Administration in 1965 and a Master of Laws in Taxation in 1968, both
from New York University. He has been a director of the Company since November
1991. In addition to the Company, Mr. Konigsberg is a member of the board of
directors of Sandata, Inc. Mr. Konigsberg is the designee of Reich & Co., Inc.
pursuant to an agreement made with the Company in connection with the Company's
initial public offering.
Kenny Liu (who is not related to Morries Liu) has served as the President
and Chief Executive Officer of IGS, Inc., a privately held multimedia company
since March 1994. Prior thereto, Mr. K. Liu served as the Chief Executive
Officer of Opti, Inc. from January 1989 to March 1994, served as its President
from January 1989 to February 1993, and from February 1993 to July 1994 he
served as the Chairman of the Board. From September 1986 to January 1989, Mr. K.
Liu was employed by Chips and Technologies, Inc., a chipset design company,
serving most recently as a design manager. Mr. K. Liu became a director of the
Company in June 1994. Mr. K. Liu holds a B.S. degree in Electrical Engineering
from National Cheng-Kung University and a M.S. in Electrical Engineering from
Ohio State University.
Eric R. Bashford serves as Managing Director of Investment Banking at M.H.
Meyerson & Co., Inc. where he has been employed since March 1, 1997. Prior
thereto he served as Senior Vice President and Director of Corporate Finance at
RAS Securities Corp. where he had been employed since January 1994. From July
1990 to January 1994, he was Senior Vice President of Reich & Co., Inc. (the
underwriter of the Company's initial public offering in 1991 and secondary
public offering in 1993). From February to July 1990, he was a Senior Vice
President of Hopper Soliday & Co., Inc. From 1988 to January 1990, he was a
Senior Vice President of J.T. Moran & Co., Inc. Mr. Bashford is a Chartered
Financial Analyst. He received a B.A. in Economics and Management from Beloit
College in 1981 and an M.B.A. from the Wharton School of the University of
Pennsylvania in 1988.
In furtherance of the Company's compensation policy for independent members
of the Board of Directors, Messrs. Bashford, K. Liu, and Konigsberg each receive
an annual Director's fee of $12,000 and, with the exception of Mr. Feinberg who
was granted stock options in his capacity as an employee of the Company, were
granted options to purchase 15,000 shares of the Company's Common Stock, at fair
market value on the date of grant in consideration for their services as members
of the Company's Board of Directors. The Company granted 7,500 of these options
to each of these directors on his initial election to the Board of Directors
(the "Initial Election Options") and options to purchase 7,500 shares of common
stock to each of them on April 17, 1995. All of these options are exercisable as
to 33 1/3% of the shares on each of the first three anniversaries of the date of
grant. All stock options granted by the Company which had exercise prices in
excess of $4.75 per share were repriced by the Company to $4.75 per share, which
was in excess of the fair market value of the Company's common stock on December
22, 1994, the date the repricing was effected. The purchase prices of Common
Stock subject to the Initial Election Options granted to Messrs. Konigsberg and
K. Liu and the options held by Mr. Feinberg were reduced accordingly. The
Initial Election Options awarded to Mr. Bashford were not effected by the
repricing since the purchase price for the Common Stock subject to his options
is $4.625, the fair market value of the Company's Common Stock on the date the
options were granted. Executive officers hold office until their successors are
chosen and qualify, subject to earlier removal by the Board of Directors.
20
<PAGE>
The Company's Audit Committee is comprised of Messrs. Konigsberg and K.
Liu. The Audit Committee reviews the engagement of the independent accountants,
the scope of the annual audit undertaken by the independent accountants, and the
adequacy of the Company's internal control procedures, including those related
to affiliated parties.
In June 1991, the Company adopted a classified Board of Directors consisting
of five members. One sitting director was elected in 1994; the current Board of
Directors of the Company now consists of six members. The directors are divided
into three classes consisting of two directors in each of Class 1, Class 2 and
Class 3. Messrs. Morries Liu and Konigsberg, as Class 1 directors, were
re-elected at the 1995 annual meeting of stockholders and will hold office until
the 1998 annual stockholders meeting. Mr. Tan and Mr. K. Liu are Class 2
directors and will hold office until the 1999 annual stockholder's meeting. The
term of office of Messrs. Feinberg and Bashford, who are Class 3 directors, will
expire at the 1997 annual stockholder's meeting. The term of office of each
director expires at the third annual meeting of stockholders following his or
her election. Having a classified Board of Directors may be viewed as inhibiting
a change of control of the Board of Directors by stockholder vote.
Article Seven of the Company's Certificate of Incorporation provides that,
to the fullest extent permitted by Section 102 of the General Corporation Law of
the State of Delaware, no director of the Company shall be liable to the Company
for damages for breach of his or her fiduciary duty as a director. Article Eight
of the Company's Certificate of Incorporation provides that, to the fullest
extent permitted by Section 145 of the General Corporation Law of the State of
Delaware, the Company shall indemnify any and all persons whom it shall have the
power to indemnify (which include directors, officers, employees or agents of
the Company) against liability for certain of their acts.
21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The table below discloses all cash compensation awarded to, earned by or
paid to each executive officer of the Company who earned $100,000 or more for
services rendered in all capacities to the Company during the fiscal year ended
December 31, 1996. In addition it provides information with respect to the
compensation of the named executive officers for 1995 and 1994.
Summary Compensation Table
----------- Annual Compensation----------
Long-Term
Name and Principal Other Annual Compensation
Position Year Salary Bonus(1) Compensation Options
- - ------------------ ---- ------ -------- ------------ -----------
Morries Liu
Chairman of the Board 1996 $230,000 --- --- ---
of Directors and Chief 1995 $169,077 $ 3,382 --- 50,000
Executive Officer 1994 $206,846 $ 3,875 --- ---
Manual C. Tan 1996 $172,500 --- --- ---
President and Chief 1995 $172,500 $ 3,450 --- 50,000
Operating Officer 1994 $155,260 $ 3,105 --- 29,000(2)
Shirley Lee 1996 $102,092 --- --- ---
Sr. V.P.-Sales and 1995 $ 95,991 --- --- 25,000
Marketing-Magitronic 1994 $ 87,093 --- --- 15,000(2)
(1) Includes the Company's contribution to its 401-K plan in the following
amounts for 1996, 1995 and 1994, respectively: Mr. Liu, $3,892, $3,382 and
$3,875; Mr. Tan, $3,317, $3,450 and $3,105; and Ms. Lee, $2,042, $1,920 and
$1,742.
(2) Includes 9,000 and 7,000 stock options originally granted to Mr. Tan
and Ms. Lee in 1992, respectively, that were repriced in December 1994, with no
change in their exercise or expiration dates. The new exercise price was $4.75
per share and the closing market price per share on the date the options were
repriced was $4.625 per share.
22
<PAGE>
Employment Agreements
The Company does not have employment contracts with any of its employees.
The following table provides information on option grants in 1996 to the
Company's named executive officers.
The following table provides information on the value of the Company's
named executive officers' unexercised options at December 31, 1996. The Company
did not grant any options to its named executive officers during the fiscal year
ended December 31, 1996.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1996(#) December 31, 1996($)(1)
-------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Shares
Acquired on Value
Officer Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - ------- ----------- -------- ----------- ------------- ----------- -------------
Morries Liu 0 $0 16,665 33,335 $0 $0
Manual C. Tan 0 $0 56,998 40,002 $0 $0
Shirley Lee 0 $0 30,666 19,334 $0 $0
(1) Fiscal year ended December 31, 1996. The last sale price of the
Company's Common Stock on that day, as reported by NASDAQ-NMS, was
$1.75.
</TABLE>
23
<PAGE>
Compensation Report
It is the Board of Directors' responsibility to review compensation levels
of members of management, evaluate the performance of management, consider
management succession and other related matters and administer the Company's
various incentive plans. The Board determines what it considers appropriate
compensation based on the individual's performance and contribution, the
financial status of the Company, competitive national compensation levels
prevailing in the computer industry, competitive pressure for key personnel and
Company objectives. In order to accommodate its rapid growth in sales, the
Company has monitored its costs very carefully over the years, including the
compensation paid to all of the Company's employees. As a consequence of this
policy, the Board believes that salary of the Company's executive officers has
been modest compared to executives employed by the Company's competitors.
Incentive Plans
1991 and 1994 Stock Option Plans: In 1991, the Company adopted its 1991
Stock Option Plan. As of December 31, 1996, options to purchase 248,600 shares
of the Company's Common Stock had been granted and had been exercised or were
outstanding out of the total number of options authorized under the Company's
1991 plan of 450,000. In July 1994, the Board of Directors adopted the Company's
1994 Stock Option Plan. As of December 31, 1996, options to purchase 527,350 of
the Company's Common Stock had been issued out of the total number of options
authorized under the plan of 650,000. The purpose of the Company's stock option
plans is to provide a means for the Company, by granting Company options to
purchase stock to employees, executive officers, and directors of the Company,
to attract and retain persons of ability and motivate them to advance the
interest of the Company. Stock options are awarded by the Board of Directors
subject to the terms of the plans. The Board of Directors considers the
contribution made to the Company's business and the number of Company's stock
option grants previously awarded to employees, including executive officers,
when awarding new stock options. The Board of Directors may amend outstanding
stock option and grant agreements, subject to plan limitations. Because the
Company believes that the level of compensation paid to all employees is modest
as compared to that paid by its competitors, grants of options to purchase the
Company's Common Stock has been an important feature of the compensation program
for all employees. The Board of Directors issued options to purchase an
aggregate 118,450 shares of the Company's Common Stock under the Company's Stock
Option Plans during 1996.
At the present time, the Company's officers receive compensation in the form
of base salary and long-term incentive compensation through stock options,
pursuant to the Company's stock option plans. In addition, the Company offers
health insurance as long as the officer is actively employed. The officers, as
well as substantially all full-time employees, are eligible to participate in
the Company's Deferred Profit Sharing Plan under Section 401(k) of the Internal
Revenue Code. In general, the Board believes the Company should increase
executive compensation to levels more in-line with industry standards. In order
to narrow the compensation gap, the Board has authorized increased cash
compensation and has awarded incentive stock awards to certain of the Company's
executive officers.
Three current or past executive officers of the Company, Messrs. M. Liu,
Tan, and Feinberg, are members of the Company's Board of Directors and have
participated in deliberations concerning executive officer compensation but none
of them voted on their individual compensation.
With respect to compensation for officers including Mr. Liu, the Chief
Executive Officer, the Board of Director's policy is to review compensation
proposals from management, which are based on performance evaluation measuring
past performance as well as expected future contributions. Mr. Liu's
compensation is based on his experience in the industry, his responsibilities as
the Company's Chief Executive Officer and the dominant role he has played in the
Company's growth.
24
<PAGE>
BOARD OF DIRECTORS
Morries Liu
Manuel C. Tan
Edwin J. Feinberg
Paul J. Konigsberg
Kenny Liu
Eric Bashford
STOCK PRICE PERFORMANCE CHART
The following chart presents a comparison of the cumulative total
stockholder return on the Common Stock with the NASDAQ Stock Market (U.S.) Index
and the average performance of a group consisting of the Company's peer
corporations on a line-of-business basis. The peer corporations in the group are
Arrow Electronics, Inc., Intelligence Electronics, Inc., Merisel, Inc., Southern
Electronics Corporation and Tech Data Corp. This chart assumes that $100 was
invested on August 13, 1991 (or such later date the applicable company
registered its common stock under Section 12 of the Securities Exchange Act of
1934) in the Common Stock and in the other indices, and that all dividends were
reinvested and are weighted on a market capitalization basis at the time of each
reported data point. The stock price performance shown below is not necessarily
indicative of future price performance.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG LIUSKI INTERNATIONAL, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
Fiscal year ending,
-------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Liuski International, Inc. 100 145.83 183.33 68.75 55.21 29.17
Peer Group 100 129.09 214.48 127.06 120.95 167.77
NASDAQ Stock Market 100 100.98 121.13 127.17 164.96 204.98
25
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of March 18, 1997, by (i)
each of the Company's directors and executive officers, (ii) directors and
executive officers of the Company as a group and (iii) each person believed by
the Company to own beneficially more than 5% of its outstanding shares of Common
Stock. Each such person has sole voting and investment powers with respect to
his and her shares.
Number of Shares Percentage of
Name of Beneficial Owner Beneficially Owned Outstanding Shares
- - ------------------------ ------------------ ------------------
Morries Liu 1,813,285(1)(2)(3)(4) 41.2%
Manuel C. Tan 99,800(3)(4) 2.3%
Shirley Lee 69,167(3)(4) 1.6%
Edwin Feinberg 26,000(3)(4) .6%
Paul J. Konigsberg 12,500(3)(4) .3%
Kenny Liu 7,500(4) .2%
Eric Bashford 20,000(3) (4)(5) .5%
All directors and executive
officers as a group
(8 individuals) 2,005,252(1)(2)(3)(4)(5) 45.4%
(1) Excludes an aggregate of 122,542 shares owned by Mr. Liu's three sisters
and brother-in-law as follows: Ms. Tina Peng, 34,267 shares; Ms. Shing-Gyy
Hu, 24,267 shares; and Ms. Li Shin Liu and Mr. Jin Yao Shen, 34,008 shares
jointly.
(2) Includes 80,000 shares of Common Stock that are subject to options granted
by Mr. Liu to current or prior employees of the Company on May 28, 1991,
which are exercisable until December 29, 1998, at $5.25 per share. These
include options granted to Ms. Peng, Ms. Hu and Ms. Lee to purchase 10,000
shares each and options granted to Mr. Tan and Mr. Feinberg to purchase
18,000 and 15,000 shares, respectively.
(3) Represents or includes shares subject to stock options referred to in
footnote (2) and options granted by the Company as follows: Mr. Liu,
16,665; Mr. Tan, 38,998 shares; Mr. Feinberg, 11,000 shares; Ms. Lee,
20,600 shares; Mr. K. Liu, 7,500 shares; Mr. Bashford: 7,500 shares; and
Mr. Konigsberg, 12,500 shares.
(4) Excludes shares of common stock that are subject to options which are not
currently exercisable as follows: Mr. Liu, 33,335 shares; Mr. Tan, 40,002;
Ms. Lee, 19,334; Mr. Feinberg, 2,000; Mr. Bashford 7,500; Mr. Konigsberg,
2,500; and Mr. K. Liu, 7,500.
(5) Represents shares subject to options referred to in footnote (3) and 12,500
shares that are subject to options issued to Mr. Bashford, as an officer of
Reich & Co. Inc., in connection with the Company's secondary public
offering in 1993, which are exercisable until May 21, 1998, initially at
$11.55 per share, subject to adjustment.
26
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Taiwan Affiliates
Since 1984, the Company has been purchasing products in the Far East through
one or more trading companies substantially all of whose activities have been
dedicated to providing purchasing services for the Company. The majority of the
stock of the trading companies, Marie-Claude Co., Ltd. and Liuski International,
Inc. (Taiwan) (collectively, the "Trading Affiliates" ) is owned by Mr. Liu's
mother and the remainder is owned by certain members of Mr. Liu's immediate
family. The Company has an agreement with each of the Trading Affiliates
pursuant to which the Company may, but is not required to, purchase products
from the Trading Affiliates, at a price of 2% above the amount of the
manufacturer's charge to the Trading Affiliates plus reimbursement of
out-of-pocket costs. Pursuant to the agreements, the Trading Affiliates handle a
variety of purchasing logistics for the Company. The total purchases through the
Trading Affiliates were approximately $88,025,000 during 1996, for which the
Company paid contract consideration to the Trading Affiliates of approximately
$1,761,000. The agreements with each of the Trading Affiliates expire on
December 31 of each year with annual renewals. The Company's purchases of
products from the Trading Affiliates are denominated in U.S. dollars.
The Company has undertaken not to materially broaden the scope of its
relationships with the Trading Affiliates. All relationships and transactions
with the Trading Affiliates, including the approval of renewals and amendments
to existing agreements, are subject to review and approval by the Company's
Audit Committee, all of which are independent directors, with the assistance of
the Company's independent auditors.
Computer Directions
Prior to Computer Directions ceasing operations in April of 1994, the
Company sold microcomputer peripherals, components and accessories to Computer
Directions, a chain of four retail stores located primarily in North Carolina,
owned approximately 36.3% by Mr. Liu, 10.7% by Mr. Tan, 6.6% by Ms. Lee, 2.4% by
Ms. Peng and 44.0% by unaffiliated individuals. Computer Directions made no
payments to Mr. Liu, Mr. Tan, Ms. Lee or Ms. Peng except to reimburse them for
tax liabilities incurred by them as a result of Computer Directions' status as
an S corporation for Federal income tax purposes. At December 31, 1996, Computer
Directions owed the Company $118,000 or approximately .4% of the Company's total
accounts receivable. The Company has security interests in Computer Directions
assets. In addition, Mr. Liu has guaranteed the entire outstanding balance. The
Company believes that Mr. Liu's guarantee provides sufficient allowances against
any uncollected account receivable balance of Computer Directions.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) (1) Consolidated Financial Statements
Index to Consolidated Financial F - 1
Statements
(2) Schedules to Financial Statements
Index to Consolidated Financial
Statements Schedules S - 1
(3) The exhibits listed in the exhibit index
attached to this Report are filed as part of
this Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant
during the last quarter of the period covered by
this Report.
28
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
29
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Page No.
--------
Report of Independent Certified Public Accountants F - 2
Consolidated Financial Statements:
Balance Sheets F - 3
Statements of Operations F - 4
Statements of Stockholders' Equity F - 5
Statements of Cash Flows F - 6
Notes to the Consolidated Financial Statements F - 7 to F - 16
F - 1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of
Liuski International, Inc.
Norcross, Georgia
We have audited the accompanying consolidated balance sheets of Liuski
International, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. 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 have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Liuski
International, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Atlanta, Georgia
March 21, 1997
F - 2
<PAGE>
<TABLE>
<CAPTION>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1996 1995
------------------------ ------------------------
<S> <C> <C>
ASSETS (Note 2)
- - ---------------
CURRENT ASSETS
Cash and Cash Equivalents (Note 1) $ 18,065 $ 200,989
Accounts Receivable net of Allowance for
Doubtful Accounts of $3,208,000 and $1,050,000
respectively 31,994,144 33,013,943
Inventories (Note 1) 49,872,618 43,295,440
Prepaid Expenses and Other Current Assets (Notes
5 and 6) 5,592,192 3,840,889
------------------------ ------------------------
TOTAL CURRENT ASSETS 87,477,019 80,351,261
FURNITURE, AUTOS AND EQUIPMENT, at cost, less
Accumulated Depreciation and Amortization of
$3,425,870 in 1996 and $2,645,806 in 1995,
respectively (Notes 1 and 9) 2,741,814 3,101,973
OTHER ASSETS 235,145 254,828
------------------------ ------------------------
TOTAL ASSETS 90,453,978 83,708,062
======================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES
Trade Accounts Payable: Affiliate (Note 5) $ 13,889,474 $ 9,245,742
Trade Accounts Payable (Note 2) 26,209,403 24,491,010
Revolving Credit Loan (Note 2) 28,614,929 -
Accrued Expenses and Other Current Liabilities 2,810,144 1,964,893
----------------------- ------------------------
TOTAL CURRENT LIABILITIES 71,523,950 35,701,645
REVOLVING CREDIT LOAN (Note 2) - 20,965,263
CAPITAL LEASE OBLIGATIONS (Note 9) 406,428 702,114
----------------------- ------------------------
TOTAL LIABILITIES 71,930,378 57,369,022
----------------------- ------------------------
COMMITMENTS AND CONTINGENCIES (Note 3) - -
STOCKHOLDERS' EQUITY (Notes 7, 8 and 11)
Preferred Stock, $.01 par value, 1,000,000
shares authorized; none issued - -
Common Stock, $.01 par value; 7,000,000 shares
authorized; 4,380,525 shares issued and
outstanding 43,806 43,806
Additional Paid-in Captial 18,435,164 18,435,164
Retained Earnings 44,630 7,860,070
------------------------ ------------------------
TOTAL STOCKHOLDERS' EQUITY 18,523,600 26,339,040
------------------------ ------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 90,453,978 $ 83,708,062
======================== ========================
See notes to consolidated financial statements
F - 3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1996 1995 1994
----------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Net Sales $ 422,310,269 $ 395,135,113 $ 365,101,328
Cost of Sales (Note 5) 396,238,125 365,542,718 336,677,447
----------------------- ------------------------ -------------------------
Gross Profit 26,072,144 29,592,395 28,423,881
Selling, General and
Administrative Expenses 33,352,034 29,201,935 25,375,225
----------------------- ------------------------ -------------------------
Income (Loss) from Operations (7,279,890) 390,460 3,048,656
----------------------- ------------------------ -------------------------
Other Expenses (Income):
Interest Expense 2,105,015 2,153,991 1,218,518
Miscellaneous 82,535 (29,991) 92,805
----------------------- ------------------------ -------------------------
Total Other Expenses (Income) 2,187,550 2,124,000 1,311,323
----------------------- ------------------------ -------------------------
Income (Loss) before Income Taxes (9,467,440) (1,733,540) 1,737,333
Income Taxes (Note 6) (1,652,000) (665,000) 695,018
----------------------- ------------------------ -------------------------
Net Income (Loss) $ (7,815,440) $ (1,068,540) $ 1,042,315
======================= ======================== =========================
Net Income (Loss) per Common and
Common Equivalent Share: Primary and
Fully Diluted $ (1.78) $ (0.24) $ 0.23
======================= ======================== =========================
Weighted Average number of Common and
Common Equivalent Shares Outstanding:
Primary and Fully Diluted 4,380,525 4,380,525 4,442,000
======================= ========================
See notes to consolidated financial statements
F - 4
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock, $.01 par value
-----------------------------------------
Additional
Number Paid-In Retained
of Shares Amount Capital Earnings Total
--------- ------ ------- -------- -----
December 31, 1993 4,363,250 $ 43,633 $ 18,310,712 $ 7,886,295 $26,240,640
Issuance of Common Stock for
Stock Options exercised (Note 11) 17,275 173 124,452 - 124,625
Net Income - - - 1,042,315 1,042,315
------------- ------------ ------------- -------------- --------------
December 31, 1994 4,380,525 43,806 18,435,164 8,928,610 27,407,580
Net Loss - - - (1,068,540) (1,068,540)
------------- ------------ ------------- -------------- --------------
December 31, 1995 4,380,525 43,806 18,435,164 7,860,070 26,339,040
Net Loss - - - (7,815,440) (7,815,440)
------------- ------------ ------------- ------------- --------------
December 31, 1996 4,380,525 $ 43,806 $ 18,435,164 $ 44,630 $ 18,523,600
============= ============ ============= ============= ==============
See notes to consolidated financial statements
F - 5
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (7,815,440) $ (1,068,540) $ 1,042,315
Adjustments to reconcile Net Income (Loss) to Net Cash used by
Operating Activities:
Depreciation and Amoritization 1,040,165 996,316 630,095
Provision for Losses on Accounts Receivable 5,330,234 1,150,181 584,206
Provision for Inventory Obsolescence 1,002,662 - 2,262,189
Deferred Income Taxes (513,000) (94,000) (188,000)
Changes in Operating Assets
Accounts Receivable (4,310,435) (12,471,550) (6,764,226)
Inventories (7,579,840) 583,931 (10,806,449)
Prepaid Expenses and Other (1,238,303) 331,273 (855,445)
. Other Assets 19,683 65,338 (139,508)
Changes in Operating Liabilities:
Accounts Payable: Affiliate 4,643,732 (3,906,290) (2,478,291)
Accounts Payable and Accrued Expenses 2,563,644 14,091,187 (1,454,677)
---------------- ------------- ----------------
.Total Adjustments 958,542 746,386 (14,253,524)
----------------- ------------- ----------------
Net Cash used by Operating Activities (6,856,898) (322,154) (13,211,209)
---------------- ------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (680,006) (859,908) (1,312,730)
--------------- ------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Revolving Credit Loan 7,649,666 965,263 15,000,000
Repayment of Capital Lease Obligations (295,686) (416,567) (224,605)
Proceeds from issuance of Common Stock - 124,625
--------------- -------------- ----------------
Net Cash provided by Financing Activities 7,353,980 548,696 (14,900,020)
--------------- -------------- ----------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (182,924) (633,366) 376,081
CASH AND CASH EQUIVALENTS: BEGINNING OF YEAR 200,989 834,355 458,274
--------------- -------------- -----------------
CASH AND CASH EQUIVALENTS: END OF YEAR $ 18,065 200,989 834,355
=============== ============== ================
See notes to consolidated financial statements
F-6
</TABLE>
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
Liuski International, Inc., and subsidiaries (the "Company") is a
distributor of microcomputer peripherals, components, and accessories throughout
the United States and to certain foreign countries. The Company also offers its
own Magitronic brand of IBM-compatible personal computers, as well as Magitronic
private-label components and accessories. Customers of the Company are primarily
value-added resellers, systems integrators, consultants, retail stores,
governmental and corporate end users and small distributors, substantially all
of which are located in the United States and Canada. All of the Company's
products are supplied from four primary distribution centers located in, or in
the vicinity of, Norcross (an Atlanta, Georgia suburb), Los Angeles, Miami, and
Toronto. The Company reopened distribution centers in Chicago and Melville (New
York) on a limited basis to facilitate sales to customers in close proximity to
these centers. The Company has an assembly facility in Norcross, Georgia, and
performs limited assembly operations at its Toronto distribution center. The
Company also has sales offices in Chicago, Dallas and Melville (New York).
Export sales were not material in any of the three years ending December 31,
1996. During 1995, the Company relocated its headquarters to its Norcross,
Georgia facility and consolidated its distribution centers. As a result of the
relocation, the Company incurred selling, general and administrative costs of
approximately $1,189,000 relating to setting up the facility, hiring employees,
and related training and travel expenses.
(b) Management's Plans Regardoing Negative Trends
The Company has experienced net losses of $7,815,440 and $1,068,540 for the
years ended December 31, 1996 and 1995, respectively. The Company has also
experienced steady declines in its gross profit as a percentage of net sales
over the last several years. As of December 31, 1996 the Company is in violation
of two financial covenants under its credit facility. The Company's lender has
preserved all of the rights available to it as a result of the Company's default
of these financial covenants. Management plans to address these negative trends
and losses as follows:
*During March 1997, the Company reduced its work force by approximately 100
personnel or 19%. Management will continue to evaluate its staffing requirements
to manage personnel costs.
*Management intends to improve gross profit as a percentage of sales by
emphasizing higher margin products and more profitable vendor relationships and
by expanding its sales of Magitronic systems and notebooks. Additionally,
management intends to increase the utilization of vendor discount, rebate and
price protection programs.
*Management intends to reduce and monitor its selling, general and
administrative expenses by instituting strict budgetary controls.
*Management is discussing its lending relationship with its lenders with
the goal of renegotiating the financial covenants in its lending agreements.
While management believes these plans will be successfully implemented
there can be no assurance that further corrective measures, such as additional
restructuring and alternative sources of financing, will be not necessary, if
so, or can be successfully accomplished.
F - 7
<PAGE>
(c) Principles of Consolidation
The consolidated financial statements include the accounts of Liuski
International, Inc. ("Liuski") and its wholly-owned subsidiaries (the
"Subsidiaries"). All significant intercompany balances and transactions have
been eliminated.
(d) Concentrations of Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. At times, such cash in banks are in excess of the FDIC insurance
limit. The Company's sales to any one customer did not exceed 10% of total
sales. Also, the Company attempts to minimize credit risk by reviewing all
customers' credit history before extending credit, and by monitoring customers'
credit exposure on a daily basis. The Company established an allowance for
accounts receivable based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
The Company is vulnerable to concentrations with certain suppliers of its
inventory. Approximately 20% and 17% of the Company's net sales for the years
ended December 31, 1996 and 1995, included components manufactured by two
third-party suppliers. Shortages of these products have adversely affected
operating results in the past, and the loss of these suppliers or a shortage in
a particular product supplied by either of them could have a material adverse
impact on the Company during the period the Company believes it would need to
establish alternate sources of supply at required volume levels. Approximately
22% of the Company's net sales for the year ended December 31, 1994 included
components manufactured by these suppliers.
(e) Inventories
Inventories, which consist principally of finished goods, are stated at the
lower of cost or market. Cost is determined on an average method, which
approximates the first-in, first-out method.
F - 8
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(f) Furniture, Autos, Equipment and Depreciation
Furniture, automobiles, and equipment are stated at cost. Depreciation is
computed by the straight-line method, over the estimated useful lives of the
related assets (5 to 7 years).
(g) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with maturities of three months or less to
be cash equivalents.
(h) Revenue Recognition
Sales are recognized upon shipment of products. The Company allows its
customers to return products for exchange or credit subject to certain
limitations. Provision for losses and warranty costs on such returns are accrued
at the time of sale (see Product Warranty below).
(i) Taxes on Income
The Company follows the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes". Under SFAS No. 109,
current income taxes are provided based upon taxes currently payable and
deferred taxes are provided to reflect the temporary difference in the tax bases
of assets and liabilities and their reported amounts in the financial
statements. A valuation allowance is recorded to reduce deferred tax assets to
an amount which is considered more likely than not to be realized.
(j) Net Income per Common and Common Equivalent Share
Per share data is calculated using the weighted average number of common
shares and dilutive common share equivalents (stock options) outstanding during
the period.
(k) Product Warranty
The Company offers one to two year warranty coverage for Magitronic system
and notebook sales. The Company accrues warranty costs for labor and parts which
are not covered by OEM warranties at the time of sale. The Company generally
offers a 30-day warranty for defective distribution products. These goods are
returned to the vendor for credit or replacement.
(l) Use of Estimates
Financial statements prepared in conformity with generally accepted
accounting principles necessitates the use of management estimates. Management
has estimated reserves for inventory obsolescence and uncollectible vendor and
accounts receivables based upon historical and developing trends, aging of
items, and other information it deems pertinent to estimate collectibility and
realizability. It is reasonably possible that these reserves will change within
a year, and the effect of the change could be material to the consolidated
financial statements.
F - 9
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(m) Financial Instruments
During the year ended December 31, 1995, the Company adopted SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments". The Company's financial
instruments consist primarily of cash equivalents and other debt. As the
interest incurred on the Company's credit facility is based on floating rates,
management believes the carrying value approximates fair value.
(n) Stock-Based Compensation
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation" which establishes financial accounting
and reporting standards for stock-based employee compensation plans. The Company
adopted the disclosure provisions of this statement during the year ended
December 31, 1996.
(o) Long-Lived Assets
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company adopted this statement during its year ended
December 31, 1996. This statement did not have a material impact on the
Company's consolidated financial statements.
(p) Foreign Currency Translation
Certain of the Company's subsidiaries' financial statements are denominated
in foreign currencies. Disclosures regarding translation adjustments have not
been made as the amounts are considered immaterial.
NOTE 2 - REVOLVING CREDIT LOAN
In June of 1995, the Company signed a $50,000,000 credit facility replacing
the Company's existing $25,000,000 revolving credit loan and $14,000,000 line
for floorplanning of inventory. The new facility provides for revolving
borrowings of up to $35,000,000, limited by available collateral, and
$15,000,000 for inventory floorplanning. Amounts available on the revolving
credit loan are based on a formula of up to the sum of 85% of eligible
receivables and the lesser of up to 50% (30% for Magitronic goods) of eligible
inventory or $15,000,000. Outstanding borrowings bear interest at 1/4% per annum
above the lending bank's prime rate (8.5% as of December 31, 1996) or 125 basis
points above LIBOR rates and mature in June 1998. The debt is collateralized by
a lien on all of the Company's assets. As of December 31, 1996 and 1995,
borrowings under the inventory floorplanning portion of the credit facility were
$3,871,593 and $3,572,714, respectively, and are included in trade accounts
payable. As of December 31, 1996 and 1995, the Company owed $28,614,929 and
$20,965,263, respectively, under its revolving credit loans. As of December 31,
1996, the Company had $1,641,424 available for cash borrowings under its line of
credit and $11,128,407 available for inventory purchases under the floorplanning
line.
As of December 31, 1996, the Company is in violation of two financial
covenants under its credit facility agreement. The Company's lender has
preserved all of the rights available to it as a result of the Company's default
of these financial covenants. Consequently, the balance of the revolving credit
loan is classified as a current liability at December 31, 1996. The Company is
discussing these defaults with its lender with the goal of renegotiating these
covenants. If such negotiations are successful, the amended terms will likely be
less favorable to the Company than those that now exist. There can be no
assurance that these negotiations will be successfully completed. (See Note 1)
F - 10
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3 - COMMITMENTS AND CONTINGENCIES
(a) The Company is obligated for rental of office and warehouse space and
certain equipment. Approximate future minimum rental payments due under these
operating leases are as follows:
Year Ending
December 31, Annual Amount
------------ -------------
1997 $1,445,000
1998 1,339,000
1999 1,221,000
2000 271,000
Total $4,276,000
Included in these amounts are commitments related to certain facilities
which are underutilized. The Company has subleased all or a portion of the
Company's facilities located in Melville and Dallas.
Rent expense for the years ended December 31, 1996, 1995, and 1994 was
approximately $1,574,000, $1,657,000, and $1,405,000, respectively.
(b) There are various claims of third parties involving allegations against
the Company incidental to the operation of its business. The liability, if any,
associated with the claims is not currently determinable. It is the opinion of
the Company that such claims are not material in relation to the Company's
consolidated financial position, results of operations, and liquidity.
NOTE 4 - EMPLOYEE BENEFIT PLANS
Effective May 1, 1992, the Company established a profit sharing plan for
eligible employees under Section 401(k) of the Internal Revenue Code. The
Company's contribution to the plan, as determined by the Board of Directors, is
50% of each employee participant's contributions up to 2% of compensation. The
contribution for any participant may not exceed the lesser of 15% of that
participant's compensation or $9,500 for 1996. The contribution and
administrative costs charged to operations amounted to $115,874, $104,286, and
$77,720 for the years ended December 31, 1996, 1995, and 1994, respectively.
F - 11
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5 - RELATED PARTY TRANSACTIONS
(a) The Company purchases inventories through two affiliated trading
companies in Taiwan which function as the Company's buying agents for personal
computer accessories and peripherals manufactured in Taiwan. The affiliated
companies are owned by members of the immediate family of the Company's
principal stockholder. Total purchases, which include buying commissions of 2%
of the cost of purchased goods, for the years ended December 31, 1996, 1995, and
1994 through affiliated companies were approximately $88,025,000, $72,190,000,
and $69,580,000, respectively.
(b) The Company sold certain products to an affiliated company which had a
chain of four retail stores. Certain stockholders and officers of the Company
owned approximately 56% of the affiliated company. Total sales to the affiliated
company for the year ended December 31, 1994 was approximately $329,000. The
affiliated company ceased operations as of April 31, 1994. As of December 31,
1996 and 1995, amounts due from the affiliated company were approximately
$118,000 and $136,000, respectively. The Company's principal stockholder has
guaranteed the entire outstanding balance.
NOTE 6 - INCOME TAXES
Components of income taxes are as follows:
Year Ended December 31,
1996 1995 1994
---- ---- ----
Current Taxes
Federal $(1,015,000) $(480,000) $735,000
State and Local (124,000) ( 91,000) 148,000
----------- --------- --------
Total Current Taxes
Payable (Refundable) (1,139,000) (571,000) 883,000
----------- --------- --------
Deferred Taxes
Federal $(430,000) $( 79,000) $(167,982)
State and Local (83,000) ( 15,000) (20,000)
----------- --------- ---------
Total Deferred Taxes (513,000) ( 94,000) (187,982)
----------- --------- ---------
Total $(1,652,000) $(665,000) $ 695,018
=========== ========= =========
F - 12
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The provisions for income taxes on historical income differ from the amounts
computed by applying the applicable Federal statutory rate due to the following:
Year Ended December 31,
1996 1995 1994
---- ---- ----
Provision for Federal
Income Taxes at the
statutory rate $(3,219,000) $(589,000) $590,693
State and Local Income
taxes, net of Federal
benefit (379,000) ( 70,000) 84,325
Change in
Valuation allowance 1,600,000 ( 47,000) 20,000
Other 346,000 41,000 --
----------- --------- ---------
Total Taxes on Income $(1,652,000) $(665,000) $ 695,018
=========== ========= =========
Components of the Company's deferred income tax assets and liabilities are
as follows::
December 31,
1996 1995
---- ----
Deferred Income Tax Assets:
Reserves not currently deductible $ 1,465,000 $ 399,000
Inventory Allowances and capitalized costs 705,000 375,000
Tax credits and net foreign operating
loss carryforwards 1,340,000 322,000
---------- ----------
Total gross deferred tax assets 3,510,000 1,096,000
---------- ----------
Valuation allowance (1,922,000) (322,000)
---------- ----------
Deferred Income Tax Liabilities:
Accelerated depreciation for income
tax purposes (95,000) (103,000)
Other (393,000) ( 84,000)
---------- ----------
Total gross deferred tax liabilities (488,000) (187,000)
---------- ----------
Net deferred tax asset $1,100,000 $ 587,000
---------- ----------
A valuation allowance has been provided to reduce net deferred tax assets to
amounts which are considered more likely than not to be realized. The net
deferred tax asset is included in current assets under "Prepaid Expenses and
Other Current Assets".
F - 13
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7 - STOCK OPTION AGREEMENTS
In May 1991, the principal stockholder of the Company executed stock option
agreements with certain officers and key employees. Under these agreements, an
option entitles the holder to purchase a percentage of the common stock of the
Company from the principal stockholder. The option price is $5.25, representing
the fair value of a share of common stock of the Company on a combined basis at
the date of grant of the option, assuming 2,100,000 shares were outstanding.
NOTE 8 - STOCKHOLDERS' EQUITY
The Company completed a secondary public offering of 1,100,000 shares of
common stock on May 20, 1993. The net proceeds to the Company, after deducting
underwriting discounts, commissions and expenses incurred in connection with the
offering, amounted to $9,205,786. In connection with this offering, the Company
sold to certain representatives of the underwriting firms, for nominal
consideration, warrants to purchase 120,000 shares of common stock exercisable
at $11.55 for a four-year period beginning May 20, 1993. No such warrants have
been exercised.
NOTE 9 - CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under capital lease obligations. Future
minimum lease payments under capital lease obligations together with the present
value of the net minimum lease payments are as follows:
Year Ending December 31,
1997 $ 348,055
1998 300,588
1999 142,507
---- ----------
Total minimum lease payments 791,150
Less: amounts representing interest 89,036
----------
Present value of net minimum lease payments $ 702,114
==========
Current Obligations $ 295,686
Long-Term Obligations 406,428
----------
Total Obligations $ 702,114
==========
The current portion of capital lease obligations is included in current
liabilities under "Accrued Expenses and Other Current Liabilities".
F - 14
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Year Ended December 31,
1996 1995 1994
---- ---- ----
Cash paid for interest $2,105,015 $2,152,581 $1,218,518
---------- ---------- ----------
Cash paid for income taxes $ 189,160 $ -- $1,468,500
========== =========== ==========
Non-cash transactions
---------------------
During the year ended December 31, 1994, the Company acquired fixed
assets and assumed capital lease obligations of $538,561.
NOTE 11 - STOCK OPTION PLANS
The Company's Board of Directors has adopted, and the Company's stockholders
have approved, the Company's 1991 Stock Option Plan, effective August 20, 1991
and the Company's 1994 Stock Option Plan, effective June 30, 1995 (the "Plans").
Under the Plans, options to purchase an aggregate of not more than 1,100,000
shares of common stock ($.01 par value) may be granted from time to time (at the
fair market value at the date of grant for incentive stock options and not less
than 75% of fair market value at the date of grant for non-qualified stock
options), to employees, including officers, directors, advisors and independent
consultants to the Company or to any of its subsidiaries. Options granted to
directors, officers and employees may be designated as incentive stock options.
Changes in shares under all option plans for the three years ended December
31, 1996, are:
Price Range
Shares per Share (1)
------ -------------
Options outstanding as of December 31, 1993 199,550 $ --
Granted 252,500 4.75
Exercised (17,275) 7.00 to 7.25
Canceled (86,125) --
-------
Options outstanding as of December 31, 1994 348,650 --
Granted 556,600 4.75
Exercised -- --
Canceled (114,200) --
--------
Options outstanding as of December 31, 1995 791,050 --
Granted 118,450 4.75
Exercised -- --
Canceled (201,100) --
--------
Options outstanding as of December 31, 1996 708,400 --
========
(1) All options were granted at the market value at the time of grant. Exercise
price of all options outstanding were subsequently changed to $4.75 as of
December 22, 1994.
F - 15
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The weighted average remaining contractual life of the options outstanding
as of December 31, 1996 is 3.1 years. Approximately 289,000 options were
exercisable as of December 31, 1996.
The Company has two option plans which reserve shares of common stock for
issuance to executives, key employees and directors. The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost been determined based on the fair
value at the grant date for awards in 1996 and 1995 consistent with the
provisions of the Standard, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:
1996 1995
Net loss - as reported ($7,815,440) ($1,068,450)
Net loss - pro forma ($8,051,156) ($1,992,825)
Earnings per share - as reported $ (1.78) $ (0.24)
Earnings per share - pro forma $ (1.84) $ (0.45)
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-averaged
assumptions used for grants in 1996 and 1995, respectively: expected volatility
of 50% and 40%; risk-free interest rate of 6.39% and a range of 5.76% to 7.60%;
and expected lives of 4 years.
F - 16
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE
Page No.
--------
Report of Independent Certified Public Accountants on Financial
Statements Schedule S - 2
Schedule II - Valuation and Qualifying Accounts S - 3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENTS SCHEDULE
Board of Directors and Shareholders of
Liuski International, Inc.
Norcross, Georgia
The audits referred to in our report dated March 21, 1997 relating to the
consolidated financial statements of Liuski International, Inc. and
subsidiaries, which is contained in Item 8 of this Form 10-K, included the audit
of the accompanying Schedule of Valuation and Qualifying Accounts. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Atlanta, Georgia
March 21, 1997
S - 2
<PAGE>
LIUSKI INTERNATIONAL, INC., AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
|------------ Additions ------------|
Balance at Charged to Charged to Balance at
Beginning Costs and Other the end of
Description of Period Expenses Accounts Deductions (1) Period
- - ----------- --------- -------- -------- -------------- ------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1996:
Allowance for Doubtful Accounts $1,050,000 $5,330,234 $ -- $ 3,172,234 $3,208,000
========== ========== =========== =========== ==========
Allowance for Inventory Obsolescence $ 597,338 $1,002,662 $ -- $ -- $1,600,000
========== ========== =========== =========== ==========
For the year ended December 31, 1995:
Allowance for Doubtful Accounts $ 746,663 $1,150,181 $ -- $ 846,844 $1,050,000
========== ========== =========== =========== ==========
Allowance for Inventory Obsolescence $ 597,338 $ -- $ -- $ -- $ 597,338
========== ========== =========== =========== ==========
For the year ended December 31, 1994:
Allowance for Doubtful Accounts $ 646,663 $ 584,206 $ -- $ 484,206 $ 746,663
========== ========== =========== =========== ==========
Allowance for Inventory Obsolescence $ 547,338 $ 2,312,189 $ -- $ 2,262,189 $ 597,338
========== =========== =========== =========== ==========
(1) Doubtful accounts are written off against accounts receivable.
</TABLE>
S - 3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 1997
LIUSKI INTERNATIONAL, INC.
By: /s/
------------------------------------
Hsing Yen Liu
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Chairman of the Board of Directors, March 28, 1997
- - ---------------- Chief Executive Officer and Director
Hsing Yen Liu (Principal Executive Officer)
/s/ President, Chief Operating Officer March 28, 1997
- - ----------------- and Director
Manuel C. Tan
/s/ Acting Chief Financial Officer March 28, 1997
- - ----------------- (Principal Financial Officer)
Edward A. Williams
/s/ Director March 28, 1997
- - -----------------
Paul J. Konigsberg
/s/ Director March 28, 1997
- - -----------------
Edwin J. Feinberg
- - ---------------- Director March 28, 1997
Kenny Liu
- - ---------------- Director March 28, 1997
Eric Bashford
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No.
2 Form of Exchange of Shares Agreement, dated July, 1991,
between Registrant and Hsing Yen Liu, Hsin-Wan Peng,
Shing-Gyy Liu Hu, Ting Yuan Tsai, Manuel C. Tan, Ruey-Yi
Lee, Jin-Yao Shen, Shin Li Shen Liu, Peng-Ching Kao, and
Hsiu-Yuan Yen Lin (collectively the "Stockholders")**
3(a) Certificate of Incorporation**
3(b) By-Laws**
10(a) Intentionally Omitted.
10(b) Intentionally Omitted.
10(c) Intentionally Omitted.
10(d) Intentionally Omitted.
10(e) Intentionally Omitted
10(f) Intentionally Omitted.
10(g) Intentionally Omitted.
1(h) Lease, dated April 12, 1990, and Amendment dated March 3,
1990, between Reckson Associates and Liuski International
Inc., a New York corporation, of the premises at 10 Hub
Drive, Melville, New York,** and lease dated March 3, 1989
between the same parties,***** and amendment thereto dated
February 25, 1995.*******
10(i) Lease, dated August 28, 1989, between Copley - Industry -
Gale Associates and Liuski International California, Inc.,
of the premises at 18535 East Gale Avenue, Los Angeles,
California,** and amendments thereto dated August 29,
1989**** and September 28, 1993.******
10(j) Warehouse Lease, dated June 22, 1994, between New World
Parmers Joint Venture Number Three and Liuski International
Miami, Inc., of the premises at Beacon Centre, 8501 N.W.
17th Street, Miami, FL 33126 and amendment thereto dated
June 22, 1994.*******
10(k) 1994 Stock Option Plan.********
10(1) 1991 Stock Option Plan. **
10(m) Form of Escrow Agreement, dated July 1991, between
Registrant and the Stockholders. **
10(n) Business Credit and Security Agreement, dated June 23, 1995,
between Registrant and its wholly-owned subsidiaries, and
Deutsche Financial Service.*********
10(o) Intentionally Omitted
10(p) Agreement, dated January 1, 1991, between Registrant and
Liuski International Inc., a Taiwanese corporation,** and
December 31, 1991 amended and Restated Agreement.*****
<PAGE>
10(q) Agreement, dated January 1, 1991, between Registrant and
Marie-Claude Co., Ltd., a Taiwanese corporation,** and
December 31, 1991 Amended and Restated Agreement. *****
10(r) Distributor Agreement, dated August 9, 1989, between
Registrant and Samsung Information Systems America, Inc.**
10(s) Distributor Agreement, dated January 1, 1990, between
Registrant and Seagate Technology, Inc.**
10(t) Form of License Agreement, dated October 1, 1994, between
Liuski International, Inc., and Microsoft Corporation,** and
Amendment Nos. 1, 2, and 3 thereto executed February 8,
1995, May 25, 1995 and August 8, 1995, respectively
********** and form of amendments Nos. 4, 5, 6 and 7 thereto
executed January 1, 1996, April 1, 1996, July 1, 1996 and
September 1, 1996, respectively.*
10(u) Intentionally Omitted
10(v) Lease, dated October 1, 1991, between Trammell Crow Company
No. 91 and Liuski International, Texas, Inc. of the premises
at 2009 McKenzie Road, Suite 102, Carrollton, Texas, * * *
and amendment thereto executed March 10, 1993 * * * * * and
April 25, 1995.**********
10(w) Form of Employee Stock Option Agreement. * * *
10(x) Intentionally Omitted
10(y) Lease, dated October 17, 1994, between Rockdale Industries,
Inc. and Liuski International, Inc. of the Premises at 6585
Crescent Drive, Norcross, GA.*******
10(z) Intentionally Omitted
10(aa) Intentionally Omitted
10(bb) Intentionally Omitted
10(cc) Intentionally Omitted
10(dd) Lease, dated August, 1994, between Industrial Developments
International, Inc. and Liuski International, Inc. of the
premises located at 80 International Blvd., Glendale
Heights, IL.*******
10(ee) Form of Sublease, dated August 1996, between Liuski
International, Inc. and E & F Warehousing Corp. of 16,650
sq. ft. of the Premises at 10 Hub Drive, Melville, NY.*
10(ff) Form of Sublease, dated January 8, 1996, between Liuski
International, Inc. and General Instrument Corporation of
Delaware of the Premises at 2009 McKenzie Road, Suite 102,
Carrollton, TX.*
10(gg) Form of Lease, dated April 19, 1996 between Rolex
Developments Limited and Liuski International, Toronto, Inc.
of the premises at 1229 Lorimar Drive, Mississauqa, Ontario,
Canada.*
21 List of Subsidiaries.*******
<PAGE>
23 Consent of BDO Seidman, LLP*
27 Financial Data Schedule*
Unless otherwise indicated, documents incorporated by
reference refers to the identical exhibit number in the
document from which it is being incorporated by reference.
* Filed herewith.
** Incorporated by reference to the Registrant's registration
statement on Form S-1 (Commission File No. 3341297),
effective August 13, 1991 (including all pre-effective
amendments to the Registration Statement).
*** Incorporated by reference to registrant's form 10-K Annual
Report for the fiscal year ended December 31, 1991
(Commission File No. 0-19378)
**** Incorporated by reference to registrant's form 10-K Annual
Report for the fiscal year ended December 31, 1992.
***** Incorporated reference to the Registrant's registration
statement on Form S-1 (Commission File No. 33-61368).
****** Effective May 21, 1993 (including all pre-effective
amendments to the Registration Statement. Incorporated by
reference to registrant's form 10-K Annual Report for the
fiscal year ended December 31, 1993.
******* Incorporated by reference to registrant's form 10-K Annual
Report for the fiscal year ended December 31, 1994.
******** Incorporated by reference to registrant's Proxy Statement
with respect to its 1995 annual meeting.
********* Incorporated by reference to registrant's form 10-Q
Quarterly Report for the quarter ended June 30, 1995.
********** Incorporated by reference to registrant's form 10-K Annual
Report for the fiscal year ended December 31, 1995.
Exhibit 10(t)
Amendment No. 4
to the License Agreement
Between
LIUSKI INTERNATIONAL, INC.
and
MICROSOFT CORPORATION
dated October 1, 1994, Contract No. 4415-4291
This Amendment to the Microsoft License Agreement No. 4415-4291, between
MICROSOFT CORPORATION (hereafter "MS") and LIUSKI INTERNATIONAL, INC, (hereafter
"COMPANY"), herewith ("Agreement"), is made and entered into this 1st day of
January, 1996 ("Effective Date").
This Amendment shall amend, modify and supersede, to the extent of any
inconsistency, the provisions the above referenced Agreement. All provisions of
the Agreement not so modified remain in full force and effect.
MS and COMPANY agree to the following:
In Section 9, The Term Of Agreement shall read eighteen (18) months from
the end of the calendar quarter. This shall mean the Agreement will be
expired on June 30, 1996.
IN WITNESS WHEREOF, the parties have executed this Amendment to the License
Agreement as of the date set forth above. All signed copies of this Amendment to
the License Agreement shall be deemed originals. This Amendment does not
constitute an offer by MS. This Amendment shall be effective upon execution on
behalf of COMPANY and MS by their duly author/zeal representatives.
MICROSOFT CORPORATION LIUSKI INTERNATIONAL, INC.
/s/
- - ------------------------------ ------------------------------
By By
- - ------------------------------ ------------------------------
Name (Print) Name (Print)
- - ------------------------------ ------------------------------
Title Title
- - ------------------------------ ------------------------------
Date Date
<PAGE>
Amendment No. 5
to the License Agreement
Between
LIUSKI INTERNATIONAL, INC.
and
MICROSOFT CORPORATION
dated October 1, 1994, Contract No. 4415-4291
This Amendment to the Microsoft License Agreement #4415-4291, between MICROSOFT
CORPORATION (hereafter "MS") and LIUSKI INTERNATIONAL, INC. (hereafter
"COMPANY"), herewith ("Agreement"), is made and entered into this 1st day of
April, 1996 ("Effective Date").
This Amendment shall amend, modify and supersede, to the extent of any
inconsistency, the provisions of the above referenced Agreement. All provisions
of the Agreement not so modified shall remain in full force and effect.
MS and COMPANY agree to the following:
1. The attached EXHIBIT C4 is added to the Agreement
IN WITNESS WHEREOF, the parties have executed this Amendment to the License
Agreement as of the date set forth above. All signed copies of this Amendment to
the License Agreement shall be deemed originals. This Amendment does not
constitute an offer by MS. This Amendment shall be effective upon execution on
behalf of COMPANY and MS by their duly authorized representatives.
MICROSOFT CORPORATION LIUSKI INTERNATIONAL, INC.
- - ------------------------------ ------------------------------
By By
- - ------------------------------ ------------------------------
Name (Print) Name (Print)
- - ------------------------------ ------------------------------
Title Title
- - ------------------------------ ------------------------------
Date Date
- 2 -
<PAGE>
EXHIBIT C4
----------
ADDITIONAL SYSTEMS PRODUCTS
---------------------------
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
Product Language Applicable Per Per Copy Localization Added by
Name and Version(s) Additional System Royalty Additional Amendment
Version ** Provisions Royalty * Royalty Number
*
- - -----------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1. Plus! EN (b), (e) US$----- US$---- US$1.50
Version 1.0
for Estimated Estimated
Windows(R) 95 monthly monthly
volume: volume:
--------- --------
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
2. CD-ROM EN (a), (d) US$----- US$----- US$-----
Extensions (Single (Single
Version 2.2 User) User)
for MS-DOS(R)
Estimated Estimated
monthly monthly
volume: volume:
-------- --------
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
3. Windows EN (c), (d) US$ N/A US$150.00 US$12.00 5
NT(TM)
Worksta- Estimated
tion monthly
Version volume:
3.51 (x86/ ----------
Pentium(TM)
compatible
version)
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
* A Product is not licensed hereunder unless royalty rate(s) are indicated
in the Product table and the Product is indicated as licensed for one or
more Customer Systems in the Customer System table of this Exhibit C.
** Language Version Key: A = Arabic, BP = Portuguese (Brazil), CE =
Cyrillic Enabled, CH = Traditional Chinese, CZ = Czech, D = German, DA =
Danish, DU = Dutch, E = Spanish, EE = Eastern and Central European, EN =
USA English, F = French, FF = France's French, FI = Finnish, HAN = Hangeul,
HB = Hebrew, HUN = Hungarian, I = Italian, J = Japanese, N = Norwegian, P =
Portuguese, PE = Pan European English, POL = Polish, PRC = PRC Simplified
Chinese, RU = Russian, SL = Slovenian, SW = Swedish, TH = Thai, TR =
Turkish, Z = International English. In addition to the language versions
- 3 -
<PAGE>
EXHIBIT C
(Continued)
specified in the Product table above, COMPANY may receive Product
Deliverables for the licensed Product in available language versions listed
in the Language Key (except CH, HAN, J, and PRC which may only be added by
amendment) by sending a written request to the attention of OEM Accounting
Services at the address listed in Exhibit N for royalty reports.
INITIAL PAYMENT AMOUNT
The Initial Payment Amount for Products licensed under this Exhibit C shall
be Zero Dollars (US$0.00), and shall be paid in accordance with Section
3(b) of the Agreement.
ADDITIONAL PROVISIONS KEY
(Note: Only those Additional Provisions applicable to licensed
Product(s) appear. Section lettering may not be consecutive.)
(a) For each copy of the Product licensed by COMPANY on a multiple-user basis,
COMPANY shall pay the royalty rate described above for each user up to a maximum
of five (5) users, plus one- half of the royalty rate for each additional user
in excess of five (5) users [For example, where the royalty specified in the
table above is R, if COMPANY licenses the Product for ten (10) users, the
royalty due for such unit of Product would be the sum of 5R + 2.5R].
(b) This Product is designed for use with Windows 95 and may not function
properly with other operating system products.
(c) (I) For Windows NT Workstation, COMPANY agrees to provide quarterly sales
out, and business and government institution sales reporting. Reporting shall
include by country the customer name, bill to, ship to, state and zip or postal
codes, quantity of units, part description, and indication of MS field sales
assistance. MS will provide and may revise the reporting format from
time-to-time during the term of the Agreement.
(2) In order to support end-users of this Product, COMPANY agrees to employ
at all times at least one support technician who has successfully completed, at
COMPANY's expense, the Microsoft Certified Proregional program for this Product.
(3) Though the Product Deliverables for this Product my include versions of
the Product designed for other types of microprocessors, COMPANY is licensed to
distribute the Product only with and for use on Customer Systems based on the
Intel x86, Pentium or compatible architecture.
- 4 -
<PAGE>
EXHIBIT C
(Continued)
(4) If Customer System(s) licensed for this Product are also licensed on a
per system basis for Windows 95, Windows 3.xx, Windows for Workgroups 3.xx,
and/or MS-DOS, then COMPANY agrees to pay MS the royalty for the Product(s)
distributed with the Customer System, or, the licensed Customer System is
distributed without any such Product(s), the royalty for this Product.
(5) Solely for purposes of calculating COMPANY's Windows 95 royalty under
any separate Exhibit C for Windows 95 as may be included in this Agreement, this
Product shall be included in the definition of "Windows Products" as the term is
used in such separate Exhibit C.
(6) The estimated monthly volume specified in the Product table above for
this Product shall be calculated by counting only those Customer Systems for
which COMPANY pays a royalty for this Product in accordance with the terms of
this Exhibit C.
(7) COMPANY's license for this Product under this Exhibit C shall expire
the earlier of (i) the date of termination or expiration of the Agreement, or
(ii) June 30, 1996.
(d) The royalty rate(s) specified above require pre-installation of the Product
on each Customer System distributed with the Product.
(e) The royalty rate(s) specified above require pre-installation of the Product
on each Customer System distributed with the Product, except for those Customer
System(s) on which COMPANY preinstalls multiple language versions of Windows 95
in accordance with the Exhibit C for Windows 95.
CUSTOMER SYSTEMS
COMPANY's Customer Systems shall be the assembled computer systems described in
the table below which (i) are configured for use only by a single user, (ii) are
designed to use a video display and keyboard; and (iii) include at least a CPU,
a motherboard, a power supply, and a case. Each listed Customer System must have
a unique model line name, model name, or model number which COMPANY uses both
internally (in COMPANY's books and records) and externally (on the Customer
System case and packaging). For each Product which COMPANY chooses to license
for distribution with the listed Customer System, the letter "s" or "c" in the
relevant box indicates whether COMPANY is licensing the Product on a "per
system" or "per copy'; basis, respectively. New models may be added by agreement
of the parties.
- 5 -
<PAGE>
EXHIBIT C
(Continued)
At COMPANY's option, for purposes of administrative convenience, COMPANY may
designate models by model line or series, e.g., "jaguar model line", "Jaguar Pro
series", "Jaguar Pro 750 model line", "Jaguar Pro 950 series", etc.).." Customer
Systems defined by model line or series shall include all present models which
include the designate the model line or series name, (e.g., "Jaguar Pro model
line" includes Jaguar Pro, Jaguar Pro 950, Jaguar Pro S, etc.; "Jaguar series"
includes Jaguar, Jaguar Pro, Jaguar Pro 950, Jaguar 8400, etc.; "Jaguar Pro 950
series" includes Jaguar Pro 950, Jaguar Pro 955, etc.).
In the event that COMPANY designates models by model fine or series in this
Exhibit C, then COMPANY may elect to include as Customer System(s) new models in
the model line or series by including any such new model(s) on its royalty
report for the reporting period in which each such new model is first
distributed with the Product Unless otherwise agreed to by the parties prior to
COMPANY's first distribution of a new model with the Product, each such new
model designated on a royalty report shall be licensed for the remainder of the
term of the Agreement on the same basis (i.e., per system or per copy) as the
other models in the model line or series and shall bear the applicable royalty
set forth in this Exhibit C. Any new model in the model line or series which is
not included in a royalty report as a licensed Customer System (and is thus not
Licensed for the applicable Product) must have a unique model number or model
name used for internal and external identification purposes which distinguishes
it from any model which COMPANY has designated previously as a Customer System.
- 6 -
<PAGE>
EXHIBIT C
(Continued)
Product Number Key: 1 = Plus! 1.0; 2 = CD-ROM Extensions 2.2; 3 = Windows NT
- - -------------------
Workstation 3.51 (x86 Version)
Royalty Basis Key: C = per copy, S = per system; if Product box is blank, such
- - -----------------
Product is not licensed for distribution with the listed Customer System.
<TABLE>
<CAPTION>
=======================================================================================================================
Product Number
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Processor
Model Name or Model Number Type 1 2 3 4 5 6 7 8
- - -----------------------------------------------------------------------------------------------------------------------
Magitronic 80486 C
- - -----------------------------------------------------------------------------------------------------------------------
Magitronic Pentium C
- - -----------------------------------------------------------------------------------------------------------------------
Magitronic Pentium C
Pro
- - -----------------------------------------------------------------------------------------------------------------------
Magitronic Cyrix C
5X86
- - -----------------------------------------------------------------------------------------------------------------------
Magitronic Cyrix C
6X86
- - -----------------------------------------------------------------------------------------------------------------------
Magitronic AMD 5X- C
75
- - -----------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------
=======================================================================================================================
</TABLE>
COMPANY hereby represents and warrants that the names and numbers indicated in
the Model Name or Model Number column in the table above accurately denote the
actual designation used by COMPANY to identify the listed models (on the
Customer System case and in COMPANY's internal books and records).
- 7 -
<PAGE>
AMENDMENT NUMBER 6
Amendment Date: July 1, 1996
to MICROSOFT OEM LICENSE AGREEMENT FOR DESKTOP OPERATING SYSTEMS
between MICROSOFT CORPORATION, a Washington, U.S.A. Corporation
and LIUSKI INTERNATIONAL, INC., a Corporation of New York
Agreement Effective Date: October 1, 1994
MICROSOFT LICENSE # 4415-4291
Effective as of the Amendment Date indicated above, the below signed parties
agree that the indicated portions of the above referenced license agreement
(hereinafter the "Agreement") are hereby amended by this instrument (hereinafter
the "Amendment"), as follows:
1. New Section l(j) is hereby added to the Agreement and shall read as follows:
"(j) "Supplement" shall mean a release of a supplement to, or replacement
of, any portion of Product as MS may provide to COMPANY from time to time."
2. Section 2(a) of the Agreement is hereby amended and shall read as follows:
"(a) Subject to limitations in this Agreement and COMPANY's compliance with
all terms and conditions of this Agreement, including the attached
Exhibits, MS grants to COMPANY's a non-exclusive, limited license to:
(i) install one (1) copy of Product software on a Customer System hard
disk or ROM ("Preinstalled Product Software") in accordance with the
applicable provisions of Exhibit(s) C and instructions accompanying the
Product Deliverables; and
(ii) distribute with Customer System(s):
(A) one (1) copy of Preinstalled Product Software,
(B) one (1) copy of Product software on external media (i.e.,
diskette or CD-ROM) as acquired from Authorized Replicator, and
(C) one (1) copy of product end user documentation as acquired
from Authorized Replicator. With respect to Supplements, MS may also
grant to COMPANY one or more non-exclusive, limited additional rights,
including without limitation, those set forth in Exhibit F hereto, in
a "Supplement Addendum" for such Supplement. If COMPANY decides to
- 8 -
<PAGE>
exercise any such additional rights granted for a particular
Supplement, COMPANY agrees to fully comply with all of the terms and
conditions of the applicable Supplement Addendum, regardless of
whether the particular terms of the Supplement Addendum are described
in Exhibit "F."
3. Section 2(d) of the Agreement is hereby amended and shall read as follows:
"(d) (i) COMPANY shall include APM with Product software
distributed by COMPANY.
(ii) COMPANY must distribute one (1) copy of such
Product end user documentation as may be required by MS with
and inside the package of each Customer System distributed
with Product software. One (1) copy of any Product end user
documentation that MS does not require COMPANY to distribute
with the Product software shall be made available by COMPANY
to the licensed end user of the Product software either (A)
inside the Customer System package, or (B) directly through
an MS authorized fulfillment source in accordance with MS'
then current specifications for fulfillment of Product end
user documentation. Product end user documentation shall not
be available through any other COMPANY distribution channel.
(iii) COMPANY may make Product software on external
media (i.e., diskette or CD-ROM) available to licensed end
users of the Product software to replace a copy of Product
software originally distributed by COMPANY in accordance
with this Agreement which is defective in media or
reproduction directly through an MS authorized fulfillment
source in accordance with MS' then current specifications
for fulfillment of Product software replacement media.
Product software replacement media shall not be available
through any other COMPANY distribution channel.
(iv) MS shall provide COMPANY from time to time with a
list of fulfillment sources authorized by MS."
4. Section 2(e) of the Agreement is hereby amended and as amended shall read as
follows:
"(e) COMPANY's license shall extend to Update Releases,
Version Releases, and Supplements. COMPANY's license shall
not extend to Product Releases."
5. New Sections 3(h) and 3(i) are hereby added to the Agreement and shall read
as follows:
"(h) If any Exhibit C to the Agreement does not contain a
"Per System Royalty Calculation" Section or "Per Copy
- 9 -
<PAGE>
Royalty Calculation" Section, then the following shall apply
to royalties for Products licensed under such Exhibit(s) C:
(i) For Product(s) specified in the applicable Exhibit
C as licensed on a "per system" basis, COMPANY agrees to pay
MS the royalty set forth in the applicable Exhibit C for
each Customer System distributed or placed in use by or for
COMPANY. For Product(s) specified in the applicable Exhibit
C as licensed on a "per copy" basis, COMPANY agrees to pay
MS the royalty rates set forth in the applicable Exhibit C
for each unit of Product licensed or distributed by COMPANY.
(ii) If in any three monthly reporting periods
(whether or not consecutive), COMPANY' s reported shipments
of the applicable Customer System (for Product licensed on a
per system basis) or Product (for Product licensed on a per
copy basis), respectively, are twenty percent (20%) or more
below COMPANY's estimated monthly volume specified in the
Product table in the applicable Exhibit C, COMPANY and MS
shall negotiate an increase in the royalty rate(s) to
reflect COMPANY's lower shipment volumes. If, for any
reason, MS and COMPANY are unable to agree upon new royalty
rate(s) within thirty (30) days after the date COMPANY's
royalty report is due for the third such low-volume month,
COMPANY's royalty rate(s) for each Product included in the
volume estimate accompanying the royalty rate shall increase
by twenty percent (20%). Such increased royalty rate(s)
shall be in effect for the remainder of the term of the
Agreement commencing with the monthly reporting period
following the third low-volume month. Provided, however,
that if COMPANY's reported monthly volume returns to or
exceeds the original estimated monthly volume for any three
(3) consecutive months thereafter, COMPANY's royalty rate(s)
shall be restored to the rate(s) specified in the Product
table in the applicable Exhibit C commencing with the
monthly reporting period following such three (3)
consecutive months.
(iii) In addition, COMPANY agrees to pay MS the
Localization Additional Royalty specified in Exhibit(s) C
for each unit of non-US English version of Product
distributed or placed in use by COMPANY.
(iv) Where multiple "Releases" (i.e., Update Releases,
Version Releases or Product Releases), language versions, or
media versions (e.g., MS-DOS and MS-DOS ROM) of a Product
are licensed for the same Customer Systems, COMPANY may
distribute only one copy of Product software in addition to
one copy of Preinstalled Product Software in one language
and Release for use on each such Customer System. COMPANY
shall pay MS the royalty applicable to the Release and
language version shipped. Any Customer System licensed on a
- 10 -
<PAGE>
per system basis for more than one Update Release or Version
Release of a Product, but distributed without Product, shall
bear the base royalty for the most recent Release of Product
licensed."
"(i) If, at any time, MS becomes aware of any distribution of Product in
violation of the Agreement, then without limiting its remedies, MS may charge
COMPANY for each such unit of Product, an additional royalty equal to thirty
percent (30%) of the highest royalty for the Product(s). COMPANY shall pay such
additional royalty within thirty (30) days of receipt of MS' invoice."
6. Section 3(f) of the Agreement is hereby mended and shall read as follows:
"(f) No royalty shall accrue to MS for Product software (i)
used by COMPANY solely for testing system; (ii) shipped to
replace copies defective in media or reproduction, provided
that such replacement copies are distributed in accordance
with Section 2(d) above at no charge to the end user, except
for COMPANY's reasonable cost of materials and shipping and
handling costs; (iii) shipped as a backup copy in addition
to Pre-installed Product Software in accordance with Section
2(a)(ii); or (iv) used solely for demonstrations of Customer
Systems to prospective customers if clearly marked "For
Demonstration Purposes Only" (not to exceed fifty (50)
copies per Product)."
7. Section 6(d) of the Agreement is hereby amended and as amended shall read as
follows:
"(d) (i) COMPANY agrees to provide end user support for the
Product(s) under terms and conditions at least as favorable
to the end user as the terms under which COMPANY provides
support for COMPANY's Customer Systems to end users
generally, but which in no event shall be less than
commercially reasonable end user support. COMPANY further
agrees to provide end users with telephone customer support
and to prominently display its customer support telephone
number for such assistance in or on Customer System
documentation.
(ii) COMPANY shall not advertise or otherwise market
the Products as separate items, but shall clearly indicate
in all marketing materials relating to the Products and
Customer System(s) that the Products are available only as
part of a Customer System. COMPANY shall not publish or
otherwise mark a separate price for the Product(s).
(iii) COMPANY agrees that it shall not distribute the
Product in encrypted form, except as otherwise specifically
provided in this Agreement.
- 11 -
<PAGE>
(iv) COMPANY shall not modify or delete any part of
the Product software in any manner, except as expressly
permitted in the applicable Exhibit C.
(v) COMPANY shall acquire all components of each unit
of Product to be distributed with a Customer System (i.e.,
APM, Product end user documentation, and Product software on
external media, as applicable) from a single Authorized
Replicator and in a single package or stock keeping unit.
Provided, however, this shall not preclude COMPANY from
acquiring separate units of Product from multiple Authorized
Replicators.
(vi) All orders placed with Authorized
Replicators, and payments to the Authorized
Replicators, shall be made by COMPANY or COMPANY
Subsidiaries. Shipments by Authorized Replicators may
be delivered only to locations owned or controlled by
COMPANY, COMPANY Subsidiaries or, if applicable, Third-
Party Installers, as defined in Exhibit I. COMPANY
hereby certifies that all addresses to which COMPANY or
COMPANY Subsidiaries request Product delivered shall
comply with the foregoing requirement."
8. Section 10(b) is hereby amended and as amended shall read as follows:
"(b) Termination due to breach of Sections 6(a)(i) 6(b), 8,
13, 14(a), 14(c) or (if applicable) Exhibit S shall be
effective upon notice to the defaulting party. Termination
due to Section 10(a)(iv) shall be effective upon notice or
as soon thereafter as is permitted by applicable law. At the
option of the non-defaulting party, termination due to a
breach of any provision of this Agreement may be effective
upon notice to the defaulting party if such party has
received two (2) or more previous notices of default during
the term of this Agreement (whether or not such previous
defaults have been cured). In all other cases, termination
shall be effective fifteen (15) days after notice of
termination to the defaulting party if the defaults have not
been cured within such fifteen (15) day period."
9. The attached Exhibit C5 is hereby added to the Agreement.
10. The attached Exhibit C6 is hereby added to the Agreement.
11. The attached Exhibit C7 is hereby added to the Agreement.
12. Exhibits C1, C2 and C4 (Microsoft windows NT Workstation version 3.51) shall
terminate July 31, 1996.
- 12 -
<PAGE>
13. The attached Exhibit D is hereby added to the Agreement. Exhibit D shall
apply only to Products licensed in accordance with those Exhibit(s) C to the
Agreement which do not contain a "COMPANY Brand Names and Trademarks" Section,
if any.
14. The attached Exhibit F is hereby added to the Agreement.
15. Exhibit N of the Agreement is hereby amended and replaced with the attached
Exhibit N.
16. The term of the Agreement is hereby extended until one (1) year from the end
of the calendar quarter in which the Amendment Date occurs.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement. The terms of this Amendment shall supersede
any inconsistent terms contained in the Agreement.
- 13 -
<PAGE>
NOTICE:
For Product(s) specified in Exhibit C as licensed under the "per system" royalty
calculation provisions, please note the following:
This is a Microsoft Per System License. As a Customer, you may create a "New
System" at any time that does not require the payment of a royalty to Microsoft
unless the Customer and Microsoft agree to add it to the License Agreement
Any New System created may be identical in every respect to a system as to which
the Customer pays a Per System royalty to Microsoft provided that the New System
has a unique model number or model name for internal and external identification
purposes which distinguishes it from any system the Customer sells that is
included in a Per System License. The requirement of external identification may
be satisfied by placement of the unique model name or model number on the
machine and its container (if any), without more.
If the Customer does not intend to include a Microsoft operating system product
with a New System, the Customer does not need to notify Microsoft at any time of
the creation, use or sale of any such New System, nor does it need to take any
particular steps to market or advertise the New System.
Under Microsoft's License Agreement, there is no charge or penalty if a Customer
chooses at any time to create a New System incorporating a non-Microsoft
operating system. If the Customer intends to include a Microsoft operating
system product with the New System, the Customer must so notify Microsoft, after
which the parties may enter into arm's length negotiation with respect to a
license to apply to the New System.
IN WITNESS WHEREOF, the parties have executed this Amendment in duplicate as of
the date first written above. All signed copies of this Amendment shall be
deemed originals. This Amendment is executed only in the English language.
- 14 -
<PAGE>
MICROSOFT CORPORATION LIUSKI INTERNATIONAL, INC.
- - ------------------------------ ------------------------------
By By
- - ------------------------------ ------------------------------
Name (Print) Name (Print)
- - ------------------------------ ------------------------------
Title Title
- - ------------------------------ ------------------------------
Date Date
- 15 -
<PAGE>
EXHIBIT C5
WINDOWS DESKTOP FAMILY
Effective August 1, 1996
PRODUCT TABLE
<TABLE>
<CAPTION>
Product Language Applicable Per System Per Copy Localization Added by
Name and Version(s) Additional Royalty Royalty Additional Amendement
Version ** Provisions * * Royalty Number
<S> <C> <C> <C> <C> <C> <C>
1.Windows Desktop Royalty: Royalty:
Family: (a) US$67.00 US$75.00 US$6.00 6
A EN, A, BP, (a), (b), Royalty Royalty Localization
Windows(R) 95 CH, D, DA, (c), (f) Specified Specified Additional
operating DU, EE, F, for for Royalty
system, OR FF, FR, Windows Windows Specified for
HB, J, E, Desktop Desktop Windows
DU, P, Family Family Desktop
PRC, RU, Z Above Above Family Above
B. MS-DOS(R) EN, A, BP, (a), (c), Royalty Royalty Localization
operating CH, D, DA, (e), (f) Specified Specified Additional
system DU, EE, F, for for Royalty
Version FF, FR, Windows Windows Specified for
6.22 and HB, J, E, Desktop Desktop Windows
Enhanced DU, P, Family Family Desktop
Tools for PRC, RU, Z Above Above Family Above
MS-DOS(R)
Version 1.0
and
Windows(R)
operating
system
Version
3.1, OR
C EN, A, BP, (a), (c), Royalty Royalty Localization
MS-DOS(R) CH, D, DA, (d), (f) Specified Specified Additional
operating DU, EE, F, for for Royalty
system FF, FR, Windows Windows Specified for
Version HB, J, E, Desktop Desktop Windows
6.22 and DU, P, Family Family Desktop
Enhanced PRC, RU, Z Above Above Family Above
Tools for
MS-DOS(R)
Version 1.0
and
Windows(R)
for
Workgroups
operating
system
Version
3.11, OR
- 16 -
<PAGE>
D. EN, A, BP, (a), (b), US$65.00 US$75.00 US$6.00
Windows NT(R) CH, D, DA, (c), (g)
Workstation DU, EE, F, In In In Addition
Version 4.0 FF, FR, Addition Addition to the
(x86/ HB, J, E, to the to the Localization
Pentium(TM) DU, P, Royalty Royalty Additional
compatible PRC, RU, Z Specified Specified Royalty
version for for Specified
Windows Windows for Windows
Desktop Desktop Desktop
Family Family Family Above
Above Above
Estimated Estimated
Monthly Monthly
Volume for Volume for
Windows Windows
Desktop Desktop
Family: Family:
6,000 -----
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
2. Windows(R) EN (c), (d), Royalty Royalty US$4.00
for (f), (h) US$----- US$-----
Workgroups
operating
system
Version
3.11
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
3. Windows(R) EN (c), (e), Royalty Royalty US$4.00
operating (f), (h) US$----- US$-----
system
Version 3.1
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
4. MS-DOS(R) EN (c), (e), Royalty Royalty US$2.00
operating (f) US$---- US$-----
system
Version
6.22
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
5. Enhanced EN (c), (e), Royalty US$0.50
Tools (f) US$-----
Version
1.02 for
MS-DOS(R)
6.22
- - ------------------------------------------------------------------------------------
</TABLE>
* A Product is not licensed hereunder unless royalty rate(s) are indicated in
the Product table and the Product is indicated as licensed for one or more
Customer System(s) in the Customer System table of this Exhibit C.
** Language Version Key: A = Arabic, BP = Portuguese (Brazil), CE = Cyrillic
Enabled, CH = Traditional Chinese, CZ = Czech, D = German, DA = Danish, DU =
- 17 -
<PAGE>
Dutch, E = Spanish, EE = Eastern and Central European, EN = USA English, F =
French, FF = France's French, FI = Finnish, HAN = Hangeul, HB = Hebrew, HUN =
Hungarian, I = Italian, J = Japanese, N = Norwegian, P = Portuguese, PE = Pan
European English, POL = Polish, PRC = PRC Simplified Chinese, RU = Russian, SL =
Slovenian, SW = Swedish, TH = Thai, TR = Turkish, Z = International English. If
the release listed in the Product Table above is not available in a particular
licensed language, COMPANY's license shall include the latest available
preceding release in such language. If COMPANY is licensed for the EN version of
Product and if a Localization Additional Royalty is specified in the Product
table above, then in addition to the language versions specified in the Product
table above, COMPANY may receive Product Deliverables for the licensed Product
in available language versions listed in the Language Key (except CH, HAN, J,
and PRC which may only be added by amendment) by sending a written request to
the attention of OEM Accounting Services at the address listed in Exhibit N for
royalty reports. Localized versions are licensed on an if and as available
basis.
INITIAL PAYMENT AMOUNT
The Initial Payment Amount for Products licensed under this Exhibit C shall
be Zero Dollars (US$0.00), and shall be paid in accordance with Section
3(b) of the Agreement.
ADDITIONAL PROVISIONS KEY
(Note: Only those Additional Provisions applicable to
licensed Product(s) appear. Section lettering may not
be consecutive)
(a) If COMPANY is licensed for the Windows Desktop Family, COMPANY may
distribute not more than one (1) of the listed Product combinations or
Products (i.e., A or B or C or D) with each licensed Customer System.
COMPANY's report shall separately indicate the number of each such Product
or combination (A, B, C, or D) that COMPANY distributes. COMPANY shall
acquire all components of each unit of Product or combination of Products
to be distributed with a Customer System (i.e., APM, Product end user
documentation, and Product software on external media, as applicable) from
a single Authorized Replicator and in a single package or stock keeping
unit.
(b) (1) COMPANY is not licensed to, and agrees that it will not, modify, in
any way, or delete any aspect of the Product software (including, without
limitation, any features, shortcuts, icons, "wizards", folders (including
sub-folders) or programs of Product software) as delivered by MS in the
Product Deliverables, except if and as specifically permitted below or in
the OPK User's Guide ("OPK") provided in the Product Deliverables. In
particular, and without limitation, this means that COMPANY is not licensed
to and agrees that it will not:
(A) Modify or obscure, in any way, the sequence or appearance of any
screens displayed by the Product software as delivered by MS from the
- 18 -
<PAGE>
time the Customer System completes BIOS processing after being
switched on by the end user and transfers control to the Product
software loaded from the hard disk ("End User Boot") until the time
that the "Welcome to [Product name]" program has been run and closed
by the end user and the Customer System displays the Product software
"desktop" screen defined in the OPK ("Desktop Screen").
(B) Except as provided in (C), display any content (including visual
displays or sound) from End User Boot through and including the time
that the Customer System has displayed the Desktop Screen.
(C) Modify or obscure, in any way, the appearance of the Desktop Screen
(including without limitation, the addition or modification of
background wallpaper bitmaps displayed upon End User Boot); provided,
however, that COMPANY may add icons or folders to the Desktop Screen
provided that any such icons are the same size and substantially
similar shape as icons included on the Desktop Screen as delivered by
MS and that any such folders are the same size, shape and appearance
as folders included on the Desktop Screen as delivered by MS.
(D) Use any portion of Product software to enable any programs or other
content to run or appear prior to End User Boot.
(E) Configure any programs (including without limitation any "shells",
"screen savers" or "welcome" scripts), "wizards" or other content to
be enabled, run or initialized automatically (i.e. without requiring a
deliberate act of the end user) from an icon or folder on the Desktop
Screen or from the "Start" Menu of the Desktop Screen or otherwise. By
way of example only, and without limiting the generality of the
foregoing, COMPANY agrees that it shall not (1) populate with any
programs or other content the Product software "Start- up" directory
(i.e., "Windows\Start\Menu\Programs\StartUp" folder for Windows 95, or
"%windir%\profiles\user(s)\Start Menu\Programs\Startup" folder for
Windows NT Workstation) or (2) populate the boot.ini, config.sys,
autoexec.bat, win.ini, system.ini, system.dat or user.dat files in any
manner which will cause any program or content to run or load
automatically upon End User Boot, except for device drivers necessary
to support preinstalled or preconfigured hardware devices (e.g.,
network cards, printers, etc.).
- 19 -
<PAGE>
(F) Modify or add content to any directories installed by the Product
software, except as permitted in the OPK for preinstallation of
applications by COMPANY.
(2) If COMPANY enters registration information on behalf of end users in
the boxes provided for the on-screen end user registration process for the
Product software, COMPANY shall not enter its own name or make any other false
or fictional registrations. COMPANY may not (i) relieve end users of their
obligations to enter Certificate of Authenticity ("COA") registration numbers in
the on-screen end user registration process and to reply to on-screen end user
license agreement inquiries or (ii) insert COA registration numbers or reply to
end user license agreement inquiries for or on behalf of end users.
(3) With respect to Windows 95, if and only if COMPANY distributes the
Product software solely as Preinstalled Product Software (i.e., without a
back-up copy of the Product on CD, diskette, magnetic tape, or other external
media) with any Customer System, then COMPANY shall also preinstall the
Microsoft Create System Disk Tool together with the back-up diskette images
("CAB" files) contained in the OPK on the hard disk drive of such Customer
System to enable the end user to make a back-up copy of the Product software
according to the terms of the EULA. Diskette images may only be used with the
Microsoft Create System Disk Tool. COMPANY may not distribute, use, or authorize
the use of the Microsoft Create System Disk Tool or diskette images except as
provided in this Additional Provision or as specified in the OPK.
(4) With respect to Windows 95, notwithstanding anything to the contrary
contained in the definition of "Product Release" in this Agreement, Windows 95
(and any subsequent releases of Windows which may be designated by a change in
the calendar year - e.g., Windows 96, 97, 98, etc.) shall be deemed to be a
Product Release.
(5) Any EULA for the Product distributed by COMPANY must be identical to
the on screen EULA presented to the end user during Product setup.
(6) COMPANY agrees that it will preinstall and begin shipment of the most
current licensed release of Product (i.e., Product Release, Version Release,
Update Release or Supplement) on all Customer System models first distributed on
or after the ninetieth (90th) day (or an earlier date, at COMPANY's option)
following MS' shipment of the corresponding OPK or OPK supplement for such
release; provided that if shipment of the OPK or OPK supplement from MS occurs
between September 1st and October 31st of a given calendar year, COMPANY agrees
that it will begin shipment of most current licensed release of Product no later
than February 1st of the following year.
- 20 -
<PAGE>
(c) (1) Notwithstanding anything to the contrary contained in the Agreement
(including Exhibits), COMPANY may distribute Product(s) only with Customer
Systems which are marketed and distributed exclusively under COMPANY's or
COMPANY Subsidiaries' brand names, trade names and trademarks. The Product(s)
may not be distributed with Customer Systems which are marketed or distributed
under any name which includes any third party brand names, trade names or
trademarks. If, at any time, MS becomes aware of any violation of the foregoing,
then without limiting its remedies, MS may charge COMPANY for each such Customer
System an additional royalty equal to thirty percent (30%) of the highest
royalty for the Product(s). COMPANY shall pay such additional royalty within
thirty (30) days of receipt of MS' invoice.
(2) The royalty rate(s) specified above require pre- installation of the
Product as the "default" operating system on each Customer System distributed
with the Product (i.e., the Product will set up and execute unless the user
configures the Customer System otherwise). COMPANY shall preinstall the Product
software solely in accordance with the installation instructions set forth in
the OPK Users Guide" included in the preinstallation kit portion of the Product
Deliverables ("OPK"). COMPANY may use the information, tools and materials
contained in the OPK solely to preinstall the Product software in accordance
with the OPK User's Guide and for no other purpose. Other than as specified in
the OPK User's Guide, COMPANY shall not modify the Product software, nor delete
or remove any features or functionality without the written approval of MS in
each instance.
(3) The following shall replace Section 3(a)(iii) with respect to Products
licensed in accordance with this Exhibit C:
"(iii) If in any three monthly reporting periods
(whether or not consecutive), COMPANY's reported shipments
of the applicable Customer Systems licensed for the Windows
Desktop Family (if licensed on a per system basis) or units
of Windows Desktop Operating System Family (if licensed on a
per copy basis) are twenty percent or more below COMPANY's
estimated monthly volume specified for such basis (i.e., per
copy or per system) for the Windows Desktop Family in the
Product table above, COMPANY and MS shall negotiate an
increase in the royalty rate(s) for all Product(s) licensed
under this Exhibit C on such basis to reflect COMPANY's
lower shipment volumes. If, for any reason, MS and COMPANY
are unable to agree upon new royalty rate(s) within thirty
(30) days after the date COMPANY's royalty report is due for
the third such low-volume month, COMPANY's royalty rate(s)
for each of the Products licensed under this Exhibit C on
such basis shall increase by twenty percent (20%). Such
increased royalty rate(s) shall be in effect for the
remainder of the term of the Agreement commencing with the
- 21 -
<PAGE>
monthly reporting period following the third low-volume
month. Provided, however, that if COMPANY's reported monthly
volume for such basis of Windows Desktop Family returns to
or exceeds the original estimated monthly volume for any
three (3) consecutive months thereafter, COMPANY's royalty
rate(s) for all Product(s) licensed under this Exhibit C on
such basis shall be restored to the rate(s) specified in the
Product table above commencing with the monthly reporting
period following such three consecutive months."
(4) Shipments of (i) Windows, Windows for Workgroups, MS- DOS, and Enhanced
Tools licensed hereunder on an individual Product basis, or (ii) of Customer
Systems licensed solely for such Products on an individual Product basis, shall
not be included in the calculation of COMPANY's shipments for purposes of
determining the Estimated Monthly Volume(s) for Windows Desktop Family Products
in the Product table above. Accordingly, shipment of such Products and Customer
Systems shall not be included in the calculation of shipments necessary to
maintain the current royalty rate(s) in accordance with Additional Provision
(c)(3) above.
(5) COMPANY's license for this Product under this Exhibit C shall be
effective as of the later of (i) the Effective Date of the Agreement; (ii) the
Amendment Date of the Amendment by which this Exhibit C is added to the
Agreement, or (iii) August 1, 1996.
(6) If the same Customer System is licensed on a per system basis for both
the Windows System Family and for individual operating system Product(s) (e.g.,
Windows, Windows for Workgroups, or MS-DOS) in this Exhibit C, COMPANY shall be
relieved of its obligation to pay the royalty for the individual operating
system Product(s) provided that (i) COMPANY does not ship both the individual
operating system Product(s) and the Windows Desktop Family with such Customer
System; and (ii) COMPANY reports and pays MS the royalty due for the Windows
Desktop Family.
(7) COMPANY may not (i) distribute both Windows 95 and any other MS
operating system Product with the same Customer System; (ii) distribute both
Windows NT Workstation and any other MS operating system Product with the same
Customer System; or (iii) distribute both Windows and Windows for Workgroups
with the same Customer System.
(8) Provided a "per copy" royalty rate is listed for the Product in the
table above, if COMPANY distributes this Product with a computer system which is
not listed as licensed for this Product in the Customer System table of this
Exhibit C, but which otherwise meets all of the requirements for a "Customer
- 22 -
<PAGE>
System" for this Product, then such computer system shall be deemed a licensed
Customer System for the Product on a per copy basis and COMPANY agrees to comply
with all of the terms and conditions of this Agreement with respect to any such
distribution of Product.
(9) Notwithstanding anything to the contrary contained in Section 2,
COMPANY must distribute Product documentation with each Customer System
distributed with Product software. A COA must be affixed to or accompany each
copy of Product documentation.
(d) Windows for Workgroups version 3.11 includes Microsoft At Work fax
transmission software, which provides methods for stand- alone and networked
computers to send and receive fax messages with certain security levels. French
law (Decree 92-1358 of December 1992) generally prohibits the use in France of
such technology, unless special approvals are granted. Accordingly, OEMs should
provide only the version of Windows for Workgroups version 3.11 designed for
France to avoid violating the Decree.
(e) (1) The PRC language version of the Windows operating system Product is
version 3.2. The Japanese language version of the MS-DOS operating system is
version 6.2/V. The Japanese language version of Enhanced Tools for MS-DOS 6 is
1.0/V.
(2) The PRC language versions of Windows and MS-DOS are available with only
simplified Chinese character fonts licensed from a third party. COMPANY
acknowledges that such fonts may differ in quality and characteristics to
Chinese character fonts available in other Microsoft Products.
(3) The PRC language versions of Windows and MS-DOS are available only
through selected Authorized Replicators as specified by MS. From time to time,
MS shall provide an updated list of Authorized Replicators through which the PRC
language version of this Product is available.
(4) The packaging for the PRC language version of this Product distributed
with Customer Systems within or to the PRC shall be clearly marked in both
English and simplified Chinese, "Not for distribution or use outside the
People's Republic of China".
(f) (1) Notwithstanding anything to the contrary in Sections 2 and 6 of the
Agreement, COMPANY may install one or more language versions (listed in the
Language Version box above) of Product software with each applicable Customer
System provided that COMPANY complies with the following restrictions.
(i) COMPANY may distribute such multiple language versions of Product
software only in the form of Preinstalled Product Software. COMPANY may
- 23 -
<PAGE>
distribute only one backup copy of Product software in one language version for
use on each such Customer System;
(ii) COMPANY shall use the MS set-up utility included in the Product
Deliverables which allows the end-user to choose one, and only one, language
version of Product for the Customer System;
(iii) COMPANY shall follow all guidelines and procedures set forth in
the Product Deliverables regarding the installation, set-up, and initialization
of multiple language versions of Product software; and
(iv) COMPANY shall clearly indicate to end-users, including without
limitation, in advertising and on Customer System packaging, that end-users
shall have access to one language version only.
(2) COMPANY hereby indemnifies MS from and against all damages, costs and
attorneys' fees arising from claims or demands resulting from COMPANY's
distribution of multiple language versions including, without limitation, claims
that the end-user is entitled to use more than one language version of the
Product or that advertisements, Customer System packaging, or other
representations made by or for COMPANY are false and/or misleading.
(3) COMPANY's report shall separately indicate the number of Customer
Systems distributed with each combination of language versions of Product.
(4) Provided COMPANY complies with all terms and conditions of this
Agreement, including this Additional Provision (f), for purposes of the royalty
calculation provisions of Section 3, preinstallation of multiple language
versions of Product performed in accordance with the instructions for multiple
language installation provided in the OPK shall constitute "one language"
version. In such event, COMPANY shall pay the highest royalty applicable to the
language versions distributed.
(5) If COMPANY does not comply with all of the requirements stated above,
in addition to any other remedies MS may have, COMPANY shall pay MS the
applicable royalty for each language version of Product software included with
the Customer System.
(g) (1) Notwithstanding anything to the contrary contained in Section 2 of the
Agreement, COMPANY's license for this Product shall extend to Windows NT
Workstation version 3.51.
- 24 -
<PAGE>
(2) In order to support end-users of this Product, COMPANY agrees to employ
at all times at least one support technician who has successfully completed, at
COMPANY's expense, the Microsoft Certified Professional program for this
Product.
(3) Though the Product Deliverables for this Product may include versions
of the Product designed for other types of microprocessers, COMPANY is licensed
to distribute the Product only with and for use on Customer Systems based on the
Intel x86, Pentium or compatible architecture.
(4) If Customer System(s) licensed for this Product under this Exhibit C
are also licensed for a prior release of this Product under another agreement,
then:
(i) COMPANY's license to distribute such prior release of this Product
with such Customer Systems under the other agreement shall expire as of the end
of the calendar quarter in which the Effective Date of this Agreement or the
Amendment Date of the Amendment adding this Exhibit C, as applicable, occurs;
and
(ii) COMPANY shall pay and report for any licensed releases of this
Product only under this Agreement for such Customer Systems thereafter.
(5) The royalty rates specified in the Product table apply to shipment of
Customer Systems which are capable of utilizing one (1) or two (2)
microprocessors. For Customer Systems which are capable of utilizing three (3)
or four (4) microprocessors, COMPANY agrees to pay MS 2.5 times the royalty
rates specified in the Product Table [i.e., Royalty = 2.5 x (Windows Desktop
Family royalty + Windows NT Workstation additional royalty)]. COMPANY is not
licensed to distribute this Product on Customer Systems which are capable of
utilizing more than four (4) microprocessors.
(h) If the same Customer System is licensed on a per system basis for both
Windows and Windows for Workgroups, but is not licensed for the Windows Desktop
Operating System Family on a per system basis, COMPANY shall be relieved of its
obligation to pay the royalty for Windows provided that (i) COMPANY does not
ship both Windows and Windows for Workgroups with such Customer System; and (ii)
COMPANY reports and pays MS the royalty due for Windows for Workgroups.
CUSTOMER SYSTEMS
COMPANY's Customer Systems shall be the assembled computer systems described in
the table below which (i) are configured for use only by a single user; (ii) are
designed to use a video display and keyboard; and (iii) include at least a CPU,
a motherboard, a power supply, a hard disk drive (except if the Product software
is installed in ROM), and a case. Each listed Customer System must have a unique
- 25 -
<PAGE>
model line name, model name, or model number which COMPANY uses both internally
(in COMPANY's books and records) and externally (on the Customer System case and
packaging). For each Product which COMPANY chooses to license for distribution
with the listed Customer System, the letter "s" or "c" in the relevant box
indicates whether COMPANY is licensing the Product on a "per system" or "per
copy" basis, respectively. New models may be added by agreement of the parties.
At COMPANY's option, for purposes of administrative convenience, COMPANY may
designate models by model line or series (e.g., "Jaguar model line", "Jaguar Pro
series", "Jaguar Pro 750 model line", "Jaguar Pro 950 series", etc.). Customer
Systems defined by model line or series shall include all present models which
include the designated model line or series name, (e.g., "Jaguar Pro model line"
includes Jaguar Pro, Jaguar Pro 950, Jaguar Pro S, etc.; "Jaguar series"
includes Jaguar, Jaguar Pro, Jaguar Pro 950, Jaguar S400, etc.; "Jaguar Pro 950
series" includes Jaguar Pro 950, Jaguar Pro 955, etc.).
In the event that COMPANY designates models by model line or series in this
Exhibit C, then COMPANY may elect to include as Customer System(s) new models in
the model line or series by including any such new model(s) on its royalty
report for the reporting period in which each such new model is first
distributed with the Product. Unless otherwise agreed to by the parties prior to
COMPANY's first distribution of a new model with the Product, each such new
model designated on a royalty report shall be licensed for the remainder of the
term of the Agreement on the same basis (i.e., per system or per copy) as the
other models in the model line or series and shall bear the applicable royalty
set forth in this Exhibit C. Any new model in the model line or series which is
not included in a royalty report as a licensed Customer System (and is thus not
licensed for the applicable Product) must have a unique model number or model
name used for internal and external identification purposes which distinguishes
it from any model which COMPANY has designated previously as a Customer System.
- 26 -
<PAGE>
CUSTOMER SYSTEM TABLE
Product Number Key: 1 = Windows Desktop Family, 2 = Windows for Workgroups 3.11;
3 = Windows 3.1; 4 = MS-DOS 6.2; 5 = Enhanced Tools for MS-DOS 6.2
Royalty Basis Key: C = per copy, S = per system; Product box is blank, such
Product is not licensed for distribution with the listed Customer System.
<TABLE>
<CAPTION>
====================================================================================================================================
Product Number
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Processor
Model Name or Model Number Type 1 2 3 4 5 6 7 8
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic i486 S
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Pentium S
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Pentium S
Pro
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Cyrix S
5x86
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Cyrix S
6x86
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic AMD 486 S
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic AMD K5 S
- - ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
COMPANY hereby represents and warrants that the names and numbers indicated in
the Model Name or Model Number column in the table above accurately denote the
actual designation used by COMPANY to identify the listed models (on the
Customer System case and in COMPANY's internal books and records).
- 27 -
<PAGE>
EXHIBIT C6
ADDITIONAL SYSTEMS PRODUCTS
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
Product Language Applicable Per System Per Copy Localization Added by
Name and Version(s) Additional Royalty Royalty Additional Amendment
Version ** Provisions * * Royalty Number
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Plus! EN, A, BP, (b), (d), US$6.00 US$_____ US$1.50 6
Version 1.0 CH, D, DA, (e)
for DU, EE, F, Estimated Estimated
Windows(R) 95 FF, FR, monthly monthly
HB, J, E, volume: volume:
DU, P, 6,000 _____
PRC, RU, Z
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
2. CD-ROM EN (a), (c), US$_____ US$_____ US$_____
Extensions (e) (Single (Single
Version 2.2 User) User)
for MS-DOS(R) Estimated Estimated
monthly monthly
volume: volume:
_____ _____
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* A Product is not licensed hereunder unless royalty rate(s) are indicated in
the Product table and the Product is indicated as licensed for one or more
Customer Systems in the Customer System table of this Exhibit C.
** Language Version Key: A = Arabic, BP = Portuguese (Brazil), CE = Cyrillic
Enabled, CH = Traditional Chinese, CZ = Czech, D = German, DA = Danish, DU =
Dutch, E = Spanish, EE = Eastern and Central European, EN = USA English, F =
French, FF = France's French, FI = Finnish, HAN = Hangeul, HB = Hebrew, HUN =
Hungarian, I = Italian, J = Japanese, N = Norwegian, P = Portuguese, PE = Pan
European English, POL = Polish, PRC = PRC Simplified Chinese, RU = Russian, SL =
Slovenian, SW = Swedish, TH = Thai, TR = Turkish, Z = International English. If
COMPANY is licensed for the EN version of Product and if a Localization
Additional Royalty is specified in the Product table above, then in addition to
the language versions specified in the Product table above, COMPANY may receive
Product Deliverables for the licensed Product in available language versions
listed in the Language Key (except CH, HAN, J, and PRC which may only be added
by amendment) by sending a written request to the attention of OEM Accounting
Services at the address listed in Exhibit N for royalty reports.
- 28 -
<PAGE>
INITIAL PAYMENT AMOUNT
The Initial Payment Amount for Products licensed under this Exhibit C shall be
Zero Dollars (US$0.00), and shall be paid in accordance with Section 3(b) of the
Agreement.
ADDITIONAL PROVISIONS KEY
(Note: Only those Additional Provisions applicable to licensed
Product(s) appear. Section lettering may not be consecutive)
(a) For each copy of the Product licensed by COMPANY on a multiple-user basis,
COMPANY shall pay the royalty rate described above for each user up to a maximum
of five (5) users, plus one- half of the royalty rate for each additional user
in excess of five (5) users [For example, where the royalty specified in the
table above is R, if COMPANY licenses the Product for ten (10) users, the
royalty due for such unit of Product would be the sum of 5R + 2.5R].
(b) This Product is designed for use with Windows 95 and may not function
properly with other operating system products.
(c) The royalty rate(s) specified above require pre-installation of the Product
on each Customer System distributed with the Product.
(d) The royalty rate(s) specified above require pre-installation of the Product
on each Customer System distributed with the Product, except for those Customer
System(s) on which COMPANY preinstalls multiple language versions of Windows 95
in accordance with the Exhibit C for Windows 95.
(e) Provided a "per copy" royalty rate is listed for the Product in the table
above, if COMPANY distributes this Product with a computer system which is not
listed as licensed for this Product in the Customer System table of this Exhibit
C, but which otherwise meets all of the requirements for a "Customer System" for
this Product, then such computer system shall be deemed a licensed Customer
System for the Product on a per copy basis and COMPANY agrees to comply with all
of the terms and conditions of this Agreement with respect to any such
distribution of Product.
- 29 -
<PAGE>
CUSTOMER SYSTEMS
COMPANY's Customer Systems shall be the assembled computer systems described in
the table below which (i) are configured for use only by a single user, (ii) are
designed to use a video display and keyboard; and (iii) include at least a CPU,
a motherboard, a power supply, and a case. Each listed Customer System must have
a unique model line name, model name, or model number which COMPANY uses both
internally (in COMPANY's books and records) and externally (on the Customer
System case and packaging). For each Product which COMPANY chooses to license
for distribution with the listed Customer System, the letter "s" or "c" in the
relevant box indicates whether COMPANY is licensing the Product on a "per
system" or "per copy" basis, respectively. New models may be added by agreement
of the parties.
At COMPANY's option, for purposes of administrative convenience, COMPANY may
designate models by model line or series, e.g., "Jaguar model line", "Jaguar Pro
series", "Jaguar Pro 750 model line", "Jaguar Pro 950 series", etc.)." Customer
Systems defined by model line or series shall include all present models which
include the designated model line or series name, (e.g., "Jaguar Pro model line"
includes Jaguar Pro, Jaguar Pro 950, Jaguar Pro S, etc.; "Jaguar series"
includes Jaguar, Jaguar Pro, Jaguar Pro 950, Jaguar S400, etc.; "Jaguar Pro 950
series" includes Jaguar Pro 950, Jaguar Pro 955, etc.).
In the event that COMPANY designates models by model line or series in this
Exhibit C, then COMPANY may elect to include as Customer System(s) new models in
the model line or series by including any such new model(s) on its royalty
report for the reporting period in which each such new model is first
distributed with the Product. Unless otherwise agreed to by the parties prior to
COMPANY's first distribution of a new model with the Product, each such new
model designated on a royalty report shall be licensed for the remainder of the
term of the Agreement on the same basis (i.e., per system or per copy) as the
other models in the model line or series and shall bear the applicable royalty
set forth in this Exhibit C. Any new model in the model line or series which is
not included in a royalty report as a licensed Customer System (and is thus not
licensed for the applicable Product) must have a unique model number or model
name used for internal and external identification purposes which distinguishes
it from any model which COMPANY has designated previously as a Customer System.
- 30 -
<PAGE>
Product Number Key: 1 = Plus! 1.0; 2 = CD-ROM Extensions 2.2
Royalty Basis Key: C = per copy, S = per system; if Product box is blank, such
Product is not licensed for distribution with the listed Customer System.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Product Number
- - ------------------------------------------------------------------------------------------------------------------------------------
Processor
Model Name or Model Number Type 1 2 3 4 5 6 7 8
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Magitronic i486 S
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Pentium S
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Pentium S
Pro
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Cyrix S
5x86
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Cyrix S
6x86
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic AMD 486 S
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic AMD K5 S
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPANY hereby represents and warrants that the names and numbers indicated in
the Model Name or Model Number column in the table above accurately denote the
actual designation used by COMPANY to identify the listed models (on the
Customer System case and in COMPANY's internal books and records).
- 31 -
<PAGE>
EXHIBIT C7
WINDOWS NT(R) WORKSTATION UPGRADE
(Per Copy)
* If Royalty Basis, Language Version(s), and Maximum Number of Units of Product
are not specified for a particular Product in the table below, then such Product
is not licensed under this Agreement.
** Language Key: D = German, E = Spanish, EN = English, FR = French, J =
Japanese
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
Product Name Language Applicable Royalty/ Non- Maximum Added by
and Version Version(s) Additional Basis* English Number of Amendment
** Provisions Additional Units of Number
Royalty Product*
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Windows NT(R) EN (a), (b), US$55.00 US$6.00 200 6
Workstation (c), (d), per copy
Upgrade (e), (f),
Version 4.0 (g), (h)
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
ROYALTY CALCULATION, ORDER, AND PAYMENT
Notwithstanding anything to the contrary contained in Section 3 of the
Agreement, the following royalty calculation, order and payment terms shall
apply to this Product:
1. COMPANY agrees to pay MS the royalty rates set forth above for each unit of
Product ordered by COMPANY.
2. In addition, COMPANY agrees to pay MS the Non-English Additional Royalty
specified above for each full or partial unit of Non-English versions of Product
ordered by COMPANY. Non- English versions are provided if and when available.
3. COMPANY may order no more than the Maximum Number of Units of Product
indicated in the Product Table above.
4. COMPANY shall prepay to MS the royalties due for each unit of Product in
advance of each order placed with the Authorized Replicator by wire transfer in
accordance with the royalty payment information specified in Attachment 1
hereto. COMPANY shall identify the quantity of each language version of Product
to be ordered when making payment. Each payment must be for a minimum of one
hundred (100) units of Product. Royalties exclude any charges by Authorized
- 32 -
<PAGE>
EXHIBIT C7
(Continued)
Replicator for units of Product ordered by COMPANY. COMPANY must make Product
order prepayments for a given language version of Product before the Product
Distribution Expiration Date specified for such language version specified in
the Product Upgrade Program Schedule below.
PRODUCT UPGRADE PROGRAM SCHEDULE
The current Product Upgrade Program Schedule is set forth in the table below for
each language version of the Product. MS may, in its sole discretion, extend the
Product Upgrade Program Schedule for one or more of the language versions of
product on written notice to COMPANY.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
Language Version of Product English French, Japanese
German &
Spanish
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Product Distribution Expiration December 31, December 31, March 31,
Date 1996 1996 1997
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL PROVISIONS KEY
(a) COMPANY agrees that it will not distribute Product until MS advises its OEM
customers generally that Customer Systems with Windows NT Workstation Version
4.0 may be distributed.
(b) Notwithstanding anything to the contrary contained in Sections 2 and 6 of
the Agreement, COMPANY shall distribute the Product only in the form/packaging
available from the Authorized Replicator.
(c) For purposes of this Exhibit C, "Customer System" shall mean COMPANY
computer systems which COMPANY can conclusively establish: (i) were distributed
with a specific language version of Windows NT Workstation Version 3.51 ("Prior
Product") prior to the Product Distribution Expiration Date specified for such
language version in the Product Upgrade Program Schedule above in compliance
with a valid OEM license agreement between COMPANY and MS; and (ii) were
marketed and distributed under COMPANY's or COMPANY Subsidiaries' (and not any
third party's) brandnames and trademarks.
(d) Notwithstanding anything to the contrary contained in Sections 2 and 6 of
the Agreement, COMPANY may distribute the Product only as an "upgrade" provided
by COMPANY separate from a Customer System directly (without use of dealers or
other intermediaries) to an existing authorized end-user of the Prior
- 33 -
<PAGE>
EXHIBIT C7
(Continued)
Product on a Customer System. COMPANY's license to distribute each language
version of the Product under this Exhibit C shall expire on the Product
Distribution Expiration Date specified for such language version in the Product
Upgrade Program Schedule above.
(e) COMPANY shall acquire the Product through one Authorized Replicator of
COMPANY's choice. COMPANY shall notify MS of the Authorized Replicator through
which COMPANY will acquire the Product prior to placing the first order for
Product.
(f) This Product may only be distributed to end user customers located within
the geographical boundaries of the United States of America, Canada, Europe and
Japan.
(g) In order to support end-users of this Product, COMPANY agrees to employ at
all times at least one support technician who has successfully completed, at
COMPANY's expense, the Microsoft Certified Professional program for this
Product.
(h) All marketing or promotion of the Product shall be targeted exclusively to
end users of Customer Systems, as defined in this Exhibit C. COMPANY shall
insert coupons or other promotional materials to offer the Product to end users
inside packages of Customer Systems. COMPANY shall ensure that such coupons or
materials expire not later than the Product Distribution Expiration Date set
forth in the Product Upgrade Program Schedule above. COMPANY shall distribute
the Product only to those end users who request the Product to be provided.
- 34 -
<PAGE>
ATTACHMENT 1
TO EXHIBIT C7 FOR WINDOWS NT WORKSTATION UPGRADE
- - --------------------------------------------------------------------------------
WINDOWS NT WORKSTATION UPGRADE VERSION 4.0--
OEM PROGRAM ROYALTY PAYMENT INFORMATION
Please complete this form and fax to
OEM Accounting Services
FAX: 206-936-5298
PHONE: 206-882-8080
US/Canada Contact: Jayne McKelvy
International Contact: Leanne Furugori
1). Company Name:
2). License ID #:
3). (a) Total Quantity this Order:
(b) Quantity of Non-English Versions:
4). Payment amount:
5). Date of Payment:
6). MS Authorized Replicator
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
If COMPANY is a U.S.A. or If COMPANY is based outside
Canada based company, payments the U.S.A. and Canada,
shall be made by wire transfer payments shall be made by wire
to: transfer to:
- - --------------------------------------------------------------------------------
Microsoft Corporation Microsoft Corporation
c/o First Interstate Bank c/o Citibank N.A.
of Washington 399 Park Avenue
Seattle Main Branch New York, NY 10043
Seattle, WA U.S.A.
U.S.A. ABA 021000089
ABA 125-000-286 SWIFT Code: CITIUS33
SWIFT Code: FIWAUS66 Account #38468231
Account #001-025865
Regarding: Microsoft OEM Regarding: Microsoft OEM
Upgrade Order Prepayment Upgrade Order Prepayment
- - --------------------------------------------------------------------------------
COMPANY agrees to ensure that the regarding line stated above, the MS license
agreement number for the Agreement, and the MS invoice number (if any) are
specified on each wire transfer payment made pursuant to the Agreement.
- - --------------------------------------------------------------------------------
Microsoft internal use on:
Accounting Services document control number:
- - --------------------------------------------------------------------------------
- 35 -
<PAGE>
EXHIBIT D
BRAND NAMES AND TRADEMARKS
(This Exhibit D only applies to Products licensed in accordance
with those Exhibit(s) C which do not contain a "COMPANY Brand
Names and Trademarks" Section, if any)
COMPANY AND COMPANY SUBSIDIARIES BRAND NAMES AND TRADEMARKS
If COMPANY Customer Systems are marketed, licensed, or distributed under
COMPANY's or COMPANY Subsidiaries' brand names and trademarks which do not
include COMPANY's name, those brand names and trademarks must be listed below:
Brand Names & Trademarks
1. Magitronic
2.
THIRD PARTY BRAND NAMES AND TRADEMARKS
If COMPANY Customer Systems are marketed, licensed, or distributed by a third
party under brand names and trademarks which do not include COMPANY's name,
those brand names and trademarks and model names used for the Customer Systems
by a third party must be listed below. As provided in the applicable Exhibit(s),
COMPANY may not distribute certain Products with COMPANY Customer Systems that
---
are marketed or distributed under any third party brand names or trademarks.
Brand Names & Trademarks Customer System Model Name Used
by Third Party
1.
2.
- 36 -
<PAGE>
EXHIBIT F
SUPPLEMENT RIGHTS
The purpose of this Exhibit is to set forth additional license rights and
related restrictions which may apply to Supplement(s) as may be provided by MS
from time to time. The actual additional license rights and related restrictions
for each Supplement shall be identified in the "Supplement Addendum" for each
such Supplement. The license rights shall be royalty-free and, except as
specified in the applicable Supplement Addendum, shall be subject to the terms
and conditions of the Agreement. COMPANY's license rights to Supplement(s) shall
expire the earlier of: (i) termination or expiration of COMPANY's license rights
to the Product to which the Supplement corresponds, or (ii) termination or
expiration of the Agreement.
1. "Reproduction Rights", if
granted, shall mean:
(a) Reproduce, in accordance
with specifications provided by
MS, the Supplement software in
object code form on external
media (i.e., diskette or CD-
ROM) and end user documentation
for the Supplement, if any.
(b) Reproduce Product names
and Product trademarks on
packaging, labels, and end user
documentation for the
Supplement subject to the
following restrictions:
(i) COMPANY'S labeling and
packaging for the Supplement
shall clearly indicate that the
Supplement is a supplement to
and/or replacement of the
Product provided by COMPANY for
use on COMPANY'S Computer
Systems;
(ii) COMPANY will cause to
appear on the container and
labels of Supplement the
copyright, trademark and patent
notice(s), as they appear on
the applicable release of
Product Deliverables; and
(iii) COMPANY'S name and/or
trademarks shall not be
displayed in relation to
Product name in a manner which
suggests that COMPANY's name
and/or trademarks are part of
the Product name. COMPANY's
name and/or trademarks shall be
displayed on the packaging and
disk labels more prominently
than the name "Microsoft".
- 37 -
<PAGE>
2. "Distribution on External
Media with Customer Systems
Rights", if granted, shall
mean:
(a) Distribute one (1) copy of
the Supplement software,
reproduced in accordance with
the reproduction rights granted
for such Supplement, with each
of Company's licensed Customer
Systems to be distributed with
Product, subject to the
following conditions:
(i) COMPANY shall include with
each copy of the Supplement a
EULA addendum which shall be
substantially similar to the
sample addendum attached hereto
as Attachment 1, except that it
shall be adapted as may be
required by the laws of any
non-USA jurisdiction in which
COMPANY distributes the
Supplement.
3. "Distribution to Existing
End Users Rights", if granted,
shall mean:
(a) Distribute one (1) copy of
the Supplement software, as
acquired from an Authorized
Replicator if available, or
reproduced in accordance with
the reproduction rights, if
any, granted for such
Supplement, to licensed end
users of COMPANY's Customer
Systems originally distributed
with the Product, subject to
the following conditions:
- 38 -
<PAGE>
(i) The Supplement shall be
distributed directly from
COMPANY or an MS-authorized
fulfillment source;
(ii) COMPANY shall include
with each copy of the
Supplement a EULA addendum
which shall be substantially
similar to the sample addendum
attached hereto as Attachment
1, except that it shall be
adapted as may be required by
the laws of any non-USA
jurisdiction in which COMPANY
distributes the Supplement; and
(iii) COMPANY shall offer the
Supplement at no charge except
that COMPANY may charge its
reasonable cost of materials
and shipping and handling
costs.
4. "Distribution via Bulletin
Boards Rights", if granted,
shall mean:
(a) Post and maintain the
object code version of the
Supplement on COMPANY's point
to point communication link by
modem (not Internet) bulletin
board corner(s)" ("BBS") for
distribution to end users of
COMPANY'S Customer Systems
originally distributed with
Product, subject to the
following conditions:
- 39 -
<PAGE>
(i) COMPANY shall ensure that
each copy of the Supplement
includes a EULA addendum which
is substantially similar to the
sample addendum attached hereto
as Attachment 1, except that it
shall be adapted as may be
required by the laws of any
non-USA jurisdiction in which
COMPANY distributes the
Supplement and
(ii) COMPANY shall offer the
Supplement at no charge to end
users.
5. "Distribution via Internet
Link Rights", if granted, shall
mean:
(a) Create and maintain a link
on COMPANY's Internet home
page(s) to MS' copy of the
Supplement on MS' Internet home
page(s), at the Universe
Resource Locator(s) listed in
the Supplement Addendum.
6. "Distribution via Internet
Page Rights", if granted, shall
mean:
(a) Post and maintain the
object code version of the
Supplement on COMPANY's home
page(s) on the Internet for
distribution to end users of
COMPANY's Customer Systems
originally distributed with
Product, subject to the
following conditions:
- 40 -
<PAGE>
(i) Company shall include with
each copy of the Supplement a
EULA addendum which is
substantially similar to the
sample addendum attached hereto
as Attachment 1, except that it
shall be adapted as may be
required by the laws of any
non-USA jurisdiction in which
the Supplement is distributed;
and
(ii) COMPANY shall offer the
Supplement at no charge to end
users.
7. "Other Rights", if granted,
and restrictions shall be as
set forth in the applicable
Supplement Addendum.
- 41 -
<PAGE>
ATTACHMENT 1 TO EXHIBIT F
-------------------------
ADDENDUM TO THE MICROSOFT SOFTWARE LICENSE AGREEMENT
FOR
----------------------
IMPORTANT READ THIS FIRST. By using the software files (the "Software") provided
with this Addendum, you are agreeing to be bound by the following terms. If you
do not agree to be bound by these terms, you may not use the Software.
---
The Software is provided for the sole purpose of replacing or supplementing
certain portions of a licensed copy of the above listed Microsoft software
product ("ORIGINAL PRODUCT"). Upon installation, the Software files become a
part of the ORIGINAL PRODUCT and are subject to the same warranty and license
terms and conditions as the ORIGINAL PRODUCT. If you do not have a valid license
to use the ORIGINAL PRODUCT, you may not use the Software. Any other use of the
Software is prohibited.
- 42 -
<PAGE>
AMENDMENT NUMBER 7
Amendment Date: September 1, 1996
to MICROSOFT OEM LICENSE AGREEMENT FOR DESKTOP OPERATING SYSTEMS
between MICROSOFT CORPORATION, a Washington, U.S.A. Corporation
and LIUSKI INTERNATIONAL, INC., a Corporation of New York
Agreement Effective Date: October 1, 1994
MICROSOFT LICENSE # 4415-4291
Effective as of the Amendment Date indicated above, the below signed parties
agree that the indicated portions of the above referenced license agreement
(hereinafter the "Agreement") are hereby amended by this instrument (hereinafter
the "Amendment"), as follows:
1. Exhibit C5 shall be replaced by attached Exhibit C8.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement. The terms of this Amendment shall supersede
any inconsistent terms contained in the Agreement.
NOTICE:
For Product(s) specified in Exhibit C as licensed under the "per system" royalty
calculation provisions, please note the following:
This is a Microsoft Per System License. As a Customer, you may create a "New
System" at any time that does not require the payment of a royalty to Microsoft
unless the Customer and Microsoft agree to add it to the License Agreement.
Any New System created may be identical in every respect to a system as to which
the Customer pays a Per System royalty to Microsoft provided that the New System
has a unique model number or model name for internal and external identification
purposes which distinguishes it from any system the Customer sells that is
included in a Per System License. The requirement of external identification may
be satisfied by placement of the unique model name or model number on the
machine and its container (if any), without more.
If the Customer does not intend to include a Microsoft operating system product
with a New System, the Customer does not need to notify Microsoft at any time of
the creation, use or sale of any such New System, nor does it need to take any
particular steps to market or advertise the New System.
- 43 -
<PAGE>
Under Microsoft's License Agreement, there is no charge or penalty if a Customer
chooses at any time to create a New System incorporating a non-Microsoft
operating system. If the Customer intends to include a Microsoft operating
system product with the New System, the Customer must so notify Microsoft, after
which the parties may enter into arm's length negotiation with respect to a
license to apply to the New System.
IN WITNESS WHEREOF, the parties have executed this Amendment in duplicate as of
the date first written above. All signed copies of this Amendment shall be
deemed originals. This Amendment is executed only in the English language.
MICROSOFT CORPORATION LIUSKI INTERNATIONAL, INC.
- - ------------------------------ ------------------------------
By By
- - ------------------------------ ------------------------------
Name (Print) Name (Print)
- - ------------------------------ ------------------------------
Title Title
- - ------------------------------ ------------------------------
Date Date
- 44 -
<PAGE>
EXHIBIT C8
WINDOWS DESKTOP FAMILY
PRODUCT TABLE
<TABLE>
<CAPTION>
Product Language Applicable Per System Per Copy Localization Added by
Name and Version(s) Additional Royalty Royalty Additional Amendement
Version ** Provisions * * Royalty Number
<S> <C> <C> <C> <C> <C> <C>
1.Windows Desktop Royalty: Royalty:
Family: (a) US$67.00 US$75.00 US$6.00 6
A EN, A, BP, (a), (b), Royalty Royalty Localization
Windows(R) 95 CH, D, DA, (c), (f) Specified Specified Additional
operating DU, EE, F, for for Royalty
system, OR FF, FR, Windows Windows Specified for
HB, J, E, Desktop Desktop Windows
DU, P, Family Family Desktop
PRC, RU, Z Above Above Family Above
B. MS-DOS(R) EN, A, BP, (a), (c), Royalty Royalty Localization
operating CH, D, DA, (e), (f) Specified Specified Additional
system DU, EE, F, for for Royalty
Version FF, FR, Windows Windows Specified for
6.22 and HB, J, E, Desktop Desktop Windows
Enhanced DU, P, Family Family Desktop
Tools for PRC, RU, Z Above Above Family Above
MS-DOS(R)
Version 1.0
and
Windows(R)
operating
system
Version
3.1, OR
C EN, A, BP, (a), (c), Royalty Royalty Localization
MS-DOS(R) CH, D, DA, (d), (f) Specified Specified Additional
operating DU, EE, F, for for Royalty
system FF, FR, Windows Windows Specified for
Version HB, J, E, Desktop Desktop Windows
6.22 and DU, P, Family Family Desktop
Enhanced PRC, RU, Z Above Above Family Above
Tools for
MS-DOS(R)
Version 1.0
and
Windows(R)
for
Workgroups
operating
system
Version
3.11, OR
- 45 -
<PAGE>
D. EN, A, BP, (a), (b), US$65.00 US$75.00 US$6.00
Windows NT(R) CH, D, DA, (c), (g)
Workstation DU, EE, F, In In In Addition
Version 4.0 FF, FR, Addition Addition to the
(x86/ HB, J, E, to the to the Localization
Pentium(TM) DU, P, Royalty Royalty Additional
compatible PRC, RU, Z Specified Specified Royalty
version for for Specified
Windows Windows for Windows
Desktop Desktop Desktop
Family Family Family Above
Above Above
Estimated Estimated
Monthly Monthly
Volume for Volume for
Windows Windows
Desktop Desktop
Family: Family:
6,000 -----
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
2. Windows(R) EN (c), (d), Royalty Royalty US$4.00
for (f), (h) US$----- US$-----
Workgroups
operating
system
Version
3.11
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
3. Windows(R) EN (c), (e), Royalty Royalty US$4.00
operating (f), (h) US$----- US$-----
system
Version 3.1
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
4. MS-DOS(R) EN (c), (e), Royalty Royalty US$2.00
operating (f) US$---- US$-----
system
Version
6.22
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
5. Enhanced EN (c), (e), Royalty US$0.50
Tools (f) US$-----
Version
1.02 for
MS-DOS(R)
6.22
- - ------------------------------------------------------------------------------------
</TABLE>
* A Product is not licensed hereunder unless royalty rate(s) are indicated in
the Product table and the Product is indicated as licensed for one or more
Customer System(s) in the Customer System table of this Exhibit C.
** Language Version Key: A = Arabic, BP = Portuguese (Brazil), CE = Cyrillic
Enabled, CH = Traditional Chinese, CZ = Czech, D = German, DA = Danish, DU =
- 46 -
<PAGE>
Dutch, E = Spanish, EE = Eastern and Central European, EN = USA English, F =
French, FF = France's French, FI = Finnish, HAN = Hangeul, HB = Hebrew, HUN =
Hungarian, I = Italian, J = Japanese, N = Norwegian, P = Portuguese, PE = Pan
European English, POL = Polish, PRC = PRC Simplified Chinese, RU = Russian, SL =
Slovenian, SW = Swedish, TH = Thai, TR = Turkish, Z = International English. If
the release listed in the Product Table above is not available in a particular
licensed language, COMPANY's license shall include the latest available
preceding release in such language. If COMPANY is licensed for the EN version of
Product and if a Localization Additional Royalty is specified in the Product
table above, then in addition to the language versions specified in the Product
table above, COMPANY may receive Product Deliverables for the licensed Product
in available language versions listed in the Language Key (except CH, HAN, J,
and PRC which may only be added by amendment) by sending a written request to
the attention of OEM Accounting Services at the address listed in Exhibit N for
royalty reports. Localized versions are licensed on an if and as available
basis.
INITIAL PAYMENT AMOUNT
The Initial Payment Amount for Products licensed under this Exhibit C shall
be Zero Dollars (US$0.00), and shall be paid in accordance with Section
3(b) of the Agreement.
ADDITIONAL PROVISIONS KEY
(Note: Only those Additional Provisions applicable to
licensed Product(s) appear. Section lettering may not
be consecutive)
(a) If COMPANY is licensed for the Windows Desktop Family, COMPANY may
distribute not more than one (1) of the listed Product combinations or
Products (i.e., A or B or C or D) with each licensed Customer System.
COMPANY's report shall separately indicate the number of each such Product
or combination (A, B, C, or D) that COMPANY distributes. COMPANY shall
acquire all components of each unit of Product or combination of Products
to be distributed with a Customer System (i.e., APM, Product end user
documentation, and Product software on external media, as applicable) from
a single Authorized Replicator and in a single package or stock keeping
unit.
(b) (1) COMPANY is not licensed to, and agrees that it will not, modify, in
any way, or delete any aspect of the Product software (including, without
limitation, any features, shortcuts, icons, "wizards", folders (including
sub-folders) or programs of Product software) as delivered by MS in the
Product Deliverables, except if and as specifically permitted below or in
the OPK User's Guide ("OPK") provided in the Product Deliverables. In
particular, and without limitation, this means that COMPANY is not licensed
to and agrees that it will not:
(A) Modify or obscure, in any way, the sequence or appearance of any
screens displayed by the Product software as delivered by MS from the
- 47 -
<PAGE>
time the Customer System completes BIOS processing after being
switched on by the end user and transfers control to the Product
software loaded from the hard disk ("End User Boot") until the time
that the "Welcome to [Product name]" program has been run and closed
by the end user and the Customer System displays the Product software
"desktop" screen defined in the OPK ("Desktop Screen").
(B) Except as provided in (C), display any content (including visual
displays or sound) from End User Boot through and including the time
that the Customer System has displayed the Desktop Screen.
(C) Modify or obscure, in any way, the appearance of the Desktop Screen
(including without limitation, the addition or modification of
background wallpaper bitmaps displayed upon End User Boot); provided,
however, that COMPANY may add icons or folders to the Desktop Screen
provided that any such icons are the same size and substantially
similar shape as icons included on the Desktop Screen as delivered by
MS and that any such folders are the same size, shape and appearance
as folders included on the Desktop Screen as delivered by MS.
(D) Use any portion of Product software to enable any programs or other
content to run or appear prior to End User Boot.
(E) Configure any programs (including without limitation any "shells",
"screen savers" or "welcome" scripts), "wizards" or other content to
be enabled, run or initialized automatically (i.e. without requiring a
deliberate act of the end user) from an icon or folder on the Desktop
Screen or from the "Start" Menu of the Desktop Screen or otherwise. By
way of example only, and without limiting the generality of the
foregoing, COMPANY agrees that it shall not (1) populate with any
programs or other content the Product software "Start- up" directory
(i.e., "Windows\Start\Menu\Programs\StartUp" folder for Windows 95, or
"%windir%\profiles\user(s)\Start Menu\Programs\Startup" folder for
Windows NT Workstation) or (2) populate the boot.ini, config.sys,
autoexec.bat, win.ini, system.ini, system.dat or user.dat files in any
manner which will cause any program or content to run or load
automatically upon End User Boot, except for device drivers necessary
to support preinstalled or preconfigured hardware devices (e.g.,
network cards, printers, etc.).
- 48 -
<PAGE>
(F) Modify or add content to any directories installed by the Product
software, except as permitted in the OPK for preinstallation of
applications by COMPANY.
(2) If COMPANY enters registration information on behalf of end users in
the boxes provided for the on-screen end user registration process for the
Product software, COMPANY shall not enter its own name or make any other false
or fictional registrations. COMPANY may not (i) relieve end users of their
obligations to enter Certificate of Authenticity ("COA") registration numbers in
the on-screen end user registration process and to reply to on-screen end user
license agreement inquiries or (ii) insert COA registration numbers or reply to
end user license agreement inquiries for or on behalf of end users.
(3) With respect to Windows 95, if and only if COMPANY distributes the
Product software solely as Preinstalled Product Software (i.e., without a
back-up copy of the Product on CD, diskette, magnetic tape, or other external
media) with any Customer System, then COMPANY shall also preinstall the
Microsoft Create System Disk Tool together with the back-up diskette images
("CAB" files) contained in the OPK on the hard disk drive of such Customer
System to enable the end user to make a back-up copy of the Product software
according to the terms of the EULA. Diskette images may only be used with the
Microsoft Create System Disk Tool. COMPANY may not distribute, use, or authorize
the use of the Microsoft Create System Disk Tool or diskette images except as
provided in this Additional Provision or as specified in the OPK.
(4) With respect to Windows 95, notwithstanding anything to the contrary
contained in the definition of "Product Release" in this Agreement, Windows 95
(and any subsequent releases of Windows which may be designated by a change in
the calendar year - e.g., Windows 96, 97, 98, etc.) shall be deemed to be a
Product Release.
(5) Any EULA for the Product distributed by COMPANY must be identical to
the on screen EULA presented to the end user during Product setup.
(6) COMPANY agrees that it will preinstall and begin shipment of the most
current licensed release of Product (i.e., Product Release, Version Release,
Update Release or Supplement) on all Customer System models first distributed on
or after the ninetieth (90th) day (or an earlier date, at COMPANY's option)
following MS' shipment of the corresponding OPK or OPK supplement for such
release; provided that if shipment of the OPK or OPK supplement from MS occurs
between September 1st and October 31st of a given calendar year, COMPANY agrees
that it will begin shipment of most current licensed release of Product no later
than February 1st of the following year.
- 49 -
<PAGE>
(c) (1) Notwithstanding anything to the contrary contained in the Agreement
(including Exhibits), COMPANY may distribute Product(s) only with Customer
Systems which are marketed and distributed exclusively under COMPANY's or
COMPANY Subsidiaries' brand names, trade names and trademarks. The Product(s)
may not be distributed with Customer Systems which are marketed or distributed
under any name which includes any third party brand names, trade names or
trademarks. If, at any time, MS becomes aware of any violation of the foregoing,
then without limiting its remedies, MS may charge COMPANY for each such Customer
System an additional royalty equal to thirty percent (30%) of the highest
royalty for the Product(s). COMPANY shall pay such additional royalty within
thirty (30) days of receipt of MS' invoice.
(2) The royalty rate(s) specified above require pre- installation of the
Product as the "default" operating system on each Customer System distributed
with the Product (i.e., the Product will set up and execute unless the user
configures the Customer System otherwise). COMPANY shall preinstall the Product
software solely in accordance with the installation instructions set forth in
the OPK Users Guide" included in the preinstallation kit portion of the Product
Deliverables ("OPK"). COMPANY may use the information, tools and materials
contained in the OPK solely to preinstall the Product software in accordance
with the OPK User's Guide and for no other purpose. Other than as specified in
the OPK User's Guide, COMPANY shall not modify the Product software, nor delete
or remove any features or functionality without the written approval of MS in
each instance.
(3) The following shall replace Section 3(a)(iii) with respect to Products
licensed in accordance with this Exhibit C:
"(iii) If in any three monthly reporting periods
(whether or not consecutive), COMPANY's reported shipments
of the applicable Customer Systems licensed for the Windows
Desktop Family (if licensed on a per system basis) or units
of Windows Desktop Operating System Family (if licensed on a
per copy basis) are twenty percent or more below COMPANY's
estimated monthly volume specified for such basis (i.e., per
copy or per system) for the Windows Desktop Family in the
Product table above, COMPANY and MS shall negotiate an
increase in the royalty rate(s) for all Product(s) licensed
under this Exhibit C on such basis to reflect COMPANY's
lower shipment volumes. If, for any reason, MS and COMPANY
are unable to agree upon new royalty rate(s) within thirty
(30) days after the date COMPANY's royalty report is due for
the third such low-volume month, COMPANY's royalty rate(s)
for each of the Products licensed under this Exhibit C on
such basis shall increase by twenty percent (20%). Such
increased royalty rate(s) shall be in effect for the
remainder of the term of the Agreement commencing with the
- 50 -
<PAGE>
monthly reporting period following the third low-volume
month. Provided, however, that if COMPANY's reported monthly
volume for such basis of Windows Desktop Family returns to
or exceeds the original estimated monthly volume for any
three (3) consecutive months thereafter, COMPANY's royalty
rate(s) for all Product(s) licensed under this Exhibit C on
such basis shall be restored to the rate(s) specified in the
Product table above commencing with the monthly reporting
period following such three consecutive months."
(4) Shipments of (i) Windows, Windows for Workgroups, MS- DOS, and Enhanced
Tools licensed hereunder on an individual Product basis, or (ii) of Customer
Systems licensed solely for such Products on an individual Product basis, shall
not be included in the calculation of COMPANY's shipments for purposes of
determining the Estimated Monthly Volume(s) for Windows Desktop Family Products
in the Product table above. Accordingly, shipment of such Products and Customer
Systems shall not be included in the calculation of shipments necessary to
maintain the current royalty rate(s) in accordance with Additional Provision
(c)(3) above.
(5) COMPANY's license for this Product under this Exhibit C shall be
effective as of the later of (i) the Effective Date of the Agreement; (ii) the
Amendment Date of the Amendment by which this Exhibit C is added to the
Agreement, or (iii) August 1, 1996.
(6) If the same Customer System is licensed on a per system basis for both
the Windows System Family and for individual operating system Product(s) (e.g.,
Windows, Windows for Workgroups, or MS-DOS) in this Exhibit C, COMPANY shall be
relieved of its obligation to pay the royalty for the individual operating
system Product(s) provided that (i) COMPANY does not ship both the individual
operating system Product(s) and the Windows Desktop Family with such Customer
System; and (ii) COMPANY reports and pays MS the royalty due for the Windows
Desktop Family.
(7) COMPANY may not (i) distribute both Windows 95 and any other MS
operating system Product with the same Customer System; (ii) distribute both
Windows NT Workstation and any other MS operating system Product with the same
Customer System; or (iii) distribute both Windows and Windows for Workgroups
with the same Customer System.
(8) Provided a "per copy" royalty rate is listed for the Product in the
table above, if COMPANY distributes this Product with a computer system which is
not listed as licensed for this Product in the Customer System table of this
Exhibit C, but which otherwise meets all of the requirements for a "Customer
- 51 -
<PAGE>
System" for this Product, then such computer system shall be deemed a licensed
Customer System for the Product on a per copy basis and COMPANY agrees to comply
with all of the terms and conditions of this Agreement with respect to any such
distribution of Product.
(9) Notwithstanding anything to the contrary contained in Section 2,
COMPANY must distribute Product documentation with each Customer System
distributed with Product software. A COA must be affixed to or accompany each
copy of Product documentation.
(d) Windows for Workgroups version 3.11 includes Microsoft At Work fax
transmission software, which provides methods for stand- alone and networked
computers to send and receive fax messages with certain security levels. French
law (Decree 92-1358 of December 1992) generally prohibits the use in France of
such technology, unless special approvals are granted. Accordingly, OEMs should
provide only the version of Windows for Workgroups version 3.11 designed for
France to avoid violating the Decree.
(e) (1) The PRC language version of the Windows operating system Product is
version 3.2. The Japanese language version of the MS-DOS operating system is
version 6.2/V. The Japanese language version of Enhanced Tools for MS-DOS 6 is
1.0/V.
(2) The PRC language versions of Windows and MS-DOS are available with only
simplified Chinese character fonts licensed from a third party. COMPANY
acknowledges that such fonts may differ in quality and characteristics to
Chinese character fonts available in other Microsoft Products.
(3) The PRC language versions of Windows and MS-DOS are available only
through selected Authorized Replicators as specified by MS. From time to time,
MS shall provide an updated list of Authorized Replicators through which the PRC
language version of this Product is available.
(4) The packaging for the PRC language version of this Product distributed
with Customer Systems within or to the PRC shall be clearly marked in both
English and simplified Chinese, "Not for distribution or use outside the
People's Republic of China".
(f) (1) Notwithstanding anything to the contrary in Sections 2 and 6 of the
Agreement, COMPANY may install one or more language versions (listed in the
Language Version box above) of Product software with each applicable Customer
System provided that COMPANY complies with the following restrictions.
(i) COMPANY may distribute such multiple language versions of Product
software only in the form of Preinstalled Product Software. COMPANY may
- 52 -
<PAGE>
distribute only one backup copy of Product software in one language version for
use on each such Customer System;
(ii) COMPANY shall use the MS set-up utility included in the Product
Deliverables which allows the end-user to choose one, and only one, language
version of Product for the Customer System;
(iii) COMPANY shall follow all guidelines and procedures set forth in
the Product Deliverables regarding the installation, set-up, and initialization
of multiple language versions of Product software; and
(iv) COMPANY shall clearly indicate to end-users, including without
limitation, in advertising and on Customer System packaging, that end-users
shall have access to one language version only.
(2) COMPANY hereby indemnifies MS from and against all damages, costs and
attorneys' fees arising from claims or demands resulting from COMPANY's
distribution of multiple language versions including, without limitation, claims
that the end-user is entitled to use more than one language version of the
Product or that advertisements, Customer System packaging, or other
representations made by or for COMPANY are false and/or misleading.
(3) COMPANY's report shall separately indicate the number of Customer
Systems distributed with each combination of language versions of Product.
(4) Provided COMPANY complies with all terms and conditions of this
Agreement, including this Additional Provision (f), for purposes of the royalty
calculation provisions of Section 3, preinstallation of multiple language
versions of Product performed in accordance with the instructions for multiple
language installation provided in the OPK shall constitute "one language"
version. In such event, COMPANY shall pay the highest royalty applicable to the
language versions distributed.
(5) If COMPANY does not comply with all of the requirements stated above,
in addition to any other remedies MS may have, COMPANY shall pay MS the
applicable royalty for each language version of Product software included with
the Customer System.
(g) (1) Notwithstanding anything to the contrary contained in Section 2 of the
Agreement, COMPANY's license for this Product shall extend to Windows NT
Workstation version 3.51.
- 53 -
<PAGE>
(2) In order to support end-users of this Product, COMPANY agrees to employ
at all times at least one support technician who has successfully completed, at
COMPANY's expense, the Microsoft Certified Professional program for this
Product.
(3) Though the Product Deliverables for this Product may include versions
of the Product designed for other types of microprocessers, COMPANY is licensed
to distribute the Product only with and for use on Customer Systems based on the
Intel x86, Pentium or compatible architecture.
(4) If Customer System(s) licensed for this Product under this Exhibit C
are also licensed for a prior release of this Product under another agreement,
then:
(i) COMPANY's license to distribute such prior release of this Product
with such Customer Systems under the other agreement shall expire as of the end
of the calendar quarter in which the Effective Date of this Agreement or the
Amendment Date of the Amendment adding this Exhibit C, as applicable, occurs;
and
(ii) COMPANY shall pay and report for any licensed releases of this
Product only under this Agreement for such Customer Systems thereafter.
(5) The royalty rates specified in the Product table apply to shipment of
Customer Systems which are capable of utilizing one (1) or two (2)
microprocessors. For Customer Systems which are capable of utilizing three (3)
or four (4) microprocessors, COMPANY agrees to pay MS 2.5 times the royalty
rates specified in the Product Table [i.e., Royalty = 2.5 x (Windows Desktop
Family royalty + Windows NT Workstation additional royalty)]. COMPANY is not
licensed to distribute this Product on Customer Systems which are capable of
utilizing more than four (4) microprocessors.
(h) If the same Customer System is licensed on a per system basis for both
Windows and Windows for Workgroups, but is not licensed for the Windows Desktop
Operating System Family on a per system basis, COMPANY shall be relieved of its
obligation to pay the royalty for Windows provided that (i) COMPANY does not
ship both Windows and Windows for Workgroups with such Customer System; and (ii)
COMPANY reports and pays MS the royalty due for Windows for Workgroups.
CUSTOMER SYSTEMS
COMPANY's Customer Systems shall be the assembled computer systems described in
the table below which (i) are configured for use only by a single user; (ii) are
designed to use a video display and keyboard; and (iii) include at least a CPU,
a motherboard, a power supply, a hard disk drive (except if the Product software
is installed in ROM), and a case. Each listed Customer System must have a unique
- 54 -
<PAGE>
model line name, model name, or model number which COMPANY uses both internally
(in COMPANY's books and records) and externally (on the Customer System case and
packaging). For each Product which COMPANY chooses to license for distribution
with the listed Customer System, the letter "s" or "c" in the relevant box
indicates whether COMPANY is licensing the Product on a "per system" or "per
copy" basis, respectively. New models may be added by agreement of the parties.
At COMPANY's option, for purposes of administrative convenience, COMPANY may
designate models by model line or series (e.g., "Jaguar model line", "Jaguar Pro
series", "Jaguar Pro 750 model line", "Jaguar Pro 950 series", etc.). Customer
Systems defined by model line or series shall include all present models which
include the designated model line or series name, (e.g., "Jaguar Pro model line"
includes Jaguar Pro, Jaguar Pro 950, Jaguar Pro S, etc.; "Jaguar series"
includes Jaguar, Jaguar Pro, Jaguar Pro 950, Jaguar S400, etc.; "Jaguar Pro 950
series" includes Jaguar Pro 950, Jaguar Pro 955, etc.).
In the event that COMPANY designates models by model line or series in this
Exhibit C, then COMPANY may elect to include as Customer System(s) new models in
the model line or series by including any such new model(s) on its royalty
report for the reporting period in which each such new model is first
distributed with the Product. Unless otherwise agreed to by the parties prior to
COMPANY's first distribution of a new model with the Product, each such new
model designated on a royalty report shall be licensed for the remainder of the
term of the Agreement on the same basis (i.e., per system or per copy) as the
other models in the model line or series and shall bear the applicable royalty
set forth in this Exhibit C. Any new model in the model line or series which is
not included in a royalty report as a licensed Customer System (and is thus not
licensed for the applicable Product) must have a unique model number or model
name used for internal and external identification purposes which distinguishes
it from any model which COMPANY has designated previously as a Customer System.
- 55 -
<PAGE>
CUSTOMER SYSTEM TABLE
Product Number Key: 1 = Windows Desktop Family, 2 = Windows for Workgroups 3.11;
3 = Windows 3.1; 4 = MS-DOS 6.2; 5 = Enhanced Tools for MS-DOS 6.2
Royalty Basis Key: C = per copy, S = per system; Product box is blank, such
Product is not licensed for distribution with the listed Customer System.
<TABLE>
<CAPTION>
====================================================================================================================================
Product Number
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Processor
Model Name or Model Number Type 1 2 3 4 5 6 7 8
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic i486 S
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Pentium S
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Pentium S
Pro
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Cyrix S
5x86
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic Cyrix S
6x86
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic AMD 486 S
- - ------------------------------------------------------------------------------------------------------------------------------------
Magitronic AMD K5 S
- - ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
COMPANY hereby represents and warrants that the names and numbers indicated in
the Model Name or Model Number column in the table above accurately denote the
actual designation used by COMPANY to identify the listed models (on the
Customer System case and in COMPANY's internal books and records).
- 56 -
Exhibit 10(e)(e)
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT by and between LIUSKI INTERNATIONAL, INC.
("Sublessor") and GENERAL INSTRUMENT CORPORATION, OF DELAWARE, ("Sublessee"), is
executed this 8th day of January, 1996.
W I T N E S S E T H:
WHEREAS, Sublessee desires to sublet from Sublessor all that space located
at 2009 McKenzie Road, Suite 102, and demised and let to Sublessor (the
"Premises") pursuant to that certain Lease Agreement (the "Base Lease") dated
October 1, 1991, by and between Trammell Crow Company No. 91 and Petula
Associates Limited (together "Base Landlord") as Lessor and Liuski
International, Inc. as Lessee, a true and correct copy of which Base Lease is
attached hereto as Exhibit A and incorporated herein by reference for all
---------
purposes, such Base Lease having been assigned by Trammell Crow Company No. 91
to Petula Associates Limited and amended by that certain Extension and Amendment
No. __ to Lease Agreement dated March 16, 1993 and as further amended by that
certain Extension to Lease Agreement No. 2 dated April 25, 1995; and
WHEREAS, Sublessor desires to sublet to Sublessee the Premises on the
conditions hereinafter set forth; and
NOW, THEREFORE, Sublessor for and in consideration of the rents, covenants
and agreements hereinafter contained on the part of Sublessee to be paid, kept,
and performed does hereby sublet and demise unto Sublessee, and Sublessee hereby
takes and hires from Sublessor, the Premises together with all fixtures
installed therein subject to all terms and conditions contained in the Base
Lease, except as otherwise noted herein;
TO HAVE AND TO HOLD, the same unto Sublessee, its successors and assigns
for the term hereinafter described and upon the rental, terms, covenants,
conditions and provisions hereinafter set forth. Sublessor and Sublessee hereby
agree as follows:
1. Term. Unless otherwise terminated or extended under the terms hereof,
----
this Sublease shall be for a term beginning on the date hereof and ending two
years later (the "Sublease Term").
2. Base Rental. In consideration of this Sublease Agreement, Sublessee
-----------
promises and agrees to pay the Sublessor a basic rental of $6,643.10 per month
("Base Rent"), for the first calendar month and for each subsequent calendar
month during the Sublease Term, such basic rental for the first calendar month
payable upon the execution hereof and thereafter payable monthly in advance on
the first day of each calendar month during the Sublease Term. If the Sublease
commences or ends at any time other than the first day of the calendar month,
then the installment of Base Rent for such partial month shall be appropriately
prorated and rent for any partial calendar month at the commencement of the
Sublease Term shall be payable upon commencement of the Sublease Term.
1
<PAGE>
The Base Rent amount is inclusive of any and all amounts payable by
Sublessor to Base Landlord under the Base Lease, including but not limited to,
charges for electricity, water, landscaping, maintenance, taxes, insurance,
operating expenses and any other amounts set forth in paragraphs 2 and 3 of the
Base Lease. Notwithstanding the foregoing, Sublessee shall pay for all gas,
telephone, and sewer used by Sublessee on or at the Premises, together with any
taxes, penalties, surcharges or the like pertaining to the Sublessee's use of
the Premises (together, the, "Utilities"), and any maintenance charges for
Utilities only. In the event that any of these Utilities are jointly metered,
Sublessee shall pay its pro rata share, as reasonably determined by Sublessor,
of all charges therefor, Any amounts due under the Base Lease in excess of the
Base Rent and the Utilities shall bc the sole obligation of Sublessor.
3. Common Areas. Under the terms of this Sublease Agreement, Sublessee
-------------
shall have the use in common with other occupants with rights thereto to those
common areas shown on Exhibit B hereto.
---------
4. Repairs. Sublessee shall be responsible for the Lessee's Repairs set
-------
forth in paragraph 5 of the Base Lease only as such pertain to the improvements
on the Premises that Sublessee is using. Sublessor shall remain wholly liable
for maintenance of and repairs on all other parts of the Premises for which the
Lessee under the Sublease is responsible, including but not limited to, the
landscape and the grounds surrounding the Premises and the parking areas,
driveways and alleys surrounding the Premises; provided, however, that any
repairs necessitated by Sublessee's use of the Premises or the area surrounding
the Premises shall be the responsibility of Sublessee. Sublessee will not accept
assignment of nor assume any liability under any preventive maintenance/service
contract for HVAC and not water systems and equipment on the Premises or any
contract for Security and/or protective services for the Premises.
5. Railroad. Sublessor represents and warrants that there are no spur or
--------
rail tracks serving the Premises nor are there any repair and/or maintenance
obligations for any rail or spur tracks affecting the Premises for which the
Lessee under the Base Lease would be responsible, in whole or in part. Sublessor
agrees to indemnify and hold harmless Sublessee against all liabilities and
costs arising from claims related to any such maintenance or repair obligation.
2
<PAGE>
6. Alterations. Sublessor consents to Sublessee making, at its sole option
-----------
and expense, the alterations, additions or improvements to the Premises shown on
Exhibit C attached hereto, provided that such alterations, additions or
- - ----------
improvements are in compliance with the requirements set forth in the second
sentence of paragraph 6 of the Base Lease. Sublessee shall not make any other
alterations, additions or improvements to the premises, unless otherwise allowed
by the Base Lease, without the prior written consent of the Base Landlord.
Except as otherwise set forth herein, all alterations, additions or improvements
made by Sublessee to the Premises shall remain on the Premises at the
termination of this Sublease and Sublessee shall have no obligation restore the
Premises to its condition at the date of this Sublease. Notwithstanding the
foregoing, the improvements made to the "IQC" and "PPHE" rooms, as set forth in
that certain letter from Trammell Crow Dallas/Fort Worth to Bill Morin of
General Instrument, dated December 6, 1995, set forth as Exhibit D hereto, shall
---------
be removed on or before the earlier to occur of the date of termination of this
Sublease or the vacating of the Premises, at which time Sublessee shall restore
such rooms to their condition at the date of this Sublease. All alterations,
installations, removals and restoration shall be performed in a good and
workmanlike manner.
7. Liens. Sublessee has no authority, express or implied, to create or
-----
place any lien or encumbrance of any kind or nature whatsoever upon, or in any
manner to bind the interest of Sublessor or Sublessee in the Premises or to
charge the rentals payable hereunder for any claim in favor of any person
dealing with Sublessee, including those who may furnish materials or perform
labor for any construction or repairs. Sublessee covenants and agrees that it
will pay or cause to be paid all sums legally due and payable by it on account
of any labor performed or materials furnished in connection with any work
performed on the Premises and that it will save and hold Sublessor harmless from
any and all loss, cost or expense based on or arising out of asserted claims or
liens against the leasehold estate or against the rights and interests Sublessor
in the Premises or under this Sublease. Sublessee agrees to give Sublessor
immediate written notice of the placing of any lien or encumbrance against the
Premises.
8. Signage. Sublessor consents to Sublessee posting, at its sole option and
-------
expense, the signage shown on Exhibit E attached hereto. Sublessee shall not use
any other signage without the prior written consent of the Base Landlord.
Sublessor shall repair, paint, and/or replace the building facia surface to
which its signs are attached upon the commencement of this Sublease. Likewise,
Sublessee shall repair, paint, and/or replace the building facia surface to
which its signs are attached upon vacation of the premises or the removal or
alteration of its signage.
3
<PAGE>
9. Base Lease Obligations. Sublessor agrees that its rights under the Base
----------------------
Lease insofar as they may affect the Premises (excepting such fights as are
personal to Sublessor) may be enforceable by Sublessee against the Base Landlord
under the Base Lease on behalf of Sublessor. Further, provided Sublessee fully
and timely complies with all of its obligations hereunder and specifically
subject to Sublessee's performance of the covenants contained in paragraphs 2
and 18 hereof, Sublessor hereby agrees to make payments of Base Rental and
payments required under Articles 2, 3 and 9 of the Base Lease in a timely manner
as therein provided, and to perform any other Base Lease obligations that remain
its responsibility under this Sublease Agreement. If Sublessor fails to perform
any such obligations, Sublessee may do so, in which event Sublessor shall
reimburse Sublessee for all costs incurred by Sublessee in doing so upon demand
with interest thereon from the date thereof until paid at the rate of 18% per
annum.
10. Assumption of Base Lease Obligations. Sublessee hereby assumes and
-------------------------------------
agrees to keep, observe, and perform all obligations, covenants, and conditions
to be kept, observed, or performed by Sublessor under the terms of the Base
Lease with respect to the Premises, except as otherwise set forth herein. Such
covenants shah be performable for the benefit of Sublessor as well as Base
Landlord. If Sublessee fails to perform any such assumed obligations, Sublessor
may do so, in which event Sublessee shall reimburse Sublessor for all costs
incurred by Sublessor in doing so upon demand with interest thereon from the
date thereof until paid at the rate of 18% per annum.
11. Indemnity
---------
(a) Definitions.
-----------
(i) As used herein "Hazardous Materials" include any (i)
"Hazardous Waste" as defined by The Resource Conservation and Recovery Act of
1976 (42 U.S.C. Section 6901 et. seq.), as amended from time to time ("RCRA"),
and regulations promulgated thereunder; and "Hazardous Substance" as defined by
The Comprehensive Environmental Response, Compensation and Liability Act of 1980
(42 U.S.C. Section 9601 et. seq.), as amended from time to time ("CERCLA"); (ii)
asbestos; (iii) polychlorinated biphenyls; (iv) any substance, the presence of
which on the premises of Sublessor's business, is prohibited by applicable law;
(v) oil, petroleum or any petroleum products or by-products; (vi) any other
substance which, according to applicable law, requires special handling or
notification of any Federal, state or local governmental entity in its
collection, processing, handling, storage, transport, treatment or disposal or
exposure thereto; (vii) any substance, which if not properly disposed, may
4
<PAGE>
pollute, contaminate, harm or have any detrimental effect on the environment;
(viii) underground storage tanks, whether empty, filled or partially filled with
any substance; and (ix) any other pollutant, toxic substance, hazardous
substance, hazardous waste, hazardous material or hazardous substance as
regulated by or defined in or pursuant to any Environmental Law (hereinafter
defined), whether existing as of the date hereof, previously enforced, or
subsequently enacted.
(ii) As used herein, "Release" shall mean any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing.
(iii) As used herein, "Environmental Law" shall mean any
environmental or health and/or safety-related law, regulation, rule, ordinance,
or order at the Federal, state, or local level, whether existing as of the date
hereof, previously enforced, or subsequently enacted, including but not limited
to: (i)CERCLA, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 USCA 9601 et seq.; (ii) Solid Waste Disposal Act, as amended by RCRA,
as amended by the Hazardous and Solid Waste Amendments of 1984, 42 USCA 6901 et
seq.; (iii) Federal Water Pollution Control Act of 1972 as amended by the Clean
Water Act of 1977, as amended, 33 USCA 1251 et seq.; (iv) Toxic Substances
Control Act of 1976, as amended, 15 USCA 2601 et seq.; (v) Emergency Planning
and Community Right-to-Know Act of 1986, 42 USCA 11001 et seq.; (vi) Clean Air
Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 USCA 7401 et
seq.; (vii) National Environmental Policy Act of 1970, as amended, 42 USCA 4321
et seq.; (viii) Rivers and Harbors act of 1970, as amended, 33 USCA 401 et seq.;
(ix) Endangered Species Act of 1973, as amended, 16 USCA 1531, et seq.; (x)
Occupational Safety and Health Act of 1970, as amended, 29 USCA 651 et seq.;
(xi) Safe Drinking Water Act of 1974, as amended, 42 USCA 300 (f) et seq.and
(xii) any and all laws, regulations, and executive orders, federal, state and
local, pertaining to environmental matters, as the same may be amended or
supplemented from time to time, and any other federal, state, or local law,
regulation, rule, ordinance or order, whether currently in existence or
hereafter enacted which governs:
(a) the existence, cleanup and/or remediation of toxic or
hazardous materials;
(b) the Release, emission, discharge or presence of
Hazardous Materials into or in the environment;
(c) the control of Hazardous Materials; or
(d) the use, generation, transport, treatment, storage,
disposal, removal or recovery of Hazardous Materials.
5
<PAGE>
(b) Sublessor Indemnity.
-------------------
(i) General Indemnity. Sublessor hereby agrees to indemnify,
------------------
defend and hold harmless Sublessee on the terms described in paragraph 11 of the
Base Lease, with said paragraph modified for the purpose of application to this
Sublease Agreement by replacing the word "Lessee" with the word "Sublessor" and
the word "Lessor" with the word "Sublessee." This indemnity shall not include or
extend to the period that Sublessee occupies the Premises; provided, however,
that to the extent that Sublessor's employees or agents have access to the
Premises during Sublessee's occupancy, the indemnification given by Sublessor
pursuant to this paragraph 11(b)(i) shall include and extend to any actions of
Sublessor's employees or agents when on the Premises.
(ii) Environmental Indemnity.
-----------------------
a. Sublessor agrees to indemnify, defend (with counsel
reasonably approved by Sublessee), and save Sublessee and the directors,
officers, shareholders, trustees, employees, and agents of Sublessee harmless
from and against any claims (including, without limitation, third party claims
for personal injury or real or personal property damage), actions,
administrative proceedings, judgments, damages, punitive damages, penalties,
fines, costs, liabilities (including sums paid in settlement of claims),
interest, or losses, including reasonable attorneys' and paralegals' fees and
expenses (and including, without limitation, any such fees and expenses incurred
in enforcing this Environmental Indemnity or collecting any sums due hereunder),
consultant fees, and expert fees, together with all other costs and expenses of
any kind or nature (collectively, the "Costs") that arise directly or indirectly
from or in connection with the presence, suspected presence, release, or
suspected release of any Hazardous Materials in or into the air, soil,
groundwater, or surface water at, on, about, under, or within the Premises, or
any portion thereof, or alleged to have migrated from the Premises, which
presence, release or alleged migration is proved to arise out of or to be
attributed to Sublessor's use or occupancy of the Premises prior to the
commencement of this Sublease or after the termination of this Sublease. In the
event Sublessee shall pay or incur or be found liable for payment of any such
Costs, Sublessor shall pay to Sublessee the total of all such Costs promptly
upon demand therefor by Sublessee. Prior to making any payments for which
Sublessor may be liable under this paragraph 11(b), Sublessee shall, unless
prohibited by law or by its own creditors, give Sublessor thirty (30) days prior
written notice of its intent to make such payment.
6
<PAGE>
b. Without limiting the generality of the foregoing
11(b)(ii)a., the indemnification provided for in this paragraph 11(b)(ii) shall
specifically cover claims brought by or on behalf of employees, tenants, and
invitees of Sublessor or Sublessee relating to Hazardous Materials at the
Premises or alleged to have migrated from the Premises and attributed to
Sublessor's use or occupancy of the Premises prior to the commencement of this
Sublease or after the termination of this Sublease; capital, operating, and
maintenance costs incurred in connection with any investigation or monitoring of
site conditions; any clean-up, containment, remedial, removal, mitigation, or
restoration work required or performed by any governmental authority or
performed by any nongovernmental entity or person because of Hazardous Materials
at the Premises or alleged to have migrated from the Premises and attributed to
Sublessor's use or occupancy of the Premises prior to the commencement of this
Sublease or after the termination of this Sublease; any response or oversight
costs claimed by any governmental authority pertaining to any action relating to
Hazardous Materials at the Premises or alleged to have migrated from the
Premises and attributed to Sublessor's use or occupancy of the Premises prior to
the commencement of this Sublease or after the termination of this Sublease; any
claim asserted for damage to natural resources caused by Hazardous Materials at
the Premises or alleged to have migrated from the Premises and attributed to
Sublessor's use or occupancy of the Premises prior to the commencement of this
Sublease or after the termination of this Sublease; any claim asserted for
multiple damages or penalties assessed as the result of Hazardous Materials at
the Premises or alleged to have migrated from the Premises and attributed to
Sublessor's use or occupancy of the Premises prior to the commencement of this
Sublease or after the termination of this Sublease; and any claims of third
parties for loss or damage due to such Hazardous Materials. It is the intent of
the parties that this indemnity shall govern and determine the respective rights
and obligations of Sublessor and Sublessee with respect to liability for Costs
to the fullest extent allowed by applicable law, notwithstanding contrary rights
and remedies otherwise allowed by applicable law. Sublessor hereby waives and
relinquishes any such contrary rights and remedies to the fullest extent allowed
by applicable law.
c. Anything to the contrary notwithstanding, Sublessor has
no obligation with regard to any Hazardous Materials that Sublessor proves were
placed on the Premises during the time Sublessee occupies the Premises.
d. In the event that Sublessee undertakes an environmental
investigation of the Premises, solely on its own initiative, and such
investigation does not reveal the presence, release or migration of Hazardous
Materials in or onto the air, soil, groundwater or surface water at, on, about,
under, or within the Premises or any portion thereof (the "Presence of Hazardous
7
<PAGE>
Materials"), notwithstanding anything to the contrary set forth herein,
Sublessee shall pay for such investigation. ff such investigation does reveal
the Presence of Hazardous Materials, Sublessor's Indemnity, as contained in this
paragraph 11, shall fully apply.
(c) Sublessee's Indemnity.
---------------------
(i) General Indemnity. Sublessee hereby agrees to indemnify,
------------------
defend and hold harmless Sublessor on the terms described in paragraph 11 of the
Base Lease, with said paragraph modified for the purpose of application to this
Sublease Agreement by replacing the word "Lessee" with the word "Sublessee" and
the word "Lessor" with the word "Sublessor." This indemnity shall only include
claims that arise out of Sublessee's use or occupancy of the Premises; provided,
however, that to the extent that Sublessee's employees or agents have access to
the Premises during Sublessor's use or occupancy of the Premises, the
indemnification given by Sublessee pursuant to this paragraph 11(c)(i) shall
include and extend to any actions of Sublessee's employees or agents when on the
Premises.
(ii) Environmental Indemnity.
-----------------------
a. Sublessee agrees to indemnify, defend (with counsel
reasonably approved by Sublessor), and save Sublessor and the directors,
officers, shareholders, trustees, employees, and agents of Sublessor harmless
from and against any claims (including, without limitation, third party claims
for personal injury or real or personal property damage), actions,
administrative proceedings, judgments, damages, punitive damages, penalties,
fines, costs, liabilities (including sums paid in settlement of claims),
interest, or losses, including reasonable attorneys' and paralegals' fees and
expenses (and including, without limitation, any such fees and expenses incurred
in enforcing this Agreement or collecting any sums due hereunder), consultant
fees, and expert fees, together with all other costs and expenses of any kind or
nature (collectively, the "Costs") that arise directly or indirectly from or in
connection with the presence, suspected presence, release, or suspected release
of any Hazardous Materials in or into the air, soil, groundwater, or surface
water at, on, about, under, or within the Premises, or any portion thereof, or
alleged to have migrated from the Premises which presence, release or alleged
migration is proved to arise out of or be attributed to Sublessee's use or
occupancy of the Premises during the term of this Sublease. In the event
Sublessor shall pay or incur or be found liable for payment of any such Costs,
Sublessee shall pay to Sublessor the total of all such Costs promptly upon
demand therefor by Sublessor. Prior to making any payments for which Sublessee
8
<PAGE>
may be liable under this paragraph 11(c), Sublessor shall, unless prohibited by
law or by its own creditors, given Sublessee thirty (30) days prior written
notice of its intent to make such payment.
b. Without limiting the generality of the foregoing
11(c)(ii)a., the indemnification provided for in this paragraph 11(c)(ii) shall
specifically cover claims brought by or on behalf of employees, tenants, and
invitees of Sublessee or Sublessor relating to Hazardous Materials at the
Premises or alleged to have migrated from the Premises and attributed to
Sublessee's use or occupancy of the Premises during the term of this Sublease;
capital, operating, and maintenance costs incurred in connection with any
investigation or monitoring of site conditions; any clean-up, containment,
remedial, removal, mitigation, or restoration work required or performed by any
governmental authority or performed by any nongovernmental entity or person
because of Hazardous Materials at the Premises or alleged to have migrated from
the Premises and attributed to Sublessee's use or occupancy of the Premises;
during the term of this Sublease; any response or oversight costs claimed by any
governmental authority pertaining to any action relating to Hazardous Materials
at the Premises or alleged to have migrated from the Premises and attributed to
Sublessee's use or occupancy of the Premises during the term of this Sublease;
any claim asserted for damage to natural resources caused by Hazardous Materials
at the Premises or alleged to have migrated from the Premises and attributed to
Sublessee's use or occupancy of the Premises during the term of this Sublease;
any claim asserted for multiple damages or penalties assessed as the result of
Hazardous Materials at the Premises or alleged to have migrated from the
Premises and attributed to Sublessee's use or occupancy of the Premises during
the term of this Sublease; and any claims of third parties for loss or damage
due to such Hazardous Materials. It is the intent of the parties that this
indemnity shall govern and determine the respective rights and obligations of
Sublessee and Sublessor with respect to liability for Costs to the fullest
extent allowed by applicable law, notwithstanding contrary rights and remedies
otherwise allowed by applicable law. Sublessee hereby waives and relinquishes
any such contrary rights and remedies to the fullest extent allowed by
applicable law.
c. Anything to the contrary notwithstanding, Sublessee has
no obligation with regard to any Hazardous Materials that Sublessee demonstrates
were placed on the Premises at any other time than the period Sublessee occupies
the Premises.
d. In the event that Sublessor undertakes an environmental
investigation of the Premises, solely on its own initiative, and such
investigation does not reveal the presence, release or migration of Hazardous
Materials in or onto the air, soil, groundwater or surface water at, on, about,
under, or within the Premises or any portion thereof (the "Presence of Hazardous
Materials"), notwithstanding anything to the contrary set forth herein,
Sublessor shall pay for such investigation. If such investigation does reveal
the Presence of Hazardous Materials, Sublessee's Indemnity, as contained in this
paragraph 11, shall fully apply.
9
<PAGE>
12. Use. In addition to the uses allowed by the Base Lease, the Premises
---
may be used for electronics assembly, assembling, shipping and selling products,
and any uses incidental to the uses enumerated either in the Base Lease or
herein ("Permitted Uses"). Sublessor and Base Landlord acknowledge that
Sublessee shall be receiving, shipping and handling those materials listed on
Exhibit F attached hereto, in connection with its use of the Premises, such
- - ---------
materials to be identified as "Permitted Materials" as such term is defined in
the Base Lease, Exhibit C, Special Provisions, Paragraph 25A. Likewise,
Sublessor and Base Landlord acknowledge that Sublessee shall be conducting the
activities described on Exhibit G attached hereto, which shall produce the waste
streams shown on Exhibit H attached hereto, such activities to be identified as
---------
"Permitted Activities" as such term is defined in the Base Lease, Exhibit C,
Special Provisions, Paragraph 25A. Sublessor and Base Landlord consent to the
Permitted Uses, the Permitted Materials and the Permitted Activities to the
extent required by the Base Lease. Notwithstanding the foregoing, Sublessee
hereby acknowledges that its use of the Premises shall comply with all
governmental laws, ordinances and regulations applicable to the use of the
Premises, and promptly shall comply with all governmental orders and directives
for the correction, prevention and abatement of nuisances in or upon, or
connected with, the Premises, all at Sublessee's sole expense. In no event shall
the acknowledgements set forth in this paragraph 12 serve to limit the liability
of Sublessee for any damages, penalties, fines, or causes of action arising out
of the Permitted Uses, Permitted Materials and/or the Permitted Activities.
13. Holdover. In no event shall any holdover by Sublessor under the terms
--------
of the Base Lease be construed as holdover by or the responsibility of the
Sublessee.
14. Renewal Option. Sublessee may extend the Sublease Term for a term equal
--------------
to the remainder of the term under the Base Lease, beginning immediately after
the end of the Sublease Term. The terms and conditions of the Sublease during
the renewal term shall be the same as those governing the primary term.
Sublessee may exercise its renewal option by giving written notice to Sublessor
for the exercise of such option at least ninety (90) days before the Sublease
Term ends.
10
<PAGE>
15. Events of Default/Remedies. In the event that Sublessee shall default
---------------------------
in the performance, keeping, or observance of any covenant, condition or
undertaking to be performed, kept, or observed by Sublessee hereunder or, in the
event that any of the events of default set forth in paragraph 18 of the Base
Lease shall occur with respect to Sublessee (with the word "Sublessee" replacing
the word "Lessee" in paragraph 18 of the Base Lease for the purposes of this
paragraph), and Sublessee fails to cure such default on or before twenty (20)
days following the receipt of written notice of such default by Sublessor to
Sublessee, Sublessor shall have all those remedies described in Paragraph 19 of
the Base Lease, with said article modified for purpose of application of this
Sublease Agreement by replacing the word "Lessor" with the word "Sublessor", the
word "Lessee" with the word "Sublessee", the phrase "this Lease" with the phrase
"this Sublease Agreement" wherever such words or phrases occur.
16. No Subletting or Assignment. Except to the extent permitted by the Base
---------------------------
Lease, Sublessee shall not assign or sublet this Sublease or the Premises
without the prior written consent of Sublessor.
17. Termination.
-----------
(a) In the event that the Base Lease is terminated for any
reason other than (i) Sublessor's failure to pay Base Rent or installments of
rent or other amounts due pursuant to paragraph 2 of the Base Lease upon timely
performance by Sublessee of its rental obligations stated in paragraph 2 hereof,
or (ii) the voluntary agreement of Sublessor and Base Landlord, then this
Sublease Agreement shall be terminated as of the date of termination of the Base
Lease, and rent for the final calendar month shah be prorated by days.
(b) All obligations of Sublessee hereunder not fully
performed as of the expiration or earlier termination of the Sublease Term shall
survive the expiration or earlier termination of the Sublease Term, including
without limitation, all payment obligations owed by Sublessee and all
obligations concerning the condition and repair of the Premises owed by
Sublessee.
(c) Prior to the occupancy of the Premises by Sublessee,
both Sublessee and Sublessor will make a physical inspection of the Premises to
identify any existing conditions in need of repair or replacement. The condition
of the Premises at such inspection shall be called the "Baseline Condition". The
items identified will be attached to this Sublease Agreement as Exhibit I and
Sublessee and Sublessor agree that the repair and/or replacement thereof will
not be Sublessee's responsibility so long as the physical condition in question
11
<PAGE>
is not further damaged or deteriorated due to Sublessee's use. Except as set
forth in paragraph 6 hereto, upon the expiration or earlier termination of the
Sublease Term, Sublessee shall return the Premises to its condition and repair
at the commencement of this Sublease, the Baseline Condition, reasonable wear
and tear excepted. In the event that Sublessee fails to return the Premises to
the Baseline Condition, Sublessee shall pay to Sublessor any amount reasonably
estimated by Sublessor as necessary to return the Premises to the Baseline
Condition.
18. Insurance. Sublessee shall maintain, at its sole cost and expense,
---------
throughout the Sublease Term, insurance insuring Sublessee against any and all
liability for property damage and injury to or death of any person or persons
occasioned by, or arising out of or in connection with the use or occupancy of
the Premises. Sublessee shah also maintain fire and extended coverage covering
the replacement costs of the items set forth in paragraph 9 of the Base Lease.
Such insurance shall be in the amounts set forth in paragraph 9 of the Base
Lease, and shall comply in all respects with the requirements set forth in
paragraph 9 of the Base Lease. Sublessee shah deliver to Sublessor upon
commencement of the Sublease Term (and upon each renewal of said insurance)
certificates of insurance evidencing this coverage.
19. Legal Construction. In the event this Sublease Agreement is construed
-------------------
to effect an assignment as opposed to a sublease, as a matter of law, this
Sublease Agreement shall nevertheless be performable in accordance with its
terms insofar as permitted. If Base Landlord asserts the right to receive
rentals directly from Sublessee, Sublessee shall make such rental payments
directly to Base Landlord and such payments shah be a pro tanto credit against
rentals due from Sublessee hereunder and against rentals due from Sublessor
under the terms of the Base Lease.
20. Surrender. Sublessee shall deliver the Premises to Sublessor, upon the
---------
termination of this Sublease Agreement for any reason, in as good a condition as
of the date of execution hereof, ordinary wear and tear excepted.
21. Severability. If any clause or provision of this Sublease Agreement is
------------
illegal, invalid or unenforceable under present or future laws effective during
the term of this Sublease Agreement, then and in that event, it is the intention
of the parties hereto that the remainder of this Sublease Agreement shall not be
affected thereby. It is also the intention of the parties to this Sublease
Agreement that in lieu of each clause or provision of this Sublease Agreement
that is illegal, invalid or unenforceable, there be added as a pan of this
Sublease Agreement a clause or provision as similar in terms to such illegal,
12
<PAGE>
invalid or unenforceable clause or provision as may be possible and be legal,
valid and unenforceable.
22. Entire Agreement. This Sublease Agreement contains the entire agreement
----------------
between the parties and may not be altered, changed or amended, except by
instrument in writing signed by both parties hereto. No provision of this
Sublease Agreement shall be deemed to have been waived by Sublessor unless such
waiver be in writing signed by Sublessor and addressed to Sublessee, nor shall
any custom or practice which may grow up between the parties in the
administration of the terms hereof be construed to waive or lessen the right of
Sublessor to insist upon the performance by Sublessee in strict accordance of
the terms hereof.
23. Captions. The captions contained in this Sublease Agreement are for
--------
convenience of reference only, and in no way limit or enlarge the terms and
conditions of this Sublease Agreement.
24. Place of Performance. Sublessee shall perform all covenants, conditions
--------------------
and agreements contained herein, including, but not limited to payment of rent,
in Dallas County, Texas. This Sublease Agreement is declared to be a Texas
contract, and all the terms hereof shah be construed according to the laws of
the State of Texas.
25. Successors and Assigns. This Sublease Agreement shall be binding upon
----------------------
and inure to the benefit of the successors and assigns of Sublessor, and shall
be binding upon and inure to the benefit of Sublessee, its successors, and, to
the extent assignment may be approved by Sublessor hereunder, Sublessee's
assigns. All rights and remedies of Sublessor under this Sublease Agreement shah
be cumulative and none shall exclude any other rights or remedies allowed by
law.
26. No Brokers. Sublessor and Sublessee acknowledge that there is a
-----------
fee-splitting brokerage agreement between Trammell-Crow and Delmont-Cantwell
regarding the subleasing of the Premises, such professional fee to be paid
solely by Sublessor. Other than those entities, Sublessor and Sublessee each
represent and warrant that no broker, agent or finder entitled to a fee was used
in connection with the negotiation or execution of this Sublease Agreement and
Sublessor and Sublessee each agree to indemnify and hold harmless the other
against all liabilities and costs arising from all such claims including without
limitation attorneys' fees in connection therewith.
13
<PAGE>
27. Notices. Each provision of this Sublease Agreement, or any applicable
-------
governmental laws, ordinances, regulations, and other requirements with
reference to the sending, mailing or delivery of any notice, or its reference to
the making of any payment by Sublessee to Sublessor, shall be deemed to be
complied with when and if the following steps are taken:
(a) All rent and other payments required to be made by Sublessee to
Sublessor hereunder shall be payable to Sublessor at the address hereinbelow set
forth, or at such other as Sublessor may specify from time to time by written
notice delivered in accordance herewith;
(b) Any notice or document required to be delivered hereunder shall be
deemed to be delivered if actually received, and whether or not received when
deposited in the United States mail, postage prepaid, certified or registered
mail (with or without return receipt requested) addressed to the parties hereto
at their respective addresses set out opposite their names below, or at such
other address as they may hereafter specify by written notice delivered in
accordance herewith.
SUBLESSOR: Liuski International, Inc.
6585 Crescent Drive
Norcross, Georgia 30071
Attn: Russell T. Libby, Esq.
SUBLESSEE: General Instrument Corporation of
Delaware
2200 Byberry Road
Hatboro, Pennsylvania 19040
Attn: Tim Kelleher, Director of
Corporate Facilities
w/copy to General Counsel
28. Binding Document. Sublessor acknowledges that this Sublease Agreement
----------------
shah be a binding agreement upon Sublessee only upon the written corporate
approval of General Instrument Corporation of Delaware, which written approval
shah be evidenced by an authorized officer executing this Sublease Agreement in
the space provided below.
14
<PAGE>
IN WITNESS WHEREOF, this Sublease Agreement is executed as of the date
first written above.
SUBLESSOR:
LIUSKI INTERNATIONAL, INC.
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
SUBLESSEE:
GENERAL INSTRUMENT CORPORATION
OF DELAWARE
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
15
SUBLEASE
THIS SUBLEASE AGREEMENT (the "Sublease") made on this_____ day of August,
1996, between Liuski International, Inc., a Delaware corporation ("Sublandlord")
and E&F Warehousing Corp., a New York corporation ("Subtenant").
W I T N E S S E T H:
WHEREAS, regarding the space currently occupied by Sublandlord in the
building known as 10 Hub Drive, Melville, New York (the "Building"), Sublandlord
and Reckson Associates ("Landlord") entered into an Agreement of Lease dated
April 12, 1990, as amended by that certain Lease Modification Agreement, dated
April 8, 1994, as amended by that certain Second Lease Modification and
Extension Agreement, dated February 25, 1995 (the "Lease") for the lease of
certain space in the Building, and Sublandlord assumed the tenants interest in
the lease, dated June 7, 1990, between Joe Montgomery Delivery Service, Inc. and
Landlord, pursuant to that certain Assignment and Assumption of Lease, dated
April 7, 1994, by and between Sublandlord and Joe Montgomery Delivery Service,
Inc., as modified by that certain Lease Modification and Extension Agreement,
dated February, I995, and that certain Second Lease Modification and Extension
Agreement, dated February 25, 1995, for the lease of additional space in the
Building; and
WHEREAS, on or before the date hereof Landlord has granted its prior
written consent to Sublandlord to the making and entering into of this Sublease
in accordance with the requirements of Section 17 of the Lease; and
WHEREAS, Sublandlord and Subtenant desire to enter into this Sublease.
NOW, THEREFORE, for and in consideration of the mutual covenants
hereinafter contained, Sublandlord and Subtenant agree as follows:
1. Premises. Sublandlord leases to Subtenant, and Subtenant leases and
--------
rents from Sublandlord, 16,650 square feet of warehouse space in the Building,
as more particularly described on Exhibit A which is attached hereto and
incorporated herein by this reference, together with all easements and rights
appurtenant thereto, all of Sublandlord's right, title and interest in and to
all public and private ways adjoining the same, and all buildings as well as all
equipment, fixtures and other improvements located thereon (all of which are
hereinafter referred to collectively as the "Premises").
It is hereby acknowledged and agreed to by Sublandlord and Subtenant that:
(a) the Premises is being subleased by Sublandlord to Subtenant, and has been
accepted by Subtenant, in its present, "AS IS" condition, without any
<PAGE>
representation or warranty, whether express or implied, as to the condition
thereof or as to the fitness thereof for Subtenant's use; it being hereby
stipulated by Subtenant that it has made (or had the opportunity to make) any
and all such inspections, examinations, analyses, tours and walk-throughs as it
has deemed necessary or appropriate in determining to sublease the Premises and
to accept delivery of same; and (b) SublandIord does not have, has not assumed,
and does not hereby assume any obligations, liabilities or responsibilities of
Landlord under the Lease; it being hereby stipulated by Subtenant that it shall
look solely to Landlord for the performance of such obligations and
responsibilities.
It is further hereby acknowledged and confirmed by Sublandlord and
Subtenant that this Sublease is subject, in all respects, to the terms and
conditions of the Lease, a copy of which has been provided to Subtenant.
Subtenant hereby confirms that a copy of the Lease has been provided to it, and
hereby agrees to keep, observe and perform any and all of the terms and
conditions of the Lease which are to be kept, observed and performed by the
"Tenant" thereunder which pertain to the use, occupancy and/or condition of the
Premises.
Subtenant hereby covenants and agrees not to perform any act, omit to
perform any act, or do anything which constitutes a default by the "Tenant"
under the Lease, or which would, with the giving of any applicable notice and
the expiration of any applicable cure period, or both, constitute a default by
the "Tenant" thereunder.
2. Term. The term ("Term") of this Sublease shall begin on August 12, 1996
----
and shall expire at 12:00 midnight on July 31, 1998 unless sooner terminated in
accordance with the terms and conditions hereof. Additionally, and
notwithstanding any language herein to the contrary, in the event that
Sublandlord needs to expand into or vacate the Premises, Sublandlord shall have
the right, upon sixty (60) days' notice, to terminate this Sublease.
3. Use of the Premises. The Premises shall be used solely for the following
-------------------
purposes: storage of merchandise; and for no other purpose whatsoever, and for
all activities in connection therewith which are customary and usual to such an
operation, and no other. The Premises shall not be used for any illegal
purposes; nor in any manner to create any nuisance or trespass, nor in any
manner so as to violate or cause a default under the Lease on behalf of the
"Tenant" thereunder.
4. Rent. Subtenant shall pay to Sublandlord rent (the "Rent") in the amount
----
of Six Thousand Two Hundred Forty-Three and 75/100 Dollars ($6,243.75) per
month. The Rent shall be payable in advance and is due and payable on or before
the first day of each month during the term hereof. Additionally, Subtenant
2
<PAGE>
shall pay to Sublandlord any monthly fees associated with any alarm systems of
Sublandlord used by Subtenant. The first installment of Rent shall be due and
payable on or before September 1, 1996.
Sublandlord shall not be responsible in any way for any interruption,
curtailment or failure or defect in the supply of electricity furnished to
Premises by reason of any requirement, act or omission of any public utility
company, or for any other reason.
Rent shall be paid by check mailed or delivered to Sublandlord, for its
receipt on or before the due date thereof, at 6585 Crescent Drive, Norcross,
Georgia 30071 -- Attn: Accounts Payable. If any payment of Rent or other amount
required to be paid by Subtenant to Sublandlord pursuant to this Sublease is not
paid when due, and if Subtenant does not cure such non-payment within five (5)
days after written notice from Sublandlord to Subtenant, the same shall be
considered past due for purposes hereof, and a late fee of Two Hundred Fifty and
No/100 Dollars ($250.00) shall be immediately due and payable by Subtenant. Said
past due Rent or other past due amounts shall bear interest from their
respective due dates at the rate of two percent (2%) per annum over the publicly
announced or published "prime" (or equivalent) rate of NationsBank, Atlanta,
Georgia (the "Default Rate"), until paid in full.
5. Insurance.
---------
(a) Subtenant at its sole cost and expense, shall keep and maintain all
insurance required to be kept and maintained by "Tenant" in accordance with
Section 12 of the Lease. On or before the date hereof, originals or copies of
the insurance policies, or certificate endorsements evidencing the same, bearing
the notations evidencing the payment of premiums, shall be delivered by
Subtenant to Sublandlord.
(b) All insurance provided for in this paragraph shall be effected under
valid and enforceable policies issued by insurers of recognized responsibility
that are licensed to do business in the State of New York.
(c) All policies of insurance provided for in this Section 5 shall name as
the insureds -- as their respective interests may appear -- each of Landlord,
Sublandlord, Subtenant, and the holder or holders (collectively, the "Holder"),
of any deed to secure debt, mortgage, or other security instrument covering the
Premises and/or the Building (collectively, a "Security Deed"). Each such policy
shall contain a provision that no act or omission of Subtenant shall affect or
limit the obligation of the insurance company to pay to Landlord, Sublandlord
and Holder, as their respective interests may appear, the amount of any loss
3
<PAGE>
sustained, and shall contain an agreement by the insurer that such policy shall
not be canceled without at least thirty days prior written notice to Landlord
and Sublandlord. Each such policy shall also waive, or permit the waiver of, any
and all rights of subrogation by any such insurer as against Sublandlord,
Landlord and/or Holder, such fights being hereby waived in full.
6. Repairs. Alterations and Removal Thereof by Subtenant. Throughout the
-------------------------------------------------------
term of this Sublease, Subtenant will at its own expense comply with the terms
and conditions of the Lease, including without limitation all terms pertaining
to repairs, alterations and improvements made by it as Subtenant, in its
capacity as the "Tenant" under the Lease, and the removal thereof by the Tenant,
and all other obligations of Sublandlord, as "Tenant" under the Lease, to
surrender the Premises upon expiration or termination of the term of the Lease
in the condition required under the Lease; provided, however, as between
Sublandlord and Subtenant it is agreed that Subtenant shall not be liable or
responsible for the removal of any alteration, addition or improvement made by
Sublandlord, in its capacity as "Tenant" under the Lease, prior to the date
hereof, or for the restoration of the Premises as a result of the removal of
such pre-existing alterations, additions or improvements.
7. Indemnity and Hold Harmless. Subtenant shall indemnify, defend and hold
---------------------------
harmless Sublandlord and Landlord, at Subtenant's expense, from and against: (a)
any default by Subtenant hereunder; (b) any act of negligence, or wilful
misconduct of Subtenant or its agents, contractors, employees, invitees or
licensees; and (c) all claims for damages to persons or property by reason of
the use or occupancy of the Premises unless resulting from the wilful misconduct
or affirmative acts of gross negligence of Landlord or Sublandlord, or their
respective agents, employees or representatives. Neither Landlord nor
Sublandlord shall be liable for any damage or injury to the Premises, to
Subtenant's property, to Subtenant, its agents, contractors, employees,
representatives, invitees or licensees, arising from any use or condition of the
Premises, or any sidewalk or entranceway serving the Building or the Premises,
or the malfunction of any equipment or apparatus serving the Premises. Any and
all claims for any damages referred to in this Section 7 are hereby waived by
Subtenant.
8. Damage or Destruction. If any improvement on the Premises shall be
----------------------
damaged or partially or totally destroyed by fire, or other casualty or
otherwise, Subtenant shall promptly notify both Landlord and Sublandlord, and
the terms and conditions of the Lease pertaining thereto shall govern and
control. Subtenant hereby acknowledges that Sublandlord shall have no obligation
or duty to repair the Premises, and that the repair thereof by Landlord (if any)
4
<PAGE>
shall be governed by the terms and conditions of the Lease, including without
limitation Section 13 thereof.
9. Condemnation. In the event that the Premises, or any part thereof, are
------------
taken or condemned for a public or quasi-public use, the terms and conditions of
the Lease pertaining thereto, including without limitation Section 16 thereof,
shall govern and control.
10. Default. Upon the occurrence, at any time prior to or during the term
-------
of this Sublease, of any one or more of the following events ("Events of
Default"), a default shall have occurred hereunder:
(a) if Subtenant shall default in the payment when due of any installment
of rent or in the payment when due of any additional monetary obligations and
shall fail to remedy such default within five (5) days after notice by
Sublandlord to Subtenant of such default is received (or deemed received) by
Subtenant; or
(b) if Subtenant shall default in the observance or performance of any
term, covenant or condition of this Sublease on Subtenant's part to be observed
or performed (other than the covenants for the payment of Rent and any
additional monetary obligations), and Subtenant shall fail to remedy such
default within seven (7) days after notice by Sublandlord to Subtenant of such
default is received (or deemed received) by Subtenant, or if such default is of
such a nature that it cannot be completely remedied within said seven (7) days,
if Subtenant shall not commence within said seven (7) days, or shall not
diligently prosecute to completion, all steps necessary to remedy such default;
or
(c) if the Premises shall become vacant, deserted or abandoned: or
(d) if Subtenant shall do any act or thing, or fail to do any act or thing,
and thereby cause Sublandlord to breach any term or condition of the Lease; or
(e) if Subtenant's interest in this Sublease and/or in the Premises shall
devolve upon or pass to any person, whether by operation of law or otherwise,
except as expressly permitted by the Lease.
Upon the occurrence of any one or more of such Events of Default,
Sublandlord, at any time thereafter, may, at its option:
(I) give to Subtenant ten (10) days' notice of termination of this
Sublease and, in the event such notice is given, this Sublease and the Term of
5
<PAGE>
this Sublease shall come to an end and expire upon the expiration of said ten
(10) days with the same effect as if the date of expiration of said ten (10)
days were the expiration date of this Sublease, but Subtenant shall remain
liable for damages as herein provided. Upon such termination by Sublandlord,
Subtenant shall at once surrender possession of the Premises to Sublandlord and
remove all of Subtenant's effects therefrom and Sublandlord may forthwith
re-enter the Premises and repossess itself thereof, and remove all persons and
effects therefrom, using such force as may be necessary without being guilty of
trespass, forcible entry or detainer or other tort; or
(II) remedy such default for the account and at the expense of
Subtenant without thereby waiving such default; and if Sublandlord makes any
expenditures or incurs any obligations for the payment of money in connection
therewith including, but not limited to, reasonable attorneys' fees and
disbursements in instituting prosecuting or defending any action or proceedings,
such sums paid or obligations incurred, and all costs and expenses, together
with interest at the Default Rate, shall be deemed to be additional rent
hereunder and shall be paid by Subtenant to Sublandlord within five (5) days of
rendition of any bill or statement to Subtenant therefor; or
(III) in addition to an not in lieu of Sublandlord's foregoing fights,
Sublandlord may, at its option as Subtenant's agent, without termination of this
Sublease, enter upon and rent the Premises at the best price obtainable by
reasonable effort, with or without advertisement, and by private negotiations,
and for any term Sublandlord deems proper, whereupon Subtenant shall have no
right to reenter or occupy the Premises. Subtenant shall be liable to
Sublandlord for the deficiency, if any, between all rents and other monetary
obligations reserved hereunder and the total rental and other monetary payments
applicable to the term obtained by Sublandlord on reletting, after deducting
Sublandlord's expenses in restoring or altering the Premises and all costs and
expenses incident to such reletting, including without limitation reasonable
attorneys' fees and other legal costs, advertising costs and brokerage
commissions. The above described fights and remedies of Sublandlord are
cumulative, and are in addition to and not in limitation of any other rights and
remedies permitted by law or by this Sublease.
11. Non-Waiver. The receipt by Sublandlord of any installment of rent or of
----------
any other amounts due hereunder shall not be a waiver of any other additional
rent then due or of any breach of any covenant or condition hereof by Subtenant.
No payment by Subtenant or receipt by Sublandlord of a lesser amount than the
full amount of monthly Rent or other amounts due hereunder shall be deemed to be
other than on account of the earliest Rent or other mounts due hereunder, nor
6
<PAGE>
shall any endorsement or statement or any check or letter accompanying any
payment be deemed an accord and satisfaction and Sublandlord may accept any such
check or payment without prejudice to the Sublandlord's sight to recover any
balance due or pursue any other sight or remedy permitted by law or equity or by
this Sublease. The failure of either party to insist, in any one or more
instances, upon a strict performance of any of the covenants of this Sublease,
or to exercise any option herein contained, shall not be construed as a waiver,
or a relinquishment for the future, of such covenant or option, but the same
shall continue and remain in full force and effect and no waiver or modification
by a party of any provision hereof shall be deemed to have been made unless
expressed in writing signed by Sublandlord.
12. No Representations by Sublandlord. Sublandlord or Sublandlord's agents
---------------------------------
have made no representations, warranties, covenants or promises with respect to
the Premises or otherwise, except as herein expressly set forth, and have
assumed no obligations of Landlord, and no rights, easements or licenses are
acquired by Subtenant by implication or otherwise except as expressly set forth
herein. The taking of possession of the Premises by Subtenant shall be
conclusive evidence as against Subtenant that, at the time such possession was
so taken, the Premises were in good and satisfactory condition, this Sublease
being made entirely on an "AS IS" basis.
13. End of Term. Upon the expiration or earlier termination of the Term of
-----------
this Sublease, Subtenant shall quit and surrender to Sublandlord the Premises
broom-clean, and in good order and condition, natural wear and tear excepted,
and subject to the Lease, Subtenant shall remove all of its property.
Subtenant's obligation to observe or perform this covenant shall survive the
expiration or earlier termination of such Term.
14. Notices. All notices hereunder shall be in writing and hand delivered
-------
or sent by certified mail, return receipt requested, addressed to Sublandlord at
6585 Crescent Drive, Norcross, Georgia 30071, and addressed to Subtenant at 50
Hub Drive, Melville, New York 11747, Attn: Larry Frisina. Sublandlord and
Subtenant may change such address by giving the other written notice of such
change of address in accordance with the provisions hereof. Notice given by
certified mail as hereinabove provided shall be deemed received by the party to
whom it is addressed on the second business day following the date on which said
notice is deposited in the mail.
15. Attorneys' Fees. In the event either party defaults in the performance
---------------
of any of the provisions of this Sublease and the other party places the
enforcement of this Sublease, or any part thereof, in the hands of an attorney,
or files suit upon the same, or in the event either party shall make an
7
<PAGE>
unsuccessful claim against the other party for alleged breach of any provision
of this Sublease or for any other cause of action relating to or arising out of
this Sublease, and the other party shall incur legal fees in defense of said
claim, the defaulting or unsuccessful party agrees to pay the other party's
reasonable actual attorneys' fees, court costs and expenses.
16. Broker. Each party represents to the other that it has not dealt with
------
any real estate broker, sales person, or finder in connection with this
Sublease, and no real estate broker initiated or participated in the negotiation
of this Sublease, or showed the Premises to Subtenant. Each party agrees to
indemnify and hold the other harmless from and against any liabilities and
claims for commissions and fees arising out of a breach of the foregoing
representation.
17. Successors and Assigns. The provisions of this Sublease shall inure to
----------------------
the benefit of and shall be binding upon the parties hereto and their respective
successors and permitted assigns.
18. Prior Discussion Amendments. This Sublease supersedes all prior
-----------------------------
discussions and agreements between the parties hereto with respect to the
Sublease of the Premises and all other matters contained herein and with respect
thereto. This Sublease may not be modified or amended unless such amendment is
set forth in writing signed by Subtenant and Sublandlord.
19. New York Law to Govern. This Sublease shall be governed by and
------------------------
construed and enforced in accordance with the laws of the State of New York. If
any of the provisions of this Sublease shall be held to be invalid, illegal, or
unenforceable for any reason, such circumstances shall not affect any other
provision. This Sublease shall be construed as if such invalid, illegal, or
unenforceable provision had never been herein.
20. Time. Time is and shall be of the essence of this Sublease.
----
21. Assignment. This Sublease and Sublandlord's interest herein shall be
----------
assignable by Sublandlord to Landlord. Subtenant hereby acknowledges and agrees
that it may not assign this Sublease or sublet its interests in the Premises, or
permit or authorize any other person or party to occupy all or any portion of
the Premises, whether the same is done directly or indirectly, by operation of
law, merger, consolidation, reorganization, sale of general partners' interest,
sale of stock, or in any other method or manner.
8
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals,
the day and year first above written.
SUBLANDLORD:
Liuski International, lnc.
By:
--------------------
Its:
--------------------
SUBTENANT:
E&&F Warehousing Corp.
By:
---------------------
Its:
---------------------
9
Exhibit 10(g)(g)
INDUSTRIAL SINGLE TENANCY
THIS INDENTURE made the 9th day of April, 1996
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT
BETWEEN:
ROLEX DEVELOPMENTS LIMITED
(herein called "Landlord")
OF THE FIRST PART
- and -
LIUSKI INTERNATIONAL TORONTO, INC.
(herein called "Tenant")
OF THE SECOND PART
1. DEMISE
In consideration of the rents, covenants and agreements hereinafter
reserved and contained on the part of the Tenant to be paid, observed and
performed, the Landlord hereby demises and leases to the Tenant, and the
Tenant rents from the Landlord, all and singular that certain parcel or
tract of land and premises situate, lying and being in the City of
Mississauga, in the Regional Municipality of Peel and Province of Ontario
and being more particularly described in Schedule "A" annexed hereto, and
being municipally known as 1229 Lorimar Drive, Mississauga, Ontario,
together with all building(s) and improvements erected thereon and used in
connection therewith and all appurtenance thereto from time to time (the
"Building") (all of which are collectively hereinafter referred to as the
"Leased Premises").
2. TERM
(a) TO HAVE AND TO HOLD the Leased Premises, unless sooner terminated as
hereinafter provided, for and during the term (the "Term") of four (4)
years, to be computed from and inclusive of the 1st day of May, 1996,
(the "Commencement Date") and thenceforth next ensuing and to be fully
complete and ended on the 30th day of April, 2000.
1
<PAGE>
(b) Provided, and it is hereby agreed, that if due to the failure of the
Landlord for any reason whatsoever to complete the Landlord's work set
out in Schedule "C" attached or to make available the services which
the Landlord is hereby obligated to furnish, the Leased Premises or
any part thereof are not ready for occupancy by the Tenant on the
Commencement Date as set out in Paragraph 2(a) hereof, no part of the
rent or only a proportionate part thereof in the event that the Tenant
shall occupy a portion of the Leased Premises, shall be payable for
the period prior to the date when the Leased Premises are ready for
occupancy and the full rent shall accrue only after such
aforementioned date. The Tenant hereby agrees to accept such abatement
of rent in full settlement of any and all claims which the Tenant may
otherwise have by reason of the Leased Premises not being ready
occupancy on the Commencement Date, and in such event, the
commencement but not the expiration dates of the Term set out in
Paragraph 2(a) hereof shall be extended accordingly. Provided further,
that when the Landlord has substantially completed the Leased Premises
in accordance with the provisions of this Lease and The Construction
Lien Act, R.S.O. 1990 and amendments thereto, delivered possession of
the Leased Premises to the Tenant and made available the required
services, the Tenant shall not be entitled to any abatement of rent
for any delay in occupancy due to the Tenant's failure to complete all
installations or other work required to be completed by the Tenant in
accordance with the provisions of this Lease or for the purpose of
carrying on its business operations in the Leased Premises.
(c) The Tenant shall, upon request of the Landlord execute an
acknowledgement of the Commencement Date of the Term. Landlord
acknowledges that the Tenant will occupy and conduct business in and
from the Leased Premises commencing one month prior to the
Commencement Date.
3. USE OF PREMISES
The Tenant shall continuously, actively and diligently use and occupy the
Leased Premises only for office, warehouse and distribution of electronic
equipment and for no other purpose. Provided the Tenant, in the use and
occupation of the Leased Premises and in the prosecution or conduct of the
foregoing business therein, shall comply with the requirements of all laws,
ordinances, rules and regulations of the federal, provincial and municipal
authorities and with any direction or certificate of occupancy issued
pursuant to any laws by any public officer or officers. The Tenant shall
not use or permit to be used any part of the Leased Premises for any
dangerous, noxious, or offensive trade or business and will not cause or
maintain any nuisance in, at, or on the Leased Premises.
4. RENT
The Tenant shall pay from and after the Commencement Date and throughout
the Term, to the Landlord, in lawful money of Canada, without any prior
demand therefor, and without any deduction, abatement, set-off or
compensation whatsoever, as annual minimum Rent (the "Minimum Rent"), the
sum set out below, payable in equal consecutive monthly installments as set
out below, each in advance of the first day of each calendar month
throughout he Term. If the Term commences on any day other than the first
or ends on any day other than the last day of a calendar month all rent for
the fractions of a month at the commencement or expiration of the Term
shall be pro-rated on a per diem basis based on a period of three hundred
and sixty-five (365) days.
2
<PAGE>
The Minimum Rent is as follows:
Miminum Rent Minimum Rent
From To Per Month Per Annum
----------- -------------- ------------ ------------
May 1, 1996 April 30, 1997 $10,230.60 $122,767.20
May 1, 1997 April 30, 1998 $10,941.06 $131,292.70
May 1, 1998 April 30, 1999 $11,651.52 $139,818.20
May 1, 1999 April 30, 2000 $12,361.98 $148,343.70
5. PAYMENT
All payments required to be made by the Tenant under or in respect of this
Lease shall be made to the Landlord at the Landlord's office at 92 Carrier
Drive, Etobicoke, Ontario, M9W 5R1, c/o Rolex Developments Limited or to
such agent or agents of the Landlord or at such other place or address as
the Landlord shall hereafter from time to time direct in writing to the
Tenant.
6. DEPOSIT
The Landlord hereby acknowledges receipt from the Tenant of the sum of
Twenty-Two Thousand Eight Hundred and Fifty-Five Dollars and Eighty-Five
Cents ($22,855.85) (the "Deposit") to be applied by the Landlord in the
following manner: (i) first, the amount of Fifteen Thousand Three Hundred
and Fifty-Five Dollars and Eighty-Five Cents ($15,355.85) is to be applied
on account of all rentals, including all estimated additional rent and GST,
payable by the Tenant for the first month of the Term; and (ii) secondly,
the balance of such Deposit, namely the sum of Seven Thousand Five Hundred
Dollars ($7,500.00), is to be applied as security for the due performance
by the Tenant of all covenants and obligations on its part herein
contained. The Landlord shall be entitled, as its sole discretion, to apply
to amount of the balance of the Deposit as set out in the immediately
preceding Subparagraph (ii), to any damage resulting from any default by
the Tenant of the covenants and obligations hereunder or towards the
payment or reduction of any claim of the Landlord against the Tenant. Any
remaining balance of the Deposit shall be returned by the Landlord to the
Tenant when Tenant's obligations under this Lease have been fulfilled,
including at the time of early termination as described in Schedule "E"
attached hereto.
7. ADDITIONAL RENT
Any and all sums of money or charges required to be paid by the Tenant
under this Lease (except Minimum Rent), shall be deemed and paid as
additional rent, whether or not the same are designated as "additional
rent" hereunder, or whether or not the same are paid to the Landlord or
otherwise, and all such sums are to be payable in lawful money of Canada
without any deduction, set-off or abatement whatsoever. Additional rent is
due and payable with the next monthly installments of Minimum Rent, unless
3
<PAGE>
otherwise provided herein, but in any event, such additional rent is not
payable as part of Minimum Rent. Additional rent may be estimated by the
Landlord from time to time and such estimated amount is payable in monthly
installments in advance with annual adjustments, if necessary, and all
additional rent is deemed to be accruing due on a day to day basis. The
Additional Rent is estimated to be $1.45 per square foot per annum for the
1996 calendar year.
8. RENT AND ADDITIONAL PAST DUE
If the Tenant fails to pay, within ten (10) days of when the same is due
and payable, any rent or additional rent payable by the Tenant under this
Lease, such unpaid amount shall bear interest from the due date thereof to
the date of payment at the lesser of the rate of eighteen percent (18%) per
annum (one and one-half percent (1-1/2%) per month compounded annually), or
the maximum annual rate permitted by law.
9. TENANT'S COVENANTS
The Tenant covenants with the Landlord:
(a) Payment of Rent
---------------
To pay rent and additional rent in the manner of Rent and at the times
herein reserved.
(b) Business Taxes
--------------
That in each and every year during the Term, the Tenant shall pay as
additional rent and discharge within ten (10) days after the same
becomes due and payable, all taxes, rates, duties, assessments and
other charges that may be levied, rated, charged or assessed against
or in respect of all improvements, equipment and facilities on or in
the Leased Premises and every tax and licence fee in respect of any
and every business carried on thereon or therein or in respect of the
use or occupancy thereof by the Tenant and any and every permitted
occupant of the Leased Premises (other than corporate income, profits
or excess profits taxes assessed upon the income of the Landlord),
whether any such assessment tax, rate duty or licence fee is charged
by any federal, municipal, provincial, school or other bodies during
the Term. The Tenant will indemnify and keep indemnified the Landlord
for and against payment for all loss, costs, reasonable charges and
expenses, occasioned by or arising from any and all such taxes,
levies, rates, duties, assessments, licence fees (including all real
property taxes pursuant to Paragraph 9(c) hereof), and any and all
taxes which may in the failure be levied in lieu thereof. Any such
loss, costs, reasonable charges and expenses suffered by the Landlord
pursuant to this Paragraph 9(b) may be collected by the Landlord as
rent with all rights of distress and otherwise as reserved to the
Landlord in respect of rent in arrears. The Tenant further covenants
and agrees that upon the request of the Landlord, the Tenant will
4
<PAGE>
promptly deliver to the Landlord for inspection receipts for payment
of all taxes, rates, duties, assessments and other charges payable by
the Tenant pursuant to this Paragraph 9(b) which were due and payable
up to one month prior to such request and will furnish such other
information in connection therewith as the Landlord may reasonably
require. Provided further, if the Tenant or any permitted occupant of
the Leased Premises shall elect to have the Leased Premises or any
part thereof assessed for separate school taxes, the Tenant shall pay
to the Landlord as additional rent, as soon as the amount of such
separate school taxes is ascertained, any amount by which the amount
of separate school taxes exceeds the amount which would otherwise have
been payable for school taxes had such election not been made by the
Tenant or the permitted occupant of the Leased Premises.
(c) Realty Taxes
------------
(i) That the Tenant will, as additional rent, in each and every year
during the Term and within the time or times hereinafter
provided, pay directly to the Landlord or to the taxing authority
as the Landlord may direct from time to time, and discharge all
real property taxes (including local improvement rates, impost
charges or levies), rates, duties and assessments of any nature
or kind that may be levied, rated, charged or assessed on the
basis of a separate real property tax bill and separate real
property assessment notice against the Leased Premises or any
part thereof, from time to time by any taxing authority, whether
federal, provincial, municipal, school or otherwise, and
including, but without limitation, any such taxes payable by the
Landlord which are imposed in lieu of or as a substitute for such
real property taxes or on account or the Landlord's ownership of
the Building, whether of the foregoing character or whether same
existed at the commencement of the Term. The Tenant agrees to
provide the Landlord within ten (10) days after demand therefor
by the Landlord with a copy or any separate real property tax
bills and separate real property assessment notices for the
Leased Premises. The Tenant will, upon request, promptly deliver
to the Landlord receipts for payment or all such real property
taxes paid to any such taxing authorities, as aforesaid, and will
furnish and deliver all such other information in connection
therewith as the Landlord may reasonably require.
(ii) The amount payable by the Tenant pursuant to Paragraph 9(c)(i)
may be estimated by the Landlord and shall be payable by the
Tenant for the period covering the first nine (9) months of each
calendar year throughout the Term 'or as may be estimated by the
Landlord for such other period or periods as the Landlord may
determine from time to time upon receipt of written notification
from the landlord, the Tenant shall pay to the Landlord the
amount so estimated all monthly installments in advance on the
first day of each calendar month during such period, together
with all other rental payments provided for in this Lease.
Notwithstanding anything hereinbefore contained, if the Landlord
5
<PAGE>
decides to be responsible in the first instance for the payment
or real property taxes in respect of the Leased Premises in
accordance with the provisions of this Paragraph 9(c) and if at
any time when payment by the Landlord of the real property taxes
(including local improvement rates), whether interim, instalment
or final is due, the Landlord shall not have on deposit a
sufficient sum to pay the full amount of such real property
taxes, the Tenant shall forthwith, upon demand, pay, as
additional rent, the amount, determined as aforesaid, of any such
deficiency to the Landlord. When the final real property tax bill
in any year has been received, which relates to the period for
which such estimated payments have been made by the Tenant, as
aforesaid, the parties hereto agree to adjust all payments made
by the Tenant on account of real property taxes in accordance
with such final real property tax bill. The Tenant shall pay any
and all costs and expenses incurred by the Tenant in respect of
any appeal or contestation conducted by the Landlord or the
Tenant (with the prior consent of the Landlord) of the real
property taxes levied or assessed against the Leased Premises.
(d) Utilities
---------
That the Tenant shall be solely responsible for and shall
promptly pay all charges for water, gas, electricity, telephone
and any and all other utilities used or consumed in, or, any
other charges levied or assessed on or in respect to, the Leased
Premises, and for all fittings, machines, apparatus or other
things leased in respect thereof, and for all work or services
performed by any corporation or commission in connection with
such public or private utilities. In no event shall the Landlord
be liable for, nor have any obligation with respect to, any
interruption or cessation of, or any failure in the supply of any
such utilities, services or systems, including, without
limitation, the water and sewage systems, to the Building or to
the Leased Premises, whether or not supplied by the Landlord or
others, unless such interruption, cessation or failure is due to
the negligence of the Landlord, its agents or employees.
(e) Repairs
-------
That the Tenant shall, at its sole cost and expense and at all
times, keep and maintain the whole of the Leased Premises and
every part thereof (including, without limitation, all entrances,
glass, doors, fixtures, equipment and appurtenances thereof and
improvements thereto) in good order and condition and shall
promptly make all needed repairs and replacements therein and
thereto and, without limiting the generality of the foregoing,
the Tenant shall keep the Leased Premises well painted, clean and
h~ a tidy condition, all as a careful owner would do.
Notwithstanding the foregoing, if any repairs or replacements to
the Leased Premises or to any of the improvements therein relate
to or affect the exterior, grounds or structure of the Leased
Premises, all work in respect thereof shall be performed only by
the Landlord, at the Tenant's sole cost and expense. Upon
completion thereof the Tenant shall pay to the Landlord, upon
demand, the Landlord's reasonable cost relating to any such
repairs or replacements.
6
<PAGE>
(f) Entry by Landlord
-----------------
That it shall be lawful for the Landlord and its agent(s) at all
reasonable times during the Term, upon two (2) hours notice to
the Tenant, to enter the Leased Premises to inspect the condition
thereof. Where an inspection reveals that repairs or replacements
are necessary, the Landlord shall give to the Tenant notice in
writing, and immediately thereafter the Tenant will forthwith
proceed to make all necessary repairs or replacements in a good
and workmanlike manner and to the satisfaction of the Landlord,
so as to complete same within the reasonable time or times
provided for in the notice delivered by the Landlord as
aforesaid. The failure by the Landlord to give notice shall not
relieve the Tenant from any of its obligations to repair or
replace in accordance with the provisions hereof. Provided
further, that if the Tenant refuses or neglects to repair
promptly and to the reasonable satisfaction of the Landlord as
required pursuant to the provisions Of Paragraph 9(e) hereof or
in accordance with any notice received from the Landlord pursuant
to the provisions of this Paragraph 9(f), the Landlord may, but
shall not be obligated to, make such repairs or replacements
without liability to the Tenant for any loss or damage which may
occur to the Tenant's property or to the Tenant's business by
reason thereof and upon completion, the Tenant shall forthwith
pay upon demand the Landlord's cost for making any such repair or
replacements. The Tenant agrees that the making of any repairs or
replacements by the Landlord pursuant to this paragraph 9(f) is
not a re-entry or a breach of any covenant for quiet enjoyment
contained in this Lease.
(g) Surrender of Premises
---------------------
That, at the expiration or sooner termination of the Term the
Tenant shall peaceably surrender and yield up vacant possession
of the Leased Premises to the Landlord in as good condition and
repair as the Tenant is required to maintain the Leased Premises
throughout the Term. The Tenant shall surrender all keys For the
Leased Premises to the Landlord at the place then fixed for the
payment of Minimum Rent and shall inform the Landlord of all
combinations of all locks, safes and vaults of any kind in the
Leased Premises. The Tenant shall, however, if requested by the
Landlord, remove at its sole cost and expense all improvements,
erections, alterations, fixtures or other appurtenances made,
placed or erected at any time or times prior to or during the
Term by the Tenant or the Tenant's contractors in or on the
Leased Premises and shall repair, at its sole cost and expense,
all damage to the Leased Premises caused by their installation
anti/or removal. The Tenant's obligation to observe and perform
the covenant contained in this Paragraph 9(g) shall survive the
expiration or sooner termination of' the Term.
7
<PAGE>
(h) Heat
----
To heat, at its own expense, from heating equipment originally
supplied by the Landlord, the Leased Premises to a degree
sufficient to protect the Leased Premises and their contents from
damage by cold or frost, and to operate, maintain, repair or, if
necessary, replace, at its own expense, such heating and other
mechanical equipment originally installed by the Landlord.
Further, the Tenant will, at the expiration or sooner termination
of the Term, peacefully yield up unto the Landlord such heating
equipment and all other equipment and appurtenances thereto in
good and substantial repair and condition. The Landlord assumes
the obligation to contract with a third party for the
preventative maintenance on the heating and air-conditioning
system at the Leased Premises. The cost of such contract to be
included in the Additional Rent contemplated in this Lease.
(i) Public Others
-------------
That the Tenant shall, at its sole cost and expense, comply with
all provisions of law, including without limiting file generality
of the foregoing, the requirements of all federal, provincial and
municipal legislative enactments, bylaws or regulations now or
hereafter in force which relate to the Leased Premises and the
conduct of business therein, or to the making of any repairs,
replacements, alterations, additions, changes, substitutions or
improvements of or to the Leased Premises. The Tenant will
further comply with all police, fire, health and sanitary
regulations imposed by any governmental authorities or made by
fire insurance underwriters. The Landlord acknowledges that, as
of the Commencement Date, the Leased Premises comply with all
provisions of law, but nothing herein is a representation to the
Tenant that its use of the Leased Premises is lawful.
(j) Assignment and Subletting
-------------------------
(i) That the Tenant will not assign this Lease in whole or in
part, nor sublet all or any part of the Leased Premises nor
mortgage or encumber this Lease or rite Leased Premises or
any part thereof, nor suffer or permit the occupation of, or
part with or share possession of, all or any part of the
Leased Premises by any other person, firm or corporation
(all of rite foregoing being hereinafter referred to as a
"transfer") without tim prior consent of the Landlord in
each instance, which consent shall not be unreasonably
withheld, subject to the provisions of subparagraph (it) of
tilts Paragraph 90). The consent by the Landlord to any
transfer, if granted, shall not constitute a waiver of the
necessity for such consent to any subsequent transfer. This
prohibition against a transfer is construed so as to include
a prohibition against any transfer by operation of law and
no transfer shall take place by reason of a failure by rite
Landlord to reply to a request by the Tenant for consent to
a transfer. If there is a permitted transfer of this Lease,
the Landlord may collect rent from the assignee, subtenant
or occupant (all of the foregoing being hereinafter
collectively referred to as the "transferee"), and apply the
net amount collected to the Minimum Rent required to be paid
pursuant to this Lease, but no acceptance by the Landlord of
8
<PAGE>
of any payments by a transferee shall be deemed a waiver of
this covenant or the acceptance of rite transferee as Tenant
or a release or rite Tenant for the further performance by
the Tenant of rite covenants or obligations on the part of
the Tenant herein contained. Any document evidencing the
Landlord's consent to a transfer of this Lease, if permited
or consented to by the Landlord shall be prepared by the
Landlord's solicitors, and all reasonable legal fees with
respect thereto shall be paid by the Tenant to the Landlord
forthwith upon demand. Any consent by the Landlord shall be
subject to the Tenant causing any such transferee to
promptly execute an agreement directly with the Landlord
agreeing to be bound by all of the terms, covenants and
conditions contained in this Lease as if such transferee had
originally executed this Lease as Tenant. Notwithstanding
that any such transfer is permitted or consented to by the
Landlord, the Tenant shall be jointly and severally liable
with the transferee upon this Lease and shall not be
released performing any or the terms, covenants and
conditions contained in this Lease.
Landlord's Option
-----------------
(ii) If the Tenant intends to effect a transfer of all or any
part of the Leased Premises or this Lease, in whole or in
part, or of any estate or interest hereunder, then and so
often as such event shall occur, the Tenant shall give prior
written notice to the Landlord of such intent, specifying
therein the name of the proposed transferee and shall
provide such information with respect thereto, including,
without limitation, information concerning the principals
thereof and as to any credit, financial or business
information relating to the proposed transferee as the
Landlord requires, and the Landlord shall, within fifteen
(15) days thereafter, notify the Tenant in writing either,
that (a) it consents or does not consent to the transfer, or
(b) it elects to cancel this Lease in preference to rite
giving of such consent. If the Landlord elects to cancel
this Lease, as aforesaid, the Tenant shall notify the
Landlord in writing within fifteen (15) days thereafter of
the Tenant's intention either to refrain from such transfer
or to accept the cancellation of this Lease. If the Tenant
fails to deliver such notice within such period of fifteen
(15) days, this Lease will thereby be terminated on a date
sixty (60) days from the expiration of the said fifteen (15)
day period. If the Tenant advises the Landlord it intends to
refrain flora such transfer, then, the Landlord's right to
cancel this Lease as aforesaid shall become null and void in
such instance.
Advertisement
-------------
(iii)The Tenant shall not print, publish or display any notice
or advertisement advertising the whole or ally part of the
Leased Premises for the purposes of assignment or subletting
without the prior approval by the Landlord of the complete
text or format of any such notice or advertisement.
9
<PAGE>
(k) Nuisance
--------
That the Tenant will not do or omit to do or permit to be done or
omitted anything upon or in respect of the Leased Premises, the
doing or omission of which, as the case may be, shall be or
result in any nuisance or menace to the Landlord and including
without limitation, the Tenant shall not keep in, on or around
the Leased Premises any animals, birds or other pets; and that no
machinery shall be used on the Leased Premises which shall cause
any undue vibration in or to the Leased Premises, and if the
Landlord or any neighboring land owners or tenants shall complain
that any machinery or operation thereof in or on the Leased
Premises is a nuisance to it or them, as the case may be, upon
receiving notice thereof, the Tenant will immediately cease such
nuisance.
(l) Goods and Services Taxes
------------------------
The Tenant shall pay to the Landlord all "Sales Taxes" as
hereinafter defined which are imposed on the Landlord with
respect to the amounts due to the Landlord hereunder or in
respect of the rental under this Lease and the Landlord shall be
entitled to collect same monthly with the payment of rent
hereunder.
For the purposes hereof "Sales Taxes" means all business
transfer, multi-stage sales, sales, use, consumption, value-added
or other similar taxes including and without limiting the
generality of the foregoing taxes levied under The Excise Tax Act
known as the Goods and Services 'Fax, as imposed by the
government of Canada or any provincial or local government upon
the Landlord or the Tenant or in respect of this Lease or the
payments made by the Tenant hereunder or the goods and services
provided by the Landlord hereunder, including, without
limitation, the rental of the Leased Premises and the provision
of administrative services to the Tenant hereunder.
(m) Environment
-----------
The Tenant hereby covenants that it will not bring upon the Lands
ally Hazardous Material (as hereinafter defined) nor will it
cause nor permit to be caused any Hazardous Material to be
placed, held, located or disposed of on, under or at the Leased
Premises and that its business and assets will at all time during
the term hereof operate in compliance with applicable laws
an(cent)l guidelines intended to protect the environment
(including without limitation, laws respecting the discharge,
emission, spill or disposal of any Hazardous Material) and that
it will not do or omit to be done anything that will cause any
enforcement actions in respect thereof to be instituted by any
relevant authority. In this regard the Tenant covenants that it
will permit the Landlord or those dryly authorized by the
Landlord, at Landlord's expense, to collect tests, inspections,
and appraisals of the Leased Premises, and to remove samples from
the Leased Premises and any part of the Leased Premises and any
records, business and assets insofar as they relate to the Leased
Premises at any time and from time to time to ensure such
compliance.
10
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The Tenant hereby indemnifies the Landlord and agrees to hold it
harmless from and against any and all losses, liabilities,
damages, reasonable costs, reasonable expenses and claims of any
and every kind whatsoever which at any time or from time to time
may be paid, incurred or asserted against the Landlord with
respect to, or as a direct result of, the presence on or under,
or the discharge, emission, spill or disposal from, the Leased
Premises or into or upon any land, the atmosphere, or any water
course, body of water or wet land, (the "Discharge") of any
Hazardous Material where it has been proven 'that a) the
Discharge occurred during the term hereof or after the term
hereof but as a result of the breach of Paragraph 9 (m)(i) hereof
and b) the source of the Hazardous Material is of the Leased
Premises (but not any hazardous material utilize(cent)l in the
construction or present in the Leased Premises as of the
Commencement Date) or the Tenant or those for whom the Tenant is,
at law, liable (including, without limitation:
(i) the reasonable costs of defending and/or counter-claiming or
claiming over against third parties with respect of any
action or matter; and
(ii) any reasonable cost, liability or damage arising out of a
settlement of any action entered into by the Landlord with
the consent of the Tenant); provided that the Landlord may
settle any such action without the consent of the Tenant if
it acts reasonably and if it has first notified the Tenant
of the circumstances of the action and the proposed
settlement.
and provisions of and undertakings and indemnifications set out
in this paragraph shall survive the termination of the Lease, and
any extensions, by reason of eflluxion of time or otherwise. For
the purposes of this Section "Hazardous Material" means any
contaminant or pollutant and means any substance that when
released into the natural environment is likely to cause, at some
immediate or future time, material harm or degradation to the
natural environment or material risk to human health and without
restricting the generality of the foregoing, Hazardous Material
includes any pollutant, waste, hazardous waste or dangerous good
as defined by applicable federal, provincial or municipal laws or
guidelines for the protection of the natural environment or human
health.
10. INSURANCE
(a) Landlord's Insurance
(i) Subject to the provisions of paragraph 11 hereof, the Landlord
shall, at all times throughout the Term of this Lease, take out
and maintain insurance covering:
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(1) the Building and the machinery, boilers and equipment
contained therein and owned by the Landlord (specially
excluding any property with respect to which the Tenant and
the other tenants of the Building are obliged to insure
pursuant to paragraph 10(b) hereof or similar sections in
their respective leases) against damage by fire and extended
perils coverage including (where applicable) sprinkler
leakage, earthquake, flood and collapse in an amount of not
less than the full replacement cost thereof, and with such
reasonable deductions as would be carried by a prudent owner
of similar building, having regard to the size, age and
location of the Building;
(2) to the extent applicable, the repair and replacement of
heating and air-conditioning equipment and miscellaneous
electrical apparatus on a broad form blanket coverage basis;
(3) loss of insurable gross profits attributable to all perils
insured against by the Landlord or commonly insured against
by prudent landlords, including loss of all rentals
receivable from tenants in the Building in accordance with
the provisions of their respective leases, including Minimum
rent and additional rent in such amount as the Landlord or
the Landlord's mortgagee from time to time requires;
(4) public liability and property damage including the exposure
of personal injury, bodily injury, property damage
occurrence, in such reasonable amounts and with such
reasonable deductions as would be carried by a prudent owner
of a similar building, having regard to the size, age and
location of the Building; and
(5) any other form of insurance which the landlord or the
Landlord's mortgagee reasonably require from time to time
for insurable risk and in amounts against which a prudent
landlord would insure.
(ii) Notwithstanding any contribution by the Tenant to the
cost of insurance premiums in respect of the insurance
maintained by the Landlord For the Building as herein
provided, the Tenant acknowledges and agrees that no
insurable interest is conferred upon the Tenant under
any policies of insurance carried by the Landlord and
the Tenant has no right to receive any proceeds of any
insurance policies carried by the Landlord.
(b) Tenant's Insurance
(i) The Tenant shall, throughout the Term of the Lease, at its
sole cost and expense, take out and keep in full force and
effect in the names of the Tenant, the Landlord and the
Landlord's mortgagee, as their respective interests may
appear, the Following insurance:
12
<PAGE>
(1) insurance upon property of every description and kind
owned by the Tenant or For which the Tenant is legally
liable or installed by or on behalf of the Tenant and
which is located within the Building, including,
without limitation, stock in trade, furniture,
fittings, installations, alterations, additions,
partitions, fixtures and anything in the nature of a
leasehold improvement in an amount of not less than one
hundred percent (100%) of full replacement cost
thereof, with coverage against, at least the perils of
fire and standard extended coverage, including
sprinkler leakages (where applicable), earthquake,
flood and collapse;
(2) broad form boiler and machinery insurance on a blanket
repair and replacement basis with limits for each
accident in an amount not less than the replacement
cost of all leasehold improvements and of all boilers,
pressure vessels, and miscellaneous electrical
apparatus owned or operated by the Tenant or by others
(other than the Landlord) on behalf of the Tenant in
the Leased Premises or relating to or serving the
Leased Premises;
(3) business interruption insurance in such amounts as will
reimburse the Tenant for direct or indirect loss of
earnings attributable to all perils insured against in
subparagraphs (1) and (2) of this Paragraph 10(b), and
in any other perils commonly insured against by a
prudent tenant or attributable to prevention of access
to the Leased Premises or the Building as a result of
such peril;
(4) public liability and property damage insurance
including personal injury liability, contractual
liability, non-owned automobile liability and owners'
and contractors' protective insurance coverage with
respect to the Leased Premises, coverage to include the
activities and operations conducted by the Tenant and
any other parties on the Leased Premises and by the
Tenant and any other parties performing work on behalf
of the Tenant and those for whom the Tenant is in law
responsible in any other part of the Building. Such
policies shall be written on a comprehensive basis with
inclusive limits of not less titan Two Million Dollars
($2,000,000) for bodily injury to any one or more
persons or property damage, and such bigger limits as
the Landlord or the Landlord's mortgagee reasonably
requires from time to time, and shall not be
invalidated as respects the interests of the Landlord
and the Landlord's mortgagee by reason of any breach or
violation of any warranties, representations,
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<PAGE>
declarations or conditions contained in the policies.
All such policies must contain a severability of
interests clause, a cross liability clause and shall be
primary and shall not call into contribution any other
insurance available to the Landlord or to the
Landlord's mortgagee;
(5) tenants' legal liability insurance for the full
replacement cost of the Leased Premises; and
(6) any other form of insurance as the Tenant or the
Landlord or the Landlord's mortgagee reasonably
requires from time to time, in form, in amounts and for
insurance risks against which a prudent tenant would
insure.
(ii) All policies required to be written on behalf of the Tenant
pursuant to subparagraphs (1), (2) and (3) of this Paragraph
10(b) shall contain the standard mortgage clause of the
Landlord's mortgagee and shall contain a waiver of any
subrogation rights which the Tenant's insurers have against
the Landlord and against those for whom the Landlord is in
law responsible, whether such damage is caused by the act,
omission or negligence of the Landlord or those for whom the
Landlord is in law responsible.
(iii)All insurance policies of the Tenant shall be taken out
with insurers acceptable to the Landlord and shall be in a
form satisfactory from lime to time to the Landlord. The
Tenant agrees that certificates of insurance or, if required
by the Landlord or the Landlord's mortgagee, certified
copies of each such insurance policy, will be delivered to
the Landlord as soon as practicable after the placing of the
required insurance. All such policies shall contain an
undertaking by the insurers to notify the Landlord and the
Landlord's mortgagee in writing not less than thirty (30)
days prior to any material change, cancellation, failure to
renew, or termination thereof.
(iv) The Tenant agrees that if the Tenant fails to take out or to
keep in force any such insurance referred to in this
Paragraph 10(b)(i), or should any such insurance not be
approved by either the Landlord or the Landlord's mortgagee,
and should the Tenant not rectify the situation within five
(5) days after written notice by the Landlord to the Tenant
(stating if the Landlord or the Landlord's mortgagee does
not approve of such insurance, the reasons therefor), the
Landlord has the right without assuming any obligation in
connection therewith, to effect such insurance at the sole
cost and expense of the Tenant and all outlays by the
Landlord shall be immediately paid by the Tenant to the
Landlord as additional rent on the first clay of the next
month following such payment by the Landlord, without
prejudice to any other rights and remedies of the Landlord
under this Lease.
14
<PAGE>
(v) If the occupancy of the Leased Premises, the conduct of
business in the Leased Premises, or any acts or omissions of
the Tenant in the Building or any part thereof; causes or
results in any increase in premiums for the insurance
carried from lime to time by the Landlord with respect to
the Building, the Tenant shall pay any such increase in
premiums, as additional rent, forthwith after invoices for
such additional premiums are rendered by the Landlord. In
determining whether increased premiums are caused by or
result from the use and occupancy of the Leased Premises, a
schedule issued by the organization computing the insurance
rate on tile Building showing the various components of such
rate shall be conclusive evidence of the several items anti
charges which make up such rate. The Tenant shall comply
promptly with all requirements of the Insurer's Advisory
Organization (or any successor thereof or of any insurer now
or hereafter in effect, pertaining to or affecting the
Leased Premises.
(vi) If any insurance policy upon the Building or any part
thereof shall be cancelled or shall be threatened by the
insurer to be cancelled, or the coverage thereunder reduced
in any way by the insurer by reason of the use and
occupation of the Leased Premises or any part thereof by the
Tenant or by any assignee or sub-tenant of the Tenant, or by
anyone permitted by the Tenant to be upon the Leased
Premises, and if the Tenant fails to remedy the condition
giving rise to the cancellation, threatened cancellation or
reduction of coverage within forty-eight (48) hours after
notice thereof by the Landlord, the Landlord may, at its
option, either (a) re-enter and take possession of the
Leased Premises forthwith by leaving upon the Leased
Premises a notice in writing of its intention so to do anti
thereupon the Landlord shall have the same rights and
remedies as contained in paragraph 14 hereof, or, (b) enter
upon the Leased Premises and remedy the conditions giving
rise to such cancellation, threatened cancellation or
reduction, and the Tenant shall forthwith pay the cost
thereof to the Landlord, which cost may be collected by the
Landlord as additional rent and the Landlord shall not be
liable for any damage or injury caused to any property of
the Tenant or of others located on the Leased Premises as a
result of such entry. The Tenant agrees that any such entry
by the Landlord is not a re-entry or a breach of any
covenant for quiet enjoyment contained in this Lease.
11. OPERATING COSTS
(a) In each year of the Term, the Tenant will pay to the Landlord in
addition to the Minimum Rent specified in Paragraph 4 hereof, as
further additional rent, the Landlord's cost and expenses of
maintaining, operating, insuring, repairing, restoring, supervising
and administering the Building such costs and expenses to include,
without limitation (i) the total costs and expenses incurred by the
Landlord in insuring the Building pursuant to Paragraph 10(a)(i)
15
<PAGE>
hereof, (ii) the total cost of operating, maintaining, lighting,
cleaning (including snow and ice removal and clearance), supervising,
policing, landscaping, H.V.A.C. preventative maintenance, repairing
all areas of the Building which are not otherwise the responsibility
of the Tenant in this Lease, including, without limitation, all monies
paid to persons, firms or corporations employed by the Landlord to
perform same; and (iii) all expenses incurred or paid by the Landlord
in connection with the maintenance, repair, restoration, operation,
management, supervision and administration of the Building and all
services connection therewith, together with an administrative fee of
seven and one half percent (7.5%) of such total annual costs and
expenses, including, without limitation, all such costs and expenses
referred to in the immediately preceding subparagraphs (i) to (iii)
inclusive of this paragraph II(a) and taxes paid by the Landlord
pursuant to paragraph 9(c).
(b) The amounts payable by the Tenant pursuant to this paragraph 11 may be
estimated by the Landlord for such period or periods as the Landlord
may determine from time to time, and the Tenant shall pay to the
Landlord the estimated of such amounts in monthly installments in
advance during such period together with all other rental payments
provided for in the Lease. Notwithstanding anything contained in this
subparagraph (b) to the contrary, at such time as the Landlord expends
any money or incurs any charges or expenses in respect of the cost of
maintaining, operating, repairing, or administrating the Building,
pursuant to paragraph 11(a) hereof, or, as soon as bills for all or
any portion of the amounts so estimated by the Landlord, as aforesaid,
are received, the Landlord may thereafter bill the Tenant for same
(less all amounts previously paid by the Tenant on the basis of the
Landlord's estimate aforesaid, which have not already been so applied)
and the Tenant shall forthwith pay to the Landlord upon demand such
amounts so expended or billed, as additional rent. At the end of the
period for which such estimated payments have been made, the Landlord
shall deliver to the Tenant a statement of the actual amounts and
costs referred to in this paragraph 11, and if necessary, an
adjustment shall be made between the parties hereto. If the Tenant
shall have paid in excess of such actual amounts, the excess shall be
refunded by the Landlord within fifteen (15) days after delivery of
the said statement. If the amount the Tenant has paid is less than
such actual amounts, the Tenant agrees to pay to the Landlord any such
extra amount or amounts within fifteen (15) days after delivery of
said statement.
12. MUTUAL COVENANTS
Provided, and it is expressly agreed:
(a) Seizure and Bankruptcy
----------------------
That, in case, without the written consent of the Landlord, the Leased
Premises shall become and remain vacant or not used for a period often
(10) days while the same is suitable for use by the Tenant, or shall
16
<PAGE>
used by any person other than the Tenant, or in case the Term or any
of the goods and chattels of the Tenant shall be at any time seized or
taken in execution or in attachment by any creditor of the Tenant, or
if the Tenant shall make any assignment for the benefit of creditors
or give any bill of sale without complying with The Bulk Sales Act
(Ontario) or becomes bankrupt or insolvent, or take the benefit of any
Act now or hereafter in force for bankrupt or insolvent debtors or
files any proposal or makes an assignment for the benefit of creditors
or if a receiver is appointed for all or a portion of the Tenant's
property of if any order is made for the winding up of the Tenant, or
if the Tenant shall make a sale in bulk, or, if the Tenant abandons or
attempts to abandon the Leased Premises or to sell or dispose of any
of the goods and chattels of the Tenant or to remove them from the
Leased Premises so that there would not in the event of such sale or
disposal be sufficient goods on the Leased Premises subject to
distress to satisfy all rentals due or accruing hereunder, or if the
Tenant shall fail to pay any rent or other sums due hereunder on the
day or dates appointed for payment thereof, or, if the Tenant shall
fail to perform any other of the terms, conditions or covenants of
this Lease to be observed or performed by the Tenant, or if re-entry
is permitted under any other terms of this Lease, then, and in every
such case, the then current month's rent and the next ensuing three
months rent and additional rent shall immediately become due and
payable as accelerated rent, and, at the option of the Landlord this
lease shall cease and determine and the Term hereby demised shall
immediately become forfeited and void, in which event the Landlord may
re-enter and take possession of the Leased Premises as though the
Tenant or any occupant or occupants of the Leased Premises was or were
holding over after the expiration of the Term without any rights
whatsoever.
(b) Public Liability
----------------
That the Landlord shall not be liable for any injury arising from or
out of any death or occurrence in, upon, at or relating to the
Building, or damage to property of the Tenant or of others located on
the Leased Premises, nor shall the Landlord be responsible for any
loss of or damage to any property of the Tenant or others from any
cause whatsoever, unless any such death, injury, loss or damage
results from the negligence of the Landlord, its agents, servants,
employees or any other parties for whom it may be in law responsible.
Without limiting the generality of the foregoing, the Landlord shall
not be liable for any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain, snow or leaks from any part of the Leased
Premises or from the pipes, appliances, plumbing works, roof, or
subsurface of any floor or ceiling or from the street or any other
place or by dampness or by any cause of whatsoever nature, unless such
injury or damage results from the negligence of the Landlord, its
agents, servants, employees or any other parties for whom it may be in
law responsible. With the exception of all parties for whom the
Landlord may be in law responsible, the Landlord shall not be liable
for any such damage caused by other tenants or persons in the Building
or by occupants of adjacent property or the public, or caused by
17
<PAGE>
construction or by any private, public or quasi-public work. All
property of tile Tenant kept or stolen on the Leased Premises shall be
so kept or stored at tile risk of the Tenant only and the Tenant shall
hold the Landlord harmless from and against any claims arising out of
damages to the same, including subrogation claims by the Tenant's
insurers.
(c) Holding Over
------------
That if the Tenant shall continue to occupy the Leased Premises at the
expiration of this Lease with the consent of the Landlord, and without
any further written agreement, the Tenant shall be a monthly tenant at
the monthly rental herein reserved and otherwise on the terms and
conditions herein set forth, except as to the length of tenancy.
(d) Over-loading
------------
That the Tenant will not bring upon the Leased Premises or any part
thereof, any machinery, equipment, article or thing that by reason of
its weight, size, or use might, in the opinion of the Landlord, damage
the Leased Premises and will not at any time overload the floors of
the Leased Premises, and that if any damage is caused to the Leased
Premises by any machinery, equipment, article or thing or by
overloading, or by any act, neglect or misuse on the part of the
Tenant, or any of its servants, agents or employees, or by any person
having business with the Tenant, the Tenant shall forthwith repair the
same or pay to the Landlord the cost of making good the same.
(e) Tenant not to Overload Facilities
---------------------------------
That the Tenant will not install any equipment which would exceed or
overload the capacity of the utility facilities in the Leased Premises
and agrees that any equipment installed by the Tenant shall require
additional utility facilities, same shall be installed, if available,
and subject to the Landlord's prior written approval thereto (which
approval may not be unreasonably withheld), at the Tenant's sole cost
and expense in accordance with plans and specifications to be approved
in advance by the Landlord, in writing.
(f) Plumbing Facilities
-------------------
That the plumbing facilities (if any) in tile Leased Premises shall
not be used for any other purpose than that for which they are
constructed, and no foreign substance of any kind shall be thrown
therein and tile expense of any breakage, stoppage or damage resulting
from a violation of this provision shall be borne by the Tenant, as
additional rent, payable forthwith on demand.
18
<PAGE>
(g) Indemnification
---------------
That, notwithstanding any other terms, covenants and conditions
contained in this Lease, including, without limitation, the Landlord's
obligation to take out insurance as set out in Paragraph 10(a)(i)
hereof, and the Tenant's obligation to pay tile cost of insurance in
accordance with the provisions of Paragraph 11 hereof, the Tenant
shall indemnify the Landlord and save it harmless from and against any
and all loss (including loss of all rentals payable by the Tenant
pursuant to this Lease) claims, action, damages, liability and expense
in connection with loss of life, personal injury, damage to property
or any other loss or injury whatsoever arising from or out of this
Lease or any occurrence in, upon or at the Leased Premises, or the
occupancy or use by the Tenant of the Leased Premises or any part
thereof, or occasioned wholly or in part by any act or omission of the
Tenant or by anyone permitted to be on the Leased Premises by the
Tenant provided however, that the Tenant shall not indemnify the
Landlord for any loss, claim, action, damage, liability or expense
arising from or out of a negligent act or omission of the Landlord,
its agents, servants, employees or any other parties for whom it may
be in law responsible. If the Landlord shall, without fault on its
part, be made a party to any litigation commenced by or against the
Tenant, then, the Tenant shall protect, indemnify and hold the
Landlord harmless and shall pay all costs, expenses and reasonable
legal fees incurred or paid by the Landlord in connection with any
such litigation. The prevailing party shall pay all costs, expenses
and legal fees (on a solicitor and his client basis) that may he
incurred or paid by the prevailing party in enforcing the terms,
covenants and conditions in this Lease, unless a Court shall decide
otherwise.
(h) Repair Where Tenant at Fault
----------------------------
That, notwithstanding any other terms, covenants and conditions
contained in this Lease, including, without limitation, the Tenant's
obligation to pay the costs of insurance in accordance with Paragraph
11 hereof, in the event the Leased Premises, or any equipment,
machinery facilities or improvements contained therein or made thereto
or the roof or the outside walls of the Building, or any other
structural portions thereof require repair or become damaged or
destroyed through file negligence, carelessness or misuse of the
Tenant, its servants, agents, employees, contractors, or through it or
them in any way, stopping up or injuring the heating apparatus, water
pipes, drainage pipes or oilier equipment or facilities or parts of
the Building, the expense of all such necessary repairs, replacements
or alterations, shall be borne by the Tenant who will pay the same to
the Landlord forthwith upon presentation of an account of such
expenses incurred by the Landlord as aforesaid.
(i) Refuse
------
That the Tenant will not use ally outside garbage or other containers
or allow ally ashes, refiles, garbage or other loose or objectionable
material to accumulate in or about the Leased Premises, and will at
all times keep the Leased Premises in a clean and tidy condition and
19
<PAGE>
shall immediately before the termination of the Term, wash the floors,
windows, doors and woodwork of the Leased Premises. Provided further
the Tenant will not store or cause to be stored outside of the Leased
Premises, any of its inventory, stock-in-trade, or raw materials.
(j) Leased Premises
---------------
That, whenever in this Lease reference is made to the Leased Premises,
it shall include, without limitation, all structural portions,
improvements, equipment, systems and erections, in or upon the Leased
Premises or any part thereof from time to time.
(k) Evidence of Payments by Tenant
------------------------------
That the Tenant shall from time to time at the request of the Landlord
produce to the Landlord satisfactory evidence of the due payment by
the Tenant of all amounts required to be made by the Tenant under this
Lease.
(l) Adjustment of Taxes
-------------------
That the taxes and local improvement rates and, where necessary, all
other charges payable by the Tenant hereunder in respect of the first
and last years of the Term shall be adjusted between the Landlord and
the Tenant accordingly.
(m) Tenant Shall Discharge All Liens
--------------------------------
That the Tenant shall promptly pay all its Contractors, suppliers and
materialmen and shall do any and all things necessary to minimize the
possibility of a lien attaching to the Leased Premises or to any part
of the Building and should any such lien be made or filed, the Tenant
shall discharge the same forthwith (after notice thereof is given to
the Tenant) at the Tenant's expense. In the event the Tenant shall
fail to cause any such lien to be discharged, as aforesaid, then, in
addition to any other right or remedy of the Landlord, the Landlord
may, but it shall not be so obligated, discharge same by paying the
amount claimed to be due into Court or directly to any such lien
claimant and the amount so paid by the Landlord and all costs and
expenses including solicitors' fees (on a solicitor and his client
basis) incurred herein for the discharge of such lien shall be due and
payable by the Tenant to the Landlord as additional rent on demand.
13. FIXTURES AND REMOVAL AND RESTORATION BY TENANT
----------------------------------------------
All alterations, decorations, additions and improvements made by the Tenant
or made by the Landlord on the Tenant's behalf (other than the Tenant's
trade fixtures) shall immediately become the property of the Landlord
without compensation therefor to the Tenant. Such alterations, decorations,
additions or improvements shall not be removed from the Leased Premises
either during or at the expiration of the Term or sooner determination of
the Lease, except that:
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(i) The Tenant may at the end of the Term, if not in default, remove
its trade fixtures, including without limitation racking
equipment;
(ii) The Tenant shall at the end or the Term and at its own cost
remove all alterations, decorations, additions or improvements in
or on the Leased Premises as the Landlord shall at its option
require to be removed; and
(iii)The Tenant may remove its trade fixtures at the end of the Term
and also during the Term in the usual and normal course of its
business or if such trade fixtures become excess for the Tenants
purpose, or if the Tenant is substituting therefor new and
similar trade fixtures, provided the Tenant is not in default and
provided the Tenant first notifies the Landlord thereof.
If the Tenant does not remove its trade fixtures at the
expiration or earlier termination of the Term, such trade
fixtures, at the option of the Landlord, are to become the
Landlord's property and shay be removed from the Leased Premises
and sold or otherwise disposed of by the Landlord. For greater
certainty, the term "Tenant's trade fixtures" shall not include
any (i) heating or ventilating equipment (ii) floor coverings
affixed to the floor of the Leased Premises or (iii) light
fixtures.
The Tenant shall, in the case of every such installation or
removal either during or at the end of the Term, make good any
damage caused to the Leased Premises or to the Building by the
installation or removal of any such alterations, decorations,
additions or improvements.
14. RE-ENTRY
--------
Provision for re-entry by the Landlord on non-payment of rent or
non-performance of covenants. If the Landlord elects to re-enter, as herein
provided, or if it takes possession pursuant to legal proceedings or
pursuant to any notice provided for by law, it may either terminate this
Lease or it may from time to time without terminating this Lease, make such
alterations and repairs as may be necessary, in order to relet the Leased
Premises, or any part thereof for such term or terms (which may be for a
term or terms extending beyond the Term of this Lease) and at such rental
or rentals and upon such other terms and conditions as the Landlord in its
sole discretion may deem advisable. Upon each such reletting all rentals
received by the Landlord from such letting shall be applied, first, to file
payment of any indebtedness, other than rent due hereunder, owing by the
Tenant to the Landlord; second, to the payment of any costs and expenses of
such reletting, including reasonable brokerage fees, reasonable solicitor's
fees and the costs of such alterations and repairs; third, to the payment
of all rentals due and unpaid hereunder, and the residue, if any, shall be
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held by the Landlord and applied in payment of fixture rent as the same may
become due and payable hereunder. If the rentals received from such
reletting during any month shall be less than that to be paid during that
month by the Tenant hereunder, the Tenant shall pay any such deficiency to
the Landlord. Such deficiency shall be calculated and paid monthly. No such
re-entry or taking possession of the Leased Premises by the Landlord shall
be construed as an election on its part to terminate this Lease unless a
written notice of such intention is given to the Tenant. Notwithstanding
any such reletting without termination, the Landlord may at any time
thereafter elect to terminate this Lease for such previous breach. Should
the Landlord at any time terminate this Lease for any breach, in addition
to any remedies it may have, it may recover from the Tenant all damages it
has incurred or may incur by reason of such breach, including the cost of
recovering file Leased Premises, reasonable solicitor's fees, and including
the worth at the time of such termination of the excess, if any, of the
amount of rent and charges equivalent to the rent reserved in this Lease
for the remainder of the stated Term over the then reasonable rental value
as determined by the Landlord for the remainder of the stated Term, all of
which amounts shall be immediately due and payable from the Tenant to the
Landlord.
15. EXPENSES AND REMOVAL OF CHATTELS
--------------------------------
In case suit shall be brought for recovery of possession of the Leased
Premises, or, for the recovery of rent or any other amounts due under the
provisions of this Lease, or because of the breach of any other covenants
herein contained on the part of the Tenant to be kept or performed, and a
breach shall be established, the Tenant shall pay to the Landlord all
expenses incurred therefor, including a reasonable solicitor's fee.
16. LANDLORD MAY CURE TENANTS DEFAULT
---------------------------------
If the Tenant shall fail to pay, when due, any amounts or charges required
to be paid pursuant to this Lease, the Landlord, after giving ten (10)
days' notice in writing to the Tenant, may, but shall not be obligated to,
pay all or any part of the same. If the Tenant is in default in the
performance of any of its covenants or obligations hereunder, (other than
payment of Minimum Rent or other sums required to be paid pursuant to the
terms of this Lease), the Landlord may from time to time after the giving
of reasonable notice, having regard to the circumstances applicable (or no
notice in the case of an emergency or apprehended emergency) perform or
caused to be performed any of such covenants or obligations or any part
thereof, and for such purpose may do such things as may be requisite,
including without limitation, entering upon the Leased Premises and doing
such things upon or in respect of the Leased Premises or any part thereof
as the Landlord may reasonably consider requisite or necessary. All
expenses incurred and expenditures made by or on behalf of the Landlord
under this Paragraph 16, shall be additional rent hereunder and shall be
paid by the Tenant upon demand. The Landlord shall have no liability to the
Tenant for any loss or damage resulting from any such action by the
Landlord, and any entry by the Landlord under the provisions of this
Paragraph 16 shall not constitute a breach of the covenant for quiet
enjoyment or an eviction.
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17. ADDITIONAL RENT
If the Tenant shall be in default in the payment of any amounts or charges
required to be paid pursuant to the terms of this Lease, they shall, if not
paid when due, be collectible as rent with the next monthly installment of
Minimum Rent thereafter falling due hereunder, but nothing herein contained
shall be deemed to suspend or delay the payment of any amount, money or
charge at the time same becomes due and payable hereunder, or limit any
other remedy of the Landlord. The Tenant covenants and agrees that the
Landlord may, at its option, apply or allocate any sums received from or
due to the Tenant against any amounts due and payable hereunder in such
manner as the Landlord, in its sole discretion, sees fit.
18. NET LEASE
The Tenant acknowledges and agrees that it is intended that this Lease is a
completely carefree net lease to the Landlord, and, except, except as
expressly herein set out, that the Landlord is not responsible during the
Term of the Lease for any costs, charges, expenses and outlays of any
nature whatsoever arising from or relating to the Leased Premises or the
use and occupancy thereof or to the contents thereof, or the business
carried on therein, and the Tenant shall pay all charges, impositions,
costs and expenses of any nature or kind relating to the Leased Premises,
except as expressly herein set out.
19. QUIET ENJOYMENT
Upon the payment by the Tenant of the rents herein provided and upon the
observance and performance of all covenants, terms and conditions on the
Tenant's part to be observed and performed, the Tenant shall peaceably and
quietly hold and enjoy the Leased Premises for the Term hereby demised
without hindrance or interruption by the landlord, or any other person or
persons lawfully claiming by, through or under the Landlord subject,
nevertheless, to the terms and conditions of this Lease.
20. RIGHT OF ENTRY
The Landlord or its agents shall have the right, upon giving reasonable
notice to the Tenant, to enter the Leased Premises at all times (i) to
examine the same, (ii) to show them to prospective purchasers, lessees or
mortgagees, and, (iii) without any obligation upon the Landlord to do so,
to make such repairs, alterations, improvements or additions to the Leased
Premises or the Building as the Landlord may deem necessary or desirable;
provided that such entry shall not unreasonably disrupt the business
operations of the Tenant. The Landlord shall be allowed to take all
material into and upon the Leased Premises which may be required therefor
without the same constituting an eviction of the Tenant in whole or in
part, and the rent reserved hereunder shall not abate while such repairs,
alterations, improvements or additions are being made due to any loss or
interruption of the business of the Tenant or otherwise. The Landlord shall
not be liable for any damage, injury or death caused to any person or
property of the Tenant or of others located on the Leased Premises as a
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result of such entry, unless such damage, injury or death is due to the
acts or omissions of the Landlord, its agents, servants, employees, or
other parties for whom it may be in law responsible. During the six months
prior to the expiration of the Term the Landlord may exhibit the Leased
Premises to prospective tenants and place upon the Leased Premises its
usual notice "To Let" which notice the Tenant shall permit to remain
thereon without molestation. If, after receiving reasonable notice, the
Tenant shall not be personally present to open and permit an entry into the
Leased Premises at any time when for any reason entry therein shall be
necessary or permissible, the Landlord or its agents may enter the same by
a master key or may forcibly enter the same, without rendering the Landlord
or such agents liable therefor, and without in any manner affecting the
obligations and covenants of the Lease. Nothing herein contained, however,
shall be deemed or construed to impose upon the Landlord any obligation,
responsibility or liability whatsoever for the care, maintenance or repair
of the premises or any part thereof except as otherwise herein specifically
provided.
21. IMPROVEMENTS
The Tenant will not make any repairs, alterations, replacements,
decorations or improvements to any part of the Leased Premises without
first obtaining the Landlord's prior written approval. The Tenant shall
submit to the Landlord details of the proposed work, such indemnification
against liens, costs, damages and expenses as the Landlord shall reasonably
require and evidence satisfactory to the Landlord that the Tenant has
obtained, at its sole expense, all necessary consents, licenses and
approvals from all governmental authorities having jurisdiction. All such
repairs, replacements, alterations, decorations or improvements by the
Tenant to the Leased Premises approved of by the Landlord shall be at the
sole cost of the Tenant, shall be performed by competent workmen in a good
and workmanlike manner and shall be subject to the reasonable supervision
of the Landlord. Any such repairs, replacements, alterations, decorations
or improvements made by the Tenant without the prior written consent of the
Landlord, or, which are not in accordance with the drawings and
specifications approved by the Landlord, as aforesaid, shall, if requested
by the Landlord, be promptly removed by the Tenant at its expense and the
Leased Premises restored to their previous condition. Provided,
notwithstanding anything herein contained, no repair, replacement,
alteration, addition or improvement to the Leased Premises by or on behalf
of the Tenant shall be permitted which may weaken or endanger the structure
or adversely affect the condition or operation of the Leased Premises or
diminish the value thereof, or restrict or reduce the Landlord's coverage
for zoning purposes. Any and all repairs, replacements, alterations,
additions or improvements to the Leased Premises which may affect the
structure of the Leased Premises or any part of the Building or which are
to, shall be performed only by the Landlord at the Tenant's sole cost and
expense.
22. FIRE
(a) If the Leased Premises are at any time damaged or destroyed as a
result of fire, the elements, accident or other perils as are insured
against from time to time pursuant to Paragraph 10 hereof, and if as a
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result of such occurrences (i) fifty percent (50%) or more of the
Leased Premises are rendered wholly unfit for occupancy; or (ii) the
cost of repairing or rebuilding the Leased Premises exceeds
twenty-five percent (25%) or more of the replacement cost thereof, or
(iii) in the opinion of the Landlord's architect or engineer, to be
given as soon as reasonably possible after the occurrence of such
damage or destruction, the Leased Premises cannot be repaired with
reasonable diligence within one hundred and twenty (120) days of the
happening of such damage or destruction, then, in each case, the
Landlord may, at its option, let migrate the Lease by giving to the
Tenant notice in writing of the Landlord's intention to terminate the
Lease. In the event of such termination, the Lease and the Term hereby
demised shall cease and be at an end as of the date of such damage or
destruction and the Minimum Rent and all other additional rent for
which the Tenant is liable under the terms of this Lease shall be
apportioned and paid in full to the date of such destruction or
damage.
(b) If the Landlord does not elect to terminate the Lease in accordance
with Subparagraph (a) of this Paragraph 22, then, the Landlord shall
commence with all reasonable diligence to reconstruct, rebuild or
repair the Leased Premises to the extent only of its obligations in
respect of the construction of the Leased Premises and exclusive of
any work performed in and to the Leased Premises by the Tenant (the
"Landlord's Work of Reconstruction"). From the date of the happening
of such damage or destruction and until the completion of the
Landlord's Work of Reconstruction, the Minimum Rent shall abate (i) in
its entirety if, in the opinion of the Landlord's architect or
engineer, the Leased Premises are rendered wholly untenantable or (ii)
proportionately, (to the portion of the Leased Premises rendered
untenantable), if in the opinion office Landlord's architect or
engineer, the Leased Premises are rendered untenantable only in part.
(c) If the Landlord shall elect to repair, reconstruct or rebuild the
Leased Premises in accordance with the provisions of this Paragraph
22, the Landlord shall be entitled to use plans and specifications and
working drawings in connection therewith other than those used in the
original construction of the Leased Premises.
(d) The decision of the Landlord's architect or engineer as to (i) the
time within which the Leased Premises can or cannot be repaired, (ii)
the extent of the damage or destruction to the Leased Premises, (iii)
the cost of repairing or rebuilding the Leased Premises, (iv) the date
on which the Landlord's Work of Reconstruction is completed, shall, in
each case, be final and binding upon the parties hereto. For the
purposes of this Lease the Landlord's architect and engineer shall be
Joseph Bogden Associates Inc., or such other architect or engineer
named by the Landlord who is arm's length and of a similar stature.
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23. ASSIGNMENT BY LANDLORD
The Landlord declares that it may assign its rights under this Lease to a
lending institution as collateral security for a loan to the Landlord and
in the event that such an assignment is given and executed by the Landlord,
and notification thereof is given to the Tenant by or on behalf of the
Landlord, it is expressly agreed between the Landlord and the Tenant that
this Lease shall not be cancelled or modified for any reason whatsoever
except as provided for, anticipated or permitted by the terms of this Lease
or by law, without the consent in writing of such lending institution. The
Tenant covenants and agrees with the Landlord that it will, if and whenever
reasonably required by the Landlord, consent to and become a party to any
reasonable instrument relating to this Lease which may be required by or on
behalf of any purchaser, lender or mortgagee from time to time of the
Leased Premises.
24. LIMITATION OF LANDLORD'S LIABILITY
The term "Landlord" as used in this Lease shall, so far as the covenants
and obligations on the part of the Landlord are concerned, be limited to
mean and include only the owner or owners at the time in question of the
Building and in the event of any conveyance or transfer of ownership, by
the Landlord herein named, and in the case of any subsequent transfer or
conveyances, the then vendor or transferor shall be automatically freed and
relieved, from and after the date of such transfer or conveyance, of all
personal liability in respect of the performance of any covenants or
obligations on the part of the Landlord contained in the Lease thereafter
to be performed, provided that:
(a) any funds in the hands of the Landlord or the then vendor or
transferor at the time of such transfer, in which the Tenant has an
interest, shall be turned over to the purchaser or transferee and any
amount then date and payable to the Tenant by the Landlord, or the
then vendor or transferor under any provision of this Lease shall be
paid to the Tenant; and,
(b) upon any such transfer or conveyance, the purchaser or transferee
shall be deemed to have assumed, subject to the limitations of this
paragraph, all of the terms, covenants and conditions contained in
this Lease to be performed on the part of the Landlord. It is the
intention of the parties pursuant to this Paragraph 25 that the
covenants and obligations contained in this Lease on the part of the
Landlord shall, subject as aforesaid, be binding upon the Landlord,
its successors and assigns, only during and in respect of their
respective periods of ownership.
25. SIGNS
The Tenant will not paint, fix, display, or cause to be painted, fixed or
displayed, any sign, picture, advertisement notice, lettering or decoration
on any part of the exterior or the interior of the Leased Premises without,
in each instance, the prior written approval of the Landlord. Any such
signs or other advertising material, as aforesaid, shall be removed by the
Tenant at the expiration or earlier termination of this Leasee and the
Tenant shall promptly repair any and all damage caused by such installation
or removal.
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26. WAIVER OF BREACH
The waiver by the Landlord of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant
or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by the Landlord shall not be deemed to be a waiver of any
preceding breach by the Tenant of any term, covenant or condition of this
lease, regardless of the Landlord's knowledge of such preceding breach at
the time of acceptance of such rent. No covenant, term or condition of this
Lease shall be deemed to have been waived by tile Landlord unless such
waiver is in writing and signed by the Landlord.
27. NOTICES
Any notice, demand, request or other instrument which may be or is required
to be given under this Lease shall be delivered in person or sent by
registered mail, postage prepaid, and shall be addressed (a) if to the
Landlord at 92 Carrier Drive, Etobicoke, Ontario, M9W 5RI at such other
address as the Landlord designates by written notice, and (b) if to the
Tenant, at the Leased Premises with a copy to Liuski International Inc.,
6585 Crescent Drive, Norcross, Georgia, 30071, U.S.A, Att: General Counsel.
Any such notice, demand, request or consent is conclusively deemed to be
given or made on the date upon which such notice, demand, request or
consent is delivered, or if mailed, then four (4) days following the date
of mailing as the case may be, and the time period referred to therein
commences to run from the time of delivery or four (4) days following the
date of mailing as the case may be. Either party may at any time give
notice in writing to the other of any change of address of the party giving
such notice and from or after time giving of such notice, the address
therein specified is deemed to be the address of such party for the giving
of notices hereunder. Provided, however, if the postal service is
interrupted or substantially delayed for any reason whatsoever, then, any
notice, demand, request or other instrument shall be delivered in person
only.
28. STATUS STATEMENT
Within ten (10) days after written request therefor by the Landlord, or in
tile event that upon any sale, assignment, lease or mortgage of the Leased
Premises or the lands thereunder by the Landlord, a reasonable status
statement shall be required from the Tenant, the Tenant hereby agrees to
deliver in the form supplied by the Landlord a certificate to any proposed
mortgagee or purchaser or to the Landlord, stating (if such be the case)
that:
(a) this Lease is modified and in full force and effect (or if there have
been any modifications, that this Lease is in full force and effect as
modified and identify the modification agreements, if any) or if this
Lease is not in full force and effect, the certificate shall so state;
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(b) the date of the commencement of the Term;
(c) the date to which the Minimum Rent has been paid under this Lease;
and,
(d) whether or not there is any existing default by the Tenant in the
payment of Minimum Rent or other sum of money under this Lease, and
whether or not there is any other existing default by either party
under this Lease with respect to which a notice of default has been
served and if there is any such default, specifying the nature and
extent thereof.
29. SUBORDINATION
This Lease and all of the rights of the Tenant hereunder are, and shall at
all times, be subject and subordinate to any and all mortgages, trust deeds
or the charge or lien resulting from any other method of financing or
refinancing or any renewals, or extensions thereof, now or hereafter in
force against the lands, buildings and improvements comprising the
Building. Upon the request of the Landlord, the Tenant will subordinate
this Lease and all of its rights hereunder in such form or forms as the
Landlord may reasonably require to any such mortgage, trust deeds or the
charge or lien resulting from any other method of financing or refinancing
and to all advances made or entitled to be made upon the security thereof,
and will, if requested, attorn to the holder thereof. No subordination by
the Tenant shall have the effect of permitting the holder of any mortgage
or charge or other security to disturb the occupation and possession by the
Tenant of the Leased Premises, so long as the Tenant shall perform all of
the terms, covenants, conditions, agreements and provisions contained in
this Lease and so long as the Tenant executes contemporaneously, a document
of attornment required by any such mortgagee or other encumbrancer. If
within twenty (20) days after the date of the Tenant's receipt of any
request in respect thereof, the Tenant has not executed and delivered to
the Landlord any instruments or certificates required pursuant to the
provisions of this Paragraph 29 or Paragraph 28 hereof, and has not
objected in writing to any of the provisions therein, then, the Tenant
hereby irrevocably appoints the Landlord as the Tenant's attorney with full
power and authority to execute and deliver in the name of the Tenant any
such instruments or certificates.
30. IMPOSSIBILITY OF PERFORMANCE
Notwithstanding anything to the contrary contained in this Lease, if either
party hereto is bona fide delayed or hindered in or prevented from the
performance of any term, covenant or act required hereunder by reason of
strikes, labour troubles, inability to procure materials or services, power
failure, restrictive governmental laws or regulations, riots, insurrection,
sabotage, rebellion, war, acts of God, or other reasons whether of a like
nature or not, which is not the fault of the party delayed in performing
work or doing acts required under the terms of this Lease, then, the
performance of such term, covenant or act is excused for the period of the
delay and the party so delayed shall be entitled to perform such term,
covenant or act within the appropriate time period after the expiration of
the period of such delay.
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However, the provisions of this Paragraph 30 shall not in any way operate
to excuse the Tenant from the prompt payment of Minimum Rent and additional
rent or any of the payments required by the terms of this Lease.
31. MISCELLANEOUS
The Landlord and Tenant agree that:
(a) Successors and Assigns
----------------------
All rights and liabilities herein given to, or imposed upon, the
respective parties hereto shall extend to and bind the several
respective permitted heirs, executors, administrators, successors and
assigns of the said parties, and if there shall be more than one
Tenant, they shall be bound jointly and severally by the terms,
covenants and agreements contained herein. No rights, however, shall
entire to the benefit of any assignee of the Tenant unless the
assignment to such assignee has been approved by the Landlord in
writing as provided in Paragraph 9(j) hereof;
(b) Accord and Satisfaction
-----------------------
No payment by the Tenant or receipt by the Landlord of a lesser amount
than the monthly Minimum Rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any
endorsement or statement or any cheque or any letter accompanying any
cheque or payment as rent be deemed an accord and satisfaction, and
the Landlord may accept such cheque or payment without prejudice to
the Landlord's right to recover the balance of such rent or pursue any
other remedy in this Lease provided, unless the Landlord and the
Tenant shall agree otherwise.
(c) Entire Agreement
----------------
This Lease and the Schedules "A", "B", "C", "D" and "E" attached
hereto and forming a part hereof, together with the rules and
regulations promulgated by the Landlord from time to time set forth
all the covenants, promises, agreements conditions and undertakings
between the Landlord and the Tenant concerning the Leased Premises and
there are no covenants, promises, agreements, conditions or
understandings, either oral or written, between them other than are
herein set forth. Except as herein otherwise provided, no subsequent
alteration, amendment, change or addition to this Lease shall be
binding upon the Landlord or the Tenant unless in writing and signed
by each of them.
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(d) Captions and Section Numbers
----------------------------
The captions, section numbers, article numbers, and index appearing in
this Lease are inserted only as a matter of convenience and in no way
define, limit, construe or describe the scope or intent of such
sections or articles of this Lease, nor in any way affect this Lease.
(e) Extended Meanings
-----------------
The word "Tenant" shall be deemed to include the word "lessee" and
shall mean each and every person or party mentioned as a tenant
herein, be the same one or more, and if there shall be more than one
Tenant, any notice required or permitted by the terms of this Lease
may be given by or to any one thereof, and shall have the same force
and effect as if given by or to all thereof. Any reference to "Tenant"
shall include, where the context allows, the servants, employees,
agents, and invitees of the Tenant and all others over whom the Tenant
exercises control. Wherever the word Landlord is used in this Lease,
it shall be deemed to include the word "lessor" and to include the
Landlord and its duly authorized representatives. The words "hereof",
"herein", "hereunder" and similar expressions used in any section or
subsection relate to the whole of this Lease, and not to that section
or that subsection only, unless of otherwise expressly provided. The
use of the neuter singular pronoun to refer to the Landlord or the
Tenant shall be deemed a proper reference even though the Landlord or
the Tenant may be an individual, a partnership, a corporation, or a
group of two or more individuals or corporations. The necessary
grammatical changes required to make the provisions of this Lease
apply in the plural sense where there is more than one Landlord or
Tenant and to either corporations, associations, partnerships, or
individuals, (males or females), shall in all instances be assumed as
though in each case fully expressed.
(f) Partial Invalidity
------------------
If any term, covenant or condition of this Lease or the application
thereof to any person or circumstance shall, to any extent be invalid
or unenforceable, the remainder of this Lease, or the application of
such term, covenant or condition to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not
be affected thereby and each term, covenant or condition of this Lease
shall be valid and enforced to the fullest extent permitted by law.
(g) Registration
------------
The Tenant shall not register this Lease.
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(h) Governing Law
-------------
This Lease shall be construed in accordance with, and governed by, the
laws of the Province of Ontario.
(i) Time of the Essence
-------------------
Time shall be of the essence of this Lease and of every part hereof.
(j) Notice by Tenant
----------------
The Tenant shall, when it becomes aware of same, or when the Tenant,
acting reasonably, should have become aware of same, notify the
Landlord of any damage to, or deficiency or defect in any part of the
Building, including the Leased Premises and any equipment or utility
systems, or any installation located therein, notwithstanding the fact
that the Landlord may have no obligation with respect to same.
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SIGNED, SEALED AND DELIVERED in the presence of:
ROLEX DEVELOPMENTS LIMITED
Per:
----------------------------------------
(Landlord)
LIUSKI INTERNATIONAL TORONTO, INC.
Per:
----------------------------------------
(Tenant)
LIUSKI INTERNATIONAL, INC.
Per:
----------------------------------------
(Indemnifier)
32
<PAGE>
SCHEDULE "A"
------------
(attached hereto and forming part of this Agreement to Lease)
Legal Description of 1229 Lorimar Drive, Mississauga
- - ----------------------------------------------------
Parcel Block 1-1, in the Register for Section 43M-733, being the whole of Block
1, Plan 43M- 733, in the City of Mississauga, in the Regional Municipality of
Peel.
[THIS REPLACES A GRAPHIC DRAWING]
33
<PAGE>
SCHEDULE "B"
------------
(attached hereto and forming part of this Lease)
INDEMNITY AGREEMENT
THIS AGREEMENT dated the day of , 1996.
----- ----------
BETWEEN:
ROLEX DEVELOPMENTS LIMITED
(herein called "Landlord")
OF THE FIRST PART
- and -
LIUSKI INTERNATIONAL INC.
(herein called "Indemnifier")
OF THE SECOND PART
In order to induce the Landlord to enter into the lease (the "Lease") dated the
day of 1996, and made between the Landlord and Liuski
- - ------ ------------
International Toronto, Inc., as Tenant and for other good and valuable
consideration, the receipt whereof is hereby acknowledged, the Indemnifier
hereby makes the Following indemnity and agreement ("Indemnity") with and in
favor of the Landlord:
1. The Indemnifier hereby agrees with the Landlord that at all times during
the Term and any extension it will (a) make due and punctual payment of all
rent, monies, charges and other amounts of any kind whatsoever payable
under the Lease whether to the Landlord or otherwise upon notice from the
Landlord that the Tenant has failed to make such payment; (b) effect prompt
and complete performance of all and singular the terms, covenants and
conditions contained in the Lease on the part of the Tenant to be kept,
observed and performed upon notice from the Landlord that the Tenant has
failed to effect such performance; and (c) indemnify and save harmless the
Landlord from any loss, costs or damages arising out of any failure by the
Tenant to pay the aforesaid rent, money, charges and other amounts and any
failure to observe or perform any of the terms, covenants and conditions in
the Lease.
2. This Indemnity is absolute and unconditional and the obligations of the
Indemnifier shall not be released, discharged, mitigated, impaired or
affected by (a) any extensions of time, indulgences or modifications which
the Landlord extends to or makes with Tenant in respect of the performance
of any of the obligations of the Tenant under the Lease; (b) any waiver by
or failure of the Landlord to enforce any of the terms, covenants and
conditions of the Lease; (c) any assignment of the Lease by the Tenant or
34
<PAGE>
by any Trustee, receiver or liquidator; (d) any consent which the Landlord
gives to any such assignment; or (e) any amendment to the Lease or any
waiver by the Tenant of any of its rights under the Lease.
3. The Indemnifier hereby expressly waives notice of the acceptance of this
Agreement and all notice of non-performance, non-payment or non-observance
on the part of the Tenant of the terms, covenants and conditions in the
Lease. Without limiting the generality of the foregoing any notice which
the Landlord desires to serve upon the Indemnifier shall be sufficiently
given if served personally upon the Indemnifier, or mailed by prepaid
registered or certified post addressed to the Indemnifier at the Leased
Premises, and every such notice is deemed to have been given upon the day
it was served personally, or if mailed, upon the second business day after
it was mailed. The Indemnifier may designate by notice in writing a
substitute address for that set forth above and thereafter notice shall be
directed to such substitute address. If two or more Persons are named as
Indemnifier, such notice shall be sufficiently given if and when the same
is served personally or mailed in the foregoing manner to any one of such
Persons.
4. In the event of a default under the Lease or under this Agreement, the
Indemnifier waives any right to require the Landlord 10 (a) proceed against
the Tenant or pursue any rights or remedies with respect to the Lease, (b)
proceed against or exhaust any security of the Tenant held by the Landlord
or (c) pursue any other remedy whatsoever in the Landlord's power. The
Landlord has the right to enforce this indemnity regardless of the
acceptance of additional security from the Tenant and regardless of the
release or discharge of the Tenant by the Landlord or by others or by
operation of any law.
5. Without limiting the generality of the foregoing, the liability of the
Indemnifier under this Indemnity is not deemed to have been waived,
released, discharge, impaired or affected by reason of the release or this
charge of the Tenant in any receivership, bankruptcy, winding-up or other
creditor's proceedings or the rejection, disaffirmance or disclaimer or the
Lease in any proceeding and shall continue with respect to the periods
prior thereto and thereafter, for and with respect to the Term. The
liability of the Indemnifier shall not be affected by any repossession of
the Leased Premises by the Landlord, provided, however, that the net
payments received by the Landlord after deducting all costs and expenses of
repossessing and reletting the same shall be credited from time to time by
the Landlord to the account of the Indemnifier and the Indemnifier shall
pay any balance owing to the Landlord from time to time immediately upon
demand.
6. No action or proceedings brought or instituted under this Indemnity and no
recovery in pursuance thereof shall be a bar or defence to any further
action or proceedings which may be brought under this Indemnity by reason
of any further default or defaults hereunder or in the performance and
observance of the terms, covenants and conditions in the Lease.
35
<PAGE>
7. No modification of this Indemnity shall be effective unless same is in
writing and is executed or initialled by both the Indemnifier and the
Landlord.
8. The Indemnifier shall, without limiting the generality of the foregoing be
bound by this Indemnity in the same manner as though the Indemnifier were
the Tenant named in the Lease.
9. If two or more individuals, corporations, partnerships or other business
associations (or any combination of two or more thereof execute this
Indemnity as Indemnifier, the liability of each such individual,
corporation, partnership or other business association hereunder is joint
and several. In like manner, if the Indemnifier named in the Indemnity is a
partnership or other business association the members of which are by
virtue of statute or general law, subject to personal liability, the
liability of each such member is joint and several.
10. All of the terms, covenants and conditions of this Indemnity extend to are
binding upon the lndemnifier, his or its heirs, executors, administrators,
successors and assigns, as the case may be, and any mortgagee, chargee,
trustee under a deed of trust or other encumbrance of all or any part of
the Building.
11. The expressions "Landlord", "Tenant", "Rent", "Term", and "Leased Premises"
and other terms or expressions where used in this Indemnity, respectively,
have the same meaning as in the Lease.
12. This Agreement shall be construed in accordance with the laws of the
Province of Ontario.
13. Wherever in this Indemnity reference is made to either the Landlord or the
Tenant, the reference is deemed to apply also to the respective heirs,
executors, administrators, successors and assigns and permitted assigns,
respectively, of the Landlord and the Tenant, as the case may be, named in
the Lease. Any assignment by the Landlord of any of its interests in the
Lease operates automatically as an assignment to such assignee of the
benefit of this Indemnity.
IN WITNESS WHEREOF the Landlord and the Indemnifier have signed and sealed this
Indemnity as of the day and year first above written.
36
<PAGE>
SIGNED SEALED AND DELIVERED ROLEX DEVELOPMENTS LIMITED
in the presence of:
Per:
- - --------------------------- -----------------------------
(Landlord)
LIUSKI INTERNATIONAL, INC.
Per:
- - --------------------------- -----------------------------
(Indemnifier)
37
<PAGE>
SCHEDULE "C"
(attached hereto and forming part of this Agreement to Lease)
Landlord's Work
- - ---------------
The Landlord, at its expense, covenants and agrees to supply all material,
labour and machinery necessary to complete the Following work, as per attached
Proposed Office Layout, in a good and workmanlike manner prior to the Tenant's
occupancy.
1. Make changes to existing office layout as per attached Proposed Office
Layout.
2. Recarpet entire offace area with 28 oz. commercial carpet chosen from
Landlord's samples.
3. Floors in Lunch Room, Demonstration Room, Drop Off Area and Storage Room
receive vinyl composition tile, chosen from Landlord's samples.
4. Repaint entire office area; colour to be chosen from Landlord's samples.
5. Block off all warehouse windows to Tenant's specifications.
6. Raise existing warehouse light fixtures as close as possible to roof.
7. Supply and install fifteen (15) 15 amp 4-plex electrical outlets in
production area.
8. Create 4'0" x 4'0" opening in rear warehouse wall to accommodate Tenant's
compactor.
9. Create 8'0" x 8'0" receiving room at rear man door complete with:
o one (1) 3'0" x 7'0" hollow core wood door and one (1) 3'0" x 7'0"
hollow core "split" door
o one (1) 15 amp duplex electrical outlet.
38
<PAGE>
SCHEDULE "C" continued
(attached hereto and forming part of this Agreement to Lease)
[THIS REPLACES A GRAPHIC DRAWING]
39
<PAGE>
SCHEDULE "C" continued
(attached hereto and forming part of this Agreement to Lease)
[THIS REPLACES A GRAPHIC DRAWING]
40
<PAGE>
SCHEDULE "D"
------------
(attached hereto and forming part of this Agreement to Lease)
Rules And Regulations
- - ---------------------
1. The Tenant shall not permit any cooking in the Leased Premises without the
written consent of the Landlord.
2. The sidewalks, entrances, driveways and roadways shall not be obstructed or
used by the Tenant, its agents, servants, contractors, invitees or
employees for any purpose other than ingress to and egress from the Leased
Premises. The Landlord reserves the entire control of all parts of the
Building employed for the collective benefit of the tenants thereof.
3. The Tenant, its agents, servants, contractors, invitees or employees, shall
not bring in or take out, position, construct, install, or move any safe,
business machinery or other heavy machinery or equipment or anything liable
to injure or destroy any part of the Building without first obtaining the
consent in writing of the Landlord. In giving such consent, Landlord shall
have the right in its sole discretion, to prescribe the weight permitted
and the position thereof, and the use and design of planks, skids, or
platforms, to distribute the weight thereof. All damage done to the
Building by moving or using any such heavy equipment or machinery shall be
repaired at the expense of the Tenant. The moving of all heavy equipment or
other machinery shall occur by prior arrangement with the Landlord.
4. The Tenant shall not place or cause to be placed any additional locks upon
any doors of the Leased Promises without the approval of Landlord anti
subject to any conditions imposed by the Landlord.
5. The water closets and other water apparatus shall not be used for any
purpose other than those for which they were constructed, and no sweepings,
rubbish, rags, ashes, or other substances shall be thrown therein. Any
damage resulting by misuse shall be borne by the Tenant. The Tenant shall
not deface or mark any part of the Building.
6. No one shall use the Leased Premises for sleeping apartments or residential
purposes, or for the storage of personal effects or articles other than
those required for business purposes.
7. The Tenant shall not receive or ship articles of any kind except through
facilities, and designated doors and at hours designated by Landlord.
8. No inflammable oils or other inflammable, dangerous or explosive materials
except those approved in writing by Landlord's insurers shall be kept or
permitted to be kept in the Leased Premises.
41
<PAGE>
9. If the Tenant desires telegraphic or telephone connections, the Landlord
will direct the electricians as to where and how the wires are to be
introduced, and without such direction no boring or cutting for wires will
be permitted which has not been ordered or authorized by the Landlord. No
outside radio or television aerials shall be allowed on the Leased Premises
without authorization in writing by Landlord.
10. The Tenant shall not permit undue accumulations of garbage, trash, rubbish
or other refuse within or without the Leased Premises or cause or permit
objectionable odors to emanate or be dispelled from the Leased Premises.
11. The Landlord shall have the right to make such other and further reasonable
rules and regulations as in its judgment may from time to time be needed
for the safety, care and cleanliness of the Building, and for the
preservation of good order therein.
42
<PAGE>
SCHEDULE "E"
(attached hereto and forming part of this Agreement to Lease)
Early Occupancy
- - ---------------
The Tenant, at its own risk, shall be permitted to occupy the Leased Premises
net rent free for one (1) month from April 1, 1996 to April 30, 1996 for the
purpose of setting up its business. It is agreed and understood that the Tenant
will be responsible to pay for Additional Rent and all utilities during this
period of early occupancy.
Option to Renew
- - ---------------
Provided that the Tenant has duly and regularly performed all the covenants on
its part to be performed in the Lease, the Tenant has the option to renew this
Lease. For further two (2) three (3) year periods (the "Renewal Periods") on the
same terms and conditions herein contained except Minimum Rent and Additional
Rent and there shall be no further right or option to renew. The options to
renew shall be exercised by a signed notice in writing delivered to the Landlord
at least six (6) months prior to the expiration of the initial lease term. the
new Minimum Rent for the Renewal Periods shall be agreed to by both parties,
within 30 days of receiving the written notice, but shall not be less than the
Minimum Rent payable for the last year of the initial lease term. The new
Minimum Rent for the Renewal Periods shall be based on the then prevailing
rental rates for similar premises in the general vicinity of the Leased
Premises. In the event that both parties cannot agree on the annual Minimum Rent
within the said 30 days of receipt of written notice, then either (i) the
Minimum Rent for the renewal term may be determined by arbitration as provided
for trader the Arbitration Act, 1991, or (it) the parties may mutually decide to
allow the Lease to expire by its terms without renewal.
Option to Terminate Lease
- - -------------------------
Provided that the Tenant has duly and regularly performed all the covenants on
its part to be performed in the Lease, the Tenant has the option to terminate
the lease as of April 30, 1999. To exercise this option to terminate the Tenant
must deliver to the Landlord a signed notice in writing together with payment in
the amount of Fifteen Thousand Dollars ($15,000.00) plus applicable taxes (the
"Payment"), no later than October 31, 1998. If the Landlord has not received the
written notice and Payment by October 31, 1998 then this option shall be null
and void.
43
<PAGE>
[AFFIDAVIT OF RESIDENCE NOT INCLUDED HEREIN]
44
Exhibit 23
Consent of Independent Certified Public Accountants
Liuski International, Inc.
Atlanta, Georgia
We hereby consent to the incorporation by reference in the Registration
Statements No. 33-5776, 333-04275 and 333-04277, respectively, on Forms S-8 and
Registration Statement No. 33-69126 on Form S-3 of our reports dated March 21,
1997, relating to the consolidated financial statements and schedules of Liuski
International, Inc. appearing in the Company's Annual Report on Form 10-K, for
the year ended December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Registration statement on Form S-3.
BDO Seidman, LLP
March 28, 1997
Atlanta, Georgia
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 31,994
<ALLOWANCES> 3,208
<INVENTORY> 49,873
<CURRENT-ASSETS> 87,477
<PP&E> 2,742
<DEPRECIATION> 3,426
<TOTAL-ASSETS> 90,454
<CURRENT-LIABILITIES> 71,524
<BONDS> 0
0
0
<COMMON> 44
<OTHER-SE> 23,484
<TOTAL-LIABILITY-AND-EQUITY> 90,454
<SALES> 422,310
<TOTAL-REVENUES> 422,310
<CGS> 396,238
<TOTAL-COSTS> 396,238
<OTHER-EXPENSES> 33,352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,188
<INCOME-PRETAX> (9,467)
<INCOME-TAX> (1,652)
<INCOME-CONTINUING> (7,815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,815)
<EPS-PRIMARY> (1.78)
<EPS-DILUTED> (1.78)
</TABLE>
