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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000892569-01-501327.txt : 20020413
<SEC-HEADER>0000892569-01-501327.hdr.sgml : 20020413
ACCESSION NUMBER: 0000892569-01-501327
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011220
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CAM COMMERCE SOLUTIONS INC
CENTRAL INDEX KEY: 0000819334
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373]
IRS NUMBER: 953866450
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-16569
FILM NUMBER: 1819667
BUSINESS ADDRESS:
STREET 1: 17520 NEWHOPE ST #100
CITY: FOUNTAIN VALLEY
STATE: CA
ZIP: 92708
BUSINESS PHONE: 7142419241
MAIL ADDRESS:
STREET 1: 17520 NEWHOPE ST
CITY: FOUNTAIN VALLEY
STATE: CA
ZIP: 92708
FORMER COMPANY:
FORMER CONFORMED NAME: CAM COMMERCE SOULUTIONS
DATE OF NAME CHANGE: 20000414
FORMER COMPANY:
FORMER CONFORMED NAME: CAM DATA SYSTEMS INC
DATE OF NAME CHANGE: 19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a78003e10-k.txt
<DESCRIPTION>FORM 10-K FISCAL YEAR ENDED SEPTEMBER 30, 2001
<TEXT>
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: __________ to __________
Commission file number : 0-16569
CAM COMMERCE SOLUTIONS, INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 95-3866450
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
17520 NEWHOPE STREET
FOUNTAIN VALLEY, CALIFORNIA 92708
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (714) 241-9241
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common Stock $.001 par value
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.
The aggregate market value of voting stock held by non-affiliates of
the Registrant as of December 5, 2001 was approximately $10,391,000.
As of December 5, 2001, there were outstanding 3,023,000 shares of
common stock of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE.
Part II Annual Report to Stockholders for
fiscal year ended September 30, 2001
<PAGE>
PART I
ITEM 1. BUSINESS
- --------------------------------------------------------------------------------
GENERAL
Except for the historical information contained herein, this Annual Report on
Form 10-K contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in this report. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section as
well as the section entitled "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
THE COMPANY
CAM Commerce Solutions, Inc. (the "Company") was incorporated in California in
1983, and reincorporated in Delaware in 1987. The Company's principal business
is to provide total commerce solutions for small to medium size, traditional
retailers and web retailers. These solutions are based on the Company's open
architecture software products for managing inventory, point of sale, sales
transaction processing and accounting. In addition to software, these solutions
often include hardware, installation, training, service and consulting provided
by the Company. Sales, service, research, and development are located in
California and Nevada, while the Company's customers are located throughout the
United States.
WORKPRO ACQUISITION
In November 2000, the Company acquired the customer base, source code and
application code for the Work Pro software. The acquisition was accounted for
using the purchase method of accounting. The total amount of cash paid was
$600,000 for the purchase of both intangible and tangible assets, of which
$580,000 has been capitalized as an intangible asset. This intangible asset is
being amortized over a five-year period. Effective October 1, 2002 this
intangible asset will no longer be amortized but instead, will be subject to
annual impairment tests in accordance with Statement 142, Goodwill and Other
Intangible Assets. Work Pro software is used by customers in the retail paint
store industry.
THE SYSTEMS
The Company offers four turn key systems:
(1) THE CAM SYSTEM -- designed for hard goods retailers whose inventory is
re-orderable in nature.
(2) THE PROFIT$ SYSTEM -- designed for apparel and shoe retailers whose
inventory is seasonable in nature, and color and size oriented.
(3) THE RETAIL STAR SYSTEM -- a Windows-based system designed to incorporate
multiple functions of both the CAM and Profit$ systems.
(4) THE MICROBIZ SYSTEM -- a Windows-based system designed for single store
hard goods retailers that are generally smaller in size than customers
that utilize the CAM System.
Each of the Company's systems offer the ability to obtain: (i) automated pricing
of each item; (ii) billing for charge account customers; (iii) printing of a
customer invoice; (iv) tracking of inventory count on an item by item basis; (v)
computation of gross profit, dollars and/or percentage of each item; and (vi)
tracking of sales by clerk and department by hour, day and/or month. In
addition, the Company's systems provide full management reporting including zero
sales reports, inventory ranking, overstock and understock, sales analysis,
inventory valuation (cost, average cost and retail) and other reports. The
systems can also provide accounting functions including accounts receivable,
accounts payable, and general ledger.
1
<PAGE>
The Company's systems integrate Intel-based personal computers, computer point
of sale stations, hand-held and table top barcode laser scanners, terminal or
computer work stations, printers, and the Company's software. The Company is
able to adapt its software to existing Intel-based personal computer. Each
system is configured to meet the customer's particular needs and, as a result,
the components included in each system, including the personal computer,
printer, point of sale station and the Company's software, depend on the needs,
the size and the industry type of the customer.
The Company's software is derived from software originally designed and
subsequently licensed to (or acquired by) the Company by Retail Solutions, Inc.,
for the CAM system, by MicroStrategies, Inc., for the Profit$ system, by
Teamsoft, Inc. for the Retail Star system, by MicroBiz Inc. for the MicroBiz
system. The Company continues to make modifications and enhancements to the
software.
The Company provides an entire system to each customer on a "turn key" basis, in
that the Company provides all of the hardware and the software as well as the
installation of a system on the customer's premises. All systems, except the
MicroBiz system, are capable of handling multiple stores for a given customer.
In a multiple-store system, the Company typically installs a computer network.
The server computer at each store communicates with the server computer at the
customer's main office. The main server computer compiles all information from
the other locations for processing and reporting.
INVENTORY MANAGEMENT
The Company believes that inventory control is the most important and time
consuming task facing the management of retail stores. Each of the Company's
systems were designed to address the retailer's need for simpler and yet more
accurate means of controlling a large and diverse inventory. All inventory
information, once entered into the system, is updated for each sale that is
transmitted from the point of sale station to the main computer. The systems are
able to provide for the following managerial reports:
(1) POPULARITY RANKING. The systems will report on the popularity of each
item in the store by producing a report listing each item of inventory
ranked according to the number of sales of each item. The report is
generated automatically and can produce a list of daily, weekly,
monthly, year-to-date and/or trailing 13 months of sales basis. The
systems will also analyze the popularity data and indicate to the
retailer which particular items of inventory are needed and which items
are overstocked.
(2) ZERO SALES REPORT. The systems provide a sales analysis on a monthly and
year-to-date basis for inventory items for which no sales have been
made. The analysis can be reported on a total sales basis or on a
departmental or item level basis.
(3) INVENTORY TABULATION AND VALUATION. The systems provide reports listing
all inventory on hand, the valuation of such inventory on a cost and
retail basis, the average cost of each item in inventory, and all items
of inventory on order but not yet received.
(4) AUTOMATIC PURCHASING. The systems provide a report listing all items
that should be ordered based upon historical data stored in the system,
including the number of items in inventory, the number on the shelf, the
number on order and the minimum quantities required. The systems can
also automatically provide a purchase order if desired.
(5) PRICING. The systems are capable of producing price stickers in 20
customized label formats, assigning Uniform Purchase Code numbers and
printing barcodes directly upon the price labels for reading by laser
scanners. In addition, if there is a price change, the systems will
automatically update the pricing information and, if desired, print new
pricing labels.
(6) REPORTS. The systems permit the retailer to customize and produce
reports and forms utilizing data in the system in a format preferred by
the retailer.
ACCOUNTING MANAGEMENT
The CAM System is capable of performing accounting functions through the M.A.S.
90(R) accounting software available from the Company. The Company has developed
its own accounting software, which is integrated to its Retail Star software
product.
2
<PAGE>
SERVICE AND SUPPORT
Customer service and support is a critical element in maintaining customer
satisfaction. For a monthly fee, each purchaser of a system receives service and
support from the Company. The service and support provided by the Company
includes:
(1) HARDWARE SERVICE. The Company offers hardware service to its customers
on a time and material billing basis. The Company's service
representatives are trained to determine the source of the problem or
malfunction in the hardware and, once determined, replace the defective
component. Defective components are either repaired at the Company's
facility or sent to a manufacturer's authorized service center for
repair.
(2) TECHNICAL PHONE SUPPORT AND SOFTWARE ENHANCEMENTS. The Company provides
technical support by troubleshooting the customer's systems problems via
the telephone and via modem. The Company, while not performing any
significant customizing of its software for particular customers, is
receptive to comments from customers concerning the Company's software.
Such comments, together with planned enhancements to the software,
result in improvements, which are provided without additional cost to
all customers on a service contract.
(3) INSTALLATION AND TRAINING. In order to assure customers that they will
be able to properly integrate the Company's system into their business,
the Company offers on-site installation and training on the use and
application of the system to each customer. The training can take place
at the Company's in-house training facility or at the customer location.
The amount of training required depends upon the knowledge and
experience of the user plus the complexity of the business to which the
system is being implemented. The Company also offers training to its
customers via the telephone.
MARKETING
DIRECT SALES
The Company markets its systems primarily through the Company's direct sales
force consisting of thirty-eight salespersons and sales associates, all of whom
work exclusively for the Company. The Company's marketing efforts extend
nationwide with offices in the states of California, Nevada, Washington,
Colorado, Georgia, Minnesota, Florida, Missouri, Massachusetts and New Jersey.
Each salesperson is assigned a specific geographical territory and is
responsible for following up on sales leads in that territory. Each salesperson
is provided with a sales kit and demonstration equipment. Each salesperson is
trained by the Company to be able to define the needs of the potential customer,
recommend a system configuration, and provide appropriate price quotes. Upon the
execution of a typical sales contract, the Company is generally able to install
an entire system within four to six weeks. The Company is paid directly by the
customer or by third-party leasing companies. Compensation for salespeople is
based on a percentage of gross profit for each system sold.
BROCHURES, TRADE SHOWS, AND ADVERTISING MEDIA
The Company markets its systems by advertising in trade journals, the World Wide
Web, and other print media targeted at retail businesses, by attending industry
specific trade shows, by using sales promotional videos, and by direct mail
advertising.
SOURCES OF SUPPLY
The computer hardware, which makes up the Company's systems, consists primarily
of standard components purchased by the Company from outside distributors and
includes products such as Intel-based personal computers, Okidata (printers),
Symbol Technologies (hand-held laser scanners and portable data terminals),
Ithaca (40-column printers), and U.S. Robotics (modems). For most computer
hardware components, the Company has more than one source of supply.
3
<PAGE>
BACKLOG
The Company purchases component hardware for its systems based upon system
purchase orders and its forecast of demand for its products. Orders from
customers are usually shipped by the Company pursuant to an agreed upon
schedule. However, orders may be canceled or rescheduled by the customer with a
minimal penalty. For this reason, management believes such backlog information
is not indicative of the Company's future sales or business trends and is
subject to fluctuation. As of December 5, 2001, backlog was approximately
$401,000 as compared to $1,031,000 on December 5, 2000. Backlog is based upon
purchase orders placed with the Company which the Company believes are firm
orders.
COMPETITION
The industry in which the Company operates is highly competitive. The Company
competes with suppliers dedicated to one type of business and suppliers of
software that provide functions similar to the Company's software. Most
competitors sell their products through independent dealers on a regional basis.
The Company sells on a direct sales basis.
The Company competes on the basis of the capabilities and features of its
systems. It believes the Windows-based Retail Star software product gives it a
competitive advantage because some of the Company's competitors are still
selling DOS-based software products. The Company considers its systems to have
greater capabilities for the small and medium size retailers than suppliers of
other systems. Included among such capabilities are ongoing software
enhancement, and a service organization in place to support the customer after
the initial sale.
The Company also competes with vertical market suppliers of automated retail
systems, which include hardware and software intended for use by a particular
retail industry segment. Some of these suppliers compete with the Company on the
basis of lower pricing.
The ability of the Company to meet competition will depend upon, among other
things, the Company's ability to maintain its marketing effort, increase the
capabilities of its systems through ongoing enhancements and improvements, and
to obtain financing when, and if, needed.
PATENTS AND TRADEMARKS
The Company has federal trademark registrations pending for the following two
trademarks: Retail Star, Retail Ice, Retail America, I.Star and X-charge. The
Company relies on a combination of trade secrets, copyright laws, and technical
measures to protect its rights to its proprietary software. The software
included in a system is not accessible by customers for purposes of revisions or
copying, as the Company does not release the software source code to customers.
The Company holds no patents and believes that its competitive position is not
materially dependent upon patent protection. The Company believes that most of
the technology used in the design and manufacture of most of the Company's
products is generally known and available to others. Consequently, there are no
assurances that others will not develop, market and sell products substantially
equivalent to the Company's products, or utilize technologies similar to those
used by the Company. Although the Company believes that its products do not
infringe on any third party's patents, there is no assurance that the Company
will not become involved in litigation involving patents or proprietary rights.
Patent and proprietary rights litigation entails substantial legal and other
costs, and there is no assurance that the Company will have the necessary
financial resources to defend or prosecute its rights in connection with any
litigation. Responding to, defending or bringing claims related to the Company's
rights to its intellectual property may require the Company's management to
redirect its resources to address these claims, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
SEASONALITY
The Company believes that seasonality has not had a significant effect on its
business.
4
<PAGE>
SOFTWARE DEVELOPMENT
The Company's software has been developed using a modular approach. Modular
designing allows a programmer to incorporate, replace or delete parts of a
computer software program without affecting the operation of the remaining parts
of the program. Accordingly, modular design facilitates the development of the
Company's software and new products enabling the Company's programmers to
incorporate entire sections from existing programs into the designs for such
products. The incorporation of existing software, which has already been fully
tested, into new products, reduces the time and expense that the Company would
otherwise incur in developing and enhancing its products.
The Company spent approximately $2,187,000, $2,035,000, and $1,607,000 on
software development, including amounts capitalized during the years ended
September 30, 2001, 2000, and 1999, respectively. The Company anticipates that
it will continue to incur software development costs in connection with
enhancements and improvements of its software and the development of new
products. These activities may require an increase in the Company's programming
and technical staff.
EMPLOYEES
As of September 30, 2001, the Company had 185 full time employees, including 15
employed in finance and administration, 32 in programming and quality assurance,
46 in sales and marketing, 26 in training and installation, 50 in technical
support, 11 in operations and 5 in consulting.
None of the Company's employees are represented by a labor union and the Company
believes that it enjoys harmonious relationships with its employees.
ENVIRONMENTAL REGULATIONS
There has been no material effect on the Company from compliance with
environmental regulations.
ITEM 2. PROPERTIES
- --------------------------------------------------------------------------------
The Company currently leases approximately 22,000 square feet of space in
Fountain Valley, California pursuant to a five-year lease expiring April 1,
2002, at an average annual rent of approximately $192,000. This facility houses
the Company's corporate headquarters which includes: executive and
administrative offices, service and support staff, system integration, and
inventory warehouse. The Company signed a five-year lease agreement for
approximately 26,000 square feet of space for a new building in Fountain Valley,
at an average annual rent of $343,000, with the expected move in date in March
2002.
In addition, the Company also leases the following properties: (i) approximately
11,000 square feet of office space in Henderson, Nevada, which houses the
Company's research and development team, the inside sales and telemarketing
group, and the accounting services division on a ten-year lease that expires
March 31, 2007, at an average annual rent of $136,000; (ii) approximately 3,600
square feet of office space in Upper Saddle River, New Jersey for MicroBiz
Division on a three-year lease that expires August 31, 2004; and (iii) various
immaterial month-to-month leases for sales offices throughout the country.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
Because of the nature of its business, the Company is from time to time
threatened or involved in legal actions. The Company does not believe any of the
legal actions now pending against it will result in material adverse effect on
the Company and, further, does not consider that any such proceedings fall
outside ordinary, routine litigation incidental to the business of the Company.
5
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
6
<PAGE>
PART II
PURSUANT TO GENERAL INSTRUCTION G (2), ITEMS 5, 6, 7, AND 8 HAVE BEEN OMITTED
SINCE THE REQUIRED INFORMATION IS CONTAINED IN THE COMPANY'S 2001 ANNUAL REPORT
TO STOCKHOLDERS PURSUANT TO RULE 14A-3(b), WHICH IS INCORPORATED HEREIN BY
REFERENCE BELOW.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT TO STOCKHOLDERS
- -----------------------------------------------------------------------------------------
<S> <C>
ITEM 5: MARKET FOR REGISTRANT'S COMMON PAGE 16: STOCK AND DIVIDEND DATA
EQUITY AND RELATED STOCKHOLDER'S MATTERS
- -----------------------------------------------------------------------------------------
ITEM 6: SELECTED FINANCIAL DATA PAGE 17: SELECTED FINANCIAL DATA SEE NOTE
(A) BELOW
- -----------------------------------------------------------------------------------------
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS PAGES 4-5: MANAGEMENT'S DISCUSSION AND
OF FINANCIAL CONDITION AND RESULTS OF ANALYSIS OF FINANCIAL CONDITION AND
OPERATIONS RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------------------
ITEM 8: FINANCIAL STATEMENTS AND SEE BELOW
SUPPLEMENTARY DATA
- -----------------------------------------------------------------------------------------
</TABLE>
Note (A) The selected financial data incorporated herein by reference to the
Company's 2001 Annual Report to Stockholders as of September 30, 2001 and 2000
and for each of the years in the three-year period ended September 30, 2001,
have been derived from the Company's audited financial statements included
elsewhere in this report by reference. The selected financial data as of
September 30, 1999 and for the years ended September 30, 1998 and 1997 have been
derived from audited financial statements of the Company not included herein.
The data is qualified in its entirety by reference to, and should be read in
conjunction with, the Company's financial statements and related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this report by reference.
Information for Item 8 is included in the Company's consolidated financial
statements as of September 30, 2001 and 2000, and for each of the years in the
three-year period ended September 30, 2001, and the Company's unaudited
quarterly financial data for the two years ended September 30, 2001 and 2000, on
pages 6 through 15 and page 17, respectively, of the Company's 2001 Annual
Report to Stockholders which is hereby incorporated by reference. The report of
the independent auditors is included on page 16 of the Annual Report to
Stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
INTEREST RATE RISK
At September 30, 2001 and 2000, the Company's cash equivalents and short-term
investments were approximately $9,451,000 and $10,444,000, respectively. Since
the Company typically does not purchase fixed-income securities, its cash
equivalents are not subject to significant interest rate risk. The Company
places substantially all of its interest bearing investments with major
financial institutions and by policy limits the amount of credit exposure to any
one financial institution. Additionally, the Company does not hold or issue
financial instruments for trading, profit or speculative purposes.
EQUITY PRICE RISK
The Company does not invest in available-for-sale equity securities, and is not
subject to significant equity price risk.
7
<PAGE>
FOREIGN EXCHANGE RATE RISK
The Company does not operate internationally and, therefore, is not subject to
market risk from changes in foreign exchange rates.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
None.
8
<PAGE>
PART III
MANAGEMENT
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- --------------------------------------------------------------------------------
As of September 30, 2001, the executive officers and directors of the Company
and their ages are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME AGE POSITION WITH THE COMPANY
- --------------------------------------------------------------------------------
<S> <C> <C>
Geoffrey D. Knapp 43 Chief Executive Officer,
Chairman of the Board, and
Secretary
- --------------------------------------------------------------------------------
Greg Freeze 42 Chief Operating Officer
- --------------------------------------------------------------------------------
Paul Caceres 41 Chief Financial Officer
and Chief Accounting
Officer
- --------------------------------------------------------------------------------
Walter W. Straub 58 Director
- --------------------------------------------------------------------------------
Corley Phillips 47 Director
- --------------------------------------------------------------------------------
David A. Frosh 43 Director
- --------------------------------------------------------------------------------
Scott Broomfield 44 Director
- --------------------------------------------------------------------------------
</TABLE>
GEOFFREY D. KNAPP, founder of the Company, has been a Director, and an officer
of the Company since its organization in September 1983. Mr. Knapp received a
bachelor's degree in marketing from the University of Oregon in 1980.
GREG FREEZE is the Chief Operating Officer of the Company, hired in 1998 as Vice
President of Software Support. Prior to joining the Company, Greg has held
numerous positions in several software companies including Ultimate Southern
California (1985-1988), Legal Management Systems (1988-1995), and DataWorks
(1995-1998). Positions held included: programmer/analyst; senior programmer
analyst; classroom training manager; telemarketing manager; account executive;
marketing manager and vice president. Mr. Freeze holds a bachelor's degree in
Business Administration and a MBA degree in International Business from
California State University, Fullerton. He also holds the CPIM title awarded by
the American Production and Inventory Control Society.
PAUL CACERES has been the Chief Financial Officer and Chief Accounting Officer
of the Company since September 1987. From 1982 to 1987, Mr. Caceres worked in
Public Accounting and was employed by Arthur Young & Company, the predecessor to
Ernst & Young LLP, as an Audit Senior and in 1987, was promoted to Audit
Manager. Mr. Caceres is a Certified Public Accountant, licensed in the state of
California. He received a bachelor's degree in business administration from the
University of Southern California in 1982.
WALTER W. STRAUB has been a Director of the Company since May 1989. From October
1983 to the present he has also served as the President, Chief Executive and
Director or Rainbow Technologies, Inc., a public company engaged in the business
of designing, developing, manufacturing and marketing of proprietary computer
related security products. Mr. Straub received a bachelor's degree in electrical
engineering in 1965 and a master's degree in finance in 1970 from Drexel
University.
CORLEY PHILLIPS joined the Company as Director in September 1996. Mr. Phillips
is an independent investor. From 1996 to 1997, Mr. Phillips served as President,
CEO and Director for Telephone Response Technologies, a Roseville,
California-based developer of computer technology software. From 1995 to 1996,
Mr. Phillips served as Vice President of marketing and product support for State
of The Art, an
9
<PAGE>
accounting software company based in Irvine, California. From 1990 to 1994, Mr.
Phillips served as President and CEO of Manzanita Software Systems, a developer
of Windows-based accounting software. From 1984 to 1990, Mr. Phillips was
President and co-founder of Grafpoint, a developer of software for computer
applications based in San Jose, California. Mr. Phillips has also held various
sales and marketing positions with Envision Technology and Hewlett-Packard. Mr.
Phillips holds both a bachelor's degree and a master's degree in electrical
engineering from Washington University in St. Louis, Missouri, as well as a
master's degree in business administration from Santa Clara University in Santa
Clara, California.
DAVID A. FROSH has been a member of the board of directors since August 1991. He
is presently the President of Sperry Van Ness, a commercial real estate
brokerage firm. Mr. Frosh was employed by CAM Commerce as President from June
1996 to March 2001. From June 1990 to June 1996, Mr. Frosh was employed as sales
executive for the national accounts division of Automatic Data Processing "ADP".
ADP provides computerized transaction processing, data communications and
information services. From June 1988 to June 1990, Mr. Frosh served as Director
of Marketing for Optima Retail Systems, a privately held company, which
manufactured and marketed inventory control systems for the retail apparel
industry. Mr. Frosh received a bachelor's degree in marketing from Central
Michigan University in 1980 and a master's degree in business administration
from Claremont Graduate School in 1999.
SCOTT BROOMFIELD has over 20 years experience, with 15 years direct experience
with high technology firms and companies in distress. He is presently the CEO of
VisualE, a start-up software company specializing in solutions that enable
businesses to rapidly deploy business systems that can be modified quickly to
meet constantly changing business requirements. From 1998 through 2001, Scott
was the CEO of Centura Software Corporation, a $55 million software company,
where he was recruited to return capital for the investors. He was successful in
the repositioning Centura to wireless computing and accomplished a ten-fold
capital return to its major investors, before eventually selling the business to
Platinum Equity Holdings. From 1989 through 1997, he was a principal with Hickey
& Hill, Inc. a business turn around management firm. In this capacity, as a
principal, he held senior operational, financial and advisory positions with
Trilogy Systems, Dazix, DEC, Etec, InVision and Samsung. Mr. Broomfield holds an
MBA from Santa Clara University.
The terms of office of directors expire at the next Annual Meeting of
Shareholders, or at such time as their successors have been duly elected and
qualified.
Directors who are not officers of the Company are entitled to an expense
reimbursement for attending meetings. Officers serve at the discretion of the
Board of Directors.
There are no arrangements or understandings by or between any director or
executive officer and any other person(s), pursuant to which he or she was or is
to be selected as a director or officer, respectively.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of the
Company's common stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission "SEC". Officers, directors, and
greater than ten percent shareholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on a
review of the copies of such reports furnished to the Company, the Company
believes all Section 16(a) filing requirements applicable to all such persons
were complied with during the fiscal year covered by this report.
CERTAIN SIGNIFICANT EMPLOYEES
The Company does not have any significant employees who are not officers.
FAMILY RELATIONSHIPS
There are no family relationships by or between any director and officer of the
Company.
10
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The following table sets forth information concerning compensation paid by the
Company for services rendered to the Company during fiscal year ended September
30, 2001, and the prior two fiscal years, to the Company's Chief Executive
Officer and each additional executive officer whose total compensation exceeded
$100,000 (each "Named Executive Officer"):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM
COMPENSATION
- ------------------------------------------------------------------------------------------
AWARDS
- ------------------------------------------------------------------------------------------
SECURITIES
NAME AND UNDERLYING
PRINCIPAL OTHER ANNUAL OPTIONS/ ALL OTHER
POSITION YEAR SALARY BONUS(1) COMPENSATION SARS (#) COMPENSATION(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Geoffrey Knapp 2001 $266,000 $ -- -- 0 $2,000
Chairman of the 2000 $242,000 $ -- -- 0 $8,000
Board and CEO 1999 $223,000 $140,000 -- 0 $9,000
- ------------------------------------------------------------------------------------------
Paul Caceres 2001 $141,000 $ -- -- 0 $5,000
CFO and CAO 2000 $141,000 $ -- -- 0 $4,000
1999 $137,000 $ 62,000 -- 0 $5,000
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Bonuses paid to the Named Executive Officers are pursuant to annual
incentive compensation programs established each year for selected
employees of the Company, including the Company's executive officers.
Under this program, performance goals, relating to such matters as sales
growth, gross profit margin and net income as a percentage of sales and
individual efforts were established each year. Incentive compensation,
in the form of cash bonuses, was awarded based on the extent to which
the Company and the individual achieved or exceeded the performance
goals.
(2) All other compensation consists of interest on employee notes payable to
the Company and the amortization of the notes that was declared
compensation during the year.
STOCK OPTIONS GRANTED AND EXERCISED DURING 2001
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
OPTION GRANTS IN FISCAL YEAR 2001 -- INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------
% OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SHARES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED EXERCISE STOCK PRICE
OPTIONS TO OR BASE APPRECIATION FOR
GRANTED EMPLOYEES PRICE EXPIRATION OPTION TERM
NAME NUMBER(1) IN 2001 ($/SHARE) DATE 5%($)/10%($)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Geoffrey Knapp -- -- -- -- --
- -----------------------------------------------------------------------------------------
Greg Freeze 15,000 5% $3.56 4/26/11 $34,000/$85,000
- -----------------------------------------------------------------------------------------
Paul Caceres 15,000 5% $3.56 4/26/11 $34,000/$85,000
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Options granted in fiscal 2001 vest over a four year period.
(2) The exercise price was equal to the market price on the date of grant.
The following table sets forth certain information concerning options exercised
by the Named Executive Officers during the fiscal year covered by this report,
and outstanding options at the end of such year held by the Named Executive
Officers.
11
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AGGREGATE OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
- --------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE SEPT. 30, 2001 AT SEPT. 30, 2001
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (1) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Geoff Knapp -- -- 95,000/35,000 $76,000/$--
- --------------------------------------------------------------------------------
Greg Freeze -- -- 2,000/13,000 $--/$--
- --------------------------------------------------------------------------------
Paul Caceres -- -- 31,000/24,000 17,000/$--
- --------------------------------------------------------------------------------
</TABLE>
(1) Market value of the underlying securities at the exercise date minus the
exercise price of the options.
REPORT OF COMPENSATION COMMITTEE
TO: THE BOARD OF DIRECTORS
As members of the Compensation Committee, it is our duty to review and recommend
the compensation levels for members of the Company's management, evaluate the
performance of management and administer the Company's various incentive plans.
This Committee has reviewed in detail the Compensation of the Company's three
executive officers. In the opinion of the Committee, the compensation of the
three executive officers of the Company is reasonable in view of its performance
and the respective contributions of such officers to the Company's performance.
In determining the management compensation, this Committee compares the
compensation paid to management to the level and structure of compensation paid
to management of competing companies. Additionally, the Committee considers the
sales and earnings performance of the Company compared to competing and
similarly situated companies. The Committee also takes into account such
relevant external factors as general economic conditions, geographic market of
work place, stock price performance and stock market prices.
Management compensation is comprised of 60% to 70% of fixed salary, and 30% to
40% variable compensation based on performance factors. Stock options are
granted at the discretion of the Board of Directors, and there is no set minimum
or maximum amount of options that can be issued. Performance factors that
determine management compensation are sales, net income of the Company, and
individual performance.
The committee examines compilations of executive compensation such as various
industry compensation surveys for middle market companies. In 2001, the
compensation for the Chief Executive Officer and the other executive officers
was comparable to other Chief Executive Officers and executive offices of middle
market companies in related industries.
Mr. Knapp, a member of the Committee, is also an executive officer of the
Company. However, Mr. Knapp abstained from any considerations with respect to
any decision directly affecting his compensation.
COMPENSATION COMMITTEE
WALTER STRAUB, SCOTT BROOMFIELD, AND GEOFFREY D. KNAPP
DECEMBER 1, 2001
12
<PAGE>
1993 STOCK OPTION PLAN
In April 1993, the shareholders of the Company approved the Company's 1993 Stock
Option Plan (the "1993 Plan") under which non-statutory options may be granted
to key employees and individuals who provide services to the Company, at a price
not less than the fair market value at the date of grant, and expire ten years
from the date of grant. The options are exercisable based on vesting periods as
determined by the Board of Directors. The Plan allows for the issuance of an
aggregate of 1,200,000 shares of the Company's common stock. The Plan has a term
of ten years. There have been 1,154,000 options granted under the 1993 Plan as
of September 30, 2001.
2000 STOCK OPTION PLAN
In April 2000, the Board of Directors of the Company approved the Company's 2000
Stock Option Plan (the "2000 Plan") under which non-statutory options may be
granted to key employees and individuals who provide services to the Company, at
a price not less than the fair market value at the date of grant, and expire ten
years from the date of grant. The options are exercisable based on vesting
periods as determined by the Board of Directors. The Plan allows for the
issuance of an aggregate of 500,000 shares of the Company's common stock. The
Plan term is unlimited in duration. There have been 319,000 options granted
under the 2000 Plan as of September 30, 2001.
401-K PLAN
In July 1991, the Company adopted a contributory profit-sharing plan under
Section 401(k) of the Internal Revenue Code, which covers substantially all
employees. Under the plan, eligible employees are able to contribute up to 15%
of their compensation. The Company's contributions are at the discretion of the
board of directors. There was no Company contribution for the fiscal year ended
September 30, 2001.
STOCK PRICE PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for the
Company, the Nasdaq Composite Stock Market Index and the Nasdaq Computer and
Data Processing Services Index, during the period commencing on September 30,
1996 and ending on September 30 2001. The comparison assumes $100 was invested
on September 30, 1996 in each of the Common stock, the Nasdaq Stock Market
Composite Index, and the Nasdaq Computer and Data Processing Services Stock
Index and assumes the reinvestment of all dividends, if any.
13
<PAGE>
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NASDAQ STOCK MARKET 100 137 139 228 302 124
NASDAQ COMPUTER & DATA PROCESSING 100 135 175 298 374 134
SERVICES STOCKS
CAM COMMERCE SOLUTIONS STOCK 100 62 74 224 108 70
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The following table sets forth as of September 30, 2001, certain information
regarding ownership of the Company's Common Stock by (i) each person that the
Company knows is the beneficial owner of more than 5% of the Company's
outstanding Common Stock, (ii) each director and executive officer of the
Company who owns Common Stock and (iii) all directors and officers as a group.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES BENEFICIALLY OWNED
- --------------------------------------------------------------------------------
NAME AND ADDRESS OF AMOUNT & NATURE OF PERCENTAGE OF CLASS
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER(9) (10)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Geoffrey D. Knapp(1) 396,000(2) 11.8%
- --------------------------------------------------------------------------------
Common Stock Paul Caceres(1) 31,000(3) 0.9%
- --------------------------------------------------------------------------------
Common Stock Walter W. Straub(1) 107,000(4) 3.2%
- --------------------------------------------------------------------------------
Common Stock David Frosh(1) 59,000(5) 1.8%
- --------------------------------------------------------------------------------
Common Stock Corley Phillips(1) 49,000(6) 1.5%
- --------------------------------------------------------------------------------
Common Stock Scott Broomfield(1) 23,000(7) 0.7%
- --------------------------------------------------------------------------------
Common Stock Greg Freeze(1) 2,000(8) 0.5%
- --------------------------------------------------------------------------------
Common Stock All Directors and
Officers as a Group
(of 6 persons)(1) 666,000 20.4%
- --------------------------------------------------------------------------------
</TABLE>
(1) The address of each beneficial owner is in care of CAM Commerce Solutions,
Inc., 17520 Newhope Street, Fountain Valley, California 92708.
14
<PAGE>
(2) Includes (i) an aggregate of 3,100 shares of Common Stock held in trust for
three daughters of Mr. Geoffrey Knapp over which he has shared voting power
(ii) options to purchase an aggregate of 10,000 shares until the sooner of
October 12, 2002, or twelve months after ceasing to serve as a director at
a price of $2.34 per share. (iii) options to purchase an aggregate of
50,000 shares until the sooner of October 20, 2003 or twelve months after
ceasing to serve as a director at a price of $1.93 per share (iv) options
to purchase an aggregate of 20,000 shares until the sooner of December 16,
2006 or twelve months after ceasing to serve as a director at a price of
$3.75 per share (v) options to purchase an aggregate of 50,000 shares until
the sooner of August 2, 2010 or twelve months after ceasing to serve as a
director at a price of $5.91 per share.
(3) Includes options to purchase (i) an aggregate of 15,000 shares of Common
Stock until January 3, 2004, at a price of $2.13 per share (ii) options to
purchase an aggregate of 10,000 shares until December 16, 2006, at a price
of $3.75 per share (iii) options to purchase an aggregate of 15,000 shares
until August 2, 2010, at a price of $5.37 per share (iv) options to
purchase an aggregate of 15,000 shares until April 26, 2011, at a price of
$3.56 per share.
(4) Includes options to purchase (i) an aggregate of 7,500 shares until the
sooner of October 19, 2003, or twelve months after ceasing to serve as a
director at a price of $1.75 per share (ii) an aggregate of 7,500 shares
until the sooner of May 25, 2005, or twelve months after ceasing to serve
as a director at a price of $2.38 per share (iii) an aggregate of 7,500
shares until the sooner of May 9, 2006, or twelve months after ceasing to
serve as a director at a price of $2.50 per share (iv) an aggregate of
7,500 shares until the sooner of May 8, 2007, or twelve months after
ceasing to serve as a director at a price of $3.38 per share (v) an
aggregate of 4,400 shares until the sooner of May 8, 2007, or twelve months
after ceasing to serve as a director at a price of $3.38 per share (vi) an
aggregate of 10,000 shares until the sooner of May 7, 2008, or twelve
months after ceasing to serve as a director at a price of $2.75 per share
(vii) an aggregate of 7,500 shares until the sooner of May 6, 2009, or
twelve months after ceasing to serve at a director at a price of $5.38 per
share (viii) an aggregate of 7,500 shares until the sooner of August 2,
2010, or twelve months after ceasing to serve as a director at a price of
$5.38 per share (ix) an aggregate of 7,500 shares until the sooner of April
5, 2011, or twelve months after ceasing to serve as a director, at a price
of $3.56 per share.
(5) Includes options to purchase (i) an aggregate of 7,500 shares until the
sooner of May 9, 2006, or twelve months after ceasing to serve as a
director at a price of $5.50 per share (ii) an aggregate of 40,000 shares
until June 10, 2006, at a price of $2.50 per share (iii) an aggregate of
4,400 shares until the sooner of May 8, 2007 or twelve months after ceasing
to serve as a director, at a price of $3.38 per share (iv) an aggregate of
7,500 shares until the sooner of April 5, 2011, or twelve months after
ceasing to serve as a director, at a price of $3.56 per share.
(6) Includes options to purchase (i) an aggregate of 5,000 shares until the
sooner of September 23, 2006, or twelve months after ceasing to serve as a
director at a price of $2.50 per share (ii) an aggregate of 7,500 shares
until the sooner of May 8, 2007, or twelve months after ceasing to serve as
a director at a price of $3.38 per share (iii) an aggregate of 10,000
shares until the sooner of May 7, 2008, or twelve months after ceasing to
serve as a director at a price of $2.75 per share (iv) an aggregate of
7,500 shares until the sooner of May 6, 2009, or twelve months after
ceasing to serve as a director at a price of $5.38 per share (v) an
aggregate of 7,500 shares until the sooner of August 2, 2010, or twelve
months after ceasing to serve as a director at a price of $5.38 per share
(vi) an aggregate of 7,500 shares until the sooner of April 5, 2011, or
twelve months after ceasing to serve as a director, at a price of $3.56 per
share.
(7) Includes options to purchase (i) an aggregate of 7,500 shares until the
sooner of May 6, 2009, or twelve months after ceasing to serve at a
director at a price of $5.38 per share (ii) an aggregate of 360 shares
until the sooner of April 22, 2009, or twelve months after ceasing to serve
as a director at a price of $5.25 per share (iii) an aggregate of 7,500
shares until the sooner of August 2, 2010, or twelve months after ceasing
to serve at a director at a price of $5.38 per share (iv) an aggregate of
7,500 shares until the sooner of April 5, 2011, or twelve months after
ceasing to serve as a director, at a price of $3.56 per share.
(8) Includes options to purchase an aggregate of 15,000 shares, until the
sooner of April 26, 2011, at a price of $3.56 per share.
(9) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage
15
<PAGE>
ownership of that person, shares of Common Stock subject to options or
warrants held by that person that are currently exercisable, or will become
exercisable within 60 days from the date hereof, are deemed outstanding.
Such shares, however, are not deemed outstanding for purposes of computing
the percentage ownership of any other person.
(10) The percentage of ownership of the class of voting securities in the above
table has been calculated by dividing (i) the aggregate number of shares of
such class actually owned plus all shares of such class which may be deemed
to be "beneficially owned," by (ii) the number of shares of such class
actually outstanding plus the number of shares of such class such
"beneficial owner" may be deemed to "beneficially own" assuming no other
acquisitions of shares of such class through the exercise of any option,
warrant or right by any other person.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
During the fiscal year ended September 30, 2001, the Company granted
non-qualified options to certain employees and directors to purchase an
aggregate of 324,000 shares of Common Stock of the Company at a price ranging
from $3.56 to $7 per share expiring ten years from the date of grant. The
Company leases a building from an officer of the Company. The Company paid
$144,000 in lease payments to the officer during the fiscal year ended September
30, 2001.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements required to be filed hereunder are listed
on page 7 hereof. See Part II, Item 8 of this report for information regarding
the incorporation by reference herein of such financial statements.
(a) 2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule of the Company is included on the
page hereof indicated below:
Page
Schedule II - Valuation and Qualifying Accounts 24
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
(a) 3. OTHER EXHIBITS
3(a) Certification of Incorporation of the Company, as amended (incorporated by
reference to Exhibit 3(a) to the 1988 Annual Report on Form 10-K filed on
January 12, 1989 -- SEC File No. 0-16569).
3(b) By-Laws of the Company (incorporated by reference to Exhibit 3(b) to the
S-18 Registration Statement filed July 13, 1987 -- SEC File No. 33-15821-LA).
10(a) Company's Lease for premises at Fountain Valley, California (incorporated
by reference to Exhibit 10(b) to the 1988 Annual Report on Form 10-K filed on
January 12, 1989 -- SEC File No. 0-16569).
10(b) 1993 Stock Option Plan (incorporated by reference to the exhibits on Form
S-8 Registration Statement filed on June 21, 1993).
10(c) Individual Option Agreements (incorporated by reference to the exhibits on
Form S-3 SEC File No. 33-57564 Registration Statement filed on June 17, 1993).
10(d) Extension to Company's Lease for premises at Fountain Valley, California
(incorporated by reference to Exhibit 10 (i) to the 1993 Annual Report on Form
10-K filed on December 27, 1993 --SEC File No. 0-16569).
10(e) Employment Agreement, and Change in Control Agreements for Geoffrey D.
Knapp, dated January 1, 1996, (incorporated by reference to Exhibits 10 (h) and
(i) to the Form 10-Q for the period ended March 31, 1996, filed on May 7, 1996).
10(f) Employment Agreement, and Change in Control Agreements for Paul Caceres,
dated January 1, 1996, (incorporated by reference to Exhibits 10 (j) and (k) to
the Form 10-Q for the period ended March 31, 1996, filed on May 7, 1996).
17
<PAGE>
10(h) Amendment to 1993 Stock Option Plan (incorporated by reference to the
exhibits on Form S-8 Registration Statement filed on June 26, 1998).
10(i) 2000 Stock Option Plan (incorporated by reference to Exhibit 10(i) to the
2000 Annual Report on Form 10-K filed on December 21, 2000).
10(j) Fountain Valley New Office Lease Agreement.
13(a) Annual Report to Stockholders for the fiscal year ended September 30,
2001.
23 Consent of Independent Auditors.
(b) REPORTS ON FORM 8-K
There was no Form 8-K filed during the year ended September 30, 2001.
18
<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 filed on its
behalf by the undersigned, thereunto duly authorized.
CAM COMMERCE SOLUTIONS, INC.
By: /s/ Geoffrey D. Knapp
---------------------------------
Geoffrey D. Knapp,
Chief Executive Officer
By: /s/ Paul Caceres.
---------------------------------
Paul Caceres,
Chief Financial Officer and Chief
Accounting Officer
Date: December 20, 2001
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.
<TABLE>
<S> <C> <C>
/s/ Geoffrey D. Knapp Chief Executive December 20, 2001
- ----------------------- Officer and Chairman
Geoffrey D. Knapp of the Board
/s/ David Frosh Director December 20, 2001
- -----------------------
David Frosh
/s/ Walter W. Straub Director December 20, 2001
- -----------------------
Walter W. Straub
/s/ Corley Phillips Director December 20, 2001
- -----------------------
Corley Phillips
/s/ Scott Broomfield Director December 20, 2001
- -----------------------
Scott Broomfield
</TABLE>
19
<PAGE>
CAM COMMERCE SOLUTIONS, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
ITEM 14(a)
<TABLE>
<CAPTION>
Page Reference
--------------
Annual Report
to Stockholders Form 10-K
--------------- ---------
<S> <C> <C>
Report of Independent Auditors 16
Consolidated Balance Sheets at
September 30, 2001 and 2000 6
Statements of Consolidated Operations for the Years
Ended September 30, 2001, 2000 and 1999 7
Statements of Consolidated Cash Flows for the Years
Ended September 30, 2001, 2000 and 1999 8
Statement of Consolidated Stockholders' Equity
for the Years Ended September 30, 2001,
2000 and 1999 9
Notes to Consolidated Financial Statements 10-15
Report of Independent Auditors on
Financial Statement Schedule 21
II. Valuation and Qualifying Accounts
for the Years Ended September 30, 2001, 2000 and 1999 24
Consent of Independent Auditors 24
</TABLE>
All other financial statement schedules are omitted as the required information
is inapplicable or the information is presented in the financial statements or
related notes.
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
CAM Commerce Solutions, Inc.
We have audited the consolidated financial statements of CAM Commerce Solutions,
Inc. as of September 30, 2001 and 2000, and for each of the three years in the
period ended September 30, 2001, and have issued our report thereon dated
November 9, 2001. Our audits also included the financial statement schedule of
CAM Commerce Solutions, Inc. listed in the accompanying index to consolidated
financial statements and financial statement schedule (Item 14(a)). This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this schedule based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Orange County, California
November 9, 2001
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3(a) Certification of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3(a) to the 1988 Annual
Report on Form 10-K filed on January 12, 1989 -- SEC File No.
0-16569).
3(b) By-Laws of the Company (incorporated by reference to Exhibit 3(b)
to the S-18 Registration Statement filed July 13, 1987 -- SEC
File No. 33-15821-LA).
10(a) Company's Lease for premises at Fountain Valley, California
(incorporated by reference to Exhibit 10(b) to the 1988 Annual
Report on Form 10-K filed on January 12, 1989 -- SEC File No.
0-16569).
10(b) 1993 Stock Option Plan (incorporated by reference to the exhibits
on Form S-8 Registration Statement filed on June 21, 1993).
10(c) Individual Option Agreements (incorporated by reference to the
exhibits on Form S-3 SEC File No. 33-57564 Registration Statement
filed on June 17, 1993).
10(d) Extension to Company's Lease for premises at Fountain Valley,
California (incorporated by reference to Exhibit 10 (i) to the
1993 Annual Report on Form 10-K filed on December 27, 1993 --SEC
File No. 0-16569).
10(e) Employment Agreement, and Change in Control Agreements for
Geoffrey D. Knapp, dated January 1, 1996, (incorporated by
reference to Exhibits 10 (h) and (i) to the Form 10-Q for the
period ended March 31, 1996, filed on May 7, 1996).
10(f) Employment Agreement, and Change in Control Agreements for Paul
Caceres, dated January 1, 1996, (incorporated by reference to
Exhibits 10 (j) and (k) to the Form 10-Q for the period ended
March 31, 1996, filed on May 7, 1996).
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
10(h) Amendment to 1993 Stock Option Plan (incorporated by reference to
the exhibits on Form S-8 Registration Statement filed on June 26,
1998).
10(i) 2000 Stock Option Plan (incorporated by reference to Exhibit
10(i) to the 2000 Annual Report on Form 10-K filed on December
21, 2000).
10(j) Fountain Valley New Office Lease Agreement.
13(a) Annual Report to Stockholders for the fiscal year ended September
30, 2001.
23 Consent of Independent Auditors.
</TABLE>
23
<PAGE>
CAM COMMERCE SOLUTIONS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(REDUCTIONS)/
BALANCE AT ADDITIONS DEDUCTIONS/ACCOUNTS
BEGINNING OF CHARGED TO WRITTEN OFF NET BALANCE AT END
YEAR INCOME OF RECOVERIES OF YEAR
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts Receivable
- ------------------------------------------------------------------------------------------
2001 $310,000 $108,000 $168,000 $250,000
- ------------------------------------------------------------------------------------------
2000 $380,000 $417,000 $487,000 $310,000
- ------------------------------------------------------------------------------------------
1999 $235,000 $490,000 $345,000 $380,000
- ------------------------------------------------------------------------------------------
</TABLE>
24
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(J)
<SEQUENCE>3
<FILENAME>a78003ex10-j.txt
<DESCRIPTION>EXHIBIT 10(J)
<TEXT>
<PAGE>
EXHIBIT 10(j)
[LOGO]
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only
December 12, 2000, is made by and between Pelican Center LLC, a California
Limited Liability Company ("LESSOR") and CAM Commerce Solutions, Inc., a
Delaware Corporation ("LESSEE"), (collectively the "PARTIES", or individually a
"PARTY").
1.2(a) PREMISES: That certain portion of the Project (as defined below),
including all improvements therein or to be provided by Lessor under the terms
of this Lease, commonly known by the street address of New Hope Street (Address
to follow), south of Warner, located in the City of Fountain Valley, County of
Orange, State of California, with zip code 92708, as outlined on Exhibit A
attached hereto ("PREMISES") and generally described as (describe briefly the
nature of the Premises): approximately 26,000 square foot unit, part of larger
56,800 square foot corporate headquarters industrial building. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the building containing the Premises
("BUILDING") or to any other buildings in the Project. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as
the "PROJECT." (See also Paragraph 2)
1.2(b) PARKING:4/1000 per rentable area unreserved vehicle parking spaces
("UNRESERVED PARKING SPACES"); and four (4) reserved vehicle parking spaces
("RESERVED PARKING SPACES"). (See also Paragraph 2.6)
1.3 TERM: five (5) years and zero (0) months ("ORIGINAL TERM")
commencing December 1, 2001 ("COMMENCEMENT DATE") and ending November 30, 2006
("EXPIRATION DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: November 1, 2001 ("EARLY POSSESSION DATE"). (See
also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $28,600.00 per month ("BASE RENT"), payable on the first
day of each month commencing December 1, 2001. (See also Paragraph 4)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted. (Actual percentage to be determined)
1.6 LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Forty-six percent
(46%) ("LESSEE'S SHARE").
1.7 BASE RENT AND OTHER MONIES PAID UPON EXECUTION:
(a) BASE RENT: $28,600.00 for the period December 1-31, 2001.
(b) COMMON AREA OPERATING EXPENSES: $_________ for the period
TBD throughout lease term.
(c) SECURITY DEPOSIT: $32,189.55 ("SECURITY DEPOSIT"). (See also
Paragraph 5)
(d) OTHER: $_________ for ___________________________.
(e) TOTAL DUE UPON EXECUTION OF THIS LEASE: $60,789.55.
1.8 AGREED USE: General office, assembly and distribution of software
products. (See also Paragraph 6)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY". (See also Paragraph
8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers (the
"BROKERS") and brokerage relationships exist in this transaction (check
applicable boxes):
[X] CB Richard Ellis represents Lessor exclusively ("LESSOR'S BROKER");
[ ] ______________________ represents Lessee exclusively ("LESSEE'S BROKER");
or
[ ] _____________ represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease
by both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in
a separate written agreement (or if there is no such agreement, the sum of ___
or __% of the total Base Rent for the brokerage services rendered by the
Brokers).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by None ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 55 and Exhibits A through B, all of
which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may
have been used in calculating Rent, is an approximation which the Parties agree
is reasonable and any payments based thereon are not subject to revision whether
or not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver that portion of the Premises
contained within the Building ("UNIT") to Lessee broom clean and free of debris
on the Commencement Date or the Early Possession Date, whichever first occurs
("START DATE"), and, so long as the required service contracts described in
Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days
following the Start Date, warrants that the existing electrical, plumbing, fire
sprinkler, lighting, heating, ventilating and air conditioning systems
("HVAC"), loading doors, if any, and all other such elements in the Unit, other
than those constructed by Lessee, shall be in good operating condition on said
date and that the structural elements of the roof, bearing walls and foundation
of the Unit shall be free of material defects. If a non-compliance with such
warranty exists as of the Start Date, or if one of such systems or elements
should malfunction or fail within the appropriate warranty period, Lessor
shall, as Lessor's sole obligation with respect to such matter, except as
otherwise provided in this Lease, promptly after receipt of written notice from
Lessee setting forth with specificity the nature and extent of such
non-compliance, malfunction or failure, rectify same at Lessor's expense. The
warranty periods shall be as follows: (i) 6 months as to the HVAC systems,
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and (ii) 30 days as to the remaining systems and other elements of the Unit. If
Lessee does not give Lessor the required notice within the appropriate warranty
period, correction of any such non-compliance, malfunction or failure shall be
the obligation of Lessee at Lessee's sole cost and expense (except for the
repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls -
see Paragraph 7). *Construction warranties for the HVAC, electrical and
plumbing shall pass through to tenant.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises
and the Common Areas comply with the building codes that were in effect at the
time that each such improvement, or portion thereof, was constructed, and also
with all applicable laws, covenants or restrictions of record, regulations, and
ordinances in effect on the Start Date ("APPLICABLE REQUIREMENTS"). Said
warranty does not apply to the use to which Lessee will put the Premises or to
any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made
or to be made by Lessee. NOTE: LESSEE IS RESPONSIBLE FOR DETERMINING WHETHER OR
NOT THE APPLICABLE REQUIREMENTS, AND ESPECIALLY THE ZONING, ARE APPROPRIATE FOR
LESSEE'S INTENDED USE, AND ACKNOWLEDGES THAT PAST USES OF THE PREMISES MAY NO
LONGER BE ALLOWED. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within 6 months
following the Start Date, correction of that non compliance shall be the
obligation of Lessee at Lessee's sole cost and expense. If the Applicable
Requirements are hereafter changed so as to require during the term of this
Lease the construction of an addition to or an alteration of the Unit, Premises
and/or Building, the remediation of any Hazardous Substance, or the
reinforcement or other physical modification of the Unit, Premises and/or
Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of
such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be
fully responsible for the cost thereof, provided, however that is such Capital
Expenditure is required during the last 2 years of this Lease and the cost
thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease
unless Lessor notifies Lessee, in writing, within 10 days after receipt of
Lessee's termination notice that Lessor has elected to pay the difference
between the actual cost thereof and the amount equal to 6 months' Base Rent. If
Lessee elects termination, Lessee shall immediately cease the use of the
Premises which requires such Capital Expenditure and deliver to Lessor written
notice specifying a termination date at least 90 days thereafter. Such
termination date shall, however, in no event be earlier than the last day that
Lessee could legally utilize the Premises commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the
specific and unique use of the Premises by Lessee (such as, governmentally
mandated seismic modifications), then Lessor and Lessee shall allocate the
obligation to pay for the portion of such costs reasonably attributable to the
Premises pursuant to the formula set out in Paragraph 7.1(d); provided,
however, that is such Capital Expenditure is required during the last 2 years
of this Lease or if Lessor reasonably determines that it is not economically
feasible to pay its share thereof, Lessor shall have the option to terminate
this Lease upon 90 days prior written notice to Lessee unless Lessee notifies
Lessor in writing, within 10 days after receipt of Lessor's termination notice
that Lessee will pay for such Capital Expenditure. If Lessor does not elect to
terminate, and fails to tender its share of any such Capital Expenditure,
Lessee may advance such funds and deduct same, with interest, from Rent until
Lessor's share of such costs have been fully paid. If Lessee is unable to
finance Lessor's share, or if the balance of the rent due and payable for the
remainder of this Lease is not sufficient to fully reimburse Lessee on an
offset basis, Lessee shall have the right to terminate this Lease upon 30 days
written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning
Capital Expenditures are intended to apply only to non-voluntary, unexpected,
and new Applicable Requirements. If the Capital Expenditures are instead
triggered by Lessee as a result of an actual or proposed change in use, change
in intensity of use, or modification to the Premises then, and in that event,
Lessee shall be fully responsible for the cost thereof, and Lessee shall not
have any right to terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical, HVAC
and fire sprinkler systems, security, environmental aspects, and compliance
with Applicable Requirements and the Americans with Disabilities Act), and
their suitability for Lessee's intended use, (b) Lessee has made such
investigation as it deems necessary with reference to such matters and assumes
all responsibility therefor as the same relate to its occupancy of the
Premises, and (c) neither Lessor, Lessor's agents, nor Brokers have made any
oral or written representations or warranties with respect to said matters
other than as set forth in this Lease. In addition, Lessor acknowledges that:
(i) Brokers have made no representations, promises or warranties concerning
Lessee's ability to honor the Lease or suitability to occupy the Premises, and
(ii) it is Lessor's sole responsibility to investigate the financial capability
and/or suitability of all proposed tenants.
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED
SIZE VEHICLES." Lessor may regulate the loading and unloading of vehicles by
adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other
than Permitted Size Vehicles may be parked in the Common Area without the prior
written permission of Lessor.
(a) Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, contractors or invitees to be loaded, unloaded, or parked
in areas other than those designated by Lessor for such activities.
(b) Lessee shall not service or store any vehicles in the
Common Areas.
(c) If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.7 COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined
as all areas and facilities outside the Premises and within the exterior
boundary line of the Project and interior utility raceways and installations
within the Unit that are provided and designated by the Lessor from time to
time for the general non-exclusive use of Lessor, Lessee and other tenants of
the Project and their respective employees, suppliers, shippers, customers,
contractors and invitees, including parking areas, loading and unloading areas,
trash areas, roadways, walkways, driveways and landscaped areas.
2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and
regulations or restrictions governing the use of the Project. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable rules and regulations ("RULES AND
REGULATIONS") for the management, safety, care, and cleanliness of the grounds,
the parking and unloading of vehicles and the preservation of good order, as
well as for the convenience of other occupants or tenants of the Building and
the Project and their invitees. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not
be responsible to Lessee for the non-compliance with said Rules and Regulations
by other tenants of the Project.
2.10 COMMON AREAS -- CHANGES. Lessor shall have the right, in
Lessor's sole discretion, from time to time:
(a) To make changes to the Common Areas including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remain
available;
(c) To designate other land outside the boundaries of the
Project to be a part of the Common Areas;
(d) To add additional buildings and improvements to the
Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Project, or any portion thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Project as Lessor may, in
the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease (including but not limited to the obligations to pay Lessee's Share of
Common Area Operating Expenses, Real Property Taxes and insurance premiums and
to maintain the Premises) shall, however, be in effect during such
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period. Any such early possession shall not affect the Expiration Date.*"During
the Early Possession period (30 days) the CAM charges shall be abated. See
second sentence of paragraph 3.2.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease. Lessee shall not,
however, be obligated to pay Rent or perform its other obligations until it
receives possession of the Premises. If possession is not delivered within 60
days after the Commencement Date, Lessee may, at its option, by notice in
writing within 10 days after the end of such 60 day period, cancel this Lease,
in which event the Parties shall be discharged from all obligations hereunder.
If such written notice is not received by Lessor within said 10 day period,
Lessee's right to cancel shall terminate. Except as otherwise provided, if
possession is not tendered to Lessee by the Start Date and Lessee does not
terminate this Lease, as aforesaid, any period of rent abatement that Lessee
would otherwise have enjoyed shall run from the date of delivery of possession
and continue for a period equal to what Lessee would otherwise have enjoyed
under the terms hereof, but minus any days of delay caused by the acts or
omissions of Lessee. If possession of the Premises is not delivered within 4
months after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of
such evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Project, including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition of the following:
(aa) The Common Areas and Common Area improvements,
including parking areas, loading and unloading areas,
trash areas, roadways, parkways, walkways, driveways,
landscaped areas, bumpers, irrigation systems, Common
Area lighting facilities, fences and gates, elevators,
roofs, and roof drainage systems.
(bb) Exterior signs and any tenant directories.
(cc) Any fire detection and/or sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas and any utilities not
separately metered.
(iii) Trash disposal, pest control services, property
management, security services, and the costs of any
environmental inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Real Property Taxes (as defined in Paragraph 10).
(vi) The cost of the premiums for the insurance maintained
by Lessor pursuant to Paragraph 8.
(vii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(viii) The cost of any Capital Expenditure to the Building
or the Project not covered under the provisions of
Paragraph 2.3 provided; however, that Lessor shall
allocate the cost of any such Capital Expenditure
over a 12 year period and Lessee shall not be
required to pay more than Lessee's Share of 1/144th
of the cost of such Capital Expenditure in any given
month.
(ix) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area
Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Unit, the Building or to any other
building in the Project or to the operation, repair and maintenance thereof,
shall be allocated entirely to such Unit, Building, or other building. However,
any Common Area Operating Expenses and Real Property Taxes that are not
specifically attributable to the Building or to any other building or to the
operation, repair and maintenance thereof, shall be equitably allocated by
Lessor to all buildings in the Project.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide those
services unless the Project already has the same, Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within 10 days after a reasonably detailed statement of
actual expenses is presented to Lessee. At Lessor's option, however, an amount
may be estimated by Lessor from time to time of Lessee's Share of annual Common
Area Operating Expenses and the same shall be payable monthly or quarterly, as
Lessor shall designate, during each 12 month period of the Lease term, on the
same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee
within 60 days after the expiration of each calendar year a reasonably detailed
statement showing Lessee's Share of the actual Common Area Operating Expenses
incurred during the preceding year. If Lessee's payments under this Paragraph
4.2(d) during the preceding year exceed Lessee's Share as indicated on such
statement, Lessor shall credit the amount of such over-payment against Lessee's
Share of Common Area Operating Expenses next becoming due. If Lessee's payments
under this Paragraph 4.2(d) during the preceding year were less than Lessee's
Share as indicated on such statement, Lessee shall pay to Lessor the amount of
the deficiency within 10 days after delivery by Lessor to Lessee of the
statement.
4.3 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction
(except as specifically permitted in this Lease), on or before the day on which
it is due. Rent for any period during the term hereof which is for less than
one full calendar month shall be prorated based upon the actual number of days
of said month. Payment of Rent shall be made to Lessor at its address stated
herein or to such other persons or place as Lessor may from time to time
designate in writing. Acceptance of a payment which is less than the amount
then due shall not be a waiver of Lessor's rights to the balance of such Rent,
regardless of Lessor's endorsement of any check so stating. In the event that
any check, draft, or other instrument of payment given by Lessee to Lessor is
dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in
addition to any late charges which may be due.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise
Defaults under this Lease, Lessor may use, apply or retain all or any portion of
said Security Deposit for the payment of any amount due Lessor or to reimburse
or compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of the Security Deposit, Lessee shall within 10 days after written request
therefor deposit monies with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. If the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor so that the total amount of the Security Deposit
shall at all times bear the same proportion to the increased Base Rent as the
initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be
amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on such change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within 14 days after the expiration or termination of this
Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and
otherwise within 30 days after the Premises have been vacated pursuant to
Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit
not used or applied by Lessor. No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be prepayment for any
monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed
Use, or any other legal use which is reasonably comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that is unlawful, creates damage, waste or nuisance, or that disturbs
occupants of or causes damage to neighboring premises or properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, and/or is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within 7 days
after such request give written notification of same, which notice shall
include an explanation of Lessor's objections to the change in the Agreed Use.
6.2 HAZARDOUS SUBSTANCES.
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(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, or waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for potentially liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substances shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, and/or crude oil or any products,
by-products or fractions thereof. Lessee shall not engage in any activity in or
on the Premises which constitutes a Reportable Use of Hazardous Substances
without the express prior written consent of Lessor and timely compliance (at
Lessee's expense) with all Applicable Requirements. "REPORTABLE USE" shall mean
(i) the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority, and/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements requires
that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may use any
ordinary and customary materials reasonably required to be used in the normal
course of the Agreed use, so long as such use is in compliance with all
Applicable Requirements, is not a Reportable Use, and does not expose the
Premises or neighboring property to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may
condition its consent to any Reportable Use upon receiving such additional
assurances as Lessor reasonably deems necessary to protect itself, the public,
the Premises and/or the environment against damage, contamination, injury
and/or liability, including, but not limited to, the installation (and removal
on or before Lease expiration or termination) of protective modifications (such
as concrete encasements) and/or increasing the Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide
Lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance brought onto the Premises during the term of this Lease, by
or for Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Lessee,
or any third party (provided, however, that Lessee shall have no liability under
this Lease with respect to underground migration of any Hazardous Substance
under the Premises from areas outside of the Project). Lessee's obligations
shall include, but not be limited to, the effects of any contamination or injury
to person, property or the environment created or suffered by Lessee, and the
cost of investigation, removal, remediation, restoration and/or abatement, and
shall survive the expiration or termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measure required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate
fully in any such activities at the request of Lessor, including allowing
Lessor and Lessor's agents to have reasonable access to the Premises at
reasonable times in order to carry out Lessor's investigative and remedial
responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance
Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless
Lessee is legally responsible therefor (in which case Lessee shall make the
investigation and remediation thereof required by the Applicable Requirements
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's
option, either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense,
in which event this Lease shall continue in full force and effect, or (ii) if
the estimated cost to remediate such condition exceeds 12 times the then
monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence
of such Hazardous Substance Condition, of Lessor's desire to terminate this
Lease as of the date 60 days following the date of such notice. In the event
Lessor elects to give a termination notice, Lessee may, within 10 days
thereafter, give written notice to Lessor of Lessee's commitment to pay the
amount by which the cost of the remediation of such Hazardous Substance
Condition exceeds an amount equal to 12 times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within 30 days following such commitment. In such
event, this Lease shall continue in full force and effect, and Lessor shall
proceed to make such remediation as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the required funds or assurance thereof within the time provided, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise
provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within 10 days after receipt of Lessor's written request, provide Lessor
with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure
of Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "LENDER" (as defined in
Paragraph 30) and consultants shall have the right to enter into Premises at any
time, in the case of an emergency, and otherwise at reasonable times, for the
purpose of inspecting the condition of the Premises and for verifying compliance
by Lessee with this Lease. The cost of any such inspections shall be paid by
Lessor, unless a violation of Applicable Requirements, or a contamination is
found to exist or be imminent, or the inspection is requested or ordered by a
governmental authority. In such case, Lessee shall upon request reimburse Lessor
for the cost of such inspection, so long as such inspection is reasonably
related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations (intended for Lessee's exclusive use, no matter where
located), and Alterations in good order, condition and repair (whether or not
the portion of the Premises requiring repairs, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including, but not
limited to, all equipment or facilities, such as plumbing, HVAC equipment,
electrical, lighting facilities, boilers, pressure vessels, fixtures, interior
walls, interior surfaces of exterior walls, ceilings, floors, windows, doors,
plate glass, and skylights but excluding any items which are the responsibility
of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices, specifically including the procurement and maintenance of the
service contracts required by Paragraph 7.1(b) below. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order,
condition and state of repair.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure
vessels, (iii) clarifiers, and (iv) any other equipment, if reasonably required
by Lessor. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain any or all of such service contracts, and if Lessor so
elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.
(c) FAILURE TO PERFORM. If Lessee fails to perform Lessee's
obligations under this Paragraph 7.1, Lessor may enter upon the Premises after
10 days' prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf, and put the Premises in good order, condition and repair, and Lessee
shall promptly reimburse Lessor for the cost thereof.
(d) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set
forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if an item described in Paragraph 7.1(b) cannot be repaired other
than at a cost which is in excess of 50% of the cost of replacing such item,
then such item shall be replaced by Lessor, and the cost thereof shall be
prorated between the Parties and Lessee shall only be obligated to pay, each
month during the remainder of the term of this Lease, on the date on which
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Base Rent is due, an amount equal to the product of multiplying the cost of such
replacement by a fraction, the numerator of which is one, and the denominator of
which is 144 (i.e. 1/144th of the cost per month). Lessee shall pay interest on
the unamortized balance at a rate that is commercially reasonable in the
judgment of Lessor's accountants. Lessee may, however, prepay its obligation at
any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use),
7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation),
Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good
order, condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, exterior roof, fire sprinkler system,
Common Area fire alarm and/or smoke detection systems, fire hydrants, parking
lots, walkways, parkways, driveways, landscaping, fences, signs and utility
systems serving the Common Areas and all parts thereof, as well as providing
the services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS. The term "UTILITY INSTALLATIONS" refers to all floor
and window coverings, air lines, power panels, electrical distribution,
security and fire protection systems, communication systems, lighting fixtures,
HVAC equipment, plumbing, and fencing in or on the Premises. The term "TRADE
FIXTURES" shall mean Lessee's machinery and equipment that can be removed
without doing material damage to the Premises. The term "ALTERATIONS" shall
mean any modification of the improvements, other than Utility Installations or
Trade Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS
AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility
Installations made by Lessee that are not yet owned by Lessor pursuant to
Paragraph 7.4(a).
(b) CONSENT. Lessee shall not make any Alterations or Utility
Installations to the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without such consent but upon notice to Lessor, as
long as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative cost
thereof during this Lease as extended does not exceed a sum equal to 3 month's
Base Rent in the aggregate or a sum equal to one month's Base Rent in any one
year. Notwithstanding the foregoing, Lessee shall not make or permit any roof
penetrations and/or install anything on the roof without the prior written
approval of Lessor. Lessor may, as a precondition to granting such approval,
require Lessee to utilize a contractor chosen and/or approved by Lessor. Any
Alterations or Utility Installations that Lessee shall desire to make and which
require the consent of the Lessor shall be presented to Lessor in written form
with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i)
acquiring all applicable governmental permits, (ii) furnishing Lessor with
copies of both the permits and the plans and specifications prior to
commencement of the work, and (iii) compliance with all conditions of said
permits and other Applicable Requirements in a prompt and expeditious manner.
Any Alterations or Utility Installations shall be performed in a workmanlike
manner with good and sufficient materials. Lessee shall promptly upon completion
furnish Lessor with as-built plans and specifications. For work which costs an
amount in excess of one month's Base Rent, Lessor may condition its consent upon
Lessee providing a lien and completion bond in an amount equal to 150% of the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's
or materialman's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than 10 days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility. If Lessee shall contest the validity of any such
lien, claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof. If Lessor shall require, Lessee shall furnish a surety bond in an
amount equal to 150% of the amount of such contested lien, claim or demand,
indemnifying Lessor against liability for the same. If Lessor elects to
participate in any such action, Lessee shall pay Lessor's attorneys' fees and
costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee, but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the owner of all or
any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or termination of
this Lease, become the property of Lessor and be surrendered by Lessee with the
Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not
earlier than 90 and not later than 30 days prior to the end of the term of this
Lease, Lessor may require that any or all Lessee Owned Alterations or Utility
Installations be removed by the expiration or termination of this Lease. Lessor
may require the removal at any time of all or any part of any Lessee Owned
Alterations or Utility Installations made without the required consent.
(c) SURRENDER; RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice. Notwithstanding the
foregoing, if this Lease is for 12 months or less, then Lessee shall surrender
the Premises in the same condition as delivered to Lessee on the Start Date with
NO allowance for ordinary wear and tear. Lessee shall repair any damage
occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee
owned Alterations and/or Utility Installations, furnishings, and equipment as
well as the removal of any storage tank installed by or for Lessee. Lessee
shall also completely remove from the Premises any and all Hazardous Substances
brought onto the Premises by or for Lessee, or any third party (except Hazardous
Substances which were deposited via underground migration from areas outside of
the Project) even if such removal would require Lessee to perform or pay for
work that exceeds statutory requirements. Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee. The failure by Lessee to
timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express
written consent of Lessor shall constitute a holdover under the provisions of
Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the insurance
policies required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a)
and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy
periods commencing prior to, or extending beyond, the term of this Lease shall
be prorated to coincide with the corresponding Start Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability policy of insurance and a policy of Worker's
Compensation insurance protecting Lessee and Lessor as an additional insured
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an annual aggregate of not less than $2,000,000, an "Additional
Insured-Managers or Lessors of Premises Endorsement" and contain the "Amendment
of the Pollution Exclusion Endorsement" for damage caused by heat, smoke or
fumes from a hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but shall include
coverage for liability assumed under this Lease as an "INSURED CONTRACT" for the
performance of Lessee's indemnity obligations under this Lease. The limits of
said insurance shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance carried by Lessee shall be
primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only. Copies of all such
policies shall be given to Lessor within ten (10) days after occupancy of the
Premises by Lessee.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), in addition to, and in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force
a policy or policies of insurance in the name of Lessor, with loss payable to
Lessor, any ground-lessor, and to any Lender insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the premises, as the same shall exist from time to time, or the amount
required by any Lender, but in no event more than the commercially reasonable
and available insurable value thereof. Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee's personal property shall be insured
by Lessee under Paragraph 8.4. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for debris removal and the enforcement
of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force a policy
or policies in the name of Lessor with loss payable to Lessor and any Lender,
insuring the loss of the full Rent for one year with an extended period of
indemnity for an additional 180 days ("Rental Value insurance"). Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next 12 month period.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Project if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
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(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY; BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, as set forth in the most current issue of "Best's
Insurance Guide", or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after 30 days prior written notice
to Lessor. Lessee shall, at least 30 days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand. Such policies shall be for a term of at least one year, or the length of
the remaining term of this Lease, whichever is less. If either Party shall fail
to procure and maintain the insurance required to be carried by it, the other
Party may, but shall not be required to, procure and maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages against the other, for loss of or
damage to its property arising out of or incident to the perils required to be
insured against herein. The effect of such releases and waivers is not limited
by the amount of insurance carried or required, or by any deductibles
applicable hereto. The Parties agree to have their respective property damage
insurance carriers waive any right to subrogation that such companies may have
against Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably satisfactory
to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need
not have first paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building, or from other sources or
places. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant of Lessor nor from the failure of Lessor to enforce
the provisions of any other lease in the Project. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, which can reasonably be repaired in 3 months or less
from the date of the damage or destruction, and the cost thereof does not
exceed a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in
writing within 30 days from the date of the damage or destruction as to whether
or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations and Trade Fixtures, which cannot reasonably be repaired in
3 months or less from the date of the damage or destruction and/or the cost
thereof exceeds a sum equal to 6 month's Base Rent. Lessor shall notify Lessee
in writing within 30 days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations
and Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $5,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was not
in force or the insurance proceeds are not sufficient to effect such repair,
the Insuring Party shall promptly contribute the shortage in proceeds as and
when required to complete said repairs. In the event, however, such shortage
was due to the fact that, by reason of the unique nature of the improvements,
full replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within 10 days following receipt of written notice of such shortage and request
therefor. If Lessor receives said funds or adequate assurance thereof within
said 10 day period, the party responsible for making the repairs shall complete
them as soon as reasonably possible and this Lease shall remain in full force
and effect. If such funds or assurance are not received, Lessor may
nevertheless elect by written notice to Lessee within 10 days thereafter to:
(i) make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee
shall not be entitled to reimbursement of any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be
some insurance coverage, but the net proceeds of any such insurance shall be
made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
30 days after receipt by Lessor of knowledge of the occurrence of such damage.
Such termination shall be effective 60 days following the date of such notice.
In the event Lessor elects to terminate this Lease, Lessee shall have the right
within 10 days after receipt of the termination notice to give written notice
to Lessor of Lessee's commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within 30 days after marking such commitment. In
such event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible after the required
funds are available. If Lessee does not make the required commitment, this Lease
shall terminate as of the date specified in the termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate 60 days following
such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last 6 months of
this Lease there is damage for which the cost to repair exceeds one month's
Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease
effective 60 days following the date of occurrence of such damage by giving a
written termination notice to Lessee within 30 days after the date of
occurrence of such damage. Notwithstanding the foregoing, if Lessee at that
time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option
and (b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is 10 days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon
which such option expires. If Lessee duly exercises such option during such
period and provides Lessor with funds (or adequate assurance thereof) to cover
any shortage in insurance proceeds, Lessor shall, at Lessor's commercially
reasonable expense, repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during such period, then this Lease
shall
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terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, but not to exceed the proceeds received from the Rental Value
Insurance. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such
repair or restoration within 90 days after such obligation shall accrue, Lessee
may, at any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual notice,
of Lessee's election to terminate this Lease on a date not less than 60 days
following the giving of such notice. If Lessee gives such notice and such
repair or restoration is not commenced within 30 days thereafter, this Lease
shall terminate as of the date specified in said notice. If the repair or
restoration is commenced within such 30 days, this Lease shall continue in full
force and effect. "Commence" shall mean either the unconditional authorization
of the preparation of the required plans, or the beginning of the actual work
on the Premises, whichever first occurs.
9.7 TERMINATION; ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES. See Addendum 60.
10.1 DEFINITION. As used herein, the term "REAL PROPERTY TAXES" shall
include any form of assessment; real estate, general, special, ordinary or
extraordinary, or rental levy or tax (other than inheritance, personal income
or estate taxes); improvement bond; and/or license fee imposed upon or levied
against any legal or equitable interest of Lessor in the Project, Lessor's
right to other income therefrom, and/or Lessor's business of leasing, by any
authority having the direct or indirect power to tax and where the funds are
generated with reference to the Project address and where the proceeds so
generated are to be applied by the city, county or other local taxing authority
of a jurisdiction within which the Project is located. The term "Real Property
Taxes" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring during the term of this
Lease, including but not limited to, a change in the ownership of the Project
or any portion thereof or a change in the improvements thereon. In calculating
Real Property Taxes for any calendar year, the Real Property Taxes for any real
estate tax year shall be included in the calculation of Real Property Taxes for
such calendar year based upon the number of days which such calendar year and
tax year have in common.
10.2 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes applicable
to the Project, and except as otherwise provided in Paragraph 10.3, any such
amounts shall be included in the calculation of Common Area Operating Expenses
in accordance with the provisions of Paragraph 4.2.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Project by
other lessees or by Lessor for the exclusive enjoyment of such other lessees.
Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at
the time Common Area Operating Expenses are payable under Paragraph 4.2, the
entirety of any increase in Real Property Taxes if assessed solely by reason of
Alterations, Trade Fixtures or Utility Installations placed upon the Premises
by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of
the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises. When possible, Lessee shall cause its
Lessee Owned Alterations and Utility Installations, Trade Fixtures,
furnishings, equipment and all other personal property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
property shall be assessed with Lessor's real property, Lessee shall pay Lessor
the taxes attributable to Lessee's property within 10 days after receipt of a
written statement setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. Notwithstanding the provisions of
Paragraph 4.2, if at any time in Lessor's sole judgment, Lessor determines that
Lessee is using a disproportionate amount of water, electricity or other
commonly metered utilities, or that Lessee is generating such a large volume of
trash as to require an increase in the size of the dumpster and/or an increase
in the number of times per month that the dumpster is emptied, then Lessor may
increase Lessee's Base Rent by an amount equal to such increased costs.
12. ASSIGNMENT AND SUBLETTING. See Addendum 52.
12.1 LESSOR'S CONSENT REQUIRED
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis, of 25% or more of the
voting control of Lessee shall constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than 25%
of such Net Worth as it was represented at the time of the execution of this
Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, whichever was or is greater, shall be considered an
assignment of this Lease to which Lessor may withhold its consent. "NET WORTH OF
LESSEE" shall mean the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles.
(d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a noncurable
Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days
written notice, increase the monthly Base Rent to 110% of the Base Rent then in
effect. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to 110% of the price previously in effect, and
(ii) all fixed and non-fixed rental adjustments scheduled during the remainder
of the Lease term shall be increased to 110% of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting
shall: (i) be effective without the express written assumption by such assignee
or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee
of any obligations hereunder, or (iii) after the primary liability of Lessee for
the payment of Rent or for the performance of any other obligations to be
performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any
assignee or sublessee, without first exhausting Lessor's remedies against any
other person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to any assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a fee of
$1,000 or 10% of the current monthly Base Rent applicable to the portion of the
Premises which is the subject of the proposed assignment or sublease, whichever
is greater, as consideration for Lessor's considering and processing said
request. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested.
(f) Any Assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed to have
assumed and agreed to conform and comply with each and every term, covenant,
condition and obligation herein to be observed or performed by Lessee during
the term of said assignment or sublease, other than such obligations as are
contrary to or inconsistent with provisions of an assignment or sublease to
which Lessor has specifically consented to in writing.
(g) Lessor's consent to any assignment or subletting shall not
transfer to the assignee or sublessee any Option granted to the original Lessee
by this Lease unless such transfer is specifically consented to by Lessor in
writing. (See Paragraph 39.2)
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may
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collect such Rent and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach shall occur in the performance of
Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by reason
of the foregoing or any assignment of such sublease, nor by reason of the
collection of Rent, be deemed liable to the sublessee for any failure of Lessee
to perform and comply with any of Lessee's obligations to such sublessee. Lessee
hereby irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor all Rent due and to
become due under the sublease. Sublessee shall rely upon any such notice from
Lessor and shall pay all Rents to Lessor without any obligation or right to
inquire as to whether such Breach exists, notwithstanding any claim from Lessee
to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of the sublessor under such sublease from the time of the
exercise of said option to the expiration of such sublease; provided, however,
Lessor shall not be liable for any prepaid rents or security deposit paid by
such sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No Sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee
to comply with or perform any of the terms, covenants, conditions or Rules and
Regulations under this Lease. A "BREACH" is defined as the occurrence of one or
more of the following Defaults, and the failure of Lessee to cure such Default
within any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises
without providing a commercially reasonable level of security, or where the
coverage of the property insurance described in Paragraph 8.3 is jeopardized as
a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of 3
business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts, (iii)
the rescission of any unauthorized assignment or subletting, (iv) an Estoppel
Certificate, (v) a requested subordination, (vi) evidence concerning any
guaranty and/or Guarantor, (vii) any document requested under Paragraph 41
(easements), or (viii) any other documentation or information which Lessor may
reasonably require of Lessee under the terms of this Lease, where any such
failure continues for a period of 10 days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of 30 days after written notice; provided,
however, that if the nature of Lessee's Default is such that more than 30 days
are reasonably required for its cure, then it shall not be deemed to be a
Breach if Lessee commences such cure within said 30 day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of
any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within 60 days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within 30 days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within 30 days; provided, however, in the event that any provision
of this subparagraph (e) is contrary to any applicable law, such provision
shall be of no force or effect, and not affect the validity of the remaining
provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory basis, and
Lessee's failure, within 60 days following written notice of any such event, to
provide written alternative assurance or security, which, when coupled with the
then existing resources of Lessee, equals or exceeds the combined financial
resources of Lessee and Guarantors that existed at the time of execution of
this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties
or obligations, within 10 days after written notice (or in case of an emergency,
without notice), Lessor may, at its option, perform such duty or obligation on
Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be due
and payable by Lessee upon receipt of invoice therefor. If any check given to
Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent. Efforts by Lessor to mitigate damages
caused by Lessee's Breach of this Lease shall not waive Lessor's right to
recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the
right to recover in such proceeding any unpaid Rent and damages as are
recoverable therein, or Lessor may reserve the right to recover all or any part
thereof in a separate suit. If a notice and grace period required under
Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to
perform or quit given to Lessee under the unlawful detainer statute shall also
constitute the notice required by Paragraph 13.1. In such case, the applicable
grace period required by Paragraph 13.1 and the unlawful detainer statute shall
run concurrently, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign, subject
only to reasonably limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws
or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other
charges, or for the giving or paying by Lessor to or for Lessee of any cash or
other bonus, inducement or consideration for Lessee's entering into this Lease,
all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS",
shall be deemed conditioned upon Lessee's full and faithful performance of all
of the terms, covenants and conditions of this Lease. Upon Breach of this Lease
by Lessee, any such inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other charge,
bonus, inducement or consideration theretofore abated, given or paid by Lessor
under such an Inducement Provision shall be immediately due and payable by
Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee.
The acceptance by Lessor of rent or the cure of the Breach which initiated the
operation of this paragraph shall not be deemed a waiver by Lessor of the
provisions of this paragraph unless specifically so stated in writing by Lessor
at the time of such acceptance.
13.4 LATE CHARGE. Lessee hereby acknowledges that late payment by Lessee
of Rent will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any
Rent shall not be received by Lessor within 10 days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to 10% of each such overdue amount or $100,
whichever is greater. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Lessor will incur by reason of such
late payment. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent the exercise of any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for 3 consecutive installments of Base Rent, then
notwithstanding any provision of this Lease to the contrary,
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Base Rent shall, at Lessor's option, become due and payable quarterly in
advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within 30 days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the 31st day after it was due as to non-scheduled
payments. The interest ("INTEREST") charged shall be equal to the prime rate
reported in the Wall Street Journal as published closest prior to the date when
due plus 4%, but shall not exceed the maximum rate allowed by law. Interest is
payable in addition to the potential late charge provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a
reasonable time shall in no event be less than 30 days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than 30 days are reasonably required for
its performance, then Lessor shall not be in breach if performance is commenced
within such 30 day period and thereafter diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within 30 days after receipt of
said notice, or if having commenced said cure they do not diligently pursue it
to completion, then Lessee may elect to cure said breach at Lessee's expense
and offset from Rent an amount equal to the greater of one month's Base Rent or
the Security Deposit, and to pay an excess of such expense under protest,
reserving Lessee's right to reimbursement from Lessor. Lessee shall document
the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are not taken under
the power of eminent domain or sold under the threat of the exercise of said
power (collectively "CONDEMNATION"), this Lease shall terminate as to the part
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than 10% of the floor area of the Unit, or more
than 25% of Lessee's Reserved Parking Spaces, is taken by Condemnation, Lessee
may, at Lessee's option, to be exercised in writing within 10 days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within 10 days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKERAGE FEES.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant to
Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee
acquires from Lessor any rights to the Premises or other premises owned by
Lessor and located within the Project, (c) if Lessee remains in possession of
the Premises, with the consent of Lessor, after the expiration of this Lease, or
(d) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then, Lessor shall pay Brokers a fee in accordance
with the schedule of the Brokers in effect at the time of the execution of this
Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Brokers shall be third party beneficiaries of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts
due as and for brokerage fees pertaining to this Lease when due, then such
amounts shall accrue interest. In addition, if Lessor fails to pay any amounts
to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor
and Lessee of such failure and if Lessor fails to pay such amounts within 10
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker for the limited purpose of collecting any
brokerage fee owned.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and
Lessor each represent and warrant to the other that it has had no dealings with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within 10 days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Requesting Party shall fail to execute or deliver the
Estoppel Certificate within such 10 day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force
and effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's
performance, and (iii) if Lessor is the Requesting Party, not more than one
month's rent has been paid in advance. Prospective purchasers and encumbrances
may rely upon the Requesting Party's Estoppel Certificate, and the Responding
Party shall be estopped from denying the truth of the facts contained in said
Certificate.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall deliver to any
potential lender or purchaser designated by Lessor such financial statements as
may be reasonably required by such lender or purchaser, including but not
limited to Lessee's financial statements for the past 3 years. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the Lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor. Except as provided in
Paragraph 15, upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with
respect to the obligations and/or covenants under this Lease thereafter to be
performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only
upon the Lessor as hereinabove defined. Notwithstanding the above, and subject
to the provisions of Paragraph 20 below, the original Lessor under this Lease,
and all subsequent holders of the Lessor's interest in this Lease shall remain
liable and responsible with regard to the potential duties and liabilities of
Lessor pertaining to Hazardous Substances as outlined in Paragraph 6.2 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"DAYS" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the use, nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. The liability (including court costs
and attorneys' fees), of any Broker with respect to negotiation, execution,
delivery or performance by either Lessor or Lessee under this Lease or any
amendment or modification hereto shall be limited to an amount up to the fee
received by such Broker pursuant to this Lease; provided, however, that the
foregoing limitation on each Broker's liability shall not be applicable to any
gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE OF REQUIREMENTS. All notices required or permitted by this
Lease or applicable law shall be in writing and may be delivered in person (by
hand or by courier) or may be sent by regular, certified or registered mail or
U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing of
notices. Either Party may by written notice to the other specify a different
address for notice, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for notice. A copy of all
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notices to Lessor shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown
on the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail the notice shall be deemed given 48 hours after the same
is addressed as required herein and mailed with postage prepaid. Notices
delivered by United States Express Mail or overnight courier that guarantee
next day delivery shall be deemed given 24 hours after delivery of the same to
the Postal Service or courier. Notices transmitted by facsimile transmission or
similar means shall be deemed delivered upon telephone confirmation of receipt
(confirmation report from fax machine is sufficient), provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday or
legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of moneys or damages
due Lessor, notwithstanding any qualifying statements or conditions made by
Lessee in connection therewith, which such statements and/or conditions shall
be of no force or effect whatsoever unless specifically agreed to in writing by
Lessor at or before the time of deposit of such payment.
25. DISCLOSURE REGARDING THE NATURE OF A REAL ESTATE AGENCY RELATIONSHIP.
(a) When entering into a discussion with a real estate agent regarding a
real estate transaction, a Lessor or Lessee should from the outset understand
what type of agency relationship or representation it has with the agent or
agents in the transaction. Lessor and Lessee acknowledge being advised by the
Brokers in this transaction, as follows:
(i) Lessor's Agent. A Lessor's agent under a listing agreement
with the Lessor acts as the agent for the Lessor only. A Lessor's agent or
subagent has the following affirmative obligations: To the Lessor: A fiduciary
duty of utmost care, integrity, honesty, and loyalty in dealings with the
Lessor. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills
and care in performance of the agent's duties. (b) A duty of honest and fair
dealing and good faith. (c) A duly to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not
known to, or within the diligent attention and observation of, the Parties. An
agent is not obligated to reveal to either Party any confidential information
obtained from the other Party which does not involve the affirmative duties set
forth above.
(ii) Lessee's Agent. An agent can agree to act as agent for the
Lessee only. In these situations, the agent is not the Lessor's agent, even if
by agreement the agent may receive compensation for services rendered, either
in full or in part from the Lessor. An agent acting only for a Lessee has the
following affirmative obligations. To the Lessee: A fiduciary duty of utmost
care, integrity, honesty, and loyalty in dealings with the Lessee. To the
Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in
performance of the agent's duties. (b) A duty of honest and fair dealing and
good faith. (c) A duty to disclose all facts known to the agent materially
affecting the value or desirability of the property that are not known to, or
within the diligent attention and observation of, the Parties. An agent is not
obligated to reveal to either Party any confidential information obtained from
the other Party which does not involve the affirmative duties set forth above.
(iii) Agent Representing Both Lessor and Lessee. A real estate
agent, either acting directly or through one or more associate licenses, can
legally be the agent of both the Lessor and the Lessee in a transaction, but
only with the knowledge and consent of both the Lessor and the Lessee. In a
dual agency situation, the agent has the following affirmative obligations to
both the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity,
honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other
duties to the Lessor and the Lessee as stated above in subparagraphs (i) or
(ii). In representing both lessor and Lessee, the agent may not without the
express permission of the respective Party, disclose to the other Party that
the Lessor will accept rent in an amount less than that indicated in the
listing or that the Lessee is willing to pay a higher rent than that offered.
The above duties of the agent in a real estate transaction do not relieve a
Lessor or Lessee from the responsibility to protect their own interests. Lessor
and Lessee should carefully read all agreements to assure that they adequately
express their understanding of the transaction. A real estate agent is a person
qualified to advise about real estate. If legal or tax advice is desired,
consult a competent professional.
(b) Brokers have no responsibility with respect to any default or
breach hereof by either Party. The liability (including court costs and
attorneys' fees), of any Broker with respect to any breach of duty, error or
omission relating to this Lease shall not exceed the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
(c) Buyer and Seller agree to identify to Brokers as "Confidential" any
communication or information given Brokers that is considered by such Party to
be confidential.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this
Lease. In the event that Lessee holds over, then the Base Rent shall be
increased to 150% of the Base Rent applicable immediately preceding the
expiration or termination. Nothing contained herein shall be construed as
consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both
Parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "LENDER") shall have no liability or obligation to perform any of
the obligations of Lessor under this Lease. Any Lender may elect to have this
Lease and/or any Option granted hereby superior to the lien of its Security
Device by giving written notice thereof to Lessee, whereupon this Lease and such
Options shall be deemed prior to such Security Device, notwithstanding the
relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. In the event that Lessor transfers title to the
Premises, or the Premises are acquired by another upon the foreclosure or
termination of a Security Device to which this Lease is subordinated (i) Lessee
shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to
such new owner, and upon request, enter into a new lease containing all of the
terms and provisions of this Lease, with such new owner for the remainder of
the term hereof, or, at the election of such new owner, this Lease shall
automatically become a new Lease between Lessee and such new owner, upon all of
the terms and conditions hereof, for the remainder of the term hereof, and (ii)
Lessor shall thereafter be relieved of any further obligations hereunder and
such new owner shall assume all of Lessor's obligations hereunder, except that
such new owner shall not; (a) be liable for any act or omission of any prior
lessor or with respect to events occurring prior to acquisition of ownership;
(b) be subject to any offsets or defenses which Lessee might have against any
prior lessor, (c) be bound by prepayment of more than one month's rent, or (d)
be liable for the return of any security deposit paid to any prior lessor.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within 60 days after the execution of this Lease, Lessor
shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee's
option, directly contact Lender and attempt to negotiate for the execution and
delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents, provided,
however, that, upon written request from Lessor or a Lender in connection with
a sale, financing or refinancing of the Premises, Lessee and Lessor shall
execute such further writings as may be reasonably required to separately
document any subordination, attornment and/or Non-Disturbance Agreement
provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding
involving the Premises whether founded in tort, contract or equity, or to
declare rights hereunder, the Prevailing Party (as hereafter defined) in any
such proceeding, action, or appeal thereon, shall be entitled to reasonable
attorney's fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to decision
or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorneys' fees award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. In addition,
Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach ($200 is a reasonable minimum per
occurrence for such services and consultation).
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of
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<PAGE>
an emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or tenants, and making such
alterations, repairs, improvements or additions to the Premises as Lessor may
deem necessary. All such activities shall be without abatement of rent or
liability to Lessee. Lessor may at any time place on the Premises any ordinary
"FOR SALE" signs and Lessor may during the last 6 months of the term hereof
place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any time
place on the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs which may be placed only
on the Premises, Lessee shall not place any sign upon the Project without
Lessor's prior written consent. All signs must comply with all Applicable
Requirements.*
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, that Lessor may elect to continue any one
or all existing subtenancies. Lessor's failure within 10 days following any
such event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such consent
shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs
and expenses (including but not limited to architects', attorneys', engineers'
and other consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the imposition by Lessor at the
time of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish its reasons in writing and in reasonable detail
within 10 business days following such request.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c)
an Estoppel Certificate, or (d) written confirmation that the guaranty is still
in effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance
of all of the covenants, conditions and provisions on Lessee's part to be
observed and performed under this Lease, Lessee shall have quiet possession and
quiet enjoyment of the Premises during the term hereof.
39. OPTIONS. If Lessee is granted an option, as defined below, then the
following provisions shall apply.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Any Option granted to Lessee in
this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting that Lessee has no intention of thereafter assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given 3 or more notices of separate Default, whether or not the Defaults
are cured, during the 12 month period immediately preceding the exercise of
the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect,
notwithstanding Lessee's due and timely exercise of the Option, if, after such
exercise and prior to the commencement of the extended term, (i) Lessee fails
to pay Rent for a period of 30 days after such Rent becomes due (without any
necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee 3 or
more notices of separate Default during any 12 month period, whether or not the
Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. SECURITY MEASURES. Lessee hereby acknowledges that the Rent payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
41. RESERVATIONS. Lessor reserves the right: (i) to grant, without the consent
or joinder of Lessee, such easements, rights and dedications that Lessor deems
necessary, (ii) to cause the recordation of parcel maps and restrictions, and
(iii) to create and/or install new utility raceways, so long as such easements,
rights, dedications, maps, restrictions, and utility raceways do not
unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to
sign any documents reasonably requested by Lessor to effectuate such rights.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.
43. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within 30 days after request, deliver to the other party satisfactory
evidence of such authority.
44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
45. OFFER. Preparation of this Lease by either party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
46. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
47. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
48. WAIVER OF JURY TRIAL. The Parties hereby waive their respective rights to
trial by jury in any action or proceeding involving the Property or arising out
of this Agreement.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease [ ] is [X] is not attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS,
COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE
PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE
* Lessor agrees to allow Lessee to place a company sign on the building with
equal prominence with the neighboring tenant.
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REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Fountain Valley, CA Executed at: Fountain Valley, CA
-------------------------- --------------------------
on: January 5, 2001 on: January 5, 2001
---------------------------------- ----------------------------------
BY LESSOR: BY LESSEE:
Pelican Center, LLC, a California CAM Commerce Solutions, Inc., a
- -------------------------------------- --------------------------------------
Limited Liability Company Delaware Corporation
- -------------------------------------- --------------------------------------
By: /s/ JOHN TILLOTSON By: /s/ PAUL CACERES
----------------------------------- -----------------------------------
Name Printed: John Tillotson Name Printed: Paul Caceres
------------------------- -------------------------
Chief Financial Officer &
Title: Member Title: Officer of Co.
-------------------------------- --------------------------------
By: /s/ DAN HOWSE By:
----------------------------------- -----------------------------------
Name Printed: Dan Howse Name Printed:
------------------------- -------------------------
Title: Member Title:
-------------------------------- --------------------------------
Address: 15272 Bolsa Chica Road Address:
------------------------------ ------------------------------
Huntington Beach, CA 92649
- -------------------------------------- --------------------------------------
Telephone: (714) 895-9652 Telephone: (714) 241-9241
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Facsimile: (714) 895-6321 Facsimile: (714) 241-9893
--- ---------------------- --- ----------------------
Federal ID No. Federal ID No. 953866450
------------------------ ------------------------
THESE FORMS ARE OFTEN MODIFIED TO MEET CHANGING REQUIREMENTS OF LAW AND NEEDS OF
THE INDUSTRY. ALWAYS WRITE OR CALL TO MAKE SURE YOU ARE UTILIZING THE MOST
CURRENT FORM: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 SOUTH FLOWER
STREET, SUITE 600, LOS ANGELES, CA 90017. (213) 687-8777
(C)COPYRIGHT 1999 - BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION.
ALL RIGHTS RESERVED.
NO PART OF THESE WORKS MAY BE REPRODUCED IN ANY FORM WITHOUT PERMISSION IN
WRITING.
PAGE 12 OF 12
REVISED
<PAGE>
ADDENDUM TO THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD
INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET DATED DECEMBER 12, 2000 BY AND
BETWEEN PELICAN CENTER, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY AS LESSOR
AND CAM COMMERCE SOLUTIONS, A CALIFORNIA CORPORATION AS LESSEE.
- --------------------------------------------------------------------------------
50. BASE RENT SCHEDULE:
The base rent for the premises shall be adjusted as follows:
MONTHS RENT
------ ----
1-12 $1.10 NNN per square foot
The rent shall increase on the first day of the 13th month and every
annual anniversary thereafter in accordance with the increase at the
beginning of each twelve (12) month period by an amount equal to the
increase in the Consumer Price Index (Los Angeles, Anaheim, Riverside).
However, in no event, shall the increase be greater than 6% nor less than
3% annually.
Rent Increases: CPI numbers for the first annual base rent adjustment
would be accomplished by dividing the CPI for September, 2002 by the CPI
for September, 2001, multiplied by the original base rent amount (subject
to the min/max provisions). This formula with appropriate dates will be
calculated each year.
51. OPTION TO EXTEND:
Lessee shall be granted one (1) five (5) year option to extend the lease.
The new initial lease rate shall increase the first day of said option
period and adjust the first day of the 13th month and every annual
anniversary thereafter in accordance with the increase at the beginning of
each twelve (12) month period by an amount equal to the increase in the
Consumer Price Index (Los Angeles, Anaheim, Riverside). However, in no
event, shall the increase be greater than 6% nor less than 3% annually.
Lessee shall provide Lessor at least six (6) months prior written notice
to extend the lease. If such notice is not received, then such option
shall be null and void.
The rent increases will be calculated annually as set forth in paragraph
50 above.
52. TENANT IMPROVEMENTS:
Landlord shall provide Tenant a "turn-key" space based upon the cost
breakdown, dated 1/2/01 referenced and Exhibit "A" attached hereto.
53. OPERATING EXPENSE/REAL ESTATE TAXES:
Electrical/HVAC - Landlord shall separately meter Tenant's premises, and
Tenant will be billed directly for usage.
Janitorial - Tenant shall separately contract with a janitorial service.
Common Area Charges (CAM) - Tenant shall pay its prorata share of CAM
charges to include: taxes, building insurance, including earthquake
coverage, roof/HVAC maintenance, landscaping, window washing, sweeping,
common area lighting, common area maintenance and janitorial.
The tax calculation portion of the above CAM Charge shall include a fully
assessed property.
Tenant shall have reasonable expense audit rights, per Lease document.
<PAGE>
54. EXPANSIONS:
Tenant shall have the right of notification on contiguous space, as they
become available.
Any expansion by Tenant shall be handled by a Lease Amendment for the
expansion premises. The minimum term for an expansion premises shall be
five (5) years. All terms and conditions of the original lease shall
remain in effect with the exception of base rent and tenant improvements,
which shall be negotiated between parties.
55. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS:
Given the fact that this is a new building and the Lease term is for five
(5) years, the exterior roof and/or roof replacement, structural integrity
of the walls and foundation shall not be a Lessee/Tenant responsibility
nor subject to Lessee reimbursement unless damage is caused by
Lessee/Tenant.
<TABLE>
<S> <C> <C>
AGREED & ACCEPTED: /s/ JOHN TILLOTSON Date: 1/5/01
--------------------------------------- ------
John Tillotson -- Member
Pelican Center, LLC/Lessor
AGREED & ACCEPTED: /s/ DAN HOWSE Date: 1/5/01
--------------------------------------- ------
Dan Howse -- Member
Pelican Center, LLC/Lessor
AGREED & ACCEPTED: /s/ PAUL CACERES Date: 1/5/01
--------------------------------------- ------
Paul Caceres -- Chief Financial Officer
CAM Commerce Solutions, Inc.
</TABLE>
<PAGE>
EXHIBIT A
COST BREAKDOWN
DATE: 1/2/01 MILLER CONTRACTING COMPANY
TENANT: CAM COMMERCE SOLUTIONS 18207 E. MCDURMOTT, SUITE E
PROJECT: TENANT IMPROVEMENT AT PELICAN CENTER IRVINE, CA 92614
ADDRESS: (949) 852-2244 TELE
FOUNTAIN VALLEY CA (949) 852-2250 FAX
ESTIMATE: PRELIMINARY PRICE #2 LIC. # 621229
AREA SF: 26000 USF
================================================================================
<Table>
<Caption>
QTY UN $/UN. EXT. TOTALS
<S> <C> <C> <C> <C> <C>
06100 ROUGH CARPENTRY
A.C. Unit Roof Platforms 12 EA 250 3000
----------
TOTAL ROUGH CARPENTRY $ 3,000
06200 MILLWORK
L.P. Base Cabinet @ Lunch Rm 10 LF 145 1450
L.P. Upper Cabinet @ Lunch Rm 14 LF 110 1540
L.P. Base Cabinet @ Coffee 10 LF 145 1450
L.P. Upper Cabinet @ Coffee 10 LF 110 1100
L.P. Counter Tops in First Floor RR 24 LF 125 3000
----------
TOTAL MILLWORK $ 8,540
07200 INSULATION
Wall Insulation R-11 23504 SF 0.30 7051
Ceiling Insulation R-19 @ Board Room 378 SF 0.35 132
Ceiling Insulation R-19 @ RR 1196 SF 0.35 419
----------
TOTAL INSULATION $ 7,602
08100 DOORS, FRAMES & HARDWARE
Single Interior Door 24 EA 785 18840
Paired Interior Door 0 PR 1500 0
Sidelight Frames 4 EA 240 960
----------
TOTAL DOORS, FRAMES & HARDWARE $19,800
08800 GLASS & GLAZING
1/4" Sidelites 4 EA 165 660
Full Height Glazing @ Board Room 260 SF 18 4680
Aluminum End Cap 10 EA 30 300
----------
TOTAL GLASS & GLAZING $ 5,640
09250 DRYWALL
Interior Partition 9'H 1032 LF 24 24768
Demising Partition @ Office/Warehous 282 LF 82 23124
Full Height Lobby Walls 0 LF 82 0
Wall Furring Along Window Line 416 LF 16 6656
Gyp Lid @ Restroom 1196 SF 3.25 3887
Soffit Allowance 816 SF 6 4896
Box Out Columns 4 EA 250 1000
Stocking & Cleanup 1 LS 750 750
----------
TOTAL DRYWALL $65,081
</Table>
Page 1
<PAGE>
COST BREAKDOWN
DATE: 1/2/01 MILLER CONTRACTING COMPANY
TENANT: CAM COMMERCE SOLUTIONS 18207 E. MCDURMOTT, SUITE E
PROJECT: TENANT IMPROVEMENT AT PELICAN CENTER IRVINE CA 92814
ADDRESS: (949) 852-2244 TELE
FOUNTAIN VALLEY CA (949) 852-2250 FAX
ESTIMATE: PRELIMINARY PRICE #2 LIC. #621229
AREA SF: 26000 USF
- --------------------------------------------------------------------------------
<Table>
<Caption>
QTY UN $/UN. EXT. TOTALS
<S> <C> <C> <C> <C> <C>
09300 CERAMIC TILE
Wall Tile @ Restrooms (6' High) 1650 SF 7 11550
Floor Tile @ Restrooms 1196 SF 7 8372
Granite Floor In Lobby 525 SF 10 5250
-----
TOTAL CERAMIC TILE $25,172
09500 ACOUSTICAL CEILING
New Grid & Tile 16104 SF 1.65 26572
-----
TOTAL ACOUSTICAL CEILING $26,572
09650 FLOORCOVERING
Carpet 1925 SY 20.00 38500
*Rubber Base molding - conf rooms/lobby 3044 LF 1.05 3196
Stair Labor 2 EA 450.00 900
VCT (Lunch, Video & Computer) 971 SF 1.25 1214
-----
TOTAL FLOORCOVERING $43,810
09900 PAINTING
Painting (Flat) 41996 SF 0.20 8399.2
Painting (Enamel) @ Restrooms 2800 SF 0.30 840
Wallcovering WC-1 @ Recep/Conf 2000 SF 2.50 5000
Wallcovering Primer 2000 SF 0.15 300
Stain Doors 24 EA 90 2160
------
TOTAL PAINTING $16,699
10520 FIRE EXTINGUISHER
Fire Extinguisher Cabinet (Semi rec) 8 EA 65 520
Fire Extinguisher 2A10BC 5# 8 EA 50 400
------
TOTAL FIRE EXTINGUISHERS $ 920
10800 TOILET PARTITIONS & ACCESS.
Paper Towel & Waste Dispenser 4 EA 175 700
Soap Dispenser B155 10 EA 60 600
Toilet Paper Dispenser B2730 13 EA 41 533
Seat Cover Dispenser B301 13 EA 26 338
Napkin Disposal B254 2 EA 175 350
Napkin Vendor 2 EA 225 450
Grab Bars B6106-36/48 13 EA 55 715
Toilet Partition-Plastic Lam. 13 EA 425 5525
Urinal Screen-Plastic Lam. 2 EA 125 250
Signage 4 EA 30 120
-----
TOTAL PARTITIONS & ACCESSORIES $ 9,581
</TABLE>
Page 2
<PAGE>
COST BREAKDOWN
<Table>
<Caption>
DATE: 1/2/01 MILLER CONTRACTING COMPANY
TENANT: CAM COMMERCE SOLUTIONS 18207 E. MCDURMOTT, SUITE E
PROJECT: TENANT IMPROVEMENT AT PELICAN CENTER IRVINE CA 92614
ADDRESS: (949) 852-2244 TELE
FOUNTAIN VALLEY CA (949) 852-2250 FAX
ESTIMATE: PRELIMINARY PRICE #2 LIC. # 621229
AREA SF: 26000 USF
=============================================================================================
QTY UN $/UN. EXT. TOTALS
<S> <C> <C> <C> <C>
11420 APPLIANCES
Dishwasher in Lunchroom 1 EA 634 634
Cooktop & Oven in Lunchroom 1 EA 2200 2200
-----
TOTAL APPLIANCES $ 2,834
12500 WINDOW COVERING
Mini-Blinds 3'-0" x 6'-0" @
Exterior 78 EA 125 9750
Mini-Blinds @ Sidelights 4 EA 125 500
Vertical Blinds @ Board Room 260 SF 8 2080
-----
TOTAL WINDOW COVERING $ 12,220
15300 FIRE SPRINKLERS
New Heads 250 EA 105 26250
Plans, Permit & Engineering 1 LS 2500 2500
-----
TOTAL FIRE SPRINKLERS $ 28,750
15400 PLUMBING
Kitchen/Break Room Sink 2 EA 1800 3600
Toilets 13 EA 925 12025
Urinal 3 EA 900 2700
Lavatory 10 EA 900 9000
Janitor Sink 1 EA 900 900
Drinking Fountain 2 EA 1850 3700
Garbage Disposal 2 EA 135 270
Waterheater 2 EA 650 1300
Water Lines 2 EA 75 150
Floor Drain 4 EA 325 1300
Floor Sink 2 EA 375 750
Dishwasher Rough in 1 EA 185 185
Condensate Line 1 LS 3500 3500
-----
TOTAL PLUMBING $ 39,380
15500 HVAC
New AC Units 26000 SF 2.55 66300
New Distribution Thruout 26000 SF 2.10 54600
-----
TOTAL HVAC $120,900
16000 ELECTRICAL
New 2x4 Light Fixture 218 EA 155 33790
Incandescent Downlight 20 EA 105 2100
Wall Washers 8 EA 110 880
Single Face Exit Sign 6 EA 195 1170
Single Gang Switch 8 EA 50 400
</Table>
Page 3
<PAGE>
COST BREAKDOWN
DATE: 1/2/01 MILLER CONTRACTING COMPANY
TENANT: CAM COMMERCE SOLUTIONS 18207 E. MCDURMOTT, SUITE E
PROJECT: TENANT IMPROVEMENT AT PELICAN CENTER IRVINE, CA 92614
ADDRESS: (949) 852-2244 TELE
FOUNTAIN VALLEY CA (949) 852-2250 FAX
ESTIMATE: PRELIMINARY PRICE #2 LIC. # 621229
AREA SF: 26000 USF
================================================================================
<Table>
<Caption>
QTY UN $/UN. EXT. TOTALS
<S> <C> <C> <C> <C> <C> <C>
Wall Motion Sensor 20 EA 145 2900
Ceiling Motion Sensor 10 EA 175 1750
Duplex Outlet 48 EA 45 2160
Duplex Outlet 20Amp 4 EA 60 240
Duplex Outlet (GFI) 3 EA 70 210
Floor Furniture Feed Power 6 EA 850 5100
Floor Furniture Feed Tele 6 EA 425 2550
Wall Power Furniture Feed 16 EA 650 10400
Wall Tele Furniture Feed 16 EA 300 4800
Telephone Homerun 3" 150 LF 7 1050
Garbage Disposal Hookup 2 EA 145 290
Exhaust Fan Hookup 4 EA 85 340
Water Heater Hookup 2 EA 240 480
Air Conditioning Unit Hookup 12 EA 1250 15000
Roof Receptacle 12 EA 95 1140
200 Amp Feeder 120 LF 24 2880
200 Amp 277/480V Panel 2 EA 510 1020
200 Amp 120/208V Panel 2 EA 650 1300
75 KVA Transformer 2 EA 1500 3000
75 KVA Transformer Feeder 75 LF 12 900
Transformer Ground 2 EA 150 300
Emergency Battery Packs 12 EA 150 1800
Manufacturing Area Power 8700 SF 1.5 13050
Manufacturing Area Lighting 8700 SF 0.75 6525
-------
TOTAL ELECTRICAL $ 117,525
18000 SPECIALTIES
19140 Final Cleanup 26000 SF 0.16 4160
19160 Temporary Protection 1 LS 1500 1500
--------
TOTAL SPECIALTIES $ 5,660
---------
SUBTOTAL $ 559,796
COST PER SQUARE FOOT $ 21.53
</Table>
ALTERNATE: Provide engineering on a design build basis for Mechanical,
Electrical and Plumbing for Cam Suite Only. ADD: $13,000
CLARIFICATIONS: The costs stated above do not include the contractors General
Conditions or Fee and are based on completing the work
concurrently with the shell construction.
Page 4
<PAGE>
[DIAGRAM]
SCHEME A
FIRST FLOOR PLAN
CAM:
FIRST FLOOR AREA = 18400 S.F. ADMIN SMALL CUBES = 14
ADMIN LARGE CUBE = 2
WAREHOUSE = 8700 S.F. RETAIL-QA SMALL CUBES = 17
RETAIL-QA LARGE CUBE = 1
OFFICE = 9700 S.F. SUPPORT SMALL CUBES = 18
SUPPORT LARGE CUBES = 3
SECOND FLOOR AREA = 7600 S.F. EXTRA CUBES = 14
OFFICE = 7600 S.F. TOTAL FIRST FLOOR CUBES = 69
TOTAL CAM = 26,000 S.F.
TENANT B TOTAL FIRST FLOOR AREA = 18,400 S.F.
TOTAL FIRST FLOOR = 36,800 S.F.
TOTAL BUILDING AREA = 56,800 S.F.
1/02/01
<PAGE>
[DIAGRAM]
SCHEME A
SECOND FLOOR PLAN SUPPORT SMALL CUBES = 41
SALES LARGE CUBES = 12
TOTAL 2ND FLOOR CUBES = 53
TOTAL CUBES ON BOTH FLOORS = 122
CAM SECOND FLOOR AREA = 7,600 S.F.
TENANT B SECOND FLOOR AREA = 12,400 S.F.
TOTAL SECOND FLOOR AREA = 20,000 S.F.
1/02/01
<PAGE>
EXHIBIT B
[DIAGRAM]
SCHEME A
FIRST FLOOR PLAN
CAM:
FIRST FLOOR AREA = 18400 S.F. ADMIN SMALL CUBES = 14
ADMIN LARGE CUBE = 2
WAREHOUSE = 8700 S.F. RETAIL-QA SMALL CUBES = 17
RETAIL-QA LARGE CUBE = 1
OFFICE = 9700 S.F. SUPPORT SMALL CUBES = 18
SUPPORT LARGE CUBES = 3
SECOND FLOOR AREA = 7600 S.F. EXTRA CUBES = 14
OFFICE = 7600 S.F. TOTAL FIRST FLOOR CUBES = 69
TOTAL CAM = 26,000 S.F.
TENANT B TOTAL FIRST FLOOR AREA = 18,400 S.F.
TOTAL FIRST FLOOR = 36,800 S.F.
TOTAL BUILDING AREA = 56,800 S.F.
1/02/01
<PAGE>
EXHIBIT B
[DIAGRAM]
SCHEME A
SECOND FLOOR PLAN SUPPORT SMALL CUBES = 41
SALES LARGE CUBES = 12
TOTAL 2ND FLOOR CUBES = 53
TOTAL CUBES ON BOTH FLOORS = 122
CAM SECOND FLOOR AREA = 7,600 S.F.
TENANT B SECOND FLOOR AREA = 12,400 S.F.
TOTAL SECOND FLOOR AREA = 20,000 S.F.
1/02/01
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.(A)
<SEQUENCE>4
<FILENAME>a78003ex13-a.txt
<DESCRIPTION>EXHIBIT 13(A)
<TEXT>
<PAGE>
EXHIBIT 13(a)
Geoffrey D. Knapp
Founder and [PICTURE]
Chief Executive Officer
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear valued Shareholder,
During the past year we continued to make progress on the detailed strategic
plan we have been implementing for the past couple of years. By fiscal 4th
quarter, ended September 30th, we had achieved profitability for the first time
in the past two years and we saw 25% sales growth year over year in the 4th
quarter. We also closed the year with nearly $9.5 million in cash ($3.15 per
share) and no debt. Achieving the level of success we expect is taking longer
than we would have hoped in many areas but I can honestly say that we are making
positive progress in all the key areas of our business.
Sales and Marketing Changes
Last year we determined that our sales and marketing departments were in need of
some positive changes after carefully reviewing our results along with current
processes and their effectiveness. As a result we built an inside sales force of
10 sales professionals that did not exist last year. This inside sales group was
created to handle the initial contact with the many thousands of prospective
customers that contact us each year along with making outbound calls into our
database of over 50,000 past prospective customers whose status was uncertain.
The result has been dramatically better customer service on initial contacts
with potential customers and the generation of thousands of qualified sales
leads from our historical database. The inside sales force has not only made us
more efficient and effective in creating and initially handling new sales
opportunities, but they have allowed the outside sales force more time to focus
on qualified sales prospects. The inside sales group has also allowed us to take
on focused marketing projects within our own customer base. The group really
wasn't fully on-line until this past summer. I am very pleased with their
progress and the results. I believe we are just beginning to see the longer term
benefits of this key change to our sales and marketing strategy.
At the beginning of the year we created and staffed a new Vice President of
Marketing position in order to enhance the company's marketing effectiveness.
The results have been very positive. The changes to our marketing programs along
with the inside sales group have resulted in record numbers of sales leads and
opportunities being passed to our outside sales force.
During the year we completed the implementation and roll out to our entire sales
organization a sales management and customer relationship system that allows for
significantly enhanced distribution and tracking of prospective customer and
customer information. This new software allows our entire sales force to share
the same database and to communicate electronically on a daily basis. This new
software, which took a major effort over 18 months to deploy within our company,
gives CAM significant operational advantages over other companies in our market
place. The sales force, along with the rest of the company has instant access to
important information about customers and prospective customers that they either
did not have before or was not timely. Furthermore, our management team now has
a much better ability to analyze the effectiveness of our sales and marketing
efforts.
Lots of Significant Product Releases
Our i.STAR product, which is our unique integrated web storefront software, came
of age with the release of version 2 and later version 3 during the year. This
product is truly unique, offering our customers the ability to seamlessly extend
their presence to the Internet with a fully integrated web storefront. We hope
that over time we will be able to educate the market as to why i.STAR is a
product that is not only unbelievably affordable for what it is, but is
something that to the best of my knowledge nobody else is offering in the
seamless, integrated fashion that we are. It has been a slow process so far. We
did pick up some recognizable customers during the year for the product such as
the Cincinnati Bengals of the NFL, The University of Nebraska Cornhuskers and
the Casio Service Center. To see several of our i.STAR customers sites you can
find links to them on our web site at www.camcommerce.com Go to "Products" and
the "i.STAR" section. You will also find a link to a 7-minute i.STAR web video
that we created to help prospective customers understand the product and what it
is capable of. I recommend viewing it if you want to understand what our
i.STAR offering really is.
We had major new releases of our Retail STAR, Retail ICE and CAM-32 products as
well as new releases for MicroBiz and Profit$. We worked on improving the
performance of our products as well as adding new features. I am happy to say
that all of our products are the most reliable and feature rich that they have
ever been. Our market analysis shows that we are in the most enviable position
we have ever been, in relation to our competition.
For Retail STAR and Retail ICE we released a complete accounting software suite
that is fully integrated with the back office management and point of sale
system. This
1
<PAGE>
Letter to Shareholders cont.
- --------------------------------------------------------------------------------
software is something that has been in the works for a few years now. It is a
very significant offering and something that none of our primary competition
offers. When you consider that proper accounting controls are at the core of
most long-term successful businesses, we now have something very unique to offer
our customers that most of them need. The level of integration is the key to
this product.
New Credit Card Processing Software & Service
Perhaps the most significant new product we released this past year was our new
integrated credit card processing software and service called X-Charge. X-Charge
allows our customers to process credit card transactions in an integrated
fashion with their point of sale or back office order entry systems. It also
allows for integrated check authorization. X-Charge has been integrated with all
of our system offerings and has even been offered with a competitor's product.
We really didn't begin to implement the program until early in the year. We have
already signed up over 500 retailers on the software and are realizing over
$500,000 per year in annual processing fees revenue. This number continues to
grow each month as we sign up new customers. This division is already profitable
and should slowly become a significant contributor to bottom line profits.
CPA Partner Program
Towards the end of the year we launched a new program to partner with CPA firms
around the country to allow these firms to provide services to our customers and
to allow the CPA firms to provide training and referrals on our products. As of
this writing we had signed up high profile firms in Indiana, Oklahoma and Utah.
We have also signed up smaller firms in several other areas. The CPA firms
wishing to become fully involved with our products pay an annual fee for which
we provide training and customer referrals. The initial reaction to the plan has
been highly favorable. We are just beginning to launch our marketing programs
after initial test marketing, and are beginning to receive quality sales leads.
We expect a 12 to 24 month roll out with the goal of having a key CPA partner in
every major U.S. city and lots of the smaller ones as well. Our CPA partners
will give us a greater local presence throughout the U.S. as well as greatly
expanding our capacity to install new systems and train customers anywhere in
the U.S. It will also reduce the cost of installation to the customer by
eliminating travel expenses in many cases. Finally, we expect the CPA partner
program to generate a meaningful number of new sales opportunities for systems
along with our credit card processing software and service.
EBay Alliance
Last December we signed a deal with eBay to provide a complete auction
management system that was fully integrated with our customer's back office and
point of sale systems. The agreement called for us to develop and deliver
software that would allow a retailer to place, track, manage and fulfill eBay
auctions from their CAM system in an integrated fashion. This software
development effort is based on a new set of programming instructions called
"API's" which eBay released for the first time earlier this year. We ran into
some initial delays in the development of the software due to uncertainties
surrounding the launch of the API's but I am pleased to report that we are close
to finishing the first version of our new product called "Auction Star" (pending
the trademark process). This product will open up new revenue and profit
opportunity based on the successful completion of auctions placed by our
customers. The business model for Auction Star we have in place now is actually
significantly better than the one we envisioned in late 2000. However, this is a
product and service that will take time to roll out. There is an education
component with our customers. I don't expect the Auction Star product along with
the eBay alliance to contribute to profits in the coming year, but it could
offer significant upside in subsequent years.
MicroBiz Acquisition Finally Working
The MicroBiz acquisition, which we completed approximately 18 months ago, did
not work out the way we hoped it would. For the full fiscal year MicroBiz was a
big contributor to our losses. The short story is that we made some inaccurate
assumptions going into the acquisition, caught the company at the start of a
market downturn and failed to execute with the original structure of the
company. As a result, we made major changes this past year at MicroBiz. The
easiest way to sum up those changes is that MicroBiz is now a CAM product line
rather than a separate company. This resulted in structural and strategic
changes in relation to MicroBiz. We have added recurring service revenue that
did not exist at the beginning of the year along with doing a better job at
matching resources to expected revenues. MicroBiz should make a positive
contribution to CAM's results in 2002.
Impact of Economic Conditions
There is no question that declining economic conditions have hurt the small
retailer and thus limited some of our opportunities in the short term. However,
CAM is in a very strong position financially in relation to our competitors and
in fact we have seen a number of competitors either go out of business or
substantially pull back their marketing efforts and thus their presence in the
market place. Many of them have contacted us about selling out or about some
kind of
2
<PAGE>
LETTER TO SHAREHOLDERS CONT.
- --------------------------------------------------------------------------------
survival partnership. In the mean time we continue to expand our marketing and
sales efforts, invest in new products and create new market opportunities.
While it is impossible to know for sure, it is my expectation that we will see a
few tough months followed by a general pick up in the market. We have improved
our operational efficiencies and continue to increase our recurring revenues.
Furthermore we wrote off a large chunk of our soft assets this past year, such
as the goodwill on our balance sheet associated with the MicroBiz acquisition.
The net result is that we are in a much better position going into 2002 than
last year in terms of our profit opportunities.
Focus in 2002
We are focused on building recurring revenue streams. These include service
revenue related to our thousands of system customers, X-Charge processing
services, eBay, i.STAR, etc.
We are concentrating on growing the customer base as quickly as we can. We have
found some new ways to increase the number of retailers and small businesses
adopting our Retail ICE product. This is our single user, single location
retailing system we offer for a nominal shipping and handling fee. We are also
planning some new marketing strategies focused on greatly increasing our brand
awareness within our target markets.
We are committed to customer satisfaction in every area of our business from
software development to accounting. We have internal initiatives in most areas
of our company focused on obtaining the highest possible level of customer
satisfaction.
We are emphasizing product knowledge and selling skills within our sales force.
We believe our products are both unique and second to none. The breadth of our
product offering to our target market is something we feel that no company can
currently match, nor do we see this changing in the foreseeable future.
Furthermore, we have the greatest number of sales leads the company has ever
seen. It is now up to our outside sales force to take advantage of this enviable
combination, thus the focus on product knowledge and selling skills.
We are targeting market opportunities that offer us "leverage", in that they
give us the ability to reach a much greater audience than we could do on our own
for our products and services. The CPA partnership program and the eBay alliance
are both examples of this strategy.
Finally, we are dedicated to improving our own corporate culture, by retaining
and hiring those individuals who possess not only high skill levels for their
profession but also bring enthusiasm and a positive outlook to our company. We
are working behind the scenes in many specific ways to make our company as
customer and employee friendly as possible. It is a never ending pursuit but one
we think is as important as any other to the long term success of the company.
Summary
After more than 18 years since founding CAM, I would love to be able to report
that we are farther along than we are in building our company. We have not yet
realized on a consistent basis the type of sales and earnings growth that both
we and our investors want. I could tell you what a difficult business we are in,
but aren't they all? What I can tell you is that we are better as a company
today than we have ever been in almost every way. I have seen dramatic improve-
ments this past year in our company even though they might not yet be evident by
reading the financial statements. I think the key to us finally achieving a
consistent level of financial success is the recurring revenue streams we are
building. If you use the razor and the razor blade analogy, our system offerings
are the razor and the add-on revenue streams like service, eBay, X-Charge,
i.STAR, etc. are the razor blades. Right now we are not moving enough razor
blades to cover the razors but we can see that changing based on the strategic
initiatives we have in place along with their progress to date.
Personally, I am as committed and enthusiastic as I have ever been about our
company and our longer-term prospects. I am optimistic that we will make
significant progress towards our goals in the coming year. I want to sincerely
thank those of you that have provided encouragement and been understanding with
the time it is taking for us to turn our strategic plans and vision into a
meaningful return on investment for our shareholders. I can assure you that your
management team is working very hard to make CAM the most successful company it
can be.
Best Regards,
Geoff Knapp
Chairman & CEO
CAM Commerce Solutions, Inc.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (ALL FIGURES IN THOUSANDS)
- --------------------------------------------------------------------------------
Results of Operations
Fiscal 2001 Compared with Fiscal 2000
Net revenues for the year ended September 30, 2001 decreased 3% to $20.8
million, consisting of an 8% decrease in system revenues, and a 19% increase in
service revenues compared to the year ended September 30, 2000. The decrease in
system revenues was due to lower sales of new systems to the vertical market of
Profits and CAM products in comparison to the higher amount of system upgrades
sold in fiscal 2000. This decrease was slightly offset by an increase in sales
of the Company's Retail Star product, supplies, and MicroBiz software. The
increase in service revenues was related to the acquisition of the MicroBiz and
WorkPro customer bases.
Gross margin on system revenues for the fiscal year ended September 30, 2001 was
49% compared to 44% for the same period of 2000. The increase in gross margin
for system revenues was due to the lower costs of computer equipment in addition
to a higher percentage of software sales and X-Charge credit card processing
fees. Software sales and credit card processing fees yield a higher gross margin
overall than other peripheral equipment and hardware sales. Gross margin on
service revenue for the year ended September 30, 2001 was 48% as compared to
gross margin of 45% for the year ended September 30, 2000. The increase in gross
margin for service revenue is related to the acquisition of the WorkPro customer
base, which yielded higher margins due to lower costs to support this product.
Selling, general and administrative expenses plus asset impairment charge
expressed as a percentage of net revenues increased to 61% for the year ended
September 30, 2001 as compared to 43% for the same period of 2000. Selling,
general and administrative expenses plus asset impairment charge for the year
ended September 30, 2001 totaled $12,562 as compared to $9,149 for the year
ended September 30, 2000. The increase was related to the one-time charge for
the write down of certain intangible assets and the increases in payroll
expense, travel expenses, trade show expense, insurance expense, and telephone
expense.
Research and development expense for the year ended September 30, 2001 totaled
$1,948 compared to $1,744 for the year ended September 30, 2000. The increase
was attributed to an increase in research and development expense related to
Retail Star and the development of new products.
Income taxes, the estimated tax benefit rate for the year ended September 30,
2001 was 4% as compared to the effective tax benefit rate of 34% for the year
ended September 30, 2000. The decrease in the effective tax benefit rate is
primarily due to an increase in the valuation allowance and nondeductible
goodwill amortization.
Results of Operations
Fiscal 2000 Compared with Fiscal 1999
Net revenues for the year ended September 30, 2000 decreased 23% to $21,311,
consisting of a 28% decrease in system revenues, and a 1% decrease in service
revenues compared to the year ended September 30, 1999. The decrease in system
revenues was due to a relatively soft demand for the Company's products in
comparison to the large amount of computer hardware upgrades that were sold in
fiscal 1999 to prepare for the "Year 2000". This decrease was partially offset
by an increase in sales of the Company's Retail Star product. Service revenues
decreased due to a small portion of the Company's customer base canceling
service after the "Year 2000" and the closure of one of the Company's hardware
service divisions.
Gross margin on system revenues for the fiscal year ended September 30, 2000 was
consistent at 44% with the fiscal year ended September 30, 1999. Gross margin
for service revenue for the year ended September 30, 2000 was 45% as compared to
gross margin of 47% for the year ended September 30, 1999. The decrease in gross
margin for service revenue is related to the increase in labor costs due to the
expansion of the Retail Star technical support department to support the
increased customer base of Retail Star.
Selling, general and administrative expenses expressed as a percentage of net
revenues increased to 43% for the year ended September 30, 2000 as compared to
33% for the year ended September 30, 1999. Selling, general and administrative
expenses for the year ended September 30, 2000 totaled $9,149 as compared to
$9,086 for the year ended September 30, 1999. The increase was related to
increases in marketing expense, travel expenses in conjunction with increased
trade show expense and payroll expense.
Research and development expense increased 62% to $1,744 for the year ended
September 30, 2000, from $1,075 for the same period in 1999. The increase was
attributed to an increase in research and development expenses related to Re-
tail Star and the development of new products, including the hiring of
additional programmers related to the acquisition of the Cubig accounting
software product.
Income Taxes, the estimated tax benefit rate for the year ended September 30,
2000 was 34% as compared to the effective tax rate of 35% for the year ended
September 30, 1999.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (ALL FIGURES IN THOUSANDS)
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled $9,451 on September 30, 2001
compared to $10,444 on September 30, 2000. The Company generated cash of $249
from operations in fiscal September 30, 2001 compared to using cash of $483 in
fiscal 2000. The Company expended $678 of cash in fiscal 2001 compared to cash
expenditures of $729 in fiscal 2000 for the purchase of fixed assets and
capitalized software. The Company spent $600 for the acquisition of WorkPro and
received $36 in proceeds from the exercise of stock options in fiscal 2001.
The Company has no significant commitments for expenditures. Management
believes the Company's existing working capital, coupled with funds generated
from the Company's operations will be sufficient to fund its presently
anticipated working capital requirements for the foreseeable future.
Inflation has had no significant impact on the Company's operations.
5
<PAGE>
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
2001 2000
----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,451 $ 10,444
Accounts receivable, net of an allowance for doubtful accounts of
$250 in 2001 and $310 in 2000 2,262 1,782
Inventories 465 696
Other current assets 500 893
----------------------
Total current assets 12,678 13,815
Property and equipment, net 763 922
Intangible assets, net 1,323 3,262
Other assets 408 297
----------------------
Total assets $ 15,172 $ 18,296
======================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 733 $ 644
Accrued compensation and related expenses 522 477
Customer deposits and deferred service revenue 1,084 854
Other accrued liabilities 255 373
----------------------
Total current liabilities 2,594 2,348
Deferred income taxes 376 91
Commitments and contingencies (note 4)
Stockholders' equity:
Common stock, $.001 par value, 12,000 shares authorized, 3,023 shares
issued and outstanding in 2001 and 3,012 shares in 2000 3 3
Paid-in capital in excess of par value 13,628 13,592
Notes receivable for purchase of common stock -- (7)
Retained earnings (deficit) (1,429) 2,269
----------------------
Total stockholders' equity 12,202 15,857
----------------------
Total liabilities and stockholders' equity $ 15,172 $ 18,296
======================
</TABLE>
See accompanying notes.
6
<PAGE>
STATEMENT OF CONSOLIDATED OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
2001 2000 1999
------------------------------------
<S> <C> <C> <C>
Revenues
Net system revenues $ 15,293 $ 16,706 $ 23,078
Net service revenues 5,464 4,605 4,669
------------------------------------
Total net revenues 20,757 21,311 27,747
------------------------------------
Costs and Expenses
Cost of system revenues 7,754 9,425 12,967
Cost of service revenues 2,845 2,528 2,455
------------------------------------
Total cost of revenues 10,599 11,953 15,422
Selling, general and administrative expenses 10,663 9,149 9,086
Research and development expenses 1,948 1,744 1,075
Asset impairment charge 1,899 -- --
Interest income (493) (400) (126)
------------------------------------
Total costs and expenses 24,616 22,446 25,457
------------------------------------
Income (loss) before taxes (3,859) (1,135) 2,290
Provision (benefit) for income taxes (161) (389) 810
------------------------------------
Net income (loss) $ (3,698) $ (746) $ 1,480
====================================
Basic net income (loss) per share $ (1.22) $ (.28) $ .69
====================================
Diluted net income (loss) per share $ (1.22) $ (.28) $ .59
====================================
Shares used in computing basic net income (loss) per share 3,020 2,644 2,157
====================================
Shares used in computing diluted net income (loss) per share 3,020 2,644 2,519
====================================
</TABLE>
See accompanying notes.
7
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
2001 2000 1999
------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ (3,698) $ (746) $ 1,480
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,477 929 735
Asset impairment charge 1,899 -- --
Provision for doubtful accounts (60) (70) 145
Decrease in notes receivable/other assets -- -- 8
Net change in operating assets and liabilities 631 (596) 868
------------------------------------
Cash provided by (used in) operating activities 249 (483) 3,236
------------------------------------
Investing activities:
Purchase of property and equipment (439) (438) (770)
Capitalized software development costs (239) (291) (532)
Business acquisitions (600) (1,800) --
------------------------------------
Cash used in investing activities (1,278) (2,529) (1,302)
------------------------------------
Financing activities:
Proceeds from equity private placement -- 7,579 --
Proceeds from exercise of stock options 36 828 303
------------------------------------
Cash provided by financing activities 36 8,407 303
------------------------------------
Net increase (decrease) in cash and cash equivalents (993) 5,395 2,237
Cash and cash equivalents at beginning of year 10,444 5,049 2,812
------------------------------------
Cash and cash equivalents at end of year $ 9,451 $ 10,444 $ 5,049
====================================
</TABLE>
See accompanying notes.
8
<PAGE>
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTES
PAID-IN RECEIVABLE FOR
COMMON STOCK CAPITAL IN PURCHASE OF RETAINED
----------------------- EXCESS OF PAR COMMON EARNINGS
SHARES AMOUNT VALUE STOCK (DEFICIT) TOTAL
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998 2,139 $ 2 $ 4,283 $ (23) $ 1,535 $ 5,797
Issuance of common stock
upon exercise of stock options 74 -- 303 -- -- 303
Notes receivable write-off -- -- -- 8 -- 8
Net and comprehensive income -- -- -- -- 1,480 1,480
-------------------------------------------------------------------------------------
Balance at September 30, 1999 2,213 2 4,586 (15) 3,015 7,588
Issuance of common stock
upon exercise of stock options 269 -- 828 -- -- 828
Issuance of units
for private placement 500 1 7,578 -- -- 7,579
Issuance of common stock for
software and licensing rights 30 -- 600 -- -- 600
Notes receivable write-off -- -- -- 8 -- 8
Net and comprehensive
income (loss) -- -- -- -- (746) (746)
-------------------------------------------------------------------------------------
Balance at September 30, 2000 3,012 3 13,592 (7) 2,269 15,857
Issuance of common stock
upon exercise of stock options 11 -- 36 -- -- 36
Notes receivable write-off -- -- -- 7 -- 7
Net and comprehensive loss -- -- -- -- (3,698) (3,698)
=====================================================================================
Balance at September 30, 2001 3,023 $ 3 $ 13,628 $ -- $ (1,429) $ 12,202
=====================================================================================
</TABLE>
See accompanying notes.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION, BUSINESS, AND PRESENTATION
CAM Commerce Solutions Inc., (CAM or the Company), (formerly known as CAM Data
Systems, Inc.) provides total commerce solutions for small to medium size,
traditional and web retailers that are based on the Company's open architecture
software products for managing inventory, point of sale, sales transaction
processing and accounting. In addition to software, these solutions often
include hardware, installation, training, service and consulting provided by the
Company. The accompanying financial statements consolidate the accounts of the
Company and its wholly-owned subsidiary. Effective April 1, 2001 CAM Commerce
Solutions, Inc. dissolved its wholly owned subsidiary Microbiz Corporation
("MicroBiz") and have incorporated the product and operations into CAM. All
significant intercompany balances and transactions have been eliminated.
CASH EQUIVALENTS
Cash equivalents represent highly liquid investments with original maturities of
three months or less.
CONCENTRATIONS OF CREDIT RISK
The Company sells its products primarily to small to medium size retailers.
Credit is extended based on an evaluation of the customer's financial condition
and collateral is generally not required. Credit losses have traditionally been
minimal and such losses have been within management's expectations.
INVENTORIES
Inventories are stated at the lower of cost determined on a first-in, first-out
basis, or net realizable value, and are composed of electronic point of sale
hardware and computer equipment used in the sale and service of the Company's
products.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash and cash
equivalents, accounts receivable and accounts payable. The Company believes all
of the financial instruments' recorded values approximate current values.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is composed of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
2001 2000
------------------
<S> <C> <C>
Computer equipment and furniture $2,210 $2,066
Automobiles 64 64
Demonstration and loaner equipment 207 223
------------------
2,481 2,353
Less accumulated depreciation 1,718 1,431
------------------
$ 763 $ 922
==================
</TABLE>
Depreciation is provided on the straight-line method over the estimated useful
lives (primarily three to five years) of the respective assets.
LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121 , Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
(SFAS 121), requires impairment losses to be recorded on long-lived assets used
in operations when indicators of asset impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets.
During the quarter ended June 30, 2001, the Company performed a review for
impairment of all long-lived assets. Based on its evaluation, the Company
determined that all long-lived assets related to MicroBiz were fully impaired
and other long-lived assets related to ICS and capitalized software were
partially impaired. As a result, the Company recorded an impairment charge of
$1,899. The Company believes no additional impairment exists related to the
long-lived assets at September 30, 2001.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
REVENUE RECOGNITION POLICY
The Company derives revenues from the sale of computer hardware, computer
software, post contract customer support (PCS), installation and consulting
services. Revenue from hardware and software sales is recognized at the time of
shipment. Revenue allocable to PCS is recognized ratably on a monthly basis over
the period of the service contract. Consulting revenue is recognized in the
period the service is performed. The Company defers and recognizes installation
revenue upon completion of the installation process.
The Company adopted Staff Accounting Bulletin No 101, "Revenue Recognition in
Financial Statements" ("SAB 101"), which clarifies certain existing accounting
principles for the timing of revenue recognition and its classification in the
financial statements, in the first quarter of fiscal 2001. The adoption of SAB
101 had no material impact on the Company's results of operations or financial
position.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001 the FASB issued Statement No. 141, Business Combinations
("Statement 141"), and No. 142, Goodwill and Other Intangible Assets ("Statement
142"), effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but, instead, will be subject to annual impairment tests
in accordance with Statement 142. Other intangible assets will continue to be
amortized over their useful lives. The Company will apply the new rules on
accounting for goodwill and other intangible assets beginning the first quarter
of fiscal 2002. Based on the Company's current goodwill level, amortization
expense will decrease by approximately $122,000 annually beginning October 1,
2001.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", ("Statement 144") effective for
fiscal years beginning after December 15, 2001. Under Statement 144 assets held
for sale will be included in discontinued operations if the operations and cash
flows will be or have been eliminated from the ongoing operations of the entity
and the entity will not have any significant continuing involvement in the
operations of the component. The Company is planning to adopt Statement 144 in
its fiscal year beginning October 1, 2001. The Company believes the adoption of
Statement 144 will not have a material impact on the Company's results of
operations or financial position.
PER SHARE INFORMATION
Basic earnings per share is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share is computed by dividing net income
(loss) available to common shareholders by the weighted average number of common
shares outstanding and common equivalent shares outstanding for the period.
Common equivalent shares include stock options assuming conversion under the
treasury stock method. Common equivalent shares are excluded from diluted
earnings per share if their effect is anti-dilutive.
The computation of basic and diluted earnings per share for the three years
ended September 30, 2001, 2000, and 1999 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------
2001 2000 1999
--------------------------------------
<S> <C> <C> <C>
Numerator:
Net income (loss)
for basic and diluted
net income (loss) per share $ (3,698) $ (746) $ 1,480
--------------------------------------
Denominator:
Weighted-average shares
outstanding 3,020 2,644 2,157
--------------------------------------
Denominator for basic net
income (loss) per share -
weighted-average shares 3,020 2,644 2,157
Effect of dilutive securities:
Stock options -- -- 362
--------------------------------------
Denominator for diluted
net income (loss) per share -
weighted-average shares
and assumed conversions 3,020 2,644 2,519
--------------------------------------
Basic net income
(loss) per share $ (1.22) $ (.28) $ .69
======================================
Diluted net income
(loss) per share $ (1.22) $ (.28) $ .59
======================================
</TABLE>
ADVERTISING
The Company expenses the production costs of advertising as incurred.
Advertising expenses for the years ended September 30, 2001, 2000, and 1999 were
$863, $773 and $326, respectively.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures are expensed in the period incurred.
STATEMENTS OF CASH FLOWS
Net changes in operating assets and liabilities as shown in the statements of
cash flows are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
2001 2000 1999
------------------------------------
<S> <C> <C> <C>
Decrease (increase) in:
Accounts receivable $ (420) $ 1,727 $ (575)
Inventories 231 67 (141)
Other current assets 393 (820) (7)
Other assets (104) 302 (15)
Increase (decrease) in:
Accounts payable 89 (1,000) 454
Accrued compensation 45 (633) 545
Customer deposits 230 (45) 375
Other accrued liabilities 167 (194) 232
------------------------------------
Net changes in operating
assets and liabilities $ 631 $ (596) $ 868
====================================
</TABLE>
STOCK OPTION PLANS
The Company intends to continue to account for employee stock options under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and has made pro forma disclosures as required by Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123).
SEGMENTS
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information (SFAS 131), established standards for
the way that public business enterprises report selected financial information
about operating segments in annual and interim financial statements and
significant foreign operations. Because the Company operates in one business
segment and has no significant foreign operations, no additional reporting is
required under SFAS 131.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 financial statements to
conform with the fiscal 2001 presentation.
2. INTANGIBLE ASSETS
The Company capitalizes costs incurred to develop new marketable software and
enhance the Company's existing systems software. Costs incurred in creating the
software are charged to expense when incurred as research and development until
technological feasibility has been established through the development of a
detailed program design. Once technological feasibility has been established,
software production costs are capitalized and reported at the lower of amortized
cost or net realizable value.
License agreements, capitalized software, and goodwill are amortized on the
straight-line method over estimated useful lives ranging from three to eight
years. Amortization of capitalized software costs commence when the products are
available for general release to customers.
Intangible assets are stated at cost and consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
2001 2000
------------------
<S> <C> <C>
Capitalized software costs $2,856 $2,617
Goodwill 2,617 2,037
------------------
5,473 4,654
Less:
Accumulated amortization 2,251 1,392
Asset impairment charge 1,899 --
------------------
$1,323 $3,262
==================
</TABLE>
During the current year, the Company capitalized $239 in software costs related
to the CAM and Star products.
Amortization of capitalized software costs and goodwill, charged to cost of
sales and expense for the years ended September 30, 2001, 2000 and 1999, were
$859, $362, and $131, respectively.
In November 2000, the Company acquired the customer base, source code and
application code for the Work Pro software. The acquisition was accounted for
using the purchase method of accounting. The total amount of cash paid was $600
for the purchase of both intangible and tangible assets, of which $580 has been
capitalized as an intangible asset. This intangible asset is being amortized
over a five-year period. Effective October 1, 2001 this intangible asset will no
longer be amortized, but instead will be subject to annual impairment tests in
accordance with Statement 142. Work Pro software is used by customers in the
retail paint store industry.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
3. Income Taxes
The Company utilizes the liability method of accounting for income taxes whereby
deferred taxes are determined based on differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates. The
provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------
2001 2000 1999
------------------------------
<S> <C> <C> <C>
Current:
Federal $ -- $ (684) $ 708
State (70) 25 164
------------------------------
(70) (659) 872
Deferred:
Federal (135) 279 (92)
State 44 (9) 30
------------------------------
(91) 270 (62)
==============================
Total provision (benefit) $ (161) $ (389) $ 810
==============================
</TABLE>
A reconciliation of taxes computed at the statutory federal income tax rate to
income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------
2001 2000 1999
--------------------------------------
<S> <C> <C> <C>
Income tax at statutory rate $ (1,312) $ (386) $ 779
Increases (decreases)
in taxes resulting from:
Change in
valuation allowance 639 (3) (166)
Research and development
tax credit (95) (89) (32)
State income taxes,
net of federal benefit (17) 10 128
Nondeductible goodwill 570 28 --
Other, net 54 51 101
--------------------------------------
$ (161) $ (389) $ 810
======================================
</TABLE>
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax bases of assets and liabilities and their
bases for financial reporting purposes. Temporary differences and net operating
loss carryforwards which give rise to deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Accruals not currently
deductible for tax $ 400 $ 244 $ 226
Book depreciation in excess
of tax depreciation 71 24 (6)
R & D tax
credit carryforwards 211 112 --
Net operating loss
carryforwards 1,890 1,642 --
--------------------------------------
Total deferred tax assets 2,572 2,022 220
Valuation allowance
for deferred tax assets (2,378) (1,584) --
--------------------------------------
194 438 220
Deferred tax liabilities:
Software costs capitalized
for book purposes (194) (529) (41)
--------------------------------------
Net deferred tax asset (liability) $ -- $ (91) $ 179
======================================
</TABLE>
At September 30, 2001 the balance sheet contained deferred tax asset of $376,
which was included in other current assets, and deferred tax liability of $376.
This resulted in a net deferred tax asset of $0. Income taxes paid were $0,
$426, and $768 during the years ended September 30, 2001, 2000 and 1999,
respectively.
The Company has provided a valuation allowance against a portion of its deferred
tax assets due to uncertainties surrounding their realization. At September 30,
2001, federal and state net operating loss carryforwards were $4.8 million and
$3.2 million, respectively. Federal net operating loss carryforwards begin to
expire in 2020, while state operating loss carryforwards begin to expire in
2005.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
4. Commitments and contingencies
The Company is committed at September 30, 2001 under various operating leases
for office facilities and equipment through June 2007. Minimum payments due
under these leases, including amounts due to a related party as discussed below,
are as follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30,
- --------------------------
<S> <C>
2002 $ 455
2003 497
2004 502
2005 507
2006 512
Thereafter 318
- --------------------------
$2,791
==========================
</TABLE>
Total rent expense for the years ended September 30, 2001, 2000 and 1999 was
$565, $437 and $444, respectively.
In June 1997, the Company entered into a lease agreement with an officer of the
Company to lease a building for a term of ten years, at current fair market
value rates. The total original commitment under this lease term was $1.3
million. Rent expense incurred under this lease for the years ended September
30, 2001, 2000 and 1999 totaled $144, $136 and $136, respectively.
5. Stock options
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires the use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
In April 1993, the stockholders of the Company approved the Company's 1993 Stock
Option Plan (the "1993 Plan") under which nonstatutory options may be granted to
key employees and individuals who provide services to the Company, at a price
not less than the fair market value at the date of grant, and expire ten years
from the date of grant. The options are exercisable based on vesting periods as
determined by the Board of Directors. The Plan allows for the issuance of an
aggregate of 1,200 shares of the Company's common stock. The Plan has a term of
ten years. There have been 1,154 options granted under the 1993 Plan as of
September 30, 2001. The company has 788 shares reserved for issuance related to
the plan.
In April 2000, the Company's Board of Directors approved the Company's 2000
Stock Option Plan (the "2000 Plan") under which nonstatutory options may be
granted to key employees and individuals who provide services to the Company,
at a price not less than the fair market value at the date of grant, and expire
ten years from the date of grant. The options are exercisable based on vesting
periods as determined by the Board of Directors. The Plan allows for the
issuance of an aggregate of 500 shares of the Company's common stock. The term
of the plan is unlimited in duration. There have been 319 options granted under
the plan as of September 30, 2001. The Company has 500 shares reserved for
issuance.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NON-ISO EXERCISE FAIR VALUE
SHARES PRICE OF OPTIONS
------------------------------------------
<S> <C> <C> <C>
Outstanding at
September 30, 1998 815 $ 2.89
Granted 185 $ 4.58 $ 1.54
Exercised (74) $ 3.85
Expired (32) $ 3.52
-----------------------------------------
Outstanding at
September 30, 1999 894 $ 3.14
Granted 356 $ 8.40 $ 3.15
Exercised (269) $ 3.07
Expired (45) $ 17.76
-----------------------------------------
Outstanding at
September 30, 2000 936 $ 4.45
Granted 324 $ 3.92 $ 2.31
Exercised (11) $ 3.44
Expired (177) $ 7.06
-----------------------------------------
Outstanding at
September 30, 2001 1,072 $ 3.87
=========================================
</TABLE>
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
September 30, 2001:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING WEIGHTED
NUMBER CONTRACTUAL AVERAGE
OUTSTANDING: OUTSTANDING LIFE EXERCISE PRICE
-------------------------------------------
<S> <C> <C> <C>
Range of Exercise Prices
$1.75 to $3.00 358 5.3 $ 2.47
$3.13 to $7.00 702 8.2 $ 4.40
$9.19 to $15.00 12 8.3 $14.03
======================================
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
EXERCISABLE: EXERCISABLE EXERCISE PRICE
----------------------------------
<S> <C> <C>
Range of Exercise Prices
$1.75 to $3.00 329 $ 2.46
$3.13 to $7.00 401 $ 4.41
$9.19 to $15.00 5 $13.90
-----------------------------
Total: 735 $ 3.60
=============================
</TABLE>
The weighted-average remaining contractual life of stock options outstanding at
September 30, 2001, 2000 and 1999 was 7.2 years, 7.5 years and 7.3 years,
respectively.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
September 30, 1995 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 2001,
2000 and 1999; risk free interest rate of 4.5%; no dividend yield; a volatility
factor of the expected market price of the Company's common stock of .600, .577
and .337; and a weighted-average life of each option of five years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
are amortized to expense over the option's vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
2001 2000 1999
--------------------------------------
<S> <C> <C> <C>
Pro forma earnings (loss) $ (4,213) $ (1,011) $ 1,280
Pro forma basic earnings
(loss) per share $ (1.40) $ (.38) $ .59
Pro forma diluted earnings
(loss) per share $ (1.40) $ (.38) $ .51
</TABLE>
6. BENEFIT PLAN
The Company sponsors a 401(k) Plan for all eligible employees. The costs for
the benefit plan totaled $16 for the year ended September 30, 2001. The Company
may provide a matching contribution at the discretion of the Company's Board of
Directors. There was no contribution made in fiscal 2001.
7. EQUITY PRIVATE PLACEMENT
In March 2000, the Company closed an $8 million equity private placement with a
group of institutional investors. The units sold in the private placement were
sold at a price of $16 per unit, with registration rights that called for the
shares to be registered within 90 days of the closing. Each unit was comprised
of 1 share of common stock and a warrant to purchase .7 of one share. The
agreement on pricing for the private equity placement was based on a 60-day
trailing average of the closing price of the Company's stock less 15% or $16 per
share, whichever was greater at the time of the close. After expenses, net
proceeds to the Company were approximately $7.6 million. The Company received $4
million in funding upon the close and an additional $4 million after the shares
were registered with the Securities and Exchange Commission. Under the
agreement, each purchaser of ten shares of common stock in the private placement
also received "warrants" to purchase an additional seven shares. At September
30, 2001 there are warrants outstanding for 175,000 shares exercisable at $24.94
per share, and 175,000 shares exercisable at $8.44 per share. The warrants have
a 5 year life and expire September 2005. Proceeds, if any, will be used for
general working capital requirements and to expand the Company's market share.
15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Board of Directors
CAM Commerce Solutions, Inc.
We have audited the accompanying consolidated balance sheets of CAM Commerce
Solutions, Inc. as of September 30, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CAM Commerce
Solutions, Inc. at September 30, 2001 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Orange County, California
November 9, 2001
STOCK AND DIVIDEND DATA
- --------------------------------------------------------------------------------
The common stock of CAM Commerce Solutions, Inc., is traded on the Nasdaq
National Market under the Nasdaq symbol CADA. Prior to February 18, 2000, the
common stock was traded over the counter on the Nasdaq SmallCap Market. The
quarterly market price information shown below represents the high and low sales
prices for the periods and the high and low bid quotations for the periods. High
and low bid quotations reflect inner-dealer prices, without retail mark up,
markdown or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 2001 FISCAL YEAR ENDED SEPTEMBER 30, 2000
QUARTER ENDED: HIGH LOW QUARTER ENDED: HIGH LOW
---------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31 $ 5.00 $ 2.75 December 31 $ 27.50 $ 8.25
March 31 5.375 3.125 March 31 28.875 13.00
June 30 4.68 3.20 June 30 17.00 4.938
September 30 4.60 2.20 September 30 7.875 4.625
</TABLE>
As of December 10, 2001, there were approximately 200 holders of record of the
Company's common stock. The Company estimates there are in excess of 800
beneficial owners of the Company's common stock.
The Company has not paid dividends in the past and the payment of dividends in
the future is at the discretion of the Board of Directors, subject to any
limitations imposed by the laws of the State of Delaware. The Company does not
anticipate paying dividends in the foreseeable future.
16
<PAGE>
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2001 FISCAL QUARTER ENDED
-------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA. DEC 31 MAR 31 JUNE 30 SEPT 30
-------------------------------------------------
<S> <C> <C> <C> <C>
Net system and service revenues $ 5,174 $ 5,077 $ 4,978 $ 5,528
Gross profit 2,499 2,342 2,464 2,853
Income (loss) before taxes (614) (969) (2,334) 58
Net income (loss) (614) (969) (2,334) 219
Basic net income (loss) per share (.20) (.32) (.77) .07
Diluted net income (loss) per share (.20) (.32) (.77) 07
=================================================
</TABLE>
<TABLE>
<CAPTION>
2000 FISCAL QUARTER ENDED
-------------------------------------------------
DEC 31 MAR 31 JUNE 30 SEPT 30
-------------------------------------------------
<S> <C> <C> <C> <C>
Net system and service revenues $ 6,639 $ 5,290 $ 4,961 $ 4,421
Gross profit 3,082 2,412 2,097 1,767
Income (loss) before taxes 339 (272) (257) (945)
Net income (loss) 220 (175) (201) (590)
Basic net income (loss) per share .10 (.07) (.07) (.20)
Diluted net income (loss) per share .08 (.07) (.07) (.20)
=================================================
</TABLE>
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER-SHARE DATA 2001 2000 1999 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net system and service revenues $ 20,757 $ 21,311 $ 27,747 $ 18,781 $ 17,480
Income (loss) before taxes (3,859) (1,135) 2,290 241 257
Net income (loss) (3,698) (746) 1,480 167 177
Basic net income (loss) per share (1.22) (.28) .69 .08 .09
Diluted net income (loss) per share (1.22) (.28) .59 .08 .08
Total assets 15,172 18,296 11,899 8,502 7,608
Working capital 10,084 11,467 5,013 3,804 3,726
Long-term debt -- -- -- -- --
Stockholders' Equity $ 12,202 $ 15,857 $ 7,588 $ 5,797 $ 5,284
Shares used in computing net income (loss) per share:
Basic: 3,020 2,644 2,157 2,092 1,990
Diluted: 3,020 2,644 2,519 2,160 2,155
==================================================================
</TABLE>
17
<PAGE>
COMPANY INFORMATION
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS REGISTRAR AND TRANSFER AGENT
Geoffrey D. Knapp American Stock Transfer Company
Chairman and Chief Executive Officer 59 Maiden Lane
CAM Commerce Solutions, Inc. New York, NY 10007
David Frosh INDEPENDENT AUDITORS
President
Sperry Van Ness Ernst & Young LLP
18111 Von Karman Avenue Suite 1000
Walter Straub Irvine, CA 92612
Chief Executive Officer
Rainbow Technologies SECURITIES COUNSEL
Corley Phillips Haddan & Zepfel LLP
Investor 4675 MacArthur Court #710
Newport Beach, CA 92660
Scott Broomfield
Chief Executive Officer GENERAL COUNSEL
Visual, Inc.
Lundell & Spadafore
OFFICERS 1065 Asbury Street
San Jose, CA 95126
Geoffrey D. Knapp
Chief Executive Officer FORM 10-K
Greg Freeze A copy of the Company's annual report on
Chief Operating Officer Form 10-K, (without exhibits), as filed
with the Securities and Exchange
Paul Caceres Jr. Commission, will be furnished to any
Chief Financial Officer stockholder free of charge upon written
request to the Company's Corporate
CORPORATE OFFICE Finance Department.
17520 Newhope Street
Fountain Valley, CA 92708
(714) 241-9241
Facsimile: (714) 241-9893
Internet address: http://www.camcommerce.com
18
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>5
<FILENAME>a78003ex23.txt
<DESCRIPTION>EXHIBIT 23
<TEXT>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of CAM Commerce Solutions, Inc. of our report dated November 9, 2001, included
in the 2001 Annual Report to Stockholders of CAM Commerce Solutions, Inc.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the 1993 Stock Option Plan of CAM Data Systems, Inc. of
our reports dated November 9, 2001, with respect to the consolidated financial
statements and financial statement schedule of CAM Commerce Solutions, Inc.
incorporated by reference and included, respectively, in this Annual Report
(Form 10-K) for the year ended September 30, 2001.
/s/ ERNST & YOUNG LLP
Orange County, California
December 14, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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