-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lm756Kr4dBZj4Iy9wtEEvaSP5HgO5ibkQPFjlSc3HHHOpWyDsBBJQIfXwLqWWOP1 qZvfjEorzyfltFTwEjWAfA== 0000891618-97-000139.txt : 19970127 0000891618-97-000139.hdr.sgml : 19970127 ACCESSION NUMBER: 0000891618-97-000139 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19970124 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUSINESS RESOURCE GROUP CENTRAL INDEX KEY: 0000945028 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-FURNITURE & HOME FURNISHINGS [5020] IRS NUMBER: 770150337 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-26208 FILM NUMBER: 97510193 BUSINESS ADDRESS: STREET 1: 2150 N FIRST ST STREET 2: STE 101 CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084413700 MAIL ADDRESS: STREET 1: 2150 NORTH FIRST STREET SUITE 101 CITY: SAN JOSE STATE: CA ZIP: 95131 10-K 1 FORM 10-K FOR THE FISCAL YEAR ENDED OCT. 31,1997 1 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 October 31, 1996 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: 0-26208 BUSINESS RESOURCE GROUP (Exact name of Registrant as specified in its charter) California 77-0150337 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2150 NORTH FIRST STREET, SUITE 101 SAN JOSE, CALIFORNIA 95131 (408) 441-3700 (Address and telephone number of principal executive offices) ---------------------------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock $0.01 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 than the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $8,160,553 as of January 8, 1997, based upon the closing sale price on the Nasdaq National Market reported for such date. Shares of Common Stock held by each officer and director and by each person who owns 5% of more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. There were 4,871,063 shares of Registrant's Common Stock issued and outstanding as of January 8, 1997. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the annual meeting of shareholders to be held on March 3, 1997 are incorporated by reference into Part III of this report on Form 10-K. -1- 2 INTRODUCTORY STATEMENT Except for the historical information contained in this Annual Report on Form 10-K, the matters discussed herein are forward-looking statements that are subject to certain risks and uncertainties that could cause the actual results to differ materially from those projected. Factors that could cause actual results to differ materially include, but are not limited to, the timely availability, delivery and acceptance of new products and services, the impact of competitive products and pricing, the management of growth and acquisitions, and other risks detailed below and included from time to time in the Company's other SEC reports and press releases, copies of which are available from the Company upon request. Additionally, the results of operations for the year ended October 31, 1996 are not necessarily indicative of the results to be expected in future years. The Company assumes no obligation to update any forward-looking statements contained herein. References made in this Annual Report on Form 10-K to "BRG," the "Company" or the "Registrant" refer to Business Resource Group. PART I ITEM 1. BUSINESS Business Resource Group is a leading provider of workspace services and products to businesses, primarily in the western United States. Since commencement of operations in 1986 as an office furniture dealer, the Company has added related services such as computerized space planning and design, project management, product specification, order management, move management, installation, cable/network installation management, computer-aided workspace asset management services and ongoing facility management. The Company believes that its broad scope of services allows it to offer a customer-oriented integrated solution well suited for the needs of both large, mature companies as well as rapidly growing businesses that want economic, comprehensive solutions for their workspace requirements, while minimizing involvement of their in- house staff through outsourcing to the most efficient and responsive suppliers. The Company markets its services and products through a direct sales force, focusing to date primarily on rapidly growing companies and on companies in the process of significantly changing their facilities arrangements. INDUSTRY BACKGROUND According to trade association estimates, manufacturers' sales of business furnishings in the United States in 1996 were approximately $10 billion. The Company believes that a key trend in the workspace products and services market is the shift to open area configurations which commenced in the early 1980's. Open area configurations employ standard partitions and components to form individual cubicle workspaces for employees in a layout customized for the needs of each business. The emergence of the personal computer as a business productivity tool in combination with the emphasis on competitiveness and efficiency in business in the United States has contributed to the trend toward these configurations. Open area configurations accomplish the following: - Economize by placing more workers in a specified floor area than a segregated office layout; - Facilitate individual ergonomic design of employees' work areas, increasing worker productivity and reducing injuries in the workplace and related costs; - Promote worker communication and cooperation within the office workforce; -2- 3 - Permit quicker adjustment to workspace arrangements in response to changes in the business environment; and - Minimize the need for expensive and permanent hard wall tenant improvements. Demand for open office systems has also increased as a result of the flattening of the business organization. Increased individual requirements for both data and communications equipment and connectivity as well as group-oriented work practices such as consensus decision making are driving changes in workspace configuration requirements. Rapidly growing businesses additionally benefit from open office systems because they allow companies to expand with less disruption and downtime. Large companies also benefit from flexible office arrangements that make it easier for them to restructure or downsize as they anticipate and respond to changes in their business. Relocations to new facilities drive demand for new office furniture because customers find it more effective to replace furniture than to incur the costs and work disruptions associated with moving it. The Company believes that with or without relocation, a significant portion of the large installed base of office furniture is replaced by new furniture every five to seven years. Recycling old furniture through refurbishment and sale to smaller companies with modest budgets presents a related business opportunity for providers of new workspace products. Traditional Players. The Company believes that the three largest manufacturers, Steelcase, Inc., Herman Miller, Inc. and Haworth, Inc. account for approximately half of the manufacturers' annual sales to dealers in the United States. The "big three" manufacturers depend on their own sales personnel as well as captive dealer relationships to sell their products in any given geographic area. The "big three," which have built strong brand name recognition, are in a position to place territorial, price, sourcing and delivery limitations on their dealers. The business of these dealers is primarily to serve as the manufacturer representative of one of the "big three" manufacturers whose products they sell in a limited geographic area specified by the manufacturer. The Company believes that the geographic limitations imposed by the "big three" manufacturers on their dealers are a primary reason for the highly fragmented nature of the workspace products distribution industry. The annual revenues of each of the next eight largest office furniture manufacturers range between approximately $180 million and $800 million. Lacking the brand name identity of the "big three," however, these manufacturers rely upon design intermediaries or smaller, regional multi-line dealers for their sales. These smaller dealers have historically lacked the capital or breadth of services to compete on large orders or to achieve significant revenue levels. Workspace specification in larger corporations has traditionally involved a facilities manager and other members of senior management, influenced by service providers such as designers, architects, real estate professionals or other outsourced facilities management providers. Small, rapidly growing businesses lacking in-house facilities management and unfamiliar with or reluctant to spend money on design intermediaries have historically handled workspace specifications in a more ad hoc manner. In either case, the traditional furniture dealer is often left in a passive order taking and fulfillment role. Changing Customer Requirements. The Company believes, based on its experience with customers, that the desire to minimize in-house facilities management headcount, reduce overhead and improve coordination has lead many companies to outsource facilities related tasks where feasible, including space planning, design and project management and fulfillment services. Furthermore, customers' use of modular office systems has reduced the importance of manufacturers' brand names in the purchasing decision and increased the importance of other factors such as product functionality and layout, which have become increasingly complex due to the need to integrate rapidly changing office -3- 4 technology requirements. Together, these trends have led to the demand for a proactive workspace services and products solution. CUSTOMER ORIENTED INTEGRATED SOLUTION Business Resource Group believes that traditional approaches to the business furnishings industry are not well suited to meet the current requirements of growing and changing businesses. In response, the Company has positioned itself as the representative of the customer rather than the manufacturer and as a provider of integrated workspace solutions. Business Resource Group has grown rapidly due to management's early recognition and response to customer requirements for a single source solution for facilities needs. By foregoing the captive dealer agreements required by the largest office furniture manufacturers, the Company believes it is able to offer the customer a much broader range of value added services and product choices than its major competitors, all at a competitive price. The benefits to customers of the Company's integrated solution approach include: - Reduced overhead and improved coordination by having a single point of contact; - Improved pricing, product selection and delivery available from a multi-line representative; - Accelerated design and installation through early coordination with a service provider; and - Superior customer communications, response and project control through the implementation of highly automated systems. Key elements of the customer oriented integrated solution approach are: Services and Products Integration. Business Resource Group determined that both large, mature companies as well as rapidly growing companies want economic, comprehensive solutions for their workspace requirements while minimizing involvement of their in-house staff. The Company has leveraged its knowledge of the office furniture industry, including suppliers and business methods, to develop an integrated approach which offers a "single source" point of contact for modern interior workspaces. This begins with the Company's consultative selling approach in which its sales representatives listen to the customer's problem. A team of Business Resource Group professionals, chosen for each account for their relevant functional capabilities, then meets with the customer to build a partnership and reach consensus on the solution which best suits the customer's needs. The Company is able to fashion an integrated solution because of the wide array of services and products it can provide. Among the Company's services that may be included in this solution are project management, layout and design, furniture specification and selection, purchasing, move management, installation, asset management and maintenance. The Company has the flexibility to offer customers any of its services and products in any combination to form the ideal integrated solution. Customer Representation. Unlike traditional furniture dealers, Business Resource Group represents the customer, not the manufacturer. Since providing only one of the "big three" contract furniture lines would restrict the customer in variety and pricing options, the Company has formed relationships with multiple suppliers (including seven of the remaining top ten in sales volume) for each product segment. Using multiple suppliers, the Company is able to obtain the best features and value for its customers. This approach also provides for supply alternatives if a major line manufacturer cannot meet a customer's delivery requirements. Business Resource Group purchases significant annual volumes from over a dozen suppliers of system lines, casegoods, seating and specialty goods. Advanced Support Technology. Business Resource Group has developed a technology leadership position within its industry by utilizing computer based design and specification software to provide space -4- 5 planning and product selection tools for the customer in real time, even before the Company has been selected as a provider by the customer. The Company uses customized software and systems for product specification, order management, job costing and variance analysis, and has integrated these packages with its computer aided design tools, allowing the Company to track the profitability of every order. The Company also supports electronic ordering for certain products. EXPANSION STRATEGY The Company's objective is to become a leading national provider of workspace services and products. Principal elements of the Company's strategy to achieve this objective are as follows: Expand Geographically Through Acquisition. The Company has in the past expanded and plans to continue to expand its business into additional geographic areas through acquisition of dealers in target markets similar to Northern California's Silicon Valley, which are characterized by a large number of technology driven, high growth companies. Because these prospective customers need comprehensive advice and quick turnaround in addressing rapid facilities expansion, the Company believes its methods of operation can be successfully applied in these new markets. In addition, many of the Company's larger customers have operations in multiple markets, including markets the Company has targeted for expansion and as such, represent attractive business opportunities in those markets. Since many contract furniture dealers and facilities management firms are small and lack the breadth of services and capital necessary to respond to the facilities outsourcing requirements of medium and large growth oriented corporations, the Company believes that certain of these dealers will be available and attractive acquisition candidates. In January 1996, the Company completed the acquisition of Corporate Source in Dallas, Texas. The Company believes this acquisition, along with the September 1995 acquisition of RST & Associates ("RST"), in Phoenix and Tucson, Arizona and Las Vegas, Nevada, represent significant steps forward in its expansion strategy. Continue to Broaden Its Range of Services and Products. The Company believes that a growing number of companies want to deal with fewer vendors for the procurement of workspace services and products. As such, the Company has a long term strategy which includes the acquisition of service providers and product distributors, and distribution rights for additional product lines that complement its existing offerings, where available on reasonable terms. Form Strategic Alliances With Complementary Service Providers. A number of facilities-related businesses offer services and products that are complementary to those provided by the Company. Such services include real estate and property management, architectural design, network cabling, and operations and maintenance services such as janitorial and security. The market leaders in these facilities related businesses are large and national in scope, providing services and products to both large and small customers in many industries. The Company believes that a long-term opportunity exists to form strategic alliances with some of these companies on a selective basis to offer a complete facilities related solution to large corporate customers which desire to outsource these services. While the Company has not entered into nor is it currently in the process of negotiating any such strategic alliances, such alliances could involve the formation of a joint venture by the Company and its joint venture partner for the purpose of servicing a target customer account, contractual arrangements whereby the Company acts as a service provider on behalf of its joint venture partner, or contractual arrangements or other relationships whereby the Company is deemed a preferred vendor or service provider by its joint venture partner in connection with competition for target accounts. -5- 6 SERVICES AND PRODUCTS Business Resource Group provides integrated workspace solutions for customers from the suite of services and products it offers. A substantial portion of these services are initiated prior to delivery of workspace products, including overall project management, computerized space planning and design, product specification and order management. These services are key differentiators which contribute significantly to the Company's ability to win initial orders. The Company's pre-installation services build a close and efficient partnership with customers, moving them from needs identification and analysis through to the development and selection of the solutions which best fit their needs. The Company generally bundles these services into overall product pricing. Once the customer has identified the workspace products best suited to its needs, the Company often provides additional services at specified prices to implement setup and maintenance of these products in the customer's facility and provides coordination and management services both during and after the move. These services, covering all stages of a project from planning through execution, enable the Company to provide comprehensive, turnkey solutions to its customers. Customers' recognition of the value of this suite of services and products is evident in the high level of repeat business which the Company receives from its client base. Services provided by the Company are as follows: Pre Installation Services Space Planning and Design. Space planning is the first task for a workspace project. The Company's use of automated tools, such as the AutoCAD computer software program used in space planning, provide it substantial productivity gains while offering easily modifiable space configurations. Product Specification. After completing the space planning phase, the Company works with the customer to choose specific products. Using information generated from the computerized space plan, product specification can be executed quickly and accurately with applications software programs such as AutoCAD or CAP Spex. Order Management. Order management is necessary to fulfill the customer's specific requirements for workspace products on a timely basis. Order management includes product procurement, product tracking, updating the customer about order status and coordinating the ultimate delivery. The Company makes purchases of workspace products based solely on customer orders and generally coordinates the direct shipment of such products to the customer's facilities. The Company's inventory consists primarily of inventory in transit. Project Management Services. Focusing on product specification, installation management, change order management and quality control, the Company's project managers add significant value in managing the customer's entire workspace project. Products Modular Systems. The Company's modular system products, which include office partitions and modular furniture, provide a flexible solution for defining work environments within an open interior building space without the need for costly tenant improvements to the building interior. Modular systems provide the ability to define individual employee workspaces and functional relationships while integrating electrical, voice and data requirements for the individual workstation. While requiring value added installation services to be functional, modular systems allow for different arrangements of components (overhead shelves, cabinets, lateral files, work surfaces and pedestals) to meet varying needs of customers. With many fabric and finish selections, modular system lines provide visual appeal as well as effective workspace utilization and productivity. The leading providers of these -6- 7 products to the Company include Teknion Inc., Kimball Office Furniture Co. ("Kimball"), Allsteel, The Hon Company and The Knoll Group, Inc. ("Knoll"). A typical modular system installation at a customer facility ranges from $1,500 to $4,000 per workspace, depending on the number of workspaces as well as the products and features specified. Casegoods. Casegoods include desks, bookcases, filing cabinets, credenzas and tables. Available in both wood and metal, casegoods are generally used in private offices, conference rooms and other interior spaces divided by physical walls. Casegoods complement the solution for most work environments that include both open and private space. The leading providers of these products to the Company include Kimball, Creative Wood Products, Inc. and National Office Furniture Company. A casegoods installation at a customer facility can range from $800 to $10,000 per office. Seating. Variations in seating have proliferated to satisfy a diversity of settings and ergonomic requirements. These variations include adjustable seating used at a standard workstation or desk, which allows the user to adjust the configuration for personal preference. Non- adjustable seating is a less expensive alternative that can be used in cafeterias, conference rooms and lobbies. The leading providers of these products to the Company include Office Master, Inc., United Chair Company and HAG, Inc. Customer pricing typically ranges from $50 to $600 per chair. Specialty Furniture Products. The Company's specialty products include white boards, ergonomic devices used in conjunction with other furniture products (such as wrist rests, foot rests and adjustable keyboards) and custom manufactured products. Refurbished Furniture. The Company's customer oriented integrated solution approach to its business frequently leads its customers to rely on the Company for most aspects of a facilities relocation including disposition of the existing furniture in the customer's prior facility. The Company purchases selected products on favorable terms which it considers both standard and reusable, refurbishes them when necessary and resells them to smaller businesses with modest workspace budgets. Product Implementation Services Once a workspace has been planned and products have been specified and ordered, Business Resource Group provides separately billed services to implement the customer's plan. Installation and Maintenance. Installation is a process by which a modular system is converted from unconnected and unconfigured pieces to a true workspace solution. The Company's product installers normally follow a specific process which begins with a field study to verify space-related issues that affect installation, such as the location and size of doors, elevators, stairwells and other building specifications. Upon verification of installation drawings and receipt of workspace products at the customer's facility either directly from the manufacturer or from a Company rented warehouse, the installation is completed. The Company provides substantial training to its installation staff concerning applicable safety procedures in order to minimize the risk of injury or property damage as well as general business education on subjects pertinent to these employees. As the final step in meeting a customer's relocation or move requirement, installation plays a very important role. The cost of typical installation services ranges from $120 to $300 per modular station, or approximately eight percent of the sales price. Workspace Management Services In June 1996 the Company reorganized its Workspace Management Services ("WMS") group in response to the service requirements from existing customers and the corporate trend towards outsourcing -7- 8 and resourcing of facility services. As a result the Company provides the following six service offerings to help companies manage their facilities' resources more effectively without adding headcount: Workspace Planning. The Company provides a systematic needs analysis based on a customer's current facility and their future growth plans. The resulting analysis will often yield a strategic facility plan which allows for facility programming, site selection, and lease reviews. The plan may also call for the use of other WMS services in order to optimize the customer's facilities alternatives. Design Management. The Company manages a design team on behalf of its customer, ensuring that the customer's design requirements are met while staying within timeframe commitments and budget constraints. Construction Management. The Company coordinates, on behalf of its customer, the activities of the landowner, real estate broker, architect, and construction trades to meet the customer's building construction requirements. This service also offers bid process management, permit process coordination, build-to-suit project management and overall cost and schedule control. Move Management. The Company coordinates all components of a customer's move to a new location including the development of a master move plan, communication to employees, the coordination of all vendor activities, and the management of building activation. This service is provided with minimal involvement or downtime to the customer's employees or disruption to ongoing business activities. Workspace Outsourcing. The Company fulfills a customer's short or long term staffing requirements by providing experienced facility professionals for specific temporary assignments. This service offers the customer operational and financial flexibility in meeting staffing requirements by allowing the customer to focus fixed resources on its core competencies. Computer-Aided Facility Management. The Company provides "system-solutions" for a customer's facilities department. Many of the solutions offer an efficient mechanism to capture and verify facility and asset information and then provides reporting and financial planning tools by incorporating this information in a visually-oriented database software program offered by the Company. This service offers current business process mapping, business process re-engineering, software selection, and system implementation. The Company bills its customers on an hourly basis for such services, with typical projects ranging from $5,000 to $50,000 in aggregate billings. SALES AND MARKETING Sales Organization. Business Resource Group markets its products and services through a direct sales force which consisted of 43 individuals as of October 31, 1996, operating out of the Company's offices in San Jose and San Francisco, California, Tempe and Tucson, Arizona, Las Vegas, Nevada, Dallas and San Antonio, Texas and Denver, Colorado. As of October 31, 1996, the Company also employed 22 customer service representatives to support the direct sales force. The Company's sales resources are targeted at various management levels within target accounts. The Company's customer service representatives are account focused, and teams generally consisting of the sales representative, customer service representative, project manager and installers are created around each new account that the Company obtains. -8- 9 Sales Approach. The Company's sales strategy and approach begins with the identification of target accounts by its direct sales staff. The Company's salespersons maintain a contact network of real estate brokers, venture capitalists, attorneys, bankers, phone system resellers, independent facilities managers and other persons in a position to influence office furniture and facilities management outsourcing decisions. After identifying target accounts, the Company's sales personnel contact the appropriate decision makers at various management levels (such as in-house facilities managers, purchasing agents or chief financial officers) seeking to position the Company as the service provider of choice by showcasing its account team and often preparing a space plan at no charge to the prospective customer. The final stage in the sales process is the preparation of a price quotation, over which each of the Company's sales representatives has considerable pricing discretion within guidelines set by the Company's management. Sales and Sales Support Compensation: The Company recognizes that its long term growth and profitability is based upon three critical elements; the expansion of its customer base, the retention of its existing customers and the effective management of key strategic relationships within its customer base. The growth of the customer base is directly attributable to the talent, size, and motivation of the Company's sales force. To accomplish this the Company offers compensation which can be exclusively commission based or a combination of base salary plus commissions, either of which are intended to offer a better than industry standard compensation package and a market advantage in attracting and retaining top sales personnel. The retention of existing customers and the management of key strategic relationships is a function of the Company's ability to provide responsive, innovative high quality support to its customers. The Company has significantly expanded its professional staff in Project Management, Installation, and Customer Service, to ensure a qualified team is available to provide such support. The Company offers competitive salaries to its sales support personnel, often coupled with incentive programs based on the attainment of functional performance objectives and high customer satisfaction ratings. Marketing. In addition to its networking efforts with persons in a position to influence workspace products and facilities management purchase decisions, the Company markets its services and products over the Internet and through industry conferences and trade shows, cooperative and stand-alone advertising, educational seminars (including space planning and asset management seminars coordinated through the Company's WMS group), direct mail and other customary public relations methods. The Company's San Jose corporate headquarters, the San Francisco facility, the Company's Southwest regional headquarters in Phoenix, the Company's Texas regional headquarters in Dallas and the San Antonio facility also function as working showrooms. CUSTOMERS Business Resource Group has developed a diverse and extensive client base, including companies in the networking and communications, software, electronics, financial services, life sciences and health care industries, as well as service providers of various types. The Company's customers also vary widely in size, ranging from large enterprises with over $1 billion in sales, to emerging companies, which are often thinly staffed and are therefore receptive to comprehensive solution providers such as the Company. The Company provided services and sold products to approximately 1,000 customers during the fiscal year ended October 31, 1996. Fifty customers accounted for approximately 76% of the Company's net revenues during fiscal 1996. Cisco Systems and National Semiconductor accounted for approximately 37% and 5% of net revenues for the fiscal year ended October 31, 1996, respectively. Cisco Systems and National Semiconductor each contributed 18% for the fiscal year ended October 31, 1995. Historically, the Company has had substantial recurring sales from current customers. Over 60% of the Company's net -9- 10 revenues during the fiscal year ended October 31, 1996 were derived from customers which were also customers during fiscal 1995. VENDORS Business Resource Group purchases its workspace products from a variety of suppliers. The table below summarizes principal product lines the Company purchases from its suppliers.
Product Lines ----------------------------------------------------- Modular Vendor Systems Casegoods Seating Specialty ------ ------- --------- ------- --------- Allsteel, Inc. /x/ /x/ /x/ Arcadia Furniture Corporation /x/ /x/ Creative Wood Products, Inc. /x/ /x/ Eagan Visual West, Inc. /x/ Eck Adams Corp. /x/ Formline Systems /x/ /x/ Global Wholesalers West, Inc. /x/ The Gunlocke Company /x/ /x/ /x/ Hag, Inc. /x/ Harpers Furniture /x/ /x/ /x/ The Hon Company /x/ /x/ /x/ Kimball Office Furniture Co. /x/ /x/ /x/ /x/ The Knoll Group, Inc. /x/ /x/ /x/ Krueger International, Inc. /x/ National Office Furniture Co. /x/ /x/ Office Master, Inc. /x/ SIS Human Factors Technology, Inc. /x/ TAB Products Co. /x/ /x/ Teknion, Inc. /x/ /x/ /x/ Trendway, Inc. /x/ United Chair Co. /x/
None of the products currently offered by the Company is obtained on a sole source basis from any vendor or dealer. During the fiscal year ended October 31, 1996, the Company purchased approximately $21 million, $4 million and $4 million, respectively, from Teknion Inc., Kimball Office Furniture Co., and Allsteel Inc.. The Company also subcontracts for delivery, freight services and a small percentage of its installation services. Delivery and freight activities do not constitute a material portion of the Company's business. While the Company's strategy is to maintain multiple sources of supply for each of its workspace product lines, the Company is dependent upon these suppliers for timely delivery and product quality once orders are placed. The Company has, from time to time, experienced delays in product delivery from a number of suppliers. These delays have adversely affected the timing of customer deliveries and installations. Delays by suppliers have also resulted in increased costs to the Company and in certain -10- 11 cases lost revenues. Almost all of the Company's purchases from its vendors are made on a purchase order basis, and liabilities of such vendors to the Company for late deliveries are therefore principally based on the terms and conditions set forth in the applicable purchase order and the supplier's confirming document (if any). The Company customarily enters into negotiations with its vendors for price adjustments and late fees as may be appropriate in the event of late deliveries. Future delays in delivery by suppliers or poor product quality could have a material adverse effect on the Company's ability to meet customer requirements and thereby adversely affect revenues or increase costs. OPERATIONS The Company's operations include ongoing order processing and coordination with its vendors through a software system developed by principals of the Company through an entity controlled by them at that time, but which is now independently owned. Order processing is performed in each of the Company's regional offices and such personnel are also responsible for customer service support to the sales representatives. The Company carries out its accounting and credit & collection function from its San Jose headquarters, maintaining receivables of more than 90 days at a level around five percent. Accounting functions include general ledger, accounts payable, accounts receivable and payroll. Responsibility for the Company's technology hardware and software upgrades and purchases is shared by Directors of System Administration and Applications Development. Training in sales, project management, customer service and installation services is carried out in both the Company's regional offices and its San Jose headquarters. COMPETITION Workspace products and services are provided by a large number of companies. The office workspace products marketplace is highly fragmented in the metropolitan areas of the United States. For example, at least 25 traditional furniture dealers compete with the Company in the San Francisco Bay Area marketplace alone. The Company believes that its largest local competitor is Lindsay Ferrari, formed as a result of the 1994 merger of Lindsay's and Rucker Fuller, both local Steelcase dealers. The Company believes its comprehensive range of products and services is a competitive advantage relative to these companies. Its recent addition of workspace management services further differentiates it from traditional furniture dealers. In the workspace management services market, the Company competes with numerous, primarily small companies, depending on the type of service or location. The workspace products manufacturing industry is dominated by Steelcase, Herman Miller, Inc. and Haworth, Inc., each of which distributes their products directly and through captive dealers. The Company is not an authorized dealer for these manufacturers. There can be no assurance that these manufacturers will not price their products or services or offer other terms to become more competitive or to allow their dealers to become more competitive or that such actions would not have a material adverse effect on the Company or its results of operations. The Company believes that the primary competitive factors in its targeted market are customer responsiveness, breadth of services and products offered, quality and price. To remain competitive, the Company must continue to offer a broad range of services and products to meet the needs of its customers, maintain quality levels, offer flexible delivery schedules, deliver finished products on a reliable basis and compete favorably on the basis of price. -11- 12 FACTORS AFFECTING FINANCIAL RESULTS AND STOCK PRICE The Company's future results of operations may be adversely affected by various factors, including those discussed below. The Company's revenues and operating results may fluctuate substantially from period to period depending on such factors as the timing of significant customer orders, the timing of revenue and cost recognition, variations in contract service and product mix, changes in customer buying patterns, changes in vendor lead times and trends in the economy of the geographic region in which the Company operates. Any unfavorable changes in these or other factors could have a material adverse effect on the Company's business and results of operations. Given the variability of these factors, the Company expects that quarter to quarter performance may fluctuate for the foreseeable future and that results in any single quarter may therefore not be indicative of future results. A large portion of the Company's net revenues for any period are frequently dependent on a few large customer projects involving relocation, including a move to a new facility or an upgrade of an existing facility. At the conclusion of a major project, that customer may not have an immediate need for additional services or products on the same scale. The Company does not enter into long term or volume purchase contracts with its customers, and customers may discontinue further purchases of the Company's services or products at any time without notice. There can be no assurance that any of the Company's customers will expand their operations, relocate their offices or facilities or otherwise require the Company's services or products in the future. To maintain or increase existing levels of revenues and profits, the Company must identify and book major projects within its existing base of customers or with new customers. There can be no assurance that any of the Company's current customers will engage the Company for major projects in the future or that the Company will be able to obtain additional new customers. The market for workspace services and products is influenced by economic conditions, including consumer behavior and consumer confidence, the level of discretionary spending, interest rates and credit availability. Purchases of these services and products are often discretionary and tend to be deferred in times of economic stress. During economic downturns, the furniture industry tends to experience longer and deeper periods of recession than the general economy. Although the economy in the United States, and in particular that of the San Francisco Bay Area, the Southwest and Texas, has been expanding in recent years, there can be no assurance that it will continue to expand or that it will not decline in the future. The Company has made acquisitions during the current and prior fiscal years and may continue to make acquisitions in the future. The expansion of corporate operations in addition to managing acquired operations in new geographic areas entails numerous operational and financial risks, including difficulties in assimilating acquired operations, diversion of management's attention to other business concerns, amortization of acquired intangible assets, potential loss of employees or customers of acquired operations and difficulties in developing a local market for the Company's services and products. There can be no assurance that the Company will be able to achieve growth, or effectively manage any such growth, and failure to do so could have a material adverse effect on the Company's operating results. The Company will require significant capital for the expansion of its existing business, expansion into other geographic markets and acquisition of other businesses, each of which are key elements of the Company's strategy. There are no assurances that this capital will be available or available on terms which will not have a material adverse effect on the Company or its financial results. The market price of the Company's common stock may be subject to significant fluctuations. These fluctuations may be due to factors specific to the Company, such as quarterly fluctuations in the -12- 13 Company's financial results, changes in analyst's estimates of future results, litigation, changes in investors' perceptions of the Company or the announcement of new products by the Company or its competitors. In addition, such fluctuations may be due to or exacerbated by conditions in the financial markets generally. EMPLOYEES As of October 31, 1996, Business Resource Group had approximately 251 employees of whom 101 were in installation, 45 were in marketing and sales, 28 were in design and customer service, 31 were in finance and administration, and 46 were in project management. Of these employees, 169 were located in the Company's principal offices in San Jose, California, 12 were located in the San Francisco, California office, 30 were located in the Southwest regional offices in Tempe and Tucson, Arizona and Las Vegas, Nevada, 37 were located in the Texas offices in Dallas, San Antonio and Austin, and 3 were located in Denver, Colorado. The Company believes its relationship with its employees is good. The success of the Company depends to a significant extent upon the continued services of the Company's management. The Company has benefited from important contributions made by Brian McNay, Jeffrey Tuttle, Charles J. Winter and others. Mr. McNay and Mr. Tuttle have each made significant contributions to the Company's sales to date, accounting for approximately 34% and 6% of the Company's sales in the fiscal year ended October 31, 1996. In addition, as an executive officer since 1987, Mr. Winter has played a significant role in the management, operation and strategic direction of the Company. The loss of the services of any of these individuals could have a material adverse effect on the Company. None of the Company's employees is represented by a labor union. From time to time, installations of workspace products require the use of union labor to comply with the requirements of the customer or the work rules for the job location. In these situations, the Company subcontracts the installation to other parties that employ union labor. To date, the Company has not experienced difficulties obtaining subcontract installation services where required. ITEM 2. PROPERTIES Business Resource Group currently leases approximately 21,000 square feet of office space at 2150 North First Street in San Jose, California. The Company leases most of this space under an operating lease which runs through August 2001. The San Jose office serves as the Company's principal offices and also functions as a working showroom for products offered by the Company. The Company leases approximately 5,500 square feet of office and showroom space in San Francisco, California. The Company leases this space under an operating lease which runs through October 1997. The Company leases approximately 16,000 square feet of space in Tempe, Arizona, where its Southwest regional headquarters is located. The Company leases this space under an operating lease which runs through November 1997 with a renewal option, if exercised, which would extend the term of the lease through November 2000. In addition, within the Southwest region, the Company leases approximately 5,000 square feet in Las Vegas, Nevada and 1,000 square feet in Tucson, Arizona. Both the Las Vegas and Tucson leases are operating leases with terms running through April 1997 and November 1997, respectively. The Company leases approximately 7,000 square feet of space in Dallas, Texas, where its Texas regional headquarters is located. The Company leases this space under an operating lease which runs through September 1998, with a renewal option, if exercised, which would extend the term of the lease through September 2001. In addition, within the Texas region, the Company leases approximately 3,400 square feet in San Antonio under an operating lease with a term running through November 2001 and maintains a single executive suite in Austin, presently on a month-to-month rental basis. The Company may expand its office space in San Jose and Dallas to accommodate its growing sales, sales -13- 14 support and Workspace Management Services organizations. Otherwise, the Company believes that its existing facilities will generally be sufficient for its operational purposes within the Company's existing regions through the end of fiscal year 1997. The Company believes that additional space sufficient to meet its anticipated needs is available on reasonable terms. ITEM 3. LEGAL PROCEEDINGS Business Resource Group is not currently subject to any material legal proceedings. The Company may from time to time become a party to various legal proceedings arising in the normal course of its business. These actions could include product liability, employee related issues and disputes with vendors or customers. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The Company's Common Stock has been traded on the Nasdaq National Market under the symbol BRGP since the effective date of the Company's initial public offering on June 27, 1995. The price per share reflected in the table below represents the range of low and high closing sale prices for the Company's Common Stock as reported in the Nasdaq National Market for the quarters indicated.
FISCAL 1996 HIGH LOW ---- --- Fourth Quarter ended October 31, 1996 4 5/8 3 5/8 Third Quarter ended July 31, 1996 6 1/4 4 Second Quarter ended April 30, 1996 5 5/8 3 1/2 First Quarter ended January 31, 1996 5 3/8 3 1/16
FISCAL 1995 HIGH LOW ----------- ---- --- Fourth Quarter ended October 31, 1995 10 1/2 4 Third Quarter ended July 31, 1995* 9 1/2 7
* Price information reflects the period from June 27 to July 31, 1995. Registrant's stock was not actively traded on any national exchange until June 27, 1995. The Company estimates it had approximately 400 shareholders as of October 31, 1996, including beneficial owners included in securities position listings as described in Rule 17Ad- 8. The Company has never paid a cash dividend on its capital stock. Covenants in the Company's revolving line of credit facility prohibit the Company from paying dividends without prior approval by the lender. The Company currently anticipates that it will retain all available funds for use in the operation and expansion of its business, and does not anticipate paying any cash dividends in the foreseeable future. -14- 15 ITEM 6. SELECTED CONDENSED FINANCIAL DATA SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF INCOME DATA:
YEAR ENDED OCTOBER 31, ------------------------------------------------------------------ 1996 1995 1994 1993 1992 ------- ------- -------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net revenues: Workspace products .............. $67,834 $33,940 $ 32,197 $18,604 $ 12,934 Workspace services .............. 10,155 6,119 4,258 2,453 1,606 Vendor commissions .............. 291 569 657 32 124 ------- ------- -------- ------- -------- Total net revenues .......... 78,280 40,628 37,112 21,089 14,664 ------- ------- -------- ------- -------- Cost of net revenues: Workspace products .............. 55,051 26,605 25,044 14,604 9,726 Workspace services .............. 7,320 4,179 3,131 1,887 1,384 ------- ------- -------- ------- -------- Total cost of net revenues .. 62,371 30,784 28,175 16,491 11,110 ------- ------- -------- ------- -------- Gross profit ....................... 15,909 9,844 8,937 4,598 3,554 Selling, general and administrative expenses ......... 12,870 8,143 6,425 3,825 2,944 ------- ------- -------- ------- -------- Income from operations ............. 3,039 1,701 2,512 773 610 Interest income (expense) - net .... 124 7 (77) 1 (2) ------- ------- -------- ------- -------- Income before income taxes ......... 3,163 1,708 2,435 774 608 Provision for income taxes ......... 1,309 122 70 20 13 ------- ------- -------- ------- -------- Net income ......................... $ 1,854 $ 1,586 $ 2,365 $ 754 $ 595 ======= ======= ======== ======= ======== Net income per common and common equivalent share ..... $ .38 ======= Shares used in computation ......... 4,886 ======= Pro forma (1): Historical income before income taxes ................ 1,708 2,435 Pro forma income taxes .......... 709 1,009 ------- ------- Pro forma net income ............... $ 999 $ 1,426 ======= ======= Pro forma net income per common and common equivalent share ..... $ .26 $ .42 ======= ======= Pro forma shares used in computation...................... 3,834 3,406 ======= =======
(1) See Note 2 to Financial Statements for a discussion of pro forma amounts. -15- 16 BALANCE SHEET DATA:
OCTOBER 31, --------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (IN THOUSANDS) Working capital ....... $10,063 $ 9,470 $2,784 $1,160 $ 890 Total assets .......... 22,560 16,053 7,640 4,496 2,295 Long-term obligations.. -- 120 123 -- -- Shareholders' equity... 13,002 11,020 3,296 1,444 1,124
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K. OVERVIEW Business Resource Group is a provider of workspace services and products. Most of the Company's net revenues are derived from billings for workspace products, including modular systems, casegoods, seating, filing systems and specialty furniture products. The Company's experience is that its success in generating these revenues is dependent upon the provision of related services, such as project management, space planning and design, product specification and order management. The price of these services is frequently included in product billing to its customers as part of its integrated workspace solution. Approximately thirteen percent of the Company's net revenues are derived from separately billed workspace services, including installation and maintenance, delivery and Workspace Management Services. A very small percentage of the Company's net revenues are derived from commissions on product sales which certain of the Company's vendors bill directly. The Company's net revenues and operating results fluctuate substantially from period to period depending on such factors as the timing of significant customer orders, the timing of revenue and cost recognition, variations in contract service and product mix, the ability of the Company's suppliers to manufacture and deliver products on a timely basis, changes in customer buying patterns and trends in the economy of the geographic region in which the Company operates. Any unfavorable changes in these or other factors could have a material adverse effect on the Company's business and results of operations. Between July 1989 and June 25, 1995, the Company was an S Corporation pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), and therefore was not subject to federal and most state income taxes. In lieu of corporate income taxes, the shareholders of the Company were taxed on their proportionate share of the Company's taxable income. Subsequent to June 25, 1995, the Company terminated its S Corporation status and became subject to federal and state income taxes. See Note 2 to financial statements. -16- 17 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain income statement data as a percentage of net revenues:
YEAR ENDED OCTOBER 31, ---------------------------------- 1996 1995 1994 ------ ------ ------ Net revenues: Workspace products ............ 86.6% 83.5% 86.7% Workspace services ............ 13.0 15.1 11.5 Vendor commissions ............ .4 1.4 1.8 ------ ------ ------ Total net revenues ....... 100.0 100.0 100.0 ------ ------ ------ Cost of net revenues: Workspace products ............ 70.3 65.5 67.5 Workspace services ............ 9.4 10.3 8.4 ------ ------ ------ Total cost of net revenues................ 79.7 75.8 75.9 ------ ------ ------ Gross profit ...................... 20.3 24.2 24.1 Selling, general and administrative expenses ....... 16.4 20.0 17.3 ------ ------ ------ Income from operations ............ 3.9 4.2 6.8 Interest income (expense) - net ... 0.1 0.0 (0.2) ------ ------ ------ Income before income taxes ........ 4.0 4.2 6.6 Provision for income taxes ........ 1.6 0.3 0.2 ------ ------ ------ Net income ........................ 2.4% 3.9% 6.4% ====== ====== ====== Pro forma: Historical income before income taxes ............. 4.2% 6.6% Pro forma income taxes ........ 1.7 2.8 ------ ------ Pro forma net income .............. 2.5% 3.8% ====== ======
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994. Net Revenues Net revenues increased 93% to $78.3 million in fiscal 1996 from $40.6 million in fiscal 1995. The increase was primarily attributable to new large project business from both new and existing customers and revenues generated by the Company's southwestern United States and Texas regional business units acquired in September 1995 and January 1996, respectively. In the Company's San Jose/San Francisco region approximately $52.4 million in revenue, out of a total of approximately $66.7 million, was earned from 42 customers, each of which contributed at least $200,000 in annual revenue, up from approximately $27.3 million in revenue, out of a total of approximately $40.4 million, from 28 customers in 1995. The southwestern United States and Texas regions contributed approximately $11.6 million in fiscal 1996, up from $260,000 in 1995. -17- 18 Net revenues increased 9% to $40.6 million in fiscal 1995 from $37.1 million in fiscal 1994. The increase was primarily attributable to an increase in sales to the Company's top 10 customers of approximately $2.4 million and first time revenues from new businesses of approximately $1.5 million. The Company's new offerings of TAB products and certain facilities management services contributed first time revenues of approximately $1.0 million, including commissions, and $300,000, respectively. The Company's new operations in Arizona and Nevada, which were established as a result of the RST acquisition, contributed $260,000 in revenue. Vendor commissions decreased $278,000 to $291,000 in fiscal 1996 from $569,000 in fiscal 1995 as most vendors discontinued their policies of billing customers directly and only paying a commission to the Company. Additionally, during the third quarter of fiscal 1996, the Company discontinued its Records Management business in order to streamline its operations and focus on its Workspace Products and Workspace Management Services businesses. Vendor commissions from TAB, for sales of records management products, totalled approximately $224,000 and $245,000 in fiscal 1996 and 1995, respectively. Vendor commissions decreased $88,000 to $569,000 in fiscal 1995 from $657,000 in fiscal 1994 primarily the result of vendors agreeing with the Company's requests to change their policies and sell their products directly to the Company. This decrease was partially offset by increased vendor commissions from TAB whose policy it is to bill and collect amounts from customers directly and pay a commission to the Company. Gross Profit Gross profit increased 62% to $15.9 million in fiscal 1996 from $9.8 million in fiscal 1995, primarily the result of the 93% increase in revenue. Gross profit as a percentage of net revenues decreased to 20% in fiscal 1996 from 24% in fiscal 1995. Product margins decreased 2% to 19% in fiscal 1996, the result of a shift in product mix from higher margin projects to higher volume, lower margin projects and the impact of the Company's decision to accept certain low margin projects which the Company felt were important to its competitive positioning and its ability to penetrate certain markets. Service margins also decreased as a percentage of revenue to 28% from 33% in fiscal 1995, the result of a service mix shift to lower margin volume-related services, start-up costs in the Company's Workspace Management Services business, underabsorption of overhead in the Company's developing regional installation businesses and the use of outside contract installation companies in certain out-of-state locations. Gross profit increased 10% to $9.8 million in fiscal 1995 from $8.9 million in fiscal 1994, while it remained constant as a percentage of net revenues at 24%. Slightly lower product margins, down 1% to 22%, on the higher volume product offerings were offset by higher margins, up 5% to 32%, on the Company's lower volume service offerings. Gross profit has varied and is expected to continue to vary as a result of such factors as the mix of workspace products and services sold, the percentage of sales to new customers relative to repeat customers and the percentage of total net revenues generated through large customer orders relative to small customer orders. -18- 19 Selling, General and Administrative Expenses Selling, general and administrative expenses increased 58% to $12.9 million in fiscal 1996 from $8.1 million in fiscal 1995, while decreasing as a percentage of net revenues to 16% in fiscal 1996 from 20% in fiscal 1995. The increase in selling, general and administrative expenses was primarily the result of increased revenue and related commissions, expanded operations in Arizona, Nevada and Texas, and a continuing effort to build the infrastructure necessary to run a larger business. The decrease in these expenses as a percentage of net revenues reflected allocation of administrative costs over a larger sales volume. Selling, general and administrative expenses increased 27% to $8.1 million in fiscal 1995 from $6.4 million in fiscal 1994, while increasing as a percentage of net revenues to 20% in fiscal 1995 from 17% in fiscal 1994. The increase in selling, general and administrative expenses was primarily the result of expanded operations and an effort to build infrastructure to support the growth of the business. The increase in these expenses as a percentage of net revenues also reflected lower year-on-year revenues during the Company's fiscal fourth quarter of 1995. Interest and Other Income (Expense) Interest income, net of interest and other expense totaled $124,000 for the twelve months ended October 31, 1996 versus $7,000 for the same period of fiscal 1995. The increase in net interest income was due to higher cash balances as a result of the Company's initial public offering of its common stock in June 1995. Interest income, net of interest expense totaled $7,000 for the twelve months ended October 31, 1995 versus interest expense, net of interest income of $77,000 for the same period of fiscal 1994. The shift from net interest expense to net interest income was due to higher cash balances as a result of the Company's initial public offering of its common stock in June 1995. A portion of the proceeds of such initial public offering was used to pay down the Company's outstanding balances on its line of credit. Income Taxes The Company was a C Corporation for tax purposes for all of fiscal 1996 and an S Corporation for approximately eight of the twelve months of fiscal 1995 and for the entire fiscal year 1994. As a result, the Company's effective tax rates were 41%, 7% and 3% for the twelve month periods ended October 31, 1996, 1995 and 1994, respectively. The Company has used a tax rate of 41% for the 1995 and 1994 pro forma information. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its working capital requirements principally through operating activities, a public offering of its common stock in June 1995 and short-term borrowings available under a bank revolving line of credit. Working capital requirements included the financing of increases in accounts receivable due to sales growth and the timing difference between when the Company paid its vendors and when it collected its customer receivables. Such timing difference was the result of the Company's practice to take advantage of available vendor purchase discounts. Working capital at October 31, 1996 was $10.1 million, up from $9.5 million at October 31, 1995. -19- 20 During the twelve months ended October 31, 1996, net cash used by operating activities was $2.1 million, representing net income of $1.9 million and increases in accounts payable of $3.6 million and accrued liabilities of $1.0 million, offset by increases in accounts receivable of $8.5 million, prepaids and other current assets of $318,000 and inventory of $52,000. Accounts receivable increased as a result of the timing of such revenue during the quarter ended October 31, 1996, reflecting in particular a relatively large percentage of sales during the final month of the quarter. Accounts payable increased as a result of the increased revenue in the fourth quarter of fiscal 1996 versus 1995. Accrued liabilities increased primarily as a result of increased sales commissions and sales tax. Net cash used by investing activities was $1.9 million, primarily represented by the purchase of property and equipment for $1.5 million and payments of $300,000 in connection with the acquisition of certain assets of Corporate Source. Net cash used by financing activities was $297,000, representing repayments of notes payable and capital lease obligations of $250,000 and the change in bank overdrafts of $175,000, partially offset by the issuance of common stock under the Company's employee stock purchase plan of $128,000. The Company presently believes existing cash, together with cash generated from operations and the Company's available borrowing capacity, will provide sufficient funds to meet the Company's anticipated working capital requirements and its planned expansion/acquisition strategy for the foreseeable future. There can be no assurance, however, that the Company's actual needs will not exceed anticipated levels. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE Independent Auditors' Report .............................................................. 21 Financial Statements: Balance Sheets at October 31, 1996 and 1995 ............................................ 22 Statements of Income for the Years Ended October 31, 1996, 1995 and 1994 ............... 23 Statements of Shareholders' Equity for the Years Ended October 31, 1996, 1995 and 1994.. 24 Statements of Cash Flows for the Years Ended October 31, 1996, 1995 and 1994 ........... 25 Notes to Financial Statements for the Years Ended October 31, 1996, 1995 and 1994 ...... 26
-20- 21 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Business Resource Group: We have audited the accompanying balance sheets of Business Resource Group (the Company) as of October 31, 1996 and 1995, and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended October 31, 1996. Our audits also included the financial statement schedule listed at Item 14 (a) (2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at October 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, 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/ Deloitte & Touche LLP San Jose, California December 10, 1996 -21- 22 BUSINESS RESOURCE GROUP BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 31, ----------- 1996 1995 ------- ------- ASSETS Current assets: Cash and equivalents ................................................. $ 1,011 $ 5,326 Accounts receivable, less allowance for doubtful accounts of $57 in 1996 and $125 in 1995 ................................... 16,122 7,168 Inventory ............................................................ 974 929 Prepaids and other current assets .................................... 1,387 941 ------- ------- Total current assets .............................................. 19,494 14,364 Property and equipment - net ............................................. 2,017 733 Other assets ............................................................. 1,049 956 ------- -------- $22,560 $16,053 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank overdraft ....................................................... $ 476 $ 651 Accounts payable ..................................................... 5,935 2,096 Accrued liabilities .................................................. 2,908 1,905 Current portion of notes payable and capital lease obligations ....... 112 242 ------- ------- Total current liabilities ......................................... 9,431 4,894 Notes payable and capital lease obligations .............................. -- 120 Deferred income tax liability ............................................ 127 19 Shareholders' equity: Preferred stock, par value $0.01 per share; 2,000,000 shares authorized; no shares outstanding ................................. -- -- Common stock, par value $0.01 per share; 50,000,000 shares authorized; outstanding: 4,858,864 shares in 1996 and 4,820,743 shares in 1995 ............. 49 48 Additional paid-in capital ........................................... 10,685 10,558 Retained earnings .................................................... 2,268 414 ------- ------- Total shareholders' equity ........................................ 13,002 11,020 ------- ------- $22,560 $16,053 ======= =======
See notes to financial statements. -22- 23 BUSINESS RESOURCE GROUP STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED OCTOBER 31, ----------------------------------- 1996 1995 1994 ------- ------- ------- Net revenues: Workspace products ............. $67,834 $33,940 $32,197 Workspace services ............. 10,155 6,119 4,258 Vendor commissions ............. 291 569 657 ------- ------- ------- Total net revenues ......... 78,280 40,628 37,112 ------- ------- ------- Cost of net revenues: Workspace products ............. 55,051 26,605 25,044 Workspace services ............. 7,320 4,179 3,131 ------- ------- ------- Total cost of net revenues.. 62,371 30,784 28,175 ------- ------- ------- Gross profit ......................... 15,909 9,844 8,937 Selling, general and administrative expenses .......... 12,870 8,143 6,425 ------- ------ ------- Income from operations ............... 3,039 1,701 2,512 Interest income (expense) - net ...... 124 7 (77) ------- ------ ------- Income before income taxes ........... 3,163 1,708 2,435 Provision for income taxes (Note 2)... 1,309 122 70 ------- ------ ------- Net income ........................... $ 1,854 $1,586 $ 2,365 ======= ====== ======= Net income per common and common equivalent share ................. $ 0.38 ======= Shares used in computation ........... 4,886 ======= Pro forma (Note 2): Historical income before income taxes ................. $ 1,708 $ 2,435 Pro forma income taxes ........... 709 1,009 ------ ------- Pro forma net income ................. $ 999 $ 1,426 ====== ======= Pro forma net income per common and common equivalent share ....... $ 0.26 $ 0.42 ====== ======= Pro forma shares used in computation.. 3,834 3,406 ====== =======
See notes to financial statements. -23- 24 BUSINESS RESOURCE GROUP STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL COMMON STOCK PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL --------- --- ------- ------- -------- Balances, November 1, 1993 ........... 2,978,760 $30 $ 2 $ 1,412 $ 1,444 Issuance of common stock (including $220 recorded as stock compensation) ................... 91,464 1 273 -- 274 Distributions to S Corporation shareholders .................... -- -- -- (787) (787) Net income ........................ -- -- -- 2,365 2,365 --------- --- ------- ------- -------- Balances, October 31, 1994 ........... 3,070,224 31 275 2,990 3,296 Distributions to S Corporation shareholders .................... -- -- -- (4,162) (4,162) Issuance of common stock (including $67 recorded as stock compensation) ............. 15,244 -- 76 -- 76 Initial public offering, net of issuance costs of $1,926 ........ 1,725,000 17 10,132 -- 10,149 Issuance of common stock in connection with acquisition ..... 10,275 -- 75 -- 75 Net income ........................ -- -- -- 1,586 1,586 --------- --- ------- ------- -------- Balances, October 31, 1995 ........... 4,820,743 48 10,558 414 11,020 Employee stock purchase program ... 38,121 1 127 -- 128 Net income ........................ -- -- -- 1,854 1,854 --------- --- ------- ------- -------- Balances, October 31, 1996 ........... 4,858,864 $49 $10,685 $ 2,268 $ 13,002 ========= === ======= ======= ========
See notes to financial statements. -24- 25 BUSINESS RESOURCE GROUP STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED OCTOBER 31, 1996 1995 1994 ---------- ---------- ------- Cash flows from operating activities: Net income .................................................................... $ 1,854 $ 1,586 $ 2,365 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization .............................................. 455 257 94 Loss on disposal of fixed assets ........................................... -- 11 14 Stock compensation ......................................................... -- 67 220 Deferred income taxes ...................................................... (15) (132) -- Changes in operating assets and liabilities (net of effect of acquisitions): Accounts receivable - net ................................................ (8,533) (1,197) (1,734) Inventory ................................................................ (52) 243 (779) Prepaids and other current assets ........................................ (318) (374) (200) Accounts payable ......................................................... 3,583 228 (82) Accrued liabilities ...................................................... 958 81 809 ------- -------- ------- Net cash provided (used) by operating activities ....................... (2,068) 770 707 ------- -------- ------- Cash flows from investing activities: Purchase of property and equipment ............................................ (1,549) (451) (168) Cash paid for acquisitions .................................................... (300) (375) -- Other assets .................................................................. (101) (14) (3) Proceeds from sale of equipment ............................................... -- -- 8 ------- -------- ------- Net cash used by investing activities ................................. (1,950) (840) (163) ------- -------- ------- Cash flows from financing activities: Bank overdraft ................................................................ (175) 651 -- Repayment of capital lease obligations ........................................ (120) (21) (16) Repayment of notes payable .................................................... (130) (247) -- Issuance of common stock ...................................................... 128 10,158 54 Distributions to shareholders ................................................. -- (4,162) (787) Borrowings on line of credit - net ............................................ -- (1,175) 285 ------- -------- ------- Net cash provided (used) by financing activities ....................... (297) 5,204 (464) ------- -------- ------- Increase (decrease) in cash and equivalents ..................................... (4,315) 5,134 80 Cash and equivalents balances: Beginning of period ........................................................... 5,326 192 112 ------- -------- ------- End of period ................................................................. $ 1,011 $ 5,326 $ 192 ======= ======== ======= Supplemental disclosures of cash flow information - cash paid during the period for: Interest ...................................................................... $ 39 $ 131 $ 70 ======= ======== ======= Income taxes .................................................................. $ 1,250 $ 340 $ 38 ======= ======== ======= Noncash investing and financing transactions: Sale of distribution rights for note receivable (Note 10) ..................... $ 177 $ -- $ -- ======= ======== ======= Notes payable issued for distribution ......................................... $ -- $ -- $ 226 ======= ======== ======= Property acquired under capital leases ........................................ $ -- $ -- $ 70 ======= ======== ======= Acquisitions: Tangible assets acquired ...................................................... $ 333 $ 820 $ -- Intangible assets acquired .................................................... 255 781 -- Liabilities assumed ........................................................... (288) (801) -- Notes payable issued .......................................................... -- (350) -- Common stock issued ........................................................... -- (75) -- ------- -------- ------- Cash paid for acquisitions ........................................................ $ 300 $ 375 $ -- ======= ======== =======
See notes to financial statements. -25- 26 BUSINESS RESOURCE GROUP NOTES TO FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - Business Resource Group, a California corporation (the Company), provides workspace products and services. In April 1995, the shareholders approved a restatement of the articles of incorporation to, among other things, authorize issuance of two-hundred six (206) shares of common stock in exchange for each share of common stock outstanding. The accompanying financial statements reflect the effect of the stock split for all periods presented. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such management estimates include the allowance for doubtful accounts receivable, inventory reserves, certain accruals and the valuation allowance for deferred tax assets. Actual results could differ from those estimates. CONCENTRATION OF CREDIT RISK - Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents and accounts receivable. Management believes the credit risk associated with cash and cash equivalents is minimal. Substantially all of the Company's business activities are located in Northern California, Arizona, Nevada and Texas. The Company performs on-going credit evaluations of its customers and requires deposits for sales on credit when deemed necessary. The Company maintains reserves for discounts and potential credit losses; actual losses resulting from write-offs have not been significantly different from management's estimates. CASH EQUIVALENTS are highly liquid debt investments purchased with a maturity of three months or less. INVENTORY consists primarily of goods in transit shipped directly to customers by suppliers and is valued at the lower of cost (specific identification) or market value. PROPERTY AND EQUIPMENT are stated at cost and are depreciated and amortized using the straight-line method over useful lives of three to seven years for equipment and over the lesser of the useful life or the lease term for leasehold improvements. OTHER ASSETS - Goodwill and customer list intangibles purchased in acquisitions are included in other assets and are amortized using the straight-line method over estimated useful lives of three to ten years. The Company evaluates the recoverability of goodwill on a quarterly basis based on estimated undiscounted future cash flows. Amortization amounted to $187,000 and $84,000 in fiscal 1996 and 1995, respectively, with no amortization in fiscal 1994. -26- 27 REVENUE RECOGNITION - Revenues from workspace product sales and vendor commissions are recognized upon receipt of products by the customer. Service revenues are recognized upon customer acceptance of the project. STOCK COMPENSATION - In connection with the issuance of 15,244 and 91,464 shares of common stock during the years ended October 31, 1995 and 1994, respectively, the Company has recorded the difference between the deemed fair value for accounting purposes and amounts paid by the acquiring shareholders, as specified in the stock purchase agreements, as compensation expense in the periods which services were performed. INCOME TAXES - Income taxes are provided for using the asset and liability approach. SHAREHOLDER DISTRIBUTIONS - The Company made distributions to its S Corporation shareholders to allow payment of their federal and state income taxes and to distribute previously undistributed S Corporation earnings as of the date the Company terminated its status as an S Corporation. 2. PRO FORMA NET INCOME AND NET INCOME PER COMMON AND COMMON EQUIVALENT SHARES Through June 1995, the Company was not subject to federal and most state income taxes since its shareholders elected that the Company be taxed as an S Corporation pursuant to the Internal Revenue Code. In lieu of corporate income taxes, the shareholders of an S Corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision for federal income taxes has been included in these financial statements for fiscal 1994 and the portion of fiscal 1995 during which the Company was an S Corporation. Although the S Corporation election is recognized for California income tax purposes, the State of California requires S Corporations to pay a tax of 1.5% (2.5% prior to October 31, 1994) of taxable income. Effective June 1995, in conjunction with the Company's initial public offering of its common stock, the Company's status as an S Corporation was terminated and the Company became subject to federal and state income taxes. The pro forma information presented on the statements of income and in the Selected Quarterly Data (Unaudited) in Note 15 reflect a provision for income taxes at an effective rate of 41% for fiscal 1995 and 1994. Pro forma financial information is provided to show what the significant effects on the historical financial information might have been had the Company been treated as a C Corporation for income tax purposes prior to June 1995. 3. RECENTLY ISSUED ACCOUNTING STANDARD In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation". The new standard defines a fair value method of accounting for stock options and other equity instruments, such as stock purchase plans. Under this method, compensation cost is measured based on the fair value of the stock award when granted and is recognized as an expense over the service period, which is usually the vesting period. This standard will be effective for the Company beginning in fiscal 1997, and requires measurement of awards made beginning in fiscal 1996. The new standard permits companies to continue to account for equity transactions with employees under existing accounting rules, but requires disclosure in a note to the financial statements of the pro forma net income and earnings per share as if the Company had applied the new method of accounting. The Company intends to follow these disclosure requirements for its employee stock -27- 28 plans. As a result, adoption of the new standard will not impact reported earnings or earnings per share, and will have no effect on the Company's cash flows. 4. PROPERTY AND EQUIPMENT Property and equipment consist of the following (in thousands):
1996 1995 ------- ------- Computer equipment ........................ $ 1,596 $ 442 Office furniture and equipment ............ 935 632 Leasehold improvement .................... 115 19 ------- ------- 2,646 1,093 Accumulated depreciation and amortization.. (629) (360) ------- ------- Total property and equipment - net ........ $ 2,017 $ 733 ======= =======
5. LINE OF CREDIT The Company has an $8,000,000 revolving line of credit with a bank, which expires in July 1997. The line bears interest at prime (8.25% at October 31, 1996) and is collateralized by substantially all of the Company's assets. Among other conditions and restrictions, the Company has agreed to certain financial covenants including maintenance of (1) a current ratio of at least 1.25 to 1; (2) total debt to tangible net worth ratio, as defined, of no more than 2.0 to 1; (3) tangible net worth, as defined, of at least $8,804,500; and (4) a debt service coverage ratio, as defined, of not less than 1.5 to 1. In addition, the Company is prohibited from paying dividends on its common stock without prior approval of the lender. At October 31, 1996, the Company was in compliance with all covenants. 6. ACCRUED LIABILITIES Accrued liabilities consist of the following (in thousands):
OCTOBER 31, ------------------- 1996 1995 ------ ------ Accrued commissions payable: Shareholders ......................................... $ 515 $ 238 Others ............................................... 758 441 Sales taxes payable ..................................... 693 385 Customer deposits ....................................... 327 333 Other accrued liabilities ............................... 615 508 ------ ------ Total accrued liabilities ............................... $2,908 $1,905 ====== ======
7. NOTES PAYABLE AND LEASE OBLIGATIONS As part of the purchase price associated with the acquisition of RST (Note 14) in September 1995, the Company recorded a note payable of $100,000. The note is payable in full during fiscal 1997. The Company leases equipment under capital lease agreements. At October 31, 1996 and 1995, the cost of equipment acquired under capital leases was $70,000 and accumulated amortization was -28- 29 $61,000 and $34,000, respectively. The Company also leases operating facilities under noncancelable operating leases which contain various renewal options. Future minimum lease payments under both capital and noncancelable operating leases are as follows (in thousands):
YEARS ENDING CAPITAL OPERATING OCTOBER 31, LEASES LEASES ----------- ------ ------ 1997 ................................. $ 13 $ 781 1998 ................................. -- 608 1999 ................................. -- 444 2000 ................................. -- 436 2001 ................................. -- 337 ---- ------ Total future minimum payments ........... 13 $2,606 ====== Less imputed interest ................... (1) ----- Present value of future minimum payment.. $ 12 =====
Total rent expense for the years ended October 31, 1996, 1995 and 1994 under operating leases was approximately $636,000, $324,000 and $209,000, respectively. 8. EMPLOYEE BENEFIT PLAN The Company has a 401(k) plan which covers substantially all full-time employees. The plan operates on a calendar year. All eligible employees are permitted to make tax deferred contributions of up to 20% of their annual compensation, subject to certain Internal Revenue Service limitations. The Company provides matching contributions of 25% of employees' contributions (up to 6% of employees' cash compensation). Employee contributions and earnings thereon are vested immediately; Company contributions vest over five years. In fiscal 1996, 1995 and 1994, the Company contributed $71,000, $22,000 and $15,000 to the plan. 9. INCOME TAXES The provision for income taxes consisted of the following (in thousands):
YEAR ENDED OCTOBER 31, ---------------------- 1996 1995 1994 ------- ----- ---- Current: Federal ................... $ 1,043 $ 183 $-- State ..................... 281 71 70 ------- ----- --- 1,324 254 70 ------- ----- --- Deferred: Federal ................... (25) (106) -- State ..................... 10 (26) -- ------- ----- --- (15) (132) -- ------- ----- --- Total........................ $ 1,309 $ 122 $70 ======= ===== ===
-29- 30 The pro forma provision for income taxes consists of the following:
YEAR ENDED OCTOBER 31, 1995 1994 ------- ------- Current: Federal ................... $ 618 $ 776 State ..................... 191 235 ------- ------- 809 1,011 ------- ------- Deferred: Federal ................... (75) (2) State ..................... (25) -- ------- ------- (100) (2) ------- ------- Total pro forma .............. $ 709 $ 1,009 ======= =======
The components of the actual deferred tax assets and liabilities at October 31, 1996 and the pro forma and actual deferred tax assets and liabilities at October 31, 1995 were as follows (in thousands):
OCTOBER 31, ----------- 1996 1995 ----- ----- Deferred tax assets: Accruals recognized in different periods for tax purposes.. $ 274 $ 151 Amortization of intangibles ............................... 46 24 Deferred tax liabilities - accelerated depreciation .......... (173) (43) ----- ----- Net deferred tax assets ...................................... $ 147 $ 132 ===== =====
Current deferred income tax assets of $274,000 and $151,000, at October 31, 1996 and 1995, are included in prepaids and other current assets. The provision for income taxes for the year ended October 31, 1996 and the pro forma provision for income taxes for the fiscal years ended October 31, 1995 and 1994, differs from the amount computed by applying the federal statutory income tax rate to income before income taxes as follows:
YEAR ENDED OCTOBER 31, ---------------------------- 1996 1995 1994 ---- ---- ---- Tax computed at federal statutory rate .... 35.0% 35.0% 35.0% State income taxes, net of federal effect.. 6.1 6.1 6.1 Other .................................... 0.3 0.4 0.3 ---- ---- ---- Effective income tax rate ................. 41.4% 41.5% 41.4% ==== ==== ====
-30- 31 10. RELATED PARTY TRANSACTIONS In fiscal 1994, certain shareholders of the Company sold their interest in Silicon Business Solutions ("SBS"), a software company. The Company paid fees of $27,000 to SBS in fiscal 1994 for maintenance services. SBS received advances from the Company, $36,000 of which was forgiven in conjunction with the sale of the shareholders' interest. SBS was not a related party during fiscal 1996 and 1995. The Company purchased products from a vendor (affiliate) during fiscal 1995 and 1994. This affiliate was owned by certain shareholders of the Company. Purchases from affiliate were $277,000 and $357,000 in fiscal 1995 and 1994, respectively. There were no accounts payable to the affiliate at October 31, 1996 and 1995, respectively. The assets of the affiliate were acquired by the Company in April 1995 for $95,000 and no further purchases were made from the affiliate following the acquisition. In fiscal 1994, the Company entered into a direct sales representative agreement for certain vendor products within a specified territory. In June 1995, an officer of the vendor was elected to the Board of Directors of the Company. In the year ended October 31, 1996, the Company purchased $1.0 million of product and earned $224,000 in commissions from the vendor. In the year ended October 31, 1995, the Company purchased $2.7 million of product and earned $245,000 in commissions from the vendor. At October 31, 1996, the Company had no accounts receivable due from the vendor. In July 1996, the Company entered into an agreement with the vendor to relinquish its exclusive distribution rights, in exchange for a $177,000 note receivable, payable to the Company over twelve months, bearing interest at 4.625%. 11. MAJOR CUSTOMERS AND VENDORS Two customers represented 37% and 5%, 18% and 18%, and 32% and 15% of net revenues for the years ended October 31, 1996, 1995 and 1994, respectively. Two vendors represented 35% and 7% of total purchases for the year ended October 31, 1996 and 13% and 17% of total purchases for the year ended October 31, 1995. One vendor represented 35% of total purchases for the year ended October 31, 1994. 12. WARRANTS The Company issued warrants in fiscal year 1995 to purchase 110,000 shares of common stock, at an exercise price per share of 120% of the initial offering price ($8.40 per share), to the underwriters who managed the initial public offering of the Company's common stock. The warrants are exercisable over a period of five years beginning from the date of the initial public offering (June 1995). 13. STOCK PLANS In April 1995, the Board of Directors adopted and the shareholders approved the Company's 1995 Stock Option Plan, Employee Stock Purchase Plan and the Directors' Stock Option Plan. -31- 32 1995 Stock Option Plan During fiscal 1996, the Company increased the number of shares of common stock reserved for issuance under the 1995 Stock Option Plan (the 1995 Plan) from 750,000 to 1,200,000. The 1995 Plan provides for the granting of incentive stock options at an exercise price of not less than 100% of fair market value on the date of the grant and nonstatutory stock options at not less than 85% of the fair market value on the date of the grant. Stock options granted under the 1995 Plan generally become exercisable at the rate of 1/8 of the total shares granted six months after the date of the grant and 1/48 of the total number of shares granted each month thereafter. The following summarizes activity in the 1995 Plan for the years ended October 31, 1996 and 1995:
SHARES OUTSTANDING OPTIONS AVAILABLE ------------------------ FOR GRANT SHARES PRICE --------- ------ ----- Balance at November 1, 1994 ............. -- -- $ -- Shares reserved for plan at adoption date................................... 750,000 -- -- Grants .................................. (529,000) 529,000 $4.75 - 10.00 Cancellations ........................... 22,567 (22,567) $5.00 - 10.00 ------- ------- Balance at October 31, 1995 ............. 243,567 506,433 $4.75 - 10.00 Increase in shares reserved for plan .... 450,000 -- -- Grants .................................. (465,250) 465,250 $3.50 - 5.38 Cancellations ........................... 146,589 (146,589) $3.50 - 10.00 ------- ------- Balance at October 31, 1996 ............ 374,906 825,094 $3.50 - 10.00 ======= =======
At October 31, 1996, 242,920 options were exercisable. The Company's Board of Directors, subject to shareholder approval, has authorized a 500,000 increase in shares of common stock reserved under the 1995 Stock Option Plan for stock option grants. Employee Stock Purchase Plan A total of 200,000 shares of common stock have been reserved for issuance under the 1995 Employee Stock Purchase Plan. Eligible employees may purchase common stock through payroll deductions of up to 10% of their compensation at a purchase price equal to the lower of 85% of the fair market value of the Company's common stock at the beginning or end of each six-month offering period. There were 38,121 shares issued under the Employee Stock Purchase Plan in fiscal 1996 and none were issued in fiscal 1995. Directors' Stock Option Plan A total of 100,000 shares of common stock have been reserved for issuance under the 1995 Directors' Stock Option Plan (the Directors' Plan). The Directors' Plan provides for an initial grant of nonstatutory stock options to all nonemployee directors of the Company on the date on which -32- 33 they join the Board and automatic annual grants of nonstatutory stock options issued on the first day of each fiscal year to all nonemployee directors of the Company who have served at least three months as of such grant date. Options granted under the Directors' Plan are at an exercise price equal to the fair market value as of the grant date. Initial grants become exercisable ratably over four years and automatic grants become exercisable four years after the grants. The following summarized activity in the Directors' Plan for the years ended October 31, 1996 and 1995:
SHARES OUTSTANDING OPTIONS AVAILABLE ---------------------- FOR GRANT SHARES PRICE --------- ------ ----- Balance at November 1, 1994... -- -- $ -- Shares reserved for plan ..... 100,000 -- -- Grants ....................... (40,000) 40,000 $6.00 - 7.00 ------ ------ Balance at October 31, 1995... 60,000 40,000 $ 6.00 - 7.00 Grants ....................... (10,000) 10,000 $ 4.75 ------ ------ Balance at October 31, 1996.. 50,000 50,000 $4.75 - 7.00 ====== ======
At October 31, 1996, 10,000 options were exercisable. The Company's Board of Directors, subject to shareholder approval, has authorized a 25,000 increase in shares of common stock reserved under the 1995 Directors' Stock Option Plan for stock option grants. 14. ACQUISITIONS In January 1996, the Company acquired, in a purchase transaction, certain assets and assumed certain liabilities of Corporate Source for a purchase price of $300,000 in cash. The acquisition agreement also provides for the payment of certain cash amounts if specific performance milestones are met. Corporate Source provided workspace products and services in Texas. In September 1995, the Company acquired, in a purchase transaction, certain assets and assumed certain liabilities of RST & Associates (RST) for a purchase price of $400,000 including $225,000 paid in cash, 10,275 shares of common stock (valued at $75,000), and two contingent payments of $100,000 each coupled to specific performance milestones, due in the first fiscal quarter of 1997 and 1998, if earned. RST provided workspace products and services in the southwestern United States. In April 1995, the Company acquired, in a purchase transaction, certain assets and assumed certain liabilities of Landmark-Pacific Group, Inc. (Landmark) for a purchase price of $300,000, including $150,000 paid in cash and issuance of a note payable in two equal payments due April 1996 and 1997. Approximately $21,000 of the April 1996 amount was paid in July 1995. Landmark provides facilities management services. In April 1995, the Company acquired, in a purchase transaction, the net assets of RPS (see Note 10) for a note payable in the amount of $95,000, which was paid in full during fiscal 1995. -33- 34 Results of operations include those relating to the acquired companies' assets and liabilities from the date of acquisition. In connection with these acquisitions, the Company recorded intangible assets consisting primarily of goodwill and customer lists, totaling $278,000 for Landmark, $85,000 for RPS, $416,000 for RST and $335,000 for Corporate Source which will be amortized over periods ranging from three to 10 years. Had these acquisitions taken place at the beginning of fiscal 1996 and 1995, unaudited pro forma net revenues would have been approximately $79.3 million and $44.5 million, respectively, and pro forma net income and net income per common and common equivalent share would not have changed significantly. 15. SELECTED QUARTERLY DATA (UNAUDITED) The following presents unaudited quarterly operating results for fiscal years ended October 31, 1996 and 1995: (In thousands, except per share data)
JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, ----------- --------- -------- ----------- FISCAL 1996 Net revenues .................. $14,503 $20,640 $21,340 $ 21,797 Gross profit .................. 3,068 3,852 4,299 4,690 Net income .................... 406 527 419 502 Net income per common and common equivalent share ...... $ .08 $ .11 $ .09 $ .10 FISCAL 1995 Net revenues .................. $ 8,166 $12,250 $12,195 $ 8,017 Gross profit .................. 2,059 2,995 2,981 1,809 Net income (loss) ............. 372 806 624 (216) Pro forma net income (loss) (1)................... 222 480 513 (216) Pro forma net income (loss) per common and common equivalent share (1) ........ $ .07 $ .14 $ .13 $ (.04)
(1) See Note 2 to Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. -34- 35 PART III Certain information required by Part III is omitted from this report because the Registrant will file a definitive proxy statement within 120 days after the end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement") for its annual meeting of shareholders to be held March 3, 1997 and the information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to directors of the Company is incorporated by reference from the information under the caption "Election of Directors--Nominees" in the Registrant's Proxy Statement. The executive officers of the Company, and their ages as of October 31, 1996, are as follows:
NAME AGE POSITION - ---- --- -------- Charles J. Winter 38 President, Chief Executive Officer and Director Brian D. McNay 40 Executive Vice President of Sales and Director Jeffrey Tuttle 39 Executive Vice President of Marketing and Director P. Steven Melman 41 Vice President of Finance and Chief Financial Officer Scott Lappin 46 Vice President of Sales
Mr. Winter has served as President since April 1995, and as Chief Executive Officer and a member of the Board of Directors since August 1988. Mr. Winter served as the Company's Chief Financial Officer between August 1988 and April 1995. Prior to joining the Company, he served as a senior systems analyst at Rolm Mil Spec Computer, a division of IBM and a manufacturer of ruggedized computers from 1984 to 1987. Mr. Winter also served as a senior systems analyst with United Technologies, an aircraft engineering manufacturer, from 1982 to 1984. He received his BS degree in Economics with honors from the University of California at Santa Cruz in 1980, and an MBA with honors from Boston University in 1982. Mr. McNay has served as Executive Vice President of Sales since April 1995, and as a member of the Board of Directors since its inception in April 1987. Mr. McNay also served as President between April 1987 and April 1995. Mr. McNay was also the founder and owner of Business Interiors, a sole proprietorship sold to the Company in April 1987. In addition, Mr. McNay served as a sales executive at various office furniture dealerships from 1979 to 1986, including the Contract Source Center, the Contract Office Group and Design Performance. Mr. Tuttle has served as Executive Vice President of Marketing since April 1995, and as a member of the Board of Directors since its inception in 1987. Mr. Tuttle also served as Vice President of Sales between April 1987 and April 1995. From 1978 to 1987, Mr. Tuttle served as a sales executive with KBM Office Furniture, an office furniture dealership. He received his BS degree in Marketing in 1980 from Santa Clara University. Mr. Melman has served as the Vice President of Finance and Chief Financial Officer since April 1995. From September 1990 to March 1995 he served as the Vice President, Finance & -35- 36 Administration and Chief Financial Officer of Kubota Graphics Corporation, a designer and manufacturer of 3D graphics and imaging workstations and from February 1990 to September 1990 he served as Corporate Treasurer of Stardent Computer, Inc., a manufacturer of graphics supercomputers. Mr. Melman received his BS degree in Business Administration from Boston University in 1976. Mr. Melman is a Certified Public Accountant. Mr. Lappin has served as Vice President of Sales since January 1996. From March 1990 to December 1995 he served as Vice President of Sales of Northern Telecom's Business Systems Division, a manufacturer of telephone switching systems and from September 1988 to March 1990 he served as Vice President of Sales of PacTel Business Systems, a distributor of communications equipment. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the information under the captions "Compensation of Executive Officers" and "Transactions with Management and Others" in the Registrant's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the information under the caption "Common Stock Ownership of Certain Beneficial Owners and Management" in the Registrant's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the information under the captions "Compensation of Executive Officers" and "Transactions with Management and Others" in the Registrant's Proxy Statement. -36- 37 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) FINANCIAL STATEMENTS See index to Financial Statements at Item 8 of this report. (2) FINANCIAL STATEMENT SCHEDULE Schedule II - Valuation and Qualifying Accounts (see page 41). (3) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S K)
Exhibit Number Description - ------ ----------- 3.1 Amended and Restated Articles of Incorporation of Registrant. (1) 3.2 Bylaws of Registrant. (1) 4.1 Buy and Sell Agreement dated October 31, 1987, as amended on March 15, 1988, August 17, 1994, October 27, 1994 and April 22, 1995 among the Registrant, Brian McNay, Charles Winter, Jeffrey Tuttle, Alison Lazarus and Jeffrey Bernstein. (1) 10.1 1995 Stock Option Plan, as ammended and forms of agreements thereunder. (2) 10.2 1995 Directors' Stock Option Plan and form of option agreement thereunder. (1) 10.3 1995 Employee Stock Purchase Plan and form of subscription agreement thereunder. (1) 10.4 Form of Directors' and Officers' Indemnification Agreement. (1) 10.5 Form of Common Stock Purchase Warrant. (1) 10.6 North First Street Plaza Lease Agreement dated May 28, 1991, as amended on December 21, 1993, between the Registrant and Wells Fargo Bank, N.A. (1) 10.6A Second Amendment to Lease between the Registrant and Wells Fargo Bank, NA, dated November 30, 1995 with respect to premises at 2150 N. First Street, San Jose, CA 95131. (3) 10.7 Sublease Agreement dated January 15, 1995, as amended on April 20, 1995, by and between the Registrant and First Franklin Financial Corporation. (1) 10.8 Lease Agreement dated June 10, 1994 between the Registrant and Alexander M. Maisin, Trustee of the Alexander M. and June L. Maisin Revocable Trust. (1) 10.9 Business Loan Agreements between the Registrant and Silicon Valley Bank, including related promissory notes and amendments thereto. (1) 10.9A Business Loan Modification Agreement between the Registrant and Silicon Valley Bank, dated January 16, 1996. (3) 10.9B Business Loan Modification Agreement between the Registrant and Silicon Valley Bank, dated March 6, 1996. (3)
-37- 38 10.9C Business Loan Modification Agreement between the Registrant and Silicon Valley Bank, dated March 13, 1996. (3) 10.10 Commercial Security Agreement dated March 15, 1988, as amended on February 25, 1993, between the Registrant and Silicon Valley Bank. (1) 10.11 Direct Sales Representative Agreement dated October 5, 1994 between the Registrant and TAB Products Co. (1) 10.12 Letter Agreement dated April 28, 1995 between the Registrant and Landmark Pacific Group, Inc. (1) 10.13 Letter Agreement dated April 30, 1995 between the Registrant and Refurbished Panel Systems. (1) 10.14 Asset Purchase Agreement dated September 27, 1995 between the Registrant and RST & Associates, Inc. (2) 10.15 Assignment and Assumption of Lease between RST & Associates, Inc. and the Registrant dated September 1, 1995 with respect to premises at 2010 East University, Tempe, Arizona. (2) 10.16 Assignment and Assumption of Lease between RST & Associates Inc. and the Registrant dated September 27, 1995 with respect to premises at 3957 East Speedway, Tucson, Arizona. (2) 10.17 Assignment and Assumption of Lease between RST & Associates Inc. and the Registrant dated September 27, 1995 with respect to premises at 5140 South Rogers, Las Vegas, Nevada. (2) 10.18 Purchase Agreement between Cisco Systems, Inc., Teknion, Inc., Teknion International and the Registrant effective as of September 1, 1995. (2) 10.19 Master Lease and Lease Renewal Agreement between the Registrant and OMI Properties Inc., dated July 21, 1995 and February 1, 1996, respectively, for facilities located at 130 Andover Park East, Suite 204, Tukwila, WA 98188. (3) 10.20 Master Lease Agreement between the Registrant and IM Joint Venture, dated June 23, 1995, for facilities located at Infomart Suite 5001, 1950 Stemmons Freeway, Dallas, Texas 75207. (3) 10.21 Asset Purchase Agreement dated January 25, 1996 between the Registrant and Darthmouth Group, Inc. d/b/a Corporate Source. (3) 10.22 Assignment and Assumption of Lease between the Registrant and Corporate Source, dated January 25, 1996 with respect to premises at 2811 McKinney Avenue, Suite 18, Dallas, Texas 75204. (3) 10.23 Assignment and Assumption of Lease between the Registrant and Corporate Source, dated January 25, 1996 with respect to premises at 1367 & 1369 Glenville Drive, Richardson, Texas 75081. (3) 10.24 Vehicle Lease Service Agreement between the Company and Penske Truck Leasing Co., L.P., dated January 23, 1996. (3) 10.25 Master Lease Agreement between the Registrant and Southwestern Bell Telephone Company Inc., dated May 2, 1996 for facilities located at 105 Auditorium Circle, San Antonio, Texas 78209. (4)
-38- 39 10.26 Third Amendment to Lease between the Registrant and Wells Fargo Bank, NA, dated August 5, 1996 with respect to premises at 2150 N. First Street, San Jose, CA 95131. (4) 10.27 Amended and Restated Loan and Security Agreement between the Registrant and Silicon Valley Bank, dated July 3, 1996. (4) 10.28 Master Lease Agreement between the Registrant and Centennial Plaza, LLC, dated October 4, 1996 for facilities located at Centennial Airport Plaza Building, 12200 E. Briarwood Avenue, Suite 199, Englewood, Colorado 80112. (5) 10.29 Master Lease Agreement between the Registrant and Amberjack Ltd., dated December 16, 1996 for facilities located at 1515 E. Missouri, Phoenix, AZ 85014. (5) 11.1 Computation of Pro Forma Net Income Per Common and Common Equivalent Share (see page 42). (5) 23.1 Independent Auditor's Consent. (5) 24.1 Power of Attorney (see page 40). (5) (b) Reports on Form 8-K: None
- ----------------- (1) Incorporated by reference to exhibits filed in response to Item 16(a), "Exhibits," of the Registrant's Registration Statement on Form S-1 and Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto (File No. 33-46527), which became effective on June 27, 1995. (2) Incorporated by reference to exhibits filed in response to Item 14, "Exhibits," of the Registrant's Form 10-K dated January 22, 1996. (3) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated March 14, 1996. (4) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated September 13, 1996. (5) Filed herewith. -39- 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. BUSINESS RESOURCE GROUP Date: January 24, 1997 By: /s/ Charles J. Winter --------------------- Charles J. Winter President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Charles J. Winter and P. Steven Melman, his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Charles J. Winter Director, President, and Chief January 24, 1997 - --------------------------- Executive Officer (Charles J. Winter) /s/ Brian D. McNay Executive Vice President of Sales January 24, 1997 - --------------------------- and Director (Brian D. McNay) /s/ Jeffrey Tuttle Executive Vice President of January 24, 1997 - --------------------------- Marketing and Director (Jeffrey Tuttle) /s/ P. Steven Melman Vice President of Finance and Chief January 24, 1997 - --------------------------- Financial Officer (Principal (P. Steven Melman) Financial and Accounting Officer) /s/ John W. Peth Director January 24, 1997 - --------------------------- (John W. Peth) /s/ Harry S. Robbins Director January 24, 1997 - --------------------------- (Harry S. Robbins)
-40- 41 BUSINESS RESOURCE GROUP SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS )
ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- --------- -------- -------- ---------- ------ Allowance for doubtful accounts: Fiscal 1994 50 -- -- -- 50 Fiscal 1995 50 -- 75(1) -- 125 Fiscal 1996 125 -- -- (68)(2) 57 -----------------
(1) Purchase business combination. (2) Charge off of accounts, net of recoveries. -41- 42 EXHIBIT 11.1 BUSINESS RESOURCE GROUP STATEMENT OF COMPUTATION OF NET INCOME PER SHARE (IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED OCTOBER 31, ------------------------------------------------- 1996 1995 1994 ------ ------ ----- FULLY DILUTED Net income ............................... $1,854 ====== Pro forma net income ..................... $ 999 $1,426 ====== ====== Weighted average common shares outstanding............................ 4,844 3,662 3,085 Common equivalent shares: Stock options ......................... 42 -- 58 Supplemental shares (1) ............... -- 172 263 ------ ------ ----- Total common stock and common stock equivalents ..................... 4,886 3,834 3,406 ====== ====== ===== Net income per common share .............. $ .38 ====== Pro forma net income per common share ...................... $ .26 $ .42 ====== =====
(1) Represents the approximate number of shares that would have to have been sold to fund the distribution of undistributed S Corporation earnings. See Note 2 to Financial Statements. EX-10.28 2 LEASE AGRMNT. BETWEEN BRG & CENTENNIAL AIRPORT 1 Exhibit 10.28 CENTENNIAL AIRPORT PLAZA OFFICE BUILDING LEASE AGREEMENT BETWEEN CENTENNIAL PLAZA, LLC ("LESSOR") AND BUSINESS RESOURCE GROUP ("LESSEE") 2 CENTENNIAL PLAZA, LLC OFFICE LEASE THIS LEASE, dated and entered into this 4th day of October, 1996, by and between CENTENNIAL PLAZA, LLC, a Colorado corporation, as agent for the Lessor, having an office at 591 South Downing Street, Denver, Colorado, 80209, (hereinafter called "Lessor") and: BUSINESS RESOURCE GROUP a California corporation (hereinafter called "Lessee"). W I T N E S S E T H: Lessor hereby leases to Lessee and Lessee hereby leases from Lessor certain premises in a building known as: CENTENNIAL AIRPORT PLAZA BUILDING 12200 E. Briarwood Avenue, Suite 199 Englewood, Colorado 80112 as defined on Exhibit "A", attached hereto and made a part hereof, consisting of approximately One Thousand Three Hundred Fifty Nine (1,359) rentable square feet, (hereinafter referred to as the "Premises"). Lessee shall also have the right to use in conjunction with other tenants in the building certain common facilities, hallways, rest room facilities, elevators and stairs. 1. TERM The term of this Lease shall be for a period of Two ( 2 ) years, commencing on October 1, 1996, ("Commencement Date") for, during and until September 30, 1998, ("Expiration Date") unless sooner terminated pursuant to any provision hereof. In the event the Commencement Date is delayed, the Expiration Date will be extended by the same number of days. If the Premises are not suitable for occupancy by the above Commencement Date because remodelling described in Paragraph 4 hereof has not been sufficiently completed, the Commencement Date shall be extended until such time as Lessor obtains a Certificate of Occupancy from the appropriate building department. In such event, the 3 Expiration Date of this Lease shall also be extended by the same number of days as the Commencement Date is extended. If no Certificate of Occupancy is required, then the Commencement Date shall be extended until such date as remodelling to be performed by Lessor pursuant to Paragraph 4 hereof has been substantially completed so that the Lessee can take possession of the Premises. In such event, the Expiration Date shall also be extended accordingly. In the event the Commencement Date and the Expiration Date are extended hereby, the parties agree to execute Exhibit "D", entitled "Acceptance of Premises", attached hereto and incorporated herein. 2. RENT (a) Lessee agrees to pay Lessor for the full term a minimum rental on said Premises in the total sum of Thirty Five Thousand Three Hundred Thirty Four and 00/100 Dollars ($35,334.00), payable in advance in monthly installments as set forth below on the first day of each month during the term hereof without prior notice of demand, deduction or set off, in lawful money of the United States of America. Rental payments shall be prorated at the rate of one-thirtieth (1/30th) of the monthly rental per day for any partial month. Rental payments shall be paid to Lessor at its office at 1700 Broadway, Suite 300, Denver, Colorado 80290 or at such other place or places as Lessor may from time to time designate in writing. Lessee agrees to pay the rent as herein provided promptly at the times and in the manner herein specified. The minimum rental rate for the first year of the Lease term is Thirteen and 00 /100 Dollars ($ 13.00) per square foot, or One Thousand Four Hundred Twenty Seven and 00/100 Dollars ($ 1,427.00) per month. The minimum rental rate for the second year of the Lease term is Thirteen and 00/100 Dollars ($ 13.00) per square foot, or One Thousand Four Hundred Twenty Seven and 00/100 Dollars ($ 1,427.00) per month. ADDITIONAL RENT (b) Lessee agrees to pay additional rent as provided for in Paragraph 3. SECURITY DEPOSIT (c) It is agreed that Lessee, at the time of execution of this Lease, has deposited with the Lessor, and will keep on deposit at all times during the term and any extended term of this Lease, the sum of One Thousand Four Hundred Twenty Seven and 00/100 Dollars ($1,427.00) as security for the full and faithful performance of every provision of this Lease to be performed by Lessee. If Lessee defaults with respect to any provision of this Lease, including but not limited to the provisions relating to the payment of rent, Lessor 4 may, if such default is not corrected within five (5) days of written notice from Lessor, use, apply or retain all or any part of this security deposit for the payment of any rent or any sum, in default, or for the payment of any other amount which Lessor may spend or become obligated to spend by reasons of Lessee's default or to compensate Lessor for any other loss or damage which Lessor may suffer by reason of Lessee's default. If any portion of said deposit is so used or applied, Lessee shall within five (5) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore the security deposit to its original amount and Lessee's failure to do so shall be a material breach of this Lease. Said deposit shall not be considered as liquidated damages and if claims of Lessor exceed said deposit, Lessee shall remain liable for the balance of such claims. The Lessor shall not be required to keep this security deposit separate from its general funds and Lessee shall not be entitled to interest on such deposit. If Lessee shall fully and faithfully perform every provision of this Lease to be performed by it, the security deposit or any balance thereof shall be returned to Lessee (or, at Lessor's option, to the last assignee of Lessee's interest hereunder) at the expiration of the Lease term and upon Lessee's vacation of the Premises. In the event of termination of Lessor's interest in this Lease, Lessor shall transfer said deposit to Lessor's successor in interest, whereupon, Lessee agrees to release Lessor from liability for the return of such deposit or the accounting therefor. 3. EXPENSE STOP In the event the building operating expenses, as hereinafter defined in Paragraph 6 for operating the subject building, paid for and sustained by the Lessor in any calendar year are greater than the Actual Operating Expenses per rentable square foot for the building for the 1996 calendar year, "Expense Stop", the Lessee shall pay to the Lessor as additional rent for each calendar year or portion thereof an amount equal to the portion of such additional amount as the rentable area of the Premises bears to the rentable area of the building, as adjusted for the actual time during said calendar year when Lessee actually leases the Premises. Lessee's pro rata share shall be based on Lessor's estimate of said costs. Lessor shall estimate the expenses for each calendar year and shall notify the Lessee of its pro rata share. Lessee shall then commence payments upon such notice, as additional rent, retroactive to January 1 of the current year and on the first day of each successive month at the same time and place stated for payment of minimum rent. The difference between the estimated costs and the actual costs shall be accounted for by Lessor. The necessary credit by Lessor, or additional payment by Lessee, shall be made within thirty (30) days following notice to Lessee of the amount due; provided, however, that no credit shall be made Lessee should Lessee be in default on its leasehold obligations. LANDLORD WILL CAP THE CONTROLLABLE EXPENSES EXCLUDING TAXES, INSURANCE AND UTILITIES AT SEVEN PERCENT (7%). 4. CONDITION OF PREMISES 5 Lessor agrees to provide the Premises to Lessee in their present finished condition, except that Lessor agrees to remodel the Premises, at Lessor's sole expense, as shown in the Blueprint attached hereto and incorporated herein as Exhibit "B". Remodeling costs may include by way of illustration but not limitation the following: demolition, new walls, doors, painting, ceiling tile, carpet, window dividers, mechanical rearrangement, electrical and lighting. Any remodeling undertaken by Lessee at Lessee's expense shall also be designated in said Exhibit "B" or some other suitable document. 5. USE OF PREMISES (a) Lessee covenants to use the Premises for general office purposes and to use them in a careful, safe and proper manner; to pay on demand for any damage to the Premises caused by negligent act or omission of such Premises by Lessee, its agents or employees or of any other person entering upon the Premises under express or implied invitation of Lessee; not to use or permit the Premises to be used for any purposes prohibited by the laws of the United States, the State of Colorado, the County of Arapahoe, or the ordinances of the City of Englewood; and not to commit waste, nor suffer, nor permit waste to be committed, nor permit any nuisance on or in the Premises. (b) Lessee agrees to keep the Premises in a neat, clean and attractive condition; to comply properly with all laws, ordinances, and other governmental rules and regulations concerning the Premises or the streets, sidewalks, alleys, parks, parkways, and other public property abutting the Premises; to use the Premises for no purpose which would render void the fire, extended coverage and added perils insurance on the building. Lessee agrees to pay all extra insurance premiums on the building on which the Premises are a part if such extra insurance premiums are reasonably required as the result of the use which Lessee shall make of the Premises. (c) Lessee will not at any time without obtaining Lessor's prior written consent conduct or permit any fire, bankruptcy or auction sale on the Premises; or change the exterior color of the building or any part thereof; or park, operate, load or unload any truck or other delivery vehicle at any place other than the loading area designated for such use; or use the plumbing facilities for any purpose other than that for which they were constructed or dispose of any foreign substance therein; or install any shades, awnings, machinery, motors, or ducts, or install any amplifiers, loudspeakers, phonographs, microphones, or similar devices for any purpose, or use any advertising medium, which may be heard or seen inside or outside the building; permit any rubbish or garbage to accumulate on the Premises in other than rubbish removal areas; or install, maintain, alter, or operate any sign or display visible to public view inside or outside of the building, except as approved by Lessor; or store materials, supplies, equipment or other materials outside the building or outside of the space occupied by Lessee. 6 (d) Lessee will not at any time deface or injure any portion of the Premises or burn anything in or about the Premises; or keep or display any merchandise or other object on or otherwise obstruct any sidewalks, stairways, walkways, streets, parks or parkways; or use or permit the use of any portion of the Premises as a living quarters, sleeping rooms or for similar uses. (e) The Rules and Regulations attached hereto and marked Exhibit "C", as well as rules and regulations as may be hereafter adopted from time to time by Lessor for the safety, care and cleanliness of the Premises and the preservation of good order thereon, are hereby expressly made a part hereof, and Lessee agrees to obey all such Rules and Regulations. 6. BUILDING OPERATING EXPENSES "Building operating expenses" shall mean any and all expenses incurred by the Lessor in connection with the ownership, maintenance, operation, upkeep and repair of the building including the equipment, adjacent walks, loading and parking areas, landscaped areas, and other improvements to the building, including but not limited to salaries, hourly wages, payroll taxes, social security, uniforms and dry cleaning thereof for employees of the Lessor engaged in the operation, maintenance and repair of the building; the costs of all charges for electricity, steam and water or other utilities furnished to the building, including any taxes thereon, other than those chargeable to individual tenants by reason of their extraordinary consumption of such utilities; the costs of all charges for insurance directly relating to the use and/or the operation of the building as aforesaid; the costs of building and cleaning supplies and materials; the costs of all charges for cleaning, maintenance and service contracts and other services with independent contractors, including snow and trash removal and landscaping; salaries of building superintendents and assistants; reasonable allowance for management fees FOR COMPETITIVE BUILDINGS and services; and overhead and legal expenses directly relating to the use and/or operation of the building; real estate taxes and other taxes and assessments incurred in connection with the ownership, operation and maintenance of the building; and all other costs and expenses reasonably necessary in the operation and maintenance of a first-class office building. "Building operating expenses" shall not include interest on debt, capital retirement of debt, capital expenditures (except for capital expenditures which reduce operating expenses, in which case such expenditures shall be amortized over the life of the objects for such capital expenditures), or any cost which is charged to and collected from any tenant of the building on account of negligent or willful act or omission of such tenant or for which such tenant may be liable, contractually or otherwise. 7 7. MAINTENANCE, ALTERATIONS AND REPAIRS (a) Lessee shall keep the Premises in good condition and repair and said Premises shall not be altered, repaired or changed without the written consent of Lessor, which consent shall not be unreasonably withheld. Lessee shall keep the Premises and building of which the Premises are a part free and clear of any liens, and shall indemnify, hold harmless and defend Lessor from any liens and encumbrances arising out of any work performed or materials furnished by or at the direction of Lessee. In the event any lien is filed, Lessee shall do all acts necessary to discharge any lien within ten (10) days of filing; or, if Lessee desires to contest any lien, then Lessee shall deposit with Lessor such security as Lessor shall demand to insure payment of the lien claim. In the event Lessee shall fail to pay any lien claim when due, or fail to deposit the security with Lessor, then Lessor shall have the right to expend all sums necessary to discharge the lien claim, and Lessee shall pay as additional rental, when the next rental payment is due, all sums expended by Lessor in discharging any lien, including attorney's fees and costs. Lessor shall save and hold Lessee harmless from any loss or damage arising from any lien or encumbrance asserted against the demised Premises due to any act of Lessor. (b) Lessee shall make no repairs, alterations, additions or improvements to the Premises or any part thereof without obtaining the prior approval of Lessor. Lessor may impose as a condition to the aforesaid consent such requirements as Lessor may reasonably deem necessary in its sole discretion, including without limitation thereto, the manner in which the work is done, a right of approval of the contractor by whom the work is to be performed, and the times during which it is to be accomplished. If Lessee requests Lessor to make repairs, alterations, additions or improvements to the Premises, Lessee agrees to pay Lessor therefor in an amount equal to Lessor's substantiated direct costs plus fifteen percent (12%) to cover Lessor's overhead costs, which sums shall be payable fifteen (15) days after receipt of Lessor's invoice by Lessee. All such repairs, alterations, additions or improvements shall at the expiration or earlier termination of the Lease become the property of Lessor and shall remain upon and be surrendered with the Premises, unless agreed otherwise by the parties in writing. Lessee shall, on termination of the Lease, surrender the Premises to Lessor in good condition and repair, normal wear and tear excepted. 8. BUILDING SERVICES (a) As a part of the rent, Lessor agrees to furnish to the Premises during hours of generally recognized business days, as stated in Exhibit "C", Paragraph 1, and subject to the Rules and Regulations of the building which the Premises are a part, water and electricity suitable for the intended use of the Premises, heat and air conditioning required in Lessor's reasonable judgment for the comfortable use and occupation of the Premises, and usual janitorial and maintenance service in the building. Lessor shall maintain and keep in repair 8 plumbing, electrical wiring, heating and air conditioning equipment required to supply said utilities to the Premises. Lessor shall also maintain and keep lighted the common stairs and entries during generally recognized business days, and shall maintain and keep in repair the general structure, roof and windows of the building of which the Premises are a part. (b) Lessor shall not be liable for and Lessee shall not be entitled to any abatement or reduction of rental by reason of Lessor's failure to furnish any of the foregoing services, when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, riots, civil disturbances or by any other cause beyond the reasonable control of Lessor, provided that Lessor corrects such failure of services with due diligence and within a reasonable period of time after notice thereof. (c) Wherever heat generating machines or equipment, including telephone equipment, are used in the Premises which substantially affect the temperature otherwise maintained by the air conditioning system, Lessor reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation, and the costs of operation and maintenance thereof, shall be paid by Lessee to Lessor upon demand by Lessor. (d) Lessee will not without the consent of Lessor use any apparatus or device in the Premises which will in any way unreasonably increase the amount of electricity or water usually furnished or supplied for use of the Premises; nor connect with electrical current, except through existing electrical outlets in the Premises, or water pipes, any apparatus or device for the purpose of using electric current or water. If Lessee shall require water or electric current in excess of that usually furnished or supplied for the use of the Premises, Lessee shall first procure the consent of the Lessor to the use thereof and Lessor may cause a water meter or electric current meter to be installed in the Premises so as to measure the amount of water and electric current consumed for any such other use. The costs of any such meters and of installation, maintenance and repair thereof shall be paid for by Lessee, and Lessee agrees to pay to Lessor promptly upon demand thereof by Lessor for all such water and electric current consumed, as shown by said meters, at the rates charged for such services by the local public authority, or the local public utility, as the case may be furnished the same. 9. PERSONAL PROPERTY TAXES During the term hereof, Lessee shall pay prior to delinquency all taxes assessed against and levied upon fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises; and Lessee shall cause said fixtures, furnishings, equipment and other personal property to be assessed and billed separately from the real and personal property of Lessor. In the event any or all of the Lessee's fixtures, furnishing, equipment and other personal property shall be assessed and taxed with the Lessor's real 9 property, the Lessee shall pay to Lessor its share of such taxes within ten (10) days after delivery to Lessee by Lessor of a statement in writing setting forth the amount of such taxes applicable to the Lessee's property. Lessor will pay when due all real estate and personal property taxes for which it is responsible under this Lease. 10. QUIET ENJOYMENT Lessor covenants that Lessee shall peaceably and quietly possess and enjoy the Premises as against all persons claiming any right, title or interest in and to said Premises as long as Lessee shall faithfully perform the covenants, obligations, agreements and conditions of this Lease. Lessor reserves the right to subject its interest in this Lease at all times to the lien of any mortgages or deeds of trust hereafter placed upon the building or any part thereof and to grant to other Lessees in the building rights to use the common areas and other portions of the building not within the Premises. 11. PARKING Lessee shall be entitled throughout the term of this Lease to use the parking area on a non-exclusive open basis, which may at Lessor's option be assigned or unassigned. Lessor reserves the right to exercise his option to assign parking spaces at any time during the term of this Lease. Lessee will cooperate with Lessor if it shall become necessary to temporarily interrupt the use of the parking area due to reconstruction or repair of the parking area. 12. ENTRY BY LESSOR Lessor and its agents shall have the right to enter the Premises at all reasonable times WITH REASONABLE NOTICE EXCEPT IN CASE OF AN EMERGENCY, for the purpose of examining or inspecting the same, to supply janitorial services and any other service to be provided by Lessor to Lessee hereunder, to show the same to prospective purchasers or tenants of the building, and to make such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Lessor may deem necessary or desirable SO LONG AS THEY DO NOT DISRUPT TENANT'S BUSINESS. If, during the last month of the term hereof, Lessee shall have removed substantially all of its property therefrom, Lessor may immediately enter and alter, renovate and redecorate the Premises without elimination or abatement of rent or incurring liability to Lessee. 13. PREMISES VACATED DURING TERM OF LEASE If the Lessee shall abandon or vacate said Premises before the end of the term of this Lease, the Lessor may, at its option and without notice, enter said Premises, remove any signs of the Lessee therefrom, and relet the same, or any part thereof, as it may see fit, 10 without thereby voiding or terminating this Lease, and, for the purpose of such reletting, the Lessor is authorized to make any repairs, changes and/or alterations necessary or desirable for the purpose of such reletting, and if a sufficient sum shall not be realized from such reletting (after payment of all the costs and expenses of such repairs, changes or alterations, and the expense of such reletting and the collection of rent accruing therefrom), each month to equal the monthly rental agreed to be paid by the Lessee under the provisions of this Lease, then the Lessee agrees to pay such deficiency each month upon demand therefor. 14. REMOVAL OF LESSEE'S PROPERTY If the Lessee shall fail to remove all effects from said Premises upon the abandonment thereof or upon the termination of this Lease for any cause whatsoever, the Lessor, at its option, may remove the same in any manner that it shall choose, and store the said effects without liability to the Lessee for loss thereof, and the Lessee agrees to pay the Lessor on demand any and all expenses incurred in such removal, including court costs and attorney's fees and storage charges on such effects for any length of time that the same shall be in the Lessor's possession; or the Lessor may, at its option, without notice, sell in a commercially reasonable manner said effects, or any of the same, at public or private sale and without court order, for such prices as the Lessor may obtain, and apply the proceeds of such sale upon any amounts due under this Lease from the Lessee to the Lessor and upon the expense incident to the removal and said effects, rendering the surplus, if any, to the Lessee. 15. EMINENT DOMAIN In the event the Premises, or any part thereof, shall be taken by an exercise of the right of eminent domain or by action of any public or other authority during this Lease or any extension thereof, and such taking shall render the Premises unusable, then this Lease shall terminate as of the date of such taking. The Lessor reserves all rights to damages to said Premises and the leasehold hereby created, hereafter accruing by an exercise of the right of eminent domain, or by reason of anything lawfully done and in pursuance of any public or other authority; and by way of confirmation, the Lessee grants to the Lessor all of the Lessee's right to such damages and covenants to execute and deliver such further instruments of assignment thereof as the Lessor may from time to time request. Nothing in this paragraph shall give Lessor any interest in, or preclude Lessee from, seeking on its own account any award attributable to the taking of personal property or trade fixtures belonging to Lessee, or for the interruption of Lessee's business, or for any moving or relocation expenses, or for any other separate claim which does not reduce or adversely affect in any way the amount of Lessor's award. 11 16. SALE BY LESSOR In the event of a sale or conveyance by Lessor of the building containing the Premises, such sale or conveyance shall operate to release Lessor from any future liability upon any of the covenants or conditions, express or implied, herein contained in favor of Lessee, and in such event Lessee agrees to look solely to the responsibility of the successor in interest of Lessor in and to this Lease. This Lease shall not be affected by any such sale, and the Lessee agrees to attorn to the purchaser or assignee. 17. DAMAGE TO PROPERTY; INJURY TO PERSONS (a) Lessee hereby waives all claims or liability Lessee or Lessee's successors or assigns may have against Lessor, and Lessee hereby indemnifies and agrees to hold Lessor harmless from and to defend Lessor against any and all costs, claims or liability or any injury or damage to any person or property whatsoever; (1) occurring in, on or about the Premises or any part thereof, and (2) occurring in, on or about any facilities (including without limiting the generality of the term "facilities", elevators, stairways, passage ways, hallways, bathrooms, health and exercise areas, conference rooms and parking structures and areas), the use of which Lessee may have in conjunction with other tenants of the building, when such injury or damage is caused solely by the act, neglect, fault of or omission of any duty with respect to the same by Lessee, its agents, contractors, employees or invitees. Lessor shall not be liable to Lessee for any damage by or from any act of negligence of any co-tenant or other occupant of the same building, or by any owner or occupant of adjoining or contiguous property, not caused or contributed to by Lessor. Lessee agrees to pay for all damages to the building, as well as all damages to tenants or occupants thereof, by Lessee's misuse or neglect of said Premises and facilities. (b) Lessor or its agents shall not be liable for any damage to property entrusted to Lessor, its agents or employees of the building manager, if any, nor for the loss of or damage to any property by theft or otherwise, by any means whatsoever, nor for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the building or from the pipes, appliances, or plumbing works therein or from the roof, street or subsurface or from any other place or resulting from dampness or any other cause whatsoever, unless caused by or due to negligence of Lessor, its agents, servants or employees. Lessee shall give prompt notice to Lessor in case of fire or accidents in the Premises or in the building or other defects therein or in the fixtures or equipment. (c) Anything contained herein to the contrary notwithstanding, the Lessor and the Lessee and all parties claiming under them hereby mutually release and discharge each other from all claims and liabilities arising from any cause whatsoever to the extent that it is covered by insurance on the leased property and/or Premises or covered by insurance in 12 connection with the property and/or activities conducted on the leased property and/or Premises, regardless of the cause of the damage or loss. This release shall be valid and binding only to the extent that it is permissible and does not adversely affect insurance coverage on the Premises and the building. The parties shall endeavor to obtain a Waiver of Subrogation Rights from the insurance company and the Lessee hereby agrees to pay any increased costs of such insurance coverage resulting from said Waiver of Subrogation Rights. 18. INDEMNIFICATION AND INSURANCE (a) Lessor shall not be liable and Lessee hereby waives all claims against Lessor for any damage to any property or any injury to any person in or about the Premises or the Building by or from any cause whatsoever, (including without limiting the foregoing, rain or water leakage of any character from the roof, windows, walls, basement, pipes, plumbing works or appliances, the Building not being in good condition or repair, gas, fire, oil, electricity or theft); except that Lessor will indemnify and hold Lessee harmless from such claims to the extent caused by the negligent or willful act of Lessor, or its agents, employees or contractors. Lessee shall defend, indemnify, and save Lessor harmless from and against any and all claims, actions, lawsuits, damages, liability, and expense (including, without limitation, attorneys' fees) arising from: (a) the act, neglect, fault, or omission to meet the standard imposed by any duty with respect to the loss, damage, or injury by Lessee, its agents, servants, employees, contractors, customers or invitees; (b) the conduct or management of any work or thing whatsoever done by the Lessee in or about the Premises or from transactions of the Lessee concerning the Premises; (c) Lessee's failure to comply with any and all governmental laws, ordinances and regulations applicable to the use of the Premises and its occupancy; or (d) any breach or default on the part of the Lessee in the performance of any covenant or agreement on the part of the Lessee to be performed pursuant to the Lease. The provisions of this Article shall survive the termination of this Lease with respect to any claims or liability occurring prior to such termination. (b) Lessee shall at its expense carry with a company acceptable to Lessor, and keep in full force and effect, public liability insurance with a minimum single limit of One Million Dollars ($1,000,000.00). Said insurance policy shall name Lessor, by endorsements, as an additional insured and shall not be cancelable as to Lessor, by either Lessee or said insurance company without thirty (30) days written notice to Lessor. Lessee shall furnish Lessor a Certificate of Insurance as to such policy. (c) Lessor agrees also to maintain public liability insurance on the building in which the Premises are located in the amount of One Million Dollars ($1,000,000.00) minimum single limit. 13 19. DAMAGE OR DESTRUCTION (a) Lessor shall purchase, carry and keep in full force and effect on the building fire, extended coverage and added perils insurance in the amount of eighty percent (80%), or more at Lessor's election, of the replacement cost of said building, boiler and machinery coverage in an amount deemed appropriate by Lessor, and rent insurance adequate to pay Lessee's rental obligations for nine (9) months. Lessor and any holder or holders of any mortgages or deeds of trust covering the Premises, or the property of which the same are a part thereof, shall be the sole insured under said policy and shall be entitled to all proceeds thereunder. (b) In the event the Premises or the building of which the same are a part are damaged by fire or other insured casualty and the insurance proceeds have been made available therefor by the holder or holders of any mortgages or deeds of trust covering the Premises, or the property of which the same are a part, the damage shall be repaired by and at the expense of Lessor to the extent of such insurance proceeds available therefor provided such repairs can, in Lessor's sole opinion, be made within ninety (90) days after the occurrence of such damage without the payment of overtime or other premiums, and until such repairs are completed, the rent shall be abated in proportion to the part of the Premises which is unusable by Lessee in the conduct of its business (but there shall be no abatement of rent by reason of any portion of the Premises being unusable for a period equal to one (1) day or less). If the damage is due to the negligent act or omission of Lessee or its employees, agents or invitees, there shall be no abatement of rent. Lessor's obligation to promptly and fully restore the Premises to their condition prior to the destruction or damage is subject always to delays caused by acts of God, strikes, lockouts, inability to get materials, accidents, fire or matters beyond the control of Lessor, for which Lessor cannot be held responsible by Lessee. If repairs cannot, in Lessor's sole opinion, be made within ninety (90) days, Lessor may at its option make them within a reasonable time, and in such event, this Lease shall continue in effect and the rent shall be apportioned in the manner provided above. If Lessor does not elect as aforesaid within forty-five (45) days, then either party may, by written notice to the other, cancel this Lease as of the date of the occurrence of such damages. A total destruction of the building in which the Premises are located shall automatically terminate this Lease. (c) Except as provided in Paragraph 19(b) above, there shall be no abatement of rent and no liability of Lessor by reason of any injury to or interference with Lessee's business or property arising from the making of any repairs, alterations or improvements in or to any portion of the building of the Premises, or in or to fixtures, appurtenances and equipment therein, unless caused by the negligent act or omission of agents, employees, representatives or servants of Lessor. Lessee understands that Lessor will not carry insurance of any kind on Lessee's furniture and furnishings or on any fixtures or equipment removable by Lessee under the provisions of this Lease; and that Lessor shall not 14 be obligated to repair any damage thereto or replace the same unless caused by the negligent act or omission of agents, employees, representatives or servants of Lessor. The Lessor shall not be required to repair any injury or damage by fire or other cause, or to make any repairs or replacements of improvements installed in the Premises by or for Lessee, unless caused by the negligent act or omission of agents, employees, representatives or servants of Lessor. (d) In the event that the building in which the demised Premises is situated may be destroyed to the extent of not less than thirty-three and one-third percent (33-1/3%) of the replacement cost thereof, Lessor may elect to terminate this Lease, whether the Premises be injured or not. 20. INVOLUNTARY TERMINATION If at the date fixed as the commencement of the term of this Lease, or if at any time during the term hereby demised, there shall be filed by or against Lessee in any court pursuant to any statute, either the United States or of any State, a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of Lessee's property, and within thirty (30) days thereof Lessee fails to secure a discharge thereof, or if Lessee makes an assignment for the benefit of creditors or petitions for or enters into an arrangement, this Lease, at the option of Lessor, exercised within a reasonable time after notice of the happening of any one or more of such events, may be cancelled and terminated, in which even neither Lessee nor any person claiming through or under Lessee by virtue of any statute or any order of any court shall be entitled to possession or to remain in possession of the Premises demised, but shall forthwith quit and surrender the Premises; and Lessor, in addition to the other rights and remedies Lessor has by virtue of any other provision contained in this Lease or by virtue of any statute or rule of law, may retain as liquidated damages any rent, security deposit or monies received by it from Lessee or others on behalf of Lessee. 21. INABILITY TO PERFORM This Lease and the obligation of Lessee to pay rent hereunder and perform all of the other covenants and agreements hereunder on the part of Lessee to be performed shall in no way be affected, impaired or excused because Lessor is temporarily unable to fulfill any of its obligations under this Lease or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repairs, additions, alterations, or decorations or is unable to supply or is delayed in supplying any equipment or fixtures, if Lessor is prevented or delayed from doing so by reason of an act of God, strike, labor troubles or any outside cause whatsoever, including but not limited to riots and civil disturbances or governmental preemption in connection with a national emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of the conditions of supply and demand which have been 15 or are affected by way or other emergency. Lessor agrees to use due diligence in attempting to correct such default and to attempt to reinstitute any service which it is obligated to provide within a reasonable period of time. 22. RIGHT OF LESSOR TO PERFORM Except as otherwise contained herein, or unless otherwise agreed to in writing by the parties, all covenants and agreements to be performed by Lessee under any of the terms of this Lease shall be performed by Lessee at Lessee's sole cost and expense and without abatement of rent. If the Lessee shall fail to pay any sum of money, other than rent, required to be paid by it hereunder, or shall fail to perform any other act on its part to be performed hereunder and such failures shall continue for twenty (20) days after notice thereof by the Lessor, the Lessor may, but shall not be obligated to do so, and without waiving or releasing the Lessee from any obligations of the Lessee, make any such payment or perform any such other act on the Lessee's part to be made or performed as in this Lease provided. All sums so paid by Lessor and all necessary incidental costs together with interest thereon at the rate of eighteen percent (18%) per annum, or the prime interest rate as charged by Citibank of New York plus six percent (6%), whichever interest rate is greater, from the date of such payment by the Lessor shall be payable to the Lessor by Lessee on demand, and the Lessee covenants to pay such sums, and the Lessor shall have (in addition to any other right or remedy of the Lessor) the same rights and remedies in the event of the nonpayment thereof by the Lessee as in the case of default by the Lessee in the payment of rent. 23. DEFAULT (a) In the event of any breach of this Lease by Lessee which is not cured within ten (10) days of written notice by Lessor (three [3] days in the case of non-payment of rent) of such breach, Lessee agrees that the full amount of any abated rent, plus the full amount of any leasing commission and tenant improvements Lessor has paid in connection herewith, shall become due and payable to Lessor upon any monetary default on the part of the Lessee which is not corrected within said ten (10) days from written notice from Lessor. Furthermore, in the event of Lessee's insolvency or liquidation, then Lessor, besides other rights or remedies it may have, shall have the immediate right of reentry and may remove all persons and property from the Premises, such property may be removed and stored in any other place in the building in which the Premises are situated or in any other place, for the account of and at the expense and at the risk of Lessee. Lessee hereby releases Lessor from all claims for damages which may be caused by Lessor's reentry and taking possession of the Premises or removing or storing the furniture and property as herein provided. Lessee further agrees that it will save and hold Lessor harmless from any loss, costs or damages occasioned Lessee thereby, and no such reentry shall be considered to be a forcible entry. 16 (b) Should Lessor elect to reenter, as herein provided, or should it take possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate this Lease, or it may from time to time, without terminating this Lease, relet said Premises or any part thereof in a reasonable fashion and for such term or terms and at such rental or rentals and upon such other terms and conditions as Lessor in its sole discretion may deem advisable, with the right to make alterations and repairs to said Premises. Rentals received by Lessor from such reletting shall be applied as follows: first, to the payment of any indebtedness, other than rent, due hereunder from Lessee to Lessor; second, to the payment of any cost of reletting; third, to the payment of the cost of any alterations and repairs to the Premises; fourth, to the payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Lessor and applied in payment of future rent as the same may become due and payable hereunder. Should such rentals received from such reletting during any month be less than that agreed to be paid during that month by Lessee hereunder then Lessee shall pay such deficiency to Lessor. Such deficiency shall be calculated and paid monthly. (c) No such reentry or taking possession of said Premises by Lessor shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Lessee, or unless the termination thereof be decreed by a court of competent jurisdiction. Should Lessor at any time terminate this Lease for any breach, in addition to any other remedy it may have, it may recover from Lessee damages consisting of the rent reserved in this Lease for the remainder of the stated term. (d) No payments of money by the Lessee to the Lessor after the termination of this Lease, in any manner, or after the giving of any notice (other than a demand for the payment of money) by the Lessor to the Lessee, shall reinstate, continue or extend the term of this Lease or affect any notice given to the Lessee prior to the payment of such money, it being agreed that after the service of notice or the commencement of a suit or after final judgment granting the Lessor possession of said Premises, the Lessor may receive and collect any sums of money whether as rent or otherwise, shall not waive said notice, or in any manner affect any pending suit or any judgment theretofore obtained. 24. NON-PAYMENT OF RENT AND OTHER AMOUNTS DUE If the rent due from Lessee to Lessor hereunder is paid later than the 5th day of the month when due, a late fee will be charged calculated at the rate of ten percent (10%) of the month then due, but the payment of such fee shall not excuse or cure any default by Lessee under this Lease. 25. HOLDING OVER If Lessee shall remain in possession of the Premises after expiration of the term of this Lease, or any extension thereof, without written agreement as to such possession, then 17 Lessee shall be a tenant from month-to-month at a monthly rental equal to one and one-half (1-1/2) times the highest monthly rate provided for herein. The rental shall be paid in advance on the first day of each month during such hold over term. Such tenancy shall continue until terminated by Lessor or until Lessee shall have given Lessor a written notice at least one (1) month prior to the date of termination of such monthly tenancy of its intention to terminate such tenancy. Such holding over shall not constitute an extension of this Lease. 26. ATTORNEY'S FEES In case suit shall be brought for an unlawful detainer of the said Premises for the recovery of any rent due under the provisions of this Lease, or because of the breach of any other covenant herein contained, on the part of Lessee to be kept or performed, Lessee shall pay to Lessor all reasonable attorney's fees, in the event Lessor prevails in said litigation. In the event Lessee shall bring suit for breach of Lessor's covenants herein contained and shall prevail therein, or shall prevail in a suit brought by Lessor as herein provided, Lessor shall pay to Lessee all reasonable attorney's fees. 27. WAIVER The waiver by either party of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition of any subsequent breach of the same, or any other term, covenant or condition herein contained. The acceptance of rent hereunder shall not be construed to be a waiver of any breach by Lessee of any term, covenant or condition of this lease, regardless of Lessor's knowledge of such breach at the time of acceptance of the rent. It is understood and agreed that the remedies herein given to the parties shall be cumulative, and the exercise of any one remedy by a party shall not be the exclusion of any other remedy. 28. NOTICE Any notice from Lessor to the Lessee or from the Lessee to the Lessor shall be deemed duly served if mailed by registered or certified mail, addressed to the Lessee at said Premises, or to a place Lessee may designate in writing from time to time, whether or not Lessee has departed from, vacated or abandoned the Premises, or to the Lessor at the place from time to time established for the payment of rent, and the customary registered or certified mail receipt shall be conclusive evidence of such service. 29. SUBLETTING AND ASSIGNMENT Lessee agrees that it will not sublet the Premises, or any part thereof without the written consent WHICH CONSENT SHALL NOT BE REASONABLY WITHHELD of the Lessor first had and obtained. A consent to one subletting, occupation or use by any other person shall not 18 be deemed to be a consent to any subsequent subletting, occupation or use by another person. Any such subletting without such consent shall be void, and shall, at the option of Lessor, terminate this Lease. This Lease shall not, nor shall any interest therein, be assignable, as to the interest of Lessee, by operation of law, without the written consent of Lessor. 30. SUBORDINATION This Lease is subject and subordinate to all ground and underlying leases, mortgages, and deeds of trust which now or hereafter may affect the real property of which the Premises form a part or affect the ground or underlying leases, and to all renewals, modifications, consolidations, replacements and extensions thereof. It is further agreed that this Lease may, at the option of the Lessor, be made subordinate to any ground or underlying leases, mortgages or deeds of trust which may hereafter affect the real property of which the Premises form a part or affect the ground or underlying leases, and that Lessee, or its successors in interest, will execute and deliver upon the demand of Lessor any and all reasonable instruments desired by Lessor subordinating in the manner requested by Lessor this Lease to such lease, mortgages or deeds of trust. 31. ESTOPPEL Lessee shall, from time to time, upon not less than ten (10) days prior written notice from the Lessor, execute, acknowledge and deliver to the Lessor a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the dates to which rental and other charges are paid in advance, if any, and acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if they are claimed. It is expressly understood and agreed that any such statement may be relied upon by any prospective purchaser, encumbrancer or subtenant, on all or any portion of the real property of which the Premises are a part. The failure of Lessee to deliver such statement within such time shall be conclusive upon Lessee that this Lease is in full force and effect, and that there are no uncured defaults in the performance hereunder and that not more than two (2) months' rental has been paid in advance by Lessee. 32. MISCELLANEOUS PROVISIONS (a) The words "Lessor" and "Lessee" as used herein shall include the plural as well as the singular. Words used in masculine gender include the feminine and neuter. If there be more than one Lessee, the obligations hereunder imposed upon Lessee shall be joint and several. The titles to the paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 19 (b) Time is of the essence of this Lease, and each and all of its provisions. (c) Submission of this instrument for examination or signature by Lessee does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Lessor and Lessee. (d) Exhibits, clauses, plats, and riders, if any, signed by Lessor and Lessee and endorsed on or affixed to this Lease are a part hereof, and in the event of variation or discrepancy, the duplicate original hereof, including such clauses, plats and riders, if any, held by Lessor shall control. Rules and Regulations attached hereto are hereby specifically made a part of this Lease, whether signed by Lessee or not. (e) Any provision of this Lease which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof, and such other provisions shall remain in full force and effect. (f) This Lease contains the entire agreement between the parties and any agreement hereafter made shall be ineffective to change, modify or discharge it in whole or in part, unless such agreement is in writing and signed by the party sought to be charged. (g) This Lease shall be governed by and construed pursuant to the laws of the State of Colorado. (h) Lessee hereby grants Lessor permission to obtain from time to time such credit references as Lessor deems appropriate. 33. SUCCESSORS AND ASSIGNS The covenants and conditions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of the parties hereto and all of the parties hereto shall be jointly and severally liable hereunder. 34. ADA COMPLIANCE Lessee shall not cause or permit any violation of the Americans with Disabilities Act (the "ADA") to occur upon or about the Premises by Lessee, its agents, employees, contractors or invitees. Lessee shall indemnify, defend and hold Lessor harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses (including, without limitation, diminution in value of the Premises, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Premises, damages arising from any adverse impact on marketing of space of the Premises, 20 and sums paid in settlement of claims, attorney's fees, consultation fees and expert fees) which arise during or after the term as a result of such violation. This indemnification of Lessor by Lessee includes, without limitation, costs incurred in connection with any investigation of site conditions or any remedial work required by any federal, state or local governmental agency or political subdivision because of any ADA violation present on or about the Premises. Lessee shall be permitted to make such alterations to the Premises as may be necessary to comply with the ADA, at Lessee's sole expense and upon the prior written consent of Lessor. Without limiting the foregoing, if the presence of any ADA violation on the Premises caused or permitted by Lessee results in remedial work on the Premises, Lessee shall promptly take all actions at its sole expense as are required by any federal, state or local governmental agency or political subdivision to comply with the ADA; provided that Lessor's consent to such actions shall first be obtained. Lessor's consent under this section shall not be unreasonably withheld. 35. CORPORATE AUTHORIZATION If Lessee is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation and that this Lease is binding upon said corporation in accordance with its terms. Lessee agrees to provide Lessor with such a resolution within five (5) days of the execution of this Lease. 36. EXHIBITS See Exhibits "A", "B", "C", and "D" attached hereto and incorporated herein by reference. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease the day and year first above written. LESSEE: LESSOR: BUSINESS RESOURCE GROUP CENTENNIAL PLAZA, LLC a California corporation a Colorado corporation, By: By: ----------------------------- -------------------------- P. Steven Melman Everett B. Clark Title: Chief Financial Officer Title: LLC Manager ------------------------- ----------------------- 21 PERSONAL GUARANTY For value received, and in consideration of the giving of the within Lease, the undersigned personally guarantees to Lessor, its successors and assigns, the full performance and observance of all the covenants, conditions and agreements herein provided to be performed and observed by the Lessee, without requiring any notice of nonpayment, nonperformance or nonobservance, or proof of notice or demand to charge the undersigned therefor, nor shall failure of the Lessor to enforce its rights against the Lessee or concessions made by the Lessor to the Lessee affect the liability hereunder. In case of breach hereof by Lessee, Lessor may, in its sole discretion, proceed directly against the guarantor(s) with or without joinder of Lessee. GUARANTOR Name: Business Resource Group -------------------------------- Address: 2150 North First Street ----------------------------- San Jose, California 95131 ----------------------------- Federal ID#: 77-0150337 --------------------- 22 EXHIBIT "A" DESCRIPTION OF PREMISES Suite 199, located on the East corridor of the first floor, approximately 1,359 rentable square feet. 23 EXHIBIT "B" Items to be provided and installed by Lessor shall include the following building standard tenant finish items: 1. Apply paint to all walls with Pittsburgh Paint in Old Linen #2535. 2. Steam clean carpet. 3. Replace damaged ceiling tiles. Lessee hereby acknowledges that any changes to the work specified may result in an extra charge to Lessee. Lessor agrees to provide Lessee with an estimate of the cost of any changes before such changes are approved by Lessee. 24 EXHIBIT "C" RULES AND REGULATIONS AND MADE A PART OF THIS LEASE DATED October 4, 1996 By and Between CENTENNIAL PLAZA, LLC Lessor and BUSINESS RESOURCE GROUP Lessee 1. Generally recognized business days include non-holiday weekdays and Saturdays from 7:00 a.m. to 7:00 p.m. 2. On Sunday and legal holidays and on other days between the hours of 6:00 p.m. and 7:00 a.m., access to the building, or to the halls, corridors, elevators or stairways in the building, or to the Premises may be refused unless the person seeking access is known to the person or employee of the building in charge and has a pass or is properly identified. The Lessor shall in no event be liable for damages for any error with regard to the admission to or exclusion from the building of any person whom the Lessor has the right to exclude under Rules 15 and 16. In case of invasion, mob, riot, public excitement, or other commotion, the Lessor reserves the right to prevent access to the building during the continuance of the same by closing the doors or otherwise, for the safety of the lessees and protection of the property in the building. 3. Lessee shall see that the windows and doors of the Premises are closed and securely locked before leaving the building. Lessee shall upon entering or leaving the Premises after normal working hours lock the entrance doors, and these doors are to remain locked while the Lessee or his employees are at work in the building. Lessee must observe strict care and caution to the effect that all lights and water of the Premises be carefully shut off, and window coverings closed, so as to prevent waste or damage, and for any default or carelessness Lessee shall make good all injuries sustained by other lessees or occupants of the building or Lessor. 4. Except with the prior written consent of the Lessor, no lessee shall sell or permit the sale of any merchandise at retail in or from the Premises. No Lessee shall occupy or permit any portion of his Premises to be occupied as an office for a public stenographer or typist; or any manufacturing of any kind, or as a medical office, or as a barber shop, beauty parlor or 25 manicure shop, or any business other than that specifically provided for in the Lessee's Lease. 5. The Lessee shall not do or permit anything to be done in the Premises, or bring or keep anything therein, which shall in any way increase the rate of fire insurance on the building, or on the property kept therein, or obstruct or interfere with the right of other lessees, or in any way injure or annoy them, or conflict with the regulations of the fire department of fire laws, or with any insurance policy upon the building or any part thereof, or with any rules and ordinances established by the Board of Health or other governmental authority. 6. The Lessee shall not use or keep in the Premises or the building any kerosene, gasoline, or any inflammable, combustible or explosive fluid, chemical or substance, or use any method of heating or air conditioning other than that supplied by the Lessor. 7. No lessee shall sweep or throw or permit to be swept or throw from the Premises any dirt or other substance into any of the corridors or halls, elevators, or out of the doors or stairways of the building, or from the balconies. No lessee shall use, keep or permit to be used any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to the Lessor or other occupants of the building by reason of noise, odors and/or vibrations, or interfere in any way with other lessees or persons having business therein, nor shall any animals or birds be brought in or kept in or about the premises or the building. 8. No sign, placard, picture, advertisement, name or notice, visible from the exterior of the Premises, or corridor hall, shall be inscribed, painted or affixed by the Lessee on or to any part of the outside or inside of the building or the Premises without the prior written consent of the Lessor. If the Lessor shall have given such written consent at any time, whether before or after the execution of this Lease, such consent shall in no way operate as a waiver or release of any of the provisions hereof or of this Lease, shall be deemed to relate only to the particular sign, placard, picture, advertisement, name or notice so consented to by the Lessor, and shall not be construed as dispensing with the necessity of respect to each and every sign, placard, picture, advertisement, name or notice. All approved signs or lettering on doors, walls and corridor windows shall be printed, painted, affixed or inscribed by the Lease by a person approved by Lessor. If the Lessor, by a notice in writing to the Lessee, shall object to any curtain, blind, shade or screen attached to, or hung, on, or used in connection with, any window or door of the Premises, such use of such curtain, blind, shade or screen shall be forthwith discontinued by the Lessee. No awnings shall be permitted on any part of the Premises. 9. Lessee shall not employ any person or persons other than the janitor of Lessor for the purpose of cleaning the Premises unless otherwise agreed to by Lessor. Except with the 26 written consent of Lessor, no person or persons other than those approved by Lessor shall be permitted to enter the building for the purpose of cleaning the same. Lessee shall not cause any unnecessary labor by reason of Lessee's carelessness or indifference in the responsible to any lessee for any loss of property on the Premises, or for any damage done to the effects of any lessee by the janitor or any other employee or any other person. Janitor service shall include ordinary dusting and cleaning by the janitor assigned to such work and shall not include cleaning of carpets or rugs, except normal vacuuming, or moving of furniture or other special services. 10. No bicycles, vehicles or animals of any kind shall be brought or kept in or about the Premises and no cooking, shall be done or permitted by any Lessee on the Premises, except that the preparation of coffee, tea, hot chocolate and similar items for the Lessee and its employees and business visitors shall be permitted. 11. Lessor will direct electricians as to where and how telephone, telegraph and computer wires are to be introduced. No boring or cutting for wires or otherwise shall be allowed without directions from the Lessor. The location of telephones, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Lessor. 12. No machinery of any kind, including air-conditioning units or other similar apparatus, or vending machines of any description, shall be installed, maintained or operated within the building or Premises without the written consent of the Lessor. 13. The requirements of Lessee will be attended to only upon application at the office of the Lessor. Employees of the Lessor shall not perform any work or do anything outside of their regular duties unless under special instructions from the Lessor, and no employee of Lessor will admit any person (Lessee or otherwise) to any office without specific instructions from the Lessor. 14. No painting shall be done, nor shall any alterations be done to any part of the building or Premises by putting up or changing any partition or partitions, door or doors, window or windows, nor shall there be any nailing, boring or screwing into the walls, woodwork or plastering without the consent of the Lessor or its agent. Lessee shall not permit any contractor or other person making any alterations, additions or installations within the Premises to use the hallways, lobby or corridors as storage or work areas without the prior written consent of Lessor. Lessee shall be liable for and shall pay the expense of any additional cleaning or other maintenance required to be performed by Lessor as a result of the transportation or storage of materials or work performed within the building by or for the Lessee. 15. The sidewalks, halls, passages, exits, entrances, elevators and stairways in and around the building shall not be obstructed by any of the Lessees or used by them for any purpose other than for ingress to and egress from their respective Premises. The halls, passages, exits, entrances, elevators, stairways, balconies and roof are not for the use of the general public, 27 and the Lessor shall, in all cases, retain the right to control and prevent access thereto of all persons whose presence, in the judgment of the Lessor, shall be prejudicial to the safety, character, reputation and interest of the building and its lessees, provided that nothing herein contained shall be construed to prevent such access to persons with whom the Lessee normally deals in the ordinary course of its business unless such persons are engaged in illegal activities. No lessee and no employee of any lessee shall go up on the roof of the building without the written consent of the Lessor. 16. No lessee shall lay linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor of the Premises in any manner except by a paste, or other material which may easily be removed with water, the use of cement or other similar adhesive materials being expressly prohibited. The method of affixing any such linoleum, tile, carpet or other Lessor. The expense of the repairing any damage resulting from a violation of this rule shall be borne by the Lessee by whom, or by whose contractors, employees, or invitees, the damage shall have been caused. 17. No furniture, freight or equipment of any kind shall be brought into the building without the consent of Lessor and all moving of the same into or out of the building shall be done at such time and in such manner as lessor shall designate. Lessor shall have the right to determine or limit the weight, size and position of all safes and other heavy equipment brought into the position of all safes and other heavy equipment brought into the building, and also the times and manner of moving the same in and out of the building. Safes or other heavy objects shall, if considered necessary by Lessor, stand on wood strips of such thickness as is necessary to properly distribute their weight. Lessor will not be responsible for loss of or damage to any such safe and such safe or property shall be repaired at the expense of the Lessee. Furniture, freight or equipment shall be moved in or out of the building only upon the elevator designated by Lessor (if the building is so equipped and then only during such hours and in such manner as may be prescribed by the Lessor. 18. No furniture, packages, supplies, equipment or merchandise will be received in the building except between such hours as shall be designated by the Lessor. 19. Lessor shall have the right, upon ninety (90) days prior written notice to Lessee, exercisable without notice and without liability to Lessee, to change the name and the street address of the building of which the Premises are a part. 20. Canvassing, soliciting and peddling in the building are prohibited, and each Lessee shall cooperate to prevent the same. 21. The bulletin boards or directories of the building will be provided exclusively for the display of the name and location of Lessee only, and Lessor reserves the right to exclude any other names therefrom. 28 22. Lessor reserves the right to exclude or expel from the building any person who, in the judgment of Lessor, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the building. 23. The Lessee shall not alter any lock nor install any new or additional locks or any bolts on any door of the Premises without written consent of the Lessor, if the Lessor shall give its consent, the Lessee shall in each case furnish the Lessor with a key for any such lock. Each lessee must, upon the termination of tenancy, restore to the Lessor all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, such lessee, and in the event of the loss of any keys so furnished, such lessee shall pay the Lessor the cost of replacing the same or of changing the lock or locks opened by such lost key, if Lessor shall deem it necessary to make such change. 24. The Lessor reserves the right to make modifications hereto and such other and further rules and regulations from time to time as in its judgment may be required for the safety, care and cleanliness of the Premises and the building, and for the preservation of good order therein. Lessee agrees to abide by all such. 25. Lessee covenants that any windows within its Premises opening to the outside of the building shall remain closed during the building operating hours on generally recognized business days as defined in Exhibit "C", Paragraph 1. LESSOR: CENTENNIAL PLAZA, LLC By:____________________________ Everett B. Clark LLC Manager LESSEE: BUSINESS RESOURCE GROUP By:____________________________ P. Steven Melman Chief Financial Officer 29 EXHIBIT "D" ACCEPTANCE OF PREMISES TO OFFICE LEASE BETWEEN CENTENNIAL PLAZA, LLC ("LESSOR") and BUSINESS RESOURCE GROUP ("LESSEE") THIS AGREEMENT is made this 4th day of October, 1996 by and between Centennial Plaza, LLC, (hereinafter called "Lessor") and Business Resource Group, (hereinafter called "Lessee") pertaining to Suite 199 , Centennial Airport Plaza, 12200 East Briarwood Avenue, Englewood, Colorado (the "Premises"). W I T N E S S E T H: WHEREAS, by Office Lease executed the 4th day of October, 1996, Lessor leased unto Lessee the Premises known as Suite 199 , unless sooner terminated or extended as provided therein, and, WHEREAS, Lessor and Lessee now desire to amend the Office Lease to establish different commencement and expiration dates, NOW, THEREFORE, Lessor and Lessee hereby agree that the Office Lease shall be amended as follows: 1. The term of the Office Lease shall be deemed to have commenced on October 1, 1996 and shall continue until twelve o'clock midnight on September 30, 1998, unless sooner terminated or extended as provided herein. 2. By execution hereof, Lessee hereby acknowledges that all improvements required of Lessor have been satisfactorily performed and Lessee does hereby accept the Premises delivered by Lessor in an "as is" condition. Lessee further acknowledges and agrees that such Premises are now suitable for the purpose for which they were let. 3. Except as hereby amended, the Office Lease shall continue in full force and effect. 4. This Agreement shall be binding upon the parties hereto, their heirs, executors, successors, and assigns. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. 30 EXECUTED this 4th day of October , 1996. ---------- --------- --- LESSEE: LESSOR: BUSINESS RESOURCE GROUP CENTENNIAL PLAZA, LLC By: By: ----------------------------- --------------------------- P. Steven Melman Everett B. Clark Title: Chief Financial Officer Title: LLC Manager ----------------------------- ------------------------ EX-10.29 3 LEASE BETWEEN AMBERJACK, LTD., & BRG 1 Exhibit 10.29 LEASE Dated December 16, 1996 ------------------- between AMBERJACK, LTD. ----------------------------------- "LANDLORD" and BUSINESS RESOURCE GROUP ------------------------- "TENANT" 2 THIS LEASE made this 16th day of December 1996 , between Amberjack, Ltd, (hereinafter called "Landlord"), and Business Resource Group, a California Corporation, (hereinafter called "Tenant"). For and in consideration of the rents, covenants and agreements hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby agrees to lease from Landlord those certain premises (the "Leased Premises"), commonly described as and more particularly shown on Exhibit "A" to this Lease, in that certain building known as 1515 E. Missouri, Phoenix, AZ 85014 (the "Building") . Said leasing is upon and subject to the terms, covenants and conditions set forth in this Lease and Tenant covenants, as a material part of the consideration for this Lease, to keep and perform each and all of said terms, covenants and conditions by it to be kept and performed and Tenant further agrees that this Lease is made upon the condition of such performance. 1. TERM (a) The term of this Lease shall be 60 months (unless sooner terminated as herein provided), which is estimated by Landlord to commence on the 1st day of February, 1997 (the "Commencement Date"). 2. RENT Tenant agrees to pay as base rental the sum of seven thousand six hundred fifty-eight & 67/100 ($7,658.67 ) per month for each and every month of this Lease (the "Base Monthly Rent"), subject to adjustment, as provided in paragraphs 3 and 4, hereof, payable in advance on the first day of each month without offset commencing with the Commencement Date of this Lease. The Base Monthly Rent has been calculated on the basis of 5,744 square feet of rentable area of the Leased Premises, determined in accordance with "American National Standard ANSI Z65.1-1980: Standard Method for Measuring Floor Area in Office Buildings" published by Building Owners and Managers Association International (the "Standard") and leased at the annual rate of sixteen and 00/100 Dollars ($16.00 ) per square foot of such rentable area. Should the Standard be revised, Landlord has the option of recomputing the rentable area based upon the revised Standard. 3. CONSUMER PRICE INDEX ESCALATION - deleted 4. OPERATING EXPENSES (a) If the annual Operating Expenses of the Building exceed the Base Operating Expenses, Tenant shall pay, in addition to the Base Monthly Rent, Tenant's proportionate share of the Operating Expenses of the Building in excess of the Base Operating Expenses based on Tenant's Percentage. (b) As used in this Section, the following defined terms shall have the following meanings unless the context otherwise requires: 2 3 (i) "Base Operating Expenses" shall mean "operating expenses" for calendar year 1997 . (ii) "Operating Expenses" means, in one calendar year, all costs and expenses incurred by or on behalf of the Landlord for the complete operation, management, protection, security, cleaning, repair and maintenance of the Building and the parking lot structure serving the Building and the Land, and which shall include without limitation, the following: (A) the salary and wages (including cost of uniforms and worker's compensation and unemployment insurance, vacation pay, pension and retirement benefits, health care, and other fringe benefits, whether statutory or otherwise) of all employees of the Landlord directly employed in the operation, maintenance, repair and administration of the Building, the Parking Lot, and the Land, including the security and reception employees and other non-administrative personnel; (B) the cost of goods, services, equipment and supplies used or incurred directly or indirectly in the operation, maintenance, replacement, repair and administration of the Building and/or the Parking Lot, including the heating, ventilating and air conditioning costs, the depreciation cost of all mechanical and electrical systems, costs of providing hot and cold water, electrical or any other energy supplies to the Building and/or the Parking Lot, elevator and escalator maintenance and operation, and service contracts; (C) all taxes, duties, and general or special assessments that may be levied, charged, or assessed against the Building, the Parking Lot or the Land and all property owner's association dues, fees, assessments or other charges; (D) all charges for public services and utilities, including water, natural gas, sewer, electrical power, steam, hot water, or any energy supplied or used in the Building, the Parking Lot, or on the Land and for all work or services performed by any utility company or commission in connection with such utilities; (E) the expense for gardening, landscaping, repainting, rental of signs and equipment, lighting, sanitary control and garbage removal, curbing and fencing maintenance, and glass maintenance and window cleaning; (F) the cost of the Landlord's insurance in types and amounts as may reasonably be carried by a prudent owner, or as required by any lender of Landlord, and the cost of any deductible amount paid by 3 4 the Landlord in connection with a claim made by the Landlord under such insurance; (G) cost of each "Major Expenditure" (as hereinafter defined) as amortized over the period of the Landlord's reasonable estimate of the economic life of the Major Expenditure, but not to exceed fifteen (15) years, using equal monthly installments of principal and interest at the rate announced by First Interstate Bank as its prime rate at the time of expenditure, plus one-half percent (1/2%), where "Major Expenditure" shall mean any single expenditure incurred during or subsequent to the fiscal period in which the Lease commences for modifications or additions to the Building and/or the Parking Garage if one of the principal purposes of such modification or addition was to reduce energy consumption or operating expenses, or was required by governmental law or regulations; and (H) an administrative or property management fee for the property management services desired from the Building. The property management fee shall not exceed three percent (3%) of the gross collected rents. The salaries and wages of those persons referred to in subparagraph 4 (b)(ii)(A) are not deemed to be part of the property management services for purposes of the limitation contained in this subparagraph . PROVIDED, HOWEVER, that if, in any such calendar year the Building is less that ninety percent (90%) occupied during the whole of the fiscal period, "Operating Expenses" shall mean the amount obtained by adjusting the actual Operating Expenses for such fiscal period as if the Building had been ninety percent (90%) occupied during the whole of such fiscal period, such adjustment to be made by the Landlord in good faith by adding to the actual Operating Expenses during such fiscal period such additional costs as would have been incurred if the Building had been ninety percent (90%) occupied. (iii) "Tenant's Percentage" means the percentage determined by converting a fraction, the numerator of which is the rentable area of the Leased Premises as finally determined by the Architect pursuant to Section 2 and the denominator of which is the aggregate of the rentable area, determined in accordance with the Standard, of all leased premises from time to time existing in the Building, whether actually rented or not, inclusive of the Leased Premises. For purposes of this Lease, the percentage is agreed to be twenty-five point zero percent (25.0 %). (c) Landlord shall by each December 15 during the term of this Lease deliver to Tenant a statement of the estimated Operating Expenses for the calendar year immediately following the date of such statement. Landlord's failure to deliver to Tenant such statement by such date, however, shall not preclude Landlord's recovery of Operating Expenses. On the later of the execution of this Lease or thirty (30) days prior to the Commencement Date, Landlord shall also give Tenant an estimate of the annual Operating Expenses from the Commencement Date through December 31 of the calendar year in which the term of this Lease is estimated to commence. If the estimated Operating 4 5 Expenses are projected to exceed the Base Operating Expenses, Tenant shall pay to Landlord with each payment of the Base Monthly Rent, as additional rent hereunder, and amount equal to one-twelfth (1/12) of the product of the estimated Operating Expenses for such calendar year (less the Base Operating Expenses) multiplied by Tenant's Percentage. (d) Landlord shall by April 30 of each year during the term of this Lease deliver to Tenant a statement of the actual Operating Expenses for the preceding calendar year, but Landlord's failure to deliver such statement by such date shall not preclude Landlord's recovery of Operating Expenses. If the actual Operating Expenses for such calendar year shall exceed the Base Operating Expenses for such calendar year, Tenant shall, within thirty (30) days following the delivery of such statement, pay to Landlord an amount equal to the product of the actual Operating Expenses (less the Base Operating Expenses) multiplied by Tenant's Percentage; provided, however, payments by Tenant, if any, of estimated Operating Expenses pursuant to this Section 4 shall be credited against the amount due. The actual Operating Expenses shall be prorated, if applicable, in the case of the first and last years of the term of the Lease. If the actual Operating Expenses for such calendar year are greater than the Base Operating Expenses but are less than the estimated Operating Expenses for such calendar year collected by Landlord pursuant to this Section 4, then Tenant shall receive a credit against future monthly payments of estimated Operating Expenses payable by Tenant in an amount equal to the product of the excess of estimated Operating Expenses over actual Operating Expenses multiplied by Tenant's Percentage. (e) Notwithstanding anything to the contrary contained herein, the amount of rent payable under this Lease shall never be less than the Base Monthly Rent. 5. PARKING (a) Tenant shall at all times during the term of this Lease, have available in the parking garage up to 13 covered reserved spaces and 6 uncovered unreserved spaces. The parking rental for the covered reserved spaces shall be no charge ($0.00 ) per month, per space. Landlord will provide reasonable means of identifying and controlling vehicles authorized to be parked in the reserved and unreserved areas of the Parking Garage. Landlord may make, modify and enforce rules and regulations. 6. SECURITY DEPOSIT Tenant has paid Landlord at the execution hereof, the sum of seven thousand six hundred fifty-eight & 67/100 ($ 7,658.67 ) as security for the full and faithful performance and observance by Tenant of all the covenants and conditions on Tenant's part to be performed and observed in this Lease as well as in all extensions and renewals hereof. Such deposit shall be returned to Tenant at the termination of this Lease if Tenant has discharged its obligations to Landlord in full. Landlord shall not be required to keep this security deposit separate from its general funds and Tenant shall not be entitled to interest thereon. In the event of any default by Tenant, Landlord may apply or retain all or any part of such security deposit to cure any default or to reimburse Landlord for any sum Landlord may spend by reason of default. In the event of such a default the 5 6 Landlord's election to utilize all or any part of said security deposit, Tenant shall, upon written notice from Landlord, forthwith deposit with Landlord such sum as is necessary to replenish said security deposit to the amount specified above. 7. REPAIRS (a) Landlord shall maintain in good condition the structural parts of the Building, including the foundations, bearing and exterior walls, sub-flooring and roof, and exterior doors, windows, corridors, and other common areas and shall use reasonable efforts to keep all Building equipment such as elevators, plumbing, heating, air conditioning and similar equipment in good condition and repair. (b) By taking possession of the Leased Premises, Tenant accepts the Leased Premises as being in the condition in which Landlord is obligated to deliver them, and as being in good and sanitary order, condition and repair. Tenant agrees that it will (i) make all repairs to the Leased Premises not required to be made by the Landlord, (ii) pay for any repairs to the Leased Premises or the Building containing the Leased Premises made necessary by any negligence or carelessness of Tenant or its employees or persons permitted in the Building by Tenant, and (iii) maintain the Leased Premises in a safe, clean, neat and sanitary condition. 8. IMPROVEMENTS AND ALTERATIONS (a) Landlord shall have the right at any time to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets, or other common areas of the Building, and to change the name, number or designation by which The Building is commonly known. (b) The Tenant shall not make any alterations, improvements or additions to the Premises without the Landlord's advance written consent in each and every instance. In the event Tenant desires to make any alterations, improvements or additions, Tenant shall first submit to Landlord plans and specifications therefor. Landlord shall have the option of either hiring a contractor to perform the work or approving in advance the contractor Tenant proposes to hire. If Landlord elects to hire the contractor, Landlord shall: (i) obtain a bid from a contractor selected by Landlord to perform the work specified in the plans and specifications; (ii) present the contractor's bid or contract price to Tenant for Tenant's approval, which is deemed accepted if not rejected in writing within seven (7) days; and (iii) require Tenant to supply a deposit covering all or part of the contractor's bid or contract price. If Landlord elects to approve the contractor selected by Tenant, Tenant shall: (i) obtain the contractor's written agreement to not deviate from the plans and specifications without Landlord's written consent; and (ii) obtain mechanics lien waivers from the contractor and all subcontractors and material men in advance of any work being performed or materials supplied. All alterations, improvements or additions shall become Landlord's property and shall remain upon the premises at the termination of this Lease without compensation to Tenant; provided, however, that Tenant shall, upon demand by Landlord, at Tenant's sole cost and expense, forthwith remove any alterations, additions or improvements made by Tenant, designated by 6 7 Landlord to be removed, and repair and restore the Lease Premises to its original condition, reasonable wear and tear excepted. 9. LIENS Tenant shall keep the Leased Premises free from any liens arising out of any work performed, materials furnished, or obligations incurred by Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of any such lien, cause the same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith including without limitation costs of suit and attorney's fees shall be considered additional rent and shall be payable by Tenant on demand with interest at the rate of eighteen percent (18%) per annum. 10. USE OF PREMISES The Leased Premises are to be used for the sole purpose of business office of Business Resource Group. Tenant agrees that it will use the Leased Premises in such manner as not to injure, annoy, interfere with or infringe on the rights of other tenants in the Building or use or allow the premises to be used for any improper, immoral or unlawful purpose. Tenant agrees to comply with all applicable laws, ordinances and regulations now or hereafter in force in connection with its use of the Leased Premises. Tenant shall not commit nor suffer the commission of any waste, overload any floor beneath the Leased Premises beyond the load limit established by Landlord, or knowingly permit any explosives to enter the Building. Tenant shall not do or permit anything to be done on or about the Leased Premises or bring or keep anything therein which will in any way increase the fire insurance premium or other insurance premium upon The Building. 11. LANDLORD SERVICES Landlord agrees to furnish to the Leased Premises during ordinary business hours or generally recognized business days (as determined by Landlord), and subject to the rules and regulations of the standards for Utilities and Services attached hereto as Exhibit "C" and by this reference made a part hereof, water, electricity, heating, and air conditioning suitable for the intended use and occupation of the Leased Premises, janitorial service, and elevator service. Tenant agrees to abide by all regulations and requirements that Landlord may prescribe for the proper functioning and protection of the heating ventilating, and air conditioning system. Landlord shall have no liability, and tenant shall not be entitled to any abatement or reduction of rental, by reason of Landlord's failure to furnish any services when such failure is caused by accident, breakage, repairs, strikes, lockouts, labor disturbances or labor disputes, or by any other cause, similar or dissimilar beyond the reasonable control of Landlord. 7 8 12. RULES AND REGULATIONS Tenant agrees to abide by all rules and regulations of this Building imposed by Landlord, a copy of which are attached hereto as Exhibit "D" and by this reference made a part hereof. These regulations are imposed for the cleanliness, good appearance, proper maintenance, good order and reasonable use of the Leased Premises and the Building, and as may be necessary for the proper enjoyment of the Building by all tenants and their clients, customers and employees. The rules and regulations may be changed by the Landlord from time to time, and shall become effective after reasonable notice to Tenant. Failure of Tenant to comply with the Building Rules and Regulations shall constitute a default under this Lease. 13. TAXES Tenant shall, in addition to and at the same time as the payment of the Base Monthly Rent under this Lease, pay to Landlord the amount of any rental, excise, sales, or transaction privilege tax (but exception Landlord's income tax) now or hereafter imposed by any taxing authority upon Landlord or upon Landlord's receipt of the Base Monthly Rent and any other amounts payable by Tenant pursuant to the terms of this Lease. 14. SUBSTITUTED PREMISES - deleted 15. UNTENANTABILITY If the Premises are made untenantable in whole or in part by fire or other casualty, the Rent, until repairs shall be made or the Lease terminated as hereinafter provided, shall be apportioned on a per diem basis according to the part of the Premises which is usable by the Tenant, if, but only if, such fire or other casualty was not caused by the fault or negligence of the Tenant, its contractors, agents, or employees. If such damage shall be so extensive that the Premises cannot be restored to tenantability by the Landlord within a period of one hundred eighty (180) days, either party shall have the right to cancel this Lease by notice to the other given at any time within sixty (60) days after the date of such damage; except that if such fire or casualty resulted from the Tenants fault or negligence, the Tenant shall have no right to cancel. If a portion of the Building other than the Premises shall be so damaged that in the opinion of the Landlord the Building should be restored in such a way as to alter the Premises materially, the Landlord may cancel this Lease by notice to the Tenant given at any time within sixty (60) days after the date of such damage. If more than twenty-five percent (25%) of the Building is made untenantable by fire or other casualty (regardless of whether the Premises are untenantable), Landlord may terminate this Lease by written notice to Tenant within one hundred twenty (120) days after the date of such casualty. In the event of giving effective notice pursuant to this Section, this Lease and the term and the estate hereby granted shall expire on the date fifteen (15) days after the giving of such notice as fully and completely as if such date were the date hereinafter set for the expiration of the term of this Lease. In the even neither Landlord not Tenant cancels the Lease, or if in the Landlord's opinion the Premises can be restored to tenantability within one hundred eighty (180) days and Landlord wishes to effect such restoration, the Landlord shall, 8 9 promptly after adjustment of any relevant insurance claims, commence such restoration at Landlord's expense. 16. EMINENT DOMAIN In the event the Building, the Land on which it is located, or any Portion of the Leased Premises is taken under eminent domain proceeding, Tenant shall have no right, title or interest to any award for such taking, except for fixtures and improvements installed by Tenant, if any. 17. ASSIGNMENT AND SUBLEASE Tenant shall not, either voluntarily or by operation of law, sell, assign, hypothecate or transfer this Lease, or sublet the premises or any part thereof, or permit the premises or any part thereof to be occupied by anyone other than Tenant or Tenant's employees, without the prior written consent of Landlord in each instance. Landlord's consent shall not be unreasonably withheld, provided the proposed assignee or sublessee is reasonably satisfactory to Landlord as to credit and character and will occupy the premises for office purposes consistent with Article 10 of this Lease and Landlord's commitments to other tenants. Any sale, assignment, mortgage, transfer or subletting of this Lease which is not in compliance with the provisions of this Article 17 shall be voidable and shall, at the option of Landlord, terminate this Lease. The consent by Landlord to any assignment or subletting shall not be construed as relieving Tenant from obtaining the express written consent of Landlord to any further assignment or subletting or as releasing Tenant from any liability or obligation hereunder, whether or not then accrued. The Landlord reserves the right, should the Tenant request such assignment or subletting, to release the Tenant from the terms and provisions of this Lease and the Landlord shall have thirty (30) days to make such determination. Should the Landlord exercise this right, then the Lease shall terminate as of the date notice is given to Tenant. Requests for sublease or assignment shall be accompanied by a minimum service fee of $150 and Tenant agrees to reimburse Landlord for all legal fees and other expenses incurred by Landlord in connection with the request. Tenant shall make no profit on a sublease or assignment of this Lease and any increase in rent, bonus or other fee charged or received, which is higher than, or in addition to, the rent, and fees due under this Lease shall be paid to Landlord. 18. ACCESS Landlord and its agents shall have the right to enter the premises at all reasonable times for the purpose of examining or inspecting the same, showing the same to prospective purchasers or tenants of the Building, and as necessary to perform their obligations under this Lease. Landlord may erect, use, and maintain scaffolding, pipes, conduits, and other necessary structures in and through the Leased Premises where reasonably required by the character of the work performed, provided that the business of Tenant shall not be unreasonably interfered with. If Tenant shall not personally be present to open and permit an entry into the Leased Premises at any time when such entry by 9 10 Landlord is necessary or permitted hereunder, Landlord may enter by means of a master key or, in emergencies, may enter forcibly, without liability to Tenant. 19. SUBORDINATION AND ATTORNMENT (a) This Lease is junior, subject and subordinate to all ground leases, mortgages, deeds of trust and other security instruments of any kind now covering the Land, the Building, the Parking Garage and/or the Leased Premises or any portion thereof or interest therein. Landlord reserves the right to place liens or encumbrances on the Land, the Building, the Parking Garage and/or the Leased Premises or any part thereof or interests therein superior in lien and effect to this Lease. This Lease, at the option of the Landlord, shall be subject and subordinate to any and all such liens or encumbrances now or hereafter imposed by Landlord without the necessity of the execution and delivery of any further instruments on the part of Tenant to effectuate such subordination. Notwithstanding the foregoing, Tenant covenants and agrees to execute and deliver upon demand such further instruments evidencing such subordination of this Lease as may be requested by Landlord. (b) In the event of the enforcement by any mortgagee, trustee, or beneficiary under any mortgage, deed of trust or other security instrument of the remedies provided for by law or by such mortgage, deed of trust or other security instrument, Tenant will, if requested by such mortgagee, trustee, or beneficiary or by any person succeeding to the interest of Landlord as the result of said enforcement, automatically become the tenant of any such successor in interest, without any change in the terms or other provisions of this Lease; provided, however, that said successor in interest shall not be bound by (i) any payment of rent or additional rent for more than one (1) month in advance, except prepayments in the nature of security for the performance by Tenant of its obligations under this Lease which are not in excess of an amount equal to one (1 ) month's rental or (ii) any amendment or modification to this Lease made without the consent of such mortgagee or beneficiary, or any successor in interest, except for such amendments or modifications of this Lease as are made in the ordinary course of Landlord's business, provided that any such amendment or modification shall not reduce the rent or any other amount payable by Tenant hereunder. Upon request by said successor in interest, the Tenant shall execute and deliver an instrument or instruments confirming its attornment. Nothing herein shall be construed as a subordination of, or agreement to subordinate, the lien and charge of any mortgage, deed of trust or other security instrument to the rights or leasehold estates of the Tenant under this Lease. 20. SALE In the event of a sale or conveyance by Landlord of the Building containing the Leased Premises, the same shall operate to release Landlord from any and all liability or obligation under this Lease. This Lease shall not be affected by any such sale, and Tenant agrees to attorn to the purchaser of the Building and deliver to the purchaser an offset statement and an estoppel certificate in such form as Landlord may request. If any security deposit has been made by Tenant, Landlord may transfer such security deposit to the purchaser, and thereupon Landlord shall be discharged from any further liability in reference thereto. 10 11 21. INDEMNIFICATION OF LANDLORD (a) Tenant shall hold Landlord harmless from, indemnify and defend Landlord against any and all claims for liability for any injury (including death) or damage to any person or property whatsoever (i) occurring in, on, or about the leased Premises or any part thereof, or (ii) occurring in, or about the building when such injury or damage has been caused in part of or in whole by the act, neglect, fault or omission of Tenant, its agents, servants, employees, and from all costs, attorneys' fees, expenses and liabilities incurred as a result of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by counsel satisfactory to Landlord. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons (including death), in, upon or about the Premises from any cause which does not result from the negligence of Landlord and Tenant hereby waives all claims in respect thereof against Landlord. (b) Landlord or anyone authorized to act for Landlord shall not be liable for any damage to property entrusted to employees of the building, nor for loss of or damage to any property by theft or otherwise, nor for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the building or from the pipes, appliances or plumbing works therein, or from the roof, street or subsurface, or from any other place resulting from the negligence of Landlord. Landlord or its agents shall not be liable for interference with the natural light, nor shall Landlord be liable for any latent defect in the Premises or in the building. Tenant shall give prompt notice to Landlord of any fire, accident or defect discovered within the Premises or the building. (c) The provisions of this Section 21 shall survive the expiration or termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination. 22. TENANTS INSURANCE, WAIVER OF SUBROGATION (a) Tenant agrees to carry at its own expense throughout the term of the lease, comprehensive public liability insurance insuring both Landlord and Tenant against all claims, demands, or actions arising out of or in connection with Tenant's use or occupancy, of the Premises, or by the condition of Premises with a combined single limit of liability of $1,000,000.00 for bodily injury or death and property damage. Tenant shall deliver a Certificate of Insurance to Landlord prior to the date of occupancy of the Premises and said insurance policy shall list and protect Landlord and Tenant as their interests may appear and shall contain an endorsement stating that the insurer agrees to give no less than thirty (30) days prior written notice to Landlord in the event of modification or cancellation thereof. (b)Tenant shall be responsible for its own personal property insurance. 11 12 (c) Landlord and Tenant each hereby release the other from any and all liability or responsibility for any direct or consequential loss, injury or damage to the Premises, or its contents, caused by fire or any other casualty, during the term of this lease, even if such fire or other casualty may have been caused by the negligence (but not the willful act) of the other party or one for whom such party may be responsible. Inasmuch as the above mutual waivers will preclude the assignment of any aforesaid claim by way of subrogation (or otherwise) to an insurance company (or any other person), each party hereto agrees if required by said policies to give each insurance company which has issued to it fire and other property insurance, written notice of the terms of said mutual waivers, and to have said insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of said waivers. 23. ATTORNEY'S FEES In the event of any legal action or proceeding brought by either party against the other arising out of this Lease, the prevailing party shall be entitled to recover reasonable attorneys' fees incurred in such action and such amount shall be included in any judgment rendered in such proceeding. 24. WAIVER No waiver by Landlord of any provision of this Lease or of any breach by Tenant hereunder shall be deemed to be a waiver of any other provision hereof, or of any subsequent breach by Tenant of the same or any other provision. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act of Tenant. No act or thing done by Landlord or Landlord's agents during the term of this Lease shall be deemed an acceptance of a surrender of the Leased Premises, unless done in writing signed by Landlord. The delivery of the keys to any employee or agent of Landlord shall not operate as a termination of this Lease or a surrender of the Leased Premises. 25. NOTICES All notices, demands or other communications in this Lease provided to be given, made or sent by either party hereto to the other shall be deemed to have been duly given, made or sent when made in writing and deposited in the United States mail, certified or registered, postage prepaid, and addressed as follows: To Landlord: Amberjack, Ltd. 1620 W. Fountainhead Parkway Suite 410 Tempe, AZ 85282 12 13 To Tenant: Business Resource Group c/o Chief Financial Officer 2150 N. First Street Suite 101 San Jose, CA 95131 The address to which any notice, demand or other writing may be given, made or sent to either party may be changed by written notice given by such party as above-provided. 26. INSOLVENCY OR BANKRUPTCY The appointment of a receiver to take possession of all or substantially all of the assets of Tenant, or an assignment by Tenant for the benefit of creditors, or any action taken or suffered by Tenant under any insolvency, bankruptcy, or reorganization act, shall at Landlord's option, constitute a breach of this Lease by Tenant. Upon the happening of any such event, or at any time thereafter, this Lease shall terminate five (5) days after written notice of termination from Landlord to Tenant. In no event shall this Lease be assigned or assignable by operation of law and in no event shall this Lease be an asset of Tenant in any receivership, bankruptcy, insolvency, or reorganization proceedings. 27. DEFAULT (a) In the event Tenant fails to pay any rental due hereunder or fails to keep and perform any of the other terms or conditions hereof, or otherwise breaches this Lease or defaults hereunder, time being of the essence, or in the event of the taking by execution or judgment or other process of law of all or any part of the Tenant's interest in this Lease, then ten (10) business days after written notice of default from Landlord, Landlord may, if such default has not been corrected, resort to any and all legal remedies or combination of remedies which Landlord may desire to assert including, but not limited to one or more of the following: (1) lock the doors of the Leased Premises and exclude Tenant therefrom; (2) retain or take possession of any property on the Leased Premises pursuant to Landlord's statutory lien; (3) enter the Leased Premises and remove all persons and property therefrom; (4) declare this Lease at an end and terminated; (5) sue for the rent due and to become due under this Lease; (6) sue for any damages sustained by Landlord; and (7) continue this Lease in effect and relet the Leased Premises on such terms and conditions as Landlord may deem advisable with Tenant remaining liable for the Base Monthly Rent and other sums due hereunder plus the reasonable cost of obtaining possession of the Leased Premises and of any repairs and alterations necessary to prepare the Leased Premises for reletting, and the cost of reletting. No action of Landlord shall be construed as an election to terminate this Lease unless written notice of such intention be given to Tenant. (b) If Landlord shall default in performing its obligations under this Lease, Tenant shall give Landlord written notice of the deficiency, and Landlord shall have a 13 14 reasonable time to correct the same, and if not corrected within a reasonable time and such breach is a material breach, Tenant may terminate this Lease or take such other legal steps to which it may be entitled. 28. INTEREST ON TENANT'S OBLIGATIONS AND LATE CHARGES (a) Any amount due from Tenant to Landlord which is not paid when due shall bear interest of eighteen percent (18%) per annum until paid, but the payment of such interest shall not excuse nor cure the default. (b) Tenant acknowledges that late payment of the Base Monthly Rent or any other sum required by this Lease to be paid by Tenant to Landlord will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to fix. Therefore, if any payment due from Tenant is not received by Landlord within five (5) calendar days after its due date, Tenant shall pay to Landlord an additional sum of fifty dollars ($50) as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by overdue amount, or prevent Landlord from exercising any of the other rights and remedies available to Landlord. In addition to the above-described late charge, Tenant shall pay to Landlord fifty dollars ($50) for processing and accounting cost together with interest on such amount at the rate specified above for each occasion that a rental check presented to Landlord by Tenant is returned by Tenant's bank for insufficient funds or for any other reason. 29. HOLDING OVER No holding over by Tenant after the term of this Lease shall operate to extend the Lease. In the event of any unauthorized holding over, Tenant shall indemnify Landlord against all claims for damages by any other tenant to whom Landlord may have leased all or any part of the Leased Premises covered hereby effective upon the termination of this Lease. Any holding over without the consent of Landlord in writing shall thereafter constitute a lease from month to month with a Base Monthly Rent equal to 200% of the most recent Base Monthly Rent then in effect. 30. TIME Time is of the essence of this Lease in each and all of its provisions. 31. BROKERS Tenant warrants that it has had no dealing with any real estate broker or agent in connection with the negotiation of this Lease, excepting onlyCB Commercial; Pat Horan and except for any broker or agent that Landlord may have employed, it knows of no other real estate broker or agent which is or may be entitled to a commission in connection with this Lease. Tenant agrees to indemnify and save harmless Landlord from any claims for commission by brokers or agents not mentioned in this paragraph. 14 15 32. RECORDATION Tenant shall not record this Lease or a short form memorandum thereof without the prior written consent of Landlord. 33. BUILDING NAME Tenant shall not use the name of the Building or the development in which the Building is situated for any purpose other than the address of the business to be conducted by Tenant in the Leased Premises. 34. SIGNS Landlord shall have the sole and absolute discretion over all matters relating to on-premise signs relating to the Building and other Tenant identification signs and facilities which are intended to be seen by the public from roads, sidewalks, pedestrian areas and adjoining structures in the vicinity of the Building. 35. CHOICE OF LAW This Lease shall be governed by the Laws of the State of Arizona. 36. ESTOPPEL CERTIFICATE OR THREE-PARTY AGREEMENT At Landlord's request, Tenant will in addition to any other statements or certificates required to be executed by Tenant, execute and deliver an estoppel certificate and/or three-party agreement among Landlord, Tenant and any third party dealing with Landlord certifying as to such facts (if true) and agreeing to such notice provisions and other matters as such third party may reasonably require in connection with the business dealings of Landlord and such third party. 37. ADDITIONAL CONSTRUCTION Tenant acknowledges that buildings other than the Building may be constructed within the project of which the Building is a part, and, in connection with such construction, Tenant shall permit Landlord and/or any owner of the land upon which such additional buildings are being constructed, to enter the Leased Premises to erect scaffolding and/or protective barriers around the leased Premises (but not so as to preclude entry thereto) and to do any act or thing necessary for the safety or preservation of the Building. Landlord shall not be liable in any such case for any inconvenience, disturbance, loss of business or any other annoyance arising from any such construction, but Landlord shall use its best efforts to see that Landlord or any adjoining owner will conduct such construction as consistently as possible with accepted construction practices, so as to minimize inconvenience, annoyance and disturbance to Tenant. 38. DEFINED TERMS AND MARGINAL HEADINGS The words "Landlord" and "Tenant" as used herein shall include the 15 16 plural as well as the singular. If more than one person is named as Tenant, the obligations of such persons are joint and several. The marginal headings and titles the articles of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 39. TENANT'S RESPONSIBILITY REGARDING HAZARDOUS SUBSTANCES (a). Hazardous Substances. The term "Hazardous Substances", as used in this Lease, shall include, without limitation, flammables, explosives, radioactive materials, asbestos, polychlorinated biphenyls (PCBs), chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, petroleum and petroleum products, and substances declared to be hazardous or toxic under any law or regulation now or hereafter enacted or promulgated by any governmental authority. (b) Tenant's Restrictions. Tenant shall not cause or permit to occur: (i) Any violation of any federal, state or local law, ordinance, or regulation now or hereafter enacted, related to environmental conditions on, under, or about the Premises, or arising from Tenant's use or occupancy of the Premises, including, but not limited to, soil and ground water conditions; or (ii) The use, generation, release, manufacture, refining, production, processing, storage, or disposal of any Hazardous Substance on, under or about the Premises, or the transportation to or from the Premises of any Hazardous Substance, except as specifically disclosed this Lease. (c) Environmental Clean-Up (i) Tenant shall, at Tenant's own expense, comply with all laws regulating the use, generation, storage, transportation, or disposal of Hazardous Substances ("Laws"). (ii) Tenant shall, at Tenant's own expense, make all submissions to, provide all information required by, and comply with all requirements of all governmental authorities (the "Authorities") under the Laws. (iii) Should any Authority or any third party demand that a clean-up plan be prepared and that a clean-up be undertaken because of any deposit, spill, discharge, or other release of Hazardous Substances that occurs during the term of this Lease, at or from the Premises, or which arises at any time from Tenant's use or occupancy of the Premises, then Tenant shall, at Tenant's own expense, prepare and submit the required plans and all related bonds and other financial assurances; and Tenant shall carry out all such clean-up plans. (iv) Tenant shall promptly provide all information regarding the use, generation, storage, transportation, or disposal of Hazardous Substances that is 16 17 requested by Owner. If Tenant fails to fulfill any duty imposed under this Paragraph (c) within reasonable time, Owner may do so; and in such case, Tenant shall cooperate with Owner in order to prepare all documents Owner deems necessary or appropriate to determine the applicability of the Laws to the Premises and Tenant's use thereof, and for compliance therewith, The Tenant shall execute all documents promptly upon Owner's request. No such action by Owner and no attempt made by Owner to mitigate damages under any Law shall constitute a waiver of any of Tenant's obligations under this Paragraph (c). (v) Tenant's obligations and liabilities under this Paragraph (c) shall survive the expiration of this Lease. (d) Tenant's Indemnity. (i) Tenant shall indemnify, defend, and hold harmless Owner, the manager of the property, and their respective officers, directors, beneficiaries, shareholders, partners, agents, and employees from all fines, suits, procedures, claims, and actions of every kind, and all costs associated therewith (including attorneys' and consultants' fees) arising out of or in any way connected with any deposit, spill, discharge, or other release of Hazardous Substances that occurs during the term of this Lease, at or from the Premises, or which arises at any time from Tenant's use or occupancy of the Premises, or from Tenant's failure to provide all information, make all submissions, and take all steps required by all Authorities under the Laws and all other environmental laws. (ii) Tenant's obligations and liabilities under this Paragraph (d) shall survive the expiration of this Lease. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day and year first above written. Tenant: Landlord: Business Resource Group Interwestern Management Corp. Managers for AmberJack, Ltd. By By ------------------------------ ------------------------------ Its Its ----------------------------- ----------------------------- By By ------------------------------ ------------------------------ Its Its ----------------------------- ----------------------------- 17 18 EXHIBIT "A" Floor Plan for leased space EXHIBIT "B" deleted 18 19 EXHIBIT "C" STANDARDS FOR UTILITIES AND SERVICES The following Standards for Utilities and Services are in effect. Landlord reserves the right to adopt non-discriminatory modifications and additions hereto. As long as Tenant is not in default under any of the terms, covenants, conditions, provisions or agreements of this Lease, Landlord shall: (a) Provide non-attended automatic elevator facilities Monday through Friday, except holidays, from 7 a.m. to 6 p.m., and have one elevator available at all other times. (b) On Monday through Friday, except holidays, from 7 a.m. to 6 p.m. (and other times for $5.00 per zone per hour, ventilate the Leased Premises and furnish air conditioning or heating on such days and hours, when in the judgment of Landlord, it may be required for the comfortable occupancy of the Leased Premises. The air conditioning system achieves maximum cooling when the window blinds remain closed. Landlord shall not be responsible for room temperatures if Tenant does not keep all window coverings in the Leased Premises closed whenever the system is in operation. Tenant agrees to cooperate fully at all times with Landlord, and to abide by all regulations and requirements which Landlord may prescribe for the proper functioning and protection of said air conditioning system. Tenant agrees not to connect any apparatus, device, conduit or pipe to the Building's chilled and hot water air conditioning supply lines. Tenant further agrees that neither Tenant nor its servants, employees, agents, visitors, licensees or contractors shall at any time enter mechanical installations or facilities of the Building or adjust, tamper with, touch or otherwise in any manner affect said installation or facilities. (c) Furnish to the Premises, during the usual business hours on business days, electric current as required by the Building standard office lighting and fractional horsepower office business machines in the amount of approximately two and one-half (2.5) watts per square foot. Tenant agrees, should its electrical installation or electrical consumption be in excess of the aforesaid quantity or extend beyond normal business hours, to reimburse Landlord monthly for the measured consumption at the terms, classifications and rates charged to similar consumers by the public utility serving the neighborhood in which the Building is located. If a separate meter is not installed at Tenants cost, such excess cost will be established by an estimate agreed upon by Landlord and Tenant, and if the parties fail to agree, as established by an independent licensed engineer. Tenant agrees not to use any apparatus or device in, upon, or about the Leased Premises which may in any way increase the amount of such services usually furnished or supplied to said Leased Premises, and Tenant further agrees not to connect any apparatus or device with wires, conduits or pipes, or other means by which such services are supplied, for the purpose of using additional or unusual amounts of such services without written consent of Landlord. Should Tenant use such services to excess, the refusal on the part of Tenant to pay, upon demand of Landlord, the amount established by Landlord for such excess charge shall constitute a breach of the obligation to pay rent under this Lease and shall entitle Landlord to the rights therein granted for 19 20 such breach. At all times Tenant's use of electric current shall never exceed the capacity of the feeders to the Building or the risers or wiring installation and Tenant shall not install, use or permit the installation or use of any computer or electronic data processing equipment in the Premises without the prior written consent of Landlord. (d) Provide water in public areas for drinking and lavatory purposes only, and if Tenant requires, uses or consumes water for any purposes in addition to ordinary drinking and lavatory purposes of which fact Tenant constitutes Landlord to be the sole judge, Landlord may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant shall pay Landlord for the cost of the meter and the cost of the installation thereof and throughout the duration of Tenant's occupancy. Tenant shall keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense, in default of which Landlord may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to pay for water consumed, as shown on said meter, as and when bills are rendered, and on default in making such payment, Landlord may pay such charges and collect the same from Tenant. Any such costs or expenses incurred, or payments made by Landlord for any of the reasons or purposes hereinabove stated shall be deemed to be additional rent payable by Tenant and collectible by Landlord as such. (e) Provide janitor service to the Premises, provided the same are used exclusively as offices, and are kept reasonably in order by Tenant, and if to be kept clean by Tenant, no one other than persons approved by Landlord shall be permitted to enter the Premises for such purposes. If the Premises are not used exclusively as offices, they shall be kept clean and in order by Tenant, at Tenant's expense, and to the satisfaction of Landlord the cost of removal of any of Tenant's refuse and rubbish, to the extent that the same exceeds the refuse and rubbish usually attendant upon the use of the Premises as offices. (f) Landlord reserves the right to stop service of the elevator, plumbing, ventilation, air conditioning and electric systems, when necessary, by reason of accident or emergency or for repairs, alterations or improvements, in the judgment of Landlord desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed, and shall further have no responsibility or liability for failure to supply elevator facilities, plumbing, ventilating, air conditioning or electric service, when prevented from so doing by strike or accident or by any cause beyond Landlord's reasonable control, or by laws, rules, orders, ordinances, directions, regulations or requirements of any federal, state, county or municipal authority, or failure of gas, or other suitable fuel supply or inability by exercise of reasonable diligence to obtain gas, oil or other suitable fuel. It is expressly understood and agreed that any covenants on Landlord's part to furnish any service pursuant to any of the terms, covenants, conditions, provisions or agreements of the Lease, or to perform any act or thing for the benefit of Tenant, shall not be deemed breached if Landlord is unable to furnish or perform the same by virtue of a strike or labor trouble or any other cause whatsoever beyond Landlord's control. 20 21 EXHIBIT "D" RULES AND REGULATIONS 1. No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building without the prior written consent of the Landlord. Landlord shall have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person or vendor chosen by Landlord. In addition, Landlord reserves the right to change from time to time the format of the signs or lettering and to require previously approved signs or lettering to be appropriately altered. 2. If Landlord objects in writing to any curtains, blinds, shades or screens attached to or hung in or used in connection with any window or door of the Leased Premises, Tenant shall immediately discontinue such use. No awning shall be permitted on any part of the Leased Premises. Tenant shall not place anything or allow anything to be placed against or near any glass partitions or doors or windows which may appear unsightly, in the opinion of Landlord, from outside the Leased Premises. 3. Tenant shall conform to the design standards established from time to time by Landlord for any items to be placed on balconies on the Building. Landlord shall have the right to remove, at Tenant's expense and without notice all items not conforming with such design standards. 4. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators, or stairways of the Building. The halls, passages, exits, entrances, elevators and stairways are not for the general public, and Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interests of the Building and its Tenants provided that nothing herein contained shall be construed to prevent such access to persons with whom any Tenant deals in the ordinary course of its business, unless such persons are engaged in illegal activities. No Tenant and no employee or invitee of any Tenant shall go upon the roof of the Building. 5. The directory of the Building will be provided exclusively for the display of the name and location of Tenants only and Landlord reserves the right to exclude any other names therefrom. 6. All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. Landlord shall not in any way be responsible to any Tenant for any loss of property on the Premises, however occurring, or for any damage to any Tenant's property by the janitor or any other employee of any other person. 21 22 7. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instruction in their installation. 8. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. 9. Tenant shall not place a load upon any floor which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall stand on such platforms as determined by Landlord to be necessary to properly distribute the weight. Business machines and mechanical equipment belonging to Tenant which causes noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any Tenants shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. 10. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord. Tenant shall not waste electricity, water or air conditioning. Tenant shall keep corridor doors closed. 11. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In addition, Landlord reserves the right to close and keep locked all entrance and exit doors of the Building on Sundays and legal holidays and on other days between the hours of 6 p.m. and 7 a.m. the following day, and during such further hours as Landlord may deem advisable for the adequate protection of said Building and the property of its tenants. 12. Tenant shall close and lock the doors of its Leased Premises and entirely shut off all water faucets or other water apparatus and electricity, gas or air outlets before Tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule. 13. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, no foreign substance of any kind whatsoever shall be thrown therein, and the expense of any 22 23 breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees, shall have caused it. 14. Tenant shall not install any radio or television antenna, loudspeaker or other device on the roof or exterior walls of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. 15. Except as approved by Landlord, Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Leased Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Leased Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule. 16. Tenant shall store all its trash and garbage within its Leased Premises. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 17. No cooking shall be done or permitted by any Tenant on the Leased Premises, except that used by the Tenant of Underwriter's Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, provided that such equipment and use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and obligations. 18. Tenant shall not use in any space or in the public halls of the Building any hand trucks except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the Building. 19. Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 20. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the Leased Premises, or permit or suffer the Leased Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors and/or vibrations, or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought in or kept in or about the Leased Premises or the Building. 21. The requirements of Tenant will be attended to only upon appropriate application to the office of the Building by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 22. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be 23 24 construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building. 23. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenant, agreements and conditions of any lease of premises in the Building. 24. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order therein. Tenant agrees to abide by all such rules and regulations hereinabove stated and any additional rules and regulations which are adopted. 25. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customer, invitees and guests. 24 25 LEASE ADDENDUM This Addendum is attached to and forms part of the Lease dated December 16, 1996, between AmberJack Ltd., Landlord, and Business Resource Group, Tenant, for the premises located at 1515 E. Missouri Avenue, Phoenix, AZ 85014. In the event of any conflict between the terms of this Addendum and the Lease, the terms of this Addendum shall control. 4. Operating Expenses (b)(ii)(I) - "Operating Expenses" items A,E and G, shall be subject to a maximum year to year increase of 8%. 8. Improvements and Alterations (a) Landlord shall provide a total remodeling construction allowance of $45,952.00 for the tenant to perform Landlord approved interior improvements. Landlord shall not release any of the remodeling funds for the purchase of furniture, artwork, trade fixtures, or any type of personal property. 40. Signs Tenant may install a building standard identification sign on the project's existing monument wall. The final size, style, color, location and configuration must be approved by the Landlord prior to installation. 41. Second Right of Refusal Provided Tenant is not in default under the terms and conditions of the Lease, Tenant shall have the Second Right of Refusal on the 2nd floor premises. Should Landlord accept an offer on the said premises, which is refused by the tenant holding the First Right of Refusal, Landlord shall notify Tenant in writing of such offer, and deliver to Tenant a copy of the accepted offer describing the terms and conditions. Tenant shall have a period of five (5) days after receipt of Landlord's notice to notify Landlord of their intent to lease the premises upon the terms and conditions contained in the Landlord's accepted offer. 25 EX-11.1 4 COMPUTATION OF NET LOSS PER SHARE 1 EXHIBIT 11.1 BUSINESS RESOURCE GROUP STATEMENT OF COMPUTATION OF NET INCOME PER SHARE (IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED OCTOBER 31, ------------------------------------------------- 1996 1995 1994 ------ ------ ----- FULLY DILUTED Net income ............................... $1,854 ====== Pro forma net income ..................... $ 999 $1,426 ====== ====== Weighted average common shares outstanding............................ 4,844 3,662 3,085 Common equivalent shares: Stock options ......................... 42 -- 58 Supplemental shares (1) ............... -- 172 263 ------ ------ ----- Total common stock and common stock equivalents ..................... 4,886 3,834 3,406 ====== ====== ===== Net income per common share .............. $ .38 ====== Pro forma net income per common share ...................... $ .26 $ .42 ====== =====
(1) Represents the approximate number of shares that would have to have been sold to fund the distribution of undistributed S Corporation earnings. See Note 2 to Financial Statements. EX-23.1 5 INDEPENDENT AUDITORS' CONSENT 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No 33-95144 of Business Resource Group on Form S-8 of our report dated December 10, 1996, appearing in this Annual Report on Form 10-K of Business Resource Group for the year ended October 31, 1996. /s/ Deloitte & Touche LLP San Jose, California January 24, 1997 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 1000 YEAR OCT-31-1996 NOV-01-1995 OCT-31-1996 1011 0 16179 57 974 19494 2646 629 22560 9431 0 0 0 49 12953 22560 67834 78280 55051 62371 12870 0 0 3163 1309 0 0 0 0 1854 .38 .38
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