<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BSQUARE CORPORATION
(NAME OF ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
WASHINGTON 7371 91-1650880
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3633 136TH PLACE S.E., SUITE 100
BELLEVUE, WASHINGTON 98006
(425) 519-5900
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE
OF BUSINESS)
WILLIAM T. BAXTER
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
3633 136TH PLACE S.E., SUITE 100
BELLEVUE, WASHINGTON 98006
(425) 519-5900
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO BE SENT TO:
MICHAEL J. ERICKSON, ESQ.
KAREN A. ANDERSEN, ESQ.
LAURA A. BERTIN, ESQ.
MARK F. WORTHINGTON, ESQ.
SUMMIT LAW GROUP, PLLC
1505 WESTLAKE AVENUE NORTH, SUITE 300
SEATTLE, WASHINGTON 98109
(206) 281-9881
WILLIAM D. SHERMAN, ESQ.
CORI M. ALLEN, ESQ.
COREY A. LEVENS, ESQ.
MORRISON & FOERSTER LLP
755 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 813-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
Common Stock, no par value........................... $60,000,000.00 $16,680.00
- ---------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST , 1999
SHARES
[BSQUARE CORPORATION LOGO]
COMMON STOCK
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $
and $ per share. We will apply to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "BSQR."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 5.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS BSQUARE
--------------- ------------- -----------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON LEHMAN BROTHERS
A.G. EDWARDS & SONS, INC. WIT CAPITAL CORPORATION
The date of this prospectus is , 1999.
<PAGE> 3
[Description of Artwork]
Front Inside Cover
[BSQUARE LOGO]
[Text]
ICD Road Map
Chart of
BSQUARE &
WINDOWS CE
BSQUARE provides Windows(R) CE-based
software solutions to enable a wide range
of intelligent computing devices
SET-TOP BOXES
INDUSTRIAL DEVICES
THIN CLIENTS
GAMING SYSTEMS
HANDHELD DEVICES
CONSUMER APPLIANCES
Enabling
the age of
INTELLIGENT
COMPUTING
DEVICES
<PAGE> 4
INSIDE GATEFOLD
[Text]
BSQUARE CORPORATION
BSQUARE - A LEADING WINDOWS CE SOLUTIONS PROVIDER
The growth of the market for intelligent computing devices, compounded by the
growth of the Windows CE operating system, has created an emerging market
opportunity for Windows CE-based software solutions and engineering services.
BSQUARE provides software engineering services to Microsoft to help develop the
Windows CE operating system and the accompanying tool set. BSQUARE provides
OEMs with software infrastructure products and services to help achieve
time-to-market objectives. End-users license BSQUARE's mobile productivity
software, such as bFAX(R), to extend the use of intelligent computing devices.
Off-the-shelf software products help OEMs achieve a faster time-to-market, and
end-users to increase the functionality of intelligent computing devices.
BSQUARE's experienced software engineering team has been developing Windows
CE-based software solutions since January 1995 - prior to the commercial
release of Windows CE.
INTELLIGENT COMPUTING DEVICES
[Pictures reflecting BSQUARE products and models posing
as BSQUARE engineering team]
<PAGE> 5
Inside Gatefold
[Text]
From the operating system to run-time software to value-added applications,
BSQUARE provides end-to-end software solutions for the development and use of
Windows CE-based intelligent computing devices.
Intelligent Computing Device Development Process
[Chart reflecting]
Microsoft
Microprocessor Vendors
Intelligent Computing Device Manufacturers )OEMs)
End-users
Software engineering services for development of Windows CE operating system
and accompanying tools
Software engineering services for development of Windows CE tools and system
level software support
Software products and engineering services for the integration of Windows CE
into devices. End-user applications for bundling on devices
After-market software products to extend the use of intelligent computing
devices
BSQUARE supplies software products and services throughout the process
[BSQUARE LOGO]
Windows CE
<PAGE> 6
Back Cover
[BSQUARE LOGO]
[Text]
BSQUARE provides software solutions to enable the development and
proliferation of Windows CE-based intelligent computing devices. From the
operating system to run-time software to value-added applications.
BSQUARE PRODUCTS AND SERVICES COMPRISE END-TO-END SOLUTIONS.
"We came to BSQUARE because we knew they had the products and expertise to
assist us in the development of Capio[TM], our latest Window[R]-based Terminal,
within our tight timeframe. With BSQUARE's CE Xpress[TM] Kit and a custom
Ethernet driver they developed for us, we were able to shorten our development
time and deliver our product to market quickly."
MIKE OLIVA, DIRECTOR OF MARKETING, BOUNDLESS TECHNOLOGIES INC.
"BSQUARE seems to always be keying in on the most meaningful segments of the
Windows CE product market: They always know what we want as consuming people."
JARED MINIMAN, WINCELAIR
INTELLIGENT
COMPUTING
DEVICES
<PAGE> 7
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 5
FORWARD-LOOKING STATEMENTS............ 14
USE OF PROCEEDS....................... 14
DIVIDEND POLICY....................... 14
CAPITALIZATION........................ 15
DILUTION.............................. 16
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 18
BUSINESS.............................. 27
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
MANAGEMENT............................ 41
CERTAIN TRANSACTIONS.................. 48
PRINCIPAL SHAREHOLDERS................ 49
DESCRIPTION OF CAPITAL STOCK.......... 51
SHARES ELIGIBLE FOR FUTURE SALE....... 53
UNDERWRITING.......................... 55
NOTICE TO CANADIAN RESIDENTS.......... 57
LEGAL MATTERS......................... 58
EXPERTS............................... 58
WHERE TO FIND ADDITIONAL DOCUMENTS.... 58
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2
<PAGE> 8
PROSPECTUS SUMMARY
The following summary highlights information that we present more fully
elsewhere in this prospectus. You should read this entire prospectus carefully.
BSQUARE CORPORATION
We are a leading provider of software solutions that enable the development
and proliferation of a wide variety of intelligent computing devices based on
the Microsoft Windows CE operating system.
Intelligent computing devices, or ICDs, are a new class of powerful and
cost-effective devices that have form factors and feature sets closely tailored
to their specific applications and are able to support sophisticated
communications capabilities. ICDs include, among other devices, digital set-top
boxes, gaming systems, handheld data collectors used for industrial purposes and
Windows-based terminals. As businesses and consumers continue to leverage the
Internet to enhance connectivity among suppliers, partners and consumers alike,
users are increasingly looking to ICDs as a cost-effective and more flexible
means of achieving electronic connectivity.
To enable the deployment of ICDs and to support the development of
industry-specific applications, semiconductor vendors and original equipment
manufacturers, or OEMs, demand a highly scalable and customizable operating
system with minimal system requirements. Microsoft's Windows CE operating system
is rapidly gaining market acceptance as an operating system of choice for these
hardware manufacturers.
We help enable the rapid and low-cost deployment of ICDs by providing a
variety of software solutions for the development and integration of the Windows
CE operating system with industry-specific applications. We have also developed
software applications that we license to end users to provide ICDs with
additional functionality. Because we have been building Windows CE-based
software solutions since before the commercial release of Windows CE, we believe
that we offer a greater breadth and depth of Windows CE software solutions
expertise than any of our current competitors.
We provide solutions to Microsoft for the development of the Windows CE
operating system and tools. We also provide Windows CE solutions to OEMs and
semiconductor vendors and license our end-user software applications to OEMs for
bundling on ICDs and to end users. To date, we have provided our products and
services to Microsoft, Hewlett-Packard, Hitachi, Motorola, NEC, Philips
Electronics and Sharp Electronics, among others.
Our strategy is to become the leading provider of software solutions for
the development and proliferation of ICDs. The key elements of our strategy
include continuing to enhance our position as a leading provider of Windows CE
solutions, expanding our strategic relationships with hardware and software
vendors, continuing to leverage our relationship with Microsoft, leveraging our
extensive Windows CE expertise to develop additional software applications and
expanding our international presence.
We were incorporated in the State of Washington in July 1994. Our principal
executive offices are located at 3633 136th Place S.E., Suite 100, Bellevue,
Washington 98006, and our telephone number is (425) 519-5900. Our World Wide Web
address is www.bsquare.com. Information on our website does not constitute a
part of this prospectus.
------------------------
BSQUARE, bFAX and BSQUARE View are our registered trademarks. Additionally,
bTRACK, bREADY, bFIND, bPRINT, bMOBILE, bUSEFUL, bTASK, bPRODUCTIVE, bSTART and
CEValidator are our trademarks. This prospectus also contains trademarks and
tradenames of other companies.
3
<PAGE> 9
THE OFFERING
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<S> <C>
Common stock offered by us...................... shares
Common stock to be outstanding after this
offering...................................... shares
Use of proceeds................................. For general corporate purposes, including planned
relocation expenses. See "Use of Proceeds" on page
14.
Proposed Nasdaq National Market Symbol.......... BSQR
</TABLE>
Unless otherwise indicated, the information in this prospectus reflects the
number of shares outstanding on July 31, 1999 and assumes the conversion of all
outstanding shares of preferred stock into common stock upon the closing of this
offering and no exercise of the underwriters' over-allotment option.
Please see "Capitalization" on page 15 for a more complete discussion
regarding the outstanding shares of common stock, options to purchase common
stock and other related matters.
SUMMARY CONSOLIDATED FINANCIAL DATA
The pro forma consolidated balance sheet data summarized below gives effect
to the conversion of all outstanding preferred stock into common stock upon
completion of this offering. The pro forma as adjusted consolidated balance
sheet data summarized below reflects the application of the net proceeds from
the sale of the shares of common stock offered by us at the
assumed initial public offering price of $ per share and after deducting the
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SIX MONTHS ENDED
(JULY 15) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------------ ----------- ------ ------- ------- ------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue.................... $ 151 $1,573 $4,186 $14,405 $24,612 $10,802 $18,543
Gross profit............... 68 778 2,782 8,761 13,311 5,774 9,644
Income from operations..... 64 692 1,971 4,564 3,170 1,704 1,448
Net income................. $ 64 $ 693 $1,971 $ 3,806 $ 2,300 $ 1,217 $ 866
======= ====== ====== ======= ======= ======= =======
Basic earnings per share... $ 0.00 $ 0.03 $ 0.09 $ 0.18 $ 0.12 $ 0.06 $ 0.04
======= ====== ====== ======= ======= ======= =======
Shares used in computation
of basic earnings per
share................... 21,000 21,000 22,106 21,400 18,372 18,615 18,206
======= ====== ====== ======= ======= ======= =======
Pro forma basic earnings
per share............... $ 0.09 $ 0.03
======= =======
Shares used in computation
of pro forma basic
earnings per share...... 26,021 26,539
======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999 (UNAUDITED)
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 9,284 $ 9,284 $
Working capital.......................................... 10,675 10,675
Total assets............................................. 18,749 18,749
Long term obligations, net of current portion............ 210 210
Mandatorily redeemable convertible preferred stock....... 14,475 --
Shareholders' equity (deficit)........................... (255) 14,220
</TABLE>
4
<PAGE> 10
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially adversely affect our business, operating
results and financial condition and could result in a complete loss of your
investment.
UNANTICIPATED FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS DUE TO FACTORS
SUCH AS CHANGES IN OUR RELATIONSHIP WITH MICROSOFT OR A DECLINE IN THE MARKET
FOR WINDOWS CE-BASED ICDS COULD CAUSE OUR STOCK PRICE TO DECLINE SIGNIFICANTLY.
Our operating results have fluctuated in the past, and we expect that they
will continue to do so. We believe that period-to-period comparisons of our
operating results are not meaningful, and you should not rely on such
comparisons to predict our future performance. If our operating results fall
below the expectations of stock analysts and investors, the price of our common
stock may fall. Factors that may cause our quarterly operating results to
fluctuate include:
- the failure or perceived failure of Windows CE to achieve widespread
market acceptance;
- the failure of the ICD market to develop;
- adverse changes in our relationship with Microsoft;
- our inability to develop and market new and enhanced products and
services on a timely basis;
- unanticipated delays, or announcement of delays, by Microsoft of Windows
CE product releases;
- changes in demand for our products and services;
- increased competition and changes in our pricing as a result of increased
competitive pressure;
- our ability to control our expenses, a large portion of which are
relatively fixed and which are budgeted based on anticipated revenue
trends, in the event that customer projects, particularly Microsoft
projects, are delayed, curtailed or discontinued;
- changes in the mix of our services and product revenue, which have
different gross margins;
- underestimates by us of the costs to be incurred in significant fixed-fee
service projects; and
- varying customer buying patterns which are often influenced by year-end
budgetary pressures.
In addition, our stock price may fluctuate due to conditions unrelated to our
operating performance, including general economic conditions in the software
industry and the market for technology stocks.
IF THE MARKET FOR THE WINDOWS CE OPERATING SYSTEM FAILS TO DEVELOP FULLY OR
DEVELOPS MORE SLOWLY THAN WE EXPECT, OUR BUSINESS AND OPERATING RESULTS WILL BE
MATERIALLY HARMED.
Windows CE is one of many operating systems developed for the ICD market
and the extent of its future acceptance is uncertain. If the market for the
Windows CE operating system fails to develop fully or develops more slowly than
we expect, our business and operating results will be significantly harmed.
Market acceptance of the Windows CE operating system will depend on many
factors, including:
- Microsoft's development and support of the Windows CE market. Microsoft
could decide to discontinue or lessen its support of the Windows CE
market. In addition, Microsoft has developed a version of its Windows NT
operating system for ICDs and could decide to shift its support to this
operating system to the detriment of Windows CE;
- the ability of the Windows CE operating system to compete against
existing and emerging operating systems for the ICD market including:
VxWorks from WindRiver Systems Inc., pSOS from Integrated Systems, Inc.,
VRTX from Mentor Graphics Corporation, JavaOS from Sun Microsystems, Inc.
and LINUX. In particular, in the market for palm-size devices, Windows CE
faces intense
5
<PAGE> 11
competition from PalmOS used on 3Com Corporation's Palm devices and to
date has had limited success in this market. In the market for cellular
phones, Windows CE faces intense competition from the EPOC operating
system from Symbian. Windows CE may be unsuccessful in capturing a
significant share of the larger segments of the ICD market;
- the acceptance by OEMs and consumers of the mix of functionalities and
features offered by Windows CE; and
- the willingness of software developers to write applications that run on
Windows CE.
IF THE MARKET FOR ICDS FAILS TO DEVELOP FULLY OR DEVELOPS MORE SLOWLY THAN WE
EXPECT, OUR REVENUE WILL NOT GROW AS FAST AS ANTICIPATED, IF AT ALL.
The market for ICDs is emerging and the potential size of this market and
the timing of its development are not known. As a result, our profit potential
is uncertain and our revenue may not grow as fast as we anticipate, if at all.
We are dependent upon the commercialization and broad acceptance by businesses
and consumers of a wide variety of Windows CE-based ICDs. This commercialization
and broad acceptance will depend on many factors, including:
- the development of content and applications for ICDs;
- the willingness of large numbers of businesses and consumers to use
devices other than personal computers to achieve electronic connectivity;
and
- the evolution of industry standards that facilitate the distribution of
content over the Internet to these devices.
A SUBSTANTIAL PORTION OF OUR REVENUE IS GENERATED UNDER A MASTER DEVELOPMENT AND
LICENSE AGREEMENT WITH MICROSOFT, WHICH CAN BE MODIFIED OR TERMINATED BY
MICROSOFT AT ANY TIME.
In 1997 and 1998, and for the six months ended June 30, 1999, 39%, 79% and
87% of our revenue, respectively, was generated under our master development and
license agreement with Microsoft. The master agreement, which concludes in
October 2000, includes a number of project-specific work plans. We bill
Microsoft on a time-and-materials basis, although each project has a maximum
dollar cap. We expect the revenue generated from work plans with Microsoft will
continue to comprise the majority of our revenue for the next several years. We
presently have dedicated approximately 200 of our 270 engineers to these
projects. However, the master agreement and each of the individual work plans
may be terminated or modified by Microsoft at any time. In addition, there is no
guarantee that Microsoft will continue to enter into additional work plans with
us. In the past, Microsoft has modified the timing and scale of certain projects
and requested that our engineers be moved from one project to another. We do not
believe that we could replace the Microsoft revenue in the short- or medium-term
if existing work plans were canceled or curtailed, and such cancellations or
curtailments would substantially reduce our revenue.
IF MICROSOFT ADDS FEATURES TO ITS WINDOWS CE OPERATING SYSTEM THAT DIRECTLY
COMPETE WITH SOLUTIONS WE PROVIDE, OUR REVENUE COULD BE REDUCED AND OUR PROFIT
MARGINS COULD SUFFER.
As the developer of Windows CE, Microsoft could add features to its
operating system that directly compete with the software solutions we provide to
our customers. Such features could include, for example, faxing, board support
packages and quality assurance tools. The ability of our customers or potential
customers to obtain solutions directly from Microsoft that compete with our
solutions could harm our business. Even if the standard features of future
Microsoft operating system software were more limited than our offerings, a
significant number of our customers and potential customers might elect to
accept more limited functionality in lieu of purchasing additional software.
Moreover, the resulting competitive pressures could lead to price reductions for
our products and reduce our profit margins.
6
<PAGE> 12
IF WE DO NOT MAINTAIN OUR FAVORABLE RELATIONSHIP WITH MICROSOFT WE WILL HAVE
DIFFICULTY MARKETING OUR SOLUTIONS AND OUR REVENUE WILL SUFFER.
In the event that our relationship with Microsoft or with individuals
within Microsoft were to deteriorate or Microsoft's distribution model for
Windows CE were to change, then our efforts to market and sell our software
solutions to OEMs could be adversely affected and our business would be harmed.
Microsoft has great influence over the development plans and buying decisions of
OEMs utilizing Windows CE for ICDs. Many of our OEM customers are referred to us
by Microsoft. Moreover, Microsoft controls the marketing activities related to
its operating systems, including trade shows, direct mail campaigns and print
advertising. We must maintain mutually successful relationships with Microsoft
and individuals within Microsoft so that we may continue to participate in joint
marketing activities with and receive referrals from Microsoft. In addition,
Microsoft may at any time make changes to its distribution model for Windows CE.
For example, in late 1997 Microsoft decided to contract with us to provide
Windows CE support services to microprocessor vendors with whom we had
previously contracted directly. As a result, from late 1997 through late 1998
our revenue shifted from being generated by a variety of microprocessor vendors
to being generated primarily by Microsoft.
UNANTICIPATED DELAYS, OR ANNOUNCEMENT OF DELAYS, BY MICROSOFT OF WINDOWS CE
PRODUCT RELEASES COULD ADVERSELY AFFECT OUR SALES.
Unanticipated delays, or announcement of delays, in Microsoft's delivery
schedule for new versions of its Windows CE operating system could cause us to
delay our product introductions and impede our ability to complete customer
projects on a timely basis. These delays or announcements by Microsoft could
also cause our customers to delay or cancel their project development activities
or product introductions. Any resulting delays in, or cancellations of, our
planned product introductions or in our ability to commence or complete customer
projects may adversely affect our revenue and could cause our quarterly
operating results to fluctuate. For example, in 1998 Microsoft delayed the
release of a version of its Windows CE Platform Builder, which delayed our
introduction of a complementary product for an OEM customer.
WE HAVE SIGNED A NON-COMPETITION AGREEMENT WITH MICROSOFT WHICH COULD LIMIT OUR
ABILITY TO SUSTAIN OR GROW OUR BUSINESS.
We must receive written permission from Microsoft in order to design or
develop, or participate in, the design or development of products, or provide
services in connection with products, which compete with Windows CE, the Windows
CE Tools products, the Microsoft Windows card operating system, and/or the
Microsoft Windows card tools in existence as of October 1, 1998, or which we
know or have reason to know Microsoft intends to develop, is developing, or has
developed, or intends to acquire. Therefore, if there is a significant shift
away from Microsoft operating systems in the ICD market segments we are
targeting, we will be unable to target and support other operating system
platforms. Moreover, if our relationship with Microsoft is curtailed or
terminated, we would be required to invest significant time and resources to
transition our operations to target and support other operating systems. In
addition, our ability to make acquisitions and/or to assimilate all of the
operations of any acquired company into our operations may consequently be
limited. These restrictions could limit our ability to develop and market
software solutions which could, in turn, constrain our sales.
THE FIXED-FEE ARRANGEMENTS WE HAVE WITH MANY OF OUR CUSTOMERS EXPOSE US TO THE
RISK THAT WE MAY UNDERESTIMATE OUR COSTS FOR PROJECTS, WHICH COULD LOWER OUR
PROFIT MARGINS.
We provide our services to many of our customers under fixed-fee
arrangements. In the event that we underestimate the scope or work effort
required for a customer's project, we may be required to complete the project at
a loss or at a significantly reduced gross margin. If we underestimate the fees
for a series of projects and/or a very large project, our gross margins for a
fiscal period may decline. In addition, revenue from these contracts is
recognized on the percentage-of-completion method, measured by the cost incurred
to date relative to the estimated total cost for the contract. If we
underestimate the time necessary to complete these
7
<PAGE> 13
projects, we may be required to recognize revenue at a later time than we had
anticipated, which would have a negative impact on our financial condition and
cause our quarterly results to fluctuate.
IF WE FAIL TO SECURE CONTRACTS ON SUFFICIENTLY FAVORABLE TERMS, OR AT ALL, WITH
THE LIMITED NUMBER OF MARKET-LEADING OEMS OUR REVENUE AND PROFIT MARGINS COULD
SUFFER.
There are a limited number of OEM customers that are capable of building
and shipping large quantities of ICDs. In some market segments, one or two OEMs
account for a majority of all unit sales. Competition for the business of these
OEMs is intense. If we fail to secure and maintain service and licensing
contracts with the limited number of OEMs in these markets we may not be able to
participate in those market segments. In addition, as a result of their strong
market position, these companies are typically able to secure favorable terms,
including favorable pricing, in their technology licensing and service
agreements. Further, many of these potential OEM customers have the capability
to replace our services and products by utilizing internal resources. For these
reasons, there is no guarantee that we will be able to secure contracts on
sufficiently favorable terms, or at all, with the market-leading OEMs, which
could harm our business.
OUR MARKET IS BECOMING INCREASINGLY COMPETITIVE, WHICH MAY RESULT IN PRICE
REDUCTIONS, LOWER GROSS MARGINS AND LOSS OF MARKET SHARE.
The market for Windows CE-based solutions is becoming increasingly
competitive. Increased competition may result in price reductions, lower gross
margins and loss of market share, which would harm our business. We face
competition from:
- our current and potential customers' internal research and development
departments that may seek to develop their own proprietary solutions;
- large professional engineering services firms that may enter the market;
- established ICD software and tools manufacturers such as Applied
Microsystems Corporation, Spyglass, Inc., Phoenix Technologies, Inc.,
Mentor Graphics and Integrated Systems;
- small- and medium-size engineering services companies such as VenturCom,
Inc., Eclipse International, Inc., BlueWater Systems, Inc. and Vadem; and
- software and component distributors such as Avnet/Hamilton Hallmark,
Pioneer and Annasoft Systems.
As we develop new products, particularly solutions focused on specific
industries, we may begin competing with companies with whom we have not
previously competed. It is also possible that new competitors will enter the
market or that our competitors will form alliances, including alliances with
Microsoft, that may enable them to rapidly increase their market share. The
barrier to entering the market as a Windows CE-based ICD solutions provider is
low and Microsoft is constantly encouraging new suppliers. New competitors may
have lower overhead than us and therefore be able to offer advantageous pricing.
We expect that competition will increase as other established and emerging
companies enter the Windows CE-based ICD market and as new products and
technologies are introduced.
WE ARE DEPENDENT ON OUR CURRENT KEY PERSONNEL, AND OUR SUCCESS DEPENDS UPON OUR
CONTINUED ABILITY TO ATTRACT, TRAIN AND RETAIN ADDITIONAL QUALIFIED PERSONNEL AT
ACCEPTABLE COMPENSATION LEVELS.
Our performance depends substantially on the continued services of our
executive officers and key employees, in particular William T. Baxter, our
Chairman of the Board, President and Chief Executive Officer. The loss of the
services of Mr. Baxter or any of our other executive officers or key employees
could harm our business. None of our executive officers has a contract that
guarantees employment. Other than a $2.0 million life insurance policy on the
lives of each of Messrs. Baxter, Dosser and Gregory, we do not maintain "key
person" life insurance policies. In addition, we depend on our ability to
attract, train and retain qualified personnel, specifically those with
management, technical and product development skills. Competition for such
personnel is intense, particularly in geographic areas recognized as high
technology centers
8
<PAGE> 14
such as the greater-Seattle area, where substantially all of our employees are
located. There can be no assurance that we will be able to attract, train or
retain additional highly qualified technical and managerial personnel in the
future, which could harm our business. Moreover, to remain competitive we have
had to increase employee compensation and our gross margins have been adversely
impacted. To the extent such competitive wage pressure continues or increases
our gross margins could suffer.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, COMPETITORS
MAY BE ABLE TO USE OUR TECHNOLOGY OR TRADEMARKS, WHICH COULD WEAKEN OUR
COMPETITIVE POSITION, REDUCE OUR REVENUE AND INCREASE OUR COSTS.
Our intellectual property is critical to our success. If we fail to
adequately protect our intellectual property our competitive position could be
weakened and our revenue adversely affected. We rely primarily on a combination
of patent, copyright, trade secret and trademark laws, confidentiality
procedures and contractual provisions to protect our intellectual property.
These laws and procedures provide only limited protection. We have applied for
three patents relating to our engineering work. These patents, if issued, may
not provide sufficiently broad protection or they may not prove to be
enforceable against alleged infringers. There can be no assurance that any of
our pending patents will be granted. Even if granted, patents may be
circumvented or challenged and, if challenged, may be invalidated. Any patents
obtained may provide limited or no competitive advantage to us. It is also
possible that another party could obtain patents that block our use of some, or
all, of our products and services. If that occurred, we would need to obtain a
license from the patent holder or design around their patent. The patent holder
may or may not choose to make a license available to us at all or on acceptable
terms. Similarly, it may not be possible to design around such a blocking
patent.
In general, there can be no assurance that our efforts to protect our
intellectual property rights through patent, copyright, trade secret and
trademark laws will be effective to prevent misappropriation of our technology,
or to prevent the development and design by others of products or technologies
similar to or competitive with those developed by us. We frequently license the
source code of our products and the source code results of our services to
customers. There can be no assurance that customers with access to our source
code will comply with the license terms or that we will discover any violations
of the license terms or, in the event of discovery of violations, that we will
be able to successfully enforce the license terms and/or recover the economic
value lost from such violations. To license many of our software products, we
rely in part on "shrinkwrap" and "clickwrap" licenses that are not signed by the
end user and, therefore, may be unenforceable under the laws of certain
jurisdictions. As with other software products, our products are susceptible to
unauthorized copying and uses that may go undetected, and policing such
unauthorized use is difficult.
A significant portion of our marks include the word "BSQUARE" or the
preface "b." Other companies use forms of "BSQUARE" or the preface "b" in their
marks alone or in combination with other words, and we cannot prevent all such
third-party uses. We license certain trademark rights to third parties. Such
licensees may not abide by compliance and quality control guidelines with
respect to such trademark rights and may take actions that would harm our
business.
The computer software market is characterized by frequent and substantial
intellectual property litigation, which is often complex and expensive, and
involves a significant diversion of resources and uncertainty of outcome.
Litigation may be necessary in the future to enforce our intellectual property
or to defend against a claim of infringement or invalidity. Litigation could
result in substantial costs and the diversion of resources and could harm our
business and operating results.
THIRD PARTIES COULD ASSERT THAT OUR SOLUTIONS INFRINGE THEIR INTELLECTUAL
PROPERTY RIGHTS, WHICH COULD EXPOSE US TO ADDITIONAL COSTS AND LITIGATION.
Third parties may claim that our current or future solutions infringe their
proprietary rights, and these claims, regardless of their merit, could increase
our costs and harm our business. We have not conducted patent searches to
determine whether the technology used in our products infringes patents held by
third parties. In addition, it is difficult to determine whether our solutions
infringe third-party intellectual property
9
<PAGE> 15
rights, particularly in a rapidly evolving technological environment in which
there may be numerous patent applications pending, many of which are
confidential when filed, with regard to similar technologies. If we were to
discover that one of our solutions violated a third party's proprietary rights,
we may not be able to obtain a license on commercially reasonable terms or at
all to continue offering that solution. Moreover, although we generally seek to
be indemnified against claims that the technology we license from third parties
infringes the proprietary rights of others, this indemnification is not always
available or may be limited in scope or amount. Even if we receive broad
third-party indemnification, these indemnitors may not have the financial
capability to indemnify us in the event of infringement. In addition, in some
circumstances we could be required to indemnify our customers for claims made
against them that are based on our solutions.
There can be no assurance that infringement or invalidity claims related to
the solutions we develop and/or arising from the incorporation of third-party
technology, and claims for indemnification from our customers resulting from
such claims, will not be asserted or prosecuted against us. We expect that
software product developers will be increasingly subject to infringement claims
as the number of products and competitors in the software industry grows and the
functionality of products in different industry segments overlaps. Such claims,
even if not meritorious, could result in the expenditure of significant
financial and managerial resources in addition to potential product
redevelopment costs and delays.
IF WE DO NOT RESPOND ON A TIMELY BASIS TO TECHNOLOGICAL ADVANCES AND EVOLVING
INDUSTRY STANDARDS OUR FUTURE PRODUCT SALES COULD BE NEGATIVELY IMPACTED.
The market for Windows CE-based solutions is new and evolving. As a result,
the life cycles of our products are difficult to estimate. To be successful, we
must continue to enhance our current product line and develop new products. We
have experienced delays in enhancements and new product release dates in the
past and may be unable to introduce enhancements or new products successfully or
in a timely manner in the future. Our business may be harmed if we must delay
releases of our products and product enhancements or if these products and
product enhancements fail to achieve market acceptance when released. In
addition, our customers may defer or forego purchases of our products if we,
Microsoft, our competitors or major hardware, systems or software vendors
introduce or announce new products or product enhancements. Such deferrals or
failures to purchase would decrease our revenue.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR FUTURE
PROSPECTS AND WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO SUSTAIN OR INCREASE
OUR PROFITABILITY.
We were founded in July 1994, generated our first revenue in October 1994
and shipped our first product in November 1996. Accordingly, we have a limited
operating history and you should not rely on our past results to predict our
future performance. Although we have experienced significant revenue growth
recently, this growth may not continue and we may not be able to sustain or
increase profitability in the future. We anticipate that our expenses will
increase substantially in the foreseeable future as we continue to develop our
technology and expand our product and service offerings. These efforts may prove
more expensive than we currently anticipate, and we may not succeed in
increasing our revenue sufficiently to offset these higher expenses. If we fail
to increase our revenue to keep pace with our expenses, we may experience
losses.
IF WE ARE UNABLE TO MANAGE OUR GROWTH OUR BUSINESS WILL SUFFER.
Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, technical, operational and financial
resources. From August 1996 to July 1999, we grew from 21 employees to 348
employees, and we expect this rapid growth to continue for the foreseeable
future. To manage our growth, we must implement additional management
information systems, further develop our operational, administrative and
financial systems and expand, train and manage our work force. We will also need
to manage an increasing number of complex relationships with customers,
marketing partners and other third parties. We cannot guarantee that our
systems, procedures or controls will be adequate to support our current or
future operations or that our management will be able to effectively manage our
expansion. Our failure to do so could seriously harm our ability to deliver
products and services in a timely fashion, fulfill existing customer commitments
and attract and retain new customers.
10
<PAGE> 16
OUR INTERNATIONAL OPERATIONS EXPOSE US TO GREATER INTELLECTUAL PROPERTY,
MANAGEMENT, COLLECTIONS, REGULATORY AND OTHER RISKS.
Our international operations expose us to a number of risks, including the
following:
- greater difficulty in protecting intellectual property;
- greater difficulty in staffing and managing foreign operations;
- increased risk of uncollectible accounts;
- longer collection cycles;
- unfavorable changes in regulatory practices and tariffs;
- adverse changes in tax laws;
- more extreme sales seasonality, particularly in the summer months;
- the impact of fluctuating exchange rates between the U.S. dollar and
foreign currencies; and
- general economic and political conditions in these foreign markets.
These risks could have a material adverse effect on the financial and
managerial resources required to operate our foreign offices, as well as on our
future international revenue, which could harm our business.
IF WE CONDUCT FUTURE ACQUISITIONS, THEY COULD PROVE DIFFICULT TO INTEGRATE,
DISRUPT OUR BUSINESS, DILUTE SHAREHOLDER VALUE AND ADVERSELY AFFECT OUR
OPERATING RESULTS.
Although we currently have no specific understandings, commitments or
agreements for any acquisition, we may make investments in complementary
companies, services and technologies in the future. We have not made any
material acquisitions or investments to date, and therefore our ability as an
organization to conduct acquisitions or investments is unproven. If we fail to
properly evaluate and execute acquisitions and investments, they may seriously
harm our business and prospects. To successfully complete an acquisition, we
must properly evaluate the technology, accurately forecast the financial impact
of the transaction, including accounting charges and transaction expenses,
integrate and retain personnel, combine potentially different corporate cultures
and effectively integrate products and research and development, sales,
marketing and support operations. If we fail to do any of these, we may suffer
losses or our management may be distracted from our day-to-day operations. In
addition, if we conduct acquisitions using debt or equity securities, existing
shareholders may be diluted, which could affect the market price of our stock.
IF WE ARE UNABLE TO LICENSE KEY TECHNOLOGY FROM THIRD PARTIES OUR BUSINESS COULD
BE HARMED.
We rely on technology that we license from third parties, including
software that is integrated with internally developed software and used in our
products, to perform key functions. There can be no assurance that such
third-party technology licenses will continue to be available to us on
commercially reasonable terms, if at all. In the event that we are unable to
continue to operate under current licenses or obtain additional licenses, we
would be required to develop this technology internally, which could delay or
limit our ability to introduce enhancements or new products or to continue to
sell existing products.
OUR SOFTWARE PRODUCTS OR THE THIRD-PARTY HARDWARE OR SOFTWARE INTEGRATED WITH
OUR SOLUTIONS MAY SUFFER FROM DEFECTS OR ERRORS THAT COULD IMPAIR OUR ABILITY TO
SELL OUR SOLUTIONS.
Software and hardware solutions as complex as those needed for ICDs
frequently contain errors or defects, especially when first introduced or when
new versions are released. We have had to delay commercial release of certain
versions of our solutions until software problems were corrected, and in some
cases have provided product enhancements to correct errors in released products.
Some of our contracts require us to repair or replace products that fail to
work. To the extent that we repair or replace products our expenses may increase
resulting in a decline in our gross margins. In addition, it is possible that by
the time defects are fixed the market opportunity may have been missed which may
result in lost revenue. Moreover, errors that
11
<PAGE> 17
are discovered after commercial release could result in loss of revenue or delay
in market acceptance, diversion of development resources, damage to our
reputation or increased service and warranty costs, all of which could harm our
business.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. It is
possible, however, that these provisions may be ineffective under the laws of
certain jurisdictions. Although we have not experienced any product liability
claims to date, the sale and support of our solutions entail the risk of such
claims and we may be subject to such claims in the future. A product liability
claim brought against us, whether successful or not, could harm our business and
operating results.
THE LENGTHY SALES CYCLE OF OUR PRODUCTS MAKES OUR REVENUE SUSCEPTIBLE TO
FLUCTUATIONS.
Our sales cycle is generally long because the expense and complexity of our
products and services typically require a lengthy approval process for
investment in our products and services, and may be subject to a number of
significant risks over which we have little or no control, including:
- customers' budgetary constraints and internal acceptance review
procedures;
- the timing of budget cycles; and
- the timing of customers' competitive evaluation processes.
In addition, to successfully sell our products and services, we frequently must
educate our potential customers about the full benefits of our products and
services, which can require significant time. If our sales cycle lengthens
unexpectedly, it could adversely affect the timing of our revenue which could
cause our quarterly results to fluctuate.
A SMALL NUMBER OF OUR EXISTING SHAREHOLDERS CAN EXERT CONTROL OVER US.
After this offering, our officers, directors and principal shareholders
holding more than 5% of our common stock will together control approximately
% of our outstanding common stock. As a result, these shareholders, if they
act together, will be able to control our management and affairs of the company
and all matters requiring shareholder approval, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may have the effect of delaying or preventing a change in control
of us and might affect the market price of our common stock.
IT MIGHT BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US EVEN IF DOING SO WOULD BE
BENEFICIAL TO OUR SHAREHOLDERS.
Certain provisions of our amended and restated articles of incorporation,
bylaws and Washington law may discourage, delay or prevent a change in the
control of us or a change in our management even if doing so would be beneficial
to our shareholders. Additionally, the existence of these provisions could limit
the price that investors might be willing to pay in the future for shares of our
common stock.
WE WILL HAVE BROAD DISCRETION IN THE USE OF THE PROCEEDS OF THIS OFFERING. OUR
FAILURE TO APPLY SUCH FUNDS EFFECTIVELY COULD HARM OUR BUSINESS.
We have not designated any specific use for a substantial portion of the
net proceeds from this offering. We intend to use the net proceeds primarily for
general corporate purposes, including working capital and relocation expenses.
Management will have significant flexibility in applying the net proceeds of the
offering. Our failure to apply such funds effectively could harm our business.
12
<PAGE> 18
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE FUTURE
MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public
market following this offering could adversely affect the market price of the
common stock. As additional shares of our common stock become available for
resale in the public market, the supply of our common stock will increase which
could decrease the price. The number of shares of common stock available for
sale in the public market is limited by restrictions under the federal
securities laws and under agreements some of our shareholders, directors and
employees have entered into with the underwriters. The following table shows the
timing of when shares outstanding on July 31, 1999 may be eligible for resale in
the public market after this offering:
<TABLE>
<CAPTION>
DAYS AFTER DATE OF THIS PROSPECTUS SHARES FIRST ELIGIBLE FOR RESALE COMMENT
- ---------------------------------- -------------------------------- -------------------------------
<S> <C> <C>
- - Upon effectiveness............ - Freely tradeable shares sold
in this offering, and shares
eligible for sale pursuant to
vested and exercisable
options pursuant to our Form
S-8 registration statement
- - 90 days....................... - Shares eligible for sale
under Rules 144 and 701
- - 180 days...................... - Expiration of lock up
agreements
</TABLE>
NEW INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
Investors in our common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of their shares.
Assuming an initial public offering price of $ per share, dilution to new
investors would be $ per share. Additional dilution will occur upon exercise
of outstanding stock options.
YEAR 2000 ISSUES MAY NEGATIVELY IMPACT OUR BUSINESS.
We believe the current versions of our solutions are "Year 2000
compliant" -- that is, they are capable of adequately distinguishing 21st
century dates from 20th century dates. However, we may learn that our software
solutions do not contain all the necessary routines and codes necessary for the
accurate calculation, display, storage and manipulation of data involving dates.
In addition, in the majority of our software licenses, we have warranted that
dates on or after January 1, 2000 will not adversely affect the performance of
our products. Moreover, our solutions are generally integrated into customer
products involving sophisticated hardware and complex software products. If this
third-party equipment or software does not operate properly with respect to the
Year 2000, we may face claims or incur unexpected expenses to remedy any
resulting problems. The costs of defending and resolving Year 2000-related
disputes, regardless of the merits of such disputes, and any liability we may
have for Year 2000-related damages, including consequential damages, could
adversely affect our operating results. Further, many of our computer systems
are connected to Microsoft's computer systems, and we depend on this
connectivity to communicate with Microsoft on various levels. Any failure of
this connectivity or of Microsoft's computers to be Year 2000 compliant may
disrupt our communications with Microsoft and interfere with our ability to
transact business. In addition, we believe that the purchasing patterns of our
customers and potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct or upgrade their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase software solutions such as those we offer.
To the extent Year 2000 issues cause a significant delay in, or cancellation of,
decisions to purchase our products or services, our business would be harmed.
For a more detailed description of our Year 2000 preparedness, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance" on page 25.
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<PAGE> 19
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, those
listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms and other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor anyone else
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus.
USE OF PROCEEDS
We expect to receive approximately $ million in net proceeds from the
sale of the shares of common stock in this offering, assuming the initial public
offering price is $ per share (approximately $ million if the
underwriters' over-allotment option is exercised in full).
The principal purposes of this offering are to create a public market for
our stock and to raise working capital. We plan to use approximately $4.0
million of the net proceeds for capital equipment purchases associated with our
planned relocation of our principal administrative, sales, marketing, support
and research and development facilities in October 1999. We have no specific
uses planned for the remainder of the net proceeds other than for general
corporate purposes. Pending such uses, we intend to invest the net proceeds of
this offering in investment grade, interest-bearing securities. We may use a
portion of the net proceeds to acquire additional businesses, products and
technologies or to establish joint ventures that we believe will complement our
current or future business. However, we have no specific plans, agreements or
commitments to do so, and are not currently engaged in any negotiations for any
such acquisition or joint venture.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend
to retain any future earnings to fund the development and growth of our
business. Therefore, we do not currently anticipate paying any cash dividends in
the foreseeable future. In addition, the terms of our current credit facility
prohibit us from paying dividends without our lender's consent.
14
<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on
the following three bases:
- on an actual basis;
- on a pro forma basis after giving effect to the conversion of 8,333,333
outstanding shares of mandatorily redeemable convertible preferred stock
into shares of common stock; and
- on a pro forma as adjusted basis after giving effect to our receipt of
the net proceeds from the sale of shares of common stock
at $ per share in this offering.
The outstanding share information excludes 2,996,562 shares of common stock
that are reserved for issuance upon exercise of stock options under our stock
option plan outstanding as of June 30, 1999 at a weighted average exercise price
of $0.73 per share.
The capitalization information set forth in the table below is qualified by
and should be read in conjunction with the more detailed consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999 (UNAUDITED)
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, net of current portion.............. $ 210 $ 210 $
Mandatorily redeemable convertible preferred stock, no par
value: 10,000,000 shares authorized; 8,333,333 shares
issued and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted......... 14,475 -- --
Shareholders' equity:
Common stock, no par value: 50,000,000 authorized,
18,225,205 shares issued and outstanding, actual;
50,000,000 authorized, 26,558,538 outstanding, pro
forma; 50,000,000 authorized, shares
issued and outstanding, pro forma as adjusted......... 3,209 17,684
Deferred stock option compensation....................... (1,157) (1,157)
Stock subscription....................................... (29) (29)
Cumulative foreign currency translation adjustment....... (61) (61)
Retained earnings (accumulated deficit).................. (2,217) (2,217)
------- ------- --
Total shareholders' equity (deficit)............. (255) 14,220
------- ------- --
Total capitalization........................ $14,430 $14,430 $
======= ======= ==
</TABLE>
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<PAGE> 21
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. We calculate net tangible book value by
dividing the net tangible book value (total assets less intangible assets and
total liabilities) by the number of outstanding shares of common stock.
At June 30, 1999, our pro forma net tangible book value, after giving
effect to the automatic conversion of all outstanding shares of mandatorily
redeemable convertible preferred stock into 8,333,333 shares of common stock
upon the closing of this offering, was $14.2 million, or $0.54 per share of
common stock. After giving effect to the sale of the shares of common
stock in this offering at an assumed initial public offering price of $ per
share (less estimated underwriting discounts and commissions and estimated
expenses we expect to pay in connection with this offering), our pro forma as
adjusted net tangible book value at June 30, 1999 would be $ , or
$ per share. This represents an immediate increase in the pro forma as
adjusted net tangible book value of $ per share to existing
shareholders and an immediate dilution of $ per share to new investors or
approximately % of the assumed offering price of $ per share.
The following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $
-------
Pro forma net tangible book value per share at June 30,
1999................................................... $ 0.54
-------
Increase per share attributable to new investors.........
-------
Pro forma as adjusted net tangible book value per share
after this offering....................................
-------
Dilution per share to new investors...................... $
=======
</TABLE>
The following table shows on a pro forma as adjusted basis at June 30,
1999, after giving effect to the automatic conversion of all outstanding shares
of mandatorily redeemable convertible preferred stock into shares of common
stock upon the closing of this offering, the number of shares of common stock
purchased from us, the total consideration paid to us and the average price paid
per share by existing shareholders and by new investors purchasing common stock
in this offering (before deducting underwriting discounts and commissions and
estimated offering expenses) at an assumed public offering price of $ per
share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............. 26,558,538 % $15,012,000 % $0.57
New investors...................... $
---------- --- ----------- ---
Total.................... 100% $ 100%
========== === =========== ===
</TABLE>
The above computations assume no exercise of options after June 30, 1999.
The number of shares outstanding at June 30, 1999 excludes 2,996,562 shares of
common stock issuable upon exercise of options outstanding as of June 30, 1999
having a weighted average exercise price of $0.73 per share. To the extent that
any shares are issued upon exercise of options, there will be further dilution
to new investors. To the extent the option holders exercise these outstanding
options, or any options we grant in the future, there will be further dilution
to new investors. For a more detailed discussion of our stock plans and
outstanding options to purchase common stock see Notes 7 and 8 of the Notes to
Consolidated Financial Statements included elsewhere in this prospectus.
16
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the years
ended December 31, 1996, 1997 and 1998 are derived from our consolidated
financial statements, which have been audited by Arthur Andersen LLP,
independent public accountants. The consolidated financial data as of and for
the periods ending December 31, 1994 and 1995 are derived from unaudited
financial statements. The consolidated financial data as of and for the six
months ended June 30, 1998 and 1999 are derived from unaudited financial
statements included elsewhere in this prospectus. We have prepared this
unaudited information on the same basis as the audited consolidated financial
statements and have included all adjustments, consisting of only normal
recurring adjustments, that we consider necessary for a fair presentation of our
financial position and operating results. When you read this selected
consolidated financial data, it is important that you also read the historical
consolidated financial statements and related notes included in this prospectus,
as well as the section of this prospectus related to "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Our historical
results are not necessarily indicative of our future results.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SIX MONTHS ENDED
(JULY 15) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------------ ----------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue............................................ $ 151 $ 1,573 $ 4,186 $14,405 $24,612 $10,802 $18,543
Cost of revenue.................................... 83 795 1,404 5,644 11,301 5,028 8,899
------- ------- ------- ------- ------- ------- -------
Gross profit....................................... 68 778 2,782 8,761 13,311 5,774 9,644
Operating expenses
Research and development......................... -- -- 205 1,391 3,671 1,452 2,960
Selling, general and administrative.............. 4 86 606 2,806 6,470 2,618 5,236
------- ------- ------- ------- ------- ------- -------
Total operating expenses................... 4 86 811 4,197 10,141 4,070 8,196
------- ------- ------- ------- ------- ------- -------
Income from operations............................. 64 692 1,971 4,564 3,170 1,704 1,448
Interest income (expense), net..................... -- 1 -- (12) 319 179 130
------- ------- ------- ------- ------- ------- -------
Income before income taxes......................... 64 693 1,971 4,552 3,489 1,883 1,578
Provision for income taxes......................... -- -- -- 746 1,189 666 712
------- ------- ------- ------- ------- ------- -------
Net income......................................... $ 64 $ 693 $ 1,971 $ 3,806 $ 2,300 $ 1,217 $ 866
======= ======= ======= ======= ======= ======= =======
Basic earnings per share(1)........................ $ 0.00 $ 0.03 $ 0.09 $ 0.18 $ 0.12 $ 0.06 $ 0.04
======= ======= ======= ======= ======= ======= =======
Shares used to compute basic earnings per
share(1)......................................... 21,000 21,000 22,106 21,400 18,372 18,615 18,206
------- ------- ------- ------- ------- ------- -------
Pro forma basic earnings per share(2).............. $ 0.09 $ 0.03
======= =======
Shares used to compute pro forma basic earnings per
share(2)......................................... 26,021 26,539
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1999
------------------------------------------------------------- -------------------
1994 1995 1996 1997 1998 ACTUAL PRO FORMA
----------- ----------- ------- ------- ------------- ------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................... $ 61 $ 103 $ 187 $ 2,286 $ 6,906 $ 9,284 $ 9,284
Working capital............................. 65 236 658 2,918 10,280 10,675 10,675
Total assets................................ 96 514 1,057 6,453 16,158 18,749 18,749
Long-term obligations, net of current
portion................................... -- -- -- 1,743 289 210 210
Mandatorily redeemable convertible preferred
stock..................................... -- -- -- -- 14,417 14,475 --
Shareholders' equity (deficit).............. 66 261 924 2,330 (1,298) (255) 14,220
</TABLE>
- ---------------
(1) See Note 12 to the Consolidated Financial Statements for the determination
of shares used in computing basic earnings per share.
(2) Shares used to compute pro forma basic earnings per share is defined as the
weighted average number of shares of common stock outstanding for the period
plus the weighted average number of shares of common stock resulting from
the assumed conversion of all outstanding shares of the mandatorily
redeemable convertible preferred stock as if converted on date of issuance.
17
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of this prospectus includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. We use words such as "anticipate," "believes," "expects,"
"future," "intends" and similar expressions to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results or our
predictions. For a description of these risks, see "Risk Factors."
OVERVIEW
We are a leading provider of software solutions that enable the development
and proliferation of a wide variety of ICDs based on the Microsoft Windows CE
operating system. Our revenue totaled $14.4 million in 1997, $24.6 million in
1998 and $18.5 million for the six months ended June 30, 1999. We generated net
income of $3.8 million in 1997, $2.3 million in 1998 and $866,000 for the six
months ended June 30, 1999.
We began operations in July 1994, generated our first revenue in October
1994 and shipped our first product in November 1996. Through late 1997, we
provided software engineering services directly to microprocessor vendors. In
late 1997, Microsoft decided to contract with us to provide our services to the
microprocessor customers with whom we had previously contracted directly. As a
result, we began to experience a shift from providing engineering services
directly to microprocessor vendors to working for Microsoft for the benefit of
these companies. This shift to Microsoft work was completed in the second
quarter of 1998.
In 1997 we began research and development activities which enabled us to
enhance our ability to provide a broad range of software solutions. These
research and development activities produced software applications for ICD tool
kits and handheld devices. In connection with these activities, we hired
personnel to build our human resource, finance, legal and administrative
infrastructure. In early 1998, we accelerated our investments in research and
development, marketing and domestic and international sales channels. Since
March 1998, we have:
- hired more than 165 employees;
- provided solutions for the development of more than 30 different ICDs;
- established direct sales offices in Germany and Japan; and
- released more than 20 localized versions of our products in German,
Spanish, French, Italian, Japanese, Portugese and International English.
Beginning in early 1999, we expanded our marketing and sales force to
penetrate the growing market for our products and services. These investments
have significantly increased our operating expenses, contributing to reduced
profitability compared to 1997. We anticipate that our operating expenses will
increase substantially for the foreseeable future as we expand our product
development, sales and marketing and professional services staff. If we fail to
increase our revenue to keep pace with these increased expenses, we may
experience quarterly losses.
We derive the majority of our revenue from engineering services. We also
generate revenue from product licenses, and to a lesser extent, from customer
maintenance and training services. We perform services under both
time-and-materials contracts and fixed-fee contracts. In conjunction with our
fixed-fee contracts, we may also derive ongoing license royalties. We sell our
products through our direct sales force as well as through indirect channels,
such as original equipment manufacturers and distributors. To date, the majority
of our sales have resulted from the efforts of our inside sales personnel.
18
<PAGE> 24
We recognize revenue on the following bases:
- Time-and-materials consulting contracts. We recognize revenue as services
are rendered.
- Fixed-fee consulting contracts. Revenue from fixed-fee contracts is
recognized on the percentage-of-completion method, measured by the cost
incurred to date to the estimated total cost for the contract. This
method is used because we consider expended costs to be the best
available measure of contract performance. Contract costs include all
direct labor, material and any other costs related to contract
performance. Selling, general and administrative costs are expensed as
incurred. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes in job
performance, job conditions and estimated profitability may result in
revisions in the estimate of total costs. Any required adjustments due to
these changes are recognized in the period in which such revisions are
determined.
- Product Revenue. Product revenue, including advanced production royalty
payments, is generally recognized when a customer license agreement has
been executed, the software has been shipped, remaining obligations are
insignificant and collection of the resulting account receivable is
probable. We recognize license royalty income as it is reported by the
reseller when it ships its product to distributors.
HISTORICAL RESULTS OF OPERATIONS
The following table presents certain financial data as a percentage of
total revenue for the years ended December 31, 1996, 1997 and 1998 and for the
six months ended June 30, 1998 and 1999. Our historical operating results are
not necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
-----------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenue:
Service....................................... 100% 97% 95% 94% 96%
Product....................................... -- 3 5 6 4
----- ----- ----- ----- -----
Total revenue............................ 100 100 100 100 100
----- ----- ----- ----- -----
Cost of revenue:
Service....................................... 33 39 46 46 47
Product....................................... -- -- -- 1 1
----- ----- ----- ----- -----
Total cost of revenue.................... 33 39 46 47 48
----- ----- ----- ----- -----
Gross margin..................................... 67 61 54 53 52
Operating expenses:
Research and development...................... 5 10 15 13 16
Selling, general and administrative........... 15 20 26 24 28
----- ----- ----- ----- -----
Total operating expenses................. 20 30 41 37 44
----- ----- ----- ----- -----
Income from operations........................... 47 31 13 16 8
Interest income, net............................. -- -- 1 1 1
----- ----- ----- ----- -----
Income before income taxes....................... 47 31 14 17 9
Provision for income taxes....................... -- 5 5 6 4
----- ----- ----- ----- -----
Net income....................................... 47% 26% 9% 11% 5%
===== ===== ===== ===== =====
</TABLE>
19
<PAGE> 25
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1999
Revenue
Revenue consists of service and product revenue, which includes software
license fees and royalties. Total revenue increased 72% from $10.8 million for
the six months ended June 30, 1998 to $18.5 million for the six months ended
June 30, 1999. Microsoft accounted for 73% and 87% of total revenue for the six
months ended June 30, 1998 and 1999, respectively. Revenue outside of North
America totaled $545,000 for the six months ended June 30, 1998 and $271,000 for
the six months ended June 30, 1999. The decrease in international revenue
resulted primarily from the shift from working directly with international
microprocessor vendors to working directly with Microsoft on behalf of those
customers.
Service revenue. Service revenue increased by 75% from $10.2 million for
the six months ended June 30, 1998 to $17.8 million for the six months ended
June 30, 1999. This increase was due to an increase in the number and size of
consulting service projects. As a percentage of total revenue, service revenue
did not increase materially.
Product revenue. Product revenue increased 12% from $621,000 for the six
months ended June 30, 1998 to $695,000 for the six months ended June 30, 1999.
This increase resulted primarily from an increase in sales of pre-packaged
application products including the newly introduced CEValidator quality
assurance test suite. As a percentage of total revenue, product revenue did not
change materially.
Cost of Revenue
Cost of service revenue. Cost of service revenue consists primarily of
salaries and benefits for software developers and quality assurance personnel,
plus an allocation of facilities and depreciation costs. Cost of service revenue
increased 79% from $4.9 million for the six months ended June 30, 1998 to $8.8
million for the six months ended June 30, 1999. The increase in absolute dollars
resulted primarily from the hiring and training of consulting personnel to
support our growing customer base. Cost of service revenue as a percentage of
related service revenue was 48% for the six months ended June 30, 1998 and 49%
for the six months ended June 30, 1999. The increase in cost of service revenue
as a percentage of the related service revenue in the first half of 1999 was
primarily the result of an increase in software engineering salaries due to
competitive employee recruiting and retention pressures in the greater-Seattle
area.
Cost of product revenue. Cost of product revenue consists of license fees
and royalties for third-party software, product media, product duplication and
manuals. Cost of product revenue decreased from $121,000 for the six months
ended June 30, 1998 to $108,000 for the six months ended June 30, 1999.
Operating Expenses
Research and development. Research and development expenses consist
primarily of salaries and benefits for software developers, quality assurance
personnel, program managers and an allocation of our facilities and depreciation
costs. Research and development expenses increased 104%, from $1.5 million for
the six months ended June 30, 1998 to $3.0 million for the six months ended June
30, 1999. This increase resulted from an increase in the number of software
developers and quality assurance personnel to expand our product offerings and
to support development and testing activities. Research and development costs
represented 13% of our total revenue for the six months ended June 30, 1998 and
16% for the six months ended June 30, 1999. The increase in research and
development expenses as a percentage of total revenue primarily reflects the
more rapid increase of our investment in product development activities as
compared to the growth in revenue during this period. We anticipate that
research and development expenses will continue to increase in absolute dollars
in future periods.
Selling, general and administrative. Selling expenses are comprised of
salaries and benefits earned by sales and marketing personnel, travel, corporate
advertising and promotional expenses, plus an allocation of facilities and
depreciation costs. General and administrative expenses consist primarily of
salaries, benefits and related costs for our executive, finance, legal,
administrative and information services personnel and professional service fees.
20
<PAGE> 26
Selling expenses increased 68% from $967,000 for the six months ended June
30, 1998 to $1.6 million for the six months ended June 30, 1999. This increase
resulted primarily from our continued investment in sales and marketing
infrastructure, both domestically and internationally, which included
significant personnel-related expenses, travel expenses and related facility and
equipment costs, as well as increased marketing activities, including trade
shows, public relations and other promotional expenses. Selling expenses
represented 9% of our total revenue for the six months ended June 30, 1998 and
June 30, 1999. We anticipate that sales and marketing expenses will increase in
absolute dollars in future periods as we expand our sales and marketing staff
both domestically and internationally.
General and administrative expenses increased 119% from $1.7 million for
the six months ended June 30, 1998 to $3.6 million for the six months ended June
30, 1999. General and administrative expenses represented 15% of our total
revenue for the six months ended June 30, 1998 and 19% for the six months ended
June 30, 1999. This increase in absolute dollars and as a percentage of total
revenue resulted primarily from the addition of executive, finance and
administrative personnel to support the growth of our business as well as
personnel and facility costs associated with our international offices. Our
general and administrative expenses have increased and we anticipate they will
continue to increase in absolute dollars as we expand our administrative staff
and incur expenses associated with becoming a public company.
Interest income, net. Interest income, net consists of earnings on our
cash, cash equivalents and short-term investment balances offset by interest
expense associated with debt obligations. Interest income, net was $179,000 for
the six months ended June 30, 1998 and $130,000 for the six months ended June
30, 1999. The decrease resulted from an increase in interest expense on our
long-term obligations.
Income taxes. Our provision for federal, state and international income
taxes was $666,000 for the six months ended June 30, 1998 as compared to
$712,000 for the six months ended June 30, 1999, yielding effective rates of
35.4% in 1998 and 45.1% in 1999. The increase in the effective rate is due to
the effect of the non-deductibility of losses from our international operations.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Revenue
Total revenue increased 244% from $4.2 million in 1996 to $14.4 million in
1997, and an additional 71% to $24.6 million in 1998. Microsoft accounted for
5%, 39% and 79% of total revenue in 1996, 1997 and 1998, respectively. Revenue
outside of North America totaled $1.8 million in 1996, $4.3 million in 1997 and
$955,000 in 1998. The decrease in international revenue from 1996 to 1998 and
the increase in Microsoft revenue resulted from the shift from working directly
with microprocessor vendors to working with Microsoft for the benefit of those
customers during this period.
Service revenue. Service revenue increased 236% from $4.2 million in 1996
to $14.0 million in 1997, and an additional 67% to $23.4 million in 1998. The
increase in service revenue for all periods was due to the increasing number and
size of service projects and related hiring of engineering personnel to fulfill
project requirements.
Product revenue. Product revenue increased 3,391% from $11,000 in 1996 to
$384,000 in 1997, and an additional 217% to $1.2 million in 1998. The increase
in product revenue from 1996 to 1997 resulted primarily from an increase in the
volume of our software applications bundled on handheld personal computers. The
increase in product revenue from 1997 to 1998 resulted from the expansion of
product offerings from software applications for handheld personal computers to
ICD tool products.
Cost of Revenue
Cost of service revenue. Cost of service revenue increased 298% from $1.4
million in 1996 to $5.6 million in 1997, and an additional 100% to $11.1 million
in 1998. These increases resulted from the hiring and training of consulting
engineers to support our growing customer base. Cost of service revenue as a
percentage of related service revenue was 34% in 1996, 40% in 1997 and 48% in
1998. The increases in cost of service
21
<PAGE> 27
revenue as a percentage of related service revenue reflect higher personnel
costs related to the greater-Seattle personnel market pressures, as well as
higher facilities and depreciation costs associated with expansion.
Cost of product revenue. Cost of product revenue increased 1,850% from
$4,000 in 1996 to $78,000 in 1997, and an additional 113% to $166,000 in 1998.
Cost of product revenue as a percentage of related product revenue was 36% in
1996, 20% in 1997 and 14% in 1998.
Operating Expenses
Research and development. Research and development expenses increased 579%
from $205,000 in 1996 to $1.4 million in 1997, and an additional 164% to $3.7
million in 1998. These increases primarily related to the increase in the number
of software developers and quality assurance personnel hired to expand our
product offerings and to support our product development and testing activities.
Research and development expenses represented 5% of our total revenue in 1996,
10% in 1997 and 15% in 1998. The increases in research and development expenses
as a percentage of total revenue primarily reflect the more rapid investment in
our research and development activities compared to the growth of our revenue
during these periods.
Selling, general and administrative. Selling expenses increased 451% from
$152,000 in 1996 to $837,000 in 1997, and an additional 172% to $2.3 million in
1998. These increases resulted primarily from our investment in sales and
marketing infrastructure, both domestically and internationally, which included
significant personnel-related expenses, travel expenses and related facility and
equipment costs, as well as increased marketing activities, including trade
shows, public relations and other promotional expenses. Selling expenses
represented 4% of our total revenue in 1996, 6% in 1997 and 9% in 1998. The
increases in selling expenses as a percentage of total revenue primarily
reflects the more rapid investment in our sales and marketing infrastructure
compared to the growth of our revenue during these periods.
General and administrative expenses increased 334% from $454,000 in 1996 to
$2.0 million in 1997, and an additional 113% to $4.2 million in 1998. The
increases from 1996 to 1998 primarily resulted from the addition of finance,
executive and administrative personnel to support the growth of our business
during these periods. General and administrative costs represented 11%, 14% and
17% of our total revenue in 1996, 1997 and 1998, respectively.
Interest income (expense), net. Interest income (expense), net was zero in
1996, $12,000 of expense in 1997 and $319,000 of income in 1998. The increase in
interest income in 1998 over prior periods resulted from an increase in interest
income resulting from higher average cash and cash equivalent and short-term
investment balances over the period.
Income taxes. Our provision for federal, state and international income
taxes was zero for 1996, $746,000 for 1997 and $1.2 million for 1998, yielding
effective rates of 0.0%, 16.4% and 34.1% in 1996, 1997 and 1998, respectively.
We were taxed as a subchapter S corporation until October 15, 1997, when our
shareholders elected to convert to a C corporation. Accordingly, taxes on our
income were the responsibility of the shareholders until the conversion.
22
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly results of operations
for 1998 and the six months ended June 30, 1999. You should read the following
table in conjunction with our consolidated financial statements and related
notes included elsewhere in this prospectus. We have prepared this unaudited
information on the same basis as our audited consolidated financial statements.
This table includes all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of our financial
position and operating results for the quarters presented. You should not draw
any conclusions about our future results from the results of operations for any
quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenue:
Service............................... $5,159 $5,022 $6,334 $6,878 $8,461 $9,387
Product............................... 333 288 245 353 348 347
------ ------ ------ ------ ------ ------
Total revenue.................... 5,492 5,310 6,579 7,231 8,809 9,734
------ ------ ------ ------ ------ ------
Cost of revenue:
Service............................... 2,360 2,547 2,978 3,250 4,150 4,641
Product............................... 68 53 9 36 58 50
------ ------ ------ ------ ------ ------
Total cost of revenue............ 2,428 2,600 2,987 3,286 4,208 4,691
------ ------ ------ ------ ------ ------
Gross profit............................. 3,064 2,710 3,592 3,945 4,601 5,043
Operating expenses:
Research and development.............. 575 877 1,023 1,196 1,474 1,486
Selling, general and administrative... 1,201 1,417 1,373 2,479 2,405 2,831
------ ------ ------ ------ ------ ------
Total operating expenses......... 1,776 2,294 2,396 3,675 3,879 4,317
------ ------ ------ ------ ------ ------
Income from operations................... 1,288 416 1,196 270 722 726
Interest income, net..................... 33 146 58 82 53 77
------ ------ ------ ------ ------ ------
Income before income taxes............... 1,321 562 1,254 352 775 803
Provision for income taxes............... 465 201 452 71 343 369
------ ------ ------ ------ ------ ------
Net income............................... $ 856 $ 361 $ 802 $ 281 $ 432 $ 434
====== ====== ====== ====== ====== ======
AS PERCENTAGE OF TOTAL REVENUE
Revenue:
Service............................... 94% 95% 96% 95% 96% 96%
Product............................... 6 5 4 5 4 4
------ ------ ------ ------ ------ ------
Total revenue.................... 100 100 100 100 100 100
------ ------ ------ ------ ------ ------
Cost of revenue:
Service............................... 43 48 45 45 47 48
Product............................... 1 1 -- -- 1 --
------ ------ ------ ------ ------ ------
Total cost of revenue............ 44 49 45 45 48 48
------ ------ ------ ------ ------ ------
Gross margin............................. 56 51 55 55 52 52
Operating expenses:
Research and development.............. 10 16 16 17 17 15
Selling, general and administrative... 22 27 21 34 27 29
------ ------ ------ ------ ------ ------
Total operating expenses......... 32 43 37 51 44 44
------ ------ ------ ------ ------ ------
Income from operations................... 24 8 18 4 8 8
Interest income, net..................... -- 3 1 1 1 1
------ ------ ------ ------ ------ ------
Income before income taxes............... 24 11 19 5 9 9
Provision for income taxes............... 8 4 7 1 4 4
------ ------ ------ ------ ------ ------
Net income............................... 16% 7% 12% 4% 5% 5%
====== ====== ====== ====== ====== ======
</TABLE>
23
<PAGE> 29
The trends discussed in the annual comparisons of operating results from
1996 through 1998 and for the six months ended June 30, 1998 and 1999 generally
apply to the comparison of results of operations for these six quarters. Revenue
decreased during the three months ended June 30, 1998 due to the shift from
working directly with microprocessor vendors on a fixed-fee basis to working
with Microsoft on a time-and-materials basis. Research and development expenses
increased significantly as a percentage of revenue during the three months ended
June 30, 1998 due to substantial investments related to the development of
integration tool kits and end-user applications. Selling, general and
administrative expenses increased during the three months ended December 31,
1998 due to the increased personnel and facility costs associated with opening
sales offices in Germany and Japan as well as expenses related to seasonal trade
show activities. Our quarterly operating results have varied widely in the past,
and we expect that they will continue to fluctuate in the future as a result of
a number of factors, many of which are outside our control.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through cash
flow from operations. As of June 30, 1999, we had $9.3 million of cash and cash
equivalents. This represents an increase of $2.4 million over December 31, 1998.
In January 1998, we issued mandatorily redeemable convertible preferred stock
from which we received net proceeds of approximately $14.3 million. Concurrent
with this transaction, we repurchased 3,333,333 shares of our common stock for
an aggregate of $6.0 million. To a lesser extent, we have financed software
system purchases through traditional financing arrangements. Our working capital
at June 30, 1999 was $10.7 million compared to $10.3 million at December 31,
1998.
We have a working capital revolving line of credit with a financial
institution that is secured by our accounts receivable. This facility allows us
to borrow up to the lesser of 80% of our eligible accounts receivable or $5.0
million. The facility expires in July 2000. The agreement under which the line
of credit was established contains certain covenants, including a provision
requiring us to maintain specified financial ratios. We were in compliance with
these covenants at June 30, 1999, and at that time there were no borrowings
outstanding under this credit facility. We maintain a $1.0 million term loan for
equipment purchases and a $4.0 million term loan for leasehold improvement
purchases. These facilities operate as a revolver through June 2000, after which
time any outstanding balances must be paid over 36-month and 60-month terms,
respectively. These loans also require us to comply with certain financial
covenants, including a requirement that we maintain certain financial ratios. We
were in compliance with these covenants at June 30, 1999 and, at that time,
there was approximately $367,000 outstanding under these credit facilities.
Our operating activities resulted in net cash inflows of $1.6 million in
1996, $4.3 million in 1997, $188,000 in 1998 and $3.6 million for the six months
ended June 30, 1999. The sources of cash in 1996, 1997, 1998 and for the six
months ended June 30, 1999 were primarily income from operations, increases in
accounts payable and accrued liabilities, partially offset by increases in
accounts receivable. Investing activities used cash of $248,000 in 1996, $1.4
million in 1997 and $3.7 million in 1998, primarily for the purchase of capital
equipment and short-term investments. Investing activities provided cash of
$512,000 during the six months ended June 30, 1999, primarily due to proceeds
from the maturity of investments offset by cash used for purchases of capital
equipment. Financing activities used cash of $1.3 million in 1996, $775,000 in
1997 and $98,000 for the six months ended June 30, 1999, primarily through
shareholder draws and repayment of long-term obligations. Financing activities
generated $6.5 million in 1998, primarily through the issuance of mandatorily
convertible preferred stock, partially offset by repayment of shareholder loans
and the $6.0 million repurchase of shares of common stock.
We currently anticipate that we will continue to experience significant
increases in our operating expenses for the foreseeable future as we enter new
markets for our products and services, increase research and development
expenses, increase sales and marketing activities, develop new distribution
channels and broaden our professional service capabilities. Our operating
expenses will consume a material amount of our cash resources, including a
portion of the net proceeds of this offering. We believe that the net proceeds
of this offering, together with our existing cash and cash equivalents and
available bank borrowings, will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for the foreseeable future. We
currently intend to use the net proceeds of this offering for general corporate
purposes. We may use a portion
24
<PAGE> 30
of the net proceeds to acquire additional businesses, products and technologies
or to establish joint ventures that we believe will complement our current or
future business. However, we have no specific plans, agreements or commitments
to do so, and are not currently engaged in any negotiations for any such
acquisition or joint venture. Pending such uses, we will invest the net proceeds
in government securities and other short-term, investment grade,
interest-bearing instruments.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January 1,
2000, computer systems and software used by many companies and organizations in
a wide variety of industries, including technology, transportation, utilities,
finance and telecommunications, will produce erroneous results or fail unless
they have been modified or upgraded to process date information correctly.
Significant uncertainty exists in the software industry and other industries
concerning the scope and magnitude of problems associated with the century
change. We recognize the need to ensure our operations will not be adversely
affected by Year 2000 software failures. We are assessing the potential overall
impact of the impending century change on our business, financial condition and
operating results.
Based on our assessment to date, we believe the current versions of our
software products are "Year 2000 compliant" -- that is, they are capable of
adequately distinguishing 21st century dates from 20th century dates. However,
we may learn that our software solutions do not contain all the necessary
routines and codes necessary for the accurate calculation, display, storage and
manipulation of data involving dates. In addition, in the majority of our
software licenses, we have warranted that dates on or after January 1, 2000 will
not adversely affect the performance of our products. Moreover, our products are
generally integrated into customer products involving sophisticated hardware and
complex software products that may not be Year 2000 compliant. We may face
claims based on Year 2000 problems in other companies' products or issues
arising from the integration of multiple products within an overall system.
Although we have not been a party to any litigation or arbitration proceeding to
date involving our products or services related to Year 2000 compliance issues,
we may in the future be required to defend our products or services in such
proceedings, or to negotiate resolutions of claims based on Year 2000 issues.
The costs of defending and resolving Year 2000-related disputes, regardless of
the merits of such disputes, and any liability we have for Year 2000-related
damages, including consequential damages, could materially adversely affect our
business, financial condition and operating results. Further, many of our
computer systems are connected to Microsoft's computer systems, and we depend on
this connectivity to communicate with Microsoft on various levels. Any failure
of this connectivity or of Microsoft's computers to be Year 2000 compliant may
disrupt our communications with Microsoft and interfere with our ability to
transact business. In addition, we believe that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct or upgrade their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase software products such as those we offer. To
the extent Year 2000 issues cause a significant delay in, or cancellation of,
decisions to purchase our products or services, our business would be harmed.
We are reviewing our internal management information and other systems to
identify any products, services or systems that are not Year 2000 compliant and
to take corrective action. To date, we have not encountered any material Year
2000 problems with our computer systems or any other equipment that might be
subject to such problems. We plan to verify compliance by external vendors that
supply us with software and information systems and to communicate with
significant suppliers to determine the readiness of third parties' remediation
of their own Year 2000 issues. As part of our assessment, we are evaluating the
level of validation we will require of third parties to ensure their Year 2000
readiness. If third parties cannot provide us with products, services or systems
that meet the Year 2000 requirements on a timely basis, our business could be
harmed.
We will be relocating our principal offices in October 1999 to a new office
location currently under construction. Before the relocation, we will complete
our evaluation of whether the infrastructure and building
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<PAGE> 31
systems associated with our new facility, such as security and sprinkler
systems, and all information technology systems, such as telephony and computer
network systems, are Year 2000 compliant.
We do not expect the total cost of these Year 2000 compliance activities to
be material to our business, financial condition and operating results. To date,
we have spent less than $100,000 for Year 2000 compliance and do not expect to
expend more than $100,000 in the future. These costs and the timing with which
we plan to complete our Year 2000 modifications and testing processes are based
on our management's estimates. However, we may not identify and remediate all
significant Year 2000 problems on a timely basis. Remediation efforts may
involve significant time and expense and unremediated problems could harm our
business.
We have not developed a contingency plan for handling Year 2000 problems
that are not detected and corrected prior to their occurrence. Upon completion
of testing and implementation activities, we will be able to assess areas
requiring contingency planning, and we expect to institute appropriate
contingency planning at that time. Any failure to address any unforeseen Year
2000 issue could harm our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. We are required to adopt SOP 98-1 for the fiscal
year beginning January 1, 1999. Our adoption of SOP 98-1 did not have a material
impact on our financial statements.
In April 1998, the American Institute of Public Accountants issued
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-up
Activities." SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. The implementation of SOP 98-5
did not have a material impact on our financial position or results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as a part
of a hedge transaction and, if it is, the type of hedge transaction. This
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. We do not use derivative instruments, therefore the
adoption of this statement will not have any effect on our results of operations
or financial position.
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BUSINESS
OVERVIEW
We are a leading provider of software solutions that enable the development
and proliferation of a wide variety of intelligent computing devices based on
the Microsoft Windows CE operating system. Intelligent computing devices, or
ICDs, are a new class of powerful and cost-effective devices that are able to
support sophisticated communications capabilities. ICDs include, among other
devices, digital set-top boxes, gaming systems, handheld data collectors used
for industrial purposes and Windows-based terminals. As businesses and consumers
continue to leverage the Internet to enhance connectivity among suppliers,
partners and consumers alike, users are increasingly looking to ICDs as a
cost-effective and more flexible means of achieving electronic connectivity. To
enable the deployment of ICDs and to support the development of
industry-specific applications, semiconductor vendors and original equipment
manufacturers, or OEMs, demand a highly scalable and customizable operating
system with minimal system requirements. Microsoft's Windows CE operating system
is rapidly gaining market acceptance as an operating system of choice for these
hardware manufacturers.
We help enable the rapid and low-cost deployment of ICDs by providing a
variety of software solutions for the development and integration of the Windows
CE operating system with industry-specific applications. We have also developed
software applications that we license to end users to provide ICDs with
additional functionality. Because we have been building Windows CE-based
software solutions since prior to the commercial release of Windows CE, we
believe that we offer a greater breadth and depth of Windows CE software
solutions expertise than any of our current competitors.
INDUSTRY BACKGROUND
Ubiquitous electronic communications and emerging Internet protocols
increasingly are enabling networks of businesses and consumers to communicate,
collaborate, access information and conduct business and personal interactions
via the Internet. With each additional Internet user, the number of network
connections increases, creating a more comprehensive communications environment
and driving the development of new means and standards of communications among
users. As the number of Internet users grows, so does the diversity of content,
services and applications available via the Internet. According to International
Data Corporation, the number of worldwide Internet users is expected to grow
from 159 million in 1998 to 510 million in 2003. While the Internet is already
having a significant and highly visible impact on business-to-consumer and
consumer-to-consumer relationships, the market for business-to-business Internet
transactions is expected to expand at a greater rate. According to Forrester
Research, U.S.-based Internet commerce between businesses is expected to grow
from $109 billion in 1999 to $1.3 trillion in 2003.
As a result, electronic connectivity is growing increasingly important to
the efficient conduct of business. For example:
- many businesses use thin client computing devices to permit their
employees to access server-based network applications and the Internet
from remote sites;
- numerous retail businesses use handheld point-of-sale terminals to
provide real-time inventory tracking and to automate their procurement
processes, supported by standard Internet communications protocols that
enable companies to publish information instantly to both internal and
external users;
- some healthcare professionals use mobile computing devices to record and
access patient information that can then be shared confidentially via the
Internet among a broader group of professionals responsible for providing
medical care; and
- many consumers have begun utilizing Internet appliances, such as digital
set-top boxes, screen phones, smart cellular phones, game devices and
other purpose-specific computing devices, to access Internet content,
communicate and conduct transactions.
The increasing need for connectivity among both business and consumer users
is driving demand for easy-to-use, cost-effective and customizable methods of
communication. Although the personal computer has
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been the traditional means of connecting suppliers, partners and customers, a
new class of computing devices, including digital set-top boxes, gaming systems,
handheld data collectors used for industrial purposes, and Windows-based
terminals, among others, is emerging. These devices are particularly attractive
to business and consumer users because they are often less expensive than
personal computers; have adaptable form factors, including size, weight and
shape; and are able to support a variety of customized, industry-specific
applications and user interfaces that can be designed for particular tasks.
These devices can also leverage existing business infrastructures, such as those
in existing enterprise systems and computing architectures, helping make
connectivity truly ubiquitous. According to International Data Corporation, the
market for consumer information appliances, a subset of the overall ICD market,
is expected to grow from $2.2 billion in 1998 to $18.7 billion in 2003.
Because ICDs can be used for a variety of purposes, from consumer
information to industrial automation, and can be designed specifically for a
variety of industry-specific solutions, the ICD industry is characterized by
heterogeneity of hardware configurations, microprocessor architectures and
end-user applications, each often designed specifically for a unique vertical
market. To address this heterogeneity without creating economic barriers to the
proliferation of ICDs, semiconductor vendors and OEMs require an operating
system that can support a myriad of devices and an expanding range of
industry-specific content and applications. The Microsoft Windows CE operating
system helps satisfy these requirements because it leverages the existing
infrastructure of Microsoft Windows developers and standard technologies; can be
customized to operate across a variety of hardware devices and to integrate with
existing enterprise information technologies; offers Internet connectivity; and
reduces systems requirements. Because of these characteristics, Windows CE is
emerging as an operating system of choice for many hardware and software
applications vendors. Venture Development Corporation estimates that the number
of ICDs utilizing Windows CE will increase from just under one million units in
1999 to more than 14.0 million units by 2003.
To leverage the multiple benefits of the Windows CE operating system, many
OEMs and semiconductor and software applications vendors require a software
solution provider with the breadth of experience and depth of capabilities to
fully support the Windows CE operating system and related applications across
multiple, heterogeneous microprocessor architectures and devices. These
solutions should encompass the full cycle of the ICD development process,
including hardware support, software development products and services, system
validation and end-user software applications. In addition, these solutions
should leverage existing Microsoft and other industry technologies and standards
to promote rapid and low-cost development, reduced time-to-market and tight
integration with existing enterprise software applications. These solutions
should also be designed to accommodate the varying industry-specific needs of
semiconductor, equipment and software developers without compromising feature
functionality and performance.
THE BSQUARE SOLUTION
We are a leading provider of Microsoft Windows CE-based software solutions
that enable the development and proliferation of Windows CE-based ICDs. OEMs,
semiconductor vendors and Windows CE software developers rely on our solutions
to bring high quality, low-cost, customized ICDs to market in a timely fashion.
Key elements of our solution include:
A BROAD SET OF END-TO-END WINDOWS CE DEVELOPMENT SOLUTIONS TO SUPPORT AN
EXTENDED RANGE OF ICD HARDWARE, SYSTEMS AND APPLICATIONS DEVELOPMENT
REQUIREMENTS:
- Software development. We provide services to Microsoft and semiconductor
vendors to assist in the development of the Windows CE operating system,
the development of software development tools sold in conjunction with
Windows CE and the porting of Windows CE to numerous microprocessor
architectures.
- Hardware support. We provide software products and services that support
the heterogeneity of microprocessor architectures, computer board
products and peripherals upon which many ICDs are based. For example, our
CE Xpress Kits provide pre-configured software packages that support the
microprocessor architecture and peripherals for reference boards from
semiconductor and board manufacturers.
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- System validation. We provide solutions to assist OEMs in the validation
and verification of their hardware and software executing Windows CE,
including services designed to help OEMs develop custom testing suites to
validate the performance and reliability of their ICDs.
- Applications software. We provide development tools to facilitate the
third-party development of Windows CE-based ICD user interfaces. We also
license personal productivity, utility and communications software
applications to OEMs that enhance the functionality of their ICDs.
PRODUCTS AND SERVICES THAT LEVERAGE EXISTING MICROSOFT TECHNOLOGIES AND
STANDARDS. Our Windows CE-based products and services leverage existing
Microsoft technologies and standards to enable semiconductor vendors and OEMs to
deliver highly customizable and cost-efficient ICDs to their end-users. These
technologies enable OEMs to efficiently utilize the existing pool of traditional
Windows programmers to develop differentiating applications for ICDs based upon
Windows CE. Our use of open standards also allows ICDs designed with our
development products and services to integrate tightly with existing enterprise
information technologies as well as with other Microsoft technologies and
applications. By enabling OEMs to standardize on a software platform, our
solutions help OEMs more rapidly deploy new hardware technologies without having
to re-implement their software investments across multiple platforms.
LEVERAGING OUR DEPTH OF EXPERIENCE IN DEVELOPING WINDOWS CE-BASED SOLUTIONS
AND OUR VARIETY OF STRATEGIC RELATIONSHIPS TO DELIVER TANGIBLE BENEFITS TO
WINDOWS CE-BASED ICD DEVELOPERS. We have been building Windows CE-based software
solutions for the development, integration and deployment of the Windows CE
operating system and industry-specific applications since prior to the
commercial release of Windows CE. In addition, we have developed strategic
relationships with Microsoft and have worked with nearly all of the leading
microprocessor vendors to develop Windows CE-based software solutions. This
experience enables us to bring tangible benefits to Microsoft and to a variety
of OEMs, semiconductor vendors and software developers. Such benefits include:
- Reduced time-to-market. By using our software services and pre-configured
software components, our customers can leverage our experience with the
Windows CE platform to help bring quality ICDs to market faster than if
they had chosen to develop their hardware, operating systems and software
applications internally.
- Lower development costs and reduced risks. Because we offer an extensive
library of software solutions required to develop Windows CE-based ICDs,
our customers can reduce the implementation and training time required
for engineers and thereby lower their ICD development costs. Our software
components are thoroughly tested for performance and reliability, thereby
reducing the risk of project failure.
- Rapidly customizable graphical user interfaces. Our software development
solutions help enable our customers to more rapidly design user- and
industry-specific graphical user interfaces to meet the specific needs of
ICD users across a variety of vertical markets.
- Enhanced ICD feature functionality. Our pre-developed software components
help enable OEM customers to quickly add new, differentiating application
features to create unique value to their existing hardware components and
extend product life cycles. Because software typically can be easily
upgraded at significantly lower costs than replacing or upgrading
hardware, we help enable our OEM customers to enhance their competitive
product differentiation.
STRATEGY
We intend to establish BSQUARE as the leading provider of software
solutions enabling the development and proliferation of ICDs. Key elements of
our strategy include:
Continue to enhance our position as a leading provider of Windows CE
solutions. We intend to enhance our leadership position in the development of
software solutions designed to enable the proliferation of Windows CE-based
products across a wide variety of ICDs. Because we have been building Windows
CE-based software solutions since prior to the commercial release of Windows CE,
and our engineers have approximately 330 person-years of experience with Windows
CE, we believe that we offer a greater breadth and depth of Windows CE software
solutions expertise than our current competitors. We intend to continue
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to leverage this expertise, as well as our strong brand reputation in the
Windows CE market, by maintaining strong, quality-focused engineering groups,
developing market-focused products and services, and undertaking sales and
marketing activities that highlight key design wins, product awards and other
third-party endorsements.
Expand our strategic relationships with hardware and software vendors. We
intend to continue to strengthen and extend our relationships with leading
third-party hardware and software vendors that are designing products based on
Windows CE. To date, we have developed alliances with leading manufacturers of
microprocessors, computer boards and other components. We provide software
solutions that enable these companies to develop hardware designs that interface
with Windows CE. We have also developed key alliances with other software
developers to provide connectivity technologies for products that interface with
Windows CE. We believe that the adoption of our solutions by a broad group of
industry leaders is important in increasing market awareness and generating new
business opportunities.
Continue to leverage our relationship with Microsoft. We have developed a
close working relationship with Microsoft and are a "preferred Microsoft vendor"
for the development of the Windows CE operating system and accompanying tools.
Currently, we work closely with Microsoft on a number of different projects
focused on Windows CE and we intend to continue this relationship in the future.
We believe that the success of our company is related to the overall adoption of
Windows CE as an operating platform and therefore we intend to continue to work
with Microsoft toward further proliferation of Windows CE, as well as other
Microsoft operating systems.
Leverage our extensive Windows CE expertise to develop additional software
applications. We believe that as Windows CE is widely adopted in the
marketplace, there will be an increasing demand for complete, end-user software
applications that enhance the capabilities of Windows CE-based ICDs. We intend
to leverage our brand reputation as a Windows CE expert, our alliances with key
strategic manufacturers and our relationship with Microsoft to develop a leading
position in the market for Windows CE-based software applications. We currently
offer a variety of personal productivity, utility and communications software
for Windows CE-based ICDs. We intend to continue to leverage our Windows CE
expertise to develop additional applications to address the evolving
requirements of this market.
Expand our international presence. We intend to continue to expand
internationally in order to enhance our profile and market reach. We believe
that Windows CE is gaining acceptance in the Asian and European markets. These
markets are attractive to us because of their high concentration of OEM
customers focusing on the development of ICDs. We have recently established
sales offices in Tokyo, Japan and Munich, Germany.
SOFTWARE SOLUTIONS
We develop, market and support a wide variety Windows CE software solutions
for the development and integration of the Windows CE operating system to help
enable the rapid and low-cost deployment of ICDs.
Operating system development and accompanying tools
We provide software and engineering services to Microsoft and numerous
microprocessor manufacturers to enable the following:
- assistance in the continued development of the Windows CE operating
system;
- expansion of the utility of the Microsoft Visual Tools series, a set of
software development tools for use with the Windows CE operating system;
and
- porting of Windows CE to multiple microprocessor architectures.
The services we provide these customers include software development,
software testing and program management. We provide these services both as a
comprehensive solution and on a point basis to address specific needs depending
upon customer requirements.
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Integration of Windows CE with ICDs
We offer products and services that are used by OEMs to integrate the
Windows CE operating system with target ICDs. In order to customize the
functionality of Windows CE and integrate it with a particular ICD, OEMs must
develop or purchase software that is used in conjunction with the Visual Tools
series and Windows CE Platform Builder products provided by Microsoft. We offer
a comprehensive set of solutions that enable OEMs to cost-effectively integrate
Windows CE with ICDs, with reduced time-to-market and decreased risk of project
failure. The following table summarizes the key features and benefits of the
products we offer for the integration of Windows CE with ICDs:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
BSQUARE PRODUCT DESCRIPTION BENEFIT
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
CE Xpress Adaptation - A set of pre-developed and tested - Designed to save OEMs time
Kits device drivers and other code for developing low-level software
low-level support of hardware in a support, reducing time-to-market
Windows CE-based device
- Pre-tested components increase
- Available for a broad range of chip reliability of target device
sets including those manufactured by AMD,
Cyrix, Hitachi, Intel and Motorola
- Sold in source code format to allow
customer modifications
- --------------------------------------------------------------------------------------------------------------
CE Xpress Binary Kits - Includes same functionality as CE - Enables OEMs to rapidly evaluate
Xpress Adaptation Kit without access to Windows CE on a specific reference
source code board with minimal investment
- Enables OEMs to bring reference
board-compatible products to market
with no porting or low-level
customization
- --------------------------------------------------------------------------------------------------------------
CE Xpress Single Board - A development kit that works in - Provides a foundation for OEMs to
Computer Kits conjunction with single board computers begin immediate development of
to quickly install and run Windows CE Windows CE-based ICDs
for the development of ICDs
- Provides all of the infrastructure
normally needed for development of
applications and customizations based
on the PCI/ISA expansion bus
architecture
- --------------------------------------------------------------------------------------------------------------
CE Xpress86 Kit - A development kit that allows OEMs to - Eliminates need to wait for
run Windows CE on a standard PC-based hardware development before
platform beginning software development,
enabling faster time-to-market
- Runs Windows CE without DOS
- Reduces the cost of PC-based
Windows CE systems by eliminating
the DOS license requirement
- --------------------------------------------------------------------------------------------------------------
CE Xpress OnDemand - An online subscription service for - Enables CE Xpress Kit customers to
portable device drivers for CE Xpress Kit access the latest drivers and
customers driver updates online
- --------------------------------------------------------------------------------------------------------------
CEValidator - A quality assurance and testing - Designed to save OEMs testing costs
technology for the validation of Windows
CE integration with ICDs - Enables OEMs to test software
throughout the design process
- A client/server-based test suite of
more than 1,000 individual test cases for
testing compliance and reliability
- Extensible architecture for
incorporating additional and custom test
programs
- --------------------------------------------------------------------------------------------------------------
CE EmbeddedDesktop - A fully customizable desktop building - Gives OEMs the ability to create a
utility device-specific graphical user
interface
- Includes a set of pre-developed
components for creating a custom desktop - Helps enable OEMs to rapidly and
easily create design prototypes and
- Contains customizable security and complete the implementation of
interface features for commercial graphical user interfaces
applications
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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We also provide integration and support services to OEMs developing Windows
CE-based ICDs. For example, we provide implementation services for companies
developing Windows-based terminal designs, industrial automation solutions and
set-top boxes. Our CE Xpress consulting services leverage our existing products,
such as CE Xpress Adaptation Kits and CE EmbeddedDesktop, to implement the
hardware and software specifications of our customer's OEM products. We often
retain a license or other proprietary rights in the resulting work product. At
times, we perform new applications or system software development on behalf of
OEMs. We believe that OEM customers in need of complex adaptations can save time
and resources by outsourcing this work to us. In addition, to support our OEM
customers, we often "bundle" support services with our software solutions. These
support services help enable our OEM customers to finalize ICD development and
reduce time-to-market.
To augment our Windows CE solutions, we occasionally partner with
third-party software vendors to provide additional features and functionality.
Our ability to license these third-party software products to OEMs, in
conjunction with our own solutions, provides our OEM customers with a single
source for Windows CE software solutions. We are currently a licensed
distributor of Windows CE-based software from Communications Intelligence
Corporation, Datalight, Intrinsyc and Microsoft.
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End-User Software Applications
We provide a wide range of commercially available personal productivity,
utility and communications software to enhance the functionality and utility of
Windows CE-based ICDs. We market our end-user software applications through
standard retail and electronic commerce channels, and also license these
products to OEMs in formats suitable for bundling. Our current software
application product offerings include:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION BENEFIT
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
bFAX - A product family that provides - Provides a practical and
faxing capabilities for ICDs comprehensive faxing solution for
- bFAX Pro provides send and Windows CE-based devices
receive capability for handheld PCs
- bFAX Express provides send-only
capability for handheld and
palm-size PCs
- ---------------------------------------------------------------------------------------------------------
bMOBILE News - Provides access to Internet - Mobile users can download news
newsgroups for handheld and palm- articles for on- or off-line use
size PCs
- ---------------------------------------------------------------------------------------------------------
bPRINT - Print management software for - Users can spool jobs for batch
palm-size and handheld PCs printing
- Increases the variety of printers
compatible with Windows CE-based
devices
- ---------------------------------------------------------------------------------------------------------
bREADY - An electronic book creation and - Users can store and transport
reading system which includes a large volumes of information and
desktop component for publishing literature
books and a client viewer for
handheld or palm-size PCs - Sample applications include sales
catalogs, forms and event
materials, among others
- ---------------------------------------------------------------------------------------------------------
BSQUARE SpreadSheet - A spreadsheet application for - Provides independent
palm-size PCs functionality while maintaining
Pocket Excel compatibility
- ---------------------------------------------------------------------------------------------------------
bTASK - A navigation, status and control - Alleviates the problem of
program for applications on managing multiple open applications
palm-size PCs
- ---------------------------------------------------------------------------------------------------------
bUSEFUL Backup Plus - A full-featured backup and - Avoids critical information loss
restore application for palm-size by backing up data
and handheld PCs
- ---------------------------------------------------------------------------------------------------------
bUSEFUL Utilities Pak - Utility suite for palm-size and - Provides utility applications
handheld PCs that contains 12 which enhance the performance and
different utility applications functionality of Windows CE-based
including bTASK, bUSEFUL Backup devices
Plus and other utility
applications
- ---------------------------------------------------------------------------------------------------------
bPRODUCTIVE Essentials Pak - Six software titles, including - A single installation program
bFAX, bPRINT, bTRACK, bREADY, saves time
bMOBILE News and bTASK
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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TECHNOLOGY
We have developed a set of technologies relating to the integration of
Windows CE with the target computer boards used by our customers as the core of
their ICD products.
LOGO
The technology contained in our CE Xpress Kits, including the OEM Adaptation
Layer, the CE Platform Layer and the Device Driver Library, provides the
interface between Windows CE and the target computer board.
OEM Adaptation Layer Library
The OEM Adaptation Layer, or OAL, provides a standard interface between the
Windows CE operating system and the core components of a target computer board.
A new OAL must be implemented for each target computer board which is to be used
with Windows CE.
We maintain a library of OAL implementations for several of the target
computer boards used in Windows CE-based ICD products. These implementations are
distributed to our customers in the form of our CE Xpress Kits and are also used
by our engineers when we are contracted to create custom solutions. In addition,
our OAL library serves as a starting point for the rapid creation of new OAL
implementations.
Device Driver Library
Device drivers provide the interface by which the Windows CE operating
system controls peripheral devices connected to a target computer board. A
device driver must be implemented for each peripheral device connected to a
computer board that is under the control of Windows CE. Examples of such
peripheral devices include keyboards, display screens and computer network
interface cards.
We have created a library of device drivers for inclusion in our CE Xpress
Kits and for use in the custom solutions we create for our customers. The
existing set of drivers also provides examples and starting points for the rapid
creation of new device drivers.
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CE Platform Layer
A peripheral device normally requires a different device driver for each
model of target computer board to which it is to be connected. A device driver
for one model of computer board will not generally work with a different model
of computer board.
Our CE Platform Layer, or CEPL, technology allows our engineers and
third-party hardware manufacturers to develop a single driver for a peripheral
device that may be used on many different models of target computer boards. This
increases the value and flexibility of each computer board by increasing the
number of readily available peripheral devices that can be used.
Our CEPL technology is included in our CE Xpress Kits and is used for the
implementation of the majority of our device drivers.
CEValidator
Our CEValidator is a quality assurance and testing product which we
originally developed for our in-house use. We believe that it is important to
test devices early in the design process and to continue testing at a high
frequency throughout the development cycle. We have designed our CEValidator to
support such a testing pattern. CEValidator is based on two primary components:
- a broad suite of over 1,000 tests which evaluates the various subsystems
of Windows CE. These tests have been developed by our engineers in the
course of our own software development efforts. In addition, our
CEValidator allows OEMs to add their own test suites to evaluate specific
features of their ICDs.
- a test control system. This system manages the execution of the tests
suite and the recording of test results. CEValidator provides
communication features which control testing over network connections, a
graphical user interface for displaying user controls and test results,
and simultaneous testing capabilities for multiple systems.
CUSTOMERS
Microsoft is our largest customer, representing approximately 79% and 87%
of our total revenue in 1998 and for the sixth months ended June 30, 1999,
respectively. Our other target customers include OEMs and semiconductor device
manufacturers seeking to leverage the numerous benefits of Windows CE in order
to develop high quality, full-feature products that meet the complex and
evolving requirements of numerous end-markets.
Microprocessor Vendors
We have received revenue in excess of $1.0 million directly from the
following microprocessor vendors:
ARM
Hitachi Semiconductor (America)
Motorola Computer Group
NEC
In addition to these vendors, we have provided software solutions to a
variety of other microprocessor vendors under our master agreement with
Microsoft.
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OEM Customers
The following is a representative list of our OEM customers in the first
six months of 1999:
AT&T
Boundless Technologies
Casio
Cedar Systems
Data General
Development Concepts
Ericsson
Hewlett-Packard
IGEL AG
Lexicon
LG Electronics
NEC Electronics
Philips Electronics
Philips Mobile Computing Group
Sainco
Sharp Electronics
Symbol Technologies
Takaoka Electric
Televideo
Telxon
Total Control Products
Touchstar Technologies
Two Technologies
WebTV
For the first six months of 1999, per customer revenue varied from less
than $5,000 to approximately $575,000. Due to customer confidentiality
requirements, some customers are not disclosed.
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SELECTED CUSTOMER APPLICATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUSTOMER APPLICATION
- ----------------------------------
<S> <C>
Hitachi Semiconductor Hitachi Semiconductor (America) Inc., a wholly owned
[image] subsidiary of Hitachi America Ltd, markets a broad range of
standard and low power semiconductor solutions in North
America.
When Microsoft Windows CE was first introduced, the Hitachi
SuperH microprocessor architecture was targeted by Microsoft
for Windows CE system-development support. However, at the
time, Hitachi did not possess tools that would be compatible
with Windows CE.
Hitachi turned to us to help enable it to port the Windows
CE operating system to the SuperH architecture. We worked
closely with Hitachi to develop toolkits that helped enable
Hitachi to develop a Windows CE-supported microprocessor
architecture.
- ----------------------------------
Hewlett-Packard Hewlett-Packard is a leading provider of handheld and
[image] palm-size PC devices.
To enhance the functionality of its handheld devices, HP was
seeking to bundle third-party software applications that
provide additional value for users and help distinguish its
devices in a crowded marketplace.
When HP began developing new Windows CE-based handheld
devices, they turned to us to provide an integrated bundle
of utility and personal productivity applications that would
enhance the features of their product. We licensed to HP our
bFAX Pro and bFIND applications. Rather than include these
applications on the third-party CDs in the product box, HP
now bundles these products into the memory of the HP Jornada
820 and HP Jornada 680, providing users instant access to
our software programs without additional installations.
- ----------------------------------
</TABLE>
MICROSOFT RELATIONSHIP
We maintain strategic relationships with Microsoft for furthering the
proliferation of its Windows, and specifically Windows CE, operating systems
within a broad range of industries and applications. Our relationship with
Microsoft extends to the following:
Development partner. We are a "preferred Microsoft vendor" for Windows CE.
Approximately 200 of our software engineers work in a variety of teams on a
number of different Windows CE-based projects for Microsoft. Typically, our
engineers work on products related to tools for Windows CE, including compilers,
assemblers, debuggers and integrated development environments.
Systems integrator. We are a Microsoft-sanctioned systems integrator for
Windows CE. In this capacity, we provide training, consulting and engineering
services and products to OEMs that are building Windows CE-based ICDs. We
actively participate in the Microsoft systems integrator program, including
participating with Microsoft in "partner pavilions" at trade shows and listing
our services and posting our product announcements on the "embedded Windows CE"
portion of Microsoft's website. In addition, Microsoft has periodically utilized
our services when an OEM has required additional engineering resources.
Windows CE distributor. We are a licensed distributor of the Windows CE
operating system. We sub-license Windows CE by reselling the right to bundle
this operating system in ICDs. Microsoft actively assists and manages its
distributors to secure additional licensing opportunities for Windows CE. We are
promoted on the "embedded Windows CE" portion of Microsoft's website as a
distributor, and Microsoft shares with us leads generated from Web inquiries and
tradeshows.
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<PAGE> 43
Windows CE independent software vendor. Microsoft actively encourages
third-party application development through its Developer Relations Group and
Windows CE logo program, which allows third-party applications to receive
Windows CE compatibility logos. We develop several software applications for a
wide variety of Windows CE-based ICDs and participate in marketing opportunities
offered by Microsoft for third-party developers. In addition, Microsoft has from
time to time demonstrated our applications in connection with demonstrations to
third parties of its Windows CE operating system.
SALES AND MARKETING
We market and sell our solutions through partners, representatives,
distributors, retail channels and direct OEM sales. This broad range of channels
is based upon the diversity of our products, including applications, tools and
software technology. We have direct sales offices in the United States, Germany
and Japan. As of July 31, 1999 we had 28 employees in our sales and marketing
department. Key elements of our sales and marketing strategy include direct
advertising, event marketing, an active public relations program, channel
marketing programs, customer and strategic alliance partner co-marketing
programs and a comprehensive website.
We are currently developing new sales channels, including value-added
resellers and systems integrators. We believe that these additional channels
will further increase the brand awareness of our products and services and will
further promote the development of software infrastructures for Windows CE-based
ICDs.
CUSTOMER SUPPORT
We recognize the importance of offering quality service and support to our
resellers and end-user customers. Therefore, we provide a wide range of services
and support to both of these groups, including technical support for our
products, educational services and professional services for implementing and
customizing our products. Both our resellers and end-user customers utilize
web-based, e-mail and/or telephone support 24 hours a day, seven days a week, to
access answers to questions, obtain assistance in determining the source of
defects or errors and acquire solutions to common problems.
RESEARCH AND DEVELOPMENT
As of July 31, 1999 we had 270 engineers engaged in research and
development. Our research and development teams are responsible for the design,
development and release of our products. Members of our research and development
staff work closely with our sales and marketing department, as well as with our
customers and potential customers, to better understand market needs and
requirements.
A substantial majority of our research and development engineers is
involved in the development of the Windows CE operating system and accompanying
tools for Microsoft. These responsibilities require significant expertise due to
the radically different nature of the microprocessors and other hardware
components used in Windows CE-based ICDs. This team has accumulated detailed
knowledge of the Windows CE environment over the past five years, allowing us to
continue to develop solutions that enable the expanding capability and
compatibility of Windows CE-based ICDs. To ensure that compatibility goals are
met and that a high level of product quality is achieved, quality assurance
groups within this team subject our solutions to tens of thousands of individual
tests in multiple test configurations before the solutions are released to our
customers. Due to the broad variety of hardware that hosts Windows CE, the
quality assurance groups have had to develop a special expertise in managing and
extending the test tools used to validate the tool kits for these diverse
operating environments.
The remainder of our research and development engineers develop Windows CE
software for both end-user markets and product/application developers. The
software engineers in this team are responsible for the development of
commercial applications that provide added breadth and functionality for Windows
CE-based ICDs as well as standard products used in the development and testing
of new products utilizing the Windows CE operating system. Our engineers have
significant experience in creating products for Windows CE, which enables us to
bring robust and flexible products to market in a timely manner.
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<PAGE> 44
COMPETITION
The market for Windows CE-based solutions is becoming increasingly
competitive. We face competition from:
- our current and potential customers' internal research and development
departments that may seek to develop their own proprietary solutions;
- large professional engineering services firms that may enter the market;
- established ICD software and tools manufacturers such as Applied
Microsystems, Spyglass, Phoenix Technologies, Mentor Graphics and
Integrated Systems;
- small- and medium-size engineering services companies such as VenturCom,
Eclipse International, BlueWater Systems and Vadem; and
- software and component distributors such as Avnet/Hamilton Hallmark,
Pioneer and Annasoft Systems.
As we develop new products, particularly solutions focused on specific
industries, we may begin competing with companies with whom we have not
previously competed. It is also possible that new competitors will enter the
market or that our competitors will form alliances, including alliances with
Microsoft, that may enable them to rapidly increase their market share. The
barrier to entering the market as a Windows CE-based ICD solutions provider is
low and Microsoft is constantly encouraging new suppliers. New competitors may
have lower overhead than us and therefore be able to offer advantageous pricing.
We expect that competition will increase as other established and emerging
companies enter the Windows CE-based ICD market and as new products and
technologies are introduced. Increased competition may result in price
reductions, lower gross margins and loss of our market share, which would harm
our business.
We compete principally on the basis of the breadth of solutions offered,
the experience of the providers, the quality of the solutions, the
time-to-market and price. We believe we compete favorably in each of these
areas.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Intellectual property is critical to our success. In general, there can be
no assurance that our efforts to protect our intellectual property rights
through patent, copyright, trademark and trade secret laws will be effective to
prevent misappropriation of our technology, or to prevent the development and
design by others of products or technologies similar to or competitive with
those developed by us. We frequently license the source code of our products and
the source code results of our services to customers. There can be no assurance
that customers with access to our source code will comply with the license terms
or that we will discover violations of the license terms or, in the event of
discovery of violations, that we will be able to successfully enforce the
license terms and/or recover the economic value lost from such violations. To
license many of our software products, we rely in part on "shrinkwrap" and
"clickwrap" licenses that are not signed by the end user and, therefore, may be
unenforceable under the laws of certain jurisdictions. As with other software
products, our products are susceptible to unauthorized copying and uses that may
go undetected, and policing such unauthorized use is difficult.
The computer software market is characterized by frequent and substantial
intellectual property litigation, which is often complex and expensive, and
involves a significant diversion of resources and uncertainty of outcome.
Litigation may be necessary in the future to enforce and protect our
intellectual property or to defend against a claim of infringement or
invalidity. Litigation could result in substantial costs and the diversion of
resources and could harm our business and operating results.
We currently have three pending U.S. patent applications. We do not have
any issued patents. There can be no assurance that any of our pending patents
will be granted. Even if granted, patents may be circumvented or challenged and,
if challenged, may be invalidated. Any patents obtained may provide limited or
no competitive advantage to us. It is also possible that another party could
obtain patents that block
39
<PAGE> 45
our use of some, or all, of our products and services. If that occurred, we
would need to obtain a license from the patent holder or design around their
patent. The patent holder may or may not choose to make a license available to
us at all or on acceptable terms. Similarly, it may not be possible to design
around such a blocking patent.
We pursue registration of certain of our trademarks and service marks in
the United States and in certain other countries, but we have not secured
registration of all of our marks. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States, and effective copyright, trademark and trade secret
protection may not be available in other jurisdictions. Our registration of
"BSQUARE" has been opposed in Germany.
EMPLOYEES
As of July 31, 1999, we had 348 employees, excluding independent
contractors and other temporary employees, including 273 employees in research
and development, 28 employees in sales and marketing and 47 employees in general
and administrative services. Of these employees, 337 are located in the United
States, three are located in Germany and eight are located in Japan. In
addition, from time to time, we employ temporary employees and consultants. None
of our employees is represented by a labor union, and we consider our relations
with our employees to be good.
FACILITIES
We lease approximately 70,000 square feet of space in three buildings in
Bellevue, Washington under multiple leases with various terms, with the longest
term expiring in April 2003. In October 1999, we plan to relocate all of our
U.S. employees to a single new location in Bellevue, Washington with
approximately 126,000 square feet, pursuant to a lease that expires in 2009,
with the option to renew for up to an additional 20 years. We also lease office
space in Munich, Germany and Tokyo, Japan. We believe that our new facilities
will be adequate to meet our needs for at least the next twelve months.
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<PAGE> 46
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers and directors as of July 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William T. Baxter............... 36 Chairman of the Board, President and Chief Executive
Officer
Brian V. Turner................. 39 Senior Vice President, Chief Financial Officer and
Secretary
Albert T. Dosser................ 42 Senior Vice President, Director
Peter R. Gregory................ 37 Senior Vice President, Director
David Bialer.................... 39 General Manager
Donald Whitt.................... 53 General Manager
Jeffrey T. Chambers(1)(2)....... 44 Director
Scot E. Land(1)(2).............. 45 Director
William Larson.................. 43 Director
</TABLE>
- ---------------
(1) Member of audit committee
(2) Member of compensation committee
William T. Baxter co-founded BSQUARE in July 1994 and has served as our
President, Chief Executive Officer and Chairman of the Board since our
inception. From June 1993 to October 1994, Mr. Baxter served as Principal
Engineer at Digital Equipment Corporation, a manufacturer of business and
networking computer systems. Between February 1990 and May 1993, Mr. Baxter
served as Manager of Compiler Development at Intergraph Corporation, a developer
and manufacturer of interactive computer graphics systems. Mr. Baxter holds a
B.S. and M.S. in computer science from the University of Wyoming.
Brian V. Turner has been our Senior Vice President, Chief Financial Officer
and Secretary since April 1999. From September 1995 to April 1999, Mr. Turner
was the Chief Financial Officer at RadiSys Corporation, a manufacturer and
designer of computers. Between July 1982 and September 1995, Mr. Turner was with
PricewaterhouseCoopers LLP, an accounting firm, most recently as a director in
Corporate Finance. Mr. Turner holds a B.A. in international political science
and a B.B.A. in accounting from the University of Washington.
Albert T. Dosser co-founded BSQUARE in July 1994 and has served as a Senior
Vice President and a director since our inception. From June 1992 to October
1994, Mr. Dosser served as a software engineer at Digital Equipment Corporation.
Between August 1984 and June 1992, Mr. Dosser served as a software engineer at
Telesoft, a software firm developing Ada compilers and related products, and
from July 1982 to August 1984, he served as a sales support analyst and as
assistant to the national product manager for the OEM Systems Division at NCR, a
manufacturer of business and networking computer systems. Mr. Dosser holds a
B.S. in information science, with a minor in mathematics, from East Tennessee
State University.
Peter R. Gregory co-founded BSQUARE in July 1994 and has served as a Senior
Vice President and a director since our inception. From August 1991 to October
1994, Mr. Gregory served as Senior Software Engineer at Digital Equipment
Corporation. Between February 1990 and August 1991, Mr. Gregory served as Senior
Software Engineer at a subsidiary of Motorola, a computer component and
telecommunications equipment manufacturer. Mr. Gregory holds a B.A. in computer
science from Southern Illinois University at Carbondale.
David Bialer has been a General Manager at BSQUARE since September 1998.
From January 1998 to August 1998, Mr. Bialer was the Director of Business
Development at MobileSoft, a division of Philips Electronics North America
Corporation and a Windows CE e-commerce website founded by Mr. Bialer. From
April 1996 to January 1998, Mr. Bialer served as a Senior Product Manager at
Philips Mobile Computing Group, a manufacturer of Windows CE-based devices, and
from December 1995 to February
41
<PAGE> 47
1996, he served as a Senior Manager, Business Development at VDOnet, a developer
of video conferencing, messaging and streaming software. From December 1994 to
December 1995, Mr. Bialer served as a Senior Manager at Oracle Corporation, a
database company, and from January 1993 to December 1994, he served as a Senior
Product Marketing Engineer at Intel Corporation, a manufacturer of
semiconductor, computer and networking products. Mr. Bialer holds a B.S. in
computer science from Cornell University and an M.B.A. from the University of
Pennsylvania, Wharton School of Business.
Donald Whitt has been a General Manager at BSQUARE since April 1998, and
from May 1997 to April 1998, Mr. Whitt held various other positions with us.
From October 1993 to May 1997, Mr. Whitt was a program manager at Secure
Computing Corporation, an Internet security company, and from May 1970 to May
1993, he served in management positions at Control Data Corporation, a computer
manufacturer. Mr. Whitt holds a B.S. in mathematics from California State
University at Fresno.
Jeffrey T. Chambers has been a director of BSQUARE since February 1998. Mr.
Chambers was elected to our board of directors in connection with the purchase
of shares of our preferred stock by affiliates of TA Associates, Inc., a venture
capital firm. Mr. Chambers has been employed by TA Associates or its predecessor
since 1980, where he currently serves as a managing director. In addition to
BSQUARE, Mr. Chambers currently serves as a director of several privately held
companies.
Scot E. Land has been a director of BSQUARE since February 1998. Mr. Land
was elected to our board of directors in connection with the purchase of shares
of our preferred stock by affiliates of Encompass Group, a venture capital firm.
Mr. Land is currently a managing director of Encompass Ventures, an affiliate of
Encompass Group, a position he has held since September 1997. Prior to joining
Encompass, Mr. Land was a Senior Technology Analyst and Strategic Planning
Consultant with Microsoft from June 1993 to September 1997, and a technology
research analyst and investment banker for First Marathon Securities, a Canadian
investment bank, from September 1993 to April 1995. From October 1988 to
February 1993, Mr. Land was the President and Chief Executive Officer of
InVision Technologies, a publicly traded company founded by Mr. Land in October,
1988 that designs and manufacturers high-speed computer-aided topography systems
for automatic explosives detection for aviation security. Prior to founding
InVision Technologies, Mr. Land served as a principal in the international
consulting practice of Ernst and Young LLP, a public accounting firm, from April
1984 to October 1988.
William Larson has been a director of BSQUARE since September 1998. Since
September 1993 Mr. Larson has been the Chief Executive Officer of Network
Associates, Inc., a software company, where he has also served as President and
a director since October 1993 and as Chairman of the Board since April 1995.
From August 1988 to September 1993, Mr. Larson served as a Vice President of
SunSoft, Inc., a systems software subsidiary of Sun Microsystems, where he was
responsible for worldwide sales and marketing.
BOARD OF DIRECTORS
We currently have authorized seven directors; however, one board seat
currently remains vacant. Currently all directors hold office until the next
annual meeting of shareholders or until their successors are duly elected. Our
amended and restated articles of incorporation provide that as of the first
annual meeting of shareholders after the closing of this offering our board of
directors will be divided into three classes, each with staggered three-year
terms. As a result, only one class of directors will be elected at each annual
meeting of our shareholders, with the other classes continuing for the remainder
of their respective three-year terms.
Committees
Our board of directors currently has an audit committee and a compensation
committee. The audit committee consists of Mr. Chambers and Mr. Land. The audit
committee makes recommendations to our board of directors regarding the
selection of independent auditors, reviews the scope of audit and other services
by our independent auditors, reviews the accounting principles and auditing
practices and procedures to be used for our financial statements and reviews the
results of our audits. The compensation committee consists of Mr. Chambers and
Mr. Land. The compensation committee reviews and approves the compensa-
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<PAGE> 48
tion and benefits for our executive officers, grants stock options under our
stock option plan and makes recommendations to our board of directors on
compensation matters.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between any member of our board of
directors or compensation committee and any member of the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
In January 1998, we sold 8,333,333 shares of Series A Preferred Stock at a
per share price of $1.80. Purchasers of Series A Preferred Stock included TA
Associates and its affiliates, who collectively purchased 6,666,667 shares and
hold more than 5% of our outstanding common stock on an as-converted basis, and
of which one of our directors, Jeffrey T. Chambers, is a managing director; and
Encompass Ventures and its affiliates, who collectively purchased 1,666,666
shares and hold more than 5% of our outstanding common stock on an as-converted
basis, and of which one of our directors, Scot E. Land, is a member. Upon
closing of this offering, each outstanding share of Series A Preferred Stock
will convert into one share of common stock.
In connection with the sale of the Series A Preferred Stock, the investors
were granted registration rights, and we may therefore become obligated to
effect a registration under the Securities Act of 1933 of shares of common stock
held by these investors upon the conversion of their preferred stock.
In September 1998, we granted an option to purchase 125,000 shares of
common stock at an exercise price of $1.00 per share to NextGen, an affiliate of
Encompass Ventures, in exchange for consulting services.
We have also granted options to purchase common stock to Messrs. Chambers
and Land. Because of contractual obligations involving Mr. Chambers and his
affiliated investment entities, the option grant to Mr. Chambers was issued in
the name of TA Associates, Inc.
Compensation
Our directors are reimbursed for expenses incurred in connection with
attending board and committee meetings but are not otherwise compensated for
their services as board members. In August 1998, we granted to each of TA
Associates, with whom Jeffrey T. Chambers, one of our directors, is affiliated,
and Scot E. Land, one of our directors, an option to purchase 45,000 shares of
our common stock at an exercise price of $1.80 per share, vesting in three
annual installments of 15,000 shares each. In July 1998, we granted to William
Larson, one of our directors, an option to purchase 120,000 shares of our common
stock at an exercise price of $1.80 per share, vesting in three annual
installments of 40,000 shares each. We currently intend to make comparable
option grants to future non-employee directors.
EXECUTIVE OFFICERS
Our executive officers are elected by, and serve at the discretion of, our
board of directors. There are no family relationships among our directors and
officers.
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<PAGE> 49
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
for services rendered to us in all capacities during the fiscal year ended
December 31, 1998 by our chief executive officer and our four other most highly
compensated executive officers whose salary and bonus for fiscal 1998 exceeded
$100,000.
<TABLE>
<CAPTION>
ANNUAL LONG TERM ALL OTHER
COMPENSATION COMPENSATION COMPENSATION
------------------ ------------ -------------------------------------
SECURITIES HEALTH LIFE AND
UNDERLYING INSURANCE DISABILITY MOVING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (#S) PREMIUMS PREMIUMS EXPENSES
- --------------------------- -------- ------ ------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
William T. Baxter.......... $252,625 $ -- -- $2,133 $1,060 $ --
President and Chief
Executive Officer
Albert T. Dosser........... 150,000 -- -- 1,776 1,305 --
Senior Vice President
Peter R. Gregory........... 150,000 -- -- -- 1,070 --
Senior Vice President
David Bialer(1)............ 37,000 1,000 100,000 699 -- 8,676
General Manager
Donald Whitt............... 103,265 2,452 30,000 2,192 -- --
General Manager
</TABLE>
- ---------------
(1) Mr. Bialer was hired by us on September 8, 1998. If he had been employed
during the entire fiscal year ended December 31, 1998, his annual salary
would have been $130,000.
Option Grants in Fiscal Year 1998
The following table sets forth certain information with respect to stock
options granted to each of our named executive officers during the fiscal year
ended December 31, 1998. In accordance with the rules of the Securities and
Exchange Commission, also shown below is the potential realizable value over the
term of the option (the period from the grant date to the expiration date)
giving effect to an assumed initial public offering price of $ per share
and based on assumed rates of stock appreciation of 5% and 10%, compounded
annually. These rates are mandated by the SEC and do not represent our estimate
of future stock price. Actual gains, if any, on stock option exercises will
depend on the future performance of our common stock. In the fiscal year ended
December 31, 1998, we granted options to acquire up to an aggregate of 1,108,150
shares of common stock to employees and directors, all under our stock option
plan and all at an exercise price equal to the fair market value of our common
stock on the date of grant as determined in good faith by our board of
directors.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
------------------------------------------------------------- ANNUAL RATES OF
PERCENT OF STOCK PRICE
TOTAL OPTIONS APPRECIATION FOR
NUMBER OF SECURITIES GRANTED TO EXERCISE OPTION TERM
UNDERLYING OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------
NAME GRANTED FISCAL 1998 SHARE DATE 5% 10%
---- -------------------- ------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
William T. Baxter.............. -- -- $ -- -- $ -- $ --
Albert T. Dosser............... -- -- -- -- -- --
Peter R. Gregory............... -- -- -- -- -- --
David Bialer................... 100,000 9.0% 1.00 9/25/08 -- --
Donald Whitt................... 10,000 1.0% 1.00 7/17/08 -- --
</TABLE>
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<PAGE> 50
Aggregate Option Exercises in Fiscal Year 1998 and Fiscal Year-End Option
Values
With respect to our named executive officers, the following table sets
forth information concerning option exercises in the fiscal year ended December
31, 1998 and exercisable and unexercisable options held as of December 31, 1998.
The "Value Realized" and the "Value of Unexercised In-the-Money Options at
December 31, 1998" are based upon an assumed initial public offering price of
$ per share minus the per share exercise price multiplied by the number of
shares underlying the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON EXERCISE OPTIONS AT IN-THE-MONEY OPTIONS AT
----------------------- DECEMBER 31, 1998 DECEMBER 31, 1998
VALUE --------------------------- ---------------------------
NAME EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William T. Baxter............. -- $ -- -- -- $ -- $ --
Albert T. Dosser.............. -- -- -- -- -- --
Peter R. Gregory.............. -- -- -- -- -- --
David Bialer.................. -- -- -- 100,000 -- --
Donald Whitt.................. 5,000 -- 7,500 17,500 -- --
</TABLE>
EMPLOYEE BENEFIT PLANS
Amended and Restated Stock Option Plan
Our board of directors adopted and our shareholders approved our amended
and restated stock option plan in May 1997. As of July 31, 1999, we had reserved
a total of 5,625,000 shares of common stock for issuance under the stock option
plan. The stock option plan provides for the granting to our employees,
including officers and directors, of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986 and for the granting to
employees, consultants and non-employee directors of nonstatutory stock options.
If an optionee would have the right in any calendar year to exercise for the
first time incentive stock options for shares having an aggregate fair market
value (determined for each share as of the date the option to purchase the
shares was granted) in excess of $100,000, any such excess options shall be
treated as nonstatutory stock options. Unless terminated earlier by our board of
directors, the plan will terminate in May 2007. As of July 31, 1999, options to
purchase 2,995,749 shares of common stock were outstanding under this plan and
224,726 shares had been issued upon exercise of options.
The stock option plan may be administered by our board of directors or a
committee of our board. Our board of directors determines the terms of each
option granted under the stock option plan, including the number of shares
subject to an option, exercise price, vesting schedule and duration. The
exercise price of all incentive stock options granted under the stock option
plan cannot be less than the fair market value of the common stock on the date
of grant and, in the case of incentive stock options granted to holders of more
than 10% of our voting power, not less than 110% of the fair market value.
Generally, options granted under the stock option plan have a term of ten years,
vest annually over a four-year period and are nontransferable. Payment of the
exercise price of options may be made in cash or other consideration as
determined by our board of directors.
Our board of directors has the authority to amend or terminate the stock
option plan as long as such action does not adversely affect any outstanding
option and provided that shareholder approval for any amendments to the stock
option plan shall be obtained to the extent required by applicable law.
Employee Stock Purchase Plan
Our board of directors and shareholders adopted an employee stock purchase
plan in August 1999. We will implement the employee stock purchase plan
effective as of the date of this prospectus. The employee stock purchase plan
provides a convenient and practical means by which employees may participate in
stock ownership. Our board of directors believes that the opportunity to acquire
a proprietary interest in our success through the acquisition of shares of
common stock pursuant to the employee stock purchase plan is an important aspect
of our ability to attract and retain highly qualified and motivated employees.
The employee
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<PAGE> 51
stock purchase plan is intended to qualify as an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. The employee
stock purchase plan may be administered by our board of directors or by a
committee appointed by our board of directors. The plan administrator has the
power to make and interpret all rules and regulations it deems necessary to
administer the employee stock purchase plan. Our board of directors has broad
authority to amend the employee stock purchase plan, subject in some instances
to shareholder approval. All of our employees who customarily work more than 20
hours per week, including our officers, are eligible to participate in the
employee stock purchase plan. Eligible employees may elect to contribute from 1%
to 10% of the compensation paid to them during each pay period towards stock
purchases under the plan. Other than the first offering, which will have a
duration of approximately 19 months, each participant may enroll in an 18-month
offering in which shares of common stock are purchased on the last day of each
six-month period during the offering. The first offering will commence on the
date of this prospectus and will terminate on May 14, 2001. Thereafter, a
separate offering will commence on November 15 and May 15 of each year. The
purchase price for shares purchased under the employee stock purchase plan will
be equal to 85% of the lower of:
- the fair market value of our common stock on the enrollment date of the
offering; or
- the fair market value on the date of purchase.
Neither payroll deductions credited to an employee's account nor any rights with
regard to the purchase of shares under the employee stock purchase plan may be
assigned, transferred, pledged or otherwise disposed of in any way by a
participant, except that a participant may designate a beneficiary in the event
of his or her death.
Upon termination of employment due to death, retirement or disability, the
payroll deductions credited to an employee's account will be used to purchase
shares on the next purchase date. Any remaining balance will be returned to the
participant or his or her beneficiary. Upon termination of employment for any
other reason, any payroll deductions credited to an employee's account will be
returned to the participant. We have authorized the issuance of up to 1,500,000
shares of common stock under the employee stock purchase plan. In the event of a
merger, consolidation or acquisition by another corporation of all or
substantially all of our assets, each outstanding right to purchase shares under
the employee stock purchase plan shall be assumed or an equivalent stock
purchase right substituted by the successor corporation. If the successor
corporation refuses to assume or substitute for the stock purchase right, the
offering period during which a participant may purchase stock will be shortened
to a specified date before the proposed merger or sale. Similarly, in the event
of our liquidation or dissolution, the offering period during which a
participant may purchase stock will be shortened to a specified date before the
date of the liquidation or dissolution.
401(k) Plan
In March 1997, our board of directors adopted a tax-qualified employee
savings and retirement plan for eligible U.S. employees. Eligible employees may
elect to defer a percentage of their eligible compensation in the 401(k) plan,
subject to the statutorily prescribed annual limit. We make matching
contributions on behalf of all participants in the 401(k) plan in the amount
equal to one-half of the first 6% of an employee's contributions. Matching
contributions are subject to a vesting schedule; all other contributions are at
all times fully vested. We intend the 401(k) plan to qualify under Sections
401(k) and 501 of the Internal Revenue Code so that contributions by employees
or us to the 401(k) plan, and income earned, if any, on plan contributions, are
not taxable to employees until withdrawn from the 401(k) plan, and so that we
will be able to deduct our contributions when made. The trustee of the 401(k)
plan, at the direction of each participant, invests the assets of the 401(k)
plan in any of a number of investment options.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
We currently do not have any employment agreements with any of our named
executive officers. Our stock option plan provides that in the event a third
party acquires us through the purchase of all or substantially all of our
assets, a merger or other business combination, if so provided in applicable
stock option agreements, the unexercised portion of outstanding options will
vest and become immediately exercisable.
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<PAGE> 52
Only two of our officers have stock option agreements that contain change of
control provisions. David Bialer has a stock option agreement which provides for
the acceleration of vesting of 50% of any unvested portion of his options in the
event a third party acquires us. In addition, Brian V. Turner has a stock option
agreement pursuant to which his options are all immediately vested but subject
to repurchase by us over a period of four years from the date of grant. Mr.
Turner's option agreement also provides for the release of 50% of any unreleased
portion of his options in the event a third party acquires us. We do not have
change of control arrangements with any of our other named executive officers.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
Our amended and restated articles of incorporation limit the liability of
directors and officers to the fullest extent currently permitted by the
Washington Business Corporation Act or as it may be amended in the future.
Consequently, subject to the WBCA, no director will be personally liable to us
or our shareholders for monetary damages resulting from his conduct as our
director, except liability for:
- acts or omissions involving intentional misconduct or knowing violations
of law;
- unlawful distributions; or
- transactions from which the director personally receives a benefit in
money, property or services to which the director is not legally
entitled.
Our amended and restated articles of incorporation also provide that we
shall indemnify any individual made a party to a proceeding because that
individual is or was one of our directors or officers and shall advance or
reimburse reasonable expenses incurred by such individual in advance of the
final disposition of the proceeding to the fullest extent permitted by
applicable law. Any repeal of or modification to our amended and restated
articles of incorporation may not adversely affect any right of any of our
directors who is or was a director at the time of such repeal or modification.
To the extent the provisions of our amended and restated articles of
incorporation provide for indemnification of directors for liabilities arising
under the Securities Act, those provisions are, in the opinion of the SEC,
against public policy as expressed in the Securities Act and are therefore
unenforceable.
Our bylaws provide that we shall indemnify our directors and officers and
may indemnify our employees and agents to the fullest extent permitted by law.
In addition, we have entered into separate indemnification agreements with our
directors and certain executive officers that could require us, among other
things, to indemnify them against liabilities that arise because of their status
or service as directors or executive officers and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. Finally, we have purchased and intend to maintain a liability
insurance policy, pursuant to which our directors and officers may be
indemnified against liability they may incur for serving in their capacities as
our directors and officers. We believe that the limitation of liability
provisions in our amended and restated articles of incorporation, the
indemnification provisions in our bylaws, the indemnification agreements and the
liability insurance policy will facilitate our ability to continue to attract
and retain qualified individuals to serve as our directors and officers.
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<PAGE> 53
CERTAIN TRANSACTIONS
In connection with our conversion from a subchapter S corporation to a C
corporation in October 1997, we issued notes payable to William T. Baxter,
Albert T. Dosser and Peter R. Gregory, each in the principal amount of
$654,970.76, which were repaid in full in January 1998.
In January 1998, we sold 8,333,333 shares of Series A Preferred Stock at a
per share price of $1.80. Purchasers of Series A Preferred Stock included TA
Associates and its affiliates, who collectively purchased 6,666,667 shares and
hold more than 5% of our outstanding common stock on an as-converted basis, and
of which one of our directors, Jeffrey T. Chambers, is a partner; and Encompass
Ventures and its affiliates, who collectively purchased 1,666,666 shares and
hold more than 5% of our outstanding common stock on an as-converted basis, and
of which one of our directors, Scot E. Land, is a member. Upon closing of this
offering, each outstanding share of Series A Preferred Stock will convert into
one share of common stock.
In connection with the sale of the Series A Preferred Stock, the investors
were granted registration rights, and we may therefore become obligated to
effect a registration under the Securities Act of shares of common stock held by
these investors upon the conversion of their preferred stock. In addition, in
connection with the Series A Preferred Stock offering, we redeemed 1,111,111
shares of common stock from each of Messrs. Baxter, Dosser and Gregory for
aggregate consideration of $6,000,000, and Messrs. Chambers and Land were
elected to our board of directors.
In September 1998, we granted an option to purchase 125,000 shares of
common stock at an exercise price of $1.00 per share to NextGen, an affiliate of
Encompass Ventures, in exchange for consulting services.
We granted options to purchase shares of common stock to the following
officers and directors on the date, for the number of shares and with an
exercise price indicated opposite each person's name:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING EXERCISE
NAME GRANT DATE OPTIONS PRICE
---- ---------- ---------------- --------
<S> <C> <C> <C>
David Bialer............................... 9/25/98 100,000 $ 1.00
Jeffrey T. Chambers........................ 8/3/98 45,000 1.80
Scot E. Land............................... 8/3/98 45,000 1.80
William Larson............................. 7/20/98 120,000 1.80
Brian V. Turner............................ 4/7/99 300,000 1.44
Donald Whitt............................... 6/11/97 20,000 .04956
7/17/98 10,000 1.00
7/5/99 40,000 2.50
</TABLE>
Because of contractual obligations involving Mr. Chambers and his
affiliated investment entities, the option grant to Mr. Chambers was issued in
the name of TA Associates, Inc.
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<PAGE> 54
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of July 31, 1999, and as adjusted to reflect
the sale of the common stock offered hereby, by:
- each shareholder known by us to own beneficially more than 5% of our
outstanding common stock;
- each of our directors;
- each of our named executive officers; and
- all current executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC.
For purposes of calculating the number of shares beneficially owned by a
shareholder and the percentage ownership of that shareholder, shares of common
stock subject to options that are currently exercisable or exercisable within 60
days of July 31, 1999 by that shareholder are deemed outstanding. These options
are not treated as outstanding for the purpose of computing the percentage
ownership of any other shareholder. Percentage ownership is based on 26,599,726
shares of common stock outstanding on July 31, 1999 and shares
outstanding upon completion of this offering.
Unless otherwise noted below, the address for each shareholder below is:
c/o BSQUARE Corporation, 3633 136th Place S.E., Suite 100, Bellevue, WA 98006.
Unless otherwise noted, we believe that each of the shareholders has sole
investment and voting power with respect to the common stock indicated, except
to the extent shared by spouses under applicable law.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
NUMBER OF ---------------------
SHARES
NUMBER OF UNDERLYING BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OPTIONS OFFERING OFFERING
------------------------------------ ---------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Entities affiliated with TA Associates, Inc.(1)..... 7,192,130 15,000 27.1%
High Street Tower
Suite 2500
Boston, MA 02110
Jeffrey T. Chambers(2).............................. 7,192,130 15,000 27.1
Albert T. Dosser.................................... 5,888,889 -- 22.1
Peter R. Gregory.................................... 5,875,089 -- 22.1
William T. Baxter................................... 5,142,362 -- 19.3
Scot E. Land(3)..................................... 1,805,555 15,000 6.8
Entities affiliated with Encompass Ventures(4)...... 1,805,555 15,000 6.8
4040 Lake Washington Blvd. N.E
Suite 205
Kirkland, WA 98033
Brian V. Turner..................................... -- 300,000 1.1
William Larson...................................... -- 40,000 *
David Bialer........................................ -- 100,000 *
Donald Whitt........................................ 5,000 7,500 *
All executive officers and directors as a
group(9)(5)....................................... 25,909,025 477,500 97.5%
</TABLE>
- ---------------
* Less than 1%
(1) Includes 5,865,962 shares held by TA/Advent VIII L.P., 1,100,968 shares held
by Advent Atlantic and Pacific III, L.P., 117,318 shares held by TA
Investors L.L.C. and 107,882 shares held by TA Executives Fund L.L.C., all
of which are funds managed by TA Associates.
(2) Includes 5,865,962 shares held by TA/Advent VIII L.P., 1,100,968 shares held
by Advent Atlantic and Pacific III, L.P., 117,318 shares held by TA
Investors L.L.C. and 107,882 shares held by TA Executives Fund L.L.C., all
of which are funds managed by TA Associates. Mr. Chambers is a managing
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<PAGE> 55
director of TA Associates. Mr. Chambers directly or indirectly shares voting
and investment power with respect to such shares but disclaims beneficial
ownership.
(3) Includes 1,372,222 shares held by Encompass Group US Information Technology
Partners 1 LP, 277,778 shares held by TCI Club and 155,555 shares held by
Northwest Financing, L.L.C., all of which are funds managed by Encompass
Ventures. Mr. Land is affiliated with Encompass Ventures. Mr. Land directly
or indirectly shares voting and investment power with respect to such shares
but disclaims beneficial ownership.
(4) Includes 1,372,222 shares held by Encompass Group US Information Technology
Partners 1 LP, 277,778 shares held by TCI Club and 155,555 shares held by
Northwest Financing, L.L.C., all of which are funds managed by Encompass
Ventures.
(5) See footnotes (1) through (4) above.
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<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of this offering, we will be authorized to issue up to
50,000,000 shares of common stock, no par value, and 10,000,000 shares of
preferred stock, no par value. The following summary of certain provisions of
our common stock and preferred stock is not complete and may not contain all the
information you should consider before investing in the common stock. This
description is subject to and qualified in its entirety by provisions of our
amended and restated articles of incorporation and bylaws, which are included as
exhibits to the registration statement of which this prospectus is a part, and
by provisions of applicable Washington law.
COMMON STOCK
As of July 31, 1999, assuming conversion of all outstanding shares of
preferred stock, there were 26,599,726 shares of common stock outstanding that
were held of record by 78 shareholders. After giving effect to the sale of
common stock offered in this offering, there will be shares of common
stock outstanding (assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options). As of July 31, 1999, there were
outstanding options to purchase a total of 2,995,749 shares of common stock.
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the shareholders. Subject to preferences that may be
granted to any outstanding shares of preferred stock, the holders of common
stock are entitled to receive ratably only those dividends our board of
directors declares out of funds legally available for the payment of dividends
as well as any other distributions to the shareholders.
If we are liquidated, dissolved or wound-up, the holders of common stock
are entitled to share pro rata all of our assets remaining after payment of our
liabilities and liquidation preferences of any then-outstanding shares of
preferred stock. Holders of common stock have no preemptive rights or rights to
convert their common stock into any other securities. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and non-assessable, and the shares of common
stock to be issued in this offering will be fully paid and non-assessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred
stock will be converted into 8,333,333 shares of common stock. Thereafter,
pursuant to our amended and restated articles of incorporation, our board of
directors will have the authority, without further action by the shareholders,
to issue up to 10,000,000 shares of preferred stock in one or more series and to
fix the relative designations, powers, preferences and privileges of the
preferred stock, any or all of which may be greater than the rights of the
common stock. Our board of directors, without shareholder approval, can issue
preferred stock with voting, conversion or other rights that could adversely
affect the voting power and other rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms that could delay or
prevent a change in control of us or make removal of our management more
difficult. Additionally, the issuance of preferred stock may decrease the market
price of the common stock and may adversely affect the voting and other rights
of the holders of common stock. We have no present plans to issue any preferred
stock.
REGISTRATION RIGHTS
After this offering, the holders of 8,333,333 shares of common stock will
be entitled to rights with respect to the registration of such shares under the
Securities Act pursuant to a stock purchase and shareholders agreement among
such holders and us dated January 30, 1998. Under the terms of this agreement,
if we propose to register any of our securities under the Securities Act, either
for our own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of the
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<PAGE> 57
registration and to include their shares of common stock in the registration at
our expense. Additionally, such holders are entitled to demand registration
rights pursuant to which they may require us to file a registration statement
under the Securities Act at our expense with respect to their shares of common
stock. Further, such holders may require us to file additional registration
statements on Form S-3 at our expense. All of these registration rights are
subject to the right of the underwriters of an offering to limit the number of
shares included in such registration. These registration rights terminate when
the holder can transfer his or her registrable shares pursuant to Rule 144. The
holders of these registration rights have entered into lock-up agreements and
waived their registration rights until 180 days following the closing of this
offering.
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OUR AMENDED AND RESTATED ARTICLES
OF INCORPORATION, BYLAWS AND WASHINGTON LAW
Our board of directors, without shareholder approval, has the authority
under our amended and restated articles of incorporation to issue preferred
stock with rights superior to the rights of the holders of common stock. As a
result, preferred stock could be issued quickly and easily, could adversely
affect the rights of holders of common stock and could be issued with terms
calculated to delay or prevent a change in control of us or make removal of our
management more difficult. In addition, our board of directors is divided into
three classes. The directors in each class will serve for three-year terms, one
class being elected each year by our shareholders. This system of electing and
removing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us because it generally makes
it more difficult for shareholders to replace a majority of the directors.
Chapter 19 of the Washington Business Corporation Act generally prohibits a
"target corporation" from engaging in certain significant business transactions
with an "acquiring person," which is defined as a person or group of persons
that beneficially owns 10% or more of the voting securities of the target
corporation, for a period of five years after the acquisition, unless the
transaction or acquisition of shares is approved by a majority of the members of
the target corporation's board of directors prior to the time of acquisition.
Prohibited significant business transactions include, among other things:
- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person;
- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the
shares; or
- allowing the acquiring person to receive any disproportionate benefits as
a shareholder.
After the five-year period, a "significant business transaction" may occur
as long as it complies with certain "fair price" provisions of the statute. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of us.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C. The transfer agent's address is 520 Pike Street,
Suite 1220, Seattle, Washington 98101, and its telephone number is (206)
292-3795.
NATIONAL MARKET LISTING
We will apply to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "BSQR."
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<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common
stock outstanding, assuming no exercise of options after July 31, 1999. Of these
shares, the shares that we expect to sell in this offering will be
freely tradable in the public market without restriction under the Securities
Act, unless such shares are held by our "affiliates," as that term is defined in
Rule 144 under the Securities Act.
The remaining 26,599,726 shares of common stock that will be outstanding
after this offering will be restricted shares because they were sold in private
transactions in reliance on exemptions from registration under the Securities
Act. of these shares will be subject to the lock-up agreements
described below for 180 days after the date of this prospectus. In addition,
holders of stock options may exercise and sell their options. The following
table shows the timing of when shares may be eligible for resale in the public
market after effectiveness of this offering:
<TABLE>
<CAPTION>
DAYS AFTER DATE OF THIS PROSPECTUS SHARES FIRST ELIGIBLE FOR RESALE COMMENT
- ---------------------------------- -------------------------------- -------------------------------
<S> <C> <C>
- - Upon effectiveness............ - Freely tradeable shares sold
in this offering, and shares
eligible for sale pursuant to
vested and exercisable
options pursuant to our Form
S-8 registration statement
- - 90 days....................... - Shares eligible for sale
under Rules 144 and 701
- - 180 days...................... - Expiration of lock up
agreements
</TABLE>
From time to time between the effectiveness of our Form S-8 registration
statement and 90 days after the date of this prospectus additional
shares will become eligible for sale, and 90 days thereafter
additional shares will become eligible for sale, all pursuant to the
exercise of vested options.
S-8 Registration Statement
As of July 31, 1999, there were a total of 2,995,749 shares of common stock
subject to outstanding options under our stock option plan, 1,043,851 of which
were vested. Immediately after the completion of the offering, we intend to file
registration statements on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under our
stock option plan and our employee stock purchase plan. After the effective
dates of the registration statements on Form S-8, shares purchased upon exercise
of options granted pursuant to our stock option plan and employee stock purchase
plan generally would be available for resale in the public market, without
restriction.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year would be entitled to sell in any three-month period
up to the greater of:
- 1% of the then-outstanding shares of common stock (approximately
shares immediately after this offering); and
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about us.
Rule 701
Any of our employees, directors, officers, consultants or advisors who
purchased shares from us in connection with a written stock or option plan
before the effective date of this offering is entitled to rely on the
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<PAGE> 59
resale provisions of Rule 701, subject to the lock-up agreements described
above. In general, Rule 701 permits non-affiliates to sell their Rule 701 shares
90 days after the effectiveness of a registration statement relating to a
company's initial public offering without having to comply with the public
information, holding period, volume limitation or notice provisions of Rule 144
and permits affiliates to sell their Rule 701 shares without having to comply
with the holding period of Rule 144.
Rule 144(k)
Under Rule 144(k), a person who has not been one of our affiliates during
the preceding 90 days and who has beneficially owned the restricted shares for
at least two years is entitled to sell them without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Lock-Up Agreements
Pursuant to certain "lock-up" agreements, we and our executive officers,
directors and certain of our other shareholders have agreed not to offer, sell,
contract to sell, announce an intention to sell, pledge or otherwise dispose of,
directly or indirectly, or file with the SEC a registration statement under the
Securities Act relating to, any shares of common stock or securities convertible
into or exchangeable or exercisable for any common stock without the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.
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<PAGE> 60
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Lehman Brothers
Inc., A.G. Edwards & Sons, Inc. and Wit Capital Corporation are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of Shares
Underwriter ----------------
<S> <C>
Credit Suisse First Boston Corporation......................
Lehman Brothers Inc. .......................................
A.G. Edwards & Sons, Inc. ..................................
Wit Capital Corporation.....................................
----------------
Total..................................................
================
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. This option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us............. $ $ $ $
Expenses payable by us............... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We and our executive officers, directors and certain of our other
shareholders have agreed not to offer, sell, contract to sell, announce an
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the SEC a registration statement under the Securities Act relating to,
any shares of common stock or securities convertible into or exchangeable or
exercisable for any common stock without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in this offering. The number of shares available for
sale to the general public in this offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved
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<PAGE> 61
shares not so purchased will be offered by the underwriters to the general
public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We will apply to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "BSQR."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors that will be considered
in determining the public offering price include:
- the information in this prospectus and otherwise available to the
underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format is being made available on an Internet
website maintained by Wit Capital. In addition, pursuant to an e-dealer
agreement, all dealers purchasing shares from Wit Capital in the offering
similarly have agreed to make a prospectus in electronic format available on
websites maintained by each of the e-dealers.
Wit Capital, a member of the National Association of Securities Dealers,
will participate in the offering as one of the underwriters. The NASD approved
the membership of Wit Capital on September 4, 1997. Since that time, Wit Capital
has acted as an underwriter, co-manager or selected dealer in over 75 public
offerings. Except for its participation as a manager in this offering, Wit
Capital has no relationship with us or any of our founders or our significant
shareholders.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the common
stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase common stock without the
benefit of a prospectus qualified under the securities laws, (2) where required
by law, that the purchaser is purchasing as principal and not as agent, and (3)
the purchaser has reviewed the text under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer and these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in our common
stock in their particular circumstances and with respect to the eligibility of
our common stock for investment by the purchaser under relevant Canadian
legislation.
57
<PAGE> 63
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
BSQUARE by Summit Law Group, PLLC, Seattle, Washington. Certain legal matters
will be passed upon for the underwriters by Morrison & Foerster, LLP, Palo Alto,
California.
As of the date of this prospectus, Summit Law Group beneficially owns
34,722 shares of our common stock.
EXPERTS
Our audited consolidated financial statements and schedule of BSQUARE
Corporation and subsidiaries included in this prospectus and elsewhere in the
registration statement to the extent and for the periods indicated in their
reports have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein as indicated in their reports with respect
thereto, in reliance upon the authority of said firm as experts giving said
reports.
WHERE TO FIND ADDITIONAL DOCUMENTS
We have filed with the SEC a registration statement on Form S-1. This
prospectus, which forms a part of the registration statement, does not contain
all the information included in the registration statement. Certain information
is omitted and you should refer to the registration statement and its exhibits.
With respect to references made in this prospectus to any of our contracts or
other documents, such references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual contract or document. You may read and copy the registration statement,
including exhibits and schedules filed with it, at the SEC's public reference
facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the SEC's public
reference facilities by calling the SEC at 1-800-SEC-0330. The SEC maintains a
website (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, such as us, that file
electronically with the SEC.
58
<PAGE> 64
BSQUARE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income and Comprehensive
Income.................................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BSQUARE Corporation:
We have audited the accompanying consolidated balance sheets of BSQUARE
Corporation and subsidiaries as of December 31, 1997 and 1998, and the related
consolidated statements of income and comprehensive income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of BSQUARE
Corporation and subsidiaries as of December 31, 1997 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
Seattle, Washington, /s/ ARTHUR ANDERSEN LLP
August 13, 1999
F-2
<PAGE> 66
BSQUARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, EQUITY
---------------- JUNE 30, (NOTE 1) AT
1997 1998 1999 JUNE 30, 1999
------ ------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $2,286 $ 5,324 $ 9,284
Short-term investments................................... -- 1,582 --
Accounts receivable, net of allowance for doubtful
accounts of $10 in 1997, $67 in 1998 and $112 in
1999................................................... 2,700 5,487 4,531
Income taxes receivable.................................. -- 134 --
Prepaid expenses and other current assets................ 89 155 236
Deferred income tax asset................................ -- 237 832
------ ------- -------
Total current assets.............................. 5,075 12,919 14,883
Furniture, equipment and leasehold improvements, net....... 1,320 3,061 3,380
Deposits and other assets.................................. 58 178 486
------ ------- -------
Total assets...................................... $6,453 $16,158 $18,749
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term obligations................. $ -- $ 157 $ 157
Accounts payable......................................... 367 676 507
Accrued compensation..................................... 732 1,331 1,333
Accrued expenses......................................... 147 308 1,509
Income taxes payable..................................... 484 -- 53
Deferred income taxes payable............................ 38 -- --
Deferred revenue......................................... 389 167 649
------ ------- -------
Total current liabilities......................... 2,157 2,639 4,208
Notes payable to shareholders.............................. 1,743 -- --
Long-term obligations, net of current portion.............. -- 289 210
Deferred income tax payable, net of current portion........ 223 111 111
------ ------- -------
Total liabilities................................. 4,123 3,039 4,529
------ ------- -------
Commitments and contingencies (Note 6)
Mandatorily redeemable convertible Series A preferred
stock, no par value: Authorized 10,000,000 shares, issued
and outstanding, no shares in 1997 and 8,333,333 shares
in 1998 and 1999, preference in liquidation of
$15,000,000.............................................. -- 14,417 14,475 --
Shareholders' equity (deficit):
Common stock, no par value: Authorized 50,000,000 shares,
issued and outstanding, 21,375,000 shares in 1997,
18,161,605 shares in 1998, and 18,225,205 in 1999...... 2,766 2,123 3,209 17,684
Deferred stock option compensation....................... (572) (401) (1,157) (1,157)
Stock subscription....................................... -- -- (29) (29)
Cumulative foreign currency translation adjustment....... -- 5 (61) (61)
Retained earnings (accumulated deficit).................. 136 (3,025) (2,217) (2,217)
------ ------- ------- -------
Total shareholders' equity (deficit).............. 2,330 (1,298) (255) $14,220
------ ------- ------- =======
Total liabilities and shareholders' equity........ $6,453 $16,158 $18,749
====== ======= =======
</TABLE>
See notes to Consolidated Financial Statements.
F-3
<PAGE> 67
BSQUARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Service........................................ $ 4,175 $14,021 $23,393 $10,181 $17,848
Product........................................ 11 384 1,219 621 695
------- ------- ------- ------- -------
Total revenue.......................... 4,186 14,405 24,612 10,802 18,543
------- ------- ------- ------- -------
Cost of revenue:
Service........................................ 1,400 5,566 11,135 4,907 8,791
Product........................................ 4 78 166 121 108
------- ------- ------- ------- -------
Total cost of revenue.................. 1,404 5,644 11,301 5,028 8,899
------- ------- ------- ------- -------
Gross profit........................... 2,782 8,761 13,311 5,774 9,644
------- ------- ------- ------- -------
Operating expenses:
Research and development....................... 205 1,391 3,671 1,452 2,960
Selling, general and administrative............ 606 2,806 6,470 2,618 5,236
------- ------- ------- ------- -------
Total operating expenses............... 811 4,197 10,141 4,070 8,196
------- ------- ------- ------- -------
Income from operations................. 1,971 4,564 3,170 1,704 1,448
------- ------- ------- ------- -------
Other income (expense):
Interest income................................ -- 20 359 196 149
Interest expense............................... -- (32) (40) (17) (19)
------- ------- ------- ------- -------
Total other income (expense)........... -- (12) 319 179 130
------- ------- ------- ------- -------
Income before income taxes....................... 1,971 4,552 3,489 1,883 1,578
Provision for income taxes....................... -- 746 1,189 666 712
------- ------- ------- ------- -------
Net income............................. $ 1,971 $ 3,806 $ 2,300 $ 1,217 $ 866
======= ======= ======= ======= =======
Foreign currency translation adjustment.......... -- -- (5) -- 66
------- ------- ------- ------- -------
Comprehensive net income......................... $ 1,971 $ 3,806 $ 2,295 $ 1,217 $ 932
======= ======= ======= ======= =======
Basic earnings per share......................... $ 0.09 $ 0.18 $ 0.12 $ 0.06 $ 0.04
======= ======= ======= ======= =======
Weighted average shares outstanding used to
compute basic earnings per share............... 22,106 21,400 18,372 18,615 18,206
======= ======= ======= ======= =======
Diluted earnings per share....................... $ 0.09 $ 0.17 $ 0.08 $ 0.04 $ 0.03
======= ======= ======= ======= =======
Weighted average shares outstanding to compute
diluted earnings per share..................... 22,106 21,781 27,475 27,050 28,615
======= ======= ======= ======= =======
</TABLE>
See notes to Consolidated Financial Statements.
F-4
<PAGE> 68
BSQUARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN RETAINED TOTAL
COMMON STOCK DEFERRED CURRENCY EARNINGS SHAREHOLDERS'
-------------------- STOCK OPTION STOCK TRANSLATION (ACCUMULATED EQUITY
SHARES AMOUNT COMPENSATION SUBSCRIPTION ADJUSTMENT DEFICIT) (DEFICIT)
---------- ------- ------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995...... 21,000,000 $ 2 $ -- $ -- $ -- $ 259 $ 261
Issuance of common stock...... 1,106,000 14 -- -- -- -- 14
Shareholder draws............. -- -- -- -- -- (1,322) (1,322)
Net income.................... -- -- -- -- -- 1,971 1,971
---------- ------- ------- ---- ---- ------- -------
Balance, December 31, 1996...... 22,106,000 16 -- -- -- 908 924
Issuance of common stock for
services rendered........... 500,000 25 -- -- -- -- 25
Repurchase of common stock.... (1,231,000) (46) -- -- -- -- (46)
Shareholder note payable on S
to C Corporation
conversion.................. -- -- -- -- -- (2,000) (2,000)
Shareholder draws............. -- -- -- -- -- (460) (460)
Net income from January 1,
1997 to October 15, 1997.... 3,670 3,670
Conversion from S corporation
to C corporation............ 2,118 (2,118) --
Issuance of compensatory stock
options..................... -- 653 (653) -- -- -- --
Compensation attributable to
stock option vesting........ -- -- 81 -- -- -- 81
Net income from October 16,
1997 to December 31,
1997........................ -- -- -- -- -- 136 136
---------- ------- ------- ---- ---- ------- -------
Balance, December 31, 1997...... 21,375,000 2,766 (572) -- -- 136 2,330
Repurchase of common stock.... (3,333,333) (649) -- -- -- (5,351) (6,000)
Exercise of stock options..... 119,938 6 -- -- -- -- 6
Compensation attributable to
stock option vesting........ -- -- 171 -- -- -- 171
Foreign currency translation
adjustment.................. -- -- -- -- 5 -- 5
Accretion on mandatorily
redeemable convertible
preferred stock............. -- -- -- -- -- (110) (110)
Net income.................... -- -- -- -- -- 2,300 2,300
---------- ------- ------- ---- ---- ------- -------
Balance, December 31, 1998...... 18,161,605 2,123 (401) -- 5 (3,025) (1,298)
Exercise of stock options..... 63,600 6 -- -- -- -- 6
Note receivable from
shareholder................. -- 30 -- (30) -- -- --
Issuance of compensatory stock
options..................... -- 1,050 (1,050) -- -- -- --
Issuance of common stock upon
payment of subscription
receivable from
shareholder................. -- -- -- 1 -- -- 1
Compensation attributable to
stock option vesting........ -- -- 294 -- -- -- 294
Foreign currency translation
adjustment.................. -- -- -- -- (66) -- (66)
Accretion on mandatorily
redeemable convertible
preferred stock............. -- -- -- -- -- (58) (58)
Net income.................... -- -- -- -- -- 866 866
---------- ------- ------- ---- ---- ------- -------
Balance, June 30, 1999
(unaudited)................... 18,225,205 $ 3,209 $(1,157) $(29) $(61) $(2,217) $ (255)
========== ======= ======= ==== ==== ======= =======
</TABLE>
See notes to Consolidated Financial Statements.
F-5
<PAGE> 69
BSQUARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 1,971 $ 3,806 $ 2,300 $ 1,217 $ 866
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization............... 35 329 948 387 1,070
Deferred income taxes....................... -- 261 (387) 7 (595)
Stock and stock option compensation......... -- 106 171 83 294
Amortization of deferred financing costs.... -- -- 14 7 --
Changes in operating assets and liabilities:
Accounts receivable....................... (205) (2,109) (2,786) (1,020) 956
Prepaid expenses and other current
assets................................. (13) (66) (76) (60) (56)
Deposits and other assets................. (27) (24) (117) (4) (315)
Accounts payable and accrued expenses..... 101 1,111 960 125 703
Income taxes.............................. -- 484 (221) (562) 187
Deferred revenue.......................... (222) 389 (618) (354) 482
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities................. 1,640 4,287 188 (174) 3,592
------- ------- ------- ------- -------
Cash flows from investing activities:
Purchases of furniture equipment and leasehold
improvements................................ (248) (1,413) (2,116) (1,628) (1,070)
Maturity (purchase) of short-term investments,
net......................................... -- -- (1,582) (1,552) 1,582
------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities................. (248) (1,413) (3,698) (3,180) 512
------- ------- ------- ------- -------
Cash flows from financing activities:
Repayment of shareholder notes payable......... -- (256) (1,743) (1,743) --
Payments on long-term obligations.............. -- -- (26) -- (79)
Repurchase of common stock..................... -- (46) (6,000) (6,000) --
Deferred financing costs....................... -- (13) (2) (2) (25)
Proceeds from exercise of stock options........ -- -- 5 1 6
Shareholders' draws............................ (1,322) (460) -- -- --
Net proceeds from issuance of Series A
Preferred Stock............................. -- -- 14,307 14,307 --
Proceeds from sale of common stock............. 14 -- -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities................. (1,308) (775) 6,541 6,563 (98)
------- ------- ------- ------- -------
Effect of exchange rate changes on cash.......... -- -- 7 -- (46)
------- ------- ------- ------- -------
Net increase in cash and cash
equivalents.......................... 84 2,099 3,038 3,209 3,960
Cash and cash equivalents, beginning of period... 103 187 2,286 2,286 5,324
------- ------- ------- ------- -------
Cash and cash equivalents, end of period......... $ 187 $ 2,286 $ 5,324 $ 5,495 $ 9,284
======= ======= ======= ======= =======
</TABLE>
See notes to Consolidated Financial Statements.
F-6
<PAGE> 70
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION AS OF JUNE 30, 1998 AND 1999 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
BSQUARE Corporation, a Washington corporation, and its subsidiaries
(collectively the Company) provides complete software solutions that enable the
proliferation of a wide variety of intelligent computing devices based on the
Microsoft Windows CE operating system. The Company works with semiconductor
vendors and original equipment manufacturers to provide software products and
engineering services for the development of intelligent computing devices, or
ICDs.
The Company helps enable the rapid and low-cost deployment of ICDs by
providing a variety of software solutions for the development, integration and
deployment of the Windows CE operating system with industry-specific
applications. The Company also develops software applications that are licensed
to end users to provide ICDs with additional functionality. The Company markets
and supports its products and provides services on a worldwide basis through a
direct sales force augmented by distributors.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The Company operates in the software industry, and accordingly, can be
affected by a variety of factors. For example, management of the Company
believes that any of the following factors could have a significant negative
effect on the Company's future financial position, results of operations and
cash flows: unanticipated fluctuations in quarterly operating results; failure
of the market for Windows CE operating system to develop fully; failure of the
market for ICDs to develop fully; adverse changes in the Company's relationship
with Microsoft; failure to secure contracts with market-leading OEMs; intense
competition; failure to attract and retain key personnel; failure to protect
intellectual property; risks associated with international operations; inability
to manage growth; litigation or other claims against the Company.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated. Accounts denominated in foreign currencies
have been re-measured into the functional currency, using the U.S. dollar as the
functional currency.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements as of June 30, 1999 and for the
six months ended June 30, 1998 and 1999 have been prepared on the same basis as
the audited financial statements and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial information set forth therein, in accordance with
generally accepted accounting principles. The Company believes that the results
of operations for the six months ended June 30, 1999 are not necessarily
indicative of the results to be expected for any future period.
F-7
<PAGE> 71
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards (SFAS) No.
128, "Computation of Earnings Per Share," basic earnings per share is computed
by dividing net income available to common stock (net income less accretion of
mandatorily redeemable convertible preferred stock) by the weighted average
number of shares of common stock outstanding during the period. Dilutive
earnings per share is computed by dividing net income by the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Common equivalent shares consist of the shares of common stock issuable
upon the conversion of the mandatorily redeemable convertible preferred stock
(using the if-converted method) and shares issuable upon the exercise of stock
options and warrants (using the treasury stock method); common equivalent shares
are excluded from the calculation if their effect is antidilutive. The Company
has not had any issuances or grants for nominal consideration as defined under
Staff Accounting Bulletin 98.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents, include demand deposits, money market accounts
and all highly liquid debt instruments with an original maturity date of three
months or less.
SHORT-TERM INVESTMENTS
The Company's short-term investments consist primarily of investment-grade
marketable securities, which are classified as held to maturity and recorded at
amortized cost. Due to the short-term nature of these investments, changes in
market interest rates would not have a significant impact on the fair value of
these securities that are carried at amortized cost, which approximates fair
value.
At December 31, 1998, all short-term investments had a contractual maturity
of one year or less.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents, short-term
investments and trade accounts receivable, accounts payable and long-term debt.
Fair values of cash and cash equivalents and short-term investments approximate
cost due to the short period of time to maturity. The fair values of financial
instruments that are short-term and/or that have little or no market risk are
considered to have a fair value equal to book value. Assets and liabilities that
are included in this category are receivables, accounts payable and accrued
liabilities.
The Company performs initial and ongoing evaluations of its customers'
financial position, and generally extends credit on open account, requiring
collateral as deemed necessary. The Company maintains allowances for potential
credit losses.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation. Depreciation is provided on the straight-line method
over the estimated useful lives, as follows: office furniture and
equipment -- four years; computer equipment -- three years. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful life. Maintenance and repairs are expensed as incurred. When properties
are retired or otherwise disposed, gains or losses are reflected in the income
statement. When facts and circumstances indicate that the cost of long-lived
assets may be impaired, an evaluation of recoverability is performed by
comparing the carrying value of the asset to projected future cash flows. Upon
indication that the carrying value of such assets may not be recoverable, the
Company would recognize an impairment loss by a charge against current
operations.
SOFTWARE DEVELOPMENT COSTS
Under the criteria set forth in Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," capitalization of software
F-8
<PAGE> 72
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
development costs begins upon the establishment of technological feasibility of
the product, which the Company has defined as the completion of beta testing of
a working product. The establishment of technological feasibility and the
ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future gross product revenue estimated economic life
and changes in software and hardware technology. Amounts that could have been
capitalized under this statement after consideration of the above factors were
immaterial and, therefore, no software development costs have been capitalized
by the Company to date.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and consist
primarily of salaries and materials.
INCOME TAXES
The Company was taxed as an S Corporation until October 15, 1997, when the
shareholders elected to convert to a C Corporation. Accordingly, taxes on income
to the Company were generally the responsibility of the shareholders until the
conversion.
The Company computes income taxes using the asset and liability method,
under which deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities. Deferred tax assets and liabilities are measured using
currently enacted tax rates that are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. A valuation allowance is established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
FOREIGN CURRENCY TRANSLATION
The Company commenced operations in Germany and Japan during 1998. The
functional currency of foreign subsidiaries is the local currency. Accordingly,
assets and liabilities are translated at exchange rates in effect at the balance
sheet date and income and expense accounts at the average exchange rates during
the year. Resulting translation adjustments are recorded as a separate component
of shareholders' equity. The net gains and losses resulting from foreign
currency transactions are recorded in the consolidated statements of income in
the period incurred and were not significant for any of the periods presented.
REVENUE RECOGNITION
The Company's revenue recognition policy is in compliance with the
provisions of the American Institute of Certified Public Accountants' Statement
of Position 97-2, "Software Revenue Recognition." Service revenue is derived
from software porting and development contracts. Product revenue consists of
licensing fees from software application products and operating system and
software development tool products. The Company's customers consist of software
companies, original equipment manufacturers, distributors and end users.
The Company's revenue is recognized as follows:
Time and Material Consulting Contracts. The Company recognizes revenue as
services are rendered.
Fixed-Price Consulting Contracts. Revenue from fixed-price contracts is
recognized on the percentage-of-completion method, measured by the cost incurred
to date to the estimated total cost for the contract. This method is used as
management considers expended costs to be the best available measure of contract
performance. Contract costs include all direct labor, material and any other
costs related to contract performance. Selling, general and administrative costs
are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions and estimated
profitability may result in revisions in the estimate of total costs. Any
required adjustments due to these changes are recognized in the period in which
such revisions are determined.
F-9
<PAGE> 73
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Product Revenue. Product revenue consists principally of fees from the
licensing and sale of software products. Product licensing fees, including
advanced production royalty payments, are generally recognized when a customer
license agreement has been executed, the software has been shipped, remaining
obligations are insignificant and collection of the resulting account receivable
is probable. The Company recognizes license royalty income as it is reported by
the reseller when it ships its product to distributors.
ADVERTISING COSTS
The cost of advertising is expensed as incurred. During the years ending
December 31, 1996, 1997 and 1998 and for the six months ended June 30, 1998 and
1999, the Company incurred advertising expense of $159, $279 and $276, $186, and
$128, respectively.
UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY
If the offering contemplated by this prospectus is consummated, all of the
mandatorily redeemable convertible preferred stock outstanding and subscribed to
as of the closing date will automatically be converted into an aggregate of
8,333,333 shares of common stock. Unaudited pro forma shareholders' equity at
June 30, 1999, as adjusted for the conversion of mandatorily redeemable
convertible preferred stock, is presented in the accompanying consolidated
balance sheet.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective
for financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The implementation of SOP 98-1 did not have a
material impact on the Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of
Start-Up Activities." SOP 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start up activities
and organization costs to be expensed as incurred. The implementation of SOP
98-5 did not have a material impact on the Company's financial position or
results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 of Financial Accounting Standards, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as a part
of a hedge transaction and, if it is the type of hedge transaction. This
statement is effective for all fiscal quarters of all fiscal years beginning
after December 15, 1999. The Company does not use derivative instruments,
therefore the adoption of this statement will not have any effect on the
Company's results of operations or financial position.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
F-10
<PAGE> 74
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Major classifications of furniture, equipment and leasehold improvements
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1997 1998 1999
------ ------- --------
<S> <C> <C> <C>
Computer equipment and system software................. $1,003 $ 2,450 $ 3,158
Office furniture and equipment......................... 404 667 727
Leasehold improvements................................. 293 1,040 1,300
Construction in progress............................... -- 118 114
------ ------- -------
1,700 4,275 5,299
Less: accumulated depreciation and amortization........ (380) (1,214) (1,919)
------ ------- -------
$1,320 $ 3,061 $ 3,380
====== ======= =======
</TABLE>
3. INCOME TAXES
As discussed in Note 1 to the financial statements, the Company was a
Subchapter S Corporation for income tax purposes from inception to October 15,
1997. Effective October 16, 1997, the Company converted to a C Corporation and
was thereafter responsible for U.S. federal income taxes. A net deferred tax
liability of $445, primarily related to the required conversion for income tax
purposes from the cash basis method to the accrual basis method of accounting,
was recorded at the conversion date to reflect the Company's net taxable
temporary differences.
In addition, in accordance with Staff Accounting Bulletin Topic 4.B., the
Company has reclassified accumulated earnings generated prior to the date of
conversion to C corporation status from retained earnings to common stock and
additional paid in capital.
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------- ----------------
1997 1998 1998 1999
---- ------ ----- -------
<S> <C> <C> <C> <C>
Current
U.S. Current..................................... $484 $1,549 $655 $1,194
International.................................... -- 27 -- 84
U.S. Deferred...................................... 262 (387) 11 (566)
---- ------ ---- ------
Total tax provision...................... $746 $1,189 $666 $ 712
==== ====== ==== ======
</TABLE>
The components of net deferred tax (assets) liabilities consisted of the
following at December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1997 1998 1999
---- ----- --------
<S> <C> <C> <C>
Deferred income tax (asset) liabilities:
Depreciation............................................. $ -- $ (41) $(163)
Accrued compensation and benefits........................ (64) (206) (265)
Deferred revenue......................................... -- (57) (452)
Allowance for doubtful accounts.......................... (3) (23) (38)
Cash to accrual basis conversion......................... 111 111 111
Other, net............................................... (6) (21) (25)
---- ----- -----
$ 38 $(237) $(832)
==== ===== =====
Deferred income taxes payable:
Cash to accrual basis conversion......................... $223 $ 111 $ 111
---- ----- -----
$223 $ 111 $ 111
==== ===== =====
</TABLE>
F-11
<PAGE> 75
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pre-tax income, as a result of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------- ------------
1997 1998 1998 1999
----- ---- ---- ----
<S> <C> <C> <C> <C>
Taxes at the U.S. statutory rate....................... 34.0% 34.0% 34.0% 34.0%
Increase (decreases) in income taxes resulting from:
Conversion from an S Corporation to C Corporation.... 9.8 -- -- --
Shareholder responsibility for taxes associated with
S Corporation status.............................. (27.4) -- -- --
Research and development tax credit.................. (0.8) (6.2) (0.5) (8.4)
International operations............................. -- 4.5 -- 14.7
Other, net........................................... 0.8 1.8 1.9 4.8
----- ---- ---- ----
16.4% 34.1% 35.4% 45.1%
===== ==== ==== ====
</TABLE>
4. SHAREHOLDER NOTES PAYABLE
The Company was a Subchapter S Corporation for income tax purposes from
inception to October 15, 1997. Effective October 16, 1997, the Company converted
to a C Corporation. In connection with the conversion, the Company issued notes
payable totaling $2.0 million to the shareholders. Interest accrued at the
applicable federal long-term rate under Section 1274 of the Internal Revenue
Code of 1986, as amended. Although the notes were not due until December 2002,
or earlier if certain conditions were met, the Company paid in full the
shareholder notes payable and related accrued interest on January 30, 1998.
5. BANK LINE OF CREDIT AND NOTES PAYABLE
At December 31, 1998, the Company had available a $2.0 million secured
domestic revolving bank line of credit to support working capital, and a $500
domestic term loan to finance the purchase of software and equipment. During
1998, the Company used $473 of the domestic term loan to finance the purchase of
certain equipment. Interest accrues at the bank's prime for the line of credit
and the bank's prime plus 0.25% for the term loan. The facility fee is 0.50% per
annum or $10 for the line of credit and bank's prime plus 0.25% per annum, or $3
for the term loan. Restrictive terms of the line of credit require, among other
restrictions that the Company maintains a minimum quick ratio, tangible net
worth and debt service ratio.
Principal maturities of long-term obligations at December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999........................................................ $157
2000........................................................ 157
2001........................................................ 132
----
$446
====
</TABLE>
In July 1999, the Company renewed its bank line of credit, which provided
for a $5.0 million secured domestic revolving line of credit, $1.0 million term
loan for the purchase of equipment and a $4.0 term loan for leasehold
improvements. Interest accrues at the bank's prime rate for the revolving line
of credit, the bank's prime rate plus 0.25% for the equipment term loan and the
bank's prime rate plus 0.5% for the leasehold term loan. The facility fee is
$25. Restrictive terms of the lines require, among other requirements that the
Company maintains a minimum quick ratio, tangible net work and debt service
ratio. The line of credit is secured by substantially all of the assets of the
Company. As of July 31, the Company had $464 in standby letters of credit issued
and outstanding under the domestic revolving line of credit.
F-12
<PAGE> 76
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The Company leases its office space under non-cancelable operating leases
that expire at various dates through 2009. During the years ending December 31,
1996, 1997, 1998 and for the six months ended June 30, 1998 and 1999, rental
expense was $370, $482, $980, $400, and $927, respectively. Minimum rental
commitments under non-cancelable operating leases at June 30, 1999 are as
follows:
<TABLE>
<S> <C>
1999 (six months)........................................... $ 1,962
2000........................................................ 4,172
2001........................................................ 4,165
2002........................................................ 3,719
2003........................................................ 3,490
Thereafter.................................................. 20,305
-------
$37,813
=======
</TABLE>
As of June 30, 1999, commitments for construction of leasehold improvements in
1999 total $4.0 million.
In January 1999, the Company signed a ten-year lease for a new corporate
headquarters in Bellevue, Washington, which is expected to commence in October
1999. The minimum lease payments associated with this lease are included in the
commitments above. The Company has the option to extend the lease for four
additional periods of five years each. The Company must provide a $500 letter of
credit as security for the lease. If certain working capital requirements are
not met on the commencement date, the Company must provide an additional $250
letter of credit. The letter of credit may be reduced annually by specified
amounts by specified amounts in the lease agreement upon the Company's achieving
certain economic goals.
7. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has authorized 10.0 million shares of convertible preferred
stock. The Board of Directors has the authority to establish and define, in one
or more series, the price, rights, preferences and dividends of authorized but
unissued shares of preferred stock.
On January 30, 1998, the Company issued 8,333,333 shares of Series A
Convertible Preferred Stock (Preferred Stock) at $1.80 per share. Total
proceeds, net of offering costs, approximated $14.3 million. Concurrent with
this transaction, the Company repurchased 3,333,333 shares of the Company's
common stock from its founders for $6.0 million.
The rights and preferences of the preferred stock are as follows:
- In the event of any liquidation, dissolution or winding up of the
Company, the holders of Series A preferred stock would be entitled to
receive the greater of: (i) an amount in cash equal to $1.80 per share
(adjusted for stock splits, stock dividends and the like) or (ii), cash
in an amount equal to the portion of the assets of the Company remaining
for distribution to shareholders which such shareholder would have
received if each share of Series A Preferred Stock held had been
converted into the number of shares of common stock issuable upon the
conversion of a share of Series A Preferred Stock immediately prior to
any liquidation, dissolution or winding up of the Company.
- The Preferred Stock is voluntarily convertible at any time at the option
of the holder into shares of the Company's common stock at a one-for-one
conversion. The Preferred Stock is automatically convertible upon closing
of a Qualified Public Offering, as defined in the agreement.
- Any time following the fifth anniversary of the closing, holders of the
Preferred Stock have the right to cause the Company to redeem up to 50%
of the Preferred Stock at the original purchase price. Any time following
the sixth anniversary of the closing, the holders shall have the right to
cause the Company to redeem up to 100% of the Preferred Stock at the
original purchase price.
F-13
<PAGE> 77
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- The Preferred Stock converts at a one-for-one conversion rate, and is
adjusted in certain circumstances to prevent dilution of the preferred
shareholder's ownership interest.
- The Preferred shareholders have the same voting rights and voting powers
as common shareholders.
COMMON STOCK RESERVED FOR FUTURE ISSUANCES
At June 30, 1999, the Company has reserved the following shares of common
stock for future issuance:
<TABLE>
<S> <C>
Convertible mandatorily redeemable preferred stock.......... 8,333,333
Employee stock purchase plan................................ 1,500,000
Stock Option Plan........................................... 3,441,462
----------
13,274,795
==========
</TABLE>
8. EMPLOYEE BENEFIT PLANS
STOCK OPTIONS
In May 1997, the Company adopted the 1997 Stock Option Plan (the Plan).
Under the Plan, the Board of Directors may grant nonqualified stock options at a
price determined by the Board, not to be less than 85% of the fair market value
of the common stock. Options have a term of up to 10 years and vest over a
schedule determined by the Board of Directors, generally four years. Incentive
stock options granted under this program may only be granted to employees of the
Company, have a term of up to 10 years, and shall be granted at a price equal to
the fair market value of the Company's stock. A summary of stock option activity
follows:
<TABLE>
<CAPTION>
PRICE PER SHARE
--------------------------------
NUMBER OF OPTIONS AVAILABLE FOR WEIGHTED AVERAGE
OUTSTANDING ISSUANCE EXERCISE PRICE RANGE
----------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996........... -- -- --
Authorized......................... -- 2,500,000 -- --
Granted............................ 1,750,100 (1,750,100) $0.08 $0.05 - $0.50
Exercised.......................... -- -- -- --
Canceled........................... (69,300) 69,300 $0.05 $0.05 - $0.50
--------- ---------- ----- -------------
Balance, December 31, 1997........... 1,680,800 819,200 $0.08 $0.05 - $0.50
Authorized......................... -- 1,125,000 -- --
Granted............................ 1,108,150 (1,108,150) $1.15 $1.00 - $1.80
Exercised.......................... (119,938) -- $0.05 $0.05 - $0.05
Canceled........................... (128,850) 128,850 $0.34 $0.05 - $0.50
--------- ---------- ----- -------------
Balance, December 31, 1998........... 2,540,162 964,900 $0.54 $0.05 - $0.50
Granted............................ 626,400 (626,400) $1.44 $1.44 - $1.44
Exercised.......................... (63,600) -- $0.53 $0.05 - $1.00
Canceled........................... (106,400) 106,400 $0.42 $0.05 - $1.80
--------- ---------- ----- -------------
Balance, June 30, 1999............... 2,996,562 444,900 $0.73 $0.05 - $1.80
========= ========== ===== =============
</TABLE>
In July 1999, the Company authorized an additional 2.0 million shares for
grants under the plan.
F-14
<PAGE> 78
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information concerning currently outstanding
and exercisable options at June 30, 1999:
<TABLE>
<CAPTION>
OUTSTANDING
------------------------------------------ EXERCISABLE
WEIGHTED AVERAGE -------------------------------------
REMAINING CONTRACTUAL WEIGHTED AVERAGE
NUMBER OF OPTIONS LIFE (YEARS) NUMBER OF OPTIONS EXERCISE PRICE
----------------- --------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Rate of Exercise
Price:
$0.05.............. 1,303,012 8.0 578,378 $0.05
$0.50.............. 31,650 8.3 8,100 $0.50
$1.00.............. 827,500 8.3 177,571 $1.00
$1.44.............. 624,400 9.7 300,000 $1.44
$1.80.............. 210,000 9.1 -- $1.80
--------- --- --------- -----
2,996,562 8.5 1,064,049 $0.60
========= === ========= =====
</TABLE>
Had compensation expense been recognized on stock options issued based on
the fair value of the options at the date of the grant and recognized over the
vesting period, the Company's net income would have been reduced to the pro
forma amounts presented below.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Net income, as reported..................................... $3,806 $2,300
(12) (82)
------ ------
Pro forma net income........................................ $3,794 $2,218
====== ======
Pro forma basic earnings per share.......................... $ 0.18 $ 0.11
====== ======
</TABLE>
The fair value of options granted in 1997 and 1998 presented below has been
estimated at the date of grant using the Black-Scholes method with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
------------------
1997 1998
------- -------
<S> <C> <C>
Dividend yield.............................................. 0% 0%
Expected life............................................... 5 years 5 years
Expected volatility......................................... 0% 0%
Risk-free interest rate..................................... 6.0% 5.5%
</TABLE>
The effects on pro forma disclosures of applying SFAS No. 123 are not
likely to be representative of the effects on pro forma disclosures of future
years.
DEFERRED STOCK OPTION COMPENSATION
In connection with the grant of certain stock options to employees and
consultants during 1997 and the six months ended June 30, 1999, the Company
recorded deferred stock option compensation of $653 and $1.1 million,
respectively, representing the difference between the estimated fair value of
the common stock for accounting purposes and the option exercise price of such
options at the date of grant. Such amount is presented as a reduction of
shareholders' equity and amortized, in accordance with FASB Interpretation No.
28, on an accelerated basis over the vesting period of the applicable options
(generally four years). During the years ended December 31, 1997, 1998 and for
the six months ended June 30, 1998 and 1999, the Company expensed approximately
$106, $171, $83 and $294, respectively. The balance will be expensed over the
period the options vest. Compensation expense is decreased in the period of
forfeiture for any accrued but unvested compensation arising from the early
termination of an option holder's services.
F-15
<PAGE> 79
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 EMPLOYEE STOCK PURCHASE PLAN
On July 21, 1999, the board of directors approved the adoption of the
Company's 1999 Employee Stock Purchase (the "1999 Purchase Plan"), subject to
shareholder approval. A total of 1.5 million shares of common stock has been
reserved for issuance under the 1999 Purchase Plan. The 1999 Purchase Plan
permits eligible employees to acquire shares of the Company's common stock
through periodic payroll deductions of up to 10% of base cash compensation. No
more than 3,334 shares may be purchased by each employee on any purchase date.
Each offering period will have a maximum duration of 6 months. The price at
which the common stock may be purchased is 85% of the lesser of the fair market
value of the Company's common stock on the first day of the applicable offering
period or on the last day of the respective purchase period. The initial
offering period will commence on the effectiveness of the initial public
offering and will end on May 14, 2001.
PROFIT SHARING AND DEFERRED COMPENSATION PLAN
The Company has a Profit Sharing and Deferred Compensation Plan (Profit
Sharing Plan) under Section 401(k) of the Internal Revenue Code of 1986, as
amended. Substantially all full-time employees are eligible to participate. The
Company, at its discretion, may elect to match the participants' contributions
to the Profit Sharing Plan. Participants will receive their share of the value
of their investments upon retirement or termination, subject to a vesting
schedule. The Company made no matching contributions to the Profit Sharing Plan
during 1998 or 1997. For the six months ended June 30, 1999, the Company made
matching contributions to the profit sharing plan of $228.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ----------------
1996 1997 1998 1998 1999
----- ----- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Issuance of notes payable for equipment............ $-- $-- $ 473 $ -- $ --
Cash paid for interest............................. -- 13 53 38 42
Cash paid for income taxes......................... -- -- 2,170 1,220 1,100
</TABLE>
All significant non-cash financing activities are listed elsewhere in the
financial statements or the notes thereto.
10. SIGNIFICANT CUSTOMERS
Sales to customers, which comprised at least 10% of revenue for the years
ended December 31 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ----------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Microsoft....................................... 5% 39% 79% 73% 87%
Hitachi......................................... 43% 18% 2% 5% --
NEC............................................. 48% 17% 3% 5% --
ARM............................................. -- 11% 1% -- --
</TABLE>
As of December 31, 1997, and 1998, and as of June 30, 1999, Microsoft
represented 73%, 84% and 72% of total accounts receivable, respectively.
In February 1999, the Company signed a two-year agreement with Microsoft
Corporation to continue to provide services to Microsoft which extend the
capabilities of the Windows CE operating system.
F-16
<PAGE> 80
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. GEOGRAPHIC AND SEGMENT INFORMATION
The Company follows the requirements of Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information. As defined in SFAS No. 131, the Company operates in two reportable
segments, Service and Products for the Microsoft Windows CE environment. The
following table summarizes total revenue and long-lived assets attributed to
significant countries:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30,
1996 1997 1998 1999
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Total revenue:
United States............................... $2,364 $10,065 $23,657 $18,272
Japan....................................... 1,802 2,632 955 271
Other Foreign............................... 20 1,708 -- --
------ ------- ------- -------
Total revenue*...................... $4,186 $14,405 $24,612 $18,543
====== ======= ======= =======
Long-lived assets:
United States............................... $ 1,378 $ 2,795 $ 3,461
Japan....................................... -- 239 219
Germany..................................... -- 205 186
------- ------- -------
Total long-lived assets............. $ 1,378 $ 3,239 $ 3,866
======= ======= =======
</TABLE>
- ---------------
* Revenue is attributed to countries based on location of customer invoiced.
BSQUARE has two operating segments, Services and Products. The Services
segment includes design, development and porting tools for the microprocessor
vendors and the original equipment manufacturer market. The Product segment
derives revenue from licensing of software products to original equipment
manufactures and distributing product through resellers. The accounting policies
of the segments are the same as those described in the summary of significant
accounting policies.
The Company does not track assets or operating expenses by operating
segments. Consequently, it is not practicable to show assets or operating
expenses by operating segments.
F-17
<PAGE> 81
BSQUARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators used
in computing basic and diluted earnings per share:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ------------------
--------------------------- JUNE 30,
1996 1997 1998 1998 1999
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Net income (numerator diluted),.............. $ 1,971 $ 3,806 $ 2,300 $ 1,217 $ 866
Less: Accretion of mandatorily redeemable
convertible preferred stock............. -- -- (110) (50) (58)
------- ------- ------- ------- -------
Net income available to common shareholders
(numerator basic).......................... $ 1,971 $ 3,806 $ 2,190 $ 1,167 $ 808
======= ======= ======= ======= =======
Shares (denominator basic):
Weighted average common shares
outstanding............................. 22,106 21,400 18,372 18,615 18,206
======= ======= ======= ======= =======
Basic earnings per share..................... $ 0.09 $ 0.18 $ 0.12 $ 0.06 $ 0.04
======= ======= ======= ======= =======
Shares (denominator diluted):
Weighted average common shares
outstanding............................. 22,106 21,400 18,372 18,615 18,206
Mandatorily redeemable convertible
preferred
stock................................... -- -- 7,648 6,951 8,333
Common stock equivalents................... -- 381 1,455 1,484 2,076
------- ------- ------- ------- -------
Shares used in computation, (denominator
diluted)................................ 22,106 21,781 27,475 27,050 28,615
======= ======= ======= ======= =======
Diluted earnings per share................... $ 0.09 $ 0.17 $ 0.08 $ 0.04 $ 0.03
======= ======= ======= ======= =======
</TABLE>
F-18
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the securities being registered. All amounts are estimates
except the Securities and Exchange Commission registration fee, the NASD filing
fee and The Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 16,680
NASD Filing Fee............................................. 6,500
Nasdaq National Market Filing Fee........................... 17,500
Printing Costs.............................................. 200,000
Legal Fees and Expenses..................................... 300,000
Accounting Fees and Expenses................................ 100,000
Directors' and Officers' Insurance Policy Premium........... 100,000
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent and Registrar Fees........................... 5,000
Miscellaneous............................................... 49,320
--------
Total............................................. $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a corporation to indemnify its directors,
officers, employees and agents against certain liabilities they may incur in
such capacities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), provided they acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation. The registrant's Amended and Restated Articles of Incorporation
(Exhibit 3.1 hereto) and Bylaws (Exhibit 3.2 hereto) require the registrant to
indemnify its officers and directors to the fullest extent permitted by
Washington law.
Section 23B.08.320 of the WBCA authorizes a corporation to limit or
eliminate a director's liability to the corporation or its shareholders for
monetary damages for breaches of fiduciary duties, other than for (1) acts or
omissions that involve intentional misconduct or a knowing violation of law, (2)
unlawful distributions to shareholders, or (3) transactions from which a
director derives an improper personal benefit. The registrant's Amended and
Restated Articles of Incorporation (Exhibit 3.1 hereto) contain provisions
implementing, to the fullest extent permitted by Washington law, such
limitations on a director's liability to the registrant and its shareholders.
In addition, the registrant has entered into separate indemnification
agreements with its directors and certain executive officers that could require
the registrant, among other things, to indemnify them against liabilities that
arise because of their status or service as directors or executive officers and
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification between the underwriters and the registrant from and against
certain liabilities arising in connection with the offering which is the subject
of this registration statement.
II-1
<PAGE> 83
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a description of all securities that the registrant has
sold within the past three years without registering the securities under the
Securities Act:
On March 17, 1997, the registrant issued an aggregate of 500,000 shares of
its common stock to two of its employees in exchange for services to be rendered
to the registrant. These issuances were exempt from registration pursuant to
Section 4(2) of the Securities Act.
On January 30, 1998, the registrant sold 8,333,333 shares of the its Series
A redeemable convertible preferred stock at a price of $1.80 per share to 11
accredited investors in a private transaction for an aggregate offering price of
approximately $15.0 million. This issuance was exempt from registration pursuant
to Rule 506 of Regulation D under Section 4(2) of the Securities Act.
From June 1998 to August 1999, 224,726 shares of the registrant's common
stock were issued to 58 individuals upon the exercise of stock options granted
pursuant to the registrant's amended and restated stock option plan at a
weighted average exercise price of $0.29 per share. These issuances were exempt
from registration pursuant to Rule 701 under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1 Articles of Incorporation and all amendments thereto.
3.1(a) Form of Amended and Restated Articles of Incorporation.
3.2 Bylaws and all amendments thereto.
4.1 See Exhibits 3.1 and 3.2 for provisions defining the rights
of the holders of common stock.
5.1+ Opinion of Summit Law Group, PLLC regarding legality of
shares.
10.1 Amended and Restated Stock Option Plan.
10.2 Employee Stock Purchase Plan.
10.3 401(k) Plan.
10.4 Form of Indemnification Agreement.
10.5 Loan and Security Agreement and between Imperial Bank and
BSQUARE Corporation dated February 11, 1998.
10.6 One Bellevue Center Office Lease between EOP Northwest
Properties, LLC and BSQUARE Corporation dated December 14,
1998.
10.7 Mercer Island Partners Associates Building Lease Agreement
between Mercer Island Partners Associates, LLC and BSQUARE
Corporation dated January 30, 1998.
10.8 Office Lease Agreement between Seattle Office Associates,
LLC and BSQUARE Corporation dated November 15, 1996 (for
Suite 205).
10.9 Office Lease Agreement between Seattle Office Associates,
LLC and BSQUARE Corporation dated March 24, 1997 (for Suite
310).
10.10 Office Lease Agreement between Seattle Office Associates,
LLC and BSQUARE Corporation dated March 24, 1997 (for Suite
100).
10.11 Sunset North Corporate Campus Lease Agreement between WRC
Sunset North and BSQUARE Corporation.
</TABLE>
II-2
<PAGE> 84
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.12* Microsoft Software For Dedicated Systems Distributor
Agreement between Microsoft Corporation and BSQUARE
Corporation dated November 1, 1997, as amended by Amendment
No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4 and
Amendment No. 5.
10.13* Master Development & License Agreement between Microsoft
Corporation and BSQUARE Corporation dated effective as of
October 1, 1998.
10.14+ Stock Purchase and Shareholders Agreement dated as of
January 30, 1998.
21.1 Subsidiaries of the registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
23.2 Consent of Summit Law Group, PLLC (contained in the opinion
filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (See Page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Confidential Treatment Requested
+ To be filed by amendment
(b) Financial Statement Schedules.
All schedules are omitted because they are inapplicable or the requested
information is shown in the consolidated financial statements of the registrant
or related notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding), is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Bellevue, State of
Washington, on the 16th day of August, 1999.
BSQUARE CORPORATION
By: /s/ WILLIAM T. BAXTER
------------------------------------
William T. Baxter
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints William T. Baxter and Brian V. Turner, and each of them, with full
power of substitution and resubstitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this registration statement, including any and all post-effective
amendments thereto and any registration statement relating to the same offering
as this registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below on the 16th day of August, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ WILLIAM T. BAXTER Chairman of the Board, Chief Executive
- ----------------------------------------------------- Officer and President (Principal Executive
William T. Baxter Officer)
/s/ BRIAN V. TURNER Chief Financial Officer (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
Brian V. Turner
/s/ ALBERT T. DOSSER Director
- -----------------------------------------------------
Albert T. Dosser
/s/ PETER R. GREGORY Director
- -----------------------------------------------------
Peter R. Gregory
/s/ JEFFREY T. CHAMBERS Director
- -----------------------------------------------------
Jeffrey T. Chambers
/s/ SCOT E. LAND Director
- -----------------------------------------------------
Scot E. Land
/s/ WILLIAM LARSON Director
- -----------------------------------------------------
William Larson
</TABLE>
II-4
<PAGE> 86
BSQUARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C -- ADDITIONS
COLUMN B ------------------------- COLUMN E
BALANCE AT CHARGED TO COLUMN D BALANCE AT
BEGINNING COSTS AND DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE PERIOD
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
For the year ended December 31, 1996:
Allowance for doubtful accounts..................... $-- $-- $-- $ --
For the year ended December 31, 1997:
Allowance for doubtful accounts..................... $-- $10 $-- $ 10
For the year ended December 31, 1998:
Allowance for doubtful accounts..................... $10 $60 $ 3 $ 67
For the six months ended June 30, 1999:
Allowance for doubtful accounts..................... $67 $45 $-- $112
</TABLE>
<PAGE> 87
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
1.1+ Form of Underwriting Agreement.
3.1 Articles of Incorporation and all amendments thereto.
3.1(a) Form of Amended and Restated Articles of Incorporation
3.2 Bylaws and all amendments thereto.
4.1 See Exhibits 3.1 and 3.2 for provisions defining the rights
of the holders of common stock.
5.1+ Opinion of Summit Law Group, PLLC regarding legality of
shares.
10.1 Amended and Restated Stock Option Plan.
10.2 Employee Stock Purchase Plan.
10.3 401(k) Plan.
10.4 Form of Indemnification Agreement.
10.5 Loan and Security Agreement and between Imperial Bank and
BSQUARE Corporation dated February 11, 1998.
10.6 One Bellevue Center Office Lease between EOP Northwest
Properties, LLC. and BSQUARE Corporation dated December 14,
1998.
10.7 Mercer Island Partners Associates Building Lease Agreement
between Mercer Island Partners Associates, LLC and BSQUARE
Corporation dated January 30, 1998.
10.8 Office Lease Agreement between Seattle Office Associates,
LLC and BSQUARE Corporation dated November 15, 1996 (for
Suite 205).
10.9 Office Lease Agreement between Seattle Office Associates,
LLC and BSQUARE Corporation dated March 24, 1997 (for Suite
310).
10.10 Office Lease Agreement between Seattle Office Associates,
LLC and BSQUARE Corporation dated March 24, 1997 (for Suite
100).
10.11 Sunset North Corporate Campus Lease Agreement between WRC
Sunset North and BSQUARE Corporation
10.12* Microsoft Software For Dedicated Systems Distributor
Agreement between Microsoft Corporation and BSQUARE
Corporation dated November 1, 1997, as amended by Amendment
No.1, Amendment No.2, Amendment No. 3, Amendment No. 4 and
Amendment No. 5.
10.13* Master Development & License Agreement between Microsoft
Corporation and BSQUARE Corporation dated effective as of
October 1, 1998.
10.14 Stock Purchase and Shareholders Agreement dated as of
January 30, 1998.
21.1 Subsidiaries of the registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
23.2 Consent of Summit Law Group, PLLC (contained in the opinion
filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (See Page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Confidential Treatment Requested
+ To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT
OF
BSQUARE CORPORATION
Pursuant to RCW 23B.10.060, the undersigned corporation adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is BSQUARE Corporation (the
"Corporation").
SECOND: The Articles of Incorporation are hereby amended by deleting
Article III in its entirety and replacing it with a new Article III as follows:
ARTICLE III
DIRECTORS
The Board of Directors shall be set at seven. At the first election of
directors after the Corporation is a Public Company, as defined below, the Board
of Directors shall be divided into three (3) classes, as determined by the Board
of Directors, with said classes to be as equal in number as may be possible,
which classes shall be elected for the terms set forth below:
<TABLE>
<CAPTION>
Class Term
----- ----
<S> <C>
Class 1 1 Year
Class 2 2 Years
Class 3 3 Years
</TABLE>
Thereafter, each Director's term shall be three (3) years, and each Director
shall serve for the term he or she was elected and thereafter until his or her
successor is elected and qualified (or the number of directors is reduced), or
until his or her death, resignation or removal from office. Directors need not
be shareholders of the Corporation or residents of the State of Washington.
Written ballots are not required in the election of Directors. For purposes of
these Articles of Incorporation, the Corporation shall be a "Public Company" at
such time and for so long as it has a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or
any successor statute (the "Exchange Act"), or is otherwise subject to the
reporting requirements of Section 15(d) of the Exchange Act.
Newly created directorships resulting from any increase in the number of
Directors or any vacancies on the Board of Directors resulting from death,
resignation, removal or other cause shall be filled by the affirmative vote of a
majority of the remaining Directors then in office, even though less than a
quorum of the Board of Directors. Any Director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of Directors in which the new directorship was created or in which the
vacancy occurred and thereafter until such Director's successor shall have been
elected and qualified (or the number of directors is reduced). No decrease in
the number of Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
<PAGE> 2
THIRD: The Articles of Incorporation are hereby amended by adding new Articles
XII and XIII to read as follows:
ARTICLE XII
REMOVAL OF DIRECTORS
Any Director or the entire Board of Directors may be removed with or
without cause by the holders of not less than a majority of the shares then
entitled to vote at an election of Directors; provided, however, beginning at
such time and for so long as the Corporation is a Public Company (as defined in
Article III), no Director may be removed without "Cause," as defined below. Such
action may be taken at any regular or special meeting of the shareholders of the
Corporation, or by unanimous written consent in lieu of a meeting, provided that
notice of the proposed removal, which shall include a statement of the charges
alleged against the Director(s) in the event of removal for Cause, shall have
been duly given to the shareholders together with or as a part of the notice of
the meeting.
Where a question of the removal of a Director for Cause is to be presented
for shareholder consideration while the Corporation is a Public Company, an
opportunity must be provided to such Director to present his or her defense to
the shareholders by a statement which must accompany or precede the notice of
the meeting at which removal of such Director for Cause shall be considered.
Under such circumstances the Director involved shall be served with notice of
the meeting at which such action is proposed to be taken together with a
statement of the specific charges and shall be given an opportunity to be
present and to be heard at the meeting at which his or her removal is
considered.
For purposes of this Article XII, "Cause" for removal shall be limited to
(a) action by a Director involving willful malfeasance having a material adverse
effect on the Corporation or (b) a Director being convicted of a felony;
provided that any action by a Director shall not constitute "Cause" if, in good
faith, such Director believed such action to be in or not opposed to the best
interests of the Corporation, or if a Director shall be entitled, under
applicable law or the Articles of Incorporation or Bylaws of the Corporation, to
be indemnified with respect to such action.
ARTICLE XIII
SPECIAL MEETINGS OF THE SHAREHOLDERS
The Chairman of the Board of Directors, the President of the Corporation
or the Board of Directors may call special meetings of the shareholders for any
purpose. Further, a special meeting of the shareholders shall be held if the
holders of not less than twenty-five percent (25%) of all the votes entitled to
be cast on any issue proposed to be considered at such special meeting have
dated, signed and delivered to the Secretary of the Corporation one or more
written demands for such meeting, describing the purposes for which is to be
held.
FOURTH: The amendments do not provide for an exchange, reclassification
or cancellation of issued shares.
FIFTH: The foregoing amendments were adopted by the Board of Directors of
the Corporation on August 13, 1999 and were duly approved by the shareholders of
the Corporation on August ____, 1999 in accordance with RCW 23B.10.030 and RCW
23B.10.040, respectively.
<PAGE> 3
Dated: August ____, 1999.
BSQUARE Corporation
By:
-----------------------------------
William T. Baxter, Chairman of the
Board, President and Chief
Executive Officer
<PAGE> 4
STATE OF WASHINGTON
SECRETARY OF STATE
I, RALPH MUNRO, Secretary of State of the State of Washington and Custodian of
its seal, hereby issue this
CERTIFICATE OF AMENDMENT
to
BSQUARE CORPORATION
a Washington Profit corporation. Articles of Amendment were filed for record in
this office on the date indicated below.
ARTICLES OF CORRECTION - Correcting Designation of Rights and Preferences filed
January 29, 1998
UBI Number: 601 559 419 Date: February 10, 1998
GIVEN UNDER MY HAND AND THE SEAL OF THE STATE
OF WASHINGTON AT OLYMPIA, THE STATE CAPITAL
[SEAL] /s/ RALPH MUNRO
-------------------------------
RALPH MUNRO, Secretary of State
<PAGE> 5
ARTICLES OF CORRECTION
OF
BSQUARE CORPORATION
Pursuant to RCW 23B.01.240, BSQUARE CORPORATION (the "Company"), hereby
makes the following corrections to its Certificate of Amendment to its Articles
of Incorporation as filed with the Office of the Secretary of State of the State
of Washington on January 29, 1998:
FIRST: The Certificate of Designation of the Relative Rights and
Preferences of the Series A Convertible Preferred Stock of BSQUARE CORPORATION
(the "Certificate of Designation"), as filed with the Office of the Secretary of
the State of Washington on January 29, 1998, contained incorrect information and
the Company is hereby submitting for correction the corrected section as set
forth below.
SECOND: The Certificate of Designation incorrectly referenced a
Redemption Agreement, dated as of January 30, 1998:
Section 6. Restrictions and Limitations.
(iv) directly or indirectly redeem, purchase, or otherwise
acquire for consideration any shares of its Common Stock or any other
class of its capital stock except (A) for the redemption of Convertible
Preferred Shares pursuant to and as provided in Sections 2, 4 and 5
hereof, (B) as contemplated by Sections 1.2, 4.6, and 5.2 of that
certain Stock Purchase and Shareholders Agreement, dated as of January
30, 1998 or (C) as contemplated by the Corporation's standard form of
agreement, as approved by the Board of Directors, to be executed by
employees, officers, and consultants of the Corporation upon the grant
to such employees, officers, and consultants of options under the Plan,
IN WITNESS WHEREOF, the Company has caused these Articles of Correction
to be signed by Albert T. Dosser, its Senior Vice President, as of this 3RD day
of February, 1998.
BSQUARE CORPORATION,
a Washington corporation
/s/ ALBERT T. DOSSER
------------------------
Albert T. Dosser
Vice President
<PAGE> 6
STATE of WASHINGTON
SECRETARY OF STATE
I RALPH MUNRO, SECRETARY OF STATE OF THE STATE OF WASHINGTON AND CUSTODIAN OF
ITS SEAL, HEREBY ISSUE THIS
CERTIFICATE OF AMENDMENT
to
BSQUARE CORPORATION
a Washington Profit corporation. Articles of Amendment were filed for record in
this office on the date indicated below.
Amending and Restating Articles
UBI Number: 601 559 419 Date: January 29, 1998
[SEAL] GIVEN UNDER MY HAND AND THE SEAL OF THE STATE
OF WASHINGTON AT OLYMPIA, THE STATE CAPITAL
/S/ RALPH MUNRO
-------------------------------
RALPH MUNRO, Secretary of State
<PAGE> 7
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BSQUARE CORPORATION
ARTICLE I
NAME
The name of the corporation (the "Corporation") is BSQUARE CORPORATION.
ARTICLE II
AUTHORIZED SHARES
2.1 AUTHORIZED CAPITAL. The total authorized number of shares of the
Corporation is Sixty Million (60,000,000) shares; Fifty Million (50,000,000)
shares of common stock without par or ascribed value; Ten Million (10,000,000)
shares of preferred stock without par or ascribed value.
2.2 ISSUANCE OF PREFERRED STOCK IN SERIES. The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Articles of Incorporation, as determined from time
to time by the Board of Directors and stated in the resolution or resolutions
providing for the issuance thereof, prior to the issuance of any shares thereof.
The Board of Directors shall have the authority to fix and determine and to
amend, subject to the provisions hereof, the designations, powers, preferences
and relative, participating, optional or other rights, if any, and
qualifications, limitations or other restrictions of the shares of any series
that is wholly unissued or to be established and the number of shares
constituting any such series. Unless otherwise specifically provided in the
resolution establishing any series, the Board of Directors shall further have
the authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding.
(a) Dividends. The holders of shares of the Preferred Stock shall
be entitled to receive dividends, out of the funds of the corporation legally
available therefor, at the rate and at the time or times as may be provided by
the Board of Directors in designating a particular series of Preferred Stock.
The holders of the Preferred Stock shall not be entitled to receive any
dividends thereon, unless otherwise provided by the Board of Directors in
designating a particular series of Preferred Stock.
(b) Liquidation. In the event of any liquidation, dissolution or
winding up of the affairs of the corporation, whether voluntary or involuntary,
then, before any distribution shall be made to the holders of the Common Stock,
the holders of the Preferred Stock at the time outstanding shall be entitled to
be paid the preferential amount or amounts per share as may be provided by the
Board of Directors in designating a particular series of Preferred Stock, plus
dividends accrued thereon to the date of such payment. In designating a
particular series of Preferred Stock, the Board of Directors may also provide
that such series is senior, on a par with or subordinate in order of priority to
any other existing or later issued series of Preferred Stock in respect of
distribution of amounts upon the liquidation, dissolution or winding up of the
affairs of the corporation. 'The holders of the Preferred Stock shall not be
entitled to receive any distributive amounts upon the liquidation, dissolution
or winding up of the
-1-
<PAGE> 8
affairs of the corporation, unless otherwise provided by the Board of Directors
in designating a particular series of Preferred Stock.
(c) Conversion. Shares of Preferred Stock may be convertible to
shares of Common Stock at such rate and subject to such adjustments as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock.
(d) Redemption. The Preferred Stock may be redeemable in such
amounts, and at such time or times as may be provided by the Board of Directors
in designating a particular series of Preferred Stock. In any event, such
Preferred Stock may be repurchased by the corporation only to the extent legally
permissible.
(e) Voting Rights. Holders of Preferred Stock shall have such
voting rights as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.
ARTICLE III
DIRECTORS
The number of directors of the Corporation and the manner in
which such directors are to be elected shall be as set forth in the bylaws.
ARTICLE IV
PREEMPTIVE RIGHTS
Shareholders of the Corporation shall have no preemptive rights
to acquire additional shares of the Corporation.
ARTICLE V
CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall
not exist with respect to shares of stock of this Corporation.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
(a) The capitalized terms in this Article 6 shall have the
meanings set forth in RCW 23B.08.500.
(b) The corporation shall indemnify and hold harmless each
individual who is or was serving as a Director or officer of the corporation or
who, while serving as a Director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee
-2-
<PAGE> 9
benefit plan, or other enterprise, against any and all Liability incurred with
respect to any Proceeding to which the individual is or is threatened to be made
a Party because of such service, and shall make advances of reasonable Expenses
with respect to such Proceeding, to the fullest extent permitted by law, without
regard to the limitations in RCW 23B.08.510 through 23B.08.550; provided,
however, that the payment of Expenses in advance of the final disposition of a
Proceeding shall be made upon delivery to the corporation of an undertaking, by
or on behalf of such Director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such Director or officer is not entitled to
be indemnified under this Article or otherwise; provided further, that no such
indemnity shall indemnify any Director or officer from or on account of (1) acts
or omissions of the Director or officer finally adjudged to be intentional
misconduct or a knowing violation of law; (2) conduct of the Director or officer
finally adjudged to be in violation of RCW 23B.08.310; or (3) any transaction
with respect to which it was finally adjudged that such Director or officer
personally received a benefit in money, property, or services to which the
Director or officer was not legally entitled. Except as provided in Subsection
(f) of this Article, the corporation shall not indemnify a Director or officer
in connection with a Proceeding (or part thereof) initiated by the Director or
officer unless such Proceeding (or part thereof) was authorized by the Board of
Directors of the corporation.
(c) The corporation may purchase and maintain insurance on behalf
of an individual who is or was a director, officer, employee, or agent of the
corporation or, who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise against Liability asserted against or incurred by the individual in
that capacity or arising from the individual's status as a director, officer,
employee, or agent, whether or not the corporation would have power to indemnify
the individual against such Liability under RCW 23B.08.510 or 23B.08.520.
(d) If, after the effective date of this Article 6, the Act is
amended to authorize further indemnification of Directors or officers, then
Directors and officers of the corporation shall be indemnified to the fullest
extent permitted by the Act as so amended.
(e) To the extent permitted by law, the rights to indemnification
and advance of reasonable Expenses conferred in this Article 6 shall not be
exclusive of any other right which any individual may have or hereafter acquire
under any statute, provision of the Bylaws, agreement, vote of shareholders or
disinterested directors, or otherwise. The right to indemnification conferred in
this Article 6 shall be a contract right upon which each Director or officer
shall be presumed to have relied in determining to serve or to continue to serve
as such. Any amendment to or repeal of this Article 6 shall not adversely affect
any right or protection of a Director or officer of the corporation for or with
respect to any acts or omissions of such Director or officer occurring prior to
such amendment or repeal.
(f) If a claim under this Article is not paid in full by the
corporation within sixty (60) days after a written claim has been received by
the corporation, except in the case of a claim for expenses incurred in
defending a proceeding in advance of its final disposition, in which case the
applicable period shall be twenty (20) days, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, to the extent successful in whole or in part, the Director or
officer shall be entitled to be paid also the expense of prosecuting such claim.
Neither the failure of the corporation (including its Board of Directors, its
shareholders or independent legal counsel) to have made a determination prior to
the commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances, nor an
actual
-3-
<PAGE> 10
determination by the corporation (including its Board of Directors, its
shareholders or independent legal counsel) that the Director or officer is not
entitled to indemnification or to the reimbursement or advancement of expenses,
shall be a defense to the action or create a presumption that the Director or
officer is not so entitled.
(g) If the corporation indemnifies or advances expenses to a
Director or officer pursuant to this Article 6 in connection with a Proceeding
by or in the right of the corporation, the corporation shall report the
indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
(h) If any provision of this Article 6 or any application thereof
shall be invalid, unenforceable, or contrary to applicable law, the remainder of
this Article 6, and the application of such provisions to individuals or
circumstances other than those as to which it is held invalid, unenforceable, or
contrary to applicable law, shall not be affected thereby.
ARTICLE VII
INTERESTED TRANSACTIONS
(1) No contracts or other transactions between the corporation
and any other corporation, and no act of the corporation shall in any way be
affected or invalidated by the fact that any of the directors or shareholders of
the corporation are pecuniarily or otherwise interested in, or are directors or
officers of, such other corporation; and
(2) Any director or shareholder individually, or any firm of
which any director or shareholder may be a member, may be a party to, or may be
pecuniarily or otherwise interested in, any contracts or transactions of the
corporation, provided that the fact that he or such firm is so interested shall
be disclosed or shall have been known to the Board of Directors or a majority
thereof.
ARTICLE VIII
SHAREHOLDER ACTIONS BY CONSENT
In accordance with RCW 23B.07.040, any action that may be taken at a
meeting of this corporation's shareholders may be taken by written consent by
the shareholders holding of record or otherwise entitled to vote in the
aggregate not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
on the action were present and voted. If action is taken by less than unanimous
consent, the corporation shall give nonconsenting shareholders prior notice of
such action; provided that if the action is of a type that would constitute a
significant business transaction under RCW 23B.19.020(15), notice must be given
no fewer than 20 days prior to the effective date of the action (such prior or
20 day period, a "Notice Period"). Such notice shall include the resolution
approved by the shareholders by written consent and shall be hand delivered or
sent first-class mail to each nonconsenting shareholder at the address on the
books and records of the corporation. Unless the written consent specifies a
different effective date, the action is effective when consents sufficient to
authorize the action have been delivered to the corporation and the Notice
Period has been satisfied. If the action is of a type that would entitle
shareholders to exercise dissenters' rights under RCW 23B.13.020(l), then (i)
the notice must comply with RCW 23B.13.220(2), (ii) RCW 23B.13.210 shall not
apply, and (iii) all nonconsenting shareholders are entitled to receive the
-4-
<PAGE> 11
notice, demand payment under RCW 23B.13.230 and assert other dissenters' rights
to which they are by law entitled.
ARTICLE IX
REGISTERED OFFICE
The address of the registered office of the Corporation is 1505
Westlake Avenue N., Suite 300, Seattle, Washington, and the name of the
registered agent at such address is Michael J. Erickson.
ARTICLE X
AMENDMENT OF ARTICLES
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation, in the manner
now or hereafter prescribed by law, and all rights and powers conferred herein
on shareholders and directors are subject to this reserved power.
ARTICLE XI
LIMITATION OF DIRECTOR LIABILITY
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for his or her conduct as a
director on or after the date this Article becomes effective, except for: (i)
acts or omissions that involve intentional misconduct or a knowing violation of
law by the director, (ii) approval of certain distributions or loans in
violation of RCW 23B.08.310, or (iii) any transaction from which the director
will personally receive a benefit in money, property or services to which the
director is not legally entitled. If, after approval by shareholders of this
Article, the Washington Business Corporation Act is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Washington Business
Corporation Act, as so amended. Any amendment to or repeal of this Article shall
not adversely affect any right or protection of a director of the corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
DATED: JAN 29TH, 1998
/S/ ALBERT T. DOSSER
---------------------------------------
Albert T. Dosser, Senior Vice President
-5-
<PAGE> 12
CERTIFICATE OF OFFICER
OF
BSQUARE CORPORATION
I, Albert T. Dosser hereby certify:
1. That I am the duly elected Senior Vice President of BSQUARE
CORPORATION (the "Corporation").
2. That the Amended and Restated Articles of Incorporation (the
"Amendment") attached hereto as EXHIBIT A supersede the Articles of
Incorporation of the Corporation filed with the Office of the Secretary of State
of Washington on July 15, 1994 (the "Articles").
3. That Articles I through IX to the Articles are hereby deleted in
their entirety and replaced with new Articles I through XI as set forth below:
ARTICLE I
NAME
The name of the corporation (the "Corporation") is BSQUARE CORPORATION.
ARTICLE II
AUTHORIZED SHARES
2.1 AUTHORIZED CAPITAL. The total authorized number of shares of the
Corporation is Sixty Million (60,000,000) shares; Fifty Million (50,000,000)
shares of common stock without par or ascribed value; Ten Million (10,000,000)
shares of preferred stock without par or ascribed value.
2.2 ISSUANCE OF PREFERRED STOCK IN SERIES. The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Articles of Incorporation, as determined from time
to time by the Board of Directors and stated in the resolution or resolutions
providing for the issuance thereof, prior to the issuance of any shares thereof.
The Board of Directors shall have the authority to fix and determine and to
amend, subject to the provisions hereof, the designations, powers, preferences
and relative, participating, optional or other rights, if any, and
qualifications, limitations or other restrictions of the shares of any series
that is wholly unissued or to be established and the number of shares
constituting any such series. Unless otherwise specifically provided in the
resolution establishing any series, the Board of Directors shall further have
the authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding.
(a) Dividends. The holders of shares of the Preferred Stock shall
be entitled to receive dividends, out of the funds of the corporation legally
available therefor, at the rate and at the time or times as may be provided by
the Board of Directors in designating a particular series of Preferred
1
<PAGE> 13
Stock. The holders of the Preferred Stock shall not be entitled to receive any
dividends thereon, unless otherwise provided by the Board of Directors in
designating a particular series of Preferred Stock.
(b) Liquidation. In the event of any liquidation, dissolution or
winding up of the affairs of the corporation, whether voluntary or involuntary,
then, before any distribution shall be made to the holders of the Common Stock,
the holders of the Preferred Stock at the time outstanding shall be entitled to
be paid the preferential amount or amounts per share as may be provided by the
Board of Directors in designating a particular series of Preferred Stock, plus
dividends accrued thereon to the date of such payment. In designating a
particular series of Preferred Stock, the Board of Directors may also provide
that such series is senior, on a par with or subordinate in order of priority to
any other existing or later issued series of Preferred Stock in respect of
distribution of amounts upon the liquidation, dissolution or winding up of the
affairs of the corporation. The holders of the Preferred Stock shall not be
entitled to receive any distributive amounts upon the liquidation, dissolution
or winding up of the affairs of the corporation, unless otherwise provided by
the Board of Directors in designating a particular series of Preferred Stock.
(c) Conversion. Shares of Preferred Stock may be convertible to
shares of Common Stock at such rate and subject to such adjustments as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock.
(d) Redemption. The Preferred Stock may be redeemable in such
amounts, and at such time or times as may be provided by the Board of Directors
in designating a particular series of Preferred Stock. In any event, such
Preferred Stock may be repurchased by the corporation only to the extent legally
permissible.
(e) Voting Rights. Holders of Preferred Stock shall have such
voting rights as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.
ARTICLE III
DIRECTORS
The number of directors of the Corporation and the manner in
which such directors are to be elected shall be as set forth in the bylaws.
ARTICLE IV
PREEMPTIVE RIGHTS
Shareholders of the Corporation shall have no preemptive rights
to acquire additional shares of the Corporation.
ARTICLE V
CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall
not exist with respect to shares of stock of this Corporation.
2
<PAGE> 14
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
(a) The capitalized terms in this Article 6 shall have the
meanings set forth in RCW 23B.08.500.
(b) The corporation shall indemnify and hold harmless each
individual who is or was serving as a Director or officer of the corporation or
who, while serving as a Director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
against any and all Liability incurred with respect to any Proceeding to which
the individual is or is threatened to be made a Party because of such service,
and shall make advances of reasonable Expenses with respect to such Proceeding,
to the fullest extent permitted by law, without regard to the limitations in RCW
23B.08.510 through 23B.08.550; provided, however, that the payment of Expenses
in advance of the final disposition of a Proceeding shall be made upon delivery
to the corporation of an undertaking, by or on behalf of such Director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such Director or officer is not entitled to be indemnified under this
Article or otherwise; provided further, that no such indemnity shall indemnify
any Director or officer from or on account of (1) acts or omissions of the
Director or officer finally adjudged to be intentional misconduct or a knowing
violation of law; (2) conduct of the Director or officer finally adjudged to be
in violation of RCW 23B.08.310; or (3) any transaction with respect to which it
was finally adjudged that such Director or officer personally received a benefit
in money, property, or services to which the Director or officer was not legally
entitled. Except as provided in Subsection (f) of this Article, the corporation
shall not indemnify a Director or officer in connection with a Proceeding (or
part thereof) initiated by the Director or officer unless such Proceeding (or
part thereof) was authorized by the Board of Directors of the corporation.
(c) The corporation may purchase and maintain insurance on behalf
of an individual who is or was a director, officer, employee, or agent of the
corporation or, who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise against Liability asserted against or incurred by the individual in
that capacity or arising from the individual's status as a director, officer,
employee, or agent, whether or not the corporation would have power to indemnify
the individual against such Liability under RCW 23B.08.510 or 23B.08.520.
(d) If, after the effective date of this Article 6, the Act is
amended to authorize further indemnification of Directors or officers, then
Directors and officers of the corporation shall be indemnified to the fullest
extent permitted by the Act as so amended.
(e) To the extent permitted by law, the rights to indemnification
and advance of reasonable Expenses conferred in this Article 6 shall not be
exclusive of any other right which any individual may have or hereafter acquire
under any statute, provision of the Bylaws, agreement, vote of shareholders or
disinterested directors, or otherwise. The right to indemnification conferred in
this Article 6 shall be a contract right upon which each Director or officer
shall be presumed to have relied in determining to serve or to continue to serve
as such. Any amendment to or repeal of this Article 6 shall not adversely affect
any right or protection of a Director or officer of the corporation for or with
respect to any acts or omissions of such Director or officer occurring prior to
such amendment or repeal.
3
<PAGE> 15
(f) If a claim under this Article is not paid in full by the
corporation within sixty (60) days after a written claim has been received by
the corporation, except in the case of a claim for expenses incurred in
defending a proceeding in advance of its final disposition, in which case the
applicable period shall be twenty (20) days, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, to the extent successful in whole or in part, the Director or
officer shall be entitled to be paid also the expense of prosecuting such claim.
Neither the failure of the corporation (including its Board of Directors, its
shareholders or independent legal counsel) to have made a determination prior to
the commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances, nor an
actual determination by the corporation (including its Board of Directors, its
shareholders or independent legal counsel) that the Director or officer is not
entitled to indemnification or to the reimbursement or advancement of expenses,
shall be a defense to the action or create a presumption that the Director or
officer is not so entitled.
(g) If the corporation indemnifies or advances expenses to a
Director or officer pursuant to this Article 6 in connection with a Proceeding
by or in the right of the corporation, the corporation shall report the
indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
(h) If any provision of this Article 6 or any application thereof
shall be invalid, unenforceable, or contrary to applicable law, the remainder of
this Article 6, and the application of such provisions to individuals or
circumstances other than those as to which it is held invalid, unenforceable, or
contrary to applicable law, shall not be affected thereby.
ARTICLE VII
INTERESTED TRANSACTIONS
(1) No contracts or other transactions between the corporation
and any other corporation, and no act of the corporation shall in any way be
affected or invalidated by the fact that any of the directors or shareholders of
the corporation are pecuniarily or otherwise interested in, or are directors or
officers of, such other corporation; and
(2) Any director or shareholder individually, or any firm of
which any director or shareholder may be a member, may be a party to, or may be
pecuniarily or otherwise interested in, any contracts or transactions of the
corporation, provided that the fact that he or such firm is so interested shall
be disclosed or shall have been known to the Board of Directors or a majority
thereof.
ARTICLE VIII
SHAREHOLDER ACTIONS BY CONSENT
In accordance with RCW 23B.07.040, any action that may be taken at a
meeting of this corporation's shareholders may be taken by written consent by
the shareholders holding of record or otherwise entitled to vote in the
aggregate not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
on the action were present and voted. If action is taken by less than unanimous
consent, the corporation shall give nonconsenting shareholders prior notice of
such action; provided that if the action is of a type that would constitute a
significant business transaction under RCW 23B.19.020(15), notice must be given
no fewer than 20 days prior to the effective date of the action (such prior or
20 day period, a "Notice Period"). Such notice shall include the resolution
approved by the shareholders by written consent and shall be hand
4
<PAGE> 16
delivered or sent first-class mail to each nonconsenting shareholder at the
address on the books and records of the corporation. Unless the written consent
specifies a different effective date, the action is effective when consents
sufficient to authorize the action have been delivered to the corporation and
the Notice Period has been satisfied. If the action is of a type that would
entitle shareholders to exercise dissenters' rights under RCW 23B.13.020(l),
then (i) the notice must comply with RCW 23B.13.220(2), (ii) RCW 23B.13.210
shall not apply, and (iii) all nonconsenting shareholders are entitled to
receive the notice, demand payment under RCW 23B.13.230 and assert other
dissenters' rights to which they are by law entitled.
ARTICLE IX
REGISTERED OFFICE
The address of the registered office of the Corporation is 1505
Westlake Avenue N., Suite 300, Seattle, Washington, and the name of the
registered agent at such address is Michael J. Erickson.
ARTICLE X
AMENDMENT OF ARTICLES
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation, in the manner
now or hereafter prescribed by law, and all rights and powers conferred herein
on shareholders and directors are subject to this reserved power.
ARTICLE XI
LIMITATION OF DIRECTOR LIABILITY
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for his or her conduct as a
director on or after the date this Article becomes effective, except for: (i)
acts or omissions that involve intentional misconduct or a knowing violation of
law by the director, (ii) approval of certain distributions or loans in
violation of RCW 23B.08.310, or (iii) any transaction from which the director
will personally receive a benefit in money, property or services to which the
director is not legally entitled. If, after approval by shareholders of this
Article, the Washington Business Corporation Act is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Washington Business
Corporation Act, as so amended. Any amendment to or repeal of this Article shall
not adversely affect any right or protection of a director of the corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
* * * * * * * * *
4. The Amendment does not provide for an exchange, reclassification or
cancellation of issued shares.
5
<PAGE> 17
The foregoing Amendments were adopted by the Board of Directors of the
Corporation on January 29th 1998 and by the Shareholders of the Corporation on
January 29th, 1998 in accordance with the provisions of RCW 23B.10.030 and RCW
23B.10.040.
Dated: January 29th, 1998
BSQUARE CORPORATION,
a Washington corporation
By: /s/ ALBERT T. DOSSER
---------------------------------------
Albert T. Dosser, Senior Vice President
6
<PAGE> 18
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BSQUARE CORPORATION
ARTICLE I
NAME
The name of the corporation (the "Corporation") is BSQUARE CORPORATION.
ARTICLE II
AUTHORIZED SHARES
2.1 AUTHORIZED CAPITAL. The total authorized number of shares of the
Corporation is Sixty Million (60,000,000) shares; Fifty Million (50,000,000)
shares of common stock without par or ascribed value; Ten Million (10,000,000)
shares of preferred stock without par or ascribed value.
2.2 ISSUANCE OF PREFERRED STOCK IN SERIES. The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Articles of Incorporation, as determined from time
to time by the Board of Directors and stated in the resolution or resolutions
providing for the issuance thereof, prior to the issuance of any shares thereof.
The Board of Directors shall have the authority to fix and determine and to
amend, subject to the provisions hereof, the designations, powers, preferences
and relative, participating, optional or other rights, if any, and
qualifications, limitations or other restrictions of the shares of any series
that is wholly unissued or to be established and the number of shares
constituting any such series. Unless otherwise specifically provided in the
resolution establishing any series, the Board of Directors shall further have
the authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding.
(a) Dividends. The holders of shares of the Preferred Stock shall
be entitled to receive dividends, out of the funds of the corporation legally
available therefor, at the rate and at the time or times as may be provided by
the Board of Directors in designating a particular series of Preferred Stock.
The holders of the Preferred Stock shall not be entitled to receive any
dividends thereon, unless otherwise provided by the Board of Directors in
designating a particular series of Preferred Stock.
(b) Liquidation. In the event of any liquidation, dissolution or
winding up of the affairs of the corporation, whether voluntary or involuntary,
then, before any distribution shall be made to the holders of the Common Stock,
the holders of the Preferred Stock at the time outstanding shall be entitled to
be paid the preferential amount or amounts per share as may be provided by the
Board of Directors in designating a particular series of Preferred Stock, plus
dividends accrued thereon to the date of such payment. In designating a
particular series of Preferred Stock, the Board of Directors may also provide
that such series is senior, on a par with or subordinate in order of priority to
any other existing or later issued series of Preferred Stock in respect of
distribution of amounts upon the liquidation, dissolution or winding up of the
affairs of the corporation. The holders of the Preferred Stock shall not be
entitled to receive any distributive amounts upon the liquidation, dissolution
or winding up of the
-1-
<PAGE> 19
affairs of the corporation, unless otherwise provided by the Board of Directors
in designating a particular series of Preferred Stock.
(c) Conversion. Shares of Preferred Stock may be convertible to
shares of Common Stock at such rate and subject to such adjustments as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock.
(d) Redemption. The Preferred Stock may be redeemable in such
amounts, and at such time or times as may be provided by the Board of Directors
in designating a particular series of Preferred Stock. In any event, such
Preferred Stock may be repurchased by the corporation only to the extent legally
permissible.
(e) Voting Rights. Holders of Preferred Stock shall have such
voting rights as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.
ARTICLE III
DIRECTORS
The number of directors of the Corporation and the manner in
which such directors are to be elected shall be as set forth in the bylaws.
ARTICLE IV
PREEMPTIVE RIGHTS
Shareholders of the Corporation shall have no preemptive rights
to acquire additional shares of the Corporation.
ARTICLE V
CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall
not exist with respect to shares of stock of this Corporation.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
(a) The capitalized terms in this Article 6 shall have the
meanings set forth in RCW 23B.08.500.
(b) The corporation shall indemnify and hold harmless each
individual who is or was serving as a Director or officer of the corporation or
who, while serving as a Director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee
-2-
<PAGE> 20
benefit plan, or other enterprise, against any and all Liability incurred with
respect to any Proceeding to which the individual is or is threatened to be made
a Party because of such service, and shall make advances of reasonable Expenses
with respect to such Proceeding, to the fullest extent permitted by law, without
regard to the limitations in RCW 23B.08.510 through 23B.08.550; provided,
however, that the payment of Expenses in advance of the final disposition of a
Proceeding shall be made upon delivery to the corporation of an undertaking, by
or on behalf of such Director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such Director or officer is not entitled to
be indemnified under this Article or otherwise; provided further, that no such
indemnity shall indemnify any Director or officer from or on account of (1) acts
or omissions of the Director or officer finally adjudged to be intentional
misconduct or a knowing violation of law; (2) conduct of the Director or officer
finally adjudged to be in violation of RCW 23B.08.310; or (3) any transaction
with respect to which it was finally adjudged that such Director or officer
personally received a benefit in money, property, or services to which the
Director or officer was not legally entitled. Except as provided in Subsection
(f) of this Article, the corporation shall not indemnify a Director or officer
in connection with a Proceeding (or part thereof) initiated by the Director or
officer unless such Proceeding (or part thereof) was authorized by the Board of
Directors of the corporation.
(c) The corporation may purchase and maintain insurance on behalf
of an individual who is or was a director, officer, employee, or agent of the
corporation or, who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise against Liability asserted against or incurred by the individual in
that capacity or arising from the individual's status as a director, officer,
employee, or agent, whether or not the corporation would have power to indemnify
the individual against such Liability under RCW 23B.08.510 or 23B.08.520.
(d) If, after the effective date of this Article 6, the Act is
amended to authorize further indemnification of Directors or officers, then
Directors and officers of the corporation shall be indemnified to the fullest
extent permitted by the Act as so amended.
(e) To the extent permitted by law, the rights to indemnification
and advance of reasonable Expenses conferred in this Article 6 shall not be
exclusive of any other right which any individual may have or hereafter acquire
under any statute, provision of the Bylaws, agreement, vote of shareholders or
disinterested directors, or otherwise. The right to indemnification conferred in
this Article 6 shall be a contract right upon which each Director or officer
shall be presumed to have relied in determining to serve or to continue to serve
as such. Any amendment to or repeal of this Article 6 shall not adversely affect
any right or protection of a Director or officer of the corporation for or with
respect to any acts or omissions of such Director or officer occurring prior to
such amendment or repeal.
(f) If a claim under this Article is not paid in full by the
corporation within sixty (60) days after a written claim has been received by
the corporation, except in the case of a claim for expenses incurred in
defending a proceeding in advance of its final disposition, in which case the
applicable period shall be twenty (20) days, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, to the extent successful in whole or in part, the Director or
officer shall be entitled to be paid also the expense of prosecuting such claim.
Neither the failure of the corporation (including its Board of Directors, its
shareholders or independent legal counsel) to have made a determination prior to
the commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances, nor an
actual
-3-
<PAGE> 21
determination by the corporation (including its Board of Directors, its
shareholders or independent legal counsel) that the Director or officer is not
entitled to indemnification or to the reimbursement or advancement of expenses,
shall be a defense to the action or create a presumption that the Director or
officer is not so entitled.
(g) If the corporation indemnifies or advances expenses to a
Director or officer pursuant to this Article 6 in connection with a Proceeding
by or in the right of the corporation, the corporation shall report the
indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
(h) If any provision of this Article 6 or any application thereof
shall be invalid, unenforceable, or contrary to applicable law, the remainder of
this Article 6, and the application of such provisions to individuals or
circumstances other than those as to which it is held invalid, unenforceable, or
contrary to applicable law, shall not be affected thereby.
ARTICLE VII
INTERESTED TRANSACTIONS
(1) No contracts or other transactions between the corporation
and any other corporation, and no act of the corporation shall in any way be
affected or invalidated by the fact that any of the directors or shareholders of
the corporation are pecuniarily or otherwise interested in, or are directors or
officers of, such other corporation; and
(2) Any director or shareholder individually, or any firm of
which any director or shareholder may be a member, may be a party to, or may be
pecuniarily or otherwise interested in, any contracts or transactions of the
corporation, provided that the fact that he or such firm is so interested shall
be disclosed or shall have been known to the Board of Directors or a majority
thereof.
ARTICLE VIII
SHAREHOLDER ACTIONS BY CONSENT
In accordance with RCW 23B.07.040, any action that may be taken at a
meeting of this corporation's shareholders may be taken by written consent by
the shareholders holding of record or otherwise entitled to vote in the
aggregate not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
on the action were present and voted. If action is taken by less than unanimous
consent, the corporation shall give nonconsenting shareholders prior notice of
such action; provided that if the action is of a type that would constitute a
significant business transaction under RCW 23B.19.020(15), notice must be given
no fewer than 20 days prior to the effective date of the action (such prior or
20 day period, a "Notice Period"). Such notice shall include the resolution
approved by the shareholders by written consent and shall be hand delivered or
sent first-class mail to each nonconsenting shareholder at the address on the
books and records of the corporation. Unless the written consent specifies a
different effective date, the action is effective when consents sufficient to
authorize the action have been delivered to the corporation and the Notice
Period has been satisfied. If the action is of a type that would entitle
shareholders to exercise dissenters' rights under RCW 23B.13.020(l), then (i)
the notice must comply with RCW 23B.13.220(2), (ii) RCW 23B.13.210 shall not
apply, and (iii) all nonconsenting shareholders are entitled to receive the
-4-
<PAGE> 22
notice, demand payment under RCW 23B.13.230 and assert other dissenters' rights
to which they are by law entitled.
ARTICLE IX
REGISTERED OFFICE
The address of the registered office of the Corporation is 1505
Westlake Avenue N., Suite 300, Seattle, Washington, and the name of the
registered agent at such address is Michael J. Erickson.
ARTICLE X
AMENDMENT OF ARTICLES
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation, in the manner
now or hereafter prescribed by law, and all rights and powers conferred herein
on shareholders and directors are subject to this reserved power.
ARTICLE XI
LIMITATION OF DIRECTOR LIABILITY
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for his or her conduct as a
director on or after the date this Article becomes effective, except for: (i)
acts or omissions that involve intentional misconduct or a knowing violation of
law by the director, (ii) approval of certain distributions or loans in
violation of RCW 23B.08.310, or (iii) any transaction from which the director
will personally receive a benefit in money, property or services to which the
director is not legally entitled. If, after approval by shareholders of this
Article, the Washington Business Corporation Act is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Washington Business
Corporation Act, as so amended. Any amendment to or repeal of this Article shall
not adversely affect any right or protection of a director of the corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
DATED:_____________________, 1998
EXHIBIT ONLY
DO NOT SIGN
---------------------------------------
Albert T. Dosser, Senior Vice President
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<PAGE> 23
STATE OF WASHINGTON
[SEAL]
SECRETARY of STATE
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal, hereby issue this
DESIGNATION OF RIGHT & PREFERENCES OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
to
BSQUARE CORPORATION
a Washington Profit Corporation. Articles of Amendment were filed for record in
this office on the date indicated below.
UBI Number: 601 559 419 Date: January 29, 1998
Given under my hand and the Seal of the State
[SEAL] of Washington at Olympia, the State Capital
/s/ RALPH MUNRO
-------------------------------
RALPH MUNRO, SECRETARY OF STATE
<PAGE> 24
CERTIFICATE OF DESIGNATION
of the
RELATIVE RIGHTS AND PREFERENCES
of the
SERIES A CONVERTIBLE PREFERRED STOCK
of
BSQUARE CORPORATION
The undersigned Senior Vice President of BSQUARE CORPORATION, a
Washington corporation (the "Corporation"), in accordance with the provisions of
RCW 23B.06.020, does hereby certify that, pursuant to the authority conferred
upon the Board of Directors by the Articles of Incorporation of the Corporation,
the following resolution creating a series of Series A Convertible Preferred
Stock was duly adopted by the Board of Directors of the Corporation as of
January 29, 1998:
RESOLVED, that, pursuant to the authority conferred on the Board of
Directors of the Corporation by the Articles of Incorporation of the
Corporation, the Board of Directors does hereby provide for the designation of a
series of preferred stock to be named "Series A Convertible Preferred Stock,"
initially consisting of 8,333,333 shares, and that to the extent that the
designation, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of the Series A Convertible
Preferred Stock are not stated and expressed in the Articles of Incorporation,
the Board of Directors does hereby fix and herein state and express such
designation, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of the Series A Convertible
Preferred Stock as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
The designations and the powers, preferences and rights of the Series A
Convertible Preferred Stock are as follows:
Section 1. Designation and Dividends. The Corporation hereby designates
8,333,333 shares of the Preferred Stock as Series A Convertible Preferred Stock
(the "Series A Preferred Stock"), which shall have the rights, preferences and
terms set forth herein. The holders of the Series A Preferred Stock shall be
entitled to receive dividends at the same rate as dividends (other than
dividends paid in additional shares of Common Stock) are paid with respect to
the Common Stock (treating each share of Series A Preferred Stock as being equal
to the number of shares of Common Stock into which each such share of Series A
Preferred Stock could be converted pursuant to the provisions of Section 4
hereof with such number determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend) (the
"Participating Dividends").
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<PAGE> 25
Section 2. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, each holder of outstanding
shares of Series A Preferred Stock shall be entitled to be paid, out of the
assets of the Corporation available for distribution to stockholders, whether
such assets are capital, surplus, or earnings and before any amount shall be
paid or distributed to the holders of any class of Common Stock or of any other
stock ranking on liquidation junior to the Series A Preferred Stock, the greater
of: (i) an amount in cash equal to $1.80 per share (adjusted appropriately for
stock splits, stock dividends and the like) together with declared but unpaid
dividends to which the holders of outstanding shares of Series A Preferred Stock
are entitled pursuant to Section 1 hereof (the "Minimum Liquidation Amount");
provided, however, that if, upon any liquidation, dissolution or winding up of
the Corporation, the amounts payable with respect to the Series A Preferred
Stock and any other stock ranking as to any such distribution on a parity with
the Series A Preferred Stock are not paid in full, the holders of the Series A
Preferred Stock and such other stock shall share ratably in any distribution of
assets in proportion to the full respective preferential amounts to which they
are entitled; or (ii) cash in an amount equal to the portion of the assets of
the Corporation remaining for distribution to shareholders which such holder
would have received if each share of Series A Preferred Stock held by such
holder had been converted into the number of shares of Common Stock issuable
upon the conversion of a share of Series A Preferred Stock immediately prior to
any such liquidation, dissolution or winding up of the Corporation after taking
into account the rights of holders of any other class or series of capital stock
of the Corporation (including the Common Stock) entitled to share in such
distribution in either case, plus any declared but unpaid dividends to which the
holders of outstanding shares of Series A Preferred Stock are entitled pursuant
to Section 1 hereof (the "Aggregate Liquidation Amount").
(b) A consolidation, merger or capital reorganization of the
Corporation (except (i) into or with a wholly-owned subsidiary of the
Corporation with requisite shareholder approval or (ii) a merger in which the
beneficial owners of the Corporation's outstanding capital stock immediately
prior to such transaction hold no less than fifty-one percent (51%) of the
voting power in the resulting entity) or a sale of all or substantially all of
the assets of the Corporation shall be regarded as a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this Section
2; provided, however, that each holder of the Series A Preferred Stock shall
have the right to elect the benefits of the provisions of Section 4(i) hereof in
lieu of receiving payment in liquidation, dissolution or winding up of the
Corporation pursuant to this Section 2.
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<PAGE> 26
executive office of the Corporation or the offices of the transfer agent for the
Series A Preferred Stock or such office of offices in the continental United
States of an agent for conversion as may
Section 3. Voting Power.
Except as otherwise expressly provided herein or as required by law, the
holder of each share of Series A Preferred Stock shall be entitled to vote on
all matters. Each share of Series A Preferred Stock shall entitle the holder
thereof to such number of votes per share as shall equal the number of shares of
Common Stock into which each share of Series A Preferred Stock is then
convertible. Except as otherwise expressly provided herein (including without
limitation the provisions of Section 6 hereof) or as required by law, the
holders of shares of the Series A Preferred Stock and the Common Stock shall
vote together as a single class on all matters.
Section 4. Conversion. The holders of the Series A Preferred Stock shall
have the following conversion rights:
(a) Voluntary Conversion. Holders of a majority of the
outstanding shares of Series A Preferred Stock shall be entitled, at any time
and from time to time after the date hereof, to cause any or all of such shares
to be converted into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $1.80 by the conversion price
applicable to such shares, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. Initially the conversion
price shall be $1.80 per share of Common Stock, which price shall be adjusted as
hereinafter provided (and, as so adjusted, is hereinafter sometimes referred to
as the "Conversion Price"). If a holder of Series A Preferred Stock elects to
convert his or her Series A Preferred Stock at a time when there are any accrued
and unpaid dividends or other amounts due on such shares (including any
Participating Dividends), such dividends and other amounts shall, to the extent
permitted by applicable law, be paid in full by the Corporation in connection
with such conversion.
(b) Automatic Conversion. Each share of Series A Preferred Stock
outstanding shall automatically, and without the requirement of any consent of
any holder, be converted into the number of shares of Common Stock into which
such shares are convertible at the then effective Conversion Price upon the
closing of a Qualified Public Offering. For purposes hereof, the term "Qualified
Public Offering" shall mean an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), covering the offer and sale of Common Stock of the
Corporation to the public at a minimum price of $4.50 per share and pursuant to
which (i) the gross proceeds received by the Corporation equal or exceed
$30,000,000 and (ii) the shares of Common Stock sold under such registration
statement are approved for listing on the New York Stock Exchange or approved
for quotation on The Nasdaq Stock Market, Inc.'s National Market.
(c) Conversion Procedures. Any holder of Series A Preferred Stock
converting such shares into shares of Common Stock pursuant to Section 4(a), or
whose shares are automatically converted pursuant to Section 4(b), shall
surrender the certificate or certificates representing the Series A Preferred
Stock being converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal
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<PAGE> 27
executive office of the Corporation or the offices of the transfer agent for the
Series A Preferred Stock or such office or offices in the continental United
States of an agent for conversion as may from time to time be designated by
notice to the holders of the Series A Preferred Stock by the Corporation,
accompanied by written notice of conversion. Such notice of conversion shall (i)
specify the number of shares of Series A Preferred Stock to be converted, (ii)
specify the name or names in which such holder wishes the certificate or
certificates for Common Stock and for any Series A Preferred Stock not to be so
converted to be issued, (iii) include payment of any applicable transfer tax and
(iv) specify the address to which such holder wishes delivery to be made of such
new certificates to be issued upon such conversion. Upon surrender of a
certificate representing Series A Preferred Stock for conversion, the
Corporation shall issue and send by hand delivery, by courier or by first class
mail (postage prepaid) to the holder thereof or to such holder's designee, at
the address designated by such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered a certificate or
certificates representing Series A Preferred Stock, only part of which are to be
converted, the Corporation shall issue and send to such holder or such holder's
designee, in the manner set forth in the preceding sentence, a new certificate
or certificates representing the number of shares of Series A Preferred Stock
which shall not have been converted.
(d) Effective Date of Conversion. The issuance by the Corporation
of shares of Common Stock upon a conversion of Series A Preferred Stock into
shares of Common Stock made at the option of the holder thereof pursuant to
Section 4(a) hereof shall be effective as of the surrender of the certificate or
certificates for the Series A Preferred Stock to be converted, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto). The issuance by the Corporation of shares of Common
Stock upon a conversion of Series A Preferred Stock into Common Stock pursuant
to Section 4(b) hereof shall be deemed to be effective immediately prior to the
closing of the Qualified Public Offering. On and after the effective date of
conversion, the person or persons entitled to receive the Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock.
(e) Fractional Shares. The Corporation shall not be obligated to
deliver to holders of Series A Preferred Stock any fractional share of Common
Stock issuable upon any conversion of such Series A Preferred Stock, but in lieu
thereof may make a cash payment in respect thereof in any manner permitted by
law.
(f) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Series A Preferred Stock as
herein provided, free from any preemptive rights or other obligations, such
number of shares of the Common Stock as shall from time to time be issuable upon
the conversion of all the Series A Preferred Stock then outstanding provided
that the shares of Common Stock so reserved shall not be reduced or affected in
any manner whatsoever so long as any Series A Preferred Stock is outstanding,
except in the case of a reverse stock split or stock combination. The
Corporation shall prepare and shall use its reasonable business efforts to
obtain
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<PAGE> 28
and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all requirements
as to registration, qualification or listing of the Common Stock, in order to
enable the Corporation lawfully to issue and deliver to each holder of record of
Series A Preferred Stock such number of shares of its Common Stock as shall from
time to time be sufficient to effect the conversion of all shares of Series A
Preferred Stock then outstanding and convertible into shares of Common Stock.
(g) Adjustments to Conversion Price. The Conversion Price in
effect from time to time shall be subject to adjustment as follows:
(i) Stock Dividends, Subdivisions and Combinations. Upon the
issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding
shares of Common Stock into a greater number of shares of Common Stock,
or the combination of outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the Conversion Price shall,
simultaneously with the happening of such dividend, subdivision or
combination be adjusted by multiplying the then effective Conversion
Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant to
this Section 4(g)(i) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
shareholders entitled to receive such dividend or distribution (on a
retroactive basis) and, in the case of a subdivision or combination,
immediately as of the effective date thereof.
(ii)Sale of Common Stock. In the event the Corporation shall at
any time or from time to time while the Series A Preferred Stock is
outstanding, issue, sell or exchange any shares of Common Stock
(including shares held in the Corporation's treasury, but excluding: (i)
any Common Stock which may be issued upon conversion of the Series A
Preferred Stock; and (ii) up to 3,625,000 shares of Common Stock issued
to officers, directors, employees, consultants or agents of the
Corporation pursuant to the Corporation's Stock Option Plan (the "Plan")
or upon the exercise of options issued pursuant to such Plan, or such
greater number of shares as may be issuable pursuant to the adjustment
provisions of such Plan as in effect on the date hereof (collectively,
the "Excluded Shares")), for a consideration per share less than the
Conversion Price in effect immediately prior to the issuance, sale or
exchange of such shares (any such issuance, sale or exchange hereinafter
referred to as a "Dilutive Transaction"), then, and thereafter
successively upon the consummation of any Dilutive Transaction, the
Conversion Price in effect immediately prior to the Dilutive Transaction
shall forthwith be reduced to an amount (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of
shares of Common Stock of all classes outstanding immediately
prior to the Dilutive Transaction
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<PAGE> 29
(excluding treasury shares but including all shares of Common
Stock issuable upon conversion or exercise of any outstanding
Series A Preferred Stock, options, warrants, rights or
convertible securities), plus (2) the number of shares of Common
Stock which the net aggregate consideration received by the
Corporation for the total number of such additional shares of
Common Stock so issued in the Dilutive Transaction would
purchase at the Conversion Price (prior to adjustment), and
(B) the denominator of which shall be (1) the number of
shares of Common Stock of all classes outstanding immediately
prior to the Dilutive Transaction (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Series A Preferred Stock, options,
warrants, rights or convertible securities), plus (2) the number
of such additional shares of Common Stock so issued in the
Dilutive Transaction.
(iii) Sale of Options, Rights or Convertible Securities. In the event
the Corporation shall at any time or from time to time while the Series A
Preferred Stock is outstanding, issue options, warrants or rights to subscribe
for shares of Common Stock (other than any options for Excluded Shares), or
issue any securities convertible into or exercisable or exchangeable for shares
of Common Stock, for a consideration per share (determined by dividing the Net
Aggregate Consideration (as determined below) by the aggregate number of shares
of Common Stock that would be issued if all such options, warrants, rights or
convertible securities were exercised or converted to the fullest extent
permitted by their terms) less than the Conversion Price in effect immediately
prior to the issuance of such options or rights or convertible or exchangeable
securities, the Conversion Price in effect immediately prior to the issuance of
such options, warrants or rights or securities shall be reduced to an amount
determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of
shares of Common Stock of all classes outstanding immediately
prior to the issuance of such options, rights or convertible
securities (excluding treasury shares but including all shares
of Common Stock issuable upon conversion or exercise of any
outstanding Series A Preferred Stock, options, warrants, rights
or convertible securities), plus (2) the number of shares of
Common Stock which the total amount of consideration received by
the Corporation for the issuance of such options, warrants,
rights or convertible securities plus the minimum amount set
forth in the terms of such security as payable to the
Corporation upon the exercise or conversion thereof (the "Net
Aggregate Consideration") would purchase at the Conversion Price
prior to adjustment, and
(B) the denominator of which shall be (1) the number of
shares of Common Stock of all classes outstanding immediately
prior to the issuance of such options, warrants, rights or
convertible securities (excluding treasury shares but including
all shares of Common Stock issuable upon conversion or exercise
of any outstanding Series A Preferred Stock, options, warrants,
rights or convertible
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<PAGE> 30
securities), plus (2) the aggregate number of shares of Common
Stock that would be issued if all such options, warrants, rights
or convertible securities were exercised or converted.
(iv) Expiration or Change in Price. If the consideration per
share provided for in any options or rights to subscribe for shares of
Common Stock or any securities exercisable or exchangeable for or
convertible into shares of Common Stock, changes at any time, the
Conversion Price in effect at the time of such change shall be
readjusted to the Conversion Price which would have been in effect at
such time had such options or convertible securities provided for such
changed consideration per share (determined as provided in Section
4(g)(iii) hereof) at the time initially granted, issued or sold;
provided, that such adjustment of the Conversion Price will be made only
as and to the extent that the Conversion Price effective upon such
adjustment remains less than or equal to the Conversion Price that would
be in effect if such options, rights or securities had not been issued.
No adjustment of the Conversion Price shall be made under this Section 4
upon the issuance of any additional shares of Common Stock which are
issued pursuant to the exercise of any warrants, options or other
subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if an
adjustment shall previously have been made upon the issuance of such
warrants, options or other rights. Any adjustment of the Conversion
Price shall be disregarded if, as, and when the rights to acquire shares
of Common Stock upon exercise or conversion of the warrants, options,
rights or convertible securities which gave rise to such adjustment
expire or are canceled without having been exercised, so that the
Conversion Price effective immediately upon such cancellation or
expiration shall be equal to the Conversion Price in effect at the time
of the issuance of the expired or canceled warrants, options, rights or
convertible securities, with such additional adjustments as would have
been made to that Conversion Price had the expired or canceled warrants,
options, rights or convertible securities not been issued.
(h) Other Adjustments. In the event the Corporation shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date (calculated in accordance with Section 4(d) hereof), retained
such securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this Section
4 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend
7
<PAGE> 31
provided for above, or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 4), then and in each such event the
holder of each share of Series A Preferred Stock shall have the right thereafter
to convert each such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change, by holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been converted immediately prior
to such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(i) Mergers and Other Reorganizations. If at any time or from
time to time there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification or exchange of shares provided
for elsewhere in this Section 4) or a merger or consolidation of the Corporation
with or into another Corporation or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of and
as a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that the
holders of the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock the number of shares of stock or
other securities or property of the Corporation or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
provisions shall be made with respect to the rights of the holders of the Series
A Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 4 (including, without limitation,
provisions for adjustment of the Conversion Price and the number of shares
purchasable upon conversion of the Series A Preferred Stock) shall thereafter be
applicable, as nearly as may be, with respect to any shares of stock, securities
or assets to be deliverable thereafter upon the conversion of the Series A
Preferred Stock.
Each holder of Series A Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Corporation or the sale of all or
substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 4(i), shall have the option of
electing treatment of his or her shares of Series A Preferred Stock under either
this Section 4(i) or Section 2(b) hereof, notice of which election shall be
submitted in writing to the Corporation at its principal offices no later than
ten (10) days before the effective date of such event, provided that any such
notice shall be effective if given not later than fifteen (15) days after the
date of the Corporation's notice, pursuant to Section 8, with respect to such
event.
(j) Notices. In each case of an adjustment or readjustment of the
Conversion Price, the Corporation will furnish each holder of Series A Preferred
Stock with a certificate, prepared by the chief financial officer of the
Corporation, showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
8
<PAGE> 32
Section 5. Redemption.
(a) Any holder of shares of Series A Preferred Stock may request
that up to 50% of the Series A Preferred Stock then held by such holder be
redeemed by the Corporation at any time on or after January 30, 2003 (the "First
Redemption Date"), or that up to 100% of the Series A Preferred Stock then held
by such holder be redeemed by the Corporation at any time on or after January
30, 2004 (the "Second Redemption Date," and, collectively with the First
Redemption Date, the "Redemption Date"), by giving 90 days written notice to the
Corporation, stating in such notice the number of shares to be redeemed and
delivering the certificates for the shares of Series A Preferred Stock to be so
redeemed to the Corporation by the Redemption Date. The Corporation shall redeem
all shares as to which it has received requests for redemption from the holders
thereof in accordance with the foregoing. Any redemption hereunder shall be at a
per share redemption price equal to $1.80 per share (adjusted appropriately for
stock splits, stock dividends and the like), plus any accrued but unpaid
dividends (including any Participating Dividends) to which the holders of
outstanding shares of Series A Preferred Stock are entitled pursuant to Section
1 hereof (the "Redemption Price").
(b) If the Corporation does not have sufficient funds legally
available to redeem all shares for which redemption is requested hereunder, then
it shall redeem such shares on a pro-rata basis among the holders of the Series
A Preferred Stock in proportion to the shares of Series A Preferred Stock then
held by them to the extent possible and shall redeem the remaining shares to be
redeemed as soon as sufficient funds are legally available. In the event that
the Corporation fails to timely redeem shares for which redemption is requested
pursuant to Section 5(a) for any reason whatsoever, then during the period from
the Redemption Date through the date on which such shares are redeemed, the
Redemption Price of such shares shall bear interest at a per annum rate equal
to the Prime Rate (as reported in The Wall Street Journal from time to time)
plus two percent, which interest rate shall increase by an additional 1% at the
end of each three (3) month period thereafter until the Redemption Price (and
any interest thereon) is paid in full, subject to a maximum interest rate of the
greater of 15% or such Prime Rate plus ten percent, but in no event greater than
18%.
Section 6. Restrictions and Limitations.
(a) So long as any shares of the Series A Preferred Stock remain
outstanding, the Corporation shall not without the affirmative vote or written
consent of the holders of two-thirds in interest of the Series A Preferred
Stock:
(i) sell, lease or otherwise dispose of (whether in one
transaction or a series of related transactions) all or substantially
all of its assets or business,
(ii) merge with or into or consolidate with another entity or
enter into or engage in any other transaction or series of related
transactions, in any such case in connection with or as a result of
which the Company is not the surviving entity or the owners of the
Company's outstanding equity securities immediately prior to the
transaction or series
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<PAGE> 33
of related transactions do not own at least a majority of the outstanding equity
securities of the surviving, resulting or consolidated entity,
(iii) dissolve, liquidate or wind up its operations,
(iv) directly or indirectly redeem, purchase, or otherwise
acquire for consideration any shares of its Common Stock or any other class of
its capital stock except (A) for the redemption of Convertible Preferred Shares
pursuant to and as provided in Sections 2, 4 and 5 hereof, (B) as contemplated
by Sections 1.2, 4.6, and 5.2 of that certain Stock Purchase and Shareholders
Agreement, dated as of January 30, 1998, (C) as contemplated by that certain
Redemption Agreement, dated as of January 30, 1998, or (D) as contemplated by
the Corporation's standard form of agreement, as approved by the Board of
Directors, to be executed by employees, officers, and consultants of the
Corporation upon the grant to such employees, officers, and consultants of
options under the Plan, or upon exercise of such options,
(v) adopt any amendment to this Certificate of Designation, or
any amendment to its Articles of Incorporation or By-Laws, that eliminates,
amends, restricts or otherwise adversely affects the rights and preferences of
the Convertible Preferred Stock, or that increases the authorized shares of
Convertible Preferred Stock,
(vi) declare or make dividend payments on any shares of its
Common Stock or any other class of its capital stock,
(vii) create, or obligate itself to create, any class or series
of shares that has a preference over, or is on a parity with, the Convertible
Preferred Stock,
(viii) increase the size of the Board of Directors to more than
seven (7) members,
(ix) enter into any agreement or arrangement or take any other
action that eliminates, amends, restricts or otherwise adversely affects the
rights of the holders of Convertible Preferred Stock or its ability to perform
its obligations hereunder; or
(x) enter into or be a party to any transaction or agreement,
including, without limitation, any lease or other rental or purchase agreement
providing for loans or extensions of credit by or to the Company, with or for
the benefit of any person or entity which is a shareholder, officer or director
of the Company, or which is a relative by blood or marriage of, a trust or
estate for the benefit of, or a person or entity which directly or indirectly
controls, is controlled by, or is under common control with, any such person or
entity, except for normal compensation paid to employees of the Company in the
ordinary course of business.
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<PAGE> 34
Section 7. No Reissuance of Series A Preferred Stock. No share or shares
of the Series A Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired, and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of the Series A Preferred Stock accordingly.
Section 8. Other Rights. Except as otherwise provided in this
Certificate of Designation, each share of Series A Preferred Stock and each
share of Common Stock shall be identical in all respects, shall have the same
powers, preferences and rights, without preference of any such class or share
over any other such class or share.
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true as of the 29th day of January,
1998.
BSQUARE CORPORATION
/s/ ALBERT T. DOSSER
---------------------------------------
Albert T. Dosser, Senior Vice President
11
<PAGE> 35
STATE OF WASHINGTON
[STATE SEAL]
SECRETARY OF STATE
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal, hereby issue this
CERTIFICATE OF AMENDMENT
to
BSQUARE CONSULTING, INC.
a Washington Profit corporation. Articles of Amendment were filed for record in
this office on the date indicated below.
Changing name to BSQUARE CORPORATION
UBI Number: 601 559 419 Date: June 30, 1997
Given under my hand and the Seal of the State
of Washington at Olympia, the State Capital
/s/ RALPH MUNRO
-------------------------------
Ralph Munro, Secretary of State
[STATE SEAL] 2-494682-4
<PAGE> 36
STATE OF WASHINGTON FILED
STATE OF WASHINGTON
ARTICLES OF AMENDMENT JUN 30 1997
OF RALPH MUNRO
bsquare consulting, inc. SECRETARY OF STATE
Pursuant to RCW 23B.10.060, the undersigned corporation adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is bsquare consulting, inc. (the
"Corporation").
SECOND: The Articles of Incorporation are hereby amended as follows:
ARTICLE I
NAME
The name of the corporation is bsquare corporation.
THIRD: The amendment does not provide for an exchange, reclassification,
or cancellation of issued shares.
FOURTH:The foregoing amendment was adopted by the Board of Directors of
the Corporation on June 25, 1997 without shareholder action. Pursuant to RCW
23B.10.020, shareholder action with regard to the amendment of the Articles of
Incorporation of the Corporation is not required.
Dated: June 27, 1997.
bsquare consulting, inc.
/s/ WILLIAM T. BAXTER
----------------------------
William T. Baxter, President
<PAGE> 37
STATE of WASHINGTON
[STATE SEAL]
SECRETARY of STATE
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal, hereby issue this
CERTIFICATE OF AMENDMENT
to
BSQUARE CONSULTING, INC.
a Washington Profit corporation. Articles of Amendment were filed for record in
this office on the date indicated below.
UBI Number: 601 559 419 Date: April 30, 1997
Given under my hand and the Seal of the State
of Washington at Olympia, the State Capital
/s/ RALPH MUNRO
-------------------------------
Ralph Munro, Secretary of State
[STATE SEAL] 2-494682-4
<PAGE> 38
ARTICLES OF AMENDMENT
OF
BSQUARE CONSULTING, INC.
Pursuant to RCW 23B.10.060, the undersigned corporation adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is bsquare consulting, inc. (the
"Corporation").
SECOND: The Articles of Incorporation are hereby amended by deleting
Article II in its entirety and replacing it with a new Article II to read as
follows:
II. Authorized Shares
2.1 Authorized Capital. The aggregate number of shares which the
Corporation shall have the authority to issue is 60,000,000 shares of stock,
consisting of up to fifty million (50,000,000) shares of Common Stock and up to
ten million (10,000,000) shares of Preferred Stock.
2.2 Issuance of Preferred Stock in Series. The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Restated Articles of Incorporation, as determined
from time to time by the Board of Directors and stated in the resolution or
resolutions providing for the issuance thereof, prior to the issuance of any
shares thereof. The Board of Directors shall have the authority to fix and
determine and to amend, subject to the provisions hereof, the designations,
powers, preferences and relative, participating, optional or other rights, if
any, and qualifications, limitations or other restrictions of the shares of any
series that is wholly unissued or to be established and the number of shares
constituting any such series. Unless otherwise specifically provided in the
resolution establishing any series, the Board of Directors shall further have
the authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding.
(a) Dividends. The holders of shares of the Preferred Stock shall
be entitled to receive dividends, out of the funds of the corporation legally
available therefor, at the rate and at the time or times as may be provided by
the Board of Directors in designating a particular series of Preferred Stock.
The holders of the Preferred Stock shall not be entitled to receive any
dividends thereon, unless otherwise provided by the Board of Directors in
designating a particular series of Preferred Stock.
(b) Liquidation. In the event of any liquidation, dissolution or
winding up of the affairs of the corporation, whether voluntary or involuntary,
then, before any distribution shall be made to the holders of the Common Stock,
the holders of the Preferred Stock at the time outstanding shall be entitled to
be paid the preferential amount or amounts per share as may be provided by the
Board of Directors in designating a particular series of Preferred Stock, plus
<PAGE> 39
dividends accrued thereon to the date of such payment. In designating a
particular series of Preferred Stock, the Board of Directors may also provide
that such series is senior, on a par with or subordinate in order of priority to
any other existing or later issued series of Preferred Stock in respect of
distribution of amounts upon the liquidation, dissolution or winding up of the
affairs of the corporation. The holders of the Preferred Stock shall not be
entitled to receive any distributive amounts upon the liquidation, dissolution
or winding up of the affairs of the corporation, unless otherwise provided by
the Board of Directors in designating a particular series of Preferred Stock.
(c) Conversion. Shares of Preferred Stock may be convertible to
shares of Common Stock at such rate and subject to such adjustments as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock.
(d) Redemption. The Preferred Stock may be redeemable in such
amounts, and at such time or times as may be provided by the Board of Directors
in designating a particular series of Preferred Stock. In any event, such
Preferred Stock may be repurchased by the corporation only to the extent legally
permissible.
(e) Voting Rights. Holders of Preferred Stock shall have such
voting rights as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.
THIRD: The amendment does not provide for an exchange, reclassification,
or cancellation of issued shares.
FOURTH: The foregoing amendment was adopted by the Board of Directors of
the Corporation on April 17, 1997, and was duly approved by the shareholders of
the Corporation on April 17, 1997 in accordance with RCW 23B.10.030 and RCW
23B.10.040, respectively.
Dated: April 17, 1997.
bsquare consulting, inc.
By: /s/ WILLIAM T. BAXTER
-------------------------
Its: President & CEO
----------------------
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<PAGE> 40
[SEAL]
STATE of WASHINGTON SECRETARY of STATE
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal, hereby issue this
CERTIFICATE OF INCORPORATION
to
BSQUARE CONSULTING, INC.
a Washington Profit corporation. Articles of Incorporation were
filed for record in this office on the date indicated below:
U.B.I. Number: 601 559 419 Date: July 15, 1994
Given under my hand and the seal of the State
of Washington at Olympia, the State Capital
/s/ Ralph Munro
-------------------------------
Ralph Munro, Secretary of State
[SEAL]
<PAGE> 41
ARTICLES OF INCORPORATION
OF
BSQUARE CONSULTING, INC.
The undersigned individuals, Albert T. Dosser, Peter R. Gregory and
William T. Baxter, for the purpose of forming a corporation under the laws of
the State of Washington, and in pursuance thereof, hereby execute the following
Articles of Incorporation in duplicate form and state as follows:
I. NAME
The name of this corporation shall be:
BSQUARE CONSULTING, INC.
II. AUTHORIZED SHARES
The number of shares this corporation shall be authorized to issue will
be 100,000 shares of a single class.
III. REGISTERED AGENT
The street address of this corporation's initial registered office is
777 108th Avenue N.E., Suite 1900, Bellevue, Washington 98004, and the name of
its initial registered agent located at the above address is Patricia A. Murray,
Esq.
IV. INCORPORATORS
The names and addresses of the incorporators are set forth below:
Albert T. Dosser
16340 N.E. 83rd Street, Apt. E-125
Redmond, Washington 98052
Peter R. Gregory
13423 N.E. 115th Court
Redmond, Washington 98052
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<PAGE> 42
William T. Baxter
3233 168th Place S.E.
Bellevue, Washington 98008
V. PURPOSE
This corporation has the purpose of engaging in any lawful business
activity under the Washington Business Corporation Act but is being formed more
specifically for the purpose of providing computer software consulting services.
VI. POWERS
This corporation shall have the same powers as an individual to do all
things necessary or convenient to carry out its business and affairs, including,
without limitation power:
(1) to sue and be sued, complain and defend in its corporate
name;
(2) to have a corporate seal, which may be altered at will, and
to use it, or a facsimile of it, by impressing or affixing it or in any other
manner reproducing it;
(3) to make and amend bylaws, not inconsistent with these
Articles of Incorporation or with the laws of this state, for managing the
business and regulating the affairs of the corporation;
(4) to purchase, receive, lease, or otherwise acquire, and own,
hold, improve, use, and otherwise deal with, real or personal property, or any
legal or equitable interest in property, wherever located;
(5) to sell, convey, mortgage, pledge, lease, exchange, and
otherwise dispose of all or any part of its property;
(6) to purchase, receive, subscribe for, or otherwise acquire,
own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of, and
deal in and with shares or other interests in, or obligations of, any person;
-2-
<PAGE> 43
(7) to make contracts, incur liabilities, borrow money, issue
notes, bonds, and other obligations (which may be convertible into or include
the option to purchase other securities of the corporation), and secure any of
its obligations by mortgage or pledge of any of its property, franchises, or
income;
(8) to make guarantees respecting the contracts, securities, or
obligations of any person (including, but not limited to, any shareholder,
affiliated or unaffiliated individual, domestic or foreign corporation,
partnership, association, joint venture or trust) to the extent permitted by the
Washington Business Corporation Act as amended from time to time;
(9) to lend money, invest and reinvest its funds, and receive and
hold real and personal property as security for repayment;
(10) to be a promoter, partner, member, associate, or manager of
any partnership, joint venture, trust, or other entity;
(11) to conduct its business, locate offices, and exercise the
powers granted by this title within or without this state;
(12) to elect, appoint, or hire officers, employees, and other
agents of the corporation, define their duties, fix their compensation, and lend
them money and credit;
(13) to fix the compensation of directors, and lend them money
and credit;
(14) to pay pensions and establish pension plans, pension trusts,
profit sharing plans, share bonus plans, share option plans, and benefit or
incentive plans for any or all of its current or former directors, officers,
employees, and agents;
(15) to make donations for the public welfare or for charitable,
scientific, or educational purposes;
(16) to transact any lawful business that will aid governmental
policy; and
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<PAGE> 44
(17) to make payments or donations, or do any other act, not
inconsistent with law, that furthers the business and affairs of the
corporation.
VII. DURATION
This corporation shall have perpetual existence.
VIII. DIRECTORS
The number of directors of this corporation shall be determined in the
manner provided in the Bylaws of the corporation, and may be increased or
decreased from time to time as specified in the Bylaws. There shall always be at
least one (1) director. The initial Board of Directors shall consist of three
(3) directors and the names and addresses of the persons who shall serve as
directors until the first annual meeting of shareholders or until their
successors are elected and qualified, unless they sooner resign or are removed,
are:
Albert T. Dosser
16340 N.E. 83rd Street, Apt. E-125
Redmond, Washington 98052
Peter R. Gregory
13423 N.E. 115th Court
Redmond, Washington 98052
William T. Baxter
3233 168th Place S.E.
Bellevue, Washington 98008
IX. BYLAWS
The Board of Directors shall adopt initial Bylaws of this corporation
that are not inconsistent with the Washington Business Corporation Act or these
Articles of Incorporation. The Board of Directors shall also have the power to
alter, amend or repeal the Bylaws or to adopt new Bylaws subject to repeal or
change by action of the shareholders.
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<PAGE> 45
IN WITNESS WHEREOF, the incorporator hereunto executed this document as
of this 13th day of July, 1994.
/s/ Albert T. Dosser
-------------------------------
Albert T. Dosser, Incorporator
/s/ Peter R. Gregory
-------------------------------
Peter R. Gregory, Incorporator
/s/ William T. Baxter
-------------------------------
William T. Baxter, Incorporator
-5-
<PAGE> 1
EXHIBIT 3.1(a)
FORM OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BSQUARE CORPORATION
ARTICLE I
NAME
The name of the corporation (the "Corporation") is BSQUARE Corporation.
ARTICLE II
AUTHORIZED SHARES
2.1 AUTHORIZED CAPITAL. The total authorized number of shares of the
Corporation is Sixty Million (60,000,000) shares; Fifty Million (50,000,000)
shares of common stock without par or ascribed value; Ten Million (10,000,000)
shares of preferred stock without par or ascribed value.
2.2 ISSUANCE OF PREFERRED STOCK IN SERIES. The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Articles of Incorporation, as determined from time
to time by the Board of Directors and stated in the resolution or resolutions
providing for the issuance thereof, prior to the issuance of any shares thereof.
The Board of Directors shall have the authority to fix and determine and to
amend, subject to the provisions hereof, the designations, powers, preferences
and relative, participating, optional or other rights, if any, and
qualifications, limitations or other restrictions of the shares of any series
that is wholly unissued or to be established and the number of shares
constituting any such series. Unless otherwise specifically provided in the
resolution establishing any series, the Board of Directors shall further have
the authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding.
(a) Dividends. The holders of shares of the Preferred Stock shall be
entitled to receive dividends, out of the funds of the Corporation legally
available therefor, at the rate and at the time or times as may be provided by
the Board of Directors in designating a particular series of Preferred Stock.
The holders of the Preferred Stock shall not be entitled to receive any
dividends thereon, unless otherwise provided by the Board of Directors in
designating a particular series of Preferred Stock.
(b) Liquidation. In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
then, before any distribution shall be made to the holders of the Common Stock,
the holders of the Preferred Stock at the time outstanding shall be entitled to
be paid the preferential amount or amounts per share as may be provided by the
Board of Directors in designating a particular series of Preferred Stock, plus
dividends accrued thereon to the date of such payment. In designating a
particular series of Preferred Stock, the Board of Directors may also provide
that such series is senior, on a par with or subordinate in order of priority to
any other existing or later issued series of Preferred Stock in respect of
distribution of amounts upon the liquidation, dissolution or winding up of the
affairs of the Corporation. The holders of the Preferred Stock shall not be
entitled to receive any distributive amounts upon the liquidation, dissolution
or winding up of the affairs of the
-1-
<PAGE> 2
Corporation, unless otherwise provided by the Board of Directors in designating
a particular series of Preferred Stock.
(c) Conversion. Shares of Preferred Stock may be convertible to
shares of Common Stock at such rate and subject to such adjustments as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock.
(d) Redemption. The Preferred Stock may be redeemable in such
amounts, and at such time or times as may be provided by the Board of Directors
in designating a particular series of Preferred Stock. In any event, such
Preferred Stock may be repurchased by the Corporation only to the extent legally
permissible.
(e) Voting Rights. Holders of Preferred Stock shall have such voting
rights as may be provided by the Board of Directors in designating a particular
series of Preferred Stock.
ARTICLE III
DIRECTORS
The Board of Directors shall be set at seven. At the first election of
directors after the Corporation is a Public Company, as defined below, the Board
of Directors shall be divided into three (3) classes, as determined by the Board
of Directors, with said classes to be as equal in number as may be possible,
which classes shall be elected for the terms set forth below:
<TABLE>
<CAPTION>
Class Term
------- -------
<S> <C>
Class 1 1 Year
Class 2 2 Years
Class 3 3 Years
</TABLE>
Thereafter, each Director's term shall be three (3) years, and each Director
shall serve for the term he or she was elected and thereafter until his or her
successor is elected and qualified (or the number of directors is reduced), or
until his or her death, resignation or removal from office. Directors need not
be shareholders of the Corporation or residents of the State of Washington.
Written ballots are not required in the election of Directors. For purposes of
these Articles of Incorporation, the Corporation shall be a "Public Company" at
such time and for so long as it has a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or
any successor statute (the "Exchange Act"), or is otherwise subject to the
reporting requirements of Section 15(d) of the Exchange Act.
Newly created directorships resulting from any increase in the number of
Directors or any vacancies on the Board of Directors resulting from death,
resignation, removal or other cause shall be filled by the affirmative vote of a
majority of the remaining Directors then in office, even though less than a
quorum of the Board of Directors. Any Director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of Directors in which the new directorship was created or in which the
vacancy occurred and thereafter until such Director's successor shall have been
elected and qualified (or the number of directors is reduced). No decrease in
the number of Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
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<PAGE> 3
ARTICLE IV
PREEMPTIVE RIGHTS
Shareholders of the Corporation shall have no preemptive rights to
acquire additional shares of the Corporation.
ARTICLE V
CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not
exist with respect to shares of stock of the Corporation.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
(a) The capitalized terms in this Article 6 shall have the meanings
set forth in RCW 23B.08.500.
(b) The Corporation shall indemnify and hold harmless each
individual who is or was serving as a Director or officer of the Corporation or
who, while serving as a Director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
against any and all Liability incurred with respect to any Proceeding to which
the individual is or is threatened to be made a Party because of such service,
and shall make advances of reasonable Expenses with respect to such Proceeding,
to the fullest extent permitted by law, without regard to the limitations in RCW
23B.08.510 through 23B.08.550; provided, however, that the payment of Expenses
in advance of the final disposition of a Proceeding shall be made upon delivery
to the Corporation of an undertaking, by or on behalf of such Director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such Director or officer is not entitled to be indemnified under this
Article or otherwise; provided further, that no such indemnity shall indemnify
any Director or officer from or on account of (1) acts or omissions of the
Director or officer finally adjudged to be intentional misconduct or a knowing
violation of law; (2) conduct of the Director or officer finally adjudged to be
in violation of RCW 23B.08.310; or (3) any transaction with respect to which it
was finally adjudged that such Director or officer personally received a benefit
in money, property, or services to which the Director or officer was not legally
entitled. Except as provided in Subsection (f) of this Article, the Corporation
shall not indemnify a Director or officer in connection with a Proceeding (or
part thereof) initiated by the Director or officer unless such Proceeding (or
part thereof) was authorized by the Board of Directors of the Corporation.
(c) The Corporation may purchase and maintain insurance on behalf of
an individual who is or was a director, officer, employee, or agent of the
Corporation or, who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise against Liability asserted against or incurred by
-3-
<PAGE> 4
the individual in that capacity or arising from the individual's status as a
director, officer, employee, or agent, whether or not the Corporation would have
power to indemnify the individual against such Liability under RCW 23B.08.510 or
23B.08.520.
(d) If, after the effective date of this Article 6, the Act is
amended to authorize further indemnification of Directors or officers, then
Directors and officers of the Corporation shall be indemnified to the fullest
extent permitted by the Act as so amended.
(e) To the extent permitted by law, the rights to indemnification
and advance of reasonable Expenses conferred in this Article 6 shall not be
exclusive of any other right which any individual may have or hereafter acquire
under any statute, provision of the Bylaws, agreement, vote of shareholders or
disinterested directors, or otherwise. The right to indemnification conferred in
this Article 6 shall be a contract right upon which each Director or officer
shall be presumed to have relied in determining to serve or to continue to serve
as such. Any amendment to or repeal of this Article 6 shall not adversely affect
any right or protection of a Director or officer of the Corporation for or with
respect to any acts or omissions of such Director or officer occurring prior to
such amendment or repeal.
(f) If a claim under this Article is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, except in the case of a claim for expenses incurred in
defending a proceeding in advance of its final disposition, in which case the
applicable period shall be twenty (20) days, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, to the extent successful in whole or in part, the Director or
officer shall be entitled to be paid also the expense of prosecuting such claim.
Neither the failure of the Corporation (including its Board of Directors, its
shareholders or independent legal counsel) to have made a determination prior to
the commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances, nor an
actual determination by the Corporation (including its Board of Directors, its
shareholders or independent legal counsel) that the Director or officer is not
entitled to indemnification or to the reimbursement or advancement of expenses,
shall be a defense to the action or create a presumption that the Director or
officer is not so entitled.
(g) If the Corporation indemnifies or advances expenses to a
Director or officer pursuant to this Article 6 in connection with a Proceeding
by or in the right of the Corporation, the Corporation shall report the
indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
(h) If any provision of this Article 6 or any application thereof
shall be invalid, unenforceable, or contrary to applicable law, the remainder of
this Article 6, and the application of such provisions to individuals or
circumstances other than those as to which it is held invalid, unenforceable, or
contrary to applicable law, shall not be affected thereby.
ARTICLE VII
INTERESTED TRANSACTIONS
(1) No contracts or other transactions between the Corporation and
any other corporation, and no act of the Corporation shall in any way be
affected or invalidated by the fact that any of the directors or shareholders of
the Corporation are pecuniarily or otherwise interested in, or are directors or
officers of, such other corporation; and
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<PAGE> 5
(2) Any director or shareholder individually, or any firm of which
any director or shareholder may be a member, may be a party to, or may be
pecuniarily or otherwise interested in, any contracts or transactions of the
Corporation, provided that the fact that he or such firm is so interested shall
be disclosed or shall have been known to the Board of Directors or a majority
thereof.
ARTICLE VIII
SHAREHOLDER ACTIONS BY CONSENT
In accordance with RCW 23B.07.040, any action that may be taken at a
meeting of the Corporation's shareholders may be taken by written consent by the
shareholders holding of record or otherwise entitled to vote in the aggregate
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote on the
action were present and voted. If action is taken by less than unanimous
consent, the Corporation shall give nonconsenting shareholders prior notice of
such action; provided that if the action is of a type that would constitute a
significant business transaction under RCW 23B.19.020(15), notice must be given
no fewer than 20 days prior to the effective date of the action (such prior or
20 day period, a "Notice Period"). Such notice shall include the resolution
approved by the shareholders by written consent and shall be hand delivered or
sent first-class mail to each nonconsenting shareholder at the address on the
books and records of the Corporation. Unless the written consent specifies a
different effective date, the action is effective when consents sufficient to
authorize the action have been delivered to the Corporation and the Notice
Period has been satisfied. If the action is of a type that would entitle
shareholders to exercise dissenters' rights under RCW 23B.13.020(1), then (i)
the notice must comply with RCW 23B.13.220(2), (ii) RCW 23B.13.210 shall not
apply, and (iii) all nonconsenting shareholders are entitled to receive the
notice, demand payment under RCW 23B.13.230 and assert other dissenters' rights
to which they are by law entitled.
ARTICLE IX
REGISTERED OFFICE
The address of the registered office of the Corporation is 1505
Westlake Avenue N., Suite 300, Seattle, Washington, and the name of the
registered agent at such address is Michael J. Erickson.
ARTICLE X
AMENDMENT OF ARTICLES
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on
shareholders and directors are subject to this reserved power.
-5-
<PAGE> 6
ARTICLE XI
LIMITATION OF DIRECTOR LIABILITY
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for his or her conduct as a
director on or after the date this Article becomes effective, except for: (i)
acts or omissions that involve intentional misconduct or a knowing violation of
law by the director, (ii) approval of certain distributions or loans in
violation of RCW 23B.08.310, or (iii) any transaction from which the director
will personally receive a benefit in money, property or services to which the
director is not legally entitled. If, after approval by shareholders of this
Article, the Washington Business Corporation Act is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Washington Business
Corporation Act, as so amended. Any amendment to or repeal of this Article shall
not adversely affect any right or protection of a director of the Corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
ARTICLE XII
REMOVAL OF DIRECTORS
Any Director or the entire Board of Directors may be removed with or
without cause by the holders of not less than a majority of the shares then
entitled to vote at an election of Directors; provided, however, beginning at
such time and for so long as the Corporation is a Public Company (as defined in
Article III), no Director may be removed without "Cause," as defined below. Such
action may be taken at any regular or special meeting of the shareholders of the
Corporation, or by unanimous written consent in lieu of a meeting, provided that
notice of the proposed removal, which shall include a statement of the charges
alleged against the Director(s) in the event of removal for Cause, shall have
been duly given to the shareholders together with or as a part of the notice of
the meeting.
Where a question of the removal of a Director for Cause is to be presented
for shareholder consideration while the Corporation is a Public Company, an
opportunity must be provided to such Director to present his or her defense to
the shareholders by a statement which must accompany or precede the notice of
the meeting at which removal of such Director for Cause shall be considered.
Under such circumstances the Director involved shall be served with notice of
the meeting at which such action is proposed to be taken together with a
statement of the specific charges and shall be given an opportunity to be
present and to be heard at the meeting at which his or her removal is
considered.
For purposes of this Article XII, "Cause" for removal shall be limited to
(a) action by a Director involving willful malfeasance having a material adverse
effect on the Corporation or (b) a Director being convicted of a felony;
provided that any action by a Director shall not constitute "Cause" if, in good
faith, such Director believed such action to be in or not opposed to the best
interests of the Corporation, or if a Director shall be entitled, under
applicable law or the Articles of Incorporation or Bylaws of the Corporation, to
be indemnified with respect to such action.
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<PAGE> 7
ARTICLE XIII
SPECIAL MEETINGS OF THE SHAREHOLDERS
The Chairman of the Board of Directors, the President of the Corporation
or the Board of Directors may call special meetings of the shareholders for any
purpose. Further, a special meeting of the shareholders shall be held if the
holders of not less than twenty-five percent (25%) of all the votes entitled to
be cast on any issue proposed to be considered at such special meeting have
dated, signed and delivered to the Secretary of the Corporation one or more
written demands for such meeting, describing the purposes for which is to be
held.
DATED: , 1999
-----------
--------------------------------------
William T. Baxter, President and
Chief Executive Officer
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<PAGE> 1
EXHIBIT 3.2
AMENDMENTS TO BYLAWS
August 15, 1998:
Section 2 of Article V of the Company's Bylaws was amended as follows:
Section 2. Annual Meeting. Subject to the foregoing provisions, the date, the
time and location of the annual meeting of the shareholders shall be determined
each year by the Board of Directors. At said annual meeting, directors of the
Corporation shall be elected, reports of the affairs of the Corporation shall be
considered and any other business may be transacted which is within the powers
of the shareholders to transact.
<PAGE> 2
AMENDMENTS TO THE BYLAWS
January 29, 1998:
- - Section 2 of Article II of the Company's Bylaws was amended to increase
the number of directors on the Company's Board of Directors from three
to seven
- - Added Article X, which reads as follows:
ARTICLE X
INDEMNIFICATION
Section 1. Right to Indemnification
Each person who was, is or is threatened to be made a named
party to or is otherwise involved (including, without limitation, as a
witness) in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
and whether formal or informal (hereinafter a "proceeding"), by reason
of the fact that he or she is or was a Director or officer of the
corporation or, that being or having been such a Director or officer or
an employee of the corporation, he or she is or was serving at the
request of the corporation as a Director, officer, partner, trustee,
employee or agent of another corporation or of a partnership, joint
venture, trust, employee benefit plan or other enterprise (hereinafter
an "indemnitee"), whether the basis of a proceeding is alleged action
in an official capacity as such a Director, officer, partner, trustee,
employee or agent or in any other capacity while serving as such a
Director, officer, partner, trustee, employee or agent, shall be
indemnified and held harmless by the corporation against all expense,
liability and loss (including counsel fees, judgments, fines, ERISA
excise taxes or penalties and amounts to be paid in settlement)
actually and reasonably incurred or suffered by such indemnitee in
connection therewith, and such indemnification shall continue as to an
indemnitee who has ceased to be a Director, officer, partner, trustee,
employee or agent and shall inure to the benefit of the indemnitee's
heirs executors and administrators. Except as provided in Section 2 of
this Article 10 with respect to proceedings seeking to enforce rights
to indemnification, the corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such
indemnitee only if a proceeding (or part thereof) was authorized or
ratified by the Board. The right to indemnification conferred in this
Article shall be a contract right.
<PAGE> 3
Section 2. Restrictions on Indemnification
No indemnification shall be provided to any such indemnitee
for acts or omissions of the indemnitee finally adjudged to be
intentional misconduct or a knowing violation of law, for conduct of
the indemnitee finally adjudged to be in violation of Section
23B.08.310 of the Washington Business Corporation Act, for any
transaction with respect to which it was finally adjudged that such
indemnitee personally received a benefit in money, property or services
to which the indemnitee was not legally entitled or if the corporation
is otherwise prohibited by applicable law from paying such
indemnification, except that if Section 23B.08.560 or any successor
provision of the Washington Business Corporation Act is hereafter
amended, the restrictions on indemnification set forth in this Section
2 shall be as set forth in such amended statutory provision.
Section 3. Advancement of Expenses
The right to indemnification conferred in this Article shall
include the right to be paid by the corporation the expenses incurred
in defending any proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"). An advancement of expenses
shall be made upon delivery to the corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to
repay all amounts so advanced if it shall ultimately be determined by
final judicial decision from which there is no further right to appeal
that such indemnitee is not entitled to be indemnified for such
expenses under this Section 3.
Section 4. Right of Indemnitee to Bring Suit
If a claim under Section 1 or 3 of this Article 10 is not paid
in full by the corporation within sixty days after a written claim has
been received by the corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim. If
successful in whole or in part, in any such suit or in a suit brought
by the corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. The
indemnitee shall be presumed to be entitled to indemnification under
this Article upon submission of a written claim (and, in an action
brought to enforce a claim for an advancement of expenses, where the
required undertaking has been tendered to the corporation) and
thereafter the corporation shall have the burden of proof to overcome
the presumption that the indemnitee is so entitled.
Section 5. Procedures Exclusive
Pursuant to Section 23B.08.560(2) or any successor provision
of the Washington Business Corporation Act, the procedures for
indemnification and advancement of expenses set forth in this Article
are in lieu of the procedures
<PAGE> 4
required by Section 23B.08.550 or any successor provision of the
Washington Business Corporation Act.
Section 6. Nonexclusivity of Rights
The right to indemnification and the advancement of expenses
conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation or Bylaws of the
corporation, general or specific action of the Board, contract or
otherwise.
Section 7. Insurance, Contracts and Funding
The corporation may maintain insurance, at its expense, to
protect itself and any Director, officer, partner, trustee, employee or
agent of the corporation or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or
loss, whether or not the corporation would have the power to indemnify
such person against such expense, liability or loss under the
Washington Business Corporation Act. The corporation may enter into
contracts with any Director, officer, partner, trustee, employee or
agent of the corporation in furtherance of the provisions of this
Article and may create a trust fund, grant a security interest or use
other means (including, without limitation, a letter of credit) to
ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article.
Section 8. Indemnification of Employees and Agents of the Corporation
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees and agents or
any class or group of employees and agents of the corporation (i) with
the same scope and effect as the provisions of this Article with
respect to the indemnification and advancement of expenses of Directors
and officers of the corporation; (ii) pursuant to rights granted
pursuant to, or provided by, the Washington Business Corporation Act;
or (iii) otherwise consistent with law.
Section 9. Personal Serving Other Entities
Any person who, while a Director, officer or employee of the
corporation, is or was serving (a) as a Director or officer of another
foreign or domestic corporation of which a majority of the shares
entitled to vote in the election of its Directors is held by the
corporation or (b) as a partner, trustee or otherwise in an executive
or management capacity in a partnership, joint venture, trust or other
enterprise of which the corporation or a wholly owned subsidiary of the
corporation is a general partner or has a majority ownership shall be
deemed to be so serving at the request of the corporation and entitled
to indemnification and advancement of expenses under Sections 1 and 3
of this Article 10.
<PAGE> 5
BYLAWS
OF
BSQUARE CONSULTING, INC.
ARTICLE I.
Place of Business
Section 1. PRINCIPAL LOCATION. The principal office of the corporation
for the transaction of business shall be at such location as the Board of
Directors shall determine from time to time.
Section 2. ADDITIONAL OFFICES. Additional business offices may be
established at such other places as the Board of Directors may from time to time
designate.
ARTICLE II.
Directors
Section 1. INITIAL BOARD OF DIRECTORS. Each member of the Initial Board
of Directors, appointed through the Articles of Incorporation, shall serve until
his death, resignation, until removed, or until a Board of Directors is elected
by the shareholders at the first shareholders meeting.
Section 2. NUMBER. The number of directors shall be not less than one
(1), with the exact number to be fixed from time to time by the Board of
Directors, provided that until otherwise changed by resolution of the Board of
Directors, the number of directors shall be three (3).
Section 3. TERM. The directors shall be elected at the annual meeting
of shareholders and each director shall be elected to serve for a term of one
(1) year; provided that in the event of failure to hold such meeting or to hold
such election at such meeting, the directors may be elected at any special
meeting of the stockholders called for that purpose.
Section 4. QUORUM. A majority of the directors shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the Board of Directors.
Section 5. NOTICES. Regular meetings of the Board of Directors may be
held without notice of the time, date, location or purpose of the meeting.
Special meetings shall be preceded by at least, two days notice of the time,
date and location of said meeting. Any notice of a meeting required to be given
or which may be given to a director shall be personally served or mailed by
United States Mail, postage prepaid, properly addressed to the last known
address of
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<PAGE> 6
such director and, if mailed, shall be deemed to be given and received three (3)
days following the date of mailing. Any director may waive notice of any
meeting, so long as said waiver is in writing, signed by the director entitled
to notice and delivered to the corporation for inclusion in the minutes of the
corporation. Notwithstanding the foregoing, attendance of a director at a
meeting shall constitute a waiver of notice of such meeting except where the
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened and where said director does not thereafter vote for or assent to any
action taken at the said meeting. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 6. POWERS AND DUTIES. The Board of Directors shall be
responsible for the management of the business of the corporation, and, subject
to the restrictions imposed by law, by the Articles of Incorporation, or by
these Bylaws, may exercise all the powers of the corporation.
Section 7. COMMITTEES. By resolution adopted by a majority of the full
Board of Directors, the Board of Directors may appoint from among its members an
Executive Committee of not less than two nor more than five members, one of whom
shall be the President (who shall be the Chairman of the Executive Committee).
The Board of Directors may also designate one or more of its members as
alternates to serve as a member or members of the Executive Committee in the
absence of a regular member or members. The Executive Committee shall have and
may exercise all the authority of the Board of Directors during the intervals
between meetings of the Board of Directors, except that the Executive Committee
(and other committees) shall not have the authority to (1) declare dividends or
distributions, except according to a general formula or method prescribed by the
Board of Directors, (2) approve or recommend to shareholders actions or
proposals required by this title to be approved by shareholders, (3) fill
vacancies on the Board of Directors or any committee thereof, (4) amend the
Articles of Incorporation, (5) adopt, amend or repeal the Bylaws, (6) authorize
or approve the issuance or reacquisition of shares unless pursuant to general
formula or method specified by the Board of Directors, (7) fix compensation of
any director for serving on the Board of Directors or any committee, (8) approve
a plan of merger, consolidation or exchange of shares not requiring shareholder
approval, or (9) appoint other committees of the Board of Directors.
The Board of Directors may also appoint from among its own members such
other committees as the Board of Directors may determine, which shall in each
case consist of not less than two (2) directors, and which shall have such
powers and duties as shall from time to time be prescribed by the Board.
A majority of the members of any committee may fix its rules of
procedure. All actions by any committee shall be reported to the Board of
Directors at a meeting succeeding such action and shall be subject to revision,
alteration, and approval by the Board of Directors; provided that no rights or
acts of third parties shall be affected by any such revision or alteration.
Members of any committee may participate in a meeting of such committee
by means of a conference telephone or similar communications equipment by means
of which all persons
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<PAGE> 7
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
Section 8. SALARY. Directors may receive a salary for their services as
directors but any such salary must be approved by unanimous vote of all of the
directors. Nothing herein contained shall be construed to preclude any director
from serving the corporation in any other capacity as an officer, agent or
otherwise and receiving compensation therefor so long as the compensation is
approved by the Board of Directors.
Section 9. VACANCY. Any vacancy that occurs in the Board of Directors
may be filled by a majority of the remaining directors or by the shareholders,
and each director so elected shall hold office until his successor is selected
at the next meeting of shareholders held for that purpose.
Section 10. CONSENT AND WAIVER OF NOTICE. Any transactions of the Board
of Directors at any meeting thereof, regardless of how or whether call was made
or notice given, shall be as valid as though transacted at a meeting duly held
after regular call and notice, if a quorum be present, and if, either before or
after the meeting, each of the directors entitled to vote and not present in
person sign a written waiver of notice, or a consent to the holding of such
meeting, or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the Secretary of this corporation and made a part
of the records of the meeting.
Whenever any notice whatsoever is required to be given under the
provisions of these Bylaws, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the actual giving of such notice.
Any action, which under any provision of these Bylaws might be taken at
a meeting of the directors, may be taken without a meeting if a record or
memorandum thereof be made in writing and signed by all of the directors who
would be entitled to vote at a meeting for such purpose and such record or
memorandum be filed with the Secretary and made a part of the corporate records.
A director who is present at a meeting at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as Secretary
before the adjournment of the meeting or shall forward such dissent by
registered mail to the Secretary immediately after the adjournment.
Section 11. CONFERENCE TELEPHONE CALLS. Members of the Board of
Directors may participate in a meeting of such Board by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
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<PAGE> 8
ARTICLE III.
Officers
Section 1. APPOINTMENT AND QUALIFICATIONS. The officers of this
corporation shall consist of a President, and such other officers as may be
chosen by the Board of Directors. No officer shall execute, acknowledge or
verify any instrument in more than one capacity if such instrument be required
by law or these Bylaws to be executed, acknowledged or verified, as the case may
be, by any two or more officers, except that when all of the issued and
outstanding shares of the corporation is owned by one shareholder, one person
may hold all or any combination of offices and any such one person may execute,
acknowledge or verify any such instrument in more than one capacity.
Section 2. TERMS AND COMPENSATION. The terms of office and the salary
of each of said officers and the manner and time of the payment of such salaries
shall be fixed and determined by the Board of Directors and may be altered by
said Board from time to time, and at any time at its pleasure. Any officer may
be removed at any time by the Board.
ARTICLE IV.
Powers and Duties of Officers
Section 1. PRESIDENT. The powers and duties of the President shall be:
(1) To preside at all meetings of the Board of Directors or of the
shareholders, regular and special.
(2) Except when otherwise directed by the Board of Directors, to
affix the signature of the corporation to all deeds,
conveyances, mortgages, bonds, contracts and other instruments
in writing and other papers that may require the same, to sign
certificates of shares of the corporation; and in general to
supervise and control all of the business affairs of the
corporation. Subject to the direction of the Board of
Directors, the President shall supervise and control all
officers, agents and employees of the corporation. Unless
otherwise directed by the Board of Directors or by law, all
deeds, conveyances, mortgages, bonds, contracts and other
instruments of the corporation need only be signed by the
President and need not be signed by the Secretary or any other
officer of the corporation.
(3) To enforce these Bylaws and perform all of the duties incident
to the office and which are required by law.
Section 2. VICE-PRESIDENT. In case of the absence, disability or death
of the President, the Vice-President of this corporation, if the corporation
shall have a Vice President, shall have such powers and perform such duties as
may be granted or prescribed by the Board of Directors from time to time.
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<PAGE> 9
At all times, the Vice-President shall have the power to countersign
such instruments, if any, as may by law require execution, acknowledgment, or
verification by two officers.
Section 3. SECRETARY. The powers and duties of the Secretary, if the
corporation shall have a Secretary shall be:
(1) To keep full and complete records of the meetings of the Board
of Directors and of the shareholders.
(2) To keep the seal of the corporation and to affix the same to
all instruments which may require it.
(3) To make service and publication of all notices that may be
necessary or proper, without command or direction from anyone.
To transfer upon the books of the corporation any and all shares;
provided, however, that no certificate of shares shall be issued or delivered,
or if issued or delivered, shall have any validity whatsoever, until and unless
it has been signed by the President of the corporation.
(4) Generally to have such powers and perform such duties as
pertain to his office and as may be required by the Board of
Directors.
Section 4. TREASURER. If the corporation shall have a Treasurer, the
Treasurer shall receive all moneys belonging to or paid into the corporation and
give receipts therefor; and shall deposit such moneys, as the treasurer shall be
directed by the Board of Directors, with one or more solvent and reputable banks
to be designated by the Board of Directors; and shall keep full and complete
records of the funds received and the disbursement thereof. The treasurer shall
render to the shareholders at the regular annual meeting thereof, and also to
the Board of Directors at any meeting thereof, or from time to time whenever the
Board of Directors or the President may require, an account of all transactions
as Treasurer and of the financial condition of the corporation, and shall
perform such other duties as may from time to time be prescribed by the Board of
Directors. The treasurer shall exhibit or cause to be exhibited the books of the
corporation to the Board of Directors, or to any committee appointed by the
Board, or to any director on application during business hours, or to any other
person entitled to inspect such books pursuant to pertinent provisions of the
Business Corporation Act of the State of Washington.
At all times, the Treasurer shall have the power to countersign such
instrument, if any, as may by law require execution, acknowledgment, or
verification by two officers.
The Treasurer shall have such powers and perform such duties as pertain
to the office of the treasurer and as may be required by the Board of Directors.
Section 5. OTHER OFFICERS. The Board of Directors may appoint such
other officers as the business of the Corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the Bylaws or as the Board of Directors may from time to time
determine.
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ARTICLE V.
Shareholders
Section 1. PLACE OF MEETING. Notwithstanding anything to the contrary
in these Bylaws, any meeting (whether annual, special or adjourned) of the
stockholders of this corporation may be held at any place within or without the
State of Washington which has been designated therefor by the Board of
Directors.
Section 2. ANNUAL MEETING. Subject to the foregoing provisions, the
annual meeting of the stockholders shall be held at the principal office of the
corporation in the City of Bellevue, State of Washington, at the hour of 9:00
a.m. on 15th day of February in each year, if not a legal holiday, and if a
legal holiday, then on the next succeeding business day not a legal holiday. At
said annual meeting, directors of the corporation shall be elected, reports of
the affairs of the corporation shall be considered and any other business may be
transacted which is within the powers of the stockholders to transact.
The corporation shall notify shareholders of the date, time and place
of each annual meeting and each special meeting of the shareholders. Said notice
shall be given no fewer than 10 nor more than 60 days before the meeting date,
except that notice of a shareholders' meeting to act on an amendment to the
Articles of Incorporation, a plan of merger or share exchange, a proposed sale
of assets pursuant to RCW 23B.12.020, or the dissolution of the corporation
shall be given no fewer than 20 nor more than 60 days before the meeting date.
In the case of a notice of a special meeting of shareholders, the notice shall
also include a description of the purpose or purposes for which the meeting is
called.
Notice of special meetings of stockholders shall be given by written
notice personally served on each shareholder, or deposited in the United States
mail, postage prepaid, and addressed to him at his last known post office
address appearing upon the books of the corporation. Such notice, if mailed,
shall be deemed to be given and received three (3) days following the date of
mailing.
In the event the annual meeting be not held, or the directors be not
elected thereat, the directors may be elected at a special meeting held for that
purpose, and it shall be the duty of the President, the Vice-President, or the
Secretary, upon the demand of any shareholder entitled to vote at such meeting,
to call such special meeting.
Section 3. SPECIAL MEETINGS. Subject to Section (2) of this Article,
special meetings of the shareholders may be called at any time by the President
or by the Board of Directors or by one or more shareholders holding not less
than one-tenth (1/10) of the voting power of the corporation.
Section 4. CONSENT AND WAIVER OF NOTICE. Any transactions of the
shareholders at any meeting thereof, regardless of how or whether call was made
or notice given, shall be as valid as though transacted at a meeting duly held
after regular call and notice, if a quorum be present, either in person or by
proxy, and if, either before or after the meeting, each of the shareholders
entitled to vote and not present in person or by proxy sign a written
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<PAGE> 11
waiver of notice, or a consent to the holding of such meeting, or an approval of
the minutes thereof. All such waivers, consents or approvals shall be filed with
the Secretary and made a part of the records of the meeting.
Whenever any notice whatsoever is required to be given under the
provisions of these Bylaws, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the actual giving of such notice.
A shareholder's attendance at a meeting waives objection to lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting. A shareholder waives objection to consideration of a particular
matter at a meeting that is not within the purpose or purposes described in the
meeting notice unless the shareholder objects to consideration of the matter
when it is presented.
Any action, which under any provisions of these Bylaws might be taken
at a meeting of the shareholders, may be taken without a meeting if a record or
memorandum thereof be made in writing and signed by all of the holders of shares
who would be entitled to vote at a meeting for such purpose and such record or
memorandum be filed with the Secretary and made a part of the corporate records.
The consent shall have the same force and effect as a unanimous vote of
shareholders, and may be stated as such in any articles or document filed with
the Secretary of State.
Section 5. QUORUM, VOTING AND PROXIES. At all meetings of the
shareholders (whether annual, special or adjourned) the presence in person or by
proxy in writing of the holders of a majority of the shares entitled to vote at
that meeting shall constitute a quorum for the transaction of business. Each
share shall entitle the duly qualified and registered holder thereof to one
vote. All proxies shall be in writing subscribed by the party entitled to vote
the number of shares represented thereby, or by his duly authorized attorney,
and no such proxy shall be valid or confer any right or authority to vote or act
thereunder unless such proxy has been offered for filing to, and left with, the
Secretary of the corporation prior to the meeting at which the same is to be
used; provided, however, that in case any meeting of shareholders whatsoever
(whether annual, special or adjourned) shall have been for any cause adjourned,
proxies shall be valid and may be used at such adjourned meeting, which have
been offered for filing to, and left with the Secretary of the corporation prior
to the date upon which said adjourned meeting shall in fact be held.
Once a share is represented at a meeting for any purpose other than
solely to object to holding the meeting or transacting business at the meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment thereof, unless a new record date is or must be set for that
adjourned meeting.
An amendment to the Articles of Incorporation, adding, changing or
reducing a quorum for a voting group greater or lesser than the simple majority
specified above, or adding, changing or reducing a voting requirement from a
simple majority shall be governed by RCW 23B.07.270.
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Section 6. ADJOURNMENTS. Any business which might be transacted at an
annual meeting of the shareholders may be done at a special or at an adjourned
meeting. If no quorum be present at any meeting of the stockholders (whether
annual, special or adjourned) such meeting may be adjourned by those present
from day to day, or from time to time, until such quorum be obtained, such
adjournment and the reasons therefor being recorded in the journal or minutes of
proceedings of the stockholders, and no notice whatsoever need be given of any
such adjourned meeting if the time and place of such meeting be fixed at the
meeting adjourned.
Section 7. CONFERENCE TELEPHONE CALLS. Shareholders may participate in
a meeting of shareholders by means of a conference telephone call or similar
communication equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at a meeting.
ARTICLE VI.
Shares
Section 1. CLASS. The shares of this corporation shall consist of such
classes as may be authorized by the Articles of Incorporation as they may be
amended from time to time.
Section 2. CERTIFICATES. The shares of the corporation shall be
represented by certificates prepared by the Board of Directors and signed by two
officers of the corporation, unless the corporation has only one officer, in
which case certificates for shares shall be signed by said officer. Each
certificate shall be sealed with the seal of the corporation or a facsimile
thereof, if any. The certificates shall be numbered consecutively and in the
order in which they are issued; and a share register shall be maintained in
which shall be entered the name of the person to whom the shares represented by
each certificate are issued, the number and class or series of such shares, and
the date of issue. Each certificate shall state upon the face thereof (i) that
the corporation is organized under the laws of the state of incorporation, (ii)
the name of the person to whom issued, (iii) the number and class of the shares,
and the designation of the series, if any.
Section 3. SUBSCRIPTIONS. Subscriptions to the shares shall be paid at
such times and in such installments as the Board of Directors may determine. If
default be made in the payment of any installment as required by such
resolution, the Board may declare the shares and all previous payments thereon
forfeited for the use of the corporation, if such payment remains in default
twenty (20) days after written notice of the default has been sent to the
subscriber, or in such other manner prescribed by law.
Section 4. SHARE OPTIONS. The corporation may issue rights, options or
warrants for the purchase of shares of the corporation. The Board of Directors
shall determine the terms upon which the rights, options, or warrants are
issued, their form and content, and the consideration for which the shares are
to be issued.
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Section 5. RESTRICTION ON TRANSFER OF SHARES OR OTHER SECURITIES.
(a) The Articles of Incorporation, an agreement among shareholders, or
an agreement between shareholders and the corporation may impose restrictions on
the transfer or registration of transfer of shares. The restriction does not
affect shares issued before the restriction was adopted unless the holders of
the shares are parties to the restriction agreement or voted in favor of the
restriction.
(b) A restriction on the transfer or registration of transfer of shares
is valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized and its existence is noted conspicuously on the front
or back of the certificate or is contained in the information statement. Unless
so noted, a restriction is not enforceable against a person without knowledge of
the restriction.
(c) A restriction on the transfer or registration of transfer of shares
is authorized:
(1) to maintain the corporation's status when it is dependent on
the number or identity of its shareholders;
(2) to preserve exemptions under federal or state securities law;
or
(3) for any other reasonable purpose.
(d) A restriction on the transfer or registration of transfer of shares
may:
(1) obligate the shareholder first to offer the corporation or
other persons (separately, consecutively, or simultaneously) an opportunity to
acquire the restricted shares;
(2) obligate the corporation or other persons (separately,
consecutively, or simultaneously) to acquire the restricted shares;
(3) require the corporation, the holders of any class of its
shares, or another person to approve the transfer of the restricted shares, if
the requirement is not manifestly unreasonable; or
(4) prohibit the transfer of the restricted shares to designated
persons or classes of persons, if the prohibition is not manifestly
unreasonable.
Section 6. RETURNED CERTIFICATES. All certificates for shares changed
or returned to the corporation for transfer shall be marked by the Secretary
"Cancelled" with the date of cancellation; and the transaction shall be
immediately recorded in the transfer book opposite the memorandum of their
issue. The returned certificates shall be retained by the corporation and filed
with the stock register.
Section 7. LOST CERTIFICATES. Any person claiming a certificate for
shares to be lost or destroyed shall make an affidavit or an affirmation of the
fact and shall advertise the same in such manner as the Board of Directors may
determine; and, if the directors require,
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shall give the corporation a bond of indemnity in form and with sureties
satisfactory to the Board, in an amount to be fixed by the Board whereupon a new
certificate may be issued of the same tenor and for the same number of shares as
the certificate alleged to be lost or destroyed.
ARTICLE VII.
Books and Records
Section 1. This corporation shall keep as permanent records minutes of
all meetings of its shareholders and board of directors, a record of all actions
taken by the shareholders or board of directors without a meeting, and a record
of all actions taken by a committee of the board of directors exercising the
authority of the board of directors on behalf of the corporation.
Section 2. This corporation shall maintain appropriate accounting
records.
Section 3. This corporation or its agent shall maintain a record of its
shareholders, in a form that permits preparation of a list of the names and
addresses of all shareholders, in alphabetical order by class of shares showing
the number and class of shares held by each.
Section 4. This corporation shall maintain its records in written form
or in another form capable of conversion into written form within a reasonable
time.
Section 5. The corporation shall keep a copy of the following records
at its principal office:
(a) its articles or restated articles of incorporation and all
amendments to them currently in effect;
(b) its bylaws or restated bylaws and all amendments to them currently
in effect;
(c) the minutes of all shareholders' meetings, and records of all
action taken by shareholders' without a meeting, for the past three years;
(d) the financial statements prepared pursuant to RCW 23B.16.200, for
the past three years;
(e) all written communications to shareholders generally within the
past three years;
(f) a list of the names and business addresses of its current directors
and officers; and
(g) its most recent annual report delivered to the secretary of state.
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ARTICLE VIII.
Amendments
These Bylaws may be amended or repealed and new and additional Bylaws
may be made from time to time at any time by the Board of Directors.
ARTICLE IX.
Miscellaneous Provisions
Section 1. INSTRUMENTS IN WRITING. Notwithstanding any other provision
hereof, all checks, drafts and demands for money of the corporation shall be
signed by such officer or officers, agent or agents, as the Board of Directors
may from time to time by resolution designate. No officer, agent or employee of
the corporation shall have the power to bind the corporation by contract or
otherwise unless authorized to do so by the Board of Directors.
Section 2. FISCAL YEAR. The fiscal year of this corporation shall be
set by resolution of the Board of Directors.
KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, being the
Board of Directors of BSQUARE CONSULTING, INC., a Washington corporation,
organized and existing under the laws of the State of Washington, do hereby
certify that the foregoing code of Bylaws was duly adopted by resolution of the
Board of Directors of the corporation on the ___ day of July, 1994.
/s/ ALBERT T. DOSSER
---------------------------------------------
Albert T. Dosser, Director
/s/ PETER R. GREGORY
---------------------------------------------
Peter R. Gregory, Director
/s/ WILLIAM T. BAXTER
---------------------------------------------
William T. Baxter, Director
-11-
<PAGE> 1
EXHIBIT 10.1
BSQUARE CORPORATION
AMENDED AND RESTATED
STOCK OPTION PLAN
<PAGE> 2
<TABLE>
<S> <C>
1. DEFINITIONS ....................................................................................1
2 PURPOSES .......................................................................................4
3 ADMINISTRATION .................................................................................4
(A) COMMITTEE ..............................................................................4
(B) APPOINTMENT OF COMMITTEE ...............................................................4
(C) POWERS; REGULATIONS ....................................................................4
(D) DELEGATION TO EXECUTIVE OFFICER ........................................................5
4 ELIGIBILITY ....................................................................................5
5 STOCK ..........................................................................................5
6 TERMS AND CONDITIONS OF OPTIONS ................................................................5
(A) NUMBER OF SHARES AND TYPE OF OPTION ....................................................5
(B) DATE OF GRANT ..........................................................................6
(C) OPTION PRICE ...........................................................................6
(D) DURATION OF OPTIONS ....................................................................6
(E) VESTING SCHEDULE AND EXERCISABILITY OF OPTIONS .........................................7
(F) ACCELERATION OF VESTING AND EXERCISABILITY .............................................7
(G) TERM OF OPTION .........................................................................8
(H) EXERCISE OF OPTIONS ....................................................................8
(I) PAYMENT UPON EXERCISE OF OPTION ........................................................9
(J) RIGHTS AS A SHAREHOLDER ...............................................................10
(K) TRANSFER OF OPTION ....................................................................10
(L) SECURITIES REGULATION AND TAX WITHHOLDING .............................................11
(M) STOCK DIVIDEND, REORGANIZATION OR LIQUIDATION .........................................12
(N) APPROVED TRANSACTIONS; CONTROL PURCHASE ...............................................13
7. EFFECTIVE DATE; TERM ..........................................................................14
8. NO OBLIGATIONS TO EXERCISE OPTION .............................................................14
9. NO RIGHT TO OPTIONS OR TO EMPLOYMENT ..........................................................14
10. APPLICATION OF FUNDS ..........................................................................14
11. INDEMNIFICATION OF COMMITTEE ..................................................................14
12. SHAREHOLDERS AGREEMENT ........................................................................15
13. SEPARABILITY ..................................................................................15
14. NON-EXCLUSIVITY OF THE PLAN ...................................................................15
15. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION .........................................15
16. AMENDMENT OF PLAN .............................................................................15
</TABLE>
<PAGE> 3
BSQUARE CORPORATION
AMENDED AND RESTATED
STOCK OPTION PLAN
1. DEFINITIONS.
Capitalized terms not defined elsewhere in the Plan shall have the
following meanings (whether used in the singular or plural).
(a) "AGREEMENT" means a written agreement approved by the
Committee evidencing Options granted under the Plan.
(b) "APPROVED TRANSACTION" means
(i) a firm commitment underwritten public offering
pursuant to an effective registration statement under
the Securities Act covering the offer and sale of
Common Stock for the account of the Company to the
public with aggregate proceeds paid to the Company of
not less than $10,000,000 (after the deduction of
underwriting commissions and offering expenses);
(ii) the acquisition of the Company by another entity by
means of merger, consolidation or other transaction
or series of related transactions resulting in the
exchange of the outstanding shares of the Company for
securities of, or consideration issued, or caused to
be issued by, the acquiring entity or any of its
affiliates, provided, that after such event the
shareholders of the Company immediately prior to the
event own less than a majority of the outstanding
voting equity securities of the surviving entity
immediately following the event;
(iii) any liquidation or dissolution of the Company; and
(iv) any sale, lease, exchange or other transfer not in
the ordinary course of business (in one transaction
or a series of related transactions) of all, or
substantially all, of the assets of the Company.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute or statutes
thereto. Reference to any specific section of the Code shall
include any successor section.
(e) "COMMITTEE" shall mean the Board, or the committee appointed
by the Board pursuant to Section 3(b) of the Plan, if it is
administering the Plan.
(f) "COMMON STOCK" means the Common Stock, no par value, of the
Company.
(g) "COMPANY" means BSQUARE CORPORATION, a Washington corporation.
(h) "CONTROL PURCHASE" means any transaction (or series of related
transactions) in which any person, corporation or other entity
(including any "person" as defined in Sections
1
<PAGE> 4
13(d)(3) and 14(d)(2) of the Exchange Act, but excluding the Company
and any employee benefit plan sponsored by the Company):
(i) purchases any Common Stock (or securities convertible into
Common Stock) for cash, securities or any other consideration
pursuant to a tender offer or exchange offer unless by the
terms of such offer the offeror, upon consummation thereof,
would be the "beneficial owner" (as that term is defined in
Rule 13d-3 under the Exchange Act) of less than 30% of the
shares of Common Stock then outstanding; or
(ii) becomes the "beneficial owner", directly or indirectly, of
securities of the Company representing fifty percent (50%) or
more of the combined voting power of the then outstanding
securities of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
in the election of directors (calculated as provided in Rule
13d-3(d) under the Exchange Act in the case of rights to
acquire the Company's securities);
provided, however, that the foregoing shall not constitute a Control
Purchase if the transactions or related transactions received the prior
approval of a majority of all of the directors of the Company,
excluding for such purpose the votes of directors who are directors or
officers of, or have a material financial interest in any Person (other
than the Company) who is a party to the event specified in either
clauses (i) or (ii).
(i) "COVERED EMPLOYEE" has the meaning given to it by Section 162(m)(3) of
the Code.
(j) "DATE OF GRANT" means that date the Committee has deemed to be the
effective date of the Option for purposes of the Plan.
(k) "DISABILITY" means any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than
twelve (12) months that renders the Optionee unable to engage in any
substantial gainful activity.
(l) "EFFECTIVE DATE" means at the time specified in the resolutions of the
Board adopting the Plan.
(m) "EMPLOYEES" means individuals employed by the Company or a Related
Corporation.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute or statutes thereto.
Reference to any specific section of the Exchange Act shall include any
successor section.
(0) "EXECUTIVE OFFICER" shall be defined in Section 3(d).
(p) "FAIR MARKET VALUE" means, if the Common Stock is publicly traded, the
last sales price (or, if no last sales price is reported, the average
of the high bid and low asked prices) for a share of Common Stock on
that day (or, if that day is not a trading day, on the next preceding
trading day), as reported by the principal exchange on which the Common
Stock is listed, or, if the Common Stock is publicly traded but not
listed on an exchange, as reported by The Nasdaq Stock Market, or if
such prices or quotations are not reported by
2
<PAGE> 5
The Nasdaq Stock Market, as reported by any other available source of
prices or quotations selected by the Committee. If the Common Stock is
not publicly traded or if the Fair Market Value is not determinable by
any of the foregoing means, the Fair Market Value on any day shall be
determined in good faith by the Committee on the basis of such
considerations as the Committee deems important.
(q) "IMMEDIATE FAMILY MEMBER" means a spouse, children or grandchildren of
the Optionee.
(r) "INCENTIVE STOCK OPTION" means an Option that is an incentive stock
option within the meaning of Section 422 of the Code.
(s) "NON-EMPLOYEE DIRECTOR" has the meaning given to it by Rule 16b-3
promulgated under the Exchange Act of 1934.
(t) "NON-INSIDERS" has the meaning given to by Section 162(m)(3) of the
Code.
(u) "NON-QUALIFIED STOCK OPTION" means an Option that is not an Incentive
Stock Option.
(v) "OPTION" means an option with respect to shares of Common Stock awarded
pursuant to Section 6.
(w) "OPTIONEE" means any person to whom an Option is granted under the Plan
(as well as any permitted transferee of an Option).
(x) "OUTSIDE DIRECTOR" has the meaning given to it by the regulations
promulgated under Section 162(m) of the Code.
(y) "PLAN" means the BSQUARE CORPORATION stock option plan.
(z) "QUALIFIED PERFORMANCE-BASED COMPENSATION" has the meaning given to it
by the regulations promulgated under Section 162(m) of the Code.
(aa) "RELATED CORPORATION" means any corporation (other than the Company)
that is a "parent corporation" of the Company or "subsidiary
corporation" of the Company, as defined in Sections 424(e) and 424(f),
respectively, of the Code.
(bb) "SECTION 16 INSIDERS" means individuals who are subject to Section
16(b) of the Exchange Act with respect to the Common Stock.
(cc) "SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, or any successor statute or statutes thereto. References to
any specific section of the Securities Act shall include any successor
section.
(dd) "TEN PERCENT SHAREHOLDER" means a person who owns more than ten percent
of the total combined voting power of the Company or any related
corporation as determined with reference to Section 424(d) of the Code.
3
<PAGE> 6
2. PURPOSES.
The purposes of the Plan are to retain the services of directors,
valued key employees and consultants of the Company and such other persons as
the Committee shall select in accordance with Section 4, to encourage such
persons to acquire a greater proprietary interest in the Company, thereby
strengthening their incentive to achieve the objectives of the shareholders of
the Company, and to serve as an aid and inducement in hiring new employees and
to provide an equity incentive to directors, consultants and other persons
selected by the Committee.
3. ADMINISTRATION.
(a) COMMITTEE.
The Plan shall be administered by the Board unless the Board appoints a
separate committee of the board to administer the Plan pursuant to Section 3(b)
below. A majority of the members of the Committee shall constitute a quorum, and
all actions of the Committee shall be taken by a majority of the members
present. Any action may be taken by a written instrument signed by all of the
members of the Committee and any action so taken shall be fully effective as if
it had been taken at a meeting.
(b) APPOINTMENT OF COMMITTEE.
The Board may appoint a committee consisting of two or more of its
members to administer the Plan. The Board shall consider whether a director is
(i) an Outside Director and (ii) a Non-Employee Director when appointing any
such Committee and shall appoint solely two or more individuals who qualify as
Outside Directors if the Board intends for compensation attributable to Options
to be Qualified Performance-Based Compensation. The Committee shall have the
powers and authority vested in the Board hereunder (including the power and
authority to interpret any provision of the Plan or of any Option). The members
of any such Committee shall serve at the pleasure of the Board.
(c) POWERS; REGULATIONS.
Subject to the provisions of the Plan, and with a view to effecting its
purpose, the Committee shall have sole authority, in its absolute discretion,
to:
(i) construe and interpret the Plan;
(ii) define the terms used in the Plan;
(iii) prescribe, amend and rescind rules and regulations
relating to the Plan;
(iv) correct any defect, supply any omission or reconcile
any inconsistency in the Plan;
(v) grant Options under the Plan;
(vi) determine the individuals to whom Options shall be
granted under the Plan and whether the Option is an
Incentive Stock Option or a Non-Qualified Stock
Option;
(vii) determine the time or times at which Options shall be
granted under the Plan;
(viii) determine the number of shares of Common Stock
subject to each Option, the exercise price of each
Option, the duration of each Option and the times at
which each Option shall become exercisable;
(ix) determine all other terms and conditions of Options;
and
(x) make all other determinations necessary or advisable
for the administration of the Plan.
4
<PAGE> 7
All decisions, determinations and interpretations made by the Committee
shall be binding and conclusive on all participants in the Plan and on their
legal representatives, heirs and beneficiaries.
(d) DELEGATION TO EXECUTIVE OFFICER.
The Committee may by resolution delegate to one or more executive
officers (the "Executive Officer") of the Company the authority to grant Options
under the Plan to employees of the Company who, at the time of grant, are not
Section 16 Insiders nor Covered Employees; provided, however, that the authority
delegated to the Executive Officer under this Section 3 shall not exceed that of
the Committee under the provisions of the Plan and shall be subject to such
limitations, in addition to those specified in this Section 3, as may be
specified by the Committee at the time of delegation.
4. ELIGIBILITY.
Incentive Stock Options may be granted to any individual who, at the
time such Options are granted, is an Employee, including Employees who are also
directors of the Company. Non-Qualified Stock Options may be granted to
Employees and to such other persons as the Committee shall select. Options may
be granted in substitution for outstanding options of another corporation in
connection with the merger, consolidation, acquisition of property or stock or
other reorganization between such other corporation and the Company or any
subsidiary of the Company. At such point as the Company first becomes subject to
the periodic reporting requirements of Section 12 of the Exchange Act, no person
shall be eligible to receive in any fiscal year Options to purchase more than
500,000 shares of Common Stock (subject to adjustment as set forth in Section
6(m) hereof).
5. STOCK.
The Company is authorized to grant Options to acquire up to a total of
3,625,000 shares of the Company's authorized but unissued, or reacquired, Common
Stock. The number of shares with respect to which Options may be granted
hereunder is subject to adjustment as set forth in Section 6(m). In the event
that any outstanding Option expires or is terminated for any reason, the shares
of Common Stock allocable to the unexercised portion of such Option may again be
subject to an Option granted to the same Optionee or to a different person
eligible under Section 4; provided, however, that any expired or terminated
Options will be counted against the maximum number of shares with respect to
which Options may be granted to any particular person as set forth in Section 4.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be evidenced by an Agreement.
Agreements may contain such provisions, not inconsistent with the Plan, as the
Committee or Executive Officer, in its discretion, may deem advisable. All
Options also shall comply with the following requirements:
(a) NUMBER OF SHARES AND TYPE OF OPTION.
Each Agreement shall state the number of shares of Common Stock to
which it pertains and whether the Option is intended to be an Incentive Stock
Option or a Non-Qualified Stock Option. In the absence of action to the contrary
by the Committee or Executive Officer in connection with the grant of an Option,
all Options shall be Non-Qualified Stock Options. The aggregate Fair Market
Value (determined at the Date of Grant) of the Common Stock with respect to
which the Incentive Stock Options granted to the Optionee and any incentive
stock options granted to the Optionee under any other stock option plan of the
Company, any Related Corporation or any predecessor corporation are exercisable
for the first time by the
5
<PAGE> 8
Optionee during any calendar year shall not exceed $100,000, or such other limit
as may be prescribed by the Code. If
(i) an Optionee holds one or more Incentive Stock Options
under the Plan (and/or any incentive stock options
under any other stock option plan of the Company, any
Related Corporation or any predecessor corporation),
and
(ii) the aggregate Fair Market Value of the shares of
Common Stock with respect to which, during any
calendar year, such Options become exercisable for
the first time exceeds $100,000 (said value to be
determined as provided above),
then such Option or Options are intended to qualify under Section 422 of the
Code with respect to the maximum number of such shares as can, in light of the
foregoing limitation, be so qualified, with the shares so qualified to be the
shares subject to the Option or Options earliest granted to the Optionee. If an
Option that would otherwise qualify as an Incentive Stock Option becomes
exercisable for the first time in any calendar year for shares of Common Stock
that would cause such aggregate Fair Market Value to exceed $100,000, then the
portion of the Option in respect of such shares shall be deemed to be a
Non-Qualified Stock Option.
(b) DATE OF GRANT.
Each Agreement shall state the Date of Grant.
(c) OPTION PRICE.
Each Agreement shall state the price per share of Common Stock at which
it is exercisable. The exercise price shall be fixed by the Committee or
Executive Officer at whatever price the Committee or Executive Officer may
determine in the exercise of its sole discretion; provided, however, that the
per share exercise price for an Incentive Stock Option shall not be less than
the Fair Market Value at the Date of Grant; provided further, that with respect
to Incentive Stock Options granted to Ten Percent Shareholders of the Company,
the per share exercise price shall not be less than 110 percent (110%) of the
Fair Market Value at the Date of Grant; and, provided further, that Options
granted in substitution for outstanding options of another corporation in
connection with the merger, consolidation, acquisition of property or stock or
other reorganization involving such other corporation and the Company or any
subsidiary of the Company may be granted with an exercise price equal to the
exercise price for the substituted option of the other corporation, subject to
any adjustment consistent with the terms of the transaction pursuant to which
the substitution is to occur.
(d) DURATION OF OPTIONS.
On the Date of Grant, the Committee or Executive Officer shall
designate, subject to Section 6(g), the expiration (late of the Option, which
date shall not be later than ten (10) years from the Date of Grant in the case
of Incentive Stock Options; provided, however, that the expiration date of any
Incentive Stock Option granted to a Ten Percent Shareholder shall not be later
than five (5) years from the Date of Grant. In the absence of action to the
contrary by the Committee in connection with the grant of an Option, and except
in the case of Incentive Stock Options granted to Ten Percent Shareholders, all
Options granted under this Section 6 shall expire ten (10) years from the Date
of Grant.
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<PAGE> 9
(e) VESTING SCHEDULE AND EXERCISABILITY OF OPTIONS
No Option shall be exercisable until it has vested. The vesting
schedule for each Option shall be specified by the Committee or Executive
Officer at the time of grant of the Option; provided, however, that if no
vesting schedule is specified at the time of grant, the Option shall be vested
according to the following schedule:
<TABLE>
<CAPTION>
Number of Years of
Continuous Employment Portion of Total
With the Company Following Option Which Will Become
Grant Date Vested
--------------------------- ------------------------
<S> <C>
1 25%
2 50%
3 75%
4 100%
</TABLE>
The Committee or Executive Officer may specify a vesting schedule for
all or any portion of an Option based on the achievement of performance
objectives established in advance of the commencement by the Optionee of
services related to the achievement of the performance objectives. Performance
objectives shall be expressed in terms of one or more of the following: return
on equity, return on assets, share price, market share, sales, earnings per
share, costs, net earnings, net worth, inventories, cash and cash equivalents,
gross margin or the Company's performance relative to its internal business
plan. Performance objectives may be in respect of the performance of the Company
as a whole (whether on a consolidated or unconsolidated basis), a Related
Corporation, or a subdivision, operating unit, product or product line of the
foregoing. Performance objectives may be absolute or relative and may be
expressed in terms of a progression or a range. An Option which is exercisable
(in whole or in part) upon the achievement of one or more performance objectives
may be exercised only upon completion of the following process: (a) the Optionee
must deliver written notice to the Company that the performance objective has
been achieved and demonstrating, if necessary, how the objective has been
satisfied, (b) within 45 days after receipt of such notice, the Committee will
make a good faith determination whether such performance objective has been
achieved and deliver written notice to the Optionee detailing the results of
such determination; if the Company fails to respond with such 45-day period,
then the performance objective shall be presumed to have been achieved and (c)
upon receipt of written notice from the Company that the performance objective
has been achieved (or upon expiration of such 45-day period without a
determination by the Company), the Optionee may exercise the Option; upon
receipt of written notice from the Company that the performance objective has
not been achieved, the Optionee shall have 15 days to appeal the Company's
determination and the Company shall have 15 days after the receipt of such
appeal to consider the issues presented by the Optionee and make a determination
on the appeal, which determination shall be conclusive and binding on the
Optionee.
(f) ACCELERATION OF VESTING.
Except to the extent that such acceleration would render unavailable
"pooling of interests" accounting treatment for any reorganization, merger or
consolidation of the Company, the vesting of one or more outstanding Options
may be accelerated by the Board at such times and in such amounts as it shall
determine in its sole discretion.
7
<PAGE> 10
(g) TERM OF OPTION.
Any vested Option granted to an Optionee shall terminate, to the extent
not previously exercised, upon the occurrence of the first of the following
events:
(i) as designated by (x) the Board in accordance with
Section 6(n) hereof or (y) the Committee or the
Executive Officer in accordance with Section 6(d)
hereof;
(ii) the date of the Optionee's termination of employment
or contractual relationship with the Company or any
Related Corporation for cause (as determined in the
sole discretion of the Committee);
(iii) the expiration of ninety (90) days from the date of
the Optionee's termination of employment or
contractual relationship with the Company or any
Related Corporation for any reason whatsoever other
than cause, death or Disability unless the exercise
period is extended by the Committee a date not later
than the expiration date of the Option;
(iv) the expiration of one year from (A) the date of death
of the Optionee or (B) cessation of the Optionee's
employment or contractual relationship by reason of
Disability unless the exercise period is extended by
the Committee until a date not later than the
expiration date of the Option; or
(v) any other event specified by the Committee at the
time of grant of the Option.
If an Optionee's employment or contractual relationship is terminated
by death, any Option granted to the Optionee shall be exercisable only by the
person or persons to whom such Optionee's rights under such Option shall pass by
the Optionee's will or by the laws of descent and distribution of the state or
county of the Optionee's domicile at the time of death. The Committee shall
determine whether an Optionee has incurred a Disability on the basis of medical
evidence reasonably acceptable to the Committee. Upon making a determination of
Disability, the Committee shall, for purposes of the Plan, determine the date of
an Optionee's termination of employment or contractual relationship.
Unless accelerated in accordance with Section 6(f), any unvested Option
granted to an Optionee shall terminate immediately upon termination of
employment of the Optionee by the Company for any reason whatsoever, including
death or Disability. For purposes of the Plan, transfer of employment between or
among the Company and/or any Related Corporation shall not be deemed to
constitute a termination of employment with the Company or any Related
Corporation. For purposes of this subsection with respect to Incentive Stock
Options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Committee). The foregoing notwithstanding, employment shall not be deemed to
continue beyond the first ninety (90) days of such leave, unless the Optionee's
re-employment rights are guaranteed by statute or by contract.
(h) EXERCISE OF OPTIONS.
If less than all of the shares included in an Option are purchased, the
remainder may be purchased at any subsequent time prior to the expiration date
with respect to, or the termination of, the Option. No portion of any Option may
be exercised for less than one hundred (100) shares (as adjusted pursuant to
Section 6(m)); provided, however, that if the Option is less than one hundred
(100) shares, it may be
8
<PAGE> 11
exercised with respect to all shares for which it is vested. Only whole shares
may be issued upon exercise of an Option, and to the extent that an Option
covers less than one (1) share, it is unexercisable.
An Option or any portion thereof may be exercised by giving written
notice to the Company upon such terms and conditions as the Agreement evidencing
the Option may provide and in accordance with such other procedures for the
exercise of an Option as the Committee may establish from time to time. Such
notice shall be accompanied by payment in the amount of the aggregate exercise
price for such shares, which payment shall be in the form specified in Section
6(i). The Company shall not be obligated to issue, transfer or deliver a
certificate of Common Stock to the holder of any Option until provision has been
made by the holder, to the satisfaction of the Company, for the payment of the
aggregate exercise price for all shares for which the Option shall have been
exercised and for satisfaction of any tax withholding obligations associated
with such exercise. Options granted to an Optionee are, during the Optionee's
lifetime, exercisable only by the Optionee or a transferee who takes title to
the Option in the manner permitted by Section 6(k).
(i) PAYMENT UPON EXERCISE OF OPTION.
Upon the exercise of an Option, the Optionee shall pay to the Company
the aggregate exercise price therefor in cash, by certified or cashier's check.
In addition, such Optionee may pay for all or any portion of the aggregate
exercise price by complying with one or more of the following alternatives:
(1) by delivering to the Company whole shares of Common Stock
then owned by such Optionee, or, subject to the prior approval of the
Committee, by the Company withholding whole shares of Common Stock
otherwise issuable to the Optionee upon exercise of the Option, which
shares of Common Stock received or withheld shall be valued for such
purpose at their Fair Market Value on the date of exercise.
(2) by delivering a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the
exercise price;
(3) by any combination of the foregoing methods of payment; or
(4) by complying with any other payment mechanism, including
through the execution of a promissory note, as may be permitted for the
issuance of equity securities under applicable securities and other
laws and approved by the Committee at the time of exercise.
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<PAGE> 12
(j) RIGHTS AS A SHAREHOLDER.
An Optionee shall have no rights as a shareholder with respect to any
shares of Common Stock issuable upon exercise of the Option until such holder
becomes a record holder of such shares. Subject to the provisions of Sections
6(m), no rights shall accrue to an Optionee and no adjustments shall be made on
account of dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights declared on, or created in, the
Common Stock for which the record date is prior to the date such Optionee
becomes a record holder of the shares of Common Stock issuable upon exercise of
such Option.
(k) TRANSFER OF OPTION.
Options granted under the Plan and the rights and privileges conferred
by the Plan may not be transferred, assigned, pledged or hypothecated in any
manner (whether by operation of law or otherwise) other than by will, by
applicable laws of descent and distribution or pursuant to a domestic relations
order (as defined in the Code or Title I of the Employment Retirement Income
Security Act of 1974 or the rules or regulations thereunder), and shall not be
subject to execution, attachment or similar process; provided, however, that
solely with respect to Non-Qualified Stock Options, the Committee may, in its
discretion, authorize all or a portion of the Options to be granted to an
Optionee to be on terms which permit transfer by such Optionee to:
(i) Immediate Family Members,
(ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members, or
(iii) a partnership in which such Immediate Family Members
are the only partners, provided that:
(x) there may be no consideration for any such
transfer,
(y) the Agreement evidencing such Options must
be approved by Committee, and must expressly
provide for transferability in a manner
consistent with this Section, and
(z) subsequent transfers of transferred Options
shall be prohibited other than by will, by
applicable laws of descent and distribution
or pursuant to a domestic relations order
(as defined in the Code or Title I of the
Employment Retirement Income Security Act of
1974 or the rules or regulations
thereunder).
Following transfer, any such Options shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided
that for purposes of Section 6(l)(2), the term "Optionee" shall be deemed to
refer to the initial transferor. The events of termination of employment of
Section 6(g) shall continue to be applied with respect to the original Optionee,
following which the options shall be exercisable by the transferee only to the
extent, and for the periods, specified in Section 6(g). Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of any Option or of
any right or privilege conferred by the Plan contrary to the provisions hereof,
or upon the sale, levy or any attachment or similar 'process upon the rights and
privileges conferred by the Plan, such Option shall thereupon terminate and
become null and void.
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<PAGE> 13
(i) SECURITIES REGULATION AND TAX WITHHOLDING.
(1) No shares of Common Stock shall be issued upon exercise of
an Option unless the exercise of such Option and the issuance and delivery of
such shares shall comply with all relevant provisions of law, including, without
limitation, any applicable state securities laws, the Securities Act, the
Exchange Act, the rules and regulations thereunder and the requirements of any
stock exchange upon which such shares may then be listed, and such issuance
shall be further subject to the approval of counsel for the Company with respect
to such compliance, including the availability of an exemption from registration
for the issuance and sale of such shares. The inability of the Company to obtain
from any regulatory body the authority deemed by the Company to be necessary for
the lawful issuance and sale of any shares under the Plan, or the unavailability
of an exemption from registration for the issuance and sale of any shares under
the Plan, shall relieve the Company of any liability with respect to the
non-issuance or sale of such shares.
As long as the Common Stock is not registered under the Exchange Act,
the Company intends that all offers and sales of Options and shares of Common
Stock issuable upon exercise of Options shall be exempt from registration under
the provisions of Section 5 of the Securities Act, and the Plan shall be
administered in a manner so as to preserve such exemption. The Company also
intends that the Plan shall constitute a written compensatory benefit plan,
within the meaning of Rule 701(b) promulgated under the Securities Act, and that
each Option granted pursuant to the Plan at a time when the Common Stock is not
registered under the Exchange Act shall, unless otherwise specified by the
Committee at the time the Option is granted or at any time thereafter, be
granted in reliance on the exemption from the registration requirements of
Section 5 of the Securities Act provided by Rule 701.
As a condition to the exercise of an Option, the Committee may require
the Optionee to represent and warrant in writing, at the time of such exercise
that the shares of Common Stock issuable upon exercise of the Option are being
purchased only for investment and without any then-present intention to sell or
distribute such shares. At the option of the Committee, a stop-transfer order
against such shares may be placed on the stock books and records of the Company,
and a legend indicating that such shares may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided stating that such transfer
is not in violation of any applicable law or regulation, may be stamped on the
certificates representing such shares in order to assure an exemption from
registration. The Committee also may require such other documentation as it
shall, in its discretion, deem necessary from time to time to comply with
federal and state securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE
REGISTRATION OF ANY OPTION OR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF ANY OPTION.
(2) The Optionee shall pay to the Company by certified or
cashier's check, promptly upon exercise of the Option or, if later, the date
that the amount of such obligations becomes determinable, all applicable
federal, state, local and foreign withholding taxes that the Committee, in
accordance with the applicable rules and regulations, determines to result from
the exercise of the Option or from a transfer or other disposition of shares of
Common Stock acquired upon exercise of the Option or otherwise related to the
Option or shares of Common Stock acquired upon exercise of the Option, which
determination by the Committee of the amount due shall be binding upon the
Optionee. Upon approval of the Committee, such Optionee may satisfy such
obligation by complying with one or more of the following alternatives selected
by the Committee:
(A) by delivering to the Company whole shares of
Common Stock then owned by such Optionee, or by the Company
withholding whole shares of Common Stock otherwise issuable to
the Optionee upon exercise of the Option, which shares of
Common Stock received or withheld shall have a Fair Market
Value on the date of exercise (as
11
<PAGE> 14
determined by the Committee in good faith) equal to the tax
obligation to be paid by such Optionee upon such exercise;
(B) by executing appropriate loan documents approved
by the Committee by which such Optionee borrows funds from the
Company to pay the withholding taxes due under this Section
6(l)(2), with such repayment terms as the Committee shall
select;
(C) by any combination of the foregoing methods of
payment; or
(D) by complying with any other payment mechanism as
may be permitted for the issuance of equity securities under
applicable securities and other laws and approved by the
Committee from time to time.
(3) The issuance, transfer or delivery of certificates of
Common Stock pursuant to the exercise of an Option may be delayed, at the
discretion of the Committee, until the Committee is satisfied that the
applicable requirements of the federal and state securities laws and the
withholding provisions of the Code have been met.
(m) STOCK SPLIT, REORGANIZATION OR LIQUIDATION.
(1) Upon the occurrence of any of the following events, the
Committee shall, with respect to each outstanding Option, proportionately adjust
the number of shares of Common Stock issuable upon exercise of such Option, the
per share exercise price or both so as to preserve the rights of the Optionee
substantially proportionate to the rights of such Optionee prior to such event,
and to the extent that such action shall include an increase or decrease in the
number of shares of Common Stock issuable upon exercise of outstanding Options,
the number of shares available under Section 5 shall automatically be increased
or decreased, as the case may be, proportionately, without further action on the
part of the Committee, the Company, the Company's shareholders, or any Optionee:
(i) the Company shall at any time be involved in a
transaction described in Section 424(a) of the Code
(or any successor provision) or any "corporate
transaction" described in the regulations promulgated
thereunder;
(ii) the Company subdivides its outstanding shares of
Common Stock into a greater number of shares of
Common Stock (by stock dividend, stock split,
reclassification or otherwise) or combines its
outstanding shares of Common Stock into a smaller
number of shares of Common Stock (by reverse stock
split, reclassification or otherwise); or
(iii) any other event with substantially the same effect
shall occur.
(2) If the Company shall at any time declare an extraordinary
dividend with respect to the Common Stock, whether payable in cash or other
property, or is involved in any recapitalization, spinoff, combination, exchange
of shares, warrants or rights offering to purchase Common Stock, or other
similar event (including a merger or consolidation other than one that
constitutes an Approved Transaction), the Committee may, in the exercise of its
sole discretion and with respect to each outstanding Option, proportionately
adjust the number of shares of Common Stock issuable upon exercise of such
Option, the per share exercise price or both so as to preserve the rights of the
Optionee substantially proportionate to the rights of such Optionee prior to
such event, and to the extent that such action shall include an increase or
decrease in the number of shares of Common Stock issuable upon exercise of
outstanding Options, the
12
<PAGE> 15
number of shares available under Section 5 of the Plan shall automatically be
increased or decreased, as the case may be, proportionately, without further
action on the part of the Committee, the Company, the Company's shareholders, or
any Optionee.
(3) The foregoing adjustments shall be made by the Committee
or by the applicable terms of any assumption or substitution document.
(4) With respect to the foregoing adjustments, the number of
shares subject to an Option shall always be a whole number. The Committee may,
if deemed appropriate, provide for a cash payment to any Optionee in connection
with any adjustment made pursuant to this Section 6(m).
(5) The grant of an Option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge,
consolidate or dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.
(n) APPROVED TRANSACTIONS; CONTROL PURCHASE.
In the event of any Approved Transaction or Control Purchase, if so
provided for in the Agreement representing such Option, an Option may become
exercisable in full in respect of the aggregate number of shares thereunder
effective upon the Control Purchase or immediately prior to consummation of the
Approved Transaction. In the case of an Approved Transaction, the Company shall
provide notice of the pendency of the Approved Transaction at least fifteen (15)
days prior to the expected date of consummation thereof to each Optionee
entitled to acceleration. Each such Optionee shall thereupon be entitled to
exercise the vested portion of the Option at any time prior to consummation of
the Approved Transaction or immediately following the Control Purchase. Any such
exercise shall be contingent on such consummation.
Following consummation of the Approved Transaction or Control Purchase,
and until such Option is terminated pursuant to Section 6(g) hereof, any vested
portion of Options that are not exercised shall remain exercisable, and any
unvested portions of any Options shall remain in effect and continue to vest in
accordance with the vesting schedule specified at the time of grant, and upon
such vesting shall become exercisable. Notwithstanding the foregoing, in its
reasonable discretion, the Board may determine that any or all outstanding
Options that are unvested at the time of, or are not exercised upon consummation
of, the Approved Transaction or Control Purchase shall thereafter terminate,
provided that, in making such determination, the Board shall consider the best
interests of the Optionees, the Company and its shareholders, and will make such
determination only if the action to be taken, in the opinion of the Board, is
appropriate in light of the circumstances under which such determination is
made.
Moreover, except to the extent that such determination would render
unavailable "pooling of interests" accounting treatment for any reorganization,
merger or consolidation of the Company, the Board may take, or make effective
provision for the taking of, such action as in the opinion of the Board is
equitable and appropriate in order to substitute new stock options for any or
all outstanding Options that do not become exercisable on an accelerated basis,
or to assume such Options (which assumption may be effected by any means
determined by the Board, in its discretion, including, but not limited to, by a
cash payment to each Optionee, in cancellation of the Options held by him or
her, of such amount as the Board determines, in its sole discretion, represents
the then value of the Options) and in order to make such new stock options or
assumed Options, as nearly as practicable, equivalent to the old Options, taking
into account, to the extent applicable, the kind and amount of securities, cash
or other assets into or for which the Common Stock may be changed, converted or
exchanged in connection with the Approved Transaction.
13
<PAGE> 16
7. EFFECTIVE DATE; TERM.
The Plan shall be effective at the time specified in the resolutions of
the Board adopting the Plan (the "Effective Date"). Options may be granted by
the Committee or Executive Officer from time to time thereafter until the tenth
anniversary of the Effective Date. Termination of the Plan shall not terminate
any Option granted prior to such termination. Issuance of Non-Qualified Stock
Options under the Plan shall be subject to the requirement of RCW 21.20.310(10)
that the Administrator of Securities of the Department of Financial Institutions
of the State of Washington be provided with notification of the adoption of the
Plan. No Non-Qualified Stock Option shall be granted hereunder until this
notification requirement has been satisfied. Issuance of Incentive Stock Options
under the Plan within twelve (12) months after the Effective Date shall be
subject to the approval of the Plan by the shareholders of the Company at a duly
held meeting of shareholders at which a majority of all outstanding voting stock
of the Company is represented in person or by proxy. The approval required shall
be a majority of the votes cast on the proposal to approve the Plan. Such
approval may also be provided pursuant to a written consent in lieu of such
meeting. No Incentive Stock Option granted hereunder shall be exercisable until
this approval requirement has been satisfied. If this requirement is not
satisfied within twelve (12) months after the Effective Date, then,
notwithstanding, any contrary provision in the Plan (a) no Incentive Stock
Options may thereafter be granted under the Plan, and (b) each Incentive Stock
Option granted under the Plan prior thereto shall automatically be deemed to be
a Non-Qualified Stock Option (except to the extent the Agreement evidencing the
Option expressly provides otherwise).
8. NO OBLIGATIONS TO EXERCISE OPTION.
The grant of an Option shall impose no obligation upon the Optionee to
exercise such Option.
9. NO RIGHT TO OPTIONS OR TO EMPLOYMENT.
Whether or not any Options are to be granted under the Plan shall be
exclusively within the discretion of the Committee, and nothing contained in the
Plan shall be construed as giving any person any right to participate under the
Plan. The grant of an Option to any Optionee shall in no way constitute any form
of agreement or understanding binding on the Company or any Related Corporation,
express or implied, that the Company or such Related Corporation will employ or
contract with such Optionee for any length of time, nor shall it interfere in
any way with the Company's or, where applicable, a Related Corporation's right
to terminate such Optionee's employment at any time, which right is hereby
reserved.
10. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock
issued upon the exercise of Options shall be used for general corporate
purposes, unless otherwise directed by the Board.
11. INDEMNIFICATION OF COMMITTEE.
In addition to all other rights of indemnification they may have by
virtue of being a member of the Board or an executive officer of the Company,
members of the Committee and the Executive Officer shall be indemnified by the
Company for all reasonable expenses and liabilities of any type or nature,
including attorneys' fees, incurred in connection with any action, suit or
proceeding to which they or any of them are a party by reason of, or in
connection with, the Plan or any Option granted under the Plan, and against all
amounts paid by them in settlement thereof (provided that such settlement is
approved by independent legal counsel selected by the Company), except to the
extent that such expenses relate to matters for which it is adjudged that such
Committee member or Executive Officer is liable for willful misconduct;
provided,
14
<PAGE> 17
however, that within fifteen (15) days after the institution of any such action,
suit or proceeding, the Committee member or Executive Officer involved therein
shall, in writing, notify the Company of such action, suit or proceeding, so
that the Company may have the opportunity to make appropriate arrangements to
prosecute or defend the same.
12. SHAREHOLDERS AGREEMENT.
Unless the Agreement evidencing an Option expressly provides otherwise,
each Optionee may be required, as a condition to the issuance of any shares of
Common Stock that such Optionee acquires upon the exercise of the Option, to
execute and deliver to the Company a shareholders agreement in such form as may
be required by the Company at the time of such exercise, or a counterpart
thereof, together with, unless the Optionee is unmarried, a spousal consent in
the form required thereby, unless the Optionee has previously executed and
delivered such documents and they are in effect at the time of exercise and
apply by their terms to the shares to be issued.
13. SEPARABILITY.
With respect to Incentive Stock Options, if the Plan does not contain
any provision required to be included herein under Section 422 of the Code, such
provision shall be deemed to be incorporated herein with the same force and
effect as if such provision had been set out in full herein; provided, however,
that to the extent any Option that is intended to qualify as an Incentive Stock
Option cannot so qualify, the Option, to that extent, shall be deemed to be a
Non-Qualified Stock Option for all purposes of the Plan.
14. NON-EXCLUSIVITY OF THE PLAN.
Neither the adoption of the Plan by the Board nor the submission of the
Plan to the shareholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and the awarding of stock and cash otherwise than
pursuant to the Plan, and such arrangements may be either generally applicable
or applicable only in specific cases.
15. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION.
By acceptance of an Option, unless otherwise provided in the Agreement
evidencing the Option, the Optionee with respect to such Option shall be deemed
to have agreed that the Option is special incentive compensation that will not
be taken into account, in any manner, as salary, compensation or bonus in
determining the amount of any payment or other benefit under any pension,
retirement or other employee benefit plan, program or policy of the Company or
any of its affiliates.
16. AMENDMENT OF PLAN.
The Board may, at any time, modify, amend or terminate the Plan or
modify or amend any Option granted pursuant to the Plan, including, without
limitation, such modifications or amendments as are necessary to maintain
compliance with applicable statutes, rules or regulations; provided, however,
that no amendment with respect to an outstanding Option which has the effect of
reducing the benefits afforded to the Optionee shall be made over the objection
of such Optionee; further provided, that the events triggering acceleration of
vesting of an outstanding Option may be modified, expanded or eliminated without
the consent of the Optionee. The Board may condition the effectiveness of any
such amendment on the receipt of shareholder approval at such time and in such
manner as the Committee may consider necessary for the Company to comply with or
to avail the Company, the Optionees or both of the benefits of any securities,
15
<PAGE> 18
tax, market listing or other administrative or regulatory requirement which the
Board determines to be desirable. Without limiting the generality of the
foregoing, the Board may modify grants to persons who are eligible to receive
Options under the Plan who are foreign nationals or employed outside the United
States to recognize differences in local law, tax policy or custom.
Date Amended and Restated Plan was Approved by Board of Directors of Company:
January 29, 1998
Date Amended and Restated Plan was Approved by Shareholders of Company:
January 29, 1998
16
<PAGE> 1
EXHIBIT 10.2
BSQUARE CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF PLAN
As a means by which Employees may share in the Company's growth and
success, BSQUARE Corporation (the "Company") believes that ownership of
shares of its Common Stock by its Employees is desirable. To this end,
and as an incentive to better performance and improved profits, the
Company has established the BSQUARE Corporation 1999 Employee Stock
Purchase Plan (the "Plan").
The Company intends that the Plan will constitute an "employee stock
purchase plan" within the meaning of Section 423 of the Code.
II. DEFINITIONS
Terms that are capitalized within this document shall have the meanings
as set forth in Exhibit A, unless otherwise specified within the text.
III. EMPLOYEE PARTICIPATION
PARTICIPATION
Subject to the provisions of this Section III, an Employee may elect to
participate in the Plan effective as of any Enrollment Date by completing
and filing a Payroll Deduction Authorization Form in the form attached
hereto as Exhibit B, as provided in Section IV. As of each Enrollment
Date, the Company hereby grants a right to purchase Shares under the
terms of the Plan to each eligible Employee who has elected to
participate in the Offering commencing on that Enrollment Date.
REQUIREMENTS FOR PARTICIPATION
A person shall become eligible to participate in the Plan on the first
Enrollment Date on which that person meets the following requirements:
a) The person is an Employee, and
b) The person's customary period of Employment is more than twenty
(20) hours per week.
Any eligible Employee may enroll in the Plan as of the Enrollment
Date of any Offering by filing timely written notice of such
participation, subject to the following provisions:
(i) In order to enroll in the Plan initially, an eligible Employee
must complete, sign and submit to the Company the following forms:
(A) Payroll Deduction Authorization Form Must be received by the
Company at least fifteen (15) days prior to the Enrollment Date of
an Offering to be effective for that Offering.
(B) ESPP New Account Form This form must accompany the Payroll
Deduction Authorization Form submitted for enrollment in the Plan.
An ESPP New Account Form must be received by the Company at least
fifteen (15) days prior to the Enrollment Date of an Offering to
be effective for that Offering.
(ii) A Participant in an ongoing Offering may elect as of any
Enrollment Date to enroll in the new Offering commencing on that
Enrollment Date by filing a Payroll Deduction Authorization Form
making such election prior to 4:00 p.m. Pacific Time on the
Enrollment Date. An election by a current Participant to enroll in
a new Offering shall constitute a withdrawal, effective as of such
Enrollment Date, from the ongoing Offering and simultaneous
reenrollment in the new Offering. A reenrollment shall not affect
the purchase of Shares under the ongoing Offering occurring on the
Purchase Date immediately preceding the Enrollment Date. A
Participant may make an ongoing election to reenroll on any
Enrollment Date as of which the fair market value of the Shares
for purposes of Section VI is less than it was as of the
Enrollment Date for the Offering in which the Participant is
currently participating. Unless otherwise specified by the
Participant, any such ongoing reenrollment election shall be
subject to revocation;
<PAGE> 2
provided, however, that to be effective to prevent reenrollment on
any Enrollment Date, such revocation must be received by the
Company prior to 4:00 p.m. Pacific Time on the Enrollment Date.
(iii) Absent withdrawal from the Plan pursuant to Section VII, a
Participant will automatically be re-enrolled in the Offering
commencing on the Enrollment Date immediately following the
expiration of the Offering of which that person is then a
Participant.
A Participant shall become ineligible to participate in the Plan
and shall cease to be a Participant when the Participant ceases to
meet the eligibility requirements as defined above.
LIMITATIONS ON PARTICIPATION
No Employee may obtain a right to purchase Shares under the Plan if,
immediately after the right is granted, the Employee owns or is deemed to
own Shares possessing five percent (5%) or more of the combined voting
power or value of all classes of stock of the Company or any parent or
subsidiary of the Company. For purposes of determining share ownership,
the rules of Section 425(d) of the Code shall apply and Shares that the
Employee may purchase under any options or rights to purchase, whether or
not Vested, shall be treated as Shares owned by the Employee.
No Employee may obtain a right to purchase Shares under the Plan that
permits the Employee's rights to purchase Shares under the Plan and any
other employee stock purchase plan within the meaning of Section 423 of
the Code of the Company or any parent or subsidiary of the Company to
accrue at a rate which exceeds $25,000 in fair market value of Shares
(determined as of the Enrollment Date) for each calendar year of the
Offering. This section shall be interpreted to permit an Employee to
purchase the maximum number of Shares permitted under Section 423(b)(8)
of the Code and regulations and interpretations adopted thereunder.
The maximum number of Shares that an Employee may purchase in an Offering
shall not exceed 10,000 shares, no more than one-third of which may be
purchased on any Purchase Date with respect to that Offering.
VOLUNTARY PARTICIPATION
Participation in the Plan shall be strictly voluntary.
IV. PAYROLL DEDUCTIONS
PAYROLL DEDUCTION AUTHORIZATION
An Employee may contribute to the Plan only by means of payroll
deductions. A Payroll Deduction Authorization Form must be filed with the
Company's stock administrator at least fifteen (15) days prior to the
Enrollment Date as of which the payroll deductions are to take effect.
AMOUNT OF DEDUCTIONS
A Participant may specify that the person desires to make contributions
to the Plan at a rate not less than 1% and not more than 10% of the
Compensation paid to the Participant during each pay period in the
Offering, or other such minimum or maximum percentages as the Plan
Administrator shall establish from time to time. Such specification shall
apply during any period of continuous participation in the Plan, unless
otherwise modified or terminated as provided in this Section IV or as
otherwise provided in the Plan. If a payroll deduction cannot he made in
whole or in part because the Participant's pay for the period in question
is insufficient to fund the deduction after having first withheld all
other amounts deductible from that person's pay, the amount that was not
withheld cannot be made up by the Participant nor will it be withheld
from subsequent pay checks.
COMMENCEMENT OF DEDUCTIONS
Payroll deductions for a Participant shall commence on the Enrollment
Date of the Offering for which that person's Payroll Deduction
Authorization Form is effective and shall continue indefinitely, unless
modified or terminated as provided in this Section IV or as otherwise
provided in the Plan.
ACCOUNTS
All payroll deductions made for a Participant shall be credited to his or
her Account under the Plan. Following
<PAGE> 3
each Purchase Date, the Plan Administrator shall promptly deliver a
report to each Participant setting forth the aggregate payroll deductions
credited to such Participant's Account during the preceding six months
and the number of Shares purchased and delivered to the Custodian for
deposit into the Participant's Custodial Account.
MODIFICATION OF AUTHORIZED DEDUCTIONS
A Participant may, prior to the commencement of each Offering in which
that person will be a Participant, and not more than three times during
each Offering, increase or decrease the amount of that person's payroll
deduction effective for all applicable payroll periods, by completing an
amended Payroll Deduction Authorization Form and filing it with the
Company's stock administrator in accordance with this Section IV.
A Participant may at any time discontinue the Participant's payroll
deductions, without withdrawing from the Plan, by completing an amended
Payroll Deduction Authorization Form and filing it with the Company's
stock administrator. Previous payroll deductions will then be retained in
the Participant's Account for application to purchase Shares on the next
Purchase Date, after which the Participant's participation in the
Offering and in the Plan will terminate unless the participant has timely
filed another Payroll Deduction Authorization Form to resume payroll
deductions.
For purposes of the above, an amended Payroll Deduction Authorization
form shall be effective for a specific pay period when filed 15 days
prior to the last day of such payroll period.
V. CUSTODY OF SHARES
DELIVERY AND CUSTODY OF SHARES
Shares purchased pursuant to the Plan shall be delivered to and held by
the Custodian.
CUSTODIAL ACCOUNT
As soon as practicable after each Purchase Date, the Company shall
deliver to the Custodian the full Shares purchased for each Participant's
Account. The Shares will be held in a Custodial Account specifically
established for this purpose. An Employee must open a Custodial Account
with the Custodian in order to be eligible to purchase Shares under the
Plan. In order to open a Custodial Account, the Participant must complete
an ESPP New Account Form and file it with the stock administrator no
later than fifteen (15) days prior to the Enrollment Date of the Offering
as of which the enrollment is to take effect; provided, however, that an
ESPP New Account Form that effects a change in the status of the
Custodial Account may be filed at any time during participation in the
Plan.
TRANSFER OF SHARES
Upon receipt of appropriate instructions from a Participant on forms
provided for that purpose, the Custodian will transfer into the
Participant's own name all or part of the Shares held in the
Participant's Custodial Account and deliver such Shares to the
Participant.
STATEMENTS
The Custodian will deliver to each Participant a semi-annual statement
showing the activity of the Participant's Custodial Account and the
balance as to both Shares and cash. Participants will be furnished such
other reports and statements, and at such intervals, as the Custodian and
Plan Administrator shall determine from time to time.
VI. PURCHASE OF SHARES
PURCHASE OF SHARES
Subject to the limitations of Section VII, on each Purchase Date in an
Offering, the Company shall apply the amount credited to each
Participant's Account to the purchase of as many full Shares that may be
purchased with such amount at the price set forth in this Section VI, and
shall promptly deliver such Shares to the Custodian for deposit into the
Participant's Custodial Account. Payment for Shares purchased under the
Plan will be made only through payroll withholding deductions in
accordance with Section IV.
PRICE
The price of Shares to be purchased on any Purchase Date shall be the
lower of:
<PAGE> 4
(a) Eighty-five percent (85%) of the fair market value of the Shares
on the Enrollment Date of the Offering; or
(b) Eighty-five percent (85%) of the fair market value of the Shares
on the Purchase Date.
FAIR MARKET VALUE
The fair market value of the Shares on any date shall be equal to the
closing trade price of such shares on the Valuation Date, as reported on
the NASDAQ National Market System or such other quotation system that
supersedes it.
UNUSED CONTRIBUTIONS
Any amount credited to a Participant's Account and remaining therein
immediately after a Purchase Date because it was less than the amount
required to purchase a full Share shall be carried forward in such
Participant's Account for application on the next succeeding Purchase
Date.
VII. TERMINATION AND WITHDRAWAL
TERMINATION OF EMPLOYMENT
Upon termination of a Participant's Employment for any reason other than
death, Retirement or Disability, the payroll deductions credited to such
Participant's Account shall be returned to the Participant. A Participant
shall have no right to accrue Shares upon termination of the person's
Employment.
TERMINATION UPON DEATH, RETIREMENT OR DISABILITY
Upon termination of the Participant's Employment because of that person's
death, Retirement or Disability, the payroll deductions credited to that
person's Account shall be used to purchase Shares as provided in Section
VI on the next Purchase Date. Any remaining balance in the Participant's
Account shall be returned to that person or, in the case of death, any
Shares purchased and any remaining balance shall be transferred to the
deceased Participant's Beneficiary, or if none, to that person's estate.
DESIGNATION OF BENEFICIARY
Each Participant may designate, revoke, and redesignate Beneficiaries.
All changes to designation of Beneficiary shall be in writing and will be
effective upon delivery to the Plan Administrator.
WITHDRAWAL
A Participant may withdraw the entire amount credited to that
individual's Account under the Plan and thereby terminate participation
in the current Offering at any time by giving written notice to the
Company, but in no case may a Participant withdraw accounts within the 15
days immediately preceding a Purchase Date for the Offering. Any amount
withdrawn shall be paid to the Participant promptly after receipt of
proper notice of withdrawal and no further payroll deductions shall be
made from the person's Compensation unless a Payroll Deduction
Authorization Form directing further deductions is or has been submitted.
STATUS OF CUSTODIAL ACCOUNT
Upon termination of a Participant's Employment for any reason other than
death, the Participant may,
(a) Elect to retain with the Custodian the Shares held in the
Participant's Custodial Account. The Participant will bear the
cost of any annual fees resulting from maintaining such an
account.
(b) Request issuance of the Shares held in the Participant's
Custodial Account by submitting to the Custodian the appropriate
forms provided for that purpose.
Upon termination of a Participant's Employment as a result of death, any
Shares held by the Custodian for the Participant's Account shall be
transferred to the person(s) entitled thereto under the laws of the state
of domicile of the Participant upon a proper showing of authority.
<PAGE> 5
VIII. SHARES PURCHASED UNDER THE PLAN
SOURCE AND LIMITATION OF SHARES
The Company has reserved for sale under the Plan 1,500,000 shares of
common stock, subject to adjustment upon changes in capitalization of the
Company as provided in Section X. Shares sold under the Plan may be newly
issued Shares or Shares reacquired in private transactions or open market
purchases, but all Shares sold under the Plan regardless of source shall
be counted against the 1,500,000 Share limitation.
If there is an insufficient number of Shares to permit the full exercise
of all existing rights to purchase Shares, or if the legal obligations of
the Company prohibit the issuance of all Shares purchasable upon the full
exercise of such rights, the Plan Administrator shall make a pro rata
allocation of the Shares remaining available in as nearly a uniform and
equitable manner as possible, based pro rata on the aggregate amounts
then credited to each Participant's Account. In such event, payroll
deductions to be made shall be reduced accordingly and the Plan
Administrator shall give written notice of such reduction to each
Participant affected thereby. Any amount remaining in a Participant's
Account immediately after all available Shares have been purchased will
be promptly remitted to such Participant. Determination by the Plan
Administrator in this regard shall be final, binding and conclusive on
all persons. No deductions shall be permitted under the Plan at any time
when no Shares are available.
DELIVERY OF SHARES
As promptly as practicable after each Purchase Date, the Company shall
deliver to the Custodian the full Shares purchased for each Participant's
Account.
INTEREST IN SHARES
The rights to purchase Shares granted pursuant to this Plan will in all
respects be subject to the terms and conditions of the Plan, as
interpreted by the Plan Administrator from time to time. The Participant
shall have no interest in Shares purchasable under the Plan until payment
for the Shares has been completed at the close of business on the
relevant Purchase Date. The Plan provides only an unfunded, unsecured
promise by the Company to pay money or property in the future. Except
with respect to the Shares purchased on a Purchase Date, an Employee
choosing to participate in the Plan shall have no greater rights than an
unsecured creditor of the Company. After the purchase of Shares, the
Participant shall be entitled to all rights of a shareholder of the
Company.
IX. ADMINISTRATION
PLAN ADMINISTRATOR
At the discretion of the Board of Directors, the Plan shall be
administered by the Board of Directors or by a Committee appointed by the
Board of Directors. Each member of the Committee shall be a director, an
officer or an Employee of the Company. Each member shall serve for a term
commencing on a date specified by the Board of Directors and continuing
until that person dies, resigns or is removed by the Board of Directors.
POWERS
The Plan Administrator shall be vested with full authority to make,
administer and interpret the rules and regulations as it deems necessary
to administer the Plan. Any determination, decision or act of the Plan
Administrator with respect to any action in connection with the
construction, interpretation, administration or application of the Plan
shall be final, binding and conclusive upon all Participants and any and
all other persons claiming under or through any Participant. The
provisions of the Plan shall be construed in a manner consistent with the
requirements of Section 423 of the Code.
X CHANGES IN CAPITALIZATION, MERGER, ETC.
RIGHTS OF THE COMPANY
The grant of a right to purchase Shares pursuant to this Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or other changes in its capital or
business structure or to merge, consolidate or dissolve, liquidate or
transfer all or any part of its divisions, subsidiaries,
<PAGE> 6
business or assets.
RECAPITALIZATION
Subject to any required action by shareholders, the number of Shares
covered by the Plan as provided in Section VIII and the price per Share
shall be proportionately adjusted for any increase or decrease in the
number of issued Shares of the Company resulting from a subdivision or
consolidation of Shares or the payment of a stock dividend or any other
increase or decrease in the number of such Shares effected without
receipt or payment of consideration by the Company.
CONSOLIDATION OR MERGER
In the event of the consolidation or merger of the Company with or into
any other business entity, or sale by the Company of substantially all of
its assets, the successor may at its discretion continue the Plan by
adopting the same by resolution of its Board of Directors or agreement of
its partners or proprietors or substitute an equivalent Plan therefor. If
the successor refuses to continue or substitute for the Plan, the Plan
Administrator will shorten the Offering to a specified date before the
proposed consolidation, merger or sale. Similarly, in the event of a
liquidation or dissolution of the Company, the Plan Administrator will
shorten the Offering to a specified date before the proposed liquidation
or dissolution.
XI. TERMINATION OF EMPLOYMENT
VACATION, LEAVE OR LAYOFF
A person's Employment shall not terminate on account of an authorized
leave of absence, sick leave or vacation, or on account of a military
leave described in this Section XI, or a direct transfer between
Employers. Failure to return to work upon expiration of any leave of
absence, sick leave or vacation shall be considered a resignation
effective as of the expiration of such leave of absence, sick leave or
vacation.
MILITARY LEAVE
Any Employee who leaves the Employer directly to perform services in the
Armed Forces of the United States or in the United States Public Health
Service under conditions entitling the Employee to reemployment rights
provided by the laws of the United States, shall be on military leave. An
Employee's military leave shall expire if the Employee voluntarily
resigns from the Employer during the leave or if that person fails to
make an application for reemployment within a period specified by such
law for preservation of employment rights. In such event, the
individual's Employment shall terminate by resignation on the day the
military leave expires.
XII. SHAREHOLDER APPROVAL AND RULINGS
The Plan is expressly made subject to (a) the approval of the Plan within
twelve (12) months after the Plan is adopted by the shareholders of the
Company and (b) at the Company's election, to the receipt by the Company
from the Internal Revenue Service of a ruling in scope and content
satisfactory to counsel to the Company, affirming qualification of the
Plan within the meaning of Section 423 of the Code. If the Plan is not so
approved by the shareholders within 12 months after the date the Plan is
adopted and if, at the election of the Company a ruling from the Internal
Revenue Service is sought but not received on or before one year after
this Plan's adoption by the Board of Directors, this Plan shall not come
into effect. In that case, the Account of each Participant shall
forthwith be paid to the Participant.
XIII. MISCELLANEOUS PROVISIONS
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors of the Company may at any time amend the Plan.
Except as otherwise provided herein, no amendment may adversely affect or
change any right to purchase Shares without prior approval of the
shareholders of the Company if the amendment would:
(i) Permit the sale of more Shares than are authorized under Section
VIII;
(ii) Permit the sale of Shares to employees of entities which are not
Employers;
(iii) Materially increase the benefits accruing to Participants under
the Plan; or
<PAGE> 7
(iv) Materially modify the requirements as to eligibility for
participation in the Plan.
The Plan is intended to be a permanent program, but the Company reserves
the right to declare the Plan terminated at any time. Upon such
termination, amounts credited to the Accounts of the Participants with
respect to whom the Plan has been terminated shall be returned to such
Participants.
NON-TRANSFERABILITY
Neither payroll deductions credited to a Participant's Account nor any
rights with regard to the purchase of Shares under the Plan may be
assigned, transferred, pledged or otherwise disposed of in any way by the
Participant except as provided in Section VII, and any attempted
assignment, transfer, pledge, or other disposition shall be null and
void. The Company may treat any such act as an election to withdraw funds
in accordance with Section VII.
USE OF FUNDS
All payroll deductions received or held by the Company under the Plan may
be used by the Company for any corporate purposes and the Company shall
not be obligated to segregate the payroll deductions.
EXPENSES
All expenses of administering the Plan shall be borne by the Company. The
Company will not pay expenses, commissions or taxes incurred in
connection with sales of Shares by the Custodian at the request of a
Participant. Expenses to be paid by a Participant will be deducted from
the proceeds of sale prior to remittance.
TAX WITHHOLDING
Each Participant who has purchased Shares under the Plan shall
immediately upon notification of the amount due, if any, pay to the
Employer in cash amounts necessary to satisfy any applicable federal,
state and local tax withholding determined by the Employer to be
required. If the Employer determines that additional withholding is
required beyond any amounts deposited at the time of purchase, the
Participant shall pay such amount to the Employer on demand. If the
Participant fails to pay the amount demanded, the Employer may withhold
that amount from other amounts payable by the Employer to the
Participant, including salary, subject to applicable law.
NO INTEREST
No Participant shall be entitled, at any time, to any payment or credit
for interest with respect to or on the payroll deductions contemplated
herein, or on any other assets held hereunder for the Participant's
Account.
REGISTRATION AND QUALIFICATION OF SHARES
The offering of Shares hereunder shall be subject to the effecting by the
Company of any registration or qualification of the Shares under any
federal or state law or the obtaining of the consent or approval of any
governmental regulatory body which the Company shall determine, in its
sole discretion, is necessary or desirable as a condition to, or in
connection with, the offering or the issue or purchase of the Shares
covered thereby. The Company shall make every reasonable effort to effect
such registration or qualification or to obtain such consent or approval.
RESPONSIBILITY AND INDEMNITY
Neither the Company, its Board of Directors, the Custodian, nor any
member, officer, agent or employee of any of them, shall be liable to any
Participant under the Plan for any mistake of judgment or for any
omission or wrongful act unless resulting from gross negligence, willful
misconduct or intentional misfeasance. The Company will indemnify and
save harmless its Board of Directors, the Custodian and any such member,
officer, agent or employee against any claim, loss, liability or expense
arising out of the Plan, except such as may result from the gross
negligence, willful misconduct or intentional misfeasance of such entity
or person.
PLAN NOT A CONTRACT OF EMPLOYMENT
The Plan is strictly a voluntary undertaking on the part of the Employer
and shall not constitute a contract between the Employer and any
Employee, or consideration for or an inducement or a condition of
employment of an Employee. Except as otherwise required by law, or any
applicable collective bargaining agreement, nothing contained in the Plan
shall give any Employee the right to be retained in the service of the
Employer or to interfere
<PAGE> 8
with or restrict the right of the Employer, which is hereby expressly
reserved, to discharge or retire any Employee at any time, with or
without cause and with or without notice. Except as otherwise required by
law, inclusion under the Plan will not give any Employee any right or
claim to any benefit hereunder except to the extent such right has
specifically become fixed under the terms of the Plan. The doctrine of
substantial performance shall have no application to any Employee,
Participant, or Beneficiary. Each condition and provision, including
numerical items, has been carefully considered and constitutes the
minimum limit on performance which will give rise to the applicable
right.
SERVICE OF PROCESS
The Secretary of the Company is hereby designated agent for service or
legal process on the Plan.
NOTICE
All notices or other communications by a Participant to the Company under
or in connection with the Plan shall be deemed to have been duly given
when received by the Plan Administrator. Any notice required by the Plan
to be received by the Company prior to an Enrollment Date, payroll period
or other specified date, and received by the Plan Administrator
subsequent to such date shall be effective on the next occurring
Enrollment Date, payroll period or other specified date to which such
notice applies.
GOVERNING LAW
The Plan shall be interpreted, administered and enforced in accordance
with the Code, and the rights of Participants, former Participants,
Beneficiaries and all other persons shall be determined in accordance
with it. To the extent state law is applicable, the laws of the State of
Washington shall apply.
REFERENCES
Unless the context clearly indicates to the contrary, reference to a Plan
provision, statute, regulation or document shall be construed as
referring to any subsequently enacted, adopted or executed counterpart.
<PAGE> 9
EXHIBIT A
DEFINITIONS
ACCOUNT
Shall mean each separate account maintained for a Participant under the Plan
collectively or singly as the context requires. Each Account shall be credited
with a Participant's contributions, and shall be charged for the purchase of
Shares. A Participant shall be fully vested in the cash contributions to that
person's Account at all times. The Plan Administrator may create special types
of Accounts for administrative reasons, even though the Accounts are not
expressly authorized by the Plan.
BENEFICIARY
Shall mean a person or entity entitled under Section VII of the Plan to receive
Shares purchased by, and any remaining balance in, a Participant's Account on
the Participant's death.
BOARD OF DIRECTORS
Shall mean the Board of Directors of the Company.
CODE
Shall mean the Internal Revenue Code of 1986, as amended, or the corresponding
provisions of any future tax code.
COMMITTEE
Shall mean the Committee appointed by the Board of Directors in accordance with
Section IX of the Plan.
COMPENSATION
Shall mean the total cash compensation (except as otherwise set forth below),
before tax withholding, paid to an Employee in the period in question for
services rendered to the Employer by the Employee. Compensation shall include
the earnings waived by an Employee pursuant to a salary reduction arrangement
under any cash or deferred or cafeteria plan that is maintained by the Employer
and that is intended to be qualified under Section 40 1(k) or 125 of the Code.
An Employee's Compensation shall not include severance pay, hiring or relocation
bonuses, or pay in lieu of vacations or sick leave
COMMON STOCK
Shall mean the common stock of the Company.
COMPANY
Shall mean BSQUARE Corporation, a Washington Corporation.
CUSTODIAN
Shall mean the investment or financial firm appointed by the Plan Administrator
to hold all Shares pursuant to the Plan.
CUSTODIAL ACCOUNT
Shall mean the account maintained by the Custodian for a Participant under the
Plan.
DISABILITY
Shall refer to a mental or physical impairment which is expected to result in
death or which has lasted or is expected to last for a continuous period of
twelve (12) months or more and which causes the Employee to be unable, in the
opinion of the Company and two independent physicians, to perform his or her
duties as an Employee of the Company. Disability shall be deemed to have
occurred on the first day after the Company and two independent physicians have
furnished their opinion of Disability to the Plan Administrator.
<PAGE> 10
EMPLOYEE
Shall mean an individual who renders services to the Employer pursuant to a
regular-status employment relationship with such Employer. A person rendering
services to an Employer purportedly as an independent consultant or contractor
shall not be an Employee for purposes of the Plan.
EMPLOYER
Shall mean, collectively, the Company and its Subsidiaries or any successor
entity that continues the Plan. All Employees of entities which constitute the
Employer shall be treated as employed by a single company for all purposes of
the Plan.
EMPLOYMENT
Shall mean the period during which an individual is an Employee. Employment
shall commence on the day the individual first performs services for the
Employer as an Employee and shall terminate on the day such services cease,
except as determined under Section XI.
ENROLLMENT DATE
Shall mean the first day of each Offering.
ESPP NEW ACCOUNT FORM
Shall mean the form provided by the Company on which a Participant shall elect
to open an Account with the Custodian and authorize delivery to the Custodian of
all Shares issued for the Participant's Account.
OFFERING
Shall mean any one of the separate overlapping eighteen (18) month periods
commencing on May 15 and November 15 of each calendar year under the Plan;
provided, however, the first Offering shall commence on the effective date of
the Company's registration statement filed in connection with the Company's
initial public offering and end on May 14, 2001.
PARTICIPANT
Shall mean any Employee who is participating in any Offering under the Plan
pursuant to Section III.
PAYROLL DEDUCTION
Shall mean the form provided by the Company on which a Participant shall elect
to participate in the Plan and the Offering under the Plan and designate the
percentage of that individual's compensation to be contributed to that
individual's Account through payroll deductions.
PLAN AUTHORIZATION FORM
Shall mean this document.
PLAN ADMINISTRATOR
Shall mean the Board of Directors or the Committee, whichever shall be
administering the Plan from time to time in the discretion of the Board of
Directors, as described in Section IX.
PURCHASE DATE
Other than the first Offering, Purchase Date shall mean the last day of each of
the sixth-, twelfth- and eighteenth-month periods of each Offering; accordingly,
Purchase Dates for every Offering other than the first Offering shall occur on
May 14 and November 14 of each year, beginning with May 14, 2000. For purposes
of the first Offering (which shall commence on the effective date of the
Company's registration statement filed in connection with the Company's initial
public offering and end on May 14, 2001), the Purchase Dates shall be May 14,
2000, November 14, 2000 and May 14, 2001.
RETIREMENT
Shall mean a Participant's termination of Employment on or after attaining the
age of 65 or after the Plan Administrator has determined that the individual has
suffered a Disability.
<PAGE> 11
SHARE
Shall mean one share of Common Stock.
SUBSIDIARIES
Shall mean any corporation in which at least eighty percent (8 0%) or more of
the total combined voting power of all classes of stock are owned directly or
indirectly by BSQUARE Corporation
VALUATION DATE
Shall mean the date upon which the fair market value of Shares is to be
determined for purposes of setting the price of Shares under Section VI (that
is, the Enrollment Date or the applicable Purchase Date). If the Enrollment Date
or the Purchase Date is not a date on which the fair market value may be
determined in accordance with Section VI, the Valuation Date shall be the first
day prior to the Enrollment Date or the Purchase Date, as applicable, for which
such fair market value may be determined.
VESTED
Shall mean non-forfeitable.
<PAGE> 12
EXHIBIT B
BSQUARE 1999 Employee Stock Purchase Plan
Payroll Deduction Authorization Form
NAME ____________________________________
SOCIAL SECURITY: ________________________ DATE OF HIRE: ________________
Please complete the sections below which apply. Initial enrollments, withdrawals
and changes in payroll deductions are effective for a specific pay period if
submitted to the Stock Administrator 15 days prior to the last day of the
payroll period. Re-enrollments must be received by the Stock Administrator by
4:00 PM on the Enrollment Date. Beneficiary designations are effective
immediately and remain in effect until revoked. Enrollment Dates are on November
15 and May 15. Each Offering is in effect for 18 months.
1. INITIAL ENROLLMENT
Complete 5 below. Attach Stock Broker New Account forms (Account
Agreement, Information Sheet, and W-9), if you do not already have a
custodial account with Stock Broker.
I elect to participate in the BSQUARE 1999 Employee Stock Purchase Plan,
effective as of the next Enrollment Date. I authorize a deduction of __%
per pay period (not less than 1% or more than 10%) of my Compensation.
On any Enrollment Date on which the market price of the shares is less
than the initial market price of BSQUARE shares in the Offering in which
I am currently participating, I hereby elect to withdraw from the
Offering in which I am currently participating and reenroll in the new
Offering beginning on such Enrollment Date.
2. CHANGE IN PAYROLL DEDUCTION
I elect to change the amount of my payroll deduction to per pay period
(not less than 1% or more than 10%) of my Compensation. I understand that
the Plan permits modifications not more than three times during each 18
month Offering Period.
I elect to discontinue my payroll deduction, without withdrawing from the
Plan. I request that the aggregate balance in my Account be used to
purchase Shares on the next Purchase Date, after which my participation
in the Plan will terminate unless I timely file another Payroll Deduction
Authorization form to resume payroll deductions.
3. WITHDRAWAL/TERMINATION
I elect to withdraw from the Plan and terminate participation in the
Offering in which I am currently participating. I request that my
contributions be discontinued and the aggregate balance in my Account be
returned to me. I understand that my Account balance will not be returned
unless my election to withdraw is submitted at least 15 days prior to the
next Purchase Date.
4. RE-ENROLLMENT
Effective as of the first Enrollment Date that is either on or after the
date of this Form, I elect to withdraw from the Offering in which I am
currently participating and re-enroll in the new Offering beginning on
such Enrollment Date.
5. BENEFICIARY DESIGNATION OR CHANGE
I designate the following individual(s) as my beneficiary:
(Name) (Relationship)
---------------------------------- --------------------------------
---------------------------------- --------------------------------
---------------------------------- --------------------------------
I have read the BSQUARE Corporation 1999 Employee Stock Purchase Plan and
understand the terms and conditions stated in the Plan. I authorize the
transactions indicated above. I understand that my current elections remain in
effect until I submit a new election, in writing and on a timely basis, to the
Stock Administrator.
<PAGE> 1
EXHIBIT 10.3
BSQUARE CONSULTING, INC.
401(K) PLAN AND TRUST
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
ADMINISTRATION
<TABLE>
<S> <C> <C>
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER .......................... 16
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY .............................. 16
2.3 POWERS AND DUTIES OF THE ADMINISTRATOR ............................... 17
2.4 RECORDS AND REPORTS .................................................. 18
2.5 APPOINTMENT OF ADVISERS .............................................. 18
2.6 PAYMENT OF EXPENSES .................................................. 19
2.7 CLAIMS PROCEDURE ..................................................... 19
2.8 CLAIMS REVIEW PROCEDURE .............................................. 19
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY ............................................ 20
3.2 EFFECTIVE DATE OF PARTICIPATION ...................................... 20
3.3 DETERMINATION OF ELIGIBILITY ......................................... 20
3.4 TERMINATION OF ELIGIBILITY ........................................... 20
3.5 OMISSION OF ELIGIBLE EMPLOYEE ........................................ 21
3.6 INCLUSION OF INELIGIBLE EMPLOYEE ..................................... 21
3.7 ELECTION NOT TO PARTICIPATE .......................................... 21
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION ........................ 21
</TABLE>
<PAGE> 3
<TABLE>
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4.2 PARTICIPANT'S SALARY REDUCTION ELECTION .............................. 22
4.3 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION ............................. 26
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS ................. 26
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS ..................................... 30
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS ....................... 33
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS ................................. 35
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS ................... 37
4.9 MAXIMUM ANNUAL ADDITIONS ............................................. 40
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS ............................ 43
4.11 TRANSFERS FROM QUALIFIED PLANS ....................................... 44
4.12 DIRECTED INVESTMENT ACCOUNT .......................................... 46
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND .......................................... 48
5.2 METHOD OF VALUATION .................................................. 49
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT ............................ 49
6.2 DETERMINATION OF BENEFITS UPON DEATH ................................. 49
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY ..................... 51
6.4 DETERMINATION OF BENEFITS UPON TERMINATION ........................... 51
6.5 DISTRIBUTION OF BENEFITS ............................................. 54
6.6 DISTRIBUTION OF BENEFITS UPON DEATH .................................. 57
6.7 TIME OF SEGREGATION OR DISTRIBUTION .................................. 59
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
6.8 DISTRIBUTION FOR MINOR BENEFICIARY ................................... 59
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN ....................... 59
6.10 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION ...................... 60
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE ................................ 60
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE .......................... 61
7.3 OTHER POWERS OF THE TRUSTEE .......................................... 63
7.4 LOANS TO PARTICIPANTS ................................................ 65
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS ............................. 67
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES ........................ 67
7.7 ANNUAL REPORT OF THE TRUSTEE ......................................... 67
7.8 AUDIT ................................................................ 68
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE ....................... 69
7.10 TRANSFER OF INTEREST ................................................. 70
7.11 DIRECT ROLLOVER ...................................................... 70
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT ........................................................... 71
8.2 TERMINATION ......................................................... 72
8.3 MERGER OR CONSOLIDATION ............................................. 72
ARTICLE IX
TOP HEAVY
9.1 TOP HEAVY PLAN REQUIREMENTS .......................................... 73
9.2 DETERMINATION OF TOP HEAVY STATUS .................................... 73
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS ................................................. 77
10.2 ALIENATION ........................................................... 77
10.3 CONSTRUCTION OF PLAN ................................................. 78
10.4 GENDER AND NUMBER .................................................... 78
10.5 LEGAL ACTION ......................................................... 78
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS ............................... 78
10.7 BONDING .............................................................. 79
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE ........................... 79
10.9 INSURER'S PROTECTIVE CLAUSE .......................................... 79
10.10 RECEIPT AND RELEASE FOR PAYMENTS ..................................... 80
10.11 ACTION BY THE EMPLOYER ............................................... 80
10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY ................... 80
10.13 HEADINGS ............................................................. 81
10.14 APPROVAL BY INTERNAL REVENUE SERVICE ................................. 81
10.15 UNIFORMITY ........................................................... 81
ARTICLE XI
PARTICIPATING EMPLOYERS
11.1 ADOPTION BY OTHER EMPLOYERS .......................................... 82
11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS .............................. 82
11.3 DESIGNATION OF AGENT ................................................. 83
11.4 EMPLOYEE TRANSFERS ................................................... 83
11.5 PARTICIPATING EMPLOYER CONTRIBUTION .................................. 83
11.6 AMENDMENT ............................................................ 84
11.7 DISCONTINUANCE OF PARTICIPATION ...................................... 84
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
11.8 ADMINISTRATOR'S AUTHORITY ............................................ 84
</TABLE>
<PAGE> 7
BSQUARE CONSULTING, INC.
401 (K) PLAN AND TRUST
THIS AGREEMENT, hereby made and entered into this ______ day of
________________, 19___, by and between bsquare consulting, inc. (herein
referred to as the "Employer") and William Baxter, Albert Dosser and Peter
Gregory (herein referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer desires to recognize the contribution made to its
successful operation by its employees and to reward such contribution by means
of a 401(k) Profit Sharing Plan for those employees who shall qualify as
Participants hereunder;
NOW, THEREFORE, effective January 1, 1997, (hereinafter called the
"Effective Date"), the Employer hereby establishes a 401(k) Profit Sharing Plan
and creates this trust (which plan and trust are hereinafter called the "Plan")
for the exclusive benefit of the Participants and their Beneficiaries, and the
Trustee hereby accepts the Plan on the following terms:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time.
1.2 "Administrator" means the Employer unless another person or
entity has been designated by the Employer pursuant to Section 2.2 to administer
the Plan on behalf of the Employer.
1.3 "Affiliated Employer" means any corporation which is a member of
a controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Employer;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1.4 "Aggregate Account" means, with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions of
Section 9.2.
1.5 "Anniversary Date" means December 31st.
1.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
6.2 and 6.6.
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1.7 "Code" means the Internal Revenue Code of 1986, as amended or
replaced from time to time.
1.8 "Compensation" with respect to any Participant means such
Participant's wages, salaries, fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includible in
gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)) for a Plan Year.
Compensation shall exclude (a)(1) contributions made by the
Employer to a plan of deferred compensation to the extent that, the
contributions are not includible in the gross income of the Participant for the
taxable year in which contributed, (2) Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code Section
408(k) to the extent such contributions are excludable from the Employee's gross
income, (3) any distributions from a plan of deferred compensation; (b) amounts
realized from the exercise of a non-qualified stock option, or when restricted
stock (or property) held by an Employee either becomes freely transferable or is
no longer subject to a substantial risk of forfeiture, (c) amounts realized from
the sale, exchange or other disposition of stock acquired under a qualified
stock option; and (d) other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of any annuity contract described in Code
Section 403(b) (whether or not the contributions are actually excludable from
the gross income of the Employee).
For purposes of this Section, the determination of Compensation
shall be made by:
(a) including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not
includible in the gross income of the Participant under Code Sections
125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee
contributions described in Code Section 414(h)(2) that are treated as
Employer contributions.
For a Participant's initial year of participation, Compensation
shall be recognized as of such Employee's effective date of participation
pursuant to Section 3.2.
Compensation in excess of $150,000 shall be disregarded. Such
amount shall be adjusted for increases in the cost of living in accordance with
Code Section 401(a)(17), except that the dollar increase in effect on January 1
of any calendar year shall be
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<PAGE> 9
effective for the Plan Year beginning with or within such calendar year. For any
short Plan Year the Compensation limit shall be an amount equal to the
Compensation limit for the calendar year in which the Plan Year begins
multiplied by the ratio obtained by dividing the number of full months in the
short Plan Year by twelve (12). In applying this limitation, the family group of
a Highly Compensated Participant who is subject to the Family Member aggregation
rules of Code Section 414(q)(6) because such Participant is either a "five
percent owner" of the Employer or one of the ten (10) Highly Compensated
Employees paid the greatest "415 Compensation" during the year, shall be treated
as a single Participant, except that for this purpose Family Members shall
include only the affected Participant's spouse and any lineal descendants who
have not attained age nineteen (19) before the close of the year. if, as a
result of the application of such rules the adjusted limitation is exceeded,
then the limitation shall be prorated among the affected Family Members in
proportion to each such Family Member's Compensation prior to the application of
this limitation, or the limitation shall be adjusted in accordance with any
other method permitted by Regulation.
If, as a result of such rules, the maximum "annual addition"
limit of Section 4.9(a) would be exceeded for one or more of the affected
Family Members, the prorated Compensation of all affected Family Members shall
be adjusted to avoid or reduce any excess. The prorated Compensation of any
affected Family Member whose allocation would exceed the limit shall be adjusted
downward to the level needed to provide an allocation equal to such limit. The
prorated Compensation of affected Family Members not affected by such limit
shall then be adjusted upward on a pro rata basis not to exceed each such
affected Family Member's Compensation as determined prior to application of the
Family Member rule. The resulting allocation shall not exceed such individual's
maximum "annual addition" limit. If, after these adjustments, an "excess amount"
still results, such "excess amount" shall be disposed of in the manner described
in Section 4.10(a) pro rata among all affected Family Members.
For purposes of this Section, if the Plan is a plan described in
Code Section 413(c) or 414(f) (a plan maintained by more than one Employer) ,
the limitation applies separately with respect to the Compensation of any
Participant from each Employer maintaining the Plan.
1.9 "Contract" or "Policy" means any life insurance policy,
retirement income or annuity policy, or annuity contract (group or individual)
issued pursuant to the terms of the Plan.
1.10 "Deferred Compensation" with respect to any Participant means
the amount of the Participant's total Compensation which has been contributed to
the Plan in accordance with the Participant's deferral election pursuant to
Section 4.2 excluding any such amounts distributed as excess "annual additions"
pursuant to Section 4.10(a).
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<PAGE> 10
1.11 "Designated Investment Alternative" means a specific investment
identified by name by a Fiduciary as an available investment under the Plan
which may be acquired or disposed of by the Trustee pursuant to the investment
direction by a Participant.
1.12 "Directed Investment Option" means one or more of the following:
(a) a Designated investment Alternative.
(b) any other investment permitted by the Plan and
the Participant Direction Procedures and acquired or disposed of by the
Trustee pursuant to the investment direction of a Participant.
1.13 "Early Retirement Date." This Plan does not provide for a
retirement date prior to Normal Retirement Date.
1.14 "Elective Contribution" means the Employer contributions to the
Plan of Deferred Compensation excluding any such amounts distributed as excess
"annual additions" pursuant to Section 4.10(a). In addition, any Employer
Qualified Non-Elective Contribution made pursuant to Section 4.1(c) and Section
4.6(b) which is used to satisfy the "Actual Deferral Percentage" tests shall be
considered an Elective Contribution for purposes of the Plan. Any contributions
deemed to be Elective Contributions (whether or not used to satisfy the "Actual
Deferral Percentage" tests) shall be subject to the requirements of Sections
4.2(b) and 4.2(c) and shall further be required to satisfy the nondiscrimination
requirements of Regulation 1. 401 (k) -1 (b) (5) , the provisions of which are
specifically incorporated herein by reference.
1.15 "Eligible Employee" means any Employee.
Employees whose employment is governed by the terms of a
collective bargaining agreement between Employee representatives (within the
meaning of Code Section 7701(a)(46)) and the Employer under which retirement
benefits were the subject of good faith bargaining between the parties will not
be eligible to participate in this Plan unless such agreement expressly provides
for coverage in this Plan.
Employees of Affiliated Employers shall not be eligible to
participate in this Plan unless such Affiliated Employers have specifically
adopted this Plan in writing.
1.16 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
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<PAGE> 11
1.17 "Employer" means bsquare consulting, inc. and any successor
which shall maintain this Plan; and any predecessor which has maintained this
Plan. The Employer is a corporation, with principal offices in the State of
Washington. In addition, where appropriate, the term Employer shall include any
Participating Employer (as defined in Section 11.1) which shall adopt this Plan.
1.18 "Excess Aggregate Contributions" means, with respect to any Plan
Year, the excess of the aggregate amount of the Employer matching contributions
made pursuant to Section 4.1(b) and any qualified non-elective contributions or
elective deferrals taken into account pursuant to Section 4.7(c) on behalf of
Highly Compensated Participants for such Plan Year, over the maximum amount of
such contributions permitted under the limitations of Section 4.7(a).
1.19 "Excess Contributions" means, with respect to a Plan Year, the
excess of Elective Contributions used to satisfy the "Actual Deferral
Percentage" tests made on behalf of Highly Compensated Participants for the Plan
Year over the maximum amount of such contributions permitted under Section
4.5(a). Excess Contributions shall be treated as an "annual addition" pursuant
to Section 4.9(b).
1.20 "Excess Deferred Compensation" means, with respect to any
taxable year of a Participant, the excess of the aggregate amount of such
Participant's Deferred Compensation and the elective deferrals pursuant to
Section 4.2(f) actually made on behalf of such Participant for such taxable
year, over the dollar limitation provided for in Code Section 402(g), which is
incorporated herein by reference. Excess Deferred Compensation shall be treated
as an "annual addition" pursuant to Section 4.9(b) when contributed to the Plan
unless distributed to the affected Participant not later than the first April
15th following the close of the Participant's taxable year. Additionally, for
purposes of Sections 9.2 and 4.4(g), Excess Deferred Compensation shall continue
to be treated as Employer contributions even if distributed pursuant to Section
4.2(f). However, Excess Deferred Compensation of Non-Highly Compensated
Participants is not taken into account for purposes of Section 4.5(a) to the
extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d).
1.21 "Family Member" means, with respect to an affected Participant,
such Participant's spouse and such Participant's lineal descendants and
ascendants and their spouses, all as described in Code Section 414(q)(6)(B).
1.22 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any
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<PAGE> 12
discretionary authority or discretionary responsibility in the administration of
the Plan, including, but not limited to, the Trustee, the Employer and its
representative body, and the Administrator.
1.23 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January 1st of each year and ending the following December 31st.
1.24 "Forfeiture" means that portion of a Participant's Account that
is not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a
Terminated Participant's Account, or
(b) the last day of the Plan Year in which the Participant
incurs five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of
a Terminated Participant whose Vested benefit is zero, such Terminated
Participant shall be deemed to have received a distribution of his Vested
benefit upon his termination of employment. Restoration of such amounts shall
occur pursuant to Section 6.4 (e) (2) . In addition, the term Forfeiture shall
also include amounts deemed to be Forfeitures pursuant to any other provision of
this Plan.
1.25 "Former Participant" means a person who has been a Participant,
but who has ceased to be a Participant for any reason.
1.26 "415 Compensation" with respect to any Participant means such
Participant's wages, salaries, fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includible in
gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)) for a Plan Year.
"415 Compensation" shall exclude (a) (1) contributions made by
the Employer to a plan of deferred compensation to the extent that, the
contributions are not includible in the gross income of the Participant for the
taxable year in which contributed, (2) Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code Section 408
(k) to the extent such contributions are excludable from the Employee's gross
income, (3) any distributions from a plan of deferred compensation; (b) amounts
realized from the exercise of a non-qualified stock option, or when restricted
stock (or property)
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<PAGE> 13
held by an Employee either becomes freely transferable or is no longer subject
to a substantial risk of forfeiture; (c) amounts realized from the sale,
exchange or other disposition of stock acquired under a qualified stock option;
and (d) other amounts which receive special tax benefits, or contributions made
by the Employer (whether or not under a salary reduction agreement) towards the
purchase of any annuity contract described in Code Section 403(b) (whether or
not the contributions are actually excludable from the gross income of the
Employee).
1.27 "414(s) Compensation" with respect to any Participant means such
Participant's "415 Compensation" paid during a Plan Year. The amount of "414(s)
Compensation" with respect to any Participant shall include "414(s)
Compensation" for the entire twelve (12) month period ending on the last day of
such Plan Year, except that "414 (s) Compensation" shall only be recognized for
that portion of the Plan Year during which an Employee was a Participant in the
Plan.
For purposes of this Section, the determination of "414(s)
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3), 402
(h) (1) (B) , 403(b) or 457(b), and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
"414 (s) Compensation" in excess of $150,000 shall be
disregarded. Such amount shall be adjusted for increases in the cost of living
in accordance with Code Section 401(a)(17), except that the dollar increase in
effect on January 1 of any calendar year shall be effective for the Plan Year
beginning with or within such calendar year. For any short Plan Year the "414(s)
Compensation" limit shall be an amount equal to the "414(s) Compensation" limit
for the calendar year in which the Plan Year begins multiplied by the ratio
obtained by dividing the number of full months in the short Plan Year by twelve
(12). In applying this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules of code
Section 414(q) (6) because such Participant is either a "five percent owner" of
the Employer or one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include only the
affected Participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year.
1.28 "Highly Compensated Employee" means an Employee described in
Code Section 414(q) and the Regulations thereunder, and generally means an
Employee who performed services for the Employer during the "determination year"
and is in one or more of the following groups:
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<PAGE> 14
(a) Employees who at any time during the
"determination year" were "five percent owners" as defined in Section
1.34(c).
(b) Employees who received "415 Compensation" during
the "determination year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during
the "determination year" from the Employer in excess of $50,000 and were
in the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "determination year"
were officers of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) and received "415
Compensation" during the "determination year" from the Employer greater
than 50 percent of the limit in effect under Code Section 415(b)(1)(A)
for any such Plan Year. The number of officers shall be limited to the
lesser of (i) 50 employees; or (ii) the greater of 3 employees or 10
percent of all employees. For the purpose of determining the number of
officers, Employees described in Section 1.62(a), (b), (c) and (d) shall
be excluded, but such Employees shall still be considered for the
purpose of identifying the particular Employees who are officers. If the
Employer does not have at least one officer whose annual "415
Compensation" is in excess of 50 percent of the Code Section 415 (b) (1)
(A) limit, then the highest paid officer of the Employer will be treated
as a Highly Compensated Employee.
The "determination year" shall be the Plan Year for which
testing is being performed.
If an Employee is, during a "determination year", a Family
Member of either a "five percent owner" (whether active or former) or a Highly
Compensated Employee who is one of the 10 most Highly Compensated Employees
ranked on the basis of "415 Compensation" paid by the Employer during such year,
then the Family Member and the "five percent owner" or top-ten Highly
Compensated Employee shall be aggregated. In such case, the Family Member and
"five percent owner" or top-ten Highly Compensated Employee shall be treated as
a single Employee receiving "415 Compensation" and Plan contributions or
benefits equal to the sum of such "415 Compensation" and contributions or
benefits of the Family Member and "five percent owner" or top-ten Highly
Compensated Employee.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the
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Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or
457(b), and Employee contributions described in Code Section 414(h)(2) that
are treated as Employer contributions. Additionally, the dollar threshold
amounts specified in (b) and (c) above shall be adjusted at such time and in
such manner as is provided in Regulations. In the case of such an adjustment,
the dollar limits which shall be applied are those for the calendar year in
which the "determination year" begins.
In determining who is a Highly Compensated Employee, Employees
who are non-resident aliens and who received no earned income (within the
meaning of Code Section 911(d)(2)) from the Employer constituting United States
source income within the meaning of Code Section 861(a)(3) shall not be treated
as Employees. Additionally, all Affiliated Employers shall be taken into account
as a single employer and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and are not
covered in any qualified plan maintained by the Employer. The exclusion of
Leased Employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer's retirement plans. Highly Compensated Former
Employees shall be treated as Highly Compensated Employees without regard to
whether they performed services during the "determination year."
1.29 "Highly Compensated Former Employee" means a former Employee who
had a separation year prior to the "determination year" and was a Highly
Compensated Employee in the year of separation from service or in any
"determination year" after attaining age 55. Notwithstanding the foregoing, an
Employee who separated from service prior to 1987 will be treated as a Highly
Compensated Former Employee only if during the separation year (or year
preceding the separation year) or any year after the Employee attains age 55 (or
the last year ending before the Employee's 55th birthday), the Employee either
received "415 Compensation" in excess of $50,000 or was a "five percent owner."
For purposes of this Section, "determination year," "415 Compensation" and "five
percent owner" shall be determined in accordance with Section 1.28. Highly
Compensated Former Employees shall be treated as Highly Compensated Employees.
The method set forth in this Section for determining who is a "Highly
Compensated Former Employee" shall be applied on a uniform and consistent basis
for all purposes for which the Code Section 414(q) definition is applicable.
1.30 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.31 "Hour of Service" means each hour for which an Employee is paid
or entitled to payment for the performance of duties for the Employer.
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1.32 "Income" means the income or losses allocable to Excess Deferred
Compensation, Excess Contributions or Excess Aggregate Contributions which
amount shall be allocated in the same manner as income or losses are allocated
pursuant to Section 4.4(e).
1.33 "Investment Manager" means an entity that (a) has the power to
manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
1.34 "Key Employee" means an Employee as defined in Code Section
416(i) and the Regulations thereunder. Generally, any Employee or former
Employee (as well as each of his Beneficiaries) is considered a Key Employee if
he, at any time during the Plan Year that contains the "Determination Date" or
any of the preceding four (4) Plan Years, has been included in one of the
following categories:
(a) an officer of the Employer (as that term is defined
within the meaning of the Regulations under Code Section 416) having
annual "415 Compensation" greater than 50 percent of the amount in
effect under Code Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees leaving annual "415
Compensation" from the Employer for a Plan Year greater than the dollar
limitation in effect under Code Section 415(c)(1)(A) for the calendar
year in which such Plan Year ends and owning (or considered as owning
within the meaning of Code Section 318) both more than one-half percent
interest and the largest interests in the Employer.
(c) a "five percent owner" of the Employer. "Five percent
owner" means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than five percent (5%) of the
outstanding stock of the Employer or stock possessing more than five
percent (5%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person who
owns more than five percent (5% of the capital or profits interest in
the Employer. In determining percentage ownership hereunder, employers
that would otherwise be aggregated under Code Sections 414(b), (c), (m)
and (o) shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an annual
"415 Compensation" from the Employer of more than $150,000. "One percent
owner" means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than one percent (1%) of the
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<PAGE> 17
outstanding stock of the Employer or stock possessing more than one
percent (1%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person who
owns more than one percent (1%) of the capital or profits interest in
the Employer. In determining percentage ownership hereunder, employers
that would otherwise be aggregated under Code Sections 414(b), (c), (m)
and (o) shall be treated as separate employers. However, in determining
whether an individual has "415 Compensation" of more than $150,000, "415
Compensation" from each employer required to be aggregated under Code
Sections 414(b) (c) (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
1.35 "Late Retirement Date" means the first day of the month
coinciding with or next following a Participant's actual Retirement Date after
having reached his Normal Retirement Date.
1.36 "Leased Employee" means any person (other than an Employee of
the recipient) who Pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer. A Leased Employee shall not be considered an Employee of the
recipient:
(a) if such employee is covered by a money purchase pension
plan providing:
(1) a non-integrated employer contribution rate of at least
10% of compensation, as defined in Code Section 415(c)(3), but
including amounts which are contributed by the Employer pursuant
to a salary reduction agreement and which are not includible in
the gross income of the Participant under Code Sections 125,
402(e)(3), 402(h)(1)(B), 403 (b) or 457(b), and Employee
contributions described in Code Section 414(h)(2) that are
treated as Employer contributions.
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(2) immediate participation; and
(3) full and immediate vesting; and
(b) if Leased Employees do not constitute more than 20% of
the recipient's non-highly compensated work force.
1.37 "Non-Elective Contribution" means the Employer contributions to
the Plan excluding, however, contributions made pursuant to the Participant's
deferral election provided for in Section 4.2 and any Qualified Non-Elective
Contribution used in the "Actual Deferral Percentage" tests.
1.38 "Non-Highly Compensated Participant" means any Participant who
is neither a Highly Compensated Employee nor a Family Member.
1.39 "Non-Key Employee" means any Employee or former Employee (and
his Beneficiaries) who is not a Key Employee.
1.40 "Normal Retirement Age" means the Participant's 65th birthday. A
Participant shall become fully Vested in his Participant's Account upon
attaining his Normal Retirement Age.
1.41 "Normal Retirement Date" means the first day of the month
coinciding with or next following the Participant's Normal Retirement Age.
1.42 "1-Year Break in Service" means a Period of Severance of at
least 12 consecutive months.
1.43 "Participant" means any Eligible Employee who participates in
the Plan and has not for any reason become ineligible to participate further in
the Plan.
1.44 "Participant Direction Procedures" means such instructions,
guidelines or policies, the terms of which are incorporated herein, as shall be
established pursuant to Section 4.12 and observed by the Administrator and
applied and provided to Participants who have Participant Directed Accounts.
1.45 "Participant's Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer Non-Elective
Contributions.
A separate accounting shall be maintained with respect to that
portion of the Participant's Account attributable to Employer matching
contributions made pursuant to Section 4.1(b), Employer discretionary
contributions made pursuant to Section 4.1(d) and any Employer Qualified
Non-Elective Contributions.
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1.46 "Participant's Combined Account" means the total aggregate
amount of each Participant's Elective Account and Participant's Account.
1.47 "Participant's Directed Account" means that portion of a
Participant's interest in the Plan with respect to which the Participant has
directed the investment in accordance with the Participant Direction Procedure.
1.48 "Participant's Elective Account" means the account established
and maintained by the Administrator for each Participant with respect to his
total interest in the Plan and Trust resulting from the Employer Elective
Contributions used to satisfy the "Actual Deferral Percentage" tests. A separate
accounting shall be maintained with respect to that portion of the Participant's
Elective Account attributable to such Elective Contributions pursuant to Section
4.2 and any Employer Qualified Non-Elective Contributions.
1.49 "Period of Service" means the aggregate of all periods
commencing with the Employee's first day of employment or reemployment with the
Employer or Affiliated Employer and ending on the date a 1-Year Break in Service
begins. The first day of employment or reemployment is the first day the
Employee performs an Hour of Service. An Employee will also receive partial
credit for any Period of Severance of less than 12 consecutive months.
Fractional periods of a year will be expressed in terms of days.
1.50 "Period of Severance" means a continuous period of time during
which the Employee is not employed by the Employer. Such period begins on the
date the Employee retires, quits or is discharged, or if earlier, the 12 month
anniversary of the date on which the Employee was otherwise first absent from
service.
In the case of an individual who is absent from work for
maternity or paternity reasons, the 12-consecutive month period beginning on the
first anniversary of the first day of such absence shall not constitute a 1-Year
Break in Service. For purposes of this paragraph, an absence from work for
maternity or paternity reasons means an absence (a) by reason of the pregnancy
of the individual, (b) by reason of the birth of a child of the individual, (c)
by reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (d) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
1.51 "Plan" means this instrument, including all amendments thereto.
1.52 "Plan Year" means the Plan's accounting year of twelve (12)
months commencing on January 1st of each year and ending the following December
31st.
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1.53 "Qualified Non-Elective Contribution" means any Employer
contributions made pursuant to Section 4.1(c) and Section 4.6(b) and Section
4.8(h). Such contributions shall be considered an Elective Contribution for the
purposes of the Plan and may be used to satisfy the "Actual Deferral Percentage"
tests or the "Actual Contribution Percentage" tests.
1.54 "Regulation" means the Income Tax Regulations as promulgated by
the Secretary of the Treasury or his delegate, and as amended from time to time.
1.55 "Retired Participant" means a person who has been a Participant,
but who has become entitled to retirement benefits under the Plan.
1.56 "Retirement Date" means the date as of which a Participant
retires for reasons other than Total and Permanent Disability, whether such
retirement occurs on a Participant's Normal Retirement Date or Late Retirement
Date (see Section 6.1).
1.57 "Shareholder-Employee" means a Participant who owns more than
five percent (5%) of the Employer's outstanding capital stock during any year in
which the Employer elected to be taxed as a Small Business Corporation under the
applicable Code Section.
1.58 "Super Top Heavy Plan" means a plan described in Section 9.2(b).
1.59 "Terminated Participant" means a person who has been a
Participant, but whose employment has been terminated other than by death, Total
and Permanent Disability or retirement.
1.60 "Top Heavy Plan" means a plan described in Section 9.2(a).
1.61 "Top Heavy Plan Year" means a Plan Year during which the Plan is
a Top Heavy Plan.
1.62 "Top Paid Group" means the top 20 percent of Employees who
performed services for the Employer during the applicable year, ranked according
to the amount of "415 Compensation" (determined for this purpose in accordance
with Section 1.28) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered
Employees unless such Leased Employees are covered by a plan described in Code
Section 414(n)(5) and are not covered in any qualified plan maintained by the
Employer. Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 911(d)(2)) from the Employer
constituting United States source income within the meaning of Code Section
861(a)(3) shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year, the following additional
Employees shall also be
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excluded; however, such Employees shall still he considered for the purpose of
identifying the particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per
week;
(c) Employees who normally work less than six (6) months
during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the
Employer are covered under agreements the Secretary of Labor finds to be
collective bargaining agreements between Employee representatives and the
Employer, and the Plan covers only Employees who are not covered under such
agreements, then Employees covered by such agreements shall be excluded from
both the total number of active Employees as well as from the identification of
particular Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be
applied on a uniform and consistent basis for all purposes for which the Code
Section 414(q) definition is applicable.
1.63 "Total and Permanent Disability" means a physical or mental
condition of a Participant resulting from bodily injury, disease, or mental
disorder which renders him incapable of continuing his usual and customary
employment with the Employer. The disability of a Participant shall be
determined by a licensed physician chosen by the Administrator. The
determination shall be applied uniformly to all Participants.
1.64 "Trustee" means the person or entity named as trustee herein or
in any separate trust forming a part of this Plan, and any successors.
1.65 "Trust Fund" means the assets of the Plan and Trust as the same
shall exist from time to time.
1.66 "Valuation Date" means the Anniversary Date and such other date
or dates deemed necessary by the Administrator. The Valuation Date may include
any day during the Plan Year that the Trustee, any transfer agent appointed by
the Trustee or the Employer and any stock exchange used by such agent are open
for business.
1.67 "Vested" means the nonforfeitable portion of any account
maintained on behalf of a Participant.
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ARTICLE II
ADMINISTRATION
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) In addition to the general powers and responsibilities
otherwise provided for in this Plan, the Employer shall be empowered to
appoint and remove the Trustee and the Administrator from time to time
as it deems necessary for the proper administration of the Plan to
ensure that the Plan is being operated for the exclusive benefit of the
Participants and their Beneficiaries in accordance with the terms of the
Plan, the Code, and the Act. The Employer may appoint counsel,
specialists, advisers, agents (including any nonfiduciary agent) and
other persons as the Employer deems necessary or desirable in connection
with the exercise of its fiduciary duties under this Plan. The Employer
may compensate such agents or advisers from the assets of the Plan as
fiduciary expenses (but not including any business (settlor) expenses of
the Employer), to the extent not paid by the Employer.
(b) The Employer shall establish a "funding policy and
method," i.e., it shall determine whether the Plan has a short run need
for liquidity (e.g., to pay benefits) or whether liquidity is a long run
goal and investment growth (and stability of same) is a more current
need, or shall appoint a qualified person to do so. The Employer or its
delegate shall communicate such needs and goals to the Trustee, who
shall coordinate such Plan needs with its investment policy. The
communication of such a "funding policy and method" shall not, however,
constitute a directive to the Trustee as to investment of the Trust
Funds. Such "funding policy and method" shall be consistent with the
objectives of this Plan and with the requirements of Title I of the Act.
(c) The Employer shall periodically review the performance
of any Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied by
formal periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day conduct and
evaluation, or through other appropriate ways.
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall be the Administrator. The Employer may
appoint any person, including, but not limited to, the Employees of the
Employer, to perform the duties of the Administrator. Any person so appointed
shall signify his acceptance by filing written
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acceptance with the Employer. Upon the resignation or removal of any individual
performing the duties of the Administrator, the Employer may designate a
successor.
2.3 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer
the Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to
construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the Plan.
Any such determination by the Administrator shall be conclusive and binding upon
all persons. The Administrator may establish procedures, correct any defect,
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be consistent with the
intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of the Act and all
regulations issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the
general administration of the Plan, including, but not limited to, the
following:
(a) the discretion to determine all questions relating to
the eligibility of Employees to participate or remain a Participant
hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect
to the amount and the kind of benefits to which any Participant shall be
entitled hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust;
(d) to maintain all necessary records for the administration
of the Plan;
(e) to interpret the provisions of the Plan and to make and
publish such rules for regulation of the Plan as are consistent with the
terms hereof;
(f) to determine the size and type of any Contract to be
purchased from any insurer, and to designate the insurer from which such
Contract shall be purchased;
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<PAGE> 24
(g) to compute and certify to the Employer and to the
Trustee from time to time the sums of money necessary or desirable to be
contributed to the Plan;
(h) to consult with the Employer and the Trustee regarding
the short and long-term liquidity needs of the Plan in order that the
Trustee can exercise any investment discretion in a manner designed to
accomplish specific objectives;
(i) to prepare and implement a procedure to notify Eligible
Employees that they may elect to have a portion of their Compensation
deferred or paid to them in cash;
(j) to act as the named Fiduciary responsible for
communications with Participants as needed to maintain Plan compliance
with ERISA Section 404(c), including but not limited to the receipt and
transmitting of Participant's directions as to the investment of their
account(s) under the Plan and the formulation of policies, rules, and
procedures pursuant to which Participants may give investment
instructions with respect to the investment of their accounts;
(k) to assist any Participant regarding his rights,
benefits, or elections available under the Plan.
2.4 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and
shall keep all other books of account, records, policies, and other data that
may be necessary for proper administration of the Plan and shall be responsible
for supplying all information and reports to the Internal Revenue Service,
Department of Labor, Participants, Beneficiaries and others as required by law.
2.5 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, agents (including
nonfiduciary agents) and other persons as the Administrator or the Trustee deems
necessary or desirable in connection with the administration of this Plan,
including but not limited to agents and advisers to assist with the
administration and management of the Plan, and thereby to provide, among such
other duties as the Administrator may appoint, assistance with maintaining Plan
records and the providing of investment information to the Plan's investment
fiduciaries and to Plan Participants.
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2.6 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund
unless paid by the Employer. Such expenses shall include any expenses incident
to the functioning of the Administrator, or any person or persons retained or
appointed by any Named Fiduciary incident to the exercise of their duties under
the Plan, including, but not limited to, fees of accountants, counsel,
Investment Managers, agents (including nonfiduciary agents) appointed for the
purpose of assisting the Administrator or the Trustee in carrying out the
instructions of Participants as to the directed investment of their accounts and
other specialists and their agents, and other costs of administering the Plan.
Until paid, the expenses shall constitute a liability of the Trust Fund.
2.7 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with
the Administrator. Written notice of the disposition of a claim shall be
furnished to the claimant within 90 days after the application is filed. In the
event the claim is denied, the reasons for the denial shall be specifically set
forth in the notice in language calculated to be understood by the claimant,
pertinent provisions of the Plan shall be cited, and, where appropriate, an
explanation as to how the claimant can perfect the claim will be provided. In
addition, the claimant shall be furnished with an explanation of the Plan's
claims review procedure.
2.8 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has
been denied a benefit by a decision of the Administrator pursuant to Section 2.7
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator (on a form which may be obtained from
the Administrator) a request for a hearing. Such request, together with a
written statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the Administrator no later than 60 days after
receipt of the written notification provided for in Section 2.7. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days written notice to the Administrator) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Administrator which are pertinent to the claim at
issue and its disallowance. Either the claimant or the Administrator may cause a
court reporter to attend the hearing and record the proceedings. In such event,
a complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
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<PAGE> 26
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within 60 days of receipt of the appeal (unless there
has been an extension of 60 days due to special circumstances, provided the
delay and the special circumstances occasioning it are communicated to the
claimant within the 60 day period). Such communication shall be written in a
manner calculated to be understood by the claimant and shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee shall be eligible to participate hereunder
on the date of his employment with the Employer.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective April
1, 1997, if employed on that date, otherwise as of the earlier of the first day
of the Plan Year or the first day of the seventh month of such Plan Year
coinciding with or next following the date such Employee met the eligibility
requirements of Section 3.1, provided said Employee was still employed as of
such date (or if not employed on such date, as of the date of rehire if a 1-Year
Break in Service has not occurred).
In the event an Employee who is not a member of an eligible
class of Employees becomes a member of an eligible class, such Employee will
participate immediately if such Employee would have otherwise previously become
a Participant.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each
Employee for participation in the Plan based upon information furnished by the
Employer. Such determination shall be conclusive and binding upon all persons,
as long as the same is made pursuant to the Plan and the Act. Such determination
shall be subject to review per Section 2.8.
3.4 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a
classification of an Eligible Employee to an ineligible Employee, such
Former Participant shall continue to vest in his interest in the Plan
for each Period of Service completed while a noneligible Employee, until
such time as his Participant's Account shall be forfeited or distributed
pursuant to the terms of the Plan.
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Additionally, his interest in the Plan shall continue to share in the
earnings of the Trust Fund.
(b) In the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to participate, such
Employee will participate immediately upon returning to an eligible
class of Employees.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been
included as a Participant in the Plan is erroneously included and discovery of
such incorrect inclusion is not made until after a contribution for the year has
been made, the Employer shall not be entitled to recover the contribution made
with respect to the ineligible person regardless of whether or not a deduction
is allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a Forfeiture
(except for Deferred Compensation which shall be distributed to the ineligible
person) for the Plan Year in which the discovery is made.
3.7 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate must
be communicated to the Employer, in writing, at least thirty (30) days before
the beginning of a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of
all Participants made pursuant to Section 4.2(a), which amount shall be
deemed an Employer Elective Contribution.
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(b) on behalf of each Participant who is eligible to share
in matching contributions for the Plan Year, a discretionary matching
contribution equal to a uniform percentage of each such Participant's
Deferred Compensation, the exact percentage, if any, to be determined
each year by the Employer, which amount, if any, shall be deemed an
Employer Non-Elective Contribution.
(c) On behalf of each Non-Highly Compensated Participant and
Non-Key Employee who is eligible to share in the Qualified Non-Elective
Contribution for the Plan Year, a discretionary Qualified Non-Elective
Contribution equal to a uniform percentage of each eligible individual's
Compensation, the exact percentage, if any, to be determined each year
by the Employer. Any Employer Qualified Non-Elective Contribution shall
be deemed an Employer Elective Contribution.
(d) A discretionary amount, which amount, if any, shall be
deemed an Employer Non-Elective Contribution.
(e) Additionally, to the extent necessary, the Employer
shall contribute to the Plan the amount necessary to provide the top
heavy minimum contribution. All contributions by the Employer shall be
made in cash.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer a portion of his
Compensation which would have been received in the Plan Year (except for
the deferral election) by up to the maximum amount which will not cause
the Plan to violate the provisions of Sections 4.5(a) and 4.9. A
deferral election (or modification of an earlier election) may not be
made with respect to Compensation which is currently available on or
before the date the Participant executed such election or, if later, the
latest of the date the Employer adopts this cash or deferred
arrangement, or the date such arrangement first became effective. For
purposes of this Section, Compensation shall be determined prior to any
reductions made pursuant to Code Sections 125, 402(e)(3), 402(h)(1)(B),
403(b) or 457(b), and Employee contributions described in Code Section
414(h)(2) that are treated as Employer contributions.
The amount by which Compensation is reduced shall be that
Participant's Deferred Compensation and be treated as an Employer
Elective Contribution and allocated to that Participant's Elective
Account.
(b) The balance in each Participant's Elective Account shall
be fully Vested at all times and shall not be subject to Forfeiture for
any reason.
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(c) Notwithstanding anything in the Plan to the contrary,
amounts held in the Participant's Elective Account may not be
distributable (including any offset of loans) earlier than:
(1) a Participant's separation from service, Total and
Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the termination of the Plan without the establishment or
existence of a "successor plan," as that term is described in
Regulation 1.401(k)-1(d)(3);
(4) the date of disposition by the Employer to an entity
that is not an Affiliated Employer of substantially all of the
assets (within the meaning of Code Section 409(d)(2)) used in a
trade or business of such corporation if such corporation
continues to maintain this Plan after the disposition with
respect to a Participant who continues employment with the
corporation acquiring such assets; or
(5) the date of disposition by the Employer or an Affiliated
Employer who maintains the Plan of its interest in a subsidiary
(within the meaning of Code Section 409(d)(3)) to an entity
which is not an Affiliated Employer but only with respect to a
Participant who continues employment with such subsidiary.
(d) For each Plan Year, a Participant's Deferred
Compensation made under this Plan and all other plans, contracts or
arrangements of the Employer maintaining this Plan shall not exceed,
during any taxable year of the Participant, the limitation imposed by
Code Section 402(g), as in effect at the beginning of such taxable year.
If such dollar limitation is exceeded, a Participant will be deemed to
have notified the Administrator of such excess amount which shall be
distributed in a manner consistent with Section 4.2(f). The dollar
limitation shall he adjusted annually pursuant to the method provided in
Code Section 415(d) in accordance with Regulations.
(e) In the event a Participant has received a hardship
distribution pursuant to Regulation 1.401(k)-l(d)(2)(iv)(B) from any
other plan maintained by the Employer, then such Participant shall not
be permitted to elect to have Deferred Compensation contributed to the
Plan on his behalf for a period of twelve (12) months following the
receipt of the
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<PAGE> 30
distribution. Furthermore, the dollar limitation under Code Section
402(g) shall be reduced, with respect to the Participant's taxable year
following the taxable year in which the hardship distribution was made,
by the amount of such Participant's Deferred Compensation, if any,
pursuant to this Plan (and any other plan maintained by the Employer)
for the taxable year of the hardship distribution.
(f) If a Participant's Deferred Compensation under this Plan
together with any elective deferrals (as defined in Regulation
1.402(g)-l(b)) under another qualified cash or deferred arrangement (as
defined in Code Section 401(k)), a simplified employee pension (as
defined in Code Section 408(k)), a salary reduction arrangement (within
the meaning of Code Section 3121(a)(5)(D)), a deferred compensation plan
under Code Section 457(b), or a trust described in Code Section
501(c)(18) cumulatively exceed the limitation imposed by Code Section
402(g) (as adjusted annually in accordance with the method provided in
Code Section 415(d) pursuant to Regulations) for such Participant's
taxable year, the Participant may, not later than March 1 following the
close of the Participant's taxable year, notify the Administrator in
writing of such excess and request that his Deferred Compensation under
this Plan be reduced by an amount specified by the Participant. In such
event, the Administrator may direct the Trustee to distribute such
excess amount (and any income allocable to such excess amount) to the
Participant not later than the first April 15th following the close of
the Participant's taxable year. Any distribution of less than the entire
amount of Excess Deferred Compensation and Income shall be treated as a
pro rata distribution of Excess Deferred Compensation and Income. The
amount distributed shall not exceed the Participant's Deferred
Compensation under the Plan for the taxable year (and any Income
allocable to such excess amount). Any distribution on or before the last
day of the Participant's taxable year must satisfy each of the following
conditions:
(1) the distribution must be made after the date on which
the Plan received the Excess Deferred Compensation;
(2) the Participant shall designate the distribution as
Excess Deferred Compensation; and
(3) the Plan must designate the distribution as a
distribution of Excess Deferred Compensation.
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<PAGE> 31
Matching contributions which relate to Excess Deferred
Compensation which is distributed pursuant to this Section 4.2(f) shall
be forfeited.
(g) Notwithstanding Section 4.2(f) above, a Participant's
Excess Deferred Compensation shall be reduced, but not below zero, by
any distribution of Excess Contributions pursuant to Section 4.6(a) for
the Plan Year beginning with or within the taxable year of the
Participant.
(h) At Normal Retirement Date, or such other date when the
Participant shall be entitled to receive benefits, the fair market value
of the Participant's Elective Account shall be used to provide
additional benefits to the Participant or his Beneficiary.
(i) Employer Elective Contributions made pursuant to this
Section may be segregated into a separate account for each Participant
in a federally insured savings account, certificate of deposit in a bank
or savings and loan association, money market certificate, or other
short-term debt security acceptable to the Trustee until such time as
the allocations pursuant to Section 4.4 have been made.
(j) The Employer and the Administrator shall implement the
salary reduction elections provided for herein in accordance with the
following:
(1) A Participant must make his initial salary deferral
election within a reasonable time, not to exceed thirty (30)
days, after entering the Plan pursuant to Section 3.2. If the
Participant fails to make an initial salary deferral election
within such time, then such Participant may thereafter make an
election in accordance with the rules governing modifications.
The Participant shall make such an election by entering into a
written salary reduction agreement with the Employer and filing
such agreement with the Administrator. Such election shall
initially be effective beginning with the pay period following
the acceptance of the salary reduction agreement by the
Administrator, shall not have retroactive effect and shall
remain in force until revoked.
(2) A Participant may modify a prior election at any time
during the Plan Year and concurrently make a new election by
filing a written notice with the Administrator within a
reasonable time before the pay period for which such
modification is to be effective. Any modification shall not
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<PAGE> 32
have retroactive effect and shall remain in force until revoked.
(3) A Participant may elect to prospectively revoke his
salary reduction agreement in its entirety at any time during
the Plan Year by providing the Administrator with thirty (30)
days written notice of such revocation (or upon such shorter
notice period as may be acceptable to the Administrator). Such
revocation shall become effective as of the beginning of the
first pay period coincident with or next following the
expiration of the notice period. Furthermore, the termination of
the Participant's employment, or the cessation of participation
for any reason, shall be deemed to revoke any salary reduction
agreement then in effect, effective immediately following the
close of the pay period within which such termination or
cessation occurs.
4.3 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution
to the Plan for each Plan Year within the time prescribed by law, including
extensions of time, for the filing of the Employer federal income tax return for
the Fiscal Year.
However, Employer Elective Contributions accumulated through
payroll deductions shall be paid to the Trustee as of the earliest date on which
such contributions can reasonably be segregated from the Employer general
assets, but in any event within ninety (90) days from the date on which such
amounts would otherwise have been payable to the Participant in cash. The
provisions of Department of Labor regulations 2510.3-102 are incorporated herein
by reference. Furthermore, any additional Employer contributions which are
allocable to the Participant's Elective Account for a Plan Year shall be paid to
the Plan no later than the twelve-month period immediately following the close
of such Plan Year.
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an
account in the name of each Participant to which the Administrator shall
credit as of each Anniversary Date all amounts allocated to each such
Participant as set forth herein.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper allocation of
the Employer contributions for each Plan Year. Within a reasonable
period of time after the date of receipt by the Administrator of such
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<PAGE> 33
information, the Administrator shall allocate such contribution as
follows:
(1) With respect to the Employer Elective Contribution made
pursuant to Section 4.1(a), to each Participant's Elective
Account in an amount equal to each such Participant's Deferred
Compensation for the year.
(2) With respect to the Employer Non-Elective Contribution
made pursuant to Section 4.1(b), to each Participant's Account
in accordance with Section 4.1(b).
Any Participant actively employed during the Plan Year shall be
eligible to share in the matching contribution for the Plan
Year.
(3) With respect to the Employer Qualified Non-Elective
Contribution made pursuant to Section 4.1(c), to each
Participant's Elective Account when used to satisfy the "Actual
Deferral Percentage" tests or Participant's Account in
accordance with Section 4.1(c).
Any Non-Highly Compensated Participant and Non-Key Employee
actively employed during the Plan Year shall be eligible to
share in the Qualified Non-Elective Contribution for the Plan
Year.
(4) With respect to the Employer Non-Elective Contribution
made pursuant to Section 4.1(d), to each Participant's Account
in the same proportion that each such Participant's Compensation
for the year bears to the total Compensation of all Participants
for such year.
Only Participants who are actively employed on the last day of
the Plan Year or who complete more than three (3) consecutive
months of service during the Plan Year prior to terminating
employment shall be eligible to share in the discretionary
contribution for the year.
(c) As of each Anniversary Date any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of Former
Participants, if any, in accordance with Section 6.4(e)(2). The
remaining Forfeitures, if any, shall be allocated to Participants'
Accounts and used to reduce the contribution of the Employer hereunder
for the Plan Year in which such Forfeitures occur in the following
manner:
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(1) Forfeitures attributable to Employer matching
contributions made pursuant to Section 4.1(b) shall be used to
reduce the Employer contribution for the Plan Year in which such
Forfeitures occur.
(2) Forfeitures attributable to Employer discretionary
contributions made pursuant to Section 4.1(d) shall be allocated
among the Participants' Accounts of Participants otherwise
eligible to share in the allocation of discretionary
contributions for the year in the same proportion that each such
Participant's Compensation for the year bears to the total
Compensation of all such Participants for the year.
Provided, however, that in the event the allocation of
Forfeitures provided herein shall cause the "annual addition" (as
defined in Section 4.9) to any Participant's Account to exceed the
amount allowable by the Code, the excess shall be reallocated in
accordance with Section 4.10.
(d) For any Top heavy Plan Year, Employees not otherwise
eligible to share in the allocation of contributions and Forfeitures as
provided above, shall receive the minimum allocation provided for in
Section 4.4(g) if eligible pursuant to the provisions of Section 4.4(i).
(e) As of each Valuation Date, before allocation of one-half
of the Employer contributions for the entire Plan Year and after
allocation of Forfeitures, any earnings or losses (net appreciation or
net depreciation) of the Trust Fund shall be allocated in the same
proportion that each Participant's and Former Participant's
nonsegregated accounts bear to the total of all Participants, and Former
Participants' nonsegregated accounts as of such date. Earnings or losses
with respect to a Participants Directed Account shall be allocated in
accordance with Section 4.12.
Participants' transfers from other qualified plans
deposited in the general Trust Fund shall share in any earnings and
losses (net appreciation or net depreciation) of the Trust Fund in the
same manner provided above. Each segregated account maintained on behalf
of a Participant shall be credited or charged with its separate earnings
and losses.
(f) Participants' accounts shall be debited for any
insurance or annuity premiums paid, if any, and credited with any
dividends received on insurance contracts.
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<PAGE> 35
(g) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of
the Employer contributions and Forfeitures allocated to the
Participant's Combined Account of each Employee shall be equal to at
least three percent (3%) of such Employee's "415 Compensation" (reduced
by contributions and forfeitures, if any, allocated to each Employee in
any defined contribution plan included with this plan in a Required
Aggregation Group). However, if (1) the sum of the Employer
contributions and Forfeitures allocated to the Participant's Combined
Account of each Key Employee for such Top Heavy Plan Year is less than
three percent (3%) of each Key Employee's "415 Compensation" and (2)
this Plan is not required to be included in an Aggregation Group to
enable a defined benefit plan to meet the requirements of Code Section
401(a)(4) or 410, the sum of the Employer contributions and Forfeitures
allocated to the Participant's Combined Account of each Employee shall
be equal to the largest percentage allocated to the Participant's
Combined Account of any Key Employee. However, in determining whether a
Non-Key Employee has received the required minimum allocation, such
Non-Key Employee's Deferred Compensation and matching contributions
needed to satisfy the "Actual Contribution Percentage" tests pursuant to
Section 4.7(a) shall not be taken into account.
However, no such minimum allocation shall be required in
this Plan for any Employee who participates in another defined
contribution plan subject to Code Section 412 included with this Plan in
a Required Aggregation Group.
(h) For purposes of the minimum allocations set forth above,
the percentage allocated to the Participant's Combined Account of any
Key Employee shall be equal to the ratio of the sum of the Employer
contributions and Forfeitures allocated on behalf of such Key Employee
divided by the "415 Compensation" for such Key Employee.
(i) For any Top Heavy Plan Year, the minimum allocations set
forth above shall be allocated to the Participant's Combined Account of
all Employees who are Participants and who are employed by the Employer
on the last day of the Plan Year, including Employees who have (1)
failed to complete a Period of Service; and (2) declined to make
mandatory contributions (if required) or, in the case of a cash or
deferred arrangement, elective contributions to the Plan.
(j) For the purposes of this Section, "415 Compensation"
shall be limited to $150,000. Such amount
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<PAGE> 36
shall be adjusted for increases in the cost of living in accordance with
Code Section 401(a)(17), except that the dollar increase in effect on
January 1 of any calendar year shall be effective for the Plan Year
beginning with or within such calendar year. For any short Plan Year the
"415 Compensation" limit shall be an amount equal to the "415
Compensation" limit for the calendar year in which the Plan Year begins
multiplied by the ratio obtained by dividing the number of full months
in the short Plan Year by twelve (12).
(k) Notwithstanding anything herein to the contrary,
Participants who terminated employment for any reason during the Plan
Year shall share in the salary reduction contributions made by the
Employer for the year of termination without regard to the Hours of
Service credited.
(1) If a Former Participant is reemployed after five (5)
consecutive 1-Year Breaks in Service, then separate accounts shall be
maintained as follows:
(1) one account for nonforfeitable benefits attributable to
pre-break service; and
(2) one account representing his status in the Plan
attributable to post-break service.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year, the
annual allocation derived from Employer Elective Contributions to a
Participant's Elective Account shall satisfy one of the following tests:
(1) The "Actual Deferral Percentage" for the Highly
Compensated Participant group shall not be more than the "Actual
Deferral Percentage" of the Non-Highly Compensated Participant
group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the
Highly Compensated Participant group over the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group
shall not be more than two percentage points. Additionally, the
"Actual Deferral Percentage" for the Highly Compensated
Participant group shall not exceed the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group
multiplied by 2. The provisions of Code Section 401(k)(3) and
Regulation 1.401(k)-1(b) are incorporated herein by reference.
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<PAGE> 37
However, in order to prevent the multiple use of the alternative
method described in (2) above and in Code Section 401(m)(9)(A),
any Highly Compensated Participant eligible to make elective
deferrals pursuant to Section 4.2 and to make Employee
contributions or to receive matching contributions under this
Plan or under any other plan maintained by the Employer or an
Affiliated Employer shall have a combination of his actual
deferral ratio and his actual contribution ratio reduced
pursuant to Regulation 1.401(m)-2, the provisions of which are
incorporated herein by reference.
(b) For the purposes of this Section "Actual Deferral
Percentage" means, with respect to the Highly Compensated Participant
group and Non-Highly Compensated Participant group for a Plan Year, the
average of the ratios, calculated separately for each Participant in
such group, of the amount of Employer Elective Contributions allocated
to each Participant's Elective Account for such Plan Year, to such
Participant's "414(s) Compensation" for such Plan Year. The actual
deferral ratio for each Participant and the "Actual Deferral Percentage"
for each group shall be calculated to the nearest one-hundredth of one
percent. Employer Elective Contributions allocated to each Non-Highly
Compensated Participant's Elective Account shall be reduced by Excess
Deferred Compensation to the extent such excess amounts are made under
this Plan or any other plan maintained by the Employer.
(c) For the purpose of determining the actual deferral ratio
of a Highly Compensated Employee who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Participant is
either a "five percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation" during
the year, the following shall apply:
(1) The combined actual deferral ratio for the family group
(which shall be treated as one Highly Compensated Participant)
shall be determined by aggregating Employer Elective
Contributions and "414(s) Compensation" of all eligible Family
Members (including Highly Compensated Participants). However, in
applying the $150,000 limit to "414(s) Compensation," Family
Members shall include only the affected Employee's spouse and
any lineal descendants who have not attained age 19 before the
close of the Plan Year.
(2) The Employer Elective Contributions and "414(s)
Compensation" of all Family Members shall
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<PAGE> 38
be disregarded for purposes of determining the "Actual Deferral
Percentage" of the Non-Highly Compensated Participant group
except to the extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a
member of more than one family group in a plan, all Participants
who are members of those family groups that include the
Participant are aggregated as one family group in accordance
with paragraphs (1) and (2) above.
(d) For the purposes of Sections 4.5(a) and 4.6, a Highly
Compensated Participant and a Non-Highly Compensated Participant shall
include any Employee eligible to make a deferral election pursuant to
Section 4.2, whether or not such deferral election was made or suspended
pursuant to Section 4.2.
(e) For the purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(k), if two or more plans which include cash or
deferred arrangements are considered one plan for the purposes of Code
Section 401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii)),
the cash or deferred arrangements included in such plans shall be
treated as one arrangement. In addition, two or more cash or deferred
arrangements may be considered as a single arrangement for purposes of
determining whether or not such arrangements satisfy Code Sections
401(a)(4), 410(b) and 401(k). In such a case, the cash or deferred
arrangements included in such plans and the plans including such
arrangements shall be treated as one arrangement and as one plan for
purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k).
Plans may be aggregated under this paragraph (e) only if they have the
same plan year.
Notwithstanding the above, an employee stock ownership
plan described in Code Section 4975(e)(7) or 409 may not be combined
with this Plan for purposes of determining whether the employee stock
ownership plan or this Plan satisfies this Section and Code Sections
401(a)(4), 410(b) and 401(k).
(f) For the purposes of this Section, if a Highly
Compensated Participant is a Participant under two or more cash or
deferred arrangements (other than a cash or deferred arrangement which
is part of an employee stock ownership plan as defined in Code Section
4975(e)(7) or 409) of the Employer or an Affiliated Employer, all such
cash or deferred arrangements shall be treated as one cash or deferred
arrangement for the purpose of determining the actual deferral ratio
with respect to
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<PAGE> 39
such Highly Compensated Participant. However, if the cash or deferred
arrangements have different plan years, this paragraph shall be applied
by treating all cash or deferred arrangements ending with or within the
same calendar year as a single arrangement.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer
Elective Contributions made pursuant to Section 4.4 do not satisfy one of the
tests set forth in Section 4.5(a), the Administrator shall adjust Excess
Contributions pursuant to the options set forth below:
(a) On or before the fifteenth day of the third month
following the end of each Plan Year, the Highly Compensated Participant
having the highest actual deferral ratio shall have his portion of
Excess Contributions distributed to him until one of the tests set forth
in Section 4.5(a) is satisfied, or until his actual deferral ratio
equals the actual deferral ratio of the Highly Compensated Participant
having the second highest actual deferral ratio. This process shall
continue until one of the tests set forth in Section 4.5(a) is
satisfied. For each Highly Compensated Participant, the amount of Excess
Contributions is equal to the Elective Contributions used to satisfy the
"Actual Deferral Percentage" tests on behalf of such Highly Compensated
Participant (determined prior to the application of this paragraph)
minus the amount determined by multiplying the Highly Compensated
Participant's actual deferral ratio (determined after application of
this paragraph) by his "414(s) Compensation." However, in determining
the amount of Excess Contributions to be distributed with respect to an
affected Highly Compensated Participant as determined herein, such
amount shall be reduced pursuant to Section 4.2(f) by any Excess
Deferred Compensation previously distributed to such affected Highly
Compensated Participant for his taxable year ending with or within such
Plan Year.
(1) With respect to the distribution of Excess Contributions
pursuant to (a) above, such distribution:
(i) may be postponed but not later than the close of
the Plan Year following the Plan Year to which they are
allocable;
(ii) shall be adjusted for Income; and
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<PAGE> 40
(iii) shall be designated by the Employer as a
distribution of Excess Contributions (and Income).
(2) Any distribution of less than the entire amount of
Excess Contributions shall be treated as a pro rata distribution
of Excess Contributions and Income.
(3) The determination and correction of Excess Contributions
of a Highly Compensated Participant whose actual deferral ratio
is determined under the family aggregation rules shall be
accomplished by reducing the actual deferral ratio as required
herein, and the Excess Contributions for the family unit shall
then be allocated among the Family Members in proportion to the
Elective Contributions of each Family Member that were combined
to determine the group actual deferral ratio.
(4) Matching contributions which relate to Excess
Contributions shall be forfeited unless the related matching
contribution is distributed as an Excess Aggregate Contribution
pursuant to Section 4.8.
(b) Within twelve (12) months after the end of the Plan
Year, the Employer may make a special Qualified Non-Elective
Contribution on behalf of Non-Highly Compensated Participants electing
salary reductions pursuant to Section 4.2 in an amount sufficient to
satisfy one of the tests set forth in Section 4.5(a). Such contribution
shall be allocated to the Participant's Elective Account of each
Non-Highly Compensated Participant electing salary reductions pursuant
to Section 4.2 in the same proportion that each such Non-Highly
Compensated Participant's Deferred Compensation for the year bears to
the total Deferred Compensation of all such Non-Highly Compensated
Participants.
(c) If during a Plan Year the projected aggregate amount of
Elective Contributions to be allocated to all Highly Compensated
Participants under this Plan would, by virtue of the tests set forth in
Section 4.5(a), cause the Plan to fail such tests, then the
Administrator may automatically reduce proportionately or in the order
provided in Section 4.6(a) each affected Highly Compensated
Participant's deferral election made pursuant to Section 4.2 by an
amount necessary to satisfy one of the tests set forth in Section
4.5(a).
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<PAGE> 41
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage" for the Highly
Compensated Participant group shall not exceed the greater of:
(1) 125 percent of such percentage for the Non-Highly
Compensated Participant group; or
(2) the lesser of 200 percent of such percentage for the
Non-Highly Compensated Participant group, or such percentage for
the Non-Highly Compensated Participant group plus 2 percentage
points. However, to prevent the multiple use of the alternative
method described in this paragraph and Code Section
401(m)(9)(A), any Highly Compensated Participant eligible to
make elective deferrals pursuant to Section 4.2 or any other
cash or deferred arrangement maintained by the Employer or an
Affiliated Employer and to make Employee contributions or to
receive matching contributions under this Plan or under any plan
maintained by the Employer or an Affiliated Employer shall have
a combination of his actual deferral ratio and his actual
contribution ratio reduced pursuant to Regulation 1.401(m)-2.
The provisions of Code Section 401(m) and Regulations
1.401(m)-l(b) and 1.401(m)-2 are incorporated herein by
reference.
(b) For the purposes of this Section and Section 4.8,
"Actual Contribution Percentage" for a Plan Year means, with respect to
the Highly Compensated Participant group and Non-Highly Compensated
Participant group, the average of the ratios (calculated separately for
each Participant in each group) of:
(1) the sum of Employer matching contributions made pursuant
to Section 4.1(b) on behalf of each such Participant for such
Plan Year; to
(2) the Participant's "414(s) Compensation" for such Plan
Year.
(c) For purposes of determining the "Actual Contribution
Percentage" and the amount of Excess Aggregate Contributions pursuant to
Section 4.8(d), only Employer matching contributions contributed to the
Plan prior to the end of the succeeding Plan Year shall be considered.
In addition, the Administrator may elect to take into account, with
respect to Employees eligible to have Employer matching contributions
pursuant to Section 4.1(b) allocated to their accounts, elective
deferrals (as defined in Regulation 1.402(g)-l(b)) and qualified
non-elective contributions (as defined in Code
35
<PAGE> 42
Section 401(m)(4)(C)) contributed to any plan maintained by the
Employer. Such elective deferrals and qualified non-elective
contributions shall be treated as Employer matching contributions
subject to Regulation 1.401(m)-1(b)(5) which is incorporated herein by
reference. However, the Plan Year must be the same as the plan year of
the plan to which the elective deferrals and the qualified non-elective
contributions are made.
(d) For the purpose of determining the actual contribution
ratio of a Highly Compensated Employee who is subject to the Family
Member aggregation rules of Code Section 414(q)(6) because such Employee
is either a "five percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation" during
the year, the following shall apply:
(1) The combined actual contribution ratio for the family
group (which shall he treated as one Highly Compensated
Participant) shall be determined by aggregating Employer
matching contributions made pursuant to section 4.1(b) and
"414(s) Compensation" of all eligible Family Members (including
Highly Compensated Participants). However, in applying the
$150,000 limit to "414(s) Compensation", Family Members shall
include only the affected Employee's spouse and any lineal
descendants who have not attained age 19 before the close of the
Plan Year.
(2) The Employer matching contributions made pursuant to
Section 4.1(b) and "414(s) Compensation" of all Family Members
shall be disregarded for purposes of determining the "Actual
Contribution Percentage" of the Non-Highly Compensated
Participant group except to the extent taken into account in
paragraph (1) above.
(3) If a Participant is required to be aggregated as a
member of more than one family group in a plan, all Participants
who are members of those family groups that include the
Participant are aggregated as one family group in accordance
with paragraphs (1) and (2) above.
(e) For purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(m), if two or more plans of the Employer to
which matching contributions, Employee contributions, or both, are made
are treated as one plan for purposes of Code Sections 401(a)(4) or
410(b) (other than the average benefits test under Code Section
410(b)(2)(A)(ii)), such plans shall be treated as one plan. In addition,
two or more plans of the Employer to which matching contributions,
Employee contributions,
36
<PAGE> 43
or both, are made may be considered as a single plan for purposes of
determining whether or not such plans satisfy Code Sections 401(a)(4),
410(b) and 401(m). In such a case, the aggregated plans must satisfy
this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though
such aggregated plans were a singLe plan. Plans may be aggregated under
this paragraph (e) only if they have the same plan year.
Notwithstanding the above, an employee stock ownership
plan described in Code Section 4975(e)(7) or 409 may not be aggregated
with this Plan for purposes of determining whether the employee stock
ownership plan or this Plan satisfies this Section and Code Sections
401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant
under two or more plans (other than an employee stock ownership plan as
defined in Code Section 4975(e)(7) or 409) which are maintained by the
Employer or an Affiliated Employer to which matching contributions,
Employee contributions, or both, are made, all such contributions on
behalf of such Highly Compensated Participant shall be aggregated for
purposes of determining such Highly Compensated Participant's actual
contribution ratio. However, if the plans have different plan years,
this paragraph shall be applied by treating all plans ending with or
within the same calendar year as a single plan.
(g) For purposes of Sections 4.7(a) and 4.8, a Highly
Compensated Participant and Non-Highly Compensated Participant shall
include any Employee eligible to have Employer matching contributions
pursuant to Section 4.1(b) (whether or not a deferral election was made
or suspended pursuant to Section 4.2(e)) allocated to his account for
the Plan Year.
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that the "Actual Contribution Percentage"
for the Highly Compensated Participant group exceeds the "Actual
Contribution Percentage" for the Non-Highly Compensated Participant
group pursuant to Section 4.7(a), the Administrator (on or before the
fifteenth day of the third month following the end of the Plan Year, but
in no event later than the close of the following Plan Year) shall
direct the Trustee to distribute to the Highly Compensated Participant
having the highest actual contribution ratio, his Vested portion of
Excess Aggregate Contributions (and Income allocable to such
contributions) and, if forfeitable, forfeit such non-Vested Excess
Aggregate Contributions attributable to Employer matching contributions
(and Income allocable to
37
<PAGE> 44
such forfeitures) until either one of the tests set forth in Section
4.7(a) is satisfied, or until his actual contribution ratio equals the
actual contribution ratio of the Highly Compensated Participant having
the second highest actual contribution ratio. This process shall
continue until one of the tests set forth in Section 4.7(a) is
satisfied.
If the correction of Excess Aggregate Contributions
attributable to Employer matching contributions is not in proportion to
the Vested and non-Vested portion of such contributions, then the Vested
portion of the Participant's Account attributable to Employer matching
contributions after the correction shall be subject to Section 6.5(f).
(b) Any distribution and/or forfeiture of less than the
entire amount of Excess Aggregate Contributions (and Income) shall be
treated as a pro rata distribution and/or forfeiture of Excess Aggregate
Contributions and Income. Distribution of Excess Aggregate Contributions
shall be designated by the Employer as a distribution of Excess
Aggregate Contributions (and Income). Forfeitures of Excess Aggregate
Contributions shall be treated in accordance with Section 4.4.
(c) Excess Aggregate Contributions, including forfeited
matching contributions, shall be treated as Employer contributions for
purposes of Code Sections 404 and 415 even if distributed from the Plan.
Forfeited matching contributions that are reallocated to
Participants' Accounts for the Plan Year in which the forfeiture occurs
shall be treated as an "annual addition" pursuant to Section 4.9(b) for
the Participants to whose Accounts they are reallocated and for the
Participants from whose Accounts they are forfeited.
(d) For each Highly Compensated Participant, the amount of
Excess Aggregate Contributions is equal to the Employer matching
contributions made pursuant to Section 4.1(b) and any qualified
non-elective contributions or elective deferrals taken into account
pursuant to Section 4.7(c) on behalf of the Highly Compensated
Participant (determined prior to the application of this paragraph)
minus the amount determined by multiplying the Highly Compensated
Participant's actual contribution ratio (determined after application of
this paragraph) by his "414(s) Compensation." The actual contribution
ratio must be rounded to the nearest one-hundredth of one percent. In no
case shall the amount of Excess Aggregate Contribution with respect to
any Highly Compensated Participant exceed the amount of Employer
matching
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contributions made pursuant to Section 4.1(b) and any qualified
non-elective contributions or elective deferrals taken into account
pursuant to Section 4.7(c) on behalf of such Highly Compensated
Participant for such Plan Year.
(e) The determination of the amount of Excess Aggregate
Contributions with respect to any Plan Year shall be made after first
determining the Excess Contributions, if any, to be treated as voluntary
Employee contributions due to recharacterization for the plan year of
any other qualified cash or deferred arrangement (as defined in Code
Section 401(k)) maintained by the Employer that ends with or within the
Plan Year.
(f) If the determination and correction of Excess Aggregate
Contributions of a Highly Compensated Participant whose actual
contribution ratio is determined under the family aggregation rules,
then the actual contribution ratio shall be reduced and the Excess
Aggregate Contributions for the family unit shall be allocated among the
Family Members in proportion to the sum of Employer matching
contributions made pursuant to Section 4.1(b) and any qualified
non-elective contributions or elective deferrals taken into account
pursuant to Section 4.7 (c) of each Family Member that were combined to
determine the group actual contribution ratio.
(g) If during a Plan Year the projected aggregate amount of
Employer matching contributions to be allocated to all Highly
Compensated Participants under this Plan would, by virtue of the tests
set forth in Section 4.7(a), cause the Plan to fail such tests, then the
Administrator may automatically reduce proportionately or in the order
provided in Section 4.8(a) each affected Highly Compensated
Participant's projected share of such contributions by an amount
necessary to satisfy one of the tests set forth in Section 4.7(a).
(h) Notwithstanding the above, within twelve (12) months
after the end of the Plan Year, the Employer may make a special
Qualified Non-Elective Contribution on behalf of Non-Highly Compensated
Participants in an amount sufficient to satisfy one of the tests set
forth in Section 4.7(a). Such contribution shall be allocated to the
Participant's Account of each Non-Highly Compensated Participant in the
same proportion that each Non-Highly Compensated Participant's
Compensation for the year bears to the total compensation of all
Non-Highly Compensated Participants. A separate accounting of any
special Qualified Non-Elective Contribution shall be maintained in the
Participant's Account.
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<PAGE> 46
4.9 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual
additions" credited to a Participant's accounts for any "limitation
year" shall equal the lesser of: (1) $30,000 adjusted annually as
provided in Code Section 415(d) pursuant to the Regulations, or (2)
twenty-five percent (25%) of the Participant's "415 Compensation" for
such "limitation year." For any short "limitation year," the dollar
limitation in (1) above shall be reduced by a fraction, the numerator of
which is the number of full months in the short "limitation year" and
the denominator of which is twelve (12).
(b) For purposes of applying the limitations of Code Section
415, "annual additions" means the sum credited to a Participant's
accounts for any "limitation year" of (1) Employer contributions, (2)
Employee contributions, (3) forfeitures, (4) amounts allocated, after
March 31, 1984, to an individual medical account, as defined in Code
Section 415(l)(2) which is part of a pension or annuity plan maintained
by the Employer and (5) amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such
date, which are attributable to post-retirement medical benefits
allocated to the separate account of a key employee (as defined in Code
Section 419A(d)(3)) under a welfare benefit plan (as defined in Code
Section 419(e)) maintained by the Employer. Except, however, the "415
Compensation" percentage limitation referred to in paragraph (a)(2)
above shall not apply to: (1) any contribution for medical benefits
(within the meaning of Code Section 419A(f)(2)) after separation from
service which is otherwise treated as an "annual addition," or (2) any
amount otherwise treated as an "annual addition" under Code Section
415(l)(1).
(c) For purposes of applying the limitations of Code Section
415, the transfer of funds from one qualified plan to another is not an
"annual addition." In addition, the following are not Employee
contributions for the purposes of Section 4.9(b)(2): (1) rollover
contributions (as defined in Code Sections 402(e)(6), 403(a)(4),
403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant
from the Plan; (3) repayments of distributions received by an Employee
pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of
distributions received by an Employee pursuant to Code Section
411(a)(3)(D) (mandatory contributions); and (5) Employee contributions
to a simplified employee pension excludable from gross income under Code
Section 408(k)(6).
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<PAGE> 47
(d) For purposes of applying the limitations of Code Section
415, the "limitation year" shall be the Plan Year.
(e) For the purpose of this Section, all qualified defined
benefit plans (whether terminated or not) ever maintained by the
Employer shall be treated as one defined benefit plan, and all qualified
defined contribution plans (whether terminated or not) ever maintained
by the Employer shall be treated as one defined contribution plan.
(f) For the purpose of this Section, if the Employer is a
member of a controlled group of corporations, trades or businesses under
common control (as defined by Code Section 1563(a) or Code Section
414(b) and (c) as modified by Code Section 415(h)), is a member of an
affiliated service group (as defined by Code Section 414(m)), or is a
member of a group of entities required to be aggregated pursuant to
Regulations under Code Section 414(o), all Employees of such Employers
shall be considered to be employed by a single Employer.
(g) For the purpose of this Section, if this Plan is a Code
Section 413(c) plan, each Employer who maintains this Plan will be
considered to be a separate Employer.
(h)(1) If a Participant participates in more than one defined
contribution plan maintained by the Employer which have different
Anniversary Dates, the maximum "annual additions" under this Plan shall
equal the maximum "annual additions" for the "limitation year" minus any
"annual additions" previously credited to such Participant's accounts
during the "limitation year."
(2) If a Participant participates in both a defined
contribution plan subject to Code Section 412 and a defined
contribution plan not subject to Code Section 412 maintained by
the Employer which have the same Anniversary Date, "annual
additions" will be credited to the Participant's accounts under
the defined contribution plan subject to Code Section 412 prior
to crediting "annual additions" to the Participant's accounts
under the defined contribution plan not subject to Code Section
412.
(3) If a Participant participates in more than one defined
contribution plan not subject to Code Section 412 maintained by
the Employer which have the same Anniversary Date, the maximum
"annual additions" under this Plan shall equal the product
41
<PAGE> 48
of (A) the maximum "annual additions" for the "limitation year"
minus any "annual additions" previously credited under
subparagraphs (1) or (2) above, multiplied by (B) a fraction (i)
the numerator of which is the "annual additions" which would be
credited to such Participant's accounts under this Plan without
regard to the limitations of Code Section 415 and (ii) the
denominator of which is such "annual additions" for all plans
described in this subparagraph.
(i) If an Employee is (or has been) a Participant in one or
more defined benefit plans and one or more defined contribution plans
maintained by the Employer, the sum of the defined benefit plan fraction
and the defined contribution plan fraction for any "limitation year" may
not exceed 1.0.
(j) The defined benefit plan fraction for any "limitation
year" is a fraction, the numerator of which is the sum of the
Participant's projected annual benefits under all the defined benefit
plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar
limitation determined for the "limitation year" under Code Sections
415(b) and (d) or 140 percent of the highest average compensation,
including any adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first "limitation year" beginning
after December 31, 1986, in one or more defined benefit plans maintained
by the Employer which were in existence on May 6, 1986, the denominator
of this fraction will not be less than 125 percent of the sum of the
annual benefits under such plans which the Participant had accrued as of
the close of the last "limitation year" beginning before January 1,
1987, disregarding any changes in the terms and conditions of the plan
after May 5, 1986. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the
requirements of Code Section 415 for all "limitation years" beginning
before January 1, 1987.
(k) The defined contribution plan fraction for any
"limitation year" is a fraction, the numerator of which is the sum of
the annual additions to the Participant's Account under all the defined
contribution plans (whether or not terminated) maintained by the
Employer for the current and all prior "limitation years" (including the
annual additions attributable to the Participant's nondeductible
Employee contributions to all defined benefit plans, whether or not
terminated, maintained by
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<PAGE> 49
the Employer, and the annual additions attributable to all welfare
benefit funds, as defined in Code Section 419(e), and individual medical
accounts, as defined in code section 415(1)(2), maintained by the
Employer), and the denominator of which is the sum of the maximum
aggregate amounts for the current and all prior "limitation years" of
service with the Employer (regardless of whether a defined contribution
plan was maintained by the Employer). The maximum aggregate amount in
any "limitation year" is the lesser of 125 percent of the dollar
limitation determined under Code Sections 415(b) and (d) in effect under
Code Section 415(c)(1)(A) or 35 percent of the Participant's
Compensation for such year.
If the Employee was a Participant as of the end of the
first day of the first "limitation year" beginning after December 31,
1986, in one or more defined contribution plans maintained by the
Employer which were in existence on May 6, 1986, the numerator of this
fraction will be adjusted if the sum of this fraction and the defined
benefit fraction would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the product of (1) the
excess of the sum of the fractions over 1.0 times (2) the denominator of
this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would
be computed as of the end of the last "limitation year" beginning
before January 1, 1987, and disregarding any changes in the terms and
conditions of the Plan made after May 5, 1986, but using the Code
Section 415 limitation applicable to the first "limitation year"
beginning on or after January 1, 1987. The annual addition for any
"limitation year" beginning before January 1, 1987 shall not be
recomputed to treat all Employee contributions as annual additions.
(1) Notwithstanding anything contained in this Section to
the contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at all times comply with the provisions
of Code Section 415 and the Regulations thereunder, the terms of which
are specifically incorporated herein by reference.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) if, as a result of the allocation of Forfeitures, a
reasonable error in estimating a Participant's Compensation, a
reasonable error in determining the amount of elective deferrals (within
the meaning of Code Section 402(g)(3)) that may be made with respect to
any Participant under the limits of Section 4.9 or other facts and
circumstances to which Regulation
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<PAGE> 50
1.415-6(b)(6) shall be applicable, the "annual additions" under this
Plan would cause the maximum "annual additions" to be exceeded for any
Participant, the Administrator shall (1) distribute any elective
deferrals (within the meaning of Code Section 402(g)(3)) or return any
Employee contributions (whether voluntary or mandatory), and for the
distribution of gains attributable to those elective deferrals and
Employee contributions, to the extent that the distribution or return
would reduce the "excess amount" in the Participant's accounts (2) hold
any "excess amount" remaining after the return of any elective deferrals
or voluntary Employee contributions in a "Section 415 suspense account"
(3) use the "Section 415 suspense account" in the next "limitation year"
(and succeeding "limitation years" if necessary) to reduce Employer
contributions for that Participant if that Participant is covered by the
Plan as of the end of the "limitation year," or if the Participant is
not so covered, allocate and reallocate the "Section 415 suspense
account" in the next "limitation year" (and succeeding "limitation
years" if necessary) to all Participants in the Plan before any Employer
or Employee contributions which would constitute "annual additions" are
made to the Plan for such "limitation year" (4) reduce Employer
contributions to the Plan for such "limitation year" by the amount of
the "Section 415 suspense account" allocated and reallocated during such
"limitation year."
(b) For purposes of this Article, "excess amount" for any
Participant for a "limitation year" shall mean the excess, if any, of
(1) the "annual additions" which would be credited to his account under
the terms of the Plan without regard to the limitations of Code Section
415 over (2) the maximum "annual additions" determined pursuant to
Section 4.9.
(c) For purposes of this Section, "Section 415 suspense
account" shall mean an unallocated account equal to the sum of "excess
amounts" for all Participants in the Plan during the "limitation year."
The "Section 415 suspense account" shall not share in any earnings or
losses of the Trust Fund.
4.11 TRANSFERS FROM QUALIFIED PLANS
(a) with the consent of the Administrator, amounts may be
transferred from other qualified plans by Eligible Employees, provided
that the trust from which such funds are transferred permits the
transfer to be made and the transfer will not jeopardize the tax exempt
status of the Plan or Trust or create adverse tax consequences for the
Employer. The amounts transferred shall be set up in a separate account
herein referred to as a "Participant's
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<PAGE> 51
Rollover Account." Such account shall be fully Vested at all times and
shall not be subject to Forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be
held by the Trustee pursuant to the provisions of this Plan and may not
be withdrawn by, or distributed to the Participant, in whole or in part,
except as provided in paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including Regulation
1.411(d)-4), amounts attributable to elective contributions (as defined
in Regulation 1.401(k)-1 (g)(3)), including amounts treated as elective
contributions, which are transferred from another qualified plan in a
plan-to-plan transfer shall be subject to the distribution limitations
provided for in Regulation 1.401(k)-l(d).
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits,
the fair market value of the Participant's Rollover Account shall be
used to provide additional benefits to the Participant or his
Beneficiary. Any distributions of amounts held in a Participant's
Rollover Account shall be made in a manner which is consistent with and
satisfies the provisions of Section 6.5, including, but not limited to,
all notice and consent requirements of Code Section 411(a)(11) and the
Regulations thereunder. Furthermore, such amounts shall be considered as
part of a Participant's benefit in determining whether an involuntary
cash-out of benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers
made after a valuation date be segregated into a separate account for
each Participant in a federally insured savings account, certificate of
deposit in a bank or savings and loan association, money market
certificate, or other short term debt security acceptable to the Trustee
until such time as the allocations pursuant to this Plan have been made,
at which time they may remain segregated or be invested as part of the
general Trust Fund, to be determined by the Administrator.
(f) For purposes of this Section, the term "qualified plan"
shall mean any tax qualified plan under Code Section 401(a). The term
"amounts transferred from other qualified plans" shall mean: (i) amounts
transferred to this Plan directly from another qualified plan; (ii)
distributions from another qualified plan which are eligible rollover
distributions and which are either transferred by the Employee to this
Plan within
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<PAGE> 52
sixty (60) days following his receipt thereof or are transferred
pursuant to a direct rollover; (iii) amounts transferred to this Plan
from a conduit individual retirement account provided that the conduit
individual retirement account has no assets other than assets which (A)
were previously distributed to the Employee by another qualified plan as
a lump-sum distribution (B) were eligible for tax-free rollover to a
qualified plan and (C) were deposited in such conduit individual
retirement account within sixty (60) days of receipt thereof and other
than earnings on said assets; and (iv) amounts distributed to the
Employee from a conduit individual retirement account meeting the
requirements of clause (iii) above, and transferred by the Employee to
this Plan within sixty (60) days of his receipt thereof from such
conduit individual retirement account.
(g) Prior to accepting any transfers to which this Section
applies, the Administrator may require the Employee to establish that
the amounts to be transferred to this Plan meet the requirements of this
Section and may also require the Employee to provide an opinion of
counsel satisfactory to the Employer that the amounts to be transferred
meet the requirements of this Section.
(h) This Plan shall not accept any direct or indirect
transfers (as that term is defined and interpreted under Code Section
401(a)(11) and the Regulations thereunder) from a defined benefit plan,
money purchase plan (including a target benefit plan), stock bonus or
profit sharing plan which would otherwise have provided for a life
annuity form of payment to the Participant.
(i) Notwithstanding anything herein to the contrary, a
transfer directly to this Plan from another qualified plan (or a
transaction having the effect of such a transfer) shall only be
permitted if it will not result in the elimination or reduction of any
"Section 411(d)(6) protected benefit" as described in Section 8.1.
4.12 DIRECTED INVESTMENT ACCOUNT
(a) Participants may, subject to a procedure established by
the Administrator (the Participant Direction Procedures) and applied in
a uniform nondiscriminatory manner, direct the Trustee to invest all of
their accounts in specific assets, specific funds or other investments
permitted under the Plan and the Participant Direction Procedures. That
portion of the interest of any Participant so directing will thereupon
be considered a Participant's Directed Account.
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<PAGE> 53
(b) As of each Valuation Date, all Participant Directed
Accounts shall be charged or credited with the net earnings, gains,
losses and expenses as well as any appreciation or depreciation in the
market value using publicly listed fair market values when available or
appropriate.
(1) To the extent that the assets in a Participant's
Directed Account are accounted for as pooled assets or
investments, the allocation of earnings, gains and losses of
each Participant's Directed Account shall be based upon the
total amount of funds so invested, in a manner proportionate to
the Participant's share of such pooled investment.
(2) To the extent that the assets in the Participant's
Directed Account are accounted for as segregated assets, the
allocation of earnings, gains and losses from such assets shall
be made on a separate and distinct basis.
(c) The Participant Direction Procedures shall provide an
explanation of the circumstances under which Participants and their
Beneficiaries may give investment instructions, including, but need not
be limited to, the following:
(1) the conveyance of instructions by the Participants and
their Beneficiaries to invest Participant Directed Accounts in
Directed Investments;
(2) the name, address and phone number of the Fiduciary
(and, if applicable, the person or persons designated by the
Fiduciary to act on its behalf) responsible for providing
information to the Participant or a Beneficiary upon request
relating to the investments in Directed Investments;
(3) applicable restrictions on transfers to and from any
Designated Investment Alternative;
(4) any restrictions on the exercise of voting, tender and
similar rights related to a Directed Investment by the
Participants or their Beneficiaries;
(5) procedures for maintaining the confidentiality of
information relating to the purchase, holding and sale of
Employer securities, and the exercise of voting, tender and
similar rights, by Participants and their Beneficiaries,
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<PAGE> 54
and the name, address and phone number of the Fiduciary
responsible for monitoring compliance with these procedures;
(6) a description of any, transaction fees and expenses
which affect the balances in Participant Directed Accounts in
connection with the purchase or sale of Directed Investments;
and
(7) general procedures for the dissemination of investment
and other information relating to the Designated Investment
Alternatives as deemed necessary or appropriate, including but
not limited to a description of the following:
(i) the investment vehicles available under the
Plan, including specific information regarding any
Designated Investment Alternative;
(ii) any designated Investment Managers; and
(iii) a description of the additional information
which may be obtained upon request from the Fiduciary
designated to provide such information.
(d) Any information regarding investments available under
the Plan, to the extent not required to be described in the Participant
Direction Procedures, may be provided to the Participant in one or more
written documents which are separate from the Participant Direction
Procedures and are not thereby incorporated by reference into this Plan.
(e) The Administrator may, at its discretion, include in or
exclude by amendment or other action from the Participant Direction
Procedures such instructions, guidelines or policies as it deems
necessary or appropriate to ensure proper administration of the Plan,
and may interpret the same accordingly.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Valuation
Date, to determine the net worth of the assets comprising the Trust Fund as it
exists on the Valuation Date. In determining such net worth, the Trustee shall
value the assets comprising the Trust Fund at their fair market value as of the
Valuation Date and shall deduct all expenses for which the Trustee has not yet
48
<PAGE> 55
obtained reimbursement from the Employer or the Trust Fund. The Trustee may
update the value of any shares held in the Participant Directed Account by
reference to the number of shares held by that Participant, priced at the market
value as of the Valuation Date.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the
Trust Fund which are listed on a registered stock exchange, the Administrator
shall direct the Trustee to value the same at the prices they were last traded
on such exchange preceding the close of business on the Valuation Date. If such
securities were not traded on the Valuation Date, or if the exchange on which
they are traded was not open for business on the Valuation Date, then the
securities shall be valued at the prices at which they were last traded prior to
the Valuation Date. Any unlisted security held in the Trust Fund shall be valued
at its bid price next preceding the close of business on the Valuation Date,
which bid price shall be obtained from a registered broker or an investment
banker. In determining the fair market value of assets other than securities for
which trading or bid prices can be obtained, the Trustee may appraise such
assets itself, or in its discretion, employ one or more appraisers for that
purpose and rely on the values established by such appraiser or appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer
and retire for the purposes hereof on his Normal Retirement Date. However, a
Participant may postpone the termination of his employment with the Employer to
a later date, in which event the participation of such Participant in the Plan,
including the right to receive allocations pursuant to Section 4.4, shall
continue until his Late Retirement Date. Upon a Participant's Retirement Date or
attainment of his Normal Retirement Date without termination of employment with
the Employer, or as soon thereafter as is practicable, the Trustee shall
distribute, at the election of the Participant, all amounts credited to such
Participant's Combined Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement
Date or other termination of his employment, all amounts credited to
such Participant's Combined Account shall become fully Vested. The
Administrator shall direct the Trustee, in accordance with the
provisions of Sections 6.6 and 6.7, to distribute the value of the
deceased Participant's accounts to the Participant's Beneficiary.
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<PAGE> 56
(b) Upon the death of a Former Participant, the
Administrator shall direct the Trustee, in accordance with the
provisions of Sections 6.6 and 6.7, to distribute any remaining Vested
amounts credited to the accounts of a deceased Former Participant to
such Former Participant's Beneficiary.
(c) Any security interest held by the Plan by reason of an
outstanding loan to the Participant or Former Participant shall be taken
into account in determining the amount of the death benefit.
(d) The Administrator may require such proper proof of death
and such evidence of the right of any person to receive payment of the
value of the account of a deceased Participant or Former Participant as
the Administrator may deem desirable. The Administrator's determination
of death and of the right of any person to receive payment shall be
conclusive.
(e) The Beneficiary of the death benefit payable pursuant to
this Section shall be the Participant's spouse. Except, however, the
Participant may designate a Beneficiary other than his spouse if:
(1) the spouse has waived the right to be the Participant's
Beneficiary, or
(2) the Participant is legally separated or has been
abandoned (within the meaning of local law) and the Participant
has a court order to such effect (and there is no "qualified
domestic relations order" as defined in Code Section 414(p)
which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be
made on a form satisfactory to the Administrator. A Participant may at
any time revoke his designation of a Beneficiary or change his
Beneficiary by filing written notice of such revocation or change with
the Administrator. However, the Participant's spouse must again consent
in writing to any change in Beneficiary unless the original consent
acknowledged that the spouse had the right to limit consent only to a
specific Beneficiary and that the spouse voluntarily elected to
relinquish such right. In the event no valid designation of Beneficiary
exists at the time of the Participant's death, the death benefit shall
be payable to his estate.
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<PAGE> 57
(f) Any consent by the Participant's spouse to waive any
rights to the death benefit must be in writing, must acknowledge the
effect of such waiver, and be witnessed by a Plan representative or a
notary public. Further, the spouse's consent must be irrevocable and
must acknowledge the specific nonspouse Beneficiary.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability
prior to his Retirement Date or other termination of his employment, all amounts
credited to such Participant's Combined Account shall become fully Vested. In
the event of a Participant's Total and Permanent Disability, the Trustee, in
accordance with the provisions of Sections 6.5 and 6.7, shall distribute to such
Participant all amounts credited to such Participant's Combined Account as
though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) If a Participant's employment with the Employer is
terminated for any reason other than death, Total and Permanent
Disability or retirement, such Participant shall be entitled to such
benefits as are provided hereinafter pursuant to this Section 6.4.
In the event that the amount of the Vested portion of
the Terminated Participant's Combined Account equals or exceeds the fair
market value of any insurance Contracts, the Trustee, when so directed
by the Administrator and agreed to by the Terminated Participant, shall
assign, transfer, and set over to such Terminated Participant all
Contracts on his life in such form or with such endorsements so that the
settlement options and forms of payment are consistent with the
provisions of Section 6.5. In the event that the Terminated
Participant's Vested portion does not at least equal the fair market
value of the Contracts, if any, the Terminated Participant may pay over
to the Trustee the sum needed to make the distribution equal to the
value of the Contracts being assigned or transferred, or the Trustee,
pursuant to the Participant's election, may borrow the cash value of the
Contracts from the insurer so that the value of the Contracts is equal
to the Vested portion of the Terminated Participant's Account and then
assign the Contracts to the Terminated Participant.
Distribution of the funds due to a Terminated
Participant shall be made on the occurrence of an event which would
result in the distribution had the Terminated Participant remained in
the employ of the Employer (upon the Participant's death, Total and
Permanent Disability or Normal Retirement). However, at the election of
the Participant, the Administrator shall direct the Trustee
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<PAGE> 58
to cause the entire Vested portion of the Terminated Participant's
Combined Account to be payable to such Terminated Participant. Any
distribution under this paragraph shall be made in a manner which is
consistent with and satisfies the provisions of Section 6.5, including,
but not limited to, all notice and consent requirements of Code Section
411(a)(11) and the Regulations thereunder.
For purposes of this Section 6.4, if the value of a
Terminated Participant's Vested benefit is zero, the Terminated
Participant shall be deemed to have received a distribution of such
Vested benefit.
(b) The Vested portion of any Participant's Account shall be
a percentage of the total amount credited to his Participant's Account
determined on the basis of the Participant's number of whole years of
his Period of Service according to the following schedules;
Vesting Schedule
Employer Discretionary Contributions
<TABLE>
<CAPTION>
Periods of Service Percentage
------------------ ----------
<S> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
Vesting Schedule
Matching Contributions
<TABLE>
<CAPTION>
Periods of Service Percentage
------------------ ----------
<S> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
(c) Notwithstanding the vesting schedule above, upon the
complete discontinuance of the Employer contributions to the Plan or
upon any full or partial termination of the Plan, all amounts credited
to the account of any affected Participant shall become 100% Vested and
shall not thereafter be subject to Forfeiture.
(d) The computation of a Participant's nonforfeitable
percentage of his interest in the Plan shall not be reduced as the
result of any direct or indirect amendment to this Plan. For this
purpose, the Plan shall be treated as having been amended if the Plan
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<PAGE> 59
provides for an automatic change in vesting due to a change in top heavy
status. In the event that the Plan is amended to change or modify any
vesting schedule, a Participant with at least three (3) whole years of
his Period of Service as of the expiration date of the election period
may elect to have his nonforfeitable percentage computed under the Plan
without regard to such amendment. If a Participant fails to make such
election, then such Participant shall be subject to the new vesting
schedule. The Participant's election period shall commence on the
adoption date of the amendment and shall end 60 days after the latest
of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
(e)(1) If any Former Participant shall be reemployed by the
Employer before a 1-Year Break in Service occurs, he shall continue to
participate in the Plan in the same manner as if such termination had
not occurred.
(2) If any Former Participant shall be reemployed by the
Employer before five (5) consecutive 1-Year Breaks in Service,
and such Former Participant had received, or was deemed to have
received, a distribution of his entire Vested interest prior to
his reemployment, his forfeited account shall be reinstated only
if he repays the full amount distributed to him before the
earlier of five (5) years after the first date on which the
Participant is subsequently reemployed by the Employer or the
close of the first period of five (5) consecutive 1-Year Breaks
in Service commencing after the distribution, or in the event of
a deemed distribution, upon the reemployment of such Former
Participant. In the event the Former Participant does repay the
full amount distributed to him, or in the event of a deemed
distribution, the undistributed portion of the Participant's
Account must be restored in full, unadjusted by any gains or
losses occurring subsequent to the Valuation Date coinciding
with or preceding his termination. The source for such
reinstatement shall first be any Forfeitures occurring during
the year. If such source is insufficient, then the Employer
shall contribute an amount which is sufficient to restore any
such forfeited Accounts, provided, however, that if a
discretionary
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<PAGE> 60
contribution is made for such year pursuant to Section 4.1(d),
such contribution shall first be applied to restore any such
Accounts and the remainder shall be allocated in accordance with
Section 4.4.
(3) If any Former Participant is reemployed after a 1-Year
Break in Service has occurred, Periods of Service shall include
Periods of Service prior to his 1-Year Break in Service subject
to the following rules:
(i) If a Former Participant has a 1-Year Break in
Service, his pre-break and post-break service shall be
used for computing Periods of Service for eligibility
and for vesting purposes only after he has been employed
for one (1) Period of Service following the date of his
reemployment with the Employer;
(ii) Any Former Participant who under the Plan does
not have a nonforfeitable right to any interest in the
Plan resulting from Employer contributions shall lose
credits otherwise allowable under (i) above if his
consecutive 1-Year Breaks in Service equal or exceed the
greater of (A) five (5) or (B) the aggregate number of
his pre-break Periods of Service;
(iii) After five (5) consecutive 1-Year Breaks in
Service, a Former Participant's Vested Account balance
attributable to pre-break service shall not be increased
as a result of post-break service;
(iv) If a Former Participant is reemployed by the
Employer, he shall participate in the Plan immediately
on his date of reemployment;
(v) If a Former Participant (a 1-Year Break in
Service previously occurred, but employment had not
terminated) is credited with an Hour of Service after
the first eligibility computation period in which he
incurs a 1-Year Break in Service, he shall participate
in the Plan immediately.
6.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the
Participant, shall direct the Trustee to distribute to a Participant or
his Beneficiary any amount to which
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<PAGE> 61
he is entitled under the Plan in one or more of the following methods:
(1) one lump-sum payment in cash or in property.
(2) Payments over a period certain in monthly, quarterly,
semiannual, or annual cash installments. In order to provide
such installment payments, the Administrator may (A) segregate
the aggregate amount thereof in a separate, federally insured
savings account, certificate of deposit in a bank or savings and
loan association, money market certificate or other liquid
short-term security or (B) purchase a nontransferable annuity
contract for a term certain (with no life contingencies)
providing for such payment. The period over which such payment
is to be made shall not extend beyond the Participant's life
expectancy (or the life expectancy of the Participant and his
designated Beneficiary).
(b) Any distribution to a Participant who has a benefit
which exceeds, or has ever exceeded, $3,500 at the time of any prior
distribution shall require such Participant's consent pursuant to this
Section 6.5(b) if such distribution commences prior to the later of his
Normal Retirement Age or age 62. With regard to this required consent:
(1) The Participant must be informed of his right to defer
receipt of the distribution. If a Participant fails to consent,
it shall be deemed an election to defer the commencement of
payment of any benefit. However, any election to defer the
receipt of benefits shall not apply with respect to
distributions which are required under Section 6.5(c).
(2) Notice of the rights specified under this paragraph
shall be provided no less than 30 days and no more than 90 days
before the date the distribution commences.
(3) Written consent of the Participant to the distribution
must not be made before the Participant receives the notice and
must not be made more than 90 days before the date the
distribution commences.
(4) No consent shall be valid if a significant detriment is
imposed under the Plan on any Participant who does not consent
to the distribution.
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<PAGE> 62
Any such distribution may commence less than 30 days after the
notice required under Regulation 1.411(a)-11(c) is given, provided that:
(1) the Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving
the notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively elects a
distribution.
(c) Notwithstanding any provision in the Plan to the
contrary, the distribution of a Participant's benefits shall be made in
accordance with the following requirements and shall otherwise comply
with Code Section 401(a)(9) and the Regulations thereunder (including
Regulation 1.401(a)(9)-2), the provisions of which are incorporated
herein by reference:
(1) A Participant's benefits shall be distributed or must
begin to be distributed to him not later than April 1st of the
calendar year following the later of (i) the calendar year in
which the Participant attains age 70 1/2 or (ii) the calendar
year in which the Participant retires, provided, however, that
this clause (ii) shall not apply in the case of a Participant
who is a "five (5) percent owner" at any time during the five
(5) Plan Year period ending in the calendar year in which he
attains age 70 1/2 or, in the case of a Participant who becomes
a "five (5) percent owner" during any subsequent Plan Year,
clause (ii) shall no longer apply and the required beginning
date shall be the April 1st of the calendar year following the
calendar year in which such subsequent Plan Year ends. Such
distributions shall be equal to or greater than any required
distribution. Notwithstanding the foregoing, clause (ii) above
shall not apply to any Participant unless the Participant had
attained age 70 1/2 before January 1, 1988 and was not a "five
(5) percent owner" at any time during the Plan Year ending with
or within the calendar year in which the Participant attained
age 66 1/2 or any subsequent Plan Year.
Alternatively, distributions to a Participant must begin no
later than the applicable April 1st as determined under the
preceding paragraph and must be made over a period certain
measured by the life expectancy of the Participant (or the life
expectancies of the Participant and his designated Beneficiary)
in accordance with Regulations.
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(2) Distributions to a Participant and his Beneficiaries
shall only be made in accordance with the incidental death
benefit requirements of Code Section 401(a)(9)(G) and the
Regulations thereunder.
(d) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse may, at the election of the
Participant or the Participant's spouse, be redetermined in accordance
with Regulations. The election, once made, shall be irrevocable. If no
election is made by the time distributions must commence, then the life
expectancy of the Participant and the Participant's spouse shall not be
subject to recalculation. Life expectancy and joint and last survivor
expectancy shall be computed using the return multiples in Tables V and
VI of Regulation 1.72-9.
(e) All annuity Contracts under this Plan shall be
non-transferable when distributed. Furthermore, the terms of any annuity
Contract purchased and distributed to a Participant or spouse shall
comply with all of the requirements of the Plan.
(f) If a distribution is made at a time when a Participant
is not fully Vested in his Participant's Account and the Participant may
increase the Vested percentage in such account:
(1) a separate account shall be established for the
Participant's interest in the Plan as of the time of the
distribution; and
(2) at any relevant time, the Participant's Vested portion
of the separate account shall be equal to an amount ("XI")
determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested percentage
at the relevant time, AB is the account balance at the relevant
time, D is the amount of distribution, and R is the ratio of the
account balance at the relevant time to the account balance
after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a)(1) The death benefit payable pursuant to Section 6.2 shall
be paid to the Participant's Beneficiary within a reasonable time after
the Participant's death by either of the following methods, as elected
by the Participant (or if no election has been
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made prior to the Participant's death, by his Beneficiary) subject,
however, to the rules specified in Section 6.6(b):
(i) One lump-sum payment in cash or in property.
(ii) Payment in monthly, quarterly, semi-annual, or
annual cash installments over a period to be determined
by the Participant or his Beneficiary. After periodic
installments commence, the Beneficiary shall have the
right to direct the Trustee to reduce the period over
which such periodic installments shall be made, and the
Trustee shall adjust the cash amount of such periodic
installments accordingly.
(2) In the event the death benefit payable pursuant to
Section 6.2 is payable in installments, then, upon the death of
the Participant, the Administrator may direct the Trustee to
segregate the death benefit into a separate account, and the
Trustee shall invest such segregated account separately, and the
funds accumulated in such account shall be used for the payment
of the installments.
(b) Notwithstanding any provision in the Plan to the
contrary, distributions upon the death of a Participant shall be made in
accordance with the following requirements and shall otherwise comply
with Code Section 401(a)(9) and the Regulations thereunder. If it is
determined pursuant to Regulations that the distribution of a
Participant's interest has begun and the Participant dies before his
entire interest has been distributed to him, the remaining portion of
such interest shall be distributed at least as rapidly as under the
method of distribution selected pursuant to Section 6.5 as of his date
of death. If a Participant dies before he has begun to receive any
distributions of his interest under the Plan or before distributions are
deemed to have begun pursuant to Regulations, then his death benefit
shall be distributed to his Beneficiaries by December 31st of the
calendar year in which the fifth anniversary of his date of death
occurs.
However, in the event that the Participant's spouse
(determined as of the date of the Participant's death) is his
Beneficiary, then in lieu of the preceding rules, distributions must be
made over a period not extending beyond the life expectancy of the
spouse and must commence on or before the later of: (1) December 31st of
the calendar year immediately
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following the calendar year in which the Participant died; or (2)
December 31st of the calendar year in which the Participant would have
attained age 70 1/2. If the surviving spouse dies before distributions
to such spouse begin, then the 5-year distribution requirement of this
Section shall apply as if the spouse was the Participant.
(c) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse may, at the election of the
Participant or the Participant's spouse, be redetermined in accordance
with Regulations. The election, once made, shall be irrevocable. If no
election is made by the time distributions must commence, then the life
expectancy of the Participant and the Participant's spouse shall not be
subject to recalculation. Life expectancy and joint and last survivor
expectancy shall be computed using the return multiples in Tables V and
VI of Regulation 1.72-9.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the Trustee
is to make a distribution or to commence a series of payments the distribution
or series of payments may be made or begun as soon as is practicable. However,
unless a Former Participant elects in writing to defer the receipt of benefits
(such election may not result in a death benefit that is more than incidental),
the payment of benefits shall begin not later than the 60th day after the close
of the Plan Year in which the latest of the following events occurs: (a) the
date on which the Participant attains the earlier of age 65 or the Normal
Retirement Age specified herein; (b) the 10th anniversary of the year in which
the Participant commenced participation in the Plan; or (c) the date the
Participant terminates his service with the Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution
payable to a Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the
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inability of the Administrator, after sending a registered letter, return
receipt requested, to the last known address, and after further diligent effort,
to ascertain the whereabouts of such Participant or his Beneficiary, the amount
so distributable shall be treated as a Forfeiture pursuant to the Plan. In the
event a Participant or Beneficiary is located subsequent to his benefit being
reallocated, such benefit shall be restored unadjusted for earnings or losses.
6.10 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a
Participant in this Plan shall he subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the affected
Participant has not separated from service and has not reached the "earliest
retirement age" under the Plan. For the purposes of this Section, "alternate
payee," "qualified domestic relations order" and "earliest retirement age" shall
have the meaning set forth under Code Section 414(p).
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
(a) The Trustee shall have the following categories of
responsibilities:
(1) Consistent with the "funding policy and method"
determined by the Employer, to invest, manage, and control the
Plan assets subject, however, to the direction of a Participant
with respect to his Participant Directed Accounts, the Employer
or an Investment Manager if the Trustee should appoint such
manager as to all or a portion of the assets of the Plan;
(2) At the direction of the Administrator, to pay benefits
required under the Plan to be paid to Participants, or, in the
event of their death, to their Beneficiaries; and
(3) To maintain records of receipts and disbursements and
furnish to the Employer and/or Administrator for each Plan Year
a written annual report per Section 7.7.
(b) In the event that the Trustee shall be directed by a
Participant (pursuant to the Participant Direction Procedures), or the
Employer, or an Investment Manager with respect to the investment of any
or all Plan
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assets, the Trustee shall have no liability with respect to the
investment Of such assets, but shall be responsible only to execute such
investment instructions as so directed.
(1) The Trustee shall be entitled to rely fully on the
written instructions of a Participant (pursuant to the
Participant Direction Procedures), or the Employer, or any
Fiduciary or nonfiduciary agent of the Employer, in the
discharge of such duties, and shall not be liable for any loss
or other liability, resulting from such direction (or lack of
direction) of the investment of any part of the Plan assets.
(2) The Trustee may delegate the duty to execute such
instructions to any nonfiduciary agent, which may be an
affiliate of the Trustee or any Plan representative.
(3) The Trustee may refuse to comply with any direction from
the Participant in the event the Trustee, in its sole and
absolute discretion, deems such directions improper by virtue of
applicable law. The Trustee shall not be responsible or liable
for any loss or expense which may result from the Trustee's
refusal or failure to comply with any directions from the
Participant.
(4) Any costs and expenses related to compliance with the
Participant's directions shall be borne by the Participant's
Directed Account, unless paid by the Employer.
(c) If there shall be more than one Trustee, they shall act
by a majority of their number, but may authorize one or more of them to
sign papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund to
keep the Trust Fund invested without distinction between principal and
income and in such securities or property, real or personal, wherever
situated, as the Trustee shall deem advisable, including, but not
limited to, stocks, common or preferred, bonds and other evidences of
indebtedness or ownership, and real estate or any interest therein. The
Trustee shall at all times in making investments of the Trust Fund
consider, among other factors, the short and long-term financial needs
of the Plan on the basis of information furnished by the Employer. In
making such investments,
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the Trustee shall not be restricted to securities or other property of
the character expressly authorized by the applicable law for trust
investments; however, the Trustee shall give due regard to any
limitations imposed by the Code or the Act so that at all times the Plan
may qualify as a qualified Profit Sharing Plan and Trust.
(b) The Trustee may employ a bank or trust company pursuant
to the terms of its usual and customary bank agency agreement, under
which the duties of such bank or trust company shall be of a custodial,
clerical and record-keeping nature.
(c) The Trustee, at the direction of the Administrator,
shall ratably apply for, own, and pay premiums on Contracts on the lives
of the Participants. If a life insurance policy is to be purchased for a
Participant, the aggregate premium for ordinary life insurance for each
Participant must be less than 50% of the aggregate of the contributions
and Forfeitures to the credit of the Participant at any particular time.
If term insurance is purchased with such contributions, the aggregate
premium must be less than 25% of the aggregate contributions and
Forfeitures allocated to a Participant's Combined Account. If both term
insurance and ordinary life insurance are purchased with such
contributions, the amount expended for term insurance plus one-half of
the premium for ordinary life insurance may not in the aggregate exceed
25% of the aggregate contributions and Forfeitures allocated to a
Participant's Combined Account. The Trustee must convert the entire
value of the life insurance contracts at or before retirement into cash
or provide for a periodic income so that no portion of such value may be
used to continue life insurance protection beyond retirement, or
distribute the Contracts to the Participant. In the event of any
conflict between the terms of this Plan and the terms of any insurance
Contract purchased hereunder, the Plan provisions shall control.
(d) With respect to assets in a Participant's Directed
Investment Account, the Participant or Beneficiary shall direct the
Trustee with regard to any voting, tender and similar rights associated
with the ownership of such assets, (i.e. the "Stock Right(s)") as
follows:
(1) Each Participant or Beneficiary shall direct the Trustee
to vote or otherwise exercise such Stock Rights in accordance
with the provisions, conditions and terms of any such Stock
Right(s).
(2) Such directions shall be provided to the Trustee by the
Participant or Beneficiary in
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accordance with the procedure as established by the
Administrator. The Trustee shall vote or otherwise exercise such
Stock Right(s) with respect to which it has received directions
to do so under this Section.
(3) To the extent to which a Participant or Beneficiary does
not instruct the Trustee or does not issue valid directions to
the Trustee to vote or otherwise exercise such Stock Right(s),
such Participants or Beneficiaries shall be deemed to have
directed the Trustee that such Stock Rights remain nonvoted and
unexercised.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under
common law, statutory authority, including the Act, and other provisions of the
Plan, shall have the following powers and authorities, to be exercised in the
Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities or other
property and to retain the same. In conjunction with the purchase of
securities, margin accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to
purchase, or otherwise dispose of any securities or other property held
by the Trustee, by private contract or at public auction. No person
dealing with the Trustee shall be bound to see to the application of the
purchase money or to inquire into the validity, expediency, or propriety
of any such sale or other disposition, with or without advertisement;
(c) To vote upon any stocks, bonds, or other securities; to
give general or special proxies or powers of attorney with or without
power of substitution; to exercise any conversion privileges,
subscription rights or other options, and to make any payments
incidental thereto; to oppose, or to consent to, or otherwise
participate in, corporate reorganizations or other changes affecting
corporate securities, and to delegate discretionary powers, and to pay
any assessments or charges in connection therewith; and generally to
exercise any of the powers of an owner with respect to stocks, bonds,
securities, or other property. However, the Trustee shall not vote
proxies relating to securities for which it has not been assigned full
investment management responsibilities. In those cases where another
party has such investment authority or discretion, the Trustee will
deliver all proxies to said party who will then have full responsibility
for voting those proxies;
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(d) To cause any securities or other property to be
registered in the Trustee's own name or in the name of one or more of
the Trustee's nominees, and to hold any investments in bearer form, but
the books and records of the Trustee shall at all times show that all
such investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in
such amount, and upon such terms and conditions, as the Trustee shall
deem advisable; and for any sum so borrowed, to issue a promissory note
as Trustee, and to secure the repayment thereof by pledging all, or any
part, of the Trust Fund; and no person lending money to the Trustee
shall be bound to see to the application of the money lent or to inquire
into the validity, expediency, or propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash
balances as the Trustee may, from time to time, deem to be in the best
interests of the Plan, without liability for interest thereon;
(g) To accept and retain for such time as the Trustee may
deem advisable any securities or other property received or acquired as
Trustee hereunder, whether or not such securities or other property
would normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other instruments
that may be necessary or appropriate to carry out the powers herein
granted;
(i) To settle, compromise, or submit to arbitration any
claims, debts, or damages due or owing to or from the Plan, to commence
or defend suits or legal or administrative proceedings, and to represent
the Plan in all suits and legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their
reasonable expenses and compensation, and such agent or counsel may or
may not he agent or counsel for the Employer;
(k) To apply for and procure from responsible insurance
companies, to be selected by the Administrator, as an investment of the
Trust Fund such annuity, or other Contracts (on the life of any
Participant) as the Administrator shall deem proper; to exercise, at any
time or from time to time, whatever rights and privileges may be granted
under such annuity, or other Contracts; to collect, receive, and settle
for the proceeds of all such annuity or other Contracts as and when
entitled to do so under the provisions thereof;
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(1) To invest funds of the Trust in time deposits or savings
accounts bearing a reasonable rate of interest in the Trustee's bank;
(m) To invest in Treasury Bills and other forms of United
States government obligations;
(n) To invest in shares of investment companies registered
under the Investment Company Act of 1940;
(o) To sell, purchase and acquire put or call options if the
options are traded on and purchased through a national securities
exchange registered under the Securities Exchange Act of 1934, as
amended, or, if the options are not traded on a national securities
exchange, are guaranteed by a member firm of the New York Stock
Exchange;
(p) To deposit monies in federally insured savings accounts
or certificates of deposit in banks or savings and loan associations;
(q) To pool all or any of the Trust Fund, from time to time,
with assets belonging to any other qualified employee pension benefit
trust created by the Employer or an affiliated company of the Employer,
and to commingle such assets and make joint or common investments and
carry joint accounts on behalf of this Plan and such other trust or
trusts, allocating undivided shares or interests in such investments or
accounts or any pooled assets of the two or more trusts in accordance
with their respective interests;
(r) To appoint a nonfiduciary agent or agents to assist the
Trustee in carrying out any investment instructions of Participants and
of any Investment Manager or Fiduciary, and to compensate such agent(s)
from the assets of the Plan, to the extent not paid by the Employer;
(s) To do all such acts and exercise all such rights and
privileges, although not specifically mentioned herein, as the Trustee
may deem necessary to carry out the purposes of the Plan.
7.4 LOANS TO PARTICIPANTS
(a) The Trustee may, in the Trustee's discretion, make loans
to Participants and Beneficiaries under the following circumstances: (1)
loans shall be made available to all Participants and Beneficiaries on a
reasonably equivalent basis; (2) loans shall not be made available to
Highly Compensated Employees in an amount greater than the amount made
available to other
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Participants and Beneficiaries; (3) loans shall bear a reasonable rate
of interest; (4) loans shall be adequately secured; and (5) shall
provide for repayment over a reasonable period of time.
(b) Loans shall not be made to any Shareholder-Employee
unless an exemption for such loan is obtained pursuant to Act Section
408 and further provided that such loan would not be subject to tax
pursuant to Code Section 4975.
(c) Loans made pursuant to this Section (when added to the
outstanding balance of all other loans made by the Plan to the
Participant) shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the Plan to the Participant
during the one year period ending on the day before the date on
which such loan is made, over the outstanding balance of loans
from the Plan to the Participant on the date on which such loan
was made, or
(2) one-half (1/2) of the present value of the
non-forfeitable accrued benefit of the Participant under the
Plan.
For purposes of this limit, all plans of the Employer
shall be considered one plan.
(d) Loans shall provide for level amortization with payments
to be made not less frequently than quarterly over a period not to
exceed five (5) years. However, loans used to acquire any dwelling unit
which, within a reasonable time, is to be used (determined at the time
the loan is made) as a principal residence of the Participant shall
provide for periodic repayment over a reasonable period of time that may
exceed five (5) years. For this purpose, a principal residence has the
same meaning as a principal residence under Code Section 1034.
(e) Any loans granted or renewed shall be made pursuant to a
Participant loan program. Such loan program shall be established in
writing and must include, but need not be limited to, the following:
(1) the identity of the person or positions authorized to
administer the Participant loan program;
(2) a procedure for applying for loans;
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(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans
offered;
(5) the procedure under the program for determining a
reasonable rate of interest;
(6) the types of collateral which may secure a Participant
loan; and
(7) the events constituting default and the steps that will
be taken to preserve Plan assets.
Such Participant loan program shall be contained in a
separate written document which, when properly executed, is hereby
incorporated by reference and made a part of the Plan. Furthermore, such
Participant loan program may be modified or amended in writing from time
to time without the necessity of amending this Section.
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from
time to time, in accordance with the terms of the Plan, make payments out of the
Trust Fund. The Trustee shall not be responsible in any way for the application
of such payments.
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as shall
from time to time be agreed upon in writing by the Employer and the Trustee. An
individual serving as Trustee who already receives full-time pay from the
Employer shall not receive compensation from the Plan. In addition, the Trustee
shall be reimbursed for any reasonable expenses, including reasonable counsel
fees incurred by it as Trustee. Such compensation and expenses shall be paid
from the Trust Fund unless paid or advanced by the Employer. All taxes of any
kind and all kinds whatsoever that may be levied or assessed under existing or
future laws upon, or in respect of, the Trust Fund or the income thereof, shall
be paid from the Trust Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the
Anniversary Date or receipt of the Employer contribution for each Plan Year, the
Trustee shall furnish to the Employer and Administrator a written statement of
account with respect to the Plan Year for which such contribution was made
setting forth:
(a) the net income, or loss, of the Trust Fund;
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(b) the gains, or losses, realized by the Trust Fund upon
sales or other disposition of the assets;
(c) the increase, or decrease, in the value of the Trust
Fund;
(d) all payments and distributions made from the Trust
Fund; and
(e) such further information as the Trustee and/or
Administrator deems appropriate. The Employer, forthwith upon its
receipt of each such statement of account, shall acknowledge receipt
thereof in writing and advise the Trustee and/or Administrator of its
approval or disapproval thereof. Failure by the Employer to disapprove
any such statement of account within thirty (30) days after its receipt
thereof shall be deemed an approval thereof. The approval by the
Employer of any statement of account shall be binding as to all matters
embraced therein as between the Employer and the Trustee to the same
extent as if the account of the Trustee had been settled by judgment or
decree in an action for a judicial settlement of its account in a court
of competent jurisdiction in which the Trustee, the Employer and all
persons having or claiming an interest in the Plan were parties;
provided, however, that nothing herein contained shall deprive the
Trustee of its right to have its accounts judicially settled if the
Trustee so desires.
7.8 AUDIT
(a) If an audit of the Plan's records shall be required by
the Act and the regulations thereunder for any Plan Year, the
Administrator shall direct the Trustee to engage on behalf of all
Participants an independent qualified public accountant for that
purpose. Such accountant shall, after an audit of the books and records
of the Plan in accordance with generally accepted auditing standards,
within a reasonable period after the close of the Plan Year, furnish to
the Administrator and the Trustee a report of his audit setting forth
his opinion as to whether any statements, schedules or lists that are
required by Act Section 103 or the Secretary of Labor to be filed with
the Plan's annual report, are presented fairly in conformity with
generally accepted accounting principles applied consistently. All
auditing and accounting fees shall be an expense of and may, at the
election of the Administrator, be paid from the Trust Fund.
(b) If some or all of the information necessary to enable
the Administrator to comply with Act Section 103 is maintained by a
bank, insurance company, or similar
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institution, regulated and supervised and subject to periodic
examination by a state or federal agency, it shall transmit and certify
the accuracy of that information to the Administrator as provided in Act
Section 103(b) within one hundred twenty (120) days after the end of the
Plan Year or by such other date as may be prescribed under regulations
of the Secretary of Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the
Employer, at least thirty (30) days before its effective date, a written
notice of his resignation.
(b) The Employer may remove the Trustee by mailing by
registered or certified mail, addressed to such Trustee at his last
known address, at least thirty (30) days before its effective date, a
written notice of his removal.
(c) Upon the death, resignation, incapacity, or removal of
any Trustee, a successor may be appointed by the Employer; and such
successor, upon accepting such appointment in writing and delivering
same to the Employer, shall, without further act, become vested with all
the estate, rights, powers, discretions, and duties of his predecessor
with like respect as if he were originally named as a Trustee herein.
Until such a successor is appointed, the remaining Trustee or Trustees
shall have full authority to act under the terms of the Plan.
(d) The Employer may designate one or more successors prior
to the death, resignation, incapacity, or removal of a Trustee. In the
event a successor is so designated by the Employer and accepts such
designation, the successor shall, without further act, become vested
with all the estate, rights, powers, discretions, and duties of his
predecessor with the like effect as if he were originally named as
Trustee herein immediately upon the death, resignation, incapacity, or
removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such,
he shall furnish to the Employer and Administrator a written statement
of account with respect to the portion of the Plan Year during which he
served as Trustee. This statement shall be either (i) included as part
of the annual statement of account for the Plan Year required under
Section 7.7 or (ii) set forth in a special statement. Any such special
statement of account should be rendered to the Employer no later than
the due date of the annual statement of account for the Plan Year. The
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procedures set forth in Section 7.7 for the approval by the Employer of
annual statements of account shall apply to any special statement of
account rendered hereunder and approval by the Employer of any such
special statement in the manner provided in Section 7.7 shall have the
same effect upon the statement as the Employer's approval of an annual
statement of account. No successor to the Trustee shall have any duty or
responsibility to investigate the acts or transactions of any
predecessor who has rendered all statements of account required by
Section 7.7 and this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the
Trustee at the direction of the Administrator shall transfer the Vested
interest, if any, of such Participant in his account to another trust forming
part of a pension, profit sharing or stock bonus plan maintained by such
Participant's new employer and represented by said employer in writing as
meeting the requirements of Code Section 401(a), provided that the trust to
which such transfers are made permits the transfer to be made.
7.11 DIRECT ROLLOVER
(a) Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the manner
prescribed by the Administrator, to have any portion of an eligible
rollover distribution that is equal to at least $500 paid directly to an
eligible retirement plan specified by the distributee in a direct
rollover.
(b) For purposes of this Section the following definitions
shall apply:
(1) An eligible rollover distribution is any distribution of
all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary, or
for a specified period of ten years or more; any distribution to
the extent such distribution is required under Code Section
401(a)(9); the portion of any other distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
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employer securities); and any other distribution that is
reasonably expected to total less than $200 during a year.
(2) An eligible retirement plan is an individual retirement
account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an annuity
plan described in Code Section 403(a), or a qualified trust
described in Code Section 401(a), that accepts the distributee's
eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement annuity.
(3) A distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former
spouse who is the alternate payee under a qualified domestic
relations order, as defined in Code Section 414(p), are
distributees with regard to the interest of the spouse or former
spouse.
(4) A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend
the Plan, subject to the limitations of this Section. However, any
amendment which affects the rights, duties or responsibilities of the
Trustee and Administrator, other than an amendment to remove the Trustee
or Administrator, may only be made with the Trustee's and
Administrator's written consent. Any such amendment shall become
effective as provided therein upon its execution. The Trustee shall not
be required to execute any such amendment unless the Trust provisions
contained herein are a part of the Plan and the amendment affects the
duties of the Trustee hereunder.
(b) No amendment to the Plan shall be effective if it
authorizes or permits any part of the Trust Fund (other than such part
as is required to pay taxes and administration expenses) to be used for
or diverted to any purpose other than for the exclusive benefit of the
Participants or their Beneficiaries or estates; or causes
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any reduction in the amount credited to the account of any Participant;
or causes or permits any portion of the Trust Fund to revert to or
become property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment or
transaction having the effect of a Plan amendment (such as a merger,
plan transfer or similar transaction) shall be effective to the extent
it eliminates or reduces any "Section 411(d)(6) protected benefit" or
adds or modifies conditions relating to "Section 411(d)(6) protected
benefits" the result of which is a further restriction on such benefit
unless such protected benefits are preserved with respect to benefits
accrued as of the later of the adoption date or effective date of the
amendment. "Section 411(d)(6) protected benefits" are benefits described
in Code Section 411(d)(6)(A), early retirement benefits and
retirement-type subsidies, and optional forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to
terminate the Plan by delivering to the Trustee and Administrator
written notice of such termination. Upon any full or partial
termination, all amounts credited to the affected Participants' Combined
Accounts shall become 100% Vested as provided in Section 6.4 and shall
not thereafter be subject to forfeiture, and all unallocated amounts
shall be allocated to the accounts of all Participants in accordance
with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer
shall direct the distribution of the assets of the Trust Fund to
Participants in a manner which is consistent with and satisfies the
provisions of Section 6.5. Distributions to a Participant shall be made
in cash or in property or through the purchase of irrevocable
nontransferable deferred commitments from an insurer. Except as
permitted by Regulations, the termination of the Plan shall not result
in the reduction of "Section 411(d)(6) protected benefits" in
accordance with Section 8.1(c).
8.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its
assets and/or liabilities may be transferred to any other plan and trust only if
the benefits which would be received by a Participant of this Plan, in the event
of a termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not
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otherwise result in the elimination or reduction of any "Section 411(d)(6)
protected benefits" in accordance with Section 8.1(c).
ARTICLE IX
TOP HEAVY
9.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special
vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan
and the special minimum allocation requirements of Code Section 416(c) pursuant
to Section 4.4 of the Plan.
9.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year in
which, as of the Determination Date, (1) the Present Value of Accrued
Benefits of Key Employees and (2) the sum of the Aggregate Accounts of
Key Employees under this Plan and all plans of an Aggregation Group,
exceeds sixty percent (60%) of the Present Value of Accrued Benefits and
the Aggregate Accounts of all Key and Non-Key Employees under this Plan
and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan
Year, but such Participant was a Key Employee for any prior Plan Year,
such Participant's Present Value of Accrued Benefit and/or Aggregate
Account balance shall not be taken into account for purposes of
determining whether this Plan is a Top Heavy or Super Top Heavy Plan (or
whether any Aggregation Group which includes this Plan is a Top Heavy
Group). In addition, if a Participant or Former Participant has not
performed any services for any Employer maintaining the Plan at any time
during the five year period ending on the Determination Date, any
accrued benefit for such Participant or Former Participant shall not be
taken into account for the purposes of determining whether this Plan is
a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan
Year in which, as of the Determination Date, (1) the Present Value of
Accrued Benefits of Key Employees and (2) the sum of the Aggregate
Accounts of Key Employees under this Plan and all plans of an
Aggregation Group, exceeds ninety percent (90%) of the Present value of
Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
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(c) Aggregate Account: A Participant's Aggregate Account as
of the Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the
most recent valuation occurring within a twelve (12) month
period ending on the Determination Date;
(2) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount of any
contributions actually made after the Valuation Date but due on
or before the Determination Date, except for the first Plan Year
when such adjustment shall also reflect the amount of any
contributions made after the Determination Date that are
allocated as of a date in that first Plan Year.
(3) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4) preceding
Plan Years. However, in the case of distributions made after the
Valuation Date and prior to the Determination Date, such
distributions are not included as distributions for top heavy
purposes to the extent that such distributions are already
included in the Participant's Aggregate Account balance as of
the Valuation Date. Notwithstanding anything herein to the
contrary, all distributions, including distributions under a
terminated plan which if it had not been terminated would have
been required to be included in an Aggregation Group, will be
counted. Further, distributions from the Plan (including the
cash value of life insurance policies) of a Participant's
account balance because of death shall be treated as a
distribution for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax deductible
qualified voluntary employee contributions shall not be
considered to be a part of the Participant's Aggregate Account
balance.
(5) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee and
made from a plan maintained by one employer to a plan maintained
by another employer), if this Plan provides the rollovers or
plan-to-plan transfers, it shall always consider such rollovers
or plan-to-plan transfers as a distribution for the purposes of
this Section. If this Plan is the plan accepting such rollovers
or plan-to-plan transfers, it shall
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not consider such rollovers or plan-to-plan transfers as part of
the Participant's Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or made to
a plan maintained by the same employer), if this Plan provides
the rollover or plan-to-plan transfer, it shall not be counted
as a distribution for purposes of this Section. If this Plan is
the plan accepting such rollover or plan-to-plan transfer, it
shall consider such rollover or plan-to-plan transfer as part of
the Participant's Aggregate Account balance, irrespective of the
date on which such rollover or plan-to-plan transfer is
accepted.
(7) For the purposes of determining whether two employers
are to be treated as the same employer in (5) and (6) above, all
employers aggregated under Code Section 414(b), (c), (m) and (o)
are treated as the same employer.
(d) "Aggregation Group" means either a Required Aggregation
Group or a Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the Employer in which
a Key Employee is a participant in the Plan Year containing the
Determination Date or any of the four preceding Plan Years, and
each other plan of the Employer which enables any plan in which
a Key Employee participates to meet the requirements of Code
Sections 401(a)(4) or 410, will he required to be aggregated.
Such group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the
group will be considered a Top Heavy Plan if the Required
Aggregation Group is a Top Heavy Group. No plan in the Required
Aggregation Group will be considered a Top Heavy Plan if the
Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also
include any other plan not required to be included in the
Required Aggregation Group, provided the resulting group, taken
as a whole, would continue to satisfy the provisions of code
Sections 401(a)(4) and 410. Such group shall be known as a
Permissive Aggregation Group.
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In the case of a Permissive Aggregation Group, only a plan that
is part of the Required Aggregation Group will be considered a
Top Heavy Plan if the Permissive Aggregation Group is a Top
Heavy Group. No plan in the Permissive Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation Group
is not a Top Heavy Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year shall be
aggregated in order to determine whether such plans are Top
Heavy Plans.
(4) An Aggregation Group shall include any terminated plan
of the Employer if it was maintained within the last five (5)
years ending on the Determination Date.
(e) "Determination Date" means (a) the last day of the
preceding Plan Year, or (b) in the case of the first Plan Year, the last
day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a
defined benefit plan, the Present Value of Accrued Benefit for a
Participant other than a Key Employee, shall be as determined using the
single accrual method used for all plans of the Employer and Affiliated
Employers, or if no such single method exists, using a method which
results in benefits accruing not more rapidly than the slowest accrual
rate permitted under Code Section 411(b)(1)(C). The determination of the
Present Value of Accrued Benefit shall be determined as of the most
recent Valuation Date that falls within or ends with the 12-month period
ending on the Determination Date except as provided in Code Section 416
and the Regulations thereunder for the first and second plan years of a
defined benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in which,
as of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees
under all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all
defined contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined
for all Participants.
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ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between
the Employer and any Participant or to be a consideration or an inducement for
the employment of any Participant or Employee. Nothing contained in this Plan
shall be deemed to give any Participant or Employee the right to be retained in
the service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
10.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit
which shall be payable out of the Trust Fund to any person (including a
Participant or his Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be void;
and no such benefit shall in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements, or torts of any such
person, nor shall it be subject to attachment or legal process for or
against such person, and the same shall not be recognized by the
Trustee, except to such extent as may be required by law.
(b) This provision shall not apply to the extent a
Participant or Beneficiary is indebted to the Plan, as a result of a
loan from the Plan. At the time a distribution is to be made to or for a
Participant's or Beneficiary's benefit, such proportion of the amount
distributed as shall equal such loan indebtedness shall be paid by the
Trustee to the Trustee or the Administrator, at the direction of the
Administrator, to apply against or discharge such loan indebtedness.
Prior to making a payment, however, the Participant or Beneficiary must
be given written notice by the Administrator that such loan indebtedness
is to be so paid in whole or part from his Participant's Combined
Account. If the Participant or Beneficiary does not agree that the loan
indebtedness is a valid claim against his Vested Participant's Combined
Account, he shall be entitled to a review of the validity of the claim
in accordance with procedures provided in Sections 2.7 and 2.8.
(c) This provision shall not apply to a "qualified domestic
relations order" defined in Code Section 414(p),
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and those other domestic relations orders permitted to be so treated by
the Administrator under the provisions of the Retirement Equity Act of
1984. The Administrator shall establish a written procedure to determine
the qualified status of domestic relations orders and to administer
distributions under such qualified orders. Further, to the extent
provided under a "qualified domestic relations order," a former spouse
of a Participant shall be treated as the spouse or surviving spouse for
all purposes under the Plan.
10.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to
the Act and the laws of the State of Washington, other than its laws respecting
choice of law, to the extent not preempted by the Act.
10.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or
neuter gender, they shall be construed as though they were also used in another
gender in all cases where they would so apply, and whenever any words are used
herein in the singular or plural form, they shall be construed as though they
were also used in the other form in all cases where they would so apply.
10.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding
the Trust and/or Plan established hereunder to which the Trustee, the Employer
or the Administrator may be a party, and such claim, suit, or proceeding is
resolved in favor of the Trustee, the Employer or the Administrator, they shall
be entitled to be reimbursed from the Trust Fund for any and all costs,
attorney's fees, and other expenses pertaining thereto incurred by them for
which they shall have become liable.
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of the Plan or of
the Trust, by termination of either, by power of revocation or
amendment, by the happening of any contingency, by collateral
arrangement or by any other means, for any part of the corpus or income
of any trust fund maintained pursuant to the Plan or any funds
contributed thereto to be used for, or diverted to, purposes other than
the exclusive benefit of Participants, Retired Participants, or their
Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant
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to Act Section 403(c)(2)(A), the Employer may demand repayment of such
excessive contribution at any time within one (1) year following the
time of payment and the Trustees shall return such amount to the
Employer within the one (1) year period. Earnings of the Plan
attributable to the excess contributions may not be returned to the
Employer but any losses attributable thereto must reduce the amount so
returned.
10.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless
exempted by the Act and regulations thereunder, shall be bonded in an amount not
less than 10% of the amount of the funds such Fiduciary handles; provided,
however, that the minimum bond shall be $1,000 and the maximum bond, $500,000.
The amount of funds handled shall be determined at the beginning of each Plan
Year by the amount of funds handled by such person, group, or class to be
covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the funds to be handled
during the then current year. The bond shall provide protection to the Plan
against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone
or in connivance with others. The surety shall be a corporate surety company (as
such term is used in Act Section 412(a)(2)), and the bond shall be in a form
approved by the Secretary of Labor. Notwithstanding anything in the Plan to the
contrary, the cost of such bonds shall be an expense of and may, at the election
of the Administrator, be paid from the Trust Fund or by the Employer.
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer, the Administrator, nor the Trustee, nor
their successors shall be responsible for the validity of any Contract issued
hereunder or for the failure on the part of the insurer to make payments
provided by any such Contract, or for the action of any person which may delay
payment or render a Contract null and void or unenforceable in whole or in part.
10.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have
any responsibility for the validity of this Plan or for the tax or legal aspects
of this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
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10.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative,
Beneficiary, or to any guardian or committee appointed for such Participant or
Beneficiary in accordance with the provisions of the Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Trustee and
the Employer, either of whom may require such Participant, legal representative,
Beneficiary, guardian or committee, as a condition precedent to such payment, to
execute a receipt and release thereof in such form as shall be determined by the
Trustee or Employer.
10.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted
or required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2)
the Administrator and (3) the Trustee. The named Fiduciaries shall have only
those specific powers, duties, responsibilities, and obligations as are
specifically given them under the Plan or as accepted by or assigned to them
pursuant to any procedure provided under the Plan, including but not limited to
any agreement allocating or delegating their responsibilities, the terms of
which are incorporated herein by reference. In general, unless otherwise
indicated herein or pursuant to such agreements, the Employer shall have the
duties specified in Article II hereof, as the same may be allocated or delegated
thereunder, including but not limited to the responsibility for making the
contributions provided for under Section 4.1; and shall have the authority to
appoint and remove the Trustee and the Administrator; to formulate the Plan's
"funding policy and method"; and to amend or terminate, in whole or in part, the
Plan. The Administrator shall have the responsibility for the administration of
the Plan, including but not limited to the items specified in Article IT of the
Plan, as the same may be allocated or delegated thereunder. The Administrator
shall act as the named Fiduciary responsible for communicating with the
Participant according to the Participant Direction Procedures. The Trustee shall
have the responsibility of management and control of the assets held under the
Trust, except to the extent directed pursuant to Article II or with respect to
those assets, the management of which has been assigned to an Investment
Manager, who shall be solely responsible for the management of the assets
assigned to it, all as specifically provided in the Plan and any agreement with
the Trustee. Each named Fiduciary warrants that any directions given,
information furnished, or action taken by it shall be in accordance with the
provisions of the Plan, authorizing or providing for such direction, information
or action. Furthermore, each named Fiduciary may rely upon any such direction,
information or action of another
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named Fiduciary as being proper under the Plan, and is not required under the
Plan to inquire into the propriety of any such direction, information or action.
It is intended under the Plan that each named Fiduciary shall be responsible for
the proper exercise of its own powers, duties, responsibilities and obligations
under the Plan as specified or allocated herein. No named Fiduciary shall
guarantee the Trust Fund in any manner against investment loss or depreciation
in asset value. Any person or group may serve in more than one Fiduciary
capacity. In the furtherance of their responsibilities hereunder, the "named
Fiduciaries" shall be empowered to interpret the Plan and Trust and to resolve
ambiguities, inconsistencies and omissions, which findings shall be binding,
final and conclusive.
10.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
10.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the initial
qualification of the Plan under Code Section 401. If the Plan receives
an adverse determination with respect to its initial qualification, then
the Plan may return such contributions to the Employer within one year
after such determination, provided the application for the determination
is made by the time prescribed by law for filing the Employer's return
for the taxable year in which the Plan was adopted, or such later date
as the Secretary of the Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary, except
Sections 3.5, 3.6, and 4.1(e), any contribution by the Employer to the
Trust Fund is conditioned upon the deductibility of the contribution by
the Employer under the Code and, to the extent any such deduction is
disallowed, the Employer may, within one (1) year following the
disallowance of the deduction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution within one
(1) year following the disallowance. Earnings of the Plan attributable
to the excess contribution may not be returned to the Employer, but any
losses attributable thereto must reduce the amount so returned-
10.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in
a uniform, nondiscriminatory manner. In the event of any
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conflict between the terms of this Plan and any Contract purchased hereunder,
the Plan provisions shall control.
ARTICLE XI
PARTICIPATING EMPLOYERS
11.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the
consent of the Employer and Trustee, any other corporation or entity, whether an
affiliate or subsidiary or not, may adopt this Plan and all of the provisions
hereof, and participate herein and be known as a Participating Employer, by a
properly executed document evidencing said intent and will of such Participating
Employer.
11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to
use the same Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to,
commingle, hold and invest as one Trust Fund all contributions made by
Participating Employers, as well as all increments thereof. However, the
assets of the Plan shall, on an ongoing basis, be available to pay
benefits to all Participants and Beneficiaries under the Plan without
regard to the Employer or Participating Employer who contributed such
assets.
(c) The transfer of any Participant from or to an Employer
participating in this Plan, whether he be an Employee of the Employer or
a Participating Employer, shall not affect such Participant's rights
under the Plan, and all amounts credited to such Participant's Combined
Account as well as his accumulated service time with the transferor or
predecessor, and his length of participation in the Plan, shall continue
to his credit.
(d) All rights and values forfeited by termination of
employment shall inure only to the benefit of the Participants of the
Employer or Participating Employer by which the forfeiting Participant
was employed, except if the Forfeiture is for an Employee whose Employer
is an Affiliated Employer, then said Forfeiture shall inure to the
benefit of the Participants of those Employers who are Affiliated
Employers. Should an Employee of one ("First") Employer be transferred
to an associated ("Second") Employer which is an Affiliated Employer,
such transfer shall not cause his account balance (generated while an
Employee of "First" Employer) in any manner, or by any amount to be
forfeited. Such Employee's Participant Combined Account balance for all
purposes of
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the Plan, including length of service, shall be considered as though he
had always been employed by the "Second" Employer and as such had
received contributions, forfeitures, earnings or losses, and
appreciation or depreciation in value of assets totaling the amount so
transferred.
(e) Any expenses of the Trust which are to be paid by the
Employer or borne by the Trust Fund shall be paid by each Participating
Employer in the same proportion that the total amount standing to the
credit of all Participants employed by such Employer bears to the total
standing to the credit of all Participants.
11.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a party to
this Plan; provided, however, that with respect to all of its relations with the
Trustee and Administrator for the purpose of this Plan, each Participating
Employer shall be deemed to have designated irrevocably the Employer as its
agent. Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.
11.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
11.5 PARTICIPATING EMPLOYER CONTRIBUTION
Any contribution subject to allocation during each Plan Year
shall be allocated only among those Participants of the Employer or
Participating Employer making the contribution, except it the contribution is
made by an Affiliated Employer, in which event such contribution shall be
allocated among all Participants of all Participating Employers who are
Affiliated Employers in accordance with the provisions of this Plan. On the
basis of the information furnished by the Administrator, the Trustee shall keep
separate books and records concerning the affairs of each Participating Employer
hereunder and as to the accounts and credits of the Employees of each
Participating Employer. The Trustee may, but need not, register Contracts so as
to evidence that a particular Participating Employer is the interested Employer
hereunder, but in the event of an Employee transfer from one
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Participating Employer to another, the employing Employer shall immediately
notify the Trustee thereof.
11.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there
shall be a Participating Employer hereunder shall only be by the written action
of each and every Participating Employer and with the consent of the Trustee
where such consent is necessary in accordance with the terms of this Plan.
11.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or
revoke its participation in the Plan. At the time of any such discontinuance or
revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Contracts and other Trust Fund assets allocable to
the Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it has
established a separate pension plan for its Employees, provided however, that no
such transfer shall be made if the result is the elimination or reduction of any
"Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). If no
successor is designated, the Trustee shall retain such assets for the Employees
of said Participating Employer pursuant to the provisions of Article VII hereof.
In no such event shall any part of the corpus or income of the Trust as it
relates to such Participating Employer be used for or diverted to purposes other
than for the exclusive benefit of the Employees of such Participating Employer.
11.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all
necessary rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
84
<PAGE> 91
IN WITNESS WHEREOF, this Plan has been executed the day and year
first above written.
Signed, sealed, and delivered
in the presence of:
bsquare consulting, inc.
/s/ JOSEPH NOTARANGELO By /s/ WILLIAM BAXTER
- ----------------------------------- --------------------------------------
EMPLOYER
Joseph Notarangelo
- -----------------------------------
WITNESSES AS TO EMPLOYER
/s/ ERIC CHRISTOFFERSEN /s/ [Illegible Signature] (SEAL)
- ----------------------------------- ----------------------------------------
TRUSTEE
Eric Christoffersen
- -----------------------------------
WITNESSES AS TO TRUSTEE
/s/ CAPRICE A. PINE /s/ PETER GREGORY SEAL)
- ----------------------------------- ----------------------------------------
TRUSTEE
Caprice A. Pine
- -----------------------------------
WITNESSES AS TO TRUSTEE
/s/ JOSEPH NOTARANGELO /s/ WILLIAM BAXTER (SEAL)
- ----------------------------------- ----------------------------------------
TRUSTEE
Joseph Notarangelo
- -----------------------------------
WITNESSES AS TO TRUSTEE
85
<PAGE> 1
EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") dated as of
___________, 19__, is made between BSQUARE CORPORATION, a Washington corporation
(the "Company"), and _________________ ("Indemnitee").
RECITALS
A. Indemnitee is an officer or director of the Company and in such
capacity is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance, the significant cost of such
insurance and the general reduction in the coverage of such insurance.
C. The Company and Indemnitee further recognize the substantial increase
in litigation subjecting officers and directors to expensive litigation risks at
the same time that such liability insurance has been severely limited.
D. The shareholders of the Company have adopted articles of
incorporation (the "Articles") and bylaws (the "Bylaws") providing for
indemnification of the officers, directors, agents and employees of the Company
to the full extent permitted by the Washington Business Corporation Act (the
"Statute").
E. The Articles, Bylaws and the Statute specifically provide that they
are not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its officers
with respect to indemnification of such directors and officers.
F. The Company desires to provide Indemnitee with specific contractual
assurance of Indemnitee's rights to full indemnification against litigation
risks and expenses (regardless, among other things, of any amendment to or
revocation of the Company's Articles or Bylaws or any change in the ownership of
the Company or the composition of its Board of Directors), which indemnification
is intended to be greater than that which is afforded by the Company's Articles,
Bylaws and, to the extent insurance is available, the coverage of Indemnitee
under the Company's director and officers liability insurance policies, but in
no event shall such indemnification be greater than that allowed by law.
G. In order to induce Indemnitee to continue to serve as an officer
and/or director, as the case may be, of the Company, the Company has agreed to
enter into this Agreement with Indemnitee.
AGREEMENT
in consideration of the recitals above, the mutual covenants and
agreements herein contained, and Indemnitee's continued service as an officer
and/or director, as the case may be, of the Company after the date hereof, the
parties to this Agreement agree as follows.
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<PAGE> 2
1. INDEMNITY OF INDEMNITEE
1.1 SCOPE
The Company agrees to hold harmless and indemnify Indemnitee to the full
extent permitted by law. notwithstanding that such indemnification is not
specifically authorized by this Agreement, the Articles, the Bylaws, the Statute
or otherwise. In the event of any change, after the date of this Agreement, in
any applicable law, statute or rule regarding the right of a Washington
corporation to indemnify a member of its board of directors or an officer, such
changes, to the extent that they would expand Indemnitee's rights hereunder,
shall be within the purview of Indemnitee's rights and the Company's obligations
hereunder, and, to the extent that they would narrow Indemnitee's rights
hereunder, shall be excluded from this Agreement; provided, however, that any
change that is required by applicable laws, statutes or rules to be applied to
this Agreement shall be so applied regardless of whether the effect of such
change is to narrow Indemnitee's rights hereunder.
1.2 NONEXCLUSIVITY
The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Articles,
the Bylaws, any agreement, any vote of shareholders or disinterested directors,
the Statute, or otherwise, whether as to action in Indemnitee's official
capacity or otherwise.
1.3 ADDITIONAL INDEMNITY
if Indemnitee was or is made a party, or is threatened to be made a
party, to or is otherwise involved (including, without limitation, as a witness)
in any Proceeding (as defined below), the Company shall hold harmless and
indemnify Indemnitee from and against any and all losses, claims, damages,
liabilities or expenses (including reasonable attorneys' fees, judgments, fines,
ERISA excise taxes or penalties, amounts paid in settlement and other expenses
incurred in connection with such Proceeding) (collectively, "Damages").
1.4 DEFINITION OF PROCEEDING
For purposes of this Agreement, "Proceeding" shall mean any actual,
pending or threatened action, suit, arbitration, alternative dispute resolution
process, claim or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, in which Indemnitee is, was or
becomes involved by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company or that, being or having been such a
director, officer, employee or agent, Indemnitee is or was serving at the
request of the Company as a director, officer, employee, trustee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise (collectively a "Related Company"), including service with respect to
an employee benefit plan, whether the basis of such proceeding is alleged action
(or inaction) by Indemnitee in an official capacity as a director, officer,
employee, trustee or agent or in any other capacity while serving as a director,
officer, employee, trustee or agent; provided, however, that, except with
respect to an action to enforce the provisions of this Agreement, "Proceeding"
shall not include any action, suit, claim or proceeding instituted by or at the
direction of Indemnitee unless such action, suit, claim or proceeding is or was
authorized by the Company's Board of Directors.
- 2 -
<PAGE> 3
1.5 DETERMINATION OF ENTITLEMENT
In the event that a determination of Indemnitee's entitlement to
indemnification is required pursuant to Section 23B.08.550 of the Statute or any
successor thereto or pursuant to other applicable law, the appropriate
decision-maker shall make such determination; provided, however, that Indemnitee
shall initially be presumed in all cases to be entitled to indemnification, that
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury that such fact is true and that, unless the Company shall deliver to
Indemnitee written notice of a determination that Indemnitee is not entitled to
indemnification within twenty (20) days of the Company's receipt of Indemnitee's
initial written request for indemnification, such determination shall
conclusively be deemed to have been made in favor of the Company's provision of
indemnification and Company hereby agrees not to assert otherwise.
1.6 SURVIVAL
The indemnification provided under this Agreement shall apply to any and
all Proceedings, notwithstanding that Indemnitee has ceased to be a director,
officer, employee, trustee or agent of the Company or a Related Company.
2. EXPENSE ADVANCES
2.1 GENERALLY
The right to indemnification of Damages conferred by Section 1 shall
include the right to have the Company pay Indemnitee's expenses in any
Proceeding as such expenses are incurred and in advance of such Proceeding's
final disposition (such right is referred to hereinafter as an "Expense
Advance").
2.2 CONDITIONS TO EXPENSE ADVANCE
The Company's obligation to provide an Expense Advance is subject to the
following conditions:
2.2.1 UNDERTAKING
If the Proceeding arose in connection with Indemnitee's service
as a director or officer of the Company (and not in any other capacity in which
Indemnitee rendered service, including service to any Related Company), then
Indemnitee or his or her representative shall have executed and delivered to the
Company an undertaking, which need not be secured and shall be accepted without
reference to Indemnitee's financial ability to make repayment, by or on behalf
of Indemnitee to repay all Expense Advances if and to the extent that it shall
ultimately be determined by a final, unappealable decision rendered by a court
having jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise.
2.2.2 COOPERATION
Indemnitee shall give the Company such information and
cooperation as it may reasonably request and as shall be within Indemnitee's
power.
- 3 -
<PAGE> 4
2.2.3 AFFIRMATION
Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good faith
belief that any applicable standards of conduct have been met by Indemnitee.
3. PROCEDURES FOR ENFORCEMENT
3.1 ENFORCEMENT
In the event that a claim for indemnity, an Expense Advance or otherwise
is made hereunder and is not paid in full within sixty days (twenty days for an
Expense Advance) after written notice of such claim is delivered to the Company,
Indemnitee may, but need not, at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim (an "Enforcement Action").
3.2 PRESUMPTIONS IN ENFORCEMENT ACTION
In any Enforcement Action the following presumptions (and limitation on
presumptions) shall apply: (a) The Company shall conclusively be presumed to
have entered into this Agreement and assumed the obligations imposed on it
hereunder in order to induce Indemnitee to continue as an officer and/or
director, as the case may be, of the Company; (b) Neither (i) the failure of the
Company (including the Company's Board of Directors, independent or special
legal counsel or the Company's shareholders) to have made a determination prior
to the commencement of the Enforcement Action that indemnification of Indemnitee
is proper in the circumstances nor (ii) an actual determination by the Company,
its Board of Directors, independent or special legal counsel or shareholders
that Indemnitee is not entitled to indemnification shall be a defense to the
Enforcement Action or create a presumption that Indemnitee is not entitled to
indemnification hereunder; and (c) If Indemnitee is or was serving as a
director, officer, employee, trustee or agent of a corporation of which a
majority of the shares entitled to vote in the election of its directors is held
by the Company or in an executive or management capacity in a partnership, joint
venture, trust or other enterprise of which the Company or a wholly owned
subsidiary of the Company is a general partner or has a majority ownership, then
such corporation, partnership, joint venture, trust or enterprise shall
conclusively be deemed a Related Company and Indemnitee shall conclusively be
deemed to be serving such Related Company at the request of the Company.
3.3 ATTORNEYS' FEES AND EXPENSES FOR ENFORCEMENT ACTION
In the event Indemnitee is required to bring an Enforcement Action, the
Company shall indemnify and hold harmless Indemnitee against all of Indemnitee's
fees and expenses in bringing and pursuing the Enforcement Action (including
reasonable attorneys' fees at any stage, including on appeal); provided,
however, that the Company shall not be required to provide such indemnity for
such attorneys' fees or expenses if a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee in such Enforcement
Action was not made in good faith or was frivolous.
- 4 -
<PAGE> 5
4. LIMITATIONS ON INDEMNITY; MUTUAL ACKNOWLEDGEMENT
4.1 LIMITATION ON INDEMNITY
No indemnity pursuant to this Agreement shall be provided by the
Company: (a) On account of any suit in which a final, unappealable judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company in violation of the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto; (b) For Damages that have been paid directly to Indemnitee
by an insurance carrier under a policy of officers' and directors' liability
insurance maintained by the Company; (c) On account of Indemnitee's conduct
which is finally adjudged to have been intentional misconduct, a knowing
violation of law or the RCW 23B.08310 or any successor provision of the
Statute, or a transaction from which Indemnitee derived benefit in money,
property or services to which Indemnitee is not legally entitled; or (d) If a
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful.
4.2 MUTUAL ACKNOWLEDGEMENT
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the Securities and Exchange
Commission (the "SEC") has taken the position that indemnification is not
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
5. NOTIFICATION AND DEFENSE OF CLAIM
5.1 NOTIFICATION
Promptly after receipt by Indemnitee of notice of the commencement of
any Proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof; but the omission so to notify the Company will not relieve the Company
from any liability which it may have to Indemnitee under this Agreement unless
and only to the extent that such omission can be shown to have prejudiced the
Company's ability to defend the Proceeding.
5.2 DEFENSE OF CLAIM
With respect to any such Proceeding as to which Indemnitee notifies the
Company of the commencement thereof: (a) The Company may participate therein at
its own expense; (b) The Company, jointly with any other indemnifying party
similarly notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict
- 5 -
<PAGE> 6
of interest between the Company and Indemnitee in the conduct of the defense of
such action, or (iii) the Company shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Company or as to which Indemnitee shall have made the
conclusion provided for in (ii) above; (c) The Company shall not be liable to
indemnify Indemnitee under this Agreement for any amounts paid in settlement of
any Proceeding effected without its written consent; (d) The Company shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent; and (e) Neither
the Company nor Indemnitee will unreasonably withhold its, his or her consent to
any proposed settlement.
6. SEVERABILITY
Nothing in this Agreement is intended to require or shall be construed
as requiring the Company to do or fall to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and authority to
enter into, and be bound by the terms of, this Agreement, and the execution,
delivery and performance of the undertakings contemplated by this Agreement have
been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and delivered by the
Company in accordance with the provisions hereof, shall be a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
enforcement of creditors' rights generally.
8. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION
(a) This Agreement shall be interpreted and enforced in accordance with
the laws of the State of Washington.
(b) This Agreement shall be binding upon Indemnitee and upon the
Company, its successors and assigns, and shall inure to the benefit of
Indemnitee, Indemnitee's heirs, personal representatives and assigns and to the
benefit of the Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
COMPANY:
BSQUARE CORPORATION
By ____________________________________
INDEMNITEE:
By ____________________________________
- 7 -
<PAGE> 1
EXHIBIT 10.5
- --------------------------------------------------------------------------------
bsquare corporation
LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
1. DEFINITIONS AND CONSTRUCTION.................................................. 2
1.1 Definitions............................................................ 2
1.2 Accounting Terms....................................................... 7
2. LOAN AND TERMS OF PAYMENT..................................................... 7
2.1 Credit Extensions...................................................... 7
2.2 Overadvances........................................................... 10
2.3 Interest Rates, Payments, and Calculations............................. 10
2.4 Crediting Payments..................................................... 11
2.5 Fees................................................................... 11
2.6 Additional Costs....................................................... 11
2.7 Term................................................................... 12
3. CONDITIONS OF LOANS........................................................... 12
3.1 Conditions Precedent to Initial Credit Extension....................... 12
3.2 Conditions Precedent to all Credit Extensions.......................... 12
4. CREATION OF SECURITY INTEREST................................................. 13
4.1 Grant of Security Interest............................................. 13
4.2 Delivery of Additional Documentation Required.......................... 13
4.3 Right to Inspect....................................................... 13
5. REPRESENTATIONS AND WARRANTIES................................................ 13
5.1 Due Organization and Qualification..................................... 13
5.2 Due Authorization; No Conflict......................................... 13
5.3 No Prior Encumbrances.................................................. 13
5.4 Bona Fide Eligible Accounts............................................ 13
5.5 Merchantable Inventory................................................. 14
5.6 Name; Location of Chief Executive Office............................... 14
5.7 Litigation............................................................. 14
5.8 No Material Adverse Change in Financial Statements..................... 14
5.9 Solvency............................................................... 14
5.10 Regulatory Compliance.................................................. 14
5.11 Environmental Condition................................................ 14
5.12 Taxes.................................................................. 14
5.13 Subsidiaries........................................................... 14
5.14 Government Consents.................................................... 15
5.15 Full Disclosure........................................................ 15
6. AFFIRMATIVE COVENANTS......................................................... 15
6.1 Good Standing.......................................................... 15
6.2 Government Compliance.................................................. 15
6.3 Financial Statements, Reports, Certificates............................ 15
6.4 Inventory; Returns..................................................... 16
6.5 Taxes.................................................................. 16
6.6 Insurance.............................................................. 16
6.7 Principal Depository................................................... 16
6.8 Quick Ratio............................................................ 16
6.9 Tangible Net Worth..................................................... 16
6.10 Debt Service Coverage:................................................. 16
6.11 Registration of Intellectual Property Rights........................... 17
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
6.12 Further Assurances..................................................... 17
7. NEGATIVE COVENANTS............................................................ 17
7.1 Dispositions........................................................... 17
7.2 Change in Business..................................................... 17
7.3 Mergers or Acquisitions................................................ 17
7.4 Indebtedness........................................................... 18
7.5 Encumbrances........................................................... 18
7.6 Distributions.......................................................... 18
7.7 Investments............................................................ 18
7.8 Transactions with Affiliates........................................... 18
7.9 Subordinated Debt...................................................... 18
7.10 Inventory.............................................................. 18
7.11 Compliance............................................................. 18
8. EVENTS OF DEFAULT............................................................. 18
8.1 Payment Default........................................................ 18
8.2 Covenant Default....................................................... 18
8.3 Material Adverse Change................................................ 19
8.4 Attachment............................................................. 19
8.5 Insolvency............................................................. 19
8.6 Other Agreements....................................................... 19
8.7 Judgments.............................................................. 19
8.8 Misrepresentations..................................................... 19
8.9 Guaranty............................................................... 19
9. BANK'S RIGHTS AND REMEDIES.................................................... 20
9.1 Rights and Remedies.................................................... 20
9.2 Power of Attorney...................................................... 21
9.3 Accounts Collection.................................................... 21
9.4 Bank Expenses.......................................................... 21
9.5 Bank's Liability for Collateral........................................ 21
9.6 Remedies Cumulative.................................................... 21
9.7 Demand; Protest........................................................ 22
10. NOTICES ...................................................................... 22
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.................................... 22
12. GENERAL PROVISIONS............................................................ 22
12.1 Successors and Assigns................................................. 22
12.2 Indemnification........................................................ 23
12.3 Time of Essence........................................................ 23
12.4 Severability of Provisions............................................. 23
12.5 Amendments in Writing, Integration..................................... 23
12.6 Counterparts........................................................... 23
12.7 Survival............................................................... 23
13. JUDICIAL REFERENCE............................................................ 23
</TABLE>
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<PAGE> 4
This LOAN AND SECURITY AGREEMENT is entered into as of February 11,
1998, by and between IMPERIAL BANK ("Bank") and bsquare corporation
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a cash advance under the
Revolving Facility.
"Affiliate" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such Person, and
each of such Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and expenses
of appeal), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and
records including: ledgers; records concerning Borrower's assets or liabilities,
the Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" means an amount equal to eighty percent
(80%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
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<PAGE> 5
"Collateral" means the property described on Exhibit A
attached hereto.
"Committed Revolving Line" means a credit extension of
up to Two Million Dollars ($2,000,000).
"Contingent Obligation" means, as applied to any Person,
any direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Credit Extension" means each Advance, Letter of Credit,
Term Loan, Exchange Contract or any other extension of credit by Bank for the
benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current assets on
the consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date,
all amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its Subsidiaries,
as at such date, plus, to the extent not already included therein, all
outstanding Advances made under this Agreement, including all Indebtedness that
is payable upon demand or within one year from the date of determination thereof
unless such Indebtedness is renewable or extendable at the option of Borrower or
any Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed
at the end of a given day.
"Eligible Accounts" means those Accounts that arise in
the ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon notification thereof to Borrower in
accordance with the provisions hereof. Unless otherwise agreed to by Bank,
Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay
within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor,
twenty-five percent (25%) of whose Accounts the account debtor has failed to pay
within ninety (90) days of invoice date;
(c) Accounts with respect to which the account debtor is
an officer, employee, or agent of Borrower;
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<PAGE> 6
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale, on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is
an Affiliate of Borrower;
(f) Accounts with respect to which the account debtor
does not have its principal place of business in the United States, except for
Eligible Foreign Accounts;
(g) Accounts with respect to which the account debtor is
the United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which Borrower is liable to
the account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor;
(i) Accounts with respect to an account debtor,
including Subsidiaries and Affiliates, whose total obligations to Borrower
exceed twenty-five percent (25%) of all Accounts, to the extent such obligations
exceed the aforementioned percentage; except that the concentration limit for
Accounts owing by Microsoft Corporation shall be forty-five percent (45%), and
except as approved in writing by Bank;
(j) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(k) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect
to which the account debtor does not have its principal place of business in the
United States and (1) that have sales in excess of Five Hundred Million Dollars
($500,000,000) per year; or (2) that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, software
and related general intangibles, parts and attachments in which Borrower has any
interest.
"ERISA" means the Employment Retirement Income Security
Act of 1974, as amended, and the regulations thereunder.
"Equipment Advance" has the meaning set forth in Section
2.1.4.
"Equipment Line" means a credit extension of up to Five
Hundred Thousand Dollars ($500,000).
"Equipment Maturity Date" means October 30, 2001.
"GAAP" means generally accepted accounting principles as
in effect from time to time.
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"Indebtedness" means (a) all indebtedness for borrowed
money or the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced
by or against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement,
any note or notes executed by Borrower, and any other agreement entered into
between Borrower and Bank in connection with this Agreement, all as amended or
extended from time to time.
"Material Adverse Effect" means a material adverse
effect on (i) the business operations or condition (financial or otherwise) of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower
to repay the Obligations or otherwise perform its obligations under the Loan
Documents.
"Negotiable Collateral" means all of Borrower's present
and future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated to pay to
Bank pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
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"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Indebtedness secured by a lien described in clause
(c) of the defined term "Permitted Liens," provided such Indebtedness does not
exceed the lesser of the cost or fair market value of the equipment financed
with such Indebtedness.
(d) Subordinated Debt;
(e) Indebtedness to trade creditors incurred in the
ordinary course of business; and
(f) Other Indebtedness in an outstanding principal
amount not to exceed $200,000.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed
in the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed
in the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, provided the same have no priority over any of
Bank's security interests;
(c) Liens (i) upon or in any equipment acquired or held
by Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by liens of the type
described in clauses (a) through (c) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation,
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institution, public benefit corporation, firm, joint Stock company, estate,
entity or governmental agency.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount
thereof shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive
Officer, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means the date immediately
preceding the first anniversary of the date of this Agreement.
"Revolving Facility" means the facility under which
Borrower may request Bank to issue Advances, as specified in Section 2.1 hereof.
"Schedule" means the schedule of exceptions attached
hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower
that is subordinated to the debt owing by Borrower to Bank on terms acceptable
to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in
which (i) any general partnership interest or (ii) more than 50% of the stock of
which by the terms thereof ordinary voting power to elect the Board of
Directors, managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means at any date as of which the
amount thereof shall be determined, the sum of the capital stock and additional
paid-in capital plus retained earnings (or minus accumulated deficit) of
Borrower and its Subsidiaries minus intangible assets, plus Subordinated Debt,
on a consolidated basis determined in accordance with GAAP.
"Total Liabilities" means at any date as of which the
amount thereof shall be determined, all obligations that should, in accordance
with GAAP be classified as liabilities on the consolidated balance sheet of
Borrower, including in any event all Indebtedness.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP. When used herein, the
terms "financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions.
Borrower promises to pay to the order of Bank, in lawful
money of the United States of America, the aggregate unpaid principal amount of
all Credit Extensions made by Bank to Borrower hereunder. Borrower shall also
pay interest on the unpaid principal amount of such Credit Extensions at rates
in accordance with the terms hereof.
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2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed (i) the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii) the face amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit, and minus (iii) the
Foreign Exchange Reserve. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1.1 may be repaid and reborrowed at
any time prior to the Revolving Maturity Date.
(b) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1.1
shall be immediately due and payable.
2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an aggregate outstanding face amount not to exceed (i)
the lesser of the Committed Revolving Line or the Borrowing Base, minus (ii) the
then outstanding principal balance of the Advances, provided that the face
amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve) shall not in any case exceed
Five Hundred Thousand Dollars ($500,000). Each Letter of Credit shall have an
expiry date no later than the Revolving Maturity Date. All Letters of Credit
shall be, in form and substance, acceptable to Bank in its sole discretion and
shall be subject to the terms and conditions of Bank's form of standard
Application and Letter of Credit Agreement.
(b) The obligation of Borrower to immediately reimburse
Bank for drawings made under Letters of Credit shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend, protect and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of
Credit payable in a currency other than United States Dollars. If a demand for
payment is made under any such Letter of Credit, Bank shall treat such demand as
an Advance to Borrower of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate of exchange in
San Francisco, California, for sales of that other currency for cable transfer
to the country of which it is the currency.
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(d) Upon the issuance of any Letter of Credit payable in
a currency other than United States Dollars, Bank shall create a reserve under
the Committed Revolving Line for Letters of Credit against fluctuations in
currency exchange rates, in an amount equal to ten percent (10%) of the face
amount of such Letter of Credit. The amount of such reserve may be amended by
Bank from time to time to account for fluctuations in the exchange rate. The
availability of funds under the Committed Revolving Line shall be reduced by the
amount of such reserve for so long as such Letter of Credit remains outstanding.
2.1.3 Foreign Exchange Contract; Foreign Exchange Settlements.
(a) Subject to the terms of this Agreement, Borrower may
enter into foreign exchange contracts (the "Exchange Contracts") not to exceed
an aggregate amount of Seventy-Five Thousand Dollars ($75,000) (the "Contract
Limit"), pursuant to which Bank shall sell to or purchase from Borrower foreign
currency on a spot or future basis. Borrower shall not request any Exchange
Contracts at any time it is out of compliance with any of the provisions of this
Agreement. All Exchange Contracts must provide for delivery of settlement on or
before the Revolving Maturity Date. The amount available under the Committed
Revolving Line at any time shall be reduced by the following amounts (the
"Foreign Exchange Reserve") on any given day (the "Determination Date"): (i) on
all outstanding Exchange Contracts on which delivery is to be effected or
settlement allowed more than two (2) Business Days after the Determination Date,
ten percent (10%) of the gross amount of the Exchange Contracts; plus (ii) on
all outstanding Exchange Contracts on which delivery is to be effected or
settlement allowed within two (2) Business Days after the Determination Date,
one hundred percent (100%) of the gross amount of the Exchange Contracts.
(b) Bank may, in its discretion, terminate the Exchange
Contracts at any time (a) that an Event of Default occurs or (b) that there is
no sufficient availability under the Committed Revolving Line and Borrower does
not have available funds in its bank account to satisfy the Foreign Exchange
Reserve. If Bank terminates the Exchange Contracts, and without limitation of
any applicable indemnities, Borrower agrees to reimburse Bank for any and all
fees, costs and expenses relating thereto or arising in connection therewith.
(c) Borrower shall not permit the total gross amount of
all Exchange Contracts on which delivery is to be effected and settlement
allowed in any two (2) Business Day period to be more than Seventy-Five Thousand
Dollars ($75,000) (the "Settlement Limit"), nor shall Borrower permit the total
gross amount of all Exchange Contracts to which Borrower is a party, outstanding
at any one time, to exceed the Contract Limit. Notwithstanding the above,
however, the amount which may be settled in any two (2) Business Day period may
be increased above the Settlement Limit up to, but in no event to exceed, the
amount of the Contract Limit under either of the following circumstances:
(i) if there is sufficient availability under
the Committed Revolving Line in the amount of the Foreign Exchange Reserve as of
each Determination Date, provided that Bank in advance shall reserve the full
amount of the Foreign Exchange Reserve against the Committed Revolving Line; or
(ii) if there is insufficient availability under
the Committed Revolving Line, as to settlements within any two (2) Business Day
period, provided that Bank, in its sole discretion, may: (A) verify good funds
overseas prior to crediting Borrower's deposit account with Bank (in the case of
Borrower's sale of foreign currency); or (B) debit Borrower's deposit account
with Bank prior to delivering foreign currency overseas (in the case of
Borrower's purchase of foreign currency).
(d) In the case of Borrower's purchase of foreign
currency, Borrower in advance shall instruct Bank upon settlement either to
treat the settlement amount as an advance under the Committed Revolving Line, or
to debit Borrower's account for the amount settled.
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(e) Borrower shall execute all standard form
applications and agreements of Bank in connection with the Exchange Contracts
and, without limiting any of the terms of such applications and agreements,
Borrower will pay all standard fees and charges of Bank in connection with the
Exchange Contracts.
(f) Without limiting any of the other terms of this
Agreement or any such standard form applications and agreements of Bank,
Borrower agrees to indemnify Bank and hold it harmless from and against any and
all claims, debts, liabilities, demands, obligations, actions, costs and
expenses (including, without limitation, attorneys' fees of counsel of Bank's
choice), of every nature and description which it may sustain or incur, based
upon, arising out of, or in any way relating to any of the Exchange Contracts or
any transactions relating thereto or contemplated thereby.
2.1.4 Equipment Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through October 30, 1998, Bank
agrees to make advances (each an "Equipment Advance" and, collectively, the
"Equipment Advances") to Borrower in an aggregate outstanding amount not to
exceed the Equipment Line. The Equipment Advances shall be used only to purchase
Equipment approved from time to time by Bank purchased on or after ninety (90)
days prior to the date hereof, and shall not exceed eighty percent (80%) of the
invoice amount of such equipment, excluding taxes, shipping, warranty charges,
freight discounts and installation expense. Not more than twenty-five percent
(25%) of the aggregate outstanding Equipment Advances shall be used to finance
the acquisition or licensing of software.
(b) Interest shall accrue from the date of each
Equipment Advance at the rate specified in Section 2.3(a), and shall be payable
monthly for each month through October 1998. Any Equipment Advances that are
outstanding on October 30, 1998 shall be payable in thirty-six (36) equal
monthly installments of principal, plus all accrued interest, beginning on
November 30, 1998, and continuing on the same day of each month thereafter
through October 30, 2001, at which time all amounts due under this Section 2.1.4
and any other amounts due under this Agreement shall be immediately due and
payable. Equipment Advances, once repaid, may not be reborrowed.
(c) When Borrower desires to obtain a Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 3:00 p.m. Pacific time one (1)
Business Day before the day on which the Equipment Advance is to be made. Such
notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a copy of the
invoice for any Equipment to be financed.
2.2 Overadvances. If, at any time or for any reason, the amount
of Obligations owed by Borrower to Bank pursuant to Section 2.1.1 of this
Agreement is greater than the lesser of (i) the Committed Revolving Line or (ii)
the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount
of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances' Except as set forth in Section
2.3(b), any Advances shall bear interest, on the average daily balance thereof,
at a rate equal to the Prime Rate.
(ii) Equipment Advances. Except as set forth in
Section 2.3(b), any Equipment Advances shall bear interest, on the average daily
balance thereof, at a rate equal to one quarter of a percentage point (0.25%)
above the Prime Rate.
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(b) Default Rate. All Obligations shall bear interest,
from and after the occurrence of an Event of Default, at a rate equal to five
(5) percentage points above the interest rate applicable immediately prior to
the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and
payable on the last Business Day of each month during the term hereof. Bank
shall, at its option, charge such interest, all Bank Expenses, and all Periodic
Payments against any of Borrower's deposit accounts or against the Committed
Revolving Line, in which case those amounts shall thereafter accrue interest at
the rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed
from time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. AU interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon California time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Twelve
Thousand Five Hundred Dollars ($12,500), which fee shall be due on the Closing
Date and shall be fully earned and nonrefundable;
(b) Financial Examination and Apraisal Fees. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon the date hereof, all Bank
Expenses incurred through the Closing Date, including reasonable attorneys' fees
and expenses, and, after the date hereof, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs. In case any change in any law, regulation,
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the
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transactions contemplated hereby (except for taxes on the overall net income of
Bank imposed by the United States of America or any political subdivision
thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect
to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. This Agreement shall become effective on the Closing
Date and, subject to Section 12.7, shall continue in full force and effect for a
term ending on the Equipment Maturity Date. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make Credit Extensions under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The
obligation of Bank to make the initial Credit Extension is subject to the
condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with
respect to incumbency and resolutions authorizing the execution and delivery of
this Agreement;
(c) financing statement (Form UCC-1);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof;
(f) an audit of the Collateral, the results of which
shall be satisfactory to Bank; and
(g) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The
obligation of Bank to make each Credit Extension, including the initial Credit
Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form
as provided in Section 2.1; and
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(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would result from such Credit
Extension. The making of each Credit Extension shall be deemed to be a
representation and warranty by Borrower on the date of such Credit Extension as
to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
4.2 Delivery of Additional Documentation Required. Borrower
shall from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws of
its state of incorporation and qualified and licensed to do business in, and is
in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona
fide existing obligations. The services or property giving rise to such Eligible
Accounts have been rendered or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor that is included in any Borrowing
Base Certificate as an Eligible Account.
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5.5 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are
no actions or proceedings pending by or against Borrower or any Subsidiary
before any court or administrative agency in which an adverse decision could
have a Material Adverse Effect or a material adverse effect on Borrower's
interest or Bank's security interest in the Collateral. Borrower does not have
knowledge of any such pending or threatened actions or proceedings.
5.8 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.9 Solvency. Borrower is solvent and able to pay its debts
(including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's failure
to comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to
be filed all tax returns required to be filed, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
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5.14 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted.
5.15 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within twenty-five
(25) days after the end of each fiscal quarter of Borrower, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during such period, in a form and certified by a Responsible Officer;
(b) as soon as available, but in any event within ninety (90) days after the end
of Borrower's fiscal year, beginning with the year ending December 31, 1997,
audited consolidated financial statements of Borrower prepared in accordance
with GAAP, consistently applied; (c) within five (5) days of filing, copies of
all statements, reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt and all reports
on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of Fifty Thousand Dollars
($50,000) or more; and (e) such budgets, sales projections, operating plans or
other financial information as Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable and accounts payable.
Borrower shall deliver to Bank with the quarterly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts and appraise Collateral at Borrower's expense, provided that such
audits will be conducted no more often than every six (6) months unless an Event
of Default has occurred and is continuing.
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6.4 Inventory; Returns. Borrower shall keep all Inventory in
good and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary
to make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) AR such policies of insurance shall be in such form,
with such companies, and in such amounts as reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
depository, investment, and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of
each fiscal quarter, a ratio of Quick Assets to Current Liabilities, of at least
1.00 to 1.00.
6.9 Tangible Net Worth. Borrower shall maintain, as of the last
day of each fiscal quarter, a Tangible Net Worth plus Subordinated Debt of not
less than Two Million Five Hundred Thousand Dollars ($2,500,000).
6.10 Debt Service Coverage. Borrower shall maintain, as of the
last day of each fiscal quarter, a Debt Service Coverage of at least 1.5 to 1.0.
"Debt Service Coverage" means, as of any date of determination, a ratio of (a)
the sum of (i) earnings after tax plus (ii) interest and non-cash (i.e.,
depreciation and amortization) expense, annualized for the preceding fiscal
quarter to (b) the sum of (i) current portion of long term debt and capitalized
leases plus (ii) interest expense.
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6.11 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered
(to the extent not already registered) with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, those
intellectual property rights listed on Exhibits A, B and C to the intellectual
Property Security Agreement delivered to Bank by Borrower in connection with
this Agreement within sixty (60) days of the date of this Agreement. Borrower
shall register or cause to be registered with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, those
additional intellectual property rights developed or acquired by Borrower from
time to time in connection with any product prior to the sale or licensing of
such product to any third party, including without limitation revisions or
additions to the intellectual property rights listed on such Exhibits A, B and
C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use
its best efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Bank in writing of material infringements
detected and (iii) not allow any Trademarks, Patents or Copyrights to be
abandoned, forfeited or dedicated to the public without the written consent of
Bank, which shall not be unreasonably withheld, unless Bank determines that
reasonable business practices suggest that abandonment is appropriate.
(d) Bank shall have the right, but not the obligation,
to take, at Borrower's sole expense, any actions that Borrower is required under
this Section 6.11 to take but which Borrower fails to take, after fifteen (15)
days' notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.11.
6.12 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Credit
Extensions, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than: (i) Transfers
of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment.
7.2 Change in Business. Engage in any business, or permit any of
its Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change of no more than fifty
percent (50%) in Borrower's ownership. Borrower will not, without thirty (30)
days prior written notification to Bank, relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any
of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or
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permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock, except that Borrower may pay dividends to its shareholders
in such amounts as are necessary to cover personal tax liabilities of such
shareholders.
7.7 Investments. Directly or indirectly acquire or own, or make
any Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman,
or similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose. Fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail
to comply with the Federal Fair Labor Standards Act or violate any law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of
the Obligations;
8.2 Covenant Default. If Borrower fails to perform any
obligation under Article 6 or violates any of the covenants contained in Article
7 of this Agreement, or fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement
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contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Credit Extensions will
be required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a material adverse
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within ten (10)
days (provided that no Credit Extensions will be made prior to the dismissal of
such Insolvency Proceeding);
8.6 Other Agreements. If there is an uncured default in any
agreement to which Borrower is a party with a third party or parties resulting
in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of any Indebtedness in an amount in excess of One
Hundred Thousand Dollars ($100,000) or that could have a Material Adverse
Effect;
8.7 Judgments. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least One Hundred
Thousand Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment); or
8.8 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
8.9 Guaranty. Any guaranty of all or a portion of the
Obligations ceases for any reason to be in full force and effect, or any
guarantor fails to perform any obligation under any guaranty of all or a portion
of the Obligations, or any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth in any
guaranty of all
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or a portion of the Obligations or in any certificate delivered to Bank in
connection with such guaranty.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in
an amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(e) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;
(f) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a license or other right,
solely pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(h) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as is
commercially reasonable, and apply any proceeds to the Obligations in whatever
manner or order Bank deems appropriate;
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(i) Bank may credit bid and purchase at any public sale;
and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign Borrower's name on any invoice or
bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
account debtors; (d) make, settle, and adjust all claims under and decisions
with respect to Borrower's policies of insurance; and (e) settle and adjust
disputes and claims respecting the accounts directly with account debtors, for
amounts and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time from the date of this
Agreement, Bank may notify any Person owing funds to Borrower of Bank's security
interest in such funds and verify the amount of such Account. Borrower shall
collect all amounts owing to Borrower for Bank, receive in trust all payments as
Bank's trustee, and immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities within
ten (10) days of when such payment is due, to the extent required under the
terms of this Agreement, then Bank may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves under the
Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies
with reasonable banking practices, Bank shall not in any way or manner be liable
or responsible for: (a) the safekeeping of the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion from any cause; (c)
any diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
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9.7 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower: bsquare corporation
3633 136th Place SE, Suite 100
Bellevue, WA 98006
Attn: Ms. Leila Kirske
FAX: (425) 519-5999
If to Bank: Imperial Bank
777 108th Avenue NE, Suite 1670
Bellevue, WA 98004
Attn: Mr. Jim Ellison
FAX: (425) 454-6224
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure
to the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
22
<PAGE> 25
12.2 Indemnification. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance
of all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot
be amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and all
of which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information
Bank shall exercise the same degree of care that it exercises with respect to
its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank and (v)
as Bank may determine in connection with the enforcement of any remedies
hereunder. Confidential information hereunder shall not include information that
either: (a) is in the public domain or in the knowledge or possession of Bank
when disclosed to Bank, or become part of the public domain after disclosure to
Bank through no fault of Bank; or (b) is disclosed to Bank by a third party,
provided Bank does not have actual knowledge that such third party is prohibited
from disclosing such information.
13. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all
matters in connection therewith regarding security interests in real or personal
property; or (ii) the appointment of a receiver, or the exercise of other
provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or claim between the parties arising
out of or relating to this Agreement, which controversy, dispute or claim is not
settled in writing within thirty (30) days after
23
<PAGE> 26
the "Claim Date" (defined as the date on which a party subject to this Agreement
gives written notice to all other parties that a controversy, dispute or claim
exists), will be settled by a reference proceeding in California in accordance
with the provisions of Section 638 et seq. of the California Code of Civil
Procedure, or their successor section ("CCP"), which shall constitute the
exclusive remedy for the settlement of any controversy, dispute or claim
concerning this Agreement, including whether such controversy, dispute or claim
is subject to the reference proceeding and except as set forth above, the
parties waive their rights to initiate any legal proceedings against each other
in any court or jurisdiction other than the Superior Court in the County where
the Real Property, if any, is located or Los Angeles County if none (the
"Court"). The referee shall be a retired Judge of the Court selected by mutual
agreement of the parties, and if they cannot so agree within forty-five (45)
days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of the Court
(or any subsequently enacted Rule). Each party shall have one peremptory
challenge pursuant to CCP Section 170.6. The referee shall (a) be requested to
set the matter for hearing within sixty (60) days after the date of selection of
the referee and (b) try any and all issues of law or fact and report a statement
of decision upon them, if possible, within ninety (90) days of the Claim Date.
Any decision rendered by the referee will be final, binding and conclusive and
judgment shall be entered pursuant to CCP Section 644 in any court in the State
of California having jurisdiction. Any party may apply for a reference
proceeding at any time after thirty (30) days following notice to any other
party of the nature of the controversy, dispute or claim, by filing a petition
for a hearing and/or trial. All discovery permitted by this Agreement shall be
completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in the event of a
party's refusal to provide requested discovery or unavailability of a witness
due to absence or illness. No party shall be entitled to "priority" in
conducting discovery. Depositions may be taken by either party upon seven (7)
days written notice, and request for production or inspection of documents which
cannot be resolved by the parties shall be submitted to the referee as provided
herein. The Superior Court is empowered to issue temporary and/or provisions
remedies, as appropriate.
(b) Except as expressly set forth in this Agreement, the
referee shall determine the manner in which the reference proceeding is
conducted including the time and place of all hearings, the order of
presentation of evidence, and all other questions that arise with respect to the
course of the reference proceeding. AU proceedings and hearings conducted before
the referee, except for trial, shall be conducted without a court reporter
except that when any party so requests, a court reporter will be used at any
hearing conducted before the referee. The party making such a request shall have
the obligation to arrange for and pay for the court reporter. The costs of the
court reporter at the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all
issues in accordance with existing case law and the statutory laws of the State
of California. The rules of evidence applicable to proceedings at law in the
State of California will be applicable to the reference proceeding. The referee
shall be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this provisions.
(d) In the event that the enabling legislation which
provides for appointment of a referee is repealed (and no successor statute is
enacted), any dispute between the parties that would otherwise be determined by
the reference procedure herein described will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge of the
24
<PAGE> 27
Court, in accordance with the California Arbitration Act, Section 1280 through
Section 1294.2 of the CCP as amended from time to time. The limitations with
respect to discovery as set forth hereinabove shall apply to any such
arbitration proceedings
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
bsquare corporation
By: /s/ William T. Baxter
---------------------------------
Title: CEO
------------------------------
IMPERIAL
By: /s/ [SIGNATURE ILLEGIBLE]
---------------------------------
Title: SR. VP
------------------------------
25
<PAGE> 28
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing.
(e) All documents, cash, deposit accounts, securities, financial assets,
investment property, securities accounts, securities entitlements, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to any of the foregoing.
26
<PAGE> 29
EXHIBIT B
LOAN PAYMENT ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: EMERGING GROWTH INDUSTRIES DATE:___________________
FAX#: (425) 454-6224 TIME:___________________
FROM: bsquare corporation
-------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:_________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:_________________________________________________________
PHONE NUMBER:_________________________________________________________________
FROM ACCOUNT #________________________ TO ACCOUNT #_______________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $_______________________________
PRINCIPAL PAYMENT (ONLY) $_______________________________
INTEREST PAYMENT (ONLY) $_______________________________
PRINCIPAL AND INTEREST (PAYMENT) $_______________________________
OTHER INSTRUCTIONS:___________________________________________________________
______________________________________________________________________________
All representations and warranties of Borrower stated in the Loan
Agreement are true, correct and complete in all material respects as of the date
of the telephone request for and Advance confirmed by this Borrowing
Certificate; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
__________________________________ _________________________________
Authorized Requester Phone #
__________________________________ _________________________________
Received By (Bank) Phone #
_____________________________________________
Authorized Signature (Bank)
27
<PAGE> 30
EXHIBIT C
BORROWING BASE CERTIFICATE
- --------------------------------------------------------------------------------
Borrower: bsquare corporation Lender: Imperial Bank
Commitment Amount: $2,500,000
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $__________
5. Balance of 25% over 90 day accounts $__________
6. Concentration Limits $__________
7. Foreign Accounts $__________
8. Governmental Accounts $__________
9. Contra Accounts $__________
10. Promotion or Demo Accounts $__________
11. Intercompany/Employee Accounts $__________
12. Other (please explain on reverse) $__________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________
14. Eligible Accounts (#3 minus #13) $__________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $__________
BALANCES
16. Maximum Loan Amount $__________
17. Total Funds Available [Lesser of #16 or #15] $__________
18. Present balance owing on Line of Credit $__________
19. Outstanding under Sublimits ( ) $__________
20. RESERVE POSITION (#17 minus #18 and #19) $__________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Imperial Bank.
COMMENTS:
BANK USE ONLY
Rec'd By:______________
Auth. Signer
bsquare corporation Date:__________________
Verified:______________
Auth. Signer
By:_______________________________ Date:__________________
Authorized Signer
28
<PAGE> 31
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: IMPERIAL BANK
FROM: bsquare corporation
The undersigned authorized officer of bsquare corporation hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending _________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES' COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C>
Quarterly financial statements Quarterly within 25 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 15 days Yes No
A/R Audit Initial and Semi-Annual Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Quarterly Basis:
Minimum Quick Ratio 1.0:1.0 ____:1.0 Yes No
Minimum Tangible Net Worth $2,500,000 $_______ Yes No
Maximum Debt Service Coverage 1.50:1.0 ____:1.0 Yes No
</TABLE>
<TABLE>
<CAPTION>
BANK USE ONLY
<S> <C>
COMMENTS REGARDING EXCEPTIONS: See Attached.
Received by:_____________________
Sincerely, AUTHORIZED SIGNER
__________________________________
SIGNATURE Date:____________________________
__________________________________ Verified:________________________
TITLE AUTHORIZED SIGNER
__________________________________
DATE Date:____________________________
Compliance Status: Yes No
</TABLE>
29
<PAGE> 32
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
February 11, 1998, by and between IMPERIAL SANK ("Bank") and bsquare corporation
("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks and Patents
to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents and Trademarks listed on Schedules
A, B and C hereto), and including without limitation all proceeds thereof (such
as, by way of example but not by way of limitation, license royalties and
proceeds of infringement suits), the right to sue for past, present and future
infringements, all rights corresponding thereto throughout the world and all
re-issues, divisions continuations, renewals, extensions and
continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which are now or hereafter available to Bank as a matter of law or equity. Each
right, power and remedy of Bank provided for herein or in the Loan Agreement or
any of the Loan Documents, or now or hereafter existing at law or in equity
shall be cumulative and concurrent and shall be in addition to every right,
power or remedy provided for herein and the exercise by Bank of any one or more
of the rights, powers or remedies provided for in this Intellectual Property
Security Agreement, the Loan Agreement or any of the other Loan Documents, or
now or hereafter existing at law or in equity, shall not preclude the
simultaneous or later exercise by any person, including Bank, of any or all
other rights, powers or remedies.
30
<PAGE> 33
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR:
Address of Grantor: bsquare corporation
3633 136th Place SE, Suite 100 By: [SIGNATURE ILLEGIBLE]
Bellevue, WA 98006 ---------------------------------
Title: CEO
------------------------------
Attn: Ms. Leila Kirske
BANK:
Address of Bank: IMPERIAL BANK
777 108th Avenue NE, Suite 1670 By: [SIGNATURE ILLEGIBLE]
Bellevue, WA 98004 ---------------------------------
Title: SR. VP
Attn: Mr. James Ellison ------------------------------
2
<PAGE> 34
EXHIBIT A
BSQUARE DEVELOPMENT COPYRIGHTS
- - BSQUARE FAX EXPRESS (a.k.a., bFAX Express), 1996, 1997 and 1998:
Send-only fax application for Windows CE. Support faxing and previewing
bitmaps, text and Microsoft Pocket Word documents. This application has
been adapted to the H/PC and the P/PC. This application is sold through
reseller channels. The P/PC version is due for release in 1Q98.
- - BSQUARE FAX PRO (a.k.a., bFAX Pro): Send and receive fax application for
Windows CE. Supports faxing and previewing of faxes containing multiple
documents to multiple recipients. This product is bundled with certain
H/PCs. This application is sold through reseller channels.
- - BSQUARE FAX LITE (a.k.a., bFAX Lite), 1996, 1997 and 1998: A version of
bFAX Pro that has certain features disabled. This product was developed
to provide a free evaluation of bFAX to customers. This product is
distributed free of charge on the Web and by certain H/PC OEMs.
- - BSQUARE FAX ENHANCED (a.k.a., bFAX Enhanced): A version of bFAX Pro that
has certain features disabled. This product was developed to bundle with
the Casio Casseopiea A-10 and A-11. This product is no longer in
production.
- - BSQUARE MOBILE (a.k.a., bMOBILE, bMOBILE Wireless Internet): This is a
driver and control panel application that allows Windows CE to
communicate with a Motorola Personal Messenger 100C CDPD (cellular
digital packet data) modem. The control panel interface allows for modem
control and monitoring.
- - BSQUARE NET (a.k.a., bNET): This is a driver and control panel
application which is very similar to bMOBILE, but extends this
capability to the 3COM Etherlink III (3C589) and the NE2000 ethernet
adapters.
- - BSQUARE PRINT (a.k.a., bPRINT): This product enables Windows CE Version
1 to print the same file formats bFAX supports while faxing.
- - BSQUARE PRINT PRO (a.k.a., bPRINT Pro): This product enables printing as
does bPRINT, but extends print spooling to any application which
supports printing. It supports printing to IRdA-compliant devices, and
supports printing to various printers not already supported by Windows
CE. It also provides for a print-to-fax capability so that any
application can print to bFAX Pro. It is due for release in 1Q98.
- - BSQUARE FIND (a.k.a., bFIND): This is a global search utility for
Windows CE that allow search of all data sources and controls the
execution of application to continue the search. This application is
sold through reseller channels and is also bundled with all
Hewlett-Packard H/PCs.
- - BSQUARE TRACK (a.k.a., bTRACK): This is a time, expanse and car mileage
tracking application for Windows CE. It provides a set of desktop APIs
the enable third parties to integrate the expense information into
customer applications and corporate information systems. It has been
adapted to both the H/PC and the P/PC. It is due for release in 2Q98.
<PAGE> 35
- - BSQUARE READY (a.k.a., bREADY): This is a information management, online
book authoring and reader application. It has two components. The
desktop component sits on the desktop which allows for the authoring of
electronic books. The authoring application contains Wizards that assist
the user to acquire content from the Internet and produce an electronic
book. The client-side application allows users to read electronic books
produced with the desktop application. The reader has a Auto-scrolling
feature which is used for reading books and speeches. The reader
application supports bookmarks, annotations, searching, and indexing. It
is due for release in 2Q98.
- - BSQUARE MOBILE NEWS (a.k.a., bMOBILE News, bNEWS): This is a USENET
Newsreader application for Windows CE. It was acquired from AdageUS. All
rights, title and interest are owned by BSQUARE. This application is
sold through reseller channels.
- - BSQUARE MOBILE CHAT (a.k.a., bMOBILE Chat, bCHAT). This is an Internet
Relay Chat program for Windows CE. It was acquired from AdageUS. All
rights, title and interest are owned by BSQUARE. This application is
sold through reseller channels.
- - BSQUARE FAX APIS (a.k.a., bFAX APIs): These are a set of low-level
application programming interfaces that provide the capability of
integrating faxing capabilities into other software applications. The
purpose of these APIs is to allow 3rd party independent software vendors
to integrate faxing capabilities into their applications. They require
that the end-user license a copy of bFAX Pro to utilize the
functionality. These APIs are currently being used by Odyssey Computing
and Communications Intelligence Corporation.
- - BSQUARE IMAGING APIS: These are a set of low-level application
programming interfaces that provide the capability of extending the
imaging capabilities of bFAX, bVIEW and bPRINT. Only BSQUARE uses these
capabilities.
- - MIMIC: This a graphical user interface testing framework used by BSQUARE
Development to test applications.
- - PACKET DRIVER TECHNOLOGY: This is the basis for bMOBILE and bNET which
enable those drivers to translate PPP (point to point protocol) into
serial-line internet protocol (SLIP) and ethernet, respectively. This
technology could, conceivably, be adapted to various other protocols.
<PAGE> 36
BSQUARE INTEGRATION COPYRIGHTS:
- - CE XPRESS KITS FOR SC400 (a.k.a., BSQUARE OAK for SC400, BSQUARE Value
Added OAK for SC400): An adaptation of Windows CE to the AMD Elan SC400
Microcontroller. It has been adapted to various board-level devices
using the SC400.
- - CE XPRESS KITS FOR VR4300 (a.k.a., BSQUARE OAK for VR4300, BSQUARE
Value Added OAK for VR4300): An adaptation of Windows CE to the NEC
VR4300 MIPS Processor. It has been adapted to NEC Nile 3 Chipset.
- - CE XPRESS KITS FOR MEDIAGX (a.k.a., BSQUARE OAK for MediaGX, BSQUARE
Value Added OAK for MediaGX): An adaptation of Windows CE to the Cyrix
MediaGX Processor. It has been adapted to various reference devices
using the MediaGX.
- - BSQUARE FIRMWARE: A set of firmware utilities and tools which facilitate
the adaptation of Windows CE to various microprocessors. This includes a
client-side firmware stub called the "brainstem" and a Windows
NT-hosted application capable of interacting with the brainstem. This
firmware provides mechanisms for flashing Windows CE images into a
device, debugging the device, and application programming interfaces
which enable the development of testing software which is source-code
compatible across all devices running the brainstem.
- - DECOMPRESSING BOOT LOADER: An OS loader capable of loading a compressed
Windows CE image (using BSQUARE proprietary file format) into volatile
storage which maps the image so that it can execute in place in the
volatile storage.
BSQUARE COPYRIGHTS:
- - BSQUARE INTRANET (a.k.a., bWEB): This is BSQUARE Corporation's Intranet
Web Site which contains content necessary for disseminating information
to BSQUARE Employees. This information includes, but is not limited to,
Newsletters, organization structure, procedures, policies and forms, as
well as help desk software.
- - BSQUARE HELP (a.k.a., bHELP): A component of bWEB which provides
employees a network administration help desk which allows them to
interact with BSQUARE Network Administrators.
- - BSQUARE OPS (a.k.a., bOPS): A component of bWEB, similar to bHELP, which
provides a facilities/operations help desk to operations and facilities
management.
- - BSQUARE WORLD WIDE WEB SITE (a.k.a., www.bsquare.com): BSQUARE's
Corporate Homepage.
- - BSQUARE Marketing Collateral: This includes all brochures and the like
for marketing BSQUARE Corporation's business divisions.
<PAGE> 37
EXHIBIT C
TRADEMARKS
- - BSQUARE: Registered in US Class 42 #2,105,093 Class 9 application
#75/157,017, application in Canada #827,659
- - BSQUARE VIEW: application in US #75/157,019, application in Canada
#826,625
- - BVIEW: Registered in Canada #TMA485,548, application in US #75/157,018
- - BFAX: application in US #75/157,020, application in Canada #826,626
- - BFIND, BMOBILE, BTRACK, BREADY, BPRINT: applications pending in US
- - CE XPRESS: application pending in US
<PAGE> 38
AGREEMENT TO PROVIDE INSURANCE
TO: IMPERIAL BANK Date: February 11, 1998
226 Airport Parkway Borrower: bsquare corporation
San Jose, California 95110
In consideration of a loan in the amount of $2,500,000, secured by all
tangible personal property including inventory and equipment.
I/We agree to obtain adequate insurance coverage to remain in force
during the term of the loan.
I/We also agree to advise the below named agent to add Imperial Bank as
loss payee on the new or existing insurance policy, and to furnish Bank at above
address with a copy of said policy/endorsements and any subsequent renewal
policies.
I/We understand that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
(a) The amount of the loan, OR
(b) All existing encumbrances, whichever is greater,
But not in excess of the replacement value of the improvements on the
real property.
2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of Imperial
Bank, or any other form acceptable to Bank.
INSURANCE INFORMATION
Insurance Co. /Agent Telephone No.:
Agent's Address:
Signature of Obligor: /s/ [Signature Illegible]
________________________________________
Signature of Obligor:________________________________________
________________________________________________________________________________
FOR BANK USE ONLY
INSURANCE VERIFICATION: Date:___________
Person Spoken to:_______________________
Policy Number:__________________________
Effective Form:_________ To:____________
Verified By:____________________________
<PAGE> 39
ISSUE DATE (02/11/09)
ACORD EVIDENCE OF PROPERTY INSURANCE
- --------------------------------------------------------------------------------
THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN
FORCE, AND CONVEYS ALL THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE POLICY
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PRODUCER COMPANY
PARKER, SMITH & FEEK, INC. FIDELITY & GUARANTY INSURANCE COMPANY
999 Third Avenue, 17th Floor
Seattle, Washington 98104
(206) 382-7900
Code Sub-Code
Agency Customer ID#
- --------------------------------------------------------------------------------
INSURED LOAN NUMBER POLICY NUMBER
BSQUARE CORPORATION N/A 1MP 30137731800
3633 - 136TH PLACE SE
BELLEVUE, WASHINGTON 98006 EFF. DATE EXP. DATE CONTINUOUS
6/16/97 06/16/98 UNTIL
THIS REPLACES PRIOR EVIDENCE TERMINATED IF
DATED:________________ CHECKED __
</TABLE>
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
LOCATION/DESCRIPTION
BLANKET LIEN ON BUSINESS PERSONAL PROPERTY.
COVERAGE INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Coverages/Perils/Forms Amount of Ins. Deductible
<S> <C> <C>
Blanket Business Personal Property $ 1,550,000 $250
Causes of Loss - Special Form
Replacement Cost/Agreed Value
REMARKS (INCLUDING SPECIAL CONDITIONS)
</TABLE>
IMPERIAL BANK IS INCLUDED AS LOSS PAYEE PER ENDORSEMENT 438BFU ATTACHED.
CANCELLATION
The Policy is subject to the premiums, forms, and rules in effect for policy
period. Should the Policy be terminated, the Company will give the additional
interest identified below 45 days written notice, and will send notification of
any changes to the policy that would affect that interest, in accordance with
the Policy provisions or as required by law.
CONDITIONAL INTEREST
<TABLE>
<S> <C> <C>
IMPERIAL BANK __Mortgagee __Additional Insured
9920 SOUTH LACIENEGA BLVD., SUITE 628 X Loss Payee
INGLEWOOD, CA 90301 Loan #N/A
ATTENTION: LENDING SERVICES
-------------------------------------
Authorized Representative
/s/ KAREN M. GRIFFITH
ACORD CORPORATION
</TABLE>
<PAGE> 40
LENDERS'S LOSS PAYABLE ENDORSEMENT
1. Loss or damage, if any, under this policy shall be paid to
IMPERIAL BANK, 9920 South Lacienega Blvd., Suite 628, Inglewood, CA 90301,
Attention: Lending Services
its successors and assigns, hereinafter referred to as "the Lender," in
whatever form or capacity its interests may appear and whether said interest be
vested in said Lender in its individual or in its disclosed or undisclosed
fiduciary or representative capacity, or otherwise, or vested in a nominee or
trustee of said Lender.
2. The insurance under this policy, or any rider or endorsement attached
thereto, as to the interest only of the Lender, its successors and assigns,
shall not be invalidated nor suspended: (a) by any error, omission, or change
respecting the ownership, description, possession or location of the subject of
the insurance or the interest therein, or the title thereto; (b) by the
commencement of foreclosure proceedings or the giving of notice of sale of any
of the property covered by this policy by virtue of any mortgage or trust
deed; (c) by any breach of warranty, act, omission, neglect, or non-compliance
with any of the provisions of this policy, including any and all riders now or
hereafter thereto, by the named insured, the borrower, mortgagor, trustor,
vendee, owner, tenant, warehouseman, custodian, occupant, or by the agents of
either or any of them or by the happening of any event permitted by them or
either of them, or their agents, or which they failed to prevent, whether
occurring before or after the attachment of this endorsement, or whether before
or after a loss, which under the provisions of this policy of insurance or of
any rider or endorsement attached thereto would invalidate or suspend the
insurance as to the named insured, excluding herefrom, however, any act or
omissions of the lender while exercising active control and management of the
property.
3. In the event of failure of the insured to pay any premium or additional
premium which shall be or become due under the terms of this policy or on
account of any change in occupancy or increase in hazard not permitted by this
policy, this Company agrees to give written notice to the Lender of such
non-payment of premium after sixty (60) days from and within one hundred and
twenty (120) days after due date of such premium and it is a condition of the
continuance of the rights of the Lender hereunder that the Lender when so
notified in writing by this Company of the failure of the insured to pay such
premium shall pay or cause to be paid the premium due within ten (10) days
following receipt of the Company's demand in writing therefor. If the Lender
shall decline to pay said premium or additional premium, the rights of the
Lender under this Lender's Loss Payable Endorsement shall not be terminated
before ten (10) days after receipt of said written notice by the Lender.
4. Whenever this Company shall pay to the Lender any sum for loss or damage
under this policy and shall claim that as to the insured no liability therefore
exists, this Company, at its option, may pay to the Lender the whole principal
sum and interest and other indebtedness due or to become due from the insured,
whether secured or unsecured, (with refund of all interest not accrued), and
this Company, to the extent of such payment, shall thereupon receive a full
assignment and transfer, without recourse, of the debt and all rights and
securities held as collateral thereto.
If there be any other insurance upon the within described property, this
Company shall be liable under this policy as to the Lender for the proportion
of such loss or damage that the sum hereby insured bears to the entire
insurance of similar character on said property under policies held by, payable
to and expressly consented to by the Lender. Any Contribution Clause included
in any Fallen Building Clause Waiver or any Extended Coverage Endorsement
attached to this contract of insurance is hereby nullified, and also any
Contribution Clause in any other endorsement or rider attached to this contract
of insurance is hereby nullified except Contribution Clauses for the compliance
with which the insured has received reduction in the rate charged or has
received extension of the coverage to include hazards other than fire and
compliance with such Contribution Clause is made a part of the consideration
for insuring such other hazards. The Lender upon the payment to it of the full
amount of its claim, will subrogate this Company (pro rata with all other
insurers contributing to said payment) to all of the Lender's rights of
contribution under said other insurance.
6. This Company reserves the right to cancel this policy at any time, as
provided by its terms, but in such case this policy shall continue in force for
the benefit of the Lender for ten (10) days after written notice of such
cancellation is received by the Lender and shall then cease.
7. This policy shall remain in full force and effect as to the interest of
the Lender for a period of ten (10) days after its expiration unless an
acceptable policy in renewal thereof with loss thereunder payable to the Lender
in accordance with the terms of this Lender's Loss Payable Endorsement, shall
have been issued by some insurance company and accepted by the Lender.
8. Should legal title to and beneficial ownership of any of the property
covered under this policy become vested in the Lender or its agents, insurance
under this policy shall continue for the term thereof for the benefit of the
Lender but, in such event, any privileges granted by this Lender's Loss Payable
Endorsement which are not also granted the insured under the terms and
conditions of this policy and/or under other riders or endorsements attached
thereto shall not apply to the insurance hereunder as respects such property.
9. All notices herein provided to be given by the Company to the Lender in
connection with this policy and this Lender's Loss Payable Endorsement shall be
mailed to or delivered to the Lender at its office or branch at ____________
or, if not be specified, at its head office at ____________.
Attached to Policy No. 1MP 30137731800 of FIDELITY & GUARANTY INSURANCE COMPANY
Issued to BSQUARE CORPORATION
Agency at SEATTLE, WASHINGTON Date: February 11, 1998
/s/ [Signature Illegible]
--------------------------
PARKER, SMITH & PEEK, INC.
<PAGE> 41
IMPERIAL BANK
Member FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
Borrower: WAVTRACE, INC., fica Date: December 9, 1997
American Wireless Corporation
$ paid to you directly by Cashiers Check No.
$1,750,000.00 credited to deposit Account No. 36-001-038 (when
advances are requested from the Facility A Commitment).
$ paid on Loan(s) No.
$ amounts paid to Bank for:
Amounts paid to others on your behalf:
$ to ____________ Title Insurance Company
$ to Public Officials
$ to
$ to
$ to
$ to
$1,750,000.00 SUBTOTAL (LOAN AMOUNT)
LESS $ Prepaid Finance Charge (Loan fee)
$1,750,000.00 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank to disburse the loan proceeds as stated above.
WAVTRACE, INC.,
a Washington corporation
By: /s/ ROBERT A. LUNDY
-----------------------------------------
Robert A. Lundy
President and Chief Executive Officer
<PAGE> 42
IMPERIAL BANK
Member FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
NAME(S): bsquare corporation Date: February 11, 1998
$ paid to you directly by Cashiers Check No.
$ credited to deposit account No. 0036001283 when
Advances are requested
$ paid on Loan(s) No.
$ amounts paid to Bank for
Amounts paid on your behalf:
$ to Accounts receivable audit
$ 500 to Imperial Bank documentation fee
$2,232 to Gray Cary Ware & Freidenrich fees and expenses
$2,732 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank to disburse the loan proceeds or automatically
debit from Borrower's Account No. 0036001283 as stated above.
$____________ Disburse From Loan Proceeds
$____________ Debit From Account
(Check One. Payments will be disbursed from loan proceeds unless directed
otherwise.)
/s/ [Signature Illegible]
--------------------------------- ---------------------------------
Signature Signature
<PAGE> 43
[GRAY CARY WARE - FREIDENRICH LLP LETTERHEAD]
February 12, 1998
1090371-903300
Imperial Bank
Attn: Jim Ellison
777 - 109th Ave. NE, Suite 1670
Bellevue, WA 98004-5118
STATEMENT
Re: bsquare corporation
Professional Services Rendered from October 24, 1997 through February 11, 1998:
<TABLE>
<S> <C> <C>
Fees $1,900
Costs
UCC Searches $142
Other 190
----
332
Total $2,232
</TABLE>
PLEASE SEND PAYMENT ATTN: JOHN B. HALE
<PAGE> 44
- --------------------------------------------------------------------------------
IMPERIAL BANK
California's Business Banks AUTOMATIC DEBIT AUTHORIZATION
Member FDIC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To: Imperial Bank
Re: Loan #________________
You are hereby authorized and instructed to charge account No. 0036001283 in
the name of bsquare corporation for principal and interest payments due on
above referenced loan as set forth below and credit the loan referenced above.
[X] Debit each interest payment as it becomes due according to the terms
of the note and any renewals or amendments thereof.
[ ] Debit each principal payment as it becomes due according to the terms
of the note and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in
writing.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Borrower Signature Date
/s/ [Signature Illegible] 2-24-98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 45
- --------------------------------------------------------------------------------
[IMPERIAL BANK LOGO]
AUTOMATIC DEBIT AUTHORIZATION
- --------------------------------------------------------------------------------
To: IMPERIAL BANK
Re: LOAN #______________________
You are hereby authorized and instructed to charge account No. 0036001283 in
the name of BSQUARE CORPORATION for principal and interest payments due on
above referenced loan as set forth below and credit the loan referenced above.
[X] Debit each interest payment as it becomes due according to the
terms of the note and any renewals or amendments thereof.
[X] Debit each principal payment as it becomes due according to the terms
of the note and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in
writing.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Borrower Signature Date
/s/ [Signature Illegible] 2/24/98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 46
This UCC-1 FINANCING STATEMENT is presented for filing pursuant to the
WASHINGTON UNIFORM COMMERCIAL CODE, chapter 62A.9 RCW, to perfect a security
interest in the below named collateral.
PLEASE TYPE FORM FILING FEE: $12.00.
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR(S) (see instruction #2) | 2. FOR OFFICE USE ONLY -- DO NOT WRITE IN THIS BOS
|
[ ] PERSONAL (Last, first, middle name and address) |
|
[x] BUSINESS (legal business name and address) |
|
BSQUARE CORPORATION |
3633 136TH PLACE SE SUITE 100 |
BELLEVUE WA 98006 |
|
|
|
TRADE NAME, DBA, AKA: |
|
- ------------------------------------------------------------------------------------------------------------------------------------
2. SECURED PARTY(IES) (name and address) | 4. ASSIGNEE(S) of SECURED PARTY(IES) if applicable
| (name and address)
|
IMPERIAL BANK |
226 AIRPORT PARKWAY |
SAN JOSE CA 95110 |
|
- ------------------------------------------------------------------------------------------------------------------------------------
5. SECURED PARTY CONTACT PERSON:_________________________________________________ Phone: ______________________
- ------------------------------------------------------------------------------------------------------------------------------------
6. CHECK ONLY IF APPLICABLE: (For definitions of TRANSMITTING UTILITY AND PRODUCTS OF COLLATERAL, see instruction sheet)
[ ] Debtor is a Transmitting Utility [ ] Products of Collateral are also covered
- ------------------------------------------------------------------------------------------------------------------------------------
7. THIS FINANCING STATEMENT covers the following collateral: (Attach additional 8-1/2" x 11" sheet(s) if needed.)
See Exhibit A attached hereto for Collateral Description.
- ------------------------------------------------------------------------------------------------------------------------------------
|
8. RETURN ACKNOWLEDGMENT COPY TO: (name and address) | 9. FILE WITH:
| UNIFORM COMMERCIAL CODE
IMPERIAL BANK | DEPARTMENT OF LICENSING
9920 SOUTH LA CIENEGA BLVD. SUITE 628 | P.O. BOX 9660
INGLEWOOD CA 90301 | OLYMPIA, WA 98507-9660
| (206) 753-2523
|
| MAKE CHECKS PAYABLE TO THE
| DEPARTMENT OF LICENSING
|
|-------------------------------------------
| 10. FOR OFFICE USE ONLY IMAGES TO | |
| BE FILMED | |
- ------------------------------------------------------------------------------------------------------------------------------------
11. If collateral is described below, this statement may be signed by the Secured Party instead of the Debtor. Please check the
appropriate box, complete the adjacent lines and box 13, if collateral is:
- ------------------------------------------------------------------------------------------------------------------------------------
a. [ ] already subject to a security interest in another
jurisdiction when it was brought into this state
or when the debtor's location was changed to this state.
(complete adjacent lines 1 and 2) 1._____________________________________________
ORIGINAL FILING NUMBER
b. [ ] proceeds of the original collateral described above in
which a security interest was perfected. 2._____________________________________________
(complete adjacent lines 1, 2 and 3) FILING OFFICE WHERE FILED
c. [ ] listed on a filing which has lapsed. 3._____________________________________________
(complete adjacent lines 1 and 2) FORMER NAME OR DEBTOR(S)
d. [ ] acquired after a change of name, identity, or corporate structure
of the debtor(s). (complete adjacent lines 1, 2 and 3)
- ------------------------------------------------------------------------------------------------------------------------------------
|
12. DEBTOR NAME(S) AND SIGNATURE(S): | 13. SECURED PARTY NAME(S) AND SIGNATURE(S) ARE REQUIRED IF
| BOX 11 HAS BEEN COMPLETED.
|
BSQUARE CORPORATION | 1.
------------------------------------------------------------- | ------------------------------------------------------
TYPE NAME(S) OF DEBTOR(S) AS IT APPEARS IN BOX 1. | TYPE NAME(S) OF SECURED PARTY(IES) AS IT APPEARS
| IN BOX 3 OR 4.
[Signature Illegible] |
| 2.
------------------------------------------------------------- | ------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) | SIGNATURE(S) OF SECURED PARTY(IES)
|
| 3.
------------------------------------------------------------- | ------------------------------------------------------
SIGNATURE OF DEBTOR(S) | SIGNATURE(S) OF SECURED PARTY(IES)
|
</TABLE>
FORM APPROVED FOR USE IN THE STATE OF WASHINGTON (R/7/93)
WASHINGTON USS-1
<PAGE> 47
EXHIBIT A
DEBTOR. BSQUARE CORPORATION
SECURED PARTY: IMPERIAL BANK
The Collateral shall consist of all right, title and interest of Debtor
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Debtor's custody or possession or in transit
and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and Debtor's
Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Debtor
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Debtor, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Debtor and Debtor's Books relating
to any of the foregoing.
<PAGE> 48
Oct. 28, 1997 Page 1
CAL TITLE-SEARCH INC.
UCC Search Report
The following represents a listing of the documentation you requested through a
careful search of effective UCC filings recorded in the Office of the Secretary
of State of Washington, purchased and maintained in computerized form and
available thru our offices. Variations of the Name and Address of the search key
may appear on this report as a result of the search findings and your individual
request for that information. These documents may include but are not limited to
Financing Statements and Tax Liens effective Oct. 13, 1997.
State of Washington UCC Debtor Name Search results performed on the
following Search Key :
Name = BSQUARE
Exp./Term. Liens = No
1. Requested Party not on file.
Because we cannot independently verify the accuracy of the public information
maintained by the responsible government agency, we make no guaranties,
representations, or warranties as to the accuracy or completeness of this
report. Therefore, we accept no liability for errors or omissions
CAL TITLE-SEARCH INC.
(916) 448-1397
<PAGE> 49
Oct. 28, 1997 Page 1
CAL TITLE-SEARCH INC.
UCC Search Report
The following represents a listing of the documentation you requested through a
careful search of effective UCC filings recorded in the Office of the Secretary
of State of Washington, purchased and maintained in computerized form and
available thru our offices. Variations of the Name and Address of the search key
may appear on this report as a result of the search findings and your individual
request for that information. These documents may include but are not limited to
Financing Statements and Tax Liens effective Oct. 13, 1997.
State of Washington UCC Debtor Name Search results performed on the following
Search Key :
Name = BSQUARE CONSULTING
Exp./Term. Liens = No
1. Requested Party not on file.
Because we cannot independently verify the accuracy of the public information
maintained by the responsible government agency, we make no guaranties,
representations, or warranties as to the accuracy or completeness of this
report, Therefore, we accept no liability for errors or omissions.
CAL TITLE-SEARCH INC.
(916) 448-1397
<PAGE> 50
ARTICLES OF CORRECTION
OF
BSQUARE CORPORATION
Pursuant to RCW 23B.01.240, BSQUARE CORPORATION (the "Company"), hereby
makes the following corrections to its Certificate of Amendment to its Articles
of Incorporation as filed with the Office of the Secretary of State of the State
of Washington on January 29, 1998:
FIRST: The Certificate of Designation of the Relative Rights and
Preferences of the Series A Convertible Preferred Stock of BSQUARE CORPORATION
(the "Certificate of Designation"), as filed with the Office of the Secretary of
the State of Washington on January 29, 1998, contained incorrect information and
the Company is hereby submitting for correction the corrected section as set
forth below.
SECOND: The Certificate of Designation incorrectly referenced a
Redemption Agreement, dated as of January 30, 1998:
Section 6. Restrictions and Limitations.
(iv) directly or indirectly redeem, purchase, or otherwise
acquire for consideration any shares of its Common Stock or any other
class of its capital stock except (A) for the redemption of Convertible
Preferred Shares pursuant to and as provided in Sections 2, 4 and 5
hereof, (B) as contemplated by Sections 1.2, 4.6, and 5.2 of that
certain Stock Purchase and Shareholders Agreement, dated as of January
30, 1998 or (C) as contemplated by the Corporation's standard form of
agreement, as approved by the Board of Directors, to be executed by
employees, officers, and consultants of the Corporation upon the grant
to such employees, officers, and consultants of options under the Plan,
IN WITNESS WHEREOF, the Company has caused these Articles of Correction
to be signed by Albert T. Dosser, its Senior Vice President, as of this 3rd day
of February, 1998.
BSQUARE CORPORATION,
a Washington corporation
/s/ ALBERT T. DOSSER
------------------------------------
Albert T. Dosser
Vice President
<PAGE> 51
ARTICLES OF AMENDMENT
OF
BSQUARE CONSULTING, INC.
Pursuant to RCW 23B.10.060, the undersigned corporation adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is bsquare consulting, inc. (the
"Corporation").
SECOND: The Articles of Incorporation are hereby amended as follows:
ARTICLE I
NAME
The name of the corporation is bsquare corporation.
THIRD: The amendment does not provide for an exchange, reclassification,
or cancellation of issued shares.
FOURTH: The foregoing amendment was adopted by the Board of Directors of
the Corporation on June 25, 1997 without shareholder action. Pursuant to RCW
23B.10.020, shareholder action with regard to the amendment of the Articles of
Incorporation of the Corporation is not required.
Dated: June 27, 1997.
bsquare consulting, inc.
/s/ WILLIAM T. BAXTER
------------------------------------
William T. Baxter, President
<PAGE> 52
ARTICLES OF INCORPORATION
OF
BSQUARE CONSULTING, INC.
The undersigned individuals, Albert T. Dosser, Peter R. Gregory and
William T. Baxter, for the purpose of forming a corporation under the laws OF
the State of Washington, and in pursuance thereof, hereby execute the following
Articles of Incorporation in duplicate form and state as follows:
I. NAME
The name of this corporation shall be:
BSQUARE CONSULTING, INC.
II. AUTHORIZED SHARES
The number of shares this corporation shall be authorized to issue will
be 100,000 shares of a single class.
III. REGISTERED AGENT
The street address of this corporation's initial registered office is
777 108th Avenue N.E., Suite 1900, Bellevue, Washington 98004, and the name of
its initial registered agent located at the above address is Patricia A. Murray,
Esq.
IV. INCORPORATORS
The names and addresses of the incorporators are set forth below:
Albert T. Dosser
16340 N.E. 83rd Street, Apt. E-125
Redmond, Washington 98052
Peter R. Gregory
13423 N.E. 115th Court
Redmond, Washington 98052
-1-
<PAGE> 53
William T. Baxter
3233 168th Place S.E.
Bellevue, Washington 98008
V. PURPOSE
This corporation has the purpose of engaging in any lawful business
activity under the Washington Business Corporation Act but is being formed more
specifically for the purpose of providing computer software consulting services.
VI. POWERS
This corporation shall have the same powers as an individual to do all
things necessary or convenient to carry out its business and affairs, including,
without limitation power:
(1) to sue and be sued, complain and defend in its corporate
name;
(2) to have a corporate seal, which may be altered at will, and
to use it, or a facsimile of it, by impressing or affixing it or in any other
manner reproducing it;
(3) to make and amend bylaws, not inconsistent with these
Articles of Incorporation or with the laws of this state, for managing the
business and regulating the affairs of the corporation;
(4) to purchase, receive, lease, or otherwise acquire, and own,
hold, improve, use, and otherwise deal with, real or personal property, or any
legal or equitable interest in property, wherever located;
(5) to sell, convey, mortgage, pledge, lease, exchange, and
otherwise dispose of all or any part of its property;
(6) to purchase, receive, subscribe for, or otherwise acquire,
own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of, and
deal in and with shares or other interests in, or obligations of, any person;
-2-
<PAGE> 54
(7) to make contracts, incur liabilities, borrow money, issue
notes, bonds, and other obligations (which may be convertible into or include
the option to purchase other securities of the corporation), and secure any of
its obligations by mortgage or pledge of any of its property, franchises, or
income;
(8) to make guarantees respecting the contracts, securities, or
obligations of any person (including, but not limited to, any shareholder,
affiliated or unaffiliated individual, domestic or foreign corporation,
partnership, association, joint venture or trust) to the extent permitted by the
Washington Business Corporation Act as amended from time to time;
(9) to lend money, invest and reinvest its funds, and receive
and hold real and personal property as security for repayment;
(10) to be a promoter, partner, member, associate, or manager of
any partnership, joint venture, trust, or other entity;
(11) to conduct its business, locate offices, and exercise the
powers granted by this title within or without this state;
(12) to elect, appoint, or hire officers, employees, and other
agents of the corporation, define their duties, fix their compensation, and lend
them money and credit;
(13) to fix the compensation of directors, and lend them money
and credit;
(14) to pay pensions and establish pension plans, pension
trusts, profit sharing plans, share bonus plans, share option plans, and benefit
or incentive plans for any or all of its current or former directors, officers,
employees, and agents;
(15) to make donations for the public welfare or for charitable,
scientific, or educational purposes;
(16) to transact any lawful business that will aid governmental
policy; and
-3-
<PAGE> 55
(17) to make payments or donations, or do any other act, not
inconsistent with law, that furthers the business and affairs of the
corporation.
VII. DURATION
This corporation shall have perpetual existence.
VIII. DIRECTORS
The number of directors of this corporation shall be determined in the
manner provided in the Bylaws of the corporation, and may be increased or
decreased from time to time as specified in the Bylaws. There shall always be at
least one (1) director. The initial Board of Directors shall consist of three
(3) directors and the names and addresses of the persons who shall serve as
directors until the first annual meeting of shareholders or until their
successors are elected and qualified, unless they sooner resign or are removed,
are:
Albert T. Dosser
16340 N.E. 83rd Street, Apt. E-125
Redmond, Washington 98052
Peter R. Gregory
13423 N.E. 115th Court
Redmond, Washington 98052
William T. Baxter
3233 168th Place S.E.
Bellevue, Washington 98008
IX. BYLAWS
The Board of Directors shall adopt initial Bylaws of this corporation
that are not inconsistent with the Washington Business Corporation Act or these
Articles of Incorporation. The Board of Directors shall also have the power to
alter, amend or repeal the Bylaws or to adopt new Bylaws subject to repeal or
change by action of the shareholders.
-4-
<PAGE> 56
IN WITNESS WHEREOF, the incorporator hereunto executed this document as
of this 13th day of July, 1994.
/s/ ALBERT T. DOSSER
------------------------------------
Albert T. Dosser, Incorporator
/s/ PETER R. GREGORY
------------------------------------
Peter R. Gregory, Incorporator
/s/ WILLIAM T. BAXTER
------------------------------------
William T. Baxter, Incorporator
-5-
<PAGE> 57
ARTICLES OF AMENDMENT
OF BSQUARE CONSULTING, INC.
Pursuant to RCW 23B.10.060, the undersigned corporation adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is bsquare consulting, inc. (the
"Corporation").
SECOND: The Articles of Incorporation are hereby amended by deleting
Article II in its entirety and replacing it with a new Article II to read as
follows:
II. Authorized Shares
2.1 Authorized Capital. The aggregate number of shares which the
Corporation shall have the authority to issue is 60,000,000 shares of stock,
consisting of up to fifty million (50,000,000) shares of Common Stock and up to
ten million (10,000,000) shares of Preferred Stock.
2.2 Issuance of Preferred Stock in Series. The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Restated Articles of Incorporation, as determined
from time to time by the Board of Directors and stated in the resolution or
resolutions providing for the issuance thereof, prior to the issuance of any
shares thereof. The Board of Directors shall have the authority to fix and
determine and to amend, subject to the provisions hereof, the designations,
powers, preferences and relative, participating, optional or other rights, if
any, and qualifications, limitations or other restrictions of the shares of any
series that is wholly unissued or to be established and the number of shares
constituting any such series. Unless otherwise specifically provided in the
resolution establishing any series, the Board of Directors shall further have
the authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding.
(a) Dividends. The holders of shares of the Preferred Stock
shall be entitled to receive dividends, out of the funds of the corporation
legally available therefor, at the rate and at the time or times as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock. The holders of the Preferred Stock shall not be entitled to
receive any dividends thereon, unless otherwise provided by the Board of
Directors in designating a particular series of Preferred Stock.
(b) Liquidation. In the event of any liquidation, dissolution or
winding up of the affairs of the corporation, whether voluntary or involuntary,
then, before any distribution shall be made to the holders of the Common Stock,
the holders of the Preferred Stock at the time outstanding shall be entitled to
be paid the preferential amount or amounts per share as may be provided by the
Board of Directors in designating a particular series of Preferred Stock, plus
<PAGE> 58
dividends accrued thereon to the date of such payment. In designating a
particular series of Preferred Stock, the Board of Directors may also provide
that such series is senior, on a par with or subordinate in order of priority to
any other existing or later issued series of Preferred Stock in respect of
distribution of amounts upon the liquidation, dissolution or winding up of the
affairs of the corporation. The holders of the Preferred Stock shall not be
entitled to receive any distributive amounts upon the liquidation, dissolution
or winding up of the affairs of the corporation, unless otherwise provided by
the Board of Directors in designating a particular series of Preferred Stock.
(c) Conversion. Shares of Preferred Stock may be convertible to
shares of Common Stock at such rate and subject to such adjustments as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock.
(d) Redemption. The Preferred Stock may be redeemable in such
amounts, and at such time or times as may be provided by the Board of Directors
in designating a particular series of Preferred Stock. In any event, such
Preferred Stock may be repurchased by the corporation only to the extent legally
permissible.
(e) Voting Rights. Holders of Preferred Stock shall have such
voting rights as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.
THIRD: The amendment does not provide for an exchange, reclassification,
or cancellation of issued shares.
FOURTH: The foregoing amendment was adopted by the Board of Directors of
the Corporation on April 17, 1997, and was duly approved by the shareholders of
the Corporation on April 17, 1997 in accordance with RCW 23B.10.030 and RCW
23B.10.040, respectively.
Dated: April 17 1997.
bsquare consulting, inc.
By: /s/ WILLIAM T. BAXTER
---------------------------------
Its: President & CEO
-----------------------------
-2-
<PAGE> 59
ARTICLES OF AMENDMENT
OF
bsquare consulting, inc.
Pursuant to RCW 23B.10.060, the undersigned corporation adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is bsquare consulting, inc. (the
"Corporation").
SECOND: The Articles of Incorporation are hereby amended as follows:
ARTICLE I
NAME
The name of the corporation is bsquare corporation.
THIRD: The amendment does not provide for an exchange, reclassification,
or cancellation of issued shares.
FOURTH: The foregoing amendment was adopted by the Board of Directors of
the Corporation on June 25, 1997 without shareholder action. Pursuant to RCW
23B.10.020, shareholder action with regard to the amendment of the Articles of
Incorporation of the Corporation is not required.
Dated: June 27, 1997.
bsquare consulting, inc.
/s/ WILLIAM T. BAXTER
------------------------------------
William T. Baxter, President
<PAGE> 60
STATE of WASHINGTON
[LOGO]
SECRETARY of STATE
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal, hereby issue this
CERTIFICATE OF AMENDMENT
to
BSQUARE CONSULTING, INC.
a Washington Profit corporation. Articles of Amendment were filed for record in
this office on the date indicated below.
UBI Number: 601 559 419 Date: April 30,1997
[SEAL]
Given under my hand and the Seal of
the State of Washington at Olympia,
the State Capital
/s/ RALPH MUNRO
------------------------------------
Ralph Munro, Secretary of State
<PAGE> 61
ARTICLES OF AMENDMENT
OF
BSQUARE CONSULTING, INC.
Pursuant to RCW 23B.10.060, the undersigned corporation adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is bsquare consulting, inc. (the
"Corporation").
SECOND: The Articles of Incorporation are hereby amended by deleting
Article II in its entirety and replacing it with a new Article II to read as
follows:
II. Authorized Shares
2.1 Authorized Capital. The aggregate number of shares which the
Corporation shall have the authority to issue is 60,000,000 shares of stock,
consisting of up to fifty million (50,000,000) shares of Common Stock and up to
ten million (10,000,000) shares of Preferred Stock.
2.2 Issuance of Preferred Stock in Series. The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Restated Articles of Incorporation, as determined
from time to time by the Board of Directors and stated in the resolution or
resolutions providing for the issuance thereof, prior to the issuance of any
shares thereof. The Board of Directors shall have the authority to fix and
determine and to amend, subject to the provisions hereof, the designations,
powers, preferences and relative, participating, optional or other rights, if
any, and qualifications, limitations or other restrictions of the shares of any
series that is wholly unissued or to be established and the number of shares
constituting any such series. Unless otherwise specifically provided in the
resolution establishing any series, the Board of Directors shall further have
the authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding.
(a) Dividends. The holders of shares of the Preferred Stock
shall be entitled to receive dividends, out of the funds of the corporation
legally available therefor, at the rate and at the time or times as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock. The holders of the Preferred Stock shall not be entitled to
receive any dividends thereon, unless otherwise provided by the Board of
Directors in designating a particular series of Preferred Stock.
(b) Liquidation. In the event of any liquidation, dissolution or
winding up of the affairs of the corporation, whether voluntary or involuntary,
then, before any distribution shall be made to the holders of the Common Stock,
the holders of the Preferred Stock at the time outstanding shall be entitled to
be paid the preferential amount or amounts per share as may be provided by the
Board of Directors in designating a particular series of Preferred Stock, plus
<PAGE> 62
dividends accrued thereon to the date of such payment. In designating a
particular series of Preferred Stock, the Board of Directors may also provide
that such series is senior, on a par with or subordinate in order of priority to
any other existing or later issued series of Preferred Stock in respect of
distribution of amounts upon the liquidation, dissolution or winding up of the
affairs of the corporation. The holders of the Preferred Stock shall not be
entitled to receive any distributive amounts upon the liquidation, dissolution
or winding up of the affairs of the corporation, unless otherwise provided by
the Board of Directors in designating a particular series of Preferred Stock.
(c) Conversion. Shares of Preferred Stock may be convertible to
shares of Common Stock at such rate and subject to such adjustments as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock.
(d) Redemption. The Preferred Stock may be redeemable in such
amounts, and at such time or times as may be provided by the Board of Directors
in designating a particular series of Preferred Stock. In any event, such
Preferred Stock may be repurchased by the corporation only to the extent legally
permissible.
(e) Voting Rights. Holders of Preferred Stock shall have such
voting rights as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.
THIRD: The amendment does not provide for an exchange, reclassification,
or cancellation of issued shares.
FOURTH: The foregoing amendment was adopted by the Board of Directors of
the Corporation on April 17, 1997, and was duly approved by the shareholders of
the Corporation April 17, 1997 in accordance with RCW 23B.10.030 and RCW
23B.10.040, respectively.
Dated: April 17, 1997.
bsquare consulting, inc.
By: /s/ WILLIAM T. BAXTER
---------------------------------
Its: President & CEO
-----------------------------
<PAGE> 63
[LOGO]
- --------------------------------------------------------------------------------
STATE of WASHINGTON SECRETARY of STATE
- --------------------------------------------------------------------------------
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal, hereby issue this
CERTIFICATE OF INCORPORATION
to
BSQUARE CONSULTING, INC.
a Washington Profit corporation. Articles of Incorporation were filed for record
in this office on the date indicated below:
U.B.I. Number: 601 559 419 Date: JULY 15, 1994
[SEAL] Given under my hand and the seal of
the State of Washington, at Olympia,
the State Capitol
/s/ RALPH MUNRO
------------------------------------
Ralph Munro, Secretary of State
<PAGE> 64
ARTICLES OF CORPORATION
OF
BSQUARE CONSULTING, INC.
The undersigned individuals, Albert T. Dosser, Peter R. Gregory and
William T. Baxter, for the purpose of forming a corporation under the laws of
the State of Washington, and in pursuance thereof, hereby execute the following
Articles of Incorporation in duplicate form and state as follows:
I. NAME
The name of this corporation shall be:
BSQUARE CONSULTING, INC.
II. AUTHORIZED SHARES
The number of shares this corporation shall be authorized to issue will
be 100,000 shares of a single class.
III. REGISTERED AGENT
The street address of this corporation's initial registered office is
777 108th Avenue N.E., Suite 1900, Bellevue, Washington 98004, and the name of
its initial registered agent located at the above address is Patricia A. Murray,
Esq.
IV. INCORPORATORS
The names and addresses of the incorporators are set forth below:
Albert T. Dosser
16340 N.E. 83rd Street, Apt. E-125
Redmond, Washington 98052
Peter R. Gregory
13423 N.E. 115th Court
Redmond, Washington 98052
<PAGE> 65
William T. Baxter
3233 168th Place S.E.
Bellevue, Washington 98008
V. PURPOSE
This corporation has the purpose of engaging in any lawful business
activity under the Washington Business Corporation Act but is being formed more
specifically for the purpose of providing computer software consulting services.
VI. POWERS
This corporation shall have the same powers as an individual to do all
things necessary or convenient to carry out its business and affairs, including,
without limitation power:
(1) to sue and be sued, complain and defend in its corporate
name;
(2) to have a corporate seal, which may be altered at will, and
to use it, or a facsimile of it, by impressing or affixing it or in any other
manner reproducing it;
(3) to make and amend bylaws, not inconsistent with these
Articles of Incorporation or with the laws of this state, for managing the
business and regulating the affairs of the corporation;
(4) to purchase, receive, lease, or otherwise acquire, and own,
hold, improve, use, and otherwise deal with, real or personal property, or any
legal or equitable interest in property, wherever located;
(5) to sell, convey, mortgage, pledge, lease, exchange, and
otherwise dispose of all or any part of its property;
(6) to purchase, receive, subscribe for, or otherwise acquire,
own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of, and
deal in and with shares or other interests in, or obligations of, any person;
-2-
<PAGE> 66
(7) to make contracts, incur liabilities, borrow money, issue
notes, bonds, and other obligations (which may be convertible into or include
the option to purchase other securities of the corporation), and secure any of
its obligations by mortgage or pledge of any of its property, franchises, or
income;
(8) to make guarantees respecting the contracts, securities, or
obligations of any person (including, but not limited to, any shareholder,
affiliated or unaffiliated individual, domestic or foreign corporation,
partnership, association, joint venture or trust) to the extent permitted by the
Washington Business Corporation Act as amended from time to time;
(9) to lend money, invest and reinvest its funds, and receive
and hold real and personal property as security for repayment;
(10) to be a promoter, partner, member, associate, or manager of
any partnership, joint venture, trust, or other entity;
(11) to conduct its business, locate offices, and exercise the
powers granted by this title within or without this state;
(12) to elect, appoint, or hire officers, employees, and other
agents of the corporation, define their duties, fix their compensation, and lend
them money and credit;
(13) to fix the compensation of directors, and lend them money
and credit;
(14) to pay pensions and establish pension plans, pension
trusts, profit sharing plans, share bonus plans, share option plans, and benefit
or incentive plans for any or all of its current or former directors, officers,
employees, and agents;
(15) to make donations for the public welfare or for charitable,
scientific, or educational purposes;
(16) to transact any lawful business that will aid governmental
policy; and
-3-
<PAGE> 67
(17) to make payments or donations, or do any other act, not
inconsistent with law, that furthers the business and affairs of the
corporation.
VII. DURATION
This corporation shall have perpetual existence.
VII. DIRECTORS
The number of directors of this corporation shall be determined in the
manner provided in the Bylaws of the corporation, and may be increased or
decreased from time to time as specified in the Bylaws. There shall always be at
least one (1) director. The initial Board of Directors shall consist of three
(3) directors and the names and addresses of the persons who shall serve as
directors until the first annual meeting of shareholders or until their
successors are elected and qualified, unless they sooner resign or are removed,
are:
Albert T. Dosser
16340 N.E. 83rd Street, Apt. E-125
Redmond, Washington 98052
Peter R. Gregory
13423 N.E. 115th Court
Redmond, Washington 98052
William T. Baxter
3233 168th Place S.E.
Bellevue, Washington 98008
IX. BYLAWS
The Board of Directors shall adopt initial Bylaws of this corporation
that are not inconsistent with the Washington Business Corporation Act or these
Articles of Incorporation. The Board of Directors shall also have the power to
alter, amend or repeal the Bylaws or to adopt new Bylaws subject to repeal or
change by action of the shareholders.
-4-
<PAGE> 68
IN WITNESS WHEREOF, the incorporator hereunto executed this document as of
this 13th day of July, 1994.
/s/ ALBERT T. DOSSER
------------------------------------
Albert T. Dosser, Incorporator
/s/ PETER R. GREGORY
------------------------------------
Peter R. Gregory, Incorporator
/s/ WILLIAM T. BAXTER
------------------------------------
William T. Baxter, Incorporator
-5-
<PAGE> 69
[IMPERIAL BANK LETTERHEAD]
October 17, 1997
Leila Kirske
Director of Finance
bSquare, Inc.
3633 136th Place SE, Suite 100
Bellevue, WA 99006
Dear Leila:
This letter sets forth a commitment from Imperial Bank ("Bank") to provide to
bSquare, Inc. ("Borrower") the credit described below. The credit facility will
be subject to the terms and conditions of the Bank's definitive loan documents
which will include (but not be limited to) the following in detail:
1. CREDIT FACILITY
A. Line: A $2,000,000 Revolving Line of Credit ("Line") to
support working capital with a $500,000 sublimit for
issuance of trade-related commercial and standby letters
of credit and a $75,000 sublimit to support foreign
exchange contracts. L/Cs and FX contracts to be
negotiated at Bank's standard pricing.
B. Term: A $500,000 Term Loan ("Term Loan") to finance the
purchase of equipment, software, furniture and
acquisitions.
2. MATURITY
A. Line: 364 days from completion of definitive Bank loan
documents.
B. Term Loan: 48 months from completion of definitive Bank loan
documents.
3. TERMS
A. Line: Interest payable monthly, principal plus interest due at
maturity.
B. Term Loan: Available for draws for a period of twelve (12) months
following completion of definitive Bank loan documents.
Interest is payable monthly during draw period followed
by thirty-six (36) equal Monthly payments of principal
plus interest.
<PAGE> 70
bSquare, inc.
10/17/97
page 2
4. COLLATERAL
Bank to have a blanket first priority security interest in all assets
perfected by UCC-1 and Security Agreement filings.
5. BORROWING FORMULA
A. Line: Advances will be limited to the lesser of: (i) 80% of
Eligible Accounts, or (ii) the amount available under
the Line. As used herein, "Eligible Accounts" will
include those domestic and pre-approved foreign
accounts receivable of Borrower which are outstanding
less than 90 days from invoice date subject to certain
exclusions for contra, US government and inter-company
accounts. Approved foreign accounts receivable include
foreign companies with sales greater than $500 million
per year. Additional foreign accounts receivable will
be eligible to the extent they are approved in writing
by Bank. Any account which alone exceeds 25% of total
accounts will have the amount in excess of 25% excluded
unless approved in writing by Bank. Any account 25% or
more of which is outstanding over 90 days from invoice
date will be excluded in its entirety.
B. Term Loan: Advances will be at 80% against invoice price (less
tax and freight) of equipment purchased. Advances
against software will be limited to 25% of total
outstandings under the Term Loan at any one time.
Advances to support acquisitions must be approved by
Bank in writing.
6. PRICING
A. Interest Rate:
1) Line: Bank's Prime Rate per annum.
2) Term Loan: Bank's Prime Rate + 0.25 per annum.
B. Facility Fee:
1) Line: 0.50% per annum, of $10,000.
2) Term Loan: 0.25%, or 2,500.
7. COVENANTS
A. Borrower to maintain on a quarterly basis unless otherwise noted:
1) Minimum Quick Ratio(1) of 1.00 to 1.00.
2) Minimum Tangible Net Worth(2) of $2,500,000.
3) Minimum Debt Service(3) of 1.50 to 1.00.
Definitions:
(1) "Quick Ratio" is defined as cash plus accounts receivable divided
by current liabilities.
<PAGE> 71
bSquare, inc.
10/17/97
page 3
(2) "Tangible Net Worth" is defined as the financial statement net
worth of the Borrower prepared according to generally accepted
accounting principles less intangible assets, plus indebtedness
fully subordinated to the debt due to the Bank.
(3) "Debt Service" is defined as earnings after tax plus interest
and non-cash expenses annualized for the preceding quarter,
divided by current portion of long term debt and capitalized,
plus interest.
B. Borrower to provide Bank:
1) Unqualified audited financial statements within 90 days after
each fiscal year end beginning with the year ended December 31,
1997.
2) Company prepared quarterly financial statements and Compliance
Certificate within 25 days after the end of each quarter.
3) Monthly agings of accounts receivable and accounts payable with
Borrowing Base Certificate within 15 days after the end of each
month.
C. Other Covenants:
1) Borrower's primary banking and investment accounts to be
maintained at Bank.
2) Without Bank's prior approval, Borrower shall not:
a. Enter into any mergers or acquisitions or major debt
agreements, except for equipment leases.
b. Repurchase stock or pay cash dividends except as required
to cover personal tax liabilities of shareholder's.
c. Hypothecate existing assets.
d. Loan money or guarantee loans of others.
3) Borrower shall notify Bank in writing of any legal action
commenced against it which may result in damages over $50,000.
Borrower shall provide Bank with such notice immediately upon
Borrower's receipt of notice of such legal action.
4) Borrower shall provide Bank proof of insurance on all tangible
corporate assets and a Lender's Loss Payable Clause with Bank as
loss payee.
8. OTHER CONDITIONS
A. Prior to Line disbursement, Bank shall conduct an initial collateral
audit by Bank's designated agent at Borrower's expense, with results
satisfactory to Bank. Thereafter, Bank shall conduct annual
collateral audits by Bank's designated agent at Borrower's expense,
with results satisfactory to Bank.
B. All reasonable expenses of Bank for legal fees, documentation fees,
UCC searches and filing fees, and all other costs involved with
documenting and enforcing the loans, including the expenses of Bank's
outside counsel, shall be borne by the Borrower, whether or not the
Credit Facilities close.
This letter is provided solely for your information and is delivered to you
with the understanding that neither it nor its substance shall be disclosed to
any third person, except those who are in confidential relationship with you,
or where the same is required by law.
<PAGE> 72
BSquare, inc.
10/17/97
page 4
If the terms set forth above are acceptable to you, please so indicate by
signing and returning the original of this letter to us, along with the $10,000
in loan fees referred to above. Unless a signed copy of this letter indicating
your acceptance has been returned by no later than October 24, 1997, the terms
herein will expire and be of no further affect. Upon return of this letter and
the payment, the Bank will prepare drafts of definitive loan documents for your
review. If you and the Bank do not enter into definitive loan documents, the
Bank will refund to you the amount of the loan fee payment less the amount of
the Bank's expenses for the foregoing.
This letter is intended to set forth the terms of the credit facility currently
under discussion between us. It is intended that all legal rights and
obligations of the Bank and you would be set forth in the signed definitive
loan documents.
On behalf of the Senior Management of the Bank, we are delighted to propose
making this credit facility available to Borrower and look forward to a long
and mutually rewarding relationship. Please don't hesitate to call if you have
any questions or problems.
Sincerely,
/s/ JAMES E. ELLISON
James E. Ellison Edgerton Scott II
Senior Vice President/Manager President
Emerging Growth Industries Division Emerging Growth Industries Division
Accepted and agreed to:
BSQUARE, INC.
By: /s/ ALBERT DOSSER
-----------------------------
Title: Sr. Vice President
--------------------------
Date: 10-22-97
---------------------------
<PAGE> 73
bSquare, Inc.
10/17/97
page 5
With return of this letter, please provide us with a copy of your filed
Articles of Incorporation and the following information:
Tax I.D. #: 91-1650880
----------
Names and Title of Authorized Corporate Signers:
William Baxter Peter Gregory
------------------------------- -------------------------------
Name Name
President Sr. Vice President
------------------------------- -------------------------------
Title Title
Al Dosser Leila Kirske
------------------------------- -------------------------------
Name Name
Sr. Vice President Director of Finance
------------------------------- -------------------------------
Title Title
Number needed to sign: 1
-------
Who will execute docs: Al Dosser
-------------------------------
Sr. VP & Treasurer
-------------------------------
Name of Corporate Secretary: Peter Gregory
-------------------------------
Is Secretary an Authorized signer? Yes X No
--- ---
Automatically Debit Account #36001283 for interest payments each month.
Disburse loan advances to Account #36001283 when advances are requested.
<PAGE> 74
CORPORATE RESOLUTIONS TO BORROW
- --------------------------------------------------------------------------------
Borrower: bsquare corporation
- --------------------------------------------------------------------------------
1, the undersigned Secretary or Assistant Secretary of bsquare
corporation (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of
Washington.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true
and complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
WILLIAM T. BAXTER PRESIDENT, CEO /s/ WILLIAM T. BAXTER
---------------------- ---------------------- ----------------------
---------------------- ---------------------- ----------------------
---------------------- ---------------------- ----------------------
---------------------- ---------------------- ----------------------
---------------------- ---------------------- ----------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Imperial Bank ("Bank"),
on such terms as may be agreed upon between the officers, employees, or agents
and Bank, such sum or sums of money as in their judgment should be borrowed,
without limitations including such sums as are specified in that certain Loan
and Security Agreement dated as of February 11, 1998 (the "Loan Agreement")-
EXECUTE NOTES. To execute and deliver to Bank the promissory note or
notes of the Corporation, on Bank's forms, at such rates of interest and on such
terms as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to ]Bank, and also to execute and deliver to
Bank one or More renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which die Corporation may have an
1
<PAGE> 75
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT, FOREIGN EXCHANGE. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full force
and effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that the Resolutions are in full force and effect and have not been modified
or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on 2/4, 1998 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
/s/ PETER GREGORY
------------------------------------
Peter Gregory
- --------------------------------------------------------------------------------
2
<PAGE> 76
[IMPERIAL BANK LOGO] SPECIAL LOAN MINUTES REPORT
- --------------------------------------------------------------------------------
Banking Office/Department Name/Number Date Total Commitment
Emerging Growth Industry - #3605 October 10, 1997 $2,500,000
- --------------------------------------------------------------------------------
Prepared By Assigned Officer
Debbie Constantine-Skouras Jim Ellison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
BORROWER(S) NAME & CUSTOMER NUMBER(S) LINE NO. CLASS AMOUNT MATURITY OWING RATE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
bSquare, Inc. (01) OT-N $2,000,000 364 days $ -0- P + 0.0%
Consulting and Training Services $10,000 fee
3633 136th Place SE, Suite 100 (02) OT-N $500,000 60 mos. $ -0- P + .25%
Bellevue, WA 98006 $2,000 fee
(425)519-5900
--------------------------------------------------------------------
Guarantor(s) Name and Customer Number(s) Loan Administration Use Only
None.
- ---------------------------------------------------------------------------------------------------------------
(Direct and Indirect Liability, Including Real Estate, Installment Loans, Letters
of Credit & Charge TOTAL $
</TABLE>
APPLICATION, PURPOSE, REPAYMENT, COLLATERAL, AMORTIZATION
(1) Requesting new $2,000,000 Revolving Line of Credit to support working
capital with a $500,000 sublimit for issuance of trade-related commercial
and standby letters of credit and a $75,000 sublimit to support foreign
exchange contracts. L/Cs and FX contract to be negotiated at Bank's
standard pricing. Line will mature 364 days from closing with interest
payment monthly and principal plus interest due at maturity. Advances will
be limited to the lesser of: (i) 80% of Eligible accounts, or (ii) the
amount available under the Line. As used herein, "Eligible Accounts" will
include those domestic and pre-approved foreign accounts receivable of
Borrower which are outstanding less than 90 days from invoice date subject
to certain exclusions for contra, US government and inter-company accounts.
Approved foreign accounts receivable include foreign companies with sales
greater than $500 million per year. Additional foreign accounts receivable
will be eligible to the extent they are approved in writing by Bank. Any
account which alone exceeds 25% of total accounts will have the amount in
excess of 25% excluded unless approved in writing by Bank. Any account 25%
or more of which is outstanding over 90 days from invoice date will be
excluded in its entirety.
(02) Requesting new $500,000 Term Loan to finance the purchase of equipment,
software, furniture and bank approved acquisitions. Available for draws
for a period of twelve (12) months following completion of definitive Bank
loan documents. Interest is payable monthly during draw period followed by
thirty-six (36) equal monthly payments of principal plus interest.
Advances will be at 80% against invoice price (less tax and freight) of
equipment purchased. Advances against software will be limited to 25% of
total outstanding under the Term Loan at any one time. Advances to support
acquisitions must be approved by Bank in writing.
Bank to have a cross-collateralized and cross-defaulted blanket first priority
security interest in all assets perfected by UCC-1 and IP Security Agreement
filings.
[ ] If checked, the maturity date will be extended to using
Unilateral or Bilateral Extension Letter.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------
Month Pl PAS Number Loan Grade
- -----------------------------------------------------------------------
Direct Accounting Relationship Borrowing History (Prior 12 Months)
- -----------------------------------------------------------------------
Ledger Average High Credit
- -----------------------------------------------------------------------
Avg Coll Bal Low Credit
- -----------------------------------------------------------------------
Line Balance Days Out Debt
- -----------------------------------------------------------------------
Net Account Profit Customer Since
- -----------------------------------------------------------------------
CRA Purpose Code Risk Rate SIC Code CRA Income
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
Recommended By Date
/s/ [Signature Illegible] 10/10/97
- -----------------------------------------------------------------------
Recommended By Date Recommended By Date
x
- -----------------------------------------------------------------------
Approved By Date Concur Date
x CLA x CLA
- -----------------------------------------------------------------------
Concur Date Concur Date
x CLA x EVP
- -----------------------------------------------------------------------
Concur Date Concur Date
x Director x Director
- -----------------------------------------------------------------------
</TABLE>
<PAGE> 77
IMPERIAL BANK CREDIT SUPPORT COMMENTS & CLARIFICATIONS
- --------------------------------------------------------------------------------
BORROWER'S NAME: Date: October 10, 1997
Comments Prepared By: Jim Ellison, Emerging Growth Industry
Covenants:
<TABLE>
<CAPTION>
PROPOSED ACTUAL AS OF 8/31/97
-------- --------------------
<S> <C> <C>
1) Minimum Quick Ratio[1] 0.80 to 1.00 3.17
2) Minimum Tangible Net Worth[2] $2,000,000 $3,176,578
3) Maximum Total Liabilities[3] to
Tangible Net Worth 1.50 to 1.00 0.26
4) Profitability Quarterly $2,635,239 YTD
5) Minimum Debt Service[4] 1.50 to 1.00 n/a
</TABLE>
Definitions:
(1) "Quick Ratio" is defined as cash plus accounts receivable divided by
current liabilities less deferred revenue.
(2) "Tangible Net Worth" is defined as the financial statement net worth
of the Borrower prepared according to generally accepted accounting
principles less intangible assets, plus indebtedness fully
subordinated to the debt due to the Bank.
(3) "Total Liabilities" are defined as all the Borrower's liabilities
except for deferred revenue and indebtedness fully subordinated to the
debt due to the Bank.
(4) "Debt Service" is defined as earnings after tax plus interest and
non-cash expenses annualized for the preceding quarter, divided by
current portion of long term debt and capitalized, plus interest.
Reporting:
1) Unqualified audit of financial statements within 90 days after each
fiscal year end beginning with the year ended December 31, 1997.
2) Company prepared quarterly financial statements and Compliance within
25 days after the end of each quarter.
3) Monthly agings of accounts receivable and accounts payable with
Borrowing Base Certificate within 15 days after the end of each month.
Other:
1) Borrower's primary banking and investment accounts to be maintained
at Bank.
2) Proof of insurance naming Bank as loss payee.
Conditions Precedent to Lending:
1) Prior to Line disbursement, Bank shall conduct an initial collateral
audit by Bank's designated agent at Borrower's expense, with results
satisfactory to Bank. Thereafter, Bank shall conduct annual collateral
audits by Bank's designed agent at Borrower's expense, with results
satisfactory to Bank.
2) All reasonable expenses of Bank for legal fees, documentation fee, UCC
searches and filling fees, and all other costs involved with
documenting and enforcing the loans, including the expenses of Bank's
outside counsel, shall be borne by the Borrower, whether or not the
Credit Facilities close.
================================================================================
QUESTIONNAIRE: Answer All of the following questions. Answers which appear in
parentheses () require an explanation in the remarks section
below.
CREDIT CHECKINGS
YES NO DATE OF MOST RECENT CREDIT CHECKINGS _________ DATE OF MOST
RECENT BANK CHECKINGS_________
( ) X 1. Does borrower's previous business record show any
bankruptcies or arrangements with creditors; are there any
suits pending or tax liens existing?
X ( ) 2. Is borrower's trade payment record uniformly prompt or
better?
X ( ) 3. Are bank loans confined to us?
X ( ) 4. Are accounts confined to us?
ADVERSE CHECKINGS SHOULD BE EXPLAINED IN REMARKS SECTION
EXPERIENCE
NA ( ) 1. Have prior loans been handled satisfactorily and
account relationships conducted properly?
NA ( ) 2. Are accounts profitable?
NA ( ) 3. Are Federal payroll and excise taxes paid through
Imperial Bank?
OWNERSHIP
( ) X 1. Has there been a material change in ownership?
( ) X 2. Is borrower either a subsidiary or controlled by
another entity?
( ) X 3. Has there been a major change in management personal?
( ) X 4. Are there questions concerning the ability of management?
X ( ) 5. Is management experienced in this line of business?
================================================================================
REMARKS:
- --------------------------------------------------------------------------------
<PAGE> 78
[IMPERIAL BANK LOGO]
LOAN SUMMARY
<TABLE>
<S> <C> <C> <C> <C>
Borrower Name Date Approved
bSquare, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Banking Office/Department or Real Estate Center Total Commitments Loan Numbers (This Request)
Emerging Growth Industries $2,500,000.
- ---------------------------------------------------------------------------------------------------------------------
Account Officer Regional Vice President Loan Type(This Request) Loan Amount (This Request)
Jim Ellison Edgie Scott, SVP $2,500,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
COMMITMENT OUTSTANDING INTEREST COLLATERAL Financial Information as of
LOAN# AMOUNT AMOUNT RATE TYPE COLLATERAL VALUE (8 Months) (08/31/97)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
01 $2,000,000 $0 P+0.0 UCC-1 $ Total Assets $3,989
02 $500,000 $0 P+.25 UCC-1 $ Net Worth $3,177
03 $ $ P+ UCC-1 $ Net Sales $7,577
04 $ $ $ Net Profit $2,635
Other $ $ $ Cash Flow $2,775
Purpose (This Request): (1) To support working capital. (2) To finance the purchase of
equipment, software, furniture and acquisitions. CPLTD $-0-
Source of Repayment (This Request): (1) Turn over of trading assets and liquidation of
corporate assets. (2) Cash flow from operations and liquidation of corporate assets. Current Radio 3.32
Comments Quick Ratio 3.17
Debt/Tangible 0.26
Net Worth
A/P (Days)
A/R (Days)
Inventory (Days)
</TABLE>
REAL ESTATE LOAN DETAIL FOR THIS REQUEST
<TABLE>
<S> <C> <C> <C> <C> <C>
Project Location Loan Term Pricing Yield
@ %AO
Project Type Equity (Cash) Equity (Appraisal)
$ $
Gross Building Area Net Rentable Area Land Area Proforma GSI Vacancy
Sq.ft. Sq.ft. Sq.ft.
Purpose of Loan EGI Expenses NOI
Appraised Value Date % Preleased Cap Rate Value/Sq.Ft.
$
Collateral Position Loan/Value Loan/Sq.Ft. Gross Rent/Sq.Ft./Month
Balance of Senior Liens Participation Amount Debt Coverage Ratio Annual Expenses/Sq.Ft. Loan Constant
$ $ $
Additional Collateral Other Ratios
Comments
</TABLE>
<PAGE> 79
[IMPERIAL BANK LOGO]
SPECIAL LOAN MINUTES REPORT
<TABLE>
<CAPTION>
<S> <C> <C>
========================================================================================================
Banking Office/Department Name/Number Date Total Commitment
Emerging Growth Industry - #3805 October 10, 1997 $2,500,000
- --------------------------------------------------------------------------------------------------------
Prepared By Assigned Officer
Debbie Constantine-Skouras Jim Ellison
========================================================================================================
BORROWER(S) NAME & CUSTOMER NUMBER(S) LINE NO. CLASS AMOUNT MATURITY OWING RATE
- --------------------------------------------------------------------------------------------------------
P+0.0%
bSquare, Inc. (01) OT-N $2,000,000 364 days $-0- $10,000 fee
Consulting and Training Services.
3633 138th Place SE, Suite 100 (02) OT-N $500,000 60 mos. $-0- P+.25%
Bellevue, WA 98006 $2,000 fee
(425) 519-5900
---------------------------------------------------------
Guarantor(s) Name and Customer Number(s) Loan Administration Use Only
None. APPROVED
COMMERCIAL LOAN ADMINISTRATION
DATE: OCT 20, 1997
-------------------------
---------------------------------------------------------
========================================================================================================
Direct and Indirect Liability, Including Real Estate, Installment Loans,
Letters of Credit & Charge Cards) TOTAL $
========================================================================================================
APPLICATION [ILLEGIBLE], REPAYMENT, COLLATERAL, AMORTIZATION
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Requesting new $2,000,000 Revolving Line of Credit to support working
capital with a $500,000 submit for issuance of trade-related commercial and
standby letters of credit and a $75,000 sublimit to support foreign
exchange contracts. L/Cs and FX contract to be negotiated at Bank's
standard pricing. Line will mature 364 days from closing with interest
payable monthly and principal plus interest due at maturity. Advances will
be limited to the lesser of: (i) 80% of Eligible accounts, or (ii) the
amount available under the Line. As used herein, "Eligible Accounts" will
include those domestic and pre-approved foreign accounts receivable of
Borrower which are outstanding less than 90 days from invoice date subject
to certain exclusions for contra, US government and inter-company accounts.
Approved foreign accounts receivable include foreign companies with sales
greater than $500 million per year. Additional foreign accounts receivable
will be eligible to the extent they are approved in writing by Bank. Any
account which alone exceeds 25% of total accounts will have the amount in
excess of 25% excluded unless approved in writing by Bank. Any account 25%
or more of which is outstanding over 90 days from invoice date will be
excluded in its entirety.
(02) Requesting new $500,000 Term Loan to finance the purchase of equipment,
software, furniture and bank approved acquisitions. Available for draws for
a period of twelve (12) months following completion of definitive Bank loan
documents. Interest is payable monthly during draw period followed by
thirty-six (36) equal monthly payments of principal plus interest. Advances
will be at 80% against invoice price (less tax and freight) of equipment
purchased. Advances against software will be limited to 25% of total
outstandings under the Term Loan at any one time. Advances to support
acquisitions must be approved by Bank in writing.
Bank to have a cross-collateralized and cross-defaulted blanket first priority
security interest in all assets perfected by UCC-1 and IP Security Agreement
filings.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------
[ ] If checked, the maturity date will be extended to using Unilateral or Bilateral Extension Letter.
========================================================================================================
Month PI PAS Number Loan Grade Recommended by Date
X [SIG] 10/10/97
========================================================================================================
Recommended By Date Recommended By Date
[ILLEGIBLE] [ILLEGIBLE]
- ----------------------------------------------
[ILLEGIBLE] High Credit X X
------------------------------------------------------
- ---------------------------------------------- Approved By Date Concur Date
Avg Coll Bal Low Credit
X [SIG] 10/16/97 CLA X
- ---------------------------------------------- ------------------------------------------------------
Time Balance Days Out of Debt Concur Date Concur Date
- ---------------------------------------------- X [SIG] 10/20/97 CLA X
Net Account Profit Customer Since ------------------------------------------------------
</TABLE>
<PAGE> 80
CREDIT MEMORANDUM
FOR
bsquare CORPORATION
BACKGROUND
bsquare is a S corporation located in Bellevue, Washington which specializes in
consulting services and software development for the Windows CE operating
environment. The company was referred to Imperial by Arthur Anderson who is
currently on a consulting engagement with the company to evaluate and improve
their information systems, evaluate a conversion to a C corporation and ready
the company for a 1997 audit with the intent of raising outside equity in 1998
to assist the company in expanding its software development business.
PRODUCTS/TECHNOLOGY
The company has bootstrapped its growth to date and accumulated retained
earnings of $3.5 million largely through the consulting services it provides to
the major semiconductor manufacturers who retain the company's services to write
the Windows CE software compilers for their next generation processors.
Customers include: AMD, ARM, IBM, Motorola, Phillips, Hitachi and NEC.
Given bsquare's Windows CE expertise and the accelerated acceptance of CE as an
operating system platform for an ever increasing number of portable devices and
software applications, the company has begun developing applications software
for the handheld PC (HPC) market and systems development tools for use by
hardware and software vendors adapting the CE operating system to the target
platform of their choice.
Market:
The Windows CE platform has established a healthy set of entry-level hardware,
foundation-level software and services from major players of the wireline and
wireless services. One thousand CE developers are claimed to have registered
with Microsoft and over 100 titles have already been announced. Microsoft is
working hard to capture more developers by making public the tools for CE
development and licensing with companies such as bsquare who can provide
enhanced CE development tool kits for the development of embedded applications.
Growth in the CE market place in 1997 has been apparent. Casio alone expects to
sell over 500,000 units by mid 1998, with the majority of the units being
purchased here in the US. Together, Casio and Compaq have shipped more HPCs than
all the hardware and software shipped in the entire life history of Apple's
Newton, which has established CE as a viable OS. Notwithstanding, CE is still
early in its evolution with no reference designs or off-the-shelf Windows CE
motherboards yet available, and with no standard ICs to support the OS except
for RISC CPUs, the expertise and infrastructure provided by systems integrators
and tools developers such as bsquare will become necessary for hardware and
software vendors bringing CE-based products to market.
Competition:
There are a number competitors in the market with embedded operating systems,
the most notable of which is Geoworks with their GEOS offering. Among its
competitors, CE boasts the best balance of a hard-core embedded real-time
characteristics and general purpose functionality. Additionally, CE has the
reputation, relationships, financial resources and marketing muscle of Microsoft
behind it.
<PAGE> 81
MANAGEMENT:
President & CEO: Bill Baxter
Senior Vice President: Al Dosier
Controller: Leila Kirske: Kirske joined bsquare in September, 1997. Previously,
Kirske was Director of Corporate Accounting for Midcom, a provider of long
distance voice and data based telecom services with annual revenues of $150
million. Prior to Midcom, Kirske was the Assistant Controller for Mosaix, a high
growth telecom hardware and software provider with worldwide sales of $70
million;, and Manager, Financial Reporting for Spacelabs Medical Inc., a
manufacturer and distributor of critical care medical equipment and clinical
information systems with worldwide revenues of $250 million. Kirske began her
career with Coopers & Lybrand where she spent seven years reached the position
of General Practice Manager before leaving in 1992.
FINANCIAL:
To date, the company's financial statements have been compiled. Arthur Anderson
has been retained on a consulting basis to upgrade the company's accounting
system and prepare the company for an audit of 1997. Additionally, Arthur
Anderson is consulting the company on the conversion from an S to a C
corporation in anticipation of a equity financing in 1998.
The company limits distributions to only those necessary to cover the tax
liabilities of its partners.
As of the eight months ended August 31, 1997, bsquare posted net income of $2.6
million on revenues of $7.6 million. Approximately 95% of the company's revenues
resulted from consulting services with the balance split between development and
integration. Operating expenses for the period of $5.0 million were primarily
related to salaries which made of $3.5 million, or 46%, of total expenses.
As of August 31, 1997, the company had assets of $4.0 million which were largely
comprised of cash totaling $740.0, accounts receivable totaling $1.8 million and
net property and equipment totaling $1.2 million. bsquare currently has no long
term debt. The company's liabilities are limited to payables and accruals.
Given the concentration of quick assets and absence of debt, the company's
balance sheet is extremely strong as evidenced by a quick ratio of 3.17, TNW of
$3.2 million and D/TN-W of 0.26.
Though the company is currently well capitalized, they plan raise as much as $3
to $5 million in outside equity in 1998 to support growth their development and
integration businesses.
The company has recently hired Leila Kirske as VP of Finance. Upon her arrival,
the company has began its budgeting process for 1998. Kirske expects the first
pass on the budget to be completed by the end of October leading to a final
budget for next year by mid to late November. Preliminarily, she has indicated
the company will looking for revenue growth to come from integration and
development activities. Additionally, she expects profitability to continue, but
at a reduced rate as a result of investments the company will be making to
support the growth within integration and development.
<PAGE> 82
ACCOUNTS RECEIVABLE:
As of September 30, 1997, bsquare had accounts receivable totaling $1.5 million.
Of this amount, $1.4 million, or 88%, are current, and $167.0, or 11% are
within 60 days. Top accounts are as follows:
<TABLE>
<S> <C>
Medtronic $ 777.0
Philips 288.0
Motorola 142.0
Hitachi 50.0
Advanced RISC Machines 40.0
Microsoft 40.0
--------
TOTAL 1,337.0
========
</TABLE>
A collateral audit will be performed prior to advances under the Line.
REFERENCES:
Arthur Anderson:
Brent Johnson of Arthur Anderson was contacted regarding his firms consulting
engagement at bsquare. He indicated their review of bsquare's books and records
only produced minor adjustments to the company's financial statements which
should lead to a smooth audit of 1997.
Dain Bosworth:
Jeff Canin of Dain Bosworth was contacted regarding discussions his firm is
having with bsquare on the underwriting of a private placement in 1998. Jeff
pointed out that discussions up to this point have been preliminary and as a
result his firm has not yet engaged in extensive due diligence. However, he
indicated that Dain is extremely bullish about CE and feels bsquare is very well
positioned as one of the technical leaders in a rapidly emerging market space.
His firm feels bsquare will be a strong play for their institutional and
mezzanine investors and as a result they will be working very hard to get the
engagement.
<PAGE> 83
BSQUARE (B2260000) SIC Code.
Summary Balance Sheet - Actual
<TABLE>
<CAPTION>
Statement Date 12/31/95 12/31/96 06/30/97 08/31/97
Months Covered 12 12 6 8
Audit Method Compiled Compiled Co.Prep'd Co.Prep'd
Accountant
Analyst
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash & Equivalents 103 189 927 741
Accts/Notes Rec-Trade (Net) 385 591 1,446 1,843
Other Inventory -- 6 19 15
Operating Current Assets -- 7 71 101
------ ------ ------ ------
TOTAL CURRENT ASSETS 488 793 2,463 2,700
Net Fixed Assets 19 233 921 1,234
Op Non-Current Assets 5 32 55 55
Intangibles - Net 1 -- -- --
------ ------ ------ ------
TOTAL NON-CURRENT ASSETS 25 265 976 1,289
------ ------ ------ ------
TOTAL ASSETS 513 1,058 3,439 3,989
------ ------ ------ ------
LIABILITIES/NET WORTH
Accounts Payable - Trade 8 -- 63 81
Other Accruals 23 133 375 561
Operating Current Liabs 222 -- 286 171
------ ------ ------ ------
TOTAL CURRENT LIABILITIES 253 133 724 813
------ ------ ------ ------
------ ------ ------ ------
TOTAL LIABILITIES 253 133 724 813
Stock 2 17 2 2
Other Equity (498) (1,819) (1,819) (2,188)
Retained Earnings 756 2,727 4,532 5,362
------ ------ ------ ------
TOTAL NET WORTH 260 925 2,715 3,176
------ ------ ------ ------
TOTAL LIABS & NET WORTH 513 1,058 3,439 3,989
====== ====== ====== ======
</TABLE>
<PAGE> 84
BSQUARE (B2260000) SIC Code.
Summary Income Statement - Actual
<TABLE>
<CAPTION>
Statement Date 12/31/95 12/31/96 06/30/97 08/31197
Months Covered 12 12 6 8
Audit Method Compiled Compiled Co.Prep'd Co.Prep'd
Accountant
Analyst
- -------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
Sales/Revenues 1,596 4,175 4,917 7,579
----- ----- ----- -----
GROSS PROFIT 1,596 4,175 4,917 7,579
S,G & A Expense -- 184 244 369
Operating Expense 886 1,996 2,776 4,438
Depreciation 19 35 98 141
----- ----- ----- -----
TOTAL OPERATING EXP(INC) 905 2,215 3,118 4,948
----- ----- ----- -----
NET OPERATING PROFIT 691 1,960 1,799 2,631
Interest Income 2 11 6 4
NET PROFIT 693 1,971 1,805 2,635
===== ===== ===== =====
</TABLE>
<PAGE> 85
BSQUARE (B2260000) SIC Code.
Summary FAS 95 Stmt of Cash Flows (Direct)
<TABLE>
<CAPTION>
Statement Date 12/31/95 12/31/96 06/30/97 08/31/97
Months Covered 12 12 6 8
Analyst
- -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Sales 4,175 4,917 7,579
Chg in Net Receivables (206) (855) (1,252)
------ ------ ------
CASH RECEIVED FROM CUSTOMERS 3,969 4,062 6,327
Chg in Inventories (6) (13) (9)
Chg in Accts Payable-Trade & Othr (8) 63 81
Operating Expenses (2,180) (3,020) (4,807)
Chg in Prepaids/Deferreds (34) (87) (117)
Chg in Accruals 110 242 428
Chg in Other Open Assets and Liabs (222) 286 171
------ ------ ------
CASH PAID TO SUPPLIERS & EMPLOYEES (2,340) (2,529) (4,253)
INTEREST PAID -- -- --
INCOME TAXES PAID -- -- --
INTEREST & DIVIDENDS RECEIVED 11 6 4
MISC CASH RECEIVED(PAID) -- -- --
------ ------ ------
NET CASH PROV BY OPERATIONS 1,640 1,539 2,078
CASH FLOWS FROM INVESTING ACTIVITIES:
Chg in Net Fixed Assets (249) (786) (1,142)
Chg in Net Intangibles 1 --
------ ------ ------
NET CASH USED IN INVESTING (248) (786) (1,142)
CASH FLOWS FROM FINANCING ACTIVITIES:
Chg in Capital(Less Non-Cash) (1,306) (15) (384)
------ ------ ------
NET CASH PROV BY FINANCING (1,306) (15) (384)
------ ------ ------
NET CHANGE IN CASH & EQUIVALENTS 86 738 552
ADD:CASH AND EQUIVALENTS AT BOP 103 189 189
------ ------ ------
CASH AND EQUIVALENTS AT EOP 189 927 741
====== ====== ======
</TABLE>
<PAGE> 86
BSQUARE (B226000) SIC Code.
Summary Ratios
<TABLE>
<CAPTION>
Statement Date 12/31/95 12/31/96 06/30/97 08/31/97
Months Covered 12 12 6 8
Analyst
-------- -------- -------- --------
<S> <C> <C> <C> <C>
LIQUIDITY
Working Capital 235 660 1,739 1,887
Quick Ratio 1.93 5.86 3.28 3.18
Current Ratio 1.93 5.96 3.40 3.32
LEVERAGE / COVERAGE
Net Worth-Actual 260 925 2,715 3,176
Tang Net Worth-Actual 259 925 2,715 3,176
Eff Tang Net Worth-Actual 259 925 2,715 3,176
Debt/Worth 0.97 0.14 0.27 0.26
Debt/Tang Worth 0.98 0.14 0.27 0.26
Debt Less Sub Debt-Liab/Eff Tg Wth 0.98 0.14 0.27 0.26
Total Liabilities Total Assets 0.49 0.13 0.21 0.20
Interest Coverage n/a n/a n/a n/a
Funds Flow Coverage n/a n/a n/a n/a
Funds Flow/Prior Period CPLTD n/a n/a n/a
UCA Cash Flow Coverage n/a n/a n/a
UCA Cash Flow/Prior Period CPLTD n/a n/a n/a
PROFITABILITY
Return on Assets 135.09 186.29 104.97 99.08
Return on Equity 266.54 213.08 132.97 124.45
Gross Margin 100.00 100.00 100.00 100.00
Operating Profit Margin 43.30 46.95 36.59 34.71
Profit Margin 43.42 47.21 36.71 34.77
ACTIVITY
Net Accounts Receivable Days 88.05 51.67 53.67 59.17
Accounts Payable Days 1.83 -- 2.34 2.60
Net Sales/Total Assets 3.11 3.95 2.86 2.85
Net Sales/Working Capital 6.79 6.33 5.65 6.02
Net Sales/Net Worth 6.14 4.51 3.62 3.58
Net Sales/Net Fixed Assets 84.00 17.92 10.68 9.21
Profit Before Tax/Total Assets 135.09 186.29 104.97 99.08
GROWTH (%)
Total Assets Growth 106.24 225.05 277.03
Total Liabilities Growth (47.43) 444.36 511.28
Net Worth Growth 255.77 193.51 243.35
Net Sales Growth 161.59 135.54 172.30
Operating Profit Growth 183.65 83.57 101.35
Net Profit Growth 184.42 83.16 100.53
====== ====== ====== ======
</TABLE>
<PAGE> 87
Albert T. Dosser
16340 NE 83rd St. #E125
Redmond, WA 98007
Home: 206-883-4093
Work: 206-865-8813
Born: March 29, 1957
Education:
Received B.S., Magna Cum Laude, in June of 1980 from East Tennessee State
University. Majored in Computer and Information Science, Minored in Mathematics.
Inducted into Kappa Mu Epsilon Mathematics Honor Society in May of 1977.
Attended Code Optimization and Code Generation course taught by Graham,
Hennessy, and Ullman, sponsored by the Stanford Department of Computer Science
in August, 1989.
Attended Optimizing Compilers for RISC and Pipelined Architectures course taught
by A. Nicolau, sponsored by UC Irvine in January of 1990 .
Other courses attended through UC San Diego Extension: Introduction to Neural
Networks, Prolog Programming, Chaos and Fractals.
Experience with:
Languages: Ada, C, C++, PL/I, FORTRAN, Pascal, Prolog
OS: UNIX (Various), Multics, Windows NT
Architectures: Alpha, Ix86, I80960, MC88100, SPARC, MIPS, Cray X-MP, CRAY-2
Employment History:
Digital Equipment Corp. June 1992 to Present
Palo Alto, CA and Bellevue, WA
Software Principal Engineer assigned to the Compiler Group at the DECwest
Engineering facility in Bellevue.
Worked with researchers (including John Ellis of Xerox PARC and Ben Zoin of the
University of Colorado) at Digital's Systems Research Center in Palo Alto to
develop a practical garbage collector for C and C++ programs. Implemented a
fully configurable collector for Alpha/OSF systems and released it for internal
use within Digital.
Assumed support and maintenance of a re-targetable code generator for C and C++
compilers targeting Digital Alpha and Intel x86 systems running Windows NT.
Completed pending work on the code generators, implemented C++ exceptions for
Intel x86 targets, and assisted in the productization and field test release of
the compiler.
<PAGE> 88
Participated in the adapt of Microsoft's Visual C++ product for Digital's
Alpha/Windows NT systems. Implemented the C++ exception model for this
environment.
Telesoft August 1984 to May 1992
San Diego, CA
Senior Software Engineer: member of a team engaged in the implementation and
maintenance of a code generator for the Intel I80960 (MC, XA, MX).
Also responsible for the maintenance and enhancement of a code generator for the
Motorola MC88100.
Developed an instruction scheduler for RISC targets using the Gibbons and
Muchnick heuristics for list scheduling. Scheduler was largely target
independent and was adapted for the MC88100, SPARC, MIPS, and I80960.
Developed an unused subprogram eliminator for MC88100 which was later adapted
for SPARC.
Participated in design, code, and maintenance of components of the code
generators and run-time systems of Telesoft's Cray and SPARC Ada compilers.
Other shorter term assignments have involved maintenance tasks on other
components of the compiler including the middle pass and debugger.
NCR June 1982 to July 1984
Falls Church, VA and Dayton, OH
Lead Systems Analyst in northeast region for the OEM Systems Division.
Consultant on UNIX and C to VARs who were developing applications software for
the NCR Tower. Organized a team of three support analysts in the northeast
region and coordinated their activities.
Promoted to Tower Product Specialist reporting to national OEM Product Manager
in the Winter of 1983. Responsible for tracking features of the NCR Tower and
its competitors. Principal technical consultant to the OEM Systems Division
national product management group on technical issues relating to UNIX and the
UNIX marketplace.
Softech Sept 1980 to June 1982
Waltham, MA
Associate Software Engineer, under contract to federal and commercial clients.
Promoted to Software Engineer in the Fall of 1981.
<PAGE> 89
Worked on the design and development of an interactive database manager for the
storage and analysis of communications protocol information.
Worked on the development and maintenance of a structured cross-assembler,
linkage editor, and automated configuration control system to be used in the
development of a digital communications switch.
Member of the design team and coauthor of the technical proposal for the
development of a communications Network Control Program (NCP) Generator for a
major computer manufacturer. Team leader of four staff programmers working on
the development of the central component of the NCP Generator.
<PAGE> 90
William Baxter
- --------------------------------------------------------------------------------
1988 MS Computer Science, University of Wyoming, Laramie
1988-1989 Topologix, Denver Colorado
1989-1989 Evan & Southerland, Mountain View, California
1989-1993 Intergraph, Palo Alto, California
1993-1994 Digital Equipment Company, Bellevue, Washington
1994 - Present BSQUARE Corporation, Bellevue, Washington
<PAGE> 91
WILLIAM BAXTER
- - EDUCATION
- BS/MS Computer Science, 1988
- - PAST ACCOMPLISHMENTS
- Pioneer in vectorization/parallelization
- Published Author
- Lead developer/manager of Hitachi SH project
- - CURRENT FOCUS
- Establishing BSQUARE corporate structure and strategy
8/12/97 BSQUARE CONFIDENTIAL 7
<PAGE> 92
PETER GREGORY
- - EDUCATION
- BA in Computer Science, 1984.
- - BSQUARE CONTRIBUTIONS
- Founded & managed QA at BSQUARE
- Led the early employee recruiting effort.
- - CURRENT FOCUS
- Providing Leadership and Management for BSQUARE QA organization.
8/12/97 BSQUARE CONFIDENTIAL 6
<PAGE> 1
EXHIBIT 10.6
ONE BELLEVUE CENTER
OFFICE LEASE
BETWEEN
EOP NORTHWEST PROPERTIES, L.L.C. A DELAWARE LIMITED LIABILITY COMPANY
("LANDLORD")
AND
BSQUARE CORPORATION, A WASHINGTON CORPORATION
("TENANT")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
I. Basic Lease Information; Definitions............................... 1
II. Lease Grant........................................................ 2
III. Adjustment of Commencement Date/Possession......................... 2
IV. Use................................................................ 3
V. Rent............................................................... 3
VI. Security Deposit................................................... 7
VII. Services to be Furnished by Landlord............................... 7
VIII. Leasehold Improvements............................................. 7
IX. Repairs and Alterations by Tenant.................................. 8
X. Use of Electrical Services by Tenant............................... 8
XI. Entry by Landlord.................................................. 8
XII. Assignment and Subletting.......................................... 9
XIII. Liens.............................................................. 9
XIV. Indemnity and Waiver of Claims..................................... 9
XV. Tenant's Insurance................................................. 10
XVI. Subrogation........................................................ 10
XVII. Casualty Damage.................................................... 10
XVIII. Demolition......................................................... 11
XIX. Condemnation....................................................... 11
XX. Events of Default.................................................. 12
XXI. Remedies........................................................... 12
XXII. LIMITATION OF LIABILITY............................................ 13
XXIII. No Waiver.......................................................... 13
XXIV. Relocation......................................................... 13
XXV. Holding Over....................................................... 13
XXVI. Subordination to Mortgages; Estoppel Certificate................... 13
XXVII. Notice............................................................. 14
XXVIII. Landlord's Lien.................................................... 14
XXIX. Excepted Rights.................................................... 14
XXX. Surrender of Premises.............................................. 15
XXXI. Miscellaneous...................................................... 15
XXXII. Entire Agreement................................................... 16
</TABLE>
EXHIBIT A-Outline and Location of Premises
EXHIBIT A-2-Legal Description of Property
EXHIBIT B-Building Rules and Regulations
EXHIBIT C-Intentionally Omitted
EXHIBIT D-Intentionally Omitted
EXHIBIT E-Other Provisions
i
<PAGE> 3
OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease") is made and entered into as of
the 14th day of December, 1998, by and between EOP Northwest Properties, L.L.C.,
a Delaware limited liability company ("Landlord") and BSQUARE Corporation, a
Washington corporation ("Tenant"), whose address for the purpose of notices to
Tenant prior to commencement of the Term of this Lease shall be at 3633 136th
Place SE, Suite 100, Bellevue, Washington 98006.
I. BASIC LEASE INFORMATION; DEFINITIONS.
A. The following is some of the basic lease information and defined
terms used in this Lease.
1. "Additional Base Rental" shall mean Tenant's Pro Rata
Share of Basic Costs and any other sums (exclusive of
Base Rental) that are required to be paid by Tenant to
Landlord hereunder. Additional Base Rental and Base
Rental sometimes collectively are referred to herein as
"Rent".
2. "Base Rental" shall mean the sum of Two Hundred
Ninety-Three Thousand Four Hundred Twenty-Nine and
00/100 Dollars ($293,429.00), payable by Tenant to
Landlord in Nine (9) monthly installments as follows:
a. One installment of Eighteen Thousand Nine
Hundred Ninety-Nine and 00/100 Dollars
($18,999.00, i.e. $1,055.50 per diem x 18 days)
payable upon the execution of this Lease by
Tenant for the period beginning December 14,
1998 and ending December 31, 1998.
b. Five (5) equal installments of Thirty One
Thousand Six Hundred Sixty Five and no/100
Dollars ($31,665.00), each payable on or before
the first day of each month during the period
beginning January 1, 1999 and ending May 31,
1999.
c. Three (3) equal installments of Thirty Eight
Thousand Seven Hundred One and 67/100 Dollars
($38,701.67), each payable on or before the
first day of each month during the period
beginning June 1, 1999 and ending August 31,
1999.
3. "Base Year" shall mean 1999.
4. "Building" shall mean the office building located at 411
108th Avenue, NE Bellevue, 98004, King County, State of
Washington, commonly known as One Bellevue Center.
5. The "Commencement Date," "Lease Term" and "Termination
Date" shall have the meanings set forth in subsection
I.A.5.a. below:
a. The "Lease Term" shall mean a period of eight
(8) months and eighteen (18) days commencing on
December 14, 1998 (the "Commencement Date") and,
unless sooner terminated as provided herein,
ending on August 31, 1999 (the "Termination
Date").
b. INTENTIONALLY OMITTED.
6. INTENTIONALLY OMITTED.
7. "Notice Addresses" shall mean the Premises for Tenant
after the commencement of the Term of this Lease, and,
for Landlord, shall mean:
1
<PAGE> 4
EOP Northwest Properties, L.L.C.
c/o Wright Runstad Associates Limited Partnership
One Bellevue Center
411 108th Avenue NE, Suite 1980
Bellevue, WA 98004
Attention: Building Manager
With a copy to:
Equity Office Properties Trust
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attention: Regional Counsel - West Region
Payments of Rent only shall be made payable to the order of:
EQUITY OFFICE PROPERTIES
at the following address:
EOP Northwest Properties, L.L.C.
One Bellevue Center
P.O. Box 3834
Seattle, WA 98124-3834
8. "Permitted Use" shall mean: general office use.
9. "Premises" shall mean the area located on the sixth
(6th) floor of the Building and outlined on Exhibit A
attached hereto and incorporated herein and known as
Suite #600. Landlord and Tenant hereby stipulate and
agree that the "Rentable Area of the Premises" shall
mean 16,888 square feet and the "Rentable Area of the
Building" shall mean approximately 344,715 square feet.
10. "Tenant's Pro Rata Share" shall mean four and eight
thousand nine hundred ninety one ten-thousandths percent
(4.8991%), which is the quotient (expressed as a
percentage) derived by dividing the Rentable Area of the
Premises by the Rentable Area of the Building.
B. The following are additional definitions of some of the defined
terms used in the Lease: (1) "Common Areas" shall mean those
areas provided by Landlord for the common use or benefit of all
tenants generally and/or the public; (2) "Owner" shall mean the
entity(ies), from time to time, which own the Property or any
portion thereof; (3) "Prime Rate" shall mean the per annum
interest rate publicly announced by The First National Bank of
Chicago or any successor thereof from time to time (whether or
not charged in each instance) as its prime or base rate in
Chicago, Illinois; and (4) "Property" shall mean the Building
and the parcel of land on which it is located and, at Landlord's
discretion, the Building garage, and all other improvements
serving the Building and the tenants thereof and the parcel(s)
of land on which they are located.
II. LEASE GRANT.
Subject to and upon the terms herein set forth, Landlord leases to
Tenant and Tenant leases from Landlord the Premises.
III. POSSESSION.
A. INTENTIONALLY OMITTED.
B. Tenant shall be entitled to possession of Premises on the
Commencement Date and Landlord assures that Premises are in
working condition. By taking possession of the Premises, Tenant
is deemed to have: (1) accepted the
2
<PAGE> 5
Premises and agreed that, subject to Landlord's assurance as set
forth above, the Premises is in good order and satisfactory
condition, with no representation or warranty by Landlord,
except as set forth above, as to the condition of the Premises
or the Building or suitability thereof for Tenant's use; and (2)
agreed that Landlord, subject to Landlord's assurance as set
forth above, has no obligation to clean, decorate, alter,
remodel, improve or repair the Premises or the Building unless
said obligation is specifically set forth in this Lease. If
Tenant takes possession of the Premises prior to the
Commencement Date for any reason whatsoever, such possession
shall be subject to all the terms and conditions of the Lease
and Tenant shall pay Base Rental and Additional Base Rental to
Landlord on a per diem basis for each day of occupancy prior to
the Commencement Date. Notwithstanding the foregoing, if Tenant,
with Landlord's prior approval, takes possession of the Premises
prior to the Commencement Date for the sole purpose of
performing any Landlord-approved improvements therein or
installing furniture, equipment or other personal property of
Tenant, such possession shall be subject to all of the terms and
conditions of the Lease, except that Tenant shall not be
required to pay Base Rental or Additional Base Rental with
respect to the period of time prior to the Commencement Date.
Tenant shall, however, be liable for the cost of any services
(e.g. electricity, HVAC, freight elevators) that are provided to
Tenant or the Premises during the period of Tenant's possession
prior to the Commencement Date.
IV. USE.
The Premises shall be used for the Permitted Use and for no other
purpose. Tenant agrees not to use or permit the use of the Premises for any
purpose which is illegal, dangerous or which, in Landlord's opinion, creates a
nuisance or which would increase the cost of insurance coverage with respect to
the Building. Tenant shall conduct its business and control its agents,
servants, contractors, employees, customers, licensees, and invitees
(collectively, the "Tenant Related Parties") in such a manner as not to
interfere with, annoy or disturb other tenants, or in any way interfere with
Landlord in the management and operation of the Building. Tenant will maintain
the Premises in a clean and healthful condition, and comply with all laws,
ordinances, orders, rules and regulations of any governmental entity with
reference to the operation of Tenant's business and to the use, condition,
configuration or occupancy of the Premises, including without limitation, the
Americans with Disabilities Act (collectively referred to as "Laws"). Tenant,
within ten (10) days after receipt thereof, shall provide Landlord with copies
of any notices it receives with respect to a violation or alleged violation of
any Laws. Tenant will comply with the rules and regulations of the Building
attached hereto as Exhibit B and such other rules and regulations adopted and
altered by Landlord from time to time and will cause all Tenant Related Parties
to do so.
V. RENT.
A. During each calendar year, or portion thereof, falling within
the Lease Term, Tenant shall pay to Landlord as Additional Base
Rental hereunder the sum of (1) Tenant's Pro Rata Share of the
amount, if any, by which Taxes (hereinafter defined) for the
applicable calendar year exceed Taxes for the Base Year plus (2)
Tenant's Pro Rata Share of the amount, if any, by which Expenses
(hereinafter defined) for the applicable calendar year exceed
Expenses for the Base Year. For purposes hereof, "Expenses"
shall mean all Basic Costs with the exception of Taxes. Tenant's
Pro Rata Share of increases in Taxes and Tenant's Pro Rata Share
of increases in Expenses shall be computed separate and
independent of each other prior to being added together to
determine the "Excess." In the event that Taxes and/or Expenses,
as the case may be, in any calendar year decrease below the
amount of Taxes or Expenses for the Base Year, Tenant's Pro Rata
Share of Taxes and/or Expenses, as the case may be, for such
calendar year shall be deemed to be $0, it being understood that
Tenant shall not be entitled to any credit or offset if Taxes
and/or Expenses decrease below the corresponding amount for the
Base Year. Prior to the Commencement Date and prior to January 1
of each calendar year during the Lease Term, or as soon
thereafter as practical, Landlord shall make a good faith
estimate of the Excess for the applicable calendar year and
Tenant's Pro Rata Share thereof. On or before the first day of
each month during such calendar year, Tenant shall pay to
Landlord, as Additional Base Rental, a monthly installment equal
to one-twelfth of Tenant's Pro Rata Share of Landlord's
3
<PAGE> 6
estimate of the Excess. Landlord shall have the right from time
to time during any such calendar year to revise the estimate of
Basic Costs and the Excess for such year and provide Tenant with
a revised statement therefor, and thereafter the amount Tenant
shall pay each month shall be based upon such revised estimate.
If Landlord does not provide Tenant with an estimate of the
Basic Costs and the Excess by January 1 of any calendar year,
Tenant shall continue to pay a monthly installment based on the
previous year's estimate until such time as Landlord provides
Tenant with an estimate of Basic Costs and the Excess for the
current year. Upon receipt of such current year's estimate, an
adjustment shall be made for any month during the current year
with respect to which Tenant paid monthly installments of
Additional Base Rental based on the previous year's estimate.
Tenant shall pay Landlord for any underpayment upon demand. Any
overpayment shall, at Landlord's option, be refunded to Tenant
or credited against the installment of Additional Base Rental
due for the months immediately following the furnishing of such
estimate. Any amounts paid by Tenant based on any estimate shall
be subject to adjustment pursuant to the immediately following
paragraph when actual Basic Costs are determined for such
calendar year.
As soon as is practical following the end of each calendar year
during the Lease Term, Landlord shall furnish to Tenant a
statement of Landlord's actual Basic Costs and the actual Excess
for the previous calendar year. If the estimated Excess actually
paid by Tenant for the prior year is in excess of Tenant's
actual Pro Rata Share of the Excess for such prior year, then
Landlord shall apply such overpayment against Additional Base
Rental due or to become due hereunder, provided if the Lease
Term expires prior to the determination of such overpayment,
Landlord shall refund such overpayment to Tenant after first
deducting the amount of any Rent due hereunder. Likewise, Tenant
shall pay to Landlord, on demand, any underpayment with respect
to the prior year, whether or not the Lease has terminated prior
to receipt by Tenant of a statement for such underpayment, it
being understood that this clause shall survive the expiration
of the Lease.
B. Basic Costs shall mean all costs and expenses paid or incurred
in each calendar year in connection with operating, maintaining,
repairing, managing and owning the Building and the Property,
including, but not limited to, the following:
1. All labor costs for all persons performing services
required or utilized in connection with the operation,
repair, replacement and maintenance of and control of
access to the Building and the Property, including but
not limited to amounts incurred for wages, salaries and
other compensation for services, payroll, social
security, unemployment and other similar taxes, workers'
compensation insurance, uniforms, training, disability
benefits, pensions, hospitalization, retirement plans,
group insurance or any other similar or like expenses or
benefits.
2. All management fees, the cost of equipping and
maintaining a management office at the Building,
accounting services, legal fees not attributable to
leasing and collection activity, and all other
administrative costs relating to the Building and the
Property. If management services are not provided by a
third party, Landlord shall be entitled to a management
fee comparable to that due and payable to third parties
provided Landlord or management companies owned by, or
management divisions of, Landlord perform actual
management services of a comparable nature and type as
normally would be performed by third parties.
3. All rental and/or purchase costs of materials, supplies,
tools and equipment used in the operation, repair,
replacement and maintenance and the control of access to
the Building and the Property.
4. All amounts charged to Landlord by contractors and/or
suppliers for services, replacement parts, components,
materials, equipment and supplies furnished in
connection with the operation, repair, maintenance,
replacement of and control of access to any part of the
Building, or the
4
<PAGE> 7
Property generally, including the heating, air
conditioning, ventilating, plumbing, electrical,
elevator and other systems and equipment. At Landlord's
option, major repair items may be amortized over a
period of up to five (5) years.
5. All premiums and deductibles paid by Landlord for fire
and extended coverage insurance, earthquake and extended
coverage insurance, liability and extended coverage
insurance, rental loss insurance, elevator insurance,
boiler insurance and other insurance customarily carried
from time to time by lessors of comparable office
buildings or required to be carried by Landlord's
Mortgagee.
6. Charges for all utilities, including but not limited to
water, electricity, gas and sewer, but excluding those
charges for which Landlord is otherwise reimbursed by
tenants.
7. "Taxes", which for purposes hereof, shall mean: (a) all
real estate taxes and assessments on the Property, the
Building or the Premises, and taxes and assessments
levied in substitution or supplementation in whole or in
part of such taxes, (b) all personal property taxes for
the Building's personal property, including license
expenses, (c) all taxes imposed on services of
Landlord's agents and employees, (d) all other taxes,
fees or assessments now or hereafter levied by any
governmental authority on the Property, the Building or
its contents or on the operation and use thereof (except
as relate to specific tenants), and (e) all costs and
fees incurred in connection with seeking reductions in
or refunds in Taxes including, without limitation, any
costs incurred by Landlord to challenge the tax
valuation of the Building, but excluding income taxes.
For the purpose of determining real estate taxes and
assessments for any given calendar year, the amount to
be included in Taxes for such year shall be as follows:
(1) with respect to any special assessment that is
payable in installments, Taxes for such year shall
include the amount of the installment (and any interest)
due and payable during such year; and (2) with respect
to all other real estate taxes, Taxes for such year
shall, at Landlord's election, include either the amount
accrued, assessed or otherwise imposed for such year or
the amount due and payable for such year, provided that
Landlord's election shall be applied consistently
throughout the Lease Term. If a reduction in Taxes is
obtained for any year of the Lease Term during which
Tenant paid its Pro Rata Share of Basic Costs, then
Basic Costs for such year will be retroactively adjusted
and Landlord shall provide Tenant with a credit, if any,
based upon such adjustment. Likewise, if a reduction is
subsequently obtained for the tax component of Basic
Costs for the Base Year (if Tenant's Pro Rata Share is
based upon increases in Basic Costs over a Base Year),
Basic Costs for the Base Year shall be restated and the
Excess for all subsequent years recomputed. Tenant shall
pay Landlord Tenant's Pro Rata Share of any such
increase in the Excess within thirty (30) days after
Tenant's receipt of a statement therefor from Landlord.
8. All landscape expenses and costs of maintaining,
repairing, resurfacing and striping of the parking areas
and garages of the Property, if any.
9. Cost of all maintenance service agreements, including
those for equipment, alarm service, window cleaning,
drapery or venetian blind cleaning, janitorial services,
pest control, uniform supply, plant maintenance,
landscaping, and any parking equipment.
10. Cost of all other repairs, replacements and general
maintenance of the Property and Building neither
specified above nor directly billed to tenants.
11. The amortized cost of capital improvements made to the
Building or the Property which are: (a) primarily for
the purpose of reducing operating expense costs or
otherwise improving the operating efficiency of the
Property or Building; or (b) required to comply with any
laws, rules or
5
<PAGE> 8
regulations of any governmental authority or a
requirement of Landlord's insurance carrier. The cost of
such capital improvements shall be amortized over a
period of five (5) years and shall, at Landlord's
option, include interest at a rate that is reasonably
equivalent to the interest rate that Landlord would be
required to pay to finance the cost of the capital
improvement in question as of the date such capital
improvement is performed, provided if the payback period
for any capital improvement is less than five (5) years,
Landlord may amortize the cost of such capital
improvement over the payback period.
12. Any other expense or charge of any nature whatsoever
which, in accordance with general industry practice with
respect to the operation of a first-class office
building, would be construed as an operating expense.
In addition, if Landlord incurs any costs and expenses
in connection with the operation, maintenance, repair,
management or ownership of the Building and one or more
other buildings, such costs and expenses shall be
equitably prorated between the Building and such other
buildings and the Building's equitable share thereof
shall be included in Basic Costs. If the Building is not
at least ninety-five percent (95%) occupied during the
Base Year (if applicable) or any calendar year of the
Lease Term or if Landlord is not supplying services to
at least ninety-five percent (95%) of the total Rentable
Area of the Building at any time during the Base Year
(if applicable) or any calendar year of the Lease Term,
actual Basic Costs for purposes hereof shall, at
Landlord's option, be determined as if the Building had
been ninety-five percent (95%) occupied and Landlord had
been supplying services to ninety-five percent (95%) of
the Rentable Area of the Building during such year.
C. If Basic Costs for any calendar year increase by more than five
percent (5%) over Basic Costs for the immediately preceding
calendar year, Tenant, within ninety (90) days after receiving
Landlord's statement of actual Basic Costs for a particular
calendar year, shall have the right to provide Landlord with
written notice (the "Review Notice") of its intent to review
Landlord's books and records relating to the Basic Costs for
such calendar year. Within a reasonable time after receipt of a
timely Review Notice, Landlord shall make such books and records
available to Tenant or Tenant's agent for its review at either
Landlord's home office or the office of the Building, provided
that if Tenant retains an agent to review Landlord's books and
records for any calendar year, such agent must be CPA firm
licensed to do business in the state in which the Building is
located. If Tenant fails to give Landlord written notice of
objection within thirty (30) days after its review or fails to
provide Landlord with a Review Notice within the ninety (90) day
period provided above, Tenant shall be deemed to have approved
Landlord's statement of Basic Costs in all respects and shall
thereafter be barred from raising any claims with respect
thereto. Any information obtained by Tenant pursuant to the
provisions of this Section shall be treated as confidential.
Notwithstanding anything herein to the contrary, Tenant shall
not be permitted to examine Landlord's books and records or to
dispute any statement of Basic Costs unless Tenant has paid to
Landlord the amount due as shown on Landlord's statement of
actual Basic Costs, said payment being a condition precedent to
Tenant's right to examine Landlord's books and records.
D. Tenant covenants and agrees to pay to Landlord during the Lease
Term, without any setoff or deduction whatsoever, the full
amount of all Base Rental and Additional Base Rental due
hereunder. In addition, Tenant shall pay and be liable for, as
additional rent, all rental, sales and use taxes or other
similar taxes, if any, levied or imposed by any city, state,
county or other governmental body having authority, such
payments to be in addition to all other payments required to be
paid to Landlord by Tenant under the terms and conditions of
this Lease. Any such payments shall be paid concurrently with
the payments of the Rent on which the tax is based. The Base
Rental, Tenant's Pro Rata Share of Basic Costs and any recurring
monthly charges due hereunder shall be due and payable in
advance on the first day of each calendar month during the Lease
Term without demand, provided that the installment of Base
Rental for the first full calendar month of the Lease Term shall
be payable upon the execution of
6
<PAGE> 9
this Lease by Tenant. All other items of Rent shall be due and
payable by Tenant on or before ten (10) days after billing by
Landlord. If the Lease Term commences on a day other than the
first day of a calendar month or terminates on a day other than
the last day of a calendar month, then the monthly Base Rental
and Tenant's Pro Rata Share of Basic Costs for such month shall
be prorated for the number of days in such month occurring
within the Term based on a fraction, the numerator of which is
the number of days of the Lease Term that fell within such
calendar month and the denominator of which is thirty (30).
E. All Rent not paid when due and payable shall bear interest from
the date due until paid at the lesser of: (1) eighteen percent
(18%) per annum; or (2) the greatest per annum rate of interest
permitted from time-to-time under applicable law. In addition,
if Tenant fails to pay any installment of Rent when due and
payable hereunder, a service fee equal to five percent (5%) of
such unpaid amount will be due and payable immediately by Tenant
to Landlord.
VI. SECURITY DEPOSIT.
A Security Deposit of ZERO and no/100 Dollars ($0.00) shall be delivered
to Landlord upon the execution of this Lease by Tenant and shall be held by
Landlord without liability for interest and as security for the performance of
Tenant's obligations under this Lease. Landlord may, from time to time, without
prejudice to any other remedy, use all or a portion of the Security Deposit to
make good any arrearages of Rent, to repair damages to the Premises caused by
Tenant, to clean the Premises upon termination of this Lease or otherwise to
satisfy any other covenant or obligation of Tenant hereunder. Following any such
application of the Security Deposit, Tenant shall pay to Landlord on demand the
amount so applied in order to restore the Security Deposit to its original
amount. If Tenant is not in default at the termination of this Lease, after
Tenant surrenders the Premises to Landlord in accordance with this Lease and all
amounts due Landlord from Tenant are finally determined and paid by Tenant or
through application of the Security Deposit, the balance of the Security Deposit
shall be returned to Tenant. If Landlord transfers its interest in the Premises
during the Lease Term, Landlord may assign the Security Deposit to the
transferee and thereafter shall have no further liability for the return of such
Security Deposit. Landlord shall not be required to segregate the Security
Deposit from its other accounts.
VII. SERVICES TO BE FURNISHED BY LANDLORD.
Landlord, as part of Basic Costs, agrees to furnish Tenant the following
services: (a) cold water at those points of supply provided for general use of
tenants in the Building; (b) central heat and air conditioning in season during
Landlord's normal business hours; (c) routine maintenance and electric lighting
service for all Common Areas of the Building; (d) janitor service on business
days exclusive of Saturdays, Sundays and holidays; and (e) elevator service in
common with other tenants of the Building for ingress and egress to and from the
floor of the Premises during Landlord's normal business hours. The failure by
Landlord to any extent to furnish, or the interruption or termination of these
services in whole or in part, shall not render Landlord liable in any respect
nor be construed as an eviction of Tenant or breach of any implied warranty of
habitability, nor give rise to an abatement of Rent, nor relieve Tenant from the
obligation to fulfill any covenant or agreement hereof. Tenant expressly
acknowledges that if Landlord, from time to time, elects to provide security
services, Landlord shall not be deemed to have warranted the efficiency of any
such security personnel, service, procedures or equipment and Landlord shall not
be liable in any manner for the failure of any such security personnel,
services, procedures or equipment to prevent or control, or apprehend any one
suspected of personal injury, property damage or criminal conduct in, on or
around the Property.
VIII. LEASEHOLD IMPROVEMENTS.
Any and all alterations, additions and improvements to the Premises, all
attached furniture, equipment and non-trade fixtures except for Computer
Associates' modular furniture (collectively, "Leasehold Improvements")
shall be owned and insured by Landlord and shall remain upon the
Premises, all without compensation to Tenant. Any unattached and movable
equipment or furniture, trade fixtures or other personality ("Tenant's
Property") shall be owned and insured by Tenant. Landlord acknowledges
that the existing Steel Case modular furniture is personal property
belonging to Computer Associates. Landlord further acknowledges that
Computer Associates shall
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have the right to enter the Premises upon termination of the Lease and
remove all of such Steel Case modular furniture. Tenant shall not be
liable or responsible for removing any of the Computer Associates' Steel
Case modular furniture nor for any damage to the Premises or Building
resulting from any actions or inactions of Computer Associates in
connection with the removal, or failure to remove, the Steel Case
modular furniture.
IX. REPAIRS AND ALTERATIONS BY TENANT.
A. Tenant shall, at Tenant's own cost and expense, keep the
Premises in good condition and repair, ordinary wear and tear
and damage by fire and casualty excepted. Such repairs shall
restore the Premises to as good a condition as it was at the
Commencement Date and shall be effected in compliance with the
reasonable directions of Landlord. If Tenant fails to make such
repairs to the Premises promptly, Landlord may, at its option,
make such repairs, and Tenant shall pay the cost thereof to the
Landlord on demand as additional Rent.
B. Tenant shall not make or allow to be made any alterations,
additions or improvements ("Alterations") to the Premises,
without first obtaining the written consent of Landlord. Prior
to commencing any such work and as a condition to obtaining
Landlord's consent, Tenant must furnish Landlord with plans and
specifications; names and addresses of contractors; copies of
contracts; necessary permits; evidence of contractor's and
subcontractor's insurance in a type and amount acceptable to
Landlord; and payment bond or other security, all in form and
amount satisfactory to Landlord. All such Alterations shall be
installed in a good workmanlike manner using new materials.
Landlord shall have the right to designate the time when any
such alterations, additions and improvements may be performed
and to otherwise designate reasonable rules, regulations and
procedures for the performance of work in the Building. Upon
completion, Tenant shall furnish "as-built" plans, contractor's
affidavits and full and final waivers of lien and receipted
bills covering all labor and materials. All Alterations shall
comply with all insurance requirements, codes, ordinances, laws
and regulations, including without limitation, the Americans
with Disabilities Act. Tenant shall reimburse Landlord upon
demand as additional Rent for all sums expended by Landlord for
examination of the architectural, mechanical, electric and
plumbing plans for any Alterations. If Landlord so requests,
Tenant shall permit Landlord to supervise construction
operations, but no such supervision shall impose any liability
upon Landlord. In the event Landlord supervises such
construction, Landlord shall be entitled to a supervisory fee in
the amount of ten percent (10%) of the cost of such
construction. Landlord's approval of Tenant's plans and
specifications or supervision of any work performed for or on
behalf of Tenant shall not be deemed to be a representation by
Landlord that such plans and specifications comply with
applicable insurance requirements, building codes, ordinances,
laws or regulations or that any such alterations, additions and
improvements will be adequate for Tenant's use,
X. USE OF ELECTRICAL SERVICES BY TENANT.
All electricity used by Tenant in the Premises shall, at Landlord's
option, be paid for by Tenant either (a) through inclusion in Base Rental or
Basic Costs, or (b) by a separate charge billed directly to Tenant by Landlord
and payable by Tenant as additional Rent, or (c) by a separate charge billed by
the utility company supplying electricity and payable by Tenant directly to such
utility company. Tenant's use of electrical service in the Premises shall not
exceed, either in voltage, rated capacity, use or overall load, that which
Landlord deems to be standard for the Building. Landlord shall have the right to
separately meter electrical usage for the Premises at any time during the Lease
Term or to use any other method of measuring electrical usage that Landlord
reasonably deems to be appropriate.
XI. ENTRY BY LANDLORD.
Landlord and its agents or representatives shall have the right to enter
the Premises to inspect the same, or to show the Premises to prospective
purchasers, mortgagees, tenants or insurers, or to clean or make repairs,
alterations or additions thereto, including any work that Landlord deems
necessary for the safety, protection or preservation of the Building or any
occupants thereof, or to facilitate repairs, alterations or additions to the
Building or any other
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tenants' premises. If reasonably necessary for the protection and safety of
Tenant and its employees, Landlord shall have the right to temporarily close the
Premises to perform repairs, alterations or additions in the Premises. Entry by
Landlord hereunder shall not constitute a constructive eviction or entitle
Tenant to any abatement or reduction of Rent by reason thereof.
XII. ASSIGNMENT AND SUBLETTING.
Tenant shall not assign, sublease, transfer or encumber this Lease or
any interest therein or grant any license, concession or other right of
occupancy of the Premises or any portion thereof or otherwise permit the use of
the Premises or any portion thereof by any party other than Tenant (any of which
events is hereinafter called a "Transfer") without the prior written consent of
Landlord. If Tenant requests Landlord's consent to a Transfer, Tenant, together
with such consent, shall provide Landlord with the name of the proposed
transferee and the nature of the business of the proposed transferee, the term,
use, rental rate and all other material terms and conditions of the proposed
Transfer, including, without limitation, a copy of the proposed assignment,
sublease or other contractual documents and evidence satisfactory to Landlord
that the proposed transferee is financially responsible. Landlord may, within
forty-five (45) days after receipt of all information and documentation required
herein, (a) consent to or refuse to consent to such Transfer in writing; or (b)
negotiate directly with the proposed transferee and upon execution of a lease
with such transferee, terminate this Lease (in part or in whole, as appropriate)
upon thirty (30) days' notice; or (c) cancel and terminate this Lease, in whole
or in part as appropriate, upon thirty (30) days' notice. In the event Landlord
consents to any such Transfer, Tenant shall bear all costs and expenses incurred
by Landlord in connection with the review and approval of such documentation,
which costs and expenses shall be deemed to be at least Seven Hundred Fifty
Dollars ($750.00). Tenant hereby covenants and agrees to pay to Landlord all
rent and other consideration which it receives which is in excess of the Rent
payable hereunder within ten (10) days following receipt thereof by Tenant. In
addition to any other rights Landlord may have, Landlord shall have the right to
contact any transferee and require that all payments made pursuant to the
Transfer shall be made directly to Landlord. For purposes of this Article XII,
an assignment shall be deemed to include a change in the majority control of
Tenant, if Tenant is a partnership or a corporation whose stock is not traded
publicly. Any Transfer consented to by Landlord in accordance with this Article
XII shall be only for the Permitted Use and for no other purpose, and in no
event shall any Transfer release or relieve Tenant or any Guarantors from any
obligations under this Lease.
XIII. LIENS.
Tenant will not permit any mechanic's liens or other liens to be placed
upon the Premises or Tenant's leasehold interest therein, the Building, or the
real estate associated therewith. In the event any such lien does attach, Tenant
shall, within five (5) days of notice of the filing of said lien, discharge such
lien to the satisfaction of Landlord and Landlord's Mortgagee (as hereinafter
defined). If Tenant shall fail to so discharge such lien, then, in addition to
any other right or remedy of Landlord, Landlord may, but shall not be obligated
to, discharge the same. Any amount paid by Landlord for any of the aforesaid
purposes, including reasonable attorneys' fees, shall be paid by Tenant to
Landlord on demand as additional Rent. Landlord shall have the right to post and
keep posted on the Premises any notices that may be provided by law or which
Landlord may deem to be proper for the protection of Landlord, the Premises and
the Building from such liens.
XIV. INDEMNITY AND WAIVER OF CLAIMS.
A. Tenant shall indemnify, defend and hold Landlord, its members,
principals, beneficiaries, partners, officers, directors,
employees, Mortgagee(s) (if any) and agents, and the respective
principals and members of any such agents, (collectively the
"Landlord Related Parties") harmless against and from all
liabilities, obligations, damages, penalties, claims, costs,
charges and expenses, including, without limitation, reasonable
attorneys' fees and other professional fees (if and to the
extent permitted by law), which may be imposed upon, incurred
by, or asserted against Landlord or any of the Landlord Related
Parties and arising, directly or indirectly, out of or in
connection with the acts and omissions of Tenant or any of its
Transferees, agents, servants, contractors, employees, licensees
or invitees and/or the use, occupancy or maintenance of the
Premises by, through or under Tenant.
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B. Tenant waives all claims for loss or damage to Tenant's business
or damage to person or property sustained by Tenant or any
person claiming by, through or under Tenant [including Tenant's
principals, agents and employees, (collectively, the "Tenant
Related Parties")] resulting from any accident or occurrence in,
on or about the Premises, the Building or the Property,
including, without limitation, claims for loss, theft or damage
resulting from: (1) the Premises, Building, or Property, or any
equipment or appurtenances becoming out of repair; (2) force
majeure; (3) any defect in or failure to operate, for whatever
reason, any sprinkler, heating or air-conditioning equipment,
electric wiring, gas, water or steam pipes; (4) any act,
omission or negligence of other tenants, licensees or any other
persons or occupants of the Building or of adjoining or
contiguous buildings, of owners of adjacent or contiguous
property or the public, or by construction of any private,
public or quasi-public work; or (5) any other cause of any
nature except, as to items 1.-5., where such loss or damage is
due to Landlord's negligence or wrongful conduct or Landlord's
willful failure to make repairs required to be made pursuant to
other provisions of this Lease, after the expiration of a
reasonable time after written notice to Landlord of the need for
such repairs.
XV. TENANT'S INSURANCE.
Tenant shall, at all times, carry and maintain, at its sole cost and
expense: (a) Commercial General Liability Insurance applicable to the Premises
and its appurtenances providing, on an occurrence basis, a minimum combined
single limit of Two Million Dollars ($2,000,000.00); (b) All Risks of Physical
Loss Insurance written at replacement cost value and with a replacement cost
endorsement covering all of Tenant's Property in the Premises; (c) Workers'
Compensation Insurance as required by the state in which the Premises is located
and in amounts as may be required by applicable statute, and Employers Liability
Coverage of One Million Dollars ($1,000,000.00) per occurrence; (d) additional
insurance as reasonably required by Landlord. Any company writing any insurance
to be maintained pursuant to the terms of this Lease (all such insurance being
referred to as "Tenant's Insurance"), as well as the form of such insurance,
shall at all times be subject to Landlord's approval. All policies evidencing
Tenant's Insurance (except for Workers' Compensation) shall specify Tenant and
the "owner(s) of the Building and its (or their) respective members, principals,
beneficiaries, partners, officers, directors, employees, agents (and their
respective members and principals) and mortgagee(s)" (and any other designees of
Landlord as the interest of such designees shall appear) as additional insureds.
All policies of Tenant's Insurance shall contain endorsements that the
insurer(s) will give to Landlord and its designees at least thirty (30) days'
advance written notice of any change, cancellation, termination or lapse of said
insurance. Tenant shall deliver to Landlord at least fifteen (15) days prior to
the time Tenant's Insurance is first required to be carried by Tenant, and upon
renewals at least fifteen (15) days prior to the expiration of any such
insurance coverage, a certificate of insurance of all policies procured by
Tenant in compliance with its obligations under this Lease. The limits of
Tenant's Insurance shall in no event limit Tenant's liability under this Lease.
XVI. SUBROGATION.
Notwithstanding anything set forth in this Lease to the contrary,
Landlord and Tenant do hereby agree to cause their respective insurance carriers
to waive any and all right of recovery, claim, action or cause of action against
the other, their respective principals, beneficiaries, partners, officers,
directors, agents, and employees, and, with respect to Landlord, its
Mortgagee(s), for any loss or damage that may occur to Landlord or Tenant or any
party claiming by, through or under Landlord or Tenant, as the case may be, with
respect to their respective property, the Building, the Property or the Premises
or any addition or improvements thereto, or any contents therein including the
negligence of Landlord or Tenant, or their respective principals, beneficiaries,
partners, officers, directors, agents and employees and, with respect to
Landlord, its Mortgagee(s), which loss or damage is (or would have been, had the
insurance required by this Lease been carried) covered by insurance.
XVII. CASUALTY DAMAGE.
Landlord, during the Lease Term, shall maintain standard so-called "all
risk" property insurance covering the Building in an amount equal to ninety
percent (90%) of the replacement cost thereof (including Leasehold Improvements
approved by Landlord) at the time in question. If the Premises or any part
thereof shall be damaged by fire or other casualty, Tenant shall give
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prompt written notice thereof to Landlord. In case the Building shall be so
damaged that substantial alteration or reconstruction of the Building shall, in
Landlord's sole opinion, be required (whether or not the Premises shall have
been damaged by such casualty) or in the event the Premises have been damaged
and there is less than two (2) years of the Lease Term remaining on the date of
such casualty or in the event any Mortgagee should require that the insurance
proceeds payable as a result of a casualty be applied to the payment of the
mortgage debt or in the event of any material uninsured loss to the Building or
in the event Landlord will not be permitted by applicable law to rebuild the
Building in substantially the same form as existed prior to the fire or
casualty, Landlord may, at its option, terminate this Lease by notifying Tenant
in writing of such termination within ninety (90) days' after the date of such
casualty, provided that Landlord may not terminate this Lease if the Premises is
not damaged by any such casualty if (i) Landlord elects to repair or reconstruct
the Building, and (ii) Tenant is permitted by applicable laws and regulations to
remain in occupancy of the Premises while the remainder of the Building is being
reconstructed or repaired, and (iii) Tenant's continued occupancy of the
Premises does not substantially adversely impact the work to be performed by
Landlord in repairing or constructing the Building. Such termination shall be
effective as of the date of fire or casualty, with respect to any portion of the
Premises that was rendered untenantable, and the date specified in Landlord's
notice, with respect to any portion of the Premises that remained tenantable. If
Landlord does not elect to terminate this Lease, Landlord shall commence and
proceed with reasonable diligence to restore the Premises (but excluding any
improvements, alterations or additions made by Tenant in violation of this
Lease) to substantially the same condition they were in immediately prior to the
happening of the casualty. Notwithstanding the foregoing, Landlord's obligation
to restore the Building, and the Leasehold Improvements, if any, shall not
require Landlord to expend for such repair and restoration work more than the
insurance proceeds actually received by the Landlord as a result of the
casualty, When the repairs have been completed by Landlord, Tenant shall
complete the restoration or replacement of all Tenant's Property necessary to
permit Tenant's reoccupancy of the Premises, and Tenant shall present Landlord
with evidence satisfactory to Landlord of Tenant's ability to pay such costs
prior to Landlord's commencement of repair and restoration of the Premises.
Landlord shall not be liable for any inconvenience or annoyance to Tenant or
injury to the business of Tenant resulting in any way from such damage or the
repair thereof, except that, subject to the provisions of the next sentence,
Landlord shall allow Tenant a fair diminution of Rent on a per diem basis during
the time and to the extent any damage to the Premises causes the Premises to be
rendered untenantable. If the Premises or any other portion of the Building is
damaged by fire or other casualty resulting from the fault or negligence of
Tenant or any of Tenant's agents, employees, or contractors, the Rent hereunder
shall not be diminished during any period during which the Premises, or any
portion thereof, is untenantable, and Tenant shall be liable to Landlord for the
cost of the repair and restoration of the Building caused thereby to the extent
such cost and expense is not covered by insurance proceeds plus any uninsured
amount resulting from (i) the insurance deductible and (ii) any deficiency in
coverage resulting from the Building not being insured for 100% of the
replacement value, and Landlord waives all claims against Tenant therefor.
Landlord and Tenant hereby waive the provisions of any law from time to time in
effect during the Lease Term relating to the effect upon leases of partial or
total destruction of leased property. Landlord and Tenant agree that their
respective rights in the event of any damage to or destruction of the Premises
or Building shall be those specifically set forth herein.
XVIII. DEMOLITION. (INTENTIONALLY OMITTED)
XIX. CONDEMNATION.
If (a) the whole or any substantial part of the Premises or (b) any
portion of the Building or Property which would leave the remainder of the
Building unsuitable for use as an office building comparable to its use on the
Commencement Date, shall be taken or condemned for any public or quasi-public
use, then Landlord may, at its option, terminate this Lease effective as of the
date the physical taking of said Premises or said portion of the Building or
Property shall occur. In the event this Lease is not terminated, the Rentable
Area of the Building, the Rentable Area of the Premises and Tenant's Pro Rata
Share shall be appropriately adjusted. In addition, Rent for any portion of the
Premises so taken or condemned shall be abated during the unexpired term of this
Lease effective when the physical taking of said portion of the Premises shall
occur. All compensation awarded for any such taking or condemnation, or sale
proceeds in lieu thereof, shall be the property of Landlord, and Tenant shall
have no claim thereto, the same being hereby expressly waived by Tenant.
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XX. EVENTS OF DEFAULT.
The following events shall be deemed to be events of default under this
Lease: (a) Tenant shall fail to pay when due any Base Rental, Additional Base
Rental or other Rent under this Lease and such failure shall continue for three
(3) days after written notice from Landlord (hereinafter sometimes referred to
as a "Monetary Default"); (b) any failure by Tenant (other than a Monetary
Default) to comply with any term, provision or covenant of this Lease, which
failure is not cured within ten (10) days after delivery to Tenant of notice of
the occurrence of such failure, provided that if any such failure creates a
hazardous condition, such failure must be cured immediately; provided, however,
notwithstanding the foregoing in subsections (a) and (b) above, if Tenant fails
to comply with any particular provision or covenant of this Lease on three (3)
occasions during any twelve (12) month period, any subsequent violation of such
provision or covenant shall be considered to be an incurable default by Tenant;
(c) Tenant or any Guarantor shall become insolvent, or shall make a transfer in
fraud of creditors, or shall commit an act of bankruptcy or shall make an
assignment for the benefit of creditors, or Tenant or any Guarantor shall admit
in writing its inability to pay its debts as they become due; (d) the leasehold
estate hereunder shall be taken on execution or other process of law or equity
in any action against Tenant; (e) Tenant shall abandon or vacate any substantial
portion of the Premises without the prior written permission of Landlord; (f)
Tenant shall fail to take possession of and occupy the Premises within thirty
(30) days following the Commencement Date; or (g) Tenant shall be in default
beyond any notice and cure period under any other lease with Landlord.
XXI. REMEDIES.
A. Upon the occurrence of any event or events of default under this
Lease, whether enumerated in Article XX or not, Landlord shall
have the option to pursue any one or more of the following
remedies without any notice (except as expressly prescribed
herein):
1. Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord. If
Tenant fails to surrender the Premises upon termination
of the Lease hereunder, Landlord may enter upon and take
possession of the Premises and expel or remove Tenant
and any other person who may be occupying said Premises,
or any part thereof, by force, if necessary, without
being liable for prosecution or any claim of damages
therefor, and Tenant hereby agrees to pay to Landlord on
demand the amount of all loss and damage, including
consequential damages, which Landlord may suffer by
reason of such termination, whether through inability to
relet the Premises on satisfactory terms or otherwise,
specifically including but not limited to all costs of
reletting (which for purposes of this Lease shall
include all costs of preparing the Premises for
occupancy and all costs of concessions and brokerage
commissions in connection with any new lease for the
Premises) and any deficiency that may arise by reason of
any reletting or failure to relet.
2. Enter upon and take possession of the Premises and expel
or remove Tenant or any other person who may be
occupying said Premises, or any part thereof, without
liability therefor and without terminating this Lease.
Landlord may (but shall be under no obligation to) relet
the Premises or any part thereof for the account of
Tenant, upon such terms, conditions and uses as Landlord
in its absolute discretion may determine, and Landlord
may collect and receive any rents payable by reason of
such reletting. Tenant agrees to pay Landlord on demand
all costs of reletting and any deficiency that may arise
by reason of such reletting or failure to relet.
Landlord shall not be responsible or liable for any
failure to relet the Premises. No such re-entry or
taking of possession of the Premises by Landlord shall
be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such
termination is given to Tenant.
3. Terminate this Lease, in which event, Tenant shall
immediately surrender the Premises to Landlord and pay
to Landlord the sum of: (a) all Rent accrued hereunder
through the date of termination, and, upon Landlord's
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determination thereof, (b) an amount equal to the total
Rent that Tenant would have been required to pay for the
remainder of the Lease Term discounted to present value
at the prime rate then in effect, minus the then present
fair rental value of the Premises for the remainder of
the Lease Term, similarly discounted, after deducting
all anticipated costs of reletting. Landlord's
determination of such amount shall be conclusive and
binding on Tenant, and shall be deemed to have been made
in good faith, subject only to manifest error.
B. No right or remedy herein conferred upon or reserved to Landlord
is intended to be exclusive of any other right or remedy, and
each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder or now or
hereafter existing by agreement, applicable law or in equity.
Tenant shall be liable for all costs, expenses, and reasonable
attorneys' fees incurred by Landlord in connection with the
exercise of any of its remedies hereunder.
XXII. LIMITATION OF LIABILITY.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE
LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD HEREUNDER) TO TENANT SHALL
BE LIMITED TO THE INTEREST OF LANDLORD IN THE BUILDING, AND TENANT AGREES TO
LOOK SOLELY TO LANDLORD'S INTEREST IN THE BUILDING FOR THE RECOVERY OF ANY
JUDGMENT OR AWARD AGAINST THE LANDLORD, IT BEING INTENDED THAT NEITHER LANDLORD
NOR ANY MEMBER, PRINCIPAL, PARTNER, SHAREHOLDER, OFFICER, DIRECTOR OR
BENEFICIARY OF LANDLORD SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR
DEFICIENCY. TENANT HEREBY COVENANTS THAT, PRIOR TO THE FILING OF ANY SUIT FOR AN
ALLEGED DEFAULT BY LANDLORD HEREUNDER, IT SHALL GIVE LANDLORD AND ALL MORTGAGEES
WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES OR DEED OF TRUST LIENS ON THE
PROPERTY, BUILDING OR PREMISES NOTICE AND REASONABLE TIME TO CURE SUCH ALLEGED
DEFAULT BY LANDLORD.
XXIII. NO WAIVER.
Failure of Landlord to declare any default immediately upon its
occurrence, or delay in taking any action in connection with an event of default
shall not constitute a waiver of such default, nor shall it constitute an
estoppel against Landlord. Failure by Landlord to enforce its rights with
respect to any one default shall not constitute a waiver of its rights with
respect to any subsequent default. Receipt by Landlord of Tenant's keys to the
Premises shall not constitute an acceptance or surrender of the Premises.
XXIV. RELOCATION. (INTENTIONALLY OMITTED)
XXV. HOLDING OVER.
In the event of holding over by Tenant after expiration or other
termination of this Lease or Tenant's right to possession, occupancy of the
Premises subsequent to such termination or expiration shall be that of a tenancy
at sufferance and in no event for month-to-month or year to-year, but Tenant
shall, throughout the entire holdover period, be subject to all the terms and
provisions of this Lease and shall pay for its use and occupancy an amount (on a
per month basis without reduction for any partial months during any such
holdover) equal to twice the sum of the Base Rental and Additional Base Rental
due for the period immediately preceding such holding over. No holding over by
Tenant or payments of money by Tenant to Landlord after the expiration of the
term of this Lease shall be construed to extend the Lease Term or prevent
Landlord from recovery of immediate possession of the Premises by summary
proceedings or otherwise. In addition to the obligation to pay the amounts set
forth above during any such holdover period, Tenant shall also be liable to
Landlord for all damage, including any consequential damage, which Landlord may
suffer by reason of any holding over by Tenant.
XXVI. SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE.
Tenant accepts this Lease subject and subordinate to any mortgage, deed
of trust, ground lease or other lien presently existing or hereafter arising
upon the Premises, or upon the Building and/or the Property and to any renewals,
modifications, refinancings and extensions
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thereof (any such mortgage, deed of trust, lease or other lien being hereinafter
referred to as a "Mortgage", and the person or entity having the benefit of same
being referred to hereinafter as a "Mortgagee"), but Tenant agrees that any such
Mortgagee shall have the right at any time to subordinate such Mortgage to this
Lease on such terms and subject to such conditions as such Mortgagee may deem
appropriate in its discretion. This clause shall be self-operative and no
further instrument of subordination shall be required. If any person shall
succeed to all or part of Landlord's interests in the Premises whether by
purchase, foreclosure, deed in lieu of foreclosure, power of sale, termination
of lease or otherwise, and if and as so requested or required by such
successor-in-interest, Tenant shall, without charge, attorn to such successor-
in-interest. Tenant agrees that it will from time to time upon request by
Landlord and, within five (5) days of the date of such request, execute and
deliver to such persons as Landlord shall request a subordination agreement or
an estoppel certificate or other similar statement in recordable form certifying
that this Lease is unmodified and in full force and effect, stating the dates to
which Rent and other charges payable under this Lease have been paid, stating
that Landlord is not in default hereunder and further stating such other matters
as Landlord shall reasonably require.
XXVII. NOTICE.
Whenever any demand, request, approval, consent or notice ("Notice")
shall or may be given to either of the parties by the other, each such Notice
shall be in writing and shall be sent by registered or certified mail with
return receipt requested, or sent by overnight courier service (such as Federal
Express) provided that if Tenant has vacated the Premises or is in default of
this Lease Landlord may serve notice by any manner permitted by Law. Any Notice
under this Lease delivered by registered or certified mail shall be deemed to
have been given and effective on the earlier of (a) the third day following the
day on which the same shall have been mailed with sufficient postage prepaid or
(b) the delivery date indicated on the return receipt. Notice sent by overnight
courier service shall be deemed given and effective upon the day after such
notice is delivered to or picked up by the overnight courier service. Either
party may, at any time, change its Notice Address by giving the other party
Notice stating the change and setting forth the new address.
XXVIII. LANDLORD'S LIEN. INTENTIONALLY OMITTED, PROVIDED THAT THE DELETION OF
THIS ARTICLE SHALL NOT BE CONSTRUED TO BE A WAIVER OF LANDLORD'S LIEN RIGHTS AS
PROVIDED BY LAW.
XXIX. EXCEPTED RIGHTS.
This Lease does not grant any rights to light or air over or about the
Building. Landlord specifically excepts and reserves to itself the use of such
areas within the Premises as are required for installation of utility lines and
other installations required to serve any occupants of the Building and the
right to maintain and repair the same, and no rights with respect thereto are
conferred upon Tenant unless otherwise specifically provided herein. Landlord
further reserves to itself the right from time to time: (a) to change the
Building's name or street address; (b) to install, fix and maintain signs on the
exterior and interior of the Building; (c) to designate and approve window
coverings; (d) to make any decorations, alterations, additions, improvements to
the Building, or any part thereof (including the Premises) which Landlord shall
desire, or deem necessary for the safety, protection, preservation or
improvement of the Building, or as Landlord may be required to do by law; (e) to
retain at all times and to use passkeys to all locks within and into the
Premises (subject to Tenant's Security Rights as set forth below in this
paragraph); (f) to approve the weight, size, or location of heavy equipment and
articles in and about the Premises; (g) to close or restrict access to the
Building at all times other than normal business hours subject to Tenant's right
to admittance at all times under such regulations as Landlord may prescribe from
time to time, or to close (temporarily or permanently) any of the entrances to
the Building subject to Tenant's security rights as set forth in Exhibit B.5. of
this Lease; (h) to change the arrangement and/or location of entrances of
passageways, doors and doorways, and Common Areas of the Building; (i) if Tenant
has vacated the Premises during the last six (6) months of the Lease Term, to
perform additions, alterations and improvements to the Premises in connection
with a reletting or anticipated reletting thereof without being responsible or
liable for the value or preservation of any then existing improvements to the
Premises; and (j) to grant to anyone the exclusive right to conduct any business
or undertaking in the Building.
Tenant shall have the right ("Tenant's Security Rights") to install such
security systems in or about the Premises to control access to and from the
Premises, including but not limited to camera surveillance systems, controlling
and monitoring access to and from the Premises, all of
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<PAGE> 17
which may be independent of Landlord's access control system, and Tenant shall
have the right to limit and restrict access thereto; provided that Landlord
shall be provided a card or key(s) for access in emergencies or as otherwise
permitted pursuant to this Lease; provided that any such other or additional
security systems installed by Tenant shall not interfere with Landlord's
security system with respect to other tenant's in the Building. The cost of
Tenant's security system shall be at Tenant's sole cost.
XXX. SURRENDER OF PREMISES.
At the expiration or earlier termination of this Lease or Tenant's right
of possession hereunder, Tenant shall remove all Tenant's Property from the
Premises, remove all Required Removables designated by Landlord and quit and
surrender the Premises to Landlord, broom clean, and in good order, condition
and repair, ordinary wear and tear and damage by fire or casualty OR BY COMPUTER
ASSOCIATES excepted. If Tenant fails to remove any of Tenant's Property within
one (1) day after the termination of this Lease or Tenant's right to possession
hereunder, Landlord, at Tenant's sole cost and expense, shall be entitled to
remove and/or store such Tenant's Property and Landlord shall in no event be
responsible for the value, preservation or safekeeping thereof. Tenant shall pay
Landlord, upon demand, any and all expenses caused by such removal and all
storage charges against such property so long as the same shall be in the
possession of Landlord or under the control of Landlord. In addition, if Tenant
fails to remove any Tenant's Property from the Premises or storage, as the case
may be, within ten (10) days after written notice from Landlord, Landlord, at
its option, may deem all or any part of such Tenant's Property to have been
abandoned by Tenant and title thereof shall immediately pass to Landlord.
XXXI. MISCELLANEOUS.
Landlord and Tenant hereby agree that: (a) If any term or provision of
this Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease shall not be affected thereby, and each term and provision of this
Lease shall be valid and enforced to the fullest extent permitted by law; (b)
Tenant shall not record this Lease or any memorandum hereof; (c) This Lease
shall be interpreted, construed, and enforced in accordance with the laws of the
state in which the Building is located; (d) Events of "Force Majeure" shall
include strikes, riots, acts of God, shortages of labor or materials, war,
governmental law, regulations or restrictions and any other cause whatsoever
that is beyond the control of Landlord and whenever a period of time is herein
prescribed for the taking of any action by Landlord, Landlord shall not be
liable or responsible for, and there shall be excluded from the computation of
such period of time, any delays due to events of Force Majeure; (e) Landlord
shall have the right to transfer and assign, in whole or in part, all of its
rights and obligations hereunder and in the Building and Property referred to
herein, and in such event and upon such transfer Landlord shall be released from
any further obligations hereunder, and Tenant agrees to look solely to such
successor in interest of Landlord for the performance of such obligations;
(f)(1) Tenant hereby represents to Landlord that it has dealt directly with and
only with the Broker as a broker in connection with this Lease, Tenant agrees to
indemnify and hold Landlord and the Landlord Related Parties harmless from all
claims of any brokers claiming to have represented Tenant in connection with
this Lease. Landlord agrees to indemnify and hold Tenant and the Tenant Related
Parties harmless from all claims of any brokers claiming to have represented
Landlord in connection with this Lease. Landlord agrees to pay a brokerage
commission to Broker in accordance with the terms of a written commission
agreement between Landlord and Broker. (2) Agency Disclosure. At the signing of
this Lease, Landlord's leasing agent, Donald Matt, of Wright Runstad & Company,
represented (X) Landlord. At the signing of this Lease, Tenant's agent, Ron
Leibsohn, of Leibsohn & Company, represented (X) Tenant. Each party signing this
document confirms that the prior oral and/or written disclosure of agency was
provided to such party in this transaction, as required by RCW 18.86.030(l)(g).
(3) Landlord and Tenant, by their execution of this Lease, each acknowledge and
agree that they have timely received a pamphlet on the law of real estate agency
as required under RCW 18.86.030(1)(f); (g) If there is more than one Tenant, or
if the Tenant is comprised of more than one person or entity, the obligations
hereunder imposed upon Tenant shall be joint and several obligations of all such
parties and all notices, payments, and agreements given or made by, with or to
any one of such persons or entities shall be deemed to have been given or made
by, with or to all of them; (h) In the event Tenant is a corporation (including
any form of professional association), partnership (general or limited), or
other form of organization other than an individual (each such entity is
individually referred to herein as an "Organizational Entity"), then each
individual executing or attesting this Lease on behalf of Tenant hereby
covenants, warrants and represents: (1) that
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<PAGE> 18
such individual is duly authorized to execute or attest and deliver this Lease
on behalf of Tenant in accordance with the organizational documents of Tenant;
(2) that this Lease is binding upon Tenant; (3) that Tenant is duly organized
and legally existing in the state of its organization, and is qualified to do
business in the state in which the Premises is located; (4) that the execution
and delivery of this Lease by Tenant will not result in any breach of, or
constitute a default under, any mortgage, deed of trust, lease, loan, credit
agreement, partnership agreement or other contract or instrument to which Tenant
is a party or by which Tenant may be bound; (j) With respect to all required
acts of Tenant, time is of the essence of this Lease; (k) This Lease and the
covenants and conditions herein contained shall inure to the benefit of and be
binding upon Landlord and Tenant and their respective permitted successors and
assigns; (l) Notwithstanding anything to the contrary contained in this Lease,
the expiration of the Lease Term, whether by lapse of time or otherwise, shall
not relieve Tenant from Tenant's obligations accruing prior to the expiration of
the Lease Term and such obligations shall survive any such expiration or other
termination of the Lease Term; (m) The headings and titles to the paragraphs of
this Lease are for convenience only and shall have no effect upon the
construction or interpretation of any part hereof; (n) This Lease may be
modified only by a written agreement signed by Landlord and Tenant; (o) Landlord
has delivered a copy of this Lease to Tenant for Tenant's review only, and the
delivery hereof does not constitute an offer to Tenant or option. This Lease
shall not be effective until an original of this Lease executed by both Landlord
and Tenant and an original Guaranty, if any, executed by each Guarantor is
delivered to and accepted by Landlord, and this Lease has been approved by
Landlord's Mortgagees, if required.
XXXII. ENTIRE AGREEMENT.
This Lease Agreement, including the following Exhibits, constitutes the
entire agreement between the parties hereto with respect to the subject matter
of this Lease: (a) Exhibit A-Outline and Location of Premises; (a-2) Exhibit
A-2-Legal Description of Property; (b) Exhibit B-Rules and Regulations; (c)
Exhibit C-Commencement Letter (Intentionally Omitted); (d) Exhibit D-Work Letter
Agreement (Intentionally Omitted); and (e) Exhibit E-Additional Provisions.
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LANDLORD: EOP NORTHWEST PROPERTIES, L.L.C.
a Delaware limited liability company
By: EOP Northwest Properties, Inc.,
a Delaware corporation, its manager
By: /s/ KIM KOEHN
--------------------------------------
Name: Kim Koehn
Title: Regional Vice President
TENANT: BSQUARE CORPORATION,
a Washington corporation
By: /s/ ALBERT T. DOSSER
-------------------------------------------
Name: Albert T. Dosser
-------------------------------------------
Title: Senior Vice President Operations
-------------------------------------------
LANDLORD ACKNOWLEDGMENTS
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, do hereby certify that Kim Koehn, personally known to me to be the
Vice President of EOP Northwest Properties, Inc., a Delaware corporation,
manager of EOP Northwest Properties, L.L.C. a Delaware limited liability
company, and personally known to me to be the same person whose name is
subscribed to the foregoing instrument, appeared before me this day in person
and acknowledged that as such officer of said entities being authorized so to
do, (s)he executed the foregoing instrument on behalf of said entities, by
subscribing the name of such entities by (her)himself as such officer, as a free
and voluntary act, and as the free and voluntary act and deed of said entities,
for the uses and purposes therein set forth.
GIVEN under my hand and official seal this 14th day of December, 1998.
Notary Public /s/ SHAWNDEL SPONABLE
Printed Name Shawndel Sponable
Residing at 10001 E. Evans
In the state of Colorado
[SEAL]
My Commission Expires: 2/18/02
TENANT ACKNOWLEDGMENTS
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this the 11th day of December, 1998, before me a Notary Public duly
authorized in and for the said County in the State aforesaid to take
acknowledgments personally appeared Albert T. Dosser known to me to be Senior
Vice President of Operations, BSQUARE Corporation, one of the parties described
in the foregoing instrument, and acknowledged that as such officer, being
authorized so to do, (s)he executed the foregoing instrument on behalf of said
corporation by subscribing the name of such corporation by himself/herself as
such officer and caused the corporate seal of said corporation to be affixed
thereto, as a free and voluntary act, and as the free and voluntary act of said
corporation, for the uses and purposes therein set forth.
IN WITNESS WHEREOF, I hereunto set my hand and official seal as of the
date set forth above.
/s/ CAMILLA J. ALSON
--------------------------------------
Notary Public
My Commission Expires: June 6, 2002
17
<PAGE> 20
EXHIBIT A
OUTLINE AND LOCATION OF PREMISES
This exhibit is attached to and made a part of the Lease dated December
14, 1998, by and between EOP NORTHWEST PROPERTIES, L.L.C., A DELAWARE LIMITED
LIABILITY COMPANY ("Landlord") and BSQUARE CORPORATION, A WASHINGTON CORPORATION
("Tenant") for space in the building located at 411 108th Avenue SE, Bellevue,
WA 98004.
[FLOORPLAN]
ONE BELLEVUE CENTER
FLOOR 6
11/21/98
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EXHIBIT A-2
LEGAL DESCRIPTION OF PROPERTY
This Exhibit is attached to and made a part of the Lease dated
________________, 1998, EOP Northwest Properties, L.L.C., a Delaware limited
liability company ("Landlord") and BSQUARE Corporation, a Washington corporation
("Tenant") for space in the Building located at 411 108th Avenue SE, Bellevue,
WA 98004.
Lot 1, as delineated on City of Bellevue Short Plat No. 81-08 R, recorded under
King County Recording No. 8201069002 (as amended by instrument recorded under
King County Recording No. 8202040368), being more particularly described as
follows:
That portion of the South one-half of Lot 3 in Block 2 of Cheriton Fruit
Gardens, Plat No. 1 as per plat recorded in Volume 7 of plats, page 47, records
of King County, EXCEPT the East 230 feet of the North 100 feet, and EXCEPT the
East 30 feet thereof deeded to King County for road by deeds recorded under
Auditor's File Nos. 913743 and 913775 records of King County, Washington, and
less the South 13.5 feet thereof, more particularly described as follows:
Beginning at the most southeasterly corner of the above described parcel of
land; thence North 88 degrees 51'21" West along the South line of the above
described parcel of land, 231.75 feet; thence North 01 degrees 11'05" East,
285.52 feet; thence South 88 degrees 46'31" East, 26.31 feet; thence South 00
degrees 06'00" West, 84.00 feet; thence South 88 degrees 48'55" East, 200.04
feet to the East line of the above described parcel of land; thence South 00
degrees 06'00" West along said East line, 201.39 feet to the Point of Beginning.
The above property being situated in the Northeast quarter of the Northwest
quarter of Section 32, Township 25 North, Range 5 East, W.M., City of Bellevue,
King County, Washington.
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EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply, where applicable, to the
Premises, the Building, the parking garage associated therewith (if any), the
Property and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways and other similar
areas shall not be obstructed by Tenant or used by Tenant for any
purpose other than ingress and egress to and from the Premises. No
rubbish, litter, trash, or material of any nature shall be placed,
emptied, or thrown in those areas. At no time shall Tenant permit
Tenant's employees to loiter in common areas or elsewhere in or about
the Building or Property.
2. Plumbing fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Damage resulting to any such
fixtures or appliances from misuse by Tenant or its agents, employees or
invitees, shall be paid for by Tenant, and Landlord shall not in any
case be responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on or to
any windows, doors or other parts of the Building, except those of such
color, size, style and in such places as shall be first approved in
writing by Landlord. No nails, hooks or screws shall be driven or
inserted into any part of the Premises or Building except by the
Building maintenance personnel except for the purpose of hanging
pictures and normal office decorations, nor shall any part of the
Building be defaced by Tenant.
4. Landlord may provide and maintain in the first floor (main lobby) of the
Building an alphabetical directory board listing all Tenants, and no
other directory shall be permitted unless previously consented to by
Landlord in writing.
5. Intentionally Omitted
6. All contractors, contractor's representatives, and installation
technicians performing work in the Building shall be subject to
Landlord's prior approval and shall be required to comply with
Landlord's standard rules, regulations, policies and procedures, as the
same may be revised from time to time. Tenant shall be solely
responsible for complying with all applicable laws, codes and ordinances
pursuant to which said work shall be performed.
7. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by Tenant of any merchandise or materials which
require the use of elevators, stairways, lobby areas, or loading dock
areas, shall be restricted to hours designated by Landlord. Tenant must
seek Landlord's prior approval by providing in writing a detailed
listing of any such activity. If approved by Landlord, such activity
shall be under the supervision of Landlord and performed in the manner
stated by Landlord. Landlord may prohibit any article, equipment or any
other item from being brought into the Building. Tenant is to assume all
risk for damage to articles moved and injury to any persons resulting
from such activity. If any equipment, property, and/or personnel of
Landlord or of any other tenant is damaged or injured as a result of or
in connection with such activity, Tenant shall be solely liable for any
and all damage or loss resulting therefrom.
8. Landlord shall have the power to prescribe the weight and position of
safes and other heavy equipment or items, which in all cases shall not
in the opinion of Landlord exceed acceptable floor loading and weight
distribution requirements. All damage done to the Building by the
installation, maintenance, operation, existence or removal of any
property of Tenant shall be repaired at the expense of Tenant.
9. Corridor doors, when not in use, shall be kept closed.
10. Tenant shall not: (1) make or permit any improper, objectionable or
unpleasant noises or odors in the Building, or otherwise interfere in
any way with other tenants or persons having business with them; (2)
solicit business or distribute, or cause to be distributed,
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<PAGE> 23
in any portion of the Building any handbills, promotional materials or
other advertising; or (3) conduct or permit any other activities in the
Building that might constitute a nuisance.
11. No animals, except seeing eye dogs, shall be brought into or kept in, on
or about the Premises.
12. No inflammable, explosive or dangerous fluid or substance shall be used
or kept by Tenant in the Premises or Building. Tenant shall not, without
Landlord's prior written consent, use, store, install, spill, remove,
release or dispose of within or about the Premises or any other portion
of the Property, any asbestos-containing materials or any solid, liquid
or gaseous material now or hereafter considered toxic or hazardous under
the provisions of 42 U.S.C. Section 9601 et seq. or any other applicable
environmental law which may now or hereafter be in effect except for
normal office and cleaning supplies used under all applicable laws. If
Landlord does give written consent to Tenant pursuant to the foregoing
sentence, Tenant shall comply with all applicable laws, rules and
regulations pertaining to and governing such use by Tenant, and shall
remain liable for all costs of cleanup or removal in connection
therewith.
13. Tenant shall not use or occupy the Premises in any manner or for any
purpose which would injure the reputation or impair the present or
future value of the Premises or the Building; without limiting the
foregoing, Tenant shall not use or permit the Premises or any portion
thereof to be used for lodging, sleeping or for any illegal purpose.
14. Tenant shall not take any action which would violate Landlord's labor
contracts affecting the Building or which would cause any work stoppage,
picketing, labor disruption or dispute, or any interference with the
business of Landlord or any other tenant or occupant of the Building or
with the rights and privileges of any person lawfully in the Building.
Tenant shall take any actions necessary to resolve any such work
stoppage, picketing, labor disruption, dispute or interference and shall
have pickets removed and, at the request of Landlord, immediately
terminate at any time any construction work being performed in the
Premises giving rise to such labor problems, until such time as Landlord
shall have given its written consent for such work to resume. Tenant
shall have no claim for damages of any nature against Landlord or any of
the Landlord Related Parties in connection therewith, nor shall the date
of the commencement of the Term be extended as a result thereof.
15. Tenant shall utilize the termite and pest extermination service
designated by Landlord to control termites and pests in the Premises
except as included in Basic Costs. Tenant shall bear the cost and
expense of such extermination services.
16. Tenant shall not install, operate or maintain in the Premises or in any
other area of the Building, any electrical equipment which does not bear
the U/L (Underwriters Laboratories) seal of approval, or which would
overload the electrical system or any part thereof beyond its capacity
for proper, efficient and safe operation as determined by Landlord,
taking into consideration the overall electrical system and the present
and future requirements therefor in the Building. Tenant shall not
furnish any cooling or heating to the Premises, including, without
limitation, the use of any electronic or gas heating devices, without
Landlord's prior written consent. Tenant shall not use more than its
proportionate share of telephone lines available to service the
Building.
17. Tenant shall not operate or permit to be operated on the Premises any
coin or token operated vending machine or similar device (including,
without limitation, telephones, lockers, toilets, scales, amusement
devices and machines for sale of beverages, foods, candy, cigarettes or
other goods), except for those vending machines or similar devices which
are for the sole and exclusive use of Tenant's employees, and then only
if such operation does not violate the lease of any other tenant of the
Building.
18. Bicycles and other vehicles are not permitted inside or on the walkways
outside the Building, except in those areas specifically designated by
Landlord for such purposes.
19. Landlord may from time to time adopt appropriate systems and procedures
for the security or safety of the Building, its occupants, entry and
use, or its contents. Tenant, Tenant's agents, employees, contractors,
guests and invitees shall comply with Landlord's reasonable requirements
relative thereto subject to Tenant's Security Rights as set forth above.
21
<PAGE> 24
20. Landlord shall have the right to prohibit the use of the name of the
Building or any other publicity by Tenant that in Landlord's opinion may
tend to impair the reputation of the Building or its desirability for
Landlord or other tenants. Upon written notice from Landlord, Tenant
will refrain from and/or discontinue such publicity immediately.
21. Tenant shall carry out Tenant's permitted repair, maintenance,
alterations, and improvements in the Premises only during times agreed
to in advance by Landlord and in a manner which will not interfere with
the rights of other tenants in the Building.
22. Canvassing, soliciting, and peddling in or about the Building is
prohibited. Tenant shall cooperate and use its best efforts to prevent
the same.
23. At no time shall Tenant permit or shall Tenant's agents, employees,
contractors, guests, or invitees smoke in any common area of the
Building, unless such common area has been declared a designated smoking
area by Landlord.
24. Tenant shall observe Landlord's rules with respect to maintaining
standard window coverings at all windows in the Premises so that the
Building presents a uniform exterior appearance. Tenant shall ensure
that to the extent reasonably practicable, window coverings are closed
on all windows in the Premises while they are exposed to the direct rays
of the sun.
25. All deliveries to or from the Premises shall be made only at such times,
in the areas and through the entrances and exits designated for such
purposes by Landlord. Tenant shall not permit the process of receiving
deliveries to or from the Premises outside of said areas or in a manner
which may interfere with the use by any other tenant of its premises or
of any common areas, any pedestrian use of such area, or any use which
is inconsistent with good business practice.
26. The work of cleaning personnel shall not be hindered by Tenant after
5:30 P.M., and such cleaning work may be done at any time when the
offices are vacant. Windows, doors and fixtures may be cleaned at any
time. Tenant shall provide adequate waste and rubbish receptacles
necessary to prevent unreasonable hardship to Landlord regarding
cleaning service.
22
<PAGE> 25
EXHIBIT C
(Intentionally Omitted)
23
<PAGE> 26
EXHIBIT D
WORK LETTER
(Intentionally Omitted)
24
<PAGE> 27
EXHIBIT E
ADDITIONAL PROVISIONS
This Exhibit is attached to and made a part of the Lease dated December 14,
1998, by and between EOP Northwest Properties, L.L.C., a Delaware limited
liability company ("Landlord") and BSQUARE Corporation, a Washington corporation
("Tenant"), for space in the Building located at 411 108th Avenue NE, Bellevue,
Washington 98004.
I. PARKING.
A. During the initial Lease Term, Landlord shall lease to Tenant,
or cause the operator (the "Operator") of the garage servicing
the Building (the "Garage") to lease to Tenant, and Tenant shall
lease from Landlord or such Operator, up to twenty five (25)
unreserved parking spaces in the Garage (the "Spaces") for the
use of Tenant and its employees. The Spaces shall be leased at
the rate of $105.00 per Space, per month, plus applicable tax
thereon. Should Tenant's occupancy at One Bellevue Center be
extended past November 30, 1999, the parking rate, effective
December 1, 1999, shall be the then current market rate, which
rate may be adjusted from time to time to reflect the then
current rate for parking in the Garage. If requested by
Landlord, Tenant shall execute and deliver to Landlord the
standard parking agreement used by Landlord or the Operator (the
"Parking Agreement") in the Garage for such Spaces.
B. No deductions or allowances shall be made for days when Tenant
or any of its employees does not utilize the parking facilities
or for Tenant utilizing less than all of the Spaces. Tenant
shall not have the right to lease or otherwise use more than the
number of reserved and unreserved Spaces set forth above.
C. Except for particular spaces and areas designated by Landlord or
the Operator for reserved parking, all parking in the Garage
shall be on an unreserved, first-come, first-served basis.
D. Neither Landlord nor the Operator shall be responsible for
money, jewelry, automobiles or other personal property lost in
or stolen from the Garage or the surface parking areas
regardless of whether such loss or theft occurs when the Garage
or other areas therein are locked or otherwise secured. Except
as caused by the negligence or willful misconduct of Landlord
and without limiting the terms of the preceding sentence,
Landlord shall not be liable for any loss, injury or damage to
persons using the Garage or the surface parking areas or
automobiles or other property therein, it being agreed that, to
the fullest extent permitted by law, the use of the Spaces shall
be at the sole risk of Tenant and its employees.
E. Landlord or its Operator shall have the right from time to time
to designate the location of the Spaces and to promulgate
reasonable rules and regulations regarding the Garage, the
surface parking areas, if any, the Spaces and the use thereof,
including, but not limited to, rules and regulations controlling
the flow of traffic to and from various parking areas, the angle
and direction of parking and the like. Tenant shall comply with
and cause its employees to comply with all such rules and
regulations, all reasonable additions and amendments thereto,
and the terms and provisions of the Parking Agreement.
F. Tenant shall not store or permit its employees to store any
automobiles in the Garage or on the surface parking areas
without the prior written consent of Landlord. Except for
emergency repairs, Tenant and its employees shall not perform
any work on any automobiles while located in the Garage or on
the Property. If it is necessary for Tenant or its employees to
leave an automobile in the Garage or on the surface parking
areas overnight, Tenant shall provide Landlord with prior notice
thereof designating the license plate number and model of such
automobile.
G. Landlord or the Operator shall have the right to temporarily
close the Garage or certain areas therein in order to perform
necessary repairs, maintenance and improvements to the Garage or
the surface parking areas, if any.
H. Tenant shall not assign or sublease any of the Spaces without
the consent of Landlord. Landlord shall have the right to
terminate the agreement contained in this Section I or in the
Parking Agreement with respect to any Spaces that Tenant desires
to sublet or assign.
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<PAGE> 28
I. Landlord may elect to provide parking cards or keys to control
access to the Garage or surface parking areas, if any. In such
event, Landlord shall provide Tenant with one card or key for
each Space that Tenant is leasing hereunder, provided that
Landlord shall have the right to require Tenant or its employees
to place a deposit on such access cards or keys and to pay a fee
for any lost or damaged cards or keys.
II. RENEWAL OPTION
A. The Lease Term shall be automatically extended for six (6)
consecutive periods of one (1) month each commencing on the day
following the Termination Date of the initial Lease Term (each
such month being a "Renewal Term") unless sooner terminated by
Tenant by written notice of termination delivered to Landlord,
provided that:
1. Landlord must receive written notice from Tenant of
Tenant's intent to vacate the Premises not less than one
(1) full calendar month prior to the expiration of the
initial Lease Term or any Renewal Term; and
2. If Tenant is in default under the Lease beyond any
applicable cure periods Landlord shall have all rights
set forth in Article XXI; and
3. No part of the Premises may be sublet by Tenant during
any Renewal Term; and
4. The Lease may not be assigned during any Renewal Term.
B. The terms of the Lease for the Premises during the Renewal Term
shall be the same terms and conditions described in the Lease,
except as stated in Section III.B hereunder, and the Base Rental
for each Renewal Term shall be the same Base Rent payable in the
last month of the Initial Term.
III. CONTINGENCIES
A. This Lease is contingent upon the termination of that certain
lease dated January 24, 1994 (the "Prior Tenant Lease"), by and
between Landlord (as successor in interest to One Bellevue
Center Joint Venture, a Washington general partnership), and
Computer Associates International, Inc. a Delaware corporation
(as successor in interest to Legent Corporation, a Delaware
corporation) ("Prior Tenant") relating to approximately 21,106
rentable square feet (the "Prior Tenant Space") on the 5th and
6th floors of the Building, which Prior Tenant Space includes
all or a portion of the Premises to be leased to Tenant pursuant
to the terms of this Lease. Landlord currently is negotiating
the terms of an agreement with Prior Tenant to terminate the
Prior Tenant Lease (the "Prior Tenant Termination Agreement").
If Landlord fails to enter into, and notify Tenant thereof, the
Prior Tenant Termination Agreement with Prior Tenant on or
before the December 13, 1998, then Landlord or Tenant may
terminate this Lease by providing written notice thereof to the
other party on or before December 14, 1998.
B. Provided that this Section III.B. does not apply if Landlord
acts in bad faith and Landlord withdraws from negotiations,
Section II.B. above and Section I.A.2. of this Lease are
strictly contingent upon Landlord's receipt on or before June 1,
1999, of a copy of a fully executed lease agreement for
approximately 94,000 (or more) square feet of office space
between Tenant and the landlord for the property known as Sunset
North, located at the NE corner of the intersection of 139th
Avenue SE and SE 32nd St. in Bellevue, King County, Washington.
In the event, Tenant is unable to enter into said lease
agreement, or deliver a copy thereof to Landlord as described
above in this Section III.B, then Section I.A.2. of this Lease
shall be automatically deleted and the following substituted
therefor:
"Base Rental" shall mean the sum of THREE HUNDRED
TWENTY-NINE THOUSAND THREE HUNDRED NINETY-TWO and 53/100
Dollars ($329,392.53), payable by Tenant to Landlord in
NINE (9) monthly installments as follows:
26
<PAGE> 29
a. ONE (1) installment of TWENTY THOUSAND THIRTY
AND 63/100 DOLLARS ($20,030.63, I.E. $1,112.81
PER DIEM X 18 DAYS) payable upon the execution
of this Lease by Tenant for the period beginning
DECEMBER 14, 1998 and ending DECEMBER 31, 1998.
b. FIVE (5) equal installments of THIRTY THREE
THOUSAND THREE HUNDRED EIGHTY FOUR and 38/100
Dollars ($33,384.38), each payable on or before
the first day of each month during the period
beginning JANUARY 1, 1999, and ending MAY 31,
1999, provided that the Base Rental for the
first full calendar month of the Lease Term
shall be payable upon the execution of this
Lease by Tenant.
c. THREE (3) equal installments of FORTY SEVEN
THOUSAND FOUR HUNDRED EIGHTY and NO/100 Dollars
($47,480.00), each payable on or before the
first day of each month during the period
beginning JUNE 1, 1999 and ending AUGUST 31,
1999.
IN WITNESS WHEREOF, Landlord and Tenant have executed this exhibit as of the day
and year first above written.
LANDLORD: EOP NORTHWEST PROPERTIES, L.L.C.
a Delaware limited liability company
By: EOP Northwest Properties, Inc.,
a Delaware corporation, its manager
By: /s/ KIM KOEHN
-----------------------------------
Name: Kim Koehn
Title: Regional Vice President
TENANT: BSQUARE Corporation,
a Washington corporation
By: /s/ ALBERT T. DOSSER
-----------------------------------------
Name: Albert T. Dosser
-----------------------------------------
Title: S.VP Operations
-----------------------------------------
27
<PAGE> 1
EXHIBIT 10.7
MERCER ISLAND PARTNERS ASSOCIATES BUILDING
LEASE AGREEMENT
BETWEEN
MERCER ISLAND PARTNERS ASSOCIATES, LLC
LANDLORD
AND
BSQUARE CORPORATION, INC.
TENANT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. LEASE DATA AND EXHIBITS ............................................................... 1
(a) Building ......................................................................... 1
(b) Premises ......................................................................... 1
(c) Tenant's Pro Rata Share .......................................................... 1
(d) Basic Plans Delivery Date ........................................................ 1
(e) Final Plans Delivery Date ........................................................ 1
(f) Commencement Date ................................................................ 1
(g) Expiration Date .................................................................. 1
(h) Rent ............................................................................. 1
(i) Security Deposit ................................................................. 1
(j) Damage Deposit ................................................................... 1
(k) Base Year ........................................................................ 1
(l) Landlord's/Tenant's Leasing Broker/Agent........................................ 2
(m) Parking .......................................................................... 2
(n) Notice Address ................................................................... 2
(o) Payment Address .................................................................. 2
(p) Exhibits ......................................................................... 2
2. PREMISES ............................................................................. 2
3. COMMENCEMENT AND EXPIRATION DATES .................................................... 2
(a) Commencement Dates ............................................................... 2
(b) Delays ........................................................................... 3
(c) Confirmation of Commencement Date ................................................ 3
(d) Expiration Date .................................................................. 3
4. ACCEPTANCE OF PREMISES ............................................................... 3
5. RENT AND ADDITIONAL RENT ............................................................. 3
6. SECURITY DEPOSIT ..................................................................... 3
7. PARKING .............................................................................. 4
8. USES ................................................................................. 4
9. SERVICES AND UTILITIES ............................................................... 4
(a) Standard Services ................................................................ 4
(b) Normal Business Hours ............................................................ 5
(c) Interruption of Services ......................................................... 5
(d) Additional Services .............................................................. 5
(e) Costs of Additional Services ..................................................... 5
10. COSTS OF OPERATIONS AND REAL ESTATE TAXES ............................................ 5
(a) Additional Rent .................................................................. 5
(b) Definitions ...................................................................... 5
(c) Estimated Costs .................................................................. 6
(d) Actual Costs ..................................................................... 6
(e) Records and Adjustments .......................................................... 7
(f) Personal Property Taxes .......................................................... 7
11. CARE OF PREMISES ..................................................................... 7
12. ACCESS ............................................................................... 7
13. DAMAGE OR DESTRUCTION ................................................................ 8
(a) Damage and Repair ................................................................ 8
(b) Destruction During Last Year of Term ............................................. 8
(c) Tenant Improvements .............................................................. 8
14. WAIVER OF SUBROGATION ................................................................ 8
15. INDEMNIFICATION ...................................................................... 8
16. INSURANCE ............................................................................ 9
(a) Liability Insurance .............................................................. 9
(b) Property Insurance ............................................................... 9
(c) Insurance Policy Requirements .................................................... 9
(d) Certificate of Insurance ......................................................... 9
(e) Primary Policies ................................................................. 9
17. ASSIGNMENT AND SUBLETTING ............................................................ 9
(a) Assignment of Sublease ........................................................... 9
(b) Landlord Right to Terminate Portion of Lease ..................................... 10
(c) Tenant Transfer of Lease ......................................................... 10
(d) Assignee Obligations ............................................................. 10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
(e) Subleasee Obligations ............................................................ 10
18. SIGNS ................................................................................ 11
19. LIENS AND INSOLVENCY ................................................................. 11
(a) Liens ............................................................................ 11
(b) Insolvency ....................................................................... 11
20. DEFAULT .............................................................................. 11
(a) Cummulative Remedies ............................................................. 11
(b) Tenant's Right to Cure ........................................................... 11
(c) Landlord's Reentry ............................................................... 12
(d) Reletting the Premises ........................................................... 12
(e) Trade Fixtures ................................................................... 12
21. PRIORITY ............................................................................. 12
22. SURRENDER OF POSSESSION .............................................................. 13
23. REMOVAL OF PROPERTY .................................................................. 13
24. NON-WAIVER ........................................................................... 13
25. HOLDOVER ............................................................................. 13
26. CONDEMNATION ......................................................................... 14
(a) Entire Taking .................................................................... 14
(b) Constructive Taking of Entire Premises ........................................... 14
(c) Awards and Damages ............................................................... 14
27. NOTICES .............................................................................. 14
28. COSTS AND ATTORNEY'S FEES ............................................................ 14
29. ESTOPPEL AND CERTIFICATES ............................................................ 15
30. TRANSFER OF LANDLORD'S INTEREST ...................................................... 15
31 RIGHT TO PERFORM ...................................................................... 15
32. QUIET ENJOYMENT ...................................................................... 15
33. CORPORATE AUTHORITY .................................................................. 16
34. HAZARDOUS MATERIALS .................................................................. 16
(a) Tenant Obligations ............................................................... 16
(b) Landlord Representations ......................................................... 16
35. TELECOMMUNICATIONS LINES AND EQUIPMENT ............................................... 16
(a) Location of Tenant's Equipment and Landlord Consent .............................. 16
(b) Limitation of Liability .......................................................... 17
(c) Electromagnetic Fields ........................................................... 17
36. GENERAL .............................................................................. 17
(a) Headings ......................................................................... 17
(b) Successors and Assigns ........................................................... 17
(c) Payment of Brokers ............................................................... 17
(d) Entire Agreement ................................................................. 18
(e) Severability ..................................................................... 18
(f) Overdue Payments ................................................................. 18
(g) Force Majeure .................................................................... 18
(h) Right to Change Public Spaces .................................................... 18
(i) Governing Law .................................................................... 18
(j) Building Name .................................................................... 18
</TABLE>
ii
<PAGE> 4
LEASE AGREEMENT
MERCER ISLAND PARTNERS ASSOCIATES BUILDING
THIS LEASE made this 30 day of, January 1998, between MERCER ISLAND PARTNERS
ASSOCIATES, LLC, a Washington limited liability company ("Landlord"), and
BSQUARE CORPORATION, INC., a Washington Corporation ("Tenant).
As parties hereto, Landlord and Tenant agree:
1. LEASE DATA AND EXHIBITS:
The following terms as used herein shall have the meanings provided in
this Section 1, unless otherwise specifically modified by provisions of this
Lease:
(a) BUILDING:
Known as Mercer Island Partners Associates Building, or such other name
as the Landlord may designate from time to time, situated on a portion of the
real property more particularly described in Section 2 hereof, with an address
of 12822 SE 32nd Street, Bellevue, Washington 98005.
(b) PREMISES:
Consisting of all of the second (2nd) floor of the Building, as outlined
on the floor plan attached hereto as Exhibit A, including tenant improvements to
be constructed as described in Exhibit B.
(c) TENANT'S PRO RATA SHARE:
Landlord and Tenant agree that, for purposes of this Lease, the rentable
area of the Premises is deemed to be 15,105 square feet, including a load
factor of 9.88%, and Tenant's Pro Rata Share of the finished area of the
Building is deemed to be 50.49%.
(d) BASIC PLANS DELIVERY DATE:
February 16, 1998
-------------------------------
(e) FINAL PLANS DELIVERY DATE:
February 25, 1998
-------------------------------
(f) COMMENCEMENT DATE:
The date as provided in Section 3 hereof. The Target Commencement Date
is April 1, 1998.
(g) EXPIRATION DATE:
Five (5) years following the Commencement Date subject to the terms of
Exhibit C hereto.
(h) RENT:
$24.00 per net rentable square foot per year, for a payment of
$30,210.00, payable monthly in advance on the first day of the month. The base
rent shall be fixed at $24.00 for years 1, 2 and 3. The base rent shall be
increased to $25.50 per net rentable square foot for years 4 and 5 for a payment
of $32,098.00 per month. Rent-related expenses shall be adjusted from time to
time pursuant to Sections 9 and 10 of the Lease. Tenant has deposited with
Landlord on the date hereof $60,420.00 to be applied to the first two Rent
payments due hereunder.
(i) SECURITY DEPOSIT:
$64,196.00 in the form of a letter of credit.
(k) BASE YEAR:
For purposes of this Lease, the Base Year shall be the 12-month period
beginning date of Certificate of Occupancy, 1998.
-1-
<PAGE> 5
(L) LANDLORD'S/TENANT'S LEASING BROKER/AGENT:
Ron Leibsohn, Leibsohn & Company (Tenant's Leasing Agent).
Bret Jordan, Colliers Macaulay Nicolls International (Landlord's Leasing
Agent).
(m) PARKING:
Tenant shall have the right to occupy up to 65 exterior parking spaces
to park automobiles without additional charge. Said spaces shall be unmarked and
allocated to Tenant as an open, unreserved allotment. Overflow parking is
available at an adjacent location. In the event up to 65 stalls are not
available for Tenant's use, Tenant agrees to utilize the overflow parking on the
lot across 128th Avenue NE to the west.
(n) NOTICE ADDRESSES:
Landlord: Mercer Island Partners Associates, LLC
12822 SE 32nd Street
Bellevue, Washington 98005
Tenant: Bsquare Corporation, Inc.
3633 136th Place SE, Suite 100
Bellevue, Washington 98006
(o) PAYMENT ADDRESSES:
Landlord: Mercer Island Partners Associates, LLC
12822 SE 32nd Street
Bellevue, Washington 98005
Tenant: Bsquare Corporation, Inc.
3633 136th Place SE, Suite 100
Bellevue, Washington 98006
(p) EXHIBITS:
The following exhibits or riders are made a part of this Lease:
<TABLE>
<S> <C>
Exhibit A - Floor Plan of Premises
Exhibit B - Tenant Improvements
Exhibit C - Addendum to Lease
</TABLE>
2. PREMISES:
Landlord does hereby lease to Tenant, and Tenant does hereby lease from
Landlord, upon the terms and conditions herein set forth, the Premises described
in Section 1(b) hereof as shown on Exhibit A attached hereto and incorporated
herein, together with rights of ingress and egress over common areas on the land
and in the Building located on the land ("Land") more particularly described as:
LOT 2, CITY OF BELLEVUE SHORT PLAT NUMBER 81-22, RECORDED UNDER KING
COUNTY RECORDING NUMBER 8211179001, BEING A PORTION OF TRACT 25, MERCER
SLOUGH GARDEN TRACTS, ACCORDING TO THE PLAT THEREOF RECORDED IN VOLUME 8
OF PLATS, PAGE 91, IN KING COUNTY, WASHINGTON.
Tax Account No.: 545330-0230-07
3. COMMENCEMENT AND EXPIRATION DATES:
(a) COMMENCEMENT DATE:
Landlord and Tenant shall use their respective best efforts to complete
Tenant improvements in the Premises in accordance with Exhibit B hereto on the
date specified in Section 1(f) or as soon thereafter as practicable. The
Commencement Date shall be the earlier of the date of acceptance of the Premises
by Tenant pursuant to Section 4 hereof, or the date Tenant actually occupies the
Premises, excluding Tenant's vendors and Tenant installing voice/data
- 2 -
<PAGE> 6
cabling and equipment prior to the Certificate of Occupancy being issued by the
City of Bellevue or the date when the Premises would have been completed except
for delays caused by the failure of Tenant to fulfill any obligation pursuant to
the terms of this Lease or any exhibit hereto, including without limitation
Tenant's failure to comply with the Plan Delivery Dates described in Section
1(d) and (c) and Exhibit B.
(b) DELAYS:
In the event, due to delays from any cause other than Tenant's failure
to comply with the terms of this Lease, the Commencement Date has not occurred
within three (3) months following the Target Commencement Date specified in
Section 1(f), Tenant may terminate this Lease by written notice; provided,
however, that such three (3) month period shall be extended for delays due to
causes beyond the reasonable control of Landlord, excluding the payment of money
owed by Landlord. Termination under this Section 3(b) shall be Tenant's sole
remedy and Tenant shall have no other rights or claims hereunder at law or in
equity.
(c) CONFIRMATION OF COMMENCEMENT DATE:
In the event the Commencement Date is established as provided for in
Section 3 as a later or earlier date than the date provided in Section 1(f)
hereof, Landlord shall confirm the same to Tenant in writing.
(d) EXPIRATION DATE:
This Lease shall expire on the date specified in Section 1(g), subject
to Tenant's right to extend the Term as set forth on Exhibit C attached hereto.
4. ACCEPTANCE OF PREMISES:
If this Lease shall be entered into prior to the completion of Tenant
improvements in the Premises, the acceptance of the Premises by Tenant shall be
deferred until the giving of written notice by Landlord to Tenant of the
completion of such construction of the Tenant Improvements and the receipt by
Tenant of a Certificate of Occupancy from the City of Bellevue. Within five (5)
days ("Inspection Period") after Landlord gives such notice, Tenant shall make
such inspection of the Premises as Tenant deems appropriate. Except as otherwise
specified by Tenant in writing to Landlord within the Inspection Period and
except for latent defects discovered within six (6) months of Commencement Date,
which shall be promptly corrected after discovery by Tenant, Tenant shall be
deemed to have accepted the Premises at the end of the Inspection Period. If, as
a result of such inspection, Tenant discovers minor deviations or variations
from the plans and specifications for Tenant's improvements which do not
materially affect Tenant's use of the Premises and are of a nature commonly
found on a "punchlist" (as that term is used in the construction industry),
Tenant shall, during the Inspection Period, notify Landlord in writing of such
deviations. Landlord shall promptly repair all punchlist items. The existence of
such punch list items shall not postpone the Commencement Date of this Lease nor
the obligation of Tenant to pay Rent.
5. RENT AND ADDITIONAL RENT:
Tenant shall pay Landlord without notice the Rent stated in Section 1(h)
hereof and Additional Rent as provided in Section 9 and Section 10 and any other
payments due under this Lease without deduction or offset in lawful money of the
United States in advance on or before the first day of each month at Landlord's
Payment Address set forth in Section 1(n) hereof, or to such other party or at
such other place as Landlord may hereafter from time to time designate in
writing. Rent and Additional Rent for any partial month at the beginning or end
of the Lease term shall be prorated in proportion to the number of days in such
month. All amounts which Tenant assumes or agrees to pay to Landlord pursuant to
this Lease shall be deemed Additional Rent hereunder and, in the event of
nonpayment thereof, Landlord shall have all remedies provided for in the case of
nonpayment of Rent.
6. SECURITY DEPOSIT:
As security for the performance of this Lease by Tenant, Tenant will
provide to Landlord within five (5) business days following the date of
execution of this Lease by all parties the
- 3 -
<PAGE> 7
Security Deposit as specified in Section 1(i) hereof. Landlord may apply all or
any part of the Security Deposit to the payment of any sum in default or any
other sum which Landlord may in its reasonable discretion deem necessary to
spend or incur by reason of Tenant's default. In such event, Tenant shall,
within five (5) days of written demand therefore by Landlord, deposit with
Landlord the amount so applied. The letter of credit shall terminate thirty (30)
days after the expiration or sooner termination of this Lease. Landlord shall
not be required to keep any Security Deposit separate from its general funds and
Tenant shall not be entitled to any interest thereon.
7. PARKING:
Except as provided for in Section 1(m), use of parking in the Building
by Tenant shall be subject to such reasonable rules and regulations as Landlord
or the City of Bellevue may publish from time to time. Except as provided for in
Section 1(m), all rules and regulations established by Landlord shall be equally
applicable to all tenants of the Building and shall not provide for reserved
parking stalls for any other tenants of the Building, except for Landlord's
three (3) assigned stalls.
8. USES:
The Premises are to be used only for general office purposes including
computer and software programming and research and development ("Permitted
Uses"), and for no other business or purpose without the prior written consent
of Landlord, which consent may be withheld if Landlord, in its sole discretion,
determines that any proposed use is inconsistent with or detrimental to the
maintenance and operation of the Building as a first-class office building or is
inconsistent with any restriction on use of the Premises, the Building, or the
Land contained in any lease, mortgage or other instrument or agreement by which
the Landlord is bound or to which any of such property is subject. Tenant shall
not commit any act that will increase the then existing cost of insurance on the
Building without Landlord's prior written consent. Tenant shall promptly pay
upon demand the amount of any increase in insurance costs caused by any act or
acts of Tenant. Tenant shall not commit or allow to be committed any waste upon
the premises, or any public or private nuisance or other act which disturbs the
quiet enjoyment of any other tenant in the Building or which is unlawful. Tenant
shall not, without the written consent of Landlord, use any apparatus, machinery
or device in or about the Premises which will cause any substantial disruptive
noise, vibration or fumes. Tenant shall not permit smoking in the Premises;
Landlord has designated all internal portions of the Building as a smoke-free
zone. If any of Tenant's office machines or equipment should disturb the quiet
enjoyment of any other tenant in the Building, then Tenant shall provide, at
Tenant's sole expense, adequate insulation, or take other action as may be
necessary to eliminate the disturbance. Tenant shall comply with all laws
relating to its use or occupancy of the Premises and shall observe such
reasonable rules and regulations (not inconsistent with the terms of this Lease)
as may be adopted and made available to Tenant by Landlord from time to time for
the safety, care and cleanliness of the Premises or the Building, and for the
preservation of good order therein. Landlord shall use its best efforts to cause
all other tenants and occupants of the Building to be bound by similar covenants
and restrictions, and Landlord shall enforce the same all to the extent that
Tenant shall not be disturbed in its quiet enjoyment of the Premises.
9. SERVICES AND UTILITIES:
(a) STANDARD SERVICES:
Landlord shall maintain the Building, the Land and the Premises and the
public and common areas of the Building in good order and condition consistent
with the operation and maintenance of a first-class office building in Bellevue,
Washington. Landlord shall furnish the Premises with electricity for normal
office use and the permitted uses, including lighting and operation of low power
usage office machines, water and elevator service at all times during the term
of the Lease. Landlord shall also provide lamp replacement service for building
standard light fixtures, toilet room supplies, window washing at reasonable
intervals, and customary building janitorial service. No janitorial service
shall be provided for Saturdays, Sundays or legal holidays. The costs of any
janitorial or other service provided by Landlord to Tenant which
- 4 -
<PAGE> 8
are in addition to the services ordinarily provided Building tenants or as
required by this Section 9(a) shall be repaid by Tenant as Additional Rent upon
receipt of billings therefor.
(b) NORMAL BUSINESS HOURS:
From 8:00 a.m. to 8:00 p.m. on weekdays, 9:00 a.m. to 3:00 p.m. on
Saturdays, excluding legal holidays ("Normal Business Hours"), Landlord shall
furnish to the Premises heat and air conditioning. If requested by Tenant,
Landlord shall furnish heat and air conditioning at times other than Normal
Business Hours and the cost of such services as incurred by Landlord shall be
paid by Tenant as Additional Rent. During other than Normal Business Hours,
Landlord may restrict access to the Building in accordance with the Building's
security system, provided that Tenant shall have at all times during the terms
of this Lease (24 hours of all days) access to the Premises.
(c) INTERRUPTION OF SERVICES:
Landlord shall not be liable for any loss, injury or damage to person or
property caused by or resulting from any variation, interruption, or failure of
any services or facilities provided by Landlord pursuant to this Lease due to
any cause whatsoever except for Landlord's intentional wrongful conduct or
failure to pay the costs therefor. No temporary interruption or failure of such
services or facilities incident to the making of repairs, alterations, or
improvements, or due to accident, strike or conditions or events beyond
Landlord's reasonable control shall be deemed an eviction of Tenant or relieve
Tenant from any of Tenant's obligations hereunder; or give rise to any liability
of Landlord. Landlord shall use its best efforts in good faith to minimize any
disruption of Tenant's use of the Premises arising from any interruption or
failure of such services or facilities.
(d) ADDITIONAL SERVICES:
The Building mechanical system is designed to accommodate heating loads
generated by lights and equipment using up to 2.5 watts per square foot. Before
installing lights and equipment in the Premises which in the aggregate exceed
such amount, Tenant shall obtain the written permission of Landlord. Landlord
may refuse to grant such permission unless Tenant shall agree to pay the costs
of Landlord for installation of supplementary air conditioning capacity or
electrical systems as necessitated by such equipment or lights.
(e) COSTS OF ADDITIONAL SERVICES:
In addition, Tenant shall in advance, on the first day of each month
during the Lease term, pay Landlord as Additional Rent the reasonable amount
estimated by Landlord as the cost of furnishing electricity for the operation of
equipment or lights consuming in aggregate in excess of 2.5 watts per square
foot of electricity and the reasonable amount estimated by Landlord as the costs
of operation and maintenance of supplementary air conditioning units
necessitated by Tenant's use of such equipment or lights. Landlord shall be
entitled to install and operate at Tenant's cost a monitoring/metering system in
the Premises to measure the added demand on electricity, heating, ventilation,
and air conditioning systems resulting from such equipment or lights and from
Tenant's after-hours heating, ventilation and air conditioning service
requirements. Tenant shall comply with Landlord's reasonable instructions for
the use of drapes, blinds and thermostats in the Building.
10. COSTS OF OPERATIONS AND REAL ESTATE TAXES:
(a) ADDITIONAL RENT:
Tenant shall pay as Additional Rent its pro rata share of increases in
Taxes and Operating Costs in excess of Six and 25/100 Dollars ($6.25) per
rentable square foot of the Premises, which shall be defined as the Base Amount
("Base Amounts"). Increases in Taxes and in Operating Costs over the applicable
Base Amounts shall be determined and shall be payable separately under this
Section 10.
(b) DEFINITIONS:
(i) For the purposes of this section, "Taxes" shall mean taxes
and assessments (including special district levies) on real and personal
property payable during any calendar year or fiscal year, based on the actual
assessment period, with respect to the Land, the Building and
- 5 -
<PAGE> 9
all property of landlord, real or personal, used directly in the operation of
the Building and located in the Building or on the Land, together with any taxes
levied or assessed in addition to or in lieu of any such taxes or any tax upon
leasing of the Building or the rents collected (excluding any net income,
business and occupation or franchise tax) ("Taxes").
(ii) For purposes of this Section, "Operating Costs" or "Costs"
shall mean all expenses of Landlord for maintaining, operating and repairing the
Land and Building and the personal property used in connection therewith,
including without limitation all insurance premiums, utilities, security costs,
janitorial services, landscaping, refuse disposal, management fees and other
expenses but all not to exceed in the aggregate the usual and customary charges
for similar first class office buildings in tile City of Bellevue which in
accordance with generally accepted accounting and management practices would be
considered an expense of maintaining, replacing, operating or repairing the
Building ("Operating Costs" or "Costs"); excluding, however: (I) Costs of any
special services rendered to individual tenants for which a separate charge is
collected; (II) leasing commissions and other leasing expenses; and (III) Costs
of improvements required to be capitalized in accordance with generally accepted
accounting improvement principles, except Operating Costs shall include
amortization of capital improvements (A) made subsequent to initial development
of the Building which are designed with a reasonable probability of improving
the operating efficiency of the Building, or providing savings in the cost of
operating the Building but in no event shall such Operating Costs for such
improvement exceed the amount of such savings, (IV) principal or interest on
payments of loans; (V) costs associated with other tenants, including tenant
improvement costs and legal and other fees associated with any default by such
other tenants, and (VI) amortization and depreciation (except as set forth
above); or, (B) which are responsive to requirements imposed with respect to the
Building under any amendment to any applicable building, health, safety, fire,
nondiscrimination, or similar law or regulation ("law"), or any new law, or any
new interpretation of an existing law ("new interpretation"), which amendment,
law or new interpretation is audited or arose after tile Commencement Date of
this Lease. For purposes of this Lease, a new interpretation shall mean any
interpretation, enforcement or application of a law enacted prior to the
Commencement Date that imposes requirements with respect to the building that
Landlord in the exercise of sound business judgment and good faith at the time
of Landlord's execution of this lease would not have deemed applicable to the
Building.
(iii) "Year" shall mean the calendar year.
(c) ESTIMATED COSTS:
At the beginning of each year after the Base Year, Landlord shall
furnish Tenant a written statement of estimated Operating Costs and Taxes for
such year; a calculation of the amount, if any, by which such estimated
Operating Costs and Taxes will exceed the relevant Base Amounts; and a
calculation of Tenant's Pro Rata Share of any such amount. Tenant shall pay one
twelfth (1/12) of that amount as Additional Rent for each month during the year.
If at any time during the year Landlord reasonably believes that the actual
Operating Costs or Taxes will vary from such estimated Operating Costs or Taxes
by more than five percent (5%), Landlord may by written notice to Tenant revise
the estimate for such year, and Additional Rent for the balance of such year
shall be paid based upon such revised estimates.
(d) ACTUAL COSTS:
Included in the Base Amount rent is a $6.25 per rentable square foot per
year allowance for Operating Costs and Taxes. Charges to tenants for increased
Operating Costs and Taxes will not be increased until actual costs, including
the reasonable management fee as described above, exceed $6.25 per net rentable
square foot per year. Within ninety (90) days after the end of each year after
the Base Year or as soon thereafter as practicable, Landlord shall deliver to
Tenant a written statement including a detailed breakdown setting forth Tenant's
Pro Rata Share of the actual Operating Costs and Taxes in excess of the Base
Amounts during the preceding year. If the actual Operating Costs and Taxes in
excess of the Base Amount, exceed the estimates paid by Tenant during the year,
Tenant shall pay the amount of such excess to Landlord as Additional Rent within
thirty (30) days after receipt of such statement. If the actual Operating Costs
and Taxes in excess of the Base Amount is less that the estimates paid by Tenant
during the year, Landlord shall apply any excess to the next rental payment due
by Tenant.
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<PAGE> 10
(e) RECORDS AND ADJUSTMENTS:
Landlord shall keep records showing all expenditures made in connection
with Operating Costs and Taxes, and such records shall be available for
inspection and audit once per calendar year at tile Landlord's office by Tenant,
during normal business hours within six (6) months after receipt of the
statement of actual costs; Landlord and Tenant agree the results of any such
audit or review shall remain confidential; provided that Tenant may disclose
such information to its attorneys or consultants in connection with any dispute
between Landlord and Tenant and as may be otherwise required by any order of
Court. Tenant hereby waives any right to any adjustment of sums paid under this
Section 10 unless a claim in writing specifying the reasons therefor is
delivered to Landlord no later than nine (9) months after receipt of statement
of actual costs Operating Costs and Taxes shall be prorated for any portion of a
year at the beginning or end of tile term of this Lease. Notwithstanding this
Section 10, the Rent payable by Tenant shall in no event be less than the Rent
specified in Section 1(h) hereof.
(f) PERSONAL PROPERTY TAXES:
Tenant shall pay all personal property taxes with respect to property of
Tenant located on tile Premises or in the Building. "Property of Tenant" shall
include all improvements which are paid for by Tenant and "personal property
taxes" shall include all property taxes assessed against the property of Tenant,
whether assessed as real or personal property.
11. CARE OF PREMISES:
Landlord shall perform all normal maintenance and repairs reasonably
necessary to maintain the Premises and the Building as a first-class office
building; provided that Landlord shall not be required to maintain or repair any
property of Tenant or any appliances (such as refrigerators, water heaters,
microwave ovens, and the like) which are part of the Premises. Tenant shall take
good care of the Premises. Tenant shall not make any alterations, additions or
improvements ("Alterations") in or to the Premises, or make changes to locks on
doors, except for re-keying or altering security entrance provisions provided
Tenant promptly provides Landlord copies of new entrance provisions and keys, or
add, disturb or in any way change any plumbing or wiring, excluding data and low
voltage wiring, ("Changes") without first obtaining the written consent of
Landlord and, where appropriate, in accordance with plans and specifications
reasonably approved by Landlord. As a condition to its approval, Landlord may
require Tenant to remove such Alterations or Changes upon the expiration or
earlier termination of tile Term and to restore the Premises or Land to the
condition they were in prior to such Alterations or Changes, including restoring
any damage resulting from such removal, all at Tenant's expense. Any Alterations
or Changes required to be made to Tenant's Premises by any amendment to any
applicable building, health, safety, fire, nondiscrimination, or similar law or
regulation ("law"), or any new law shall be made at Tenant's sole expense and
shall be subject to the prior written consent of Landlord, which consent cannot
be unreasonably withheld or delayed. Tenant shall reimburse Landlord for any
reasonable sums expended for examination and approval of the architectural and
mechanical plans and specifications of the Alterations and Changes and direct
costs reasonably incurred during any inspection or supervision of the
Alterations or Changes. All damage or injury done to the Premises or Building by
Tenant or by any persons who may be in or upon the Premises or Building with the
express or implied consent of Tenant, including but not limited to the cracking
or breaking of any glass of windows and doors, shall be paid for by Tenant.
12. ACCESS:
Tenant shall permit Landlord and its agents to enter into and upon tile
Premises at all reasonable times with a Tenant escort, except in the event of an
emergency for the purpose of inspecting the same or for the purpose of cleaning,
repairing, altering or improving the Premises or tile Building. Upon reasonable
notice, Landlord shall have tile right to enter the Premises for tile purpose of
showing tile Premises to prospective tenants within the period of one hundred
eighty (180) days prior to the expiration or sooner termination of the Lease
term.
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<PAGE> 11
13. DAMAGE OR DESTRUCTION:
(a) DAMAGE AND REPAIR:
If the Building is damaged by fire or any other cause to such extent
that the cost of restoration, as reasonably estimated by Landlord, will equal or
exceed thirty percent (30%) of tile replacement value of the Building (exclusive
of foundations) just prior to tile occurrence of the damage, or if insurance
proceeds plus deductibles sufficient for restoration are for any reason
unavailable, then Landlord may no later than the sixtieth day following the
damage, give Tenant a notice of election to terminate this Lease. In the event
of such election, this Lease shall be deemed to terminate on the third day after
the giving of said notice, and Tenant shall surrender possession of the Premises
within a reasonable time thereafter, and the Rent and Additional Rent shall be
apportioned as of the date of said damage and any Rent and Additional Rent paid
for any period beyond such date shall be repaid to Tenant. If the cost of
restoration as estimated by Landlord shall amount to less than thirty percent
(30%) of said replacement value of the Building and insurance proceeds plus
deductibles sufficient for restoration are available, or if Landlord does not
elect to terminate this Lease, Landlord shall restore the Building and the
Premises (to the extent of improvements to the Premises originally provided by
Landlord hereunder) with reasonable promptness, subject to delays beyond
Landlord's control and delays in the making of insurance adjustments by
Landlord, and Tenant shall have no right to terminate this Lease except as
herein provided. To the extent that the Premises are rendered untenantable, the
Rent and Additional Rent shall proportionately abate. No damages, compensation
or claim shall be payable by Landlord for inconvenience, loss of business or
annoyance arising from any repair or restoration of any portion of the Premises
or of the Building, unless caused by the intentional wrongful act of Landlord.
(b) DESTRUCTION DURING LAST YEAR OF TERM:
In case tile building shall be substantially destroyed by fire or other
cause at any time during tile last twelve (12) months of the terms of this
Lease, Landlord or Tenant may terminate this Lease (effective on the date of
such substantial destruction) upon written notice to the other party hereto
given within sixty (60) days of the date of such destruction.
(c) TENANT IMPROVEMENTS:
Landlord will not carry insurance of any kind on Tenant's furniture
personal property, fixtures or equipment or furnishings or on any fixtures,
equipment, or appurtenances of Tenant under this Lease, and Landlord shall not
be obligated to repair any damage thereto or replace the same unless caused by
Landlord's intentional wrongful act.
14. WAIVER OF SUBROGATION:
Whether a loss or damage is due to the negligence of either Landlord or
Tenant, their agents or employees, or any other cause, Landlord and Tenant do
each hereby release and relieve the other, their agents or employees, from
responsibility for, and waive their entire claim of recovery for (i) any loss or
damage to the real or personal property of either located anywhere in the
Building or on the Land, including the Building itself, arising out of or
incident to the occurrence of any of tile perils which are covered by their
respective insurance policies, and (ii) any loss resulting from business
interruption at the Premises or loss of rental income from the Building, arising
out of or incident to tile occurrence of any of the perils which are covered by
a business interruption insurance policy or loss of rental income insurance
policy held by Landlord or Tenant. Each party shall use its best efforts to
cause its insurance carrier to consent to tile foregoing waiver of rights of
subrogation against the other party. Not withstanding the foregoing, no such
release shall be effective unless the aforesaid insurance policy or policies
shall expressly permit such a release or contain a waiver of tile carrier's
right to be subrogated.
15. INDEMNIFICATION:
(a) Landlord and Tenant shall indemnify and hold each other, their
officers, members, managers, owners, employees and agents harmless from and
against liabilities, actions, damages, losses, claims and expenses, including
reasonable attorneys' fees, (collectively "Claims"), arising from (i) any breach
of this Lease by the indemnitor or (ii) the negligent or wrongful acts or
omissions of or attributable to the indemnitor, except to tile extent the Claim
is caused by the
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<PAGE> 12
negligent or wrongful acts or omissions of the indemnitee. Also, Tenant shall
indemnify and hold Landlord, its officers, members, managers, owners, employees
and agents harmless from and against any Claims arising from injury or damage to
persons or property occurring in tile Premises during the term of the Lease,
except to the extent the Claim is caused by the negligent or wrongful acts of
the Landlord. The foregoing provisions shall not be construed to make either
party responsible for losses, damage, liability or expense to the extent
resulting from injuries to third parties caused by the sole or concurrent
negligence of the other party, or its officers, owners, members, managers,
licensees, agents and employees. In no event shall Landlord be liable to Tenant
for any damage to the Premises or for any loss, damage or injury to any property
therein or thereon occasioned by bursting, rupture, leakage or overflow of any
plumbing or other pipes (including, without limitation, water, gas, steam and/or
refrigerant lines), sprinklers, tanks, drains, drinking fountains or washstands
or other similar cause in, above, upon or about tile Premises or tile Building
unless caused by the intentional wrongful act of Landlord. This Paragraph 15
shall survive termination of the Lease.
16. INSURANCE:
(a) LIABILITY INSURANCE:
Tenant shall, throughout the term of this Lease and any renewal hereof,
at its own expense, keep and maintain in full force and effect, a policy of
commercial general liability (occurrence form) insurance, including contractual
liability insuring Tenant's activities upon, in or about the Premises or the
Building against claims of bodily injury or death or property damage or loss
with a combined single limit of not less than One Million Dollars ($1,000,000)
per Occurrence and Two Million Dollars ($2,000,000) in the aggregate. Landlord
shall be named as additional insureds.
(b) PROPERTY INSURANCE:
Tenant shall, throughout the terms of this Lease and renewal thereof, at
its own expense, keep and maintain in full force and effect, what is commonly
referred to as "All Risk" or "Special" coverage insurance (excluding earthquake
and flood) on Tenant's personal property, fixtures and equipment in an amount
not less than one hundred percent (100%) of the replacement value thereof.
(c) INSURANCE POLICY REQUIREMENTS:
All insurance required under this Section 16 shall be with companies
rated AX or better for A.M. Best or otherwise reasonably approved by Landlord.
No insurance policy required under this Section 16 shall be canceled or reduced
in coverage except after thirty (30) days prior written notice to Landlord,
except after ten (10) days prior written notice to Landlord in the case of
nonpayment of premium. All policies shall have deductible amounts no greater
than Two Thousand, Five Hundred Dollars ($2,500).
(d) CERTIFICATE OF INSURANCE:
Tenant shall deliver to Landlord prior to the Commencement Date, and
from time to time thereafter, copies of policies of such insurance or
certificates evidencing the existence and amounts of same and evidencing
Landlord as additional insured thereunder. In no event shall the limits of any
insurance policy required under this Section 16 be considered as limiting the
liability of Tenant under this Lease.
(e) PRIMARY POLICIES:
All policies required under Section 16(a) shall be written as primary
policies and not contributing to or in excess of any coverage Landlord may
choose to maintain.
17. ASSIGNMENT AND SUBLETTING:
(a) ASSIGNMENT OR SUBLEASE:
Tenant shall not assign, mortgage, encumber or otherwise transfer this
Lease nor sublet the whole or any part of the Premises without in each case
first obtaining Landlord's prior written consent. Any and all costs incurred
with space reconfiguration or redistribution and or
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<PAGE> 13
costs required to comply with any applicable building codes in connection with
such assignment or subletting shall be the sole and complete responsibility of
the Tenant. Subject to Section 17(b), below, such consent shall not be
unreasonably withheld or delayed, except: (1) Landlord may withhold its consent
if in Landlord's judgment occupancy by any proposed assignee, subtenant, or
other transferee (i) is not consistent with the maintenance and operation of a
first class office building due to the nature of the proposed occupant's
business or manner of conducting business or its experience or reputation in the
community, or (ii) is likely to cause disturbance to the normal use and
occupancy of the Building, (iii) the financial condition of the proposed
Transferee is not at least as strong as Tenant in Landlord's reasonable judgment
unless Tenant is not relieved of liability on this Lease as a result of such
assignment or sublease and Rent and Additional Rent is paid by Tenant and not by
proposed sublessee or assignee; (2) Landlord may withhold in its absolute and
sole discretion consent to any mortgage, hypothecation, pledge, or other
encumbrance of any interest in this Lease or tile Premises by Tenant or any
subtenant; (3) Landlord may withhold its consent to the extent it deems
necessary to comply with any restriction on use of the Premises, tile Building,
or the Land contained in any applicable laws or in any lease, mortgage, or other
agreement or instrument by which tile Landlord is bound or to which any of such
property is subject. No such assignment, subletting or other transfer shall
relieve Tenant of any liability under this Lease. Consent to any such
assignment, subletting or transfer shall not operate as a waiver of the
necessity for consent to any subsequent assignment, subletting or transfer. Each
request for an assignment or subletting must be accompanied by a Processing Fee
of not to exceed $1,000 in order to reimburse Landlord for expenses, including
attorneys' fees, incurred in connection with such request ("Processing Fee").
Tenant shall provide Landlord with copies of all assignments, subleases and
assumption instruments and other information regarding the transfer agreement
and the proposed Transferee as is requested by the Landlord acting reasonably.
(b) LANDLORD RIGHT TO TERMINATE PORTION OF LEASE:
If such consent is requested, Landlord reserves the right to terminate
this Lease, or if consent is requested for subletting less than the entire
Premises to terminate this Lease with respect to the Portion for which such
consent is requested, at the proposed effective date of such Subletting, in
which event Landlord may enter into the relationship of landlord and tenant with
any such proposed subtenant or assignee, based on the rent (and/or other
compensation) and the terms agreed to by such subtenant or assignee and
otherwise upon the terms and conditions of this Lease.
(c) TENANT TRANSFER OF LEASE:
If a Tenant is a corporation, or any other entity, any transfer of this
Lease by merger, consolidation or liquidation, (except for a merger,
consolidation or liquidation resulting in a majority of the current shareholders
[based upon ownership percentage interest] owning a majority interest, based
upon percentage interest, in any successor entity, or owning a majority interest
of all assets received in consolidation or liquidation) or power to vote a
majority of its outstanding voting stock, partnership interests, or other
ownership interests, shall constitute an assignment for the purpose of this
Section. If Tenant is a partnership, conversion of Tenant to a limited liability
company or partnership or to a corporation (or to another entity by which the
parties in Tenant would be relieved of liability to any creditors of Tenant)
shall constitute an assignment for purposes of this Section.
(d) ASSIGNEE OBLIGATIONS:
As a condition to Landlord's approval, any potential assignee otherwise
approved by Landlord shall assume in writing all obligations of Tenant under
this Lease arising or first due after the effective date of such assignment and
shall be jointly and severally liable with Tenant for rental and other payments
and performance of all terms, covenants and conditions of this Lease.
(e) SUBLESSEE OBLIGATIONS:
Any sublessee shall assume all obligations of Tenant arising or first
due after the effective date of such assignment as to that portion of the
Premises which is subleased and shall be jointly and severally liable with
Tenant for rental and other payments and performance of all terms, covenants,
and conditions of this Lease with respect to such portion of the Premises. If
requested by Landlord, sublessee shall pay all rent and charges owed directly to
Landlord.
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<PAGE> 14
18. SIGNS:
Tenant shall not place or in any manner display any sign, graphics, or
other advertising matter anywhere in or about the Premises or the Building at
places visible (either directly or indirectly) from anywhere outside the
Premises without first obtaining Landlord's written consent thereto, such
consent to be at Landlord's sole discretion. Any such consent by Landlord shall
be upon the understanding and condition that Tenant shall remove the same at the
expiration or sooner termination of this Lease and Tenant shall repair any
damage to the Premises or the Building caused thereby. Landlord shall not
unreasonably withhold its consent to normal signage within or outside Premises
which is consistent in Landlord's opinion with the Building's image and signage
and graphics program. Signage other than Building directory or building standard
elevator lobby directory signage is at Tenant's sole expense. Tenant shall have
the right to install signage on the street monument subject to Landlord's
approval of the design, materials, size and location, which approval shall not
be unreasonably withheld or delayed. Tenant shall further have the right to
install non-illuminated building signage subject to Landlord's approval of the
design, materials, size and location, which approval shall not be unreasonably
withheld or delayed. All signage shall be subject to approval by the City of
Bellevue.
19. LIENS AND INSOLVENCY:
(a) LIENS:
Tenant shall keep its interest in this Lease, the Premises, the Land
and the Building free from any liens arising out of any work performed and
materials ordered or obligations incurred by or on behalf of Tenant and hereby
indemnifies and holds Landlord harmless from any liability from any such lien,
including without limitation, liens arising from the work performed pursuant to
Section IV of Exhibit B hereto. In the event any lien is filed against the
Building, the Land or the Premises by any person claiming by, through or under
Tenant, Tenant shall within thirty (30) days of said filing, and at Tenant's
expense, immediately cause such lien to be released of record or furnish to
Landlord a bond, in form and amount and issued by a surety reasonably
satisfactory to Landlord, indemnifying Landlord, the Land and the Building
against all liability, costs and expenses, including attorneys' fees, which
landlord may incur as a result thereof. Provided that such bond has been
furnished to Landlord, Tenant, at its sole cost and expense and after written
notice to Landlord, may contest, by appropriate proceedings, conducted in good
faith and with due diligence, any lien, encumbrance or charge against the
Premises arising from work done or materials provided to or for Tenant, if, and
only if, such proceedings suspend the collection thereof against Landlord,
Tenant and the Premises and neither the Premises, the Building nor the Land nor
any part thereof or interest therein is or will be in any danger of being sold,
forfeited or lost.
(b) INSOLVENCY:
If Tenant becomes insolvent or voluntarily or involuntarily bankrupt, or
if a receiver, assignee or other liquidating officer is appointed for the
business of Tenant, Landlord at its option may terminate this Lease and Tenant's
right of possession under this Lease and in no event shall this Lease or any
rights or privileges hereunder be an asset of Tenant in any bankruptcy,
insolvency or reorganization proceeding.
20. DEFAULT:
(a) CUMULATIVE REMEDIES:
All rights of Landlord herein enumerated shall be to the extent
permitted by law cumulative, and none shall exclude any other right or remedy
allowed by law. In addition to the other remedies provided in this Lease,
Landlord shall be entitled to restrain by injunction the violation or threatened
violation of any of the covenants, agreements or conditions of this Lease.
(b) TENANT'S RIGHT TO CURE:
Tenant shall have a period of three (3) business days from the date of
written notice from Landlord to Tenant within which to cure any default in the
payment of Rent, Additional Rent and other sums due hereunder. Tenant shall have
a period of ten (10) days from the date of written
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<PAGE> 15
notice from Landlord to Tenant within which to cure any other default hereunder,
provided, however, that with respect to any such default capable of being cured
by Tenant which cannot be cured within ten (10) days Tenant shall have such time
so long as Tenant is diligently pursuing the cure thereof.
(c) LANDLORD'S REENTRY:
Upon an uncured default of this Lease by Tenant, Landlord, in addition
to any other rights or remedies it may have, at its option, may enter the
Premises or any part thereof, and expel, remove or put out Tenant or any other
persons who may be thereon, together with all personal property found therein;
and Landlord may terminate this Lease, or it may from time to time, without
terminating this Lease, relet the Premises or any part thereof for such term or
terms (which may be for a term less than or extending beyond the term hereof)
and at such rental or rentals and upon such other terms and conditions as
Landlord in its sole discretion may deem advisable, with the right to repair,
renovate, remodel, redecorate, alter and change the Premises, Tenant remaining
liable for any deficiency computed as hereinafter set forth. In the case of any
default, reentry and/or dispossession Landlord shall have such rights and
remedies as shall be available in law or equity. No such re-entry or taking
possession of the Premises shall be construed as an election on Landlord's part
to terminate this Lease unless a written notice of such intention be given to
Tenant.
(d) RELETTING THE PREMISES:
At the option of Landlord, rents received by Landlord from such
reletting shall be applied first to the payment of any indebtedness from Tenant
to Landlord other than Rent and Additional Rent due hereunder; second, to the
payment of any costs and expenses of such reletting which are recoverable as
damages from Tenant and including, but not limited to, reasonable attorneys'
fees, advertising fees and brokerage fees, and to the payment of any repairs,
renovations, remodeling, redecoration, alterations and changes in the Premises
(but only to the extent the same are recoverable as damages from Tenant); third,
to the payment of Rent and Additional Rent due and to become due hereunder, and,
if after so applying said Rents there is any deficiency in the Rent or
Additional Rent to be paid by Tenant under this Lease, Tenant shall pay any
deficiency to Landlord monthly on the dates specified herein. Any payment made
or suits brought to collect the amount of the deficiency for any month shall not
prejudice in any way the right of Landlord to collect the deficiency for any
subsequent month. The failure of Landlord to relet the Premises or any part of
parts thereof shall not release or affect Tenant's liability hereunder, nor
shall Landlord be liable for failure to relet, or in the event of reletting, for
failure to collect the Rent thereof, and in no event shall Tenant be entitled to
receive any excess of net Rents collected over sums payable by Tenant to
Landlord hereunder. Notwithstanding any such reletting without termination,
Landlord may at any time elect to terminate this Lease for such previous breach
and default. Should Landlord terminate this Lease by reason of any default, in
addition to any other remedy it may have, it may recover from Tenant the then
present value of Rent and Additional Rent reserved in this Lease for the balance
of the Term, as it may have been extended, over present value of the then fair
market rental value of the Premises of the same period, plus all court costs and
reasonable attorneys' fees incurred by Landlord in the collection of the same.
(e) TRADE FIXTURES:
Tenant shall have no right to, and Tenant agrees that it will not,
remove any trade fixtures or movable furniture from the Premises at any time
while Tenant is in default hereunder.
21. PRIORITY:
(a) Tenant agrees that this Lease shall be subordinate to any first mortgage
or deed of trust now existing or hereafter placed upon the Premises or the
Building created by or at instance of Landlord and to any and all advances to be
made thereunder and to interest thereon and all renewals, and extensions thereof
("Landlord's Mortgage"). Upon demand by Landlord or the holder of any Landlord's
Mortgage ("Holder"), Tenant shall execute and deliver subordination and
attornment agreements in form and substance satisfactory to such Holder.
Notwithstanding the foregoing, upon demand of such Holder, such Landlord's
Mortgage shall be subordinate to this Lease; provided, however, that in such
event, notwithstanding such subordination, such Landlord's Mortgage shall be
superior to this Lease with respect to (i) the right, claim and lien of
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<PAGE> 16
the Landlord's Mortgage in, to and upon any award or other compensation for any
taking by eminent domain of any part of the Premises or the Building and right
of disposition thereof in accordance with the provisions of the Landlord's
Mortgage; and upon any proceeds payable under any policies of fire and rental
insurance upon the Premises or the Building and to the right of disposition
thereof in accordance with the terms of the Landlord's Mortgage; (ii) any lien,
right or judgment which may have arisen at any time under the terms of the
Lease; and (iii) such other matters as may be specifically reserved by the
Holder of such Landlord's Mortgage in writing in connection with such
subordination.
(b) Upon request, Tenant shall attorn to the Holder of any Landlord's
Mortgage or any person or persons purchasing or otherwise acquiring the Land,
Building or Premises at any sale or other proceeding under any Landlord's
Mortgage. Tenant shall properly execute, acknowledge and deliver instruments
which the holder of any Landlord's Mortgage may reasonable require to effectuate
the provisions of this Section.
22. SURRENDER OF POSSESSION:
Subject to the terms of Section 13 relating to damage and destruction,
upon expiration of the term of this Lease, whether by lapse of time or
otherwise, Tenant shall promptly and peacefully surrender the Premises to
Landlord in as good condition as when received by Tenant from Landlord or as
thereafter improved (subject to Tenant's obligation to remove any Alterations or
Changes if requested by Landlord pursuant to Section 11, above), reasonable wear
and tear and damage by insured fire and casualty excepted.
23. REMOVAL OF PROPERTY:
Tenant shall remove all of its movable personal property, telephone,
data and computer cabling, and trade fixtures paid for by Tenant which can be
removed without damage to the Premises at the expiration or earlier termination
of this Lease, and shall pay Landlord any damages for injury to the Premises or
Building resulting from such removal. All other improvements and additions to
the Premises shall thereupon become the property of Landlord.
24. NON-WAIVER:
Waiver by Landlord or Tenant of any term, covenant or condition herein
contained or any breach thereof shall not be deemed to be a waiver of such
term, covenant, or condition or of any subsequent breach of the same or any
other term, covenant, or condition herein contained. The subsequent acceptance
of any payment hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the amount so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
payment.
25. HOLDOVER:
If Tenant shall, with the written consent of Landlord, hold over after
the expiration of the term of this Lease, such tenancy shall be deemed a
month-to-month tenancy, which tenancy may be terminated as provided by
applicable law. During such tenancy, Tenant agrees to pay to Landlord one
hundred fifty percent (150%) of the Rent and Additional Rent in effect upon the
date of such expiration as stated herein, and to be bound by all of the terms,
covenants and conditions herein specified, so far as applicable. Acceptance by
Landlord of Rent and Additional Rent after such expiration or earlier
termination shall not result in a renewal of this Lease. The foregoing
provisions of this Section 25 are in addition to and do not affect Landlord's
right of re-entry or any rights of Landlord hereunder or as otherwise provided
by law. If Tenant shall hold over after the expiration or earlier termination
of this Lease without the written consent of Landlord, such occupancy shall be
deemed an unlawful detainer of the Premises subject to the applicable laws of
the state in which the Building is located and, in addition, Tenant shall be
liable for any costs, damages, losses and expenses incurred by Landlord as a
result of Tenant's failure to surrender the Premises in accordance with this
Lease.
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26. CONDEMNATION:
(a) Entire Taking:
If all of the Premises or such portions of the Land or Building as may
be required for the reasonable use of the Premises, are taken by eminent domain
or purchase in lieu of condemnation, this Lease shall automatically terminate as
of the date title vests in the condemning authority and all Rent, Additional
Rent and other payments shall be paid to that date.
(b) Constructive Taking of Entire Premises:
In the event of a taking by eminent domain or purchase in lieu of
condemnation of a material part of but less than all of the Building, where
Landlord shall reasonably determine that the remaining portion of the Premises
cannot be economically and effectively used by it (whether on account of
physical, economic, aesthetic or other reasons), or if, in the reasonable
opinion of Landlord, the Building should be restored in such a way as to alter
the Premises materially, Landlord shall forward a written notice to Tenant of
such determination not more than sixty (60) days after the date of taking. In
such event, the term of this Lease shall expire upon the date of such taking.
(c) Partial Taking:
In case of taking of a part of the Premises, or a portion of the
Building or Land not required for the reasonable use of the Premises, then this
Lease shall continue in full force and effect and the Rent shall be equitably
reduced based on the proportion by which the floor area or use of the Premises
is reduced, if any, such Rent reduction to be effective as of the date title to
such portion vests in the condemning authority. If a portion of the Premises,
Building or Land shall be so taken which renders the remainder of the Premises
unsuitable for continued occupancy by tenant under this Lease, Tenant may
terminate this Lease by written notice to Landlord within sixty (60) days after
the date of such taking and term of this Lease shall expire upon such date as
Tenant shall specify in such notice not later than sixty (60) days after the
date of such notice.
(d) Awards and Damages:
Landlord reserves all rights to damages to the Premises of any partial,
constructive, or entire taking by eminent domain, and Tenant hereby assigns to
Landlord any right Tenant may have to such damages or award, and Tenant shall
make no claim against Landlord or the condemning authority for damages for
termination of the leasehold interest or interference with Tenant's business.
Tenant shall have the right, however, to bring its own action at its sole cost
and expense to claim and recover from the condemning authority, compensation
for any loss to which Tenant may be put for Tenant's moving expenses, business
interruption or taking of Tenant's personal property and leasehold improvements
paid for by Tenant (not including Tenant's leasehold interest) provided that
such damages may be claimed only if they are awarded separately in the eminent
domain proceedings and not out of or as part of the damages recoverable by
Landlord.
27. NOTICES:
All notices under this Lease shall be in writing and delivered in
person or sent by registered or certified mail, or nationally recognized courier
(such as Federal Express, DHL, etc.), postage prepaid, to Landlord and to Tenant
at the Notice Addresses provided in Section 1(m) and to the holder of any
mortgage or deed of trust at such place as such holder shall specify to Tenant
in writing; or such other addresses as may from time to time be designated by
any such party in writing. Notices mailed aforesaid shall be deemed given on the
date of such mailing or delivery to the nationally recognized courier, properly
addressed and postage or courier charge prepaid.
28. COSTS AND ATTORNEYS' FEES:
If Tenant or Landlord shall bring any action for any relief against the
other, declaratory or otherwise, arising out of this Lease, including any suit
by Landlord for the recovery of Rent, Additional Rent or other payments
hereunder or possession of the Premises, each party shall, and
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<PAGE> 18
hereby does, to the extent permitted by law, waive trial by jury and the losing
party shall pay the prevailing party a reasonable sum for attorneys' fees in
such suit, at trial and on appeal, and such attorney's fees shall be deemed to
have accrued on the commencement of such action.
29. ESTOPPEL CERTIFICATES:
Tenant shall, from time to time, upon written request of Landlord,
execute, acknowledge and deliver to Landlord or its designee a written statement
prepared by Landlord stating: The date this Lease was executed and the date it
expires; the date the term commenced and the date Tenant accepted the Premises;
the amount of minimum monthly Rent and the date to which such Rent has been
paid; and certifying to the extent true: That this Lease is in full force and
effect and has not been assigned, modified, supplemented or amended in any way
(or specifying the date and terms of agreement so affecting this Lease): that
this Lease represents the entire agreement between the parties as to this
leasing; that all conditions under this Lease to be performed by Landlord have
been satisfied; that all required contributions by Landlord to Tenant on account
of Tenant's improvements have been received; that on this date there are no
existing claims, defenses or offsets which Tenant has against the enforcement of
this Lease of Landlord; that the security deposit is as stated in the Lease;
that Tenant does not have any options or rights (i) to lease other space in the
Building, (ii) to extend the Lease except as shown on Lease document, (iii) to
purchase some or all of the Building or Land; and such other matters as Landlord
may reasonably request. It is intended that any such statement delivered
pursuant to this paragraph may be relied upon by a prospective purchaser of
Landlord's interest or the holder of any mortgage upon Landlord's interest in
the Building. If Tenant shall fail to respond within ten (10) days of receipt by
Tenant of a written request by Landlord as herein provided, Tenant shall be
deemed to have given such certificates as above provided without modification
and shall be deemed to have admitted the accuracy of any information supplied by
Landlord to a prospective purchaser or mortgagee and that this Lease is in full
force and effect, that there are no uncured defaults in Landlord's performance,
that the security deposit is as stated in the Lease, that there are no options
as specified above, and that not more than one month's Rent has been paid in
advance.
30. TRANSFER OF LANDLORD'S INTEREST:
In the event of any transfers of Landlord's interest in the Premises or
in the Building, other than a transfer for security purposes only, the
transferor shall be automatically relieved of any and all obligations and
liabilities on the part of Landlord accruing from and after the date of such
transfer and such transfer shall have no obligation or liability with respect to
any matter occurring or arising prior to the date of such transfer. Tenant
agrees to attorn to the transferee.
31. RIGHT TO PERFORM:
If Tenant shall fail to pay any sum of money, other than Rent and
Additional 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 failure shall
continue for ten (10) days after notice thereof by Landlord, Landlord may, but
shall not be obligated so to do, and without waiving or releasing Tenant from
any obligations of Tenant, make such payment or perform any such other act on
Tenant's part to be made or performed as provided in his Lease. Any sums paid by
Landlord hereunder shall be immediately due and payable by Tenant to Landlord
and Landlord shall have (in addition to any other right or remedy of Landlord)
the same rights and remedies in the event of the nonpayment of sums due under
this Section as in the case of default by Tenant in the payment of Rent.
32. QUIET ENJOYMENT:
Tenant shall have the right to the peaceable and quiet use and enjoyment
of the Premises, subject to the provisions of this Lease, as long as Tenant is
not in default hereunder.
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<PAGE> 19
33. AUTHORITY:
If Tenant is a corporation, limited liability company, limited liability
partnership or limited or general partnership, each individual executing this
Lease on behalf of Tenant represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of Tenant, in accordance
with a duly adopted resolution or consents of all appropriate persons or
entities required therefor and in accordance with the formation documents of
Tenant, and that this Lease is binding upon Tenant in accordance with its terms.
At Landlord's request, Tenant shall, prior to execution of this Lease, deliver
to Landlord a copy of a resolution or consent, certified by an appropriate
officer, partner or manager of Tenant authorizing or ratifying the execution of
this Lease.
34. HAZARDOUS MATERIALS:
(a) TENANT OBLIGATIONS:
(i) Tenant shall not dispose of or otherwise allow the release of any
hazardous waste or materials in, on or under the Premises or the Building, or
any adjacent property, or in any improvements placed on the Premises. Tenant
represents and warrants to Landlord that Tenant's intended use of the Premises
does not involve the use, production, disposal or bringing on to the Premises of
any hazardous waste or materials, except only ordinary and general office
supplies typically used in first-class office buildings and only in such
quantities or concentrations as allowed under applicable laws, rules and
regulations. As used in this Section, the term "hazardous waste or materials"
includes any substance, waste or material defined or designated as hazardous,
toxic or dangerous (or any similar term) pursuant to any statute, regulation,
rule or ordinance now or hereafter in effect. Tenant shall promptly comply with
all such statutes, regulations, rules and ordinances, and if Tenant fails to so
comply, Landlord may, after reasonable prior notice to Tenant (except in case of
emergency) effect such compliance on behalf of Tenant. Tenant shall immediately
reimburse Landlord for all costs incurred in effecting such compliance.
(ii) Tenant agrees to indemnify and hold harmless Landlord against any
and all losses, liabilities, suits, obligations, fines, damages, judgments,
penalties, claims, charges, cleanup costs, remedial actions, costs and expense
(including without limitation, consultant fees, attorneys' fees and
disbursements) which may be imposed on, incurred or paid by Landlord, its
members, managers, agents, employees, and representatives, or asserted in
connection with (a) any misrepresentation, breach of warranty or other default
by Tenant under this Section, or (b) the acts or omissions of Tenant, its
officers, agents, employees, contractors, customers, and invitees, or any
subtenant or other person for whom Tenant would otherwise be liable, resulting
in the release of any hazardous waste or materials on the Land.
(b) LANDLORD REPRESENTATIONS:
Landlord represents to Tenant that, to the best of Landlord's knowledge,
no hazardous waste or materials exist in, on or under the Land, Building,
Premises or have been generated, stored or disposed of on the Premises other
than in compliance with all applicable laws.
35. TELECOMMUNICATIONS LINES AND EQUIPMENT:
(a) LOCATION OF TENANT'S EQUIPMENT AND LANDLORD CONSENT:
(i) Tenant may install, maintain, replace, remove and use communications
or computer wires, cables and related devices (collectively, the "Lines") at the
Building in or serving the Premises, only with Landlord's prior written consent,
which consent shall not be unreasonably withheld. Tenant shall locate all
electronic telecommunications equipment within the Premises.
(ii) Without in any way limiting Landlord's right to withhold its
consent, Landlord may consider the following factors, among others, in making
its determination: (A) whether or not the proposed work will interfere with the
use of any then existing Lines at the Building; (B) whether or not an acceptable
number of spare Lines and space for additional Lines shall be maintained for
existing and future occupants of the Building; (C) whether the proposed work or
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<PAGE> 20
resulting Lines will impose new obligations on Landlord, expose Landlord to
liability of any nature or description, increase Landlord's insurance premiums
for the Building, create liabilities for which Landlord is unable to obtain
insurance protection or imperil Landlord's insurance coverage; (D) whether the
work or resulting Lines would adversely affect the Land, Building or any space
in the Building in any manner.
(iv) If Landlord consents to Tenant's proposal, Tenant shall (A) pay all
costs in connection therewith (including all costs related to new Lines); (B)
comply with all requirements and conditions of this Section; (C) use, maintain
and operate the Lines and related equipment in accordance with and subject to
all laws governing the Lines and equipment. (IV) as soon as the work is
completed, Tenant shall submit "as built" drawings to Landlord.
(v) Landlord reserves the right to require that Tenant remove all Lines
located in or serving the Premises which are installed in violation of these
provisions, or which are at any time in violation of any laws or present a
dangerous or potentially dangerous condition (whether such Lines were installed
by Tenant or any other party), within three (3) days after written notice.
(b) LIMITATION OF LIABILITY:
Except to the extent arising from the gross negligence or willful
misconduct of Landlord or Landlord's agents or employees, Landlord shall have no
liability for damages arising from and Landlord does not warrant that the
Tenant's use of any Lines will be free from the following (collectively called
"Line Problems"): (i) any shortages, failures, variations, interruptions,
disconnection, loss or damage caused by the installation, maintenance, or
replacement, use removal of Lines by or for other tenants or occupants at the
Building, by any failure of the environmental conditions or the power supply for
the Building to conform to any requirements of the Lines or any associated
equipment, or any other problems associated with any Lines by any other cause;
(ii) any failure to any Lines to satisfy Tenant's requirements; or (iii) any
eavesdropping or wire-tapping by unauthorized parties. Landlord in no event
shall be liable for damages by reason of loss of profits, business interruption
or other consequential damage arising from any Line Problems. Under no
circumstances shall any Line Problems be deemed an actual or constructive
eviction of Tenant, render Landlord liable to Tenant for abatement of Rent, or
relieve Tenant from performance of Tenant's obligations under this Lease.
(c) ELECTROMAGNETIC FIELDS:
If Tenant at any time uses any equipment that may create an
electromagnetic field exceeding the normal insulation ratings of ordinary
twisted pair riser cable or cause radiation higher than normal background
radiation, Landlord reserves the right to require Tenant to appropriately
insulate the Lines therefore (including riser cables) to prevent such excessive
electromagnetic fields or radiation.
36. GENERAL:
(a) HEADINGS:
Titles to Sections of this Lease are not a part of this Lease and shall
have no effect upon the construction or interpretation of any part hereof
(b) SUCCESSORS AND ASSIGNS:
All of the covenants, agreements, terms and conditions contained in this Lease
shall inure to and be binding upon the Landlord and Tenant and their respective
successors and assigns.
(c) PAYMENT OF BROKERS:
Landlord shall pay the commissions due those real estate brokers or
agents named in Section 1(k). If Tenant has dealt with any other person or real
estate broker with respect to leasing or renting space in the Building, Tenant
shall be solely responsible for the payment of any fee due said person or firm
and Tenant shall indemnify and hold Landlord harmless against any liability in
respect thereto, including Landlord's attorneys' fees and costs in defense of
any such claim.
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<PAGE> 21
(d) ENTIRE AGREEMENT:
This Lease contains all covenants and agreements between Landlord and
Tenant relating in any manner to the leasing, use and occupancy of the Premises,
to Tenant's use of the building and other matters set forth in this Lease. No
prior agreements or understanding pertaining to the same shall be valid or of
any force or effect and the covenants and agreements of this Lease shall not be
altered, modified or added to except in writing signed by Landlord and Tenant.
(e) SEVERABILITY:
Any provision of this Lease which shall be held invalid, void or illegal
shall in no way affect, impair or invalidate any other provision hereby and the
remaining provisions hereof shall nevertheless remain in full force and effect.
(f) OVERDUE PAYMENTS:
Tenant acknowledges that a late payment of Rent or other sums due
hereunder will cause Landlord to incur costs not contemplated by this Lease.
Such costs may include, but not be limited to, processing and accounting
charges, and penalties imposed by terms of any contracts, mortgages or deeds of
trust covering the Building. Therefore, in the event Tenant shall fail to pay
any Rent, Additional Rent or other sums payable by Tenant under this Lease for
five (5) days after such amount is due, then Tenant shall pay Landlord, as
Additional Rent, a late charge ("Late Charge") equal to 5% of such amount owing,
but not in excess of the highest rate permitted by law. In addition to any Late
Charges which may be incurred hereunder, any Rent, Additional Rent or other sums
payable by Tenant under this Lease which are more than thirty (30) days past
due, shall bear interest at a rate equal to 12% per annum but not in excess of
the highest lawful rate permitted under applicable laws, calculated from the
original due date thereof to the date of payment ("Overdue Fee"); provided,
however, the minimum Overdue Fee shall be $100.00.
In addition, if payments are received by check or draft from Tenant, and
two (2) or more of such checks or drafts are dishonored by the bank or other
financial institution they were drawn upon in any twelve (12) month period,
Landlord may thereafter require all Rent and other payments due hereunder from
Tenant to Landlord to be made by bank cashier's or bank certified check or other
similar means of payment and Landlord shall not be required to accept any checks
or drafts of Tenant which do not comply with such requirements.
(g) FORCE MAJEURE:
Except for the payment of Rent, Additional Rent and other sums payable
by Tenant, time periods for Tenant's or Landlord's performance under any
provisions of this Lease shall be extended for periods of time during which
Tenant's or Landlord's performance is prevented due to circumstances beyond
Tenant's or Landlord's reasonable control.
(h) RIGHT TO CHANGE PUBLIC SPACES:
Landlord shall have the right at any time, without thereby creating an
actual or constructive eviction or incurring any liability to Tenant therefor,
to change the arrangement or location of such of the following as are not
contained within the Premises or any part thereof: entrances, passageways, doors
and doorways, corridors, stairs, toilets and other like public service portions
of the Building as well as parking and access areas on the Land. Nevertheless,
in no event shall Landlord diminish any service, change the arrangement or
location of the elevators serving the Premises, make any change which shall
diminish the area of the Premises, make any change which shall interfere with
access to or reasonable use of the Premises or change the character of the
Building from that of a first-class office building.
(i) GOVERNING LAW:
This Lease shall be governed by and construed in accordance with the
laws of the State of Washington.
(j) BUILDING NAME:
The Building shall be known by such name as Landlord may designate from
time to time.
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<PAGE> 22
IN WITNESS WHEREOF, this Lease has been executed the day and year first above
set forth.
TENANT: BSQUARE CORPORATION, INC.
By: [ILLEGIBLE]
----------------------------------------
Its: CEO
-------------------------------
By:
----------------------------------------
Its:
-------------------------------
LANDLORD: MERCER ISLAND PARTNERS ASSOCIATES, LLC
a Washington limited liability company
By: /s/ PHILIP T. FELDSINE
----------------------------------------
Philip T. Feldsine, Manager
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<PAGE> 23
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
)SS.
COUNTY OF )
THIS IS TO CERTIFY that on this 2nd day of February, 1998, before me, the
undersigned, a notary public in and for the State of Washington, duly
commissioned and sworn, personally appeared William T. Baxter to me known to be
the President/CEO respectively, of BSQUARE Corporation the corporation that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that they were
authorized to execute said instrument, and that the seal affixed, if any, is the
corporate seal of said corporation.
WITNESS MY HAND AND OFFICIAL SEAL the day and year in this certificate first
above
Signature: /s/ CAMILLA J. ALSON
[SEAL] Printed Name: Camilla J. Alson
Notary Public in and for the State of Washington
Residing at:11100 NE 11th St D408 Bellevue WA
----------------------------------------------------------
My appointment expires: 6-6-98
LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
)SS.
COUNTY OF KING )
THIS TO CERTIFY that I know or have satisfactory evidence that Philip T.
Feldsize is the person who appeared before me, and said person acknowledged that
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Manager of Mercer Island Partners
Associates, a limited liability company, and acknowledged said instrument to be
the free and voluntary act and deed of said company for the uses and purposes
therein mentioned.
WITNESS MY HAND AND OFFICIAL SEAL this 3rd day of February, 1998.
Signature: /s/ DAVID W. BOWERS
Printed Name: David W. Bowers
Notary public in and for the State of Washington,
Residing at: 3011 11th Ave W.
Seattle, WA 98117
My appointment expires: 11/5/01
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<PAGE> 24
EXHIBIT A
Addendum to Lease between
MERCER ISLAND PARTNERS ASSOCIATES, LLC (Landlord)
and
BSQUARE CORPORATION, INC. (Tenant)
FLOOR PLAN OF PREMISES
FLOOR 2
15,105 Net Rentable Square Feet
13,748 Usable Square Feet
BIOCONTROL SYSTEMS BUILDING
[DIAGRAM]
TOP FLOOR PLAN
EXHIBIT A
PAGE 1 OF 1
<PAGE> 25
EXHIBIT B
TO
MERCER ISLAND PARTNERS ASSOCIATES, LLC
LEASE AGREEMENT
TENANT IMPROVEMENTS
I. IMPROVEMENTS PROVIDED BY LANDLORD:
Landlord has provided the following improvements in the Premises:
A. Completed Public and/or Core Areas finished in accordance with plans
and specifications of the Building.
(1) PLUMBING: Men's restrooms, women's restrooms, and drinking
fountains installed in accordance with the plans and specifications for
the Building.
(2) ELECTRICAL DISTRIBUTION SYSTEM: Landlord shall provide the
house panel and main breakers for the building. There is a 400 amp
metered service in the basement which feeds a 200 amp panel for HVAC and
a 200 amp panel for power and lights.
(3) PHONE SERVICE: Landlord shall provide phone service to the
building shell.
(a) POWER CAPABILITIES: Extending the wiring for
lighting including the junction boxes and
general power from the appropriate panel in the
building electrical room to the point of use
shall be considered Tenant Improvements.
B. Tenant's Usable Area as outlined in Exhibit A shall be completed as
follows:
(1) MECHANICAL: Landlord shall install the vertical distribution
of the HVAC and the horizontal distribution to and including the control boxes
to the Premises including thermostats and provide for removal of the return air
from the plenum.
(a) HVAC Capacities: 385 square feet per ton.
(b) The Building standard mechanical system is
designed to accommodate heating loads generated
by lights and equipment up to 2.5 watts per
square foot. If Tenant's design or use of the
Premises results in concentrated loads in excess
of 2.5 watts per square foot (e.g., data
processing areas, conference rooms and machine
rooms), then any additional engineering design
and installation of mechanical equipment and/or
controls required to accommodate such expenses
shall be provided by Tenant's cost pursuant to
Section II of this Exhibit B.
(2) FINISHES: The Landlord shall provide the following:
i. Concrete floor slab which shall be flat and
level within recognized industry standards and
shall be left broom clean.
ii. Exterior perimeter walls which are to receive
interior finishes shall be insulated per code
with drywalled screwed on, ready for final mud
and sanding.
iii. Interior partitions around vertical shafts shall
be covered with gypsum wall board and fire
taped.
iv. Doors and hardware shall be installed at all
vertical shafts used as exits.
V. Horizontal blinds on exterior windows.
vi. Ceiling grid installed.
vii. Parabolic light fixtures purchased and stacked
on floor.
EXHIBIT B
PAGE 1 OF 6
<PAGE> 26
viii. Ceiling tiles purchased and stacked on floor.
(3) FIRE SPRINKLERS: Primary distribution loop to Tenant's Usable
Area with sprinkler heads turned up. All modifications to this equipment or
systems resulting from the Tenant's occupancy and space design shall be
considered Tenant Improvements. The sprinkler heads are turned up to protect the
structure.
II. IMPROVEMENTS BY TENANT/REIMBURSEMENT BY LANDLORD:
Design and construction of all improvements in the Premises beyond those
listed in Section I or this Exhibit B shall be provided at Tenant's expense.
Landlord shall pay the cost of such additional improvements up to an amount
equal to $20.00 per usable square foot of Tenant's Premises outlined on the
floor plan(s) in Exhibit A, for a total payment by Landlord of $274,960.00
("Tenant Improvement Allowance"). The Premises are comprised of 13,748 usable
square feet. The Tenant Improvement Allowance shall be applied to the cost of
design and construction of such improvements including but not be limited to
(but excluding those items to be supplied by Landlord as provided above in
Section I): Architectural and engineering design, partitions, doors, door
frames, re-lites, hardware, paint, wall coverings, base, ceiling tile placement,
lights, mechanical distribution, diffusers, thermostats, sprinkler heads,
emergency speakers, fire extinguishers and cabinets, telephone, computer and
electrical cabling and outlets, light switches, floor coverings, and all
applicable permit fees and sales tax.
Landlord will provide space planning services by the building architect
or Tenant's space planner not to exceed $0.12 per useable square foot upon
agreement of the basic terms and conditions of the lease. Such allowance shall
be deducted from the Tenant Improvement allowance. Tenant may provide its own
space planning services subject to Landlord's approval of service provider.
Tenant may install, at Tenant's sole expense, a satellite dish in
mechanical well of the roof subject to Landlord's approval, acting reasonably,
of size, weight location and installation method. Any satellite dish
installation must comply with all applicable building and zoning codes. Tenant
shall be solely responsible for maintenance, replacement, and/or removal of said
satellite dish.
The Tenant Improvement Allowance shall also be applied to mutually
agreeable construction management services. Such construction manager shall
manage the bidding of Tenant improvements, expedite all permits and government
approvals, and assume specific responsibility for delivery of the Premises as
defined in the Lease and this Exhibit B, provided Tenant shall have met the
drawing delivery dates herein.
Tenant may add its construction vendors to the bidders list subject to
Landlord's reasonable approval of qualifications and reputation. Landlord shall
competitively bid the Tenant Improvements and award the contract to the lowest
bidder. If Tenant wishes to utilize its own contractor and its contractor was
not the lowest bid, Tenant shall be responsible for paying any costs over the
lowest bid.
III. BUILDING STANDARD IMPROVEMENTS:
Tenant shall use the following Building Standard items: blinds (required
by Landlord); carpet and base; hardware; lighting fixtures; and heating,
ventilating, and air conditioning distribution and controls.
IV. DESIGN OF TENANT IMPROVEMENTS:
The Tenant Improvement Allowance shall be applied to Tenant retaining
the services of a qualified office planner or architect, approved by the
Landlord, to prepare the necessary drawings for Basic Plans and supply the
information necessary to complete the Working Drawings and Engineering Drawings
referred to in Section IV(B) of this Exhibit B for construction of the
EXHIBIT B
Page 2 of 6
<PAGE> 27
Tenant improvements in Tenant's Usable Area. All Tenant's Plans shall be subject
to approval of Landlord, which shall not be unreasonably withheld, in accordance
with section IV(C) of this Exhibit B.
Tenant's office planner or architect shall ensure that the work shown on
Tenant's Plans is compatible with the basic Building Plans and that necessary
basic Building modifications are included in Tenant's Plans. Such modifications
shall be subject to the Landlord's reasonable approval and the cost in excess of
the allowance thereof shall be paid by Tenant.
On or before the indicated dates, Tenant shall supply Landlord with one
(1) reproducible copy and five (5) black line prints of the following Tenant
Plans (provided that the dates set forth below shall be extended by such number
of days, if any, as Tenant shall be delayed due to (I) any inaccuracy in the
as-built plans and specifications delivered by Landlord to Tenant, (II) any
delay in Landlord's reasonable review beyond a reasonable period, comment and
approval of plans provided by Tenant, (III) any delay in completing the plans or
obtaining all necessary governmental permits due to any act or omission of
Landlord):
A. BASIC PLANS DELIVERY DATE: FEBRUARY 16, 1998 .
The Basic Plan due on this date shall be signed by Tenant and
include:
ARCHITECTURAL FLOOR PLANS: These shall be fully dimensioned floor
plans showing partition layout and identifying each room with a number and each
door with a number. The Basic Plans must clearly identify and locate equipment
requiring plumbing or other special mechanical systems, area(s) subject to
above-normal floor loads, special openings in the floor, and other major or
special features.
B. WORKING DRAWINGS DELIVERY DATE: FEBRUARY 20, 1998 .
On or before this date and as part of Tenant Improvement
Allowance, Tenant's office planner or architect shall produce four (4) sets of
Full Working Drawings for construction from the Basic Plans using the Pin Bar or
CADD System, which system shall be approved by Landlord for compatibility with
the other Building drawings. The four (4) sets of Working Drawings due on this
date shall be signed by the Tenant and include all items in the Basic Plans
referenced in Section IV(A) above plus the following additional information:
(1) ELECTRICAL AND TELEPHONE OUTLETS: Locate all power and
telephone requirements: Dimension the position from a corner and give height
above concrete slab for all critically located outlets. Identify all dedicated
circuits and identify all power outlets greater than 120 volts. Also identify
the manufacturer's name of the phone system to be used and the power
requirements, size, and location of its processing equipment.
(2) REFLECTED CEILING PLAN: Lighting layout showing location and
type of all Building Standard and special lighting fixtures.
The Tenant Improvement Allowance shall be applied to the cost of
all engineering and design for plumbing, electrical, heating, air conditioning
and structural plans ("Engineering Drawings") for the Tenant's improvements
based on the signed Working Drawings.
C. FINAL PLANS REVIEW DATE: FEBRUARY 25, 1998 .
On this date, Tenant's office planner or architect shall deliver
to Landlord and Tenant for review and approval four (4) complete sets of Final
Plans which will incorporate the Working Drawings referenced in Section IV(B)
above, plus the following additional information:
(1) MILLWORK DETAILS: These drawings shall be in final form with
Tenant's office planner's or architect's title block in the lower right-hand
corner of the drawing, and shall include construction details of all cabinets,
paneling, trim, bookcases, and door and jamb details for non-Building Standard
doors and jambs.
(2) KEYING SCHEDULES AND HARDWARE INFORMATION: This information
shall be in the final form and include a Keying Schedule indicating which doors
are locked and which
EXHIBIT B
PAGE 3 OF 6
<PAGE> 28
key(s) open each lock, plus an "X" on the side of the door where the key will be
inserted if a keyed door. Complete specifications for all non-Building Standard
hardware will also be provided.
(3) ROOM FINISH AND COLOR SCHEDULE: This information shall be in
final form and include locations and specifications for all wall finishes, floor
covering and base for each room.
(4) CONSTRUCTION NOTES AND SPECIFICATIONS: Complete
specifications for every item included except those specified by the Landlord.
D. FINAL PLANS DELIVERY DATE: FEBRUARY 25, 1998.
The four (4) sets of Final Plans approved by Landlord and Tenant
and due on or before this date shall include all the Final Plans referenced in
Section IV(C) above. Final Plans are to be signed by Tenant and delivered to
Landlord by the Final Plans Delivery Date. Landlord shall return one (1) signed
set to Tenant for Tenant's records. Landlord will incorporate Engineering
Drawings with Tenant's Final Plans for transmittal to the General Contractor.
Tenant shall be responsible for delays and additional costs in
completion of the Tenant Improvements incurred as a result of changes made to
any of Tenant's Plans after the specified Plan Delivery Date, delays caused by
Tenant's failure to comply with the Plan Delivery Dates, Tenant's failure to
provide adequate specifications or information for the completion of Tenant's
Plans, or by delays caused by Tenant's specification of special materials.
However, Tenant shall not be responsible for unreasonable delays and
unreasonable additional costs caused by Landlord.
V. CONSTRUCTION OF TENANT IMPROVEMENTS:
A. AUTHORIZATION TO PROCEED:
Within two (2) days following delivery of the final plans to
Landlord, Landlord shall submit the Final Plans to Construction Associates,
Waters & Wood Construction and a reputable, bonded contractor of Tenant's
choice. Upon receipt of the bids for construction of the Tenant Improvements
pursuant to the Final Plans, Landlord shall submit such bids to Tenant. Tenant
shall have the right to choose which of the general contractors submitting bids
to use (provided that in such event all costs of construction in excess of the
minimum bid secured by Landlord as set forth above shall be paid by Tenant).
Concurrently with the selection of the contractor by Tenant, Tenant shall give
Landlord written authorization to enter into a construction contract with such
contractor and commence construction of the Tenant Improvements in accordance
with the Final Plans delivered by Tenant. Tenant may in such authorization
delete any or all items of extra cost; however, if Landlord deems these changes
to be extensive, at its option, Landlord may refuse to accept the authorization
to proceed until all changes have been incorporated in the Final Plans signed by
Tenant and written acceptance of the revised price has been received by Landlord
from Tenant. In the absence of such written authorization to proceed, Landlord
shall not be obligated to commence work on the Premises and Tenant shall be
responsible for any cost due to any resulting delay in completion of the
Premises and as provided in Section 3(b) of the Lease.
B. PAYMENTS:
Prior to commencement of Tenant Improvements and if the price
for such improvements is greater than the Tenant Improvement Allowance defined
in Section II above, Tenant shall deposit with Landlord fifty percent (50%) of
any additional cost above the Tenant Improvement Allowance (the "Additional Cost
Deposit"). Landlord shall direct Landlord's contractor to complete Tenant's
improvements in accordance with Tenant's approved Final Plans as modified in
accordance with Section V.a above. Payments shall be made: First, by applying
the entire Tenant Improvement Allowance provided by Landlord against the monthly
progress payments due, secondly by applying Tenant's Additional Cost Deposit,
and then third, Tenant shall pay within ten (10) days after receipt of
contractor's draw request approved by Landlord, the full amount of such
contractor's draw request in cash. The progress billings may include a retainage
amount up to ten percent (10%) of the work ("Retainage"). Final billing shall be
EXHIBIT B
PAGE 4 OF 6
<PAGE> 29
rendered and payable within ten (10) days after acceptance of the Premises by
Tenant in Accordance with the terms of the Lease. Retainage pursuant to the
terms of this Paragraph shall be payable with such final billing. In the event
acceptance of the Premises is subject to punchlist items as provided in the
Lease, a portion of the retainage equal to the cost to complete each outstanding
punchlist item may be retained until such punchlist item is complete.
C. FINAL PLANS AND MODIFICATIONS:
If Tenant shall request any change in the Final Plans, Tenant
shall request such change in writing to Landlord and such request shall be
accompanied by all plans and specifications necessary to show and explain
changes from the approved Final Plans. After receiving this information,
Landlord shall give Tenant a written price for the cost of engineering and
design services to incorporate the change in Tenant's Final Plans. If Tenant
approves such price in writing, Landlord shall have such Final Plans changes
made and Tenant shall promptly pay Landlord for this cost. Promptly upon
completion of such changes in the Final Plans, Landlord shall notify Tenant in
writing of the costs, if any, which shall be chargeable or credited to Tenant
for such change, addition or deletion. If Tenant wishes to proceed with such
changes, Tenant shall promptly so notify Landlord in writing and pay to
Landlord fifty percent (50%) of the amount of any additional costs occasioned
thereby and the balance due at time of demand from the contractor. In the
absence of such notice, Landlord shall proceed in accordance with the previously
approved Final Plans before such change, addition or deletion was requested. In
accordance with Section 3(b) of the Lease, Tenant shall be responsible for any
resulting delay in completion of the Premises due to modification of Final
Plans. Tenant shall also be responsible for any demolition work required as a
result of the change.
D. IMPROVEMENTS CONSTRUCTED BY TENANT:
If any work is to be performed in connection with Tenant
Improvements on the Premises by Tenant or Tenant's contractor:
(1) Such work shall proceed upon Landlord's written approval
(which shall not be unreasonably withheld or delayed) of (i) Tenant's
contractor, (ii) public liability and property damage insurance satisfactory to
Landlord carried by Tenant's contractor, (iii) detailed plans and specifications
for such work, and (iv) amount of general conditions to be paid by Tenant to
Landlord for the services still provided by Landlord's contractor.
(2) All work shall be done in conformity with a valid permit when
required, a copy of which shall be furnished to Landlord before such work is
commenced, and in any case, all such work shall be performed in accordance with
all applicable governmental regulations. Notwithstanding any failure of Landlord
to object to any such work, Landlord shall have no responsibility for Tenant's
failure to meet all applicable regulations.
(3) All work by Tenant or Tenant's contractor shall be scheduled
through Landlord.
(4) Tenant or Tenant's contractor shall arrange for necessary
utility, hoisting and elevator service with Landlord's contractor and shall pay
such reasonable charges for such services as may be charged by Landlord's
contractor. This will be included in the general conditions of Subsection
C(1)(iv) above.
(5) Tenant shall promptly reimburse Landlord for costs incurred
by Landlord due to faulty work done by Tenant or its contractors, or by reason
of any delays caused by such work, or by reason of inadequate clean-up.
(6) Prior to commencement of any work on the Premises by Tenant
or Tenant's contractor, Tenant or Tenant's contractor shall enter into an
indemnity agreement and a lien priority agreement satisfactory to Landlord
indemnifying and holding harmless Landlord and Landlord's contractors for any
liability, losses or damages directly or indirectly from lien claims affecting
the Land, the Building or the Premises arising out of Tenant's or Tenant's
contractor's work or that of subcontractor or suppliers, and subordinating any
such liens to the liens of construction and permanent financing for the Land and
Building. As a condition of approving
EXHIBIT B
PAGE 5 OF 6
<PAGE> 30
Tenant's contractor of any subcontractor, Landlord may require one or more
payment or performance bonds covering such work reasonably satisfactory to
Landlord.
(7) Landlord shall have the right to post a notice or notices in
conspicuous places in or about the Premises announcing its non-responsibility
for the work being performed therein.
E. TENANT'S ENTRY TO PREMISES:
Tenant's entry to the Premises for any purpose, including
without limitation, inspection or performance of Tenant Construction by Tenant's
agents, prior to the Commencement Date as specified in Section 3(a) of the Lease
shall be scheduled in advance with Landlord and shall be subject to all the
terms and conditions of the Lease, except the payment of Rent and Additional
Rent. Tenant's entry shall mean entry by Tenant, its officers, contractors,
office planner or architect, licensees, agents, servants, employees, guests,
invitees, or visitors.
F. TENANT'S TELEPHONE AND COMPUTER/DATA SERVICE:
Tenant is responsible for Tenant's telephone service, computer
and data service, and related cabling. Tenant shall select and coordinate
installation of such communication and information systems with the Landlord
pursuant to Section 35 of the Lease.
EXHIBIT B
PAGE 6 OF 6
<PAGE> 31
EXHIBIT C
ADDENDUM TO LEASE BETWEEN
MERCER ISLAND PARTNERS ASSOCIATES, LLC
AND
BSQUARE CORPORATION, INC.
ADDITIONAL LEASE TERMS
1. OPTION TO EXTEND LEASE TERM:
Tenant shall have the right, but said right shall be subordinated to the
preferential first rights to occupy the Premises after the end of the original
Lease Term of BioControl Systems, Inc. and its related organizations/assigns, to
be exercised as hereinafter provided, to extend the initial Lease Term
("Extension Option") for the entire Premises for one (1) additional period of
five (5) years, provided that:
(a) Tenant shall not be in default in the performance of any term,
covenant or condition herein contained at the time of the
Exercise of the Option and on the last day of the preceding
Lease Term;
(b) The rental rate for the extended term shall be the projected
fair market rental rate for comparable term-extensions in
comparable first-class buildings along the I-90 corridor on the
effective date of the Extension Option Term , provided, however,
that such rental rate shall not be less than the then current
rental rate (base rent plus escalation) for the Premises.
(c) Refurbishment allowances shall be commensurate with the
refurbishment allowances found in the market for similar size
renewals in Class A buildings along the I-90 corridor.
NOTICE:
No later than six (6) months prior to the expiration of the
initial Lease Term, Tenant shall notify Landlord in writing of its intention to
extend the Lease Term. Within one (1) month of Tenant's notice to extend,
Landlord and Tenant shall agree upon the rent for the Extension Option Term. If
Landlord and Tenant cannot agree upon the rent for the Extension Option Term
within one (1) month of Landlord's receipt of Tenant's written notice of its
extension to extend the Lease Term, this Extension Option shall lapse and
terminate and the lease shall expire at the end of the initial Term as outlined
in Section 1(g).
EXERCISE:
Tenant shall exercise the Extension Option by written notice to
Landlord no later than two (2) months from the date of Landlord's notification
of terms and conditions. If Tenant does not so exercise the Extension Option,
the Lease shall expire at the end of the initial Lease Term.
LEASE TERMS:
Upon exercise of the Extension Option, all of the terms and
conditions set forth in this Lease shall continue, with the exception of the
Lease Term which shall be extended as set forth above, and with the exception of
Rent which shall be determined as set forth above.
EXHIBIT C
PAGE 1 OF 1
<PAGE> 1
EXHIBIT 10.8
ADDENDUM TO DELPHI OFFICE
BUILDING AGREEMENT
LEASE: DATED NOVEMBER 15, 1996
LANDLORD: SEATTLE OFFICE ASSOCIATES, LLC
TENANT: BSQUARE CONSULTING, INC.
The undersigned Landlord and Tenant agree to the establishment of the following
dates as they are used in the above referenced lease agreement:
Lease Commencement Date: December 13, 1996
Rent Commencement Date: December 13, 1996
Lease Termination Date: December 12, 2001
Extension Option
Notification Date June 12, 2001
EXCEPT as herein specifically amended, the lease shall in all respects remain in
full force and effect.
Dated: December 16, 1996
Landlord Tenant
SEATTLE OFFICE ASSOCIATES LLC BSQUARE CONSULTING, INC.
by: [ILLEGIBLE] by: [ILLEGIBLE]
------------------------------- -------------------------------
its: MEMBER its: PRESIDENT & CEO
------------------------------ ------------------------------
<PAGE> 2
OFFICE LEASE AGREEMENT
BETWEEN
Seattle Office Associates, LLC
LANDLORD
and
bsquare consulting, inc.
TENANT
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. BASIC LEASE INFORMATION AND EXHIBITS...................................................... 1
(a) Lease Date............................................................................ 1
(b) Tenant................................................................................ 1
(c) Address of Tenant..................................................................... 1
(d) Landlord.............................................................................. 1
(e) Address of Landlord................................................................... 1
(f) Premises.............................................................................. 1
(g) Project............................................................................... 1
(h) Land.................................................................................. 1
(i) Lease Term............................................................................ 1
(j) Right to Extend....................................................................... 1
(j) Basic Rent............................................................................ 2
(k) Additional Rent....................................................................... 2
(1) Security Deposit...................................................................... 2
(m) Rentable Square Feet in the Premises.................................................. 2
(n) Rentable Square Feet in the Project................................................... 2
(o) Tenant's Percentage................................................................... 2
(p) Parking............................................................................... 2
(q) Brokers............................................................................... 2
(r) Construction Completion Date.......................................................... 3
(s) Signage............................................................................... 3
(t) Expansion Rights...................................................................... 3
(u) Exhibits.............................................................................. 3
2. PREMISES.................................................................................. 3
3. COMMENCEMENT AND EXPIRATION DATES......................................................... 3
4. RENT...................................................................................... 4
(a) Rent.................................................................................. 4
5. COSTS OF OPERATIONS AND REAL ESTATE TAXES................................................. 4
(a) Definitions........................................................................... 4
(b) Additional Rent for Estimated Increases in Operating Costs............................ 5
(c) Determinations........................................................................ 6
(d) Personal Property Taxes............................................................... 6
6. SERVICES AND UTILITIES.................................................................... 6
(a) Standard Services..................................................................... 6
(b) Interruption of Services.............................................................. 7
(c) Additional Services................................................................... 7
7. SECURITY DEPOSIT.......................................................................... 8
8. USES...................................................................................... 8
(a) Uses.................................................................................. 8
(b) Compliance With Law................................................................... 8
(c) Compliance With Rules and Regulations................................................. 9
9. IMPROVEMENTS.............................................................................. 9
10. TENANT IMPROVEMENTS; ACCEPTANCE OF PREMISES............................................... 9
11. CARE OF PREMISES.......................................................................... 9
12. ALTERATIONS AND ADDITIONS................................................................. 10
13. ACCESS.................................................................................... 11
14. DAMAGE OR DESTRUCTION..................................................................... 11
(a) Damage and Repair..................................................................... 11
(b) Destruction During Last Year of Term.................................................. 11
(c) Business Interruption................................................................. 12
(d) Tenant Improvements................................................................... 12
15. CONDEMNATION.............................................................................. 12
(a) Taking................................................................................ 12
(b) Awards and Damages.................................................................... 12
16. INDEMNIFICATION........................................................................... 12
(a) Indemnity............................................................................. 12
(b) Exemption of Landlord From Liability.................................................. 13
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
(c) Waiver of Subrogation............................................................... 13
17. HAZARDOUS SUBSTANCES.................................................................... 13
18. INSURANCE............................................................................... 14
(a) Required Policies................................................................... 14
(b) Insurance Policy Requirements....................................................... 15
(c) Landlord's Insurance................................................................ 15
19. ASSIGNMENT AND SUBLETTING............................................................... 15
20. LIENS AND INSOLVENCY.................................................................... 16
(a) Liens............................................................................... 16
(b) Insolvency.......................................................................... 17
21. DEFAULT................................................................................. 17
(a) Default By Tenant................................................................... 17
(b) Remedies Cumulative: Injunction..................................................... 17
(c) Landlord's Remedies Upon Tenant Default............................................. 17
(d) Waiver of Redemption Rights......................................................... 19
(e) Nonpayment of Additional Rent....................................................... 19
(f) Interest............................................................................ 19
22. PRIORITY................................................................................ 19
(a) Subordination of Lease.............................................................. 19
23. ESTOPPEL CERTIFICATES................................................................... 20
(a) Delivery of Estoppel................................................................ 20
(b) Failure to Deliver Estoppel......................................................... 20
24. SURRENDER OF POSSESSION................................................................. 20
25. NON-WAIVER.............................................................................. 21
26. HOLDOVER................................................................................ 21
27. LANDLORD'S LIABILITY.................................................................... 21
28. TRANSFER OF LANDLORD'S INTEREST......................................................... 21
29. RIGHT TO PERFORM........................................................................ 21
30. GENERAL................................................................................. 21
(a) Headings............................................................................ 22
(b) Heirs and Assigns................................................................... 22
(c) Authority........................................................................... 22
(d) No Brokers.......................................................................... 22
(e) Entire Agreement.................................................................... 22
(f) Severability........................................................................ 22
(g) Force Majeure....................................................................... 22
(h) Notices............................................................................. 22
(i) Costs and Attorneys Fees............................................................ 23
(j) Governing Law....................................................................... 23
(k) Recording........................................................................... 23
(1) Waivers............................................................................. 23
(m) Time of Essence..................................................................... 23
(n) Merger.............................................................................. 23
(o) Right to Change Public Spaces....................................................... 23
(p) Name................................................................................ 23
(q) Overdue Payments.................................................................... 24
(r) Relocation of Premises.............................................................. 24
(s) Advertising......................................................................... 24
(t) Parking............................................................................. 25
(u) Execution of Lease by Landlord...................................................... 25
31. LANDLORD'S COVENANTS.................................................................... 25
(a) Quiet Enjoyment..................................................................... 25
(b) Hazardous Waste or Materials........................................................ 25
(c) Rentable Square Feet................................................................ 25
32. GUARANTY OF LEASE....................................................................... 25
</TABLE>
Exhibits
<PAGE> 5
A - Legal Description of Land
B - Space Plan of Premises
C - Tenant Improvements
D - Building Rules and Regulations
E - Guarantees of Lease
<PAGE> 6
OFFICE LEASE AGREEMENT
THIS LEASE is made this ____ day of October, 1996 between Seattle Office
Associates LLC, a Washington Limited Liability Company ("Landlord"), and bsquare
consulting, inc., a Washington Corporation ("Tenant").
Landlord and Tenant agree:
1. BASIC LEASE INFORMATION AND EXHIBITS. The following terms as used
herein shall have the meanings provided in this Section 1, unless otherwise
specifically modified by provisions of this Lease:
(a) Lease Date: _____________,1996.
(b) Tenant: bsquare consulting, inc.
a Washington Corporation.
(c) Address of Tenant:
13228 NE 20th Street
Suite C
Bellevue, WA 98005
(d) Landlord: Seattle Office Associates, LLC
(e) Address of Landlord:
3633 - 136th Place SE
Suite 205
Bellevue, WA 98006
(f) Premises: Suite No. 200, located at 3633 - 136th Place
SE, Bellevue, (the "Building") as shown on Exhibit B
attached hereto.
(g) Project: The Building and all related improvements known
as the Delphi Building, located at 3633 - 136th Place
SE, Bellevue, which are situated on the Land as defined
below.
(h) Land: The real property more particularly described on
Exhibit A attached hereto.
(i) Lease Term: 60 months, commencing on December 15, 1996,
or such earlier or later date as provided in Section 3
hereof, (the "Commencement Date") and terminating on the
day prior to the fifth anniversary of the Commencement
Date, ("the Termination Date"). Landlord and Tenant
agree to execute an addendum to this lease setting forth
the Commencement Date and the Termination Date.
(j) Right to Extend: a. Provided Tenant (i) is not in
default hereunder at the time of the exercise of the
extension and at the commencement of the renewal term,
(ii) has not been in a monetary default more than five
times during the term of the lease, and (iii) has given
Landlord six (6) months prior written notice of its
intent to exercise its rights under this Section, Tenant
shall have the right to extend the term of this Lease
for one (1) additional period of five years (the
"Extended Term") on the same terms and conditions as in
this Lease except that the Basic Rent during the
Extended Term shall be a sum equal to the fair
1
<PAGE> 7
market rent ("Market Rent") of the Leased Premises at
the time of the commencement of the Extended Term as
determined either by agreement between Landlord and
Tenant or by arbitration as hereinafter described.
b. In the event that tenant desires to exercise such
option, Landlord and Tenant agree to negotiate in good
faith to reach agreement on the Market Rent of the
Premises for such Extended Term. If, for any reason, the
Landlord and Tenant fail to agree to a market rent for
the term at least thirty (30) days prior to the end of
the initial Term, then market rent for the term shall be
determined by arbitration pursuant to this lease and RCW
7.04, et.seq. The arbitrator shall be a licensed MAI
appraiser, whom the Parties shall select by mutual
agreement. If the Parties are unable to agree on an
arbitrator, the arbitrator shall be selected by the King
County Superior Court. As part of the submittals to the
arbitrator, each Party to the arbitration will present a
proposed market rent for the term which the submitting
Party deems to be fair and reasonable. The arbitrator is
directed to select within twenty-one (21) days one of
the proposed market rents submitted and has no
discretion to determine any other market rent. The
arbitrator's decision shall be final, binding and
non-appealable. Notwithstanding the above, the market
rent for the extended term shall not be less than the
rate for the initial term.
Until the arbitrator renders his award, the Tenant shall
continue to pay the same market rent per month of the
term as it paid for the last month of the initial term.
The Tenant shall pay any shortfall in market rent
payments for the term within ten (10) days after the
arbitrator renders his award; and Landlord shall credit
Tenant within ten (10) days any overpayment of Base Rent
for the term against future monthly market rent, as
determined by the arbitration award.
(k) Basic Rent: $18,816.04 per month, $225,792.50 per year
($18.50 PSF).
(1) Additional Rent: The increase in Operating Costs
described in Section 5 and all other costs, other than
Basic Rent, payable by Tenant to Landlord hereunder.
(m) Security Deposit: $37,632.08 upon lease execution, of
which $18,816.04 shall be applied to the 1st month's
rent.
(n) Rentable Square Feet in the Premises: 12,205.
(o) Rentable Square Feet in the Project: 69,596.
(p) Tenant's Percentage: 17.54%.
(p) Parking: 51 parking stalls of which 11 will be reserved
under the Building for the Tenant's exclusive use.
(r) Brokers: Tenant was represented in this transaction by
CB Commercial Real Estate Group, a licensed real estate
Broker; Landlord was represented in this transaction by
Langly Associates Inc., a licensed real estate broker.
2
<PAGE> 8
(r) Construction Completion Date: December 15, 1996.
(t) Signage: Tenant, at its expense, may install one parapet
sign, subject to City of Bellevue approval. All signage
is subject to local sign code requirements and
Landlord's approval of the sign's size, design,
installation and appearance, such approval not to be
unreasonably withheld or delayed. Tenant will not be
required to remove sign upon expiration of the lease. If
Landlord and Tenant fail to agree to a market rent, the
terms of paragraph 1.j.b. shall apply.
(u) Expansion Rights: Tenant will have a 15-day right of
first offer to lease any available contiguous space
during the primary term and during the renewal term,
subject to Landlord's right to extend or renew the lease
for any current tenant of such space. For purposes of
this subparagraph, suite 205 and the conference room
adjacent to suite 205 are considered to be contiguous
space. Additional space will be at fair market value,
but not less than the rate paid on tenant's existing
leased space. The term of any such expansion space shall
be coterminus with this lease.
(v) Exhibits: The following exhibits are attached hereto and
are hereby made a part of this Lease.
Exhibit A - Legal Description of Land
Exhibit B - Space Plan of Premises
Exhibit C - Tenant Improvements
Exhibit D - Building Rules and Regulations
Exhibit E - Guarantees of Lease
2. PREMISES. Landlord does hereby lease to Tenant, and Tenant does
hereby lease from Landlord, upon the terms and conditions herein set forth, the
Premises described in Section 1(f) hereof as shown on Exhibit B attached hereto
and incorporated herein, together with rights of ingress and egress over common
areas in the Building and on the Land.
3. COMMENCEMENT AND EXPIRATION DATES.
The term of this Lease shall commence on the earliest of the following
dates (the "Commencement Date"): (a) the Construction Completion Date as defined
in Section 1(r) above; (b) the date on which the Premises would have been
substantially completed but for delay caused by Tenant or any agent, employee or
contractor of Tenant; (c) the date on which the Premises are actually occupied
by Tenant or (d) the date set forth in section 1.(i). Upon request of Landlord,
Tenant shall enter into a memorandum stipulating the actual Commencement Date.
If for any reason other than Tenant's failure to fulfill its obligations
hereunder, Landlord cannot deliver possession of the Premises to Tenant on the
Commencement Date, Landlord shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease or the obligations of
Tenant hereunder or extend the Termination Date, but in such case Tenant shall
not be obligated to pay Rent until possession of the Premises is tendered to
Tenant. If Tenant's tenant improvements are not completed on the Commencement
Date due to the failure of Tenant to fulfill any obligation pursuant to the
terms of this Lease or any exhibit hereto, including without limitation
3
<PAGE> 9
Tenant's failure to comply with the terms of Exhibit C, the Lease shall be
deemed to have commenced upon the Commencement Date. If Tenant occupies the
Premises prior to the Commencement Date, such occupancy shall be subject to all
provisions hereof, such occupancy shall not advance the Termination Date, and
Tenant shall pay Rent for such period at the initial rates set forth in the
Basic Lease Information. In the event the Commencement Date is established as a
later or earlier date than the date provided in Section 1(i) hereof, Landlord
shall confirm the same to Tenant in writing. The Lease shall expire upon the
Termination Date specified in Section 1(i). In the event Landlord is unable to
deliver possession of premises within 30 days of Lease Commencement date, Tenant
shall have the right to cancel this Lease.
4. RENT.
(a) Rent. Tenant shall pay Landlord without notice the Basic Rent
stated in Section 1(j) hereof in advance without demand, deduction or offset on
the first day of each calendar month during the term at the address specified in
Section 1(e) or such address as may be specified by Landlord. Basic Rent and
Additional Rent (together "Rent") for any partial month shall be prorated in
proportion to the number of days in such month.
(b) Basic Rent Adjustment. The Basic Rent shall remained fixed
for the initial term of the lease.
5. COSTS OF OPERATIONS AND REAL ESTATE TAXES.
(a) Definitions. In addition to the Basic Rent provided in
Section 1(j)) of this Lease, Tenant shall pay to Landlord increases under this
Section 5 as "Additional Rent," utilizing the following definitions:
(i) "Operating Costs" shall mean all taxes and assessments
on real and personal property; any taxes levied or assessed (or any installment
thereof due during the Lease Year) in addition to or in lieu of such real
property or personal property taxes, or any other tax (except any federal or
state net income tax or any business or occupation tax) upon leasing of the
Project or rents collected; and all other expenses paid or incurred by Landlord
for managing, maintaining, operating and repairing the Project and the personal
property used in conjunction therewith, including without limitation, the
following: (A) electricity, water, gas, sewers, refuse collection, telephone
charges not charged to individual tenants and similar utility services; (B) the
cost of maintaining, rehabilitating or replacing heating, mechanical,
ventilating, escalator and elevator systems and restriping, repairing and
repaving parking areas; (C) the cost of repairs, janitorial and cleaning
services, window washing, landscape maintenance, and other general maintenance
or cleaning; (D) the cost of fire, extended coverage, boiler, sprinkler, public
liability, property damage, rent, earthquake (if required by any lender on the
building and if such expense is included in the base year) and other insurance;
(E) wages, salaries and other labor costs, including employee benefits, of all
persons who perform duties in connection with the operation, maintenance and
repair of the Project; (F) fees, charges and other costs, including management
fees, consulting fees, legal fees and
4
<PAGE> 10
accounting fees, of all independent contractors reasonably engaged by Landlord;
(G) management fees not to exceed 5% of gross revenues charged by Landlord if
Landlord performs management services in connection with the Project; (H) the
costs for the subject period (amortized over the useful life in accordance with
the Internal Revenue Code) of any capital improvements made to the Project after
the date of this Lease which are either designed to increase the operating
efficiency of the Project or are required by applicable law; (I) cost of all
licenses, permits and inspections required by governmental bodies with
jurisdiction over the Premises, Project and Land; and (J) the amortized costs of
renovating the carpet, paint and lighting of common hallways and lobbies; (K)
deductible amounts (not to exceed $25,000) under any insurance maintained by
Landlord with respect to repair or rebuilding of the Project, and (L) any other
expenses or charges whether or not hereinabove described, which in accordance
with generally accepted accounting and management practices would be considered
an expense of managing, maintaining, operating, or repairing the Project.
(ii) "Operating Costs" shall not include the following:
(a) Costs of any special services rendered to
individual tenants (but not all tenants in the building) for which a special
charge is made.
(b) Leasing commissions and other leasing expenses.
(c) Legal fees, accounting fees and other costs and
expenses associated with a breach or default by any tenant.
(ii) "Lease Year" shall mean the twelve-month period
commencing January 1 and ending December 31.
(iii) "Actual Operating Costs" means the actual expenses
paid or incurred by Landlord for Operating Costs during any Lease Year of the
term hereof.
(iv) "Actual Operating Costs Allocable to the Premises"
means the Tenant's share of the Actual Operating Costs determined by dividing
the Rentable Square Feet in the Premises as set forth in Section 1(m) by the
Rentable Square Feet in the Project and multiplying the resulting quotient by
the Actual Operating Costs.
(v) "Estimated Operating Costs Allocable to the Premises"
means Landlord's estimate of Actual Operating Costs Allocable to the Premises
for the following Lease Year to be given by Landlord to Tenant pursuant to
Section 5(b)(i) below.
(vi) "Base Service Year" shall mean the calendar year
1997.
(b) Additional Rent for Estimated Increases in Operating Costs.
(i) On or before the first (1st) day of March of each
Lease Year after the Base Service Year, during the term hereof, Landlord shall
furnish Tenant a written statement of the Estimated Operating Costs Allocable to
the Premises for such Lease Year, and a calculation of the Additional Rent for
such costs as follows: one-twelfth
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(1/12) of the amount, if any, by which such amount exceeds the Operating Costs
Allocable to the Premises for the Base Service Year shall be Additional Rent
payable each month by Tenant as provided in Section 4. Any shortfall for elapsed
portion of the Lease Year in question shall be made up with the next monthly
payment. Landlord reserves the right to adjust this estimate from time to time.
(ii) Within ninety (90) days after the close of each Lease
Year, or as soon thereafter as practicable, Landlord shall deliver to Tenant a
written statement setting forth the Actual Operating Costs Allocable to the
Premises during the preceding Lease Year. If such costs for any Lease Year
exceed Estimated Operating Costs Allocable to the Premises paid by Tenant to
Landlord pursuant to subsection (b)(i) above, Tenant shall pay the amount of
such excess to Landlord as Additional Rent within fifteen (15) days after
receipt of such statement by Tenant. If such statement shows such costs to be
less than the amount paid by Tenant to Landlord pursuant to subsection (b)(i)
above, then the amount of such overpayment by Tenant shall be credited by
Landlord to the next Rent payable by Tenant. In no event shall the Rent payable
by Tenant hereunder be less than the Rent specified in Section 1(j) of this
Lease.
(iii) If this Lease shall terminate on a day other than
the last day of a Lease Year, the amount of any adjustment between Estimated and
Actual Operating Costs Allocable to the Premises with respect to the Lease Year
in which such termination occurs shall be prorated on the basis which the number
of days from the commencement of such Lease Year to and including such
termination date bears to 365, and any amount payable by Landlord to Tenant or
Tenant to Landlord with respect to such adjustment shall be payable within
fifteen (15) days after delivery of the statement of Actual Operating Costs
Allocable to the Premises with respect to such Lease Year.
(c) Determinations. The determination of Actual Operating Costs
and Estimated Operating Costs Allocable to the Premises shall be made by
Landlord. Landlord or its agent shall keep records in reasonable detail showing
all expenditures made for the items enumerated above, which records shall be
available for inspection by Tenant at any reasonable time during the two year
period following receipt of the Landlord's statement referred to in Section
5(b)(ii).
(d) Personal Property Taxes. Tenant shall pay, prior to
delinquency, all Personal Property Taxes payable with respect to all property of
Tenant located on the Premises, the Building, or the Project including any
improvements paid for by Tenant, and promptly, upon request of Landlord, shall
provide written proof of such payment. As used herein, "Property of Tenant"
shall include all improvements which are paid for by Tenant. "Personal Property
Taxes" shall include all property taxes assessed against the property of Tenant,
whether assessed as real or personal property.
6. SERVICES AND UTILITIES.
(a) Standard Services. Landlord shall maintain the Premises and
the public and common areas of the Building (including the roof, exterior
portions of the building, parking and landscaping) in reasonably good order and
condition, except for damage occasioned by the negligent or willful act or
omission of Tenant or its contractors,
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agents, invitees, licensees or employees, the repair of which damage shall be
paid by Tenant, subject to the provisions of Section 16(c). Landlord shall
furnish the Premises with electricity for normal office use, water, elevator
service and reasonable 5 day per week janitorial services during the term of the
Lease. Electricity use beyond normal office use and any separate metering
required thereby shall be paid for by Tenant. The Basic Rent stated in Section
1(j) hereof does not include the costs of any janitorial or other service
provided or caused to be provided by Landlord to Tenant which are in addition to
the services ordinarily provided Building tenants.
Landlord shall furnish the Premises with heat and air conditioning
during the following hours: Monday to Friday 7:00 a.m. to 6:00 p.m., Saturday
8:00 a.m. - 5:00 p.m. and Sunday 9:00 a.m. to 1:00 p.m. Tenant may request
provision of these services for other hours by giving Landlord at least 48 hours
prior written notice and by paying all additional costs incurred by Landlord for
such services with the next due installment of Rent at Landlord's then current
overtime rate, which is currently $30 per hour. During other than normal
business hours (as designated by Landlord), Landlord may restrict access to the
Building in accordance with the building's security system, provided that Tenant
shall have at all times during the term of this Lease (24 hours of all days)
reasonable access to the Premises.
(b) Interruption of Services. Landlord shall not be liable for
any loss, injury or damage to person or property caused by or resulting from any
variation, interruption, or failure of such services due to any cause
whatsoever, or from failure to make any repairs or perform any maintenance, and
rent shall not abate as a result thereof. No temporary interruption or failure
of such services incident to the making of repairs, alterations or improvements,
or due to accident, strike or conditions or events beyond Landlord's reasonable
control shall be deemed an eviction of Tenant or relieve Tenant from any of
Tenant's obligations hereunder.
(c) Additional Services. Before installing lights and equipment
in the Premises which in the aggregate exceed normal levels of usage (including
without limitations, computer and data processing equipment), Tenant shall
obtain the written permission of Landlord. Landlord may refuse to grant such
permission unless Tenant shall agree to pay the costs of Landlord for
installation of supplementary air conditioning capacity or electrical systems as
necessitated by such equipment or lights. Notwithstanding the above, Landlord
may not refuse to grant permission for equipment which, in the aggregate, does
not require electrical power in excess of five (5) watts per rentable SF.
In addition, Tenant shall in advance, on the first day of each
month during the Lease term, pay Landlord the reasonable amount estimated by
Landlord as the cost of furnishing electricity for the operation of such
equipment or lights and the reasonable amount estimated by Landlord as the cost
of operation and maintenance of supplementary air conditioning units
necessitated by Tenant's use of such equipment or lights. The Rent stated in
Section 1(j) hereof does not include any amount to cover the cost of furnishing
electricity or such additional air conditioning for such purposes and such costs
will be paid by Tenant as Additional Rent. Landlord shall be entitled to install
and operate at Tenant's cost a monitoring/metering system in the Premises to
measure the added demands on electrical, heating, ventilation and air
conditioning systems resulting from such equipment
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and lights and from Tenant's after-hours heating, ventilation and air
conditioning service requirements. Tenant shall comply with Landlord's
instructions for the use of drapes and thermostats in the Building.
7. SECURITY DEPOSIT. As security for the full and faithful performance
of every covenant and condition of this Lease to be performed by Tenant, Tenant
has paid to Landlord the Security Deposit as specified in Section 1(m) hereof.
If Tenant defaults in any respect under this Lease, Landlord may apply all or
any part of the Security Deposit to the payment of any sum in default or any
other sum which Landlord may be required or may in its reasonably discretion
deems necessary to spend or incur by reason of Tenant's default. In such event,
Tenant shall, within five (5) days of written demand therefor by Landlord,
deposit with Landlord the amount so applied. If Tenant shall have fully complied
with all of the covenants and conditions of this Lease, the amount of the
Security Deposit to the extent not applied by Landlord under this Section 7
shall be repaid to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) within thirty (30) days after the expiration or
sooner termination of this Lease. In the event of Tenant's default under this
Lease, Landlord's right to retain the Security Deposit shall be deemed to be in
addition to any and all other rights and remedies at law or in equity available
to Landlord. Landlord shall not be required to keep any Security Deposit
separate from its general funds and Tenant shall not be entitled to any interest
thereon.
8. USES.
(a) Uses. The Premises are to be used only for general office
purposes ("Permitted Uses") and for no other business or purpose without the
prior written consent of Landlord, which consent may be withheld if Landlord, in
its sole discretion, determines that any proposed use is inconsistent with or
detrimental to the maintenance and operation of the Building as a first-class
office building or is inconsistent with any restriction on use of the Premises,
the Building, the Project or the Land contained in any lease, mortgage or other
agreement or instrument by which the Landlord is bound or to which any of such
property is subject, Tenant shall not commit any act that will increase the then
existing rate of insurance on the Building or the Project and will immediately
pay any such increase. Tenant shall promptly pay upon demand the amount of any
increase in insurance rates caused by any act or acts of Tenant. Tenant shall
not commit or allow to be committed any waste upon the Premises, or any public
or private nuisance or other act which disturbs the quiet enjoyment of any other
tenant in the Building or which is unlawful. Tenant shall not, without the
written consent of Landlord, use any apparatus, machinery or device in or about
the Premises which will cause any substantial noise, vibration or fumes. If any
of Tenant's office machines or equipment should disturb the quiet enjoyment of
any other tenant in the Building, then Tenant shall provide adequate insulation
or take other action as may be necessary to eliminate the disturbance.
(b) Compliance With Law. Tenant shall, at Tenant's expense,
comply promptly with all applicable statutes, ordinances, rules, regulations,
orders and requirements, including without limitation laws and regulations
prohibiting discrimination on the basis of race, gender, religion, national
origin, age or disability, in effect during the term
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hereof regulating the use, occupancy or improvement of the Premises by Tenant,
Landlord or otherwise and Tenant shall be fully responsible for the cost of
complying therewith.
(c) Compliance With Rules and Regulations. Tenant shall observe
and comply with all reasonable rules and regulations put into effect by
Landlord. Landlord shall not be responsible to Tenant for the non-compliance
with the rules and regulations of any other tenant or occupant of the Project.
9. IMPROVEMENTS. Upon expiration or sooner termination of this Lease,
all improvements and additions to the Premises, except Tenant's trade fixtures,
shall be deemed the property of Landlord.
10. TENANT IMPROVEMENTS; ACCEPTANCE OF PREMISES. The Premises shall be
completed in accordance with the plans and specifications attached hereto as
Exhibit C. All necessary construction shall be commenced by Landlord following
Landlord's execution of this Lease and Tenant's delivery of the first month's
Basic Rent, the guarantees and the Security Deposit. Landlord will exert
commercially reasonable efforts to have improvements substantially completed by
the date set forth in Section 1(r). Within five (5) days ("Inspection Period")
after Landlord informs Tenant of such completion, Tenant shall make such
inspection of the Premises as Tenant deems appropriate. Except as otherwise
specified by Tenant in writing to Landlord within the Inspection Period, Tenant
shall be deemed to have accepted the Premises in their then condition. If, as a
result of such inspection, Tenant discovers minor deviations or variations from
the plans and specifications for Tenant's improvements of a nature commonly
found on a "punch list" (as the term is used in the construction industry),
Tenant shall, during the Inspection Period, notify Landlord of such deviations.
Landlord shall promptly repair all punch list items. The existence of such punch
list items shall not postpone the Commencement Date of this Lease or the
obligation of Tenant to pay Rent. Tenant acknowledges that neither Landlord nor
Landlord's agent has made any representation or warranty as to the suitability
of the Premises for the conduct of Tenant's business, and Tenant hereby waives
any rights, claims or actions against Landlord under any express or implied
warranties of suitability.
11. CARE OF PREMISES. Tenant shall, at Tenant's sole cost and expense,
keep the Premises and every part thereof in good condition and repair, damage
thereto from causes beyond the reasonable control of Tenant and ordinary wear
and tear and damage by fire and other casualty not intentionally caused by
Tenant excepted. Tenant shall be responsible for the cleaning of any common
areas of the Building and the Project if such cleaning is necessary due to
Tenant's use of such common areas in a manner other than the normal, reasonable
use of such areas. All damages or injury done to the Premises, Building or
Project by Tenant or by any persons who may be in or upon the Premises, Building
or Project with the express or implied consent of Tenant, including but not
limited to the cracking or breaking of any glass of windows and doors, shall be
paid for by Tenant and Tenant shall pay for all damage to the Project caused by
acts or omissions of Tenant or Tenant's officers, contractors, agents, invitees,
licensees, or employees subject to the provisions of section 16(c). If Tenant
fails to perform Tenant's obligations under this Section 11, Landlord may at
Landlord's option enter upon the Premises after ten (10) days' prior notice to
Tenant and put the affected portion of the Project in good order, condition and
repair and the cost thereof together with interest thereon at the rate of 15%
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per annum shall be due and payable as Additional Rent to Landlord together with
Tenant's next installment of Basic Rent. All normal repairs shall be those
reasonably determined by Landlord as necessary to maintain the Project as a
first-class office building complex.
12. ALTERATIONS AND ADDITIONS.
(a) Tenant shall not make any alterations, improvements,
additions, or utility installations in or about the Premises or make changes to
locks on doors, or add, disturb or in any way change any floor covering, wall
covering, fixtures, plumbing or wiring (collectively, "Alterations") without
first obtaining the written consent of Landlord and, where appropriate, in
accordance with plans and specifications approved by Landlord. Any such
Alterations shall not adversely affect either the strength or exterior
appearance, or the mechanical, electrical, or plumbing services of the Building
and the Project. Any alterations required to be made to the Premises by any
applicable building, health, safety, fire, nondiscrimination, or similar law or
regulation ("law"), but only to the extent such alterations are not also
required to be made generally throughout the building, shall be made at Tenant's
sole expense and shall be subject to the prior written consent of Landlord.
Tenant shall reimburse Landlord for any sums expended for examination and
approval of architectural or mechanical plans and specifications of the
Alterations. Tenant shall also pay Landlord a sum equal to the direct costs
incurred during any inspection or supervision of the Alterations. Landlord may
require a lien and completion bond for such construction, or require the
improvements (except for any cabling installed by the Tenant) be removed at the
expiration of the Term. Tenant acknowledges and agrees that a material condition
to the granting of approval of Landlord to any alterations and/or improvements
and/or repairs required under this Lease or desired by Tenant is that the
contractors who perform such work shall carry a Comprehensive Liability Policy
covering both bodily injury, in the amount of $100,000 per person and $300,000
aggregate, and property damages, in the amount of $300,000, at Tenant's expense.
Landlord may require proof of such insurance coverage from each contractor at
the time of submission of Tenant's request for Landlord's consent to commence
work. Landlord's approval of the plans, specifications and working drawings for
Tenant's alterations shall create no responsibility or liability on the part of
Landlord for their completeness, design sufficiency, or compliance with all
laws, rules and regulations of governmental agencies or authorities. Tenant
shall indemnify and hold Landlord harmless from any liability, claim or suit,
including attorneys' fees, arising from any injury, damage, cost or loss
sustained by persons or property as a result of any defect in design, material
or workmanship.
(b) Tenant shall pay, when due, all claims for labor or materials
furnished to or for Tenant at or for use in the Premises, which claims are or
may be secured by any mechanics' or materialmen's liens against the Premises or
any interest therein. Within ten (10) days after notice thereof, Tenant shall
remove or cause to be removed all liens filed against the Project or any portion
thereof in connection with any Alterations or other work performed by or at the
request of Tenant.
(c) Tenant shall not put curtains, draperies or other hangings or
signs on or beside the windows in the Premises.
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(d) Unless Landlord requires their removal, all Alterations
(other than trade fixtures and movable equipment) which may be made on the
Premises shall become the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the term.
13. ACCESS. Tenant shall permit Landlord and its agents to enter the
Premises at all reasonable times for the purpose of inspecting, cleaning,
repairing, altering or improving the Premises or the Building. Nothing contained
in this Section 13 shall be deemed to impose any obligation upon Landlord not
expressly stated elsewhere in this Lease. Landlord may temporarily close any
portion of the Building or Project without liability to Tenant by reason of such
closure, and such closure shall not constitute an eviction of Tenant or release
Tenant from any Rent or other obligations hereunder, provided that the Landlord
does not preclude Tenant's access to the premises and such closure does not
materially interfere with Tenant's use and occupancy of the premises. Landlord
shall have the right to enter the Premises for the purpose of showing the
Premises to prospective purchasers or mortgagees at all reasonable times.
Landlord shall have the right to enter the Premises for the purpose of showing
the Premises to prospective tenants within the period of one hundred eighty
(180) days prior to the expiration or sooner termination of the Lease term.
14. DAMAGE OR DESTRUCTION.
(a) Damage and Repair. If the Building is damaged by fire or any
other cause to such extent that the cost of restoration, as reasonably estimated
by Landlord, will equal or exceed thirty percent (30%) of the replacement value
of the Building, or if insurance proceeds sufficient for restoration are for any
reason unavailable, then Landlord may, no later than the sixtieth day following
the damage, give Tenant a notice of Landlord's election to terminate this Lease.
In the event of such election this Lease shall be deemed to terminate on the
third day after the giving of such notice, Tenant shall surrender possession of
the Premises within a reasonable time thereafter, the Rent and Additional Rent
shall be apportioned as of the date of Tenant's surrender and any Rent paid for
any period beyond such date shall be repaid to Tenant. If the cost of
restoration as estimated by Landlord shall amount to less than thirty percent
(30%) of said replacement value of the Building and insurance proceeds
sufficient for restoration are available, or if Landlord does not elect to
terminate this lease, Landlord shall restore the Building and the Premises (to
the extent of the improvement of the Premises originally provided by Landlord
hereunder) with reasonable promptness, subject to delays beyond Landlord's
control and delays in the making of insurance adjustments by Landlord. To the
extent that the Premises are rendered untenantable, the Rent shall
proportionately abate, except in the event such damage resulted from the willful
or intentional act or omission of Tenant, in which event Rent shall abate only
to the extent Landlord receives proceeds from any rental income insurance policy
to compensate Landlord for loss of Rent hereunder.
(b) Destruction During Last Year of Term. In case the Building
shall be substantially destroyed by fire or other cause at any time during the
last Lease Year of this Lease, Landlord may terminate this Lease upon written
notice to Tenant if given within sixty (60) days of the date of such
destruction.
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(c) Business Interruption. No damages, compensation or claim
shall be payable by Landlord for inconvenience, loss of business or annoyance
arising from any repair or restoration of any portion of the Premises, the
Building or the Project. Landlord shall use its best efforts to effect such
repairs promptly.
(d) Tenant Improvements. Landlord will not carry insurance of any
kind on any improvements paid for by Tenant as provided in Exhibit C or on
Tenant's furniture, furnishings, fixtures, equipment or appurtenances of Tenant
under this Lease and Landlord shall not be obligated to repair any damage
thereto or replace the same.
15. CONDEMNATION.
(a) Taking. If all of the Premises or such portions of the
Building or Project as may be required for the reasonable use of the Premises
are taken by eminent domain, this Lease shall automatically terminate as of the
date title vests in the condemning authority. In the event of a taking of a
material part, but less than all, of the Building or Project, where Landlord
shall determine that the remaining portions of the Building or Project cannot be
economically and effectively used by it (whether on account of physical,
economic, aesthetic or other reasons) or where Landlord determines the Building
should be restored in such a way as to materially alter the Premises, Landlord
shall forward a written notice to Tenant of such determination not more than
sixty (60) days after the date of taking. The term of this Lease shall expire
upon such date as Landlord shall specify in such notice but not earlier than
sixty (60) days after the date of such notice. In case of taking of a part of
the Premises, or a portion of the Building or Project not required for the
reasonable use of the Premises, then this Lease shall continue in full force and
effect and the Rent shall be equitably reduced based on the proportion by which
the floor area of the Premises is reduced; however, if the floor area of the
premises is reduced by more than five percent (5%), Tenant may terminate this
Lease upon thirty (30) days notice to Landlord.
(b) Awards and Damages. Landlord reserves all rights to damages
to the Premises for any partial, constructive, or entire taking by eminent
domain, and Tenant hereby assigns to Landlord any right Tenant may have to such
damages or award, and Tenant shall make no claim against Landlord or the
condemning authority for damages for termination of the leasehold interest or
interference with Tenant's business. Tenant shall have the right, however, to
claim and recover from the condemning authority compensation for any loss to
which Tenant may be put for Tenant's moving expenses, business interruption or
taking of Tenant's personal property (not including Tenant's leasehold interest)
provided that such damages may be claimed only if they are awarded separately in
the eminent domain proceedings and not out of or as part of the damages
recoverable by Landlord.
16. INDEMNIFICATION.
(a) Indemnity. Subject to provisions of section 16.c, Tenant
shall indemnify, defend and hold Landlord harmless from and against all loss,
cost and expense, including attorneys fees, arising from any act, omission, or
negligence of Tenant or its officers, contractors, licensees, agents, servants,
employees, guests, invitees, or visitors in or about the Premises or Project, or
arising from any injury or damage to any person or
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property, occurring in or about the Premises or Project as a result of any act,
omission or negligence of Tenant, or its officers, contractors, licensees,
agents, employees, guests, or visitors or arising from any breach or default
under this Lease by Tenant. The foregoing provisions shall not be construed to
make Tenant responsible for loss, damage, liability or expense resulting from
injuries to third parties caused solely by the gross negligence of Landlord, or
its officers, contractors, licensees, agents, employees, invitees or other
tenant of the Project.
(b) Exemption of Landlord From Liability. As a material part of
the consideration to Landlord, Tenant hereby agrees that, notwithstanding
anything to the contrary in Section 16(a) above, Landlord shall in no event be
liable for injury to Tenant's business or assets or any loss of income therefrom
or for damage to Tenant's employees, invitees, customers, or any other person in
or about the Premises, whether such damage, loss or injury results from
conditions arising upon the Premises or upon other portions of the Project of
which Premises are a part (including, without limitation, damage caused by the
Project or any portion thereof or a appurtenance thereto being out of repair, or
the bursting, leakage of any water, gas, sewer or steam pipe), or from other
sources or places, and regardless of whether the cause of such damage, loss or
injury or the means of repairing the same is inaccessible to Tenant. Tenant
further agrees that notwithstanding anything to the contrary in Section 16(a)
above, Landlord shall in no event be liable for any injury or damage to any
person or property of Tenant, Tenant's employees, invitees, customers, agents or
contractors caused by theft or arising from any act, omission or neglect of any
tenant or occupant of the Project or any other third person.
(c) Waiver of Subrogation. Each party agrees to use commercially
reasonable efforts to cause its insurance carriers to consent to a waiver of
rights of subrogation against the other party. If such waiver shall be
obtainable only at a premium over that chargeable without such a waiver, the
party seeking such policy shall notify the other and the party in whose favor
the waiver is desired shall pay the additional premium. Each party shall look
first to any insurance in its favor before making claim against the other party.
Whether the loss or damage is due to the negligence of either Landlord or
Tenant, their agents or employees, or any other cause, Landlord and Tenant do
each hereby release and relieve the other, their agents or employees, from
responsibility for, and waive their entire claim of recovery for (i) any loss or
damage to the real or personal property of either located anywhere in the
Project, including the Project itself, arising out of or incident to the
occurrence of any of the perils which are covered by their respective property
and related insurance policies, and (ii) any loss resulting from business
interruption at the Premises or loss of rental income from the Project, arising
out of or incident to the occurrence of any of the perils which may be covered
by any business interruption insurance policy or by any loss of rental income
insurance policy held by Landlord or Tenant, to the extent to which it is
covered, or is required under the provisions of this Lease to be covered by a
policy or policies containing a waiver of subrogation or permission to release
liability.
17. HAZARDOUS SUBSTANCES.
Tenant shall not dispose of or otherwise allow the release of any
hazardous waste or materials in, on or under the Premises, the Project or any
adjacent property, except for
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normal office products used and disposed of in accordance with applicable laws.
Tenant represents and warrants to Landlord that Tenant's intended use of the
Premises does not involve the use, production, disposal or bringing on to the
Premises or the Project of any hazardous waste or materials, except for normal
office products used and disposed of in accordance with applicable laws. As used
herein, the term "hazardous waste or materials" means any material or substance
that, as of the date of this Agreement, is defined or classified under federal,
state, or local laws as: (a) a "hazardous substance" pursuant to section 101 of
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601(4), section 311 of the Federal Water Pollution Control Act,
33 U.S.C. Section 1321; (b) a "hazardous waste" pursuant to section 1004 or
section 3001 of the Resource Conservation and Recovery Act, 42 U.S.C. sections
6903,6921; (c) a toxic pollutant under section 307(a)(1) of the Federal Water
Pollution Control Act, 33 U.S.C. Section 1317(a)(1); (d) a "hazardous air
pollutant" under section 112 of the Clean Air Act, 42 U.S.C. Section 7412; (e) a
"hazardous Material" under the Hazardous Materials Transportation Uniform Safety
Act of 1990, 49 U.S.C. App. Section 1802(4); (f) toxic or hazardous pursuant to
regulations promulgated under the aforementioned laws; or (g) presenting a risk
to the environment under other applicable federal, state, or local laws,
ordinances, or regulations. "Hazardous Substances" specifically include, but is
not limited to, asbestos, polychlorinated biphenyls ("PCBs"), petroleum and
petroleum-based derivatives, and urea formaldehyde. Tenant shall promptly comply
with all applicable laws and with all orders, decrees or judgments of
governmental authorities or courts having jurisdiction relating to hazardous
waste or materials.
Tenant agrees to indemnify, defend and hold harmless Landlord against
any and all loss, cost and expense (including, without limitation, consultants'
fees, attorneys' fees and disbursements) which may be imposed on, incurred or
paid by, or asserted against Landlord or the Premises or the Project by reason
of, or in connection with (i) any misrepresentation, breach of warranty or other
default by Tenant under this Lease, or (ii) the acts or omissions by Tenant
under this Lease, or (iii) the acts or omissions of Tenant, or any sublessee or
other person for whom Tenant would otherwise be liable, resulting in the release
of any hazardous waste or materials.
18. INSURANCE.
(a) Required Policies. Tenant shall, throughout the term of this
Lease and any renewal hereof, at its own expense, keep and maintain in full
force and effect: (i) a policy of commercial liability insurance including a
contractual liability endorsement covering Tenant's obligations under Section 16
and 17, with a limit of not less than One Million Dollars ($1,000,000) combined
single limit (the limits of said insurance shall not, however, limit the
liability of Tenant hereunder); and (ii) what is commonly referred to as "all
risk" coverage insurance (but excluding earthquake and flood) on Tenant's
leasehold improvements in an amount not less than the current One Hundred
Percent (100%) replacement value thereof; and (iii) business interruption
insurance in an amount sufficient to cover costs, expenses, costs due hereunder,
damages and lost income should the Premises not be fully usable for a period of
up to 6 months. Such policy shall name Landlord as an additional insured and
shall contain a provision or endorsement providing that the insurance afforded
by such policy for the benefit of Landlord shall be primary as respects any
claims, losses or liabilities arising out of the use of the Premises or the
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Building or the Common Areas by the Tenant or by tenant's operation and that any
insurance carried by Landlord shall be excess and non-contributing.
(b) Insurance Policy Requirements. Insurance policies required
hereunder shall be issued by companies which are currently rated AXII or better
in "Best's Insurance Guide." No insurance policy required under this Section 18
shall be canceled or reduced in coverage and each insurance policy shall provide
that it is not subject to cancellation or a reduction in coverage except after
thirty (30) days prior written notice to Landlord.
Tenant shall deliver to Landlord upon the Commencement Date and from time
to time thereafter, copies of policies of such insurance or certificates
evidencing the existence and amounts of same containing loss payable clauses
satisfactorily to Landlord and naming Landlord as Additional Insured thereunder.
(c) Landlord's Insurance. Landlord agrees to acquire, maintain
and pay for, during the full term of this Lease, "all risk" property damage
insurance against such risks and hazards as are customarily insured against by
others similarly situated and operating like properties, but excluding
earthquake and flood, covering the Building, including the Premises for such
amounts and upon such terms as would a prudent owner of such property similar to
and in the general area of the Building, and shall name Tenant as an additional
insured thereon. Such insurance shall be acquired from a company authorized to
do business in the State of Washington and rated as AXII or better in "Best's
Insurance Guide." Upon request by Tenant, Landlord shall notify Tenant of the
amount and type of insurance carried by Landlord pursuant to this section.
19. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign, mortgage, encumber or otherwise
transfer this Lease or sublet the whole or any part of the Premises without in
each case first obtaining Landlord's prior written consent, which Landlord may
not unreasonably withhold. Without limiting the foregoing, Landlord may withhold
its consent if in Landlord's judgment occupancy by any proposed assignee,
subtenant or other transferee: (i) is not consistent with the maintenance and
operation of a first-class suburban office building due to the proposed
occupant's nature or manner of conducting business or its experience or
reputation in the community, or (ii) is likely to cause disturbance to the
normal use and occupancy of the Building or Project by other tenants, their
employees, customers, clients or other guests or visitors. Landlord may withhold
in its absolute and sole discretion, consent to any mortgage, hypothecation,
pledge or other encumbrance of any interest in this Lease by Tenant or any
subtenant, whereby this Lease or any interest therein becomes collateral for any
obligation of Tenant or any other person.
(b) In the event Tenant should desire to assign this Lease or
sublet the Premises or any part hereof, Tenant shall give Landlord written
notice at least forty five (45) days in advance of the date on which Tenant
desires to make such assignment or sublease, which notice shall specify, (i) the
name and business of the proposed assignee or sublessee, (ii) the amount and
location of the space affected, (iii) the proposed effective date and duration
of the subletting or assignment, and (iv) the proposed rental to be paid to
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Tenant by such sublessee or assignee. Landlord shall then have a period of
twenty (20) days following receipt of such notice within which to notify Tenant
in writing that Landlord elects either (1) to terminate this Lease as to the
space so affected as of the date so specified by Tenant and reclaim that portion
of the Premises (in which event Landlord may enter into a lease with any such
proposed subtenant or assignee upon the rent and terms agreed to by each
subtenant or assignee or on such other terms as may be agreed upon by Landlord
and such subtenant or assignee) or, (2) to permit Tenant to assign or sublet
such space, in which event if the proposed rental rate between Tenant and
sublessee is greater than the rental rate of this Lease, then such excess rental
to be deemed additional rent owed by Tenant to Landlord under this Lease, and
the amount of such excess, including any subsequent increases due to escalation
or otherwise, to be paid by Tenant to Landlord in the same manner that Tenant
pays the rental hereunder and in addition thereto, or (3) to withhold consent to
Tenant's assignment or subleasing such space and to continue this Lease in full
force and effect as to the entire Premises.
(c) Except as provided above, no assignment, subletting or other
transfer shall relieve Tenant of any liability under this Lease. Consent to any
such assignment, subletting or transfer shall not operate as a waiver of the
necessity for consent to any subsequent assignment, subletting or transfer. In
connection with each request for an assignment or subletting, Tenant shall pay
the reasonable cost of processing such assignment or subletting, including
attorneys fees, upon demand of Landlord. Tenant shall provide Landlord with
copies of all assignments, subleases and assumption instruments. If Tenant is a
corporation or partnership, any transfer of a controlling ownership interest in
Tenant or any transfer of this Lease by merger, consolidation or liquidation,
shall be deemed an assignment under this Section 19. Any assignee or subtenant
shall assume all of Tenant's obligations under this Lease and be jointly and
severally liable with Tenant hereunder.
20. LIENS AND INSOLVENCY.
(a) Liens. Tenant shall keep its interest in this Lease and any
Property of Tenant (other than unattached personal property) and the Premises,
and the Project free from any liens arising out of any work performed or
materials ordered or obligations incurred by or on behalf of Tenant and hereby
indemnifies and holds Landlord harmless from any liability from any such lien.
In the event any lien is filed against the Premises, the Project or any portion
thereof by any person claiming by, through or under Tenant, Tenant shall, upon
request of Landlord, at Tenant's expense, immediately either cause such lien to
be released of record or furnish to Landlord a bond in form and amount and
issued by a surety satisfactory to Landlord, indemnifying Landlord, and the
Project against all liability, costs and expenses, including attorneys fees,
which Landlord may incur as a result thereof. Provided that such bond has been
furnished to Landlord, Tenant, at its sole cost and expense and after written
notice to Landlord, may contest, by appropriate proceedings conducted in good
faith and with due diligence, any lien, encumbrance or charge against the
Premises arising from work done or materials provided to and for Tenant, if, and
only if, such proceedings suspend the collection thereof against Landlord,
Tenant and the Premises and neither the Premises, nor the Project, nor any part
thereof or interest therein is or will be in any danger of being sold, forfeited
or lost.
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(b) Insolvency. If Tenant becomes insolvent or voluntarily or
involuntarily bankrupt, or if a receiver, assignee or other liquidating officer
is appointed for the business of tenant, Landlord at its option may terminate
this Lease and Tenant's right of possession under this Lease and in no event
shall this Lease or any rights or privileges hereunder be an asset of Tenant in
any bankruptcy, insolvency or reorganization proceeding.
21. DEFAULT.
(a) Default By Tenant. The occurrence of any one or more of the
following events shall constitute a material default and breach of this Lease by
Tenant: (i) the abandonment of the Premises by Tenant or the vacating of the
Premises for more than thirty (30) consecutive days; (ii) the failure by Tenant
to make any payment of Rent or any other payment required to be made by Tenant
hereunder, within five (5) days of date due; (iii) the failure by Tenant to
observe or perform any of the other covenants, conditions or provisions of the
Lease, where such failure shall continue for a period of twenty (20) days;
provided, however, if more than twenty (20) days are reasonably required for its
cure then Tenant shall not be deemed to be in default if Tenant commences such
cure within said 20-day period and thereafter diligently prosecutes such cure to
completion; (iv) the making by Tenant of any general assignment or general
arrangement for the benefit of creditors; (v) the filing by or against Tenant of
a petition to have Tenant adjudged bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
(vi) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in the Lease, where possession is not restored to Tenant within thirty
(30) days; or (vii) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. The above notice periods may, at the election of Landlord, run
concurrently with any statutorily required notice periods.
(b) Remedies Cumulative; Injunction. All rights and remedies of
Landlord herein enumerated shall be cumulative, and none shall exclude any other
right or remedy allowed by law or in equity. In addition to the other remedies
in this Lease provided, Landlord shall be entitled to restrain by injunction the
violation or attempted violation of any of the covenants, agreements or
conditions of this Lease.
(c) Landlord's Remedies Upon Tenant Default. Upon an uncured
default of this Lease by Tenant, Landlord, besides other rights or remedies it
may have, at its option, may enter the Premises or any part thereof, either with
or without process of law, and expel, remove or put out Tenant or any other
persons who may be thereon, together with all personal property found therein.
No such reentry shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention is given to
Tenant. Landlord may terminate this Lease, or it may from time to time, without
terminating this Lease and as agent of Tenant, relet the Premises or any part
thereof for such term or terms (which may be for a term less than or extending
beyond the term hereof) and at such rental or rentals and upon such other terms
and conditions as Landlord in its sole discretion may deem advisable, with the
right to repair, renovate, remodel, redecorate, alter and change the Premises,
Tenant remaining liable for any deficiency computed as
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hereinafter set forth. In the case of any default, re-entry and/or
dispossession, by summary proceedings or otherwise, all Rent and Additional Rent
shall become due thereupon and be paid up to the time of such re-entry or
dispossession, together with such expenses as Landlord may reasonably incur for
attorneys fees, advertising expenses, brokerage fees and/or putting the Premises
in good order or preparing the same for re-rental, together with interest
thereon as provided in Section 30(q) hereof, accruing from the date of any such
expenditure by Landlord.
At the option of Landlord, rents received by Landlord from such
reletting shall be applied first to the payment of any indebtedness from Tenant
to Landlord other than Rent and Additional Rent due hereunder; second, to the
payment of any costs and expenses of such reletting and including, but not
limited to, attorneys fees, advertising fees and brokerage fees, and to the
payment of any repairs, renovations, remodeling, redecoration, alterations, and
changes in the Premises; third, to the payment of Rent and Additional Rent due
and to become due hereunder, and if after so applying said Rents there is any
deficiency in the Rent or Additional Rent to be paid by Tenant under this Lease,
Tenant shall pay any deficiency to Landlord monthly on the dates specified
herein and any payment made or suits brought to collect the amount of the
deficiency for any month shall not prejudice in any way the right of Landlord to
collect the deficiency for any subsequent month. The failure or refusal of
Landlord to relet the Premises or any part or parts thereof shall not release or
affect Tenant's liability hereunder, nor shall Landlord be liable for failure to
relet, or in the event of reletting, for failure to collect the Rent thereof,
and in no event shall Tenant be entitled to receive any excess of net Rents
collected over sums payable by Tenant to Landlord hereunder, however, Landlord
shall have the obligation to exert reasonable efforts to mitigate damages,
provided that Landlord shall not be required to relet the Premises prior to
leasing any other space owned by the Landlord, or its affiliates, within a one
mile radius. No such re-entry or taking possession of the Premises shall be
construed as an election on Landlord's part to terminate this Lease unless a
written notice of such intention be given to Tenant. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach and default. Should Landlord at
any time terminate this Lease by reason of any default, in addition to any other
remedy it may have, it may recover from Tenant the present value, using a ten
percent (10%) discount rate, of the amount of Rent and Additional Rent reserved
in this Lease for the balance of the Term, as it may have been extended, less
the amount that Tenant proves could be collected for the remainder of the Term,
plus all court costs and attorneys fees incurred by Landlord in the collection
of the same.
Tenant acknowledges that certain benefits or concessions provided by
Landlord are conditioned upon Tenant's timely, full and faithful performance of
each and every obligation, covenant, representation and warranty of this Lease
throughout the entire term of this Lease, even though such benefits or
concessions may be realized by Tenant over less than the entire term of this
Lease. Accordingly, notwithstanding anything to the contrary contained herein,
in the event Landlord brings an action against Tenant for default under this
Lease which results in a termination of this Lease and eviction of Tenant,
Landlord shall become immediately entitled to receive from Tenant as Additional
Rent the amount of all such benefits and concessions allocable to the balance of
the Lease term on a pro rata basis, i.e. an amount equal to the product of (x)
the sum of (a) any amounts
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theretofore or thereafter paid by Landlord to Tenant or to any third party, or
any amounts credited to Tenant or to any third party, for or on account of (i)
any moving, tenant improvement, decorating or other allowance or credit granted
to Tenant but only to the extent such tenant improvements are demolished for the
next occupant of the premises, (ii) any real estate commission paid on account
of this Lease, and (iii) any expenses or costs related to assumption by Landlord
of any other lease, plus (b) an amount equal to the difference between the rent
as specified in Section 4 above and rent for any period for which this Lease
provides any lesser amount including zero or nominal rent, including for any
period of early occupancy of the Premises prior to the commencement of the term
of this Lease, plus (c) the amount spent by Landlord for any tenant improvements
to the Premises but only to the extent such tenant improvements are demolished
for the next occupant of the premises; multiplied by (y) a fraction, the
numerator of which is the number of days of the term of this Lease remaining
between the date of default and the expiration of the term of this Lease, and
the denominator of which is the total number of days of the term of this Lease.
By way of example, if Tenant receives a moving allowance of $1,000, the Lease
term is 3 years (1,095 days) and a default occurs at the end of the first year
such that there were 2 years (730 days) remaining, the Tenant shall pay as
additional rent the sum of $666.67, which is computed as follows:
($1,000 x 730)/1,095 = $666.67.
(d) Waiver of Redemption Rights. Tenant, for itself, and on
behalf of any and all persons claiming through or under it, including creditors
of all kinds, does hereby waive and surrender all right and privilege which they
or any of them might have under or by reason of any present or future law, to
redeem the Premises or to have a continuance of this Lease for the term hereof,
as it may have been extended, after having been dispossessed or ejected
therefrom by process of law or under the terms of this Lease or after the
termination of this Lease as herein provided.
(e) Nonpayment of Additional Rent. All costs and expenses which
Tenant assumes or agrees to pay to Landlord pursuant to this Lease shall be
deemed Additional Rent and, in the event of nonpayment thereof, Landlord shall
have all the rights and remedies herein provided for in case of nonpayment of
Rent.
(f) Interest. All past due Rent shall bear interest at the rate
of 15% per annum.
22. PRIORITY.
(a) Subordination of Lease. This Lease shall be subordinate to
any mortgage or deed of trust now existing or hereafter placed upon the Premises
or the Project or any portion thereof containing the Premises, created by or at
the instance of Landlord, and to any and all advances to be made thereunder and
to interest thereon and all modifications, renewals and replacements or
extensions thereof ("Landlord's Mortgage") provided however, that the holder of
any Landlord's Mortgage or any person or persons purchasing or otherwise
acquiring the Premises, the Project or any portion thereof containing the
Premises at any sale or other proceeding under any Landlord's Mortgage may elect
to continue this Lease in full force and effect; and in such event, Tenant shall
attorn to such person or persons. Tenant shall properly execute, acknowledge and
deliver documents which the holder of any Landlord's Mortgage may require to
effectuate the
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provisions of this Section 22 within five (5) days after Landlord's request. Not
withstanding the above, Landlord shall use commercially reasonable efforts to
cause any holder of Landlord's mortgage to enter into a Nondisturbance Agreement
with Tenant which shall provide in essence that upon any foreclosure of any
mortgage or deed of trust by such holder of Landlord's mortgage, that such
holder will not disturb Tenant's rights pursuant to this Lease, so long as
Tenant is not in default pursuant to the provisions of this Lease.
23. ESTOPPEL CERTIFICATES.
(a) Delivery of Estoppel. Tenant shall, from time to time, upon
written request of Landlord, execute, acknowledge and deliver to Landlord or its
designee a written statement stating: The date this Lease was executed and the
date it expires; the date the term commenced and the date Tenant accepted the
Premises; the amount of Basic Rent and the amount of Additional Rent currently
being paid towards increases in Operating Costs, and the date to which such Rent
has been paid; and certifying: (i) whether this Lease is in full force and
effect and has not been assigned or amended in any way (or specifying the date
and terms of agreement so affecting this Lease); (ii) whether this Lease
represents the entire agreement between the parties as to this leasing; that all
obligations under this Lease to be performed by the Landlord have been satisfied
or specifying those that have not been satisfied; (iii) whether on this date
there are no existing claims, defenses or offsets which the Tenant has against
the enforcement of this Lease by the Landlord; (iv) whether no Rent has been
paid more than one month in advance; and that no security has been deposited
with Landlord (or, if so, the amount thereof); and (v) such other items as
Landlord shall reasonably request. It is intended that any such statement
delivered pursuant to this Section may be relied upon by a prospective purchaser
of Landlord's interest or holder of any mortgage upon Landlord's interest in the
Building or the Project.
(b) Failure to Deliver Estoppel. If Tenant shall fail to respond
within ten (10) days of receipt by Tenant of a written request by Landlord as
herein provided, Tenant shall be deemed to have given such certificate as above
provided without modification and shall be deemed to have admitted the accuracy
of any information supplied by Landlord to a prospective purchaser or mortgagee
and to have certified that this Lease is in full force and effect, that there
are no uncured defaults in Landlord's performance, that the security deposit is
as stated in the Lease, and that not more than one month's Rent has been paid in
advance.
24. SURRENDER OF POSSESSION. Subject to the terms of Section 14 relating
to damage and destruction, upon expiration of the term of this Lease, whether by
lapse of time or otherwise, Tenant shall promptly and peacefully surrender the
Premises to Landlord "broom-clean" and in as good condition as when received by
Tenant from Landlord or as thereafter improved, damage thereto from causes
beyond the reasonable control of Tenant, ordinary wear and tear and damage by
fire or casualty not intentionally caused by Tenant excepted. Tenant shall
remove all of its personal property and trade fixtures from the Premises and the
Project at the expiration of the term and repair any damage caused by such
removal; any property not so removed shall be deemed abandoned and may be sold
or otherwise disposed of as Landlord deems advisable.
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25. NON-WAIVER. Waiver by Landlord of any term, covenant or condition
herein contained or any breach thereof shall not be deemed to be a waiver of
such term, covenant, or condition or of any subsequent breach of the same or any
other term, covenant, or condition herein contained. The subsequent acceptance
of Rent or Additional Rent hereunder by Landlord shall not be deemed to be a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease, other than the failure of Tenant to pay the particular Rent or
Additional Rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent or Additional Rent.
26. HOLDOVER. If Tenant remains in possession of the Premises or any
part thereof after the expiration of the term of this Lease with the express
written consent of Landlord, such occupancy shall be a tenancy from
month-to-month at a rental in the amount equal to one and one-half (1-1/2) times
the last monthly rental plus all other charges payable under this Lease, and
subject to all of the terms, covenants and conditions of this Lease applicable
to a month-to-month tenancy. Tenant acknowledges and agrees that this Section 26
does not grant any right to Tenant to holdover.
27. LANDLORD'S LIABILITY. Anything in this Lease to the contrary
notwithstanding, covenants, undertakings and agreements herein made on the part
of Landlord are made and intended not as personal covenants, undertakings and
agreements for the purpose of binding Landlord personally or the assets of
Landlord except Landlord's interest in the Premises and Building, but are made
and intended for the purpose of binding only the Landlord's interest in the
Premises and Building, as the same may from time to time be encumbered. No
personal liability or personal responsibility is assumed by, nor shall at any
time be asserted or enforceable against Landlord or its partners or their
respective heirs, legal representatives, successors or assigns on account of the
Lease or on account of any covenant, undertaking or agreement of Landlord in
this Lease contained.
28. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
Landlord's interest in the Premises or in the Building, the transferor shall be
automatically relieved of any and all obligations and liabilities on the part of
Landlord accruing from and after the date of such transfer and such transferee
shall have no obligation or liability with respect to any matter occurring or
arising prior to the date of such transfer. Tenant agrees to attorn to the
transferee.
29. RIGHT TO PERFORM. If Tenant shall fail to pay any sum of money
required to be paid by it hereunder or shall fail to perform any other act on
its part to be performed hereunder, and such failure shall continue for ten (10)
days after notice thereof by Landlord, Landlord may, but shall not be obligated
so to do, and without waiving or releasing Tenant from any obligations of
Tenant, make such payment or perform any such other act on Tenant's part to be
made or performed as provided in this Lease. Landlord shall have (in addition to
any other right or remedy of Landlord) the same rights and remedies in the event
of the nonpayment of sums due under this Section 29 as in the case of default by
Tenant in the payment of Rent.
30. GENERAL.
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(a) Headings. Titles to Sections of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part hereof.
(b) Heirs and Assigns. All of the covenants, agreements, terms
and conditions contained in this Lease shall inure to and be binding upon the
Landlord and Tenant and their respective heirs, executors, administrators,
successors and assigns.
(c) Authority. Each individual executing this Lease on behalf of
Tenant represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of Tenant, and that this Lease is binding upon
Tenant in accordance with its terms.
(d) No Brokers. Except as set forth in Section 1(q), Tenant
represents and warrants to Landlord that it has not engaged any broker, finder
or other person who would be entitled to any commission or fees in respect of
the negotiation, execution or delivery of this Lease and shall indemnify and
hold harmless Landlord against any loss, cost, liability or expense incurred by
Landlord as a result of any claim asserted by any such broker, finder or other
person on the basis of any arrangements or agreements made or alleged to have
been made by or on behalf of Tenant.
(e) Entire Agreement. This Lease is the final and complete
expression of Landlord and Tenant relating in any manner to the leasing, use and
occupancy of the Premises, to Tenant's use of the Project or portions thereof,
and other matters set forth in this Lease. No prior agreements or understanding
pertaining to the same shall be valid or of any force or effect and the
covenants and agreements of this Lease shall not be altered, modified or added
to except in writing signed by both Landlord and Tenant.
(f) Severability. 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 the remaining provisions hereof shall nevertheless
remain in full force and effect.
(g) Force Majeure. Except for the payment of Rent, Additional
Rent or other sums payable by Tenant to Landlord, time periods for Tenant's or
Landlord's performance under any provisions of this Lease shall be extended for
periods of time during which Tenant's or Landlord's performance is prevented due
to circumstances beyond Tenant's or Landlord's control, including without
limitation, strikes, unavailability or delay in obtaining fuel, labor or
materials, accidents, floods, defective materials, fire or other casualty,
adverse weather conditions, inability to obtain building or use and occupancy
certificates, embargoes, governmental regulations, acts of God, war or other
strife, or other causes similar or dissimilar.
(h) Notices. All notices under this Lease shall be in writing and
delivered in person or sent by registered or certified mail, postage prepaid, to
Landlord and to Tenant at the Addresses provided respectively in Section 1(e)
and 1(c) (provided that after the Commencement Date any such notice shall be
mailed or delivered by hand to Tenant at the Premises) and to the holder of any
mortgage or deed of trust at such place as such holder shall specify to Tenant
in writing; or such other addresses as may from time to time be
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designated by any such party in writing. Notices mailed as aforesaid shall be
deemed given on the date of such mailing.
(i) Costs and Attorneys Fees. If Tenant or Landlord shall bring
any action for any relief against the other, declaratory or otherwise, arising
out of this Lease, including any suit by Landlord for the recovery of Rent,
Additional Rent or other payments hereunder or possession of the Premises each
party shall, and hereby does, to the extent permitted by law, waive trial by
jury and the losing party shall pay the prevailing party a reasonable sum for
attorneys fees in such suit, at trial and on appeal, and such attorneys fees
shall be deemed to have accrued on the commencement of such action.
(j) Governing Law. This Lease shall be governed by and construed
in accordance with the internal laws of the state of Washington.
(k) Recording. Tenant shall not record this Lease or a memorandum
hereof without Landlord's prior written consent and such recordation shall, at
the option of Landlord, constitute a non-curable default of Tenant hereunder.
(1) Waivers. No waiver by Landlord of any provision hereof shall
be deemed 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 shall not be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act by Tenant. The acceptance of rent
hereunder by Landlord shall not be a waiver of any preceding breach at the time
of acceptance of such rent.
(m) Time of Essence. Time is of the essence for the performance
of all of the obligations specified hereunder.
(n) Merger. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at
the option of Landlord, terminate all or any existing subtenancies or may, at
the option of Landlord, operate as an assignment to Landlord of any or all of
such subtenancies.
(o) Right to Change Public Spaces. Landlord shall have the right
at any time, without thereby creating an actual or constructive eviction or
incurring any liability to tenant therefor, to change the arrangement or
location of such of the following as are not contained within the Premises or
any part thereof: entrances, passageways, doors and doorways, corridors, stairs,
toilets and other like public service portions of the Building. Nevertheless, in
no event shall Landlord diminish any service, change the arrangement or location
of the elevators serving the Premises, make any change which shall diminish the
area of the Premises, or make any change which shall change the character of the
Building from that of a first-class office building.
(p) Name. The Building and the Project will be known by such name
as Landlord may designate from time to time. Landlord reserves the right to name
and rename the Building and/or the Project from time to time and to install
signs accordingly, without compensation or prior notice to Tenant.
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(q) Overdue Payments. Any Rent, Additional Rent or other sums
payable by Tenant to Landlord under this Lease which shall not be paid when due
thereof, shall bear interest at a rate equal to fifteen percent (15%),
calculated from the original due date thereof to the date of payment. Any late
payment of Rent (i.e. Not paid within five (5) days when due) shall also be
subject to a collection fee equal to the greater of $100.00 or five percent (5%)
of the amount due.
(r) Relocation of Premises. During the term of the Lease Landlord
may relocate the Tenant's Premises within the Project. Said relocation shall be
at the total cost and expense of Landlord. In the event Landlord so elects to
relocate Tenant, Landlord shall notify Tenant, specifying the relocation space
to Tenant. Tenant shall have fifteen (15) days from the receipt of said notice
to alert to accept said relocation. In the event that the relocation proposal is
accepted by Tenant, Landlord and Tenant shall revise the Tenant's Lease to
reflect the new space. Upon such relocation, such new space shall be deemed the
Premises hereunder for all purposes and the Lease shall be deemed amended to
that effect without further formality. Rental rates for the new space shall be
the same as those agreed to in the original Lease Agreement, subject to
adjustment for additional space, or less space, as agreed to by the parties. All
other terms and conditions of the original Lease shall remain in full force and
effect. In the event that Tenant elects not to accept the relocation of its
Premises, Tenant shall so notify Landlord in writing. Landlord shall then have
the option for thirty (30) days to terminate Tenant's Lease, or to allow Tenant
to remain in its present Premises.
If Tenant accepts such relocation, the following conditions will apply:
(i) Landlord will bear all costs and expenses resulting from the move, including
but not limited to
- replace or relocate communication, computer and phone connections
- reprint letterhead, cards and forms
- move building signage
- move furniture, equipment, partitions, etc.
(ii) Landlord will provide comparable space, to include:
- similar linear feet of window line
- similar functional layout and flow
- similar quantity and quality of improvements
(iii) A rental credit of $55,000 will be provided by Landlord for the next rent
due under the Lease and (iv) the move will occur during periods between Friday
5:00 PM and Monday 6:00 AM.
(s) Advertising. Tenant shall not inscribe any inscription, or
post, place or in any manner display any sign, notice, picture, placard or
poster, or any advertising matter whatsoever in or about the Premises or the
Building or the Project at places visible (either directly or indirectly as an
outline or shadow on a glass pane) from anywhere outside the Premises without
first obtaining Landlord's written consent thereto. Any such consent by Landlord
shall be upon the understanding and condition that Tenant will remove the same
at the expiration or sooner termination of this Lease and Tenant shall repair
any damage to the Premises, the Building or the Project caused thereby.
24
<PAGE> 30
(t) Parking. Parking shall at all times be governed by reasonable
rules and regulations as set forth in Exhibit D, which shall be published from
time to time by Landlord. Parking may be on a reserved stall and/or undesignated
stall--"window sticker" basis, and may be self-service and/or attendant service,
as determined from time to time by Landlord. Tenant shall have the right to use
that number of parking stalls as set forth in Section 1(p).
(u) Execution of Lease by Landlord. The submission of this
document for examination and negotiation does not constitute an offer to lease,
or a reservation of, or option for the Premises, and this document shall become
effective and binding only upon execution and delivery by Landlord. No act or
omission of any employee or agent of Landlord or of Landlord's broker shall
alter, change or modify any of the provisions hereof.
31. LANDLORD'S COVENANTS.
(a) Quiet Enjoyment. Tenant shall have the right to the peaceable
and quiet use and enjoyment of the Premises, subject to the provisions of this
Lease, so long as Tenant is not in default hereunder.
(b) Hazardous Waste or Materials. Landlord represents to Tenant
that to the best of Landlord's actual knowledge no hazardous waste or materials
have been generated, stored or disposed of by Landlord on the land or in or on
the Building, other than in compliance with applicable laws.
(c) Rentable Square Feet. Landlord warrants that the rentable
square feet of the Project is 69,596 square feet, and the rentable square feet
of the Premises is 12,205 square feet. Landlord further warrants that such
square feet have been calculated in accordance with BOMA Standards (1996
version).
32. GUARANTY OF LEASE. In order to induce Landlord to execute this
Lease, Tenant has agreed to deliver to Landlord a Guaranty of Lease, in the form
attached hereto as Exhibit E, from William T. Baxter, Albert T. Dosser and Peter
R. Gregory.
25
<PAGE> 31
IN WITNESS WHEREOF this Lease has been executed the day and year first
above set forth.
LANDLORD: SEATTLE OFFICE ASSOCIATES L.L.C.
a Washington Limited Liability company
By /s/ P. LANGSTON SLIGH JR.
-------------------------------
Its Member
-----------------------------
TENANT: bsquare consulting, inc.
a Washington Corporation
By /s/ WILLIAM T. BAXTER
-------------------------------
Its President & CEO
-----------------------------
26
<PAGE> 32
LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
) SS
COUNTY OF KING )
I certify that I know or have satisfactory evidence that P. Langston
Sligh Jr is the person who appeared before me, and said person acknowledged that
said person signed this instrument, on oath stated that said person was
authorized to execute the instrument and acknowledged it as a managing member of
Seattle Office Associates, a limited liability company, to be the free and
voluntary act of such limited liability company for the uses and purposes
mentioned in the instrument.
Dated this 15th day of November, 1996
/s/ [Illegible Signature]
------------------------------------
Notary Public, in and for state of Washington,
residing at Kirkland WA
My appointment expires 8/29/00
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) SS
COUNTY OF KING )
I certify that I know or have satisfactory evidence that William T.
Baxter is the person who appeared before me, and said persons acknowledged
that they signed this instrument, on oath stated that they were authorized to
execute the instrument and acknowledged it as the President and CEO of a
corporation, to be the free and voluntary act of such corporation for the uses
and purposes mentioned in the instrument.
Dated this 15th day of November, 1996
Notary Public and for state of Washington,
residing at Kirkland WA
My appointment expires 8/29/00
27
<PAGE> 33
EXHIBIT A
LEGAL DESCRIPTION OF LAND
That portion of the northeast quarter of the southwest quarter of Section 10,
Township 24 North, Range 5 East, W.M., in King County, Washington, lying
southerly of the south line of the frontage road right-of-way known as S.E. 36th
Street on the south side of primary State Highway No. 2 as shown on State of
Washington, Department of Highways Map, SR 90, MP 7.71 to MP 11.72, Richards
Road to Lake Sammamish, sheet 3 of 35, latest revision date March 31, 1977, on
file at the office of the Department of Transportation, Olympia, Washington,
except that portion lying westerly of the west line of an electric transmission
easement, granted to Puget Sound Power & Light Company by instrument recorded
under Auditor's File No. 2545297, also subject to an easement for a petroleum
pipeline, as recorded under Auditor's File No. 5785336, and also subject to a
perpetual slope easement, as acquired under Superior Court Cause No.
7733237.
<PAGE> 34
EXHIBIT B
SPACE PLAN OF PREMISES
[DIAGRAM]
<PAGE> 35
EXHIBIT C
TENANT IMPROVEMENTS
Landlord to complete the following tenant improvements at its cost before
______,1996:
a. carpet and paint entire premises. Carpet to be building standard
(Mohawk RIO 30/36 in "Federal Blue" #511). Carpet is to be cut
pile in offices and loop pile in hallways/corridors as specified
by Tenant. Paint color to be chosen by Tenant subject to
approval by Landlord. Vinyl to be placed in kitchen and
lunchroom area will be building standard (Armstrong Corlon in
"Suffield Slate" #86807). New rubber cove base to be installed
(Robbe "Gray" #50) in all areas.
b. Clean up/touch up of kitchen cabinet fronts.
c. Building standard signage to be provided for Tenant door and for
main building directory.
d. Replacement of broken, discolored or stained ceiling tiles.
e. Placement of locks on selected interior office doors, to be
determined by Tenant.
f. Remove current demising wall in corridor in NW corner of space.
g. Open fire door currently separating space in SE corner.
h. Make sure that all interior lighting is fully operational.
i. Clean all window blinds.
j. Landlord may elect at its option to replace all interior light
fixture lenses with 1" paragrid lens covers.
The Landlord will cause the following improvements to be done and completed
before _______ __, 1996 at the sole cost of the Tenant. Tenant shall approve all
costs prior to the start of the work.
a. Remove the wall between the two offices in the SW corner of the
space. Remove the extra door and patch wall as required. Relite
next to door is to remain if possible depending upon the
construction of the door/relite unit. Additional work as
required to finish out the space and repair the demolition.
b. Place the extra door from a. above into a newly enlarged doorway
between the File/Shipping rooms where there currently exists
only a doorway. Frame and trim as required.
<PAGE> 36
EXHIBIT D
RULES AND REGULATIONS
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, 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 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 and in a form approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection with
any window or door of the Premises, or placed on any windowsill which is visible
from the exterior of the Premises, Tenant shall immediately discontinue such
use. Tenant shall not place anything against or near glass partitions or doors
or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances,
elevators or stairways of the Building. The halls, passages, exits, entrances,
elevators, and stairways are not open to the general public, but are open,
subject to reasonable regulation, to Tenant's business invitees. 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 interest of the Building and its tenants;
providing that nothing herein contained shall be construed to prevent such
access to persons with whom any tenant normally deals in the ordinary course of
its business, unless such persons are engaged in illegal or unlawful activities.
No tenant and no employee or invitee of any tenant shall go upon the roof of the
Building.
4. 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, including individual's names, therefrom.
5. All cleaning and janitorial services for the Building and the Premises shall
be provided exclusively through Landlord, and except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall be
employed by Tenant or permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by carelessness
or indifference to the good order and cleanliness of the Premises.
6. Landlord will furnish Tenant, free of charge, with eight keys to each door
lock in the Premises. Landlord may make a reasonable charge for any additional
keys. Tenant shall not alter any lock or install a new additional lock or bolt
on any door of its Premises. Tenant, upon the termination of its tenancy, shall
deliver to Landlord the keys of all doors which have been furnished to Tenant,
and in the event of loss of any keys so furnished, shall pay Landlord therefore.
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
8. The Building elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord, in its discretion,
shall deem appropriate. 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. Tenant's initial move in and
<PAGE> 37
subsequent deliveries of bulky items, such as furniture, safes and similar items
shall, unless otherwise agreed by Landlord, be made during the hours of 6P.M. to
6A.M.or on Saturday or Sunday. Deliveries during normal office hours shall be
limited to normal office supplies and other small items. No deliveries shall be
made which impede or interfere with other tenants or the operation of the
Building.
9. Tenant shall not place a load upon any floor of the Premises 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, if considered necessary by Landlord, stand on
such platforms as determined by Landlord to be necessary to properly distribute
the weight, which platforms shall be provided at Tenant's expense. Business
machines and mechanical equipment belonging to Tenant, which cause 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 in the Building, 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 or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant shall not
use or permit to be used in the Premises any foul or noxious gas or substance,
or permit or allow the 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 or vibrations, nor shall Tenant bring into or keep in or about the
Premises any birds or animals.
11. Tenant shall not use any method of heating or air conditioning other than
that supplied by Landlord.
12. Tenant shall not waste electricity, water or air conditioning and agrees to
cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice, and
shall refrain from attempting to adjust controls. Tenant shall keep corridor
doors closed, and shall close window coverings at the end of each business day.
13. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
14. 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. Landlord reserves the right to prevent access to the Building in
case of invasion, mob, riot, public excitement or other commotion by closing the
doors or by other appropriate action.
15. Tenant shall close and lock the doors of its 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
32
<PAGE> 38
sustained by other tenants or occupants of the Building or by Landlord for
noncompliance with this rule.
16. 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 and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from violation of this rule shall be
borne by the tenant who, or whose employees or invitees, shall have caused it.
17. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Building. Tenant shall not
use the Premises for any business or activity other than that specifically
provided for in Tenant's Lease.
18. Tenant shall not install any radio or television antenna, loudspeaker or
other devices 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.
19. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster, or in any way deface the Premises or any part thereof,
except in accordance with the provisions of the Lease pertaining to alterations.
Landlord reserves the right to direct electricians as to where and how telephone
and telegraph wires are to be introduced to the Premises. Tenant shall not cut
or bore holes for wires. Tenant shall not affix any floor covering to the floor
of the Premises in any manner except as approved by Landlord.
20. Tenant shall repair any damage resulting from noncompliance with this rule.
Tenant shall not install, maintain or operate upon the Premises any vending
machines without the written consent of Landlord.
21. Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the Building are prohibited, and Tenant shall
cooperate to prevent such activities.
22. Landlord reserves the right to exclude or expel from the Building any person
who, in Landlord's judgment, is intoxicated or under the influence of liquor or
drugs or who is in violation of any of the Rules and Regulations of the
Building.
23. Tenant shall store all its trash and garbage within its Premises or in other
facilities provided by Landlord. 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. Tenant will take advantage of any recycling available at the site.
24. The Premises shall not be used for the storage of merchandise held for sale
to the general public, or for lodging or for manufacturing of any kind, nor
shall the Premises be used for any improper, immoral or objectionable purpose.
No cooking shall be done or permitted on the Premises without Landlord's
consent, except that use by Tenant of Underwriters' Laboratory-approved
equipment for brewing coffee, tea, hot chocolate and similar beverages, or use
of microwave ovens for employee use shall be permitted, provided that such
equipment and use is in accordance with all applicable federal, state, county
and city laws, codes, ordinances, rules and regulations.
25. Tenant shall not use in any space or in the public halls of the Building,
any hand truck except those equipped with rubber tires and side guards or such
other material-
33
<PAGE> 39
handling equipment as Landlord may approve. Tenant shall not bring any other
vehicles of any kind into the Building.
26. Without the written consent of Landlord, 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.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. Tenant's requirements will be attended to only upon appropriate application
to the Building management office 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 Tenant.
30. Tenant shall comply with all parking requirements of the property, and will
not park more vehicles at the property than provided in Tenant's lease. Landlord
reserves the right to ticket and/or tow vehicles, at Tenant's expense, not
displaying a valid parking permit.
a) Parking stickers or any other device or form of identification
supplied by Landlord as a condition of the use of the parking facilities
shall remain the property of Landlord. Such parking identification
device must be displayed as requested and may not be mutilated in any
manner. The serial number of the parking identification device may not
be obliterated. Devices are not transferable, and any device in the
possession of an unauthorized holder and will be void.
b) Loss or theft of parking identification devices from automobiles must
be reported immediately, and a lost or stolen report must be filed by
the customer at that time. Landlord has the right to exclude any vehicle
from the parking facilities that does not have an identification device.
c) Tenant shall not park or permit the parking of any vehicle under its
control in any parking areas designated by Landlord as areas for parking
by visitors to the Building. Tenant or its customers, suppliers,
employees, or invitees shall not use motor homes or other similar
vehicles in the parking areas and shall not leave vehicles in the
parking areas overnight or for any extended period of time, nor park any
vehicles in the parking areas other than automobiles, motorcycles, motor
driven or nonmotor driven bicycles or four-wheeled trucks not more than
20 feet in length. Provided that, from time to time, Tenant may park
passenger automobiles overnight.
d) Washing, waxing, cleaning or servicing of any vehicle in any area not
specifically reserved for such purpose is prohibited.
e) Vehicles must be parked entirely within the painted stall lines of a
single parking stall.
f) Parking is prohibited:
i) in areas not striped for parking;
ii) in aisles
34
<PAGE> 40
iii) where "no parking" signs are posted;
iv) on ramps;
v) in cross hatched areas; and
vi) in such other areas as may be designated by Landlord or
Landlord's agent from time to time.
g) Landlord or its agents shall have the right to cause to be removed
any car of Tenant, its employees, invitees, licensee, or agent, that may
be parked in unauthorized area, and Tenant agrees to save and hold
harmless Landlord, its agent and employees from any and all claims,
losses, damages and demands asserted or arising in respect to or in
connection with the removal of any such vehicle and for all expenses
incurred by Landlord in connection with such removal. Tenant will from
time to time, upon request of Landlord, supply Landlord with a list of
license plate numbers or vehicle owned or operated by its employees and
agents.
h) Landlord reserves the right to modify and/or adopt such other
reasonable and non-discriminatory Rules and Regulations for the parking
facilities as it deems necessary for the operation of the parking
facilities. Landlord may refuse to permit any person who violates these
Rules and Regulations to park in the parking facilities, and any
violation shall subject the car to removal at the owner's expense.
31. Tenant shall be responsible for maintaining and, if necessary, replacing any
appliances that were provided in any Tenant Improvements (i.e. microwaves and
dishwashers, etc.).
32. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of Tenant or any
other tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
33. 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, covenants,
agreements and conditions of Tenant's lease of its Premises in the Building.
34. Landlord reserves the right to amend these rules and 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.
35. Tenant shall be responsible for the observance of all of the foregoing rules
by Tenant's employees, agents, clients, customers, invitees and guests.
35
<PAGE> 41
EXHIBIT E
GUARANTY OF LEASE
William T. Baxter ("Guarantor"), hereby agrees with Seattle Office Associates
LLC ("Landlord"), as follows:
1. Consideration: Guarantor has agreed to make and deliver this guarantee
to Landlord in order to induce Landlord to enter into a new lease
("Lease"), dated ________, 1996, with bsquare consulting, inc. (Tenant),
as tenant, pursuant to which the obligations hereby guaranteed have been
created. Guarantor hereby acknowledges that it has and will derive a
direct financial benefit from Landlord's entering into the Lease.
2. Guarantee: Guarantor hereby guarantees the Lease, as originally executed
and as thereafter modified or amended, as follows: Guarantor hereby
guarantees and undertakes with Landlord that in the event that the
Tenant shall default in the payments of any sums due and owing to
Landlord from Tenant on account of the Lease or in the event that the
Tenant shall default in the full and faithful performance of Tenant's
obligations, undertakings and covenants contained in the Lease, then
Guarantor shall pay to Landlord, within ten days of demand, any and all
sums so due to Landlord (not to exceed the limitation set forth below)
and any damages incurred by Landlord on account thereof. This guaranty
is absolute and unconditional. Guarantor's total obligation under this
guarantee is limited to $125,000.
3. Term: Guarantor's obligations and undertakings herein contained shall
remain in full force and effect and shall survive termination of the
Lease.
4. Rights of Landlord: Without diminishing, releasing or discharging
Guarantor's obligations hereunder, Landlord shall have the right to
exercise the following powers and rights in Landlord's sole discretion:
Landlord may change, alter, cancel, renew, extend, decrease or increase
the obligations of Tenant to Landlord (increases in the obligation of
the Tenant to Landlord will not increase the $125,000 maximum limitation
under this guaranty). Landlord may add other guarantors or procure
additional guarantees, release other guarantors or guarantees and apply
monies or properties received from Tenant upon debts regardless of
whether the same may be guaranteed hereby, otherwise secured, barred by
statutes of limitation or discharged other than by payment. Landlord may
exercise rights hereunder in the event of Tenant's insolvency,
bankruptcy, receivership or assignment for benefit of creditors, in
which event all of Tenant's liabilities and indemnities to Landlord
shall be satisfied in full before Guarantor shall be entitled to
participation in the distribution of Tenant's assets. Landlord may deal
with Tenant, Guarantor and any other person liable on the indebtedness,
obligation or liabilities to Landlord as Landlord deems advisable.
5. Default of Tenant: Notice of acceptance of this Guarantee and of
defaults, breaches, demands, presentments, protest, and amendment to or
modification or cancellation of the Lease, and of any other kind is
fully waived by Guarantor. Upon default by Tenant on any of its
obligations to Landlord, then at Landlord's option, without notice
<PAGE> 42
or demand upon Guarantor and without exercising any other right or
remedy Landlord may have, Landlord may proceed directly against
Guarantor or any other guarantor to enforce Landlord's rights hereunder.
Without releasing or affecting Guarantor's obligations hereunder,
Landlord may enforce any rights it may have against any persons and
properties liable.
6. Impairment of Rights: Landlord's rights shall be cumulative and not
exclusive. No impairment, limitation or modification or Tenant's
liabilities or obligations or of its trustee or receiver or any such
impairment, limitation or modification of Landlord's remedies by virtue
of the operation of bankruptcy or similar laws or decisions or any court
or courts nor any disaffirmance of the Landlord's obligations under the
Lease in such proceedings shall affect Landlord's rights against
Guarantor hereunder.
7. Successor and Assigns The obligations of Guarantor shall inure to the
benefit of the Landlord's assigns and successors in interest in the
Lease and shall be binding upon Guarantor's heirs, successors and
assigns. Reference to Tenant herein includes any assignee of or
successor to Tenant's interest under the terms of the Lease or any
subtenant or any other party who is now or in the future may be a tenant
under the Lease.
8. Costs and Attorney's Fees: Guarantor shall pay all costs, expenses and
charges, including all attorneys fees, which Landlord may incur in the
enforcement of the provisions hereof.
9. Notices: Any notice hereunder may be given to Guarantor by mail
addressed to:
William T. Baxter
3233 - 168TH Place SE
Bellevue, WA 98008
or other address as Guarantor shall designate to Landlord in writing.
Dated this _______ day of _______, 19__.
GUARANTOR
by
-------------------------------
William T. Baxter
<PAGE> 1
EXHIBIT 10.9
OFFICE LEASE AGREEMENT
BETWEEN
Seattle Office Associates, LLC
LANDLORD
AND
bsquare consulting, inc.
TENANT
<PAGE> 2
ADDENDUM TO DELPHI OFFICE
BUILDING AGREEMENT
LEASE: DATED MARCH 24, 1997
PREMISES: SUITE 310
LANDLORD: SEATTLE OFFICE ASSOCIATES, LLC
TENANT: bsquare consulting, inc.
The undersigned Landlord and Tenant agree to the establishment of the following
dates as they are used in the above referenced lease agreement:
Lease Commencement Date: June 15, 1997
Rent Commencement Date: June 15, 1997
Lease Termination Date: June 30, 2002
Extension Option
Notification Date January 1, 2002
EXCEPT as herein specifically amended, the lease shall in all respects remain in
full force and effect.
Dated: September 3rd, 1997
Landlord Tenant
SEATTLE OFFICE ASSOCIATES LLC bsquare consulting, inc.
by: [ILLEGIBLE] by: /s/ ALBERT DOSSER
------------------------------- -------------------------------
its: controller its: Sr. Vice President
------------------------------ ------------------------------
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TABLE OF CONTENTS
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1. BASIC LEASE INFORMATION AND EXHIBITS.....................................................1
(a) Lease Date...........................................................................1
(b) Tenant...............................................................................1
(c) Address of Tenant....................................................................1
(d) Landlord.............................................................................1
(e) Address of Landlord..................................................................1
(d) Premises:............................................................................1
(g) Project..............................................................................1
(h) Land.................................................................................1
(i) Lease Term...........................................................................1
(j) Right to Extend......................................................................1
(k) Basic Rent...........................................................................2
(1) Additional Rent......................................................................2
(m) Security Deposit.....................................................................2
(n) Rentable Square Feet in the Premises.................................................2
(o) Rentable Square Feet in the Project..................................................3
(p) Tenant's Percentage..................................................................3
(q) Parking..............................................................................3
(r) Brokers..............................................................................3
(s) Construction Completion Date.........................................................3
(t) Signage..............................................................................3
(u) Expansion Rights.....................................................................3
(v) Exhibits.............................................................................3
2. PREMISES.................................................................................3
3. COMMENCEMENT AND EXPIRATION DATES........................................................3
4. RENT.....................................................................................4
(a) Rent.................................................................................4
5. COSTS OF OPERATIONS AND REAL ESTATE TAXES................................................4
(a) Definitions..........................................................................5
(b) Additional Rent for Estimated Increases in Operating Costs...........................6
(c) Determinations.......................................................................7
(d) Personal Property Taxes..............................................................7
6. SERVICES AND UTILITIES...................................................................7
(a) Standard Services....................................................................7
(b) Interruption of Services.............................................................7
(c) Additional Services..................................................................8
7. SECURITY DEPOSIT.........................................................................8
8. USES.....................................................................................9
(a) Uses.................................................................................9
(b) Compliance With Law..................................................................9
(c) Compliance With Rules and Regulations................................................9
9. IMPROVEMENTS.............................................................................9
10. TENANT IMPROVEMENTS; ACCEPTANCE OF PREMISES.............................................9
11. CARE OF PREMISES ......................................................................10
12. ALTERATIONS AND ADDITIONS .............................................................10
13. ACCESS ................................................................................11
14. DAMAGE OR DESTRUCTION..................................................................12
(a) Damage and Repair...................................................................12
(b) Destruction During Last Year of Term................................................12
(c) Business Interruption...............................................................12
(d) Tenant Improvements.................................................................12
15. CONDEMNATION...........................................................................13
(a) Taking..............................................................................13
(b) Awards and Damages..................................................................13
16. INDEMNIFICATION........................................................................13
(a) Indemnity...........................................................................13
(b) Exemption of Landlord From Liability ...............................................14
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(c) Waiver of Subrogation...............................................................14
17. HAZARDOUS SUBSTANCES...................................................................14
18. INSURANCE..............................................................................15
(a) Required Policies...................................................................15
(b) Insurance Policy Requirements.......................................................15
(c) Landlord's Insurance................................................................16
19. ASSIGNMENT AND SUBLETTING..............................................................16
20. LIENS AND INSOLVENCY...................................................................17
(a) Liens...............................................................................17
(b) Insolvency..........................................................................17
21. DEFAULT................................................................................18
(a) Default By Tenant...................................................................18
(b) Remedies Cumulative; Injunction.....................................................18
(c) Landlord's Remedies Upon Tenant Default.............................................18
(d) Waiver of Redemption Rights.........................................................20
(e) Nonpayment of Additional Rent.......................................................20
(f) Interest............................................................................20
22. PRIORITY...............................................................................20
(a) Subordination of Lease..............................................................20
23. ESTOPPEL CERTIFICATES..................................................................21
(a) Delivery of Estoppel................................................................21
(b) Failure to Deliver Estoppel.........................................................21
24. SURRENDER OF POSSESSION................................................................21
25. NON-WAIVER.............................................................................22
26. HOLDOVER...............................................................................22
27. LANDLORD'S LIABILITY...................................................................22
28. TRANSFER OF LANDLORD'S INTEREST........................................................22
29. RIGHT TO PERFORM.......................................................................22
30. GENERAL................................................................................23
(a) Headings............................................................................23
(b) Heirs and Assigns...................................................................23
(c) Authority...........................................................................23
(d) No Brokers..........................................................................23
(e) Entire Agreement....................................................................23
(f) Severability........................................................................23
(g) Force Majeure.......................................................................23
(h) Notices.............................................................................24
(i) Costs and Attorneys Fees............................................................24
(j) Governing Law.......................................................................24
(k) Recording...........................................................................24
(1) Waivers.............................................................................24
(m) Time of Essence.....................................................................24
(n) Merger..............................................................................24
(o) Right to Change Public Spaces.......................................................25
(p) Name................................................................................25
(q) Overdue Payments....................................................................25
(r) Relocation of Premises..............................................................25
(s) Advertising.........................................................................26
(t) Parking.............................................................................26
(u) Execution of Lease by Landlord......................................................26
31. LANDLORD'S COVENANTS...................................................................26
(a) Quiet Enjoyment.....................................................................26
(b) Hazardous Waste or Materials........................................................26
(c) Rentable Square Feet................................................................27
32. GUARANTY OF LEASE......................................................................27
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Exhibits
A - Legal Description of Land
B - Space Plan of Premises
C - Tenant Improvements
D - Building Rules and Regulations
E - Guarantees of Lease
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OFFICE LEASE AGREEMENT
THIS LEASE is made this ___ day of March, 1997 between Seattle Office
Associates LLC, a Washington Limited Liability Company ("Landlord"), and bsquare
consulting, inc., a Washington Corporation ("Tenant").
Landlord and Tenant agree:
1. BASIC LEASE INFORMATION AND EXHIBITS. The following terms as used
herein shall have the meanings provided in this Section 1, unless otherwise
specifically modified by provisions of this Lease:
(a) Lease Date: ______________, 1997.
(b) Tenant: bsquare consulting, inc.
a Washington Corporation.
(c) Address of Tenant:
3633 - 136th Place SE
Suite 200
Bellevue, WA 98006
(d) Landlord: Seattle Office Associates, LLC
(e) Address of Landlord:
3633 - 136th Place SE
Suite 205
Bellevue, WA 98006
(f) Premises: Suite No. 310, located at 3633 - 136th Place SE,
Bellevue, (the "Building") as shown on Exhibit B attached
hereto.
(g) Project: The Building and all related improvements known as
the Delphi Building, located at 3633 - 136th Place SE,
Bellevue, which are situated on the Land as defined below.
(h) Land: The real property more particularly described on Exhibit
A attached hereto.
(i) Lease Term: approximately 62 months, commencing the
"Commencement Date" and terminating on June 30, 2002, ("the
Termination Date"). Landlord and Tenant agree to execute an
addendum to this lease setting forth the Commencement Date and
the Termination Date.
(j) Right to Extend: a. Provided Tenant (i) is not in default
hereunder at the time of the exercise of the extension and at
the commencement of the renewal term, (ii) has not been in a
monetary default more than five times during the term of the
lease, and (iii) has given Landlord six (6) months prior
written notice of its intent to exercise its rights under this
Section, Tenant shall have the right to extend the term of
this Lease for one (1) additional period of five years (the
"Extended Term") on the same terms and conditions as in this
Lease except that the Basic Rent during the Extended Term
shall be a sum equal to the fair market rent ("Market Rent")
of the Leased Premises at the time of the
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commencement of the Extended Term as determined either by agreement
between Landlord and Tenant or by arbitration as hereinafter described.
b. In the event that tenant desires to exercise such option, Landlord
and Tenant agree to negotiate in good faith to reach agreement on the
Market Rent of the Premises for such Extended Term. If, for any reason,
the Landlord and Tenant fail to agree to a market rent for the term at
least thirty (30) days prior to the end of the initial Term, then market
rent for the term shall be determined by arbitration pursuant to this
lease and RCW 7.04, et.seq. The arbitrator shall be a licensed MAI
appraiser, whom the Parties shall select by mutual agreement. If the
Parties are unable to agree on an arbitrator, the arbitrator shall be
selected by the King County Superior Court. As part of the submittals to
the arbitrator, each Party to the arbitration will present a proposed
market rent for the term which the submitting Party deems to be fair and
reasonable. The arbitrator is directed to select within twenty-one (21)
days one of the proposed market rents submitted and has no discretion to
determine any other market rent. The arbitrator's decision shall be
final, binding and non-appealable. Notwithstanding the above, the market
rent for the extended term shall not be less than the rate for the
initial term.
Until the arbitrator renders his award, the Tenant shall continue to pay
the same market rent per month of the term as it paid for the last month
of the initial term. The Tenant shall pay any shortfall in market rent
payments for the term within ten (10) days after the arbitrator renders
his award; and Landlord shall credit Tenant within ten (10) days any
overpayment of Base Rent for the term against future monthly market
rent, as determined by the arbitration award.
(k) Basic Rent: $17,025.58 per month, $204,307.00 per year ($19.00 PSF). In
addition, the Basic Rent will be adjusted effective July 1, 2000 as
provided in Section 4.b.
(1) Additional Rent: The increase in Operating Costs described in Section 5
and all other costs, other than Basic Rent, payable by Tenant to
Landlord hereunder.
(m) Security Deposit: $17,025.58 upon lease execution.
(n) Rentable Square Feet in the Premises: 10,753.
(o) Rentable Square Feet in the Project: 69,596.
(p) Tenant's Percentage: 15.45%.
(q) Parking: 45 parking stalls of which 10 will be reserved under the
Building for the Tenant's exclusive use.
(r) Brokers: Tenant was not represented in this transaction by a licensed
real estate Broker; Landlord was represented in this transaction by
Langly Associates Inc., a licensed real estate broker.
(s) Construction Completion Date: May 15,1997.
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(t) Signage: Tenant will not have any rights to exterior signage
as relates to this lease. If, however, the Tenant installs a
sign on the Building in connection with its lease for Suite
200, such sign will be allowed to remain on the Building as
long as the Tenant has a valid lease for a minimum of 10,000
SF.
(u) Expansion Rights: Tenant will not have any specific expansion
rights as relates to this lease.
(v) Exhibits: The following exhibits are attached hereto and are
hereby made a part of this Lease.
Exhibit A - Legal Description of Land
Exhibit B - Space Plan of Premises
Exhibit C - Tenant Improvements
Exhibit D - Building Rules and Regulations
Exhibit E - Restated Guaranty of Lease
2. PREMISES. Landlord does hereby lease to Tenant, and Tenant does
hereby lease from Landlord, upon the terms and conditions herein set forth, the
Premises described in Section 1(f) hereof as shown on Exhibit B attached hereto
and incorporated herein, together with rights of ingress and egress over common
areas in the Building and on the Land.
3. COMMENCEMENT AND EXPIRATION DATES.
The term of this Lease shall commence on the earliest of the following
dates (the "Commencement Date"): (a) the date of substantial completion of
construction of the tenant improvements to the Premises as listed in Exhibit B;
(b) the date on which the Premises would have been substantially completed but
for delay caused by Tenant or any agent, employee or contractor of Tenant; (c)
the date on which the Premises are actually occupied by Tenant or (d) the date
set forth in Section 1.(i). Upon request of Landlord, Tenant shall enter into a
memorandum stipulating the actual Commencement Date. If for any reason other
than Tenant's failure to fulfill its obligations hereunder, Landlord cannot
deliver possession of the Premises to Tenant on the Commencement Date, Landlord
shall not be subject to any liability therefor, nor shall such failure affect
the validity of this Lease or the obligations of Tenant hereunder or extend the
Termination Date, but in such case Tenant shall not be obligated to pay Rent
until possession of the Premises is tendered to Tenant. If Tenant's tenant
improvements are not completed by the Construction Completion Date due to the
failure of Tenant to fulfill any obligation pursuant to the terms of this Lease
or any exhibit hereto, including without limitation Tenant's failure to comply
with the terms of Exhibit C, the Lease shall be deemed to have commenced upon
the Construction Completion Date. If Tenant occupies the Premises prior to the
Construction Completion Date, such occupancy shall be subject to all provisions
hereof, such occupancy shall not advance the Termination Date, and Tenant shall
pay Rent for such period at the initial rates set forth in the Basic Lease
Information. In the event the Commencement Date is established as a later or
earlier date than the date provided in Section 1(i) hereof, Landlord shall
confirm the same to Tenant in writing. The Lease shall expire upon the
Termination Date specified in Section 1(s). In the event Landlord is unable to
deliver possession of
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premises within 30 days of Lease Commencement date, Tenant shall have the right
to cancel this Lease.
4. RENT.
(a) Rent. Tenant shall pay Landlord without notice the Basic Rent
stated in Section 1(k) hereof in advance without demand, deduction or offset on
the first day of each calendar month during the term at the address specified in
Section 1(e) or such address as may be specified by Landlord. Basic Rent and
Additional Rent (together "Rent") for any partial month shall be prorated in
proportion to the number of days in such month.
(b) Basic Rent Adjustment. Commencing July 1, 2000, the monthly
Basic Rent for Suite 310 shall equal $17,025.58 multiplied by a fraction, the
numerator of which is the "Index" (as hereinafter defined) most recently
published prior to July 1, 2000, and the denominator of which is the Index most
recently published prior to March 1, 1997, provided that in no event shall the
Basic Rent for Suite 310 be less than $17,025.58 per month. "Index" as used
herein shall mean the "Consumer Price Index (United States City Average for All
Urban Consumers)-All Items (Reference Base 1982-84 = 100)" published by the
United States Department of Labor, Bureau of Labor Statistics. In the event the
Index shall hereafter be converted to a different standard reference base or
otherwise revised, the determination of the percentage increase shall be made
with the use of such conversion factor, formula or table for converting such
Index as may be published by the Bureau of labor Statistics or, if said Bureau
shall not publish the same, then with the use of such conversion factor, formula
or table as may be published by Prentice Hall, Inc. or any other nationally
recognized publisher of similar statistical information. In the event any such
Index shall cease to be published, then for the purpose of this Section, there
shall be substituted such other index as Landlord shall acting reasonably
designate which is similar to the Index.
5. COSTS OF OPERATIONS AND REAL ESTATE TAXES.
(a) Definitions. In addition to the Basic Rent provided in
Section 1(k) of this Lease, Tenant shall pay to Landlord increases under this
Section 5 as "Additional Rent," utilizing the following definitions:
(i) "Operating Costs" shall mean all taxes and
assessments on real and personal property; any taxes levied or assessed (or any
installment thereof due during the Lease Year) in addition to or in lieu of such
real property or personal property taxes, or any other tax {except any federal
or state net income tax or any business or occupation tax) upon leasing of the
Project or rents collected; and all other expenses paid or incurred by Landlord
for managing, maintaining, operating and repairing the Project and the personal
property used in conjunction therewith, including without limitation, the
following: (A) electricity, water, gas, sewers, refuse collection, telephone
charges not charged to individual tenants and similar utility services; (B) the
cost of maintaining, rehabilitating or replacing heating, mechanical,
ventilating, escalator and
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elevator systems and restriping, repairing and repaving parking areas; (C) the
cost of repairs, janitorial and cleaning services, window washing, landscape
maintenance, and other general maintenance or cleaning; (D) the cost of fire,
extended coverage, boiler, sprinkler, public liability, property damage, rent,
earthquake (if required by any lender on the building and if such expense is
included in the base year) and other insurance; (E) wages, salaries and other
labor costs, including employee benefits, of all persons who perform duties in
connection with the operation, maintenance and repair of the Project; (F) fees,
charges and other costs, including management fees, consulting fees, legal fees
and accounting fees, of all independent contractors reasonably engaged by
Landlord, (G) management fees not to exceed 5% of gross revenues charged by
Landlord if Landlord performs management services in connection with the
Project; (H) the costs for the subject period (amortized over the useful life in
accordance with the Internal Revenue Code) of any capital improvements made to
the Project after the date of this Lease which are either designed to increase
the operating efficiency of the Project or are required by applicable law; (I)
cost of all licenses, permits and inspections required by governmental bodies
with jurisdiction over the Premises, Project and Land; and (J) the amortized
costs of renovating the carpet, paint and lighting of common hallways and
lobbies; (K) deductible amounts (not to exceed $25,000) under any insurance
maintained by Landlord with respect to repair or rebuilding of the Project, and
(L) any other expenses or charges whether or not hereinabove described, which in
accordance with generally accepted accounting and management practices would be
considered an expense of managing, maintaining, operating, or repairing the
Project.
(ii) "Operating Costs" shall not include the following:
(a) Costs of any special services rendered to
individual tenants (but not all tenants in the building) for which a special
charge is made.
(b) Leasing commissions and other leasing expenses.
(c) Legal fees, accounting fees and other costs and
expenses associated with a breach or default by any tenant.
(ii) "Lease Year" shall mean the twelve-month period commencing
January 1 and ending December 31.
(iii) "Actual Operating Costs" means the actual expenses paid or
incurred by Landlord for Operating Costs during any Lease Year of the term
hereof.
(iv) "Actual Operating Costs Allocable to the Premises" means the
Tenant's share of the Actual Operating Costs determined by dividing the Rentable
Square Feet in the Premises as set forth in Section 1(n) by the Rentable Square
Feet in the Project and multiplying the resulting quotient by the Actual
Operating Costs.
(v) "Estimated Operating Costs Allocable to the Premises" means
Landlord's estimate of Actual Operating Costs Allocable to the Premises for the
following Lease Year to be given by Landlord to Tenant pursuant to Section
5(b)(i) below.
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(vi) "Base Service Year" shall mean the calendar year 1997.
(b) Additional Rent for Estimated Increases in Operating Costs.
(i) On or before the first (1st) day of March of each Lease Year
after the Base Service Year, during the term hereof, Landlord shall furnish
Tenant a written statement of the Estimated Operating Costs Allocable to the
Premises for such Lease Year, and a calculation of the Additional Rent for such
costs as follows: one-twelfth (1/12) of the amount, if any, by which such amount
exceeds the Operating Costs Allocable to the Premises for the Base Service Year
shall be Additional Rent payable each month by Tenant as provided in Section 4.
Any shortfall for elapsed portion of the Lease Year in question shall be made up
with the next monthly payment. Landlord reserves the right to adjust this
estimate from time to time.
(ii) Within ninety (90) days after the close of each Lease Year,
or as soon thereafter as practicable, Landlord shall deliver to Tenant a written
statement setting forth the Actual Operating Costs Allocable to the Premises
during the preceding Lease Year. If such costs for any Lease Year exceed
Estimated Operating Costs Allocable to the Premises paid by Tenant to Landlord
pursuant to subsection (b)(i) above, Tenant shall pay the amount of such excess
to Landlord as Additional Rent within fifteen (15) days after receipt of such
statement by Tenant. If such statement shows such costs to be less than the
amount paid by Tenant to Landlord pursuant to subsection (b)(i) above, then the
amount of such overpayment by Tenant shall be credited by Landlord to the next
Rent payable by Tenant. In no event shall the Rent payable by Tenant hereunder
be less than the Rent specified in Section 1(k) of this Lease.
(iii) If this Lease shall terminate on a day other than the last
day of a Lease Year, the amount of any adjustment between Estimated and Actual
Operating Costs Allocable to the Premises with respect to the Lease Year in
which such termination occurs shall be prorated on the basis which the number of
days from the commencement of such Lease Year to and including such termination
date bears to 365, and any amount payable by Landlord to Tenant or Tenant to
Landlord with respect to such adjustment shall be payable within fifteen (15)
days after delivery of the statement of Actual Operating Costs Allocable to the
Premises with respect to such Lease Year.
(c) Determinations. The determination of Actual Operating Costs and
Estimated Operating Costs Allocable to the Premises shall be made by Landlord.
Landlord or its agent shall keep records in reasonable detail showing all
expenditures made for the items enumerated above, which records shall be
available for inspection by Tenant at any reasonable time during the two year
period following receipt of the Landlord's statement referred to in Section
5(b)(ii).
(d) Personal Property Taxes. Tenant shall pay, prior to delinquency, all
Personal Property Taxes payable with respect to all property of Tenant located
on the Premises, the Building, or the Project including any improvements paid
for by Tenant, and promptly, upon request of Landlord, shall provide written
proof of such payment. As used herein, "Property of Tenant" shall include all
improvements which are paid for by Tenant.
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"Personal Property Taxes" shall include all property taxes assessed against the
property of Tenant, whether assessed as real or personal property.
6. SERVICES AND UTILITIES.
(a) Standard Services. Landlord shall maintain the Premises and
the public and common areas of the Building (including the roof, exterior
portions of the building, parking and landscaping) in reasonably good order and
condition, except for damage occasioned by the negligent or willful act or
omission of Tenant or its contractors, agents, invitees, licensees or employees,
the repair of which damage shall be paid by Tenant, subject to the provisions of
Section 16(c). Landlord shall furnish the Premises with electricity for normal
office use, water, elevator service and reasonable 5 day per week janitorial
services during the term of the Lease. Electricity use beyond normal office use
and any separate metering required thereby shall be paid for by Tenant. The
Basic Rent stated in Section 1(k) hereof does not include the costs of any
janitorial or other service provided or caused to be provided by Landlord to
Tenant which are in addition to the services ordinarily provided Building
tenants.
Landlord shall furnish the Premises with heat and air conditioning
during the following hours; Monday to Friday 7:00 a.m. to 6:00 p.m., Saturday
8:00 a.m. - 5:00 p.m. and Sunday 9:00 a.m. to 1:00 p.m. Tenant may request
provision of these services for other hours by giving Landlord at least 48 hours
prior written notice and by paying all additional costs incurred by Landlord for
such services with the next due installment of Rent at Landlord's then current
overtime rate, which is currently $30 per hour. During other than normal
business hours (as designated by Landlord), Landlord may restrict access to the
Building in accordance with the building's security system, provided that Tenant
shall have at all times during the term of this Lease (24 hours of all days)
reasonable access to the Premises.
(b) Interruption of Services. Landlord shall not be liable for
any loss, injury or damage to person or property caused by or resulting from any
variation, interruption, or failure of such services due to any cause
whatsoever, or from failure to make any repairs or perform any maintenance, and
rent shall not abate as a result thereof. No temporary interruption or failure
of such services incident to the making of repairs, alterations or improvements,
or due to accident, strike or conditions or events beyond Landlord's reasonable
control shall be deemed an eviction of Tenant or relieve Tenant from any of
Tenant's obligations hereunder.
(c) Additional Services. Before installing lights and equipment
in the Premises which in the aggregate exceed normal levels of usage (including
without limitations, computer and data processing equipment), Tenant shall
obtain the written permission of Landlord. Landlord may refuse to grant such
permission unless Tenant shall agree to pay the costs of Landlord for
installation of supplementary air conditioning capacity or electrical systems as
necessitated by such equipment or lights. Notwithstanding the above, Landlord
may not refuse to grant permission for equipment which, in the aggregate, does
not require electrical power in excess of five (5) watts per rentable SF.
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In addition, Tenant shall in advance, on the first day of each
month during the Lease term, pay Landlord the reasonable amount estimated by
Landlord as the cost of furnishing electricity for the operation of such
equipment or lights and the reasonable amount estimated by Landlord as the cost
of operation and maintenance of supplementary air conditioning units
necessitated by Tenant's use of such equipment or lights. The Rent stated in
Section 1(k) hereof does not include any amount to cover the cost of furnishing
electricity or such additional air conditioning for such purposes and such costs
will be paid by Tenant as Additional Rent. Landlord shall be entitled to install
and operate at Tenant's cost a monitoring/metering system in the Premises to
measure the added demands on electrical, heating, ventilation and air
conditioning systems resulting from such equipment and lights and from Tenant's
after-hours heating, ventilation and air conditioning service requirements.
Tenant shall comply with Landlord's instructions for the use of drapes and
thermostats in the Building.
7. SECURITY DEPOSIT. As security for the full and faithful performance
of every covenant and condition of this Lease to be performed by Tenant. Tenant
has paid to Landlord the Security Deposit as specified in Section 1(m) hereof.
If Tenant defaults in any respect under this Lease, Landlord may apply all or
any part of the Security Deposit to the payment of any sum in default or any
other sum which Landlord may be required or may in its reasonable discretion
deems necessary to spend or incur by reason of Tenant's default. In such event,
Tenant shall, within five (5) days of written demand therefor by Landlord,
deposit with Landlord the amount so applied. If Tenant shall have fully complied
with all of the covenants and conditions of this Lease, the amount of the
Security Deposit to the extent not applied by Landlord under this Section 7
shall be repaid to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) within thirty (30) days after the expiration or
sooner termination of this Lease. In the event of Tenant's default under this
Lease, Landlord's right to retain the Security Deposit shall be deemed to be in
addition to any and all other rights and remedies at law or in equity available
to Landlord. Landlord shall not be required to keep any Security Deposit
separate from its general funds and Tenant shall not be entitled to any interest
thereon.
8. USES.
(a) Uses. The Premises are to be used only for general office
purposes ("Permitted Uses") and for no other business or purpose without the
prior written consent of Landlord, which consent may be withheld if Landlord, in
its sole discretion, determines that any proposed use is inconsistent with or
detrimental to the maintenance and operation of the Building as a first-class
office building or is inconsistent with any restriction on use of the Premises,
the Building, the Project or the Land contained in any lease, mortgage or other
agreement or instrument by which the Landlord is bound or to which any of such
property is subject. Tenant shall not commit any act that will increase the then
existing rate of insurance on the Building or the Project and will immediately
pay any such increase. Tenant shall promptly pay upon demand the amount of any
increase in insurance rates caused by any act or acts of Tenant. Tenant shall
not commit or allow to be committed any waste upon the Premises, or any public
or private nuisance or other act which disturbs the quiet enjoyment of any other
tenant in the Building or which is unlawful. Tenant shall not,
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without the written consent of Landlord, use any apparatus, machinery or device
in or about the Premises which will cause any substantial noise, vibration or
fumes. If any of Tenant's office machines or equipment should disturb the quiet
enjoyment of any other tenant in the Building, then Tenant shall provide
adequate insulation or take other action as may be necessary to eliminate the
disturbance.
(b) Compliance With Law. Tenant shall, at Tenant's expense,
comply promptly with all applicable statutes, ordinances, rules, regulations,
orders and requirements, including without limitation laws and regulations
prohibiting discrimination on the basis of race, gender, religion, national
origin, age or disability, in effect during the term hereof regulating the use,
occupancy or improvement of the Premises by Tenant, Landlord or otherwise and
Tenant shall be fully responsible for the cost of complying therewith.
(c) Compliance With Rules and Regulations. Tenant shall observe
and comply with all reasonable rules and regulations put into effect by
Landlord. Landlord shall not be responsible to Tenant for the non-compliance
with the rules and regulations of any other tenant or occupant of the Project.
9. IMPROVEMENTS. Upon expiration or sooner termination of this Lease,
all improvements and additions to the Premises, except Tenant's trade fixtures,
shall be deemed the property of Landlord.
10. TENANT IMPROVEMENTS; ACCEPTANCE OF PREMISES. The Premises shall be
completed in accordance with the plans and specifications attached hereto as
Exhibit C. All necessary construction shall be commenced by Landlord following
Landlord's execution of this Lease and Tenant's delivery of the first month's
Basic Rent, the guarantees and the Security Deposit. Landlord will exert
commercially reasonable efforts to have improvements substantially completed by
the date set forth in Section 1(s). Within five (5) days ("Inspection Period")
after Landlord informs Tenant of such completion, Tenant shall make such
inspection of the Premises as Tenant deems appropriate. Except as otherwise
specified by Tenant in writing to Landlord within the Inspection Period, Tenant
shall be deemed to have accepted the Premises in their then condition. If, as a
result of such inspection, Tenant discovers minor deviations or variations from
the plans and specifications for Tenant's improvements of a nature commonly
found on a "punch list" (as the term is used in the construction industry),
Tenant shall, during the Inspection Period, notify Landlord of such deviations.
Landlord shall promptly repair all punch list items. The existence of such punch
list items shall not postpone the Commencement Date of this Lease or the
obligation of Tenant to pay Rent. Tenant acknowledges that neither Landlord nor
Landlord's agent has made any representation or warranty as to the suitability
of the Premises for the conduct of Tenant's business, and Tenant hereby waives
any rights, claims or actions against Landlord under any express or implied
warranties of suitability.
11. CARE OF PREMISES. Tenant shall, at Tenant's sole cost and expense,
keep the Premises and every part thereof in good condition and repair, damage
thereto from causes beyond the reasonable control of Tenant and ordinary wear
and tear and damage by fire and other casualty not intentionally caused by
Tenant excepted. Tenant shall be responsible for the cleaning of any common
areas of the Building and the Project if such cleaning is necessary due to
Tenant's use of such common areas in a manner other
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than the normal, reasonable use of such areas. All damages or injury done to the
Premises, Building or Project by Tenant or by any persons who may be in or upon
the Premises, Building or Project with the express or implied consent of Tenant,
including but not limited to the cracking or breaking of any glass of windows
and doors, shall be paid for by Tenant and Tenant shall pay for all damage to
the Project caused by acts or omissions of Tenant or Tenant's officers,
contractors, agents, invitees, licensees, or employees subject to the provisions
of section 16(c). If Tenant fails to perform Tenant's obligations under this
Section 11, Landlord may at Landlord's option enter upon the Premises after ten
(10) days' prior notice to Tenant and put the affected portion of the Project in
good order, condition and repair and the cost thereof together with interest
thereon at the rate of 15% per annum shall be due and payable as Additional Rent
to Landlord together with Tenant's next installment of Basic Rent. All normal
repairs shall be those reasonably determined by Landlord as necessary to
maintain the Project as a first-class office building complex.
12. ALTERATIONS AND ADDITIONS.
(a) Tenant shall not make any alterations, improvements,
additions, or utility installations in or about the Premises or make changes to
locks on doors, or add, disturb or in any way change any floor covering, wall
covering, fixtures, plumbing or wiring (collectively, "Alterations") without
first obtaining the written consent of Landlord and, where appropriate, in
accordance with plans and specifications approved by Landlord. Any such
Alterations shall not adversely affect either the strength or exterior
appearance, or the mechanical, electrical, or plumbing services of the Building
and the Project. Any alterations required to be made to the Premises by any
applicable building, health, safety, fire, nondiscrimination, or similar law or
regulation ("law"), but only to the extent such alterations are not also
required to be made generally throughout the building, shall be made at Tenant's
sole expense and shall be subject to the prior written consent of Landlord.
Tenant shall reimburse Landlord for any sums expended for examination and
approval of architectural or mechanical plans and specifications of the
Alterations. Tenant shall also pay Landlord a sum equal to the direct costs
incurred during any inspection or supervision of the Alterations. Landlord may
require a lien and completion bond for such construction, or require the
improvements (except for any cabling installed by the Tenant) be removed at the
expiration of the Term. Tenant acknowledges and agrees that a material condition
to the granting of approval of Landlord to any alterations and/or improvements
and/or repairs required under this Lease or desired by Tenant is that the
contractors who perform such work shall carry a Comprehensive Liability Policy
covering both bodily injury, in the amount of $100,000 per person and $300,000
aggregate, and property damages, in the amount of $300,000, at Tenant's expense.
Landlord may require proof of such insurance coverage from each contractor at
the time of submission of Tenant's request for Landlord's consent to commence
work. Landlord's approval of the plans, specifications and working drawings for
Tenant's alterations shall create no responsibility or liability on the part of
Landlord for their completeness, design sufficiency, or compliance with all
laws, rules and regulations of governmental agencies or authorities. Tenant
shall indemnify and hold Landlord harmless from any liability, claim or suit,
including attorneys' fees, arising from any injury, damage, cost or loss
sustained by persons or property as a result of any defect in design, material
or workmanship.
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(b) Tenant shall pay, when due, all claims for labor or materials
furnished to or for Tenant at or for use in the Premises, which claims are or
may be secured by any mechanics' or materialmen's liens against the Premises or
any interest therein. Within ten (10) days after notice thereof, Tenant shall
remove or cause to be removed all liens filed against the Project or any portion
thereof in connection with any Alterations or other work performed by or at the
request of Tenant.
(c) Tenant shall not put curtains, draperies or other hangings or
signs on or beside the windows in the Premises.
(d) Unless Landlord requires their removal, all Alterations
(other than trade fixtures and movable equipment) which may be made on the
Premises shall become the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the term.
13. ACCESS. Tenant shall permit Landlord and its agents to enter the
Premises at all reasonable times for the purpose of inspecting, cleaning,
repairing, altering or improving the Premises or the Building. Nothing contained
in this Section 13 shall be deemed to impose any obligation upon Landlord not
expressly stated elsewhere in this Lease. Landlord may temporarily close any
portion of the Building or Project without liability to Tenant by reason of such
closure, and such closure shall not constitute an eviction of Tenant or release
Tenant from any Rent or other obligations hereunder, provided that the Landlord
does not preclude Tenant's access to the premises and such closure does not
materially interfere with Tenant's use and occupancy of the premises. Landlord
shall have the right to enter the Premises for the purpose of showing the
Premises to prospective purchasers or mortgagees at all reasonable times.
Landlord shall have the right to enter the Premises for the purpose of showing
the Premises to prospective tenants within the period of one hundred eighty
(180) days prior to the expiration or sooner termination of the Lease term.
14. DAMAGE OR DESTRUCTION.
(a) Damage and Repair. If the Building is damaged by fire or any
other cause to such extent that the cost of restoration, as reasonably estimated
by Landlord, will equal or exceed thirty percent (30%) of the replacement value
of the Building, or if insurance proceeds sufficient for restoration are for any
reason unavailable, then Landlord may, no later than the sixtieth day following
the damage, give Tenant a notice of Landlord's election to terminate this Lease.
In the event of such election this Lease shall be deemed to terminate on the
third day after the giving of such notice, Tenant shall surrender possession of
the Premises within a reasonable time thereafter, the Rent and Additional Rent
shall be apportioned as of the date of Tenant's surrender and any Rent paid for
any period beyond such date shall be repaid to Tenant. If the cost of
restoration as estimated by Landlord shall amount to less than thirty percent
(30%) of said replacement value of the Building and insurance proceeds
sufficient for restoration are available, or if Landlord does not elect to
terminate this lease, Landlord shall restore the Building and the Premises (to
the extent of the improvement of the Premises originally provided by Landlord
hereunder) with reasonable promptness, subject to delays beyond Landlord's
control and delays in the making of insurance adjustments by Landlord. To the
extent that the Premises are
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rendered untenantable, the Rent shall proportionately abate, except in the event
such damage resulted from the willful or intentional act or omission of Tenant,
in which event Rent shall abate only to the extent Landlord receives proceeds
from any rental income insurance policy to compensate Landlord for loss of Rent
hereunder.
(b) Destruction During Last Year of Term. In case the Building
shall be substantially destroyed by fire or other cause at any time during the
last Lease Year of this Lease, Landlord may terminate this Lease upon written
notice to Tenant if given within sixty (60) days of the date of such
destruction.
(c) Business Interruption. No damages, compensation or claim
shall be payable by Landlord for inconvenience, loss of business or annoyance
arising from any repair or restoration of any portion of the Premises, the
Building or the Project. Landlord shall use its best efforts to effect such
repairs promptly.
(d) Tenant Improvements. Landlord will not carry insurance of any
kind on any improvements paid for by Tenant as provided in Exhibit C or on
Tenant's furniture, furnishings, fixtures, equipment or appurtenances of Tenant
under this Lease and Landlord shall not be obligated to repair any damage
thereto or replace the same.
15. CONDEMNATION.
(a) Taking. If all of the Premises or such portions of the
Building or Project as may be required for the reasonable use of the Premises
are taken by eminent domain, this Lease shall automatically terminate as of the
date title vests in the condemning authority. In the event of a taking of a
material part, but less than all, of the Building or Project, where Landlord
shall determine that the remaining portions of the Building or Project cannot be
economically and effectively used by it (whether on account of physical,
economic, aesthetic or other reasons) or where Landlord determines the Building
should be restored in such a way as to materially alter the Premises, Landlord
shall forward a written notice to Tenant of such determination not more than
sixty (60) days after the date of taking. The term of this Lease shall expire
upon such date as Landlord shall specify in such notice but not earlier than
sixty (60) days after the date of such notice. In case of taking of a part of
the Premises, or a portion of the Building or Project not required for the
reasonable use of the Premises, then this Lease shall continue in full force and
effect and the Rent shall be equitably reduced based on the proportion by which
the floor area of the Premises is reduced; however, if the floor area of the
premises is reduced by more than five percent (5%), Tenant may terminate this
Lease upon thirty (30) days notice to Landlord.
(b) Awards and Damages. Landlord reserves all rights to damages to
the Premises for any partial, constructive, or entire taking by eminent domain,
and Tenant hereby assigns to Landlord any right Tenant may have to such damages
or award, and Tenant shall make no claim against Landlord or the condemning
authority for damages for termination of the leasehold interest or interference
with Tenant's business. Tenant shall have the right, however, to claim and
recover from the condemning authority compensation for any loss to which Tenant
may be put for Tenant's moving expenses, business interruption or taking of
Tenant's personal property (not including Tenant's leasehold interest) provided
that such damages may be claimed only if they are awarded separately
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in the eminent domain proceedings and not out of or as part of the damages
recoverable by Landlord.
16. INDEMNIFICATION.
(a) Indemnity. Subject to provisions of section 16.c, Tenant
shall indemnify, defend and hold Landlord harmless from and against all loss,
cost and expense, including attorneys fees, arising from any act, omission, or
negligence of Tenant or its officers, contractors, licensees, agents, servants,
employees, guests, invitees, or visitors in or about the Premises or Project, or
arising from any injury or damage to any person or property, occurring in or
about the Premises or Project as a result of any act, omission or negligence of
Tenant, or its officers, contractors, licensees, agents, employees, guests, or
visitors or arising from any breach or default under this Lease by Tenant. The
foregoing provisions shall not be construed to make Tenant responsible for loss,
damage, liability or expense resulting from injuries to third parties caused
solely by the gross negligence of Landlord, or its officers, contractors,
licensees, agents, employees, invitees or other tenant of the Project.
(b) Exemption of Landlord From Liability. As a material part of
the consideration to Landlord, Tenant hereby agrees that, notwithstanding
anything to the contrary in Section 16(a) above, Landlord shall in no event be
liable for injury to Tenant's business or assets or any loss of income therefrom
or for damage to Tenant's employees, invitees, customers, or any other person in
or about the Premises, whether such damage, loss or injury results from
conditions arising upon the Premises or upon other portions of the Project of
which Premises are a part (including, without limitation, damages caused by the
Project or any portion thereof or a appurtenance thereto being out of repair, or
the bursting, leakage of any water, gas, sewer or steam pipe), or from other
sources or places, and regardless of whether the cause of such damage, loss or
injury or the means of repairing the same is inaccessible to Tenant. Tenant
further agrees that notwithstanding anything to the contrary in Section 16(a)
above, Landlord shall in no event be liable for any injury or damage to any
person or property of Tenant, Tenant's employees, invitees, customers, agents or
contractors caused by theft or arising from any act, omission or neglect of any
tenant or occupant of the Project or any other third person.
(c) Waiver of Subrogation. Each party agrees to use commercially
reasonable efforts to cause its insurance carriers to consent to a waiver of
rights of subrogation against the other party. If such waiver shall be
obtainable only at a premium over that chargeable without such a waiver, the
party seeking such policy shall notify the other and the party in whose favor
the waiver is desired shall pay the additional premium. Each party shall look
first to any insurance in its favor before making claim against the other party.
Whether the loss or damage is due to the negligence of either Landlord or
Tenant, their agents or employees, or any other cause, Landlord and Tenant do
each hereby release and relieve the other, their agents or employees, from
responsibility for, and waive their entire claim of recovery for (i) any loss or
damage to the real or personal property of either located anywhere in the
Project, including the Project itself, arising out of or incident to the
occurrence of any of the perils which are covered by their respective property
and related insurance policies, and (ii) any loss resulting from business
interruption at the Premises or loss of rental income from the Project, arising
out of or incident to the
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occurrence of any of the perils which may be covered by any business
interruption insurance policy or by any loss of rental income insurance policy
held by Landlord or Tenant, to the extent to which it is covered, or is required
under the provisions of this Lease to be covered by a policy or policies
containing a waiver of subrogation or permission to release liability.
17. HAZARDOUS SUBSTANCES:
Tenant shall not dispose of or otherwise allow the release of any
hazardous waste or materials in, on or under the Premises, the Project or any
adjacent property, except for normal office products used and disposed of in
accordance with applicable laws. Tenant represents and warrants to Landlord
that Tenant's intended use of the Premises does not involve the use, production,
disposal or bringing on to the Premises or the Project of any hazardous waste or
materials, except for normal office products used and disposed of in accordance
with applicable laws. As used herein, the term "hazardous waste or materials"
means any material or substance that, as of the date of this Agreement, is
defined or classified under federal, state, or local laws as: (a) a "hazardous
substance" pursuant to section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601(4), section 311 of the
Federal Water Pollution Control Act, 33 U.S.C. Section 1321; (b) a "hazardous
waste" pursuant to section 1004 or section 3001 of the Resource Conservation and
Recovery Act, 42 U.S.C. sections 6903, 6921; (c) a toxic pollutant under section
307(a)(1) of the Federal Water Pollution Control Act, 33 U.S.C. Section
1317(a)(1); (d) a "hazardous air pollutant" under section 112 of the Clean Air
Act, 42 U.S.C. Section 7412; (e) a "hazardous Material" under the Hazardous
Materials Transportation Uniform Safety Act of 1990, 49 U.S.C. App. Section 1802
(4); (f) toxic or hazardous pursuant to regulations promulgated under the
aforementioned laws; of (g) presenting a risk to the environment under other
applicable federal, state, or local laws, ordinances, or regulations. "Hazardous
Substances" specifically include, but is not limited to, asbestos,
polychlorinated biphenyls ("PCBs"), petroleum and petroleum-based derivatives,
and urea formaldehyde. Tenant shall promptly comply with all applicable laws and
with all orders, decrees or judgments of governmental authorities or courts
having jurisdiction relating to hazardous waste or materials.
Tenant agrees to indemnify, defend and hold harmless Landlord against
any and all loss, cost and expense (including, without limitation, consultants'
fees, attorneys' fees and disbursements) which may be imposed on, incurred or
paid by, or asserted against Landlord or the Premises or the Project by reason
of, or in connection with (i) any misrepresentation, breach of warranty or other
default by Tenant under this Lease, or (ii) the acts or omissions by Tenant
under this Lease, or (ii) the acts or omissions of Tenant, or any sublessee or
other person for whom Tenant would otherwise be liable, resulting in the release
of any hazardous waste or materials.
18. INSURANCE.
(a) Required Policies. Tenant shall, throughout the term of this
Lease and any renewal hereof, at its own expense, keep and maintain in full
force and effect: (i) a policy of commercial liability insurance including a
contractual liability endorsement covering Tenant's obligations under Section 16
and 17, with a limit of not less than One
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Million Dollars ($1,000,000) combined single limit (the limits of said insurance
shall not, however, limit the liability of Tenant hereunder); and (ii) what is
commonly referred to as "all risk" coverage insurance (but excluding earthquake
and flood) on Tenant's leasehold improvements in an amount not less than the
current One Hundred Percent (100%) replacement value thereof, and (iii) business
interruption insurance in an amount sufficient to cover costs, expenses, costs
due hereunder, damages and lost income should the Premises not be fully usable
for a period of up to 6 months. Such policy shall name Landlord as an additional
insured and shall contain a provision or endorsement providing that the
insurance afforded by such policy for the benefit of Landlord shall be primary
as respects any claims, losses or liabilities arising out of the use of the
Premises or the Building or the Common Areas by the Tenant or by tenant's
operation and that any insurance carried by Landlord shall be excess and
non-contributing.
(b) Insurance Policy Requirements. Insurance policies required
hereunder shall be issued by companies which are currently rated AXII or better
in "Best's Insurance Guide." No insurance policy required under this Section 18
shall be canceled or reduced in coverage and each insurance policy shall provide
that it is not subject to cancellation or a reduction in coverage except after
thirty (30) days prior written notice to Landlord.
Tenant shall deliver to Landlord upon the Commencement Date and from
time to time thereafter, copies of policies of such insurance or certificates
evidencing the existence and amounts of same containing loss payable clauses
satisfactorily to Landlord and naming Landlord as Additional Insured thereunder.
(c) Landlord's Insurance. Landlord agrees to acquire, maintain
and pay for, during the full term of this Lease, "all risk" property damage
insurance against such risks and hazards as are customarily insured against by
others similarly situated and operating like properties, but excluding
earthquake and flood, covering the Building, including the Premises for such
amounts and upon such terms as would a prudent owner of such property similar to
and in the general area of the Building, and shall name Tenant as an additional
insured thereon. Such insurance shall be acquired from a company authorized to
do business in the State of Washington and rated as AXII or better in "Best's
Insurance Guide." Upon request by Tenant, Landlord shall notify Tenant of the
amount and type of insurance carried by Landlord pursuant to this section.
19. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign, mortgage, encumber or otherwise
transfer this Lease or sublet the whole or any part of the Premises without in
each case first obtaining Landlord's prior written consent, which Landlord may
not unreasonably withhold. Without limiting the foregoing, Landlord may withhold
its consent if in Landlord's judgment occupancy by any proposed assignee,
subtenant or other transferee: (i) is not consistent with the maintenance and
operation of a first-class suburban office building due to the proposed
occupant's nature or manner of conducting business or its experience or
reputation in the community, or (ii) is likely to cause disturbance to the
normal use and occupancy of the Building or Project by other tenants, their
employees, customers, clients or other guests or visitors. Landlord may withhold
in its absolute and sole discretion,
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consent to any mortgage, hypothecation, pledge or other encumbrance of any
interest in this Lease by Tenant or any subtenant, whereby this Lease or any
interest therein becomes collateral for any obligation of Tenant or any other
person.
(b) In the event Tenant should desire to assign this Lease or
sublet the Premises or any part hereof, Tenant shall give Landlord written
notice at least forty five (45) days in advance of the date on which Tenant
desires to make such assignment or sublease, which notice shall specify, (i) the
name and business of the proposed assignee or sublessee, (ii) the amount and
location of the space affected, (iii) the proposed effective date and duration
of the subletting or assignment, and (iv) the proposed rental to be paid to
Tenant by such sublessee or assignee. Landlord shall then have a period of
twenty (20) days following receipt of such notice within which to notify Tenant
in writing that Landlord elects either (1) to terminate this Lease as to the
space so affected as of the date so specified by Tenant and reclaim that portion
of the Premises (in which event Landlord may enter into a lease with any such
proposed subtenant or assignee upon the rent and terms agreed to by each
subtenant or assignee or on such other terms as may be agreed upon by Landlord
and such subtenant or assignee) or, (2) to permit Tenant to assign or sublet
such space, in which event if the proposed rental rate between Tenant and
sublessee is greater than the rental rate of this Lease, then such excess rental
to be deemed additional rent owed by Tenant to Landlord under this Lease, and
the amount of such excess, including any subsequent increases due to escalation
or otherwise, to be paid by Tenant to Landlord in the same manner that Tenant
pays the rental hereunder and in addition thereto, or (3) to withhold consent to
Tenant's assignment or subleasing such space and to continue this Lease in full
force and effect as to the entire Premises.
(c) Except as provided above, no assignment, subletting or other
transfer shall relieve Tenant of any liability under this Lease. Consent to any
such assignment, subletting or transfer shall not operate as a waiver of the
necessity for consent to any subsequent assignment, subletting or transfer. In
connection with each request for an assignment or subletting, Tenant shall pay
the reasonable cost of processing such assignment or subletting, including
attorneys fees, upon demand of Landlord. Tenant shall provide Landlord with
copies of all assignments, subleases and assumption instruments. If Tenant is a
corporation or partnership, any transfer of a controlling ownership interest in
Tenant or any transfer of this Lease by merger, consolidation or liquidation,
shall be deemed an assignment under this Section 19. Any assignee or subtenant
shall assume all of Tenant's obligations under this Lease and be jointly and
severally liable with Tenant hereunder.
20. LIENS AND INSOLVENCY.
(a) Liens. Tenant shall keep its interest in this Lease and any
Property of Tenant (other than unattached personal property) and the Premises,
and the Project free from any liens arising out of any work performed or
materials ordered or obligations incurred by or on behalf of Tenant and hereby
indemnities and holds Landlord harmless from any liability from any such lien.
In the event any lien is filed against the Premises, the Project or any portion
thereof by any person claiming by, through or under Tenant, Tenant shall, upon
request of Landlord, at Tenant's expense, immediately either cause such lien to
be released of record or furnish to Landlord a bond in form and amount and
issued by a
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surety satisfactory to Landlord, indemnifying Landlord, and the Project against
all liability, costs and expenses, including attorneys fees, which Landlord may
incur as a result thereof. Provided that such bond has been furnished to
Landlord, Tenant, at its sole cost and expense and after written notice to
Landlord, may contest, by appropriate proceedings conducted in good faith and
with due diligence, any lien, encumbrance or charge against the Premises arising
from work done or materials provided to and for Tenant, if, and only if, such
proceedings suspend the collection thereof against Landlord, Tenant and the
Premises and neither the Premises, nor the Project, nor any part thereof or
interest therein is or will be in any danger of being sold, forfeited or lost.
(b) Insolvency. If Tenant becomes insolvent or voluntarily or
involuntarily bankrupt, or if a receiver, assignee or other liquidating officer
is appointed for the business of tenant, Landlord at its option may terminate
this Lease and Tenant's right of possession under this Lease and in no event
shall this Lease or any rights or privileges hereunder be an asset of Tenant in
any bankruptcy, insolvency or reorganization proceeding.
21. DEFAULT.
(a) Default By Tenant. The occurrence of any one or more of the
following events shall constitute a material default and breach of this Lease by
Tenant: (i) the abandonment of the Premises by Tenant or the vacating of the
Premises for more than thirty (30) consecutive days; (ii) the failure by Tenant
to make any payment of Rent or any other payment required to be made by Tenant
hereunder, within five (5) days of date due; (iii) the failure by Tenant to
observe or perform any of the other covenants, conditions or provisions of the
Lease, where such failure shall continue for a period of twenty (20) days;
provided, however, if more than twenty (20) days are reasonably required for its
cure then Tenant shall not be deemed to be in default if Tenant commences such
cure within said 20-day period and thereafter diligently prosecutes such cure to
completion; (iv) the making by Tenant of any general assignment or general
arrangement for the benefit of creditors; (v) the filing by or against Tenant of
a petition to have Tenant adjudged bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
(vi) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in the Lease, where possession is not restored to Tenant within thirty
(30) days; (vii) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. The above notice periods may, at the election of Landlord, run
concurrently with any statutorily required notice periods.
(b) Remedies Cumulative; Injunction. All rights and remedies of
Landlord herein enumerated shall be cumulative, and none shall exclude any other
right or remedy allowed by law or in equity. In addition to the other remedies
in this Lease provided, Landlord shall be entitled to restrain by injunction the
violation or attempted violation of any of the covenants, agreements or
conditions of this Lease.
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(c) Landlord's Remedies Upon Tenant Default. Upon an uncured
default of this Lease by Tenant, Landlord, besides other rights or remedies it
may have, at its option, may enter the Premises or any part thereof, either with
or without process of law, and expel, remove or put out Tenant or any other
persons who may be thereon, together with all personal property found therein.
No such reentry shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention is given to
Tenant. Landlord may terminate this Lease, or it may from time to time, without
terminating this Lease and as agent of Tenant, relet the Premises or any part
thereof for such term or terms (which may be for a term less than or extending
beyond the term hereof) and at such rental or rentals and upon such other terms
and conditions as Landlord in its sole discretion may deem advisable, with the
right to repair, renovate, remodel, redecorate, alter and change the Premises,
Tenant remaining liable for any deficiency computed as hereinafter set forth. In
the case of any default, re-entry and/or dispossession, by summary proceedings
or otherwise, all Rent and Additional Rent shall become due thereupon and be
paid up to the time of such re-entry or dispossession, together with such
expenses as Landlord may reasonably incur for attorneys fees, advertising
expenses, brokerage fees and/or putting the Premises in good order or preparing
the same for re-rental, together with interest thereon as provided in Section
30(q) hereof, accruing from the date of any such expenditure by Landlord.
At the option of Landlord, rents received by Landlord from such
reletting shall be applied first to the payment of any indebtedness from Tenant
to Landlord other than Rent and Additional Rent due hereunder; second, to the
payment of any costs and expenses of such reletting and including, but not
limited to, attorneys fees, advertising fees and brokerage fees, and to the
payment of any repairs, renovations, remodeling, redecoration, alterations, and
changes in the Premises; third, to the payment of Rent and Additional Rent due
and to become due hereunder, and if after so applying said Rents there is any
deficiency in the Rent or Additional Rent to be paid by Tenant under this Lease,
Tenant shall pay any deficiency to Landlord monthly on the dates specified
herein and any payment made or suits brought to collect the amount of the
deficiency for any month shall not prejudice in any way the right of Landlord to
collect the deficiency for any subsequent month. The failure or refusal of
Landlord to relet the Premises or any part or parts thereof shall not release or
affect Tenant's liability hereunder, nor shall Landlord be liable for failure to
relet, or in the event of reletting, for failure to collect the Rent thereof,
and in no event shall Tenant be entitled to receive any excess of net Rents
collected over sums payable by Tenant to Landlord hereunder, however, Landlord
shall have the obligation to exert reasonable efforts to mitigate damages,
provided that Landlord shall not be required to relet the Premises prior to
leasing any other space owned by the Landlord, or its affiliates, within a one
mile radius. No such re-entry or taking possession of the Premises shall be
construed as an election on Landlord's part to terminate this Lease unless a
written notice of such intention be given to Tenant. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach and default. Should Landlord at
any time terminate this Lease by reason of any default, in addition to any other
remedy it may have, it may recover from Tenant the present value, using a ten
percent (10%) discount rate, of the amount of Rent and Additional Rent reserved
in this Lease for the balance of the Term, as it may have been extended, less
the amount that Tenant proves could be collected for the remainder of the
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Term, plus all court costs and attorneys fees incurred by Landlord in the
collection of the same.
Tenant acknowledges that certain benefits or concessions provided by
Landlord are conditioned upon Tenant's timely, full and faithful performance of
each and every obligation, covenant, representation and warranty of this Lease
throughout the entire term of this Lease, even though such benefits or
concessions may be realized by Tenant over less than the entire term of this
Lease. Accordingly, notwithstanding anything to the contrary contained herein,
in the event Landlord brings an action against Tenant for default under this
Lease which results in a termination of this Lease and eviction of Tenant,
Landlord shall become immediately entitled to receive from Tenant as Additional
Rent the amount of all such benefits and concessions allocable to the balance of
the Lease term on a pro rata basis, i.e. an amount equal to the product of (x)
the sum of (a) any amounts theretofore or thereafter paid by Landlord to Tenant
or to any third party, or any amounts credited to Tenant or to any third party,
for or on account of (i) any moving, tenant improvement, decorating or other
allowance or credit granted to Tenant but only to the extent such tenant
improvements are demolished for the next occupant of the premises, (ii) any real
estate commission paid on account of this Lease, and (iii) any expenses or costs
related to assumption by Landlord of any other lease, plus (b) an amount equal
to the difference between the rent as specified in Section 4 above and rent for
any period for which this Lease provides any lesser amount including zero or
nominal rent, including for any period of early occupancy of the Premises prior
to the commencement of the term of this Lease, plus (c) the amount spent by
Landlord for any tenant improvements to the Premises but only to the extent such
tenant improvements are demolished for the next occupant of the premises;
multiplied by (y) a fraction, the numerator of which is the number of days of
the term of this Lease remaining between the date of default and the expiration
of the term of this Lease, and the denominator of which is the total number of
days of the term of this Lease. By way of example, if Tenant receives a moving
allowance of $1,000, the Lease term is 3 years (1,095 days) and a default occurs
at the end of the first year such that there were 2 years (730 days) remaining,
the Tenant shall pay as additional rent the sum of $666.67, which is computed as
follows: ($1,000 x 730)/1,095 = $666.67.
(d) Waiver of Redemption Rights. Tenant, for itself, and on
behalf of any and all persons claiming through or under it, including creditors
of all kinds, does hereby waive and surrender all right and privilege which they
or any of them might have under or by reason of any present or future law, to
redeem the Premises or to have a continuance of this Lease for the term hereof,
as it may have been extended, after having been dispossessed or ejected
therefrom by process of law or under the terms of this Lease or after the
termination of this Lease as herein provided.
(e) Nonpayment of Additional Rent. All costs and expenses which
Tenant assumes or agrees to pay to Landlord pursuant to this Lease shall be
deemed Additional Rent and, in the event of nonpayment thereof, Landlord shall
have all the rights and remedies herein provided for in case of nonpayment of
Rent.
(f) Interest. All past due Rent shall bear interest at the rate
of 15% per annum.
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22. PRIORITY.
(a) Subordination of Lease. This Lease shall be subordinate to
any mortgage or deed of trust now existing or hereafter placed upon the Premises
or the Project or any portion thereof containing the Premises, created by or at
the instance of Landlord, and to any and all advances to be made thereunder and
to interest thereon and all modifications, renewals and replacements or
extensions thereof ("Landlord's Mortgage") provided however, that the holder of
any Landlord's Mortgage or any person or persons purchasing or otherwise
acquiring the Premises, the Project or any portion thereof containing the
Premises at any sale or other proceeding under any Landlord's Mortgage may elect
to continue this Lease in full force and effect; and in such event, Tenant shall
attorn to such person or persons. Tenant shall properly execute, acknowledge and
deliver documents which the holder of any Landlord's Mortgage may require to
effectuate the provisions of this Section 22 within five (5) days after
Landlord's request. Notwithstanding the above, Landlord shall use commercially
reasonable efforts to cause any holder of Landlord's mortgage to enter into a
Nondisturbance Agreement with Tenant which shall provide in essence that upon
any foreclosure of any mortgage or deed of trust by such holder of Landlord's
mortgage, that such holder will not disturb Tenant's rights pursuant to this
Lease, so long as Tenant is not in default pursuant to the provisions of this
Lease
23. ESTOPPEL CERTIFICATES.
(a) Delivery of Estoppel. Tenant shall, from time to time, upon
written request of Landlord, execute, acknowledge and deliver to Landlord or its
designee a written statement stating: The date this Lease was executed and the
date it expires; the date the term commenced and the date Tenant accepted the
Premises; the amount of Basic Rent and the amount of Additional Rent currently
being paid towards increases in Operating Costs, and the date to which such Rent
has been paid; and certifying: (i) whether this Lease is in full force and
effect and has not been assigned or amended in any way (or specifying the date
and terms of agreement so affecting this Lease); (ii) whether this Lease
represents the entire agreement between the parties as to this leasing; that all
obligations under this Lease to be performed by the Landlord have been satisfied
or specifying those that have not been satisfied; (iii) whether on this date
there are no existing claims, defenses or offsets which the Tenant has against
the enforcement of this Lease by the Landlord; (iv) whether no Rent has been
paid more than one month in advance; and that no security has been deposited
with Landlord (or, if so, the amount thereof); and (v) such other items as
Landlord shall reasonably request. It is intended that any such statement
delivered pursuant to this Section may be relied upon by a prospective purchaser
of Landlord's interest or holder of any mortgage upon Landlord's interest in the
Building or the Project.
(b) Failure to Deliver Estoppel. If Tenant shall fail to respond
within ten (10) days of receipt by Tenant of a written request by Landlord as
herein provided, Tenant shall be deemed to have given such certificate as above
provided without modification and shall be deemed to have admitted the accuracy
of any information supplied by Landlord to a prospective purchaser or mortgagee
and to have certified that this Lease is in full force and effect, that there
are no uncured defaults in Landlord's performance, that the security
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<PAGE> 26
deposit is as stated in the Lease, and that not more than one month's Rent has
been paid in advance.
24. SURRENDER OF POSSESSION. Subject to the terms of Section 14 relating
to damage and destruction, upon expiration of the term of this Lease, whether by
lapse of time or otherwise, Tenant shall promptly and peacefully surrender the
Premises to Landlord "broom-clean" and in as good condition as when received by
Tenant from Landlord or as thereafter improved, damage thereto from causes
beyond the reasonable control of Tenant, ordinary wear and tear and damage by
fire or casualty not intentionally caused by Tenant excepted. Tenant shall
remove all of its personal property and trade fixtures from the Premises and the
Project at the expiration of the term and repair any damage caused by such
removal; any property not so removed shall be deemed abandoned and may be sold
or otherwise disposed of as Landlord deems advisable.
25. NON-WAIVER. Waiver by Landlord of any term, covenant or condition
herein contained or any breach thereof shall not be deemed to be a waiver of
such term, covenant, or condition or of any subsequent breach of the same or any
other term, covenant, or condition herein contained. The subsequent acceptance
of Rent or Additional Rent hereunder by Landlord shall not be deemed to be a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease, other than the failure of Tenant to pay the particular Rent or
Additional Rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent or Additional Rent.
26. HOLDOVER. If Tenant remains in possession of the Premises or any
part thereof after the expiration of the term of this Lease with the express
written consent of Landlord, such occupancy shall be a tenancy from
month-to-month at a rental in the amount equal to one and one-half (1-1/2) times
the last monthly rental plus all other charges payable under this Lease, and
subject to all of the terms, covenants and conditions of this Lease applicable
to a month-to-month tenancy. Tenant acknowledges and agrees that this Section 26
does not grant any right to Tenant to holdover.
27. LANDLORD'S LIABILITY. Anything in this Lease to the contrary
notwithstanding, covenants, undertakings and agreements herein made on the part
of Landlord are made and intended not as personal covenants, undertakings and
agreements for the purpose of binding Landlord personally or the assets of
Landlord except Landlord's interest in the Premises and Building, but are made
and intended for the purpose of binding only the Landlord's interest in the
Premises and Building, as the same may from time to time be encumbered. No
personal liability or personal responsibility is assumed by, nor shall at any
time be asserted or enforceable against Landlord or its partners or their
respective heirs, legal representatives, successors or assigns on account of the
Lease or on account of any covenant, undertaking or agreement of Landlord in
this Lease contained.
28. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
Landlord's interest in the Premises or in the Building, the transferor shall be
automatically relieved of any and all obligations and liabilities on the part of
Landlord accruing from and after the date of such transfer and such transferee
shall have no obligation or liability with
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respect to any matter occurring or arising prior to the date of such transfer.
Tenant agrees to attorn to the transferee.
29. RIGHT TO PERFORM. If Tenant shall fail to pay any sum of money
required to be paid by it hereunder or shall fail to perform any other act on
its part to be performed hereunder, and such failure shall continue for ten (10)
days after notice thereof by Landlord, Landlord may, but shall not be obligated
so to do, and without waiving or releasing Tenant from any obligations of
Tenant, make such payment or perform any such other act on Tenant's part to be
made or performed as provided in this Lease. Landlord shall have (in addition to
any other right or remedy of Landlord) the same rights and remedies in the event
of the nonpayment of sums due under this Section 29 as in the case of default by
Tenant in the payment of Rent.
30. GENERAL.
(a) Headings. Titles to Sections of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part hereof.
(b) Heirs and Assigns. All of the covenants, agreements, terms
and conditions contained in this Lease shall inure to and be binding upon the
Landlord and Tenant and their respective heirs, executors, administrators,
successors and assigns.
(c) Authority. Each individual executing this Lease on behalf of
Tenant represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of Tenant, and that this Lease is binding upon
Tenant in accordance with its terms.
(d) No Brokers. Except as set forth in Section 1(r), Tenant
represents and warrants to Landlord that it has not engaged any broker, finder
or other person who would be entitled to any commission or fees in respect of
the negotiation, execution or delivery of this Lease and shall indemnify and
hold harmless Landlord against any loss, cost, liability or expense incurred by
Landlord as a result of any claim asserted by any such broker, finder or other
person on the basis of any arrangements or agreements made or alleged to have
been made by or on behalf of Tenant.
(e) Entire Agreement. This Lease is the final and complete
expression of Landlord and Tenant relating in any manner to the leasing, use and
occupancy of the Premises, to Tenant's use of the Project or portions thereof,
and other matters set forth in this Lease. No prior agreements or understanding
pertaining to the same shall be valid or of any force or effect and the
covenants and agreements of this Lease shall not be altered, modified or added
to except in writing signed by both Landlord and Tenant.
(f) Severability. 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 the remaining provisions hereof shall nevertheless
remain in full force and effect.
(g) Force Majeure. Except for the payment of Rent, Additional
Rent or other sums payable by Tenant to Landlord, time periods for Tenant's or
Landlord's
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performance under any provisions of this Lease shall be extended for periods of
time during which Tenant's or Landlord's performance is prevented due to
circumstances beyond Tenant's or Landlord's control, including without
limitation, strikes, unavailability or delay in obtaining fuel, labor or
materials, accidents, floods, defective materials, fire or other casualty,
adverse weather conditions, inability to obtain building or use and occupancy
certificates, embargoes, governmental regulations, acts of God, war or other
strife, or other causes similar or dissimilar.
(h) Notices. All notices under this Lease shall be in writing and
delivered in person or sent by registered or certified mail, postage prepaid, to
Landlord and to Tenant at the Addresses provided respectively in Section 1(e)
and 1(c) (provided that after the Commencement Date any such notice shall be
mailed or delivered by hand to Tenant at the Premises) and to the holder of any
mortgage or deed of trust at such place as such holder shall specify to Tenant
in writing; or such other addresses as may from time to time be designated by
any such party in writing. Notices mailed as aforesaid shall be deemed given on
the date of such mailing.
(i) Costs and Attorneys Fees. If Tenant or Landlord shall bring
any action for any relief against the other, declaratory or otherwise, arising
out of this Lease, including any suit by Landlord for the recovery of Rent,
Additional Rent or other payments hereunder or possession of the Premises each
party shall, and hereby does, to the extent permitted by law, waive trial by
jury and the losing party shall pay the prevailing party a reasonable sum for
attorneys fees in such suit, at trial and on appeal, and such attorneys fees
shall be deemed to have accrued on the commencement of such action.
(j) Governing Law. This Lease shall be governed by and construed
in accordance with the internal laws of the state of Washington.
(k) Recording. Tenant shall not record this Lease or a memorandum
hereof without Landlord's prior written consent and such recordation shall, at
the option of Landlord, constitute a non-curable default of Tenant hereunder.
(l) Waivers. No waiver by Landlord of any provision hereof shall
be deemed 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 shall not be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act by Tenant. The acceptance of rent
hereunder by Landlord shall not be a waiver of any preceding breach at the time
of acceptance of such rent.
(m) Time of Essence. Time is of the essence for the performance
of all of the obligations specified hereunder.
(n) Merger. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at
the option of Landlord, terminate all or any existing subtenancies or may, at
the option of Landlord, operate as an assignment to Landlord of any or all of
such subtenancies.
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(o) Right to Change Public Spaces. Landlord shall have the right
at any time, without thereby creating an actual or constructive eviction or
incurring any liability to tenant therefor, to change the arrangement or
location of such of the following as are not contained within the Premises or
any part thereof: entrances, passageways, doors and doorways, corridors, stairs,
toilets and other like public service portions of the Building. Nevertheless, in
no event shall Landlord diminish any service, change the arrangement or location
of the elevators serving the Premises, make any change which shall diminish the
area of the Premises, or make any change which shall change the character of the
Building from that of a first-class office building.
(p) Name. The Building and the Project will be known by such name
as Landlord may designate from time to time. Landlord reserves the right to name
and rename the Building and/or the Project from time to time and to install
signs accordingly, without compensation or prior notice to Tenant.
(q) Overdue Payments. Any Rent, Additional Rent or other sums
payable by Tenant to Landlord under this Lease which shall not be paid when due
thereof, shall bear interest at a rate equal to fifteen percent (15%),
calculated from the original due date thereof to the date of payment. Any late
payment of Rent (i.e., not paid within five (5) days when due) shall also be
subject to a collection fee equal to the greater of $100.00 or five percent (5%)
of the amount due.
(r) Relocation of Premises. During the term of the Lease Landlord
may relocate the Tenant's Premises within the Project. Said relocation shall be
at the total cost and expense of Landlord. In the event Landlord so elects to
relocate Tenant, Landlord shall notify Tenant, specifying the relocation space
to Tenant. Tenant shall have fifteen (15) days from the receipt of said notice
to accept said relocation. In the event that the relocation proposal is accepted
by Tenant, Landlord and Tenant shall revise the Tenant's Lease to reflect the
new space. Upon such relocation, such new space shall be deemed the Premises
hereunder for all purposes and the Lease shall be deemed amended to that effect
without further formality. Rental rates for the new space shall be the same as
those agreed to in the original Lease Agreement, subject to adjustment for
additional space, or less space, as agreed to by the parties. All other terms
and conditions of the original Lease shall remain in full force and effect. In
the event that Tenant elects not to accept the relocation of its Premises,
Tenant shall so notify Landlord in writing. Landlord shall then have the option
for thirty (30) days to terminate Tenant's Lease, or to allow Tenant to remain
in its present Premises.
If Tenant accepts such relocation, the following conditions will apply:
(i) Landlord will bear all costs and expenses resulting from the move, including
but not limited to
- replace or relocate communication, computer and phone connections
- reprint letterhead, cards and forms
- move building signage
- move furniture, equipment, partitions, etc.
(ii) Landlord will provide comparable space, to include:
- similar linear feet of window line
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- similar functional layout and flow
- similar quantity and quality of improvements
(iii) A rental credit of $49,767 will be provided by Landlord for the next rent
due under the Lease and (iv) the move will occur during periods between Friday
5:00 PM and Monday 6:00 AM.
(s) Advertising. Tenant shall not inscribe any inscription, or
post, place or in any manner display any sign, notice, picture, placard or
poster, or any advertising matter whatsoever in or about the Premises or the
Building or the Project at places visible (either directly or indirectly as an
outline or shadow on a glass pane) from anywhere outside the Premises without
first obtaining Landlord's written consent thereto. Any such consent by Landlord
shall be upon the understanding and condition that Tenant will remove the same
at the expiration or sooner termination of this Lease and Tenant shall repair
any damage to the Premises, the Building or the Project caused thereby.
(t) Parking. Parking shall at all times be governed by reasonable
rules and regulations as set forth in Exhibit D, which shall be published from
time to time by Landlord. Parking may be on a reserved stall and/or undesignated
stall -- "window sticker" basis, and may be self-service and/or attendant
service, as determined from time to time by Landlord. Tenant shall have the
right to use that number of parking stalls as set forth in Section 1(q).
(u) Execution of Lease by Landlord. The submission of this
document for examination and negotiation does not constitute an offer to lease,
or a reservation of, or option for the Premises, and this document shall become
effective and binding only upon execution and delivery by Landlord. No act or
omission of any employee or agent of Landlord or of Landlord's broker shall
alter, change or modify any of the provisions hereof.
31. LANDLORD'S COVENANTS.
(a) Quiet Enjoyment. Tenant shall have the right to the peaceable
and quiet use and enjoyment of the Premises, subject to the provisions of this
Lease, so long as Tenant is not in default hereunder.
(b) Hazardous Waste or Materials. Landlord represents to Tenant
that to the best of Landlord's actual knowledge no hazardous waste or materials
have been generated, stored or disposed of by Landlord on the land or in or on
the Building, other than in compliance with applicable laws.
(c) Rentable Square Feet. Landlord warrants that the rentable
square feet of the Project is 69,596 square feet, and the rentable square feet
of the Premises is 10,753 square feet. Landlord further warrants that such
square feet have been calculated in accordance with BOMA Standards (1996
version).
32. GUARANTY OF LEASE. In order to induce Landlord to execute this
Lease, Tenant has agreed to deliver to Landlord a Restated Guaranty of Lease, in
the form attached hereto as Exhibit E, from William T. Baxter, Albert T. Dosser
and Peter R. Gregory.
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<PAGE> 31
IN WITNESS WHEREOF this Lease has been executed the day and year first
above set forth.
LANDLORD: SEATTLE OFFICE ASSOCIATES L.L.C.
a Washington Limited Liability company
By [Signature Illegible]
--------------------------------------
Its Member
-----------------------------------
TENANT: bsquare consulting, inc.
a Washington Corporation
By /s/ William T. Baxter
--------------------------------------
Its President and CEO
-----------------------------------
26
<PAGE> 32
LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that P. Langston
Sligh is the person who appeared before me, and said person acknowledged that
said person signed this instrument, on oath stated that said person was
authorized to execute the instrument and acknowledged it as a managing member of
Seattle Office Associates, a limited liability company, to be the free and
voluntary act of such limited liability company for the uses and purposes
mentioned in the instrument.
Dated this 24th day of March, 1997
[Signature Illegible]
----------------------------------------
Notary Public in and for the state of
Washington, residing at Kirkland, WA
My appointment expires 8-29-00
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that William Baxter
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the President and CEO respectively, of a
corporation, to be the free and voluntary act of such corporation for the uses
and purposes mentioned in the instrument.
Dated this 21st day of March, 1997.
[Signature Illegible]
----------------------------------------
Notary Public in and for the state of
Washington, residing at Kirkland, WA
My appointment expires 8-29-00
27
<PAGE> 33
EXHIBIT A
LEGAL DESCRIPTION OF LAND
That portion of the northeast quarter of the southwest quarter of Section 10,
Township 24 North, Range 5 East, W.M., in King County, Washington, lying
southerly of the south line of the frontage road right-of-way known as S.E. 36th
Street on the south side of primary State Highway No. 2 as shown on State of
Washington, Department of Highways Map, SR 90, MP 7.71 to MP 11.72, Richards
Road to Lake Sammamish, sheet 3 of 35, latest revision date March 31, 1977, on
file at the office of the Department of Transportation, Olympia, Washington,
except that portion lying westerly of the west line of an electric transmission
easement, granted to Puget Sound Power & Light Company by instrument recorded
under Auditor's File No. 2545297, also subject to an easement for a petroleum
pipeline, as recorded under Auditor's File No. 5785336, and also subject to a
perpetual slope easement, as acquired under Superior Court Cause No. 7733237.
<PAGE> 34
EXHIBIT B
SPACE PLAN OF PREMISES
<PAGE> 35
EXHIBIT C
TENANT IMPROVEMENTS
Landlord to complete the following tenant improvements at its cost:
a. carpet and paint entire premises. Carpet to be building standard
(Mohawk RIO 30/36 in "Federal Blue" #511). Carpet is to be cut pile in
offices and loop pile in hallways/corridors as specified by Tenant.
Paint color to be chosen by Tenant subject to approval by Landlord.
Vinyl to be placed in kitchen and lunchroom area will be building
standard (Armstrong Corlon in "Suffield Slate" #86807). New rubber cove
base to be installed (Robbe "Gray" #50) in all areas.
b. Clean up/touch up of kitchen cabinet fronts.
c. Building standard signage to be provided for Tenant door and for main
building directory.
d. Replacement of all ceiling tiles and straightening/replacement of
ceiling grid as required.
e. Placement of locks on selected interior office doors, to be determined
by Tenant.
f. Make sure that all interior lighting is fully operational.
g. Clean all window blinds and interior windows.
h. Landlord to refurbish common area corridor from elevator lobby to east
stairwell so as to match new corridor from elevator lobby to west
stairwell.
i. Landlord to provide space planning services including working drawings
as necessary to acquire permits to complete space. Landlord will also
provide space planning design for adjacent suite of approximately 1754
rentable square feet.
j. Demolition of areas as required to complete the construction of the
desired improvements as shown in Exhibit B.
The Landlord will cause the following improvements to be done and completed at
the sole cost of the Tenant. Tenant shall have the right to approve all costs
prior to the start of the work.
a. Construction of new offices as required to match site plan for space as
shown on Exhibit B-2. New doors and relites as required will match the
existing trim.
b. Electrical and mechanical work as required to match new office layout.
Tenant to provide electrical specifications prior to start of work.
c. Depending upon total costs involved, Tenant may elect to complete the
improvement work in phases to match its expected occupancy needs.
<PAGE> 36
EXHIBIT D
RULES AND REGULATIONS
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, 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 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 and in a form approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection with
any window or door of the Premises, or placed on any windowsill which is visible
from the exterior of the Premises, Tenant shall immediately discontinue such
use. Tenant shall not place anything against or near glass partitions or doors
or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances,
elevators or stairways of the Building. The halls, passages, exits, entrances,
elevators, and stairways are not open to the general public, but are open,
subject to reasonable regulation, to Tenant's business invitees. 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 interest of the Building and its tenants;
providing that nothing herein contained shall be construed to prevent such
access to persons with whom any tenant normally deals in the ordinary course of
its business, unless such persons are engaged in illegal or unlawful activities.
No tenant and no employee or invitee of any tenant shall go upon the roof of the
Building.
4. 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, including individual's names, therefrom.
5. All cleaning and janitorial services for the Building and the Premises shall
be provided exclusively through Landlord, and except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall be
employed by Tenant or permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by carelessness
or indifference to the good order and cleanliness of the Premises.
6. Landlord will furnish Tenant, free of charge, with eight keys to each door
lock in the Premises. Landlord may make a reasonable charge for any additional
keys. Tenant shall not alter any lock or install a new additional lock or bolt
on any door of its Premises. Tenant, upon the termination of its tenancy, shall
deliver to Landlord the keys of all doors which have been furnished to Tenant,
and in the event of loss of any keys so furnished, shall pay Landlord therefore.
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
8. The Building elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord, in its discretion,
shall deem appropriate. 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. Tenant's initial move in and
<PAGE> 37
subsequent deliveries of bulky items, such as furniture, safes and similar items
shall, unless otherwise agreed by Landlord, be made during the hours of 6 P.M.
to 6 A.M. or on Saturday or Sunday. Deliveries during normal office hours shall
be limited to normal office supplies and other small items. No deliveries shall
be made which impede or interfere with other tenants or the operation of the
Building.
9. Tenant shall not place a load upon any floor of the Premises 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, if considered necessary by Landlord, stand on
such platforms as determined by Landlord to be necessary to properly distribute
the weight, which platforms shall be provided at Tenant's expense. Business
machines and mechanical equipment belonging to Tenant, which cause 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 in the Building, 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 or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant shall not
use or permit to be used in the Premises any foul or noxious gas or substance,
or permit or allow the 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 or vibrations, nor shall Tenant bring into or keep in or about the
Premises any birds or animals.
11. Tenant shall not use any method of heating or air conditioning other than
that supplied by Landlord.
12. Tenant shall not waste electricity, water or air conditioning and agrees to
cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice, and
shall refrain from attempting to adjust controls. Tenant shall keep corridor
doors closed, and shall close window coverings at the end of each business day.
13. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
14. 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. Landlord reserves the right to prevent access to the Building in
case of invasion, mob, riot, public excitement or other commotion by closing the
doors or by other appropriate action.
15. Tenant shall close and lock the doors of its 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
32
<PAGE> 38
sustained by other tenants or occupants of the Building or by Landlord for
noncompliance with this rule.
16. 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 and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from violation of this rule shall be
borne by the tenant who, or whose employees or invitees, shall have caused it.
17. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Building. Tenant shall not
use the Premises for any business or activity other than that specifically
provided for in Tenant's Lease.
18. Tenant shall not install any radio or television antenna, loudspeaker or
other devices 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.
19. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster, or in any way deface the Premises or any part thereof,
except in accordance with the provisions of the Lease pertaining to alterations.
Landlord reserves the right to direct electricians as to where and how telephone
and telegraph wires are to be introduced to the Premises. Tenant shall not cut
or bore holes for wires. Tenant shall not affix any floor covering to the floor
of the Premises in any manner except as approved by Landlord.
20. Tenant shall repair any damage resulting from noncompliance with this rule.
Tenant shall not install, maintain or operate upon the Premises any vending
machines without the written consent of Landlord.
21. Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the Building are prohibited, and Tenant shall
cooperate to prevent such activities.
22. Landlord reserves the right to exclude or expel from the Building any person
who, in Landlord's judgment, is intoxicated or under the influence of liquor or
drugs or who is in violation of any of the Rules and Regulations of the
Building.
23. Tenant shall store all its trash and garbage within its Premises or in other
facilities provided by Landlord. 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. Tenant will take advantage of any recycling available at the site.
24. The Premises shall not be used for the storage of merchandise held for sale
to the general public, or for lodging or for manufacturing of any kind, nor
shall the Premises be used for any improper, immoral or objectionable purpose.
No cooking shall be done or permitted on the Premises without Landlord's
consent, except that use by Tenant of Underwriters' Laboratory-approved
equipment for brewing coffee, tea, hot chocolate and similar beverages, or use
of microwave ovens for employee use shall be permitted, provided that such
equipment and use is in accordance with all applicable federal, state, county
and city laws, codes, ordinances, rules and regulations.
25. Tenant shall not use in any space or in the public halls of the Building,
any hand truck except those equipped with rubber tires and side guards or such
other material-
33
<PAGE> 39
handling equipment as Landlord may approve. Tenant shall not bring any other
vehicles of any kind into the Building.
26. Without the written consent of Landlord, 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.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. Tenant's requirements will be attended to only upon appropriate application
to the Building management office 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 Tenant.
30. Tenant shall comply with all parking requirements of the property, and will
not park more vehicles at the property than provided in Tenant's lease. Landlord
reserves the right to ticket and/or tow vehicles, at Tenant's expense, not
displaying a valid parking permit.
a) Parking stickers or any other device or form of identification
supplied by Landlord as a condition of the use of the parking facilities
shall remain the property of Landlord. Such parking identification
device must be displayed as requested and may not be mutilated in any
manner. The serial number of the parking identification device may not
be obliterated. Devices are not transferable, and any device in the
possession of an unauthorized holder and will be void.
b) Loss or theft of parking identification devices from automobiles must
be reported immediately, and a lost or stolen report must be filed by
the customer at that time. Landlord has the right to exclude any vehicle
from the parking facilities that does not have an identification device.
c) Tenant shall not park or permit the parking of any vehicle under its
control in any parking areas designated by Landlord as areas for parking
by visitors to the Building. Tenant or its customers, suppliers,
employees, or invitees shall not use motor homes or other similar
vehicles in the parking areas and shall not leave vehicles in the
parking areas overnight or for any extended period of time, nor park any
vehicles in the parking areas other than automobiles, motorcycles, motor
driven or nonmotor driven bicycles or four-wheeled trucks not more than
20 feet in length. Provided that, from time to time, Tenant may park
passenger automobiles overnight.
d) Washing, waxing, cleaning or servicing of any vehicle in any area not
specifically reserved for such purpose is prohibited.
e) Vehicles must be parked entirely within the painted stall lines of a
single parking stall.
f) Parking is prohibited:
i) in areas not striped for parking;
ii) in aisles
34
<PAGE> 40
iii) where "no parking" signs are posted;
iv) on ramps;
v) in cross hatched areas; and
vi) in such other areas as may be designated by Landlord or
Landlord's agent from time to time.
g) Landlord or its agents shall have the right to cause to be removed
any car of Tenant, its employees, invitees, licensee, or agent, that may
be parked in unauthorized area, and Tenant agrees to save and hold
harmless Landlord, its agent and employees from any and all claims,
losses, damages and demands asserted or arising in respect to or in
connection with the removal of any such vehicle and for all expenses
incurred by Landlord in connection with such removal. Tenant will from
time to time, upon request of Landlord, supply Landlord with a list of
license plate numbers or vehicle owned or operated by its employees and
agents.
h) Landlord reserves the right to modify and/or adopt such other
reasonable and non-discriminatory Rules and Regulations for the parking
facilities as it deems necessary for the operation of the parking
facilities. Landlord may refuse to permit any person who violates these
Rules and Regulations to park in the parking facilities, and any
violation shall subject the car to removal at the owner's expense.
31. Tenant shall be responsible for maintaining and, if necessary, replacing any
appliances that were provided in any Tenant Improvements (i.e. microwaves and
dishwashers, etc.).
32. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of Tenant or any
other tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
33. 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, covenants,
agreements and conditions of Tenant's lease of its Premises in the Building.
34. Landlord reserves the right to amend these rules and 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.
35. Tenant shall be responsible for the observance of all of the foregoing rules
by Tenant's employees, agents, clients, customers, invitees and guests.
35
<PAGE> 41
EXHIBIT E
RESTATED
GUARANTY OF LEASE
William T. Baxter ("Guarantor"), hereby agrees with Seattle Office Associates
LLC ("Landlord"), as follows:
1. Consideration: Guarantor has agreed to make and deliver this Guaranty to
Landlord in order to induce Landlord to enter into a new lease dated March
__, 1997 with bsquare consulting, inc. (Tenant) with respect to Suite 100
of the Delphi Building in Bellevue, WA (the "Suite 100 Lease"), and also to
induce Landlord to enter into a new lease dated March __, 1997 with Tenant
with respect to Suite 310 of the Delphi Building (the "Suite 310 Lease").
Landlord and Tenant are also parties to a lease dated November 15, 1996, as
amended, with respect to Suite 200 of the Delphi Building (the "Suite 200
Lease"). The Suite 100 Lease, the Suite 200 Lease and the Suite 310 Lease
are collectively referred to as the "Leases", and are the Leases under
which the obligations hereby guaranteed have been created. Guarantor hereby
acknowledges that it has and will derive a direct financial benefit from
Landlord's entering into the Leases. This Guaranty replaces and supersedes
in its entirety the Guaranty of Lease from Guarantor to Landlord for the
Suite 200 Lease dated November 15, 1996.
2. Guarantee: Guarantor hereby guarantees the Leases, as originally executed
and as thereafter modified or amended, as follows: Guarantor hereby
guarantees and undertakes with Landlord that in the event that the Tenant
shall default in the payments of any sums due and owing to Landlord from
Tenant on account of any of the Leases or in the event that the Tenant
shall default in the full and faithful performance of Tenant's obligations,
undertakings and covenants contained in the Leases, then Guarantor shall
pay to Landlord, within ten days of demand, any and all sums so due to
Landlord (not to exceed the limitation set forth below) and any damages
incurred by Landlord on account thereof. This guaranty is absolute and
unconditional. Guarantor's total obligation under this guarantee is limited
to $299,000 (the "Limit Amount").
3. Reductions in Limit Amount: Guarantor shall have the right to reduce the
Limit Amount by $2.32 for each $1.00 in cash deposited by Guarantor with
Landlord, provided that the maximum amount Guarantor may reduce the Limit
Amount by cash deposit may not exceed $174,000 ($75,000 in cash). Any cash
deposited by Guarantor with Landlord to reduce the Limit Amount shall
accrue interest at the rate of 5% per annum, which interest shall be
credited to the cash deposit on a monthly basis. Any cash deposited with
Landlord to reduce the Limit Amount shall be held by Landlord with
landlord's other funds, and shall be available to Landlord on the same
terms and conditions as the security deposits under the Leases. Any
remaining portion of the cash deposit (and any accrued interest thereon)
shall be returned to Guarantor only after all of the Leases have expired
and all of the obligations of Tenant thereunder have been satisfied in
full.
Any reduction in the Limit Amount arising from a cash deposit with Landlord
shall only be effective as to obligations arising under this Guaranty
accruing after the date of deposit. Obligations which have accrued under
the Guaranty prior to or as of the date of a cash deposit with Landlord
shall still be subject to the full Limit Amount. Thus, following a default
by Tenant under a Lease, Guarantor may not make a cash deposit with
Landlord to reduce the Limit Amount applicable to such default.
The Limit Amount shall also be reduced $3,472.22 per month for each month
which the Tenant is not in default under any of the Leases, provided that
in no event shall the Limit Amount be reduced by more than $125,000 by
operation of this provision. This monthly reduction is to begin December
13, 1996.
4. Term: Guarantor's obligations and undertakings herein contained shall
remain in full force and effect and shall survive termination of the
Leases.
5. Rights of Landlord: Without diminishing, releasing or discharging
Guarantor's obligations hereunder, Landlord shall have the right to
exercise the following powers and rights in Landlord's sole discretion:
Landlord may change, alter, cancel, renew, extend, decrease or increase the
obligations of Tenant to Landlord (increases in the
Page l
<PAGE> 42
obligation of the Tenant to Landlord will not increase the Limit Amount
under this guaranty). Landlord may add other guarantors or procure
additional guarantees, release other guarantors or guarantees and apply
monies or properties received from Tenant upon debts regardless of whether
the same may be guaranteed hereby, otherwise secured, barred by statutes of
limitation or discharged other than by payment. Landlord may exercise
rights hereunder in the event of Tenant's insolvency, bankruptcy,
receivership or assignment for benefit of creditors, in which event all of
Tenant's liabilities and indemnities to Landlord shall be satisfied in full
before Guarantor shall be entitled to participation in the distribution of
Tenant's assets. Landlord may deal with Tenant, Guarantor and any other
person liable on the indebtedness, obligation or liabilities to Landlord as
Landlord deems advisable.
6. Default of Tenant: Notice of acceptance of this Guaranty and of defaults,
breaches, demands, presentments, protest, and amendment to or modification
or cancellation of the Leases, and of any other kind is fully waived by
Guarantor. Upon default by Tenant on any of its obligations to Landlord,
then at Landlord's option, without notice or demand upon Guarantor and
without exercising any other right or remedy Landlord may have, Landlord
may proceed directly against Guarantor or any other guarantor to enforce
Landlord's rights hereunder. Without releasing or affecting Guarantor's
obligations hereunder, Landlord may enforce any rights it may have against
any persons and properties liable.
7. Impairment of Rights: Landlord's rights shall be cumulative and not
exclusive. No impairment, limitation or modification or Tenant's
liabilities or obligations or of its trustee or receiver or any such
impairment, limitation or modification of Landlord's remedies by virtue of
the operation of bankruptcy or similar laws or decisions of any court or
courts nor any disaffirmance of the Landlord's obligations under the Leases
in such proceedings shall affect Landlord's rights against Guarantor
hereunder.
8. Successor and Assigns: The obligations of Guarantor shall inure to the
benefit of the Landlord's assigns and successors in interest in the Leases
and shall be binding upon Guarantor's heirs, successors and assigns.
Reference to Tenant herein includes any assignee of or successor to
Tenant's interest under the terms of the Leases or any subtenant or any
other party who is now or in the future may be a tenant under any of the
Leases.
9. Costs and Attorney's Fees: Guarantor shall pay all costs, expenses and
charges, including all reasonable attorneys fees, which Landlord may incur
in the enforcement of the provisions hereof. Such costs or reasonable
attorneys fees shall be payable irrespective of the Limit Amount hereunder.
10. Notices: Any notice hereunder may be given to Guarantor by mail addressed
to:
William T. Baxter
3233 - 168th Place SE
Bellevue, WA 98008
or other address as Guarantor shall designate to Landlord in writing,
Dated this _____ day of March, 1997.
GUARANTOR
by______________________________________
William T. Baxter
Page 2
<PAGE> 1
EXHIBIT 10.10
ADDENDUM TO
DELPHI OFFICE BUILDING
LEASE AGREEMENT
LEASE: DATED MARCH 24, 1997
LANDLORD: SEATTLE OFFICE ASSOCIATES, LLC
TENANT: BSQUARE CONSULTING, INC.
The undersigned Landlord and Tenant agree to the establishment of the following
dates as they are used in the above referenced lease agreement:
Lease Commencement Date: April 24, 1997
Rent Commencement Date: April 24, 1997
Lease Termination Date: December 12, 2001
Extension Option
Notification Date: June 12, 2001
EXCEPT as herein specifically amended, the lease shall in all respects remain in
full force and effect.
Dated: April 28, 1997
Landlord
SEATTLE OFFICE ASSOCIATES LLC
by: /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
its: MEMBER
-------------------------------
Tenant
BSQUARE CONSULTING, INC.
by: /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
its: PRESIDENT & CEO
-------------------------------
<PAGE> 2
OFFICE LEASE AGREEMENT
BETWEEN
Seattle Office Associates, LLC
LANDLORD
and
bsquare consulting, inc.
TENANT
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. BASIC LEASE INFORMATION AND EXHIBITS........................................1
(a) Lease Date..............................................................1
(b) Tenant..................................................................1
(c) Address of Tenant.......................................................1
(d) Landlord................................................................1
(e) Address of Landlord.....................................................1
(f) Premises................................................................1
(g) Project.................................................................1
(h) Land....................................................................1
(i) Lease Term..............................................................1
(j) Right to Extend.........................................................1
(k) Basic Rent..............................................................2
(1) Additional Rent.........................................................2
(m) Security Deposit........................................................2
(n) Rentable Square Feet in the Premises....................................2
(o) Rentable Square Feet in the Project.....................................3
(p) Tenant's Percentage.....................................................3
(q) Parking.................................................................3
(r) Brokers.................................................................3
(s) Construction Completion Date............................................3
(t) Signage.................................................................3
(u) Expansion Rights........................................................3
(v) Exhibits................................................................3
2. PREMISES....................................................................3
3. COMMENCEMENT AND EXPIRATION DATES...........................................3
4. RENT........................................................................4
(a) Rent....................................................................4
5. COSTS OF OPERATIONS AND REAL ESTATE TAXES...................................4
(a) Definitions.............................................................4
(b) Additional Rent for Estimated Increases in Operating Costs..............6
(c) Determinations..........................................................6
(d) Personal Property Taxes.................................................6
6. SERVICES AND UTILITIES......................................................7
(a) Standard Services.......................................................7
(b) Interruption of Services................................................7
(c) Additional Services.....................................................7
7. SECURITY DEPOSIT............................................................8
8. USES........................................................................8
(a) Uses....................................................................8
(b) Compliance With Law.....................................................9
(c) Compliance With Rules and Regulations...................................9
9. IMPROVEMENTS................................................................9
10. TENANT IMPROVEMENTS; ACCEPTANCE OF PREMISES.................................9
11. CARE OF PREMISES............................................................10
12. ALTERATIONS AND ADDITIONS...................................................10
13. ACCESS......................................................................11
14. DAMAGE OR DESTRUCTION.......................................................11
(a) Damage and Repair.......................................................11
(b) Destruction During Last Year of Term....................................12
(c) Business Interruption...................................................12
(d) Tenant Improvements.....................................................12
15. CONDEMNATION................................................................12
(a) Taking..................................................................12
(b) Awards and Damages......................................................13
16. INDEMNIFICATION.............................................................13
(a) Indemnity...............................................................13
(b) Exemption of Landlord From Liability....................................13
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
(c) Waiver of Subrogation...................................................14
17. HAZARDOUS SUBSTANCES........................................................14
18. INSURANCE...................................................................15
(a) Required Policies.......................................................15
(b) Insurance Policy Requirements...........................................15
(c) Landlord's Insurance....................................................15
19. ASSIGNMENT AND SUBLETTING...................................................16
20. LIENS AND INSOLVENCY........................................................17
(a) Liens...................................................................17
(b) Insolvency..............................................................17
21. DEFAULT.....................................................................17
(a) Default By Tenant.......................................................17
(b) Remedies Cumulative; Injunction.........................................18
(c) Landlord's Remedies Upon Tenant Default.................................18
(d) Waiver of Redemption Rights.............................................20
(e) Nonpayment of Additional Rent...........................................20
(f) Interest................................................................20
22. PRIORITY....................................................................20
(a) Subordination of Lease..................................................20
23. ESTOPPEL CERTIFICATES.......................................................20
(a) Delivery of Estoppel....................................................20
(b) Failure to Deliver Estoppel.............................................21
24. SURRENDER OF POSSESSION.....................................................21
25. NON-WAIVER..................................................................21
26. HOLDOVER....................................................................22
27. LANDLORD'S LIABILITY........................................................22
28. TRANSFER OF LANDLORD'S INTEREST.............................................22
29. RIGHT TO PERFORM............................................................22
30. GENERAL.....................................................................22
(a) Headings................................................................22
(b) Heirs and Assigns.......................................................22
(c) Authority...............................................................23
(d) No Brokers..............................................................23
(e) Entire Agreement........................................................23
(f) Severability............................................................23
(g) Force Majeure...........................................................23
(h) Notices.................................................................23
(i) Costs and Attorneys Fees................................................24
(j) Governing Law...........................................................24
(k) Recording...............................................................24
(1) Waivers.................................................................24
(m) Time of Essence.........................................................24
(n) Merger..................................................................24
(o) Right to Change Public Spaces...........................................24
(p) Name....................................................................25
(q) Overdue Payments........................................................25
(r) Relocation of Premises..................................................25
(s) Advertising.............................................................25
(t) Parking.................................................................26
(u) Execution of Lease by Landlord..........................................26
31. LANDLORD'S COVENANTS........................................................26
(a) Quiet Enjoyment.........................................................26
(b) Hazardous Waste or Materials............................................26
(c) Rentable Square Feet....................................................26
32. GUARANTY OF LEASE...........................................................26
</TABLE>
<PAGE> 5
Exhibits
A - Legal Description of Land
B - Space Plan of Premises
C - Tenant Improvements
D - Building Rules and Regulations
E - Guarantees of Lease
<PAGE> 6
OFFICE LEASE AGREEMENT
THIS LEASE is made this ____ day of March, 1997 between Seattle Office
Associates LLC, a Washington Limited Liability Company ("Landlord"), and bsquare
consulting, inc., a Washington Corporation ("Tenant").
Landlord and Tenant agree:
1. BASIC LEASE INFORMATION AND EXHIBITS. The following terms as used
herein shall have the meanings provided in this Section 1, unless otherwise
specifically modified by provisions of this Lease:
(a) Lease Date: _____________,1997.
(b) Tenant: bsquare consulting, inc.
a Washington Corporation.
(c) Address of Tenant:
3633 - 136th Place SE
Suite 200
Bellevue, WA 98006
(d) Landlord: Seattle Office Associates, LLC
(e) Address of Landlord:
3633 - 136th Place SE
Suite 205
Bellevue, WA 98006
(f) Premises: Suite No. 100, located at 3633 - 136th Place
SE, Bellevue, (the "Building") as shown on Exhibit B
attached hereto.
(g) Project: The Building and all related improvements known
as the Delphi Building, located at 3633 - 136th Place
SE, Bellevue, which are situated on the Land as defined
below.
(h) Land: The real property more particularly described on
Exhibit A attached hereto.
(i) Lease Term: approximately 56 months, commencing on the
"Commencement Date" and terminating on December 12,
2001, ("the Termination Date"). Landlord and Tenant
agree to execute an addendum to this lease setting forth
the Commencement Date and the Termination Date.
(j) Right to Extend: a. Provided Tenant (i) is not in
default hereunder at the time of the exercise of the
extension and at the commencement of the renewal term,
(ii) has not been in a monetary default more than five
times during the term of the lease, and (iii) has given
Landlord six (6) months prior written notice of its
intent to exercise its rights under this Section, Tenant
shall have the right to extend the term of this Lease
for one (1) additional period of five years (the
"Extended Term") on the same terms and conditions as in
this Lease except that the Basic Rent during the
Extended Term shall be a sum equal to the fair market
rent ("Market Rent") of the Leased Premises at the time
of the
1
<PAGE> 7
commencement of the Extended Term as determined either
by agreement between Landlord and Tenant or by
arbitration as hereinafter described.
b. In the event that tenant desires to exercise such
option, Landlord and Tenant agree to negotiate in good
faith to reach agreement on the Market Rent of the
Premises for such Extended Term. If, for any reason, the
Landlord and Tenant fail to agree to a market rent for
the term at least thirty (30) days prior to the end of
the initial Term, then market rent for the term shall be
determined by arbitration pursuant to this lease and RCW
7.04, et.seq. The arbitrator shall be a licensed MAI
appraiser, whom the Parties shall select by mutual
agreement. If the Parties are unable to agree on an
arbitrator, the arbitrator shall be selected by the King
County Superior Court. As part of the submittals to the
arbitrator, each Party to the arbitration will present a
proposed market rent for the term which the submitting
Party deems to be fair and reasonable. The arbitrator is
directed to select within twenty-one (21) days one of
the proposed market rents submitted and has no
discretion to determine any other market rent. The
arbitrator's decision shall be final, binding and
non-appealable. Notwithstanding the above, the market
rent for the extended term shall not be less than the
rate for the initial term.
Until the arbitrator renders his award, the Tenant shall
continue to pay the same market rent per month of the
term as it paid for the last month of the initial term.
The Tenant shall pay any shortfall in market rent
payments for the term within ten (10) days after the
arbitrator renders his award; and Landlord shall credit
Tenant within ten (10) days any overpayment of Base Rent
for the term against future monthly market rent, as
determined by the arbitration award.
(k) Basic Rent: $9,541.38 per month, $114,496.50 per year
($18.50 PSF).
(1) Additional Rent: The increase in Operating Costs
described in Section 5 and all other costs, other than
Basic Rent, payable by Tenant to Landlord hereunder.
(m) Security Deposit: $9,541.38 upon lease execution.
(n) Rentable Square Feet in the Premises: 6,189.
(o) Rentable Square Feet in the Project: 69,596.
(p) Tenant's Percentage: 8.89%.
(q) Parking: 26 parking stalls of which 6 will be reserved
under the Building for the Tenant's exclusive use.
(r) Brokers: Tenant was not represented in this transaction
by a licensed real estate Broker; Landlord was
represented in this transaction by Langly Associates
Inc., a licensed real estate broker.
(s) Construction Completion Date: April 15, 1997.
(t) Signage: Tenant will not have any rights to exterior
signage as relates to this lease. If, however, the
Tenant installs a sign on the
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Building in connection with its lease for Suite 200,
such sign will be allowed to remain on the Building as
long as the Tenant has a valid lease for a minimum of
10,000 SF.
(u) Expansion Rights: Tenant will not have any specific
expansion rights as relates to this lease.
(v) Exhibits: The following exhibits are attached hereto and
are hereby made a part of this Lease.
Exhibit A - Legal Description of Land
Exhibit B - Space Plan of Premises
Exhibit C - Tenant Improvements
Exhibit D - Building Rules and Regulations
Exhibit E - Restated Guaranty of Lease
2. PREMISES. Landlord does hereby lease to Tenant, and Tenant does
hereby lease from Landlord, upon the terms and conditions herein set forth, the
Premises described in Section 1(f) hereof as shown on Exhibit B attached hereto
and incorporated herein, together with rights of ingress and egress over common
areas in the Building and on the Land.
3. COMMENCEMENT AND EXPIRATION DATES.
The term of this Lease shall commence on the earliest of the following
dates (the "Commencement Date"): (a) the date of substantial completion of
construction of the tenant improvements to the Premises as listed in Exhibit B;
(b) the date on which the Premises would have been substantially completed but
for delay caused by Tenant or any agent, employee or contractor of Tenant; (c)
the date on which the Premises are actually occupied by Tenant or (d) the date
set forth in section 1.(i). Upon request of Landlord, Tenant shall enter into a
memorandum stipulating the actual Commencement Date. If for any reason other
than Tenant's failure to fulfill its obligations hereunder, Landlord cannot
deliver possession of the Premises to Tenant by the Construction Completion
Date, Landlord shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Tenant hereunder
or extend the Termination Date, but in such case Tenant shall not be obligated
to pay Rent until possession of the Premises is tendered to Tenant. If Tenant's
tenant improvements are not completed by the Construction Completion Date due to
the failure of Tenant to fulfill any obligation pursuant to the terms of this
Lease or any exhibit hereto, including without limitation Tenant's failure to
comply with the terms of Exhibit C, the Lease shall be deemed to have commenced
upon the Construction Completion Date. If Tenant occupies the Premises prior to
the Construction Completion Date, such occupancy shall be subject to all
provisions hereof, such occupancy shall not advance the Termination Date, and
Tenant shall pay Rent for such period at the initial rates set forth in the
Basic Lease Information. In the event the Commencement Date is established as a
later or earlier date than the date provided in Section 1(s) hereof, Landlord
shall confirm the same to Tenant in writing. The Lease shall expire upon the
Termination Date specified in Section 1(i). In the event Landlord is unable to
deliver possession of premises within 30 days of the Construction Completion
Date. Tenant shall have the right to cancel this Lease.
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4. RENT.
(a) Rent. Tenant shall pay Landlord without notice the Basic
Rent stated in Section 1(k) hereof in advance without demand, deduction or
offset on the first day of each calendar month during the term at the address
specified in Section 1(e) or such address as may be specified by Landlord. Basic
Rent and Additional Rent (together "Rent") for any partial month shall be
prorated in proportion to the number of days in such month.
(b) Basic Rent Adjustment. The Basic Rent shall remained fixed
for the initial term of the lease.
5. COSTS OF OPERATIONS AND REAL ESTATE TAXES.
(a) Definitions. In addition to the Basic Rent provided in
Section 1(k) of this Lease, Tenant shall pay to Landlord increases under this
Section 5 as "Additional Rent," utilizing the following definitions:
(i) "Operating Costs" shall mean all taxes and
assessments on real and personal property; any taxes levied or assessed (or any
installment thereof due during the Lease Year) in addition to or in lieu of such
real property or personal property taxes, or any other tax (except any federal
or state net income tax or any business or occupation tax) upon leasing of the
Project or rents collected; and all other expenses paid or incurred by Landlord
for managing, maintaining, operating and repairing the Project and the personal
property used in conjunction therewith, including without limitation, the
following: (A) electricity, water, gas, sewers, refuse collection, telephone
charges not charged to individual tenants and similar utility services; (B) the
cost of maintaining, rehabilitating or replacing heating, mechanical,
ventilating, escalator and elevator systems and restriping, repairing and
repaving parking areas; (C) the cost of repairs, janitorial and cleaning
services, window washing, landscape maintenance, and other general maintenance
or cleaning; (D) the cost of fire, extended coverage, boiler, sprinkler, public
liability, property damage, rent, earthquake (if required by any lender on the
building and if such expense is included in the base year) and other insurance;
(E) wages, salaries and other labor costs, including employee benefits, of all
persons who perform duties in connection with the operation, maintenance and
repair of the Project; (F) fees, charges and other costs, including management
fees, consulting fees, legal fees and accounting fees, of all independent
contractors reasonably engaged by Landlord; (G) management fees not to exceed 5%
of gross revenues charged by Landlord if Landlord performs management services
in connection with the Project; (H) the costs for the subject period (amortized
over the useful life in accordance with the Internal Revenue Code) of any
capital improvements made to the Project after the date of this Lease which are
either designed to increase the operating efficiency of the Project or are
required by applicable law; (I) cost of all licenses, permits and inspections
required by governmental bodies with jurisdiction over the Premises, Project and
Land; and (J) the amortized costs of renovating the carpet, paint and lighting
of common hallways and lobbies; (K) deductible amounts (not to exceed $25,000)
under any insurance maintained by Landlord with respect to repair or rebuilding
of the Project, and (L) any other expenses or charges whether or not
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hereinabove described, which in accordance with generally accepted accounting
and management practices would be considered an expense of managing,
maintaining, operating, or repairing the Project.
(ii) "Operating Costs" shall not include the following:
(a) Costs of any special services rendered to
individual tenants (but not all tenants in the building) for which a special
charge is made.
(b) Leasing commissions and other leasing
expenses.
(c) Legal fees, accounting fees and other costs
and expenses associated with a breach or default by any tenant.
(ii) "Lease Year" shall mean the twelve-month period
commencing January 1 and ending December 31.
(iii) "Actual Operating Costs" means the actual expenses
paid or incurred by Landlord for Operating Costs during any Lease Year of the
term hereof.
(iv) "Actual Operating Costs Allocable to the Premises"
means the Tenant's share of the Actual Operating Costs determined by dividing
the Rentable Square Feet in the Premises as set forth in Section 1(n) by the
Rentable Square Feet in the Project and multiplying the resulting quotient by
the Actual Operating Costs.
(v) "Estimated Operating Costs Allocable to the
Premises" means Landlord's estimate of Actual Operating Costs Allocable to the
Premises for the following Lease Year to be given by Landlord to Tenant pursuant
to Section 5(b)(i) below.
(vi) "Base Service Year" shall mean the calendar year
1997.
(b) Additional Rent for Estimated Increases in Operating Costs.
(i) On or before the first (1st) day of March of each
Lease Year after the Base Service Year, during the term hereof, Landlord shall
furnish Tenant a written statement of the Estimated Operating Costs Allocable to
the Premises for such Lease Year, and a calculation of the Additional Rent for
such costs as follows: one-twelfth (1/12) of the amount, if any, by which such
amount exceeds the Operating Costs Allocable to the Premises for the Base
Service Year shall be Additional Rent payable each month by Tenant as provided
in Section 4. Any shortfall for elapsed portion of the Lease Year in question
shall be made up with the next monthly payment. Landlord reserves the right to
adjust this estimate from time to time.
(ii) Within ninety (90) days after the close of each
Lease Year, or as soon thereafter as practicable, Landlord shall deliver to
Tenant a written statement setting forth the Actual Operating Costs Allocable to
the Premises during the preceding Lease Year. If such costs for any Lease Year
exceed Estimated Operating Costs Allocable to the Premises paid by Tenant to
Landlord pursuant to subsection (b)(i)
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above, Tenant shall pay the amount of such excess to Landlord as Additional Rent
within fifteen (15) days after receipt of such statement by Tenant. If such
statement shows such costs to be less than the amount paid by Tenant to Landlord
pursuant to subsection (b)(i) above, then the amount of such overpayment by
Tenant shall be credited by Landlord to the next Rent payable by Tenant. In no
event shall the Rent payable by Tenant hereunder be less than the Rent specified
in Section 1(k) of this Lease.
(iii) If this Lease shall terminate on a day other than
the last day of a Lease Year, the amount of any adjustment between Estimated and
Actual Operating Costs Allocable to the Premises with respect to the Lease Year
in which such termination occurs shall be prorated on the basis which the number
of days from the commencement of such Lease Year to and including such
termination date bears to 365, and any amount payable by Landlord to Tenant or
Tenant to Landlord with respect to such adjustment shall be payable within
fifteen (15) days after delivery of the statement of Actual Operating Costs
Allocable to the Premises with respect to such Lease Year.
(c) Determinations. The determination of Actual Operating Costs
and Estimated Operating Costs Allocable to the Premises shall be made by
Landlord. Landlord or its agent shall keep records in reasonable detail showing
all expenditures made for the items enumerated above, which records shall be
available for inspection by Tenant at any reasonable time during the two year
period following receipt of the Landlord's statement referred to in Section
5(b)(ii).
(d) Personal Property Taxes. Tenant shall pay, prior to
delinquency, all Personal Property Taxes payable with respect to all property of
Tenant located on the Premises, the Building, or the Project including any
improvements paid for by Tenant, and promptly, upon request of Landlord, shall
provide written proof of such payment. As used herein, "Property of Tenant"
shall include all improvements which are paid for by Tenant. "Personal Property
Taxes" shall include all property taxes assessed against the property of Tenant,
whether assessed as real or personal property.
6. SERVICES AND UTILITIES.
(a) Standard Services. Landlord shall maintain the Premises and
the public and common areas of the Building (including the roof, exterior
portions of the building, parking and landscaping) in reasonably good order and
condition, except for damage occasioned by the negligent or willful act or
omission of Tenant or its contractors, agents, invitees, licensees or employees,
the repair of which damage shall be paid by Tenant, subject to the provisions of
Section 16(c). Landlord shall furnish the Premises with electricity for normal
office use, water, elevator service and reasonable 5 day per week janitorial
services during the term of the Lease. Electricity use beyond normal office use
and any separate metering required thereby shall be paid for by Tenant. The
Basic Rent stated in Section 1(k) hereof does not include the costs of any
janitorial or other service provided or caused to be provided by Landlord to
Tenant which are in addition to the services ordinarily provided Building
tenants.
Landlord shall furnish the Premises with heat and air conditioning
during the following hours; Monday to Friday 7:00 a.m. to 6:00 p.m., Saturday
8:00 a.m. - 5:00 p.m.
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and Sunday 9:00 a.m. to 1:00 p,m. Tenant may request provision of these
services for other hours by giving Landlord at least 48 hours prior written
notice and by paying all additional costs incurred by Landlord for such services
with the next due installment of Rent at Landlord's then current overtime rate,
which is currently $30 per hour. During other than normal business hours (as
designated by Landlord), Landlord may restrict access to the Building in
accordance with the building's security system, provided that Tenant shall have
at all times during the term of this Lease (24 hours of all days) reasonable
access to the Premises.
(b) Interruption of Services. Landlord shall not be liable for
any loss, injury or damage to person or property caused by or resulting from any
variation, interruption, or failure of such services due to any cause
whatsoever, or from failure to make any repairs or perform any maintenance, and
rent shall not abate as a result thereof. No temporary interruption or failure
of such services incident to the making of repairs, alterations or improvements,
or due to accident, strike or conditions or events beyond Landlord's reasonable
control shall be deemed an eviction of Tenant or relieve Tenant from any of
Tenant's obligations hereunder.
(c) Additional Services. Before installing lights and equipment
in the Premises which in the aggregate exceed normal levels of usage (including
without limitations, computer and data processing equipment), Tenant shall
obtain the written permission of Landlord. Landlord may refuse to grant such
permission unless Tenant shall agree to pay the costs of Landlord for
installation of supplementary air conditioning capacity or electrical systems as
necessitated by such equipment or lights. Notwithstanding the above, Landlord
may not refuse to grant permission for equipment which, in the aggregate, does
not require electrical power in excess of five (5) watts per rentable SF.
In addition, Tenant shall in advance, on the first day of each
month during the Lease term, pay Landlord the reasonable amount estimated by
Landlord as the cost of furnishing electricity for the operation of such
equipment or lights and the reasonable amount estimated by Landlord as the cost
of operation and maintenance of supplementary air conditioning units
necessitated by Tenant's use of such equipment or lights. The Rent stated in
Section 1(k) hereof does not include any amount to cover the cost of furnishing
electricity or such additional air conditioning for such purposes and such costs
will be paid by Tenant as Additional Rent. Landlord shall be entitled to install
and operate at Tenant's cost a monitoring/metering system in the Premises to
measure the added demands on electrical, heating, ventilation and air
conditioning systems resulting from such equipment and lights and from Tenant's
after-hours heating, ventilation and air conditioning service requirements.
Tenant shall comply with Landlord's instructions for the use of drapes and
thermostats in the Building.
7. SECURITY DEPOSIT. As security for the full and faithful performance
of every covenant and condition of this Lease to be performed by Tenant, Tenant
has paid to Landlord the Security Deposit as specified in Section 1(m) hereof.
If Tenant defaults in any respect under this Lease, Landlord may apply all or
any part of the Security Deposit to the payment of any sum in default or any
other sum which Landlord may be required or may in its reasonably discretion
deems necessary to spend or incur by reason of Tenant's default. In such event,
Tenant shall, within five (5) days of written demand therefor by Landlord,
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deposit with Landlord the amount so applied. If Tenant shall have fully complied
with all of the covenants and conditions of this Lease, the amount of the
Security Deposit to the extent not applied by Landlord under this Section 7
shall be repaid to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) within thirty (30) days after the expiration or
sooner termination of this Lease. In the event of Tenant's default under this
Lease, Landlord's right to retain the Security Deposit shall be deemed to be in
addition to any and all other rights and remedies at law or in equity available
to Landlord. Landlord shall not be required to keep any Security Deposit
separate from its general funds and Tenant shall not be entitled to any interest
thereon.
8. USES.
(a) Uses. The Premises are to be used only for general office
purposes ("Permitted Uses") and for no other business or purpose without the
prior written consent of Landlord, which consent may be withheld if Landlord, in
its sole discretion, determines that any proposed use is inconsistent with or
detrimental to the maintenance and operation of the Building as a first-class
office building or is inconsistent with any restriction on use of the Premises,
the Building, the Project or the Land contained in any lease, mortgage or other
agreement or instrument by which the Landlord is bound or to which any of such
property is subject. Tenant shall not commit any act that will increase the then
existing rate of insurance on the Building or the Project and will immediately
pay any such increase. Tenant shall promptly pay upon demand the amount of any
increase in insurance rates caused by any act or acts of Tenant. Tenant shall
not commit or allow to be committed any waste upon the Premises, or any public
or private nuisance or other act which disturbs the quiet enjoyment of any other
tenant in the Building or which is unlawful. Tenant shall not, without the
written consent of Landlord, use any apparatus, machinery or device in or about
the Premises which will cause any substantial noise, vibration or fumes. If any
of Tenant's office machines or equipment should disturb the quiet enjoyment of
any other tenant in the Building, then Tenant shall provide adequate insulation
or take other action as may be necessary to eliminate the disturbance.
(b) Compliance With Law. Tenant shall, at Tenant's expense,
comply promptly with all applicable statutes, ordinances, rules, regulations,
orders and requirements, including without limitation laws and regulations
prohibiting discrimination on the basis of race, gender, religion, national
origin, age or disability, in effect during the term hereof regulating the use,
occupancy or improvement of the Premises by Tenant, Landlord or otherwise and
Tenant shall be fully responsible for the cost of complying therewith.
(c) Compliance With Rules and Regulations. Tenant shall observe
and comply with all reasonable rules and regulations put into effect by
Landlord. Landlord shall not be responsible to Tenant for the non-compliance
with the rules and regulations of any other tenant or occupant of the Project.
9. IMPROVEMENTS. Upon expiration or sooner termination of this Lease,
all improvements and additions to the Premises, except Tenant's trade fixtures,
shall be deemed the property of Landlord.
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10. TENANT IMPROVEMENTS; ACCEPTANCE OF PREMISES. The Premises shall be
completed in accordance with the plans and specifications attached hereto as
Exhibit C. All necessary construction shall be commenced by Landlord following
Landlord's execution of this Lease and Tenant's delivery of the first month's
Basic Rent, the guarantees and the Security Deposit. Landlord will exert
commercially reasonable efforts to have improvements substantially completed by
the date set forth in Section 1(s). Within five (5) days ("Inspection Period")
after Landlord informs Tenant of such completion, Tenant shall make such
inspection of the Premises as Tenant deems appropriate. Except as otherwise
specified by Tenant in writing to Landlord within the Inspection Period, Tenant
shall be deemed to have accepted the Premises in their then condition. If, as a
result of such inspection, Tenant discovers minor deviations or variations from
the plans and specifications for Tenant's improvements of a nature commonly
found on a "punch list" (as the term is used in the construction industry),
Tenant shall, during the Inspection Period, notify Landlord of such deviations.
Landlord shall promptly repair all punch list items. The existence of such punch
list items shall not postpone the Commencement Date of this Lease or the
obligation of Tenant to pay Rent. Tenant acknowledges that neither Landlord nor
Landlord's agent has made any representation or warranty as to the suitability
of the Premises for the conduct of Tenant's business, and Tenant hereby waives
any rights, claims or actions against Landlord under any express or implied
warranties of suitability.
11. CARE OF PREMISES. Tenant shall, at Tenant's sole cost and expense,
keep the Premises and every part thereof in good condition and repair, damage
thereto from causes beyond the reasonable control of Tenant and ordinary wear
and tear and damage by fire and other casualty not intentionally caused by
Tenant excepted. Tenant shall be responsible for the cleaning of any common
areas of the Building and the Project if such cleaning is necessary due to
Tenant's use of such common areas in a manner other than the normal, reasonable
use of such areas. All damages or injury done to the Premises, Building or
Project by Tenant or by any persons who may be in or upon the Premises, Building
or Project with the express or implied consent of Tenant, including but not
limited to the cracking or breaking of any glass of windows and doors, shall be
paid for by Tenant and Tenant shall pay for all damage to the Project caused by
acts or omissions of Tenant or Tenant's officers, contractors, agents, invitees,
licensees, or employees subject to the provisions of section 16(c). If Tenant
fails to perform Tenant's obligations under this Section 11, Landlord may at
Landlord's option enter upon the Premises after ten (10) days' prior notice to
Tenant and put the affected portion of the Project in good order, condition and
repair and the cost thereof together with interest thereon at the rate of 15%
per annum shall be due and payable as Additional Rent to Landlord together with
Tenant's next installment of Basic Rent. All normal repairs shall be those
reasonably determined by Landlord as necessary to maintain the Project as a
first-class office building complex.
12. ALTERATIONS AND ADDITIONS.
(a) Tenant shall not make any alterations, improvements,
additions, or utility installations in or about the Premises or make changes to
locks on doors, or add, disturb or in any way change any floor covering, wall
covering, fixtures, plumbing or wiring (collectively, "Alterations") without
first obtaining the written consent of Landlord and, where appropriate, in
accordance with plans and specifications approved by Landlord. Any such
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Alterations shall not adversely affect either the strength or exterior
appearance, or the mechanical, electrical, or plumbing services of the Building
and the Project. Any alterations required to be made to the Premises by any
applicable building, health, safety, fire, nondiscrimination, or similar law or
regulation ("law"), but only to the extent such alterations are not also
required to be made generally throughout the building, shall be made at Tenant's
sole expense and shall be subject to the prior written consent of Landlord.
Tenant shall reimburse Landlord for any sums expended for examination and
approval of architectural or mechanical plans and specifications of the
Alterations. Tenant shall also pay Landlord a sum equal to the direct costs
incurred during any inspection or supervision of the Alterations. Landlord may
require a lien and completion bond for such construction, or require the
improvements (except for any cabling installed by the Tenant) be removed at the
expiration of the Term. Tenant acknowledges and agrees that a material condition
to the granting of approval of Landlord to any alterations and/or improvements
and/or repairs required under this Lease or desired by Tenant is that the
contractors who perform such work shall carry a Comprehensive Liability Policy
covering both bodily injury, in the amount of $100,000 per person and $300,000
aggregate, and property damages, in the amount of $300,000, at Tenant's expense.
Landlord may require proof of such insurance coverage from each contractor at
the time of submission of Tenant's request for Landlord's consent to commence
work. Landlord's approval of the plans, specifications and working drawings for
Tenant's alterations shall create no responsibility or liability on the part of
Landlord for their completeness, design sufficiency, or compliance with all
laws, rules and regulations of governmental agencies or authorities. Tenant
shall indemnify and hold Landlord harmless from any liability, claim or suit,
including attorneys' fees, arising from any injury, damage, cost or loss
sustained by persons or property as a result of any defect in design, material
or workmanship.
(b) Tenant shall pay, when due, all claims for labor or
materials furnished to or for Tenant at or for use in the Premises, which claims
are or may be secured by any mechanics' or materialmen's liens against the
Premises or any interest therein. Within ten (10) days after notice thereof,
Tenant shall remove or cause to be removed all liens filed against the Project
or any portion thereof in connection with any Alterations or other work
performed by or at the request of Tenant.
(c) Tenant shall not put curtains, draperies or other hangings
or signs on or beside the windows in the Premises.
(d) Unless Landlord requires their removal, all Alterations
(other than trade fixtures and movable equipment) which may be made on the
Premises shall become the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the term.
13. ACCESS. Tenant shall permit Landlord and its agents to enter the
Premises at all reasonable times for the purpose of inspecting, cleaning,
repairing, altering or improving the Premises or the Building. Nothing contained
in this Section 13 shall be deemed to impose any obligation upon Landlord not
expressly stated elsewhere in this Lease. Landlord may temporarily close any
portion of the Building or Project without liability to Tenant by reason of such
closure, and such closure shall not constitute an eviction of Tenant or release
Tenant from any Rent or other obligations hereunder,
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provided that the Landlord does not preclude Tenant's access to the premises and
such closure does not materially interfere with Tenant's use and occupancy of
the premises. Landlord shall have the right to enter the Premises for the
purpose of showing the Premises to prospective purchasers or mortgagees at all
reasonable times. Landlord shall have the right to enter the Premises for the
purpose of showing the Premises to prospective tenants within the period of one
hundred eighty (180) days prior to the expiration or sooner termination of the
Lease term.
14. DAMAGE OR DESTRUCTION.
(a) Damage and Repair. If the Building is damaged by fire or any
other cause to such extent that the cost of restoration, as reasonably estimated
by Landlord, will equal or exceed thirty percent (30%) of the replacement value
of the Building, or if insurance proceeds sufficient for restoration are for any
reason unavailable, then Landlord may, no later than the sixtieth day following
the damage, give Tenant a notice of Landlord's election to terminate this Lease.
In the event of such election this Lease shall be deemed to terminate on the
third day after the giving of such notice, Tenant shall surrender possession of
the Premises within a reasonable time thereafter, the Rent and Additional Rent
shall be apportioned as of the date of Tenant's surrender and any Rent paid for
any period beyond such date shall be repaid to Tenant. If the cost of
restoration as estimated by Landlord shall amount to less than thirty percent
(30%) of said replacement value of the Building and insurance proceeds
sufficient for restoration are available, or if Landlord does not elect to
terminate this lease, Landlord shall restore the Building and the Premises (to
the extent of the improvement of the Premises originally provided by Landlord
hereunder) with reasonable promptness, subject to delays beyond Landlord's
control and delays in the making of insurance adjustments by Landlord. To the
extent that the Premises are rendered untenantable, the Rent shall
proportionately abate, except in the event such damage resulted from the willful
or intentional act or omission of Tenant, in which event Rent shall abate only
to the extent Landlord receives proceeds from any rental income insurance policy
to compensate Landlord for loss of Rent hereunder.
(b) Destruction During Last Year of Term. In case the Building
shall be substantially destroyed by fire or other cause at any time during the
last Lease Year of this Lease, Landlord may terminate this Lease upon written
notice to Tenant if given within sixty (60) days of the date of such
destruction.
(c) Business Interruption. No damages, compensation or claim
shall be payable by Landlord for inconvenience, loss of business or annoyance
arising from any repair or restoration of any portion of the Premises, the
Building or the Project. Landlord shall use its best efforts to effect such
repairs promptly.
(d) Tenant Improvements. Landlord will not carry insurance of
any kind on any improvements paid for by Tenant as provided in Exhibit C or on
Tenant's furniture, furnishings, fixtures, equipment or appurtenances of Tenant
under this Lease and Landlord shall not be obligated to repair any damage
thereto or replace the same.
15. CONDEMNATION.
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(a) Taking. If all of the Premises or such portions of the
Building or Project as may be required for the reasonable use of the Premises
are taken by eminent domain, this Lease shall automatically terminate as of the
date title vests in the condemning authority. In the event of a taking of a
material part, but less than all, of the Building or Project, where Landlord
shall determine that the remaining portions of the Building or Project cannot be
economically and effectively used by it (whether on account of physical,
economic, aesthetic or other reasons) or where Landlord determines the Building
should be restored in such a way as to materially alter the Premises, Landlord
shall forward a written notice to Tenant of such determination not more than
sixty (60) days after the date of taking. The term of this Lease shall expire
upon such date as Landlord shall specify in such notice but not earlier than
sixty (60) days after the date of such notice. In case of taking of a part of
the Premises, or a portion of the Building or Project not required for the
reasonable use of the Premises, then this Lease shall continue in full force and
effect and the Rent shall be equitably reduced based on the proportion by which
the floor area of the Premises is reduced; however, if the floor area of the
premises is reduced by more than five percent (5%), Tenant may terminate this
Lease upon thirty (30) days notice to Landlord.
(b) Awards and Damages. Landlord reserves all rights to damages
to the Premises for any partial, constructive, or entire taking by eminent
domain, and Tenant hereby assigns to Landlord any right Tenant may have to such
damages or award, and Tenant shall make no claim against Landlord or the
condemning authority for damages for termination of the leasehold interest or
interference with Tenant's business. Tenant shall have the right, however, to
claim and recover from the condemning authority compensation for any loss to
which Tenant may be put for Tenant's moving expenses, business interruption or
taking of Tenant's personal property (not including Tenant's leasehold interest)
provided that such damages may be claimed only if they are awarded separately in
the eminent domain proceedings and not out of or as part of the damages
recoverable by Landlord.
16. INDEMNIFICATION.
(a) Indemnity. Subject to provisions of section 16.c, Tenant
shall indemnify, defend and hold Landlord harmless from and against all loss,
cost and expense, including attorneys fees, arising from any act, omission, or
negligence of Tenant or its officers, contractors, licensees, agents, servants,
employees, guests, invitees, or visitors in or about the Premises or Project, or
arising from any injury or damage to any person or property, occurring in or
about the Premises or Project as a result of any act, omission or negligence of
Tenant, or its officers, contractors, licensees, agents, employees, guests, or
visitors or arising from any breach or default under this Lease by Tenant. The
foregoing provisions shall not be construed to make Tenant responsible for loss,
damage, liability or expense resulting from injuries to third parties caused
solely by the gross negligence of Landlord, or its officers, contractors,
licensees, agents, employees, invitees or other tenant of the Project.
(b) Exemption of Landlord From Liability. As a material part of
the consideration to Landlord, Tenant hereby agrees that, notwithstanding
anything to the contrary in Section 16(a) above, Landlord shall in no event be
liable for injury to Tenant's business or assets or any loss of income therefrom
or for damage to Tenant's employees,
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invitees, customers, or any other person in or about the Premises, whether such
damage, loss or injury results from conditions arising upon the Premises or upon
other portions of the Project of which Premises are a part (including, without
limitation, damage caused by the Project or any portion thereof or a
appurtenance thereto being out of repair, or the bursting, leakage of any water,
gas, sewer or steam pipe), or from other sources or places, and regardless of
whether the cause of such damage, loss or injury or the means of repairing the
same is inaccessible to Tenant. Tenant further agrees that notwithstanding
anything to the contrary in Section 16(a) above, Landlord shall in no event be
liable for any injury or damage to any person or property of Tenant, Tenant's
employees, invitees, customers, agents or contractors caused by theft or arising
from any act, omission or neglect of any tenant or occupant of the Project or
any other third person.
(c) Waiver of Subrogation. Each party agrees to use commercially
reasonable efforts to cause its insurance carriers to consent to a waiver of
rights of subrogation against the other party. If such waiver shall be
obtainable only at a premium over that chargeable without such a waiver, the
party seeking such policy shall notify the other and the party in whose favor
the waiver is desired shall pay the additional premium. Each party shall look
first to any insurance in its favor before making claim against the other party.
Whether the loss or damage is due to the negligence of either Landlord or
Tenant, their agents or employees, or any other cause, Landlord and Tenant do
each hereby release and relieve the other, their agents or employees, from
responsibility for, and waive their entire claim of recovery for (i) any loss or
damage to the real or personal property of either located anywhere in the
Project, including the Project itself, arising out of or incident to the
occurrence of any of the perils which are covered by their respective property
and related insurance policies, and (ii) any loss resulting from business
interruption at the Premises or loss of rental income from the Project, arising
out of or incident to the occurrence of any of the perils which may be covered
by any business interruption insurance policy or by any loss of rental income
insurance policy held by Landlord or Tenant, to the extent to which it is
covered, or is required under the provisions of this Lease to be covered by a
policy or policies containing a waiver of subrogation or permission to release
liability.
17. HAZARDOUS SUBSTANCES.
Tenant shall not dispose of or otherwise allow the release of any
hazardous waste or materials in, on or under the Premises, the Project or any
adjacent property, except for normal office products used and disposed of in
accordance with applicable laws. Tenant represents and warrants to Landlord that
Tenant's intended use of the Premises does not involve the use, production,
disposal or bringing on to the Premises or the Project of any hazardous waste or
materials, except for normal office products used and disposed of in accordance
with applicable laws. As used herein, the term "hazardous waste or materials"
means any material or substance that, as of the date of this Agreement, is
defined or classified under federal, state, or local laws as: (a) a "hazardous
substance" pursuant to section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601(4), section 311 of the
Federal Water Pollution Control Act, 33 U.S.C. Section 1321; (b) a "hazardous
waste" pursuant to section 1004 or section 3001 of the Resource Conservation and
Recovery Act, 42 U.S.C. sections 6903,6921; (c) a toxic pollutant under section
307(a)(1) of the Federal Water Pollution Control Act, 33 U.S.C.
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Section 1317(a)(1); (d) a "hazardous air pollutant" under section 112 of the
Clean Air Act, 42 U.S.C. Section 7412; (e) a "hazardous Material" under the
Hazardous Materials Transportation Uniform Safety Act of 1990, 49 U.S.C. App.
Section 1802(4); (f) toxic or hazardous pursuant to regulations promulgated
under the aforementioned laws; or (g) presenting a risk to the environment under
other applicable federal, state, or local laws, ordinances, or regulations.
"Hazardous Substances" specifically include, but is not limited to, asbestos,
polychlorinated biphenyls ("PCBs"), petroleum and petroleum-based derivatives,
and urea formaldehyde. Tenant shall promptly comply with all applicable laws and
with all orders, decrees or judgments of governmental authorities or courts
having jurisdiction relating to hazardous waste or materials.
Tenant agrees to indemnify, defend and hold harmless Landlord against
any and all loss, cost and expense (including, without limitation, consultants'
fees, attorneys' fees and disbursements) which may be imposed on, incurred or
paid by, or asserted against Landlord or the Premises or the Project by reason
of, or in connection with (i) any misrepresentation, breach of warranty or other
default by Tenant under this Lease, or (ii) the acts or omissions by Tenant
under this Lease, or (iii) the acts or omissions of Tenant, or any sublessee or
other person for whom Tenant would otherwise be liable, resulting in the release
of any hazardous waste or materials.
18. INSURANCE.
(a) Required Policies. Tenant shall, throughout the term of this
Lease and any renewal hereof, at its own expense, keep and maintain in full
force and effect: (i) a policy of commercial liability insurance including a
contractual liability endorsement covering Tenant's obligations under Section 16
and 17, with a limit of not less than One Million Dollars ($1,000,000) combined
single limit (the limits of said insurance shall not, however, limit the
liability of Tenant hereunder); and (ii) what is commonly referred to as "all
risk" coverage insurance (but excluding earthquake and flood) on Tenant's
leasehold improvements in an amount not less than the current One Hundred
Percent (100%) replacement value thereof; and (iii) business interruption
insurance in an amount sufficient to cover costs, expenses, costs due hereunder,
damages and lost income should the Premises not be fully usable for a period of
up to 6 months. Such policy shall name Landlord as an additional insured and
shall contain a provision or endorsement providing that the insurance afforded
by such policy for the benefit of Landlord shall be primary as respects any
claims, losses or liabilities arising out of the use of the Premises or the
Building or the Common Areas by the Tenant or by tenant's operation and that any
insurance carried by Landlord shall be excess and non-contributing.
(b) Insurance Policy Requirements. Insurance policies required
hereunder shall be issued by companies which are currently rated AXII or better
in "Best's Insurance Guide." No insurance policy required under this Section 18
shall be canceled or reduced in coverage and each insurance policy shall provide
that it is not subject to cancellation or a reduction in coverage except after
thirty (30) days prior written notice to Landlord.
Tenant shall deliver to Landlord upon the Commencement Date and from
time to time thereafter, copies of policies of such insurance or certificates
evidencing the existence
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and amounts of same containing loss payable clauses satisfactorily to Landlord
and naming Landlord as Additional Insured thereunder.
(c) Landlord's Insurance. Landlord agrees to acquire, maintain
and pay for, during the full term of this Lease, "all risk" property damage
insurance against such risks and hazards as are customarily insured against by
others similarly situated and operating like properties, but excluding
earthquake and flood, covering the Building, including the Premises for such
amounts and upon such terms as would a prudent owner of such property similar to
and in the general area of the Building, and shall name Tenant as an additional
insured thereon. Such insurance shall be acquired from a company authorized to
do business in the State of Washington and rated as AXII or better in "Best's
Insurance Guide." Upon request by Tenant, Landlord shall notify Tenant of the
amount and type of insurance carried by Landlord pursuant to this section.
19. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign, mortgage, encumber or otherwise
transfer this Lease or sublet the whole or any part of the Premises without in
each case first obtaining Landlord's prior written consent, which Landlord may
not unreasonably withhold. Without limiting the foregoing, Landlord may withhold
its consent if in Landlord's judgment occupancy by any proposed assignee,
subtenant or other transferee: (i) is not consistent with the maintenance and
operation of a first-class suburban office building due to the proposed
occupant's nature or manner of conducting business or its experience or
reputation in the community, or (ii) is likely to cause disturbance to the
normal use and occupancy of the Building or Project by other tenants, their
employees, customers, clients or other guests or visitors. Landlord may withhold
in its absolute and sole discretion, consent to any mortgage, hypothecation,
pledge or other encumbrance of any interest in this Lease by Tenant or any
subtenant, whereby this Lease or any interest therein becomes collateral for any
obligation of Tenant or any other person.
(b) In the event Tenant should desire to assign this Lease or
sublet the Premises or any part hereof, Tenant shall give Landlord written
notice at least forty five (45) days in advance of the date on which Tenant
desires to make such assignment or sublease, which notice shall specify, (i) the
name and business of the proposed assignee or sublessee, (ii) the amount and
location of the space affected, (iii) the proposed effective date and duration
of the subletting or assignment, and (iv) the proposed rental to be paid to
Tenant by such sublessee or assignee. Landlord shall then have a period of
twenty (20) days following receipt of such notice within which to notify Tenant
in writing that Landlord elects either (1) to terminate this Lease as to the
space so affected as of the date so specified by Tenant and reclaim that portion
of the Premises (in which event Landlord may enter into a lease with any such
proposed subtenant or assignee upon the rent and terms agreed to by each
subtenant or assignee or on such other terms as may be agreed upon by Landlord
and such subtenant or assignee) or, (2) to permit Tenant to assign or sublet
such space, in which event if the proposed rental rate between Tenant and
sublessee is greater than the rental rate of this Lease, then such excess rental
to be deemed additional rent owed by Tenant to Landlord under this Lease, and
the amount of such excess, including any subsequent increases due to escalation
or otherwise, to be paid by Tenant to Landlord in the same manner that Tenant
pays the rental hereunder and in addition thereto, or (3) to
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withhold consent to Tenant's assignment or subleasing such space and to continue
this Lease in full force and effect as to the entire Premises.
(c) Except as provided above, no assignment, subletting or other
transfer shall relieve Tenant of any liability under this Lease. Consent to any
such assignment, subletting or transfer shall not operate as a waiver of the
necessity for consent to any subsequent assignment, subletting or transfer. In
connection with each request for an assignment or subletting, Tenant shall pay
the reasonable cost of processing such assignment or subletting, including
attorneys fees, upon demand of Landlord. Tenant shall provide Landlord with
copies of all assignments, subleases and assumption instruments. If Tenant is a
corporation or partnership, any transfer of a controlling ownership interest in
Tenant or any transfer of this Lease by merger, consolidation or liquidation,
shall be deemed an assignment under this Section 19. Any assignee or subtenant
shall assume all of Tenant's obligations under this Lease and be jointly and
severally liable with Tenant hereunder.
20. LIENS AND INSOLVENCY.
(a) Liens. Tenant shall keep its interest in this Lease and any
Property of Tenant (other than unattached personal property) and the Premises,
and the Project free from any liens arising out of any work performed or
materials ordered or obligations incurred by or on behalf of Tenant and hereby
indemnifies and holds Landlord harmless from any liability from any such lien.
In the event any lien is filed against the Premises, the Project or any portion
thereof by any person claiming by, through or under Tenant, Tenant shall, upon
request of Landlord, at Tenant's expense, immediately either cause such lien to
be released of record or furnish to Landlord a bond in form and amount and
issued by a surety satisfactory to Landlord, indemnifying Landlord, and the
Project against all liability, costs and expenses, including attorneys fees,
which Landlord may incur as a result thereof. Provided that such bond has been
furnished to Landlord, Tenant, at its sole cost and expense and after written
notice to Landlord, may contest, by appropriate proceedings conducted in good
faith and with due diligence, any lien, encumbrance or charge against the
Premises arising from work done or materials provided to and for Tenant, if, and
only if, such proceedings suspend the collection thereof against Landlord,
Tenant and the Premises and neither the Premises, nor the Project, nor any part
thereof or interest therein is or will be in any danger of being sold, forfeited
or lost.
(b) Insolvency. If Tenant becomes insolvent or voluntarily or
involuntarily bankrupt, or if a receiver, assignee or other liquidating officer
is appointed for the business of tenant, Landlord at its option may terminate
this Lease and Tenant's right of possession under this Lease and in no event
shall this Lease or any rights or privileges hereunder be an asset of Tenant in
any bankruptcy, insolvency or reorganization proceeding.
21. DEFAULT.
(a) Default By Tenant. The occurrence of any one or more of the
following events shall constitute a material default and breach of this Lease by
Tenant: (i) the abandonment of the Premises by Tenant or the vacating of the
Premises for more than thirty (30) consecutive days; (ii) the failure by Tenant
to make any payment of Rent or any
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other payment required to be made by Tenant hereunder, within five (5) days of
date due; (iii) the failure by Tenant to observe or perform any of the other
covenants, conditions or provisions of the Lease, where such failure shall
continue for a period of twenty (20) days; provided, however, if more than
twenty (20) days are reasonably required for its cure then Tenant shall not be
deemed to be in default if Tenant commences such cure within said 20-day period
and thereafter diligently prosecutes such cure to completion; (iv) the making by
Tenant of any general assignment or general arrangement for the benefit of
creditors; (v) the filing by or against Tenant of a petition to have Tenant
adjudged bankrupt or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within sixty (60) days); (vi) the appointment of a trustee
or receiver to take possession of substantially all of Tenant's assets located
at the Premises or of Tenant's interest in the Lease, where possession is not
restored to Tenant within thirty (30) days; (vii) the attachment, execution or
other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where such seizure is not
discharged within thirty (30) days. The above notice periods may, at the
election of Landlord, run concurrently with any statutorily required notice
periods.
(b) Remedies Cumulative; Injunction. All rights and remedies of
Landlord herein enumerated shall be cumulative, and none shall exclude any other
right or remedy allowed by law or in equity. In addition to the other remedies
in this Lease provided, Landlord shall be entitled to restrain by injunction the
violation or attempted violation of any of the covenants, agreements or
conditions of this Lease.
(c) Landlord's Remedies Upon Tenant Default. Upon an uncured
default of this Lease by Tenant, Landlord, besides other rights or remedies it
may have, at its option, may enter the Premises or any part thereof, either with
or without process of law, and expel, remove or put out Tenant or any other
persons who may be thereon, together with all personal property found therein.
No such reentry shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention is given to
Tenant. Landlord may terminate this Lease, or it may from time to time, without
terminating this Lease and as agent of Tenant, relet the Premises or any part
thereof for such term or terms (which may be for a term less than or extending
beyond the term hereof) and at such rental or rentals and upon such other terms
and conditions as Landlord in its sole discretion may deem advisable, with the
right to repair, renovate, remodel, redecorate, alter and change the Premises,
Tenant remaining liable for any deficiency computed as hereinafter set forth. In
the case of any default, re-entry and/or dispossession, by summary proceedings
or otherwise, all Rent and Additional Rent shall become due thereupon and be
paid up to the time of such re-entry or dispossession, together with such
expenses as Landlord may reasonably incur for attorneys fees, advertising
expenses, brokerage fees and/or putting the Premises in good order or preparing
the same for re-rental, together with interest thereon as provided in Section
30(q) hereof, accruing from the date of any such expenditure by Landlord.
At the option of Landlord, rents received by Landlord from such
reletting shall be applied first to the payment of any indebtedness from Tenant
to Landlord other than Rent and Additional Rent due hereunder; second, to the
payment of any costs and expenses of
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such reletting and including, but not limited to, attorneys fees, advertising
fees and brokerage fees, and to the payment of any repairs, renovations,
remodeling, redecoration, alterations, and changes in the Premises; third, to
the payment of Rent and Additional Rent due and to become due hereunder, and if
after so applying said Rents there is any deficiency in the Rent or Additional
Rent to be paid by Tenant under this Lease, Tenant shall pay any deficiency to
Landlord monthly on the dates specified herein and any payment made or suits
brought to collect the amount of the deficiency for any month shall not
prejudice in any way the right of Landlord to collect the deficiency for any
subsequent month. The failure or refusal of Landlord to relet the Premises or
any part or parts thereof shall not release or affect Tenant's liability
hereunder, nor shall Landlord be liable for failure to relet, or in the event of
reletting, for failure to collect the Rent thereof, and in no event shall Tenant
be entitled to receive any excess of net Rents collected over sums payable by
Tenant to Landlord hereunder, however, Landlord shall have the obligation to
exert reasonable efforts to mitigate damages, provided that Landlord shall not
be required to relet the Premises prior to leasing any other space owned by the
Landlord, or its affiliates, within a one mile radius. No such re-entry or
taking possession of the Premises shall be construed as an election on
Landlord's part to terminate this Lease unless a written notice of such
intention be given to Tenant. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this Lease
for such previous breach and default. Should Landlord at any time terminate this
Lease by reason of any default, in addition to any other remedy it may have, it
may recover from Tenant the present value, using a ten percent (10%) discount
rate, of the amount of Rent and Additional Rent reserved in this Lease for the
balance of the Term, as it may have been extended, less the amount that Tenant
proves could be collected for the remainder of the Term, plus all court costs
and attorneys fees incurred by Landlord in the collection of the same.
Tenant acknowledges that certain benefits or concessions provided by
Landlord are conditioned upon Tenant's timely, full and faithful performance of
each and every obligation, covenant, representation and warranty of this Lease
throughout the entire term of this Lease, even though such benefits or
concessions may be realized by Tenant over less than the entire term of this
Lease. Accordingly, notwithstanding anything to the contrary contained herein,
in the event Landlord brings an action against Tenant for default under this
Lease which results in a termination of this Lease and eviction of Tenant,
Landlord shall become immediately entitled to receive from Tenant as Additional
Rent the amount of all such benefits and concessions allocable to the balance of
the Lease term on a pro rata basis, i.e. an amount equal to the product of (x)
the sum of (a) any amounts theretofore or thereafter paid by Landlord to Tenant
or to any third party, or any amounts credited to Tenant or to any third party,
for or on account of (i) any moving, tenant improvement, decorating or other
allowance or credit granted to Tenant but only to the extent such tenant
improvements are demolished for the next occupant of the premises, (ii) any real
estate commission paid on account of this Lease, and (iii) any expenses or costs
related to assumption by Landlord of any other lease, plus (b) an amount equal
to the difference between the rent as specified in Section 4 above and rent for
any period for which this Lease provides any lesser amount including zero or
nominal rent, including for any period of early occupancy of the Premises prior
to the commencement of the term of this Lease, plus (c) the amount spent by
Landlord for any tenant improvements to the Premises but only to the extent such
tenant improvements are demolished for the next
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occupant of the premises; multiplied by (y) a fraction, the numerator of which
is the number of days of the term of this Lease remaining between the date of
default and the expiration of the term of this Lease, and the denominator of
which is the total number of days of the term of this Lease. By way of example,
if Tenant receives a moving allowance of $1,000, the Lease term is 3 years
(1,095 days) and a default occurs at the end of the first year such that there
were 2 years (730 days) remaining, the Tenant shall pay as additional rent the
sum of $666.67, which is computed as follows: ($1,000 x 730) / 1,095 = $666.67.
(d) Waiver of Redemption Rights. Tenant, for itself, and on
behalf of any and all persons claiming through or under it, including creditors
of all kinds, does hereby waive and surrender all right and privilege which they
or any of them might have under or by reason of any present or future law, to
redeem the Premises or to have a continuance of this Lease for the term hereof,
as it may have been extended, after having been dispossessed or ejected
therefrom by process of law or under the terms of this Lease or after the
termination of this Lease as herein provided.
(e) Nonpayment of Additional Rent. All costs and expenses which
Tenant assumes or agrees to pay to Landlord pursuant to this Lease shall be
deemed Additional Rent and, in the event of nonpayment thereof, Landlord shall
have all the rights and remedies herein provided for in case of nonpayment of
Rent.
(f) Interest. All past due Rent shall bear interest at the rate
of 15% per annum.
22. PRIORITY.
(a) Subordination of Lease. This Lease shall be subordinate to
any mortgage or deed of trust now existing or hereafter placed upon the Premises
or the Project or any portion thereof containing the Premises, created by or at
the instance of Landlord, and to any and all advances to be made thereunder and
to interest thereon and all modifications, renewals and replacements or
extensions thereof ("Landlord's Mortgage") provided however, that the holder of
any Landlord's Mortgage or any person or persons purchasing or otherwise
acquiring the Premises, the Project or any portion thereof containing the
Premises at any sale or other proceeding under any Landlord's Mortgage may elect
to continue this Lease in full force and effect; and in such event, Tenant shall
attorn to such person or persons. Tenant shall properly execute, acknowledge and
deliver documents which the holder of any Landlord's Mortgage may require to
effectuate the provisions of this Section 22 within five (5) days after
Landlord's request. Not withstanding the above, Landlord shall use commercially
reasonable efforts to cause any holder of Landlord's mortgage to enter into a
Nondisturbance Agreement with Tenant which shall provide in essence that upon
any foreclosure of any mortgage or deed of trust by such holder of Landlord's
mortgage, that such holder will not disturb Tenant's rights pursuant to this
Lease, so long as Tenant is not in default pursuant to the provisions of this
Lease.
23. ESTOPPEL CERTIFICATES.
(a) Delivery of Estoppel. Tenant shall, from time to time, upon
written request of Landlord, execute, acknowledge and deliver to Landlord or its
designee a written
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statement stating: The date this Lease was executed and the date it expires; the
date the term commenced and the date Tenant accepted the Premises; the amount of
Basic Rent and the amount of Additional Rent currently being paid towards
increases in Operating Costs, and the date to which such Rent has been paid; and
certifying: (i) whether this Lease is in full force and effect and has not been
assigned or amended in any way (or specifying the date and terms of agreement so
affecting this Lease); (ii) whether this Lease represents the entire agreement
between the parties as to this leasing; that all obligations under this Lease to
be performed by the Landlord have been satisfied or specifying those that have
not been satisfied; (iii) whether on this date there are no existing claims,
defenses or offsets which the Tenant has against the enforcement of this Lease
by the Landlord; (iv) whether no Rent has been paid more than one month in
advance; and that no security has been deposited with Landlord (or, if so, the
amount thereof); and (v) such other items as Landlord shall reasonably request.
It is intended that any such statement delivered pursuant to this Section may be
relied upon by a prospective purchaser of Landlord's interest or holder of any
mortgage upon Landlord's interest in the Building or the Project.
(b) Failure to Deliver Estoppel. If Tenant shall fail to respond
within ten (10) days of receipt by Tenant of a written request by Landlord as
herein provided, Tenant shall be deemed to have given such certificate as above
provided without modification and shall be deemed to have admitted the accuracy
of any information supplied by Landlord to a prospective purchaser or mortgagee
and to have certified that this Lease is in full force and effect, that there
are no uncured defaults in Landlord's performance, that the security deposit is
as stated in the Lease, and that not more than one month's Rent has been paid in
advance.
24. SURRENDER OF POSSESSION. Subject to the terms of Section 14 relating
to damage and destruction, upon expiration of the term of this Lease, whether by
lapse of time or otherwise, Tenant shall promptly and peacefully surrender the
Premises to Landlord "broom-clean" and in as good condition as when received by
Tenant from Landlord or as thereafter improved, damage thereto from causes
beyond the reasonable control of Tenant, ordinary wear and tear and damage by
fire or casualty not intentionally caused by Tenant excepted. Tenant shall
remove all of its personal property and trade fixtures from the Premises and the
Project at the expiration of the term and repair any damage caused by such
removal; any property not so removed shall be deemed abandoned and may be sold
or otherwise disposed of as Landlord deems advisable.
25. NON-WAIVER. Waiver by Landlord of any term, covenant or condition
herein contained or any breach thereof shall not be deemed to be a waiver of
such term, covenant, or condition or of any subsequent breach of the same or any
other term, covenant, or condition herein contained. The subsequent acceptance
of Rent or Additional Rent hereunder by Landlord shall not be deemed to be a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease, other than the failure of Tenant to pay the particular Rent or
Additional Rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent or Additional Rent.
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26. HOLDOVER. If Tenant remains in possession of the Premises or any
part thereof after the expiration of the term of this Lease with the express
written consent of Landlord, such occupancy shall be a tenancy from
month-to-month at a rental in the amount equal to one and one-half (1-1/2) times
the last monthly rental plus all other charges payable under this Lease, and
subject to all of the terms, covenants and conditions of this Lease applicable
to a month-to-month tenancy. Tenant acknowledges and agrees that this Section 26
does not grant any right to Tenant to holdover.
27. LANDLORD'S LIABILITY. Anything in this Lease to the contrary
notwithstanding, covenants, undertakings and agreements herein made on the part
of Landlord are made and intended not as personal covenants, undertakings and
agreements for the purpose of binding Landlord personally or the assets of
Landlord except Landlord's interest in the Premises and Building, but are made
and intended for the purpose of binding only the Landlord's interest in the
Premises and Building, as the same may from time to time be encumbered. No
personal liability or personal responsibility is assumed by, nor shall at any
time be asserted or enforceable against Landlord or its partners or their
respective heirs, legal representatives, successors or assigns on account of the
Lease or on account of any covenant, undertaking or agreement of Landlord in
this Lease contained.
28. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
Landlord's interest in the Premises or in the Building, the transferor shall be
automatically relieved of any and all obligations and liabilities on the part of
Landlord accruing from and after the date of such transfer and such transferee
shall have no obligation or liability with respect to any matter occurring or
arising prior to the date of such transfer. Tenant agrees to attorn to the
transferee.
29. RIGHT TO PERFORM. If Tenant shall fail to pay any sum of money
required to be paid by it hereunder or shall fail to perform any other act on
its part to be performed hereunder, and such failure shall continue for ten (10)
days after notice thereof by Landlord, Landlord may, but shall not be obligated
so to do, and without waiving or releasing Tenant from any obligations of
Tenant, make such payment or perform any such other act on Tenant's part to be
made or performed as provided in this Lease. Landlord shall have (in addition to
any other right or remedy of Landlord) the same rights and remedies in the event
of the nonpayment of sums due under this Section 29 as in the case of default by
Tenant in the payment of Rent.
30. GENERAL.
(a) Headings. Titles to Sections of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part hereof,
(b) Heirs and Assigns. All of the covenants, agreements, terms
and conditions contained in this Lease shall inure to and be binding upon the
Landlord and Tenant and their respective heirs, executors, administrators,
successors and assigns.
(c) Authority. Each individual executing this Lease on behalf of
Tenant represents and warrants that he or she is duly authorized to execute and
deliver this Lease
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on behalf of Tenant, and that this Lease is binding upon Tenant in accordance
with its terms.
(d) No Brokers. Except as set forth in Section 1(r), Tenant
represents and warrants to Landlord that it has not engaged any broker, finder
or other person who would be entitled to any commission or fees in respect of
the negotiation, execution or delivery of this Lease and shall indemnify and
hold harmless Landlord against any loss, cost, liability or expense incurred by
Landlord as a result of any claim asserted by any such broker, finder or other
person on the basis of any arrangements or agreements made or alleged to have
been made by or on behalf of Tenant.
(e) Entire Agreement. This Lease is the final and complete
expression of Landlord and Tenant relating in any manner to the leasing, use and
occupancy of the Premises, to Tenant's use of the Project or portions thereof,
and other matters set forth in this Lease. No prior agreements or understanding
pertaining to the same shall be valid or of any force or effect and the
covenants and agreements of this Lease shall not be altered, modified or added
to except in writing signed by both Landlord and Tenant.
(f) Severability. 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 the remaining provisions hereof shall nevertheless
remain in full force and effect.
(g) Force Majeure. Except for the payment of Rent, Additional
Rent or other sums payable by Tenant to Landlord, time periods for Tenant's or
Landlord's performance under any provisions of this Lease shall be extended for
periods of time during which Tenant's or Landlord's performance is prevented due
to circumstances beyond Tenant's or Landlord's control, including without
limitation, strikes, unavailability or delay in obtaining fuel, labor or
materials, accidents, floods, defective materials, fire or other casualty,
adverse weather conditions, inability to obtain building or use and occupancy
certificates, embargoes, governmental regulations, acts of God, war or other
strife, or other causes similar or dissimilar.
(h) Notices. All notices under this Lease shall be in writing
and delivered in person or sent by registered or certified mail, postage
prepaid, to Landlord and to Tenant at the Addresses provided respectively in
Section 1(e) and 1(c) (provided that after the Commencement Date any such notice
shall be mailed or delivered by hand to Tenant at the Premises) and to the
holder of any mortgage or deed of trust at such place as such holder shall
specify to Tenant in writing; or such other addresses as may from time to time
be designated by any such party in writing. Notices mailed as aforesaid shall be
deemed given on the date of such mailing.
(i) Costs and Attorneys Fees. If Tenant or Landlord shall bring
any action for any relief against the other, declaratory or otherwise, arising
out of this Lease, including any suit by Landlord for the recovery of Rent,
Additional Rent or other payments hereunder or possession of the Premises each
party shall, and hereby does, to the extent permitted by law, waive trial by
jury and the losing party shall pay the prevailing party a reasonable sum for
attorneys fees in such suit, at trial and on appeal, and such attorneys fees
shall be deemed to have accrued on the commencement of such action.
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<PAGE> 28
(j) Governing Law. This Lease shall be governed by and construed
in accordance with the internal laws of the state of Washington.
(k) Recording. Tenant shall not record this Lease or a
memorandum hereof without Landlord's prior written consent and such recordation
shall, at the option of Landlord, constitute a non-curable default of Tenant
hereunder.
(1) Waivers. No waiver by Landlord of any provision hereof shall
be deemed 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 shall not be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act by Tenant. The acceptance of rent
hereunder by Landlord shall not be a waiver of any preceding breach at the time
of acceptance of such rent.
(m) Time of Essence. Time is of the essence for the performance
of all of the obligations specified hereunder.
(n) Merger. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at
the option of Landlord, terminate all or any existing subtenancies or may, at
the option of Landlord, operate as an assignment to Landlord of any or all of
such subtenancies.
(o) Right to Change Public Spaces. Landlord shall have the right
at any time, without thereby creating an actual or constructive eviction or
incurring any liability to tenant therefor, to change the arrangement or
location of such of the following as are not contained within the Premises or
any part thereof: entrances, passageways, doors and doorways, corridors, stairs,
toilets and other like public service portions of the Building. Nevertheless, in
no event shall Landlord diminish any service, change the arrangement or location
of the elevators serving the Premises, make any change which shall diminish the
area of the Premises, or make any change which shall change the character of the
Building from that of a first-class office building.
(p) Name. The Building and the Project will be known by such
name as Landlord may designate from time to time. Landlord reserves the right to
name and rename the Building and/or the Project from time to time and to install
signs accordingly, without compensation or prior notice to Tenant.
(q) Overdue Payments. Any Rent, Additional Rent or other sums
payable by Tenant to Landlord under this Lease which shall not be paid when due
thereof, shall bear interest at a rate equal to fifteen percent (15%),
calculated from the original due date thereof to the date of payment. Any late
payment of Rent (i.e. Not paid within five (5) days when due) shall also be
subject to a collection fee equal to the greater of $100.00 or five percent (5%)
of the amount due.
(r) Relocation of Premises. During the term of the Lease
Landlord may relocate the Tenant's Premises within the Project. Said relocation
shall be at the total cost and expense of Landlord. In the event Landlord so
elects to relocate Tenant, Landlord
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<PAGE> 29
shall notify Tenant, specifying the relocation space to Tenant. Tenant shall
have fifteen (15) days from the receipt of said notice to accept said
relocation. In the event that the relocation proposal is accepted by Tenant,
Landlord and Tenant shall revise the Tenant's Lease to reflect the new space.
Upon such relocation, such new space shall be deemed the Premises hereunder for
all purposes and the Lease shall be deemed amended to that effect without
further formality. Rental rates for the new space shall be the same as those
agreed to in the original Lease Agreement, subject to adjustment for additional
space, or less space, as agreed to by the parties. All other terms and
conditions of the original Lease shall remain in full force and effect. In the
event that Tenant elects not to accept the relocation of its Premises, Tenant
shall so notify Landlord in writing. Landlord shall then have the option for
thirty (30) days to terminate Tenant's Lease, or to allow Tenant to remain in
its present Premises.
If Tenant accepts such relocation, the following conditions will apply:
(i) Landlord will bear all costs and expenses resulting from the move, including
but not limited to
- replace or relocate communication, computer and phone connections
- reprint letterhead, cards and forms
- move building signage
- move furniture, equipment, partitions, etc.
(ii) Landlord will provide comparable space, to include:
- similar linear feet of window line
- similar functional layout and flow
- similar quantity and quality of improvements
(iii) A rental credit of $27,900 will be provided by Landlord for the next rent
due under the Lease and (iv) the move will occur during periods between Friday
5:00 PM and Monday 6:00 AM.
(s) Advertising. Tenant shall not inscribe any inscription, or
post, place or in any manner display any sign, notice, picture, placard or
poster, or any advertising matter whatsoever in or about the Premises or the
Building or the Project at places visible (either directly or indirectly as an
outline or shadow on a glass pane) from anywhere outside the Premises without
first obtaining Landlord's written consent thereto. Any such consent by Landlord
shall be upon the understanding and condition that Tenant will remove the same
at the expiration or sooner termination of this Lease and Tenant shall repair
any damage to the Premises, the Building or the Project caused thereby.
(t) Parking. Parking shall at all times be governed by
reasonable rules and regulations as set forth in Exhibit D, which shall be
published from time to time by Landlord. Parking may be on a reserved stall
and/or undesignated stall--"window sticker" basis, and may be self-service
and/or attendant service, as determined from time to time by Landlord. Tenant
shall have the right to use that number of parking stalls as set forth in
Section 1(q).
(u) Execution of Lease by Landlord. The submission of this
document for examination and negotiation does not constitute an offer to lease,
or a reservation of, or option for the Premises, and this document shall become
effective and binding only upon
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<PAGE> 30
execution and delivery by Landlord. No act or omission of any employee or agent
of Landlord or of Landlord's broker shall alter, change or modify any of the
provisions hereof.
31. LANDLORD'S COVENANTS.
(a) Quiet Enjoyment. Tenant shall have the right to the
peaceable and quiet use and enjoyment of the Premises, subject to the provisions
of this Lease, so long as Tenant is not in default hereunder.
(b) Hazardous Waste or Materials. Landlord represents to Tenant
that to the best of Landlord's actual knowledge no hazardous waste or materials
have been generated, stored or disposed of by Landlord on the land or in or on
the Building, other than in compliance with applicable laws.
(c) Rentable Square Feet. Landlord warrants that the rentable
square feet of the Project is 69,596 square feet, and the rentable square feet
of the Premises is 6,189 square feet. Landlord further warrants that such square
feet have been calculated in accordance with BOMA Standards (1996 version).
32. GUARANTY OF LEASE. In order to induce Landlord to execute this
Lease, Tenant has agreed to deliver to Landlord a Restated Guaranty of Lease, in
the form attached hereto as Exhibit E, from William T. Baxter, Albert T. Dosser
and Peter R. Gregory.
IN WITNESS WHEREOF this Lease has been executed the day and year first
above set forth.
LANDLORD: SEATTLE OFFICE ASSOCIATES L.L.C.
a Washington Limited Liability company
By /s/ P. LANGSTON SLIGH, JR.
---------------------------------
Its Member
-------------------------------
TENANT: bsquare consulting, inc.
a Washington Corporation
By /s/ WILLIAM T. BAXTER
---------------------------------
Its President & CEO
-------------------------------
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<PAGE> 31
LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that P. LANGSTON
SLIGN is the person who appeared before me, and said person acknowledged that
said person signed this instrument, on oath stated that said person was
authorized to execute the instrument and acknowledged it as a managing member of
SEATTLE OFFICE ASSOCIATES, a limited liability company, to be the free and
voluntary act of such limited liability company for the uses and purposes
mentioned in the instrument.
Dated this 24TH day of MARCH, 1997.
/s/ [SIGNATURE ILLEGIBLE]
------------------------------------
Notary Public in and for the state
of Washington, residing at
[ILLEGIBLE]
------------------------------------
My appointment expires 8.29.00
--------------
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that WILLIAM BAXTER
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the President and CEO respectively, of a
corporation, to be the free and voluntary act of such corporation for the uses
and purposes mentioned in the instrument.
Dated this 24th day of March, 1997.
/s/ [SIGNATURE ILLEGIBLE]
------------------------------------
Notary Public in and for the state
of Washington, residing at
[ILLEGIBLE]
------------------------------------
My appointment expires 8.29.00
--------------
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<PAGE> 32
EXHIBIT A
LEGAL DESCRIPTION OF LAND
That portion of the northeast quarter of the southwest quarter of Section 10,
Township 24 North, Range 5 East, W.M., in King County, Washington, lying
southerly of the south line of the frontage road right-of-way known as S.E. 36th
Street on the south side of primary State Highway No. 2 as shown on State of
Washington, Department of Highways Map, SR 90, MP 7.71 to MP 11.72, Richards
Road to Lake Sammamish, sheet 3 of 35, latest revision date March 31, 1977, on
file at the office of the Department of Transportation, Olympia, Washington,
except that portion lying westerly of the west line of an electric transmission
easement, granted to Puget Sound Power & Light Company by instrument recorded
under Auditor's File No. 2545297, also subject to an easement for a petroleum
pipeline, as recorded under Auditor's File No. 5785336, and also subject to a
perpetual slope easement, as acquired under Superior Court Cause No.
7733237.
<PAGE> 33
EXHIBIT B
SPACE PLAN OF PREMISES
<PAGE> 34
EXHIBIT C
TENANT IMPROVEMENTS
Landlord to complete the following tenant improvements at its cost.
a. carpet and paint entire premises. Carpet to be building standard
(Mohawk RIO 30/36 in "Federal Blue" #511). Carpet is to be cut
pile in offices and loop pile in hallways/corridors as specified
by Tenant. Paint color to be chosen by Tenant subject to
approval by Landlord. Vinyl to be placed in kitchen and
lunchroom area will be building standard (Armstrong Corlon in
"Suffield Slate" #86807). New rubber cove base to be installed
(Robbe "Gray" #50) in all areas.
b. Clean up/touch up of kitchen cabinet fronts.
c. Building standard signage to be provided for Tenant door and for
main building directory.
d. Replacement of broken, discolored or stained ceiling tiles.
e. Placement of locks on selected interior office doors, to be
determined by Tenant.
f. Make sure that all interior lighting is fully operational.
g. Clean all window blinds and interior windows.
The Landlord will cause the following improvements to be done and completed at
the sole cost of the Tenant. Tenant shall have the right to approve all costs
prior to the start of the work.
a. Demolition and construction of new offices as required to match
site plan for space as shown on Exhibit B. New doors and relites
as required will match the existing trim.
b. Electrical and mechanical work as required to match new office
layout. Tenant to provide electrical specifications prior to
start of work.
c. Tenant may elect to have border or insert carpet work done in
reception area and conference room. Landlord to provide basic
design layout of work.
<PAGE> 35
EXHIBIT D
RULES AND REGULATIONS
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, 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 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 and in a form approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection with
any window or door of the Premises, or placed on any windowsill which is visible
from the exterior of the Premises, Tenant shall immediately discontinue such
use. Tenant shall not place anything against or near glass partitions or doors
or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances,
elevators or stairways of the Building. The halls, passages, exits, entrances,
elevators, and stairways are not open to the general public, but are open,
subject to reasonable regulation, to Tenant's business invitees. 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 interest of the Building and its tenants;
providing that nothing herein contained shall be construed to prevent such
access to persons with whom any tenant normally deals in the ordinary course of
its business, unless such persons are engaged in illegal or unlawful activities.
No tenant and no employee or invitee of any tenant shall go upon the roof of the
Building.
4. 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, including individual's names, therefrom.
5. All cleaning and janitorial services for the Building and the Premises shall
be provided exclusively through Landlord, and except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall be
employed by Tenant or permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by carelessness
or indifference to the good order and cleanliness of the Premises.
6. Landlord will furnish Tenant, free of charge, with eight keys to each door
lock in the Premises. Landlord may make a reasonable charge for any additional
keys. Tenant shall not alter any lock or install a new additional lock or bolt
on any door of its Premises. Tenant, upon the termination of its tenancy, shall
deliver to Landlord the keys of all doors which have been furnished to Tenant,
and in the event of loss of any keys so furnished, shall pay Landlord therefore.
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
8. The Building elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord, in its discretion,
shall deem appropriate. 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. Tenant's initial move in and
<PAGE> 36
subsequent deliveries of bulky items, such as furniture, safes and similar
items shall, unless otherwise agreed by Landlord, be made during the hours of 6
P.M. to 6 A.M. or on Saturday or Sunday. Deliveries during normal office hours
shall be limited to normal office supplies and other small items. No deliveries
shall be made which impede or interfere with other tenants or the operation of
the Building.
9. Tenant shall not place a load upon any floor of the Premises 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, if considered necessary by Landlord, stand on
such platforms as determined by Landlord to be necessary to properly distribute
the weight, which platforms shall be provided at Tenant's expense. Business
machines and mechanical equipment belonging to Tenant, which cause 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 in the Building, 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 or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant shall not
use or permit to be used in the Premises any foul or noxious gas or substance,
or permit or allow the 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 or vibrations, nor shall Tenant bring into or keep in or about the
Premises any birds or animals.
11. Tenant shall not use any method of heating or air conditioning other than
that supplied by Landlord.
12. Tenant shall not waste electricity, water or air conditioning and agrees to
cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice, and
shall refrain from attempting to adjust controls. Tenant shall keep corridor
doors closed, and shall close window coverings at the end of each business day.
13. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
14. 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. Landlord reserves the right to prevent access to the Building in
case of invasion, mob, riot, public excitement or other commotion by closing the
doors or by other appropriate action.
15. Tenant shall close and lock the doors of its 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
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<PAGE> 37
sustained by other tenants or occupants of the Building or by Landlord for
noncompliance with this rule.
16. 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 and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from violation of this rule shall be
borne by the tenant who, or whose employees or invitees, shall have caused it.
17. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Building. Tenant shall not
use the Premises for any business or activity other than that specifically
provided for in Tenant's Lease.
18. Tenant shall not install any radio or television antenna, loudspeaker or
other devices 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.
19. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster, or in any way deface the Premises or any part thereof,
except in accordance with the provisions of the Lease pertaining to alterations.
Landlord reserves the right to direct electricians as to where and how telephone
and telegraph wires are to be introduced to the Premises. Tenant shall not cut
or bore holes for wires. Tenant shall not affix any floor covering to the floor
of the Premises in any manner except as approved by Landlord.
20. Tenant shall repair any damage resulting from noncompliance with this rule.
Tenant shall not install, maintain or operate upon the Premises any vending
machines without the written consent of Landlord.
21. Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the Building are prohibited, and Tenant shall
cooperate to prevent such activities.
22. Landlord reserves the right to exclude or expel from the Building any person
who, in Landlord's judgment, is intoxicated or under the influence of liquor or
drugs or who is in violation of any of the Rules and Regulations of the
Building.
23. Tenant shall store all its trash and garbage within its Premises or in other
facilities provided by Landlord. 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. Tenant will take advantage of any recycling available at the site.
24. The Premises shall not be used for the storage of merchandise held for sale
to the general public, or for lodging or for manufacturing of any kind, nor
shall the Premises be used for any improper, immoral or objectionable purpose.
No cooking shall be done or permitted on the Premises without Landlord's
consent, except that use by Tenant of Underwriters' Laboratory-approved
equipment for brewing coffee, tea, hot chocolate and similar beverages, or use
of microwave ovens for employee use shall be permitted, provided that such
equipment and use is in accordance with all applicable federal, state, county
and city laws, codes, ordinances, rules and regulations.
25. Tenant shall not use in any space or in the public halls of the Building,
any hand truck except those equipped with rubber tires and side guards or such
other material-
32
<PAGE> 38
handling equipment as Landlord may approve. Tenant shall not bring any other
vehicles of any kind into the Building.
26. Without the written consent of Landlord, 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.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. Tenant's requirements will be attended to only upon appropriate application
to the Building management office 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 Tenant.
30. Tenant shall comply with all parking requirements of the property, and will
not park more vehicles at the property than provided in Tenant's lease. Landlord
reserves the right to ticket and/or tow vehicles, at Tenant's expense, not
displaying a valid parking permit.
a) Parking stickers or any other device or form of identification
supplied by Landlord as a condition of the use of the parking facilities
shall remain the property of Landlord. Such parking identification
device must be displayed as requested and may not be mutilated in any
manner. The serial number of the parking identification device may not
be obliterated. Devices are not transferable, and any device in the
possession of an unauthorized holder and will be void.
b) Loss or theft of parking identification devices from automobiles must
be reported immediately, and a lost or stolen report must be filed by
the customer at that time. Landlord has the right to exclude any vehicle
from the parking facilities that does not have an identification device.
c) Tenant shall not park or permit the parking of any vehicle under its
control in any parking areas designated by Landlord as areas for parking
by visitors to the Building. Tenant or its customers, suppliers,
employees, or invitees shall not use motor homes or other similar
vehicles in the parking areas and shall not leave vehicles in the
parking areas overnight or for any extended period of time, nor park any
vehicles in the parking areas other than automobiles, motorcycles, motor
driven or nonmotor driven bicycles or four-wheeled trucks not more than
20 feet in length. Provided that, from time to time, Tenant may park
passenger automobiles overnight.
d) Washing, waxing, cleaning or servicing of any vehicle in any area not
specifically reserved for such purpose is prohibited.
e) Vehicles must be parked entirely within the painted stall lines of a
single parking stall.
f) Parking is prohibited:
i) in areas not striped for parking;
ii) in aisles
33
<PAGE> 39
iii) where "no parking" signs are posted;
iv) on ramps;
v) in cross hatched areas; and
vi) in such other areas as may be designated by Landlord or
Landlord's agent from time to time.
g) Landlord or its agents shall have the right to cause to be removed
any car of Tenant, its employees, invitees, licensee, or agent, that may
be parked in unauthorized area, and Tenant agrees to save and hold
harmless Landlord, its agent and employees from any and all claims,
losses, damages and demands asserted or arising in respect to or in
connection with the removal of any such vehicle and for all expenses
incurred by Landlord in connection with such removal. Tenant will from
time to time, upon request of Landlord, supply Landlord with a list of
license plate numbers or vehicle owned or operated by its employees and
agents.
h) Landlord reserves the right to modify and/or adopt such other
reasonable and non-discriminatory Rules and Regulations for the parking
facilities as it deems necessary for the operation of the parking
facilities. Landlord may refuse to permit any person who violates these
Rules and Regulations to park in the parking facilities, and any
violation shall subject the car to removal at the owner's expense.
31. Tenant shall be responsible for maintaining and, if necessary, replacing any
appliances that were provided in any Tenant Improvements (i.e. microwaves and
dishwashers, etc.).
32. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of Tenant or any
other tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
33. 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, covenants,
agreements and conditions of Tenant's lease of its Premises in the Building.
34. Landlord reserves the right to amend these rules and 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.
35. Tenant shall be responsible for the observance of all of the foregoing rules
by Tenant's employees, agents, clients, customers, invitees and guests.
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<PAGE> 40
EXHIBIT E
RESTATED
GUARANTY OF LEASE
William T. Baxter ("Guarantor"), hereby agrees with Seattle Office Associates
LLC ("Landlord"), as follows:
1. Consideration: Guarantor has agreed to make and deliver this Guaranty to
Landlord in order to induce Landlord to enter into a new lease dated
March , 1997 with bsquare consulting, inc. (Tenant) with respect to
Suite 100 of the Delphi Building in Bellevue, WA (the "Suite 100
Lease"), and also to induce Landlord to enter into a new lease dated
March , 1997 with Tenant with respect to Suite 310 of the Delphi
Building (the "Suite 310 Lease"). Landlord and Tenant are also parties
to a lease dated November 15, 1996, as amended, with respect to Suite
200 of the Delphi Building (the "Suite 200 Lease"). The Suite 100 Lease,
the Suite 200 Lease and the Suite 310 Lease are collectively referred
to as the "Leases", and are the Leases under which the obligations
hereby guaranteed have been created. Guarantor hereby acknowledges that
it has and will derive a direct financial benefit from Landlord's
entering into the Leases. This Guaranty replaces and supersedes in its
entirety the Guaranty of Lease from Guarantor to Landlord for the Suite
200 Lease dated November 15, 1996.
2. Guarantee: Guarantor hereby guarantees the Leases, as originally
executed and as thereafter modified or amended, as follows: Guarantor
hereby guarantees and undertakes with Landlord that in the event that
the Tenant shall default in the payments of any sums due and owing to
Landlord from Tenant on account of any of the Leases or in the event
that the Tenant shall default in the full and faithful performance of
Tenant's obligations, undertakings and covenants contained in the
Leases, then Guarantor shall pay to Landlord, within ten days of demand,
any and all sums so due to Landlord (not to exceed the limitation set
forth below) and any damages incurred by Landlord on account thereof.
This guaranty is absolute and unconditional. Guarantor's total
obligation under this guarantee is limited to $299,000 (the "Limit
Amount").
3. Reductions in Limit Amount: Guarantor shall have the right to reduce the
Limit Amount by $2.32 for each $1.00 in cash deposited by Guarantor with
Landlord, provided that the maximum amount Guarantor may reduce the
Limit Amount by cash deposit may not exceed $174,000 ($75,000 in cash).
Any cash deposited by Guarantor with Landlord to reduce the Limit Amount
shall accrue interest at the rate of 5% per annum, which interest shall
be credited to the cash deposit on a monthly basis. Any cash deposited
with Landlord to reduce the Limit Amount shall be held by Landlord with
landlord's other funds, and shall be available to Landlord on the same
terms and conditions as the security deposits under the Leases. Any
remaining portion of the cash deposit (and any accrued interest thereon)
shall be returned to Guarantor only after all of the Leases have expired
and all of the obligations of Tenant thereunder have been satisfied in
full.
Any reduction in the Limit Amount arising from a cash deposit with
Landlord shall only be effective as to obligations arising under this
Guaranty accruing after the date of deposit. Obligations which have
accrued under the Guaranty prior to or as of the date of a cash deposit
with Landlord shall still be subject to the full Limit Amount. Thus,
following a default by Tenant under a Lease, Guarantor may not make a
cash deposit with Landlord to reduce the Limit Amount applicable to such
default.
The Limit Amount shall also be reduced $3,472.22 per month for each
month which the Tenant is not in default under any of the Leases,
provided that in no event shall the Limit Amount be reduced by more than
$125,000 by operation of this provision. This monthly reduction is to
begin December 13, 1996.
4. Term: Guarantor's obligations and undertakings herein contained shall
remain in full force and effect and shall survive termination of the
Leases.
5. Rights of Landlord: Without diminishing, releasing or discharging
Guarantor's obligations hereunder, Landlord shall have the right to
exercise the following powers and rights in Landlord's sole discretion:
Landlord may change, alter, cancel, renew, extend, decrease or increase
the obligations of Tenant to Landlord (increases in the
Page 1
<PAGE> 41
obligation of the Tenant to Landlord will not increase the Limit Amount
under this guaranty). Landlord may add other guarantors or procure
additional guarantees, release other guarantors or guarantees and apply
monies or properties received from Tenant upon debts regardless of
whether the same may be guaranteed hereby, otherwise secured, barred by
statutes of limitation or discharged other than by payment. Landlord may
exercise rights hereunder in the event of Tenant's insolvency,
bankruptcy, receivership or assignment for benefit of creditors, in
which event all of Tenant's liabilities and indemnities to Landlord
shall be satisfied in full before Guarantor shall be entitled to
participation in the distribution of Tenant's assets. Landlord may deal
with Tenant, Guarantor and any other person liable on the indebtedness,
obligation or liabilities to Landlord as Landlord deems advisable.
6. Default of Tenant: Notice of acceptance of this Guaranty and of
defaults, breaches, demands, presentments, protest, and amendment to or
modification or cancellation of the Leases, and of any other kind is
fully waived by Guarantor. Upon default by Tenant on any of its
obligations to Landlord, then at Landlord's option, without notice or
demand upon Guarantor and without exercising any other right or remedy
Landlord may have, Landlord may proceed directly against Guarantor or
any other guarantor to enforce Landlord's rights hereunder. Without
releasing or affecting Guarantor's obligations hereunder, Landlord may
enforce any rights it may have against any persons and properties
liable.
7. Impairment of Rights: Landlord's rights shall be cumulative and not
exclusive. No impairment, limitation or modification or Tenant's
liabilities or obligations or of its trustee or receiver or any such
impairment, limitation or modification of Landlord's remedies by virtue
of the operation of bankruptcy or similar laws or decisions of any court
or courts nor any disaffirmance of the Landlord's obligations under the
Leases in such proceedings shall affect Landlord's rights against
Guarantor hereunder.
8. Successor and Assigns: The obligations of Guarantor shall inure to the
benefit of the Landlord's assigns and successors in interest in the
Leases and shall be binding upon Guarantor's heirs, successors and
assigns. Reference to Tenant herein includes any assignee of or
successor to Tenant's interest under the terms of the Leases or any
subtenant or any other party who is now or in the future may be a tenant
under any of the Leases.
9. Costs and Attorney's Fees: Guarantor shall pay all costs, expenses and
charges, including all reasonable attorneys fees, which Landlord may
incur in the enforcement of the provisions hereof. Such costs or
reasonable attorneys fees shall be payable irrespective of the Limit
Amount hereunder.
10. Notices: Any notice hereunder may be given to Guarantor by mail
addressed to:
William T. Baxter
3233 - 168th Place SE
Bellevue, WA 98008
or other address as Guarantor shall designate to Landlord in writing.
Dated this day of March, 1997.
GUARANTOR
by
---------------------------------
William T. Baxter
Page 2
<PAGE> 1
EXHIBIT 10.11
SUNSET NORTH CORPORATE CAMPUS
LEASE AGREEMENT
BETWEEN
WRC SUNSET NORTH LLC ("LANDLORD")
AND
BSQUARE CORPORATION ("TENANT")
<PAGE> 2
OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease") is made and entered into as of
the 15th day of January, 1999, by and between WRC SUNSET NORTH LLC, a Washington
limited liability company ("Landlord") and BSQUARE CORPORATION, a Washington
corporation ("Tenant").
ARTICLE 1. BASIC LEASE INFORMATION; DEFINITION.
A. The following are some of the basic lease information and defined
terms used in this Lease.
1. "ADDITIONAL BASE RENTAL" shall mean Tenant's Pro Rata Share of
Basic Costs and any other sums (exclusive of Base Rental) that are required to
be paid by Tenant to Landlord hereunder, which sums are deemed to be additional
rent under this Lease. Additional Base Rental and Base Rental are sometimes
collectively referred to herein as "Rent".
2. "BASE RENTAL" shall mean Twenty and no/100 Dollars ($20.00) per
rentable square foot of the Premises per year during year one (1) of the Lease
Term; Twenty-One and no/100 Dollars ($21.00) per rentable square foot of the
Premises per year during years two (2) and three (3) of the Lease Term;
Twenty-Two and no/100 Dollars ($22.00) per rentable square foot of the Premises
per year during years four (4) and five (5) of the Lease Term; Twenty-Three and
no/100 Dollars ($23.00) per rentable square foot of the Premises per year during
years six (6) and seven (7) of the Lease Term; Twenty-Four and no/100 Dollars
($24.00) per rentable square foot of the Premises per year during years eight
(8) and nine (9) of the Lease Term; and Twenty-Five and no/100 Dollars ($25.00)
per rentable square foot of the Premises per year during year ten (10) of the
Lease Term.
3. "BUILDING" shall mean the office building commonly known as
Building 4 of Sunset North Corporate Campus, located at the Northeast corner of
139th Avenue Southeast and Southeast 32nd Street, Bellevue, King County,
Washington. "BUILDINGS" means the Building and Building 3 and Building 5,
collectively.
4. "CAMPUS" means the Sunset North Corporate Campus located at the
Northeast corner of 139th Avenue Southeast and Southeast 32nd Street in
Bellevue, King County, Washington. The Campus contains the Building (commonly
known as Building 4), and the office buildings commonly known as BUILDING 3 AND
BUILDING 5.
5. The "COMMENCEMENT DATE," "INITIAL LEASE TERM," "LEASE TERM" and
"TERMINATION DATE" shall have the following meanings: The "INITIAL LEASE TERM"
shall mean a period of one hundred twenty (120) months commencing on the
Commencement Date, as defined in Section 3(A) (the "COMMENCEMENT DATE"). The
target commencement date is August 15, 1999 (the "TARGET COMMENCEMENT DATE").
The "TERMINATION DATE" shall, unless sooner terminated as provided herein, mean
the last day of the Lease Term. Notwithstanding the foregoing, if the
Termination Date, as determined herein, does not occur on the last day of a
calendar month, the Lease Term shall be extended by the number of days necessary
to cause the Termination Date to occur on the last day of the last calendar
month of the Lease Term. Tenant shall pay Base Rental and Additional Base Rental
for such additional days at the same rate
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<PAGE> 3
payable for the portion of the last calendar month immediately preceding such
extension. Tenant has the option of extending the term of this Lease beyond the
Initial Lease Term pursuant to the provisions of Section 5(C) below. The term of
this Lease, as so extended, is referred to in this Lease as the "LEASE TERM."
6. "INDEX" shall mean the "Consumer Price Index (United States City
Average for All Urban Consumers) -- All Items (Reference Base 1982-84=100)"
published by the United States Department of Labor, Bureau of Labor Statistics.
In the event the Index shall hereafter be converted to a different standard
reference base or otherwise revised, the determination of the percentage
increase shall be made with the use of such conversion factor, formula or table
for converting such index as may be published by the Bureau of Labor Statistics
or, if said Bureau shall not publish the same, then with the use of such
conversion, factor, formula or table as may be published by Prentice Hall, Inc.
or any other nationally recognized publisher of similar statistical information.
In the event any such index shall cease to be published, then for the purposes
of this Section, there shall be substituted such other index as Landlord and
Tenant shall reasonably agree. References to the Index as of a particular date
shall mean the Index most recently published on such date.
7. "INITIAL PREMISES" shall mean the area located on the entire third
(3rd), fourth (4th) and fifth (5th) floors of the Building, as outlined on
Exhibit A attached hereto and incorporated herein, containing approximately
ninety-four thousand one hundred eighty-two (94,182) rentable square feet of
area and eighty-four thousand eight hundred forty-nine (84,849) usable square
feet of area, measured on a single tenant per floor basis, using BOMA standards.
The area of the Premises may be adjusted or expanded in accordance with the
provisions of Section 5(A) below. The Initial Premises, as later modified or
expanded, is referred to in this Lease as the "PREMISES."
8. "PERMITTED USE" shall mean only sales, general office, computer
research, engineering, development and testing, and administration, together
with uses ancillary thereto (such as cafeteria and related kitchen facilities),
and any other legally permitted use consistent with the character of the
Building.
9. "RENTABLE AREA," "RENTABLE SQUARE FEET" and similar terms shall
mean Rentable Area as determined in accordance with the American National
Standard Method of measuring floor space in office buildings as published by the
Building Owners and Managers Association International dated June 7, 1996
("BOMA").
10. "TENANT'S PRO RATA SHARE" shall mean twenty and four hundred forty
five one thousandths percent (20.445%), which is the quotient (expressed as a
percentage), derived by dividing the Rentable Area of the Premises (94,182) by
the Rentable Area of Buildings 3,4 and 5 (460,663). At such time as the
construction of all of the Buildings is completed, Landlord will cause the
rentable square feet of the Buildings and the Premises to be determined in
accordance with BOMA standards, will notify Tenant of such rentable square feet,
and Tenant's Pro Rata Share shall be adjusted accordingly if the Rentable Area
differs from that set forth above.
11. "USABLE AREA," "USABLE SQUARE FEET" and similar terms shall mean
Usable Area as determined in accordance with BOMA.
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<PAGE> 4
12. "NOTICE ADDRESSES" shall mean the following addresses for Tenant
and Landlord, respectively:
Tenant: On and after the Commencement Date, notices shall be
sent to Tenant at the Premises.
Prior to tile Commencement Date, notices shall be sent
to Tenant at the following address:
BSQUARE Corporation
3633 136th Place NE, Suite 100
Bellevue, WA 98006
Attn: General Counsel
Landlord: WRC Sunset North LLC
c/o Wright Runstad & Company
Suite 2000
1191 Second Avenue
Seattle, WA 98101
Attention: Jon F. Nordby
With a copy to:
Equity Office Properties Trust
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attention: Regional Counsel - Western Region
Payments of Rent only shall be made payable to the order of WRC Sunset
North LLC at the address of the Landlord set forth above, or such other address
as may be specified in the Commencement Letter delivered to Tenant pursuant to
Section 3(C).
B. The following are additional definitions of some of the defined terms
used in the Lease.
1. "BASIC COSTS" are defined below in Section 7(B) hereof.
2. "BROKER" means The Broderick Group and Leibsohn & Company
3. "BUILDING STANDARD" shall mean the type, grade, brand, quality
and/or quantity of materials Landlord designates from time to time to be the
minimum quality and/or quantity to be used in the Building.
4. "BUSINESS DAY(S)" shall mean Mondays through Fridays exclusive of
the normal business holidays ("Holidays") of New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Landlord, from
time to time during the
3
<PAGE> 5
Lease Term, shall have the right to designate additional Holidays, provided such
additional Holidays are nationally recognized by other office buildings.
5. "COMMON AREAS" shall mean those areas provided for the common use
or benefit of all tenants generally and/or the public, such as corridors,
elevators, elevator foyers, common mail rooms, restrooms, vending areas, lobby
areas (whether at ground level or otherwise), walkways, parking areas and
landscaping and other similar facilities.
6. "LANDLORD WORK" shall mean the construction of the shell and core
of the Building, including the Common Areas. The Landlord Work is described on
Exhibit D attached hereto.
7. "NORMAL BUSINESS HOURS" for the Building shall mean 7:00 a.m. to
7:00 p.m. Mondays through Fridays, and 7:00 a.m. to 2:00 p.m. on Saturdays,
exclusive of Holidays.
8. "PRIME RATE" shall mean the prime rate reported in the Money Rates
column or section of the Wall Street Journal or any successor thereof from time
to time.
9. "PROPERTY" shall mean the Buildings and the Parcel(s) of land on
which they are located, all other property in the Campus and, at Landlord's
discretion, the garages serving the Buildings, and all other improvements owned
by Landlord and serving the Buildings and the tenants thereof and the parcel(s)
of land on which they are located. The legal description for the Property is set
forth on Exhibit A-1, attached hereto and incorporated herein by this reference.
10. "INITIAL TENANT IMPROVEMENTS" shall mean the tenant improvements
to be constructed in the Initial Premises pursuant to Tenant's plans and
specifications, as approved by Landlord pursuant to the terms of Exhibit D
attached hereto, and "Tenant Improvements" shall include the Initial Tenant
Improvements.
ARTICLE 2: LEASE GRANT.
Subject to and upon the terms herein set forth, Landlord leases to Tenant
and Tenant leases from Landlord the Premises, together with the right, in common
with others, to use the Common Areas.
ARTICLE 3: ADJUSTMENT OF COMMENCEMENT DATE/POSSESSION.
A. Commencement Date: Landlord and Tenant shall use their best efforts to
complete the Building and the Initial Tenant Improvements in accordance with
Exhibit D hereto on the Target Commencement Date or as soon thereafter as
practicable.
The determination of the Commencement Date with respect to the Initial
Premises shall depend on which contractor is selected to construct the Initial
Tenant Improvements. If Tenant selects the contractor engaged by Landlord to
construct the shell and core of the Building (the "SHELL AND CORE CONTRACTOR"),
Landlord shall use its commercially reasonable best efforts to cause the
Commencement Date to occur by August 15, 1999. If the Initial Tenant Improvement
work is bid, and if the Shell and Core Contractor's bid is the lowest received
by Tenant for the
4
<PAGE> 6
construction of the Tenant Improvements, or is within two percent (2%) of the
lowest bid received, and Tenant chooses a contractor other than the Shell and
Core Contractor, the Commencement Date shall be deemed to occur on the date that
it otherwise would have occurred (as determined by the following paragraph) had
the Shell and Core Contractor been chosen to construct the Initial Tenant
Improvements (as reasonably determined based on the Shell and Core Contractor's
proposed schedule included in its tenant work bid but taking into consideration
Force Majeure events that are not the result of Tenant's selection of a
contractor other than the Shell and Core Contractor (e.g. no adjustment shall be
made for material shortages or labor disputes that would not have applied to the
Shell and Core Contractor.) If the Shell and Core Contractor is not the lowest
bidder or within two percent (2%) of the lowest bidder, and Tenant chooses such
lowest bidder, the Commencement Date shall be deemed to occur on the earlier of
(i) the date three (3) weeks after the date that it otherwise would have
occurred had the Shell and Core Contractor been chosen to construct the Initial
Tenant Improvements (as reasonably determined based on the Shell and Core
Contractor's proposed schedule included in its tenant work bid but taking into
consideration Force Majeure events that are not the result of Tenant's selection
of a contractor other than the Shell and Core Contractor (e.g. no adjustment
shall be made for material shortages or labor disputes that would not have
applied to the Shell and Core Contractor), or (ii) the date the Commencement
Date would otherwise occur pursuant to the following paragraph. All of the
foregoing dates are subject to the delay provisions contained in Section 38(D)
below. The contractor so selected to construct the Tenant Improvements shall be
hereinafter referred to as the "TENANT IMPROVEMENTS CONTRACTOR." The
Commencement Date with respect to the Initial Premises shall be deemed to occur
on (A) the later of (I) the completion date specified in the notice ("30 Day
Notice") delivered to Tenant at least thirty (30) days prior to the date that
the Initial Premises will be completed for occupancy or (II) the date the
entirety of the Initial Premises is in fact delivered to Tenant with all of
Landlord's Work and the Initial Tenant Improvements substantially completed, or
(B) such earlier date as Landlord would have been able to so deliver the entire
Premises to Tenant but for Tenant Delay (defined below). Subject to Tenant Delay
or other causes beyond Landlord's control, Landlord shall use its best efforts
to deliver the Premises to Tenant no later than the completion date specified in
the 30 Day Notice. Notwithstanding the foregoing, (i) if the Initial Premises
have been delivered to Tenant with all of Landlord's Work and the Initial Tenant
Improvements substantially completed, the Commencement Date shall be deemed to
have occurred with respect to the Initial Premises on the date Tenant first
occupies any portion of the Initial Premises for normal business operations, if
such date is earlier than the dates described above; and (ii) if all of
Landlord's Work and the Initial Tenant Improvements have not been completed in
the Initial Premises, but Tenant occupies all or some portion of the Initial
Premises for normal business operations, Rent and Additional Rent shall be
payable only on the space so occupied by Tenant until the Commencement Date. Any
such occupancy of the Premises prior to the Commencement Date shall be subject
to all of the other terms and conditions of this Lease except that the Initial
Lease Term shall not commence until the Commencement Date.
As used herein, the term "TENANT DELAY" shall mean any delay
experienced by Landlord in its work on the Building or the Tenant Improvements
resulting from: (a) any interference or delay caused by occurrences within the
reasonable control of Tenant; (b) any delay caused by Tenant's failure or
refusal to furnish plans, or approve or disapprove plans for the Tenant
Improvements, within the periods set out in Exhibit D; (c) any delay
attributable to changes in or additions to Landlord's plans requested by Tenant
or Tenant's selection of non-Building Standard Tenant Improvements; (d) any
other delay in acts of Tenant required under
5
<PAGE> 7
Exhibit D; or (e) any delay attributable to Tenant's selection as the Tenant
Improvement Contractor of a party other than the Shell and Core Contractor, as
described in this Section 3(A); provided that the foregoing clauses (a) through
(c) shall apply only to the extent that such delay impedes or otherwise
adversely affects Landlord's Work or the schedule for preparing the Premises for
occupancy. Landlord shall notify Tenant as soon as reasonably possible when
Landlord becomes aware of an event which constitutes or may constitute a Tenant
Delay.
The occurrence of the Commencement Date prior to the completion in
full of all work required to be performed by Landlord as provided herein shall
not relieve Landlord of its obligation thereafter to complete the same with due
dispatch and in a workmanlike manner. Without waiving any rights of Tenant,
Landlord, Tenant, and Landlord's and Tenant's architects shall prepare within
thirty (30) days after the Commencement Date or as soon thereafter as
practicable a "punch-list" which shall consist of the items that have not been,
but should have been, finished or furnished by Landlord in the Premises or in
connection with Landlord's Work, or which have not been completed in accordance
with the plans and specifications, or in a workman like manner, with respect to
the Landlord's Work or Initial Tenant Improvements. Upon presentation of such
punch-list to Landlord, Landlord shall, with all due diligence, proceed to
complete and furnish all punch-list items. If such items relate to Landlord's
Work, they shall be completed at Landlord's sole cost and expense. If such items
relate to the Initial Tenant Improvements, they shall be paid in the same manner
that the costs of the Initial Tenant Improvements are paid. With respect to such
items that relate to the Initial Tenant Improvements, if within thirty (30) days
after presentation of the punch-list, Landlord shall not have commenced, and be
proceeding with due diligence, to complete and furnish such items, or if
Landlord thereafter fails to prosecute its work on such items to completion with
due diligence, Tenant may deliver written notice of such failure to Landlord,
and if Landlord does not commence and proceed with due diligence to complete
such items within ten (10) days after Landlord's receipt of such notice, Tenant
may complete such items and, to the extent Landlord is responsible for such
costs as set forth above, Landlord will reimburse Tenant upon demand for the
reasonable costs incurred by Tenant for such work. If such costs are properly
chargeable to Landlord and are not paid within ten (10) days after written
demand, such costs shall be credited to and deducted from Tenant's next monthly
installments of Rent and Additional Rent payable hereunder as an offset against
such amounts owing by Tenant. Any such punch-list items which do not materially
interfere with Tenant's enjoyment of the portion of the Premises involved shall
not delay the Commencement Date with respect thereto.
Landlord shall promptly correct all defects in Landlord's Work and
Tenant Improvement work performed by the Tenant Improvement Contractor, and all
failures of such work to conform to the plans and specifications for such work
which have been agreed upon by Landlord and Tenant, which defects or
non-conformities are discovered before or within one year after the Commencement
Date or, with respect to latent defects or defects not discoverable as a result
of a visual review of the Premises, within three (3) years after the
Commencement Date. Landlord shall bear all costs of correcting Landlord's Work
and, to the extent caused by the act or omission of Landlord, Tenant Improvement
work performed by the Tenant Improvement Contractor. Landlord and Tenant shall
each give the other prompt written notice after discovering the existence of any
such defects or non-conformities in Landlord's work and Tenant Improvement work
performed by the Tenant Improvement Contractor.
B. Installation Period. Tenant shall have the right to enter the Premises
at no cost for up to thirty (30) days prior to the Commencement Date for
purposes of installing
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<PAGE> 8
furniture, fixtures, cabling, wiring and equipment (the "INSTALLATION PERIOD"),
provided that the Installation Period shall not delay the Commencement Date.
Tenant shall coordinate its work with the Shell and Core Contractor and the
Tenant Improvements Contractor and shall not interfere with any such contractors
or their subcontractors. Tenant's occupancy of the Premises during the
Installation Period shall be subject to all of the terms and conditions of this
Lease, except Tenant shall not be charged Rent during the Installation Period
unless Tenant has occupied any portion of the Premises during such period for
normal business operations, in which event, Rent shall commence as set forth in
Section 3(A) above.
C. Confirmation of Commencement Date: The Commencement Date shall be
confirmed in writing using the form contained in Exhibit C.
D. Failure of Commencement Date: If the Commencement Date has not
occurred on or before December 1, 1999, as extended for Force Majeure and Tenant
Delay (provided any such extension for Force Majeure shall not exceed sixty (60)
days in the aggregate), Tenant shall have the option, to be exercised in
Tenant's sole discretion, upon thirty (30) days' prior written notice to
Landlord, to terminate this Lease and all obligations of Tenant hereunder
(unless the Commencement Date occurs within such 30-day period), or to sue to
specifically enforce this Lease, as Tenant's sole remedies as a result of such
delay.
ARTICLE 4: INTENTIONALLY DELETED
ARTICLE 5: PREMISES
A. Initial Premises. The Initial Premises are depicted on Exhibit A
attached hereto and contain approximately ninety-four thousand one hundred
eighty-two (94,182) rentable square feet of area. The precise square footage of
the Initial Premises shall be determined based upon Tenant's Final Plans, and
once so determined shall not be further adjusted except to reflect additions to
or other modifications of the Premises.
B. Expansion Option. Landlord hereby grants Tenant one (1) option to expand
(the "Expansion Option") in accordance with the provisions of this Section 5(B),
provided:
1. Tenant is not in default under this Lease beyond any applicable
cure periods at the time Landlord receives the Expansion Notice; and
2. no part of the Premises aggregating to fifty percent (50%) or more
of the Rentable Area of the Premises is sublet (other than pursuant to a
Corporate Transfer, as defined in Section 16(E) below) at the time Landlord
receives the Expansion Notice (for purposes of this Subsection 2, the Rentable
Area of the Premises shall include any area that Tenant elects to lease pursuant
to the Expansion Notice described below); and
3. this Lease has not been assigned (other than pursuant to a
Corporate Transfer) prior to the time Landlord receives the Expansion Notice.
Landlord agrees to take the second floor of the Building off the market until
March 31, 1999 and Tenant has the option to lease such floor (the entire floor
or portion thereof) until such date. To exercise the Expansion Option, Tenant
shall provide to Landlord written notice on or before March 31, 1999 (the
"Expansion Notice"), that Tenant is exercising the Expansion Option, at
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<PAGE> 9
which time Tenant shall designate the approximate number of rentable square feet
Tenant desires to occupy on the second floor. In the event Tenant leases any
portion of the second floor, the rental rate shall be the same Base Rental rate
applicable to the Initial Premises, the lease term shall be co-terminus and the
tenant improvement Allowance shall be the same as initially provided for the
Initial Premises. In addition, the Security Deposit as defined in Section 9 will
increase proportionately based on the amount of additional area leased. If
Tenant leases less than the full floor pursuant to this provision, Landlord
reserves the right to determine the location of the partial floor leased,
subject to Tenant's reasonable approval. Upon exercise of the Expansion Option
by Tenant, Landlord and Tenant shall enter into an amendment to this Lease which
reflects the additional space to be leased by Tenant, and which shall set forth
the respective dates, in accordance with Exhibit D, by which the various items
to be completed by Landlord and Tenant are to be so completed (the number of
days shall be the same approximate number of days as exist with respect to the
Initial Premises). The additional Security Deposit payment shall be paid pro
rata at the same time as payments are due in accordance with Article 9; provided
that the "execution of this Lease" shall refer to execution of the amendment to
the Lease with respect to the Expansion Option, and the "Commencement Date"
shall refer to the Commencement Date of the Lease with respect to the expansion
space. For purposes of the Lease, the Commencement Date with respect to the
expansion space shall be determined solely with reference to the expansion space
and shall occur on the earlier of Tenant's occupancy of any portion of such
expansion space for normal business purposes or October 15, 1999, but in no
event earlier than the Commencement Date for the Initial Premises.
C. Option to Expand. Landlord hereby grants Tenant the option to
extend the Lease Term for four (4) periods of five (5) years each, upon all of
the terms and conditions contained in this Lease, except for Base Rental,
provided:
1. Tenant is not in default under this Lease beyond any
applicable cure periods at the time that Tenant delivers any Extension Notice or
at the time Tenant delivers any Binding Notice; and
2. No part of the Premises aggregating to thirty-three percent
(33%) or more of the Rentable Area of the Premises is sublet (other than
pursuant to a Corporate Transfer) at the time that Tenant delivers any Extension
Notice or at the time Tenant delivers any Binding Notice; and
3. The Lease has not been assigned (other than pursuant to a
Corporate Transfer) prior to the date that Tenant delivers any Extension Notice
or prior to the date Tenant delivers any Binding Notice.
The Base Rental shall be one hundred percent (100%) of the projected net fair
market rental rate on the effective date of such renewal for comparable term
extensions for comparable space in comparable first class buildings in the
Eastside area, excluding the Bellevue central business district (the "FAIR
MARKET RENEWAL RATE"), provided that in no event shall the Fair Market Renewal
Rate be less than the then current Base Rental being paid by Tenant. If Tenant
wishes to exercise this extension option, Tenant shall provide written notice of
its intent to extend (an "Extension Notice") at least twelve (12) months, but
not more than fifteen (15) months, prior to the expiration of the then current
Lease Term. Within thirty (30) days after receipt of the Extension Notice,
Landlord shall inform Tenant of the proposed Fair Market Renewal Rate. If
Landlord and Tenant cannot agree on a Base Rental within sixty (60) days after
Tenant's receipt
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of Landlord's notice, then Tenant may either (i) elect not to so extend the
Lease Term; or (ii) irrevocably elect to extend the Lease Term with the market
rent to be determined in accordance with the following binding arbitration
provisions (a "Binding Notice"). The Fair Market Renewal Rate will include the
following if offered in comparable buildings to a renewing tenant: rental
concession, refurbishment allowance, tenant improvement allowance, any other
incentives, and any brokerage commission. The Fair Market Renewal Rate will also
reflect the refurbishment allowance granted by Landlord to Tenant pursuant to
Section 6(E) below.
(a) Within fifteen (15) business days after Tenant's irrevocable
election to extend the Lease term, Landlord and Tenant shall each identify an
impartial person to act as a valuation expert and notify the other thereof. The
expert specified in each such notice must be a commercial real estate
professional having not less than ten (10) years' active experience as a real
estate professional in the downtown and suburban office leasing market in
Bellevue, Washington, but who may not be a real estate broker or sales person.
If either party falls to appoint an expert within such fifteen (15) business day
period, then the determination of the expert first appointed shall be final,
conclusive and binding on both parties.
(b) The named experts shall together determine the Fair Market
Renewal Rate. If the experts fail to agree on the Fair Market Renewal Rate
within thirty (30) days of their appointment and the difference in their
conclusions about Fair Market Renewal Rate is ten percent (10%) or less of the
lower of the two determinations, Fair Market Renewal Rate shall be the average
of the two determinations.
(c) If the two experts fail to agree on Fair Market Renewal Rate
and the difference between the two determinations exceeds ten percent (10%) of
the lower of the two determinations, then the experts shall, within tell (10)
business days after the expiration of the 30-day period described in
subparagraph (2) above, appoint a third expert, similarly impartial and
qualified, to determine the Fair Market Renewal Rate. Such third expert shall
determine the Fair Market Renewal Rate within thirty (30) days of his or her
appointment, and the average of the determinations of the two closest experts is
final, conclusive and binding on Landlord and Tenant. Landlord and Tenant shall
each execute and deliver an agreement confirming annual Base Rental for the
extended term.
(d) Landlord and Tenant shall each pay the fees of any expert
appointed by Landlord and Tenant, respectively, and Landlord and Tenant shall
each pay one-half (1/2) of the fees of the third expert, if any.
D. Right of First Offer and Other Rights.
(1) Landlord hereby grants Tenant a continuing right of first
offer in accordance with the provisions of this Section 5(D)(1), provided
Tenant shall have no rights under this Section 5(D)(1) and shall not be entitled
to a Landlord's Notice if:
(a) Tenant is in default under this Lease beyond any
applicable cure periods at the time Landlord would
otherwise deliver the Landlord's Notice; or
(b) the Premises, or any portion thereof aggregating at the
time Landlord would otherwise deliver Landlord's
Notice, either to
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(i) fifty percent (50%) or more of the Rentable Area of
the Premises if Landlord's Notice would be delivered
during the first five (5) years of the Initial Term, or
to (ii) thirty-three percent (33%) or more of the
Rentable Area of the Premises if Landlord's Notice
would be delivered after the first five (5) years of
the Initial Term, is sublet (other than pursuant to a
Corporate Transfer). For purposes of this Subsection
(b), the Rentable Area of the Premises shall include
any rentable area which is the subject of the
Landlord's Notice; or
(c) the Lease has been assigned (other than pursuant to a
Corporate Transfer) prior to the date Landlord would
otherwise deliver the Landlord's Notice; or
(d) the Tenant is not occupying any portion of the Premises
on the date Landlord would otherwise deliver the
Landlord's Notice.
In addition to and subject to Tenant's rights pursuant to Section 5(B), Tenant
shall have a right of first offer on the second (2nd) floor of the Building,
which is currently available or which becomes available during the Lease Term.
In the event Landlord is prepared to issue or issues a proposal to a third party
for space on the second (2nd) floor of the Building, Landlord shall deliver a
notice ("Landlord's Notice") to Tenant identifying such third party and the
space subject to such proposal. Tenant shall have five (5) business days after
receipt of Landlord's Notice to elect to lease such space upon the terms and
conditions offered or to irrevocably commit to lease such space at the Fair
Market Rental Rate. As used herein, the "FAIR MARKET RENTAL RATE" shall mean one
hundred percent (100%) of the projected net fair market rental rate on the date
such space will first be leased by Tenant for comparable space in comparable
first class buildings in the Eastside area, excluding the Bellevue central
business district, provided that in no event shall the Fair Market Rental Rate
be less than the then current Base Rental being paid by Tenant on the remainder
of the Premises. The Fair Market Rental Rate will include the following if
offered in such comparable buildings: rental concessions, refurbishment
allowances, tenant improvement allowances, any other incentives, and any
brokerage commissions. If Landlord and Tenant are unable to agree on the Fair
Market Rental Rate within fifteen (15) business days after Tenant's receipt of
Landlord's Notice, the Fair Market Rental Rate shall be determined in the same
manner that the Fair Market Renewal Rate is determined pursuant to Section 5(C)
above. If Tenant elects not to lease such space, or if Tenant fails to respond
within such five (5) business day period, Landlord shall be free to lease such
space to the party specified in Landlord's Notice on such terms as Landlord may
desire; provided that if negotiations with the third party identified in
Landlord's Notice terminate, or if Landlord does not lease such space to such
third party within six (6) months following the date of Landlord's notice to
Tenant, the provisions of this Section 5(D)(1) shall again apply and Landlord
shall not lease such space until Landlord has provided to Tenant the right of
first offer as provided in this Section 5(D)(1).
(2) In addition to the right of first offer granted to Tenant pursuant
to Section 5D (1) above, Tenant shall have an additional a right of offer in
accordance with the
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provisions of this Section 5(D)(2), provided Tenant shall have no rights under
this Section 5(D)(2) and shall not be entitled to a Landlord's Notice if:
(a) Tenant is in default under this Lease beyond any
applicable cure periods at the time Landlord would
otherwise deliver the Landlord's Notice; or
(b) the Premises, or any portion thereof aggregating at the
time Landlord would otherwise deliver Landlord's
Notice, either to (i) fifty percent (50%) or more of
the Rentable Area of the Premises if Landlord's Notice
would be delivered during the first five (5) years of
the Initial Term, or to (ii) thirty-three percent (33%)
or more of the Rentable Area of the Premises if
Landlord's Notice would be delivered after the first
five (5) years of the Initial Term, is sublet (other
than pursuant to a Corporate Transfer). For purposes of
this Subsection (b), the Rentable Area of the Premises
shall include any rentable area which is the subject of
the Landlord's Notice; or
(c) the Lease has been assigned (other than pursuant to a
Corporate Transfer) prior to the date Landlord would
otherwise deliver the Landlord's Notice; or
(d) the Tenant is not occupying any portion of the Premises
on the date Landlord would otherwise send the
Landlord's Notice.
The rights contained in this Section 5(D)(2) shall apply to the remainder of the
leasable space in the Building (the "Second Offer Space") and shall be subject
and subordinate to all currently existing rights of expansion, first offer,
first refusal and similar rights with respect to such space that are presently
existing or that are subsequently granted to tenants in the Property. Tenant
acknowledges that its rights hereunder may be subject and subordinate to the
rights of more than one other tenant. In the event Landlord is prepared to issue
or issues a proposal to a third party for all or any portion of the Second Offer
Space, and all prior rights granted to other tenants with respect to such space
have expired or otherwise terminated, Landlord shall deliver a notice
("Landlord's Notice") to Tenant identifying the space subject to such proposal.
Tenant shall have five (5) business days after receipt of Landlord's Notice to
elect to lease such space upon the terms and conditions offered, or upon other
terms and conditions agreed upon. If Tenant elects not to lease such space, or
if Tenant fails to respond within such five (5) business day period, Landlord
shall be free to lease such space to any other party on such terms as Landlord
may desire; provided that if negotiations with the third party identified in
Landlord's Notice terminate, or if Landlord does not lease such space to such
third party within six (6) months following the date of Landlord's notice to
Tenant, the provisions of this Section 5(D)(2) shall again apply and Landlord
shall not lease such space until Landlord has provided to Tenant the right of
first offer as provided in this Section 5(D)(2).
E. Termination Option. Tenant shall have the right to terminate all or
a portion of this Lease in accordance with the provisions of this Section 5(E),
provided:
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1. Tenant is not in default under this Lease beyond any
applicable cure periods at the time that Tenant delivers the termination Notice;
and
2. The Lease has not been assigned (other than pursuant to a
Corporate Transfer) prior to the date that Tenant delivers the Termination
Notice.
Tenant shall have the option to terminate the Lease or terminate a portion of
the Lease on a floor by floor basis effective at the end of the seventh (7th)
year of the Initial Lease Term by providing not less than twelve (12) months
prior written notice to Landlord ("Termination Notice"). If Tenant exercises
this option, Tenant shall pay a termination fee for that portion of the space
terminated equal to six (6) months Base Rental (at the Year 8 scheduled Base
Rental rate as defined in Article A.2. above) plus the unamortized principal
balance of the tenant improvement allowance ($30.15 per useable square foot of
the space terminated), and leasing commissions ($5.50 per rentable square foot
of the area terminated) provided by Landlord assuming a 12% per annum interest
rate. Such termination fee shall be payable fifty percent (50%) on the notice
date and fifty percent (50%) upon the effective date of termination. For the
purpose of computing the termination fee, the Tenant Improvement Allowance and
the leasing commission shall be deemed to be amortized by Landlord in equal
monthly installments over 120 months, commencing on the Commencement Date, with
interest at twelve percent (12%). By way of example, if the rentable square
footage is 94,000 square feet, and Landlord pays a broker's commission in
connection therewith in an amount equal to $5.50 per rentable square foot, or
$517,000, and if the useable square footage is 82,000 square feet and Landlord
pays a Tenant Improvement Allowance of $30.15 per usable square foot, or
$2,472,300, the total Tenant Improvement Allowance and real estate commissions
to be amortized would be $2,989,300. If Tenant terminated one floor of the Lease
(aggregating 31,333 rentable square feet and 27,333 useable square feet)
effective the end of the seventh (7th) lease year, the unamortized principal
balance of the Tenant Improvement Allowance and leasing commissions for three
floors would be $1,291,244. One third of that amount, applicable to the one of
three floors terminated, equals $430,415. In addition, six (6) months of Base
Rental using year eight (8) rents ($24.00 per rentable square foot), multiplied
by the number of rentable square feet on one floor (31,333) equals $375,996. The
total termination fee for one (1) floor is thus $806,411 ($430,415 + $375,996).
F. Parking. Landlord shall provide Tenant with no fewer than four (4)
unassigned parking spaces in the parking garage serving the Building for each
one thousand (1,000) usable square feet of leased space in the Premises, as set
forth in Section 1(A)(7) above. The number of spaces provided to Tenant
hereunder shall proportionally change as the area of the Premises changes.
Tenant may change the number of spaces Tenant wishes to use from time to time,
subject to the above maximum, provided Tenant gives Landlord at least thirty
(30) days prior notice of such change and the changes are effective on the first
day of a calendar month. The rate for monthly parking for each such space during
the first thirty-six (36) months of the term shall be Forty-Five Dollars
($45.00) per month per space plus Washington State sales tax. The parking rate
shall be adjusted every thirty-six (36) months to the comparable rates for
office buildings on the I-90 corridor, but not less than $45.00 per stall plus
applicable sales tax. A designated limited number of executive parking spaces
will be located directly below the Building on the top garage level. The exact
size of this area will depend upon how many parkers desire this service. The
cost for stalls for these executive parking spaces will initially be Sixty-Five
Dollars ($65.00) per month per stall plus Washington State sales tax. Landlord
shall monitor the access to and parking in the parking garage to ensure that
Tenant has reasonable
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access to the number of parking spaces desired by Tenant from time to time.
Landlord shall make available to Tenant not less than four (4) executive parking
spaces within the above permitted number of spaces. No reserved stalls will be
available.
ARTICLE 6: TENANT IMPROVEMENTS
A. Tenant Improvements for the Initial Premises ("INITIAL TENANT
IMPROVEMENTS") shall be constructed pursuant to Tenant's plans for the Premises
approved by Landlord to the extent and in the manner set forth in Exhibit D.
Landlord shall enter into the contract with the Initial Tenant Improvements
contractor, who shall be selected in accordance with the provisions of Exhibit
D. Tenant is aware that its selection of an Initial Tenant Improvements
contractor other than the Shell and Core Contractor may result in delays in
completion of the Initial Tenant Improvements.
B. Landlord shall provide Tenant with an allowance (the "ALLOWANCE") of
Thirty and 15/100 Dollars ($30.15) per square foot of usable area in the Initial
Premises (i.e. $30.00 per usable square foot for tenant improvements and $0.15
per usable square foot for the space planning allowance). The Allowance may be
applied to costs of designing and constructing the tenant Improvements, Tenant's
signage costs and the acquisition and installation of Tenant's furniture,
fixtures and equipment. The Landlord shall contract with the contractor chosen
by Tenant to construct the Tenant Improvement (the terms and conditions of which
contract shall be subject to Tenant's prior written approval, acting reasonably)
and shall pay all payments owed to such contractor when and as due; provided
that at such time as Landlord has paid the total sum of the Allowance to such
contractor, or to others at the direction of Tenant, Tenant shall thereafter be
responsible to pay the balance owed to the contractor, which balance shall be
paid by Tenant to Landlord, for payment to the contractor, on or before the same
day that payments are owed by Landlord to such contractor in connection with the
construction of the Tenant Improvements. Any unused portion of the Allowance may
be taken as a credit against Rent or may be applied to additional build-out,
wiring or cabling costs, as Tenant may elect. Any costs of constructing Tenant
Improvements in excess of the Allowance shall be borne solely by Tenant.
C. Landlord and Tenant mutually agree on the selection of JPC, Incorporated
as Tenant's architect to plan, design, and complete construction documents for
the Initial Tenant Improvements. The cost for such services as well as
engineering costs attributable to the same shall be charged against the
Allowance; provided that the contract with JPC, Incorporated, as well as with
any engineer, the costs of which will be charged against the Allowance, shall be
subject to the prior written approval of Tenant, acting reasonably.
D. All disputes, controversies and claims arising out of or relating to the
construction of the Tenant Improvements in the Initial Premises shall be settled
by expedited mandatory arbitration as set forth in this Section 6(D). All
statutes of limitations which would otherwise be applicable and any limitations
upon claims set forth in this Agreement shall apply to any arbitration
proceeding under this Section 6(D).
1. Notice of Demand. Either party may demand arbitration by notifying
the other party in writing in accordance with the notice provisions of Section
6(D). The notice shall describe the reasons for such demand, the amount
involved, if any, and the particular remedy sought. The notice shall also list
the name of one arbitrator qualified in accordance with subsection 3.
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2. Response. The party that has not demanded arbitration shall respond
to the notice of demand within five (5) business days of receipt of such notice
by delivering a written response in accordance with the notice provisions of
Section 34. The response shall list the name of a second arbitrator qualified in
accordance with Subsection 3. The response shall also describe counterclaims, if
any, the amount involved, and the particular remedy sought. If a party falls to
respond timely to the notice of demand, the arbitrator selected by the party
making such demand under Subsection 1 shall resolve the dispute, controversy or
claim within seven (7) business days of the deadline for response.
3. Qualified Arbitrator. Any arbitrator selected in accordance with
Subsections 1 and 2 shall be any natural person not currently or previously
employed by, nor having or had, directly or indirectly, any contractual
relationship with either of the parties or any parent or affiliated partnership,
corporation or other enterprise thereof, who shall also be a construction
professional with at least ten (10) years experience in the downtown Seattle or
Bellevue or the outlying Bellevue real estate markets.
4. Appointment of Third Arbitrator. If a party responds timely to a
notice of demand for expedited arbitration under Subsection 2 the two
arbitrators shall appoint a third arbitrator who shall be qualified in
accordance with subsection 3. Such third arbitrator shall be appointed within
seven (7) business days of receipt by the party demanding arbitration of notice
of response provided for under Subsection 3. If the two arbitrators fail to
timely appoint a third arbitrator, the third arbitrator shall be appointed by
the parties if they can agree within a period of five (5) business days. If the
parties cannot timely agree, then either party may request the appointment of
such third arbitrator by the Presiding Judge of the Superior Court of King
County, Washington; provided that the other party shall not raise any question
as to the court's full power and jurisdiction to entertain such application and
to make such appointment.
5. Arbitration Hearing; Discovery; Venue. The arbitration hearing
shall commence within five (5) business days of appointment of the third
arbitrator as described in Subsection 4. The hearing shall in no event last
longer than two (2) business days. There shall be no discovery or dispositive
motion practice (such as motions for summary judgment or to dismiss or the like)
except as may be permitted by the arbitrators; and any such discovery or
dispositive motion practice permitted by the arbitrators shall not in any way
conflict with the time limits contained herein. The arbitrators shall not be
bound by any rules of civil procedure or evidence, but rather shall consider
such writings and oral presentations as reasonable business persons would use in
the conduct of their day to day affairs, and may require the parties to submit
some or all of their case by written declaration or such other manner of
presentation as the arbitrators may determine to be appropriate. It is the
intention of the parties to limit live testimony and cross examination to the
extent absolutely necessary to insure a fair hearing to the parties on
significant and material issues. Venue of any arbitration hearing conduct
pursuant to this agreement shall be in Seattle, Washington. It is also the
intention of the parties that any such arbitration shall not interfere with the
continued construction of the Tenant Improvements, and unless the dispute in
question makes it impossible for such construction to continue, the pending
arbitration shall not affect such construction schedule.
6. Decision. The arbitrators' decision shall be made in no event later
than seven (7) business days of the commencement of the arbitration hearing
described in Subsection 5. If only two (2) arbitrators are appointed, the
decision shall require unanimous approval of both arbitrators. If three (3)
arbitrators are appointed, a majority decision shall
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prevail. The award shall be final and judgment may be entered in any court
having jurisdiction thereof. The arbitrators may award specific performance of
this Agreement. The arbitrators may also require remedial measures as part of
any award. The arbitrators may award attorneys' fees and costs to the more
prevailing party.
E. Refurbishment Allowance. At the end of the initial sixty (60) months of
the Initial Lease Term, Landlord will repaint, using Building Standard quality
paint the initial Premises and the expansion space, if any, acquired by Tenant
pursuant to the Expansion Option. Further, on the commencement date of each five
year renewal, Landlord will provide a market comparable refurbishment allowance
for a renewing tenant, such allowance to be not less than the cost of replacing
Building Standard quality carpet and repainting the Premises.
ARTICLE 7: RENT.
A. Tenant shall pay to Landlord, throughout the Lease Term, the Base
Rental, in equal monthly installments on the first day of each calendar month,
without demand, notice or offset. In addition, during each calendar year, or
portion thereof, falling within the Lease Term, Tenant shall pay to Landlord as
Additional Base Rental hereunder Tenant's Pro Rata Share of Basic Costs (as
defined below) for the applicable calendar year. Prior to the Commencement Date
and prior to January 1 of each calendar year during the Lease Term, or as soon
thereafter as practical, Landlord shall make a good faith estimate of Basic
Costs for the applicable calendar year and Tenant's Pro Rata Share thereof. On
or before the first day of each month during such calendar year, Tenant shall
pay to Landlord, as Additional Base Rental, a monthly installment equal to
one-twelfth of Tenant's Pro Rata Share of Landlord's estimate of Basic Costs.
Landlord shall have the right from time to time during any such calendar year,
if it reasonably believes the costs will vary by more than five percent (5%), to
revise the estimate of Basic Costs for such year and provide Tenant with a
revised statement therefor, and thereafter the amount Tenant shall pay each
month shall be based upon such revised estimate. If Landlord does not provide
Tenant with an estimate of the Basic Costs by January 1 of any calendar year,
Tenant shall continue to pay a monthly installment based on the previous year's
estimate until such time as Landlord provides Tenant with an estimate of Basic
Costs for the current year. Upon receipt of such current year's estimate, an
adjustment shall be made for any month during the current year with respect to
which Tenant paid monthly installments of Additional Base Rental based on the
previous year's estimate. Tenant shall pay to Landlord for any underpayment
within ten (10) days after demand. Any overpayment shall, at Landlord's option,
be refunded to Tenant or credited against the next due installment or
installments of Base Rental due for the months immediately following the
furnishing of such estimate. Any amounts paid by Tenant based on any estimate
shall be subject to adjustment pursuant to tile immediately following paragraph
when actual Basic Costs are determined for such calendar year.
As soon as is practical following the end of each calendar year during
the Lease Term, Landlord shall furnish to Tenant a statement of Landlord's
actual Basic Costs for the previous calendar year. If the amount of estimated
Basic Costs actually paid by Tenant for the prior year is in excess of Tenant's
actual Pro Rata Share of Basic Costs for such prior year, then Landlord shall
apply such overpayment against Base Rental next due or to become due hereunder,
provided if the Lease Term expires prior to the determination of such
overpayment, Landlord shall within ten (10) days following such termination,
refund such overpayment to Tenant after first deducting the amount of any Rent
due hereunder. Likewise, Tenant shall pay to Landlord, within ten (10) days
after demand, any underpayment with respect to the prior year,
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whether or not the Lease has terminated prior to receipt by Tenant of a
statement for such underpayment. This clause shall survive the expiration of the
Lease.
B. "BASIC COSTS" shall mean all reasonable and customary costs and expenses
paid or incurred in each calendar year in connection with operating,
maintaining, repairing and managing the Building and the Property, including but
not limited to the following (but only to the extent such costs and expenses are
commercially reasonable in amount and of a type customarily passed through to
tenants in buildings comparable to the Building):
1. All labor costs for all persons at or below the grade of Building
manager performing services required or utilized in connection with the
operation, repair, replacement and maintenance of and control of access to the
Building and the Property, including but not limited to amounts incurred for
wages, salaries and other compensation for services, payroll, social security,
unemployment and other similar taxes, workers' compensation insurance, uniforms,
training, disability benefits, pensions, hospitalization, retirement plans,
group insurance premiums or any other similar or like expenses or benefits. The
building manager shall be an on-site, full time employee dedicated solely to the
Property or, if such on-site manager has other building management
responsibilities, then the Property shall be charged only a pro-rata share of
the cost of such manager.
2. All management fees, the cost of equipping and maintaining a
management office at the Building (but excluding rent), accounting services,
legal fees (subject to the exclusions described below), and all other
administrative costs relating to the Building and the Property. If management
services are not provided by a third party, Landlord shall be entitled to a
management fee comparable to that due and payable to third parties provided
Landlord or management companies owned by, or management divisions of, Landlord
perform actual management services of a comparable nature and type as normally
would be performed by third parties.
3. All rental and/or purchase costs of materials, supplies, tools and
equipment used in the operation, repair, replacement and maintenance and the
control of access to the Building and the Property.
4. All amounts charged to Landlord by contractors and/or suppliers for
services, replacement parts, components, materials, equipment and supplies
furnished in connection with the operation, repair, maintenance, replacement of
and control of access to any part of the Building, or the Property generally,
including the heating, air conditioning, ventilating, plumbing, electrical,
elevator and other systems and equipment. Major repair items that would be
capitalized in accordance with generally accepted accounting principles shall be
amortized over the useful life of such items.
5. All premiums and deductibles paid by Landlord for fire and extended
coverage insurance, earthquake and extended coverage insurance, liability and
extended coverage insurance, rental loss insurance, elevator insurance, boiler
insurance and other insurance customarily carried from time to time by landlords
of comparable office buildings or required to be carried by Landlord's
Mortgagee.
6. Charges for water, gas, steam and sewer, but excluding those
charges for which Landlord is otherwise reimbursed by tenants, and charges for
Electrical Costs. For
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purposes hereof, the term "ELECTRICAL COSTS" shall mean: (i) all charges paid by
Landlord for electricity supplied to the Building, Property and Premises,
regardless of whether such charges are characterized as distribution charges,
transmission charges, generation charges, public good charges, disconnection
charges, competitive transaction charges, stranded cost recoveries or
otherwise; and (ii) except to the extent otherwise included in Basic Costs, any
costs incurred in connection with the energy management program for the
Building, Property and Premises, including any costs incurred for the
replacement of lights and ballasts and the purchase and installation of sensors
and other energy saving equipment. Notwithstanding the foregoing, Electrical
Costs shall be adjusted as follows: (a) any amounts received by Landlord as
reimbursement for above standard electrical consumption shall be deducted from
Electrical Costs, (b) the cost of electricity incurred in providing overtime
HVAC to specific tenants shall be deducted from Electrical Costs, and (c) if
Tenant is billed directly for the cost of electricity to the Premises as a
separate charge in addition to Base Rental and Basic Costs, the cost of
electricity to individual tenant spaces in the Building shall be deducted from
Electrical Costs.
7. "TAXES", which for purposes hereof, shall mean: (a) all real estate
taxes and assessments on the Property, the Building or the Premises, and taxes
and assessments levied in substitution or supplementation in whole or in part of
such taxes, (b) all personal property taxes for the Building's personal
property, including license expenses, (c) all taxes imposed on services of
Landlord's agents and employees, (d) all other taxes, fees or assessments now or
hereafter levied by any governmental authority on the Property, the Building or
its contents or on the operation and use thereof (except as relate to specific
tenants), and (e) all costs and fees incurred in connection with seeking
reductions in or refunds in Taxes including, without limitation, any costs
incurred by Landlord to challenge the tax valuation of the Building, but
excluding gross or net income or franchise taxes. For the purpose of determining
real estate taxes and assessments for any given calendar year, the amount to be
included in Taxes for such year shall be as follows: (1) with respect to any
special assessment that is payable in installments, Taxes for such year shall
include the amount of the installment (and any interest) due and payable during
such year; and (2) with respect to all other real estate taxes, Taxes for such
year shall include the amount due and payable for such year. If a reduction in
Taxes is obtained for any year of the Lease Term during which Tenant paid its
Pro Rata Share of Basic Costs, then Basic Costs for such year will be
retroactively adjusted and Landlord shall provide Tenant with a credit, if any,
based on such adjustment. If requested by Tenant, Landlord shall, in good faith
and acting reasonably, challenge the tax valuation of the Building and/or
Property.
8. All landscape expenses and costs of maintaining, repairing,
resurfacing, resealing and striping of the parking areas and garages of the
Property
9. Cost of all maintenance service agreements, including those for
equipment, alarm service, window cleaning, drapery or venetian blind cleaning,
janitorial services, pest control, uniform supply, plant maintenance,
landscaping, and any parking equipment.
10. Cost of all other repairs, replacements and general maintenance of
the Property and Building neither specified above nor directly billed to
tenants, and all similar common area costs of the Property allocable to the
Building.
11. The amortized cost of capital improvements made to the Building or
the Property after the Commencement Date which are: (a) primarily for the
purpose of reducing
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operating expense costs or otherwise improving the operating efficiency of the
Property or Building; or (b) required to comply with any laws, rules or
regulations of any governmental authority enacted after the Commencement Date
(unless such law must be complied with due solely to another tenant's use of the
Building or Property). The cost of such capital improvements shall be amortized
over a period of the useful life of such improvement and shall, at Landlord's
option, include interest at a rate that is reasonably equivalent to the interest
rate that Landlord would be required to pay to finance the cost of the capital
improvement in question as of the date such capital improvement is performed,
provided if the savings generated from any capital improvement are sufficient to
pay back the cost of such improvement over a period shorter than the useful life
of such improvement, Landlord may amortize the cost of such capital improvement
over the payback period.
12. Any other expense or charge of any nature whatsoever which, in
accordance with general industry practice with respect to the operation of a
comparable first-class office building, would be construed as an operating
expense.
Basic Costs shall not include (I) costs of any special services
rendered to individual tenants for which a separate charge is collected; (II)
leasing commissions and other leasing expenses; (III) the cost of capital
improvements (except as set forth above in subparagraph 11); (IV) executives'
salaries above the grade of Building manager; (V) costs reimbursed to Landlord
through proceeds of insurance to the extent the proceeds are compensation for
expenses which were previously included in Basic Costs hereunder; (VI) cost of
repair or replacements incurred by reason of fire or other casualty or by the
exercise of the right of eminent domain and deductible amounts paid by Landlord
under any insurance policy; (VII) consulting fees, marketing fees, advertising
and promotional expenditures; (VIII) legal fees in connection with the
negotiation and preparation of leases of space or legal fees in connection with
the sale of all or any portion of the Property or Building in which the Premises
are located, or an interest therein, or the financing or refinancing of
Landlord's interest in all or any portion of the Property or Building in which
the Premises are located, or in connection with disputes with tenants, and legal
and auditing fees, other than legal and auditing fees reasonably incurred in
connection with the maintenance and operation of all or any portion of such
Building or in connection with the preparation of the statements required
pursuant to additional rent or lease escalation provisions contained in leases
of space in such Building; (IX) depreciation or loan payments (both principal
and interest); (X) costs resulting from the correction of any patent or latent
construction defects in all or any portion of the Premises or Building; (XI)
penalties due to any violation of law by Landlord or other tenants; (XII) costs
of preparing tenant space for tenant occupancy; (XIII) costs allocable to
properties in which Landlord has an interest other than the Property; (XIV)
damages incurred by Landlord for any default, negligent or wrongful act, breach,
claim, judgment or settlement; and (XV) structural replacements (including
replacements to the roof and foundations). If the Building is not at least
ninety-five percent (95%) occupied during any calendar year of the Lease Term or
if Landlord is not supplying services to at least ninety-five percent (95%) of
the total Rentable Area of the Building at any time during any calendar year of
the Lease Term, actual Basic Costs for purposes hereof shall, at Landlord's
option, be determined as if the Building had been ninety-five percent (95%)
occupied and Landlord had been supplying services to ninety-five percent (95%)
of the Rentable Area of the Building during such year. Any necessary
extrapolation of Basic Costs under this Article shall be performed by adjusting
the cost of those components of Basic Costs that are impacted by changes in the
occupancy of the Building (including, at Landlord's option, Taxes) to the cost
that would have been incurred if the Building had been ninety-five percent (95%)
occupied and
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Landlord had been supplying services to ninety-five percent (95%) of the
Rentable Area of the Building. In no event shall Landlord be entitled to
collect more than the actual Basic Costs incurred.
C. Tenant, within three (3) years after receiving Landlord's statement of
actual Basic Costs for a particular calendar year (or up to five (5) years if
Tenant can demonstrate a reasonable basis to believe prior statements might be
incorrect), shall have the right to provide Landlord with written notice (the
"Review Notice") of its intent to review Landlord's books and records relating
to the Basic Costs for such calendar year. Within a reasonable time after
receipt of a timely Review Notice, Landlord shall make such books and records
available to Tenant or Tenant's agent for its review at either Landlord's home
office or at the office of the Building, provided that if Tenant retains an
agent to review Landlord's books and records for any calendar year, such agent
must be CPA firm licensed to do business in the state. in which the Building is
located. Tenant shall be solely responsible for any and all costs, expenses and
fees incurred by Tenant or Tenant's agent in connection with such review,
provided that if such review determines that Basic Costs were overstated by five
percent (5%) or more, Landlord shall pay the cost of such review. If Tenant
elects to review Landlord's books and records, within thirty (30) days after
such books and records are made available to Tenant, Tenant shall have the right
to give Landlord written notice stating in reasonable detail any objection to
Landlord's statement of actual Basic Costs for such calendar year. If Tenant
fails to give Landlord written notice of objection within such thirty (30) day
period or fails to provide Landlord with a Review Notice within the period
provided above, Tenant shall be deemed to have approved Landlord's statement of
Basic Costs in all respects and shall thereafter be barred from raising any
claims with respect thereto. Upon Landlord's receipt of a timely objection
notice from Tenant, Landlord and Tenant shall work together in good faith to
resolve the discrepancy between Landlord's statement and Tenant's review. If
Landlord and Tenant determine that Basic Costs for the calendar year in question
are less than reported, Landlord shall provide Tenant with a credit against
future Base Rental in the amount of any overpayment by Tenant. Likewise, if
Landlord and Tenant determine that Basic Costs for the calendar year in question
are greater than reported, Tenant shall forthwith pay to Landlord the amount of
underpayment by Tenant. Any information obtained by Tenant pursuant to the
provisions of this Section shall be treated as confidential. Notwithstanding
anything herein to the contrary, Tenant shall not be permitted to examine
Landlord's books arid records or to dispute any statement of Basic Costs unless
Tenant has paid to Landlord the amount due as shown on Landlord's statement of
actual Basic Costs, said payment being a condition precedent to Tenant's right
to examine Landlord's books and records.
D. Tenant covenants and agrees to pay to Landlord during the Lease Term,
without any setoff or deduction whatsoever except as otherwise set forth in this
Lease, the full amount of all Base Rental and Additional Base Rental due
hereunder. In addition, Tenant shall pay and be liable for, as additional rent,
all rental, sales and use taxes or other similar taxes, (other than gross or net
income taxes) if any, levied or imposed by any city, state, county or other
governmental body having authority, such payments to be in addition to all other
payments required to be paid to Landlord by Tenant under the terms and
conditions of this Lease. Any such payments shall be paid concurrently with the
payments of the Rent on which the tax is based. The Base Rental, Tenant's Pro
Rata Share of Basic Costs and any recurring monthly charges due hereunder shall
be due and payable in advance on the first day of each calendar month during the
Lease Term without demand, provided that the installment of Base Rental for the
first full calendar month of the Lease Term shall be payable two (2) days after
Landlord
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gives Tenant the 30-Day Notice described in Section 3(A) above. All other items
of Rent shall be due and payable by Tenant on or before ten (10) days after
billing by Landlord. If the Lease Term commences on a day other than the first
day of a calendar month, then the monthly Base Rental and Tenant's Pro Rata
Share of Basic Costs for such month shall be prorated for the number of days in
such month occurring within the Lease Term based on a fraction, the numerator of
which is the number of days of the Lease Term that fell within such calendar
month and the denominator of which is the number of days in such month. All such
payments shall be by a good and sufficient check in lawful money of the United
States. No payment by Tenant or receipt or acceptance by Landlord of a lesser
amount than the correct amount of Rent due under this Lease shall be deemed to
be other than a payment on account of the earliest Rent due hereunder, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment be deemed an accord and satisfaction, and Landlord may accept such
check or payment without prejudice to Landlord's right to recover the balance or
pursue any other available remedy. The acceptance by Landlord of any Rent on a
date after the due date of such payment shall not be construed to be a waiver of
Landlord's right to declare a default for any other late payment. Tenant's
covenant to pay Rent shall be independent of every other covenant set forth in.
this Lease.
E. All Rent not paid within five (5) days of the date it is due and payable
shall bear interest from the date due until paid at fourteen percent (14%) per
annum. In addition, if Tenant fails to pay any installment of Rent within five
(5) days after receipt of written notice that it is overdue and payable
hereunder, a service fee equal to four percent (4%) of such unpaid amount will
be due and payable immediately by Tenant to Landlord.
F. In lieu of requiring Tenant to pay Rent by good and sufficient check in
the manner described in Section 7(D) above, and subject to Tenant's approval
(which may be withheld in Tenant's sole discretion), Tenant shall pay Rent by
means of an automated debit system (the "Automatic Debit System") whereby any or
all payments of Rent shall be debited from Tenant's account in a bank or
financial institution designated by Tenant and credited to Landlord's account in
a bank or financial institution designated by Landlord. In the event Landlord
desires, and Tenant agrees, to have Tenant pay all or any portion of Rent by
means of the Automatic Debit System, Tenant, within thirty (30) days after
written request by Landlord, shall execute and deliver to Landlord any
authorizations, certificates or other documentation as may be required to
establish and give effect to the Automatic Debit System. If Landlord elects to
have less than all items of Rent paid by the Automatic Debit System, Landlord
shall advise Tenant in writing as to those items of Rent that will be paid by
the Automatic Debit System (e.g. Base Rental only or Base Rental and Tenant's
Pro Rata Share of Basic Costs only). Either party shall have the right to change
its bank or financial institution from time to time, provided that Tenant, no
less than thirty (30) days prior to the effective date of any such change, shall
provide Landlord with written notice of such change and any and all
authorizations, certificates or other documentation as may be required to
establish and give effect to the Automatic Debit System at Tenant's new bank or
financial institution. Tenant shall promptly pay all service fees and other
charges imposed upon Landlord or Tenant in connection with the Automatic Debit
System, including, without limitation, any charges resulting from insufficient
funds in Tenant's bank account. In the event that any Rent is not paid on time
as a result of insufficient funds in Tenant's account, Tenant shall be liable
for any interest and/or service fee in accordance with Section 7(E) above.
Tenant shall remain liable to Landlord for all payments of Rent due hereunder
regardless of whether Tenant's account is incorrectly debited in any given
month, it
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being agreed that a debit of less than the full amount of Rent due shall not be
construed as a waiver by Landlord of its right to receive any unpaid balance of
Rent.
ARTICLE 8: USE.
The Premises shall be used for the Permitted Use and for no other purpose.
Tenant agrees not to use or permit the use of the Premises for any purpose
which is, in Landlord's reasonable opinion, illegal, dangerous to life, limb or
property or which creates a nuisance or which would increase the cost of
insurance coverage with respect to the Building. Tenant shall conduct its
business and control its agents, servants, contractors, employees, customers,
licensees, and invitees in such a manner as not to interfere with, annoy or
disturb other tenants, or in any way interfere with Landlord in the management
and operation of the Building. Tenant will maintain the Premises in a clean and
healthful condition, and comply with all laws, ordinances, orders, rules and
regulations of any governmental entity with reference to the operation of
Tenant's business and to the use, condition, configuration or occupancy of the
Premises, including without limitation, the Americans with Disabilities Act
(collectively referred to as "Laws"). Landlord will maintain the Building,
Property and the Common Areas in a clean and healthful condition, and to a
condition consistent with a first class office building, and comply with all
laws, ordinances, orders, rules and regulations of any governmental entity with
reference to the use, condition, configuration or occupancy of the Building
(excluding areas leased to tenants), including without limitation, the Laws.
Tenant, within ten (10) days after receipt thereof, shall provide Landlord with
copies of any notices it receives with respect to a violation or alleged
violation of any Laws. Tenant will comply with the rules and regulations of the
Building attached hereto as Exhibit B and such other rules and regulations
relating to Building operations adopted and altered by Landlord from time to
time and will cause all of its agents, servants, contractors, employees,
customers, licensees and invitees to do so. All changes to such rules and
regulations shall be reasonable, shall not be inconsistent with the terms of
this Lease, and shall be sent by Landlord to Tenant in writing.
ARTICLE 9: SECURITY DEPOSIT.
A. Tenant shall deposit with Landlord the following amounts on the dates
set forth below to serve as a security deposit under this Lease (collectively
the "Security Deposit"):
1. One Hundred Thousand and no/100 Dollars ($100,000.00) upon
execution of this Lease by Tenant and Landlord;
2. An additional Two Hundred Thousand and no/100 Dollars ($200,000.00)
upon commencement of construction of Tenant's improvements in the Premises;
3. An additional Two Hundred Thousand and no/100 Dollars ($200,000.00)
on the Commencement Date.
4. An additional Two Hundred Fifty Thousand and no/100 Dollars
($250,000.00) shall be required if Tenant's Working Capital (as defined below)
is less than Two Million Five Hundred Thousand and no/100 Dollars
($2,500,000.00) as of the Commencement Date.
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5. If the Initial Premises is increased in size pursuant to the
Expansion Option defined in Section 5(B), then the amount of the Security
Deposit shall be proportionately increased.
B. As used herein, "Working Capital" means from time to time the amount
determined by subtracting the aggregate of all current liabilities from the
aggregate of all current assets of Tenant. For purposes of this definition,
deferred revenue shall not be considered a current liability.
C. All such deposits constituting the Security Deposit shall, at Tenant's
option, be made in the form of cash or in the form of a letter of credit issued
by a financial institution, and upon such terms, as may be reasonably approved
by Landlord. Any letter of credit delivered by Tenant shall have a minimum term
of one (1) year, and shall be renewed by Tenant on an annual basis for so long
as Tenant elects to deposit a letter of credit instead of cash hereunder. If
Landlord is not provided notice of such renewal at least fifteen (15) days
prior to the expiration date of the then current letter of credit, Landlord may
draw down the entire amount of the current letter of credit. Without limiting
the foregoing, the issuing bank must have assets of at least $100,000,000, and
such letter of credit must be irrevocable and subject to no conditions other
than Landlord's presentation thereof to the issuing bank with a demand for
payment that certifies that an Event of Default (as defined in this Lease) has
occurred under this Lease and that Landlord is entitled to draw on the letter of
credit in accordance with and pursuant to this Lease.
D. Once established, the Security Deposit and Additional Security Deposit,
if any, shall be reduced by twenty percent (20%) of its maximum amount on each
of the first through fifth anniversaries of the Commencement Date, provided that
on each such anniversary date Tenant has Working Capital of at least Two Million
Five Hundred Thousand and no/100 Dollars ($2,500,000). Such reduction shall be
cumulative, so that if a reduction is not made in one year but is made in the
Subsequent year, the reduction in the second year shall be forty percent (40%)
of the maximum amount of the Security Deposit. In no event shall a reduction in
the Security Deposit or the Additional Security Deposit, if any, be made if
Tenant is then in default hereunder or if there exists a state of circumstances
which with the giving of notice or passage of time or both would constitute a
default hereunder. Provided Tenant is not in default at the end of the seventh
(7th) year of the Lease Term, Tenant shall have no further obligation to make
the Security Deposit or Additional Security Deposit, if any, for the remainder
of the Lease Term, and Landlord shall return the Security Deposit and the
Additional Security Deposit, if any, to Tenant, regardless of the level of
Tenant's Working Capital at such date.
E. The Security Deposit shall not be considered an advance payment of Rent
or a measure of Tenant's liability for damages. Landlord may, from time to time,
without prejudice to any other remedy, use all or a portion of the Security
Deposit to make good any arrearage of Rent, to repair damages to the Premises,
to clean the Premises upon termination of this Lease or otherwise to satisfy any
other covenant or obligation of Tenant hereunder, but only to the extent that
Tenant is obligated to perform the act or make the payment for which the
Security Deposit is to be used by Landlord. Following any such application of
the Security Deposit, Tenant shall pay to Landlord on demand the amount so
applied in order to restore the Security Deposit to its original amount. If
Tenant is not in default at the termination of this Lease, after Tenant
surrenders the Premises to Landlord in accordance with this Lease and all
amounts due Landlord from Tenant are finally determined and paid by Tenant or
through application of the Security Deposit, the balance of the Security
Deposit remaining after any such application shall be
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returned to Tenant. If Landlord transfers its interest in the Premises during
the Lease Term, Landlord may assign the Security Deposit to the transferee and
thereafter shall have no further liability for the return of such Security
Deposit, so long as the transferee assumes this Lease, acknowledges receipt of
the Security Deposit and agrees to return the same to Tenant in accordance with
the provisions of this Lease. Tenant agrees to look solely to such transferee or
assignee for the return of the Security Deposit. Landlord and its successors and
assigns shall not be bound by any actual or attempted assignment or encumbrance
of the Security Deposit by Tenant, provided, however, if Tenant's interest in
this Lease has been assigned, Landlord shall, provided that Landlord has been
furnished with a fully executed copy of the agreement assigning such Security
Deposit, return the Security Deposit to such assignee in accordance with the
terms and conditions hereof. If Landlord returns the Security Deposit to
Tenant's assignee as aforesaid, Landlord will have no further obligation to any
party with respect thereto. Landlord shall not be required to keep the Security
Deposit separate from its other accounts. In no event shall the Security Deposit
serve as a limitation on the damages payable by Tenant as a result of its
default under this Lease.
ARTICLE 10: SERVICES TO BE FURNISHED BY LANDLORD.
A. Landlord, as part of Basic Costs (except as otherwise provided), agrees
to furnish Tenant the following services:
1. Hot and cold water for use in the lavatories on the floor(s) on
which the Premises is located. If Tenant desires water in the Premises for any
approved reason, including a private lavatory or kitchen, cold water shall be
supplied, at Tenant's sole cost and expense, from the Building water main
through a line and fixtures installed at Tenant's sole cost and expense with the
prior reasonable consent of Landlord. If Tenant desires hot water in the
Premises, Tenant, at its sole cost and expense and subject to the prior
reasonable consent of Landlord, may install a hot water heater in the Premises.
Tenant shall be solely responsible for maintenance and repair of any such hot
water heater.
2. Central heat, ventilating and air conditioning at such temperatures
and in such amounts as are standard for first-class office buildings of similar
class, size, age and location, or as required by governmental authority;
provided that such heat, ventilation and air conditioning shall in any event be
installed, maintained and operated to provide heating and cooling to the
standard set forth on Exhibit D-2 hereto. In the event that Tenant requires
central heat, ventilation or air conditioning at hours other than Normal
Business Hours, such central heat, ventilation or air conditioning shall be
furnished when and as desired by Tenant, unless fire services so required cannot
be activated by Tenant using the Building's automated system, but must be
activated by Landlord using the Building's central systems, in which event
Tenant must deliver a request for such services (which may be by telephone or in
person) to Landlord at the office of the Building prior to 3:00 p.m. of the same
day. Tenant shall pay Landlord, as Additional Base Rental, the actual direct
utility costs of additional service and a reasonable charge for the extra wear
and tear on Building equipment, without a profit to or overhead charge by
Landlord.
3. Maintenance and repair of all Common Areas in the manner and to the
extent standard for first-class office buildings of similar class, size, age and
location.
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4. Janitorial services, consistent with those provided to other first
class office buildings in Bellevue, Washington, Monday through Thursday and
Sunday nights; provided, however, if Tenant's use, floor covering or other
improvements require special services, Tenant shall pay the additional cost
reasonably attributable thereto as Additional Base Rental. In the event the
janitorial services provided to the Premises are not at or above a level
comparable to those provided to comparable first class office buildings, Tenant
shall so notify Landlord in writing, and if the level of services does not rise
to a level at least comparable with those provided to other comparable first
class office buildings within sixty (60) days after Landlord's receipt of such
notice, Tenant may arrange for its own janitorial service for the Premises and
Tenant's Basic Costs will not include a charge for such service.
5. Passenger elevator service during and after Normal Business Hours
in common with other tenants of the Building.
6. Electricity to the Premises during and after Normal Business Hours
for Tenant's office use, in accordance with and subject to the terms and
conditions set forth in Article 14 of this Lease. Landlord warrants that the
electricity and air-conditioning available in the Premises will be sufficient
for the normal operation of the equipment described on Exhibit F attached
hereto.
7. Landlord shall provide, at Landlord's expense, a multi-level card
key security system that will control access to the Building and the garage and
elevators therein. Tenant shall have access to and use of the Premises 24 hours
a day, 7 days a week. Additional card readers may be installed in the stairwells
to facilitate controlled access between Tenant's floors by way of the
stairwells. Tenant shall bear the cost of any such additional card readers or
other security measures. Tenant shall have the right at any time to install such
other or additional security systems in or about the Premises to control access
to and from the Premises, including, but not limited, camera surveillance
systems, controlling and monitoring access to and from the Premises from
corridors and stairwells, all of which may be independent of Landlord's access
control system, and Tenant shall have the right to limit and restrict card
access thereto; provided that Landlord shall be provided a card for access in
emergencies, maintenance or as otherwise permitted pursuant to this Lease. The
cost of such Tenant's security system shall be Tenant's sole cost and expense.
8. Such other reasonable services as are commonly provided to tenants
in comparable first class office buildings in the area.
B. The failure by Landlord to any extent to furnish, or the interruption or
termination of, any services in whole or in part, resulting from adherence to
laws, regulations and administrative orders, wear, use, repairs, improvements,
alterations or any causes beyond the reasonable control of Landlord shall not
render Landlord liable in any respect nor be construed as a constructive
eviction of Tenant, nor give rise to an abatement of Rent, nor relieve Tenant
from the obligation to fulfill any covenant or agreement hereof, provided that
if any such interruption or termination continues for seventy-two (72) hours
and was not caused by Tenant, Rent shall thereafter abate to the extent the
Premises are rendered untenantable as a result thereof as Tenant's sole and
exclusive remedy as a result of such interruption. Should any of the equipment
or machinery used in the provision of such services for any cause cease to
function properly, Landlord shall use reasonable diligence to repair such
equipment or machinery.
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C. Tenant expressly acknowledges that if Landlord, from time to time,
elects to provide security services, Landlord shall not be deemed to have
warranted the efficiency of any security personnel, service, procedures or
equipment and Landlord shall not be liable in any manner for the failure of any
such security personnel, services, procedures or equipment to prevent or
control, or apprehend anyone suspected of personal injury, property damage or
any criminal conduct in, on or around the Property.
ARTICLE 11: LEASEHOLD IMPROVEMENTS.
Any trade fixtures, unattached and movable equipment or furniture, or other
personalty brought into the Premises by Tenant ("Tenant's Property") shall be
owned and insured by Tenant. Tenant shall remove all such Tenant's Property from
the Premises in accordance with the terms of Article 37 hereof. Any and all
alterations, additions and improvements to the Premises, including any built-in
furniture (but excluding any trade fixtures) (collectively, "Leasehold
Improvements") shall be owned and insured by Landlord and shall remain upon the
Premises, all without compensation, allowance or credit to Tenant. Upon
expiration of this Lease, the Leasehold Improvements shall remain with and as
part of the Building and are not required to be removed by Tenant. Upon vacation
of the Premises by Tenant, Tenant shall leave the Premises in a broom clean
condition, less ordinary wear and tear and damage caused by fire or casualty.
Tenant, at its sole cost and expense, may install a standby generator in
the Building garage in a location acceptable to Landlord and Tenant. Tenant
shall be responsible for obtaining all permits and shall be responsible for
operating such generator in conformity with all applicable codes and regulations
and Building rules and regulations.
ARTICLE 12: SIGNAGE.
Subject to the conditions listed below, Tenant shall be provided signage on
the Building monument located at the Building entrance and one (1) exterior sign
on the Building, provided such signs comply with the Signage Criteria attached
as Exhibit E hereto and with all applicable laws and codes. The cost of such
exterior signs shall be borne by Tenant, which Tenant may pay from the
Allowance. Landlord shall provide Tenant identification on the Building
directory, at Landlord's expense. The cost of Tenant's interior signage, except
for the Building's lobby directory, will be charged against the tenant
improvement Allowance. The Building is currently known as Sunset North Building
4. Subject to the conditions listed below, Landlord shall not change (i) the
name of the Building to include the name of an entity that, in the reasonable
judgment of Tenant, directly competes with Tenant in the Windows CE tools,
services or applications software development business as such entity's primary
line of business, or (ii) change the name of the Building to include the name or
identity of another tenant in the Campus without Tenant's prior written consent,
which shall not be unreasonably withheld. Tenant's rights to place exterior
signage on the Building or to enforce any rights granted above with respect to
the name of the Building shall be contingent upon the following conditions being
satisfied as of the date in question:
1. Tenant is not in default under this Lease beyond any applicable cure
periods;
2. Tenant has not previously assigned its interest in this Lease (other
than pursuant to a Corporate Transfer); and
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3. Tenant leases and occupies at least two full floors of the Building.
ARTICLE 13: REPAIRS AND ALTERATIONS.
A. Except to the extent such obligations are imposed upon Landlord
hereunder, Tenant, at its sole cost and expense, shall perform all maintenance
and repairs to the Premises as are necessary to keep the same in good condition
and repair throughout the entire Lease Term, reasonable wear and tear and damage
by fire or casualty excepted. Tenant's repair and maintenance obligations with
respect to the Premises shall include, without limitation, any necessary repairs
with respect to: (1) any carpet or other floor covering, (2) any interior
partitions, (3) any doors, (4) the interior side of any demising walls, (5) any
telephone and computer cabling that serves Tenant's equipment exclusively, (6)
any supplemental air conditioning units, private showers and kitchens, including
any plumbing in connection therewith, and similar facilities serving Tenant
exclusively, and (7) any alterations, additions or improvements performed by
contractors retained by Tenant. All such work shall be performed in accordance
with Section 13(B) below and the rules, policies and procedures reasonably
enacted by Landlord from time to time for the performance of work in the
Building. If Tenant fails to make any necessary repairs to the Premises which
are required to be made by Tenant within a reasonable time after written notice
from Landlord (except in case of emergency), Landlord may, at its option, make
such repairs, and Tenant shall pay the cost thereof to the Landlord on demand as
Additional Base Rental, together with an administrative charge in an amount
equal to ten percent (10%) of the cost of such repairs. Landlord shall, at its
expense (except as included in Basic Costs), keep and maintain in good repair
and working order, in accordance with the standards of a first-class office
building in the area, and make all repairs to and perform necessary maintenance
upon: (a) all structural elements of the Building (including the roof and roof
membrane, and foundations); and (b) all elevator, mechanical, electrical and
plumbing systems that serve the Building in general; and (c) the Common Areas,
Property and Building facilities common to all tenants including, but not
limited to, the ceilings, walls and floors in the Common Areas.
B. Tenant shall not make or allow to be made any alterations, additions or
improvements to the Premises without first obtaining the written consent of
Landlord in each such instance, which consent Landlord shall not unreasonably
withhold. Landlord's consent shall be deemed granted if Landlord does not
respond to Tenant's written request for approval within ten (10) business days
(and in such event, Landlord shall be deemed to have elected not to require
Tenant to remove such alterations or improvements at the expiration of the
Lease). Prior to commencing any such work and as a condition to obtaining
Landlord's consent, Tenant must furnish Landlord with plans and specifications
reasonably acceptable to Landlord; names and addresses of contractors reasonably
acceptable to Landlord; copies of contracts; necessary permits and approvals;
evidence of contractor's and subcontractor's insurance in accordance with
Section 19(B) hereof; and payment bond or other security, all in form and amount
satisfactory to Landlord. All such improvements, alterations or additions shall
be constructed in a good and workmanlike manner using Building Standard
materials or other new materials of equal or greater quality. Landlord, to the
extent reasonably necessary to avoid any disruption to the tenants and occupants
of the Building, shall have the right to designate the time when any such
alterations, additions and improvements may be performed and to otherwise
designate reasonable rules, regulations and procedures for the performance of
work in the Building. Upon
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completion, Tenant shall furnish "as-built" plans, contractor's affidavits and
full and final waivers of lien and receipted bills covering all labor and
materials. All improvements, alterations and additions shall comply with all
insurance requirements, codes, ordinances, laws and regulations, including
without limitation, the Americans with Disabilities Act. Tenant shall reimburse
Landlord upon demand as Additional Base Rental for all sums, if any, expanded by
Landlord for third party examination of the architectural, mechanical, electric
and plumbing plans for any alterations, additions or improvements. In addition,
if Landlord so requests, Landlord shall be entitled to oversee the construction
of any alterations, additions or improvements that may affect the structure of
the Building or any of the mechanical, electrical, plumbing or life safety
systems of the Building and Tenant shall pay Landlord the reasonable costs
incurred by Landlord for any such reasonably necessary oversight. Landlord's
approval of Tenant's plans and specifications for any work performed for or on
behalf of Tenant shall not be deemed to be a representation by Landlord that
such plans and specifications comply with applicable insurance requirements,
building codes, ordinances, laws or regulations or that the alterations,
additions and improvements constructed in accordance with such plans and
specifications will be adequate for Tenant's use.
Notwithstanding the foregoing, Tenant may make nonstructural
alterations, additions or improvements to the interior of the Premises,
including wiring within the Premises, nonstructural partitioning, and painting
and redecorating, without the necessity of obtaining Landlord's consent,
provided in all such cases (other than cabling, painting or decoration solely
within the Premises) Tenant shall give Landlord five (5) business days' prior
written notice of such modifications. Any such alterations, additions or
improvements shall be installed by Tenant at its sole cost and in compliance
with all laws, orders and regulations of any applicable governing body and
Tenant at its expense shall furnish to Landlord drawings for such work to enable
the Building's record drawings to be updated to reflect such changes.
ARTICLE 14: USE OF ELECTRICAL SERVICE BY TENANT.
A. All electricity used by Tenant in the Premises shall be paid for by
Tenant by a separate charge billed directly to Tenant by Landlord and payable by
Tenant as Additional Base Rental within ten (10) days after billing. It is
understood that electrical service to the Premises may be furnished by one or
more companies providing electrical generation, transmission and/or distribution
services and that the cost of electricity may be billed as a single charge or
divided into and billed in a variety of categories such as distribution charges,
transmission charges, generation charges, public good charges or other similar
categories. Landlord shall have the exclusive right to select the company(ies)
providing electrical service to the Building, Premises and Property, to
aggregate the electrical service for the Building, Premises and Property with
other buildings, to purchase electricity for the Building, Premises and Property
through a broker and/or buyers group and to change the providers and/or manner
of purchasing electricity from time to time so long as and to the extent that
such does not interfere with Tenant's use of the Premises in accordance with
this Lease. Landlord shall make available to Tenant upon Tenant's request, such
information and documents and Tenant shall reasonably request to calculate and
verify charges to Tenant for electricity usage by Tenant.
B. Tenant's use of electrical service in the Premises shall not exceed,
either in voltage, rated capacity, or overall load, the design specifications
for the Building (the electrical design specifications for the Building are set
forth on Exhibit D-2 hereto). In the event Tenant shall consume (or request that
it be allowed to consume) electrical service in excess of the design
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specifications for the Building, Landlord may refuse to consent to such excess
usage or may condition its consent to such excess usage upon such conditions as
Landlord reasonably elects (including the installation of utility service
upgrades, submeters, air handlers or cooling units), and all such additional
usage (to the extent permitted by law), installation and maintenance thereof
shall be paid for by Tenant as Additional Base Rental. Landlord, at any time
during the Lease Term, shall have the right to separately meter electrical usage
for the Premises or to measure electrical usage by survey or any other method
that Landlord, in its reasonable judgment, deems to be appropriate.
C. Notwithstanding Section A above to the contrary, if Landlord permits
Tenant to purchase electrical power for the Premises from a provider other than
Landlord's designated company(ies), such provider shall be considered to be a
contractor of Tenant and Tenant shall indemnify and hold Landlord harmless from
such provider's acts and omissions while in, or in connection with their
services to, the Building or Premises in accordance with the terms and
conditions of Article 18. In addition, at the request of Landlord, Tenant shall
allow Landlord to purchase electricity from Tenant's provider (at no additional
cost or liability to Tenant and only if such provider is willing to sell such
electricity to Landlord) at such rates as Landlord is able to negotiate with
such provider.
ARTICLE 15: ENTRY BY LANDLORD.
Landlord and its agents or representatives shall have the right to enter
the Premises to inspect the same, or to show the Premises to prospective
purchasers, mortgagees, tenants (during the last twelve months of the Lease Term
or earlier in connection with a potential relocation) or insurers, or to clean
or make repairs, alterations or additions thereto, including any work that
Landlord deems necessary for the safety, protection or preservation of the
Building or any occupants thereof, or to facilitate repairs, alterations or
additions to the Building or any other tenants' premises. Except for any entry
by Landlord in an emergency situation or to provide normal cleaning and
janitorial service, Landlord shall provide Tenant with reasonable prior notice
of any entry into the Premises, which notice may be given verbally, and shall
access the Premises only with a designated representative of Tenant being
present. If reasonably necessary for the protection and safety of Tenant and its
employees, Landlord shall have the right to temporarily close the Premises to
perform repairs, alterations or additions in the Premises, provided that
Landlord shall use reasonable efforts to perform all such work on weekends and
after Normal Business Hours. Entry by Landlord hereunder shall not constitute a
constructive eviction or entitle Tenant to any abatement or reduction of Rent by
reason thereof.
ARTICLE 16: ASSIGNMENT AND SUBLETTING.
A. Tenant shall not assign, sublease, transfer or encumber this Lease or
any interest therein or grant any license, concession or other right of
occupancy of the Premises or any portion thereof or otherwise permit the use of
the Premises or any portion thereof by any party other than Tenant (any of which
events is hereinafter called a "Transfer") without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed with
respect to any proposed Transfer. Landlord's consent shall not be considered
unreasonably withheld if: (1) the proposed transferee's financial responsibility
does not meet the same criteria Landlord uses to select Building tenants; (2)
the proposed transferee's business is not suitable for the Building considering
the business of the other tenants or would result in a violation of an exclusive
right granted to another tenant in the Building; (3) the proposed use is
different than
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the Permitted Use; (4) the proposed transferee is a government agency or
occupant of the Building; (5) Tenant is in Default; or (6) any portion of the
Building or Premises would become subject to additional or different
governmental laws or regulations as a consequence of the proposed Transfer
and/or the proposed transferee's use and occupancy of the Premises in a way that
would have a material adverse effect on the Premises or Building. Tenant
acknowledges that the foregoing is not intended to be an exclusive list of the
reasons for which Landlord may reasonably withhold its consent to a proposed
Transfer. Any attempted Transfer in violation of the terms of this Article
shall, at Landlord's option, be void. Consent by Landlord to one or more
Transfers shall not operate as a waiver of Landlord's rights as to any
subsequent Transfers. In addition, Tenant shall not, without Landlord's consent,
publicly advertise the proposed rental rate for any Transfer.
B. If Tenant requests Landlord's consent to a Transfer, Tenant, together
with such request for consent, shall provide Landlord with the name of the
proposed transferee and the nature of the business of the proposed transferee,
the term, use, rental rate and all other material terms and conditions of the
proposed Transfer, including, without limitation, a copy of the proposed
assignment, sublease or other contractual documents and evidence satisfactory to
Landlord that the proposed transferee is financially responsible.
Notwithstanding Landlord's agreement to act reasonably under Section 16(A)
above, with respect to Transfers other than those described in Subsection 16(E)
below, if such Transfer is made for the full remaining balance of the Term,
excluding extension options (whether with respect to all or only a portion or
the Premises), Landlord may, within fifteen (15) business days after its receipt
of all information and documentation required herein, either, (1) consent to or
reasonably refuse to consent to such Transfer in writing; or (2) for any
sublease or assignment of one floor or more, cancel and terminate this Lease, as
to the portion of the Premises proposed to be transferred, upon thirty (30)
days' notice and recapture the space proposed for such subletting or assignment.
In the event Landlord consents to any such Transfer, the Transfer and consent
thereto shall be in a form approved by Landlord, and, whether or not Landlord
consents to such Transfer, Tenant shall bear all costs and expenses incurred by
Landlord in connection with the review and approval of such documentation, which
costs and expenses shall be deemed to be at least Two Hundred Fifty Dollars
($250.00), and not to exceed One Thousand Five Hundred Dollars ($1,500.00) and
further provided that any net proceeds from assignment or subleasing the
Premises shall be shared on an equal basis by Tenant and Landlord after
deducting Tenant's reasonable subleasing/assignment costs.
C. Landlord shall respond to any requested Transfer by Tenant, within
fifteen (15) business days of Tenant's written request.
D. If Tenant is a corporation, limited liability company or similar
entity, the transfer, in a single transaction or a series of related
transactions occurring within a twelve (12) month period, of 50% or more of the
voting stock of Tenant shall constitute a Transfer. The preceding sentence shall
not apply whenever Tenant is a corporation, the outstanding stock of which is
listed on a recognized security exchange, or if at least eighty percent (80%) of
its voting stock is owned by another corporation, the voting stock of which is
so listed.
E. Notwithstanding anything herein to the contrary, provided Tenant is not
in default under this Lease, Landlord hereby consents to an assignment of this
Lease, or a subletting of all or part of the Premises, to (i) the parent of
Tenant, a wholly owned subsidiary of Tenant or of such parent, or another
affiliate which Tenant controls, is controlled by or is under common
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control with Tenant, (ii) any corporation in whom or with which Tenant may be
merged or consolidated, or (iii) any entity to whom Tenant sells all or
substantially all of its assets, provided that in each such instance such entity
expressly assumes all of Tenant's obligations hereunder and has a net worth at
least equal to the greater of (A) the net worth of Tenant on the date hereof or
(B) the net worth of Tenant immediately prior to such assignment or transaction.
With respect to the transactions described in Subsections (i) and (ii) above,
such net worth may be on a consolidated basis with Tenant and Tenant's
affiliated entity. An initial public offering of Tenant's stock and any
subsequent transfers shall not be considered a Transfer hereunder. A Transfer
meeting all of the requirements of this Section 16(E) shall be deemed a
"Corporate Transfer."
F. Any Transfer consented to by Landlord in accordance with this Article 16
shall be only for the Permitted Use and for no other purpose. In no event shall
any Transfer release or relieve Tenant from any obligations under this Lease.
ARTICLE 17: LIENS.
Tenant will not permit any mechanic's liens or other liens to be placed
upon the Premises or Tenant's leasehold interest therein, the Building, or the
Property. Landlord's title to the Building and Property is and always shall be
paramount to the interest of Tenant, and nothing herein contained shall empower
Tenant to do any act that can, shall or may encumber Landlord's title. In the
event any such lien does attach, Tenant shall, within ten (10) days of notice of
the filing of said lien, either discharge or bond over such lien to the
satisfaction of Landlord and Landlord's Mortgagee (as hereinafter defined), and
in such a manner as to remove the lien as an encumbrance against the Building
and Property. If Tenant shall fail to so discharge or bond over such lien, then,
in addition to any other right or remedy of Landlord, Landlord may, but shall
not be obligated to bond over or discharge the same. Any amount paid by Landlord
for any of the aforesaid purposes, including reasonable attorneys' fees (if and
to the extent permitted by law) shall be paid by Tenant to Landlord on demand as
Additional Base Rental. Landlord shall have the right to post and keep posted on
the Premises any notices that may be provided by law or which Landlord may deem
to be proper for the protection of Landlord, the Premises and the Building from
such liens.
ARTICLE 18: INDEMNITY AND WAIVER OF CLAIMS.
A. Tenant shall indemnify, defend and hold Landlord, its members,
principals, beneficiaries, partners, officers, directors, employees,
Mortgagee(s) and agents, and the respective principals and members of any such
agents (collectively the "Landlord Related Parties") harmless against and from
all liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including, without limitation, reasonable attorneys' fees and other
professional fees (if and to the extent permitted by law), which may be imposed
upon, incurred by, or asserted against Landlord or any of the Landlord Related
Parties and arising, directly or indirectly, out of or in connection with the
use, occupancy or maintenance of the Premises by, the rough or under Tenant
including, without limitation, any of the following (to the extent they were
done by, under or through the Tenant): (1) any work or thing done in, on or
about the Premises or any part thereof by Tenant or any of its transferees,
agents, servants, contractors, employees, customers, licensees or invitees; (2)
any use, non-use, possession, occupation, condition, operation or maintenance of
the Premises or any part thereof, (3) any act or omission of Tenant or any of
its transferees, agents, servants, contractors, employees, customers, licensees
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or invitees, regardless of whether such act or omission occurred within the
Premises; (4) any injury or damage to any person or property occurring in, on or
about the Premises or any part thereof, or (5) any failure on the part of Tenant
to perform or comply with any of the covenants, agreements, terms or conditions
contained in this Lease with which Tenant must comply or perform.
B. Landlord and the Landlord Related Parties shall not be liable for, and
Tenant hereby waives, all claims for loss or damage to Tenant's business or
damage to person or property sustained by Tenant or any person claiming by,
through or under Tenant [including Tenant's principals, agents and employees
(collectively, the "Tenant Related Parties")] resulting from any accident or
occurrence in, on or about the Premises, the Building or the Property,
including, without limitation, claims for loss, theft or damage resulting from:
(1) the Premises, Building, or Property, or any equipment or appurtenances
becoming out of repair; (2) wind or weather; (3) any defect in or failure to
operate, for whatever reason, any sprinkler, heating or air conditioning
equipment, electric wiring, gas, water or steam pipes; (4) broken glass; (5) the
backing up of any sewer pipe or downspout; (6) the bursting, leaking or running
of any tank, water closet, drain or other pipe; (7) the escape of steam or
water; (8) water, snow or ice being upon or coming through the roof, skylight,
stairs, doorways, windows, walks or any other place upon or near the Building;
(9) the falling of any fixture, plaster, tile or other material; (10) any act,
omission or negligence of other tenants, licensees or any other persons or
occupants of the Building or of adjoining or contiguous buildings, or owners of
adjacent or contiguous property or the public, or by construction of any
private, public or quasi-public work; or (11) any other cause of any nature
except, as to items 1-9, where such loss or damage is due to Landlord's
negligence or willful misconduct, or due to Landlord's willful failure to make
repairs required to be made pursuant to other provisions of this Lease, after
the expiration of a reasonable time after written notice to Landlord of the need
for such repairs. To the maximum extent permitted by law, Tenant agrees to use
and occupy the Premises, and to use such other portions of the Building as
Tenant is herein given the right to use, at Tenant's own risk.
C. Landlord shall indemnify, defend and hold Tenant harmless from and
against all liabilities, damages, losses, claims, and expenses, including
reasonable attorneys' fees arising from any negligent act or willful misconduct
of Landlord or its officers, contractors, licensees, agents, employees, clients,
or customers in or about the Building or Premises, or arising from any breach or
default under this Lease by Landlord. Landlord shall not be liable for any act
or neglect of Tenant or any other tenant or occupant of the Building or any
third parties. In no event shall Landlord be liable to Tenant for any damage to
the Premises or for any loss, damage or injury to any property therein or
thereon occasioned by bursting, rupture, leakage or overflow of any plumbing or
other pipes (including, without limitation, water, steam and/or refrigerant
lines), sprinklers, tanks, drains, drinking fountains or washstands or other
similar cause in, above, upon or about the Premises or the Building, unless due
to the negligence or willful misconduct of Landlord or its officers,
contractors, licensees, agents, employees, clients or customers.
ARTICLE 19: TENANT'S INSURANCE.
A. At all times commencing on and after the earlier of the Commencement
Date and the date Tenant or its agents, employees or contractors enters the
Premises for any purpose, Tenant shall carry and maintain, at its sole cost and
expense:
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1. Commercial General Liability Insurance applicable to the Premises
and its appurtenances providing, on an occurrence basis, a minimum combined
single limit of Two Million Dollars ($2,000,000.00), with a Contractual
liability endorsement covering Tenant's indemnity obligations under this Lease.
2. All Risks of Physical Loss Insurance written at replacement cost
value and with a replacement cost endorsement covering all of Tenant's Property
in the Premises.
3. Workers' Compensation Insurance as required by the state of
Washington and in amounts as may be required by applicable statute, and
Employers' Liability Coverage of One Million Dollars ($1,000,000.00) per
occurrence.
4. Whenever good business practice, in Landlord's reasonable judgment,
indicates the need of additional insurance coverage or different types of
insurance in connection with the Premises or Tenant's use and occupancy thereof,
Tenant shall, upon request, obtain such insurance at Tenant's expense and
provide Landlord with evidence thereof.
B. Except for items for which Landlord is responsible under Exhibit D, the
Work Letter Agreement, before any repairs, alterations, additions, improvements,
or construction are undertaken by or on behalf of Tenant, Tenant shall carry and
maintain, at its expense, or Tenant shall require any contractor performing work
on the Premises to carry and maintain, at no expense to Landlord, in addition to
Workers' Compensation Insurance as required by the jurisdiction in which the
Building is located, All Risk Builder's Risk Insurance in the amount of the
replacement cost of any alterations, additions or improvements (or such other
amount reasonably required by Landlord) and Commercial General Liability
Insurance (including, without limitation, Contractor's Liability coverage,
Contractual Liability coverage and Completed Operations coverage,) written on an
occurrence basis with a minimum combined single limit of Two Million Dollars
($2,000,000.00) and adding "the named Landlord hereunder (or any successor
thereto) and its respective members, principals, beneficiaries, partners,
officers, directors, employees, agents and any Mortgagee(s)", and other
designees of Landlord as the interest of such designees shall appear, as
additional insureds (collectively referred to as the "Additional Insureds").
C. Any company writing any insurance which Tenant is required to maintain
or cause to be maintained pursuant to the terms of this Lease (all such
insurance as well as any other insurance pertaining to the Premises or the
operation of Tenant's business therein being referred to as "TENANT'S
INSURANCE"), as well as the form of such insurance, shall at all times be
subject to Landlord's reasonable approval, and each such insurance company shall
have an A.M. Best rating of "A-" or better and shall be licensed and qualified
to do business in the state in which the Premises is located. All policies
evidencing Tenant's Insurance (except for Workers' Compensation Insurance) shall
specify Tenant as named insured and the Additional Insureds as additional
insureds. Provided that the coverage afforded Landlord and any designees of
Landlord shall not be reduced or otherwise adversely affected, all of Tenant's
Insurance may be carried under a blanket policy covering the Premises and any
other of Tenant's locations. All policies of Tenant's Insurance shall contain
endorsements that the insurer(s) will give to Landlord and its designees at
least thirty (30) days' advance written notice of any cancellation, termination
or lapse of said insurance. Tenant shall be solely responsible for payment of
premiums for all of Tenant's Insurance. Tenant shall deliver to Landlord at
least fifteen (15) days prior to the time Tenant's Insurance is first required
to be carried by Tenant, and upon
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happening of the casualty. Notwithstanding the foregoing, Landlord's obligation
to restore the Building, and the Tenant Improvements, if any, shall not require
Landlord to expend for such repair and restoration work more than the insurance
proceeds actually received by the Landlord as a result of the casualty plus any
deductible. Tenant shall have the right to terminate this Lease if (i) any such
restoration of the Premises is not completed within 225 days after the date of
such casualty and such delays prevent Tenant from occupying the Premises for
Tenant's normal business operations; or (ii) the Premises are damaged within the
last two (2) years of the Lease Term and such damage prevents Tenant from
occupying the Premises for Tenant's normal business operations. When repairs to
the Premises have been completed by Landlord, Tenant shall complete the
restoration or replacement of all Tenant's Property necessary to permit Tenant's
reoccupancy of the Premises, and Tenant shall present Landlord with evidence
satisfactory to Landlord of Tenant's ability to pay such costs prior to
Landlord's commencement of repair and restoration of the Premises. Landlord
shall not be liable for any inconvenience or annoyance to Tenant or injury to
the business of Tenant resulting in any way from such damage or the repair
thereof, except that, subject to the provisions of the next sentence, Landlord
shall allow Tenant a fair diminution of Rent on a per diem basis during the time
and to the extent any damage to the Premises causes the Premises to be rendered
untenantable and not used by Tenant. If the Premises or any other portion of the
Building is damaged by fire or other casualty resulting from the negligence of
Tenant or any Tenant Related Parties, the Rent hereunder shall not be diminished
during any period during which the Premises, or any portion thereof, is
untenantable (except to the extent Landlord is entitled to be reimbursed by the
proceeds of any rental interruption insurance), and Tenant shall be liable to
Landlord for the cost of the repair and restoration of the Building caused
thereby to the extent such cost and expense is not covered by insurance
proceeds. Landlord and Tenant hereby waive the provisions of any law from time
to time in effect during the Lease Term relating to the effect upon leases of
partial or total destruction of leased property. Landlord and Tenant agree that
their respective rights in the event of any damage to or destruction of the
Premises shall be those specifically set forth herein.
Notwithstanding anything to the contrary contained in this Article 22
above, in the event Landlord (i) is obligated or elects to restore the Premises
or the Building after any casualty; (ii) such casualty has not had a material
adverse effect on the Premises or Tenant's ability to use the Premises; and
(iii) Tenant's continued occupancy of the Premises will not materially adversely
affect Landlord's construction activity in restoring the Premises and the
Building, nor prohibit or restrict Landlord's ability to obtain any necessary
permits for such restoration work, then Landlord shall not terminate Tenant's
lease as a result of such casualty.
ARTICLE 23: INTENTIONALLY DELETED
ARTICLE 24: CONDEMNATION
If (a) the whole or any substantial part of the Premises or (b) any portion
of the Building or Property which would leave the remainder of the Building
unsuitable for use as an office building comparable to its use on the
Commencement Date, shall be taken or condemned for any public or quasi-public
use under governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, then Landlord may, at its
option, terminate this Lease effective as of the date the physical taking of
said Premises or said portion of the Building or Property shall occur. In the
event this Lease is not terminated, the Rentable Area of the Building, the
Rentable Area of the Premises and Tenant's Pro Rata Share shall be appropriately
adjusted. In addition, Rent for any portion of the Premises so taken or
condemned
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shall be abated during the unexpired term of this Lease effective when the
physical taking of said portion of the Premises shall occur. All compensation
awarded for any such taking or condemnation, or sale proceeds in lieu thereof,
shall be the property of Landlord, and Tenant shall have no claim thereto, the
same being hereby expressly waived by Tenant, except for any portions of such
award or proceeds which are specifically allocated by the condemning or
purchasing party for the taking of or damage to trade fixtures of Tenant, which
Tenant specifically reserves to itself.
ARTICLE 25: EVENTS OF DEFAULT
The following events shall be deemed to be events of default under this
Lease:
A. Tenant shall fail to pay when due any Base Rental, Additional Base
Rental or other Rent under this Lease and such failure shall continue for five
(5) business days after receipt of written notice from Landlord (hereinafter
sometimes referred to as a "Monetary Default").
B. Any failure by Tenant (other than a Monetary Default) to comply with any
term, provision or covenant of this Lease, including, without limitation, the
rules and regulations, which failure is not cured within thirty (30) days after
receipt of notice of the occurrence of such failure, provided that if any such
failure creates a hazardous condition, such failure must be cured immediately,
and further provided, however, that with respect to any such nonhazardous
default capable of being cured by Tenant which cannot be cured within thirty
(30) days, the default shall not be deemed to be uncured if Tenant commences to
cure within thirty (30) days and for so long as Tenant is diligently pursuing
the care thereof.
C. Tenant shall become insolvent, or shall make a transfer in fraud of
creditors, or shall commit an act of bankruptcy or shall make an assignment for
the benefit of creditors, or Tenant shall admit in writing its inability to pay
its debts as they become due.
D. Tenant shall file a petition under any section or chapter of the United
States Bankruptcy Code, as amended, pertaining to bankruptcy, or under any
similar law or statute of the United States or any State thereof, or Tenant
shall be adjudged bankrupt or insolvent in proceedings filed against Tenant
thereunder; or a petition or answer proposing the adjudication of Tenant as a
debtor or its reorganization under any present or future federal or state
bankruptcy or similar law shall be filed in any court and such petition or
answer shall not be discharged or denied within sixty (60) days after the filing
thereof.
E. A receiver or trustee shall be appointed for all or substantially all of
the assets of Tenant or of the Premises or of any of Tenant's Property located
thereon in any proceeding brought by Tenant, or any such receiver or trustee
shall be appointed in any proceeding brought against Tenant and shall not be
discharged within sixty (60) days after such appointment or Tenant shall consent
to or acquiesce in such appointment.
F. The leasehold estate hereunder shall be taken on execution or other
process of law or equity in any action against Tenant.
G. The liquidation, termination, dissolution, forfeiture of right to do
business, or death of Tenant.
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ARTICLE 26: REMEDIES
A. Upon the occurrence of any event or events of default under this Lease,
Landlord shall have the option to pursue any one or more of the following
remedies without any notice (except as expressly prescribed in Article 25 above)
or demand whatsoever (and without limiting the generality of the foregoing,
Tenant hereby specifically waives notice and demand for payment of Rent or other
obligations due [except as expressly prescribed in Article 25 above] and waives
any and all other notices or demand requirements imposed by applicable law):
1. Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord. If Tenant fails to surrender the Premises
upon termination of the Lease hereunder, Landlord may without prejudice to any
other remedy which it may have, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying said
Premises, or any part thereof, and Tenant hereby agrees to pay to Landlord on
demand the amount of all loss and damage, including consequential damage, which
Landlord may suffer by reason of such termination (but only to the extent
proximately caused by such damage), whether through inability to relet the
Premises on satisfactory terms or otherwise, specifically including but not
limited to all Costs of Reletting (hereinafter defined) and any deficiency that
may arise by reason of any reletting or failure to relet.
2. Enter upon and take possession of the Premises and expel or remove
Tenant or any other person who may be occupying said Premises, or any part
thereof, without having any civil or criminal liability therefor and without
terminating this Lease. Landlord may (but shall be under no obligation to) relet
the Premises or any part thereof for the account of Tenant, in the name of
Tenant or Landlord or otherwise, without notice to Tenant for such term or terms
which may be greater or less than the period which would otherwise have
constituted the balance of the Lease Term and on such conditions (which may
include concessions, free rent and alterations of the Premises) and for such
uses as Landlord, acting reasonably, shall determine, and Landlord may collect
and receive any rents payable by reason of such reletting. Tenant agrees to pay
Landlord on demand all reasonable Costs of Reletting and any deficiency that may
arise by reason of such reletting or failure to relet. Landlord shall not be
responsible or liable for any failure to relet the Premises or any part thereof
or for any failure to collect any Rent due upon any such reletting so long as
Landlord acts in good faith and makes reasonable efforts to mitigate its
damages. No such re-entry or taking of possession of the Premises by Landlord
shall be construed as an election on Landlord's part to terminate this Lease
unless a written notice of such termination is given to Tenant.
3. Enter upon the Premises without having any civil or criminal
liability therefor, and do whatever Tenant's obligated to do under the terms of
this Lease, and Tenant agrees to reimburse Landlord on demand for any reasonable
expense which Landlord may incur in thus effecting compliance with Tenant's
obligations under this Lease together with interest at the lesser of a per annum
rate equal to: (a) the Maximum Rate, or (b) the Prime Rate plus five percent
(5%). Maximum Rate means the maximum rate of interest which may be charged
without violation of applicable usury laws.
4. In order to regain possession of the Premises and to deny Tenant
access thereto in any instance in which Landlord has terminated this Lease or
Tenant's right to possession, or to limit access to the Premises in accordance
with local law in the event of a
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default by Tenant, Landlord or its agent may, at the expense and liability of
the Tenant, alter or change any or all locks or other security devices
controlling access to the Premises without posting or giving notice of any kind
to Tenant. Landlord shall have no obligation to provide Tenant a key or grant
Tenant access to the Premises so long as Tenant is in default under this Lease
which default has not been cured within any time limits granted pursuant to this
Lease. Tenant shall not be entitled to recover possession of the Premises,
terminate this Lease, or recover any actual, incidental, consequential,
punitive, statutory or other damages or award of attorneys' fees, by reason of
Landlord's alteration or change of any lock or other security device as a result
of any uncured default of Tenant. Landlord may, without notice, remove and
either dispose of or store, at Tenant's expense, any property belonging to
Tenant that remains in the Premises after Landlord has regained possession
thereof.
5. Terminate this Lease, in which event, Tenant shall immediately
surrender the Premises to Landlord and pay to Landlord the sum of: (a) all Rent
accrued hereunder through the date of termination, and, upon Landlord's
determination thereof, (b) an amount equal to: the total Rent that Tenant would
have been required to pay for the remainder of the Lease Term discounted to
present value at the Prime Rate then in effect, minus the then present fair
rental value of the Premises for the remainder of the Lease Term, similarly
discounted, after deducting all anticipated Costs of Reletting (as defined
below).
B. For purposes of this Lease, the term "COSTS OF RELETTING" shall mean all
reasonable costs and expenses incurred by Landlord in connection with the
reletting of the Premises, including without limitation, the cost of cleaning,
renovation, repairs, decoration and alteration of the Premises for a new tenant
or tenants, advertisement, marketing, brokerage and legal fees (if and to the
extent permitted by law), the cost of protecting or caring for the Premises
while vacant, the cost of removing and storing any property located on the
Premises, any increase in insurance premiums caused by the vacancy of the
Premises and any other out-of-pocket expenses reasonably incurred by Landlord
including tenant incentives, allowances and inducements.
C. Except as otherwise herein provided, no repossession or reentering of
the Premises or any part thereof pursuant to Article 26 hereof or otherwise
shall relieve Tenant of its liabilities and obligations hereunder, all of which
shall survive such repossession or re-entering. Notwithstanding any such
repossession or re-entering by reason of the occurrence of an event of default,
Tenant will pay to Landlord the Rent required to be paid by Tenant pursuant to
this Lease.
D. No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy, and each and every right
and remedy shall be cumulative and in addition to any other right or remedy
given hereunder or now or hereafter existing by agreement, applicable law or in
equity. In addition to other remedies provided in this Lease, Landlord shall be
entitled, to the extent permitted by applicable law, to injunctive relief, or to
a decree compelling performance of any of the covenants, agreements, conditions
or provisions of this Lease, or to any other remedy allowed to Landlord at law
or in equity. Forbearance by Landlord to enforce one or more of the remedies
herein provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default.
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E. This Article 26 shall be enforceable to the maximum extent such
enforcement is not prohibited by applicable law, and the unenforceability of any
portion thereof shall not thereby render unenforceable any other portion.
ARTICLE 27: LIMITATION OF LIABILITY
A. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE
LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD HEREUNDER) TO TENANT SHALL
BE LIMITED TO THE INTEREST OF LANDLORD IN THE PROPERTY AND ANY PROCEEDS THEREOF,
SUBJECT TO THE INTEREST OF ANY MORTGAGEES, AND TENANT AGREES TO LOOK SOLELY TO
LANDLORD'S INTEREST IN THE PROPERTY AND THE PROCEEDS THEREOF, SUBJECT TO THE
INTEREST OF ANY MORTGAGEES, FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST
THE LANDLORD, IT BEING INTENDED THAT NEITHER LANDLORD NOR ANY MEMBER, PRINCIPAL,
PARTNER, SHAREHOLDER, OFFICER, DIRECTOR OR BENEFICIARY OF LANDLORD SHALL BE
PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. TENANT HEREBY COVENANTS THAT,
PRIOR TO THE FILING OF ANY SUIT FOR AN ALLEGED DEFAULT BY LANDLORD HEREUNDER, IT
SHALL GIVE LANDLORD AND ALL MORTGAGEES WHOM TENANT HAS BEEN NOTIFIED HOLD
MORTGAGES OR DEED OF TRUST LIENS ON THE PROPERTY, BUILDING OR PREMISES NOTICE
AND REASONABLE TIME TO CURE SUCH ALLEGED DEFAULT BY LANDLORD. IN ADDITION,
TENANT ACKNOWLEDGES THAT ANY ENTITY MANAGING THE BUILDING ON BEHALF OF LANDLORD,
OR WHICH EXECUTES THIS LEASE AS AGENT FOR LANDLORD, IS ACTING SOLELY IN ITS
CAPACITY AS AGENT FOR LANDLORD AND SHALL NOT BE LIABLE FOR ANY OBLIGATIONS,
LIABILITIES, LOSSES OR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS LEASE,
ALL OF WHICH ARE EXPRESSLY WAIVED BY TENANT.
ARTICLE 23: NO WAIVER
Failure of Landlord to declare any default immediately upon its occurrence,
or delay in. taking any action in connection with an event of default shall not
constitute a waiver of such default, nor shall it constitute an estoppel against
Landlord, but Landlord shall have the right to declare the default at any time
and take such action as is lawful or authorized under this Lease. Failure by
Landlord to enforce its rights with respect to any one default shall not
constitute a waiver of its rights with respect to any subsequent default.
Receipt by Landlord of Tenant's keys to the Premises shall not constitute an
acceptance or surrender of the Premises.
ARTICLE 29: EVENT OF BANKRUPTCY
In addition to, and in no way limiting the other remedies set forth
herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a
voluntary or involuntary bankruptcy, reorganization, composition, or other
similar type proceeding under the federal bankruptcy laws, as now enacted or
hereinafter amended, then, to the extent permitted by law:
A. "ADEQUATE PROTECTION" of Landlord's interest in the Premises pursuant to
the provisions of Section 361 and 363 (or their successor sections) of the
Bankruptcy Code, 11 U.S.C. Section 101 et. seq., (such Bankruptcy Code as
amended from time to time being
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herein referred to as the "Bankruptcy Code"), prior to assumption and/or
assignment of the Lease by Tenant shall include, but not be limited to all (or
any part) of the following:
1. the continued payment by Tenant of the Base Rental and all other
Rent due and owing hereunder and the performance of all other covenants and
obligations hereunder by Tenant;
2. the furnishing of an additional/new security deposit by Tenant in
the amount of three (3) times the then current monthly Base Rental.
B. "ADEQUATE ASSURANCE OF FUTURE PERFORMANCE" by Tenant and/or any assignee
of Tenant pursuant to Bankruptcy Code Section 365 will include (but not be
limited to) payment of an additional/new Security Deposit in the amount of three
(3) times the then Current monthly Base Rental payable hereunder.
C. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed without further act or deed
to have assumed all of the obligations of Tenant arising under this Lease on and
after the effective date of such assignment. Any such assignee shall, upon
demand by Landlord, execute and deliver to Landlord an instrument confirming
such assumption of liability as well as a subordination agreement in the form of
Exhibit G attached hereto.
D. Notwithstanding anything in this Lease to the contrary, all amounts
payable by Tenant to or on behalf of the Landlord under this Lease, whether or
not expressly denominated as "Rent," shall constitute "rent" for the purposes of
Section 502(b)(6) of the Bankruptcy Code.
E. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other considerations
payable or otherwise to be delivered to Landlord (including Base Rentals and
other Rent hereunder), shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the bankruptcy estate of
Tenant. Any and all monies or other considerations constituting Landlord's
property under the preceding sentence not paid or delivered to Landlord shall be
held in trust by Tenant or Tenant's bankruptcy estate for the benefit of
Landlord and shall be promptly paid to or turned over to Landlord.
F. If Tenant assumes this Lease and proposes to assign the same pursuant to
the provisions of the Bankruptcy Code to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms acceptable
to the Tenant, then notice of such proposed offer/assignment, setting forth: (1)
the name and address of such person or entity, (2) all of the terms and
conditions of such offer, and (3) the adequate assurance to be provided Landlord
to assure such person's or entity's future performance under the Lease, shall be
given to Landlord by Tenant no later than twenty (20) days after receipt by
Tenant, but in any event no later than ten (10) days prior to the date that
Tenant shall make application to a court of competent jurisdiction for authority
and approval to enter into such assumption and assignment, and Landlord shall
thereupon have the prior right and option, to be exercised by notice to Tenant
given at any time prior to the effective date of such proposed assignment, to
accept an assignment of this Lease upon the same terms and conditions and for
the same consideration, if any, as the bona fide offer made by such persons or
entity, less any brokerage commission which
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may be payable out of the consideration to be paid by such person for the
assignment of this Lease.
G. To the extent permitted by law, Landlord and Tenant agree that this
Lease is a contract under which applicable law excuses Landlord from accepting
performance from (or rendering performance to) any person or entity other than
Tenant within the meaning of Sections 365(c) and 365(e)(2) of the Bankruptcy
Code.
ARTICLE 30: WAIVER OF JURY TRIAL
Landlord and Tenant hereby waive any right to a trial by jury in any action
or proceeding based upon, or related to, the subject matter of this Lease. This
waiver is knowingly, intentionally, and voluntarily made by Tenant, and Tenant
acknowledges that neither Landlord nor any person acting on behalf of Landlord
has made any representations of fact to induce this waiver of trial by jury or
in any way to modify or nullify its effect. Tenant further acknowledges that it
has been represented (or has had the opportunity to be represented) in the
signing of this Lease and in the making of this waiver by independent legal
counsel, selected of its own free will, and that it has had the opportunity to
discuss this waiver with counsel.
ARTICLE 31: HOLDING OVER
In the event of holding over by Tenant after expiration or other
termination of this Lease or in the event Tenant continues to occupy the
Premises after the termination of Tenant's right of possession pursuant to
Articles 25 and 26 hereof, occupancy of the Premises subsequent to such
termination or expiration shall be that of a tenancy at sufferance and in no
event for month-to-month or year-to-year. Tenant shall, throughout the entire
holdover period, be subject to all the terms and provisions of this Lease and
shall pay for its use and occupancy an amount (on a per month basis without
reduction for any partial months during any such holdover) equal to 135% of the
sum of the Base Rental and Additional Base Rental due for the period immediately
preceding such holding over, provided that in no event shall Base Rental and
Additional Base Rental during the holdover period be less than the fair market
rental for the Premises. No holding over by Tenant or payments of money by
Tenant to Landlord after the expiration of the term of this Lease shall be
construed to extend the Lease Term or prevent Landlord from recovery of
immediate possession of the Premises by summary proceedings or otherwise. In
addition to the obligation to pay the amounts set forth above during any such
holdover period, Tenant also shall be liable to Landlord for all damage which
Landlord may suffer by reason of any holding over by Tenant, and Tenant shall
indemnify Landlord against any and all claims made by any other tenant or
prospective tenant against Landlord for delay by Landlord in delivering
possession of the Premises to such other tenant or prospective tenant.
ARTICLE 32: SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE
Tenant accepts this Lease subject and subordinate to any mortgage, deed of
trust, ground lease or other lien presently existing or hereafter arising upon
the Premises, or upon the Building and/or the Property and to any renewals,
modifications, refinancings and extensions thereof (any such mortgage, deed of
trust, lease or other lien being hereinafter referred to as a "Mortgage", and
the person or entity having the benefit of same being referred to hereinafter as
a "Mortgagee"), provided that with respect to the current first-lien Mortgage on
the Property, Tenant hereby approves and agrees to execute, upon execution of
this Lease, the form of
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Subordination Agreement attached hereto as Exhibit G, but Tenant shall not be
bound thereunder until the lender under such Subordination Agreement becomes
bound by such Subordination Agreement. Tenant agrees that any such Mortgagee
shall have the right at any time to subordinate such Mortgage to this Lease on
such terms and subject to such conditions as such Mortgagee may deem appropriate
in its discretion. Landlord is hereby irrevocably vested with full power and
authority to subordinate this Lease to any Mortgage, and Tenant agrees upon
demand to execute such further instruments subordinating this Lease,
acknowledging the subordination of this Lease or attorning to the holder of any
such Mortgage as Landlord may request. Notwithstanding the foregoing, any such
subordination of this Lease shall be conditioned upon Tenant's receipt from the
Mortgagee of a nondisturbance agreement on terms reasonably acceptable to
Tenant. If any person shall succeed to all or part of Landlord's interests in
the Premises whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, termination of lease or otherwise, and if and as so requested or
required by such successor-in-interest, Tenant shall, without charge, attorn to
such successor-in-interest. Tenant agrees that it will upon its initial
occupancy of the Premises and from time to time upon request by Landlord, within
five (5) business days of the date of such request, execute and deliver to such
persons as Landlord shall request an estoppel certificate or other similar
statement in recordable form certifying that (i) this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as so modified), (ii) this Lease as so modified
constitutes the entire agreement between Landlord and Tenant with respect to the
Premises, (iii) the obligations of Tenant hereunder are valid and binding, (iv)
the dates to which Rent and other charges payable under this Lease have been
paid, (v) that no deposits or prepayments have been made under this Lease except
as specified herein, (vi) to the best of Tenant's knowledge, there exists no
breach, default, or event or condition which, with the giving of notice or the
passage of time or both, would constitute a breach or default under this Lease
(or if Tenant alleges a default stating the nature of such alleged default),
(vii) to the best of Tenant's knowledge, there are no existing claims, defenses
or offset against rental due or to become due hereunder, and (viii) such other
matters as Landlord shall reasonably require.
ARTICLE 33: ATTORNEYS' FEES
In the event that Landlord or Tenant should retain counsel and/or institute
any suit against the other for violation of or to enforce any of the covenants
or conditions of this Lease, or should either party institute any suit against
the other for violation of any of the covenants or conditions of this Lease, or
should either party intervene in any suit in which the other is a party to
enforce or protect its interest or rights hereunder, the prevailing party in any
such suit shall be entitled to all of its costs, expenses and reasonable fees of
its attorney(s) (if and to the extent permitted by law) in connection therewith.
ARTICLE 34: NOTICE
Whenever any demand, request, approval, consent or notice ("Notice") shall
or may be given to either of the parties by the other, each such Notice shall be
in writing and shall be sent by registered or certified mail with return receipt
requested, or sent by personal delivery or by overnight courier service (such as
Federal Express) at the respective addresses of the parties for notices as set
forth in Section 1(A)(12) of this Lease. Any Notice under this Lease delivered
by registered or certified mail shall be deemed to have been given, delivered,
received and effective on the earlier of (a) the third business day following
the day on which the same shall have been mailed with sufficient postage prepaid
or (b) the delivery date indicated on the return receipt.
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Notice sent by overnight courier service shall be deemed given, delivered,
received and effective upon the business day after such notice is delivered to
or picked up by the overnight courier service, and notice by personal delivery
shall be deemed given on the day received. Either party may, at any time, change
its Notice Address by giving the other party Notice stating the change and
setting forth the new address.
ARTICLE 35: LANDLORD'S LIEN
Landlord shall have all statutory lien rights for Rent.
ARTICLE 36: EXCEPTED RIGHTS
This Lease does not grant any rights to light or air over or about the
Building. Except as provided in Section 38(S), Landlord specifically excepts and
reserves to itself the use of any roofs, the exterior portions of the Premises,
all rights to the land and improvements below the improved floor level of the
Premises, the improvements and air rights above the Premises and the
improvements and air rights located outside the demising walls of the Premises,
and such areas within the Premises as are required for installation of utility
lines and other installations required to serve any occupants of the Building
and the right to maintain and repair the same, and no rights with respect
thereto are conferred upon Tenant unless otherwise specifically provided herein.
Landlord further reserves to itself the right from time to time to perform the
following, the cost of which shall be borne in accordance with the provisions
contained in Article 7 or elsewhere in this Lease: (a) to change the Building's
name (subject to the provisions of Article 12 above) or street address; (b) to
install, fix and maintain signs on the exterior and interior of the Building
(subject to the restriction on Landlord of naming the Building); (c) to
designate and approve window coverings; (d) to make any decorations,
alterations, additions, improvements to the Building, or any part thereof
(including the Premises) which Landlord shall desire, or deem necessary for the
safety, protection, preservation or improvement of the Building, or as Landlord
may be required to do by law, provided that Landlord shall use all reasonable
efforts to minimize interference with Tenant's business operations when
performing such functions; (e) to have access to the Premises to perform its
duties and obligations and to exercise its rights under this Lease (subject to
compliance with Tenant's security and limitation on access procedures as
described in Section 10(A)(7) above); (f) to retain at all times and to use
pass-keys to all locks within and into the Premises (subject to compliance with
Tenant's security and limitation on access procedures as described in Section
10(A)(7) above); (g) to approve the weight, size, or location of heavy
equipment, or articles in and about the Premises; (h) to close or restrict
access to the Building at all times other than Normal Business Hours, subject to
Tenant's right to admittance at all times under such regulations as Landlord may
reasonably prescribe from time to time, or to close (temporarily or permanently)
any of the entrances to the Building; (i) to change the arrangement and/or
location of entrances of passageways, doors and doorways, corridors, elevators,
stairs, toilets and public parts of the Building so long as it does not
unreasonably interfere with Tenant's access, ingress or egress to or from the
Premises; and (j) if Tenant has vacated the Premises during the last six (6)
months of the Lease Term, to perform additions, alterations and improvements to
the Premises in connection with a reletting or anticipated reletting thereof
without being responsible or liable for the value or preservation of any then
existing improvements to the Premises. Landlord, in accordance with Article 15
hereof, shall have the right to enter the Premises in connection with the
exercise of any of the rights set forth herein and such entry into the Premises
and the performance of any work therein shall not
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constitute a constructive eviction or entitle Tenant to any abatement or
reduction of Rent by reason thereof.
ARTICLE 37: SURRENDER OF PREMISES
At the expiration or earlier termination of this Lease or Tenant's right of
possession hereunder, Tenant shall remove all Tenant's Property from the
Premises, remove all Required Removables designated by Landlord at the time of
initial consent to Tenant's alterations and quit and surrender the Premises to
Landlord, broom clean, and in good order, condition and repair, ordinary wear
and tear and damage by fire and casualty excepted. If Tenant fails to remove any
of Tenant's Property within one (1) day after the termination of this Lease or
Tenant's right to possession hereunder, Landlord, at Tenant's sole cost and
expense, shall be entitled to remove and/or store such Tenant's Property and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay Landlord, upon demand, any and all
expenses caused by such removal and all storage charges against such property so
long as the same shall be in the possession of Landlord or under the control of
Landlord. In addition, if Tenant falls to remove any Tenant's Property from the
Premises or storage, as the case may be, within ten (10) days after written
notice from Landlord, Landlord, at its option, may deem all or any part of such
Tenant's Property to have been abandoned by Tenant and title thereof shall
immediately pass to Landlord.
ARTICLE 38: MISCELLANEOUS.
A. If any term or provision of this Lease, or the application thereof to
any person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, arid each term and provision of
this Lease shall be valid and enforced to the fullest extent permitted by law.
This Lease represents the result of negotiations between Landlord and Tenant,
each of which has been (or has had opportunity to be) represented by counsel of
its own selection, and neither of which has acted under duress or compulsion,
whether legal, economic or otherwise. Consequently, Landlord and Tenant agree
that the language in all parts of the Lease shall in all cases be construed as a
whole according to its fair meaning and neither strictly for nor against
Landlord or Tenant.
B. Landlord agrees that Tenant may record a memorandum of this Lease,
provided the form thereof shall be subject to Landlord's reasonable prior
written approval.
C. This Lease and the rights and obligations of the parties hereto shall be
interpreted, construed, and enforced in accordance with the laws of the state of
Washington.
D. Events of "FORCE MAJEURE" shall include strikes, riots, acts of God,
shortages of labor or materials, war, governmental law, regulations or
restrictions and any other cause (other than financial ability) that is beyond
the reasonable control of Landlord. Whenever a period of time is herein
prescribed for the taking of any action by Landlord, Landlord shall not be
liable or responsible for, and there shall be excluded from the computation of
such period of time, any delays due to events of Force Majeure, except as
otherwise set forth in this Lease.
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E. Landlord shall have the right to transfer and assign, in whole or in
part, all of its rights and obligations hereunder and in the Building and
Property referred to herein, and in such event and upon such transfer, following
assumption of this Lease by the transferee, Landlord shall be released from any
further obligations hereunder, and Tenant agrees to look solely to such
successor in interest of Landlord for the performance of such obligations.
F. Tenant hereby represents to Landlord that it has dealt directly with and
only with the Broker as a broker in connection with this Lease. Tenant agrees to
indemnify and hold Landlord and the Landlord Related Parties harmless from all
claims of any brokers other than the Broker claiming to have represented Tenant
in connection with this Lease. Landlord agrees to indemnify and hold Tenant and
the Tenant Related Parties harmless from all claims of the Broker and any
brokers claiming to have represented Landlord in connection with this Lease.
Landlord agrees to pay a brokerage commission to Broker in accordance with the
terms of a written commission agreement between Landlord and Broker.
G. Agency Disclosure. Leibsohn & Company, Inc. represents Tenant in
connection with this Lease. Landlord shall pay Leibsohn & Company a commission
of Four and no/100 Dollars ($4.00) per rentable square foot of the Initial
Premises, which commission shall be earned and paid one-half (1/2) upon
execution of this Lease and one-half (1/2) upon Tenant's occupancy of the
Premises. No commission shall be paid on any option or expansion space except
for expansion space with a Rent Commencement Date within the first six (6)
months of the commencement of the Initial Term.
H. Landlord and Tenant, by their execution of this Lease, each acknowledge
and agree that they have timely received a pamphlet on the law of real estate
agency as required under RCW 18.86.030(l)(f).
I. If there is more than one Tenant, or if the Tenant is comprised of more
than one person or entity, the obligations hereunder imposed upon Tenant shall
be joint and several obligations of all such parties. All notices, payments, and
agreements given or made by, with or to any one of such persons or entities
shall be deemed to have been given or made by, with or to all of them.
J. In the event Tenant is a corporation (including any form of professional
association), partnership (general or limited), or other form of organization
other than an individual (each such entity is individually referred to herein as
an "ORGANIZATIONAL ENTITY"), then Tenant hereby covenants, warrants and
represents: (1) that such individual is duly authorized to execute or attest and
deliver this Lease on behalf of Tenant in accordance with the organizational
documents of Tenant; (2) that this Lease is binding upon Tenant; (3) that Tenant
is duly organized and legally existing in the state of its organization, and is
qualified to do business in the state in which the Premises is located; and (4)
that the execution and delivery of this Lease by Tenant will not result in any
breach of, or constitute a default under any mortgage, deed of trust, lease,
loan, credit agreement, partnership agreement or other contract or instrument to
which Tenant is a party or by which Tenant may be bound. If Tenant is an
Organizational Entity, upon request, Tenant will, prior to the Commencement
Date, deliver to Landlord true and correct copies of an appropriate resolution
or consent of Tenant's board of directors or other appropriate governing body of
Tenant authorizing or ratifying the execution and delivery of this Lease, which
resolution or consent will be duly certified by an appropriate individual with
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authority to certify such documents, such as the secretary or assistant
secretary or the managing general partner of Tenant.
K. Tenant acknowledges that the financial capability of Tenant to perform
its obligations hereunder is material to Landlord and that Landlord would not
enter into this Lease but for its belief, based on its review of Tenant's
financial statements, that Tenant is capable of performing such financial
obligations. Tenant hereby represents, warrants and certifies to Landlord that
its financial statements previously furnished to Landlord were at the time given
true and correct in all material respects and that there have been no material
subsequent changes thereto as of the date of this Lease. At any time during the
Lease Term, Tenant shall provide Landlord, upon ten (10) days' prior written
notice from Landlord, with a current financial statement and financial
statements of the two (2) years prior to the current financial statement year
and such other information as Landlord or its Mortgagee may reasonably request
in order to create a "business profile" of Tenant and determine Tenant's ability
to fulfill its obligations under this Lease. Such statement shall be prepared in
accordance with the accounting principles consistently applied by Tenant in its
financial reporting, and, if such is the normal practice of Tenant, shall be
audited by an independent certified public accountant. All such financial
information shall be treated as confidential by Landlord and shall be disclosed
to third parties such as Mortgagees only as reasonably necessary and only with
direction to such third party to maintain the confidentiality of such
information.
L. Except as expressly otherwise herein provided, with respect to all
required acts of Tenant and Landlord, time is of the essence of this Lease. This
Lease shall create the relationship of Landlord and Tenant between the parties
hereto.
M. This Lease and the covenants and conditions herein contained shall inure
to the benefit of and be binding upon Landlord and Tenant and their respective
permitted successors and assigns,
N. Notwithstanding anything to the contrary contained in this Lease, the
expiration of the Lease Term, whether by lapse of time or otherwise, shall not
relieve Tenant from Tenant's obligations accruing prior to the expiration of the
Lease Term, and such obligations shall survive any such expiration or other
termination of the Lease Term.
0. The headings and titles to the paragraphs of this Lease are for
convenience only and shall have no affect upon the construction or
interpretation of any part hereof.
P. Landlord has delivered a copy of this Lease to Tenant for Tenant's
review only, and the delivery hereof does not constitute an offer to Tenant or
option. This Lease shall not be effective until an original of this Lease is
executed by both Landlord and Tenant.
Q. Quiet Enjoyment. Tenant shall, and may peacefully have, hold, and enjoy
the Premises, subject to the other terms of this Lease (and without interference
from any Mortgagee to whom this Lease is subordinated), provided that Tenant
pays the Rent herein recited to be paid by Tenant and performs all of Tenant's
covenants and agreements herein contained. This covenant and any and all other
covenants of Landlord shall be binding upon Landlord and its successors only
during its or their respective periods of ownership of the Landlord's interest
hereunder.
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<PAGE> 46
R. Americans With Disabilities Act. Landlord will insure that at the
Commencement Date the Common Areas of the Building, and the shell and core,
shall be in compliance with the Americans With Disabilities Act. Tenant shall be
responsible for seeing that the Tenant Improvements are designed in accordance
with the Americans With Disabilities Act.
S. Roof Space Dish/Antenna.
1. Tenant shall have the right, without rental cost, to lease space on
the roof of the Building for the purpose of installing (in accordance with
Section 13(B) of the Lease), operating and maintaining one or more dish, antenna
or other communication device approved by the Landlord (collectively the
"Dish/Antenna"). The exact location of the space on the roof to be leased by
Tenant shall be designated by Landlord and shall not exceed Tenant's
proportionate share of the roof space suitable for the placement of such
communication devices based on the portion of the Building leased by Tenant
hereunder (the "Roof Space"). Landlord reserves the right to relocate the Roof
Space as reasonably necessary during the Lease Term. Landlord's designation
shall take into account Tenant's use of the Dish/Antenna. Notwithstanding the
foregoing, Tenant's right to install the Dish/Antenna shall be subject to the
approval rights of Landlord and Landlord's architect and/or engineer with
respect to the plans and specifications of the Dish/Antenna, the manner in which
the Dish/Antenna is attached to the roof of the Building and the manner in which
any cables are run to and from the Dish/Antenna. The precise specifications and
a general description of the Dish/Antenna along with all documents Landlord
reasonably requires to review the installation of the Dish/Antenna (the "Plans
and Specifications") shall be submitted to Landlord for Landlord's written
approval no later than twenty (20) days before Tenant commences to install the
Dish/Antenna. Tenant shall be solely responsible for obtaining all necessary
governmental and regulatory approvals and for the cost of installing, operating,
maintaining and removing the Dish/Antenna. Tenant shall notify Landlord upon
completion of the installation of the Dish/Antenna. If Landlord determines that
the Dish/Antenna equipment does not comply with the approved Plans and
Specifications, that the Building has been damaged during installation of the
Dish/Antenna or that the installation was defective, Landlord shall notify
Tenant of any noncompliance or detected problems and Tenant immediately shall
cure the defects. If the Tenant fails to immediately cure the defects, Tenant
shall pay to Landlord upon demand the cost, as reasonably determined by
Landlord, of correcting any defects and repairing any damage to the Building
caused by such installation. If at any time Landlord, in its sole discretion,
deems it necessary, Tenant shall provide and install, at Tenant's sole cost and
expense, appropriate aesthetic screening, reasonably satisfactory to Landlord,
for the Dish/Antenna (the "Aesthetic Screening").
2. Landlord agrees that Tenant, upon reasonable prior written notice
to Landlord, shall have access to the roof of the Building and the Roof Space
for the purpose of installing, maintaining, repairing and removing the
Dish/Antenna, the appurtenances and the Aesthetic Screening, if any, all of
which shall be performed by Tenant or Tenant's authorized representative or
contractors, which shall be approved by Landlord, at Tenant's sole cost and
risk. It is agreed, however, that only authorized engineers, employees or
properly authorized contractors of Tenant, FCC inspectors, or persons under
their direct supervision will be permitted to have access to the roof of the
Building and the Roof Space. Tenant further agrees to exercise firm control over
the people requiring access to the roof of the Building and the Roof Space in
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<PAGE> 47
order to keep to a minimum the number of people having access to the roof of
the Building and the Roof Space and the frequency of their visits.
3. It is further understood and agreed that the installation,
maintenance, operation and removal of the Dish/Antenna, the appurtenances and
the Aesthetic Screening, if any, will in no way damage the Building or the roof
thereof, or interfere with the use of the Building and roof by Landlord. Tenant
agrees to be responsible for any damage caused to the roof or any other part of
the Building, which may be caused by Tenant or any of its agents or
representatives.
4. Tenant agrees to install only equipment of types and frequencies
which will not cause unreasonable interference to Landlord or existing tenants
of the Building. In the event Tenant's equipment causes such interference,
Tenant will change the frequency on which it transmits and/or receives and take
any other steps necessary to eliminate the interference. If said interference
cannot be eliminated within a reasonable period of time, in the judgment of
Landlord, then Tenant agrees to remove the Dish/Antenna from the Roof Space.
5. Tenant shall, at its sole cost and expense, and at its sole risk,
install, operate and maintain the Dish/Antenna in a good and workmanlike manner,
and in compliance with all Building, electric, communication, and safety codes,
ordinances, standards, regulations and requirements, now in effect or hereafter
promulgated, of the Federal Government, including, without limitation, the
Federal Communications Commission (the "FCC"), the Federal Aviation
Administration ("FAA") or any successor agency of either the FCC or FAA having
jurisdiction over radio or telecommunications, and of the state, city and county
in which the Building is located. Under this Lease, the Landlord and its agents
assume no responsibility for the licensing, operation and/or maintenance of
Tenant's equipment. Tenant has the responsibility of carrying out the terms of
its FCC license in all respects. The Dish/Antenna shall be connected to
Landlord's power supply in strict compliance with all applicable Building,
electrical, fire and safety codes. Neither Landlord nor its agents shall be
liable to Tenant for any stoppages or shortages of electrical power furnished to
the Dish/Antenna or the Roof Space because of any act, omission or requirement
of the public utility serving the Building, or the act or omission of any other
tenant, invitee or licensee or their respective agents, employees or
contractors, or for any other cause beyond the reasonable control of Landlord,
and Tenant shall not be entitled to any rental abatement for any such stoppage
or shortage of electrical power. Neither Landlord nor its agents shall have any
responsibility or liability for the conduct or safety of any of Tenant's
representatives, repair, maintenance and engineering personnel while in or on
any part of the Building or the Roof Space.
6. The Dish/Antenna, the appurtenances and the Aesthetic Screening, if
any, shall remain the personal property of Tenant, and shall be removed by
Tenant at its own expense at the expiration or earlier termination of this Lease
or Tenant's right to possession hereunder. Tenant shall repair any damage caused
by such removal, including the patching of any holes to match, as closely as
possible, the color surrounding the area where the equipment and appurtenances
were attached. Tenant agrees to maintain all of the Tenant's Dish/Antenna
equipment placed on or about the roof or in any other part of the Building in
proper operating condition and maintain same in satisfactory condition as to
appearance, in Landlord's sole discretion, and satisfactory condition as to
safety, in Landlord's reasonable discretion. Such maintenance and operation
shall be performed in a manner to avoid any interference with any other tenants
or Landlord. Tenant agrees that at all times during the Lease Term, it will keep
the
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<PAGE> 48
roof of the Building and the Roof Space free of all trash or waste materials
produced by Tenant or Tenant's agents, employees or contractors.
7. In light of the specialized nature of the Dish/Antenna, Tenant
shall be permitted to utilize the services of its choice for installation,
operation, removal and repair of the Dish/Antenna, the appurtenances and the
Aesthetic Screening, if any, subject to the reasonable approval of Landlord.
Notwithstanding the foregoing, Tenant must provide Landlord with prior written
notice of any such installation, removal or repair and coordinate such work with
Landlord in order to avoid voiding or otherwise adversely affecting any
warranties granted to Landlord with respect to the roof. If necessary, Tenant,
at its sole cost and expense, shall retain any contractor having a then existing
warranty in effect on the roof to perform such work (to the extent that it
involves the roof), or, at Tenant's option, to perform such work in conjunction
with Tenant's contractor. In the event the Landlord contemplates roof repairs
that could affect Tenant's Dish/Antenna, or which may result in an interruption
of the Tenant's telecommunication service, Landlord shall formally notify Tenant
at least thirty (30) days in advance (except in cases of an emergency) prior to
the commencement of such contemplated work in order to allow Tenant to make
other arrangements for such service.
8. Tenant shall not allow any provider of telecommunication, video,
data or related services ("Communication Services") to locate any equipment on
the roof of the Building or in the Roof Space for any purpose whatsoever, nor
may Tenant use the Roof Space and/or Dish/Antenna to provide Communication
Services to an unaffiliated tenant, occupant or licensee of another building, or
to facilitate the provision of Communication Services on behalf of another
Communication Services provider to an unaffiliated tenant, occupant or licensee
of the Building or any other building.
9. Tenant acknowledges that Landlord may at some time establish a
standard license agreement (the "License Agreement") with respect to the use of
roof space by tenants of the Building. Tenant, upon request of Landlord, shall
enter into such License Agreement with Landlord provided that such agreement is
reasonably acceptable to Tenant and does not materially alter the rights of
Tenant hereunder with respect to the Roof Space.
10. Tenant specifically acknowledges and agrees that the terms and
conditions of Article 18 of the Lease (Indemnity and Waiver of Claims) shall
apply with full force and effect to the Roof Space and any other portions of the
roof accessed or utilized by Tenant, its representatives, agents, employees or
contractors.
11. If Tenant defaults under any of the terms and conditions of this
Section or the Lease, and Tenant fails to cure said default within the time
allowed by Article 25 of the Lease, Landlord shall be permitted to exercise all
remedies provided under the terms of the Lease, including removing the
Dish/Antenna, the appurtenances and the Aesthetic Screening, if any, and
restoring the Building and the Roof Space to the condition that existed prior to
the installation of the Dish/Antenna, tile appurtenances and the Aesthetic
Screening, if any. If Landlord removes the Dish/Antenna, the appurtenances and
the Aesthetic Screening, if any, as a result of an uncured default, Tenant shall
be liable for all costs and expenses Landlord incurs in removing the
Dish/Antenna, the appurtenances and the Aesthetic Screening, if any, and
repairing any damage to the Building, the roof of the Building and the Roof
Space caused by the installation, operation or maintenance of the Dish/Antenna,
the appurtenances, and the Aesthetic Screening, if any.
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<PAGE> 49
12. Tenant shall be allowed to install fiber optics and related
equipment in the Building for Tenant's personal use, the design, location, and
operating characteristics of which shall be subject to Landlord's reasonable
approval.
T. Environmental.
(1) Hazardous Materials. Tenant shall not bring on to the Property any
hazardous substances or materials except those used for normal office purposes,
and Tenant shall not (either with or without negligence) cause or permit the
escape, disposal or release of any biologically or chemically active or other
hazardous substances, or materials in violation of any applicable environmental
laws. Tenant shall not knowingly allow the storage or use of such substances or
materials in any manner not sanctioned by law or by the highest standards
prevailing in the industry for the storage and use of such substances of
materials, nor allow to be brought into the Project any such materials or
substances except to use for general office purposes and the other permitted
uses in the ordinary course of Tenant's business. Without limitation, hazardous
substances and materials shall include those described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., any applicable state or local laws and the
regulations adopted under these acts. If any governmental agency or lender (in
its reasonable judgment) shall ever require testing to ascertain whether or not
there has been any release of hazardous materials and as a result of such
testing it is determined that Tenant has violated any of the terms and
conditions of this section, then, in addition to any other rights and remedies
available hereunder or at law or in equity, the reasonable costs of such testing
shall be reimbursed by Tenant to Landlord upon demand as additional charges. In
addition, Tenant shall execute affidavits, representations and the like from
time to time at Landlord's request concealing Tenant's best knowledge and belief
regarding the presence of hazardous substances or materials on the Premises. In
all events, Tenant shall indemnify Landlord in the manner elsewhere provided in
this Lease from any release of hazardous materials on the Premises caused by
Tenant or persons acting under Tenant. The within covenants shall survive the
expiration or earlier termination of the Lease Term.
(2) Landlord's Representation. To the actual knowledge of Landlord,
neither the Building nor the Property contains any hazardous substances or
materials in excess of levels permitted by applicable laws.
U. Storage Space. A limited amount of storage space, on a first-come
first-serve basis is available in the Building garage. If Available, Tenant may
lease up to 2,000 square feet of storage space. The rate for storage space shall
initially be $12.00 per usable square foot per year, increasing each year by the
increase in the Index as defined in Section 1(A)6.
V. Consent. Landlord and Tenant confirm that in all cases where consent or
approval shall be required of either Tenant or Landlord pursuant to the Lease,
the granting of such consent shall not be unreasonably withheld or delayed by
the party from whom such consent is required, unless otherwise specified in the
Lease.
W. Year 2000 Compliant. Landlord agrees to use commercially reasonable
efforts to: (i) investigate with its management and vendors the ability of the
computer time clocks and software which operate and/or control the Building
equipment and tenant billings to continue to
50
<PAGE> 50
operate without unreasonable interruption or disruption after January 1, 2000
(the "Millennium Assessment"); and (ii) undertake commercially reasonable
measures to address any potential problems identified by the Millennium
Assessment so as to avoid, to the extent reasonably possible, unreasonable
interruption and/or disruption to the operation of the Building equipment and
tenant billings. The Millennium Assessment shall include an assessment of the
Building elevators, mechanical equipment, life safety systems, invoice billing
and any other devices or software which are necessary for the operation of the
Building in accordance with the provisions of the Lease. Tenant and Landlord
acknowledge that, notwithstanding Landlord's commercially reasonable efforts to
prevent the same, problems may occur in connection with the operation of the
Building's equipment and systems as a result of the Millennium and that such
problems, if any, will not excuse Tenant from fulfilling its duties and
obligations under the Lease, render Landlord liable for damages of any type or
nature or be considered a Landlord default under the Lease.
ARTICLE 39: ENTIRE AGREEMENT
This Lease Agreement, including the following Exhibits:
Exhibit A - Legal Description and Outline and Location of Premises
Exhibit A-1 - Legal Description of Property
Exhibit B - Rules and Regulations
Exhibit C - Commencement Letter
Exhibit D - Landlord's Work
Exhibit D-1 - Shell and Core and Landlord Provided Tenant Improvements
Exhibit D-2 - Plans and Specifications for Building
Exhibit E - Signage Criteria
Exhibit F - Tenant Equipment List and Electrical/HVAC Related
Specifications
Exhibit G - Subordination Agreement, Acknowledgement of Lease
Assignment, Estoppel, Attornment and Non-Disturbance
Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter of this Lease and supersedes all prior agreements and
understandings between the parties related to the Premises, including all lease
proposals, letters of intent and similar documents. TENANT EXPRESSLY
ACKNOWLEDGES AND AGREES THAT LANDLORD HAS NOT MADE AND IS NOT MAKING, AND
TENANT, IN EXECUTING AND DELIVERING THIS LEASE, IS NOT RELYING UPON, ANY
WARRANTIES, REPRESENTATIONS, PROMISES OR STATEMENTS, EXCEPT TO THE EXTENT THAT
THE SAME ARE EXPRESSLY SET FORTH IN THIS LEASE. ALL UNDERSTANDINGS AND
AGREEMENTS HERETOFORE MADE BETWEEN THE PARTIES ARE MERGED IN THIS LEASE WHICH
ALONE FULLY AND COMPLETELY EXPRESSES THE AGREEMENT OF THE PARTIES, NEITHER PARTY
RELYING UPON ANY STATEMENT OR REPRESENTATION NOT EMBODIED IN THIS LEASE. THIS
LEASE MAY BE MODIFIED ONLY BY A WRITTEN AGREEMENT SIGNED BY LANDLORD AND TENANT
51
<PAGE> 51
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
LANDLORD: WRC SUNSET NORTH LLC, a Washington
limited liability company
By: EOP SUNSET NORTH, L.L.C., a Delaware
limited liability company, its manager
By: EOP OPERATING LIMITED PARTNERSHIP,
a Delaware limited partnership,
its sole member
By: EQUITY OFFICE PROPERTIES TRUST,
a Maryland real estate
investment trust, its managing
general partner
By: [Signature Illegible]
----------------------------
Its: SVP
---------------------------
By: WRIGHT RUNSTAD ASSOCIATED LIMITED
PARTNERSHIP, a Washington limited
partnership its manager
By: WRIGHT RUNSTAD & COMPANY, a
Washington corporation, its sole
general partner
By: [Signature Illegible]
----------------------------
Its: [Illegible]
---------------------------
TENANT: BSQUARE Corporation, a Washington
corporation
By: [Signature Illegible]
--------------------------------
Its: CEO
--------------------------------
52
<PAGE> 52
LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, do hereby certify that Jon F. Nordby, personally known to me to be
the Executive V.P. of Wright Runstad & Company, the general partner of Wright
Runstad Associates Limited Partnership, a Member of WRC SUNSET NORTH LLC, a
Washington limited liability company, the Landlord in the foregoing instrument,
and personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that as such officer of said entity being authorized so to do, he executed the
foregoing instrument on behalf of said entity, by subscribing the name of such
entity by himself as such officer, as a free and voluntary act, and as the free
and voluntary act and deed of said entity under the foregoing instrument for the
uses and purposes therein set forth.
GIVEN under my hand and official seal this 15th day of January, 1999.
Notary Public: /s/ THOMAS E. DIXON
-------------------------
Printed Name: THOMAS E. DIXON
--------------------------
Residing at: Seattle
---------------------------
My Commission expires: 2-28-01
-----------------
[SEAL]
STATE OF WASHINGTON )
) ss. SEE ATTACHED NOTARY PAGE
COUNTY OF KING )
GIVEN under my hand and official seal this _____ day of January, 1999.
Notary Public:
-------------------------
Printed Name:
--------------------------
Residing at:
---------------------------
My Commission expires:
-----------------
53
<PAGE> 53
Attachment to Page 53
of Lease Agreement between
WRC Sunset North LLC and BSquare Corporation
STATE OF COLORADO )
) ss
County of Arapahoe )
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, do hereby certify that Kim J. Koehn, personally known to me to be the
Senior Vice President of Equity Office Properties Trust, the general partner of
EOP Operating Limited Partnership, the sole member of EOP Sunset North, L.L.C.,
the manager of WRC Sunset North LLC, a Washington limited liability company, the
Landlord in the foregoing instrument, and personally known to me to be the same
person whose name is subscribed to the foregoing instrument, appeared before me
this day in person and acknowledged that as such office of said entity being
authorized so to do, he executed the foregoing instrument on behalf of said
entity, by subscribing the name of such entity by himself as such officer, as a
free and voluntary act, and as the free and voluntary act and deed of said
entity under the foregoing instrument for the uses and purposes therein set
forth.
GIVEN under my hand and official seal this 26th day of January 1999.
/s/ PATRICIA ANN REICHLE
[SEAL] ----------------------------------------
Patricia Ann Reichle, Notary Public
Residing at: Castle Rock, Colorado
My Commission expires: January 14, 2001
<PAGE> 54
TENANT ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this the 15th day of January, 1999, before me a Notary Public duly
authorized in and for the said County in the State aforesaid to take
acknowledgments personally appeared William Baxter, known to me to be CEO of
BSQUARE CORPORATION the Tenant in the foregoing instrument, and acknowledged
that as such officer, being authorized so to do, (s)he executed the foregoing
instrument on behalf of said corporation by subscribing the name of such
corporation by himself/herself as such officer and caused the corporate seal of
said corporation to be affixed thereto, as a free and voluntary act, and as the
free and voluntary act of said corporation, for the uses and purposes therein
set forth.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
Notary Public: /s/ CAMILLA J. ALSON
-------------------------
Printed Name: CAMILLA J. ALSON
--------------------------
Residing at: Bellevue, WA
---------------------------
My Commission expires: 6-6-2002
-----------------
54
<PAGE> 55
EXHIBIT A
PREMISES
This Exhibit is attached to and made a part of the Lease dated as of
January 15, 1999, by and between WRC SUNSET NORTH LLC, a Washington limited
liability company ("Landlord") and BSQUARE CORPORATION, a Washington corporation
("Tenant") for space on the third (3rd), fourth (4th) and fifth (5th) floors in
Building Four (4) located at the Northeast corner of 139th Avenue Southeast and
Southeast 32nd Street, Bellevue, King County, Washington. The legal description
for the property upon which the Premises is located is set forth on Exhibit A-1,
attached hereto and incorporated herein by this reference. The Premises is
outlined on Exhibit A-2 and A-3 attached hereto and incorporated herein by this
reference.
Exhibit A
<PAGE> 56
EXHIBIT A-1
LEGAL DESCRIPTION OF PROPERTY
This Exhibit is attached to and made a part of the Lease dated as of
January 15, 1999, by and between WRC SUNSET NORTH LLC, a Washington limited
liability company ("Landlord") and BSQUARE CORPORATION, a Washington corporation
("Tenant") for space on the third (3rd), fourth (4th) and fifth (5th) floors in
Building Four (4) located at the Northeast corner of 139th Avenue Southeast and
Southeast 32nd Street, Bellevue, King County, Washington.
LOTS 6 THROUGH 10 OF SUNSET RIDGE I-90 CORPORATE CAMPUS, A BINDING
SITE PLAN, AS PER PLAT RECORDED IN VOLUME 154 OF PLATS, PAGES 77
THROUGH 80, RECORDS OF KING COUNTY;
EXCEPT ANY PORTION CONVEYED FOR 139TH AVE. S.E., BY DEED RECORDED
UNDER RECORDING NO. 9101280422;
TOGETHER WITH AN UNDIVIDED 60% INTEREST IN LOT 11 AND TRACT C OF SAID
PLAT;
AND TOGETHER WITH THOSE CERTAIN EASEMENT RIGHTS AS DELINEATED IN
INSTRUMENT RECORDED UNDER RECORDING NO. 9601091040;
AND TOGETHER WITH THOSE CERTAIN EASEMENT RIGHTS AS DELINEATED IN
INSTRUMENT RECORDED UNDER RECORDING NO. 9107260572;
AND TOGETHER WITH THOSE CERTAIN EASEMENT RIGHTS AS DELINEATED IN
INSTRUMENT RECORDED UNDER RECORDING NO. 9309292404;
SITUATE IN THE CITY OF BELLEVUE, COUNTY OF KING, STATE OF WASHINGTON.
Exhibit A1-1
<PAGE> 57
EXHIBIT A-2
Floors 3 and 4
[FLOOR PLAN]
<PAGE> 58
EXHIBIT A-3
Floor 5
[FLOOR PLAN]
<PAGE> 59
EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply, where applicable, to the
Premises, the Building, the parking garage associated therewith (if any), the
Property and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways and other similar
areas shall not be obstructed by Tenant or used by Tenant for any purpose other
than ingress and egress to and from the Premises. No rubbish, litter, trash, or
material of any nature shall be placed, emptied, or thrown in those areas.
2. Plumbing fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or placed therein. Damage resulting to any such fixtures or
appliances from misuse by Tenant or its agents, employees or invitees, shall be
paid for by Tenant, and Landlord shall not in any case be responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on or to
any windows, doors or other parts of the Building, except those of such color,
size, style and in such places as shall be first approved in writing by
Landlord. No nails, hooks or screws shall be driven or inserted into any part of
the Premises or Building except for normal decoration, nor shall any part of the
Building be defaced by Tenant.
4. Landlord shall provide and maintain in the first floor (main lobby) of
the Building an alphabetical directory board listing all Tenants, and no other
directory shall be permitted unless previously consented to by Landlord in
writing.
5. Tenant will install proprietary locks on the doors to the perimeter of
the Premises and provide a reasonable number of keys to those doors to the
Landlord. Tenant shall have the right to place any additional locks on any
interior doors of Premises without notice to or approval of Landlord, and
without providing Landlord keys thereto; provided that Landlord shall be
provided a reasonable number of keys to those interior doors in the Premises
controlling access to Building mechanical, electrical and fire protection
systems and shall be provided access at all times for emergency and maintenance
purposes. All keys shall be returned to Landlord at the expiration or earlier
termination of this Lease.
6. All contractors, contractor's representatives, and installation
technicians performing work in the Building shall be subject to Landlord's prior
approval, which shall not be unreasonably withheld or delayed, and shall be
required to comply with Landlord's standard rules, regulations, policies and
procedures, as the same may be revised from time to time. Tenant shall be solely
responsible for complying with all applicable laws, codes and ordinances
pursuant to which said work shall be performed.
7. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by Tenant of any merchandise or materials which require the
use of elevators, stairways, lobby areas, or loading dock areas, shall be
restricted to hours reasonably designated by Landlord. If approved by Landlord,
such activity shall be under the supervision of Landlord and performed in the
manner stated by Landlord. Landlord may reasonably prohibit any article,
Exhibit B-1
<PAGE> 60
equipment or any other item from being brought into the Building. Tenant is to
assume all risk for damage to articles moved and injury to any persons resulting
from such activity. If any equipment, property, and/or personnel of Landlord or
of any other tenant is damaged or injured as a result of or in connection with
such activity, Tenant shall be solely liable for any and all damage or loss
resulting therefrom.
8. Landlord shall have the power to prescribe the weight and position of
safes and other heavy equipment or items, which in all cases shall not in the
opinion of Landlord exceed acceptable floor loading and weight distribution
requirements. All damage done to the Building by the installation, maintenance,
operation, existence or removal of any property of Tenant shall be repaired at
the expense of Tenant.
9. Corridor doors, when not in use, shall be kept closed.
10. Tenant shall not: (1) make or permit any improper, objectionable or
unpleasant noises or odors in the Building, or otherwise interfere in any way
with other tenants or persons having business with them; (2) solicit business or
distribute, or cause to be distributed, in any portion of the Building any
handbills, promotional materials or other advertising; or (3) conduct or permit
any other activities in the Building that might constitute a nuisance.
11. No animals, except seeing eye dogs, shall be brought into or kept in,
on or about the Premises.
12. No inflammable, explosive or dangerous fluid or substance (other than
normal office supplies and cleaning compounds) shall be used or kept by Tenant
in the Premises or Building. Tenant shall not, without Landlord's prior written
consent and except for normal office supplies and cleaning compounds, use,
store, install, spill, remove, release or dispose of within or about the
Premises or any other portion of the Property, any asbestos-containing materials
or any solid, liquid or gaseous material now or hereafter considered toxic or
hazardous under the provisions of 42 U.S.C. Section 9601 et seq. or any other
applicable environmental law which may now or hereafter be in effect. If
Landlord does give written consent to Tenant pursuant to the foregoing sentence,
Tenant shall comply with all applicable laws, rules and regulations pertaining
to and governing such use by Tenant, and shall remain liable for all costs of
cleanup or removal in connection therewith.
13. Tenant shall not use or occupy the Premises in any manner or for any
purpose which would injure the reputation or impair the present or future value
of the Premises or the Building; without limiting the foregoing, Tenant shall
not use or permit the Premises or any portion thereof to be used for lodging,
sleeping or for any illegal purpose.
14. Tenant shall not take any action which would knowingly violate
Landlord's labor contracts affecting the Building or which would cause any work
stoppage, picketing, labor disruption or dispute, or any interference with the
business of Landlord or any other tenant or occupant of the Building or with the
rights and privileges of any person lawfully in the Building. Tenant shall take
any actions necessary to resolve any such work stoppage, picketing, labor
disruption, dispute or interference and shall have pickets removed and, at the
request of Landlord, immediately terminate at any time any construction work
being performed in the Premises giving rise to such labor problems, until such
time as Landlord shall have given its written consent for such work to resume.
Tenant shall have no claim for damages of any nature
Exhibit B-2
<PAGE> 61
against Landlord or any of the Landlord Related Parties in connection therewith,
nor shall the date of the commencement of the Term be extended as a result
thereof.
15. Tenant shall utilize the termite and pest extermination service
designated by Landlord to control termites and pests in the Premises. Except as
included in Basic Costs, Tenant shall bear the cost and expense of such
extermination services.
16. Tenant shall not install, operate or maintain in the Premises or in any
other area of the Building, any electrical equipment which does not bear the U/L
(Underwriters Laboratories) seal of approval, or which would overload the
electrical system or any part thereof beyond its capacity for proper, efficient
and safe operation as determined by Landlord, taking into consideration the
overall electrical system and the present and future requirements therefor in
the Building. Tenant shall not furnish any cooling or heating to the Premises,
including, without limitation, the use of any electronic or gas heating devices,
without Landlord's prior written consent. Tenant shall not use more than its
proportionate share of telephone lines available to service the Building.
17. Tenant shall not operate or permit to be operated on the Premises any
coin or token operated vending machine or similar device (including, without
limitation, telephones, lockers, toilets, scales, amusement devices and machines
for sale of beverages, foods, candy, cigarettes or other goods), except for
those vending machines or similar devices which are for the sole and exclusive
use of Tenant's employees.
18. Bicycles and other vehicles are not permitted inside or on the walkways
outside the Building, except in those areas specifically designated by Landlord
for such purposes. Landlord shall provide in the common areas of the Building a
bicycle rack.
19. Landlord may from time to time adopt appropriate systems and procedures
for the security or safety of the Building, its occupants, entry and use, or its
contents. Tenant, Tenant's agents, employees, contractors, guests and invitees
shall comply with Landlord's reasonable requirements relative thereto.
20. Landlord shall have the right to prohibit publicity by Tenant that in
Landlord's opinion may tend to impair the reputation of the Building or its
desirability for Landlord or other tenants. Upon written notice from Landlord,
Tenant will refrain from and/or discontinue such publicity immediately.
21. Tenant shall carry out Tenant's permitted repair, maintenance,
alterations, and improvements in the Premises only during times reasonably
agreed to in advance by Landlord and in a manner which will not interfere with
the rights of other tenants in the Building.
22. Canvassing, soliciting, and peddling in or about the Building is
prohibited. Tenant shall cooperate and use its best efforts to prevent the same.
23. At no time shall Tenant permit or shall Tenant's agents, employees,
contractors, guests, or invitees smoke in any common area of the Building,
unless such common area has been declared a designated smoking area by Landlord
(and Landlord agrees to designate one or more dry smoking area(s) in the common
areas of the Building or the garage), or to allow any
Exhibit B-3
<PAGE> 62
smoke from the Premises to emanate into the common areas or any other tenant's
premises (other than from Landlord's designated smoking areas).
24. Tenant shall observe Landlord's rules with respect to maintaining
standard window coverings at all windows in the Premises so that the Building
presents a uniform exterior appearance. Tenant shall ensure that to the extent
reasonably practicable, window coverings are closed on all windows in the
Premises while they are exposed to the direct rays of the sun.
25. Tenant shall not permit the process of deliveries to or from the
Premises to occur in a manner which will unreasonably interfere with the use by
any other tenant of its premises or of any common areas, any pedestrian use of
such area, or any use which is inconsistent with good business practice.
Landlord will make available reasonable areas and accesses for deliveries to and
from the Premises and Building.
26. The work of cleaning personnel shall not be hindered by Tenant after
6:00 p.m. windows, doors and fixtures may be cleaned at any time with reasonable
prior notice to Tenant. Tenant shall provide adequate waste and rubbish
receptacles necessary to prevent unreasonable hardship to Landlord regarding
cleaning service.
Exhibit B-4
<PAGE> 63
EXHIBIT C
COMMENCEMENT LETTER
Date
Tenant
Address
Re: Commencement Letter with respect to that certain Lease dated
_____________________ by and between WRC SUNSET NORTH LLC as Landlord, and
BSQUARE CORPORATION, a Washington corporation as Tenant, for approximately
ninety-four thousand one hundred eighty-two (94,182) square feet of Rentable
Area on the third (3rd), fourth (4th) and fifth (5th) floors of the Building
located at the Northeast corner of 139th Avenue Southeast and Southeast 32nd
Street, Bellevue, King County, Washington.
Dear :
In accordance with the terms and conditions of the above referenced Lease,
Tenant hereby accepts possession of the Premises and agrees as follows:
1. The Commencement Date of the Lease is _________________________________;
2. The Termination Date of the Lease is _________________________________.
Please acknowledge your acceptance of possession and agreement to the terms set
forth above by signing all three (3) copies of this Commencement Letter in the
space provided and returning two (2) fully executed copies of the same to my
attention.
Sincerely,
Property Manager
Agreed and Accepted:
Tenant:
By:
Name:
Title:
Date:
Exhibit C
<PAGE> 64
EXHIBIT D
WORK LETTER AGREEMENT
The parties to this Work Letter Agreement ("AGREEMENT") are WRC SUNSET
NORTH LLC, a Washington limited liability company ("LANDLORD") and BSQUARE
CORPORATION, a Washington corporation ("TENANT"). Landlord and Tenant are
parties to that certain Lease Agreement dated as of January 15, 1999 (the "
LEASE") for space on the third (3rd), fourth (4th) and fifth (5th) floors in
Building Four (4) of the Sunset North Corporate Campus located at the Northeast
corner of 139th Avenue Southeast and Southeast 32nd Street, Bellevue, King
County, Washington. The Premises are more particularly described in the Lease.
Defined terms used in this Agreement shall have the same meanings given
them in the Lease.
I. IMPROVEMENTS PROVIDED BY LANDLORD: Landlord agrees to provide improvements to
the Building and the Premises pursuant to the attached Exhibit 1, Base Building
Condition, and plans and specifications listed on Exhibit 2.
II. IMPROVEMENTS BY TENANT/REIMBURSEMENT BY LANDLORD: Design and construction of
all improvements in the Initial Premises beyond those listed in Exhibit 1 shall
be provided at Tenant's expense, provided Landlord shall pay the Allowance
defined below. Landlord shall provide Tenant with an allowance of Thirty and
no/100 Dollars ($30.00) (tenant improvements allowance) plus Zero and 15/100
Dollars ($0.15) (space plan allowance) per square foot of usable area in the
Initial Premises (the "ALLOWANCE"). The Allowance may be applied to costs of
designing and constructing the Tenant Improvements, Tenant's signage costs and
the acquisition and installation of Tenant's furniture, fixture and equipment.
The Allowance shall be paid as provided in Paragraph 6B of the Lease. Any unused
portion of the Allowance may be taken as a credit against Rent or may be applied
to additional build-out, wiring or cabling costs, as Tenant may elect. Any costs
of constructing Tenant Improvements in excess of the Allowance shall be borne
solely by Tenant.
Landlord shall obtain all permits and government approvals and assume
specific responsibility for delivery of the Premises as defined in the Lease and
this Agreement, provided Tenant shall have met the drawing delivery dates
herein. If Shell and Core Contractor is not initially selected to construct the
Initial Tenant Improvements, then Landlord shall manage the bidding of tenant
improvements to at least three (3) firms acceptable to. Landlord, one of which
shall be the Shell and Core Contractor. The contractor selected by Tenant to
construct the Tenant Improvements shall be hereinafter known as the "TENANT
IMPROVEMENT CONTRACTOR."
III. BUILDING STANDARD IMPROVEMENTS: Tenant shall use Building Standard
lighting, window coverings, doors, relites, hardware, ceiling treatment and
heating, ventilating and air conditioning distribution equipment and controls.
IV. DESIGN OF TENANT IMPROVEMENTS: Tenant, at Tenant's cost and with the
approval of Landlord, has retained JPC, Incorporated ("TENANT'S OFFICE PLANNER")
to prepare the necessary drawings for Basic Plans and supply the information
necessary to complete the Working Drawings and Engineering Drawings referred to
in Section IV(B) of this Agreement for construction of the tenant improvements
in Tenant's area. All Tenant's Plans shall be subject to
Exhibit D - Page 1
<PAGE> 65
approval of Landlord (not to be unreasonably withheld or delayed) in accordance
with Section IV(C) of this Agreement, and Landlord agrees to respond in writing
with approval or comments within five (5) business days after receipt of each
component of Tenant's Plans.
Tenant's Office Planner shall ensure that the work shown on Tenant's Plans
is compatible with the basic Building Plans and that necessary basic Building
modifications are included in Tenant's Plans. Such modifications shall be
subject to Landlord approval. If such approved basic Building modifications are
made subsequent to completion of the shell and core documents or Landlord's
Architect reasonably charges Landlord for such changes, then such modifications
shall be subject to Landlord's approval and the cost of the changes to the
documents as well as any increased shell and core construction costs shall be
paid by Tenant.
On or before the indicated dates, Tenant shall supply Landlord with one (1)
reproducible copy and five (5) black line prints of the following Tenant Plans
with respect to the Tenant Improvements in the Initial Premises and in any other
portion of the Premises constructed at the same time as those in the Initial
Premises:
A. BASIC PLANS DELIVERY DATE: JANUARY 22, 1999
The Basic Plans due on this date shall be signed by Tenant and
include:
Architectural Floor Plans: These shall be fully dimensioned floor
plans showing partition layout and identifying each room with a number and each
door with a number. The Basic Plans must clearly identify and locate equipment
requiring plumbing or other special mechanical systems, area(s) subject to
above-normal floor loads, special openings in the floor, and other major or
special features.
B. WORKING DRAWINGS DELIVERY DATE: FEBRUARY 22, 1999
On this date and at Tenant's expense, Tenant's Office Planner shall
produce four (4) sets of Full Working Drawings for construction from the Basic
Plans using the Pin Bar or CADD System, which system shall be approved by
Landlord for compatibility with the other Building drawings. The four (4) sets
of Working Drawings due on this date shall be sufficient to obtain all necessary
permits, shall be signed by the Tenant and shall include all items in the Basic
Plans referenced in Section IV(A) above plus the following additional
information:
(1) Electrical and Telephone Outlets: Locate all power and telephone
requirements: Dimension the position from a corner and give height above
concrete slab for all critically located outlets. Identify all dedicated
circuits and identify all power outlets greater than 120 volts. For the
equipment used in these outlets which require dedicated circuits and/or which
require greater than 120 volts, identify the type of equipment, the
manufacturer's name and the manufacturer's model number, and submit a brochure
for each piece of equipment. Also identify the manufacturer's name of the phone
system to be used and the power requirements, size, and location of its
processing equipment.
(2) Reflected Ceiling Plan: Lighting layout showing location and type
of all Building Standard and special lighting fixtures.
(3) Furniture Layout: Layout showing furniture location so that
Landlord's engineer can review the location of all light fixtures.
Exhibit D - Page 2
<PAGE> 66
The Allowance shall be applied to the cost of the engineers retained by Tenant's
Office Planner. The Allowance shall also be applied to any necessary review of
the Engineering Drawings by Landlord's shell and core engineers: electrical
(Holmes Electric), mechanical (McDonald Miller) and structural plans (KPFF)
(Engineering Drawings) for Tenant's improvements based on the signed Working
Drawings.
C. FINAL PLANS REVIEW DATE: MARCH 26, 1999
On this date, Tenant's Office Planner shall deliver to Landlord and
Tenant for review and approval four (4) complete sets of Final Plans which shall
be sufficient for purposes of obtaining construction bids and shall incorporate
the Working Drawings referenced in Section IV(B) above, plus the following
additional information:
(1) Millwork Details: These drawings shall be in final form with
Tenant's Office Planner's title block along the right border of the drawing, and
shall include construction details of all cabinets, paneling, trim, bookcases,
and door and jamb details for non-Building Standard doors and jambs.
(2) Keying Schedules and Hardware Information: This information shall
be in final form and include a preliminary Keying Schedule indicating which
doors are locked, plus an "X" on the side of the door where the key will be
inserted if a keyed door. Complete specifications for all non-Building Standard
hardware will also be provided. The final keying schedule will be completed by
March 26, 1999.
(3) Room Finish and Color Schedule: This information shall be in final
form and include locations and specifications for all wall finishes, floor
covering and base for each room.
(4) Construction Notes and Specifications: Complete specifications for
every item included except those specified by the Landlord.
D. FINAL PLANS DELIVERY DATE: APRIL 1, 1999
The four (4) sets of Final Plans approved by Landlord and Tenant and
due on this date shall include all the Final Plans referenced in Section IV(C)
above. Final Plans are to be signed by Tenant and delivered to Landlord by the
Final Plans Delivery Date. Landlord shall return one (1) signed set to Tenant
for Tenant's records. Landlord will incorporate or submit Engineering Drawings
with Tenant's Final Plans for transmittal to. the Shell and Core Contractor.
Tenant shall be responsible for delays and additional costs in
completion of the Tenant Improvements incurred as a result of changes made to
any of Tenant's Plans after the specified Plan Delivery Date, delays caused by
Tenant's failure to comply with the Plan Delivery Dates, Tenant's failure to
provide adequate specifications or information for the completion of Tenant's
Plans, or by delays caused by Tenant's specification of special materials; but
only to the extent any of the foregoing delays or prevents critical path work or
adversely affects completion.
V. CONSTRUCTION OF TENANT IMPROVEMENTS
A. AUTHORIZATION TO PROCEED. Upon completion of Tenant's Final Plans, the
Final Plans will be submitted to Shell and Core Contractor and, if not initially
selected, then to at least two (2) other contractors acceptable to Landlord and
Tenant for pricing. Those contractors shall
Exhibit D - Page 3
<PAGE> 67
have at least two (2) weeks to provide their bid proposal with respect to
completion of the Initial Tenant Improvement Work pursuant to the Final Plans.
The final construction contract to be entered into between Landlord and the
Tenant Improvement Contractor (including, but not limited to, the guaranteed
maximum price to be contained therein) shall also be subject to Tenant's review
and approval, such approval not to be unreasonably withheld. Landlord and Tenant
shall review all pricing documentation received from the bidding tenant
improvement contractors, including sub bids, quantities, and unit prices. Within
ten (10) days of receipt of such prices and prior to execution of the Initial
Tenant Improvements construction contract, Tenant shall give Landlord written
authorization to complete the Premises in accordance with such Final Plans and
naming the Tenant Improvement Contractor. Tenant may in such authorization
delete any or all items of extra cost; however if the Shell and Core Contractor
is selected, then if Landlord deems these changes to be extensive, at its
option, Landlord may within three (3) business days of Tenant's written
authorization refuse to accept the authorization to proceed until all changes
have been incorporated in the Final Plans signed by Tenant and written
acceptance of the revised price has been received by Landlord from Tenant. In
the absence of such written authorization to proceed and if Landlord's
contractor is selected, then Landlord shall not be obligated to commence work on
the Premises and Tenant shall be responsible for any costs due to any resulting
delay in completion of the Premises and as provided in Section 3(A) of the
Lease.
B. PAYMENTS. Refer to Section 6(B) from the body of the Lease.
C. FINAL PLANS AND MODIFICATIONS. If Tenant shall request any change after
the Final Plans are submitted, Tenant shall request such change in writing to
Landlord and such request shall be accompanied by all plans and specifications
necessary to show and explain changes from the approved Final Plans. After
receiving this information, Landlord shall give Tenant within five (5) business
days a written price for the cost of engineering design services and an estimate
of construction costs to incorporate the change in Tenant's Final Plans. If
Tenant approves such price in writing within five (5) business days, Tenant
shall within five (5) business days have such Final Plans changes made to
engineering drawings and Tenant shall have changes made to other Final Plan
design documents. Within three (3) business days after completion of such
changes in the Final Plans, Landlord shall provide Tenant a written breakdown of
the final costs, if any, which shall be chargeable or credited to Tenant for
such change, addition or deletion and any impact such changes shall have on the
schedule. Landlord shall not charge for its services in relation to any such
modifications unless such modifications constitute material change to Tenants'
Final Plans. Apart from any fee due with respect to such material changes,
Landlord shall not charge Tenant a construction management fee for Landlord's
work on the Tenant Improvements. If Tenant wishes to proceed with such changes,
Tenant shall within five (5) business days to notify Landlord in writing. In the
absence of such notice, Landlord shall proceed in accordance with the previously
approved Final Plans before such change, addition or deletion was requested. In
accordance with Section 3(A) of the Lease, Tenant shall be responsible for any
resulting delay in completion of the Premises due to modification of Final
Plans. Tenant shall also be responsible for any demolition work required as a
result of the change.
D. IMPROVEMENTS CONSTRUCTED BY TENANT. If any work is to
be performed in connection with the Initial Tenant Improvements on the Premises
by Tenant or Tenant's contractor:
(1) Such work shall proceed upon Landlord's written approval (not to
be unreasonably withheld) of (i) Tenant's contractor, (ii) general liability and
property damage insurance satisfactory to Landlord carried by Tenant's
contractor, which insurance shall not be required to exceed levels carried by
Shell and Core Contractor, (iii) detailed plans and
Exhibit D - Page 4
<PAGE> 68
specifications for such work; and (iv) amount of general conditions directly
attributable to work performed by Tenant's contractor and approved in advance by
Tenant to be paid by Tenant to Landlord for the services still provided by Shell
and Core Contractor or Tenant Improvement Contractor.
(2) All work shall be done in conformity with a valid building permit
when required, a copy of which shall be furnished for Landlord before such work
is commenced, and in any case, all such work shall be performed in accordance
with all applicable governmental regulations. Notwithstanding any failure by
Landlord to object to any such work, Landlord shall have no responsibility for
Tenant's failure to meet all applicable regulations.
(3) All work by Tenant or Tenant's contractor shall be done with union
labor in accordance with all union labor agreements applicable to the trades
being employed, unless otherwise agreed to in writing by Landlord.
(4) All work by Tenant or Tenant's contractor shall be scheduled
through Landlord or, with Landlord's approval, directly with the Shell and Core
Contractor or Tenant Improvement Contractor. Landlord shall make best efforts to
accommodate work by Tenant or Tenant's contractor during times requested.
(5) Tenant or Tenant's contractor shall arrange for necessary utility,
hoisting and elevator service with the Shell and Core Contractor or the Tenant
Improvement Contractor and shall pay such reasonable charges for such services
as may be charged by the Shell and Core Contractor or the Tenant Improvement
Contractor. This will be included in the general conditions of Subsection
(1)(iv) above.
(6) Tenant shall promptly reimburse Landlord for costs incurred by
Landlord due to faulty work done by Tenant or its contractors, or by reason of
any delays caused by such work, or by reason of inadequate clean-up. Tenant
shall receive notice from Landlord and a reasonable opportunity to cure damages
prior to Landlord undertaking corrective action.
(7) Prior to commencement of any work on the Premises by Tenant or
Tenant's contractor, Tenant or Tenant's contractor shall enter into an indemnity
agreement and a lien priority agreement satisfactory to Landlord indemnifying
and holding harmless Landlord, any Mortgagees, and the Shell and Core Contractor
or the Tenant Improvement Contractor for any liability, losses or damages
directly or indirectly from lien claims affecting the land, the Building or the
Premises arising out of Tenant's or Tenant's contractor's work or that of
subcontractor or suppliers, and subordinating any such liens to the liens of
construction and permanent financing for the Building.
(8) Landlord shall have the right to post a notice or notices in
conspicuous places in or about the Premises announcing its non-responsibility
for the work being performed therein.
E. TENANT'S ENTRY TO PREMISES. Tenant's entry to the Premises for any
purpose, including without limitation, inspection or performance of Tenant
Construction by Tenant's agents, prior to the Commencement Date as specified in
Section 3(A) of the Lease shall be scheduled in advance with Landlord and shall
be subject to all the terms and conditions of the Lease, except the payment of
Rent and Additional Rent. Tenant's entry shall mean entry by Tenant, its
officers, contractors, Tenant's Office Planner, licensees, agents, servants,
employees, guests, invitees, or visitors. Landlord will make reasonable efforts
to accommodate Tenant's
Exhibit D - Page 5
<PAGE> 69
request for access to the Premises at all times. Tenant will supply Landlord
with a pre-approved list of individuals who will be allowed to have access to
the Premises prior to the Commencement Date.
F. TENANT'S TELEPHONE AND COMPUTER/DATA SERVICE. Tenant is responsible for
Tenant's telephone service, computer and data service, obtaining any applicable
permits, and related cabling. Tenant shall select and coordinate installation of
such communication and information systems with the Landlord pursuant to item
V(D)(4) of this Agreement.
IN WITNESS WHEREOF, Landlord and Tenant have executed this exhibit as of the
15th day of January, 1999.
LANDLORD: WRC SUNSET NORTH LLC, a Washington limited
liability company
By: EOP SUNSET NORTH, L.L.C., a Delaware
limited liability company, its manager
By: EOP OPERATING LIMITED PARTNERSHIP, a
Delaware limited partnership, its
sole member
By: EQUITY OFFICE PROPERTIES TRUST, a
Maryland real estate investment
trust, its managing general
partner
By:
-----------------------------
Its:
-----------------------------
By: WRIGHT RUNSTAD ASSOCIATED LIMITED
PARTNERSHIP, a Washington limited
partnership its manager
By: WRIGHT RUNSTAD & COMPANY, a
Washington corporation, its sole
general partner
By:
---------------------------------
Its:
---------------------------------
TENANT: BSQUARE CORPORATION, a Washington corporation
By:
---------------------------------
Its:
--------------------------------
Exhibit D - Page 6
<PAGE> 70
EXHIBIT D-1
SUNSET NORTH
Shell and Core and Landlord Provided
Tenant Improvements
Landlord shall provide bare shell and core floor ready for tenant improvements
as follows:
Building Standard restrooms completed.
Building Standard drinking fountains installed.
DRYWALL. Drywall installed around the core areas only and firetaped (excludes
drywall at the perimeter of the building and columns).
MAIN LOBBY. The main lobby serving the building is completed.
ELEVATOR LOBBY. All finishes are part of tenant improvements (except Building
Standard elevator doors, frames, and buttons).
LIFE SAFETY. Life safety includes fire sprinkler riser, code minimum tenant
distribution, central life safety system with Conduit, and wire to floor.
Dropping of heads, detectors, strobe lights, and speakers are part of
tenant improvements.
MECHANICAL. Mechanical includes the main system with medium pressure duct (the
main loop) serving the floor and return air systems. VAV boxes and low
pressure ductwork from main loop is a part of tenant improvements. The base
building will include a central automated system pursuant to which Tenant
may activate after hours HVAC from within the Premises, but Tenant's in
Premises link to that system will be part of tenant improvements.
ELECTRICAL. Electrical includes panels in the electrical closets based on a
design load as set forth on Exhibit F attached to the Lease. The main
system includes expansion capabilities for additional panels installed
during tenant improvements.
PERIMETER FINISHES. Perimeter finishes include the exterior of the building,
support structure, and insulation.
CEILING GRID. Ceiling grid and panels are excluded and considered tenant
improvements.
ELEVATORS AND STAIRWELLS. Elevators and stairwells (with Building Standard
finishes) serving the floor are completed.
Exhibit D-1 - Page 1
<PAGE> 71
EXHIBIT D-2
LIST OF BUILDING PLANS AND SPECIFICATIONS
Architectural Plans prepared by Zimmer Gunsal Frasca Partnership dated 8/10/98;
Civil Plans prepared by KPFF dated 8/10/98;
Landscape Plans prepared by The Berger Partnership dated 8/10/98;
Structural Plans prepared by KPFF dated 8/10/98;
HVAC Plans prepared by MacDonald-Miller dated 8/10/98;
Plumbing Plans prepared by MacDonald-Miller dated 8/10/98;
Electrical Plans prepared by Holmes Electric dated 8/10/98;
Fire Protection Plans prepared by Cosco dated 8/10/98.
Exhibit D-2 - Page 1
<PAGE> 72
EXHIBIT E
SIGNAGE CRITERIA
This Exhibit is attached to and made a part of the Lease dated as of
January 15, 1999, by and between WRC SUNSET NORTH LLC, a Washington limited
liability company ("Landlord") and BSQUARE CORPORATION, a Washington corporation
("Tenant") for space on the third (3rd), fourth (4th) and fifth (5th) floors in
Building Four (4) located at the Northeast corner of 139th Avenue Southeast and
Southeast 32nd Street, Bellevue, King County, Washington.
GENERAL
Tenant will have the right to place one sign on the west face of the Building.
Tenant will have the first choice of a location.
The components of all signs including size, design, and color and materials
shall be approved by Landlord and shall conform to the specific requirements
identified below. Tenant shall submit to the Landlord a preliminary drawing
showing the sign located on the Building's entire elevation and a dimensioned
drawing of the entire sign describing the size and character of the proposed
letters together with samples of all colors and materials prior to entering into
a final contract with a sign company. In no case shall a sign be fabricated or
installed without Tenant receiving the Landlord's approval and obtaining
Landlord's signature on a shop drawing(s) prior to fabrication.
BUILDING SIGNAGE CRITERIA
Shop drawings shall be fully dimensioned and indicate location, type of
lettering, illumination (if applicable), all colors and materials, and
specifications for the entire assembly, including details describing how the
sign will be mounted to the Building.
The sign shall consist of the Tenant's trade name and/or logo if the logo is a
part of Tenant's common trademark. The wording shall not include the product or
service sold except as part of the trade name.
The letter style and color may be proposed by the individual tenants.
Signs shall be internally illuminated and constructed of individual
letters/numerals with a translucent face and opaque back.
Maximum height shall be 24" for letters and logos.
Signage is limited to a maximum length of 16 lineal feet of signage, including
letter characters and symbols.
Exhibit E-1
<PAGE> 73
EXHIBIT E (CONT'D.)
SIGNAGE CRITERIA
All portions of any sign must be within 2'0" x 16'0" area centered horizontally
between specified columns. The lower edge of the letters shall all align 3"
above the lower edge of the panel. See Exhibit A attached.
No moving, flashing, or audible signs will be permitted.
The sign, including its raceway and letters, shall not project more than 13"
from the face of the panel to which it is mounted (8" for the raceway and 5" for
the letter). There shall be no overhanging signs or signage perpendicular to the
Building.
No signs shall be attached to the Building in other than the designated area.
There will be no exposed labels bearing the name of the sign contractor,
fabricator, or underwriter's approval.
All costs associated with the design, fabrication, installation, and maintenance
shall be paid by the Tenant.
Signs shall comply with all governing building and electrical codes and
regulations, and shall bear the UL label. Cost of obtaining all permits,
approvals, etc. required for installation shall be the responsibility of the
Tenant.
Electrical service to approved illuminated sign shall originate from the
Tenant's electrical panel.
Tenant shall pay the additional electrical cost.
Exhibit E-2
<PAGE> 74
EXHIBIT F
TENANT'S ELECTRICAL EQUIPMENT LIST
The electricity and the heating, ventilation and air-conditioning ("HVAC")
available to the Premises will be sufficient to support an average of two (2)
standard personal computer central processing units and two (2) monitors per
office, based on offices with an average size of 200 rentable square feet evenly
distributed throughout the Premises. Central computer rooms and laboratories are
NOT included in these calculations. Supporting calculations are as follows:
1. Based on the foregoing, Tenant's electrical loads have been calculated as
follows:
-1.2 Watts per square foot for the lighting load for electrical (code
requirement).
-5.0 Watts per square foot electrical load for tenant equipment (as defined
above).
6.2 Watts total electrical capacity needed.
2. Based on the foregoing, Tenant's HVAC loads have been calculated as
follows:
-1.2 Watts per square foot for the lighting load for HVAC (code
requirement).
-2.1 Watts per square foot for the HVAC load for tenant equipment (as
defined above).
3.3 Watts total HVAC capacity needed
3. The base building utilities design shall provide the following electrical
capacities:
-1.2 Watts per square foot is provided to meet maximum allowed by
Washington State Energy Code.
-6.0 Watts per square foot for tenant equipment loads.
7.2 Watts* total electrical capacity to be provided
*NOTE: An additional 4.0 Watts per square foot will be provided to power
the building HVAC System.
4. The base building utilities design shall provide the following HVAC
capacities:
-1.2 Watts per square foot is provided to meet maximum allowed by
Washington State Energy Code.
-2.8 Watts Per square foot for tenant equipment loads.
4.0 Watts total HVAC capacity to be provided.
Exhibit F-1
<PAGE> 75
In summary, based on the above-described level of electrical usage, the
base building will provide a surplus electrical load of 1.0 watts per square
foot (7.2-6.2) and a Surplus HVAC load of 0.7 watts per square foot (4.0-3.3).
Exhibit F-2
<PAGE> 76
EXHIBIT G
FORM OF SUBORDINATION AGREEMENT
RETURN NAME AND ADDRESS:
WELLS FARGO BANK, NATIONAL
ASSOCIATION
Real Estate Group, MAC 6101-121
1300 S.W. 5th Avenue, l2th Floor
Portland, OR 97201
Attn: M. K. Long
SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT,
ESTOPPEL, ATTORNMENT AND NON-DISTURBANCE AGREEMENT
GRANTORS: (1) WRC SUNSET NORTH LLC; (2) BSQUARE CORPORATION
GRANTEE: WELLS FARGO BANK, NATIONAL ASSOCIATION
LEGAL LOTS 6 THROUGH 10 AND AN UNDIVIDED INTEREST IN LOT 11 AND
DESCRIPTION: TRACT C OF SUNSET RIDGE I-90 CORPORATE CAMPUS, VOLUME 154 OF
PLATS, PAGES 77-80, KING COUNTY, WASHINGTON
Additional legal description is on Exhibit A of this
document.
ASSESSOR'S 813530-0060-02
PROPERTY TAX 813530-0070-00
PARCEL 813530-0080-08
ACCOUNT 813530-0090-06
NUMBER(S): 813530-0100-04
813530-0110-02
502880-0050-09
Exhibit G-1
<PAGE> 77
SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT,
ESTOPPEL, ATTORNMENT AND NON-DISTURBANCE AGREEMENT
(Lease To Deed of Trust)
NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR LEASE BECOMING SUBJECT
TO AND OF LOWER PRIORITY THAN THE LIEN OF THE DEED OF TRUST
(DEFINED BELOW).
THIS SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT, ESTOPPEL,
ATTORNMENT AND NON-DISTURBANCE AGREEMENT ("Agreement") is made as of January 15,
1999, by and between WRC SUNSET NORTH LLC, a Washington limited liability
company ("Owner"), BSQUARE CORPORATION, a Washington corporation ("Lessee") and
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender").
R E C I T A L S
1. Pursuant to the terms and provisions of a lease dated as of January 15, 1999
("Lease") Owner, as "Lessor", granted to Lessee a leasehold estate in and to a
portion of the property described on Exhibit A attached hereto and incorporated
herein by this reference (which property, together with all improvements now or
hereafter located on the property, is defined as the "Property").
2. Owner has executed, or proposes to execute, a deed of trust with absolute
assignment of leases and rents, security agreement and fixture filing ("Deed of
Trust") securing, among other things, a promissory note ("Note") in the
principal sum of SIXTY EIGHT MILLION DOLLARS ($68,000,000), dated September 1,
1998, in favor of Lender, which Note is payable with interest and upon the terms
and conditions described therein ("Loan"). The Deed of Trust is to be recorded
concurrently herewith.
3. As a condition to making the Loan secured by the Deed of Trust, Lender
requires that the Deed of Trust be, and at all times remain, a lien on the
Property, prior and superior to all the rights of Lessee under the Lease on the
terms set forth in this document.
4. Owner, Lessee and Lender desire to enter into the agreements set forth in
this document.
Exhibit G-2
<PAGE> 78
NOW THEREFORE, for valuable consideration, Owner, Lessee and Lender hereby
agree as follows:
6 SUBORDINATION. Owner and Lessee hereby agree that:
6.1 Prior Lien. The Deed of Trust securing the Note in favor of Lender, and
any modifications, renewals or extensions thereof, shall be and at all times
remain a lien on the Property prior and superior to the Lease;
6.2 Subordination. Lender has advised Owner that Lender would not make the
Loan without this agreement to subordinate; and
6.3 Whole Agreement. This Agreement shall be the whole agreement and only
agreement with regard to the subordination of the Lease to the lien of the Deed
of Trust and shall supersede and cancel, but only insofar as would affect the
priority between the Deed of Trust and the Lease, any prior agreements as to
such subordination, including, without limitation, those provisions, if any,
contained in the Lease which provide for the subordination of the Lease to a
deed or deeds of trust or to a mortgage or mortgages.
AND FURTHER, Lessee declares, agrees and acknowledges for the benefit of
Lender, that:
6.4 Use of Proceeds. Lender, in making disbursements pursuant to the
Note, the Deed of Trust or any loan agreements with respect to the Property, is
under no obligation or duty to, nor has Lender represented that it will, see to
the application of such proceeds by the person or persons to whom Lender
disburses such proceeds, and any application or use of such proceeds for
purposes other than those provided for in such agreement or agreements shall not
defeat this agreement to subordinate in whole or in part;
6.5 Subordination. Lessee intentionally and unconditionally subordinates
all of Lessee's right, title and interest in and to the Property to the lien of
the Deed of Trust and understands that in reliance upon, and in consideration
of, this subordination, specific loans and advances are being and will be made
by Lender and, as part and parcel thereof, specific monetary and other
obligations are being and will be entered into which would not be made or
entered into but for said reliance upon this subordination.
7. ASSIGNMENT. Lessee acknowledges and consents to the assignment of the Lease
by Owner in favor of Lender.
8. ESTOPPEL. Lessee acknowledges and represents that:
8.1 Lease Effective. The Lease has been duly executed and delivered by
Lessee and, subject to the terms and conditions thereof, the Lease is in full
force and effect, the obligations of Lessee thereunder are valid and binding and
there have been no modifications or additions to the Lease, written or oral;
8.2 No Default. To the best of Lessee's knowledge, as of the date hereof:
(i) there exists no breach, default, or event or condition which, with the
giving of notice or the passage of
Exhibit G-3
<PAGE> 79
time or both, would constitute a breach or default under the Lease; and (ii)
there are no existing claims, defense's or offsets against rental due or to
become due under the Lease;
8.3. Entire Agreement. The Lease constitutes the entire agreement between
Lessor and Lessee with respect to the Property and Lessee claims no rights with
respect to the Property other than as set forth in the Lease; and
8.4 No Prepaid Rent. No deposits or prepayments of rent have been made in
connection with the Lease, except as follows: (if none, state "None") NONE.
9. ADDITIONAL AGREEMENTS. Lessee covenants and agrees that, during all such
times as Lender is the Beneficiary under the Deed of Trust:
9.1 Modification, Termination and Cancellation. Lessee will not consent to
any modification, amendment, termination or cancellation of the Lease (in whole
or in part) except to the extent expressly permitted by the terms of the Lease
or as a result of default of Owner pursuant to the Lease without Lender's prior
written consent and will not make any payment to Owner in consideration of any
modification, termination or cancellation of the Lease (in whole or in part)
except to the extent expressly permitted by the terms of the Lease without
Lender's prior written consent;
9.2 Notice of Default. Lessee will notify Lender in writing concurrently
with any notice given to Owner of any default by Owner under the Lease, and
Lessee agrees that Lender has the right (but not the obligation) to cure any
breach or default specified in such notice within the time periods set forth in
the Lease;
9.3 No Advance Rents. Lessee will make no payments or prepayments of rent
more than one (1) month in advance of the time when the same become due under
the Lease; and
9.4 Assignment of Rents. Upon receipt by Lessee of written notice from
Lender that Lender has elected to terminate the license granted to Owner to
collect rents, as provided in the Deed of Trust, and directing the payment of
rents by Lessee to Lender, Lessee shall comply with such direction to pay and
shall not be required to determine whether Owner is in default under the Loan
and/or the Deed of Trust, and Owner hereby so directs and authorizes Lessee to
make such payments upon receipt of such notice from Lender.
Notwithstanding the foregoing, if Lessee after notice from Lender, is
uncertain in Lessee's sole discretion, as to whether payments are to be made to
Owner or to Lender, Lessee may deposit the payments in an interpleader action
with the Superior Court for King County, State of Washington and interplead
Owner and Lender therein, provided Lessee shall not so deposit such funds in an
interpleader action if (i) Lender has had a receiver appointed for the Property
by a court with appropriate jurisdiction and Lessee has received written notice
of such appointment with direction by the court to pay rent to such receiver;
(ii) a court with appropriate jurisdiction has issued an order directing such
payments to be made to Lender, and Lessee has received a copy of such order; or
(iii) Lessee receives written evidence of Owner's concurrence with the payments
of such amounts to Lender.
Exhibit G-4
<PAGE> 80
10. ATTORNMENT. Lessee agrees for the benefit of Lender (including for this
purpose any transferee of Lender or any transferee of Owner's title in and to
the Property by Lender's exercise of the remedy of sale by foreclosure under the
Deed of Trust), and Lender agrees, that following transfer of title to the
Property to Lender by exercise of Lender's remedy of sale by foreclosure under
the Deed of Trust and assumption of the Lease by Lender (subject to the same
limitations on personal liability contained in Section 27 of the Lease) with
respect to obligations of the Lessor to be performed under the Lease after the
date of transfer of title of the Property to Lender:
10.1 Payment of Rent. Lessee shall pay to Lender all rental payments
required to be made by Lessee pursuant to the terms of the Lease for the
duration of the team of the Lease;
10.2 Continuation of Performance. Lessee shall be bound to Lender in
accordance with all of the provisions of the Lease for the balance of the term
thereof, and Lessee hereby attorns to Lender as its landlord, such attornment to
be effective and self-operative without the execution of any further instrument
immediately upon Lender succeeding to Owner's interest in the Lease and giving
written notice thereof to Lessee;
10.3 No Offset. Lender shall not be liable for, nor subject to, any offsets
or defenses which Lessee may have by reason of any act or omission of Owner
under the Lease prior to the date of transfer of title to the Property to
Lender, nor for the return of any sums which Lessee may have paid to Owner under
the Lease as and for security deposits, advance rentals or otherwise, except to
the extent that such sums are actually delivered by Owner to Lender or Lender
otherwise has received credit therefor. Notwithstanding the foregoing provisions
of this Section 10.3, (i) nothing in this Section 10.3 shall create a right of
offset under the Lease that does not otherwise exist; and (ii) Tenant may
enforce the offset rights granted to Tenant in Section 3(A) of the Lease against
Lender provided (A) Tenant drivers to Lender a copy of Tenant's notice to
Landlord stating that certain punchlist items have not been timely completed,
and a copy of Tenant's written demand for payment of the cost of Tenant's
completion of such items, both of which notices are required under Section 3(A)
of the Lease and shall be given in accordance with Section 9.2 of this
Agreement; and (B) Tenant promptly exercises such offset rights once those
offset rights have accrued; and
10.4 Subsequent Transfer. Lender, by succeeding to the interest of Owner
under the Lease, shall become obligated to perform the agreements and covenants
of Owner thereunder with respect to those agreements and covenants first
becoming due after Lender succeeds to the interest of Owner, and, upon any
further transfer of Owner's interest by Lender, all of such obligations shall
terminate as to Lender with respect to obligations first becoming due after the
date of transfer by Lender.
11. NON-DISTURBANCE. In the event of a foreclosure under the Deed of Trust, so
long as there shall then exist no breach, default, or event of default on the
part of Lessee under the Lease beyond any applicable cure periods stated in the
Lease, Lender agrees for itself and its successors and assigns that the
leasehold interest of Lessee under the Lease shall not be extinguished or
terminated by reason of such foreclosure, but rather the Lease shall continue in
full force and effect and Lender shall recognize and accept Lessee as tenant
under the Lease subject to the terms and provisions of the Lease.
Exhibit G-5
<PAGE> 81
12. MISCELLANEOUS.
12.1 Heirs, Successors, Assigns and Transferees. The covenants herein shall
be binding upon, and inure to the benefit of, the heirs, successors and assigns
of the parties hereto; and
12.2 Notices. All notices or other communications required or permitted to
be given pursuant to the provisions hereof shall be deemed served upon delivery
or, if mailed, upon the first to occur of receipt or the expiration of three (3)
days after deposit in United States Postal Service, certified mail, postage
prepaid and addressed to the address of Owner, Lessee or Lender appearing below:
"OWNER" "LENDER"
WRC SUNSET NORTH LLC WELLS FARGO BANK, NATIONAL
c/o Wright Runstad & Company ASSOCIATION
1191 Second Avenue, Suite 2000 Real Estate Group, MAC 6101-121
Seattle, Washington 98101 1300 S.W. 5th Avenue, 12th Floor
Portland, OR 97201
Attn: Jon F. Nordby
Attn: M. K. Long
Loan No.
"LESSEE"
BSQUARE CORPORATION
3633 136th Place NE, Suite 100
Bellevue, WA 98006
Attn: General Counsel
provided, however, any party shall have the right to change its address for
notice hereunder by the giving of written notice thereof to the other party in
the manner set forth in this Agreement; and
12.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute and be construed as one and the same instrument; and
12.4 Paragraph Headings. Paragraph headings in this Agreement are for
convenience only and are not to be construed as part of this Agreement or in any
way limiting the provisions hereof.
12.5 INCORPORATION. Exhibit A is attached hereto and incorporated herein by
this reference.
Exhibit G-6
<PAGE> 82
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH
ALLOWS THE OWNER TO OBTAIN A LOAN, THE PROCEEDS OF WHICH MAY
BE EXPENDED FOR PURPOSES OTHER THAN THE IMPROVEMENT OF THE
PROPERTY. IT IS RECOMMENDED THAT, PRIOR TO THE EXECUTION OF
THIS AGREEMENT, THE PARTIES CONSULT WITH THEIR ATTORNEYS
WITH RESPECT HERETO.
"OWNER"
WRC SUNSET NORTH LLC, a Washington
limited liability company
By: EOP SUNSET NORTH, L.L.C., a Delaware
limited liability company, its manager
By: EOP OPERATING LIMITED PARTNERSHIP, a
Delaware limited partnership, its
sole member
By: EQUITY OFFICE PROPERTIES TRUST, a
Maryland real estate investment
trust, its managing general
partner
By:
------------------------------
Its:
--------------------------
By: WRIGHT RUNSTAD ASSOCIATED LIMITED
PARTNERSHIP, a Washington limited
partnership its manager
By: WRIGHT RUNSTAD & COMPANY, a
Washington corporation, its sole
general partner
By:
------------------------------
Its:
--------------------------
Exhibit G-7
<PAGE> 83
"LENDER"
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:
---------------------------------
Its:
-----------------------------
"LESSEE"
BSQUARE, CORPORATION, a Washington
corporation
By:
---------------------------------
Its:
-----------------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, do hereby certify that ____________________________, personally known
to me to be the _______________ of Wright Runstad & Company, the general partner
of Wright Runstad Associates Limited Partnership, a Member of WRC SUNSET NORTH
LLC, a Washington limited liability company, the Owner in the foregoing
instrument, and personally known to me to be the same person whose name is
subscribed to the foregoing instrument, appeared before me this day in person
and acknowledged that as such officer of said entity being authorized so to do,
he executed the foregoing instrument on behalf of said entity, by subscribing
the name of such entity by himself as such officer, as a free and voluntary act,
and as the free and voluntary act and deed of said entity under the foregoing
instrument for the uses and purposes therein set forth.
GIVEN under my hand and official seat this ______ day of January, 1999.
Notary Public:
-------------------------
Printed Name:
--------------------------
Residing at:
---------------------------
My Commission expires:
-----------------
Exhibit G-8
<PAGE> 84
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, do hereby certify that ____________________________, personally known
to me to be the _______________ of Equity Office Properties Trust, the general
partner of EOP Operating Limited Partnership, the sole member of EOP Sunset
North, L.L.C., a Member of WRC SUNSET NORTH LLC, a Washington limited liability
company, the Owner in the foregoing instrument, and personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person and acknowledged that as such officer of said
entity being authorized so to do, he executed the foregoing instrument on behalf
of said entity, by subscribing the name of such entity by himself as such
officer, as a free and voluntary act, and as the free and voluntary act and deed
of said entity under the foregoing instrument for the uses and purposes therein
set forth.
GIVEN under my hand and official seal this ______ day of January, 1999.
Notary Public:
-------------------------
Printed Name:
--------------------------
Residing at:
---------------------------
My Commission expires:
-----------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this the _____ day of January, 1999, before me a Notary Public duly
authorized in and for the said County in the State aforesaid to take
acknowledgments personally appeared ________________ known to me to be
________________ of WELLS FARGO BANK, NATIONAL ASSOCIATION the Lender in the
foregoing instrument, and acknowledged that as such officer, being authorized so
to do, (s)he executed the foregoing instrument on behalf of said corporation by
subscribing the name of such corporation by himself/herself as such, as a free
and voluntary act, and as the free and voluntary act of said corporation, for
the uses and purposes therein set forth.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
Notary Public:
-------------------------
Printed Name:
--------------------------
Residing at:
---------------------------
My Commission expires:
-----------------
Exhibit G-9
<PAGE> 85
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this _____ the day of January, 1999, before me a Notary Public duly
authorized in and for the said County in the State aforesaid to take
acknowledgments personally appeared ________________ known to me to be
________________ of BSQUARE CORPORATION the Lessee in the foregoing instrument,
and acknowledged that as such officer, being authorized so to do, (s)he executed
the foregoing instrument on behalf of said corporation by subscribing the name
of such corporation by himself/herself as such, as a free and voluntary act, and
as the free and voluntary act of said corporation, for the uses and purposes
therein set forth.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
Notary Public:
-------------------------
Printed Name:
--------------------------
Residing at:
---------------------------
My Commission expires:
-----------------
Exhibit G-10
<PAGE> 86
EXHIBIT A
Loan No. _____________
DESCRIPTION OF PROPERTY
EXHIBIT A to Subordination Agreement; Acknowledgment of Lease Assignment,
Estoppel, Attornment and Non-Disturbance Agreement dated as of January 15, 1999,
executed by WRC SUNSET NORTH LLC, a Washington limited liability company as
"Owner", BSQUARE CORPORATION, a Washington corporation, as "Lessee", and WELLS
FARGO BANK, NATIONAL ASSOCIATION, as "Lender".
All that certain real property located in the County of King, State of
Washington, described as follows:
LOTS 6 THROUGH 10 OF SUNSET RIDGE I-90 CORPORATE CAMPUS, A BINDING
SITE PLAN, AS PER PLAT RECORDED IN VOLUME 154 OF PLATS, PAGES 77
THROUGH 80, RECORDS OF KING COUNTY;
EXCEPT ANY PORTION CONVEYED FOR 139TH AVE. S.E., BY DEED RECORDED
UNDER RECORDING NO. 9101280422;
TOGETHER WITH AN UNDIVIDED 60% INTEREST IN LOT 11 AND TRACT C OF SAID
PLAT;
AND TOGETHER WITH THOSE CERTAIN EASEMENT RIGHTS AS DELINEATED IN
INSTRUMENT RECORDED UNDER RECORDING NO. 9601091040;
AND TOGETHER WITH THOSE CERTAIN EASEMENT RIGHTS AS DELINEATED IN
INSTRUMENT RECORDED UNDER RECORDING NO. 9107260572;
AND TOGETHER WITH THOSE CERTAIN EASEMENT RIGHTS AS DELINEATED IN
INSTRUMENT RECORDED UNDER RECORDING NO. 9309292404;
SITUATE IN THE CITY OF BELLEVUE, COUNTY OF KING, STATE OF WASHINGTON.
Exhibit G-11
<PAGE> 1
EXHIBIT 10.12
MICROSOFT(R) SOFTWARE FOR DEDICATED SYSTEMS
DISTRIBUTOR AGREEMENT
#_____________ dated November 1ST, 1997
with Bsquare Corporation, a corporation of Washington.
This Distributor Agreement ("Agreement") is made and entered into as of
the date first set forth above ("Effective Date"), by and between MICROSOFT
CORPORATION, a Washington, U.S.A. corporation, ("MS"), and the company
specified above ("COMPANY"). MS anticipates that it will transfer its OEM
licensing operations to its wholly owned subsidiary, Microsoft Licensing, Inc.,
a Nevada, U.S.A. corporation, on or about December 31, 1997. From and after
such transfer, all references to "MS" contained in this Agreement shall refer
to Microsoft Licensing, Inc. Microsoft Corporation will notify COMPANY of the
assignment of the Agreement to Microsoft Licensing, Inc. For shipments of
Product(s) after the date of assignment, COMPANY will report to and make
royalty payments to Microsoft Licensing, Inc. at the address provided by
Microsoft Corporation or Microsoft Licensing, Inc.
1. DEFINITIONS.
(a) "Associated Product Materials" or "APM" shall mean a serialized sticker
and/or other materials designated by MS from time to time which COMPANY shall
acquire from MS or an MS-designated supplier for distribution with each copy of
Product.
(b) "Dedicated Application" shall mean a dedicated purpose software program
which provides the primary functionality of the Dedicated System (as defined
below) and which when used with the Dedicated System offers significant
functionality in addition to the Product software. A Dedicated Application
excludes any software program which addresses more than one function of the
office automation and consumer computing markets. Office automation and
consumer computing functions include, without limitation, email, word
processing, spreadsheets, network browsing, scheduling, and personal finance.
(c) "Dedicated Product Deliverables" shall mean Product software in object
code form, installation and configuration utilities, and any other software or
materials provided by MS and identified as part of the Dedicated Product
Deliverables.
(d) "Dedicated System" shall mean an OEM Customer's computer system or
computing device which utilizes a single microprocessor, is distributed with
Product software in accordance with the Sublicense Agreement (as defined in
Section 1(e)), and is designed for exclusive use with a Dedicated Application
that provides the primary functionality of the system or device. A Dedicated
System excludes any personal, laptop, desktop, handheld, notebook, server
computers, or other such computing devices which address more than one function
of the office automation or consumer computing markets and shall not be useable
as a commercially acceptable substitute for such computers or devices.
(e) "MSCORP" shall mean Microsoft Corporation, a Washington, U.S.A.
corporation.
(e) "OEM Customer" shall mean an original equipment manufacturer of Dedicated
Systems which licenses Product from COMPANY under the terms of an OEM Customer
Sublicense Agreement for Dedicated Systems ("Sublicense Agreement") in the form
attached hereto as Exhibit U.
(f) "Product" shall mean the copyrighted and/or patented MS product(s)
(including, where applicable, Product software in object code form, Dedicated
Product Deliverables, and APM) identified in the attached Exhibit(s) C as being
licensed to COMPANY.
(g) "Product Release" shall mean a release of Product which MS designates as a
change in the digit(s) to the left of the decimal point in the Product version
number [(x).xx] or a change in the annual identifier (e.g., 96 or 1996).
(h) "Product Upgrade" shall mean a Version Release, Update Release or other
release of the Product to be distributed by an OEM Customer pursuant to the
Sublicense Agreement as a replacement for a prior version of the Product
software.
(i) "Recovery Media" shall mean a backup image of the Product as originally
installed on the Dedicated System.
(j) "Sales Target" shall mean the sales targets in US Dollars specified in
Exhibit Q.
(k) "Suppliers" shall mean any and all entities (e.g. MSCORP) which license or
otherwise supply MS with Products or portions thereof for redistribution and
sublicense by MS.
(k) "Update Release" shall mean a release of Product which MS designates as a
change in the digit(s) to the right of the tenths digit in the Product version
number [x.x(x)].
(l) "Version Release" shall mean a release of Product which MS designates as a
change in the tenths digit in the Product version number [x.(x)x].
2. LIMITED LICENSE GRANT.
(a) Subject to the restrictions set forth in this Agreement, and COMPANY's
compliance with all terms and conditions of this Agreement, MS grants to
COMPANY the non-exclusive limited license to:
(i) acquire Dedicated Product Deliverables for Products from MS or an
MS-designated supplier;
(ii) directly distribute to its OEM Customers the Dedicated Product
Deliverables and APM supplied by MS or an MS-designated supplier;
(iii) grant to COMPANY's OEM Customers who have executed a Sublicense
Agreement with COMPANY, the rights to: (A) configure the Product in
accordance with the instructions, if any, contained in the Dedicated
Product Deliverables solely to enable Product to execute on OEM Customer's
Dedicated System; (B) install one (1) copy of the Product software in
nonvolatile, solid-state memory, on the hard disk drive, or in other
nonvolatile form, in accordance with instructions, if any, contained in
the Dedicated Product Deliverables, only as part of a Dedicated System;
(C) reproduce the Product software for distribution as Product Upgrades
and Recovery Media as set forth in the Sublicense Agreement; (D)
distribute the Product Software as part of the Dedicated Systems, Product
Upgrades and Recovery Media as set forth in the Sublicense Agreement.
(b) COMPANY's license shall extend to Update Releases and Version Releases.
COMPANY's license shall not extend to Product Releases.
<PAGE> 2
(c) (i) Before providing any Product or Dedicated Product Deliverables to an OEM
Customer, COMPANY will execute a Sublicense Agreement with such OEM
Customer.
(ii) COMPANY shall authorize the OEM Customer to reproduce and distribute
only the number of units and language version(s) of Product as are described
in the applicable Attachment 2 of the Sublicense Agreement.
(iii) COMPANY may license additional units of Product(s) to OEM Customers
that are licensed under a current Sublicense Agreement for such Product(s)
and language version(s) by adding dated "Additional Units Attachment(s)" to
the Sublicense Agreement using the Amendment form set forth in Exhibit V
attached hereto ("Sublicense Amendment"). All terms and conditions of the
Sublicense Agreement shall apply to the units of Product(s) licensed in the
Sublicense Amendments.
(iv) COMPANY shall not make any changes to the form of the Sublicense
Agreement or Sublicense Amendment without the prior written consent of MS,
except that the Sublicense Agreement and Sublicense Amendment shall be
adapted as required by the laws of any non-USA jurisdiction in which COMPANY
distributes the Product.
(v) COMPANY shall cause the OEM Customer to comply with the terms and
conditions of the Sublicense Agreement. COMPANY shall take such actions on
behalf of MS, at COMPANY's expense, as MS may reasonably request to enforce
the terms of the Sublicense Agreement.
(vi) Upon MS request, COMPANY shall provide a copy of the Sublicense
Agreement to MS.
(d) For each unit of Product licensed by COMPANY to an OEM Customer, COMPANY
shall supply one (1) APM for such Product to the OEM Customer.
(e) COMPANY and COMPANY's OEM Customers may not reproduce, publish, or sell
Product documentation.
(f) (i) COMPANY agrees to provide commercially reasonable support for the
Product to COMPANY's OEM Customers.
(ii) COMPANY agrees to maintain a separate online service contract with MS
Product Support Services in order that COMPANY can provide timely support to
COMPANY's OEM Customers. COMPANY acknowledges that MS's standard support
fees will apply for the support services.
(iii) COMPANY agrees to provide MS with ninety (90) days prior written
notice of any substantive change in COMPANY's support policy for the
Product.
(g) (i) COMPANY shall distribute Product(s) and the Dedicated Product
Deliverables, and grant the rights set forth in Section 2(a)(iii) only to
COMPANY's OEM Customers.
(ii) COMPANY shall comply with the additional provisions, if any, provided
in Exhibit(s) C with respect to Product.
(h) COMPANY shall make no use of the Dedicated Product Deliverables except as
described in Section 2(a) of this Agreement.
(i) COMPANY shall not reverse engineer, decompile or disassemble any Product
except as permitted by applicable law without the possibility of contractual
waiver. COMPANY acknowledges that information on interoperability of the
Product with other products is readily available.
(j) All distribution and use of the Product is by license only. MS does not
authorize the Product to be "issued to the public", "put into circulation", or
subject to a "first sale" as the copyright laws may use those (or similar)
terms. COMPANY's license to distribute the Product is limited to distribution
of the Product by COMPANY to its OEM Customers pursuant to a Sublicense
Agreement.
(k) This Agreement does not include technical support by MS to COMPANY,
COMPANY's OEM Customers, or end users.
(l) MS reserves all rights not expressly granted including, without limitation,
modification rights, translation rights, rental rights, and rights to source
code. MS expressly reserves its exclusive right under applicable copyright,
patent, and trademark laws to distribute copies of Product by any means. COMPANY
acknowledges that MS (and/or its suppliers, if applicable) shall retain all
copyright, patent, moral, trademark, title and other proprietary and
intellectual property in the Product software, Dedicated Product Deliverables
and components thereof, in whole or in part, in any form.
3. PAYMENT AND REPORTING.
(a) COMPANY agrees to pay MS the royalties in Exhibit(s) C. Royalties exclude
any fees charged by MS or any MS-designated supplier for production of the APM
or Dedicated Product Deliverables. Royalties also exclude any taxes, duties,
fees, excises or tariffs imposed on any of COMPANY's activities in connection
with this Agreement. Such taxes, duties, fees, excises or tariffs, if any,
shall be paid by COMPANY.
(b) COMPANY agrees to pay MS the royalty rates set forth in Exhibit(s) C for
each unit of Product licensed or distributed by COMPANY.
(c) In addition, COMPANY agrees to pay MS the Localization Additional Royalty
specified in Exhibit(s) C for each unit of non-US English version of Product
licensed or distributed by COMPANY.
(d) In the event income taxes are required to be withheld by any non-U.S.A.
government on payments to MS required hereunder, provided that COMPANY promptly
delivers to MS an official receipt for any such taxes withheld or other
documents necessary to enable MS to claim a U.S.A. Foreign Tax Credit, COMPANY
may deduct such taxes from the amount owed MS and shall pay them to the
appropriate tax authority. COMPANY will make certain that any taxes withheld
are minimized to the extent permitted by the applicable law.
(e) COMPANY agrees that it will maintain a tracking system allowing complete
tracking of shipments by (i) Product - including quantity, sticker serial
number, and shipment date; and (ii) OEM Customer - including contact name,
address, and telephone number.
(f) (i) COMPANY agrees to make quarterly royalty reports and payments to MS as
specified in Exhibit N within thirty (30) days after the end of each
calendar quarter, and thirty (30) days after termination or expiration of
this Agreement for the final full or partial quarter. COMPANY's report shall
be signed by a duly authorized officer or director of COMPANY.
(ii) A copy of COMPANY's report shall be sent to MS electronically or via
facsimile in addition to the original
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<PAGE> 3
copy sent in accordance with Exhibit N. COMPANY's royalty reports shall be
in the royalty report format attached as Exhibit R or other format as MS
may provide from time to time and shall specify royalties for each Product
and language version described in Exhibit(s) C. COMPANY shall make such
reports even if no royalties are due for such quarter.
(iii) A ten percent (10%) late charge and a one percent (1%) monthly
finance charge will be assessed on all amounts that are past due,
including receipts for foreign taxes withheld.
(g) COMPANY shall provide MS with a copy of its U.S.A. state resale exempt
certificate, if applicable, with this Agreement when it is returned to MS for
signature by MS.
4. SALES TARGETS.
(a) COMPANY acknowledges that it has been appointed as a Product
distributor for Dedicated Systems based upon its representation that it shall
meet the Sales Targets as set forth in Exhibit Q and that this representation
forms a fundamental basis of this Agreement.
(b) If COMPANY's Sales Targets are not met, this Agreement may be terminated at
the sole discretion of MS as set forth in Section 10(c).
5. DELIVERY.
(a) For each Product licensed hereunder, MS will deliver or cause to be
delivered to COMPANY the Dedicated Product Deliverables if and as available.
(b) Neither MS nor its Suppliers shall have any liability for failure to
deliver Product by any particular date, or if the Product is not yet a released
product, during the term of this Agreement. COMPANY shall not deliver Product
to an OEM Customer until MS delivers final Dedicated Product Deliverables for
such Product to COMPANY.
6. DEFENSE AND INDEMNIFICATION.
(a) MS agrees to defend COMPANY against, and pay the amount of any adverse
final judgment (or settlement to which MS consents) resulting from third party
claim(s) (hereinafter "Indemnified Claims") that: (i) the Product(s) infringe
any copyright enforceable in any Included Jurisdictions (defined in Section
6(d), below); or (ii) the Product name(s) or trademark(s) ("Mark(s)") infringe
any trademark rights enforceable in the Included Jurisdictions; provided MS is
notified promptly in writing of the Indemnified Claim and has sole control over
its defense or settlement, and COMPANY provides reasonable assistance in the
defense of the same.
(b) In the event MS receives information concerning an intellectual property
infringement claim (including an Indemnified Claim) related to the Product(s) or
Mark(s), MS may, at its expense, and without obligation to do so, either (i)
procure for COMPANY the right to continue to distribute the alleged infringing
Product or Mark, or (ii) replace or modify the Product or Mark to make it
non-infringing, and in which case COMPANY shall thereupon cease distribution of
the alleged infringing Product or Mark.
(c) MS and its Suppliers shall have no liability for any intellectual property
infringement claim (including an Indemnified Claim) based on COMPANY's (i)
manufacture, distribution, or use of any Product or Mark after MS' notice that
COMPANY should cease manufacture, distribution, or use of such a Product or
Mark due to such a claim; or (ii) combination of a Product with any other
product, program or data; or (iii) adaptation or modification of any Product.
For all claims described in this Section 6(c), COMPANY agrees to indemnify and
defend MS and its Suppliers from and against all damages, costs and expenses,
including reasonable attorneys' fees.
(d) MS and its Suppliers shall have no obligation to COMPANY for any
Indemnified Claims which arise outside the geographical boundaries of the
United States, Canada, Australia, Japan, the European Union and Norway
("Included Jurisdictions").
(e) COMPANY hereby agrees to indemnify, and hold MS and its Suppliers harmless
and, at MS' or its Suppliers' option, defend MS and its Suppliers, from any and
all actions, causes of action, claims, demands, losses, liabilities, expenses
and damages (including reasonable attorney fees) arising out of or in
connection with any activity, action, inaction and/or failure of COMPANY or
COMPANY's OEM Customer(s) to comply with the applicable terms of this
Agreement or the Sublicense Agreement. COMPANY shall promptly reimburse MS and
its Suppliers for any payment made or amount incurred by MS or its Suppliers
for any liability, expense, damage or claim to which the foregoing indemnity
relates.
7. INTELLECTUAL PROPERTY NOTICES.
(a) COMPANY will not remove any copyright, trademark, patent or mask work
notices that appear on the Product as delivered to COMPANY. COMPANY recognizes
that MS or its Suppliers may seek patent registration for the Product.
(b) COMPANY shall market the product only under the Product name(s) and version
number for such Product provided to COMPANY. COMPANY agrees to use the
appropriate trademark, product descriptor and trademark symbol (either "(TM)" or
"(R)"), and clearly indicate MS', its Suppliers' or applicable third parties'
ownership of its trademark(s) whenever the Product name is first mentioned in
any advertisement, brochure or in any other manner in connection with the
Product. COMPANY shall not, at any time, use any name or trademark confusingly
similar to an M, its Suppliers, or licensed third party trademark, trade name
and/or product name. COMPANY shall undertake no action that will interfere with
or diminish MS' or its Suppliers' right, title and/or interest in MS', its
Suppliers, or licensed third party's trademark(s), trade name(s) or Product
name(s). COMPANY shall, upon request, provide MS samples of all COMPANY
marketing literature which uses Product name(s).
(c) COMPANY shall not use or display any MS or Supplier logo (i.e., including
without limitation any stylized representation of the MS name used by MS or
MSCORP) in its materials or packaging, except as provided by separate written
agreement with MS or its Supplier.
8. PROHIBITION AGAINST ASSIGNMENT AND SUBLICENSE.
This Agreement, and any rights or obligations hereunder, shall not be assigned
or sublicensed by COMPANY (by contract, merger, sale or acquisition of assets,
operation of law, or otherwise).
9. TERM OF AGREEMENT.
The term of this Agreement shall run from the Effective Date until one (1) year
from the end of the calendar quarter in which the Effective Date occurs.
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10. DEFAULT AND TERMINATION.
(a) This Agreement may terminate if any of the following events of default
occur: (i) if either party materially fails to perform or comply with any
provision of this Agreement; (ii) COMPANY manufactures or distributes any MS or
MSCORP product which is not properly licensed under this Agreement or another
valid agreement with MS, MSCORP or an MS or MSCORP licensee; (iii) if COMPANY
becomes insolvent, enters bankruptcy, reorganization, composition or other
similar proceedings under applicable laws, whether voluntary or involuntary, or
admits in writing its inability to pay its debts, or makes or attempts to make
an assignment for the benefit of creditors; (iv) upon termination of any other
agreement between COMPANY and MS or MSCORP due to default by COMPANY; or (v) a
material breach of the Sublicense Agreement if such breach has not been cured
within the time period set forth in the Sublicense Agreement.
(b) Termination due to breach of Sections 2(g), 2(h), 2(i), 8, 13, 14(a), or
14(c) shall be effective upon notice to the defaulting party. Termination due to
Section 10(a)(iii) shall be effective upon notice or as soon thereafter as is
permitted by applicable law. In all other cases, termination shall be effective
thirty (30) days after notice of termination to the defaulting party if the
defaults have not been cured within such thirty (30) day period. At the option
of the non-defaulting party, termination due to a breach of any provision of
this Agreement may be effective upon notice to the defaulting party if such
party has received two (2) or more previous notices of default during the term
of this Agreement (whether or not such previous defaults have been cured).
(c) (i) MS may terminate this Agreement upon written notice to COMPANY, if at
the end of any two (2) consecutive calendar quarters following the First
Target Period (as defined in Exhibit Q), COMPANY's cumulative reported
royalties for each of the two (2) calendar quarters are twenty percent (20%)
or more below the Cumulative Target Amount (as specified in Exhibit Q).
(ii) For a period of thirty (30) days after such termination, COMPANY may
continue license and distribution of Product in accordance with all the
terms and conditions of this Agreement in order to fulfill COMPANY'S
contractual obligations which existed as of the date of such termination.
Nothing herein shall relieve COMPANY of its obligations to pay royalties to
MS for Product licensed or distributed by COMPANY.
(d) In the event of COMPANY'S default, MS may terminate this Agreement in its
entirety or as to any individual Product(s). Termination of this Agreement as to
any particular Product(s) will not affect the terms and conditions of this
Agreement as they apply to the other Product(s) licensed under this Agreement.
11. OBLIGATION UPON TERMINATION.
(a) Within thirty (30) days after termination or expiration of this Agreement,
COMPANY shall return to MS all units of Product and all Dedicated Product
Deliverables in COMPANY'S possession. COMPANY may, however, retain one unit of
Dedicated Product Deliverables for each Product for support purposes only. There
shall be no refund or adjustment for amounts paid for Product(s) returned to MS
in accordance with this Section 11(a).
(b) Except as set forth in Section 10(c)(ii), upon termination or expiration of
this Agreement, COMPANY shall cease license and distribution of Product and
Dedicated Product Deliverables and all of COMPANY'S license rights herein shall
cease. Sections 6, 12, 13, 14, 15 and 16 of this Agreement shall survive
termination or expiration of this Agreement.
12. LIMITATION OF LIABILITY AND REMEDY.
(a) Total liability of MS and its Suppliers to COMPANY under this Agreement,
including Section 6, shall be limited to one hundred percent (100%) of the
amount having actually been paid by COMPANY to MS under Section 3. COMPANY
releases MS and its Suppliers from all obligations, liability, claims or demands
in excess of the limitation.
(b) The rights and remedies granted to COMPANY under Section 6 constitute
COMPANY'S sole and exclusive remedy against MS, its Suppliers, and their
officers, agents and employees for any and all claims arising in connection with
the Products or the Dedicated Product Deliverables including but not limited to
claims regarding MS' delivery of Product or Dedicated Product Deliverables, or
indemnification or contribution from MS with respect to any infringement of the
rights of a third party, whether arising under statutory or common law or
otherwise.
(c) MS AND ITS SUPPLIERS HEREBY DISCLAIM ANY AND ALL WARRANTIES OF ANY KIND
WHATSOEVER, INCLUDING THOSE FOR NON-INFRINGEMENT OF INTELLECTUAL PROPERTY,
MERCHANTABILITY AND/OR FITNESS OR A PARTICULAR PURPOSE WHICH ARE EXPRESSLY
EXCLUDED. NEITHER MS NOT ITS SUPPLIERS MAKE ANY WARRANTY THAT THE PRODUCT WILL
OPERATE PROPERLY ON ANY CUSTOMER SYSTEM(S). COMPANY AGREES NEITHER MS NOR ITS
SUPPLIERS SHALL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, ECONOMIC
OR PUNITIVE DAMAGES EVEN IF MS OR ITS SUPPLIERS HAVE BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
(d) (i) As partial consideration for the rights granted to COMPANY hereunder,
COMPANY agrees not to (A) sue or (B) bring, prosecute, assist or participate
in any judicial, administrative or other proceedings of any kind against MS,
its Suppliers, their subsidiaries or their licensees (including without
limitation MS OEM customers, OEM Customers, and end users) for infringement
of COMPANY Patents (as defined below) which occurs during the Immunity
Period (as defined below) on account of the manufacture, use, sale, or
distribution of:
1) Any releases of Product(s) licensed to COMPANY hereunder, except as
otherwise provided in (iii), below; or
2) Future releases of Product(s), or replacement or successor products
to the Product, to the extent such future releases or replacement or
successor product(s) use or embody inventions used or embodied in a
version of such Product(s) licensed to COMPANY hereunder.
(ii) "COMPANY Patents" as used in this subsection 12(d) means all patents
throughout the world, other than design patents or the equivalent, owned or
acquired by COMPANY for inventions made prior to termination or expiration
of this Agreement, or for which COMPANY has or acquires rights prior to the
termination or expiration of this Agreement. The "Immunity Period" shall
commence upon the first to issue
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<PAGE> 5
and shall terminate upon the last to expire, of any of the COMPANY Patents
(in any jurisdiction).
(iii) In the event that MS provides COMPANY a new release of a Product
under this Agreement, and COMPANY determines that such new release uses or
embodies inventions not used or embodied in a prior release of the Product
licensed to COMPANY hereunder, COMPANY may elect to not license such new
release by so notifying MS in writing within sixty (60) days after its
receipt and prior to shipment of such new release. COMPANY's election under
this paragraph shall not affect COMPANY's obligations above with respect to
any prior release(s) of the Product licensed hereunder.
(iv) In the event COMPANY assigns COMPANY Patents or rights to enforce
COMPANY Patents, COMPANY shall require as a condition of any such
assignment that the assignee agree to be bound by the provisions of this
Section 12(d).
13. NONDISCLOSURE OBLIGATION.
COMPANY shall keep confidential, and shall require COMPANY's OEM Customers to
keep confidential, the Dedicated Product Deliverables, the terms and conditions
of this Agreement, and other non-public information (including, without
limitation, any and all MS and MSCORP product pricing information, the terms and
conditions of any proposed (or actual) license agreement or other agreement
concerning MS and MSCORP products, license negotiations, as well as any
information or correspondence relating to released or unreleased MS and MSCORP
software or hardware products, the marketing or promotion of any MS or MSCORP
product, and MS' and MSCORP's business policies or practices) and know-how
disclosed to COMPANY by MS or MSCORP or any of their subsidiaries. COMPANY shall
treat the Dedicated Product Deliverables as confidential information and shall
not disclose, disseminate or distribute such material to any third party (except
to OEM Customers in compliance with the terms of this Agreement) without MS'
prior written permission. COMPANY may disclose the terms and conditions of this
Agreement in confidence to its immediate legal and financial consultants as
required in the ordinary course of COMPANY's business.
14. AUDITS AND INSPECTIONS.
(a) During the term of this Agreement and for a period of three (3) years
thereafter, COMPANY shall keep all usual and proper records and books of
account and all usual and proper entries relating to each Product licensed
sufficient to substantiate the number of copies of Product acquired,
distributed, or otherwise disposed of by or for COMPANY. COMPANY shall maintain
such records on COMPANY premises.
(b) In order to verify statements issued by COMPANY and COMPANY's compliance
with the terms of this Agreement, MS may cause (i) an audit to be made of
COMPANY's books and records and/or (ii) an inspection to be made of COMPANY's
facilities and procedures. Any audit and/or inspection shall be conducted
during regular business hours at COMPANY's facilities, with or without notice.
Any audit shall be conducted by an independent certified public accountant
selected by MS (other than on a contingent fee basis).
(c) COMPANY agrees to provide MS' designated audit or inspection team access to
the relevant COMPANY records and facilities.
(d) Prompt adjustment shall be made to compensate for any errors or omissions
disclosed by such audit. Any such audit shall be paid for by MS unless material
discrepancies are disclosed. "Material" shall mean the lesser of Ten Thousand
Dollars (US$10,000.00) or five percent (5%) of the amount that was reported. If
material discrepancies are disclosed, COMPANY agrees to pay MS for the costs
associated with the audit. Further, COMPANY shall pay MS an additional royalty
of twenty-five percent (25%) of the applicable royalty on Exhibit(s) C for each
unit COMPANY failed to report that is in excess of five percent (5%) of the
number of units actually reported by COMPANY. In no event shall audits be made
more frequently than semi-annually unless the immediately preceding audit
disclosed a material discrepancy.
15. CONTROLLING LAW; ATTORNEYS' FEES.
(a) This Agreement and all matters relating to this Agreement shall be
construed and controlled by the laws of the State of Washington, and COMPANY
consents to jurisdiction and venue in the state and federal courts sitting in
the State of Washington. Process may be served on either party in the manner
set forth in Section 16 for the delivery of notices or by such other method as
is authorized by applicable law or court rule.
(b) If either MS or COMPANY employs attorneys to enforce any rights arising out
of or relating to this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees, costs and other expenses.
16. NOTICES.
All notices, authorizations, and requests in connection with this Agreement
shall be deemed given on the day they are (i) deposited in the U.S.A. mails,
postage prepaid, certified or registered, return receipt requested; or (ii)
sent by air express courier, charges prepaid; and addressed as stated in
Exhibit N (or to such other address as the party to receive the notice or
request so designates by written notice to the other).
17. GENERAL.
(a) COMPANY agrees that it will not export or re-export Product to any country,
person, entity or end user subject to U.S. export restrictions. COMPANY
specifically agrees not to export or re-export Product (i) to any country to
which the U.S. has embargoed or restricted the export of goods or services,
which as of December 31, 1996 include, but are not necessarily limited to,
Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria, or to any national of
any such country who COMPANY knows intends to transmit or transport the
products back to such country; (ii) to any end-user who COMPANY knows will
utilize Product in the design, development or production of nuclear, chemical
or biological weapons; or (iii) to any end-user who has been prohibited from
participating in U.S. export transactions by any federal agency of the U.S.
government.
(b) This Agreement does not constitute an offer by MS and it shall not be
effective until signed by both parties. Upon execution by both parties, this
Agreement shall constitute the entire agreement between the parties with
respect to the subject matter hereof and merges all prior and contemporaneous
communications. It shall not be modified except by a written agreement signed
on behalf of COMPANY and MS by their
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<PAGE> 6
respective duly authorized representatives. Any statement appearing as a
restrictive endorsement on a check or other document which purports to modify a
right, obligation or liability of either party shall be of no force and effect.
(c) Neither this Agreement, nor any terms and conditions contained herein,
shall be construed as creating a partnership, joint venture or agency
relationship or as granting a franchise.
(d) If any provision of this Agreement or license of any particular Product
shall be held by a court of competent jurisdiction to be illegal, invalid or
unenforceable, the remaining provisions and license for remaining Products, as
applicable, shall remain in full force and effect.
(e) No waiver of any breach of any provision of this Agreement shall constitute
a waiver of any prior, concurrent or subsequent breach of the same or any other
provisions hereof, and no waiver shall be effective unless made in writing and
signed by an authorized representative of the waiving party.
(f) COMPANY shall, at its own expense, promptly obtain and arrange for the
maintenance of all non-U.S.A. government approvals, if any, and comply with all
applicable local laws and regulations as may be necessary for COMPANY's
performance under this Agreement.
(g) Product may be imported, distributed, or sold in or to a country or
territory only if allowed by, and in compliance with, all applicable laws and
regulations of such country or territory as well as all terms and conditions of
the License Agreement. COMPANY acknowledges that versions of certain Products
not localized for a specific market may be prohibited or subject to import and
distribution procedures or restrictions under such laws and regulations. By way
of example only, as of July 1, 1997, the U.S.A. English version of Microsoft
Excel 97 cannot be distributed to or for use in India, and games, entertainment
products and products with substantial amounts of video, graphics or similar
content may be prohibited or subject to specific import procedures under laws
of the People's Republic of China. COMPANY agrees to indemnify MS from and
against all damages, costs and expenses (including reasonable attorneys' fees)
incurred by MS in connection with any and all claims, demands or actions
arising from COMPANY's importation or distribution of a Product in or to a
country or territory not in compliance with the laws and regulations of such
country or territory.
(h) Any Product which COMPANY distributes or licenses to or on behalf of the
United States of America, its agencies and/or instrumentalities (the
"Government"), shall be provided with RESTRICTED RIGHTS in accordance with
DFARS 252.227-7013(c)1(ii), or as set forth in the particular department or
agency regulations or rules, or particular contract which provide MS equivalent
or greater protection.
18. EXHIBITS.
The following Exhibits are part of this Agreement:
Exhibit(s) C Products for Dedicated Systems
Exhibit N Addresses
Exhibit Q Sales Targets
Exhibit R Royalty Report
Exhibit U OEM Customer Sublicense Agreement
for Dedicated Systems
Exhibit V License of Additional Product
Software Units
Exhibit Z
(if executed) Additional Country/Region Provisions
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives as of the date set forth above. All signed copies of
this Agreement shall be deemed originals. Each individual signing on behalf of
COMPANY below hereby represents and warrants that he or she has full authority
to sign this Agreement and bind COMPANY to perform all duties and obligations
contemplated by this Agreement. If COMPANY is located in a jurisdiction in
which a corporate seal or "chop" is commonly used as an instrument of agreement
execution, in addition to the individual signature provided below, COMPANY's
seal or "chop" should be entered below COMPANY's signature block.
MICROSOFT CORPORATION BSQUARE CORPORATION
/s/ RONALD HOSOGI /s/ WILLIAM BAXTER
- ------------------------------ -------------------------------------
By (Signature) By (Signature)
RONALD HOSOGI WILLIAM BAXTER
- ------------------------------ -------------------------------------
Name (Print) Name (Print)
DIRECTOR, OEM CEO
- ------------------------------ -------------------------------------
Title Title
NOV 20, 1997 10-24-97
- ------------------------------ -------------------------------------
Date Date
-------------------------------------
COMPANY's seal or "chop"
-------------------------------------
REVIEWED BY BSQUARE LEGAL
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<PAGE> 8
EXHIBIT C
PRODUCTS FOR DEDICATED SYSTEMS
<TABLE>
<CAPTION>
Language Licensed Files Applicable Localization
Versions(2) (for Kernel Additional Per copy Additional
Product Name and Version ** Versions Only) Provisions Royalty* Royalty
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Windows(R) CE Operating
System version 2.0 EN (a),(b),(c),(d) US* US*
Full Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 1.01 EN (a),(b),(c),(g) US* US*
Full Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 2.0 EN (a),(b),(c),(e) US* US*
Limited Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 1.01 EN (a),(b),(c),(h) US* US*
Limited Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 2.0 EN (a),(b),(c),(f) US* US*
Kernel Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 1.01 EN (a),(b),(c),(i) US* US*
Kernel Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
</TABLE>
* A Product is not licensed hereunder unless royalty rate(s) are indicated in
the Product table.
**Language Key: DE = German, ES = Spanish, EN = English, FR = French,
IT = Italian, JA = Japanese. Localized versions are licensed on an if and as
available basis.
ADDITIONAL PROVISIONS
(a) COMPANY shall advise its OEM Customers that the Dedicated Product
Deliverables for this Product consist of (i) the "untethered" Kernal Version of
the Product, and (ii) a license to distribute certain components of the software
in accordance with the Sublicense Agreement provided that such software was
developed by COMPANY utilizing the Windows CE Embedded Toolkit for Visual C++ in
accordance with the instructions therein.
(b) In order to support its OEM Customers, COMPANY agrees to enter into and
maintain, at COMPANY's expense, a valid Priority Support Agreement with MS at
all times during the period COMPANY is licensed for this Product.
(c) COMPANY shall not sign a Sublicense Agreement for the Product without MS'
prior written approval. To assist MS in its review of COMPANY's proposed OEM
Customer, COMPANY shall provide MS with:
(1) the name, address, and business profile in the English language
(including years in business, ownership profile, tradenames used, and
nature of principle business activities) of the proposed OEM Customer;
and
(2) model name, description and specific industry application of proposed
OEM Customer's Dedicated Systems.
(d) COMPANY's right to sublicense this Product shall apply only to those files
which are components of the Product's Full Version configuration as indicated
in the Dedicated product Deliverables documentation.
8
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
- ------------
* Confidential Treatment Requested
<PAGE> 9
EXHIBIT C
ADDITIONAL PROVISIONS
(Continued)
(e) COMPANY's right to sublicense this Product shall apply to those files which
are components of the Product's Limited Version configuration as indicated in
the Dedicated Product Deliverables documentation.
(f) COMPANY's right to sublicense this Product shall apply only to those files
which are components of the Product's Kernel Version configuration as indicated
in the Dedicated Product Deliverables documentation.
(g) COMPANY's right to sublicense this Product shall apply only to those files
which are components of Demos #4 and #5 as indicated in the Dedicated Product
Deliverables documentation.
(h) COMPANY's right to sublicense this Product shall apply only to those files
which are components of Demos #3 as indicated in the Dedicated Product
Deliverables documentation.
(g) COMPANY's right to sublicense this Product shall apply only to those files
which are components of Demos #1 and #2 as indicated in the Dedicated Product
Deliverables documentation.
9
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 10
EXHIBIT N
ADDRESS
COMPANY
- -------
NOTICES:
Bsquare Corporation
3633 136th Place SE, Suite 200
Bellevue, WA 98006
Attn: Mr. William Baxter
Telephone: 425-519-5963
Fax: 425-519-5998
BILL TO:
Bsquare Corporation
3633 136th Place SE Suite 200
Bellevue, WA 98006
Attn: Mr. William Baxter
SHIP TO:
Bsquare Corporation
3633 136th Place SE Suite 200
Bellevue, WA 98006
Attn: Mr. Don Baughman
COMPANY SUPPORT
TELEPHONE NO.: 425-519-5900
MS:
- ---
NOTICES:
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
U.S.A.
Attn: Vice President, OEM Group
WITH COPY TO:
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
U.S.A.
Attn: Law & Corporate Affairs
Fax: +1-425-936-7329
OTHER CORRESPONDENCE:
OEM Sales
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
U.S.A.
REPORTS AND PAYMENTS:
- ---------------------
REPORTS TO:
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
U.S.A.
Attention: OEM Finance
Fax: +1-425-936-5298
IF COMPANY IS A U.S.A., OR CANADA BASED COMPANY,
PAYMENT SHALL BE MADE BY WIRE TRANSFER TO:
MICROSOFT CORPORATION
c/o NationsBank of Texas, N.A.
1401 Elm Street
Dallas, TX
U.S.A.
ABA #11100001-2
SWIFT Code: NBKUS44DAL
Account #3750771783
Regarding:
Microsoft OEM #844500 Collections
IF COMPANY IS BASED OUTSIDE THE U.S.A. AND CANADA,
PAYMENTS SHALL BE MADE BY WIRE TRANSFER TO:
MICROSOFT CORPORATION
c/o Citybank, N.A.
399 Park Avenue
New York, NY 10043
U.S.A.
ABA 021000089
SWIFT Code: CITIUS33
Account #38468231
Regarding:
Microsoft International OEM Collections
or to such other address or account as MS may specify from time to time.
COMPANY agrees to ensure that the regarding line stated above, the MS
license agreement number for the Agreement, and the MS invoice number (if
any) are specified on each wire transfer payment made pursuant to the
Agreement."
10
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 11
EXHIBIT Q
SALES TARGETS
Sales Targets for Windows CE Products
<TABLE>
<CAPTION>
Period Sales Target Amount Cumulative Sales Target Amount
- ------ ------------------- ------------------------------
(US$) (US$)
<S> <C> <C>
The first calendar quarter following the calendar quarter in
which the Effective Date occurs ("First Target Period") $ * $ *
The calendar quarter following the First Target Period $ * $ *
The 2nd calendar quarter following the First Target Period $ * $ *
The 3rd calendar quarter following the First Target Period $ * $ *
Total Sales Target: $ * $ *
</TABLE>
11
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
- ------------
* Confidential treatment requested
<PAGE> 12
EXHIBIT R
ROYALTY REPORT
COMPANY NAME: _______________________________
LICENSE #: _______________________________
REPORTING PERIOD: _______________________________
REPORT DUE: _______________________________
<TABLE>
<CAPTION>
Prod. 1 Prod. 2 Prod. 3 Prod. 4 Prod. 5 Prod. 6 Prod. 7
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CUSTOMER SYSTEM
MODEL NAME OR PRODUCT UNITS/
MODEL NUMBER ROYALTY TYPE
- -----------------------------------------------------------------------------------------------------------
1 "Per System" units
---------------------------------------------------------------------------------------
"Per Copy" units
- -----------------------------------------------------------------------------------------------------------
2 "Per System" units
---------------------------------------------------------------------------------------
"Per Copy" units
- -----------------------------------------------------------------------------------------------------------
3 "Per System" units
---------------------------------------------------------------------------------------
"Per Copy" units
- -----------------------------------------------------------------------------------------------------------
4 "Per System" units
---------------------------------------------------------------------------------------
"Per Copy" units
- -----------------------------------------------------------------------------------------------------------
5 "Per System" units
---------------------------------------------------------------------------------------
"Per Copy" units
- -----------------------------------------------------------------------------------------------------------
6 "Per System" units
---------------------------------------------------------------------------------------
"Per Copy" units
- -----------------------------------------------------------------------------------------------------------
7 "Per System" units
---------------------------------------------------------------------------------------
"Per Copy" units
- -----------------------------------------------------------------------------------------------------------
8 "Per System" units
---------------------------------------------------------------------------------------
"Per Copy" units
- -----------------------------------------------------------------------------------------------------------
9 "Per System" units
---------------------------------------------------------------------------------------
"Per Copy" units
- ------------------------------------------------------------------------------------------------------------
10 "Per System" units
---------------------------------------------------------------------------------------
"Per Copy" units
- -----------------------------------------------------------------------------------------------------------
SUMMARY
- -----------------------------------------------------------------------------------------------------------
TOTAL UNITS "Per System" units 0 0 0 0 0 0 0
---------------------------------------------------------------------------------------
"Per Copy" units 0 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
ENTER THE NUMBER OF NON-ENGLISH VERSION
UNITS SHIPPED FOR EACH MICROSOFT PRODUCT
- -----------------------------------------------------------------------------------------------------------
</TABLE>
12
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 13
EXHIBIT R
(Continued)
Dollar Recap
<TABLE>
<CAPTION>
===============================================================================================
Product 1
- -----------------------------------------------------------------------------------------------
"Per System" Activity "Per Copy" Activity
Amount Amount
Units Royalty Quantity Due Units Royalty Quantity Due
----- ------- -------- ------ ----- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 to 0 $0.00 0 $0.00 1 to 0 $0.00 0 $0.00
$0.00 $0.00
+ $0.00 + $0.00
-------- --------
0 0
- -----------------------------------------------------------------------------------------------
Non-English Version Activity
Amount
Royalty Quantity Due
------- -------- ------
$0.00 0 $0.00 PRODUCT TOTAL $0.00
---------------------------------------
===============================================================================================
Product 2
- -----------------------------------------------------------------------------------------------
"Per System" Activity "Per Copy" Activity
Amount Amount
Units Royalty Quantity Due Units Royalty Quantity Due
----- ------- -------- ------ ----- ------- -------- ------
1 to 0 $0.00 0 $0.00 1 to 0 $0.00 0 $0.00
$0.00 $0.00
+ $0.00 + $0.00
-------- --------
0 0
- -----------------------------------------------------------------------------------------------
Non-English Version Activity
Amount
Royalty Quantity Due
------- -------- ------
$0.00 0 $0.00 PRODUCT TOTAL $0.00
---------------------------------------
===============================================================================================
PLEASE SEND REPORT TO:
Microsoft Corporation ----------------------------
OEM Accounting Services TOTAL REPORTED $0.00
FAX:(1) 206-936-5298 ----------------------------
===============================================================================================
</TABLE>
================================================================================
The undersigned hereby certifies that he/she is duly authorized by COMPANY to
complete this report, that the title listed below is his/her true and correct
title, and that this report is complete and correct.
REPORT COMPLETED BY:
------------------------ ---------------------------
Signature Date
------------------------ ---------------------------
Print name and title Telephone Number
================================================================================
13
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 14
EXHIBIT U
OEM CUSTOMER SUBLICENSE AGREEMENT
FOR DEDICATED SYSTEMS
This agreement ("Agreement") is made and entered into by and between you
("Customer"), and [enter name of COMPANY] ("Company"), and shall be effective as
of the date on which it is signed by COMPANY ("Effective Date"). Microsoft
Corporation ("Microsoft") shall be a third party beneficiary of this Agreement
and shall be entitled to enforce the terms of this Agreement as provided herein
and such other rights and obligations herein as necessary to protect Microsoft's
interests in the Microsoft software program(s) and other licensed product(s)
identified in Attachment 2 to this Agreement (the "SOFTWARE"). Microsoft
anticipates that it will transfer its OEM licensing operations to its wholly
owned subsidiary, Microsoft Licensing, Inc., a Nevada, U.S.A. corporation, on or
about December 31, 1997. From and after such transfer, all references to
"Microsoft" contained in this Agreement shall refer to "Microsoft Licensing,
Inc. Customer hereby acknowledges and agrees that, at Microsoft's request,
COMPANY shall provide a copy of this Agreement to Microsoft.
1. DEFINITIONS.
(a) "Dedicated Application" shall mean a dedicated purpose software program
which provides the primary functionality of the Dedicated System (as defined
below) and which, when used with the Dedicated System, offers significant
functionality in addition to the SOFTWARE. A Dedicated Application excludes any
software program which addresses more than one function of the office automation
and consumer computing markets. Office automation and consumer computing
functions include, without limitation, email, word processing, spreadsheets,
network browsing, scheduling, and personal finance.
(b) "Dedicated System" is a Customer's computer system or computing device which
utilizes a single microprocessor, is distributed with the SOFTWARE in accordance
with this Agreement, and is designed for exclusive use with a Dedicated
Application that provides the primary functionality of the system or device. A
Dedicated System excludes any general or multi-purpose personal, laptop,
desktop, handheld, notebook, server computers, or other such computing devices
which address more than one function of the office automation or consumer
computing markets and shall not be useable as a commercially acceptable
substitute for such computers or devices.
(c) "Dedicated Product Deliverables" shall mean SOFTWARE in object code form,
installation utilities, adaptation code in source code form, if provided by
COMPANY, and other information or instructions regarding the SOFTWARE that
COMPANY or Microsoft may provide.
(d) "EULA" shall mean an end user license agreement for the SOFTWARE.
(e) "Recovery Media" shall mean a backup image of the SOFTWARE as originally
installed on the Dedicated System.
(f) "SOFTWARE Upgrade" shall mean a copy of the SOFTWARE to be distributed by
Customer directly to end users to replace an earlier version of the SOFTWARE
licensed to Customer under this Agreement.
2. LIMITED LICENSE GRANT.
Subject to the restrictions set forth in this Agreement, and Customer's
compliance with all terms and conditions of this Agreement, COMPANY grants to
Customer the following limited license rights:
(a) (i) to install one (1) copy of the SOFTWARE in nonvolatile, solid-state
memory, on the hard disk drive, or in other nonvolatile form, in accordance with
instructions, if any, contained in the Dedicated Product Deliverables only as
part of a Dedicated System; and (ii) to distribute the SOFTWARE only as part of
such Dedicated Systems solely under Customer's brand names and trademarks.
(b) to configure the SOFTWARE in accordance with the instructions, if any,
contained in the Dedicated Product Deliverables solely to enable SOFTWARE to
execute on a Dedicated System.
(c) to reproduce and distribute with each Dedicated System distributed in
accordance with 2(a), not more than one (1) unit of Recovery Media provided
that:
(i) The images of the SOFTWARE on the Recovery Media shall be identical to
the object code that was originally installed on the Dedicated System.
Recovery Media may include non-Microsoft products that Customer distributes
installed on the Dedicated System;
(ii) Recovery Media shall be maintained by the end user as an archival copy
and may only be licensed for use: (A) to restore the same version and
language release of the SOFTWARE as originally installed on a Dedicated
System, or (B) to reinstall the same version and language release of the
SOFTWARE as originally installed on the Dedicated System after the
installation of an upgrade to the Dedicated Application on a Dedicated
System;
(iii) Recovery or reinstallation of the SOFTWARE shall be performed by an
authorized service representative of Customer or by the licensed end user;
(iv) Recovery Media may include a single copy of each of the following files
in order that the Recovery Media shall be "bootable": command.com, io.sys,
msdos.sys, and for Dedicated Systems with Windows 95, drvspace.bin;
(v) A single unit of Recovery Media may be used by the licensed end user or
the Customer's authorized service representative to restore or reinstall the
SOFTWARE on such end user's additional units of the same Dedicated System
which contain the same version and language release of the SOFTWARE
14
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 15
properly licensed to the end user pursuant to this Agreement;
(vi) Recovery Media shall be clearly labeled "Recovery Media" -for Backup
or Archival purposes only with >Name and Model of the Dedicated System
(d) to reproduce and distribute SOFTWARE Upgrades to an end user provided
that
(i) such end user is an existing, authorized end user of a Dedicated
System;
(i) Customer shall acquire a serialized sticker from COMPANY, and Customer
shall pay the applicable SOFTWARE royalty fee as set forth in Attachment 2 for
each copy of SOFTWARE Upgrade installed by its end users or service
representatives pursuant to this Section 2(d);
(iii) SOFTWARE Upgrades shall be distributed directly by Customer, separate
from a Dedicated System, to an end-user for use solely as a replacement copy for
the SOFTWARE originally installed on the Dedicated System pursuant to this
Agreement;
(iv) the SOFTWARE Upgrade is configured to ensure that it executes solely
on the applicable Dedicated System and will not execute on general or
multi-purpose personal, laptop, desktop, handheld, notebook, or server computers
which address the office automation market;
(v) the SOFTWARE Upgrade is distributed as an integrated part of the
Dedicated Application;
(vi) Installation of the SOFTWARE Upgrade shall be performed by an
authorized service representative of Customer or by the licensed end user;
(vii) A single unit of SOFTWARE Upgrade may be used by the licensed end
user or the Customer's authorized service representative to install the SOFTWARE
Upgrade on such end user's additional units of the same Dedicated System which
contain the same version and language release of the SOFTWARE;
(viii) Customer shall establish a reasonable procedure to assure the return
or destruction of any replaced SOFTWARE (for example, a SOFTWARE Upgrade that
erases or permanently disables the replaced SOFTWARE would satisfy this
requirement);
(ix) the SOFTWARE Upgrade shall be clearly labeled "For Upgrade purposes
only - not for use on a new Dedicated System. For Use Only with <Name and Model
of the Dedicated System>".
(e) Customer shall cause to appear in a conspicuous place in the Dedicated
System documentation, the EULA attached to this Agreement as Attachment 1, or
such other EULA as COMPANY may provide from time to time, with each Dedicated
System and each copy of SOFTWARE Upgrade: Customer shall adapt the EULA as
necessary to comply with the laws of any jurisdiction in which the SOFTWARE is
distributed.
3. LICENSE RESTRICTIONS.
(a) The total number of units of the SOFTWARE (including any SOFTWARE Upgrades)
distributed by Customer shall not exceed the number of "Units of SOFTWARE
licensed" for such SOFTWARE as set forth in Attachment 2 hereto.
(b) Except as provided in Section 2(c)-(d), SOFTWARE may not be distributed in
whole or in part other than installed on the Dedicated System.
(c) Customer may not distribute any SOFTWARE documentation.
(d) Customer shall not use, copy, modify, or transfer the SOFTWARE or any copy
in whole or in part, except as expressly provided in this Agreement. Customer's
reproduction of the SOFTWARE in accordance with Section 2 shall be performed
only on Customer premises by Customer's regular employees except as otherwise
specifically approved in writing by Microsoft.
(e) Customer shall not reverse engineer, decompile or disassemble any SOFTWARE
except as permitted by applicable law without the possibility of contractual
waiver. Customer acknowledges that information on interoperability of the
SOFTWARE with other products is readily available.
(f) All distribution and use of the SOFTWARE is by license only. Neither
COMPANY nor Microsoft authorize the SOFTWARE to be "issued to the public",
"put into circulation", or subject to a "first sale" as the copyright laws may
use those (or similar) terms. Customer's license to distribute the SOFTWARE is
limited to distribution of the SOFTWARE by Customer to end users for use
pursuant to a EULA.
(g) Customer may distribute only one copy of SOFTWARE in addition to one copy
of preinstalled SOFTWARE in one language version and release version (i.e.
MS-DOS 5.0 or MS-DOS 6.22; MS-DOS or MS-DOS ROM version) for use on each such
Dedicated System.
(h) Microsoft reserves all rights not expressly granted including, without
limitation, modification rights, translation rights, rental rights, and rights
to source code. Microsoft expressly reserves its exclusive right under
applicable copyright, patent, and trademark laws to distribute copies of
SOFTWARE by any means. Except as set forth in Section 2(c)-(d) above, without
limitation, neither COMPANY nor Microsoft authorizes Customer to distribute the
SOFTWARE separately from Dedicated Systems; any such unauthorized distribution
by Customer shall constitute a violation of this Agreement and Microsoft's
distribution right under applicable law. Customer acknowledges that Microsoft
(and/or its suppliers, if applicable) shall retain all copyright, patent,
moral, trademark, title and other proprietary and intellectual property in the
SOFTWARE, Dedicated Product Deliverables and components thereof, in whole or in
part in any form.
(i) Customer will not remove, modify, or obscure any copyright, trademark,
patent or other intellectual property notices included on the SOFTWARE or the
SOFTWARE Upgrade.
(j) Customer shall not advertise, publish or otherwise mark.
15
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 16
a separate price for the SOFTWARE.
(k) Customer agrees to provide commercially reasonable end user support for the
SOFTWARE which, in any event, shall be under terms and conditions at least as
favorable to the end user as the terms under which Customer provides support
for Dedicated System(s) to end users generally. Customer agrees to provide
COMPANY and Microsoft with ninety (90) days prior written notice of any
substantive change in Customer's support policy for the SOFTWARE.
4. LICENSE STICKER.
(a) Customer shall place a serialized sticker supplied by COMPANY for each unit
of SOFTWARE: (i) on the hard drive containing the SOFTWARE, or (ii) if the
SOFTWARE is installed in ROM, on the ROM or in a conspicuous place on the
component board to which the ROM is attached. If placement as described in both
(i) and (ii) are impractical, the label may be affixed to the inside or outside
of the rear panel of the Dedicated System casing.
(b) (i) Customer shall also place a serialized sticker supplied by COMPANY on
the media for each unit of SOFTWARE Upgrade distributed by Customer.
(ii) If one unit of the COMPANY Upgrade is used to install the SOFTWARE
Upgrade on additional units of the Dedicated System as set forth in Section
2(d)(vii), prior to distribution of the SOFTWARE Upgrade, Customer shall
(A) determine the number of units of SOFTWARE Upgrade to be installed, (B)
provide end user or Customer's authorized service representative with a
serialized sticker supplied by COMPANY for each such unit, and (C) ensure
that a serialized sticker is placed on each Dedicated System on which
SOFTWARE Upgrade is installed as described in Section 4(a).
5. DELIVERY.
For each SOFTWARE product licensed hereunder, COMPANY (or Microsoft, on behalf
of COMPANY) shall deliver to Customer one (1) unit of Dedicated Product
Deliverables. Customer acknowledges and agrees that neither COMPANY nor
Microsoft shall have any liability for failure to deliver Dedicated Product
Deliverables by any particular date, or if the SOFTWARE is not yet a released
product, during the term of this Agreement.
6. LIMITED WARRANTY AND CUSTOMER REMEDIES.
(a) COMPANY warrants that the SOFTWARE will perform substantially in accordance
with the accompanying written materials for a period of ninety (90) days from
the date of receipt.
(b) COMPANY's, Microsoft's, and their suppliers' entire liability and
Customer's exclusive remedy for a breach of the warranty set forth above shall
be, at COMPANY's option, either (i) return of the price paid or (ii) repair or
replacement of the SOFTWARE that does not meet the above Limited Warranty and
which is returned to COMPANY. This Limited Warranty is void if failure of the
SOFTWARE has resulted from accident, abuse, or misapplication. Any replacement
SOFTWARE will be warranted for the remainder of the original warranty period or
thirty (30) days, whichever is longer.
(c) COMPANY, MICROSOFT, AND THEIR SUPPLIERS DISCLAIM ALL OTHER WARRANTIES,
EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF
NON-INFRINGEMENT, MERCHANTABILITY, AND/OR FITNESS FOR A PARTICULAR PURPOSE,
WITH RESPECT TO THE SOFTWARE AND ANY ACCOMPANYING WRITTEN MATERIALS.
(d) The rights and remedies granted to Customer under this Section 6 constitute
Customer's sole and exclusive remedy against the COMPANY and Microsoft, their
officers, agents and employees for any and all claims arising in connection
with the SOFTWARE or the Dedicated Product Deliverables including but not
limited to claims regarding COMPANY's or Microsoft's delivery of SOFTWARE or
Dedicated Product Deliverables, or indemnification or contribution from COMPANY
or Microsoft with respect to any infringement of the rights of a third party,
whether arising under statutory or common law or otherwise.
7. TERM AND TERMINATION.
(a) The term of this license shall run from the Effective Date until the
earlier of: (i) one (1) year after Effective Date, or (ii) the date on which
Customer has distributed the number of units of SOFTWARE licensed under this
Agreement as set forth in Attachment 2 for each SOFTWARE.
(b) Termination due to breach of Sections 3(d), 3(e), 3(f), 10, or 11 shall be
effective upon notice to Customer. In all other cases, termination shall be
effective fifteen (15) days after notice of termination to the defaulting party
if the defaults have not been cured within such fifteen (15) day period. At the
option of the non-defaulting party, termination due to a breach of any
provision of this Agreement may be effective upon notice to the defaulting
party if such party has received two (2) or more previous notices of default
during the term of this Agreement (whether or not such previous defaults have
been cured).
(c) Upon termination or expiration of the Agreement, Customer will immediately
cease all use and distribution of the SOFTWARE, the SOFTWARE product name, and
all associated trademark(s). Within ten (10) days of the termination or
expiration of the Agreement, Customer shall return to COMPANY all Dedicated
Product Deliverables and serialized stickers for the SOFTWARE in Customer's
possession or under Customer's control. There shall be no refund or adjustment
for amounts paid for the Dedicated Product Deliverables or stickers returned to
COMPANY in accordance with this Section 7(c).
8. DISCLAIMER OF LIABILITY.
IN NO EVENT SHALL COMPANY, MICROSOFT, OR THEIR SUPPLIERS BE LIABLE FOR ANY
DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS
PROFITS, CONSEQUENTIAL, INCIDENTAL, INDIRECT, ECONOMIC OR
16
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 17
PUNITIVE DAMAGES, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR OTHER
PECUNIARY LOSS) ARISING OUT OF THE MANUFACTURE, SALE, USE OF OR INABILITY TO
MANUFACTURE, SELL OR USE THE SOFTWARE, EVEN IF ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
9. TECHNICAL SUPPORT.
This Agreement does not include technical support from Microsoft. Technical
support for the SOFTWARE will be provided by COMPANY.
10. AUDITS AND INSPECTIONS.
(a) During the term of this Agreement and for three (3) years thereafter,
Customer agrees to keep all usual and proper entries relating to each unit of
SOFTWARE licensed sufficient to substantiate the number of units of SOFTWARE
and the number of Dedicated Systems distributed by Customer.
(b) In order to verify statements issued by Customer and Agreement, COMPANY
and/or Microsoft may cause (i) an audit to be made of Customer's books and
records and/or (ii) an inspection to be made of Customer's facilities and
procedures. Any audit and/or inspection shall be conducted during regular
business hours at Customer's facilities, with or without notice. Any audit shall
be conducted by an independent certified public accountant selected by
Microsoft or COMPANY (other than on a contingent fee basis).
(c) Customer agrees to provide Microsoft's and/or COMPANY's designated audit or
inspection team(s) access to the relevant Customer records and facilities.
Prompt adjustment shall be made to compensate for any errors or omissions
disclosed by such audit. If material discrepancies are disclosed in such audit,
Customer agrees to pay Microsoft or COMPANY, as applicable, for the costs
associated with the audit.
11. NONDISCLOSURE OBLIGATION.
Customer shall keep confidential the Dedicated Product Deliverables, any
SOFTWARE source code provided by COMPANY or Microsoft on behalf of COMPANY, the
terms and conditions of this Agreement, and other non-public information and
know-how disclosed to Customer by COMPANY or Microsoft. Customer may disclose
the terms and conditions of this Agreement in confidence to its immediate legal
and financial consultants as required in the ordinary course of Customer's
business. Customer's obligation under this Section shall survive termination or
expiration of this Agreement and shall extend until such time as the
information protected hereby is in the public domain.
12. GENERAL.
(a) This Agreement shall be construed and controlled by the laws of the State
of Washington, and Customer further consents to jurisdiction by the state and
federal courts sitting in the State of Washington. Process may be served on
either party by air express courier, (e.g. DHL, Airborne) charges prepaid,
return receipt requested. If COMPANY, Microsoft or Customer employs attorneys
to enforce any rights arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover reasonable attorney's fees.
(b) Customer agrees that it will not export or re-export SOFTWARE to any
country, person, entity or end user subject to U.S. export restrictions.
Customer specifically agrees not to export or re-export SOFTWARE (i) to any
country to which the U.S. has embargoed or restricted the export of goods or
services, which as of December 31, 1996 include, but are not necessarily
limited to, Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria, or to any
national of any such country who Customer knows intends to transmit or
transport the products back to such country; (ii) to any end-user who Customer
knows will utilize SOFTWARE in the design, development or production of
nuclear, chemical or biological weapons; or (iii) to any end-user who has been
prohibited from participating in U.S. export transactions by any federal agency
of the U.S. government.
(c) If any provision or portion of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, the remaining
provisions or portions shall remain in full force and effect.
(d) No waiver of any breach of any provision of this Agreement shall constitute
a waiver of any prior, concurrent, or subsequent breach of the same or any
other provisions hereof, and no waiver shall be effective unless made in
writing and signed by an authorized representative of the waiving party.
(e) Any assignment of this Agreement without prior written consent of the
non-assigning party shall be void.
(f) SOFTWARE may be imported, distributed, or sold in or to a country or
territory only if allowed by, and in compliance with, all applicable laws and
regulations of such country or territory as well as all terms and conditions of
this Agreement. Customer acknowledges that versions of certain SOFTWARE not
localized for a specific market may be prohibited or subject to import and
distribution procedures or restrictions under such laws and regulations. By way
of example only, as of July 1, 1997, the U.S.A. English version of Microsoft
Excel 97 cannot be distributed to or for use in India, and games, entertainment
products and products with substantial amounts of video, graphics or similar
content may be prohibited or subject to specific import procedures under laws
of the People's Republic of China. Customer agrees to indemnify COMPANY and
Microsoft from and against all damages, costs and expenses (including
reasonable attorneys' fees) incurred by COMPANY or Microsoft in connection with
any and all claims, demands or actions arising from Customer's importation or
distribution of SOFTWARE in or to a country or territory not in compliance with
the laws and regulations of such country or territory.
(f) Any SOFTWARE which Customer distributes or licenses to or on behalf of the
United States of America, its agencies and/or instrumentalities (the
"Government"), shall be provided with RESTRICTED RIGHTS in accordance with
DFARS 252.227-7013(c)1(ii), or as set forth in the
17
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 18
particular department or agency regulations or rules, or particular
contract which provide Microsoft equivalent or greater protection.
Should Customer have any questions concerning this Agreement, please
write:
_________________________________________________________________________
Name of COMPANY
_________________________________________________________________________
Address
_________________________________________________________________________
_________________________________________________________________________
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives as of the date set forth above. All signed copies of
this Agreement shall be deemed originals. Each individual signing on behalf of
Customer below hereby represents and warrants that he or she has full authority
to sign this Agreement and bind Customer to perform all duties and obligations
contemplated by this Agreement. If Customer is located in a jurisdiction in
which a corporate seal or "chop" is commonly used as an instrument of agreement
execution, in addition to the individual signature provided below, Customer's
seal or "chop" should be entered below Customer's signature block.
COMPANY
_______________________________________________________________________________
By (Signature)
_______________________________________________________________________________
Name (Print)
_______________________________________________________________________________
Title
_______________________________________________________________________________
Date
CUSTOMER
_______________________________________________________________________________
By (Signature)
_______________________________________________________________________________
Name (Print)
_______________________________________________________________________________
Title
_______________________________________________________________________________
Date
18
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 19
ATTACHMENT 1
TO OEM CUSTOMER SUBLICENSE AGREEMENT FOR DEDICATED SYSTEMS
END-USER LICENSE AGREEMENT FOR MICROSOFT SOFTWARE
IMPORTANT--READ CAREFULLY: THIS END-USER LICENSE AGREEMENT ("EULA") IS A LEGAL
AGREEMENT BETWEEN YOU (EITHER AN INDIVIDUAL OR A SINGLE ENTITY) AND THE
MANUFACTURER ("MANUFACTURER") OF THE SPECIAL PURPOSE COMPUTING DEVICE ("SYSTEM")
YOU ACQUIRED WHICH INCLUDES CERTAIN MICROSOFT SOFTWARE PRODUCT(S) INSTALLED ON
THE SYSTEM ("SOFTWARE PRODUCT" OR "SOFTWARE"). THE SOFTWARE INCLUDES COMPUTER
SOFTWARE, THE ASSOCIATED MEDIA, ANY PRINTED MATERIALS, AND ANY "ONLINE" OR
ELECTRONIC DOCUMENTATION. BY INSTALLING, COPYING OR OTHERWISE USING THE
SOFTWARE, YOU AGREE TO BE BOUND BY THE TERMS OF THIS EULA. IF YOU DO NOT AGREE
TO THE TERMS OF THIS EULA, MANUFACTURER AND MICROSOFT CORPORATION ("MICROSOFT")
ARE UNWILLING TO LICENSE THE SOFTWARE TO YOU. IN SUCH EVENT, YOU MAY NOT USE OR
COPY THE SOFTWARE, AND YOU SHOULD PROMPTLY CONTACT MANUFACTURER FOR INSTRUCTIONS
ON RETURN OF THE UNUSED PRODUCT(S) FOR A REFUND.
- ------------------------------------------------------------------------------
SOFTWARE LICENSE
The SOFTWARE is protected by copyright laws and international copyright
treaties, as well as other intellectual property laws and treaties. The SOFTWARE
is licensed, not sold.
1. GRANT OF LICENSE. This EULA grants you the following rights:
- SOFTWARE. You may use the SOFTWARE as installed on the SYSTEM.
- APPLICATION SHARING. The SOFTWARE may contain technology that enables
applications to be shared between two or more SYSTEMS, even if an
application is installed on only one of the SYSTEMS. You should
consult your application license agreement or contact the application
licensor to determine whether sharing the application is permitted by
its licensor.
- STORAGE/NETWORK USE. If the SOFTWARE PRODUCT is installed on the
SYSTEM over an internal network from a server, you must acquire and
dedicate a license for the SOFTWARE PRODUCT for each SYSTEM on which
the SOFTWARE PRODUCT is used or to which it is distributed. A license
for the SOFTWARE PRODUCT may not be shared or used concurrently on
different SYSTEMS.
- BACK-UP COPY. If MANUFACTURER has not included a copy of the SOFTWARE
on separate media with the SYSTEM, you may make a single copy of the
SOFTWARE for use solely for archival purposes with the SYSTEM.
2. DESCRIPTION OF OTHER RIGHTS AND LIMITATIONS.
- LIMITATIONS ON REVERSE ENGINEERING, DECOMPILATION AND DISASSEMBLY. You
may not reverse engineer, decompile, or disassemble the SOFTWARE,
except and only to the extent that such activity is expressly
permitted by applicable law notwithstanding this limitation.
- SINGLE SYSTEM. The SOFTWARE is licensed with the SYSTEM as a single
integrated product. The SOFTWARE may only be used with the SYSTEM.
- RENTAL. You may not rent or lease the SOFTWARE.
- SOFTWARE TRANSFER. You may permanently transfer all of your rights
under this EULA only as part of a sale or transfer of the SYSTEM,
provided you retain no copies, you transfer all of the SOFTWARE
(including all component parts, the media, any upgrades or backup
copies, and this EULA, and if applicable, the Certificate(s) of
Authenticity), AND the recipient agrees to the terms of this EULA. If
the SOFTWARE is an upgrade, any transfer must include all prior
versions of the SOFTWARE.
- TERMINATION. Without prejudice to any other rights, Manufacturer or
Microsoft may terminate this EULA if you fail to comply with the terms
and conditions of this EULA. In such event, you must destroy all
copies of the SOFTWARE and all of its component parts.
- SINGLE EULA. The package for the SOFTWARE may contain multiple
versions of this EULA, such as multiple translations and/or multiple
media versions (e.g., in the user documentation and in the software).
In this case, you are only licensed to use one (1) copy of the
SOFTWARE PRODUCT.
- EXPORT RESTRICTIONS. You agree that you will not export or re-export
the SOFTWARE to any country, person, entity or end user subject to
U.S. export restrictions. You specifically agree not to export or
re-export the SOFTWARE (i) to any country to which the U.S. has
embargoed or restricted the export of goods or services, which
currently include, but are not necessarily limited to Cuba, Iran,
Iraq, Libya, North Korea, Sudan and Syria, or to any national of any
such country, wherever located, who intends to transmit or transport
the products back to such country; (ii) to an end user you know or
have reason to know will utilize the SOFTWARE in the design,
development or production or nuclear, chemical or biological weapons;
or (iii) to any end-user who has been prohibited from participating in
U.S. export transactions by any federal agency of the U.S. government.
3. UPGRADES AND RECOVERY MEDIA.
- If the SOFTWARE is provided by Manufacturer on media separate from the
SYSTEM and is labeled "For Upgrade Purposes Only" (Upgrade SOFTWARE),
you may install one copy of the Upgrade SOFTWARE onto the SYSTEM as a
replacement copy for the SOFTWARE originally installed on the SYSTEM
and use it in accordance with Section 1 of this EULA. You may also
install additional copies of the Upgrade SOFTWARE as replacement
copies onto additional SYSTEMS which are the same brand and model as
the
19
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 20
SYSTEM and contain a duly licensed copy of the same version and language
release of the SOFTWARE ("ADDITIONAL SYSTEMS"), provided that (1)
Manufacturer has supplied a corresponding serialized sticker for each
additional copy of the Upgrade SOFTWARE, and (2) you affix a serialized
sticker per Manufacturer's instructions for each unit of Upgrade SOFTWARE
you install.
o If the SOFTWARE is provided by Manufacturer on separate media and labeled
as "Recovery Media", you may not make a copy of the SOFTWARE as described
in Section 1 for archival purposes. Instead, you may use the Recovery Media
solely to restore or reinstall the same version and language release of the
SOFTWARE as originally installed on the SYSTEM and thereafter use the
SOFTWARE as restored or reinstalled in accordance with Section 1 of this
EULA. A single unit of Recovery Media may be used by you to restore or
reinstall the SOFTWARE on ADDITIONAL SYSTEMS.
4. COPYRIGHT. All title and copyrights in and to the SOFTWARE (including but not
limited to any images, photographs, animations, video, audio, music, text and
"applets," incorporated into the SOFTWARE), the accompanying printed
materials, and any copies of the SOFTWARE, are owned by Microsoft or its
suppliers. You may not copy the printed materials accompanying the SOFTWARE.
All rights not specifically granted under this EULA are reserved by
Microsoft.
5. PRODUCT SUPPORT. PRODUCT SUPPORT FOR THE SOFTWARE IS NOT PROVIDED BY
MICROSOFT OR ITS SUBSIDIARIES. FOR PRODUCT SUPPORT, PLEASE REFER TO
MANUFACTURER'S SUPPORT NUMBER PROVIDED IN THE DOCUMENTATION FOR THE SYSTEM.
SHOULD YOU HAVE ANY QUESTIONS CONCERNING THIS EULA, OR IF YOU DESIRE TO
CONTACT MANUFACTURER FOR ANY OTHER REASON, PLEASE REFER TO THE ADDRESS
PROVIDED IN THE DOCUMENTATION FOR THE SYSTEM.
6. LIMITED WARRANTY.
o LIMITED WARRANTY. Manufacturer warrants that the SOFTWARE will perform
substantially in accordance with the accompanying written materials for a
period of ninety (90) days from the date of receipt. Any implied warranties
on the SOFTWARE are limited to ninety (90) days. Some states/jurisdictions
do not allow limitations on duration of an implied warranty, so the above
limitation may not apply to you.
o CUSTOMER REMEDIES. Manufacturer's and its suppliers' entire liability and
your exclusive remedy shall be, at Manufacturer's option, either (a) return
of the price paid, or (b) repair or replacement of the SOFTWARE that does
not meet the above Limited Warranty and which is returned to Manufacturer
with a copy of your receipt. This Limited Warranty is void if failure of
the SOFTWARE has resulted from accident, abuse, or misapplication. Any
replacement SOFTWARE will be warranted for the remainder of the original
warranty period or thirty (30) days, whichever is longer.
o NO OTHER WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN THE LIMITED WARRANTY
SECTION ABOVE, THE SOFTWARE IS PROVIDED TO THE END USER "AS IS" WITHOUT
WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY, AND/OR FITNESS
FOR A PARTICULAR PURPOSE. THE ENTIRE RISK OF THE QUALITY AND PERFORMANCE OF
THE SOFTWARE IS WITH YOU.
o NO LIABILITY FOR CONSEQUENTIAL DAMAGES. MANUFACTURER OR MANUFACTURER'S
SUPPLIERS SHALL NOT BE HELD TO ANY LIABILITY FOR ANY DAMAGES SUFFERED OR
INCURRED BY THE END USER (INCLUDING, BUT NOT LIMITED TO, GENERAL, SPECIAL,
CONSEQUENTIAL OR INCIDENTAL DAMAGES INCLUDING DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION AND THE LIKE),
ARISING FROM OR IN CONNECTION WITH THE DELIVERY, USE OR PERFORMANCE OF THE
SOFTWARE.
20
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 21
7. NOTE ON JAVA SUPPORT. THE SOFTWARE PRODUCT MAY CONTAIN SUPPORT FOR
PROGRAMS WRITTEN IN JAVA. JAVA TECHNOLOGY IS NOT FAULT TOLERANT AND IS NOT
DESIGNED, MANUFACTURED, OR INTENDED FOR USE OR RESALE AS ON-LINE CONTROL
EQUIPMENT IN HAZARDOUS ENVIRONMENTS REQUIRING FAIL-SAFE PERFORMANCE, SUCH
AS IN THE OPERATION OF NUCLEAR FACILITIES, AIRCRAFT NAVIGATION OR
COMMUNICATION SYSTEMS, AIR TRAFFIC CONTROL, DIRECT LIFE SUPPORT MACHINES,
OR WEAPONS SYSTEMS, IN WHICH THE FAILURE OF JAVA TECHNOLOGY COULD LEAD
DIRECTLY TO DEATH, PERSONAL INJURY, OR SEVERE PHYSICAL OR ENVIRONMENTAL
DAMAGE.
_______________________________________________________________________________
U.S. GOVERNMENT RESTRICTED RIGHTS
The SOFTWARE and documentation are provided with RESTRICTED RIGHTS. Use,
duplication, or disclosure by the Government is subject to restrictions as set
forth in subparagraph (c)(I)(ii) of the Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of the
Commercial Computer Software -- Restricted Rights at 48 CFR 52.227-19, as
applicable. Manufacturer is Microsoft Corporation/One Microsoft Way/Redmond, WA
98052-6399. If you acquired this EULA in the United States, this EULA is
governed by the laws of the State of Washington.
If you acquired this EULA in Canada, this EULA is governed by the laws of the
Province of Ontario, Canada. Each of the parties hereto irrevocably attorns to
the jurisdiction of the courts of the Province of Ontario and further agrees to
commence any litigation which may arise hereunder in the courts located in the
Judicial District of York, Province of Ontario.
If this EULA was acquired outside the United States, then local law may apply.
Should you have any questions concerning this EULA, please contact the
Manufacturer.
21
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 22
ATTACHMENT 2
TO OEM CUSTOMERS SUBLICENSE AGREEMENT FOR DEDICATED SYSTEMS
SOFTWARE PRODUCTS FOR DEDICATED SYSTEMS
<TABLE>
<CAPTION>
UNITS OF LANGUAGE LICENSED FILES APPLICABLE LOCALIZATION
SOFTWARE VERSION(S) (FOR KERNEL ADDITIONAL PER COPY ADDITIONAL
PRODUCT NAME AND VERSION LICENSED ** VERSIONS ONLY) PROVISIONS ROYALTY* ROYALTY
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
1. WINDOWS(R) CE OPERATING
SYSTEM VERSION 2.0 ---- EN (a),(b),(c),(d) US$_____ US$_____
FULL VERSION (E),(f),(g)
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
2. WINDOWS(R) CE OPERATING
SYSTEM VERSION 1.01 ---- EN (a),(b),(c),(d) US$_____ US$_____
FULL VERSION (e),(f),(J)
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
3. WINDOWS(R) CE OPERATING
SYSTEM VERSION 2.0 ---- EN (a),(b),(c),(d) US$_____ US$_____
LIMITED VERSION (e),(f),(h)
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
4. WINDOWS(R) CE OPERATING
SYSTEM VERSION 1.01 ---- EN (a),(b),(c),(d) US$_____ US$_____
LIMITED VERSION (e),(f),(k)
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
5. WINDOWS(R) CE OPERATING
SYSTEM VERSION 2.0 ---- EN (a),(b),(c),(d) US$_____ US$_____
KERNEL VERSION (e),(f),(i)
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
6. WINDOWS(R) CE OPERATING
SYSTEM VERSION 1.01 ---- EN (a),(b),(c),(d) US$_____ US$_____
KERNEL VERSION (e),(f),(l)
- --------------------------------- -------------- -------------- ------------------- ------------------ ------------ ---------------
</TABLE>
* IF ROYALTY RATE AND UNITS OF SOFTWARE ARE NOT SPECIFIED FOR A PARTICULAR
PRODUCT, THEN SUCH PRODUCT IS NOT LICENSED UNDER THIS AGREEMENT.
**LANGUAGE KEY: DE = GERMAN, ES = SPANISH, EN = ENGLISH, FR = FRENCH,
IT = ITALIAN, JA = JAPANESE. LOCALIZED VERSIONS ARE LICENSED ON AN IF AND AS
AVAILABLE BASIS.
22
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 23
ADDITIONAL PROVISIONS
(a) The Dedicated Product Deliverables for this SOFTWARE consist of (i) the
"untethered" Kernel Version of the SOFTWARE, and (ii) a license to distribute
certain components of the SOFTWARE with Customer's hardware reference platform
and/or software applications developed by COMPANY utilizing the Windows CE
Embedded Toolkit for Visual C++ in accordance with the instructions therein,
provided that such SOFTWARE and Customer components are distributed in
accordance with this Agreement and are distributed solely as part of Customer's
Dedicated System.
(b) Notwithstanding anything to the contrary contained in the Agreement,
Customer may not reproduce the SOFTWARE or Dedicated Product Deliverables in any
manner except as necessary to install the SOFTWARE on Customer's Dedicated
Systems in accordance with Section 2(a); and (ii) configure the SOFTWARE to
execute on Customer's Dedicated Systems, in accordance with the instructions
contained in the Dedicated Product Deliverables.
(c) Dedicated Systems shall be distributed only through such channels as may
be customary for similar devices for the referenced industry and the specific
industry application.
(d) If an end user of the Dedicated System shall have access to the command
line (for example, the C:\prompt) of the SOFTWARE, then Customer shall cause to
appear on the display screen as part of the sign-on message for each SOFTWARE
the copyright notices specified in the Dedicated Product Deliverables.
(e) If Customer installs the SOFTWARE in ROM and the SOFTWARE is not the only
software contained in ROM, Customer will ensure that Microsoft's copyright
notice for SOFTWARE shall at all times be included in the first four percent
(4%) and the last four percent (4%) of the software contained in ROM. The
copyright notice(s) for SOFTWARE shall be as specified in the Dedicated Product
Deliverables. In any event, Customer will not remove any copyright, trademark
or patent notices that appear on the SOFTWARE as delivered to Customer.
(f) Notwithstanding anything to the contrary contained within the Agreement,
Customer may distribute SOFTWARE only with Dedicated Systems which are marketed
an distributed exclusively under Customer's brand names, trade names and
trademarks. The SOFTWARE may not be distributed with Dedicated Systems which
are marketed or distributed under any name which includes any third party brand
names, trade names or trademarks.
(g) Customer's license rights with respect to the SOFTWARE shall apply only to
those files which are components of the SOFTWARE Full Version configuration as
indicated in the Dedicated Product Deliverables documentation.
(h) Customer's license rights with respect to the SOFTWARE shall apply only to
those files which are components of the SOFTWARE Limited Version configuration
as indicated in the Dedicated Product Deliverables documentation.
(i) Customer's license rights with respect to the SOFTWARE shall apply only to
those files which are components of the SOFTWARE Kernel Version configuration
as indicated in the Dedicated Product Deliverables documentation.
(j) Customer's license rights with respect to the SOFTWARE shall apply only to
those files which are components of Demos #4 and #5 as indicated in the
Dedicated Product Deliverables documentation.
(k) Customer's license rights with respect to the SOFTWARE shall apply only to
those files which are components of Demo #3 as indicated in the Dedicated
Product Deliverables documentation.
(l) Customer's license rights with respect to the SOFTWARE shall apply only to
those files which are components of Demos #1 and #2 as indicated in the
Dedicated Product Deliverables documentation.
DEDICATED SYSTEMS
Customer's Dedicated Systems for SOFTWARE described in this Attachment 2 shall
be limited to Customer's current and future Dedicated Systems described below.
Each listed Dedicated System must have a unique model line name, model name, or
model number which Customer uses both internally (in Customer's books and
records) and externally (on the Dedicated System case and packaging). New
models may be added by agreement of the parties.
At Customer's option, for purposes of administrative convenience, Customer may
designate models by model line or series. e.g., "Jaguar model line", "Jaguar
Pro series", "Jaguar Pro 750 model line", "Jaguar Pro 950 series", etc.)."
Dedicated Systems defined by model line or series shall include all present
models which include the designated model line or series name, (e.g., "Jaguar
Pro model line" includes Jaguar Pro, Jaguar Pro 950, Jaguar Pro S, etc.;
"Jaguar series" includes Jaguar, Jaguar Pro, Jaguar Pro 950, Jaguar S400, etc.;
"Jaguar Pro 950 series" includes Jaguar Pro 950, Jaguar Pro 955, etc.).
PRODUCT NUMBER KEY: 1 = Windows CE 2.0 Full Version; 2 = Windows CE 1.01 Full
Version; 3 = Windows CE 2.0 Limited Version; 4 = Windows CE 1.01 Limited
Version; 5 = Windows CE 2.0 Kernel Version; 6 = Windows CE 1.01 Kernel Version.
ROYALTY BASIS KEY: C = per copy; if Product box is blank, such Product is not
licensed for distribution with the listed Dedicated System.
23
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 24
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SPECIFIC
INDUSTRY
MODEL NAME OR MODEL NUMBER APPLICATION 1 2 3 4 5
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SPECIFIC
INDUSTRY
MODEL NAME OR MODEL NUMBER APPLICATION 6 7 8 9 10
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------------------ -------------- ---------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
24
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 25
EXHIBIT V
LICENSE OF ADDITIONAL PRODUCT SOFTWARE UNITS
AMENDMENT NUMBER ___
Amendment Date: _____________________
to OEM CUSTOMER SUBLICENSE AGREEMENT FOR DEDICATED SYSTEMS
between _________________________, a Corporation of _________________________
and _________________________, a Corporation of _________________________
Agreement Effective Date: _______________________
WHEREAS, Customer has licensed a certain number of units of Product
Software (the "SOFTWARE") from COMPANY under the terms of the above referenced
license agreement (the "Agreement");
WHEREAS, Customer now desires to license additional units of SOFTWARE from
COMPANY as described in the Additional Units Attachment dated ____________,
199__, which is attached to this Amendment;
NOW, THEREFORE, Customer and COMPANY hereby agree:
1. Effective as of the date indicated on the Additional Units Attachment, such
Additional Units Attachment is hereby added to the Agreement and sets forth the
number of additional units of the SOFTWARE and the language version(s) licensed
to Customer under the terms and conditions of the Agreement.
2. Customer may license additional SOFTWARE on the Additional Units Attachment
only for the SOFTWARE and the language version(s) that are currently licensed by
Customer under the Agreement between Customer and COMPANY. In order to license
SOFTWARE or language version(s) not currently licensed under the Agreement with
COMPANY, Customer shall execute a new OEM Customer Sublicense Agreement for
Dedicated Systems which includes such SOFTWARE and/or language version(s).
3. All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement. The terms of this Amendment shall supersede
any inconsistent terms contained in the Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment by their duly
authorized representatives as of the date set forth above. All signed copies of
this Amendment shall be deemed originals. Each individual signing on behalf of
Customer below hereby represents and warrants that he or she has full authority
to sign this Agreement and bind Customer to perform all duties and obligations
contemplated by this Amendment. If Customer is located in a jurisdiction in
which a corporate seal or "chop" is commonly used as an instrument of agreement
execution, in addition to the individual signature provided below, Customer's
seal or "chop" should be entered below Customer's signature block. This
Amendment is executed only in the English language.
___________________________________ ___________________________________
(Name of COMPANY) (Name of Customer)
___________________________________ ___________________________________
By (Signature) By (Signature)
___________________________________ ___________________________________
Name (Print) Name (Print)
___________________________________ ___________________________________
Title Title
___________________________________ ___________________________________
Date Date
Customer's seal or "chop"
25
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 26
ADDITIONAL UNITS ATTACHMENT
Dated: ___________________
<TABLE>
<CAPTION>
PRODUCT NAME AND VERSION ADDITIONAL UNITS OF SOFTWARE LICENSED LANGUAGE VERSION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
WINDOWS(R) CE OPERATING SYSTEM VERSION 2.0 ___________
FULL VERSION
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
WINDOWS(R) CE OPERATING SYSTEM VERSION 1.01 ___________
FULL VERSION
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
WINDOWS(R) CE OPERATING SYSTEM VERSION 2.0 ___________
LIMITED VERSION
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
WINDOWS(R) CE OPERATING SYSTEM VERSION 1.01 ___________
LIMITED VERSION
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
WINDOWS(R) CE OPERATING SYSTEM VERSION 2.0 ___________
KERNEL VERSION
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
WINDOWS(R) CE OPERATING SYSTEM VERSION 1.01 ___________
KERNEL VERSION
- -------------------------------------------------------------------------------------------------------
</TABLE>
26
CONFIDENTIAL
Microsoft Software for Dedicated Systems Distributor Agreement dated November
1st, 1997, between Microsoft Corporation and Bsquare Corporation.
<PAGE> 27
AMENDMENT NUMBER 1
Amendment Date: November 1st, 1997
to MICROSOFT(R) SOFTWARE DEDICATED SYSTEMS DISTRIBUTION AGREEMENT
between MICROSOFT CORPORATION, a Washington U.S.A. Corporation, as assigned
to MICROSOFT LICENSING, INC., a Nevada, U.S.A. Corporation
and Bsquare Corporation, a corporation of Washington
Agreement Effective Date: November 1st, 1997
MICROSOFT LICENSE #7772-7310 (SAP: 5000020519)
Effective as of the Amendment Date indicated above, the below signed parties
agree that the indicated portions of the above referenced license agreement
between COMPANY and Microsoft Corporation, (hereinafter the "License
Agreement") are hereby amended by this instrument (hereinafter the
"Amendment"), as follows:
1. Exhibit C of the License Agreement is hereby deleted and replaced with the
attached Exhibit C.
2. Exhibit N of the License Agreement is hereby deleted and replaced with the
attached Exhibit N.
3. COMPANY acknowledges that Microsoft Corporation transferred its OEM
licensing operations to its wholly owned subsidiary, Microsoft Licensing,
Inc., a Nevada, U.S.A. corporation ("MS Licensing, Inc."), on or about
December 31, 1997. From and after such transfer, all references to "MS"
contained in the Agreement (as amended) shall refer to MS Licensing, Inc.,
provided, however that the disclaimers and limitations in Section 4(c), 5,
7, 10(a), 12(a), 12(b), 12(c) 13, and Exhibit S, if applicable, shall inure
to the benefit of each of MS Licensing, Inc. and Microsoft Corporation.
Notwithstanding anything to the contrary in the foregoing, all references
to "MS" contained in Section 12(d) shall refer to MS Licensing, Inc. and to
Microsoft Corporation. For shipments of Product(s) after the date of
assignment, COMPANY will report to and make royalty payments to Microsoft
Licensing, Inc., at the address provided by Microsoft Corporation or
Microsoft Licensing, Inc. COMPANY agrees that all obligations of Microsoft
Corporation under the License Agreement will be the obligations of MS
Licensing, Inc. as of the date of such transfer.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the License Agreement. The terms of this Amendment shall
supersede any inconsistent terms contained in the License Agreement.
NOTICE:
FOR PRODUCT(S) SPECIFIED IN EXHIBIT C AS LICENSED UNDER THE "PER SYSTEM"
ROYALTY CALCULATION PROVISIONS, PLEASE NOTE THE FOLLOWING:
THIS IS AN MS PER SYSTEM LICENSE. AS A CUSTOMER, YOU MAY CREATE A "NEW SYSTEM"
AT ANY TIME THAT DOES NOT REQUIRE THE PAYMENT OF A ROYALTY TO MS UNLESS THE
CUSTOMER AND MS AGREE TO ADD IT TO THE LICENSE AGREEMENT.
ANY NEW SYSTEM CREATED MAY BE IDENTICAL IN EVERY RESPECT TO A SYSTEM AS TO
WHICH THE CUSTOMER PAYS A PER SYSTEM ROYALTY TO MS PROVIDED THAT THE NEW SYSTEM
HAS A UNIQUE MODEL NUMBER OR MODEL NAME FOR INTERNAL AND EXTERNAL
IDENTIFICATION PURPOSES WHICH DISTINGUISHES IT FROM ANY SYSTEM THE CUSTOMER
SELLS THAT IS INCLUDED IN A PER SYSTEM LICENSE. THE REQUIREMENT OF EXTERNAL
IDENTIFICATION MAY BE SATISFIED BY PLACEMENT OF THE UNIQUE MODEL NAME OR MODEL
NUMBER ON THE MACHINE AND ITS CONTAINER (IF ANY), WITHOUT MORE.
IF THE CUSTOMER DOES NOT INTEND TO INCLUDE A MICROSOFT OPERATING SYSTEM PRODUCT
WITH A NEW SYSTEM, THE CUSTOMER DOES NOT NEED TO NOTIFY MS AT ANY TIME OF THE
CREATION, USE OR SALE OF ANY SUCH NEW SYSTEM, NOR DOES IT NEED TO TAKE ANY
PARTICULAR STEPS TO MARKET OR ADVERTISE THE NEW SYSTEM.
UNDER MS'S LICENSE AGREEMENT, THERE IS NO CHARGE OR PENALTY IF A CUSTOMER
CHOOSES AT ANY TIME TO CREATE A NEW SYSTEM INCORPORATING A NON-MICROSOFT
OPERATING SYSTEM. IF THE CUSTOMER INTENDS TO INCLUDE A MICROSOFT OPERATING
SYSTEM PRODUCT WITH THE NEW SYSTEM, THE CUSTOMER MUST SO NOTIFY MS, AFTER WHICH
THE PARTIES MAY ENTER INTO ARM'S LENGTH NEGOTIATION WITH RESPECT TO A LICENSE
TO APPLY TO THE NEW SYSTEM.
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Amendment in duplicate as of
the date first written above. All signed copies of this Amendment shall be
deemed originals. This Amendment is executed only in the English language.
MICROSOFT LICENSING, INC. BSQUARE CORPORATION
/s/ WILLIAM BAXTER
- ------------------------- -------------------------
By (Signature) By (Signature)
William Baxter
- ------------------------- -------------------------
Name (Printed) Name (Printed)
President/CEO
- ------------------------- -------------------------
Title Title
1-28-98
- ------------------------- -------------------------
Date Date
<PAGE> 29
AMENDMENT NUMBER 1
Amendment Date: November 1st, 1997
to MICROSOFT(R) SOFTWARE DEDICATED SYSTEMS DISTRIBUTION AGREEMENT
between MICROSOFT CORPORATION, a Washington U.S.A. Corporation, as assigned to
MICROSOFT LICENSING, INC., a Nevada, U.S.A. Corporation
and Bsquare Corporation, a corporation of Washington
Agreement Effective Date: November 1st, 1997
MICROSOFT LICENSE #7772-7310 (SAP: 5000020519)
Effective as of the Amendment Date indicated above, the below signed parties
agree that the indicated portions of the above referenced license agreement
between COMPANY and Microsoft Corporation, (hereinafter the "License Agreement")
are hereby amended by this instrument (hereinafter the "Amendment"), as follows:
1. Exhibit C of the License Agreement is hereby deleted and replaced with
the attached Exhibit C.
2. Microsoft Corporation anticipates that it will transfer its OEM
licensing operations to its wholly owned subsidiary, Microsoft
Licensing, Inc., a Nevada, U.S.A. corporation, on or about December 31,
1997. Microsoft Corporation will notify COMPANY of the assignment of the
License Agreement to Microsoft Licensing, Inc. For shipments of
Product(s) after the date of assignment, COMPANY will report to and make
royalty payments to Microsoft Licensing Inc., at the address provided by
Microsoft Corporation or Microsoft Licensing, Inc. From and after such
transfer, all references to "MS" contained in this Agreement shall refer
to Microsoft Licensing, Inc.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the License Agreement. The terms of this Amendment shall
supersede any inconsistent terms contained in the License Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment in duplicate as of
the date first written above. All signed copies of this Amendment shall be
deemed originals. This Amendment is executed only in the English language.
MICROSOFT CORPORATION BSQUARE CORPORATION
/s/ WILLIAM T. BAXTER
- ---------------------------------- ----------------------------------
By (Signature) By (Signature)
WILLIAM T. BAXTER
- ---------------------------------- ----------------------------------
Name (Printed) Name (Printed)
PRESIDENT & CEO
- ---------------------------------- ----------------------------------
Title Title
23 FEB. 1998
- ---------------------------------- ----------------------------------
Date Date
<PAGE> 30
EXHIBIT C
PRODUCTS FOR DEDICATED SYSTEMS
<TABLE>
<CAPTION>
Language Licensed Files Applicable Localization
Versions(2) (for Kernel Additional Per copy Additional
Product Name and Version ** Versions Only) Provisions Royalty* Royalty
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Windows(R) CE Operating
System version 2.0 EN (a),(b),(c),(d) US$* US$*
Full Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 1.01 EN (a),(b),(c),(g) US$* US$*
Full Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 2.0 EN (a),(b),(c),(e) US$* US$*
Limited Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 1.01 EN (a),(b),(c),(h) US$* US$*
Limited Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 2.0 EN (a),(b),(c),(f) US$* US$*
Kernel Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 1.01 EN (a),(b),(c),(i) US$* US$*
Kernel Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
</TABLE>
* A Product is not licensed hereunder unless royalty rate(s) are indicated in
the Product table.
**Language Key: DE = German, ES = Spanish, EN = English, FR = French,
IT = Italian, JA = Japanese. Localized versions are licensed on an if and as
available basis.
ADDITIONAL PROVISIONS
(a) COMPANY shall advise its OEM Customers that the Dedicated Product
Deliverables for this Product consist of (i) the "untethered" Kernel Version of
the Product, and (ii) a license to distribute certain components of the software
in accordance with the Sublicense Agreement provided that such software was
developed by COMPANY utilizing the Windows CE Embedded Toolkit for Visual C++ in
accordance with the instructions therein.
(b) In order to support its OEM Customers, COMPANY agrees to enter into and
maintain, at COMPANY's expense, a valid Priority Support Agreement with MS at
all times during the period COMPANY is licensed for this Product.
(c) COMPANY shall not sign a Sublicense Agreement for the Product without MS'
prior written approval. To assist MS in its review of COMPANY's proposed OEM
Customer, COMPANY shall provide MS with:
(1) the name, address, and business profile in the English language
(including years in business, ownership profile, tradenames used, and
nature of principle business activities) of the proposed OEM Customer;
and
(2) model name, description and specific industry application of proposed
OEM Customer's Dedicated Systems.
(d) COMPANY's right to sublicense this Product shall apply only to those files
which are components of the Product's Full Version configuration as indicated
in the Dedicated Product Deliverables documentation.
- ------------
* Confidential treatment requested
<PAGE> 31
EXHIBIT C
ADDITIONAL PROVISIONS
(Continued)
(e) COMPANY's right to sublicense this Product shall apply only to those files
which are components of the Product's Limited Version configuration as indicated
in the Dedicated Product Deliverables documentation.
(f) COMPANY's right to sublicense this Product shall apply only to those files
which are components of the Product's Kernel Version configuration as indicated
in the Dedicated Product Deliverables documentation.
(g) COMPANY's right to sublicense this Product shall apply only to those files
which are components of Demos #4 and #5 as indicated in the Dedicated Product
Deliverables documentation.
(h) COMPANY's right to sublicense this Product shall apply only to those files
which are components of Demos #3 as indicated in the Dedicated Product
Deliverables documentation.
(i) COMPANY's right to sublicense this Product shall apply only to those files
which are components of Demos #1 and #2 as indicated in the Dedicated Product
Deliverables documentation.
<PAGE> 32
EXHIBIT N
ADDRESSES
COMPANY:
- -------
NOTICES:
Bsquare Corporation
3633 136th Place SE, Suite 100
Bellevue, WA 98006
Attn: Mr. William Baxter
Telephone: 425-519-5963
Fax: 425-519-5998
BILL TO:
Bsquare Corporation
3633 136th Place SE, Suite 100
Bellevue, WA 98006
Attn: Mr. William Baxter
SHIP TO:
Bsquare Corporation
3633 136th Place SE, Suite 100
Bellevue, WA 98006
Attn: Mr. Don Baughman
COMPANY SUPPORT
telephone no.: 425-519-5900
MS:
- ---
NOTICES:
MICROSOFT LICENSING, INC.
Non-US Postal Service Delivery Address:
6100 Neil Road
Reno, NV 89511-1132
U.S.A.
Attn: General Manager
Fax: 1-702-826-0506
WITH COPY TO:
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
U.S.A.
Attn: Law & Corporate Affairs
Fax: +1-425-936-7329
OTHER CORRESPONDENCE:
MICROSOFT LICENSING, INC.
6100 Neil Road
Reno, NV 89511-1132
U.S.A.
Attn.: General Manager
Reports and Payments:
- ---------------------
WITH COPIES TO:
OEM Sales
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
U.S.A.
<PAGE> 33
REPORTS AND PAYMENTS:
REPORTS TO:
ROYALTY REPORTS SHALL BE MADE TO:
MICROSOFT LICENSING, INC.
6100 Neil Road
Reno, NV 89511-1132
U.S.A.
Attention: OEM Finance
Fax: + 1-702-826-0506
or to such other address as MS may specify from time to time.
PAYMENTS SHALL BE MADE BY WIRE TRANSFER TO:
MICROSOFT LICENSING INC. #100430
c/o NationsBank of Texas, N.A.
1401 Elm Street
Dallas, TX
U.S.A.
ABA # 11100001-2
SWIFT Code: NBKUS44DAL
Account#3750891058
Regarding:
REF+LB+100430
or to such other address or account as MS may specify from time to time. COMPANY
agrees to ensure that the regarding line stated above, the MS license agreement
number for the agreement, and the MS invoice number (if any) are specified on
each wire transfer payment made pursuant to the Agreement."
CONFIDENTIAL
<PAGE> 34
EXHIBIT C
PRODUCTS FOR DEDICATED SYSTEMS
<TABLE>
<CAPTION>
Language Licensed Files Applicable Localization
Version(s) (for Kernel Additional Per copy Additional
Product Name and Version ** Versions Only) Provisions Royalty* Royalty
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Windows(R) CE Operating System
version 2.0 EN (a),(b),(c),(d) US$* US$*
Full Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 1.01 EN (a),(b),(c),(g) US$* US$*
Full Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 2.0 EN (a),(b),(c),(e) US$* US$*
Limited Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 1.01 EN (a),(b),(c),(h) US$* US$*
Limited Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 2.0 EN (a),(b),(c),(f) US$* US$*
Kernel Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System version 1.01 EN (a),(b),(c),(i) US$* US$*
Kernel Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
</TABLE>
* A Product is not licensed hereunder unless royalty rate(s) are indicated in
the Product table.
**Language Key: DE = German, ES = Spanish, EN = English, FR = French,
IT = Italian, JA = Japanese. Localized versions are licensed on an if and as
available basis.
ADDITIONAL PROVISIONS
(a) COMPANY shall advise its OEM Customers that the Dedicated Product
Deliverables for this Product consist of (i) the "untethered" Kernel Version of
the Product, and (ii) a license to distribute certain components of the software
in accordance with the Sublicense Agreement provided that such software was
developed by COMPANY utilizing the Windows CE Embedded Toolkit for Visual C++ in
accordance with the instructions therein.
(b) In order to support its OEM Customers, COMPANY agrees to enter into and
maintain, at COMPANY's expense, a valid Priority Support Agreement with MS at
all times during the period COMPANY is licensed for this Product.
(c) COMPANY shall not sign a Sublicense Agreement for the Product without MS'
prior written approval. To assist MS in its review of COMPANY's proposed OEM
Customer, COMPANY shall provide MS with:
(1) the name, address, and business profile in the English language
(including years in business, ownership profile, tradenames used, and
nature of principle business activities) of the proposed OEM Customer;
and
(2) model name, description and specific industry application of proposed
OEM Customer's Dedicated Systems.
(d) COMPANY's right to sublicense this Product shall apply only to those files
which are components of the Product's Full Version configuration as indicated
in the Dedicated Product Deliverables documentation.
- ------------
* Confidential treatment requested
<PAGE> 35
EXHIBIT C
ADDITIONAL PROVISIONS
(Continued)
(e) COMPANY's right to sublicense this Product shall apply only to those files
which are components of the Product's Limited Version configuration as indicated
in the Dedicated Product Deliverables documentation.
(f) COMPANY's right to sublicense this Product shall apply only to those files
which are components of the Product's Kernel Version configuration as indicated
in the Dedicated Product Deliverables documentation.
(g) COMPANY's right to sublicense this Product shall apply only to those files
which are components of Demos #4 and #5 as indicated in the Dedicated Product
Deliverables documentation.
(h) COMPANY's right to sublicense this Product shall apply only to those files
which are components of Demos #3 as indicated in the Dedicated Product
Deliverables documentation.
(i) COMPANY's right to sublicense this Product shall apply only to those files
which are components of Demos #1 and #2 as indicated in the Dedicated Product
Deliverables documentation.
<PAGE> 36
[SIGNED ORIGINAL]
AMENDMENT NUMBER 2
Amendment Date: November 1st, 1998
To MICROSOFT SOFTWARE FOR DEDICATED SYSTEMS DISTRIBUTOR AGREEMENT
Between MICROSOFT LICENSING, INC., a Nevada, U.S.A. Corporation
And BSQUARE CORPORATION, A Corporation of Washington
Agreement Effective Date: November 1st, 1997
MS LICENSE#: 7772-7310 (SAP: 5000020519)
Microsoft Corporation transferred its OEM licensing operations to its wholly
owned subsidiary, Microsoft Licensing, Inc., a Nevada, U.S.A. Corporation, on
December 31, 1997. Accordingly, the above referenced license agreement was
assigned by separate instrument to Microsoft Licensing, Inc. on that date.
Effective as of the Amendment Date indicated above, the below signed parties
agree that the indicated portions of the above referenced license agreement
(hereinafter the "License Agreement") are hereby amended by this instrument
(hereinafter the "Amendment"), as follows
1. The attached Exhibit C2, "WINDOWS CE PRODUCTS FOR DEDICATED SYSTEMS" is
hereby added to the License Agreement.
2. The attached Exhibit C3, "WINDOWS CE PRODUCTS FOR WINDOWS-BASED TERMINAL
DEVICES" is hereby added to the License Agreement.
3. The attached Exhibit U, Attachment 2A, "TO OEM CUSTOMER SUBLICENSE
AGREEMENT FOR DEDICATED SYSTEMS, WINDOWS CE PRODUCTS FOR WINDOWS-BASED
TERMINAL DEVICES" is hereby added to the License Agreement.
4. The attached Exhibit V3, "LICENSE OF ADDITIONAL PRODUCT SOFTWARE UNITS" is
hereby added to the License Agreement.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the License Agreement. The terms of this Amendment shall
supersede any inconsistent terms contained in the License Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment in duplicate as of
the date first written above. All signed copies of this Amendment shall be
deemed originals. This Amendment is executed in the English language.
MICROSOFT LICENSING, INC. BSQUARE CORPORATION
/s/ DAVID KAYE /s/ AL DOSSER
- ------------------------------------- ------------------------------------
By (Signature) By (Signature)
David Kaye Al Dosser
- ------------------------------------- ------------------------------------
Name (Printed) Name (Printed)
OEM Accounting Manager Sr. Vice President
- ------------------------------------- ------------------------------------
Title Title
December 16, 1998 Nov. 13, 1998
- ------------------------------------- ------------------------------------
Date Date
<PAGE> 37
EXHIBIT C2
WINDOWS CE PRODUCTS FOR DEDICATED SYSTEMS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRODUCT NAME AND LANGUAGE APPLICABLE PER COPY LOCALIZATION
VERSION VERSION(S) ADDITIONAL ROYALTY* ADDITIONAL
** PROVISIONS ROYALTY
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Microsoft(R) Windows(R) CE EN (a), (b), (c), (d), (e) US$* US$_____
Platform Builder
Version 2.11
- --------------------------------------------------------------------------------------------------------
Microsoft(R) Windows(R) CE EN (a), (b), (c), (d), (e) US$* US$_____
Platform Builder
Version 2.11, Upgrade
Edition
- --------------------------------------------------------------------------------------------------------
</TABLE>
* A PRODUCT IS NOT LICENSED HEREUNDER UNLESS ROYALTY RATE(S) ARE INDICATED IN
THE PRODUCT TABLE.
** LANGUAGE KEY: D=GERMAN, EN=ENGLISH, J=JAPANESE. LOCALIZED VERSIONS ARE
LICENSED ON AN IF AND AS AVAILABLE BASIS.
ADDITIONAL PROVISIONS
(a) Notwithstanding anything to the contrary in Sections (a) and 2(d) of the
Agreement, there is no APM available with this Product.
(b) Notwithstanding anything to the contrary in Sections 1(f) and 2(c) of the
Agreement, COMPANY may license the Product to an end user that has not
executed a Sublicense Agreement.
(c) Notwithstanding anything to the contrary in 2(a)(iii), COMPANY is not
authorized to grant any rights to the Product in addition to those
contained in the Product documentation. COMPANY shall inform end user(s)
that they may use the Product only in accordance with the Product
documentation.
(d) (1) Notwithstanding anything to the contrary in section 2(f) of the
Agreement, COMPANY is not required to provide support for the Product.
(2) Notwithstanding anything to the contrary in section 2(k) of the
Agreement, technical support by MS is provided to end user(s) in accordance
with the terms and conditions contained in the Product documentation.
(e) The Product is available from selected MS designated supplier(s) only.
COMPANY should contact its Account Manager for further information.
------------
* Confidential treatment requested
<PAGE> 38
EXHIBIT C3
WINDOWS CE PRODUCTS FOR WINDOWS-BASED TERMINAL DEVICES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRODUCT NAME AND LANGUAGE APPLICABLE PER COPY LOCALIZATION
VERSION VERSION(S) ADDITIONAL ROYALTY ADDITIONAL
** PROVISIONS * ROYALTY
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
1. Microsoft(R) Windows(R) CE EN (a), (b), (c), US$ * US$_____
Operating System (d), (e), (f), (g)
for Windows(R)- (h), (i)
Based Terminal
devices Version 1.0
- --------------------------------------------------------------------------------------------------------
</TABLE>
* A PRODUCT IS NOT LICENSED HEREUNDER UNLESS ROYALTY RATE(S) ARE INDICATED IN
THE PRODUCT TABLE.
** LANGUAGE KEY: EN=ENGLISH
ADDITIONAL PROVISIONS KEY
(a) In addition to the Dedicated Product Deliverables for this Product, COMPANY
shall require OEM Customer to obtain in a separate transaction the Microsoft
Windows CE Embedded Toolkit for Visual C++ version 5.0, which includes the
Windows CE 2.1 Enhancement Pack for the Embedded Tool Kit ("ETK") and use the
ETK in accordance with the accompanying instructions to implement the Product on
OEM Customer's Dedicated Systems.
(b) With respect to the ETK components, COMPANY's rights granted hereunder to
sublicense the ETK to OEM Customer shall apply only to the Full Operating
System configuration which is described in the ETK documentation.
(c) COMPANY shall not sign a Sublicense Agreement for the Product without MS'
prior written approval. To assist MS in its review of COMPANY's proposed OEM
Customer, COMPANY shall provide MS with:
(1) the name, address, and business profile in the English language
(including years in business, ownership profile, tradenames used, and
nature of principal business activities) of the proposed OEM
Customer; and
(2) model name, description and specific industry application of proposed
OEM Customer's Dedicated Systems.
(d) Except as set forth in Exhibit W of the OEM Customer Sublicense Agreement,
OEM Customer may distribute Product(s) only with Dedicated Systems which are
marketed and distributed exclusively under OEM Customer's or OEM Customer's
subsidiaries' brand names, trade names and trademarks. The Product(s) may not
be distributed with Dedicated Systems which are marketed or distributed under
any name which includes any third party brand names, trade names or trademarks.
If, at any time, MS becomes aware of any violation of the foregoing, then
without limiting its remedies, MS may charge COMPANY for each such Dedicated
System an additional royalty equal to thirty percent (30%) of the highest
royalty for the Product(s). COMPANY shall pay such additional royalty within
thirty (30) days of receipt of MS' invoice.
(e) COMPANY shall ensure that OEM Customer has executed the applicable logo
license with MSCORP prior to any marketing or distribution of a Dedicated
System. COMPANY hereby agrees to indemnify and defend MS and its Suppliers
from and against all damages, costs and expenses, including reasonable
attorneys' fees, which MS or its Suppliers may incur if the OEM Customer markets
or distributes Dedicated Systems without executing, or in breach of, the
applicable logo license.
(f) "MSCORP Compatibility Test" shall mean MSCORP's then-standard suite of
tests conducted by or for MSCORP to determine whether OEM Customer's Dedicated
System is compliant with the MSCORP testing and compatibility requirements for
the Product. COMPANY shall require of OEM Customer that the Dedicated Systems
pass the MSCORP Compatibility Test and display the Product logo(s), as
designated by MS from time to time, on Dedicated Systems distributed with the
Product. Such logo use shall be in accordance with the applicable logo license
which is available through a separate written agreement with MSCORP. To obtain
additional information regarding the MSCORP Compatibility Test and the MSCORP
logo agreement, COMPANY should contact the Account Manager assigned to COMPANY.
(g) Notwithstanding anything to the contrary in section 1(d) of the Agreement,
"Dedicated System" shall mean OEM Customer's computer systems that (1) comply
with the MSCORP system specifications for Windows-Based Terminal devices; and
(2) provide the end user with the ability to utilize the Microsoft Remote
Desktop Protocol software to connect to the server.
- -----------------
Confidential treatment requested
<PAGE> 39
ADDITIONAL PROVISIONS KEY
(CONTINUED)
(h) COMPANY shall ensure that for each unit of Product distributed to France,
OEM Customer shall set the Product "end user locale" to "France", thereby
disabling that portion of the Product's encryption functionality which, pursuant
to French law (Decree 92-1358 of December 1992), is not currently authorized for
sale, use, or distribution within France. COMPANY may inform OEM Customer
pursuant to a binding non-disclosure agreement between COMPANY and OEM Customer,
but shall not disclose to third parties, that if "end user locale" is set to any
locale other than "France" this Product will provide a higher level of
encryption technology that may legally be used outside of France. COMPANY shall
not disclose to third parties the contents of this Additional Provision (h).
COMPANY shall defend and indemnify MS and its Suppliers against any claim
related to breach of this Additional Provision(h).
(i) Subject to limitations in the Agreement, MS grants to COMPANY the additional
right to grant to COMPANY's OEM Customer the non-exclusive, limited right to use
the Dedicated Product Deliverables on OEM Customer premises for the purposes and
pursuant to the terms of the Exhibit S of "Attachment 2A to the OEM Customer
Sublicense Agreement For Dedicated Systems - Windows CE Products for
Windows-based Terminal Devices".
<PAGE> 40
\ EXHIBIT U
ATTACHMENT 2A
TO OEM CUSTOMER SUBLICENSE AGREEMENT FOR DEDICATED SYSTEMS
WINDOWS CE PRODUCTS FOR WINDOWS-BASED TERMINAL DEVICED
<TABLE>
<CAPTION>
Units of Language Applicable Localization
Product Name SOFTWARE Version(s) Additional Per Royalty Additional
and Version licensed ** Provisions Copy * Royalty
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Microsoft(R) EN (a), (b), (c), US$____ US$____
Windows(R) CE (d), (e), (f),
Operating System (g), (h), (i)
for Windows(R)
Based Terminal
devices version 1.0
</TABLE>
* IF ROYALTY RATE AND UNITS OF SOFTWARE ARE NOT SPECIFIED FOR A PARTICULAR
PRODUCT, THEN SUCH PRODUCT IS NOT LICENSED UNDER THIS AGREEMENT.
** LANGUAGE KEY: EN = ENGLISH
ADDITIONAL PROVISIONS KEY
(a)(1) In addition to the Dedicated Product Deliverables for this SOFTWARE which
are provided by COMPANY under this Agreement, Customer shall obtain in a
separate transaction the Microsoft Windows CE Embedded Toolkit for Visual C++
version 5.0, which includes the Windows CE 2.1 Enhancement Pack for the Embedded
Tool Kit ("ETK"). Customer shall use the ETK in accordance with its instructions
to implement the SOFTWARE on Customer's Dedicated Systems.
(2) Notwithstanding anything to the contrary contained in Section 6 of the
Agreement, no warranties for the ETK are provided in the Agreement. The
warranties, if any, contained in the ETK are the only warranties provided for
the ETK.
(b) With respect to the ETK componets, Customer's distribution license granted
hereunder shall apply only to the Full Operating System configuration which is
described in the ETK documentation.
(c)(1) Notwithstanding anything to the contrary contained in Exhibit S to this
Attachment 2A, Section (b) of Exhibit S does not apply to the Dedicated Product
Deliverables.
(2) Notwithstanding anything to the contrary contained in this Agreement,
including the Exhibits attached hereto, Exhibit S does not apply to the ETK.
(d)(1) Customer is not licensed to, and agrees that it will not, modify, in any
way, or delete any aspect of the SOFTWARE (including, without limitation, any
features, shortcuts, icons, "wizards", folders (including sub-folders) or
programs of SOFTWARE) as delivered by COMPANY in the Dedicated Product
Deliverables, except if and as specifically permitted below or in the OEM
Adaptation Kit ("OAK") provided in the Dedicated Product Deliverables. In
particular, and without limitation, this means that Customer is not licensed to
and agrees that it will not:
(A) Modify or obscure, in any way, the sequence or appearance of any
screens displayed by the SOFTWARE as delivered by COMPANY.
(B) Display any visual or audio content from power on through and
including the time that the Dedicated System has displayed the
SOFTWARE initial user interface screen ("UI Screen"), except: (i)
as provided in section (d)(1)(C) below, (ii) for the presentation
of Customer's brand logo(s) and the required SOFTWARE LOGO(s) in
accordance with the Microsoft Corporation system specifications for
Windows-Based Terminal devices and the applicable logo license, or
(iii) for diagnostic notices or interactive prompts required for
hardware or device driver initialization.
<PAGE> 41
ADDITIONAL PROVISIONS KEY
(Continued)
(C) Modify or obscure, in any way, the appearance of the initial UI
Screen displayed when the Dedicated System is initially powered on,
(including without limitation, the addition or modification of
background wallpaper bitmaps); provided, however, that Customer may
add icons or folders to the UI Screen provided that any such icons
are the same size as, and substantially similar in shape to, icons
included on the UI Screen as delivered by COMPANY and that any such
folders are the same size, shape and appearance as folders included
on the UI Screen as delivered by COMPANY.
(D) Pre-configure any programs (including without limitation any
"shells", "screen savers" or "welcome" scripts), "wizards" or other
content except for device drivers necessary to support preinstalled
or pre-configured hardware devices (e.g., network interfaces, LCD
panels, or keyboards), terminal emulation clients, or system
administration support (as allowed in the OAK documentation) to be
enabled, run or initialized automatically (i.e. without requiring a
deliberate act of the end user) from an icon or folder on the UI
Screen or otherwise without a deliberate act by the end user. By
way of example only, and without limiting the generality of the
foregoing, Customer agrees that it shall not populate with any
programs or other content the SOFTWARE "Start-up" directory,
initialization or other files in any manner which will cause any
program or content (except specifically noted above in this
(d)(1)(D)) to run or load automatically unless the end user has
taken a prior deliberate action.
(E) Modify or add content to any directories installed by the SOFTWARE,
except as permitted in the OAK for pre-installation of applications
by Customer.
(F) Enable end user applications (i.e., programs that process data for
the end user and are not required for the Dedicated System to
operate or function) to run locally on the Dedicated System with
the exception of device drivers, terminal emulation software, and
system administration support software as set forth in (d)(1)(D)
above, or an onscreen keyboard. All end user applications utilized
on the Dedicated System must reside upon and operate only on the
server to which the Dedicated system is connected.
(2) Any EULA for the SOFTWARE distributed by Customer must be identical
to the on screen EULA presented to the end user during SOFTWARE setup.
(e) If Customer installs the SOFTWARE in ROM and the SOFTWARE is not the only
software contained in ROM, Customer will ensure that Microsoft Corporation's
copyright notice for SOFTWARE shall at all times be included in the first four
percent (4%) and the last four percent (4%) of the software contained in ROM.
The copyright notice(s) for SOFTWARE shall be as specified in the Dedicated
Product Deliverables. In any event, Customer will not remove any copyright,
trademark or patent notices that appear on the SOFTWARE as delivered to
Customer.
(f)(1) Except as set forth in Exhibit W, if attached, Customer may distribute
SOFTWARE only with Dedicated Systems which are marketed and distributed
exclusively under Customer's or Customer subsidiaries' brand names, trade names
and trademarks. The SOFTWARE may not be distributed with Dedicated Systems which
are marketed or distributed under any name which includes any third party brand
names, trade names, or trademarks. If, at any time, COMPANY becomes aware of any
violation of the foregoing, then without limiting its remedies, COMPANY may
charge. Customer for each such Dedicated System an additional royalty equal to
thirty percent (30%) of the highest royalty for the SOFTWARE. Customer shall pay
such additional royalty within thirty (30) days of receipt of COMPANY's invoice.
(2) In the event Dedicated Systems are marketed or distributed under a
name which includes any third party brand names, trade names or trademarks,
Customer shall ensure that such third party has executed the applicable logo
license with Microsoft Corporation prior to any marketing or distribution of
such Dedicated Systems. Customer hereby agrees to indemnify and defend COMPANY,
MS and their Suppliers from and against all damages, costs and expenses,
including reasonable attorneys' fees which COMPANY, MS or their Suppliers may
incur if the third party markets or distributes Dedicated
Systems without executing, or in breach of, the applicable logo license.
(g) "MSCORP Compatibility Test" shall mean Microsoft Corporation's
then-standard suite of tests conducted by or for Microsoft Corporation to
determine whether Customer's Dedicated System is compliant with the Microsoft
Corporation testing and compatibility requirements for the SOFTWARE. Dedicated
Systems must pass the MSCORP Compatibility Test and display the SOFTWARE
logo(s), as designated by MS from time to time, on Dedicated Systems
distributed with the SOFTWARE. Such logo use shall be in accordance with the
applicable logo license which is available through a separate written agreement
with Microsoft Corporation. To obtain additional information regarding the
MSCORP Compatibility Test and the Microsoft Corporation logo agreement,
Customer should contact COMPANY.
(h) Customer's EULA for this SOFTWARE shall be the EULA set forth in Exhibit 1
attached hereto, except that it shall be modified as indicated in Section 2(e)
of the Agreement.
<PAGE> 42
ADDITIONAL PROVISIONS KEY
(Continued)
(i) This SOFTWARE includes encryption technology which is not authorized for
sale, use, or distribution within France. French law (Decree 92-1358 of
December 1992) generally prohibits the use in France of such technology, unless
special approvals are granted. Accordingly, to comply with French law, Customer
shall ensure that for each unit of SOFTWARE distributed in France, the SOFTWARE
setting for "end user locale" shall be set to "France", thereby disabling the
encryption functionality prohibited by French law. Customer shall not disclose
to third parties (including any end users) the contents of the preceding
sentence; Customer, may, however, in its discretion, segregate and
distinctively mark Dedicated Systems with end user locale set to France
(noting, for example, but without limitation, that such Dedicated Systems are
"Authorized for distribution in France," or "Not Intended for Use Outside
France"). Customer shall defend and indemnify COMPANY, and MS and their
Suppliers, against any claim related to breach of this Additional Provision(i).
DEDICATED SYSTEMS
Notwithstanding anything to the contrary in Section 1(b) of the Agreement, each
Dedicated System shall (1) comply with the Microsoft Corporation system
specifications for Windows-Based Terminal devices, and (2) provide the end user
with the ability to utilize the Microsoft Remote Desktop Protocol software to
connect to the server. Dedicated Systems for SOFTWARE described in this
Attachment 2A shall be limited to Customer's current and future computing
devices described below.
At Customer's option, for purposes of administrative convenience, Customer may
designate models by "all models" or by "model line" or "series", (e.g., "Jaguar
model line", "Jaguar Pro series", "Jaguar Pro 750 model line", "Jagual Pro 950
series", etc.). Dedicated Systems defined by "all models" shall include all
current and future models that meet the description specified in the table
(e.g., "All models which include a CD-ROM drive, 500 Mb or larger hard disk
drive, and sound card.") and utilize the listed microprocessor(s). Dedicated
Systems defined by model line or series shall include all current and future
models which include the designated model line or series name, (e.g., "Jaguar
Pro model line" includes Jaguar Pro, Jaguar Pro 950, Jaguar Pro S, etc.; "Jaguar
series" includes Jaguar, Jaguar Pro, Jaguar Pro 950, Jaguar S400, etc.; "Jaguar
Pro 950 series" includes Jaguar Pro 950, Jaguar Pro 955, etc.).
PRODUCT NUMBER KEY: 1 = Windows(R) CE Operating System for Windows-Based
Terminal devices version 1.0;
ROYALTY BASIS KEY: C = per copy; if Product box is blank, such Product is not
licensed for distribution with the listed Dedicated System.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRODUCT NUMBER
MODEL NAME, MODEL NUMBER, MODEL LINE, PROCESSOR MANUFACTURER
OR MODEL DESCRIPTION TYPE 1 2 3 4 5
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 43
EXHIBIT U
ATTACHMENT 2A
EXHIBIT 1
MICROSOFT(R) WINDOWS(R) CE OPERATING SYSTEM FOR WINDOWS-BASED TERMINAL DEVICES
VERSION 1.0
- --------------------------------------------------------------------------------
IMPORTANT--READ CAREFULLY: THIS END USER LICENSE AGREEMENT ("EULA") IS A LEGAL
AGREEMENT BETWEEN YOU (EITHER AN INDIVIDUAL OR A SINGLE ENTITY) AND THE
MANUFACTURER ("MANUFACTURER") OF THE SPECIAL PURPOSE COMPUTING DEVICE ("SYSTEM")
YOU ACQUIRED WHICH INCLUDES CERTAIN MICROSOFT SOFTWARE PRODUCT(S) INSTALLED ON
THE SYSTEM AND/OR INCLUDED IN THE SYSTEM PACKAGE ("SOFTWARE"). THE SOFTWARE
INCLUDES COMPUTER SOFTWARE, THE ASSOCIATED MEDIA, ANY PRINTED MATERIALS, AND ANY
"ONLINE" OR ELECTRONIC DOCUMENTATION. BY INSTALLING, COPYING, DOWNLOADING, OR
OTHERWISE USING THE SOFTWARE, YOU AGREE TO BE BOUND BY THE TERMS OF THIS EULA.
IF YOU DO NOT AGREE TO THE TERMS OF THIS EULA, MANUFACTURER AND MICROSOFT
LICENSING, INC. ("MS") ARE UNWILLING TO LICENSE THE SOFTWARE TO YOU. IN SUCH
EVENT, YOU MAY NOT USE OR COPY THE SOFTWARE, AND YOU SHOULD PROMPTLY CONTACT
MANUFACTURER FOR INSTRUCTIONS ON RETURN OF THE UNUSED PRODUCT(S) FOR A REFUND.
- ------------------------------------------------------------------------------
SOFTWARE LICENSE
The SOFTWARE is protected by copyright laws and international copyright
treaties, as well as other intellectual property laws and treaties. The SOFTWARE
is licensed, not sold.
1. GRANT OF LICENSE. SOFTWARE includes software already installed on the
SYSTEM ("SYSTEM Software") and, if included in the SYSTEM package, software
contained on the CD-ROM disk and/or floppy disk(s) labeled "Desktop
Software for Microsoft Windows CE" ("Desktop Software"). This EULA grants
you the following rights to the SOFTWARE:
- SYSTEM SOFTWARE. You may use the SYSTEM Software only as installed in
the SYSTEM.
- DESKTOP SOFTWARE. Desktop Software might not be included with your
SYSTEM. If Desktop Software is included with your SYSTEM, you may
install and use the component(s) of the Desktop Software in accordance
with the terms of the end user license agreement provided with such
component(s). In the absence of a separate end user license agreement
for particular component(s) of the Desktop Software, you may install
and use only one (1) copy of such component(s) on a single computer
with which you use the SYSTEM.
- USE OF WINDOWS CE OPERATING SYSTEM FOR WINDOWS-BASED TERMINAL DEVICES
WITH MICROSOFT WINDOWS NT SERVER, TERMINAL SERVER EDITION. If the
SOFTWARE is Windows CE operating system for Windows-Based Terminal
devices, the following special provisions apply. In order to use the
SYSTEM in connection with Windows NT Server, Terminal Server Edition,
you must possess (1) a Client Access License for Windows NT Server,
Terminal Server Edition and (2) an end user license for Windows NT
Workstation or an end user license agreement for Windows NT
Workstation for Windows-Based Terminal Devices (please refer to the
end user license agreement for Windows NT Server, Terminal Server
Edition for additional information). Manufacturer may have included a
Certificate of Authenticity for Windows NT Workstation for
Windows-Based Terminal Devices with the SYSTEM. In that case, this
EULA constitutes an end user license for the version of Windows NT
Workstation for Windows-Based Terminal Devices indicated on such
Certificate of Authenticity.
- BACK-UP COPY. If Manufacturer has not included a back-up copy of the
SYSTEM Software with the SYSTEM, you may make a single back-up copy of
the SYSTEM Software. You may use the back-up copy solely for archival
purposes.
2. DESCRIPTION OF OTHER RIGHTS AND LIMITATIONS.
- SPEECH/HANDWRITING RECOGNITION. If the SYSTEM Software includes speech
and/or handwriting recognition component(s), you should understand
that speech and handwriting recognition are inherently statistical
processes; that recognition errors are inherent in the processes; that
it is your responsibility to provide for handling such errors and to
monitor the recognition processes and correct any errors. NEITHER
MANUFACTURER NOR ITS SUPPLIERS SHALL BE LIABLE TO ANY DAMAGES ARISING
OUT OF ERRORS IN THE SPEECH AND HANDWRITING RECOGNITION PROCESSES.
- LIMITATIONS ON REVERSE ENGINEERING, DECOMPILATION AND DISASSEMBLY. You
may not reverse engineer, decompile, or disassemble the SYSTEM
Software, except and only to the extent that such activity is
expressly permitted by applicable law notwithstanding this limitation.
<PAGE> 44
o SINGLE SYSTEM. The SYSTEM Software is licensed with the SYSTEM as a
single integrated product. The SYSTEM Software installed in Read Only
Memory ("ROM") of the SYSTEM may only be used as part of the SYSTEM.
o SINGLE EULA. The package for the SYSTEM Software may contain multiple
versions of this EULA, such as multiple translations and/or multiple
media versions (e.g., in the user documentation and in the software).
Even if you receive multiple versions of the EULA, you are licensed
to use only one (1) copy of the SYSTEM Software.
o RENTAL. You may not rent or lease the SOFTWARE.
o SOFTWARE TRANSFER. You may permanently transfer all of your rights
under this EULA only as part of a sale or transfer of the SYSTEM,
provided you retain no copies, you transfer all of the SOFTWARE
(including all component parts, the media, any upgrades or backup
copies, this EULA and, if applicable, the Certificate(s) of
Authenticity), AND the recipient agrees to the terms of this EULA. If
the SOFTWARE is an upgrade, any transfer must include all prior
versions of the SOFTWARE.
o TERMINATION. Without prejudice to any other rights, Manufacturer or
MS may terminate this EULA if you fail to comply with the terms
and conditions of this EULA. In such event, you must destroy all
copies of the SOFTWARE and all of its component parts.
3. UPGRADES. If the SYSTEM Software and this EULA are provided separate from
the SYSTEM by Manufacturer and the SYSTEM Software is on a ROM chip, CD ROM
disk(s) or floppy disk(s), and labeled "For ROM Upgrade Purposes Only"
("ROM Upgrade"), you may install one copy of the ROM Upgrade onto the
SYSTEM as a replacement copy for the SYSTEM Software originally installed
on the SYSTEM and use it in accordance with Section 1 of this EULA.
4. COPYRIGHT. All title and copyrights in and to the SOFTWARE (including but
not limited to any images, photographs, animations, video, audio, music,
text and "applets," incorporated into the SOFTWARE), the accompanying
printed materials, and any copies of the SOFTWARE, are owned by MS or its
suppliers (including Microsoft Corporation). You may not copy the printed
materials accompanying the SOFTWARE. All rights not specifically granted
under this EULA are reserved by MS and its suppliers (including Microsoft
Corporation).
5. PRODUCT SUPPORT. PRODUCT SUPPORT FOR THE SOFTWARE IS NOT PROVIDED BY MS,
ITS PARENT CORPORATION, MICROSOFT CORPORATION,OR THEIR AFFILIATES OR
SUBSIDIARIES. FOR PRODUCT SUPPORT, PLEASE REFER TO MANUFACTURER'S SUPPORT
NUMBER PROVIDED IN THE DOCUMENTATION FOR THE SYSTEM. SHOULD YOU HAVE ANY
QUESTIONS CONCERNING THIS EULA, OR IF YOU DESIRE TO CONTACT MANUFACTURER
FOR ANY OTHER REASON, PLEASE REFER TO THE ADDRESS PROVIDED IN THE
DOCUMENTATION FOR THE SYSTEM.
6. EXPORT RESTRICTIONS. You agree that you will not export or re-export the
SOFTWARE to any country, person, or entity subject to U.S. export
restrictions. You specifically agree not to export or re-export the
SOFTWARE: (i) to any country to which the U.S. has embargoed or restricted
the export of goods or services, which as of March 1998 include, but are
not necessarily limited to Cuba, Iran, Iraq, Libya, North Korea, Sudan and
Syria, or to any national of any such country, wherever located, who
intends to transmit or transport the products back to such country; (ii) to
any person or entity who you know or have reason to know will utilize the
SOFTWARE or portion thereof in the design, development or production of
nuclear, chemical or biological weapons; or (iii) to any person or entity
who has been prohibited from participating in U.S. export transactions by
any federal agency of the U.S. government.
If the SOFTWARE is labeled "North America Only Version" above, on the
Product Identification Card, or on the SOFTWARE packaging or other written
materials, then the following applies: The SOFTWARE Is intended for
distribution only in the United States, its territories and possessions
(including Puerto Rico, Guam, and U.S. Virgin Islands) and Canada. Export
of the SOFTWARE from the United States is regulated under "El controls" of
the Export Administration Regulations (EAR, 15 CFR 730-744) of the U.S.
Commerce Department, Bureau of Export Administration (BXA). A license is
required to export the SOFTWARE outside the United States or Canada. You
agree that you will not directly or indirectly, export or re-export the
SOFTWARE (or portions thereof) to any country, other than Canada, or to any
person or entity subject to U.S. export restrictions without first
obtaining a Commerce Department export license. You warrant and represent
that neither the BXA nor any other U.S. federal agency has suspended,
revoked or denied your export privileges.
7. NOTE ON JAVA SUPPORT. The SYSTEM Software may contain support for programs
written in Java. Java technology is not fault tolerant and is not designed,
manufactured, or intended for use or resale as on-line control equipment in
hazardous environments requiring fail-safe performance, such as in the
operation of nuclear facilities, aircraft navigation or communication
systems, air traffic control, direct life support machines, or weapons
systems, in which the failure of Java technology could lead directly to
death, personal injury, or severe physical or environmental damage.
<PAGE> 45
8. LIMITED WARRANTY.
o LIMITED WARRANTY. Manufacturer warrants that the SOFTWARE will perform
substantially in accordance with the accompanying written materials for
a period of ninety (90) days from the date of receipt. Any implied
warranties on the SOFTWARE are limited to ninety (90) days. Some
states/jurisdictions do not allow limitations on duration of an implied
warranty, so the above limitation may not apply to you.
o CUSTOMER REMEDIES. Manufacturer's and its suppliers' entire liability
and your exclusive remedy shall be, at Manufacturer's option, either (a)
return of the price paid, or (b) repair or replacement of the SOFTWARE
that does not meet the above Limited Warranty and which is returned to
Manufacturer with a copy of your receipt. This Limited Warranty is void
if failure of the SOFTWARE has resulted from accident, abuse, or
misapplication. Any replacement SOFTWARE will be warranted for the
remainder of the original warranty period or thirty (30) days, whichever
is longer.
o NO OTHER WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN THE LIMITED
WARRANTY SECTION ABOVE, THE SOFTWARE IS PROVIDED TO THE END USER "AS
IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF NON-INFRINGEMENT,
MERCHANTABILITY, AND/OR FITNESS FOR A PARTICULAR PURPOSE. THE ENTIRE
RISK OF THE QUALITY AND PERFORMANCE OF THE SOFTWARE IS WITH YOU.
o NO LIABILITY FOR CONSEQUENTIAL DAMAGES. MANUFACTURER OR MANUFACTURER'S
SUPPLIERS, INCLUDING MS AND ITS SUPPLIERS, SHALL NOT BE HELD TO ANY
LIABILITY FOR ANY DAMAGES SUFFERED OR INCURRED BY THE END USER
(INCLUDING, BUT NOT LIMITED TO, GENERAL, SPECIAL, CONSEQUENTIAL OR
INCIDENTAL DAMAGES INCLUDING DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION AND THE LIKE),
ARISING FROM OR IN CONNECTION WITH THE DELIVERY, USE OR PERFORMANCE OF
THE SOFTWARE.
If you acquired this EULA in the United States, this EULA is governed by the
laws of the State of Washington.
If you acquired this EULA in Canada, this EULA is governed by the laws of the
Province of Ontario, Canada. Each of the parties hereto irrevocably attorns to
the jurisdiction of the courts of the Province of Ontario and further agrees to
commence any litigation which may arise hereunder in the courts located in the
Judicial District of York, Province of Ontario.
If this EULA was acquired outside the United States, then local law may apply.
Should you have any questions concerning this EULA, please contact the
Manufacturer of your SYSTEM.
- --------------------------------------------------------------------------------
U.S. GOVERNMENT RESTRICTED RIGHTS
The SOFTWARE and documentation are provided with RESTRICTED RIGHTS. Use,
duplication, or disclosure by the Government is subject to restrictions as set
forth in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of the
Commercial Computer Software--Restricted Rights at 48 CFR 52.227-19, as
applicable. Manufacturer is Microsoft Corporation/One Microsoft Way/Redmond, WA
98052-6399.
<PAGE> 46
EXHIBIT U
ATTACHMENT 2A
EXHIBIT S
USE OF DEDICATED PRODUCT DELIVERABLES FOR WINDOWS CE SOFTWARE
(a) COMPANY grants to Customer a non-exclusive, personal, nontransferable,
non-assignable license during the term of the Agreement to:
(i) use on Customer premises the Dedicated Product Deliverables (other
than the Software Development Kit, if provided) in accordance with the
instructions contained in the Dedicated Product Deliverables for the
following limited purposes:
(A) creating an OEM Abstraction Layer for the SOFTWARE on Customer's
Dedicated Systems;
(B) testing Customer's Dedicated Systems;
(C) creating device drivers for Customer's Dedicated Systems; and
(ii) use on Customer premises the Software Development Kit in accordance
with the instructions contained therein to design software applications for
the SOFTWARE; and
(iii) distribute the Object Code files in the Software Development Kit
designated as "Redistributable Components" only in conjunction with
Customer's software application product, provided that:
(A) Customer's software application product is designed to operate
with the SOFTWARE and is fully compatible with the applicable SOFTWARE APIs
and protocols;
(B) Customer does not use MS' or Microsoft Corporation's name, logo
(except by separate written agreement with MS or Microsoft Corporation), or
trademarks to market the software application product;
(C) Customer includes MS' or Microsoft Corporation's copyright
notices for the SOFTWARE on the disk label and/or on the title page of the
documentation for the software application product; and
(D) Customer hereby indemnifies, holds harmless, and defends COMPANY,
MS and their Suppliers from and against any claims or lawsuits, including
attorney's fees, that arise or result from the use or distribution of the
software application product.
The limited license granted hereunder is solely for Customer's internal use. MS
reserves all rights not expressly licensed hereunder.
(b) MS and Customer shall jointly own any and all intellectual property in and
to any modifications or additions made by or for Customer to the OEM Abstraction
Layer and device drivers. To the extent required to realize such joint
ownership, Customer hereby assigns to MS an undivided one-half interest in any
and all such intellectual property. The parties agree that each shall be free to
use and commercially exploit their interests in such intellectual property and
there shall be no obligation of payment or accounting to the other therefore,
provided that Customer's use or exploitation of such intellectual property shall
at all times be subject to the terms of this Agreement and shall be exercised
solely in connection with the SOFTWARE.
(c) Customer shall comply with the confidentiality obligations under Section 11
of the Agreement. In addition, Customer shall use best efforts to safeguard the
Dedicated Product Deliverables from disclosure, which care shall not be less
than the standard of care Customer uses to protect its own most confidential
information. Customer shall not reproduce, duplicate, copy or otherwise
disclose, distribute or disseminate any part of the Dedicated Product
Deliverables or additional information or materials provided pursuant to this
Exhibit S in any media except for Customer's own internal use by Customer's
full-time employees on a need-to-know basis on Customer premises. Customer
hereby indemnifies COMPANY, MS and their Suppliers for any damages COMPANY, MS
or their Suppliers may suffer as a result of the failure of Customer to abide by
the terms of Section 11 of the Agreement or this Exhibit S. Notwithstanding
anything to the contrary in Section 11, Customer's confidentiality obligations
with respect to Source Code provided in connection with the Dedicated Product
Deliverables shall continue until such time as MS or Microsoft Corporation
places such Source Code in the public domain.
(d) Notwithstanding Section (c) above, Customer may disclose the Dedicated
Product Deliverables to a third party contractor which MS has confirmed in
writing to be an MS authorized Windows CE Integrator and employ such Windows CE
Integrator as a third party contractor of Customer to use the Dedicated Product
Deliverables in accordance with the Agreement and this Exhibit S, provided that:
(i) Customer and its contractor enter into a written agreement
(hereinafter "Contractor Agreement") that expressly provides that MS is a
third party intended beneficiary of the Contractor Agreement with rights to
enforce such agreement, and that requires contractor:
(A) to comply with obligations identical to those imposed on Customer
by the Agreement, including, without limitation, those obligations set
forth in Sections (b) and (c) of this Exhibit S;
(B) to cease all reference to, and to return all full or partial
copies of, the Dedicated Product Deliverables upon notice from Customer,
COMPANY, or MS of the termination or expiration of the Agreement; and
<PAGE> 47
EXHIBIT U
ATTACHMENT 2A
EXHIBIT S
(Continued)
(C) to pay COMPANY's MS' or their Suppliers or Customer's attorneys'
fees and costs if COMPANY, Customer or MS or their Suppliers employ(s)
attorneys to enforce any rights arising out of the Contractor Agreement;
(ii) Customer guarantees its contractors' fulfillment of the applicable
obligations imposed on Customer by this Agreement;
(iii) Customer hereby indemnifies COMPANY, MS and their Suppliers with
respect to any and all damages of any kind, without limitation, caused by
unauthorized reproduction and/or distribution of any portion of the
Dedicated Product Deliverables by any such contractor or by any other breach
of the Contractor Agreement by any such contractor; and
(iv) Customer notifies MS of the name and address of any contractor with
which Customer intends to enter into a Contractor Agreement at least sixty
(60) days before execution of such agreement, and MS approves in writing
such contractor. Customer's notice to MS shall also include a written
summary of the terms of any such Contractor Agreement(s), including: the
specific activity to be performed by the contractor; the SOFTWARE involved;
the term of the agreement with the contractor; and such samples as MS may
reasonably request of the work product of the contractor. Customer shall
promptly notify MS of the termination, expiration or significant
modification of the terms of such Contractor Agreement(s).
(e) In the event of an assignment or attempted assignment in violation of
Section 12 of the Agreement, the license described in this Exhibit S shall
immediately terminate and the Dedicated Product Deliverables shall be returned
to COMPANY within ten (10) days. Customer shall provide a declaration signed by
an officer of Customer, and a declaration signed by an officer of the
authorized Windows CE Integrator, attesting that all copies of the Dedicated
Product Deliverables have been returned to COMPANY.
- ------------------------------------- -------------------------------------
(Name of COMPANY) (Named of Customer)
- ------------------------------------- -------------------------------------
By By
- ------------------------------------- -------------------------------------
Name (Print) Name (Print)
- ------------------------------------- -------------------------------------
Title Title
- ------------------------------------- -------------------------------------
Date Date
<PAGE> 48
EXHIBIT V3
LICENSE OF ADDITIONAL PRODUCT SOFTWARE UNITS
[THIS EXHIBIT V3 IS FOR USE ONLY WITH AGREEMENTS THAT INCLUDE
"WINDOWS CE PRODUCTS FOR WINDOWS-BASED TERMINAL DEVICES" AS EXHIBIT C3]
AMENDMENT NUMBER ____
Amendment Date:________
to OEM CUSTOMER SUBLICENSE AGREEMENT FOR DEDICATED SYSTEMS
between ______________________, a Corporation of __________________
and _________________, a Corporation of ____________________
Agreement Effective Date:_________________
WHEREAS, Customer has licensed a certain number of units of Product
Software (the "SOFTWARE") from COMPANY under the terms of the above referenced
license agreement (the "Agreement");
WHEREAS, Customer now desires to license additional units of SOFTWARE from
COMPANY as described in the Additional Units Attachment dated ________, 199__,
which is attached to this Amendment;
NOW, THEREFORE, Customer and COMPANY hereby agree:
1. Effective as of the date indicated on the Additional Units Attachment, such
Additional Units Attachment is hereby added to the Agreement and sets forth this
number of additional units of the SOFTWARE and the language version(s) licensed
to Customer under the terms and conditions of the Agreement.
2. Customer may license additional SOFTWARE on the Additional Units Attachment
only for the SOFTWARE and the language version(s) that are currently licensed by
Customer under the Agreement between Customer and COMPANY. In order to license
SOFTWARE or language version(s) not currently licensed under the Agreement with
COMPANY, Customer shall execute a new OEM Customer Sublicense Agreement for
Dedicated Systems which includes such SOFTWARE and/or language version(s).
3. All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement. The terms of this Amendment shall supersede
any inconsistent terms contained in the Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment by their duly
authorized representatives as of the date set forth above. All signed copies of
this Amendment shall be deemed originals. Each individual signing on behalf of
Customer hereby represents and warrants that he or she has full authority to
sign this Agreement and bind Customer to perform all duties and obligations
contemplated by this Amendment. If Customer is located in a jurisdiction in
which a corporate seal or "chop" is commonly used as an instrument of agreement
execution, in addition to the individual signature provided below, Customer's
seal or "chop" should be entered below Customer's signature block. This
Amendment is executed only in the English language.
- ----------------------------------- ---------------------------------
(Name of COMPANY) (Name of Customer)
- ----------------------------------- ---------------------------------
By (Signature) By (Signature)
- ----------------------------------- ---------------------------------
Name (Print) Name (Print)
- ----------------------------------- ---------------------------------
Title Title
- ----------------------------------- ---------------------------------
Date Date
-----------------------------
Customer's seal or "chop"
-----------------------------
<PAGE> 49
EXHIBIT V3
ADDITIONAL UNITS ATTACHMENT (CONT.)
Dated: ____________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRODUCT NAME AND VERSION ADDITIONAL UNITS OF SOFTWARE LICENSED LANGUAGE VERSION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Microsoft(R) Windows(R) CE Operating System for _______________________
Windows(R)-Based Terminal devices version 1.0
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 50
SIGNED
ORIGINAL
AMENDMENT NUMBER 3
Amendment Date: December 1st, 1998
to MICROSOFT SOFTWARE FOR DEDICATED SYSTEMS DISTRIBUTOR AGREEMENT
between MICROSOFT LICENSING, INC., a Nevada, U.S.A. Corporation
and BSQUARE CORPORATION, a Corporation of Washington, U.S.A.
Agreement Effective Date: November 1st, 1997
MICROSOFT LICENSE #7772-7310 (SAP: 5000020519)
Microsoft Corporation transferred its OEM licensing operations to its wholly
owned subsidiary, Microsoft Licensing, Inc., a Nevada, U.S.A. Corporation, on
December 31, 1997. Accordingly, the above referenced license agreement
(hereinafter the "Agreement") was assigned by separate instrument to Microsoft
Licensing, Inc. on that date.
BSQUARE CORPORATION, ("COMPANY") has licensed from Microsoft Licensing, Inc.
("MS") the right to distribute certain Product Software (the "SOFTWARE") under
the terms of the above referenced distributor agreement (the "Agreement");
Now, therefore, MS and COMPANY hereby agree that effective as of the Amendment
Date set forth above:
1. COMPANY may license OEM Customers approved by MS in writing in each instance
to employ third party installer(s) to install one (1) copy of the SOFTWARE on
OEM Customer's Dedicated Systems in accordance with the terms of the Sublicense
Agreement, provided:
a. COMPANY and its OEM Customer shall execute an amendment in the
form attached hereto as Attachment 1 in order to add Exhibit I
to the OEM Customer Sublicense Agreement for Dedicated Systems
between COMPANY and OEM Customer;
b. COMPANY and its OEM Customer shall comply with all terms and
conditions contained in Exhibit I;
c. COMPANY shall ensure that its OEM Customer and the third party
installer(s) execute an Installation Agreement which complies
with Exhibit I of the Sublicense Agreement;
d. COMPANY shall submit to MS the following information in the
English language: (i) the name, address, and business profile
of the OEM Customer's proposed third party installer(s), which
installer(s) COMPANY shall not approve until such time as MS
approves the third party installer(s); and (ii) a copy of each
executed Installation Agreement.
e. COMPANY shall, upon MS request: (i) commence an audit of the
third party installer(s) in accordance with Exhibit I of the
Sublicense Agreement, and (ii) provide information concerning
the SOFTWARE installed, the corresponding Dedicated Systems
and shipment destination(s).
f. COMPANY shall cooperate fully with MS in protecting and
enforcing MS rights set forth in the Agreement.
2. The parties agree that Section 9 of the Agreement is hereby amended and shall
read as follows:
"9. TERM OF AGREEMENT.
The term of this Agreement shall run from the Effective Date until two
(2) years from the end of the calendar quarter in which the Effective Date
occurs."
3. All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement. The terms of this Amendment shall supersede
any inconsistent terms contained in the Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment by their duly
authorized representatives as of the date set forth above. All signed copies of
this Amendment shall be deemed originals. Each individual signing on behalf of
COMPANY below hereby represents and warrants that he or she has full authority
to sign this Agreement and bind COMPANY to perform all duties and obligations
contemplated by this Amendment. If COMPANY is located in a jurisdiction in which
a corporate seal or "chop" is commonly used as an instrument of agreement
execution, in addition to the individual signature provided below, COMPANY's
seal or "chop" should be entered below COMPANY's signature block. This Amendment
is executed only in the English language.
<PAGE> 51
IN WITNESS WHEREOF, the parties have executed this Amendment by their duly
authorized representatives as of the date set forth above. All signed copies of
this Amendment shall be deemed originals. Each individual signing on behalf of
COMPANY below hereby represents and warrants that he or she has full authority
to sign this Agreement and bind COMPANY to perform all duties and obligations
contemplated by this Amendment. If COMPANY is located in a jurisdiction in which
a corporate seal or "chop" is commonly used as an instrument of agreement
execution, in addition to the individual signature provided below, COMPANY's
seal or "chop" should be entered below COMPANY's signature block. This Amendment
is executed only in the English language.
MICROSOFT LICENSING, INC. BSQUARE CORPORATION
/s/ DAVID KAYE /s/ WILLIAM T. BAXTER
- ---------------------------- ----------------------------
By (Signature) By (Signature)
DAVID KAYE WILLIAM T. BAXTER
- ---------------------------- ----------------------------
Name (Print) Name (Print)
OEM Accounting Manager President/CEO
- ---------------------------- ----------------------------
Title Title
January 6, 1999 December 17, 1998
- ---------------------------- ----------------------------
Date Date
COMPANY's seal or "chop"
<PAGE> 52
ATTACHMENT 1
AMENDMENT NUMBER ___
Amendment Date: _____
to OEM CUSTOMER SUBLICENSE AGREEMENT FOR DEDICATED SYSTEMS
between ____________________, a Corporation of ______________("COMPANY")
and ________________, a Corporation of __________________ ("CUSTOMER")
Agreement Effective Date: __________
WHEREAS, Customer has licensed certain Product Software (the "SOFTWARE")
from COMPANY under the terms of the above referenced license agreement (the
"Agreement");
WHEREAS, Customer now desires to contract with a third party to install
such SOFTWARE onto Customer's Dedicated Systems;
NOW, THEREFORE, Customer and COMPANY hereby agree:
1. Effective as of the Amendment Date above, the attached Exhibit I is hereby
added to the Agreement and Customer hereby agrees to comply with all terms and
conditions set forth in Exhibit I.
2. All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement. The terms of this Amendment shall supersede
any inconsistent terms contained in the Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment by their duly
authorized representatives as of the date set forth above. All signed copies of
this Amendment shall be deemed originals. Each individual signing on behalf of
COMPANY below hereby represents and warrants that he or she has full authority
to sign this Agreement and bind COMPANY to perform all duties and obligations
contemplated by this Amendment. If COMPANY is located in a jurisdiction in
which a corporate seal or "chop" is commonly used as an instrument of agreement
execution, in addition to the individual signature provided below, COMPANY's
seal or "chop" should be entered below COMPANY's signature block. This
Amendment is executed only in the English language.
- ---------------------------- ----------------------------
(CUSTOMER NAME) (CUSTOMER NAME)
- ---------------------------- ----------------------------
By (Signature) By (Signature)
- ---------------------------- ----------------------------
Name (Print) Name (Print)
- ---------------------------- ----------------------------
Title Title
- ---------------------------- ----------------------------
Date Date
COMPANY's seal or "chop"
<PAGE> 53
EXHIBIT I
CUSTOMER USE OF THIRD PARTY INSTALLERS
Except as expressly provided in this Exhibit I, CUSTOMER shall not reproduce,
duplicate, copy or otherwise permit the installation of SOFTWARE except on
CUSTOMER premises by CUSTOMER employees. CUSTOMER may engage a third party
installer specifically approved in writing by COMPANY ("Third Party Installer")
to install the SOFTWARE for CUSTOMER on the Dedicated System hard disk or ROM
pursuant to Section 2(a)(i) of the OEM Customer Sublicense Agreement for
Dedicated Systems between COMPANY and CUSTOMER (the "Agreement") provided that
all of the conditions listed below are and remain satisfied.
(a) CUSTOMER shall provide COMPANY with the name, address, and business
profile in the English language (including years in business, ownership profile,
tradenames used, nature of principle business activities, and summary of any
prior experience with installation or replication of MS software products) of
any Third Party Installer CUSTOMER intends to engage for installation of the
SOFTWARE at least sixty (60) days before CUSTOMER intends to have the Third
Party Installer begin work for CUSTOMER. The Third Party Installer must be
approved in writing by COMPANY prior to beginning work.
(b) CUSTOMER shall enter into a written agreement with the Third Party
Installer (hereinafter "Installation Agreement") that expressly provides that MS
and COMPANY are third party intended beneficiaries of the Installation Agreement
with rights to enforce such agreement, and that requires the Third Party
Installer:
(1) to comply with obligations identical to those imposed on CUSTOMER
by Section 2(a), 3(d), 3(e), 3(f), 3(h), 3(i), 4(a), 10, 11, 12 of the
Agreement;
(2) to consent to venue and jurisdiction in the State of Washington
with respect to any action brought by MS to enforce its rights under the
Installation Agreement;
(3) to provide access to Third Party Installer premises to audit or
inspection team(s) sent on behalf of MS, CUSTOMER or COMPANY, with or without
notice, in order that such team may perform an audit of the Third Party
Installer's books and records and/or an inspection of the Third Party
Installer's procedures to determine compliance with the terms of the
Installation Agreement and the Agreement;
(4) to halt reproduction of the SOFTWARE upon notice from MS,
CUSTOMER or COMPANY;
(5) to distribute the Dedicated Systems with preinstalled SOFTWARE
only to CUSTOMER;
(6) to pay MS, CUSTOMER'S or COMPANY'S attorneys' fees if MS,
CUSTOMER or COMPANY employs attorneys to enforce any rights arising out of the
Installation Agreement;
(7) to report to CUSTOMER information concerning SOFTWARE installed
including, without limitation, the number of units of SOFTWARE installed,
corresponding Dedicated System model name(s), and shipment destination, and
(8) A sample Installation Agreement which CUSTOMER may wish to use as
a framework for the Installation Agreement is attached hereto as Attachment A to
this Exhibit I.
(c) CUSTOMER shall report to COMPANY within fifteen (15) days of the end
of each calendar month, the number of units of each SOFTWARE which the Third
Party Installer shipped to CUSTOMER during such month.
(d) CUSTOMER hereby agrees to cease use of any Third Party Installer upon
receipt of written notice from MS or COMPANY.
(e) CUSTOMER hereby unconditionally and irrevocably guarantees the Third
Party Installer's fulfillment of the applicable obligations imposed by this
Agreement and/or the Installation Agreement.
(f) CUSTOMER hereby indemnifies COMPANY for all damages (including
attorney's fees) of any kind in connection with the Third Party Installer's
activities for CUSTOMER, including, without limitation, damages resulting from:
(1) a breach of the terms of this Agreement and/or the Installation Agreement,
or (2) any and all unauthorized reproduction and/or distribution of any portion
of the SOFTWARE by the Third Party Installer.
(g) Within thirty (30) days of CUSTOMER's execution of the Installation
Agreement with each Third Party Installer, CUSTOMER shall provide a copy of such
agreement to COMPANY. CUSTOMER acknowledges that COMPANY will provide a copy of
such agreement to MS. If the Installation Agreement is not completed in the
English language, CUSTOMER shall also provide an accurate and complete English
translation thereof.
(h) CUSTOMER shall promptly notify COMPANY of the termination, expiration
or significant modification of the terms of the Installation Agreement.
(i) Sections (e) and (f) of this Exhibit I shall survive any termination
of expiration of this Exhibit I.
<PAGE> 54
ATTACHMENT A TO EXHIBIT I
SAMPLE INSTALLATION AGREEMENT
THIS INSTALLATION AGREEMENT ("Agreement") is made and entered into this
____ day of ______________, 19__ ("Effective Date") by and between ____________,
a ___________________ corporation ("CUSTOMER") and ______________________, a
____________________ corporation ("INSTALLER").
RECITALS
WHEREAS, CUSTOMER has licensed certain software Product(s) as defined
below from an MS Distributor; and
WHEREAS, CUSTOMER desires to have INSTALLER install the Product(s) on
the hard disk or ROM of CUSTOMER's Dedicated Systems;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
AGREEMENT
1. DEFINITIONS.
a. "Dedicated System" shall mean CUSTOMER's dedicated system product(s)
described in the attached Exhibit B which INSTALLER manufactures for CUSTOMER or
which CUSTOMER provides to INSTALLER for purposes of this Agreement. Each such
Dedicated System is a CUSTOMER computer system or computing device which
utilizes a single microprocessor and is designed for exclusive use with a
dedicated application that provides the primary functionality of the system or
device. A Dedicated System excludes any general or multi-purpose personal,
laptop, desktop, handheld, notebook, or server computers which address the
office automation or consumer computing markets and shall not be useable as a
commercially acceptable substitute for such computers or devices.
b. "MS" shall mean Microsoft Licensing, Inc.
c. "MS Distributor" shall mean an MS authorized distributor which
licenses certain Product(s) (as defined below) from MS under the terms of a
Microsoft Software for Dedicated Systems Distributor Agreement.
d. "OEM License" shall mean the OEM Customer Sublicense Agreement for
Dedicated Systems between CUSTOMER and MS Distributor which is identified in the
attached Exhibit A.
e. "Product(s)" shall mean the copyrighted and patented Microsoft
Corporation software product(s) described in the attached Exhibit B licensed to
CUSTOMER by MS Distributor under the OEM License.
2. INSTALLATION SERVICES.
a. Subject to the terms and conditions of this Agreement, INSTALLER
shall, if directed by CUSTOMER: (i) install the Product(s) in object code form
in the nonvolatile, solid-state memory, on the hard disk drive, or in other
nonvolatile form of CUSTOMER's Dedicated Systems using the installation
utilities and master copy of Product software provided by CUSTOMER.
b. Installation of Product(s) shall be performed by INSTALLER employees
only at the specific INSTALLER premises indicated in Section 11 of this
Agreement.
c. INSTALLER shall deliver the Dedicated Systems with installed Product
only to CUSTOMER.
d. INSTALLER shall halt reproduction of the Product upon notice from
MS, CUSTOMER or MS Distributor.
e. INSTALLER shall not reverse engineer, decompile or disassemble any
Product(s).
f. INSTALLER shall place a notice over either the Dedicated System
power switch in the "off" position or the power inlet connector which informs
the end user that turning on the Dedicated System indicates acceptance of the
terms of the end user license agreement ("EULA"), or such other procedure as is
authorized by CUSTOMER.
3. REPORTS TO MS DISTRIBUTOR. INSTALLER shall report promptly to MS Distributor
information concerning INSTALLER's installation of the Product(s) for CUSTOMER
including, without limitation, the number of units of each Product installed,
corresponding Dedicated System model name(s), and shipment destination.
4. COPYRIGHT AND PATENT NOTICES. INSTALLER will not remove, modify, or obscure
any copyright, trademark or patent notices that appear in or on the Product(s)
as delivered by CUSTOMER.
CONFIDENTIAL
<PAGE> 55
5. TERM. This Agreement shall commence on the Effective Date and continue until
the earlier of (i) termination by MS Distributor or CUSTOMER pursuant to
Section 6; or (ii) termination or expiration of the OEM License.
6. DEFAULT AND TERMINATION.
a. This Agreement shall terminate if any of the following events of
default occur: (i) if INSTALLER materially fails to perform or comply with any
provision of this Agreement; (ii) if INSTALLER makes Product(s) available
separately from CUSTOMER's Dedicated Systems; (iii) if INSTALLER manufactures,
installs or distributes any Microsoft Corporation software product(s) or
Product(s) which are not properly authorized under a valid agreement with
CUSTOMER; (iv) if INSTALLER becomes insolvent, enters bankruptcy,
reorganization, composition or other similar proceedings under applicable laws,
whether voluntary or involuntary, or admits in writing its inability to pay its
debts, or makes or attempts to make an assignment for the benefit of creditors;
or (v) upon notice from MS Distributor or MS to CUSTOMER that CUSTOMER shall
cease use of INSTALLER.
b. Termination resulting from default as outlined in this Section shall
be effective upon notice to INSTALLER, except that in the case of Section
6(a)(iv), termination shall be effective upon notice or as soon thereafter as is
permitted by applicable law.
7. OBLIGATIONS UPON TERMINATION. Within ten (10) days after the earlier of: (i)
termination or expiration of this Agreement; or (ii) notice to INSTALLER from
CUSTOMER or MS Distributor of termination or expiration of the OEM License,
INSTALLER shall return the installation "master" and any Product(s) in its
possession or under its control to CUSTOMER. From and after termination or
expiration, INSTALLER shall not use nor employ any Product(s) as part or portion
of any product that INSTALLER may use, sell, assign, lease, license or transfer
to third parties. INSTALLER shall cease and desist from all use of any
Product(s) name(s) and associated trademarks and, upon request, deliver to
CUSTOMER or its authorized representatives or destroy all material upon which
the Product(s) name(s) and the associated trademark(s) appear.
8. CONFIDENTIALITY. INSTALLER shall keep confidential the Product installation
tools and materials contained in the Product installation kit, the terms and
conditions of this Agreement, and other non-public information and know-how
disclosed to INSTALLER by CUSTOMER, and INSTALLER will make no use of such
materials, information and know-how except for INSTALLER's internal use in
accordance with the terms of this Agreement. INSTALLER may disclose the terms
and conditions of this Agreement in confidence to its immediate legal and
financial consultants as required in the ordinary course of INSTALLER's
business.
9. AUDITS.
a. During the term of this Agreement, INSTALLER agrees to keep all
usual and proper records and books of account and all usual and proper entries
relating to each Product installed.
b. CUSTOMER, MS Distributor or MS may audit the applicable INSTALLER
records and/or make an inspection of INSTALLER's facilities in order to verify
INSTALLER's compliance with the terms of this Agreement and to verify statements
issued by INSTALLER. Prompt adjustment shall be made to compensate for any
errors or omissions disclosed by such audit or inspection. Any such audit shall
be conducted by an independent certified public accountant selected by CUSTOMER,
MS Distributor or MS (other than on a contingent fee basis) and shall be
conducted during regular business hours at INSTALLER's offices and in such a
manner as not to interfere with INSTALLER's normal business activities. Any such
audit shall be paid for by the auditing party unless discrepancies are
disclosed.
c. Neither the right to examine and audit nor the right to receive
adjustment shall be affected by any statement to the contrary, appearing on
checks or otherwise, unless expressly agreed to in writing by the party having
such a right.
10. MS DISTRIBUTOR AS THIRD PARTY BENEFICIARY.
a. The parties agree that their respective promised performances under
this Agreement are intended for the benefit of MS and MS Distributor. For this
reason, the parties further agree that MS and/or MS Distributor has the right to
enforce the parties' performance of their respective obligations and duties
under this Agreement, and pursuant to such right, may sue to enforce any claim
for breach of this Agreement.
b. MS and/or MS Distributor's right to enforce the obligations of a
party to this Agreement shall not be subject to any defenses that such party may
have against the party to whom performance is promised.
[CONFIDENTIAL]
<PAGE> 56
11. NOTICES.
(a) All notices, authorizations, and requests in connection with this
Agreement shall be deemed given on the day they are (i) deposited in the U.S.A.
mails, postage prepaid, certified or registered, return receipt requested; or
(ii) sent by air express courier, charges prepaid; and addressed as stated below
(or to such other address as the party to receive the notice or request so
designates by written notice to the other).
INSTALLER: CUSTOMER:
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
Telephone: Telephone:
------------------- -------------------
Fax: Fax:
------------------------- -------------------------
(b) The work to be performed under this Agreement will take place at
INSTALLER'S premises located at:
---------------------------------------------
---------------------------------------------
---------------------------------------------
Telephone:
----------------------------------
Fax:
----------------------------------------
12. CONTROLLING LAW; ATTORNEYS' FEES.
a. This Agreement shall be construed and controlled by the laws of the
State of Washington, and with respect to any action brought by MS to enforce its
rights hereunder, CUSTOMER and INSTALLER further consent to venue and
jurisdiction in the state and federal courts sitting in the State of Washington.
With respect to any action brought by CUSTOMER or INSTALLER to enforce the terms
of this Agreement, CUSTOMER and INSTALLER further consent to venue and
jurisdiction in _______________ [state/country].
b. Process may be served on either party by U.S.A. mails, postage
prepaid, certified or registered, return receipt requested or sent by air
express courier, charges prepaid, as well as any other method or procedure
authorized by applicable law or court rule.
c. In the event that CUSTOMER or MS Distributor employs attorneys to
enforce any rights arising out of or relating to this Agreement, INSTALLER
agrees to pay such attorneys' fees.
13. EXPORT RESTRICTIONS. INSTALLER agrees that it will not export or re-export
SOFTWARE to any country, person, entity or end user subject to U.S. export
restrictions. INSTALLER specifically agrees not to export or re-export SOFTWARE
(i) to any country to which the U.S. has embargoed or restricted the export of
goods or services, which as of December 31, 1996 include, but are not
necessarily limited to, Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria,
or to any national of any such country who INSTALLER knows intends to transmit
or transport the products back to such country; (ii) to any end-user who
INSTALLER knows will utilize SOFTWARE in the design, development or production
of nuclear, chemical or biological weapons; or (iii) to any end-user who has
been prohibited from participating in U.S. export transactions by any federal
agency of the U.S. government.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above on their own behalf and for the benefit of MS Distributor. All
signed copies of this Agreement shall be deemed originals.
CUSTOMER: ___________________ INSTALLER: ___________________
_____________________________ ______________________________
By (Signature) By (Signature)
_____________________________ ______________________________
Name (Print) Name (Print)
_____________________________ ______________________________
Title Title
_____________________________ ______________________________
Date Date
CONFIDENTIAL
<PAGE> 57
EXHIBIT A
OEM Customer Sublicense Agreement for Dedicated Systems
MS Distributor (COMPANY): ________________
CUSTOMER:____________________
Effective Date: _____________
<PAGE> 58
EXHIBIT B
List of Products and Dedicated Systems
Product Name and Version Language Version(s) Dedicated Systems
_________________________ ____________________ __________________
_________________________ ____________________ __________________
_________________________ ____________________ __________________
_________________________ ____________________ __________________
_________________________ ____________________ __________________
_________________________ ____________________ __________________
<PAGE> 59
AMENDMENT NUMBER 4
Amendment Date: July 15, 1999
To MICROSOFT SOFTWARE FOR DEDICATED SYSTEMS DISTRIBUTOR AGREEMENT
Between MICROSOFT LICENSING, INC., a Nevada, U.S.A. Corporation
And BSQUARE CORPORATION, A Corporation of Washington, U.S.A.
Agreement Effective Date: November 1st, 1997
MS LICENSE #7772-7310 (SAP: 5000020519)
Effective as of the Amendment Date indicated above, the below signed parties
agree that the indicated portions of the above referenced license agreement
(hereinafter the "License Agreement") are hereby amended by this instrument
(hereinafter the "Amendment"), as follows:
1. Exhibit C of the License Agreement is hereby amended and replaced with the
attached Exhibit C.
2. Exhibit U of the License Agreement is hereby amended and replaced with the
attached Exhibit U.
3. Exhibit V of the License Agreement is hereby amended and replaced with the
attached Exhibit V.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the License Agreement. The terms of this Amendment shall
supersede any inconsistent terms contained in the License Agreement.
<PAGE> 60
IN WITNESS WHEREOF, the parties have executed this Amendment in duplicate as of
the date first written above. All signed copies of this Amendment shall be
deemed originals. This Amendment is executed only in the English language.
MICROSOFT LICENSING, INC. BSQUARE CORPORATION
/s/ [ILLEGIBLE]
- ----------------------- ------------------------
By (Signature) By (Signature)
/s/ BRIAN V. TURNER
- ----------------------- ------------------------
Name (Printed) Name (Printed)
CFO
- ----------------------- ------------------------
Title Title
June 30, 1999
- ----------------------- ------------------------
Date Date
<PAGE> 61
EXHIBIT C
WINDOWS CE PRODUCTS FOR DEDICATED SYSTEMS
<TABLE>
<CAPTION>
LANGUAGE LICENSED FILES APPLICABLE LOCALIZATION
VERSION(S) (FOR KERNEL ADDITIONAL PER COPY ADDITIONAL
PRODUCT NAME AND VERSION ** VERSIONS ONLY) PROVISIONS ROYALTY* ROYALTY
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Windows(R) CE Operating
System for Dedicated EN (a),(b),(c),(d) US$ * US$ *
Systems version 2.11
Data Exchange Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System for Dedicated EN (a),(b),(c),(d) US$ * US$ *
Systems version 2.0 or 2.11
Full Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating
System for Dedicated EN (a),(b),(c),(d) US$ * US$ *
Systems version 2.0 or 2.11
Limited Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
Windows(R) CE Operating See Additional
System for Dedicated EN Provision (b) (a),(b),(c),(d) US$ * US$ *
Systems version 2.0 or 2.11 below
Kernel Version
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
</TABLE>
* A PRODUCT IS NOT LICENSED HEREUNDER UNLESS ROYALTY RATE(S) ARE INDICATED IN
THE PRODUCT TABLE.
** LANGUAGE KEY: EN-ENGLISH, LOCALIZED VERSIONS ARE LICENSED ON AN IF AND AS
AVAILABLE BASIS.
ADDITIONAL PROVISIONS
(a) Notwithstanding anything to the contrary contained in the Agreement, there
are no Dedicated Product Deliverables for the product. COMPANY's OEM Customer
has obtained the Product as part of a Microsoft Windows CE Embedded Toolkit for
Visual C++ version 5.0 or as part of the Microsoft Windows CE Platform Builder
version 2.11 (hereinafter referred to collectively or separately as "Windows CE
Kit") in a separate transaction.
(b) COMPANY's license to grant rights as set forth in Section 2(iii) of the
Agreement to COMPANY's OEM Customers shall apply only to the licensed Product
Version (i.e., Data Exchange, Full, Limited, Kernel) indicated above; each
Product Version configuration is fully described in the Windows CE Kit
documentation. The Data Exchange Version license includes all components of the
Full Version and, in addition, the Desktop Software CD Rom disk (which includes
Windows CE Services) which COMPANY shall obtain from the Authorized Replicator.
(c) In order to support its OEM Customers, COMPANY agrees to enter into and
maintain, at COMPANY's expense, a valid Priority Support Agreement with MSCORP
at all times during the period COMPANY is licensed for this Product.
(d) Use of the Dedicated Systems logo(s) is optional; however, if OEM Customer
chooses to use the Dedicated Systems logo(s) with its Dedicated Systems, COMPANY
shall ensure that OEM Customer has executed the applicable logo license with
MSCORP prior to any marketing or distribution of a Dedicated System. COMPANY
hereby agrees to indemnify and defend MS and its Suppliers from and against all
damages, costs and expenses, including reasonable attorneys' fees, which MS or
its Suppliers may incur if the OEM Customer markets or distributes Dedicated
Systems in absence or breach of the applicable logo license.
- ------------
* Confidential treatment requested
<PAGE> 62
EXHIBIT U
OEM CUSTOMER SUBLICENSE AGREEMENT
FOR DEDICATED SYSTEMS
This agreement ("Agreement") is made and entered into by and between you
("Customer"), and [ENTER NAME OF COMPANY] ("COMPANY"), and shall be effective
as of the date on which it is signed by COMPANY ("Effective Date"). Microsoft
Licensing, Inc., a Nevada, U.S.A. corporation ("MS") shall be a third party
beneficiary of this Agreement and shall be entitled to enforce the terms of
this Agreement as provided herein and such other rights and obligations herein
as necessary to protect MS' interests in the software program(s) and other
licensed product(s) identified in Attachment 2 to this Agreement ("SOFTWARE").
1. DEFINITIONS.
(a) "Dedicated Systems" means Customer's computer systems or computing devices
which: (a) are based on the Window CE operating system, (b) utilize a single
central processor unit, (c) are designed for use with a Dedicated Application
(defined below), (d) are marketed to one or more specific industries (and not
to general consumer or mass markets), and (e) shall not be useable as a
commercially viable substitute for computers or devices which perform general
purpose consumer computing functions.
(b) "Dedicated Application" means industry- or task-specific software programs
and/or functionality, not generally available to consumers, that (a) provide the
primary functionality of the Dedicated System, (b) are designed to meet the
functionality requirements of the specific industry into which the Dedicated
System is being marketed, and (c) offer significant functionality in addition to
the Product software.
(c) "Dedicated Product Deliverables" shall mean SOFTWARE in object code form,
installation utilities, adaptation code in source code form, if provided by
COMPANY, and other information or instructions regarding the SOFTWARE that
COMPANY or MS may provide.
(d) "EULA" shall mean an end user license agreement for the SOFTWARE.
(e) "Recovery Media" shall mean a backup image of the SOFTWARE as originally
installed on the Dedicated System.
(f) "SOFTWARE Upgrade" shall mean a copy of the SOFTWARE to be distributed by
Customer directly to end users to replace an earlier version of the SOFTWARE
licensed to Customer under this Agreement.
(g) "Suppliers" shall mean any and all entities (including, without
limitation, Microsoft Corporation, a Washington, U.S.A. corporation) which
license or otherwise supply MS with Products or portions thereof for
redistribution or sublicense by MS.
2. LIMITED LICENSE GRANT.
Subject to the restrictions set forth in this Agreement, and Customer's
compliance with all terms and conditions of this Agreement, COMPANY grants to
Customer the following limited license rights:
(a)(i) to install as part of a Dedicated System, one (1) copy of the SOFTWARE in
nonvolatile, solid-state memory, on the hard disk drive, or in other
nonvolatile form, in accordance with the instructions, if any, contained in the
Dedicated Product Deliverables; and (ii) to distribute the SOFTWARE only as
part of a Dedicated System solely under Customer's brand names and trademarks.
(b) to configure the SOFTWARE in accordance with the instructions, if any,
contained in the Dedicated Product Deliverables solely to enable SOFTWARE
to execute on a Dedicated System.
(c) to reproduce and distribute with each Dedicated System distributed in
accordance with 2(a), not more than one (1) unit of Recovery Media provided
that:
(i) The images of the SOFTWARE on the Recovery Media shall be identical to
the object code that was originally installed on the Dedicated System.
Recovery Media may include non-MS products that Customer distributes
installed on the Dedicated System;
(ii) Recovery Media shall be maintained by the end user as an archival
copy and may only be licensed for use: (A) to restore the same version and
language release of the SOFTWARE as originally installed on a Dedicated
System or (B) to reinstall the same version and language release of the
SOFTWARE as originally installed on the Dedicated System after the
installation of an upgrade to the Dedicated Application on a Dedicated
System;
(iii) Recovery or reinstallation of the SOFTWARE shall be performed by an
authorized service representative of Customer or by the licensed end user;
(iv) Recovery Media may include a single copy of each of the following
files in order that the Recovery Media shall be "bootable": command.com,
io.sys, msdos.sys, and for Dedicated Systems with Windows 95, drvspace.bin;
(v) A single unit of Recovery Media may be used by the licensed end user
or the Customer's authorized service representative to restore or
reinstall the SOFTWARE on such end user's additional units of the same
name and model Dedicated System which contain the same version and
language release of the SOFTWARE properly licensed to the end user
pursuant to this Agreement;
(vi) Recovery Media shall be clearly labeled "Recovery Media-for Backup or
Archival purposes only with [Name and Model of the Dedicated System]".
(d) to reproduce and distribute SOFTWARE Upgrades to an end user provided that:
(i) such end user is an existing, authorized end user of a Dedicated
System;
(ii) Customer shall acquire a serialized sticker from COMPANY, and
Customer shall pay the applicable SOFTWARE royalty fee as set forth in
Attachment 2 for each copy of SOFTWARE Upgrade installed by its end users
or service representatives pursuant to this Section 2(d);
(iii) SOFTWARE Upgrades shall be distributed directly by Customer,
separate from a Dedicated System, to an end-user for use solely as a
replacement copy for the SOFTWARE originally installed on the Dedicated
System pursuant to this Agreement;
(iv) the SOFTWARE Upgrade is configured to ensure that it executes solely
on the applicable Dedicated System and will not execute on general or
multi-purpose personal, laptop, desktop, handheld, notebook, server
computers or other such computing devices which address more than one
function of the office automation or consumer computing market;
(v) the SOFTWARE Upgrade is distributed as an integrated part of the
Dedicated Application;
(vi) Installation of the SOFTWARE Upgrade shall be performed by an
authorized service representative of
<PAGE> 63
Customer or by the licensed end user;
(vii) A single unit of SOFTWARE Upgrade may be used by the licensed end user
or the Customer's authorized service representative to install the SOFTWARE
Upgrade on such end user's additional units of the same name and model
Dedicated System which contain the same version and language release of the
SOFTWARE;
(viii) Customer shall establish a reasonable procedure to assure the return
or destruction of any replaced SOFTWARE (for example, a SOFTWARE Upgrade that
erases or permanently disables the replaced SOFTWARE would satisfy this
requirement);
(ix) the SOFTWARE Upgrade shall be clearly labeled "For Upgrade purposes only
- not for use on a new Dedicated System. For Use Only with [Name and Model of
the Dedicated System]".
(e) Customer shall cause to appear in a conspicuous place in the Dedicated
System documentation to accompany each Dedicated System and each copy of
SOFTWARE Upgrade, the EULA attached to this Agreement as Attachment 1, or such
other EULA as COMPANY may provide from time to time. Customer shall adapt the
EULA as necessary to comply with the laws of any jurisdiction in which the
SOFTWARE is distributed.
3. LICENSE RESTRICTIONS.
(a) The total number of units of the SOFTWARE (including any SOFTWARE Upgrades)
distributed by Customer shall not exceed the number of "Units of SOFTWARE
licensed" for such SOFTWARE as set forth in Attachment 2 hereto.
(b) Except as provided in Section 2(c)-(d), SOFTWARE may not be distributed in
whole or in part other than installed on the Dedicated System.
(c) Customer may not distribute any SOFTWARE documentation.
(d) Customer shall not use, copy, modify, or transfer the SOFTWARE or any copy
in whole or in part, except as expressly provided in this Agreement. Customer's
reproduction of the SOFTWARE in accordance with Section 2 shall be performed
only on Customer premises by Customer's regular employees except as otherwise
specifically approved in writing by MS.
(e) Customer shall not reverse engineer, decompile or disassemble any SOFTWARE
except as permitted by applicable law without the possibility of contractual
waiver. Customer acknowledges that information on interoperability of the
SOFTWARE with other products is readily available.
(f) All distribution and use of the SOFTWARE is by license only. Neither COMPANY
nor MS authorize the SOFTWARE to be "issued to the public", "put into
circulation", or subject to a "first sale" as the copyright laws may use those
(or similar) terms. Customer's license to distribute the SOFTWARE is limited to
distribution of the SOFTWARE by Customer to end users for use pursuant to a
EULA.
(g) MS reserves all rights not expressly granted including, without limitation,
modification rights, translation rights, rental rights, and rights to source
code. MS expressly reserves its exclusive right under applicable copyright,
patent, and trademark laws to distribute copies of SOFTWARE by any means. Except
as set forth in Section 2(c)-(d) above, without limitation, neither COMPANY nor
MS authorizes Customer to distribute the SOFTWARE separately from Dedicated
Systems; any such unauthorized distribution by Customer shall constitute a
violation of this Agreement and MS' distribution right under applicable law.
Customer acknowledges that MS (and/or its Suppliers, if applicable) shall retain
all copyright, patent, moral, trademark, title and other proprietary and
intellectual property in the SOFTWARE, Dedicated Product Deliverables and
components thereof, in whole or in part in any form.
(h) Customer will not remove, modify, or obscure any copyright, trademark,
patent or other intellectual property notices included on the SOFTWARE or the
SOFTWARE Upgrade.
(i) Customer shall not advertise, publish or otherwise mark a separate price for
the SOFTWARE.
(j) Customer agrees to provide commercially reasonable end user support for the
SOFTWARE which, in any event, shall be under terms and conditions at least as
favorable to the end user as the terms under which Customer provides support for
Dedicated System(s) to end users generally. Customer agrees to provide COMPANY
and MS with ninety (90) days prior written notice of any substantive change in
Customer's support policy for the SOFTWARE.
4. LICENSE STICKER.
(a) For each unit of SOFTWARE distributed, Customer shall place a serialized
sticker supplied by COMPANY (i) on the hard drive containing the SOFTWARE, or if
the SOFTWARE is installed in nonvolatile, solid-state memory, (ii) on the
nonvolatile, solid-state memory or in a conspicuous place on the component board
to which the nonvolatile, solid-state memory is attached. If placement as
described in both (i) and (ii) are impractical, the label may be affixed to the
inside or outside of the rear panel of the Dedicated System casing.
(b) (i) Customer shall also place a serialized sticker supplied by COMPANY on
the media for each unit of SOFTWARE Upgrade distributed by Customer.
(ii) If one unit of the SOFTWARE Upgrade is used to install the SOFTWARE
Upgrade on additional units of the Dedicated System as set forth in Section
2(d)(vii), then, prior to distribution of the SOFTWARE Upgrade, Customer
shall (A) determine the number of units of SOFTWARE Upgrade to be
installed, (B) provide end user or Customer's authorized service
representative with a serialized sticker supplied by COMPANY for each such
unit, and (C) ensure that a serialized sticker is placed on each Dedicated
System on which SOFTWARE Upgrade is installed as described in Section 4(a).
5. DELIVERY.
For each SOFTWARE product licensed hereunder, COMPANY (or MS, on behalf of
COMPANY) shall deliver to Customer one (1) unit of Dedicated Product
Deliverables. Customer' acknowledges and agrees that neither COMPANY, nor MS and
its Suppliers, shall have any liability for failure to deliver Dedicated Product
Deliverables by any particular date, or if the SOFTWARE is not yet a released
product, during the term of this Agreement.
6. LIMITED WARRANTY AND CUSTOMER REMEDIES.
(a) COMPANY warrants that the SOFTWARE will perform substantially in accordance
with the accompanying written materials for a period of ninety (90) days from
the date of receipt.
(b) COMPANY's, MS', and their Suppliers' entire liability and Customer's
exclusive remedy for a breach of the warranty set forth above shall be, at
COMPANY's option, either (i) return of the price paid or (ii) repair or
replacement of the SOFTWARE that does not meet the above limited warranty and
which is returned to COMPANY. This limited warranty is void if failure of the
SOFTWARE has resulted from accident, abuse, or misapplication. Any replacement
SOFTWARE will be warranted for the remainder of the original warranty period or
thirty (30) days, whichever is longer.
(c) COMPANY, MS, AND THEIR SUPPLIERS DISCLAIM AND EXPRESSLY EXCLUDE ALL OTHER
WARRANTIES, EITHER EXPRESS OR IMPLIED,
<PAGE> 64
INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF NON-INFRINGEMENT,
MERCHANTABILITY, AND/OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE
SOFTWARE AND ANY ACCOMPANYING WRITTEN MATERIALS.
(d) The rights and remedies granted to Customer under this Section 6 constitute
Customer's sole and exclusive remedy against the COMPANY, MS, their Suppliers,
and their officers, agents and employees for any and all claims arising in
connection with the SOFTWARE or the Dedicated Product Deliverables including,
but not limited to, claims regarding COMPANY's or MS' delivery of SOFTWARE or
Dedicated Product Deliverables, or indemnification or contribution from COMPANY,
MS or their Suppliers with respect to any infringement of the rights of a third
party, whether arising under statutory or common law or otherwise.
7. TERM AND TERMINATION.
(a) The term of this license shall run from the Effective Date until the earlier
of (i) one (1) year after Effective Date, or (ii) the date on which Customer has
distributed the number of units of SOFTWARE licensed under this Agreement as set
forth in Attachment 2 for each SOFTWARE.
(b) Termination due to breach of Sections 3(d), 3(e), 3(f), 10, or 11 shall be
effective upon notice to Customer. In all other cases, termination shall be
effective fifteen (15) days after notice of termination to the defaulting party
if the defaults have not been cured within such fifteen (15) day period. At the
option of the non-defaulting party, termination due to a breach of any provision
of this Agreement may be effective upon notice to the defaulting party if such
party has received two (2) or more previous notices of default during the term
of this Agreement (whether or not such previous defaults have been cured).
(c) Upon termination or expiration of the Agreement, Customer will immediately
cease all use and distribution of the SOFTWARE, the SOFTWARE product name, and
all associated trademarks). Within ten (10) days of the termination or
expiration of the Agreement, Customer shall return to COMPANY all Dedicated
Product Deliverables and serialized stickers for the SOFTWARE in Customer's
possession or under Customer's control. There shall be no refund or adjustment
for amounts paid for the Dedicated Product Deliverables or stickers returned to
COMPANY in accordance with this Section 7(c).
8. DISCLAIMER OF LIABILITY.
IN NO EVENT SHALL COMPANY, MS, OR THEIR SUPPLIERS BE LIABLE FOR ANY DAMAGES
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
CONSEQUENTIAL, INCIDENTAL, INDIRECT, ECONOMIC OR PUNITIVE DAMAGES, BUSINESS
INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR OTHER PECUNIARY LOSS) ARISING OUT
OF THE MANUFACTURE, SALE, USE OF OR INABILITY TO MANUFACTURE, SELL OR USE THE
SOFTWARE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9. TECHNICAL SUPPORT.
This Agreement does not include technical support from MS or its Suppliers.
Technical support, if any, for the SOFTWARE will be provided by COMPANY.
10. AUDITS AND INSPECTIONS.
(a) During the term of this Agreement and for three (3) years thereafter,
Customer agrees to keep all usual and proper records and books of account and
all usual and proper entries relating to each unit of SOFTWARE licensed
sufficient to substantiate the number of units of SOFTWARE and the number of
Dedicated Systems distributed by Customer.
(b) In order to verify statements issued by Customer and Customer's compliance
with the terms of this Agreement, COMPANY and/or MS may cause (i) an audit to be
made of Customer's books and records and/or (ii) an inspection to be made of
Customer's facilities and procedures. Any audit and/or inspection shall be
conducted during regular business hours at Customer's facilities, with or
without notice. Any audit shall be conducted by an independent certified public
accountant selected by MS or COMPANY (other than on a contingent fee basis).
(c) Customer agrees to provide any audit or inspection team(s) designated by MS
and/or COMPANY access to all relevant Customer records and facilities. Prompt
adjustment shall be made to compensate for any errors or omissions disclosed by
such audit. If material discrepancies are disclosed in such audit, Customer
agrees to pay MS or COMPANY, as applicable, for the costs associated with the
audit.
11. NONDISCLOSURE OBLIGATION.
Customer shall keep confidential the Dedicated Product Deliverables, any
SOFTWARE source code provided by COMPANY, MS or their Suppliers on behalf of
COMPANY, the terms and conditions of this Agreement, and other non-public
information and know-how disclosed to Customer by COMPANY, MS or their
Suppliers. Customer may disclose the terms and conditions of this Agreement in
confidence to its immediate legal and financial consultants as required in the
ordinary course of Customer's business. Customer's obligation under this Section
shall survive termination or expiration of this Agreement and shall extend until
such time as the information protected hereby is in the public domain.
12. GENERAL.
(a) This Agreement shall be construed and controlled by the laws of the State of
Washington, and Customer and COMPANY further consents to jurisdiction by the
state and federal courts sitting in the State of Washington. Process may be
served on either party by air express courier, (e.g. DHL, Airborne) charges
prepaid, return receipt requested. If COMPANY, MS or Customer employs attorneys
to enforce any rights arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover reasonable attorney's fees.
(b) Customer agrees that it will not export or re-export SOFTWARE to any
country, person, entity or end user subject to U.S. export restrictions.
Customer specifically agrees not to export or re-export SOFTWARE (i) to any
country to which the U.S. has embargoed or restricted the export of goods or
services, which as of December 31, 1996 include, but are not necessarily limited
to, Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria, or to any national
of any such country who Customer knows intends to transmit or transport the
products back to such country; (ii) to any end-user who Customer knows will
utilize SOFTWARE in the design, development or production of nuclear, chemical
or biological weapons; or (iii) to any end-user who has been prohibited from
participating in U.S. export transactions by any federal agency of the U.S.
government.
(c) If any provision or portion of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, the remaining
provisions or portions shall remain in full force and effect.
(d) No waiver of any breach of any provision of this Agreement shall constitute
a waiver of any prior, concurrent, or subsequent breach of the same or any other
provisions hereof, and no waiver shall be effective unless made in writing and
signed by an authorized representative of the waiving party.
(e) Any assignment of this Agreement without prior written
<PAGE> 65
consent of the non-assigning party shall be void.
(f) SOFTWARE may be imported, distributed, or sold in or to a country or
territory only if allowed by, and in compliance with, all applicable laws and
regulations of such country or territory as well as all terms and conditions of
this Agreement. Customer acknowledges that versions of certain SOFTWARE not
localized for a specific market may be prohibited or subject to import and
distribution procedures or restrictions under such laws and regulations. By way
of example only, as of July 1, 1997, the U.S.A. English version of Microsoft
Excel 97 cannot be distributed to or for use in India, and games, entertainment
products and products with substantial amounts of video, graphics or similar
content may be prohibited or subject to specific import procedures under laws of
the People's Republic of China. Customer agrees to indemnify COMPANY, MS and
their Suppliers from and against all damages, costs and expenses (including
reasonable attorneys' fees) incurred by COMPANY, or MS or their Suppliers in
connection with any and all claims, demands or actions arising from Customer's
importation or distribution of SOFTWARE in or to a country or territory not in
compliance with the laws and regulations of such country or territory.
(g) Any SOFTWARE which Customer distributes or licenses to or on behalf of the
United States of America, its agencies and/or instrumentalities (the
"Government"), shall be provided with RESTRICTED RIGHTS in accordance with DFARS
252.2277013(c)1(ii), or as set forth in the particular department or agency
regulations or rules, or particular contract which provide MS and its Suppliers
equivalent or greater protection.
Should Customer have any questions concerning this Agreement, please write:
- --------------------------------------
Name of COMPANY
- --------------------------------------
Address
- --------------------------------------
- --------------------------------------
<PAGE> 66
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives as of the date set forth above. All signed copies of
this Agreement shall be deemed originals. Each individual signing on behalf of
Customer below hereby represents and warrants that he or she has full authority
to sign this Agreement and bind Customer to perform all duties and obligations
contemplated by this Agreement. If COMPANY or Customer is located in a
jurisdiction in which a corporate seal or "chop" is commonly used as an
instrument of agreement execution, in addition to the individual signature
provided below, COMPANY's and/or Customer's seal or "chop" should be entered
below the appropriate signature block.
COMPANY CUSTOMER
_________________________ ___________________________
By (Signature) By (Signature)
_________________________ ___________________________
Name (Print) Name (Print)
_________________________ ___________________________
Title Title
_________________________ ___________________________
Date Date
_________________________
COMPANY's seal or "chop"
_________________________
_________________________
CUSTOMER's seal or "chop"
_________________________
<PAGE> 67
ATTACHMENT 1
TO OEM CUSTOMER SUBLICENSE AGREEMENT FOR DEDICATED SYSTEMS
END-USER LICENSE AGREEMENT FOR MICROSOFT SOFTWARE
IMPORTANT--READ CAREFULLY: THIS END-USER LICENSE AGREEMENT ("EULA") IS A LEGAL
AGREEMENT BETWEEN YOU (EITHER AN INDIVIDUAL OR A SINGLE ENTITY) AND THE
MANUFACTURER ("MANUFACTURER") OF THE SPECIAL PURPOSE COMPUTING DEVICE ("SYSTEM")
YOU ACQUIRED WHICH INCLUDES CERTAIN MICROSOFT SOFTWARE PRODUCT(S) INSTALLED ON
THE SYSTEM ("SOFTWARE PRODUCT" OR "SOFTWARE"). THE SOFTWARE INCLUDES COMPUTER
SOFTWARE, THE ASSOCIATED MEDIA (INCLUDING RECOVERY MEDIA), ANY PRINTED
MATERIALS, AND ANY "ONLINE" OR ELECTRONIC DOCUMENTATION. ANY SOFTWARE PROVIDED
ALONG WITH THE SOFTWARE THAT IS ASSOCIATED WITH A SEPARATE END-USER LICENSE
AGREEMENT IS LICENSED TO YOU UNDER THE TERMS OF THAT LICENSE AGREEMENT. BY
INSTALLING, COPYING, DOWNLOADING, ACCESSING OR OTHERWISE USING THE SOFTWARE, YOU
AGREE TO BE BOUND BY THE TERMS OF THIS EULA. IF YOU DO NOT AGREE TO THE TERMS OF
THIS EULA, MANUFACTURER AND MICROSOFT LICENSING, INC. ("MS") ARE UNWILLING TO
LICENSE THE SOFTWARE TO YOU. IN SUCH EVENT, YOU MAY NOT USE OR COPY THE
SOFTWARE, AND YOU SHOULD PROMPTLY CONTACT MANUFACTURER FOR INSTRUCTIONS ON
RETURN OF THE UNUSED PRODUCT(S) FOR A REFUND.
- ------------------------------------------------------------------------------
SOFTWARE LICENSE
The SOFTWARE is protected by copyright laws and international treaties, as well
as other intellectual property laws and treaties. The SOFTWARE is licensed, not
sold.
1. GRANT OF LICENSE. This EULA grants you the following rights:
- SOFTWARE. SOFTWARE includes software already installed on the SYSTEM
("SYSTEM Software") and, if included in the SYSTEM package, software
contained on the CD-ROM disk labeled "Desktop Software for Microsoft
Windows CE" ("Desktop Software").
- SYSTEM SOFTWARE. You may use SYSTEM Software only as installed in the
SYSTEM.
- DESKTOP SOFTWARE. If Desktop Software is included with your SYSTEM,
you may install and use the component(s) of the Desktop Software in
accordance with the terms of the end user license agreement provided
with such component(s). If no separate end user license agreement is
provided, you may install and use only one (1) copy of such
component(s) on a single computer with which you use the SYSTEM.
- BACK-UP COPY. If MANUFACTURER has not included a copy of the SOFTWARE
on separate media with the SYSTEM, you may make a single copy of the
SOFTWARE for use solely for archival purposes with the SYSTEM.
2. DESCRIPTION OF OTHER RIGHTS AND LIMITATIONS.
- LIMITATIONS ON REVERSE ENGINEERING, DECOMPILATION AND DISASSEMBLY. You
may not reverse engineer, decompile, or dissemble the SOFTWARE, except
and only to the extent that such activity is expressly permitted by
applicable law notwithstanding this limitation.
- SINGLE SYSTEM. The SOFTWARE is licensed with the SYSTEM as a single
integrated product. The SOFTWARE may only be used with the SYSTEM.
- RENTAL. You may not rent or lease the SOFTWARE.
- SOFTWARE TRANSFER. You may permanently transfer all of your rights
under this EULA only as part of a sale or transfer of the SYSTEM,
provided you retain no copies, you transfer all of the SOFTWARE
(including all component parts, the media, any upgrades or backup
copies, and this EULA, and if applicable, the Certificate(s) of
Authenticity), AND the recipient agrees to the terms of this EULA. If
the SOFTWARE is an upgrade, any transfer must include all prior
versions of the SOFTWARE.
- TERMINATION. Without prejudice to any other rights, Manufacturer or MS
may terminate this EULA if you fail to comply with the terms and
conditions of this EULA. In such event, you must destroy all copies of
the SOFTWARE and all of its component parts.
- SINGLE EULA. The package for the SOFTWARE may contain multiple
versions of this EULA, such as multiple translations and/or multiple
media versions (e.g., in the user documentation and in the software).
In this case, you are only licensed to use one (1) copy of the
SOFTWARE PRODUCT.
- EXPORT RESTRICTIONS. You agree that you will not export or re-export
the SOFTWARE to any country, person, entity or end user subject to
U.S. export restrictions. You specifically agree not to export or
re-export the SOFTWARE (i) to any country to which the U.S. has
embargoed or restricted the export of goods or services, which
currently include, but are not necessarily limited to Cuba, Iran,
Iraq, Libya, North Korea, Sudan and Syria, or to any national of any
such country, wherever located, who intends to transmit or transport
the products back to such country; (ii) to an end user you know or
have reason to know will utilize the SOFTWARE in the design,
development or production or nuclear, chemical or biological weapons;
or (iii) to any end-user who has been prohibited from participating in
U.S. export transactions by any federal agency of the U.S. government.
<PAGE> 68
ATTACHMENT 1
(continued)
3. UPGRADES AND RECOVERY MEDIA.
- If the SOFTWARE is provided by Manufacturer on media separate from the
SYSTEM and is labeled "For Upgrade Purposes Only" (Upgrade SOFTWARE),
you may install one copy of the Upgrade SOFTWARE onto the SYSTEM as a
replacement copy for the SOFTWARE originally installed on the SYSTEM
and use it in accordance with Section 1 of this EULA. You may also
install additional copies of the Upgrade SOFTWARE as replacement
copies onto additional SYSTEMS which are the same brand and model as
the SYSTEM and contain a duly licensed copy of the same version and
language release of the SOFTWARE ("ADDITIONAL SYSTEMS"), provided that
(1) Manufacturer has supplied a corresponding serialized sticker for
each additional copy of the Upgrade SOFTWARE, and (2) you affix a
serialized sticker per Manufacturer's instructions for each unit of
Upgrade SOFTWARE you install.
- If the SOFTWARE is provided by Manufacturer on separate media and
labeled as "Recovery Media" ("Recovery Media"), you may not make a
copy of the SOFTWARE as described in Section 1 for archival purposes.
Instead, you may use the Recovery Media solely to restor or reinstall
the same version and language release of the SOFTWARE as originally
installed on the SYSTEM and thereafter use the SOFTWARE as restored or
reinstalled in accordance with Section 1 of this EULA. A single unit
of Recovery Media may be used by you to restore or reinstall the
SOFTWARE on ADDITIONAL SYSTEMS.
4. NOTE ON COMPATIBILITY OF DESKTOP SOFTWARE. THIS EULA IS FOR A SPECIAL
PURPOSE COMPUTING DEVICE. THE ONLY WARRANTIES ARE THOSE PROVIDED BY
MANUFACTURER IN THE LIMITED WARRANTY SECTION SET FORTH BELOW.
NOTWITHSTANDING ANY ONLINE "HELP" FILES OR OTHER ONLINE INFORMATION
DISPLAYED BY THE DESKTOP SOFTWARE, NEITHER MS NOR ITS SUPPLIERS (INCLUDING
MICROSOFT CORPORATION) REPRESENTS OR MAKES ANY WARRANTY THAT THE DESKTOP
SOFTWARE WILL OPERATE IN A SPECIFIC MANNER OR OPERATE WITH ANY COMPUTER OR
COMPUTING DEVICE, WHETHER OR NOT SUCH COMPUTER(S) OR COMPUTING DEVICE(S)
CONTAIN MICROSOFT WINDOWS OPERATING SYSTEM SOFTWARE OR MICROSOFT WINDOWS CE
OPERATING SYSTEM SOFTWARE MANUFACTURER'S WARRANTIES ARE EXPRESSLY LIMITED
TO THOSE SET FORTH IN THE LIMITED WARRANTY SECTION BELOW.
5. COPYRIGHT. All title and copyrights in and to the SOFTWARE (including but
not limited to any images, photographs, animations, video, audio, music,
text and "applets," incorporated into the SOFTWARE), the accompanying
printed materials, and any copies of the SOFTWARE, are owned by MS or its
suppliers (including Microsoft Corporation). You may not copy the printed
materials accompanying the SOFTWARE. All rights not specifically granted
under this EULA are reserved by MS and its suppliers (including Microsoft
Corporation).
6. PRODUCT SUPPORT. Product support for the SOFTWARE is not provided by MS,
its parent corporation, Microsoft Corporation, or their affiliates or
subsidiaries. For product support, please refer to Manufacturer's support
number provided in the documentation for the SYSTEM. Should you have any
questions concerning this EULA, or if you desire to contact Manufacturer
for any other reason, please refer to the address provided in the
documentation for the SYSTEM.
7. LIMITED WARRANTY.
- LIMITED WARRANTY. Manufacturer warrants that the SOFTWARE will perform
substantially in accordance with the accompanying written materials
for a period of ninety (90) days from the date of receipt. Any implied
warranties on the SOFTWARE are limited to ninety (90) days. Some
states/jurisdictions do not allow limitations on duration of an
implied warranty, so the above limitation may not apply to you.
- CUSTOMER REMEDIES. Manufacturer's and its suppliers' entire liability
and your exclusive remedy shall be, at Manufacturer's option, either
(a) return of the price paid, or (b) repair or replacement of the
SOFTWARE that does not meet the above Limited Warranty and which is
returned to Manufacturer with a copy of your receipt. This Limited
Warranty is void if failure of the SOFTWARE has resulted from
accident, abuse, or misapplication. Any replacement SOFTWARE will be
warranted for the remainder of the original warranty period or thirty
(30) days, whichever is longer.
- NO OTHER WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN THE LIMITED
WARRANTY SECTION ABOVE, THE SOFTWARE IS PROVIDED TO THE END USER "AS
IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF NON-INFRINGEMENT,
MERCHANTABILITY, AND/OR FITNESS FOR A PARTICULAR PURPOSE. THE ENTIRE
RISK OF THE QUALITY AND PERFORMANCE OF THE SOFTWARE IS WITH YOU.
- NO LIABILITY FOR CONSEQUENTIAL DAMAGES. MANUFACTURER OR MANUFACTURER'S
SUPPLIERS, INCLUDING MS AND ITS SUPPLIERS, SHALL NOT BE HELD TO ANY
LIABILITY FOR ANY DAMAGES SUFFERED OR INCURRED BY THE END USER
(INCLUDING, BUT NOT LIMITED TO, GENERAL, SPECIAL, CONSEQUENTIAL OR
INCIDENTAL DAMAGES INCLUDING DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION AND THE LIKE),
ARISING FROM OR IN CONNECTION WITH THE DELIVERY, USE OR PERFORMANCE OF
THE SOFTWARE.
8. NOTE ON JAVA SUPPORT. THE SOFTWARE PRODUCT MAY CONTAIN SUPPORT FOR PROGRAMS
WRITTEN IN JAVA. JAVA TECHNOLOGY IS NOT FAULT TOLERANT AND IS NOT DESIGNED,
MANUFACTURED, OR INTENDED FOR USE OR RESALE AS ON-LINE CONTROL EQUIPMENT IN
HAZARDOUS ENVIRONMENTS REQUIRING FAIL-SAFE PERFORMANCE, SUCH AS IN THE
OPERATION OF NUCLEAR FACILITIES, AIRCRAFT NAVIGATION OR COMMUNICATION
SYSTEMS, AIR TRAFFIC CONTROL, DIRECT LIFE SUPPORT MACHINES, OR WEAPONS
SYSTEMS, IN WHICH THE FAILURE OF JAVA TECHNOLOGY COULD LEAD DIRECTLY TO
DEATH, PERSONAL INJURY, OR SEVERE PHYSICAL OR ENVIRONMENTAL DAMAGE. SUN
MICROSYSTEMS, INC. HAS CONTRACTUALLY OBLIGATED MICROSOFT CORPORATION TO
MAKE THIS DISCLAIMER.
<PAGE> 69
ATTACHMENT 1
(continued)
_______________________________________________________________________________
If you acquired this EULA in the United States, this EULA is governed by the
laws of the State of Washington.
If you acquired this EULA in the Canada, this EULA is governed by the laws of
the Province of Ontario, Canada. Each of the parties hereto irrevocably attorns
to the jurisdiction of the courts of the Province of Ontario and further agrees
to commence any litigation which may arise hereunder in the courts located in
the Judicial District of York, Province of Ontario.
If this EULA was acquired outside the United States, then local law may apply.
Should you have any questions concerning this EULA, please contact the
Manufacturer.
_______________________________________________________________________________
U.S. GOVERNMENT RESTRICTED RIGHTS
The SOFTWARE and documentation are provided with RESTRICTED RIGHTS. Use,
duplication, or disclosure by the Government is subject to restrictions as set
forth in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of the
Commercial Computer Software -- Restricted Rights at 48 CFR 52.227-19, as
possible. Manufacturer is Microsoft Corporation/One Microsoft Way/Redmond, WA
98052-6399.
<PAGE> 70
ATTACHMENT 2
TO OEM CUSTOMER SUBLICENSE AGREEMENT FOR DEDICATED SYSTEMS
WINDOWS CE SOFTWARE PRODUCTS FOR DEDICATED SYSTEMS
<TABLE>
<CAPTION>
Units of Language Licensed Files Applicable Localization
SOFTWARE Versions(2) (for Kernel Additional Per copy Additional
Product Name and Version licensed ** Versions Only) Provisions Royalty* Royalty
- -------------------------- -------- ------------ ------------------- ---------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
2. Windows(R) CE Operating (a), (b), (c)
System version 2.11 -- EN (d), (e), (f) US$___ US$___
Data Exchange Version
- -------------------------- ---------- ------------ ------------------- ---------------- --------------- -------------------
- -------------------------- ---------- ------------ ------------------- ---------------- --------------- -------------------
2. Windows(R) CE Operating
System for Dedicated -- EN (a), (b), (c) US$___ US$___
Systems version 2.0 or (d), (e)
2.11 Full Version
- -------------------------- ---------- ------------ ------------------- ---------------- --------------- -------------------
- -------------------------- ---------- ------------ ------------------- ---------------- --------------- -------------------
3. Windows(R) CE Operating
System for Dedicated -- EN (a), (b), (c) US$___ US$___
Systems version 2.0 or (d), (e)
2.11 Limited Version
- -------------------------- ---------- ------------ ------------------- ---------------- --------------- -------------------
- -------------------------- ---------- ------------ ------------------- ---------------- --------------- -------------------
4. Windows(R) CE Operating
System for Dedicated -- EN See Additional (a), (b), (c) US$___ US$___
Systems version 2.0 or Provision (b) (d), (e)
2.11 Kernel Version below
- -------------------------- ---------- ------------ ------------------- ---------------- --------------- -------------------
</TABLE>
* IF ROYALTY RATE AND UNITS OF SOFTWARE ARE NOT SPECIFIED FOR A PARTICULAR
PRODUCT, THEN SUCH PRODUCT IS NOT LICENSED UNDER THIS AGREEMENT.
** LANGUAGE KEY: EN = ENGLISH, LOCALIZED VERSIONS ARE LICENSED ON AN IF AND AS
AVAILABLE BASIS.
ADDITIONAL PROVISIONS
(a) (i) Notwithstanding anything to the contrary contained in the Agreement,
there are no Dedicated Product Deliverables for the SOFTWARE Customer has
obtained the SOFTWARE as part of a Microsoft Windows CE Embedded Toolkit for
Visual C++ version 5.0 or Microsoft Windows CE Platform Builder version 2.11,
(hereinafter referred to collectively or separately as "Windows CE Kit"), in a
separate transaction.
(ii) Notwithstanding anything to the contrary contained in Section 6 of the
Agreement, no warranties for the SOFTWARE are provided in the Agreement. The
warranties, if any, contained in the Windows CE Kit are the only warranties
provided for the SOFTWARE.
(b) Customer's license rights to reproduce, install, and distribute the
SOFTWARE granted in Section 2 of the Agreement shall apply only to the licensed
Product Version (i.e., Data Exchange, Full, Limited, Kernel) indicated above;
each Product Version configuration is fully described in the Windows CE Kit
documentation. The Data Exchange Version configuration includes all components
of the Full Version and, in addition, the Desktop Software CD ROM disk (which
includes Windows CE Services) which Customer shall obtain from COMPANY.
(c) Dedicated Systems shall be distributed only through such channels as may
be customary for similar devices for the specific referenced industry and the
specific industry application.
(d) (i) Customer will not remove or obscure any copyright, trademark or patent
notices that appear in the SOFTWARE as delivered to Customer.
(ii) If an end user of the Dedicated System shall have access to the
command line (for example, the C:\prompt) of the SOFTWARE, then COMPANY shall
cause to appear on the display screen as part of the sign-on message for each
unit of SOFTWARE in copyright notices specified in the Windows CE Kit.
<PAGE> 71
ATTACHMENT 2
(Continued)
(e) Use of the Dedicated System logo(s), as designated by MS from time to time,
is optional. If Customer chooses to use the Dedicated Systems logo(s) on its
Dedicated Systems distributed with the SOFTWARE, COMPANY shall use the Dedicated
Systems logo(s) in accordance with the applicable logo license(s), which are
available through separate agreement(s) with Microsoft Corporation. To obtain
additional information regarding the Microsoft Corporation logo license(s),
Customer should contact COMPANY.
(f) If Customer licenses the Data Exchange Version of the SOFTWARE, Customer:
(A) shall obtain the Desktop Software from COMPANY for distribution to
the end user;
(B) shall distribute one (1) unit of the Desktop Software in the form and
packaging as available from COMPANY;
(C) shall distribute the Desktop Software only in the Dedicated System
packaging;
(D) shall display a prominent notice to end users regarding the Desktop
Software components that Customer has enabled to function with the Dedicated
System; if Customer has not enabled all components of the Desktop Software
to function with the Dedicated System, Customer shall advise its end users
accordingly; and
(E) shall conduct its own testing of the Desktop Software with its
Dedicated Systems to Customer's own satisfaction; Customer hereby confirms its
understanding that neither COMPANY nor MS has conducted tests or quality
reviews to ensure that the Desktop Software will function as set forth in the
Desktop Software display information, online HELP files, or otherwise, when
utilized in conjunction with the Dedicated System.
DEDICATED SYSTEMS
Customer's Dedicated Systems for Product described in this Attachment 2 shall
be limited to Customer's current and future Dedicated Systems described below.
Each listed Dedicated System must have a unique model line name, model name, or
model number which Customer uses both internally (in Customer's books and
records) and externally (on the Dedicated System case and packaging). New
models may be added by agreement of the parties.
At Customer's option, for purposes of administrative convenience, Customer may
designate models by model line or series, e.g., "Jaguar model line", "Jaguar
Pro series", "Jaguar Pro 750 model line", "Jaguar Pro 950 series ", etc.)."
Dedicated Systems defined by model line or series shall include all present
models which include the designated model line or series name, (e.g., "Jaguar
Pro model line" includes Jaguar Pro, Jaguar Pro 950, Jaguar Pro S, etc.; "Jaguar
series" includes Jaguar, Jaguar Pro, Jaguar Pro 950, Jaguar S400, etc.; "Jaguar
Pro 950 series" includes Jaguar Pro 950, Jaguar Pro 955, etc.).
PRODUCT NUMBER KEY:: 1 = Windows(R) CE Operating System for Dedicated System
version 2.11, Data Exchange Version; 2 = Windows(R) CE Operating System for
Dedicated Systems version 2.0 or 2.11, Full Version; 3 = Windows(R) CE
Operating System for Dedicated Systems version 2.0 or 2.11, Limited Version 4 =
Windows(R) CE Operating System for Dedicated Systems version 2.0 or 2.11,
Kernel Version.
ROYALTY BASIS KEY: C = per copy; if Product box is blank, such Product is not
licensed for distribution with the listed Dedicated System.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PRODUCT NUMBER
MODEL NAME OR MODEL NUMBER SPECIFIC
INDUSTRY
APPLICATION 1 2 3 4 5 6 7 8 9 10
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 72
EXHIBIT V
LICENSE OF ADDITIONAL PRODUCT SOFTWARE UNITS
AMENDMENT NUMBER ____
Amendment Date:________
to OEM CUSTOMER SUBLICENSE AGREEMENT FOR DEDICATED SYSTEMS
between ______________________, a Corporation of __________________
and _________________, a Corporation of ____________________
Agreement Effective Date:_________________
WHEREAS, Customer has licensed a certain number of units of Product
Software (the "SOFTWARE") from COMPANY under the terms of the above referenced
license agreement (the "Agreement");
WHEREAS, Customer now desires to license additional units of SOFTWARE from
COMPANY as described in the Additional Units Attachment dated ________, 199__,
which is attached to this Amendment;
NOW, THEREFORE, Customer and COMPANY hereby agree:
1. Effective as of the date indicated on the Additional Units Attachment, such
Additional Units Attachment is hereby added to the Agreement and sets forth the
number of additional units of the SOFTWARE and the language version(s) licensed
to Customer under the terms and conditions of the Agreement.
2. Customer may license additional SOFTWARE on the Additional Units Attachment
only for the SOFTWARE and the language version(s) that are currently licensed by
Customer and COMPANY. In order to license SOFTWARE or language version(s) not
currently licensed under the Agreement with COMPANY, Customer shall execute a
new OEM Customer Sublicense Agreement for Dedicated Systems which includes such
SOFTWARE and/or language version(s).
3. All capitalized terms used but not defined herein shall have the meaning
ascribed to them in the Agreement. The terms of this Amendment shall supersede
any inconsistent terms contained in the Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment by their duly
authorized representatives as of the date set forth above. All signed copies of
this Amendment shall be deemed originals. Each individual signing on behalf of
Customer below hereby represents and warrants that he or she has full authority
to sign this Agreement and bind Customer to perform all duties and obligations
contemplated by this Amendment. If Customer is located in a jurisdiction in
which a corporate seal or "chop" is commonly used as an instrument of agreement
execution, in addition to the individual signature provided below, Customer's
seal or "chop" should be entered below Customer's signature block. This
Amendment is executed only in the English language.
- ----------------------------------- ---------------------------------
(Name of COMPANY) (Name of Customer)
- ----------------------------------- ---------------------------------
By (Signature) By (Signature)
- ----------------------------------- ---------------------------------
Name (Print) Name (Print)
- ----------------------------------- ---------------------------------
Title Title
- ----------------------------------- ---------------------------------
Date Date
-----------------------------
Customer's seal or "chop"
-----------------------------
<PAGE> 73
ADDITIONAL UNITS ATTACHMENT
Dated: __________________
<TABLE>
<CAPTION>
PRODUCT NAME AND VERSION ADDITIONAL UNITS OF SOFTWARE LICENSED LANGUAGE VERSION
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Windows(R) CE Operating System Version 2.11 __________
Date Exchange Version
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Windows(R) CE Operating System Version 2.0 or
2.11 __________
Full Version
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Windows(R) CE Operating System Version 2.0 or
2.11 __________
Limited Version
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Windows(R) CE Operating System Version 2.0 or
2.11 __________
Kernel Version
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 74
AMENDMENT NUMBER 5
Amendment Date: July 15th, 1999
To MICROSOFT SOFTWARE FOR DEDICATED SYSTEMS DISTRIBUTOR AGREEMENT
Between MICROSOFT LICENSING, INC., a Nevada, U.S.A. Corporation
And BSQUARE CORPORATION, A Corporation of Washington, U.S.A.
Agreement Effective Date: November 1st, 1997
MS LICENSE #5000020519
Effective as of the Amendment Date indicated above, the below signed parties
agree that the indicated portions of the above referenced license agreement
(hereinafter the "License Agreement") are hereby amended by this instrument
(hereinafter the "Amendment"), as follows
1. The attached Exhibit C3 is hereby amended and replaced with the attached
Exhibit C3.
2. The attached Exhibit U, Attachment 2A is hereby amended and replaced with
the attached Exhibit U, Attachment 2A.
3. The attached Exhibit V3 is hereby amended and replaced with the attached
Exhibit V3.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the License Agreement. The terms of this Amendment shall
supersede any inconsistent terms contained in the License Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment in duplicate as of
the date first written above. All signed copies of this Amendment shall be
deemed originals. This Amendment is executed only in the English language.
MICROSOFT LICENSING, INC. BSQUARE CORPORATION
/s/ BRIAN V. TURNER
- ----------------------------- --------------------------------
By (Signature) By (Signature)
Brian V. Turner
- ----------------------------- --------------------------------
Name (Printed) Name (Printed)
CFC
- ----------------------------- --------------------------------
Title Title
7/16/99
- ----------------------------- --------------------------------
Date Date
<PAGE> 75
EXHIBIT C3
WINDOWS CE PRODUCTS FOR WINDOWS-BASED TERMINAL DEVICES
<TABLE>
<CAPTION>
PRODUCT NAME AND LANGUAGE APPLICABLE PER COPY LOCALIZATION
VERSION VERSION(S) ADDITIONAL ROYALTY ADDITIONAL
** PROVISIONS * ROYALTY
<S> <C> <C> <C> <C>
1. Microsoft(R)
Windows(R) CE EN (a),(b),(c), US$ * US$ *
Operating System (d),(e),(f),(g),
for Windows(R) - (h)
Based Terminal
devices version 1.0
</TABLE>
* A PRODUCT IS NOT LICENSED HEREUNDER UNLESS ROYALTY RATE(S) ARE INDICATED
IN THE PRODUCT TABLE.
** LANGUAGE KEY: EN = ENGLISH
ADDITIONAL PROVISIONS KEY
(a) In addition to the Dedicated Product Deliverables for this Product, COMPANY
shall require OEM Customer to:
(i) obtain in a separate transaction the Microsoft Windows CE Embedded
Toolkit for Visual C++ version 5.0, which includes the Windows CE 2.1
Enhancement Pack for the Embedded Tool Kit ("ETK") or the Microsoft Windows CE
Platform Builder version 2.11 ("Platform Builder") hereinafter referred to
collectively or separately as "Windows CE Kit"; and
(ii) use the Windows CE Kit in accordance with the accompanying
instructions to implement the Product on OEM Customer's Dedicated Systems.
(b) COMPANY's rights granted hereunder to sublicense the Product to OEM Customer
shall apply only to the Full Operating System configuration which is described
in the Windows CE Kit documentation.
(c) Except as set forth in Exhibit W of the OEM Customer Sublicense Agreement,
OEM Customer may distribute Product(s) only with Dedicated Systems which are
marketed and distributed exclusively under OEM Customer's or OEM Customer's
subsidiaries' brand names, trade names and trademarks. The Product(s) may not be
distributed with Dedicated Systems which are marketed or distributed under any
name which includes any third party brand names, trade names or trademarks. If,
at any time, MS becomes aware of any violation of the foregoing, then without
limiting its remedies, MS may charge COMPANY for each such Dedicated System an
additional royalty equal to thirty percent (30%) of the highest royalty for the
Product(s). COMPANY shall pay such additional royalty within thirty (30) days of
receipt of MS' invoice.
(d) COMPANY shall ensure that OEM Customer has executed the applicable logo
license with MSCORP prior to any marketing or distribution of a Dedicated
System. COMPANY hereby agrees to indemnify and defend MS and its Suppliers from
and against all damages, costs and expenses, including reasonable attorneys'
fees, which MS or its Suppliers may incur if the OEM Customer markets or
distributes Dedicated Systems without executing, or in breach of, the applicable
logo license.
(e) "MSCORP Compatibility Test" shall mean MSCORP's then-standard suite of tests
conducted by or for MSCORP to determine whether OEM Customer's Dedicated System
is compliant with the MSCORP testing and compatibility requirements for the
Product. COMPANY shall require of OEM Customer that the Dedicated Systems pass
the MSCORP Compatibility Test and display the Product logo(s), as designated by
MS from time to time, on Dedicated Systems distributed with the Product. Such
logo use shall be in accordance with the applicable logo license which is
available through a separate written agreement with MSCORP. To obtain additional
information regarding the MSCORP Compatibility Test and the MSCORP logo
agreement, COMPANY should contact the Account Manager assigned to COMPANY.
(f) Notwithstanding anything to the contrary in section 1(d) of the Agreement,
"Dedicated System" shall mean OEM Customer's computer systems that (1) comply
with the MSCORP system specifications for Windows-Based Terminal devices; and
(2) provide the end user with the ability to utilize the Microsoft Remote
Desktop Protocol software to connect to the server.
- ------------
* Confidential treatment requested
<PAGE> 76
EXHIBIT U
ATTACHMENT 2A
TO OEM CUSTOMER SUBLICENSE AGREEMENT FOR DEDICATED SYSTEMS
WINDOWS CE PRODUCTS FOR WINDOWS-BASED TERMINAL DEVICES
<TABLE>
<CAPTION>
Units of Language Applicable Localization
SOFTWARE Version(s) Additional Per copy Additional
Product Name and Version licensed ** Provisions Royalty* Royalty
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C> <C>
1. Microsoft(R)
Windows(R) CE Operating (a),(b),(c),(d)
System for Windows(R)- EN (e),(f),(g), US$________ US$________
Based Terminal devices (h),(i)
version 1.0
- -------------------------------- ------------------ ----------------------- ------------------ ---------------- -------------------
</TABLE>
* IF ROYALTY RATE AND UNITS OF SOFTWARE ARE NOT SPECIFIED FOR A PARTICULAR
PRODUCT, THEN SUCH PRODUCT IS NOT LICENSED UNDER THIS AGREEMENT.
** LANGUAGE KEY: EN=ENGLISH
ADDITIONAL PROVISIONS KEY
(a)(1) In addition to the Dedicated Product Deliverables for this SOFTWARE
which are provided by COMPANY under this Agreement, Customer shall obtain in a
separate transaction the Microsoft Windows CE Embedded Toolkit for Visual C++
version 5.0, which includes the Windows CE 2.1 Enhancement Pack for the Embedded
Tool Kit ("Embedded Toolkit") or the Microsoft Windows CE Platform Builder
version 2.11 ("Platform Builder"), hereinafter referred to collectively or
separately as "Windows CE Kit".
(2) Customer shall use the Embedded Toolkit in accordance with its
instructions to implement version 1.0 of the SOFTWARE on Dedicated Systems.
(3) Customer shall use the Platform Builder in accordance with its
instructions to implement version 1.1 of the SOFTWARE on Dedicated Systems.
(4) Notwithstanding anything to the contrary contained in Section 6 of the
Agreement, no warranties for the Windows CE Kit are provided in the Agreement.
The warranties, if any, contained in the Windows CE Kit are the only warranties
provided for the Windows CE Kit.
(b) With respect to the SOFTWARE, Customer's distribution license granted
hereunder shall apply only to the Full Operating System configuration which is
described in the Windows CE Kit documentation.
(c)(1) Notwithstanding anything to the contrary contained in Exhibit S to this
Attachment 2A, Section (b) of Exhibit S does not apply to the Dedicated Product
Deliverables.
(2) Notwithstanding anything to the contrary contained in this Agreement,
including the Exhibits attached hereto, Exhibit S does not apply to the Windows
CE Kit.
(d)(1) Customer is not licensed to, and agrees that it will not, modify, in any
way, or delete any aspect of the SOFTWARE (including, without limitation, any
features, shortcuts, icons, "wizards", folders (including sub-folders) or
programs of SOFTWARE) as delivered by COMPANY in the Dedicated Product
Deliverables, except if and as specifically permitted below or in the OEM
Adaptation Kit ("OAK") provided in the Dedicated Product Deliverables. In
particular, and without limitation, this means that Customer is not licensed to
and agrees that it will not:
(A) Modify or obscure, in any way, the sequence or appearance of any
screens displayed by the SOFTWARE as delivered by COMPANY.
(B) Display any visual or audio content from power on through and
including the time that the Dedicated System has displayed the
SOFTWARE initial user interface screen ("UI Screen"), except: (i) as
provided in section (d)(1)(C) below, (ii) for the presentation of
Customer's brand logo(s) and the required SOFTWARE logo(s) in
accordance with the Microsoft Corporation system specifications for
Windows-Based Terminal devices and the applicable logo license, or
(iii) for diagnostic notices or interactive prompts required for
hardware or device driver initialization.
(C) Modify or obscure, in any way, the appearance of the initial UI Screen
displayed when the Dedicated System is initially powered on,
(including without limitation, the addition or modification of
background wallpaper bitmaps); provided, however, that Customer may
add icons or folders to the UI Screen provided that any such icons are
the same size as, and substantially similar in shape to, icons
included on the UI Screen as delivered by COMPANY and that any such
folders are the same size, shape and appearance as folders included on
the UI Screen as delivered by COMPANY.
<PAGE> 77
(D) Pre-configure any programs (including without limitation any
"shells", "screen savers" or "welcome" scripts), "wizards" or
other content except for device drivers necessary to support
preinstalled or pre-configured hardware devices (e.g., network
interfaces, LCD panels, or keyboards), terminal emulation
clients, or system administration support (as allowed in the OAK
documentation) to be enabled, run or initialized automatically
(i.e. without requiring a deliberate act of the end user) from
an icon or folder on the UI Screen or otherwise without a
deliberate act by the end user. By way of example only, and
without limiting the generality of the foregoing, Customer
agrees that it shall not populate with any programs or other
content the SOFTWARE "Start-up" directory, initialization or
other files in any manner which will cause any program or
content (except specifically noted above in this (d)(1)(D)) to
run or load automatically unless the end user has taken a prior
deliberate action.
(E) Modify or add content to any directories installed by the
SOFTWARE, except as permitted in the OAK for pre-installation of
applications by Customer.
(F) Enable end user applications (i.e., programs that process data
for the end user and are not required for the Dedicated System
to operate or function) to run locally on the Dedicated System
with the exception of device drivers, terminal emulation
software, and system administration support software as set
forth in (d)(1)(D) above, or an onscreen keyboard. All end user
applications utilized on the Dedicated System must reside upon
and operate only on the server to which the Dedicated System is
connected.
(e) If Customer installs the SOFTWARE in ROM and the SOFTWARE is not the only
software contained in ROM, Customer will ensure that Microsoft Corporation's
copyright notice for SOFTWARE shall at all times be included in the first four
percent (4%) and the last four percent (4%) of the software contained in ROM.
The copyright notice(s) for SOFTWARE shall be as specified in the Dedicated
Product Deliverables. In any event, Customer will not remove any copyright,
trademark or patent notices that appear on the SOFTWARE as delivered to
Customer.
(f) (1) Except as set forth in Exhibit W, if attached, Customer may
distribute SOFTWARE only with Dedicated Systems which are marketed and
distributed exclusively under Customer's or Customer subsidiaries' brand names,
trade names and trademarks. The SOFTWARE may not be distributed with Dedicated
Systems which are marketed or distributed under any name which includes any
third party brand names, trade names or trademarks. If, at any time, COMPANY
becomes aware of any violation of the foregoing, then without limiting its
remedies, COMPANY may charge Customer for each such Dedicated System an
additional royalty equal to thirty percent (30%) of the highest royalty for the
SOFTWARE. Customer shall pay such additional royalty within thirty (30) days of
receipt of COMPANY's invoice.
(2) In the event Dedicated Systems are marketed or distributed under a
name which includes any third party brand names, trade names or trademarks,
Customer shall ensure that such third party has executed the applicable logo
license with Microsoft Corporation prior to any marketing or distribution of
such Dedicated Systems. Customer hereby agrees to indemnify and defend COMPANY,
MS and their Suppliers from and against all damages, costs and expenses,
including reasonable attorneys' fees which COMPANY, MS or their Suppliers may
incur if the third party markets or distributes Dedicated Systems without
executing, or in breach of, the applicable logo license.
(g) "MSCORP Compatibility Test" shall mean Microsoft Corporation's then-standard
suite of tests conducted by or for Microsoft Corporation to determine whether
Customer's Dedicated System is compliant with the Microsoft Corporation testing
and compatibility requirements for the SOFTWARE. Dedicated Systems must pass the
MSCORP Compatibility Test and display the SOFTWARE logo(s), as designated by MS
from time to time, on Dedicated Systems distributed with the SOFTWARE. Such logo
use shall be in accordance with the applicable logo license which is available
through a separate written agreement with Microsoft Corporation. To obtain
additional information regarding the MSCORP Compatibility Test and the Microsoft
Corporation logo agreement, Customer should contact COMPANY.
(h) Customer's EULA for this SOFTWARE shall be the EULA set forth in Exhibit 1
attached hereto, except that it shall be adapted as indicated in Section 2(e) of
the Agreement. Customer may elect to present the EULA to the end user online
during SOFTWARE setup.
(i) This SOFTWARE includes encryption technology which is not authorized for
sale, use, or distribution within France. French law (Decree 92-1358 of December
1992) generally prohibits the use in France of such technology, unless special
approvals are granted. Accordingly, to comply with French law, Customer shall
ensure that for each unit of SOFTWARE distributed in France, the SOFTWARE
setting for "end user locale" shall be set to "France", thereby disabling the
encryption functionality prohibited by French law. Customer shall not disclose
to third parties (including any end users) the contents of the preceding
sentence; Customer, may, however, in its discretion, segregate and distinctively
mark Dedicated Systems with end user locale set to France (noting, for example,
but without limitation, that such Dedicated Systems are "Authorized for
distribution in France," or "Not Intended for Use Outside France"). Customer
shall defend and indemnify COMPANY, and MS and their Suppliers, against any
claim related to breach of this Additional Provision (i).
DEDICATED SYSTEMS
Notwithstanding anything to the contrary in Section 1(b) of the Agreement, each
Dedicated System shall (1) comply with the Microsoft Corporation system
specifications for Windows-Based Terminal devices, and (2) provide the end user
with the ability to utilize the Microsoft Remote Desktop Protocol software to
connect to the server. Dedicated Systems for SOFTWARE described in this
Attachment 2A shall be limited to Customer's current and future computing
devices described below.
At Customer's option, for purposes of administrative convenience, Customer may
designate models by "all models" or by "model line" or "series", (e.g., "Jaguar
model line", "Jaguar Pro series", "Jaguar Pro 750 model line", "Jaguar Pro 950
series", etc.). Dedicated Systems defined by "all models" shall include all
current and future models that meet the description specified in the table
(e.g., "All models which include a CD-ROM drive, 500 Mb or larger hard disk
drive, and sound card.") and utilize the listed microprocessor(s). Dedicated
Systems defined by model line or series shall include all current and future
models which include the designated model line or series name, (e.g., "Jaguar
Pro model line"
<PAGE> 78
includes Jaguar Pro, Jaguar Pro 950, Jaguar Pro S, etc.; "Jaguar series"
includes Jaguar, Jaguar Pro, Jaguar Pro 950, Jaguar S400, etc.; "Jaguar Pro 950
series" includes Jaguar Pro 950, Jaguar Pro 955, etc.).
PRODUCT NUMBER KEY: 1=Windows(R) CE Operating System for Windows-Based
Terminal devices version 1.0;
ROYALTY BASIS KEY: C=per copy; if Product box is blank, such Product is not
licensed for distribution with the listed Dedicated System.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
MODEL NAME, MODEL NUMBER, MODEL LINE, PROCESSOR PRODUCT NUMBER
OR MODEL DESCRIPTION TYPE MANUFACTURER 1 2 3 4 5
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 79
EXHIBIT U
ATTACHMENT 2A
EXHIBIT 1
MICROSOFT(R) WINDOWS(R) CE OPERATING SYSTEM FOR WINDOWS-BASED TERMINAL DEVICES
VERSION 1.0
- --------------------------------------------------------------------------------
IMPORTANT--READ CAREFULLY: THIS END USER LICENSE AGREEMENT ("EULA") IS A LEGAL
AGREEMENT BETWEEN YOU (EITHER AN INDIVIDUAL OR A SINGLE ENTITY) AND THE
MANUFACTURER ("MANUFACTURER") OF THE SPECIAL PURPOSE COMPUTING DEVICE ("SYSTEM")
YOU ACQUIRED WHICH INCLUDES CERTAIN MICROSOFT SOFTWARE PRODUCT(S) INSTALLED ON
THE SYSTEM AND/OR INCLUDED IN THE SYSTEM PACKAGE ("SOFTWARE"). THE SOFTWARE
INCLUDES COMPUTER SOFTWARE, THE ASSOCIATED MEDIA, ANY PRINTED MATERIALS, ANY
"ONLINE" OR ELECTRONIC DOCUMENTATION. BY INSTALLING, COPYING, DOWNLOADING,
ACCESSING, OR OTHERWISE USING THE SOFTWARE, YOU AGREE TO BE BOUND BY THE TERMS
OF THIS EULA. IF YOU DO NOT AGREE TO THE TERMS OF THIS EULA, MANUFACTURER AND
MICROSOFT LICENSING, INC. ("MS") ARE UNWILLING TO LICENSE THE SOFTWARE TO YOU.
IN SUCH EVENT, YOU MAY NOT USE OR COPY THE SOFTWARE, AND YOU SHOULD PROMPTLY
CONTACT MANUFACTURER FOR INSTRUCTIONS ON RETURN OF THE UNUSED PRODUCT(S) FOR A
REFUND.
- --------------------------------------------------------------------------------
SOFTWARE LICENSE
The SOFTWARE is protected by copyright laws and international copyright
treaties, as well as other intellectual property laws and treaties. The SOFTWARE
is licensed, not sold.
1. GRANT OF LICENSE. SOFTWARE includes software already installed on the
SYSTEM ("SYSTEM Software") and, if included in the SYSTEM package, software
contained on the CD-ROM disk and/or floppy disk(s) labeled "Desktop Software for
Microsoft Windows CE" ("Desktop Software"). This EULA grants you the following
rights to the SOFTWARE:
- SYSTEM SOFTWARE. You may use the SYSTEM Software only as installed in
the SYSTEM.
- DESKTOP SOFTWARE. Desktop Software might not be included with your
SYSTEM. If Desktop Software is included with your SYSTEM, you may
install and use the component(s) of the Desktop Software in accordance
with the terms of the end user license agreement provided with such
component(s). In the absence of a separate end user license agreement
for particular component(s) of the Desktop Software, you may install
and use only one (1) copy of such component(s) on a single computer
with which you use the SYSTEM.
- USE OF WINDOWS CE OPERATING SYSTEM FOR WINDOWS-BASED TERMINAL DEVICES
WITH MICROSOFT WINDOWS NT SERVER, TERMINAL SERVER EDITION. If the
SOFTWARE is Windows CE operating system for Windows-Based Terminal
devices, the following special provisions apply. In order to use the
SYSTEM in connection with Windows NT Server, Terminal Server Edition,
you must possess (1) a Client Access License for Windows NT Server,
Terminal Server Edition and (2) either an end user license for Windows
NT Workstation or a Terminal Services Client Access License (please
refer to the end user license agreement for Windows NT Server,
Terminal Server Edition for additional information).
- BACK-UP COPY. If Manufacturer has not included a back-up copy of the
SYSTEM Software with the SYSTEM, you may make a single back-up copy of
the SYSTEM Software. You may use the back-up copy solely for archival
purposes.
2. DESCRIPTION OF OTHER RIGHTS AND LIMITATIONS.
- SPEECH/HANDWRITING RECOGNITION. If the SYSTEM Software includes speech
and/or handwriting recognition component(s), you should understand
that speech and handwriting recognition are inherently statistical
processes; that recognition errors are inherent in the processes; that
it is your responsibility to provide for handling such errors and to
monitor the recognition processes and correct any errors. NEITHER
MANUFACTURER NOR ITS SUPPLIERS SHALL BE LIABLE FOR ANY DAMAGES ARISING
OUT OF ERRORS IN THE SPEECH AND HANDWRITING RECOGNITION PROCESSES.
- LIMITATIONS ON REVERSE ENGINEERING, DECOMPILATION AND DISASSEMBLY. You
may not reverse engineer, decompile, or disassemble the SYSTEM
Software, except and only to the extent that such activity is
expressly permitted by applicable law notwithstanding this limitation.
- SINGLE SYSTEM. The SYSTEM Software is licensed with the SYSTEM as a
single integrated product. The SYSTEM Software installed in Read Only
Memory ("ROM") of the SYSTEM may only be used as part of the SYSTEM.
- SINGLE EULA. The package for the SYSTEM Software may contain multiple
versions of this EULA, such as multiple translations and/or multiple
media versions (e.g., in the user documentation and in the software).
Even if you receive multiple versions of the EULA, you are licensed to
use only one (1) copy of the SYSTEM Software.
- RENTAL. You may not rent or lease the SOFTWARE.
- SOFTWARE TRANSFER. You may permanently transfer all of your rights
under this EULA only as part of a sale or transfer of the SYSTEM,
provided you retain no copies, you transfer all of the SOFTWARE
(including all component parts, the media, any upgrades or backup
copies, this EULA and, if applicable, the Certificate(s) of
Authenticity), AND the recipient agrees to the terms of this EULA. If
the SOFTWARE is an upgrade, any transfer must include all prior
versions of the SOFTWARE.
- TERMINATION. Without prejudice to any other rights, Manufacturer or MS
may terminate this EULA if you fail to comply with the terms and
conditions of this EULA. In such event, you must destroy all copies of
the SOFTWARE and all of its component parts.
<PAGE> 80
3. UPGRADES AND RECOVERY MEDIA.
- If the SYSTEM Software and this EULA are provided separate from the
SYSTEM by Manufacturer and the SYSTEM Software is on a ROM chip, CD
ROM disk(s) or floppy disk(s), and labeled "For ROM Upgrade Purposes
Only" ("ROM Upgrade"), you may install one copy of the ROM Upgrade
onto the SYSTEM as a replacement copy for the SYSTEM Software
originally installed on the SYSTEM and use it in accordance with
Section 1 of this EULA. You may also install additional copies of the
ROM Upgrade as replacement copies onto additional SYSTEMS which are
the same brand and model as the SYSTEM and contain a duly licensed
copy of the same version and language release of the SOFTWARE
("ADDITIONAL SYSTEMS"), provided that (1) Manufacturer has supplied a
corresponding serialized sticker for each additional copy of the ROM
Upgrade and (2) you affix a serialized sticker per Manufacturer's
instructions for each unit of ROM Upgrade you install.
- If the SYSTEM SOFTWARE is provided by Manufacturer on separate media
and labeled as "Recovery Media", you may not make a
copy of the SOFTWARE as described in Section 1 for archival purposes.
Instead, you may use the Recovery Media solely to restore or reinstall
the same version and language release of the SOFTWARE as originally
installed on the SYSTEM and thereafter use the SOFTWARE as restored or
reinstalled in accordance with Section 1 of this EULA. A single unit
of Recovery Media may be used by you to restore or reinstall the
SOFTWARE on ADDITIONAL SYSTEMS.
4. COPYRIGHT. All title and copyrights in and to the SOFTWARE (including but
not limited to any images, photographs, animations, video, audio, music,
text and "applets," incorporated into the SOFTWARE), the accompanying
printed materials, and any copies of the SOFTWARE, are owned by MS or its
suppliers (including Microsoft Corporation). You may not copy the printed
materials accompanying the SOFTWARE. All rights not specifically granted
under this EULA are reserved by MS and its suppliers (including Microsoft
Corporation).
5. PRODUCT SUPPORT. PRODUCT SUPPORT FOR THE SOFTWARE IS NOT PROVIDED BY MS,
ITS PARENT CORPORATION, MICROSOFT CORPORATION, OR THEIR AFFILIATES OR
SUBSIDIARIES. FOR PRODUCT SUPPORT, PLEASE REFER TO MANUFACTURER'S SUPPORT
NUMBER PROVIDED IN THE DOCUMENTATION FOR THE SYSTEM. SHOULD YOU HAVE ANY
QUESTIONS CONCERNING THIS EULA, OR IF YOU DESIRE TO CONTACT MANUFACTURER
FOR ANY OTHER REASON, PLEASE REFER TO THE ADDRESS PROVIDED IN THE
DOCUMENTATION FOR THE SYSTEM.
6. EXPORT RESTRICTIONS. You agree that you will not export or re-export the
SOFTWARE to any country, person, or entity subject to U.S. export
restrictions. You specifically agree not to export or re-export the
SOFTWARE: (i) to any country to which the U.S. has embargoed or restricted
the export of goods or services,which as of March 1998 include, but are not
necessarily limited to Cuba, Iran, Iraq, Libya, North Korea, Sudan and
Syria, or to any national of any such country, wherever located, who
intends to transmit or transport the products back to such country; (ii) to
any person or entity who you know or have reason to know will utilize the
SOFTWARE or portion thereof in the design, development or production of
nuclear, chemical or biological weapons; or (iii) to any person or entity
who has been prohibited from participating in U.S. export transactions by
any federal agency of the U.S. government.
If the SOFTWARE is labeled "North America Only Version" above, on the
Product Identification Card, or on the SOFTWARE packaging or other written
materials, then the following applies: The SOFTWARE is intended for
distribution only in the United States, its territories and possessions
(including Puerto Rico, Guam, and U.S. Virgin Islands) and Canada. Export
of the SOFTWARE from the United States is regulated under "EI controls" of
the Export Administration Regulations (EAR, 15 CFR 730-744) of the U.S.
Commerce Department, Bureau of Export Administration (BXA). A license is
required to export the SOFTWARE outside the United States or Canada. You
agree that you will not directly or indirectly, export or re-export the
SOFTWARE (or portions thereof) to any country, other than Canada, or to any
person or entity subject to U.S. export restrictions without first
obtaining a Commerce Department export license. You warrant and represent
that neither the BXA nor any other U.S. federal agency has suspended,
revoked or denied your export privileges.
7. NOTE ON JAVA SUPPORT. The SYSTEM Software may contain support for programs
written in Java. Java technology is not fault tolerant and is not designed,
manufactured, or intended for use or resale as on-line control equipment in
hazardous environments requiring fail-safe performance, such as in the
operation of nuclear facilities, aircraft navigation or communication
systems, air traffic control, direct life support machines, or weapons
systems, in which the failure of Java technology could lead directly to
death, personal injury, or severe physical or environmental damage. Sun
Microsystems, Inc. has contractually obligated Microsoft Corporation to
make this disclaimer.
8. LIMITED WARRANTY.
- LIMITED WARRANTY. Manufacturer warrants that the SOFTWARE will perform
substantially in accordance with the accompanying written materials
for a period of ninety (90) days from the date of receipt. Any implied
warranties on the SOFTWARE are limited to ninety (90) days. Some
states/jurisdictions do not allow limitations on duration of an
implied warranty, so the above limitation may not apply to you.
- CUSTOMER REMEDIES. Manufacturer's and its suppliers' entire liability
and your exclusive remedy shall be, at Manufacturer's option, either
(a) return of the price paid, or (b) repair or replacement of the
SOFTWARE that does not meet the above Limited Warranty and which is
returned to Manufacturer with a copy of your receipt. This Limited
Warranty is void if failure of the SOFTWARE has resulted from
accident, abuse, or misapplication. Any replacement SOFTWARE will be
warranted for the remainder of the original warranty period or thirty
(30) days, whichever is longer.
- NO OTHER WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN THE LIMITED
WARRANTY SECTION ABOVE, THE SOFTWARE IS PROVIDED TO THE END USER "AS
IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF NON-INFRINGEMENT,
MERCHANTABILITY, AND/OR FITNESS FOR A PARTICULAR PURPOSE. THE ENTIRE
RISK OF THE QUALITY AND PERFORMANCE OF THE SOFTWARE IS WITH YOU.
<PAGE> 81
- NO LIABILITY FOR CONSEQUENTIAL DAMAGES. MANUFACTURER OR MANUFACTURER'S
SUPPLIERS, INCLUDING MS AND ITS SUPPLIERS, SHALL NOT BE HELD TO ANY
LIABILITY FOR ANY DAMAGES SUFFERED OR INCURRED BY THE END USER
(INCLUDING, BUT NOT LIMITED TO, GENERAL, SPECIAL, CONSEQUENTIAL OR
INCIDENTAL DAMAGES INCLUDING DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION AND THE LIKE),
ARISING FROM OR IN CONNECTION WITH THE DELIVERY, USE OR PERFORMANCE OF
THE SOFTWARE.
If you acquired this EULA in the United States, this EULA is governed by the
laws of the State of Washington.
If you acquired this EULA in the Canada, this EULA is governed by the laws of
the Province of Ontario, Canada. Each of the parties hereto irrevocably attorns
to the jurisdiction of the courts of the Province of Ontario and further agrees
to commence any litigation which may arise hereunder in the courts located in
the Judicial District of York, Province of Ontario.
<PAGE> 82
If this EULA was acquired outside the United States, then local law may apply.
Should you have any questions concerning this EULA, please contact the
Manufacturer of your SYSTEM.
_______________________________________________________________________________
U.S. GOVERNMENT RESTRICTED RIGHTS
The SOFTWARE and documentation are provided with RESTRICTED RIGHTS. Use,
duplication, or disclosure by the Government is subject to restrictions as set
forth in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of the
Commercial Computer Software -- Restricted Rights at 48 CFR 52.227-19, as
applicable. Manufacturer is Microsoft Corporation/One Microsoft Way/Redmond, WA
98052-6399.
<PAGE> 83
EXHIBIT U
ATTACHMENT 2A
EXHIBIT S
USE OF DEDICATED PRODUCT DELIVERABLES FOR WINDOWS CE SOFTWARE
(a) COMPANY grants to Customer a non-exclusive, personal, nontransferable,
non-assignable license during the term of the Agreement to:
(i) use on Customer premises the Dedicated Product Deliverables (other
than the Software Development Kit, if provided) in accordance with the
instructions contained in the Dedicated Product Deliverables for the
following limited purposes:
(A) creating an OEM Abstraction Layer for the SOFTWARE on
Customer's Dedicated Systems;
(B) testing Customer's Dedicated Systems;
(C) creating device drivers for Customer's Dedicated Systems;
and
(ii) use on Customer premises the Software Development Kit in
accordance with the instructions contained therein to design software
applications for the SOFTWARE; and
(iii) distribute the Object Code files in the Software Development Kit
designated as "Redistributable Components" only in conjunction with
Customer's software application product, provided that:
(A) Customer's software application product is designed to
operate with the SOFTWARE and is fully compatible with the applicable
SOFTWARE APIs and protocols;
(B) Customer does not use MS' or Microsoft Corporation's name,
logo (except by separate written agreement with MS or Microsoft
Corporation), or trademarks to market the software application product;
(C) Customer includes MS' or Microsoft Corporation's copyright
notices for the SOFTWARE on the disk label and/or on the title page of
the documentation for the software application product; and
(D) Customer hereby indemnifies, holds harmless, and defends
COMPANY, MS and their Suppliers from and against any claims or
lawsuits, including attorney's fees, that arise or result from the use
or distribution of the software application product.
The limited license granted hereunder is solely for Customer's internal use. MS
reserves all rights not expressly licensed hereunder.
(b) MS and Customer shall jointly own any and all intellectual property in and
to any modifications or additions made by or for Customer to the OEM Abstraction
Layer and device drivers. To the extent required to realize such joint
ownership, Customer hereby assigns to MS an undivided one-half interest in any
and all such intellectual property. The parties agree that each shall be free to
use and commercially exploit their interests in such intellectual property and
there shall be no obligation of payment or accounting to the other therefore,
provided that Customer's use or exploitation of such intellectual property shall
at all times be subject to the terms of this Agreement and shall be exercised
solely in connection with the SOFTWARE.
(c) Customer shall comply with the confidentiality obligations under Section 11
of the Agreement. In addition, Customer shall use best efforts to safeguard the
Dedicated Product Deliverables from disclosure, which care shall not be less
than the standard of care Customer uses to protect its own most confidential
information. Customer shall not reproduce, duplicate, copy or otherwise
disclose, distribute or disseminate any part of the Dedicated Product
Deliverables or additional information or materials provided pursuant to this
Exhibit S in any media except for Customer's own internal use by Customer's
full-time employees on a need-to-know basis on Customer premises. Customer
hereby indemnifies COMPANY, MS and their Suppliers for any damages COMPANY, MS
or their Suppliers may suffer as a result of the failure of Customer to abide by
the terms of Section 11 of the Agreement or this Exhibit S. Notwithstanding
anything to the contrary in Section 11, Customer's confidentiality obligations
with respect to Source Code provided in connection with the Dedicated Product
Deliverables shall continue until such time as MS or Microsoft Corporation
places such Source Code in the public domain.
(d) Notwithstanding Section (c) above, Customer may disclose the Dedicated
Product Deliverables to a third party contractor which MS has confirmed in
writing to be an MS authorized Windows CE Integrator and employ such Windows CE
Integrator as a third party contractor of Customer to use the Dedicated Product
Deliverables in accordance with the Agreement and this Exhibit S, provided that:
(i) Customer and its contractor enter into a written agreement
(hereinafter "Contractor Agreement") that expressly provides that MS is
a third party intended beneficiary of the Contractor Agreement with
rights to enforce such agreement, and that requires contractor:
(A) to comply with obligations identical to those imposed on
Customer by the Agreement, including, without limitation, those
obligations set forth in Sections (b) and (c) of this Exhibit S;
(B) to cease all reference to, and to return all full or
partial copies of, the Dedicated Product Deliverables upon notice from
Customer, COMPANY, or MS of the termination or expiration of the
Agreement; and
<PAGE> 84
EXHIBIT U
ATTACHMENT 2A
EXHIBIT S
(Continued)
(C) to pay COMPANY's, MS' or their Suppliers or Customer's attorneys'
fees and costs if COMPANY, Customer or MS or their Suppliers employ(s)
attorneys to enforce any rights arising out of the Contractor Agreement;
(ii) Customer guarantees its contractors' fulfillment on the applicable
obligations imposed on Customer by this Agreement;
(iii) Customer hereby indemnifies COMPANY, MS and their Suppliers with respect
to any and all damages of any kind, without limitation caused by unauthorized
reproduction and/or distribution of any portion of the Dedicated Product
Deliverables by any such contractor or by any other breach of the Contractor
Agreement by any such contractor; and
(iv) Customer notifies MS of the name and address of any contractor with
which Customer intends to enter into a Contractor Agreement at least sixty (60)
days before execution of such agreement, and MS approves in writing such
contractor. Customer's notice to MS shall also include a written summary of the
terms of any such Contractor Agreement(s), including: the specific activity to
be performed by the contractor; the SOFTWARE involved; the term of the
agreement with the contractor; and such samples as MS may reasonably request of
the work product of the contractor. Customer shall promptly notify MS of the
termination, expiration or significant modification of the terms of such
Contractor Agreement(s).
(e) In the event of an assignment or attempted assignment in violation of
Section 12 of the Agreement, the license described in this Exhibit S shall
immediately terminate and the Dedicated Product Deliverables shall be returned
to COMPANY within ten (10) days. Customer shall provide a declaration signed by
an officer of Customer, and a declaration signed by an officer of the
authorized Windows CE Integrator, attesting that all copies of the Dedicated
Product Deliverables have been returned to COMPANY.
- ----------------------------------- ------------------------------------
(Name of COMPANY) (Name of Customer)
- ----------------------------------- ------------------------------------
By By
- ----------------------------------- ------------------------------------
Name (Print) Name (Print)
- ----------------------------------- ------------------------------------
Title Title
- ----------------------------------- ------------------------------------
Date Date
<PAGE> 85
EXHIBIT V3
LICENSE OF ADDITIONAL PRODUCT SOFTWARE UNITS
[THIS EXHIBIT V3 IS FOR USE ONLY WITH AGREEMENTS THAT INCLUDE
"WINDOWS CE PRODUCTS FOR WINDOWS-BASED TERMINAL DEVICES:" AS EXHIBIT C3]
AMENDMENT NUMBER ____
Amendment Date:________
to OEM CUSTOMER SUBLICENSE AGREEMENT FOR DEDICATED SYSTEMS
between _____________________, a Corporation of ____________
and ________________, a Corporation of ________________
Agreement Effective Date: _________________
WHEREAS, Customer has licensed a certain number of units of Product
Software (the "SOFTWARE") from COMPANY under the terms of the above referenced
license agreement (the "Agreement");
WHEREAS, Customer now desires to license additional units of SOFTWARE
from COMPANY as described in the Additional Units Attachment dated __________,
199__, which is attached to this Amendment;
NOW, THEREFORE, Customer and COMPANY hereby agree:
1. Effective as of the date indicated on the Additional Units Attachment, such
Additional Units Attachment is hereby added to the Agreement and sets forth the
number of additional units of the SOFTWARE and the language version(s) licensed
to Customer under the terms and conditions of the Agreement.
2. Customer may license additional SOFTWARE on the Additional Units Attachment
only for the SOFTWARE and the language version(s) that are currently licensed
by Customer under the Agreement between Customer and COMPANY. In order to
license SOFTWARE or language version(s) not currently licensed under the
Agreement with COMPANY, Customer shall execute a new OEM Customer Sublicense
Agreement for Dedicated Systems which includes such SOFTWARE and/or language
version(s).
3. All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement. The terms of this Amendment shall supersede
any inconsistent terms contained in the Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment by their duly
authorized representatives as of the date set forth above. All signed copies of
this Amendment shall be deemed originals. Each individual signing on behalf of
Customer below hereby represents and warrants that he or she has full authority
to sign this Agreement and bind Customer to perform all duties and obligations
contemplated by this Amendment. If Customer is located in a jurisdiction in
which a corporate seal or "chop" is commonly used as an instrument of agreement
execution, in addition to the individual signature provided below, Customer's
seal or "chop" is commonly used as an instrument of agreement execution, in
addition to the individual signature provided below, Customer's seal or "chop"
should be entered below Customer's signature block. This Amendment is executed
only in the English language.
- ----------------------------------- ------------------------------------
(Name of COMPANY) (Name of Customer)
- ----------------------------------- ------------------------------------
By (Signature) By (Signature)
- ----------------------------------- ------------------------------------
Name (Print) Name (Print)
- ----------------------------------- ------------------------------------
Title Title
- ----------------------------------- ------------------------------------
Date Date
Customer's seal or "chop"
<PAGE> 86
EXHIBIT V3
ADDITIONAL UNITS ATTACHMENT (CONT.)
Dated:_____________________
<TABLE>
<CAPTION>
<S> <C> <C>
PRODUCT NAME AND VERSION ADDITIONAL UNITS OF SOFTWARE LICENSED LANGUAGE VERSION
- ----------------------------------------------------------------------------------------------------------------
Microsoft(R) Windows(R) CE Operating System for ________________________
Windows(R)-Based Terminal devices version 1.0
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.13
Master Development & License Agreement
Between
BSQUARE CORPORATION and
MICROSOFT CORPORATION
This Master Development & License Agreement (this "Agreement") is made and
entered into by and between MICROSOFT CORPORATION, a Washington corporation
located at One Microsoft Way, Redmond, Washington 98052 ("MICROSOFT") and
BSQUARE CORPORATION, a Washington corporation located at 3633 136th Place SE,
Suite 100, Bellevue, Washington 98006 ("BSQUARE"), to be effective as of the
1st day of October, 1998.
RECITALS
MICROSOFT has developed a computer software platform known as Microsoft[R]
Windows[R] CE;
MICROSOFT desires to have BSQUARE provide certain development and testing
services in connection with Windows CE, and BSQUARE desires to provide such
services to Microsoft; and
MICROSOFT and BSQUARE intend that this Agreement serve as a master
agreement establishing the basic terms and conditions under which BSQUARE will
undertake particular development and testing projects for MICROSOFT.
The parties agrees as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
following meanings:
1.1 "APPROVED EXPENSE(S)" shall mean those reasonable and necessary costs
and expenses incurred by BSQUARE in performing work under this Agreement
that are identified as subject to reimbursement by MICROSOFT in a Work Plan
or an amendment thereto, or are subsequently approved by MICROSOFT in
writing, which approval shall not be unreasonably denied.
1.2 "CONFIDENTIAL INFORMATION" shall mean: (i) any trade secrets relating
to either party's product plans, designs, costs, prices and names,
finances, marketing plans, business opportunities, personnel, research
development or know-how; (ii) any information designated by the disclosing
party as confidential in writing or, if disclosed orally, identified at the
time of disclosure as being confidential, or which, under the circumstances
surrounding disclosure, ought to be treated as confidential; and (iii) the
terms and conditions of this Agreement. "Confidential Information" shall
not include information that: (i) is or becomes generally known or
available by publication or otherwise through no fault of the receiving
party; (ii) is known and has been reduced to tangible form by the receiving
party at the time of disclosure and is not subject to restriction; (iii) is
independently developed by the receiving party; or (iv) is made generally
available by the disclosing party without restriction on disclosure.
1.3 "DELIVERABLES" shall mean the various alpha, beta, and final versions
of a Work Product, in source and object code forms (with regard to software
Deliverables), to be delivered by BSQUARE to MICROSOFT, as more fully
described in the applicable Work Plan.
1.4 "DERIVATIVE TECHNOLOGY" shall mean: (i) for copyrightable or
copyrighted material, any translation (including translation into other
computer languages), portation, modification, correction, addition,
extension, upgrade, improvement, compilation, abridgment or other form in
which an existing work may be recast, transformed or adapted; (ii) for
patentable or patented material, any improvement thereon; and (iii) for
material which is protected by trade secret, any new material derived from
such
1
<PAGE> 2
existing trade secret material, including new material which may be
protected by copyright, patent and/or trade secret.
1.5 "ERROR(S)" shall mean defect(s) in a Deliverable which prevent it from
performing in accordance with the specifications in the applicable Work
Plan (including, without limitation, bugs identified in Microsoft's bug
tracking RAID database and bugs identified in bug reports prepared
following shipment of product).
1.6 "MICROSOFT INTERNAL REFERENCE NUMBER" shall mean the unique number
assigned by Microsoft to each project undertaken by BSQUARE hereunder
pursuant to the applicable Work Plan, which number shall be used to track
and record the hours worked by each BSQUARE employee assigned to such Work
Plan.
1.7 "SCHEDULE" shall mean the schedule for completion of the Services and
delivery of the Deliverables contained in a Work Plan.
1.8 "SERVICES" shall mean the design and development of a Work Product,
delivery of the applicable Deliverables, performance of the services
described in and pursuant to a Work Plan and related Work Plan management
services.
1.9 "SOURCE CODE" shall mean the source code for MICROSOFT'S Windows CE
and Windows NT operating systems, Visual Tools, and for the Windows CE
Tools and any other source code that may be identified in a Work Plan, as
provided by MICROSOFT to BSQUARE for the limited purpose of providing the
Services pursuant to this Agreement.
1.10 "STANDARD RATE SCHEDULE" shall mean that document attached to and made
a part of this Agreement as Exhibit A, setting forth the hourly rates at
which MICROSOFT shall pay BSQUARE for Services under this Agreement.
1.11 "TEST HARDWARE" shall mean all of the hardware provided to BSQUARE by
MICROSOFT for the limited purpose of testing and developing the Work
Product pursuant to this Agreement.
1.12 "WINDOWS CE" shall mean the MICROSOFT operating system for general
embedded devices and specific targeted platforms and form factors,
including all bug fixes, error corrections, modifications, enhancements,
updates, upgrades, new versions and successor products thereto.
1.13 "WINDOWS CE TOOLS" shall mean MICROSOFT'S platform development kit for
Windows CE currently known as Windows CE Platform Builder, as well as the
Windows CE Toolkits for Visual Basic, Visual C++ and Visual J++, including
the corresponding runtimes (e.g., MFC, ATL, ADOCE, Java VM, ActiveX Control
Pack, etc.), and including all bug fixes, error corrections, modifications,
enhancements, updates, upgrades, new versions and successor products
thereto.
1.14 "WORK PLAN(S)" shall mean the specifications for Services and related
information, attached to and made a part of this Agreement from time to
time as sequential Exhibits B (e.g., B-1, B-2, B-3 ....). The Work Plans
shall be in the form attached hereto, and shall be signed by both parties.
The Work Plans may be amended from time to time by mutual agreement of duly
authorized personnel of the parties.
1.15 "WORK PRODUCT" shall mean the results of the performance of the work
tasks described in each Work Plan, including without limitation all
Deliverables.
2
<PAGE> 3
2. DEVELOPMENT
2.1 Services. BSQUARE shall perform the Services in accordance with and
pursuant to the applicable Work Plan. The parties agree to discuss in good
faith issues that may arise in performance of the work tasks associated
with each Work Plan, including any issues regarding compliance with the
Schedule set forth in the Work Plan, although the Work Plan may be amended
only by mutual agreement of the parties.
2.2 Status Reports. For each individual project set forth in a Work Plan,
BSQUARE shall provide to MICROSOFT, at MICROSOFT's expense, a current and
accurate monthly status report, in a form reasonably acceptable to
MICROSOFT, detailing the status of each project, including current budget
tracking and assessment of ability to meet project milestones. BSQUARE
shall also provide such additional status reports regarding work in
progress as the MICROSOFT project manager may reasonably request from time
to time, at MICROSOFT's expense.
2.3 Personnel/Rate Schedule Adjustments.
2.3.1 BSQUARE shall have on its staff, at the levels and at the
rates specified in Exhibit A, trained and experienced personnel that
primarily are dedicated to and available for the MICROSOFT projects set
forth in the Work Plans. BSQUARE shall use commercially reasonable efforts
to ensure that (i) BSQUARE personnel providing Services under this
Agreement are available for assignment by BSQUARE to work on additional
Work Plans which are similar to those for which they have provided Services
previously, and (ii) BSQUARE personnel providing Services under this
Agreement are not unnecessarily and inefficiently moved between Work Plans
in progress. BSQUARE shall consult with MICROSOFT when establishing and
changing the project teams assigned to each Work Plan. The parties will
meet from time to time to discuss upcoming Work Plans and the anticipated
personnel needs for such projects.
2.3.2 During the term of this Agreement, the parties agree to meet
on an annual basis to establish the Standard Rate Schedule for the upcoming
year, provided that no changes shall be made to the initial Standard Rate
Schedule prior to October 1, 1999. Subsequent Standard Rate Schedule
adjustments shall be effective as of October 1st of the relevant year
(e.g., by Oct. 1, 1999 for the one year period commencing Oct. 1, 1999 and
ending Sept. 30, 1999). In the event that the parties are unable to agree
on a Standard Rate Schedule adjustment by Oct. 1st of the relevant year,
then either party may terminate this Agreement on ninety (90) days prior
written notice, with the existing Standard Rate Schedule remaining in
effect through the date of termination. Any mutually agreed upon Standard
Rate Schedule, if agreed upon after October 1st of the relevant year, shall
be retroactive to October 1st of such year.
2.4 Evaluation of Services.
2.4.1 BSQUARE understands and agrees that it is obligated under
this Agreement to provide MICROSOFT with high quality Work Product and
Services at all times during the term of this Agreement. In addition,
and as further detailed in Section 2.4.3 below, BSQUARE shall be
responsible for initiating prompt and detailed communications with the
appropriate MICROSOFT project leaders regarding any Errors discovered
during the course of development of software code Deliverables. In the
event that any such Errors are caused by a failure of BSQUARE to
provide a high quality Work Product, then Microsoft shall be entitled
(in addition to any other remedies it may have under this Agreement,
at law or in equity) to an appropriate credit for Service time
associated with such Error.
2.4.2 For documentation or report Deliverables, MICROSOFT shall
evaluate each version of such Deliverable. In the event that it
requires corrections, MICROSOFT shall specify the corrections needed
and BSQUARE shall deliver an amended version of such documentation
within five (5) working days.
3
<PAGE> 4
2.4.3 BSQUARE shall use all reasonable commercial efforts to complete and
deliver the Deliverables set forth in a Work Plan to MICROSOFT, according
to the applicable Schedule. Additional information, reports, documentation
and the like regarding the Services shall be provided by BSQUARE to
MICROSOFT upon the reasonable request of MICROSOFT. BSQUARE shall promptly
raise with MICROSOFT any issues that arise (or which BSQUARE reasonably
foresees arising) regarding the quality or performance of the Deliverables
set forth in the Work Plan, as well as any deviation from the applicable
Schedule for such Deliverables. The parties shall use all reasonable
efforts to promptly address any such issues that may arise, including the
establishment of an appropriate recovery plan to the extent required.
2.5 Design Review and Plan Changes. BSQUARE understands that there may be
additions, deletions or other changes which may affect a Work Plan at any time
during the performance of such Work Plan. Upon notice of any such changes by
MICROSOFT, BSQUARE and MICROSOFT shall work together to make any necessary
changes to the Services, including, if necessary, the compensation owed to
BSQUARE, and BSQUARE shall alter the Work Plan in order to accommodate any such
changes as mutually agreed to by BSQUARE and MICROSOFT.
2.6 Services Performed on MICROSOFT Property. In the event it is necessary for
BSQUARE to perform the Services, or portion thereof, at MICROSOFT'S Redmond,
Washington, campus, BSQUARE shall abide by all MICROSOFT rules, regulations,
and security measures, including any restrictions on access to Confidential
Information.
2.7 Cancellation of Work Plans. Microsoft shall have the right to cancel any
Work Plan for any reason. In the event that Microsoft cancels a work Plan
without cause prior to completion of Services under that Work Plan, Microsoft
shall retain any and all Work Product existing in whatever form at the time of
the cancellation of the applicable Work Plan (including any applicable
documentation) with rights as set forth in Section 4, and pay BSQUARE for all
outstanding invoices applicable to the retained Work Product, with no
additional fee to be paid to BSQUARE thereafter.
2.8 Preferred Vendor. BSQUARE shall be a preferred Microsoft vendor for
Microsoft Visual Tools for Windows CE projects.
2.9 Non-Competition. During the term of this Agreement, neither BSQUARE nor
any entity that owns or controls, is owned or controlled by, or is under common
ownership and control with BSQUARE ("BSQUARE Affiliate") shall, without
Microsoft's prior written consent, design or develop or participate in the
design or development of products (or provide services in connection with
products) which compete with Windows CE, the Windows CE Tools products, the
Microsoft Windows card operating system (including all bug fixes, error
corrections, modifications, enhancements, updates, new versions and successor
products thereto), and/or the Microsoft Windows card tools (including all bug
fixes, error corrections, modifications, enhancements, updates, upgrades, new
versions and successor products thereto) (i) in existence as of the Effective
Date of this Agreement or (ii) which BSQUARE knows or has reason to know
Microsoft intends to develop, is developing, or has developed (itself or in
conjunction with third parties), or intends to acquire.
2.9.1 If BSQUARE requests MS' consent pursuant to the foregoing, such
request shall be in writing. Microsoft will make reasonable efforts to
review the request in Microsoft's discretion and advise BSQUARE of its
decision within 5 business days following Microsoft's receipt of such
request. Microsoft's failure to provide a written response within 10
business days of Microsoft's receipt of such request from BSQUARE shall be
deemed consent.
2.9.2 For the purposes of this Section 2.9, a product will be deemed to
"compete" with Windows CE or the Windows CE Tools products if, on a product
by product basis, such product could be deemed a replacement or alternative
for Windows CE or the relevant Windows CE Tools product, respectively.
Likewise, a product will be deemed to "compete" with the Microsfot Windows
card operating system and/or the Microsoft Windows card tools if, on a
product by
4
<PAGE> 5
product basis, such product could be deemed a replacement or
alternative for the Windows card operating system or the relevant
Windows card tools product, respectively. Thus, for example,
applications for Windows CE, such as BFax and Buseful, do not compete
with Windows CE and/or the Windows CE Tools.
2.9.3 The restriction in this Section 2.9 shall not apply to (a)
any BSQUARE products currently on the market as of the Effective Date
of this Agreement; (b) the BSQUARE product under development as of
the Effective Date that is internally referred to by BSQUARE as "CE
Validator"; or (c) a tool product for any other operating system in
the Microsoft Windows family of operating systems, provided that such
tool product does not compete, on a product by product basis, with a
Microsoft tool product for such other Microsoft operating system.
2.9.4 Nothing in this Section 2.9 shall be construed to authorize
BSQUARE or any BSQUARE Affiliate to make use of Microsoft's
intellectual property rights.
3. PAYMENT FOR SERVICES
3.1 Payment. MICROSOFT agrees to pay BSQUARE for work performed in
accordance with the Work Plan, based upon the Standard Rate Schedule
(which schedule may be modified on an annual basis pursuant to Section 2.3
above), and for any Approved Expenses identified in the Work Plan, provided
that BSQUARE shall not exceed the maximum payable amount specified in any
Work Plan without obtaining MICROSOFT's prior written approval.
3.2 Invoices. BSQUARE shall invoice MICROSOFT by the seventh day of each
month (or the following Monday if the seventh day falls on a weekend) for
the amounts due for work performed under any Work Plan in the prior month.
Billing will be recorded in hourly increments by project, and MICROSOFT
Internal Reference Number, sufficient for MICROSOFT to determine the
number of hours each engineer worked on any given MICROSOFT project on
each day. In the event that MICROSOFT provides a form to detail BSQUARE
billings, BSQUARE agrees to utilize such forms as MICROSOFT may supply.
MICROSOFT shall pay each undisputed invoice within thirty (30) days of
receiving each invoice. Invoices shall include reasonable supporting
materials (not including any source code-type information, which is to be
delivered as part of the Deliverables set forth in the Work Plan)
documenting the Services performed by BSQUARE.
3.3 One-time Declining Revenue Adjustment. In the event the average
monthly invoice billed to MICROSOFT for any consecutive three (3) month
period during the term of this Agreement falls below the total invoice
amount for the one month immediately preceding such three (3) month period
(the "Baseline Month"), MICROSOFT agrees to pay to BSQUARE an amount equal
to three times the difference between seventy-five percent (75%) of the
invoice for the Baseline Month and the average monthly invoice for the
three consecutive months; provided that such an adjustment shall only be
made once, for the first such consecutive three month period during the
term. Thus, for example, if in January the monthly invoice is $100,000,
and the average monthly invoice for February through April of the same
year is $70,000, then MICROSOFT would pay BSQUARE $15,000 ([75,000-70,000]
X 3). Notwithstanding the foregoing, MICROSOFT shall not be required to
pay such an adjustment where MICROSOFT has provided BSQUARE with at least
ninety days prior written notice that BSQUARE may experience a decline in
revenue as described in this Section 3.3.
4. RIGHTS
4.1 Work Made For Hire. The Work Product has been specially ordered and
commissioned by MICROSOFT. BSQUARE agrees that the Work Product is a "work
made for hire" for copyright purposes, with all copyrights in the Work
Product owned by MICROSOFT.
4.2 Assignment. To the extent that the Work Product does not qualify as
a work made for hire under applicable law, and to the extent that the Work
Product includes material subject to copyright, patent, trade
5
<PAGE> 6
secret, or other proprietary right protection, BSQUARE hereby assigns to
MICROSOFT, its successors and assigns, all right, title and interest in and to
the Work Product, including, but not limited to the following:
4.2.1 Any copyrights that BSQUARE may possess or acquire in the Work
Product and all copyrights and equivalent rights in the Work Product
throughout the world, including all renewals and extensions of such rights
that may be secured under the laws now or hereafter in force and effect in
the United States of America or in any other country or countries;
4.2.2 All rights in and to any inventions, ideas, designs, concepts,
techniques, discoveries, or improvements, whether or not patentable,
embodied in the Work Product or developed in the course of BSQUARE's
creation of the Work Product, including but not limited to all trade
secrets, utility and design patent rights and equivalent rights in and to
such inventions and designs throughout the world regardless of whether or
not legal protection for the Work Product is sought;
4.2.3 The right to prepare Derivative Technology with exclusive rights
to authorize others to do the same;
4.2.4 Copies of any documents, magnetically or optically encoded
media, or other materials created by BSQUARE under this Agreement; and
4.2.5 The right to sue for infringements of the Work Product which may
occur before the date of this Agreement, and to collect and retain damages
from any such infringements.
4.3 Assistance. At MICROSOFT's expense, BSQUARE shall execute and deliver such
instruments and take such other action as may be requested by MICROSOFT to
perfect or protect MICROSOFT's rights in the Work Product and to carry out the
assignments set forth in this Section 4.
4.4 Assignment/Waiver of Moral Rights. BSQUARE hereby irrevocably transfers and
assigns to MICROSOFT any and all "moral rights" that BSQUARE may have in the
Work Product and any Derivative Technology thereof. BSQUARE also hereby forever
waives and agrees never to assert any and all "moral rights" it may have in the
Work Product and Derivative Technology, even after termination of the Services.
4.5 Source Code License Grant. MICROSOFT hereby grants to BSQUARE a personal,
non-exclusive, non-transferable, non-assignable license during the term of this
Agreement to use and modify the Source Code for the sole purpose of providing
the Services pursuant to this Agreement. BSQUARE shall only exercise the
foregoing license rights on BSQUARE's premises, MICROSOFT's premises or other
locations expressly designated by MICROSOFT in the applicable Work Plan,
provided that such Source Code shall at all times reside only on the Microsoft
network or shall reside locally on the individual machines or workstations of
the BSQUARE personnel working with the Source Code (e.g., versus on servers in
BSQUARE's local area network). The Source Code provided hereunder shall be
considered Confidential Information and, therefore, shall be subject to the
terms and conditions of Section 6 of this Agreement. BSQUARE may disclose the
Source Code only to BSQUARE's employees and independent contractors that
MICROSOFT has approved in writing in advance, and only on a need-to-know basis.
BSQUARE shall execute appropriate written agreements with its employees and
independent contractors sufficient to enable it to comply with all the
provisions of this Agreement, including non-disclosure and assignment of rights.
4.6 Test Hardware License Grant. MICROSOFT hereby grants to BSQUARE a personal,
non-exclusive, non-transferable, non-assignable license during the term of this
Agreement to use the Test Hardware for the sole purpose of providing the
Services pursuant to this Agreement. BSQUARE shall not use the Test Hardware for
any purpose other than for the testing and development of the Work Product
pursuant to the terms of this Agreement. The Test Hardware provided hereunder
shall be considered Confidential Information and, therefore, shall be subject to
the terms and conditions of Section 6 of this Agreement. BSQUARE may disclose
the Test Hardware only to BSQUARE's employees and independent contractors that
MICROSOFT has approved in writing in advance, and only on a need-to-know basis.
6
<PAGE> 7
BSQUARE may not disclose, distribute, or disseminate the Test Hardware to
third parties without the written permission of MICROSOFT in each instance.
4.7 Return of Materials. Upon the termination of this Agreement as
provided in Section 9, BSQUARE shall return all copies of the Source Code,
Test Hardware and Microsoft Confidential Information, to the extent
provided only for performance of the Services under this Agreement (versus
being provided by MICROSOFT for use under more than one agreement between
MICROSOFT and BSQUARE), in BSQUARE's possession or under its control within
ten (10) days following the termination date. BSQUARE shall take all
necessary steps to ensure that electronic copies of such Source Code, Test
Hardware and Confidential Information are not retained by BSQUARE, its
employees, or any authorized independent contractors. BSQUARE shall provide
a declaration signed by an officer of BSQUARE attesting that all copies of
the Source Code, Test Hardware, Confidential Information and related
materials have been returned to MICROSOFT and/or destroyed.
4.8 No Other Rights. BSQUARE agrees that this Agreement does not grant to
it any rights other than what is granted in this Section 4 and for the
limited purposes set forth therein. Under no circumstances will the license
grants set forth in this Section 4 be construed as granting, by
implication, estoppel or otherwise, a license to any MICROSOFT technology
other than the Source Code and Test Hardware, solely for the purposes
designated herein. All rights not expressly granted herein are expressly
reserved by MICROSOFT.
5. NO OBLIGATION/INDEPENDENT DEVELOPMENT
Notwithstanding any other provision of this Agreement, MICROSOFT shall have
no obligation to market, sell or otherwise distribute the Work Product, either
alone or in any MICROSOFT product. Except as provided in Sections 2.8 and 6,
nothing in this Agreement will be construed as restricting MICROSOFT'S ability
to acquire, license, develop, manufacture or distribute for itself, or have
others acquire, license, develop, manufacture or distribute for MICROSOFT,
similar technology performing the same or similar functions as the technology
contemplated by this Agreement, or to market and distribute such similar
technology in addition to, or in lieu of, the technology contemplated by this
Agreement.
6. CONFIDENTIALITY
6.1 Each party shall protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that such
party uses to protect its own like information. Neither party will use the
other's Confidential Information for purposes other than those necessary to
directly further the purposes of this Agreement. Neither party will
disclose to third parties the other's Confidential Information without the
prior written consent of the other party. Except as expressly provided in
this Agreement, no ownership or license rights are granted in any
Confidential Information.
6.2 Each party acknowledges that monetary damages may not be a sufficient
remedy for unauthorized disclosure of Confidential Information and that, in
the event of such unauthorized disclosure, the non-breaching party shall be
entitled, without waiving any other rights or remedies, to such injunctive
or equitable relief as may be deemed proper by a court of competent
jurisdiction.
6.3 The parties' obligations of confidentiality under this Agreement shall
not be construed to limit either party's right to independently develop or
acquire products without use of the other party's Confidential Information.
7
<PAGE> 8
7. WARRANTIES
7.1 BSQUARE. BSQUARE warrants and represents that:
7.1.1 It has the full power to enter into this Agreement and make
the assignments and grant the license rights set forth herein;
7.1.2 It has not previously and will not grant any rights in the
Work Product (including without limitation all Deliverables) to any
third party that are inconsistent with the rights granted to
MICROSOFT herein;
7.1.3 The Work Product (including without limitation all
Deliverables) is original to BSQUARE and does not infringe any
copyright, patent trade secret, or other proprietary right held by any
third party provided, however, that this warranty does not apply with
regard to any patent infringement necessitated by compliance with any
Work Plan hereunder unless BSQUARE had knowledge of such infringement;
7.1.4 The Work Product (including without limitation all
Deliverables) will be created by employees of BSQUARE within the
scope of their employment and under obligation to assign inventions
to BSQUARE, or by independent contractors under written obligations
to assign all rights in the Work Product to BSQUARE; and
7.1.5 The Services shall be performed in a professional manner and
shall be of a high grade, nature, and quality.
7.2 MICROSOFT. MICROSOFT warrants and represents that it has the full
power to enter into this Agreement and make the assignments and grant
the license rights set forth herein.
8. INDEMNITY
8.1 Indemnity.
8.1.1 Except as covered in Section 8.1.4, BSQUARE shall, at its
expense, defend, indemnify and hold harmless MICROSOFT and
MICROSOFT'S subsidiaries, affiliates, directors, officers, employees,
agents and independent contractors from any and all costs, damages,
liabilities and fees reasonably incurred by MICROSOFT, including but
not limited to fees of attorneys and other professionals, with
respect to any claim or action arising out of or in any way related
to a breach by BSQUARE of this Agreement, including without
limitation of the warranties and representations set forth in Section
7 above; provided that: (i) MICROSOFT provides BSQUARE reasonably
prompt notice in writing of any such claim or action and permits
BSQUARE, through counsel mutually acceptable to MICROSOFT and
BSQUARE, to answer and defend such claim or action; (ii) MICROSOFT
provides BSQUARE information, assistance and authority, at BSQUARE's
expense and reasonable request, to help BSQUARE defend such claim or
action; and (iii) BSQUARE will not be responsible for any settlement
made by MICROSOFT without BSQUARE's written permission, which
permission will not be unreasonably withheld.
8.1.2 MICROSOFT shall have the right to employ separate counsel and
participate in the defense of any claim or action. BSQUARE shall
reimburse MICROSOFT upon demand for any payments made or losses
suffered by it at any time after the date hereof, based upon the
judgment of any court of competent jurisdiction or pursuant to a bona
fide compromise or settlement of claims, demands, or actions, in
respect to any damages related to any claim or action under this
Section 8.
8
<PAGE> 9
8.1.3 BSQUARE may not settle any claim or action under this Section
8 on MICROSOFT'S behalf without first obtaining MICROSOFT'S written
permission, which permission will not be unreasonably withheld. In
the event MICROSOFT and BSQUARE agree to settle a claim or action,
BSQUARE agrees not to publicize the settlement without first
obtaining MICROSOFT'S written permission, which permission will not
be unreasonably withheld.
8.1.4 MICROSOFT shall, at its expense, defend BSQUARE, BSQUARE
subsidiaries, affiliates, directors, officers and employees and pay
the amount of any final judgment, or settlement approved by
MICROSOFT, in connection with any claim or action brought against any
of the indemnified parties to the extent it is based upon a claim
that BSQUARE's use of the Source Code as authorized under this
Agreement infringes or violates any third party copyright, patent,
trade secret or other third party proprietary right; provided that:
(i) BSQUARE provides MICROSOFT reasonably prompt notice in writing of
any such claim or action and permits MICROSOFT through counsel of its
choosing to answer and defend such claim or action and (ii) BSQUARE
provides MICROSOFT with information, assistance and authority, at
MICROSOFT's expense with respect to actual and out of pocket expenses
and otherwise at BSQUARE's expense, to help MICROSOFT to defend such
claim or action. In consideration of MICROSOFT's indemnity pursuant
to this Section, BSQUARE agrees that it shall not settle any claim or
action subject to this subsection without first obtaining MICROSOFT's
consent, which consent may be withheld in the sole discretion of
MICROSOFT.
8.2 Duty to Correct. Notwithstanding Section 8.1, should the Work Product
or any portion thereof be held to constitute an infringement covered by
Section 8.1.1 and use of the Work Product or any portion thereof as
contemplated by this Agreement be enjoined or be threatened to be
enjoined, BSQUARE shall notify MICROSOFT and immediately, at BSQUARE's
expense: (i) procure for MICROSOFT the right to continue use, sale, and
marketing of the Work Product, or portion thereof, as applicable; or (ii)
replace or modify the Work Product, or portion thereof, with a version
that is non-infringing, provided that the replacement or modified version
meets the specifications in the applicable Work Plan to MICROSOFT'S
satisfaction. If (i) or (ii) are not available to BSQUARE, in addition to
any damages or expenses reimbursed under Section 8.1, BSQUARE shall refund
to MICROSOFT all amounts paid to BSQUARE by MICROSOFT under such
applicable Work Plan.
9. TERM AND TERMINATION
9.1 Term. The term of this Agreement shall run from the Effective Date
through July 1, 2000 and may be renewed for an additional year (through
July 1, 2001) by mutual agreement of the parties.
9.2 Termination By Either Party For Cause. Either party may suspend
performance and/or terminate this Agreement immediately upon written
notice at any time if:
9.2.1 The other is in material breach of any material warranty, term,
condition or covenant of this Agreement, other than those contained in
Section 6, and fails to cure that breach within thirty (30) days after
written notice thereof; or
9.2.2 The other party is in material breach of Section 6.
9.3 Effect of Termination. In the event of termination or expiration of
this Agreement for any reason, Sections 3 (with respect to payment for
Services completed prior to expiration or termination), 4.1 - 4.4, 4.7 -
4.8, 5, 6, 7, 8, 9.3, 10 and 11.4 shall survive termination or expiration.
Neither party shall be liable nor owe any compensation to the other solely
by reason of exercising the right to terminate granted by this provision.
Microsoft shall retain any and all Work Product (including without
limitation all Deliverables) existing in whatever form at the termination
or expiration of this Agreement (including any applicable documentation)
with rights as set forth in Section 4.
9
<PAGE> 10
10. LIMITATION OF LIABILITIES
WITH THE EXCEPTION OF ANY BREACH OF SECTIONS 4.5, 6 AND 8, NEITHER PARTY
SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR SPECIAL
DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
EXCEPT AS SET FORTH IN SECTION 7, BSQUARE SPECIFICALLY DISCLAIMS ANY AND
ALL WARRANTIES WITH REGARD TO THE WORK PRODUCT PROVIDED HEREUNDER, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTY OF FITNESS, FUNCTIONALITY OR
MERCHANTABLITY, WHETHER EXPRESS OR IMPLIED.
11. GENERAL
11.1 Notices. All notices and requests in connection with this Agreement
shall be deemed given as of the day they are received either by messenger,
delivery service, or in the United States of America mails, postage
prepaid, certified or registered, return receipt requested, and addressed
as follows:
To BSQUARE: To MICROSOFT:
BSQUARE Corporation Microsoft Corporation
3633 136th Place SE, Suite 100 One Microsoft Way
Bellevue, WA 98006 Redmond, WA 98052-6399
Attention: William Baxter Attention: Gen. Mgr., Consumer
Phone: 425-519-5963 Appliance Div.
Fax: 425-519-5998 Phone: 425-882-8040
Fax: 425-936-7329
Copy to: Vice President of Copy to: Law & Corporate Affairs
Legal Affairs Fax: 425-936-7409
Phone: 425-519-5910
or to such other addresses as a party may designate pursuant to this
notice provision.
11.2 Independent Contractors. BSQUARE is an independent contractor for
MICROSOFT, and nothing in this Agreement shall be construed as creating an
employer-employee relationship, a partnership, or a joint venture between
the parties.
11.3 Taxes. In the event taxes are required to be withheld on payments
made under this Agreement by any U.S. (state or federal) of foreign
government, MICROSOFT may deduct such taxes from the amount owed BSQUARE
and pay them to the appropriate taxing authority. Microsoft shall in turn
promptly secure and deliver to BSQUARE an official receipt for any taxes
withheld. MICROSOFT will use reasonable efforts to minimize such taxes to
the extent permissible under applicable law.
11.4 Governing Law. This Agreement shall be governed by the laws of the
State of Washington as though entered into between Washington residents
and to be performed entirely within the State of Washington, and BSQUARE
consents to jurisdiction and venue in the state and federal courts sitting
in the State of Washington. In any action or suit to enforce any right or
remedy under this Agreement or to interpret any provision of this
Agreement, the prevailing party shall be entitled to recover its costs,
including reasonable attorneys' fees.
11.5 Assignment. This Agreement shall be binding upon and inure to the
benefit of each party's respective successors and lawful assigns;
provided, however, that BSQUARE may not assign this Agreement, in whole or
in part, without the prior written approval of MICROSOFT.
10
<PAGE> 11
11.6 Construction. Except to Sections 3.1, 6, 9 and 10 herein above,
should a court of competent jurisdiction find any provision of this
Agreement, or portion hereof, to be unenforceable, that provision of the
Agreement will be enforced to the maximum extent permissible so as to
effect the intent of the parties, and the remainder of this Agreement
will continue in full force and effect. Should Sections 3, 6, 9 or 10
herein, or any portion thereof, be held unenforceable, then in that event
either party shall have a right to immediately terminate this Agreement
by written notice to the other party. Failure by either party to enforce
any provision of this Agreement will not be deemed a waiver of future
enforcement of that or any other provision. This Agreement has been
negotiated by the parties and their respective counsel and will be
interpreted fairly in accordance with its terms and without any strict
construction in favor or against either party.
11.7 Force Majeure. This Agreement and the parties' performances
hereunder are subject to all contingencies beyond the reasonable control
of the parties (whether or not now in the contemplation of either of the
parties), including, but not limited to, force majeure; strikes; labor
disputes; floods; civil commotion; war; riot; acts of God; rules, laws,
orders, restrictions, embargoes, quotas or actions of any government,
foreign or domestic, or any agency or subdivision thereof; casualties;
fires; earthquakes; accidents; shortages of transportation facilities;
detention of goods and merchandise by customs authorities; loss of goods
and merchandise in public or private warehouses; or other casualty or
contingency beyond the reasonable control of the parties or otherwise
unavoidable.
11.8 Entire Agreement. This Agreement does not constitute an offer by
MICROSOFT and it shall not be effective until signed by both parties.
Subject to Section 1.14, this Agreement constitutes the entire agreement
between the parties with respect to the Services and all other subject
matter hereof and merges all prior and contemporaneous communications,
and supersedes all prior agreements between the parties regarding the
subject matter of this Agreement, including, without limitation, the
Development & License Agreement effective June 12, 1997, as amended by
Amendment No. 1 effective December 17, 1997, and as amended by Amendment
No. 2 effective March 15, 1998. This Agreement shall not be modified
except by a written agreement dated subsequent to the date of this
Agreement and signed on behalf of BSQUARE and MICROSOFT by their
respective duly authorized representatives.
11.9 Joint Press Release. Upon execution of this Agreement by both
parties, the parties agree to work together to prepare and issue a
mutually acceptable joint press release to announce their relationship
under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above. All signed copies of this Agreement shall be deemed
originals. This Agreement shall be effective upon execution on behalf of
BSQUARE and MICROSOFT by their duly authorized representatives.
MICROSOFT CORPORATION BSQUARE CORPORATION
/s/ HAREL KODESH /s/ WILLIAM T. BAXTER
---------------------------- ----------------------------
By By
Harel Kodesh William T. Baxter
---------------------------- ----------------------------
Name (Print) Name (Print)
VP President/CEO
---------------------------- ----------------------------
Title Title
2/1/99 January 28, 1999
---------------------------- ----------------------------
Date Date
11
<PAGE> 12
EXHIBIT A
STANDARD RATE SCHEDULE
BSQUARE will charge MICROSOFT at the applicable rate specified below for each
hour of services rendered under a Work Plan (unless otherwise expressly
provided in the applicable Work Plan) by the associated Job Title Category on a
project by project basis using MICROSOFT Internal Reference Numbers.
TOTAL STAFFING LEVELS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
JOB TITLES (DUTIES) CATEGORY HOURLY RATE
- --------------------------------------------------------------------------------
<S> <C> <C>
SDE Level 1 SDE1 *
(Architect - compiler or kernel/OS)
- --------------------------------------------------------------------------------
SDE Level 2 SDE2 *
(System Engineer - compiler, debugger
and OS)
- --------------------------------------------------------------------------------
SDE Level 3 SDE3 *
(Application Engineer - visual tools, IDE,
MFC, etc.)
- --------------------------------------------------------------------------------
STE Level 1 STE1 *
(Test lead)
- --------------------------------------------------------------------------------
STE Level 2 STE2 *
(System Test Engineer)
- --------------------------------------------------------------------------------
STE Level 3 STE3 *
(Application Test Engineer)
- --------------------------------------------------------------------------------
Group Manager PM1 *
(Top Level Project Mgr)
- --------------------------------------------------------------------------------
Project Manager PM2 *
(Multi-project PM for Compiler)
- --------------------------------------------------------------------------------
User Education Level 1 UE1 *
(Editor)
- --------------------------------------------------------------------------------
User Education Level 2 (Writer) UE2 *
- --------------------------------------------------------------------------------
</TABLE>
- -----------
* Confidential treatment requested
<PAGE> 13
EXHIBIT B
WORK PLANS
This Exhibit is made pursuant to that certain Master Services Agreement and
Intellectual Property Assignment (the "Agreement"), dated October 1, 1998 by
and between BSQUARE CORPORATION ("BSQUARE") and MICROSOFT CORPORATION
("MICROSOFT").
A. Project:
B. Project Description:
C. Maximum payable amount for Project:
D. Additional IP Accessed:
E. MICROSOFT internal reference number:
F. Expected staffing level requirements:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Job Category Quantity Rate Start End Days Hours Total Payment
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total $____________
</TABLE>
G. Special Terms:
These Special Terms are intended by the parties to amend, modify and supersede
to the extent of any inconsistencies, the provisions of the main Agreement
solely with regard to this Work Plan (including the Services performed and the
Work Product developed with respect to this Work Plan).
[insert special terms if any]
This Exhibit shall be attached to and incorporated into the Agreement, and,
except as provided above, is subject to all the terms and conditions of the
Agreement.
MICROSOFT CORPORATION BSQUARE CORPORATION
- ------------------------------ ------------------------------
By (Sign) By (Sign)
- ------------------------------ ------------------------------
Name (Print) Name (Print)
- ------------------------------ ------------------------------
Title Title
- ------------------------------ ------------------------------
Date Date
13
<PAGE> 1
EXHIBIT 10.14
BSQUARE CORPORATION
STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT
As of January 30, 1998
<PAGE> 2
BSQUARE CORPORATION
Stock Purchase
and Shareholders Agreement
As of January 30, 1998
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. PURCHASE AND SALE OF SHARES; REDEMPTION ......................... 1
1.1 Description of Securities ....................................... 1
1.2 Sale and Purchase; Redemption ................................... 2
1.3 Closing ......................................................... 2
SECTION 2. REPRESENTATIONS AND WARRANTIES .................................. 2
2.1 Organization and Corporate Power ................................ 2
2.2 Authorization and Non-Contravention. ............................ 3
2.3 Capitalization .................................................. 4
2.4 Subsidiaries; Investments ....................................... 5
2.5 Financial Statements and Matters ................................ 5
2.6 Absence of Undisclosed Liabilities .............................. 6
2.7 Absence of Certain Developments ................................. 6
2.8 Ordinary Course ................................................. 6
2.9 Accounts Receivable ............................................. 6
2.10 Title to Properties ............................................. 7
2.11 Tax Matters ..................................................... 7
2.12 Certain Contracts and Arrangements .............................. 8
2.13 Intellectual Property Rights; Employee Restrictions ............. 9
2.14 Litigation ......................................................10
2.15 Employee Benefit Plans ..........................................10
2.16 Labor Laws ......................................................11
2.17 Employees and Suppliers .........................................11
2.18 Hazardous Waste, Etc ............................................11
2.19 Business; Compliance with Laws ..................................12
2.20 Investment Banking; Brokerage ...................................12
2.21 Insurance .......................................................12
2.22 Transactions with Affiliates ....................................12
2.23 Customers .......................................................12
2.24 Relationship with Microsoft .....................................13
2.25 Certain Events ..................................................13
2.26 Disclosure ......................................................13
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS .................14
SECTION 3. CONDITIONS OF PURCHASE ..........................................15
3.1 Satisfaction of Conditions ......................................15
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.2 Director Election................................................15
3.3 Compensation and Audit Committees................................15
3.4 Opinion of Counsel...............................................15
3.5 Consent of Spouse................................................15
3.6 Authorization....................................................15
3.7 All Proceedings Satisfactory.....................................16
3.8 Investors' Fees..................................................16
3.9 No Violation or Injunction.......................................16
3.10 Consents and Waivers.............................................16
3.11 Compensation of Shareholders.....................................16
3.12 Payment of Broker Fee............................................16
3.13 Termination of Existing Redemption Agreement.....................16
3.14 Key Person Insurance.............................................17
3.15 Director Indemnification Agreements..............................17
3.16 Certificate of Designation.......................................17
SECTION 4. COVENANTS........................................................17
4.1 Financial Statements and Budgetary Information; Inspection.......17
4.2 Indemnification; Insurance.......................................17
4.3 Board of Directors...............................................18
4.4 Composition of Board Committees..................................18
4.5 Restrictive Covenants............................................18
4.6 Redemption.......................................................19
4.7 Cancellation of Shareholder Notes................................19
4.8 Reissuance of Stock Certificates.................................19
4.9 Key Person Insurance.............................................20
4.10 Compensation of Shareholders.....................................20
4.11 Stock Awards.....................................................20
4.12 Assignment of Rights.............................................20
4.13 Compliance with Laws.............................................20
4.14 Use of Proceeds..................................................20
4.15 Audited Financial Statements.....................................20
SECTION 5. TRANSFER RESTRICTIONS............................................21
5.1 General Restriction..............................................21
5.2 Right of First Refusal...........................................21
5.3 Right of Co-Sale.................................................23
5.4 Assignment of Rights.............................................24
5.5 Sales to Strategic Purchasers....................................25
SECTION 6. RIGHTS TO PURCHASE...............................................25
6.1 Right to Participate in Certain Sales of Additional Securities.. 25
6.2 Assignment of Rights............................................ 26
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 7. REGISTRATION RIGHTS..............................................26
7.1 Optional Registrations...........................................26
7.2 Required Registrations...........................................27
7.3 Registrable Securities...........................................29
7.4 Further Obligations of the Company...............................29
7.5 Indemnification; Contribution....................................31
7.6 Rule 144 and Rule 144A Requirements..............................33
7.7 Assignment of Rights.............................................33
7.8 "Market Stand-off" Agreement.....................................33
SECTION 8. ELECTION OF DIRECTORS............................................34
8.1 Election of Directors............................................34
8.2 Committees.......................................................34
8.3 Vacancies and Removal............................................34
SECTION 9. GENERAL..........................................................35
9.1 Amendments, Waivers and Consents.................................35
9.2 Indemnification from the Company.................................35
9.3 Survival of Representations, Warranties and Covenants;
Assignability of Rights..........................................37
9.4 Legend on Securities.............................................37
9.5 Governing Law....................................................38
9.6 Section Headings and Gender......................................38
9.7 Counterparts.....................................................39
9.8 Notices and Demands..............................................39
9.9 Dispute Resolution...............................................39
9.10 Remedies; Severability...........................................40
9.11 Integration......................................................40
</TABLE>
(iii)
<PAGE> 5
Page
----
(iv)
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
EXHIBITS
<S> <C>
A. Schedule of Investors
B. Preferred Stock Terms
C. Schedule of Common Stock Redemptions
D. Form of Redemption Agreement
E. Disclosure Schedule
F. Form of Opinion of Counsel
G. Form of Consent of Spouse
H. Form of Director Indemnification Agreement
</TABLE>
(v)
<PAGE> 7
STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT
STOCK PURCHASE AND SHAREHOLDERS AGREEMENT made as of this 30th day of
January, 1998, by and among BSQUARE Corporation, a Washington corporation
(together with any predecessors or successors thereto, the "Company"), William
T. Baxter, Albert T. Dosser, Peter R. Gregory, and Joseph Notarangelo
(collectively the "Shareholders" and individually a "Shareholder"), and the
investors named in Exhibit A hereto (together with their successors and assigns,
collectively the "Investors," and each individually an "Investor").
WHEREAS, all of the outstanding shares of the Company's capital stock prior
to the date hereof are owned by the Shareholders; and
WHEREAS, the Company has authorized the issuance and sale to the Investors
of a total of 8,333,333 shares of Series A Convertible Preferred Stock, no par
value, having the rights and preferences set forth in Exhibit B hereto
("Convertible Preferred Stock"), for an aggregate purchase price of
$14,999,999.40;
WHEREAS, the Company has agreed to redeem and William T. Baxter, Albert T.
Dosser, and Peter R. Gregory (the "Redeeming Shareholders") have agreed to sell
to the Company an aggregate of 3,333,333 shares of the Company's Common Stock,
no par value ("Common Stock"), for an aggregate purchase price of $5,999,999.40;
and
WHEREAS, the parties hereto desire to set forth the terms of their ongoing
relationship in connection with the Company.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF SHARES, REDEMPTION
1.1 Description of Securities. The Company's authorized capital stock
consists of 50,000,000 shares of Common Stock and 10,000,000 shares of preferred
stock, no par value ("Preferred Stock"), of which 8,333,333 shares have been
designated Convertible Preferred Stock. The Company has authorized and has
reserved, and covenants to continue to reserve, a sufficient number of shares of
its Common Stock to satisfy the rights of conversion of the holders of the
Convertible Preferred Stock. For purposes of this Agreement, (a) the shares of
Convertible Preferred Stock to be acquired by the Investors from the Company
hereunder are referred to as the "Convertible Preferred Shares," (b) the shares
of Common Stock issuable upon conversion of the Convertible Preferred Shares are
referred to as the "Conversion Shares," (c) the Convertible Preferred Shares and
the Conversion Shares are sometimes referred to as the "Securities", and (d) the
shares of Common Stock to be redeemed by the Company from the Redeeming
Shareholders are referred to as the "Redemption Shares."
<PAGE> 8
1.2 Sale and Purchase: Redemption. Upon the terms and subject to the
conditions herein, and in reliance on the representations and warranties set
forth in Section 2, (a) each Investor hereby purchases from the Company, and the
Company hereby issues and sells to each of the Investors, at the Closing (as
defined in Section 1.3), the number of Convertible Preferred Shares set forth
opposite the name of such Investor in Exhibit A hereto for the purchase price of
$1.80 per Convertible Preferred Share (or 8,333,333 Convertible Preferred Shares
for an aggregate purchase price of $14,999,999.40), and the Company hereby
grants the Investors the rights set forth herein. Immediately following the
Closing, the Company shall acquire from the Redeeming Shareholders, and each
such Redeeming Shareholder shall sell to the Company, the respective number of
Redemption Shares set forth on Exhibit C hereto for a price of $1.80 per
Redemption Share (or 3,333,333 Redemption Shares for an aggregate redemption
price of $5,999,999.40), pursuant to a redemption agreements (each, a
"Redemption Agreement" and, collectively, the "Redemption Agreements") in the
form attached hereto as Exhibit D. All purchase and redemption payments
hereunder shall be made by wire transfer of next day available funds.
1.3 Closing. The closing of the purchases and sales of the Convertible
Preferred Shares and the redemption of the Redemption Shares contemplated by
Section 1.2 (the "Closing") shall take place at 10:00 a.m. on the date hereof
(the "Closing Date").
SECTION 2. REPRESENTATIONS AND WARRANTIES
In order to induce the Investors to enter into this Agreement, the Company
and the Shareholders jointly and severally represent and warrant to each of the
Investors the following, except as set forth in the schedule of exceptions
attached hereto as Exhibit E (the "Disclosure Schedule").
2.1 Organization and Corporate Power. The Company is a corporation duly
organized and validly existing under the laws of the State of Washington, and is
qualified to do business as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on its
assets, liabilities, condition (financial or other), business, results of
operations or prospects (a "Material Adverse Effect"). The Company has all
required corporate power and corporate authority to carry on its business as
presently conducted, to enter into and perform this Agreement and the agreements
contemplated hereby to which it is a party and to carry out the transactions
contemplated hereby and thereby, including the issuance of the Securities and
the redemption of the Redemption Shares. The copies of the Articles of
Incorporation and the By-laws of the Company, as amended to date (the "Articles
of Incorporation" and the "Bylaws," respectively), and of the minute book of the
Company, which have been furnished to the Investors by the Company, are complete
at the date hereof. The Company is not in material violation of any term of its
Articles of Incorporation or By-laws.
<PAGE> 9
2.2 Authorization and Non-Contravention.
(a) The execution, delivery and performance by the Company of this
Agreement and each other agreement, document and instrument to be executed and
delivered by the Company pursuant to or as contemplated by this Agreement
(including, without limitation, the Redemption Agreements) and the issuance and
delivery of (i) the Convertible Preferred Shares, and (ii) upon the conversion
of the Convertible Preferred Shares, the Conversion Shares, have been duly
authorized by all necessary corporate action of the Company. This Agreement and
each such other agreement, document, and instrument (including, without
limitation, the Redemption Agreements) constitute valid and binding obligations
of the Company, enforceable in accordance with their respective terms, except as
rights to indemnity and contribution may be limited by applicable law and public
policy and subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) general principles of equity, whether such
enforceability is considered in a proceeding in equity or at law. The execution
and delivery by the Company of this Agreement and each other agreement, document
and instrument to be executed and delivered by the Company pursuant hereto or as
contemplated hereby (including, without limitation, the Redemption Agreements)
and the performance by the Company of the transactions contemplated hereby and
thereby, including, without limitation, the issuance and delivery of (i) the
Convertible Preferred Shares and (ii) upon the conversion of the Convertible
Preferred Shares, the Conversion Shares, do not and will not: (A) except as set
forth in Section 2.2 of the Disclosure Schedule, violate, conflict with or
result in a default (whether after the giving of notice, lapse of time or both)
under any material contract or obligation to which the Company is a party or by
which it or its assets are bound, or any provision of the Articles of
Incorporation or By-laws of the Company, or cause the creation of any material
encumbrance upon any of the assets of the Company; (13) to the Company's
knowledge, violate or result in a violation of, or constitute a default under,
any provision of any material law, regulation or rule, or any order of, or any
restriction imposed by, any court or governmental agency applicable to the
Company; (C) except as set forth in Section 2.2 of the Disclosure Schedule,
require from the Company any notice to, declaration or filing with, or consent
or approval of any governmental authority or third party other than as may be
required to secure an exemption from qualification of the offer and sale of the
Securities under the Securities Act of 1933, as amended (the "Securities Act"),
and applicable state securities and blue sky laws; or D) accelerate any
obligation under, or give rise to a right of termination of, any material
agreement, permit, license or authorization to which the Company is a party or
by which the Company is bound.
(b) Each Shareholder has full right, authority, power and (if
applicable) capacity to enter into this Agreement and each other agreement,
document and instrument to be executed and delivered by or on behalf of such
Shareholder pursuant to or as contemplated by this Agreement (including, if
applicable, a Redemption Agreement) and to carry out the transactions
contemplated hereby and thereby. This Agreement and each other agreement,
document and instrument executed and delivered by each Shareholder pursuant to
or as contemplated by this Agreement (including, if applicable, a Redemption
Agreement) constitute, or when executed and delivered will constitute, valid and
binding obligations of such Shareholder enforceable in
<PAGE> 10
accordance with their respective terms, except as rights to indemnity and
contribution may be limited by applicable law and public policy and subject to
(i) applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights generally and
(ii) general principles of equity, whether such enforceability is considered in
a proceeding in equity or at law. The execution and delivery by each Shareholder
of this Agreement and each other agreement, document and instrument to be
executed and delivered by each Shareholder pursuant hereto or as contemplated
hereby (including, if applicable, a Redemption Agreement), and the performance
by such Shareholder of the transactions contemplated hereby and thereby do not
and will not: (A) violate, conflict with or result in a default (whether after
the giving of notice, lapse of time or both) under any material contract or
obligation to which such Shareholder is a party or by which such Shareholder's
assets are bound, or any provision of the Articles of Incorporation or By-laws
of the Company, or cause the creation of any material encumbrance upon any of
the assets of such Shareholder or the Company; (B) to the Shareholder's
knowledge, violate or result in a violation of, or constitute a default under,
any provision of any material law, regulation or rule, or any order of, or any
restriction imposed by, any court or other governmental agency applicable to the
Company or such Shareholder; (C) require from such Shareholder or the Company
any notice to, declaration or filing with, or consent or approval of any
governmental authority or other material third party other than as may be
required to secure an exemption from qualification of the offer and sale of the
Securities under the Securities Act and applicable state securities and blue sky
laws; or (D) accelerate any obligation under, or give rise to a right of
termination of, any material agreement, permit, license or authorization to
which such Shareholder or the Company is a party or by which such Shareholder or
the Company is bound.
2.3 Capitalization. Immediately prior to the Closing, each of the
Shareholders owns beneficially and of record the shares of Common Stock set
forth opposite such Shareholder's name on Section 2.3 of the Disclosure Schedule
free and clear of any liens, restrictions or encumbrances, and, except as set
forth in Section 2.3 of the Disclosure Schedule, such shares of capital stock
represent all of the outstanding shares of the Company's capital stock prior to
the date hereof. As of the Closing and after giving effect to the transactions
contemplated hereby, the authorized capital stock of the Company will consist of
50,000,000 shares of Common Stock, of which 18,041,667 shares will be issued and
outstanding, and 8,333,333 shares of Convertible Preferred Stock, of which
8,333,333 shares will be issued and outstanding. In addition, the Company has
authorized and reserved for issuance upon conversion of the Convertible
Preferred Shares up to 8,333,333 Conversion Shares (subject to adjustment for
stock splits, stock dividends and the like) and has reserved for issuance upon
exercise of options under the BSQUARE Corporation Amended and Restated Stock
Option Plan (the "Plan") 3,625,000 shares of Common Stock (subject in each case
to adjustments for stock splits, stock dividends and the like). A copy of the
Plan, as amended to date, is included in Section 2.3 of the Disclosure Schedule.
Except for the 3,625,000 shares of Common Stock issuable upon the exercise of
options granted under the Plan and the Conversion Shares, the Company has not
issued or agreed to issue and is not obligated to issue any warrants, options or
other rights to purchase or acquire any shares of its capital stock, or any
securities convertible into or exercisable or exchangeable for such shares or
any warrants. options or other rights to acquire any such convertible
securities. As of the Closing,
<PAGE> 11
and after giving effect to the transactions contemplated hereby, all of the
outstanding shares of capital stock of the Company (including, without
limitation, the Convertible Preferred Shares) will have been duly and validly
authorized and issued, fully paid and nonassessable and, except as set forth
herein, not subject to any preemptive rights and will have been offered, issued,
sold and delivered in compliance with applicable federal and state securities
laws. The Conversion Shares will, upon issuance, be duly and validly authorized
and issued, fully paid and nonassessable and not subject to any preemptive
rights and will he issued in compliance with applicable federal and state
securities laws. The relative rights, preferences and other provisions relating
to the Convertible Preferred Shares are as set forth in Exhibit B attached
hereto. There are no preemptive rights, rights of first refusal, put or call
rights or obligations or anti-dilution rights with respect to the issuance, sale
or redemption of the Company's capital stock, other than as described in Section
2.3 of the Disclosure Schedule and rights to which the Investors and
Shareholders are entitled as set forth in this Agreement or the Certificate of
Designation (as defined herein), and except as described in the Redemption
Agreements. Except as set forth herein, there are no rights to have the
Company's capital stock registered for sale to the public under the laws of any
jurisdiction, no agreements relating to the voting of the Company's voting
securities, and no restrictions on the transfer of the Company's capital stock,
except as set forth in Section 2.3 of the Disclosure Schedule. After giving
effect to the transactions contemplated hereby, the outstanding shares of the
Company's capital stock are held beneficially and of record by the persons
identified in Section 2.3 of the Disclosure Schedule in the amounts indicated
thereon.
2.4 Subsidiaries; Investments. The Company has no subsidiaries or
interests in any corporation, joint venture, partnership or other entity.
2.5 Financial Statements and Matters.
(a) The Company has previously furnished to the Investors copies of
its unaudited financial statements for the fiscal years ended December 31, 1996
and December 31, 1997. Such financial statements referred to in this Section
2.5(a) were prepared in conformity with generally accepted accounting principles
applied on a consistent basis, are complete, correct and consistent in all
material respects with the books and records of the Company and fairly and
accurately present the financial position of the Company as of the dates thereof
and the results of operations and cash flows of the Company for the periods
shown therein.
(b) The Company has at least $2,000,000 of working capital at the
date hereof.
(c) The projections given to the Investors represent good faith
estimates of the Company's performance for 1998 and future years and are based
upon assumptions which are set forth therein and which were in good faith
believed to be reasonable when made and continue to be reasonable as of the date
hereof; provided, however, that projections as to future events are not to be
viewed as fact and that actual results likely will differ from the projected
results and that the differences may be material; provided, further, that the
Investors acknowledge that such projections contain certain forward-looking
statements which involve known and unknown risks,
<PAGE> 12
uncertainties and other factors which may cause actual results, performance or
achievements of the Company to differ materially from those expressed or implied
by such forward-looking statements.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the balance sheet of the Company at December
31, 1997 contained in the financial statements referred to in Section 2.5(a)
(the "Base Balance Sheet") or as set forth in Section 2.6 of the Disclosure
Schedule, the Company does not have and is not subject to any material liability
or obligation of any nature, whether accrued, absolute, contingent or otherwise.
2.7 Absence of Certain Developments. Since the date of the Base Balance
Sheet, except as set forth in Section 2.7 of the Disclosure Schedule, there has
not been any: (i) material adverse change in the financial condition of the
Company or in the assets, liabilities, condition (financial or other), business
or results of operations of the Company, (ii) declaration, setting aside or
payment of any dividend or other distribution with respect to, or any direct or
indirect redemption or acquisition of, any of the capital stock of the Company,
(iii) waiver of any valuable right of the Company or cancellation of any debt or
claim held by the Company, (iv) loss, destruction or damage to any property
which is material to the assets, liabilities, condition (financial or other),
properties, business, results of operations or prospects of the Company, whether
or not insured, (v) acquisition or disposition of any material assets or other
transaction by the Company other than in the ordinary course of business, (vi)
transaction or agreement involving the Company and any officer, director,
employee or shareholder of the Company, (vii) increase, direct or indirect, in
the compensation paid or payable to any officer, director, employee or agent of
the Company or any establishment or creation of any employment or severance
agreement or employee benefit plan, (viii) material loss of personnel of the
Company, material change in the terms and conditions of the employment of the
Company's key personnel or any labor trouble involving the Company, (ix)
arrangements relating to any royalty, dividend or similar payment to employees,
customers, or independent contractors based on the sales volume of the Company.
whether as part of the terms of the Company's capital stock or by any separate
agreement, (x) customer contract or other arrangement pursuant to which the
Company has agreed to provide products or services at a below-market rate, (xi)
loss or any development that could result in a loss of any significant customer,
account or employee of the Company, (xii) incurrence of indebtedness or any
lien, (xiii) transaction not occurring in the ordinary course of business, or
(xiv) any agreement with respect to any of the foregoing actions.
2.8 Ordinary Course. Since the date of the Base Balance Sheet, the Company
has conducted its business only in the ordinary course and consistent with its
prior practices.
2.9 Accounts Receivable. All of the accounts receivable of the Company,
whether shown or reflected on the Base Balance Sheet or otherwise, represent
bona fide completed sales of products or services made in the ordinary course of
business, are valid and enforceable claims, are subject to no known set-offs or
counterclaims, and are, in the best judgment of the Company, fully collectible
in the normal course of business after deducting the reserve set forth in the
Base
<PAGE> 13
Balance Sheet and adjusted since that date, which reserve is a reasonable
estimate of the Company's uncollectible accounts.
2.10 Title to Properties. Section 2.10 of the Disclosure Schedule sets
forth the addresses and uses of all real property that the Company owns, leases
or subleases. The Company has good, valid and (if applicable) marketable title
to all of its owned assets, including, without limitation, those assets
reflected on the Base Balance Sheet or acquired by it after the date thereof
(except for properties disposed of since that date in the ordinary course of
business), free and clear of all liens, claims or encumbrances of any nature,
other than (i) the lien of current taxes not yet due and payable, and (ii)
possible liens and encumbrances which do not in any case materially detract from
the value of the property subject thereto or materially impair the operations of
the Company, and which have not arisen otherwise than in the ordinary course of
business. All equipment included in such properties which is necessary to the
business of the Company is in good condition and repair (ordinary wear and tear
excepted) and all leases of real or personal property to which the Company is a
party are fully effective and afford the Company peaceful and undisturbed
possession of the subject matter of the lease. The property and assets of the
Company are sufficient for the conduct of its business as presently conducted.
To its knowledge, the Company is not in violation of any zoning, building or
safety ordinance, regulation or requirement or other law or regulation
applicable to the operation of its owned or leased properties, the violation of
which would have a Material Adverse Effect, nor has it received any notice of
any such violation. There are no defaults by the Company or, to the knowledge of
the Company, by any other party, which might curtail in any material respect the
present use of the Company's property. The performance by the Company of this
Agreement or any other agreement, document, or instrument contemplated hereby
will not result in the termination of, or in any increase of any amounts payable
under, any of its leases.
2.11 Tax Matters. The Company has filed all federal, state, local and
foreign income, excise and franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed by it where the failure to file such returns would have a Material
Adverse Effect and has paid all taxes owing by it, except taxes which have not
yet accrued or otherwise become due, for which adequate provision has been made
in the pertinent financial statements referred to in Section 2.5(a) above or
which will not have a Material Adverse Effect. The provision for taxes on the
Base Balance Sheet is sufficient as of its date for the payment of all accrued
and unpaid federal, state, county and local taxes of any nature of the Company,
and any applicable taxes owing to any foreign jurisdiction, whether or not
assessed or disputed. All taxes and other assessments and levies which the
Company is required to withhold or collect have been withheld and collected and
have been paid over to the proper governmental authorities except where the
failure to withhold or collect and pay over would not have a Material Adverse
Effect. With regard to the federal income tax returns of the Company, the
Company has never received notice of any audit or of any proposed deficiencies
from the Internal Revenue Service. There are in effect no waivers of applicable
statutes of limitations with respect to any taxes owed by the Company for any
year. Neither the Internal Revenue Service nor any other taxing authority is now
asserting or, to the knowledge of the Company, threatening to assert against the
Company any deficiency or claim for additional taxes or interest thereon or
penalties
<PAGE> 14
in connection therewith. The Company (and any predecessor of the Company) was a
validly electing "S-corporation" within the meaning of Section 1361 and Section
1362 of the Internal Revenue Code of 1986, as amended, at all times through the
end of the Company's taxable year ending October 15, 1997.
2.12 Certain Contracts and Arrangements. Except as set forth in Section
2.12 of the Disclosure Schedule (with true and correct copies delivered to the
Investors), the Company is not a party or subject to or bound by:
(a) any plan or contract providing for collective bargaining or the
like, or any contract or agreement with any labor union;
(b) any contract, lease or agreement creating any obligation of the
Company to pay to any third party $50,000 or more with respect to any single
such contract or agreement;
(c) any contract or agreement for the sale, license, lease or
disposition of products or services in excess of $200,000;
(d) any contract containing covenants directly or explicitly limiting
the freedom of the Company to compete in any line of business or with any person
or entity;
(e) any license agreement (as licensor or licensee), other than such
licenses or agreements arising solely from the purchase of "off the shelf" or
standard products, involving payments by or to the Company in excess of
$200,000;
(f) any contract or agreement for the purchase of any leasehold
improvements, equipment or fixed assets for a price in excess of $50,000;
(g) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing in excess of $50,000 or
any pledge or security arrangement;
(h) any material joint venture, partnership, manufacturing,
development or supply agreement;
(i) any endorsement or any other advertising, promotional or
marketing agreement;
(j) any employment contracts, or agreements with officers, directors,
employees or shareholders of the Company or persons or organizations related to
or affiliated with any such persons;
(k) any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of the Company, including, without
limitation, any agreement with
<PAGE> 15
any shareholder of the Company which includes, without limitation, anti-dilution
rights, registration rights, voting arrangements, operating covenants or similar
provisions;
(l) any pension, profit sharing, retirement, stock option, phantom
stock or other equity incentive, bonus or commission plans;
(m) any arrangement relating to any royalty, dividend or similar
payments to employees, customers or independent contractors based on the sales
volume of the Company;
(n) any acquisition, merger or similar agreement;
(o) any contract with a governmental body under which the Company may
have an obligation for renegotiation;
(p) any agreement with any shareholder of the Company or any
affiliate of any shareholder; or
(q) any other material contract not executed in the ordinary course
of business.
All of the Company's contracts, agreements, understandings and commitments
are in full force and effect and neither the Company nor, to the knowledge of
the Company, any other party is in default thereunder (nor, to the knowledge of
the Company, has any event occurred which with notice, lapse of time or both
would constitute a default thereunder), except to the extent that any such
default would not have a Material Adverse Effect, and the Company has not
received notice of any alleged default under any such contract, agreement,
understanding or commitment.
2.13 Intellectual Property Rights; Employee Restrictions. Except as set
forth in Section 2.13 of the Disclosure Schedule:
(a) The Company has exclusive ownership of, or sufficient right to
use, sell, license, dispose of, and bring actions for infringement of, all
Intellectual Property Rights (as hereinafter defined) material to the conduct of
its business as presently conducted, including, without limitation, the
Company's name and the trademarks and product names listed in Section 2.13 of
the Disclosure Schedule (the "Company Rights").
(b) The business of the Company as presently conducted and the
provision of the services provided by the Company do not violate any agreements
that the Company has with any third party or, to the knowledge of the Company,
infringe any patent, trademark, service mark, copyright, trade secret or any
other Intellectual Property Rights of any third party.
(c) No claim is pending or, to the knowledge of the Company,
threatened against the Company nor has the Company received any notice of any
claim from any third party asserting that any of the Company's present or
contemplated activities infringe or may infringe any
<PAGE> 16
Intellectual Property Rights of such third party, and the Company is not aware
of any infringement by any other third party of any Intellectual Property Rights
of the Company.
(d) The Company has taken all commercially reasonable steps required
to establish and preserve its ownership of all of the Company Rights; each
current and former employee of the Company, and each of the Company's
consultants and independent contractors involved in development of any of the
Company Rights, has executed an agreement regarding confidentiality, proprietary
information and assignment of inventions and copyrights to the Company, and, to
the best knowledge of the Company, none of such employees, consultants or
independent contractors is in violation of any agreement or in breach of any
agreement or arrangement with former or present employers relating to
proprietary information or assignment of inventions.
As used herein, the term "Intellectual Property Rights" shall mean all
intellectual property rights, including, without limitation, all of the
registered rights set forth in Section 2.13 of the Disclosure Schedule and all
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service mark applications, copyrights, copyright
applications, computer programs and other computer software, inventions,
designs, samples, specifications, schematics, know-how, trade secrets,
proprietary processes and formulae, including production technology and
processes, all source and object code, algorithms, promotional materials,
customer lists, supplier and dealer lists and marketing research, and all
documentation and media constituting, describing or relating to the foregoing,
including without limitation, manuals, memoranda and records. Section 2.13 of
the Disclosure Schedule contains a list and brief description of all
Intellectual Property Rights owned by or registered in the name of the Company
or of which the Company is the licensor or a licensee of a material right or in
which the Company has any material right and, in each case, a brief description
of the nature of the right.
2.14 Litigation. There is no litigation or governmental proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or affecting any of its properties or assets or against any officer,
director or key employee of the Company in his or her capacity as an officer,
director or employee of the Company, which litigation, proceeding or
investigation is reasonably likely to have a Material Adverse Effect, or which
may call into question the validity or hinder the enforceability of this
Agreement or any other agreements or transactions contemplated hereby; nor, to
the knowledge of the Company, has there occurred any event, nor does there exist
any condition, on the basis of which any such litigation, proceeding or
investigation might be properly instituted or commenced.
2.15 Employee Benefit Plans. The Company does not maintain or contribute to
any employee benefit, stock option, bonus or incentive plan, severance pay
policy or agreement, deferred compensation agreement, or any similar plan or
agreement (an "Employee Benefit Plan") other than the Employee Benefit Plans
identified and described in Section 2.15 of the Disclosure Schedule. The terms
and operation of each Employee Benefit Plan comply in all material respects with
all applicable laws and regulations relating to such Employee Benefit Plans.
There are no unfunded obligations of the Company under any retirement, pension,
profit-sharing, or deferred
<PAGE> 17
compensation plan or similar program. The Company is not required to make any
payments or contributions to any Employee Benefit Plan pursuant to any
collective bargaining agreement or, to the knowledge of the Company, any
applicable labor relations law, and all Employee Benefit Plans are terminable at
the discretion of the Company without liability to the Company upon or following
such termination. The Company has never maintained or contributed to any
Employee Benefit Plan providing or promising any health or other non-pension
benefits to terminated employees.
2.16 Labor Laws. The Company generally enjoys good employer-employee
relationships. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it as of the date hereof or amounts required to be
reimbursed to such employees. The Company is in compliance in all material
respects with all applicable laws and regulations respecting labor, employment,
fair employment practices, terms and conditions of employment, and wages and
hours. There are no charges of employment discrimination or unfair labor
practices or strikes, slowdowns, stoppages of work or any other concerted
interference with normal operations existing, pending or, to the knowledge of
the Company, threatened against or involving the Company.
2.17 Employees and Suppliers.
(a) Section 2.17 of the Disclosure Schedule contains a list of all
managers, employees and consultants of the Company who, individually, have
received compensation from the Company for the fiscal year of the Company ended
December 31, 1997 in excess of $100,000. In each case, Section 2.17 of the
Disclosure Schedule includes the current job title, years of service with the
Company and aggregate annual compensation and benefits of each such individual.
To the knowledge of the Company and the Shareholders, no key employee of the
Company has any plan or intention to terminate his or her employment with the
Company. The Company has complied in all material respects with the immigration
laws of the United States with respect to the hiring, employment and engagement
of all of its employees and consultants who are not United States citizens, and,
to the knowledge of the Company, the immigration or residency status. of each of
such employees and consultants is sufficient to allow such employees and
consultants to remain lawfully employed or engaged by the Company.
(b) Section 2.17 of the Disclosure Schedule sets forth a list of all
suppliers of the Company to whom during the twelve months ended December 31,
1997 the Company made payments aggregating $100,000 or more (the "Suppliers"),
showing, with respect to each, the name, address and dollar volume involved. To
the knowledge of the Company, no Supplier has any plan or intention to terminate
or reduce its business with the Company or to materially and adversely modify
its relationship with the Company.
2.18 Hazardous Waste, Etc. No hazardous wastes, substances or materials or
oil or petroleum products have been generated, transported, used, disposed of,
stored or treated by the Company and no hazardous wastes. substances or
materials, or oil or petroleum products have
<PAGE> 18
been released, discharged, disposed of, transported, placed or otherwise caused
to enter the soil or water in, under or upon any real property owned, leased or
operated by the Company while the Company occupied such property.
2.19 Business; Compliance with Laws. The Company has all necessary
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as it is presently, or
is contemplated to be, conducted, except where the failure to have such
franchise, permit, license or other right would not have a Material Adverse
Effect. The Company is currently, and has heretofore been, in compliance in all
material respects with all federal, state, local and foreign laws and
regulations.
2.20 Investment Banking; Brokerage. Except as set forth in Section 2.20 of
the Disclosure Schedule, there are no claims for investment banking fees,
brokerage commissions, finder's fees or similar compensation (exclusive of
professional fees to lawyers and accountants) in connection with the
transactions contemplated by this Agreement payable by the Company or based on
any arrangement or agreement made by or on behalf of the Company or any of the
Shareholders.
2.21 Insurance. The Company has fire, casualty, product liability and
business interruption and other insurance policies, with extended coverage,
sufficient in amount to allow it to replace any of its material properties which
might be damaged or destroyed or to cover liabilities to which the Company may
reasonably become subject, and such types and amounts of other insurance with
respect to its business and properties, on both a per occurrence and an
aggregate basis, as are customarily carried by entities engaged in the same or
similar business as the Company. There is no default or event which could give
rise to a default under any such policy. Section 2.21 of the Disclosure Schedule
constitutes a full and complete list of all insurance policies and any
underlying risk financing and claims adjustment agreements maintained by the
Company.
2.22 Transactions with Affiliates. There are no loans, leases, contracts or
other transactions in existence between the Company and any officer, director or
five percent (5%) shareholder of the Company or any family member or affiliate
of the foregoing persons and there have been no such transactions within the
past five (5) years except as set forth in Section 2.22 of the Disclosure
Schedule.
2.23 Customers. Section 2.23 of the Disclosure Schedule sets forth each
customer of the Company who accounted for more than 5% of the sales of the
Company for the twelve months ended December 31, 1997 (collectively, the
"Customers"). The relationships of the Company with its Customers are generally
good commercial working relationships. No Customer of the Company has canceled
or otherwise terminated its relationship with the Company, or has during the
last twelve months decreased materially its services, supplies or materials to
the Company or its usage or purchases of the services or products of the
Company. No Customer has, to the knowledge of the Company, any plan or intention
to terminate, cancel or otherwise materially and adversely modify its
relationship with the Company or to decrease materially or limit its services,
<PAGE> 19
supplies or materials to the Company or its usage, purchase or distribution of
the services or products of the Company.
2.24 Relationship with Microsoft. The Company expects to sign a contract
with Microsoft Corporation for a term of at least two years on terms and
conditions no less favorable to the Company than the Development and License
Agreement, dated June 12, 1997, by and between Microsoft Corporation and the
Company, as amended by Amendment No. 1 to Development and License Agreement,
dated December 17, 1997 (the "Microsoft Agreement"); provided, however, that
there can be no assurance that such a contract will be entered into by the
parties for such duration, on such terms and conditions, or at all. The
Microsoft Agreement is attached as Section 2.24 of the Disclosure Schedule.
2.25 Certain Events.
(a) During the past ten years, neither the Company nor any of the
Shareholders, officers or directors of the Company has had a petition under the
Bankruptcy Reform Act of 1978, as amended, or any state insolvency law, filed by
or against any of them, or has had a receiver, fiscal agent or similar officer
appointed by a court for any of their business or property or any partnership in
which any of them was a general partner at or within two years before the time
of such filing, or any corporation or business association of which any of them
was an officer, director or stockholder at or within two years before the time
of such filing.
(b) During the past ten years, neither the Company nor any of the
Shareholders, officers and directors of the Company has been convicted in a
criminal proceeding or is a named subject of a criminal proceeding which is
presently pending (excluding traffic violations and other minor offenses).
(c) During the past ten years, neither the Company nor any of the
Shareholders, officers and directors of the Company has been, or is, the subject
of any order, judgment or decree, whether or not subsequently reversed,
suspended or vacated, of any court or any administrative agency, requiring the
payment of money damages in excess of $50,000 or permanently or temporarily
enjoining any of them from, or otherwise limiting any of their abilities to
engage in, any type of business practice.
2.26 Disclosure. The representations and warranties made or contained in
this Agreement, the Disclosure Schedule, the Exhibits hereto and the
certificates and statements executed or delivered in connection herewith, and
written information concerning the business of the Company delivered by officers
of the Company to the Investors in connection with or pursuant to this
Agreement, when taken together, do not and shall not contain any untrue
statement of a material fact and do not and shall not omit to state a material
fact required to be stated therein or necessary in order to make such
representations, warranties or other material not misleading in light of the
circumstances in which they were made or delivered. There have been no events or
transactions, or information which has come to the attention of the management
of the Company, having a direct impact on the Company or its assets,
liabilities, financial condition, business,
<PAGE> 20
results of operations or prospects which, in the reasonable judgment of such
management, could reasonably be expected to have a Material Adverse Effect.
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
(a) Each Investor represents to the Company that (i) it has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment contemplated by this Agreement
and making an informed investment decision with respect thereto, (ii) it is able
to bear the economic risk of an investment in the Securities and can afford to
sustain a substantial loss on such investment, (iii) it has had, during the
course of this transaction, the opportunity to ask questions and receive answers
from the Company concerning the Company and this Agreement, (iv) it is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act, and (v) it is purchasing the Convertible Preferred Shares for its own
account, for investment only and not with a view to, or any present intention
of, effecting a distribution of such securities or any part thereof except
pursuant to a registration or an available exemption under applicable law. Such
Investor acknowledges that its respective Convertible Preferred Shares have not
been registered under the Securities Act or the securities laws of any state or
other jurisdiction and cannot be disposed of unless they are subsequently
registered under the Securities Act and any applicable state laws or an
exemption from such registration is available.
(b) Each Investor understands that the Securities have not been
registered under the Securities Act, that there is no public market for the
Securities and that it must bear the economic risk of investment in the Company
for an indefinite period of time.
(c) Each Investor has full right, authority and power under its
governing partnership agreement to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Investor pursuant to or as contemplated by this Agreement and to carry out the
transactions contemplated hereby and thereby, and the execution, delivery and
performance by such Investor of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action under
such Investor's governing partnership agreement. This Agreement and each
agreement, document and instrument executed and delivered by each Investor
pursuant to or as contemplated by this Agreement constitute, or when executed
and delivered will constitute, valid and binding obligations of each such
Investor enforceable in accordance with their respective terms. The execution,
delivery and performance by each Investor of this Agreement and each such other
agreement, document and instrument, and the performance of the transactions
contemplated hereby and thereby do not and will not: (A) violate, conflict with
or result in a default (whether after the giving of notice, lapse of time or
both) under any contract or obligation to which any such Investor is a party or
by which it or its assets are bound, or cause the creation of any encumbrance
upon any of the assets of such Investor; (B) violate or result in a violation
of, or constitute a default under. any provision of any law, regulation or rule,
or any order of, or any restriction imposed by, any court or other governmental
agency applicable to such Investor; (C) require from such Investor any notice
to, declaration or filing with, or consent or approval of any governmental
<PAGE> 21
authority or other third party; or (D) accelerate any obligation under, or give
rise to a right of termination of, any agreement, permit, license or
authorization to which any such Investor is a party or by which such Investor is
bound.
(c) Each Investor represents that there are no claims for investment
banking fees, brokerage commissions, finder's fees or similar compensation
(exclusive of professional fees to lawyers and accountants) in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of such Investor.
SECTION 3. CONDITIONS OF PURCHASE
Each Investor's obligation to purchase and pay for the Convertible
Preferred Shares to be purchased by it shall be subject to the compliance by the
Company with its agreements herein contained and to the fulfillment to the
Investors' satisfaction, or the waiver by the Investors, on or before and at the
Closing Date of the following conditions:
3.1 Satisfaction of Conditions. The representations and warranties of the
Company and the Shareholders contained in this Agreement shall be true and
correct on and as of the Closing Date; each of the conditions specified in this
Section 3 shall have been fulfilled to the Investors' satisfaction or waived in
writing by the Investors; and, on the Closing Date, certificates to such effect
executed by the President and Chief Operating Officer of the Company shall have
been delivered to the Investors.
3.2 Director Election. Each of Jeffrey T. Chambers and Scot E. Land, as
the nominees of the Investors (together with any subsequent nominees of the
Investors, the "Investors' Nominees"), shall have been elected as a director of
the Company.
3.3 Compensation and Audit Committees. The Company shall have established
a Compensation Committee (the "Compensation Committee") and an Audit Committee
(the "Audit Committee") of its Board of Directors, each of which shall be
comprised of three members in accordance with Section 4.4 hereof.
3.4 Opinion of Counsel. The Investors shall have received from the Summit
Law Group an opinion, dated as of the Closing Date, substantially in the form
attached hereto as Exhibit F.
3.5 Consent of Spouse. The spouse of each Shareholder shall have executed
a Consent of Spouse in the form attached hereto as Exhibit G.
3.6 Authorization. The Board of Directors of the Company shall have duly
adopted resolutions in a form reasonably satisfactory to the Investors and shall
have taken all action necessary for the purpose of authorizing the Company to
execute and deliver this Agreement, and the other agreements, documents, and
instruments contemplated hereby and to consummate the transactions contemplated
hereby and thereby in accordance with the terms hereof or thereof and
<PAGE> 22
to cause the Certificate of Designation establishing the Convertible Preferred
Shares in accordance with the terms set forth in Exhibit B hereto (the
"Certificate of Designation") to become effective; and the Investors shall have
received a certificate of the Secretary of the Company setting forth a copy of
the resolution and the Articles of Incorporation, the Bylaws, and the
Certificate of Designation of the Company and such other matters as may be
reasonably requested by the Investors.
3.7 All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the
Investors.
3.8 Investors' Fees. The Company shall have paid on behalf of the
Investors all legal fees and related expenses incurred by Goodwin, Procter &
Hoar LLP on behalf of the Investors in connection with the transactions
contemplated by this Agreement.
3.9 No Violation or Injunction. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
3.10 Consents and Waivers. The Company and the Shareholders shall have
obtained all consents or waivers necessary to execute this Agreement and the
other agreements, documents, and instruments contemplated herein, to issue and
sell the Securities to be sold to the Investors hereunder, to redeem the
Redemption Shares as contemplated herein pursuant to the Redemption Agreements
and to carry out the transactions contemplated hereby and thereby and shall have
delivered evidence thereof to the Investors. All corporate and other action and
governmental filings necessary to effectuate the terms of this Agreement and the
other agreements, documents and instruments executed and delivered by the
Company in connection herewith shall have been made or taken.
3.11 Compensation of Shareholders. The terms of the compensation payable to
each of William T. Baxter, Albert T. Dosser, and Peter R. Gregory, in his
capacity as an employee of the Company, shall be as set forth in Section 3.11 of
the Disclosure Schedule.
3.12 Payment of Broker Fee. The broker fee set forth in Section 2.20 of the
Disclosure Schedule shall be paid by the Company.
3.13 Termination of Existing Redemption Agreement. The Company and the
Shareholders shall have terminated that certain Redemption Agreement, dated as
of January 1, 1996, and any other existing shareholder or redemption agreement.
The Company's standard form of agreement, as approved by the Board of Directors,
to be executed by officers, employees and consultants of the Company upon the
grant to such officers, employees and consultants of options under the Plan or
upon the exercise of such options (the "Non-Founder Shareholder Agreement") is
attached as Section 3.13 of the Disclosure Schedule.
<PAGE> 23
3.14 Key Person Insurance. The Company shall have in place "key person"
term life insurance policies of at least $1.5 million each on the lives of
William T. Baxter, Albert T. Dosser and Peter R. Gregory, each of which shall
name the Company as beneficiary.
3.15 Director Indemnification Agreements. The Company shall have entered
into indemnification agreements with each director, including the Investors'
Nominees, in the form attached hereto as Exhibit H.
3.16 Certificate of Designation. The Certificate of Designation, attached
as Section 3.16 of the Disclosure Schedule, shall have been filed with the
Secretary of State of the State of Washington and shall be in full force and
effect.
SECTION 4. COVENANTS
The Company agrees for the benefit of the Investors that it shall comply
with the following covenants, provided that the covenants set forth in Section
4.1 shall not be in effect during any period in which the Company is subject to
the periodic reporting obligations set forth in Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
that all of the covenants set forth in this Section 4 shall terminate as of the
closing of the Company's first Qualified Public Offering. A "Qualified Public
Offering" shall have the meaning provided in the Certificate of Designation.
4.1 Financial Statements and Budgetary Information; Inspection. So long as
the Investors hold at least 833,333.3 Convertible Preferred Shares or shares of
Common Stock (subject to adjustments for stock splits, stock dividends and the
like), the Investors shall have the rights, and the Company shall have the
obligations, set forth in this Section 4. 1. The Company will deliver to the
Investors internally prepared unaudited monthly and quarterly financial
statements and audited annual financial statements, as well as annual budgets
and operating plans. The monthly and quarterly financial information will be
provided within 30 days after the end of each month and quarter. The annual
budget and operating plan will be presented at a Board of Directors' meeting by
January 31 of the fiscal year of the Company covered. An annual audit by an
accounting firm of national recognition selected by the Board of Directors will
be provided within 90 days after each fiscal year-end of the Company.
The Company will, upon reasonable prior notice to the Company, permit
authorized representatives of the Investors to visit and inspect any of the
properties of the Company, including its books of account (and to make copies
thereof and take extracts therefrom), and to discuss its affairs, finances and
accounts with its officers, administrative employees and independent
accountants, all at such reasonable times and as often as may be reasonably
requested.
4.2 Indemnification, Insurance. For so long as any of the Securities
remain outstanding, the Articles of Incorporation or By-laws of the Company will
at all times during which any nominee of any of the Investors serves as director
of the Company provide for
<PAGE> 24
indemnification of the Company's directors and limitations on the liability of
the Company's directors to the fullest extent permitted under applicable state
law. Prior to any initial public offering, the Company will purchase a directors
and officers insurance policy in the amount of at least $3 million and on other
terms reasonably acceptable to two-thirds in interest of the Investors (with the
Investors' Nominees to be third party beneficiaries of this Agreement) covering,
among other things, violations of federal or state securities laws.
4.3 Board of Directors. The Board of Directors of the Company shall
consist of up to seven (7) members including the two (2) Investors' Nominees and
at least one (1) independent director mutually acceptable to the Shareholders
and the Investors (an "Independent Director"), which Independent Director shall
be nominated and elected to the Board of Directors as soon as reasonably
practicable on or following the Closing Date. The Company shall cause meetings
of its Board of Directors to be held at least four (4) times each year at
intervals of not more than four (4) months and shall pay all reasonable
out-of-pocket expenses incurred by the Investors' Nominees in connection with
attending meetings or other functions of the Company's Board of Directors or any
committees thereof and shall pay each of the Investors' Nominees and Independent
Directors fees in an amount equal to any fees that are paid to the other
non-management directors of the Company, if any.
4.4 Composition of Board Committees. Each of the Compensation Committee
and the Audit Committee shall be comprised of one member of management who is
also a director, one of the Investors' Nominees, and one Independent Director.
4.5 Restrictive Covenants. The Company will not, without the consent of
two thirds-in-interest of the Investors:
(a) sell, lease or otherwise dispose of (whether in one transaction
or a series of related transactions) all or substantially all of its assets or
business,
(b) merge with or into or consolidate with another entity or enter
into or engage in any other transaction or series of related transactions, in
any such case in connection with or as a result of which the Company is not the
surviving entity or the owners of the Company's outstanding equity securities
immediately prior to the transaction or series of related transactions do not
own at least a majority of the outstanding equity securities of the surviving,
resulting or consolidated entity,
(c) dissolve, liquidate or wind up its operations,
(d) directly or indirectly redeem, purchase, or otherwise acquire for
consideration any shares of its Common Stock or any other class of its capital
stock except (i) for the redemption of Convertible Preferred Shares pursuant to
and as provided in the Certificate of Designation, (ii) as contemplated by
Sections 1.2, 4.6, and 5.2 hereof, or (iii) as contemplated by the Non-Founder
Shareholder Agreement,
<PAGE> 25
(e) adopt any amendment to the Certificate of Designation, or any
amendment to its Articles of Incorporation or By-Laws, that eliminates, amends,
restricts or otherwise adversely affects the rights and preferences of the
Convertible Preferred Stock, or that increases the authorized shares of
Convertible Preferred Stock,
(f) declare or make dividend payments on any shares of its Common
Stock or any other class of its capital stock,
(g) create, or obligate itself to create, any class or series of
shares that has a preference over, or is on a parity with, the Convertible
Preferred Stock,
(h) increase the size of the Board of Directors to more than seven
(7) members,
(i) enter into any agreement or arrangement or take any other action
that eliminates, amends, restricts or otherwise adversely affects the rights of
the Investors hereunder or as holders of Securities of the relevant class or its
ability to perform its obligations hereunder, or
(j) enter into or be a party to any transaction or agreement,
including, without limitation, any lease or other rental or purchase agreement
providing for loans or extensions of credit by or to the Company, with or for
the benefit of any person or entity which is a shareholder, officer or director
of the Company, or which is a relative by blood or marriage of, a trust or
estate for the benefit of, or a person or entity which directly or indirectly
controls, is controlled by, or is under common control with, any such person or
entity, except (i) for normal compensation paid to employees of the Company in
the ordinary course of business and (ii) transactions expressly disclosed in or
contemplated by this Agreement and the Exhibits hereto.
4.6 Redemption. Immediately upon the sale of the Convertible Preferred
Shares, the Company shall complete the redemption of 1,111,111 Redemption Shares
from each of the Shareholders for a cash payment of $2,000,000 (or an aggregate
of 3,333,333 Redemption Shares for an aggregate cash payment of $6 million)
pursuant to a Redemption Agreement, in each case on terms reasonably
satisfactory to the Investors.
4.7 Cancellation of Shareholder Notes. The promissory notes of the Company
evidencing the loans to the Shareholders to be paid off with the proceeds from
the issuance of the Convertible Preferred Shares, as set forth in Section 4.12
of the Disclosure Schedule, shall have been delivered to the Company by the
Shareholders and marked as "CANCELED," and the Company and each of the
Shareholders shall have executed an acknowledgment as to payment in full
thereof.
4.8 Reissuance of Stock Certificates. In connection with the redemption
described in Section 4.6, all certificates representing shares of Common Stock
issued to the Shareholders on or prior to the date hereof shall be reissued with
the legends set forth in Section 9.4 of this Agreement typed on each of such
reissued certificates.
<PAGE> 26
4.9 Key Person Insurance. The Company will maintain "key person" term life
insurance policies of at least $1.5 million each on the lives of William T.
Baxter, Albert T. Dosser and Peter R. Gregory, each of which shall name the
Company as beneficiary. The Company hereby agrees that such policies shall not
be assigned, borrowed against or pledged.
4.10 Compensation of Shareholders. The annual compensation paid by the
Company to William T. Baxter, Albert T. Dosser and Peter R. Gregory shall be as
set forth in Section 3.11 of the Disclosure Schedule and shall be adjusted from
time to time only by the Compensation Committee.
4.11 Stock Awards. Except for stock option awards with respect to up to
3,625,000 shares of Common Stock pursuant to the Plan as in effect on the date
hereof, the Company will not grant or award options, or stock or other
equity-based or quasi-equity rights, to officers, employees, advisers,
consultants or directors without the consent of two-thirds in interest of the
Investors. The Plan and any awards granted thereunder may not be amended,
revised or waived after the date hereof without the consent of two-thirds in
interest of the Investors.
4.12 Assignment of Rights. Each Investor may assign its rights under this
Section 4 in connection with any transaction or series of related transactions
involving the Transfer (as defined in Section 5.1) to one or more transferees of
at least 833,333.3 shares of capital stock of the Company (subject to
adjustments for stock splits, stock dividends and the like and aggregating all
contemporaneous Transfers by two or more Investors), or to any fund managed by
or associated with TA Associates, Inc. ("TA Funds") or Encompass Ventures
("Encompass Funds"). Upon any such Transfer, such transferee or TA Fund or
Encompass Fund thereupon shall be deemed an "Investor" for purposes of this
Section 4 with the rights set forth in this Section.
4.13 Compliance with Laws. The Company will comply in all respects with all
applicable statutes, rules and regulations of the United States and of all other
jurisdictions applicable to it, and of the states thereof and their counties,
municipalities and other subdivisions and of any other jurisdiction applicable
to it, except where compliance therewith shall at the time be contested in good
faith by appropriate proceedings or where noncompliance therewith could not have
a Material Adverse Effect.
4.14 Use of Proceeds. Unless otherwise approved by two-thirds in interest
of the Investors, the Company shall use the proceeds of the issuance of the
Convertible Preferred Shares only in the manner described in Section 4.14 of
the Disclosure Schedule.
4.15 Audited Financial Statements. The Company shall deliver to the
Investors audited financial statements for the fiscal years ending December 31,
1996 and December 31, 1997, as soon as reasonably practicable after the Closing.
<PAGE> 27
SECTION 5. TRANSFER RESTRICTIONS
The following provisions of this Section 5 shall terminate immediately
prior to the closing of a Qualified Public Offering and shall not apply with
respect to any Qualified Public Offering.
5.1 General Restriction.
(a) Each Shareholder agrees that neither such Shareholder nor any of
such Shareholder's permitted transferees as contemplated below will directly or
indirectly offer, transfer, donate, sell, assign, pledge, hypothecate or
otherwise dispose of (any such action a "Transfer") all or any portion of the
shares of capital stock of the Company now owned or hereafter acquired by such
Shareholder or any of them, except (i) to permitted transferees as permitted by
Section 5.1(b) and (ii) in bona fide sales to third parties for value following
compliance with Section 5.
(b) Permitted Transfers by a Shareholder shall include (i) any pledge
made pursuant to a bona fide loan transaction that creates a mere security
interest but shall not include any Transfer upon the exercise of any rights in
respect of any such security interest, (ii) Transfers to the Shareholder's
grandparents, parents, spouse, children (including adopted children), or
grandchildren, to a trust of which such Shareholder is the settlor or a trustee
for the benefit of such Shareholder's grandparents, parents, spouse, children
(including adopted children) or grandchildren or to charitable institutions,
(iii) Transfers in connection with any bona fide gift, and (iv) Transfers upon a
Shareholder's death to such Shareholder's heirs, executors or administrators or
to a trust under such Shareholder's will or to his or her guardian or
conservator; provided that in any such case the transferee shall have entered
into an enforceable written agreement providing that all shares so Transferred
shall continue to be subject to all provisions of this Agreement as if such
shares were still held by the Shareholder, and provided further that such
permitted transferee shall not be permitted to make any further Transfers
without complying with the provisions of this Section 5. Anything to the
contrary in this Agreement notwithstanding, Transfers under this Section 5.1(b)
shall not be subject to Section 5.2 or Section 5.3 and transferees permitted by
this Section 5.1(b) shall take any shares so Transferred subject to all
obligations under this Agreement as if such shares were still held by the
Shareholder whether or not they so expressly agree.
5.2 Right of First Refusal. If at any time on or after the date hereof a
Shareholder (such term to include for all purposes of this Section 5.2 any
permitted transferees of such Shareholder's shares pursuant to Section 5.1(b))
receives a bona fide offer to purchase any or all of such Shareholder's shares
(an "Offer") from an unaffiliated third party (an "Offeror") which such
Shareholder wishes to accept, such Shareholder may Transfer such shares pursuant
to and in accordance with this Section 5.2 and Section 5.4 below:
(a) Such Shareholder (for purposes of this Section 5.2, a "Selling
Shareholder") shall cause the Offer to be reduced to writing and shall notify
the Company, the Investors, and the other Shareholders (the "Other
Shareholders") in writing of the Offer and of such Selling
<PAGE> 28
Shareholder's desire to accept the Offer and shall otherwise comply with the
provisions of this Section 5. The Selling Shareholder's notice shall constitute
an irrevocable offer to sell such shares to the Company, the Investors, and the
Other Shareholders at a purchase price equal to the price contained in, and on
the same terms and conditions of, the Offer. The notice shall be accompanied by
a true copy of the Offer (which shall identify the Offeror).
(b) The Company shall have the right to purchase all or a portion of
the shares covered by the Offer. To exercise such right, the Company shall,
within 10 days of receipt of such written notice, communicate in writing such
election (which writing shall specify the number of shares to which such
election relates) to the Selling Shareholder (with copies to the Investors and
the Other Shareholders). Subject to Section 5.2(d) below, the Company's written
election to purchase shares covered by the Offer shall constitute a valid,
legally binding and enforceable agreement between the Selling Shareholder and
the Company for the sale and purchase of the number of shares so elected to be
purchased.
(c) In the event that the Company does not exercise its rights
pursuant to Section 5.2(b) to purchase all of the shares covered by the Offer,
the Selling Shareholder shall notify the Investors and the Other Shareholders in
writing of such fact (the "Purchase Notice"). At any time within 10 days after
receipt by the Investors and the Other Shareholders of the Purchase Notice (the
"Purchase Notice Period"), one or more of the Investors and Other Shareholders
may, subject to the terms hereof, choose to accept the Offer with respect to
all, but not less than all, of the remaining shares covered thereby by giving
written notice to the Selling Shareholder to such effect; provided, that if two
or more of the Investors and Other Shareholders choose, in the aggregate, to
accept such Offer with respect to an aggregate number of shares which exceeds
the number of shares subject to such Offer and available for purchase, the
number of shares for which the Offer may be accepted by each such Investor and
Other Shareholders shall, in each case, be reduced by the smallest number of
shares as shall be necessary to reduce the aggregate number of shares for which
the Offer may be accepted by the electing Investors and Other Shareholders as
contemplated herein to the number of shares for which the Offer was made and
which are available for purchase by them; provided further, that the number of
shares for which any Investor or Other Shareholder may accept such Offer as
contemplated herein shall in no event be reduced to less than the number of
shares which bears the same proportion to the total number of shares which are
available for purchase as the number of shares of Common Stock held on the date
of the Purchase Notice by such Investor (on an as converted basis as
contemplated by the Certificate of Designation) or such Other Shareholder, as
the case may be, bears to the total number of shares of Common Stock held on the
date of the Purchase Notice by all Investors (on an as converted basis as
contemplated by the Certificate of Designation) and all Other Shareholders
accepting such Offer.
(d) All of the shares covered by the Offer must be purchased pursuant
to the terms of Section 5.2(b) and Section 5.2(c) or none of such shares may be
purchased. If all shares covered by any Offer are purchased pursuant to Section
5.2(b) and Section 5.2(c), such purchase shall be (i) at the same price and on
the same terms and conditions as the Offer if the Offer is for cash and/or notes
or (ii) if the Offer includes any consideration other than cash and notes, then
at
<PAGE> 29
the equivalent all cash price for such other consideration. The closing of the
purchase of the shares subject to an Offer pursuant to this Section 5.2 shall
take place within 15 days after the expiration of the Purchase Notice Period, or
upon satisfaction of any governmental approval requirements, if later, by
delivery by the respective purchasers of the purchase price for shares being
purchased as provided above to the Selling Shareholder against delivery of the
certificates representing the shares so purchased, appropriately endorsed for
Transfer by such Selling Shareholder.
5.3 Right of Co-Sale.
(a) If at any time on or after the date hereof a Shareholder (such
term to include for all purposes of this Section 5.3 any permitted transferees
of such Shareholder's shares pursuant to Section 5.1(b)) proposes to sell any
shares or receives an Offer and such shares are not purchased pursuant to
Section 5.2, such Shareholder may Transfer such shares pursuant to and in
accordance with this Section 5.3 and Section 5.4 below:
(i) In such event, immediately following the last day of the
Purchase Notice Period, such Shareholder (for purposes of this Section 5.3,
a "Selling Shareholder") shall give an additional notice of the proposed
sale to the Investors and the Other Shareholders, once again enclosing a
copy of the Offer, if applicable, which shall identify the Offeror and the
number of shares proposed to be sold (the "Co-Sale Notice").
(ii) Upon the election of one or more Investors holding at least
twenty percent (20%) of the Securities, each of the Investors and Other
Shareholders shall have the right, exercisable upon written notice to such
Selling Shareholder within 10 days after delivery to it of the Co-Sale
Notice (the "Co-Sale Notice Period"), to participate in the sale on the
terms and conditions stated in the Co-Sale Notice, except that any Investor
who holds Convertible Preferred Shares shall be permitted to sell to the
relevant purchaser the Conversion Shares or, if the acquiror does not
object, the Convertible Preferred Shares. Each of the Investors and the
Other Shareholders shall have the right to sell all or any portion of its
shares on the terms and conditions in the Co-Sale Notice (subject to the
foregoing), with the maximum number of shares which may be sold by each
Investor and each Other Shareholder to be equal to the product obtained by
multiplying the number of shares proposed to be sold by the Selling
Shareholder as described in the Co-Sale Notice by a fraction, the numerator
of which is the number of shares of Common Stock held on the date of the
Co-Sale Notice by such Investor (on an as converted basis) or such Other
Shareholder, as the case may be, and the denominator of which is the sum of
the number of shares of Common Stock held on the date of the Co-Sale Notice
by all of the Investors and any assignees thereof (on an as converted
basis) and all of the Other Shareholders and their permitted transferees.
(iii) Within five days after the expiration of the Co-Sale Notice
Period, the Selling Shareholder shall notify each participating Investor
and Other Shareholder of the number of shares held by such Investor or
Other Shareholder that will be included in
<PAGE> 30
the sale and the date on which the sale will be consummated, which shall be
no later than the later of (A) 30 days after the delivery of the Co-Sale
Notice and (B) the satisfaction of all governmental approval requirements,
if any.
(iv) Each of the Investors and the Other Shareholders may effect
its participation in any sale hereunder by delivery to the purchaser, or to
the Selling Shareholder for transfer to the purchaser, of one or more
instruments or certificates, properly endorsed for transfer, representing
the shares it elects to sell therein, provided that no Investor or Other
Shareholder shall be required to make any representations or warranties or
to provide any indemnities in connection therewith other than with respect
to title to the stock being conveyed. At the time of consummation of the
sale, the purchaser shall remit directly to each Investor or Other
Shareholder that portion of the sale proceeds to which each Investor or
Other Shareholder is entitled by reason of its participation therein. No
shares may be purchased by a purchaser from the Selling Shareholder unless
the purchaser simultaneously purchases from the Investors and the Other
Shareholders all of the shares that they have elected to sell pursuant to
this Section 5.3(a).
(b) Any shares held by a Selling Shareholder that such Selling
Shareholder desires to sell following compliance with Section 5.3(a) may be sold
to the purchaser only during the 90-day period after the expiration of the
Co-Sale Notice Period and only on terms no more favorable to such Selling
Shareholder than those contained in the Co-Sale Notice. Promptly after such
sale, such Selling Shareholder shall notify the Investors and the Other
Shareholders of the consummation thereof and shall furnish such evidence of the
completion and time of completion of such sale and of the terms thereof as may
reasonably be requested by the Investors and the Other Shareholders. So long as
the purchaser is neither a party, nor an affiliate or relative of a party, to
this Agreement, such purchaser shall take the shares so Transferred free and
clear of any further restrictions of this Section 5. If, at the end of such
90-day period, such Selling Shareholder has not completed the sale of such
shares as aforesaid, all the restrictions on Transfer contained in this Section
5 shall again be in effect with respect to such shares.
5.4 Assignment of Rights. If two or more Shareholders (and their permitted
transferees, if any) propose concurrent Transfers which are subject to Section
5.2 or Section 5.3, then the provisions of Sections 5.2 and Section 5.3 shall
apply to each such proposed Transfer independently. Each Investor or Shareholder
may assign its rights under this Section 5 in connection with any transaction or
series of related transactions involving the Transfer to one or more transferees
of at least 833,333.3 shares of capital stock of the Company (subject to
adjustments for stock splits, stock dividends and the like and aggregating all
contemporaneous Transfers by two or more Investors), or to any TA Fund or
Encompass Fund, or permitted transferees of a Shareholder pursuant to Section
5.1(b). Upon any such Transfer, such transferee or TA Fund or Encompass Fund
thereupon shall be deemed an "Investor" or a "Shareholder," as the case may be,
for purposes of this Section 5 with the rights set forth in this Section.
<PAGE> 31
5.5 Sales to Strategic Purchasers. Notwithstanding anything contained in
this Agreement to the contrary, no Investor may Transfer Securities held by such
Investor to a Strategic Purchaser (as hereinafter defined) without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. For purposes of this Agreement, the term "Strategic Purchaser" shall
mean an entity actively engaged in the sale of products or services within the
imbedded systems or software industries, which entity proposes to purchase for
value Securities held by an Investor.
SECTION 6. RIGHTS TO PURCHASE
Notwithstanding anything herein to the contrary, the following
provisions of this Section 6 shall terminate immediately prior to the closing of
a Qualified Public Offering and shall not apply with respect to any Qualified
Public Offering.
6.1 Right to Participate in Certain Sales of Additional Securities. The
Company agrees that it will not sell or issue any shares of capital stock of the
Company, or other securities convertible into or exercisable or exchangeable for
capital stock of the Company, or options, warrants or rights carrying any rights
to purchase capital stock of the Company unless the Company first submits a
written offer to the Investors and the Shareholders (including for all purposes
of this Section 6 each permitted transferee of a Shareholder pursuant to Section
5.1(b)) identifying the terms of the proposed sale (including price, number or
aggregate principal amount of securities and all other material terms), and
offers to each Investor and Shareholder the opportunity to purchase its Pro Rata
Share (as hereinafter defined) of the securities (subject to increase for
over-allotment if some Investors or Shareholders do not fully exercise their
rights) on terms and conditions, including price, not less favorable to the
Investors and Shareholders than those on which the Company proposes to sell such
securities to a third party or parties. Each Investor's or Shareholder's "Pro
Rata Share" of such securities shall be based on the ratio which the shares of
Common Stock held by he, she or it bears to all the issued and outstanding
shares of Common Stock calculated on a fully-diluted basis giving effect to the
conversion of convertible securities as of the date of such written offer. The
Company's offer to the Investors and Shareholders shall remain open and
irrevocable for a period of 20 days, and Investors and Shareholders who elect to
purchase shall have the first right to take up and purchase any shares or other
securities which other Investors or Shareholders do not elect to purchase, based
on the relative holdings of the electing purchasers. Any securities so offered
which are not purchased pursuant to such offer may be sold by the Company but
only on the terms and conditions set forth in the initial offer to the Investors
and Shareholders, at any time within 90 days following the termination of the
above-referenced 20-day period but may not be sold to any other person or on
terms and conditions, including price, that are more favorable to the purchaser
than those set forth in such offer or after such 90-day period without renewed
compliance with this Section 6.1.
Notwithstanding the foregoing, the Company may (i) issue options to its
officers and employees with respect to up to 3,625,000 shares of its Common
Stock pursuant to the Plan (subject to adjustments for stock splits, stock
dividends and the like) and issue shares of its Common Stock upon the exercise
of any such stock options, (ii) issue the Conversion Shares,
<PAGE> 32
(iii) issue shares of capital stock in connection with the merger or
consolidation of the Company or a subsidiary of the Company with any other
operating company, or the exchange of the capital stock of the Company for the
capital stock of another operating company, (iv) issue shares in connection with
the acquisition of any assets, stock or other interest in any partnership,
corporation or other entity, and (v) issue shares in connection with the
formation of any research and development partnerships, licensing or
collaborative agreements or other similar ventures, and this Section 6 shall not
apply with respect to such issuances.
6.2 Assignment of Rights. Each Investor or Shareholder may assign its
rights under this Section 6 in connection with any transaction or series of
related transactions involving the Transfer to one or more transferees of at
least 833,333.3 shares of capital stock of the Company (subject to adjustments
for stock splits, stock dividends and the like and aggregating all
contemporaneous transfers by Investors), or to any TA Fund, Encompass Fund or
permitted transferee of a Shareholder. Upon any such Transfer, such transferee
or TA Fund or Encompass Fund shall be deemed an "Investor" or "Shareholder," as
the case may be, for purposes of this Section 6 with the rights set forth in
this Section.
SECTION 7. REGISTRATION RIGHTS
<PAGE> 33
7.1 Optional Registrations. If at any time or times after the date
hereof, the Company shall seek to register any shares of its capital stock or
securities convertible into or exercisable or exchangeable for capital stock
under the Securities Act (whether in connection with a public offering of
securities by the Company (a "primary offering"), a public offering of
securities by shareholders of the Company (a "secondary offering"), or both),
the Company will promptly give written notice thereof to each Investor (the
"Holders," subject to Section 7.7 below) holding Registrable Securities as
hereinafter defined in Section 7.3 below. If within 30 days after their receipt
of such notice one or more Holders request in a writing delivered to the Company
the inclusion of some or all of the Registrable Securities owned by them in such
registration, the Company will use its best efforts to effect the registration
under the Securities Act of all Registrable Securities requested to be so
included. In the case of the registration of shares of capital stock by the
Company in connection with any underwritten public offering, if the
underwriter(s) determines that marketing factors require a limitation on the
number of Registrable Securities to be offered, the Company shall not be
required to register Registrable Securities of the Holders in excess of the
amount, if any, of shares of the capital stock which the principal underwriter
of such underwritten offering shall reasonably and in good faith agree to
include in such offering in excess of any amount to be registered for the
Company; provided, however, that the number of shares of Registrable Securities
of the Holders included in any such offering subsequent to the Company's first
Qualified Public Offering shall in no event be less than twenty percent (20%) of
the aggregate number of shares of capital stock to be registered, unless the
aggregate number of shares of Registrable Securities the Holders requested in
writing to be included in such offering is less than twenty percent (20%) of the
aggregate number of shares of capital stock to be registered. If any limitation
of the number of shares of Registrable Securities to be registered by the
Holders is required pursuant to this Section 7.1, the number of Registrable
Securities that may be included in the registration on behalf of the Holders
shall be allocated among the Holders or the holders of any other registration
rights in proportion, as nearly as practicable, to the respective holdings of
Registrable Securities of all Holders requesting registration. The provisions of
this Section 7.1 will not apply to a registration effected solely to implement
(i) an Employee Benefit Plan, or (ii) a transaction to which Rule 145 or any
other similar rule of the Securities and Exchange Commission (the "SEC" or the
"Commission") under the Securities Act is applicable.
<PAGE> 34
7.2 Required Registrations.
(a) Demand Registration. On one or more occasions at any time after the
earlier of the fifth anniversary of the Closing Date or the first anniversary of
the effective date of the Company's first registration statement under the
Securities Act, an Investor or Investors holding at least 50% of the Registrable
Securities held by the Investors may request that the Company register under the
Securities Act all or a portion of the Registrable Securities held by such
requesting Investors; provided, however, that if a registration under this
Section 7.2(a) is the Company's first public offering of securities registered
under the Securities Act, then the minimum price to the public of the shares
being registered must be no less than $4.50 per share, the gross proceeds with
respect to the shares being registered must exceed $7,500,000, and the shares
included in such registration must be underwritten by an underwriter selected by
the Company and reasonably acceptable to the Investors.
(b) Form S-3. After the first public offering of its securities
registered under the Securities Act, the Company shall use its best efforts to
qualify and remain qualified to register securities on Form S-3 (or any
successor form) under the Securities Act. Any Investor or Investors shall have
the right to request any number of registrations on Form S-3 (or any successor
form) for the Registrable Securities held by such Investor, including
registrations for the sale of such Registrable Securities on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act. Such requests
shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended method of disposition of such
shares by such Investor or Investors. The Company shall not be required to
effect a registration under this Section 7.2(b) if (i) the aggregate price to
the public with respect to the shares being registered is less than $ 1,000,000,
or (ii) the Company has completed a registration under this Section 7.2(b)
within the past 12 months.
(c) Registration Requirements. Following a request pursuant to Section
7.2(a) or Section 7.2(b) above, the Company will notify all of the Holders who
would be entitled to notice of a proposed registration under Section 7.1 above
and any other holder of piggyback registration rights of its receipt of such
notification from such Investor or Investors. Upon the written request of any
such Holder or other holder of the Company's securities delivered to the Company
within 20 days after receipt from the Company of such notification, the Company
will either (i) elect to make a primary offering, in which case the rights of
such Holders shall be as set forth in Section 7.1 above (in which case the
registration shall not count as one of the Investors' permitted demand
registrations under this Section 7.2), or (ii) use its best efforts to cause
such of the Registrable Securities as may be requested by any Holders and any
other holders of piggyback registration rights to be registered under the
Securities Act in accordance with the terms of this Section 7.2; provided,
however, that the number of shares of Registrable Securities of the Holders
included in any such offering shall in no event be less than twenty percent
(20%) of the aggregate number of shares of capital stock to be registered,
unless the aggregate number of shares of Registrable Securities the Holders
requested in writing to be in such offering is less than twenty percent (20%) of
the aggregate number of shares of capital stock to be registered.
<PAGE> 35
(d) Number of Required Registrations. The Company will not be obligated
pursuant to this Section 7.2 to effect more than two registration statements on
Form S-1 or S-2, but shall be obligated to file an unlimited number of
registration statements on Form S-3.
(e) Postponement. The Company may postpone the filing of any
registration statement required hereunder for a reasonable period of time, not
to exceed 120 days in the aggregate during any twelve-month period, if the
Company has been advised by legal counsel that such filing would require a
special audit or the disclosure of a material impending transaction or other
matter and the Company's Board of Directors determines reasonably and in good
faith that such disclosure would have a Material Adverse Effect. The Company
shall not be required to cause a registration statement requested pursuant to
this Section 7.2 to become effective prior to 90 days following the effective
date of a registration statement initiated by the Company, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Investors that the
Company is commencing to prepare a Company-initiated registration statement
(other than a registration effected solely to implement an Employee Benefit Plan
or a transaction to which Rule 145 or any other similar rule of the SEC under
the Securities Act is applicable); provided, however, that the Company shall use
its best efforts to achieve such effectiveness promptly.
(f) Suspension. In the case of a registration for the sale of
Registrable Securities, upon receipt of any notice (a "Suspension Notice") from
the Company of the happening of any event which makes any statement made in the
registration statement or related prospectus untrue or which requires the making
of any changes in such registration statement or prospectus so that they will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
each Holder of Registrable Securities registered under such registration
statement shall forthwith discontinue disposition of such Registrable Securities
pursuant to such registration statement until such Holder's receipt of the
copies of the supplemented or amended prospectus or until it is advised in
writing (the "Advice") by the Company that the use of the prospectus may be
resumed, and has received copies of any additional or supplemental filings which
are incorporated by reference in the prospectus; provided, however, that the
Company shall not give a Suspension Notice until after the registration
statement has been declared effective and shall not give more than one
Suspension Notice to the Holders in respect to all Registrable Securities and
pursuant to this Section 7 during any period of twelve consecutive months and in
no event shall the period from the date on which any Holder receives a
Suspension Notice to the date on which any Holder receives either the Advice or
copies of the supplemented or amended prospectus (the "Suspension Period")
exceed 90 days. In the event that the Company shall give any Suspension Notice,
the Company shall use its best efforts and take such actions as are reasonably
necessary to render the Advice and end the Suspension Period as promptly as
practicable.
7.3 Registrable Securities. For the purposes of this Section 7, the term
"Registrable Securities" shall mean any shares of Common Stock held by a Holder
or subject to acquisition by a Holder upon conversion of Convertible Preferred
Shares, as applicable, including any shares
<PAGE> 36
issued by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization; provided, however, that if an Investor owns Convertible
Preferred Shares, the Investor may exercise its registration rights hereunder by
converting the shares to be sold publicly into Common Stock as of the closing of
the relevant offering and shall not be required to cause such Convertible
Preferred Shares to be converted to Common Stock until and unless such Closing
occurs, and provided, further, that any Common Stock that is sold in a
registered sale pursuant to an effective registration statement under the
Securities Act or pursuant to Rule 144 thereunder, or that may be sold without
restriction as to volume or otherwise pursuant to Rule 144 under the Securities
Act (as confirmed by an unqualified opinion of counsel to the Company), shall
not be deemed Registrable Securities.
7.4 Further Obligations of the Company. Whenever the Company is required
hereunder to register any Registrable Securities, it agrees that it shall also
do the following:
(a) Pay all expenses of such registrations and offerings (exclusive of
underwriting discounts and commissions) and the reasonable fees and expenses of
not more than one independent counsel for the Holders satisfactory to two-thirds
in interest of the Investors in connection with any registrations pursuant to
Section 7.1, up to one registration on Form S-1 or S-2 designated by two-thirds
in interest of the Investors and up to three registrations on Form S-3
designated by two-thirds in interest of the Investors, provided that the
Investors shall pay all such expenses in connection with any other demand
registrations;
(b) Use its best efforts (with due regard to management of the ongoing
business of the Company and the allocation of managerial resources) diligently
to prepare and file with the SEC a registration statement and such amendments to
said registration statement and supplements to the prospectus used in connection
therewith as may be necessary to keep said registration statement effective for
at least 180 days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs, and to comply with the provisions of the Securities Act with respect to
the sale of securities covered by said registration statement for the period
necessary to complete the proposed public offering;
(c) Furnish to each selling Holder such copies of each preliminary and
final prospectus and such other documents as such Holder may reasonably request
to facilitate the public offering of its Registrable Securities;
(d) Enter into any reasonable underwriting agreement required by the
proposed underwriter (which underwriter, in connection with any registration
requested pursuant to Section 7.2, shall be selected by the Company and shall be
reasonably acceptable to the Investors), if any, in such form and containing
such terms as are customary; provided, however, that no Holder shall be required
to make any representations or warranties other than with respect to its title
to the Registrable Securities and any written information provided by the Holder
to the Company, and if the underwriter requires that representations or
warranties be made and that indemnification be provided, the Company shall make
all such representations and warranties and provide all such indemnities,
including, without limitation, in respect of the Company's business, operations
and
<PAGE> 37
financial information and the disclosures relating thereto in the prospectus;
provided further that the right of any Holder to include such Holder's
Registrable Securities in an underwritten public offering pursuant to Section
7.1 shall be conditioned on such Holder's agreement to be included in such
underwriting arrangements;
(e) Use its best efforts (with due regard to management of the ongoing
business of the Company and the allocation of managerial resources) to register
or qualify the securities covered by said registration statement under the
securities or "blue sky" laws of such jurisdictions as any selling Holder may
reasonably request, provided that the Company shall not be required to register
or qualify the securities in any jurisdictions which require it to qualify to do
business therein;
(f) Immediately notify each selling Holder, at any time when a
prospectus relating to such Holder's Registrable Securities is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such registration statement or such prospectus contains an untrue
statement of a material fact or omits any material fact necessary to make the
statements therein not misleading, and, at the request of any such selling
Holder, prepare an amendment to such registration statement or supplement to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(g) Cause all such Registrable Securities to be listed on each
securities exchange or quotation system on which similar securities issued by
the Company are then listed or quoted;
(h) Otherwise use its best efforts to comply with the securities laws of
the United States and other applicable jurisdictions and all applicable rules
and regulations of the SEC and comparable governmental agencies in other
applicable jurisdictions and make generally available to its holders, in each
case as soon as practicable, but not later than 45 days after the close of the
period covered thereby, an earnings statement of the Company which will satisfy
the provisions of Section 11(a) of the Securities Act;
(i) Obtain and furnish to each selling Holder, immediately prior to the
effectiveness of the registration statement (and, in the case of an underwritten
offering, at the time of delivery of any Registrable Securities sold pursuant
thereto), a cold comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by cold comfort letters as the Holders of a majority of the Registrable
Securities being sold may reasonably request; and
(j) Otherwise cooperate with the underwriter or underwriters, the
Commission and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any Registrable Securities under this Section 7.
<PAGE> 38
7.5 Indemnification; Contribution.
(a) Incident to any registration statement referred to in this Section
7, the Company will indemnify and hold harmless each underwriter, each Holder
who offers or sells any such Registrable Securities in connection with such
registration statement (including its partners (including partners of partners
and shareholders of any such partners), and directors, officers, employees and
agents of any of them (a "Selling Holder"), and each person who controls any of
them within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (a "Controlling Person")), from and against any and all losses,
claims, damages, expenses and liabilities, joint or several (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted, as the same are incurred), to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based on (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement (including any related preliminary or definitive
prospectus, or any amendment or supplement to such registration statement or
prospectus), (ii) any omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the statements in
it not misleading, or (iii) any violation by the Company of the Securities Act,
any state securities or "blue sky" laws or any rule or regulation thereunder in
connection with such registration: provided, however, that the Company will not
be liable to the extent that such loss, claim, damage, expense or liability
arises from and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
furnished in writing to the Company by such underwriter, Selling Holder or
Controlling Person expressly for use in such registration statement. With
respect to such untrue statement or omission or alleged untrue statement or
omission in the information furnished in writing to the Company by such Selling
Holder expressly for use in such registration statement, such Selling Holder
will indemnify and hold harmless each underwriter, the Company (including its
directors, officers, employees and agents), each other Holder (including its
partners (including partners of partners and shareholders of such partners) and
directors, officers, employees and agents of any of them, and each person who
controls any of them within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act), from and against any and all losses, claims,
damages, expenses and liabilities, joint or several, to which they, or any of
them, may become subject under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise to the
same extent provided in the immediately preceding sentence. In no event,
however, shall a Selling Holder be liable for indemnification under this Section
7.5(a) for an amount in excess of the lesser of (i) the proceeds (net of the
applicable underwriting discount) received by such Selling Holder from its sale
of Registrable Securities under such registration statement, or (ii) such
Selling Holder's pro rata share of the total of such losses, claims, damages or
liabilities indemnified against, based upon the number of Registrable Securities
sold by such Selling Holder under such registration statement as a percentage of
the total number of securities sold under such registration statement.
<PAGE> 39
(b) If the indemnification provided for in Section 7.5(a) above for any
reason is held by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
7.5, in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the other
Selling Holders and the underwriters from the offering of the Registrable
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the other Selling Holders and the underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Selling Holders and the underwriters shall be deemed to be in the same
respective proportions that the net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Holders and the underwriting
discount received by the underwriters, in each case as set forth in the table on
the cover page of the applicable prospectus, bear to the aggregate public
offering price of the Registrable Securities. The relative fault of the Company,
the Selling Holders and the underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Holders or the underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Selling Holders, and the underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7.5(b)
were determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. In no event, however, shall a Selling
Holder be required to contribute any amount under this Section 7.5(b) in excess
of the lesser of (i) the proceeds (net of the applicable underwriting discount)
received by such Selling Holder from its sale of Registrable Securities under
such registration statement, or (ii) such Selling Holder's pro rata share of the
total of such losses, claims, damages or liabilities indemnified against, based
upon the number of Registrable Securities sold by such Selling Holder under such
registration statement as a percentage of the total number of securities sold
under such registration statement. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not found guilty of
such fraudulent misrepresentation.
(c) The amount paid by an indemnifying party or payable to an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in this Section 7.5 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim, payable as the same are incurred. The indemnification and
contribution provided for in this Section 7.5 will remain in full force and
effect regardless of any investigation
<PAGE> 40
made by or on behalf of the indemnified parties or any officer, director,
employee, agent or controlling person of the indemnified parties.
(d) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions of such underwriting agreement shall
control.
7.6 Rule 144 and Rule 144A Requirements. In the event that the Company
becomes subject to Section 13 or Section 15(d) of the Exchange Act, the Company
shall use its best efforts to take all action as may be required as a condition
to the availability of Rule 144 or Rule 144A under the Securities Act (or any
successor or similar exemptive rules hereafter in effect). The Company shall
furnish to any Holder, within 15 days of a written request, a written statement
executed by the Company as to the steps it has taken to comply with the current
public information requirements of Rule 144 or Rule 144A or such successor
rules.
7.7 Assignment of Rights. The registration rights and related
obligations under this Section 7 of the Holders with respect to their
Registrable Securities may be assigned in connection with any transaction or
series of related transactions involving the Transfer to one or more transferees
of at least 833,333.3 shares of capital stock of the Company, other than
pursuant to an effective registration statement under the Securities Act or
pursuant to Rule 144 thereunder (subject to adjustments for stock splits, stock
dividends and the like and aggregating all contemporaneous transfers by
Holders), or to any TA Funds or Encompass Funds. Upon any such transfer, such
transferee or TA Fund or Encompass Fund shall be deemed to be included within
the definition of a "Holder" for purposes of this Section 7 with the rights set
forth in this Section.
7.8 "Market Stand-off" Agreement. In connection with any underwritten
public offering by the Company, the Holders, if requested in good faith by the
Company and the managing underwriter of the Company's securities, shall agree
not to sell or otherwise transfer or dispose of any securities of the Company
held by them (except for any securities sold pursuant to such registration
statement) for a period following the effective date of the applicable
registration statement that in no event shall exceed 180 days. Notwithstanding
the foregoing, unless otherwise consented to by two-thirds in interest of the
Investors, such an agreement shall not be required unless all officers and
directors and three percent (3%) or greater shareholders of the Company and all
other persons with registration rights enter into similar agreements. In order
to enforce the foregoing, the Company may impose stop-transfer instructions with
respect to the Registrable Securities of each Holder (and the securities of
every other person subject to the foregoing restriction) until the end of such
period.
<PAGE> 41
SECTION 8. ELECTION OF DIRECTORS
The following provisions of this Section 8 shall terminate on the
earliest to occur of (i) the closing of a Qualified Public Offering, or (ii) the
date which is 10 years after the date hereof.
8.1 Election of Directors. At any time at which shareholders of the
Company will have the right to or will vote shares of capital stock of the
Company in an election of directors, the Investors and the Shareholders shall
vote all shares of capital stock of the Company presently owned or hereafter
acquired by them in favor of the following action:
(a) to cause and maintain the election to the Board of Directors of one
Investor Nominee designated by a majority in interest of the Convertible
Preferred Shares held by the TA Funds (the "TA Nominee"), who shall initially be
Jeffrey T. Chambers, and one Investor Nominee designated by a majority in
interest of the Convertible Preferred Shares held by Encompass Ventures (the
"Encompass Nominee"), who shall initially be Scot E. Land;
(b) to cause and maintain the election to the Board of Directors of
three members of the Company's management, designated by a majority in interest
of the Common Stock held by the Shareholders (the "Shareholders' Nominees"), who
shall initially be William T. Baxter, Albert T. Dosser, and Peter R. Gregory;
and
(c) to cause and maintain the election to the Board of Directors of at
least one Independent Director, designated by agreement between the Investors'
Nominees and the Shareholders' Nominees, which Independent Director shall be
nominated and elected to the Board of Directors as soon as reasonably
practicable on or following the Closing Date.
The Investors and the Shareholders shall cause the nomination for
election to the Board of Directors of the individuals set forth above.
8.2 Committees. The Company and the Shareholders shall cause the Board
of Directors to nominate and appoint at least one Investor Nominee, one
Shareholder Nominee and one Independent Director to each of the Compensation
Committee and the Audit Committee.
8.3 Vacancies and Removal.
(a) The TA Nominee may be removed during his term of office, without
cause, by and only by the affirmative vote or written consent of a majority in
interest of the Convertible Preferred Shares held by the TA Funds. The Encompass
Nominee may be removed during his term of office, without cause, by and only by
the affirmative vote or written consent of a majority in interest of the
Convertible Preferred Shares held by the Encompass Funds. A Shareholder Nominee
may be removed during his term of office, without cause, by and only by the
affirmative vote or written consent of the holders of a majority of the
outstanding shares of Common Stock (other than Conversion Shares).
<PAGE> 42
(b) Any vacancy in the office of (i) a TA Nominee may be filled only by
the vote or written consent of a majority in interest of the Convertible
Preferred Shares held by the TA Funds, (ii) an Encompass Nominee may be filled
only by the vote or written consent of a majority in interest of the Convertible
Preferred Shares held by the Encompass Funds, or (iii) a Shareholder Nominee may
filled only by the vote or written consent of a majority of the outstanding
shares of Common Stock of the Company (other than Conversion Shares), all in
accordance with the Articles of Incorporation and Bylaws and the corporate law
of the State of Washington.
SECTION 9. GENERAL
9.1 Amendments, Waivers and Consents. For the purposes of this Agreement
and all agreements executed pursuant hereto, no course of dealing between or
among any of the parties hereto and no delay on the part of any party hereto in
exercising any rights hereunder or thereunder shall operate as a waiver of the
rights hereof and thereof. No covenant or other provision hereof may he waived
otherwise than by a written instrument signed by the party or parties so waiving
such covenant or other provision. No amendment to this Agreement may be made
without the written consent of the Company and the Investors; provided that the
written consent of the Shareholders shall be required for any amendment of
Sections 5, 6, 7, 8 or 9 hereof. Any actions required to be taken or consents,
approvals, votes or waivers required or contemplated to be given by the
Investors or the Shareholders shall require a vote of a two-thirds in interest
of the Investors or two-thirds in interest of the Shareholders, as applicable,
based on the relative holdings of capital stock of the Company of the Investors
as a group or of the Shareholders as a group, as applicable, at the relevant
time, and any such action by such Investors or Shareholders, as applicable,
shall bind all of the Investors, or Shareholders, as applicable.
9.2 Indemnification from the Company.
<PAGE> 43
(a) Without limitation of any other provision of this Agreement, the
Company agrees to defend, indemnify and hold the Investors and their affiliates
and their respective direct and indirect partners, members, shareholders,
directors, officers, employees and agents and each person who controls any of
them within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (parties receiving the benefit of the indemnification agreement
herein shall be referred to collectively as "Indemnified Parties" and
individually as an "Indemnified Party") harmless from and against any and all
losses, claims, damages, obligations, liens, assessments, judgments, fines,
liabilities, and other costs and expenses (including without limitation
interest, penalties and any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted, as the same are incurred, and including any
diminution in the value of the Investors' shares) of any kind or nature
whatsoever which may be sustained or suffered by any such Indemnified Party,
without regard to any investigation by any of the Indemnified Parties, based
upon, arising out of, by reason of or otherwise in respect of or in connection
with any third party or governmental action relating to any action taken or
omitted to be taken or alleged to have been taken or omitted to have been taken
by any Indemnified Party as shareholder, director, agent, representative or
controlling person of the Company, including, without limitation, any and all
losses, claims, damages, expenses and liabilities, joint or several (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted, as the same may be incurred) arising or alleged to arise under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, including without limitation any such
claim alleging so-called control person liability or securities law liability;
provided, however, that the Company will not be liable to the extent that such
loss, claim, damage, expense or liability arises from and is based on (i) an
untrue statement or omission or alleged untrue statement or omission in a
registration statement or prospectus which is made in reliance on and in
conformity with written information furnished to the Company in an instrument
duly executed by or on behalf of such Indemnified Party specifically stating
that it is for use in the preparation thereof or (ii) a knowing and willful
violation of the federal securities laws by an Indemnified Party, as finally
determined by a court of competent jurisdiction; provided further, however, that
no such indemnity shall indemnify any Indemnified Party from or on account of
(x) acts or omissions of the Indemnified Party finally adjudged to be
intentional misconduct or a knowing violation of law; (y) conduct of an
Indemnified Party finally adjudged to be in violation of RCW.23B 08.310; or (z)
any transaction with respect to which it was finally adjudged that such
Indemnified Party personally received a benefit in money, property, or services
to which the Indemnified Party was not legally entitled.
(b) If the indemnification provided for in Section 9.2(a) above for any
reason is held by a court of competent jurisdiction to be unavailable to a
Indemnified Party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then the Company, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Investors, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in
<PAGE> 44
clause (i) above but also the relative fault of the Company and the Investors in
connection with the action or inaction which resulted in such losses, claims,
damages, expenses or liabilities, as well as any other relevant equitable
considerations. In connection with any registration of the Company's securities,
the relative benefits received by the Company and the Investors shall be deemed
to be in the same respective proportions that the net proceeds from the offering
(before deducting expenses) received by the Company and the Investors, in each
case as set forth in the table on the cover page of the applicable prospectus,
bear to the aggregate public offering price of the securities so offered. The
relative fault of the Company and the Investors shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Investors and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Investors agree that it would not be just and
equitable if contribution pursuant to this Section 9.2(b) were determined by pro
rata or per capita allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. In connection with the registration of the Company's
securities, in no event shall an Investor be required to contribute any amount
under this Section 9.2(b) in excess of the lesser of (i) that proportion of the
total of such losses, claims, damages or liabilities indemnified against equal
to the proportion of the total securities sold under such registration statement
which is being sold by such Investor or (ii) the proceeds received by such
Investor from its sale of securities under such registration statement. No
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty of such fraudulent misrepresentation.
(c) The indemnification and contribution provided for in this Section
9.2 will remain in full force and effect regardless of any investigation made by
or on behalf of the Indemnified Parties or any officer, director, partner,
employee, agent or controlling person of the Indemnified Parties.
(d) The provisions of this Section 9.2 are in addition to and shall
supplement those set forth in Section 7.5 which shall apply in the case of the
registration and sale of Registrable Securities held by any of the Investors
pursuant to Section 7 hereof.
(e) From and after the Closing, the Company agrees to pay and hold the
Investors harmless against liability for payment of all reasonable out-of-pocket
costs and expenses incurred by them in connection with their ongoing investment
in the Company, including the fees and disbursements of counsel and other
professionals. In addition, the Company agrees to pay any and all stamp,
transfer and other similar taxes, if any, payable or determined to be payable in
connection with the execution and delivery of this Agreement and the issuance of
securities hereunder.
<PAGE> 45
9.3 Survival of Representations, Warranties and Covenants; Assignability
of Rights. All covenants, agreements, representations and warranties of the
Company, the Shareholders and the Investors made herein, in the Disclosure
Schedule and in the certificates, lists, exhibits, schedules or other written
information delivered or furnished to any Investor in connection herewith (a)
are material, shall be deemed to have been relied upon by the party or parties
to whom they are made and shall survive the Closing regardless of any
investigation or knowledge on the part of such party or its representatives and
(b) shall bind the parties' successors and assigns (including without limitation
any successor to the Company by way of acquisition, merger or otherwise),
whether so expressed or not, and, except as otherwise provided in this
Agreement, all such covenants, agreements, representations and warranties shall
inure to the benefit of the Investors' successors and assigns and to their
transferees of Securities, whether so expressed or not, subject to the
provisions of Sections 4.12, 5.4, 6.2 and 7.7, and any such transferee shall be
deemed an "Investor" for purposes hereof.
9.4 Legend on Securities. The Company, the Investors and the
Shareholders acknowledge and agree that the following legend shall be typed on
each certificate evidencing any of the securities issued hereunder held at any
time by an Investor or Shareholder (except that the legend set forth in Section
9.4(c) below shall only be typed on certificates evidencing Convertible
Preferred Shares):
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE
SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES
AND BLUE SKY LAWS RELATING TO THE DISPOSITION OF SECURITIES, PROVIDED THAT AN
OPINION OF COUNSEL TO SUCH EFFECT IS PROVIDED TO THE COMPANY IN CONNECTION
THEREWITH.
(b) THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A
STOCK PURCHASE AND SHAREHOLDERS AGREEMENT DATED AS OF JANUARY 30, 1998,
INCLUDING THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY
OF THE AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.
(c) THE COMPANY HAS COMMON STOCK AND PREFERRED STOCK AUTHORIZED. THE
FULL STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF (THE "STATEMENT OF RIGHTS AND PREFERENCES")
OF THE SHARES OF EACH SUCH SERIES OR CLASS OF STOCK IS SET FORTH IN THE ARTICLES
OF
<PAGE> 46
INCORPORATION, AS AMENDED, AND CERTIFICATE OF DESIGNATION OF THE COMPANY, AND
ANY EFFECTIVE STATEMENT OF RELATIVE RIGHTS AND PREFERENCES OF PREFERRED STOCK,
ON FILE IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF WASHINGTON. THE
COMPANY WILL FURNISH COPIES OF THE STATEMENT OF RIGHTS AND PREFERENCES TO THE
RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
9.5 Governing Law. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with, the laws of the State of
Washington, without giving effect to conflict of laws principles thereof.
9.6 Section Headings and Gender. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, and vice versa, as the
context may require.
9.7 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but
one and the same document.
9.8 Notices and Demands. Any notice or demand which is required or
provided to he given under this Agreement or the Certificate of Designation
shall be deemed to have been sufficiently given and received for all purposes
when delivered by hand, telecopy, telex or other method of facsimile, or five
days after being sent by certified or registered mail, postage and charges
prepaid, return receipt requested, or two days after being sent by overnight
delivery providing receipt of delivery, to the following addresses:
if to the Company: BSQUARE Corporation
3633 136th Place SE, Suite 100
Bellevue, Washington 98006
Attn: President
Fax: (206) 519-5994
copy to: Summit Law Group, P.L.L.C.
1505 Westlake Avenue North, Suite 300
Seattle, Washington 98109
Attn: Michael J. Erickson, Esq.
Fax: (206) 281-9882
if to the Shareholders: c/o BSQUARE Corporation
3633 136th Place SE, Suite 100
Bellevue, Washington 98006
Fax: (206) 519-5994
<PAGE> 47
if to an Investor, c/o TA Associates, Inc. or Encompass Ventures, at their
respective mailing addresses shown on Exhibit A hereto, or at any other address
designated by the Investors to the Company and the Shareholders in writing.
9.9 Dispute Resolution. Except with respect to matters as to which
injunctive relief is being sought, any dispute arising out of or relating to
this Agreement that has not been settled within thirty (30) days by good faith
negotiation between the parties to this Agreement shall be submitted to
Endispute for final and binding arbitration pursuant to Endispute's Arbitration
Rules. Any such arbitration shall be conducted in Seattle, Washington. Such
proceedings shall be guided by the following agreed upon procedures:
(a) mandatory exchange of all documents discoverable pursuant to the
Rules of Civil Procedure to be accomplished within forty-five (45) days of the
submission of the claim to Endispute;
(b) no other discovery;
(c) hearings before the neutral advisor which shall consist of a summary
presentation by each side of not more than three hours; such hearings to take
place on one or two days at a maximum; and
(d) parties agree to request that a decision be rendered not more than
ten (10) days following such hearings.
9.10 Remedies, Severability. Notwithstanding Section 9.9, it is
specifically understood and agreed that any breach of the provisions of this
Agreement by any person subject hereto will result in irreparable injury to the
other parties hereto, that the remedy at law alone will be an inadequate remedy
for such breach, and that, in addition to any other remedies which they may
have, such other parties may enforce their respective rights by actions for
specific performance (to the extent permitted by law). The Company may refuse to
recognize any unauthorized transferee as one of its shareholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
9.11 Integration. This Agreement, including the exhibits, documents and
instruments referred to herein or therein, constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, including, without
limitation, the letter of intent between the parties hereto
<PAGE> 48
in respect of the transactions contemplated herein, which letter of intent shall
be completely superseded by the representations, warranties and covenants of the
Company contained herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 49
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
COMPANY:
BSQUARE CORPORATION
By: /s/ WILLIAM T. BAXTER
------------------------
Name: William T. Baxter
Title: Pres. & CEO
SHAREHOLDERS:
/s/ WILLIAM T. BAXTER
---------------------------
William T. Baxter
/s/ ALBERT T. DOSSER
---------------------------
Albert T. Dosser
/s/ PETER R. GREGORY
---------------------------
Peter R. Gregory
/s/ JOSEPH NOTARANGELO
---------------------------
Joseph Notarangelo
<PAGE> 50
INVESTORS:
TA/ADVENT VIII L.P.
By: TA Associates VIII LLC
Its: General Partner
By: TA Associates, Inc.
Its: General Manager
By: /s/ KENNETH T. SCHICIANO
--------------------------
Name: Kenneth T. Schiciano
Title: Principal
ADVENT ATLANTIC AND PACIFIC III L.P.
By: TA Associates AAP III Partners L.P.
Its: General Partner
By: TA Associates, Inc.
Its: General Partner
By: /s/ KENNETH T. SCHICIANO
--------------------------
Name: Kenneth T. Schiciano
Title: Principal
TA INVESTORS LLC
By: TA Associates, Inc.
Its: Manager
By: /s/ KENNETH T. SCHICIANO
-------------------------------
Name: Kenneth T. Schiciano
Title: Principal
TA EXECUTIVES FUND LLC
By: TA Associates, Inc.
Its: Manager
By: /s/ KENNETH T. SCHICIANO
-------------------------------
Name: Kenneth T. Schiciano
Title: Principal
42
<PAGE> 51
ENCOMPASS GROUP INFORMATION
TECHNOLOGY PARTNERS 1 LP
By:
-------------------------------
Name: Scot E. Land
Title: Managing Director
/s/ HOWARD A. CUBELL
----------------------------------
Howard A. Cubell
/s/ JEFFREY C. HADDEN
----------------------------------
Jeffrey C. Hadden
/s/ JOHN J. EGAN, III
----------------------------------
John J. Egan, III
/s/ STEVEN M. ELLIS
----------------------------------
Steven M. Ellis
/s/ STEPHEN D. POSS
----------------------------------
Stephen D. Poss
/s/ JOHN R. LeCLAIRE
----------------------------------
John R. LeClaire
43
<PAGE> 52
ENCOMPASS GROUP INFORMATION
TECHNOLOGY PARTNERS 1 LP
By: EGI Fund Management Company, LLC
Its: General Partner
By: /s/ CRAIG McCALLUM
--------------------------
Name: Craig McCallum
Its: Managing Director
44
<PAGE> 53
EXHIBIT A
<PAGE> 54
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Number of Shares Aggregate
Name and Address Purchased Payment
---------------- ---------------- -------------
<S> <C> <C>
TA/Advent VIII L.P. 5,414,733 $9,746,519.40
Advent Atlantic and
Pacific III L.P. 1,016,278 $1,829,300.40
TA Investors LLC 108,294 $ 194,929.20
TA Executives Fund LLC 99,583 $ 179,249.40
EnCompass Group US
Information Technology
Partners 1 LP 1,666,666 $2,999,998.80
Howard A. Cubell 8,333 $14,999.40
Jeffrey C. Hadden 5,556 $10,000.80
John J. Egan, M 5,556 $10,000.80
Steven M. Ellis 2,778 $5,000.40
Stephen D. Poss 2,778 $5,000.40
John R. LeClaire 2,778 $5,000.40
--------- --------------
Total 8,333,333 $14,999,999.40
========= ==============
</TABLE>
Address of and Notices to all TA
Investors and Individual
Investors:
TA Associates, Inc.
125 High Street, Suite 2500
Boston, MA 02110
Attention: Kenneth T. Schiciano
TA Associates, Inc.
435 Tasso Street
Palo Alto, CA 94301
Attention: Jeffrey T. Chambers
Address of and Notices to Encompass Ventures:
Encompass Ventures
4040 Lake Washington Blvd., N.E., Suite 205
Kirkland, Washington 98033
Attention: Scot E. Land
Copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Jeffrey C. Hadden, Esq.
<PAGE> 55
EXHIBIT B
<PAGE> 56
EXHIBIT B
PREFERRED STOCK TERMS
The designations and the powers, preferences and rights of the Series A
Convertible Preferred Stock are as follows:
Section 1. Designation and Dividends. The Corporation hereby designates
8,333,333 shares of the Preferred Stock as Series A Convertible Preferred Stock
(the "Series A Preferred Stock"), which shall have the rights, preferences and
terms set forth herein. The holders of the Series A Preferred Stock shall be
entitled to receive dividends at the same rate as dividends (other than
dividends paid in additional shares of Common Stock) are paid with respect to
the Common Stock (treating each share of Series A Preferred Stock as being equal
to the number of shares of Common Stock into which each such share of Series A
Preferred Stock could be converted pursuant to the provisions of Section 4
hereof with such number determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend) (the
"Participating Dividends").
Section 2. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, each holder of outstanding shares
of Series A Preferred Stock shall be entitled to be paid, out of the assets of
the Corporation available for distribution to stockholders, whether such assets
are capital, surplus, or earnings and before any amount shall be paid or
distributed to the holders of any class of Common Stock or of any other stock
ranking on liquidation junior to the Series A Preferred Stock, the greater of:
(i) an amount in cash equal to $1.80 per share (adjusted appropriately for stock
splits, stock dividends and the like) together with declared but unpaid
dividends to which the holders of outstanding shares of Series A Preferred Stock
are entitled pursuant to Section 1 hereof (the "Minimum Liquidation Amount");
provided, however, that if, upon any liquidation, dissolution or winding up of
the Corporation, the amounts payable with respect to the Series A Preferred
Stock and any other stock ranking as to any such distribution on a parity with
the Series A Preferred Stock are not paid in full, the holders of the Series A
Preferred Stock and such other stock shall share ratably in any distribution of
assets in proportion to the full respective preferential amounts to which they
are entitled; or (ii) cash in an amount equal to the portion of the assets of
the Corporation remaining for distribution to shareholders which such holder
would have received if each share of Series A Preferred Stock held by such
holder had been converted into the number of shares of Common Stock issuable
upon the conversion of a share of Series A Preferred Stock immediately prior to
any such liquidation, dissolution or winding up of the Corporation after taking
into account the rights of holders of any other class or series of capital stock
of the Corporation (including the Common Stock) entitled to share in such
distribution in either case, plus any declared but unpaid
<PAGE> 57
dividends to which the holders of outstanding shares of Series A Preferred Stock
are entitled pursuant to Section I hereof (the "Aggregate Liquidation Amount").
(b) A consolidation, merger or capital reorganization of the Corporation
(except (i) into or with a wholly-owned subsidiary of the Corporation with
requisite shareholder approval or (ii) a merger in which the beneficial owners
of the Corporation's outstanding capital stock immediately prior to such
transaction hold no less than fifty-one percent (51%) of the voting power in the
resulting entity) or a sale of all or substantially all of the assets of the
Corporation shall be regarded as a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of this Section 2; provided,
however, that each holder of the Series A Preferred Stock shall have the right
to elect the benefits of the provisions of Section 4(i) hereof in lieu of
receiving payment in liquidation, dissolution or winding up of the Corporation
pursuant to this Section 2.
Section 3. Voting, Power.
Except as otherwise expressly provided herein or as required by law, the
holder of each share of Series A Preferred Stock shall be entitled to vote on
all matters. Each share of Series A Preferred Stock shall entitle the holder
thereof to such number of votes per share as shall equal the number of shares of
Common Stock into which each share of Series A Preferred Stock is then
convertible. Except as otherwise expressly provided herein (including without
limitation the provisions of Section 6 hereof) or as required by law, the
holders of shares of the Series A Preferred Stock and the Common Stock shall
vote together as a single class on all matters.
Section 4. Conversion. The holders of the Series A Preferred Stock shall
have the following conversion rights:
(a) Voluntary Conversion. Holders of a majority of the outstanding
shares of Series A Preferred Stock shall be entitled, at any time and from time
to time after the date hereof, to cause any or all of such shares to be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $1.80 by the conversion price applicable to
such shares, determined as hereafter provided in effect on the date the
certificate is surrendered for conversion. Initially the conversion price shall
be $1.80 per share of Common Stock, which price shall be adjusted as hereinafter
provided (and, as so adjusted, is hereinafter sometimes referred to as the
"Conversion Price"). If a holder of Series A Preferred Stock elects to convert
his or her Series A Preferred Stock at a time when there are any accrued and
unpaid dividends or other amounts due on such shares (including any
Participating Dividends), such dividends and other amounts shall, to the extent
permitted by applicable law, be paid in full by the Corporation in connection
with such conversion.
(b) Automatic Conversion. Each share of Series A Preferred Stock
outstanding shall automatically, and without the requirement of any consent of
any holder, be converted into the number of shares of Common Stock into which
such shares
<PAGE> 58
are convertible at the then effective Conversion Price upon the closing of a
Qualified Public Offering. For purposes hereof, the term "Qualified Public
Offering" shall mean an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), covering the offer and sale of Common Stock of the
Corporation to the public at a minimum price of $4.50 per share and pursuant to
which (i) the gross proceeds received by the Corporation equal or exceed
$30,000,000 and (ii) the shares of Common Stock sold under such registration
statement are approved for listing on the New York Stock Exchange or approved
for quotation on The Nasdaq Stock Market, Inc.'s National Market.
(c) Conversion Procedures. Any holder of Series A Preferred Stock
converting such shares into shares of Common Stock pursuant to Section 4(a), or
whose shares are automatically converted pursuant to Section 4(b), shall
surrender the certificate or certificates representing the Series A Preferred
Stock being converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Corporation or the offices of the transfer
agent for the Series A Preferred Stock or such office or offices in the
continental United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Series A Preferred Stock by the
Corporation, accompanied by written notice of conversion. Such notice of
conversion shall (i) specify the number of shares of Series A Preferred Stock to
be converted, (ii) specify the name or names in which such holder wishes the
certificate or certificates for Common Stock and for any Series A Preferred
Stock not to be so converted to be issued, (iii) include payment of any
applicable transfer tax and (iv) specify the address to which such holder wishes
delivery to be made of such new certificates to be issued upon such conversion.
Upon surrender of a certificate representing Series A Preferred Stock for
conversion, the Corporation shall issue and send by hand delivery, by courier or
by first class mail (postage prepaid) to the holder thereof or to such holder's
designee, at the address designated by such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled upon conversion. In the event that there shall have been surrendered
a certificate or certificates representing Series A Preferred Stock, only part
of which are to be converted, the Corporation shall issue and send to such
holder or such holder's designee, in the manner set forth in the preceding
sentence, a new certificate or certificates representing the number of shares of
Series A Preferred Stock which shall not have been converted.
(d) Effective Date of Conversion. The issuance by the Corporation of
shares of Common Stock upon a conversion of Series A Preferred Stock into shares
of Common Stock made at the option of the holder thereof pursuant to Section
4(a) hereof shall be effective as of the surrender of the certificate or
certificates for the Series A Preferred Stock to be converted, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto). The issuance by the Corporation of shares of Common
Stock upon a conversion of Series A Preferred Stock into Common Stock pursuant
to Section 4(b) hereof shall be deemed to be effective immediately prior to the
closing of the Qualified Public Offering. On and after the effective date of
conversion, the person or persons entitled to receive the Common Stock
<PAGE> 59
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock.
(e) Fractional Shares. The Corporation shall not be obligated to deliver
to holders of Series A Preferred Stock any fractional share of Common Stock
issuable upon any conversion of such Series A Preferred Stock, but in lieu
thereof may make a cash payment in respect thereof in any manner permitted by
law.
(f) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized and unissued Common Stock,
solely for issuance upon the conversion of Series A Preferred Stock as herein
provided, free from any preemptive rights or other obligations, such number of
shares of the Common Stock as shall from time to time be issuable upon the
conversion of all the Series A Preferred Stock then outstanding provided that
the shares of Common Stock so reserved shall not be reduced or affected in any
manner whatsoever so long as any Series A Preferred Stock is outstanding, except
in the case of a reverse stock split or stock combination. The Corporation shall
prepare and shall use its reasonable business efforts to obtain and keep in
force such governmental or regulatory permits or other authorizations as may be
required by law, and shall comply with all requirements as to registration,
qualification or listing of the Common Stock, in order to enable the Corporation
lawfully to issue and deliver to each holder of record of Series A Preferred
Stock such number of shares of its Common Stock as shall from time to time be
sufficient to effect the conversion of all shares of Series A Preferred Stock
then outstanding and convertible into shares of Common Stock.
(g) Adjustments to Conversion Price. The Conversion Price in effect from
time to time shall be subject to adjustment as follows:
(i) Stock Dividends, Subdivisions and Combinations. Upon the
issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding
shares of Common Stock into a greater number of shares of Common Stock,
or the combination of outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the Conversion Price shall,
simultaneously with the happening of such dividend, subdivision or
combination be adjusted by multiplying the then effective Conversion
Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant to
this Section 4(g)(i) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
shareholders entitled to receive such dividend or distribution (on a
retroactive basis) and, in the case of a subdivision or combination,
immediately as of the effective date thereof.
(ii) Sale of Common Stock. In the event the Corporation shall at
any time or from time to time while the Series A Preferred Stock is
outstanding, issue,
<PAGE> 60
sell or exchange any shares of Common Stock (including shares held in
the Corporation's treasury, but excluding: (i) any Common Stock which
may be issued upon conversion of the Series A Preferred Stock; and (ii)
up to 3,625,000 shares of Common Stock issued to officers, directors,
employees, consultants or agents of the Corporation pursuant to the
Corporation's Stock Option Plan (the "Plan") or upon the exercise of
options issued pursuant to such Plan, or such greater number of shares
as may be issuable pursuant to the adjustment provisions of such Plan as
in effect on the date hereof (collectively, the "Excluded Shares")), for
a consideration per share less than the Conversion Price in effect
immediately prior to the issuance, sale or exchange of such shares (any
such issuance, sale or exchange hereinafter referred to as a "Dilutive
Transaction"), then, and thereafter successively upon the consummation
of any Dilutive Transaction, the Conversion Price in effect immediately
prior to the Dilutive Transaction shall forthwith be reduced to an
amount (calculated to the nearest cent) determined by multiplying such
Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of
shares of Common Stock of all classes outstanding immediately
prior to the Dilutive Transaction (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Series A Preferred Stock, options,
warrants, rights or convertible securities), plus (2) the number
of shares of Common Stock which the net aggregate consideration
received by the Corporation for the total number of such
additional shares of Common Stock so issued in the Dilutive
Transaction would purchase at the Conversion Price (prior to
adjustment), and
(B) the denominator of which shall be (1) the number of
shares of Common Stock of all classes outstanding immediately
prior to the Dilutive Transaction (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Series A Preferred Stock, options,
warrants, rights or convertible securities), plus (2) the number
of such additional shares of Common Stock so issued in the
Dilutive Transaction.
(iii) Sale of Options, Fights or Convertible Securities. In the
event the Corporation shall at any time or from time to time while the
Series A Preferred Stock is outstanding, issue options, warrants or
rights to subscribe for shares of Common Stock (other than any options
for Excluded Shares), or issue any securities convertible into or
exercisable or exchangeable for shares of Common Stock, for a
consideration per share (determined by dividing the Net Aggregate
Consideration (as determined below) by the aggregate number of shares of
Common Stock that would be issued if all such options, warrants, rights
or convertible securities were exercised or converted to the fullest
extent permitted by their terms) less than the Conversion Price in
effect immediately prior to the issuance of such options or rights or
convertible or exchangeable securities, the
<PAGE> 61
Conversion Price in effect immediately prior to the issuance of such options,
warrants or rights or securities shall be reduced to an amount determined by
multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
issuance of such options, rights or convertible securities (excluding
treasury shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Series A Preferred Stock,
options, warrants, rights or convertible securities), plus (2) the
number of shares of Common Stock which the total amount of consideration
received by the Corporation for the issuance of such options, warrants,
rights or convertible securities plus the minimum amount set forth in
the terms of such security as payable to the Corporation upon the
exercise or conversion thereof (the "Net Aggregate Consideration") would
purchase at the Conversion Price prior to adjustment, and
(B) the denominator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
issuance of such options, warrants, rights or convertible securities
(excluding treasury shares but including all shares of Common Stock
issuable upon conversion or exercise of any outstanding Series A
Preferred Stock, options, warrants, rights or convertible securities),
plus (2) the aggregate number of shares of Common Stock that would be
issued if all such options, warrants, rights or convertible securities
were exercised or converted.
(iv) Expiration or Change in Price. If the consideration per share
provided for in any options or rights to subscribe for shares of Common Stock or
any securities exercisable or exchangeable for or convertible into shares of
Common Stock, changes at any time, the Conversion Price in effect at the time of
such change shall be readjusted to the Conversion Price which would have been in
effect at such time had such options or convertible securities provided for such
changed consideration per share (determined as provided in Section 4(g)(iii)
hereof) at the time initially granted, issued or sold; provided, that such
adjustment of the Conversion Price will be made only as and to the extent that
the Conversion Price effective upon such adjustment remains less than or equal
to the Conversion Price that would be in effect if such options, rights or
securities had not been issued. No adjustment of the Conversion Price shall be
made under this Section 4 upon the issuance of any additional shares of Common
Stock which are issued pursuant to the exercise of any warrants, options or
other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if an adjustment
shall previously have been made upon the issuance of such warrants, options or
other rights. Any adjustment of the Conversion Price shall be disregarded if,
as, and when the rights to acquire shares of Common Stock upon exercise or
conversion of the warrants, options, rights or
<PAGE> 62
convertible securities which gave rise to such adjustment expire or are
canceled without having been exercised, so that the Conversion Price
effective immediately upon such cancellation or expiration shall be
equal to the Conversion Price in effect at the time of the issuance of
the expired or canceled warrants, options, rights or convertible
securities, with such additional adjustments as would have been made to
that Conversion Price had the expired or canceled warrants, options,
rights or convertible securities not been issued.
(h) Other Adjustments. In the event the Corporation shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date (calculated in accordance with Section 4(d) hereof), retained
such securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this Section
4 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the Series A Preferred
Stock shall be changed into the same or different number of shares of any class
or classes of stock, whether by reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section 4), then and in each such event the holder of each share of
Series A Preferred Stock shall have the right thereafter to convert each such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
by holders of the number of shares of Common Stock into which such shares of
Series A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(i) Mergers and Other Reorganizations. If at any time or from time
to time there shall be a capital reorganization of the Common Stock (other than
a subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 4) or a merger or consolidation of the Corporation
with or into another Corporation or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of and
as a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that the
holders of the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock the number of shares of stock or
other securities or property of the Corporation or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of Common
Stock
<PAGE> 63
deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
provisions shall be made with respect to the rights of the holders of the Series
A Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 4 (including, without limitation,
provisions for adjustment of the Conversion Price and the number of shares
purchasable upon conversion of the Series A Preferred Stock) shall thereafter be
applicable, as nearly as may be, with respect to any shares of stock, securities
or assets to be deliverable thereafter upon the conversion of the Series A
Preferred Stock.
Each holder of Series A Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Corporation or the sale of all or
substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 4(i), shall have the option of
electing treatment of his or her shares of Series A Preferred Stock under either
this Section 4(i) or Section 2(b) hereof, notice of which election shall be
submitted in writing to the Corporation at its principal offices no later than
ten (10) days before the effective date of such event, provided that any such
notice shall be effective if given not later than fifteen (15) days after the
date of the Corporation's notice, pursuant to Section 8, with respect to such
event.
(j) Notices. In each case of an adjustment or readjustment of the
Conversion Price, the Corporation will furnish each holder of Series A Preferred
Stock with a certificate, prepared by the chief financial officer of the
Corporation, showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
Section 5. Redemption.
(a) Any holder of shares of Series A Preferred Stock may request
that up to 50% of the Series A Preferred Stock then held by such holder be
redeemed by the Corporation at any time on or after January 30, 2003 (the "First
Redemption Date"), or that up to 100% of the Series A Preferred Stock then held
by such holder be redeemed by the Corporation at any time on or after January
30, 2004 (the "Second Redemption Date," and, collectively with the First
Redemption Date, the "Redemption Date"), by giving 90 days written notice to the
Corporation, stating in such notice the number of shares to be redeemed and
delivering the certificates for the shares of Series A Preferred Stock to be so
redeemed to the Corporation by the Redemption Date. The Corporation shall redeem
all shares as to which it has received requests for redemption from the holders
thereof in accordance with the foregoing. Any redemption hereunder shall be at a
per share redemption price equal to $1.80 per share (adjusted appropriately for
stock splits, stock dividends and the like), plus any accrued but unpaid
dividends (including any Participating Dividends) to which the holders of
outstanding shares of Series A Preferred Stock are entitled pursuant to Section
1 hereof (the "Redemption Price").
(b) If the Corporation does not have sufficient funds legally
available to redeem all shares for which redemption is requested hereunder, then
it shall redeem
<PAGE> 64
such shares on a pro-rata basis among the holders of the Series A Preferred
Stock in proportion to the shares of Series A Preferred Stock then held by them
to the extent possible and shall redeem the remaining shares to be redeemed as
soon as sufficient funds are legally available. In the event that the
Corporation fails to timely redeem shares for which redemption is requested
pursuant to Section 5(a) for any reason whatsoever, then during the period from
the Redemption Date through the date on which such shares are redeemed, the
Redemption Price of such shares shall bear interest at a per annum rate equal to
the Prime Rate (as reported in The Wall Street Journal from time to time) plus
two percent, which interest rate shall increase by an additional 1% at the end
of each three (3) month period thereafter until the Redemption Price (and any
interest thereon) is paid in full, subject to a maximum interest rate of the
greater of 15% or such Prime Rate plus ten percent, but in no event greater than
18%.
Section 6. Restrictions and Limitations.
(a) So long as any shares of the Series A Preferred Stock remain
outstanding, the Corporation shall not without the affirmative vote or written
consent of the holders of two-thirds in interest of the Series A Preferred
Stock:
(i) sell, lease or otherwise dispose of (whether in one
transaction or a series of related transactions) all or substantially
all of its assets or business,
(ii) merge with or into or consolidate with another entity or
enter into or engage in any other transaction or series of related
transactions, in any such case in connection with or as a result of
which the Company is not the surviving entity or the owners of the
Company's outstanding equity securities immediately prior to the
transaction or series of related transactions do not own at least a
majority of the outstanding equity securities of the surviving,
resulting or consolidated entity,
(iii) dissolve, liquidate or wind up its operations,
(iv) directly or indirectly redeem, purchase, or otherwise
acquire for consideration any shares of its Common Stock or any other
class of its capital stock except (A) for the redemption of Convertible
Preferred Shares pursuant to and as provided in Sections 2, 4 and 5
hereof, (B) as contemplated by Sections 1.2, 4.6, and 5.2 of that
certain Stock Purchase and Shareholders Agreement, dated as of January
30, 1998 or (C) as contemplated by the Corporation's standard form of
agreement, as approved by the Board of Directors, to be executed by
employees, officers, and consultants of the Corporation upon the grant
to such employees, officers, and consultants of options under the Plan.
or upon exercise of such options,
(v) adopt any amendment to this Certificate of Designation, or
any amendment to its Articles of Incorporation or By-Laws, that
eliminates,
<PAGE> 65
amends, restricts or otherwise adversely affects the rights and
preferences of the Convertible Preferred Stock, or that increases the
authorized shares of Convertible Preferred Stock,
(vi) declare or make dividend payments on any shares of its
Common Stock or any other class of its capital stock,
(vii) create, or obligate itself to create, any class or
series of shares that has a preference over, or is on a parity with, the
Convertible Preferred Stock,
(viii) increase the size of the Board of Directors to more
than seven (7) members,
(ix) enter into any agreement or arrangement or take any other
action that eliminates,amends, restricts or otherwise adversely affects
the rights of the holders of Convertible Preferred Stock or its ability
to perform its obligations hereunder; or
(x) enter into or be a party to any transaction or agreement,
including, without limitation, any lease or other rental or purchase
agreement providing for loans or extensions of credit by or to the
Company, with or for the benefit of any person or entity which is a
shareholder, officer or director of the Company, or which is a relative
by blood or marriage of, a trust or estate for the benefit of, or a
person or entity which directly or indirectly controls, is controlled
by, or is under common control with, any such person or entity, except
for normal compensation paid to employees of the Company in the ordinary
course of business.
Section 7. No Reissuance of Series A Preferred Stock. No share or shares
of the Series A Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired, and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of the Series A Preferred Stock accordingly.
Section 8. Other Rights. Except as otherwise provided in this Certificate
of Designation, each share of Series A Preferred Stock and each share of Common
Stock shall be identical in all respects, shall have the same powers,
preferences and rights, without preference of any such class or share over any
other such class or share.
<PAGE> 66
EXHIBIT C
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT C
SCHEDULE OF COMMON STOCK REDEMPTIONS
Name of Shareholder Number of Shares of Common Stock to be Redeemed
<S> <C>
William T. Baxter 1,111,111
Albert T. Dosser 1,111,111
Peter R. Gregory 1,111,111
</TABLE>
<PAGE> 68
EXHIBIT D
<PAGE> 69
EXHIBIT D
FORM OF REDEMPTION AGREEMENT
This STOCK REDEMPTION AGREEMENT (the "Agreement") is made as of January
30, 1998, by and between BSQUARE CORPORATION, a Washington corporation (the
"Corporation"), and ("Transferor").
RECITALS
WHEREAS, Transferor owns beneficially and of record 7,000,000 common
shares, no par value, of the Corporation's capital stock ("Common Stock");
WHEREAS, the Board of Directors of the Corporation has approved an
investment in the Corporation by a group of funds affiliated with TA
Associates, Inc. or Encompass Ventures (collectively, the "Investors") whereby
the Investors propose to invest an aggregate of $15,000,000 in the Corporation
in exchange for issuance by the Corporation to the Investors of shares of the
Corporation's Series A Convertible Preferred Stock, par value (the "Investment
Transaction");
WHEREAS, as a condition to the closing of the Investment Transaction,
the Board of Directors has agreed to repurchase an aggregate of $6,000,000 of
the Common Stock from certain existing shareholders of the Corporation; and
WHEREAS, the Corporation desires to purchase 1,111,111 shares (the
"Transferred Stock") of such Common Stock from Transferor for an aggregate
purchase price of $2,000,000.
NOW, THEREFORE, IT IS AGREED THAT:
1. Transfer. Transferor hereby transfers the Transferred Stock to the
Corporation, and the Corporation hereby accepts the Transferred Stock, in
exchange for payment by the Corporation to the Transferor in the amount of
$2,000,000 (the "Stock Payment"). Payment shall be made by check, wire
transfer or such other form as shall be mutually agreed upon by the parties.
2. Delivery and Payment. Upon the signing of this Agreement, (a) the
Corporation shall deliver to transferor (i) a signed copy of this Agreement;
(ii) the Stock Payment; (iii) a new stock certificate representing the balance
of the Corporation's Common Stock owned by Transferor and not subject to
transfer to the Corporation hereunder; and (b) Transferor shall deliver to the
Corporation (i) a copy of this Agreement signed by the Transferor, and (ii) a
stock certificate representing the Transferred Stock, duly endorsed for
transfer in accordance with the terms hereof, together with all such other
documents as may be required to effect a valid transfer of the Transferred
Stock, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest.
3. Consent of Spouse. If the Transferor is married on the date of this
Agreement, the Transferor's spouse shall execute a Consent of Spouse in the
form of Exhibit A hereto, effective on
1
<PAGE> 70
the date hereof Such consent shall not be deemed to confer or convey to the
spouse any rights in the Transferred Stock that do not otherwise exist by
operation of law or the agreement of the parties. If the Transferor should marry
or remarry subsequent to the date of this Agreement, the Transferor shall within
thirty (30) days thereafter obtain his new spouse's acknowledgment of and
consent to the existence and binding effect of all restrictions contained in
this Agreement by signing an additional Consent of Spouse in the form of Exhibit
A.
4. Transferor's Representations and Warranties. Transferor represents and
warrants to the Corporation as follows:
(a) Valid Title. Transferor now has and will have on the date
hereof valid record and beneficial ownership of and title to the
Transferred Stock, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Transferor
has full right, power and authority to sell, assign, transfer and
deliver such Transferred Stock.
(b) Requisite Power and Authority. Transferor has all necessary
power, competence and authority under all applicable provisions of law
to execute and deliver this Agreement and to carry out its provisions.
All action required on Transferor's part for the lawful execution and
delivery of this Agreement has been or will be effectively taken prior
to the date hereof. Upon its execution and delivery, this Agreement will
be a valid and binding obligation of Transferor, enforceable in
accordance with its terms.
(c) No Conflicts. The execution and delivery of this Agreement do
not, and the performance of this Agreement and the consummation of the
transactions herein contemplated will not, conflict with, result in a
breach of or default under, or give rise to a right to terminate, amend,
modify, abandon or accelerate any bond, debenture, note or other
evidence of indebtedness, or any contract, indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
Transferor is a party or by which Transferor or any Transferred Stock
hereunder may be bound or, to Transferor's best knowledge, result in any
violation of any law, order, rule, regulation, writ, injunction or
decree of any court or governmental agency or body.
5. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
6. Successors and Assigns. This Agreement shall inure to the benefit of
the successors and assigns of the Corporation and be binding upon the
Transferor, his heirs, executors, administrators, successors and assigns.
7. Entire Agreement; Amendments. This Agreement, together with Exhibit A
hereto, constitutes the full and entire understanding and agreement of the
parties with regard to the specific subject matter hereof and supersedes all
prior and contemporaneous written or oral agreements, and no amendment or
addition hereto shall be deemed effective unless agreed to in writing by the
parties hereto.
2
<PAGE> 71
8. Governing Law. This Agreement shall be governed by Washington State
laws without giving effect to conflicts of law principles. Any action arising
out of this Agreement must be brought in either the Superior Court of the State
of Washington or the United States District Court for the District of
Washington, as permitted by law, which together shall have exclusive
jurisdiction over disputes arising out of this Agreement.
9. Dispute Resolution. Except with respect to matters as to which
injunctive relief is being sought, any dispute arising out of or relating to
this Agreement that has not been settled within thirty (30) days by good faith
negotiation between the parties to this Agreement shall be submitted to
Endispute for final and binding arbitration pursuant to Endispute's Arbitration
Rules. Any such arbitration shall be conducted in Bellevue, Washington. Such
proceedings shall be guided by the following agreed upon procedures:
i. mandatory exchange of all documents, discoverable pursuant to
the Rules of Civil Procedure to be accomplished within forty-five (45) days of
the submission of the claim to Endispute;
ii. no other discovery;
iii. hearings before the neutral advisor which shall consist of a
summary presentation by each side of not more than three hours; such hearings to
take place on one or two days at a maximum; and
iv. parties agree to request that decision be rendered not more
than ten (10) days following such hearings.
10. Separability. If any provisions of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Corporation: Transferor:
BSQUARE CORPORATION
- ---------------------------- ----------------------------
William T. Baxter, President ----------------------------
3
<PAGE> 72
EXHIBIT 3
<PAGE> 73
EXHIBIT E
DISCLOSURE SCHEDULES
Section 2.2
Pursuant to Section 8.5 of the Windows NT Source Code License Agreement
dated February 27, 1997 between the Company and Microsoft Corporation, the
Company is required to obtain the consent of Microsoft in the event there is a
change in the ownership of beneficial interest of greater than 20% of the
Company's shares. The Company has not received written consent from Microsoft,
but is currently negotiating an agreement with Microsoft regarding this source
code.
<PAGE> 74
Section 2.3
<TABLE>
<CAPTION>
1. LIST OF SHAREHOLDERS PRIOR TO CLOSING.
<S> <C> <C>
- William T. Baxter 7,000,000 shares
- Albert T. Dosser 7,000,000 shares
- Peter R. Gregory 7,000,000 shares
- Joseph Notarangelo 375,000 shares
</TABLE>
2. LIST OF SHAREHOLDERS FOLLOWING CLOSING.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- William T. Baxter 5,888,889 shares of Common Stock
- Albert T. Dosser 5,888,889 shares of Common Stock
- Peter R. Gregory 5,888,889 shares of Common Stock
- Joseph Notarangelo 375,000 shares of Common Stock
- TA/Advent VIII L.P. 5,414,733 shares of Convertible Preferred Stock
- Advent Atlantic and 1,016,278 shares of Convertible Preferred Stock
Pacific III L.P.
- TA Investors LLC 108,294 shares of Convertible Preferred Stock
- TA Executives Fund LLC 99,583 shares of Convertible Preferred Stock
- EnCompass Group US 1,666,666 shares of Convertible Preferred Stock
Information Technology
Partners 1 LP
- Howard A. Cubell 8,333 shares of Convertible Preferred Stock
- Jeffrey C. Hadden 5,556 shares of Convertible Preferred Stock
- John. F. Egan, III 5,556 shares of Convertible Preferred Stock
- Steven M. Ellis 2,778 shares of Convertible Preferred Stock
- Stephen D. Poss 2,778 shares of Convertible Preferred Stock
- John R. LeClaire 2,778 shares of Convertible Preferred Stock
</TABLE>
3. STOCK OPTION PLAN.
A copy of the Company's Amended and Restated Stock Option Plan has been
attached to this Section 2.3 of the Disclosure Schedule.
4. REDEMPTION AGREEMENT.
All of the Company's current shareholders are subject to a Redemption Agreement
dated January 1, 1996, whereby in the event that any shareholder wishes to sell
his stock, such shareholder must first offer his or her shares to the Company
and to the non-selling shareholders. In addition, there are certain provisions
regarding what happens to a shareholder's stock upon termination of employment
with the Company and upon death. The Company and Shareholders have terminated
this Redemption Agreement contingent upon the closing of the transactions
contemplated by this Agreement.
<PAGE> 75
SECTION 2.3 TO DISCLOSURE SCHEDULE
BSQUARE CORPORATION
AMENDED AND RESTATED
STOCK OPTION PLAN
<PAGE> 76
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. DEFINITIONS ............................................................. 1
2. PURPOSES ................................................................ 4
3. ADMINISTRATION .......................................................... 4
(A) COMMITTEE ......................................................... 4
(B) APPOINTMENT OF COMMITTEE .......................................... 4
(C) POWERS; REGULATIONS ............................................... 4
(D) DELEGATION To EXECUTIVE OFFICER ................................... 5
4. ELIGIBILITY ............................................................. 5
5. STOCK .................................................................... 5
6. TERMS AND CONDITIONS OF OPTIONS ......................................... 5
(A) NUMBER OF SHARES AND TYPE OF OPTION ............................... 5
(B) DATE OF GRANT ..................................................... 6
(C) OPTION PRICE ...................................................... 6
(D) DURATION OF OPTIONS ............................................... 6
(E) VESTING SCHEDULE AND EXERCISABILITY OF OPTIONS .................... 7
(F) ACCELERATION OF VESTING AND EXERCISABILITY ........................ 7
(G) TERM OF OPTION .................................................... 8
(H) EXERCISE OF OPTIONS ............................................... 8
(I) PAYMENT UPON EXERCISE OF OPTION ................................... 9
(J) RIGHTS AS A SHAREHOLDER ........................................... 10
(K) TRANSFER OF OPTION ................................................ 10
(L) SECURITIES REGULATION AND TAX WITHHOLDING ......................... 11
(M) STOCK DIVIDEND, REORGANIZATION OR LIQUIDATION ..................... 12
(N) APPROVED TRANSACTIONS; CONTROL PURCHASE............................ 13
7. EFFECTIVE DATE; TERM..................................................... 14
8. NO OBLIGATIONS TO EXERCISE OPTION........................................ 14
9. NO RIGHT TO OPTIONS OR TO EMPLOYMENT..................................... 14
10. APPLICATION OF FUNDS..................................................... 14
11. INDEMNIFICATION OF COMMITTEE............................................. 14
12. SHAREHOLDERS AGREEMENT................................................... 15
13. SEPARABILITY............................................................. 15
14. NON-EXCLUSIVITY OF THE PLAN.............................................. 15
15. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION.................... 15
16. AMENDMENT OF PLAN........................................................ 15
</TABLE>
<PAGE> 77
BSQUARE CORPORATION
AMENDED AND RESTATED
STOCK OPTION PLAN
1. DEFINITIONS.
Capitalized terms not defined elsewhere in the Plan shall have the following
meanings (whether used in the singular or plural).
(a) "AGREEMENT" means a written agreement approved by the Committee
evidencing Options granted under the Plan.
(b) "APPROVED TRANSACTION" means
(i) a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act
covering the offer and sale of Common Stock for the account of
the Company to the public with aggregate proceeds paid to the
Company of not less than $1 0,000,000 (after the deduction of
underwriting commissions and offering expenses);
(ii) the acquisition of the Company by another entity by means of
merger, consolidation or other transaction or series of
related transactions resulting in the exchange of the
outstanding shares of the Company for securities of, or
consideration issued, or caused to be issued by, the acquiring
entity or any of its affiliates, Provided, that after such
event the shareholders of the Company immediately prior to the
event own less than a majority of the outstanding voting
equity securities of the surviving entity immediately
following the event;
(iii) any liquidation or dissolution of the Company; and
(iv) any sale, lease, exchange or other transfer not in the
ordinary course of business (in one transaction or a series of
related transactions) of all, or substantially all, of the
assets of the Company.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute or statutes thereto. Reference to
any specific section of the Code shall include any successor
section.
(e) "COMMITTEE" shall mean the Board, or the committee appointed by the
Board pursuant to Section 3(b) of the Plan, if it is administering
the Plan.
(f) "COMMON STOCK" means the Common Stock, no par value, of the Company.
(g) "COMPANY" means BSQUARE CORPORATION, a Washington corporation.
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<PAGE> 78
(h) "CONTROL PURCHASE" means any transaction (or series of related
transactions) in which any person, corporation or other entity
(including any "person" as defined in Sections 13(d)(3) and 14(d)(2)
of the Exchange Act, but excluding the Company and any employee
benefit plan sponsored by the Company):
(i) purchases any Common Stock (or securities convertible into
Common Stock) for cash, securities or any other consideration
pursuant to a tender offer or exchange offer unless by the
terms of such offer the offeror, upon consummation thereof,
would be the "beneficial owner" (as that term is defined in
Rule l3d-3 under the Exchange Act) of less than 30% of the
shares of Common Stock then outstanding; or
(ii) becomes the "beneficial owner", directly or indirectly, of
securities of the Company representing fifty percent (50%) or
more of the combined voting power of the then outstanding
securities of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
in the election of directors (calculated as provided in Rule
13d-3(d) under the Exchange Act in the case of rights to
acquire the Company's securities);
provided, however, that the foregoing shall not constitute a Control
Purchase if the transactions or related transactions received the
prior approval of a majority of all of the directors of the Company,
excluding for such purpose the votes of directors who are directors
or officers of, or have a material financial interest in any Person
(other than the Company) who is a party to the event specified in
either clauses (i) or (ii).
(i) "COVERED EMPLOYEE" has the meaning given to it by Section 162(m)(3)
of the Code.
(j) "DATE OF GRANT" means that date the Committee has deemed to be the
effective date of the Option for purposes of the Plan.
(k) "DISABILITY" means any medically determinable physical or mental
impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not
less than twelve (12) months that renders the Optionee unable to
engage in any substantial gainful activity.
(l) "EFFECTIVE DATE" means at the time specified in the resolutions of
the Board adopting the Plan.
(m) "EMPLOYEES" means individuals employed by the Company or a Related
Corporation.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute or statutes thereto.
Reference to any specific section of the Exchange Act shall include
any successor section.
(o) "EXECUTIVE OFFICER" shall be defined in Section 3(d).
(p) "FAIR MARKET VALUE" means, if the Common Stock is publicly traded,
the last sales price (or, if no last sales price is reported, the
average of the high bid and low asked prices) for a share of Common
Stock on that day (or, if that day is not a trading day, on the next
preceding trading day), as reported by the principal exchange on
which the Common Stock
2
<PAGE> 79
is listed, or, if the Common Stock is publicly traded but not listed on an
exchange, as reported by The Nasdaq Stock Market, or if such prices or
quotations are not reported by The Nasdaq Stock Market, as reported by any
other available source of prices or quotations selected by the Committee.
If the Common Stock is not publicly traded or if the Fair Market Value is
not determinable by any of the foregoing means, the Fair Market Value on
any day shall be determined in good faith by the Committee on the basis of
such considerations as the Committee deems important.
(q) "IMMEDIATE FAMILY MEMBER" means a spouse, children or grandchildren
of the Optionee.
(r) "INCENTIVE STOCK OPTION" means an Option that is an incentive stock
option within the meaning of Section 422 of the Code.
(s) "NON-EMPLOYEE DIRECTOR" has the meaning given to it by Rule 16b-3
promulgated under the Exchange Act of 1934.
(t) "NON-INSIDERS" has the meaning given to by Section 162(m)(3) of the
Code.
(u) "NON-QUALIFIED STOCK OPTION" means an Option that is not an
Incentive Stock Option.
(v) "OPTION" means an option with respect to shares of Common Stock
awarded pursuant to Section 6.
(w) "OPTIONEE" means any person to whom an Option is granted under the
Plan (as well as any permitted transferee of an Option).
(x) "OUTSIDE DIRECTOR" has the meaning given to it by the regulations
promulgated under Section 162(m) of the Code.
(y) "PLAN" means the BSQUARE CORPORATION stock option plan.
(z) "QUALIFIED PERFORMANCE-BASED COMPENSATION" has the meaning given to
it by the regulations promulgated under Section 162(m) of the Code.
(aa) "RELATED Corporation" means any corporation (other than the Company)
that is a "parent corporation" of the Company or "subsidiary
corporation" of the Company, as defined in Sections 424(e) and
424(f), respectively, of the Code.
(bb) "SECTION 16 INSIDERS" means individuals who are subject to Section
16(b) of the Exchange Act with respect to the Common Stock.
(cc) "SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, or any successor statute or statutes thereto.
References to any specific section of the Securities Act shall
include any successor section.
(dd) "TEN PERCENT SHAREHOLDER" means a person who owns more than ten
percent of the total combined voting power of the Company or any
related corporation as determined with reference to Section 424(d)
of the Code.
3
<PAGE> 80
2. PURPOSES.
The purposes of the Plan are to retain the services of directors, valued
key employees and consultants of the Company and such other persons as the
Committee shall select in accordance with Section 4, to encourage such persons
to acquire a greater proprietary interest in the Company, thereby
strengthening their incentive to achieve the objectives of the shareholders of
the Company, and to serve as an aid and inducement in hiring new employees and
to provide an equity incentive to directors, consultants and other persons
selected by the Committee.
3. ADMINISTRATION.
(a) COMMITTEE.
The Plan shall be administered by the Board unless the Board appoints a
separate committee of the board to administer the Plan pursuant to Section
3(b) below. A majority of the members of the Committee shall constitute a
quorum, and all actions of the Committee shall be taken by a majority of the
members present. Any action may be taken by a written instrument signed by all
of the members of the Committee and any action so taken shall be fully
effective as if it had been taken at a meeting.
(b) APPOINTMENT OF COMMITTEE.
The Board may appoint a committee consisting of two or more of its
members to administer the Plan. The Board shall consider whether a director is
(i) an Outside Director and (ii) a Non-Employee Director when appointing any
such Committee and shall appoint solely two or more individuals who qualify as
Outside Directors if the Board intends for compensation attributable to
Options to be Qualified Performance-Based Compensation. The Committee shall
have the powers and authority vested in the Board hereunder (including the
power and authority to interpret any provision of the Plan or of any Option).
The members of any such Committee shall serve at the pleasure of the Board.
(c) POWERS; REGULATIONS.
Subject to the provisions of the Plan, and with a view to effecting its
purpose, the Committee shall have sole authority, in its absolute discretion,
to:
(i) construe and interpret the Plan;
(ii) define the terms used in the Plan;
(iii) prescribe, amend and rescind rules and regulations relating to
the Plan;
(iv) correct any defect, supply any omission or reconcile any
inconsistency in the Plan;
(v) grant Options under the Plan;
(vi) determine the individuals to whom Options shall be granted
under the Plan and whether the Option is an Incentive Stock
Option or a Non-Qualified Stock Option;
(vii) determine the time or times at which Options shall be granted
under the Plan;
(viii) determine the number of shares of Common Stock subject to
each Option, the exercise price of each Option, the duration
of each Option and the times at which each Option shall become
exercisable; (ix) determine all other terms and conditions of
Options; and
(x) make all other determinations necessary or advisable for the
administration of the Plan.
4
<PAGE> 81
All decisions, determinations and interpretations made by the Committee
shall be binding and conclusive on all participants in the Plan and on their
legal representatives, heirs and beneficiaries.
(d) DELEGATION TO EXECUTIVE OFFICER.
The Committee may by resolution delegate to one or more executive officers
(the "Executive Officer") of the Company the authority to grant Options under
the Plan to employees of the Company who, at the time of grant, are not Section
16 Insiders nor Covered Employees; provided, however, that the authority
delegated to the Executive Officer under this Section 3 shall not exceed that of
the Committee under the provisions of the Plan and shall be subject to such
limitations, in addition to those specified in this Section 3, as may be
specified by the Committee at the time of delegation.
4. ELIGIBILITY.
Incentive Stock Options may be granted to any individual who, at the time
such Options are granted, is an Employee, including Employees who are also
directors of the Company. Non-Qualified Stock Options may be granted to
Employees and to such other persons as the Committee shall select. Options may
be granted in substitution for outstanding options of another corporation in
connection with the merger, consolidation, acquisition of property or stock or
other reorganization between such other corporation and the Company or any
subsidiary of the Company. At such point as the Company first becomes subject to
the periodic reporting requirements of Section 12 of the Exchange Act no person
shall be eligible to receive in any fiscal year Options to purchase more than
500,000 shares of Common Stock (subject to adjustment as set forth in Section
6(m) hereof).
5. STOCK.
The Company is authorized to grant Options to acquire up to a total of
3,625,000 shares of the Company's authorized but unissued, or reacquired, Common
Stock. The number of shares with respect to which Options may be granted
hereunder is subject to adjustment as set forth in Section 6(m). In the event
that any outstanding Option expires or is terminated for any reason, the shares
of Common Stock allocable to the unexercised portion of such Option may again be
subject to an Option granted to the same Optionee or to a different person
eligible under Section 4; provided, however, that any expired or terminated
Options will be counted against the maximum number of shares with respect to
which Options may be granted to any particular person as set forth in Section 4.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be evidenced by an Agreement.
Agreements may contain such provisions, not inconsistent with the Plan, as the
Committee or Executive Officer, in its discretion, may deem advisable. All
Options also shall comply with the following requirements:
(a) Number of Shares and Type of Option.
Each Agreement shall state the number of shares of Common Stock to which
it pertains and whether the Option is intended to be an Incentive Stock Option
or a Non-Qualified Stock Option. In the absence of action to the contrary by the
Committee or Executive Officer in connection with the grant of an Option, all
Options shall be Non-Qualified Stock Options. The aggregate Fair Market Value
(determined at the Date of Grant) of the Common Stock with respect to which the
Incentive Stock Options granted to the Optionee and any incentive stock options
granted to the Optionee under any other stock option plan of the
5
<PAGE> 82
Optionee during any calendar year shall not exceed $100,000, or such other limit
as may be prescribed by the Code. If
(i) an Optionee holds one or more Incentive Stock Options under
the Plan (and/or any incentive stock options under any
other stock option plan of the Company, any Related
Corporation or any predecessor corporation), and
(ii) the aggregate Fair Market Value of the shares of Common
Stock with respect to which, during any calendar year, such
Options become exercisable for the first time exceeds
$100,000 (said value to be determined as provided above),
then such Option or Options are intended to qualify under Section 422 of the
Code with respect to the maximum number of such shares as can, in light of the
foregoing limitation, be so qualified, with the shares so qualified to be the
shares subject to the Option or Options earliest granted to the Optionee. If an
Option that would otherwise qualify as an Incentive Stock Option becomes
exercisable for the first time in any calendar year for shares of Common Stock
that would cause such aggregate Fair Market Value to exceed
$100,000, then the portion of the Option in respect of such shares shall be
deemed to be a Non-Qualified Stock Option.
(b) DATE OF GRANT.
Each Agreement shall state the Date of Grant.
(c) OPTION PRICE.
Each Agreement shall state the price per share of Common Stock at which it
is exercisable. The exercise price shall be fixed by the Committee or Executive
Officer at whatever price the Committee or Executive Officer may determine in
the exercise of its sole discretion; provided, however, that the per share
exercise price for an Incentive Stock Option shall not be less than the Fair
Market Value at the Date of Grant; provided further, that with respect to
Incentive Stock Options granted to Ten Percent Shareholders of the Company, the
per share exercise price shall not be less than 110 percent (11O%) of the Fair
Market Value at the Date of Grant; and, provided further, that Options granted
in substitution for outstanding options of another corporation in connection
with the merger, consolidation, acquisition of property or stock or other
reorganization involving such other corporation and the Company or any
subsidiary of the Company may be granted with an exercise price equal to the
exercise price for the substituted option of the other corporation, subject to
any adjustment consistent with the terms of the transaction pursuant to which
the substitution is to occur.
(d) DURATION OF OPTIONS.
On the Date of Grant, the Committee or Executive Officer shall designate,
subject to Section 6(g), the expiration date of the Option, which date shall not
be later than ten (10) years from the Date of Grant in the case of Incentive
Stock Options; provided, however, that the expiration date of any Incentive
Stock Option granted to a Ten Percent Shareholder shall not be later than five
(5) years from the Date of Grant. In the absence of action to the contrary by
the Committee in connection with the grant of an Option, and except in the case
of Incentive Stock Options granted to Ten Percent Shareholders, all Options
granted under this Section 6 shall expire ten (10) years from the Date of Grant.
6
<PAGE> 83
(e) VESTING SCHEDULE AND EXERCISABILITY OF OPTIONS.
No Option shall be exercisable until it has vested. The vesting schedule
for each Option shall be specified by the Committee or Executive Officer at the
time of grant of the Option; provided, however, that if no vesting schedule is
specified at the time of grant, the Option shall be vested according to the
following schedule:
<TABLE>
<CAPTION>
Number of Years of
Continuous Employment Portion of Total
With the Company Following Option Which Will Become
Grant Date Vested
-------------------------- ------------------------
<S> <C>
1 25%
2 50%
3 75%
4 100%
</TABLE>
The Committee or Executive Officer may specify a vesting schedule for all
or any portion of an Option based on the achievement of performance objectives
established in advance of the commencement by the Optionee of services related
to the achievement of the performance objectives. Performance objectives shall
be expressed in terms of one or more of the following: return on equity, return
on assets, share price, market share, sales, earnings per share, costs, net
earnings, net worth, inventories, cash and cash equivalents, gross margin or the
Company's performance relative to its internal business plan. Performance
objectives may be in respect of the performance of the Company as a whole
(whether on a consolidated or unconsolidated basis), a Related Corporation, or a
subdivision, operating unit product or product line of the foregoing.
Performance objectives may be absolute or relative and may be expressed in terms
of a progression or a range. An Option which is exercisable (in whole or in
part) upon the achievement of one or more performance objectives may be
exercised only upon completion of the following process: (a) the Optionee must
deliver written notice to the Company that the performance objective has been
achieved and demonstrating, if necessary, how the objective has been satisfied,
(b) within 45 days after receipt of such notice, the Committee will make a good
faith determination whether such performance objective has been achieved and
deliver written notice to the Optionee detailing the results of such
determination; if the Company fails to respond with such 45-day period, then the
performance objective shall be presumed to have been achieved and (c) upon
receipt of written notice from the Company that the performance objective has
been achieved (or upon expiration of such 45-day period without a determination
by the Company), the Optionee may exercise the Option; upon receipt of written
notice from the Company that the performance objective has not been achieved,
the Optionee shall have 15 days to appeal the Company's determination and the
Company shall have 15 days after the receipt of such appeal to consider the
issues presented by the Optionee and make a determination on the appeal, which
determination shall be conclusive and binding on the Optionee.
(f) ACCELERATION OF VESTING.
Except to the extent that such acceleration would render unavailable
"pooling of interests" accounting treatment for any reorganization, merger or
consolidation of the Company, the vesting of one or more outstanding Options may
be accelerated by the Board at such times and in such amounts as it shall
determine in its sole discretion.
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<PAGE> 84
(g) TERM OF OPTION.
Any vested Option granted to an Optionee shall terminate, to the extent
not previously exercised, upon the occurrence of the first of the following
events:
(i) as designated by (x) the Board in accordance with Section
6(n) hereof or (y) the Committee or the Executive Officer
in accordance with Section 6(d) hereof,
(ii) the date of the Optionee's termination of employment or
contractual relationship with the Company or any Related
Corporation for cause (as determined in the sole discretion
of the Committee);
(iii) the expiration of ninety (90) days from the date of the
Optionee's termination of employment or contractual
relationship with the Company or any Related Corporation
for any reason whatsoever other than cause, death or
Disability unless the exercise period is extended by the
Committee a date not later than the expiration date of the
Option;
(iv) the expiration of one year from (A) the date of death of
the Optionee or (B) cessation of the Optionee's employment
or contractual relationship by reason of Disability unless
the exercise period is extended by the Committee until a
date not later than the expiration date of the Option; or
(v) any other event specified by the Committee at the time of
grant of the Option.
If an Optionee's employment or contractual relationship is terminated by
death, any Option granted to the Optionee shall be exercisable only by the
person or persons to whom such Optionee's rights under such Option shall pass by
the Optionee's will or by the laws of descent and distribution of the state or
county of the Optionee's domicile at the time of death. The Committee shall
determine whether an Optionee has incurred a Disability on the basis of medical
evidence reasonably acceptable to the Committee. Upon making a determination of
Disability, the Committee shall, for purposes of the Plan, determine the date of
an Optionee's termination of employment or contractual relationship.
Unless accelerated in accordance with Section 6(f), any unvested Option
granted to an Optionee shall terminate immediately upon termination of
employment of the Optionee by the Company for any reason whatsoever, including
death or Disability. For purposes of the Plan, transfer of employment between or
among the Company and/or any Related Corporation shall not be deemed to
constitute a termination of employment with the Company or any Related
Corporation. For purposes of this subsection with respect to Incentive Stock
Options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Committee). The foregoing notwithstanding, employment shall not be deemed to
continue beyond the first ninety (90) days of such leave, unless the Optionee's
re-employment rights are guaranteed by statute or by contract.
(h) EXERCISE OF OPTIONS.
If less than all of the shares included in an Option are purchased, the
remainder may be purchased at any subsequent time prior to the expiration date
with respect to, or the termination of, the Option. No portion of any Option may
be exercised for less than one hundred (100) shares (as adjusted pursuant to
Section 6(m)); provided, however, that if the Option is less than one hundred
(100) shares, it may be
8
<PAGE> 85
exercised with respect to all shares for which it is vested. Only whole shares
may be issued upon exercise of an Option, and to the extent that an Option
covers less than one (1) share, it is unexercisable.
An Option or any portion thereof may be exercised by giving written notice
to the Company upon such terms and conditions as the Agreement evidencing the
Option may provide and in accordance with such other procedures for the exercise
of an Option as the Committee may establish from time to time. Such notice shall
be accompanied by payment in the amount of the aggregate exercise price for such
shares, which payment shall be in the form specified in Section 6(i). The
Company shall not be obligated to issue, transfer or deliver a certificate of
Common Stock to the holder of any Option until provision has been made by the
holder, to the satisfaction of the Company, for the payment of the aggregate
exercise price for all shares for which the Option shall have been exercised and
for satisfaction of any tax withholding obligations associated with such
exercise. Options granted to an Optionee are, during the Optionee's lifetime,
exercisable only by the Optionee or a transferee who takes title to the Option
in the manner permitted by Section 6(k).
(i) PAYMENT UPON EXERCISE OF OPTION.
Upon the exercise of an Option, the Optionee shall pay to the Company the
aggregate exercise price therefor in cash, by certified or cashier's check. In
addition, such Optionee may pay for all or any portion of the aggregate exercise
price by complying with one or more of the following alternatives:
(1) by delivering to the Company whole shares of Common Stock then
owned by such Optionee, or, subject to the prior approval of the
Committee, by the Company withholding whole shares of Common Stock
otherwise issuable to the Optionee upon exercise of the Option, which
shares of Common Stock received or withheld shall be valued for such
purpose at their Fair Market Value on the date of exercise.
(2) by delivering a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company
the amount of sale or loan proceeds required to pay the exercise price;
(3) by any combination of the foregoing methods of payment; or
(4) by complying with any other payment mechanism, including through
the execution of a promissory note, as may be permitted for the issuance
of equity securities under applicable securities and other laws and
approved by the Committee at the time of exercise.
9
<PAGE> 86
(j) RIGHTS AS A SHAREHOLDER.
An Optionee shall have no rights as A shareholder with respect to any
shares of Common Stock issuable upon exercise of the Option until such holder
becomes a record holder of such shares. Subject to the provisions of Sections
6(m), no rights shall accrue to an Optionee and no adjustments shall be made on
account of dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights declared on, or created in, the
Common Stock for which the record date is prior to the date such Optionee
becomes a record holder of the shares of Common Stock issuable upon exercise of
such Option.
(k) TRANSFER OF OPTION.
Options granted under the Plan and the rights and privileges conferred by
the Plan may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will, by applicable
laws of descent and distribution or pursuant to A domestic relations order (as
defined in the Code or Title I of the Employment Retirement Income Security Act
of 1974 or the rules or regulations thereunder), and shall not be subject to
execution, attachment or similar process; provided, however, that solely with
respect to Non-Qualified Stock Options, the Committee may, in its discretion,
authorize all or a portion of the Options to be granted to an Optionee to be on
terms which permit transfer by such Optionee to:
(i) Immediate Family Members,
(ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or
(iii) a partnership in which such Immediate Family Members are the
only partners, provided that:
(x) there may be no consideration for any such transfer,
(y) the Agreement evidencing such Options must be approved
by Committee, and must expressly provide for
transferability in a manner consistent with this
Section, and
(z) subsequent transfers of transferred Options shall be
prohibited other than by will, by applicable laws of
descent and distribution or pursuant to a domestic
relations order (as defined in the Code or Title I of
the Employment Retirement Income Security Act of 1974
or the rules or regulations thereunder).
Following transfer, any such Options shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided
that for purposes of Section 6(l)(2), the term "Optionee" shall be deemed to
refer to the initial transferor. The events of termination of employment of
Section 6(g) shall continue to be applied with respect to the original Optionee,
following which the options shall be exercisable by the transferee only to the
extent, and for the periods, specified in Section 6(g). Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of any Option or of
any right or privilege conferred by the Plan contrary to the provisions hereof,
or upon the sale, levy or any attachment or similar process upon the rights and
privileges conferred by the Plan, such Option shall thereupon terminate and
become null and void.
10
<PAGE> 87
(l) SECURITIES REGULATION AND TAX WITHHOLDING.
(1) No shares of Common Stock shall be issued upon exercise of an
Option unless the exercise of such Option and the issuance and delivery of
such shares shall comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the Securities Act,
the Exchange Act, the rules and regulations thereunder and the requirements of
any stock exchange upon which such shares may then be listed, and such
issuance shall be further subject to the approval of counsel for the Company
with respect to such compliance, including the availability of an exemption
from registration for the issuance and sale of such shares. The inability of
the Company to obtain from any regulatory body the authority deemed by the
Company to be necessary for the lawful issuance and sale of any shares under
the Plan, or the unavailability of an exemption from registration for the
issuance and sale of any shares under the Plan, shall relieve the Company of
any liability with respect to the non-issuance or sale of such shares.
As long as the Common Stock is not registered under the Exchange Act,
the Company intends that all offers and sales of Options and shares of Common
Stock issuable upon exercise of Options shall be exempt from registration
under the provisions of Section 5 of the Securities Act, and the Plan shall be
administered in a manner so as to preserve such exemption. The Company also
intends that the Plan shall constitute a written compensatory benefit plan,
within the meaning of Rule 701(b) promulgated under the Securities Act, and
that each Option granted pursuant to the Plan at a time when the Common Stock
is not registered under the Exchange Act shall, unless otherwise specified by
the Committee at the time the Option is granted or at any time thereafter, be
granted in reliance on the exemption from the registration requirements of
Section 5 of the Securities Act provided by Rule 701.
As a condition to the exercise of an Option, the Committee may require
the Optionee to represent and warrant in writing at the time of such exercise
that the shares of Common Stock issuable upon exercise of the Option are being
purchased only for investment and without any then-present intention to sell
or distribute such shares. At the option of the Committee, a stop-transfer
order against such shares may be placed on the stock books and records of the
Company, and a legend indicating that such shares may not be pledged, sold or
otherwise transferred unless an opinion of counsel is provided stating that
such transfer is not in violation of any applicable law or regulation, may be
stamped on the certificates representing such shares in order to assure an
exemption from registration. The Committee also may require such other
documentation as it shall, in its discretion, deem necessary from time to time
to comply with federal and state securities laws. THE COMPANY HAS NO
OBLIGATION TO UNDERTAKE REGISTRATION OF ANY OPTION OR ANY SHARES OF COMMON
STOCK ISSUABLE UPON THE EXERCISE OF ANY OPTION.
(2) The Optionee shall pay to the Company by certified or cashier's
check, promptly upon exercise of the Option or, if later, the date that the
amount of such obligations becomes determinable, all applicable federal,
state, local and foreign withholding taxes that the Committee, in accordance
with the applicable rules and regulations, determines to result from the
exercise of the Option or from a transfer or other disposition of shares of
Common Stock acquired upon exercise of the Option or otherwise related to the
Option or shares of Common Stock acquired upon exercise of the Option, which
determination by the Committee of the amount due shall be binding upon the
Optionee. Upon approval of the Committee, such Optionee may satisfy such
obligation by complying with one or more of the following alternatives
selected by the Committee:
(A) by delivering to the Company whole shares of Common Stock
then owned by such Optionee, or by the Company withholding whole
shares of Common Stock otherwise issuable to the Optionee upon
exercise of the Option, which shares of Common
11
<PAGE> 88
Stock received or withheld shall have a Fair Market Value on the
date of exercise (as determined by the Committee in good faith)
equal to the tax obligation to be paid by such Optionee upon such
exercise;
(B) by executing appropriate loan documents approved by the
Committee by which such Optionee borrows funds from the Company to
pay the withholding taxes due under this Section 6(l)(2), with such
repayment terms as the Committee shall select;
(C) by any combination of the foregoing methods of payment;
or
(D) by complying with any other payment mechanism as may be
permitted for the issuance of equity securities under applicable
securities and other laws and approved by the Committee from time to
time.
(3) The issuance, transfer or delivery of certificates of Common
Stock pursuant to the exercise of an Option may be delayed, at the discretion of
the Committee, until the Committee is satisfied that the applicable requirements
of the federal and state securities laws and the withholding provisions of the
Code have been met.
(m) STOCK SPLIT, REORGANIZATION OR LIQUIDATION.
(1) Upon the occurrence of any of the following events, the
Committee shall, with respect to each outstanding Option, proportionately adjust
the number of shares of Common Stock issuable upon exercise of such Option, the
per share exercise price or both so as to preserve the rights of the Optionee
substantially proportionate to the rights of such Optionee prior to such event,
and to the extent that such action shall include an increase or decrease in the
number of shares of Common Stock issuable upon exercise of outstanding Options,
the number of shares available under Section 5 shall automatically be increased
or decreased, as the case may be, proportionately, without further action on the
part of the Committee, the Company, the Company's shareholders, or any Optionee:
(i) the Company shall at any time be involved in a
transaction described in Section 424(a) of the Code (or
any successor provision) or any "corporate transaction"
described in the regulations promulgated thereunder;
(ii) the Company subdivides its outstanding shares of Common
Stock into a greater number of shares of Common Stock
(by stock dividend, stock split, reclassification or
otherwise) or combines its outstanding shares of Common
Stock into a smaller number of shares of Common Stock
(by reverse stock split, reclassification or otherwise);
or
(iii) any other event with substantially the same effect shall
occur.
(2) If the Company shall at any time declare an extraordinary
dividend with respect to the Common Stock, whether payable in cash or other
property, or is involved in any recapitalization, spinoff, combination, exchange
of shares, warrants or rights offering to purchase Common Stock, or other
similar event (including a merger or consolidation other than one that
constitutes an Approved Transaction), the Committee may, in the exercise of its
sole discretion and with respect to each outstanding Option, proportionately
adjust the number of shares of Common Stock issuable upon exercise of such
Option, the per share exercise price or both so as to preserve the rights of the
Optionee substantially proportionate to the
12
<PAGE> 89
rights of such Optionee prior to such event, and to the extent that such action
shall include an increase or decrease in the number of shares of Common Stock
issuable upon exercise of outstanding Options, the number of shares available
under Section 5 of the Plan shall automatically be increased or decreased, as
the case may be, proportionately, without further action on the part of the
Committee, the Company, the Company's shareholders, or any Optionee.
(3) The foregoing adjustments shall be made by the Committee or by
the applicable terms of any assumption or substitution document.
(4) With respect to the foregoing adjustments, the number of shares
subject to an Option shall always be a whole number. The Committee may, if
deemed appropriate, provide for a cash payment to any Optionee in connection
with any adjustment made pursuant to this Section 6(m).
(5) The grant of an Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure, to merge, consolidate or
dissolve, to liquidate or to sell or transfer all or any part of its business
or assets.
(n) APPROVED TRANSACTIONS; CONTROL PURCHASE.
In the event of any Approved Transaction or Control Purchase, if so
provided for in the Agreement representing such Option, an Option may become
exercisable in full in respect of the aggregate number of shares thereunder
effective upon the Control Purchase or immediately prior to consummation of the
Approved Transaction. In the case of an Approved Transaction, the Company shall
provide notice of the pendency of the Approved Transaction at least fifteen
(15) days prior to the expected date of consummation thereof to each Optionee
entitled to acceleration. Each such Optionee shall thereupon be entitled to
exercise the vested portion of the Option at any time prior to consummation of
the Approved Transaction or immediately following the Control Purchase. Any such
exercise shall be contingent on such consummation.
Following consummation of the Approved Transaction or Control Purchase,
and until such Option is terminated pursuant to Section 6(g) hereof, any vested
portion of Options that are not exercised shall remain exercisable, and any
unvested portions of any Options shall remain in effect and continue to vest in
accordance with the vesting schedule specified at the time of grant, and upon
such vesting shall become exercisable. Notwithstanding the foregoing, in its
reasonable discretion, the Board may determine that any or all outstanding
Options that are unvested at the time of, or are not exercised upon consummation
of, the Approved Transaction or Control Purchase shall thereafter terminate,
provided that, in making such determination, the Board shall consider the best
interests of the Optionees, the Company and its shareholders, and will make such
determination only if the action to be taken, in the opinion of the Board, is
appropriate in light of the circumstances under which such determination is
made.
Moreover, except to the extent that such determination would render
unavailable "pooling of interests" accounting treatment for any reorganization,
merger or consolidation of the Company, the Board may take, or make effective
provision for the taking of, such action as in the opinion of the Board is
equitable and appropriate in order to substitute new stock options for any or
all outstanding Options that do not become exercisable on an accelerated basis,
or to assume such Options (which assumption may be effected by any means
determined by the Board, in its discretion, including, but not limited to, by a
cash payment to each Optionee, in cancellation of the Options held by him or
her, of such amount as the Board determines, in its sole discretion, represents
the then value of the Options) and in order to make such new stock options or
assumed Options, as nearly as practicable, equivalent to the old Options, taking
into
13
<PAGE> 90
account to the extent applicable, the kind and amount of securities, cash or
other assets into or for which the Common Stock may be changed, converted or
exchanged in connection with the Approved Transaction.
7. EFFECTIVE DATE; TERM.
The Plan shall be effective at the time specified in the resolutions of
the Board adopting the Plan (the "Effective Date"). Options may be granted by
the Committee or Executive Officer from time to time thereafter until the tenth
anniversary of the Effective Date. Termination of the Plan shall not terminate
any Option granted prior to such termination. Issuance of Non-Qualified Stock
Options under the Plan shall be subject to the requirement of RCW 21.20.310(10)
that the Administrator of Securities of the Department of Financial Institutions
of the State of Washington be provided with notification of the adoption of the
Plan. No Non-Qualified Stock Option shall be granted hereunder until this
notification requirement has been satisfied. Issuance of Incentive Stock Options
under the Plan within twelve (12) months after the Effective Date shall be
subject to the approval of the Plan by the shareholders of the Company at a duly
held meeting of shareholders at which a majority of all outstanding voting stock
of the Company is represented in person or by proxy. The approval required shall
be a majority of the votes cast on the proposal to approve the Plan. Such
approval may also be provided pursuant to a written consent in lieu of such
meeting. No Incentive Stock Option granted hereunder shall be exercisable until
this approval requirement has been satisfied. If this requirement is not
satisfied within twelve (12) months after the Effective Date, then,
notwithstanding any contrary provision in the Plan (a) no Incentive Stock
Options may thereafter be granted under the Plan, and (b) each Incentive Stock
Option granted under the Plan prior thereto shall automatically be deemed to be
a Non-Qualified Stock Option (except to the extent the Agreement evidencing the
Option expressly provides otherwise).
8. NO OBLIGATIONS TO EXERCISE OPTION.
The grant of an Option shall impose no obligation upon the Optionee to
exercise such Option.
9. NO RIGHT TO OPTIONS OR TO EMPLOYMENT.
Whether or not any Options are to be granted under the Plan shall be
exclusively within the discretion of the Committee, and nothing contained in the
Plan shall be construed as giving any person any right to participate under the
Plan. The grant of an Option to any Optionee shall in no way constitute any form
of agreement or understanding binding on the Company or any Related Corporation,
express or implied, that the Company or such Related Corporation will employ or
contract with such Optionee for any length of time, nor shall it interfere in
any way with the Company's or, where applicable, a Related Corporation's right
to terminate such Optionee's employment at any time, which right is hereby
reserved.
10. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock
issued upon the exercise of Options shall be used for general corporate
purposes, unless otherwise directed by the Board.
11. INDEMNIFICATION OF COMMITTEE.
In addition to all other rights of indemnification they may have by
virtue of being a member of the Board or an executive officer of the Company,
members of the Committee and the Executive Officer shall be indemnified by the
Company for all reasonable expenses and liabilities of any type or nature,
including attorneys' fees, incurred in connection with any action, suit or
proceeding to which they or any of them are a
14
<PAGE> 91
party by reason of, or in connection with, the Plan or any Option granted under
the Plan, and against all amounts paid by them in settlement thereof (provided
that such settlement is approved by independent legal counsel selected by the
Company), except to the extent that such expenses relate to matters for which it
is adjudged that such Committee member or Executive Officer is liable for
willful misconduct; provided, however, that within fifteen (15) days after the
institution of any such action, suit or proceeding, the Committee member or
Executive Officer involved therein shall, in writing, notify the Company of such
action, suit or proceeding, so that the Company may have the opportunity to make
appropriate arrangements to prosecute or defend the same.
12. SHAREHOLDERS AGREEMENT.
Unless the Agreement evidencing an Option expressly provides otherwise,
each Optionee may be required, as a condition to the issuance of any shares of
Common Stock that such Optionee acquires upon the exercise of the Option, to
execute and deliver to the Company a shareholders agreement in such form as may
be required by the Company at the time of such exercise, or a counterpart
thereof, together with, unless the Optionee is unmarried, a spousal consent in
the form required thereby, unless the Optionee has previously executed and
delivered such documents and they are in effect at the time of exercise and
apply by their terms to the shares to be issued.
13. SEPARABILITY.
With respect to Incentive Stock Options, if the Plan does not contain
any provision required to be included herein under Section 422 of the Code, such
provision shall be deemed to be incorporated herein with the same force and
effect as if such provision had been set out in full herein; provided, however,
that to the extent any Option that is intended to qualify as an Incentive Stock
Option cannot so qualify, the Option, to that extent, shall be deemed to be a
Non-Qualified Stock Option for all purposes of the Plan.
14. NON-EXCLUSIVITY OF THE PLAN.
Neither the adoption of the Plan by the Board nor the submission of the
Plan to the shareholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and the awarding of stock and cash otherwise than
pursuant to the Plan, and such arrangements may be either generally applicable
or applicable only in specific cases.
15. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION.
By acceptance of an Option, unless otherwise provided in the Agreement
evidencing the Option, the Optionee with respect to such Option shall be deemed
to have agreed that the Option is special incentive compensation that will not
be taken into account, in any manner, as salary, compensation or bonus in
determining the amount of any payment or other benefit under any pension,
retirement or other employee benefit plan, program or policy of the Company or
any of its affiliates.
16. AMENDMENT OF PLAN.
The Board may, at any time, modify, amend or terminate the Plan or
modify or amend any Option granted pursuant to the Plan, including, without
limitation, such modifications or amendments as are necessary to maintain
compliance with applicable statutes, rules or regulations; provided, however,
that no amendment with respect to an outstanding Option which has the effect of
reducing the benefits afforded to
15
<PAGE> 92
amendment with respect to an outstanding Option which has the effect of reducing
the benefits afforded to the Optionee shall be made over the objection of such
Optionee; further provided, that the events triggering acceleration of vesting
of an outstanding Option may be modified, expanded or eliminated without the
consent of the Optionee. The Board may condition the effectiveness of any such
amendment on the receipt of shareholder approval at such time and in such manner
as the Committee may consider necessary for the Company to comply with or to
avail the Company, the Optionees or both of the benefits of any securities, tax,
market listing or other administrative or regulatory requirement which the Board
determines to be desirable. Without limiting the generality of the foregoing,
the Board may modify grants to persons who are eligible to receive Options under
the Plan who are foreign nationals or employed outside the United States to
recognize differences in local law, tax policy or custom.
Date Amended and Restated Plan was Approved by Board of Directors of Company:
January 29, 1998
Date Amended and Restated Plan was Approved by Shareholders of Company: January
29, 1998
16
<PAGE> 93
SECTION 2.6
None.
<PAGE> 94
SECTION 2.7
1. TERMINATION OF REDEMPTION AGREEMENT.
See Item 4 to Section 2.3 of the Disclosure Schedule for a description
of the termination of the Redemption Agreement between the Company and the
current shareholders.
2. IMPERIAL BANK.
The Company is in the process of negotiating a line of credit and term
loan with Imperial Bank. The material terms of the facility are as follows:
A. A $2,000,000 Revolving Line of Credit to support working capital and for
issuance of trade related commercial and standby letters of credit.
B. A $500,000 Term Loan to finance the purchase of equipment, software,
furniture and acquisitions.
The interest rate is the bank's prime rate for the line of credit and
the bank's prime rate plus 0.25% for the term loan. The facility fee is 0.50%
per annum, or $10,000, for the line of credit and the bank's prime rate plus
0.25% per annum, or $2,500 for the term loan. Covenants include, but are not
limited to 1) maintaining a minimum quick ratio of 1.0,2) maintaining minimum
tangible net worth of $2,500,000 and 3) maintaining a minimum debt service ratio
of 1.5.
<PAGE> 95
Section 2.10
Address of Leased Property Use of Property
- --------------------------------------------------------------------------------
13228 N.E. 20th Street, Suite C, Bellevue, Washington 98005 Office Space
3633--136th Place S.E., Suite 100, Bellevue, Washington 98006 Office Space
3633--136th Place S.E., Suite 200, Bellevue, Washington 98006 Office Space
3635--136th Place S.E., Suite 110, Bellevue, Washington 98006 Office Space
(after February 28, 1998)
3633--136th Place S.E., Suite 310, Bellevue, Washington 98006 Office Space
The Company is currently negotiating a lease for approximately 7,600 of
additional office space in Bellevue, Washington. The lease provides for monthly
payments of $30,210 in years one through three, and for $32,098 in years four
through five. The Company will provide a security deposit of $60,420 in the form
of a standby letter of credit.
<PAGE> 96
SECTION 2.12(a)
None.
SECTION 2.12(b)
The following is a list of arrangements where the Company is obligated
to pay $50,000 or more per year:
<TABLE>
<CAPTION>
Name of Creditor Approximate Obligation
- ---------------- ----------------------
<S> <C>
Seattle Office Associates LLC -- Suite 100 $225,792
Seattle Office Associates LLC -- Suite 200 $114,497
Seattle Office Associates LLC -- Suite 310 $204,307
Seattle Office Associates LLC -- Suite 110 $119,989
CB Commercial $ 62,662
</TABLE>
Section 2.12(c)
The following is a list of arrangements pursuant to which the Company
will receive $200,000 or more:
o Development and License Agreement Between BSQUARE Corporation and Microsoft
Corporation, dated June 12, 1997, as amended by Amendment No. 1 dated December
17, 1997
o Development Agreement Between BSQUARE Corporation and Microsoft Corporation,
dated September 12, 1997, as amended by Amendment No. 1 dated January 19, 1998
o Development and License Agreement by and between Advanced RISC Machines, Ltd.
and BSQUARE Corporation, dated August 26, 1997
o Development and License Agreement by and between NEC Electronics Inc. and
BSQUARE Consulting Inc., dated June 11, 1997
o License Agreement by and between BSQUARE Inc. and Hitachi, Ltd., dated April
7, 1997
o Porting Agreement between BSQUARE Corporation and IBM, dated August 7, 1997
Section 2.12(d)
A number of the license and development agreements to which the Company
is a party contain confidentiality provisions. These confidentiality provisions
often include a limitation on the use of the information gained from such
relationship, and in that way place a restriction on the type of work to be
performed by the Company. In addition, the following is a list of specific
restrictions contained in certain of the Company's contracts:
<PAGE> 97
SECTION 2.12(a)
None.
SECTION 2.12(b)
The following is a list of arrangements where the Company is obligated
to pay $50,000 or more per year:
Name of Creditor Approximate Obligation
- ---------------- ----------------------
Seattle Office Associates LLC -- Suite 100 $225,792
Seattle Office Associates LLC -- Suite 200 $114,497
Seattle Office Associates LLC -- Suite 310 $204,307
Seattle Office Associates LLC -- Suite 110 $119,989
CB Commercial $ 62,662
SECTION 2.12(c)
The following is a list of arrangements pursuant to which the Company
will receive $200,000 or more:
o Development and License Agreement Between BSQUARE Corporation and Microsoft
Corporation, dated June 12, 1997, as amended by Amendment No. 1 dated December
17, 1997
o Development Agreement Between BSQUARE Corporation and Microsoft Corporation,
dated September 12, 1997, as amended by Amendment No. 1 dated January 19, 1998
o Development and License Agreement by and between Advanced RISC Machines, Ltd.
and BSQUARE Corporation, dated August 26, 1997
o Development and License Agreement by and between NEC Electronics Inc. and
BSQUARE Consulting Inc., dated June 11, 1997
o License Agreement by and between BSQUARE Inc. and Hitachi, Ltd., dated April
7, 1997
o Porting Agreement between BSQUARE Corporation and IBM, dated August 7, 1997
SECTION 2.12(d)
A number of the license and development agreements to which the Company
is a party contain confidentiality provisions. These confidentiality provisions
often include a limitation on the use of the information gained from such
relationship, and in that way place a restriction on the type of work to be
performed by the Company. In addition, the following is a list of specific
restrictions contained in certain of the Company's contracts:
<PAGE> 98
o Total Control/Stellcom agreement restricts the Company from licensing the
Anybus driver to a list of competitors.
o The Microsoft Development and Test Agreement (DTA) for the Windows CE OAK
restricts the Company from working on a competing operating system with the
same resources at the same time.
SECTION 2.12(e)
o Development and License Agreement Between BSQUARE Corporation and Microsoft
Corporation, dated June 12, 1997, as amended by Amendment No. 1 dated December
17, 1997
o Development Agreement Between BSQUARE Corporation and Microsoft Corporation,
dated September 12, 1997, as amended by Amendment No. 1 dated January 19, 1998
o Development and License Agreement by and between Advanced RISC Machines, Ltd.
And BSQUARE Corporation, dated August 26, 1997
o Development & License Agreement by and between NEC Electronics Inc. and
BSQUARE Consulting Inc., dated June 11, 1997
o License Agreement by and between BSQUARE Inc. and Hitachi, Ltd., dated April
7, 1997
o Software Licensing and Bundle Agreement between BSQUARE CORPORATION and
Philips Mobile Computing Group dated June 25, 1997
o Philips Semiconductors Terms and Conditions for Contracted Services dated
March 13, 1997
o Porting Agreement between International Business Machines Corporation and
BSQUARE CORPORATION dated August 7, 1997
o Software Development Agreement by and between BSQUARE CORPORATION and
Motorola, Inc. dated December 31, 1996, as amended by Amendment to Software
Development Agreement dated October 3, 1997
SECTION 2.12(f)
None.
SECTION 2.12(e)
See Item 2 to Section 2.7 of the Disclosure Schedule for a description
of the Company's relationship with Imperial Bank.
SECTION 2.12(h)
See Sections 2.12(c) and 2.12(e) of the Disclosure Schedule for a list
of the Company's material license agreements. The Company enters into
development agreements with the
<PAGE> 99
majority of its customers. Other than these development agreements, the Company
has no joint venture, partnerships or supply agreements.
SECTION 2.12(i)
The Company utilizes the marketing and design services of Team Design.
During fiscal 1997, the Company spent over $150,000 with Team Design.
SECTION 2.12(j)
Each of the Company's employees is given a standard employment offer
letter and is required to sign a Proprietary Rights Agreement upon commencement
of employment.
SECTION 2.12(k)
See Item 4 to Section 2.3 of the Disclosure Schedule for a description
of the Redemption Agreement between the Company and the current shareholders.
SECTION 2.12(l)
o BSQUARE Corporation 401(k) Plan
o BSQUARE Corporation Amended and Restated Stock Option Plan
o Profit-sharing plan. Pursuant to an e-mail from Bill Baxter to all of the
Company's employees, the Company implemented a Profit-sharing plan for
1997 and 1998. Specifically, the e-mail stated:
"It is our intention to set aside 5% of our pre-tax earnings for
the 1997 plan and at least 5% for the 1998 plan. After the year
end numbers are final (December 31st), we will announce the
final earnings. We will move as expeditiously as possible to
disperse these profits to employees as taxable income (thank you
Uncle Sam).
The profits of the Corporation and your share of the profits
will depend on many factors. Because of your contributions,
BSQUARE is a profitable Corporation and we really appreciate all
you have done to make this possible. In the future, your
contributions to BSQUARE will continue to contribute to the
overall success of our Corporation. If, for business reasons,
the Board deems this plan is not advisable, we reserve to right
to withdraw this plan. The Board will have final approval over
such transactions and you should judge the Board's performance
on how well it achieves the above stated intentions. In order to
be eligible for the plan, you most have started work before
December 15th of the respective year."
SECTION 2.12(m)
None.
<PAGE> 100
SECTION 2.12(n)
None.
SECTION 2.12(o)
None.
SECTION 2.12(p)
None.
SECTION 2.12(q)
None.
<PAGE> 101
SECTION 2.13
The Company is divided into three general divisions: BSQUARE Consulting,
BSQUARE Integration and BSQUARE Development. BSQUARE Consulting generally enters
into time and material agreements with the Company's semi-conductor partners or
with Microsoft. All intellectual property developed by this division is
work-for-hire and is owned by Microsoft (or in some instances, by the Company's
semi-conductor partners). BSQUARE Integration ports Windows CE to various OEM
products. In most cases, the Company retains ownership or joint ownership of
intellectual property developed by the BSQUARE Integration division and then the
Company licenses this intellectual property back to the OEM customer. In one
case (see Section 2.12(d) of the Disclosure Schedule), the customer acquired
ownership of the intellectual property developed by the BSQUARE Integration
division. BSQUARE Development develops shrink-wrap and off-the-shelf popular
applications for OEM devices (generally, the "bProduct line"). The Company
retains ownership of the intellectual products developed by the BSQUARE
Development division and licenses the products for royalty-based distribution.
In the course of its relationships with its customers, the Company is
often granted a license to use and modify the customer's intellectual property
to the extent necessary to perform the Company's development services. In
addition, the Company has entered into a number of license agreements with a
variety of software providers to acquire use of software necessary for the
Company to perform its development services. The Company is also subject to
those licenses or agreements arising from the purchase of "off-the-shelf" or
standard products.
The Company received a notice from one of its customers regarding a
patent (U.S. Patent No. 4,918,723) covering a "keyboard to facsimile
transmission device" held by a third party. The Company does not believe that
the Company's Intellectual Property Rights conflict with this patent, but there
can be no assurance that an action would not be brought in the future regarding
this patent.
TRADEMARKS:
o BSQUARE: Registered in US Class 422,105,093 Class 9 application 75/57,07,
application in Canada #827,659
o BSQUARE VIEW: application in US #75/157,019, application in Canada #826,625
o bVIEW: Registered in Canada #TMA485,548, application in US #75/157,018
o bFAX: application in US #75/157,020, application in Canada #826,626
o bFIND, bMOBILE, bTRACK, bREADY, bPRINT: applications pending in US
o CE Xpress: application pending in US
BSQUARE DEVELOPMENT COPYRIGHTS:
o BSQUARE Fax Express (a.k.a., bFAX Express), 1996, 1997 and 1998: Send/only
fax application for Windows CE. Support faxing and previewing bitmaps, text
and Microsoft Pocket Word documents. This application has been adapted to the
H/PC and the P/PC. This application is sold through reseller channels. The
P/PC version is due for release in the first quarter of 1998.
o BSQUARE Fax Pro (a.k.a., bFAX Pro): Send and receive fax application for
Windows CE. Supports faxing and previewing of faxes containing multiple
documents to multiple
<PAGE> 102
recipients. This product is bundled with certain H/PCs. This application is
sold through reseller channels.
o BSQUARE Fax Lite (a.k.a., bFAX Lite), 1996, 1997 and 1998: A version of bFAX
Pro that has certain features disabled. This product was developed to provide
a free evaluation of bFAX to customers. This product is distributed free of
charge on the Web and by certain H/PC OEMs.
o BSQUARE Fax Enhanced (a.k.a., bFAX Enhanced): A version of bFAX Pro that has
certain features disabled. This product was developed to bundle with the Casio
Casseopiea A-1O and A-11. This product is no longer in production.
o BSQUARE Mobile (a.k.a., bMOBILE, bMOBILE Wireless Internet): This is a driver
and control panel application that allows Windows CE to communicate with a
Motorola Personal Messenger 100C CDPD (cellular digital packet data) modem.
The control panel interface allows for modem control and monitoring.
o BSQUARE Net (a.k.a., bNET): This is a driver and control panel application
which is very similar to bMOBILE, but extends this capability to the 3COM
Etherlink III (3C589) and the NE2000 ethernet adapters.
o BSQUARE Print (a.k.a., bPRINT): This product enables Windows CE Version 1 to
print the same file formats bFAX supports while faxing.
o BSQUARE Print Pro (a.k.a., bPRINT Pro): This product enables printing as does
bPRINT, but extends print spooling to any application which supports printing.
It supports printing to lRdA-compliant devices, and supports printing to
various printers not already supported by Windows CE. It also provides for a
print-to-fax capability so that any application can print to bFAX Pro. It is
due for release in the first quarter of 1998.
o BSQUARE Find (a.k.a., bFIND): This is a global search utility for Windows CE
that allow search of all data sources and controls the execution of
application to continue the search. This application is sold through reseller
channels and is also bundled with all Hewlett-Packard H/PCs.
o BSQUARE Track (a.k.a., bTRACK): This is a time, expense and car mileage
tracking application for Windows CE. It provides a set of desktop APIs that
enable third parties to integrate the expense information into customer
applications and corporate information systems. It has been adapted to both
the H/PC and the P/PC. It is due for release in the second quarter of 1998.
o BSQUARE Ready (a.k.a., bREADY): This is an information management, online book
authoring and reader application. It has two components. The desktop component
sits on the desktop which allows for the authoring of electronic books. The
authoring application contains Wizards that assist the user to acquire content
from the Internet and produce an electronic book. The client-side application
allows users to read electronic books produced with the desktop application.
The reader has an Auto-scrolling feature which is used for reading books and
speeches. The reader application supports bookmarks, annotations, searching,
and indexing. It is due for release in the second quarter of 1998.
o BSQUARE Mobile News (a.k.a., bMOBILE News, bNEWS): This is a USENET Newsreader
application for Windows CE. It was acquired from AdageUS. All rights, title
and interest are owned by BSQUARE. This application is sold through reseller
channels.
o BSQUARE Mobile Chat (a.k.a., bMOBILE Chat, bCHAT). This is an Internet Relay
Chat program for Windows CE. It was acquired from AdageUS. All rights, title
and interest are owned by BSQUARE. This application is sold through reseller
channels.
o BSQUARE Fax APIs (a.k.a., bFAX APIs): These are a set of low-level application
programming interfaces that provide the capability of integrating faxing
capabilities into other software applications. The purpose of these APIs is to
allow third party independent
<PAGE> 103
software vendors to integrate faxing capabilities into their applications.
They require that the end-user license a copy of bFAX Pro to utilize the
functionality. These APIs are currently being used by Odyssey Computing and
Communications Intelligence Corporation.
o BSQUARE IMAGING APIS: These are a set of low-level application programming
interfaces that provide the capability of extending the imaging capabilities
of bFAX, bVIEW and bPRINT. Only BSQUARE uses these capabilities.
o MIMIC: This a graphical user interface testing framework used by BSQUARE
Development to test applications.
o PACKET DRIVER TECHNOLOGY: This is the basis for bMOBILE and bNET which enable
those drivers to translate PPP (point to point protocol) into serial-line
internet protocol (SLIP) and ethernet, respectively. This technology could,
conceivably, be adapted to various other protocols.
BSQUARE INTEGRATION COPYRIGHTS:
o CE XPRESS KITS FOR SC400 (a.k.a., BSQUARE OAK for SC400, BSQUARE Value Added
OAK for SC400): An adaptation of Windows CE to the AMD Elan SC400
Microcontroller. It has been adapted to various board-level devices using the
SC400.
o CE XPRESS KITS FOR VR4300 (a.k.a., BSQUARE OAK for VR4300, BSQUARE Value Added
OAK for VR4300): An adaptation of Windows CE to the NEC VR4300 MIPS Processor.
It has been adapted to NEC Nile 3 Chipset.
o CE XPRESS KITS FOR MEDIAGX (a.k.a., BSQUARE OAK for MediaGX, BSQUARE Value
Added OAK for MediaGX): An adaptation of Windows CE to the Cyrix MediaGX
Processor. It has been adapted to various reference devices using the MediaGX.
o BSQUARE FIRMWARE: A set of firmware utilities and tools which facilitate the
adaptation of Windows CE to various microprocessors. This includes a
client-side firmware stub called the "brainstem" and a Windows
NT-hosted-application capable of interacting with the brainstem. This firmware
provides mechanisms for flashing Windows CE images into a device, debugging
the device, and application programming interfaces which enable the
development of testing software which is source-code compatible across all
devices running the brainstem.
o Decompressing Boot LOADER: An OS loader capable of loading a compressed
Windows CE image (using BSQUARE proprietary FILE format) into volatile storage
which maps the image so that it can execute in place in the volatile storage.
BSQUARE COPYRIGHTS:
o BSQUARE INTRANET (a.k.a., bWEB): This is BSQUARE Corporation's Intranet Web
Site which contains content necessary for disseminating information to BSQUARE
Employees. This information includes, but is not limited to, Newsletters,
organization structure, procedures, policies and forms, as well as help desk
software.
o BSQUARE HELP (a.k.a., bHELP): A component of bWEB which provides employees a
network administration help desk which allows them to interact with BSQUARE
Network Administrators. o BSQUARE OPS (a.k.a., bOPS): A component of bWEB,
similar to bHELP, which provides a facilities/operations help desk to
operations and facilities management.
o BSQUARE WORLD Wide Web Site (a.k.a., www.bsquare.com): BSQUARE's Corporate
Homepage.
o BSQUARE Marketing Collateral: This includes all brochures and the like for
marketing BSQUARE Corporation's business divisions.
<PAGE> 104
SECTION 2.15
1. EMPLOYEE BENEFIT PLANS.
See Section 2.12(l) of the Disclosure Schedule for a description of the
Company's employee benefit plans.
2. ROBIN ARNOLD.
On July 17, 1997, the Company entered into a Separation Agreement with
Robin Arnold, who was a former employee, officer and shareholder of the Company.
In connection with this Separation Agreement, the Company made A payment to Mr.
Arnold in the amount of $7,083.33 in severance benefits.
3. COBRA BENEFITS.
The Company offers standard post-employment COBRA benefits to its
employees.
4. MICHAEL LAFAVRE
On October 16, 1997, the Company entered into a Separation Agreement
with Michael LaFavre, who was a former employee of the Company. In connection
with this Separation Agreement, the Company made a payment to Mr. LaFavre in the
amount of $2,856.55 in severance benefits.
<PAGE> 105
SECTION 2.17(a)
<TABLE>
<CAPTION>
YEARS OF
NAME TITLE SALARY SERVICE
- ---- ----- ------ -------
<S> <C> <C> <C>
William Baxter President and Chief $250,000 plus $460 per 3.5
Executive Officer month car payment
Albert Dosser Senior Vice President $150,000 3.5
Peter Gregory Senior Vice President $150,000 3.5
Joseph Notarangelo Vice President, $100,000 1.25
Engineering
Christopher MacGregor Sr. Software Engineer $104,100 3
Fred Kunz Consulting Engineer $109,200 2.25
</TABLE>
SECTION 2.17(b)
<TABLE>
<CAPTION>
<S> <C>
Team Design $150,548.68
1809 - 7th Avenue, Suite 500
Seattle, WA 98101
Ducky's Office Furniture $209,742.61
1111 Mercer Street
Seattle, WA 98109
Nationwide Insurance $283,222.85
James E Hunnex & Assoc. Inc.
5870 Columbia Center
Seattle, WA 98104
Seattle Office Associates $657,349.02
3633 -- 136th Place SE, Suite 205
Bellevue, WA 98006
Hard Drives Northwest $952,393.00
14404 NE 20th Street
Bellevue, WA 98007
</TABLE>
<PAGE> 106
SECTION 2.20
The Company entered into a letter agreement with Dain Rauscher
Incorporated ("Dain") dated December 3, 1997 pursuant to which Dain has been
engaged as the Company's exclusive agent on a "best efforts" basis in connection
with the offering by private placement of A series of preferred stock of the
Company. In connection with this engagement, Dain is to be paid a selling
commission of four percent (4%) on all sales of stock made by the Company. In
addition, the Company is required to reimburse Dain for all of its accountable
legal fees, travel and other reasonable out-of-pocket expenses not to exceed
$25,000.00 without the prior approval of the Company.
<PAGE> 107
SECTION 2.21
The following is a list of all insurance policies maintained by the
Company:
o PROPERTY INSURANCE $650,000 Blanket tenant Improvements & Betterments and
Business Personal Property and $1,000,000 Extra Expense (as defined in the
policy)
o DATA PROCESSING INSURANCE $750,000 Equipment, $150,000 Media/Software,
$25,000 Transit and $100,000 Extra Expense (as defined in the policy)
o CRIME INSURANCE $500,000 Employee Dishonesty, $500,000 Forgery or Alteration,
$500,000 Computer Fraud and $500,000 Fiduciary Responsibility
o GENERAL LIABILITY INSURANCE PROPOSAL $2,000,000 Products/Completed Operations
Aggregate, $2,000,000 General Aggregate, $1,000,000 Per Occurrence, $1,000,000
personal & Advertising Injury, $500,000 Fire Legal Damage per fire, $1,000,000
Employers Liability (Stop Gap), $1,000,000 Employee Benefits Liability Per
Occurrence, $3,000,000 Employee Benefits Liability Aggregate
o ERRORS & OMISSIONS $ 1,000,000 Per Occurrence, $ 1,000,000 Aggregate
o AUTOMOBILE INSURANCE $1,000,000 Bodily Injury and Property Damage Liability,
$5,000,000 Medial, $100 Comprehensive Deductible, $500 Collision Deductible,
$1,000,000 Hired and Non-Owned Auto Liability, $40,000 Hired Auto Physical
Damage, $100 Hired Auto Comprehensive Deductible, $500 Hired Auto Collision
Deductible
o UMBRELLA LIABILITY INSURANCE $3,000,000 Per Occurrence, $3,000,000 Aggregate
The Company has no outstanding claims under the above policies that
exceed $5,000.
<PAGE> 108
SECTION 2.22
1. PROMISSORY NOTES TO SHAREHOLDERS.
In connection with the revocation of its S-Corporation status, the
Company executed promissory notes in the amount of $654,970.76 to each of
William T. Baxter, Albert T. Dosser and Peter R. Gregory and a note in the
amount of $35,087 to Joseph Notarangelo, which amounts represented the Company's
accumulated adjustments account as of October 14, 1997 and included an amount
sufficient to cover any federal taxes owing on the Company's income for fiscal
year 1997 prior to revocation of the S-Corporation status. Such notes are due
and payable on or prior to April 1, 1998.
2. REDEMPTION AGREEMENT.
See Item 4 to Section 2.3 of the Disclosure Schedule for a description
of the Redemption Agreement between the Company and the current shareholders.
3. AUTOMOBILE LEASE.
The Company currently pays approximately $460 per month to cover an
automobile lease for an automobile used by William T. Baxter.
<PAGE> 109
SECTION 2.23
During the year ended December 31, 1997, the Company earned
approximately $14.4 million. The following is a list of the customers who
accounted for more than 5% of the sales:
o Hitachi 18%
o NEC 17%
o Microsoft 39%
o Motorola 8%
o ARM 11%
Although none of the Company's customers has completely terminated its
relationship with the Company, a number of contracts have terminated as a result
of the Company's completion of a project or service provision. In addition, a
number of the Company's customers and suppliers operate on a purchase order to
purchase order basis. Therefore, the Company cannot guarantee that it will be
able to maintain a relationship with any of these current customers or
suppliers.
<PAGE> 110
SECTION 2.24
A copy of the Development and License Agreement, dated June 12, 1997, by
and between Microsoft Corporation and the Company, as amended by Amendment No. 1
to Development and License Agreement, dated December 17, 1997 is attached as
Section 2.24 of the Disclosure Schedule.
<PAGE> 111
SECTION 2.24 OF
DISCLOSURE SCHEDULE
DEVELOPMENT & LICENSE AGREEMENT
This Development Agreement (the "Agreement") is entered into and effective as of
June 12, 1997 (the "Effective Date") by and between Microsoft Corporation, a
Washington corporation located at One Microsoft Way, Redmond, WA 98052
("Microsoft") and bsquare consulting, inc., a Washington corporation located at
3633 - 136th Place SE, Suite 100, Bellevue, WA 98006 ("bsquare").
RECITALS
Microsoft has developed a computer software platform known as Microsoft(R)
Windows(R) CE ("Windows CE").
Microsoft desires to have bsquare assist with the development, testing and
program management of certain "Visual" development tools for Windows CE, and,
bsquare desires to provide such software development and consulting services to
Microsoft.
The parties agree as follows:
AGREEMENT
1. DEFINITIONS
1.1 "Work Product" shall mean the result of performance of the work tasks
contained in the Work Plan.
1.2 "Services" shall mean the design and development of the Work Product,
delivery of the Deliverables and performance of the program management
services described in the Work Plan.
1.3 "Work Plan" shall mean the specifications for the Services, attached to
this Agreement as Exhibit B.
1.4 "Schedule" shall mean the schedule for completion of the Services and
delivery of the Deliverables, attached to this agreement as Exhibit C.
1.5 "Deliverables" shall mean the various alpha, beta and final versions of the
Work Product, in source and object code forms, to be delivered by bsquare
to Microsoft, as more fully described in the Work Plan.
1.6 "Source Code" shall mean Microsoft's Windows CE operating system product
source code provided to bsquare for the limited purpose of designing,
testing and development of the Work Product pursuant to this Agreement.
1.7 "Test Hardware" shall mean all of the hardware provided to bsquare by
Microsoft for the limited purpose of testing and development of the Work
Product pursuant to this Agreement.
1.8 "Derivative Technology" shall mean: (i) for copyrightable or copyrighted
material, any translation (including translation into other computer
languages), portation, modification, correction, addition, extension,
upgrade, improvement, compilation, abridgment or other form in which an
existing work may be recast, transformed or adapted; (ii) for patentable or
patented material, any improvement thereon; and (iii) for material which is
protected by trade secret, any new material derived from such existing
trade secret material, including new material which may be protected by
copyright, patent and/or trade secret.
<PAGE> 112
1.9 "Confidential Information" shall mean: (i) any trade secrets relating to
either party's product plans, designs, costs, prices and names, finances,
marketing plans, business opportunities, personnel, research development
or know-how; (ii) any information designated by the disclosing party as
confidential in writing or, if disclosed orally, identified at the time of
disclosure as being confidential; and (iii) the terms, conditions and
existence of this Agreement. "Confidential Information" shall not include
information that: (i) is or becomes generally known or available by
publication, commercial use or otherwise through no fault of the receiving
party; (ii) is known and has been reduced to tangible form by the receiving
party at the time of disclosure and is not subject to restriction; (iii) is
independently developed or learned by the receiving party; (iv) is lawfully
obtained from a third party that has the right to make such disclosure; or
(v) is made generally available by the disclosing party without restriction
on disclosure.
2. DEVELOPMENT
2.1 Services. bsquare shall perform the Services in accordance with the
Schedule and pursuant to the Work Plan. The parties agree to discuss in
good faith, issues that may arise in performance of the work tasks,
including any issues regarding compliance with the schedule set forth in
the Work Plan, although the Work Plan may be amended only by mutual
agreement of the parties.
2.2 Acceptance.
2.2.1 For software code Deliverables, Microsoft shall evaluate the alpha,
beta and final version of each Deliverable and shall submit a
written acceptance or rejection to bsquare within ten (10) business
days after Microsoft's receipt of the alpha and beta versions and
thirty (30) days after receipt of the final version of the
Deliverable. Acceptance shall be in writing, and Microsoft shall not
unreasonably withhold its acceptance. If Microsoft identifies Errors
in each Deliverable prior to acceptance, then bsquare shall correct
such Errors within fourteen (14) days following receipt of notice
thereof during acceptance testing for the alpha and beta versions of
each Deliverable and within the time specified in the Work Plan with
respect to Errors discovered during acceptance testing for the final
version of each Deliverable. If Microsoft fails to provide written
acceptance or rejection within the time periods specified above, the
Deliverables shall be deemed accepted on the last day of each such
acceptance period.
2.2.2 For documentation or report Deliverables, Microsoft shall evaluate
each version of such Deliverable. In the event that it requires
corrections, Microsoft shall specify the corrections needed and
bsquare shall deliver an amended version of such documentation
within five (5) working days.
2.2.3 bsquare shall use all reasonable commercial efforts to complete and
deliver the Deliverables set forth in the Work Plan to Microsoft,
according to the schedule set forth in the Work Plan. Additional
information, reports, documentation and the like regarding the
Services according to the Work Plan, shall be provided by bsquare to
Microsoft upon the reasonable request of Microsoft. bsquare shall
promptly raise with Microsoft any issues that arise (or which
bsquare reasonably foresees arising) regarding the quality or
performance of the Deliverables set forth in the Work Plan, as well
as any deviation from the Schedule set forth in Work Plan for such
deliverables. The parties shall use all reasonable efforts to
promptly address any such issues that may arise, including the
establishment of an appropriate recovery plan to the extent
required.
2.2.4 If bsquare fails to deliver any Deliverable within the dates
specified in the Schedule and if any Errors discovered before
acceptance cannot be eliminated in the correction period specified
in the Work Plan then Microsoft may, at its option: (i) retain the
Deliverable (including any applicable documentation) with rights as
set forth in Section 4, and pay bsquare for all
Page 2 of 15
<PAGE> 113
outstanding payment milestones for which Microsoft has accepted
corresponding Deliverables, with no further development and license fee to
be paid to bsquare thereafter; (ii) extend the correction period; or (iii)
suspend its performance and/or terminate this Agreement for cause pursuant
to Section 9.3, provided, however, that Microsoft need not provide bsquare
the cure period specified in Section 9.3.
2.3 Design Review & Specifications Changes. bsquare understands that there may
be additions, deletions or other changes which may affect the Work Plan at
any time during the term of this Agreement. Upon notice of any such changes
by Microsoft, bsquare and Microsoft shall work together to make any
necessary changes to the Services, including, if necessary, the
compensation owed to bsquare and bsquare shall alter the Work Plan in order
to accommodate any such changes as mutually agreed to by bsquare and
Microsoft.
2.4 Services Performed on Microsoft Property. In the event it is necessary for
bsquare to perform the Services, or portion thereof, at Microsoft's
Redmond, Washington campus, bsquare shall abide by all Microsoft rules,
regulations, and security measures, including any restrictions on access to
Confidential Information.
3. PAYMENT FOR SERVICES
3.1 Payment. Microsoft agrees to pay bsquare for work performed in accordance
with the Work Plan based upon the hourly rates and incurred expenses set
forth in Exhibit A provided that bsquare has completed and delivered any
corresponding Deliverables; and (ii) Microsoft has accepted such
Deliverables.
3.2 Invoices. bsquare shall submit monthly invoices with respect to Services
performed by bsquare pursuant to the Work Plan. The procedure for
invoicing is set forth in Exhibit A. Invoices shall include reasonable
supporting materials (not including any source code-type information,
which is to be delivered as part of the Deliverables set forth in the Work
Plan) documenting the Services performed by bsquare.
4. RIGHTS
4.1 Work Made For Hire. The Work Product has been specially ordered and
commissioned by Microsoft. bsquare agrees that the Work Product is a "work
made for hire" for copyright purposes, with all copyrights in the Work
Product owned by Microsoft.
4.2 Assignment. To the extent that the Work Product does not qualify as a work
made for hire under applicable law, and to the extent that the Work
Product includes material subject to copyright, patent, trade secret, or
other proprietary right protection, bsquare hereby assigns to Microsoft,
its successors and assigns, all right, title and interest in and to the
Work Product, including, but not limited to the following:
4.2.1 Any copyrights that bsquare may possess or acquire in the Work
Product and all copyrights and equivalent rights in the Work
Product throughout the world, including all renewals and extensions
of such rights that may be secured under the laws now or hereafter
in force and effect in the United States of America or in any other
country or countries;
4.2.2 All rights in and to any inventions, ideas, designs, concepts,
techniques, discoveries, or improvements, whether or not
patentable, embodied in the Work Product or developed in the course
of bsquare's creation of the Work Product, including but not
limited to all trade secrets, utility and design patent rights and
equivalent rights in and to such inventions and designs
Page 3 of 15
<PAGE> 114
throughout the world regardless of whether or not legal
protection for the Work Product is sought;
4.2.3 The right to prepare Derivative Technology with exclusive rights
to authorize others to do the same;
4.2.4 Copies of any documents, magnetically or optically encoded
media, or other materials created by bsquare under this
Agreement; and
4.2.5 The right to sue for infringements of the Work Product which may
occur before the date of this Agreement, and to collect and
retain damages from any such infringements.
4.3 Assistance. At Microsoft's expense, bsquare shall execute and deliver
such instruments and take such other action as may be requested by
Microsoft to perfect or protect Microsoft's rights in the Work Product and
to carry out the assignments set forth in this Section 4.
4.4 Assignment/Waiver of Moral Rights. bsquare hereby irrevocably transfers
and assigns to Microsoft any and all "moral rights" that bsquare may have
in the Work Product and any Derivative Technology thereof. bsquare also
hereby forever waivers and agrees never to assert any and all "moral
rights" it may have in the Work Product and Derivative Technology, even
after termination of the Services.
4.5 Source Code License Grant. Microsoft hereby grants to bsquare a
non-exclusive, personal, non-transferable, non-assignable license to use
and modify the Source Code solely for bsquare's internal use on bsquare's
premises in designing, testing and development of the Work Product on
behalf of Microsoft. The Source Code provided hereunder shall be
considered Confidential Information and, therefore, shall be subject to
the terms and conditions of Section 6 of this Agreement. bsquare may
disclose the Source Code only to bsquare's employees on a need-to-know
basis. bsquare shall execute appropriate written agreements with its
employees sufficient to enable it to comply with all the provisions of
this Agreement, including non-disclosure and assignment of rights.
4.6 Test Hardware License Grant. Microsoft hereby grants to bsquare a
non-exclusive, personal, non-transferable, non-assignable license to use
the Test Hardware solely for bsquare's internal use in testing and
development of the Work Product. bsquare shall not reproduce, duplicate,
copy or otherwise disclose, distribute, or disseminate the Test Hardware
in any media, except as reasonably necessary for the Work Product. The
Test Hardware provided hereunder shall be considered Confidential
Information and, therefore, shall be subject to the terms and conditions
of Section 6 of this Agreement.
4.7 Return of Materials. Upon the earlier of either completion of the
Services or termination of this Agreement as provided in Section 9,
bsquare shall return all copies of the Source Code, Test Hardware and
confidential information in bsquare's possession or under its control
within ten (10) days following the termination date or acceptance date of
the Deliverable by Microsoft. bsquare shall provide a declaration signed
by an officer of bsquare attesting that all copies of the Source Code,
Test Hardware and related materials have been returned to Microsoft.
4.8 No Other Rights. bsquare agrees that this Agreement does not grant to it
any rights other than what is granted in this Section 4 and for the
limited purposes set forth therein. Under no circumstances will the
license grants set forth in Section 4 be construed as granting, by
implication, estoppel or otherwise, a license to any Microsoft technology
other than the Source Code and Test Hardware,
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<PAGE> 115
solely for the purposes designated herein. All rights not expressly
granted herein are expressly reserved by Microsoft.
5. NO OBLIGATION/INDEPENDENT DEVELOPMENT
Notwithstanding any other provision of this Agreement, Microsoft shall have no
obligation to market, sell or otherwise distribute the Work Product, either
alone or in any Microsoft product. Except as provided in Section 6, nothing in
this Agreement will be construed as restricting Microsoft's ability to acquire,
license, develop, manufacture or distribute for itself, or have others acquire,
license, develop, manufacture or distribute for Microsoft, similar technology
performing the same or similar functions as the technology contemplated by this
Agreement, or to market and distribute such similar technology in addition to,
or in lieu of, the technology contemplated by this Agreement.
6. CONFIDENTIALITY
6.1 Each party shall protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that such
party uses to protect its own like information. Neither party will use
the other's Confidential Information for purposes other than those
necessary to directly further the purposes of this Agreement. Neither
party will disclose to third parties the other's Confidential Information
without the prior written consent of the other party. Except as expressly
provided in this Agreement, no ownership or license rights is granted in
any Confidential Information.
6.2 The parties' obligations of confidentiality under this Agreement shall
not be construed to limit either party's right to independently develop
or acquire products without use of the other party's Confidential
Information.
7. WARRANTIES
7.1 bsquare. bsquare warrants and represents that:
7.1.1 It has the full power to enter into this Agreement and make the
assignments and license rights set forth herein;
7.1.2 It has not previously and will not grant any rights in the
Deliverables to any third party that are inconsistent with the
rights granted to Microsoft herein;
7.1.3 The Deliverables and Work Product are original to bsquare and do
not infringe any copyright, patent, trade secret, or other
proprietary right held by any third party;
7.1.4 The Deliverables and Work Product will be created by employees
of bsquare within the scope of their employment and under
obligation to assign inventions to bsquare, or by independent
contractors under written obligations to assign all rights in
the Deliverables and Work Product to bsquare; and
7.1.5 The Services shall be performed in a professional manner and
shall be of a high grade, nature, and quality.
7.2 Microsoft. Microsoft warrants and represents that it has the full power
to enter into this Agreement and make the assignments and license rights
set forth herein;
Page 5 of 15
<PAGE> 116
8. INDEMNITY
8.1 Indemnity.
8.1.1 bsquare shall, at its expense and Microsoft's request, defend
any claim or action brought against Microsoft, and Microsoft's
subsidiaries, affiliates, directors, officers, employees,
agents and independent contractors, to the extent it is based
upon a claim that the Work Product and/or the Deliverables
infringes or violates any patent, copyright, trademark, trade
secret or other proprietary right of a third party, and bsquare
will indemnify and hold Microsoft harmless from and against any
costs, damages and fees reasonably incurred by Microsoft,
including but not limited to fees of attorneys and other
professionals, that are attributable to such claim; provided,
that: (i) Microsoft provides bsquare reasonably prompt notice
in writing of any such claim or action and permits bsquare,
through counsel mutually acceptable to Microsoft and bsquare,
to answer and defend such claim or action; (ii) Microsoft
provides bsquare information, assistance and authority, at
bsquare's expense, to help bsquare to defend such claim or
action; and (iii) bsquare will not be responsible for any
settlement made by Microsoft without bsquare's written
permission, which permission will not be unreasonably withheld.
8.1.2 Microsoft shall have the right to employ separate counsel and
participate in the defense of any claim or action. bsquare
shall reimburse Microsoft upon demand for any payments made or
loss suffered by it at any time after the date hereof, based
upon the judgment of any court of competent jurisdiction or
pursuant to a bona fide compromise or settlement of claims,
demands, or actions, in respect to any damages related to any
claim or action under this Section 8.
8.1.3 bsquare may not settle any claim or action under this Section 8
on Microsoft's behalf without first obtaining Microsoft's
written permission, which permission will not be unreasonably
withheld. In the event Microsoft and bsquare agree to settle a
claim or action, bsquare agrees not to publicize the settlement
without first obtaining Microsoft's written permission, which
permission will not be unreasonably withheld.
8.2 Duty to Correct. Notwithstanding Section 8.1, should the Work Product,
Deliverables or portion thereof be held to constitute an infringement
and use as contemplated by this Agreement be enjoined or be threatened
to be enjoined, bsquare shall notify Microsoft and immediately, at
bsquare's expense: (i) procure for Microsoft the right to continue use,
sale, and marketing of the Work Product, Deliverables or portion
thereof, as applicable; or (ii) replace or modify the Work Product,
Deliverables or portion thereof with a version that is non-infringing,
provided that the replacement or modified version meets the
Specifications to Microsoft's satisfaction. If (i) or (ii) are not
available to bsquare, in addition to any damages or expenses reimbursed
under Section 8.1, bsquare shall refund to Microsoft all amounts paid
to bsquare by Microsoft under this Agreement.
9. TERMINATION
9.1 Term. The term of this Agreement shall commence as of the Effective
Date and shall continue until terminated as provided in this Section 9.
9.2 Termination by Microsoft. Microsoft may terminate this Agreement with
or without cause by providing bsquare thirty (30) days prior written
notice of such cancellation. Upon receipt of such notice, bsquare will
discontinue all work thereunder. Except in cases of termination for
cause as specified in Section 2.2 of this Agreement, Microsoft will pay
for all work performed by bsquare up until the date of receipt of the
cancellation notice. In the event of cancellation, upon request by
Microsoft, bsquare agrees to turn over to Microsoft all work in
progress within ten (10) days.
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<PAGE> 117
9.3 Termination By Either Party For Cause. Either party may suspend performance
and/or terminate this Agreement immediately upon written notice at any time
if:
9.3.1 The other party is in material breach of any material warranty,
term, condition or covenant of this Agreement, other than those
contained in Section 6, and fails to cure that breach within thirty
(30) days after written notice thereof; or
9.3.2 The other party is in material breach of Section 6.
9.4 Effect of Termination. In the event of termination or expiration of this
Agreement for any reason, Sections 4.1 - 4.4, 4.7 - 4.8, 5, 6, 7, 8, and 10
shall survive termination. Any licenses or sublicenses already granted by
Microsoft under this Agreement shall not be affected by any termination of
this Agreement and shall remain in full force and effect.
10. LIMITATION OF LIABILITIES
WITH THE EXCEPTION OF ANY BREACH OF SECTIONS 4.5, 6 AND 8, NEITHER PARTY SHALL
BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR SPECIAL
DAMAGES, EVENT IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
EXCEPT AS SET FORTH IN SECTION 7, BSQUARE SPECIFICALLY DISCLAIMS ANY WARRANTY
OF FITNESS, FUNCTIONALITY OR MERCHANTABILITY, WHETHER EXPRESS OR IMPLIED.
11. GENERAL
11.1 Notices. All notices and requests in connection with this Agreement shall
be deemed given as of the day they are received either by messenger,
delivery service, or in the United States of America mails, postage
prepaid, certified or registered, return receipt requested, and addressed
as follows:
<TABLE>
<CAPTION>
To bsquare: To Microsoft:
<S> <C>
bsquare consulting, inc. Microsoft Corporation
3633 136th Pl. SE, Suite 100 One Microsoft Way
Bellevue, WA 98006 Redmond, WA 98052-6399
Attention: William Baxter Attention:_____________________
Phone: 425-519-5963 Phone: _____________________
Fax: 425-519-5999 Fax: _____________________
Copy to: Law & Corporate Affairs
Fax: (425) 936-7409
</TABLE>
or to such other address as a party may designate pursuant to this notice
provision.
11.2 Independent Contractors. bsquare is an independent contractor for
Microsoft, and nothing in this Agreement shall be construed as creating an
employer-employee relationship, a partnership, or a joint venture between
the parties.
Page 7 of 15
<PAGE> 118
11.3 Taxes. In the event taxes are required to be withheld on payments made
under this Agreement by any U.S. (state or federal) or foreign government,
Microsoft may deduct such taxes from the amount owed bsquare and pay them
to the appropriate taxing authority. Microsoft shall in turn promptly
secure and deliver to bsquare an official receipt for any taxes withheld.
Microsoft will use reasonable efforts to minimize such taxes to the extent
permissible under applicable law.
11.4 Governing Law. This Agreement shall be governed by the laws of the State of
Washington as though entered into between Washington residents and to be
performed entirely within the State of Washington, and bsquare consents to
jurisdiction and venue in the state and federal courts sitting in the State
of Washington. In any action or suit to enforce any right or remedy under
this Agreement or to interpret any provision of this Agreement, the
prevailing party shall be entitled to recover its costs, including
reasonable attorneys' fees.
11.5 Assignment. This Agreement shall be binding upon and inure to the benefit
of each party's respective successors and lawful assigns; provided,
however, that bsquare may not assign this Agreement, in whole or in part,
without the prior written approval of Microsoft.
11.6 Construction. Except for Sections 3, 6, 9, and 10 herein above, should a
court of competent jurisdiction find any provision of this Agreement, or
portion hereof, to be unenforceable, that provision of the Agreement will
be enforced to the maximum extent permissible so as to effect the intent of
the parties, and the remainder of this Agreement will continue in full
force and effect. Should Sections 3, 6, 9 or 10 herein, or any portion
thereof, be held unenforceable, then in that event either party shall have
a right to immediately terminate this Agreement by written notice to the
other party. Failure by either party to enforce any provision of this
Agreement will not be deemed a waiver of future enforcement of that or any
other provision. This Agreement has been negotiated by the parties and
their respective counsel and will be interpreted fairly in accordance with
its terms and without any strict construction if favor or against either
party.
11.7 Force Majeure. This Agreement and the parties' performances hereunder are
subject to all contingencies beyond the reasonable control of the parties
(whether or not now in the contemplation of either of the parties),
including, but not limited to, force majeure; strikes; labor disputes;
floods; civil commotion; war; riot; acts of God; rules, laws, orders,
restrictions, embargoes, quotas or actions of any government, foreign or
domestic, or any agency or subdivision thereof; casualties; fires;
earthquakes; accidents; shortages of transportation facilities; detention
of goods and merchandise by customs authorities; loss of goods and
merchandise in public or private warehouses; or other casualty or
contingency beyond the reasonable control of the parties or otherwise
unavoidable.
11.8 Entire Agreement. This Agreement does not constitute an offer by Microsoft
and it shall not be effective until signed by both parties. This Agreement
constitutes the entire agreement between the parties with respect to the
Services and all other subject matter hereof and merges all prior and
contemporaneous communications. It shall not be modified except by a
written agreement dated subsequent to the date of this Agreement and signed
on behalf of bsquare and Microsoft by their respective duly authorized
representatives.
Page 8 of 15
<PAGE> 119
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date written above.
MICROSOFT CORPORATION BSQUARE CONSULTING, INC.
/s/ CRAIG MUNDIE /s/ WILLIAM BAXTER
- ------------------------------ ------------------------------
By (Sign) By (Sign)
Craig Mundie William Baxter
- ------------------------------ ------------------------------
Name (Print) Name (Print)
Sr. V.P. CPO President
- ------------------------------ ------------------------------
Title Title
June 12, 1997 6/17/97
- ------------------------------ ------------------------------
Date Date
91-1650880
------------------------------
bsquare's Federal Employee ID Number
Page 9 of 15
<PAGE> 120
EXHIBIT A
Payment and Invoicing:
bsquare will charge Microsoft a flat rate of Seventy-nine Dollars (US$79.00)
per hour for services rendered under this Agreement. Notwithstanding the
provisions of Section 2.3, the total amount payable to bsquare for services
performed under this Agreement shall not exceed Three Million Three Hundred
Sixty-eight Thousand Five Hundred Sixty Dollars (US$3,368,560.00).
bsquare will invoice Microsoft for Four Hundred Twenty-one Thousand Seventy
Dollars (US$421,070.00) ("Advance Payment") upon execution of this Agreement.
Subsequently, bsquare will invoice Microsoft at the end of each month for the
services rendered during that month. Each invoice will be discounted by one
sixth of the Advance Payment, or Seventy Thousand One Hundred Seventy-eight
33/100 Dollars (US$70,178.33), until the entire Advance Payment has been
accounted for. As set forth in Section 3.2 of this agreement, invoices will be
accompanied with reasonable supporting materials and Microsoft will make
payment to bsquare within thirty (30) days of receiving the invoice(s).
Page 10 of 15
<PAGE> 121
EXHIBIT B
Work Plan
OVERVIEW
bsquare consulting will develop certain components of the Visual development
tools for Windows CE (WCE), the program management of the Japanese versions of
the Visual development tools for WCE, the testing of the majority of the Visual
tools for WCE and the testing of the WCE Java Virtual Machine (VM).
Specific work includes the following areas:
<TABLE>
<CAPTION>
DESCRIPTION HEADCOUNT
- ----------- ---------
<S> <C>
testing of several components of the WCE development tools 22
Japanese WCE Visual Tools Program Manager 1
Development of MFC 2.0 for WCE 2
x86 tools development for WCE 1
Development of Active X Template Library 1
Development of the Visual Java product for WCE 2
testing of the WCE Java Virtual Machine 2
Development of the DDK for WCE 4
Development of the CKD for WCE 1
Development of V2 Emulation 5
----
TOTAL 41
====
</TABLE>
RESPONSIBILITIES
BUILDING OF WCE VISUAL DEVELOPMENT TOOLS
bsquare will assume the primary role as the "builder" of the WCE Visual
development tools and will cooperate with Microsoft to establish mutually
acceptable terms and conditions for these procedures. bsquare will conduct
daily builds of all the WCE Visual Development Tools. The build results will be
published on a common share. bsquare will fix build problems by contacting the
developers and working with them to check in the fixes. The build will drop all
components to a common share. VCCE and VJCE will be dropped as fully functional
kits. The build teams will manage all release versions. The build team will
work with developer in adding new sources and products to the build. The build
team will work with the localization team in running espresso to produce the
Japanese versions.
BUILD COMPONENTS
- - Windbg
- - DevStudio
- - CRT
- - Emulation
- - Remote Tools
- - MFC
- - Japanese build and kits
TESTING OF WCE VISUAL DEVELOPMENT TOOLS
bsquare will assume primary role for all testing of the WCE Visual development
tools. Testings will occur on a regular schedule. The test team will run the
tests against the daily builds. Test suites will be maintained for each
product. The test harness will be modified to run the appropriate tests against
the
Page 11 of 15
<PAGE> 122
component and it will log all results. These results will be analyzed and
published. All failures will be logged in a Raid database. Automated tests will
be developed for each component. Manual testing will be used until the
automated tests are up and running. Tests cases will be collected from users
and developers and will be added to the test suites as regression tests.
PRODUCTS TO BE TESTED
o Debugger
o Resource Editor
o Setup
o Remote Tools
o Shell
o MFC
o Emulation
o Compiler
o Linker
o Samples
JAPANESE PM
bsquare will assume primary responsibility for Program Management of the
Japanese versions of the WCE Visual tools products. The responsibilities will
include development of the Product Specifications, establishing the schedule,
coordination of the different development groups. It will also include owning
the licensing, marketing, and support issues. The PM will be responsible for
all releases the Japanese versions of the WCE Visual Tools.
PRODUCTS
o VCCE
o VJCE
o SDK
o OAK
MFC
bsquare will continue to assume primary responsibility for the WCE version of
MFC. bsquare will adapt MFC to the different versions of the Alder OS. Each MFC
version will match the functionality of the target platform. The MFC library
work will involve building MFC in the WCE environment, removing unsupported
classes or changing them to match the WCE V2 API set, and add new classes to
capture WCE V2 specific features. The DevStudio work will involve adapting the
WCE AppWizard to will generate applications for the different target platforms.
The DevStudio work will also involve modifications to the Class Wizard to match
the WCE V2 message set.
TARGET PLATFORMS
o Mercury
o Gryphon
o APC
DELIVERABLES
o MFCWCE.DLL, MFCWCE.LIB, UAFXWCE.LIB, MFCS42.LIB
o WCE MFC Headers
o WCE MFC Sources
o MSVCRT.DLL, MSVCRT.LIB
o App Wizard
o Class Wizard
o Documentation
o Samples
Page 12 of 15
<PAGE> 123
NEW FEATURES FOR V2
o OLE
o Win Sockets
o HTML
INTEGRATION OF X86 INTO WCE VISUAL DEVELOPMENT TOOLS (CEPC)
bsquare will assume primary responsibility for the integration of x86 support
into the WCE Visual development tools. bsquare will develop a WCE x86 platform
package for DevStudio. This package will target enable users to target WCE x86
devices. bsquare will adapt the DevStudio remote debugger to the WCE x86
platform. All current WCE DevStudio features will be modified to work with a WCE
x86 target. bsquare will also produce a WCE x86 runtime library.
ATL (ACTIVEX TEMPLATE LIBRARY) DEVELOPMENT FOR WCE
bsquare will assume primary responsibility for the ATL development for WCE.
bsquare will adapt ATL to the WCE V2 API set. bsquare will test all ATL
function against the Alder OS and work with Microsoft in resolving all issues
involving ActiveX support in WCE. bsquare will develop a verification test
suite for ATL on WCE. The WCE ATL will be integrated into the VCCE product.
WCE VISUAL JAVA
bsquare will assume primary responsibility for the WCE Visual Java product.
bsquare will work with the Microsoft Program Managers to further refine the
specifications for VJCE. bsquare will produce a WCE Java package for the
DevStudio. The package will define the WCE Java platform features. These
features will include WCE Java projects, build settings, automatic downloads,
and remote Java debug support. bsquare will modify the DevStudio shell to meet
the requirements of developing for WCE Java. Modification will include new menu
options, dialogs and any other features that ease WCE Java development.
The Java debugger will be adapted to work with the WCE pJVM on target device.
The WCE Java projects will also be able to target the Emulation environment.
bsquare will produce a WCE Visual Java product that will be independent of the
VCCE product. bsquare will generate automated tests to test the new WCE Java
features. These test will exercise all UI features and all debugger features.
WCE JAVA VM TESTING
bsquare will assume primary responsibility for the WCE Java VM testing, with
Microsoft assuming primary responsibility for Java VM testing tools
development. bsquare will adapt the automatic distributed complier test
harmless to run tests against the pJVM. bsquare will develop a series of test
suites to exercise all of the pJVM features. bsquare will add samples, existing
tests, and real world code to the test suites. The tests will be run on a
schedule basis with all results being published to a common location. The test
results will be analyzed and all the failures will be logged to a Raid
database. The failures will also be used to generate a regression test suite
that will be added to the main tests. bsquare will work with the Microsoft
developers in refining the pJVM test tools and in developing new tools.
DEVELOPMENT OF CDK (COMPONENT DEVELOPMENT KIT) FOR WCE
bsquare will work with Microsoft PMs to define and deliver a CDK for Windows CE.
DEVELOPMENT OF DDK (DEVICE DRIVER KIT) FOR WCE
bsquare will work with Microsoft PMs to define and deliver a DDK for Windows CE
2.0.
Page 13 of 15
<PAGE> 124
EMULATION FOR WCE
bsquare will assume the primary development responsibility for the WCE
Emulation Environment. bsquare will develop Emulation for the three main Alder
platforms, Mercury, Gryphon, and APC. Emulation will be expanded to pickup the
new Alder APIs and features such as OLE. bsquare will also integrate the DDK
and the CDK into Emulation. The Emulation work will involve adapting the
current emulated object store to each of the three platforms. The object store
will be converted to be a true NT device which greatly improve all emulated
file transactions. The Alder shell functionality will also be complete
emulated. The DevStudio shell will be modified to match the features of the V2
Emulation. An option dialog will be added to allow a developer to select a
particular Emulation platform. This dialog will configure the WCE shell and
object store model used by Emulation so that it can the target the different
platform. All the new Emulation components will be added to the VCCE product.
Page 14 of 15
<PAGE> 125
EXHIBIT C
Schedule
<TABLE>
<S> <C>
Project begins 4/15/97
All projects build 5/23/97
All projects, weekly product test reports 5/30/97
May status report 5/30/97
M1 - ALPHA EMULATION RTM 6/6/97
M1 - letter of acceptance 6/20/97
All project BVTs operational 6/13/97
All project detailed test suites begin 6/20/97
June status report 6/30/97
M2 - BETA I ALL PROJECTS 7/15/97
M2 - letter of acceptance 7/29/97
Feature complete all projects 7/25/97
July status report 7/31/97
M3 - BETA II DESKTOP PROJECTS 8/29/97
M3 - RTM ROM COMPONENTS 8/29/97
M3 - letter of acceptance 9/12/97
August status report 8/29/97
M4 - RTM OEM SKUs 9/12/97
M4 - letter of acceptance 9/26/97
September status report 9/30/97
M5 - RTM DESKTOP PROJECTS 10/15/97
M5 - letter of acceptance 10/19/97
Final project status 10/15/97
Project postmortem 10/16/97
</TABLE>
Page 15 of 15
<PAGE> 126
[MICROSOFT LETTERHEAD]
AMENDMENT NO. 1 TO THE
DEVELOPMENT & LICENSE AGREEMENT
BETWEEN
BSQUARE CORPORATION AND MICROSOFT CORPORATION [MICROSOFT LOGO]
This Amendment is made and entered into by and between MICROSOFT
CORPORATION ("Microsoft") and "BSQUARE CORPORATION ("BSQUARE") to be effective
as of the 17th day of December, 1997. Capitalized terms used in this Amendment
No. 1 that are not otherwise described herein shall have the meaning ascribed to
such terms in the Agreement.
RECITALS
The parties have entered into that certain Development & License Agreement,
dated June 12, 1997 (the "Agreement"); and
Microsoft desires to have BSQUARE assist with the development, testing and
program management of certain projects in connection with Windows CE operating
system support for certain microprocessors in addition to other Services being
provided by BSQUARE under the Agreement, and,
The parties are currently negotiating a new master agreement to govern the
provision of development services by BSQUARE to Microsoft (the "Master
Agreement") over the next several years; and
Until such time as the Master Agreement is executed and in effect, the
parties desire to amend the Agreement on the terms and conditions provided
herein to describe additional Services to be provided by BSQUARE;
The parties hereby agree as follows:
AMENDMENT
1. Definitions.
Section 1.3, Definitions, is amended to restated to provide as follows:
1.3 "Work Plan" shall mean the specifications for the Services,
attached to this Agreement in sequential Exhibits B.
2. Amended Exhibit A-1.
Exhibit A-1 is hereby added to the Agreement and the prices and payments
terms specified in Exhibit A-1 shall apply to all Services and Work Plans other
than the original Work Plan in existence upon the execution of the Agreement.
3. Master Agreement.
Although a variety of terms remain to be negotiated and no final agreement
has been reached, the parties currently intend to include the following terms
in the Master Agreement:
a. Microsoft will agree to fund an agreed upon number of engineering
personnel dedicated to Microsoft projects and Services during the term of
the Master Agreement;
<PAGE> 127
[MICROSOFT LOGO]
[MICROSOFT LETTERHEAD]
b. BSQUARE will agree to provide an agreed upon number of engineering
personnel dedicated to Microsoft projects at the levels and rates specified
in Exhibit A-1 to this Agreement;
c. BSQUARE will agree not to provide products and services which compete
with Windows CE and Windows CE tools.
d. BSQUARE will bill Microsoft on monthly intervals by project. Billing
will be recorded in hourly increments by project sufficient for Microsoft
to determine the number of hours each engineer worked on a Microsoft
project on each day.
e. Work shall be performed on a work for hire basis with all
intellectual property rights, including copyrights, trade secrets and
patents assigned to Microsoft.
f. All work performed by BSQUARE will be fully warranted against
intellectual property infringement.
g. BSQUARE will be a preferred Microsoft vendor for Microsoft Visual
Tools for Windows CE projects.
h. Upon execution of the Master Agreement, Microsoft and BSQUARE will
work together on a joint press release to announce their relationship under
the Master Agreement as agreed upon by the parties.
i. The parties will work in good faith to complete the Master Agreement
by March 1, 1998.
4. Additional Work Plans and Services.
An additional Work Plan summary is hereby added to the Agreement by Exhibit B-2
and incorporated herein by this reference. The Work Plan will be supplemented
upon execution of the Master Agreement as described in Section 5 below. Until
execution of the Master Agreement, MS and BSQUARE will agree on the number of
people assigned to the projects summarized in the Work Plan and the appropriate
job level category for such personnel. Further it is agreed that additional
details for each project will be developed and attached as exhibits in the
Master Agreement prior to completion of each project specified in the Work Plan.
5. Term
Section 9.1 (Term) of the Agreement is amended and restated to provided as
follows:
9.1 Term. The term of this Agreement shall commence as of the
Effective Date and shall continue until the earlier of March 1, 1998 or
the date the Agreement is terminated as provided in this Section 9.
6. This Amendment shall amend, modify and supersede to the extent of any
inconsistencies, the provisions of the Agreement. Except as expressly
amended by this Amendment, the Agreement shall remain in full force and
effect. Capitalized terms used in this Amendment No. 1 that are not
otherwise described herein shall have the meaning ascribed to such terms in
the Agreement.
Page 2
<PAGE> 128
[MICROSOFT LETTERHEAD]
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date set forth above. All signed copies of this Amendment
to the Agreement shall be deemed originals. This Amendment does not constitute
an offer by MS. This Amendment shall be effective upon execution on behalf of
BSQUARE and MS by their duly authorized representatives.
[MICROSOFT LOGO]
MICROSOFT CORPORATION BSQUARE CORPORATION
/s/ CRAIG MUNDIE /s/ WILLIAM BAXTER
- --------------------------------- ----------------------------------
By By
Craig Mundie William Baxter
- --------------------------------- ----------------------------------
Name (Print) Name (Print)
Sr. V.P. CPO CEO
- --------------------------------- ----------------------------------
Title Title
Jan. 19, 1998 12-17-97
- --------------------------------- ----------------------------------
Date Date
Page 3
<PAGE> 129
[MICROSOFT LOGO]
[MICROSOFT LETTERHEAD]
EXHIBIT A-1
PAYMENT AND INVOICING
BSQUARE will charge Microsoft at the applicable rate specified below for
each hour of services rendered under the Work Plan on a project by project
basis using the Microsoft Internal Reference Numbers described below. The total
maximum amount payable to BSQUARE for services performed under each project in
a Work Plan shall be specified as well as a total of all projects summarized in
the Work Plan.
BSQUARE shall invoice MS by the tenth day of each month for the amounts due for
work performed under the Work Plan in the prior month. Billing will be recorded
in hourly increments by project and Microsoft Internal Reference Number
sufficient for Microsoft to determine the number of hours each engineer worked
on any given Microsoft project on each day. In the event that MS provides a
form to detail BSQUARE billings, BSQUARE agrees to utilize such forms as MS may
supply. MS shall pay each invoice within thirty (30) days of receiving each
invoice, provided that MS has accepted the work described in the invoice. MS
shall be entitled to conditionally accept Services billed each month, subject
to final approval of the Services upon completion of the Project. If MS rejects
any Services pursuant to the Agreement, then MS shall be entitled, in addition
to any other remedies available, to deduct an amount from any subsequent
invoice equal to the amount MS previously paid for the rejected Services or
portion thereof. As set forth in Section 3.2 of this agreement, invoices will
be accompanied with reasonable supporting materials and Microsoft will make
payment to BSQUARE within 30 days of receiving the invoice(s).
<TABLE>
<CAPTION>
Job Title Category Rate Basis
- ---------------------------------------------------------------- -------- ------ --------
<S> <C> <C> <C>
SDE Level 1 (Architect - compiler or kernel/OS) SDE1 125.00 per hour
SDE Level 2 (System Engineer - compiler, debugger and OS) SDE2 105.00 per hour
SDE Level 3 (Application Engineer - visual tools, IDE, MFC, etc.) SDE3 95.00 per hour
STE Level 1 (Test lead) STE1 95.00 per hour
STE Level 2 (System Test Engineer) STE2 85.00 per hour
STE Level 3 (Application Test Engineer) STE3 70.00 per hour
Group Manager (Top Level Project Mgr) PM1 100.00 per hour
Project Manager (Multi-project PM for Compiler) PM2 75.00 per hour
User Education Level 1 (Editor) UE1 75.00 per hour
User Education Level 2 (Writer) UE2 65.00 per hour
</TABLE>
Page 4
<PAGE> 130
[MICROSOFT LETTERHEAD]
EXHIBIT B-2
WORK PLAN SUMMARY [MICROSOFT LOGO]
The table below identifies all known projects by name and associates a unique MS
Internal Reference Number which shall be used to record hours worked by each
employee assigned to a project. Work plans will be developed for each project
and attached as exhibits to the Master Agreement. In the interim, this Work
Plan summary identifies the projects, number of personnel expected to be
assigned to the projects, the pay rate for each engineer assigned, a maximum
amount payable for each project under the Work Plan and a maximum amount for
all projects under the Work Plan.
Total Maximum Payable Amount for All Projects $6,637,100
<TABLE>
<CAPTION>
PROJECT MS INTERNAL REFERENCE #
- ------- -----------------------
<S> <C>
ARM 720T 1036724
ARM Thumb compiler/kernel support 1036726
NIPS NEC 4300 floating point 1036727
Maintenance ARM Architecture 1036741
Maintenance MIPS Architecture 1036742
Maintenance Power PC Architecture 1036744
Maintenance Super-H Architecture 1036745
Toolkit for Visual Basic 1036923
Toolkit for Visual C++ 1036924
Toolkit for Visual J++ 1036925
Embedded Toolkit for Visual C++ 1036926
Windows CE SDK/Emulation/Remote Tools 1036927
Windows CE Internal Tools 1036928
Windows CE Tools Localization 1036929
</TABLE>
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<PAGE> 131
[MICROSOFT LETTERHEAD]
INDIVIDUAL PROJECT DESCRIPTIONS [MICROSOFT LOGO]
Project Name ARM 720T
Internal Reference Number #1036724
Total Payment Amount $111,500
Project Description: ARM compiler back-end and OS adaptation work.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 1 125.00 11/1/97 12/12/97 30 240 $ 30,000.00
SDE2 1 105.00 11/1/97 12/12/97 30 240 $ 25,200.00
SDE1 2 125.00 1/1/98 1/15/98 10 160 $ 20,000.00
SDE2 3 105.00 1/1/98 1/15/98 10 240 $ 25,200.00
SDE3 95.00
STE1 95.00
STE2 2 85.00 1/1/98 1/15/98 10 160 $ 13,600.00
STE3 70.00
PM1 0.25 100.00 1/1/98 1/15/98 10 20 $ 2,000.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $114,000.00
</TABLE>
Page 6
<PAGE> 132
[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name ARM Thumb compiler/kernel support
Internal Reference Number #1036726
Total Payment Amount $196,800
Project Description: ARM Thumb 16-bit code generator compiler back-end work and
OS support.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
- ------------ -------- ------ ------- ------ ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 2 125.00 1/15/98 3/1/98 30 480 $ 60,000.00
SDE2 3 105.00 1/15/98 3/1/98 30 720 $ 75,600.00
SDE3 95.00
STE1 95.00
STE2 3 85.00 1/15/98 3/1/98 30 720 $ 61,200.00
STE3 70.00
PM1 100.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $196,800.00
</TABLE>
Page 7
<PAGE> 133
[MICROSOFT LETTERHEAD]
Project Name MIPS NEC 4300 floating point
Internal Reference Number #1036727
Total Payment Amount $98,800
[MICROSOFT LOGO]
Project Description: MIPS VR4300 hardware floating support in MIPS compiler
back-end.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
- --- -------- -------- ------ ------- ------ ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SDE1 125.00
SDE2 1 105.00 12/1/97 3/1/98 65 520 $54,600.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 12/1/97 3/1/98 65 520 $44,200.00
STE3 70.00
PM1 100.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $98,800.00
</TABLE>
Page 8
<PAGE> 134
[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Maintenance ARM Architecture
Internal Reference Number #1036741
Total Payment Amount $168,300
Project Description: Maintain and support ARM specific architecture instances in
the Windows CE operating system and visual tools source bases.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
- ------------ -------- ------ ------- ------ ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 1 125.00 11/1/97 3/1/98 85 680 $ 85,000.00
SDE2 105.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 11/1/97 3/1/98 85 680 $ 57,800.00
STE3 70.00
PM1 100.00
PM2 0.5 75.00 11/1/97 3/1/98 85 340 $ 25,500.00
UE1 75.00
UE2 65.00
Total $168,300.00
</TABLE>
Page 9
<PAGE> 135
[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Maintenance MIPS Architecture
Internal Reference Number #1036742
Total Payment Amount $168,300
Project Description: Maintain and support MIPS specific architecture instances
in the Windows CE operating system and visual tools source bases.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
- ------------ -------- ------ ------- ------ ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 1 125.00 11/1/97 3/1/98 85 680 $ 85,000.00
SDE2 105.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 11/1/97 3/1/98 85 680 $ 57,800.00
STE3 70.00
PM1 100.00
PM2 0.5 75.00 11/1/97 3/1/98 85 340 $ 25,500.00
UE1 75.00
UE2 65.00
Total $168,300.00
</TABLE>
Page 10
<PAGE> 136
[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Maintenance Power PC Architecture
Internal Reference Number #1036744
Total Payment Amount $168,300
Project Description: Maintain and support PowerPC specific architecture
instances in the Windows CE operating system and visual tools source bases.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
- ------------ -------- ------ ------- ------ ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 1 125.00 11/1/98 3/1/98 85 680 $ 85,000.00
SDE2 105.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 11/1/97 3/1/98 85 680 $ 57,800.00
STE3 70.00
PM1 100.00
PM2 0.5 75.00 11/1/97 3/1/98 85 340 $ 25,500.00
UE1 75.00
UE2 65.00
Total $168,300.00
</TABLE>
Page 11
<PAGE> 137
[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Maintenance Super-H Architecture
Internal Reference Number #1036745
Total Payment Amount $168,300
Project Description: Maintain and support Super-H specific architecture
instances in the Windows CE operating system and visual tools source bases.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 1 125.00 11/1/97 3/1/97 85 680 $ 85,000.00
SDE2 105.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 11/1/97 3/1/98 85 680 $ 57,800.00
STE3 70.00
PM1 100.00
PM2 0.5 75.00 11/1/97 3/1/98 85 340 $ 25,500.00
UE1 75.00
UE2 65.00
Total $168,300.00
</TABLE>
Page 12
<PAGE> 138
[MICROSOFT LETTERHEAD]
Project Name Toolkit for Visual Basic
Internal Reference Number #1036923
Total Payment Amount $606,900
[MICROSOFT LOGO]
Project Description: Build, test and develop the Windows CE Toolkit for Visual
Basic and the accompanying Visual Basic runtime for Windows CE.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
- ------------ -------- ------ ------- ------ ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 125.00
SDE2 105.00
SDE3 95.00
STE1 2 95.00 11/1/97 3/1/97 85 1360 $129,200.00
STE2 2.5 85.00 11/1/97 3/1/97 85 1700 $144,500.00
STE3 7 70.00 11/1/97 3/1/97 85 4760 $333,200.00
PM1 100.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $606,900.00
</TABLE>
Page 13
<PAGE> 139
[MICROSOFT LETTERHEAD]
Project Name Toolkit for Visual C++
Internal Reference Number #1036924
Total Payment Amount $2,186,200
[MICROSOFT LOGO]
Project Description: Build, test and develop the Windows CE Toolkit for Visual
Basic and the accompanying Visual Basic runtime for Windows CE.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
- ------------ -------- ------ ------- ------ ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 7 125.00
SDE2 13 105.00 11/1/97 3/1/98 85 4760 $ 499,800.00
SDE3 2 95.00 11/1/97 3/1/98 85 8840 $ 839,800.00
STE1 3 95.00 11/1/97 3/1/98 85 1360 $ 129,200.00
STE2 10 85.00 11/1/97 3/1/98 85 2040 $ 173,400.00
STE3 1 70.00 11/1/97 3/1/98 85 6800 $ 476,000.00
PM1 100.00 11/1/97 3/1/98 85 680 $ 68,000.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $2,186,200.00
</TABLE>
Page 14
<PAGE> 140
[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Toolkit for Visual J++
Internal Reference Number #1036925
Total Payment Amount $354,900
Project Description: Build, test and develop the Windows CE Toolkit for Visual
J++ and associated components including the remote Java debugger and Java VM
emulation capability.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
- ------------ -------- ------ ------- ------ ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 125.00
SDE2 1 105.00 12/1/97 3/1/98 65 520 $ 54,600.00
SDE3 2 95.00 12/1/97 3/1/98 65 1040 $ 98,800.00
STE1 95.00
STE2 1.5 85.00 12/1/97 3/1/98 65 780 $ 66,300.00
STE3 3 70.00 12/1/97 3/1/98 65 1560 $109,200.00
PM1 0.5 100.00 12/1/97 3/1/98 65 260 $ 26,000.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $354,900.00
</TABLE>
Page 15
<PAGE> 141
[MICROSOFT LETTERHEAD]
Project Name Embedded Toolkit for Visual C++
Internal Reference Number #1036926
Total Payment Amount $926,500
[MICROSOFT LOGO]
Project Description: Build, test and develop the Windows CE Embedded Toolkit
for Visual C++ including the complete Windows CE component OS in binary form on
all supported CPUs, the CESYSGEN build environment and supporting technical
tools, sample OS configurations and miscellaneous supporting materials referred
to as the OAK tools.
<TABLE>
<CAPTION>
JOB TOTAL
CATEGORY QUANTITY RATE START END DAYS HOURS PAYMENT
- -------- -------- ---- ----- --- ---- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 125.00
SDE2 3 105.00 11/1/97 12/23/97 37 888 $ 93,240.00
SDE2 1 105.00 1/5/98 3/1/98 40 320 $ 33,600.00
SDE3 5 95.00 11/1/97 12/23/97 37 1480 $140,600.00
SDE3 5 95.00 1/5/98 3/1/98 40 1600 $152,000.00
STE1 95.00
STE2 2.5 85.00 11/1/97 12/23/97 37 740 $ 62,900.00
STE2 2 85.00 1/5/98 3/1/98 40 640 $ 54,400.00
STE3 10.5 70.00 11/1/97 12/23/97 37 3108 $217,560.00
STE3 7 70.00 1/5/98 3/1/98 40 2240 $156,800.00
PM2 75.00
PM1 0.25 100.00 11/1/97 12/23/97 37 74 $ 7,400.00
PM1 0.25 100.00 1/5/98 3/1/98 40 80 $ 8,000.00
UE1 75.00
UE2 65.00
Total $926,500.00
</TABLE>
Page 16
<PAGE> 142
MICROSOFT LETTERHEAD
[MICROSOFT LOGO]
Project Name Windows CE SDK, Emulation and Remote Tools
Internal Reference Number #1036927
Total Payment Amount $991,100
Project Description: Build, test and develop the Windows CE SDK for all MEPU
platforms including full support for the desktop emulation environment in
Windows NT, the remote tools and all headers, libraries and samples distributed
in the Windows CE SDK.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
- ------------ -------- ------ ------- ------ ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 125.00
SDE2 1 105.00 11/1/98 3/1/98 85 680 $ 71,400.00
SDE3 6 95.00 11/1/98 3/1/98 85 4080 $387,600.00
STE1 1 95.00 11/1/98 3/1/98 85 680 $ 64,600.00
STE2 7.5 85.00 11/1/97 3/1/98 85 5100 $433,500.00
STE3 70.00
PM1 0.5 100.00 11/1/97 3/1/98 85 340 $ 34,000.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $991,100.00
</TABLE>
Page 17
<PAGE> 143
[MICROSOFT LETTERHEAD]
Project Name Windows CE Internal Tools [MICROSOFT LOGO]
Internal Reference Number #1036928
Total Payment Amount $89,400
Project Description: Build, develop and test internal tools used in support of
Windows CE development including profiling tools, work for the instrumented
kernel and others.
<TABLE>
<CAPTION>
Job Category Quantity Rate Start End Days Hours Total Payment
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 125.00
SDE2 2 105.00 1/5/98 3/1/98 40 640 $67,200.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 1/5/98 3/1/98 40 320 $27,200.00
STE3 70.00
PM1 100.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $94,400.00
</TABLE>
Page 18
<PAGE> 144
[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Windows CE Tools Localization
Internal Reference Number #1036729
Total Payment Amount $528,500
Project Description: Build, develop and test localized versions of all the
Windows CE tools including the Emulation environment, the host environment for
the toolkits and the VB and MFC runtimes.
<TABLE>
<CAPTION>
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
- ------------ -------- ------ ------- ------ ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SDE1 125.00
SDE2 105.00
SDE3 2 95.00 11/1/97 3/1/98 85 1360 $129,200.00
STE1 1 95.00 11/1/97 3/1/98 85 680 $ 64,600.00
STE2 0.5 85.00 11/1/97 3/1/98 85 340 $ 28,900.00
STE3 6 70.00 11/1/97 3/1/98 85 4080 $285,600.00
PM1 100.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $508,300.00
</TABLE>
Page 19
<PAGE> 145
SECTION 3.11
See Section 2.17(a) of the Disclosure Schedule for the compensation of
certain shareholders.
<PAGE> 146
SECTION 3.13
A copy of the Non-Founder Shareholder Agreement is attached as Section 3.13
of the Disclosure Schedule.
<PAGE> 147
SECTION 3.13 TO DISCLOSURE SCHEDULE
SHAREHOLDER AGREEMENT
This SHAREHOLDERS AGREEMENT dated as of ___________, 199__, is by and
among BSQUARE CORPORATION, a Washington corporation (the "Company"), and the
individuals listed on Schedule A, attached hereto (hereinafter sometimes
referred to individually as a "Shareholder" and collectively as the
"Shareholders").
RECITALS
A. The Shareholders own the number of shares of issued and outstanding
stock of the Company listed on Schedule A.
B. The Company and the Shareholders desire to make provision with respect
to certain affairs of the Company and to restrict the sale of the stock of the
Company owned by the Shareholders.
AGREEMENTS
In consideration of the mutual covenants and promises herein contained, the
Company and the Shareholders hereby agree as follows:
1. Definitions. For purposes of this Agreement:
1.1 Shareholders. The term "Shareholders" shall mean the individuals
listed on Schedule A, attached hereto, and any other person or entity who shall
become parties hereto as provided in Section 10 or 17 herein, and the term
"Shareholder" shall mean any one of them.
1.2 Shares. The term "Shares" shall mean all shares of capital stock in
the Company owned by the Shareholders, including without limitation all options,
warrants, convertible stock and similar rights, and shall include all shares of
capital stock which may be owned by the Shareholders upon exercise of
outstanding warrants or options. If at any time during the term of this
Agreement there is any capital reorganization of the Company or if any shares of
stock in the Company shall be reclassified, split, exchanged or changed in any
manner, or if any additional shares of the Company are issued or transferred to
the Shareholders, then all such new, substituted or additional shares of the
Company owned by the Shareholders shall be immediately deemed to be "Shares" for
the purposes of this Agreement.
2. Restriction on Transfer. No Shareholder shall directly or indirectly
sell, assign, transfer, mortgage, pledge, hypothecate, or encumber in any other
manner whatsoever, or give away, bequeath, or in any other manner dispose of,
any Shares, except in accordance with the terms and provisions of this
Agreement. Any attempt to transfer any Shares in violation hereof shall be null
and void.
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<PAGE> 148
3. Right of First Refusal.
3.1 Offer. If during the term of this Agreement a Shareholder (the
"Selling Shareholder") receives and intends to accept an offer to purchase all
or any number of Shares held by the Selling Shareholder (the "Offered Shares"),
the Selling Shareholder shall request an unconditional, bona fide, written offer
from the prospective purchaser (the "Offer") and shall first offer the Offered
Shares for sale to the Company at the same price and on the same terms and
conditions as set forth in the Offer. Immediately upon receiving the Offer, the
Selling Shareholder shall transmit a copy of the Offer, setting forth in
reasonable detail all material terms for the contemplated sale, to the Secretary
of the Company.
3.2 Option of the Company. The Company shall have fifteen (15) calendar
days following receipt of the Offer by the Secretary of the Company in which to
give notice to the Selling Shareholder of its election to purchase some or all
of the Offered Shares on the terms and conditions stated in the Offer. In the
event the Company elects to purchase some or all of the Offered Shares, such
purchase shall occur within 15 days after the date on which notice of such
election is given, or on such later date as is stated in the Offer.
3.3 No Election Made. In the event any Offered Shares are not purchased
pursuant to this Section 3, then the Selling Shareholder may sell such Shares to
the purchaser identified in the Offer upon the terms and conditions stated in
the Offer, but not otherwise provided, however, that if the Selling Shareholder
does not sell such Shares in accordance with the Offer within 60 days
immediately following the last date on which the Company may purchase the
Offered Shares pursuant to Section 3.2 above, or such later date as is specified
in the Offer, then any sale of all or any portion of the Offered Shares shall
again be subject to the right of first refusal described in this Section 3.
4. Mandatory Offer to Sell.
4.1 Purchase Event. For purposes of this Agreement, any one of the
following events shall constitutes a "Purchase Event":
4.1.1 The death of an individual Shareholder, provided that the date
of the Purchase Event for purposes of this Agreement shall be deemed to be the
date the Company receives notice of the appointment and qualification of the
deceased Shareholder's personal representative. The personal representative of
the deceased Shareholder shall be obligated to give such notice as soon as
practicable.
4.1.2 The permanent disability of an individual Shareholder, where
permanent disability" is defined as the Shareholder's inability, through
physical or mental illness or other cause, to perform the majority of his or her
usual duties for the Company for a period of six consecutive months.
4.1.3 Any decree of divorce, dissolution or separate maintenance, or
any
2
<PAGE> 149
property settlement or separation agreement (a "Property Settlement") wherein
Shares are awarded to a Shareholder's former or separated spouse or partner who
is not also a Shareholder (a "Former Spouse").
4.1.4 The insolvency of a Shareholder or the making of an assignment
for the benefit of creditors by a Shareholder or the filing of a petition in
bankruptcy by or against a Shareholder.
4.1.5 The voluntary or involuntary termination of a Shareholder as
an employee and/or director of the Company.
4.2 Offer;, Optional Purchase. Upon the occurrence of any Purchase Event
with respect to a Shareholder (except the Purchase Event described in Section
4.1.3), the Company shall have the right to purchase such Shareholder's Shares
(the "Proffered Shares") on the same terms and conditions as if such Shareholder
or its trustee in bankruptcy, personal representative, guardian, executor or
administrator, as appropriate (the "Seller"), had made an offer to sell such
Shares pursuant to Section 3 at a price per Share equal to the determined price
established pursuant to Section 4.3 below. Upon the occurrence of the Purchase
Event specified in Section 4.1.3, first that Shareholder whose Former Spouse was
awarded Shares, and then the Company, shall have the right to purchase any or
all Shares owned, in whole or in part by that Shareholder's Former Spouse on the
same terms and conditions as if such Shareholder's Former Spouse had made an
offer to sell such Shares pursuant to Section 3 at a price per Share equal to
the price per share at which the Shares were valued for purposes of the Former
Spouse's Property Settlement or, if no value was ascribed to the Shares for
purposes of the Property Settlement, the price determined in accordance with
Section 4.3 below. In such event, the Shareholder shall have 15 days to either
(a) purchase such Shares or (b) provide notice to the Company that he or she
declined to purchase such Shares. The Company shall have 15 days after the date
of the determination of the purchase price for the Proffered Shares in
accordance with Section 4.3 (or, in the event of the Purchase Event described IN
Section 4.1.3, 15 days after receiving notice from the Shareholder that he or
she declined to purchase his or her Former Spouse's Shares) within which to
accept or reject such offer by giving written notice of its acceptance or
rejection to the Seller.
4.3 Purchase Price.
4.3.1 The price at which the Proffered Share shall be purchased and
sold pursuant to Section 4.2 hereof shall be the "fair market value" of such
shares as determined by the Company's Board of Directors within 30 days after
the date of the Purchase Event.
4.3.2 If the Board of Directors has not determined a price within
such 30day period, then the price at which the Proffered Shares shall be
purchased and sold pursuant to Section 4.2 hereof shall be the "fair market
value" of such shares as determined by appraisal by an independent professional
appraiser experienced in the valuation of businesses such as the Company. Such
appraiser shall be selected in good faith by the Board of Directors within 15
days after the end of such 30-day period and shall render his or her opinion of
the fair market value of
3
<PAGE> 150
the Proffered Shares within 30 days thereafter. In determining the fair market
value, the appraiser shall consider all appropriate factors, including but not
limited to minority discounts and discounts for lack of marketability. The
determination of the appraiser shall be final and binding upon the parties and
no party shall have the right of appeal from the determination. The appraiser
shall be paid a fixed fee per day (or part of a day) for his or her services,
such fee to be agreed upon at the outset of the appraisal, as distinguished from
percentage compensation based on the value of the Proffered Shares. All fees and
expenses of such appraisal shall be paid by the Company.
5. Method and Time of Payment. The purchase price determined in
accordance with Section 4.3 hereof shall be paid to Seller (i) as the parties
agree within 30 days after giving notice of her, his or its election to purchase
the Shares or (ii) if they can't agree, then by payment of at least twenty-five
percent (25%) of the purchase price within such time period and execution and
delivery of a promissory note payable in three equal annual installments
including annual interest at the then Applicable Federal Rate, which note shall
be secured by the Shares to be purchased (the "Collateral"). In connection with
such security interest, the Collateral shall be subject to a stock pledge
agreement in a form reasonably satisfactory to the purchaser(s) (the "Pledgor")
and the Seller (the "Pledgee"); provided, however, that any such stock pledge
agreement shall provide, at a minimum, for the following shareholder rights: (a)
the Pledgor shall deliver all dividends paid in cash or property on the
Collateral to the Pledgee and the Pledgee shall hold, as additional collateral,
any stock or securities received as dividends and shall apply the proceeds of
all other distributions to paying off the purchase price and (b) as long as the
Pledgor is not in default under the promissory note, the Pledgor may vote the
Collateral for all purposes, other than in a way which undermines the value of
the Collateral.
The maker of the note shall have the right to prepay such note at any time
without premium or penalty. Such note shall provide that, in the case of any
default, at the election of the holder, the entire sum of principal and interest
shall immediately be due and payable. Notwithstanding the foregoing, in the
event of the death of an insured Shareholder, the proceeds of such insurance
that are to be applied to the payment of the purchase price owed by the Company
for the Shares held by the insured Shareholder shall be paid in cash within 120
days following the Appointment Date.
6. Inter Vivos Gifts to Family Members. Subject to the provisions of
Section 10 hereof, any Shareholder who is a natural person may transfer any or
all of such Shareholder's Shares by gift to such Shareholder's spouse, child or
grandchild (or any trust or other entity in which the only owners or
beneficiaries are such Shareholder, spouse, child or grandchild) provided that
the initial transferee shall retain all voting rights with respect to any Shares
so transferred.
7. Payment by Company. If, as a result of the Company making any payment
on the purchase price for any Shares under this Agreement, the Company would not
be able to pay its debts as they become due in the usual course of business or
the Company's total assets would be less than its total liabilities or for any
other reason the Company would be prohibited from making such payment under
applicable law, then the remaining Shareholders shall contribute additional
capital to the Company and take such additional steps as are necessary, such
that the Company may
4
<PAGE> 151
lawfully pay the entire amount due.
8. Insurance.
8.1 Insurance for Purchase of Shares. Insurance may be carried from
time to time on the lives of any of the Shareholders by the Company for the
purpose of funding the potential liability to acquire the stock of an insured
Shareholder. All such insurance shall be owned by and be payable to the Company.
8.2 Proceeds upon Death of Insured Shareholder. In the event of the
death of an insured Shareholder, the proceeds of such insurance shall be applied
forthwith to the payment of the purchase price owed by the Company up to the
full amount of such proceeds.
8.2.1 In the event such proceeds are less than the full
purchase price for such Shares, it is understood and agreed that the net amount
of such proceeds shall (at least) constitute a down payment against the purchase
price.
8.2.2 In the event such proceeds exceed the purchase price,
such excess shall belong to the Company and not to the estate of the insured
Shareholder.
8.3 Cash Surrender Value. In the event any Shareholder sells his
Shares to the Company to the terms of this Agreement other than in the case of
his or her death, it is understood and agreed that the then cash surrender value
of any insurance held on the life of such Shareholder for the purpose of
providing funds for the purchase of his or her Shares may constitute the down
payment of the purchase obligation of the Company. The selling Shareholder shall
have the option of requesting either that the policy be cashed and the proceeds
thereof applied against such purchase obligation or that the policy be assigned
to him or her and the purchase price be reduced by an amount equivalent to the
cash surrender value of the policy.
8.4 Valuation of Stock. Insurance proceeds from any policies on the
life of the selling Shareholder purchased pursuant to this Section 8 shall not
be taken into account in determining the value of the stock of the Company under
Section 4.3. hereof.
9. Copy of Agreement. A copy of this Agreement shall at all times be kept
in the office of the Secretary of the Company.
10. Transferees. Marring of Shareholder. In the event of the issuance of
any new Shares, or the transfer in any manner of any Shares by a Shareholder in
accordance with the provisions of this Agreement, to any person who is not a
party to this Agreement, the issuing or transferring party shall obtain, as a
condition to and upon such issuance or transfer, the written consent of the new
Shareholder or the transferee to become a party to and be bound by the terms of
this Agreement and to the placing of the legend as required hereby upon the
certificate representing such Shares, and the consent of the spouse of the new
Shareholder or transferee, if married, to the terms of this Agreement. Without
limiting the foregoing, in the event that any Shareholder gets
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married during the term of this Agreement, then such Shareholder agrees to
obtain the written consent of his or her new spouse to the terms of this
Agreement.
11. Legends.
11.1 Securities Law Legend. All certificates of stock of the
Company issued to any of the parties hereto shall bear a legend upon the face
thereof, in form and substance as follows:
These securities are not registered under state or federal
securities laws and may not be offered, sold, pledged (except a
pledge pursuant to the terms of which any offer or sale upon
foreclosure would be made in a manner that would not violate the
registration provisions of federal or state securities laws) or
otherwise distributed for value, nor may these securities be
transferred on the books of the company, unless such transfer has
been registered or is exempt from such registration under said laws
and the rules and regulations thereunder.
11.2 Shareholders Agreement Legend. All certificates of stock of
the Company issued to any of the parties hereto shall also bear a legend upon
the face thereof, in form and substance as follows:
The sale, pledge, hypothecation or other transfer of this
certificate and the shares evidenced by this certificate is subject to an
Agreement dated , 199_, among the Company, the
holder of this certificate and other shareholders of the Company. A
copy of the Agreement is on file in the office of the Secretary of
the Company. By accepting the shares evidenced by this certificate,
the holder agrees to be bound by such Agreement.
12. Termination of Agreement. This Agreement shall terminate and be of no
further force or effect upon the earlier of
12.1 the written agreement of all of the parties hereto;
12.2 the event that one person shall become the beneficial owner of
all of the Shares which are subject to this Agreement;
12.3 the dissolution of the Company, or in the event proceedings in
bankruptcy, receivership or insolvency are instituted by the Company or against
the Company other than by a Shareholder, or in the event the Company becomes
insolvent or makes an assignment for the benefit of creditors;,
12.4 the closing date of a primary, firm commitment underwritten
public offering by this Company of shares of Common Stock, registered under the
Securities Act of 1933, as
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amended, in which the aggregate offering proceeds paid to the Company are at
least Ten Million Dollars ($10,000,000) and the per share price at which such
shares of Common Stock are offered to the public is at least six Dollars
($6.00), subject to equitable adjustments for divisions and combinations of
Common Stock; or
12.5 when the Company first becomes subject to the periodic
reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of
1934.
13. Notices. Any notice required or permitted hereunder shall be given in
writing by personal delivery, by mail, postage prepaid, certified or
registered, return receipt requested, or via facsimile machine to the intended
recipient at the address indicated for such party on the signature page hereof
or on Schedule A hereto, or at such other address as such party may designate by
ten days' advance written notice to the other parties given in the foregoing
manner. The date on which any such notice is so personally delivered, or if such
notice is given by mail, the second business day after its deposit in the U.S.
mail, or if by facsimile machine during normal business hours upon transmission
with confirmation of receipt by the receiving party's facsimile terminal and if
not sent during normal business hours, then on the next business day, shall be
deemed to be the effective date of such notice.
14. Specific Performance. The Shares cannot be readily purchased or sold
in the open market, and for that reason, among others, the Shareholders and the
Company will be irreparably damaged in the event that this Agreement is not
specifically enforced. If any Shareholder so required under this Agreement fails
to give a notice, make an offer, sell Shares, or obtain written consent or if
any Shareholder fails to accurately disclose the terms and conditions of an
Offer or the identity of the offeror as required hereby, then, in any such
event, any of the Shareholders or the Company may institute and maintain a
proceeding to compel the specific performance of this Agreement, and each
Shareholder specifically submits himself or herself to the jurisdiction and
venue of the courts of the State of Washington for purposes of any such action.
Each Shareholder further agrees that service of process against such Shareholder
in any such action or proceeding may be made by United States mail, certified or
registered, return receipt requested, postage prepaid. Such remedy shall,
however, be cumulative and not exclusive, and shall be in addition to any other
remedy at law or in equity which the Shareholders or the Company may have.
15. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors, assigns and personal
representatives of the parties hereto.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Modifications. This Agreement contains the entire agreement between
the parties hereto relating to the subject matter hereof and may be modified or
amended only by written agreement among the Company and all of the Shareholders,
provided, however, that additional Shareholders may be added to this Agreement
simply by having such Shareholders execute an
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additional signature page for this Agreement and adding the Shareholders to
Schedule A, and such revision shall not require the consent or agreement of the
other parties.
18. Severability. Invalidation of any one of the provisions of this
Agreement for any reason shall in no way affect any other provision hereof, and
all such other provisions shall remain in full force and effect.
19. Further Acts. Each party agrees to perform any further acts and to
execute and deliver any documents which may be reasonably necessary to carry out
the provisions of this Agreement.
20. Applicable Law. This Agreement and its validity, construction, and
performance shall be governed by the laws of the State of Washington.
EXECUTED on the day and year first above written.
Company: BSQUARE CORPORATION
By:
----------------------------
Its:
----------------------------
Address: 3633 136th Place S.E.
Suite 1000
Shareholders:
---------------------------------
---------------------------------
---------------------------------
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CONSENT OF SPOUSE
The undersigned is the wife/husband of , one of the parties
to the foregoing Shareholders Agreement, and she/he acknowledges that she/he has
read such Agreement and knows of its contents; that she/he is aware that by its
provisions her/his husband/wife agrees to sell all of his/her shares of ,
including her/his community property interest therein, if any, upon the
happening of certain events; she/he hereby consents to such a sale and approves
the provisions of such Agreement; she/he hereby agrees, on behalf of
herself/himself and all persons who may claim on her/his behalf, that upon
her/his legal separation from or the dissolution of her/his marriage to her/his
present husband/wife, or upon her/his or her/his husband/wife's death, neither
she/he nor anyone claiming on her/his behalf will seek to partition her/his or
her/his husband/wife's community property interest in such shares and that in
any such event she/he shall comply with the terms of this Agreement and shall be
entitled only to the value of her/his interest in such shares, if any
(determined in light of the existence of such Agreement), and that she/he shall
have no claim or right to the shares themselves.
EXECUTED this _ day of______________________________ , 19__.
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SCHEDULE A
LIST OF SHAREHOLDERS
(INCLUDING NUMBER OF SHARES AND ADDRESS)
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SECTION 3.16
A copy of the Certificate of Designation is attached as Section 3.16 of
the Disclosure Schedule.
<PAGE> 158
SECTION 3.16 OF
DISCLOSURE SCHEDULE
CERTIFICATE OF DESIGNATION STATE OF WASHINGTON
FILED
OF THE STATE OF WASHINGTON
JANUARY 29, 1998
RELATIVE RIGHTS AND PREFERENCES
RALPH MUNRO
OF THE SECRETARY OF STATE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
BSQUARE CORPORATION
The undersigned Senior Vice President of BSQUARE CORPORATION, a Washington
corporation (the "Corporation"), in accordance with the provisions of RCW
23B.06.020, does hereby certify that, pursuant to the authority conferred upon
the Board of Directors by the Articles of Incorporation of the Corporation, the
following resolution creating a series of Series A Convertible Preferred Stock
was duly adopted by the Board of Directors of the Corporation as of January 29,
1998:
RESOLVED, that, pursuant to the authority conferred an the Board of
Directors of the Corporation by the Articles of Incorporation of the
Corporation, the Board of Directors does hereby provide for the designation of a
series of preferred stork to be named "Series A Convertible Preferred Stock,"
initially consisting of 8,333,333 shares, and that to the extent that the
designation, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of the Series A Convertible
Preferred Stock are not stated and expressed in the Articles of Incorporation,
the Board of Directors does hereby fix and herein state and express such
designation, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of the Series A Convertible
Preferred Stock as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
The designations and the powers, preferences and rights of the Series A
Convertible Preferred Stock arc as follows:
Section l. Designation and Dividends. The Corporation hereby designates
8,333,333 shares of the Preferred Stock as Series A Convertible Preferred Stock
(the "Series A Preferred Stock"), which shall have the rights, preferences and
terms set forth herein. The holders of the Series A Preferred Stock shall be
entitled to receive dividends at the same rate as dividends (other than
dividends paid in additional shares of Common Stock) are paid with respect to
the Common Stock (treating each share of Series A Preferred Stock as being equal
to the number of shares of Common Stock into which each such share of Series A
Preferred Stock could be converted pursuant to the provisions of Section 4
hereof with such number determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend) (the
"Participating Dividends").
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Section 2. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, each holder of outstanding
shares of Series A Preferred Stock shall be entitled to be paid, out of the
assets of the Corporation available for distribution to stockholders, whether
such assets are capital, surplus, or earnings and before any amount shall be
paid or distributed to the holders of any class of Common Stock or of any other
stock ranking on liquidation junior to the Series A Preferred Stock, the
greater of: (i) an amount in cash equal to $1.80 per share (adjusted
appropriately for stock splits, stock dividends and the like) together with
declared but unpaid dividends to which the holders of outstanding shares of
Series A Preferred Stock are entitled pursuant to Section 1 hereof (the "Minimum
Liquidation Amount"); provided, however, that if, upon any liquidation,
dissolution or winding up of the Corporation, the amounts payable with respect
to the Series A Preferred Stock and any other stock ranking as to any such
distribution on a parity with the Series A Preferred Stock are not paid in full,
the holders of the Series A Preferred Stock and such other stock shall share
ratably in any distribution of assets in proportion to the full respective
preferential amounts to which they are entitled; or (ii) cash in an amount equal
to the portion of the assets of the Corporation remaining for distribution to
shareholders which such holder would have received if each share of Series A
Preferred Stock held by such holder had been converted into the number of shares
of Common Stock issuable upon the conversion of a share of Series A Preferred
Stock immediately prior to any such liquidation, dissolution or winding up of
the Corporation after taking into account the rights of holders of any other
class or series of capital stock of the Corporation (including the Common Stock)
entitled to share in such distribution in either case, plus any declared but
unpaid dividends to which the holders of outstanding shares of Series A
Preferred Stock are entitled pursuant to Section 1 hereof (the "Aggregate
Liquidation Amount").
(b) A consolidation, merger or capital reorganization of the
Corporation (except (i) into or with a wholly-owned subsidiary of the
Corporation with requisite shareholder approval or (ii) a merger in which the
beneficial owners of the Corporation's outstanding capital stock immediately
prior to such transaction hold no less than fifty-one percent (51%) of the
voting power in the resulting entity) or a sale of all or substantially all of
the assets of the Corporation shall be regarded as a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this Section
2; provided, however, that each holder of the Series A Preferred Stock shall
have the right to elect the benefits of the provisions of Section 4(i) hereof in
lieu of receiving payment in liquidation, dissolution or winding up of the
Corporation pursuant to this Section 2.
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Section 3. Voting, Power.
Except as otherwise expressly provided herein or as required by law, the
holder of each share of Series A Preferred Stock shall be entitled to vote on
all matters. Each share of Series A Preferred Stock shall entitle the holder
thereof to such number of votes per share as shall equal the number of shares of
Common Stock into which each share of Series A Preferred Stock is then
convertible. Except as otherwise expressly provided herein (including without
limitation the provisions of Section 6 hereof) or as required by law, the
holders of shares of the Series A Preferred Stock and the Common Stock shall
vote together as a single class on all matters.
Section 4. Conversion. The holders of the Series A Preferred Stock shall
have the following conversion rights:
(a) Voluntary Conversion. Holders of a majority of the outstanding
shares of Series A Preferred Stock shall be entitled, at any time and from time
to time after the date hereof, to cause any or all of such shares to be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $1.80 by the conversion price applicable to
such shares, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. Initially the conversion price shall
be $1.80 per share of Common Stock, which price shall be adjusted as hereinafter
provided (and, as so adjusted, is hereinafter sometimes referred to as the
"Conversion Price"). If a holder of Series A Preferred Stock elects to convert
his or her Series A Preferred Stock at a time when there are any accrued and
unpaid dividends or other amounts due on such shares (including any
Participating Dividends), such dividends and other amounts shall, to the extent
permitted by applicable law, be paid in full by the Corporation in connection
with such conversion.
(b) Automatic Conversion. Each share of Series A Preferred Stock
outstanding shall automatically, and without the requirement of any consent of
any holder, be converted into the number of shares of Common Stock into which
such shares are convertible at the then effective Conversion Price upon the
closing of a Qualified Public Offering. For purposes hereof, the term "Qualified
Public Offering" shall mean an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), covering the offer and sale of Common Stock of the
Corporation to the public at a minimum price of $4.50 per share and pursuant to
which (i) the gross proceeds received by the Corporation equal or exceed
$30,000,000 and (ii) the shares of Common Stock sold under such registration
statement are approved for listing on the New York Stock Exchange or approved
for quotation on The Nasdaq Stock Market, Inc.'s National Market.
(c) Conversion Procedures. Any holder of Series A Preferred Stock
converting such shares into shares of Common Stock pursuant to Section 4(a), or
whose shares are automatically converted pursuant to Section 4(b), shall
surrender the certificate or certificates representing the Series A Preferred
Stock being converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal
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executive office of the Corporation or the offices of the transfer agent for the
Series A Preferred Stock or such office or offices in the continental United
States of an agent for conversion as may from time to time be designated by
notice to the holders of the Series A Preferred Stock by the Corporation,
accompanied by written notice of conversion. Such notice of conversion shall (i)
specify the number of shares of Series A Preferred Stock to be converted, (ii)
specify the name or names in which such holder wishes the certificate or
certificates for Common Stock and for any Series A Preferred Stock not to be so
converted to be issued, (iii) include payment of any applicable transfer tax and
(iv) specify the address to which such holder wishes delivery to be made of such
new certificates to be issued upon such conversion. Upon surrender of a
certificate representing Series A Preferred Stock for conversion, the
Corporation shall issue and send by hand delivery, by courier or by first class
mail (postage prepaid) to the holder thereof or to such holder's designee, at
the address designated by such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered a certificate or
certificates representing Series A Preferred Stock, only part of which are to be
converted, the Corporation shall issue and send to such holder or such holder's
designee, in the manner set forth in the preceding sentence, a new certificate
or certificates representing the number of shares of Series A Preferred Stock
which shall not have been converted.
(d) Effective Date of Conversion. The issuance by the Corporation of
shares of Common Stock upon a conversion of Series A Preferred Stock into shares
of Common Stock made at the option of the holder thereof pursuant to Section
4(a) hereof shall be effective as of the surrender of the certificate or
certificates for the Series A Preferred Stock to be converted, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto). The issuance by the Corporation of shares of Common
Stock upon a conversion of Series A Preferred Stock into Common Stock pursuant
to Section 4(b) hereof shall be deemed to be effective immediately prior to the
closing of the Qualified Public Offering. On and after the effective date of
conversion, the person or persons entitled to receive the Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock.
(e) Fractional Shares. The Corporation shall not be obligated to
deliver to holders of Series A Preferred Stock any fractional share of Common
Stock issuable upon any conversion of such Series A Preferred Stock, but in lieu
thereof may make a cash payment in respect thereof in any manner permitted by
law.
(f) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized and unissued Common Stock,
solely for issuance upon the conversion of Series A Preferred Stock as herein
provided, free from any preemptive rights or other obligations, such number of
shares of the Common Stock as shall from time to time be issuable upon the
conversion of all the Series A Preferred Stock then outstanding provided that
the shares of Common Stock so reserved shall not be reduced or affected in any
manner whatsoever so long as any Series A Preferred Stock is outstanding,
except in the case of a reverse stock split or stock combination. The
Corporation shall prepare and shall use its reasonable business efforts to
obtain
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and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all requirements
as to registration, qualification or listing of the Common Stock, in order to
enable the Corporation lawfully to issue and deliver to each holder of record of
Series A Preferred Stock such number of shares of its Common Stock as shall from
time to time be sufficient to effect the conversion of all shares of Series A
Preferred Stock then outstanding and convertible into shares of Common Stock.
(g) Adjustments to Conversion Price. The Conversion Price in effect
from time to time shall be subject to adjustment as follows:
(i) Stock Dividends, Subdivisions and Combinations. Upon the
issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding
shares of Common Stock into a greater number of shares of Common Stock,
or the combination of outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the Conversion Price shall,
simultaneously with the happening of such dividend, subdivision or
combination be adjusted by multiplying the then effective Conversion
Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant to
this Section 4(g)(i) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
shareholders entitled to receive such dividend or distribution (on a
retroactive basis) and, in the case of a subdivision or combination,
immediately as of the effective date thereof.
(ii) Sale of Common Stock. In the event the Corporation shall at
any time or from time to time while the Series A Preferred Stock is
outstanding, issue, sell or exchange any shares of Common Stock
(including shares held in the Corporation's treasury, but excluding: (i)
any Common Stock which may be issued upon conversion of the Series A
Preferred Stock; and (ii) up to 3,625,000 shares of Common Stock issued
to officers, directors, employees, consultants or agents of the
Corporation pursuant to the Corporation's Stock Option Plan (the "Plan")
or upon the exercise of options issued pursuant to such Plan, or such
greater number of shares as may be issuable pursuant to the adjustment
provisions of such Plan as in effect on the date hereof (collectively,
the "Excluded Shares")), for a consideration per share less than the
Conversion Price in effect immediately prior to the issuance, sale or
exchange of such shares (any such issuance, sale or exchange hereinafter
referred to as a "Dilutive Transaction"), then, and thereafter
successively upon the consummation of any Dilutive Transaction, the
Conversion Price in effect immediately prior to the Dilutive Transaction
shall forthwith be reduced to an amount (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
Dilutive Transaction
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(excluding treasury shares but including all shares of Common Stock
issuable upon conversion or exercise of any outstanding Series A
Preferred Stock, options, warrants, rights or convertible securities),
plus (2) the number of shares of Common Stock which the net aggregate
consideration received by the Corporation for the total number of such
additional shares of Common Stock so issued in the Dilutive Transaction
would purchase at the Conversion Price (prior to adjustment), and
(B) the denominator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
Dilutive Transaction (excluding treasury shares but including all shares
of Common Stock issuable upon conversion or exercise of any outstanding
Series A Preferred Stock, options, warrants, rights or convertible
securities), plus (2) the number of such additional shares of Common
Stock so issued in the Dilutive Transaction.
(iii) Sale of Options, Rights or Convertible Securities. In the event
the Corporation shall at any time or from time to time while the Series A
Preferred Stock is outstanding, issue options, warrants or rights to subscribe
for shares of Common Stock (other than any options for Excluded Shares), or
issue any securities convertible into or exercisable or exchangeable for shares
of Common Stock, for a consideration per share (determined by dividing the Net
Aggregate Consideration (as determined below) by the aggregate number of shares
of Common Stock that would be issued if all such options, warrants, rights or
convertible securities were exercised or converted to the fullest extent
permitted by their terms) less than the Conversion Price in effect immediately
prior to the issuance of such options or rights or convertible or exchangeable
securities, the Conversion Price in effect immediately prior to the issuance of
such options, warrants or rights or securities shall be reduced to an amount
determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
issuance of such options, rights or convertible securities (excluding
treasury shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Series A Preferred Stock,
options, warrants, rights or convertible securities), plus (2) the
number of shares of Common Stock which the total amount of consideration
received by the Corporation for the issuance of such options, warrants,
rights or convertible securities plus the minimum amount set forth in
the terms of such security as payable to the Corporation upon the
exercise or conversion thereof (the "Net Aggregate Consideration") would
purchase at the Conversion Price prior to adjustment, and
(B) the denominator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
issuance of such options, warrants, rights or convertible securities
(excluding treasury shares but including all shares of Common Stock
issuable upon conversion or exercise of any outstanding Series A
Preferred Stock, options, warrants, rights or convertible
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securities), plus (2) the aggregate number of shares of Common
Stock that would be issued if all such options, warrants, rights or
convertible securities were exercised or converted.
(iv) Expiration or Change in Price. If the consideration per
share provided for in any options or rights to subscribe for shares of
Common Stock or any securities exercisable or exchangeable for or
convertible into shares of Common Stock, changes at any time, the
Conversion Price in effect at the time of such change shall be readjusted
to the Conversion Price which would have been in effect at such time had
such options or convertible securities provided for such changed
consideration per share (determined as provided in Section 4(g)(iii)
hereof) at the time initially granted, issued or sold; provided, that such
adjustment of the Conversion Price will be made only as and to the extent
that the Conversion Price effective upon such adjustment remains less than
or equal to the Conversion Price that would be in effect if such options,
rights or securities had not been issued. No adjustment of the Conversion
Price shall be made under this Section 4 upon the issuance of any
additional shares of Common Stock which are issued pursuant to the
exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if an adjustment shall previously have been made
upon the issuance of such warrants, options or other rights. Any
adjustment of the Conversion Price shall be disregarded if, as, and when
the rights to acquire shares of Common Stock upon exercise or conversion
of the warrants, options, rights or convertible securities which gave rise
to such adjustment expire or are canceled without having been exercised,
so that the Conversion Price effective immediately upon such cancellation
or expiration shall be equal to the Conversion Price in effect at the time
of the issuance of the expired or canceled warrants, options, rights or
convertible securities, with such additional adjustments as would have
been made to that Conversion Price had the expired or canceled warrants,
options, rights or convertible securities not been issued.
(h) Other Adjustments. In the event the Corporation shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date (calculated in accordance with Section 4(d) hereof), retained
such securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this Section
4 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the Series A Preferred
Stock shall be changed into the same or different number of shares of any class
or classes of stock, whether by reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend
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provided for above, or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 4), then and in each such event the
holder of each share of Series A Preferred Stock shall have the right thereafter
to convert each such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change, by holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been converted immediately prior
to such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(i) Mergers and Other Reorganizations. If at any time or from time
to time there shall be a capital reorganization of the Common Stock (other than
a subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 4) or a merger or consolidation of the Corporation
with or into another Corporation or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of and
as a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that the
holders of the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock the number of shares of stock or
other securities or property of the Corporation or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
provisions shall be made with respect to the rights of the holders of the Series
A Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 4 (including, without limitation,
provisions for adjustment of the Conversion Price and the number of shares
purchasable upon conversion of the Series A Preferred Stock) shall thereafter be
applicable, as nearly as may be, with respect to any shares of stock, securities
or assets to be deliverable thereafter upon the conversion of the Series A
Preferred Stock.
Each holder of Series A Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Corporation or the sale of all or
substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 4(i), shall have the option of
electing treatment of his or her shares of' Series A Preferred Stock under
either this Section 4(i) or Section 2(b) hereof, notice of which election shall
be submitted in writing to the Corporation at its principal offices no later
than ten (10) days before the effective date of such event, provided that any
such notice shall be effective if given not later than fifteen (15) days after
the date of the Corporation's notice, pursuant to Section 8, with respect to
such event.
(j) Notices. In each case of an adjustment or readjustment of the
Conversion Price, the Corporation will furnish each holder of Series A Preferred
Stock with a certificate, prepared by the chief financial officer of the
Corporation, showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
8
<PAGE> 166
Section 5. Redemption.
(a) Any holder of shares of Series A Preferred Stock may request
that up to 50% of the Series A Preferred Stock then held by such holder be
redeemed by the Corporation at any time on or after January 30, 2003 (the "First
Redemption Date"), or that up to 100% of the Series A Preferred Stock then held
by such holder be redeemed by the Corporation at any time on or after January
30, 2004 (the "Second Redemption Date," and, collectively with the First
Redemption Date, the "Redemption Date"), by giving 90 days written notice to the
Corporation, stating in such notice the number of shares to be redeemed and
delivering the certificates for the shares of Series A Preferred Stock to be so
redeemed to the Corporation by the Redemption Date. The Corporation shall redeem
all shares as to which it has received requests for redemption from the holders
thereof in accordance with the foregoing. Any redemption hereunder shall be at a
per share redemption price equal to $1.80 per share (adjusted appropriately for
stock splits, stock dividends and the like), plus any accrued but unpaid
dividends (including any Participating Dividends) to which the holders of
outstanding shares of Series A Preferred Stock are entitled pursuant to Section
1 hereof (the "Redemption Price").
(b) If the Corporation does not have sufficient funds legally
available to redeem all 1 shares for which redemption is requested hereunder,
then it shall redeem such shares on a pro-rata basis among the holders of the
Series A Preferred Stock in proportion to the shares of Series A Preferred Stock
then held by them to the extent possible and shall redeem the remaining shares
to be redeemed as soon as sufficient funds are legally available. In the event
that the Corporation fails to timely redeem shares for which redemption is
requested pursuant to Section 5(a) for any reason whatsoever, then during the
period from the Redemption Date through the date on which such shares are
redeemed, the Redemption Price of such shares shall bear interest at a per annum
rate equal to the Prime Rate (as reported in The Wall Street Journal from time
to time) plus two percent, which interest rate shall increase by an additional
1% at the end of each three (3) month period thereafter until the Redemption
Price (and any interest thereon) is paid in full, subject to a maximum interest
rate of the greater of 15% or such Prime Rate plus ten percent, but in no event
greater than 18%.
Section 6. Restrictions and Limitations.
(a) So long as any shares of the Series A Preferred Stock remain
outstanding, the Corporation shall not without the affirmative vote or written
consent of the holders of two-thirds in interest of the Series A Preferred
Stock:
(i) sell, lease or otherwise dispose of (whether in one transaction
or a series of related transactions) all or substantially all of its
assets or business,
(ii) merge with or into or consolidate with another entity or enter
into or engage in any other transaction or series of related
transactions, in any such case in connection with or as a result of
which the Company is not the surviving entity or the owners of the
Company's outstanding equity securities immediately prior to the
transaction or series
9
<PAGE> 167
of related transactions do not own at least a majority of the outstanding equity
securities of the surviving, resulting or consolidated entity,
(iii) dissolve, liquidate or wind up its operations,
(iv) directly or indirectly redeem, purchase, or otherwise acquire
for consideration any shares of its Common Stock or any other class of its
capital stock except (A) for the redemption of Convertible Preferred Shares
pursuant to and as provided in Sections 2, 4 and 5 hereof, (B) as contemplated
by Sections 1.2, 4.6, and 5.2 of that certain Stock Purchase and Shareholders
Agreement, dated as of January 30, 1998, (C) as contemplated by that certain
Redemption Agreement, dated as of January 30, 1998, or (D) as contemplated by
the Corporation's standard form of agreement, as approved by the Board of
Directors, to be executed by employees, officers, and consultants of the
Corporation upon the grant to such employees, officers, and consultants of
options under the Plan, or upon exercise of such options,
(v) adopt any amendment to this Certificate of Designation, or any
amendment to its Articles of Incorporation or By-Laws, that eliminates, amends,
restricts or otherwise adversely affects the rights and preferences of the
Convertible Preferred Stock, or that increases the authorized shares of
Convertible Preferred Stock,
(vi) declare or make dividend payments on any shares of its Common
Stock or any other class of its capital stock,
(vii) create, or obligate itself to create, any class or series of
shares that has a preference over, or is on a parity with, the Convertible
Preferred Stock,
(viii) increase the size of the Board of Directors to more than
seven (7) members,
(ix) enter into any agreement or arrangement or take any other
action that eliminates, amends, restricts or otherwise adversely affects the
rights of the holders of Convertible Preferred Stock or its ability to perform
its obligations hereunder; or
(x) enter into or be a party to any transaction or agreement,
including, without limitation, any lease or other rental or purchase agreement
providing for loans or extensions of credit by or to the Company, with or for
the benefit of any person or entity which is a shareholder, officer or director
of the Company, or which is a relative by blood or marriage of, a trust or
estate for the benefit of, or a person or entity which directly or indirectly
controls, is controlled by, or is under common control with, any such person or
entity, except for normal compensation paid to employees of the Company in the
ordinary course of business.
10
<PAGE> 168
Section 7. No Reissuance of Series A Preferred Stock. No share or shares
of the Series A Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired, and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of the Series A Preferred Stock accordingly.
Section 8. Other Rights. Except as otherwise provided in this Certificate
of Designation, each share of Series A Preferred Stock and each share of Common
Stock shall be identical in all respects, shall have the same powers,
preferences and rights, without preference of any such class or share over any
other such class or share.
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true as of the 29th day of January,
1998.
BSQUARE CORPORATION
/S/ ALBERT T. DOSSER
---------------------------------------
Albert T. Dosser, Senior Vice President
11
<PAGE> 169
<TABLE>
<CAPTION>
SECTION 4.14
USE OF PROCEEDS:
<S> <C> <C>
1. Repayment of Certain Notes to Shareholders: $1,779,966.39
2. Redemption of Shares from Certain Shareholders: $6,000,000.00
3. Dain Rauscher Fee $ 600,000.00
4. Working Capital $6,620,033.61
</TABLE>
<PAGE> 170
EXHIBIT F
<PAGE> 171
EXHIBIT F
FORM OF OPINION OF COUNSEL
January 30, 1998
Those investors listed on
Exhibit A to the BSQUARE Corporation
Stock Purchase and Shareholders Agreement
Dated as of January 30, 1998
Ladies and Gentlemen:
We have acted as counsel to BSQUARE Corporation, a Washington
corporation (the "Company"), in connection with (i) the issuance and sale of
Series A Convertible Preferred Stock pursuant to the Stock Purchase and
Shareholders Agreement dated as of January 30, 1998 (the "Purchase Agreement"),
by and among the Company, William T. Baxter, Albert T. Dosser, Peter R. Gregory,
Joseph Notarangelo (collectively, the "Shareholders") and you, and (ii) the
redemption by the Company of shares of its Common Stock pursuant to certain
redemption agreements dated as of January 30, 1998 (each a "Redemption
Agreement" and collectively, the "Redemption Agreements") by and between the
Company and each of William T. Baxter, Albert T. Dosser and Peter R. Gregory
(the "Redeeming Shareholders"). This opinion is delivered to you pursuant to
Section 3.4 of the Purchase Agreement. Capitalized terms used and not otherwise
defined herein shall have the respective meanings set forth in the Purchase
Agreement.
We have examined the originals or copies of such documents, certificates
and records as we have deemed relevant or necessary as the basis for the
opinions hereinafter expressed. We have assumed the genuineness of all
signatures, the authenticity of all documents, certificates and records
submitted to us as originals and the conformity to originals of such documents,
certificates and records submitted to us as certified, conformed or photostatic
copies. We have also assumed, without verification, the legal capacity of each
individual who has executed such documents, certificates and records, and the
completeness and accuracy as of the date of this opinion letter of the
information contained in such documents, certificates and records.
<PAGE> 172
Those Investors Listed on Exhibit A
to the BSQUARE Corporation Stock Purchase
and Shareholders Agreement dated as of January 30, 1998
This opinion letter is subject to all assumptions, qualifications and
limitations not inconsistent herewith that are described in the Legal Opinion
Accord of the ABA Section of Business Law (1991) at Section 4 ("Reliance by
Opinion Giver on Assumptions"), Section 14 ("Other Common Qualifications"),
Section 16 ("No Violation of Law") and Section 19 ("Specific Legal Issues").
The law covered by opinions expressed herein is limited to the federal
law of the United States and the law of the State of Washington. We express no
opinion with respect to the laws, regulations or ordinances of any county,
municipality or other local government agency.
As used in this opinion letter, the expression "to our knowledge" means
the conscious awareness of facts or other information by the lawyers in our
office representing the Company in connection with the negotiation and
preparation of the Purchase Agreement, Redemption Agreements and Certificate of
Designation. It does not include information that might by revealed if there
were to be undertaken a canvass of all lawyers in our office or a review of all
of our files.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Washington with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has the requisite corporate power and
authority to carry on its business as presently conducted, to enter into and to
consummate the transactions contemplated by the Purchase Agreement and the
Redemption Agreements and otherwise to carry out its obligations under such
agreements, including the issuance of the Convertible Preferred Stock and the
redemption of the Redemption Shares.
2. The execution and delivery of the Purchase Agreement and the
Redemption Agreements by the Company and the consummation by it of the
transactions contemplated thereby, including the issuance and delivery of (i)
the Convertible Preferred Shares, and (ii) upon the conversion of the
Convertible Preferred Shares, the Conversion Shares, have been duly authorized
by all necessary corporate action on the part of the Company. Each of the
Purchase Agreement and Redemption Agreements will, upon due execution and
delivery by the Company, constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except:
(a) the enforceability thereof may by affected by bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws
affecting the rights;
2
<PAGE> 173
Those Investors Listed on Exhibit A
to the BSQUARE Corporation Stock Purchase
and Shareholders Agreement dated as of January 30, 1998
(b) the courts of the State of Washington will consider
extrinsic evidence of circumstances surrounding the making of the Purchase
Agreement and Redemption Agreements to ascertain the intent of the parties in
using the language employed in such Purchase Agreement and Redemption Agreements
regardless of whether or not the language used in such Purchase Agreement and
Redemption Agreements is plain and unambiguous on its face, and may incorporate
additional or supplementary terms into such Purchase Agreement and Redemption
Agreements; and
(c) We express no opinion as to the enforceability of Sections
7.5 and 9.2 of the Purchase Agreement.
3. The execution and delivery of the Purchase Agreement and the
Redemption Agreements by the Company and the consummation by the Company of the
transactions contemplated thereby, including, without limitation, the issuance
and delivery of (i) the Convertible Preferred Shares and (ii) upon the
conversion of the Convertible Preferred Shares, the Conversion Shares, do not
and will not (A) conflict with or violate any provision of the Articles of
Incorporation or Bylaws, (B) to our knowledge, except as disclosed in the
Disclosure Schedule, breach or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party or by which
it or any of its assets are bound and which is listed in the Disclosure
Schedule, or (C) to our knowledge, result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company is subject (including
federal and state securities laws and regulations), or by which any property or
asset of the Company is bound or affected.
4. The capitalization of the Company immediately prior to the Closing
consists of 50,000,000 shares of Common Stock, of which 21,375,000 shares are
issued and outstanding, and 10,000,000 shares of Preferred Stock, of which
8,333,333 shares are designated as Convertible Preferred Stock, of which no
shares are issued and outstanding. As of the Closing, the respective rights,
preferences and privileges of the Convertible Preferred Stock will be as stated
in the Certificate of Designation. As of the Closing, and after giving effect to
the transactions contemplated by the Purchase Agreement, all of the outstanding
shares of capital stock of the Company (including, without limitation, the
Convertible Preferred Shares) will have been duly and validly authorized and
issued, fully paid and nonassessable and, except as set forth in the Purchase
Agreement, to our knowledge, not subject to any preemptive rights and will have
been offered, issued, sold and delivered in compliance with applicable federal
and state securities and blue sky laws. To our knowledge, there are no
outstanding preemptive or other rights, plans, options, warrants, conversion
rights or agreements for the purchase or acquisition from the Company of any
shares of its capital stock, except for (i) the conversion
3
<PAGE> 174
Those Investors Listed on Exhibit A
to the BSQUARE Corporation Stock Purchase
and Shareholders Agreement dated as of January 30, 1998
privileges of the Convertible Preferred Stock and (ii) 1,375,000 shares of
Common Stock reserved for issuance upon the exercise of outstanding options
granted under the Company's Stock Option Plan. Except with respect to the
Purchase Agreement, to our knowledge, the Company is not a party or subject to
any agreement or understanding, and there is no agreement or understanding
between any persons and/or entities, which affects or relates to the voting or
giving of written consents with respect to any security of the Company.
5. To our knowledge, except as set forth in the Disclosure Schedule, the
Company has no subsidiaries or ownership interests in any corporation, joint
venture, partnership or other entity.
6. The Articles of Incorporation of the Company (the "Articles") have
been duly authorized and adopted by the Board of Directors of the Company, have
been approved by all necessary action on the part of the Company's shareholders,
has been duly filed with the Secretary of State of the State of Washington and
has become effective.
7. The certificates representing the Convertible Preferred Shares are in
due and proper form and have been duly and validly executed by the officers of
the Company named thereon. The issuance of the Convertible Preferred Shares is
not subject to any preemptive rights or, to our knowledge, rights of first
refusal created by the Company. The Conversion Shares issuable upon conversion
of the Convertible Preferred Shares are not subject to any preemptive rights or,
to our knowledge, rights of first refusal created by the Company, and, upon
conversion of the Convertible Preferred Shares in accordance with the terms of
the Certificate of Designation, such Conversion Shares will be duly authorized,
validly issued, fully paid and nonassessable.
8. To our knowledge, except as set forth in the Disclosure Schedule, no
suit, action, proceeding or governmental investigation is pending or threatened
against the Company or its properties.
9. Assuming the accuracy of the representations and warranties of the
Company and the Shareholders set forth in Section 2 of the Purchase Agreement
and of the Purchasers set forth in Section 2A of the Purchase Agreement, it is
not necessary, in connection with the offer, and sale of the Shares to the
Purchasers pursuant to the Purchase Agreement, to register the Convertible
Preferred Shares or the Conversion Shares under the 1933 Act or the Securities
Act of the State of Washington.
10. Other than any required filings or approvals of federal and state
regulatory agencies, including the Securities Exchange Commission and state
securities administrators with jurisdiction over the transaction, to our
knowledge, the Company is not required to obtain any
4
<PAGE> 175
Those Investors Listed on Exhibit A
to the BSQUARE Corporation Stock Purchase
and Shareholders Agreement dated as of January 30, 1998
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local or other governmental authority
or other person in connection with the execution, delivery and performance by
the Company of the Purchase Agreement.
11. Each of the Redeeming Shareholders is the sole registered owner of
the Redemption Shares. To our knowledge, each Redeeming Shareholder has good and
marketable title to the Redemption Shares, free and clear of all liens,
encumbrances and claims whatsoever.
12. To our knowledge, each Shareholder has full right, authority, power
and capacity to enter into the Purchase Agreement and to carry out the
transactions contemplated thereby. To our knowledge, each Redeeming Shareholder
has full right, authority, power and capacity to enter into their respective
Redemption Agreement and to carry out the transactions contemplated thereby. The
Purchase Agreement and, if applicable, respective Redemption Agreement when
executed and delivered in accordance with their terms will constitute valid and
binding obligations of such Shareholder or Redeeming Shareholder, as the case
may be, enforceable in accordance with their respective terms, except:
(a) the enforceability thereof may by affected by bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws
affecting the rights;
(b) the courts of the State of Washington will consider
extrinsic evidence of circumstances surrounding the making of the Purchase
Agreement and the respective Redemption Agreement to ascertain the intent of the
parties in using the language employed in such Purchase Agreement and respective
Redemption Agreement, regardless of whether or not the language used in such
Purchase Agreement and respective Redemption Agreement is plain and unambiguous
on its face, and may incorporate additional or supplementary terms into such
Purchase Agreement and respective Redemption Agreement; and
(c) We express no opinion as to the enforceability of Sections
7.5 and 9.2 of the Purchase Agreement.
With respect to our opinion set forth in Paragraphs 1, 2 and 3 above, we
advise you that the Company's Board of Directors relied upon certain information
in making the determinations required by RCW 23B.06.400(2) in order to have the
Company redeem shares of its Common Stock as provided in the Redemption
Agreements. The Board of Directors of the Company believes that it is reasonable
in the circumstances to rely on such information as permitted by RCW
23B.06.400(3). We express no opinion as to the reasonableness of such reliance.
5
<PAGE> 176
Those Investors Listed on Exhibit A
to the BSQUARE Corporation Stock Purchase
and Shareholders Agreement dated as of January 30, 1998
This opinion letter is delivered as of its date and we do not undertake
to advise you or anyone else of any changes in the opinions expressed herein
resulting from changes in law, changes in facts or any other matters that
hereafter might occur or be brought to our attention that did not exist on the
date hereof or of which we had no knowledge.
This opinion letter may be relied upon by you only in connection with
the transaction described in the initial paragraph of this opinion letter and
may not be used or relied upon by you for any other purpose or by any other
person for any purpose whatsoever without, in each instance, our prior written
consent.
Yours very truly,
Summit Law Group PLLC
6
<PAGE> 177
EXHIBIT G
<PAGE> 178
EXHIBIT G
FORM OF CONSENT OF SPOUSE
I, _________________, spouse of _________________, acknowledge that I
have read the Stock Purchase and Shareholders Agreement dated as of January 30,
1998, to which this Consent is attached as Exhibit H (the "Agreement") and that
I know its contents. I am aware that by its provisions, including without
limitation the provisions of Section 5 of the Agreement, certain restrictions
are imposed upon the sale or other disposition of any shares of the Company of
which I may become possessed as a result of a gift from my spouse or a court
decree and/or any property settlement in any domestic litigation.
I hereby agree that my interest, if any, in the shares subject to the
Agreement will be irrevocably bound by the Agreement and further understand and
agree that any community property interest I may have in the shares will be
similarly bound by the Agreement.
I am aware that the legal, financial and related matters contained in
the Agreement are complex and that I am free to seek independent professional
guidance or counsel with respect to this Consent. I have either sought such
guidance or counsel or determined after reviewing the Agreement carefully that I
waive such right.
Dated as of the 30th day of January, 1998.
-----------------------------------
<PAGE> 179
EXHIBIT H
<PAGE> 180
EXHIBIT H
FORM OF DIRECTOR INDEMNIFICATION
This Indemnification Agreement (this "Agreement") dated as of January
30, 1998, is made between BSQUARE CORPORATION, a Washington corporation (the
"Company"), and Albert T. Dosser ("Indemnitee").
RECITALS
A. Indemnitee is an officer or director of the Company and in such
capacity is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance, the significant cost of such
insurance and the general reduction in the coverage of such insurance.
C. The Company and Indemnitee further recognize the substantial increase
in litigation subjecting officers and directors to expensive litigation risks at
the same time that such liability insurance has been severely limited.
D. The shareholders of the Company have adopted articles of
incorporation (the "Articles") and bylaws (the "Bylaws") providing for
indemnification of the officers, directors, agents and employees of the Company
to the full extent permitted by the Washington Business Corporation Act (the
"Statute").
E. The Articles, Bylaws and the Statute specifically provide that they
are not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its officers
with respect to indemnification of such directors and officers.
F. The Company desires to provide Indemnitee with specific contractual
assurance of Indemnitee's rights to full indemnification against litigation
risks and expenses (regardless, among other things, of any amendment to or
revocation of the Company's Articles or Bylaws or any change in the ownership of
the Company or the composition of its Board of Directors), which indemnification
is intended to be greater than that which is afforded by the Company's Articles,
Bylaws and, to the extent insurance is available, the coverage of Indemnitee
under the Company's director and officers liability insurance policies, but in
no event shall such indemnification be greater than that allowed by law.
G. In order to induce Indemnitee to continue to serve as an officer
and/or director, as the case may be, of the Company, the Company has agreed to
enter into this Agreement with Indemnitee.
AGREEMENT
In consideration of the recitals above, the mutual covenants and
agreements herein contained, and Indemnitee's continued service as an officer
and/or director, as the case may be, of the Company after the date hereof, the
parties to this Agreement agree as follows.
-1-
<PAGE> 181
1. INDEMNITY OF INDEMNITEE
1.1 SCOPE
The Company agrees to hold harmless and indemnify Indemnitee to the full
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by this Agreement, the Articles, the Bylaws, the Statute
or otherwise. In the event of any change, after the date of this Agreement, in
any applicable law, statute or rule regarding the right of a Washington
corporation to indemnify a member of its board of directors or an officer, such
changes, to the extent that they would expand Indemnitee's rights hereunder,
shall be within the purview of Indemnitee's rights and the Company's obligations
hereunder, and, to the extent that they would narrow Indemnitee's rights
hereunder, shall be excluded from this Agreement; provided, however, that any
change that is required by applicable laws, statutes or rules to be applied to
this Agreement shall be so applied regardless of whether the effect of such
change is to narrow Indemnitee's rights hereunder.
1.2 NONEXCLUSIVITY
The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Articles,
the Bylaws, any agreement, any vote of shareholders or disinterested directors,
the Statute, or otherwise, whether as to action in Indemnitee's official
capacity or otherwise.
1.3 ADDITIONAL INDEMNITY
If Indemnitee was or is made a party, or is threatened to be made a
party, to or is otherwise involved (including, without limitation, as a witness)
in any Proceeding (as defined below), the Company shall hold harmless and
indemnify Indemnitee from and against any and all losses, claims, damages,
liabilities or expenses (including reasonable attorneys' fees, judgments, fines,
ERISA excise taxes or penalties, amounts paid in settlement and other expenses
incurred in connection with such Proceeding) (collectively, "Damages").
1.4 DEFINITION OF PROCEEDING
For purposes of this Agreement, "Proceeding" shall mean any actual,
pending or threatened action, suit, arbitration, alternative dispute resolution
process, claim or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, in which Indemnitee is, was or
becomes involved by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company or that, being or having been such a
director, officer, employee or agent, Indemnitee is or was serving at the
request of the Company as a director, officer, employee, trustee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise (collectively a "Related Company"), including service with respect to
an employee benefit plan, whether the basis of such proceeding is alleged action
(or inaction) by Indemnitee in an official capacity as a director, officer,
employee, trustee or agent or in any other capacity while serving as a director,
officer, employee, trustee or agent; provided, however, that, except with
respect to an action to enforce the provisions of this Agreement, "Proceeding"
shall not include any action, suit, claim or proceeding instituted by or at the
direction of Indemnitee unless such action, suit, claim or proceeding is or was
authorized by the Company's Board of Directors.
-2-
<PAGE> 182
1.5 DETERMINATION OF ENTITLEMENT
In the event that a determination of Indemnitee's entitlement to
indemnification is required pursuant to Section 23B.08.550 of the Statute or any
successor thereto or pursuant to other applicable law, the appropriate
decision-maker shall make such determination; provided, however, that Indemnitee
shall initially be presumed in all cases to be entitled to indemnification, that
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury that such fact is true and that, unless the Company shall deliver to
Indemnitee written notice of a determination that Indemnitee is not entitled to
indemnification within twenty (20) days of the Company's receipt of Indemnitee's
initial written request for indemnification, such determination shall
conclusively be deemed to have been made in favor of the Company's provision of
indemnification and Company hereby agrees not to assert otherwise.
1.6 SURVIVAL
The indemnification provided under this Agreement shall apply to any and
all Proceedings, notwithstanding that Indemnitee has ceased to be a director,
officer, employee, trustee or agent of the Company or a Related Company.
2. EXPENSE ADVANCES
2.1 GENERALLY
The right to indemnification of Damages conferred by Section 1 shall
include the right to have the Company pay Indemnitee's expenses in any
Proceeding as such expenses are incurred and in advance of such Proceeding's
final disposition (such right is referred to hereinafter as an "Expense
Advance").
2.2 CONDITIONS TO EXPENSE ADVANCE
The Company's obligation to provide an Expense Advance is subject to the
following conditions:
2.2.1 UNDERTAKING
If the Proceeding arose in connection with Indemnitee's service as a
director or officer of the Company (and not in any other capacity in which
Indemnitee rendered service, including service to any Related Company), then
Indemnitee or his or her representative shall have executed and delivered to the
Company an undertaking, which need not be secured and shall be accepted without
reference to Indemnitee's financial ability to make repayment, by or on behalf
of Indemnitee to repay all Expense Advances if and to the extent that it shall
ultimately be determined by a final, unappealable decision rendered by a court
having jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise.
2.2.2 COOPERATION
Indemnitee shall give the Company such information and cooperation as it
may reasonably request and as shall be within Indemnitee's power.
-3-
<PAGE> 183
2.2.3 AFFIRMATION
Indemnitee shall furnish, upon request by the Company and if required
under applicable law, a written affirmation of Indemnitee's good faith belief
that any applicable standards of conduct have been met by Indemnitee.
3. PROCEDURES FOR ENFORCEMENT
3.1 ENFORCEMENT
In the event that a claim for indemnity, an Expense Advance or otherwise
is made hereunder and is not paid in full within sixty days (twenty days for an
Expense Advance) after written notice of such claim is delivered to the Company,
Indemnitee may, but need not, at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim (an "Enforcement Action").
3.2 PRESUMPTIONS IN ENFORCEMENT ACTION
In any Enforcement Action the following presumptions (and limitation on
presumptions) shall apply: (a) The Company shall conclusively be presumed to
have entered into this Agreement and assumed the obligations imposed on it
hereunder in order to induce Indemnitee to continue as an officer and/or
director, as the case may be, of the Company; (b) Neither (i) the failure of the
Company (including the Company's Board of Directors, independent or special
legal counsel or the Company's shareholders) to have made a determination prior
to the commencement of the Enforcement Action that indemnification of Indemnitee
is proper in the circumstances nor (ii) an actual determination by the Company,
its Board of Directors, independent or special legal counsel or shareholders
that Indemnitee is not entitled to indemnification shall be a defense to the
Enforcement Action or create a presumption that Indemnitee is not entitled to
indemnification hereunder; and (c) If Indemnitee is or was serving as a
director, officer, employee, trustee or agent of a corporation of which a
majority of the shares entitled to vote in the election of its directors is held
by the Company or in an executive or management capacity in a partnership, joint
venture, trust or other enterprise of which the Company or a wholly owned
subsidiary of the Company is a general partner or has a majority ownership, then
such corporation, partnership, joint venture, trust or enterprise shall
conclusively be deemed a Related Company and Indemnitee shall conclusively be
deemed to be serving such Related Company at the request of the Company.
3.3 ATTORNEYS' FEES AND EXPENSES FOR ENFORCEMENT ACTION
In the event Indemnitee is required to bring an Enforcement Action, the
Company shall indemnify and hold harmless Indemnitee against all of Indemnitee's
fees and expenses in bringing and pursuing the Enforcement Action (including
reasonable attorneys' fees at any stage, including on appeal); provided,
however, that the Company shall not be required to provide such indemnity for
such attorneys' fees or expenses if a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee in such Enforcement
Action was not made in good faith or was frivolous.
-4-
<PAGE> 184
4. LIMITATIONS ON INDEMNITY; MUTUAL ACKNOWLEDGEMENT
4.1 LIMITATION ON INDEMNITY
No indemnity pursuant to this Agreement shall be provided by the
Company: (a) On account of any suit in which a final, unappealable judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company in violation of the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto; (b) For Damages that have been paid directly to Indemnitee
by an insurance carrier under a policy of officers' and directors' liability
insurance maintained by the Company; (c) On account of Indemnitee's conduct
which is finally adjudged to have been intentional misconduct, a knowing
violation of law or the RCW 23B.08.310 or any successor provision of the
Statute, or a transaction from which Indemnitee derived benefit in money,
property or services to which Indemnitee is not legally entitled; or (d) If a
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful.
4.2 MUTUAL ACKNOWLEDGEMENT
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the Securities and Exchange
Commission (the "SEC") has taken the position that indemnification is not
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
5. NOTIFICATION AND DEFENSE OF CLAIM
5.1 NOTIFICATION
Promptly after receipt by Indemnitee of notice of the commencement of
any Proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof; but the omission so to notify the Company will not relieve the Company
from any liability which it may have to Indemnitee under this Agreement unless
and only to the extent that such omission can be shown to have prejudiced the
Company's ability to defend the Proceeding.
5.2 DEFENSE OF CLAIM
With respect to any such Proceeding as to which Indemnitee notifies the
Company of the commencement thereof: (a) The Company may participate therein at
its own expense; (b) The Company, jointly with any other indemnifying party
similarly notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict
-5-
<PAGE> 185
of interest between the Company and Indemnitee in the conduct of the defense of
such action, or (iii) the Company shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Company or as to which Indemnitee shall have made the
conclusion provided for in (ii) above; (c) The Company shall not be liable to
indemnify Indemnitee under this Agreement for any amounts paid in settlement of
any Proceeding effected without its written consent; (d) The Company shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent; and (e) Neither
the Company nor Indemnitee will unreasonably withhold its, his or her consent to
any proposed settlement.
6. SEVERABILITY
Nothing in this Agreement is intended to require or shall be construed
as requiring the Company to do or fail to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and authority to
enter into, and be bound by the terms of, this Agreement, and the execution,
delivery and performance of the undertakings contemplated by this Agreement have
been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and delivered by the
Company in accordance with the provisions hereof, shall be a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
enforcement of creditors' rights generally.
8. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION
(a) This Agreement shall be interpreted and enforced in accordance with
the laws of the State of Washington.
(b) This Agreement shall be binding upon Indemnitee and upon the
Company, its successors and assigns, and shall inure to the benefit of
Indemnitee, Indemnitee's heirs, personal representatives and assigns and to the
benefit of the Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
-6-
<PAGE> 186
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
COMPANY:
BSQUARE CORPORATION
By
-------------------------------------
William T. Baxter, President
INDEMNITEE:
By
--------------------------------------
-7-
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
BSQUARE GmbH, a German corporation
BSQUARE K.K., a Japanese corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made part of this
registration statement and prospectus.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington
August 13, 1999
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To BSQUARE Corporation
We have audited in accordance with generally accepted auditing standards,
the financial statements of BSQUARE Corporation and subsidiaries included in
this registration statement and have issued our report thereon dated August 13,
1999. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule listed in the
index of financial statements is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington
August 13, 1999
<PAGE> 3
BSQUARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C -- ADDITIONS
COLUMN B ------------------------- COLUMN E
BALANCE AT CHARGED TO COLUMN D BALANCE AT
BEGINNING COSTS AND DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE PERIOD
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
For the year ended December 31, 1996:
Allowance for doubtful accounts..................... $-- $-- $-- $ --
For the year ended December 31, 1997:
Allowance for doubtful accounts..................... $-- $10 $-- $ 10
For the year ended December 31, 1998:
Allowance for doubtful accounts..................... $10 $60 $ 3 $ 67
For the six months ended June 30, 1999:
Allowance for doubtful accounts..................... $67 $45 $-- $112
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 JUN-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 5,324,000 9,284,000
<SECURITIES> 1,582,000 0
<RECEIVABLES> 5,554,000 4,643,000
<ALLOWANCES> (67,000) (112,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 526,000 1,068,000
<PP&E> 4,275,000 5,299,000
<DEPRECIATION> (1,214,000) (1,919,000)
<TOTAL-ASSETS> 16,158,000 18,749,000
<CURRENT-LIABILITIES> 2,639,000 4,238,000
<BONDS> 289,000 210,000
14,417,000 14,475,000
0 0
<COMMON> 2,123,000 3,209,000
<OTHER-SE> (3,421,000) (3,464,000)
<TOTAL-LIABILITY-AND-EQUITY> 16,158,000 18,749,000
<SALES> 1,219,000 695,000
<TOTAL-REVENUES> 23,393,000 17,848,000
<CGS> 166,000 108,000
<TOTAL-COSTS> 11,135,000 8,791,000
<OTHER-EXPENSES> 10,081,000 8,151,000
<LOSS-PROVISION> 60,000 45,000
<INTEREST-EXPENSE> 17,000 19,000
<INCOME-PRETAX> 3,489,000 1,578,000
<INCOME-TAX> 1,189,000 712,000
<INCOME-CONTINUING> 2,300,000 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,300,000 866,000
<EPS-BASIC> 0.12 0.04
<EPS-DILUTED> 0.08 0.03
</TABLE>
