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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission File No. 0-18323
SYNTELLECT INC.(R)
(Exact name of Registrant as specified in its charter)
DELAWARE 86-0486871
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1000 Holcomb Woods Parkway, Suite 410A, Roswell, Georgia 30076
(Address of principal executive office) (Zip Code)
(770) 587-0700
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Title or Class Name of exchange on which registered
Common Stock, $.01 par value NASDAQ National Market System
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filer pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At March 21, 1997, the aggregate market value of common stock held by
non-affiliates of the Registrant was $38,024,035.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ] Not applicable
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
13,310,443 shares of Common Stock outstanding on March 21, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Materials from the Registrant's Proxy Statement relating to its 1997
Annual Meeting of Shareholders (the "Proxy Statement") have been incorporated by
reference into Part III, Items 10, 11, 12 and 13.
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TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 12
ITEM 3. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 13
ITEM 6. SELECTED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 44
ITEM 11. EXECUTIVE COMPENSATION 44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 45
SIGNATURES 49
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PART I
ITEM 1 - BUSINESS
GENERAL
Syntellect Inc. ( together with its subsidiaries, collectively referred
to as "Syntellect" or the "Company") develops, markets and integrates voice and
call processing systems and application software solutions worldwide. The
Company offers a diversified product line which includes both inbound voice
processing and outbound predictive dialer products, a worldwide distribution
network, and a vertical market focus on the financial services, media,
telecommunications and healthcare industries. Syntellect also provides an
interactive transaction-based service bureau for those customers who prefer to
outsource their voice processing applications, including cable and satellite
pay-per-view orders and employee benefits enrollment. The Company has installed
over 13,000 systems at more than 3,000 companies in 55 countries. Syntellect
currently employs more than 400 people, and in addition to its primary office
facilities in Atlanta and Phoenix, maintains nine sales offices in the United
States and one each in London and Munich.
This report on Form 10-K may contain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
include without limitation, certain statements contained in Part I, Item 1 -
"Business" under the captions "Historical Development of the Company", "Industry
and Market Background", "Products and Services", "Sales, Marketing, Service &
Support", "Product Development", "Manufacturing and Suppliers", "Backlog", and
"Proprietary Rights and Intellectual Property"; Part I, Item 3 - "Legal
Proceedings"; Part II, Item 5, "Market for the Registrant's Common Equity and
Related Stockholder Matters"; and Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations". Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Also see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a discussion of important factors that could
affect the validity of any such forward-looking statements.
HISTORICAL DEVELOPMENT OF THE COMPANY
Founded in 1984, Syntellect was an early pioneer in the interactive
voice response ("IVR") industry, and by 1995 had become the fourth largest
provider of IVR solutions in North America, and the largest IVR provider in
Europe. Virtually all of the Company's growth during this period was
attributable to its proprietary IVR systems (Infobot and Premier). In the early
1990's, the IVR industry experienced a major shift in product demand as the
market began to move from proprietary hardware and software applications to
advanced, open architecture products that offered increased functionality and a
wider range of options for self service - everything from telephones using
speech recognition, personal computers and the Internet, to faxes, pagers and
mobile phones. In 1993, Syntellect introduced its first open architecture
product, the VocalPoint IVR, and announced the phase out of it proprietary
lines.
During 1995, Syntellect initiated a search within the voice processing
industry for a strategic partner relationship that could potentially provide
complementary product offerings, wider distribution channels and operating
synergies. This search culminated on March 14, 1996 with Syntellect's
acquisition of Pinnacle Investment Associates Inc. ("Pinnacle") in a transaction
that was accounted for as a pooling of interests. Pinnacle subsequently was
merged into its wholly owned subsidiary, Telecorp Systems, Inc. ("Telecorp").
Telecorp develops and distributes inbound and outbound call center systems
worldwide, primarily in the cable television, newspaper and healthcare
industries, and operates a transaction-based service bureau designed primarily
to process pay-per-view orders for the cable television industry.
The merger provided the combined company with several distinct
marketing advantages including: (i) a more diversified product line which
includes both inbound voice processing technology and outbound predictive dialer
products; (ii) a larger sales force and distribution network together with
improved access and cross-selling opportunities in new vertical markets; and
(iii) the combination of recurring revenue from Syntellect's transaction-based
service bureau and Telecorp's Home Ticket(TM) pay-per-view service, with the
automated processing capacity
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of what the Company believes is one of the world's largest outsourced
transaction centers. In addition, the merger provided the combined company with
greater financial resources and access to a new management team with substantial
expertise in the voice processing industry. Pinnacle's Chairman and Chief
Executive Officer, J. Lawrence Bradner, and President, Steve G. Nussrallah, were
appointed to the positions of Chairman and Chief Executive Officer and
President, Chief Operating Officer and a director, respectively, of Syntellect
upon consummation of the merger. David C. Phillips, Pinnacle's Executive Vice
President - Finance and Operations, assumed the position of Syntellect's
Corporate Vice President - Operations. Jack R. Kelly, Jr., a prior Pinnacle
director, was elected to serve as a director of Syntellect in accordance with
the terms of the merger. W. Scott Coleman, Syntellect's Vice President of
Product Development was promoted to Senior Vice President and General Manager -
Call Center Systems. Neal L. Miller, Syntellect's Corporate Vice President,
Chief Financial Officer, Secretary and Treasurer, and Lindsay L. Hoopes,
Syntellect's Vice President - Controller and Assistant Secretary, remained in
their positions following the merger.
INDUSTRY AND MARKET BACKGROUND
EVOLUTION OF THE CALL CENTER. Traditionally, consumers obtained data or
services from organizations such as banks or insurance companies, by phoning a
customer service representative or agent who then used a terminal linked to a
computer to process the data or service request. While these "call centers"
enabled a company to provide a personal touch with its customers, they also
created clearly defined inefficiencies and disadvantages as the underlying
business experienced growth including: (i) the high cost of maintaining a large
pool of agents to answer calls and provide service, (ii) the practical limits on
the amount of information and level of service that could be given to individual
callers, and (iii) the increased potential for service delays and agent error as
call volume increases or substantially varies with the time of day. As a result,
organizations have increasingly turned to various methods of automation to
process these calls, and in so doing, have redefined the role of their call
centers and expanded the definition of a "call" from a person-to-person voice
transaction to a range of transactions involving voice, data and workflow
automation. Call centers have become "customer interaction centers," linking
multiple sites and geographically-dispersed resources through wide area
networks, corporate intranets, extranets, and the Internet.
In recent years, automated teller machines and well-implemented IVR
applications have proven that customers want the convenience of "anytime,
anywhere, anyway" customer service. The personal touch of agent-supported
services is certainly a requirement, but equally important is a company's
ability to provide its customers with automated self-service 24 hours a day, 7
days a week, over the telephone, the Internet, or any other media they may
choose. Automated self-service has become a major business requirement as
companies realize that this type of fast, friendly and cost efficient service
offers distinct competitive advantages. Automated self-service eliminates hold
times, provides increased accuracy in transaction processing, and allows for
expanded service offerings. Automated self-service applications can effectively
handle up to 60 percent of most interactive customer transactions. Many issues
still require the assistance of a customer service agent; however, technology
has helped to automate the agent's interaction with the customer through the use
of solutions such as computer telephony integration ("CTI") which integrates the
transmission of voice and data in a single telephone call. For example, an
inbound solution may involve a "screen pop" of customer information at the
agent's workstation, and an outbound solution may involve the transfer of
customer information to an agent's terminal in connection with an outbound
calling campaign for telemarketing or collections.
Industry sources estimate that more than 70 percent of all
business-related transactions are conducted over the telephone network or via
the Internet. The use of IVR systems has allowed businesses to broaden the type
of transactions that can be conducted in this manner. These transactions now
include order entry, package tracking, home banking, customer service, hospital
patient information requests, student registration, catalog sales, benefits
enrollment, dealer locator services, airline schedule information, pay-per-view
ordering and fax-on-demand. As the market continues to evolve, the increased
emphasis on cross-industry applications will require the IVR industry to develop
solutions that will allow data to be accessible from an even wider range of
database systems. This requires multi-vendor networking and application
integration capabilities based on open architecture platforms. Standardization
and interoperability are expected to facilitate the evolution of the IVR
industry's next generation of products.
MARKET POTENTIAL AND INDUSTRY RANK. DataQuest, a global market
research and consulting firm serving the high-technology and financial
communities, estimates in a recent forecast that the North American CTI market
will grow at a compounded annual rate of 25 percent from 1996 to the year 2000,
with revenue approaching $6.1
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billion by the year 2000. The CTI market is divided into three distinct
segments: formal call centers, typically large workgroups using an automatic
call distributor ("ACD"); informal call centers, smaller workgroups not using an
ACD; and small office/home office products targeted at small businesses and
individual knowledge workers from the office. The Company competes primarily in
the formal call center market with its VocalPoint IVR and predictive dialer
products. DataQuest also reports that there is no dominant industry leader in
the domestic voice processing market, as 50% of the market is shared by
companies which individually control less than a 1% market share. In June 1996,
DataQuest ranked Syntellect sixth in the domestic IVR market in terms of IVR
systems shipped and first in the European market. In addition, DataQuest
estimates that the predictive dialer market is currently growing at an annual
rate of nearly 50 percent.
COMPETITION. The voice processing industry is highly competitive and
the Company believes that competition will continue to intensify in the future.
The industry is characterized by rapid technological advances, frequent
introductions of new products, options and features, constant improvement in the
performance of IVR products, and downward pressure on prices. Failure to keep
pace with technological advances could adversely affect the Company's
competitive position and results of operations. Syntellect believes that the
principal competitive factors affecting the voice processing industry are price,
functionality, service and reputation in the industry. Although management
believes that the Company competes favorably with respect to these factors,
there can be no assurance that Syntellect can maintain its competitive position
against current and potential competitors.
Syntellect's principal domestic competitors for IVR products include
Lucent Technologies (AT&T), InterVoice Inc., Periphonics Corporation, Edify,
Brite Voice Systems Inc., and IBM Corporation. The Company's principal domestic
competitors for predictive dialer products are Davox Corporation, EIS
International, Inc., Melita International Corporation and Mosaix, Inc. (formerly
Digital). Internationally, Syntellect's primary competitors include InterVoice
Inc., Telsis, Periphonics and IBM Corporation. Many of the Company's competitors
have more extensive engineering, manufacturing, and marketing capabilities, in
addition to their substantially greater financial, technological and personnel
resources. The Company also expects new competitors to enter its markets.
PRODUCTS AND SERVICES
PRODUCT FOCUS. Syntellect has undergone a significant transition in its
product focus over the past several years in order to meet the changing
requirements of its markets. Historically, the Company was a technology-driven
organization focused on developing proprietary IVR systems. These products were
designed primarily for the formal call system market and required customers to
develop their own application software. With the introduction of the VocalPoint
IVR in 1993, the Company moved to an open architecture platform that allowed for
improved functionality and which integrated industry-standard hardware with
application software developed by the Company. Syntellect expanded its product
focus with the March 1996 acquisition of Pinnacle. With this acquisition, the
Company added an outbound call transaction platform (VocalPoint Predictive
Dialer) and the automated processing capacity of what the Company believes is
one of the world's largest transaction service bureaus. Syntellect is currently
the only company in its industry to offer both inbound and outbound voice
processing platforms, and a transaction-based service bureau for those customers
who prefer to outsource their voice processing applications.
NEW PRODUCT INTRODUCTIONS. The Company believes it introduced more new
products in 1996 than in any prior year. The new products are designed to add
functionality to existing products, expand the scope of the Company's product
offerings, and provide a framework for integrating the core product lines of
Syntellect and Pinnacle. The new product introductions include the following:
VocalPoint Interactive Services Transaction Architecture(TM) ("VISTA")
is a client-server architecture which combines the inbound and outbound
VocalPoint product lines with advanced Virtual Access technology to form a
seamless system for processing customer transactions. VISTA utilizes VocalPoint
IVR systems for telephony and data terminal interfaces and VISTA software
servers to offload VocalPoint IVR processing tasks. VISTA is designed to handle
high-volume, mission critical applications of large regional or national call
centers and transaction centers.
Virtual Access Technology allows callers to access an automated
self-service application using their choice of communication devices.
Telephones, personal computers, personal data assistants, fax machines, pagers
and screen phones can all be used to communicate with Virtual Access
applications.
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Interactive Communications Management ("ICM") solutions automate the
callflow process in customer service departments by eliminating the need for
agents to ask customers redundant questions, by reducing call duration and by
increasing the ability of agents to solve customer problems. The heart of the
ICM solution is the VocalPoint Interaction Server. This Microsoft NT-based
server tracks, routes and manages customer calls and Web transactions using
rules-based software. VocalPoint Desktop Software then uses CTI to link the
agent's terminal with the VocalPoint Interaction Server to provide customer data
with each phone call transferred to the agent's desk. This functionality is
commonly referred to as a "ScreenPop." The SYNthesizer Graphical Application
Generator is an easy-to-use application development tool designed for
non-programmers. SYNthesizer allows users to develop applications by creating
visual diagrams with "drag-and-drop" icons. This powerful tool provides ICM
users with a simple approach to creating and modifying call center applications.
ICM also makes use of a VocalPoint Fax Server to receive fax requests from
inbound or outbound agents and IVR and Interactive Web Response ("IWR")
applications.
VocalPoint IWR allows companies to take advantage of the Internet with
self service solutions designed exclusively for the World Wide Web. The
VocalPoint IWR can be voice-enabled for Virtual Access applications accessible
by both Web browsers and phones. The WebCallback(TM) feature allows customers
accessing a Web application to initiate a phone call with an agent, whose
terminal automatically displays a "WebPop" of the same Web page the customer is
viewing. The BankWorks IWR Application is an industry-specific application that
allows banks to offer Internet banking services to their customers.
INBOUND PRODUCT LINES. The Company's primary inbound product lines are
the VocalPoint IVR, an open architecture IVR platform; the VocalPoint 6000 ARU,
an audio response product for the cable television industry; and the Premier and
Premier 030 proprietary IVR systems.
VocalPoint IVR is the Company's flagship product which is designed to
meet customer needs for a fully automated system and combines voice processing,
information retrieval, caller interaction and application generation
capabilities. This open architecture platform addresses the mid-to-high end IVR
market, which ranges from 12 to several hundred ports. The VocalPoint IVR system
is built on third-party PC hardware, including Dialogic Corporation's
("Dialogic") industry-standard voice processing cards, and features key software
technology licensed from IBM's CallPath voice processing architecture. By
utilizing off-the-shelf components which leverage the research and development
of the third parties, Syntellect is able to not only price competitively, but
focus its engineering resources on value-added development.
Syntellect markets an array of features for the VocalPoint IVR
including Speech Recognition which allows callers to use spoken words to answer
program prompts; Text-to-Speech which enables customers to "read" database
information to callers without the need to pre-record voice messages; Voice
Forms which allows callers to verbally "fill-in-the-blanks" of a form; Audio
Text which gives callers access to a range of pre-recorded information such as
locations and hours of service; Voice Messaging which allows callers to leave
voice messages for subsequent retrieval by agents; FaxPoint which allows
customers to maintain a library of information that can be faxed to callers at
any time; and VocalPage which delivers information to users via their
alphanumeric pagers or personal digital assistants. The Company has also
developed a family of industry-specific and cross-industry application packages
that run on the VocalPoint IVR platform. Called ApplicationWorks, these
ready-to-use, comprehensive applications allow organizations to adopt voice
processing capabilities without incurring the expense associated with customized
programming. The Company has developed ApplicationWorks packages for the
banking, mortgage, newspaper and cable television industries, as well as
applications for colleges and universities.
Syntellect shipped VocalPoint IVR solutions to 58 new customers during
1996. In total, the Company shipped 6,000 lines of VocalPoint IVR product during
1996, compared to 4,500 lines in 1995 and 3,400 lines in 1994. VocalPoint IVR
sales represented 51%, 32% and 28% of the Company's total system sales for
fiscal 1996, 1995 and 1994, respectively, and 30%, 20% and 20%, respectively, of
total revenues during those years. In addition, Syntellect has sold
approximately $3.6 million of ApplicationWorks solutions since their
introduction in 1993.
VocalPoint 6000 ARU is an audio response unit specifically designed
for the cable television industry. The VocalPoint 6000 ARU provides high
performance call processing, supporting from four to 60 ports in a single
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chassis. The system can interface directly with the public telephone network or
be installed behind a central office switch, a private branch exchange ("PBX")
telephone system, or ACD at the customer site. The VocalPoint 6000 ARU comes
with a complete range of options for cable and satellite television companies
including pay-per-view order processing which presents callers with a list of
available broadcast offerings and processes an order immediately based on the
number dialed; service changes and upgrades which enable subscribers to add or
upgrade to new or premium channel services automatically; account balance
inquiries which gives callers their current account balance and the date the
last payment was posted without operator intervention; converter reauthorization
which gives subscribers and technicians the ability to reauthorize a converter
without waiting for a live operator; and automated attendant which handles
incoming administrative calls in the same manner as a front-desk receptionist.
Syntellect shipped VocalPoint 6000 ARU solutions to 16 new customers during
1996. VocalPoint 6000 ARU sales represented 17%, 8%, and 5% of the Company's
total system sales for 1996, 1995 and 1994, respectively, and 10%, 5% and 4%,
respectively, of total revenues during those years.
Premier 030 is a proprietary IVR system designed to work in conjunction
with sophisticated ACD or PBX telephone systems, as well as a variety of host
computers. The Premier 030 addresses the need for a powerful IVR system and is
sold as a complete voice processing platform or as an upgrade to certain of the
Company's earlier generations of IVR systems. The voice processing market
continues to move away from proprietary IVR systems. However, many organizations
have been reluctant to make a change due to their prior investment in
development of customized voice processing applications. Based on market
studies, Syntellect anticipates that demand for the Premier 030 product line
will decline significantly in 1997. The Company experienced a significant
decline in sales of this product line to new customers during 1996 as most
Premier 030 sales were add-ons to existing systems in the Company's large
install base. As a result, the Company will no longer devote significant
development resources to this product line; rather, it will actively market a
migration path from the Premier 030 to the VocalPoint IVR while continuing to
provide customer support services and software enhancements to its Premier 030
install base. Premier 030 and other proprietary product line sales represented
19%, 41% and 44% of the Company's total system sales for 1996, 1995 and 1994,
respectively, and 11%, 25% and 31%, respectively, of total revenues during those
years.
OUTBOUND PRODUCT LINE. The Company's outbound product line is the
VocalPoint Predictive Dialer. The VocalPoint Predictive Dialer is an open
architecture system designed for targeted telemarketing, collections and
customer service applications. The system incorporates the latest in predictive
dialer technology, including call pacing, call screening, call blending, and CTI
links between telecommunication equipment and mainframe databases. The
VocalPoint Predictive Dialer maximizes the number of live contacts reached,
supports on-screen interactive scripts, instantaneously displays contact data
when the call goes through, and provides detailed management statistics and
reports on agent productivity and calling campaign results. The Company shipped
VocalPoint Predictive Dialer solutions to 17 new customers during 1996.
VocalPoint Predictive Dialer sales represented 9%, 12% and 6% of the Company's
total system sales for 1996, 1995 and 1994, respectively, and 5%, 7% and 4%,
respectively, of total revenues during those years.
SERVICE BUREAU. The Company operates what it believes is one of the
largest outsourced transaction centers in the world through its Syntellect
Interactive Services ("SIS") subsidiary. The SIS Transaction Center
("Transaction Center") as it is known, is a service bureau with nearly 5,000
ports, which offers complete automated transaction outsourcing, system
redundancy, fault-tolerant power protection and disaster recovery services, 24
hours a day, 7 days a week. The Transaction Center is a call center that unlike
most, which are labor intensive, features an automated "lights out" facility.
The Transaction Center handles more than four million telephone calls and
Internet-based inquiries each month for its customers. The Transaction Center is
used for the Company's Home Ticket(TM) pay-per-view service. Home Ticket(TM)
combines the speed and convenience of 800 numbers, the user friendly nature of
IVR technology and real-time connectivity with cable billing host systems to
process orders for over 700 cable and satellite television operators in North
America including TCI, Time Warner, Cox Cable and Comcast. Home Ticket(TM) is
the pay-per-view service utilized by approximately 10 million households in the
United States alone. The Company has added additional features to the Home
Ticket(TM) service, including Hot Spots advertising and promotion messaging,
commercial ordering for hotels and motels, and Call Redirect which transfers an
incoming call to a second destination for enhanced customer service and
retailing options. The service bureau is also designed to handle employee
benefits enrollments and automated dealer inquiries relating to large, one-time
events such as special promotions or customer surveys for companies wishing to
automate and outsource these services. These services which generally became
available in 1995, are typically billed on a transaction-by-transaction basis.
Service bureau revenues represented 17%, 13% and 7% of the Company's total
revenues during 1996, 1995 and 1994, respectively. Home Ticket(TM) is the single
largest
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component of these revenues representing 90%, 85% and 100%, respectively of
total service bureau revenues during those years.
SALES, MARKETING, SERVICE & SUPPORT
GENERAL. Syntellect provides voice processing solutions to customers in
a variety of industries, including banking, education, insurance, service
providers, transportation, healthcare, media, telecommunications, public
utilities, retailing, government agencies, oil and gas, financial services,
manufacturing and newspaper publishing. Syntellect has installed over
13,000 systems at more than 3,000 companies in 55 countries. Syntellect's
customer base includes eight of the largest domestic banking firms, five of the
ten largest insurance companies, most major domestic cable television providers
and numerous other Fortune 500 companies. There can be no assurance that the
Company's existing customers will continue their current buying patterns or that
changes within those industries will not adversely affect the Company's ability
to retain or attract new customers. Syntellect's products are sold through a
direct sales force and through domestic and international distributors and value
added resellers ("VARs"). The Company currently maintains nine sales offices in
the United States and one each in London and Munich.
DOMESTIC SALES. Domestic sales including maintenance fees represented
73%, 79% and 76% of the Company's total revenues for 1996, 1995 and 1994,
respectively. During these years no single distributor or customer accounted for
more than 10% of total revenues. Syntellect's distribution network includes 58
channel distribution partners and VARs located throughout the United States and
Canada. More than 90% of the Company's 1996 sales were made by its direct sales
force. A substantial portion of these direct sales are made by a limited number
of sales representatives, the loss of whom could adversely affect future
operating results.
INTERNATIONAL SALES. International sales including maintenance fees
represented 27%, 21% and 24% of the Company's total revenues for 1996, 1995 and
1994, respectively. For additional information regarding international
operations, see Note 19 of Notes to Consolidated Financial Statements. All of
the Company's product lines and services are sold internationally with the
exception of the service bureau which is currently limited to Canada. The
products have been modified to meet specific power, safety and telecommunication
requirements of the country of destination. The Company currently offers its
products in 30 different languages. Syntellect maintains a direct sales force in
London and Munich, and uses 20 distributors to market its systems in various
countries around the world. The Company supports its European distributors
through the London office. Sales in Canada and the United Kingdom are
denominated in Canadian dollars and pounds sterling, respectively, and are
subject to foreign currency adjustments. Sales in all other foreign countries
are denominated in United States dollars. Syntellect conducts business in
international markets in compliance with each country's applicable laws and
regulations, including safety and telecommunication laws, import duties and
quotas. Syntellect has not experienced any difficulty in obtaining export
licenses for foreign sales from the United States Department of Commerce.
MARKETING ORGANIZATION AND VERTICAL MARKET FOCUS. Syntellect's
marketing organization is charged with (i) enhancing the Company's corporate
image; (ii) increasing demand for the Company's voice processing products; (iii)
creating market differentiation; and (iv) identifying future development
opportunities for market-driven features. The marketing organization conducts
market and competitive research, participates in industry trade shows and
conferences, creates sales literature and presentations, and maintains
relationships with key industry analysts and media contacts. Syntellect's
strategic marketing plan is focused on four vertical markets - financial
services, media (cable television and newspaper), telecommunications and
healthcare industries. Sales to these markets represented approximately 32%,
41%, 9% and 2%, respectively, of the Company's total revenues for 1996; 42%,
30%, 9% and 2%, respectively, for 1995; and 52%, 20%, 12% and 2%, respectively,
for 1994. Syntellect markets its products to industry leaders within these
vertical markets as management believes the industry leaders have the greatest
need for voice processing products, are most likely to require system expansion
and additional services, and serve as an important source of customer referrals.
CUSTOMER SUPPORT. Syntellect provides customer support in the areas of
consulting services, project management, systems planning, application
development, installation, scripting and voice file production, database
maintenance services for cable television IVR customers, maintenance and
software support services, a 24 hour-a-day, 7 day-a-week Help Desk, on-site
technical support, remote diagnostics, classroom training and on-site
educational services. These services are generally provided as part of the
initial sale of a system. Syntellect provides warranties on its various product
lines for periods ranging from three months to one year after
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shipment. After the initial warranty period, hardware and software maintenance
services are available on both a contractual and on-demand time and material
basis. Substantially all of the hardware maintenance and support provided to
domestic customers is performed on-site under contractual arrangements with
independent third party service providers. Internationally, the Company provides
training, service and support services through a combination of its direct
customer support function, third party service providers and distributors.
PRODUCT DEVELOPMENT
Syntellect believes that its success is dependent upon its ability to
expand the market for its existing products, provide new options and features on
a timely basis, and develop new applications that can be incorporated into
commercially viable voice processing products. The Company believes it
introduced more new products in 1996 than in any prior year; however, there can
be no assurance that these new product lines or features will receive market
acceptance. Further, there can be no assurance that future announcements of new
products will not cause customers to defer purchases of existing products, which
could adversely affect the Company's results of operations.
Product development consists of hardware specification, hardware
integration, third party software integration, system design and proprietary
software design and coding. All product development is performed by employees
of, and contractors managed by, the Company's research and development
organization. Syntellect performs rigorous testing prior to releasing new
products and features. Nevertheless, products as complex as those produced by
the Company often contain undetected errors, or "bugs" when first released.
These "bugs" are often discovered only after the product has been used by many
different customers and in varying applications. There can be no assurance that
errors will not be discovered in the future, causing delays in product
introductions and shipments or requiring design modifications which could
adversely affect the Company's results of operations.
Syntellect's product development organization consisted of 73 and 78
individuals at December 31, 1996 and 1995, respectively. In addition, the
Company used a significant number of contracted developers during 1996 to assist
in the Company's development efforts. The Company spent $5.9 million, $4.9
million, and $ 4.9 million for research and development during 1996, 1995 and
1994, respectively.
MANUFACTURING AND SUPPLIERS
Syntellect's manufacturing operation consists of in-house
configuration, product assembly, product testing and quality control. The
Company obtains hardware components from third parties for its VocalPoint family
of products, including telephony interface and voice recognition boards which
its purchases from Dialogic pursuant to a volume purchase agreement. The
agreement with Dialogic expired December 31, 1996 and the Company is currently
in the negotiation and renewal process. The Company expects to sign a new
agreement with Dialogic. However, should it become necessary or desirable to
secure telephony interface and voice recognition boards from a supplier other
than Dialogic, management believes that such a change could be made with minor
disruption of the business due to the availability of alternative vendors. The
Company has used Varian Tempe Electronics Center ("Varian") to perform printed
circuit board and system assembly and testing related to the Premier 030 product
line. Alternative high quality contract manufacturing suppliers exist, and
because Syntellect owns the engineering and source documentation, test equipment
and test software for the proprietary Premier 030 product line, a shift in
product assembly from Varian or sourcing of components from alternative
suppliers could be accomplished without serious disruption to the business. The
Company does not believe it is dependent on single source suppliers for
components used in any of its primary product lines. Syntellect is currently
able to obtain key components in a timely manner from a variety of sources;
however, any inability to secure alternate suppliers of key components or
alternate assembly sources in a timely manner could adversely affect the
Company's results of operations.
Sprint Corporation provides telecommunication access and services to
the Transaction Center under a contractual agreement that expires June 30,
1997. The Company believes that terms and conditions of the contract are a
significant contributor to its ability to provide competitive pricing for the
Home Ticket(TM) service and other service bureau applications. Failure to renew
this contract or any significant change in the underlying terms and conditions
could adversely affect the Company's results of operations.
9
<PAGE> 10
BACKLOG
The Company's backlog at December 31, 1996 and 1995 was approximately
$8.3 million and $6.0 million, respectively. The Company believes that all
orders in backlog at December 31, 1996 are firm and will be delivered within the
next fiscal year. Because the possibility exists for customers to make changes
to their original order, to alter or significantly delay delivery schedules or
to cancel their order, the backlog total as of any particular date may not be
indicative of actual revenues for any future period.
PROPRIETARY RIGHTS AND INTELLECTUAL PROPERTY
Syntellect owns a portfolio of computer telephony patents covering
various aspects of its technologies in the United States and throughout the
world, and has patent applications pending in the United States and in several
foreign countries. Syntellect is also licensed to use certain patents,
technology and other intellectual property rights owned by others, and,
similarly, other companies are licensed to use certain patents, technology and
intellectual rights owned by Syntellect. Syntellect considers its patent
portfolio to be a significant aspect of its technology licensing program. The
patent portfolio includes an extensive group of patents acquired in July 1992 in
connection with its acquisition of Dytel Inc., a manufacturer of equipment for
the voice messaging and call processing industry. Syntellect sold the Dytel
product line in February 1995 to a third party purchaser but retained the rights
to the Dytel patent portfolio. The Company received licensing and royalty fees
of $2.4 million, $1.2 million, and $1.4 million during 1996, 1995 and 1994,
respectively, related to the Dytel patent portfolio. All of the above patents,
patent applications and active patent license agreements will expire or
terminate over time by operation of law, in accordance with their terms or
otherwise. The expiration of such patents, patent applications and active patent
license agreements is not expected to have a material adverse affect on the
Company's financial position or results of operations.
Syntellect establishes and protects proprietary rights in its products
and technologies through a combination of registered copyrights, trademarks,
service marks, trade secret and patent protection. The Company also enters into
confidentiality agreements with its employees, distributors and customers, and
seeks to limit access to the distribution of its software, documentation and
other proprietary information. Syntellect can provide no assurance that the
steps it has taken to protect its licensing and proprietary rights will be
adequate to deter misappropriation and/or development of its technologies and
products by independent third parties or that third parties will not assert that
Syntellect's products infringe upon the rights of others. The Company believes
that factors such as technological innovation and expertise and market
responsiveness can be as important as the legal protections described above.
VocalPoint is a registered trademark and Vista (VocalPoint Interactive
Services Transaction Architecture), Home Ticket, Interactive Web Response,
and WebCallback are trademarks of Syntellect. All other products mentioned in
this Form 10-K are trademarks or registered trademarks of their respective
companies.
Syntellect's strategic move from proprietary hardware platforms to
integration of its application software with industry-standard hardware, has
resulted in an increased reliance on licensed technology obtained from third
parties for use in the Company's products. The Company contracted with IBM in
1993 to obtain IBM's personal computer-based voice processing software
technology, including the key components of the CallPath architecture. Pursuant
to the terms of the licensing agreement, Syntellect obtained a worldwide
nonexclusive license to develop and sell a version, under the Company's name, of
IBM's voice processing software that runs on personal computers using IBM's OS/2
operating system. The agreement also provides the Company with the rights to all
future IBM basic and major enhancements to the software, including IBM's
language packages for foreign markets. IBM is obligated to provide backup
maintenance support for the software it provides under the agreement. The
agreement expires in June 2002, subject to certain early termination provisions.
In accordance with its obligations under the agreement, Syntellect prepaid
royalties of $1 million in June 1994 and $3 million in December 1994. As of
December 31, 1996, the Company had utilized all of the prepaid royalties and had
accrued $791,000 in additional royalty payments due IBM. The technology licensed
under the IBM agreement is the foundation of the VocalPoint family of products
and related ApplicationWorks packages. The termination or loss of this agreement
or IBM's failure to perform its obligations thereunder would adversely affect
the Company's results of operations. Upon certain events of default by IBM,
Syntellect has the right to purchase the source code currently licensed under
the agreement for $4 million.
10
<PAGE> 11
EMPLOYEES
At December 31, 1996, Syntellect employed 385 on a full-time basis: 49
in sales, 24 in marketing, 117 in customer support, 31 in manufacturing, 73 in
product development, 41 in the service bureau operation, and 50 in
administration. The Company's success depends on a number of technical
employees. Competition for highly skilled people with extensive experience in
systems and applications software and advanced electronics is intense.
Syntellect's inability to retain these employees could severely impact the
Company's ability to conduct its business. The Company has never had a work
stoppage and none of its employees are represented by a labor organization.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information with respect to the names, ages,
positions and offices held with Syntellect by the Executive Officers as of March
21, 1997.
J. LAWRENCE BRADNER, 45, became Syntellect's Chairman and Chief
Executive Officer upon completion of the merger with Pinnacle on March 14, 1996.
He had served as Chairman and Chief Executive Officer of Pinnacle and its wholly
owned subsidiary, Telecorp, since their formation in 1991. From 1977 to 1990,
Mr. Bradner was employed by Scientific-Atlanta, Inc. ("Scientific-Atlanta"), a
leading provider of satellite and other telecommunications products based in
Atlanta, Georgia. Mr. Bradner served as President of the Broadband
Communications Business Division of Scientific-Atlanta and as Corporate Vice
President from 1987 to 1990. Mr. Bradner holds a Bachelors Degree, with honors,
in Industrial and Systems Engineering from the Georgia Institute of Technology
and a Master of Business Administration Degree from Harvard Business School.
STEVE G. NUSSRALLAH, 46, became Syntellect's President and Chief
Operating Officer upon completion of the merger with Pinnacle on March 14, 1996.
He had served as President of Pinnacle and Telecorp since their formation in
1991. From 1984 to 1990, Mr. Nussrallah was employed by Scientific-Atlanta. From
1988 to 1990, Mr. Nussrallah served as Vice President and General Manger of the
Subscriber Business Unit, Scientific-Atlanta's largest single business. Mr.
Nussrallah holds a Bachelors Degree, with honors, in Electrical Engineering from
the University of Cincinnati and a Masters Degree in Electrical Engineering from
the University of Michigan.
NEAL L. MILLER, 37, has served as Syntellect's Corporate Vice
President, Chief Financial Officer, Secretary and Treasurer since December 1995.
Mr. Miller served as Division Finance Director/Controller for the Communications
Division of Tandem Computers, Inc. from 1993 to 1995. Prior to that, Mr. Miller
served as Vice President and Chief Financial Officer of American Software, Inc.
from 1990 to 1993, and in various finance and sales positions with American
Software from 1984 to 1990. Mr. Miller is a Certified Public Accountant and
holds a Bachelors Degree in Business Administration, with honors, in Accounting
from Georgia State University.
W. SCOTT COLEMAN, 41, has served as Syntellect's Senior Vice President
and General Manager - Call Center Systems since February 1, 1996. Mr. Coleman,
together with Director Daniel D. Ross, served in Syntellect's Office of the
Chief Executive Officer from November 10, 1995 to March 14, 1996. Prior to that
time, Mr. Coleman served as Syntellect's Vice President of Product Development
from 1993 to 1995. Mr. Coleman has been involved in the voice processing
industry since 1982, serving as Vice President of American Telesystems
Corporation, where he was responsible for product strategy, business development
and product development activities. Mr. Coleman holds a Master of Science Degree
in Electrical Engineering from the Georgia Institute of Technology.
DAVID C. PHILLIPS, 43, became Syntellect's Corporate Vice President -
Operations upon completion of the merger with Pinnacle on March 14, 1996. He had
served as Executive Vice President - Finance and Operations of Telecorp since
1991. From January 1990 to August 1990, Mr. Phillips was employed by
CableGraphix, Inc., a producer and distributor of cable-specific marketing and
promotional literature for cable subscribers, based in Phoenix, Arizona. From
1979 to 1989, Mr. Phillips was employed in various positions by
Scientific-Atlanta. Mr. Phillips, a Certified Public Accountant, received a
Bachelors Degree in Business Administration from the University of Georgia and a
Masters Degree in Professional Accountancy from Georgia State University.
LINDSAY L. HOOPES, 39, has served as Syntellect's Vice
President-Controller and Assistant Secretary since December 1995, and as its
Corporate Controller from December 1994 to December 1995. Prior to joining
Syntellect, Mr. Hoopes served as Vice President and Chief Financial Officer of
Advanced Systems Consultants, a franchisee of MicroAge, Inc. from 1993 to 1994.
From 1991 to 1992, Mr. Hoopes served as a Regional Controller of ComputerLand
Corporation, and from 1987 to 1992 as Corporate Controller of DataPhaz, Inc., a
franchisee of
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ComputerLand. Prior to that time, Mr. Hoopes worked for six years with the Big
Six accounting firms of Arthur Andersen and Touche Ross. Mr. Hoopes is a
Certified Public Accountant and holds a Bachelor of Science Degree in Accounting
from the University of Arizona.
ITEM 2 - PROPERTIES
Syntellect's principal corporate offices are located in 49,100 square
feet of leased space in Roswell, Georgia. This facility is also used for certain
of the Company's sales, customer support, research and development and
production functions. The lease extends through 2001 and provides the Company
with options for an additional 44,000 square feet as it becomes available. In
June 1996, the Company entered into a ten year lease for a new 70,564 square
foot office facility in Phoenix, Arizona. The lease is scheduled to commence in
March 1997 concurrent with the expiration of an existing facility lease which
covered 46,000 square feet. The new facility will provide for expansion and
consolidation of the Company's systems business, and includes space for
Phoenix-based customer support, research and development, marketing, production,
training and administrative functions.
Syntellect leases a 1,600 square foot facility in Atlanta, Georgia for
its Transaction Center. This facility is used for the Home Ticket(TM)
pay-per-view service and other service bureau applications offered through the
Company's Syntellect Interactive Services subsidiary. The Company also leases
nine sales and support offices in the United States, including a 9,600 square
foot facility in Wood Dale, Illinois, and one each in London and Munich,
Germany. Aggregate monthly rental payments for Syntellect's office facilities
are approximately $115,000.
ITEM 3 - LEGAL PROCEEDINGS
Syntellect has settled a lawsuit filed by the former owners of Telecorp
in the State Court of Fulton County, Georgia in October 1995. The lawsuit
alleged that Telecorp breached certain covenants of consulting and
noncompetition agreements that had been executed in connection with Pinnacle's
acquisition of Telecorp. The Company settled the litigation in November 1996 for
an amount within the accrual that had been established for potential legal
expenses and costs relating to this litigation.
Syntellect was a defendant in a patent infringement suit filed on May
24, 1996 in the United States District Court for the Southern District of
Florida, Miami Division, Case No. 96-1411-CIV-LENARD, entitled Elk Industries,
Inc. v. Syntellect Inc. The case charges Syntellect with infringement of U.S.
Patent No. 4,124,773 covering an "Audio Storage and Distribution System." The
Company settled this litigation in March 1997 for an amount within the accrual
that had been established for potential legal expenses and costs relating to
this litigation.
Syntellect is from time to time involved in legal proceedings of a
character normally incident to its business, including complaints filed by the
Company against third parties for potential infringement of its patent
portfolio. The Company is actively pursuing a program to license its patents to
third parties in exchange for a one-time licensing fee and/or recurring royalty
payments. Syntellect is not currently a party to any material pending legal
proceedings other than as described below:
Syntellect is a defendant in a discrimination suit filed by a former
employee on February 7, 1996 in United States District Court, District of
Arizona, Cause No. CIU 96-359 Phx PGR, entitled Rhonda Arnold v. Syntellect Inc.
The case charges Syntellect with discrimination in compensation and other
conditions of employment. The Company has answered the complaint, denying all
liability, and both parties have begun discovery in the matter.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Syntellect's shareholders during
the fourth quarter of 1996.
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PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Syntellect's common stock has been traded in the over-the-counter
market and quoted through The Nasdaq Stock Market ("NASDAQ") since March 29,
1990, under the symbol "SYNL". The following table sets forth the high and low
sale prices of the common stock for the two most recent fiscal years as reported
on NASDAQ.
<TABLE>
<CAPTION>
Year Ended 1996 High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
1st Quarter $ 4 7/8 $ 2 7/8
2nd Quarter 7 7/8 4
3rd Quarter 6 3/8 4 3/8
4th Quarter 5 7/8 3 3/4
</TABLE>
<TABLE>
<CAPTION>
Year Ended 1995 High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
1st Quarter $ 7 1/8 $ 4 1/4
2nd Quarter 6 1/2 4 3/8
3rd Quarter 5 7/8 3
4th Quarter 5 2 3/4
</TABLE>
On March 21, 1997, the closing sale price for Syntellect's common stock
was $3 5/8 per share. On such date, there were 248 holders of record of
Syntellect's common stock. This figure does not reflect beneficial ownership of
shares held in nominee names. Syntellect has never declared or paid a cash
dividend on its common stock. Syntellect presently intends to retain earnings
for use in its business and does not anticipate paying cash dividends on its
outstanding shares in the foreseeable future.
As is frequently the case with stock of high technology companies, the
market price of Syntellect's common stock has been and may continue to be quite
volatile. Factors such as quarterly fluctuations in results of operations,
announcements of technological innovations or the introduction of new products
by Syntellect or its competitors, and macroeconomic conditions in the computer
hardware and software industries generally, may have a significant impact on the
market price of Syntellect's common stock. In addition, if revenue or earnings
in any quarter were to fail to meet expectations of the investment community,
there could be an immediate impact on Syntellect's stock price. Further, the
stock market has from time to time experienced extreme price and volume
fluctuations which have affected the market price for many high technology
companies and which, on occasion, have been unrelated to the operating
performance of those companies. These broad market fluctuations may adversely
affect the market price of Syntellect's common stock.
ITEM 6 - SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Syntellect's consolidated financial statements and related
notes and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. The selected consolidated
financial data presented below under the captions "Statement of Operations Data"
and "Balance Sheet Data" for, and as of the end of, each of the years in the
five-year period ended December 31, 1996, are derived from the consolidated
financial statements of Syntellect Inc. and subsidiaries. The consolidated
financial statements as of December 31, 1996 and 1995, and for each of the years
in the three-year period ended December 31, 1996, and the report thereon, are
included elsewhere herein.
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STATEMENT OF OPERATIONS DATA (in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues $ 55,305 $ 49,510 $57,396 $ 51,759 $ 47,696
Cost of revenues 27,783 26,147 28,065 24,142 20,601
-------- -------- ------- -------- --------
Gross margin 27,522 23,363 29,331 27,617 27,095
Operating expenses:
Selling, marketing and
administrative 21,383 23,026 19,263 21,506 18,786
Product development 5,943 4,884 4,893 7,132 6,320
Depreciation and amortization 3,229 3,079 3,401 3,560 3,030
Special charge -- 8,800 879 8,801 --
-------- -------- ------- -------- --------
Total operating expenses 30,555 39,789 28,436 40,999 28,136
-------- -------- ------- -------- --------
Operating income (loss) (3,033) (16,426) 895 (13,382) (1,041)
Other income, net 253 302 297 179 994
-------- -------- ------- -------- --------
Income (loss) before income taxes (2,780) (16,124) 1,192 (13,203) (47)
Income tax expense (benefit) -- 134 75 80 (72)
-------- -------- ------- -------- --------
Net income (loss) $ (2,780) $(16,258) $ 1,117 $(13,283) $ 25
======== ======== ======= ======== ========
Net income (loss) per common share $ (0.21) $ (1.24) $ .08 $ (1.02) $ --
======== ======== ======= ======== ========
Shares used in per share calculation 13,256 13,159 13,468 13,026 13,083
======== ======== ======= ======== ========
</TABLE>
BALANCE SHEET DATA (in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $13,677 $17,443 $31,989 $30,304 $36,631
Total assets 34,808 39,719 51,395 49,443 58,435
Long-term debt, less current portion 229 175 875 665 920
Shareholders' equity 22,021 24,176 39,538 38,344 47,028
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PERCENTAGES, SHARE AND PER SHARE AMOUNTS)
ACQUISITION OF PINNACLE INVESTMENT ASSOCIATES INC.
On March 14, 1996, Syntellect completed its acquisition of Pinnacle
Investment Associates Inc. ("Pinnacle") in a transaction accounted for as a
pooling of interests. Pursuant to the terms of the merger, Syntellect issued
4,685,838 shares of common stock and assumed outstanding options belonging to
Pinnacle stockholders for the purchase of an additional 740,848 shares of common
stock at a weighted average exercise price of $1.04 per share. The common stock
issued in this transaction had a total value of $20.5 million based on the fair
market value of the common stock on the date of issuance. Pinnacle subsequently
merged into its wholly owned subsidiary, Telecorp Systems, Inc. ("Telecorp").
Telecorp develops and distributes inbound and outbound call center systems
worldwide, primarily in the cable television, newspaper and health care
industries, and operates a transaction-based service bureau designed primarily
to process pay-per-view orders for the cable television industry. The financial
position and results of operations of Syntellect and Pinnacle for all periods
presented have been restated to give effect to the merger.
The merger provided the combined company with several distinct
marketing advantages including: (i) a more diversified product line which
includes both inbound voice processing technology and outbound predictive dialer
products; (ii) a larger sales force and distribution network together with
improved access into new vertical markets; (iii) the formation of the Syntellect
Interactive Services, Inc. subsidiary ("SIS") which combined Syntellect's
transaction-based service bureau with the processing capacity of Telecorp's
National Transaction
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<PAGE> 15
Center (subsequently renamed the SIS Transaction Center). In addition, the
merger provides the combined company with greater financial resources and access
to a new management team with substantial expertise in the voice processing
industry.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET REVENUES
Net revenues for 1996 were $55.3 million, an increase of 12% over the
$49.5 million reported for 1995. Net revenues consist of SYSTEM SALES, SERVICE
BUREAU REVENUES and MAINTENANCE AND OTHER SERVICE REVENUES, which represented
57%, 17% and 26% of net revenues, respectively, for 1996 and 61%, 13% and 26% of
net revenues, respectively, for 1995.
SYSTEM SALES for 1996 were $31.8 million, an increase of $1.7 million,
or 6%, over the $30.1 million reported for 1995. System sales include the
Company's primary inbound product lines, VocalPoint, an open architecture
Interactive Voice Response ("IVR") platform ($16.1 million); the Premier and
Premier 030 proprietary IVR systems ($6.0 million); the VocalPoint System 6000
Audio Response Unit for the cable television industry ($6.0 million); and an
outbound product, the VocalPoint Predictive Dialer ($2.8 million). VocalPoint
IVR sales increased $6.4 million, or 66% between years. Domestic and
international sales of VocalPoint increased $2.4 million, or 36%, and $4.0
million, or 129%, respectively, between the comparable periods. The increase in
international VocalPoint sales resulted primarily from sales to large
telecommunications and cable television customers in the United Kingdom. The
Company experienced a significant shift in its product mix during 1996 as more
than 60% of all system sales orders received were for VocalPoint IVR. The
VocalPoint IVR is a complex solution that requires longer lead times for
delivery than the Company's earlier product offerings. This large shift in
product sales mix, together with the timing and receipt of several large
VocalPoint orders during the final two quarters of 1996, exceeded the Company's
capacity to deliver solutions and recognize revenue. The systems backlog at the
end of 1996 was approximately $8.3 million, one of the largest in Company
history, and included more than $6.3 million in VocalPoint IVR orders. During
1996, the Company also delivered its first ICM solution which uses advanced CTI
technology. The Company recorded sales of $700 related to this new product line
during 1996.
Sales of the Premier and Premier 030 product lines decreased $1.9
million, or 58%, and $4.4 million, or 49%, respectively, between the comparable
years. Sales of the older Premier lines continue to decrease as these product
lines are in their final phase-out stage. Premier 030 sales decreased $2.2
million in the Company's domestic install base, and by $2.2 million in its
international markets, primarily in the Far East and Latin America. The Company
introduced and actively marketed VocalPoint IVR solutions in these regions
during 1996, and reorganized the management of its international sales operation
to facilitate the transition of its product sales mix in these geographical
areas. The results of these efforts have fallen short of the Company's
expectations, as new VocalPoint IVR sales have not fully replaced the decline in
Premier 030 sales. VocalPoint System 6000 sales increased $3.0 million, or 125%,
between the comparable years. This increase results from a large call center
installation for a cable television customer in the United Kingdom. Sales of the
VocalPoint Predictive Dialer decreased $800, or 22%, between the comparable
years. Domestic orders for the VocalPoint Predictive Dialer declined during 1996
as customers delayed their purchasing decisions pending release of the product's
version 3.0 upgrade, which did not occur until the fourth quarter of 1996. This
decrease was off-set in part by an $800 installation of a VocalPoint Predictive
Dialer for a cable television customer in the United Kingdom. Sales of the
VocalPoint Predictive Dialer were significantly below the Company's plan for
1996. Management is investigating alternatives for increasing its returns in the
predictive dialer market.
Systems sales were further impacted between the comparable years by a
$1.3 million decrease in sales of the Dytel product line and the System/2000
digital voice system manufactured by the Company's former Syntellect Network
Systems Inc. ("SNS") subsidiary. The Company sold the Dytel product line to a
third party purchaser in February 1995. The SNS subsidiary was sold to an
unrelated value added reseller in April 1996.
SERVICE BUREAU REVENUES increased $2.8 million, or 43%, between the
comparable years. This increase reflects the continued growth of the Company's
Home Ticket(TM), a pay-per-view service for cable television
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<PAGE> 16
providers which is offered through the Company's SIS subsidiary. Revenues from
other service bureau applications were flat between the comparable periods as a
result of infrastructure changes and relocation of the Company's Chicago
facility to Atlanta. MAINTENANCE AND OTHER SERVICE REVENUES increased $1.3
million, or 10%, between the comparable years. This increase results from a $1.2
million increase in patent revenue and a $100 increase in maintenance and other
services between periods.
DOMESTIC AND INTERNATIONAL SALES for 1996 were $40.3 million, or 73%,
and $15.0 million, or 27%, of total revenues, respectively, compared to $39.0
million, or 79%, and $10.5 million, or 21% of total revenues, for 1995. The
international sales figures for 1996 include a $3.0 million VocalPoint System
6000 call center installation and a $800 VocalPoint Predictive Dialer
installation for a cable television customer in the United Kingdom.
GROSS MARGIN
The gross margin percentage for the year ended December 31, 1996 was
50% of net revenues, as compared with 47% for the year ended December 31, 1995.
Gross margins on SYSTEM SALES improved from 36% to 41% between years as a result
of changes in the Company's sales discounting policies, a reduction in direct
material costs and software licensing fees, and a shift in product mix to higher
margin offerings. System margins also improved with the higher mix of revenue
from direct sales versus distributor channels. Gross margins for the SERVICE
BUREAU decreased from 45% to 40% between years with the Company's decision to
increase spending on infrastructure that will facilitate continued growth of the
Home Ticket(TM) pay-per-view service and other service bureau applications.
Gross margins for MAINTENANCE AND OTHER SERVICE REVENUES increased from 74% to
75% between years. The Company includes those costs directly associated with the
generation of revenue in its computation of gross margin, including direct
labor, application development, travel, maintenance, customer support, supplies
and hardware. Gross margins will fluctuate on a year-to-year basis due to
changes in competitive pressures, sales volume, product mix, variations in the
ratio of domestic versus international sales, or changes in the mix of direct
and indirect sales activity. Accordingly, the gross margins reported for 1996
are not necessarily indicative of the results to be expected for future periods.
OPERATING EXPENSES
Operating expenses for 1996 were $30.6 million, a decrease of $400, or
1%, from the $31 million reported for 1995, exclusive of an $8.8 million special
charge discussed below. Selling, marketing and administrative expenses decreased
$1.6 million, or 7%, between years. This decrease resulted primarily from
economies of scale related to the integration of the Company's sales function,
and a reduction in administrative salaries and benefit costs. The 1995 totals
also include $700 in direct transaction costs incurred in connection with the
acquisition of Pinnacle. Research and development expenses increased $1.1
million, or 22%, between years. The Company allocated additional resources
during 1996 for the development of market-driven features such as CTI, an
Interactive Web Response platform, and upgrades for the Company's existing
product lines, including version 3.0 of the VocalPoint Predictive Dialer.
Depreciation and amortization expense increased $150, or 5%, between years
primarily due to the Company's purchase of $2.5 million in computer and voice
processing equipment and $2.3 million in other equipment that will be used to
expand the capacity of the Service Bureau.
SPECIAL CHARGE
Syntellect incurred an $8.8 million special charge to operations during
1995. The special charge is described in detail in the comparison of 1995
operating results to 1994. The special charge includes an allowance for
inventory obsolescence ($5.0 million), a write-down of software and equipment to
be relocated or disposed of ($1.7 million), employee severance for a reduction
in force ($1.2 million), an accounts receivable allowance ($700), and other
charges ($200).
The allowances for accounts receivable and inventory obsolescence were
utilized during 1996 to write-off specifically identified receivable balances
and inventory disposed of during the year. The reserve for inventory
obsolescence at December 31, 1996 represents management's estimate of the
valuation allowance necessary for inventory not yet disposed of. The software
and equipment charge was utilized during 1996 to write-down the value of
specific assets that were relocated, lost or disposed of. The Company made $741
in severance payments to
16
<PAGE> 17
terminated employees during 1996 in connection with its reduction in force. As
of December 31, 1996, there remained outstanding payments due on severance
transactions relating to 1995 and 1996.
NET INCOME (LOSS)
Syntellect reported a net loss of $2.8 million, or $(0.21) per share
for 1996, compared to a net loss of $16.3 million, or $(1.24) per share for
1995. Excluding the effects of the special charge, the Company incurred a net
loss for 1995 of $7.5 million, or $(.57) per share.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET REVENUES
Net revenues for 1995 were $49.5 million, a decrease of $7.9 million,
or 14%, from the $57.4 million reported for 1994. Net revenues consist of SYSTEM
SALES, SERVICE BUREAU REVENUES and MAINTENANCE AND OTHER SERVICE REVENUES, which
represented 61%, 13% and 26% of net revenues, respectively for 1995 and 71%, 7%,
and 22%, respectively, for 1994.
SYSTEMS SALES for 1995 were $30.1 million, a decrease of $10.8 million,
or 26%, from the $40.9 million reported for 1994. System Sales included the
VocalPoint IVR ($9.7 million); the Premier and Premier 030 ($12.3 million); the
VocalPoint System 6000 Audio Response Unit ($3.0 million); and the VocalPoint
Predictive Dialer ($3.6 million). VocalPoint IVR sales decreased $1.6 million,
or 14%, between years. Domestic and international sales of VocalPoint IVR
decreased $1.1 million, or 13%, and $500, or 16%, respectively, between the
comparable periods. Domestic sales of VocalPoint IVR were negatively impacted by
insufficient distribution channels, slower than expected productivity from new
direct sales representatives and channel partners, increased competition, and
the timing of awards of certain major contracts near yearend which delayed the
delivery of product and recognition of revenue. The Company also believes that
domestic sales were negatively impacted during the second half of 1995 by market
uncertainty surrounding the announcement of the pending merger with Pinnacle,
and the departure of several members of senior management. The decrease in
international VocalPoint IVR sales resulted from the temporary dedication of
resources to a major VocalPoint IVR installation in the United Kingdom. This
decrease was off-set in part by the receipt of initial orders for the VocalPoint
IVR product in the Middle East, South Africa and Australia.
Sales of the Premier and Premier 030 product lines decreased $3.9
million, or 55%, and $1.7 million, or 16%, respectively, between the comparable
years. The Company began to experience part shortages and sharp increases in
component pricing related to the older Premier lines during late 1994 and into
1995, and as a result, the Company announced an official end-of-life for the
Premier lines. Sales of the Premier 030 line declined in all markets due to
technological changes in the IVR market and increased demand for maximum
functionality and durability which are better served by the open architecture
platform utilized in the VocalPoint IVR product. VocalPoint System 6000 sales
increased $100, or 5%, between the comparable years, primarily from sales to
international cable television customers. VocalPoint Predictive Dialer sales
increased $1.4 million, or 60%, between years, the largest portion of which
resulted from sales to customers in the domestic newspaper industry.
System sales were also impacted between the comparable years by
decreases of $2.1 million and $3.0 million in sales of the Dytel product line
and the System/2000 digital voice system, respectively. The Company sold the
Dytel product line to a third party purchaser in February 1995. Anticipated
System/2000 orders of over $2.0 million did not materialize during 1995 due to
slowdowns and start-up of the related customers' business.
SERVICE BUREAU REVENUES increased $2.7 million, or 71%, between the
comparable years. Revenues from the Home Ticket(TM) service offered through the
Transaction Center increased $1.7 million, or 46%, between years and the Company
realized $1.0 million in incremental revenue from the transaction-based service
bureau which was launched during 1995. MAINTENANCE AND OTHER SERVICE REVENUES
increased a modest $200, or 1%, between years. This small increase reflects the
migration in the Company's product lines and the resulting cancellation of
maintenance contracts.
DOMESTIC AND INTERNATIONAL SALES for 1995 were $39.0 million, or 79%,
and $10.5 million, or 21%, of total revenues, respectively, compared to $43.7
million, or 76%, and $13.7 million, or 24%, for 1994.
17
<PAGE> 18
GROSS MARGIN
The gross margin percentage for the year ended December 31, 1995 was
47% of net revenues, as compared with 51% for the year ended December 31, 1994.
Gross margins on SYSTEM SALES decreased from 44% to 36% between years. This
decrease resulted from the significant overall decline in system sales between
years and the resulting inability of the Company to absorb the fixed costs
allocated to cost of revenues. Gross margins for the SERVICE BUREAU increased
from 36% to 45% between years as result of the $2.7 million, or 71%, increase in
related revenues, particularly the Home Ticket(TM) service. Gross margins for
MAINTENANCE AND OTHER SERVICE REVENUES decreased from 77% to 74% between years
as result of the Company incurring increased service costs without a
corresponding increase in these types of revenues.
OPERATING EXPENSES
Operating expenses for 1995, exclusive of the $8.8 million special
charge, were $31 million, an increase of $3.4 million, or 12%, over the $27.6
million reported for 1994, exclusive of the $879 special charge discussed below.
The increase between years included $700 in direct transaction costs incurred
during the fourth quarter of 1995 in connection with the acquisition of
Pinnacle. Selling, marketing and administrative expenses increased $3.8 million,
or 20%, between years. This increase resulted from the Company's actions to
increase its domestic sales force, expand the marketing of the VocalPoint
Predictive Dialer, the introduction of the transaction-based service bureau and
expansion of the Transaction Center, a $600 accrual related to pending legal
matters that were subsequently settled during 1996, and $394 in non-cash
compensation expense related to stock options granted to two executive officers
in connection with the negotiation of their employment agreements. Research and
development expenses were comparable between years; however, use of the
underlying funds were reallocated to better focus on the enhancement and
functionality of existing product lines. Depreciation and amortization decreased
between years with the Company's decision to write-down the value of certain
equipment as part of the special charge.
SPECIAL CHARGES
Syntellect initiated a plan in December 1995 designed to improve its
presence in the IVR market, regain market share, reduce expenses, focus
management and the sales force on the VocalPoint IVR product line and return the
Company to profitability. Syntellect incurred an $8.8 million special charge to
operations during the fourth quarter of 1995 related to the implementation of
this plan.
The special charge included a $5.0 million increase in allowances for
inventory obsolescence related to (i) proprietary product lines that were
discontinued ($2.4 million); (ii) an adjustment of the net realizable value of
overstocked components for the Premier 030 and System/2000 product lines ($2.4
million); and (iii) a write-down of obsolete components from early versions of
the VocalPoint IVR product line ($200).
During the second half of 1994, Syntellect began building an
infrastructure to further support the delivery of its whole product solutions
and facilitate future growth opportunities. This anticipated growth did not
materialize during 1995 and, accordingly, the Company began reducing its
infrastructure expenses to a level which was more in line with projected revenue
streams. As part of this plan, Syntellect initiated a reduction in force in late
1995 that affected all areas of the organization. The Company provided a special
charge of $1.2 million during the fourth quarter of 1995 related to this
reduction in force and in accordance with Syntellect's established severance
benefit plan. Concurrent with the reduction in force, the Company incurred a
special charge of $1.7 million to write-down the value of software and equipment
that was relocated or disposed of.
A special charge of $700 was also incurred during the fourth quarter of
1995 to increase the allowance for doubtful accounts for specific receivables
that were identified in connection with the Company's review of its maintenance
revenue database and to provide specific reserves for potential contractual
penalties relating to European customers.
The Company also incurred a special charge of $879 during 1994 in
connection with Pinnacle's write-off of intangible assets related to (i)
noncompetition agreements entered into with the former owners of Telecorp and
(ii) certain software dating back to Pinnacle's acquisition of Telecorp.
Management concluded that no remaining
18
<PAGE> 19
value existed with respect to the noncompetition agreements as the threat of
competition had diminished with the former owners' involvement in activities
that were not similar to Telecorp's business. Management also determined that
certain software no longer possessed value due to significant advances in
technology since the acquisition of Telecorp. Accordingly, the value of the
consulting and noncompetition agreements and software were reduced to zero,
resulting in write-offs of $722 and $157, respectively.
NET INCOME (LOSS)
Syntellect reported a net loss of $16.3 million, or $(1.24) per share
for 1995, compared to net income of $1.1 million, or $0.08 per share for 1994.
Excluding the effects of the 1995 and 1994 special charges, the Company reported
a net loss of $7.5 million, or $(.57) per share for 1995, and net income of $2.0
million, or $0.15 per share, for 1994.
LIQUIDITY AND CAPITAL RESOURCES
Syntellect had working capital of $13.7 million at December 31, 1996,
compared with $17.4 million at December 31, 1995. The current ratio at both
these dates was 2.1:1. Cash, cash equivalents and marketable securities at the
end of 1996 totaled $6.2 million , compared with the $9.4 million reported at
the end of 1995. The Company generated a $1.6 million positive cash flow from
operating activities during 1996, reduced its investment in marketable
securities by $3.0 million, received $300 in proceeds from the issuance of
common stock, and added $342 in long-term debt related to a capital lease. Cash
was used during 1996 to make $4.7 million in capital expenditures and $747 in
principal payments on long-term debt. Receivables, net of reserves were $13.7
million at December 31, 1996, a decrease of $1.2 million from the $14.9 million
reported at December 31, 1995. This decrease resulted from the Company's
improved collection efforts which lowered the average collection period for
trade receivables from 143 days at December 31, 1995 to 69 days at December 31,
1996. The allowance for doubtful accounts decreased by $295 between years.
Inventory balances decreased $1.2 million during 1996 as a result of the
Company's improved processing controls and stock reduction plan.
Syntellect expects that its current cash, cash equivalents and
marketable securities, combined with future cash flows from operating activities
and existing credit facilities, will be sufficient to support the Company's
operations during 1997. The Company negotiated a $2.0 million revolving credit
agreement with a commercial bank during 1996 to replace an existing $500 credit
line. The new credit line, which will be used to provide working capital
financing, is collateralized by accounts receivable and accrues interest at
prime. There were no amounts outstanding on the line of credit at December 31,
1996; however, the Company has reserved $1.1 million of the available balance
for a letter of credit that will be used as a security deposit on a new lease
for a 70,564 square foot facility in Phoenix, Arizona. The new lease covers a
ten-year term and is scheduled to commence in April 1997 at an initial monthly
rate of $61.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Reports of KPMG Peat Marwick LLP and Deloitte
and Touche, LLP and the consolidated financial statements of Syntellect as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, follows:
19
<PAGE> 20
Independent Auditors' Report
The Board of Directors and Shareholders
Syntellect Inc.:
We have audited the accompanying consolidated balance sheets of Syntellect Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the 1995 and 1994 consolidated
financial statements of Pinnacle Investments Associates Inc. and subsidiary, a
wholly owned subsidiary, which statements reflect total assets constituting 25
percent and total revenues constituting 32 percent and 21 percent of the
Syntellect Inc. and subsidiaries consolidated totals as of December 31, 1995 and
for each of the years in the two-year period ended December 31, 1995,
respectively. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Pinnacle Investment Associates Inc. and subsidiary, is based solely
on the report of the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, as it
relates to 1995 and 1994, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Syntellect Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Atlanta, Georgia KPMG Peat Marwick LLP
February 5, 1997
20
<PAGE> 21
Independent Auditors' Report
Board of Directors and Stockholders
Pinnacle Investment Associates Inc.:
We have audited the accompanying consolidated balance sheets of Pinnacle
Investment Associates Inc. and subsidiary (the "Company") as of December 31,
1995 and 1994 and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years then ended. 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 also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1995
and 1994 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Note 20, the Company was acquired by Syntellect, Inc. on March
14, 1996 in a transaction that will be accounted for as a pooling of interests.
Pursuant to the terms of the merger, each shareholder of Pinnacle received 1.15
shares of Syntellect, Inc. common stock in exchange for each outstanding share
of Pinnacle common stock.
As discussed in Note 1, in 1994 the Company changed its method of accounting for
short-term investments to conform with Statement of Financial Accounting
Standards No. 115.
February 9, 1996, except as to Note 20 Deloitte & Touche LLP
which is dated as of March 14, 1996
21
<PAGE> 22
SYNTELLECT INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Assets 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,928 $ 5,125
Marketable securities 1,275 4,225
Receivables, net 13,744 14,881
Inventories 4,085 5,293
Prepaid expenses 1,197 2,154
Deferred contract costs 1,006 1,133
-------- --------
Total current assets 26,235 32,811
-------- --------
Property and equipment, net 7,676 5,821
Other assets 897 1,087
-------- --------
$ 34,808 $ 39,719
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,302 $ 3,660
Accrued liabilities 6,329 7,168
Customer deposits 699 482
Deferred revenue 3,940 3,311
Current portion of long-term debt 288 747
-------- --------
Total current liabilities 12,558 15,368
-------- --------
Long-term debt, less current portion 229 175
-------- --------
Total liabilities 12,787 15,543
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 2,500,000 shares;
no shares issued or outstanding -- --
Common stock, $.01 par value. Authorized 25,000,000 shares;
issued 13,478,127 and 13,381,753, respectively 135 134
Additional paid-in capital 60,545 60,246
Deferred compensation (52) (91)
Accumulated deficit (37,595) (34,815)
Foreign currency translation adjustment 136 (140)
Net unrealized holding loss on marketable securities (7) (17)
-------- --------
23,162 25,317
Treasury stock, at cost, 175,732 shares (1,141) (1,141)
-------- --------
Total shareholders' equity 22,021 24,176
-------- --------
$ 34,808 $ 39,719
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
SYNTELLECT INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net revenues:
System sales $ 31,811 $ 30,110 $ 40,871
Service bureau 9,284 6,491 3,798
Maintenance and other services 14,210 12,909 12,727
-------- -------- --------
Total net revenues 55,305 49,510 57,396
-------- -------- --------
Cost of revenues:
System sales 18,645 19,211 22,773
Service bureau 5,560 3,560 2,424
Maintenance and other services 3,578 3,376 2,868
-------- -------- --------
Total cost of revenues 27,783 26,147 28,065
-------- -------- --------
Gross margin 27,522 23,363 29,331
-------- -------- --------
Operating expenses:
Selling, marketing and administrative 21,383 23,026 19,263
Research and development 5,943 4,884 4,893
Depreciation and amortization 3,229 3,079 3,401
Special charge -- 8,800 879
-------- -------- --------
Total operating expenses 30,555 39,789 28,436
-------- -------- --------
Operating income (loss) (3,033) (16,426) 895
-------- -------- --------
Other income (expense), net:
Interest income, net 341 530 370
Other expense, net (88) (228) (73)
-------- -------- --------
Total other income (expense), net 253 302 297
-------- -------- --------
Income (loss) before income taxes (2,780) (16,124) 1,192
Income taxes -- 134 75
-------- -------- --------
Net income (loss) $ (2,780) $(16,258) $ 1,117
======== ======== ========
Net income (loss) per common share $ (0.21) $ (1.24) $ 0.08
======== ======== ========
Shares used in per share calculation 13,256 13,159 13,468
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
Syntellect Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1996, 1995 and 1994
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock
------------ Additional
$.01 Par Paid-in Deferred Accumulated
Shares Value Capital Compensation Deficit
------ ----- ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 13,239,561 $133 $59,291 $(55) $(19,674)
Issuance of common stock upon exercise of stock options 9,396 -- 33 -- --
Issuance of common stock under employee stock purchase 40,854 -- 108 -- --
plan
Issuance of stock options below fair value -- -- 18 (18) --
Amortization of deferred compensation related to stock -- -- -- 18 --
options
Net income -- -- -- -- 1,117
Foreign currency translation adjustment -- -- -- -- --
Net unrealized holding loss on marketable securities -- -- -- -- --
---------- ---- ------- ---- --------
Balance at December 31, 1994 13,289,811 133 59,450 (55) (18,557)
Issuance of common stock upon exercise of stock options 66,719 1 247 -- --
Issuance of common stock under employee stock purchase 25,223 -- 94 -- --
plan
Issuance of stock options below fair value -- -- 61 (61) --
Amortization of deferred compensation related to stock -- -- -- 25 --
options
Compensation expense related to stock options issued -- -- 394 -- --
to officers
Net loss -- -- -- -- (16,258)
Foreign currency translation adjustment -- -- -- -- --
Net unrealized holding gain on marketable securities -- -- -- -- --
---------- ---- ------- ---- --------
Balance at December 31, 1995 13,381,753 134 60,246 (91) (34,815)
Issuance of common stock upon exercise of stock options 49,533 1 143 -- --
Issuance of common stock under employee stock purchase 46,841 -- 156 -- --
plan
Amortization of deferred compensation related to stock -- -- -- 39 --
options
Net loss -- -- -- -- (2,780)
Foreign currency translation adjustment -- -- -- -- --
Net unrealized holding gain on marketable securities -- -- -- -- --
---------- ---- ------- ---- --------
Balance at December 31, 1996 13,478,127 $135 $60,545 $(52) $(37,595)
========== ==== ======= ==== ========
</TABLE>
<TABLE>
<CAPTION>
Net
Unrealized
Foreign Holding Gain
Currency (Loss) On Total
Translation Marketable Treasury Shareholders'
Adjustment Securities Stock Equity
----------- ------------ -------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $(210) $-- $(1,141) $ 38,344
Issuance of common stock upon exercise of stock options -- -- -- 33
Issuance of common stock under employee stock purchase -- -- -- 108
plan
Issuance of stock options below fair value -- -- -- --
Amortization of deferred compensation related to stock -- -- -- 18
options
Net income -- -- -- 1,117
Foreign currency translation adjustment 82 -- -- 82
Net unrealized holding loss on marketable securities -- (164) -- (164)
----- ----- ------- --------
Balance at December 31, 1994 (128) (164) (1,141) 39,538
Issuance of common stock upon exercise of stock options -- -- -- 248
Issuance of common stock under employee stock purchase -- -- -- 94
plan
Issuance of stock options below fair value -- -- -- --
Amortization of deferred compensation related to stock -- -- -- 25
options
Compensation expense related to stock options issued -- -- -- 394
to officers
Net loss -- -- -- (16,258)
Foreign currency translation adjustment (12) -- -- (12)
Net unrealized holding gain on marketable securities -- 147 -- 147
----- ----- ------- --------
Balance at December 31, 1995 (140) (17) (1,141) 24,176
Issuance of common stock upon exercise of stock options -- -- -- 144
Issuance of common stock under employee stock purchase -- -- -- 156
plan
Amortization of deferred compensation related to stock -- -- -- 39
options
Net loss -- -- -- (2,780)
Foreign currency translation adjustment 276 -- -- 276
Net unrealized holding gain on marketable securities -- 10 -- 10
----- ----- ------- --------
Balance at December 31, 1996 $ 136 $ (7) $(1,141) $ 22,021
===== ===== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
SYNTELLECT INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,780) $(16,258) $ 1,117
-------- -------- -------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,230 3,079 3,401
Write-down of software and equipment values -- 1,700 --
Provision for doubtful accounts 480 1,113 922
Provision for inventory obsolescence 36 5,213 336
Stock option compensation expense 39 419 18
(Increase) decrease in receivables 1,235 4,427 (5,811)
(Increase) decrease in inventories 799 (1,578) 894
Increase (decrease) in accounts payable (2,355) 1,237 (1,809)
Increase (decrease) in accrued liabilities (1,065) 2,078 2,110
Change in other assets and liabilities 1,996 1,578 (2,577)
-------- -------- -------
Total adjustments 4,395 19,266 (2,516)
-------- -------- -------
Net cash provided by (used in) operating activities 1,615 3,008 (1,399)
-------- -------- -------
Cash flows from investing activities:
Purchase of marketable securities (11,825) (1,939) (2,702)
Sales of marketable securities 851 190 3,388
Maturities of marketable securities 13,934 1,776 550
Purchase of property and equipment (4,741) (3,479) (2,328)
Proceeds from sale of property and equipment 110 -- 21
Purchase of technology and patents -- (19) (140)
Proceeds from disposition of SNS subsidiary 30 -- --
Proceeds from disposition of Dytel product line -- 39 --
-------- -------- -------
Net cash used in investing activities (1,641) (3,432) (1,211)
-------- -------- -------
Cash flows from financing activities:
Proceeds from sale of common stock 300 342 141
Payments on note payable to bank -- (200) --
Principal payments on long-term debt (747) (502) (341)
-------- -------- -------
Net cash used in financing activities (447) (360) (200)
-------- -------- -------
</TABLE>
25
<PAGE> 26
SYNTELLECT INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Effect of exchange rates on cash $ 276 $ (12) $ 82
------- ------- -------
Net decrease in cash and cash equivalents (197) (796) (2,728)
Cash and cash equivalents at beginning of year 5,125 5,921 8,649
------- ------- -------
Cash and cash equivalents at end of year $ 4,928 $ 5,125 $ 5,921
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 33 $ 166 $ 160
======= ======= =======
Cash paid for income taxes $ 276 $ 152 $ --
======= ======= =======
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company entered into capital lease obligations of $342 during 1996
for a telephone system and $943 during 1994 for a management information system.
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
(1) Summary of Significant Accounting Policies
Nature of Business and Principles of Consolidation
Syntellect Inc. develops, markets, and integrates voice and information
processing systems and application software worldwide. The Company offers a
diversified product line which includes both inbound voice processing and
outbound predictive dialer products, a worldwide distribution network, and a
vertical market focus on the financial services, media, telecommunications and
healthcare industries. Syntellect also provides an interactive transaction-based
service bureau for those customers who prefer to outsource their voice
processing applications, including cable and satellite pay-per-view orders and
employee benefits enrollment.
The consolidated financial statements include the accounts of
Syntellect Inc. and its wholly-owned subsidiaries ("Syntellect" or the
"Company"), Pinnacle Investment Associates Inc. ("Pinnacle"), Syntellect Canada
Inc., Syntellect Europe Ltd., Syntellect Deutschland GmbH, Syntellect Technology
Corp. ("STC", formerly Dytel Inc.), and Syntellect Interactive Services, Inc.
("SIS"). The consolidated financial statements also include the accounts of
Syntellect Network Systems, Inc. through March 31, 1996 (See Note 3). All
significant intercompany balances and transactions have been eliminated in
consolidation.
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 amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition
Syntellect recognizes revenue from sales of systems and services after
a contract has been signed, custom system specifications, where applicable, have
been defined and agreed upon, and the system has been shipped or services
rendered. Revenue from maintenance contracts is deferred and recognized ratably
over the terms of the agreements.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, money market and overnight
deposits with original maturities of three months or less.
27
<PAGE> 28
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
Marketable Securities
Marketable securities are classified as available-for-sale and are
available to support current operations. These securities are stated at
estimated fair value based on market quotes with any net unrealized holding gain
or loss included in the consolidated financial statements as a component of
shareholders' equity until realized.
Inventories
Inventories are stated primarily at the lower of weighted average cost
or market.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
and amortization. Equipment held under capital lease is stated at the lower of
the present value of minimum lease payments or fair value at the inception of
the lease. Property and equipment are depreciated using the straight-line method
over estimated useful lives ranging from three to seven years. Equipment held
under capital lease and leasehold improvements are amortized on the
straight-line method over the shorter of the lease term or the estimated useful
life of the asset.
The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121") effective January 1, 1996. SFAS No.
121 requires that long-lived assets and certain identifiable intangibles held
and used by a company be reviewed for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company has determined that SFAS No. 121 did not have a
material impact on its financial statements upon adoption.
Other Assets
Other assets consist primarily of patents and purchased technology that
are being amortized over five to fifteen years using the straight-line method.
Syntellect estimates the recoverability of purchased technology by determining
whether the unamortized balance of purchased technology can be recovered over
its remaining life through future product sales. Syntellect accounts for patents
at the lower of amortized cost or net realizable value. On an ongoing basis,
Syntellect reviews the valuation and amortization of its patents. As part of
this review, Syntellect estimates the net realizable value of the patents,
taking into consideration any events and circumstances which might have
diminished their value, and assesses whether the remaining patent balance could
be recovered through expected future net cash flows over the remaining life of
the patents.
Warranty Expense
Syntellect generally provides customers with product warranties for
periods ranging from three months to one year after shipment. The Company has
provided a reserve for estimated warranty expense.
28
<PAGE> 29
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
Product Development
Development of new software products and enhancements to existing
software products are expensed as incurred until technological feasibility has
been established. After technological feasibility is established, any additional
costs would be capitalized in accordance with Statement of Financial Accounting
Standards No. 86. Because Syntellect believes its current process for developing
software is essentially completed concurrent with the establishment of
technological feasibility, no costs have been capitalized to date.
Income Taxes
Deferred income tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred income tax assets and
liabilities is recognized in income for the period that includes the enactment
date.
Foreign Currency Translation
Financial statements of international subsidiaries are translated into
U.S. dollars using the exchange rate at each balance sheet date for assets and
liabilities and an average exchange rate for the revenues and expenses reported
in each fiscal period. Foreign currency translation adjustments are recorded as
a separate component of shareholders' equity.
Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding during the year. Dilutive common stock equivalents are computed
using the treasury stock method and consist of stock options. Fully diluted net
income (loss) per common share is not presented since the results of the
computation are anti-dilutive or not significantly different from the net income
(loss) per common share presented.
Stock-Based Compensation
Prior to January 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations
("APB No. 25"). As such, compensation expense would be recorded on the date of
grant if the current market price of the underlying stock exceeded the exercise
price. On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which encourages entities to recognize as expense, over the vesting period, the
fair value of all stock-based awards on the date of grant. Alternatively, SFAS.
No. 123 also allows entities to continue to apply the provisions of APB No. 25
and provide pro forma disclosure of net income (loss) and net income (loss) per
common share for employee stock option grants made in 1995 and future years as
if the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB No. 25 and
provide the pro forma disclosures under the provisions of SFAS No. 123 (see Note
16).
29
<PAGE> 30
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
Reclassifications
Certain 1995 and 1994 consolidated financial statement balances have
been reclassified to conform to the 1996 presentation.
(2) Acquisition Of Pinnacle Investment Associates, Inc.
On March 14, 1996, Syntellect completed its acquisition of Pinnacle in
a transaction accounted for as a pooling of interests. Pursuant to the terms of
the merger, Syntellect issued 4,685,838 shares of common stock and assumed
outstanding options belonging to Pinnacle stockholders for the purchase of an
additional 740,848 shares of common stock at a weighted average exercise price
of $1.04 per share. The common stock issued in this transaction had a total
value of $20.5 million based on the fair market value of the common stock on the
date of issuance. Pinnacle subsequently merged into its wholly owned subsidiary,
Telecorp Systems, Inc. ("Telecorp"). Telecorp develops and distributes inbound
and outbound call center systems worldwide, primarily in the cable television,
newspaper and health care industries, and operates a transaction-based service
bureau designed primarily to process pay-per-view orders for the cable
television industry.
The consolidated financial statements included herein have been
restated to include the accounts of Pinnacle for all periods presented. The net
revenues of Syntellect and Pinnacle were $6.3 million and $6.6 million, $33.5
million and $16.0 million, and $45.4 million and $12.0 million, for the period
in 1996 prior to the merger and for the years ended December 31, 1995 and 1994,
respectively. The net income (loss) for these same periods was $(2.3) million
and $1.2 million, $(16.6) million and $308 million, and $2.1 million and $(1.0)
million, respectively.
(3) Disposition of Syntellect Network Systems Inc. Subsidiary and Dytel
Product Lines
In April 1996, the Company sold its Syntellect Network Systems Inc.
subsidiary ("SNS") under a stock purchase agreement with an unrelated third
party. Under the agreement, the Company sold all of the issued and outstanding
shares of SNS common stock for $720. The Company received $30 of the sales price
in cash at closing with the remaining $690 to be received in 23 monthly
installments of $30, without interest, beginning May 1996. The completion of
this transaction did not significantly impact the Company's results of
operations for 1996.
In February 1995, the Company disposed of its Dytel product line in a
sale to a third party purchaser for $176. As consideration, the Company received
cash of $39, a promissory note for $118, and the purchaser assumed $19 in
maintenance contract obligations. The assets, consisting primarily of inventory
and business equipment, were sold at net book value and accordingly, no gain or
loss was recognized on the transaction. Syntellect has retained the rights to
Dytel's extensive patent portfolio.
30
<PAGE> 31
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
(4) Marketable Securities
The Company has classified all marketable securities as
available-for-sale at December 31, 1996 and 1995. The amortized cost, gross
unrealized holding gains and losses and fair value of the available-for-sale
securities by major security type are as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
1996
----
Mortgage-backed securities $1,282 $-- $ (7) $1,275
====== ==== ====== ======
1995
----
U.S. Treasury securities $ 327 $-- $ (2) $ 325
Mortgage-backed securities 3,113 -- (22) 3,091
Corporate income fund investments 802 7 -- 809
------ ---- ------ ------
$4,242 $ 7 $ (24) $4,225
====== ==== ====== ======
</TABLE>
All marketable securities held at December 31, 1996 have contractual
maturities of less than one year. Proceeds and gross realized gains from sales
of securities classified as available-for-sale for the years ended December 31,
1996 and 1995 were $851 and $0, and $190 and $29, respectively. For purposes of
determining gross realized gains and losses, the cost of securities sold is
based on specific identification.
(5) Receivables, Net
Receivables consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Trade receivables $ 14,519 $ 16,157
Other receivables 458 252
-------- --------
14,977 16,409
Less allowance for doubtful accounts (1,233) (1,528)
-------- --------
$ 13,744 $ 14,881
======== ========
</TABLE>
31
<PAGE> 32
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
(6) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finished goods $ 3,085 $ 5,502
Purchased components 2,797 6,870
Repair, warranty and maintenance inventories 2,348 1,946
-------- --------
8,230 14,318
Less allowance for obsolescence (4,145) (9,025)
-------- --------
$ 4,085 $ 5,293
======== ========
</TABLE>
Syntellect contracts with a third-party to perform onsite hardware
maintenance for customers in certain geographic areas. Inventories held by
Syntellect for the third-party maintenance program are included in repair,
warranty and maintenance inventories.
(7) Prepaid Expenses
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Prepaid royalties $ -- $1,282
Deferred income tax asset 620 468
Other prepaids 577 404
------ ------
$1,197 $2,154
====== ======
</TABLE>
Prepaid royalties at December 31, 1995 represent amounts paid under a
licensing agreement with a third party for technology relating to the Company's
VocalPoint IVR product. The prepaid royalty balance was utilized during 1996 and
as of December 31, 1996, the Company has accrued $791 in royalty expense. (see
Note 12)
(8) Deferred Contract Costs
Deferred contract costs represent direct and indirect costs on
contracts for which the related revenue recognition has been deferred. Deferred
contract costs at December 31, 1995 relate to a single contract with a major
cable television customer. The Company received an advance cash payment of $930
in connection with this contract and reported the payment in deferred revenue at
December 31, 1995.
32
<PAGE> 33
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
(9) Property and Equipment, net
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Furniture, fixtures and computer equipment $ 19,256 $ 17,686
Service bureau equipment 4,242 1,928
Leasehold improvements 994 907
-------- --------
24,492 20,521
Less accumulated depreciation and amortization (16,816) (14,700)
-------- --------
$ 7,676 $ 5,821
======== ========
</TABLE>
(10) Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Patents and purchased technology $ 1,509 $ 1,509
Other 103 96
------- -------
1,612 1,605
Less accumulated amortization (715) (518)
------- -------
$ 897 $ 1,087
======= =======
</TABLE>
(11) Credit Facilities
The Company negotiated a $2.0 million revolving credit agreement with a
commercial bank during July 1996 to replace an existing $500 line of credit. The
new credit line, which will be used to provide working capital financing, is
collateralized by accounts receivable and accrues interest at prime (8-1/4% at
December 31, 1996). The agreement is renewable annually and requires the Company
to maintain certain operating ratios with respect to working capital and net
worth. There were no amounts outstanding on these lines of credit at December
31, 1996 or 1995; however, the Company has reserved $1.1 million of the
available balance at December 31, 1996 for a letter of credit that will be used
as a security deposit on a new office facility lease (See Note 14).
33
<PAGE> 34
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
(12) Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accrued compensation and benefits $2,982 $4,092
Accrued legal and accounting 381 1,108
Accrued royalties 791 --
Other accrued liabilities 2,175 1,968
------ ------
$6,329 $7,168
====== ======
</TABLE>
(13) Deferred Revenue
Deferred revenue consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Maintenance contracts $3,917 $2,381
Deferred systems revenue 23 930
------ ------
$3,940 $3,311
====== ======
</TABLE>
(14) Long-Term Debt and Lease Commitments
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Capital lease obligations with interest ranging
from 9.43% to 10%, collateralized by equipment $ 517 $ 501
Subordinated promissory notes with original
balances of $1,405, issued to the former owners of
Telecorp, interest at 10% payable monthly through
January 1996 (see Note 15) -- 421
----- -----
517 922
Less current portion (288) (747)
----- -----
$ 229 $ 175
===== =====
</TABLE>
Equipment held under capital lease is included in property and
equipment as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Furniture, fixtures and computer equipment $ 1,285 $ 943
Less accumulated amortization (828) (471)
------- -----
$ 457 $ 472
======= =====
</TABLE>
34
<PAGE> 35
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
The Company leases office facilities and various equipment under
noncancellable operating leases that expire at various dates through 2007. In
June 1996, the Company entered into a ten year lease for a new 70,564 square
foot office facility in Phoenix. The lease is scheduled to commence in March
1997 at an initial monthly rate of $61. The Company is required to provide the
lessor with a $1,100 letter of credit as a security deposit until certain net
worth levels are achieved. The letter of credit will be funded from the
revolving credit agreement described in Note 11. Rental expense under operating
leases was $1,392 in 1996, $961 in 1995 and $1,011 in 1994. Future minimum lease
payments under noncancellable operating leases (with minimum or remaining lease
terms in excess of one year) and the present value of future minimum capital
lease payments at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Capital Leases Operating Leases
- ---- -------------- ----------------
<S> <C> <C>
1997 $ 336 $1,401
1998 104 1,429
1999 95 1,371
2000 61 1,376
2001 -- 1,159
Thereafter -- 4,356
----- ------
Total minimum lease payments 596 $11,092
=======
Less amounts representing interest (79)
-----
Net minimum lease payments $ 517
=====
</TABLE>
(15) Litigation
Syntellect is involved in various legal proceedings and claims arising
in the ordinary course of business. Management believes that the disposition of
these matters will not have a material adverse effect on the Company's financial
position or results of operations.
In January 1991, Pinnacle acquired substantially all the assets of
Telecorp in a business combination accounted for using the purchase method of
accounting. As part of the acquisition, Pinnacle issued two subordinated
promissory notes aggregating $1,405 to the former owners in exchange for
consulting and noncompetition agreements that extended through December 31,
1995. These agreements required Pinnacle to pay annual performance payments
during the noncompete period based on a percentage of its revenues (as defined
in the agreements). The former owners filed a claim against Pinnacle in November
1995 regarding the calculation of the performance payments and seeking in excess
of $800 in additional payments. Pinnacle recorded a charge to operations during
1995 in the amount of $600 as an estimate of the potential liability that could
be incurred in connection with this matter. Syntellect settled the litigation in
November 1996 for an amount within the accrual that has been established.
(16) Shareholders' Equity
Capital Stock
Syntellect's authorized capital stock consists of 2,500,000 shares of
preferred stock, $.01 par value, and 25,000,000 shares of common stock, $.01 par
value. The preferred stock may be issued in one or more series and is
undesignated as to powers, preferences, rights, limitations or restrictions. No
shares of preferred stock were issued or outstanding at December 31, 1996 or
1995. Syntellect had 13,478,127 and 13,381,753 shares of common stock issued at
December 31, 1996 and 1995, respectively.
35
<PAGE> 36
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
Stock Option Plans
Syntellect maintains various stock option plans for employees,
consultants and non-employee directors as follows:
Syntellect adopted a stock option plan in 1984 that provides for the
issuance of up to 1,590,000 shares of common stock to employees under incentive
and nonstatutory stock option grants. The plan was amended in July 1994 to
include Syntellect's consultants and advisors as eligible participants.
Incentive stock options may be granted at a price not less than the fair market
value of the common stock at the date of grant. Nonstatutory stock options may
be granted at a price not less than 50% of the fair market value of the common
stock at the date of grant. The options generally become exercisable over a 50
month period commencing at the date of grant and expire in six years. The plan
terminates in September 2004, and as of December 31, 1995, all options under
this plan have been granted.
Syntellect adopted a long-term incentive plan effective February 1,
1995, as amended, that provides for the issuance of up to 750,000 shares of
common stock to employees, consultants and advisors under incentive stock
options, non-qualified stock options, stock appreciation rights, performance
shares, restricted stock, dividend equivalents and other stock-based awards.
Incentive and non-qualified stock options may be granted at a price not less
than the fair market value of the common stock at the date of grant, generally
become exercisable over a 50 month period commencing at the date of grant, and
expire in six years. In no case shall the term of any option issued under this
plan exceed ten years from the date of grant. The plan terminates in February
2005. On August 8, 1996, the Board of Directors approved an amendment to the
long-term incentive plan, pending shareholder approval, which increased the
number of shares authorized for issuance under the plan from 750,000 to
1,500,000.
Syntellect adopted a non-employee directors stock option plan in 1990
that provides for the issuance of up to 60,000 shares of common stock to
eligible participants. Options may be granted at a price not less than the fair
market value of the common stock at the date of grant, generally become
exercisable over a 50 month period commencing at the date of grant, and expire
in six years. As of December 31, 1995, all options under this plan have been
granted. The plan terminates in December 1998.
Syntellect adopted a non-employee director stock plan in 1995 that
provides for the issuance of up to 50,000 shares of common stock to eligible
participants under non-qualified stock option grants. Under the plan,
non-employee directors receive a one time grant to purchase 10,000 shares upon
appointment to the Board of Directors and an annual grant to purchase 2,000
shares from June 1995 through June 1998. Options may be granted at a price not
less than the fair market value at the date of grant, become exercisable over a
50 month period commencing at the date of grant, and expire in six years. The
plan has no scheduled termination date.
In connection with the acquisition of Pinnacle, Syntellect assumed
outstanding options for the purchase of 740,848 shares of common stock (see Note
2). A portion of these options were granted to certain executive officers in
connection with the negotiation of their employment agreements. These options,
covering 565,702 shares, were granted fully vested and immediately exercisable.
The Company recognized compensation expense of $590 and $394 in 1993 and 1995,
respectively, related to these options and credited the same to paid-in capital.
The remaining options are accounted for as non-compensatory stock options, and
generally become exercisable over a 48 month period commencing at the date of
grant, and expire in 10 years. Unexercised options will be terminated and not
available for future grants in the event an employee holding such options
terminates his employment.
36
<PAGE> 37
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
At December 31, 1996, 851,710 options were exercisable under the above
plans at prices ranging from $0.87 to $8.00. A summary of the combined stock
option activity for all plans during the three-year period ended December 31,
1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding
-------------------
Options Exercise
available price per
for grant Shares share
--------- ------ -----
<S> <C> <C> <C>
Balance, January 1, 1994 149,904 766,892 $ 3.75-15.00
Granted (611,210) 611,210 2.75- 4.38
Canceled 577,195 (577,195) 2.75- 8.70
Exercised -- (9,396) 2.88- 6.50
-------- --------- ------------
Balance, December 31, 1994 115,889 791,511 $ 2.75-15.00
Increase in reserved shares 300,000 -- --
Expiration of reserved shares (286,590) -- --
Granted (402,000) 402,000 3.63- 6.25
Canceled 381,301 (381,301) 2.75- 6.25
Exercised -- (66,719) 2.75- 5.00
-------- --------- ------------
Balance, December 31, 1995 108,600 745,491 $ 2.75-15.00
Assumption of Pinnacle options -- 740,848 0.87- 1.74
Termination of Pinnacle options -- (14,551) 0.87- 1.74
Increase in reserved shares 500,000 -- --
Expiration of reserved shares (277,551) -- --
Granted (613,750) 613,750 4.63- 6.75
Canceled 345,241 (345,241) 3.00-15.00
Exercised -- (49,533) 1.74- 6.25
-------- --------- ------------
Balance, December 31, 1996 62,540 1,690,764 $ 0.87- 8.00
======== ========= ============
</TABLE>
Syntellect canceled and reissued 98,300 options to officers of
Syntellect during the year ended December 31, 1994. The options were reissued at
the fair market value of Syntellect's common stock on the date of issuance
($4.375 per share). As of December 31, 1996, all but 6,000 of these options had
been exercised or canceled.
Syntellect has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the stock option plans
except in those instances where options were granted fully vested and
immediately exercisable, and when the quoted market price of the Company's stock
at the date of grant exceeded the amount an employee must pay to acquire the
stock. Had compensation cost for Syntellect's 1996 and 1995 stock option grants
been determined based on the fair value at the grant date, as prescribed by the
provisions of SFAS No. 123, the Company's net loss and net loss per common share
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net loss - as reported $ (2,780) $ (16,258)
Net loss - pro forma $ (3,723) $ (16,690)
Net loss per common share - as reported $ (0.21) $ (1.24)
Net loss per common share - pro forma $ (0.28) $ (1.27)
</TABLE>
37
<PAGE> 38
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
Expected dividend yield 0%
Expected stock price volatility 50%
Risk-free interest rate 5.88%
Expected life of options 3 years
Employee Stock Purchase Plan
Syntellect has an employee stock purchase plan that provides for the
purchase of up to 400,000 shares of common stock. Under the plan, eligible
participants may purchase common stock semi-annually at the lower of 85% of the
fair market value on either the first day or last day of the offering period,
whichever is lower. During 1996, 11,674 and 35,167 shares were purchased at
$2.87 and $3.51 per share, respectively. During 1995, 12,938 and 12,285 shares
were purchased at $4.57 and $2.87 per share, respectively. During 1994, 40,854
shares were purchased at $2.66 per share. At December 31, 1996, 108,389 shares
of common stock were available for issuance under the plan.
(17) Employee Benefit Plans
Syntellect maintained two 401(k) plans during 1996; one covering
eligible employees of Syntellect (the "Syntellect 401(k) Plan") and one covering
eligible employees of Pinnacle (the "Pinnacle 401(k) Plan"). Participants could
contribute up to 15% and 6%, respectively of their total compensation under
these plans. The Company provided matching contributions under the Pinnacle
401(k) Plan equal to 50% of employee contributions, up to a maximum of 2% of the
employee's total compensation. The Company could also make discretionary
contributions to either plan in amounts determined by the Board of Directors.
Participants in the plans vest immediately in their personal contributions and
over a six year graded schedule for amounts contributed by the Company.
Syntellect made matching contributions to the Pinnacle 401(k) Plan of $91 in
1996, $49 in 1995, and $56 in 1994; however, no discretionary contributions were
made by the Company to either plan during these years.
Effective January 1, 1997, Syntellect adopted a single 401(k) plan
covering all eligible employees of the Company. Under the new plan, participants
can contribute up to 15% of their total compensation. The Company will provide
matching contributions equal to one third of employee contributions up to a
maximum of 7% of the employee's total compensation. The matching contribution is
subject to annual review and adjustment by the Board of Directors. Additional
discretionary contributions may also be made to the plan in amounts determined
by the Board of Directors. Participants will be immediately vested in their
personal contributions and on a four year graded schedule for amounts
contributed by the Company.
Syntellect has established a severance plan in which officers and
employees may receive severance benefits upon termination. Benefits under the
plan are provided to individuals who have been employed by Syntellect at least
six months, are involuntarily terminated and sign a document releasing
Syntellect from any liability in connection with their termination. The amount
of severance pay varies based upon the individual's length of service and
employment classification.
38
<PAGE> 39
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
(18) Income Taxes
The provision for income taxes includes income taxes currently payable
and those deferred because of temporary differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future and any increase or decrease in the valuation
allowance for deferred income tax assets.
The components of income tax expense (benefit) included in the
consolidated statements of operations are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current income tax expense (benefit):
Federal $(399) $ 544 $ 64
State (69) 58 11
----- ----- ----
(468) 602 75
----- ----- ----
Deferred income tax expense (benefit):
Federal 399 (430) --
State 69 (38) --
----- ----- ----
468 (468) --
----- ----- ----
Total income tax expense $ -- $ 134 $ 75
===== ===== ====
</TABLE>
Income (loss) before income tax expense (benefit) consists of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States Operations $ (2,275) $(13,159) $1,192
International Operations (505) (2,965) --
-------- -------- ------
$ (2,780) $ 16,124 $1,192
======== ======== ======
</TABLE>
Income tax expense differed from the amounts computed by applying the
statutory U.S. federal income tax rate of 34% to income (loss) before income
taxes as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" income tax expense $ (945) $(5,482) $ 405
Increase (decrease) in income tax expense resulting from:
State income tax expense, net of federal income tax benefit (74) (155) 36
Increase in valuation allowance 1,028 4,892 --
Other, net (9) 879 (366)
------- ------- -----
Total income tax expense $ -- $ 134 $ 75
======= ======= =====
</TABLE>
39
<PAGE> 40
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
The income tax effects of temporary differences that give rise to the
Company's deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred income tax assets:
Net operating loss and tax credit carryforwards $ 11,097 $ 6,264
Warranty and inventory allowances 1,537 3,706
Amortization 462 555
Contract accounting -- 419
Accrued expenses 1,121 1,455
Allowance for doubtful accounts 276 496
Other -- 631
-------- --------
Gross deferred income tax assets 14,493 13,526
-------- --------
Deferred income tax liabilities:
Property and equipment due to differences in depreciation (782) (517)
Other (168) (26)
-------- --------
Gross deferred income tax liabilities (950) (543)
-------- --------
Less valuation allowance $(12,923) (12,515)
-------- --------
Net deferred income tax asset $ 620 $ 468
======== ========
</TABLE>
The increase (decrease) in the net deferred income tax asset for the
years ended December 31, 1996, 1995 and 1994 was $152, $468 and $0,
respectively. The increase in the valuation allowance against deferred income
tax assets for these years was $408, $4,892, and $0, respectively. Deferred
income tax assets and liabilities are recognized for differences between the
financial statement carrying amounts and the tax bases of assets and liabilities
which will result in future deductible or taxable amounts and for net operating
loss and tax credit carryforwards. A valuation allowance has been provided
because the realization of all of the deferred income tax asset is uncertain.
As of December 31, 1996 the Company had net operating loss, investment
tax credit, minimum tax credit, and research and development tax credits
available for carryforward of approximately $25,373, $15, $18, and $1,240,
respectively, which expire at various dates through the year 2011.
(19) Business Segments, Geographic Data and Major Customers
Syntellect develops, markets, and integrates voice and information
processing systems and application software worldwide. The Company offers a
diversified product line which includes both inbound voice processing and
outbound dialer products, a worldwide distribution network, and a vertical
market focus on the financial services, media, telecommunications and healthcare
industries. The Company also provides an interactive transaction-based service
bureau for those customers who prefer to outsource their voice processing
applications. In addition to its primary office facilities in Atlanta and
Phoenix, the Company also maintains nine sales offices in the United States and
one each in London and Munich, Germany.
40
<PAGE> 41
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
Net revenues, by geographic area, for the three-year period ended
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Geographic Area 1996 1995 1994
--------------- ---- ---- ----
<S> <C> <C> <C>
United States $40,296 $39,047 $43,702
International markets 15,009 10,463 13,694
------- ------- -------
$55,305 $49,510 $57,396
======= ======= =======
</TABLE>
No single customer accounted for more than 10% of the Company's
revenues in 1996, 1995 or 1994.
The Company conducts business with a major cable television customer
who is also a significant shareholder of the Company. Revenues from this
customer were $1,311, $1,266 and $727 for the years ended December 31, 1996,
1995 and 1994, respectively. The Company was due $163 and $222 in outstanding
accounts receivable from the customer at December 31, 1996 and 1995,
respectively.
(20) 1995 Special Charge
Syntellect initiated a plan in December 1995 designed to improve its
presence in the Interactive Voice Response ("IVR") market, regain market share,
reduce expenses, focus management and the sales force on the VocalPoint IVR
product line and return Syntellect to profitability. Syntellect incurred a
special charge of $8,800 during the quarter ended December 31, 1995 related to
the implementation of this plan.
The special charge included a $5,000 increase in allowances for
inventory obsolescence related to (i) proprietary product lines that are being
discontinued ($2,400); (ii) an adjustment of the net realizable value of
overstocked components for the Premier 030 and System 2000 product lines
($2,400); and (iii) a write-down of obsolete components from early versions of
the VocalPoint IVR product line ($200).
During the second half of 1994, Syntellect began building an
infrastructure to further support the delivery of its whole product solutions
and facilitate future growth opportunities. This anticipated growth did not
materialize during 1995 and, accordingly, Syntellect began reducing its
infrastructure expenses to a level which was more in line with projected revenue
streams. As part of this plan, Syntellect initiated a reduction in force in late
1995 that affected all areas of the organization. Syntellect provided a special
charge of $1,200 during the quarter ended December 31, 1995 related to this
reduction in force and in accordance with Syntellect's established severance
benefit plan. Concurrent with the reduction in force, Syntellect has begun to
consolidate most of its administrative, manufacturing and customer support
functions, which currently reside in multiple locations. As a result, Syntellect
incurred a special charge of $1,700 during the quarter ended December 31, 1995
to write-down the value of software and equipment that will be relocated or
disposed of.
Syntellect also incurred a special charge of $700 during the quarter
ended December 31, 1995, to increase the allowance for doubtful accounts for
specific receivables identified in connection with the Company's review of its
maintenance revenue database and to provide specific reserves for potential
contractual penalties relating to European customers.
41
<PAGE> 42
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
A summary of the major elements of the 1995 special charge of $8,800,
or $(0.67) per share, is as follows:
<TABLE>
<S> <C>
Allowance for inventory obsolescence $5,000
Write-down of software and equipment to be
relocated or disposed of 1,700
Employee severance for planned reduction in force 1,200
Accounts receivable allowance 700
Other 200
------
$8,800
======
</TABLE>
The allowances for accounts receivable and inventory obsolescence were
utilized during 1996 to write-off specifically identified receivable balances
and inventory disposed of during the year. The reserve for inventory
obsolescence at December 31, 1996 represents management's estimate of the
valuation allowance necessary for inventory not yet disposed of. The software
and equipment charge was utilized during 1996 to write-down the value of
specified assets that were relocated, lost or disposed of. The Company made $741
in severance payments to terminated employees during 1996 in connection with its
reduction in force. As of December 31, 1996, there remained outstanding payments
due on severance transactions relating to 1995 and 1996.
(21) 1994 Special Charge
During 1994, Pinnacle determined that the consulting and noncompetition
agreements entered into with the former owners of Telecorp had no remaining
value as the threat of competition had diminished over the original life of the
agreements (see Note 15). In addition, management determined that certain
technology purchased during the acquisition of Telecorp no longer possessed
value due to significant advances in technology since the original acquisition
date. As a result, Pinnacle wrote-off the remaining value of the consulting and
noncompetition agreements and purchased technology. The effect of this valuation
adjustment on Syntellect's reported results for 1994 was a decrease in income of
$879 or $(0.07) per share.
(22) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires that Syntellect disclose
estimated fair values for its financial instruments. The carrying amount of cash
and cash equivalents approximates fair value because their maturity is generally
less than three months. The fair value of marketable securities classified as
available-for-sale are based on quoted market prices at the reporting date for
those or similar investments. The carrying amount of receivables, accounts
payable and accrued liabilities approximates fair value as they are expected to
be collected or paid within 90 days of year-end. The fair value of long-term
debt, which is comprised of capital lease obligations, is estimated by
discounting the future cash flows at rates currently offered to the Company for
similar debt instruments.
42
<PAGE> 43
SYNTELLECT INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
(23) Supplemental Financial Information
A summary of additions and deductions related to the allowances for
accounts receivable and inventories for the years ended December 31, 1996, 1995
and 1994 follows:
<TABLE>
<CAPTION>
Balance at Charged to
beginning costs and Balance at
of year expenses Deductions end of year
------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
1996 $1,528 $ 480 $ (775) $1,233
1995 668 1,113 (253) 1,528
1994 1,441 922 (1,695) 668
Allowance for inventory obsolescence:
1996 $9,025 $ 36 $(4,916) $4,145
1995 4,616 5,213 (804) 9,025
1994 5,535 336 (1,255) 4,616
</TABLE>
(24) Quarterly Results (Unaudited)
The following table presents selected unaudited quarterly operating
results for the two year period ended December 31, 1996. Syntellect believes
that all necessary adjustments have been included in the amounts stated below to
present fairly the related quarterly results.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
1996
----
<S> <C> <C> <C> <C> <C>
Net revenues $ 12,946 $ 14,004 $ 12,173 $ 16,182 $ 55,305
Gross margin 6,344 6,950 6,094 8,134 27,522
Operating income (loss) (1,139) (477) (1,522) 105 (3,033)
Net income (loss) (1,083) (393) (1,465) 161 (2,780)
Net income (loss) per common
share $ (0.08) $ (0.03) $ (0.11) $ 0.01 $ (0.21)
1995
----
Net revenues $ 13,299 $ 11,164 $ 14,403 $ 10,644 $ 49,510
Gross margin 7,178 5,203 7,037 3,945 23,363
Operating income (loss) 420 (1,869) (1,116) (13,861) (16,426)
Net income (loss) 564 (1,783) (1,075) (13,964) (16,258)
Net income (loss) per common
share $ 0.04 $ (0.14) $ (0.08) $ (1.05) $ (1.24)
</TABLE>
43
<PAGE> 44
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding continuing directors and nominees of Syntellect
is set forth under the caption "Information Concerning Directors and Nominees"
in the Registrant's Proxy Statement relating to its 1997 Annual Meeting of
Shareholders (the "1997 Proxy Statement") incorporated by reference into this
Form 10-K, which will be filed with the Securities and Exchange Commission. With
the exception of the foregoing information and other information specifically
incorporated by reference into this Form 10-K, the 1997 Proxy Statement is not
being filed as a part hereof. Information concerning executive officers of the
Registrant is set forth in Part I of this Form 10-K.
ITEM 11 - EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference to the information furnished under the caption "Executive
Compensation" in the 1997 Proxy Statement, provided, however, that the "Board
Compensation Committee Report on Executive Compensation" and the "Stock Price
Performance Graph" contained in the 1997 Proxy Statement are not incorporated by
reference herein.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management of Syntellect is incorporated herein by reference to the
information furnished under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 1997 Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
44
<PAGE> 45
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.
The following consolidated financial statements of Syntellect Inc. and
Subsidiaries are filed as part of this report on Form 10-K:
<TABLE>
<CAPTION>
Page or Method of Filing
<S> <C>
Independent Auditors' Report - KPMG Peat Marwick LLP Page 20
Independent Auditors' Report - Deloitte & Touche LLP Page 21
Consolidated Balance Sheets - December 31, 1996 and 1995 Page 22
Consolidated Statements of Operations - Years ended December 31, 1996, 1995 and 1994 Page 23
Consolidated Statements of Shareholders' Equity - Years ended December 31, 1996, 1995 and 1994 Page 24
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994 Page 25
Notes to Consolidated Financial Statements Page 27
</TABLE>
2. CONSOLIDATED SUPPLEMENTAL SCHEDULES
All schedules have been omitted because the information required to be
set forth therein is not applicable or is included in the Consolidated
Financial Statements or notes thereto.
45
<PAGE> 46
(B) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No Description Page or Method of Filing
---------- ----------- ------------------------
<S> <C> <C>
2 Agreement and Plan of Reorganization as of Incorporated by reference to Exhibit No. 2 to
December 6, 1995, between Syntellect Inc., Syntellect's Registration Statement on Form S-4
Syntellect Acquisition Co., and Pinnacle dated February 9, 1996 (the "S-4")
Investment Associates Inc.
3.1(a) Restated Certificate of Incorporation of Registrant Incorporated by reference to Exhibit No. 3-A to
Syntellect's Registration Statement on Form S-1
dated February 23, 1995 (the "S-1")
3.1(b) Certificate of Amendment to Restated Certificate Incorporated by reference to Exhibit No. 3.1(b)
of Incorporation of Registrant, filed with the to Syntellect's S-4
Delaware Secretary of State on May 18, 1993
3.1(c) Certificate of Amendment to Restated Certificate Incorporated by reference to Exhibit 3.1(c) to
of Incorporation of Registrant filed with the Syntellect's Annual Report on Form 10-K dated
Delaware Secretary of State on March 14, 1996 March 29, 1996.
3.2 Amended and Restated Bylaws of Registrant Incorporated by reference to Exhibit No. 3-B to
Syntellect's S-1
4 Specimen Certificate representing Common Stock Incorporated by reference to Exhibit No. 4 to
Amendment No. 1 of Syntellect's S-1
10.1 Restated Stock Option Plan, as amended through May Incorporated by reference to Exhibit 10.1 to
23, 1995 Syntellect's Annual Report on form 10-K dated
March 29, 1996.
10.2 Employee Stock Purchase Plan Incorporated by reference to Exhibit No. 10-B
to Amendment No. 1 of Syntellect's S-1
10.3 1997 Management Incentive Program Page 50
10.4 Long-Term Incentive Plan, as amended August 8, 1996 Page 57
10.5 Nonemployee Director Stock Plan Incorporated by reference to Exhibit B to
Syntellect's Proxy Statement for the 1995
Annual Meeting of Stockholders
10.6(a) Lease Agreement and Addendum dated October 13, Incorporated by reference to Exhibit No. 10-E
1987 with Estes Property Management Company for to Syntellect's S-1
Syntellect's corporate headquarters
10.6(b) First Amendment to Lease Agreement dated August Incorporated by reference to Exhibit 10-D(2) of
31, 1992 between Estes-Samuelson Form 10-K for the fiscal year Syntellect ended
Partnership and Syntellect December 31, 1992 ("1992 Form 10-K")
10.6(c) Lease Agreement dated June 28, 1996, together with Page 67
first amendment to lease dated October 6, 1996,
between Opus Southwest Corporation and
Syntellect for an office facility in Phoenix,
Arizona
10.7 Form of Indemnification Agreement between Incorporated by reference to Exhibit No. 10-L
Syntellect and its directors and officers to Syntellect's S-1
</TABLE>
46
<PAGE> 47
<TABLE>
<S> <C> <C>
10.8(a) Agreement for Licensing of IBM Software Technology Incorporated reference to Exhibit 10-I of
dated February 3, 1993 between Syntellect and IBM Syntellect's 1992 Form 10-K
10.8(b) Amendment Number One (1) to Agreement for the Incorporated by reference to Exhibit No.
Licensing of IBM Technology, Agreement Number 10.8(b) to Syntellect's S-4
JWQ9308, dated March 25, 1993
10.8(c) Amendment Number Two (2) to Agreement for the Incorporated by reference to Exhibit No.
Licensing of IBM Technology, Agreement Number 10.8(c) to Syntellect's S-4
JWQ9308, dated June 8, 1993
10.8(d) Amendment Number Three (3) to Agreement for the Incorporated by reference to Exhibit No.
Licensing of IBM Technology, Agreement Number 10.8(d) to Syntellect's S-4
JWQ9308, dated December 16, 1993
10.8(e) Amendment Number Four (4) to Agreement for the Incorporated by reference to Exhibit No.
Licensing of IBM Technology, Agreement Number 10.8(e) to Syntellect's S-4
JWQ9308, dated October 4, 1994
10.8(f) Amendment Number Five (5) to Agreement for the Page 125
licensing of IBM Technology, Agreement Number
JWQ9308, dated February 13, 1995
10.8(g) Amendment Number Six (6) to Agreement for the Page 129
Licensing of IBM Technology, Agreement number
JWQ9308, dated June 6, 1995
10.8(h) Amendment Number Seven (7) to Agreement for the Page 130
Licensing of IBM Technology, Agreement Number
JWQ9308, dated September 9, 1996
10.8(i) Amendment Number Eight (8) to Agreement for Page 133
Licensing of IBM Technology, Agreement Number
JWQ9308, dated March 11, 1997
10.9 Asset Purchase Agreement dated February 21, 1995 Incorporated by reference to Exhibit 10-K of
between Syntellect Technology Corp. (formerly Syntellect's 1994 Form 10-K
known as Dytel Inc.) and Dytel Incorporated
10.10 Form of Affiliate Agreement between Syntellect Incorporated by reference to Exhibit No.10.10
Inc. and affiliates of Pinnacle Investment to Syntellect's S-4
Associates Inc.
10.11 Employment Agreement between J. Lawrence Bradner Incorporated by reference to Exhibit No. 10.11
and Syntellect Inc. dated March 14, 1996 to Syntellect's S-4
10.12 Employment Agreement between Steve Nussrallah and Incorporated by reference to Exhibit No. 10.12
Syntellect Inc. dated March 14, 1996 to Syntellect's S-4
10.13 Form of Registration Rights Agreement Incorporated by reference to Exhibit 10.13 to
Syntellect's S-4
10.14 Stock Purchase Agreement, dated April 1, 1996, Incorporated by reference to Exhibit 10.14 to
between Syntellect Inc. and Atlas Telecom, Inc. Syntellect's quarterly report on Form 10-Q,
dated May 13, 1996.
</TABLE>
47
<PAGE> 48
<TABLE>
<S> <C> <C>
10.15(a) Loan agreement, dated July 25, 1996, between Page 134
NationsBank, N.A. (South) and Syntellect Inc. for
a $2,000,000 revolving credit line
10.15(b) $1,100,000 Letter of Credit dated February 7, Page 145
1997, issued against the $2,000,000 revolving
credit line, to be used as security deposit on
lease with Opus Southwest Corporation
11 Statement re computation of per share earnings Page 146
21 Subsidiaries of Registrant Page 147
23 Independent Auditors' Consents Page 148
27 Financial Data Schedule Page 150
</TABLE>
(C) REPORTS ON FORM 8-K.
There were no Current Reports on Form 8-K filed during the three months
ended December 31, 1996.
48
<PAGE> 49
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, Syntellect has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on March 28, 1997.
SYNTELLECT INC.
By: /s/ Neal L. Miller
------------------------
Neal L. Miller
Vice President,
Chief Financial Officer,
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities of
the dated indicated.
<TABLE>
<CAPTION>
Name and Signature Title Date
- ------------------ ----- ----
<S> <C> <C>
/s/ J. Lawrence Bradner Chairman of the Board,
- --------------------------------- Chief Executive Officer
J. Lawrence Bradner (Principal Executive Officer) March 28, 1997
/s/ Neal L. Miller Vice President, Chief Financial Officer,
- --------------------------------- Secretary & Treasurer (Principal Financial
Neal L. Miller and Accounting Officer) March 28, 1997
/s/ William P. Conlin Director March 28, 1997
- ---------------------------------
William P. Conlin
/s/ A. LeRoy Ellison Director March 28, 1997
- ---------------------------------
A. LeRoy Ellison
/s/ Jack R. Kelly, Jr. Director March 28, 1997
- ---------------------------------
Jack R. Kelly, Jr.
/s/ Steve G. Nussrallah Director March 28, 1997
- ---------------------------------
Steve G. Nussrallah
/s/ Daniel D. Ross Director March 28, 1997
- ---------------------------------
Daniel D. Ross
</TABLE>
49
<PAGE> 1
Exhibit 10.3
SYNTELLECT INC.
1997 MANAGEMENT INCENTIVE PROGRAM
1. PURPOSE. The purpose of this Management Incentive Program (the
"Program") is to create additional incentives for the following key
officers of Syntellect Inc. (the "Company"): J. Lawrence Bradner, Steve
Nussrallah, Scott Coleman, Neal Miller, David C. Phillips, Roger Reece,
David Morales, Tricia Lester, Dean Giancola, Lindsay Hoopes and Jim
Geer, (the "Participants"). A separate Management Incentive Plan is
included for Gary Smith, who is also a key officer of the Company.
2. ELEMENTS OF THE PROGRAM. The program will apply only to the
Participants and will consist of four elements: (a) an annual base
salary; (b) annual performance-based bonus; (c) stock options; and (d)
a special bonus to be awarded at the sole discretion of the Board of
Directors (the "Board") and the Compensation Committee of the Board
(the "Committee").
a. SALARY. The annual salaries of the Participants shall be as
follows:
<TABLE>
<CAPTION>
================================================================
Salary Date of Review Participant Annual Salary
- ----------------------------------------------------------------
<S> <C> <C>
January 2. 1997 J. Lawrence Bradner S252,000
January 2, 1997 Steve Nussrallah $210,000
October 3, 1996 Scott Coleman $165,000
October 3, 1996 Neal Miller $145,000
October 3, 1997 David C. Phillips $137,500
January 2, 1997 Roger Reece $130,000
October 3, 1996 David Morales $145,000
January 2, 1997 Tricia Lester $ 96,000
January 2, 1997 Dean Giancola $ 95,000
January 1, 1996 Lindsay Hoopes $ 89,000
January 2, 1997 Jim Geer $ 90,000
================================================================
</TABLE>
The next reviews shall take place in January, 1998.
(i) COMPUTATION OF ANNUAL BONUS. Each of the Participants
shall be entitled to receive an Annual Bonus, subject
to the Company achieving its Minimum Profit Objective
for the fiscal year ending December 31, 1997. The
Annual Bonus of each Participant shall be determined
by adding the amounts determined in subsections (A)
and (B) below.
(A) If the Company achieves its Minimum Profit
Objective, each Participant shall receive an
amount determined by multiplying the
-----------------------------------------------------
1997 Syntellect Incentive Program
page 1
<PAGE> 2
Profit Objective premium by the Quarterly
Performance Factor and the product
multiplied by the appropriate Bonus Amount
as set forth below:
<TABLE>
<CAPTION>
==================================================================
Participant Profit Bonus Amount
- ------------------------------------------------------------------
<S> <C>
J. Lawrence Bradner $ 126,000
Steve Nussrallah $ 105,000
Scott Coleman $ 41,250
Neal Miller $ 29,000
David C. Phillips $ 27,500
Roger Reece $ 18,200
David Morales $ 29,000
Tricia Lester $ 14,400
Dean Giancola $ 14,250
Lindsay Hoopes $ 8,900
Jim Geer $ 13,500
==================================================================
</TABLE>
(B) If the Company achieves its Minimum Profit
Objective, then each Participant shall
receive an amount determined by multiplying
the Participant's Performance Premium by the
appropriate Performance Bonus set forth
below:
<TABLE>
<CAPTION>
====================================================================
Participant Performance Bonus Amount
- --------------------------------------------------------------------
<S> <C>
J. Lawrence Bradner $25,200
Steve Nussrallah $20,500
Scott Coleman $16,500
Neal Miller $14,000
David C. Phillips $13,750
Roger Reece $13,000
David Morales $14,500
Tricia Lester $ 9,600
Dean Giancola $ 9,500
Lindsay Hoopes $ 4,450
Jim Geer $ 9,000
====================================================================
</TABLE>
The Annual Bonus shall be paid in cash.
(ii) DEFINITIONS
(A) MINIMUM PROFIT OBJECTIVE. For purposes of
this Program, "Minimum Profit Objective"
shall mean, with respect to an Annual
---------------------------------------------
1997 Syntellect Incentive Program
page 2
<PAGE> 3
Bonus, net income before taxes (all bonuses
accrued), excluding interest income, of the
Company for the year ending December 31,
1997 of eighty percent (80%) of the Plan or
$969,000.
(B) TARGET PROFIT OBJECTIVE. For purposes of
this Program, "Target Profit Objective"
shall mean, with respect to an Annual Bonus,
net income before taxes (all bonuses
accrued), excluding interest income, of the
Company for the year ending December 31,
1997 of the 1997 Plan or $1,212,000.
(C) ACTUAL PROFIT PERFORMANCE. For purposes of
this Program, "Actual Profit Performance"
shall mean, with respect to an Annual Bonus,
net income before taxes (all bonuses
accrued), excluding interest income, of the
Company for the year ending December 31,
1997.
(D) PROFIT OBJECTIVE PREMIUM. For purposes of
this Program, "Profit Objective Premium"
shall be determined by the following
criteria:
(1) If the Company achieves between the
Minimum Profit Objective and the
Target Profit Objective, the Profit
Objective Premium shall be
determined by the following
formula:
Actual Profit Performance
=2.5[ ---------------------------.80] +.5
Target Profit Objective
(2) If less than the Minimum Profit
Objective is achieved, the Profit
Objective Premium shall be zero
(0); and
(3) If the Company achieves greater
than the Target Profit Objective,
the Profit Objective Premium shall
be determined by the following
formula:
Actual Profit Performance - Target Profit Objective
=.5[---------------------------------------------------] + 1.0
Target Profit Objective
The maximum Profit Objective Premium shall
be 1.5.
(E) For purposes of the Program, the "Quarterly
Profit Objective" shall mean, with respect
to the Quarterly Performance Factor, the
estimated net income before taxes excluding
interest income for each quarter of the
Company for the year ending December 31,
1997 as follows:
------------------------------------------
1997 Syntellect Incentive Program
page 3
<PAGE> 4
<TABLE>
<CAPTION>
================================================================================
Quarters Quarterly Profit Objective
- --------------------------------------------------------------------------------
<S> <C>
Quarter 1 Less than or equal to $(548,000)
Quarter 2 Less than or equal to ($218,000)
Quarter 3 Greater than or equal to $639,000
Quarter 4 Greater than or equal to $1,339,000
================================================================================
</TABLE>
(F) For the purposes of this Program, "Quarterly
Performance Factor" shall be determined by
the following criteria:
<TABLE>
<CAPTION>
================================================================================
Number of quarters
during fiscal year Quarterly
1997 which the Performance Factor Quarterly
Company met or for Participants other Performance Factor
exceeded its than J. Larry for Participants J.
Quarterly Profit Bradner and Steve Larry Bradner and
Objectives Nussrallah Steve Nussrallah
- --------------------------------------------------------------------------------
<S> <C> <C>
1 1.000 1.00
2 1.125 1.05
3 1.250 1.10
4 1.500 1.20
================================================================================
</TABLE>
(G) PARTICIPANT'S PERFORMANCE PREMIUM. For
purposes of this Program, "Participant's
Performance Premium" shall mean a figure
between 0.0 and 1.0. This figure shall be
determined by the CEO of Syntellect, the
President of Syntellect and the direct
supervisor of the individual Participant.
The basis for this determination shall be
subjectively determined based upon:
(1) J. LAWRENCE BRADNER. The objectives outlined in
Attachment A-1 hereto.
(2) STEVE NUSSRALLAH. The objectives outlined in
Attachment A-2 hereto.
(3) SCOTT COLEMAN. The objectives outlined in Attachment
A-3 hereto.
(4) NEAL MILLER. The objectives outlined in Attachment
A-4 hereto.
--------------------------------------
1997 Syntellect Incentive Program
page 4
<PAGE> 5
(5) DAVID C. PHILLIPS. The objectives outlined in Attachment A-5
hereto.
(6) ROGER REECE. The objectives outlined in Attachment A-6 hereto.
(7) TRICIA LESTER. The objectives outlined in Attachment A-7
hereto.
(8) DAVID MORALES. The objectives outlined in Attachment A-8
hereto.
(9) LINDSAY HOOPES. The objectives outlined in Attachment A-9
hereto.
(10) DEAN GIANCOLA. The objectives outlined in Attachment A-10
hereto.
(11) JIM GEER. The objectives outlined in Attachment A-11 hereto.
b. SPECIAL BONUS. A Special Bonus may be awarded to any or all of the
Participants upon recommendation of the Committee in its sole
discretion and by approval of the Board in its sole discretion. The
Special Bonus is a purely discretionary bonus which may be awarded to a
Participant for any reason that the Board or Committee deems
appropriate, including but not limited to instances where the profits
of the Company far exceed expected profit levels or where a Participant
provides superior job performance. The Special Bonuses as recommended
by the Audit Committee are attached as Attachment B-1.
------------------------------------
1997 Syntellect Incentive Program
page 5
<PAGE> 6
c. STOCK OPTIONS. The Participants shall receive the
following Stock Options in accordance with the 1984
Stock Option Plan as revised in May, 1994.
<TABLE>
<CAPTION>
================================================================================
Participant Number of Shares
- --------------------------------------------------------------------------------
<S> <C>
J. Lawrence Bradner 27,500
Steve Nussrallah 25,000
Scott Coleman 13,000
Neal Miller 10,000
David C. Phillips 10,000
Gary Smith 10,000
Roger Reece 5,000
David Morales 10,000
Tricia Lester 5,000
Dean Giancola -0-
Lindsay Hoopes 4,000
Jim Geer 4,000
================================================================================
</TABLE>
3. TIME OF DISTRIBUTION. Distribution of the Annual
Bonuses shall be made no later than thirty (30) days
after the audit of the books and accounts of the
Company for such year has been completed by the
Company's independent public accountants.
4. ADMINISTRATION OF THE PROGRAM. Overall
administration of the Program shall be vested in the
Committee as overseen by the Board. Any provision of
the Program to the contrary notwithstanding, the
Board may exercise all the powers and shall have all
the authority conferred on the Committee by the
Program, and in the event of any inconsistency
between action taken by the Board and action taken by
the Committee with respect to the Program or any
provision hereunder, the action taken by the Board
shall govern.
5. LIMITATIONS. Neither the action of the Company in
establishing the Program not any provisions hereto
nor any action by the Board or the Committee in
implementing or overseeing the Program shall be
construed as giving the Participant the right to be
retained in the employ of the Company. Upon
termination of employment with the Company for any
reason, the rights of the Participant under the
Program shall terminate except as to rights accrued
through the date of termination. No rights shall
accrue under the Program with respect to any bonus
payment for any period in which the Participant was
not employed by the Company for the entire period.
Participants must be an employee of the Company on
December 31, 1997 to be eligible for any bonus
payments under this Program. The Participant shall
not, because of the Program, acquire any right to an
accounting or to examine the books or the affairs of
the Company.
6. AMENDMENT OR TERMINATIONS. The Board and the
Committee, and each of them, reserve the right at any
time to make such changes in the Program as they may
consider desirable
------------------------------------------
1997 Syntellect Incentive Program
page 6
<PAGE> 7
or may terminate or discontinue the Program at any
time, and upon such termination, the participant
shall have no rights in the Program or any amounts
accrued hereunder.
7. CONFLICTS. To the extent there exists any conflict
between this Program and the Employment Agreements of
J. Lawrence Bradner and Steve Nussrallah, the
Employment Agreement shall rule unless specifically
noted to the contrary.
-----------------------------------------
1997 Syntellect Incentive Program
page 7
<PAGE> 1
EXHIBIT 10.4
SYNTELLECT INC.
LONG-TERM INCENTIVE PLAN
(AS AMENDED AUGUST 8, 1996)
ARTICLE I
PURPOSE
I.I. General. The purpose of the Syntellect Inc. Long-Term Incentive
Plan (the "Plan") is to promote the success, and enhance the value, of
Syntellect Inc. (the "Company") by linking the personal interests of its
employees, consultants and advisors to those of Company shareholders and by
providing its employees, consultants and advisors with an incentive for
outstanding performance. The Plan is further intended to provide flexibility to
the Company in its ability to motivate, attract, and retain the services of
employees, consultants and advisors upon whose judgment, interest, and special
effort the successful conduct of the Company's operation is largely dependent.
Accordingly, the Plan permits the grant of incentive awards from time to time to
selected employees, consultants and advisors of the Company and any Subsidiary.
ARTICLE 2
EFFECTIVE DATE
2. 1. Effective Date. The Plan is effective as of February 1, 1995 (the
"Effective Date). Within one year after the Effective Date, the Plan shall be
submitted to the shareholders of the Company for their approval. The Plan will
be deemed to be approved by the shareholders if it receives the affirmative vote
of the holders of a majority of the shares of stock of the Company present, or
represented, and entitled to vote at a meeting duly held (or by the written
consent of the holders of a majority of the shares of stock of the Company
entitled to vote) in accordance with the applicable provisions of the Delaware
Corporation Law and the Company's Bylaws and Articles of Incorporation. Any
Awards granted under the Plan prior to shareholder approval are effective when
made (unless the Committee specifies otherwise at the time of grant), but no
Award may be exercised or settled and no restrictions relating to any Award may
lapse before shareholder approval. If the shareholders fail to approve the Plan,
any Award previously made shall be automatically canceled without any further
act.
ARTICLE 3
DEFINITIONS AND CONSTRUCTION
3. 1. Definitions. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or Phrase shall generally be given the meaning ascribed to it in this
Section or in Sections 1.1 or 2.1 unless a clearly different meaning is
required by the context. The following words and phrases shall have the
following meanings:
(a) "Award" means any Option, Stock Appreciation Right,
Restricted Stock Award, Performance Share Award, Dividend Equivalent
Award, or Other Stock-Based Award, or any other right or interest
relating to Stock or cash, granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract,
or other instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Company or a
Committee thereof formed under Section 4, as the case may be.
(d) "Cause" means (except as otherwise provided in on Option
Agreement) if the Board, in its reasonable and good faith discretion,
determines that the employee, consultant or advisor (i) has developed
or pursued interests substantially adverse to the Company, (ii)
materially breached any employment, engagement or confidentiality
agreement or otherwise failed to satisfactorily discharge his
1
<PAGE> 2
or her duties, (iii) has not devoted all or substantially all of his or
her business time, effort and attention to the affairs of the Company
(or such lesser amount as has been agreed to in writing by the Company)
(iv) is convicted of a felony involving moral turpitude, or (v) has
engaged in activities or omissions that; are detrimental to the
well-being of the Company.
(e) "Change of Control" means and includes each of the following
(except as otherwise provided in an Option Agreement):
(1) there shall be consummated any consolidation or merger of
the Company in which the Company is not the continuing or surviving
entity, or pursuant to which Stock would be converted into cash,
securities or other property, other than a merger of the Company in
which the holders of the Company's Stock immediately prior to the
merger have the same proportionate ownership of beneficial interest of
common stock or other voting securities of the surviving entity
immediately after the merger
(2) there shall be consummated any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions)
of assets or earning power aggregating more than 40% of the assets or
taming power of the Company and its subsidiaries (taken as a whole);
(3) the stockholders of the Company shall approve any plan or
proposal for liquidation or dissolution of the Company;
(4) any person (as such term is used in Section 13(d) and
14(d) (2) of the Exchange Act), other than any employee benefit plan of
the Company or any subsidiary of the Company or any entity holding
shares of capital stock of the Company for or pursuant to the terms of
any such employee benefit plan in its role as an agent or trustee for
such plan, shall become the beneficial owner (within the meaning of
Rule l3d-3 under the Exchange Act) of 20% or more of the Company's
outstanding Stock; or
(5) during any period of two consecutive years, individuals
who at the beginning of such period shall fail to constitute a majority
thereof, unless the election, or the nomination for election by the
Company's stockholders, of each new director was approved by a vote of
at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Committee" means the committee of the Board described in Article
4.
(h) "Disability" shall mean any illness or other physical or mental
condition of a Participant which renders the Participant incapable of performing
his customary and usual duties for the Company, or any medically determinable
illness or other physical or mental condition resulting from a bodily injury,
disease or mental disorder which in the judgment of the Committee is permanent
and continuous in nature. The Committee may require such medical or other
evidence as it deems necessary to judge the nature and permanency of the
Participant's condition.
(g) "Dividend Equivalent" means a right granted to a Participant under
Article 11.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(k) "Fair Market Value" means with respect to Stock or any other
property, the fair market value of such Stock or other property as determined by
the Board in its discretion, under one of the following methods: (i) the average
of the closing bid and asked prices for the Stock as reported on any national
securities exchange on which the Stock is then listed (which shall include the
Nasdaq National Market System) for that date or, if no prices are so reported
for that date, such prices on the next preceding date for which closing bid and
asked prices were reported, or (ii) the price as determined by such methods or
procedures as may be established from time to time by the Board.
2
<PAGE> 3
(l) "Incentive Stock Option" means an Option that is intended
to meet the requirements of Section 422 of the Code or any successor
provision thereto.
(m) "Non-Qualified Stock Option" means an Option that is not
intended to be an Incentive Stock Option.
(n) "Option" means a right granted to a Participant under
Article 7 of the Plan to purchase Stock at a specified price during
specified time periods. An Option may be either in incentive Stock
Option or a Non-Qualified Stock Option.
(o) "Other Stock-Based Award" means a right, granted to a
Participant under Article 12, that relates to or is valued by reference
to Stock or other Awards relating to Stock.
(p) "Participant" means a person who, as an employee of or
consultant or advisor to the Company or any Subsidiary, has been
granted an Award under the Plan. A "Participant" shall not include any
Director of the Company or any Subsidiary who is not also an employee
of or consultant to the Company or any Subsidiary.
(q) "Performance Share" means a right granted to a Participant
under Article 9, to receive cash, Stock or other Awards, the payment of
which is contingent upon achieving certain performance goals
established by the Committee.
(r) "Plan" means the Syntellect Inc. Long-Term Incentive Plan,
as amended from time to time.
(s) "Restricted Stock Award" means Stock granted to a
Participant under Article 10 that is subject to certain restrictions
arid to risk of forfeiture.
(t) "Stock" means the common stock of the Company and such
other securities of the Company that may be substituted for Stock
pursuant to Article 13.
(u) "Stock Appreciation Right" or "SAR" means a right granted
to a Participant under Article 8 to receive a payment equal to the
difference between the Fair Market Value of a share of Stock as of the
date of exercise of the SAR over the grant price of the SAR, all as
determined pursuant to Article S.
(v) "Subsidiary" means any corporation, domestic or foreign,
of which a majority of the outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Company.
ARTICLE 4
ADMINISTRATION
4.1. Board/Committee. The Plan shall be administered by the Board of
Directors or, to the extent required to comply with Rule 16b-3 promulgated under
the Exchange Act, a Committee that is appointed by, and serves at the discretion
of, the Board. Any Committee shall consist of at least two individuals who are
members of the Board and are "disinterested persons," as such term is defined in
Rule 16b-3 promulgated under Section 16 of the Exchange Act or any successor
provision, except as may be otherwise permitted under Section 16 of the Exchange
Act and the regulations and rules promulgated thereunder. For purposes of this
Plan the "Board" shall mean the Board of Directors or the Committee, as the case
may be.
4.2. Action by the Board. A majority of the Board shall constitute a
quorum. The acts of a majority of the members present at any meeting at which a
quorum is present and acts approved in writing by a majority of the Board in
lieu of a meeting shall be deemed the acts of the Board. Each member of the
Board is entitled to, in good faith, rely or act upon any report or other
information furnished to that member by any officer or other employee of the
Company or any Subsidiary, the Company's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Company to assist in the administration of the Plan.
4.3. Authority of Board. The Board has the exclusive power, authority
and discretion to:
(a) Designate Participants;
3
<PAGE> 4
(b) Determine the type or types of Awards to be granted to each
Participant;
(c) Determine the number of Awards to be granted and the number of
shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under
the Plan including but not limited to, the exercise price, grant price,
or purchase price, any restrictions or limitations on the Award, any
schedule for lapse of forfeiture restrictions or restrictions on the
exercisability of an Award, and accelerations or waivers thereof, based
in each case on such considerations as the Board in its sole discretion
determines;
(e) Determine whether, to what extent, and under what
circumstances an Award may be settled in, or the exercise price of an
Award may be paid in, cash, Stock, other Awards, or other property, or
an Award may be canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(g) Decide all other matters that must be determined in connection
with an Award;
(h) Establish, adopt or revise any rules and regulations as it may
deem necessary or advisable to administer the Plan; and
(i) Make all other decisions and determinations that may be
required under the Plan or as the Board deems necessary or advisable to
administer the Plan.
4.4. Decisions Binding. The Board's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Board with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5. 1. Number of Shares. Subject to adjustment provided in Section 15.1,
the aggregate number of shares of Stock reserved and available for Awards or
which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance Share
Award) shall be 1,500,000.
5.2. Lapsed Awards. To the extent that an Award terminates, expires or
lapses for any reason, any shares of Stock subject to the Award will again be
available for the grant of an Award under the Plan and shares subject to SARs or
other Awards settled in cash will be available for the grant of an Award under
the Plan, in each case to the full extent available pursuant to the rules and
interpretations of the Securities and Exchange Commission under Section 16 of
the Exchange Act, if applicable.
5.3. Stock Distributed. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4. Limitations on Awards to Any Single Participant. No single
Participant may receive Awards covering in the aggregate more than 250,000
shares of Stock.
ARTICLE 6
ELIGIBILITY
6. 1. GeneraL Awards may be granted only to individuals who are
employees (including employees who also are directors or officers) of the
Company or a Subsidiary or to consultants or advisors thereto, as determined by
the Board.
4
<PAGE> 5
ARTICLE 7
STOCK OPTIONS
7.1. General. The Board is authorized to grant Options to Participants
on the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock under an
Option shall be determined by the Board.
(b) Time and Conditions of Exercise. The Board shall determine the
time or times at which an Option may be exercised in whole or in part.
The Board also shall determine the performance or other conditions, if
any, that must be satisfied before all or part of an Option may be
exercised.
(c) Payment. The Board shall determine the methods by which the
exercise price of an Option may be paid, the form of payment,
including, without limitation, cash, shares of Stock, or other property
(including net issuance or other "cashless exercise" arrangements), and
the methods by which shares of Stock shall be delivered or deemed to be
delivered to Participants. Without limiting the power and discretion
conferred on the Board pursuant to the preceding sentence, the Board
may, in the exercise of its discretion, but need not, allow a
Participant to pay the Option price by directing the Company to
withhold from the shares of Stock that would otherwise be issued upon
exercise of the Option that number of shares having a Fair Market Value
on the exercise date equal to the Option price, all as determined
pursuant to rates and procedures established by the Board.
(d) Evidence of Grant. All Options shall be evidenced by a written
Award Agreement between the Company and the Participant. The Award
Agreement shall include such provisions as may be specified by the
Board.
7.2 Incentive Stock Options. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) Exercise Price. The exercise price per share of Stock shall be
set by the Board, provided that the exercise price for any Incentive
Stock Option may not be less than the Fair Market Value as of the date
of the grant.
(b) Exercise. In no event, may any Incentive Stock Option be
exercisable for more than ten years from the date of its grant.
(c) Lapse of Option. An Incentive Stock Option shall lapse under
the following circumstances:
(1) The Incentive Stock Option shall lapse ten (10) years
after it is granted, unless an earlier time is set in the Award
Agreement.
(2) The Incentive Stock Option shall lapse upon termination of
employment for Cause or for any other reason, other than the
Participant's death or Disability, unless the Committee
determines in its discretion to extend the exercise period for
no more than ninety (90) days after the Participant's
termination of employment.
(3) In the case of the Participant's termination of employment
due to Disability or death, the Incentive Stock Option shall
lapse upon termination of employment, unless the Committee
determines in its discretion to extend the exercise period of
the Incentive Stock Option for no more than twelve (12) months
after the date the Participant terminates employment. Upon the
Participant's death, any vested and otherwise exercisable
Incentive Stock Options may be exercised by the Participant's
legal representative or representative by the person or
persons entitled to do so under the Participant's last will
and testament, or, if the Participant shall fail to make
testamentary disposition of such incentive Stock Option or
shall die intestate, by the person or persons entitled to
receive said Incentive Stock Option under the applicable laws
of descent and distribution.
(d) Individual Dollar Limitation. The aggregate Fair Market Value
(determined as of the time an Award is made) of all shares of Stock
with respect to which Incentive Stock Options are first exercisable by
a Participant in any calendar year may not exceed One Hundred Thousand
Dollars ($ 100,000.00).
5
<PAGE> 6
(e) Ten Percent Owners. An Incentive Stock Option shall he granted
to my individual who, at the date of grant, owns stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of Stock of the Company only if, at time such Option is
granted, the Option price is at least one hundred ten percent (110%)
of the Fair Market Value of the Stock and such Option by its terms is
not exercisable after the expiration of five (5) years from the date
the Option is granted.
(f) Expiration of Incentive Stock Option. No Award of an Incentive
Stock Option may be made pursuant to this Plan after the tenth
anniversary of the Effective Date.
(g) Right to Exercise. During a Participant's lifetime, an
Incentive Stock Option may be exercised only by the Participant.
(h) Employees Only. Incentive Stock Options may be granted only to
Participants who are employees of the Company or any Subsidiary.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1. Grant of SARs. The Board is authorized to grant SARs to
Participants on the following terms and conditions:
(a) Right to payment . Upon the exercise of a Stock Appreciation
Right, the participant to whom it is granted has the right to receive
the excess, if any, of:
(1) The Fair Market Value of one share of Stock on the date of
exercise; over
(2) The grant price of the Stock Appreciation Right as
determined by the Board, which shall not be less than the Fair
Market Value of one share of Stock on the date of grant in the
case of any SAR related to any Incentive Stock Option.
(b) Other Terms. All awards of Stock Appreciation Rights shall be
evidenced by an Award Agreement. The terms, methods of exercise,
methods of settlement, form of consideration payable in settlement, and
any other terms and conditions of any Stock Appreciation Right shall be
determined by the Board at the time of the grant of the Award and shall
be reflected in the Award Agreement.
ARTICLE 9
PERFORMANCE SHARES
9. 1. Grant of Performance Shares. The Board is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Board. The Board shall have the complete discretion to determine
the number of Performance Shares granted to each Participant. All Awards of
Performance Shares shall be evidenced by an Award Agreement.
9.2. Right to Payment. A grant of Performance Shares gives the
Participant rights, valued as determined by the Board, and payable to, or
exercisable by, the Participant to whom the Performance Shares are granted, in
whole or in part, as the Board shall establish at grant or thereafter. The Board
shall set performance goals and other terms or conditions to payment of the
Performance Shares in its discretion which, depending on the extent to which
they are met, will determine the number and value of Performance Shares that
will be paid to the Participant, provided that the time period during which the
performance goals must be met shall, in all cases, exceed six months.
9.3. Other Terms. Performance Shares may be payable in cash, Stock, or
other property, and have such other terms and conditions as determined by the
Board and reflected in the Award Agreement.
6
<PAGE> 7
ARTICLE 10
RESTRICTED STOCK AWARDS
10.1. Grant of Restricted Stock. The Board is authorized to make Awards
of Restricted Stock to Participants in such amounts and subject to such terms
and conditions as may be selected by the Board. All Awards of Restricted Stock
shall be evidenced by a Restricted Stock Award Agreement.
10.2. Issuance and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions as the Board may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances in such installments, or otherwise, as the Board determines
at the time of the grant of the Award or thereafter.
10.3. Forfeiture. Except as otherwise determined by the Board at the
time of the great of the Award or thereafter, upon termination of employment
during the applicable restriction period, Restricted Stock that is at that time
subject to restrictions shall be forfeited and required by the Company,
provided, however, that the Board may provide in any Award Agreement that
restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of terminations resulting from specified
causes, and the Board may in other cases waive in whole or in part restrictions
or forfeiture conditions relating to Restricted Stock.
l0.4. Certificates for Restricted Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Board shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock, and
the Company shall retain physical possession of the certificate until such time
as all applicable restrictions lapse.
ARTICLE 11
DIVIDEND EQUIVALENTS
11.1. Grant of Dividend Equivalents. The Board is authorized to grant
Dividend Equivalents to Participants subject to such terms and conditions as may
be selected by the Board. Dividend Equivalents shall entitle the Participant to
receive payments equal to dividends with respect to all or a portion of the
number of shares of Stock subject to an Option Award or SAR Award, as determined
by the Board. The Board may provide that Dividend Equivalents be paid or
distributed when accrued or be deemed to have been reinvested in additional
shares of Stock, or otherwise reinvested.
ARTICLE 12
OTHER STOCK-BASED AWARDS
12.1. Grant of Other Stock-Based Awards. The Board is authorized
subject to limitations under applicable law, to grant to Participants such other
Awards that are payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Stock, as deemed by the Board to be
consistent with the purposes of the Plan, including without limitation shares of
Stock awarded purely as a "bonus" and not subject to any restrictions or
conditions, convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares of Stock, and Awards valued by reference
to book value of shares of Stock or the value of securities of or the
performance of specified Subsidiaries. The Board shall determine the terms and
conditions of such Awards.
7
<PAGE> 8
ARTICLE 13
PROVISIONS APPLICABLE TO AWARDS
13.1. Stand-Alone, Tandem, and Substitute Awards. Awards granted under
the Plan may, in the discretion of the Board, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Board may require the surrender of such other Award in consideration of the
grant of the new Award. Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
13.2. Exchange Provisions. The Board may at any time offer to exchange
or buy out any previously granted Award for a payment in cash, Stock, or another
Award (subject to Section 13.1), based on the terms and conditions the Board
determines and communicates to the Participant at the time the offer is made.
13.3. Term of Award. The term of each Award shall be for the period as
to be determined by the Board, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from the date of its grant.
13.4. Form of Payment for Awards. Subject to the terms of the Plan and
any applicable law or Award Agreement, payments or transfers to be made by the
Company or a Subsidiary an the grant or exercise of an Award may be made in such
forms as the Board determines at or after the time of grant, including without
limitation, cash, Stock other Awards, or other property, or any combination, and
may be made in a single payment or transfer, in installments, or on a deferred
basis in each case determined in accordance with rules adopted by, and at the
discretion of, the Board. The Board may also authorize payment in the exercise
of an Option by net issuance or other cashless exercise methods.
13.5. Limits on Transfer. No right or interest of a Participant in any
Award may be pledged, encumbered, or hypothecated to or in favor of any party
other than the Company or a Subsidiary, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than the
Company or a Subsidiary. Except as otherwise provided below, no Award shall be
assignable or transferable by a Participant other than by will or the laws of
descent and distribution or, with the consent of the Board in its sole
discretion and except in the case of an Incentive Stock Option, pursuant to a
court order that would otherwise satisfy the requirements to be a domestic
relations order as defined in Section 414(p) (t) (B) of the Code, if the order
satisfies Section 414(p) (1) (A) of the Code notwithstanding that such an order
relates to the transfer of a stock option rather than an interest in an employee
benefit plan. In the Award Agreement for any Award other than an Award that
includes an Incentive Stock Option, the Board may allow a Participant to assign
or otherwise transfer all or a portion of the rights represented by the Award to
specified individuals or classes of individuals, or to a trust benefiting such
individuals or classes of individuals, subject to such restrictions,
limitations, or conditions as the Board deems to be appropriate.
13.6.Beneficiaries. Not withstanding Section 13.5, a Participant may,
in the manner determined by the Board, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Board. If the Participant is married and resides in a jurisdiction in which
community property laws apply, a designation of a person other than the
Participant's spouse as his beneficiary with respect to more than 50 percent of
the Participant's interest in the Award shall not be effective without the
written consent of the Participant's spouse. If no beneficiary has been
designated or survives the Participant, payment shall be made to the person
entitled thereto under the Participant's will or the laws of descent and
distribution. Subject to the foregoing, a beneficiary designation may be changed
or revoked by a Participant at any time provided the change or revocation is
filed with the Board.
13.7. Stock Certificates, All Stock certificates delivered under the
Plan are subject to any stoptransfer orders and other restrictions as the Board
deems necessary or advisable to comply with federal or state
8
<PAGE> 9
securities laws, rules and regulations and the rules of any national securities
exchange or automated quotation system on which the Stock is listed, quoted, or
traded. The Board may place legends on any Stock certificate to reference
restrictions applicable to the Stock.
13.8. Tender Offers. In the event of a public tender for all or any
portion of the Stock, or in the event that a proposal to merge, consolidate, or
otherwise combine with another company is submitted for stockholder approval,
the Board may in its sole discretion declare previously granted Options to be
immediately exercisable. To the tent that this provision causes incentive Stock
Options to exceed the dollar limitation set forth in Section 7.2(d), the excess
Options shall be deemed to be Non-Qualified Stock Options.
13.9. Change of Control. A Change of Control shall, in the sole
discretion of the Committee:
(a) Cause every Award outstanding hereunder to become fully
exercisable and all restrictions on outstanding Awards to lapse and
allow each Participant the right to exercise Awards prior to the
occurrence of the event otherwise terminating the Awards over such
period as the Committee, in its sole and absolute discretion, shall
determine. To the extent that this provision causes incentive Stock
Options to exceed the dollar limitation set forth in Section 7.2(d),
the excess Options shall be deemed to be Non-Qualified Stock Options;
or
(b) Cause every Award outstanding hereunder to terminate, provided
that the surviving or resulting corporation shall tender an option or
options to purchase its shares or exercise such rights on terms and
conditions, as to the number of shares and rights and otherwise, which
shall substantially preserve the rights and benefits of any Award then
outstanding thereunder.
ARTICLE 14
CHANGES IN CAPITAL STRUCTURE
14. 1. General. In the event a stock dividend is declared upon the
Stock, the shares of Stock then subject to each Award (and the number of shares
subject thereto) shall be increased proportionately without any change in the
aggregate purchase price therefor. In the event the Stock shall be changed into
or exchanged for a different number or class of shares of Stock or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, there shall be substituted for each such share of Stock
then subject to each Award (and for each share of Stock then subject thereto)
the number and class of shares of Stock into which each outstanding share of
Stock shall be so exchanged, all without any change in the aggregate purchase
price for the shares then subject to each Award.
ARTICLE 15
AMENDMENT, MODIFICATION AND TERMINATION
15.1. Amendment, Modification and Termination. With the approval of the
Board, at any time and from time to time, the Board may terminate, amend or
modify the Plan. However, without approval of the stockholder of the Company or
other conditions (as may be required by the Code, by the insider trading rules
of Section 16 of the Exchange Act, by any national securities exchange or system
on which the Stock is listed or reported or by a regulatory body having
jurisdiction), no such termination, amendment, or modification may:
(a) Materially increase the total number of shares of Stock that
may be issued under the Plan, except as provided in Section 14 - 1;
(b) Materially modify the eligibility requirements for
participation in the Plan; or
(c) Materially increase the benefits accruing to Participants
under the Plan,
15.2. Awards Previously Granted No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant.
9
<PAGE> 10
ARTICLE 16
GENERAL PROVISIONS
16.1. No Rights to Awards. No Participant or employee or consultant
shall have any claim to be granted any Award under the Plan, and neither the
Company nor the Board is obligated to treat Participants and employees or
consultants uniformly.
16.2. No Stockholders Rights. No Award gives the Participant any of
the rights of a stockholder of the Company unless and until shares of Stock are
in fact issued to such person in connection with such Award.
16.3. Withholding. The Company or any Subsidiary shall have the
authority and the right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy United States Federal, state,
and local taxes (including the Participant's FICA obligation and any withholding
obligation imposed by any country other than the United States in which the
Participant resides) required by law to be withheld with respect to any taxable
event arising as a result of this Plan. With respect to withholding required
upon any taxable event under the Plan, Participants may elect, subject to the
Board's approval to satisfy the withholding requirement, in whole or in part, by
having the Company or any Subsidiary withhold shares of Stock having a Fair
Market Value on the date of withholding equal to the amount to be withheld for
tax purposes in accordance with such procedures as the Board establishes. The
Board may, at the time any Award is granted, require that any and all applicable
tax withholding requirements be satisfied by the withholding of shares of Stock
as set forth above.
16.4. No Right to Employment. Nothing in the Plan or any Award
Agreement shall interfere with or limit in any way the right of the Company or
any Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
16.5. Unfunded Status of Awards. The Plan is intended to be an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or my Award Agreement shall give the Participant any rights that are
greater than those of a general creditor of the Company or any Subsidiary.
16.6. Indemnification. To the extent allowable under applicable law,
each member of the Committee or of the Board shall be indemnified and held
harmless by the Company from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by such member in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action or failure
to act under the Plan and against and from any and all amounts paid by him or
her in satisfaction of judgment in such action, suit, or proceeding against him
or her provided he or she gives the Company an opportunity, at its own expense,
to handle and defend the same before he or she undertakes to handle and defend
it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or By-Laws, as a matter
of law, or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.
16.7. Relationship to Other Benefits. No payment under the Plan shall
be taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance welfare or other benefit plan of the
Company or any Subsidiary.
16.8. Expenses. The expenses of administering the Plan shall be borne
by the Company and its Subsidiaries.
16.9. Titles and Readings. The titles and headings of the Sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
16.10. Fractional Shares. No fractional shares of stock shall be
issued and the Board shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
10
<PAGE> 1
Exhibit 10.6(c)
LEASE
THIS INDENTURE of lease, dated as of the 28th day of June, 1996, by and
between OPUS SOUTHWEST CORPORATION, a Minnesota corporation, owner of the
Complex (as hereinafter defined), hereinafter referred to as "Lessor", and
SYNTELLECT INC., a Delaware corporation, hereinafter referred to as "Lessee".
WITNESSETH:
That Lessor, in consideration of the rents and covenants hereinafter
set forth, does hereby lease and let unto Lessee, and Lessee does hereby hire
and take from Lessor, that certain space shown and designated on the site plan
attached hereto and made a part hereof as Exhibit A and that certain space plan
attached hereto and made a part hereof as Exhibit D, which space consists of
approximately 60,000 rentable square feet, located in the office and warehouse
complex known and described as Northgate Center located northwest of the
intersection of Beardsley Road and Interstate 17, Phoenix, Arizona. The
aforesaid space leased and let unto Lessee is hereinafter referred to as the
"Premises"; the land (including all easement areas appurtenant thereto) upon
which the building or buildings of which the Premises are a part is hereinafter
referred to as the "Property"; and the Property and all buildings and
improvements and personal property of Lessor used in connection with the
operation or maintenance thereof located therein and thereon and the appurtenant
parking facilities, if any, are hereinafter called the "Complex".
Lessee hereby accepts this Lease and the Premises upon the covenants
and conditions set forth herein and subject to any encumbrances, covenants,
conditions, restrictions and other matters of record and all applicable zoning,
municipal, county, state and federal laws, ordinances and regulations governing
and regulating the use of the Premises.
TO HAVE AND TO HOLD THE SAME PREMISES, without any liability or
obligation on the part of Lessor to make any alterations, improvements or
repairs of any kind on or about the Premises, except as expressly provided
herein, for a term of ten (10) years, commencing an the 1ST DAY OF MARCH, 1997,
and ending on the 30TH DAY OF APRIL, 2007, subject to extension or early
termination, in the manner provided hereinafter, to be occupied and used by
Lessee for general office and light assembly purposes and for no other purpose,
subject to the covenants and agreements hereinafter contained.
ARTICLE 1. BASE RENT: In consideration of the leasing aforesaid, Lessee agrees
to pay to Lessor, at c/o Normandale Properties Southwest Corporation, 4742 North
24th Street, Suite 100, Phoenix, Arizona 85016, Attention: Accounting Department
or at such other place as Lessor from time to time may designate in writing, an
annual rental as hereinafter set forth, sometimes hereinafter referred to as the
"Base Rent", payable monthly, in advance, in installments as hereinafter set
forth, commencing on the first day of the term and continuing on the first day
of each and every month thereafter for the next succeeding months during the
balance of the term:
<TABLE>
<CAPTION>
APPLICABLE PORTION MONTHLY
OF TERM BASE RENT
------------------ ---------
<S> <C>
Months 1-60 0.865 per rentable square foot
Months 61-120 1.00 per rentable square foot
</TABLE>
<PAGE> 2
It the term commences on a date other than the first day of a calendar
month or ends on a date other than the last day of a calendar month, monthly
vent for the first month of the term or the last month of the term, as the case
may be, shall be prorated based upon the ratio that the number of days in the
term within such month bears to the total number of days in such month.
ARTICLE 11. ADDITIONAL RENT: In addition to the Base Rent payable by Lessee
under the provisions of Article I hereof, Lessee shall pay to Lessor "Additional
Rent" as hereinafter provided for in this Article II. All sums under this
Article II and all other sums and changes required to be paid by Lessee under
this Lease (except Base Rent), however denoted, shall be deemed to be
"Additional Rent". If any such amounts or charges are not paid at the time
provided in this Lease, they shall nevertheless be collectible as Additional
Rent with the next installment of Base Rent falling due.
For purposes of this Article II, the parties hereto agree upon the
following Definitions:
A. The term "Lease Year" shall mean each of those calendar years
commencing with and including the year during which the term
of this Lease commences, and ending with the calendar year
during which the term of this Lease (including any extensions
or renewals) terminates.
B. The term "Real Estate Taxes" shall mean and include all
personal property taxes of Lessor relating to Lessor's
personal property located In the Complex and used or useful in
connection with the operation and maintenance thereof, real
estate taxes and installments of special assessments,
including interest thereon, relating to the Property and the
Complex, and all other governmental charges, general and
special, ordinary and extraordinary, foreseen as well as
unforeseen, of any kind and nature whatsoever, or other tax,
however described, which is levied or assessed by the United
States of America or the state in which the Complex is located
or any political subdivision thereof, against Lessor or all or
any part of the Complex as a result of Lessor's ownership of
the Property or the Complex, and payable during the respective
Lease Year. The term "Real Estate Taxes" shall also include
any assessments or other charges imposed against Lessor or
all or any part of the Complex and payable during the
respective Lease Year as a result of the Complex being
subject to any covenants, conditions or restrictions now or
hereafter recorded, as the same may be amended from time to
time. It shall not include any net income tax, estate tax,
inheritance tax, excess profit taxes, franchise taxes, gift
taxes, capital stock taxes, other taxes applied or measured
by Lessor's net income, and any items included as Operating
Expenses (defined below).
C. The term "Operating Expenses" shall mean and include all
expenses incurred with respect to the maintenance and
operation of the Property and the Complex as determined by
Lessor's accountant in accordance with generally accepted
accounting principles consistently followed, including, but
not limited to, insurance premiums, maintenance and repair
costs, steam, electricity, water, sewer, gas and other utility
charges, fuel, lighting (including the tubes, ballasts and
starter of florescent parabolic lights), window washing and
janitorial services, trash and rubbish removal, wages payable
to employees of Lessor (below the grade of building
superintendent whose duties are
- 2 -
<PAGE> 3
connected with the operation and maintenance of the Property
and the Complex (but only for the portion of their time
allocable to work related to the Complex), amounts paid to
contractors or subcontractors for work or services performed
in connection with the operation and maintenance of the
Property and the Complex, all costs of uniforms, supplies and
materials used in connection with the operation and
maintenance of the Property and the Complex, all payroll
taxes, unemployment insurance costs, vacation allowances and
the cost of providing disability insurance or benefits,
pensions, profit sharing benefits, hospitalization, retirement
or other so-called fringe benefits, and any other expense
imposed on Lessor or its contractors or subcontractors,
pursuant to law or pursuant to any collective bargaining
agreement covering such employees, all services, supplies,
repairs, replacements or other expenses for maintaining and
operating the Complex, reasonable attorneys' fees and costs in
connection with appeal or contest of real estate taxes or
levies, and such other expenses as may be ordinarily incurred
in the operation and maintenance of a commercial
office/warehouse complex and not specifically set forth
herein, including reasonable management fees (not to exceed
3.5% of the total Base Rent and other charges to be paid by
Lessee each Lease Year) and the costs of a building office at
the Complex. The term "Operating Expenses" shall not include
any capital improvement to the Complex other than replacements
required for normal maintenance and repair, nor shall it
include repairs, restoration or other work occasioned by fire,
windstorm or other insured casualty, expenses incurred in
leasing or procuring tenants, leasing commissions, advertising
expenses, expenses for renovating space for new tenants, legal
expenses incident to enforcement or negotiation by Lessor of
the terms of any lease, interest or principal payments on any
mortgage or other indebtedness of Lessor, compensation paid to
any employee of Lessor above the grade of building
superintendent, depreciation allowance or expense, any bad
debt loss, rent loss or reserves for bad debt losses or rent
losses, the costs of any services sold or provided to other
tenants or occupants but not to Lessee, or any expense
incurred due to Lessor's gross negligence or willful
misconduct. Notwithstanding the foregoing, in the event Lessor
installs equipment in or makes improvements or alterations to
the Complex which are for the purpose of reducing energy
costs, maintenance costs or other Operating Expenses or which
are required under any governmental laws, regulations or
ordinances which were not required at the date of commencement
of the term of this Lease, Lessor may include in Operating
Expenses reasonable charges for interest on such investment
and reasonable charges for depreciation on the same so as to
amortize such investment over the reasonable life of such
equipment, improvement or alteration on a straight line basis;
however, any charges related to improvements or alterations
for the purpose of reducing energy costs shall be limited, in
any given Lease Year, to the reasonably estimated savings
which result. Operating Expenses shall also be deemed to
include expenses incurred by Lessor in connection with city
sidewalks adjacent to the Property and any pedestrian walkway
system (either above or below ground) or other public facility
to which Lessor or the Complex is from time to time subject in
connection with operations of the Property and the Complex. In
the event Lessor includes
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<PAGE> 4
"Phase II, (as designated on the site plan) as part of the
Complex, the "Operating Expenses" for any leasable buildings
contained within "Phase II" shall not be included in the
Operating Expenses allocable to Lessee, although all
"Operating Expenses" related to all other portions of the
Complex may be included in Operating Expenses and allocated
proportionately.
D. The term "Lessee's Pro Rata Share of Real Estate Taxes" shall
mean fifty-three and 97/100 percent (53.97%) of the Real
Estate Taxes for the applicable Lease Year, and the term
"Lessee's Pro Rata Share of Operating Expenses" shall mean
fifty-three and 97/100 percent (53.97%) of the Operating
Expenses for the applicable Lease Year. Said percentages have
been estimated based upon a ratio of $66,000 sq. ft. to
122,300 sq. ft. (i.e., the rentable area of the Premises to
the rentable area of the Complex); however, each area amount
shall be subject to adjustment, pursuant to Article XXIX of
Exhibit C. Further, although said percentages shall be deemed
to have been agreed upon by the parties hereto after due
consideration of the rentable area of the Premises compared to
the rentable area of the Complex; the percentages for Lessee's
Pro Rata Share of Operating Expenses and for Lessee's Pro Rata
Share of Real Estate Taxes shall be amended each Lease Year to
the greater of the following: (i) if the total rentable area
leased in the Complex (pursuant to leases under which the term
has commenced) is ninety-five percent (95%) or less than the
total rentable area of the Complex, the percentages shall be
that which the rentable area of the Premises bears to
ninety-five percent (95%) of the total rentable area of the
Complex for such Lease Year; or (ii) if the total rentable
area leased in the Complex (pursuant to leases under which the
term has commenced) is greater than ninety-five percent (95%),
the percentages shall be that which the rentable area of the
Premises bears to the actual rentable area of the Complex for
such Lease Year. Rentable area shall include the exterior wall
of the building in which the Premises is to be located but
shall in no event include basement storage space or garage
space.
E. Anything herein to the contrary notwithstanding, it is agreed
that in the event the Complex is not fully occupied during any
calendar year or Lease Year, a reasonable and equitable
adjustment shall be made by Lessor in computing the Operating
Expenses for such year so that the Operating Expenses shall be
adjusted to the amount that would have been incurred had the
Complex been fully occupied during such year.
As to each Lease Year after the term of this Lease commences, Lessor
shall estimate for each such Lease Year (i) the total amount of Real Estate
Taxes; (ii) the total amount of Operating Expenses; (iii) Lessee's Pro Rata
Share of Real Estate Taxes; (iv) Lessee's Pro Rata Share of Operating Expenses;
(v) the computation of the annual and monthly rental payable during such Lease
Year as a result of increases or decreases in Lessee's Pro Rata Share of Real
Estate Taxes and Lessee's Pro Rata Share of Operating Expenses. Said estimate
shall be in writing and shall be delivered or mailed to Lessee at the Premises.
Lessee shall pay, as Additional Rent, the amount of Lessee's Pro Rata
Share of Real Estate Taxes for each Lease Year and Lessee's Pro Rata Share of
Operating Expenses for each Lease Year, so estimated, in equal monthly
installments, in advance, on the first day of each month during each applicable
Lease Year.
-4-
<PAGE> 5
In the event that said estimate is delivered to Lessee after the first day of
January of the applicable Lease Year, said amount, so estimated, shall be
payable as Additional Rent, in equal monthly installments, in advance, on the
first day of each month over the balance of such Lease Year, with the number of
installments being equal to the number of full calendar months remaining in such
Lease Year.
From time to time during any applicable Lease Year, Lessor may
reestimate the amount of Real Estate Taxes and Operating Expenses and Lessee's
Pro Rata Share thereof, and in such event Lessor shall notify Lessee, in
writing, of such reestimate in the manner above set forth and fix monthly
installments for the then remaining balance of such Lease Year in an amount
sufficient to pay the reestimated amount over the balance of such Lease Year
after giving credit for payments made by Lessee on the previous estimate.
Upon completion of each Lease Year, Lessor shall cause its accountants
to determine the actual amount of Real Estate Taxes and Operating Expenses for
such Lease Year and Lessee's Pro Rata Share thereof and deliver a written
certification of the amounts thereof to Lessee after the end of each Lease Year.
If Lessee has paid less than its Pro Rata Share of Real Estate Taxes or its Pro
Rata Share of Operating Expenses for any Lease Year, Lessee shall pay the
balance of its Pro Rata Share of the same within thirty (30) days after the
receipt of such statement. If Lessee has paid more than its Pro Rata Share of
Real Estate Taxes or its Pro Rata Share of Operating Expenses for any Lease
Year, Lessor shall, at Lessee's option, either (i) refund such excess, or (ii)
credit such excess against the most current monthly installment or installments
due Lessor for its estimate of Lessee's Pro Rata Share of Real Estate Taxes and
Lessee's Pro Rata Share of Operating Expenses for the next following Lease Year.
A pro rata adjustment shall be made for a fractional Lease Year occurring during
the term of this Lease or any renewal or extension thereof based upon the number
of days of the term of this Lease during said Lease Year as compared to three
hundred sixty-five (365) days and all additional sums payable by Lessee or
credits due Lessee as a result of the provisions of this Article II shall be
adjusted accordingly. After the first Lease Year containing twelve (12) full
calendar months, Lessee's Pro Rata Share of "controllable" Operating Expenses
thereafter, for any given Lease Year, shall not exceed the "cap". For these
purposes (i) "controllable" Operating Expenses shall mean those Operating
Expenses which are subject to Lessor's control and discretion, and (ii) the
"cap" for any "controllable" Operating Expense shall mean 105%, multiplied by
the amount of the "controllable" Operating Expense in said first Lease Year,
multiplied by the number of Lease Years since said first Lease Year. Examples of
Operating Expenses which are not "controllable" include taxes, insurance
premiums and utility costs.
Further, Lessee shall pay, also as Additional Rent, all other sums and
charges required to be paid by Lessee under this Lease, and any tax or excise on
rents, gross receipts tax, transaction privilege tax or other tax, however
described, which is levied or assessed by the United States of America or the
state in which the Complex is located or any political subdivision thereof, or
any city or municipality, against Lessor in respect to the Base Rent, Additional
Rent, or other charges reserved under this Lease or as a result of Lessor's
receipt of such rents or other charges accruing under this Lease; provided,
however, Lessee shall have no obligation to pay net income taxes of Lessor.
ARTICLE III. LATE CHARGE AND OVERDUE AMOUNTS - RENT INDEPENDENT: Lessee shall
pay to Lessor, as liquidated damages, a late charge equal to five percent (5%)
of any amount not paid on or before
- 5 -
<PAGE> 6
five (5) days after the date when the same is due to compensate Lessor for its
costs in connection with such late payment by Lessee. The assessment or
collection of a late charge hereunder shall not constitute the waiver by Lessor
of a default by Lessee under this Lease and shall not bar the exercise by Lessor
of any rights or remedies available under this Lease. In addition, any
installment of Base Rent, Additional Rent or other charges to be paid by Lessee
accruing under the provisions of this Lease, which shall not be paid when due,
shall bear interest at the rate of fifteen percent (15%) per annum from the date
when the same is due until the same shall be paid, but if such rate exceeds the
maximum interest rate permitted by law, such rate shall be reduced to the
highest rate allowed by law under the circumstances. Lessee's covenants to pay
the Base Rent and the Additional Rent are independent of any other covenant,
condition, provision or agreement herein contained. Nothing herein contained
shall be deemed to suspend or delay the payment of any amount of money or charge
at the time the same becomes due and payable hereunder, or limit any other
remedy of Lessor. Base Rent and Additional Rent are sometimes collectively
referred to as "rent". Rent shall be payable without deduction, offset, prior
notice or demand, in lawful money of the United States.
ARTICLE IV. POSSESSION OF PREMISES: If Lessor shall be unable to give possession
of the Premises on the date of the commencement of the term because the
construction of the Complex or the completion of the Premises has not been
sufficiently completed to make the Premises ready for occupancy, or for any
other reason, Lessor shall not be subject to any claims, damages or liabilities
for the failure to give possession on said date except as expressly set forth
below. Under said circumstances, the rent reserved and covenant to pay same
shall not commence until possession of the Premises is given or the Premises are
ready for occupancy, whichever is earlier. Failure to give possession on the
date of commencement of the term shall in no way affect the validity of this
Lease or the obligations of Lessee hereunder; provided, however, that if the
date of commencement of the initial term is delayed beyond the scheduled
commencement date, the expiration date of the initial term shall be extended to
provide for a full ten-year initial term of this Lease; and provided further (a)
that for every two (2) days' delay in Lessor's delivery of possession (other
than for reasons beyond Lessor's control including force majeure) after MARCH 1,
1997 BUT BEFORE APRIL 1, 1997, and (b) that for every one (1) day delay in
Lessor's delivery of possession (other than for reasons beyond Lessor's control
including force majeure) after APRIL 1, 1997, Lessee shall be entitled to a
credit equal to one (1) day of Base Rent, not to exceed ninety (90) total days
of credit against Base Rent, to be applied to the Base Rent first due hereunder.
If for any reason whatsoever Lessor fails to substantially complete the Premises
and deliver possession thereof to Lessee by DECEMBER 1, 1997, then at any time
thereafter, Lessee may cancel this Lease by giving written notice to Lessor of
such cancellation. If Lessee is given and accepts possession of the Premises on
a date earlier than the date above specified for commencement of the term, the
rent reserved herein and all covenants, agreements and obligations herein and
the term of this Lease shall commence on the date that possession of the
Premises is given to Lessee.
Subject to the express warranty provided in Article XXVIII of Exhibit
C, the acceptance of possession by Lessee shall be deemed conclusively to
establish that the Premises and all other improvements of the Complex required
to be constructed by Lessor for use thereof by Lessee hereunder have been
completed at such time to Lessee's satisfaction and in conformity with the plans
approved by Lessee for the Tenant Improvements, pursuant to Article XXIII, of
Exhibit C, unless Lessee notifies Lessor in writing within sixty (60) days after
commencement of the term as
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<PAGE> 7
to any items not completed. Lessee acknowledges that neither Lessor nor any
agent of Lessor has made any representation or warranty with respect to the
Premises or the Complex or with respect to the suitability or fitness of either
for the conduct of Lessee's business or for any other purpose.
ARTICLE V. SERVICES:
A. All electric lighting bulbs and tubes and all ballasts and
starters within the Premises shall be replaced by Lessee at
the expense of Lessee.
B. Subject to Article II hereof, Lessor shall provide maintenance
in good order, condition and repair of the common area of the
Complex, including, without limitation, the parking facilities
and all driveways leading thereto and keeping the same free
from any unreasonable accumulation of snow. Lessor shall keep
and maintain the landscaped area and parking facilities in a
neat and orderly condition. Lessor reserves the right to
designate areas of the appurtenant parking facilities where
Lessee and its agents, employees and invitees shall park and
may exclude Lessee, its agents, employees and invitees from
parking in other areas as designated by Lessor; provided,
however, Lessor shall not be liable to Lessee for the failure
of any tenant or its invitees, employees, agents or customers
to abide by Lessor's designations or restrictions.
No interruption in, or temporary stoppage of, any of the aforesaid
services caused by repairs, renewals, improvements, alterations, strikes,
lockouts, labor controversies, accidents, inability to obtain fuel or supplies,
or other causes shall be deemed an eviction or disturbance of Lessee's use and
possession, or render Lessor liable for damages, by abatement of rent or
otherwise or relieve Lessee from any obligation herein set forth. In no event
shall Lessor be required to provide any heat, air conditioning, electricity or
other service in excess of that permitted by voluntary or involuntary guidelines
or laws, ordinances or regulations of governmental authority.
ARTICLE VI. USE: The Premises shall be used for general office purposes, light
assembly and for carrying on such activities as may be incidental thereto and
for no other purpose; provided, however, Lessee may not use or occupy the
Premises, or knowingly permit the Premises to be used or occupied, contrary to
any statute, rule, order, ordinance, requirement or regulation or any covenant,
condition or restriction now or hereafter applicable thereto, or in any manner
which would violate any certificate of occupancy or permit affecting the same,
or which would cause structural injury to the Premises or cause the value or
usefulness of the Premises, or any part thereof, substantially to diminish
(reasonable wear and tear excepted) or which would constitute a private or
public nuisance or waste, and Lessee agrees that it will promptly, upon
discovery of any such use, take all necessary steps to compel the discontinuance
of such use.
ARTICLE VII. CERTAIN RIGHTS RESERVED BY LESSOR: Lessor reserves the following
rights exercisable without notice and without liability to Lessee and without
effecting an eviction, constructive or actual, or disturbance of Lessee's use or
possession, or giving rise to any claim for setoff or abatement of rent:
A. To control, install, affix and maintain any and all signs on
the Property, or on the exterior of the Complex and in any
common corridors, entrances and other common areas thereof,
except those signs within the Premises not visible from
outside the Premises.
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B. To reasonably designate, limit, restrict and control any
service in or to the Complex, including but not limited to the
designation of sources from which Lessee may obtain sign
painting and lettering. Any restriction, designation,
limitation or control imposed by reason of this subparagraph
shall be imposed uniformly on Lessee and other tenants
occupying space in the Complex.
C. To retain at all times and to use in appropriate instances
keys to all doors within and into the Premises. No locks shall
be changed without the prior written consent of Lessor. This
provision shall not apply to Lessee's safes or other areas
maintained by Lessee for the safety and security of monies,
securities, negotiable instruments or like items.
D. To make repairs, improvements, alterations, additions or
installations, whether structural or otherwise, in and about
the Complex, or any part thereof, and for such purposes upon,
reasonable notice to Lessee, to enter upon the Premises, and
during the continuation of any of said work, to temporarily
close doors, entryways, public spaces and corridors in the
Complex and to interrupt or temporarily suspend services and
facilities.
E. To approve the weight, size and location of safes and other
heavy equipment and articles in and about the Premises and the
Complex and to require all such items to be moved into and out
of the Complex and the Premises only at such times and in such
manner as Lessor shall direct in writing.
ARTICLE VIII. ALTERATIONS AND IMPROVEMENTS: Lessee shall not make any
improvements, alterations, additions or installations in or to the Premises in
excess of $10,000.00 (hereinafter referred to as the "Work") without Lessor's
prior written consent, which consent may be withheld in Lessor's sole
discretion. Along with any request for Lessor's consent and before commencement
of the Work or delivery of any materials to be used in the Work to the Premises
or into the Complex, Lessee shall furnish Lessor with plans and specifications,
names and addresses of contractors, copies of contracts, necessary permits and
licenses, an indemnification in such form and amount as may be reasonably
satisfactory to Lessor and a performance bond executed by a commercial surety
reasonably satisfactory to Lessor in an amount equal to the cost of the Work and
for the payment of all liens for labor and material arising therefrom. The bond
required by the preceding sentence shall not be required if the cost of the Work
is less than $100,000.00. Lessee agrees to defend and hold Lessor forever
harmless from any and all claims and liabilities of any kind and description
which may arise out of or be connected in any way with said improvements,
alterations, additions or installations. All Work shall be done only by
contractors or mechanics reasonably approved by Lessor and at such time and in
such manner as Lessor may from time to time reasonably designate. All work done
by Lessee or its agents, employees or contractors shall be done in such a manner
as to avoid labor disputes. Lessee shall pay the cost of all such improvements,
alterations, additions or installations (including, if the cost of the Work
exceeds $100,000.00, a reasonable charge for Lessor's services and for Lessor's
inspection and engineering time) and the cost of painting, restoring or
repairing the Premises and the Complex occasioned by such improvements,
alterations, additions or installations. Upon completion of the Work, Lessee
shall furnish Lessor with contractor's affidavits, full and final waivers of
liens and receipted bills covering all labor and materials expended and used.
The Work shall comply
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with all insurance requirements and all laws, ordinances, rules and regulations
of all governmental authorities and shall be constructed in a good and
workmanlike manner. Lessee shall permit Lessor to inspect construction
operations in connection with the Work. Lessee shall not be allowed to make any
improvements, alterations, additions or installations if such action results or
would result in a labor dispute or otherwise would materially interfere with
Lessor's operation of the Complex. Lessor, by written notice to Lessee given at
or prior to termination of this Lease, may require Lessee, at Lessee's sole cost
and expense, to remove any improvements, alterations, additions or installations
installed by Lessee in the Premises and to repair or restore any damage caused
by the installation and removal of such improvements, alterations, additions or
installations; provided, however, the only improvements, additions or
installations which Lessee shall remove shall be those specified in Lessor's
notice. Lessee shall keep the Premises and the Complex free from any liens
arising out of any work performed, material furnished or obligations incurred by
Lessee, and shall indemnify, protect, defend and hold harmless Lessor from any
liens and encumbrances arising out of any work performed or material furnished
by or at the direction of Lessee. In the event that Lessee shall not, within
twenty (20) days following the imposition of any such lien, cause such lien to
be released of record by payment or posting of a proper bond, Lessor shall have,
in addition to all other remedies provided herein and by law, the right, but not
the obligation, to cause the same to be released by such means as it shall deem
proper, including payment of and/or defense against the claim giving rise to
such lien. All such sums paid by Lessor and all expenses incurred by it in
connection therewith, including attorneys' fees and costs, shall be payable as
Additional Rent to Lessor by Lessee on demand with interest at the rate provided
in Article III accruing from the date paid or incurred by Lessor until
reimbursed to Lessor by Lessee.
ARTICLE IX. REPAIRS: Subject to Article X hereof, Lessee shall, during the term
of this Lease, at Lessee's expense, keep the Premises in as good order,
condition and repair as they were at the time Lessee took possession of the
same, reasonable wear and tear and damage from fire and other casualties
excepted. Lessee shall keep the Premises in a neat and sanitary condition, and
Lessee shall not commit any nuisance or waste on the Premises or in, on or about
the Complex, throw foreign substances in the plumbing facilities, or waste any
of the utilities furnished by the Lessor. All uninsured damage or injury to the
Premises or to the Complex caused by Lessee moving furniture, fixtures,
equipment or other devices in or out of the Premises or the Complex or by
installation or removal of furniture, fixtures, equipment, devices or other
property of Lessee or its agents, contractors, servants or employees, due to
carelessness, omission, neglect, improper conduct or other cause of Lessee or
its servants, employees, agents, visitors or licensees, shall be repaired,
restored and replaced promptly by Lessee at its sole cost and expense to the
satisfaction of Lessor. All repairs, restorations and replacements shall be in
quality and class equal to the original work.
Lessor and its employees and agents shall have the right to enter the
Premises during or as a result of any emergency, or at any reasonable time or
times (upon twenty-four (24) hours notice) for the purpose of inspection,
cleaning, repairs, altering or improving the same but nothing contained herein
shall be construed as imposing any obligation on Lessor to make any repairs,
alterations or improvements which are the obligation of Lessee.
Lessee shall give written notice to Lessor at least thirty (30) days
prior to vacating the Premises for the express purpose
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<PAGE> 10
of arranging a meeting with Lessor for a joint inspection of the Premises. In
the event of Lessee's failure to give such notice and arrange such joint
inspection, then Lessor shall notify Lessee of a date, no earlier than five (5)
after Lessor's notice on which such joint inspection shall be held, and if
Lessee fails to appear at such scheduled inspection, Lessor's inspection at or
after Lessee's vacation of the Premises shall be conclusively deemed correct for
purposes of determining Lessee's responsibility for repairs and restoration
hereunder.
ARTICLE X. INSURANCE AND INDEMNITY: Lessor shall keep the Complex insured for
the benefit of Lessor in an amount equivalent to the full replacement value
thereof (excluding foundation, grading and excavation costs) against:
(a) loss or damage by fire; and
(b) such other risk or risks of a similar or dissimilar nature as are
now or may be customarily covered with respect to buildings and improvements
similar in construction, general location, use, occupancy and design to the
Complex, including, but without limiting the generality of the foregoing,
windstorms, hail, explosion, vandalism, malicious mischief, civil commotion and
such other coverage as may be deemed necessary by Lessor, provided such
additional coverage is obtainable and provided such additional coverage is such
as is customarily carried with respect to buildings and improvements similar in
construction, general location, use, occupancy and design to the Complex.
These insurance provisions shall in no way limit or modify any of the
obligations of Lessee under any provision of this Lease. Lessor agrees that such
policy or policies of insurance shall permit releases of liability as provided
herein and/or waiver of subrogation clause as to Lessee, and Lessor waives,
releases and discharges Lessee from all claims or demands whatsoever which
Lessor may have or acquire arising out of damage to or destruction of the
Complex or loss of use thereof occasioned by fire or other casualty, whether
such claim or demand may arise because of the negligence or fault of Lessee or
its agents, employees, customers or business invitees, or otherwise, and Lessor
agrees to look to the insurance coverage only in the event of such loss.
Insurance premiums paid thereon shall be a portion of the "Operating Expenses"
described in Article II hereof. Notwithstanding the above, in the event a
release of Lessee or waiver of subrogation as to Lessee (without invalidation of
coverage) becomes generally unavailable in insurance policies as to commercial
office/warehouse projects similar to the Complex, the release and any waiver of
subrogation above provided for shall cease upon written notice by Lessor to
Lessee of such event. Thereafter, Lessee may, upon written notice to Lessor,
require Lessor to secure a waiver of subrogation as to Lessee if (a) a right to
waive subrogation as to Lessee thereafter becomes available without increased
premium, or (b) a right to waive subrogation as to Lessee becomes available and
Lessee pays any increased premium required in connection therewith.
Lessee shall keep all of its machinery, equipment, furniture, fixtures,
personal property (including also property under the care, custody or control of
Lessee) and business interests which may be located in, upon or about the
Premises insured for the benefit of Lessee in an amount equivalent to the full
replacement value or insurable value thereof against:
(a) loss or damage by fire; and
(b) such other risk or risks of a similar or dissimilar nature as are
now, or may in the future be, customarily covered with respect to a tenant's
machinery, equipment, furniture,
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<PAGE> 11
fixtures, personal property and business located in a building similar in
construction, general location, use, occupancy and design to the Complex,
including, but without limiting the generality of the foregoing, windstorms,
hail, explosions, vandalism, theft, malicious mischief, civil commotion and such
other coverage as Lessee may deem appropriate or necessary.
Lessee shall be permitted to "self-insure" or to establish deductible
limits under such policies, provided, however, that the amount of such retained
risk shall not exceed, at any time, ten percent (10%) of Lessee's Tangible Net
Worth (defined in Article XX of Exhibit C), as the same may change from time to
time. Lessee agrees that such policy or policies of insurance shall permit
releases of liability as provided herein and/or waiver of subrogation clause as
to Lessor, and Lessee waives, releases and discharges Lessor and its agents,
employees and contractors from all claims or demands whatsoever which Lessee may
have or acquire arising out of damage to or destruction of the machinery,
equipment, furniture, fixtures, personal property and loss of use thereof
occasioned by fire or other casualty, whether such claim or demand may arise
because of the negligence or fault of Lessor or its agents, employees,
contractors or otherwise, and Lessee agrees to look to the insurance coverage
only in the event of such loss.
Lessor shall, as a portion of the Operating Expenses defined in Article
II, maintain, for its benefit and the benefit of its managing agent, general
public liability insurance against claims for personal injury, death or property
damage occurring upon, in or about the Complex, such insurance to afford
protection to Lessor and its managing agent in such amounts as Lessor deems
commercially reasonable and comparable to the amounts maintained for projects
similar to the Complex, but in no event less than $2,000,000.00 of total
insurance coverage for the commercial general liability policy.
Lessee shall, at Lessee's sole cost and expense but for the mutual
benefit of Lessor, its managing agent and Lessee, maintain general public
liability insurance against claims for personal injury, death or property damage
occurring upon, in or about the Premises, such insurance to afford protection to
Lessor, its managing agent and Lessee to the limit of not less than One Million
and No/100 Dollars ($1,000,000.00) in respect to the injury or death to a single
person, and to the limit of not less than Three Million and No/100 Dollars
($3,000,000.00) in respect to any one accident, and to the limit of not less
than Five Hundred Thousand and No/100 Dollars ($500,000.00) in respect to any
property damage. Such policies of insurance shall be written in companies
reasonably satisfactory to Lessor, naming Lessor and its managing agent as
additional insureds thereunder, and such policies, or a memorandum or
certificate of such insurance, shall be delivered to Lessor endorsed "Premium
Paid" by the company or agent issuing the same or accompanied by other evidence
satisfactory to Lessor that the premium thereon has been paid. At such time as
insurance limits required of tenants in office/warehouse buildings in the area
in which the Complex is located are generally increased to greater amounts,
Lessor shall have the right to require such greater limits as may then be
customary. Lessee agrees to include in such policy the contractual liability
coverage insuring Lessee's indemnification obligations provided for herein. Any
such coverage shall be deemed primary to any liability coverage secured by
Lessor. Such insurance shall also afford coverage for all claims based upon
acts, omissions, injury or damage, which claims occurred or arose (or the onset
of which occurred or arose) in whole or in part during the policy period.
Lessor agrees to indemnify and save Lessee harmless against and from
any and all claims, loss, damage and expense by or on
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behalf of any person or persons, firm or firms, corporation or corporations,
arising from any breach or default on the part of Lessor in the performance of
any covenant or agreement on the part of Lessor to be performed, pursuant to the
terms of this Lease, or arising from any negligence or wilful misconduct on the
part of Lessor or arising from any accident, injury or damage to the extent
caused by the negligence or wilful misconduct of Lessor to any person, firm or
corporation occurring during the term of this Lease or any renewal thereof, in
or about the Premises and the Office Complex, and from and against all costs,
reasonable counsel fees, expenses and liabilities incurred in or about any such
claim or action or proceeding brought thereon; and in case any such action or
proceeding be brought against Lessee by reason of any such claim, Lessor, upon
notice from Lessee, covenants to resist or defend such action or proceeding by
counsel reasonably satisfactory to Lessee; provided, however, that
notwithstanding anything to the contrary contained in the Article, Lessor shall
not be liable for, and Lessor shall not indemnify Lessee against or from, any
consequential damages of Lessee, which shall include without limitation any loss
of business or loss of profits.
Lessee agrees to indemnify, protect, defend and hold harmless Lessor
and Lessor's partners, shareholders, employees, lender and managing agent
harmless from and against any and all claims, losses, costs, liabilities,
actions and damages, including without limitation attorneys' fees and costs, by
or on behalf of any person or persons, firm or firms, corporation or
corporations, arising from any breach or default on the part of Lessee in the
performance of any covenant or agreement an the part of Lessee to be performed,
pursuant to the terms of this Lease, or arising from any act or negligence on
the part of Lessee or its agents, contractors, servants, employees or licensees,
or arising from any accident, Injury or damage to the extent caused by Lessee or
its agents or employees to any person, firm or corporation occurring during the
term of this Lease or any renewal thereof, in or about the Premises and the
Complex, and from and against all costs, reasonable counsel fees, expenses and
liabilities incurred in or about any such claim or action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor or its
managing agent by reason of any such claim, Lessee, upon notice from Lessor,
covenants to resist or defend such action or proceeding by counsel reasonably
satisfactory to Lessor.
Lessee agrees, to the extent not expressly prohibited by law, and
except in the event of the negligence or willful misconduct of Lessor, that
Lessor and Lessor's agents, employees and servants shall not be liable, and
Lessee waives all claims for damage to property and business sustained during
the term of this Lease by Lessee occurring in or about the Complex, resulting
directly or indirectly from any existing or future condition, defect, matter or
thing in the Premises, the Complex or any part thereof, or from equipment or
appurtenances becoming out of repair, or from accident, or from any occurrence
or act or omission of Lessor, Lessor's agents, employees or servants, any tenant
or occupant of the Complex or any other person. This paragraph shall apply
especially, but not exclusively, to damage caused as aforesaid or by the
flooding of basements or other subsurface areas, or by refrigerators, sprinkling
devices, air conditioning apparatus, water, snow, frost, steam, excessive heat
or cold, falling plaster, broken glass, sewage, gas, odors or noise, or the
bursting or leaking of pipes or plumbing fixtures, and shall apply equally,
whether any such damage results from the act or omission of other tenants or
occupants in the Complex or any other persons, and whether such damage be caused
by or result from any of the aforesaid, or shall be caused by or result from
other circumstances of a similar or dissimilar nature.
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Anything herein to the contrary notwithstanding, in the event any
damage Lo the Complex results from any act or omission of Lessee, its agents,
employees or invitees, and all or any portion of Lessor's loss is within the
"deductible" portion of Lessor's insurance coverage, Lessee shall pay to Lessor
the amount of such deductible loss (not to exceed $1,000 per event). All
property in the Complex or on the Premises belonging to Lessee or its agents,
employees or invitees or otherwise located at the Premises, shall be at the risk
of Lessee only, and Lessor shall not be liable for damage thereto or theft,
misappropriation or loss thereof, and Lessee agrees to defend and hold Lessor
and Lessor's agents, employees and servants harmless and indemnify them against
claims and liability for injuries to such property. Lessee shall not do or
permit anything to be done In or about the Premises nor bring or keep anything
therein which will in any way increase the existing rate of or affect in any
other way any fire or other insurance upon the Complex or any of its contents,
or cause a cancellation of any insurance policy covering the Complex or any of
its contents. Notwithstanding anything to the contrary contained herein, Lessee
shall promptly, upon demand, reimburse Lessor for the full amount of any
additional premium charged for such policy by reason of Lessee's failure to
comply with the provisions of this paragraph, it being understood that such
demand for reimbursement shall not be Lessor's exclusive remedy. Lessee shall
promptly, upon demand, reimburse Lessor for any additional premium charged for
any such policy by reason of Lessee's failure to comply with the provisions of
this Article.
In the event Lessee fails to provide Lessor with evidence of insurance
required under this Article X, upon three (3) business days' notice to Lessee,
Lessor may, but shall not be obligated to, without further demand upon Lessee,
and without waiving or releasing Lessee from any obligation contained in this
Lease, obtain such insurance and Lessee agrees to repay, upon demand, all such
sums incurred by Lessor in effecting such insurance- All such sums shall become
a part of the Additional Rent payable hereunder, but no such payment by Lessor
shall relieve Lessee from any default under this Lease.
ARTICLE XI. ASSIGNMENT A14D SUBLETTING: Lessee shall not, without the prior
written consent of Lessor, (I) transfer, pledge, mortgage or assign this Lease
or any interest hereunder; (II) permit any assignment of this Lease by voluntary
act, operation of law or otherwise; (iii) sublet the Premises or any part
thereof; or (iv) permit the use of the Premises by any parties other than Lessee
and its agents and employees. Notwithstanding the foregoing, a sublease to a
subsidiary of Lessee, or an arrangement resulting from a merger or
reorganization in which the surviving entity has a "Tangible Net Worth" (defined
in Article XX, Exhibit C) of not less than Lessee's immediately prior to the
merger or reorganization, shall not require the consent of Lessor. Lessee shall
seek such written consent of Lessor by a written request therefor, setting forth
such information as Lessor may deem necessary. Lessee shall, by notice in
writing, advise Lessor of Lessee's intention, from, on and after a stated date
(which shall not be less than thirty (30) days after the date of Lessee's
notice), to assign this Lease or to sublet any part or all of the Premises for
the balance or any part of the term. Lessee's notice shall include all of the
terms of the proposed assignment or sublease and shall state the consideration
therefor. In such event, Lessor shall have the right, to be exercised by giving
written notice to Lessee within thirty (30) days after receipt of Lessee's
notice, to recapture the space described in Lessee's notice and such recapture
notice shall, if given, cancel and terminate this Lease with respect to the
space therein described as of the date stated in Lessee's notice. Lessee's
notice shall state the name and address of the proposed assignee or subtenant
and a true and complete copy of the proposed assignment or sublease shall be
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delivered to Lessor with Lessee's notice. If Lessee's notice shall cover all of
the Premises, and Lessor shall have exercised its foregoing recapture right, the
term of this Lease shall expire and end on the date stated in Lessee's notice as
fully and completely as if that date had been herein definitely fixed for the
expiration of the term. If, however, this Lease be canceled with respect to less
than the entire Premises, the Base Rent and Additional Rent shall be equitably
adjusted by Lessor with due consideration of the size, location, type and
quality of the portion of the Premises so remaining after the "recapture" and
such rent shall be reduced accordingly from and after the termination date for
said portion, and this Lease as so amended shall continue thereafter in full
force and effect. The rent adjustments provided for herein shall be evidenced by
an amendment to this Lease executed by Lessor and Lessee. If this Lease shall be
terminated in the manner aforesaid, either as to the entire Premises or only a
portion thereof, to such extent the term of this Lease shall end upon the
appropriate effective date of the proposed sublease or assignment as if that
date had been originally fixed in this Lease for such expiration, and in the
event of a termination affecting less than the entire Premises, Lessee shall
comply with Article XIV ("Surrender of Premises") of this Lease with respect to
such portion of the Premises affected thereby.
If Lessor, upon receiving Lessee's notice with respect to any such
space, shall not exercise its right to recapture as aforesaid, Lessor will not
unreasonably withhold its consent to Lessee's assignment of the Lease or
subletting such space to the party identified in Lessee's notice, provided,
however, that in the event Lessor consents to any such assignment or subletting,
and as a condition thereto, Lessee shall pay to Lessor fifty percent (50%) of
all profit derived by Lessee from such assignment or subletting. For purposes of
the foregoing, profit shall be deemed to include, but shall not be limited to,
the amount of all rent payable by such assignee or sublessee in excess of the
Base Rent, and rent adjustments, payable by Lessee under this Lease. If a part
of the consideration for such assignment or subletting shall be payable other
than in cash, the payment to Lessor shall be in cash for its share of any
non-cash consideration based upon the fair market value thereof.
Lessee shall and hereby agrees that it will furnish to Lessor upon
request from Lessor a complete statement, certified by an independent certified
public accountant, setting forth in detail the computation of all profit derived
and to be derived from such assignment or subletting, such computation to be
made in accordance with generally accepted accounting principles. Lessee agrees
that Lessor and its authorized representatives shall be given access at all
reasonable times to the books, records and papers of Lessee relating to any such
assignment or subletting, and Lessor shall have the right to make copies
thereof. The percentage of Lessee's profit due Lessor hereunder shall be paid by
Lessee to Lessor within ten (10) days of receipt by Lessee of all payments made
from time to time by such assignee or sublessee to Lessee.
Any subletting or assignment hereunder shall not release or discharge
Lessee of or from any liability, whether past, present or future, under this
Lease, and Lessee shall continue fully liable thereunder. The subtenant or
subtenants or assignee shall agree in a form satisfactory to Lessor to agree to
be obligated for, comply with, and be bound by all of the terms, covenants,
conditions, provisions and agreements of this Lease to the extent of the space
sublet or assigned, and Lessee shall deliver to Lessor promptly after execution
an executed copy of each such sublease or assignment and an agreement of
compliance by each such subtenant or assignee. Consent by Lessor to any
assignment of this Lease or to any subletting of the Premises shall not be a
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waiver of Lessor's rights under this Article as to any subsequent assignment or
subletting.
Any sale, assignment, mortgage, transfer or subletting of this Lease
which is not in compliance with the provisions of this Article XI shall be of no
effect and void. Lessor's right to assign its interest in this Lease shall
remain unqualified, but shall be subject to the provisions of Article XVII.I.,
below. Lessor may make a reasonable charge to Lessee for any reasonable
attorneys' fees or expenses incident to a review of any documentation related to
any proposed assignment or subletting by Lessee.
Notwithstanding anything to the contrary in this Lease, Lessee shall
not assign its rights under this Lease or sublet all or any part of the Premises
to a person, firm or corporation which is (or, immediately prior to such
subletting or assignment, was) a tenant or occupant of the Complex or any
warehouse or office building an property contiguous to the Complex owned by
Lessor.
The consent of Lessor to a transfer may not be unreasonably withheld,
provided that should Lessor withhold its consent for any of the following
reasons, which list is not exclusive, such withholding shall be deemed to be
reasonable:
(a) Financial strength of the proposed transferee is not at least
equal to that of Lessee at the time of execution of this
Lease;
(b) A proposed transferee whose occupation of the Premises would
cause a diminution in the reputation of the Complex or the
other businesses located therein;
(c) A proposed transferee whose impact on the common areas or the
other occupants of the Complex would be disadvantageous; or
(d) A proposed transferee whose occupancy will require any
variation in the terms and conditions of this Lease.
ARTICLE XII. DAMAGE BY FIRE OR OTHER CASUALTY: If fire or other casualty shall
render the whole or any material portion of the Premises untenable, and the
Premises can reasonably be expected to be made tenantable within one hundred
twenty (120) days from the date of such event, then Lessor shall repair and
restore the Premises and the Complex to as near their condition prior to the
fire or other casualty as is reasonably possible within such one hundred twenty
(120) day period (subject to delays for causes beyond Lessor's reasonable
control) and notify Lessee that it will be doing so, such notice to be mailed
within thirty (30) days from the date of such damage or destruction, and this
Lease shall remain in full force and effect, but the rent for the period during
which the Premises are untenantable shall be abated pro rata (based upon the
portion of the Premises which is untenantable); provided however, if such
casualty occurs within the last two (2) years of the term of this Lease (as the
same may be extended), Lessee shall have the right to terminate this Lease by
notice given to Lessor within thirty (30) days of the casualty and such
termination shall be effective thirty (30) days after said notice. If Lessor is
required to repair the Complex and/or the Premises, as aforesaid, said work
shall be undertaken and prosecuted with all due diligence and speed.
It fire or other casualty shall render the whole or any material part
of the Premises untenantable and the Premises cannot reasonably be expected to
be made tenantable within one hundred twenty (120) days from the date of such
event, then either party, by notice in writing to the other mailed within
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thirty (30) days from the date of such damage or destruction, may terminate this
Lease effective upon a date within thirty (30) days from the date of such
notice.
In the event that more than fifty percent (50%) of the value of the
Complex is damaged or destroyed by fire or other casualty, and irrespective of
whether damage or destruction can be made tenantable within one hundred twenty
(120) days thereafter, then at Lessor's option, by written notice to Lessee,
mailed within forty-five (45) days from the date of such damage or destruction,
Lessor may terminate this Lease effective upon a date within thirty (30) days
from the date of such notice to Lessee.
If fire or other casualty shall render any portion of the Premises or
any material portion of the Complex untenantable and the insurance proceeds are
not sufficient to make repairs, then Lessor may, by notice to Lessee, mailed
within thirty (30) days from the date of such damages or destruction, terminate
this Lease effective upon a date within thirty (30) days from the date of such
notice.
If the Premises or the Complex is damaged, and such damage is of the
type insured against under the fire and special form property damage insurance
maintained by Lessor hereunder, the cost of repairing said damage up to the
amount of the deductible under said insurance policy shall be included as a part
of the Operating Expenses. If the damage was due to an act or omission of
Lessee, Lessee shall pay Lessor the difference between the actual cost of repair
and any insurance proceeds received by Lessor.
If fire or other casualty shall render the whole or any material part
of the Premises untenantable and the Premises cannot reasonably be expected to
be made tenantable within one hundred twenty (120) days from the date of such
event and neither party hereto terminates this Lease pursuant to its rights
herein or in the event that more than fifty percent (50%) of the value of the
Complex is damaged or destroyed by fire or other casualty, and Lessor does not
terminate this Lease pursuant to its option granted herein, or in the event that
fifty percent (50%) or less of the value of the Complex is damaged or destroyed
by fire or other casualty and neither the whole nor any material portion of the
Premises is rendered untenantable, then Lessor shall repair and restore the
Premises and the Complex to as near their condition prior to the fire or other
casualty as is reasonably possible with all due diligence and speed (subject to
delays for causes beyond Lessor's reasonable control) and the rent for the
period during which the Premises are untenantable shall be abated pro rata
(based upon the portion of the Premises which is untenantable). In no event
shall Lessor be obligated to repair or restore any special equipment or
improvements installed by Lessee. Anything herein contained to the contrary
notwithstanding, Lessor shall not be obligated to spend more than the net
insurance proceeds available to Lessor on account of any fire or other casualty
in order to repair or restore the Premises or the Complex following such
casualty; provided, however, Lessor shall notify Lessee promptly after the
casualty if Lessor is unwilling to expend more than available net insurance
proceeds.
In the event of a termination of this Lease pursuant to this Article,
rent shall be apportioned on a per them basis and paid to the date of the fire
or other casualty.
ARTICLE XIII. EMINENT DOMAIN: If the whole of or any substantial part of the
Premises is taken by any public authority under the power of eminent domain, or
taken in any manner for any public or quasi-public use, so as to render the
remaining portion of the Premises unsuitable for the purposes intended
hereunder, then the term of this Lease shall cease as of the day possession
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<PAGE> 17
shall be taken by such public authority and Lessor shall make a pro rata refund
of any prepaid rent. All damages awarded for such taking under the power of
eminent domain or any like proceedings shall belong to and be the property of
Lessor, Lessee hereby assigning to Lessor Lessee's interest, if any, in said
award. In the event that fifty percent (50%) or more of the building area or
fifty percent (50%) or more of the value of the Complex is taken by public
authority under the power of eminent domain, then, at Lessor's option, by
written notice to Lessee mailed within sixty (60) days from the date possession
shall be taken by such public authority, Lessor may terminate this Lease
effective upon a date within ninety (90) days from the date of such notice to
Lessee. Further, if the whole of or any material part of the Premises is taken
by public authority under the power of eminent domain, or taken in any manner
for any public or quasi-public use, so as to render the remaining portion of the
Premises unsuitable for the purposes intended hereunder, upon delivery of
possession to the condemning authority pursuant to the proceedings, Lessee may,
at its option, terminate this Lease as to the remainder of the Premises by
written notice to Lessor, such notice to be given to Lessor within thirty (30)
days after Lessee receives notice of the taking. Lessee shall not have the right
to terminate this Lease pursuant to the preceding sentence unless (i) the
business of Lessee conducted in the portion of the Premises taken cannot be
carried on with substantially the same utility and efficiency in the remainder
of the Premises (or any substitute space securable by Lessee pursuant to clause
(ii) hereof); and (ii) Lessee cannot secure substantially similar (in Lessee's
reasonable judgment) alternate space upon the same terms and conditions as set
forth in this Lease (including rental) from Lessor in the Complex. Any notice of
termination shall specify the date no more than sixty (60) days after the giving
of such notice as the date for such termination.
Anything in this Article XIII to the contrary notwithstanding, Lessee
shall have the right to prove in any condemnation proceedings and to receive any
separate award which may be made for damages to or condemnation of Lessee's
movable trade fixture's and equipment and for moving expenses; provided,
however, Lessee shall in no event have any right to receive any award for its
interest in this Lease or for loss of leasehold; and, provided further, Lessee
shall not be entitled to claim any award to the extent the award to Lessor would
be reduced below the amount which would be allowed to Lessor absent such claim
by Lessee. In the event of a partial condemnation of the Complex or the Premises
and this Lease is not terminated, Lessor shall, at its sole cost and expense,
restore the Premises and Complex to a complete architectural unit and the Base
Rent provided for herein during the period from and after the date of delivery
of possession pursuant to such proceedings to the termination of this Lease
shall be reduced to a sum equal to the product of the Base Rent provided for
herein multiplied by a fraction, the numerator of which is the fair market rent
of the Premises after such taking and after the same has been restored to a
complete architectural unit, and the denominator of which is the fair market
rent of the Premises prior to such taking. Notwithstanding the foregoing
provisions of this Article, Lessor may terminate this Lease with no further
liability to Lessee whatsoever in the event that following any taking of any
part of the Complex by condemnation or right of eminent domain, or any
conveyance in lieu thereof, any party holding a mortgage, trust deed or similar
lien on Lessor's interest in the Complex elects to require the application of an
award or payment for the taking or conveyance in lieu thereof to reduce the
indebtedness secured by such mortgage, trust deed or similar lien. Lessor's
obligation to rebuild, repair or restore under this Article shall in all events
be limited to the extent of the net condemnation proceeds available to Lessor
therefor.
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<PAGE> 18
ARTICLE XIV. SURRENDER OF PREMISES: On the last day of the term of this Lease,
or on the sooner termination thereof, Lessee shall peaceably surrender the
Premises in good condition and repair consistent with Lessee's duty to make
repairs as herein provided. On or before the last day of the term of this Lease,
or the date of sooner termination thereof, Lessee shall, at its sole cost and
expense, remove all of its property and trade fixtures and equipment from the
Premises, and all property not removed shall be deemed abandoned. Lessee hereby
appoints Lessor its agent to remove all property of Lessee from the Premises
upon termination of this Lease and to cause its transportation and storage for
Lessee's benefit, all at the sole cost and risk of Lessee, and Lessor shall not
be liable for damage, theft, misappropriation or loss thereof and Lessor shall
not be liable in any manner in respect thereto. Lessee shall pay all costs and
expenses of such removal, transportation and storage. Lessee shall leave the
Premises in good order, condition and repair, reasonable wear and tear and
damage from fire and other casualty not caused by Lessee excepted. Lessee shall
reimburse Lessor upon demand for any expenses incurred by Lessor with respect to
removal, transportation or storage of abandoned property and with respect to
restoring said Premises to good order, condition and repair. All improvements,
alterations, additions, installations and fixtures, other than Lessee's trade
fixtures, equipment and other removable personal property, which have been made
or installed by either Lessor or Lessee upon the Premises shall remain the
property of Lessor and shall be surrendered with the Premises as a part thereof,
unless Lessee is required to remove same pursuant to the provisions of Article
VIII hereof. If the Premises are not surrendered at the end of the term or
sooner termination thereof, Lessee shall indemnify Lessor against loss or
liability resulting from delay by Lessee in so surrendering the Premises,
including, without limitation, claims made by any succeeding tenants founded on
such delay and any attorneys' fees resulting therefrom. Lessee shall promptly
surrender all keys for the Premises to Lessor at the place then fixed for the
payment of rent and shall inform Lessor of the combinations of any vaults, locks
and safes left on the Premises.
In the event Lessee remains in possession of the Premises after
expiration of this Lease and without the execution of a new lease, but with
Lessor's written consent, Lessee shall be deemed to be occupying the Premises as
a tenant from month-to-month, subject to all the provisions, conditions and
obligations of this Lease insofar as the same can be applicable to a
month-to-month tenancy, except that the Base Rent shall be escalated to one
hundred fifteen percent (115%) of the Base Rent payable hereunder immediately
prior to the expiration of this Lease. In the event Lessee remains in possession
of the Premises after expiration of this Lease and without the execution of a
new lease and without Lessor's written consent, Lessee shall be deemed to be
occupying the Premises without claim of right and Lessee shall pay Lessor for
all costs arising out of loss or liability resulting from delay by Lessee in so
surrendering the Premises as above provided and shall pay as a charge for each
day of occupancy an amount equal to one hundred fifteen percent (115%) of the
Base Rent (on a daily basis) payable hereunder immediately prior to the
expiration of this Lease plus the Additional Rent (on a daily basis) then
currently being charged by Lessor on new leases in the Complex for space similar
to the Premises.
ARTICLE XV. DEFAULT OF LESSEE: The occurrence of any one or more of the
following events (in this Article sometimes called "Event of Default") shall
constitute a default and breach of this Lease by Lessee:
A. If Lessee tails to pay any Base Rent or Additional Rent
payable under this Lease or fails to pay any obligation
required to be paid by Lessee when and as the same
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<PAGE> 19
shall become due and payable, and such default continues for a
period of five (5) days after written notice thereof given by
Lessor to Lessee.
B. If Lessee fails to perform any of Lessee's nonmonetary
obligations under this Lease for a period of thirty (30) days
after written notice from Lessor; provided that if more time
is required to complete such performance, Lessee shall not be
in default if Lessee commences such performance within the
thirty-day period and thereafter diligently pursues its
completion. However, Lessor shall not be required to give such
notice if Lessee's failure to perform constitutes a
non-curable breach of this Lease. The notice required by this
subsection is intended to satisfy any and all notice
requirements imposed by law on Lessor and is not in addition
to any such requirement.
C. If Lessee, by operation of law or otherwise, violates the
provisions of Article XI hereof relating to assignment,
sublease, mortgage or other transfer of Lessee's interest in
this Lease or in the Premises.
D. Lessee, by operation of law or otherwise, violates the
provisions of Article XVII. Relating to compliance with
environmental laws.
E. If (i) Lessee makes a general assignment or general
arrangement for the benefit of creditors; (ii) a petition for
adjudication of bankruptcy or for reorganization or
rearrangement is filed by or against Lessee and is not
dismissed within sixty (60) days; (iii) if a trustee or
receiver is appointed to take possession of substantially all
of Lessee's assets located at the Premises or of Lessee's
interest in this Lease and possession is not restored to
Lessee within sixty (60) days; or (iv) if substantially all of
Lessee's assets located at the Premises or of Lessee's
interest in this Lease is subjected to attachment, execution
or other judicial or non-judicial seizure which is not
discharged within sixty (60) days. If a court of competent
jurisdiction determines that any of the acts described in this
subsection does not constitute an Event of Default and a
trustee is appointed to take possession (or if Lessee remains
a debtor in possession) and such trustee or Lessee transfers
Lessee's interest hereunder, then Lessor shall receive, as
Additional Rent, the difference between the rent (or any other
consideration) paid in connection with such assignment or
sublease and the rent payable by Lessee hereunder. As used in
this subsection, the term "Lessee" shall also mean any
guarantor of Lessee's obligations under this Lease. If any
such Event of Default shall occur, Lessor, at any time during
the continuance of any such Event of Default, may give written
notice to Lessee stating that this Lease shall expire and
terminate on the date specified in such notice, and upon the
date specified in such notice this Lease, and all rights of
Lessee under this Lease, including all rights of renewal
whether exercised or not, shall expire and terminate, or in
the alternative or in addition to the foregoing remedy, Lessor
may assert and have the benefit of any other remedy allowed
herein, at law, or in equity.
Upon the occurrence of an Event of Default by Lessee, and at any time
thereafter, with or without notice or demand and without limiting Lessor in the
exercise of any right or remedy which
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<PAGE> 20
Lessor may have, Lessor shall be entitled to the rights and remedies set forth
below:
A. Terminate lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall not terminate
unless Lessor gives written notice to Lessee of its intention
to terminate this Lease and Lessee shall immediately surrender
possession of the Premises to Lessor. In such event, Lessor
shall have the immediate right to reenter and remove all
persons and property, and such property may be removed and
stored in a public warehouse or elsewhere at the cost of, and
for the account of Lessee, all without service of notice or
resort to legal process and without being deemed guilty of
trespass, or becoming liable for any loss or damage which may
be occasioned thereby. In the event that Lessor shall elect to
so terminate this Lease, then Lessor shall be entitled to
recover from Lessee all damages incurred by Lessor by reason
of Lessee's default, including:
1. The equivalent of the amount of the Base Rent and
Additional Rent which would be payable under this
Lease by Lessee if this Lease were still in effect,
less
2. The net proceeds of any reletting affected pursuant
to the provisions of this Article XV after deducting
all of Lessor's reasonable expenses In connection
with such reletting, including, without limitation,
all repossession costs, brokerage commissions, legal
expenses, reasonable attorneys' fees, alteration
costs, and expenses of preparation of the Premises,
or any portion thereof, for such reletting.
Lessee shall pay such current damages in the amount determined
in accordance with the terms of this Article XV as set forth
in a written statement thereof from Lessor to Lessee
(hereinafter called the "Deficiency"), to Lessor in monthly
installments on the days on which the rent would have been
payable under this Lease if this Lease were still in effect,
and Lessor shall be entitled to recover from Lessee each
monthly installment of the Deficiency as the same shall arise.
B. At any time after an Event of Default, whether or not Lessor
shall have collected any monthly Deficiency as set forth in
this Article XV, Lessor shall be entitled to recover from
Lessee, and Lessee shall pay to Lessor, on demand, as and for
final damages for Lessee's default, an amount equal to the
then present worth of the aggregate of the Base Rent and
Additional Rent and any other charges to be paid by Lessee
hereunder for the unexpired portion of the term of this Lease
(assuming this Lease had not been so terminated). In the
computation of present worth, a discount at the rate of 6% per
annum shall be employed. If the Premises, or any portion
thereof, shall be relet by Lessor for the unexpired term of
this Lease, or any part thereof, before presentation of proof
of such damages to any court, commission or tribunal, the
amount of rent received upon such reletting shall be offset
against any monies claimed pursuant to this subsection.
Nothing herein contained or contained in this Article XV shall
limit or prejudice the right of Lessor to prove for and
obtain, as damages, an amount equal to the maximum allowed by
any statute or rule of law in effect at the time when, and
governing the
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<PAGE> 21
proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to or less than the
amount of the difference referred to above.
C. Upon the occurrence of an Event of Default by Lessee, Lessor
shall also have the right, with or without terminating this
Lease, to reenter the Premises to remove all persons and
property from the Premises. Such property may be removed and
stored In a public warehouse or elsewhere at the cost of and
for the account of Lessee. if Lessor shall elect to reenter
the Premises, Lessor shall not be liable fair damages by
reason of such reentry.
D. If Lessor does not elect to terminate this Lease as provided
in this Article XV then Lessor may, from time to time, recover
all vent as it becomes due under this Lease. At any time
thereafter, Lessor may elect to terminate this Lease and to
recover damages to which Lessor is entitled.
E. In the event that Lessor should elect to terminate this Lease
and to relet the Premises, it may execute any new lease in its
own name. In the event that Lessor should not elect to
terminate this Lease, it may re-let the premises to a
substitute tenant. Lessee hereunder shall have no right or
authority whatsoever to collect any rent from such substitute
tenant. The proceeds of any such reletting shall be applied as
follows:
1. First, to the payment of any indebtedness other than
rent due hereunder from Lessee to Lessor, including
but not limited to storage charges air brokerage
commissions owing from Lessee to Lessor as the result
of such reletting;
2. Second, to the payment of the costs and expenses of
reletting the Premises, including alterations and
repair's which Lessor, in its sole discretion, deems
reasonably necessary and advisable and reasonable
attorneys' fees incurred by Lessor in connection with
the retaking of the Premises and such reletting;
3. Third, to the payment of rent and other charges due
and unpaid hereunder; and
4. Fourth, to the payment of future rent and other
damages payable by Lessee under this Lease-
Lessor shall not be deemed to have terminated this Lease and the
Lessee's right to possession of the leasehold or the liability of Lessee to pay
rent thereafter to accrue air its liability for damages under any of the
provisions hereof, unless Lessor shall have notified Lessee in writing that it
has so elected to terminate this Lease. Lessee covenants that the retaking of
possession by Lessor or the service by Lessor of any notice pursuant to the
applicable unlawful detainer statutes of the state in which the Complex is
located and Lessee's surrender of possession pursuant to such notice shall not
(unless Lessor elects to the contrary at the time of, or at any time subsequent
to the service of, such notice, and such election be evidenced by a written
notice to Lessee) be deemed to be a termination of this Lease or of Lessee's
right to possession thereof.
All rights, options and remedies of Lessor contained in this Lease
shall be construed and held to be cumulative, and no one of them shall be
exclusive of the other, and Lessor shall have the right to pursue any one or all
of such remedies or any other
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<PAGE> 22
remedy or relief which may be provided by law whether or not stated in this
Lease. No waiver by Lessor of a breach of any of the terms, covenants or
conditions of this Lease by Lessee shall be construed or held to be a waiver of
any succeeding or preceding breach of the same or any other term, covenant or
condition therein contained. No waiver of any default of Lessee hereunder shall
be implied from any omission by Lessor to take any action on account of such
default if such default persists or is repeated, and no express waiver shall
affect default other than as specified in said waiver. The consent or approval
by Lessor to or of any act by Lessee requiring Lessor's consent or approval
shall not be deemed to waive or vender unnecessary Lessor's consent to or
approval of any subsequent similar acts by Lessee.
Lessee shall reimburse Lessor, upon demand, for any costs or expenses
incurred by Lessor in connection with any breach or default of Lessee under this
Lease, whether or not suit is commenced or judgment entered. Such costs shall
include, but not be limited to: legal fees and costs incurred for the
negotiation of a settlement, enforcement of rights or otherwise. Furthermore, if
any action for breach of or to enforce the provisions of this Lease is
commenced, the court in such action shall award to the party in whose favor a
judgment is entered a reasonable sum as attorneys' fees and costs. Such
attorneys' fees and costs shall be paid by the losing party in such action.
Lessee shall also indemnify Lessor against and hold Lessor harmless from all
costs, expenses, demands and liability incurred by Lessor if Lessor becomes or
is made a party to any claim or action (a) instituted by Lessee, or by any third
party against Lessee (unless Lessor is adjudged to have been culpable, and
liable in regard to the basis for the claim); (b) for foreclosure of any lien
for labor or material furnished to or for Lessee; (c) otherwise arising out of
or resulting from any act or transaction of Lessee (unless Lessor is adjudged to
have been culpable, and liable in regard to the basis for the claim); or (d)
necessary to protect Lessor's interest under this Lease in a bankruptcy
proceeding or other proceeding under Title 11 of the United States Code, as
amended. Lessee shall defend Lessor against any such claim or action at Lessee's
expense with counsel reasonably acceptable to Lessor or, at Lessor's election,
Lessee shall reimburse Lessor for any legal fees or costs incurred by Lessor in
any such claim or action.
In addition, Lessee shall pay a portion (as determined by the next
sentence) of Lessor's reasonable attorneys' fees incurred in connection with
Lessee's request for Lessor's consent in connection with any act which Lessee
proposed to do and which requires Lessor's consent. For these purposes, Lessee
shall be responsible to pay the first $500.00 of fees incurred, and 50% of the
fees in excess of $500, for each requested consent.
Lessee hereby waives all claims by Lessor's lawful reentering and
taking possession of the Premises or removing and storing the property of Lessee
as permitted under this Lease and will save Lessor harmless from all losses,
costs or damages occasioned Lessor thereby. No such reentry shall be considered
or construed to be a forcible entry by Lessor.
Lessor shall use commercially reasonable efforts to mitigate its
reasonably foreseeable damages which result from Lessee's default hereunder-
ARTICLE XVI. SUBORDINATION: This Lease shall be subject and subordinate to any
mortgage, deed of trust or ground lease now or hereafter placed upon the
Premises, the Complex, the Property or any portion thereof by Lessor or its
successors or assigns, and to amendments, replacements, renewals and extensions
thereof. Lessee agrees at any time hereafter, upon demand to execute and deliver
any instruments, releases or other documents that may be
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<PAGE> 23
reasonably required for the purpose of subjecting and subordinating this Lease,
as above provided, to the lien of any such mortgage, deed of trust or ground
lease. It is agreed, nevertheless, that as long as Lessee is not in default in
the payment of Base Rent, Additional Rent, and other charges to be paid by
Lessee under this Lease and the performance of all covenants, agreements and
conditions to be performed by Lessee under this Lease, then neither Lessee's
right to quiet enjoyment under this Lease, nor the right of Lessee to continue
to occupy the Premises and to conduct its business thereon, in accordance with
the Terms of this Lease as against any lessor, lessee, mortgagee, trustee or
their successors or assigns shall be interfered with.
The above subordination shall be effective without the necessity of the
execution and delivery of any further instruments on the part of Lessee to
effectuate such subordination. Notwithstanding anything hereinabove contained in
this Article XVI, in the event the holder of any mortgage, deed of trust or
ground lease shall at any time elect to have this Lease constitute a prior and
superior lien to its mortgage, deed of trust or ground lease, then, and in such
event, upon any such holder or landlord notifying Lessee to that effect in
writing, this Lease shall be deemed prior and superior in lien to such mortgage,
deed of trust or ground lease, whether this Lease is dated prior to or
subsequent to the date of such mortgage, deed of trust or ground lease, and
Lessee shall execute such attornment agreement as may be reasonably requested by
said holder.
Lessee agrees, provided the mortgagee, ground lessor or trust deed
holder under any mortgage, ground lease, deed of trust or other security
instrument shall have notified Lessee in writing (by the way of a notice of
assignment of lease or otherwise) of its address, that Lessee shall give such
mortgagee, ground lessor, trust deed holder or other secured party
("Mortgagee"), simultaneously with delivery of notice to Lessor, by registered
or certified mail, a copy of any such notice of default served upon Lessor.
Lessee further agrees that said Mortgagee shall have the right to cure any
alleged default during the same period that Lessor has to cure such default.
Lessor agrees that it shall obtain prior to the commencement of the
term of this Lease a subordination, attornment and non-disturbance agreement
from any Mortgagee holding any mortgage, ground lease, deed of trust or other
security instrument encumbering the Premises as of the date of this Lease.
ARTICLE XVII- MISCELLANEOUS:
A. Lessee represents that Lessee has dealt directly with and only with
CB Commercial Real Estate Group, Inc. (Kit Tiedemann) and Cushman & Wakefield of
Arizona, Inc. (Mike Beall/Jim Wilson) (the "Brokers"), as brokers, in connection
with this Lease and insofar as Lessee knows, no other broker negotiated or
participated In negotiations of this Lease or submitted or showed the Premises
or is entitled to any commission in connection therewith. Lessor shall be
responsible for paying the commission due the Brokers on account of this Lease
pursuant to a separate agreement between Lessor and the Brokers. Lessor and
Lessee agree that no broker shall be entitled to any commission with any renewal
of the term of this Lease or any expansion of the Premises.
B. Lessee agrees from time to time, upon not less than fifteen (15)
days prior written request by Lessor, to deliver to Lessor a statement in
writing certifying (i) this Lease is unmodified and in full force and effect (or
if there have been modifications that the Lease as modified is in full force and
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<PAGE> 24
effect and stating the modifications); (ii) the dates to which the rent and
other charges have been paid; (iii) Lessor is not in default in any provision of
this Lease or, if in default, the nature thereof specified in detail; (iv) the
amount of monthly rental currently payable by Lessee; (v) the amount of any
prepaid rent, and (vi) such other matters as may be reasonably requested by
Lessor or any Mortgagee or prospective purchaser of the Complex.
If Lessee does not deliver such statement to Lessor within such fifteen
(15) day period, Lessor and any prospective purchaser or encumbrancer of the
Premises or the Complex may conclusively presume and rely upon the following
facts: (i) that the terms and provisions of this Lease have not been changed
except as otherwise represented by Lessor; (ii) that this Lease has not been
cancelled or terminated and is in full force and effect, except as otherwise
represented by Lessor; (iii) that the current amounts of the Base Rent and
security deposit are as represented by Lessor and that any charges made against
the security deposit are uncontested and valid; (iv) that there have been no
subleases or assignments of the Lease; (v) that not more than one month's Base
Rent or other charges have been paid in advance; and (vi) that Lessor is not in
default under the Lease. in such event, Lessee shall be stopped from denying the
truth of such facts.
C. All notices, demands and requests shall be in writing, and shall be
effectively served by forwarding such notice, demand or request by certified or
registered mail, postage prepaid, or by commercial overnight courier service
addressed as follows:
(i) If addressed to Lessee:
By forwarding such notice, demand or request by
certified or registered mail, postage prepaid,
addressed to Lessee at:
Syntellect Inc.
[address of Premises]
------------------------------
------------------------------
Attention: Paul Mehlhorn
With a copy to:
Syntellect Inc.
1000 Holcomb Woods Parkway
Building 410-A
Roswell, Georgia 30076-2585
Attn: Chief Financial Officer
or at such other address as Lessee may hereafter
designate by written notice to Lessor, in which case
said notice shall be effective at the time of mailing
such notice.
(ii) If addressed to Lessor:
By forwarding such notice, demand or
request by certified or registered
mail, postage prepaid, addressed to
Lessor at:
Opus Southwest Corporation
c/o Normandale Properties Southwest Corporation
4742 North 24th Street, Suite 100
Phoenix, Arizona 85016
With copy to:
Opus Southwest Corporation
4742 North 24th Street
Suite 100
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<PAGE> 25
Phoenix, Arizona 85016
Attn: Thomas W. Roberts, President
With copy to:
Opus U.S. Corporation
P. 0. Box 59110
Minneapolis, Minnesota 55440
Attention: Law Department
or at such other address as Lessor and Lessee may hereafter designate by written
notice. The effective date of all notices shall be the time of mailing such
notice or the date of delivery to a commercial overnight courier service.
D. All rights and remedies of Lessor under this Lease or that may be
provided by law may be executed by Lessor in its own name, individually, or in
the name of its agent, and all legal proceedings for the enforcement of any such
rights or remedies, including those set forth in Article XV, may be commenced
and prosecuted to final judgment and execution by Lessor in its own name or in
the name of its agent.
E. Lessor covenants and agrees that Lessee, upon paying the Base Rent,
Additional Rent and other charges herein provided for and observing and keeping
the covenants, agreements and conditions of this Lease on its part to be kept
and performed, shall lawfully and quietly hold, occupy and enjoy the Premises
during the term of this Lease. Time is of the essence of this Lease and each and
every provision contained herein, and any extension of time granted by Lessor to
Lessee for the performance of any obligation of Lessee under this Lease shall
not be considered an extension of time for the performance of any subsequent
obligation of Lessee under this Lease.
F. The covenants and agreements herein contained shall bind and inure
to the benefit of Lessor and its successors and assigns and Lessee and its
permitted successors and assigns. All obligations of each party constituting
Lessee hereunder shall be the joint and several obligations of each such party.
G. If any term or provision of this Lease shall to any extent be held
invalid or unenforceable, the remaining terms and provisions of this Lease shall
not be affected thereby, but each term and provision of this Lease shall be
valid and enforced to the fullest extent permitted by law. This Lease shall be
construed and enforced in accordance with the laws of the state in which the
Premises are located.
H. Lessee covenants not to do or suffer any waste or damage or
disfigurement or injury to the Premises or the Complex and Lessee further
covenants that it will not vacate or abandon the Premises during the term of
this Lease.
I. The term "Lessor" as used in this Lease so far as covenants or
obligations on the part of Lessor are concerned shall be limited to mean and
include only the owner or owners of the Complex at the time in question, and in
the event Lessee is given notice of any transfer or transfers or conveyances the
then grantor shall be automatically freed and released from all personal
liability accruing from and after the date of such transfer or conveyance as
respects the performance of any covenant or obligation on the part of Lessor
contained in this Lease to be performed, it being intended hereby that the
covenants and obligations contained in this Lease on the part of Lessor shall be
binding on the Lessor, its successors and assigns, only during and in respect to
their respective successive periods of ownership.
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<PAGE> 26
In the event of a sale or conveyance by Lessor of the Complex or any
part of the Complex, the same shall operate to release Lessor from any future
liability upon any of the covenants or conditions herein contained and in such
event Lessee agrees to look solely to the responsibility of the successor in
interest of Lessor in and to this Lease, who by accepting title to the Complex,
shall be deemed to have assumed the obligations of "Lessor" hereunder. This
Lease shall not be affected by any such sale or conveyance, and Lessee agrees to
attorn to the purchaser or grantee, which purchaser or grantee shall be
personally obligated on this Lease only so long as it is the owner of Lessor's
interest in and to this Lease.
J. The marginal or topical headings of the several Articles are for
convenience only and do not define, limit or construe the contents of said
Articles.
K. All preliminary negotiations are merged into and incorporated in
this Lease, except for written collateral agreements executed contemporaneously
herewith.
L. This Lease can only be modified or amended by an agreement in
writing signed by the parties hereto. No receipt of money by Lessor from Lessee
or any other person after termination of this Lease or after the service of any
notice or after the commencement of any suit, or after final judgment for
possession of the Premises shall reinstate, continue or extend the term of this
Lease or affect any such notice, demand or suit, or imply consent for any action
for which Lessor's consent is required, unless specifically agreed to in writing
by Lessor. Any amounts received by Lessor may be allocated to any specific
amounts due from Lessee to Lessor as Lessor determines.
M. Lessor shall have the right to close any portion of the building
area or land area to the extent as may, in Lessor's reasonable opinion, be
necessary to prevent a dedication thereof or the accrual of any rights to any
person or the public therein. Lessor shall at all times have full control,
management and direction of the Complex, subject to the rights of Lessee in the
Premises, the parking areas and access thereto, and Lessor reserves the right at
any time and from time to time to reduce, increase, enclose or otherwise change
the size, number and location of buildings, layout and nature of the Complex and
the other tenancies, premises and buildings included in the Complex, to
construct additional buildings and additions to any building, and to create
additional rentable areas through use and/or enclosure of common areas, or
otherwise, and to place signs on the Complex, and to change the name, address,
number or designation by which the Complex is commonly known. No implied
easements are granted by this Lease. Lessor shall in no event be liable for any
lack of security in respect to the Complex.
N. Upon forty-eight (48) hours notice, Lessee shall permit Lessor (or
its designees) to erect, use, maintain, replace and repair pipes, cables,
conduits, plumbing, vents, and telephone, electric and other wires or other
items, in, to and through the Premises, as and to the extent that Lessor may now
or hereafter deem necessary or appropriate for the proper operation and
maintenance of the Complex.
O. Employees or agents of Lessor have no authority to make or agree to
make a lease or other agreement or undertaking in connection herewith. The
submission of this document for examination does not constitute an offer to
lease, or a reservation of, or option for, the Premises. This document becomes
effective and binding only upon the execution and delivery hereof by the proper
officers of Lessor and by Lessee. Lessee confirms that Lessor and its agents
have made no representations or promises with respect to the Premises or the
making of or entry into this
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<PAGE> 27
Lease except as in this Lease expressly set forth, and Lessee agrees that no
claim or liability shall be asserted by Lessee against Lessor for, and Lessor
shall not be liable by reason of, breach of any representations or promises not
expressly stated in this Lease. This Lease, except for the Complex Rules and
Regulations, in respect to which subparagraph P of this Article shall prevail,
can be modified or altered only by agreement in writing between Lessor and
Lessee, and no act or omission of any employee or agent of Lessor shall alter,
change or modify any of the provisions hereof.
P. Lessee shall perform, observe and comply with the Complex Rules and
Regulations of the Complex as set forth on Exhibit B attached hereto and by this
reference incorporated herein, with respect to the safety, care and cleanliness
of the Premises and the Complex, and the preservation of good order thereon,
and, upon written notice thereof to Lessee, Lessee shall perform, observe and
comply with any changes, amendments or additions thereto as from time to time
shall be established and deemed advisable by Lessor for tenants of the Complex.
Lessor shall not be liable to Lessee for any failure of any other tenant or
tenants of the Complex to comply with such Complex Rules and Regulations.
Q. Lessee shall not use the Premises or permit anything to be done in
or about the Premises which will, in any way, conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may hereafter
be enacted or promulgated. Lessee shall, at its sole cost and expense, promptly
comply with all laws, statutes, ordinances and governmental rules and
regulations now in force or which may hereafter be in force, and with the
requirements of any fire insurance underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises. Lessee shall use the Premises and comply with any recorded
covenants, conditions, and restrictions affecting the Premises and the Complex
as of the commencement of the Lease or which are recorded during the lease term.
R. Lessee shall at all times during the term of this lease and in all
respects comply with all federal, state and local laws, ordinances and
regulations ("Hazardous Materials Laws") relating to the industrial hygiene,
environmental protection or the use, analysis, generation, manufacture, storage,
presence, disposal or transportation of any oil, petroleum products, flammable
explosives, asbestos, urea formaldehyde, polychlorinated biphenyls, radioactive
materials or waste, or other hazardous, toxic, contaminated or polluting
materials, substances or wastes, including without limitation any "hazardous
substances", "hazardous wastes", "hazardous materials" or "toxic substances"
under any such laws, ordinances or regulations (collectively, "Hazardous
Materials").
Lessee shall at its own expense procure, maintain in effect and comply
with all conditions of any and all permits, licenses and other governmental and
regulatory approvals required for Lessee's use of the Premises, including,
without limitation, discharge of (appropriately treated) materials or waste into
or through any sanitary sewer system serving the Premises. Except as discharged
into the sanitary sewer in conformity with all applicable Hazardous Materials
Laws, Lessee shall cause any and all Hazardous Materials brought or permitted on
the Premises by Lessee to be removed from the Premises and transported solely by
duly licensed haulers to duly licensed facilities for final disposal of such
Hazardous Materials and wastes. Lessee shall in all respects handle, treat, deal
with and manage any and all Hazardous Materials brought or permitted on the
Premises by Lessee in conformity with all applicable Hazardous Materials Laws
and prudent industry practices regarding the management of such
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<PAGE> 28
Hazardous Materials. All reporting obligations relating to such Hazardous
Materials to the extent imposed upon Lessee by Hazardous Materials Laws are
solely the responsibility of Lessee. Upon expiration or earlier termination of
this lease, Lessee shall cause all Hazardous Materials (to the extent such
Hazardous Materials are generated, stored, released or disposed of during the
term of this lease by Lessee) to be removed from the Premises and transported
for use, storage or disposal in accordance and in compliance with all applicable
Hazardous Materials Laws. Lessee shall not take any remedial action in response
to the presence of any Hazardous Materials in, on, about or under the Premises
or in any improvements situated on the Complex, nor enter into any settlement
agreement, consent, decree or other compromise in respect to any claims relating
to or in any way connected with the Premises or the Complex without first
notifying Lessor of Lessee's intention to do so and affording Lessor ample
opportunity to appear, intervene or otherwise appropriately assert and protect
Lessor's interest with respect thereto. In addition, at Lessor's request, at the
expiration of the term of this lease, Lessee shall remove all tanks or fixtures
which were placed on the Premises during the term of this lease by or for Lessee
and which contain, have contained or are contaminated with, Hazardous Materials.
Lessee shall immediately notify Lessor in writing of (a) any
enforcement, clean-up, removal or other governmental or regulatory action
instituted, completed or threatened pursuant to any Hazardous Materials Laws;
(b) any claim made or threatened by any person against Lessor, or the Premises,
relating to damage, contribution, cost recovery, compensation, loss or injury
resulting from or claimed to result from any Hazardous Materials; and (c) any
reports made to any environmental agency arising out of or in connection with
any Hazardous Materials in, on or about the Premises or with respect to any
Hazardous Materials removed by Lessee from the Premises, including, any
complaints, notices, warnings, reports or asserted violations in connection
therewith. Lessee shall also provide to Lessor, as promptly as possible, and in
any event within five business days after Lessee first receives or sends the
same, copies of all claims, reports, complaints, notices, warnings or asserted
violations relating in any way to the Premises or Lessee's use thereof. Upon
written request of Lessor (to enable Lessor to defend itself from any claim or
charge related to any Hazardous Materials Law), Lessee shall promptly deliver to
Lessor notices of hazardous waste manifests reflecting the legal and proper
disposal of all such Hazardous Materials removed or to be removed from the
Premises.
To Lessor's knowledge, Lessor is not aware of any Hazardous Materials
which exist or are located on or in the Premises, except as may be disclosed in
that certain Environmental Site Assessment prepared by Geotechnical and
Environmental Consultants, Inc., dated July 14, 1995. Further, Lessor represents
to Lessee that: (x) to the best of its knowledge, Lessor has not caused the
generation, storage or release of Hazardous Materials upon the Premises, except
in accordance with Hazardous Materials Laws; and (y) during the term of this
Lease, Lessor shall not knowingly cause the generation, storage or release of
Hazardous Materials upon the Premises, except in accordance with Hazardous
Materials Laws. In the event (a) Hazardous Materials are discovered upon the
Premises, (b) Lessor has been given written notice of the discovery of such
Hazardous Materials, and (c) pursuant to the provisions of the preceding
paragraphs of this Article XVII.R., neither Lessor nor Lessee is obligated to
pay the cost of compliance with Hazardous Materials Laws, then and in that event
Lessor may voluntarily but shall not be obligated to agree with Lessee to take
all action necessary to bring the Premises into compliance with Hazardous
Materials Laws at Lessor's sole cost. In the event Lessor fails to notify Lessee
in writing within 30 days of the notice to Lessor of the discovery of such
Hazardous Materials that Lessor
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<PAGE> 29
intends to voluntarily take such action as is necessary to bring the Premises
into compliance with Hazardous Materials Laws, then Lessee may (i) bring the
Premises into compliance with Hazardous Materials Laws at Lessee's sole cost or
(ii) provided such Hazardous Materials endanger persons or property in, on or
about the Premises or interfere with Lessee's use of the Premises, terminate
this lease on a date not less than ninety days following written notice of such
intent to terminate.
Lessor shall indemnify, defend (with counsel reasonably acceptable to
Lessee), protect and hold Lessee and each of Lessee's officers, directors,
partners, employees, agents, attorneys, successors and assigns free and harmless
from and against any and all claims, liabilities, damages, costs, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death or injury
to any person or damage to any property whatsoever (including water tables and
atmosphere) arising or resulting in whole or in part, directly or indirectly,
from the presence or discharge of Hazardous Materials, in, on, under, upon or
from the Premises, including materials used during construction of the Premises
and the Complex or from the transportation or disposal of Hazardous Materials to
or from the Premises to the extent caused by Lessor. Lessor's obligations
hereunder shall include, without limitation, and whether foreseeable, all cost
of any required or necessary repairs, clean-up or detoxification or
decontamination of the Premises, and the presence and implementation of any
closure, remedial action or other required plans in connection therewith, and
shall survive the expiration of or early termination of the term of this lease.
For purposes of the indemnity provided herein, any acts or omissions of Lessor
or its employees, agents, customers, assignees, contractors or sub-contractors
(whether or not they are negligent, intentional, willful or unlawful) shall be
strictly attributable to Lessor.
Lessee shall indemnify, defend (with counsel reasonably acceptable to
Lessor), protect and hold Lessor and each of Lessor's officers, directors,
partners, employees, agents, attorneys, successors and assigns free and harmless
from and against any and all claims, liabilities, damages, costs, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death or injury
to any person or damage to any property whatsoever (including water tables and
atmosphere) arising or resulting in whole or in part, directly or indirectly,
from the presence or discharge of Hazardous Materials, in, on, under, upon or
from the Premises or from the transportation or disposal of Hazardous Materials
to or from the Premises to the extent caused by Lessee. Lessee's obligations
hereunder shall include, without limitation, and whether foreseeable, all cost
of any required or necessary repairs, clean-up or detoxification or
decontamination of the Premises, and the presence and implementation of any
closure, remedial action or other required plans in connection therewith, and
shall survive the expiration of or early termination of the term of this lease.
For purposes of the indemnity provided herein, any acts or omissions of Lessee
or its employees, agents, customers, sub-lessees, assignees, contractors or
sub-contractors (whether or not they are negligent, intentional, willful or
unlawful) shall be strictly attributable to Lessee.
For purposes of the covenants and agreements contained in this Article
XVII.R., inclusive, any acts or omissions of Lessee, its employees, agents,
customers, sublessees, assignees, contractors or sub-contractors (except Opus
Southwest Corporation and its contractors and subcontractors) shall be strictly
attributable to Lessee; any acts or omissions of Lessor, its employees, agents,
customers, assignees, contractors or sub-contractors shall be strictly
attributable to Lessor.
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<PAGE> 30
S. All obligations of Lessee hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive the
expiration or earlier termination of the term hereof, including, without
limitation, all payment obligations with respect to Operating Expenses and Real
Estate Taxes and all obligations concerning the condition of the Premises.
T. Lessee agrees to look solely to Lessor's interest in the Complex for
the recovery of any judgment from Lessor, it being agreed that Lessor, or if
Lessor is a partnership, its partners whether general or limited, or if Lessor
is a corporation, its directors, officers or shareholders, shall never be
personally liable for any such judgment.
U. Lessee shall furnish to Lessor promptly upon demand, a corporate
resolution, proof of due authorization of partners, or other appropriate
documentation reasonably requested by Lessor evidencing the due authorization of
Lessee to enter into this Lease. Lessor shall furnish to Lessee promptly upon
demand, a copy of Lessor's title policy or a title commitment which indicates
that Lessor owns insurable title to the Complex.
V. This Lease shall not be deemed or construed to create or establish
any relationship or partnership or joint venture or similar relationship or
arrangement between Lessor and Lessee hereunder.
W. Lessee shall in all respects comply with the Americans With
Disabilities Act Of 1990 (42 U.S.C. Section 12101 et seq.), as the same may be
amended from time to time (as amended, the "ADA"), and Lessee agrees to
indemnify and save Lessor and its managing agent harmless against and from any
and all claims, loss, damage and expense by or on behalf of any person or
persons, firm or firms, corporation or corporations, arising from any failure or
alleged failure of Lessee to comply with the ADA or arising from any claim made
under the ADA in connection with the Premises, and from and against all costs,
reasonable attorneys' fees, expenses and liabilities incurred in or about any
such claim or action or proceeding brought thereon; in case any action or
proceeding be brought against Lessor or its managing agent by reason of any such
claim, Lessee, upon notice from Lessor, covenants to resist or defend such
action or proceeding by counsel reasonably satisfactory to Lessor. Lessor
represents and warrants that as of the commencement of the term of the Lease,
the Premises shall be in compliance with the ADA, as the same is existing,
interpreted and enforced as of such date.
X. Lessor shall in all respects comply with the ADA, and Lessor agrees
to indemnify and save Lessee and its managing agent harmless against and from
any and all claims, loss, damage and expense by or on behalf of any person or
persons, firm or firms, corporation or corporations, arising from any failure or
alleged failure of Lessor to comply with the ADA or arising from any claim made
under the ADA in connection with the Complex (exclusive of the Premises or any
other leasable area within the Complex), and from and against all costs,
reasonable attorneys' fees, expenses and liabilities incurred in or about any
such claim or action or proceeding brought thereon; in case any action or
proceeding be brought against Lessee by reason of any such claim, Lessor, upon
notice from Lessee, covenants to resist or
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<PAGE> 31
defend such action or proceeding by counsel reasonably satisfactory to Lessee.
Y. Lessee shall not place, or permit to be placed or maintained, on any
exterior door, wall or window of the Premises any sign, awning or canopy, or
advertising matter or other thing of any kind, and will not place or maintain
any decoration, lettering or advertising matter on the glass of any window or
door, or that can be seen through the glass, of the Premises except as
specifically approved in writing by Lessor. Lessee further agrees to maintain
such sign, awning, canopy, decoration, lettering, advertising matter or thing as
may be approved, in good condition and repair at all times. Lessee agrees at
Lessee's sole cost, that any Lessee sign will be maintained in strict
conformance with Lessor's sign criteria, if any, as to design, material, color,
location, size, letter style, and method of installation. Lessor shall not
unreasonably withhold its consent to the placement of Lessee's sign on the
southern portion of the east face of the building in which the Premises are
located.
Z. Lessee acknowledges that this Lease is contingent on Lessor
acquiring the fee simple title to substantially all the land depicted on Exhibit
"A", which land is necessary to construct the Office Complex. If Lessor has not
acquired such land on or before JULY 31, 1996, then this Lease shall
automatically terminate and neither Lessor nor Lessee shall have any rights or
obligations thereunder.
ARTICLE XVIII. MISCELLANEOUS TAXES: Lessee shall pay, prior to delinquency, all
taxes assessed or levied upon its occupancy of the Premises, or upon the trade
fixtures, furnishings, equipment and all other personal property of Lessee
located in the Premises, and when possible, Lessee shall cause such trade
fixtures, furnishings, equipment and other personal property to be assessed and
billed separately from the property of Lessor. In the event any or all of
Lessee's trade fixtures, furnishings, equipment or other personal property, or
Lessee's occupancy of the Premises, shall be assessed and taxed with the
property of Lessor, Lessee shall pay to Lessor its share of such taxes within
ten (10) days after delivery to Lessee by Lessor of a statement in writing
setting forth the amount of such taxes applicable to Lessee's personal property.
ARTICLE XIX. OTHER PROVISIONS: The following are made a part hereof, with the
same force and effect as if specifically set forth herein;
A. Site Plan - Exhibit A.
B. Complex Rules and Regulations - Exhibit B.
C. Rider to Lease - Exhibit C.
D. Space Plan/Building Elevation - Exhibit D.
E. Project Specifications- Exhibit E.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day
and year first above written.
LESSOR: LESSEE:
OPUS SOUTHWEST CORPORATION, SYNTELLECT INC., a Delaware
a Minnesota corporation corporation
By By /s/ DAVID C. PHILLIPS
---------------------------- -----------------------------
Thomas W. Roberts David C. Phillips
Its President Its Vice President -
Operations
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<PAGE> 32
EXHIBIT A*
*conceptual and subject to change
[MAP OF BUILDING SITE]
SYNTELLECT
I-17 & BEARDSLEY
PHOENIX, ARIZONA
[OPUS LOGO]
- ----------------------------------------------------------------------
[MAP LEGEND]
SITE DATA
TOTAL SITE AREA : 786,801.00 SQ. FT.
ZONING : C-2 MR
TOTAL BLDG. AREA : 122,226 SQ. FT.
% BLDG. COVERAGE : 15.50%
PARKING REQUIRED
(1:300) : 408 SPS.
PARKING PROVIDED : 669 SPS.
(1:183)
- ------------------------------------------------------------------------------
VICINITY MAP
DATE: 6-26-96 JOB: 96012
[BDG LOGO] 5112 N. 40th St. Suite 202
Phoenix, Arizona 85018
Butler Design Group 602-957-1800 Phone
602-957-7722 Fax
Architects & Planners
<PAGE> 33
EXHIBIT A-1*
*conceptual and subject to change
[MAP OF FLOOR PLAN]
SYNTELLECT
I-17 & BEARDSLEY
PHOENIX, ARIZONA
DATE: 6-26-96 JOB: 96012
- ------------------------------------------------------------------------------
[OPUS LOGO]
[BDG LOGO] 5112 N. 40th St. Suite 202
Phoenix, Arizona 85018
Butler Design Group 602-957-1800 Phone
602-957-7722 Fax
Architects & Planners
<PAGE> 34
EXHIBIT B
COMPLEX RULES AND REGULATIONS
1. Any sign, lettering, picture, notice or advertisement
installed on or in any part of the Premises and visible from the exterior of the
Complex, or visible from the exterior of the Premises, shall be installed at
Lessee's sole cost and expense, and in such manner, character and style as
Lessor may approve in writing. In the event of a violation of the foregoing by
Lessee, Lessor may remove the same without any liability and may charge the
expense incurred by such removal to Lessee.
2. No awning or other projection shall be attached to the outside
walls of the Complex. No curtains, blinds, shades or screens visible from the
exterior of the Complex or visible from the exterior of the Premises shall be
attached to or hung in, or used in connection with, any window or door of the
Premises without the prior written consent of Lessor. Such curtains, blinds,
shades, screens or other fixtures must be of a quality, type, design and color,
and attached in the manner, approved by Lessor.
3. Lessee and its servants, employees, customers, invitees and
guests shall not obstruct sidewalks, entrances, passages, corridors, vestibules,
halls, elevators or stairways in and about the Complex which are used in common
with other tenants and their servants, employees, customers, guests and invitees
and which are not a part of the Premises of Lessee. Lessee shall not place
objects against glass partitions or doors or windows which would be unsightly
from the Complex corridors or from the exterior of the Complex and will promptly
remove any such objects upon notice from Lessor.
4. Lessee shall not make excessive noises, cause disturbances or
vibrations or use or operate any electrical or mechanical devices that emit
excessive sound or other waves or disturbances, and Lessee shall not create
obnoxious odors (including cigarette, cigar and pipe smoke), any of which may be
offensive to the other tenants and occupants of the Complex, or that would
interfere with the operation of any device, equipment, radio, television
broadcasting or reception from or within the Complex or elsewhere and shall not
place or install any projections, antennas, aerials or similar devices inside or
outside of the Premises or on the Complex.
5. Lessee shall not waste electricity, water or air conditioning
and shall cooperate fully with Lessor to insure the most effective operation of
the Complex's heating and air conditioning systems and shall refrain from
attempting to adjust any controls other than unlocked room thermostats, if any,
installed for Lessee's use. Lessee shall keep corridor doors closed.
6. Lessee assumes full responsibility for protecting its space
from theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed and secured after normal business hours.
7. No person or contractor not employed by Lessor shall be used
to perform janitorial work, window washing, cleaning, maintenance, repair or
similar work in the Premises without the written consent of Lessor.
8. In no event shall Lessee bring into the Complex inflammables,
such as gasoline, kerosene, naphtha and benzine, or explosives or any other
article of intrinsically dangerous nature. If, by reason of the failure of
Lessee to comply with the provisions of this subparagraph, any insurance premium
for
Exhibit B
(Page 1 of 4)
<PAGE> 35
all or any part of the Complex shall at any time be increased, Lessee shall make
immediate payment of the whole of the increased insurance premium, without
waiver of any of Lessor's other rights at law or in equity for Lessee's breach
of this Lease.
9. Lessee shall comply with all applicable federal, state and
municipal laws, ordinances and regulations and building rules and shall not
directly or indirectly make any use of the Premises which may be prohibited by
any of the foregoing or which may be dangerous to persons or property or may
increase the cost of insurance or require additional insurance coverage.
10. Lessor shall have the right to prohibit any advertising by
Lessee which in Lessor's reasonable opinion tends to impair the reputation of
the Complex or its desirability as a warehouse complex for warehouse use and
other uses, and upon written notice from Lessor, Lessee shall refrain from or
discontinue such advertising.
11. The Premises shall not be used for cooking, lodging, sleeping
or for any immoral or illegal purpose. The foregoing prohibition on cooking
shall not preclude the use of small kitchen appliances as typically found in
projects comparable to the Complex.
12. Lessee and Lessee's servants, employees, agents, visitors and
licensees shall observe faithfully and comply with the foregoing rules and
regulations and such other and further appropriate rules and regulations as
Lessor or Lessor's agent may from time to time adopt. Reasonable notice of any
additional rules and regulations shall be given in such manner as Lessor may
reasonably elect.
13. Unless expressly permitted by Lessor, no additional locks or
similar devices shall be attached to any door or window and no keys other than
those provided by Lessor shall be made for any door. If more than two keys for
one lock are desired by Lessee, Lessor may provide the same upon payment by
Lessee. Upon termination of this Lease or of the Lessee's possession, Lessee
shall surrender all keys of the Premises and shall explain to Lessor all
combination locks on safes, cabinets and vaults.
14. Any carpeting cemented down by Lessee shall be installed with
a releasable adhesive. In the event of a violation of the foregoing by Lessee,
Lessor may charge the expense incurred by such removal to Lessee.
15. The water and wash closets, drinking fountains and other
plumbing fixtures shall not be used for any purpose other than those for which
they were constructed, and no sweepings, rubbish, rags, coffee grounds or other
substances shall be thrown therein. All damages resulting from any misuse of the
fixtures shall be borne by the lessee who, or whose servants, employees, agents,
visitors or licensees, shall have caused the same. No person shall waste water
by interfering or tampering with the faucets or otherwise.
16. No electric circuit for any purpose shall be brought into the
leased premises without Lessor's written permission specifying the manner in
which same may be done.
17. No motorized vehicle, and no dog or other animal shall be
allowed in offices, halls, corridors or elsewhere in the Complex.
l8. Lessee shall not throw anything out of the door or windows
or down any passageways or elevator shafts.
Exhibit B
(Page 2 of 4)
<PAGE> 36
19. All loading, unloading, receiving or delivery of goods,
supplies or disposal of garbage or refuse shall be made only through entryways
and freight elevator provided for such purposes and indicated by Lessor. Lessee
shall be responsible for any damage to the Complex or the property of its
employees or others and injuries sustained by any person whomsoever resulting
from the use or moving of such articles in or out of the leased premises, and
shall make all repairs and improvements required by Lessor or governmental
authorities in connection with the use of such articles.
20. All safes, equipment or other heavy articles shall be carried
in or out of the Premises only in a manner which will not interfere with or
cause damage to the Premises or the Complex, or to the other tenants or
occupants of the Complex. Lessee shall be responsible for any damage to the
Complex or the property of its employees or others and injuries sustained by any
person whomsoever resulting from the use or moving of such articles in or out of
the leased premises, and shall make all repairs and improvements required by
Lessor or governmental authorities in connection with the use or moving of such
articles.
21. Canvassing, soliciting and peddling In the Complex is
prohibited and all tenants of the Complex shall cooperate to prevent the same.
22. Vending machines shall not be installed without permission of
Lessor; provided, however, Lessor consents to the installation of vending
machines in the pantry or kitchen area of the Premises for the dispensing of
soda and other similar drinks to Lessee's employees and guests.
23. Canvassing, soliciting and peddling in the Complex is
prohibited and each Lessee shall cooperate to prevent the same.
24. Wherever in these Complex Rules and Regulations the word
"Lessee" occurs, it is understood and agreed that it shall mean Lessee and
Lessee's associates, agents, clerks, servants and visitors. Wherever the word
"Lessor" occurs, it is understood and agreed that it shall mean Lessor and
Lessor's assigns, agents, clerks, servants and visitors.
25. Upon twenty-four (24) hours notice, Lessor shall have the
right to enter upon the leased premises at all reasonable hours for the purpose
of inspecting the same.
26. Upon twenty-four (24) hours' notice, Lessor shall have the
right to enter the leased premises at hours convenient to Lessee for the purpose
of exhibiting the same to prospective tenants within the sixty (60) day period
prior to the expiration of this Lease, and Lessor may place signs advertising
the leased premises for rent on the windows and doors of said Premises at any
time within said sixty (60) day period.
27. Lessee and its servants, employees, customers, invitees and
guests shall, when using the common parking facilities, if any, in and around
the Complex, observe and obey all signs regarding fire lanes and no parking
zones, and when parking always park between the designated lines. Lessor
reserves the right to tow away, at the expense of the owner, any vehicle which
is improperly parked or parked in a no parking zone. All vehicles shall be
parked at the sole risk of the owner, and Lessor assumes no responsibility for
any damage to or loss of vehicles. No vehicles shall be parked overnight.
28. In case of invasion, mob, riot, public excitement, or other
commotion, Lessor reserves the right to prevent access to the Complex during the
continuance of the same by closing the doors or otherwise, for the safety of the
tenants or the
Exhibit B
(Page 3 of 4)
<PAGE> 37
protection of the Complex and the property therein. Lessor shall in no case be
liable for damages for any error or other action taken with regard to the
admission to or exclusion from the Complex of any person.
29. All entrance doors to the Premises shall be locked when the
Premises are not in use. All corridor doors shall also be closed during times
when the air conditioning equipment in the Complex is operating so as not to
dissipate the effectiveness of the system or place an overload thereon.
30. Lessor reserves the right at any time and from time to time to
rescind, alter or waive, in whole or in part, any of these Rules and Regulations
when it is deemed necessary, desirable, or proper, in Lessor's judgment, for its
beat interest or for the best interest of the tenants of the Complex.
31. Smoking shall be permitted only in the smoking areas located
outside of the building, as designated and redesignated from time to time by
Lessor, and Lessee and its servants, employees, customers, invitees and guests
shall not smoke anywhere at the Complex (other than the smoking areas designated
by Lessor), including without limitation Lessee's Premises and the sidewalks,
entrances, passages, corridors, halls, elevators and stairways of the Complex.
Initials:
Lessor
----------------------
Lessee /s/ DAVID C. PHILLIPS
----------------------
6/28/96
Exhibit B
(Page 4 of 4)
<PAGE> 38
EXHIBIT C
RIDER TO LEASE
ARTICLE XX. SECURITY DEPOSIT: Within thirty (30) days of the date hereof, Lessee
shall deposit with Lessor in cash the sum of Nine Hundred Thirty-Four Thousand,
Two Hundred and no/100th Dollars ($934,200.00), the receipt of which is hereby
acknowledged, as and for a security deposit for the full and faithful
performance by Lessee of each and every terms, covenant and condition of this
Lease. Upon determination of the total rentable square footage of the Premises,
the amount of security deposit shall thereupon be adjusted (and the parties
shall immediately make adjusting payments, as appropriate), so that the security
deposit shall equal the Base Rent for eighteen (18) months, without regard to
any rights of abatement. At Lessee's election, said security deposit may be
provided in the form of an unconditional, irrevocable letter of credit, drawable
by Lessor merely upon presentation, issued by a federally insured banking
institution reasonably acceptable to Lessor and having an expiration date (at
all times during the Lease term) of not less than thirty (30) days (i.e. so that
it is therefore required hereby, to be replaced or renewed from time to time,
during the Lease term). In the event that an Event of Default exists, Lessor may
use, apply or retain the whole or any part of the security so deposited for the
payment of any such rentals in default or for any other sum which Lessor may
expend or be required to expend by reason of Lessee's default, including, but
not limited to, any damages or deficiency in the reletting of the Premises,
whether such damages or deficiency may accrue before or after reentry by Lessor.
Lessee shall not be entitled to any interest on the security deposit. It is
expressly understood and agreed that such deposit is not an advance rental
deposit or a measure of Lessor's damages in case of Lessee's default. Upon
application of any part of the deposit by Lessor as provided herein, Lessee
shall pay to Lessor on demand the amount so applied in order to restore the
security deposit to its original amount. Any application of the deposit by
Lessor shall not be deemed to have cured Lessee's default by reason of which the
application is made.
In the event of a bona fide sale of the Complex of which the Premises
are a part, Lessor shall have the right to transfer the security deposit to its
vendee for the benefit of Lessee and thereafter Lessor shall be released of all
liability for the return of such deposit and Lessee agrees to look to said
vendee for the return of its security deposit. It is agreed that this provision
shall apply to every transfer or assignment made of the security deposit to any
new landlord.
This security deposit shall not be assigned or encumbered by Lessee. It
is expressly understood that the reentry of the Premises by Lessor for any
default on the part of Lessee prior to the expiration of the term of this Lease
shall not be deemed a termination of this Lease so as to entitle Lessee to
recover the security deposit, and the security deposit shall be retained and
remain in the possession of Lessor until the end of the term of this Lease.
Actions by Lessor against Lessee for breach of this Lease shall in no
way be limited or restricted by the amount of the security deposit and resort to
such deposit shall not waive any other rights or constitute and election of
remedies which Lessor may have.
Exhibit C
Page 1 of 8
<PAGE> 39
The requirement for Lessor to provide the security deposit shall be
suspended upon Lessee's demonstration to Lessor's reasonable satisfaction that
Lessee has a "Tangible Net Worth" of not less than $35,000,000.00, pursuant to
Lessee's then most recent annual financial statements, prepared in accordance
with generally accepted accounting principles ("GAAP") and audited and
certified by a nationally recognized public accounting firm in accordance with
generally accepted auditing standards. The security deposit requirement shall be
reinstated subsequently, in the event Lessee's "Tangible Net Worth" is less than
$35,000,000.00, based upon any financial statement prepared by Lessee and/or its
accounts. Throughout the term of this Lease, Lessee shall cause copies of all
its press releases and filings with the Securities and Exchange Commission (the
"SEC") (including without limitation all Form 1OK's, Form 10Q's, Form 8K's and
proxy statements), or if Lessee is no longer required to file statements with
the SEC, then copies of its annual and quarterly financial statements, each in a
timely fashion after issuance or filing. For purposes hereof, "Tangible Net
Worth", shall mean equity of Lessee and its subsidiaries on a consolidated basis
determined in accordance with GAAP, minus the net book value of all intangible
assets including, without limitation, good will, trademarks, trade names,
service marks, brand names, copyrights, patents and unamortized debt discount
and expense, organizational expenses and the excess of the equity in any
subsidiary over the cost of the investment in such subsidiary.
ARTICLE XXI. LOCK BOX: Lessor may from time to time designate a lock box
collection agent for the collection of rents or other charges due Lessor. In
such event, the payment made by Lessee to the lock box shall be the date of
receipt by the lock box collection agent of such payment (or the date of
collection of any such sum if payment is made in the form of a negotiable
instrument thereafter dishonored upon presentment); however, for the purpose of
this Lease, no such payment or collection shall be deemed a waiver by Lessor of
any breach by Lessee of any term, covenant or condition of this Lease nor a
waiver of any of Lessor's rights or remedies and any payment of amounts other
than that deemed due and proper by Lessor shall not prejudice Lessor in any
manner nor constitute a waiver and Lessor shall hereby be authorized to retain
the proceeds of any payments by Lessee, whether restrictively endorsed or
otherwise, and apply same to the amounts due and payable from Lessee under this
Lease without waiver.
ARTICLE XXII. PRIOR PROPOSALS: All prior proposals in respect to this Lease are
hereby terminated.
ARTICLE XXIII. TENANT IMPROVEMENTS: Lessor is providing the existing base
building and a tenant improvement allowance of approximately $990,000.00 (to be
adjusted to equal $16.50 per rentable square foot determined for the Premises,
as adjusted, the "ITT Allowance") for the tenant improvements to be constructed
by Lessor at the Premises, which tenant improvements are depicted on the space
plan described on the outline specifications attached hereto and incorporated
herein as Exhibit D (the "Tenant Improvements"). The Tenant Improvements will be
installed by Lessor and paid for by Lessee subject to Lessor providing an
allowance in the aforesaid amount. In the event Lessee desires and Lessor
approves any tenant improvements in addition to the Tenant Improvements, then,
at Lessee's election (to be determined within five (5) days of Lessor's demand
thereof) either: (i) Lessee shall pay Lessor therefor in cash upon substantial
completion thereof; or (ii) the Base Rent otherwise payable annually by Lessee
shall be increased by $120.00 for each $1,000.00 incremental increase in the
cost of Tenant Improvements. Option (ii), above, shall only be allowed in regard
to the first (approximately) $180,000.00 (to be adjusted
Exhibit C
Page 2 of 8
<PAGE> 40
to equal $3.00 per rentable square foot determined for the Premises) in Tenant
Improvement costs after the amount of the TI Allowance. Lessee shall have the
responsibility to select a layout and to reach agreement with Lessor as to
quality and type on or before September 15, 1996. Anything herein to the
contrary notwithstanding, Lessee shall be responsible for all of Lessor's
increased costs or damages (including lost rent) arising out of any failure of
Lessee to select its layout and reach agreement with Lessor as above required on
or before September 15, 1996. Lessor shall be entitled to include as a Tenant
Improvement cost a general contractor's fee, contingency and general conditions
amounts as reasonably charged for comparable projects.
On or before September 15, 1996. Lessee shall have approved a space
plan acceptable to Lessor for the Tenant Improvements, which space plan shall
have received final approval of Lessee, shall be adequate for preparation by
Lessor of working drawings for construction of such Tenant Improvements, shall
show in reasonable detail the design and appearance of the tenant finishing
materials to be used in the construction thereof (and such other detail or
description as may be necessary to adequately outline the scope of the Tenant
Improvements) and shall be in substantial conformance with the Project
Specification, attached as Exhibit E. Lessee shall be responsible for Lessor's
costs (including lost rent) arising out of delays in completing the Tenant
Improvements caused by Lessee, whether by Lessee's failure to approve the
aforesaid space plan on or before September 15, 1996 or to respond to within a
reasonable time to Lessor's inquiries or requests in connection with the Tenant
Improvements or otherwise. Lessee also agrees to refrain from ordering long lead
time items which would delay substantial completion of the Tenant Improvements.
Lessor agrees to cause the Tenant Improvements to be constructed in
accordance with the public accommodations provisions of Title III of the
Americans With Disabilities Act of 1990 (42 U.S.C. Section 12-101 et seq.), as
presently interpreted and enforced as of the date of this Lease by the
governmental bodies having jurisdiction thereof.
Lessor shall also, at its sole cost and expense, install along the
perimeter of the shell building in which the Premises is located additional
glass as depicted in the building elevation contained in Exhibit D attached
hereto.
Lessor shall also provide an allowance of approximately $90,000.00
(subject to adjustment at the rate of $1.50 per rentable square foot for the
Premises) to reimburse Lessee for its actual, out-of-pocket costs incurred in
engaging a space planning consultant for design and review of the preliminary
working drawings for the Tenant Improvements to be constructed by Lessor. Said
allowance shall be paid upon the Commencement Date, subject to the submission by
Lessee of reasonable evidence of such costs so incurred.
ARTICLE XXIV. PARKING: Lessor shall construct not less than five (5) standard,
and, in accordance with applicable building codes, compact vehicular parking
spaces on the Property for every 1,000 square feet of rentable area in the
Complex. Lessee shall be entitled to use, on a non-exclusive basis, up to five
(5) of such spaces for every 1,000 rentable square feet determined for the
Premises. Neither party shall unreasonably withhold its consent to the
identification of parking spaces required by law (e.g., handicapped spaces,
carpool spaces, etc.),
ARTICLE XXV. OPTION TO EXTEND: Lessee shall have the right, subject to the
provisions hereinafter provided, to extend the term of this Lease for one (1)
period of five (5) years on the terms and provisions of this Article. Such
five-year renewal
Exhibit C
Page 3 of 8
<PAGE> 41
period is sometimes herein referred to as the "Renewal Term". The conditions of
such Renewal Term shall be as follows:
(a) That this Lease is in full force and effect and Lessee is not
in default in the performance of any of the terms, covenants
and conditions herein contained, in respect to which notice of
default has been given hereunder which has not been or is not
being remedied in the time limited in this Lease, at the time
of exercise of the right of renewal, but Lessor shall have the
right at its sole discretion to waive the non-default
conditions herein.
(b) That such Renewal Term shall be on the same terms, covenants
and conditions as in this Lease; provided, however, the annual
Base Rent for such Renewal Term shall be an amount equal to
ninety-five percent (95%) of the fair market rental rate for
such space on the date such renewal term shall commence in
relation to comparable (in quality, location and size) space
located within a five (5) mile radius of the Property. The
determination of such fair market rental rate for the Premises
shall be made by Lessor and Lessee no later than the date that
is eight (8) months prior to commencement of the Renewal Term.
Provided Lessee has properly elected to renew the term of this
Lease, and if Lessor and Lessee fail to agree at least eight
(8) months prior to commencement of the Renewal Term upon the
fair market rental rate of the Premises, the fair market
rental rate of the Premises shall be determined by appraisal
in accordance with the provisions of Article XXXII
("Appraisal") hereof. Notwithstanding anything to the contrary
contained in this Article, in no event shall the Base Rent of
the Premises for the Renewal Term be less than the Base Rent
payable by Lessee under the terms of this Lease immediately
prior to commencement of such Renewal Term.
(c) That Lessee shall exercise its right to the Renewal Term
provided herein, if at all, by notifying Lessor in writing of
its election to exercise the right to renew the term of this
Lease no later than nine (9) months prior to the end of the
initial ten-year term. Upon notification with respect to such
renewal, and for one month thereafter, the parties hereto
shall make a good faith effort to agree upon the fair market
rental rate of the Premises for the Renewal Term. In the event
that Lessor and Lessee fail to agree within the one month time
period set forth in this subparagraph (c), the fair market
rental rate of the Premises for such Renewal Term shall be
determined by appraisal in the manner set forth in Article
XXXII hereof. Any determination by appraisal or any agreement
reached by the parties hereto with respect to such fair market
rental rate and the resulting Base Rent of the Premises for
the Renewal Term shall be expressed in writing and shall be
executed by the parties hereto, and a copy thereof delivered
to each of the parties.
ARTICLE XXVI. SEPARATE METERING: Notwithstanding anything to the contrary
contained in Article II ("Additional Rent") of the Lease, the water, gas, heat,
light, power, electricity, telephone and other utilities and services supplied
to the Premises, if separately metered, shall be paid for by Lessee upon receipt
of invoice therefor. Any such separately metered cost paid for by Lessee in
accordance with this Article shall be excluded from the definition of "Operating
Expenses" set forth in Article II, it being agreed that this Article shall
govern and control as to the payment thereof by Lessee.
Exhibit C
Page 4 of 8
<PAGE> 42
ARTICLE XXVII. CONFIDENTIALITY: Lessee agrees to keep this Lease and the terms
hereof in confidence, and not to publish or disclose, in whole or in part, the
same without Lessor's prior written consent, which consent may be withheld in
Lessor's sole discretion.
ARTICLE XXVIII. CONSTRUCTION WARRANTY: Notwithstanding anything to the contrary
contained in this paragraph, Lessor shall guarantee the Tenant Improvements
against defective workmanship and/or materials for a period of one (1) year from
the date of substantial completion of the Tenant Improvements and shall
guarantee the shell building, the parking area and other improvements surveying
the Premises that have been constructed by Lessor on the Property against
defective workmanship and/or materials for a period of one (1) year from the
date on which the City of Phoenix issues its Letter of Compliance for such shell
building and other improvements and Lessor agrees to repair or replace any
defective item in the Tenant Improvements or such other improvements occasioned
by poor workmanship and/or materials during the applicable one-year period, and
Lessor's performance of such one-year guarantee shall be the sole and exclusive
obligation of Lessor with respect to such defective workmanship and/or
materials, and Lessee's rights to enforce such one-year guarantee against Lessor
shall be Lessee's sole and exclusive remedy with respect to such defective
workmanship and/or materials in limitation of any contract, warranty or other
rights, whether express or implied, that Lessee may otherwise have under
applicable law. To the extent warranties of any of Lessor's subcontractors or
suppliers remain enforceable after the expiration of Lessor's one (1) year
guarantee described above, Lessor shall cooperate with Lessee to enforce same
for the parties mutual benefit.
Subject to Articles II, XII and XIII hereof and to Lessee's obligations
hereunder, except to the extent of any damage caused by the fault or negligence
of Lessee, Lessor shall maintain and keep in good order, condition and repair
the structural components of the shell building in which the Premises is
located. All costs and expenses incurred in connection therewith shall be
included in Operating Expenses, except for any capital improvements that are
excluded pursuant to Article II, which excluded capital improvements shall not
be included in Operating Expenses.
ARTICLE XXIX. MEASUREMENT: On or before the sixtieth (60th) day after Lessor
delivers the Premises, Lessor shall cause the Premises to be measured and the
square footage thereof determined in accordance with the Building Owners and
Managers Association (BOMA) Standard Method of Measurement. In the event the
square footage of the Premises as determined by Lessor's architect shall differ
from 60,000, the Base Rent, Lessee's Pro Rata Share of Operating Expenses and
Real Estate Taxes, and the TI Allowance, the Relocation Allowance and the space
planning consultant allowance shall be equitably adjusted.
ARTICLE XXX. RENT ABATEMENT: Notwithstanding anything contained in Article I
("Base Rent") or Article II ("Additional Rent") hereof to the contrary, the Base
Rent to be paid by Lessee under Article I during the first three (3) months of
the initial ten-year term of this Lease shall be abated as a concession to
Lessee by Lessor.
ARTICLE XXXI. RELOCATION ALLOWANCE: Lessor will reimburse Lessee for relocation
costs incurred by Lessee in an aggregate amount of approximately $120,000.00
(subject to adjustment at the rate of $2.00 per rentable square foot for the
Premises). Any relocation costs submitted to Lessor for reimbursement must be
supported by reasonable documentation, such as an invoice. Lessor agrees to
reimburse Lessee for submitted relocation costs
Exhibit C
Page 5 of 8
<PAGE> 43
within thirty (30) days after Lessee's occupancy of the Premises and Lessor's
receipt of such documentation.
ARTICLE XXXII. APPRAISAL: Within seven (7) days after the expiration of the
period within which Lessor and Lessee were to reach agreement on the fair market
rental rate as provided in Article XXV, Lessor and Lessee shall mutually appoint
an appraiser that has at least five (5) years full-time commercial appraisal
experience and is a member of the American Institute of Real Estate Appraisers.
If Lessor and Lessee are unable to agree upon an appraiser, either of the
parties to this Lease, after giving five (5) days prior written notice to the
other party, may apply to the then president of the Phoenix Board of Realtors
for the selection of an appraiser who meets the foregoing qualifications, which
selection shall be made within fifteen (15) days. The appraiser selected by the
president of the Board of Realtors shall be a person who has not previously
acted in any capacity for either party, its affiliates or leasing agents and who
meets the above experience qualifications. Lessor and Lessee shall each, within
seven (7) days of the appointment (either by agreement or selection) of the
appraiser, submit to the appraiser such parties' determination of the fair
market rental rate for purposes of Article XXV. Within twenty (20) days after
the conclusion of the above-referenced seven-day period, the appraiser shall
review each of the Lessor's and Lessee's submittals and shall review such other
information as such appraiser shall deem necessary (a party may furnish the
appraiser with any information it deems relevant) and shall determine which of
the two submittals is the more reasonable. The appraiser shall immediately
notify the parties of his or her selection, and such selection shall be
multiplied by ninety-five percent (95%) to determine the Base Rent of the
Premises for the Renewal Term; provided, however, that the Base Rent of the
Premises for the Renewal Term shall in no event be less than the Base Rent
payable by Lessee under the terms of this Lease immediately prior to the
commencement of the Renewal Term. If, upon the expiration of the
above-referenced seven-day period, the appraiser shall have received one of the
party's submittals as to the fair market rental rate, but not both, the
appraiser shall designate the submitted item as the fair market rental rate to
be used to calculate the Base Rent for the Premises for the Renewal Term in the
manner provided in the previous sentence, and the appraiser shall immediately
notify the parties of same. Notwithstanding the foregoing two sentences, in no
event shall the Base Rent of the Premises for the Renewal Term be less than the
Base Rent payable by Lessee under the terms of this Lease immediately prior to
commencement of the Renewal Term.
ARTICLE XXXIII. FIRST RIGHT OF OFFER: Subject to the terms and conditions set
forth in this Article XXXIII, Lessor hereby grants to Lessee the first right
("First Right") to be offered by Lessor the opportunity to lease the
approximately rentable square feet of space shown as designated on
Exhibit attached hereto and incorporated herein by this reference. If, at any
time while this First Right is in effect, Lessor should intend to lease such
space to a third party tenant, then Lessor shall first offer to lease such space
to Lessee. In the event Lessor offers to Lease such space to Lessee pursuant to
this Article XXXIII, Lessee shall notify Lessor in writing within five (5) days
of its receipt of Lessor's notice whether Lessee desires to offer to lease such
space from Lessor. If Lessee notifies Lessor in writing within such five-day
period that Lessee does not desire to lease such space, or if Lessee does not
respond in writing to Lessor's notice within such five-day period, then, in
either of the above instances, Lessor's obligations under this Article XXXIII
shall automatically terminate and be of no further force or effect and Lessor
shall thereafter be entitled to lease such space. If Lessee notifies Lessor in
writing within such two-day period that Lessee desires to lease such space from
Lessor, the
Exhibit C
Page 6 of 8
<PAGE> 44
parties shall thereafter negotiate for Lessee's lease of the space from Lessor;
provided, however, that if Lessor and Lessee fail to mutually agree upon the
terms of Lessee's lease of such space and to execute a written amendment to this
Lease within ten (10) business days of the date of Lessee's receipt of written
notice (which amendment shall contain the terms mutually agreed to by the
parties for Lessee's lease of such space), then Lessor's obligations under this
Article XXXIII shall automatically terminate and be of no further force or
effect at the end of such ten (10) business days period. Notwithstanding
anything to the contrary contained in this Article XXXIII, in the event Lessee's
First Right as set forth in this Article XXXIII is still in effect at the end of
the initial ten-year term of this Lease, such First Right shall automatically
terminate on the last day of the initial ten-year term of this Lease. The
purpose of this Article is to provide notice to Lessee so that Lessee may be in
a position to offer to lease such space on a competitive basis with others, and,
notwithstanding anything to the contrary contained in this Article XXXIII,
nothing in this Article XXXIII shall be deemed to be an option or right of first
refusal.
ARTICLE XXXIV. OPTION TO EXPAND: Between the end of the 60th month and the end
of the 72nd month of the Lease term, Lessor shall notify Lessee in writing of
the location in the Office Complex of approximately 20,000 rentable square feet
of space into which Lessee shall have an option to expand adjacent to the
Premises and of an effective date for the expansion area (which effective date
shall be approximately months after Lessor's notice), and such addition to the
Premises shall be governed by the provisions of this Lease (including provisions
relating to renewals), to the extent the same are not inconsistent with the
following terms of this Article. In the event Lessee needs such additional
expansion space in the Complex, Lessee shall notify Lessor on or before fifteen
(15) days after Lessor's notice that Lessee exercises its expansion rights to
such space designated by Lessor. In the event Lessee so notifies Lessor, Lessor
shall deliver to Lessee an amendment of this Lease adding such additional space
to the Premises demised hereunder, such space being added on the effective date
designated therefor in Lessor's notice, for the balance of the term of this
Lease (as the same may be extended pursuant to Article XXV ("Option to Extend")
hereof. Additional annual Base Rent shall be payable for the additional area in
the amount of said area multiplied by the then current (as of the effective
date) fair market annual Base Rent (considering tenant improvements and duration
of term) for such Premises payable monthly, in advance, at the rate of
one-twelfth (1/12th) of said annual fair market Base Rent per month. The
"percent" for Lessee's Pro Rata Share of Excess Operating Expenses for such
additional space shall be a "percent" equal to the rentable area of the
additional space and divided by the rentable office area of the Complex subject
to adjustment as provided in Article II ("Additional Rent") hereof. Such change
in the Base Rent and such percent shall be applicable from and after the
effective date as to the additional area as designated by Lessor. All
redecorating of each respective space shall be done after the effective date and
shall be Lessee's responsibility. If any portion thereof has not been
theretofore fitted up for occupancy, Lessor will install therein (at Lessor's
sole cost and expense) Lessor's then building standard improvements. Lessee
shall designate its layout for same so as not to delay occupancy of such space
by the said effective date. Lessee shall execute and redeliver to Lessor the
appropriate amendment of Lease promptly after receipt and so as to not delay any
tenant improvements. The fair market Base Rent for such applicable space shall
be determined in relation to comparable (in quality and location) office space
located in the relevant market area (considering tenant improvements and
duration of term). The fair market Base Rent of the additional space shall be
determined as of the effective date of the expansion. If
Exhibit C
Page 7 of 8
<PAGE> 45
Lessor and Lessee fail to agree within thirty (30) days after exercise by Lessee
of its rights to expand the Premises, upon the fair market Base Rent for such
expansion area, the amount of the fair market Base Rent for such area shall be
determined by appraisal in accordance with the provisions of Article XXXII
("Appraisal") hereof. The fair market Base Rent shall be based on the assumption
that the use of said expansion area shall be comparable to Lessee's then
existing use of the Premises and to the use of the other leasable area in the
Complex.
ARTICLE XXXV. MEMORANDUM. At the request of either party after the execution
hereof, the parties shall agree on a form of a memorandum of Lease for the
purpose of providing constructive notice of Lessee's leasehold interest, and
shall cause the same to be executed and recorded in the Maricopa County
Recorder's Office.
Initials:
Lessor
----------------------
Lessee /s/ DAVID C. PHILLIPS
----------------------
6/28/96
Exhibit C
Page 8 of 8
<PAGE> 46
EXHIBIT D
[To be added upon approval pursuant to
Article XXIII of Exhibit C]
<PAGE> 47
EXHIBIT E
Project Specifications
<PAGE> 48
EXHIBIT E
PROJECT SPECIFICATIONS
SYNTELLECT, INC.
JUNE 28, 1996
GENERAL
BUILDING
Total Square Feet: Approximately 66,000 square feet, (125,000 square
feet total building).
Site Area: 11.9 acres (approximately).
SCHEDULE
Occupancy Date: Upon substantial completion, on or before
March 3, 1997.
PARKING
Parking Required: 5:1000.
WARRANTY
Warranty: One (1) year.
ADA/Americans with Building to be designed and constructed to meet
Disabilities Act: ADA codes.
SITE WORK
SUE PREPARATION Soils report by a registered Arizona Soils
Engineer.
Building pad to be built according to soils report
recommendations, with soils engineer providing
on-site monitoring during construction.
SITE DEVELOPMENT
Exterior Concrete: Sidewalks to all parking areas and at all exits.
Concrete curbs around all paved areas and
planters.
<PAGE> 49
SYNTELLECT, INC. June 28, 1996
PROJECT SPECIFICATIONS Page 2
- --------------------------------------------------------------------------------
Sidewalks: 4" thick minimum.
Curbs: MAG standard vertical curb or curb & gutter (8"
thick concrete). Curbs around entire paved
perimeter.
Paving/Auto: Standard bituminous paving in accordance with
geotechnical report.
All paved areas: To be bound with concrete curbs and v-gutters, if
required, to assist sheet drainage.
Water Service: Yard hydrants located around facility. 2"
domestic service (minimum).
Sewage: Hook up to include all governmental costs and
fees.
Storm Drainage: As required by city.
Exterior Lighting: 1 foot Candle minimum in all areas.
(Parking Area)
BASE BUILDING
ELECTRICAL 2500 amps of 277/480 three phase with K-13 rated
transformers for all 120/208 stepdown for
computer loads.
HVAC HEATING/COOLING Rooftop gas or electrical package units per the
requirements of the office build-out to maintain
74 degrees in all areas during summer and 68
degrees during winter (tenant to approve).
All office roof-top mechanical equipment will be
screened from view by exterior parapet wall.
BUILDING STRUCTURE
AND EXTERIOR ENVELOPE
Building Exterior: Split face block or architecturally enhanced
concrete tilt panel. Reflective, double-pane
glass. Mini-blinds (Levelor brand) on all
exterior windows. R-11 insulated dry wall,
finished for paint on interior of all
exterior walls.
<PAGE> 50
SYNTELLECT, INC. June 28, 1996
PROJECT SPECIFICATIONS Page 3
- --------------------------------------------------------------------------------
Structural Concrete: Typical 4" slab in office areas, 6" in shipping
and configuration areas, or per tenant's
requirements within reason. 98% compaction
sub base.
Contraction Joints: 15' both ways minimum, caulked in all
configuration and shipping areas.
Bay Size: 40' x 40' with steel pipe columns minimum.
Roof Insulation: R-30 minimum.
Wall Insulation: R-11 minimum.
Glass Insulation: R-2 minimum.
Loading Dock: One (1) cut in dock high loading areas with
one (1) 9 x 12 electric insulated sectional
overhead doors.
Windows: Fixed - double pane.
Roofing: Four-ply built-up roof with a 25 lb. base,
two (2) 15 lb. plys, and a 90 lb, fiberglass cap
sheet minimum (or equal).
All rooftop mechanical equipment shall be properly
flashed and equipped with an insulated curb no
less than 12". Metal roof deck shall be 1.5",
22 gauge plywood system acceptable. All roof
areas shall slope to exterior roof drains.
Ten (10) year unlimited labor and material
warranty.
INTERIOR FINISHES 2' x' 4' T-bar grid with acoustic tile at 10'
height; sheetrocked metal framed walls taped,
textured, and painted with two (2) coats of
interior semi-gloss paint; stain grade doors
with commercial hardware.
Interior Clearance Height: 10 feet floor to ceiling grid in office area,
15 feet floor to ceiling grid in configuration
and shipping areas.
Lighting: 50 F.C. of 2' x 4' lay-in lighting with prismatic
lens and electronic ballast in configuration and
shipping area, and office areas to accommodate 25
workstations per 40 x 40 bay. Battery pack exit
signs and lighting.
<PAGE> 51
SYNTELLECT, INC. June 28, 1996
PROJECT SPECIFICATIONS Page 4
- --------------------------------------------------------------------------------
Open Office Areas: Within offices, outlets provided every eight (8)
lineal feet of wall with a telephone and data
conduits and outlet in each. J-boxes above the
ceiling tile on an approximately 15' x 15' grid
for power distribution, to accommodate 25
workstations per 40 x 40 bay.
Washrooms: Washroom partitions shall be ceiling hung, metal.
Washrooms shall receive a plastic laminate vanity
for recessed sinks. Ceramic tile walls and floors.
Fans: Six (6) exhaust fans in restrooms and lunchrooms
ducted roof.
Fire Extinguishers: Fire extinguishers to be provided as code
requires.
Flooring: Fifteen and No/100 Dollars ($15.00) per yard
installed allowance (see note*).
Fire Protection System: A complete fire protection sprinkler system shall
be provided to meet all city codes, with
semi-recessed heads.
Walls: Walls to be slab to slab surrounding the
configuration and shipping area (see note*).
Doors & Frame: Provide rated doors and hardware for Tenant's
exits.
Provide double glass entrance doors, structural
support, frame and all hardware with sidelights.
Hardware: Provide coat hooks behind office doors
(see note*).
Install locks on all interior office doors.
Provide Tenant with two sets of keys for each
door (see note*).
Painting: Landlord shall paint all interior surface of
exterior walls and columns.
Security: Provide a facility access control system,
including all hardware and software with
electronic numeric cypher readers at each
entrance (see note*).
*Note: Items included in Tenant Improvement Allowance.
<PAGE> 52
SYNTELLECT, INC. June 28, 1996
PROJECT SPECIFICATIONS Page 5
- --------------------------------------------------------------------------------
ARCHITECTURAL WORK Complete architectural working drawings prepared
by a registered Arizona Architect. Included shall
be all necessary architectural, structural,
mechanical, electrical, civil and landscape
drawings. Topographic survey from a registered
Arizona Civil Engineer.
City required building permits and plan check
fees.
CONCRETE WORK 4" thick concrete 3,500 psi floor slab, 6" in
shipping and configuration areas, over 3" of
A.B.C. designed to provide 3,500 psi at 28 days
and a crack free surface with saw cutting of
control joints a maximum of 1 5' by 15'. Concrete
cured after placing and sealed with two (2) coats
of seater at completion of project.
Sidewalks at street frontages.
7 and 28 day strength tests for each 50 cubic
yards of concrete poured.
PLUMBING Six (6) restrooms [3 men, 3 women] for office
personnel with (2) 30-gallon water heaters and a
total of twenty-eight (28) wall hung water
closets, twenty-four (24) lavatories, and eight
(8) urinals.
Bathrooms complete with ceramic tile on walls,
ceiling hung toilet partitions, urinal screens,
mirrors, paper holders, soap dispensers, towel
dispensers and ceramic tile flooring.
Four (4) drinking fountains, three (3)
lunchrooms sinks, two (2) utility sinks, four (4)
floor drains, four (4) hose bibs.
INSULATION 3.5" batt insulation for sound deadening around
bathrooms.
MISCELLANEOUS Each 40 x 40 bay to be able to provide power,
data and telephone to 25 workstations per bay.
Painting of exterior walls one (1) coat exterior
block fillprimer, two (2) cost of exterior
poly-vinyl paint.
Power company charges for design of electrical
service paid by developer.
<PAGE> 53
SYNTELLECT, INC. June 28, 1996
PROJECT SPECIFICATIONS Page 6
- --------------------------------------------------------------------------------
Masonry trash enclosure with concrete stab to
match building.
Telephone conduits and US West main trunks brought
to central phone room with telephone mounting
boards.
Final cleanup.
Sales tax.
Fire hydrant per fire department.
CONSTRUCTION REQUIREMENTS
Interior Floors: To be level within 1/8" in 10' to accommodate
furniture systems. With survey.
MASONRY 8" x 8" x 16" CMU exterior block walls with a 20'
overall height utilizing split-face only.
TILT PANELS Architecturally enhanced.
TENANT IMPROVEMENTS
ALLOWANCE See lease.
MISCELLANEOUS
ALLOWANCE SUMMARY Any allowance not fully utilized will accrue to
the benefit of the tenant in the form of a rental
credit.
Landscaping: One Hundred Thousand and No/100 Dollars
($1 00,000.00).
Signage: Five Thousand and No/I 00 Dollars ($5,000.00).
Interior Architecture/ One and 50/1 00 Dollars ($1.50) per square foot.
Engineering/Construction
Management:
GENERAL REQUIREMENTS
Environmental Study: Included.
<PAGE> 54
SYNTELLECT, INC. June 28, 1996
PROJECT SPECIFICATIONS Page 7
- --------------------------------------------------------------------------------
Project Engineers/ Included in Base Building cost.
Architect Fees:
Geotechnical Investigation: Included.
Taxes/Fees: Included in Base Building cost.
Temporary Facilities: Included in Base Building cost.
Insurance Coverage: Included in Base Building cost.
GC and Fee: Not to exceed ten percent (10%).
<PAGE> 55
FIRST AMENDMENT TO LEASE
This First Amendment To Lease dated as of this 16th day of October,
1996, by and between Opus Southwest Corporation, a Minnesota corporation
("Lessor") and Syntellect, Inc., a Delaware corporation ("Lessee").
RECITALS
WHEREAS, pursuant to that Lease dated June 28, 1996, the Lessor and
Lessee agreed upon the lease of certain premises of approximately 60,000
rentable square feet located in the office and warehouse complex known and
described as Northgate Center, located northwest of the intersection of
Beardsley Road and Intersection 17, Phoenix, Arizona; and
WHEREAS, the parties intend to modify the Lease pursuant to the express
provisions below;
THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. The parties by this Amendment intend to increase the
approximate rentable size of the Premises from 60,000 square feet to 70,564
square feet in those places in the Lease where it appears. The agreement to
measure the Premises within sixty (60) days of its delivery, pursuant to Article
XXIX shall not be affected hereby.
2. Article XX. Security Deposit, is hereby amended so that the
amount of the security deposit is increased from $934,200.00 to $1,100,000.00.
3. Article XXIII. Tenant Improvements, is hereby amended as
follows:
a. The reference to "$990,000.00" (i.e., the "TI
Allowance") is hereby changed to $1,164,306.00.
b. The reference to "$180,000.00" (i.e. the additional
cost of Tenant Improvements which may be factored into the Base Rent rate) is
hereby changed to $211,692.00.
C. The reference to "$90,000.00" (i.e., the space
planning allowance) is hereby changed to $105,846.00.
4. Article XXIV. Parking, is amended to replace the second
sentence with the following: "Lessee shall be entitled to use, on a
non-exclusive basis, up to 350 parking spaces."
5. Article XXIX. Measurement, is amended to change the reference
from "60,000" to "70,564" square feet.
<PAGE> 56
6. Article XXXI. Relocation Allowance, is hereby amended to
change the reference from "$120,000.00" to "$141,128.00".
7. Article XXXIII. First Right of Offer, is hereby amended to
specify that the First Right applies to the approximately 10,000 rentable square
feet of space shown as designated on Exhibit A-1 attached hereto and
incorporated herein by this reference.
8. Article XXXIV. Option to Expand, is hereby amended to insert,
in the blank located on the seventh line, the number "two (2)" as the number of
months after Lessor's notice for which the effective date of the expansion area
lease shall occur.
9. Exhibit "A" and Exhibit "A-1" attached hereto are hereby
substituted for the same exhibits in the Lease.
10. Article 2.d is hereby changed so that the reference to
"49.06%" is changed to "51.66%".
Except as expressly modified, the parties agree that the Lease remains
enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Lease as of the day and year first above written.
LESSOR:
OPUS SOUTHWEST CORPORATION
a Minnesota corporation
By: /s/ Thomas W. Roberts
---------------------
Thomas W. Roberts
Its: President
LESSEE:
SYNTELLECT INC.
a Delaware corporation
By: /s/ Neal L. Miller
------------------
Neal L. Miller
Its: Vice President-
Chief Financial
Officer
<PAGE> 57
EXHIBIT "A"
Site Plan
Total Square Footage
136,602
[MAP OF SITE PLAN]
NORTHGATE BUSINESS CENTER
PHOENIX, ARIZONA
[OPUS LOGO]
[SITE PLAN MAP LEGEND]
DATE: JOB: 96012
- -------------------------------------------------------------------------------
[BDG LOGO] 5112 N. 40th St., Suite 202
Phoenix, Arizona 85018
Butler Design Group 602-957-1800 Phone
602-957-7222 Fax
Architects & Planners
<PAGE> 58
EXHIBIT "A-1"
Floor Plan
[MAP OF FLOOR PLAN]
NORTHGATE BUSINESS CENTER
SYNTELLECT INC.
NORTHGATE
20401 NORTH 29TH AVENUE
PHOENIX, ARIZONA 85027
[LOGO]
<PAGE> 1
EXHIBIT 10.8(f)
AMENDMENT NUMBER FIVE (5) TO
AGREEMENT FOR THE LICENSING OF IBM TECHNOLOGY
AGREEMENT NUMBER JWQ9308
WHEN EXECUTED, this document shall become Amendment Number Five (5)
(hereinafter referred to as "Amendment") to Agreement for the Licensing of IBM
Technology Number JWQ9308 (hereinafter referred to as "Agreement") dated
February 3, 1993 by and between Syntellect, Inc. (hereinafter referred to as
"Syntellect") and International Business Machines Corporation (hereinafter
referred to as "IBM").
WHEREAS, Syntellect and IBM hereby agree to modify and amend the Agreement as
set forth herein. All other terms and conditions of the Agreement not expressly
modified by this Amendment, or any other previous Amendments not superseded,
shall remain unchanged and shall remain in full force and effect.
Supplement Number 01 dated February 3, 1993, for the licensing of IBM's
CallPath DirectTalk/2 Object Code, is hereby amended to incorporate the
LICENSED WORK called IBM CallPath DirectTalk/2 Version 2 Voice Processing
System. Therefore Supplement Number 01 is hereby modified as follows:
1. Refer to Section 1.1, Description of Licensed Work, after
"...DirectTalk/2" and before "under" in line 2 insert "and IBM
CallPath DirectTalk/2 Version 2 Voice Processing System".
2. Refer to Section 5.1 LICENSED CODE and add the following:
One copy of Golden Diskettes containing CallPath DirectTalk/2
Version 2 Voice Processing System Object Code......... 60 DAC
3. Section 5.2 LICENSED DOCUMENTATION and add the following:
DirectTalk/2 General Information and Planning Guide ....... D
DirectTalk/2 Application Programmers Guide ................ D
DirectTalk/2 Installation Guide ........................... S
DirectTalk/2 Administrator's Guide ........................ S
DirectTalk/2 Application Development Guide ................ S
DirectTalk/2 DirectTalk/2 User's Quick Reference .......... S
LANGUAGE PUBLICATIONS
DT/2 Language Pub for Afrikaans ........................... S
DT/2 Language Pub for Arabic .............................. S
DT/2 Language Pub for Belgian French ...................... S
DT/2 Language Pub for Catalan ............................. S
DT/2 Language Pub for Danish .............................. S
DT/2 Language Pub for Dutch ............................... S
DT/2 Language Pub for Finnish ............................. S
DT/2 Language Pub for Flemish ............................. S
<PAGE> 2
DT/2 Language Pub for French..................................S
DT/2 Language Pub for German..................................S
DT/2 Language Pub for Italian.................................S
DT/2 Language Pub for Norwegian...............................S
DT/2 Language Pub for Portuguese..............................S
DT/2 Language Pub for Spanish.................................S
DT/2 Language Pub for Swedish.................................S
DT/2 Language Pub for Swiss French............................S
DT/2 Language Pub for Swiss German............................S
DT/2 Language Pub for Swiss Italian...........................S
DT/2 Language Pub for UK English..............................S
DT/2 Language Pub for US English..............................S
DT/2 Language Pub for Brazil Portuguese.......................S
DT/2 Language Pub for Mexican Spanish.........................S
DT/2 Language Pub for Canadian French.........................S
DT/2 Language Pub for Bahasa Malaysian........................S
DT/2 Language Pub for Cantonese...............................S
DT/2 Language Pub for Japanese................................S
DT/2 Language Pub for Korean..................................S
DT/2 Language Pub for Traditional Chinese.....................S
NOTE: D = Available on Demand
S = Shipped with LICENSED WORK
4. Refer to Attachment 1 and add the following:
CallPath DirectTalk/2 Version 2 Program Names and Part Numbers
PROGRAM NUMBER: 5871-AAA
Program Name Part Number
------------ -----------
DirectTalk/2 Version 2 - 2 Line System............. 97G5591
DirectTalk/2 Version 2 - 4 Line System............. 97G5592
DirectTalk/2 Version 2 - 8 Line System............. 97G5593
DirectTalk/2 Version 2 - 12 Line System............. 97G5594
DirectTalk/2 Version 2 - 16 Line system............. 97G5595
DirectTalk/2 Version 2 - 24 Line System............. 97G5596
DirectTalk/2 Version 2 - 32 Line System............. 97G5597
DirectTalk/2 Version 2 - 48 Line System............. 97G5598
DirectTalk/2 Version 2 Communication Feature........ 97G5583
DirectTalk/2 Version 2 Voice Messaging Option....... 97G5584
DirectTalk/2 Version 2 Voice Recognition Option..... 97G5585
DirectTalk/2 Version 2 Text-to-Speech Option........ 97G5586
DirectTalk/2 Version 2 Telecomm. Dev. for the Deaf.. 97G5587
DirectTalk/2 Version 2 US English Language Package.. 97G5588
DirectTalk/2 Version 2 Canadian French Language Pkg. 97G5589
DirectTalk/2 Version 2 Mexican Spanish Language Pkg. 97G5590
<PAGE> 3
PROGRAM NUMBER: 5873-AAA
Line Upgrade
DirectTalk/2 Version 2 - 2 to 4 Line Upgrade .......... 97G5599
DirectTalk/2 Version 2 - 2 to 8 Line Upgrade .......... 97G5600
DirectTalk/2 Version 2 - 2 to 12 Line Upgrade .......... 97G5601
DirectTalk/2 Version 2 - 2 to 16 Line Upgrade .......... 97G5602
DirectTalk/2 Version 2 - 2 to 24 Line Upgrade .......... 97G5603
DirectTalk/2 Version 2 - 2 to 32 Line Upgrade .......... 97G5604
DirectTalk/2 Version 2 - 2 to 48 Line Upgrade .......... 97G5605
DirectTalk/2 Version 2 - 4 to 8 Line Upgrade .......... 97G5606
DirectTalk/2 Version 2 - 4 to 12 Line Upgrade .......... 97G5607
DirectTalk/2 Version 2 - 4 to 16 Line Upgrade .......... 97G5608
DirectTalk/2 Version 2 - 4 to 24 Line Upgrade .......... 97G5609
DirectTalk/2 Version 2 - 4 to 32 Line Upgrade .......... 97G5610
DirectTalk/2 Version 2 - 4 to 48 Line Upgrade .......... 97G5611
DirectTalk/2 Version 2 - 8 to 12 Line Upgrade .......... 97G5612
DirectTalk/2 Version 2 - 8 to 16 Line Upgrade .......... 97G5613
DirectTalk/2 Version 2 - 8 to 24 Line Upgrade .......... 97G5614
DirectTalk/2 Version 2 - 8 to 32 Line Upgrade .......... 97G5615
DirectTalk/2 Version 2 - 8 to 48 Line Upgrade .......... 97G5616
DirectTalk/2 Version 2 -12 to 16 Line Upgrade .......... 97G5617
DirectTalk/2 Version 2 -12 to 24 Line Upgrade .......... 97G5618
DirectTalk/2 Version 2 -12 to 32 Line Upgrade .......... 97G5619
DirectTalk/2 Version 2 -12 to 48 Line Upgrade .......... 97G5620
DirectTalk/2 Version 2 -16 to 24 Line Upgrade .......... 97G5621
DirectTalk/2 Version 2 -16 to 32 Line Upgrade .......... 97G5622
DirectTalk/2 Version 2 -16 to 48 Line Upgrade .......... 97G5623
DirectTalk/2 Version 2 -24 to 32 Line Upgrade .......... 97G5624
DirectTalk/2 Version 2 -24 to 48 Line Upgrade .......... 97G5625
DirectTalk/2 Version 2 -32 to 48 Line Upgrade .......... 97G5626
PROGRAM NUMBER: 5783-AAA
Program Package Upgrades From Version 1.x
DirectTalk/2 Version 2 - 2 to 4 Line Program Upgrade 97G5627
DirectTalk/2 Version 2 - 2 to 8 Line Program Upgrade 97G5628
DirectTalk/2 Version 2 - 2 to 12 Line Program Upgrade 97G5629
DirectTalk/2 Version 2 - 2 to 16 Line Program Upgrade 97G5630
DirectTalk/2 Version 2 - 2 to 24 Line Program Upgrade 97G5631
DirectTalk/2 Version 2 Communications Upgrade ...... 97G5632
DirectTalk/2 Version 2 Voice Messaging Upgrade ..... 97G5633
DirectTalk/2 Version 2 Voice Recognition Upgrade ... 97G5634
DirectTalk/2 Version 2 Text-to-Speech Upgrade ...... 97G5635
<PAGE> 4
DirectTalk/2 Version 2 US English Language Upgrade 97G5636
DirectTalk/2 Version 2 Canadian French Language Upgrade 97G5637
DirectTalk/2 Version 2 Mexican Spanish Language Upgrade 97G5638
IN WITNESS WHEREOF, Syntellect and IBM have caused this Amendment to be
executed by their duly authorized representatives as set forth above.
Accepted and Agreed To:
INTERNATIONAL BUSINESS SYNTELLECT, INC.
MACHINES CORPORATION
By: /s/ William T. Maxwell By: /s/ Thomas R. Mayer
---------------------------- -------------------------
NAME: William T. Maxwell NAME: Thomas R. Mayer
TITLE: Director OEM Marketing TITLE: President & CEO
DATE: 2/13/1995 DATE: 2/8/95
<PAGE> 1
EXHIBIT 10.8(g)
AMENDMENT NUMBER SIX (6) TO
AGREEMENT FOR THE LICENSING OF IBM TECHNOLOGY
AGREEMENT NUMBER JWQ9308
WHEN EXECUTED, this document shall become Amendment Number Six (6) (hereinafter
referred to as "Amendment") to Agreement for the Licensing of IBM Technology
Number JWQ9308 as amended (hereinafter referred to as "Agreement") dated
February 3, 1993 by and between Syntellect, Inc. (hereinafter referred to as
"Syntellect") and International Business Machines Corporation (hereinafter
referred to as "IBM").
WHEREAS, Syntellect and IBM hereby agree to modify and amend the Agreement as
set forth herein. All other terms and conditions of the Agreement not expressly
modified by this Amendment, or any other previous Amendments, shall remain
unchanged and shall remain in full force and effect.
1. SECTION 5.0, CONTRACT PERIOD, Subsections 5.1 and 5.2 are modified to read
as follows:
5.1 The term of any supplement under this Agreement, excluding
Supplement Number 04 which term remains five (5) years, shall
begin on its Commencement Date and shall expire seven (7) years
thereafter, unless terminated earlier in accordance with section
6.0 below.
5.2 The term of this Agreement shall commence on the date signed
by the last signatory hereto and shall expire seven (7) years
from such date unless terminated earlier in accordance with
section 6.0 below.
IN WITNESS WHEREOF, Syntellect and IBM have caused this Amendment to be
executed by their duly authorized representatives as set forth above.
Accepted and Agreed To:
INTERNATIONAL BUSINESS SYNTELLECT, INC.
MACHINES CORPORATION
BY: /s/ William T. Maxwell BY: /s/ Thomas R. Mayer
--------------------------- ------------------------------
NAME: William T. Maxwell NAME: Thomas R. Mayer
TITLE: Director, Networking OEM TITLE: President & CEO
DATE: May 23, 1995 DATE: 6 June, 1995
Page 1 of 1
<PAGE> 1
EXHIBIT 10.8(h)
AMENDMENT NUMBER SEVEN (7) TO
AGREEMENT FOR THE LICENSING OF IBM TECHNOLOGY
AGREEMENT NUMBER JWQ9308
WHEN EXECUTED, this document shall become Amendment Number Seven (7)
(hereinafter referred to as "Amendment") to Agreement for the Licensing of IBM
Technology Number JWQ9308 (hereinafter referred to as "Agreement") dated
February 3, 1993 by and between Syntellect, Inc. (hereinafter referred to as
"Syntellect") and International Business Machines Corporation (hereinafter
referred to as "IBM").
WHEREAS, Syntellect and IBM hereby agree to modify and amend the Agreement as
set forth herein. All other terms and conditions of the Agreement not expressly
modified by this Amendment, or any other previous Amendments not superseded,
shall remain unchanged and shall remain in full force and effect.
Supplement Number 01 dated February 3, 1993, for the licensing of IBM's
CallPath DirectTalk/2 Object Code, is hereby amended to incorporate the
LICENSED WORK called IBM CallPath DirectTalk/2 Version 2.1 Voice Processing
System. Therefore Supplement Number 01 is hereby modified as follows:
1. Refer to Section 1.1, Description of Licensed Work, after
"...DirectTalk/2" and before "under" in line 2 insert "and IBM
CallPath DirectTalk/2 Version 2.1 Voice Processing System".
2. Refer to Section 5.1 LICENSED CODE and add the following:
One copy of Golden Diskettes containing CallPath DirectTalk/2
Version 2.1 Voice Processing System Object Code . . . . 60 DAC
3. Section 5.2 LICENSED DOCUMENTATION and add the following
softcopy publications:
- DirectTalk/2 General Information and Planning Manual
- DirectTalk/2 Installation Guide
- DirectTalk/2 Application Programmer's Guide
- DirectTalk/2 Administrator's Guide
- DirectTalk/2 Application Development User's Guide
- DirectTalk/2 Problem Solving Guide
- CallPath DirectTalk/2 ADSI Programmer's Guide
- CallPath DirectTalk/2 National Language Information
<PAGE> 2
4. Refer to Attachment 1 and add the following:
PART
DESCRIPTION NUMBER
Base package (CD-ROM) 63H9564
OPTIONAL FUNCTIONAL FEATURES
V2.1 TTS Support 63H9593
V2.1 VR Support 63H9594
V2.1 Comms. Support 63H9595
V2.1 Voice Messaging Feature 63H9596
V2.1 TDD Feature 63H9597
V2.1 ADSI Feature 63H9598
OPTIONAL RUN TIME SYSTEM (RTS) LICENSE FEATURES
V2.1 1 Line (RTS) 63H9565
V2.1 2 Line (RTS) 63H9566
V2.1 4 Line (RTS) 63H9567
V2.1 8 Line (RTS) 63H9569
V2.1 12 Line (RTS) 63H9571
V2.1 16 Line (RTS) 63H9573
V2.1 24 Line (RTS) 63H9574
V2.1 30 Line (RTS) 63H9575
V2.1 32 Line (RTS) 63H9576
V2.1 36 Line (RTS) 63H9577
V2.1 48 Line (RTS) 63H9578
V2.1 60 Line (RTS) 63H9579
V2.1 72 Line (RTS) 63H9580
V2.1 90 Line (RTS) 63H9581
V2.1 96 Line (RTS) 63H9582
V2.1 120 Line (RTS) 63H9583
V2.1 240 Line (RTS) 63H9584
V2.1 360 Line (RTS) 63H9585
V2.1 480 Line (RTS) 63H9586
V2.1 600 Line (RTS) 63H9587
V2.1 720 Line (RTS) 63H9588
V2.1 840 Line (RTS) 63H9589
V2.1 960 Line (RTS) 63H9590
V2.1 1080 Line (RTS) 63H9591
V2.1 1200 Line (RTS) 63H9592
<PAGE> 3
IN WITNESS WHEREOF, Syntellect and IBM have caused this Amendment to be
executed by their duly authorized representatives as set forth above.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS MACHINES SYNTELLECT, INC.
CORPORATION
BY: /s/ Dominic Cavalucci BY: /s/ W. Scott Coleman
--------------------------- -------------------------
(Signature) (Signature)
NAME: Dominic Cavalucci NAME: W. Scott Coleman
----------------------
TITLE: Software Contract Administrator (Print or Type)
DATE: Sept. 6, 1996 TITLE: Sr. Vice President
------------- ----------------------
General Manager
DATE: Sept. 9, 1996
-------------
<PAGE> 1
EXHIBIT 10.8 (i)
AMENDMENT NUMBER EIGHT (8) TO
AGREEMENT FOR THE LICENSING OF IBM TECHNOLOGY
AGREEMENT NUMBER JWQ9308
WHEN EXECUTED, this document shall become Amendment Number Eight (8)
(hereinafter referred to as "Amendment") to Agreement for the Licensing of IBM
Technology Number JWQ9308 (hereinafter referred to as "Agreement") dated
February 3, 1993 by and between Syntellect, Inc. (hereinafter referred to as
"Syntellect") and International Business Machines Corporation (hereinafter
referred to as "IBM").
WHEREAS, Syntellect and IBM hereby agree to modify and amend the Agreement as
set forth herein. All other terms and conditions of the Agreement not expressly
modified by this Amendment, or any other previous Amendments not superseded,
shall remain unchanged and shall remain in full force and effect.
Supplement Number 01 dated February 3, 1993, for the licensing of IBM's CallPath
DirectTalk/2 Object Code, is hereby amended to revise the royalty payment
structure. Therefore, Section 3.0. ROYALTY PAYMENTS, is hereby modified as
follows:
1. Section 3.1 and Table 1 Royalty Schedule is replaced in its entirety
with the following:
"As consideration for IBM furnishing the LICENSED WORKS under this
Supplement, the royalty to be paid IBM for any PRODUCT delivered to a
Syntellect CUSTOMER (including internal CUSTOMERS) shall be 34%
effective 12/01/96 of the IBM US List Price for CallPath DirectTalk/2
Programs and Features specified in Attachment 1. The applicable List
Price shall be the current IBM United States List Price (USLP). An
increase in the USLP shall be effective ninety (90) days from the date
of notice of the increase by IBM. A decrease in the applicable USLP
shall be immediately effective in computing the royalties accruing
after the date of the decrease.
"The above royalty is not applicable to the national language packages
or country packages. The applicable license fees for these items is
specified in Section 3.7."
IN WITNESS WHEREOF, Syntellect and IBM have caused this Amendment to be executed
by their duly authorized representatives as set forth above.
Accepted and Agreed To:
INTERNATIONAL BUSINESS SYNTELLECT, INC.
MACHINES CORPORATION
By: /s/ Ron K. Owen By: /s/ Steve Nussuallah
----------------------------- -----------------------------
Name: Ron K. Owen Name: Steve Nussuallah
----------------------------- -----------------------------
Title: Contract Administrator Title: President
----------------------------- -----------------------------
Date: 3/3/97 Date: 3/11/97
----------------------------- -----------------------------
<PAGE> 1
EXHIBIT 10.15(a)
NATIONSBANK, N.A. (SOUTH)
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of July 25, 1996, by and
between NationsBank, N.A. (South), a national banking association ("Bank") and
the Borrower described below.
In consideration of the Loans described below and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, Bank
and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. Capitalized terms not
otherwise defined herein are used herein as defined in the Promissory Note. In
addition to any other terms defined herein, the following terms shall have the
meaning set forth with respect thereto:
A. BORROWER: Syntellect Inc., a Delaware corporation
B. BORROWER'S ADDRESS: 1000 Holcomb Woods Parkway
Suite 410A
Roswell, Georgia 30076
C. CURRENT ASSETS. "Current Assets" means the aggregate
amount of all of Borrower's assets which would, in accordance with GAAP,
properly be defined as current assets.
D. CURRENT LIABILITIES. "Current Liabilities" means the
aggregate amount of all current liabilities as determined in accordance with
GAAP, but in any event shall include all liabilities except those having a
maturity date which is more than one year from the date as of which such
computation is being made.
E. HAZARDOUS MATERIALS. "Hazardous Materials" include
all materials defined as hazardous materials or substances under any local,
state or federal environmental laws, rules or regulations, and petroleum,
petroleum products, oil and asbestos.
F. LIQUID ASSETS. "Liquid Assets" means, at any time,
the sum of the Borrower's (i) cash, (ii) securities readily convertible into
cash, and (iii) accounts receivable not more than 30 days overdue.
G. LOAN. "Loan" means any loan described in Section 2
hereof and any subsequent loan which states that it is subject to this Loan
Agreement.
H. LOAN DOCUMENTS. "Loan Documents" means this Loan
Agreement and any and all promissory notes executed by Borrower in favor of Bank
and all other documents, instruments, guarantees, certificates and agreements
executed and/or delivered by Borrower, any guarantor or third party in
connection with any Loan.
I. NET WORTH. "Net Worth" means the amount by which
total assets exceed total liabilities in accordance with GAAP.
<PAGE> 2
J. SUBSIDIARIES. "Subsidiaries" means, collectively, all
of the subsidiaries of the Borrower.
K. ACCOUNTING TERMS. All accounting terms not
specifically defined or specified herein shall have the meanings generally
attributed to such terms under generally accepted accounting principles
("GAAP"), as in effect from time to time, consistently applied, with respect to
the financial statements referenced in Section 3.H. hereof.
2. LOANS.
A. LOAN. Bank hereby agrees to make one or more loans to
Borrower in the aggregate principal face amount of $2,000,000, The obligation to
repay the loans is evidenced by a promissory note of even date herewith (the
promissory note together with any and all renewals, extensions or rearrangements
thereof being hereafter collectively referred to as the "Promissory Note")
having a maturity date (as such date may be amended or extended from time to
time, the "Maturity Date"), repayment terms and interest rate as set forth in
the Promissory Note.
i. REVOLVING CREDIT FEATURE. The Loan provides
for a revolving line of credit under which Borrower may from
time to time, borrow, repay and re-borrow funds.
ii. USAGE FEE. Borrower will pay hereafter on the
last business day of each month for the period from and
including the date the Loan was established to and including
the Maturity Date of the Loan, a usage fee at a rate per annum
of 0.45% of the average daily unused portion of the Loan
during such period. The Borrower may at any time upon written
notice to the Bank permanently reduce the amount of the Loan
at which time the obligation of the Borrower to pay a usage
fee shall thereupon correspondingly be reduced.
iii. LETTER OF CREDIT SUBFEATURE.
(a) As a subfeature under the Loan, Bank may
from time to time issue letters of credit for the
account of Borrower (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided,
however, that the form and substance of each Letter
of Credit shall be subject to approval by Bank in its
sole discretion; and provided further that the
aggregate undrawn amount of all outstanding Letters
of Credit shall not at any time exceed $2,000,000.
Each Letter of Credit shall be issued for a term not
to exceed 360 days, as designated by Borrower. The
undrawn amount of all Letters of Credit plus any and
all amounts paid by Bank in connection with drawings
under any Letter of Credit for which the Bank has not
been reimbursed shall be reserved under the Loan and
shall not be available for advances thereunder. Each
draft paid by Bank under a Letter of Credit shall be
deemed an advance under the Loan and shall be repaid
in accordance with the terms of the Loan; provided
however, that if the Loan is not available for any
reason whatsoever, at the time any draft is paid by
Bank, or if advances are not available under the Loan
in such amount due to any limitation of borrowing set
forth herein, then the full amount of such drafts
shall be immediately due and payable, together with
interest
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thereon, from the date such amount is paid by Bank to
the date such amount is fully repaid by Borrower, at
the Default Rate. In such event, Borrower agrees that
Bank, at Bank's sole discretion may debit Borrower's
deposit account with Bank for the amount of such
draft.
(b) In the event there should remain
outstanding any undrawn Letter of Credit on the
Maturity Date with an expiration date later than the
Maturity Date, then, notwithstanding the Borrower's
inability to obtain further advances under the Loan
and the Borrower's repayment of any other amounts
outstanding under the Loan, (i) the Borrower's
obligations under this Agreement shall remain in full
force and effect until (A) such Letter of Credit
either expires or is returned to the Bank undrawn and
(B) all other Obligations of the Borrower are repaid
or performed in full, and (ii) the Borrower shall
promptly deposit with the Bank cash collateral in an
amount not less than the aggregate undrawn face
amounts of all such Letters of Credit, upon such
terms and conditions as may be acceptable to the
Bank.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. GOOD STANDING. Borrower is a corporation, duly
organized, validly existing and in good standing under the laws of the state of
its incorporation and has the power and authority to own its property and to
carry on its business in each jurisdiction in which Borrower does business.
B. AUTHORITY AND COMPLIANCE. Borrower has full power and
authority to execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly authorized by all
proper and necessary action of the appropriate governing body of Borrower. No
consent or approval of any public authority or other third party is required as
a condition to the validity of any Loan Document other than any such consent or
approval that has already been obtained, and Borrower is, to the best of its
knowledge, in compliance with all laws and regulatory requirements to which it
is subject.
C. BINDING AGREEMENT. This Agreement and the other Loan
Documents executed by Borrower constitute valid and legally binding obligations
of Borrower, enforceable in accordance with their terms, subject to limitations
imposed by bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally or the application of general equitable
principles.
D. LITIGATION. There is no proceeding involving Borrower
pending or, to the knowledge of Borrower, threatened before any court or
governmental authority, agency or arbitration authority, except as set forth on
Schedule 3 D hereto.
E. NO CONFLICTING AGREEMENTS. There is no charter,
bylaw, stock provision, partnership agreement or other document pertaining to
the organization, power or authority of Borrower and no provision of any
existing agreement, mortgage, indenture or contract binding on Borrower or
affecting its property, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement and the other
Loan Documents.
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<PAGE> 4
F. OWNERSHIP OF ASSETS. Borrower has good title to its
assets, and its assets are free and clear of liens, except those granted to Bank
or as set forth on Schedule 3 F hereto.
G. TAXES. All taxes and assessments due and payable by
Borrower have been paid or are being contested in good faith by appropriate
proceedings and the Borrower has filed all tax returns which it is required to
file.
H. FINANCIAL STATEMENTS. The financial statements of
Borrower heretofore delivered to Bank have been prepared in accordance with GAAP
applied on a consistent basis throughout the period involved and fairly present
Borrower's financial condition as of the date or dates thereof, and there has
been no material adverse change in Borrower's financial condition or operations
since December 31, 1995. All factual information furnished by Borrower to Bank
in connection with this Agreement and the other Loan Documents is and will be
materially accurate and complete on the date as of which such information is
delivered to Bank and is not and will not be incomplete by the omission of any
material fact necessary to make such information not misleading.
I. PLACE OF BUSINESS. Borrower's chief executive office
is located at 1000 Holcomb Woods Parkway, Suite 410A, Roswell, Georgia 30076.
J. ENVIRONMENTAL. The conduct of Borrower's business
operations and the condition of Borrower's property does not and will not, to
the best of its knowledge, violate any federal laws, rules or ordinances for
environmental protection, regulations of the Environmental Protection Agency,
any applicable local or state law, rule, regulation or rule of common law or any
judicial interpretation thereof relating primarily to the environment or
Hazardous Materials.
K. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any advance under
any Loan.
4. AFFIRMATIVE COVENANTS. Until full payment and performance of
all obligations of Borrower under the Loan Documents, Borrower will, unless Bank
consents otherwise in writing (and without limiting any requirement of any other
Loan Document):
A. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows, determined in accordance with GAAP applied on a consistent
basis throughout the period involved:
i. Maintain a ratio of Liquid Assets to Current
Liabilities of not less than 1.1 to 1.0 as of the last day of
any calendar quarter.
ii. Maintain Net Worth as of the last day of any
calendar quarter of not less than (a) $22,000,000 for the
calendar quarter ending September 30, 1996, and (b) the sum of
(i) the minimum Net Worth required by this Section to have
been maintained by the Borrower as of the last day of the
immediately preceding calendar quarter plus, (ii) an amount
equal to 80% of the Borrower's consolidated net income (but
only if such is greater than zero) for the calendar quarter
then ended.
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<PAGE> 5
iii. Maintain a ratio of total liabilities to Net
Worth of not more than 0.75 to 1.0 as of the last day of any
calendar quarter.
B. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain
a system of accounting satisfactory to Bank and in accordance with GAAP applied
on a consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account and
other records at such reasonable times and as often as Bank may desire, and pay
the reasonable fees and disbursements of any accountants or other agents of Bank
selected by Bank for the foregoing purposes. Unless written notice of another
location is given to Bank, Borrower's books and records will be located at
Borrower's chief executive office set forth above or at the Borrower's office in
Phoenix, Arizona. Except as otherwise provided below, financial statements
called for below shall be prepared in form and content acceptable to Bank and by
independent certified public accountants acceptable to Bank.
In addition, Borrower will:
i. Within 90 days of the close of each fiscal year,
furnish to Bank audited financial statements of Borrower on a
consolidated basis with its Subsidiaries for such fiscal year,
together with a consolidating financial statement of Borrower
and its Subsidiaries; provided, however, that such
consolidating financial statement shall not be required to be
covered by the audit opinion of Borrower's certified public
accountants.
ii. Within 45 days of the close of each fiscal
quarter, furnish to Bank unaudited financial statements
(including a balance sheet and profit and loss statement) of
Borrower, on a consolidated basis with its Subsidiaries, for
such fiscal quarter.
iii. Furnish to Bank a compliance certificate for
(and executed by an authorized representative of) Borrower
concurrently with and dated as of the date of delivery of each
of the financial statements as required in paragraphs i and ii
above, containing (a) a certification that the financial
statements of even date are true and correct and that the
Borrower is not in default under the terms of this Agreement,
and (b) computations and conclusions, in such detail as Bank
may request, with respect to compliance with this Agreement,
and the other Loan Documents, including computations of all
quantitative covenants.
iv. Furnish to Bank promptly such additional
information, reports and statements respecting the business
operations and financial condition of Borrower and its
Subsidiaries, respectively, from time to time, as Bank may
reasonably request.
C. INSURANCE. Maintain insurance with responsible
insurance companies on such of its properties, in such amounts and against such
risks as is customarily maintained by similar businesses operating in the same
vicinity, specifically to include fire and extended coverage insurance covering
all assets, business interruption insurance, workers compensation insurance and
liability insurance, all to be with such companies and in such amounts as are
satisfactory to Bank, for the benefit of Borrower and Bank, as their interests
may appear, payable to Bank as loss payee, and providing for at least 30 days
prior notice to Bank of any
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<PAGE> 6
cancellation thereof. Satisfactory evidence of such insurance will be supplied
to Bank prior to funding under the Loan(s) and 30 days prior to each policy
renewal.
D. EXISTENCE AND COMPLIANCE. Maintain its existence,
good standing and qualification to do business, where required and comply with
all laws, regulations and governmental requirements including, without
limitation, environmental laws applicable to it or to any of its property,
business operations and transactions, except where the failure to do so would
not materially impair the Borrower's operations or impair in any manner the
Borrower's ability to perform its obligations under this Agreement and the other
Loan Documents.
E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in
writing of (i) any condition, event or act which comes to its attention that
would or might reasonably he expected to materially adversely affect Borrower's
financial condition or operations or Bank's rights under the Loan Documents,
(ii) any litigation filed by or against Borrower having an amount in
controversy, in the aggregate, greater than $100,000, (iii) any event that has
occurred that would constitute a Default and (iv) any uninsured or partially
uninsured loss through fire, theft, liability or property damage in excess of an
aggregate of $100,000.
F. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes,
assessments and other obligations, including, but not limited to taxes, costs or
other expenses arising out of this transaction, as the same become due and
payable, except to the extent the same are being contested in good faith by
appropriate proceedings in a diligent manner.
G. MAINTENANCE. Maintain all of its tangible property in
good condition and repair and make all necessary replacements thereof, and
preserve and maintain all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of its business.
H. ENVIRONMENTAL. Immediately advise Bank in writing of
(i) any and all enforcement, cleanup, remedial, removal, or other governmental
or regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations relating to
any Hazardous Materials affecting Borrower's business operations; and (ii) all
claims made or threatened by any third party against Borrower relating to
damages, contribution, cost recovery, compensation, loss or injury resulting
from any Hazardous Materials. Borrower shall immediately notify Bank of any
remedial action taken by Borrower with respect to Borrower's business
operations. Borrower will not use or permit any other party to use any Hazardous
Materials at any of Borrower's places of business or at any other property owned
by Borrower except such materials as are incidental to Borrower's normal course
of business, maintenance and repairs and which are handled in compliance with
all applicable environmental laws. Borrower agrees to permit Bank, its agents,
contractors and employees to enter and inspect any of Borrower's places of
business or any other property of Borrower at any reasonable times upon three
(3) days prior notice for the purposes of conducting an environmental
investigation and audit (including taking physical samples) to insure that
Borrower is complying with this covenant and Borrower shall reimburse Bank on
demand for the costs of any such environmental investigation and audit. Borrower
shall provide Bank, its agents, contractors, employees and representatives with
access to and copies of any and all data and documents relating to or dealing
with any Hazardous Materials used, generated, manufactured, stored or disposed
of by Borrower's business operations within five (5) days of the request
therefore.
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<PAGE> 7
5. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will not, without the
prior written consent of Bank (and without limiting any requirement of any other
Loan Documents):
A. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or
otherwise dispose of or transfer any of its or its Subsidiaries' assets, except
in the normal course of business, or enter into any merger or consolidation, or
transfer control or ownership of the Borrower or any Subsidiary or form or
acquire any new subsidiary; provided, however, that the Borrower may (i)
transfer assets from time to time to its Subsidiary, Telecorp Systems, Inc., and
(ii) transfer assets from time to time to its other Subsidiaries (excluding
Telecorp Systems, Inc.), or sell assets, so long as such transfers and sales do
not exceed, in the aggregate in any calendar year, an amount exceeding five
percent (5%) of the Net Worth of the Borrower, as determined by the Borrower's
most recently provided financial statements.
B. LIENS. Grant, suffer or permit any contractual or
noncontractual lien on or security interest in its assets or in the assets of
any of its Subsidiaries, except in favor of Bank, or fail to promptly pay when
due all lawful claims, whether for labor, materials or otherwise.
Notwithstanding the foregoing, the Borrower may grant, or permit any Subsidiary
to grant, Liens on its assets (excluding the Collateral) securing indebtedness
or other obligations permitted under Section 5 D. below.
C. EXTENSIONS OF CREDIT. Make or permit any Subsidiary
to make, any loan or advance to any person or entity, or purchase or otherwise
acquire, or permit any subsidiary to purchase or otherwise acquire, any capital
stock, assets, obligations, or other securities of, make any capital
contribution to, or otherwise invest in or acquire any interest in any entity,
or participate as a partner or joint venturer with any person or entity, except
for the purchase of direct obligations of the United States or any agency
thereof with maturities of less than one year. Notwithstanding the foregoing,
the Borrower may (i) make loans to its employees not exceeding, in the aggregate
at any time outstanding, $100,000, (ii) make loans to its Subsidiary, Telecorp
Systems, Inc., and (iii) make loans to its Subsidiaries (other than Telecorp
Systems, Inc.) not exceeding, in the aggregate during any calendar year,
$1,000,000.
D. BORROWINGS. Create, incur, assume or become liable in
any manner for, or permit any of its Subsidiaries to create, incur, assume or
become liable in any manner for, any indebtedness (for borrowed money, deferred
payment for the purchase of assets, payments in respect of capital leases, as
surety or guarantor for the debt for another, or otherwise) other than to Bank,
except for normal trade debts incurred in the ordinary course of business, and
except for additional indebtedness disclosed to Bank in writing and not
exceeding, in the aggregate, $250,000 at any time.
E. CHARACTER OF BUSINESS. Change the general character
of business of the Borrower and its Subsidiaries as conducted at the date
hereof, or engage in any type of business not reasonably related to its business
as presently conducted.
F. MANAGEMENT CHANGE. Make any substantial change in its
present executive or management personnel, including without limitation Larry
Bradner and Steve Nussallah.
G. LOCKBOX ACCOUNTS. The Borrower will establish one or
more lockbox accounts with the Bank and will direct each of its account debtors
to submit all payments owing
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<PAGE> 8
the Borrower to such lockbox accounts. The Borrower will cause its Subsidiary,
Telecorp. Systems, Inc., to establish one or more lockbox accounts with the Bank
and will direct each of its account debtors to submit all payments owing such
Subsidiary to such lockbox accounts. The Borrower hereby grants, and will cause
such Subsidiary to grant, a first priority security interest in each such
account to the Bank to secure the Obligations. The Bank will apply the net
balance of each such lockbox account against the outstanding balance of the
Loans each day. The Borrower will cause each lockbox account or deposit account
open in its own name or in the name of Telecorp. Systems, Inc. with any
institution other than the Bank to be closed before October 1, 1996.
6. DEFAULT. A "Default" shall exist under this Agreement if (a)
any default shall exist under any other Loan Document and any applicable cure
period shall have expired and any applicable notice shall have been given, or
(b) Borrower shall default in the payment of any amounts due and owing under the
Loan or should it fail to timely and property observe, keep or perform any term,
covenant, agreement or condition in this Agreement or any other Loan Document or
in any other loan agreement, promissory note, security agreement, deed of trust,
deed to secure debt, mortgage, assignment or other contract securing or
evidencing payment of any indebtedness of Borrower to Bank or any affiliate or
subsidiary of NationsBank Corporation.
7. REMEDIES UPON DEFAULT. If a Default shall occur and be
continuing, Bank shall have all rights, powers and remedies available under this
Agreement and each of the other Loan Documents as well as all rights and
remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the following
address:
Borrower: Syntellect Inc.
1000 Holcomb Woods Parkway, Suite 410A
Roswell, Georgia 30076
Fax: (770) 587-0589
Bank: NationsBank, N.A. (South)
600 Peachtree Street, N.E., 18th Floor
Atlanta, Georgia 30308
Attention: Michael Paulson
Fax: (404) 607-6338
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
(a) if sent by mail, upon the earlier of the date of receipt or five (5) days
after deposit in the U.S. Mail, first class postage prepaid, and (b) if sent by
any other means, upon delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all costs and expenses,
including reasonable attorneys' fees (including outside counsel fees and all
allocated costs of Bank's in-house counsel if permitted by applicable law),
incurred by Bank in connection with (a) negotiation and preparation of this
Agreement and each of the Loan Documents, and (b) all other costs and attorneys'
fees incurred by Bank for which Borrower is obligated to reimburse Bank in
accordance with the terms of the Loan Documents.
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<PAGE> 9
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every
right granted to Bank under any Loan Document, or allowed it by law or equity
shall be cumulative of each other and may be exercised in addition to any and
all other rights of Bank, and no delay in exercising any right shall operate as
a waiver thereof, nor shall any single or partial exercise by Bank of any right
preclude any other or future exercise thereof or the exercise of any other
right. Borrower expressly waives any presentment, demand, protest or other
notice of any kind, including but not limited to notice of intent to accelerate
and notice of acceleration. No notice to or demand on Borrower in any case
shall, of itself, entitle Borrower to any other or future notice or demand in
similar or other circumstances.
B. APPLICABLE LAW. This Loan Agreement and the rights
and obligations of the parties hereunder shall be governed by and interpreted in
accordance with the laws of Georgia and applicable United States federal law.
C. AMENDMENT. No modification, consent, amendment or
waiver of any provision of this Loan Agreement, nor consent to any departure by
Borrower therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the specified
instance and for the purpose for which given. This Loan Agreement is binding
upon Borrower, its successors and assigns, and inures to the benefit of Bank,
its successors and assigns; however, no assignment or other transfer of
Borrower's rights or obligations hereunder shall be made or be effective without
Bank's prior written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Loan Agreement.
D. DOCUMENTS. All documents, certificates and other
items required under this Loan Agreement to be executed and/or delivered to Bank
shall be in form and content satisfactory to Bank and its counsel.
E. PARTIAL INVALIDITY. The unenforceability or
invalidity of any provision of this Loan Agreement shall not affect the
enforceability or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
F. INDEMNIFICATION. Notwithstanding anything to the
contrary contained in Section 10(G), Borrower shall indemnify, defend and hold
Bank and its successors and assigns harmless from and against any and all
claims, demands, suits, losses, damages, assessments, fines, penalties, costs or
other expenses (including reasonable attorneys' fees and court costs) arising
from or in any way related to any of the transactions contemplated hereby,
including but not limited to actual or threatened damage to the environment,
agency costs of investigation, personal injury or death, or property damage, due
to a release or alleged release of Hazardous Materials, arising from Borrower's
business operations, any other property owned by Borrower or in the surface or
ground water arising from Borrower's business operations, or gaseous emissions
arising from Borrower's business operations or any other condition existing or
arising from Borrower's business operations resulting from the use or existence
of Hazardous Materials, whether such claim proves to be true or false. Borrower
further agrees that its indemnity obligations shall include, but are not limited
to, liability for damages resulting from the personal
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injury or death of an employee of the Borrower, regardless of whether the
Borrower has paid the employee under the workmen's compensation laws of any
state or other similar federal or state legislation for the protection of
employees. The term "property damage" as used in this paragraph includes, but is
not limited to, damage to any real or personal property of the Borrower, the
Bank, and of any third parties. The Borrower's obligations under this paragraph
shall survive the repayment of the Loan and any deed in lieu of foreclosure or
foreclosure of any deed to secure debt, deed of trust, security agreement or
mortgage securing the Loan.
G. SURVIVABILITY. All covenants, agreements,
representations and warranties made herein or in the other Loan Documents shall
survive the making of the Loan and shall continue in full force and effect so
long as the Loan is outstanding or the obligation of the Bank to make any
advances under the Loan shall not have expired or so long as any Letter of
Credit issued by the Bank under this Agreement shall remain outstanding.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
THE COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS
INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT
AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS
INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW;
OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH
AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
-10-
<PAGE> 11
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF
SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
BORROWER: SYNTELLECT INC. BANK: NationsBank, N.A. (South)
By: /s/ Neal Miller (Seal) By: /s/ Michael Paulson
----------------------- -----------------------------
Name: Neal Miller Name: Michael Paulson
----------------------- -----------------------------
Title: Chief Financial officer Title: Assistant Vice President
----------------------- -----------------------------
[Corporate Seal]
Attest: /s/ J L Bradner (Seal)
----------------------
Name: J L Bradner
----------------------
Title: CEO
----------------------
-11-
<PAGE> 1
[NATIONSBANK LOGO]
EXHIBIT 10.15(b)
ISSUING BANK:
NATIONSBANK, N.A. (SOUTH)
L/C NO: 020182
AMENDMENT NO: 01
AMENDMENT DATE: 07JAN97
BENEFICIARY: APPLICANT:
OPUS SOUTHWEST CORPORATION SYNTELLECT INC.
4742 N. 24TH STREET, SUITE 100 1000 HOLCOMB WOODS PARKWAY
PHOENIX, AZ 85016 BUILDING 410-A
ATTN: THOMAS W. ROBERTS, PRESIDENT ROSWELL, GA 30076-2585
WE HEREBY AMEND THE ABOVE REFERENCED STANDBY LETTER OF CREDIT AS FOLLOWS:
THE LETTER OF CREDIT AMOUNT IS INCREASED BY USD 165,800.00 TO A NEW AGGREGATE
TOTAL OF USD 1,100,000.00
1. THIS LETTER OF CREDIT NO. SA20182096 IS CHANGED TO LETTER OF CREDIT
NO. 020182.
2. THE PLACE OF EXPIRY AND PRESENTATION HAS BEEN CHANGED TO 901 MAIN STREET,
9TH FLOOR, DEPARTMENT OF TRADE SERVICE, NATIONSBANK PLAZA, DALLAS, TEXAS 75202.
TELEPHONE NO. (214) 508-9735, FAX (214) 508-3928.
ALL OTHER TERMS UNCHANGED. THIS IS THE OPERATIVE INSTRUMENT WHICH FORMS AN
INTEGRAL PART OF LETTER OF CREDIT NO. 020182 AND SHOULD BE ATTACHED THERETO.
FOR ASSISTANCE PLEASE CALL CYNTHIA YANG AT 214-508-9735.
/s/ Ginger Downs
- ------------------------------------
AUTHORIZED SIGNATURE
NATIONSBANK, N.A. (SOUTH)
IRREVOCABLE STANDBY LETTER OF CREDIT NO. 020182, PAGE 1
COPY - NOT NEGOTIABLE
<PAGE> 1
EXHIBIT 11
SYNTELLECT INC. AND SUBSIDIARIES
Schedule of Computation of Net Income (Loss) Per Share
December 31, 1996, 1995 and 1994
(in thousands, except percentages, shares and per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) $ (2,780) $(16,258) $ 1,117
Weighted average shares:
Common shares outstanding 13,256 13,159 13,078
Common equivalent shares representing shares
issuable upon exercise of employee stock
options (1) -- -- 390
-------- -------- --------
Total weighted average shares-primary 13,256 13,159 13,468
Incremental common equivalent shares (calculated using
the higher of end of period or average fair market
values) (2) -- -- --
-------- -------- --------
Total weighted average shares-fully diluted 13,256 13,159 13,468
Primary net income (loss) per common and equivalent share $ (0.21) $ (1.24) $ 0.08
Fully diluted net income (loss) per common and equivalent share (2) $ (0.21) $ (1.24) $ 0.08
Additional adjustment to fully diluted weighted average shares (3):
Total weighted average shares-fully diluted 13,256 13,159 13,468
Common equivalent shares representing shares issuable
upon exercise of employee stock options (1) -- -- --
-------- -------- --------
Total weighted average shares-fully
diluted, as adjusted 13,256 13,159 13,468
Fully diluted net income (loss) per common and equivalent share, as
adjusted (3) $ (0.21) $ (1.24) $ 0.08
</TABLE>
Notes:
(1) Amount calculated using the treasury stock method and fair market
values.
(2) The calculation is submitted in accordance with regulation S-K Item 601
(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
(3) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No.
15 because it produces an anti-dilutive result.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Pinnacle Investment Associates Inc., A Georgia Corporation
Telecorp Systems, Inc., a Georgia Corporation
Syntellect Canada Inc., an Ontario Corporation
Syntellect Europe Limited,
a Corporation formed under the laws of the United Kingdom
Syntellect Deutschland GmbH
Syntellect Technology Corp.
Syntellect Interactive Services, Inc.
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Syntellect Inc.
We consent to incorporation by reference in the Registration Statements (Nos.
33-35974, 33-48637, 33-63642, 333-02362 and 333-02368) on Form S-8 of our report
dated February 5, 1997, relating to the consolidated balance sheets of
Syntellect Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996, which report appears in
the 1996 Annual Report on Form 10-K of Syntellect Inc.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 26, 1997
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in the Registration Statements (Nos.
33-35974, 33-48637, 33-63642, 333-02362 and 333-02368) on Form S-8 of Syntellect
Inc. of our report dated February 9, 1996, except as to Note 20 which is dated
as of March 14, 1996, relating to the consolidated balance sheets of Pinnacle
Investment Associates, Inc. and subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the years then ended (which are not presented separately herein)
appearing in the Annual Report on Form 10-K of Syntellect Inc. for the year
ended December 31, 1996.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Syntellect Inc. and subsidiaries as of December
31, 1996 and the consolidated statements of operations of Syntellect Inc. and
subsidiaries for the year ended December 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,928
<SECURITIES> 1,275
<RECEIVABLES> 14,977
<ALLOWANCES> (1,233)
<INVENTORY> 4,085
<CURRENT-ASSETS> 26,235
<PP&E> 24,492
<DEPRECIATION> (16,816)
<TOTAL-ASSETS> 34,808
<CURRENT-LIABILITIES> 12,558
<BONDS> 0
0
0
<COMMON> 135
<OTHER-SE> 21,886
<TOTAL-LIABILITY-AND-EQUITY> 34,808
<SALES> 31,811
<TOTAL-REVENUES> 55,305
<CGS> 18,645
<TOTAL-COSTS> 27,783
<OTHER-EXPENSES> 30,555
<LOSS-PROVISION> 480
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (2,780)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,780)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,780)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
