<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-18511
MOSAIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
WASHINGTON 91-1273645
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
6464 185TH AVENUE N.E REDMOND, WASHINGTON 98052
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 881-7544
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the common stock held by nonaffiliates of the
registrant as of February 23, 1998 was $119,717,920 (based on the closing sale
price of $9.75 per share on the Nasdaq National Market on such date).
The number of shares outstanding of the registrant's common stock, $0.01
par value per share as of February 23, 1998 was 12,278,761.
DOCUMENTS INCORPORATED BY REFERENCE
PART III of this Form 10-K incorporates information by reference from the
registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission within 120 days after the close of the fiscal year.
================================================================================
<PAGE> 2
MOSAIX, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
Item One Business
Item Two Properties
Item Three Legal Proceedings
Item Four Submission of Matters to a Vote of Security Holders
PART II
Item Five Market for the Registrant's Common Equity and Related
Stockholder Matters
Item Six Selected Financial Data
Item Seven Management's Discussion and Analysis of Results of
Operations and Financial Condition
Item Eight Financial Statements and Supplementary Data
Item Nine Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item Ten Directors and Executive Officers of the Registrant
Item Eleven Executive Compensation
Item Twelve Security Ownership of Certain Beneficial Owners and
Management
Item Thirteen Certain Relationships and Related Transactions
PART IV
Item Fourteen Exhibits, Financial Statement Schedules, and Reports on Form
8-K
</TABLE>
i
<PAGE> 3
PART I
ITEM ONE
BUSINESS
Mosaix, Inc. and subsidiaries (hereinafter referred to as "Mosaix" or the
"Company") is a global provider of call management systems and customer
relationship management applications that enable companies to acquire, retain,
and develop customer relationships. With these products, companies can integrate
sales, marketing, and customer services applications in their call centers with
back-office applications throughout the enterprise. The three product areas
include call management systems (CMS), agent effectiveness applications (AEA),
and customer relationship management (CRM) applications. These product offerings
constitute Mosaix's business solutions and are collectively referred to as
Enterprise Customer Management (ECM) solutions.
Mosaix call management systems are sophisticated enterprise-wide systems
for processing and managing outbound and blended inbound/outbound telephone
communications. These enterprise-wide predictive dialing applications allow
customer information to be captured and correlated with a telephone call and
quickly routed to the right person equipped to manage the customer relationship.
With its technology of intelligently predicting the availability of the next
agent available to manage a phone call, either inbound or outbound, Mosaix can
optimally improve call center efficiencies. Mosaix offers a broad range of
professional services and support for these call management systems. In
addition, Mosaix also develops applications designed to enhance the
effectiveness of call center agents once they receive the phone call. Known as
agent effectiveness applications, these products and services lead an agent
through a conversation presenting key information along the way. Mosaix call
management systems are found in a broad range of industries, including financial
services, credit card and consumer collections, telecommunications and
utilities, retail, cable television, healthcare, fundraising, education and
telemarketing.
Customer relationship management applications are client/server-based
software that enables customers to automate and integrate customer-facing
business processes beginning in the call center and extending across the
enterprise. This occurs through the implementation of the Company's workflow
software which is a family of integrated software modules that provide a
complete framework for rapidly designing, developing, and deploying
customer-centric workflow applications across the enterprise. The workflow
software allows for fulfillment processes, or back-office functions, to be
tightly integrated with multiple channels of interaction used by consumers to
communicate with corporations. Whether it be the telephone or the Internet,
Mosaix CRM software will intelligently manage a customer contact in the most
efficient and effective manner by matching the needs of the customer with the
corresponding resources of a company. These solutions are used in a wide variety
of applications, including consumer and mortgage lending, claims processing,
underwriting, trust management, contract management, accounts payable, and
customer service.
Headquartered in Redmond, Washington, Mosaix has sales offices in Alameda
and Costa Mesa, California; Wilmington, Delaware; Atlanta, Georgia; Chicago,
Illinois; Rockville, Maryland; New York, New York; Charlotte, North Carolina;
Cleveland, Ohio; Dallas, Texas; and near London, England. Additionally, Mosaix
has established value-added reseller relationships in North America, Asia, South
America, Africa and Europe.
Mosaix, a Washington corporation, was incorporated in 1984.
INDUSTRY BACKGROUND
Over the past ten years, businesses and other organizations have
increasingly used dedicated centers for processing and managing high volumes of
incoming and outgoing telephone traffic. Call centers have been used extensively
in such fields as credit card and consumer collections, catalog sales,
telemarketing and customer service. In these call centers, activities such as
placing and receiving telephone calls are linked to the computer functions of
relational database management to capture, store and report on relevant customer
information. As the importance of call centers has increased and as more
functions and capabilities have been combined, a parallel industry has emerged
to create and support the evolution of call centers. The industry
1
<PAGE> 4
includes vendors who deliver systems, software and services that are designed to
make call centers efficient, effective and well matched to the broader corporate
mission of the enterprise. Call Centers are transforming from functional cost
centers to strategic "profit centers" as their mission evolves to become highly
integrated customer interaction and fulfillment centers that can handle multiple
channels of communication. These multiple channels include correspondence,
documents, faxes, e-mail, Internet calls, as well as traditional telephony
contact. This resulting shift places a higher value on customer care as the
primary call center mission.
Typically, the call center is the primary "hub" within an organization for
placing or receiving a large volume of customer calls. Customer Service
Representatives (CSRs) or Agents are the call center's workforce responsible for
working with customers to meet their needs in a variety of areas including
reservations, product information, service requests, order fulfillment, account
information and problem resolution. The communication objectives are as varied
as the businesses that employ call centers as part of their marketing and/or
services strategy. Mosaix believes that the call center has become a strategic
business asset as well as the logical point of integration for customer
communications within the enterprise.
Call centers can range in size from fewer than five agents in one location
to thousands of agents in multiple locations, networked together via computer
and telecommunications systems. With the significant variability of call center
sizes and call handling objectives, the industry relies on a variety of
suppliers to provide product and service solutions to address their business and
communication needs. Today these product and service solutions include:
- Customer premise telephone call routing and switching systems (ACDs and
PBXs)
- Computer Telephony Integration (CTI) software which brings together data
and voice
- Application software to enhance, facilitate and manage inbound and
outbound customer communications
- Agent coaching and counseling software tools
- Reporting tools to measure and report on agent effectiveness and overall
system performance
- Peripheral products (headsets, speakers, video displays)
- Voice mail and interactive voice response (IVR) systems, which enable
callers to access information in an organization's computer database via
touch-tone dialing
- Computer networking and communications systems, including e-mail and
Internet access systems
- Database/back office information processing systems
BUSINESS PROCESS AUTOMATION IN THE CALL CENTER.
The growth of client/server computing has also had a dramatic effect on the
call center industry and has fueled the need for applications that process and
manage unstructured as well as structured data. Structured data, such as
financial or inventory data, are typically stored in the rows and columns of
databases. Traditional relational database systems and their underlying
technologies are not designed to manage the increasing complexity and variety of
the information content and transaction requirements inherent in most business
processes. According to some industry reports, as much as 80% of corporate data
is unstructured, consisting of imaged documents, faxes, electronic documents,
forms, mainframe-generated reports, digitized voice messages, electronic data
interchange (EDI) records and World Wide Web (Web) documents. For example,
customer service agents as well as loan officers who process loan applications
need access to a variety of structured data, such as customer and product
information, and unstructured data, including images of applications, credit
reports, credit analysis spreadsheets and other documents. The ability to
access, manage and process all relevant information content, including the
seamless integration of structured and unstructured data, has emerged as a key
requirement for call centers today.
2
<PAGE> 5
Initial efforts to automate data-intensive processes began with electronic
imaging technologies in the late 1980's. These early image-processing products
provided on-line equivalents to paper-based storage and management of business
information. These systems focused primarily on storage and retrieval
applications and were generally only available on dedicated, expensive and
proprietary platforms.
Workflow technology emerged first with the development of rigid and highly
customized software that addressed transaction-based applications focused on the
automated routing of document images and related information. Although this
software generated significant benefits both in improved operational efficiency
and cost reductions, implementations were costly, limited in scope and difficult
to change. At the same time, document management emerged as a means for managing
electronic documents and certain other types of unstructured business
information. While these solutions provide significant benefits by allowing an
enterprise access to documents, document management systems do not generally
address the fundamental need to improve business processes. This has resulted in
growing market demand for solutions that combine sophisticated business process
functionality with the ability to seamlessly manage both structured and
unstructured business information. These Business Process Automation (BPA)
applications were the next step for workflow and document management offerings.
With the availability of the Internet and intranets, companies have also
recognized the opportunity to provide their employees, business partners, and
customers with even greater access to business information. By combining BPA and
document management with Internet and intranet technologies, companies will be
able to significantly broaden access to automated business processes within
their enterprises. They will extend the reach and value of BPA to include
business transactions with their partners and customers beyond their internal
enterprise. As a result, businesses now seek next-generation business process
automation solutions that include Internet and intranet capabilities.
SERVICE LEADERSHIP.
As companies face increasing pressure to retain and grow their customer
base, corporate call centers, real or virtual, are emerging as a strategic
weapon in the fight for customer loyalty and increased revenue. The new
directive calls for more than efficiency; the call center must be effective in
managing customer relationships. Corporate demand is on the rise for systems
that foster customer relationships and that create a competitive advantage. This
demand is driving the need to integrate telephony and computer-based
applications to provide a "360-degree view" of customer attributes and account
history.
PRODUCTS
CALL MANAGEMENT SYSTEMS (CMS).
Mosaix Call Management Systems are the Company's UNIX-based suite of
combined hardware and software systems used for the processing and management of
a call center's inbound and outbound telephone activity. Integrating directly
with an organization's existing telecommunications system and customer
databases, the Mosaix CMS processes and manages inbound, outbound, and blended
inbound/outbound customer contacts. Typical functions provided by Mosaix
products for outbound calling include: acquiring, reviewing and organizing
customer data; automatically dialing phone numbers quickly; monitoring,
interpreting and acting upon each telephone call's progress; programming redials
at the appropriate time and rate; routing live voice responses immediately to an
operator; and posting and reporting record updates. For customers who want to
efficiently manage incoming as well as outgoing telephone calls, Mosaix's
Intelligent Call Blending technology allows call centers to blend their inbound
(ACD) and outbound (Mosaix systems) call activity into a single environment,
automatically moving calls between inbound and outbound agents to optimally
handle call center traffic.
Mosaix currently has three call center products available: the Mosaix 5000,
Mosaix 4000 and Mosaix 3000 Call Management Systems. The Mosaix 5000 is the
Company's most advanced system and is scaleable to 150 outbound workstations and
300 lines. The Mosaix 5000 performs all of the standard functions described
above and, in addition, has Proactive Agent Blending, a patented technology that
uses sophisticated algorithms to anticipate call volumes and to move agents
before the expected inbound and outbound call workloads
3
<PAGE> 6
actually occur. The Mosaix 4000 is similar to the Mosaix 5000 though limited to
60 outbound workstations and 180 lines with no predictive blend capabilities.
The Mosaix 3000 is a limited-functionality predictive dialing solution designed
for the Company's Value Added Reseller Channel.
In order to help companies more effectively manage their call centers,
Mosaix has also developed a variety of software products that work exclusively
with the Mosaix CMS. Campaign Director, which ships with Mosaix systems,
provides customers with the ability to create campaigns using a Microsoft
Windows-based point and click interface. Campaign Director is also used to
monitor, on a real-time basis, the status of the campaign and the effectiveness
of the agents, and to make changes while the campaign is in process. Producer is
a sophisticated configuration tool that enables customers to dynamically manage
the operation and system parameters of their Mosaix CMS. Producer allows
customers to record voice messages, design wait queues, edit agent function
keys, and create and modify completion codes using a simple-to-use PC based
software solution. Campaign Surfer is an Internet browser-based tool that
enables a company or a company's customers to view information about calling
campaigns and agent performance from virtually anywhere over the Internet; and
Agent API simplifies the creation and maintenance of custom agent interfaces,
which allow agents access to disparate information they need to more effectively
serve customers.
Mosaix also provides Campaign Analyst and Guide, software products that
work with Mosaix systems or call management systems provided by Mosaix's
competitors. Campaign Analyst software produces detailed reports, integrating
statistics from various vendor products, including the ACD/PBX (telephone
switch), the IVR system, host computer, dialer and other applications. It can
also integrate with other software programs, such as payroll or executive
reporting systems. This product is designed to assist call center managers in
reviewing the performance of multiple call center systems by integrating and
normalizing raw data and generating key statistics. Analyst also includes
features that allow managers to establish goals for their agents as well as
extracting data which can be utilized by other software programs. An example
might be to generate an extract of all agent hours for use in the payroll system
or an extract of system performance information to be placed into an executive
presentation document.
As part of the AEA product line, Guide is designed to allow a call center
supervisor to control the content and flow of each customer contact. Call guides
(or scripts) for call center employees have historically been programmed by the
vendor or by application specialists, with any changes requiring system shut
down and reprogramming. By contrast, Guide allows call center supervisors with
minimal programming skills to design and maintain complex, sophisticated scripts
without relying on the vendor or third party application specialists.
Supervisors can modify scripts as necessary -- even mid-campaign -- providing
increased flexibility and enabling the organization to tailor scripts based on
agent skill levels and campaign objectives.
All of the Company's currently shipping CMS products are year 2000
compliant. In addition, whenever possible, the Company has made system upgrades
available to certain existing customers, that along with related hardware
upgrades, will enable them to be year 2000 compliant. The Company does have some
customers who have purchased systems in the past, where a hardware upgrade is
not available to allow the customer to become year 2000 compliant and a complete
system change will be the only way for these customers to become year 2000
compliant. Management does not expect the year 2000 to have a material impact on
the operations of the Company.
The Mosaix 4000 and 5000 CMS and related software products are marketed
through Mosaix's telesales and direct sales force as well as a worldwide network
of strategic partners. The Mosaix 4000 and 5000 are designed for mid- and
high-end financial services, telecommunications, insurance, and telemarketing
customers. The Mosaix 3000 and related software are sold by Mosaix's domestic
and international value-added reseller network, who focus on small and
medium-sized collections bureaus, telemarketing service bureaus, and internal
telemarketing, telesales, and teleservicing departments.
Mosaix's CMS are used in a broad range of industries, including financial
services, credit card and consumer collections, insurance, telecommunications,
utilities, retail, cable television, healthcare, fundraising, education and
telemarketing. Historically, the majority of sales has been to the financial
services and telecommunications industries.
4
<PAGE> 7
CUSTOMER RELATIONSHIP MANAGEMENT SOFTWARE (CRM).
Customer Relationship Management Software is an enterprise-class,
client/server application framework that is built on Windows NT and utilizes
Microsoft's enterprise-computing architecture. It is designed to automate
customer-facing business processes and integrate structured and unstructured
data, including imaged documents, faxes, electronic documents, forms,
mainframe-generated reports, digitized voice messages, EDI records, and Web
documents. In addition, this software will intelligently manage telephone calls
and the systems that route those calls. The current version of CRM Software is
ViewStar 5.0 and it is year 2000 compliant.
ViewStar 5.0 is comprised of the following four components :
Process Architect -- Mosaix's visual workflow and process modeling
application framework that enables interactive definition, configuration and
deployment of complex business processes. Using Process Architect, business
analysts and application designers can define work content, business rules,
workflow maps and user roles and activities. Process Architect provides a
library of predefined business functions and reusable tasks that can be easily
configured to create a workflow map representing the business process from the
interaction in a call center to the back-office fulfillment of a customer's
request. Through Process Architect's simulation feature, "what if" analyses of
the throughput can be undertaken and bottlenecks predicted. Process Architect
can also be used to dynamically change the business process and automatically
rebuild the application with little impact on down-time or re-training.
Application Designer -- Predefined application frameworks that can be
"snapped together" to meet specific user, application, and job function
requirements and that facilitate rapid application delivery. Components such as
workflow tasks, user activities, and document operations are stored in object
libraries and made available for selection and reuse through a standard
Windows-based graphical interface. In addition, Application Designer provides
pre-configured application templates for the most-requested users roles and job
functions, such as document access and display, workpacket creation and
indexing, document workflow processing, exception case handling, and legacy
system integration.
Business Process Interface ("BPI") -- A set of Object Link Embedding
("OLE") automation interfaces that enables the creation of workflow tasks and
user applications using any OLE 2.0-compliant visual programming environments.
BPI consists of high-level automation objects and a set of OLE customer
controls. Any third-party development tool that supports OLE 2.0, such as Visual
Basic, Visual C++, Delphi and PowerBuilder, can be used with BPI. In addition,
BPI's OLE-based component architecture enables integration with third-party
components, including document and data capture subsystems, 3270emulation
packages for accessing mainframe data, and personal productivity applications,
such as Microsoft Word or Excel.
Call Center Edition. -- The CTI solution set which provides the
functionality required to intelligently manage telephone calls and interfaces
with telephony systems. By integrating with an IVR or ACD, ViewStar 5.0 allows
companies to apply consistent business logic in managing calls just like any
other piece of work. Information captured about the caller is compared with
customer information from a company's disparate data repositories across the
enterprise and is used to determine the appropriate resources needed to address
that caller's requirements. System administration times are greatly reduced and
training requirements are simplified. The Call Center Edition also provides the
ability to present call-control tasks at the agent's desktop in conjunction with
the workflow functions relating to the business process at hand.
SERVICES
PROFESSIONAL SERVICES
Mosaix's professional services group provides fee-based business process
consulting and computer/ telephony integration (CTI) services. This group helps
clients plan, budget, design and implement new business processes and
technologies with the goal of improving customer management and call center
workflow. This group also utilizes its network of service providers and system
integration partners to provide
5
<PAGE> 8
customers with a broad range of application development, systems planning,
configuration, and system integration services.
CUSTOMER SUPPORT AND SERVICES
Mosaix believes that customer service and support are an integral part of
its strategy. Service capability, availability and responsiveness play an
important role in marketing and selling its products. This is particularly true
as the mission critical nature of the products and services and technological
complexity increases.
Mosaix earns system and software support fees by providing ongoing support
and training for all of its CMS products. Mosaix offers a full range of product
support options, including telephone support from "normal business hours" to "24
hours a day" and on-site response from the "next-half-day" to "immediate service
(four hours or less)." CMS support representatives are able to service customer
call center systems on a remote basis from the customer support center in
Redmond, Washington and London, England. If needed, CMS support representatives
will dispatch on-site support, which is provided by IBM in North America and the
United Kingdom. Mosaix charges separate fees to upgrade CMS products to the
latest version when a new product is released. Mosaix earns other fees by
providing, upon customer request, certain special services, such as system
relocation and additional training. The Company has CMS training facilities
located in Redmond, Washington and at the principal office of its subsidiary in
the United Kingdom.
Customer support for the CRM is provided by customer support
representatives in Alameda, California and London England. Fees are generally
charged on an annual basis and include upgrades to the latest version when a new
product is released. Mosaix earns other fees by providing, upon customer
request, certain special services, such as additional training.
PRODUCT DEVELOPMENT
Mosaix engineers continue to develop new products and new applications of
existing products that will improve the unique enterprise customer management
missions of Mosaix's customers. In recent years, Mosaix increasingly has focused
its development efforts on client/server, Windows NT-based and Internet-enabled
software solutions that address issues and challenges facing call centers and
workflow processes. Mosaix releases new features and enhancements to existing
products, new products and new services on an ongoing basis. Mosaix supplements
its product development efforts by reviewing customer feedback on existing
products and working with customers and potential customers to anticipate future
functionality requirements. Product development efforts are directed at
increasing product functionality, improving product performance, and expanding
product capabilities to shorten the application development and deployment cycle
and further leverage the Microsoft Windows NT platform. Mosaix continues to
identify and prioritize various technologies for potential future product
offerings.
Mosaix has committed and expects to continue to commit substantial
resources to research and development. In 1997, 1996, and 1995, research and
development expenses were $15.2 million, $14.9 million and $13.1 million,
respectively, net of capitalized software development costs. During the same
periods, Mosaix capitalized $0.3 million, $1.0 million and $2.2 million,
respectively, of software development costs.
The Mosaix CMS and Guide products have been localized for sale in the
Japanese market. The ViewStar System has been double-byte enabled for sales in
the Japanese and Korean markets.
MANUFACTURING
Mosaix's manufacturing operations for CMS products are primarily performed
by an independent third party on a turnkey basis. The third party contracts with
other vendors for components and subassemblies. Mosaix's CMS suppliers maintain
quality control by subjecting components and subassemblies to rigorous testing,
including in-circuit automated testing. Mosaix's manufacturing operations for
CRM products are performed in-house and consist mainly of CD disk duplication.
6
<PAGE> 9
SALES AND MARKETING
Mosaix markets its CMS and CRM products and services through a direct sales
force operating from Mosaix's headquarters in Redmond, Washington and offices in
Alameda and Costa Mesa, California; Wilmington, Delaware; Atlanta, Georgia;
Chicago, Illinois; Rockville, Maryland; New York, New York; Charlotte, North
Carolina; Cleveland, Ohio; Dallas, Texas; New York, New York; and near London,
England. Mosaix also has established value-added reseller relationships in North
and South America, Asia, Africa, and Europe.
COMPETITION
The market for Mosaix's products and services is highly competitive.
Important competitive factors include price, performance, diversity of product
line, reliability, delivery capabilities, and customer service and support.
Mosaix's principal competitors in the outbound call management systems
market include Davox Corporation, EIS International, Inc. and Melita Electronic
Labs. The potential entry into the market of major ACD and PBX suppliers
(suppliers of customer-premise call routing and switching systems) also presents
a strong competitive threat. These companies may elect to acquire or align with
Mosaix's competitors, increasing their market presence and distribution; resell
principal competitors' products; or elect to develop and market their own
predictive dialing application software. As Mosaix expands its CMS offerings, it
may also encounter increased competition from call center application providers
such as Information Management Associates and Versatility.
The traditional competition for horizontal workflow technology has been
workflow software vendors, including direct competition from a number of public
and private companies or divisions thereof, including Filenet, IBM, Action
Technologies, Staffware, Optika, and Eastman Kodak. As ViewStar 5.0 extends its
value into the customer management market space, it will face competition from
new competitors, including process-oriented applications vendors such as
Pegasystems, Chordiant, and DST. Mosaix's CRM applications may encounter
competition from a number of customer management focused software companies
including, Edify Corporation, Remedy Corporation, and Seibel Systems. Certain of
these companies have announced and others may announce document workflow
capabilities for their existing or future products.
Mosaix relies on a number of system integration firms for implementation
and other services as well as recommendations of its products during the
evaluation stage of the purchasing process. Although Mosaix seeks to maintain
close relationships with these service providers, many of these third parties
have similar, and often more established relationships with Mosaix's principal
competitors. If Mosaix is unable to develop and retain effective, long-term
relationships with these third parties, Mosaix's competitive position would be
materially adversely affected. See "Forward Looking Statements-Risk Factors
Regarding Future Performance -- Competition" in Item Seven.
INTERNATIONAL OPERATIONS
Mosaix's sales to customers in international markets outside the United
States comprised approximately 26.4%, 19.0% and 18.9% of total revenue in 1997,
1996, and 1995, respectively. In most cases, Mosaix markets its products and
services internationally through value-added resellers.
7
<PAGE> 10
The following table sets forth certain information relating to Mosaix's
foreign and domestic operations for the years ended December 31, 1997, 1996, and
1995.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Revenue -- U.S. operations:
United States........................... $ 89,153 $ 94,870 $75,593
United States export.................... 14,477 12,083 12,289
Revenue-foreign subsidiaries.............. 17,514 10,228 5,366
-------- -------- -------
$121,144 $117,181 $93,248
-------- -------- -------
Operating income:
U.S. operations......................... $ 8,045 $ 4,235 $ 1,355
Foreign subsidiaries.................... 3,936 1,867 382
Eliminations............................ (215) 130 121
-------- -------- -------
$ 11,766 $ 6,232 $ 1,858
-------- -------- -------
Assets:
U.S. operations......................... $ 74,725 $ 85,235 $90,597
Foreign subsidiaries.................... 9,653 5,528 2,974
-------- -------- -------
$ 84,378 $ 90,763 $93,571
======== ======== =======
</TABLE>
SEASONALITY
Mosaix's quarterly operating results may be subject to seasonal influences.
The Company generally has realized lower revenues in the first quarter of the
year than the immediately preceding quarter. The Company believes that this has
been due primarily to the concentration by some customers of larger capital
purchases in the fourth quarter of the calendar year to avoid end-of-year
budgetary limitations, followed by lower purchasing activity during the first
quarter of the next calendar year. Further, to the extent that international
operations in the future constitute a higher percentage of total revenues, the
Company anticipates it will experience relatively weaker demand in the quarter
ending September 30 due to reduced customer activity in Europe during the summer
months.
REGULATORY ENVIRONMENT
Mosaix's CMS hardware and software products are subject to and conform with
FCC regulations under the Communications Act of 1934. Future products developed
by Mosaix also may be required to comply with certain registration and technical
requirements before they can be sold in the United States. As Mosaix expands its
operations in other countries, its products will become subject to regulation by
foreign governments.
While existing industry regulation does not directly regulate the
manufacture and sale of Mosaix's call management products, certain existing laws
and regulations may affect the ability of Mosaix's customers to utilize some of
its product in certain ways. For example, Mosaix's call management systems may
not be used for certain prohibited debt collection and remote telephone
solicitation practices, nor may they be used under certain circumstances to
leave or play artificial or prerecorded messages. These practices are governed
by such federal laws as the Telephone Consumer Protection Act of 1991 and the
Telemarketing and Consumer Fraud and Abuse Prevention Act, which authorize the
FCC and Federal Trade Commission, respectively, to issue additional regulations
and administer such laws. In addition, most states have enacted legislation
limiting certain telephone solicitation practices or restricting use of
automatic dialing and announcement devices.
Other federal and state legislation that has been proposed from time to
time include bills that would, if enacted, recognize certain privacy rights of
employees at the work site and regulate the ability of employers to monitor job
performance, including monitoring employees' telephone communication or
gathering information regarding such communications. It is possible that such
legislation or other legislation, if enacted, might directly or indirectly
affect how Mosaix's products can be used.
8
<PAGE> 11
Mosaix fully supports legislation designed to promote the responsible use
of auto dialing equipment, and laws which otherwise restrict abusive collections
or telemarketing activities. Mosaix endeavors to design its products to enable
its customers to comply with the requirements of current and anticipated
regulations.
PROPRIETARY RIGHTS
As new products are identified and created, Mosaix has sought, and will
continue to seek, patent protection, where appropriate, for inventions arising
out of its development efforts. On March 30, 1992, U.S. Patent (No. 5,101,425)
was issued to Mosaix on Realtime Monitor, a device enabling real time monitoring
of predictive dialing systems. On November 14, 1995, Mosaix obtained a U.S.
Patent (No. 5,467,391) on its Integrated Intelligent Call Blending technology,
which describes a system and method for sharing a pool of CSRs in a telephone
call servicing operation so that CSRs are utilized effectively. Mosaix also
intends to pursue, where appropriate, patent protection for these inventions in
the international markets where they are offered.
Although Mosaix has not registered its copyrighted software, such software
is protected by copyright and trade secret laws. In addition, Mosaix enters into
confidentiality agreements with certain of its employees, consultants,
distributors, value-added resellers and customers; limits access to and
distribution of its software, documentation and other proprietary information;
and enters into noncompete agreements with certain of its employees.
Mosaix further seeks the protection of trademark registration in the United
States and various foreign jurisdictions for certain of its product trademarks
including Adapts, Analyst, Campaign Director, Campaign Manager, Infostore@Work,
Mosaix, Predictive Blend, Producer, Process Architect, Screenbuilder,
Searchlink, the Foresight Report and ViewStar.
Despite Mosaix's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy Mosaix's products or to obtain and use Mosaix's
proprietary information. Policing unauthorized use of Mosaix's products is
difficult, and since Mosaix is unable to determine the extent to which piracy of
its software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect Mosaix's
proprietary rights to as great an extent as the laws of the United States. There
can be no assurance that Mosaix's means of protecting its proprietary rights
will be adequate or that competitors will not independently develop similar
technology.
Mosaix also relies on certain software licensed from third parties,
including software that is integrated with internally developed software and
used in the Company's products to perform key functions. There can be no
assurance that such third parties will remain in business, that they will
continue to support their products or that their products will otherwise
continue to be available to Mosaix on commercially reasonable terms. The loss or
inability to maintain any of these software licenses could materially adversely
affect the Company's business. See "Forward Looking Statements-Risk Factors
Regarding Future Performance -- Dependence on Proprietary Rights; Infringement
Claims; Uncertainty of Obtaining Licenses" in Item Seven.
EMPLOYEES
As of December 31, 1997 Mosaix employed approximately 600 persons (not
including independent contractors and temporary employees) on a full-time basis.
None of Mosaix's employees are covered by collective bargaining agreements, nor
has it ever experienced a work stoppage. Mosaix considers its employee relations
to be good.
ITEM TWO
PROPERTIES
Mosaix's corporate offices are located in Redmond, Washington in an 84,000
square-foot leased office facility at 6464 185th Avenue N.E., Redmond,
Washington 98052. The lease expires March 31, 1999. In December 1997, Mosaix's
entered into a new 104,000 square foot lease at a different location in Redmond,
9
<PAGE> 12
Washington for its corporate headquarters. The Company anticipates moving into
the new facility during the fourth quarter of 1998. The corporate offices
include sales and marketing, professional service and customer support,
engineering, and finance.
The Company also leases offices which occupy approximately 55,000 square
feet in Alameda, California, under a lease which expires in May 1999 but has
renewal options through September of 2004. Additional sales, marketing,
engineering and service functions are located in Alameda. Mosaix also leases
domestic sales offices in Atlanta, Charlotte, Chicago, Cleveland, Costa Mesa,
Dallas, New York, Rockville and Wilmington. The Company's sales, marketing,
service and administrative function for Europe, the Middle East and Africa is
located in rented office space near London, England. The London facility lease
expires in 2017.
ITEM THREE
LEGAL PROCEEDINGS
Mosaix is subject to various legal proceedings that arise in the ordinary
course of its business. While the outcome of these proceedings cannot be
predicted with certainty, the Company believes that none of such proceedings,
individually or in the aggregate, will have a material adverse effect on the
Company's business or financial condition.
ITEM FOUR
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
10
<PAGE> 13
PART II
ITEM FIVE
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Mosaix common stock, $0.01 par value per share, is traded over the counter
under the symbol "MOSX" and is an authorized security for quotation on the
National Association of Securities Dealers, Inc. Automated Quotations National
Market ("Nasdaq/NM").
The market prices of a share of Mosaix common stock are set forth below.
The prices reflect the high and low trading prices for each quarter as reported
by Nasdaq/NM. Over-the-counter market quotations reflect interdealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997:
4th Quarter................................ $11.313 $ 7.938
3rd Quarter................................ $15.000 $ 9.000
2nd Quarter................................ $15.250 $11.750
1st Quarter................................ $16.000 $ 9.750
1996:
4th Quarter................................ $23.000 $10.000
3rd Quarter................................ $18.375 $12.000
2nd Quarter................................ $24.000 $13.500
1st Quarter................................ $16.750 $10.500
</TABLE>
There were approximately 4,760 shareholders of the Company's common stock
as of February 23, 1998. This includes approximately 4,200 street-name holders
and 560 registered certificate holders.
No cash dividends were declared or paid by Mosaix during any of the periods
presented. Mosaix presently does not anticipate paying any cash dividends in the
foreseeable future.
ITEM SIX
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue........................................ $121,144 $117,181 $93,248 $76,090 $69,237
Operating income (loss)........................ 11,766 6,232 1,858 (8,357) (7,349)
Net earnings (loss)............................ 9,757 3,618 (563) (6,482) (9,081)
Earnings (loss) per share:
Basic........................................ 0.74 0.29 (0.06) (0.65) (0.94)
Diluted...................................... 0.71 0.27 (0.06) (0.65) (0.94)
Weighted average common shares outstanding:
Basic........................................ 13,169 12,677 9,846 9,998 9,681
Diluted...................................... 13,667 13,570 9,846 9,998 9,681
Working capital................................ $ 46,257 $ 46,804 $37,624 $38,738 $38,555
Total assets................................... 84,378 90,763 93,571 95,796 86,156
Long-term obligations.......................... 97 575 1,085 1,123 1,924
Shareholders' equity........................... 55,805 57,343 48,683 52,799 55,360
</TABLE>
11
<PAGE> 14
ITEM SEVEN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following table sets forth certain operating data for 1997, 1996 and
1995 expressed as a percentage of revenue for all items except cost of revenue
and gross profit which are shown as a percentage of the corresponding revenue:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Revenue:
System sales.............................................. 40.6% 45.6% 46.3%
Software licenses......................................... 19.8 17.6 16.0
Services and other........................................ 39.6 36.8 37.7
----- ----- -----
100.0 100.0 100.0
Cost of revenue:
System sales.............................................. 37.6 35.2 40.8
Software licenses......................................... 10.1 6.6 4.1
Services and other........................................ 51.1 50.0 48.9
----- ----- -----
37.5 35.6 38.0
Gross profit:
System sales.............................................. 62.4 64.8 59.2
Software licenses......................................... 89.9 93.4 95.9
Services and other........................................ 48.9 50.0 51.1
----- ----- -----
62.5 64.4 62.0
Operating expenses:
Selling, general and administrative....................... 39.4 38.7 44.2
Research and development.................................. 12.6 12.7 14.0
Restructuring charges..................................... 0.8 -- 1.3
Write-off of capitalized software costs................... -- 0.6 --
Purchase of in-process research and development........... -- 3.7 --
Merger related............................................ -- 3.3 0.5
----- ----- -----
Total operating expenses.................................... 52.8 59.0 60.0
----- ----- -----
Operating income............................................ 9.7 5.4 2.0
Interest and other income, net.............................. 1.8 1.4 1.9
----- ----- -----
Earnings before income taxes................................ 11.5 6.8 3.9
Income tax expense.......................................... 3.4 3.7 4.5
----- ----- -----
Net earnings (loss)......................................... 8.1% 3.1% (0.6)%
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
For 1997, Mosaix reported net earnings of $9.8 million, or $0.71 diluted
earnings per share, compared to $3.6 million, or $0.27 diluted earnings per
share, for 1996. During 1997, Mosaix incurred restructuring charges of $0.9
million ($0.6 million after tax). During 1996, Mosaix incurred the following
charges: (a) the write-off of $4.3 million ($4.3 million after tax) of acquired
in-process research and development costs; (b) $0.7 million ($0.5 million after
tax) of previously capitalized software development costs related to the 1996
acquisition of Caleo; and (c) $3.9 million ($3.9 million after tax) related to
the merger with ViewStar. Excluding these charges, net earnings for 1997 were
$10.4 million, or $0.76 diluted earnings per share, compared to $12.3 million,
or $0.91 diluted earnings per share, for 1996.
12
<PAGE> 15
Revenue.
Revenue of $121.1 million for 1997 represented a 3.3% increase over 1996
revenue of $117.2 million. System sales, however, decreased $4.2 million, or
7.8%, to $49.2 million in 1997. Historically, system sales have come from the
large formal call center market segment, with a high percentage representing
repeat business with established customers. During 1997, Mosaix experienced a
decline in the number of large system sales, a decline in sales from its
domestic installed base and fewer new name customers than in prior years.
Software licenses revenue increased by 15.9% to $23.9 million for 1997.
This increase was primarily due to increased sales of workflow products.
Services and other revenue increased by $4.9 million, or 11.3%, for 1997 as
a result of increased professional services related to large CRM projects.
Customer support revenue increased as a result of new system and software sales.
International revenue increased 43.4% to $32.0 million in 1997 and
accounted for 26.4% of total revenue. This increase was primarily due to
increased sales in the United Kingdom and continuing acceptance of Mosaix
products in international markets.
Currently, backlog is not significant in relation to Mosaix's revenue and
may not be indicative of future performance.
Gross Profit.
Gross profit decreased to 62.5% in 1997 from 64.4% in 1996. System sales
gross profit, which were 62.4% in 1997 and 64.8% in 1996, was influenced by the
decrease in sales volume as well as product mix. Mosaix's highest gross margins
occur on large system sales. During 1997, Mosaix sold fewer large systems than
in 1996, which negatively impacted margins.
Gross profit on software licenses decreased to 89.9% in 1997 from 93.4% in
1996, primarily due to increased amortization of previously capitalized software
costs.
Gross profit on services and other revenue for 1997 was 48.9% compared to
50.0% in the prior year, due to the growth in professional services which have a
lower margin and have been growing faster than systems and software support
fees.
Selling, General and Administrative.
For 1997, selling, general and administrative expenses were $47.8 million,
or 39.4% of revenue, compared to $45.4 million, or 38.7% of revenue, in the
prior year. The increase in spending was due primarily to the expansion of
marketing activities, investments in sales and employee training and recruiting.
Research and Development.
For 1997, research and development expenses, net of amounts capitalized,
were $15.2 million, or 12.6% of revenue, compared to $14.9 million, or 12.7% of
revenue, in 1996. Research and development spending, without regard to amounts
capitalized, was $15.5 million in 1997 compared to $15.9 million in 1996.
Software costs capitalized were $0.3 million in 1997 and $1.0 million in
1996. Capitalized software continues to decrease, and as of December 31, 1997,
has been reduced to $0.9 million versus $2.0 million as of December 31, 1996.
Mosaix is committed to the ongoing development of enhancements to existing
products as well as the development of new products. Mosaix is also pursuing the
acquisition of new technologies and/or licensing of products from third parties.
13
<PAGE> 16
Restructuring Charges.
As a result of the December 1996 ViewStar merger, Mosaix streamlined the
management structure and consolidated the sales, support and service operations
in 1997. These changes resulted in a charge of $0.9 million for severance and
other employee related costs.
Interest and Other Income, Net.
Interest and other income, net increased from $1.7 million in 1996 to $2.2
million in 1997. The increase is primarily the result of increased yields on
investments and increased cash available for investment. Mosaix intends to
continue to invest excess cash in interest bearing instruments with maturities
of one year or less.
Income Taxes.
The effective income tax rate for 1997 was 30.2% compared to 54.2% in 1996.
The 1997 variance from the statutory rate of 34% was primarily related to the
utilization of ViewStar net operating loss carryforwards. The unusually high
effective tax rate in 1996 was primarily the result of non-deductible merger
related expenses and purchased in-process research and development costs.
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Revenue.
Revenue of $117.2 million for 1996 represented a 25.7% increase over 1995
revenue of $93.2 million. System sales increased $10.2 million, or 23.7%, to
$53.4 million in 1996. The increase was primarily the result of multiple
purchases of large systems by a few of the Company's major customers.
Software licenses revenue increased by 38.2% to $20.7 million for 1996. The
primary reason for the growth was increased sales of the Company's workflow
products and additional software products sold in conjunction with call
management systems.
Services and other revenue increased by $8.0 million, or 22.8%, to $43.1
million for 1996 as a result of increased professional services and system and
software support fees. System and software support fees also increased due to
additional support contracts sold in conjunction with a greater number of
systems and software licenses.
International revenue increased to $22.3 million in 1996, from $17.7
million in 1995, due to first time sales in Mexico, South America, and South
Africa combined with increased sales in the United Kingdom and Japan.
Gross Profit.
Gross profit improved to 64.4% in 1996 from 62.0% in 1995. System sales
gross profit, which increased to 64.8% in 1996 as compared to 59.2% in 1995, was
primarily influenced by the increase in sales volume, product mix and software
amortization expense. During 1996, Mosaix sold a greater proportion of large
call management systems products which have a higher sales price and a greater
gross margin percentage than other system products. In addition, 1995 system
sales gross margins were negatively impacted by accelerated software
amortization expense resulting from the replacement of earlier versions of the
Company's call management system products with the newest versions of the
Company's products. During 1996, Mosaix expensed $1.4 million related to
software amortization compared to $2.8 million in 1995.
Gross profit on software licenses decreased slightly to 93.4% in 1996 from
95.9% in 1995, primarily due to a referral fee paid to a partner on a license
transaction. The decrease was partially offset by a decrease in royalty payments
to third-party software vendors.
Gross profit on services and other revenue for 1996 was 50.0% compared to
51.1% in the prior year. The change was due to a higher mix of lower-margin
professional service revenues and a lower mix of system and software support
fees than in prior years.
14
<PAGE> 17
Selling, General and Administrative.
For 1996, selling, general and administrative expenses were $45.4 million,
or 38.7% of revenue, compared to $41.2 million, or 44.2% of revenue, in the
prior year. While selling, general and administrative expenses decreased as a
percentage of revenue, the increase in spending was due to the expansion of
marketing activities and increased travel, advertising and personnel costs.
Research and Development.
For 1996, research and development expenses, net of amounts capitalized,
were $14.9 million, or 12.7% of revenue, compared to $13.1 million, or 14.0% of
revenue, in 1995. Gross research and development spending increased to $15.9
million from $15.3 million primarily due to increases in engineering staff and
outside contractors. Software costs capitalized were $1.0 million in 1996 and
$2.2 million in 1995.
Write-Off of Capitalized Software Costs.
When the Company completed the acquisition of Caleo as discussed below,
certain technology the Company was developing was replaced by technology
acquired in the Caleo purchase. The Company had previously capitalized $0.7
million of costs related to the replaced technology and, consequently, the costs
were expensed.
Purchase of In-Process Research and Development.
In February 1996, the Company purchased Caleo Software, Inc. (Caleo) for
approximately $4.8 million. The business combination was accounted for as a
purchase and, accordingly, the purchase price was allocated to the underlying
net assets based on the asset's fair values. Of the total purchase price, $4.3
million was allocated to in-process research and development and expensed at the
time of the combination.
Merger Related.
In December 1996, the Company issued approximately 3.8 million shares of
stock for ViewStar Corporation, a provider of workflow software. The business
combination was accounted for as a pooling of interest and, accordingly, the
merger related costs of $3.9 million were expensed.
Interest and Other Income, Net.
Interest and other income, net is comprised primarily of interest income
and remained constant at $1.7 million for 1996 and 1995.
Income Taxes.
Mosaix's income tax expense was $4.3 million and $4.2 million in 1996 and
1995, respectively. The effective tax rate was 54.2% in 1996 and 115.7% in 1995.
The unusually high effective tax rates were the result of non-deductible merger
related expenses and purchased in-process research and development costs. The
effective tax rates were also impacted by the merger with ViewStar because
operating losses generated by ViewStar prior to the merger provided no income
tax benefit to the consolidated organization in 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
Mosaix's financial condition remained strong as of December 31, 1997, with
cash and cash equivalents and short-term investments totaling $36.1 million. The
short-term investment portfolio is invested in corporate notes and bonds, and is
diversified among security types and issuers. It does not include any derivative
products. At December 31, 1997, Mosaix's working capital was $46.3 million, the
current ratio was 2.6 to 1.0 and during 1997, Mosaix generated $10.5 million of
cash from operations.
15
<PAGE> 18
Historically, working capital used to finance Mosaix has been provided by
cash flow from operations, leases, and various forms of stock including the
exercise of stock options by employees. During 1997, Mosaix invested $4.8
million to purchase furniture and equipment including investments in internal
customer management hardware and software systems. Additionally, Mosaix made
repayments on long-term lease obligations of $1.0 million.
On July 16, 1997, the Mosaix Board of Directors authorized, subject to
certain terms and conditions, the repurchase of up to 1,700,000 shares of common
stock. As of December 31, 1997, the Company had repurchased 1,437,500 shares at
a total cost of $14.0 million. In February 1998, the Mosaix Board of Directors
authorized the repurchase of an additional 1,000,000 shares of the Company's
common stock.
In addition to its cash and short-term investment balances, Mosaix has a
$10 million domestic line of credit available to meet cash flow needs. The line
of credit expires on May 31, 1998, however, the Company intends to renew the
line of credit for another year. Management believes that existing cash and
short-term investments and cash flow from operations, together with its
available credit line, will continue to be sufficient to meet ongoing operating
requirements as well as Mosaix's investment in capital assets and research and
development activities. In connection with research and development and market
expansion, cash may be used to acquire technology or to fund strategic ventures.
FORWARD LOOKING STATEMENTS -- RISK FACTORS REGARDING FUTURE PERFORMANCE
Certain statements in this Annual Report on Form 10-K contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995) that involve risks and uncertainties. Actual future results
may differ materially depending on a variety of factors, including, without
limitation, the following:
Uncertainties Relating to the Management of Remote Operations.
In December of 1996, the Company completed a merger with ViewStar, and
during 1997, several administrative and management functions were combined.
Certain sales, customer support, professional service and development functions
remain in Alameda, California, and the Company does not have significant
experience in the management of remote operations. The geographical separation
of Alameda operations may hinder efforts to integrate operations and product
development. The failure to effectively manage the operations in Alameda or to
realize the potential product synergies could have a material adverse effect on
the Company's business.
Uncertainty of Future Operating Results; Fluctuations in Operating Results;
Seasonality.
The Company's system sales and software license revenues are difficult to
forecast because sales cycles are relatively long, and quarterly revenues depend
on a relatively few large contracts that are subject to changes in customer
budgets and general economic conditions. Furthermore, because the Company's
products generally are shipped as orders are received, revenues in any quarter
are substantially dependent on orders booked and shipped in that quarter.
The Company's operating results have fluctuated in the past and are likely
to do so in the future, particularly on a quarterly basis. In addition, changes
in levels of the Company's consulting activity and seasonality in its consulting
revenues have resulted in variability of service revenues from quarter to
quarter. Historically, the Company often has recognized a substantial portion of
its revenues in the last month of the quarter, with these revenues frequently
concentrated in the last week of the quarter. In addition, the Company generally
has realized lower revenues from system sales and software license fees in the
first quarter of the year than in the immediately preceding quarter. Mosaix
believes that this has been due primarily to the concentration by some customers
of larger capital purchases in the fourth quarter of the calendar year to avoid
end-of-year budgetary limitations, followed by lower purchasing activity during
the first quarter of the next calendar year.
16
<PAGE> 19
Further, to the extent that international operations in the future
constitute a higher percentage of total revenues, the Company anticipates that
it ordinarily will experience relatively weaker demand in the quarter ending
September 30, due to reduced customer activity in Europe during the summer
months. The Company is in the process of adding additional functionality to
workflow products to closely align with current CMS customers. The additional
functionality may not be accepted by traditional workflow customers and not only
license revenue but customer support revenues could be negatively impacted in
the future.
As a result of these and other factors, revenues for any quarter are
difficult to forecast and are subject to significant variation. Moreover,
results of operations for any particular period are not necessarily indicative
of future performance. Due to all of the foregoing factors, it is likely that
without advance warning or notice, in some future quarter the Company's
operating results will be below the expectations of market analysts and
investors.
Lengthy Sales and Implementation Cycle; Complex Service Requirements.
The purchase or license of the Company's products is usually a significant
decision by prospective customers, requiring the Company to engage in a lengthy
sales cycle, typically between six and twelve months, without any assurance that
a sale will result. Moreover, the cost to the customer of the Company's products
typically is only a portion of the cost of implementing a large-scale CMS or CRM
solution. For these and other reasons, the sales cycle is subject to a number of
significant delays over which the Company has little or no control. Successful
implementation of the Company's products may also require lengthy and complex
implementation and integration services, which services may be provided by the
Company or by a third-party. In addition, it is becoming increasingly
competitive to recruit the talent required to perform the required services. The
Company's future operating results will depend upon its ability to coordinate
these complex service resources and ensure successful implementation of its
products, while managing costs.
Competition.
The market for Mosaix's products is highly competitive. Important
competitive factors include price, performance, diversity of product line,
reliability, delivery capabilities, customer support and service. Some of the
Company's competitors have significantly greater financial, technical,
manufacturing, marketing and other resources. Competitors may develop products
and technologies that are less expensive or technologically superior to the
Company's products.
Mosaix's principal competitors in the outbound call management systems
market include Davox Corporation, EIS International, Inc. and Melita Electronic
Labs. The potential entry into the market of major ACD and PBX suppliers
(suppliers of customer-premise call routing and switching systems) also presents
a strong competitive threat. These companies may elect to acquire or align with
Mosaix's competitors, increasing their market presence and distribution; resell
principal competitors' products; or elect to develop and market their own
predictive dialing application software. As Mosaix expands its CMS offerings, it
may also encounter increased competition from call center application providers
such as Information Management Associates and Versatility.
The traditional competition for horizontal workflow technology has been
workflow software vendors, including direct competition from a number of public
and private companies or divisions thereof, including Filenet, IBM, Action
Technologies, Staffware, Optika, and Eastman Kodak. As ViewStar 5.0 extends its
value into the customer management market space, it will face competition from
new competitors, including process-oriented applications vendors such as
Pegasystems, Chordiant, and DST. Mosaix's CRM applications may encounter
competition from a number of customer management focused software companies
including, Edify Corporation, Remedy Corporation, and Seibel Systems. Certain of
these companies have announced and others may announce document workflow
capabilities for their existing or future products.
Many of the Company's current or potential competitors have greater
financial, technical and marketing resources. As the Company's markets mature
and new and existing companies compete for the same customers, price competition
is likely to intensify, which could adversely affect the operating results of
the Company.
17
<PAGE> 20
Mosaix also relies on a number of system integration firms for
implementation and other services as well as recommendations of its products
during the evaluation stage of the purchasing process. Although Mosaix seeks to
maintain close relationships with these service providers, many of these third
parties have similar, and often more established relationships with Mosaix's
principal competitors. If Mosaix is unable to develop and retain effective,
long-term relationships with these third parties, Mosaix's competitive position
would be materially adversely affected.
Technological Change and New Products.
The document management and workflow software market and the call
management market are characterized by rapid technological change and frequent
product introductions and improvements. Accordingly, the success of Mosaix will
depend to a great extent upon its ability to develop product enhancements and
new products that keep pace with continuing changes in technology and customer
preferences while remaining price competitive.
Mosaix has incurred, and expects to continue to incur, substantial expenses
associated with the introduction and promotion of new products. There can be no
assurance that the expenses incurred will not exceed development budgets, that
Mosaix will introduce products in a timely fashion, if at all, or that such
products will achieve market acceptance and generate sales sufficient to offset
development costs. In addition, the success of the Company's products which are
designed for use on the Internet or intranets will depend upon the acceptance of
the Internet, intranets and World Wide Web technologies, as well as the
products' compatibility with such technologies.
Competition for Employees.
Competition for engineers, professional services, customer support and
sales employees has continued to increase in the high tech industry. In order
for the Company to develop new and enhanced versions of existing products and to
properly support customers, the Company must continue to successfully retain
existing employees and recruit additional skilled people. In the event the
Company is not able to attract the skill sets required in a reasonable time
frame or as the cost of acquiring those skill sets increase, the Company could
be materially adversely affected.
Limited Source of Supply.
The Company purchases two principal components for its system product from
sole-source vendors. One vendor has announced that it will discontinue a
component. The Company has a next generation replacement part in testing which
will replace the discontinued component, but if this is unsuccessful and the
existing component becomes unavailable, the establishment of an alternate source
could not be accomplished quickly and would require investment of additional
resources. This would affect the Company's ability to manufacture its call
center system products. Any such delay could materially adversely affect the
operating results of the Company.
Dependence on Windows NT and Other Core Microsoft Technologies.
The success of many of the Company's products and potential products
depends upon the continued acceptance and use in critical business applications
of Microsoft's Windows NT platform and other core Microsoft technologies, such
as the Windows NT Server, the Microsoft SQL Server database and related Back
Office software on which such products are, or will be, based. If the Windows NT
platform market fails to grow, grows more slowly than anticipated or becomes
obsolete, the Company's business, results of operations and financial condition
would be materially adversely affected.
Lack of Product Revenue Diversification.
While the Company has developed new software products and services and has
multiple distribution channels, the Company expects that its CMS and CRM
products will continue to account for a significant amount of the Company's
revenues in the future. A decline in demand for those products as a result of
18
<PAGE> 21
competition, technological change or other factors would have a material adverse
effect on the Company's results of operations.
International Sales.
Mosaix sells products to customers in international markets, with such
sales accounting for 26.4% of the Company's total sales in 1997, and accordingly
is subject to the normal risks of international sales, such as currency
fluctuations, longer payment cycles, greater difficulties in accounts receivable
collections and compliance with export laws and a wide variety of foreign laws.
Any difficulties with respect to foreign export or other laws would have a
material adverse effect on the Company's international sales. The current year
financial crisis in Asia did not have a material effect on the Company but
anticipated growth in Asia may be negatively impacted. Because the Company
invoices certain of its foreign sales in local currency and does not hedge these
transactions, fluctuations in exchange rates could adversely affect the
Company's revenues and costs and could create significant foreign currency
losses.
Dependence on Proprietary Rights; Infringement Claims; Uncertainty of
Obtaining Licenses.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy the Company's products or to obtain and
use the Company's proprietary information. Policing unauthorized use of the
Company's products is difficult, and since Mosaix is unable to determine the
extent to which piracy of its software products exists, software piracy can be
expected to be a persistent problem. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to as great an extent
as the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that its
competitors will not independently develop similar technology.
The Company has received communications from time to time, asserting that
its products infringe the proprietary rights of third parties, or seeking
indemnification against such infringement. Although the Company believes that
none of its products infringe the proprietary rights of third parties, there can
be no assurance that third parties will not claim infringement with respect to
current or future products. The Company expects that software product developers
will increasingly be subject to infringement claims as the number of products
and competitors grows and the functionality of products in different markets
overlaps. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, adversely affect revenues, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company, if at all, which could have a material adverse effect
on the Company's business, results of operations and financial condition.
Mosaix also relies on certain software licensed from third parties,
including software that is integrated with internally developed software and
used in the Company's products to perform key functions. There can be no
assurance that such third parties will remain in business, that they will
continue to support their products or that their products will otherwise
continue to be available to the Company on commercially reasonable terms. The
loss or inability to maintain any of these software licenses could materially
adversely affect the Company's business.
Risk of Product Defects.
Software and other products as internally complex, with as many interfaces
to third party vendors as those offered by the Company, frequently contain
errors or defects, especially when first introduced or when new versions are
released. Although Mosaix conducts extensive product testing during product
development, it has experienced delays in the commercial release of products
pending the correction of software problems and, in some cases, has provided
product enhancements to correct errors or defects in released products due to
the difficulty in testing for all possible conditions that may be encountered at
a customer site. The Company could therefore, in the future, lose revenues as a
result of software errors or other product defects. The Company's products and
future products are intended for use in applications that are critical to a
customer's business. As a
19
<PAGE> 22
result, Mosaix expects that its customers and potential customers have a greater
sensitivity to product defects than the market for software products generally.
Governmental Regulation.
While existing industry legislation does not directly regulate the
manufacture and sale of Mosaix's call management products, certain existing
legislation may affect the ability of Mosaix's customers to utilize some of its
products in certain ways. For example, Mosaix's call management systems may not
be used for certain prohibited debt collection and remote telephone solicitation
practices, nor may they be used under certain circumstances to leave or play
artificial or prerecorded messages. These practices are governed by such federal
laws as the Telephone Consumer Protection Act of 1991 and the Telemarketing and
Consumer Fraud and Abuse Prevention Act, which authorize the FCC and Federal
Trade Commission, respectively, to issue additional regulations and administer
such laws. In addition, most states have enacted legislation limiting certain
telephone solicitation practices or restricting use of automatic dialing and
announcement devices. Other federal and state legislation that has been proposed
from time to time include bills that would, if enacted, recognize certain
privacy rights of employees at the work site and regulate the ability of
employers to monitor job performance, including monitoring employees' telephone
communication or gathering information regarding such communications. It is
possible that such legislation or other legislation, if enacted, might directly
or indirectly affect how Mosaix's call management systems, or some feature
thereof, can be used. Mosaix fully supports legislation designed to promote the
responsible use of auto dialing equipment. Mosaix endeavors to design its
products to enable its customers to comply with the requirements of current and
anticipated regulations. Similarly, international regulations and laws,
particularly in Europe and Asia, could have a negative impact on the Company.
Change in Accounting for Software Revenue Recognition.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2 "Software Revenue Recognition," which
Mosaix will be required to adopt beginning January 1, 1998. SOP 97-2 provides
guidance on software revenue recognition and the allocation of revenue when
multiple products and services are bundled. In the past, Mosaix has deferred
revenue on delivered software that required more than minor modifications but in
the event that bundled products and services can no longer be separated, Mosaix
will be required to recognize revenue using the percentage of completion method
instead of upon shipment of the software. Mosaix intends to continue to separate
software licenses from professional service contracts but if Mosaix is unable to
maintain the separation, a material adverse effect could occur in the Company's
results of operations.
Year 2000 Computer Problems.
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value, 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause system
failure.
All of the Company's currently shipping products are year 2000 compliant.
In addition, whenever possible, the Company has made software upgrades available
to existing customers, that along with related hardware upgrades, will enable
them to be year 2000 compliant. The Company does have some customers who have
purchased systems in the past, where a hardware upgrade is not available to
allow the customer to become year 2000 compliant. The Company has, and will
continue to encourage such customers to migrate to current product versions. It
is possible that the Company may incur additional expenses in addressing these
migration issues. Additionally, there can be no assurances that the Company's
current products do not contain undetected errors related to year 2000 that may
result in material additional costs or liabilities which could have a material
adverse effect on the Company.
20
<PAGE> 23
With regard to the Company's internal processing and operational systems,
the Company is in the process of installing an enterprise-wide financial and
operational system from a major vendor that is year 2000 compliant. Significant
portions of the system are currently operational and the Company anticipates all
critical components of the system will be operational by December, 1998. The
Company has capitalized the price of the system and third party consulting costs
incurred to date and will continue to do so as the system is completed. With
regard to other systems, the Company is identifying, reprogramming and testing
all systems for year 2000 compliance. Although the Company is not aware of any
additional material operational issues or costs associated with preparing the
internal systems for the year 2000, there can be no assurances that the Company
will not experience material adverse effects from undetected errors or the
failure of such systems to be year 2000 compliant.
ITEM EIGHT
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
For financial statements, see F-1 to F-18.
ITEM NINE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM TEN
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's fiscal year.
ITEM ELEVEN
EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's fiscal year.
ITEM TWELVE
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's fiscal year.
ITEM THIRTEEN
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
21
<PAGE> 24
PART IV
ITEM FOURTEEN
EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
CONSOLIDATED FINANCIAL STATEMENTS:
See F-1 to F-18.
FINANCIAL STATEMENTS SCHEDULES:
Independent Auditors' Report (contained on page F-19)
Schedule II Valuation and Qualifying Accounts (contained on page F-20)
All other Schedules are omitted because they are inapplicable or because the
requested information is shown in the Consolidated Financial Statements of
the Company or in the related Notes thereto.
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated October 14, 1996, among
the Registrant, Vision Merger Corporation and ViewStar
Corporation (I)
3.1 Restated Articles of Incorporation of the Registrant (B)
3.2 Restated Bylaws of the Registrant (D)
4.1 Form of Certificate Evidencing Common Stock, par value $0.01
per share (B)
4.2 Warrant to purchase 12,245 shares of ViewStar Common Stock
issued to Comdisco, Inc. dated May 31, 1996 (I)
10.1 Restated 1987 Stock Option Plan, as amended* (H)
10.2 1996 Management and Company Performance Bonus Plan* (H)
10.3 1997 Management and Company Performance Bonus Plan* (J)
10.4 Restated 1992 Stock Option Plan for Non-Employee Directors,
as amended* (H)
10.5 1991 Employee Stock Purchase Plan, as amended* (F)
10.6 Executive Employment Agreement dated as of November 8, 1994
with Patrick S. Howard* (E)
10.7 Executive Employment Agreement dated as of March 1, 1995
with Thomas R. Clark* (G)
10.8 Executive Employment Agreement dated as of March 1, 1995
with John J. Flavio* (G)
10.9 Executive Employment Agreement dated as of March 1, 1995
with Edmund D. Wilsbach* (G)
10.10 Lease for Building 17 dated January 15, 1991 among Michael
E. Mastro, Redmond East Associates and the Registrant (C)
10.11 Business Loan Agreement dated June 25, 1997 with
Seattle-First National Bank (A)
10.12 Customer Purchase Agreement dated December 27, 1990 with
Summa Four, Inc.** (D)
10.13 Software Source Code and Manufacturing Data Deposit and
Escrow Agreement dated December 27, 1990 with Summa Four,
Inc. and Data Securities International Ind.** (D)
10.14 Purchase Agreement (AWA 99) with Hewlett Packard, dated
March 1, 1995 (H)
10.15 Shareholders Agreement, dated October 14, 1996, with certain
former shareholders of ViewStar Corporation (I)
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C> <C>
10.16 ViewStar Corporation Amended 1986 Incentive Stock Plan and
form of agreement thereunder* (I)
10.17 ViewStar Corporation Amended 1994 Stock Plan, as amended,
and form of agreement thereunder* (I)
10.18 ViewStar Corporation 1996 Incentive Stock Plan* (I)
10.19 Sublease Agreement between the ASK Group, Inc. and ViewStar
Corporation, dated October 8, 1993, for ViewStar's facility
located at 1101 Marina Village Parkway, Alameda, California (I)
10.20 First Amendment to Sublease Agreement between the ASK Group,
Inc. and ViewStar Corporation, dated September 8, 1994, for
ViewStar's facility located at 1101 Marina Village Parkway,
Alameda, California (A)
10.21 Promissory Note issued by Kamran Kheirolomoom to ViewStar
Corporation dated July 2, 1996* (I)
10.22 Executive Employment Agreement, dated October 14, 1996,
between Kamran Kheirolomoom and the Registrant* (I)
10.23 Executive Employment Agreement, dated October 14, 1996,
between Robert I. Pender, Jr. and the Registrant* (I)
10.24 Executive Employment Agreement, dated October 14, 1996,
between Gayle A. Crowell and the Registrant* (I)
10.25 Executive Employment Agreement, dated October 14, 1996,
between Steve Russell and the Registrant* (A)
10.26 Executive Employment Agreement, dated February 14, 1996,
between Steve L. Adams and the Registrant* (A)
10.27 Executive Employment Agreement, dated July 1, 1997, between
Omar Saleh and the Registrant* (A)
10.28 Executive Employment Agreement, dated February 5, 1998,
between Jeff Jarvis and the Registrant* (A)
10.29 Executive Employment Agreement, dated February 5, 1998,
between Bruce Leader and the Registrant* (A)
10.30 Executive Employment Agreement, dated February 5, 1998,
between Nicholas A. Tiliacos and the Registrant* (A)
10.31 Lease Agreement between Millennium Corporate Park, L.L.C.
and the Registrant, dated December 11, 1997, for the
Company's corporate headquarters in Redmond, Washington (A)
10.32 1998 Management and Performance Bonus Plans* (A)
21.1 List of Subsidiaries of the Registrant (A)
23.1 Consent of KPMG Peat Marwick LLP (A)
27.1 Financial Data Schedule (A)
</TABLE>
- ---------------
* Management contract or compensation plan.
** Confidential treatment has been requested with respect to portions of the
agreement.
23
<PAGE> 26
(A) Filed herewith.
(B) Incorporated by reference from exhibits filed in connection with the
Registrant's Registration Statement on Form S-1 (Registration No. 33-34561)
filed with the Securities and Exchange Commission on April 26, 1990, as
amended.
(C) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1990.
(D) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992.
(E) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
(F) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K/A for the year ended December 31,
1994.
(G) Incorporated by reference from exhibits filed in connection with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.
(H) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995.
(I) Incorporated by reference from exhibits filed in connection with the
Registrant's Registration Statement on Form S4 (Registration No. 333-14887)
initially filed with the Securities and Exchange Commission on October 25,
1996.
(J) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996.
24
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MOSAIX, INC.
By: /s/ NICHOLAS A. TILIACOS
------------------------------------
Nicholas A. Tiliacos
Director and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ HARVEY N. GILLIS Chairman of the Board and March 2, 1998
- ----------------------------------------------------- Director
Harvey N. Gillis
/s/ NICHOLAS A. TILIACOS President, Chief Operating March 2, 1998
- ----------------------------------------------------- Officer and Director
Nicholas A. Tiliacos
/s/ JOHN J. FLAVIO Senior Vice President and Chief March 2, 1998
- ----------------------------------------------------- Financial Officer
John J. Flavio
/s/ MICHAEL A. JACOBSEN Controller and Principal March 2, 1998
- ----------------------------------------------------- Accounting Officer
Michael A. Jacobsen
/s/ TOM A. ALBERG Director March 2, 1998
- -----------------------------------------------------
Tom A. Alberg
/s/ H. ROBERT GILL Director March 2, 1998
- -----------------------------------------------------
H. Robert Gill
/s/ UMANG GUPTA Director March 2, 1998
- -----------------------------------------------------
Umang Gupta
/s/ PATRICK S. HOWARD Director March 2, 1998
- -----------------------------------------------------
Patrick S. Howard
/s/ DAVID J. LADD Director March 2, 1998
- -----------------------------------------------------
David J. Ladd
/s/ ROBERT S. LEVENTHAL Director March 2, 1998
- -----------------------------------------------------
Robert S. Leventhal
</TABLE>
25
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Mosaix, Inc.:
We have audited the accompanying consolidated balance sheets of Mosaix,
Inc. and subsidiaries as of December 31, 1997 and 1996, 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, 1997. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mosaix, Inc.
and subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Seattle, Washington
February 2, 1998
F-1
<PAGE> 29
MOSAIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenue:
Systems sales............................................ $ 49,198 $ 53,384 $ 43,169
Software licenses........................................ 23,947 20,654 14,949
Services and other....................................... 47,999 43,143 35,130
-------- -------- --------
Total revenue......................................... 121,144 117,181 93,248
-------- -------- --------
Cost of revenue:
System sales............................................. 18,510 18,813 17,627
Software licenses........................................ 2,416 1,364 612
Services and other....................................... 24,504 21,588 17,178
-------- -------- --------
Total cost of revenue................................. 45,430 41,765 35,417
-------- -------- --------
Gross profit............................................... 75,714 75,416 57,831
-------- -------- --------
Operating expenses:
Selling, general and administrative...................... 47,774 45,355 41,179
Research and development................................. 15,226 14,912 13,054
Restructuring charge..................................... 948 -- 1,240
Write-off of capitalized software costs.................. -- 705 --
Purchase of in-process research and development.......... -- 4,307 --
Merger related........................................... -- 3,905 500
-------- -------- --------
Total operating expenses.............................. 63,948 69,184 55,973
-------- -------- --------
Operating income........................................... 11,766 6,232 1,858
Interest and other income, net............................. 2,208 1,674 1,730
-------- -------- --------
Earnings before income taxes............................... 13,974 7,906 3,588
Income tax expense......................................... 4,217 4,288 4,151
-------- -------- --------
Net earnings (loss)........................................ $ 9,757 $ 3,618 $ (563)
======== ======== ========
Earnings (loss) per share:
Basic.................................................... $ 0.74 $ 0.29 $ (0.06)
Diluted.................................................. $ 0.71 $ 0.27 $ (0.06)
Weighted average common shares outstanding:
Basic.................................................... 13,169 12,677 9,846
Diluted.................................................. 13,667 13,570 9,846
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 30
MOSAIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5,532 $10,984
Short-term investments.................................... 30,548 31,825
Trade accounts receivable, less allowance for doubtful
accounts of $1,749 in 1997 and $1,593 in 1996.......... 30,325 26,061
Inventories............................................... 2,532 2,814
Current installments of contracts receivable, less
allowance for doubtful accounts of $497 in 1997........ 1,555 1,764
Deferred income taxes..................................... 1,338 1,560
Prepaid expenses and other current assets................. 2,881 4,277
------- -------
Total current assets................................... 74,711 79,285
Furniture, equipment and leasehold improvements, net........ 7,449 7,393
Contracts receivable, less allowance for doubtful contracts
of $423 in 1996, excluding current installments........... -- 670
Capitalized software costs, net of accumulated amortization
of $701 in 1997 and $3,464 in 1996........................ 930 1,993
Deferred income taxes....................................... 837 178
Other assets, net........................................... 451 1,244
------- -------
Total assets...................................... $84,378 $90,763
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,455 $ 5,064
Accrued compensation...................................... 8,762 9,097
Other accrued expenses.................................... 6,413 7,272
Current portion of long-term obligations.................. 381 934
Customer deposits and unearned revenue.................... 7,443 10,114
------- -------
Total current liabilities.............................. 28,454 32,481
Long-term obligations, excluding current installments....... 97 575
Unearned revenue, less current portion...................... 22 364
------- -------
Total liabilities...................................... 28,573 33,420
Shareholders' equity:
Common stock, $.01 par value. Authorized 25,000 shares;
issued and outstanding 12,229 shares in 1997 and 13,237
shares in 1996......................................... 122 132
Additional paid-in-capital................................ 50,040 61,841
Cumulative translation adjustments........................ (3) (201)
Notes receivable from shareholders........................ (272) (590)
Accumulated earnings (deficit)............................ 5,918 (3,839)
------- -------
Total shareholders' equity............................. 55,805 57,343
------- -------
Total liabilities and shareholders' equity........ $84,378 $90,763
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 31
MOSAIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES DEFERRED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE CUMULATIVE STOCK OPTION
--------------- --------------- PAID-IN FROM TRANSLATION COMPENSATION
SHARES AMOUNT SHARES AMOUNT CAPITAL SHAREHOLDERS ADJUSTMENT EXPENSE
------- ------- ------ ------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994...... 1,847 $ 18 10,160 $102 $ 60,116 $(119) $(339) $(85)
Exercise of stock options........ -- -- 187 2 537 (180) -- --
Amortization of deferred
compensation expense........... -- -- -- -- -- -- -- 54
Tax benefit realized upon
exercise of stock options...... -- -- -- -- 103 -- -- --
Common stock sold pursuant to
employee stock purchase plan... -- -- 29 -- 226 -- -- --
Translation adjustment........... -- -- -- -- -- -- 5 --
Repurchase of common stock....... -- -- (608) (6) (4,294) -- -- --
Net loss......................... -- -- -- -- -- -- -- --
------ ---- ------ ---- -------- ----- ----- ----
Balances at December 31, 1995...... 1,847 18 9,768 98 56,688 (299) (334) (31)
Issuance of preferred stock...... 3,293 33 -- -- 3,294 -- -- --
Exercise of stock options........ -- -- 369 4 1,440 (136) -- --
Amortization of deferred
compensation expense........... -- -- -- -- -- -- -- 31
Tax benefit realized upon
exercise of stock options...... -- -- -- -- 1,051 -- -- --
Common stock sold pursuant to
employee stock purchase plan... -- -- 33 -- 388 -- -- --
Translation adjustment........... -- -- -- -- -- -- 133 --
Restricted stock issued in
exchange for note receivable... -- -- 311 3 152 (155) -- --
Conversion of preferred stock to
common stock................... (5,140) (51) 2,797 28 23 -- -- --
Exercise of stock warrants....... -- -- 42 -- 30 -- -- --
Repurchase of common stock....... -- -- (83) (1) (1,225) -- -- --
Net earnings..................... -- -- -- -- -- -- -- --
------ ---- ------ ---- -------- ----- ----- ----
Balances at December 31, 1996...... -- -- 13,237 132 61,841 (590) (201) --
Exercise of stock options........ -- -- 409 4 1,161 -- -- --
Tax benefit realized upon
exercise of stock options...... -- -- -- -- 700 -- -- --
Common stock sold pursuant to
employee stock purchase plan... -- -- 38 1 365 -- -- --
Translation adjustment........... -- -- -- -- -- -- 198 --
Collection of shareholder
notes.......................... -- -- -- -- -- 318 -- --
Repurchase of common stock....... -- -- (1,455) (15) (14,027) -- -- --
Net earnings..................... -- -- -- -- -- -- -- --
------ ---- ------ ---- -------- ----- ----- ----
Balances at December 31, 1997...... -- $ -- 12,229 $122 $ 50,040 $(272) $ (3) $ --
====== ==== ====== ==== ======== ===== ===== ====
<CAPTION>
ACCUMULATED TOTAL
EARNINGS SHAREHOLDERS'
(DEFICIT) EQUITY
----------- -------------
<S> <C> <C>
Balances at December 31, 1994...... $(6,894) $ 52,799
Exercise of stock options........ -- 359
Amortization of deferred
compensation expense........... -- 54
Tax benefit realized upon
exercise of stock options...... -- 103
Common stock sold pursuant to
employee stock purchase plan... -- 226
Translation adjustment........... -- 5
Repurchase of common stock....... -- (4,300)
Net loss......................... (563) (563)
------- --------
Balances at December 31, 1995...... (7,457) 48,683
Issuance of preferred stock...... -- 3,327
Exercise of stock options........ -- 1,308
Amortization of deferred
compensation expense........... -- 31
Tax benefit realized upon
exercise of stock options...... -- 1,051
Common stock sold pursuant to
employee stock purchase plan... -- 388
Translation adjustment........... -- 133
Restricted stock issued in
exchange for note receivable... -- --
Conversion of preferred stock to
common stock................... -- --
Exercise of stock warrants....... -- 30
Repurchase of common stock....... -- (1,226)
Net earnings..................... 3,618 3,618
------- --------
Balances at December 31, 1996...... (3,839) 57,343
Exercise of stock options........ -- 1,165
Tax benefit realized upon
exercise of stock options...... -- 700
Common stock sold pursuant to
employee stock purchase plan... -- 366
Translation adjustment........... -- 198
Collection of shareholder
notes.......................... -- 318
Repurchase of common stock....... -- (14,042)
Net earnings..................... 9,757 9,757
------- --------
Balances at December 31, 1997...... $ 5,918 $ 55,805
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 32
MOSAIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)...................................... $ 9,757 $ 3,618 $ (563)
Depreciation and amortization............................ 6,028 6,315 7,266
Trade and other receivables.............................. (3,385) 1,181 (3,174)
Other assets............................................. 1,927 (2,162) (466)
Accounts payable and accrued expenses.................... (803) 2,977 4,439
Customer deposits and unearned revenue................... (3,013) (7,023) (1,270)
-------- -------- --------
Net cash provided by operating activities........ 10,511 4,906 6,232
-------- -------- --------
Cash flows from investing activities:
Purchase of short-term investments....................... (35,978) (40,635) (50,433)
Proceeds from maturities of short-term investments....... 37,255 42,658 16,585
Purchases of furniture and equipment..................... (4,778) (3,456) (2,781)
Increase in capitalized software costs................... (256) (976) (2,157)
Other.................................................... 820 207 588
-------- -------- --------
Net cash used in investing activities............ (2,937) (2,202) (38,198)
-------- -------- --------
Cash flows from financing activities:
Payments of borrowings under bank line of credit......... -- -- (1,500)
Proceeds from subordinated notes issued to
shareholders.......................................... -- -- 2,000
Collection of shareholder notes receivable............... 318 -- --
Repayment of long-term obligations....................... (1,031) (1,262) (2,151)
Common stock repurchased................................. (14,042) (1,226) (4,299)
Proceeds from issuance of preferred and common stock..... 1,531 2,905 585
-------- -------- --------
Net cash provided by (used in) financing
activities..................................... (13,224) 417 (5,365)
-------- -------- --------
Effect of exchange rate changes on cash.................... 198 117 12
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... (5,452) 3,238 (37,319)
Cash and cash equivalents, beginning of year............... 10,984 7,746 45,065
-------- -------- --------
Cash and cash equivalents, end of year..................... 5,532 10,984 7,746
Short-term investments..................................... 30,548 31,825 33,848
-------- -------- --------
Cash and cash equivalents and short-term investments....... $ 36,080 $ 42,809 $ 41,594
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes.......................................... $ 1,816 $ 5,611 $ 3,255
Interest.............................................. $ 105 $ 290 $ 568
Noncash investing and financing activities:
Equipment transferred from inventory..................... $ 14 $ 363 $ 238
Tax benefit realized upon exercise of stock options...... $ 700 $ 1,051 $ 103
Equipment acquired under capital leases.................. $ -- $ 554 1,058
Issuance of common stock in exchange for notes
receivable............................................ $ -- $ 291 $ 180
Issuance of preferred stock in exchange for subordinated
notes payable and related accrued interest............ $ -- $ 2,148 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 33
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business.
Mosaix, Inc. and subsidiaries (hereinafter referred to as "Mosaix" or the
"Company") is a global provider of predictive dialing systems, workflow software
and enterprise customer management solutions that automate and optimize an
organization's interactions with its customers. By employing Mosaix' customer
interaction software, call management applications and business process
applications, companies are creating and managing profitable customer
relationships. Mosaix maintains a global professional service and customer
support organization and a network of development, co-marketing, and strategic
partnerships.
Mosaix' principal markets are North America, Europe, and Asia. Credit is
extended to customers in the normal course of business.
b. Basis of Presentation.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
c. Cash Equivalents and Short-Term Investments.
All short-term investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents. The Company's investment
securities are classified as held-to-maturity and, as such, are carried at
amortized cost.
d. Inventories.
Inventories are stated at the lower of cost (first-in, first-out) or market
(replacement cost for raw materials and net realizable value for finished goods,
work-in-process and spare parts).
e. Furniture, Equipment and Leasehold Improvements.
Furniture, equipment and leasehold improvements are stated at cost.
Depreciation of furniture and equipment (including rental systems) is provided
on the straight-line method over the three to five year estimated useful lives
of the assets. Leasehold improvements and assets recorded under capital leases
are amortized over the shorter of their estimated useful lives or the related
lease term. Maintenance and repairs are expensed as incurred. When furniture,
equipment and leasehold improvements are retired or otherwise disposed, gains
and losses are reflected in the consolidated statement of operations.
f. Capitalized Software Costs.
Software development costs incurred in conjunction with product development
are charged to research and development expense until technological feasibility
has been established. Once technological feasibility of a software product to be
marketed has been established, development and enhancement costs are capitalized
and reported at the lower of unamortized cost or net realizable value. Net
realizable value for a particular product is assessed based on anticipated gross
margins applicable to sales of the related product in future periods. Fully
amortized software development costs are removed from the Company's accounts.
Amortization of capitalized software costs begins when the related product
is available for general release to customers and is computed for each product
based on the greater of (a) the ratio of current gross revenue for a product to
the total of current and anticipated future gross revenue for the product or (b)
the straight line method over the estimated life of the product. Amortization
expense related to capitalized software costs
F-6
<PAGE> 34
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
amounted to $1,318, $1,448 and $2,823 for 1997, 1996 and 1995, respectively.
These amounts are included in cost of systems and software revenue.
g. Revenue Recognition.
The Company's revenues are primarily derived from: systems sales, software
licenses and services. Systems sales are comprised of revenue related to
products sold that include both hardware and software. Software licenses include
revenue related to software-only applications that operate on industry standard
hardware available from the Company and other vendors. Services revenue consists
of consulting services and recurring software and system support fees.
Revenue on system sales is generally recognized when the units are shipped
and the Company has no significant remaining obligations. For system sales
requiring significant customization or for new products, revenue is recognized
upon completion of the customization or customer acceptance. Installation fees
relating to system sales are recognized when the related system is installed.
Revenue from the sale of software licenses is recognized when (i) a signed
contract exists, (ii) delivery has occurred, (iii) collectibility is probable,
and (iv) remaining Company obligations are insignificant. Generally, revenues
from the sale of software licenses through distributors are recognized after
contract signing and shipment, and upon the earlier of sale to the end user or
upon receipt of nonrefundable cash payments from the distributors. Revenue from
system and software support service is recognized using the straight-line method
over the term of the contract. Revenue from professional services is recognized
as the related work is performed.
Customer payment terms vary. Amounts billed in advance of satisfying
revenue recognition criteria are classified in "customer deposits and unearned
revenue." Costs incurred prior to satisfying revenue recognition criteria are
deferred and are classified as a component of inventories.
The Company has historically sold and licensed systems pursuant to lease
agreements which qualify as sales type leases with an initial term of three
years or more. Revenue from these contracts was recognized when units were
shipped, at the present value of the minimum payments at the beginning of the
contract discounted at the Company's incremental borrowing rate. No such
contracts were sold in 1997 or 1996.
h. Research and Development Costs.
Research and development costs are charged to expense as incurred, except
as described in f.
i. Income Taxes.
The Company computes income taxes using the asset and liability method,
under which deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities. Deferred tax assets and liabilities are measured using
currently enacted tax rates that are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. A valuation allowance is established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
j. Product Warranties.
The Company generally provides a 90-day warranty for all systems sold and a
30 day warranty for software products. A charge to the statement of operations
is made at the time of sale for estimated costs of repair or replacement of the
products during the warranty period.
F-7
<PAGE> 35
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
k. Net Earnings (Loss) Per Share.
During 1997, Mosaix adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share," and restated earnings (loss) per share for
all prior periods. In accordance with SFAS No. 128, basic net earnings (loss)
per share is computed using the weighted average number of common shares
outstanding. Diluted net earnings (loss) per share is computed using the
weighted average number of common shares plus dilutive common share equivalents
outstanding during the period using the treasury stock method. Common share
equivalents consist of employee stock options and convertible preferred stock.
l. Foreign Currency Translation.
Assets and liabilities of foreign operations are translated into U.S.
dollars using rates of exchange in effect at the end of the year. Income and
expense accounts are translated into U.S. dollars using annual average rates of
exchange. The net gain or loss resulting from translation is shown as a
cumulative translation adjustment in shareholders' equity. Gains and losses from
foreign currency transactions are included in other income (expense), net.
m. Financial Instruments and Concentrations of Credit Risk.
The Company's financial instruments consist of cash and cash equivalents,
short-term investments, trade accounts and contracts receivable, accounts
payable, and long-term obligations. The Company's cash and cash equivalents and
short-term investments are diversified among security types and issuers, and
approximate fair value. The fair value of financial instruments that are
short-term and/or that have little or no risk are considered to have a fair
value equal to book value. Assets and liabilities that are included in this
category are receivables, accounts payable, accrued liabilities and long term
obligations.
Concentrations of credit risk with respect to receivables are limited due
to the diversity in geographic location of customers as well as diversity in
industries. In addition, the Company performs initial and ongoing evaluations of
its customers' financial position, and generally extends credit on open account
without requiring collateral.
n. Stock Based Compensation.
In 1996, Mosaix adopted SFAS No. 123, "Accounting for Stock Based
Compensation." In accordance with the provisions of SFAS No. 123, Mosaix has
elected to continue to apply the provisions of Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its stock option
and stock purchase plans and, accordingly, does not recognize compensation
expense for options granted with an exercise price equal to or in excess of fair
value at the date of grant. Note 8 to the consolidated financial statements
contains a summary of pro forma results of operations for 1997, 1996 and 1995 as
if Mosaix had recognized compensation expense based on the fair value of the
options and stock purchase rights granted at grant date as required by SFAS No.
123.
o. New Accounting Pronouncements.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which
supersedes SOP 91-1. The Company will be required to adopt SOP 97-2 beginning
January 1, 1998. SOP 97-2 provides guidance on software revenue recognition and
the allocation of revenue when multiple products and services are bundled. In
the past, the Company has deferred revenue on delivered software that required
more than minor modifications. In the event that bundled products and services
can no longer be separated, the Company will be required to defer revenue
recognition on both product and service elements until revenue recognition
criteria have been satisfied for all elements.
F-8
<PAGE> 36
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
The Company intends to continue to separate software licenses from professional
service contracts and accordingly the impact on the consolidated financial
statements is not expected to be material.
p. Use of Estimates.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
q. Reclassifications.
Certain reclassifications have been made to the prior period financial
statements to conform with the current year presentation.
2. BUSINESS COMBINATIONS
a. ViewStar Corporation.
In December 1996, the Company issued 3,777,078 shares of $.01 par value
common stock in exchange for all of the outstanding common shares of ViewStar
Corporation, a provider of client/server document management and workflow
software. This business combination was accounted for as a pooling-of-interests
and, accordingly, the consolidated financial statements for all periods prior to
the combination were restated to include the accounts and results of operations
of ViewStar. In connection with the business combination, $3,905 of merger
related costs were incurred.
During 1995, ViewStar incurred $500 of costs associated with the
termination of a proposed merger.
b. Caleo Software, Inc.
In February 1996, the Company purchased Caleo Software, Inc. (Caleo) for
$4,750 in cash. The business combination was accounted for using the purchase
method whereby the purchase price was allocated to the underlying net assets
based on their relative fair values. Of the total purchase price, $4,307 was
charged to operations as the purchase of in-process research and development.
The results of operations of Caleo were not significant in relation to the
Company. At the time of the combination, the Company also wrote off $705 of
previously capitalized software costs for duplicative technology.
F-9
<PAGE> 37
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
3. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company's cash and cash equivalents and short-term investments as of
December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cash and cash equivalents:
Cash...................................................... $ 1,682 $ 5,973
Money market instruments.................................. 3,850 5,011
------- -------
Total cash and cash equivalents........................ 5,532 10,984
------- -------
Short-term investments:
Municipal securities...................................... -- 10,212
Corporate notes and bonds................................. 30,548 21,613
------- -------
Total short-term investments........................... 30,548 31,825
------- -------
Total cash and cash equivalents and short-term
investments..................................... $36,080 $42,809
======= =======
</TABLE>
The short-term investments are classified as held-to-maturity. Due to the
short-term nature of these investments, changes in market interest rates would
not have a significant impact on the fair value of these securities. These
securities are carried at amortized cost which approximates fair value.
At December 31, 1997, all short-term investments have contractural
maturities of one year or less. Interest income, net for 1997, 1996 and 1995 was
$2,355, $1,665 and $1,393, respectively.
4. INVENTORIES
A summary of inventories at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials............................................... $ 759 $ 1,879
Work-in-process............................................. 64 333
Finished goods.............................................. 501 136
Installations in progress................................... 853 257
Spare parts................................................. 355 209
------- -------
$ 2,532 $ 2,814
======= =======
</TABLE>
5. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following as
of December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Furniture and fixtures...................................... $ 1,814 $ 2,620
Computer equipment.......................................... 14,907 15,012
Equipment under capital lease............................... 5,327 6,500
Office equipment............................................ 825 1,684
Leasehold improvements...................................... 1,859 1,390
------- -------
24,732 27,206
Less accumulated depreciation and amortization.............. 17,283 19,813
------- -------
$ 7,449 $ 7,393
======= =======
</TABLE>
F-10
<PAGE> 38
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
During 1997, 1996 and 1995, amortization expense related to equipment under
capital leases was $717, $627 and $239, respectively. Accumulated amortization
for equipment under capital leases at December 31, 1997 and 1996 was $4,913 and
$5,383, respectively.
6. BANK LINE OF CREDIT
At December 31, 1997, the Company had available a $10,000 unsecured
domestic bank line of credit. Restrictive terms of this line of credit require,
among other things, that the Company maintain minimum net worth and working
capital. The Company was in compliance with all terms and conditions of this
line of credit as of December 31, 1997. There were no borrowings outstanding
under this line as of December 31, 1997.
7. LONG-TERM OBLIGATIONS
A summary of long-term obligations as of December 31 follows:
<TABLE>
<CAPTION>
1997 1996
---- ------
<S> <C> <C>
Capital lease obligations................................... $433 $1,329
Other....................................................... 45 180
---- ------
Total long-term obligations................................. 478 1,509
Less current installments................................... 381 934
---- ------
Long-term obligations, excluding current
installments.......................................... $ 97 $ 575
==== ======
</TABLE>
Principal maturities of long-term obligations at December 31, 1997 are as
follows:
<TABLE>
<S> <C> <C>
1998................................................... $381
1999................................................... 97
----
$478
====
</TABLE>
In May 1995, ViewStar obtained $2.0 million in cash from certain of its
shareholders in exchange for 9% subordinated notes payable upon demand at any
time after April 15, 1996. In March 1996, the subordinated notes were exchanged
for shares of preferred stock which were in turn exchanged for shares of common
stock as described in Note 8(e).
8. SHAREHOLDERS' EQUITY
a. Stock Option Plans.
In 1997, the Board of Directors authorized a 1997 Stock Incentive
Compensation Plan (1997 Plan) which allowed for the reservation of 520,031
shares of common stock. These shares are primarily intended to replace the
Restated 1987 Stock Option Plan (1987 Plan) shares related to the repricing (see
below) and the balance is to be used for other general employee retention
purposes. Shares granted under the 1997 Plan are non-qualified options for
non-officer employees.
Prior to the merger in 1996, the shareholders of ViewStar approved a plan
amendment to increase the shares available for grant by 1,159,000. Additionally,
as part of the business combination, the shareholders of Mosaix approved the
1996 Stock Incentive Compensation Plan (1996 Plan) to replace the 1987 Plan. The
1996 Plan, which allowed for the reservation of 1,500,000 shares of common
stock, was intended primarily to replace expired options under the 1987 Plan, to
replace ViewStar options with Mosaix options and to grant new options to
officers of ViewStar. As part of the business combination, 1,559,000 shares
authorized under the ViewStar Plans expired.
F-11
<PAGE> 39
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
The Company's 1987 Plan allowed for the reservation of 2,800,000 shares of
common stock for grants. Options granted under the 1987 Plan were designated as
qualified or non-qualified at the discretion of the Board of Directors. The 1987
Plan expired in 1996 and 165,000 and 412,000 shares that were authorized under
the 1987 Plan expired in 1997 and 1996, respectively.
In January 1998, the Company offered certain employees the right to have
their outstanding stock options repriced in exchange for a 20% reduction in the
options outstanding and an agreement not to exercise any of the repriced options
for one year. The repricing took place January 14, 1998 and 776,802 options with
exercise prices of $10.88 to $19.75, were returned and canceled, and 621,480 new
options were issued at $9.50. Of the options returned and canceled, 320,031 were
1987 Plan options that could not be regranted under the expired 1987 Plan and
accordingly, 256,025 replacement options were issued under the 1997 and 1996
Plans.
Generally, options vest over a four-year period in cumulative increments of
25% beginning one year from the date of grant or, in certain instances, one year
from the individual's employment date. All options expire ten years or less from
the date of grant and are currently granted at prices not less than fair market
value.
The Company applies APB Opinion No. 25 in accounting for its plans. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options and stock purchase rights under SFAS No. 123 for options
and purchase rights granted in 1997, 1996 and in 1995, the Company's net
earnings (loss) would have been adjusted to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net earnings (loss):
As reported........................................ $9,757 $3,618 $ (563)
Pro forma.......................................... 6,517 1,786 (931)
Basic earnings (loss) per share:
As reported........................................ 0.74 0.29 (0.06)
Pro forma.......................................... 0.49 0.14 (0.09)
Diluted earnings (loss) per share:
As reported........................................ 0.71 0.27 (0.06)
Pro forma.......................................... 0.48 0.13 (0.09)
</TABLE>
The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $6.78, $5.30 and $2.97, respectively on the date of
grant using the Black Scholes option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Expected dividend yield.............................. 0.0% 0.0% 0.0%
Volatility........................................... 76.0% 62.0% 62.0%
Expected weighted average life (in years)............ 3.8 4.5 4.5
Weighted average risk free interest rate............. 5.8% 6.3% 6.2%
</TABLE>
F-12
<PAGE> 40
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
The per share weighted-average fair value of stock purchase rights during
1997, 1996 and 1995 was $5.52, $4.44 and $3.31, respectively, on the date of
grant using the Black Scholes option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Expected dividend yield.............................. 0.0% 0.0% 0.0%
Volatility........................................... 76.0% 62.0% 62.0%
Expected weighted average life (in years)............ 0.5 0.5 0.5
Weighted average risk free interest rate............. 5.6% 5.2% 5.2%
</TABLE>
Pro forma net earnings (loss) and earnings (loss) per share reflect only
options granted after January 1, 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net earnings (loss) and net earnings (loss) per share amounts
presented above because compensation cost is reflected over the options' vesting
period of four to five years, and compensation cost for options granted prior to
January 1, 1995 is not considered.
A summary of stock options follows:
<TABLE>
<CAPTION>
SHARES NUMBER OF
AVAILABLE OPTIONS WEIGHTED
FOR GRANT OUTSTANDING AVERAGE
(IN 000'S) (IN 000'S) EXERCISE PRICE
---------- ----------- --------------
<S> <C> <C> <C>
Balance at December 31, 1994..................... 428 2,116 $ 4.41
Plan amendment................................. 400 -- --
Granted........................................ (521) 521 4.74
Exercised...................................... -- (187) 2.88
Canceled....................................... 504 (504) 4.08
------ ----- ------
Balance at December 31, 1995..................... 811 1,946 4.70
Plan amendment................................. 2,659 -- --
Granted........................................ (721) 721 11.19
Exercised...................................... -- (369) 3.91
Expired:
1987 Plan................................... (412) -- --
ViewStar Plans.............................. (1,559) -- --
Canceled....................................... 240 (240) 4.99
------ ----- ------
Balance at December 31, 1996..................... 1,018 2,058 6.62
Additional authorization....................... 520 -- --
Granted........................................ (1,459) 1,459 11.91
Exercised...................................... -- (409) 2.85
Expired........................................ (165) -- --
Canceled....................................... 479 (479) 10.51
------ ----- ------
Balance at December 31, 1997..................... 393 2,629 $ 9.98
====== ===== ======
</TABLE>
As discussed previously, a stock option repricing took place on January 14,
1998. Of the options returned and canceled, 320,031 were 1987 Plan Options that
could not be regranted from the 1987 Plan because the 1987 Plan had expired.
These options were replaced with 256,025 options that were available for grant
at December 31, 1997 and, after this reissuance, approximately 182,000 shares
remain available to grant to employees under the 1996 and 1997 Plans. The 1992
Director's Plan shares were not repriced and 46,000 shares are available for
grant at December 31, 1997.
F-13
<PAGE> 41
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
The following table summarizes options outstanding and exercisable at
December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE WEIGHTED -------------------------------
RANGE OF EXERCISE NUMBER REMAINING AVERAGE NUMBER WEIGHTED AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- ----------- ---------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.51 - 0.51 186,413 3.65 $ 0.51 125,878 $ 0.51
3.79 - 6.75 503,192 5.93 4.52 434,231 4.41
7.58 - 10.38 510,784 9.04 9.50 87,206 8.66
10.69 - 12.25 706,238 8.03 11.77 138,651 11.01
12.62 - 15.00 502,447 8.67 13.74 81,259 13.50
15.06 - 19.75 220,320 8.72 17.29 61,047 17.98
-------------- --------- ---- ------ ------- ------
$ 0.51 - 19.75 2,629,394 7.69 $ 9.98 928,272 $ 6.96
============== ========= ==== ====== ======= ======
</TABLE>
b. Stock Option Plan for Non-Employee Directors.
Under the Company's 1992 Stock Option Plan for Non-Employee Directors (1992
Plan), 125,000 shares of the Company's common stock are reserved for issuance to
non-employee directors of the Company.
An initial grant of 5,000 options is automatically made to each
non-employee director upon appointment as a director of the Company. Initial
grants vest over a five-year period in cumulative increments of 20% each year
beginning from the date of the first subsequent annual meeting of shareholders
following grant. An additional 2,000 options are granted following each annual
shareholders' meeting. Each additional grant is immediately vested and
exercisable.
All options expire ten years from the date of grant or, if earlier, five
years after termination as a director of the Company. Options are exercisable at
the fair market value of the stock at the date of grant. At December 31, 1997,
72,000 options were outstanding under the 1992 Plan at a weighted average
exercise price of $11.77 per share and 58,000 options were exercisable at a
weighted average price of $11.73 per share.
c. Employee Stock Purchase Plan.
The Company's 1991 Employee Stock Purchase Plan provides for 200,000 shares
of the Company's common stock to be reserved for issuance upon exercise of
purchase rights granted to participating employees of the Company. The purchase
rights are exercisable semiannually on June 30 and December 31 of each year at a
price equal to the lesser of 85% of the fair market value of the Company's stock
at the beginning or end of the respective semi-annual periods. At December 31,
all authorized shares had been issued.
d. Stock Repurchase Plan.
In 1997, the Company's Board of Directors authorized a plan to repurchase
up to 1,700,000 shares of the Company's common stock, subject to certain
limitations and conditions. The repurchased shares are used primarily to service
the Company's employee stock plans. During 1997, the Company repurchased
1,437,500 shares for a total cost of $14,035. In January 1998, the Company's
Board of Directors authorized an additional 1,000,000 shares to be repurchased
under the same limitations and conditions.
In 1995, the Company's Board of Directors had authorized a similar plan to
repurchase up to 1,600,000 shares of the Company's common stock. The Company had
purchased 691,000 shares at a total cost of $5,526 when the plan was
discontinued on October 2, 1996.
F-14
<PAGE> 42
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
e. ViewStar Preferred Shares.
In March and June 1996, ViewStar completed a preferred stock financing
transaction in which a total of 3,293,467 shares were issued. ViewStar issued
2,126,024 shares in repayment of $2,000 subordinated notes outstanding plus the
related accrued interest of $148 and issued 1,167,444 shares for $1,179 in cash.
All preferred shares were converted to common stock in 1996.
9. INCOME TAXES
The components of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
U.S. operations......................................... $10,073 $6,524 $2,906
Foreign................................................. 3,901 1,382 682
------- ------ ------
$13,974 $7,906 $3,588
======= ====== ======
</TABLE>
Components of income tax expense are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Current:
Federal............................................... $ 2,871 $4,053 $3,493
State................................................. 544 446 522
Foreign............................................... 1,239 705 276
------- ------ ------
Total current................................. 4,654 5,204 4,291
Deferred -- Federal..................................... (437) (916) (140)
------- ------ ------
$ 4,217 $4,288 $4,151
======= ====== ======
</TABLE>
Income tax expense on earnings before income taxes differs from "expected"
income tax expense as computed by applying the U.S. federal income tax rate of
34% as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense......................... $ 4,751 $2,688 $1,220
Research and experimentation tax credits and foreign
tax credits........................................... (462) (387) (100)
State income taxes, net of federal benefit.............. 359 296 355
Reduction of valuation allowance........................ (1,065) -- --
Losses of subsidiary not currently deductible........... -- 301 2,503
Purchase of in-process research and development......... -- 1,464 --
Merger related costs.................................... -- 438 --
Foreign taxes withheld.................................. -- 161 226
Other................................................... 634 (673) (53)
------- ------ ------
$ 4,217 $4,288 $4,151
======= ====== ======
</TABLE>
F-15
<PAGE> 43
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
Deferred income tax assets and liabilities are comprised of the following
at December 31:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Capitalized software development costs, net of
amortization.............................................. $ 316 $ 678
Contract revenue............................................ 233 415
------- --------
Deferred tax liabilities.................................. 549 1,093
------- --------
Provision for doubtful receivables.......................... 655 940
Provision for inventory obsolescence........................ 161 219
Provision for warranties and returns........................ 230 143
Unearned revenue............................................ 1,284 1,130
Provision for accrued compensation.......................... 1,595 1,580
Net operating loss carryforwards............................ 7,064 8,649
Research and experimentation tax credit carryforwards....... 1,211 1,086
Other....................................................... 736 454
------- --------
Gross deferred tax assets................................. 12,936 14,201
Deferred tax asset valuation allowance.................... (10,212) (11,370)
------- --------
Deferred tax assets....................................... 2,724 2,831
------- --------
Net deferred tax assets................................... $ 2,175 $ 1,738
======= ========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $20,053, expiring in the years
2004 through 2011, and net operating loss 'carryforwards for state income tax
purposes of approximately $7,605, expiring in the years 1999 through 2009. The
Company also had federal and state research and experimentation tax credit
carryforwards of approximately $997 and $630, respectively, which expire in the
years 2000 through 2009. Utilization of the Company's net operating loss
carryforwards and research and experimentation tax credit carryforwards and
other deferred income tax assets which relate primarily to ViewStar are subject
to Internal Revenue Code Section 382 limitations due to a change of ownership.
Due to uncertainty regarding their recoverability, the Company has established
valuation allowances for the related deferred income tax assets. With regard to
the remaining deferred income tax assets, it is more likely than not that the
results of future operations will generate sufficient taxable income to
recognize the net deferred income tax assets.
The deferred income tax valuation allowance decreased $1,158 and $940 in
1997 and 1996, respectively.
F-16
<PAGE> 44
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
10. EARNINGS PER SHARE
The following table reconciles the numerator and the denominator of the
basic and diluted per share computations for earnings (loss) per share.
<TABLE>
<CAPTION>
NET EARNINGS WEIGHTED
(LOSS) AVERAGE SHARES EARNINGS
(IN 000'S) (IN 000'S) (LOSS) PER
(NUMERATOR) (DENOMINATOR) SHARE
------------ -------------- ----------
<S> <C> <C> <C>
1997:
Basic earnings per share.................... $9,757 13,169 $ 0.74
Effect of dilutive stock options............ -- 498
------ ------
Diluted earnings per share.................. $9,757 13,667 $ 0.71
====== ======
1996:
Basic earnings per share.................... $3,618 12,677 $ 0.29
Effect of dilutive stock options and
convertible preferred stock.............. -- 893
------ ------
Diluted earnings per share.................. $3,618 13,570 $ 0.27
====== ======
1995:
Basic and dilutive loss per share........... $ (563) 9,846 $(0.06)
====== ======
</TABLE>
Stock options and convertible preferred stock were not included in the
computation of diluted loss per share for 1995 because the representative share
increments would be anti-dilutive. In addition, options to purchase shares of
common stock where the exercise price exceeded the average market price were
excluded from the computations in 1997 and 1996 because they would be
anti-dilutive. Anti-dilutive stock options and convertible preferred stock
excluded from the computations are as follows:
<TABLE>
<CAPTION>
ANTI-DILUTIVE
OPTIONS AND STOCK
(IN 000'S) EXERCISE PRICE
----------------- ---------------
<S> <C> <C>
1997.............................................. 1,154 $12.13 - $19.75
1996.............................................. 251 $16.06 - $19.75
1995.............................................. 3,793 $ 0.51 - $12.88
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
a. Profit Sharing and Deferred Compensation Plan.
The Company has a Profit Sharing and Deferred Compensation Plan (Profit
Sharing Plan) under Section 401(k) of the Internal Revenue Code of 1986, as
amended. Substantially all full-time employees are eligible to participate. The
Company, at its discretion, may elect to match the participants' contributions
to the Profit Sharing Plan. Participants will receive their share of the value
of their investments upon retirement or termination, subject to a vesting
schedule. The Company's matching contributions to the Profit Sharing Plan were
$752, $471 and $409 for 1997, 1996 and 1995, respectively.
b. Lease Commitments.
The Company leases its office and warehouse space under terms of
noncancelable operating leases expiring at various dates through 2009.
F-17
<PAGE> 45
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
Future minimum lease payments under noncancelable operating leases at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998....................................................... $ 3,134
1999....................................................... 2,684
2000....................................................... 1,950
2001....................................................... 1,811
2002....................................................... 1,811
Thereafter................................................. 13,258
-------
$24,648
=======
</TABLE>
Rent expense under noncancelable operating leases amounted to $3,176,
$2,712 and $2,907 for 1997, 1996 and 1995, respectively.
c. Litigation.
The Company is subject to various legal proceedings that arise in the
ordinary course of its business. While the outcome of these proceedings cannot
be predicted with certainty, the Company believes that none of such proceedings,
individually or in the aggregate will have a material adverse effect on the
Company's business or financial condition.
12. GEOGRAPHIC SEGMENT INFORMATION
The Company's products are marketed internationally through its
subsidiaries in the United Kingdom, the U.S. parent and independent
distributors.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue -- U.S. operations:
United States.................................... $ 89,153 $ 94,870 $ 75,593
United States export............................. 14,477 12,083 12,289
Revenue -- International operations:
Foreign subsidiaries............................. 17,514 10,228 5,366
-------- -------- --------
$121,144 $117,181 $ 93,248
======== ======== ========
Operating income:
U.S. operations.................................. $ 8,045 $ 4,235 $ 1,355
Foreign subsidiaries............................. 3,936 1,867 382
Eliminations..................................... (215) 130 121
-------- -------- --------
$ 11,766 $ 6,232 $ 1,858
======== ======== ========
Assets:
U.S. operations.................................. $ 74,725 $ 85,235 $ 90,597
Foreign subsidiaries............................. 9,653 5,528 2,974
-------- -------- --------
$ 84,378 $ 90,763 $ 93,571
======== ======== ========
</TABLE>
13. RESTRUCTURING CHARGES
During 1997, Mosaix incurred $948 of expenses for severance pay and related
costs from streamlining operations. During 1995, ViewStar incurred $1,240 for a
similar reduction in headcount.
F-18
<PAGE> 46
MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the unaudited statement of operations for
each quarter of 1997 and 1996:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1997:
Revenue....................... $30,614 $31,674 $28,043 $30,813 $121,144
Operating income.............. 3,600 4,412 991 2,763 11,766
Net earnings.................. 2,918 3,336 1,149 2,354 9,757
Basic earnings per share...... 0.22 0.25 0.09 0.19 0.74
Diluted earnings per share.... 0.21 0.24 0.08 0.18 0.71
1996:
Revenue....................... $26,997 $28,585 $30,202 $31,397 $117,181
Operating income (loss)....... (1,829) 3,569 4,083 409 6,232
Net earnings (loss)........... (2,413) 2,643 3,292 96 3,618
Basic earnings (loss) per
share...................... (0.21) 0.21 0.25 0.01 0.29
Diluted earnings (loss)
per share.................. (0.21) 0.19 0.24 0.01 0.27
</TABLE>
The quarterly earnings (loss) per share presented above may not total to
the year end totals due to changes in the weighted average common shares and
common equivalent shares outstanding during the year.
F-19
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Mosaix, Inc.:
Under date of February 2, 1998, we reported on the consolidated balance
sheets of Mosaix, Inc. and subsidiaries as of December 31, 1997 and 1996 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, 1997, as
contained in the 1997 annual report on Form 10-K. In connection with our audits
of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule of valuation and qualifying
accounts. This consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respect the, information set forth
therein.
KPMG Peat Marwick LLP
Seattle, Washington
February 2, 1998
F-20
<PAGE> 48
MOSAIX, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- --------- ------------ ---------- --------
BALANCE
AT CHARGED TO BALANCE
BEGINNING OTHER COSTS (1) AT END
DESCRIPTION OF YEAR AND EXPENSES DEDUCTIONS OF YEAR
----------- --------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Valuation accounts deducted from assets:
Allowance for doubtful receivables........ $2,016 $694 $464 $2,246
====== ==== ==== ======
Year ended December 31, 1996:
Valuation accounts deducted from assets:
Allowance for doubtful receivables........ $1,863 $395 $242 $2,016
====== ==== ==== ======
Year ended December 31, 1995:
Valuation accounts deducted from assets:
Allowance for doubtful receivables........ $1,581 $794 $512 $1,863
====== ==== ==== ======
</TABLE>
- ---------------
(1) Represents amounts written off.
F-21
<PAGE> 49
EXIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated October 14, 1996, among
the Registrant, Vision Merger Corporation and ViewStar
Corporation (I)
3.1 Restated Articles of Incorporation of the Registrant (B)
3.2 Restated Bylaws of the Registrant (D)
4.1 Form of Certificate Evidencing Common Stock, par value $0.01
per share (B)
4.2 Warrant to purchase 12,245 shares of ViewStar Common Stock
issued to Comdisco, Inc. dated May 31, 1996 (I)
10.1 Restated 1987 Stock Option Plan, as amended* (H)
10.2 1996 Management and Company Performance Bonus Plan* (H)
10.3 1997 Management and Company Performance Bonus Plan* (J)
10.4 Restated 1992 Stock Option Plan for Non-Employee Directors,
as amended* (H)
10.5 1991 Employee Stock Purchase Plan, as amended* (F)
10.6 Executive Employment Agreement dated as of November 8, 1994
with Patrick S. Howard* (E)
10.7 Executive Employment Agreement dated as of March 1, 1995
with Thomas R. Clark* (G)
10.8 Executive Employment Agreement dated as of March 1, 1995
with John J. Flavio* (G)
10.9 Executive Employment Agreement dated as of March 1, 1995
with Edmund D. Wilsbach* (G)
10.10 Lease for Building 17 dated January 15, 1991 among Michael
E. Mastro, Redmond East Associates and the Registrant (C)
10.11 Business Loan Agreement dated June 25, 1997 with
Seattle-First National Bank (A)
10.12 Customer Purchase Agreement dated December 27, 1990 with
Summa Four, Inc.** (D)
10.13 Software Source Code and Manufacturing Data Deposit and
Escrow Agreement dated December 27, 1990 with Summa Four,
Inc. and Data Securities International Ind.** (D)
10.14 Purchase Agreement (AWA 99) with Hewlett Packard, dated
March 1, 1995 (H)
10.15 Shareholders Agreement, dated October 14, 1996, with certain
former shareholders of ViewStar Corporation (I)
10.16 ViewStar Corporation Amended 1986 Incentive Stock Plan and
form of agreement thereunder* (I)
10.17 ViewStar Corporation Amended 1994 Stock Plan, as amended,
and form of agreement thereunder* (I)
10.18 ViewStar Corporation 1996 Incentive Stock Plan* (I)
10.19 Sublease Agreement between the ASK Group, Inc. and ViewStar
Corporation, dated October 8, 1993, for ViewStar's facility
located at 1101 Marina Village Parkway, Alameda, California (I)
10.20 First Amendment to Sublease Agreement between the ASK Group,
Inc. and ViewStar Corporation, dated September 8, 1994, for
ViewStar's facility located at 1101 Marina Village Parkway,
Alameda, California (A)
10.21 Promissory Note issued by Kamran Kheirolomoom to ViewStar
Corporation dated July 2, 1996* (I)
10.22 Executive Employment Agreement, dated October 14, 1996,
between Kamran Kheirolomoom and the Registrant* (I)
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C> <C>
10.23 Executive Employment Agreement, dated October 14, 1996,
between Robert I. Pender, Jr. and the Registrant* (I)
10.24 Executive Employment Agreement, dated October 14, 1996,
between Gayle A. Crowell and the Registrant* (I)
10.25 Executive Employment Agreement, dated October 14, 1996,
between Steve Russell and the Registrant* (A)
10.26 Executive Employment Agreement, dated February 14, 1996,
between Steve L. Adams and the Registrant* (A)
10.27 Executive Employment Agreement, dated July 1, 1997, between
Omar Saleh and the Registrant* (A)
10.28 Executive Employment Agreement, dated February 5, 1998,
between Jeff Jarvis and the Registrant* (A)
10.29 Executive Employment Agreement, dated February 5, 1998,
between Bruce Leader and the Registrant* (A)
10.30 Executive Employment Agreement, dated February 5, 1998,
between Nicholas A. Tiliacos and the Registrant* (A)
10.31 Lease Agreement between Millennium Corporate Park, L.L.C.
and the Registrant, dated December 11, 1997, for the
Company's corporate headquarters in Redmond, Washington (A)
10.32 1998 Management and Performance Bonus Plans* (A)
21.1 List of Subsidiaries of the Registrant (A)
23.1 Consent of KPMG Peat Marwick LLP (A)
27.1 Financial Data Schedule (A)
</TABLE>
- ---------------
* Management contract or compensation plan.
** Confidential treatment has been requested with respect to portions of the
agreement.
(A) Filed herewith.
(B) Incorporated by reference from exhibits filed in connection with the
Registrant's Registration Statement on Form S-1 (Registration No. 33-34561)
filed with the Securities and Exchange Commission on April 26, 1990, as
amended.
(C) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1990.
(D) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992.
(E) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
(F) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K/A for the year ended December 31,
1994.
(G) Incorporated by reference from exhibits filed in connection with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.
(H) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995.
(I) Incorporated by reference from exhibits filed in connection with the
Registrant's Registration Statement on Form S4 (Registration No. 333-14887)
initially filed with the Securities and Exchange Commission on October 25,
1996.
(J) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996.
<PAGE> 1
EXHIBIT 10.11
[SEAFIRST LOGO]
MOSAIX, INC.
SUMMARY TERM SHEET
CREDIT FACILITY:
1. REVOLVING LINE OF CREDIT
BORROWER: Mosaix, Inc.
LINE AMOUNT: Ten Million Dollars ($10,000,000).
LOAN PURPOSE: Working capital and general corporate purposes.
INTEREST RATE: Options:
- Bank of America's publicly announced reference rate; or
- Adjusted LIBOR plus 130 basis points.
Term Option:
- Bank of America's publicly announced reference rate; or
- Adjusted LIBOR plus 175 basis points
FEE: Commitment Fee:
- 0.20 of 1.00 percent per annum, payable quarterly
in arrears.
Fee upon execution of Term Option:
- 0.125 of 1.00 percent of the principal outstanding at
time of conversion.
EXPIRATION: May 31, 1998.
EXPIRATION
TERM OPTION: On or before May 31, 1998, Borrower shall have the option
to convert revolving credit line to a two-year term loan.
REPAYMENT
TERM OPTION: Repayable in twenty-four equal monthly principal
installments, plus monthly interest.
COLLATERAL: Unsecured.
II. OTHER TERMS
BUSINESS LOAN AGREEMENT:
- Amendment to existing Business Loan Agreement to be signed by Borrower
and Bank.
REPORTING REQUIREMENTS:
- Annual audited financial statements and 10-K report within 120 days.
- Quarterly company-prepared financial statements and 10-Q report
within 45 days.
- Annual forecast income statement within 75 days.
FINANCIAL COVENANTS:
- Minimum current ratio 1.75:1 (Previously 2.50:1)
- Minimum working capital $22,000,000 (Unchanged)
- Minimum tangible net worth $45,000,000 (Previously $42,000,000)
- Maximum debt-to-worth 1.00:1 (Unchanged)
TERM OPTION:
- Minimum operating cash flow/CPLTD (Unchanged).
Definition: Operating income of not less than $500,000 plus
depreciation and amortization expense divided by scheduled principal
payment of long-term debt plus interest expense on a four quarter
trailing average, tested quarterly.
<PAGE> 2
AMENDMENT TO BUSINESS LOAN AGREEMENT
This Agreement is made between Bank of America National Trust and Savings
Association, doing business as Seafirst Bank, successor by merger to Bank of
America NW, N.A. ("Bank") and Mosaix, Inc., a Washington Corporation and
successor by name change to Digital Systems International, Inc. ("Borrower").
Bank and Borrower are parties to a Business Loan Agreement and wish to make
certain revisions to their loan arrangements as set forth in that Agreement.
Upon execution hereof, that Agreement shall be amended as follows effective
immediately:
PART A:
Availability Period:
Availability period is hereby extended to May 31, 1998.
PART B, SECTION 4.2 is hereby amended:
Maintain current assets in an amount at least equal to 1.75 times
current liabilities, and not less than $22,000,000.
PART B, SECTION 4.3 is hereby amended:
Maintain a tangible net worth of at least $45,000,000 and not permit
Borrower's total indebtedness which is not subordinated in a manner
satisfactory to Bank to exceed 1.00 times Borrower's tangible net worth.
Except as specifically set forth herein, all provisions of the Agreement remain
in full force and effect.
This Amendment to Business Loan Agreement is executed by the parties on this 25
day of June, 1997.
SEAFIRST BANK
Western Wholesale Banking Division
By: /s/ STEVEN E. MELBY
-------------------
Steven E. Melby
Vice President
MOSAIX, INC.
By: /s/ JOHN J. FLAVIO
------------------
John J. Flavio
Senior Vice President - Finance & Administration
<PAGE> 3
[SEAFIRST BANK LOGO] LOAN MODIFICATION
AGREEMENT
- -----------------------------------------------------------------------------
This agreement amends the MASTER NOTE FOR MULTIPLE ADVANCES - BUSINESS PURPOSE
dated MAY 31, 1995 ("Note") executed by DIGITAL SYSTEMS INTERNATIONAL, INC.
("Borrower") in favor of Bank of America N.T.&S.A., doing business as Seafirst
Bank, successor by name change to Seattle-First National Bank ("Bank"),
regarding a loan in the maximum principal amount of $10,000,000.00 (the "Loan").
For mutual consideration, Borrower and Bank agree to amend the above loan
documents as follow:
1. Maturity Date. The maturity date of the Note is changed to MAY
31, 1998. Bank's commitment to make advances to Borrower under its line of
credit is also extended to MAY 31, 1998.
2. Name change. Borrower's name has been changed from Digital
Systems International, Inc. to Mosaix, Inc.
3. Other Terms. Except as specifically amended by this agreement or
any prior amendment, all other terms, conditions, and definitions of the Note
and all other security agreements, guarantees, deeds of trust, mortgages, and
other instruments or agreements entered into with regard to the Loan shall
remain in full force and effect.
DATED JUNE 3, 1997.
Bank: Borrower:
SEAFIRST BANK MOSAIX, INC.
By: /s/ STEVEN E. MELBY By: /s/ JOHN J. FLAVIO
-------------------------------- --------------------------------
Title: Vice President Title: Sr. Vice President
----------------------------- -----------------------------
<PAGE> 4
[SEAFIRST LOGO]
BUSINESS LOAN AGREEMENT
Part A
This Seafirst Business Loan Agreement ("Agreement") is made between Bank of
America NW, N.A., doing business as Seafirst Bank, ("Bank") and Digital Systems
International, Inc. ("Borrower") with respect to the following:
LINE OF CREDIT Subject to the terms of this Agreement, Bank will make loans
to Borrower under a revolving line of credit as follows:
Total Amount
Available: Borrower may borrow, repay and reborrow up to a maximum of
Ten Million Dollars ($10,000,000.00).
Availability
Period: Date of Note through May 31, 1997. However, if loans are
made and/or new promissory notes executed after the last
date, such advances will be subject to the terms of this
Agreement until repaid in full unless a written statement
signed by the Bank and Borrower provides otherwise, or a
replacement loan agreement is executed. The making of such
additional advances alone, however, does not constitute a
commitment by the Bank to make any further advances or
extend the availability period.
Term Period: On any Business Day prior to May 31, 1997, so long as
Borrower is then in compliance in all respects with the
terms and conditions of the Business Loan Agreement,
Borrower may elect, in writing delivered to Bank, to convert
the loan represented by the Note from a revolving loan to a
term loan to be repaid in 24 equal monthly principal
installments of the principal amount outstanding under the
facility on the date of conversion, provided that the
maturity date for this Term Period shall not extend beyond
May 31, 1998. The Term Period shall mean the period
beginning on the earlier of (a) the date such election is
made, or (b) May 31, 1996 (the Conversion Date). Borrower
shall pay to Bank a Conversion Fee on the Conversion Date
equal to 0.125% of the outstanding principal balance of the
Note on the Conversion Date; and the nonusage fee provided
for below shall cease to accrue on the Conversion Date.
Borrower shall pay to Bank on the Conversion Date the
remaining accrued but unpaid nonusage fee.
Interest Rate: At Borrower's option:
(a) Bank's publicly announced prime rate plus 0.00% percent
of principal per annum, adjusted on the date of any Bank
prime rate change, or;
(b) Adjusted LIBOR Rate shall mean for any day that per
annum rate equal to the sum of (a) the Margin of 1.30%,
(b) the Assessment Rate, if any, and (c) the quotient of
(i) the LIBOR Rate as determined for such day, divided
by (ii) the Reserve Adjustment. The Adjusted LIBOR Rate
on the first day of each Interest Period and on the
effective day of any change in the Assessment Rate or
Reserve Adjustment. The Adjusted LIBOR Rate shall be for
periods of one, two, three or six months.
Page 1
<PAGE> 5
(c) In the event Borrower elects the Term Option provided
for above, the Margin referred to in paragraph (b) above
shall be 1.75%.
(d) Bank's reserve adjusted Fixed Rate Index as quoted by
Bank on the date the funds are converted for the period
for which the rate is being fixed plus 1.75%. The Fixed
Rate Index will be adjusted at the holder's option to
reflect the holder's cost of statutory reserves, deposit
insurance, regulatory capital, taxes and assessments.
Interest
Rate Basis: All interest will be calculated at the per annum interest
rate based on a 360-day year and applied to the actual
number of days elapsed.
Prepayment: Bank may assess a prepayment fee in the event of a partial
or complete prepayment. Such prepayment fee will be fully
defined and disclosed to Borrower at the time the interest
rate is fixed.
Conversion Fee: On the Conversion Date set forth in the Term Period section
above, Borrower shall pay the Conversion Fee described
therein; provided that no Conversion Fee shall be due if
Borrower pays the Note in full at the end of the revolving
period without converting to the Term Period.
Fee on Unutilized
Portion of Line: On June 30, 1996 and every quarter thereafter, Borrower
shall pay a fee based on the average daily unused portion of
the line of credit. This fee is calculated as follows: 1/5
of 1.00% per annum, payable quarterly in arrears. This
nonusage fee shall cease to accrue on the Conversion Date
(as defined above). Borrower shall pay back to Bank on the
Conversion Date the remaining accrued but unpaid nonusage
fee.
Repayment: At the times and in amounts as set forth in note(s) required
under Part B Article 1 of this Agreement.
Collateral: Unsecured.
Page 2
<PAGE> 6
[SEAFIRST LOGO]
BUSINESS LOAN AGREEMENT
PART B
1. PROMISSORY NOTE(S). All loans shall be evidenced by promissory notes in a
form and substance satisfactory to Bank.
2. CONDITIONS TO AVAILABILITY OF LOAN/LINE OF CREDIT. Before Bank is obligated
to disburse/make any advance, or at any time thereafter which Bank deems
necessary and appropriate, Bank must receive all of the following, each of
which must be in form and substance satisfactory to Bank ("loan
documents"):
2.1 Original, executed promissory note(s);
2.2 Original executed security agreement(s) and/or deed(s) of trust
covering the collateral described in Part A; N/A
2.3 All collateral described in Part A in which Bank wishes to have a
possessory security interest; N/A
2.4 Financing statement(s) executed by Borrower; N/A
2.5 Such evidence that Bank may deem appropriate that the security
interests and liens in favor of Bank are valid, enforceable, and prior
to the rights and interests of others except those consenting to in
writing by Bank; N/A
+2.6 The following guaranty(ies) in favor of the Bank; N/A
+2.7 Subordination agreement(s) in favor of Bank executed by; N/A
2.8 Evidence that the execution, delivery, and performance by Borrower of
this Agreement and the execution, delivery, and performance by
Borrower and any corporate guarantor or corporate subordinating
creditor of any instrument or agreement required under this
Agreement, as appropriate, have been duly authorized;
2.9 Any other document which is deemed by the Bank to be required from
time to time to evidence loans or to effect the provisions of this
Agreement;
2.10 If requested by Bank, a written legal opinion expressed to Bank, of
counsel for Borrower as to the matters set forth in sections 3.1 and
3.2, and to the best of such counsel's knowledge after reasonable
investigation, the matters set forth in sections 3.3, 3.5, 3.6, 3.7,
3.8 and such other matters as the Bank may reasonably request; N/A
2.11 Pay or reimburse Bank for any out-of-pocket expenses expended in
making or administering the loans made hereunder including without
limitation attorney's fees (including allocated costs of in-house
counsel);
+2.12 Other (describe): N/A
Page 3
Rev. 11/93
<PAGE> 7
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Bank,
except as Borrower has disclosed to Bank in writing, as of the date of this
Agreement and hereafter so long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under
this Agreement is available and until full and final payment of all sums
outstanding under this Agreement and promissory notes that:
+3.1 Borrower is duly organized and existing under the laws of the state
of its organization as a:
General Limited Sole
X Corporation Partnership Partnership Proprietorship
--- --- --- ---
dba
----------------------------
Borrower is properly licensed and in good standing in each state in
which Borrower is doing business and Borrower has qualified under, and
complied with, where required, the fictitious or trade name statutes
of each state in which Borrower is doing business, and Borrower has
obtained all necessary government approvals for its business
activities; the execution, delivery, and performance of this
Agreement and such notes and other instruments required herein are
within Borrower's powers, have been duly authorized, and, as to
Borrower and any guarantor, are not in conflict with the terms of any
charter, bylaw, or other organization papers of Borrower, and this
Agreement, such notes and the loan documents are valid and enforceable
according to their terms;
3.2 The execution, delivery, and performance of this Agreement, the loan
documents and any other instruments are not in conflict with any law
or any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is bound or affected;
3.3 Borrower has title to each of the properties and assets as reflected
in its financial statements (except such assets which have been sold
or otherwise disposed of in the ordinary course of business), and no
assets or revenues of the Borrower are subject to any lien except as
required or permitted by this Agreement, disclosed in its financial
statements or otherwise previously disclosed to Bank in writing;
3.4 All financial information, statements as to ownership of Borrower and
all other statements submitted by Borrower to Bank, whether previously
or in the future, are and will be true and correct in all material
respects upon submission and are and will be complete upon submission
insofar as may be necessary to give Bank a true and accurate knowledge
of the subject matter thereof;
3.5 Borrower has filed all tax returns and reports as required by law to
be filed and has paid all taxes and assessments applicable to Borrower
or to its properties which are presently due and payable, except those
being contested in good faith;
3.6 There are no proceedings, litigation or claims (including unpaid
taxes) against Borrower pending or, to the knowledge of the Borrower,
threatened, before any court or government agency, and no other event
has occurred which may have a material adverse effect on Borrower's
financial condition;
3.7 There is no event which is, or with notice or lapse of time, or both,
would be, an Event of Default (as defined in Section 7) under this
Agreement;
4. AFFIRMATIVE COVENANTS. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under
this Agreement and promissory note(s) Borrower will:
+4.1 Use the proceeds of the loans covered by this Agreement only in
connection with Borrower's business activities and exclusively for the
following purposes: Working capital and general corporate purposes.
+4.2 Maintain current assets in an amount at least equal to 2.50 times
current liabilities, and not less than $22,000,000. Current assets and
current liabilities shall be determined in accordance with generally
accepted accounting principles and practices, consistently applied;
+4.3 Maintain a tangible net worth of at least $42,000,000 and not permit
Borrower's total indebtedness which is not subordinated in a manner
satisfactory to Bank to exceed
Page 4
Rev. 11/93
<PAGE> 8
1.00 times Borrower's tangible net worth. "Tangible net worth" means the
excess of total assets over total liabilities, excluding, however, from
the determination of total assets (a) all assets which should be
classified as intangible assets such as goodwill, patents, trademarks,
copyrights, franchises, and deferred charges (including unamortized debt
discount and research and development costs), (b) treasury stock, (c)
cash held in a sinking or other similar fund established for the purpose
of redemption or other retirement of capital stock, (d) to the extent
not already deducted from total assets, reserves for depreciation,
depletion, obsolescence or amortization of properties and other reserves
or appropriations of retained earnings which have been or should be
established in connection with the business conducted by the relevant
corporation, and (e) any revaluation or other write-up in book value of
assets subsequent to the fiscal year of such corporation last ended at
the date of this Agreement. "Tangible Net Worth" definition - tangible
assets to include net capitalized software costs of Borrower;
4.4 N/A
+4.5 Promptly give written notice to Bank of: (a) all litigation and claims
made or threatened affecting Borrower where the amount is $1,000,000 or
more; (b) any substantial dispute which may exist between Borrower and
any governmental regulatory body or law enforcement authority; (c) any
Event of Default under this Agreement or any other agreement with Bank
or any other creditor or any event which become an Event of Default; and
(d) any other matter which has resulted or might result in a material
adverse change in Borrower's financial condition or operations;
+4.6 Borrower shall as soon as available, but in any event within 120 days
following the end of each Borrower's fiscal years and within 45 days
following the end of each quarter provide to Bank, in a form
satisfactory to Bank such financial statements, Form 10-K Reports and
Form 10-Q Reports and other information respecting the financial
condition and operations of Borrower as Bank may reasonably request.
Borrower's fiscal year financial statement shall be audited by an
independent certified public accounting firm.
4.7 Borrower will maintain in effect insurance with responsible insurance
companies in such amounts and against such risks as is customarily
maintained by persons engaged in businesses similar to that of Borrower
and all policies covering property given as security for the loans shall
have loss payable clauses in favor of Bank. Borrower agrees to deliver
to Bank such evidence of insurance as Bank may reasonably require and,
within thirty (30) days after notice from Bank, to obtain such
additional insurance with an insurer satisfactory to the Bank;
4.8 Borrower will pay all indebtedness taxes and other obligations for which
the Borrower is liable or to which its income or property is subject
before they shall become delinquent, except any which is being contested
by the Borrower in good faith;
4.9 Borrower will continue to conduct its business as presently constituted,
and will maintain and preserve all rights, privileges and franchises now
enjoyed, conduct Borrower's business in an orderly, efficient and
customary manner, keep all Borrowers properties in good working order
and condition, and from time to time make all needed repairs, renewals
or replacements so that the efficiency of Borrower's properties shall be
fully maintained and preserved;
4.10 Borrower will maintain adequate books, accounts and records and prepare
all financial statements required hereunder in accordance with generally
accepted accounting principles and practices consistently applied, and
in compliance with the regulations of any governmental regulatory body
having jurisdiction over Borrower or Borrower's business;
4.11 Borrower will permit representatives of Bank to examine and make copies
of the books and records of Borrower and to examine the collateral of
the Borrower at reasonable times;
4.12 Borrower will perform, on request of Bank, such acts as may be necessary
or advisable to perfect any lien or security interest provided for
herein or otherwise carry out the intent of this Agreement;
4.13 Borrower will comply with all applicable federal, state and municipal
laws, ordinances, rules and regulations relating to its properties,
charters, businesses and operations, including compliance with all
minimum funding and other requirements related to any of Borrower's
employee benefit plans;
4.14 Borrower will permit representatives of Bank to enter onto Borrower's
properties to inspect and test Borrower's properties as Bank, in its
sole discretion, may deem appropriate to determine Borrower's compliance
with section 5.8 of this Agreement; provided, however, that any such
inspections and tests shall be for Bank's sole benefit and shall not be
Page 5
Rev. 11/93
<PAGE> 9
construed to create any responsibility or liability on the part of
Bank to Borrower or to any third party.
4.15 In the event Borrower elects to convert the loan represented by the
Note from a revolving loan to a term loan, Borrower shall maintain
minimum Debt Service Coverage of at least 1.20:1. Debt Service
Coverage shall be defined as Operating Income of not less than
$500,000 plus Depreciation and Amortization divided by scheduled
principal payments of long-term debt plus interest expense on a four
quarter trailing average, tested quarterly. Operating income is that
amount scheduled in Borrower's financial statements.
5. NEGATIVE COVENANTS. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under
this Agreement and promissory note(s):
*5.1 N/A;
5.2 N/A;
*5.3 N/A;
5.4 N/A;
*5.5 N/A;
5.6 Borrower will not liquidate or dissolve or enter into any
consolidation, merger, pool, joint venture, syndicate or other
combination, or sell, lease, or dispose of Borrower's business assets
as a whole or such as in the opinion of Bank constitute a substantial
portion of Borrower's business or assets;
5.7 Borrower will not engage in any business activities or operations
substantially different from or unrelated to present business
activities or operations; and
5.8 N/A;
6. WAIVER, RELEASE AND INDEMNIFICATION. Borrower hereby:
(a) releases and waives any claims against Bank for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any of the applicable federal, state or local laws, regulations
or ordinances, including without limitation those described in section 3.8,
and (b) agrees to indemnify and hold Bank harmless from and against any and
all claims, losses, liabilities, damages, penalties and expenses which Bank
may directly or indirectly sustain or suffer resulting from a breach of (i)
any of Borrower's representations and warranties with respect to hazardous
wastes and hazardous substances contained in section 3.8, or (ii) section
5.8. The provisions of this section 6 shall survive the full and final
payment of all sums outstanding under this Agreement and promissory notes
and shall not be affected by Bank's acquisition of any interest in any of
the Borrower's properties, whether by foreclosure or otherwise.
7. Events of Default. The occurrence of any of the following events ("Events
of Default") shall terminate any and all obligations on the part of Bank to
make or continue the loan and/or line of credit and, at the option of Bank,
shall make all sums of interest and principal outstanding under the loan
and/or line of credit immediately due and payable, without notice of
default, presentment or demand for payment, protest or notice of non
payment or dishonor, or other notices or demands of any kind or character,
all of which are waived by Borrower, and Bank may proceed with collection
of such obligations and enforcement and realization upon all security which
it may hold and to the enforcement of all rights hereunder or at law:
7.1 The Borrower shall fail to pay when due any amount payable by it
hereunder on any loans or notes executed in connection herewith;
7.2 Borrower shall fail to comply with the provisions of any other
covenant, obligation or term of this Agreement for a period of fifteen
(15) days after the earlier of written notice thereof shall have been
given to the Borrower by Bank or Borrower or any Guarantor has
knowledge of an Event of Default or an event that can become an Event
of Default;
7.3 Borrower shall fail to pay when due any other obligation for borrowed
money, or to perform any term or covenant on its part to be performed
under any agreement relating to such obligation or any such other debt
shall be declared to be due and payable and such failure shall
continue after the applicable grace period;
7.4 Any representation or warranty made by Borrower in this Agreement or
in any other statement to Bank shall prove to have been false or
misleading in any material respect when made;
Page 6
Rev. 11/93
<PAGE> 10
7.5 Borrower makes an assignment for the benefit of creditors, files
a petition in bankruptcy, is adjudicated insolvent or bankrupt,
petitions to any court for a receiver or trustee for Borrower or
any substantial part of its property, commences any proceeding
relating to the arrangement, readjustment, reorganization of
liquidation under any bankruptcy or similar laws, or if there is
commenced against Borrower any such proceedings which remain
undismissed for a period of thirty (30) days or, if Borrower by
any act indicates its consent or acquiescence in any such
proceeding or the appointment of any such trustee or receiver;
+7.6 Any judgment attaches against Borrower or any of its properties
for an amount in excess of $1,000,000 which remains unpaid,
unstayed on appeal, unbonded, or undismissed for a period of
thirty (30) days;
7.7 Loss of any required government approvals, and/or any
governmental regulatory authority takes or institutes action
which, in the opinion of Bank, will adversely affect Borrower's
condition, operations or ability to repay the loan and/or line
of credit;
7.8 Failure of Bank to have a legal, valid and binding first lien
on, or a valid and enforceable prior perfected security interest
in, any property covered by any deed of trust or security
agreement required under this Agreement;
7.9 Borrower ceases to exist as a going concern;
7.10 Occurrence of an extraordinary situation which gives Bank
reasonable grounds to believe that Borrower may not, or will be
unable to, perform its obligations under this or any other
agreement between Bank and Borrower; or
7.11 Any of the preceding events occur with respect to any
guarantor of credit under this Agreement, or such guarantor dies
or becomes incompetent, unless the obligations arising under the
guaranty and related agreements have been unconditionally
assumed by the guarantor's estate in a manner satisfactory to
Bank.
8. SUCCESSORS; WAIVERS. Notwithstanding the Events of Default above, this
Agreement shall be binding upon and inure to the benefit of Borrower
and Bank, their respective successors and assigns, except that Borrower
may not assign its rights hereunder. No consent or waiver under this
Agreement shall be effective unless in writing and signed by the Bank
and shall not waive or affect any other default, whether prior or
subsequent thereto, and whether of the same or different type. No delay
or omission on the part of the Bank in exercising any right shall
operate as a waiver of such right or any other right.
9. ARBITRATION.
9.1 At the request of either Bank or Borrower any controversy or
claim between the Bank and Borrower, arising from or relating to
this Agreement or any Loan Document executed in connection with
this Agreement or arising from any alleged tort shall be settled
by arbitration in King County, Washington. The United States
Arbitration Act will apply to the arbitration proceedings which
will be administered by the American Arbitration Association
under its commercial rules of arbitration except that unless the
amount of the claim(s) being arbitrated exceeds $5,000,000 there
shall be only one arbitrator. Any controversy over whether any
issue is arbitrable shall be determined by the arbitrator(s).
Judgment upon the arbitration award may be entered in any court
having jurisdiction. The institution and maintenance of any
action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of
either party, including plaintiff, to submit the controversy or
claim to arbitration if such action for judicial relief is
contested.
For purposes of the application of the statute of limitations
the filing of an arbitration as provided herein is the
equivalent of filing a lawsuit and the arbitrator(s) will have
the authority to decide whether any claim or controversy is
barred by the statute of limitations, and if so, to dismiss the
arbitration on that basis. The parties consent to the joinder in
the arbitration proceedings of any guarantor, hypothecator or
other party having an interest related to the claim or
controversy being arbitrated.
9.2 Notwithstanding the provisions of Section 9.1, no controversy or
claim shall be submitted to arbitration without the consent of
all parties if at the time of the proposed submission, such
controversy or claim arises from or relates to an obligation
secured by real property;
9.3 No provision of this Section 9 shall limit the right of the
Borrower or the Bank to exercise self-help remedies such as
setoff, foreclosure or sale of any collateral, or obtaining any
ancillary provisional or interim remedies from a court of
competent jurisdiction before, after or during the pendency of
any arbitration proceeding. The exercise of any such remedy does
not waive the right of either party to request arbitration. At
Bank's open foreclosure
Rev. 11/93 Page 7
<PAGE> 11
under any deed of trust may be accomplished by exercise of the
power of sale under the deed of trust or judicial foreclosure as
a mortgage.
10. COLLECTION ACTIVITIES, LAWSUITS AND GOVERNING LAW. Borrower
agrees to pay Bank all costs and expenses (including reasonable
attorney's fees and the allocated cost for in-house legal services
incurred by Bank), to enforce this Agreement, any notes or any Loan
Documents pursuant to this Agreement, whether or not suit is
instituted. If suit is instituted by Bank to enforce this Agreement, or
any of these documents, Borrower consents to the personal jurisdiction
of the Courts of the State of Washington and Federal Courts located in
the State of Washington. Borrower further consents to the venue of
this suit, being laid in King County, Washington. This Agreement and
any notes and security agreements entered into pursuant to this
Agreement shall be construed in accordance with the laws of the State
of Washington.
+11. ADDITIONAL PROVISIONS. Borrower agrees to the additional provisions set
forth immediately following this Section 11 or on any Exhibit attached
to and hereby incorporated into Agreement. This Agreement supersedes
all oral negotiations or agreements between Bank and Borrower with
respect to the subject matter hereof and constitutes the entire
understanding and Agreement of the matters set forth in this Agreement.
11.1 If any provision of this Agreement is held to be invalid or
unenforceable, then (a) such provision shall be deemed modified
if possible, or if not possible, such provision shall be deemed
stricken, and (b) all other provisions shall remain in full
force and effect.
11.2 If the imposition of or any change in any law, rule, or
regulation guideline or the interpretation or application of
any thereof by any court of administrative or governmental
authority (including any request or policy whether or not
having the force of law) shall impose or modify any taxes
(except U.S. federal, state or local income or franchise taxes
imposed on Bank), reserve requirements, capital adequacy
requirements or other obligations which would: (a) increase the
cost to Bank for extending or maintaining any loans and/or line
of credit to which this Agreement relates, (b) reduce the
amounts payable to Bank under this Agreement, such notes and
other instruments, or (c) reduce the rate of return on Bank's
capital as a consequence of Bank's obligations with respect to
any loan and/or line of credit to which this Agreement relates,
then Borrower agrees to pay Bank such additional amounts as
will compensate Bank therefor, within five (5) days after
Bank's written demand for such payment, which demand shall be
accompanied by an explanation of such imposition or charge and
a calculation in reasonable detail of the additional amounts
payable by Borrower, which explanation and calculations shall
be conclusive, absent manifest error.
11.3 Bank may sell participations in or assign this loan in whole or
in part without notice to Borrower and Bank may provide
information regarding the Borrower and this Agreement to any
prospective participant or assignee. If a participation is sold
or the loan is assigned the purchaser will have the right to
set off against the Borrower and may enforce its interest in
the Loan irrespective of any claims or defenses the Borrower
may have against the Bank.
11.4 Nothing in this Business Loan Agreement is intended to restrict
the Borrower's normal business activities, including marketing
new product lines similar to the existing product lines into
existing markets or marketing the existing product lines into
new markets.
11.5 Nothing in this Business Loan Agreement is intended to restrict
the sale of a portion or all of the Borrower to new investors.
However, if a controlling interest in the Borrower is to be
sold to a new investor, the Bank shall have the right to demand
immediate payment in full of all loans outstanding and accrued
interest and fees prior to that sale.
11.6 Borrower will provide Bank with annual operating statement
projections within 75 days of fiscal year-end.
12. NOTICES. Any notices shall be given in writing to the opposite party's
signature below or as that party may otherwise specify in writing.
13. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
Rev. 11/93 Page 8
<PAGE> 12
This Business Loan Agreement (Parts A and B) executed by the parties on
_______, 1996. Borrower acknowledges having read all of the provisions of this
Agreement and Borrower agrees to its terms.
SEAFIRST BANK
Western Commercial Banking Division, Team 2
By: /s/ STEVEN E. MELBY
--------------------------------
Steven E. Melby, Vice President
Address: 10500 N.E. 8th Street, Suite 500
Bellevue, WA 98004
Phone: (206) 585-6390
Fax: (206) 585-6393
DIGITAL SYSTEMS INTERNATIONAL, INC.
By:
--------------------------------------
Patrick S. Howard, Chairman and C.E.O.
By: /s/ JOHN J. ELEVIO
--------------------------------------
John J. Elevio, Senior Vice President - Finance & Administration
By: /s/ RICHARD L. ANDERSON
--------------------------------------
Richard L. Anderson, Vice President/Controller
Address: 6464 185th Avenue N.E.
Redmond, WA 98052
Phone: (206) 881-7544
Fax: (206) 881-1871
Rev. 11/93 Page 9
<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT TO SUBLEASE AGREEMENT
THIS AMENDMENT (the "Amendment") entered into as of the 8th day of
September, 1994, between COMPUTER ASSOCIATES INTERNATIONAL, INC., (hereinafter
called "Sublandlord"), as successor-in-interest to Ask Computer Systems, and
VIEWSTAR CORPORATION (hereinafter called "Subtenant") hereby amends and
modifies the Sublease entered into between Sublandlord and Subtenant dated
October 8, 1993 (the "Sublease"). Capitalized terms used herein shall have the
same meaning assigned to such terms in the Sublease, unless otherwise defined
herein.
W I T N E S S E T H
WHEREAS, Subtenant desires to exercise part of its option under Article
13 of the Sublease to expand the Subleased Premises to include an additional
4,416 rentable square feet ("Expansion Space");
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Article 1A entitled SUBLEASED PREMISES is hereby deleted in its
entirety and replaced with the following:
"Subleased Premises: Sublandlord hereby subleases to Subtenant, and
Subtenant subleases from Sublandlord, a total of 48,416 square feet of
Rentable Area consisting of the entire second floor of the Master
Premises and approximately 17,652 square feet of Rentable Area located
on the first floor of the Master Premises, in the location and
configuration as shown on that floor plan ("Floor Plan") attached hereto
as Exhibit "B-1" (the "Subleased Premises"). As used herein, the term
"Rentable Area" shall have the meaning ascribed to it by the Master
Lease, pursuant to the application of Section 6.A hereof."
2. For the purposes of the Expansion Space, the Commencement Date of this
Sublease shall be September 9, 1994 ("Expansion Commencement Date"), and the
Sublease shall terminate in accordance with the terms of the Sublease. The
Expansion Space shall be in "as in" condition. Any references in the Sublease
to improvements shall not be applicable to this Amendment.
3. Article 3 entitled RENT is hereby amended by adding the following as
Articles A-1 and B-1:
"A-1. Base Monthly Rent For Expansion Space During Initial Sublease
Term:
<PAGE> 2
Commencing on the Expansion Commencement Date, and thereafter on the
first (1st) day of each calendar month occurring thereafter during the
remainder of the Sublease Term, Subtenant shall pay to Sublandlord the
following sum as Base Monthly Rent in addition to the Base Monthly Rent
set forth in Article 3A. Any reference to Base Monthly Rent in the
Sublease shall be deemed to include these amounts:
(1) $1.160 per square foot of Expansion Space within the Subleased
Premises for the period commencing on the Expansion Commencement Date
and continuing until March 31, 1995;
(2) $1.305 per square foot of Expansion Space within the Subleased
Premises for the period commencing April 1, 1995 and continuing until
March 31, 1998;
(3) $1.468 per square foot of Expansion Space within the Subleased
Premises for the period commencing April 1, 1998 and continuing until
the expiration of the initial Sublease Term. Subtenant's obligation to
pay rent shall be prorated at the commencement and termination of the
Sublease Term.
B-1. Base Monthly Rent for Expansion Space During Option Period:
If the option to extend granted by Section 2.C hereof is exercised, the
Base Monthly Rent payable for the Expansion Space during the option
period shall be the following, in addition to the Base Monthly Rent set
forth in Article 3B:
(1) $1.468 per square foot of Expansion Space within the Subleased
Premises for the period commencing June 1, 1999 and continuing until
March 31, 2001;
(2) $1.651 per square foot of Expansion Space within the Subleased
Premises for the period commencing April 1, 2001 and continuing until
March 31, 2004;
(3) $1.857 per square foot of Expansion Space within the Subleased
Premises for the period commencing April 1, 2004 and continuing until
September 30, 2004."
4. Article 3D is amended by changing the fraction set forth in the third
sentence thereof from 44,000/58,318 to 48,416/58,318.
5. The following language is added after the first sentence of Article 4
of the Sublease:
"In addition, upon execution of the First Amendment to the Sublease,
Subtenant shall deposit with Sublandlord Five Thousand, One Hundred and
Twenty-Two and 56/100 Dollars ($5,122.56) in cash, as security for the
performance by Subtenant of the terms and conditions of this Sublease."
<PAGE> 3
6. Article 6(y) of the Sublease is amended by changing the address of the
Sublandlord to:
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11788-7000
Attn: Senior Vice President - Facilities
with another copy to the same address: Attn. Legal Department
7. Article 13 of the Sublease is hereby amended to reduce the remaining
optional Expansion Space to approximately 10,000 rentable square feet as a
result of this Amendment.
8. The Sublease, as amended by this First Amendment to Sublease, and the
Exhibits thereto, contains the entire agreement between the parties hereto and
there are no agreements, warranties, or representations which are not set forth
therein or herein. This Amendment may not be modified or amended except by an
instrument in writing duly signed by or on behalf of the parties hereto.
9. This Amendment may be executed simultaneously in any number of
counterparts, each of which shall be deemed to be an original but all of which
together constitute one and the same instrument.
Executed the date first above written.
COMPUTER ASSOCIATES VIEWSTAR CORPORATION
INTERNATIONAL, INC.
By: [SIG] By: /s/ STEPHEN E. RECHT
--------------------------- ---------------------------
[ILLEGIBLE] Poznanski Stephen E. Recht
- ------------------------------- -------------------------------
Sr. Vice President Vice President/CEO
- ------------------------------- -------------------------------
<PAGE> 4
[FLOOR PLAN DIAGRAM]
1101 MARINA VILLAGE PARKWAY
ALAMEDA, CA 94501
1st FLOOR
[ ] 4,416 Square Feet
Added Space
[ ] 44,000 Square Feet
Currently Leased by Viewstar
(includes also: all of 2nd floor)
[ ] Approx. 10,000 Square Feet
Option Space 1st Floor
EXHIBIT B-1
<PAGE> 1
Exhibit 10.25
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 14th day of October, 1996, between STEVE
RUSSELL ("Executive"), and DIGITAL SYSTEMS INTERNATIONAL, INC., a Washington
corporation ("Company").
IN CONSIDERATION of the mutual covenants and promises contained herein, the
parties agree as follows:
1. EMPLOYMENT.
Effective as of the date of the consummation of the Transaction, as defined
below (the "Effective Date"), the Company will employ Executive, and Executive
will accept employment by the Company, as Company's Senior Vice President,
Product Development, responsible for the management and direction of Product
Development Department of the Company, subject to the direction and control of
the President and the Chief Executive Officer of the Company. The Executive
will perform such additional duties as may be assigned from time to time by the
President and the CEO of the Company which relate to the business of the
Company, its subsidiaries or any business ventures in which the Company or its
subsidiaries may participate.
This Agreement has been made and entered into in contemplation of the
acquisition of ViewStar by the Company in a merger transaction (the
"Transaction") to be consummated in December of 1996. Executive was an
executive officer of ViewStar prior to consummation of such merger
transaction. Each party has agreed to the terms and conditions as set forth
herein to induce the other to go forward with and consummate the merger
transaction. Of specific importance to Company is Executive's commitment to
stay with the Company at least through 1997 and covenant not to compete with
the business of the Company or ViewStar during 1997 or as described in Section
8 hereof.
Executive acknowledges that he has been represented by his own counsel and has
received his own independent tax advice in connection with negotiation of this
Agreement.
2. ATTENTION AND EFFORT.
Executive will devote his full business time, attention and effort to the
Company's business and will use his skills and render services to the best of
his ability to serve the interests of the Company.
3. TERM.
Unless otherwise terminated as provided in Section 6 of this Agreement,
Executive's term of employment under this Agreement shall commence as of the
date hereof and shall expire upon Executive's resignation or termination.
4. COMPENSATION.
4.1 BASE SALARY
Executive's compensation shall consist, in part, of an annual base salary
of $140,000 before all customary payroll deductions (the "Base Salary"). The
Base Salary shall be paid in substantially equal installments at the same
interval as other officers of the Company are paid, or otherwise in conformance
with the Company's standard payroll practices. The Board of Directors of the
Company shall determine any increases in the Base Salary in future years.
4.2 BONUS
Executive shall be entitled to receive, in addition to the Base Salary, an
annual bonus (the "Bonus") in an amount to be determined pursuant to the
Company's Management and Company Performance Bonus Plan, at appropriate level,
as approved by the Board of Directors of the Company, in effect for each
calendar year, but in no event less than the bonus at plan provided for under
the 1996 incentive plan of ViewStar.
4.3 STOCK OPTIONS
As of the Effective Date, Executive shall be granted incentive stock
options and/or nonqualified stock options to purchase shares of common stock of
the Company, issued to replace options previously granted to Executive by
ViewStar, pursuant to the terms of certain Stock Option Plans maintained by
ViewStar
1
<PAGE> 2
(the "ViewStar Option Plans"). Such options shall continue to vest during
the term of this Agreement and during any subsequent service as a
consultant to the Company.
As inducement to continue working for the Company through at least June
1998, the Company agrees to recommend to the Board of Directors of the
Company award of options in 1Q97 to Executive to purchase 75,000 shares of
common stock of the Company, pursuant to the terms of the Company's 1996
Stock Incentive Compensation Plan, except that vesting for such options (at
a rate of 25% per year) shall not commence until January 1, 1998.
4.4 SIGNING BONUS
As further inducement to Executive to enter into this Agreement and serve
through 1997, Company agrees to pay to Executive, through the Company's
normal payroll and subject to customary payroll deductions, a one-time
signing bonus in an amount equal to 17.5% of Executive's Base Salary. In
the event that Executive voluntarily gives notice of termination under this
Agreement prior to December 31, 1997, Executive agrees to repay to Company
the amount of such signing bonus.
5. BENEFITS AND EXPENSES.
5.1 EXPENSES
The Company shall promptly reimburse Executive for all reasonable and
necessary business expenses incurred and advanced by him in carrying out
his duties under this Agreement, consistent with Company policies in
connection therewith. Executive shall present to the Company from time to
time an itemized account of such expenses in such form as Company policies
may require.
5.2 BENEFITS
During the term of employment hereunder, Executive shall be entitled to
participate fully in any benefit plans, programs, policies and fringe
benefits which may be made available to the senior executives of the
Company generally, including medical, dental, disability, pension and
retirement benefits, life insurance and other death benefits. Executive
will initially be entitle to three weeks vacation per year and any other
vacation or personal time off in accordance with Company policy.
5.3 OTHER
The Company shall provide Executive an office and with secretarial support
suitable to the position of Vice President.
5.4 MOVING EXPENSES
To the extent required, the Company will reimburse Executive for normal and
reasonable household moving expenses in accordance with standard Company
policy or as otherwise agreed between the parties.
6. TERMINATION.
6.1 BY THE COMPANY
With or without "Cause" (as defined in the Company's 19967 Stock Incentive
Compensation Plan), the Company may terminate the employment of Executive
at any time during the term upon giving at least 30 days Notice of
Termination (as defined below).
6.2 BY EXECUTIVE
Executive may terminate his employment at any time for Good Reason (as
defined below) or otherwise upon giving at least 30 days Notice of
Termination.
6.3 AUTOMATIC TERMINATION
Employment shall terminate automatically upon death or total disability of
Executive. The term "total disability" as used herein means an inability to
perform the duties set forth in paragraph 1 of this Agreement because of
illness or physical or mental disability for a period or periods
aggregating 180 calendar days in any 12-month period, unless Executive is
granted a leave of absence by the Company. Executive and Company hereby
acknowledge that Executive's ability to perform the duties specified in
paragraph 1 hereof is of the essence of this Agreement. Termination
hereunder shall be deemed to be
2
<PAGE> 3
effective immediately upon Executive's death or 30 days following a Notice
of Termination based upon a determination by the Board of Directors of the
Company of Executive's total disability as defined herein.
6.4 NOTICE
The term "Notice of Termination" means written notice of termination of
Executive's employment.
6.5 GOOD REASON
For the purpose of this Agreement, "Good Reason" is defined in Section
2.11 of the Company's 1996 Stock Incentive Compensation Plan.
7. SEVERANCE PAYMENTS.
In the event of termination of the employment of Executive, all compensation
and benefits set forth in this Agreement shall terminate as of the effective
date of termination, provided, however, that if the Company terminates
Executive's employment without cause, or if Executive terminates his employment
for Good Reason, the Company shall be obligated to pay to Executive the greater
(if such termination is during 1997) of Executive Base Salary, Bonus and stock
option vesting through 1997 or six months of Executive's Base Salary and stock
option vesting. Such amounts shall be paid as Salary and Bonus continuation
payments in accordance with Section 4 hereof.
8. AGREEMENT NOT TO COMPETE NOR SOLICIT EMPLOYEES.
Following voluntary termination of employment with the Company by Executive,
during 1997 and, if longer, for six months from the effective date of such
termination, Executive agrees not to directly or indirectly engage in (whether
as an employee, consultant, proprietary partner, director or otherwise), or
have an ownership interest in, or participate in the financing, operation,
management or control of any firm, corporation or business, other than the
Company or its subsidiaries, that engages in the directly competitive
manufacture, sale or design of directly competitive Call Flow, Work Flow, or
CTI (Computer Telephony Integration) products or services. In the event of such
voluntary termination after January 1, 1998, and compliance by Executive with
this covenant not to compete, in addition to other compensation and benefits to
which Executive is entitled under this Agreement (except for compensation as
provided in Section 7 above), Executive will also be entitled to six months'
Base Salary, six months' benefits per Section 5.2, and to the extent permitted
by law and the applicable stock option plan, continuation of vesting of stock
options awarded Executive by Company beyond the effective date of termination
of employment. Such amounts shall be paid at Salary and Bonus continuation
payments in accordance with Section 4 hereof. Withholding such benefits shall
be the Company's sole remedy in the event of any breach of such covenant not to
compete by Executive. The above notwithstanding, beneficial ownership by the
Executive (together with any one or more members of his immediate family and
together with any entity under his direct or indirect control) of less than 5%
of the outstanding shares of capital stock of any corporation whose stock is
listed on a national securities exchange or publicly traded in the
over-the-counter market shall not constitute a breach of the covenant not to
compete of this Section 8.
During the term of employment and for so long after that as Executive
continues to provide consulting services as mutually agreed, Executive shall
not solicit or induce employees to leave the Company's (nor its affiliates or
subsidiaries) employ. The foregoing shall not prohibit the executive or any
entity with which the Executive may be affiliated from hiring a former employee
of the Company who approaches Executive on his own initiative or in response to
a general recruitment effort by or through Executive, or if Executive first
communicates with the former Company employee about potential employment after
the employee has left employment with the Company.
9. AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION.
As a condition of his employment hereunder, Executive has executed and
delivered to the Company an agreement addressing the nondisclosure of
confidential information and ownership of inventions (the "Non-Disclosure
Agreement") in accordance with standard Company policy, which Non-Disclosure
Agreement shall survive termination of Executive's employment.
3
<PAGE> 4
10. FORM OF NOTICE.
Every notice required by the terms of this Agreement shall be given in writing
by serving the same upon the party to whom it was addressed personally, by
courier, by facsimile transmission (with hard copy delivered by overnight
courier) or by registered or certified mail, return receipt requested, at the
address set forth below or at such other address as may hereafter be designated
by notice given in compliance with the terms hereof:
If to Executive: Steve Russell
At address maintained by Company HR Department
If to Company: Digital Systems International, Inc.
6464 185th Ave NE
Redmond, WA 98052
Attn.: Wm. Bradford Weller,
General Counsel
Notice shall be effective upon personal delivery, delivery by courier, receipt
of facsimile transmission or three days after mailing.
11. ASSIGNMENT.
Executive agrees that this Agreement may be transferred or assigned by the
Company to (a) any corporation resulting from any merger, consolidation or
other reorganization to which the Company is a party or (b) any corporation,
partnership, association or other person to which the Company may transfer all
or substantially all of the assets and business, and such assignee or
transferee shall succeed to the rights and obligations of the Company
hereunder. This Agreement may not be assigned by Executive.
12. WAIVER.
No waiver of any of the provisions of this Agreement shall be valid unless in
writing, signed by the party against whom such claim or waiver is sought to be
enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same of a waiver of any other right hereunder.
13. AMENDMENTS IN WRITING.
No amendment, modification, waiver, termination or discharge of any provision of
this Agreement, nor consent to any departure therefrom by either party hereto,
shall in any event be effective unless the same shall be in writing,
specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged, and signed by the Company
and Executive. No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by the Company and
Executive.
14. APPLICABLE LAW - VENUE.
This Agreement shall be governed by the laws of the state of California,
without regard to its conflicts of laws provisions. Venue of any action brought
to enforce or interpret this Agreement shall be in Alameda, California, and the
parties consent to jurisdiction in the federal and state courts in such venue.
15. SEVERABILITY.
In the event that any provision of this Agreement shall be determined by any
court or arbitrator of competent jurisdiction to be unenforceable or otherwise
invalid for any reason, such provision shall be enforced and validated to the
extent permitted by law, and the court or arbitrator shall have the power to
reform such provision to the extent necessary for such provision to be
enforceable under applicable law. All provisions of this Agreement are
severable, and the unenforceability of any single provision hereof shall not
affect the remaining provisions.
16. HEADINGS.
All headings or titles in this Agreement are for the purpose of reference only
and shall not in any way affect the interpretation or construction of this
Agreement.
4
<PAGE> 5
17. ATTORNEYS FEES & COSTS.
In any action or proceeding brought by either party against the other arising
out of or in any way relating to this Agreement, the prevailing party shall, in
addition to other allowable costs and remedies, be entitled to an award of
reasonable attorneys' fees and costs incurred in connection with such action or
proceeding.
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement as
of the date above first written.
EXECUTIVE: COMPANY:
DIGITAL SYSTEMS INTERNATIONAL, INC.
a Washington Corporation
/s/ STEVE RUSSELL By [SIG]
- ------------------------------- -----------------------------------
Steve Russell Its President & CEO
----------------------------
5
<PAGE> 1
Exhibit 10.26
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 14th day of February, 1996, between STEVE L.
ADAMS, a Washington resident ("Executive"), and DIGITAL SYSTEMS INTERNATIONAL,
INC., a Washington corporation ("Company").
IN CONSIDERATION of the mutual covenants and promises contained herein, the
parties agree as follows:
1. EMPLOYMENT.
The Company hereby employs Executive, and Executive hereby accepts employment by
the Company, as Company's Senior Vice President, Marketing and Business
Development, responsible for the management and direction of the Marketing and
Business Development of the Company, subject to the direction and control of the
President and Chief Executive Officer of the Company. The Executive will perform
such additional duties as may be assigned from time to time by the President &
CEO of the Company which relate to the business of the Company, its subsidiaries
or any business ventures in which the Company or its subsidiaries may
participate.
2. ATTENTION AND EFFORT.
Executive will devote his full business time, attention and effort to the
Company's business and will use his skills and render services to the best of
his ability to serve the interests of the Company.
3. TERM.
Unless otherwise terminated as provided in Section 6 of this Agreement,
Executive's term of employment under this Agreement shall commence as of the
date hereof and shall expire upon Executive's resignation or termination.
4. COMPENSATION.
4.1 BASE SALARY
Executive's compensation shall consist, in part, of an annual base
salary of $162,000 before all customary payroll deductions (the "Base
Salary"). The Base Salary shall be paid in substantially equal
installments at the same interval as other officers of the Company are
paid, or otherwise in conformance with the Company's standard payroll
practices. The Board of Directors of the Company shall determine any
increases in the Base Salary in future years.
4.2 BONUS
Executive may be entitled to receive, in addition to the Base Salary, an
annual bonus (the "Bonus") in an amount to be determined pursuant to the
Company's Management Bonus Plan, at appropriate level, as approved by
the Board of Directors of the Company, in effect for each calendar year.
4.3 STOCK OPTIONS
Executive has been granted incentive stock options &/or nonqualified
stock options to purchase100,000 shares of common stock of the Company
pursuant to the terms of the Company's Restated 1987 Stock Option Plan
(the "Option Plan"). With reference to Section 7.1.3 of the Option Plan,
the right of the Company to take any action to prevent, or limit in any
way, acceleration of such options in the event of any Change in Control,
as defined in the Option Plan, is hereby waived.
5. BENEFITS AND EXPENSES.
5.1 EXPENSES
The Company shall promptly reimburse Executive for all reasonable and
necessary business expenses incurred and advanced by him in carrying out
his duties under this Agreement, consistent with Company policies in
connection therewith. Executive shall present to the Company from time
to time an itemized account of such expenses in such form as Company
policies may require.
5.2 BENEFITS
During the term of employment hereunder, Executive shall be entitled to
participate fully in any benefit plans, programs, policies and fringe
benefits which may be made available to the senior executives of the
Company generally, including medical, dental, disability, pension and
retirement benefits, life insurance and other death benefits. Executive
will initially be entitled to 2 weeks vacation per year and any other
vacation or personal time off in accordance with Company policy.
5.3 OTHER
The Company shall provide Executive an office and with secretarial
support suitable to the position of Vice President
1
<PAGE> 2
5.4 MOVING EXPENSES
To the extent required, the Company will reimburse Executive for normal
and reasonable household moving expenses in accordance with standard
Company policy or as otherwise agreed between the parties.
6. TERMINATION.
6.1 BY THE COMPANY
With or without "Cause" (defined for the purposes of this Agreement as
any act by Executive that would disqualify him from indemnification by
the Company by virtue of his position as an officer and director of the
Company, in accordance with the Articles of Incorporation and Bylaws of
the Company and the laws of the state of Washington), the Company may
terminate the employment of Executive at any time during the term upon
giving Notice of Termination (as defined below).
6.2 BY EXECUTIVE
Executive may terminate his employment at any time for Good Reason (as
defined below) or otherwise upon giving Notice of Termination.
6.3 AUTOMATIC TERMINATION
Employment shall terminate automatically upon death or total disability
of Executive. The term "total disability" as used herein means an
inability to perform the duties set forth in paragraph 1 of this
Agreement because of illness or physical or mental disability for a
period or periods aggregating 180 calendar days in any 12-month period,
unless Executive is granted a leave of absence by the President or the
Board of Directors of the Company. Executive and Company hereby
acknowledge that Executive's ability to perform the duties specified in
paragraph 1 hereof is of the essence of this Agreement. Termination
hereunder shall be deemed to be effective immediately upon Executive's
death or 30 days following a Notice of Termination based upon a
determination by the Board of Directors of the Company of Executive's
total disability as defined herein.
6.4 NOTICE
The term "Notice of Termination" means written notice of termination of
Executive's employment. At the election of the Company, as set forth in
its Notice of Termination or in a written response to Executive's Notice
of Termination, Executive's employment and performance of services shall
continue for a period of 30 days following the Notice of Termination.
Otherwise Executive's employment shall terminate effective upon receipt
of the Notice of Termination, provided however that, in either case, the
Executive shall be entitled to termination payments in accordance with
paragraph 7.
6.5 GOOD REASON
For the purposes of this Agreement, "Good Reason" means, as a result of
or following a "Change of Control" of the Company (as defined in the
Company's 1987 Restated Stock Option Plan), a material alteration of
Executive's position or duties, a reduction of Executive's Base Salary,
or a requirement that Executive move more than 100 miles, provided that
Executive gives Notice of Termination within 30 days of such change.
7. SEVERANCE PAYMENTS.
In the event of termination of the employment of Executive, all compensation and
benefits set forth in this Agreement shall terminate as of the effective date of
termination, provided, however, that if the Company terminates Executive's
employment without Cause, or if Executive terminates his employment for Good
Reason, the Company shall be obligated to pay to Executive his regular Base
Salary for a period of 6 months after the effective date of termination of
employment.
8. AGREEMENT NOT TO COMPETE
As a condition of his employment hereunder, Executive has executed and delivered
to the Company an agreement addressing his obligation not to compete with the
business of the Company (the "Non-Compete Agreement") in accordance with
standard Company policy, which Non-Compete Agreement shall survive termination
of Executive's employment.
9. AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
As a condition of his employment hereunder, Executive has executed and delivered
to the Company an agreement addressing the nondisclosure of confidential
information and ownership of inventions (the "Non-Disclosure Agreement") in
accordance with standard Company policy, which Non-Disclosure Agreement shall
survive termination of Executive's employment.
2
<PAGE> 3
10. FORM OF NOTICE.
Every notice required by the terms of this Agreement shall be given in writing
by serving the same upon the party to whom it was addressed personally, by
courier, by facsimile transmission (with hard copy delivered by overnight
courier) or by registered or certified mail, return receipt requested, at the
address set forth below or at such other address as may hereafter be designated
by notice given in compliance with the terms hereof:
If to Executive: Steve L. Adams
To address on DSI file
If to Company: Digital Systems International, Inc.
6464 185th Ave NE
Redmond, WA 98052
Attn.: Wm. Bradford Weller,
General Counsel
Notice shall be effective upon personal delivery, delivery by courier, receipt
of facsimile transmission or three days after mailing.
11. ASSIGNMENT.
Executive agrees that this Agreement may be transferred or assigned by the
Company to (a) any corporation resulting from any merger, consolidation or other
reorganization to which the Company is a party or (b) any corporation,
partnership, association or other person to which the Company may transfer all
or substantially all of the assets and business, and such assignee or transferee
shall succeed to the rights and obligations of the Company hereunder.
This Agreement may not be assigned by Executive.
12. WAIVER.
No waiver of any of the provisions of this Agreement shall be valid unless in
writing, signed by the party against whom such claim or waiver is sought to be
enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same of a waiver of any other right hereunder.
13. AMENDMENTS IN WRITING.
No amendment, modification, waiver, termination or discharge of any provision of
this Agreement, nor consent to any departure therefrom by either party hereto,
shall in any event be effective unless the same shall be in writing,
specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged, and signed by the Company
and Executive. No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by the Company and
Executive.
14. APPLICABLE LAW -- VENUE.
This Agreement shall be governed by the laws of the state of Washington, without
regard to its conflicts of laws provisions. Venue of any action brought to
enforce or interpret this Agreement shall be in Seattle, Washington, and the
parties consent to jurisdiction in the federal and state courts in such venue.
15. SEVERABILITY.
In the event that any provision of this Agreement shall be determined by any
court or arbitrator of competent jurisdiction to be unenforceable or otherwise
invalid for any reason, such provision shall be enforced and validated to the
extent permitted by law, and the court or arbitrator shall have the power to
reform such provision to the extent necessary for such provision to be
enforceable under applicable law. All provisions of this Agreement are
severable, and the unenforceability of any single provision hereof shall not
affect the remaining provisions.
16. HEADINGS.
All headings or titles in this Agreement are for the purpose of reference only
and shall not in any way affect the interpretation or construction of this
Agreement
17. ATTORNEYS FEES & COSTS.
In any action or proceeding brought by either party against the other arising
out of or in any way relating to this Agreement, the prevailing party shall, in
addition to other allowable costs and remedies, be entitled to an award of
reasonable attorneys' fees and costs incurred in connection with such action or
proceeding.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement as
of the date above first written.
EXECUTIVE: COMPANY:
DIGITAL SYSTEMS INTERNATIONAL, INC.,
a Washington Corporation
- ---------------------------------
STEVEN L. ADAMS By: JOHN J. FLAVIO
Its Sr. Vice President, Finance &
Administration
4
<PAGE> 1
Exhibit 10.27
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of July, 1997, between OMAR SALEH, a
resident of the United Kingdom ("Executive"), and MOSAIX, INC., a Washington
corporation ("Company").
IN CONSIDERATION of the mutual covenants and promises contained herein, the
parties agree as follows:
1. EMPLOYMENT.
The Company hereby employs Executive, and Executive hereby accepts employment by
the Company, as Company's Sr. Vice President, Worldwide Sales, based out of the
UK office of Mosaix Ltd., responsible for the management and direction of the
sales organization of the Company, subject to the direction and control of the
President and Chief Operating Officer of the Company. The Executive will perform
such additional duties as may be assigned from time to time by the President &
COO of the Company which relate to the business of the Company, its subsidiaries
or any business ventures in which the Company or its subsidiaries may
participate.
2. ATTENTION AND EFFORT.
Executive will devote his full business time, attention and effort to the
Company's business and will use his skills and render services to the best of
his ability to serve the interests of the Company.
3. TERM.
Unless otherwise terminated as provided in Section 6 of this Agreement,
Executive's term of employment under this Agreement shall commence as of the
date hereof and shall expire upon Executive's resignation or termination.
4. COMPENSATION.
4.1 BASE SALARY
Executive's compensation shall consist, in part, of an annual base
salary of $170,000 before all customary payroll deductions (paid in the
U.K. through Mosaix Ltd. at an exchange rate of British Pound =
US$1.54)(the "Base Salary"). The Base Salary shall be paid in
substantially equal installments at the same interval as other officers
of the Company are paid, or otherwise in conformance with the Company's
standard payroll practices. The Board of Directors of the Company shall
determine any increases in the Base Salary in future years.
4.2 BONUS
Executive may be entitled to receive, in addition to the Base Salary, an
annual bonus (the "Bonus") in an amount to be determined pursuant to the
Company's Management Bonus Plan, at Level 1, plus such additional
bonuses as may be approved by the Board of Directors of the Company, in
effect for each calendar year.
4.3 STOCK OPTIONS
Executive has been granted incentive stock options &/or nonqualified
stock options to purchase 100,000 shares of common stock of the Company
pursuant to the terms of the Company's 1996 Stock Incentive Compensation
Plan (the "Option Plan").
5. BENEFITS AND EXPENSES.
5.1 EXPENSES
The Company shall promptly reimburse Executive for all reasonable and
necessary business expenses incurred and advanced by him in carrying out
his duties under this Agreement, consistent with Company policies in
connection therewith. Executive shall present to the Company from time
to time an itemized account of such expenses in such form as Company
policies may require.
5.2 BENEFITS
During the term of employment hereunder, Executive shall be entitled to
participate fully in any benefit plans, programs, policies and fringe
benefits which may be made available to the senior executives of the
Company generally, including medical, dental, disability, pension and
retirement benefits, life insurance and other death benefits. Executive
will initially be entitled to 4 weeks vacation per year and any other
vacation or personal time off in accordance with Company policy.
5.3 OTHER
The Company shall provide Executive an office and with secretarial
support suitable to the position of Sr. Vice President.
1
<PAGE> 2
5.4 MOVING EXPENSES
To the extent required, the Company will reimburse Executive for normal
and reasonable household moving expenses in accordance with standard
Company policy or as otherwise agreed between the parties.
6. TERMINATION.
6.1 BY THE COMPANY
With or without "Cause" (defined for the purposes of this Agreement as
any act by Executive that would disqualify him from indemnification by
the Company by virtue of his position as an officer and director of the
Company, in accordance with the Articles of Incorporation and Bylaws of
the Company and the laws of the state of Washington), the Company may
terminate the employment of Executive at any time during the term upon
giving Notice of Termination (as defined below).
6.2 BY EXECUTIVE
Executive may terminate his employment at any time for Good Reason (as
defined below) or otherwise upon giving Notice of Termination.
6.3 AUTOMATIC TERMINATION
Employment shall terminate automatically upon death or total disability
of Executive. The term "total disability" as used herein means an
inability to perform the duties set forth in paragraph 1 of this
Agreement because of illness or physical or mental disability for a
period or periods aggregating 180 calendar days in any 12-month period,
unless Executive is granted a leave of absence by the President or the
Board of Directors of the Company. Executive and Company hereby
acknowledge that Executive's ability to perform the duties specified in
paragraph 1 hereof is of the essence of this Agreement. Termination
hereunder shall be deemed to be effective immediately upon Executive's
death or 45 days following a Notice of Termination based upon a
determination by the Board of Directors of the Company of Executive's
total disability as defined herein.
6.4 NOTICE
The term "Notice of Termination" means written notice of termination of
Executive's employment. At the election of the Company, as set forth in
its Notice of Termination or in a written response to Executive's Notice
of Termination, Executive's employment and performance of services shall
continue for a period of 45 days following the Notice of Termination.
Otherwise Executive's employment shall terminate effective upon receipt
of the Notice of Termination, provided however that, in either case, the
Executive shall be entitled to termination payments in accordance with
paragraph 7.
6.5 GOOD REASON
For the purposes of this Agreement, "Good Reason" is defined in the
Company's 1996 Stock Incentive Compensation Plan.
7. SEVERANCE PAYMENTS.
In the event of termination of the employment of Executive, all compensation and
benefits set forth in this Agreement shall terminate as of the effective date of
termination, provided, however, that if the Company terminates Executive's
employment without Cause, or if Executive terminates his employment for Good
Reason, the Company shall be obligated to pay to Executive his regular Base
Salary for a period of 6 months after the effective date of termination of
employment. In case of termination, the Company shall pay repatriation and
moving costs to the U.K. if Executive had taken up residence in the USA by date
of termination.
8. AGREEMENT NOT TO COMPETE
As a condition of his employment hereunder, Executive has executed and delivered
to the Company an agreement addressing his obligation not to compete with the
business of the Company (the "Non-Compete Agreement") in accordance with
standard Company policy, which Non-Compete Agreement shall survive termination
of Executive's employment. Executive shall further refrain from recruiting
employees of the Company for one year after the date of termination.
9. AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
As a condition of his employment hereunder, Executive has executed and delivered
to the Company an agreement addressing the nondisclosure of confidential
information and ownership of inventions (the "Non-Disclosure Agreement") in
accordance with standard Company policy, which Non-Disclosure Agreement shall
survive termination of Executive's employment.
2
<PAGE> 3
10. FORM OF NOTICE.
Every notice required by the terms of this Agreement shall be given in writing
by serving the same upon the party to whom it was addressed personally, by
courier, by facsimile transmission (with hard copy delivered by overnight
courier) or by registered or certified mail, return receipt requested, at the
address set forth below or at such other address as may hereafter be designated
by notice given in compliance with the terms hereof:
If to Executive: Omar Saleh
Mosaix Ltd.
The Oaks
2-4 Packhorse Road
Gerrards Cross
Bucks SL9 7QE
U.K.
If to Company: Mosaix, Inc.
6464 185th Avenue NE
Redmond, WA 98052
Attn.: Wm. Bradford Weller,
General Counsel
Notice shall be effective upon personal delivery, delivery by courier, receipt
of facsimile transmission or three days after mailing.
11. ASSIGNMENT.
Executive agrees that this Agreement may be transferred or assigned by the
Company to (a) any corporation resulting from any merger, consolidation or other
reorganization to which the Company is a party or (b) any corporation,
partnership, association or other person to which the Company may transfer all
or substantially all of the assets and business, and such assignee or transferee
shall succeed to the rights and obligations of the Company hereunder.
This Agreement may not be assigned by Executive.
12. WAIVER.
No waiver of any of the provisions of this Agreement shall be valid unless in
writing, signed by the party against whom such claim or waiver is sought to be
enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same of a waiver of any other right hereunder.
13. AMENDMENTS IN WRITING.
No amendment, modification, waiver, termination or discharge of any provision of
this Agreement, nor consent to any departure therefrom by either party hereto,
shall in any event be effective unless the same shall be in writing,
specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged, and signed by the Company
and Executive. No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by the Company and
Executive. All other conditions and benefits described and agreed in offer
letter of employment dated October 31, 1997 (DSI letterhead) remain unchanged.
14. APPLICABLE LAW -- VENUE.
This Agreement shall be governed by the laws of the state of Washington, without
regard to its conflicts of laws provisions. Venue of any action brought to
enforce or interpret this Agreement shall be in Seattle, Washington, and the
parties consent to jurisdiction in the federal and state courts in such venue.
15. SEVERABILITY.
In the event that any provision of this Agreement shall be determined by any
court or arbitrator of competent jurisdiction to be unenforceable or otherwise
invalid for any reason, such provision shall be enforced and validated to the
extent permitted by law, and the court or arbitrator shall have the power to
reform such provision to the extent necessary for such provision to be
enforceable under applicable law. All provisions of this Agreement are
severable, and the unenforceability of any single provision hereof shall not
affect the remaining provisions.
16. HEADINGS.
All headings or titles in this Agreement are for the purpose of reference only
and shall not in any way affect the interpretation or construction of this
Agreement.
3
<PAGE> 4
17. ATTORNEYS FEES & COSTS.
In any action or proceeding brought by either party against the other arising
out of or in any way relating to this Agreement, the prevailing party shall, in
addition to other allowable costs and remedies, be entitled to an award of
reasonable attorneys' fees and costs incurred in connection with such action or
proceeding.
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement as
of the date above first written.
EXECUTIVE: COMPANY:
MOSAIX, INC.,
a Washington Corporation
OMAR SALEH By: Wm. Bradford Weller
Its General Counsel & Assistant
Secretary
4
<PAGE> 1
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 5th day of February, 1998, between JEFFERY F.
JARVIS, a Washington resident ("Executive"), and MOSAIX, INC., a Washington
corporation ("Company").
IN CONSIDERATION of the mutual covenants and promises contained herein, the
parties agree as follows:
1. EMPLOYMENT.
The Company hereby employs Executive, and Executive hereby accepts employment by
the Company, as Company's Vice President, Customer Services, responsible for the
management and direction of the Customer Services operations of the Company,
subject to the direction and control of the President and Chief Executive
Officer of the Company. The Executive will perform such additional duties as may
be assigned from time to time by the President & CEO of the Company which relate
to the business of the Company, its subsidiaries or any business ventures in
which the Company or its subsidiaries may participate.
2. ATTENTION AND EFFORT.
Executive will devote his full business time, attention and effort to the
Company's business and will use his skills and render services to the best of
his ability to serve the interests of the Company.
3. TERM.
Unless otherwise terminated as provided in Section 6 of this Agreement,
Executive's term of employment under this Agreement shall commence as of the
date hereof and shall expire upon Executive's resignation or termination.
4. COMPENSATION.
4.1 BASE SALARY
Executive's compensation shall consist, in part, of an annual base
salary of $132,000 before all customary payroll deductions (the "Base
Salary"). The Base Salary shall be paid in substantially equal
installments at the same interval as other officers of the Company are
paid, or otherwise in conformance with the Company's standard payroll
practices. The Board of Directors of the Company shall determine any
increases in the Base Salary in future years.
4.2 BONUS
Executive may be entitled to receive, in addition to the Base Salary,
an annual bonus (the "Bonus") in an amount to be determined pursuant to
the Company's Management Bonus Plan, at appropriate level, as approved
by the Board of Directors of the Company, in effect for each calendar
year.
4.3 STOCK OPTIONS
Executive has been granted incentive stock options &/or nonqualified
stock options to purchase 49,500 shares of common stock of the Company
pursuant to the terms of the Company's Restated 1987 Stock Option Plan
(the "1987 Option Plan") and 1996 Stock Incentive Compensation Plan
(the "1996 Option Plan"). With reference to Section 7.1.3 of the
Restated 1987 Stock Option Plan, the right of the Company to take any
action to prevent, or limit in any way, acceleration of such options in
the event of any Change in Control, as defined in the Option Plan, is
hereby waived.
5. BENEFITS AND EXPENSES.
5.1 EXPENSES
The Company shall promptly reimburse Executive for all reasonable and
necessary business expenses incurred and advanced by him in carrying
out his duties under this Agreement, consistent with Company policies
in connection therewith. Executive shall present to the Company from
time to time an itemized account of such expenses in such form as
Company policies may require.
5.2 BENEFITS
During the term of employment hereunder, Executive shall be entitled to
participate fully in any benefit plans, programs, policies and fringe
benefits which may be made available to the senior executives of the
Company generally, including medical, dental, disability, pension and
retirement benefits, life insurance and other death benefits. Executive
will initially be entitled to 3 weeks vacation per year and any other
vacation or personal time off in accordance with Company policy.
5.3 OTHER
The Company shall provide Executive an office and with secretarial
support suitable to the position of Vice President.
1
<PAGE> 2
6. TERMINATION.
6.1 BY THE COMPANY
With or without "Cause" (as defined in the 1996 Option Plan), the
Company may terminate the employment of Executive at any time during
the term upon giving Notice of Termination (as defined below).
6.2 BY EXECUTIVE
Executive may terminate his employment at any time for Good Reason (as
defined below) or otherwise upon giving Notice of Termination.
6.3 AUTOMATIC TERMINATION
Employment shall terminate automatically upon death or total disability
of Executive. The term "total disability" as used herein means an
inability to perform the duties set forth in paragraph 1 of this
Agreement because of illness or physical or mental disability for a
period or periods aggregating 180 calendar days in any 12-month period,
unless Executive is granted a leave of absence by the President or the
Board of Directors of the Company. Executive and Company hereby
acknowledge that Executive's ability to perform the duties specified in
paragraph 1 hereof is of the essence of this Agreement. Termination
hereunder shall be deemed to be effective immediately upon Executive's
death or 30 days following a Notice of Termination based upon a
determination by the Board of Directors of the Company of Executive's
total disability as defined herein.
6.4 NOTICE
The term "Notice of Termination" means written notice of termination of
Executive's employment. At the election of the Company, as set forth in
its Notice of Termination or in a written response to Executive's
Notice of Termination, Executive's employment and performance of
services shall continue for a period of 30 days following the Notice of
Termination. Otherwise Executive's employment shall terminate effective
upon receipt of the Notice of Termination, unless otherwise agreed
between the parties.
6.5 GOOD REASON
For the purposes of this Agreement, "Good Reason" means, as a result of
or following a "Corporate Transaction" of the Company (as defined in
the 1996 Option Plan) or "Change of Control" of the Company (as defined
in the 1987 Option Plan), a material alteration of Executive's position
or duties, a reduction of Executive's Base Salary, or a requirement
that Executive move more than 100 miles, provided that Executive gives
Notice of Termination within 30 days of such change.
7. SEVERANCE PAYMENTS.
In the event of termination of the employment of Executive, all compensation and
benefits set forth in this Agreement shall terminate as of the effective date of
termination, provided, however, that if the Company terminates Executive's
employment without Cause, or if Executive terminates his employment for Good
Reason, the Company shall be obligated to pay to Executive his then regular Base
Salary for a period of 6 months after the effective date of termination of
employment.
8. AGREEMENT NOT TO COMPETE
As a condition of his employment hereunder, Executive has executed and delivered
to the Company an agreement addressing his obligation not to compete with the
business of the Company (the "Non-Compete Agreement") in accordance with
standard Company policy, which Non-Compete Agreement shall survive termination
of Executive's employment. During the term of this Agreement, and for 12 months
following termination of employment hereunder, Executive will not solicit or
otherwise recruit, directly or indirectly, any employees of the Company for
employment elsewhere.
9. AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
As a condition of his employment hereunder, Executive has executed and delivered
to the Company an agreement addressing the nondisclosure of confidential
information and ownership of inventions (the "Non-Disclosure Agreement") in
accordance with standard Company policy, which Non-Disclosure Agreement shall
survive termination of Executive's employment.
10. FORM OF NOTICE.
Every notice required by the terms of this Agreement shall be given in writing
by serving the same upon the party to whom it was addressed personally, by
courier, by facsimile transmission (with hard copy delivered by overnight
courier) or by registered or certified mail, return receipt requested, at the
address set forth below or at such other address as may hereafter be designated
by notice given in compliance with the terms hereof:
2
<PAGE> 3
If to Executive: 17122 NE 126th Place
Redmond, WA 98052
If to Company: Mosaix, Inc.
6464 185th Avenue NE
Redmond, WA 98052
Attn.: Wm. Bradford Weller,
General Counsel
Notice shall be effective upon personal delivery, delivery by courier, receipt
of facsimile transmission or three days after mailing.
11. ASSIGNMENT.
Executive agrees that this Agreement may be transferred or assigned by the
Company to (a) any corporation resulting from any merger, consolidation or other
reorganization to which the Company is a party or (b) any corporation,
partnership, association or other person to which the Company may transfer all
or substantially all of the assets and business, and such assignee or transferee
shall succeed to the rights and obligations of the Company hereunder. This
Agreement may not be assigned by Executive.
12. WAIVER.
No waiver of any of the provisions of this Agreement shall be valid unless in
writing, signed by the party against whom such claim or waiver is sought to be
enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same of a waiver of any other right hereunder.
13. AMENDMENTS IN WRITING.
No amendment, modification, waiver, termination or discharge of any provision of
this Agreement, nor consent to any departure therefrom by either party hereto,
shall in any event be effective unless the same shall be in writing,
specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged, and signed by the Company
and Executive. No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by the Company and
Executive.
14. APPLICABLE LAW -- VENUE.
This Agreement shall be governed by the laws of the state of Washington, without
regard to its conflicts of laws provisions. Venue of any action brought to
enforce or interpret this Agreement shall be in Seattle, Washington, and the
parties consent to jurisdiction in the federal and state courts in such venue.
15. SEVERABILITY.
In the event that any provision of this Agreement shall be determined by any
court or arbitrator of competent jurisdiction to be unenforceable or otherwise
invalid for any reason, such provision shall be enforced and validated to the
extent permitted by law, and the court or arbitrator shall have the power to
reform such provision to the extent necessary for such provision to be
enforceable under applicable law. All provisions of this Agreement are
severable, and the unenforceability of any single provision hereof shall not
affect the remaining provisions.
16. HEADINGS.
All headings or titles in this Agreement are for the purpose of reference only
and shall not in any way affect the interpretation or construction of this
Agreement
17. ATTORNEYS FEES & COSTS.
In any action or proceeding brought by either party against the other arising
out of or in any way relating to this Agreement, the prevailing party shall, in
addition to other allowable costs and remedies, be entitled to an award of
reasonable attorneys' fees and costs incurred in connection with such action or
proceeding.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement as
of the date above first written.
EXECUTIVE: COMPANY:
MOSAIX, INC.,
a Washington Corporation
JEFFERY F. JARVIS By:___________________________________
Wm. Bradford Weller
Its General Counsel & Assistant Secretary
4
<PAGE> 1
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 5th day of February, 1998, between BRUCE A.
LEADER, a Washington resident ("Executive"), and MOSAIX, INC., a Washington
corporation ("Company").
IN CONSIDERATION of the mutual covenants and promises contained herein, the
parties agree as follows:
1. EMPLOYMENT.
The Company hereby employs Executive, and Executive hereby accepts employment by
the Company, as Company's Senior Vice President, Consulting and Professional
Services, responsible for the management and direction of Consulting and
Professional Services operations of the Company, subject to the direction and
control of the President and Chief Executive Officer of the Company. The
Executive will perform such additional duties as may be assigned from time to
time by the President & CEO of the Company which relate to the business of the
Company, its subsidiaries or any business ventures in which the Company or its
subsidiaries may participate.
2. ATTENTION AND EFFORT.
Executive will devote his full business time, attention and effort to the
Company's business and will use his skills and render services to the best of
his ability to serve the interests of the Company.
3. TERM.
Unless otherwise terminated as provided in Section 6 of this Agreement,
Executive's term of employment under this Agreement shall expire upon
Executive's resignation or termination.
4. COMPENSATION.
4.1 BASE SALARY
Executive's compensation shall consist, in part, of an annual base
salary of $160,000 before all customary payroll deductions (the "Base
Salary"). The Base Salary shall be paid in substantially equal
installments at the same interval as other officers of the Company are
paid, or otherwise in conformance with the Company's standard payroll
practices. The Board of Directors of the Company shall determine any
increases in the Base Salary in future years.
4.2 BONUS
Executive may be entitled to receive, in addition to the Base Salary,
an annual bonus (the "Bonus") in an amount to be determined pursuant to
the Company's Management Bonus Plan, at appropriate level, as approved
by the Board of Directors of the Company, in effect for each calendar
year.
4.3 STOCK OPTIONS
Executive has been granted incentive stock options &/or nonqualified
stock options to purchase 55,000 shares of common stock of the Company
pursuant to the terms of the Company's 1996 Stock Incentive
Compensation Plan (the "Option Plan"). For the purposes of such Plan,
Executive shall be considered an "Executive Officer" of the Company.
5. BENEFITS AND EXPENSES.
5.1 EXPENSES
The Company shall promptly reimburse Executive for all reasonable and
necessary business expenses incurred and advanced by him in carrying
out his duties under this Agreement, consistent with Company policies
in connection therewith. Executive shall present to the Company from
time to time an itemized account of such expenses in such form as
Company policies may require.
5.2 BENEFITS
During the term of employment hereunder, Executive shall be entitled to
participate fully in any benefit plans, programs, policies and fringe
benefits which may be made available to the senior executives of the
Company generally, including medical, dental, disability, pension and
retirement benefits, life insurance and other death benefits. Executive
will initially be entitled to 2 weeks vacation per year and any other
vacation or personal time off in accordance with Company policy.
5.3 OTHER
The Company shall provide Executive an office and with secretarial
support suitable to the position of Vice President.
1
<PAGE> 2
5.4 MOVING EXPENSES
To the extent required, the Company will reimburse Executive for normal
and reasonable household moving expenses in accordance with standard
Company policy or as otherwise agreed between the parties.
6. TERMINATION.
6.1 BY THE COMPANY
With or without "Cause" (as defined in the Option Plan), the Company
may terminate the employment of Executive at any time during the term
upon giving Notice of Termination (as defined below).
6.2 BY EXECUTIVE
Executive may terminate his employment at any time for Good Reason (as
defined below) or otherwise upon giving Notice of Termination.
6.3 AUTOMATIC TERMINATION
Employment shall terminate automatically upon death or total disability
of Executive. The term "total disability" as used herein means an
inability to perform the duties set forth in paragraph 1 of this
Agreement because of illness or physical or mental disability for a
period or periods aggregating 180 calendar days in any 12-month period,
unless Executive is granted a leave of absence by the President or the
Board of Directors of the Company. Executive and Company hereby
acknowledge that Executive's ability to perform the duties specified in
paragraph 1 hereof is of the essence of this Agreement. Termination
hereunder shall be deemed to be effective immediately upon Executive's
death or 30 days following a Notice of Termination based upon a
determination by the Board of Directors of the Company of Executive's
total disability as defined herein.
6.4 NOTICE
The term "Notice of Termination" means written notice of termination of
Executive's employment. At the election of the Company, as set forth in
its Notice of Termination or in a written response to Executive's
Notice of Termination, Executive's employment and performance of
services shall continue for a period of 30 days following the Notice of
Termination. Otherwise Executive's employment shall terminate effective
upon receipt of the Notice of Termination, unless otherwise agreed
between the parties.
6.5 GOOD REASON
For the purposes of this Agreement, "Good Reason" means, as a result of
or following a "Corporate Transaction" (as defined in the Option Plan),
a material alteration of Executive's position or duties, a reduction of
Executive's Base Salary, or a requirement that Executive move more than
100 miles, provided that Executive gives Notice of Termination within
30 days of such change.
7. SEVERANCE PAYMENTS.
In the event of termination of the employment of Executive, all compensation and
benefits set forth in this Agreement shall terminate as of the effective date of
termination, provided, however, that if the Company terminates Executive's
employment without Cause, or if Executive terminates his employment for Good
Reason, the Company shall be obligated to pay to Executive his then regular Base
Salary for a period of 6 months after the effective date of termination of
employment.
8. AGREEMENT NOT TO COMPETE
As a condition of his employment hereunder, Executive has executed and delivered
to the Company an agreement addressing his obligation not to compete with the
business of the Company (the "Non-Compete Agreement") in accordance with
standard Company policy, which Non-Compete Agreement shall survive termination
of Executive's employment. During the term of this Agreement, and for 12 months
following termination of employment hereunder, Executive will not solicit or
otherwise recruit, directly or indirectly, any employees of the Company for
employment elsewhere.
9. AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
As a condition of his employment hereunder, Executive has executed and delivered
to the Company an agreement addressing the nondisclosure of confidential
information and ownership of inventions (the "Non-Disclosure Agreement") in
accordance with standard Company policy, which Non-Disclosure Agreement shall
survive termination of Executive's employment.
10. FORM OF NOTICE.
Every notice required by the terms of this Agreement shall be given in writing
by serving the same upon the party to whom it was addressed personally, by
courier, by facsimile transmission (with hard copy delivered by overnight
2
<PAGE> 3
courier) or by registered or certified mail, return receipt requested, at the
address set forth below or at such other address as may hereafter be designated
by notice given in compliance with the terms hereof:
If to Executive: 6133 164th Avenue SE
Bellevue, WA 98006
If to Company: Mosaix, Inc.
6464 185th Avenue NE
Redmond, WA 98052
Attn.: Wm. Bradford Weller,
General Counsel
Notice shall be effective upon personal delivery, delivery by courier, receipt
of facsimile transmission or three days after mailing.
11. ASSIGNMENT.
Executive agrees that this Agreement may be transferred or assigned by the
Company to (a) any corporation resulting from any merger, consolidation or other
reorganization to which the Company is a party or (b) any corporation,
partnership, association or other person to which the Company may transfer all
or substantially all of the assets and business, and such assignee or transferee
shall succeed to the rights and obligations of the Company hereunder. This
Agreement may not be assigned by Executive.
12. WAIVER.
No waiver of any of the provisions of this Agreement shall be valid unless in
writing, signed by the party against whom such claim or waiver is sought to be
enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same of a waiver of any other right hereunder.
13. AMENDMENTS IN WRITING.
No amendment, modification, waiver, termination or discharge of any provision of
this Agreement, nor consent to any departure therefrom by either party hereto,
shall in any event be effective unless the same shall be in writing,
specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged, and signed by the Company
and Executive. No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by the Company and
Executive.
14. APPLICABLE LAW -- VENUE.
This Agreement shall be governed by the laws of the state of Washington, without
regard to its conflicts of laws provisions. Venue of any action brought to
enforce or interpret this Agreement shall be in Seattle, Washington, and the
parties consent to jurisdiction in the federal and state courts in such venue.
15. SEVERABILITY.
In the event that any provision of this Agreement shall be determined by any
court or arbitrator of competent jurisdiction to be unenforceable or otherwise
invalid for any reason, such provision shall be enforced and validated to the
extent permitted by law, and the court or arbitrator shall have the power to
reform such provision to the extent necessary for such provision to be
enforceable under applicable law. All provisions of this Agreement are
severable, and the unenforceability of any single provision hereof shall not
affect the remaining provisions.
16. HEADINGS.
All headings or titles in this Agreement are for the purpose of reference only
and shall not in any way affect the interpretation or construction of this
Agreement
17. ATTORNEYS FEES & COSTS.
In any action or proceeding brought by either party against the other arising
out of or in any way relating to this Agreement, the prevailing party shall, in
addition to other allowable costs and remedies, be entitled to an award of
reasonable attorneys' fees and costs incurred in connection with such action or
proceeding.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement as
of the date above first written.
EXECUTIVE: COMPANY:
MOSAIX, INC.,
a Washington Corporation
BRUCE A. LEADER By:___________________________________
Wm. Bradford Weller
Its General Counsel & Assistant Secretary
4
<PAGE> 1
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 5th day of February, 1998, between NICHOLAS A.
TILIACOS, a Washington resident ("Executive"), and MOSAIX, INC., a Washington
corporation ("Company").
IN CONSIDERATION of the mutual covenants and promises contained herein, the
parties agree as follows:
1. EMPLOYMENT.
The Company hereby employs Executive, and Executive hereby accepts employment by
the Company, as the Company's President and Chief Executive Officer, responsible
for the management and direction of the day-to-day business operations of the
Company, subject to the direction and control of the Board of Directors of the
Company and to the terms of the Articles of Incorporation and Bylaws of the
Company. The Executive will perform such additional duties as may be assigned
from time to time by the Board of Directors of the Company which relate to the
business of the Company, its subsidiaries or any business ventures in which the
Company or its subsidiaries may participate. This Agreement supersedes in its
entirety that certain Executive Employment Agreement dated February 26, 1996
between Executive and the Company.
2. APPOINTMENT AS DIRECTOR.
Executive shall initially be a member of the Company's Board of Directors.
Thereafter, subject to and consistent with the Company's Articles of
Incorporation and ByLaws, and subject to and consistent with its
responsibilities under law, the Board of Directors will include Executive as a
part of the appropriate slate of Directors for whom it solicits proxies in
connection with the annual meeting of shareholders. Consistent herewith, it is
the intent of the Board of Directors to nominate Executive for election to serve
a three year term as a director of the Company at the next annual meeting of the
Company. If Executive's employment as President and Chief Executive Officer
terminates for any reason, Executive hereby resigns as a director, effective
upon such termination.
3. ATTENTION AND EFFORT.
Executive will devote his full business time, attention and effort to the
Company's business and will use his skills and render services to the best of
his ability to serve the interests of the Company.
4. TERM.
Unless otherwise terminated as provided in Section 7 of this Agreement,
Executive's term of employment under this Agreement shall commence as of the
date hereof and shall expire upon Executive's resignation or termination.
5. COMPENSATION.
5.1 BASE SALARY
Executive's compensation shall consist, in part, of an annual base
salary of $215,000 before all customary payroll deductions (the "Base
Salary"). The Base Salary shall be paid in substantially equal
installments at the same interval as other officers of the Company are
paid, or otherwise in conformance with the Company's standard payroll
practices. The Board of Directors of the Company shall determine any
increases in the Base Salary in future years.
5.2 BONUS
Executive may be entitled to receive, in addition to the Base Salary,
an annual bonus (the "Bonus") in an amount to be determined pursuant to
the Company's Management Bonus Plan, CEO level, as approved by the
Board of Directors of the Company, in effect for each calendar year.
5.3 STOCK OPTIONS
Executive has been granted incentive stock options &/or nonqualified
stock options to purchase 187,500 shares of common stock of the Company
pursuant to the terms of the Company's 1996 Stock Incentive
Compensation Plan (the "Option Plan").
6. BENEFITS AND EXPENSES.
6.1 EXPENSES
The Company shall promptly reimburse Executive for all reasonable and
necessary business expenses incurred and advanced by him in carrying
out his duties under this Agreement, consistent with Company policies
in connection therewith. Executive shall present to the Company from
time to time an itemized account of such expenses in such form as
Company policies may require.
1
<PAGE> 2
6.2 BENEFITS
During the term of employment hereunder, Executive shall be entitled to
participate fully in any benefit plans, programs, policies and fringe
benefits which may be made available to the senior executives of the
Company generally, including medical, dental, disability, pension and
retirement benefits, life insurance and other death benefits. Executive
will initially be entitled to 3 weeks vacation per year and any other
vacation or personal time off in accordance with Company policy.
6.3 OTHER
The Company shall provide Executive an office and with secretarial
support suitable to the position of President.
7. TERMINATION.
7.1 BY THE COMPANY
With or without "Cause" (as defined in the Option Plan), the Company
may terminate the employment of Executive at any time during the term
upon giving Notice of Termination (as defined below).
7.2 BY EXECUTIVE
Executive may terminate his employment at any time for Good Reason (as
defined below) or otherwise upon giving Notice of Termination.
7.3 AUTOMATIC TERMINATION
Employment shall terminate automatically upon death or total disability
of Executive. The term "total disability" as used herein means an
inability to perform the duties set forth in paragraph 1 of this
Agreement because of illness or physical or mental disability for a
period or periods aggregating 180 calendar days in any 12-month period,
unless Executive is granted a leave of absence by the President or the
Board of Directors of the Company. Executive and Company hereby
acknowledge that Executive's ability to perform the duties specified in
paragraph 1 hereof is of the essence of this Agreement. Termination
hereunder shall be deemed to be effective immediately upon Executive's
death or 30 days following a Notice of Termination based upon a
determination by the Board of Directors of the Company of Executive's
total disability as defined herein.
7.4 NOTICE
The term "Notice of Termination" means written notice of termination of
Executive's employment. At the election of the Company, as set forth in
its Notice of Termination or in a written response to Executive's
Notice of Termination, Executive's employment and performance of
services shall continue for a period of 30 days following the Notice of
Termination. Otherwise Executive's employment shall terminate effective
upon receipt of the Notice of Termination, unless otherwise agreed
between the parties.
7.5 GOOD REASON
For the purposes of this Agreement, "Good Reason" means, as a result of
or following a "Corporate Transaction" of the Company (as defined in
the Option Plan), a material alteration of Executive's position or
duties, a reduction of Executive's Base Salary, or a requirement that
Executive move more than 100 miles, provided that Executive gives
Notice of Termination within 30 days of such change.
8. SEVERANCE PAYMENTS.
In the event of termination of the employment of Executive, all compensation and
benefits set forth in this Agreement shall terminate as of the effective date of
termination, provided, however, that if the Company terminates Executive's
employment without Cause, or if Executive terminates his employment for Good
Reason, the Company shall be obligated to pay to Executive his then regular Base
Salary for a period of 12 months after the effective date of termination of
employment.
9. AGREEMENT NOT TO COMPETE OR SOLICIT EMPLOYEES
As a condition of his employment hereunder, Executive has executed and delivered
to the Company an agreement addressing his obligation not to compete with the
business of the Company (the "Non-Compete Agreement") in accordance with
standard Company policy, which Non-Compete Agreement shall survive termination
of Executive's employment. During the term of this Agreement, and for 12 months
following termination of employment hereunder, Executive will not solicit or
otherwise recruit, directly or indirectly, any employees of the Company for
employment elsewhere.
10. AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
As a condition of his employment hereunder, Executive has executed and delivered
to the Company an agreement addressing the nondisclosure of confidential
information and ownership of inventions (the "Non-Disclosure
2
<PAGE> 3
Agreement") in accordance with standard Company policy, which Non-Disclosure
Agreement shall survive termination of Executive's employment.
11. FORM OF NOTICE.
Every notice required by the terms of this Agreement shall be given in writing
by serving the same upon the party to whom it was addressed personally, by
courier, by facsimile transmission (with hard copy delivered by overnight
courier) or by registered or certified mail, return receipt requested, at the
address set forth below or at such other address as may hereafter be designated
by notice given in compliance with the terms hereof:
If to Executive: Nicholas A. Tiliacos
1130 Lancaster Way SE
Issaquah, WA 98029
If to Company: Mosaix, Inc.
6464 185th Avenue NE
Redmond, WA 98052
Attn.: Wm. Bradford Weller,
General Counsel
Notice shall be effective upon personal delivery, delivery by courier, receipt
of facsimile transmission or three days after mailing.
12. ASSIGNMENT.
Executive agrees that this Agreement may be transferred or assigned by the
Company to (a) any corporation resulting from any merger, consolidation or other
reorganization to which the Company is a party or (b) any corporation,
partnership, association or other person to which the Company may transfer all
or substantially all of the assets and business, and such assignee or transferee
shall succeed to the rights and obligations of the Company hereunder. This
Agreement may not be assigned by Executive.
13. WAIVER.
No waiver of any of the provisions of this Agreement shall be valid unless in
writing, signed by the party against whom such claim or waiver is sought to be
enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same of a waiver of any other right hereunder.
14. AMENDMENTS IN WRITING.
No amendment, modification, waiver, termination or discharge of any provision of
this Agreement, nor consent to any departure therefrom by either party hereto,
shall in any event be effective unless the same shall be in writing,
specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged, and signed by the Company
and Executive. No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by the Company and
Executive.
15. APPLICABLE LAW -- VENUE.
This Agreement shall be governed by the laws of the state of Washington, without
regard to its conflicts of laws provisions. Venue of any action brought to
enforce or interpret this Agreement shall be in Seattle, Washington, and the
parties consent to jurisdiction in the federal and state courts in such venue.
16. SEVERABILITY.
In the event that any provision of this Agreement shall be determined by any
court or arbitrator of competent jurisdiction to be unenforceable or otherwise
invalid for any reason, such provision shall be enforced and validated to the
extent permitted by law, and the court or arbitrator shall have the power to
reform such provision to the extent necessary for such provision to be
enforceable under applicable law. All provisions of this Agreement are
severable, and the unenforceability of any single provision hereof shall not
affect the remaining provisions.
17. HEADINGS.
All headings or titles in this Agreement are for the purpose of reference only
and shall not in any way affect the interpretation or construction of this
Agreement
18. ATTORNEYS FEES & COSTS.
In any action or proceeding brought by either party against the other arising
out of or in any way relating to this Agreement, the prevailing party shall, in
addition to other allowable costs and remedies, be entitled to an award of
reasonable attorneys' fees and costs incurred in connection with such action or
proceeding.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement as
of the date above first written.
EXECUTIVE: COMPANY:
MOSAIX, INC.,
a Washington Corporation
NICHOLAS A. TILIACOS By : ___________________________________
Wm. Bradford Weller
Its General Counsel & Assistant Secretary
4
<PAGE> 1
EXHIBIT 10.31
MILLENNIUM CORPORATE PARK
LEASE AGREEMENT
REDMOND, WASHINGTON
<PAGE> 2
THIS LEASE is made the 11th day of December, 1997, between MILLENNIUM
CORPORATE PARK L.L.C., A WASHINGTON LIMITED LIABILITY COMPANY (the "Landlord"),
and MOSAIX, INC., a Washington corporation (the "Tenant").
RECITALS
(A) Capitalized terms used herein are defined in Article 20 of this
Lease.
(B) The Landlord is the owner of the Lands, subject however to existing
liens and encumbrances of record, and has constructed, or is in the process of
constructing, improvements thereon, including the Building generally in
accordance with the plans set forth in SCHEDULE "A".
(C) The Landlord and the Tenant desire to enter into a lease with
respect to the Leased Premises.
NOW THEREFORE in consideration of the rents, covenants and
agreements hereinafter reserved and contained, the parties agree to this Lease
of the Leased Premises on the terms and conditions set forth herein:
BASIC TERMS
<TABLE>
<CAPTION>
<S> <C> <C>
.01 AREA OF LEASED PREMISES: All of Building C, consisting of
approximately 102,594 square feet. The
actual Area of the Leased Premises shall be
measured in accordance with BOMA (as defined
in Section 20.02) by Landlord's Architect
following completion of the Building shell
and the Monthly Rent and other charges due
from Tenant under this Lease shall be based
on such actual measurement.
</TABLE>
<TABLE>
<CAPTION>
.02 BASIC TRIPLE NET RENT: Monthly Rate
Months Per Square Foot Monthly Rent
------ --------------- ------------
<S> <C> <C> <C>
Commencement Date
through
February 28, 1999 $1.13 $115,931.22
March 1, 1999 through
February 28, 2002 $1.13 $115,931.22
March 1, 2002 through
February 28, 2005 $1.20 $123,112.80
March 1, 2005 through
February 28, 2009 $1.35 $138,501.90
.03 PERMITTED USE: General office use.
.04 TERM: Commencement Date through February 28, 2009, with two (2)
options to renew pursuant to Article 1.02 below.
.05 SECURITY DEPOSIT: $0.00
</TABLE>
The foregoing Basic Terms are agreed to by the Landlord and the Tenant
and any reference in this Lease to any one of the same shall include the
provisions set forth above with respect thereto and in addition any more
specific definition or reference hereinafter provided.
ARTICLE I
DEMISE AND TERM
1.01 DEMISE AND TERM
The Landlord does hereby demise and lease unto the Tenant the Leased
Premises to have and to hold for and during the Term. For so long as the Tenant
duly and punctually pays the Rent, and performs and observes its covenants
herein undertaken, the Tenant shall be entitled for the benefit of the Leased
Premises to enjoy, upon the terms and conditions established or altered pursuant
to this Lease, the use in common with others entitled thereto of the Common
Areas and the Common Facilities.
<PAGE> 3
1.02 OPTION TO RENEW TERM.
(a) OPTION GRANTED. Provided Tenant is not in default under this Lease,
and subject to the conditions described in this Article, Tenant shall have the
option to renew the Term of this Lease for two (2) consecutive periods of three
(3) to five (5) years each (such renewal periods are hereinafter referred to as
a "Renewal Term" or as the "First Renewal Term" and the "Second Renewal Term").
The First Renewal Term shall commence immediately following the expiration of
the Term and the Second Renewal Term shall commence immediately following the
expiration of the First Renewal Term.
(b) EXERCISE OF OPTION. With respect to the First Renewal Term, Tenant
shall exercise its option to renew, if at all, by giving Landlord written notice
(the "First Exercise Notice") of Tenant's intention to do so at least nine (9)
months prior to the expiration of the Term. The First Exercise Notice shall set
forth the duration of the First Renewal Term, which shall be a minimum of three
(3) years and a maximum of five (5) years. With respect to the Second Renewal
Term, Tenant shall exercise its option, if at all, by giving Landlord written
notice (the "Second Exercise Notice") of Tenant's intention to do so at least
nine (9) months prior to the expiration of the First Renewal Term. The Second
Exercise Notice shall set forth the duration of the Second Renewal Term, which
shall be a minimum of three (3) years and a maximum of five (5) years. In the
event Tenant fails to timely exercise its renewal option for either the First
Renewal Term or the Second Renewal Term, this Article 1.02 shall be considered
null and void and of no further force and effect. If Tenant is in default under
this Lease, Tenant shall have no right to renew the term of this Lease;
provided, that the period of time within which said option may be exercised
shall not be extended or enlarged by reason of Tenant's inability to exercise
said option because of a default.
(c) TERMS OF RENEWAL. In the event Tenant validly exercises its option
to renew the Term as herein provided, Tenant's lease of the Leased Premises for
each Renewal Term shall be on the same terms and conditions contained in the
Lease, except that (i) Basic Triple Net Rent for each Renewal Term shall be as
set forth hereinbelow, (ii) there shall be no allowances, commissions, or other
concessions paid by Landlord except as otherwise provided for herein and
expressly made applicable to a Renewal Term, and (iii) no additional options to
renew shall apply following the expiration of the Second Renewal Term. Basic
Triple Net Rent shall be adjusted as of the commencement date of each applicable
Renewal Term as follows:
(1) Landlord shall notify Tenant in writing (the "Option Rent
Proposal") within fifteen (15) days after receipt of the applicable Exercise
Notice of the Basic Triple Net Rent for which Landlord is willing to lease the
Premises during the applicable Renewal Term, and any new or revised Lease
provisions which Landlord is then using in Landlord's standard lease form and
which Landlord wishes to include in the Renewal Term lease (the "New Terms").
The rental rate quoted in the Option Rent Proposal shall be based on the then
"Prevailing Market Rental Rate" as defined hereinafter.
(2) Upon receipt of the Option Rent Proposal, Tenant shall have an
additional fifteen (15) days during which to notify Landlord in writing (the
"Option Rent Acceptance Notice") that Tenant elects to exercise the applicable
renewal option and lease the Premises for the applicable Renewal Term at the
Basic Triple Net Rent and upon New Terms presented by Landlord in the Option
Rent Proposal.
(3) Notwithstanding subsection (2) above to the contrary, Tenant may
during the fifteen (15) days after the receipt of Option Rent Notice submit in
writing ("Option Rent Counter Proposal") to Landlord notice of the Basic Triple
Net Rent Tenant is willing to lease the Premises for with respect to the
applicable Renewal Term and any comments Tenant may have on the New Terms as
presented by Landlord. The rental rate contained in the Option Rent Counter
Proposal shall be based on the then Prevailing Market Rental Rate as defined
hereinafter. In the event Tenant submits an Option Rent Counter Proposal,
Landlord and Tenant shall attempt to agree upon the Basic Triple Net Rent and
New Terms for the applicable Renewal Term within an additional thirty (30) days
from the receipt of the Option Rent Counter Proposal. If Landlord and Tenant are
successful in agreeing on Basic Triple Net Rent and New Terms within the said
thirty (30) day period, Tenant then shall submit an Option Rent Acceptance
Notice to Landlord reflecting such amount and New Terms as agreed. If Landlord
and Tenant fail to agree upon the Basic Triple Net Rent and New Terms within
said thirty (30) day period, and provided that Tenant has not exercised its
Contraction Option under Section 1.04 below and will be occupying the entire
Leased Premises initially leased under this Lease during the applicable Renewal
Term, such Basic Triple Net Rent and terms shall be determined pursuant to
subsection 1.02(c)(4) below. If Tenant will be occupying less than the entire
Leased Premises initially leased under this Lease during the applicable Renewal
Term and Tenant has not exercised its Contraction Option under Section 1.04
below and Landlord and Tenant fail to agree upon the Basic Triple Net Rent and
New Terms within said thirty (30) day period, Tenant shall be deemed to have
elected to relinquish its option to renew for the applicable Renewal Term and
all other rights under this Article 1.02, and this Lease shall terminate upon
the original termination date.
2
<PAGE> 4
(4) Within ten (10) days after the expiration of the thirty (30) day
period set forth in the previous sentence, each party, at its own cost and by
giving notice to the other party, shall appoint a real estate appraiser with at
least five (5) years full-time commercial real estate appraisal experience in
the area in which the Leased Premises are located to set Basic Triple Net Rent
and establish the New Terms for the applicable Renewal Term. If a party does not
appoint an appraiser within ten (10) days after the other party has given notice
of the name of its appraiser, the single appraiser appointed shall be the sole
appraiser and shall set Basic Triple Net Rent and the New Terms for the
applicable Renewal Term. If each party shall have so appointed an appraiser, the
two appraisers shall meet promptly and attempt to set the Basic Triple Net Rent
and New Terms for the applicable Renewal Term. The Basic Triple Net Rent shall
be based on the Prevailing Market Rental Rate. If the two appraisers are unable
to agree within ten (10) days after the second appraiser has been appointed,
they shall attempt to select a third appraiser meeting the qualifications herein
stated within ten (10) days after the last day the two appraisers are given to
set Basic Triple Net Rent and New Terms. If the two appraisers are unable to
agree on the third appraiser within such ten (10) day period, either of the
parties to this Lease, by giving five (5) days notice to the other party, may
apply to the then presiding judge of the Superior Court of King County for the
selection of a third appraiser meeting the qualifications stated in this
paragraph. Each of the parties shall bear one-half (1/2) of the cost of
appointing the third appraiser and of paying the third appraiser's fee. The
third appraiser, however selected, shall be a person who has not previously
acted in any capacity for either party. Within ten (10) days after the selection
of the third appraiser, a majority of the appraisers shall set Basic Triple Net
Rent and New Terms for the applicable Renewal Term. If a majority of the
appraisers are unable to agree upon the Basic Triple Net Rent and New Terms
within the stipulated period of time, the three appraisals shall be added
together and their total divided by three (3). The resulting quotient shall be
the Basic Triple Net Rent for the Leased Premises during the applicable Renewal
Term. If, however, the low appraisal and/or the high appraisal is/are more than
five percent (5%) lower and/or higher than the middle appraisal, the low
appraisal and/or the high appraisal shall be disregarded. If only one (1)
appraisal is disregarded, the remaining two (2) appraisals shall be added
together and their total divided by two (2), and the resulting quotient shall be
Basic Triple Net Rent for the Leased Premises during the applicable Renewal
Term. If the appraisers are unable to agree on all of the New Terms, such New
Terms as are agreed upon, if any, shall be applicable for the Renewal Term.
(5) The term "Prevailing Market Rental Rate" as used in this Article
1.02 shall mean rental rates that a majority of landlords in the area, whose
ownership status are similar to the Landlord, are willing to lease premises that
are in comparable condition and location with the Premises, to tenants of
similar financial and credit worthiness as Tenant, for a similar term of the
lease, as of the applicable Renewal Term commencement date if such premises were
exposed for lease on the open market for a reasonable period of time. Rental
rates quoted or used under sublease agreements or predetermined option rights
shall be considered rates of special circumstances and shall be excluded from
the definition of the Prevailing Market Rental Rate under this Article 1.02.
(6) Notwithstanding anything to the contrary provided in this
Article 1.02, if Landlord and Tenant fail to agree on the Basic Triple Net Rent
and other terms for the applicable Renewal Term within the thirty (30) day
period set forth in subsection (3) above, Landlord shall have the right to
actively market the Premises to any potential third party tenants.
(d) OPTION PERSONAL TO TENANT. The renewal option set forth in this
Article 1.02 is granted for Tenant's personal benefit and may not be assigned or
transferred by Tenant, either voluntarily or by operation of law, in any manner
whatsoever. In the event that Landlord consents to a sublease or assignment
under this Lease, the renewal option granted hereunder shall be void and of no
further force and effect, whether or not Tenant shall have purported to exercise
the renewal option prior to such assignment or sublease.
(e) AMENDMENT TO LEASE. In the event Tenant timely and properly
exercises the renewal option, Landlord and Tenant shall within fifteen (15) days
after the determination of Basic Triple Net Rent and the New Terms for the
applicable Renewal Term execute an amendment to this Lease extending the Term
for the applicable Renewal Term at the established Basic Triple Net Rent and on
the New Terms agreed upon or, if applicable, as determined by the appraisers.
1.03 RIGHT OF FIRST REFUSAL
(a) GRANT OF RIGHT. Landlord agrees that, to the extent that portions of
the 25,000 square feet of space located on the first (1st) floor of Building B
in the location shown on SCHEDULE A-2 become available to lease during the first
thirty-six (36) months of the Term, prior to leasing any portion of the space
(each such portion being referred to as "Right of First Refusal Space") to a
third party, Landlord shall notify Tenant in writing that Landlord has received
an offer to lease a portion of the Right of First Refusal Space from a third
party (the "Offer") and Tenant shall have the right (each, a "Right of First
Refusal") to rent the Right of First Refusal Space on the terms set forth in
this Article 1.03.
3
<PAGE> 5
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. Provided that Tenant is not then
in default hereunder, Tenant may exercise the Right of First Refusal by sending
Landlord, within five (5) days of receipt by Tenant of the Offer, a notice
stating that Tenant elects to rent the Right of First Refusal Space upon the
terms and conditions set forth in this Article 1.03. If Tenant duly and timely
exercises the Right of First Refusal, Landlord and Tenant shall promptly enter
into an amendment to this Lease incorporating the Right of First Refusal Space
upon the terms set forth in this Article 1.03. If for any reason Tenant fails to
duly and timely exercise its Right of First Refusal, or if Tenant properly
exercises such right but thereafter does not enter into an amendment within ten
(10) days after Landlord delivers such amendment, Landlord shall be free to
lease the Right of First Refusal Space to any third party on the terms of the
Offer. Should Landlord not lease the Right of First Refusal Space to a third
party on the Offer terms, or if the Right of First Refusal Space leased to a
third party in accordance with this provision becomes available again during the
Term, Tenant's Right of First Refusal shall continue in accordance with the
foregoing provisions for the first thirty-six (36) months of the Term, upon
which date this Right of First Refusal shall expire. Each Right of First Refusal
shall, at Landlord's election, be null and void if Tenant is in default under
this Lease at the date Landlord would otherwise notify Tenant of the Offer or at
any time thereafter and prior to commencement of Tenant's lease of the Right of
First Refusal Space.
(c) TERMS OF RIGHT OF FIRST REFUSAL SPACE. Tenant's lease of the
Right of First Refusal Space shall be on terms identical to those set forth in
this Lease, except that (i) the lease term for such Right of First Refusal Space
shall be co-terminus with the Term (including any renewal options) of this
Lease, (ii) Basic Triple Net Rent for the Right of First Refusal Space shall be
at the per rentable square foot rate in effect under this Lease during the term
of Tenant's lease of such Right of First Refusal Space, (iii) notwithstanding
anything to the contrary in the Offer, Tenant shall lease the greater of (1)
5,000 square feet of the Right of First Refusal Space, or (2) a minimum of 75%
of the amount of Right of First Refusal Space covered by the Offer, (plus any
applicable load factor) each time it exercises a Right of First Refusal, and
(iv) other than the "Right of First Refusal Space Allowance" set forth below,
there shall be no concessions with respect to the Right of First Refusal Space
including, without limitation, free rent, allowances, or leasing commissions, or
other concessions made by the Landlord initially with respect to this Lease
except as otherwise provided for herein and expressly made applicable to the
Right of First Refusal Space. If Tenant duly and timely exercises its Right of
First Refusal, Landlord shall provide Tenant with an allowance (the "Right of
First Refusal Space Allowance") equal to $31.00 per useable square foot of Right
of First Refusal Space leased by Tenant. The Right of First Refusal Space
Allowance shall be used solely for the design and construction of permanently
affixed tenant improvements to the Right of First Refusal Space. Any tenant
improvements to the Right of First Refusal Space shall be constructed by
Landlord in accordance with the provisions set forth on Schedule B with respect
to the construction of the initial Tenant Improvements.
(d) RIGHT PERSONAL TO TENANT. The Right of First Refusal set
forth in this Article 1.03 is granted for Tenant's personal benefit and may not
be assigned or transferred by Tenant, either voluntarily or by operation of law,
in any manner whatsoever. In the event that Landlord consents to a sublease or
assignment under this Lease, the Right of First Refusal granted hereunder shall
be void and of no further force and effect, except to the extent that Tenant
then occupies Right of First Refusal Space.
1.04 CONTRACTION OPTION.
(a) OPTION GRANTED. Subject to the conditions set forth in this Article
1.04, Tenant shall have the one-time option to terminate this Lease with respect
to a portion of the Leased Premises (the "Contraction Option") effective on the
fifth (5th) anniversary of the Commencement Date (the "Contraction Date").
(b) CONDITIONS. Tenant's Contraction Option shall be subject to Tenant
satisfying the following conditions:
(1) Tenant shall give Landlord at least nine (9) months prior
written notice (the "Contraction Notice") of its election to exercise the
Contraction Option. The Contraction Notice shall contain a floor plan showing
the proposed space to be returned (the "Released Space") and an estimate of the
rentable square footage of such Released Space.
(2) On or before the date which is ninety (90) days prior to the
Contraction Date, Tenant shall pay to Landlord a fee equal to Landlord's
reasonable determination of a pro rata share of the unamortized portion of all
leasing commissions, tenant improvement costs, all other allowances, and
concessions granted or paid by Landlord under this Lease as of the Contraction
Date. Such pro rata share shall be based on the size of the Released Space.
(3) The Released Space shall be contiguous space of not less than
5,000 rentable square feet and not more than 20,000 rentable square feet.
4
<PAGE> 6
(4) The Released Space shall be in a location reasonably acceptable
to Landlord and, at a minimum, shall (A) have access to a common corridor, (B)
have reasonable access to Common Areas and Common Area Facilities, and (C) be
space that a reasonable tenant and a reasonable landlord would consider leasing,
taking into account such factors as space configuration.
(5) At least ninety (90) days prior to the Contraction Date,
Landlord and its contractors shall have access to the Leased Premises for the
purpose of planning any necessary demising walls, doors, or other necessary
modifications to segregate the Released Space from the Leased Premises.
(6) The Contraction Option shall be void if Tenant is in default
under the Lease at the time Tenant exercises its Contraction Option or on the
Contraction Date.
(c) TERMS OF REMAINING LEASED PREMISES. Provided that the conditions
set forth in subsection (b) above are met, effective on the Contraction Date,
all Lease terms shall remain in effect except that (1) the Leased Premises shall
consist of the Leased Premises minus the Released Space, and (2) Basic Triple
Net Rent and Additional Rent shall be reduced proportionately to reflect the
removal of the Released Space from the Leased Premises.
(d) AMENDMENT TO LEASE. In the event Tenant timely and properly
exercises the Contraction Option, Landlord and Tenant shall within sixty (60)
days after receipt of the Contraction Notice by Landlord sign an amendment to
this Lease confirming the size of the Released Space, the size of the remaining
Leased Premises, the Basic Triple Net Rent and Additional Rent applicable to the
remaining Leased Premises, and any other terms related to the downsizing that
either party reasonably requests.
1.05 SURRENDER OF LEASED PREMISES
Upon the expiration or sooner termination of this Lease, the Tenant
shall vacate and surrender to the Landlord the Leased Premises in accordance
with the provisions of this Lease. Except to the extent as otherwise expressly
agreed by the Landlord in writing, no leasehold improvements shall be removed by
the Tenant from the Leased Premises either during or at the expiration or sooner
termination of the Term except that the Tenant shall at the end of the Term
remove such leasehold improvements as the Landlord shall require to be removed
together with all of Tenant's trade fixtures, furnishings, equipment and
inventory and special improvements installed by Tenant following the initial
build-out of the Leased Premises.
The Tenant shall, in the case of every installation and removal of any
improvements, trade fixtures, furniture or equipment, either during or at the
end of the Term, make good any damage caused to the Leased Premises and any
leasehold improvements therein by such installation and removal.
ARTICLE 2
RENT
2.01 BASIC TRIPLE NET RENT
The Tenant shall pay to the Landlord for the Term the Basic Triple Net
Rent specified in Basic Term .02 in advance on the first day of each and every
month during the Term. The first monthly payment shall be paid on the
Commencement Date. If the Term commences on a day which is not the first day of
a calendar month, then the first payment of Basic Triple Net Rent payable on the
broken portion of a calendar month at the beginning of the Term shall be pro
rated on a daily basis.
2.02 Additional Rent
The Tenant shall pay to the Landlord for each and every Lease Year or
portion thereof, the Additional Rent for such Lease Year or portion thereof. The
amount of Additional Rent which the Tenant is to pay in each Lease Year or
portion thereof shall be estimated by the Landlord in advance and the Tenant
shall pay to the Landlord such amount in equal monthly payments in advance
during such Lease Year or the portion thereof. The amount of the estimated
Additional Rent may be adjusted, from time to time, during a Lease Year by the
Landlord giving notice to the Tenant, in which event the remaining payments to
be made by the Tenant as aforesaid in such Lease Year shall be adjusted
accordingly. All remedies of the Landlord on non-payment of rent shall be
applicable to the Additional Rent and the obligation of the Tenant to pay any
monies pursuant to this Lease shall survive the expiration or sooner termination
of this Lease. Notwithstanding the above provisions to the contrary, Tenant
shall not be obligated to pay increases in the Controllable Costs above twelve
percent (12%) per year following the first full calendar year of the Term.
5
<PAGE> 7
2.03 ADJUSTMENT OF ADDITIONAL RENT
Within ninety (90) days after the end of each Lease Year, the Landlord
shall furnish to the Tenant a statement of the actual amount of Additional Rent
payable by the Tenant for such preceding Lease Year and showing in reasonable
detail the information relevant and necessary to the calculation thereof. If the
amount payable by the Tenant as shown on such statement is more or less than the
Additional Rent paid by the Tenant to the Landlord for such Lease Year pursuant
to Article 2.02, the appropriate adjustment as between the Landlord and the
Tenant shall be made within fourteen (14) days of delivery of such statement.
Any payment made by the Landlord or made by the Tenant and accepted by the
Landlord in respect of any adjustment made pursuant to this Article 2.03 shall
be without prejudice to the right of the Landlord or the Tenant to claim a
re-adjustment provided such claim if made by the Tenant is made within ninety
(90) days after, or if made by the Landlord is made within one hundred twenty
(120) days after, the date of delivery of the statement referred to in this
Article 2.03. The Tenant shall have the right for a period of ninety (90) days
following receipt of the aforesaid statement to, at its sole expense, inspect
during the Landlord's normal business hours, subject to the inspection being
reasonable in all the circumstances, any record kept or held by the Landlord of
the costs or expenses claimed by the Landlord for such Lease Year and the
Landlord shall make its said records available accordingly.
2.04 MANNER AND PLACE OF PAYMENT
All Rent and all other sums payable by the Tenant to the Landlord
hereunder shall be paid to the Landlord at the office of the Landlord
hereinafter set forth, or at such other place as the Landlord may in writing,
from time to time, direct without notice or demand, except as otherwise
specifically provided herein, and without deduction, set off or abatement for
any reason whatsoever. The Landlord may at its option apply all or any sums
received from or due to the Tenant against amounts due and payable by the Tenant
hereunder in such manner as the Landlord sees fit, regardless of any designation
or instructions by the Tenant to the contrary. If Tenant fails to pay when due
any Rent, Additional Rent, or any other sum, such unpaid amount will bear
interest at the rate equal to the Prime Rate plus five percent per annum (but no
more than the maximum rate permitted by law) from the due date until paid. In
addition, Tenant acknowledges that the late payment by Tenant of any payment of
Rent, Additional Rent or of any other sum due to Landlord will cause Landlord to
incur certain costs and expenses not contemplated under this Lease, the exact
amount of these costs being extremely difficult and impractical to ascertain.
These costs include processing and accounting expenses and late charges which
may be imposed on Landlord by its lender. Therefore, if any sum due from Tenant
is not received by Landlord within 10 days after notice from Landlord that such
sum is due, Tenant shall pay Landlord a late charge equal to three percent of
the late payment or $100, whichever is greater. If any such sum is not received
by Landlord within 20 days after notice from Landlord, the amount of the late
charge paid by Tenant shall be five percent of the late payment or $175,
whichever is greater. If any such sum is not received by Landlord within 30 days
after notice from Landlord, the amount of the late charge to be paid by Tenant
shall be seven percent of the late payment or $300, whichever is greater. The
parties agree these late charges represent a reasonable estimate of the costs
that Landlord will incur by reason of Tenant's late payment.
2.05 IRREGULAR CALCULATION OF BASIC TRIPLE NET RENT
If for any reason it becomes necessary to calculate Basic Triple Net
Rent for a period of less than one month the same shall be pro rated on a daily
basis based on the number of days in the applicable month.
2.06 DISPROPORTIONATE ALLOCATION
Notwithstanding anything else herein otherwise contained, to the extent
that the Landlord, acting reasonably, determines that an item included in
Additional Rent properly related to only a portion of the Development or to a
portion of the Building, the Landlord may allocate such item to such portion of
the Development or Building, as the case may be, in which event the Tenant's
Proportionate Share, if the Leased Premises are within such portion, shall be
calculated in relation to the Gross Rentable Area of all leasable premises in
such portion.
2.07 NET LEASE INTENT
Except to that extent otherwise specifically provided herein this Lease
shall be a net lease to the Landlord such that the Basic Triple Net Rent shall
be received by the Landlord free of all expenses whatsoever, it being the intent
that the Tenant shall pay for its own account all amounts, charges, costs,
duties, fees, rates and taxes in any way relating to the Leased Premises as well
as the Additional Rent herein provided.
2.08 SECURITY DEPOSIT. INTENTIONALLY DELETED.
6
<PAGE> 8
ARTICLE 3
CONSTRUCTION AND FIXTURING OF LEASED PREMISES
3.01 LANDLORD'S WORK AND TENANT IMPROVEMENTS
Landlord shall complete the base, shell and core of the Building (the
"Landlord's Work"). All improvements to the Leased Premises not included in
Landlord's Work (the "Tenant Improvements") shall be constructed by Landlord or
Landlord's contractor pursuant to the provisions of SCHEDULE "B" hereto. Except
to the extent that the Building core work is included in the description of
Tenant Improvements on Schedule "B", the Landlord's Work shall be performed at
Landlord's expense.
3.02 COMMENCEMENT OF THE CONSTRUCTION
If, at any time prior to the commencement of construction of the
Building or the Development, the Landlord is in its opinion unable to obtain
satisfactory government approvals including, without limiting the generality of
the foregoing, development permits or building permits, with respect to the
Building or the Development, then the Landlord shall have the right and option
at any time thereafter to cancel this Lease and in such event, any money or
security deposited hereunder shall be returned to the Tenant without interest,
this Lease shall thereafter be null and void and neither party shall have any
further claim, the one against the other.
3.03 PAYMENT FOR OTHER WORK
All work done at the Tenant's request over and above the Tenant
Improvements (including the supplying of materials or equipment) by the Landlord
or its contractors or sub-contractors in or relating to the Leased Premises
shall be paid for by the Tenant within thirty (30) days of Landlord's request
for payment.
3.04 ACCEPTANCE OF LEASED PREMISES
The taking of possession of the Leased Premises by the Tenant shall be
deemed to be conclusive proof that except for items noted in a "punch-list"
prepared by the Tenant during a joint inspection by the Tenant and the Landlord
at the time of the taking of such possession, the Leased Premises are in the
condition called for by this Lease to the extent that the Landlord is
responsible therefor and that the Landlord has performed all of the Landlord's
Work and Tenant Improvements with respect thereto in a good and workmanlike
manner and Tenant has accepted the Leased Premises in "as is" condition. The
itemizing of any matter in such list by the Tenant shall not preclude the
Landlord from disputing the categorization of such matter as a deficiency.
ARTICLE 4
CONDUCT OF BUSINESS
4.01 USE OF LEASED PREMISES
The Tenant shall not use or occupy the Leased Premises or any part
thereof for any purpose other than the Permitted Use without first obtaining the
written consent of the Landlord. Tenant represents and warrants to Landlord that
the Permitted Use is a lawful and permitted use under the zoning code of the
City of Redmond.
4.02 PROHIBITED USES
The Tenant shall not, at any time, carry on nor cause, permit or allow
to be carried on in the Leased Premises any fire sale, distress sale, bankruptcy
sale, going-out-of-business sale, or any other business sale designed to convey
to the public that business operations are to be discontinued, an auction, a
pawn business, a mail order business or any other business which because of the
merchandise likely to be sold or the merchandising or pricing methods likely to
be used would, in the reasonable opinion of the Landlord, tend to lower the
character of the Development.
4.03 OPERATIONS DURING THE TERM
The Tenant acknowledges that its continued occupancy of the Leased
Premises and the regular conduct of its business therein are of the utmost
importance to the Landlord in avoiding the appearance and impression generally
created by vacant space in a development, in facilitating the leasing of vacant
space, and in the renewal of other leases, and that the Landlord will suffer
substantial damage if the Leased Premises are vacated or left vacant during the
Term even if Basic Triple Net Rent is paid.
The Tenant shall on the Commencement Date commence and thereafter during
the Term, actively and diligently carry on in the Leased Premises the business
specified as the Permitted Use, and
7
<PAGE> 9
shall without limiting the generality of the foregoing, conduct its business in
the entire Leased Premises. The Tenant will not during the Term vacate or
abandon the Leased Premises either in full or in part.
4.04 SIGNS
The Tenant shall not erect or place, or cause or allow to be erected or
placed or maintain any signs of any nature or kind whatsoever either on the
exterior walls of the Leased Premises or elsewhere in the Development. The
Tenant shall not erect or place or cause or allow to be erected or placed in the
windows of the Leased Premises, any signs, decoration, lettering or advertising
matter of any kind (including signs placed in the interior of the Leased
Premises for exterior view). Notwithstanding the above to the contrary, Landlord
will install appropriate location and direction signs, two (2) exterior signs on
the Building, and an entrance monument sign adjacent to Building C with Tenant's
name on it, with a design to be agreed upon between Landlord and Tenant and of
sizes and in locations acceptable to Landlord in Landlord's discretion. Landlord
shall have the right, at the expiration of the Term or such shorter period to
which the approval relates, to remove all of Tenant's signage at Tenant's sole
cost and expense. Landlord will obtain all necessary approvals from the City of
Redmond with respect to any sign of Tenant installed in the Development.
4.05 NUISANCE AND ANNOYANCE
The Tenant shall not use or occupy the Leased Premises or cause or
permit the same to be used or occupied for any unlawful purpose, or for any
dangerous, noxious or offensive trade or business, or for any purpose likely to
cause a nuisance or annoyance to the Landlord or any other tenants of the
Development nor undertake any operation likely to cause the same, nor commit or
cause to be done any waste, damage or disfigurement or injury to the Development
or any part thereof nor permit or cause the overloading of any floors therein.
4.06 DELIVERY OF SUPPLIES AND MATERIALS
The delivery and shipping of merchandise, supplies, fixtures and other
materials or goods of whatsoever nature to or from the Leased Premises and all
loading, unloading and handling thereof shall be done through such entrances as
designated by the Landlord.
4.07 ORDINANCES AND REGULATIONS
The Tenant shall, at Tenant's expense, observe and fulfill the
provisions and requirements of all statutes, ordinances, laws, rules and
regulations now in force or which may hereafter be in force, relating directly
or indirectly to the use or occupancy of the Leased Premises and shall comply
with all reasonable requirements of any insurer under any policy of insurance
affecting the Development.
4.08 RULES AND REGULATIONS
The Tenant shall observe and comply with and use its best efforts to
cause its employees, agents, licensees and invitees to observe and comply with
any and all rules and regulations communicated by the Landlord to the Tenant
(including the Rules and Regulations attached hereto as SCHEDULE "C"), from time
to time, which in the judgment of the Landlord are necessary or desirable in
relation to all aspects of the use and occupancy by the Tenant of the Leased
Premises, the Building, the Common Areas and the Common Facilities including for
the reputation, care, safety and appearance of the Development, the preservation
of good order therein and the operation and maintenance thereof, provided that
such rules and regulations do not conflict with any express provisions of this
Lease and are not discriminatory against the Tenant. The Tenant specifically
acknowledges that the Landlord has and shall have the right to make rules and
regulations as aforesaid.
ARTICLE 5
REPAIRS
5.01 TENANT'S REPAIRS
Except for repairs which are the Landlord's responsibility pursuant to
Article 5.06 below (including all repairs to the heating, ventilating and
air-conditioning systems), the Tenant shall at all times during the Term, at its
own cost and expense, repair, maintain, operate and keep the Leased Premises,
all equipment, fixtures, plumbing and electrical systems installed within the
Leased Premises by or for the sole use of the Tenant, and any improvements now
or hereafter made to the Leased Premises in good order, first class condition
and repair (reasonable wear and tear excepted). The Tenant shall be responsible
for all janitorial services respecting the Leased Premises (including the
washing of the inside of windows therein) so as to keep the Leased Premises in a
clean and tidy condition. Tenant may request that repairs or maintenance
required under this Article 5.01 be performed by Landlord and, if Landlord
8
<PAGE> 10
elects to perform repairs or maintenance requested by Tenant, the costs and
expenses thereof shall be paid by Tenant to Landlord as Additional Rent within
ten (10) days of Landlord's request for payment.
5.02 PERIMETER WALLS AND GLASS
The Tenant shall promptly repair or make whole all damaged glass, plate
glass, doors, windows, and perimeter walls in the Leased Premises as and
whenever the same is required if the damage is caused by the negligent act or
omission of Tenant.
5.03 LANDLORD'S EXAMINATION OF LEASED PREMISES
The Landlord and any employee, agent or contractor of the Landlord shall
be entitled, upon reasonable advance notice, at any time during normal business
hours and at any time without notice in the event of an emergency, to enter and
examine the state of maintenance, repair, decoration and cleanliness of the
Leased Premises, all equipment and fixtures within the Leased Premises and any
improvements now or hereafter made to the Leased Premises and the Landlord may
give notice to the Tenant requiring that the Tenant perform such maintenance or
effect such repairs, replacements or decoration or cleaning as is the
responsibility of the Tenant and as may be found necessary from such
examination.
5.04 LANDLORD'S RIGHT TO REPAIR
In the event that the Tenant fails forthwith after receipt of written
notice thereof, or within such reasonable time thereafter if for any cause
beyond the control of the Tenant it is not reasonable in the circumstances (it
being agreed that lack of finances on the part of the Tenant shall not be
treated as a cause beyond the Tenant's control), to commence and diligently
proceed to perform such maintenance or effect such repairs, replacements,
decorations or cleaning as so specified in any notice given by the Landlord, the
Landlord, its employees, agents or contractors may, but shall not be obligated
to, enter the Leased Premises and at the Tenant's expense, perform and carry out
the same and the Landlord in so doing shall not be liable for inconvenience,
disturbance, loss of business or other damage resulting therefrom and in the
event the Landlord expends any monies pursuant to the provisions of this Article
5.04, the Tenant shall pay the same to the Landlord on demand with a fee of
twenty (20%) percent of such amount for the Landlord's supervisory function and
in addition shall pay interest on the aggregate of the foregoing at the rate
provided in this Lease from the date of the expenditure of such first mentioned
monies by the Landlord.
5.05 LANDLORD'S RIGHT TO ENTER FOR OTHER REPAIRS
The Landlord, and any employee, agent or contractor of the Landlord
shall have the right to enter the Leased Premises at all times during business
hours and at any time in the case of an emergency to make such alterations or
repairs as the Landlord is required to make pursuant to the terms of this Lease
or shall deem necessary for the safety, preservation, proper administration or
improvement of the Development or any portion thereof and the Landlord in so
doing, shall not be liable for inconvenience, disturbance, loss of business or
other damage resulting therefrom except to the extent caused by the negligence
of Landlord or any employee, agent or contractor of Landlord.
5.06 LANDLORD'S REPAIRS
The Landlord shall, from time to time, throughout the Term:
(a) carry out necessary repairs to the structural portions of the
Building including the foundations, exterior walls, structural
subfloors, the structural portions of bearing walls and
structural columns and beams;
(b) carry out repairs or replacements to the Common Areas and the
Common Facilities, including the heating, ventilating and
air-conditioning systems forming part of the Common Facilities;
(c) repair and maintain the heating, ventilating and
air-conditioning systems and other building standard equipment
and systems within or serving the Leased Premises (excluding
plumbing and electrical systems installed within the Leased
Premises by or for the sole use of the Tenant) and the costs
thereof shall form part of the HVAC Costs or Building Operation
and Maintenance Costs, as the case may be hereunder; and
(d) repair all damage to the Leased Premises which is covered by any
insurance effected by the Landlord in accordance with the
provisions of Article 8.03 hereof to the extent of the proceeds
of such insurance applicable thereto;
9
<PAGE> 11
PROVIDED HOWEVER that if any such repairs are necessitated by the
negligence or misconduct of the Tenant, its agents, contractors, licensees,
employees or others for whom in law the Tenant is responsible, the Tenant shall
pay to the Landlord on demand the cost of such repairs and a fee of two and
one-half percent (21/2%) for the Landlord's supervisory function and interest on
the aggregate amount of both of the foregoing from the date of expenditure of
the first mentioned monies by the Landlord.
PROVIDED FURTHER that in any event the Landlord shall not be responsible
for any damages, loss or injury sustained by the Tenant or any person or persons
claiming through or under it, by reason of defects giving rise to the need for
such repairs or the consequence thereof, including the inconvenience occasioned
to the Tenant by the entry of the Landlord, its employees, agents, or
contractors on the Leased Premises to effect such repairs except to the extent
caused by the negligence of Landlord or any employee, agent or contractor of
Landlord.
5.07 LANDLORD'S OBLIGATION TO MAINTAIN
The Landlord shall maintain and keep the Common Areas and the Common
Facilities in a state of repair and cleanliness consistent with the standard of
a first class development of a similar nature.
5.08 DAMAGE AND DESTRUCTION
In the event of damage or destruction of the Leased Premises or of the
Building by fire, lightning, earthquake, windstorm or other casualty so that:
(a) the same is damaged or destroyed to the extent that the same
cannot with reasonable diligence be rebuilt, repaired or
restored within one hundred and twenty (120) days of the date of
damage or destruction (as determined in the opinion in writing
of the Landlord's Architect, which written opinion shall be
delivered to the Tenant within thirty (30) days of the
occurrence of such damage or destruction) or the estimated cost
of rebuilding, repairing or restoring such damage or destruction
will exceed twenty percent (20%) of the full insurable value
thereof, then, notwithstanding any other term or condition of
this Lease to the contrary, the Landlord may terminate this
Lease by notice in writing to the Tenant given within sixty (60)
days of the occurrence of such damage or destruction, such
notice to be effective as of the date of the damage or
destruction if the Leased Premises are not capable of being
utilized by the Tenant as determined by the Landlord's Architect
and otherwise to be effective at the date specified in such
notice of termination which shall not be less than thirty (30)
days following receipt of such notice by the Tenant and in
either of such events, the Rent hereby reserved shall be
forthwith payable by the Tenant to the effective date of the
termination, the Term hereby granted shall terminate as of that
date and the Landlord may as of the effective date of
termination re-enter and take possession of the Leased Premises
and deal with the same as fully and effectively as if these
presents had not been entered into. But if within the said
period of sixty (60) days, the Landlord shall not give notice
terminating this Lease, then as soon as reasonably practicable
thereafter, the Landlord shall undertake or continue the
rebuilding, repair or restoration with all reasonable diligence
and the Basic Triple Net Rent hereby reserved, or a
proportionate part thereof depending upon the proportion of the
Leased Premises that are not fit for use by the Tenant for the
intended purpose of this Lease, shall abate until the Leased
Premises have been rebuilt and made fit for the intended
purposes of this Lease;
(b) the same is damaged or destroyed to the extent that the same can
with reasonable diligence be rebuilt, repaired or restored
within one hundred and twenty (120) days of the date of such
damage or destruction (as determined in the opinion in writing
of the Landlord's Architect, which written opinion shall be
delivered to the Tenant within thirty (30) days of the
occurrence of such damage or destruction) and the Landlord is
not otherwise entitled to terminate this Lease pursuant to
Article 5.08(a) the Landlord shall as soon as reasonably
practicable after such determination, undertake or continue the
repair of the same with all reasonable diligence provided,
however, that nothing herein contained shall impose any
obligation upon the Landlord to complete such repair within the
said period of one hundred and twenty (120) days and the Basic
Triple Net Rent hereby reserved, or a proportionate part thereof
depending upon the proportion of the Leased Premises that are
not fit for use by the Tenant for the intended purposes of this
Lease, shall abate until the Leased Premises have been rebuilt
and made fit for the intended purposes of this Lease.
10
<PAGE> 12
5.09 QUALIFICATIONS
(a) For the purposes of Article 5.08 the terms "Leased Premises" and
"Building" shall be deemed not to include the Tenant's trade
fixtures, merchandise, stock-in-trade, furniture or any other
improvements installed in the Leased Premises by or on behalf of
the Tenant.
(b) If the Landlord rebuilds, repairs, or restores the Building or
the Leased Premises as contemplated in Article 5.08 it will not
be required to reproduce exactly the Leased Premises or the
Building or restore the same to the exact condition that existed
before the damage or destruction provided that it reproduces or
restores or rebuilds the same to a comparable condition and
configuration.
(c) The certificate of the Landlord's Architect in charge of the
rebuilding, repair or restoration shall bind the Landlord and
the Tenant as to the state and proportion of the suitability for
occupancy of the Leased Premises and as to the date upon which
the Landlord's work of reconstruction or restoration is
completed and the Leased Premises fit for the purposes of the
Tenant.
(d) Notwithstanding any of the provisions of Article 5.08 to the
contrary, in the event the damage or destruction referred to
therein is caused by the negligence or misconduct of the Tenant,
its agents, employees, contractors, licensees or other persons
for whom in law the Tenant is responsible:
(i) and this Lease is not terminated as a result of such
damage or destruction there shall be no abatement of
Basic Triple Net Rent as contemplated in Article 5.08;
and
(ii) the Tenant shall indemnify and hold harmless the
Landlord from and against any liabilities, damages,
costs, claims, suits or actions of any nature whatsoever
suffered by or incurred by the Landlord as a result of
such damage or destruction and this indemnity and hold
harmless covenant shall survive the expiration of the
Term.
5.10 CONDITION OF EXPIRATION
Upon the expiration of the Term the Tenant shall surrender and deliver
up to the Landlord vacant possession of the Leased Premises, which Leased
Premises at such time, unless the expiration of the Term has occurred pursuant
to Article 5.08(i), shall be in the condition in which the same must be
maintained during the Term pursuant to Articles 5.01 and 5.02 and as the same
must otherwise be restored pursuant to Article 9.02.
ARTICLE 6
COMMON AREAS AND COMMON FACILITIES
6.01 TENANT'S USE OF PARKING AREAS
The Tenant shall be permitted to use three (3) parking stalls per 1,000
square feet of the useable area of the Leased Premises and shall park its
vehicles and shall cause its employees to park their vehicles only in such
parking areas as designated by the Landlord from time to time. The use of said
parking stalls shall be at no additional charge to Tenant for the Term
(including any Renewal Term).
6.02 LANDLORD'S RIGHT TO REMOVE VEHICLES
Should the Tenant, its employees, suppliers or other persons not
licensees or invitees of the Tenant park vehicles in areas not allocated for
that purpose, the Landlord shall have the right to remove the said trespassing
vehicles and the Tenant will save harmless the Landlord from any and all damages
arising therefrom and the Tenant will pay the costs of such removal.
6.03 CONTROL OF COMMON AREAS AND COMMON FACILITIES
The Landlord shall at all times have exclusive control and management of
the Common Areas and the Common Facilities. Such control applies to signs, use
of show windows, and the Tenant's publicity visible from the Common Areas, as
well as to the use made by the Tenant and/or the public of the Common Areas. The
Landlord shall have the right to alter, vary, designate and redesignate the
Common Areas and the Common Facilities from time to time and to interfere with
the use of the Common Areas and the Common Facilities to the extent necessary to
make such alterations or variations or any other repairs required or permitted
to be made by the Landlord under this Lease.
11
<PAGE> 13
6.04 MERCHANDISE ON COMMON AREA
In particular, but without in any way limiting the generality of the
provisions of Article 6.03, the Tenant shall not keep, display, or sell any
merchandise on or otherwise obstruct or use any part of the Common Areas or the
Common Facilities, except as permitted by the Landlord and except for displays
included in Development promotions when recognized and permitted by the
Landlord.
6.05 VISITOR PARKING
The Landlord shall at all times during the Term of this Lease, designate
for the benefit of the licensees and invitees of the Tenant, visitor parking
facilities, and Landlord agrees not to charge Tenant's licensees or invitees for
the use of such parking facilities.
ARTICLE 7
ASSIGNMENT AND SUB-LETTING
7.01 PROHIBITIONS
The Tenant shall not assign or transfer this Lease or the Term or any
portion thereof or let or sublet all or any part of the Leased Premises or grant
any license with respect thereto (any of the foregoing being hereinafter called
a "Transfer") without the written consent of the Landlord first had and
obtained, which consent shall not be unreasonably withheld or delayed.
All requests to the Landlord for consent to any Transfer shall be made
to the Landlord in writing together with payment to the Landlord of three
hundred dollars ($300.00) as a deposit on account of all costs incurred by the
Landlord in considering and processing the request for consent and such
information in writing as the Landlord might reasonably require respecting a
transferee including, without limiting the generality of the foregoing, the
name, address, business experience, financial position and banking and personal
references of such transferee, and in the event the transferee is a corporation,
similar information respecting the corporation and its principal shareholders,
officers and directors. In addition, the request shall contain a comprehensive
summary of the terms and conditions upon which the Transfer is to occur.
Notwithstanding any provisions of this Article 7.01 to the contrary,
after the Landlord receives such request and information in writing, it shall
have the option, to be exercised by written notice within ten (10) days after
the receipt of such request and information, to terminate this Lease and the
Term hereof on not less than thirty (30) days and not more than ninety (90) days
notice to the Tenant. If the Landlord elects to terminate this Lease as
aforesaid, the Tenant shall have the right, to be exercised by written notice to
the landlord within ten (10) days after receipt of such notice of termination,
to withdraw the request for consent to the proposed Transfer, in which case the
Tenant shall not proceed with such Transfer, the notice of termination shall be
null and void and this Lease shall continue in full force and effect in
accordance with its terms.
If the Landlord consents to a Transfer, the Landlord shall have the
following rights:
(a) to require the Tenant to enter into an agreement in writing to
implement all amendments to the Lease to give effect to the
Landlord's exercise of its foregoing rights; and
(b) to require the Transferee to enter into an agreement directly
with the Landlord to perform and observe all the terms and
conditions of the Tenant pursuant to this Lease.
Whether or not the Landlord consents to any request to Transfer, the
Tenant shall pay Landlord's out-of-pocket legal costs (not to exceed $500.00)
incurred by the Landlord in considering any request for consent to Transfer and
in completing any of the documentation involved in implementing such Transfer.
If Landlord consents to any assignment of this Lease, Tenant shall pay to
Landlord, as additional rent, one-half of all sums and other considerations
payable to and for the benefit of Tenant by the assignee on account of the
Assignment, as and when such sums and other consideration are due and payable by
the assignee to or for the benefit of Tenant (or, if Landlord so requires, and
without any release of Tenant's liability for the same, Tenant shall instruct
the assignee to pay such sums and other consideration directly to Landlord). If
for any proposed sublease Tenant receives rent or other consideration, either
initially or over the term of the sublease, in excess of the rent called for
hereunder or, in case of the sublease of a portion of the Premises, in excess of
such rent fairly allocable to such portion, Tenant shall pay to Landlord as
additional rent hereunder one-half of the excess of each such payment of rent or
other consideration received by Tenant promptly after its receipt.
Notwithstanding any other provisions of this Article 7.01 to the
contrary, neither the Transfer nor the taking of any documentation in relation
thereto shall affect the obligation of the Tenant
12
<PAGE> 14
to perform and observe all of the terms and conditions in this Lease to be
observed and performed by the Tenant.
7.02 CONTROL OF CORPORATION
If the Tenant is a corporation, other than a corporation the shares of
which are listed on any recognized stock exchange, effective control of the
corporation shall not be changed directly or indirectly by a sale, encumbrance
or other disposition of shares or otherwise howsoever without first obtaining
the written consent of the Landlord; provided that the Landlord's consent shall
not be required for any sale or other disposition of shares by present
shareholders to and between themselves or in the event of any transmission of
shares on death and provided further that the Landlord's consent shall not be
unreasonably withheld where control of the Tenant is to pass to a subsidiary or
parent of the Tenant.
7.03 JUDICIALLY-IMPOSED ASSIGNMENT
If the non-assignment provisions of this Article 7 are deemed to be
unenforceable in any bankruptcy proceeding, Landlord and Tenant agree that a
showing of adequate assurance of future performance by a prospective assignee of
this Lease must include, without limitation, clear and convincing evidence that:
i) Landlord will receive the full benefit of every term of its bargain under
this Lease, except for the non-assignment and related termination clauses, but
including all rental obligations hereunder; ii) the Premises will continue to be
used solely for the Permitted Use; iii) a judicially-imposed assignment will not
cause an acceleration or increase in the interest rate, or fees in connection
with any loan secured by Landlord's interest in the Building or this Lease; and
iv) the prospective assignee has the means, expertise and experience to operate
the business to be conducted on the Leased Premises in a first-class manner.
7.04 ASSIGNMENT BY LANDLORD
The Landlord may assign all or a part of its interest in this Lease
without the Tenant's knowledge or consent.
ARTICLE 8
INSURANCE
8.01 TENANT TO INSURE
The Tenant, at its sole cost and expense, shall take out and keep in
force during the Term, standard fire and extended coverage, and malicious damage
insurance on the stock-in-trade, furniture, fixtures, glass, improvements and
all other contents of the Leased Premises to their full replacement value, and
comprehensive general liability insurance in an amount of not less than five
million dollars ($5,000,000) all in amounts and with policies in a form
satisfactory to the Landlord with insurers acceptable to the Landlord. Each such
policy shall name the Landlord as an additional insured as its interest may
appear and such comprehensive public liability insurance shall contain a
provision for cross liability as between the Landlord and the Tenant. Each
policy other than public liability policies shall provide that the insurer shall
not have any right of subrogation against the Landlord, its agents or employees
on account of any loss or damage covered by such insurance or on account of
payments made to discharge claims against or liabilities of the Landlord or
Tenant covered by such insurance. The cost or premium for each and every such
policy shall be paid by the Tenant. The Tenant shall obtain from the insurers
under such policies, undertakings to notify the Landlord in writing at least
thirty (30) days prior to any cancellation or reduction in coverage thereof. If
the Tenant fails to take out or keep in force, or provide to the Landlord proof,
as hereafter contemplated, of such insurance, the Landlord shall have the right
to place such insurance on behalf of the Tenant and to pay the premium therefor
and in such event, the Tenant shall repay to the Landlord the amount paid
therefor, which repayment shall be deemed to be Additional Rent payable on the
first day of the next month following the said payment by the Landlord. The
Tenant agrees to provide the Landlord with current copies of the insurance
policies or certificates of insurance described herein at least annually and
more frequently if requested by Landlord.
8.02 NOT TO AFFECT LANDLORD'S INSURANCE
The Tenant will not upon the Leased Premises do or permit to be done, or
omit to do anything which causes or has the effect of causing the rate of
insurance upon the Development or any part thereof to be increased and if the
insurance rate shall be thereby increased by any action of the Tenant, the
Tenant shall pay to the Landlord on demand as Additional Rent the amount by
which the insurance premiums shall be so increased. The Tenant will not store or
permit to be stored upon or in the Leased Premises anything of a dangerous,
inflammable or explosive nature nor anything which would have the effect of
increasing the Landlord's insurance costs or of leading to the cancellation of
such insurance. It is agreed that if any insurance policy upon the Leased
Premises shall be cancelled by the insurer by reason of the use and occupation
of the Leased Premises or any part thereof by the Tenant or by any assignee,
sub-tenant, concessionaire or licensee of the Tenant, or by anyone permitted by
the Tenant to
13
<PAGE> 15
be upon the Leased Premises, the Landlord may, at its option, forthwith enter
upon the Leased Premises and rectify the situation causing such cancellation or
rate increase, and the Tenant shall forthwith on demand pay to the Landlord the
costs of the Landlord related to such rectification together with a supervisory
fee of twenty (20%) percent of such cost and with interest on the aggregate of
the foregoing from the date funds were expended by the Landlord.
8.03 LANDLORD TO INSURE
The Landlord shall throughout the Term, carry fire insurance with normal
coverage endorsements in respect of the buildings and improvements forming part
of the Development (but excluding the Tenant's trade fixtures, merchandise,
stock-in-trade, furniture or any other improvements installed in the Leased
Premises by or on behalf of the Tenant) in an amount not less than ninety (90)
percent of the full replacement cost (excluding the cost of foundations,
footings, underground utilities and architects and other fees associated with
these items) from time to time, on a stated amount basis, provided that such
insurance, without further consent or notice to the Tenant, may have a
deductible amount as determined by Landlord. The Landlord may, but shall not be
obligated to, carry such other insurance including public liability insurance
and rental loss insurance related to the Lands or such risks and perils in
relation thereto or the Landlord's interest derived therein as the Landlord may
so determine. All such insurance so obtained by the Landlord shall be for the
sole benefit of the Landlord and the Tenant shall be entitled to no interest
therein or benefit thereof.
ARTICLE 9
TENANT ALTERATIONS
9.01 PAINTING, DECORATING AND ALTERATIONS
The Tenant may, provided it first obtains the written consent of the
Landlord which consent shall not be unreasonably withheld or delayed, at any
time and from time to time at its expense, paint and decorate, in accordance
with the manner and standard referred to in Article 5.01, the interior of the
Leased Premises and make such changes, alterations, additions and improvements
in and to the Leased Premises as will in the judgment of the Tenant better adapt
the Leased Premises for the purposes of its business; provided, however, that no
changes, alterations, additions or improvements to the structure, any perimeter
wall, the sprinkler system, the heating, ventilating, air-conditioning,
plumbing, electrical or mechanical equipment or the concrete floor or the roof
shall be made without the prior written consent of the Landlord, and without the
use of contractors or other qualified workmen approved by the Landlord. All
changes, alterations, additions and improvements, whether structural or
otherwise, shall be carried out in accordance with the reasonable requirements
or rules of the Landlord and shall comply with all applicable statutes,
regulations and laws of any governmental authority. As part of the process of
the Landlord's examination and approval of the Tenant's plans and
specifications, materials may, in addition to being submitted to the Landlord's
Architect, be submitted by the Landlord to other architects, engineers, and
special consultants, and progress and completion of the work may require
supervision and/or inspection by the Landlord or any of the foregoing persons on
behalf of the Landlord. Any fees and costs incurred by the Landlord in relation
to the foregoing will be paid by the Tenant to the Landlord within fifteen (15)
days of billing. The Tenant shall pay to the Landlord the amount of the increase
for any insurance coverage of the Landlord directly attributable to any action
by the Tenant as hereinbefore in this Article 9.01 provided and the Tenant
covenants that such insurance shall not thereby be made liable to avoidance or
cancellation by the insurer by reason of such changes, alterations, additions or
improvements.
9.02 LANDLORD'S PROPERTY
At the expiration of the Term all changes, alterations, additions and
improvements made to or installed upon or in the Leased Premises whether made
pursuant to this Article 9 or otherwise and which in any manner are attached in,
to on or under the floors, walls or ceilings (other than unattached movable
trade fixtures) shall remain upon and be surrendered to the Landlord with the
Leased Premises as part thereof, without disturbance, molestation or injury and
shall be and become the absolute property of the Landlord without any payment or
indemnity by the Landlord or any third party to the Tenant or any other party.
Notwithstanding the foregoing provisions of this Article 9.02, unless the Lease
has been terminated pursuant to Article 5.06(a) the Landlord may remove the
aforesaid changes, alterations, additions and improvements in whole or in part,
in which event the Tenant shall reimburse Landlord for the costs of such removal
and the cost to restore the Leased Premises to the state in which they were
prior to the installation of such changes, alterations, additions and
improvements. The obligations of the Tenant under this Article 9.02 shall
survive the expiration of the Term.
9.03 PROHIBITIONS
The Tenant, its employees, agents and representatives, are expressly
prohibited from entering upon the roof of the Building or any Other Buildings
for any reason whatsoever. The Tenant shall not make any repairs, openings or
additions to any part of the exterior of the Leased Premises, nor place any
attachments, decorations, signs or displays in or upon any Common Area or the
exterior of the Leased
14
<PAGE> 16
Premises failing which the Tenant will be held responsible for all ensuing costs
and damages whether to remove such items or to effect repairs needed as a result
of such acts and shall pay the cost thereof to the Landlord forthwith on demand
together with a supervisory fee to the Landlord of twenty (20%) percent of such
cost as well as interest on the aggregate of the foregoing from the date funds
are so expended by the Landlord.
9.04 NO LIENS
The Tenant covenants with the Landlord that it will not permit, do, or
cause anything to be done to the Leased Premises during the period of
construction and fixturing of the Leased Premises or at any time which would
allow any lien, lis pendens, judgment of any court or any mortgage, deed of
trust, or encumbrance of any nature whatsoever to be imposed or to remain upon
the Leased Premises or the Development. In the event of the recording of any
lien or other encumbrance as aforesaid, the Tenant shall at its own expense
immediately cause the same to be discharged. Should the Tenant fail to discharge
such lien or encumbrance within two (2) days of notice from the Landlord to do
so, the Landlord shall be at liberty to pay and discharge such lien or
encumbrance and any amount so paid by the Landlord together with any attorneys'
fees and costs incurred by the Landlord together with interest on any such
amounts from the date of expenditure of such funds by the Landlord shall be paid
by the Tenant to the Landlord forthwith.
ARTICLE 10
UTILITIES AND TAXES
10.01 UTILITIES, BUSINESS TAX AND MACHINERY TAX
The Tenant shall pay and discharge as the same fall due all charges for
utilities provided to or consumed on the Leased Premises during the Term
including telephone installations, water, electrical power, gas and telephone
charges metered separately or charged separately by the authority providing the
same to the Leased Premises as well as any charges of any such authority based
thereon for treatment or other facilities and all other charges similar in
nature, and shall also pay and discharge as the same fall due all business taxes
and rates, personal property taxes, license fees or similar fees which may be
imposed by any municipal, legislative or other authority in respect of the use
or occupancy of the Leased Premises or any personal property situate thereon or
in respect of any fixtures, machinery, equipment or apparatus installed in the
Leased Premises (or elsewhere in the Development by the Tenant).
PROVIDED ALWAYS that if any of the aforesaid utilities are provided to
the Leased Premises through a common metering device or on any other shared
basis with any other premises or portions of the Building or the Development, or
if the Tenant shall use any of such utilities beyond the normal business hours
established from time to time by Landlord for the Building, the Tenant shall pay
to the Landlord forthwith on demand, from time to time by the Landlord, the
Tenant's share of the cost thereof based on such allocation as the Landlord may
reasonably determine in relation to the other premises or portions of the
Building or the Development being so served. The refusal on the part of Tenant
to pay upon demand of Landlord the amount established by Landlord for Tenant's
share of the costs of utilities shall constitute a breach of the obligation to
pay rent under this Lease and shall entitle Landlord to the rights herein
granted for such breach.
10.02 PAYMENT OF REAL PROPERTY TAXES BY LANDLORD
The Landlord shall, without derogating from any of the Tenant's
obligations with respect to payment of Additional Rent, pay or cause to be paid
when due to the municipality or other taxing authorities having jurisdiction all
Real Property Taxes, PROVIDED ALWAYS that the Landlord may postpone such payment
to the extent permitted by law if pursuing in good faith any appeal against the
imposition thereof.
10.03 INCREASE IN REAL PROPERTY TAXES ATTRIBUTABLE TO TENANT
The Tenant shall from time to time if requested by the Landlord, pay to
the Landlord forthwith on demand by the Landlord, an amount equal to any
increase in the amount of Real Property Taxes by reason of any installation,
alteration, or use made in or to the Leased Premises by or for the benefit of
the Tenant or any party claiming by or through the Tenant.
10.04 TAX ON RENT
Despite any other section or clause of this Lease, the Tenant shall pay
to the Landlord upon demand an amount equal to any and all Rent Tax (as defined
below), it being the intention of the parties that the Landlord shall be fully
reimbursed by the Tenant with respect to any and all Rent Tax at the full tax
rate applicable from time to time in respect of the Rent payable for the lease
of the Leased
15
<PAGE> 17
Premises pursuant to this Lease. The amount of the Rent Tax so payable by the
Tenant shall be calculated by the Landlord in accordance with the applicable
legislation and shall be paid to the Landlord at the same time as the amounts to
which such Rent Tax apply and is payable to the Landlord under the terms of this
Lease or upon demand at such other time or times as the Landlord from time to
time determines. Despite any other section or clause in this Lease, the amount
payable by the Tenant under this paragraph shall be deemed not to be Rent, but
the Landlord shall have all of the same remedies for and rights of recovery of
such amount as it has for recovery of Rent under this Lease. As referred to
herein "Rent Tax" means any tax imposed on the rents paid to Landlord hereunder.
ARTICLE 11
EXCLUSION OF LIABILITY AND INDEMNITY
11.01 EXCLUSION OF LIABILITY
It is agreed between the Landlord and the Tenant that, except with
respect to the negligent acts of Landlord, its agents and employees:
(a) the Landlord, its agents, and employees shall not be liable for
damage or injury to any property of the Tenant which is
entrusted to the care or control of the Landlord, its agents, or
employees;
(b) the Landlord, its agents, and employees shall not be liable nor
responsible in any way for any personal or consequential injury
of any nature whatsoever that may be suffered or sustained by
the Tenant or any employee, agent, customer, invitee or licensee
of the Tenant or any other person who may be upon the Leased
Premises or the Development or for any loss of or damage or
injury to any property belonging to the Tenant or to its
employees or to any other person while such property is on the
Leased Premises or the Development and, in particular (without
limiting the generality of the foregoing) the Landlord shall not
be liable for any damage or damages of any nature whatsoever to
any such property caused by the failure by reason of a breakdown
or other cause, to supply adequate drainage, snow or ice
removal, or by reason of the interruption of any public utility
or service or in the event that steam, water, rain or snow may
leak into, issue or flow from any part of the Development or
from the water, steam, sprinkler, or drainage pipes or plumbing
works, or from another place or quarter or for any damage caused
by any thing done or omitted by any tenant, but the Landlord
shall, after notice of the same and where it is within its
obligation so to do, use all reasonable diligence to remedy such
condition, failure or interruption of service when not directly
or indirectly attributable to the Tenant, and the Tenant shall
not be entitled to any abatement of Rent in respect of any such
condition, failure or interruption of service; and
(c) the Landlord, its agents, employees or contractors shall not be
liable for any damage suffered to the Leased Premises or the
contents thereof by reason of the Landlord, its agents,
employees or contractors entering upon the Leased Premises to
undertake any examination thereof or any work therein or in the
case of an emergency.
11.02 INDEMNIFICATION
Notwithstanding any other provision of this Lease to the contrary, and
except to the extent of Landlord's negligence, the Tenant shall:
(a) be liable to the Landlord for, and
(b) indemnify and hold harmless the Landlord, its agents, advisors,
and employees from and against:
any and all liabilities, claims, suits or actions, costs, damages and expenses
(and without limiting the generality of the foregoing, any direct losses, costs,
damages and expenses of the Landlord including attorneys' fees and costs) which
may be brought or made against the Landlord, or which the Landlord may pay or
incur as a result of or in connection with:
(c) any breach, violation or non-performance of any covenant,
condition or agreement in this Lease set forth and contained on
the part of the Tenant to be fulfilled, kept, observed and
performed;
16
<PAGE> 18
(d) any damage to property, including property of the Landlord,
occasioned by the operations of the Tenant's business on, or the
Tenant's occupation of, the Leased Premises; or
(e) any injury to person or persons, including death resulting at
any time therefrom, occasioned by the operation of the Tenant's
business on, or the Tenant's occupation of, the Leased Premises;
such indemnity and hold harmless to survive the expiration of the Term. Landlord
agrees to provide Tenant with prompt written notice of any claim made against
Landlord covered by the indemnity set forth above and Tenant shall have the
right to defend any such claim with counsel reasonably selected by Tenant.
ARTICLE 12
LANDLORD'S RIGHTS AND REMEDIES
12.01 DEFAULT
Tenant shall be in default if and whenever:
(a) the Rent hereby reserved, or any part thereof, be not paid when
due, or there is non-payment of any other sum which the Tenant
is obligated to pay under any provisions hereof, and such
default shall continue for three (3) business days after written
notice by the Landlord requiring the Tenant to rectify the same;
(b) any goods, chattels, equipment or other personal property of the
Tenant shall be taken or be subject to execution or attachment,
or if a writ of execution or attachment shall issue against the
Tenant;
(c) the Tenant shall become insolvent or commit any act of
bankruptcy or become bankrupt or take the benefit of any Act
that maybe in force for bankrupt or insolvent debtors, or become
involved in a winding-up proceeding, voluntary or otherwise, or
if a receiver shall be appointed for the business, property,
affairs or revenues of the Tenant, or if any governmental
authority should take possession of the business or property of
the Tenant;
(d) the Tenant shall make a bulk sale of its goods or move or
commence, attempt or threaten to move its goods, chattels and
equipment out of the Leased Premises (other than in the routine
course of its business);
(e) the Tenant shall vacate or abandon the Leased Premises in whole
or in part;
(f) the Tenant shall transfer or purport to Transfer any portion or
all of the Term of the Leased Premises without the written
consent of the Landlord or control of the Tenant if a
corporation is changed without the prior written consent of the
Landlord, in either case as required pursuant to Article 7;
(g) the Tenant shall fail to remedy any condition giving rise to
cancellation, threatened cancellation, reduction or threatened
reduction of any insurance policy on the Development or any part
thereof within twenty-four (24) hours after notice thereof by
the Landlord;
(h) the Tenant shall fail to use the Leased Premises for the
Permitted Use or change the use of the Leased Premises to any
use other than the Permitted Use without Landlord's prior
written consent;
(i) the Tenant shall fail to maintain the insurance required to be
maintained by Tenant under this Lease; or
(j) the Tenant shall not observe, perform and keep any other of the
covenants, agreements, provisions, stipulations and conditions
herein to be observed, performed and kept by the Tenant and
shall persist in such failure for thirty (30) days after notice
by the Landlord requiring that the Tenant remedy, correct,
desist or comply (or in the case of any such breach which
reasonably would require more than thirty (30) days to rectify
unless the Tenant shall commence rectification within the said
thirty (30) day period and thereafter promptly and diligently
and continuously proceed with the rectification of the breach).
17
<PAGE> 19
In the event of any default by Tenant, at the option of the Landlord, the
Landlord may without notice or any form of legal process forthwith re-enter upon
and take possession of the Leased Premises or any part thereof and remove and
sell the Tenant's goods, chattels, equipment and any other property therefrom,
any rule of law or equity to the contrary notwithstanding; and the Landlord may
seize and sell such goods, chattels, equipment and other property of the Tenant
as are in the Leased Premises or at any place to which the Tenant or any other
person may have removed them in the same manner as if they had remained and been
distrained upon the Leased Premises; and such sale may be effected in the
discretion of the Landlord either by public auction or by private sale, and
either in bulk or by individual item, or partly by one means and partly by
another, all as the Landlord in its entire discretion may decide, and the Tenant
waives and renounces the benefit of any present or future statute or amendments
thereto taking away or limiting the Landlord's right of distress.
12.02 CONSEQUENCES OF DEFAULT
If and whenever the Tenant is in default under this Lease, the Landlord
may terminate this Lease and the Term by giving written notice of termination to
the Tenant or by posting notice of termination in the Leased Premises, and in
such event the Tenant will forthwith vacate and surrender the Leased Premises.
Alternatively, the Landlord may from time to time without terminating the
Tenant's obligations under this Lease, re-enter the Leased Premises, make
alterations and repairs considered by the Landlord necessary to facilitate a
sub-letting and sub-let the Leased Premises or any part thereof as agent of the
Tenant for such term or terms and at such rent or rents and upon such other
terms and conditions as the Landlord in its sole discretion considers advisable.
Upon each subletting all rent and other monies received by the Landlord from the
sub-letting shall be applied first to the payment of indebtedness other than
Rent due hereunder from the Tenant to the Landlord, second to the payment of
costs and expenses of the sub-letting including brokerage fees and attorneys
fees and the cost of alterations and repairs, and third to the payment of Rent
due and unpaid hereunder. The residue, if any, shall be held by the Landlord and
applied in payment of future Rent as it becomes due and payable, If the Rent
received from the subletting during a month and any surplus then held by the
Landlord to the credit of the Tenant is less than the Rent to be paid during
that month by the Tenant, the Tenant will pay the deficiency to the Landlord.
The deficiency will be calculated and paid monthly. No re-entry by the Landlord
will be construed as an election on its part to terminate this Lease unless a
written notice of that termination is given to the Tenant or posted as
aforesaid. Despite a subletting without termination, the Landlord may elect at
any time to terminate this Lease for a previous breach. If the Landlord so
terminates this Lease, the Tenant shall pay to the Landlord on demand therefor:
(a) Basic Triple Net Rent and Additional Rent accrued due up to the
time of re-entry or termination, whichever is later;
(b) all costs payable by the Tenant pursuant to the provisions of
this Lease up until the date of re-entry or termination,
whichever is later;
(c) such expenses as the Landlord may incur or has incurred in
connection with re-entering or terminating and re-letting, or
collecting sums due or payable by the Tenant or realizing upon
assets seized including brokerage expenses, legal fees,
receivership costs, unamortized improvement costs, and other
disbursements determined on a full indemnity basis, and
including the expense of keeping the Leased Premises in good
order and repairing or maintaining the same or preparing the
Leased Premises for re-letting; and
(d) as liquidated damages for the loss of Rent and other income of
the Landlord expected to be derived from this Lease during the
period which would have constituted the unexpired portion of the
Term had the Lease not been so terminated, the amount, if any,
by which the rental value of the Leased Premises for such period
established by reference to the terms and provisions of this
Lease exceeds the rental value of the Leased Premises for such
period established by reference to the terms and provisions upon
which the Landlord relet them, if such re-letting is
accomplished within a reasonable time after termination of this
Lease, and otherwise with reference to all market and other
relevant circumstances. Rental value is to be computed in each
case by reducing to present worth at an assumed interest rate of
ten percent (10%) per annum all Rent and other amounts to become
payable for such period and where the ascertainment of amounts
to become payable requires the same, the Landlord may make
estimates and assumptions of fact which will govern unless shown
to be unreasonable or erroneous;
such obligations of the Tenant to survive the expiration of the Term.
If any of the events described in Article 12.01 occur, and if Landlord
chooses not to exercise, or by law is unable to exercise, its rights to
terminate this Lease, then, in addition to any other Landlord's rights under
this Lease or by law; i) Landlord will not be obligated to provide Tenant with
any
18
<PAGE> 20
services unless Landlord receives compensation in advance for the services, and
the parties agree that Landlord's estimate of the compensation required will
control; and ii) neither Tenant as debtor in possession, nor any trustee or
other person (the "Assuming Tenant") will be entitled to assume this Lease
unless, on or before the date of the assumption, the Assuming Tenant: a) cures
or provides adequate assurance that it will promptly cure, any existing default
under this Lease; b) compensates or provides adequate assurance that it will
promptly compensate, Landlord for any pecuniary loss (including attorneys' fees
and costs) resulting from the default; and c) provides adequate assurance of
future performance under this Lease. For the purposes of this Article, the
parties agree that any cure or compensation shall be effected solely by the
establishment of an escrow fund for the amount at issue or by bonding. Any sums
paid by Tenant to Landlord within 90 days of any filing by or against Tenant of
a petition to have Tenant declared a bankrupt will be applied to the expenses
most recently incurred by Landlord. The parties agree that this Article is a
material part of the consideration of the Lease.
12.03 NON-WAIVER
The failure of the Landlord to insist in any one or more cases upon the
strict performance of any of the covenants of this Lease or to exercise any
option herein contained shall not be construed as a waiver or a relinquishment
for the future of such covenant or option and the acceptance of Rent by the
Landlord with knowledge of the breach by the Tenant of any covenants or
conditions of this Lease shall not be deemed to be a waiver of such breach and
no waiver by the Landlord of any provisions of this Lease shall be deemed to
have been made unless expressed in writing by the Landlord.
12.04 RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
If at any time and so often as the same shall happen, the Tenant shall
make default in the observance or performance of any of the Tenant's covenants
herein contained, then the Landlord may, but shall not be obligated to, without
waiving or releasing the Tenant from its obligations under the terms of this
Lease, itself observe and perform the covenant or covenants in respect of which
the Tenant is in default, and in that connection may pay such monies as may be
required or as the Landlord may reasonably deem expedient, and the Landlord may
thereupon charge all monies so paid and expended by it to the Tenant together
with interest thereon from the date upon which the Landlord shall have paid out
the same; provided however that if the Landlord commences and completes either
the performance of any such covenant or covenants or any part thereof, the
Landlord shall not be obliged to complete such performance or be later obliged
to act in like fashion.
12.05 TIME FOR PAYMENT AND LEGAL COSTS
Unless otherwise expressly provided in this Lease, all sums and costs
paid by the Landlord, including attorneys' fees and costs on account of any
default by the Tenant under this Lease, shall be payable to the Landlord by the
Tenant forthwith, with interest thereon at the rate aforesaid from date of
payment of such sums or costs by the Landlord.
Unless otherwise expressly provided in the Lease, all amounts (other
than Rent) required to be paid by the Tenant to the Landlord pursuant to this
Lease shall be payable on demand at the place designated by the Landlord for
payment of Rent.
12.06 REMEDIES CUMULATIVE
All rights and remedies of the Landlord in this Lease contained shall be
cumulative and not alternative and are not dependent the one on the other and
mention of any particular remedy or remedies of the Landlord in respect of any
default by the Tenant shall not preclude the Landlord from any other remedy in
respect thereof, whether available at law or in equity or as expressly provided
for herein.
12.07 LANDLORD DEFAULT
If Landlord fails to perform its obligations under this Lease within a
reasonable time, but in no event later than 30 days after Landlord receives
written notice from Tenant specifying Landlord's default, Landlord is in default
provided, however, if the nature of Landlord's obligation is such that more than
30 days are required to perform its obligation, Landlord will not be in default
if Landlord starts to perform the cure within the 30 day period and diligently
carries out the cure to completion. Landlord will act expeditiously after
receiving notice from Tenant of the need to make repairs pursuant to Article
5.01 if emergency repair is required to terminate a major interruption of or
threat to Tenant's business. If such an emergency repair is required, and
Landlord fails to make such repair within a reasonable amount of time after
receiving notice from Tenant, Tenant shall have the right to make such emergency
repair and Landlord shall reimburse Tenant for the actual cost thereof within
ten (10) days after Tenant's written request for reimbursement, which request
must contain invoices or other evidence acceptable to Landlord of the cost of
the repair performed by Tenant. Tenant shall not have the right to terminate
this Lease as a result of Landlord's default or to perform maintenance or
repairs and deduct the cost from amounts payable by Tenant to Landlord. Tenant's
remedies are limited to an action for monetary damages or an injunction or both.
As a material part of the consideration to Landlord, Tenant agrees that the
execution
19
<PAGE> 21
of any judgment obtained by Tenant against Landlord for damages due to
Landlord's default under this Lease is limited to Landlord's interest in the
Building. A copy of any notice of default sent to Landlord by Tenant must be
sent to Landlord's lender, if the lender has requested copies of such notices
and given Tenant the address to send the notices. Landlord's lender will have at
least the same rights as Landlord to cure Landlord's default.
ARTICLE 13
MORTGAGES AND ASSIGNMENT BY LANDLORD
13.01 SALE OR FINANCING OF DEVELOPMENT
The Landlord may sell, transfer, lease, mortgage, encumber or otherwise
dispose of the Development or any portion thereof or any interest of the
Landlord therein, in every case without the consent of the Tenant, and the
rights of the Landlord under this Lease may be mortgaged, charged, transferred
or assigned in conjunction therewith. The Tenant acknowledges that in the event
of the sale or lease by the Landlord of the lands or a portion thereof
containing the Leased Premises or the assignment by the Landlord of this Lease
or of any interest of the Landlord hereunder, to the extent that any such
purchaser, lessee or assignee has assumed the covenants and obligations of the
Landlord hereunder, the Landlord shall, without further written agreement, be
freed and relieved of liability upon such covenants and obligations.
13.02 SUBORDINATION AND ACKNOWLEDGMENT
This Lease shall at the option of the Landlord or the mortgagee under
any mortgage or the beneficiary under any deed of trust now or hereafter
existing affecting the Development, exercisable at any time and from time to
time by the Landlord or such mortgagee or beneficiary, be either subject and
subordinate to such mortgage and accordingly not binding upon such mortgagee or
alternatively rank prior to such mortgage or deed of trust and accordingly be
binding upon such mortgagee or beneficiary. On request at any time and from time
to time of the Landlord or such mortgagee or beneficiary, the Tenant shall
subordinate this Lease to such mortgage or deed of trust with the intent and
effect that this Lease and all rights of the Tenant shall be subject to the
rights of such mortgagee or beneficiary as fully as if the mortgage or deed of
trust (regardless of when made) had been made prior to the making of this Lease,
or alternatively to attorn to such mortgagee or beneficiary and become bound to
it as its tenant of the Leased Premises for the then expired residue of the Term
and upon the terms and conditions contained in this Lease, in each case as the
Landlord or such mortgagee or beneficiary may require provided, however, as long
as Tenant is not in default under this Lease, the mortgagee or beneficiary shall
not disturb Tenant's right to possession of the Leased Premises. Without
limiting the foregoing (and notwithstanding that any previous attornment or
subordination in favor of such mortgagee or beneficiary shall have been given)
the Tenant shall execute promptly the appropriate instrument of subordination or
alternatively the appropriate instrument of attornment as the case may be, in
order to give effect to the foregoing. Landlord agrees to provide Tenant with a
reasonably acceptable subordination, attornment and non-disturbance agreement
from Landlord's lender.
13.03 TENANT ESTOPPEL STATEMENT
Within ten (10) business days following request therefor by the
Landlord, from time to time, the Tenant shall execute and deliver to the
Landlord and if required by the Landlord, to any mortgagee or beneficiary,
assignee, or transferee of the Lease or the Development a certificate in writing
as to the then status of this Lease, including whether it is in full force and
effect, as modified or unmodified, confirming the Rent payable hereunder, the
state of accounts between the Landlord and the Tenant and the existence or
non-existence of defaults and any other matters pertaining to the Lease which
the Landlord shall request be included in such certificate. An example of such a
certificate is attached hereto as SCHEDULE "D".
13.04 ATTORNMENT
In the event of a foreclosure or exercise of the power of sale under any
mortgage or deed of trust covering the Premises, or if any sale in lieu thereof
occurs, Tenant shall attorn to the purchaser on any such foreclosure or sale and
recognize such purchaser as the Landlord under this Lease provided that the
purchaser expressly agrees, in writing, that so long as Tenant is not in default
under the Lease, Tenant's possession and occupancy of the Premises will not be
disturbed.
13.05 RECORDING
This Lease shall not be recorded against title to the Lands. The Tenant
may, with the prior written consent of Landlord, record a short form memorandum
of this Lease, in a form approved by Landlord, in the official records of the
county in which the Lands are located.
20
<PAGE> 22
ARTICLE 14
HOLDING OVER
14.01 NO TACIT RENEWAL
In the event the Tenant remains in possession of the Leased Premises
after the end of the Term and without the execution and delivery of a new lease,
there shall be no tacit renewal of this Lease and the Term hereby granted and
the Tenant shall be deemed to be occupying the Leased Premises as a Tenant from
month to month on the terms and conditions contained herein except that the
Basic Triple Net Rent shall be one hundred and fifty percent (150%) of the Basic
Triple Net Rent required to be paid pursuant to this Lease in the immediately
preceding Year of the Term, but otherwise on the terms and conditions of this
Lease which shall be read with such changes as are appropriate to a monthly
tenancy; provided however that this provision shall not authorize the Tenant to
so holdover where the Landlord has objected to such over holding or has required
the Tenant to vacate the Leased Premises.
ARTICLE 15
QUIET POSSESSION
15.01 QUIET POSSESSION
Upon the Tenant paying the Rent hereby reserved and all other charges
herein provided and observing, performing and keeping the covenants and
agreements herein contained, the Tenant shall and may peaceably possess and
enjoy the Leased Premises for the Term granted without any interruption or
disturbance from the Landlord or any person or persons lawfully claiming by,
from or under it.
ARTICLE 16
LEGAL RELATIONSHIPS
16.01 NO PARTNERSHIP
Nothing contained in this Lease nor in any acts of the Landlord and
Tenant pursuant to this Lease shall be deemed to create any relationship between
the parties hereto other than the relationship of Landlord and Tenant, it being
expressly provided that there is no intention to create a relationship of
partners or a joint venture.
16.02 JOINT AND SEVERAL LIABILITY
Should the Tenant comprise two (2) or more persons or entities, each of
them, and not one for the other or others, shall be jointly and severally bound
with the other or others for the due performance of the obligations of the
Tenant hereunder. Where required by the context hereof the singular shall
include the plural and the masculine gender shall include either the feminine or
neuter genders, as the case may be and vice versa.
16.03 SUCCESSORS AND ASSIGNS
This Lease and everything herein contained shall enure to the benefit of
and be binding upon the parties hereto, to successors and assigns of the
Landlord, and the approved successors and assigns of the Tenant.
ARTICLE 17
NOTICES
17.01 NOTICES
Any notices herein provided or permitted to be given by the Tenant to
the Landlord shall, be sufficiently given if delivered or sent by either
facsimile transmission or certified or registered mail, return receipt requested
and postage prepaid, addressed to the Landlord at:
Millennium Corporate Park L.L.C.
c/o Continental Pacific, Inc.
1380 112th Avenue, N.E. Suite 307
Bellevue, WA 98004
Facsimile No. (425) 462-0760
21
<PAGE> 23
or to such other address as might be designated in writing by the Landlord from
time to time, and any notice herein provided or permitted to be given by the
Landlord to the Tenant shall be sufficiently given if delivered, sent by
facsimile or mailed, postage prepaid, addressed to the Tenant at:
If Prior to Tenant Opening for Business:
--------------------------------------------
--------------------------------------------
Facsimile No.
------------------------------
If After Tenant Opens for Business:
At the Leased Premises
Notice given as aforesaid, delivered by mail, shall be conclusively
deemed to have been given on the third business day following the day on which
such notice was mailed, or if delivered or sent by facsimile, on the date of
delivery or facsimile. The Landlord may at any time give in writing to the
Tenant notice of a change of address for the Landlord and from and after the
giving of such notice the address therein specified shall be deemed to be the
address of the Landlord for the giving of notice hereunder. The word "notice" in
this Article 17.01 shall be deemed to include any request, statement, demand, or
other writing in this Lease provided or permitted to be given by the Landlord to
the Tenant or by the Tenant to the Landlord.
ARTICLE 18
ENVIRONMENTAL COVENANTS
18.01 DEFINITIONS.
In this Article 18:
"Hazardous Substance" means:
(a) any radioactive material;
(b) any explosive;
(c) any substance that if added to any water, would degrade or alter
or form part of a process of degradation or alteration of the
quality of that water to the extent that it is detrimental to
its use by man or by any animal, fish or plant;
(d) any solid, liquid, gas or odor or combination of any of them
that, if emitted into the air, would create or contribute to the
creation of a condition of the air that:
(i) endangers the health, safety or welfare of persons or
the health of animal life;
(ii) interferes with normal enjoyment of life or property; or
(iii) causes damage to plant life or to property;
(e) any toxic substance;
(f) any substance declared to be hazardous or toxic under any Law,
Regulation or Order (as defined below) now or hereafter enacted
or promulgated by any governmental authority having jurisdiction
over the Landlord, the Tenant, the Leased Premises or the
Development of which the Leased Premises form a part; and
(g) any other substance which is or may become hazardous, dangerous
or toxic to persons or property;
"Laws" means all applicable federal, state, municipal, or local laws,
statutes, or ordinances, relating to Hazardous Substances;
"Regulations" mean all rules, regulations or the like promulgated under
or pursuant to any Laws; and
"Orders" mean all applicable orders, decisions, or the like rendered by
any ministry, department or administrative or regulatory agency.
22
<PAGE> 24
18.02. TENANT'S COVENANT AS TO USE
Without limiting the generality of the covenants of the Tenant in the
Lease contained including Basic Term .03 thereof, the Tenant covenants and
agrees that the Tenant will not bring upon the Leased Premises or any part
thereof any Hazardous Substances (except for commonly used office equipment,
including a back-up generator) and if at any time, notwithstanding the foregoing
covenant of the Tenant, there shall be any Hazardous Substances upon the Leased
Premises or a part thereof whether or not brought thereupon by the Tenant, the
Tenant shall, at its own expense:
(a) immediately give the Landlord notice specifying the nature and
location of the Hazardous Substances and thereafter give the
Landlord from time to time written notice of the extent and
nature of the Tenant's compliance with the following provisions
of this paragraph;
(b) promptly remove the Hazardous Substances from the Leased
Premises in a manner which conforms with all Laws, Regulations
and Orders governing the movement of the same and the reasonable
requirements of the Landlord in connection with the movement;
and
(c) if requested by the Landlord, obtain at the Tenant's cost and
expense from an independent consultant designated or approved by
the Landlord verifying the complete and proper removal thereof
from the Leased Premises or, if such is not the case, reporting
as to the extent and nature of any failure to comply with the
foregoing provisions of this paragraph.
18.03. COMPLIANCE WITH LAWS
Without limiting the generality of the covenants of the Tenant in the
Lease contained including Article 4.09, the Tenant shall, at its own cost and
expense, comply with all Laws, Regulations and Orders from time to time in force
relating to the Landlord, the Tenant, the business of the Tenant, the Leased
Premises or the Development relating to Hazardous Substances and the protection
of the environment and shall immediately give written notice to the Landlord of
the occurrence of any event in the Leased Premises or on the Development or a
contravention thereof and, if the Tenant shall, either alone or with others,
cause the occurrence of such event the Tenant shall, at its own expense:
(a) immediately give the Landlord notice of the occurrence and the
contravention and thereafter give the Landlord from time to time
written notice of the extent and nature of the Tenant's
compliance with the following provisions of this paragraph;
(b) promptly remedy the contravention in a manner which conforms
with all Laws, Regulations and Orders governing the movement of
the same; and
(c) if requested by the Landlord, obtain at the Tenant's cost and
expense from an independent consultant designated or approved by
the Landlord verifying the complete and proper remedying of the
contravention or, if such is not the case, reporting as to the
extent and nature of any failure to comply with the foregoing
provisions of this paragraph.
The Tenant shall, at its own expense, remedy any damage to the Leased
Premises and the Development caused by such event within the Leased Premises or
by the performance of the Tenant's obligations under this paragraph as a result
of such occurrence. If the Tenant fails to do so, the Landlord may at its option
remedy the damage, and may recover its cost and expenses of so doing from the
Tenant as additional rental under the Lease. Tenant shall indemnify, defend and
hold harmless Landlord from any costs, fees, penalties, and charges assessed
against, or imposed, on Landlord and Landlord's lender as a result of Tenant's
use, release, disposal, transportation, or generation of Hazardous Substances.
This provision survives the expiration or earlier termination of this Lease.
If any governmental authority having jurisdiction shall require the
clean-up of any Hazardous Substances held, released, spilled, abandoned or
placed upon the Leased Premises or the Development or released into the
environment by the Tenant in the course of the Tenant's business or as a result
of the Tenant's use or occupancy of the Leased Premises, then the Tenant shall,
at its own expense, prepare all necessary studies, plans and proposals and
submit the same for approval, provide all bonds and other security required by
governmental authorities having jurisdiction and carry out the work required and
shall keep the Landlord fully informed and provide to the Landlord full
information with respect to the proposed plans and comply with the Landlord's
reasonable requirements with respect to such plans. The Tenant agrees that if
the Landlord determines, in its own discretion, that the Landlord, the
Development or its reputation is placed in any jeopardy by the requirement for
any such work, the Landlord may itself undertake such work or any part thereof
at the cost and expense of the Tenant. All costs and expenses incurred by
Landlord shall be paid by Tenant on demand together with a fee of twenty (20%)
23
<PAGE> 25
percent of such amount and in addition shall pay interest on the aggregate of
the foregoing at the rate provided in this Lease from the date of the
expenditure of such first mentioned monies by the Landlord.
18.04. INQUIRIES BY LANDLORD
The Tenant hereby authorizes the Landlord to make inquiries from time to
time of any government or governmental agency with respect to the Tenant's
compliance with any and all laws and regulations pertaining to the Tenant, the
Tenant's business and the Leased Premises including without limitation Laws,
Regulations and Orders pertaining to Hazardous Substances and the protection of
the environment; and the Tenant covenants and agrees that the Tenant will from
time to time provide to the Landlord such written authorization as the Landlord
may reasonably require in order to facilitate the obtaining of such information.
18.05. EVENT OF DEFAULT
The presence of any Hazardous Substances in the Leased Premises without
the prior written approval of the Landlord shall be considered to be a default
for the purposes of the Lease if such presence remains after the applicable
notice period set forth in Section 12.01.
18.06. OWNERSHIP OF HAZARDOUS SUBSTANCES
If the Tenant shall bring or create upon the Development or the Leased
Premises any Hazardous Substance or if the conduct of the Tenant's business
shall cause there to be any Hazardous Substance upon the Development or the
Leased Premises then, notwithstanding any rule of law to the contrary, such
Hazardous Substance shall be and remain the sole and exclusive property of the
Tenant and shall not become the property of Landlord notwithstanding the degree
of affixation of the Hazardous Substance or the goods containing the Hazardous
Substance to the Leased Premises or the Development and notwithstanding the
expiration or earlier termination of this Lease.
18.07. SURVIVAL OF COVENANTS
The obligations of the Tenant hereunder relating to Hazardous Substances
shall survive the expiry or earlier termination of this Lease save only that, to
the extent that the performance of those obligations requires access to or entry
upon the Leased Premises or the Development or any part thereof, the Tenant
shall have such entry and access only at such times and upon such terms and
conditions as the Landlord may from time to time specify; and the Landlord may,
at the Tenant's cost and expense, itself or by its agents, servants, employees,
contractors and subcontractors, undertake the performance of any necessary work
in order to complete such obligations of the Tenant; but having commenced such
work, the Landlord shall have no obligation to the Tenant to complete such work.
18.08. RIGHT TO USE HAZARDOUS SUBSTANCES
Notwithstanding anything to the contrary herein contained, the Landlord
acknowledges and agrees that the Tenant uses certain substances and materials in
the conduct of the Tenant's business which would be considered Hazardous
Substances hereunder. Accordingly, the Landlord hereby consents and agrees to
the presence of such Hazardous Substances upon the Development and the Leased
Premises, provided the following conditions are met:
(a) the Tenant shall only bring upon the Development and upon the
Leased Premises such Hazardous Substances as are reasonably
required for the conduct of its business operations within the
Leased Premises, and shall forthwith remove from the Development
and from the Leased Premises any Hazardous Substances which are
no longer required for such business operations;
(b) under no circumstances will the Tenant use the Leased Premises
or any portion thereof to stockpile or warehouse Hazardous
Substances, other than in such reasonable quantities as may be
required for its business operations within the Leased Premises;
(c) the Tenant will comply fully with all Laws, Regulations and
Orders related to the transportation, storage, use and disposal
of all Hazardous Substances so brought upon the Development or
the Leased Premises by the Tenant; and
(d) save for the right to bring Hazardous Substances upon the
Development and the Leased Premises for use as aforesaid, the
Tenant shall be bound by all of the other terms and conditions
of this Section including, without limitation, the obligation to
remedy any damage to the Leased Premises or to the Development
caused by the Tenant's exercise of its rights hereunder.
24
<PAGE> 26
ARTICLE 19
GENERAL
19.01 COLLATERAL REPRESENTATIONS AND AGREEMENTS
The Tenant acknowledges that the Leased Premises are taken without
representation of any kind on the part of the Landlord or its agent other than
as set forth herein, that the plans attached as SCHEDULE "A" set forth the
general layout of the Building and shall not be deemed to be a representation or
agreement of the Landlord that the Building will be exactly as indicated on such
plans, and that nothing contained in the Lease shall be construed so as to
prevent the Landlord from varying or altering the location or size of parking
areas, driveways, sidewalks or from erecting additional buildings or extending
buildings after the Commencement Date and without limiting the foregoing, the
Landlord shall have the unrestricted right to add additional lands to the
Development, which upon such addition, these additional lands will be included
within the definition of the Lands and Development, to construct additional
buildings from time to time on the Lands, add or change any building, or alter
the ingress and egress to the Development and to change the loading or unloading
facilities and service entrances from time to time without in any way being
responsible to the Tenant, provided only that the Landlord shall at all times
provide reasonable access to the Leased Premises across the Lands for the
Tenant, its employees, suppliers, agents, licensees and invitees. Subject to the
foregoing and to the obligations of the Landlord to maintain at all times
adequate parking facilities, the Landlord may transfer or dispose of portions of
the Lands to the owners of abutting property, or dedicate or transfer to the
municipal authorities portions of the Lands for road-widening and other
purposes, and when and so often as the Landlord shall dispose or transfer or
dedicate any portion of the Lands, then the reference herein to the Lands shall
mean and refer to the portion of the Lands remaining after any such transfer,
disposition or dedication together with any adjacent land which may be acquired
by the Landlord on any such transfer, disposition or dedication. The Tenant
further agrees that no representative of or agent of the Landlord is or shall be
authorized or permitted to make any representation with reference to this Lease,
or to vary or modify this Lease in any way, and that this Lease contains all the
agreements and conditions made between the Landlord and the Tenant hereto
respecting the Leased Premises. Any addition to or alteration of or change in
this Lease or other agreements hereafter made or conditions created, to be
binding, must be made in writing and signed by the Landlord and the Tenant.
19.02 MANAGEMENT OF DEVELOPMENT
The Tenant acknowledges to the Landlord that the Development may be
managed by such party or parties as the Landlord may in writing designate and to
all intents and purposes the manager of the Development shall be the party at
the Development authorized to deal with the Tenant on behalf of the Landlord.
19.03 TIME OF THE ESSENCE
Time shall be of the essence of this Lease.
19.04 UNAVOIDABLE DELAYS
In the event that the Landlord shall be delayed, hindered or prevented
from the performance of any covenant hereunder by Force Majeure, the performance
of such covenant shall be excused for the period during which such performance
is tendered impossible and the time for performance thereof shall be extended
accordingly, but this shall not excuse the Tenant from the prompt payment of
Rent or any other amount required to be paid by the Tenant under the provisions
of this Lease.
19.05 ACCORD AND SATISFACTION
No payment by the Tenant hereunder or receipt by the Landlord of a
lesser amount than the payment of Basic Triple Net Rent or Additional Rent or
any other payments herein stipulated shall be deemed to be other than on account
of the stipulated sum, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment be deemed an accord and
satisfaction, and the Landlord may accept such check or payment without
prejudice to the Landlord's right to recover the balance due or pursue any other
remedy provided in this Lease.
19.06 COVENANTS
Each of the terms and conditions of this Lease to be performed and
observed by the Tenant or by the Landlord, as the case may be, is and shall be
construed as a covenant of the party so required to perform and observe the
same.
25
<PAGE> 27
19.07 CONSENT OR APPROVAL OF LANDLORD
Wherever and whenever the consent, approval or permission of the
Landlord is required by the Tenant pursuant to the terms of this Lease, and
unless otherwise specifically provided, the Landlord shall have the right to
withhold, grant, or conditionally grant such consent, approval or permission in
its sole and arbitrary discretion. Such consent, approval or permission must be
in writing to be effective, and such consent approval or permissions must be
obtained prior to the taking of the action to which the same refers.
19.08 FOR LEASE SIGNS
The Landlord shall have the right during the last six (6) months of the
Term to place upon the Leased Premises, a notice of reasonable dimensions
stating that the Leased Premises are for lease and the Tenant shall not obscure
or remove such notice or permit the same to be obscured or removed.
19.09 NO EXCLUSIVITY
This Lease shall not in any way be construed as giving to or conferring
upon the Tenant any rights to carry on any business or undertaking in or from
the Leased Premises to the exclusion of third parties in the Development.
19.10 SCHEDULES
Any and all schedules attached hereto are deemed to be incorporated into
and form part hereof.
19.11 APPLICABLE LAW
This Lease shall be governed by and construed in accordance with the
laws in force in the State of Washington.
19.12 HEADINGS
The index and headings in this Lease are inserted for convenience of
reference only and shall not affect the construction of this Lease or any
provision hereof.
19.13 TENANT'S ACCEPTANCE
The Tenant hereby accepts the Lease of the Leased Premises to be held by
the Tenant, subject to the conditions, restrictions and covenants set forth
herein.
19.14 SEVERABILITY
Should any provision of this Lease be unenforceable it shall be
considered separate and severable from the remaining provision of this Lease,
which shall remain in force and be binding as though the said provision had not
been included.
19.15 EMINENT DOMAIN
If any portion of the Leased Premises is taken by any public or
quasi-public authority under the power of eminent domain, or it is purchased by
the condemnor in lieu of a taking, either party may terminate this Lease on 30
days written notice to the other with termination being the date that possession
is given to the condemnor. If neither party terminates the Lease, the Basic
Triple Net Rent and Additional Rent will be proportionately abated. If any part
of the Building or Development other than the Leased Premises is taken, Landlord
may, at its option, terminate this Lease on 30 days written notice to Tenant.
Tenant is entitled to receive all portions of any condemnation award or
settlement attributable to Tenant's moving costs or the unamortized portion of
any Tenant paid tenant improvements other than through payments in any form,
including rent, to the Landlord. Landlord is entitled to receive all other
portions of any condemnation award or settlement. Landlord shall have the
exclusive right to negotiate with any condemning authority with respect to any
settlement in lieu of condemnation award.
19.16 TENANT'S CAPACITY
Tenant is a Washington Corporation, and the individuals that signed this
Lease on behalf of Tenant are authorized to do so and their signatures are the
only signatures required.
26
<PAGE> 28
19.17 LANDLORD'S CAPACITY
Landlord is a Washington Limited Liability Corporation and the
individuals that signed this Lease on behalf of the Landlord are authorized to
do so and the signatures are the only signatures required.
19.18 ATTORNEYS' FEES
If any action is brought by either party against the other arising out
of or in connection with this Lease, the substantially prevailing party shall be
entitled to recover its costs, including, but not limited to, attorneys' and
accountants' fees incurred in the action including any appeal or arbitration.
ARTICLE 20
DEFINITIONS
In this Lease, the following words, phrases and expressions are used
with the meanings described as follows:
20.01 "ADDITIONAL RENT" for a Lease Year or portion thereof means in addition
to the Basic Triple Net Rent all other amounts which shall become due and
payable hereunder by the Tenant to the Landlord and includes the amounts which
is the aggregate of:
(i) the Tenant's Proportionate Share of the HVAC Costs,
(ii) the Tenant's Proportionate Share of the Building Operation and
Maintenance Costs,
(iii) the Tenant's Proportionate Share of the Development Operation
and Maintenance Costs, and
(iv) the Tenant's Proportionate Share of the Tax Cost.
In each case the items comprising or being deducted from the aforesaid Costs or
Cost are to be allocated to such Lease Year by the Landlord in accordance with
generally accepted accounting practice, provided that if the Term commences
other than at the beginning of a Lease Year or ends other than at the conclusion
of a Lease Year a prorate adjustment of the aforesaid costs for such Lease Year
shall be made based on the length of the Term falling within such Lease Year,
provided further that the Tax Cost shall, unless otherwise specifically stated
in the enabling legislation giving rise thereto, be deemed to accrue equally
from day to day in the calendar year to which the same related and shall, if
adjustment is required as aforesaid, be adjusted on that basis and not on a
straight pro rata basis as provided aforesaid.
20.02 "AREA OF LEASED PREMISES" means the gross Building area of the Leased
Premises including any load factor measured by the Landlord's Architect in
accordance with the then current standard for floor measurement as established
by the Building Owners and Managers Association (BOMA) based on the Tenant's
space plan as described in "SCHEDULE B".
20.03 "BASIC TRIPLE NET RENT" means the monthly rent payable by the Tenant to
the Landlord in accordance with Article 2.01 for the Term, being the amount set
forth in Basic Term .02.
20.04 "BASIC TERM" means each of those terms defined as such at the
commencement of this Lease.
20.05 (a) "BUILDING" means the building or buildings in which the Leased
Premises are located as shown on Schedule "A" hereto.
(b) "BUILDING C" means the Building identified as Building C on the plan
attached as Schedule "A" attached hereto.
20.06 "BUILDING OPERATION AND MAINTENANCE COSTS" means all of the Landlord's
costs, charges and expenses for owning, operating, maintaining, managing,
repairing (excluding repairs of a structural nature), inspecting, insuring,
supervising and administering the Building including the Common Areas and Common
Facilities of the Building, if any, and includes without limiting the generality
of the foregoing:
(a) the cost of lighting, heating, ventilating, air-conditioning and
supplying water and other utilities to the Common Facilities and
Common Areas, as aforesaid; cleaning and janitorial services
relating to the Building; wages and other employment related
costs and expenses of on-site maintenance and management
personnel
27
<PAGE> 29
as well as wages and other related costs and expenses of
off-site maintenance and management personnel to the extent
applicable to the Building, Common Areas or Common Facilities;
accounting and legal fees incurred in the management of the
Building (with the exception of those fees attributable to
another tenant by virtue of a direct tenant related issue); the
fair market rental value of on-site facilities (including
office space and/or storage space) utilized for the maintenance
and/or management of the Building, Common Areas and/or Common
Facilities; repairs and replacements to the Building other than
structural repairs required to be carried out by the Landlord
pursuant to Article 5.06(a) but including any changes made to
the Building, whether or not structural in nature, required by
any governmental or other agencies which regulate the operation
of the Development, provided that capital improvements costing
in excess of $20,000 shall be amortized over their useful life;
insurance premiums for any insurance carried by the Landlord
pursuant to the terms of this Lease and related only to the
Building;
(b) management fees paid by Landlord or a fee for Landlord's
management and administration not to exceed two and one-half
percent (2.5%) of the sum of the Basic Triple Net Rent; and
(c) depreciation, at rates determined by the Landlord, but not to
exceed the maximum permitted to the Landlord under the
provisions of the Internal Revenue Code, as amended from time to
time or any legislation substituted therefore on the equipment
and machinery employed in operating, managing, maintaining,
repairing or replacing the Common Areas or the Common Facilities
of the Building, if any, and a carrying cost at the rate of two
(2%) percent above the Prime Rate on the undepreciated portion
of the costs of such equipment and machinery;
and there shall be excluded from such costs the following:
(i) payments of principal and interest under any mortgage or
mortgages on the Development; and
(ii) corporate income, profits or excess profits taxes assessed upon
the income of the Landlord;
and there shall be deducted from such costs the amount of proceeds actually
recovered by the Landlord from insurance and relating to damage, the cost of
repair of which was included in Building Operation and Maintenance Costs.
20.07 "COMMENCEMENT DATE" means the later of (a) five (5) days after
Substantial Completion of the Tenant Improvements in accordance with SCHEDULE
"B" or (b) May 1, 1998.
20.08 "COMMON AREAS" means those areas located either in the Building or on
the Lands but not in any Other Buildings, that are not intended for lease and
designated (which designation may be changed from time to time) by the Landlord
as Common Areas set aside by the Landlord for the common or joint use and
benefit of the Tenant, its employees, customers and other entities in common
with others entitled to the use and benefit of such areas in the manner and for
the purposes established or altered pursuant to the terms of this Lease.
20.09 "COMMON FACILITIES" means the electrical, heating, ventilating, air
conditioning, plumbing and drainage equipment, any music and public address
systems, installations and any enclosures constructed therefor, fountains,
service rooms, customer and service stairways, elevators, signs, lamps, public
washroom facilities, recreational facilities (including without limitation a
common amenity building) and all other facilities which are provided and
designated (and which designation may be changed from time to time) by the
Landlord for the common or joint use and benefit of the occupants of the
Development.
20.10 "CONTROLLABLE COSTS" means all Additional Rent except insurance costs,
utility costs, and the Tax Cost. Controllable Costs shall not exceed $0.15 per
sq. ft. per month for the first twelve (12) months of occupancy.
20.11 "DEVELOPMENT" means the Lands, Building, Other Buildings and all
buildings and improvements existing on the Lands from time to time.
20.12 "DEVELOPMENT OPERATION AND MAINTENANCE COSTS" means all of the
Landlord's costs, charges and expenses of operating, maintaining, managing,
repairing, inspecting, insuring, supervising and administering the Development
other than the Building or any Other Buildings, but including the Common
28
<PAGE> 30
Areas and the Common Facilities of the Development and include without limiting
the generality of the foregoing:
(a) the cost of lighting, heating, ventilating, air-conditioning and
supplying water and other utilities to the Common Areas and
Common Facilities; cleaning, janitorial services, snow and ice
removal, striping or repairing parking areas; supervising,
policing and security; wages and other employment related costs
and expenses of on-site maintenance and management personnel as
well as wages and other related costs and expenses of off-site
maintenance and management personnel; accounting and legal fees
incurred in the management of the Development (with the
exception of those fees attributable to another tenant by virtue
of a direct tenant related issue); the fair market rental value
of on-site facilities (including office space and/or storage
space) utilized for the maintenance and/or management of the
Development; painting, planting or landscaping; operating and
maintaining the garbage compaction equipment if any; the cost of
maintaining, repairing, replacing or leasing the pylon signs and
public address, intercom, music, and alarm systems; repairs and
replacements to the Development, business taxes, place of
business taxes and other taxes levied in respect thereof or
fairly attributable to the Common Areas or the Common
Facilities; the cost of all capital improvements required by
governmental agencies following completion of the Development,
amortized over the useful life of the capital improvements;
insurance premiums for any insurance carried by the Landlord
pursuant to the terms of this Lease other than for the Building
or any Other Buildings; supplies, personnel wages and payroll
expenses; and
(b) depreciation, at rates determined by the Landlord, but not to
exceed the maximum permitted to the Landlord under the
provisions of the Internal Revenue Code from time to time or any
legislation substituted therefor, on the equipment and machinery
employed in operating, maintaining, repairing or replacing the
Common Areas or the Common Facilities and a carrying cost at the
rate of two (2%) percent above the Prime Rate on the
undepreciated portion of the costs of such equipment and
machinery;
and there shall be excluded from such costs the following:
(i) payments of principal and interest under any mortgage or
mortgages on the development;
(ii) corporate income, profits or excess profits taxes assessed upon
the income of the Landlord; and
(iii) Building Operation and Maintenance Costs;
and there shall be deducted from such costs the amount of proceeds actually
recovered by the Landlord from insurance and relating to damage, the cost of
repair of which was included in Development Operation and Maintenance costs.
20.13 "FORCE MAJEURE" means any cause beyond the control of the Landlord
delaying, hindering or preventing the Landlord from performing any term,
covenant or act required hereunder and, without limiting the generality of the
foregoing, includes lock-outs (including lock-outs decreed or recommended for
its members by a recognized contractors' association of which the Landlord is a
member or to which the Landlord is otherwise bound), strikes, labor disputes,
inability to procure materials or services, restrictive governmental laws or
regulations, fire, act of God, floods, delays in transportation, acts of civil
or military authorities, riots, insurrection, sabotage, rebellion and war.
20.14 "GROSS RENTABLE AREA" means the aggregate floor area (expressed in
square feet), from time to time, determined by the Landlord's Architect of all
premises leased to or intended to be leased to tenants and located within the
area to which the measurement is being applied.
20.15 "HVAC COSTS" includes with respect to the Building:
(a) all of the Landlord's costs, charges and expenses of operating,
maintaining, managing, replacing, repairing and supervising the
apparatus for heating, ventilating and air conditioning
installed in the Building, from time to time, other than those
part of such apparatus installed by or on behalf of the Tenant
or any other tenant (the "HVAC System"); and
29
<PAGE> 31
(b) an administrative fee equal to two and one-half percent (2.5%)
of the total of the costs, charges and expenses incurred by the
Landlord under the preceding provision of this definition;
20.16 "LANDLORD'S ARCHITECT" means an architect or engineer from time to time
selected by the Landlord for the purpose of making any certification or
determination in accordance with the terms of this Lease.
20.17 "LANDLORD'S WORK" means the work specified in Article 3.01.
20.18 "LANDS" means those lands located in the City of Redmond, in the County
of King, State of Washington, legally described on SCHEDULE "A-1" attached
hereto.
20.19 "LEASE" means this agreement, including any and all schedules attached
hereto as the same may be amended from time to time.
20.20 "LEASE YEAR" means each calendar year in which a portion of the Term
falls, provided that the Landlord, if it deems the same convenient or necessary
for its accounting purposes, may, from time to time, by notice to the Tenant
alter the Lease Year to any other twelve (12) month period in which a portion of
the Term falls by specifying an annual date, being the first day of a calendar
month, upon which a subsequent Lease Year is to commence and in such event the
current Lease Year shall terminate on the day preceding the specified date.
20.21 "LEASED PREMISES" means that portion of the Building outlined in red on
Schedule "A" hereto, subject to such minor variations as may occur in the course
of construction of the Building by the Landlord.
20.22 "OTHER BUILDINGS" means any building or buildings existing on the Lands
from time to time containing premises that are leased or intended to be leased
to tenants, but excluding the Building.
20.23 "PERMITTED USE" means the use set forth in Basic Term .03.
20.24 "PRIME RATE" means the rate of interest expressed as an annual rate, at
the relevant time or times, determined by the Seafirst Bank at its main branch
in Seattle, Washington, as a reference rate for commercial demand loans to its
major commercial borrowers made by such bank in Seattle, Washington and adjusted
from time to time.
20.25 "REAL PROPERTY TAXES" means all general, special, local improvement and
other taxes, levies, rates and charges levied, assessed or imposed against the
Development or any part thereof and all business taxes, assessments, rates and
levies, including any corporation capital tax, levied, assessed or imposed on
the Landlord in respect of the ownership or management of the Development by
city or other governmental authority having jurisdiction, whether of a nature
now or hereafter levied, assessed or imposed, together with the cost to the
Landlord of contesting, appealing or negotiating the same in good faith but
excluding those taxes and fees of the Tenant or other tenants referred to in
Article 10.01 hereof.
20.26 "RENT" means Basic Triple Net Rent and Additional Rent.
20.27 "TAX COST" means the cost of Real Property Taxes.
20.28 "TENANT'S PROPORTIONATE SHARE" means:
(a) in relation to each of Building Operation and Maintenance Costs
and HVAC Costs the proportion that the Area of the Leased
Premises is of the Gross Rentable Area of the Building; and
(b) in relation to Development Operation and Maintenance Costs, and
Tax Cost, the proportion that the Area of the Leased Premises is
of the Gross Rentable Area of the Development. Prior to
completion of construction of all buildings in the Development,
the estimated Gross Rentable Area of all buildings planned in
the Development from time to time shall be used for the purposes
of determining Tenant's Proportionate Share of Development
Operation and Maintenance Costs.
20.29 "TENANT IMPROVEMENTS" means the improvements described in SCHEDULE "B"
hereto.
20.30 "TERM" means the term of the Lease, as set out in Basic Term .04.
20.31 "YEAR OF THE TERM" means each successive twelve (12) month period of the
Term, the first of which commences on the Commencement Date.
30
<PAGE> 32
ARTICLE 21
CONTINGENCIES
21.1 TENANT'S CONTINGENCY. If Landlord has not obtained approval of
Landlord's proposed site plan for the Development by January 31, 1998, Tenant
shall have the right to terminate this Lease by giving Landlord written notice
of Tenant's election to terminate the Lease on or before February 10, 1998. If
Tenant elects to terminate this Lease under this Article 21.1, this Lease shall
terminate effective as of the date of Tenant's notice of termination.
ARTICLE 22
REIMBURSEMENT OF TENANT'S RENT OBLIGATIONS
Commencing on the Commencement Date and continuing through February 28,
1999, Landlord agrees to pay Tenant, on a monthly basis on or before the first
day of each calendar month, the amount of $37,778.00 (the "Rent Reimbursement"),
which amount represents one-half (1/2) of Tenant's base rental obligations under
Tenant's existing lease with Carr Realty Corporation for space at 6464 - 185th
Avenue N.E., Redmond, Washington (the "Existing Lease"). In no event shall
Landlord be obligated to pay Tenant more than the above established amount of
the Rent Reimbursement and nothing in this Article 22 shall be construed to be
an assumption by Landlord of any of Tenant's obligations under the Existing
Lease. Notwithstanding anything herein to the contrary, if the Existing Lease or
Tenant's obligation to pay rent thereunder terminates or is reduced prior to
February 28, 1999, Landlord's obligation to pay Tenant the Rent Reimbursement
shall also terminate or be reduced accordingly. Tenant hereby authorizes
Landlord to negotiate directly with the landlord under the Existing Lease to
obtain an agreement for the early termination of the Existing Lease and/or a
reduction in the amounts due thereunder on terms reasonably acceptable to
Tenant.
ARTICLE 23
NAME OF DEVELOPMENT
Landlord agrees to name the first phase of the Development after Tenant
and shall keep such name in place for so long as Tenant occupies the Leased
Premises. The exact name shall be mutually agreed upon between Landlord and
Tenant and shall be similar to "Mosaix Center at Millennium Corporate Park".
ARTICLE 24
REFIT ALLOWANCE
Provided Tenant is not then in default under the Lease, Landlord agrees
to provide Tenant with an additional tenant improvement allowance of $250,000
(the "Refit Allowance") following the seventh (7th) anniversary of the
Commencement Date. The Refit Allowance shall be used exclusively for the
installation of new carpet and interior paint (the "Refit Improvements") unless
otherwise agreed to by Landlord. The Refit Improvements shall be constructed by
Landlord in accordance with the procedures set forth in Schedule B for the
construction of the initial Tenant Improvements or, at Landlord's option, Tenant
shall construct the Refit Improvements in compliance with the requirements to
make alterations set out in paragraph 9.01.
ARTICLE 25
BROKERS
Landlord shall pay Tenant's real estate broker, Pacific Real Estate
Partners, Inc. ("Tenant's Broker"), a fee of five percent (5%) of the total
Basic Triple Net Rent for the first five (5) years of the Term (which, for
purposes of this Article 25, shall be March 1, 1999 to February 28, 2004) and
two and one-half percent (21/2%) of the Basic Triple Net Rent for the second
five (5) years of the Term (which, for purposes of this Article 25, shall be
March 1, 2004 to February 28, 2009). Such fee shall be paid by Landlord when
Tenant takes occupancy of the Leased Premises. In the event Tenant expands or is
negotiating to expand the Leased Premises during the first two (2) years the
Term, Landlord agrees to pay a fee with respect to the expansion space of two
and one-half percent (21/2%) of the Basic Triple Net Rent for the remaining
first five years of the Term and one and one-quarter percent (11/4%) of the
Basic Triple Net Rent for the last five years of the Term. Tenant represents and
warrants to Landlord that it has not dealt with any real estate broker other
than Tenant's Broker with respect to this Lease. If Tenant has dealt with any
other person or real estate broker with respect to this transaction, Tenant
shall be solely responsible for the payment of any fee due said person or firm
and Tenant shall hold Landlord free and harmless against any liability in
respect thereto, including attorney's fees and costs.
31
<PAGE> 33
IN WITNESS WHEREOF the parties hereto have executed this agreement by
their respective duly authorized officers in that behalf, as of the day and year
first above written.
LANDLORD:
MILLENNIUM CORPORATE PARK L.L.C., A
WASHINGTON LIMITED LIABILITY COMPANY
By: Continental Pacific, Inc., a
Washington corporation,
its managing member
By:
-----------------------------
Its:
-----------------------------
TENANT:
MOSAIX, INC., a
Washington corporation
By: [SIG]
------------------------------------
Its: President and CEO
------------------------------------
32
<PAGE> 34
LANDLORD NOTARY
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
On this ____ day of ________________, 1997, before me personally
appeared ________________________, to me known to be the ____________ of
Continental Pacific, Inc., a member of MILLENNIUM CORPORATE PARK L.L.C., the
limited liability company that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said limited liability company, for the uses and purposes therein mentioned, and
on oath stated that he/she was authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed the day and year first
above written.
[ S E A L ]
--------------------------------------
Notary Public in and for the State
Of Washington, residing at ___________
My commission expires:________________
--------------------------------------
[Type or Print Notary Name]
33
<PAGE> 35
TENANT NOTARY
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
On this 11TH day of December, 1997, before me personally appeared
NICHOLAS A. TILIACOS, to me known to be the PRESIDENT of MOSAIX, INC., the
corporation that executed the within and foregoing instrument, and acknowledged
the said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned, and on oath stated
that he/she was authorized to execute said instrument and that the seal affixed,
if any, is the corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year first
above written.
[ S E A L ] /S/ LAURA E. BORDA
Notary public in and for the State
LAURA E. BORDA Of Washington, residing at
Woodinville, WA
STATE OF WASHINGTON My commission expires: 11-9-98
LAURA E. BORDA
NOTARY PUBLIC [Type or Print Notary Name]
MY COMMISSION EXPIRES 11-09-98
34
<PAGE> 36
SCHEDULE "A"
(PLAN OF THE BUILDING)
BUILDING "C" LOCATION
<PAGE> 37
GROUND FLOOR OF BUILDING
FLOOR PLAN
<PAGE> 38
SECOND FLOOR OF BUILDING
FLOOR PLAN
<PAGE> 39
THIRD FLOOR OF BUILDING
FLOOR PLAN
<PAGE> 40
SCHEDULE "A-1"
LEGAL DESCRIPTION
BUILDING "C" IN PHASE I OF MILLENNIUM CORPORATE PARK TO BE CONSTRUCTED ON A
PORTION OF THE LAND LEGALLY DESCRIBED IN THE ATTACHED EXHIBIT "A".
<PAGE> 41
SCHEDULE "A-2"
RIGHT OF FIRST REFUSAL SPACE
BUILDING "B"
<PAGE> 42
SCHEDULE "B"
TENANT IMPROVEMENTS
1. Plan for the Leased Premises.
(a) Landlord and Tenant have agreed to a space plan ("Space
Plan") and work letter ("Work Letter") for installation of the Tenant
Improvements in the Leased Premises. A copy of the Space Plan is attached hereto
as Schedule "B-1" and a copy of the Work Letter is attached hereto as Schedule
"B-2". The "Tenant Improvements" are set forth in detail in the Space Plan and
Work Letter and include, but are not limited to, locations and specifications of
doors, partitioning, ceilings, electrical fixtures, outlets and switches,
telephone outlets, floor coverings, window coverings, HVAC equipment, fire and
life safety equipment.
(b) As soon as reasonably possible after the execution of the
Lease, Landlord shall cause Landlord's Architect to coordinate the preparation
of final working drawings and specifications ("Working Drawings") for the Tenant
Improvements in the Leased Premises. All Working Drawings shall include, as
required, architectural, mechanical, electrical and structural engineering
drawings for installation of the Tenant Improvements in the Leased Premises in
accordance with the Space Plan and Work Letter.
(c) The Working Drawings shall be reviewed by Landlord and
Tenant for compliance with the Space Plan and Work Letter. They also shall be
submitted by Landlord to the appropriate governmental body for plan checking and
a building permit. Landlord shall make any changes in the Working Drawings
required to obtain the building permit. Tenant shall have five (5) working days
from its receipt of the Working Drawings to approve the Working Drawings in
writing. Tenant shall be deemed to have approved the Working Drawings if
Landlord fails to receive a reply or approval of the Working Drawings within
those five (5) working days.
2. Construction and Completion of Tenant Improvements. After the Working
Drawings have been prepared and approved, and a building permit for the Tenant
Improvements has been issued, Landlord shall enter into a construction contract
with its contractor for the installation of the Tenant Improvements in
accordance with the Working Drawings. Landlord shall supervise the completion of
such work and shall use its reasonable best efforts to secure Substantial
Completion (as defined below) of the Tenant Improvements by October 1, 1998.
Notwithstanding the foregoing, if Landlord shall be delayed in Substantially
Completing its work in accordance with the Space Plans and/or Working Drawings
as a result of Tenant's failure to approve any item or perform any other
obligation in accordance with and by the date specified herein; or Tenant's
request for materials, finishes or installations other than those readily
available; or Tenant's changes in the Working Drawings or Space Plan after
approval thereof by Tenant, then the Commencement Date shall not be extended by
any reason of Tenant delay. The terms "Substantial Completion," "Substantially
Complete" and words of similar import as used herein, shall mean the date that
Landlord's Architect certifies that the Tenant Improvements as described in this
Schedule B are substantially complete except for punch list items. Certification
by Landlord's architect of Substantial Completion of the Tenant Improvements in
accordance with the terms of this Schedule B shall be conclusive and shall be
binding upon Landlord and Tenant.
3. Penalty for Delay. Except in the event of a delay in Substantial
Completion caused in whole or in part by Tenant or caused by Force Majeure,
Landlord shall pay Tenant a penalty for a delay in Substantial Completion of the
Tenant Improvements beyond May 1, 1998 as follows:
(a) If Substantial Completion of the Tenant Improvements occurs
between May 2, 1998, and August 1, 1998, then Landlord shall pay Tenant a
penalty of $15,000 per month;
(b) If Substantial Completion occurs between August 2, 1998, and
November 1, 1998, then Landlord shall pay Tenant a penalty of $15,000 per month
for May, June, and July, and a penalty of $25,000 per month for August,
September and October;
(c) If Substantial Completion occurs between November 2, 1998,
and February 28, 1999, then Landlord shall pay Tenant a penalty of $15,000 per
month for May, June, and July, $25,000 per month for August, September and
October, and $50,000 per month for November, December, January, and February;
and
(d) If Substantial Completion occurs on or after March 1, 1999,
then Landlord shall pay Tenant a penalty of $15,000 per month for May, June, and
July, $25,000 per month for August, September and October, $50,000 per month for
November, December, January, and February, and from March 1, 1999 forward
Landlord shall pay Tenant a penalty equal to the hold-
38
<PAGE> 43
over penalty (excluding any late charges, default interest, or other obligations
of the Tenant), which Tenant actually pays to the landlord under the Existing
Lease. In the event Landlord is obligated to pay Tenant a penalty under this
subsection (d), Landlord shall have the right to negotiate directly with the
landlord under the Existing Lease for a reduction in Tenant's obligations
thereunder.
(e) Upon issuance of Landlord's building permits for the Building,
Landlord shall notify Tenant of Landlord's anticipated date of Substantial
Completion (the "Updated Commencement Date"). Notwithstanding the above to the
contrary, if Substantial Completion occurs after the Updated Commencement Date,
then Landlord shall pay Tenant a penalty for each month of delay after the
Updated Commencement Date equal to the amount of monthly base rent (excluding
any late charges, default interest, or other obligations of the Tenant) which
Tenant actually pays to the landlord under the Existing Lease. The penalty paid
by Landlord under this subsection (e) shall be in lieu of any other applicable
penalty that would be due under subsections (a) through (d) above for the time
period following the Updated Commencement Date. In the event Landlord is
obligated to pay Tenant a penalty under this subsection (e), Landlord shall have
the right to negotiate directly with the landlord under the Existing Lease for a
reduction in Tenant's obligations thereunder.
(f) If Substantial Completion occurs on a date other than the
first day of a calendar month, any applicable penalty shall be pro-rated based
on the actual numbers of days in such calendar month.
4. Cost of Tenant Improvements.
(a) The Tenant Improvements shall be paid for by Landlord up to a
cost of $3,803,040.00 ("Tenant Improvement Allowance"). That portion of the cost
of the Tenant Improvements which exceeds the Tenant Improvement Allowance shall
be paid by Tenant in advance by a cash deposit with Landlord in the full amount
of the cost of the Tenant Improvements which exceeds the Tenant Improvement
Allowance; provided, that if not all of the excess costs can be determined prior
to construction, then Tenant shall pay the portion which can be determined in
advance in cash prior to the commencement of the work and the balance of such
excess costs within ten (10) days after Landlord's written demand for payment
which demand shall set forth in reasonable detail the costs to be paid. The
Tenant Improvement Allowance (and Tenant's payment for excess costs, if any)
will be used to pay for the costs of constructing and installing the Tenant
Improvements and Building Common Areas including, without limitation, Building
lobbies, restrooms, showers, HVAC systems and dropped ceilings; Washington State
Sales Tax; Landlord's reasonable construction coordination fee; and other costs
and expenses incurred by Landlord under this Schedule B; provided, that the
Tenant Improvement Allowance shall not be used to pay any costs associated with
Tenant's telephone, computer and/or data services or related cabling with
respect thereto, all of which costs shall be paid solely by Tenant.
(b) Any change in specifications in the Space Plan, or in the Working
Drawings after the initialling thereof by Landlord and Tenant, made at Tenant's
request after the date of the execution of the Lease shall be made only after
prior written approval of Landlord and shall be made at Tenant's sole cost and
expense. The costs and expenses associated with any changes shall include any
architectural, mechanical, electrical and structural engineering drawings, plans
and specifications required by the changes.
5. Punch List Items. Immediately prior to Tenant's occupancy of the
Leased Premises, Landlord and Tenant shall jointly inspect the Tenant
Improvements and create a written punch-list setting forth the additional
corrective work to the Tenant Improvements are required to be performed pursuant
to the Space Plan. Landlord shall promptly take such measures as are reasonably
necessary to correct such punch-list items.
6. Additional Allowance. In addition to the Tenant Improvement
Allowance, Tenant shall, at Tenant's option, be entitled to receive an
additional allowance toward the cost of the Tenant Improvements in the amount of
$5.00 per useable square foot of the Leased Premises (the "Additional
Allowance"). If Tenant desires to utilize the Additional Allowance, Tenant shall
provide Landlord written notice thereof at the time the Space Plan is approved.
If Tenant exercises its right to utilize the Additional Allowance by giving
Landlord written notice thereof at the time of Space Plan approval, Landlord
shall apply the Additional Allowance towards the cost of the Tenant Improvements
and Tenant shall pay to Landlord, as additional Basic Triple Net Rent, an amount
equal to the Additional Allowance, together with interest thereon at the Prime
Rate, in equal monthly installments amortized over the initial Term. The first
installment shall be due at the same time as the first payment of Basic Triple
Net Rent and all future installments shall be due at the same time and in the
same manner as payments of Basic Triple Net Rent.
39
<PAGE> 44
7. Interior Space Consultant Allowance. In addition to the Tenant
Improvement Allowance, Landlord shall provide Tenant with an allowance of up to
$90,000 (the "Interior Space Consultant Allowance") for Tenant's actual costs of
interior design and construction administration consultant services for the
Leased Premises. The Interior Space Consultant Allowance will be paid by
Landlord directly to Tenant's interior space planner within thirty (30) days
after Landlord's receipt of Tenant's written invoices for payment and evidence
reasonably satisfactory to Landlord of the cost of Tenant's interior space
consultant services.
40
<PAGE> 45
SCHEDULE "B-1"
SPACE PLAN
41
<PAGE> 46
SCHEDULE "C"
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by
any tenant or used for any purpose other than ingress and egress to and
from the Leased Premises.
2. No awnings or other projections shall be attached to the outside walls
of the Building. All curtains, blinds, shades or screens attached to or
hung in or used in connection with any window or door of the Leased
Premises shall be subject to the approval of the Landlord.
3. Interior signs on doors and the directory shall be inscribed, painted or
affixed for each tenant by the Landlord at the expense of the Tenant,
and shall be of a size, color and style acceptable to the Landlord.
4. The skylights, windows and doors that reflect or admit light and air
into the halls, passageways or other public places in the Building shall
not be covered or obstructed by any tenant, nor shall any bottles,
parcels or other articles be placed on the window sills.
5. The water and wash closets and other plumbing fixtures shall not be used
for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein.
All damages resulting from any misuse of the fixtures shall be borne by
the tenant who, or whose servants, employees, agents, visitors or
licensees, shall have caused the same.
6. No tenant shall mark, paint, drill into, or in any way deface any part
of the Leased Premises or the Building. No boring, cutting or stringing
of wires shall be permitted, except with the prior written consent of
the Landlord, and as the Landlord may direct.
7. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Leased Premises. No tenant shall cause or permit
any unusual or objectionable odors to be produced upon or emanate from
the Leased Premises.
8. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any tenant, nor shall any changes be made in
existing locks or the mechanism thereof. Each tenant must, upon the
termination of its tenancy, restore to the Landlord all keys of stores,
offices and toilet rooms, either furnished to, or otherwise procured by,
such tenant, and in the event of the loss of any keys, so furnished,
such tenant shall pay to the Landlord the cost thereof.
9. All removals, or the carrying in or out of any safes, freight, furniture
or bulky matter of any description must take place during the hours
which the Landlord or its agent may determine from time to time. The
Landlord reserves the right to inspect all freight to be brought into
the Building and to exclude from the Building all freight which violates
any of these Rules and Regulations or the Lease of which these Rules and
Regulations are a part.
10. The Leased Premises shall not be used for lodging or sleeping or for any
illegal purpose.
11. Canvassing, soliciting and peddling in the Development is prohibited and
each tenant shall co-operate to prevent the same.
12. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or by jobbers or others, in the delivery
or receipt of merchandise, mail or other materials, any hand trucks,
except those equipped with rubber tires and side guards. No hand trucks
shall be used in passenger elevators.
13. The Tenant shall not have or permit or cause to be on the Leased
Premises any machines selling merchandise or services or providing
entertainment, whether by coins, credit cards or otherwise, unless
expressly approved by the Landlord in writing.
14. The Tenant shall not have or permit any public address, music broadcast
or other sound system which may be heard beyond the limits of the Leased
Premises.
15. Tenant shall not waste electricity, water or air conditioning and agrees
to cooperate fully with Landlord to assure the most effective operation
of the Building's heating and air conditioning and to comply with any
governmental energy-saving rules, laws or regulations
43
<PAGE> 47
of which Tenant has actual notice, and shall refrain from attempting to
adjust controls. Tenant shall keep corridor doors closed, and shall
close window coverings at the end of each business day.
16. Tenant shall not install any radio or television antenna or other
devices on the roof(s) or exterior walls of the Building. Tenant shall
not interfere with radio or television broadcasting or reception from or
in the Development or elsewhere.
17. Tenant shall store all its trash and garbage within its Leased Premises
or in other facilities provided by Landlord. Tenant shall not place in
any trash box or receptacle any material which cannot be disposed of in
the ordinary and customary manner of trash and garbage disposal. All
garbage and refuse disposal shall be made in accordance with directions
issued from time to time by Landlord.
18. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
19. Tenant assumes any and all responsibility for protecting its Leased
Premises from theft, robbery and pilferage, which includes keeping doors
locked and other means of entry to the Leased Premises closed.
20. Tenant's requirements will be attended to only upon appropriate
application to the Development management office by an authorized
individual. Employees of Landlord shall not perform any work or do
anything outside of their regular duties unless under special
instructions from Landlord, and no employee of Landlord will admit any
person (Tenant or otherwise) to any office without specific instructions
from Landlord.
21. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other tenant, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in
favor of Tenant or any other tenant, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all
of the tenants of the Development.
22. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease.
23. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for
safety and security, for care and cleanliness of the Development and for
the preservation of good order therein. Tenant agrees to abide by all
such Rules and Regulations hereinabove stated and any additional rules
and regulations which are adopted.
24. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and
guests.
44
<PAGE> 48
SCHEDULE "D"
Tenant Estoppel Certificate
(Example Only)
RE: Lease Dated:
Landlord:
Premises:
Rent Amount:
Lease Term:
To whom it may concern:
Tenant represents and certifies knowing that the reader is relying on the
contents the following:
1. That Tenant is the tenant under the above described Lease and the Lease is in
full force and effect and has not been amended since the date of the Lease,
except as follows:
2. Tenant has taken possession of the premises, such possession having been
delivered by Landlord and having been accepted by Tenant.
3. That the improvements, space, parking and common area facilities, if any,
required to be furnished have been completed in all respects to the satisfaction
of Tenant and have been accepted and are in use by Tenant, its customers,
employees and invitees.
4. Tenant knows of no existing default by Landlord. Tenant does not have a claim
against Landlord which might be set off or credited against future accruing
rents.
5. No rents have been prepaid except as provided by the Lease.
6. The Basic Triple Net Rent for the premises is $____________ per month and the
total rentable square footage is __________ square feet. The current Additional
Rent for the premises is $____________ per month.
7. Rent started on __________, 19__, and rent is paid to __________, 19__.
8. A security deposit of $____________ was paid to Landlord.
9. If by foreclosure or otherwise, the lender, its successor or assigns
("Lender") comes into possession of the premises, then Tenant agrees to attorn
to, be liable to, and recognize Lender as Landlord under the Lease and be bound
by all the obligations imposed by the Lease on Tenant.
10. No actions, whether voluntary or otherwise, are pending against Tenant under
the bankruptcy laws of the United States.
11. Tenant will give prompt written notice to Lender, at such address as Lender
may designate, if Landlord defaults under the Lease giving Lender details of the
nature of the default. Prior to terminating the Lease for any reason before the
expiration of the Lease Term, Tenant will allow Lender 30 days after receipt of
notice to rectify or cure the default constituting the basis of the termination.
Dated: ____________________
Tenant:
45
<PAGE> 49
EXHIBIT A
CHICAGO TITLE INSURANCE COMPANY
A.L.T.A. COMMITMENT
SCHEDULE A
(Continued)
Order No.: 457560
Your No.: KELLER PROPERTY
- -------------------------------------------------------------------------------
LEGAL DESCRIPTION EXHIBIT
(Paragraph 4 of Schedule A continuation)
THAT PORTION OF THE EAST HALF OF THE SOUTHWEST QUARTER OF SECTION 6, TOWNSHIP
25 NORTH, RANGE 6 EAST, WILLAMETTE MERIDIAN, IN KING COUNTY, WASHINGTON, LYING
NORTHERLY OF THE NORTH MARGIN OF NORTHEAST UNION HILL ROAD;
TOGETHER WITH THAT PORTION OF GOVERNMENT LOTS 6 AND 7 OF SECTION 6, TOWNSHIP
25 NORTH, RANGE 6 EAST, WILLAMETTE MERIDIAN, IN KING COUNTY, WASHINGTON, LYING
NORTHERLY OF THE NORTH MARGIN OF NORTHEAST UNION HILL ROAD AND EASTERLY OF THE
FOLLOWING DESCRIBED LINE:
BEGINNING AT THE INTERSECTION OF THE NORTH MARGIN OF NORTHEAST UNION HILL ROAD
WITH THE WEST LINE OF GOVERNMENT LOT 7;
THENCE NORTH 80 DEGREES 03'32" EAST ALONG SAID NORTH MARGIN 515.00 FEET;
THENCE NORTH 02 DEGREES 14'11" EAST 2191.78 FEET TO A POINT ON THE NORTH LINE
OF SAID GOVERNMENT LOT 6, DISTANT 545.75 FEET EAST, AS MEASURED ALONG SAID
NORTH LINE, FROM THE NORTHWEST CORNER THEREOF AND THE TERMINUS OF SAID LINE;
EXCEPT ANY PORTION THEREOF LYING NORTHERLY OF THE CENTERLINE OF BEAR CREEK AND
MARTIN CREEK, SAID CENTERLINES BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE INTERSECTION OF THE NORTH MARGIN OF SAID NORTHEAST UNION HILL
ROAD WITH THE WEST LINE OF SAID GOVERNMENT LOT 7;
THENCE NORTH 80 DEGREES 03'32" EAST ALONG SAID NORTH MARGIN 515.00 FEET;
THENCE NORTH 02 DEGREES 14'11" EAST 679.60 FEET TO SAID CENTERLINE OF BEAR
CREEK AND THE TRUE POINT OF BEGINNING OF SAID DESCRIBED LINE;
THENCE NORTHEASTERLY ALONG THE CENTERLINE OF BEAR CREEK AND MARTIN CREEK THE
FOLLOWING COURSES:
THENCE SOUTH 77 DEGREES 53'16" EAST 117.10 FEET;
THENCE NORTH 81 DEGREES 16'20" EAST 95.53 FEET;
THENCE NORTH 76 DEGREES 48'29" EAST 151.88 FEET;
THENCE NORTH 72 DEGREES 38'17" EAST 129.88 FEET;
THENCE NORTH 85 DEGREES 08'33" EAST 118.81 FEET;
THENCE SOUTH 70 DEGREES 52'10" EAST 80.73 FEET;
THENCE SOUTH 86 DEGREES 12'17" EAST 103.83 FEET;
THENCE NORTH 74 DEGREES 27'30" EAST 93.10 FEET;
THENCE NORTH 66 DEGREES 48'56" EAST 141.68 FEET;
THENCE NORTH 72 DEGREES 54'14" EAST 96.15 FEET;
THENCE NORTH 60 DEGREES 28'37" EAST 43.05 FEET;
THENCE NORTH 56 DEGREES 52'39" EAST 85.84 FEET;
THENCE NORTH 84 DEGREES 58'45" EAST 99.88 FEET;
THENCE NORTH 35 DEGREES 12'27" EAST 66.37 FEET;
- -------------------------------------------------------------------------------
CHICAGO TITLE INSURANCE COMPANY
<PAGE> 50
EXHIBIT A (continued)
CHICAGO TITLE INSURANCE COMPANY
A.L.T.A. COMMITMENT
SCHEDULE A
(Continued)
Order No.: 457560
Your No.: KELLER PROPERTY
- --------------------------------------------------------------------------------
LEGAL DESCRIPTION EXHIBIT
(Paragraph 4 of Schedule A continuation)
THENCE NORTH 76 DEGREES 31'20" EAST 65.11 FEET;
THENCE NORTH 85 DEGREES 47'58" EAST 88.54 FEET;
THENCE SOUTH 86 DEGREES 45'20" EAST 85.89 FEET;
THENCE NORTH 72 DEGREES 43'20" EAST 85.47 FEET;
THENCE SOUTH 88 DEGREES 38'44" EAST 37.29 FEET;
THENCE SOUTH 69 DEGREES 21'52" EAST 19.70 FEET;
THENCE SOUTH 52 DEGREES 44'57" EAST 57.69 FEET;
THENCE SOUTH 84 DEGREES 58'59" EAST 37.73 FEET;
THENCE NORTH 79 DEGREES 51'55" EAST 89.63 FEET;
THENCE NORTH 82 DEGREES 02'53" EAST 149.28 FEET TO THE EAST LINE
OF SAID EAST HALF OF THE SOUTHWEST QUARTER OF SECTION 6 AND THE TERMINUS OF SAID
DESCRIBED LINE.
(ALSO KNOWN AS REVISED PARCEL 4 OF CITY OF REDMOND LOT LINE REVISION NO.
LLR94-016, RECORDED UNDER RECORDING NUMBER 9603049006.)
- --------------------------------------------------------------------------------
CHICAGO TITLE INSURANCE COMPANY
<PAGE> 51
SCHEDULE B-2
WORK LETTER
GENERAL DESCRIPTION
The following specifications shall be read in conjunction with the schematic
space plan to be prepared by JPC and the schematic shell and core documents
prepared by Mithun Partners dated June 5, 1997. The drawings and specifications
represent the Tenant's design intent for the purposes of budgeting and
definition of interior improvements for allocation of Tenant Improvement
Allowance.
OWNER RESPONSIBILITIES
A. GENERAL:
1. Codes and Ordinances -- The Building Shell and Interior Improvements
shall comply with all applicable codes as enforced by the City of
Redmond.
2. Permits -- The cost of all permits, fees, and licenses required for
construction of the shell shall be paid by Landlord.
3. Final Inspections -- Landlord shall be responsible for obtaining final
inspection from all governing agencies as required to obtain Certificate
of Occupancy for the building shell at Landlord's cost. Landlord shall
coordinate final inspections required to obtain Certificate of
Occupancy of the Tenant premises at Tenant's cost (Tenant Improvement
Allowance).
4. Schedules -- Landlord shall provide and maintain a detailed schedule of
construction and occupancy based on agreed upon delivery dates for
tenant provided materials, equipment, and furnishings. Landlord shall
notify Tenant in writing of any tenant provided information or
approvals that will affect the schedule. Tenant shall be given
reasonable time to provide the requested information.
B. IMPROVEMENTS TO BE PROVIDED BY LANDLORD:
1. SIGNAGE -- Landlord shall provide a tenant monument sign adjacent to
Building C. Landlord shall also provide signage for disabled and
visitor parking stalls near the entrance to the building. All signage
must conform to the City of Redmond Sign Code Standards.
2. Sign Lighting -- Landlord shall provide adequate site and parking area
lighting customary to suburban office parks and as required by City of
Redmond Code.
3. Floors -- Landlord shall provide cured and sealed concrete floors that
are level to within industry standards and ready to receive tenant's
finish flooring.
4. Lobby Stairwell -- Landlord to provide unfinished lobby stairwell.
Tenant is responsible for hand rail and finishes.
5. Perimeter Stairwells -- Landlord to provide one unfinished stairwell at
each end of building as shown on plan. Tenant is responsible for all
finishes.
6. Elevator -- Landlord shall provide two 2500 lb hydraulic elevators.
Tenant is responsible for cab finishes.
7. Insulation -- Landlord will insulate the building slab, roof, and all
piping, waterlines, and rain leaders as required by code. All exterior
wall insulation and acoustical insulation of ceilings and partitions
will be part of Tenant Improvements.
8. Sprinkler -- Landlord shall provide a complete sprinkler system to meet
local standards based on class B occupancy. All downheads and head
modifications due to Tenant Improvement partitioning are part of Tenant
Improvements.
9. Plumbing -- Plumbing will include installation of a 2" copper waterline
which will run below the second floor deck, approximately at the
building center. A 6" sewer drain line will run under-slab. Included
are related shut-off valves, clean-outs, and other miscellaneous items.
Landlord shall provide rough plumbing associated with Toilet Rooms,
Shower Rooms, drinking fountains on each floor, roof drains and
miscellaneous core drain waste and vent piping per standard building
design.
10. Exhaust -- Landlord shall provide exhaust fan and ductwork for Toilet
Room and Shower Room exhaust per standard building design.
<PAGE> 52
11. Fire Alarm System - Landlord to provide a sprinkler system alarm
including flow and tamper switches as required by code for shell letter.
TENANT IMPROVEMENTS
A. GENERAL:
1. Tenant Improvement Work - The Tenant Improvement Items defined herein
consists of work items approved by Landlord to be paid out of the Tenant
Improvement Allowance. Unless otherwise addressed all Tenant
Improvements will be constructed to a level of quality and finish which
meets or exceeds Landlord's building standards.
2. Codes and Ordinances - The Tenant Improvements shall comply with all
applicable codes as enforced by the City of Redmond.
3. Permits - The cost of all permits, fees, and licenses required for
construction of the Tenant Improvements shall be paid out of the Tenant
Improvement Allowance.
4. Schedules - Tenant will provide Landlord with completed specifications
and drawings of its Tenant Improvements no later than ____________,
1997. Tenant will provide "Tenant Provided" materials, equipment, and
furnishings within the time frames specified by Landlord provided that
that Landlord gives Tenant reasonable prior notice to provide such
items.
B. TENANT IMPROVEMENT ITEMS:
1. Patio - Construction of an outdoor patio area on the West side of
Building C providing said patio does not interfere with project
walkways, parking or Building B - Size and exact location are subject to
Landlord's approval.
2. Raised Access Flooring - Computer Room shall receive 12" height raised
access flooring with ramp and handrail.
3. Food Services - Food service equipment associated with cafeteria and
coffee break areas, such as refrigerators, microwaves, dishwashers,
garbage disposals, refrigerated display cases, sinks, cooking surfaces,
etc. and all required plumbing, venting, and fire suppression systems.
4. Signage - Purchase and installation of tenant signage mounted to face of
building as allowed by City Ordinances and subject to approval by
Landlord.
5. HVAC - Purchase and installation of HVAC system for the building -
Tenant shall have the right to review and approve the proposed system to
assure the system provides the level of control and capacity required
for tenant's loads. Tenant will require 24 hour and/or extended hours
HVAC in designated areas of the building.
6. Restrooms - Tenant to provide finished restrooms in the locations
designated on building plan. Minimum restrooms finish will include
toilet partitions, plastic laminate countertops with mirror above and
ceramic tile on floors, base and wet walls. Other walls to receive vinyl
wall covering.
7. Shower Rooms - Tenant will be responsible for installing shower stalls.
8. Entry and Elevator Lobbies - Tenant to provide a first floor entry lobby
with building standard finishes or better.
9. Electrical - Tenant shall provide one 2,400 Amp, 277/480V, 3 phase,
4-wire service. House power to include a 200 Amp, 277/480V panel; 15 KVA
transformer and 60 Amp, 120/208V sub-panel.
10. Sprinklers - All downheads and head modifications due to Tenant
Improvement Partitioning - Tenant may choose to purchase and install a
preaction sprinkler system for the Computer Room.
11. Electrical Work - All electrical work necessary to install the Tenant's
electrical service and distribution system.
12. Emergency Generator - Emergency Generator and associated sitework and
infrastructure - size and location are subject to Landlord's Approval.
13. Frames - Hollow metal frames located in shipping/receiving, and
cafeteria areas.
14. Exterior Doors - One pair of 3'-0" x 7'-0" exterior doors at
shipping/receiving area.
15. Lighting - Installation of building standard or better lighting -
Tenant may choose to install an indirect lighting system for the open
office areas.
<PAGE> 53
16. Relites - Wood frame relites with 1/4" tempered glass shall be located
as indicated on space plan subject to City approval
17. Security System - Provision and installation, including rough in, of a
card access or security system
18. Partitions & Exterior Walls - All interior partitions and the furring,
insulation and finish of all exterior walls
19. Window Coverings - All window coverings
BUILDING STANDARDS
All building standards are subject to Landlords finalization of Building
Standard Specifications, however said Building Standards will generally include
the following:
BUILDING STANDARDS
All building standards are subject to Landlords finalization of Building
Standard Specifications, however said Building Standards will generally include
the following:
1. Finish Carpentry and Millwork - Millwork shall consist of countertops,
cabinets, shelving and trim and shall be constructed as follow:
Quality: Custom grade matching commercial
standard product lines using European
style construction. Marine grade plywood
shall be used at all cafeteria
countertops.
Door Design: Flush Overlay
Hinges: Concealed, Soss or equal
Pulls: Wire type, finish to match hardware
Millwork Finish: All surfaces shall have plastic
laminate, matte finish, Wilsonart or
equal
Backsplash: 4" plastic laminate in all wet areas
2. Finish Carpentry - All wood finish material shall be pre-finished stain
grade birch solids and veneers.
3. Doors - All interior doors shall be 1 3/4" x 3'-0" x 7'-0". Doors shall
be solid core Birch veneer with solid hardwood edge and stained finish.
4. Frames - All interior frames shall be birch, finish to match doors.
Jambs to be fire-rated where required by code.
5. Hardware - Hardware shall be specified to meet tenant's security and
access requirements. Locks and latches shall be commercial grade with
lever handle.
6. Interior Partitions - Building standard partition shall consist of 5/8"
GWB over 2 1/2" metal studs at 2'-0" O.C. with 1/2" reveal at ceiling.
7. Core Partitions - Core wall partitions shall have taped and finished
GWB surface.
8. Ceiling - Ceilings may consist of GWB over metal stud framing for
limited soffited areas, or lay-in acoustical tile ceilings in suspended
metal grid for the primary ceiling.
9. Light Fixtures - 2x4 parabolic deep cell, 3 lamp with electronic
ballasts.
10. Carpet - 28 oz. loop pile, glued down.
11. Base - 4" Rubber base.
12. Paint - Eggshell finish, applied in two coats over primer.
13. Window Coverings - Horizontal 1" mini-blinds at all exterior windows.
<PAGE> 1
Exhibit 10.32
[MOSAIX] LOGO 1998 MANAGEMENT BONUS PLAN
Executive Summary
================================================================================
PLAN SUMMARY
The MBP is an annual bonus plan that rewards Mosaix's senior executives for
yearly company performance achieved relative to planned performance.
o For participants with a corporate focus only, the company's consolidated
annual net operating income and revenue achieved versus plan will
determine a percentage of annual base salary to be paid out as a bonus.
This percentage will be different across the three participation levels
below but will be the same for each participant in a particular level.
o Participants in Mosaix's business units may receive incentive compensation
based on a combination of both company and business unit performance. The
performance measures for the business unit portion will be the unit's
revenue and contribution achieved versus plan.
o The minimum hurdle for payouts is achievement of 75% of planned financial
targets. There will be no business unit payouts unless corporate
performance is at least 75% of plan.
o A participant's final bonus may be increased or decreased by a factor that
is based on an assessment of individual performance. The maximum bonus
that may be earned is 150% of eligible base salary.
CHANGE FROM 1997 PLAN
o The Plan is being retitled as the "Management Bonus Plan" from the
"Management & Company Performance Bonus Plan"
o The split of the incentive compensation target for Level II participants
has been modified from 15% of base salary based on corporate performance
and 5% of salary based on business unit performance to 10% of salary for
both.
PLAN PARTICIPATION LEVELS AND BONUS TARGETS
<TABLE>
<CAPTION>
Target Bonus Corporate Business Unit
Level Participating Position(s) As % of Salary Component Component
- ----- ------------------------- -------------- --------- ---------
<S> <C> <C> <C> <C>
CEO Chief Executive Officer 50% 50% Not applicable
Level I Senior Vice Presidents 35% 25% 10%
Level II VPs and Directors 20% 10% 10%
</TABLE>
Mosaix's CEO will determine which Level I and II MBP participants will have a
portion of their target bonuses tied to business unit performance. 1997 business
units will include the Professional Services Group and Mosaix Ltd.
PLAN PARTICIPATION
o If an employee leaves a Plan position but stays with the company in a
non-Plan position, he or she will participate in the Plan only for each
full quarter worked in the Plan position.
o Likewise, if an employee moves into a Plan position from a non-Plan
position during the year, he or she will participate in the Plan only for
full quarters worked in the Plan position.
o Finally, an individual must work at Mosaix for at least one full financial
quarter to participate in the Plan and must be employed by Mosaix at the
time bonus checks are distributed in order to receive a bonus under the
Plan.
PERFORMANCE FACTOR
The performance factor will be multiplied by the bonus percentage determined by
company and/or business performance to yield a final bonus percentage. The
performance factor may vary between 0 and 2.0 and may be fractional. It is
anticipated that performance factors will be tightly distributed around 1.0.
Individual Performance >> >> >> >> >> Better Performance >> >> >> >> >>
Performance Factor 0.0 1.0 2.0
================================================================================
December 10, 1997 Page 1 of 1
<PAGE> 2
[MOSAIX LOGO] 1998 PERFORMANCE BONUS PLAN
Executive Summary
================================================================================
OBJECTIVES
The 1998 Performance Bonus Plan (the "Plan") is designed to:
o Focus Plan participants on the achievement of team goals or productivity
targets.
o Reward participants for the company's achievement of profitability
targets.
PLAN DESIGN
The Performance Bonus Plan has two components, the first of which is similar to
the 1997 Profitability Bonus Plan:
1) The CORPORATE COMPONENT is an annual bonus plan that pays out based on
Mosaix's operating income achieved versus targeted performance for the year.
o The annual bonus target under the corporate component is 5% of the
participant's annual base salary rate on December 31, 1998. The maximum
bonus under this component is 10% of salary.
o Quarterly non-recoverable advance bonuses under the Plan may be paid out
after the first, second, and third quarters if net operating income
(NOI) performance targets are met for those quarters. - The quarterly
corporate bonus target is 1.25% of base salary. - The threshold for an
advance bonus is 90% of quarterly targeted performance. - Participants
may earn bonuses between 90% and 100% of the quarterly bonus targets.
o When the year is over, the Plan will pay out the difference between the
annual bonus earned and the sum of the advance bonuses.
2) The TEAM COMPONENT will be a quarterly bonus plan based on the achievement
of quarterly objectives that are established at the beginning of the
quarter. The Team Component represents a framework for individual
departmental plans.
o The annual bonus target under the Plan is 5% of base salary, consisting
of four quarterly targets of 1.25% of salary or an annual target of 5%.
o If based on goal achievement, the bonus may pay in increments if 50%,
75%, or 100% of target, but will not pay out above 100%.
o If based on productivity measures, the bonus may be scaled but will but
have an annual maximum of 5% of base salary.
o The Team Component will not pay out unless the company is profitable
over the time period. The measurement will be positive net operating
income, including the accrual for the PBP.
CHANGES FROM 1997 PLAN
1) The Corporate Component has a 5% annual target (versus 10%) and pays out
advances based on quarterly results, not year-to-date results.
2) The Team Component is new and comprises the remaining 5% of the bonus
target.
ANNUAL CORPORATE BONUS COMPONENT SCHEDULE
The following schedule will be used to determine an annual bonus earned under
the Plan:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
% ANNUAL TARGET ACHIEVED <75% 75% 80% 90% 100% 110% 120% 150% >150%
--- ---- --- --- --- --- --- --- ----
% of eligible salary to be 0% 3.75% 4.0% 4.5% 5% 6% 7% 10% 10%
earned as a bonus for 1998 --- ---- --- --- --- --- --- --- ----
</TABLE>
QUARTERLY CORPORATE BONUS COMPONENT SCHEDULE
The following schedule will be used to determine a quarterly advance bonus
earned under the Plan:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
QUARTERLY PERFORMANCE TARGET ACHIEVED <90% 90% 100% >100%
--- ------ ----- ----
Quarterly advance as % of base salary 0% 1.125% 1.25% 1.25%
--- ------ ----- ----
</TABLE>
================================================================================
December 10, 1997 Page 1 of 1
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF MOSAIX, INC.
SUBSIDIARY NAME OWNERSHIP PERCENTAGE JURISDICTION
- --------------- -------------------- ------------
CALEO SOFTWARE, INC. 100% GEORGIA
MOSAIX FSC, INC. 100% GUAM
VIEWSTAR CORPORATION 100% CALIFORNIA
MOSAIX LIMITED 100% UNITED KINGDOM
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Mosaix, Inc.:
We consent to incorporation by reference in the registration statements
(Nos. 333-18577, 33-93948, 33-88544, 33-51620, 33-41199, 33-41197 and 33-36617)
on Form S-8 of Mosaix, Inc. and subsidiaries (the "Company") of our reports
dated February 2, 1998, relating to the consolidated balance sheets of the
Company as of December 31, 1997, and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows and the related
financial statement schedule for each of the years in the three-year period
ended December 31, 1997, which reports appear in the Company's annual report on
Form 10-K for the year ended December 31, 1997.
/s/ KPMG PEAT MARWICK LLP
Seattle, Washington
March 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,532
<SECURITIES> 30,548
<RECEIVABLES> 32,074
<ALLOWANCES> 1,749
<INVENTORY> 2,532
<CURRENT-ASSETS> 74,711
<PP&E> 24,732
<DEPRECIATION> 17,283
<TOTAL-ASSETS> 84,378
<CURRENT-LIABILITIES> 28,454
<BONDS> 0
0
0
<COMMON> 122
<OTHER-SE> 55,683
<TOTAL-LIABILITY-AND-EQUITY> 84,378
<SALES> 73,145
<TOTAL-REVENUES> 121,144
<CGS> 20,426
<TOTAL-COSTS> 45,430
<OTHER-EXPENSES> 63,254
<LOSS-PROVISION> 694
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 13,974
<INCOME-TAX> 4,217
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,757
<EPS-PRIMARY> .740
<EPS-DILUTED> .710
</TABLE>
