<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-13524
TIMELINE, INC.
(Exact name of small business issuer as specified in its charter)
WASHINGTON 91-1590734
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3055 112TH AVENUE N.E., STE. 106
BELLEVUE, WA 98004
(Address of principal executive offices)
(206) 822-3140
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
WARRANTS TO PURCHASE COMMON STOCK
Securities registered under Section 12(g) of the Exchange Act: (none)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were: $5,503,043.
As of May 15, 1997, 3,140,953 shares of the Registrant's common stock were
outstanding and the aggregate market value of such common stock held by
non-affiliates was approximately $3,634,083 based on the average of the bid
($1.125) and ask ($1.188) prices on that date of $1.157.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Issuer's registration statement on Form SB-2, as amended and declared
effective on January 18, 1995 (No. 33-85320) (the "Form SB-2"); (2) final
prospectus dated January 18, 1995 and filed with the Commission pursuant to Rule
424(b) (the "Prospectus"); and (3) Proxy Statement relating to its July 11, 1997
Annual Meeting of Shareholders and to be filed with the Commission on or about
the date hereof (the "Proxy Statement").
Transitional Small Business Disclosure Format (Check One): Yes No X
------ ------
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PART I
The items discussed in this report on Form 10-KSB, including the Description of
Business and the Management's Discussion and Analysis or Plan of Operation
include a number of forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those discussed below, that could cause actual results to differ
materially from historical results or those anticipated. Words used herein such
as "believes," "anticipates," "expects," "intends," and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements. Readers are urged to carefully review and
consider the various disclosures made by the Company in this report and in the
Company's other reports filed with the Securities and Exchange Commission that
attempt to advise interested parties of the risks and factors that may affect
the Company's business.
ITEM 1: DESCRIPTION OF BUSINESS
Further information in satisfaction of Item 1 of Form 10-KSB is incorporated
herein by reference to the sections of the Prospectus under the captions
"Prospectus Summary," "Risk Factors," and "Business." In addition, in further
satisfaction of Item 1 of Form 10-KSB and in satisfaction of the requirements of
Rule 14a-3(b), the following information is provided as to the business of the
Registrant.
OVERVIEW
The Company develops, markets and supports enterprise-wide financial
management and reporting software. Timeline's software products automatically
access and distribute business information with full accounting control.
Although the Company has products which permit the processing of transactions,
Timeline's marketing and development strategy is focused on products which
report accounting data in meaningful and flexible formats. These reporting
products allow end users to gather and disseminate business information
throughout the enterprise while the enterprise maintains maximum flexibility in
determining the types of transaction processing systems it will use.
It has been estimated 40% of the financial analysis and management
reporting done in businesses today is accomplished through keying data from
paper or fixed reports into spreadsheets. This reflects a desire to have data
reside in a user friendly environment, such as Microsoft(R) Office, where the
information is then available for automated inclusion in word processing
documents, forwarding and distribution through electronic mail, manipulation in
spreadsheets, etc. Electronic data residing in common desktop environments is
also potentially available for distribution through the Internet.
Many financial and management reporting products are focused on the
presentation, either electronically or on paper, of processed data in formatted
reports. While Timeline products can present information in formatted reports,
the Company's technology also permits the distribution of an actual database of
information to the end user's personal computer. These databases are built
through selective criteria which limit data transfer to only that data relevant
to each particular end user. This design is intended to allow for the
distribution of manageable packets of data over networks or the Internet and
maintains corporate security. Each database can be arranged in a unique "view,"
or "orientation," as desired by the end user. The end user may then view the
data through standard corporate reports or through his or her library of
customized personal reports. Additionally, the data resides in Microsoft Office,
which makes it automatically available for use in Microsoft(R) Excel
spreadsheets and all other Microsoft Office tools.
Timeline believes that its proprietary technology, designed to allow
the enterprise to avoid time-consuming, error-prone and costly keying of data,
distinguishes Timeline's products from other vendors of reporting software. The
data resident at the desktop is as valid as the data in the underlying
accounting system. Moreover, the type of underlying accounting system, and the
platform on which it resides, is immaterial. While many enterprises are
migrating accounting functions from larger mainframe- and minicomputer-based
systems to client/server systems, others have elected to retain their existing,
or "legacy" accounting systems. Timeline's business strategy is focused on
meeting the financial management needs of both types of enterprise by providing
products which accept and report on data from both legacy and newer systems.
In May 1994, following 17 years of marketing products designed
solely for use in the Digital Equipment Corporation ("Digital") mainframe and
minicomputer environment, the Company introduced its first client/server
product, Open General Ledger(R) ("OGL(R)"). OGL incorporates technology designed
to gather data from multiple operating systems
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and hardware platforms, old and new, for translation into a Microsoft
client/server environment, and to process transactions within the Microsoft
operating system. The functions of OGL utilized in practice are its connectivity
to multiple systems, its ability to distribute data to the desktop, and its
complex reporting architecture for consolidations, allocations, budgeting and
multiple foreign currency conversions.
Refinements to this technology have resulted in the Company's MV
Server(TM) and MV Analyst(TM) product lines, which emphasize financial reporting
and management functions, rather than transaction processing, and enable the
user to duplicate data directly from legacy and client/server systems. All of
the functions of the OGL product listed above are available in the Company's MV
products. By eliminating pure transaction processing, these new product
offerings efficiently serve to complement existing systems by handling one or
more of these more complex issues. The MV products are designed to extend the
life of the existing systems, allow the purchase of less expensive new systems,
and deliver data for reporting and analysis throughout the enterprise. The
Company believes its MV products can complement accounting software vendors'
products by adding functionality to eliminate competitive disadvantages in their
products. Vendors of accounting modules are thus considered by management as
candidates to bundle or distribute MV products in conjunction with their
accounting systems.
At March 31, 1997, Timeline employed 47 full-time employees in the
United States, and 11 full-time employees and one consultant in its subsidiary
Timeline Europe Limited, located in the United Kingdom.
The Company spent in the aggregate approximately $1,140,000 and
$2,099,000, respectively, for research and development and capitalized software
costs in the fiscal years ended March 31, 1996 and 1997.
TECHNOLOGY BACKGROUND
Timeline Technologies. Timeline's client/server software is designed
to overlay an enterprise's entire computing infrastructure with a reporting
engine which can accept and organize data, with full accounting controls, from
both legacy systems and newer technologies. Timeline's proprietary
"architecture," in conjunction with its proprietary "generation engine," is
designed to accomplish this task. Compatibility with legacy systems allows the
enterprise to preserve hardware and software investments or commence the
transition to a client/server environment while providing enhanced reporting
capabilities throughout the enterprise. The use of filtering technology not only
automates the transfer of data from accounting and information systems into
desktop databases, but can automatically rebuild such databases to reflect
changes introduced in the underlying accounting structure. This eliminates
costly dual maintenance of data structures between the legacy and the MV
systems. The Company is not aware of any other product capable of automating the
gathering of data from heterogeneous computing systems, selectively building
multiple data sets in differing views and distributing them to the desktop.
The following is a brief discussion of the Company's three primary
proprietary technologies:
- Timeline Architecture. Timeline's architecture, first introduced in
OGL, is a multi-dimensional data segmentation capacity which exceeds
the capacity of all accounting data structures known to the Company.
This capacity enables the Timeline reporting products to accept data
from multiple transaction processing systems concurrently, to
combine such data into a single database and to add reporting
relationships not present in the source system(s).
- Generation Engine. The Company's generation engine, also introduced
in OGL, enables Timeline products to automate the conversion of
accounting data structures into Microsoft-compatible databases.
Prior technologies required substantial human intervention to
manually build tables, input forms and manipulate other attributes
of the data. It is this technology which allows automated building
of any number of databases for distribution throughout the
organization.
- Filter Technology. Timeline's filter technology was first introduced
in its MV product line. Filtering allows the Timeline product to
duplicate data directly from one or more transaction processing
systems, and to feed the data to the generation engine to
automatically build a new database resident in the Timeline
architecture. The Timeline product is tied directly to the
underlying systems. Changes made in these underlying systems (such
as adding a new accounting relationship for a newly purchased
company) are reflected in the Timeline database in an automated
manner. Prior
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technologies required substantial human intervention to
manually extract and import data and to maintain the
synchronization of the accounting and information systems.
A patent application is pending before the US Patent and Trademark Office on a
portion of the technology discussed above.
MICROSOFT ALLIANCE
Timeline licensed portions of its technology to Microsoft pursuant
to an agreement under which Timeline developed, on behalf of Microsoft, the
Microsoft(R) Small Business Financial Manager ("SBFM"). This product was
released in June, 1996, and is now a part of Microsoft's Small Business Office
suite. By using Timeline's architecture, Microsoft's product provides the small
office/home office ("SOHO") user a reporting environment based in Microsoft
Office for data drawn from accounting systems residing in other environments.
This reporting approach is consistent with the Timeline approach with its MV
products, which are targeted at large and mid-sized organizations. Microsoft's
adoption of the Company's architecture has the potential to establish Timeline's
technology as a widely-accepted standard in financial reporting, first at the
low end, and ultimately in the middle and large markets.
PRODUCTS
The Company's products allow the distribution of data sets of
information to the desktop. Timeline's primary product family, MV Analyst(TM)
and MV Server(TM), consists of a set of client/server software applications
based on Microsoft Windows(TM)/Windows NT(TM) and Microsoft Office operating
systems. Once data is contained in a local Microsoft Office database, the data
is available for each end user to develop his or her own analysis or personal
reports using normal Microsoft or Timeline-enhanced technology. The user can be
assured the data is as accurate as is the data in the underlying accounting
system.
The original MV Server(TM) product was introduced in late 1995 as a
financial and management reporting system which included modules to allow
traditional financial reporting, budgeting, foreign currency conversion,
consolidations and allocations. The various modules in the MV Server(TM) product
provide desktop and network reporting on information originating in a single or
multiple accounting systems within the enterprise. While this product can
provide many transaction-driven benefits, the Company's market focus is to use
MV Server(TM) as the data warehouse to handle larger volumes of data in
conjunction with MV Analyst(TM).
In June 1996, the Company made its first commercial release of MV
Analyst(TM), a "client" product which enables the user to view, create and
distribute reports in Microsoft Excel based on data from a single accounting
system. MV Analyst(TM), as the client, can be used with SBFM, as the "server,"
in the SOHO market to create and distribute custom reports based on the
particular needs of the office. MV Analyst(TM) is also the client to Timeline's
server-based software, allowing the distribution of reporting databases to
end-users throughout a larger enterprise.
Commencing in October 1996, the Company released the Manager upgrade
to MV Analyst(TM) designed for the "mid-level" market (i.e., businesses with
approximately six to 100 desktop users). This product completes the MV
Analyst(TM) suite by allowing the assignment of new reporting relationships at
the desktop level and the distribution of datasets between MV Analyst(TM) users
without the requirement of MV Server(TM).
OGL is a full-function general ledger that handles transaction
processing as well as financial reporting in a single environment. OGL is aimed
toward enterprises seeking a total enterprise-wide solution for both processing
and reporting. Despite early market acceptance of OGL, the Company has focused
its sales, marketing and development on the MV family of products. It is part of
the Company's strategy to form sales and marketing alliances with vendors of
general ledger products. In light of this policy, the Company is not pursuing
its own general ledger licenses as this would be deemed competitive to its
potential alliance partners.
In addition to client/server products, the Company develops, markets
and supports a fully integrated line of host- based accounting applications that
operate on VAX(R) and AXP(R) computer systems from Digital. This product line
represents a continuation of Timeline's historical core business and provides
ongoing maintenance, license and consulting revenue. Products in this market
include General Ledger, Accounts Payable, Accounts Receivable, Digibase,
Digicalc II(R), Fixed Assets, Inventory, Purchase Order and Association
Management.
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EXECUTIVE OFFICERS
The executive officers of the Company and their ages are as follows:
<TABLE>
<CAPTION>
NAME Age Position
---- --- --------
<S> <C> <C>
Charles R. Osenbaugh 48 President, Chief Executive Officer, Chief Financial Officer
and Director
John W. Calahan 53 Vice President - Business Development and Director
Donald K. Babcock 60 Senior Technologist and Director
Frederick W. Dean 45 Vice President - Product Management
Michael G. Evans 43 Managing Director, Timeline Europe Limited
Robert B. Wallace 47 Vice President - Consulting
</TABLE>
The following is a brief account of the business experience of each
executive officer of the Company.
CHARLES R. OSENBAUGH has served as Chief Financial Officer,
Treasurer, Secretary and a Director since the Company's inception in April 1993,
and has held the position of President and Chief Executive Officer since
November 1996. From April 1988 to April 1993, Mr. Osenbaugh served as Executive
Vice President, Chief Executive Officer and a Director, and from April 1993 to
July 1994 as President and a Director, of Timeline Services, Inc. From 1975 to
1988, Mr. Osenbaugh was a partner of Lasher & Johnson, a Seattle law firm. From
1973 to 1975, Mr. Osenbaugh practiced public accounting with Arthur Andersen &
Co. He holds a B.B.A. degree in economics and a J.D. degree, both from the
University of Iowa, and received his CPA certificate in 1974.
JOHN W. CALAHAN is a founder of the Company and has been a Director
since its inception in April 1993. He currently serves as Vice President -
Business Development, and previously was President and Chief Executive Officer
from April 1993 to November 1996. He was also a founder and director of the
Company's predecessor, Timeline Services, Inc., from its inception in 1977 until
its merger into the Company in July 1994. From 1977 to April 1993, Mr. Calahan
also served as President of Timeline Services, Inc. From 1971 to 1977, Mr.
Calahan practiced public accounting in Seattle with Arthur Andersen & Co., Ernst
& Ernst (now Ernst & Young), and Calahan, Reed & Gunn. He holds a B.A. degree in
accounting from the University of Washington and received his CPA certificate in
1972.
DONALD K. BABCOCK is a founder of the Company and has served as a
Director since its inception in April 1993. He currently serves as Senior
Technologist, and previously was Senior Vice President of Research & Development
and Chief Technologist. He was also a founder of Timeline Services, Inc. and
served as a director from its inception in 1977 until its merger into the
Company in July 1994. From 1977 to April 1993, Mr. Babcock also served as Senior
Vice President and Chief Technologist of Timeline Services, Inc. From 1970 to
1977, he was a consultant with Riggs, Babcock & Mishko, a Tacoma,
Washington-based data processing and consulting firm to the property and
casualty insurance industry. Mr. Babcock was Manager of Systems Programming at
United Pacific Insurance Company from 1965 to 1970, and a data processor in the
U.S. Air Force from 1955 to 1965.
FREDERICK W. DEAN serves as Vice President - Product Management and
has been a Vice President since the Company's inception in April 1993. From 1979
to April 1993, Mr. Dean served as Vice President at Timeline Services, Inc. He
practiced public accounting at Calahan, Reed & Gunn from 1978 to 1979, and at
Arthur Andersen & Co. from 1973 to 1977. From 1977 to 1978, Mr. Dean was the
Controller of the Seattle Mariners Baseball Club. Mr. Dean holds a B.A. degree
in accounting from the University of Washington.
MICHAEL G. EVANS has served as a Managing Director of London-based
Timeline Europe Limited since its inception in November 1995. From January 1995
to November 1995, Mr. Evans was Senior Director of Financial Applications for
North America at Comshare, Inc. Prior to this, Mr. Evans worked for Comshare's
United Kingdom
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subsidiary for nine years. Mr. Evans earned a B.A. with Honors from The
University of Kent in Canterbury, Kent, England in 1975, and was qualified as a
Chartered Accountant in 1978.
ROBERT B. WALLACE served as Vice President - Consulting and had been
with the Company since July 1994. Mr. Wallace resigned from the Company
effective March 31, 1997. From 1989 to April 1993, Mr. Wallace was the Vice
President of Sales and Marketing of Timeline Services, Inc. He served as Senior
Vice President and Chief Financial Officer of BMG Corporation, a Seattle-based
construction equipment manager, from 1987 to 1989. From 1983 to 1989, Mr.
Wallace was Senior Vice President, Chief Financial Officer and Chief Operating
Officer of Accountant MicroSystems, Inc., an accounting systems software company
in Bellevue, Washington. Mr. Wallace previously practiced public accounting with
Arthur Andersen & Co. He has a B.A. degree in accounting from the University of
Washington.
ITEM 2. DESCRIPTION OF PROPERTY
Timeline leases approximately 17,025 square feet of office space at
3055 112th Ave. N.E., Bellevue, Washington. The office space lease expires April
30, 2001. The Company also leases approximately 3,085 square feet of office
space located at 6250 River Road, Rosemont, Illinois, under a lease which
expires March 31, 1999. At 500 Chiswick High Road, London, United Kingdom, the
Company leases approximately 900 square feet of office space in a shared office
provider environment. The Company is in negotiations to sublease certain
portions of its office space in its Bellevue office.
Timeline does not own any real estate.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Timeline's common stock is traded on the Nasdaq SmallCap Market(sm)
("Nasdaq(R)") and the Boston Stock Exchange ("BSE") under the symbols "TMLN" and
"TML", respectively. Additionally, warrants to purchase common stock are traded
on both Nasdaq and BSE under the symbols "TMLNW" and "TMLW", respectively. Both
classes of securities initiated trading on January 18, 1995, the effective date
of the Company's initial public offering of common stock and warrants. The
following table contains the high and low trading price as reported by Nasdaq
for each quarter of fiscal 1996 and 1997.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997
--------------------------------------------- ----------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock
High 1 7/8 8 1/8 7 1/8 7 1/8 7 5/8 7 1/8 5 7/8 4 1/8
Low 3 1/8 5 1/4 4 1/2 4 4 3/4 4 7/8 1 5/16 1 1/8
Warrants
High 2 7/8 3 2 5/8 2 2 9/16 2 1/8 1 7/8 27/32
Low 3/8 1 1/2 1 3/8 1 1/4 1 1/8 1 1/4 9/32 9/32
</TABLE>
At March 31, 1997 there were 3,140,953 shares of common stock outstanding held
by approximately 83 holders of record. An additional 1,000,000 warrants to
purchase common stock were outstanding held by approximately 7 holders
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of record, each warrant allowing the purchase of one share of stock on or before
January 17, 2000 at a price of $6.25 per share.
In December 1996, the Company granted a warrant to Mr. Osenbaugh to
purchase 75,000 shares of common stock, at an exercise price of $1.63 per share,
as consideration for personally guaranteeing certain loans incurred by the
Company. Mr. Osenbaugh exercised the warrant in full in March 1997. The closing
trading price of the common stock on such date was $1.19 In connection with the
exercise of the warrant, Mr. Osenbaugh executed a promissory note for $95,603 in
favor of the Company.
No cash dividends have been paid on the stock of the Company and no
dividends are currently contemplated by management. There are no restrictions on
the payment of dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The charts below containing interim period information are provided solely as
part of Registrant's annual report to securityholders, and are not submitted as
a response to Item 6 of Form 10-KSB. The inclusion of the charts below does not
constitute or imply Registrant's agreement that such charts are subject to
Section 18 of the Exchange Act.
RESULTS OF OPERATIONS
For fiscal year ending March 31, 1997 Timeline's operating results
generated a net loss of $3,082,000, compared to a net loss of $1,423,000 for the
period ended March 31, 1996. A modest increase in gross revenue was more than
offset by increased expenses.
In late November, 1996, the Board of Directors appointed a new
President and Chief Executive Officer. The Company had been suffering
substantial losses throughout the prior five fiscal quarters and cash reserves
were depleted. New management has accelerated a program of substantially
reducing costs and personnel, most particularly in the direct sales and
marketing area and research and development. While operating losses have
continued, it is management's belief Timeline, Inc. cannot continue to support
research and development expenditures for new products (as opposed to
enhancements and new versions of existing products) and the direct sales model
and pricing required to support them are not in the long-term best interests of
the Company. It is anticipated this downsizing program will continue during the
first quarter of fiscal 1998 and beyond as the Company changes its methods and
approach to delivery of product to market through substantially greater focus on
joint marketing and reselling of product through vendors of related products.
GROSS REVENUE
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1997 1996 Change 1997 1996 Change
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Software license 473 304 56% 1,964 1,903 3%
Maintenance 225 207 9% 827 893 (7%)
Consulting 203 445 (54%) 1,877 1,851 1%
Software Development 188 - N/A 835 400 109%
----------------------- --------------------
Net sales 1,089 956 14% 5,503 5,047 9%
- -----------------------------------------------------------------------------------------------
</TABLE>
Total revenue increased 9% to $5,503,000 for the fiscal year ended
March 31, 1997. Both software license revenue (up 3%) and consulting revenue (up
1%) were softer than expected. Software development reflects revenue earned in
building filters for various accounting systems and Microsoft Corporation's
Small Business Financial Manager. Development fees are expected to decrease in
fiscal 1998.
Maintenance revenue was down $66,000 (7%) during the 1997 fiscal
year compared to fiscal 1996. These results reflect continuing weakness in
maintenance revenue from the installed base of Timeline software for Digital
Equipment Corporation VAX and AXP based systems. This trend of decreasing
revenue relating to Timeline's Digital based systems will most likely continue.
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GROSS MARGIN
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1997 1996 Change 1997 1996 Change
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Gross profit 483 571 (15%) 3,222 3,218 0%
Percentage of net sales 44% 60% 59% 64%
- ----------------------------------------------------------------------------------------
</TABLE>
Cost of revenue increased during the 1997 fiscal year by $452,000
(25%) over the 1996 fiscal year. Cost of revenue has increased as a percentage
of sales primarily due to an increase in amortization of capitalized software
costs to $218,000 in 1997 compared to $73,000 in 1996. Cost of revenue has also
increased due to additional consulting and development personnel that generated
lower margin revenues. Most of this increase occurred early in the fiscal 1997
year in the US and throughout the year in Europe. Cost of revenue is expected to
decrease in total dollars and as a percentage of revenues due to the Company
utilizing more distributors to sell and install its products, resulting in less
demand for consulting services. Due to a considerable reduction in consulting
staff in the US during the last two fiscal quarters, cost of revenue is expected
to decline in fiscal 1998.
SALES AND MARKETING & RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1997 1996 Change 1997 1996 Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Sales and marketing 200 552 (64%) 2,513 1,616 56%
Percentage of net sales 18% 58% 46% 32%
- ------------------------------------------------------------------------------------------
Research & development 440 423 4% 1,416 973 46%
Percentage of net sales 40% 44% 26% 19%
- ------------------------------------------------------------------------------------------
</TABLE>
Sales and marketing costs increased 56% to $2,513,000 in fiscal 1997
from $1,616,000 in fiscal 1996. This increase was mostly in the first two
quarters of the fiscal year and is directly attributable to the opening of sales
and marketing offices in London, England, in November 1995, and in the Chicago
area in January 1996. These increased expenses did not generate the desired
increase in license revenue, particularly in the Chicago office. Consequently,
the Chicago office was dramatically downsized in August 1996 and closed
effective April 30, 1997. The London office has continued to grow. While
operating results in London were not profitable for the fiscal year, this office
has not been the subject of cut-backs in personnel. The Company is seeking to
sell a majority interest in Timeline Europe Limited in exchange for cash and a
future royalty stream. As part of this transaction, it is anticipated that the
operations of Timeline Europe Limited will no longer be consolidated with
Timeline, Inc. With the closure of the Chicago office and the sale of a majority
interest in Timeline Europe Limited, it is anticipated sales and marketing
expenses will show a substantial decrease in fiscal 1998. No assurances can be
made that the Timeline Europe Limited transaction will be completed, or the
terms and conditions will not change materially during subsequent negotiations.
Research and development costs were $1,416,000 in fiscal 1997
compared to $973,000 in fiscal 1996, a 46% increase. The increase in research
and development costs was the result of new programmers being hired in fiscal
1996 to staff the production of new product offerings released in June through
October 1996. The new products represent Timeline, Inc.'s desktop MV
Analyst(TM) series. The new Timeline products are intended to be marketed into
the middle tier accounting software market. The Company's product line has
historically been licensed to high end accounting system users. Management
believes, barring any large contracts to do development for third parties,
research and development expenditures will decrease during comparable periods of
fiscal 1998.
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GENERAL AND ADMINISTRATIVE EXPENSE
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1997 1996 Change 1997 1996 Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
General & administrative 538 726 (26%) 1,984 1,983 0%
Percentage of net sales 49% 76% 36% 39%
- ------------------------------------------------------------------------------------------
</TABLE>
General and administrative expenses remained almost constant at
$1,984,000 in fiscal 1997 from $1,983,000 in fiscal 1996. This actually
represents the results of a substantial program of cost reduction in this area
in the US since new management took over in November 1996. These reductions are
offset by increased general and administrative expenses in Europe due to growth
in that office, and higher rents throughout the year due to larger offices in
the Bellevue headquarters, Chicago and London, as compared to fiscal 1996.
Depreciation expense increased in fiscal 1997 to $270,000 from
$165,000 in fiscal 1996. This increase reflects depreciation on approximately
$794,000 of new equipment and fixtures purchased during fiscal 1996 and fiscal
1997 for use by additional personnel and to equip the new and expanded offices
occupied during a portion of fiscal 1996 and all of fiscal 1997.
Interest expense increased 237% to $138,000 in fiscal 1997 from
$41,000 in fiscal 1996. Interest income decreased to $16,000 from $136,000 for
fiscal 1996. These changes reflect the higher balance of debt and lower average
investment balances during fiscal 1997.
The Company did not record a tax benefit in either year as the tax
assets generated by the net operating losses do not satisfy the recognition
criteria set forth by generally accepted accounting principles. Accordingly, a
valuation allowance that offsets net deferred tax assets has been established.
LIQUIDITY AND CAPITAL RESOURCES.
Adequate funds may not be available when needed or on terms
acceptable to the Company in order to continue operations. The Company's cash
and short-term investment balances at March 31, 1997 stood at $187,000 compared
to $392,000 at March 31, 1996. The decrease in cash is primarily attributable to
the substantial operating loss incurred in fiscal 1997. Total obligations,
excluding deferred income items, totaled $2,122,000 at March 31, 1997 as
compared to $1,306,000 at March 31, 1996. The fiscal 1996 obligations include a
corporate guarantee of a $500,000 bank note payable by the Timeline Employee
Stock Ownership Trust to Silicon Valley Bank. This guarantee represents $354,000
of the fiscal 1997 total. This note is intended to be repaid from employee and
matching employer contributions under the Timeline Employee Stock Ownership Plan
(the "ESOP"). The Company is currently out of compliance with certain debt
covenants associated with the ESOP debt and has therefore classified this debt
as current. During fiscal 1997, the President and CEO of the Company personally
guaranteed this debt with the bank.
Net cash used in operating activities was $2,206,000 in fiscal 1997
as compared to $1,553,000 in fiscal 1996, which was primarily attributable to
the increased net loss incurred in fiscal 1997. During fiscal 1997, the Company
spent $161,000 on equipment and $683,000 on software development costs. The
Company sold its short-term investments for $107,000 during the same period. In
May 1996, the Company received net proceeds of $2,302,000 from the sale of
521,530 shares of common stock. The Company made borrowings on its lines of
credit and notes payable totaling $699,000 during fiscal 1997 partially offset
by repayments on debt and capital lease obligations of $247,000 during the same
period.
Additional borrowings, sales of equity or debt instruments, or
substantial sales of assets will be required to fund operations during fiscal
1998. Management is currently seeking to sell a majority of the stock of
Timeline Europe Limited to third parties. The transaction is expected to yield a
cash infusion for both Timeline, Inc. and Timeline Europe Limited. In addition,
Timeline Europe Limited is expected to pay a royalty stream to Timeline, Inc.,
which would not begin until fiscal 1999. No assurance can be given, however,
that any Timeline Europe Limited transaction will be consummated.
Page 9
<PAGE> 10
At March 31, 1997, the outstanding balance on the Company's line of
credit facility was $200,000 in the US and $149,000 in Timeline Europe Limited.
Subsequent to fiscal year end, the Company has secured a bank line of credit of
$625,000 based upon selling its accounts receivable with recourse and used
$428,000 of this to repay other debt In June 1997, the Company secured a
$150,000 loan, secured by certain equipment owned by the Company, that is
payable in equal monthly payments over a 24 month period.
Page 10
<PAGE> 11
ITEM 7. FINANCIAL STATEMENTS
Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants 14
Consolidated Balance Sheets as of March 31, 1997 and 1996 15
Consolidated Statements of Operations for the years ended
March 31, 1997 and 1996 16
Consolidated Statements of Changes in Stockholders' Equity 17
Consolidated Statements of Cash Flows for the years ended
March 31, 1997 and 1996 18
Notes to Consolidated Financial Statements 19
</TABLE>
Page 11
<PAGE> 12
This page intentionally left blank.
Page 12
<PAGE> 13
TIMELINE, INC.
FINANCIAL STATEMENTS
AS OF MARCH 31, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
Page 13
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Timeline, Inc.:
We have audited the accompanying consolidated balance sheets of Timeline, Inc.
(a Washington corporation) as of March 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Timeline, Inc. as of March 31,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Seattle, Washington,
May 16, 1997
Page 14
<PAGE> 15
TIMELINE, INC.
CONSOLIDATED BALANCE SHEETS -- MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
---------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 187,428 $ 284,542
Short-term investments - 107,174
Accounts receivable, net of allowance of
$99,146 and $69,601 1,258,143 1,181,322
Prepaid expenses and other 218,365 295,126
---------- ----------
Total current assets 1,663,936 1,868,164
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,515,126 and $1,245,908 737,611 853,174
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $469,975 and $251,777 674,485 210,040
OTHER ASSETS 24,333 86,447
---------- ----------
Total assets $3,100,365 $3,017,825
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 569,981 $ 422,534
Accrued expenses 497,537 280,914
Line of credit 348,950 -
Deferred revenues 354,643 431,503
Current portion of long-term debt 659,782 125,000
Current portion of obligations under capital leases 19,939 64,511
---------- ----------
Total current liabilities 2,450,832 1,324,462
LONG-TERM DEBT, net of current portion - 375,000
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 25,719 38,204
---------- ----------
Total liabilities 2,476,551 1,737,666
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares authorized,
3,216,153 and 2,614,576 issued and outstanding 32,162 26,146
Additional paid-in capital 9,266,159 6,847,329
Unearned ESOP shares (391,366) (500,000)
Stock subscription receivable (95,603) -
Foreign currency adjustment (15,910) (4,163)
Accumulated deficit (8,171,628) (5,089,153)
---------- ----------
Total stockholders' equity 623,814 1,280,159
---------- ----------
Total liabilities and stockholders' equity $3,100,365 $3,017,825
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
Page 15
<PAGE> 16
TIMELINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
REVENUES:
Software license $ 1,964,096 $ 1,902,813
Software development 834,961 400,000
Maintenance 826,936 892,703
Consulting 1,877,050 1,851,761
----------- -----------
Total revenues 5,503,043 5,047,277
COST OF REVENUES 2,281,070 1,828,790
----------- -----------
Gross profit 3,221,973 3,218,487
----------- -----------
OPERATING EXPENSES:
Sales and marketing 2,513,220 1,616,071
General and administrative 1,983,769 1,982,733
Research and development 1,415,988 972,983
Depreciation 270,026 164,870
----------- -----------
Total operating expenses 6,183,003 4,736,657
----------- -----------
Loss from operations (2,961,030) (1,518,170)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 16,390 136,077
Interest expense and other (137,835) (40,737)
----------- -----------
Total other income (expense) (121,445) 95,340
----------- -----------
Net loss $(3,082,475) $(1,422,830)
=========== ===========
NET LOSS PER COMMON SHARE $ (1.04) $ (.56)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,965,249 2,519,376
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 16
<PAGE> 17
TIMELINE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Unearned Stock
------------------------- Paid-in ESOP Subscription
Shares Amount Capital Shares Receivable
--------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, March 31, 1995 2,519,376 $ 25,194 $ 6,348,281 $ - $ -
Net loss - - - - -
Issuance of common shares
to ESOP 95,200 952 499,048 (500,000) -
Foreign currency translation
adjustment - - - - (4,163)
----------- ----------- ----------- ----------- -----------
BALANCE, March 31, 1996 2,614,576 26,146 6,847,329 (500,000) -
Net loss - - - - -
Secondary offering of
common stock, net 521,530 5,215 2,297,180 - -
Exercise of common stock
options 90,390 904 175,848 - (95,603)
Retirement of ESOP shares (10,343) (103) (54,198) 54,301 -
Amortization of unearned
ESOP shares - - - 54,333 -
Foreign currency translation
adjustment - - - - -
----------- ----------- ----------- ----------- -----------
BALANCE, March 31, 1997 3,216,153 $ 32,162 $ 9,266,159 $ (391,366) $ (95,603)
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Foreign
Currency Accumulated
Adjustment Deficit Total
------------ ------------ ----------
<S> <C> <C> <C>
BALANCE, March 31, 1995 $ - $(3,666,323) $ 2,707,152
Net loss - (1,422,830) (1,422,830)
Issuance of common shares
to ESOP - - -
Foreign currency translation
adjustment - (4,163)
----------- ----------- -----------
BALANCE, March 31, 1996 (4,163) (5,089,153) 1,280,159
Net loss - (3,082,475) (3,082,475)
Secondary offering of
common stock, net - - 2,302,395
Exercise of common stock
options - - 81,149
Retirement of ESOP shares - - -
Amortization of unearned
ESOP shares - - 54,333
Foreign currency translation
adjustment (11,747) - (11,747)
----------- ----------- -----------
BALANCE, March 31, 1997 $ (15,910) $(8,171,628) $ 623,814
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 17
<PAGE> 18
TIMELINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,082,475) $(1,422,830)
Adjustments to reconcile net loss to cash
used in operating activities-
Depreciation and amortization 501,145 245,751
Compensation expense on stock option exercises 39,941 -
Changes in assets and liabilities:
Accounts receivable (76,821) (507,474)
Prepaid expenses and other 153,797 (58,552)
Accounts payable 70,411 206,227
Accrued expenses 216,623 94,600
Deferred revenues (76,860) (51,348)
Other noncurrent assets 48,659 (59,340)
----------- -----------
Net cash used in operating activities (2,205,580) (1,552,966)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (160,986) (582,286)
Proceeds from sales of property and equipment 7,057 -
Payments for software development costs (682,643) (167,094)
Sales of short-term investments 107,174 1,792,826
----------- -----------
Net cash provided by (used in) investing activities (729,398) 1,043,446
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of shares to ESOP - 500,000
Costs of ESOP financing - (27,107)
Payments on capital lease obligations (57,057) (62,050)
Borrowings under line of credit 348,950 1,499,578
Repayments under line of credit - (1,499,578)
Proceeds from notes payable 350,000 -
Payments on notes payable (190,218) -
Sale of common and preferred stock and warrants 2,397,936 -
----------- -----------
Net cash provided by financing activities 2,849,611 410,843
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (11,747) (4,163)
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (97,114) (102,840)
CASH AND CASH EQUIVALENTS, beginning of year 284,542 387,382
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 187,428 $ 284,542
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for interest $ 91,403 $ 35,264
Capital lease obligations incurred - 50,923
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 18
<PAGE> 19
TIMELINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. THE COMPANY:
Organization
The accompanying financial statements are for Timeline, Inc. and its
wholly-owned subsidiary, Timeline Europe Limited, collectively, the Company. The
Company develops, markets and supports enterprise-wide financial management
software.
Operations
As of March 31, 1997, the Company had an excess of current liabilities over
current assets of $786,896 and had an accumulated deficit of $(8,171,628), with
total stockholders' equity of $623,814. Management is in the process of
evaluating alternatives for raising additional funds and returning the Company
to profitable operations. These alternatives include a sale of all or a portion
of its interests in Timeline Europe Limited, the license or sale of part of its
patented software, agreements with distribution partners to market the Company's
products and entering into debt agreements. If these alternatives are
unsuccessful, the Company would need to reduce costs substantially until sales
from operations generate sufficient cash flows to continue to fund operations
and development, otherwise the Company may cease operations.
In addition to the need for additional funds described above, the Company has
other risk factors which could influence the Company's ability to continue
operations. These risks include, but are not limited to, the uncertainty of
market acceptance, technological change and uncertainty, competition, reliance
on distributors and dependence on key personnel.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
These financial statements have been prepared in accordance with generally
accepted accounting principles and assuming that the Company will continue as a
going concern. The financial statements do not include any adjustments that
would result if the Company were not to continue as a going concern. 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. Actual results could
differ from these estimates. Other significant accounting policies are
summarized in the following paragraphs.
Reclassifications
Certain reclassifications have been made to the prior year's financial
statements in order to conform them to the current year's presentation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a purchased maturity of
three months or less to be cash equivalents. Cash equivalents are valued at
cost, which approximates fair value due to the short-term nature of these
investments.
Page 19
<PAGE> 20
Short-term Investments
The Company has classified all of its investments as available-for-sale, at the
time of purchase. There were no material unrealized gains or losses on these
investments as of March 31, 1997 and 1996. As of March 31, 1996, investments
consisted entirely of a federal agency security.
Property and Equipment
Property and equipment are stated at historical cost. Improvements and
replacements are capitalized. Maintenance and repairs are expensed when
incurred. The provision for depreciation is determined by the straight-line
method, which allocates the cost of property and equipment additions, including
capital leases, over the shorter of the lease period or their estimated useful
lives of three to seven years.
Capitalized Software Costs and Research and Development Costs
The Company capitalizes certain internally generated software development costs,
which consist primarily of salaries, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86. Amounts capitalized relate to software
development costs incurred after the technological feasibility and market
acceptance of a product line have been established. Amortization is recognized
using the straight-line method over the products' remaining estimated economic
lives of three years. Amortization starts when the product is available for
general release to customers. During fiscal 1997 and 1996, the Company
capitalized $682,643 and $167,094, respectively, of software development costs.
Amortization expense for fiscal 1997 and 1996 was $218,198 and $72,780,
respectively. The amortization is included in cost of revenues in the
accompanying statements of operations.
All research and development costs are expensed as incurred.
Revenue Recognition
Revenue from software licenses is recognized upon shipment, provided no
significant vendor obligations remain and collection of the resulting receivable
is deemed probable. Software licenses sold, for which there are still
significant vendor obligations or right of return, are recorded as deferred
revenue and are recognized as revenue upon the fulfillment of the obligation or
lapse of the return period. Software licenses typically include a three-month
warranty period. The revenues attributable to the warranty are recognized
ratably over the warranty period.
The Company enters into post-contract customer-support maintenance agreements,
which are renewable annually. Revenue from these maintenance agreements is
recognized ratably over the maintenance period.
The Company also enters into separately priced consulting agreements with its
customers to provide installation, training and other consulting services. These
agreements are generally priced on a time and materials basis and revenues are
recognized as the services are performed. The nature of the services do not
significantly alter the licensed software.
3. MAJOR CUSTOMERS:
During fiscal 1997, sales to one customer comprised approximately 15% of the
Company's total revenue. The revenues from this customer were collected in full
during the fiscal year.
Net Loss per Common Share
Net loss per common share was based on the weighted average number of common
shares outstanding during each period. Common stock equivalents include shares
issuable upon the exercise of outstanding stock options or warrants. These
shares are not included in the computation of net loss per share because the
effect of including such shares would be antidilutive. Furthermore, shares in
the Employee Stock Ownership Plan, which were not committed to be released to
plan participants as of each year-end, are not considered outstanding for the
EPS calculation.
Page 20
<PAGE> 21
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Computer equipment $1,769,457 $1,616,632
Office equipment 483,280 482,450
----------- ----------
2,252,737 2,099,082
Less-- accumulated depreciation (1,515,126) (1,245,908)
---------- ----------
Total property and equipment $ 737,611 $ 853,174
========== ==========
</TABLE>
5. FINANCING ARRANGEMENTS:
Lines of Credit
In January 1997, the Company entered into a line of credit for an amount not to
exceed the lesser of: (i) $400,000 at any one time or (ii) 75% of the net amount
of eligible accounts receivable less the outstanding balance on the equipment
loan. The line of credit has a variable rate of interest of prime plus 2% (10.5%
at March 31, 1997). Related borrowings are secured by the Company's accounts
receivable. As of March 31, 1997, $200,000 was outstanding under the line of
credit. The line of credit expired during May 1997. Timeline Europe Limited also
maintains an overdraft facility secured by accounts receivable. At March 31,
1997, $148,950 was drawn on this facility.
Equipment Loan
In January 1997, the Company obtained an equipment loan for an amount not to
exceed the lesser of (i) $350,000 at any one time or (ii) 50% of the net book
value of unencumbered equipment purchased on or prior to December 31, 1995, plus
80% of the invoice value of equipment purchased after December 31, 1995. The
equipment loan accrues interest at 10.5%. The outstanding balance of $307,000 as
of March 31, 1997, was refinanced subsequent to year-end.
Subsequent Financing
During May 1997, the Company sold a portion of its accounts receivable with
recourse in a line of credit agreement with its primary lender. Under the
agreement, the Company may sell receivables with recourse in an amount up to
$625,000. The Company used the proceeds to retire approximately $428,000 of
current and long-term borrowings, with the remainder going to working capital
debt.
Employee Stock Ownership Plan
During March 1996, the Company established an Employee Stock Ownership Plan
(ESOP) that covers substantially all U.S. employees. The Company registered and
sold 95,200 shares of common stock (3% of the total outstanding at March 31,
1997) to the ESOP. Financing for the purchase was provided by a $500,000 bank
loan which is a direct obligation of the Company's Employee Stock Ownership
Trust (the Trust) and is secured by pledge of the shares purchased and is
guaranteed by the Company and the chief executive officer. The guarantee
agreement with the lender also requires the Company to meet certain financial
covenants. As of March 31, 1997 and 1996, the Company was out of compliance with
certain of these covenants, including minimum liquidity and other performance
related covenants. Due to this, the entire balance is classified as a current
liability.
Funds for payment of the note principal and interest are obtained by the ESOP
from employee contributions and a Company match which is included in general and
administrative expenses as well as Company advances to the ESOP. The outstanding
balance of the note is included as a liability on the balance sheet. The Company
has recorded the cost of unallocated shares as unearned ESOP shares. During
1997, the Company applied $54,000 of its prepayments to the ESOP to repurchase
and retire 10,343 shares of its common stock.
Page 21
<PAGE> 22
The ESOP note bears interest at the prime rate plus 2% (10.5% at March 31,
1997). Minimum principal payments are as follows:
<TABLE>
<S> <C>
1998 $104,167
1999 125,000
2000 125,000
--------
$354,167
=========
</TABLE>
6. FEDERAL INCOME TAXES:
Federal income taxes are determined using an asset and liability approach.
The Company has determined that the deferred tax assets do not satisfy the
recognition criteria set forth in SFAS No. 109. Accordingly, a valuation
allowance has been recorded against the applicable deferred tax assets and
therefore no tax benefit has been recorded in the accompanying statement of
operations. The Company's net deferred tax assets (liabilities) as of March 31
are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Net operating loss carryforward $2,388,000 $1,223,000
Research and experimentation credit 330,000 290,000
Deferred revenues 121,000 147,000
Capitalized software costs (229,000) (71,000)
Other 102,000 62,000
--------- ---------
2,712,000 1,651,000
Less - valuation allowance (2,712,000) (1,651,000)
----------- ------------
Net deferred tax assets $ - $ -
=========== ============
</TABLE>
The net operating loss carryforwards and research and experimentation credit
carryforwards expire through 2012.
In connection with its initial public offering, the Company experienced a
significant change in ownership, which limits the amount of previously generated
net operating loss carryforwards and research and experimentation credits which
may be used in any given year to approximately $300,000.
7. 401(k) SAVINGS AND PROFIT SHARING PLAN:
All employees of the Company over 21 years of age have the option of
participating in a company-sponsored 401(k) savings and profit sharing plan.
Employees can contribute up to 15% of their gross pay subject to statutory
maximums. At its discretion, the Company may make contributions to the plan
based on a percentage of participants' contributions. Employer contributions
vest over a period of seven years. The Company has made no contributions to the
plan in either of the years ended March 31, 1997 or 1996.
Page 22
<PAGE> 23
8. COMMITMENTS AND CAPITAL LEASE OBLIGATIONS:
Leases
The Company has entered into noncancelable lease agreements involving equipment
and office space. The following is a schedule of future minimum lease payments
under both capital and operating leases as of March 31, 1997:
<TABLE>
<CAPTION>
Capital Operating
------- ---------
<S> <C> <C>
1998 $ 27,899 $ 386,389
1999 15,419 385,856
2000 15,419 347,813
2001 5,141 310,842
-------- -----------
Total minimum lease payments 63,878 $1,430,900
==========
Less-- amount representing interest and tax costs (18,220)
----------
Present value of net minimum
lease payments 45,658
Less-- current portion (19,939)
--------
$ 25,719
--------
</TABLE>
Rental expense for operating leases amounted to $452,632 and $290,660 for the
years ended March 31, 1997 and 1996, respectively.
9. STOCKHOLDERS' EQUITY:
Initial and Secondary Public Offering
During fiscal 1995, the Company completed its initial public offering. The
offering was for 1,000,000 units, consisting of one share of common stock and
one warrant to purchase one share of common stock for $6.25 at any time through
January 17, 2000.
During May 1996, the Company closed a sale of 521,530 shares of common stock in
a private placement offering, for net proceeds of $2,302,000. Warrants to
purchase 36,000 shares of common stock were issued as partial fees for this
offering.
Stock Options and Warrants
The Company has a 1994 Stock Option Plan (the "1994 Plan") and a Directors'
Nonqualified Stock Option Plan (the "Directors' Plan"). An aggregate of 250,000
shares of common stock are reserved for issuance upon exercise of options
granted to the Company's employees, directors and consultants under the 1994
Plan and the Directors' Plan (collectively, the "Stock Option Plans") and 50,500
are available for grant as of March 31, 1997. The exercise price of any options
to be granted is equal to or greater than the fair market value of the common
stock at the date of grant. The Company also has a 1993 Stock Option Plan (the
"Old Plan"). A total of 132,000 shares of Common Stock have been reserved for
issuance under the Old Plan. As of March 31, 1997, no further option grants are
available under this plan. Options under these plans vest ratably over three- or
four-year periods. The term of the options is for a period of 10 years or less.
Options automatically expire 90 days after termination of employment.
Page 23
<PAGE> 24
Options outstanding as of each period are as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options and Exercise
Warrants Price
------------------ --------
<S> <C> <C>
Balance, March 31, 1995 280,949 $2.53
Granted 186,800 5.03
Canceled (13,344) 3.64
------- -----
Balance, March 31, 1996 454,405 3.53
Granted 229,500 2.36
Exercised (98,427) 1.94
Canceled (174,080) 4.64
------- -----
Balance, March 31, 1997 411,398 $2.78
======= =====
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Accordingly, no compensation cost has
been recognized for stock options issued at market value on the date of grant.
Had compensation cost for the Company's stock option plans been determined based
on the fair value of the options at the grant date for awards in 1997 and 1996,
consistent with the provisions of SFAS No. 123, the Company's net loss and net
loss per common equivalent share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
-------------- ----------------
<S> <C> <C>
Net loss - as reported $ (3,082,475) $ (1,422,830)
Net loss - pro forma (3,168,093) (1,465,986)
Net loss per common and common
equivalent share - as reported (1.04) (.56)
Net loss per common and common
equivalent share - pro forma (1.07) (.58)
</TABLE>
The fair value of each option grant is established on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during 1997 and 1996: zero dividend yield; expected
volatility of 73%; risk-free interest rates varying by grant date between 6.13%
and 6.38%; and expected lives of five years. Because the SFAS No. 123 method of
accounting has not been applied to options granted prior to April 1, 1995, the
resulting pro forma compensation cost may not be representative of that to be
expected in future years. The weighted-average grant date fair value of options
granted during fiscal 1997 and 1996, was $1.60 and $3.08, respectively.
In connection with its initial public offering, the Company issued warrants to
purchase 1,000,000 shares of common stock for $6.25 per share, subject to
adjustment. The warrants are subject to redemption by the Company at $.05 per
warrant if the closing bid price of the common stock averages in excess of
$10.00.
Page 24
<PAGE> 25
Information relating to stock options outstanding and stock options exercisable
at March 31, 1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Exercise Prices of Shares Life in Years Share Price of Shares Share Price
- ------------------------ --------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
$.06............................................ 64,644 6.4 $0.06 64,644 $0.06
$1.63-$2.19..................................... 142,104 8.8 $2.10 35,104 $1.82
$2.94-$6.75..................................... 204,650 7.4 $4.12 126,815 $3.90
------- --- ----- -------- -----
411,398 7.7 $2.78 226,563 $2.18
======= =======
</TABLE>
10. NEW ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share", which is effective for periods beginning after December
15, 1997. SFAS No. 128 establishes new standards for computing and presenting
earnings per share (EPS). Companies will now report basic EPS and diluted EPS in
place of to primary and fully diluted EPS, which were previously reported. Under
the new standard, the Company's basic and diluted EPS for the year ended March
31, 1997, would be the same as the current EPS reported.
Page 25
<PAGE> 26
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information called for by Items 9 through 12 of Part III is included in the
Registrant's Proxy Statement and is incorporated herein by reference. The
information appears in the Proxy Statement under the captions "Election of
Directors," "Security Ownership of Directors and Executive Officers," "Executive
Compensation" and "Certain Transactions." For certain other information called
for by Item 9, pertaining to executive officers of the Registrant, see
"Executive Officers" in Item 1 of Part I of this Form 10-KSB.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER Description
------ -----------
<S> <C>
2.1* Articles of Merger of Timeline Services, Inc. into Timeline, Inc.
3.1* Articles of Incorporation, as amended and in effect
3.2* Bylaws
4.1* Specimen Common Stock Certificate
4.2* Form of Warrant Agreement with Representative and Warrant Agent
4.3* Form of Representative's Warrant
4.4* Specimen Redeemable Common Stock Purchase Warrant
10.1.A* Amended and Restated 1993 Stock Option Plan
10.1.B* Form of Employee Stock Option Agreement
10.2* 1994 Stock Option Plan
10.3* Directors' Nonqualified Stock Option Plan
10.4** Employee Stock Ownership Plan
Common Stock Purchase Warrants issued in
consideration of loans or loan
guarantees:
10.5.A* Warrant issued July 31, 1994 to Frederick W. Dean
10.5.B* Warrant issued July 31, 1994 to Charles R. Osenbaugh
10.5.C* Warrant issued July 31, 1994 to John W. Calahan
10.5.D* Warrant issued July 31, 1994 to Michael R. Hallman
Employment Agreements
10.6.A* Form of Employment Agreement with John W. Calahan
10.6.B* Form of Employment Agreement with Donald K. Babcock
10.7* Form of Indemnification Agreement with directors and officers
10.8* Form of Employee (Confidentiality) Agreement
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
10.9* Form of License Agreement for Computer Application Software
(client/server)
10.10* Form of License Agreement for Computer Application Software (VAX-
based)
10.11* Form of Basic Service for Software Agreement
10.12* Form of Value Added Reseller (Distribution) Agreement
10.13* Solution Provider Agreement with Microsoft Corporation dated September
23, 1994
10.14* Private Label Software Development and Distribution Agreement dated
January 7, 1994 with CompuServe/Collier-Jackson
10.15* U.S. Patent and Trademark Office Notice of Allowance (Serial No.
08/162,839 [3/28/94])
10.16 Lease Agreement dated September 8, 1995, as amended, with G&W
Investment Partners
10.17*** Form of Consulting Partners Agreement
10.18 Promissory Note dated March 31, 1997 from Charles Osenbaugh to the
Registrant
11.1*** Statement re: computation of per share earnings
21.1* Subsidiary of Timeline, Inc.
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
</TABLE>
*Incorporated herein by reference from Item 27 of Registrant's Form SB-2.
**Incorporated herein by reference from the Registrant's Registration Statement
on Form S-8 filed on March 11, 1996.
***Incorporated herein by reference from Item 13 of Registrant's Form 10-KSB for
the year ended March 31, 1995.
(b) No reports on Form 8-K were filed during the quarter ended March
31, 1997.
Page 27
<PAGE> 28
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Timeline, Inc.
By: /s/ Charles R. Osenbaugh
-------------------------
Charles R. Osenbaugh, President
Dated: June 17, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Capacities Date
--------- ---------- ----
<S> <C> <C>
Director
/s/ Charles R. Osenbaugh President June 17, 1997
- --------------------------------
Charles R. Osenbaugh Chief Executive Officer
Chief Financial Officer
Treasurer and Secretary
Director
/s/ John W. Calahan Vice President - June 17, 1997
- --------------------------------
John W. Calahan Business Development
/s/ Donald K. Babcock Director June 17, 1997
- --------------------------------
Donald K. Babcock Senior Technologist
/s/ Michael R. Hallman Director June 17, 1997
- --------------------------------
Michael R. Hallman
/s/ Kent L. Johnson Director June 17, 1997
- --------------------------------
Kent L. Johnson
</TABLE>
Page 28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER Description PAGE
- ------- ----------- ------------
<S> <C> <C>
2.1* Articles of Merger of Timeline Services, Inc. into Timeline, Inc.
3.1* Articles of Incorporation, as amended and in effect
3.2* Bylaws
4.1* Specimen Common Stock Certificate
4.2* Form of Warrant Agreement with Representative and Warrant Agent
4.3* Form of Representative's Warrant
4.4* Specimen Redeemable Common Stock Purchase Warrant
10.1.A* Amended and Restated 1993 Stock Option Plan
10.1.B* Form of Employee Stock Option Agreement
10.2* 1994 Stock Option Plan
10.3* Directors' Nonqualified Stock Option Plan
10.4** Employee Stock Ownership Plan
Common Stock Purchase Warrants issued in
consideration of loans or loan
guarantees:
10.5.A* Warrant issued July 31, 1994 to Frederick W. Dean
10.5.B* Warrant issued July 31, 1994 to Charles R. Osenbaugh
10.5.C* Warrant issued July 31, 1994 to John W. Calahan
10.5.D* Warrant issued July 31, 1994 to Michael R. Hallman
Employment Agreements
10.6.A* Form of Employment Agreement with John W. Calahan
10.6.B* Form of Employment Agreement with Donald K. Babcock
10.7* Form of Indemnification Agreement with directors and officers
10.8* Form of Employee (Confidentiality) Agreement
10.9* Form of License Agreement for Computer Application Software
(client/server)
10.10* Form of License Agreement for Computer Application Software (VAX-
based)
10.11* Form of Basic Service for Software Agreement
10.12* Form of Value Added Reseller (Distribution) Agreement
10.13* Solution Provider Agreement with Microsoft Corporation dated September
23, 1994
10.14* Private Label Software Development and Distribution Agreement dated
January 7, 1994 with CompuServe/Collier-Jackson
10.15* U.S. Patent and Trademark Office Notice of Allowance (Serial No.
08/162,839 [3/28/94])
10.16 Lease Agreement dated September 8, 1995, as amended, with G&W
Investment Partners
10.17*** Form of Consulting Partners Agreement
10.18 Promissory Note dated March 31, 1997 from Charles Osenbaugh to the
Registrant
11.1*** Statement re: computation of per share earnings
21.1* Subsidiary of Timeline, Inc.
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
</TABLE>
*Incorporated herein by reference from Item 27 of Registrant's Form SB-2.
**Incorporated herein by reference from the Registrant's Registration Statement
on Form S-8 filed on March 11, 1996.
***Incorporated herein by reference from Item 13 of Registrant's Form 10-KSB for
the year ended March 31, 1995.
<PAGE> 1
Exhibit 10.16
ORIGINAL
OFFICE LEASE
BY AND BETWEEN
G & W INVESTMENT PARTNERS
A NINI KUMIA FORMED UNDER THE LAWS OF JAPAN,
LANDLORD,
AND
TIMELINE, INC.
A WASHINGTON CORPORATION,
TENANT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
PAGE
NUMBER TITLE NUMBER
<S> <C> <C>
SECTION I. TERMS AND DEFINITIONS......................................................1
SECTION II. PROPERTY LEASED............................................................2
A. Premises..............................................................2
B. Common Areas..........................................................2
C. Minor Variations In Area..............................................2
D. Substitution of Space.................................................2
SECTION III. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES............................3
A. Lease Commencement Date...............................................3
B. Completion of Tenant Improvements
And Possession of Premises............................................3
C. Extension of Lease Commencement Date..................................3
D. Acceptance and Suitability............................................3
SECTION VIII. USE OF PREMISES............................................................8
A. Monthly Rental........................................................4
B. Consumer Price Index Increases
(Intentionally Deleted)...............................................4
C. Additional Rent.......................................................5
SECTION V. REIMBURSEMENT OF COMMON EXPENSES...........................................5
A. Definitions...........................................................5
B. Reimbursement.........................................................6
C. Rebate of Excess Charges or
Payment of Additional Charges.........................................7
D. Control of Common Areas...............................................7
SECTION VI. SECURITY DEPOSIT
(Intentionally Deleted)....................................................7
SECTION VII. TENANT'S TAXES.............................................................8
SECTION VIII. USE OF PREMISES............................................................8
A. Permitted Uses........................................................8
B. Compliance with Laws..................................................8
C. Hazardous Materials...................................................9
D. Landlord's Rules and Regulations.....................................10
SECTION IX. SERVICE AND UTILITIES .................................................10
A. Standard Building Services and Reimbursement by Tenant ............10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
B. Limitation on Landlord's Obligations ................................11
C. Excess Service.......................................................11
D. Security Services....................................................11
SECTION X MAINTENANCE AND REPAIRS...................................................12
A. Landlord's Obligation................................................12
B. Tenant's Obligations.................................................12
C. Landlord's Right to Make Repairs.....................................12
D. Condition of Premises Upon Surrender.................................13
SECTION XI ENTRY BY LANDLORD.........................................................13
SECTION XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES.................................14
SECTION XIII. MECHANIC'S LIENS..........................................................15
SECTION XIV. INSURANCE.................................................................15
A. Tenant ..............................................................15
B. Landlord ...........................................................16
SECTION XV INDEMNITY ................................................................16
A. Tenant...............................................................16
B. Landlord.............................................................16
C. Limitation on Recovery for Property Damage...........................17
D. Limitation on Landlord's Liability;
Release of Trustees, officers and
Partners of Landlord.................................................17
SECTION XVI. ASSIGNMENT AND SUBLETTING BY TENANT.......................................17
SECTION XVII. TRANSFER OF LANDLORD'S INTEREST...........................................20
SECTION XVIII. DAMAGE AND DESTRUCTION....................................................20
A. Minor Insured Damage.................................................20
B. Major or Uninsured Damage............................................20
C. Abatement of Rent....................................................21
SECTION XIX. CONDEMNATION..............................................................21
A. Total or Partial Taking..............................................21
B. Award................................................................22
C. Abatement in Rent....................................................22
D. Temporary Taking.....................................................22
E. Transfer of Landlord's Interest to Condemn ........................23
SECTION XX. DEFAULT...................................................................23
A. Tenant's Default.....................................................23
B. Remedies.............................................................24
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES...................................25
A. Interest.............................................................25
B. Late Charges.........................................................26
C. Consecutive Late Payment of Rent.....................................26
D. No Waiver............................................................26
SECTION XXII. LIEN FOR RENT
(Intentionally Deleted)...................................................26
SECTION XXIII. HOLDING OVER..............................................................27
SECTION XXIV. ATTORNEYS' FEES...........................................................27
SECTION XXV. MORTGAGEE PROTECTION......................................................27
A. Subordination; Nondisturbance........................................27
B. Attornment...........................................................28
SECTION XXVI ESTOPPPEL CERTIFICATE/FINANCIAL STATEMENTS................................28
A. Estoppel Certificate.................................................28
B. Furnishing of Financial Statements...................................29
SECTION XXVIII. PARKING...................................................................29
SECTION XXVIII SIGNS; NAME OF BUILDING...................................................30
SECTION XXX. BROKERS AND AGENTS........................................................30
SECTION XXXI. NOTICES...................................................................31
SECTION XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE.................................31
SECTION XXXIII. GENERAL...................................................................31
A. Paragraph Headings...................................................31
B. Incorporation of Prior Agreements; Amendments........................31
C. Waiver...............................................................32
D. Short Form or Memorandum of Lease....................................32
E. Time of Essence......................................................32
F. Examination of Lease.................................................32
G. Severability.........................................................32
H. Surrender of Lease Not Merger........................................32
I. Corporate Authority..................................................32
J. Governing Law........................................................33
K. Force Majeure........................................................33
L. Use of Language......................................................33
M. Successors...........................................................33
N. No Reduction of Rental...............................................33
0. No Partnership.......................................................33
P. Exhibits.............................................................33
Q. Survival of Indemnities..............................................33
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION XXXIV. EXECUTION.................................................................34
EXHIBIT "A" SITE PLAN FOR THE PROJECT.................................................35
EXHIBIT "B" FLOOR PLAN FOR THE PROJECT................................................36
EXHIBIT "C" CONSTRUCTION WORK LETTER..................................................37
EXHIBIT "D" RENT SCHEDULE.............................................................38
EXHIBIT "E" RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF THE LEASE..................................39
EXHIBIT "F" AMENDMENT OF LEASE COMMENCEMENT DATE......................................43
FIRST ADDENDUM TO LEASE.........................................................................44
</TABLE>
<PAGE> 6
OFFICE LEASE
THIS LEASE is entered into by and between Landlord and Tenant effective as of
this day 8th day of September, 1995 ("Effective Date").
SECTION I. TERMS AND DEFINITIONS
The following terms as used herein shall have the meanings as set forth below:
A. "Landlord" means G&W INVESTMENT PARTNERS, a nini kumia formed under the
laws of Japan, and its successors and assigns.
B. "Tenant" means TIMELINE, INC., a Washington Corporation
C. "Building" means the building in which the Premises are located, which
Building has approximately 41,941 net rentable square feet and is located
at 3055 - 112th Avenue NE in the City of Bellevue, Washington.
D. "Project" means the Corporate Campus East - Buildings A. 3 & C located in
the City of Bellevue, Washington, in which Project the Building is located
as shown on the site plan attached hereto as Exhibit A.
E. "Premises" means suite(s) #106, #107 and #109 located on the first floor
of the Building and consisting of approximately seventeen thousand
twenty-five (17,025) net rentable square feet, as more particularly shown
on Exhibit B attached hereto and incorporated herein by this reference.
F. "Term" means five (5) years + 5 months.
G. "Lease Commencement Date" means October 1, 1995; provided, however, that
if the Lease Commencement Date stated in this subsection is extended
pursuant to Section III. C. below, Landlord and Tenant shall execute and
attach hereto as a new Exhibit F, an Amendment of Lease Commencement Date,
in form of that attached hereto as Exhibit F, which shall specify such
amended Lease Commencement Date and, if applicable, an amended Expiration
Date.
H. "Expiration Date" means February 28, 2001 unless amended as provided in an
Amendment of Lease Commencement Date executed as provided above.
I. "Monthly Rental" means the amounts specified in Section IV below and in
the Rent Schedule attached hereto as Exhibit D and incorporated herein,
subject to adjustments as set forth in Section IV. B. below.
J. "Base Operating Expense" means the actual amount for the fiscal year 1992,
which runs from October 1, 1991 to September 30, 1992, (as defined in
Section V below) which shall be paid by Landlord and not Tenant. Effective
March 1, 1996 "Base operating Expense" means the actual amount for the
calendar year 1996 (as defined in Section V below) which shall be paid by
Landlord and not Tenant.
K. "Security Deposit" means Dollars ($0,00).
L. "Permitted Use" means General Office Use
M. "Broker" means CB Commercial Real Estate Group, Inc.
<PAGE> 7
N. "Landlord's Address for Notice" means Spectrum/RPS - 3055 112th Avenue NE,
Suite 211, Bellevue, Washington, with copy to: Asset Management, MONY
Realty Partners, 7600 East Eastman Avenue, Suite 300, Denver, Colorado
80231.
O. "Tenant's Address for Notice" means 3055 - 112th Avenue NE, Suite 106,
Bellevue, Washington.
P. "Tenant's Proportionate Share,, for Tenant's reimbursement of Common
Operating Costs and other expenses to be pro-rated hereunder means 41% of
the 3055 112th Avenue NE Building including the Building's share of any
costs which is the quotient obtained by dividing the total number of
square feet of net rentable floor area within the Premises into the total
number of square feet of net rentable floor area in the Building.
Q. "Tenant's Parking Spaces" means sixty two (62) total parking spaces
located in such areas of the Project as landlord determines and divided as
follows: fifteen (15) covered and forty-seven (47) non-covered or surface.
The non-covered or surface parking spaces shall be non-exclusive, and
unassigned. The covered parking spaces shall be exclusive and assigned.
R. "Monthly Parking Rent" means fifteen dollars ($15) per month, per stall
payable by Tenant for Tenant's fifteen (15) covered parking spaces. Such
Monthly Parking Rent shall be considered Additional Rent and shall be due
and payable without notice or demand, on or before the first day of each
calendar month. The Monthly Parking Rent per stall is subject to change
from time to time. Landlord shall provide Tenant a 30 day notice of any
change in Monthly Parking Rent.
SECTION II. PROPERTY LEASED
A. Premises
Upon and subject to the terms, covenants and conditions hereinafter set
forth, Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises.
B. Common Areas
Subject to the terms, covenants and conditions of this Lease, Tenant shall
have the right, for the benefit of Tenant and its employees, suppliers,
shippers, customers and invitees, to the non-exclusive use of all of the
Common Areas as hereinafter defined.
C. Minor Variations In Area
The area of the Premises contained in Section I. is agreed to be the area
of the Premises regardless of minor variations resulting from construction
or remodeling of the Building and/or tenant improvements.
D. Substitution of Space (Intentionally Deleted)
SECTION III. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES
A. Lease Commencement Date
The Term of the Lease shall commence on the Lease Commencement Date (as
extended only pursuant to Section III. C. below, if applicable), and shall
continue, subject to earlier termination as provided herein, until the
Expiration Date (as extended only pursuant to subsection C. below).
B. Completion of Tenant Improvements and Possession of Premises
<PAGE> 8
Upon execution of this Lease by the parties, Landlord shall proceed to
complete the tenant improvements in the Premises described as "Landlord's
Work" in the "Construction Work Letter" attached hereto and incorporated
herein as Exhibit C. At the time such work has been substantially
completed in accordance with the Construction Work Letter, except for
minor decorative or other "punch list" items as contemplated in subsection
D. below, and the Premises has been approved for occupancy under the
applicable building code (which together shall constitute "Substantial
Completion" hereunder), Landlord shall notify Tenant thereof and Tenant
shall take possession of the Premises on the Lease Commencement Date. In
the event permission is given to Tenant to enter or occupy all or a
portion of the Premises prior to the Lease Commencement Date, such
occupancy shall be subject to all of the terms and conditions of this
Lease. All tenant improvements constructed in the Premises, whether by
Landlord or by (or on behalf of) Tenant and whether at Landlord's or
Tenant's expense, shall become part of the Premises and shall be and
remain the property of Landlord unless Landlord specifically agrees
otherwise in writing.
C. Extension of Lease Commencement Date
If the Premises are not Substantially Completed on the original Lease
Commencement Date specified in Section I. due to one or more delays caused
by Landlord or caused by matters beyond the control of Landlord, this
Lease and the obligations of Landlord and Tenant hereunder shall
nevertheless continue in full force and effect. However, in such event
Landlord and Tenant shall agree on an amendment of the original Lease
Commencement Date to reflect such delay or delays and shall, in each
instance, execute and attach hereto an amendment in the form of that
attached as Exhibit F hereto stating such amended Lease Commencement Date
and, if applicable, an amended Expiration Date and no rental shall be
payable by Tenant hereunder until the amended Lease Commencement Date. The
delay in commencement of the Term and in Tenant's obligation to pay rent
described in the foregoing sentence shall constitute full settlement of
all claims that Tenant might otherwise have by reason of the Premises not
being Substantially Completed on the original Lease Commencement Date
specified in Section I. above.
If the Premises are not Substantially Completed on the Lease Commencement
Date due to one or more delays caused by Tenant, or anyone acting under or
for Tenant, Landlord shall have no liability for such delay and the Lease
Commencement Date shall nevertheless begin as of the Lease Commencement
Date stated in Section I. (as extended only because of Landlord's delay
pursuant to this subsection C., if applicable).
D. Acceptance and Suitability
Within fifteen (15) days following the date Tenant takes possession of the
premises, Tenant may provide Landlord with a "punch list" which sets forth
an itemization of any reasonable corrective work to be performed by
landlord with respect to the Landlord's Work as set forth in the
Construction Work Letter; provided, however, that Tenant's obligation to
pay Monthly Rental as provided below shall not be affected thereby. If
Tenant fails to submit such "punch list" to Landlord within such fifteen
(15) day period, Tenant agrees that by taking possession of the Premises
it will conclusively be deemed to have inspected the Premises and found
the Premises in satisfactory condition. Tenant acknowledges that neither
Landlord, nor any agent, employee or servant of Landlord, has made any
representation with respect to the Premises or the Project, or with
respect to the suitability of them to the conduct of Tenant's business,
nor has Landlord agreed to undertake any modifications, alterations, or
improvements of the Premises or Project, except as specifically provided
in this Lease.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, LANDLORD HEREBY
DISCLAIMS, AND TENANT WAIVES THE BENEFIT OF, ANY AND ALL IMPLIED
WARRANTIES, INCLUDING IMPLIED WARRANTIES OF HABITABILITY, FITNESS OR
SUITABILITY FOR PURPOSE, OR THAT THE PROJECT (OTHER THAN THE IMPROVEMENTS
CONSTRUCTED BY LANDLORD IN THE PREMISES) HAVE BEEN CONSTRUCTED IN A GOOD
AND
<PAGE> 9
WORKMANLIKE MANNER. TENANT EXPRESSLY ACKNOWLEDGES THAT LANDLORD DID NOT
CONSTRUCT OR APPROVE THE QUALITY OF CONSTRUCTION OF THE BUILDING.
SECTION IV. RENT
A. Monthly Rental
Commencing on the Lease Commencement Date Tenant shall pay to Landlord
during the Term, rental for the entire Term in the total amount as set
forth in the "Rental Schedule" attached hereto as Exhibit D payable in
monthly installments (the "Monthly Rental") in the amount also set forth
in Exhibit D, (subject, however, to any modifications or adjustments
specified hereinbelow and/or in Exhibit D. The Monthly Rental shall be
payable by Tenant on or before the first day of each month, in advance,
without further notice, at the address specified for Landlord in Section
I., or such other place as Landlord shall designate, without any prior
demand therefor and without any abatement, deduction or setoff whatsoever.
Notwithstanding the foregoing, Monthly Rental for the first full month
shall be paid upon the Commencement date hereof. If the Lease Commencement
Date should occur on a day other than the first day of a calendar month,
or the Expiration Date should occur on a day other than the last day of a
calendar month, then the rental for such fractional month shall be
prorated on a daily basis upon a thirty (30) day calendar month.
B. Consumer Price Index Increases (Intentionally Deleted)
C. Additional Rent
As used in this Lease, the term "rent" shall mean the Monthly Rental plus
all "additional rent", which shall mean all other amounts payable by
Tenant to Landlord pursuant to this Lease other than Monthly Rental,
including without limitation, Tenant's Proportionate Share of Common
Operating Costs and Monthly Parking Rent. All Monthly Rental and
additional rent shall be paid in lawful money of the United States which
shall be legal tender at the time of payment. Where no other time is
stated herein for payment, payment of any amount due from Tenant to
Landlord hereunder shall be made within ten (10) days after Tenant's
receipt of Landlord's invoice or statement therefor.
SECTION V. REIMBURSEMENT OF COMMON EXPENSES
A. Definitions
(1) "Common Areas" means all areas, space, equipment and special
services provided by Landlord for the common or joint use and
benefit of the tenants, their employees, agents, servants,
suppliers, customers and other invitees, including, by way of
illustration, but not limitation, retaining walls, fences,
landscaped areas, parks, curbs, sidewalks, private roads, restrooms,
stairways, elevators, lobbies, hallways, patios, service quarters,
parking areas, all common areas and other areas within the exterior
of the Building and in the Project or as shown on the site plan
attached to this Lease as Exhibit A.
(2) "Taxes" shall mean all real property taxes, personal property taxes,
improvement bonds, and other charges and assessments which are
levied or assessed upon or with respect to the Building and Project
and the land on which the Building and Project are located and any
improvements, fixtures and equipment and all other property of
Landlord, real or personal, located in the Building and Project and
used in connection with the operation of the Building and Project
and the land on which the Building and Project are located,
including any increase in such taxes, whether resulting from a
reassessment of the value of the land, the Building or the Project,
personal property, or for any other reason, imposed by any
governmental authority, and any tax which shall be levied or
<PAGE> 10
assessed in addition to or in lieu of such real or personal property
taxes and any license fees, commercial rental tax, or other tax upon
Landlord's business of leasing the Building and the Project, but
shall not include any federal or state income tax, or any franchise,
capital stock, estate, inheritance, succession, transfer and excess
profit taxes imposed upon Landlord, and shall also include any tax
consultant fee or other costs incurred by Landlord to review or
contest any tax assessed against the Premises, Building or Project.
(3) "Common Operating Costs" shall mean the aggregate of all costs and
expenses payable by landlord in connection with the operation and
maintenance of the Premises, Building, Project, and Common Areas,
including, but not limited to, (a) the cost of landscaping,
repaving, resurfacing, repairing, replacing, painting, lighting,
cleaning, removing trash, janitorial services, security services and
other similar items; (b) the total cost of compensation and benefits
of personnel to implement the services referenced herein; (c) all
Taxes; (d) the cost of any insurance obtained by Landlord in
connection with the Building and Project, including, but not limited
to, the insurance required to be obtained by Landlord pursuant to
this Lease; (e) the cost of operating, repairing and maintaining the
mechanical, electrical, plumbing, life safety, and access systems;
(f) the cost of monitoring services, if provided by Landlord,
including, without limitation, any monitoring or control devices
used by Landlord in regulating the parking areas; (g) the cost of
water, electricity, gas and any other utilities; (h) legal,
accounting and consulting fees and expenses; (i) compensation
(including employment taxes and fringe benefits) of all persons who
perform duties connected with the operation, maintenance and repair
of the Premises, Project, Building or Common Areas; (j) energy
allocation, energy use surcharges, or environmental charges; (k)
municipal inspection fees or charges; (1) the costs incurred by
Landlord to provide management services for the Building or Project;
(m) the amortized cost, including financing costs if applicable, of
any equipment, device or other capital improvement installed by
Landlord in the Premises, Building or Project for the purpose of
achieving economies in the operation, maintenance and/or repair
thereof; and (n) any other costs or expenses incurred by Landlord
under this Lease which are not otherwise reimbursed directly by
tenants. The computation of Common Operating Costs shall be made in
accordance with generally accepted accounting principles.
(4) (Intentionally Deleted)
B. Reimbursement
Within a reasonable time before the commencement of each calendar year
during the Term, Landlord shall deliver to Tenant a reasonable estimate of
the Common Operating Costs Landlord will incur for the forthcoming
calendar year. Commencing on the Lease Commencement Date, and continuing
on the first day of each calendar month thereafter, Tenant shall pay to
Landlord, as additional rental, an amount equal to one-twelfth (1/12th) of
the product obtained by multiplying (i) the remainder obtained by
deducting the Base Operating Expense, if any, from the then estimated
Common Operating Costs for the applicable calendar year of the Lease Term,
times (ii) Tenant's Proportionate Share; provided, however, that such
amount shall not be less than zero dollars ($0) . The total of such
additional monthly payments to be paid by Tenant for such calendar year
shall be called "Tenant's Estimated Operating Cost". Upon Notice to
Tenant, Tenant's Estimated Operating Cost may be adjusted periodically by
Landlord during the calendar year on the basis of Landlord's reasonably
revised estimate of Common operating Costs for such calendar year. Any
major expenditure by Landlord (e.g. resurfacing of parking areas, painting
buildings, refurbishing landscaping or walkways and similar items) during
the year which was not included in determining the estimated Common
Operating Costs, may be billed separately to Tenant according to Tenant's
Proportionate Share.
C. Rebate of Excess Charges or Payment of Additional Char
Within a reasonable time after the end of each calendar year, Landlord
shall furnish Tenant with a statement showing the Common Operating Costs
actually paid or incurred by Landlord for such year less
<PAGE> 11
the Base Operating Expense, if any, and Tenant's Proportionate Share
thereof ("Tenant's Actual Operating Cost"), which shall in no event be
less than zero dollars ($0) . If the amount of Tenant's Estimated
Operating Cost paid by Tenant for such calendar year exceeds Tenant's
Actual Operating Cost for that year, Landlord shall refund such excess to
Tenant within thirty (30) days after such determination or Landlord may,
at its sole option, apply such excess to any outstanding amounts due
Landlord. If Tenant's Estimated Operating Cost actually paid by Tenant is
less than Tenant's Actual Operating Cost, Tenant shall pay such shortfall
to Landlord, as additional rent, within thirty (30) days after receipt of
Landlord's statement showing the amount due. If the Lease commences on a
date other than on the first day of a calendar year or expires or
otherwise terminates, on a date other than on the last day of a calendar
year, the foregoing payments shall be prorated accordingly.
D. Control of Common Areas
Tenant's use of the Common Areas shall be subject to the provisions of
this Lease and Landlord's rights, hereby reserved, to (a) restrain the use
of the Common Areas by unauthorized persons, (b) utilize from time to time
any portion of the Common Areas for promotional and related matters, (c)
temporarily close any portion of the Common Areas for repairs,
improvements or alterations, (d) change the shape and size of the Common
Areas or change the location of improvements within the Common Areas,
including, without limitation, parking areas, roadways and curb cuts, and,
(e) prohibit access to or use of Common Areas that are designated for the
storage of supplies or operation of equipment necessary to operate the
Project or Building. In addition, Landlord may determine the nature, size
and extent of the Common Areas as well as make changes to the Common Areas
and take such other actions in connection therewith from time to time
which, in its opinion, are deemed desirable.
SECTION VI. SECURITY DEPOSIT (Intentionally Deleted)
SECTION VII. TENANT'S TAXES
To the extent not covered as a Common Operating Expense, Tenant shall be
liable for any tax (now or hereafter imposed by any governmental entity)
applicable to or measured by or levied on the rents or any other charges
payable by Tenant under this Lease, including (but not limited to) any
gross income tax, gross receipts tax or excise tax payable with respect to
the receipt of such rent or other charges or the possession, leasing or
operation, use or occupancy of the Premises, but not including any net
income, franchise, capital stock, estate or inheritance taxes payable by
Landlord. If any such tax is required to be paid to the governmental
taxing entity directly by Landlord, then Landlord shall pay the amount due
and, upon demand, shall be fully reimbursed by Tenant for such payment.
Tenant shall also be liable for all taxes levied against the leasehold
held by Tenant or against any personal property, leasehold improvements,
additions, alterations and fixtures placed by or for Tenant in, on or
about the Premises, Building and Project or constructed by Landlord for
Tenant in the Premises, Building or Project; and if any such taxes are
levied against Landlord or Landlord's property, or if the assessed value
of such property is increased (whether by special assessment or otherwise)
by the inclusion therein of value placed on such leasehold, personal
property, leasehold improvements, additions, alterations and fixtures, and
Landlord pays any such taxes (which Landlord shall have the right to do
regardless of the validity thereof), Tenant, upon demand, shall fully
reimburse Landlord for the taxes so paid by Landlord or for the proportion
of such taxes resulting from such increase in any assessment.
SECTION VIII. USE OF PREMISES
A. Permitted Uses
<PAGE> 12
Tenant shall use the Premises and Common Areas solely for the Permitted
Use specified in subsection I.L. above, and for no other use, and under
the name specified in Section I. above, except with the approval of the
Landlord, which approval shall not be unreasonably withheld. Tenant shall,
at its own cost and expense, obtain any and all licenses and permits
necessary for any such use. Tenant shall not do or permit anything to be
done in or about the Premises, Common Areas, Building or Project which
will in any way obstruct or interfere with the rights of other tenants or
occupants of the Project or injure or annoy them. Tenant shall not use or
allow the Premises to be used for any unlawful purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises and
Common Areas. Tenant shall not commit or suffer to be committed any waste
in or upon the Premises, Common Areas, Building or Project. Tenant shall
not do or permit anything to be done in or about the Premises, Common
Areas, Building or Project which may render the insurance thereon void or
increase the insurance risk or cost thereon. If an increase in any fire
and extended coverage insurance premiums paid by Landlord for the Building
and Project is caused by Tenant's use and occupancy of the Premises, then
Tenant shall pay, as additional rental, the amount of such increase to
Landlord.
B. Compliance with Laws
Tenant shall not use the Premises, Building, Project or Common Areas in
any way (or permit or suffer anything to be done in or abut the same)
which will conflict with any law, statute, ordinance or governmental rule
or regulation or any covenant, condition or restriction (whether or not of
public record) affecting the Premises, Project or Building, now in force
or which may hereafter be enacted or promulgated including, but not
limited to, the provisions of any city or county zoning codes regulating
the use thereof. Tenant shall, at its sole cost and expense and provided
it is necessary for Tenant's use of the Premises, promptly comply with (a)
all laws, statutes, ordinances, and governmental rules and regulations,
now in force or which may hereafter be in force, (b) all requirements, and
other covenants, conditions and restrictions, now in force or which may
hereafter be in force, which affect the Premises, and (c) all
requirements, now in force or which may hereafter be in force, of any
board of fire underwriters or other similar body now or hereafter
constituted relating to or affecting the condition, use or occupancy of
the Premises, Building or Project. The judgment of any court of competent
jurisdiction or the admission by Tenant in any action against Tenant,
whether Landlord be a party thereto or not, that Tenant has violated any
law, statute, ordinance, governmental rule or regulation or any
requirement, covenant, condition or restriction shall be conclusive of the
fact as between Landlord and Tenant. Tenant agrees to fully indemnify
Landlord against any liability, claims or damages arising as a result of a
breach of the provisions of this Subsection by Tenant, and against all
costs, expenses, fines or other charges arising therefrom, including,
without limitation, reasonable attorneys' fees and related costs incurred
by Landlord in connection therewith, which indemnity shall survive the
expiration or earlier termination of this Lease.
C. Hazardous Materials-
Tenant shall not cause or permit any Hazardous Material (as defined below)
to be brought upon, kept, or used in or about the Premises, Building or
Project by Tenants, its agents, employees, contractors, or invitees,
without the prior written consent of Landlord (which Landlord shall not
unreasonably withhold as long as Tenant demonstrates to Landlord's
reasonable satisfaction that such Hazardous Material is necessary or
useful to Tenant's business and will be used, kept, stored and disposed of
in a manner that complies with all laws regulating any such Hazardous
Material so brought upon or used or kept in or about the Premises,
Building and Project, and such storage will not create an undue risk to
other tenants of the Building and Project, giving consideration to the
nature of the Project and Building). If Tenant breaches the obligations
stated in the preceding sentence, or if the presence of Hazardous Material
on the Premises, Building or Project caused or permitted by Tenant results
in contamination of the Premises, the Building or the Project, or if
contamination of the Premises, the Building or the Project, by Hazardous
Material otherwise occurs for which Tenant is legally liable to Landlord
for damage resulting therefrom, then Tenant shall indemnify, defend and
hold Landlord harmless from any and all claims, judgments, damages,
penalties, fines, costs, liabilities, or losses (including, without
limitation, diminution in value of the Premises, the Building or the
Project, damages for the loss or restriction on use of rentable or usable
space
<PAGE> 13
or of any amenity of the Premises, the Building or the Project, damages
arising from any adverse impact on marketing of space in the Building or
the Project, and sums paid in settlement of claims, attorneys, fees,
consultant fees and expert fees) which arise during or after the Lease
Term as a result of such contamination. This indemnification of Landlord
by Tenant includes, without limitation, the obligation to reimburse
Landlord for costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal or restoration work required
by any federal , state, or local governmental agency or political
subdivision because of Hazardous Material present in, on, or about the
Premises, Building or Project or in the soil or ground water on or under
the premises, the Building or the Project. Without limiting the foregoing,
if the presence of any Hazardous Material in, on or about the Premises,
Building or Project caused or permitted by Tenant results in any
contamination of the Premises, the Building or the Project, Tenant shall
promptly take all actions at its sole expense as are necessary to return
the Premises, the Building or the Project to the condition existing prior
to the introduction of any such Hazardous Material thereto; provided that
landlord's approval of such actions shall first be obtained, which
approval shall not be unreasonably withheld so long as such actions would
not potentially have any material adverse long-term or short-term effect
on the Premises, Building or Project or exposes Landlord to any liability
therefor and such actions are undertaken in accordance with all applicable
laws, rules and regulations and accepted industry practices.
"Hazardous Material" is used in this Lease in its broadest sense and shall
mean any petroleum based products, pesticides, paints and solvents,
polychlorinated biphenyl, lead, cyanide, DDT, acids, ammonium compounds
and other chemical products and any substance or material defined or
designated as hazardous or toxic, or other similar term, by any federal,
state or local environmental statute, regulation, or ordinance affecting
the Premises, Building or Project presently in effect or that may be
promulgated in the future, as such statutes, regulations and ordinances
may be amended from time to time, including but not limited to the
statutes listed below:
Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et
seq.
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, 40 U.S.C. Section 1801 et seq.
Clean Air Act, 42 U.S.C. Sections 7401-7626.
Water Pollution Control Act (Clean Water Act of 1977), 33 U.S.C. Section
1251 et seq.
Insecticide, Fungicide, and Rodenticide Act (Pesticide Act of 1987), 7
U.S.C. Section 135 et seq.
Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.
Safe Drinking Water Act, 42 U.S.C. Section 300(f) et seq.
National Environmental Policy Act (NEPA) 42 U.S.C.Section 4321 et seq.
Refuse Act of 1899, 33 U.S.C. Section 407 et seq.
D. Landlord's Rules and Regulations
Tenant shall, and Tenant agrees to cause its agents, servants, employees,
invitees, and licensees to observe and comply fully and faithfully with
the rules and regulations attached hereto as Exhibit F, or such rules and
regulations which may hereafter be adopted by Landlord (the "Rules") for
the care, protection, cleanliness, and operation of the Premises, Building
and Project, and any modifications or additions to the Rules adopted by
Landlord, provided that, Landlord shall give written notice thereof to
Tenant and, Tenant's Permitted Use of the Project is not unreasonably
affected. Landlord shall not be responsible to
<PAGE> 14
Tenant for failure of any other tenant or occupant of the Building or
Project to observe or comply with any of the Rules.
SECTION IX. SERVICE AND UTILITIES
A. Standard Building Services and Reimbursement by Tenant
Landlord agrees to furnish to the Premises, between the hours of 7:00 a.m.
and 6:00 p.m. on Monday through Friday and between 8:00 a.m. and 12 noon
on Saturday (Sunday and legal holidays excepted) (hereinafter "Building
Hours"), heat and air conditioning (hereinafter "HVAC"), required in
Landlord's judgment for the comfortable use and occupation of the Premises
for general office purposes and at a level which is usual and customary in
similar office buildings in the area where the Project is located, all of
which shall be subject to the Rules of the Building as well as any
governmental requirements or standards relating to, among other things,
energy conservation. Water, electrical and elevator (if applicable)
service shall be supplied to the Premises at all times. Tenant agrees to
pay, as a Common Operating Expense except as provided below, the full cost
of all utilities supplied to the Premises, together with any taxes
thereon, as part of Tenant's Proportionate Share of Common Operating Costs
except for separately metered and excess service as provided below. If any
such service or utilities are separately metered to the Premises, Tenant
shall pay the cost thereof in a timely manner directly to the utility
company providing such service. Tenant's obligations in this Section
regarding utilities include, but are not limited to initial connection
charges, all charges for gas, water and electricity used on the Premises,
and for all electric light lamps or tubes. Tenant shall be required to pay
any increased cost, as additional rent, of any utilities and services,
including, without limitation, water, electricity and HVAC, resulting from
any use of the Premises at any time other than the above scheduled
Building Hours or any use beyond what Landlord agrees to furnish as
described above, or resulting from special electrical, cooling and
ventilating needs created in certain areas by telephone equipment,
computers and other similar equipment or uses. Tenant agrees to pay the
cost of operating the HVAC at any time other than the above scheduled
Building Hours, which cost may include the operation of the HVAC for space
located outside the Premises when such space is serviced concurrently with
the operation of the HVAC for the benefit of the Premises.
B. Limitation on Landlord's Obligations
Landlord shall not be liable for and Tenant entitled to any abatement or
reduction of rent by reason of, Landlord's failure to furnish any of the
foregoing when such failure is caused by accidents, breakage, repairs,
strikes, brownouts, blackouts, lockouts or other labor disturbances or
labor disputes of any character, or by any other cause, similar or
dissimilar, beyond the reasonable control of Landlord, nor shall such
failure under such circumstances be construed as a constructive or actual
eviction of Tenant. Notwithstanding any of the foregoing, Landlord shall
not be liable under any circumstances for loss or injury to the property
or business of Tenant, however occurring, through or in connection with or
incidental to Landlord's furnishing or failure to furnish any of said
service or utilities.
C. Excess Service
Tenant shall not, without the written consent of Landlord, use any
apparatus or device in the Premises or which consumes more electricity
than has historically been furnished to the Premises or is usually
furnished or supplied for the Permitted Use of the Premises, as determined
by Landlord. Tenant shall not consume water or electric current in excess
of that usually furnished or supplied for the Permitted Use of the
Premises (as determined by Landlord) , without first procuring the written
consent of Landlord, which Landlord may refuse. The excess cost for such
water and electric current shall be established by an estimate made by a
utility company or independent engineer hired by Landlord at Tenant's
expense and Tenant shall pay such excess costs as additional rent each
month with the Monthly Rental.
D. Security Services
<PAGE> 15
Certain security measures (both by electronic equipment and personnel) may
be provided by Landlord in connection with the Building and Common Areas.
However, Tenant hereby acknowledges that any such security is intended to
be solely for the benefit of the Landlord in protecting its property from
fire, theft, vandalism and similar perils and while certain incidental
benefits may accrue to the Tenant therefrom, and such security is not for
the purpose of protecting either the property of Tenant or the safety of
its officers, employees, servants or invitees. By providing such security,
Landlord assumes no obligation to Tenant and shall have no liability
arising therefrom. Landlord reserves the right to either commence, expand,
reduce or discontinue the providing of any such security at any time
without notice to Tenant.
SECTION X. MAINTENANCE AND REPAIRS
A. Landlord's Obligations
Except for special or non-standard systems and equipment installed for
Tenant's exclusive use, Landlord shall, at Landlord's initial cost and
expense subject to reimbursement by Tenant of Tenant's Proportionate Share
of such cost and expense, as amortized over the useful life of such
improvement as determined by Generally Accepted Accounting Practices, keep
in good condition and repair the heating, ventilating and air conditioning
and other mechanical systems which service the Premises as well as other
premises within the Building; the foundations, exterior walls, structural
condition of interior bearing walls, and roof of the Premises and
Building; and the parking lots, walkways, driveways, landscaping, fences,
signs and utility installations and other Common Areas of the Project.
Landlord shall not be in breach of its obligations under this Section
unless Landlord fails to make any repairs or perform maintenance which it
is obligated to perform hereunder and such failure persists for an
unreasonable time after written notice of a need for such repairs or
maintenance is given to Landlord by Tenant. Landlord shall not be required
to make any repairs that are the obligation of any tenant or occupant
within the Building or Project or repairs for damage caused by any
negligent or intentional act or omission of Tenant or any person claiming
through or under Tenant or any of Tenant's employees, suppliers, shippers,
customers or invitees, in which event Tenant shall, with the consent and
under the direction of Landlord, repair such damage at its sole cost and
expense. Tenant hereby waives and releases any right it may have to make
repairs to the Premises, Building or Project at Landlord's expense under
any law, statute, ordinance, rules and regulations now or hereafter in
effect in any jurisdiction in which the Project is located.
B. Tenant's Obligations
Tenant shall, at its sole cost and expense, make all maintenance, repairs
and replacements in the manner and when Landlord reasonably deems
necessary to preserve in good working order and condition the following
items, and every part thereof: plumbing within and servicing the Premises;
special or supplementary heating, ventilating and air conditioning systems
installed for the exclusive use of the Premises; non-standard electrical,
lighting and other utility systems, facilities and equipment located
within the Premises and; all trade fixtures, interior walls, interior
surfaces of exterior walls, ceilings, windows, doors, cabinets, draperies,
window coverings, carpeting and other floor coverings, plate glass and
skylights located within the Premises. Tenant shall not commit or permit
any waste in or about the Premises, the Building or the Project. Tenant
shall, at its sole cost and expense, make all repairs to the Premises,
Building and Project which are required in the reasonable opinion of
Landlord, as a result of any misuse, neglect, negligent or intentional act
or omission committed or permitted by Tenant or by any subtenant, agent,
employee, supplier, shipper, customer, invitee or servant of Tenant.
C. Landlord's Right to Make Repairs
In the event that Tenant fails to maintain the Premises, Building and
Project in good and sanitary order, condition and repair as required by
this Lease, then, following written notification to Tenant (except in the
case of an emergency in which case no prior notification shall be
required), Landlord shall have the right, but not the obligation, to enter
the Premises and to do such acts and expend such funds at the expense of
<PAGE> 16
Tenant as are required to place the Premises, Building and Project in
good, safe and sanitary order, condition and repair. Any amount so
expended by Landlord shall be paid by Tenant promptly upon demand as
additional rent.
D. Condition of Premises Upon Surrender
Except for reasonable wear and tear and as otherwise provided in this
Lease, Tenant shall, upon the expiration or earlier termination of the
Term, surrender the Premises to Landlord broom clean and in the same
condition as on the date Tenant took possession. All appurtenances,
fixtures, improvements, additions and other property attached to or
installed in the Premises whether by Landlord or by or on behalf of
Tenant, and whether at Landlord's expense or Tenant's expense, shall be
and remain the property of Landlord unless Landlord specifically agrees
otherwise in writing. Any furnishings and personal property of Tenant
located in the Premises, whether the property of Tenant or leased by
Tenant, and any fixtures, improvements and other items agreed, in writing,
by Landlord to belong to the Tenant as provided in the preceding sentence,
shall be and remain the property of Tenant and shall be removed by Tenant
at Tenant's sole cost and expense at the expiration of the Term. Tenant
shall promptly repair any damage to the Premises or the Building resulting
from such removal. Any of Tenant's property not removed from the Premises
prior to or upon the Expiration Date shall, at Landlord's option, either
become the property of Landlord or may be removed by Landlord, in which
case Tenant shall pay to Landlord the cost of such removal within ten (10)
days after delivery of a bill therefor or Landlord, at its option, may
deduct such amount from the Security Deposit. Any damage to the Premises,
including any structural damage, resulting from Tenant's use or from the
removal of Tenant's fixtures, furnishings and equipment shall be repaired
by Tenant at Tenant's expense.
SECTION XI. ENTRY BY LANDLORD
Landlord reserves and shall at any and all times have the right to enter the
Premises at reasonable times to inspect the same to determine whether Tenant is
complying with its obligations hereunder; to supply any service to be provided
by Landlord hereunder; to supply janitorial service and any other service to be
provided by Landlord to Tenant hereunder; to exhibit, upon reasonable notice to
Tenant the Premises to prospective purchasers, mortgagees or prospective
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises and any portion of the Building and Project, without abatement of
rent, in which case Landlord may erect scaffolding and other necessary
structures that are reasonably required by the character of the work to be
performed by Landlord, provided that the business of Tenant shall not be
interfered with unreasonably. In order to enter the Premises for each of the
aforesaid purposes, Landlord shall at all times have and retain a key with which
to unlock all of the doors in, upon and about the Premises, excluding Tenant's
vaults and safes. Further, Landlord shall have the right to use any an all means
which Landlord may deem proper to open such doors in the event of an emergency.
Any entry to the Premises or portions thereof obtained by Landlord by any of
said means, or otherwise, shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or an eviction, actual or constructive, of Tenant from the Premises, or any
portion thereof.
SECTION XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES
Tenant shall not make any alterations, additions or improvements to the
Premises, or any part thereof, whether structural or nonstructural (hereafter
"Alterations,'), without Landlord's prior, final written consent. In order to
obtain Landlord's preliminary consent, which preliminary consent may be given or
denied in Landlord's sole discretion, Tenant shall submit such information as
Landlord may require, including, without limitation plans and specifications for
the Alterations. If Landlord gives its preliminary consent for the Alterations,
in order to obtain Landlord's final consent (which final consent may not be
unreasonably withheld after preliminary consent is given), Tenant shall then
submit (i) all necessary permits, licenses, bonds, and the construction
contract, all in conformance with the plans and specifications preliminarily
approved by Landlord; (ii) evidence of insurance coverage in such types and
amounts and from such insurers as Landlord deems satisfactory; and (iii) such
other information and
<PAGE> 17
documentation as Landlord deems reasonably necessary including, but not limited
to, evidence of Tenant's financial ability to pay for the Alterations.
The construction contract for the Alterations shall, at the minimum, require the
general contractor and all subcontractors to obey the rules and regulations of
the Building and Project. All Alterations shall be done in a good workmanlike
manner by qualified and licensed contractors or mechanics, as approved by
Landlord. In no event shall any Alterations affect the structure of the Building
or its exterior appearance. All Alterations made by or for Tenant (other than
Tenant's moveable trade fixtures), shall, unless Landlord expressly requires or
agrees otherwise in writing, immediately become the property of Landlord,
without compensation to Tenant, but Landlord shall have no obligation to repair,
maintain or insure those Alterations. Carpeting, shelving and cabinetry shall be
considered improvements of the Premises and not movable trade fixtures,
regardless of how or where affixed. No Alterations shall be removed by Tenant
from the Premises either during or at the expiration or earlier termination of
the Term, and they shall be surrendered as a part of the Premises unless
Landlord has agreed or required otherwise in writing, in Landlord's discretion,
in which case the Alterations shall be removed by Tenant at Tenant's sole cost
and expense. Upon any such removal, Tenant shall repair any damage caused to the
Premises thereby, and shall return the Premises to the condition they were in
prior to installation of the Alterations so removed.
Tenant shall indemnify, defend and keep Landlord free and harmless from and
against all liability, loss, damage, cost, attorneys, fees and any other expense
incurred on account of claims by any person performing work or furnishing
materials or supplies for Tenant or any person claiming under Tenant. Landlord
may require Tenant to provide Landlord, at Tenant's sole cost and expense, a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such improvements, to insure Landlord against any liability
for mechanic's liens and to insure completion of the work. Landlord shall have
the right at all times to post on the Premises any notices permitted or required
by law, or that Landlord shall deem proper, for the protection of Landlord, the
Premises, the Building and the Project, and any other party having an interest
therein, from mechanics, and materialmen's liens. Tenant shall give to Landlord
written notice of the commencement of any construction in or on the Premises at
least thirty (30) business days prior thereto. Prior to the commencement of any
such construction Landlord shall be furnished certificates of insurance, naming
Landlord as an additional insured. evidencing that each contractor performing
work has insurance acceptable to Landlord including but not limited to general
liability insurance of not less than $1,000,000 and worker's compensation
insurance in the statutorily required amount.
SECTION XIII. MECHANIC'S LIENS
Tenant shall keep the Premises, the Building and the Project free from any liens
arising out of any work performed, material furnished or obligation incurred by
or for Tenant or any person or entity claiming through or under Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
any such lien, cause the same to be released of record by payment or posting of
a proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but not the obligation, to cause such lien to be
released by such means as Landlord deems proper, including payment of the claim
giving rise to such lien. All such sums paid and all expenses incurred by
Landlord in connection therewith shall be due and payable to Landlord by Tenant
on demand.
SECTION XIV. INSURANCE
A. Tenant
During the Term hereof, Tenant shall keep in full force and effect the
following insurance and shall provide appropriate insurance
certificates evidencing such coverage to Landlord prior to the Lease
Commencement Date and annually thereafter before the expiration of each
policy:
(1) Commercial general liability insurance for the benefit of Tenant
and Landlord as an additional insured, with a limit of not less
than One Million Dollars ($1,000,000.00) combined single limit
per occurrence, against claims for personal injury liability
including, without limitation, bodily injury,
<PAGE> 18
death or property damage liability and covering (i) the
business(es) operated by Tenant and by any subtenant of Tenant
on the Premises, (ii) operations of independent contractors
engaged by Tenant for services or construction on or about the
Premises, and (iii) contractual liability;
(2) Fire, extended coverage, vandalism and malicious mischief
insurance, insuring the personal property, furniture,
furnishings and fixtures belonging to Tenant located on the
Premises for not less than one hundred percent (100%) of the
actual replacement value thereof; and
(3) Business interruption or loss of income insurance in amounts
satisfactory to Landlord, with a rental interruption rider
assuring Landlord that the rent due hereunder will be paid for a
period of not less than twelve (12) months if the Premises are
destroyed or rendered inaccessible by a risk insured against by
a policy of all risk insurance.
Each insurance policy obtained by Tenant pursuant to this Lease shall
contain a clause that the insurer will provide Landlord with at least
thirty (30) days prior written notice of any material change,
non-renewal or cancellation of the policy, shall be in a form
satisfactory to Landlord and shall be taken out with an insurance
company authorized to do business in the State in which the Project is
located and rated not less than Best's Financial Class X and Best's
Policy Holder Rating "A". In addition, any insurance policy obtained by
Tenant shall be written as a primary policy, and shall not be
contributing with or in excess of any coverage which Landlord may
carry, and shall have loss payable clauses satisfactory to Landlord and
in favor of Landlord naming Landlord, and any other party reasonably
designated by Landlord as an additional insured. The liability limits
of the above described insurance policies shall in no matter limit the
liability of Tenant under the terms of Section XV. below.
Not more frequently than every two (2) years, Landlord may, by notice
to Tenant, require an increase in the above-described limits of
coverage if, in the reasonable opinion of Landlord, the amount of
liability insurance specified in this Section is not adequate to
maintain the level of insurance protection at least equal to the
protection afforded on the date the Term commences. If Tenant fails to
maintain and secure the insurance coverage required under this Section
XIV., then Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to
procure and maintain such insurance, the cost of which shall be due and
payable to Landlord by Tenant within ten (10) business days after
written demand.
If, on account of the failure of Tenant to comply with the provisions
of this Section, Landlord is deemed a co-insurer by its insurance
carrier, then any loss or damage which Landlord shall sustain by reason
thereof shall be borne by Tenant and shall be paid by Tenant as
additional rent within ten (10) business days after receipt of a bill
therefor and evidence of such loss.
B. Landlord
During the Term hereof, Landlord shall keep in full force and effect
the following insurance:
(1) Fire, extended coverage and vandalism and malicious mischief
insurance insuring the Building and Project of which the
Premises are a part, in an amount not less than 80% (or such
greater percentage as may be required by law) of the full
replacement cost thereof; and
(2) Such other insurance as Landlord deems necessary in its sole
and absolute discretion.
All insurance policies shall be issued in the names of Landlord and
Landlord's lender, and any other party reasonably designated by
Landlord as an additional insured, as their interests appear. The
insurance policies shall provide that any proceeds shall be made
payable to Landlord, or to the holders of mortgages or deeds of trust
encumbering Landlord's interest in the Premises, Building, and Project,
or to any other party reasonably designated by Landlord as an
additional insured, as their interests shall appear. All insurance
premiums for Landlord's insurance shall be included in Common Operating
Costs.
<PAGE> 19
SECTION XV. INDEMNITY
A. Tenant
Subject to the provisions of subparagraph C below, Tenant agrees to
indemnify, defend and hold Landlord and its officers, directors,
partners and employees entirely harmless from and against all
liabilities, losses, demands, actions, expenses or claims, including
reasonable attorneys' fees and court costs, for injury to or death of
any person or for damages to any property or for violation of law
arising out of or in any manner connected with (i) the use, occupancy
or enjoyment of the Premises, Building and Project by Tenant or
Tenant's agents, employees or contractors (the "Tenant's Agents") or
any work, activity or other things allowed or suffered by Tenant or
Tenant's Agents to be done in or about the Premises, Building and
Project (ii) any breach or default in the performance of any obligation
or Tenant under this Lease and (iii) any negligent or otherwise
tortious act or failure to act by Tenant or Tenant's Agents on or about
the Premises, Building or Project.
B. Landlord
Subject to the provisions of subparagraph C below, Landlord agrees to
indemnify, defend and hold Tenant and its officers, directors, partners
and employees entirely harmless from and against all liabilities,
losses, demands, actions, expenses or claims, including attorneys, fees
and court costs but excluding consequential damages, for injury to or
death of any person or for damage to any property to the extent such
are determined to be caused by the negligence or willful misconduct of
Landlord, its agents, employees, or contractors on or about the
Premises, Building, or Project. None of the events or conditions set
forth in this paragraph shall be deemed a constructive or actual
eviction or entitle Tenant to any abatement or reduction of rent.
C. Limitation on Recovery for Property Damage
Notwithstanding the provisions of subparagraphs A and B above, neither
Landlord nor Tenant shall be liable to the other for any damage to the
property of the other caused by fire, casualty or the actions of
Landlord, Tenant or their employees, agents and contractors except to
the extent such property damage is (a) not covered by the damaged
party's insurance required to be maintained under the terms of this
Lease (or if such insurance is not in effect as required, the amount of
such damage which would not have been covered had the such insurance
been in effect as required) ; (b) caused by the intentional actions of
Landlord or Tenant; or (c) are caused by Tenant's installation or
removal of alterations or trade fixtures as provided in the Lease. In
connection with the foregoing waiver of claims, Landlord and Tenant
hereby waive any rights of subrogation arising under their respective
property insurance policies.
D. Limitation on Landlord's Liability; Release of Trustees, Officers and
Partners of Landlord
Tenant agrees that in the event Tenant obtains a judgment or decree
against Landlord arising out of the subject matter of this Lease which
requires the payment of money by Landlord, Tenant's sole recourse for
the satisfaction thereof shall be to (a) proceed against Landlord's
interest in the Building or any proceeds therefrom or (b) offset the
amount due under such judgment or decree against the sums due to
Landlord hereunder and no other property or assets of Landlord, its
successors or assigns, shall be subject to the levy, execution or other
enforcement procedure for the satisfaction of any such judgment or
decree. Tenant further hereby waives any and all right to assert any
claim against or obtain any damages from, for any reason whatsoever,
the trustees, directors, officers and partners of Landlord including
all injuries, damages or losses to Tenant's property, real and
personal, whether known, unknown, foreseen, unforeseen, patent or
latent, which Tenant may have against Landlord or its directors,
officers or partners. Tenant understands and acknowledges the
significance and consequence of such specific waiver.
<PAGE> 20
Landlord shall not be liable or responsible to Tenant for any loss or
damage to any property or person occasioned by theft, fire, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, or order of governmental body or authority.
SECTION XVI. ASSIGNMENT AND SUBLETTING BY TENANT
A. Tenant shall not directly or indirectly, voluntarily or by operation of
law, sell, assign, encumber, pledge or otherwise transfer or
hypothecate all or any part of the Premises or Tenant's leasehold
estate hereunder (collectively an "Assignment"), or permit the Presided
to be occupied by anyone other than Tenant or sublet the Premises or
any portion thereof (collectively a "Sublease") without Landlord's
prior written consent, which shall not be unreasonably withheld, being
obtained in each instance, subject to the terms and conditions
contained in this Section.
B If Tenant desires at any time to enter into an Assignment or Sublease
of the Premises or any portion thereof, Tenant shall, at least sixty
(60) days prior to the effective date of the Assignment or Sublease,
request in writing Landlord's consent to the Assignment or Sublease and
provide the following:
(1) The name of the proposed assignee, sub-tenant or occupant;
(2) The nature of the proposed assignee's, subtenant's or
occupant's business to be carried on in the Premises;
(3) A copy of the proposed Assignment or Sublease; and
(4) Such financial information concerning the proposed assignee,
subtenant or occupant and other reasonable information
regarding the transaction which Landlord shall have requested
following its receipt of Tenant's request for consent.
C. At any time within thirty (30) days after Landlord's receipt of the
notice specified above, Landlord may by written notice to Tenant elect
either to (a) consent to the proposed Assignment or Sublease, (b)
refuse to consent to the proposed Assignment or Sublease or (c)
terminate this Lease in full with respect to an Assignment or terminate
in whole or in part with respect to a Sublease and enter into a lease
directly with the proposed assignee or sublessee. In this regard,
Landlord and Tenant agree (by way of example and without limitation)
that it shall be reasonable for Landlord to withhold its consent if any
of the following situations exist or may exist:
(1) The proposed transferee's use of the Premises conflicts with
the Permitted Use under this Lease or is a type of use that is
not desirable or compatible with other uses of the Building or
Project;
(2) In Landlord's reasonable business judgment, the proposed
assignee, sublessee or occupant lacks sufficient business
reputation or experience to operate a successful business of
the type and quality permitted under this Lease;
(3) Tenant is in default pursuant to this Lease or an event has
occurred which, with the passage of time and/or the giving of
notice, would constitute an event of default hereunder;
(4) The proposed transferee's financial condition is less
favorable than Tenant's financial condition as of the date of
this Lease.
D. If Landlord consents to the Sublease or Assignment within said thirty
(30) day period, Tenant may enter into such Assignment or Sublease of
the Premises or portion thereof, but only upon the terms and conditions
set forth in the notice furnished by Tenant to Landlord pursuant to
Subsection B. above; provided, however, that in connection with such
Assignment or Sublease, as a condition to Landlord's
<PAGE> 21
consent, Tenant shall pay to Landlord one hundred percent (100%) of the
excess, if any, of (i) in the case of an Assignment, the rental and
other payment obligations of the proposed assignee under the terms of
the proposed Assignment over the rental and other payment obligations
of Tenant under the terms of this Lease, or (ii) in the case of a
Sublease, the amount proposed to be paid by the sublessee over the
proportionate amount of rental and other payment obligations required
to be paid by Tenant to Landlord under the terms of this Lease as
applicable to the portion of the Premises subleased.
E. No consent by Landlord to any Assignment or Sublease by Tenant shall
relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the Assignment or Sublease. The
consent by Landlord to any Assignment or Sublease shall not relieve
Tenant of the obligation to obtain Landlord's express written consent
to any other Assignment or Sublease. Any Assignment or Sublease that is
not in compliance with this Section shall be void and, at the option of
Landlord, shall constitute a material default by Tenant under this
Lease. The acceptance of rent or payment of any other monetary
obligation by Landlord from a proposed assignee or sublessee shall not
constitute the consent by Landlord to such Assignment or Sublease.
Tenant shall promptly provide to Landlord a copy of the fully executed
Sublease or Assignment.
F. Any sale or other transfer, including transfer by consolidation, merger
or reorganization, of fifty-one percent (51%) or more of the voting
stock or membership interests of Tenant, if Tenant is a corporation or
limited liability company or, or any sale or other transfer of
fifty-one percent (51%) or more of the partnership interest in Tenant,
if Tenant is a partnership, shall be an Assignment for purposes of this
Section. As used in this Subsection, the term "Tenant" shall also mean
any entity that has guaranteed Tenant's obligation under this Lease,
and the prohibition hereof shall be applicable to any sales or
transfers of stock or partnership interests of said guarantor.
G. Each assignee or other transferee, other than Landlord, shall assume,
as provided in this Subsection, all obligations of Tenant under this
Lease and shall be and remain liable jointly and severally with Tenant
for the payment of Monthly Rental and all other monetary obligations
hereunder, and for the performance of all the terms, covenants,
conditions and agreements herein contained on Tenant's part to be
performed for the remainder of the Term. No Assignment or Sublease
shall be binding on Landlord unless the assignee, sublessee or Tenant
shall deliver to Landlord a counterpart of the Assignment or Sublease .
In connection with an Assignment, Tenant or the assignee shall deliver
an instrument (acceptable in form and substance to Landlord and in
recordable form, whereby the assignee assumes all of the terms,
covenants, conditions and agreements of the Lease. However the failure
or refusal of the assignee to execute such instrument of assumption
shall not release or discharge the assignee from its liability as set
forth above. In connection with a Sublease, Tenant or the sublessee
shall deliver to Landlord an instrument (acceptable in form and
substance to Landlord and in recordable form) agreeing that sublessee
shall be bound by all of the terms and conditions of the Lease, other
than those pertaining to rent, applicable to the subleased space and
that sublessee shall, at Landlord's sole option, attorn to Landlord as
lessor under the Sublessee if this Lease is terminated for any reason
and Landlord chooses to keep the Sublease in effect.
H. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et. seq., (the
"Bankruptcy Code"), any and all monies or other consideration payable
or otherwise to be delivered in connection with such assignment shall
be paid or delivered to Landlord, shall be and remain the exclusive
property of Landlord and shall not constitute property of Tenant or of
the estate of Tenant within the meaning of the Bankruptcy Code. Any and
all monies or other considerations constituting Landlord's property
under the preceding sentence not paid or delivered to Landlord shall be
held in trust for the benefit of Landlord and be promptly paid or
delivered to Landlord.
I. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act
or deed, to have assumed all of the obligations arising under this
Lease
<PAGE> 22
on and after the date of such assignment. Any such assignee shall upon
demand execute and deliver to Landlord an instrument confirming such
assumption.
J. Tenant shall pay Landlord's expenses and attorneys, fees incurred in
processing an Assignment or Sublease, but in no event less than Five
Hundred Dollars ($500.00), for each such proposed transfer to cover the
legal review and administrative expenses of Landlord, whether or not
Landlord shall grant its consent to such proposed transfers.
SECTION XVII. TRANSFER OF LANDLORD'S INTEREST
In the event Landlord shall sell or otherwise convey its title to the Building,
then, after the effective date of such sale or conveyance Landlord shall have no
further liability under this Lease to Tenant except as to matters of liability
which have accrued and are unsatisfied as of the date of sale or conveyance, and
Tenant shall seek performance solely from Landlord's purchaser or successor in
title. In connection with such sale or transfer, Landlord may assign its
interest under this Lease without notice to or consent by Tenant. In such event,
Tenant agrees to be bound to any successor Landlord.
SECTION XVIII. DAMAGE AND DESTRUCTION
A. Minor Insured Damage
In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty that is covered by the insurance
maintained by Landlord pursuant to Section XIV. above, then Landlord
shall rebuild, repair and restore the damaged portion thereof, provided
that (1) the amount of insurance proceeds available to Landlord equals
or exceeds the cost of such rebuilding, restoration and repair, (2)
such rebuilding, restoration and repair can be completed within one
hundred twenty (120) days after the Premises or the Building is so
damaged or destroyed in the opinion of a registered architect or
engineer appointed by Landlord, (3) the damage or destruction has
occurred more than twelve (12) months before the expiration of the Term
and (4) such rebuilding, restoration, or repair is then permitted,
under applicable governmental laws, rules and regulations, to be done
in such a manner as to return the damaged portion thereof to
substantially its condition immediately prior to the damage or
destruction, including, without limitation, the same net rentable floor
area. To the extent that insurance proceeds must be paid to a mortgagee
or beneficiary under, or must be applied to reduce any indebtedness
secured by, a mortgage or deed of trust encumbering the Premises,
Building or Project, such proceeds, for the purposes of this Subsection
shall be deemed not available to Landlord unless such mortgagee or
beneficiary permits Landlord to use such proceeds for the rebuilding,
restoration, and repair of the damaged portion thereof. Notwithstanding
the foregoing, Landlord shall have no obligation to repair any damage
to, or to replace any of, Tenant's personal property, furnishings,
trade fixtures, equipment or other such property or effects of Tenant.
B. Major or Uninsured Damage
In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty to the extent that Landlord is not
obligated, under Subsection A. above, to rebuild, repair or restore the
damaged portion thereof, then Landlord shall within thirty (30) days
after such damage or destruction, notify Tenant of its election, at its
option, to either (1) rebuild, restore and repair the damaged portions
thereof, in which case Landlord's notice shall specify the time period
within which Landlord estimates such repairs or restoration can be
completed; or (2) terminate this Lease effective as of the date the
damage or destruction occurred. if Landlord does not give Tenant
written notice within thirty (30) days after the damage or destruction
occurs of its election to rebuild or restore and repair the damaged
portions thereof, Landlord shall be deemed to have elected to terminate
this Lease. Notwithstanding the foregoing, if Landlord does not elect
to terminate this Lease, Tenant may terminate this Lease if either (i)
Landlord
<PAGE> 23
notifies Tenant that such repair or restoration cannot be completed
within one hundred twenty (120) days after the damage or (ii) the
damage or destruction occurs within the last twelve (12) months of the
Term, unless Tenant's actions or omissions are the cause of the damage.
If Tenant has the right to terminate the Lease in accordance with the
above provisions, Tenant may so elect by written notice to Landlord
which must be given within fifteen (15) days after Tenant's receipt of
Landlord's notice of its election to rebuild. Upon Landlord's receipt
of such notice, the termination shall be effective as of the date the
destruction occurred.
C. Abatement of Rent
There shall be an abatement of rent by reason of damage to or
destruction of the Premises or the Building, or any portion thereof, to
the extent that either (i) Landlord received insurance proceeds for
loss of rental income attributable to the Premises or (ii) the floor
area of the Premises cannot be reasonably used by Tenant for conduct of
its business, in which event the Monthly Rental shall abate
proportionately according to (i) or (ii) above, as appropriate,
commencing on the date that the damage to or destruction of the
Premises or Building has occurred, and except that, if Landlord or
Tenant elects to terminate this Lease as provided in Subsection B.
above, no obligation shall accrue under this Lease after such
termination. Notwithstanding the provisions of this Section, if any
such damage is due to the fault or neglect of Tenant, any person
claiming through or under Tenant, or any of their employees, suppliers,
shippers, servants, customers or invitees, then there shall be no
abatement of rent by reason of such damage, unless and until Landlord
is reimbursed for such abatement pursuant to any rental insurance
policy that Landlord may, in its sole discretion, elect to carry.
Tenant's right to terminate this Lease in the event of any damage or
destruction to the Premises or Building, is governed by the terms of
this Section and therefore Tenant hereby expressly waives the
provisions of any and all laws, whether now or hereafter in force, and
whether created by ordinance, statute, judicial decision,
administrative rules or regulations, or otherwise, that would cause
this Lease to be terminated, or give Tenant a right to terminate this
Lease, upon any damage to or destruction of the Premises or Building
that occurs.
SECTION XIX. CONDEMNATION
A. Total or Partial Taking
If all or substantially all of the Premises is permanently condemned or
taken in any manner for public or quasi-public use, including but not
limited to, a conveyance or assignment in lieu of the condemnation or
taking, this Lease shall automatically terminate as of the earlier of
the date on which actual physical possession is taken by the condemnor
or the date of dispossession of Tenant as a result of such condemnation
or other taking. If less than all or substantially all of the Premises
is so condemned or taken, this Lease shall automatically terminate only
as to the portion of the Premises so taken as of the earlier of the
date on which actual physical possession is taken by the condemnor or
the date of dispossession of Tenant as a result of such condemnation or
taking. If such portion of the Building is condemned or otherwise taken
so as to require, in the opinion of Landlord, a substantial alteration
or reconstruction of the remaining portions thereof, this Lease may be
terminated by Landlord, as of the date on which actual physical
possession is taken by the condemnor or dispossession of Tenant as a
result of such condemnation or taking, by written notice to Tenant
within sixty (60) days following notice to Landlord of the date on
which such physical possession is taken or dispossession will occur.
B. Award
Landlord shall be entitled to the entire award in any condemnation
proceeding or other proceeding for taking the Premises, Building or
Project for public or quasi-public use, including, without limitation,
any award made for the value of the leasehold estate created by this
Lease. No award for any partial or total taking shall be apportioned,
and Tenant hereby assigns to Landlord any award that may be made in
such proceeding for condemnation or other taking, together with any and
all rights of Tenant now or hereafter
<PAGE> 24
arising in or to the same or any part thereof. Although all damages in
the event of any condemnation shall belong to Landlord whether such
damages are awarded as compensation for diminution in value of the
leasehold or to the Landlord's fee, Tenant shall have the right to
claim and recover from the condemnor, but not from Landlord, such
compensation as may be separately awarded or recoverable by Tenant in
Tenant's own right on account of the interruption of or damage to
Tenant's business by reason of the condemnation and for or on account
of any cost or loss to which Tenant might incur in removing Tenant's
merchandise, furniture and other personal property, fixtures, and
equipment from the Premises.
C. Abatement in Rent
In the event of a partial condemnation or other taking that does not
result in a termination of this Lease as to the entire Premises
pursuant to this Section, the rent and all other charges under this
Lease shall abate in proportion to the portion of the Premises taken by
such condemnation or other taking. If this Lease is terminated, in
whole or in part, pursuant to any of the provisions of this Section,
all rentals and other charges payable by Tenant to Landlord hereunder
and attributable to the Premises taken shall be paid up to the date
upon which actual physical possession shall be taken by the condemnor.
Landlord shall be entitled to retain all of the Security Deposit until
such time as this Lease is terminated as to all of the Premises.
D. Temporary Taking
If all or any portion of the Premises is temporarily condemned or
otherwise taken for public or quasi-public use for a limited period of
time, this Lease shall remain in full force and effect and Tenant shall
continue to perform all terms, conditions and covenants of this Lease;
provided, however, the rent and all other charges payable by Tenant to
Landlord hereunder shall abate during such limited period in proportion
to the portion of the Premises that is rendered untenable and unusable
as a result of such condemnation or other taking. Landlord shall be
entitled to receive the entire award made in connection with any such
temporary condemnation or other taking. Tenant shall have the right to
claim and recover from the condemnor, but not from Landlord, such
compensation as may be separately awarded or recoverable by Tenant in
Tenant's own right on account of damages to Tenant's business by reason
of the condemnation and for or on account of any cost or loss to which
Tenant might be put in removing Tenant's merchandise, furniture and
other personal property, fixtures, and equipment or for the
interruption of or damage to Tenant's business.
E. Transfer of Landlord's Interest to Condemnor
Landlord may, without any obligation or liability to Tenant, agree to
sell and/or convey to the condemnor the Premises, the Building, the
Project or any portion thereof, sought by the condemnor, free from this
Lease and the rights of Tenant hereunder, without first requiring that
any action or proceeding be instituted or, if instituted, pursued to a
judgment. In such event, this Lease shall be deemed terminated
effective on the date of such transfer.
SECTION XX. DEFAULT
A. Tenant's Default
The occurrence of any of the following events shall constitute a
default hereunder by Tenant:
(1) If Tenant abandons or vacates all or a substantial portion of
the Premises;
(2) If Tenant fails to pay any rent or other charges required to be
paid by Tenant under this Lease and such failure continues for
five (5) days after receipt of written notice that such payment
is due and payable; provided, however, that the obligation of
Tenant to pay a late charge or interest pursuant to this Lease
shall commence as of the due date of the rent or such other
monetary obligation and not on the expiration of such five (5)
day grace period;
<PAGE> 25
(3) If Tenant involuntarily transfers Tenant's interest in this
Lease or voluntarily attempts to or actually transfers its
interest in this Lease, without Landlord's prior written
consent;
(4) If Tenant files a voluntary petition for relief, or if an
involuntary petition against Tenant, is filed in a proceeding
under the United States Bankruptcy Code or other federal or
state insolvency laws and is not withdrawn or dismissed within
forty-five (45) days thereafter; or if under the provisions of
any law providing for reorganization or winding up of
corporations, any court of competent jurisdiction assumes
jurisdiction, custody or control of Tenant or any substantial
part of the Premises or any of Tenant's personal property
located at the Premises and such jurisdiction, custody or
control remains in force unrelinquished, unstayed or
unterminated for a period of forty-five (45) days;
(5) If in any proceeding or action in which Tenant is a party, a
trustee, a receiver, agent or custodian is appointed to take
charge of the Premises or any of Tenant's personal property
located at the Premises (or has the authority to do so) for the
purpose of enforcing a lien against the Premises or Tenant's
personal property;
(6) If Tenant shall make any general assignment for the benefit of
creditors or convene a meeting of its creditors or any class
thereof for the purpose of effecting a moratorium upon or
composition of its debts, or any class thereof;
(7) If Tenant fails to discharge any lien placed as a result of
Tenant's action or inaction upon the Premises, the Building or
the Project within ten (10) days after the imposition of such
lien;
(8) If Tenant is a partnership or consists of more than one (1)
person or entity, if any partner of the partnership or other
person or entity is involved in any of the acts or events
described in subparagraphs (1) through (8) above;
(9) If Tenant fails to promptly and fully perform any other
covenant, condition or agreement contained in this Lease (other
than as provided in subparagraphs (1) through (8) above) and
such failure continues for ten (10) days after written notice
thereof from Landlord to Tenant, or if such failure cannot be
completely cured within such ten (10) day period, then if Tenant
fails to commerce such cure within such ten (10) day period and
thereafter proceed to completely cure such failure within thirty
(30) days after such written notice.
B. Remedies
Upon the occurrence of a default by Tenant that is not cured by Tenant
within any applicable grace period specified above, Landlord shall have
the following rights and remedies in addition to all other rights and
remedies available to Landlord at law or in equity, which shall be
cumulative and non-exclusive:
(1) The right to declare this Lease and the term of this Lease
terminated; to re-enter the Premises and the improvements
located thereon, with or without process of law; to eject all
parties in possession thereof therefrom; to repossess and enjoy
the Premises together with all said improvements; and to recover
from Tenant all of the following:
(a) The worth at the time of award of the unpaid rent which
had been earned at the time of termination;
(b) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after
termination until the time of award exceeds the amount
of such rental loss that Tenant proves could have been
reasonably avoided;
<PAGE> 26
(c) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Term after the
time of award exceeds the amount of rental loss that
Tenant proves could be reasonably avoided; and
(d) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure
to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result
therefrom, including, but not limited to, any attorneys'
fees, broker's commissions or finder's fees (not only in
connection with the reletting of the Premises, but also
that portion of any leasing commission paid by Landlord
in connection with this Lease which is applicable to
that portion of the Lease Term which is unexpired as of
the date on which this Lease is terminated); any costs
for repairs, clean-up, refurbishing, removal (including
the repair of any damage caused by such removal) and
storage (or disposal) of Tenant's personal property,
equipment, fixtures, and anything else that Tenant is
required (under this Lease) to remove but does not
remove; any costs for alterations. additions and
renovations; and any other costs and expenses, including
reasonable attorney's fees and costs incurred by
Landlord in regaining possession of and reletting (or
attempting to relet) the Premises.
(2) The right to continue this Lease in effect and to enforce all of
Landlord's rights and remedies under this Lease, including the
right to recover rent and any other additional monetary charges
as they become due, for as long as Landlord does not terminate
Tenant's right to possession. Acts of maintenance or
preservation, efforts to relet the Premises or the appointment
of a receiver upon Landlord's initiative to protect its interest
under this Lease shall not constitute a termination of Tenant's
right to possession.
(3) The right: to re-enter the Premises; to eject therefrom all
parties in possession thereof; at any time and from time to
time, but without obligation to do so, to relet the Premises and
the improvements located therein or any part or parts thereof
for the account of Tenant, or otherwise, and to receive and
collect the rents therefor, and apply the same (i) first to the
payment of the following costs and expenses which Landlord may
have paid, assumed or incurred: (a) costs in recovering
possession of the Premises and said improvements, including
attorneys' fees, and costs; (b) expenses for placing the
Premises and said improvements in good order and condition, for
decorating and preparing the Premises for reletting; (c) costs
in making any alterations, repairs, changes or additions to the
Premises that may be necessary or convenient; (d) all other
costs and expenses, including leasing and subleasing
commissions, and charges paid, assumed or incurred by Landlord
in or upon reletting the Premises and said improvements, or in
fulfillment of the covenants of Tenant under this Lease; and
(ii) then to the payment of Monthly Rental, Tenant's
Proportionate Share of Common Operating Costs, and other
monetary obligations due and unpaid hereunder. Any such
reletting may be for the remainder of the term of this Lease or
for a longer or shorter period in Landlord's sole and absolute
discretion. Landlord may execute any lease or sublease made
pursuant to the terms of this subparagraph either in its own
name or in the name of Tenant as its agent, as Landlord may see
fit. The tenant(s) or subtenant(s) thereunder shall be under no
obligation whatsoever with regard to the application by Landlord
of any rent collected by Landlord from such tenant or subtenant
to any and all sums due and owing or which may become due and
owing under the provisions of this Lease, nor shall Tenant have
any right or authority whatever to collect any rent whatever
from such tenant(s) or subtenant(s). If Tenant has been credited
with any rent received by such reletting and such rent shall not
be promptly paid to Landlord by the tenant(s) or subtenant(s),
or if such rentals received from reletting during any month are
less than those to be paid during that month by Tenant
hereunder, Tenant shall pay any such deficiency to Landlord.
Such deficiency shall be calculated and paid monthly. For all
purposes set forth in this subsection, Landlord is hereby
irrevocably appointed as agent for Tenant. No taking possession
of the Premises by Landlord shall be construed as Landlord's
acceptance of a surrender of the Premises by Tenant or an
election of Landlord's part to terminate this Lease unless
written notice of such intention is given to Tenant.
Notwithstanding
<PAGE> 27
any such leasing or subletting without termination of this
Lease, Landlord may at any time thereafter elect to terminate
this Lease for Tenant's previous breach.
(4) The right to have a receiver appointed for Tenant, upon
application by Landlord, to take possession of the Premises and
to apply any rental collected from the Premises and exercise all
other rights and remedies granted to Landlord pursuant to this
Section.
SECTION XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES
A. Interest
Any amount due from Tenant to Landlord which is not paid when due shall
bear interest at twelve percent (12%) from the date such payment is due
until paid, except that amounts spent by Landlord on behalf of Tenant
as provided in this Lease shall bear interest at such rate from the
date of disbursement by Landlord which Tenant agrees is to compensate
Landlord for Tenant's use of Landlord's money after it is due. Payment
of such interest shall not excuse or cure any default by Tenant
pursuant to this Lease. Such rate shall remain in effect after the
occurrence of any breach or default hereunder by Tenant to and until
payment of. the entire amount due.
B. Late Charges
Tenant hereby acknowledges that in addition to lost interest, the late
payment by Tenant to Landlord of rent or any other sums due hereunder
will cause Landlord to incur other costs not contemplated in this
Lease, the exact amount of which will be extremely difficult and
impracticable to ascertain. Such other costs include, but are not
limited to processing, administrative and accounting costs.
Accordingly, if any installment of rent or any additional rent or other
sum due from Tenant shall not be received by Landlord when such amount
shall be due (without regard to any grace period prior to default
granted in this Lease), Tenant shall pay to Landlord as additional rent
hereunder a late charge equal to five percent (5%) of such overdue
amount. The parties hereby agree that (i) such late charge represents a
fair and reasonable estimate of the costs Landlord will incur in
processing such past-due payment by Tenant, (ii) such late charge shall
be paid to Landlord as liquidated damages for each delinquent payment,
and (iii) the payment of the late charge is to compensate Landlord for
the additional administrative expense incurred by Landlord in handling
and processing delinquent payments.
C. Consecutive Late Payment of Rent
Following each second consecutive late payment of rent, Landlord shall
have the option (i) to require that beginning with the first payment of
rent next due, rent shall no longer be paid in monthly installments but
shall be payable quarterly three (3) months in advance and/or (ii) to
require that the Tenant increase the amount, if any, of the Security
Deposit by one hundred percent (100%), which additional Security
Deposit shall be retained by Landlord, and may be applied by Landlord,
in the manner provided for Security Deposits in this Lease.
D. No Waiver
Neither assessment nor acceptance of partial payments, interest or late
charges by Landlord shall constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising
any of its other rights and remedies under this Lease. Nothing
contained in this Section shall be deemed to condone, authorize,
sanction or grant to Tenant an option for the late payment of rent,
additional rent or other sums due hereunder, and Tenant shall be deemed
in default with regard to any such payments should the same not be made
by the date on which they are due.
<PAGE> 28
SECTION XXII. LIEN FOR RENT (Intentionally Deleted)
SECTION XXIII. HOLDING OVER
Any holding over by Tenant in the possession of the Premises, or any portion
thereof, after the expiration of the Term, with or without the consent of
Landlord, shall require Tenant to pay one hundred fifty percent (150%) of the
Monthly Rental herein specified for the last month in the Term (prorated on a
monthly basis), unless Landlord shall specify a lesser amount for rent in its
sole discretion, together with an amount estimated by Landlord for the monthly
Common Operating Costs payable under this Lease. If Tenant holds over with
Landlord's consent, such occupancy shall be deemed a month to month tenancy and
such tenancy shall otherwise be on the terms and conditions herein specified in
this Lease as far as applicable. Notwithstanding the foregoing provisions or the
acceptance by Landlord of any payment by Tenant, any holding over without
Landlord's consent shall constitute a default by Tenant and shall entitle
Landlord to pursue all remedies provided in this Lease and Tenant shall be
liable for any and all direct or consequential damages or losses of Landlord
resulting from Tenant's holding over without Landlord's consent.
SECTION XXIV. ATTORNEYS' FEES
Tenant shall pay to Landlord all costs and expenses, including, but not limited
to, reasonable attorneys, fees and amounts paid to any collection agency,
incurred by Landlord in connection with any breach or default by Tenant under
this Lease or incurred in order to enforce or interpret the terms or provisions
of this Lease. Such amounts shall be payable immediately upon demand. In
addition, if any action shall be instituted by either Landlord or Tenant for the
enforcement or interpretation of any of its rights or remedies in or under this
Lease, the prevailing party shall be entitled to recover from the losing party
all costs incurred by the prevailing party in said action and any appeal
therefrom, including reasonable attorneys' fees and court costs to be fixed by
the court therein. In the event Landlord is made a party to any litigation
between Tenant and any third party, then Tenant shall reimburse Landlord for all
costs and attorneys' fees incurred by or imposed upon Landlord in connection
with such litigation unless Landlord is ultimately held to be liable.
SECTION XXV. MORTGAGEE PROTECTIONS
A. Subordination; Nondisturbance
The rights of Tenant under this Lease are and shall be, at the option
of Landlord or the mortgagee, beneficiary or master or ground lessor
under the following instruments, either subordinate or superior to any
mortgage or deed of trust (including a consolidated mortgage or deed of
trust) constituting a lien on the Premises, Building or Project, or on
any part thereof or Landlord's interest therein and to any ground or
master lease if Landlord's title to the Premises or any part thereof is
or shall become a leasehold interest, whether such mortgage, deed of
trust, ground or master lease is placed on the Premises, Building or
Project before or after the date of this Lease; provided however that
notwithstanding any such subordination, Tenant's right to occupy the
Premises pursuant to this Lease shall remain in effect for the full
Term as long as Tenant is not in default hereunder . To further assure
the foregoing subordination or superiority, Tenant shall, upon
Landlord's request, together with the request of any mortgagee under a
mortgage or beneficiary under a deed of trust or ground or master
lessor, execute any instrument (including without limitation an
amendment to this Lease that does not materially and adversely affect
Tenant's rights or duties under this Lease), or instruments intended to
subordinate this Lease (subject to Tenant's nondisturbance rights, or
at the option of Landlord, to make it superior to any mortgage, deed of
trust, or ground or master lease.
B. Attornment
<PAGE> 29
Notwithstanding and in addition to the provisions of Subsection A.
above, Tenant agrees (1) to attorn to any mortgagee of a mortgage or
beneficiary of a deed of trust encumbering the Premises and to any
party acquiring title to the Premises by judicial foreclosure,
trustee's sale, or deed in lieu of foreclosure, and to any ground or
master lessor, as the successor to Landlord hereunder and (2) to
execute any attornment agreement evidencing such attornment requested
by a mortgagee, beneficiary, ground or master lessor, or party making a
loan secured by the Premises, Building or Project or so acquiring title
to the Premises, and (3) that this Lease shall remain in force
notwithstanding any such judicial foreclosure, trustee's sale, deed in
lieu of foreclosure, or merger of titles. Notwithstanding the
foregoing, neither a mortgagee of a mortgage or beneficiary of a deed
of trust encumbering the Premises, any party acquiring title to the
Premises by judicial foreclosure, trustee sale, or deed in lieu of
foreclosure, or any ground lessor or master lessor, as the successor to
Landlord hereunder, shall be liable or responsible for any breach of a
covenant contained in this Lease that occurred before such party
acquired its interest in the Premises or for any continuing breach
thereof until after the successor Landlord has received the notice and
right to cure as provided herein, and no such party shall be liable or
responsible for any security deposits held by Landlord hereunder which
have not been transferred or actually received by such party, and such
party shall not be bound by any payment of rent or additional rent for
more than two (2) months in advance.
SECTION XXVI. ESTOPPEL CERTIFICATE/FINANCIAL STATEMENTS
A. Estoppel Certificate
Tenant, at any time and from time to time upon not less than ten (10)
days prior written notice from Landlord, agrees to execute and deliver
to Landlord a statement in the form provided by Landlord (a) certifying
that this Lease is unmodified and in full force and effect, or, if
modified, stating the nature of such modification and certifying that
this Lease, as so modified, is in full force and effect and the date to
which the rent and other charges are paid in advance, if any; (b)
acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder, or specifying such defaults
if they are claimed evidencing the status of this Lease; (c)
acknowledging the amount of the Security Deposit held by Landlord; and
(d) containing such other information regarding this Lease or Tenant as
Landlord reasonably requests. Tenant's failure to deliver an estoppel
certificate within such time shall be conclusive upon Tenant that (i)
this Lease is in full force and effect without modification except as
may be represented by Landlord, (ii) to Tenant's knowledge there are no
uncured defaults in Landlord's performance, (iii) no rent has been paid
in advance except as set forth in this Lease, and (iv) such other
information regarding this Lease and Tenant set forth therein by
Landlord is true and complete.
B. Furnishing of Financial Statements
Landlord has reviewed the financial statements, if any, requested and
received from the Tenant and has relied upon the truth and accuracy
thereof with Tenant's knowledge and representations of the truth and
accuracy of such statements and that said statements accurately and
fairly depict the financial condition of Tenant. Said financial
statements are an inducing factor and consideration for the entering
into of this Lease by Landlord with this particular Tenant. Tenant
shall, at any time and from time to time upon not less than ten (10)
days prior written notice from Landlord, furnish Landlord with (a)
Tenant's most recent audited financial statements, including a balance
sheet and income statement, or a document in which Tenant states that
its books are not independently audited, and (b) unaudited financial
statements, including a balance sheet and income statement, dated
within ninety (90) days of the request from Landlord.
SECTION XXVII. PARKING
Landlord agrees to maintain or cause to be maintained an automobile parking area
and to maintain and operate, or cause to be maintained and operated, said
automobile parking area during the Term of this Lease for the benefit and use of
the customers, service suppliers, other invitees and employees of Tenant.
Whenever the words "automobile"
<PAGE> 30
or "parking area" are used in this Lease, it is intended that the same shall
include, whether in a surface parking area or a parking structure, the
automobile parking stalls, driveways, loading docks, truck areas, service
drives, entrances and exits and sidewalks, landscaped areas, pedestrian
passageways in conjunction therewith and other areas designed for parking.
Landlord shall keep said automobile parking area in a reasonably neat, clean and
orderly condition, lighted and landscaped, and shall repair any damage to the
facilities thereof, the cost of which shall be included in Common Operating
Costs as defined above. Landlord shall also have the right to establish such
reasonable rules and regulations as may be deemed desirable, at Landlord's sole
discretion, for the proper and efficient operation and maintenance of said
automobile parking area. Such rules and regulations may include, without
limitation, (i) restrictions in the hours during which the automobile parking
area shall be open for use, (ii) the establishment of charges for parking
therein (on either a reserved or unreserved basis, at Landlord's sole
discretion) by tenants of the Building and Project as well as by their
employees, customers and service suppliers, and (iii) the use of parking gates,
cards, permits and other control devices to regulate the use of the parking
areas.
The rights of Tenant and its employees, customers, service suppliers and
invitees to use the automobile parking area shall at all times be subject to (a)
Landlord's right to establish rules and regulations applicable to such use and
to exclude any person therefrom who is not authorized to use same or who
violates such rules and regulations; (b) the rights of Landlord and other
tenants in the Building and Project to use the same in common with Tenant and
its employees, customers, service suppliers and invitees, (c) the availability
of parking spaces in said automobile parking area, and (d) Landlord's right to
change the location and configuration of the parking areas and any assigned
reserved parking spaces as shall be determined at Landlord's sole discretion.
Tenant agrees to limit its use of the Automobile Parking Area tot he number and
type of parking spaces specified in the subsection entitled "Tenant Parking
Spaces" in Section I.
Notwithstanding the foregoing, nothing contained herein shall be deemed to
impose liability upon Landlord for personal injury or theft, for damage to any
motor vehicle, or for loss of property from within any motor vehicle, which is
suffered by Tenant or any of its employees, customers, service suppliers or
other invitees in connection with their use of said automobile parking area.
SECTION XXVIII. SIGNS; NAME OF BUILDING
Tenant shall not have the right to place, construct, or maintain on or about the
Premises, Building or Project, or in any interior portions of the Premises or
Building that may be visible from the exterior of the Building or Common Areas,
any signs, names, insignia, trademark, advertising placard, descriptive material
or any other similar item ("Sign") without Landlord's prior written consent,
which consent may be withheld in Landlord's sole discretion. In the event
Landlord consents to Tenant placing a Sign on or about the Premises, Building or
Project, any such Sign shall be subject to Landlord's approval of the color,
size, style and location of such Sign, and shall conform to any current or
future Sign criteria established by Landlord for the Building or Project. If
Landlord enacts a Sign criteria or revises an existing Sign criteria, after
Tenant has erected a Sign to which Landlord has granted its consent, if Landlord
so elects, Tenant agrees, at Landlord's expense but subject to Landlord's prior
approval of the cost thereof, to make the necessary changes to its Sign in order
to conform the Sign to Landlord's current Sign criteria, as enacted or revised,
provided that such changes shall be limited to the color, size, style and
location of Tenant's Sign and that Tenant shall not be required to change the
content of its Sign. In the event Landlord consents to Tenant's placement of a
Sign on the Building, Tenant shall, at its sole cost, (i) maintain such sign in
first class condition during the Term and (ii) and remove such Sign from the
Building at the end of the Term and restore the Building to the same condition
as before the installation of the Sign, ordinary wear and tear excepted,
including removing any discoloration of the Building caused by the presence of
such sign.
Landlord reserves the right at any time it deems necessary or appropriate to (a)
place Signs at any location on the Building and Project as it deems necessary
and (b) change the name, address or designation of the Building and Project.
SECTION XXIX. QUIET ENJOYMENT
<PAGE> 31
Upon payment by Tenant of the charges herein provided, and upon the observance
and performance of all the covenants, terms and conditions on Tenant's part to
be observed and performed, Tenant shall peaceably and quietly hold and enjoy the
Premises for the Term without hindrance or interruption by Landlord or any other
person or persons lawfully or equitably claiming by, through or under Landlord,
subject, nevertheless, to the terms and conditions of this Lease and any
mortgage and/or deed of trust to which this Lease is subordinate.
SECTION XXX. BROKERS AND AGENTS
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except the Broker
identified in Section I. Tenant shall indemnify and hold Landlord harmless from
any cost, expense or liability (including costs of suit and reasonable
attorneys' fees) for any compensation, commission or fees claimed by any other
real estate broker or agent in connection with this Lease or its negotiation by
reason of any act of Tenant. Further, Tenant agrees that Landlord shall not be
responsible for, and Tenant shall indemnify and hold Landlord harmless from and
such liability for compensation, commission or fees claimed by any real estate
broker or agent representing Tenant in connection with any renewal, extension
modification or other matter relating to this Lease.
SECTION XXXI. NOTICES
Any notice, demand, approval, consent, bill, statement or other communication
("Notice") required or desired to be given under this Lease shall be in writing
addressed to Tenant at Tenant's Address for Notice or to Landlord at Landlord's
Address for Notice, above and shall be personally served or given by pre-paid
Certified U.S. mail, return receipt requested, or "overnight" delivery service
with written receipt. In the case of personal delivery, any Notice shall be
deemed to have been given when delivered; in the case of service by certified
mail, any Notice shall be deemed delivered on the date of receipt or refusal or
non-delivery indicated on the return receipt; and in the case of overnight
delivery service, any Notice shall be deemed given when delivered as evidenced
by a receipt. If more than one Tenant is named under this Lease, service of any
Notice upon any one of said Tenants shall be deemed as service upon all of such
Tenants. The parties hereto and their respective heirs, successors, legal
representatives, and assigns may from time to time change their respective
addresses for Notice by giving at least fifteen (15) days' written notice to the
other party, delivered in compliance with this Section.
SECTION XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE
On any act or omission by Landlord which gives, or which Tenant claims or
intends to claim gives, Tenant the right to recover damages from Landlord or the
right to terminate this Lease by reason of a constructive or actual eviction
from all or part of the Premises, or otherwise, Tenant shall not sue for damages
or attempt to terminate this Lease until it has given written notice of the act
or omission to Landlord and to the holder(s) of the indebtedness or other
obligations secured by any mortgage or deed of trust affecting the Premises as
identified by Landlord, and a reasonable period of time for remedying the act or
omission has elapsed following the giving of the notice, during which time
Landlord and the lienholder(s), or either of them, their agents or employees,
may enter upon the Premises and do therein whatever is necessary to remedy the
act or omission. During the period after the giving of notice and during the
remedying of the act or omission, the Monthly Rental payable by Tenant shall not
be abated and apportioned except to the extent that the Premises are
untenantable as a direct result of Landlord's breach of its obligations
hereunder.
SECTION XXXIII. GENERAL
A. Paragraph Headings
<PAGE> 32
The paragraph headings used in this Lease are for the purposes of
convenience only. They shall not be construed to limit or to extend the
meaning of any part of this Lease.
B. Incorporation of Prior Agreements: Amendments
This Lease contains all agreements of Landlord and Tenant with respect
to any matter mentioned, or dealt with, herein. No prior agreement or
understanding pertaining to any such matter shall be binding upon
Landlord. Any amendments to or modifications of this Lease shall be in
writing, signed by te parties hereto, and neither Landlord nor Tenant
shall be liable for any oral or implied agreements.
Tenant hereby agrees that Landlord has not made, and Tenant may not
rely on, any representations or warranties, expressed or implied with
regard tot he Project, the Building, the Premises or otherwise, except
as stated in this Lease. In particular, Landlord has not authorized any
agent or broker to make a representation or warranty inconsistent with
the terms of this Lease and Tenant may not rely on any such
inconsistent representation or warranty.
C. Waiver
Any waiver by Landlord of any breach of any term, covenant, or
condition contained in this Lease shall not be deemed to be a waiver of
such term, covenant, or condition or of any subsequent breach of the
same or of any other term, covenant, or condition contained in this
Lease. Landlord's consent to, or approval of, any act shall not be
deemed to render unnecessary the obtaining of Landlord's consent to, or
approval of, any subsequent act by Tenant. The acceptance of rent or
other sums payable hereunder by Landlord shall not be a waiver of any
preceding breach by Tenant of any provision hereof, other than failure
of Tenant to pay the particular rent or other sum so accepted,
regardless of Landlord's knowledge of such preceding breach at the time
of acceptance of such rent, or sum equivalent to rent.
D. Short Form or Memorandum of Lease
Tenant agrees, at the request of Landlord, to execute, deliver, and
acknowledge a short form or memorandum of this Lease satisfactory to
counsel for Landlord, and Landlord may, in its sole discretion, record
such short form or memorandum in the county where the Premises are
located. Tenant shall not record this Lease, or a short form of this
Lease, without Landlord's prior written consent, and such recordation
shall, at the option of Landlord, constitute a default of Tenant
hereunder.
E. Time of Essence
Time is of the essence in the performance of each provision of this
Lease.
F. Examination of Lease
Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise until execution by and delivery to
both Landlord and Tenant.
G. Severability
If any term or provision of this Lease or the application thereof to
any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such
term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and
be enforced to the fullest extent permitted by law.
H. Surrender of Lease Not Merger
<PAGE> 33
Neither the voluntary or other surrender of the Lease by Tenant nor the
mutual cancellation thereof shall cause a merger of the titles of
Landlord and Tenant, but such surrender or cancellation shall, at the
option of Landlord, either terminate all or any existing subleases or
operate as an assignment to Landlord of any such subleases.
I. Corporate Authority
If Tenant is a corporation, each individual executing this Lease on
behalf of Tenant represents and warrants (1) that he is duly authorized
to execute and deliver this Lease on behalf of Tenant in accordance
with a duly adopted resolution of the Board of Directors of Tenant in
accordance with the By-laws of Tenant and (2) that this Lease is
binding upon and enforceable by Landlord against Tenant in accordance
with its terms. If Tenant is a corporation, Tenant shall, within thirty
(30) days after execution of this Lease, deliver to Landlord a
certified copy of a resolution of its Board of Directors authorizing or
ratifying the execution of this Lease.
J. Governing Law
This Lease and the rights and obligations of the parties hereto shall
be interpreted, construed and enforced in accordance with the local
laws of the State in which the Project is located.
K. Force Majeure
If the performance by Landlord of any provision of this Lease is
delayed or prevented by any act of God, strike, lockout, shortage of
material or labor, restriction by any governmental authority, civil
riot, flood, and any other cause not within the control of Landlord,
then the period for Landlord's performance of the provision shall be
automatically extended for the same time the Landlord is so delayed or
hindered.
L. Use of Language
Words of gender used in this Lease include any other gender, and words
in the singular include the plural, unless the context otherwise
requires.
M. Successors
The terms, conditions and covenants contained in the Lease inure to the
benefit of and are binding on, the parties hereto and their respective
successors in interest, assigns and legal representatives, except as
otherwise herein expressly provided. All rights, privileges, immunities
and duties of Landlord under this Lease, including without limitation,
notices required or permitted to be delivered by Landlord to Tenant
hereunder, may, at Landlord's option, be exercised or performed by
Landlord's agent or attorney.
N. No Reduction of Rental
Except as otherwise expressly and unequivocally provided in this Lease,
Tenant shall not for any reason withhold or reduce the amounts payable
by Tenant under this Lease, it being understood that the obligations of
Landlord hereunder are independent of Tenant's obligations. If Landlord
is required by governmental authority to reduce energy consumption or
impose a parking or similar charge with respect to the Premises,
Building or Project, to restrict the hours of operation of, limit
access to, or reduce parking spaces available at the Building, or take
other limiting actions, then Tenant is not entitled to abatement or
reduction of rent or to terminate this Lease.
O. No Partnership
<PAGE> 34
Notwithstanding any provision of this Lease or otherwise, Landlord is
not, and under no circumstances shall it be considered to be, a partner
of Tenant, or engaged in a joint venture with Tenant.
P. Exhibits
All exhibits attached hereto are made a part hereof and are
incorporated herein by a reference. A complete list of said exhibits is
set forth in the Table of Contents.
Q. Survival of Indemnities
The obligations of the indemnifying party under each and every
indemnification and hold harmless provision contained in this Lease
shall survive the expiration or earlier termination of this Lease to
and until the last to occur of (a) the last date permitted by law for
the bringing of any claim or action with respect to which
indemnification may be claimed by the indemnified party against the
indemnifying party under such provision or (b) the date on which any
claim or action for which indemnification may be claimed under such
provision is fully and finally resolved and, if applicable, any
compromise thereof or judgement or award thereon is paid in full by the
indemnifying party ad the indemnified party is reimbursed by the
indemnifying party for any amounts paid by the indemnified party in
compromise thereof or upon a judgement or award thereon and in defense
of such action or claim, including reasonable attorneys' fees incurred.
Payment shall not be a condition precedent to recovery upon any
indemnification provision contained herein.
SECTION XXXIV. EXECUTION
This Lease may be executed in several duplicate counterparts, each of which
shall be deemed an original of this Lease for all purposes.
"TENANT" "LANDLORD"
TIMELINE, INC. A WASHINGTON G&W INVESTMENT PARTNERS, A NINI
CORPORATION KUMIA FORMED UNDER THE LAWS OF
JAPAN
BY: /S/ CHARLES R. OSENBAUGH BY MONY REALTY PARTNERS, A
---------------------------- -------------------------------
DELAWARE CORPORATION AS ITS AGENT
NAME: NAME: /S/ THOMAS M. CAHILL
--------------------------- -----------------------------
CHARLES R. OSENBAUGH, THOMAS M. MCCAHILL
TITLE: CHIEF FINANCIAL OFFICER TITLE: PRESIDENT
<PAGE> 35
STATE OF WASHINGTON) CORPORATE
COUNTY OF KING)
On this 6th day of September A.D. 1995 before me person appeared
Charles R. Osenbaugh to me known to be the Chief Financial Officer and
_____________________ to me known to be the _______________________ of Timeline,
Inc. the corporation that executed the within and foregoing Instrument and
acknowledged the same instrument to be-the tree and voluntary act and deed of
said corporation, for the use and purposes therein mentioned. and on oath stated
that they were authorized to execute said Instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, the day and year first above written.
------------------------------------
Notary Public in and for the
State of Washington, residing at Mercer Island
STATE OF COLORADO)
COUNTY OF DENVER)
On this 20h day of September A.D. 1995 before me person appeared
Thomas M. McCahill and said person(s) acknowledged that he signed this
Instrument, and on oath stated he was authorized to execute the instrument and
acknowledged it as the President of MONY Realty Partners to be the free and
voluntary act of such party for the uses and purposes mentioned in the
instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, the day and year first above written.
/s/ Elizabeth Stone Davis
-----------------------------------
Notary Public in and for the
State of Colorado
Residing in Denver County
My Commission Expires 10/8/96
<PAGE> 36
EXHIBIT "A"
SITE PLAN FOR THE PROJECT
[DRAWING SHOWING PHYSICAL LAY OUT OF THREE BUILDINGS LABELED A, B, AND C.
PREMISES IS LOCATED IN BUILDING B]
<PAGE> 37
EXHIBIT "B"
FLOOR PLAN OF THE PREMISES
[COPY OF BLUE PRINT OF FIRST FLOOR OF BUILDING, INDICATING PREMISES AND
ADDITIONAL SPACE]
<PAGE> 38
EXHIBIT "C"
CONSTRUCTION WORK LETTER
Landlord shall be responsible for the construction of all tenant improvements to
be installed in the Premises prior to the Lease Commencement Date ("Landlord's
Work") in accordance with the following provisions. Landlord's Work shall
include those items shown on the space plan attached to this exhibit as Exhibit
"B" ("Space Plan"). After execution of the Lease by both parties, Landlord shall
cause Landlord's architect to prepare and submit to Landlord and Tenant complete
construction plans and specifications ("Working Drawings") which shall be based
on the attached Space Plan. Landlord and Tenant shall approve or disapprove the
working Drawings within five (5) business days after receipt. In the event any
changes are required or desired to the Working Drawings, Landlord and Tenant
shall work in good faith to finalize and approve the Working Drawings within ten
(10) business days after their original receipt thereof. Upon approval of the
Working Drawings by Landlord and Tenant, they shall constitute the "Construction
Documents".
Landlord shall cause the Landlord's Work to be completed in a good and
workmanlike manner in accordance with the Construction Documents and in
compliance with all applicable laws, rules and regulations, including local
building codes. Landlord shall contribute $102,150.00 for tenant improvements as
identified in the Construction Documents which improvements shall include
without limitation all architectural, engineering and construction management
fees, permit and other "soft" costs.
Prior to Landlord's commencement of Landlord's Work, Tenant shall pay to
Landlord the cost of said Landlord's Work in excess of $102,150.00.
<PAGE> 39
EXHIBIT "D"
RENT SCHEDULE
The total Monthly Rent (subject to adjustment by CPI increases, if applicable)
for the entire Term is equal to $1,783,952.80 and shall be payable monthly in
accordance with the provisions of the Lease in installments as set forth below:
<TABLE>
<CAPTION>
Months RSF Monthly Rental Annual Rental
Rate
- ------ --- -------------- -------------
<S> <C> <C> <C>
October 1, 1995 - 14,885 $23,412.00 $18.87/RSF
December 31, 1995-
January 1, 1996 - 17,025 $26,889.50 $18.95/RSF
February 28, 1996
March 1, 1996 - 17,025 $27,665.63 $19.50/RSF
February 28, 2001
</TABLE>
<PAGE> 40
EXHIBIT "E"
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF THE LEASE
The following Rules and Regulations shall be in effect at the Building. Landlord
reserves the right to adopt reasonable modifications and additions hereto. In
the case of any conflict between these regulations and the Lease, the Lease
shall be controlling.
1. Except with the prior written consent of Landlord, no tenant shall
conduct any retail sales in or from the Premises, or any business other
than that specifically provided for in the Lease.
2. Landlord reserves the right to prohibit personal goods and services
vendors from access to the Building except upon such reasonable terms
and conditions, including but not limited to a provision for insurance
coverage, as are related to the safety, care and cleanliness of the
Building, the preservation of good order thereon, and the relief of any
financial or other burden on Landlord occasioned by the presence of
such vendors or the sale by them of personal goods or services to a
tenant or its employees. If reasonably necessary for the accomplishment
of these purposes, Landlord may exclude a particular vendor entirely or
limit the number of vendors who may be present at any one time in the
Building. The term "personal goods or services vendors" means persons
who periodically enter the Building of which the Premises are a part
for the purpose of selling goods or services to a tenant, other than
goods or services which are used by a tenant only for the purpose of
conducting its business on the Premises. "Personal goods or services"
include, but are not limited to, drinking water and other beverages,
food, barbering services, and shoe shining services.
3. The sidewalks, halls, passages, elevators and stairways shall not be
obstructed by any tenant or used by it for any purpose other than for
ingress to and egress from their respective Premises. The halls,
passages, entrances, elevators, stairways, balconies, janitorial
closets, and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of
Landlord shall be prejudicial to the safety, character, reputation and
interests of the Building and its tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with
whom Tenant normally deals only for the purpose of conducting its
business on the Premises (such as clients, customers, office suppliers
and equipment vendors, and the like) unless such persons are engaged in
illegal activities. No tenant and no employees of any tenant shall go
upon the roof of the Building without the written consent of Landlord.
4. The sashes, sash doors, windows, glass lights, and any lights or
skylights that reflect or admit light into the halls or other places of
the Building shall not be covered or obstructed. The toilet rooms,
water and wash closets and other water apparatus shall not be used for
any purpose other than for which they were constructed, and no foreign
substance of any kind whatsoever shall be thrown therein, and the
expense of any breakage, stoppage or damage, resulting from the
violation of this rule shall be borne by the tenant who, or whose
clerks, agents, employees, or visitors, shall have caused it.
5. No sign, advertisement or notice visible from the exterior of the
Premises or Building shall be inscribed, painted or affixed by Tenant
on any part of the Building or the Premises without the prior written
consent of Landlord. If Landlord shall have given such consent at any
time, whether before or after the execution of this Lease, such consent
shall in no way operate as a waiver or release of any of the provisions
hereof or of this Lease, and shall be deemed to relate only to the
particular sign, advertisement or notice so consented to by Landlord
and shall not be construed as dispensing with the necessity of
obtaining the specific written consent of Landlord with respect to each
and every such sign, advertisement or notice other than the
particular sign, advertisement or notice, as the case may be, so
consented to by Landlord.
<PAGE> 41
6. In order to maintain the outward professional appearance of the
Building, all window coverings to be installed at the Premises shall be
subject to Landlord's prior reasonable approval. If Landlord, by a
notice in writing to Tenant, shall object to any curtain, blind, shade
or screen attached to, or hung in, or used in connection with, any
window or door of the Premises, such use of such curtain, blind, shade
or screen shall be forthwith discontinued by Tenant. No awnings shall
be permitted on any part of the Premises.
7. Tenant shall not do or permit anything to be done in the Premises, or
bring or keep anything therein, which shall in any way increase the
rate of fire insurance on the Building, or on the property kept
therein, or obstruct or interfere with the rights of other tenants, or
in any way injure or annoy them; or conflict with the regulations of
the Fire Department or the fire laws, or with any insurance policy upon
the Building, or any part thereof, or with any rules and ordinances
established by the Board of Health or other governmental authority.
8. No safes or other objects larger or heavier than the freight elevators
of the Building are limited to carry shall be brought into or installed
in the Premises. Landlord shall have the power to prescribe the weight,
method of installation and position of such safes or other objects. The
moving of safes shall occur only between such hours as may be
designated by, and only upon previous notice to, the manager of the
Building, and the persons employed to move safes in or out of the
Building must be acceptable to Landlord. No freight, furniture or bulky
matter of any description shall be received into the Building or
carried into the elevators except during hours and in a manner approved
by Landlord.
9. Landlord shall clean the Premises as provided in the Lease, and except
with the written consent of Landlord, no person or persons other than
those approved by Landlord will be permitted to enter the Building for
such purpose, but Tenant shall not cause unnecessary labor by reason of
Tenant's carelessness and indifference in the preservation of good
order and cleanliness.
10. No tenant shall sweep or throw or permit to be swept or thrown from the
Premises any dirt or other substance into any of the corridors or halls
or elevators, or out of the doors or windows or stairways of the
Building, and Tenant shall not use, keep or permit to be used or kept
any foul or noxious gas or substance in the Premises, or permit or
suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason
of noise, odors and/or vibrations, or interfere in any way with other
tenants or those having business therein, nor shall any animals or
birds be kept in or about the Building. Smoking or carrying lighted
cigars or cigarettes in the elevators of the Building is prohibited.
11. Except for the use of microwave ovens and coffee makers for Tenant's
personal use, no cooking shall be done or permitted by Tenant on the
Premises, nor shall the Building be used for lodging.
12. Tenant shall not use or keep in the Building any kerosene, gasoline, or
inflammable fluid or any other illuminating material, or use any method
of heating other than that supplied by Landlord.
13. If Tenant desires telephone or telegraph connections, Landlord will
direct electricians as to where and how the wires are to be introduced.
No boring or cutting for wires or other otherwise shall be made without
directions from Landlord.
14. Each tenant, upon the termination of its tenancy, shall deliver to
Landlord all the keys of offices, rooms. and toilet rooms, and security
access card/keys which shall have been furnished such tenant or which
such tenant shall have had made (Intentionally Deleted)
15. No Tenant shall lay linoleum or other similar floor covering so that
the same shall be affixed to the floor of the Premises in any manner
except by a paste, or other material which may easily be removed with
water, the use of cement or other similar adhesive materials being
expressly prohibited. The method of affixing any such linoleum or other
similar floor covering to the floor, as well as the method of affixing
carpets or rugs to the Premises shall be subject to reasonable approval
by Landlord. The expense of repairing any
<PAGE> 42
damage resulting from a violation of this rule shall be borne by Tenant
by whom, or by those agents, clerks, employees or visitors, the damage
shall have been caused.
16. No furniture, packages or merchandise will be received in the Building
or carried up or down in the elevators, except between such hours and
in such elevators as shall be designated by Landlord.
17. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 7:00 a.m. access to the Building or to the
halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to
the building watchman, if any, in charge and has a pass or is properly
identified. Landlord shall in no case be liable for damages for the
admission to or exclusion from the Building of any person whom Landlord
has the right to exclude under Rule 3 above. In case of invasion, mob,
riot, public excitement, or other commotion, Landlord reserves the
right but shall not be obligated to prevent access to the Building
during the continuance of the same by closing the doors or otherwise,
for the safety of the tenants and protection of property in the
Building.
18. Tenant shall see that the windows and doors of the Premises are closed
and securely locked before leaving the Building and Tenant shall
exercise extraordinary care and caution that all water faucets or water
apparatus are entirely shut off before Tenant or Tenant's employees
leave the Building, and that all electricity, gas or air shall likewise
be carefully shut off, so as to prevent waste or damage, and for any
default or carelessness Tenant shall make good all injuries sustained
by other tenants or occupants of the Building or Landlord.
19. Tenant shall not alter any lock or install a new or additional lock or
any bolt on any door of the Premises without prior written consent of
Landlord. If Landlord shall give its consent, Tenant shall in each case
furnish Landlord with a key for any such lock.
22. Landlord shall have the right to prohibit the use of the name of the
Building or Project or any other publicity by Tenant which in
Landlord's opinion tends to impair the reputation of the Building or
Project or their desirability for other tenants, and upon written
notice from Landlord, Tenant will refrain from or discontinue such
publicity.
23. Tenant shall not erect any aerial or antenna on the roof or exterior
walls of the Premises, Building, or Project without the prior written
consent of Landlord.
<PAGE> 43
EXHIBIT "F"
AMENDMENT OF LEASE COMMENCEMENT DATE
In connection with that certain Office Lease dated___________________________
between The Mutual Life Insurance Company of New York, as Landlord, and
_______________________ as Tenant concerning the Premises located at
______________________ Landlord and Tenant hereby agree as follows:
1. The Lease Commencement Date stated in Section I. of the Office Lease is
amended to be ________________, 19___ and the Expiration Date stated in
Section I. is amended to be ______________________, 19____.
2. Landlord has satisfactorily complied with all requirements and
conditions precedent to the commencement of the Term as specified in
the Office Lease.
3. The Premises covered by the Office Lease and the tenant improvements
therein have been fully completed as required, are in good condition,
are ready for occupancy and have been accepted by Tenant.
4. Tenant has or shall commence paying monthly Rental pursuant to the
Office Lease on _____________, 19____.
Dated effective this ___ day of _________________, 199__.
"TENANT" "LANDLORD"
____________________________ ________________________________
____________________________ ________________________________
By: _________________________. By: ____________________________
Name: __________________ Name:_______________________
Title: __________________ Title: _____________________
[SAMPLE]
<PAGE> 44
FIRST ADDENDUM TO LEASE
This First Addendum to lease shall be attached to and is hereby incorporated
into that certain office Lease dated _________________, 1995 by and between G&W
Investment Partners, a nini kumia formed under the laws of Japan, as Landlord,
and TIMELINE, INC., a Washington Corporation, as Tenant.
EXTERIOR BUILDING SIGNAGE
In the event exterior signage becomes available on Building B of Corporate
Campus East; because of the termination of the Lease and vacation of Shared
Medical Systems (SMS), Timeline, Inc. shall be allowed to place signage on the
building provided that Timeline, Inc. is the largest tenant in Building B and
occupies no less than 14,885 rentable square feet. Building signage is subject
to mutual approval by Landlord and Tenant and the City of Bellevue. All costs
associated with signage shall be borne by Tenant. Tenant exterior building
signage will be permitted provided that Tenant shall install exterior building
signage approved by Landlord within 120 days from receiving Landlord's written
notice that such building exterior signage is available. Failure by Tenant to
install such signage within the 120 day period shall cause this provision to
become null and void and Landlord shall be permitted to allow building exterior
signage to a third party.
RIGHT OF FIRST NOTIFICATION
Provided that the following criteria are met:
(i) Tenant is not in default under any provision of the Lease or
Addendum and,
(ii) Tenant is occupying substantially all of the Premises.
Tenant shall have a right of first notification (the "Right of First
Notification") to lease suite 100 in the Building (the "Additional Space"), as
identified on Exhibit "B" of the Lease, upon the terms and conditions set forth
in this paragraph. The Right of First Notification contained herein shall be
effective throughout the Term, including all renewals thereof. Periodically, as
and when the Additional Space becomes available, Landlord will notify Tenant in
writing of the size, location, and terms upon which Landlord intends to offer
the Additional Space for lease. Tenant shall have a period of seven (7) calendar
days within which to notify Landlord of its interest in negotiating with
Landlord for the lease of such Additional Space. Tenant shall have the right to
lease all, but not part, of the Additional Space. In the event Tenant notifies
Landlord of its interest in negotiating to lease all of the Additional Space,
Tenant and Landlord shall have an additional seven (7) calendar days within
which to enter into a lease for the lease of such Additional Space. In the event
either: (i) Tenant notifies Landlord that it has no interest in negotiating to
lease the Additional Space; or, (ii) Tenant fails to notify Landlord of its
interest in leasing or not leasing the Additional Space within the seven (7)
calendar day period described above; or, (iii) Tenant and Landlord shall fail to
enter into a lease for notice to Landlord of its interest in negotiating to
lease the Additional Space, then Landlord shall be free, at all times thereafter
to lease all or any part of the Additional Space to any party upon whatever
terms Landlord shall determine in the exercise of its sole discretion.
In the event this Lease is terminated for any reason whatsoever, or in the event
Tenant is in default under this Lease, or upon the occurrence of an event which,
with the giving of notice, or the passage of time, or both, would constitute a
default under this Lease, the Right of First Notification shall terminate.
TERMINATION OF THE PRIOR LEASE AND SUBSEQUENT AMENDMENTS
Upon the "Lease Commencement Date" of this new Office Lease the first Lease
dated July 7, 1986 by and between the Mutual Life Insurance Company of New York
as ("Landlord") and Timeline, Inc. as ("Tenant"), and the First
<PAGE> 45
Lease Amendment executed under the date of March 24, 1988 and the Second Lease
Amendment executed under the date of January 7, 1991 and the Third Lease
Amendment executed under the date of November 20, 1991 shall be null and void.
"TENANT" "LANDLORD"
TIMELINE, INC., G&W INVESTMENT PARTNERS, A NINI
A WASHINGTON CORPORATION KUMIA FORMED UNDER THE LAWS OF
JAPAN
BY: /s/ CHARLES R. OSENBAUGH, SEC. BY: MONY Realty Partners, a
-------------------------------- ----------------------------
DELAWARE CORPORATION AS ITS
AGENT
NAME: NAME: /s/ THOMAS McCAHILL
----------------------------- --------------------------
CHARLES R. 0SENBAUGH THOMAS M. McCAHILL
TITLE: CHIEF FIANCIAL OFFICER TITLE: PRESIDENT
<PAGE> 46
EXHIBIT F
AMENDMENT OF LEASE COMMENCEMENT DATE
In connection with that certain Lease dated September 8, 1995, between G & W
Investment Partners, a nini kumia formed under the laws of Japan, Landlord, and
Timeline, Inc., Tenant concerning the Premises located at 3055 - 112th Avenue
Northeast, Suite 106, Bellevue, Washington , Landlord and Tenant hereby agree as
follows:
1. The Lease Commencement Date stated in Section I of the Lease is
amended to be December 1, 1995 and the termination date in Section I is
amended to be April 30, 2001.
2. Landlord has satisfactorily complied with all requirements and
conditions precedent to the commencement of term as specified in the
Lease.
3. The Premises covered by the Lease and the tenant improvements
therein have been fully completed as required, are in good condition,
are ready for occupancy and have been accepted by Tenant.
4. Tenant has or shall commence paying Monthly Rental pursuant to the
Lease on December 1, 1995.
Dated and Accepted this 27th day of June, 1996.
TENANT: Timeline, Inc.
By: /s/ Charles R. Osenbaugh
-----------------------------
Charlie Osenbaugh
Its: Chief Financial Officer
LANDLORD: G & W Investment Partners, a nini kumia formed under the laws of Japan
By: MONY Realty Partners, a Delaware Corporation as its Agent
By: /s/ Mark Novack
-----------------------
Its: V.P.
---------------------
<PAGE> 47
NOTARY
STATE OF WASHINGTON (INDIVIDUAL - ONE SIGNATURE)
SS.
County of King
I certify that I know or have satisfactory evidence that Charles R.
Osenbaugh signed this instrument and acknowledged it to be his/her free and
voluntary act for the purposes mentioned in the instrument.
DATED: June 27, 1997
/s/ Mary E. Hancock
-------------------------
Notary Public in for the State of
Washington, in and residing at
Woodinville
My commission expires 2-15-1999
STATE OF WASHINGTON (INDIVIDUAL - TWO SIGNATURES)
SS.
County of King
I certify that I know or have satisfactory evidence that _________
and _________ signed __________________ this instrument and acknowledged ft to
be their and voluntary act for the purposes mentioned in the instrument.
DATED: 19__.
Notary Public in and for the State of
Washington, residing at
My commission expires
STATE OF COLORADO (REPRESENTATIVE - ONE SIGNATURE)
SS.
County of Denver
I certify that I know or have satisfactory evidence that Mark E. Novack
signed this instrument, on oath stated that he/she was authorized to execute the
instrument, and acknowledged it as the Vice President of MONY Realty Partners to
be the free and voluntary act of such party for the uses and purposes mentioned
in the instrument.
DATED August 30, 1996
/s/ Elizabeth Stone
-----------------------------
Davis Notary Public in and
for the State of Colorado
residing at Denver My
commission expires
10/08/1996
<PAGE> 48
AMENDMENT NO.1
AMENDMENT OF EXHIBIT "D"
In connection with that certain Lease dated September 8, 1995, between G & W
Investment Partners, a nini kumia formed under the laws of Japan, Landlord, and
Timeline, Inc., Tenant concerning the Premises located at 3055 - 112th Avenue
Northeast, Suite 106, Bellevue, Washington, Landlord and Tenant hereby agree as
follows:
The total Monthy Rent (subject to adjustment by CPI increases, if applicable)
for the entire Term is equal to $1,783,952.80 and shall be payable monthly in
accordance with the provisions fo the Lease in installments as set forth below:
<TABLE>
<CAPTION>
Months RSF Monthly Rental Annual Rent
Rate
- ------ --- -------------- -----------
<S> <C> <C> <C>
December 1, 1995 - 14,885 $23,412.00 $18.87/RSF
February 28, 1996
March 1, 1996 - 17,025 $26,889.50 $18.95/RSF
April 3 0, 1996
May 1, 1996 - 17,025 $27,665.63 $19.50/RSF
April 30, 2001
</TABLE>
Dated and Accepted this 27th day of June, 1996.
TENANT: Timeline, Inc.
By: /s/ Charles R. Osenbaugh
------------------------------
Charlie Osenbaugh
Its: Chief Financial Officer
LANDLORD: G & W Investment Partners, a nini kumia formed under the laws of Japan
By: MONY Realty Partners, a Delaware Corporation as its Agent
By: /s/ Mark Novack
----------------------
Its: V.P.
----------------------
<PAGE> 49
NOTARY
STATE OF WASHINGTON (INDIVIDUAL - ONE SIGNATURE)
SS.
County of King
I certify that I know or have satisfactory evidence that Charles R.
Osenbaugh signed this instrument and acknowledged it to be his/her free and
voluntary act for the purposes mentioned in the instrument.
DATED: June 27, 1997
/s/ Mary E. Hancock
------------------------------
Notary Public in for the State of
Washington, in and residing at Woodinville
My commission expires 2-15-1999
STATE OF WASHINGTON (INDIVIDUAL - TWO SIGNATURES)
SS.
County of King
I certify that I know or have satisfactory evidence _________ that _________
and __________________ signed this instrument and acknowledged ft to be their
and voluntary act for the purposes mentioned in the instrument.
DATED: 19__.
Notary Public in and for the State of
Washington, residing at
My commission expires
STATE OF COLORADO (REPRESENTATIVE - ONE SIGNATURE)
SS.
County of Denver
I certify that I know or have satisfactory evidence that Mark E. Novack
signed this instrument, on oath stated that he/she was authorized to execute the
instrument, and acknowledged it as the Vice President of MONY Realty Partners to
be the free and voluntary act of such party for the uses and purposes mentioned
in the instrument.
DATED August 30, 1996
/s/ Elizabeth Stone
-------------------------------
Davis Notary Public in and
for the State of Colorado
residing at Denver
My commission expires 10/08/1996
<PAGE> 1
Exhibit 10.18
PROMISSORY NOTE
$95,603.41 Seattle, Washington
March 31, 1997
FOR VALUE RECEIVED, the undersigned CHARLES R. OSENBAUGH, ('Maker"),
HEREBY PROMISES TO PAY to the order of TIMELINE, INC. ("Payee"), the principal
sum of Ninety-five Thousand Six Hundred Three Dollars and 41/100s ($95,603.41),
all as hereinafter provided and upon the following agreements, terms and
conditions:
1. Payment. Principal on this Promissory Note shall be due and payable
in full one year from the date of this Promissory. This Promissory Note shall
bear interest at Prime plus One Percent per annum, to be paid at the time the
Principal is due. All sums payable hereunder shall be paid in lawful money of
the United States of America which shall be legal tender for public and private
debts at the time of payment. All payments shall be made to Payee at 3055 112th
Avenue N.E., Ste. 106, Bellevue, WA 98004 or at such other place as Payee may
specify in writing from time to time.
2. Notices. Any notices required to be given hereunder shall be
delivered in writing to the parties at their addresses set forth in this
Promissory Note, and shall be deemed duly delivered when sent by facsimile,
receipt confirmed, or by certified first class mail.
3. Attorneys' Fees and Other Costs and Expenses. In the event of or in
connection with any action or proceeding arising out of the obligations under
this Promissory Note, or if this Promissory Note is placed in the hands of an
attorney or other third party for collection, Maker hereby agrees to pay all
costs, expenses and reasonable attorneys' fees incurred by Payee with or without
suit or appeal. Any judgment recovered by Payee hereon shall bear interest at
12% per annum.
4. Waiver of Demand, Etc. Maker hereby waives demand, presentment for
payment, notice of dishonor, protest, notice of protest and notice of
nonpayment.
5. Maximum Interest. Notwithstanding any other provisions of this
Promissory Note, interest, fees, and charges payable by reason of the
indebtedness evidenced hereby shall not exceed the maximum, if any, limited by
any governing law.
6. Governing Law. This Promissory Note shall be governed by and
construed in accordance with the laws of the State of Washington, without regard
to conflicts of laws principles.
EXECUTED as of the date first above written.
By _________________________________
Charles R. Osenbaugh
Address: 303 Prospect
Seattle, WA 98109
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-KSB into the Company's previously filed Form
S-8.
ARTHUR ANDERSEN
May 16, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the audited March
31, 1997 financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 187,428
<SECURITIES> 0
<RECEIVABLES> 1,258,143
<ALLOWANCES> 99,146
<INVENTORY> 0
<CURRENT-ASSETS> 1,663,936
<PP&E> 2,252,737
<DEPRECIATION> 1,515,126
<TOTAL-ASSETS> 3,100,365
<CURRENT-LIABILITIES> 2,450,832
<BONDS> 0
0
0
<COMMON> 32,162
<OTHER-SE> 9,266,159
<TOTAL-LIABILITY-AND-EQUITY> 3,100,365
<SALES> 1,964,096
<TOTAL-REVENUES> 5,503,043
<CGS> 0
<TOTAL-COSTS> 2,281,070
<OTHER-EXPENSES> 6,183,003
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,835
<INCOME-PRETAX> (3,082,475)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,082,475)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,082,475)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> (1.04)
</TABLE>
